Pressure Tech Regulatory News (PRES)

Embargoed for release at 07.00 hours 10 June 2014

Pressure Technologies plc

("Pressure Technologies" or the "Group")

2014 Interim Results

Pressure Technologies (AIM: PRES), the specialist high pressure engineering group, announces its interim results for the 26 weeks to 29 March 2014, which show strong growth in revenue and underlying operating profit* and a very positive outlook for the full year.

Financial highlights:

· Strong growth:

- Revenue of £19.9 million (2013: £16.4 million) - up 21%

- Underlying operating profit* at £2.17 million (2013: £1.42 million) - up 53%

· Underlying earnings per share* of 12.7p (2013: 9.2p) - up 38%

· Interim dividend increased to 2.8p per share (2013: 2.6p) - up 8%

· Net cash of £10.5 million, supported by strong trading and an oversubscribed fundraising

* Before acquisition costs and related amortisation

M&A activity:

· Investment in US based Kelley GTM Manufacturing ("Kelley GTM"), giving access to new technologies and markets

· Successful £16.7 million fundraising, including the acquisition of Roota Engineering ("Roota") which provides new products and market and sourcing synergies, in March 2014

Outlook:

· Order book growth of 59%, providing a very positive outlook for the second half

· Revenue and underlying operating profit* for the full year expected to exceed market forecasts

Alan Wilson, Chairman of Pressure Technologies, said:

"The Group has had a busy and exciting six months. We have delivered strong trading performances in all three divisions, whilst completing two acquisitions and a very successful fundraising. The prospects for further growth are very encouraging and tangible."

For further information, please contact:

Company description - www.pressuretechnologies.com

With its head office in Sheffield and its origins going back to 1897, Pressure Technologies is a growing, profitable, debt-free, dividend paying, AIM listed, leading designer and manufacturer of speciality engineering solutions for high pressure systems serving large global markets. The company is building a highly profitable group of companies, specialising in technology for the containment and control of liquids and gases in pressure systems through a combination of organic initiatives and acquisitions.

Pressure Technologies has three divisions, Cylinders, Engineered Products and Alternative Energy,serving four markets: oil and gas, defence, industrial gases and alternative energy.

Cylinders

· Chesterfield Special Cylinders, Sheffield, cornerstone at IPO in 2007 www.chesterfieldcylinders.com

· Kelley GTM Manufacturing, Amarillo - 40% stake acquired by the Group in December 2013 with an option to acquire a further 40% in 2015 www.kellygtm.com

Engineered Products

· Al-Met, Mid Glamorgan, acquired in 2010 www.almet.co.uk

· Hydratron, Manchester and Houston, acquired in 2010 www.hydratron.co.uk

· Roota Engineering Limited, Rotherham, acquired in March 2014 www.roota.co.uk

Alternative Energy

· Chesterfield BioGas Limited, Sheffield, founded in 2008 www.chesterfieldbiogas.co.uk 

Chairman's Statement

I am pleased to report that all three of the Group's divisions showed strong progress and trading performances in the six months to 29 March 2014. This trend has continued into the second-half of the financial year and the Board now expects Group revenue and underlying operating profit* for the year to 27 September 2014 to exceed current market forecasts.

The Board's focused acquisition strategy has started to bear fruit with the addition to the Group of Roota Engineering ("Roota") in the UK and an investment in Kelley GTM Manufacturing ("Kelley GTM") in the US during the period. Roota brings both new products and potential market and sourcing synergies and Kelley GTM gives access to new technologies and markets, which can be leveraged by other Group companies.

The Group received strong support from a number of blue chip institutional investors in the recent £16.7 million fundraising, which was well over-subscribed. This support reaffirms the attractiveness of the Group to investors and provides the Board with a solid foundation for further corporate growth activity.

Results

Revenue for the 26 weeks to 29 March 2014 was £19.9 million (2013: £16.4 million), which returned an operating profit before acquisition costs and related amortisation of £2.2 million (2013: £1.4 million) and a corresponding return on sales of 10.9% (2013: 8.7%).

As a result of good trading, underpinned by the recent fundraising, the Group's balance sheet is very strong with £10.5 million in net cash. An increased interim dividend of 2.8p per share (2013: 2.6p) will be paid on 8 August 2014 to shareholders who are registered at the close of business on 11 July 2014.

Cylinders

Chesterfield Special Cylinders ("CSC") continued to be the Group's largest contributor with substantial increases in sales (23%) and operating profit (23%) during the period, as well as generating impressive 24% growth in its closing order book. Increased orders for air pressure vessels for motion compensation systems on deepwater oil and gas platforms at CSC offset price reductions in this market, while growth in defence sales, particularly in the European submarine market, increased both sales and profit. As a result, the division's trading result for the full year will be better than expected with profit heavily weighted to the first half due to the phasing of defence sales.

We continue to invest in our forging capability at CSC to increase efficiency and improve product quality and the first stage of this will be completed by the end of the financial year. Our venture into in-situ cylinder retesting for the oil and gas and defence markets, which offers a unique global recertifying service that minimises interruption to business, continues to show progress and we are planning an increased sales effort in this market in the second-half.

In December 2013, we acquired a 40% stake in Kelley GTM in Amarillo, Texas. This is an exciting prospect that will broaden our operations and give us access to new technologies and markets. Kelley GTM manufactures composite cylinders which are then built into containerised packages called gas transport modules. These are used for the transportation and storage of gases in a wide range of market applications. Early focus has been on the onshore drilling market in the USA, where there are opportunities for gas supply as an alternative to diesel fuel and also for flare gas capture, driven by increasingly severe environmental legislation. Kelley GTM reported a small loss during the period, which was anticipated, but growth in orders has been encouraging in this highly immature market which has substantial growth potential. Kelley GTM is treated as an associate company in the interim statement. We expect the full year contribution to be ahead of break-even and Kelley GTM to deliver significant growth in 2015. The Group has the option to acquire a further 40% stake in 2015.

Engineered Products

Engineered Products was the most improved performer during the half-year with sales up 33%, leading to a very strong increase in profits. Order intake was also highly encouraging with the order book up 84% at the half-year close.

Hydratron continued its strong trading performance, reported at the previous year-end, into the first half by posting substantially increased sales, profits and order intake. The management has revised its make or buy strategy and is now outsourcing some component manufacture in order to increase capacity and enable more focus on added value activities in pump and system assembly. The integration of Hydratron Inc in Texas under Hydratron's UK management is now complete.

Sales and profits at Al-Met increased as a result of demand from the four leading subsea tree OEMs, all of which enjoyed unprecedented order intake last year. The Group is investing further in Al-Met with the acquisition of new CNC machines to improve efficiencies and broaden the product range offered.

The Board was very pleased with the support it received from investors in raising £16.7 million to fund the acquisition of Roota in March 2014. Roota is a precision machining business serving the offshore oil and gas industry. It has several market and technology synergies with Al-Met and we are looking forward to the considerable contribution this immediately earnings enhancing acquisition will bring. Acquiring Roota balances the Group's overall business portfolio further by reducing the emphasis on Cylinders as the leading sales and profits contributor to Group results.

Order books across all three businesses and the ongoing level of sales enquiries support current market expectations for this division.

Alternative Energy

Chesterfield BioGas recorded order book growth for biogas upgrading equipment of £11.0 million since last July, following the UK Government's clarification of allowable oxygen levels in biomethane for injection into the UK gas grid. It is pleasing to report that orders on hand are for four projects with four new customers. Completion of these projects is scheduled over the second-half of 2014 and the first-quarter of 2015 financial years.

Whilst the business reported a small loss during the period under review, due to the timing of revenue recognition, progress on existing contracts is proceeding to plan and the division is on track to meet market forecasts for the full year.

Enquiry levels remain high and we are confident of winning follow-on projects with our current customer base after successful completion of the first wave of projects.

Outlook

Overall market conditions for our three divisions, particularly in the oil and gas market, are expected to remain positive for the foreseeable future. The price of Brent crude oil has been relatively stable during the period and the IMF predicts that the world economy will grow by 3.7% during 2014: both are positive market dynamics that encourage investment in new drilling rigs, subsea equipment and services. There has been some softening of drilling rig rates in recent months, primarily due to a supply-demand imbalance with several new rigs being commissioned, coupled with a reduction in spending by some major oil companies. Most market commentators see this as a temporary pause with some forecasting an improvement later this year. The sustained level of enquiries and positive feedback from our major customers lends credence to this view and the Board remains confident in the Group's long-term prospects in this market.

The Board places emphasis on maximising value from Group companies, by improving operating efficiency, developing our skills base, evaluating new, value enhancing technologies and developing customer and market opportunities. We continue to pursue acquisitions which offer market, customer and technology synergies and benefits, so that we can deliver growth and greater balance in the Group's business portfolio, through market diversity, and, ultimately, increasing value for our shareholders.

The Group has entered the second-half of the financial year in a strong trading position with its order book 59% ahead of the position at the 28 September 2013 financial year end. This, combined with the general outlook in our key markets, leads the Board to expect revenue and underlying operating profit* for the full year ending 27 September 2014 to exceed current market forecasts and the directors view the future prospects of the business with confidence.

* before acquisition costs and related amortisation

Alan Wilson

Chairman

10 June 2014

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

for the 26 weeks ended 29 March 2014

for the 26 weeks ended 30 March 2013

Condensed Consolidated Statement of Changes in Equity (continued)

for the 52 weeks ended 28 September 2013

Condensed Consolidated Cash Flow Statement

Notes to the Condensed Consolidated Interim Financial Statements

1. Basis of preparation

The Group's interim results for the 26 weeks ended 29 March 2014 are prepared in accordance with the Group's accounting policies which are based on the recognition and measurement principles of International Financial Reporting Standards ("IFRS") as adopted by the EU and effective, or expected to be adopted and effective, at 27 September 2014. The principal accounting policies of the Group have remained unchanged from those set out in the Group's 2013 annual report and financial statements, with the exception of the Group's accounting policy in relation to construction contracts. The Group will be applying IAS 11, 'Construction contracts' in relation to contracts within Chesterfield BioGas Limited. Full details of this change to accounting policy will be set out in the Group's 2014 financial statements. This change in policy has had no impact on the information presented in these interim results, as a result of the early stage of completion of the current contracts. The Group's 2013 financial statements received an unqualified audit report, did not contain statements under Sections 498(2) or (3) of the Companies Act 2006 and have been filed with the Registrar of Companies. As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS34 "Interim financial reporting".

The financial information for the 26 weeks ended 29 March 2014 and 30 March 2013 has not been audited and does not constitute full financial statements within the meaning of Section 434 of the Companies Act 2006. The unaudited interim financial statements were approved by the Board of Directors on 10 June 2014.

The consolidated financial statements are prepared under the historical cost convention as modified to include the revaluation of financial instruments. The statutory accounts for the 52 weeks ended 28 September 2013, which were prepared under IFRS, have been filed with the Registrar of Companies.

2. Segmental analysis

Revenue by destination

Revenue by sector

Revenue by activity

Profit/(loss) before taxation by activity

The profit before taxation by activity is stated before the allocation of Group management charges.

Earnings before interest, taxation, depreciation, and amortisation (EBITDA)

Amortisation on acquired businesses as set out above consists of the amortisation charged on intangible assets acquired as a result of business combinations. Amortisation of other acquired assets consists of all other amortisation charged in the Condensed Consolidated Statement of Comprehensive Income.

3. Acquisition costs and related amortisation

Acquisition costs and amortisation in relation to intangible assets acquired on business combinations is shown separately in the Condensed Consolidated Statement of Comprehensive Income.

A breakdown of those costs can be seen below.

4. Investment in associate

On 1 January 2014, the Group acquired 40% of the issued share capital of GTM Manufacturing, LLC, for a consideration of $500,000 (£306,000). Following the investment, the company now trades as Kelley GTM ("KGTM"). KGTM is a manufacturer of gas transportation modules and is based in Amarillo, Texas.

As part of the initial investment, the Group acquired a call option to purchase a further 40% of the issued share capital of KGTM, at the discretion of the Group. The option can be exercised for a period of 90 days after publication of KGTM's audited accounts for the financial year ending 31 December 2014. The price at which the option can be exercised depends on the level of EBITDA achieved by KGTM in calendar years 2014 and 2015, with a minimum of $5,000,000 and a maximum of $16,000,000 payable by the Group. Of the consideration payable, $500,000 is payable for the additional 40% stake, with the remainder of the consideration to be satisfied by further loans to KGTM.

The investment in KGTM is accounted for under the equity method.

The movement in the value of the investment in the period is as follows:

In addition to the investment held, loans due from KGTM with a value of £2,108,000 are held as trade and other receivables under non-current assets in the consolidated balance sheet.

5. Taxation

The tax charge differs from the theoretical amount that would arise using the weighted average tax rate applicable to the profits of the consolidated entities. The effective tax rate as set out above is 38% in comparison to the weighted average tax rate applicable of 23%. These differences principally relate to acquisition costs incurred in the year, which are disallowable for tax purposes, and unrelieved losses on the share of the results of KTGM.

6. Earnings per ordinary share

The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

The calculation of diluted earnings per share for other periods is based on basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.

Adjusted earnings per share shows earnings per share, adjusting for the impact of acquisition costs and the amortisation charged on intangible assets acquired as a result of business combinations, and for the estimated tax impact, if any, of those costs. Adjusted earnings per share is based on the profits as adjusted divided by the weighted average number of shares in issue.

7. Business combinations

On 5 March 2014, the Group acquired 100% of the issued share capital of Roota Engineering Limited ("Roota") for an initial £10,673,000, plus contingent consideration with an undiscounted value of £4,500,000, as reflected in the consolidated statement of cash flows. Subsequent to the half year end, the initial consideration has been adjusted to £10,478,000 to reflect the finalisation of the completion accounts. The difference between these amounts of £195,000 is held as a receivable within current assets in Pressure Technologies plc.

In calculating goodwill below, the contingent consideration is held at fair value of £4,364,000. This has been estimated using the income approach. The fair value estimate is based on a discount rate of 2% and assumes all profit targets will be met.

Roota specialises in the manufacture of bespoke engineered products for the oil and gas industry, such as components for high added value ball valves, mandrels, connectors and well-head cleaning tools and is based in Rotherham. The transaction has been accounted for by the acquisition method of accounting.

The table below summarises the consideration paid for Roota Engineering Limited and the provisional fair value of the assets and liabilities acquired.

The intangible assets acquired with the business comprise £6,503,000 in relation to non-contractual customer relationships.

8. Dividends

The final dividend for the 52 weeks ended 29 September 2012 of 5.0p per share was paid on 8 March 2013.

The interim dividend for the 52 weeks ended 28 September 2013 of 2.6p per share was paid on 8 August 2013.

The final dividend for the 52 weeks ended 28 September 2013 of 5.2p per share was paid on 7 March 2014.

An interim dividend for the 52 weeks period ending on 27 September 2014 of 2.8p per share will be paid on 8 August 2014 to shareholders on the share register at the close of business on 11 July 2014.

A copy of the Interim Report will be sent to shareholders shortly and will be available on the Company's website: www.pressuretechnologies.com.