Pressure Tech Regulatory News (PRES)

PRELIMINARY RESULTS 2011

Pressure Technologies plc ("Pressure Technologies" or the "Group") is pleased to announce its preliminary results for the full year ended 1 October 2011.

Financials:

• Revenue of £23.1 million (2010: £21.7 million)

• Operating profit at £0.7 million (2010: £3.5 million)

• Pre-tax profit of £0.6 million (2010: £3.5 million)

• Basic earnings per share 3.5p (2010: 22.3p)

• Year end net funds, after acquisition of the Hydratron Group of Companies, £2.9 million (2010: £6.5 million)

• Proposed final dividend of 4.8p per share (2010: 4.8p), giving a total dividend of 7.2p per share (2010: 7.2p)

Key points:

• Sound balance sheet maintained and cash management strong

• Dividend maintained as Group remains confident in future outlook

• Year impacted by low demand for deepwater oil and gas platforms in Cylinder division but recovery underway and demand trough behind us

• Successful acquisition of Hydratron strengthens Engineered Products division and continues diversification strategy

• Forward order books in Cylinder and Engineered Products divisions growing strongly

Richard Shacklady, Chairman of Pressure Technologies, said: "The Group is now well along the path of transforming itself, both organically and through strategic acquisition, into being a better balanced business with long term growth prospects in niche market sectors.

"We are exploring further acquisition opportunities and anticipate the transformation of the Group to stretch across the next 12-18 months with the benefits starting to show in the current financial year.

"Our confidence in the Group's prospects and financial position is reflected in the Board's dividend policy and we remain confident that the Group has the ability to adapt to changes in market conditions and profitably exploit the opportunities which arise."

For further information, please contact:

Company description:

Pressure Technologies is an AIM listed, leading designer and manufacturer of speciality engineering solutions for high pressure systems serving large global markets.

The Group's largest subsidiary, Chesterfield Special Cylinders Limited ("CSC") designs, manufactures and offers retesting and refurbishment services for a range of speciality high pressure, seamless steel gas cylinders for global energy and defence markets. The business is conducted under the "Chesterfield" brand which is a long established name in the cylinders and specialised pressure vessel market.

Chesterfield BioGas Limited was formed in November 2008 following the signing of a co-operation agreement with Greenlane® Biogas Limited, the world leader in biogas upgrading. This gives Pressure Technologies exclusive rights to market and manufacture Greenlane® equipment in the UK and Eire. Chesterfield BioGas provides turnkey solutions for the cleaning, storage and dispensing of biomethane for injection into the gas grid or use as a vehicle fuel.

In 2010, the Engineered Products Division was formed following the purchase of Al-Met Limited ("Al-Met") and the Hydratron group of companies ("Hydratron").

Al-Met is a niche manufacturer of specialised, precision engineered valve wear parts used in the oil and gas industries, which was acquired by Pressure Technologies in February 2010. Its products are used in high-pressure choke and flow control valves, designed to regulate flow volumes in extremely demanding applications in the subsea and surface oil and gas industries. The business, which was established in 1985, has developed a leading edge capability in precision machining carbides, high grade stainless steels and super alloys.

Hydratron acquired on 15 October 2010, designs, manufactures and sells a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs. Hydratron has sales and manufacturing companies in Altrincham, UK, and Houston, USA and a spread of third party distributors in key locations around the world. Formed in 1981, Hydratron has since established itself as a leading supplier of quality high pressure equipment to the oil and gas industries. The full range of Hydratron products may be viewed at www.hydratron.co.uk.

CHAIRMAN'S STATEMENT

It is disappointing to confirm that the Group's results for the full year have, as announced on 21 October 2011, fallen substantially below market expectations. I am pleased, however, to report that the much delayed recovery in equipment ordering for the deepwater offshore oil and gas drilling sector is now underway and there was a notable acceleration of firm orders at Chesterfield Special Cylinders ("CSC") in the second half of the year. Demand for oilfield wellhead components and equipment from our Engineered Products Division also remains buoyant and this is underpinned by heavy investment in the US oil and gas sector. The delayed announcement of the Renewable Heat Incentive had a knock-on effect on orders at our Alternative Energy business, Chesterfield BioGas ("CBG"). CBG has a number of major quotations at an advanced stage, which we believe will be converted to firm contracts during this financial year for delivery over 2012 and 2013.

Results

Revenue for the year ended 1 October 2011 increased to £23.1 million from £21.7 million in 2010. Operating profit, however, reduced from £3.5 million in the previous year to £0.65 million. The Group continued to invest in new products and processes throughout the year, incurring £2.2 million of capital expenditure to support the long term development of the business.

Profit before taxation was £0.6 million (2010: £3.5 million), giving basic earnings per share of 3.5p (2010: 22.3p). Our strong balance sheet has been maintained by a continued focus on working capital controls across all the Group's businesses. Net cash at 1 October 2011 was £2.9 million (2010: £6.5 million) reflecting investments of £5.0 million (net) during the year in acquiring Hydratron and the capital expenditure mentioned above. The Group remains in a sound position to fund organic development and business growth programmes from internal cash flow.

Given our strong balance sheet and confidence in the medium term prospects for the Group, borne out by the strong inflow of orders experienced in recent months, the Board is proposing a final dividend of 4.8 pence per share, giving a total of 7.2 pence per share for the financial year, which is unchanged from the previous year. If approved, this will be paid on 9 March 2012 to shareholders on the register at the close of business on 17 February 2012. The ex-dividend date will be 15 February 2012.

Strategy and Markets

Our Business Growth Strategy remains the same, namely to penetrate select growth sectors with clear synergies to our core businesses, either organically or by acquisition, and provide niche, technology driven, high margin products for critical applications.

We believe that the best prospects for the Group lie in the global energy markets. Over the medium and long term, the global demand for energy is forecast to grow to the point that triggers shortages in hydrocarbon fuels. We have significant interests in two sectors of this market, deepwater oil and gas drilling equipment and oilfield wellhead equipment and we continue to actively review further strategic acquisitions.

We remain committed to the naval defence market, particularly submarine, in which we have a strong international presence across Europe, the Far East, Asia, North and South America. We have long-established, market leading products and technology in this sensitive, high integrity market and continue to benefit from both original equipment sales and aftermarket spares and support.

Our capability in the industrial gases storage and transportation market has been further strengthened and enhanced as we have demonstrated our ability to design and build fully finished trailers, storage and dispensing facilities. CNG and Hydrogen are increasingly recognised as alternatives to traditional fuels and we believe our involvement in these sectors has considerable potential.

The potential for CNG derived from biogas, either as a vehicle fuel or as a supplementary source of natural gas (known as BtG - biomethane to grid), affords the Group the prospect of participation in a major alternative energy market. In the UK, natural gas is a major energy import, often sourced from politically unstable parts of the world. During the year, we have strengthened our position in this market by extending our licence from Greenlane® to market and manufacture biogas upgrade process plants. Greenlane® is recognised as the international market leader in biogas upgrade technology with equipment installed and operating worldwide.

The Board continues to believe that investment in new products and processes at the high end of technology is fundamental to the future growth of the business. To this end, we continue to prioritise and fund R&D programmes that will, we believe, provide opportunities for growth using our unique engineering capabilities.

People

The Group Board continues to play a full role in the development of the Group. The brief of the Audit Committee has been extended and it has been renamed the Audit and Risk Committee, recognising the importance of the additional duties placed on the Group by legislation such as the Bribery Act. I feel it is worth noting that the never ending flow of regulation by Government is increasing the burden of corporate governance, particularly on smaller business and, at times, can be a significant distraction to the primary task of running the business.

The Group recognises the importance of the skills and knowledge base of its employees, many in specialised disciplines. We have continued to invest in our employees, recruiting apprentices and investing in structured training programmes, up to and including post graduate training, to ensure that these skills and knowledge are maintained and transferred to the next generation.

Once again it is appropriate to acknowledge the dedication of our operational Directors and the skill, commitment and flexibility of all our employees, perhaps best exemplified by the high level of attendance at work throughout the periods of most severe weather last winter.

Prospects

The Group enters the new financial year with order books across its Cylinder and Engineered Products businesses filling. Overall, our order book has increased by 50% in the past six months and now stretches well into 2012. We have not seen this level of activity in these markets since 2008/09. Activity in the global oil and gas industry has returned and shows no sign of waning and we expect this momentum to stretch into 2013 for long lead time products, notably our ultra-large cylinders for the deep water drilling market.

Further growth is anticipated in our Engineered Products Division, particularly in the North American market where we have secured a significant foothold. These businesses have been strengthened through the reorganisation we implemented in 2011 and we are now better positioned to exploit the opportunities available to us.

The coming year will be a critical for the Group's alternative energy business, Chesterfield BioGas; a number of major quotations are expected to be converted into firm contracts for delivery towards the latter end of 2012 and into 2013.

The Group is now well along the path of transforming itself, both organically and through strategic acquisition, into being a better balanced business with long term growth prospects in niche market sectors. We are exploring further acquisition opportunities and anticipate the transformation of the Group to stretch across the next 12-18 months with the benefits starting to show in the current financial year.

I would like to thank all the Group's shareholders for their continued support throughout the difficult and testing period from which, I believe, we are now emerging.

Our confidence in the Group's prospects and financial position is reflected in the Board's dividend policy and we remain confident that the Group has the ability to adapt to changes in market conditions and profitably exploit the opportunities which arise.

Richard Shacklady

Chairman

6 December 2011

CHIEF EXECUTIVE'S STATEMENT

The year for the Group was one of contrasts; the correct trends in markets were identified in our Cylinder and Alternative Energy divisions but the timing of growth in these markets was much later than we led to be expected. By contrast, the acquisitions we made in our Engineered Products division performed well against our original expectations.

The financial results, in terms of sales and profits, were deeply disappointing as a lack of market visibility for large contracts and over optimism led to poor forecasting and a succession of profit downgrades. On a positive note, the balance sheet remains robust with solid cash reserves to support the dividend and our future plans.

The key points for the year are:

Cylinders

Chesterfield Special Cylinders ("CSC") continued to be affected by the downturn in its principal market in deepwater oil and gas, where we supply air pressure vessels ("APVs") for rigs and drillships. As anticipated, this market has started to recover as global requirements for new sources of hydrocarbons increases. Market confidence, which was destroyed by the BP Macondo incident in the Gulf of Mexico, has returned and we have seen a recent upturn in both forecasted projects and orders received. This improvement came too late to have a positive impact on 2011 but, for 2012, we already have orders for APVs for six drillships, compared to three supplied in the whole of 2011 financial year. The major driver is, as expected, the Brazilian market. Market dynamics have changed and pricing has increasingly become a critical issue for customers. This has had an impact on margins in this sector. Having gathered valuable customer feedback, the Board is of the opinion that CSC has maintained its technical lead in engineering capability, particularly in system design and product cleaning and CSC has seen a return of some of the work previously lost to low cost competitors for the more difficult to manufacture APVs.

The naval defence market experienced strong sales in 2011 but these will be lower in 2012 due to phasing of projects. Major projects are already in the order book for the 2013 financial year and there is a strong pipeline of potential projects. CSC has continued to make headway developing new markets and a major contract to supply cylinders for submarines for Brazil was awarded to CSC by DCN for supply in 2012 and 2013. A five year contract to manage the Royal Navy's strategic reserve of cylinders has also been awarded to CSC.

There was no upturn in the external market for new high pressure trailers but a compressed natural gas ("CNG") trailer was built for Chesterfield BioGas and a hydrogen trailer to support the trailer refurbishment business. We now have a full range of designs for trailers and a fully developed supply chain for manufacture. Trailer refurbishment continued to progress and was boosted by our ability to inspect cylinders in-situ (see below). We expect further progress in this market in 2012. Beyond 2012, the development of alternative fuels will lead to an increasing market for the bulk storage and transportation of CNG and Hydrogen. In 2011, CSC provided the bulk storage for two CNG filling station projects for Chesterfield BioGas.

The small cylinder market remains affected by cuts in military aerospace spending but work continues on the long-term project to develop the next generation of type IV composites for the aerospace and SCBA markets.

CSC was successful in developing a British Standard for the in-situ testing of ultra-large cylinders. This led to work in the UK, Singapore and Kazakhstan in 2011 and further projects both home and overseas are already in the order book for 2012. This is an exciting development and has also led to additional new cylinder contracts including a large helium installation for 2012 worth over £1 million.

As announced last year, a lean manufacturing programme was started in 2011 and manufacturing headcount was reduced by 16% to 38 operatives from 45 as part of a productivity improvement programme. No significant increase in headcount is planned as the business grows but we have employed a further three apprentices at the start of 2012 as part of our business continuity plan. To support productivity and quality improvements, CSC spent £0.5 million on capital projects in 2011. The start of the 2012 financial year saw the commencement of an activity based review of staff functions and an immediate headcount reduction from 27 to 25 was made. The business has a high fixed cost base as we carry a large engineering and technical overhead, which is an order winner. We, therefore, do not expect significant further cuts in staff numbers but neither do we foresee large increases as the order book recovers. Projects are underway to improve gross margins and cut administration costs during 2012. Capital investment will be centred around our forging process to reduce our reliance on subcontract cylinder forging.

There is a buzz around CSC's markets which has not been evident for some time. We have strengthened our sales presence in Germany where we have traditionally been weak by employing the sales manager from one of our European competitors. Subject to current economic issues in Europe not getting out of control, we are confident that the second half of 2012 will deliver an improvement in the Cylinder business which will continue into 2013. This confidence is supported by the order book which, at the end of 2011, was over £12 million, compared to under £10 million one year earlier and there continues to be a strong pipeline of open quotations and tenders.

Engineered Products Division

The division was formed by purchase of Al-Met in February 2010 and Hydratron in October 2011 and the two businesses have performed well.

Al-Met's products are used in high-pressure choke and flow control valves, designed to regulate flow volumes in extremely demanding applications in the subsea and surface oil and gas industries. Its ability to combine high alloy steels with tungsten carbide inserts and specialised coatings gives Al-Met its niche position with its customers, global wellhead and subsea equipment OEMs. Al-Met had record sales and profits in 2011 as a result of an upturn in its core markets. Investment of £0.3 million was made to extend the size range and complexity of products.

Hydratron designs, manufactures and sells a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs. The business was established in 1981 and is a leading supplier of quality high pressure equipment to the oil and gas industries worldwide. The business operates out of a modern manufacturing unit in Altrincham in the UK and a similarly modern but smaller facility in Houston, Texas. The UK part of Hydratron moved into its current facilities immediately after the acquisition and the first half year was impacted by the effects of this planned move. Second half performance was excellent and order books and prospects are also excellent.

Both businesses are in markets where on time, in full delivery is poor. Investment has been made in production systems at both Al-Met and Hydratron with the aim of reaching automotive industry standards on deliveries to take market share from competitors. These are markets where significant growth is forecast. For Hydratron, this growth is already apparent. Industry forecasts for Al-Met predict sales at current levels for 2012 but significant growth in 2013 and 2014. The commercial functions in both businesses have been increased to ensure that we are maximising sales opportunities and we look for significant progress in the division over the short to medium term.

Alternative Energy

This was a frustrating year for Chesterfield BioGas ("CBG"), our start-up alternative energy equipment business. As with CSC, delay in market growth was the over-riding issue. The principal target market for CBG is the supply of upgrading equipment to clean biogas produced from organic waste to produce biomethane suitable for injection into the natural gas grid (Biomethane to Grid, "BtG") or use as a vehicle fuel. Of these uses, BtG is the key growth market for the business but government delays in announcing the Renewable Heat Incentive ("RHI") held the market back. The RHI is necessary to enable BtG to compete with subsidised Combined Heat and Power ("CHP") plants; the RHI was announced six months late, in March 2011 and has been the trigger for large utility companies to set up dedicated teams focused on BtG. As a result of this, CBG has seen a significant increase in the number of enquiries and tenders in the second half of 2011.

Conversion of enquiries and tenders into firm orders is slow as each project has a number of regulatory and planning hurdles to cross before contracts can be signed. CBG is well placed to win these projects, as we supplied the first successful upgrader on an award winning BtG project at Didcot in September 2010. Unlike our competition, we are UK based and we are able to draw on the technical and developmental resources of Greenlane® Biogas, from whom we have a perpetual licence for the UK to sell and manufacture their world leading biogas upgrade technology. Timing of contracts is critical with an order to delivery period of eight to nine months for an upgrader; the period to 31 December 2011 will define sales in our 2012 financial year. As a result of this, the Board felt it prudent to halve our forecasts for upgrader sales for 2012 from four units to two units. Whilst the downside risk on the timing of these two projects remains, we are confident in the medium and long term growth potential of this market.

The 2011 sales for CBG were all for vehicle refuelling with a trailer and a temporary filling station for Greenwich Council and two CNG filling stations taking methane from the gas mains for a major logistics company. Further progress is expected in this market in 2012 as the cost savings, substituting CNG for diesel, are reported to be high.

Acquisitions

The purchase of Al-Met and Hydratron has proved our capability in buying and integrating businesses into the Group. The strategy is straight forward, to acquire niche suppliers in pressure related technologies with manufacturing capabilities that overlap with the Group's core skills in forging, machining and assembly and complement our expertise in designing and testing pressure systems.

The immediate priority is to strengthen the Engineered Products division. This will be centred on Hydratron and we are actively looking for businesses that extend Hydratron's geographical presence or give vertical integration within the supply chain. The expansion of this division will further reduce the effects of the volatility of the Cylinder division on Group results.

Summary and outlook

2011 was another tough year for the Group with the strong performance of the acquisitions in our Engineering Products Division lessening the effects of slow market growth in CSC and CBG. We expect to see good growth in Engineered Products in 2012 and the return to growth in Cylinders accelerating into 2013. Major growth in our alternative energy business, CBG, will be delayed to 2013. The Group's strong balance sheet and cash provide a sound platform from which to move forward

John Hayward

Chief Executive

6 December 2011

Consolidated statement of comprehensive income

For the period ended 1 October 2011

All the above results are from continuing operations.

Consolidated balance sheet

As at 1 October 2011

Consolidated statement of changes in equity

For the period ended 1 October 2011

Consolidated statement of cash flows

For the period ended 1 October 2011

Notes

1. Accounting policies

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and IFRIC interpretations issued by the International Accounting Standards Board and the Companies Act 2006.

The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ending 1 October 2011. The consolidated financial statements have been prepared on a going concern basis.

The financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are carried at fair value.

2. Segmental analysis

The financial information by segment detailed below is frequently reviewed by the Chief Executive.

For the period ended 1 October 2011

*Acquisition costs include the amortisation of intangible assets acquired through an acquisition and fees associated with acquiring the entity.

**Unallocated amounts include central costs, central assets and unallocated consolidation adjustments.

Period ended 2 October 2010

*Acquisition costs include the amortisation of intangible assets acquired through an acquisition and fees associated with acquiring the entity.

**Unallocated amounts include central costs, central assets and unallocated consolidation adjustments.

The following table provides an analysis of the Group's revenue by geographical destination.

The Group's largest customer contributed 13% to the Group's revenue (2010: 47%) which is reported within the Cylinders segment. The second largest customer contributed 12% to the Group's revenue which is reported within the Engineered Products segment. No other customer contributed more than 10% (2010: the second largest customer contributed 10% to the Group's revenue which is reported within the Cylinders segment).

The following table provides an analysis of the carrying amount of segment assets, additions to property, plant and equipment and intangible assets for 2011. 

The 2010 comparative has not been analysed separately by location as they were all located in the United Kingdom.

3. Taxation

Corporation tax is calculated at 27% (2010: 28%) of the estimated assessable profit for the period.

The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:

4. Earnings per ordinary share

Basic and diluted earnings per share have been calculated in accordance with IAS 33, which requires that earnings should be based on the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period.

The calculation of the 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 period.

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

5. Dividends

The following dividend payments have been made on the ordinary 5p Shares in issue:

At 1 October 2011, the 2010/11 final dividend had not been approved by Shareholders and consequently this has not been included as a liability. The proposed dividend of 4.8p per share is expected to be paid on 9 March 2012 at a total cost of £545,000.

6. Cash flows from operating activities

7. Acquisition of Hydratron

On 15 October 2010, the Group acquired 100% of the issued share capital of the Hydratron Group of Companies for an initial cash consideration of £2.5 million to be followed by two deferred payments of £400,000 each payable on 15 October 2011 and 8 August 2012. Hydratron designs, manufactures and sells a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs. The transaction has been accounted for by the acquisition method of accounting.

Acquisition fees of £94,000 were incurred in the year. These have been recognised in the consolidated statement of comprehensive income. 

The £574,000 borrowings in the acquired balance sheet relate to invoice discounting liabilities which were settled by the Group after acquisition and are included within the consolidated statement of cash flow under repayment of borrowings.

The intangible assets acquired with the business comprise £676,000 for non-contractual customer relationships and £90,000 for the order book.

The goodwill arising on the acquisition of Hydratron is mainly attributable to the skills and talent of the workforce and the anticipated value of new business that the operation is capable of securing.

The fair value of receivables shown above represents the gross contractual amounts receivable. These have now been collected in full.

Hydratron Group contributed £6,531,000 to Group revenue and a profit before amortisation and tax of £457,000 for the period between the date of acquisition and the balance sheet date. The acquisition was completed on 15 October 2010 which is marginally later than the Group's previous year end of 2 October 2010. The effect of the inclusion of the acquisition had it been completed on the first day of the financial year is considered to be immaterial upon the Group's revenue and profit before tax.

8. Notice of Annual General Meeting

The Annual General Meeting of the Company will be held at Pressure Technologies plc, Meadowhall Road, Sheffield S9 1BT on Tuesday, 7 February 2012 at 10.30 am.

9. Preliminary statement

The financial information set out in the preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006. The financial information for the period ended 1 October 2011 has been extracted from the Group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006.

The statutory accounts for the period ended 1 October 2011 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website www.pressuretechnologies.co.uk and delivered to the Registrar of Companies. The statutory accounts for the period ended 2 October 2010 have been delivered to the Registrar of Companies.