Pressure Tech Regulatory News (PRES)

3 December 2013

PRELIMINARY RESULTS 2013

Pressure Technologies plc ("Pressure Technologies" or the "Group") announces its preliminary results for the year ended 28 September 2013.

Highlights:

· Record revenue of £34.4 million (2012: £30.4 million) - up 13%

· Operating profit of £2.9 million (2012: £1.8 million) - up 63%

· Basic earnings per share increased to 19.4p (2012: 11.2p) - up 73%

· Progressive dividend policy continues: final dividend of 5.2p per share giving total dividend for the year of 7.8p per share (2012: 7.5p)

· Strong balance sheet maintained - net funds of £4.0m (2012: £2.7 million)

· Large incremental profits were generated in the Cylinders and Engineered Products divisions

· Breakthrough for Alternative Energy Division with large orders secured for delivery in 2014

· Strong order book and pipeline across all divisions of the Group

· Commitment to organic and acquisitive diversification strategy - targets being evaluated

· Board confident of further progress in the current year

Alan Wilson, Chairman of Pressure Technologies, said:

"We have begun the current financial year with an order book 37% higher than last year, so the prospects for a further improvement in performance are very promising. We also continue to develop new products and services across the Group and are planning major capital expenditure over the next two years to expand capacity, improve productivity and quality and increase profitability. In parallel with growing our core businesses, the Board continues to evaluate earnings enhancing acquisitions which complement and add value to our existing portfolio.

I view the year ahead with much enthusiasm and look forward to presenting further evidence of the Group's ability to capitalise on the opportunities which lie ahead."

-Ends-

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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 is organised into three divisions: Cylinders, Engineered Products and Alternative Energy.

Cylinders

Chesterfield Special Cylinders is a global market leader in the design and manufacture of speciality high pressure, seamless steel gas cylinders for the offshore oil and gas, defence, industrial gases and alternative energy markets and retesting and refurbishment services.

The company has unparalleled industry knowledge, gathered over the last 100 years' trading. As a trusted supplier with unrivalled expertise, Chesterfield Special Cylinders plays an integral role in the project design and engineering process, working closely with its customers on design solutions for high pressure systems.

The core activity of Chesterfield Special Cylinders is the design and manufacture of Air Pressure Vessel systems for oil rig motion compensation systems and deepwater offshore platforms. This is closely followed in importance by activity in the naval market. Chesterfield Special Cylinders provides cylinders for a wide range of applications in submarines and surface ships to a significant proportion of the world's navies.

The company's product and process knowledge has led, in recent years, to an expansion from manufacturing into value added services, making full use of expertise in the business. Chesterfield Special Cylinders has developed a number of service offerings for the inspection and revalidation of cylinders including a novel "in-situ" testing service, which is driven by a new BSI standard for the inspection of hard to reach/impossible to move gas tubes. Chesterfield Special Cylinders is the only company capable of delivering this strict new testing regime worldwide.

More information is available on the company's website www.chesterfieldcylinders.co.uk.

Engineered Products

This division comprises 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, acquired by Pressure Technologies plc in 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, established in 1985, has developed a market leading capability in precision machining carbides, high grade stainless steels and super alloys. More information is available on the company's website www.almet.co.uk.

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, which was also acquired in 2010, operates out of two locations situated in the UK and USA. Hydratron also has an extensive network of distributors in key locations around the world. Formed in 1981, Hydratron has 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.

Alternative Energy 

Chesterfield BioGas Limited was founded in November 2008, following the signing of a co-operation agreement with Greenlane® Biogas Limited, the world leader in biogas upgrading, which 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, Chesterfield BioGas installed the UK's first biogas upgrader supplying biomethane to the national grid at a Thames Water site in Didcot. A second upgrader was delivered in October 2012.

For more information visit the company's website www.chesterfieldbiogas.co.uk.

CHAIRMAN'S STATEMENT

In this my first year as Chairman of the Group, I am delighted to report a very strong set of results for 2013 and excellent prospects for 2014. Pressure Technologies is a great business, operating in some of the world's most dynamic markets with demanding customers who value our ability to design and manufacture engineering solutions that meet their exacting standards.

There have been major changes to the Board during the year. Neil MacDonald and I joined as non-executive directors and the Group's former Chairman, Richard Shacklady retired in March. I would like to extend the Board's thanks to Richard for his outstanding contribution to the company since 2004, in particular his vision to float the company on AIM, which enabled us to fund the expansion and diversification of the Group.

Results

Group sales for the full-year reached a record £34.4m (2012: £30.4m), which yielded a pre-tax profit of £2.9m (2012: £1.8m), giving a return on sales of 8.4% (2012: 5.8%). It is particularly pleasing to note that large incremental profits were generated in Cylinders and Engineered Products divisions as we benefited from the effects of operational gearing.

The Group's balance sheet continues to strengthen on the improved trading results, with a year-end net asset value of £17.5m (2012: £16.1m), £4.0m of net cash (2012: £2.7m) and no bank debt. As a result of the solid balance sheet and positive trading outlook, the Board is continuing its progressive dividend policy and is recommending a final dividend of 5.2p per share (2012: 5.0p), giving a total of 7.8p per share for the year; a 4% increase on last year. If approved, the final dividend will be paid to shareholders on 7 March 2014.

Trading and Market Conditions

Overall conditions in our largest market, oil & gas, were favourable during the year with the global demand for oil increasing by 1.2%. Oil prices have traded between US$90-120 per barrel over the past three years, with yearly averages stabilising around US$110. This has provided a stable investment environment, whereby spending on oil and gas Exploration and Production (E&P) in 2013 has experienced an estimated increase of 6%, creating a positive impact on our two core sectors: deep water drilling rigs and subsea wellheads.

The quest to find and develop oil fields in deeper waters has put pressure on the ageing stock of drilling rigs, mostly built during the 1970-90s, which has spurred a flurry of orders for sixth-generation ultra-deep water rigs capable of operating in 3,000m water depths. This was strongly reflected in sales in our Cylinders Division and in our continued strong order book. However, many of these new-build orders have been placed with South Korean shipbuilders on a fixed-price, lump-sum basis, which has put pressure on pricing from suppliers of equipment, as shipbuilders try to maximize their profits.

In response to this, our Cylinders Division has continued to develop higher added value services and expanded its portfolio of defence customers, winning major contracts for naval projects in Germany.

We are aware that the four leading subsea tree manufacturers experienced unprecedented order intake during 2013, which is further confirmation of the quest to find and develop oil in deep water. Encouragingly, such levels of order intake have been very positive for our Engineered Products Division, which has enjoyed record sales and order intake and solid profit growth. This outstanding performance has continued into the first quarter of the current financial year.

Regulatory changes in the UK have resulted in our Alternative Energy Division securing large orders for biogas upgrading equipment for delivery in the current financial year. This is the breakthrough we had anticipated and much credit is due to the Board and management for their vision and perseverance in this venture.

Prospects

Set against market forecasts of global GDP growth for 2014 in the order of 3%, the global demand for oil is expected to increase by 1.3%, slightly higher than the previous year. This increased demand will further underpin the oil price and E&P investment, which is forecast to grow by 8% thereby creating a generally positive and encouraging picture for the coming year.

At a more granular level, we have begun the current financial year with an order book 37% higher than last year, so the prospects for a further improvement in performance are very promising. We also continue to develop new products and services across the Group and are planning major capital expenditure over the next two years to expand capacity, improve productivity and quality and increase profitability. In parallel with growing our core businesses, the Board continues to evaluate earnings enhancing acquisitions which complement and add value to our existing portfolio.

I view the current year with much enthusiasm and look forward to presenting further evidence of the Group's ability to capitalise on the opportunities which lie ahead.

Alan Wilson

Chairman

CHIEF EXECUTIVE'S STATEMENT

The past year for Pressure Technologies has seen a material step change in our businesses. Once again the Group delivered improved results and the diversification of our businesses continued apace. The major markets of all of the Group's three divisions, Cylinders, Engineered Products and Alternative Energy, are experiencing significant volume growth and there is a real sense that this will be a continuing trend in the mid term.

The key points for the year are:

Cylinder Division

Chesterfield Special Cylinders ("CSC") had a very good year. Continued growth in its principal market, the supply of Air Pressure Vessels ("APVs") for motion compensation systems in the deep water oil and gas market, combined with an increase in delivery schedules to the Naval market, resulted in both increased sales and significantly increased profits.

Pleasingly, the positive trends in the deep water oil and gas market have carried over into the current financial year. Our current order book, in terms of number of projects won, is ahead of the same time last year although market share has been maintained at the expense of the well flagged significant reductions in selling price. Whilst this work remains profitable, these selling price reductions are expected to materially impact margins in the division. We continue to develop the customer base in this market and CSC was awarded US ASME accreditation, which is already leading to additional sales orders in the United States.

Our presence in the naval defence market has continued to expand, particularly since the closure of our European competitor, MCS International. We have won significant orders for vessels being built in German shipyards and we are now the principal supplier of ultra-large cylinders on all major European submarine projects. Our medium term target is penetration of the large US naval market.

Sales of services fell in the year as a result of an anticipated reduction in hydrogen trailer retest and refurbishment for BOC. This was due to a combination of phasing of the retest cycle and a continued downturn in the UK hydrogen market. There are signs of improvement and we have secured new retest and refurbishment contracts from other industrial gases companies.

We have continued to develop the in-situ retest service for the oil and gas and defence markets. Sales growth for this new service was lower than anticipated, as a result of two projects requiring replacement cylinders following our initial site survey. This will, however, result in additional cylinder sales in the current year. The rate of new in-situ project wins is accelerating and we anticipate that this service will grow rapidly over the next two years. Our long term goal is to generate 50% of divisional profits through sales of services.

The market for new high pressure gas trailers has been moribund. We did, however, secure orders for two new state of the art compressed natural gas ("CNG") trailers for delivery in the current financial year. These trailers, developed with a major industrial gases company, were designed and will be built by CSC using lightweight, composite cylinders supplied by Worthington. As the use of alternative fuels such as CNG and hydrogen increases, we expect the market for this type of trailer and large high pressure storage facilities to increase. CSC is actively engaged in this market through its German subsidiary, CSC Deutschland GmbH.

Major capital spend in the year was centred on improving our forging capability for small cylinders and naval defence cylinders. The Group anticipates spending in the order of £1 million over the next two years to further enhance our capabilities in these areas both in terms of quality and efficiency.

Engineered Products Division

The division is primarily focused on the oil and gas market but, unlike the Cylinder Division, it is not confined to a narrow sector of the market, either geographically or technologically. The division's products are used onshore and in all areas of offshore. The division comprises Hydratron, based in Altrincham and Houston, Texas, and Al-Met in Pontyclun, South Wales.

Hydratron manufactures a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs mainly for use in the oil and gas sector. Al-Met produces wear resistant components in a range of high alloy steels and tungsten carbides for use 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.

Al-Met had its best year ever, breaking records for both order intake and sales output, as a result of the rapidly growing subsea tree market and its ability to win greater market share through a focus on on-time in-full delivery. Major improvements to the factory layout and working practices also significantly improved productivity and the management team has been augmented to promote business development and to underpin gains in quality and environmental management.

The increase in order intake has continued into the new financial year and, with subsea tree order lead times to the oil exploration and production sector currently at 18 months, we expect this trend to continue for the foreseeable future. Capital investment of at least £750,000 is planned in the current financial year to increase production capacity and the range of products. Due to the nature of equipment used at Al-Met, finance leasing is available and inexpensive; consequently we are able to spread the cost of purchase so that capital investment is self-financing. As a result, additional equipment over and above the current year's budget will be leased if the current market dynamic continues.

Hydratron saw a sustained upturn in its markets in the second half of the year that more than offset the low order intake of the first quarter which impacted the first half year results. Annual sales in the UK side of the business were the highest ever. In May, the US business was brought under the direct control of the UK and significant progress has been made in strengthening the US sales and design functions. As with Al-Met, both order books and the pipeline remain very strong and we expect to make significant progress in the current year. Similarly, the management team has been strengthened in the area of quality and environmental management. As a result, the company has recently achieved both ISO14001 (environmental) and OHSAS18001 (health and safety) accreditation. These are important milestones for the business where our customers have an increasing focus on both environmental and health and safety management.

During the year, the business has started to reduce the level of in-house manufacture of components in the UK to free up additional space for assembly of pumps and systems. This will continue in 2014 and consequently no major investment in plant and equipment is planned. The major expenditure of 2013 was replacement of the IT infrastructure, which will be followed up in the current year by investment in ERP systems to manage the growth and increasing complexity of the business.

Product development is critical to the long-term success of the business. Our major development programme is centred on the automation of control panels and test systems. This has the benefit for the customer of simplifying operations, improving safety and providing a digital audit trail. The latter is particularly important for test systems where our customers' customers are imposing more stringent product certification requirements. Plans are well advanced to increase the resources available for research and development. From January 2014, R&D will be managed separately from engineering under a recently recruited specialist R&D manager. This will allow Hydratron to speed up the time to market for development projects.

Given our success in buying and integrating Al-Met and Hydratron into the Group, we see Engineered Products as an area for further development. There is significant organic growth potential, which we will continue to pursue, but we are also looking for acquisition opportunities to expand the range of products of the division.

Alternative Energy

Chesterfield BioGas ("CBG") sells a range of equipment for cleaning raw biogas produced by anaerobic digestion of organic waste. The cleaning process uses water to strip out unwanted gases such as carbon dioxide producing almost pure methane, known as biomethane, which is then injected into the UK natural gas grid. In the energy sector, this is termed Biogas to Grid ("BtG"). CBG was the first company in the UK to provide equipment for BtG at Didcot in 2010.

In October 2013, CBG delivered its second BtG project to a waste processing site in Stockport and this was the reason for the increase in sales over 2012. Losses remained at £0.5 million, as we continued to invest for expected growth in 2014.

In last year's preliminary results presentation, I described the year under review as the "crucial year" for CBG. This has proved to be the case. The remaining regulatory hurdles to large scale injection of biomethane into the UK gas grid were resolved in May and we have seen a transformation of the sales pipeline as large utility companies and processors of organic waste have woken up to the potential of this market. To date we have received orders for delivery of two BtG projects in 2014 with a combined sales value of £4.6 million. Negotiations are at an advanced stage on further BtG projects, which may result in additional sales in the current financial year and give grounds for significant optimism for 2015.

People

As a Group, we recognise the importance of hiring, developing and retaining high calibre people. This is not only necessary to deliver our short term goals but is essential for our medium and long term succession planning. In the past year, two of our subsidiary Managing Directors have completed strategic decision making courses at Cranfield University; we have two senior managers who have completed MBAs and we continue to support a number of employees in first degree courses, professional qualifications and apprenticeships. All UK based manufacturing units now have apprentices and we have just recruited five new graduates across the Group. We will continue to seek out the best talent to ensure that we are properly resourced to meet our growth opportunities.

Summary and outlook

The year under review has been another good year for the Group and one in which we have made significant progress in all three divisions. The Group has continued to improve profitability, whilst at the same time improving the quality of these earnings through a better balance of performance across its divisions.

Looking to the current year, there is significant growth potential for the Engineered Products and Alternative Energy divisions. The Cylinder Division has a fantastic opportunity to develop its service offerings, in particular in-situ testing, and this gives the Board confidence for further progress in the year. All operating divisions of the Group are expected to be profitable and we look forward to updating shareholders as the year progresses.

John Hayward

Chief Executive

FINANCE DIRECTOR'S REPORT

Revenue

The Group's revenue grew to £34.4m (2012: £30.4m). The growth of 13% was driven by a continued recovery in CSC's oil and gas business, growth in the Engineered Products Division and completion of a biogas upgrader project in the year.

Profitability

The movement in profitability between the two years was as follows:

The Group seeks to target niche markets with good growth prospects and uses return on revenue as a key performance indicator. Our aim is a target return of 15% before taking account of the cost of acquiring subsidiaries and the subsequent amortisation of the intangible assets so acquired.

The cost of the Chesterfield BioGas licence and distribution agreement with Greenlane Biogas is being amortised over a period of 15 years; this being the period over which significant revenues are expected to be generated.

The Board intends to grow the Group both organically and by acquisition and consequently both acquisition related costs and goodwill and intangible assets are expected to be a recurring theme within the annual financial statements.

In the interest of clarity, acquisition costs and the amortisation of intangible assets resulting from acquisitions are shown separately in the Income statement. The relevant costs for the last two years are as follows:

The remaining carrying value of these intangible assets totalling £0.3m (2012: £0.5m) will be fully amortised over the next two years.

As required by IFRS 3, the costs of market research and professional fees in relation to possible acquisitions are expensed in the year in which they are incurred.

It is pleasing to note that in each of the three years since Al-Met and Hydratron were acquired in 2010 they have generated profits before amortisation charges of over £1m p.a, relative to an acquisition cost (including borrowing assumed) of £5.8m.

The effects on earnings per share of these adjustments are as follows:

Taxation

The effective tax rate for the Group in 2013 was 23.6% (2012: 28.5%), which is in line with the UK standard rate of 23.5% as unrelieved US losses were compensated by a reduction in the UK taxation charge as detailed in note 3. Corporation tax paid in the UK during 2013 totalled £0.6m.

Foreign exchange

The Group operates in international markets and accordingly trades in the Euro and the US Dollar, as well as Sterling.

Whilst the level of exposure at any point in time is dependent on the nature of individual contracts, the Group usually has a partial hedge in place as both purchases and sales are made in Euro and also to a lesser extent in US dollars. With the Group's manufacturing activities based mainly in the UK, management estimates that a 5% movement of the Euro against Sterling would affect Group profit by circa £0.5m. The effect on the Group of movements in the US dollar to Sterling exchange rate, as long as it is within normal trading parameters, is not significant.

At the end of September 2013, the Group had contracts in place to sell €3.95m at an average exchange rate of €1.16 to £1 (2012: Contracts in place to sell €3.5m at an average exchange rate of €1.26).

Cash flow

The movement in cash flow can be summarised as follows:

Cash flow in 2013 was again strongly positive at the operational level.

Net capital expenditure at £0.8m compares to a depreciation charge of £0.6m.

There are no further deferred consideration payments to be made for either Al-Met or Hydratron.

The Group has a strong balance sheet with net funds of £4.0m (2012: £2.7m) and an unused overdraft facility of £3m.

James Lister

Group Finance Director

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 28 September 2013

All the above results are from continuing operations.

CONSOLIDATED BALANCE SHEET

As at 28 September 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 28 September 2013

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended 28 September 2013

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 ended 28 September 2013. 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 28 September 2013

*Acquisition costs include the amortisation of intangible assets acquired through business acquisitions, and fees associated with making acquisitions.

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

*** Segmental net assets comprise the net assets of each division adjusted to reflect the elimination of the cost of investment in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.

Period ended 29 September 2012

*Acquisition costs include the amortisation of intangible assets acquired through business acquisitions.

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

*** Segmental net assets comprise the net assets of each division adjusted to reflect the elimination of the cost of investment in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.

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

The UK is the entity's country of domicile with revenue of £10,639,000 (2012: £10,307,000) being obtained during the period.

Revenue of £23,744,000 (2012: £20,135,000) has been generated overseas.

The Group's largest customer contributed 34% to the Group's revenue (2012: 38%) which is reported within the Cylinders segment. No other customer contributed more than 10% in the year to 28 September 2013 (2012: Nil).

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

The above table is provided for the benefit of shareholders. It is not provided to the PT board on a regular monthly basis and consequently does not form part of the divisional segmental analysis.

The following table provides an analysis of the carrying amount of non-current assets, additions to property, plant and equipment.

3. Taxation

Corporation tax is calculated at 23.5% (2012: 25%) of the estimated assessable profit for the period. Deferred tax is calculated at 20% (2012: 23%).

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 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 28 September 2013, the 2012/13 final dividend had not been approved by Shareholders and consequently this has not been included as a liability. The proposed dividend of 5.2p per share, will if approved at the AGM, be paid on 7 March 2014 at a total cost of £591,000.

6. Intangible assets

An impairment loss of £nil (2012: £174,000) was recognised for development expenditure reducing the value to £nil at the prior year end. All amortisation and impairment charges are included in the Consolidated statement of comprehensive income. The cumulative aggregate impairment loss is £174,000.

7. Consolidated cash flow statement

8. Notice of Annual General Meeting

The Annual General Meeting of the Company will be held at the Copthorne Hotel, Copthorne Way, Culverhouse Cross, Cardiff, CF5 6DH on Thursday 13 February 2014 at 12 noon. For those shareholders attending the Annual General Meeting, there will be an opportunity to see the operations at Al-Met once the formal business of the meeting has been concluded.

9. Preliminary statement

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 and 435 of the Companies Act 2006. The financial information for the period ended 28 September 2013 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(2) or 493(2) of the Companies Act 2006.

The statutory accounts for the period ended 28 September 2013 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website www.pressuretechnologies.com. In due course, they will be delivered to the Registrar of Companies. The statutory accounts for the period ended 29 September 2012 have been delivered to the Registrar of Companies.