Pressure Tech Regulatory News (PRES)

30 August 2016

Pressure Technologies plc

("Pressure Technologies" or the "Group")

Update on Recent Trading

The Board of Pressure Technologies plc (AIM: PRES), the specialist engineering group, today issues an update on recent trading and expectations for the year ending 2 October 2016.

Trading in our three manufacturing divisions, Cylinders, Precision Machined Components and Engineered Products, overall continues to be in line with market expectations and despite the ongoing challenges of the oil and gas market there have been some positive developments.

Since we announced the interim results in June, our Alternative Energy Division has secured a further £8.5 million of firm contracts and a conditional award of a contract for £6.5 million to add to the £10 million that were signed in the first half of the year. This includes two projects that will use our new Kauri plant, the world's largest volume single upgrader.

As we have highlighted previously, the outturn for the current year is dependent on the timing of contracts in this division. It is now clear that delays both in award and commencement on a number of these contracts, particularly in the USA, will have a significant impact on the expected results for the year as a whole, albeit that the 2017 financial year will be positively impacted as a result. In addition to these delays, we have also encountered some unanticipated additional legacy costs and margin erosion on a first of type project in North America. These factors, coupled with R&D spend that has been charged to the profit and loss account as part of our tax planning, will swing the division from a profit to a loss that will materially impact the Group result.

We now anticipate that the full year result at Group level will be a loss against a market expectation of a profit.

Manufacturing divisions

Set against the background of continued weakness in the oil and gas market it is pleasing to note that the Precision Machined Components Division has increased market share by securing a number of new customers and diversifying into new markets since the interim announcement in June. This is evidenced by our South Wales subsidiary, Al-Met, which has recently won its single largest ever order of US$1.2 million from the water industry for delivery in quarter one of our 2017 financial year.

We have continued to focus on productivity and cost reduction whilst maintaining our core skills. Further headcount reductions have been made, particularly in the Engineered Products Division, although the full benefit of these has not yet been seen as volumes declined further in the second half. We are in the process of transferring the business and staff of the Engineered Products Houston sales and maintenance office to a third-party distributor. This move widens the scope of potential sales for the division from the Texas and Louisiana region to the whole of North America, without the attendant costs of maintaining a satellite facility. The transfer is due to be completed by early September and one off costs of £0.7 million are anticipated in the current financial year.

The Cylinder Division continues to be underpinned by its focus on the defence market and its integrity management service. It is also in the process of gaining US Department of Transportation approvals for its latest generation of transportable jumbo cylinders, which will open up access to the North American industrial gases market at a time where we are cost competitive against our major competitors in that market.

Alternative Energy

As highlighted above, whilst the progress within this division has been pleasing in terms of new contract wins the timing of revenue recognition has slipped from the current year to the 2017 financial year, in part due to delays in customers securing project finance. Around £16 million of contracts, including the conditional contract, will be carried over for completion in the 2017 financial year.

The issues surrounding additional legacy costs and margin erosion on a first of type project in North America, which also impacted profitability, have now been addressed.

The division continues to invest heavily in R&D with major projects on the Kauri, a low cost version of the small Kanuka upgrader, membrane and California rule 30 natural gas composition compliance. For reasons of tax efficiency these are now being expensed rather than posted to the balance sheet.

Banking and cash

The Board continues to monitor cash flow as a priority. The final payment of £2.3 million deferred conditional consideration in respect of Roota was paid in July but this will be compensated for by operational cash generation and receipts from major contracts which have been paid or are due before the year end. The Group therefore expects to meet its banking covenant tests at the financial year end.

Outlook

Looking to the 2017 financial year, trading conditions in the oil and gas market continue to be challenging and while the market is balancing, the outlook for recovery is slow. We therefore anticipate that trading in our manufacturing divisions will remain around its current level throughout the next financial year.

The bow wave of contracts for Alternative Energy is very encouraging and with customer financing issues resolved on the current contracts, the Group expects significant progress in 2017. The balance of the £26 million immediate project pipeline for our core markets reported in the interim statement is still to be converted to orders. The prospective pipeline beyond this remains strong across the UK, Europe and North America and we expect the division to be a major profit generator for the Group in 2017 and beyond.

The Board remains confident in the medium to long-term prospects for the Group and believes that when the oil and gas market returns it will present considerable opportunities. In the meantime, we will take whatever measures are necessary to ensure the resilience of our businesses whilst continuing to invest in the future of the Group and implement the strategic objectives to broaden our customer, technology and industrial base.

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COMPANY DESCRIPTION

Company description - www.pressuretechnologies.com

With its head office in Sheffield, Pressure Technologies was founded on its leading market position as a designer and manufacturer of high-pressure systems serving the global energy, defence and industrial gases markets. Today it continues to serve those markets from a broader engineering base with specialist precision engineering businesses and has a worldwide presence in Alternative Energy as the global leader in biogas upgrading. On this foundation, the company is building a highly profitable group of companies through a combination of organic initiatives and acquisitions.

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

Precision Machined Components

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

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

· Quadscot, Glasgow, acquired in October 2014 www.quadscot.co.uk

Engineered Products

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

Cylinders

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

· Kelley GTM Manufacturing, Amarillo - 40% stake acquired by the Group in December 2013 www.kelleygtm.com

Alternative Energy

· Chesterfield BioGas, Sheffield, founded in 2008. Renamed Greenlane Biogas UK on 5 June 2015.

· Greenlane, Vancouver, Canada and Auckland, New Zealand, acquired in October 2014 www.greenlanebiogas.com