Pressure Tech Regulatory News (PRES)

9 April 2020

PRESSURE TECHNOLOGIES plc

("Pressure Technologies" or "The Group")

UPDATE ON TRADING AND THE IMPACT OF COVID-19

Pressure Technologies (AIM: PRES), the specialist engineering group, provides an update on trading for the 26 weeks to 28 March 2020 and on the impact of COVID-19 on its operations.

Trading Update

Chesterfield Special Cylinders (CSC) performed in line with expectations for the half year. Progress with key energy and defence orders has continued in line with project plans. Sales growth for Integrity Management services continued in the period, despite the postponement of March deployments due to COVID-19 travel and access restrictions. As expected, operating profit for CSC will be lower than for the same period last year, due to the phasing of large contracts.

Precision Machined Components (PMC) achieved strong order intake over the past six months across a broadening customer base. Despite this progress, a significant delay to the output of new large complex components, the onboarding of new customers and the late commissioning of new machining centres adversely impacted gross margins in the first quarter. Recovery of output and margin performance in the second quarter was much slower than expected and, with higher indirect costs from the investment in sales and engineering functions, has resulted in a significantly lower operating profit on higher revenue than for the same period last year. However, margins and on-time delivery performance are improving as management changes and the ongoing programme of operational improvements, including recently implemented planning tools and systems, take effect.

As a result of contract phasing in CSC and delayed output in PMC, the unwinding of working capital and cash generation in the period has been slower than expected, resulting in a higher leverage at the half year than previously anticipated.

Good progress has been made against strategic priorities in both divisions, with continued broadening of the customer base in target markets. The investment made in strengthening the divisional sales teams and engineering capability has underpinned new customer acquisitions and an extended product range and scope. 

Outlook and the Impact of COVID-19

The Board is closely monitoring the changing global situation as a result of the COVID-19 pandemic.

Both divisions experienced some operational disruption and capacity issues during March as a result of COVID-19 restrictions and absences, but all sites remain open and operational and we are working on the basis of 'business as usual, with caution'. We will continually review this stance and adapt our approach in line with any changes to government guidelines and, more importantly, our ability to operate safely and effectively. 

Key customers of both CSC and PMC divisions have confirmed their status as supporting either UK Critical National Infrastructure or strategic defence contracts and requested our confirmation of continued operation during COVID-19 restrictions, subject to meeting UK government guidelines on workforce protection, which we have done.

Despite strong order books in both divisions at the half year, it remains difficult to predict the length and depth that the impact of COVID-19 will have on operational performance. This uncertainty is compounded by a depressed oil price and the Board anticipates that sales pipelines may be adversely affected, as some oil and gas customers defer project spend and apply pricing pressure throughout the supply chain. Both divisions remain in close contact with customers and suppliers and we will continue to take all appropriate steps to maintain business continuity and safely deliver customer orders. We are also communicating regularly and openly with all colleagues working on site, remotely and at home.

Given the level of uncertainty in the outlook, the Board has decided to withdraw guidance and forecasts. We continue to review possible scenarios and determine the actions we may take as the outlook becomes clearer. Management actions will seek to preserve cash and core capability in the business without undermining the progress already made in both divisions to establish resilience and a foundation for future growth in strategic focus areas.

We are in regular and constructive dialogue with Lloyds Bank regarding ongoing facility requirements and the impact of foreseeable COVID-19 disruption on operations and the leverage covenant. The Group's £12.0 million Revolving Credit Facility (RCF) is currently drawn at £9.3 million. We continue to evaluate government support measures available to the Group and will progress with actions and applications where appropriate. 

Chris Walters, Chief Executive of Pressure Technologies commented:

"While COVID-19 and a very low oil price present an uncertain outlook, I am confident that the management and operational changes already made over the past year will help the business to navigate through this challenging period and return to cash generative growth.

We have strong order books in both Chesterfield Special Cylinders and Precision Machined Components divisions and will endeavour to fulfil customer orders on time, while prioritising the safety and well-being of our employees as we all adapt to very different ways of working and living.

I am proud to see the tremendous commitment and continued hard work of our teams across the Group, those working on site, remotely and from home."

ENDS

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COMPANY DESCRIPTION

Company description - www.pressuretechnologies.com

With its head office in Sheffield, the Pressure Technologies Group was founded on its leading market position as a designer and manufacturer of high-integrity, safety-critical components and systems serving global supply chains in oil and gas, defence, industrial gases and hydrogen energy markets.

The Group has two divisions, Chesterfield Special Cylinders and Precision Machined Components.

Chesterfield Special Cylinders (CSC) - www.chesterfieldcylinders.com 

● Chesterfield Special Cylinders, Sheffield, includes CSC Deutschland GmbH and Chesterfield Special Cylinders Inc.

Precision Machined Components (PMC) - www.pt-pmc.com

● Precision Machined Components includes the Al-Met, Roota Engineering, Quadscot Precision Engineers and Martract brands.