Pressure Tech Regulatory News (PRES)

5 February 2015

Pressure Technologies plc

Update on Recent Trading and Prospects for the Current Financial Year

The Board of Pressure Technologies plc ("Pressure Technologies" or the "Group") today announces an update on recent trading and sets out its current expectations for the financial year ending 3 October 2015.

As previously reported, the Group began the current financial year with a strong order book. However, the caution expressed in the 2014 financial results has proved well founded, as the Group's Divisions have experienced a tougher business environment year-to-date. The primary cause has been the significant and sustained weakness in the global oil price which has led oil companies to materially reduce capital spending on new projects. Although oil prices have somewhat stabilised in recent weeks, the widely reported marked deterioration in confidence in the sector, has prompted the Board to carry out a full review of prospects across the Group.

Whilst the Board remains confident of the medium-term opportunities for the Group, it considers that expectations for the current financial year should be revised downwards as part of a prudent response to market conditions.

Precision Machined Components Division

The Division made a good start to the year, with sales in line with management expectations. Demand for wear parts manufactured at Al-Met remains strong, but changes to ordering patterns are forecast at Roota and Quadscot, as investment in new projects is reduced. With order to delivery lead times of three to four months, a material downturn in ordering has not yet been experienced, but we expect the second-half of this financial year is likely to be affected by tougher market conditions.

The sustained weakness in the global oil price has also prompted our major customers to indicate a weakening in demand and attendant requests to reduce prices. The Division's approach to these requests is to work with customers to reduce costs through better purchasing and re-engineering products to eliminate unnecessarily complicated designs and machining tolerances. Where appropriate, the Division will seek work with new customers rather than endure significant margin erosion just to preserve sales. The Division's short order to delivery lead time means that a recovery in the oil price should lead to a quick reversal in ordering patterns.

The purchase of Quadscot gives the Group the opportunity to in-source the manufacturing of a wide range of sub-contracted machined parts for the Engineered Products and Cylinders Divisions. Whilst this is not expected to have a material impact in the current financial year, the Board has identified this as a source of potentially meaningful cost savings as the Group's divisions work more closely together.

The Division has seen an encouraging level of requests for quotation for both its core pump products and high-pressure test equipment. However, UK operations have experienced a number of project execution delays during quarter-one, extending into quarter-two. Planned changes to Engineering and Operations functions are expected to ease the position, but the reduction in sales and revenues will not be recovered during the current financial year.

The US operation is experiencing similar market conditions to that seen two years ago, when there was a considerable order pipeline, but conversion to orders was slow as customers delayed approval of capital budgets so the order book remains low.

Pricing pressures are similar to those experienced by the Precision Machined Components Division and a similar response has been adopted.

Given the difficult start to the year, the division will not achieve expectations in the current financial year. Prospects remain good and we expect further progress beyond this financial year.

Cylinders Division

Chesterfield Special Cylinders ("CSC") is currently performing in line with expectations. Long order to delivery lead times gives good market visibility to the end of the current financial year. As yet, there are no firm indications of recovery in the placement of orders for semi-submersible drilling rigs and drillships for the deep-water oil and gas market, which is the major market for CSC's products.

Sales of services into both the oil and gas and defence markets continue to strengthen. The Group has a clear lead in this market, which is less susceptible to economic cycles and competition from low-cost suppliers. The number of employees available to carry out this type of work is being expanded through a structured training programme to ensure that we can take full advantage of this emerging opportunity.

CSC continues to work on medium-term opportunities for transportation and bulk storage of hydrogen and Compressed Natural Gas ("CNG") for the alternatives fuel market. The business now has the capability to build very high-pressure bulk storage facilities and a variety of type II, III and IV cylinder trailers in a range of pressures.

In January 2015, Pressure Technologies acquired the freehold land and buildings at CSC's Meadowhall site. As well as securing the long-term future of the site for CSC, it gives a significant revenue cost saving of over £200,000 per year for the Group.

Progress at Kelley GTM ("KGTM"), where Pressure Technologies holds a 40% investment, has been slower than anticipated due to the down-turn in investment into the onshore oil and gas market in the United States. The Group has an option to increase its investment in KGTM to 80%, which expires before the interim announcement. In the current environment it is highly unlikely that the Group will take up the option and the Board expects to make a provision of £1.4 million against loans to KGTM due to the uncertainty of repayment.

Alternative Energy

The purchase of the Group's technology provider, Greenlane, in October 2014 has given the Division a worldwide platform for selling biogas upgrading technology. Integration of Greenlane into the Group is proceeding well and there is an encouraging pipeline of potential orders for biogas upgraders in North and South America and the UK. The New Zealand subsidiary has successfully re-launched its heat exchanger and compression systems business.

Timing of projects is critical to the results of this Division and the Board anticipates that a number of projects scheduled for completion in the current financial year will now be completed in the following year and a project for the North American market has been cancelled. This and the reclassification of a £625,000 development project from capital to revenue will impact on 2015 results. Prospects for 2016 and beyond continue to be positive.

Outlook

The Board firmly believes that the underlying prospects for the Group remain very positive. In the near-term, the low oil price is having an adverse impact on order intake from that sector. This will negatively affect the Group's results for the financial year, in line with the majority of suppliers into the oil industry. Current market conditions mask the Group's strengths in product and service quality, strong customer relationships across all divisions and the prospects for our Alternative Energy Division.

The Group has a strong balance sheet with low gearing and an increasingly diversified industrial base. This gives a firm base for continued investment through the cycle and allows the continuation of the Board's progressive dividend policy. The Board has every confidence that as market conditions improve, the Group is well placed to take advantage of the opportunities that will inevitably arise.

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Company description - www.pressuretechnologies.com

With its head office in Sheffield and its origins going back to 1897, Pressure Technologies is a growing, profitable, 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 four divisions, Precision Machined Components, Cylinders, Engineered Products 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, acquired in October 2014 www.quadscot.co.uk

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 with an option to acquire a further 40% in 2015 www.kelleygtm.com

Engineered Products

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

Alternative Energy

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

· Greenlane, acquired in October 2014 www.greenlanebiogas.com