Pressure Technologies (LON: PRES), the specialist engineering group, has announced its preliminary results for the year ended 28th September 2019.
Financial Results*
● Group revenue up 34% to £28.3 million (2018: £21.2 million)
● Gross profit up 27% to £9.2m (2018: £7.2 million)
● Adjusted operating profit more than doubled to £2.2 million (2018: £1.0 million)
● Reported loss before tax of £0.5 million (2018: loss £1.7 million)
● Adjusted earnings per share of 7.8p (2018: 2.9p)
● Reported basic loss per share of (2.1)p (2018: (7.5)p)
● Adjusted net operating cash inflow** £2.0 million (2018: £1.9 million)
● Net debt of £11.4 million (2018: £6.7 million)
● Operating cash outflow from discontinued operations of £2.5 million
● Working capital increased by £2.2 million to £7.4 million (2018: £5.2 million)
*continuing operations only excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits
**before cash outflow for exceptional costs
Operational Highlights
● Improved trading performance and operating results in line with market expectations, driven by UK and export defence contracts and increasing momentum in the global oil and gas market
● Strategic progress made with the divestment of non-core operations, recovery of profitability and organic growth in both divisions
● Integration of Precision Machined Components (PMC) subsidiary companies completed, with operational improvements made across the division demonstrating scalability and growth, with margins improved since year end
● Order backlog in PMC took longer to clear than anticipated, leading to an increase in working capital during the year. Working capital is expected to unwind with improving cash flows during the first half of 2020 as operational changes take effect and the backlog of overdue orders is delivered
● PMC order intake for the year to November 2019 reached the highest level for over five years, with record contract awards contributing to a divisional order book 70% higher than a year ago. Revenues from new customers represented 11% of the divisional total in 2019, demonstrating progress in reducing customer concentrations
● Strong and increasingly diverse order book in Chesterfield Special Cylinders (CSC), following the largest ever non-defence contract award from EDF Energy and further orders secured in the emerging hydrogen energy market since year end
● Outlook for CSC in established UK and export defence programmes remains strong and further growth is forecast in recurring revenue from through-life Integrity Management services.
Chris Walters, Chief Executive of Pressure Technologies, said:
“I am pleased with the significant improvement in trading performance this year. We have made important management and operational changes within the business over the course of the year. I am pleased with the way our teams have responded during this transitional period and encouraged by the progress we have made with organisational development and culture that is key to delivering sustainable growth.
Order backlog and delayed output increased working capital during the year, but I am confident that this will unwind early in the new year as the backlog is cleared and operational initiatives take effect, delivering shorter lead times, improved margins and recovering cash flows.
Good strategic progress and the favourable conditions in core markets underpin our confidence in the outlook for 2020 and beyond. Both divisions hold strong order books with reduced customer concentrations and have recently posted record contract wins from an increasingly diverse and buoyant sales pipeline.”
CHAIRMAN’S STATEMENT
Overview
Good progress has been made in both divisions with positive market conditions prevailing and, whilst 2019 had its challenges, I am pleased to report substantially improved trading results.
Many steps have been taken to prepare the business for the improving conditions in our core markets. As momentum builds in the oil and gas industry and our presence grows further in global defence markets and the emerging hydrogen energy sector, we have strengthened and diversified our order book and have a clearer view of our customers’ project pipeline today than at any point in the past five years.
The strategy review undertaken during the first half of the year confirmed focus on organic growth opportunities and I am pleased with the progress made in this phase of executing the strategy.
As reported at the interim results, we were pleased to complete in June the sale of our Alternative Energy division to Vancouver-based Creation Capital Corporation LLC, now renamed Greenlane Renewables Inc. This strategic divestment gives the Group a clear focus on the growth and development of its core specialist engineering activities.
In the remaining Group businesses, key initiatives covering sales effectiveness, production planning and efficiency, engineering processes and supply chain management are expected to drive the delivery of organic revenue growth and margin improvement, which is a key priority in the second phase of our strategy.
Results
Overall Group revenue increased by 34% to £28.3 million (2018: £21.2 million) and the adjusted operating profit for the period increased to £2.2 million (2018: £1.0 million). This improvement represents an increase in return on revenue to 8% (2018: 5%) and reflects, in particular, the strength of UK and overseas defence projects in our Chesterfield Special Cylinders division (CSC).
Favourable conditions in the oil and gas market have driven higher revenue and profitability in our Precision Machined Components (PMC) division this year and the order book is at the highest level for five years. However, operational improvements have been slower to come through than we had planned, impacting performance through the second half. The changes made over the past year have been fundamental to building a stronger and more scalable base for PMC that will help us realise the potential for growth.
It remains a priority to reduce the overall leverage of the Group, whilst supporting the business with the capital investment programme and achieving a minimum 20% headroom in our facility covenants. The Group’s Revolving Credit Facility (RCF) was renegotiated in September and the new facility was fully documented and signed post year end on 10 December 2019.
The Board has again resolved that no dividend shall be paid to shareholders this year as investment in the organic growth strategy remains the priority for capitalising on the improving market conditions.
In November we announced that a trial had commenced in respect of the prosecution by the Health & Safety Executive (HSE) following the fatal accident at CSC in June 2015. At the conclusion of the trial, in late November, the jury delivered a guilty verdict pursuant to Section 2 of the Health and Safety at Work Act 1974 and we await the sentencing hearing which is now expected to take place in the New Year. The outcome of the sentencing hearing is uncertain and whilst the range of possible outcomes is significant, the Directors are satisfied that the Group can continue to prepare its financial statements on a going concern basis. Further details are in Note 11 of this preliminary announcement.
People
We have recently received the results from our second people engagement survey undertaken with ‘Best Companies’. This shows encouraging progress with an increase in both the number of respondents and engagement scores and it is pleasing to note that a number of respondent groups have been classed as ‘Ones to Watch’. I would like to thank all our teams for their hard work throughout the year and their contributions during a period of significant change.
We reported in June that we were looking to strengthen the board. The search and selection process is nearing completion and we expect to make new non-executive appointments early in the New Year.
Outlook
The current trading performance, order intake and strategic progress made in both divisions give the board confidence in the outlook for 2020.
Neil MacDonald
Independent Chairman
