A leading designer and manufacturer
of engineering solutions for high
pressure markets
Pressure Technologies plc
Annual Report 2011
Pressure Technologies plc
Annual Report 2011
Pressure Technologies plc
Annual Report 2011
01
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Financial Highlights
• Revenue of £23.1 million (2010: £21.7 million)
• Operating profit at £0.7 million (2010: £3.5 million)
• Pre-tax profit of £0.6 million (2010: £3.5 million)
• Basic earnings per share 3.5p (2010: 22.3p)
• Year end net funds, after acquisition of the Hydratron
Group of Companies, £2.9 million (2010: £6.5 million)
• Proposed final dividend of 4.8p per share (2010: 4.8p),
giving a total dividend of 7.2p per share (2010: 7.2p)
Company overview
Highlights
Group Structure
Strategy
Chairman’s Statement
Business Review
Chief Executive’s Statement
Principal Risks and Uncertainties
Key Performance Indicators
Governance
Directors and Advisers
Directors’ Report
Business Highlights
• Sound balance sheet maintained and cash
management strong
• Dividend maintained as Group remains confident
in future outlook
• Year impacted by low demand for deepwater oil and
gas platforms in Cylinder division but recovery
underway and demand trough behind us
• Successful acquisition of Hydratron strengthens
Engineered Products division and continues
diversification strategy
• Forward order books in Cylinder and Engineered
Products divisions growing strongly
Financial Statements
Report of the Independent Auditor to
the Members of Pressure Technologies plc
Consolidated Statement of Comprehensive
Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Accounting Policies
Notes to the Consolidated Financial Statements 35
Company Balance Sheet
Notes to the Company Financial Statements
53
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Pressure Technologies plc is a leading designer and manufacturer of engineering solutions for high pressure markets. The Group works in partnership with its customers to design, develop and manufacture the best solutions for their pressure system needs.
Pressure Technologies plc
Annual Report 2011
02
Group Structure
A leading designer and manufacturer
of high pressure engineering systems,
serving the global energy, defence and
industrial gases markets.
The Group is organised into three divisions: Cylinders
(Chesterfield Special Cylinders), Engineered Products
(Hydratron and Al-Met) and Alternative Energy
(Chesterfield BioGas).
These divisions serve four markets: Oil and Gas,
Defence, Industrial Gases and Alternative Energy.
Company Overview
Pressure Technologies plc
Annual Report 2011
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Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Manufacturing, sales and distribution
1
2
3
5
4
Key
Agents and distributers
Manufacturing and sales
1. Head Office
Chesterfield Special Cylinders
1. Chesterfield BioGas
2. Hydratron Ltd
3. Al-Met
4. Hydratron Inc
5. GSC German Sales Office
Oil and Gas
Defence
Industrial Gases
Alternative Energy
Chesterfield Special Cylinders / Engineered Products
Chesterfield Special Cylinders / Engineered Products
Chesterfield Special Cylinders
Chesterfield BioGas / Chesterfield Special Cylinders
£15.4m
(2010: £13.8m)
67%
(2010: 64%)
£4.5m
(2010: £4.1m)
Sales
% of Group Revenue
Sales
19%
(2010: 19%)
% of Group Revenue
£2.3m
(2010: £3.1m)
Sales
10%
(2010: 14%)
£0.9m
(2010: £0.7m)
4%
(2010: 3%)
% of Group Revenue
Sales
% of Group Turnover
By far the largest market sector for the Group, Oil and Gas is, and will
remain, the focus for development and acquisitions. The market for
hydrocarbons is here to stay and even if there is an unlikely reduction
in their use as a fuel, the myriad of industrial uses means that this will
be an important market for decades to come.
Chesterfield Special Cylinders (“CSC”) supplies air pressure vessels for
deep-water oil rig and drillship market. This market was weak in 2011 but,
with major rig-build projects underway, significant new orders have been
received in recent months. CSC has a reputation for design and development
capability and we are also able to offer in-situ inspection services that give
reductions in cost and time for statutory retest.
The Engineered Products division supplies a wide range of products into this
sector. Al-Met is focused on the supply of wear parts for the control of fluid
flow in highly demanding applications. Hydratron supplies a range of pumps,
boosters, test benches and control panels. The products of the division are
used across the whole of the Oil and Gas market.
The Group supplies the UK and International Naval and Aerospace
markets. Our largest market in this sector is in the supply of ultra-
large cylinders into the Naval market where we have a world-wide
reputation for our expertise. We also supply small steel cylinders into
the military aerospace sector and our Engineered Products division
has had some success in supplying test equipment into the UK defence
sector, a position on which we hope to build.
The Naval market was exceptionally strong in 2011, with major projects
supplied for submarine building in the UK, France and Spain. CSC also won
the contract to maintain the Royal Navy’s strategic spares. 2012 will be
a lower sales year due to the phasing of projects but there are already
significant orders for 2013.
The defence aerospace market has been affected by government spending
cuts but this does not have a major impact on Group profitability. Increasing
technical requirements are being demanded in this market and PT has
invested long term in the development of a lightweight composite cylinder
for the next generation of military aircraft.
The industrial gases market has been an important market for the
Cylinder division for over 100 years. A diverse range of products and
services is supplied, ranging from bulk gas storage for large industrial
applications to the reconditioning and retest of cylinders and trailers.
The Group provides a range of equipment for the upgrade of biogas
to biomethane for injection into the gas grid and compressed natural
gas (“CNG”) vehicle refuelling stations through Chesterfield BioGas
(“CBG”).
The key to winning business in this market is having a comprehensive
network of sales staff and agents to identify projects as they arise. 2011 was
a weak year for demand but an improvement is evident in 2012, with two
bulk storage projects already in the order books.
Trailers for the transportation of bulk gases are also an important part of
this market. The Group manufactures a range of high pressure gas trailers
for this market sector and also provides a “one stop shop” management of
reconditioning and retest of cylinders. Further opportunities will arise as
Hydrogen and Compressed Natural Gas demand increases.
As with the Oil and Gas market, these areas are also able to offer an in-situ
test service and our first contracts were performed in this market in 2011
with further growth expected in 2012.
In September 2010, we installed the UK’s first biogas upgrader supplying
biomethane to the national gas grid at a Thames Water site at Didcot.
In the intervening period the market has been slow to develop due to the
late confirmation of the level of the Renewable Heat Incentive which allows
the technology to compete on a level playing field with subsidised combined
heat and power plants.
The level of interest from large utilities remains high and we expect market
growth in the near term. CBG has strengthened its position in this market
sector by extending in perpetuity its exclusive licence agreement to sell and
manufacture Greenlane® Biogas upgraders in the UK and Eire.
Cross divisional collaboration is used in the provision of refuelling systems
where CSC provides CBG with bulk CNG storage for filling stations and high
pressure trailers for transportation of CNG.
Pressure Technologies plc
Annual Report 2011
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Company Overview
Pressure Technologies plc
Annual Report 2011
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Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
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Achieving our
goal through a clear
business strategy
Goal
We aim to build a highly profitable
group of companies, specialising
in technology for the containment
and control of liquids and gases in
pressure systems.
The key elements of the strategy
to deliver this are:
Building a Balanced Group
Expanding Product Portfolio
Investing in Technology
Investing in People
Partnerships
Acquisitions are required to spread the
commercial risk of the Group and to
accelerate our rate of growth.
We have very clear criteria for acquisitions:
• Acquisition targets will be in niche areas of
pressure containment or control
• They will have significant growth prospects
• Stable management teams capable of
delivering growth
• Overlapping core skills and/or customers
with existing group companies to minimise
technology and market risks
The group has significant organic growth
opportunities as its core markets grow.
Our sales teams are actively pursuing this
growth. However, there is still a need to
develop the next generation of products and
services to ensure the long-term future of the
Group’s businesses. Our engineers, technicians
and designers are working on a range of
innovative products and services.
On-going developments:
• In-situ testing of cylinder assemblies to reduce
the cost and time taken to retest cylinders in
large static applications and trailers
• Development of light-weight composite
cylinders for aerospace applications
• New high-pressure trailer designs to maximise
payload and minimise through life costs
• Extending the pressure range of Hydratron’s
DHDA pumps to support the ever higher
pressures required in the Oil and Gas market
Ever increasing quality and safety standards
and the requirement to produce product
efficiently requires good manufacturing
technology. The Group is well invested in
manufacturing technology but there is always
a continuing requirement to invest in newer
and better technology.
Our businesses rely on skilled, well trained and
motivated employees. Some of the skills in the
Group are highly specific to our industries and
there is only a handful of people world-wide
with similar skills. We therefore place huge
emphasis on getting the right people into the
business, training them and retaining them.
Working with other specialist companies we
are able to reduce the costs of development
and speed up time to market of products and
services.
The Group has formed a number of strategic
partnerships, these include:
Recent investments include:
The key elements of this are:
• State of the art cleaning technology which meets
the world’s most exacting standards for cylinder
system assemblies
• Developing the people we need through
apprenticeships, sponsored degree and post
graduate studying
• Using local universities and specialist research
organisations to advise on and undertake
development of materials and processes
• Investment in advanced metrology and
CMM equipment
• Multi-skilling that makes our employees more
flexible and their work interesting and rewarding
• Electro-discharge machining to give fine
tolerance control of the manufacture of complex
• Having, as far as is possible, common terms and
conditions of employment across the Group
wear parts
• Expansion in the size range of wear parts through
the purchase of larger machining centres
• Giving employees a share in the success of the
Group through bonus and SAYE schemes
• Developing close working relationships with
key suppliers and customers which allow a better
and quicker use of new technologies and designs
• Licensing technology from market leading
companies to expand our product range and
service offerings rapidly and with reduced risks
Pressure Technologies plc
Annual Report 2011
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Company Overview
Pressure Technologies plc
Annual Report 2011
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Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
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Chairman’s Statement
Richard Shacklady, Chairman
Our confidence
in the Group’s
prospects and
financial position
is reflected in the
Board’s dividend
policy.
Our Business Growth Strategy remains
the same, namely to penetrate select
growth sectors with clear synergies to
our core businesses, either organically
or by acquisition, and provide niche,
technology driven, high margin products
for critical applications.
It is disappointing to confirm that the Group’s results for the full year
have, as announced on 21 October 2011, fallen substantially below
market expectations. I am pleased, however, to report that the much
delayed recovery in equipment ordering for the deepwater offshore
oil and gas drilling sector is now underway and there was a notable
acceleration of firm orders at Chesterfield Special Cylinders (“CSC”) in
the second half of the year. Demand for oilfield wellhead components
and equipment from our Engineered Products division also remains
buoyant and this is underpinned by heavy investment in the US oil and
gas sector. The delayed announcement of the Renewable Heat Incentive
had a knock-on effect on orders at our Alternative Energy business,
Chesterfield BioGas (“CBG”). CBG has a number of major quotations at
an advanced stage, which we believe will be converted to firm contracts
during this financial year for delivery over 2012 and 2013.
Results
Revenue for the year ended 1 October 2011 increased to £23.1 million
from £21.7 million in 2010. Operating profit, however, reduced
from £3.5 million in the previous year to £0.65 million. The Group
continued to invest in new products and processes throughout the year,
incurring £2.2 million of capital expenditure to support the long term
development of the business.
Profit before taxation was £0.6 million (2010: £3.5 million), giving basic
earnings per share of 3.5p (2010: 22.3p).
Our strong balance sheet has been maintained by a continued focus
on working capital controls across all the Group’s businesses. Net cash
at 1 October 2011 was £2.9 million (2010: £6.5 million) reflecting
investments of £5.0 million (net) during the year in acquiring Hydratron
and the capital expenditure mentioned above. The Group remains in
a sound position to fund organic development and business growth
programmes from internal cash flow.
Hydratron
Hydratron is the second element of the Engineered
Products division. It designs and manufactures a
range of air operated hydraulic pumps, gas boosters,
power packs, hydraulic control panels and test rigs.
The business operates out of facilities in Altrincham
in the UK and Houston, Texas.
Highlights
• Purchased 15 October 2010 for £3.3 million of which
£0.8 million deferred to 2012
• First half constrained by planned relocation of UK part of
business onto one integrated site
• Second half performance excellent
• US subsidiary making good progress in Houston market
• Commercial team strengthened and prospects for short,
medium and long term are exciting
• Objective remains to double the size of the business by 2015
Given our strong balance sheet and confidence in the medium term
prospects for the Group, borne out by the strong inflow of orders
experienced in recent months, the Board is proposing a final dividend
of 4.8 pence per share, giving a total of 7.2 pence per share for the
financial year, which is unchanged from the previous year. If approved,
this will be paid on 9 March 2012 to shareholders on the register at the
close of business on 17 February 2012. The ex-dividend date will be
15 February 2012.
Strategy and Markets
Our Business Growth Strategy remains the same, namely to penetrate
select growth sectors with clear synergies to our core businesses, either
organically or by acquisition, and provide niche, technology driven, high
margin products for critical applications.
We believe that the best prospects for the Group lie in the global
energy markets. Over the medium and long term, the global demand
for energy is forecast to grow to the point that triggers shortages in
hydrocarbon fuels. We have significant interests in two sectors of this
market, deepwater oil and gas drilling equipment and oilfield wellhead
equipment and we continue to actively review further strategic
acquisitions.
We remain committed to the naval defence market, particularly
submarine, in which we have a strong international presence across
Europe, the Far East, Asia, North and South America. We have long-
established, market leading products and technology in this sensitive,
high integrity market and continue to benefit from both original
equipment sales and aftermarket spares and support.
Our capability in the industrial gases storage and transportation market
has been further strengthened and enhanced as we have demonstrated
our ability to design and build fully finished trailers, storage and
dispensing facilities. CNG and Hydrogen are increasingly recognised as
alternatives to traditional fuels and we believe our involvement in these
sectors has considerable potential.
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Annual Report 2011
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Company Overview
Pressure Technologies plc
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Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
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The potential for CNG derived from biogas, either as a vehicle fuel or
as a supplementary source of natural gas (known as BtG - biomethane
to grid), affords the Group the prospect of participation in a major
alternative energy market. In the UK, natural gas is a major energy
import, often sourced from politically unstable parts of the world.
During the year, we have strengthened our position in this market by
extending our licence from Greenlane® to market and manufacture
biogas upgrade process plants. Greenlane® is recognised as the
international market leader in biogas upgrade technology with
equipment installed and operating worldwide.
The Board continues to believe that investment in new products and
processes at the high end of technology is fundamental to the future
growth of the business. To this end, we continue to prioritise and fund
R&D programmes that will, we believe, provide opportunities for growth
using our unique engineering capabilities.
People
The Group Board continues to play a full role in the development of
the Group. The brief of the Audit Committee has been extended and
it has been renamed the Audit and Risk Committee, recognising the
importance of the additional duties placed on the Group by legislation
such as the Bribery Act. I feel it is worth noting that the never ending
flow of regulation by Government is increasing the burden of corporate
governance, particularly on smaller business and, at times, can be a
significant distraction to the primary task of running the business.
The Group recognises the importance of the skills and knowledge base
of its employees, many in specialised disciplines. We have continued
to invest in our employees, recruiting apprentices and investing in
structured training programmes, up to and including post graduate
training, to ensure that these skills and knowledge are maintained and
transferred to the next generation.
Once again it is appropriate to acknowledge the dedication of our
operational Directors and the skill, commitment and flexibility of all our
employees, perhaps best exemplified by the high level of attendance at
work throughout the periods of most severe weather last winter.
I would like to thank all the Group’s shareholders for their continued
support throughout the difficult and testing period from which, I believe,
we are now emerging.
Our confidence in the Group’s prospects and financial position is
reflected in the Board’s dividend policy and we remain confident that
the Group has the ability to adapt to changes in market conditions and
profitably exploit the opportunities which arise.
Richard L. Shacklady
Chairman
6 December 2011
Prospects
The Group enters the new financial year with order books across its
Cylinder and Engineered Products businesses filling. Overall, our order
book has increased by 50% in the past six months and now stretches
well into 2012. We have not seen this level of activity in these markets
since 2008/09. Activity in the global oil and gas industry has returned
and shows no sign of waning and we expect this momentum to stretch
into 2013 for long lead time products, notably our ultra-large cylinders
for the deep water drilling market.
Further growth is anticipated in our Engineered Products division,
particularly in the North American market where we have secured a
significant foothold. These businesses have been strengthened through
the reorganisation we implemented in 2011 and we are now better
positioned to exploit the opportunities available to us.
The coming year will be a critical for the Group’s alternative energy
business, Chesterfield BioGas; a number of major quotations are
expected to be converted into firm contracts for delivery towards the
latter end of 2012 and into 2013.
The Group is now well along the path of transforming itself, both
organically and through strategic acquisition, into being a better
balanced business with long term growth prospects in niche market
sectors. We are exploring further acquisition opportunities and anticipate
the transformation of the Group to stretch across the next 12-18
months with the benefits starting to show in the current financial year.
Value Added Service
The ability to carry out in-situ statutory inspection of
large fixed cylinder installations gives significant cost
and time savings to CSC’s customers.
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Annual Report 2011
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Business Review
Pressure Technologies plc
Annual Report 2011
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Company Overview
Business Review
Governance
Financial Statements
01-09
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Chief Executive’s Statement
John Hayward, Chief Executive
The Group’s strong
balance sheet and
cash provide a
sound platform
from which to
move forward.
2011 was another tough year for the
Group with the strong performance
of the acquisitions in our Engineered
Products division lessening the effects
of slow market growth in CSC and
CBG. We expect to see good growth
in Engineered Products in 2012 and
the return to growth in Cylinders
accelerating into 2013.
The year for the Group was one of contrasts; the correct trends in
markets were identified in our Cylinder and Alternative Energy divisions
but the timing of growth in these markets was much later than we led
to be expected. By contrast, the acquisitions we made in our Engineered
Products division performed well against our original expectations.
The financial results, in terms of sales and profits, were deeply
disappointing as a lack of market visibility for large contracts and over
optimism led to poor forecasting and a succession of profit downgrades.
On a positive note, the balance sheet remains robust with solid cash
reserves to support the dividend and our future plans.
The key points for the year are:
Cylinders
Sales
Operating Profits
Assets
2011
£m
11.0
1.4
10.7
2010
£m
19.1
4.8
11.7
Chesterfield Special Cylinders (“CSC”) continued to be affected
by the downturn in its principal market in deepwater oil and gas,
where we supply air pressure vessels (“APVs”) for rigs and drillships.
As anticipated, this market has started to recover as global requirements
for new sources of hydrocarbons increases. Market confidence, which
was destroyed by the BP Macondo incident in the Gulf of Mexico,
has returned and we have seen a recent upturn in both forecasted
projects and orders received. This improvement came too late to have
a positive impact on 2011 but, for 2012, we already have orders for
APVs for six drillships, compared to three supplied in the whole of 2011
financial year. The major driver is, as expected, the Brazilian market.
Defence
Pressure Technologies, through CSC has a worldwide
reputation for expertise in cylinders for naval
applications. Expansion of the customer base in recent
years has turned what was a UK centric business into
a major player in the world market. In 2011, cylinders
were supplied to projects in the UK, France, Spain
and Canada.
As our customers’ designs are now being exported,
we are experiencing follow on orders for supply to
countries such as Brazil and India.
Whilst increasing orders are a good thing, the phasing
of deadlines is such that there are wide swings in sales
revenue between years. To counteract this, we are
focused on expanding our customer base to encompass
all major western defence contractors.
Market dynamics have changed and pricing has increasingly become a
critical issue for customers. This has had an impact on margins in this
sector. Having gathered valuable customer feedback, the Board is of
the opinion that CSC has maintained its technical lead in engineering
capability, particularly in system design and product cleaning and
CSC has seen a return of some of the work previously lost to low cost
competitors for the more difficult to manufacture APVs.
The naval defence market experienced strong sales in 2011 but these
will be lower in 2012 due to phasing of projects. Major projects are
already in the order book for the 2013 financial year and there is
a strong pipeline of potential projects. CSC has continued to make
headway developing new markets and a major contract to supply
cylinders for submarines for Brazil was awarded to CSC by DCN for
supply in 2012 and 2013. A five year contract to manage the Royal
Navy’s strategic reserve of cylinders has also been awarded to CSC.
There was no upturn in the external market for new high pressure
trailers but a compressed natural gas (“CNG”) trailer was built for
Chesterfield BioGas and a hydrogen trailer to support the trailer
refurbishment business. We now have a full range of designs for
trailers and a fully developed supply chain for manufacture. Trailer
refurbishment continued to progress and was boosted by our ability
to inspect cylinders in-situ (see below). We expect further progress
in this market in 2012. Beyond 2012, the development of alternative
fuels will lead to an increasing market for the bulk storage and
transportation of CNG and Hydrogen. In 2011, CSC provided the bulk
storage for two CNG filling station projects for Chesterfield BioGas.
The small cylinder market remains affected by cuts in military
aerospace spending but work continues on the long-term project to
develop the next generation of type IV composites for the aerospace
and SCBA markets.
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Business Review
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Company Overview
Business Review
Governance
Financial Statements
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The immediate priority is to strengthen
the Engineered Products division.
This will be centred on Hydratron and
we are actively looking for businesses
that extend Hydratron’s geographical
presence or give vertical integration
within the supply chain. The expansion
of this division will further reduce the
effects of the volatility of the Cylinder
division on Group results.
Oil and Gas
With growth returning to deepwater oil rig and
drillship construction, CSC is now passed the trough
in its principal market which affected the 2011 results.
Serving a much wider part of the market, Engineered
Products experienced solid growth in 2011.
For both divisions, 2012 promises further progress
as experienced by recent order intake.
CSC was successful in developing a British Standard for the in-situ
testing of ultra-large cylinders. This led to work in the UK, Singapore
and Kazakhstan in 2011 and further projects both home and overseas
are already in the order book for 2012. This is an exciting development
and has also led to additional new cylinder contracts including a large
helium installation for 2012 worth over £1 million.
As announced last year, a lean manufacturing programme was started
in 2011 and manufacturing headcount was reduced by 16% to 38
operatives from 45 as part of a productivity improvement programme.
No significant increase in headcount is planned as the business grows
but we have employed a further three apprentices at the start of 2012
as part of our business continuity plan.
To support productivity and quality improvements CSC spent
£0.5 million on capital projects in 2011. The start of the 2012
financial year saw the commencement of an activity based review
of staff functions and an immediate headcount reduction from 27
to 25 was made. The business is high fixed cost because we carry a
large engineering and technical overhead, which is an order winner.
We therefore do not expect significant further cuts in staff numbers
but neither do we foresee large increases as the order book recovers.
Projects are underway to improve gross margins and cut administration
costs during 2012. Capital investment will be centred around our
forging process to reduce our reliance on subcontract cylinder forging.
There is a buzz around CSC’s markets which has not been evident for
some time. We have strengthened our sales presence in Germany where
we have traditionally been weak by employing the sales manager from
one of our European competitors. Subject to current economic issues
in Europe not getting out of control, we are confident that the second
half of 2012 will deliver an improvement in the Cylinder business which
will continue into 2013. This confidence is supported by the order book
which, at the end of 2011, was over £12 million, compared to under
£10 million one year earlier and there continues to be a strong pipeline
of open quotations and tenders.
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 was established in 1981
and is a leading supplier of quality high pressure equipment to the oil
and gas industries worldwide. The business operates out of a modern
manufacturing unit in Altrincham in the UK and a similarly modern but
smaller facility in Houston, Texas. The UK part of Hydratron moved into
its current facilities immediately after the acquisition and the first half
year was impacted by the effects of this planned move. Second half
performance was excellent and order books and prospects are
also excellent.
Both businesses are in markets where on time, in full delivery is poor.
Investment has been made in production systems at both Al-Met and
Hydratron with the aim of reaching automotive industry standards
on deliveries to take market share from competitors. These are markets
where significant growth is forecast. For Hydratron, this growth is
already apparent. Industry forecasts for Al-Met predict sales
at current levels for 2012 but significant growth in 2013 and 2014.
The commercial functions in both businesses have been increased to
ensure that we are maximising sales opportunities and we look for
significant progress in the division over the short to medium term.
Al-Met
Al-Met delivered record sales and profits in its
first full year with the Group.
Engineered Products division
Sales
Operating Profits (before acquisition costs)
Assets
2011
£m
11.2
1.1
10.0
2010
£m
2.0
—
3.4
The division was formed by the purchase of Al-Met in February 2010
and Hydratron in October 2011 and the two businesses have
performed well.
Al-Met’s 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. Its ability
to combine high alloy steels with tungsten carbide inserts and
specialised coatings gives Al-Met its niche position with its customers,
global wellhead and subsea equipment OEMs. Al-Met had record
sales and profits in 2011 as a result of an upturn in its core markets.
Investment of £0.3 million was made to extend the size range and
complexity of products.
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Business Review
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Company Overview
Business Review
Governance
Financial Statements
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Alternative Energy
Sales
Operating losses
Assets
2011
£m
0.9
(0.5)
1.7
2010
£m
0.7
(0.3)
1.3
This was a frustrating year for Chesterfield BioGas (“CBG”), our start-up
alternative energy equipment business. As with CSC, delay in market
growth was the over-riding issue. The principal target market for CBG
is the supply of upgrading equipment to clean biogas produced from
organic waste to produce biomethane suitable for injection into the
natural gas grid (Biomethane to Grid, “BtG”) or use as a vehicle fuel.
Of these uses, BtG is the key growth market for the business but
government delays in announcing the Renewable Heat Incentive (“RHI”)
held the market back. The RHI is necessary to enable BtG to compete
with subsidised Combined Heat and Power (“CHP”) plants; the RHI was
announced six months late, in March 2011 and has been the trigger
for large utility companies to set up dedicated teams focused on BtG.
As a result of this, CBG has seen a significant increase in the number
of enquiries and tenders in the second half of 2011.
Conversion of enquiries and tenders into firm orders is slow as each
project has a number of regulatory and planning hurdles to cross before
contracts can be signed. CBG is well placed to win these projects, as we
supplied the first successful upgrader on an award winning BtG project
at Didcot in September 2010. Unlike our Competition, we are UK
based and we are able to draw on the technical and developmental
resources of Greenlane® Biogas, from whom we have a perpetual licence
for the UK to sell and manufacture their world leading biogas
upgrade technology. Timing of contracts is critical with an order
to delivery period of eight to nine months for an upgrader; the period
to 31 December 2011 will define sales in our 2012 financial year.
As a result of this, the Board felt it prudent to halve our forecasts for
upgrader sales for 2012 from four units to two units.
Developing People
The next generation meets new technology; a graduate
engineer commissioning the new automated brinell
hardness testing machine at CSC. Hands on experience
is a vital ingredient of the development of our
apprentices and graduates and is an important part of
career progression. The majority of senior managers in
our manufacturing businesses started as apprentices.
The immediate priority is to strengthen the Engineered Products
division. This will be centred on Hydratron and we are actively looking
for businesses that extend Hydratron’s geographical presence or give
vertical integration within the supply chain. The expansion of this
division will further reduce the effects of the volatility of the Cylinder
division on Group results.
Summary and outlook
2011 was another tough year for the Group with the strong
performance of the acquisitions in our Engineering Products division
lessening the effects of slow market growth in CSC and CBG. We expect
to see good growth in Engineered Products in 2012 and the return
to growth in Cylinders accelerating into 2013. Major growth in our
alternative energy business, CBG, will be delayed to 2013. The Group’s
strong balance sheet and cash provide a sound platform from which to
move forward.
Whilst the downside risk on the timing of these two projects remains,
we are confident in the medium and long term growth potential of
this market.
John Hayward
Chief Executive
6 December 2011
The 2011 sales for CBG were all for vehicle refuelling with a trailer
and a temporary filling station for Greenwich Council and two CNG
filling stations taking methane from the gas mains for a major logistics
company. Further progress is expected in this market in 2012 as the
cost savings, substituting CNG for diesel, are reported to be high.
Acquisitions
The purchase of Al-Met and Hydratron has proved our capability
in buying and integrating businesses into the Group. The strategy
is straight forward, to acquire niche suppliers in pressure related
technologies with manufacturing capabilities that overlap with the
Group’s core skills in forging, machining and assembly and complement
our expertise in designing and testing pressure systems.
Partnership in Action
Chesterfield BioGas’ close working relationship
with Greenlane® Biogas allows the Group to offer
low risk proven technology into the Biomethane
to Grid market.
Pressure Technologies plc
Annual Report 2011
16
Business Review
Pressure Technologies plc
Annual Report 2011
17
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Principal Risks and Uncertainties
Specific principal risks identified by management are described below together with management actions to minimise these risks:
Key Performance Indicators (“KPI”)
Risk and Impact
Market and Customer Concentration
The Group’s largest subsidiary, CSC, has its revenue concentrated on
the deep water oil and gas sector. Changes in activity in this market,
therefore, have a significant impact on Group results. Additionally, the
number of customers in this market is low and loss of market share
would have a significant impact on Group results.
Contract Delay
CSC earns a significant amount of its revenues from large contracts in
the deepwater oil and gas and defence markets and CBG is a start-up
business in the Biogas to Grid market. In most cases, individual
contracts in these two divisions are material to Group revenues and
the timing of such contracts is influenced by a number of factors
outside the control of the Group.
Supplier Concentration
The Group derives a high proportion of its raw material supplies from
a small number of key suppliers, some of whom are competitors.
Production Concentration
Each product group operates from a single manufacturing site.
In the event of a prolonged interruption to operations, the Group
may not have the ability to transfer its manufacturing activities to
other facilities.
Management Strategy
Development of Markets, Products and Services
The Group has a three-fold strategy to reduce its exposure to this
market. First, significant management resource is allocated to service
the requirements of customers in this market to maintain customer
loyalty. Second, CSC has development programmes for new products
and services to dilute the proportion of total revenues into this market.
Third, growing the other divisions of the Group both organically and
by acquisition.
Focused Project Management
Major contracts are managed through project teams to ensure all
elements in the contract quotation and negotiation process that are
under our control or influence are managed efficiently and effectively.
However, the impact of the timing of contracts on half-year and
full-year revenue remains a significant risk to the Group
Managing and Developing the Suppliers
To reduce the inherent risk of supply from competitors, requirements
are split across the available supplier base. A constant review is
maintained to identify alternative suppliers subject to constraints
on pricing and quality.
Active Site Management
Health, safety and environmental risks which could result in site
closure are managed on a day to day basis by a designated manager
at each site.
Equipment Concentration
The Group has a number of large pieces of equipment at CSC for
which it would be uneconomical to duplicate that equipment to
guarantee continuity of supply in the case of major equipment failure.
A failure in one of these key pieces of equipment could lead to a
prolonged interruption to operations.
Active Equipment Management
Key pieces of equipment are subject to on-going maintenance
programmes and strategic spares for critical components are held.
There remains a risk that, if a major component for which spares cannot
be held failed, operations could still see a prolonged interruption.
Staff Concentration
The Group is small and relies on a small number of key Directors,
senior managers and specialists. A loss of a small number of such staff
could have a major impact on Group revenues and development.
Succession Planning
As the business grows, increases in staff numbers make succession
planning easier and recruitment is already carried out to ensure
that skills and expertise can be duplicated.
Key man insurance is in place for the Group Chief Executive and
Group Finance Director.
Banking Sector Risk
The Group holds significant bank balances and instability in
the banking sector puts these funds at risk if a bank holding our
deposits fails.
Use of Multiple Banks
The Group splits its cash deposits between three banks so that the
failure of a single bank will not result in the loss of the total cash
resources of the Group.
Foreign Currency
The Group purchases some of its raw materials in both US Dollars
and Euros and receives payment for some of its products in Euros.
Movements in exchange rates could potentially impact Group
revenues.
Hedging of Exchange Rate Exposures
The Group has natural hedges for much of its foreign currency exposure.
Regular reviews of the net exposure are maintained and where it is
deemed necessary the exposure is reduced by the use of forward
exchange contracts subject to limits in the Group’s banking facility.
KPI’s
Summary and Calculation of KPI’s
The Board uses key performance indicators when assessing the
performance of the Group. These KPI’s are divided into three sections.
Shareholders
Earnings per share is used as a measure of shareholder return. Earnings
per share are calculated as profit for the period divided by the weighted
average number of shares in issue.
Financial Performance
Growth is measured in terms of sales revenue. The Group has a medium
term target of achieving sales revenues of £40 million and each division
has growth targets. The Group aims to progress towards the target
of £40 million revenue through a combination of internal growth and
acquisitions.
The efficiency of converting sales into profits is measured in terms
of return on revenue. Return on revenue is calculated as operating
profit divided by revenue and is stated after excluding CBG which is
still considered to be in start-up mode (see note 1 for the detailed
segmental analysis). The Group target return on revenue is 20%.
Corporate Social Responsibility
This is sub-divided into two areas.
Health & Safety
The measure used is reportable accidents where the target is Zero
across the Group.
Environment
The measure used is number of reportable environmental incidents.
Again, the target is Zero across the Group.
A full-time health, safety and environmental manager is employed
by Chesterfield BioGas but has responsibility for these matters across
the Group and reports directly to the Group Chief Executive on these
matters.
Graphs of progress for each KPI are shown to the right.Environmental
incidents are not graphed as there has been no reportable incident for
the five year period. Comparative performance for 2011 and 2010 is:
Shareholders
Financial
performance
CSR
Earnings per share
Sales revenue
Return on revenue
Reportable accidents
Environmental incidents
2011
£m
3.5p
£23.1m
5.0%
Zero
Zero
2010
£m
22.3p
£21.7m
18.1%
Zero
Zero
Key issues are that revenues are recovering through growth acquisitions
in the Engineered Products division which have compensated for a
further revenue fall at CSC. The high level of fixed costs at CSC and the
carrying costs of the Chesterfield BioGas start-up have depressed Group
profits with a consequent effect on EPS. Actions to improve profitability
are discussed in the Chief Executive’s statement on pages 10 to 15.
Earnings Per Share - Pence
31.6
32.1
22.3
10.9
3.5
2007 2008
2009
2010
2011
Revenue - £ million
26.2
23.7
23.1
21.7
15.1
2007 2008
2009
2010
2011
Return on Revenue - %
20.8
20.1
18.1
12.4
5.0
2007 2008
2009
2010
2011
Reportable Accidents - Number
3
2
0
0
0
2007 2008
2009
2010
2011
Pressure Technologies plc
Annual Report 2011
18
Governance
Pressure Technologies plc
Annual Report 2011
19
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Directors and Advisers
RL Shacklady
Non-executive Chairman (63)
Richard is a partner with RLS Associates where he works as a
management consultant. He joined the Pressure Technologies business
at the time of the MBO in 2004. He has extensive experience of working
in several roles in the engineering sector, latterly as Managing Director
of Doncasters UK Holdings plc. Richard is also the Non-executive
Chairman of Langley Alloys Limited.
PS Cammerman
Non-executive Director (69)
Philip has over 20 years industrial experience in engineering and hi-tech
industries and has worked in both the UK and USA. He spent 23 years
in the venture capital industry, playing a major part in the development
of the YFM Group into one of the most active investors in UK SME’s.
He retired from all YFM Group businesses in April 2008. Philip is
Chairman of the remuneration committee.
NF Luckett
Non-executive Director (69)
A qualified chartered accountant, Nigel is a former partner of Thomson
McLintock & Co and latterly KPMG and has over 40 years of extensive
corporate finance, insolvency and auditing experience. Since his
retirement from KPMG in 1995 he has had a number of Non-executive
Director and Chairman positions in the broad engineering sector.
Nigel is Chairman of the audit committee.
JTS Hayward
Chief Executive (50)
John has worked for the Company for 11 years, initially as Finance
Director of Chesterfield Cylinders Limited before assuming additional
directorial responsibility for the then Special Products division in 2000.
He led the MBO in 2004 and then assumed the role of Chief Executive.
John is a qualified accountant and has previously worked for Boots,
Courtaulds, United Engineering Steels and T&N. He holds a degree in
Physics from Oxford University.
TJ Lister
Finance Director (56)
James joined the Company in 2008. His previous engineering industry
experience includes seven years with The 600 Group Plc in roles both
as Group Financial Controller and as Finance Director of 600 Lathes.
Prior experience included 15 years with Bridon in a variety of roles
including Group Development Manager where he acted as the in house
mergers and acquisitions manager. James is a qualified chartered
accountant.
Company information
Directors
RL Shacklady – Non-executive
Chairman
JTS Hayward – Chief Executive
TJ Lister – Finance Director
PS Cammerman – Non-executive
Director
NF Luckett – Non-executive Director
Secretary
TJ Lister
Registered office
Meadowhall Road
Sheffield
S9 1BT
Registered number
06135104
Website
www.pressuretechnologies.co.uk
Nominated advisor
Fairfax I.S. PLC
46 Berkeley Square
London, W1J 5AT
Auditors
Grant Thornton UK LLP
Enterprise House
115 Edmund Street
Birmingham
West Midlands, B3 2HJ
Solicitors
hlw Keeble Hawson LLP
Commercial House
Commercial Street
Sheffield, S1 2AT
Bankers
Bank of Scotland
14 Church Street
Sheffield, S1 1HP
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield, HD8 0LA
RL Shacklady
Non-executive Chairman
JTS Hayward
Chief Executive
PS Cammerman
Non-executive Director
TJ Lister
Finance Director
NF Luckett
Non-executive Director
Pressure Technologies plc
Annual Report 2011
20
Directors’ report
The Directors present their report and the audited financial statements for the period from 2 October 2010 to 1 October 2011.
Principal activities
Pressure Technologies plc (“PT”) is the holding Company for the following Group operations:
Chesterfield Special Cylinders Limited (“CSC”) whose principal activities are the design, manufacture and reconditioning of seamless steel high pressure gas cylinders.
Chesterfield Biogas (“CBG”) which was formed to market, sell and manufacture biogas upgrading equipment to produce high purity biomethane for use as a vehicle
fuel or injection into the natural gas grid using technology licensed in perpetuity from Greenlane® Biogas of New Zealand.
Al-Met Limited whose principal activity is the manufacture of precision engineered valve components for use in the oil and gas industry.
On 15 October 2010, PT acquired 100% of the issued share capital of the Hydratron Group of Companies. Hydratron’s principal activity is the design, manufacture
and sale of a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs. Further details of the acquisition
are given in note 26 to the financial statements.
Results and dividends
The consolidated statement of comprehensive income is set out on page 25. The profit on ordinary activities before taxation of the Group for the period ended
1 October 2011 amounted to £0.578 million (2010: £3.506 million).
An interim dividend of 2.4p per share was paid during the period (2010: 2.4p). The Directors recommend a final dividend of 4.8p per share (2010: 4.8p).
Business review
The Chairman and Chief Executive’s Statements on pages 6 to 15 give a detailed review of the current year’s performance.
The operational overview is contained in the Chief Executive’s Statement on pages 10 to 15.
The principal risks and uncertainties and key performance indicators are set out on pages 16 to 17.
Financial overview
• Revenues increased by 7% to £23.129 million (2010: £21.714 million).
• Gross profit decreased by 20% to £6.294 million (2010: £7.860 million) giving a gross margin of 27% (2010: 36%).
• Operating profit has decreased to £1.031 million (2010: £3.677 million) before acquisition related costs of £0.382 million (2010: 0.191 million).
• Profit before tax decreased to £0.578 million (2010: £3.506 million).
• Basic earnings per share were down 84% at 3.5p (2010: 22.3p).
• Net cash decreased to £2.897 million (2010: £6.475 million) following the purchase of the Hydratron Group of Companies for £2.5 million upon acquisition and
the assumption of debt (net of cash) of £0.293 million.
• Capital expenditure on additions to fixed assets for the year was £1.147 million (2010: £0.643 million).
Pressure Technologies plc
Annual Report 2011
21
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Substantial shareholdings
As at 28 November 2011, the following held or were beneficially interested in 3% or more of the Company’s issued ordinary share capital:
D & A Income
JTS Hayward
Artemis
Hargreave Hale
JW Brown
A Harding
YFM Private Equity
Unicorn
PD Catton
The Liontrust Intellectual Capital Trust
PL Redfern
South Yorkshire Investment Capital Fund
Directors and their interests
The present Directors of the Company are set out on page 18 and 19.
Ordinary shares
RL Shacklady (including 22,500 shares held by his wife)
JTS Hayward
PS Cammerman
TJ Lister
NF Luckett (including 7,667 shares held by his wife)
Number of
shares
1,045,000
1,002,221
921,667
761,467
625,454
588,333
483,633
469,767
463,333
376,025
345,000
342,224
1 October
2011
No.
60,500
1,002,221
26,395
3,750
52,000
Percentage of
issued share
capital owned
9.2%
8.8%
8.1%
6.7%
5.5%
5.2%
4.3%
4.1%
4.1%
3.3%
3.0%
3.0%
2 October
2010
No.
60,500
1,000,040
24,395
3,750
52,000
Share options
On 28 July 2011, options were granted over 89,028 ordinary shares under the rules of the Pressure Technologies plc Save-As-You-Earn scheme at an exercise price of
150p. These options are exercisable after 3 years and lapse 6 months after this date if they are not exercised.
On 1 October 2011, there were 106,815 (2010: 67,938) outstanding and exercisable options under the Save-As-You-Earn scheme and a further 73,117 (2010: 73,117)
outstanding and exercisable options under the Enterprise Management Plan.
The Directors’ interests in share options are as follows:
Environment
Pressure Technologies recognises that its activities have an impact on the environment. Managing this impact is an integral part of responsible corporate governance
and good management practice. The Group has developed environmental policies and the main points are listed below:
TJ Lister
TJ Lister
Date granted
Number
Option price
18 August 2009
7 October 2009
6,050
51,612
150p
232.5p
• Overall responsibility for the implementation of these policies is the responsibility of the main Board and the senior management at each Group Company.
The Group will comply with both the letter and the spirit of relevant environmental regulations. Additionally, the Group will actively participate in industry and
Governmental environmental consultative processes.
• The Group is committed to the continuous improvement of its environmental management system. Specifically the Group seeks to reduce waste and energy use
and prevent pollution.
• As part of continuous improvement, it is the policy of the Group to establish measurable environmental objectives and communicate these to all employees.
These documented objectives will be periodically reviewed as part of the management review process. The necessary personnel and financial resources will be
provided to meet these objectives.
• Employees are given such information, training and equipment as is necessary to enable them to undertake their work with the minimum impact on the
environment.
The Group had no notifiable environment incidents in 2011.
Financial instruments
The Group’s operations expose it to a variety of financial risks including the effects of changes in interest rates, foreign currency exchange rates, credit risk and
liquidity risk.
The Group’s principal financial instruments comprise cash and bank deposits together with trade receivables and trade payables that arise directly from its operations.
The Group has entered into derivative transactions in the normal course of trade. It does not trade in financial instruments as a matter of policy.
Information about the use of financial instruments by the Company and its subsidiaries is given in note 20 to the financial statements.
Pressure Technologies plc
Annual Report 2011
22
Directors’ report continued
Donations
Donations made by the Group during the period for charitable purposes in the United Kingdom amounted to £3,120 (2010: £3,000).
Supplier payment policy
The Group’s policy is to comply wherever practical with the terms of payment agreed with its suppliers. The average creditor days were 43 (2010: 47) for the Group.
The Company has no significant trade payables.
Directors’ indemnities
The Company maintains director and officer insurance cover for the benefit of its Directors which remained in force at the date of this report.
Employee involvement
It is the policy of the Group to communicate with employees by regular briefing meetings conducted by senior management. Career development is encouraged
through suitable training and annual appraisals. The Group takes the approach of maximising performance through the heightening of awareness of corporate
objectives and policies.
Disabled persons
The Group gives full and fair consideration to applications for employment from disabled persons, where they have the necessary abilities and skills for that position,
and, wherever possible, will retrain employees who become disabled so that they can continue their employment in another position. The Group engage, promote,
and train staff on the basis of their capabilities, qualifications and experience, without discrimination, giving all employees an equal opportunity to progress.
Going concern
Management has produced forecasts for all business units which have been reviewed by the Directors. These demonstrate the Group is forecast to generate profits
and cash in 2011/2012 and beyond and that the Group has sufficient cash reserves to enable the Group to meet its obligations as they fall due for a period of at least
12 months from when these financial statements have been signed.
As such, the Directors are satisfied that the Company and Group have adequate resources to continue to operate for the foreseeable future. For this reason they
continue to adopt the going concern basis for preparing the financial statements.
Post balance sheet events
There are no post balance sheet events to note.
Statement of Directors’ responsibilities for the financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group financial statements for each financial year. Under that law the Directors have prepared the Group’s financial
statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). Under company law, the Directors must not
approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Group for that period. The
Directors have elected to prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP).
In preparing these financial statements, the Directors are required to:
Pressure Technologies plc
Annual Report 2011
23
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
In so far as each of the Directors is aware:
•
•
there is no relevant audit information of which the company’s auditors are unaware; and
the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the
auditors are aware of that information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the
United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Auditors
Grant Thornton UK LLP are willing to continue in office and a resolution to reappoint them will be proposed at the Annual General Meeting.
Cautionary statement on forward-looking statements and related information
The annual report contains a number of forward-looking statements relating to the Group. The Group considers any statements that are not historical facts
as “forward-looking statements”. They relate to events and trends that are subject to risks and uncertainties that could cause the actual results and financial
position of the Group to differ materially from the information presented. Readers are cautioned not to place undue reliance on these forward-looking
statements which are relevant only as at the date of this document.
By order of the Board
TJ Lister
Secretary
6 December 2011
select suitable accounting policies and then apply them consistently;
•
• make judgments and accounting estimates that are reasonable and prudent;
•
for the Group financial statements, state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial
statements;
for the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed
and explained in the financial statements;
•
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
Pressure Technologies plc
Annual Report 2011
24
Pressure Technologies plc
Annual Report 2011
25
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Report of the Independent Auditor
to the members of Pressure Technologies plc
Consolidated statement of comprehensive income
For the period ended 1 October 2011
Notes
Revenue
Cost of sales
Gross profit
Administration expenses
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the period
Exchange differences on translating foreign operations
Total comprehensive income for the period attributable to the owners of the parent
Earnings per share – basic
– diluted
All the above results are from continuing operations.
The accounting policies and notes on pages 29 to 52 form part of these financial statements.
1
1
1
2
3
4
8
9
9
52 weeks
ending
1 October
2011
£’000
Acquisition
related costs
1 October
2011
£’000
23,129
(16,835)
6,294
(5,263)
1,031
—
—
—
(382)
(382)
52 weeks
ending
1 October
2011
£’000
23,129
(16,835)
6,294
(5,645)
649
8
(79)
578
(177)
401
(3) —
398
3.5p
3.5p
52 weeks
ending
2 October
2010
£’000
21,714
(13,854)
7,860
(4,374)
3,486
39
(19)
3,506
(978)
2,528
2,528
22.3p
22.2p
We have audited the financial statements of Pressure Technologies plc for the period ended 1 October 2011 which comprise the consolidated statement of
comprehensive income, the consolidated and parent company balance sheets, the consolidated statement of changes in equity, the consolidated statement
of cash flows and notes 1 to 26 to the Group consolidated financial statements and notes 1 to 11 to the parent Company financial statements. The financial
reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company
financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
As explained more fully in the Directors’ Responsibilities Statement set out on pages 22 and 23, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the
Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 1 October 2011 and of the Group’s
profit for the period then ended;
the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not
visited by us; or
the parent Company financial statements are not in agreement with the accounting records and returns; or
•
certain disclosures of Directors’ remuneration specified by law are not made; or
•
• we have not received all the information and explanations we require for our audit.
David Munton
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Birmingham
6 December 2011
Pressure Technologies plc
Annual Report 2011
27
Company Overview
Business Review
Governance
Financial Statements
Consolidated statement of changes in equity
For the period ended 1 October 2011
Balance at 3 October 2009
Dividends
Share based payments
Transactions with owners
Profit and total comprehensive income for the period
Balance at 2 October 2010
Dividends
Share based payments
Shares issued
Transactions with owners
Profit for the period
Exchange differences on translating foreign operations
Total comprehensive income
Balance at 1 October 2011
Share
capital
£’000
Share
premium
account
£’000
Profit
and loss
account
£’000
Translation
reserve
£’000
567
—
—
—
—
567
—
—
—
—
—
—
—
567
5,341
—
—
—
—
5,341
—
—
28
28
—
—
—
8,206
(771)
36
(735)
2,528
9,999
(816)
21
—
(795)
401
—
401
5,369
9,605
—
—
—
—
—
—
—
—
—
—
—
(3)
(3)
(3)
The accounting policies and notes on pages 29 to 52 form part of these financial statements.
01-09
10-17
18-23
24-56
Total
equity
£’000
14,114
(771)
36
(735)
2,528
15,907
(816)
21
28
(767)
401
(3)
398
15,538
Pressure Technologies plc
Annual Report 2011
26
Consolidated balance sheet
As at 1 October 2011
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax asset
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Current tax liabilities
Non-current liabilities
Other payables
Borrowings
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Translation reserve
Retained earnings
Total equity
The accounting policies and notes on pages 29 to 52 form part of these financial statements.
The financial statements were approved by the Board on 6 December 2011 and signed on its behalf by:
JTS Hayward
Director
Company number: 06135104
1 October
2011
£’000
2 October
2010
£’000
Notes
11
12
13
21
16
15
16
1
18
17
19
18
19
21
22
1,964
1,962
4,649
245
324
9,144
5,012
6,471
2,939
14,422
23,566
(6,260)
—
(33)
(190)
(6,483)
(744)
(9)
(792)
(1,545)
(8,028)
15,538
567
5,369
(3)
9,605
272
543
3,745
229
321
5,110
3,547
6,601
6,613
16,761
21,871
(3,737)
(21)
(130)
(721)
(4,609)
(668)
(8)
(679)
(1,355)
(5,964)
15,907
567
5,341
—
9,999
15,538
15,907
Pressure Technologies plc
Annual Report 2011
28
Consolidated statement of cash flows
For the period ended 1 October 2011
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax paid
Net cash inflow from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Purchase of licence and distribution agreement
Development costs incurred
Purchase of subsidiary net of cash and cash equivalents
Net cash used in investing activities
Financing activities
Repayment of borrowings
Dividends paid
Shares issued
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accounting policies and notes on pages 29 to 52 form part of these financial statements.
52 weeks ending 52 weeks ending
2 October
2010
£’000
1 October
2011
£’000
Notes
24
26
3,095
(23)
(896)
2,176
8
(1,147)
(800)
(234)
(2,164)
(4,337)
(725)
(816)
28
3,391
(19)
(1,158)
2,214
39
(643)
—
—
(2,010)
(2,614)
(262)
(771)
—
(1,513)
(1,033)
(3,674)
6,613
2,939
(1,433)
8,046
6,613
Pressure Technologies plc
Annual Report 2011
29
Accounting policies
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
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 Company has elected to prepare its parent
Company financial statements in accordance with UK Generally Accepted Accounting Practice (UK GAAP). These are presented on pages 53 to 56.
The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ending 1 October 2011. 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.
Standards and interpretations not yet applied by the Group
There are a number of standards and interpretations issued by the International Accounting Standards Board that are effective for financial statements after this
reporting period. These standards will be effective in future periods:
IFRS 9 Financial Instruments (effective 1 January 2013)
•
IFRS 10 Consolidated Financial Statements (effective 1 January 2013)
•
IFRS 11 Joint Arrangements (effective 1 January 2013)
•
IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013)
•
IFRS 13 Fair Value Measurement (effective 1 January 2013)
•
IAS 27 (Revised), Separate Financial Statements (effective 1 January 2013)
•
IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January 2013)
•
• Disclosures – Transfers of Financial Assets – Amendments to IFRS 7 (effective 1 July 2011)
• Deferred Tax: Recovery of Underlying Assets – Amendments to IAS 12 Income Taxes (effective 1 January 2012)
• Presentation of Items of Other Comprehensive Income – Amendments to IAS 1 (effective 1 July 2012)
The application of these standards and interpretations is not expected to have a material impact on the Group’s reported financial performance or position. However,
they may give rise to additional disclosures being made in the financial statements.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described below, the Directors are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and assumptions that have a material risk to the carrying value of assets and liabilities within the next financial year are discussed below:
Critical accounting judgements
Revenue recognition – Cylinders
The Group recognises revenue when the goods in question have finished production and passed any applicable factory and customer acceptance tests. Where goods
remain on the Group’s premises at the year end at the request of the customer, management consider the detailed criteria for the recognition of revenue from the
sale of the goods as set out in IAS 18 ‘Revenue’. In particular, consideration is given as to whether the significant risks and rewards of ownership are considered to have
transferred to the buyer.
Capitalisation of development costs
The Group capitalises costs in relation to development projects where the requirements of IAS 38 ‘Intangible’ assets are met. This key judgement required to capitalise
the costs is whether future revenues will exceed total forecast capitalised costs. Management make this judgement based on their knowledge of the project, the size
of the market to which it can be sold and the expected demand for the project. Once capitalised, the assets are reviewed for impairment at each reporting date as
explained below.
Impairment reviews – intangible assets
The Group has acquired, through business combinations and through other acquisitions, intangible assets and capitalised certain assets, such as licence agreements
and development costs, which are expected to generate revenue in the future but at a reporting period end may not have generated significant income at that time.
At each reporting period date, the Directors review the likelihood of the assets generating income, the period over which this is likely to be achieved and the potential
income that can be generated. Where it is probable, the future fair value of income will be in excess of capitalised costs the assets are held within the balance sheet at
cost. Where this is not the case, an impairment charge will be recorded to adjust the assets to fair value.
Pressure Technologies plc
Annual Report 2011
30
Accounting policies continued
Key sources of estimation uncertainty
Inventory provisions
The Directors have reviewed the level of inventory provisions carried against inventory in the light of outstanding current and anticipated customer orders. The future
realisation of carrying amounts is affected by whether the anticipated level of orders is achieved.
Trade receivable provisions
The Directors have reviewed the open trade receivable balances at the reporting period end and made provisions where recovery is assessed as doubtful based on
knowledge of the customer, project and age of unrecovered debts.
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 1 October 2011 (2010: to 2 October 2010).
Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through voting
rights. The consolidated financial statements of the Group incorporate the financial statements of the parent Company as well as those entities controlled by the
Group by full consolidation.
In addition, acquired subsidiaries are subject to application of the purchase method. This involves the revaluation at fair value of all identifiable assets and liabilities,
including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the consolidated financial statements of
the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at these fair values,
which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill represents the excess of acquisition cost
over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition.
Intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are eliminated in preparing the consolidated financial
statements.
Business combinations and goodwill
The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities
incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement.
Acquisition costs are expensed as incurred.
The Group recognises identifiable assets acquired and liabilities assumed, including contingent liabilities, in a business combination regardless of whether they have
been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their
acquisition-date fair values.
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of:
fair value of consideration transferred;
the recognised amount of any non-controlling interest in the acquiree; and
•
•
• acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets.
If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in profit or loss
immediately.
Contingent consideration is recognised at its acquisition date fair value. Subsequent changes to this fair value resulting from events after the acquisition date are
recognised through profit or loss.
Pressure Technologies plc
Annual Report 2011
31
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Revenue
Revenue is measured by reference to the fair value of consideration received or receivable and arises from the sales of goods and services provided in the normal
course of business, net of trade discounts, VAT and other sales-related taxes. Revenue from the sale of goods is recognised when the significant risks and benefits of
ownership have been transferred to the buyer, which may be the date the goods are despatched to the customer, completion of the product or the product being ready
for delivery based on specific contract terms; when the amount of revenue can be measured reliably; and when it is probable that the economic benefits associated
with the transaction will flow to the Group.
Cylinders
In respect of revenue recognition within the Cylinders segment, revenue is recognised when the goods in question have finished production and passed any applicable
factory and customer acceptance tests. Goods may not always have been despatched for revenue to be recognised provided the above criteria have been met.
Revenue from services provided by the Group, which does not represent a significant portion of the total revenue, is recognised when the outcome of the transaction
can be estimated reliably and the Group has performed its obligations and, in exchange, obtained the right to consideration.
Engineered Products
In applying the above policy, revenue is recognised in the Engineered Products segment when production is complete, the goods are ready to be despatched and
substantially all the risks and rewards associated with the product have passed to the customer. In the vast majority of cases, despatch takes place as soon as
production has been completed.
Alternative Energy
Revenue is recognised in the Alternative Energy segment when the equipment has been installed and all tests of the equipment installed by the Group have been passed.
Share-based employee remuneration
The Group operates equity-settled share-based remuneration plans for some of its employees. The Group’s plan does not feature any options for a cash settlement.
All services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based
payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is
appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).
All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to the profit and loss reserve.
If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share
options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates
are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior
to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different
to that estimated on vesting. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the
shares issued are allocated to share capital with any excess being recorded as additional paid-in capital.
The cancellation of equity-settled share based payments is accounted for as an acceleration of vesting.
Dividends
Interim dividends are charged in the period in which they are paid. Final dividends are only provided when approved by the shareholders.
Property, plant and equipment
Plant and equipment is stated at cost, net of depreciation and any provision for impairment. Depreciation is applied on a straight-line basis so as to reduce the assets
to their residual values over their estimated useful lives. The rates of depreciation used are:
Plant and machinery
4 – 15 years
The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is
recognised in the consolidated statement of comprehensive income.
Pressure Technologies plc
Annual Report 2011
32
Accounting policies continued
Pressure Technologies plc
Annual Report 2011
33
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Intangible assets
Licence and distribution agreement
Intangible assets are recorded at cost, net of amortisation and any provision for impairment. The Group’s licence and distribution agreement is being amortised over 15
years, being the period over which the Directors have assessed that significant revenues will be generated.
Development costs
Development costs are recognised at cost, net of amortisation or provision for impairment, where the recognition requirements under IAS38 Intangible assets are met.
These are:
•
•
it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and
the cost of the asset can be measured reliably.
These costs are capitalised up to the point development is complete and the asset is then amortised over the period which the asset is expected to generate income. If
at any point the development costs fail to meet the recognition requirements of IAS 38, the costs are expensed through the statement of comprehensive income.
Intangible assets acquired as part of a business combination
In accordance with IFRS 3 ‘Business Combinations’, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the
acquisition date. The fair value of an intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will
flow to the Group.
Such intangible assets are amortised on a straight-line basis over their estimated useful lives as follows:
Customer order book
Non-contractual customer relationships
Over life of the order book – typically 1 year
5 years
Impairment testing of non-current assets
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a
result, some assets are tested individually for impairment and some are tested at cash-generating unit level. An impairment loss is recognised for the amount by which
the assets or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal discounted cash flow evaluation.
Leased assets
In accordance with IAS 17 ‘Leases’, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards
related to the ownership of the asset. The related asset is recognised at the inception of the lease at its fair value or, if lower, the present value of the lease payments.
A corresponding liability is recognised when the interest element of the lease payments represents a constant proportion of the capital balance outstanding and is
charged to profit or loss over the period of the lease.
Income taxes
The tax expense represents the sum of the tax currently payable and deferred tax. Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying
amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill nor on the initial recognition of an
asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with
shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the
foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax
assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible
temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are
expected to apply to their respective periods of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets and liabilities are recognised as a component of tax expense in the consolidated statement of comprehensive income, except where
they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
Accounting for financial assets
The Group has financial assets in the following categories:
•
•
loans and receivables (trade and other receivables, cash and cash equivalents);
financial assets at fair value through profit or loss (derivative financial instruments).
Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial
instrument’s category is relevant for the way it is measured and whether any resulting income and expenses are recognised in profit or loss or directly in equity.
All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets other than those categorised as
at ‘fair value through profit or loss’ are recognised at fair value plus transaction costs. Financial assets categorised as at fair value through profit or loss are recognised
initially at fair value with transaction costs expensed through the consolidated statement of comprehensive income. Changes in fair value due to subsequent
measurement are recognised in profit or loss.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these
are measured at amortised cost using the effective interest method, less provision for impairment. Impairment is considered where the balances are past due or
where there is other evidence that a counterparty may default. Any gains or losses arising as a result of the impairment review are recognised in profit or loss. Pressure
Technologies plc’s trade and most other receivables fall into this category of financial instrument. Discounting on loans and receivables is omitted where the effect is
immaterial. However, where it is required, the asset is held at fair value after discounting and the difference is recognised in the profit and loss account under financing
costs. Long term retentions due on contracts are the main balances where such treatment is required.
All other leases are treated as operating leases. Payments under operating leases are charged to the consolidated statement of comprehensive income on a straight-
line basis over the term of the lease. Lease incentives are spread over the term of the lease. Benefits received as an incentive to enter into an operating lease are spread
over the lease term on a straight line basis.
Receivables are considered for impairment on a case-by-case basis.
Inventories
Inventories are stated at the lower of cost and net realisable value, on a first in first out basis. Cost includes materials, direct labour and an attributable proportion of
manufacturing overheads based on normal levels of activity. Net realisable value is based on the estimated sales price after allowing for all further costs of completion
and disposal. Provision is made for obsolete, slow-moving or defective items where appropriate.
Accounting for financial liabilities
Financial liabilities represent a contractual obligation for the Group to deliver cash or other financial assets. Financial liabilities are initially recognised at fair value,
net of issue costs, when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges and, if applicable, changes in an
instrument’s fair value that are reported in profit or loss are included in the consolidated statement of comprehensive income line items “finance costs” or “finance
income”. The Group’s financial liabilities include borrowings, trade and other payables, and derivative financial instruments. All but the latter are measured at amortised
cost using the effective interest rate method.
Derivative financial instruments
The Group has derivative financial instruments that are carried at fair value through profit or loss. The Group does not hedge account for these items.
Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is determined by direct reference to active market transactions or
using a valuation technique where no active market exists. The Group has foreign currency forward contracts that fall into this category.
Pressure Technologies plc
Annual Report 2011
34
Pressure Technologies plc
Annual Report 2011
35
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Accounting policies continued
Notes to the consolidated financial statements
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts, where they form an integral part of the Group’s
cash management.
Equity and reserves
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the
Group are recorded at the proceeds received, net of direct issue costs. Share premium represents premiums received on issuing of share capital. Retained earnings
include all current and prior year results as disclosed in the consolidated statement of comprehensive income and reserves note.
The translation reserve is used to record foreign exchange translation differences that occur as a result of the translation of overseas subsidiary undertakings’
financial statements.
Retained earnings include all current and prior period results as disclosed in the consolidated statement of comprehensive income.
Foreign currency translation
Foreign currency transactions are translated into the functional currency (being the currency of the primary economic environment in which the entity operates) of
the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from
the settlement of such transactions and from the re-measurement of monetary balance sheet items at year-end exchange rates are recognised in the consolidated
statement of comprehensive income. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at rates prevailing at the date
when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Pounds Sterling is the functional currency of all Group companies and the presentational currency of the consolidated financial statements.
The results of overseas subsidiary undertakings are translated at the average exchange rate (being an approximation to the rate at the date of transactions throughout
the year) and the balance sheets of such undertakings are translated at the year-end exchange rates. Exchange differences arising on the retranslation of opening net
assets of overseas subsidiary undertakings are taken to the translation reserve. On disposal of a foreign operation the cumulative translation differences are transferred
to the consolidated statement of comprehensive income as part of the gain or loss on disposal.
Grants
Grants are recognised where there is reasonable assurance that the entity complies with the conditions attached to them. Grants relating to property, plant and
equipment are treated as deferred income and released to the consolidated statement of comprehensive income over the expected useful lives of the assets
concerned. Other grants are credited to the consolidated statement of comprehensive income in the same period as the related expenditure is incurred.
Pensions
The Group operates defined contribution schemes with costs being charged to the consolidated statement of comprehensive income in the period to which
they relate.
Segment reporting
IFRS 8 requires operating segments to be identified on the basis of the internal reports about operating units of the Group that are regularly reviewed by the Chief
Executive to allocate resources and to assess their performance. The Group operates three main operating segments which represent the main products and services
provided by the Group:
• Cylinders: the design, manufacture and reconditioning of seamless high pressure gas cylinders.
• Engineered products: the manufacture of precision engineered valve components, air operated high pressure hydraulic pumps, gas boosters, power packs,
hydraulic control panels and test rigs.
1. Segment analysis
The financial information by segment detailed below is frequently reviewed by the Chief Executive.
For the period ended 1 October 2011
Revenue
– from external customers
– from other segments
Segment revenues
Operating profit/(loss) before acquisition costs
Acquisition costs*
Operating profit/(loss)
Net finance costs
Profit/(loss) before tax
Segmental assets
Other segment information:
Capital expenditure
Depreciation
For the period ended 2 October 2010
Revenue
– from external customers
– from other segments
Segment revenues
Operating profit/(loss) before acquisition costs
Acquisition costs*
Operating profit/(loss)
Net finance costs
Profit/(loss) before tax
Segmental assets
Other segment information:
Capital expenditure
Depreciation
Cylinders
£’000
Engineered
Products
£’000
Alternative
energy
£’000
Unallocated
amounts**
£’000
11,052
209
11,261
1,440
—
1,440
(55)
1,385
11,161
—
11,161
1,048
(382)
666
(21)
645
916
—
916
(456)
—
(456)
1
(455)
—
(209)
(209)
(1,001)
—
(1,001)
4
(997)
Total
£’000
23,129
—
23,129
1,031
(382)
649
(71)
578
10,748
9,988
1,711
1,119
23,566
504
248
411
248
232
22
—
—
1,147
518
Cylinders
£’000
Engineered
Products
£’000
Alternative
energy
£’000
Unallocated
amounts**
£’000
18,976
118
19,094
4,753
—
4,753
(3)
4,750
2,034
—
2,034
46
(191)
(145)
(8)
(153)
704
—
704
(308)
—
(308)
—
(308)
—
(118)
(118)
(814)
—
(814)
31
(783)
Total
£’000
21,714
—
21,714
3,677
(191)
3,486
20
3,506
11,734
3,375
1,341
5,421
21,871
525
186
—
115
118
14
—
—
643
315
• Alternative energy: marketing, selling and manufacture of biogas upgrading equipment to produce high purity biomethane.
*Acquisition costs include the amortisation of intangible assets acquired through an acquisition and fees associated with acquiring the entity.
Each of these operating segments is managed separately as each requires different technologies, resources and marketing approaches.
**Unallocated amounts include central costs, central assets and unallocated consolidation adjustments.
The measurement policies used by the Group for segment reporting are the same as those used in its financial statements. Amortisation of intangible assets arising
from business combinations and fair value adjustments arising from business combinations are allocated to the operating segment to which they relate.
In addition, corporate overheads and assets not directly related to the business activities of any operating segment are not allocated to a segment.
Pressure Technologies plc
Annual Report 2011
36
Notes to the consolidated financial statements continued
Pressure Technologies plc
Annual Report 2011
37
Company Overview
Business Review
Governance
Financial Statements
1. Segment analysis continued
The following table provides an analysis of the Group’s revenue by geographical destination.
5. Auditors’ remuneration
01-09
10-17
18-23
24-56
2010
£’000
11
27
14
10
13
2011
£’000
11
34
13
11
4
Fees payable to the Company’s Auditor for the audit of the financial statements
Fees payable to the Company’s Auditor and its associates for other services:
– Audit of the Company’s subsidiaries pursuant to legislation
Fees payable to the Group’s Auditors for non-audit services:
– Tax services
– Review of Interim Financial Statements
– Other services
6. Directors’ emoluments
Particulars of Directors’ emoluments are as follows:
Salary and
fees
£’000
Benefits
£’000
Bonus
£’000
Employers
national
insurance
£’000
29
17
17
110
91
264
—
—
—
1
2
3
—
—
—
—
—
—
—
2
2
14
12
30
Total
2011
£’000
29
19
19
125
105
297
Total
2010
£’000
24
17
17
111
94
263
Pension
2011
£’000
Pension
2010
£’000
— —
— —
— —
12
10 9
22
10
19
Non-Executive:
RL Shacklady
NF Luckett
PS Cammerman
Executive:
JTS Hayward
TJ Lister
Total emoluments
All the payments shown for R.L.Shacklady were paid to RLS Associates, a partnership which he controls.
Directors’ emoluments now include the cost of employers’ national insurance contributions and the comparative figures for 2010 have been adjusted to also include
this cost.
The number of Directors who are accruing benefits under money purchase pension arrangements is 2 (2010: 2). The Directors’ interests in share options are given in the
Directors’ Report.
The Group believes that the Directors of Pressure Technologies plc are the only key management personnel under the definition of IAS 24 ‘Related party disclosures’.
In addition to the above, Directors have received dividends during the year as follows:
Non-Executive:
RL Shacklady
NF Luckett
PS Cammerman
Executive:
JTS Hayward
TJ Lister
Total dividends paid to Directors
Total
2011
£’000
Total
2010
£’000
4 4
4 4
2 2
72
— —
82
68
78
Revenue
United Kingdom
Europe
Rest of the World
2011
£’000
11,828
4,850
6,451
23,129
2010
£’000
3,112
5,363
13,239
21,714
The Group’s largest customer contributed 13% to the Group’s revenue (2010: 47%) which is reported within the Cylinders segment. The second largest customer
contributed 12% to the Group’s revenue which is reported within the Engineered Products segment. No other customer contributed more than 10% (2010: the second
largest customer contributed 10% to the Group’s revenue which is reported within the Cylinders segment).
The following table provides an analysis of the carrying amount of segment assets, additions to property, plant and equipment and intangible assets for 2011.
Total assets
Additions to property, plant and equipment
Additions to intangible assets
The 2010 comparative has not been analysed separately by location as they were all located in the United Kingdom.
United
Kingdom
£’000
22,786
1,147
1,800
Rest of
the World
£’000
780
—
—
2. Finance income
Interest receivable on bank deposits
3. Finance costs
Interest payable on bank loans and overdrafts
Interest payable on finance leases
Fair value discounting adjustment on loans and receivables (note 16)
4. Profit before taxation
Profit before taxation is stated after charging/(crediting):
Depreciation of property, plant and equipment – owned assets
Depreciation of property, plant and equipment – assets under finance lease and hire purchase agreements
Acquisition fees
Amortisation of intangible assets – arising on a business combination
– licence and distribution agreement
– development costs
Amortisation of grants receivable
Staff costs (see note 7)
Cost of inventories recognised as an expense
Operating lease rentals:
Land and buildings
Machinery and equipment
Foreign currency loss/(gain)
Fair value of derivative financial instruments
Write down of inventories to fair value less costs to sell
2011
£’000
8
2011
£’000
(18)
(5)
(56)
(79)
2011
£’000
481
37
94
288
83
10
(32)
5,761
11,422
531
54
7
(21)
—
Total
£’000
23,566
1,147
1,800
2010
£’000
39
2010
£’000
(16)
(3)
—
(19)
2010
£’000
293
22
66
125
80
—
(42)
3,020
11,030
548
27
(98)
25
280
Pressure Technologies plc
Annual Report 2011
38
Notes to the consolidated financial statements continued
7. Employee costs
Particulars of employees, including Executive Directors:
Wages and salaries
Social security costs
Other pension costs
Share based payments
The average monthly number of employees (including Executive Directors) during the period was as follows:
Production
Selling and distribution
Administration
8. Taxation
Current tax
Current tax expense
Under provision in prior years
Deferred tax
Origination and reversal of temporary differences
Total taxation charge
Corporation tax is calculated at 27% (2010: 28%) of the estimated assessable profit for the period.
The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
Profit before taxation
Theoretical tax at UK corporation tax rate 27% (2010: 28%)
Effects of:
– non-deductible expenses
– adjustments in respect of prior years
– carry back of losses
– change in taxation rates
Total taxation charge
2011
£’000
5,110
487
143
21
5,761
2011
No.
128
19
18
165
2011
£’000
227
19
246
(69)
177
2011
£’000
578
156
5
19
—
(3)
177
2010
£’000
2,615
278
91
36
3,020
2010
No.
78
7
10
95
2010
£’000
1,007
—
1,007
(29)
978
2010
£’000
3,506
982
23
(29)
2
—
978
Pressure Technologies plc
Annual Report 2011
39
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
9. Earnings per ordinary share
Basic and diluted earnings per share have been calculated in accordance with IAS 33, which requires that earnings should be 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.
Profit after tax
Weighted average number of shares – basic
Dilutive effect of share options
Weighted average number of shares – diluted
Basic earnings per share
Diluted earnings per share
2011
£’000
401
2010
£’000
2,528
No.
No.
11,342,907
21,215
11,333,620
74,633
11,364,122
11,408,253
3.5p
3.5p
22.3p
22.2p
10. Dividends
The following dividend payments have been made on the ordinary 5p Shares in issue:
Final 2008/09
Interim 2009/10
Final 2009/10
Interim 2010/11
Rate
4.4p
2.4p
4.8p
2.4p
Date
12 March 2010
10 August 2010
11 March 2011
10 August 2011
Shares
in issue
11,333,620
11,333,620
11,333,620
11,349,544
2011
£’000
—
—
544 —
272 —
816
At 1 October 2011, the 2010/11 final dividend had not been approved by Shareholders and consequently this has not been included as a liability. The proposed
dividend of 4.8p per share is expected to be paid on 9 March 2012 at a total cost of £545,000.
11. Goodwill
Cost
At 4 October 2009
Additions
At 2 October 2010
Additions (note 26)
At 1 October 2011
2010
£’000
499
272
771
Total
£’000
—
272
272
1,692
1,964
Goodwill additions in the period arose on the acquisition of the Hydratron Group of Companies on 15 October 2010 and represents the excess of the fair value of the
consideration given over the fair value of the identifiable net assets acquired, as detailed in note 26.
Engineered Product division
Al-Met Limited
The Hydratron Group
Date of
acquisition
February 2010
October 2010
Original
cost
£’000
272
1,692
1,964
Pressure Technologies plc
Annual Report 2011
40
Notes to the consolidated financial statements continued
Pressure Technologies plc
Annual Report 2011
41
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
11. Goodwill continued
Goodwill arising on consolidation represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. The Group
has two separate cash generating units (CGUs) both held within the Engineered Product division, Al Met Limited and The Hydratron Group.
13. Property, plant and equipment
Cost
At 3 October 2009
Additions
Acquisitions
At 2 October 2010
Additions
Acquisitions (note 26)
At 1 October 2011
Depreciation
At 3 October 2009
Charge for the period
At 2 October 2010
Charge for the period
At 1 October 2011
Net book value
At 1 October 2011
At 2 October 2010
The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired.
The recoverable amounts of the cash generating units (CGUs) are determined from value in use calculations, covering a four year forecast and applying a discount rate
of 7.5% which equates to the Group’s weighted average cost of capital. The same discount rate is used for both CGUs due to the similarities of the businesses.
The forecast for year one is the forecast approved by management and used within the Group. The forecasts used for years two to four are conservative, with no
assumed growth on year one cash flow figures.
Management’s key assumptions are based on their past experience and future expectations of the market over the longer term.
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs.
Apart from the considerations described in determining the value-in-use of the cash generating unit above, the Group management does not believe that possible
changes on the assumptions underlying the value in use calculation would have an impact on the carrying value of goodwill.
After applying sensitivity analysis in respect of the results and future cash flows, in particular for presumed growth rates and discount rates, management believe that
no impairment is required. Management is not aware of any other changes that would necessitate changes to its key estimates.
12. Intangible assets
Cost
At 3 October 2009
Additions
At 2 October 2010
Additions
At 1 October 2011
Amortisation
At 3 October 2009
Charge for the period
At 2 October 2010
Charge for the period
At 1 October 2011
Net book value
At 1 October 2011
At 2 October 2010
Licence and
distribution
agreement
£’000
Development
expenditure
£’000
Customer
order book
£’000
Non contractual
customer
relationships
£’000
400
—
400
800
1,200
20
80
100
83
183
1,017
300
—
—
—
234
234
—
—
—
10
10
224
—
—
107
107
90
197
—
90
90
107
197
—
17
—
261
261
676
937
—
35
35
181
216
721
226
Total
£’000
400
368
768
1,800
2,568
20
205
225
381
606
1,962
543
The period of the licence and distribution agreement was extended during the year from an initial period of five years to one of in perpetuity at a cost of £800,000.
Development costs relate to internal projects incurred in the year which have been capitalised as they meet the recognition criteria of IAS 38 ‘Intangible Assets’.
The additions to customer order book and non-contractual customer relationships during the year relate to the acquisition of The Hydratron Group of Companies
(note 26).
Plant and
machinery
£’000
4,351
643
1,222
6,216
1,147
275
7,638
2,156
315
2,471
518
2,989
4,649
3,745
Included within the net book value of £4,649,000 is £274,000 (2010: £385,000) relating to assets held under finance lease agreements. The depreciation charged to
the financial statements in the period in respect of such assets amounted to £37,000 (2010: £22,000).
14. Subsidiaries
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 4 to the Parent
Company’s separate financial statements as listed on page 55.
15. Inventories
Raw materials and consumables
Work in progress
2011
£’000
3,014
1,998
5,012
2010
£’000
2,110
1,437
3,547
Included in the total net value above are gross inventories of £835,489 (2010: £797,000) over which fair value provisions have been made of £519,000
(2010: £517,000).
Pressure Technologies plc
Annual Report 2011
42
Notes to the consolidated financial statements continued
16. Trade and other receivables
Current
Trade receivables
Other debtors
Prepayments and accrued income
Non-current
Accrued income
Pressure Technologies plc
Annual Report 2011
43
18. Trade and other payables
Amounts due within 12 months
Trade payables
Other tax and social security
Deferred consideration (note 26)
Accruals and deferred income
Total due within 12 months
Amounts due after 12 months
Other payables
Deferred income
Total due after 12 months
2011
£’000
5,826
46
599
6,471
2011
£’000
324
324
2010
£’000
4,997
159
1,445
6,601
2010
£’000
321
321
Company Overview
Business Review
Governance
Financial Statements
2011
£’000
2,271
222
800 —
2,967
6,260
376
368
744
Included in accrued income are debts not due for settlement for a number of years. Management have reviewed the book value of the assets and applied discounting
to reduce the balances by £56,000 to a fair value of £324,000.
Other payables due after 12 months relate to rental lease incentives, the benefits of which are spread over the life of the lease.
Deferred income due after 12 months relates to grant income received. There are no unfulfilled conditions or other contingencies attached to these grants.
The average credit period taken on the sale of goods and services was 83 days (2010: 78 days) in respect of the Group. Three debtors accounted for over 10% of trade
receivables and represented 11%, 10% and 10% of the total balance. In 2010, three debtors accounted for over 10% of trade receivables and represented 31%, 17%
and 14% of the total balance.
19. Borrowings
Ageing of past due but not impaired receivables:
Days past due:
0 – 30 days
31 – 60 days
61 – 90 days
91 – 120 days
121+ days
Total
2011
£’000
1,002
218
31
—
520
1,771
2010
£’000
446
89
330
12
976
1,853
Of the above receivables more than 121 days past their due date totalling £520,000, £428,000 relates to work carried out on two overseas naval contracts, for which
no impairment provision is considered necessary. Since the financial year end, a payment of £100,000 has been received which settles in full the outstanding balance
on one of these overseas naval contracts.
Secured borrowings
Net obligations under finance leases
Amounts due for settlement within 12 months
Amounts due for settlement after 12 months
The maturity profile of long-term loans is as follows:
Due within one year
Due within one to two years
2011
£’000
42
33
9 8
2011
£’000
33
9 8
42
17. Derivative financial instruments
Obligations under finance leases are secured on the assets to which they relate.
Derivatives carried at fair value not recognised for hedge accounting
– Forward foreign currency contracts
Liability
2011
£’000
—
—
2010
£’000
(21)
(21)
The un-drawn committed borrowing facility and principal features of the Group’s borrowings are described in note 20 of these financial statements.
01-09
10-17
18-23
24-56
2010
£’000
1,748
85
1,904
3,737
371
297
668
2010
£’000
138
130
2010
£’000
130
138
Pressure Technologies plc
Annual Report 2011
44
Notes to the consolidated financial statements continued
Pressure Technologies plc
Annual Report 2011
45
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
20. Financial instruments
Capital risk management
Pressure Technologies plc’s capital management objectives are to ensure the Group’s ability to continue as a going concern and to provide an adequate return to
shareholders through the payment of dividends.
20. Financial instruments continued
Financial risk management objectives
Management monitor and manage the financial risks relating to the operations of the Group through regular reports to the Board. These risks include currency risk,
interest rate risk, credit risk and liquidity risk.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 19, cash and cash equivalents and equity attributable to equity
holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity.
Debt
Cash and cash equivalents
Net cash
Equity
2011
£’000
(42)
2,939
2,897
2010
£’000
(138)
6,613
6,475
15,538
15,907
Debt is defined as long and short-term borrowings, as detailed in note 19. Equity includes all capital and reserves of the Group attributable to equity holders of
the parent.
The Group seeks to minimise the effects of currency risk by using derivative financial instruments. The use of financial derivatives is governed by the Group’s policies
on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments and the investment of excess liquidity.
The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Whilst the Group entered into forward
currency contracts during the period to mitigate foreign currency risk, it did not apply hedge accounting.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, particularly in US Dollars and Euros, and interest rates.
The Group enters into derivative financial instruments to manage its exposure to foreign currency risk. The level of long term borrowings in place at the year end is not
significant to the Group.
Foreign currency risk management
The Group purchases its principal raw materials in US Dollars, Euros and Pounds Sterling and receives payment for its products in Euros, US Dollars and Pounds Sterling.
After netting off foreign currency receipts and payments, there is a net exposure to the risk of currency movements both in US Dollars and Euros. Where necessary, the
net exposure is hedged using forward contracts.
The Group is not subject to externally imposed capital requirements, other than the minimum capital requirements and duties regarding a serious reduction of capital,
as imposed by the Companies Act 2006 on all public limited companies.
The carrying amounts of the Group’s foreign currency denominated monetary financial assets and monetary financial liabilities at the reporting date are as follows:
The Group held the following categories of financial instruments:
Financial assets
Loans and receivables:
– Trade receivables
– Cash and cash equivalents
Financial liabilities
Fair value through profit and loss (FVTPL)
– Derivative instrument – forward currency contract not recognised for hedge accounting
Trade and other payables – held at amortised cost
– Trade payables
– Accruals and deferred income
Borrowings – at amortised cost
Deferred consideration
The fair value of the financial instruments set out above is not materially different from their book value.
2011
£’000
5,826
2,939
8,765
—
2,271
2,967
42
800
6,080
2010
£’000
4,997
6,613
11,610
21
1,748
1,904
138
—
3,811
Australian Dollar
Euro
Norwegian Krone
US Dollar
Financial
assets
2011
£’000
6
2,303
4
565
2,878
Financial
assets
2010
£’000
—
3,681
4
167
3,852
Financial
liabilities
2011
£’000
Financial
liabilities
2010
£’000
73 —
1,555
— —
456
2,084
595
153
748
Foreign currency sensitivity analysis
The Group’s exposure to a 10% exchange rate movement on its foreign currency denominated financial assets and financial liabilities is as follows:
Australian Dollar Australian Dollar
impact
2010
£’000
impact
2011
£’000
Euro currency
impact
2011
£’000
Euro currency
impact
2010
£’000
US Dollar
impact
2011
£’000
US Dollar
impact
2010
£’000
Profit or loss
6
—
68
283
10 1
The use of a 10% movement in exchange rates is considered appropriate given recent movements in exchange rates.
A substantial amount of the Group’s sales and purchases are made in foreign currencies. The exposure to foreign exchange rates varies throughout the year depending
on the volume and timing of transactions in foreign currencies.
Pressure Technologies plc
Annual Report 2011
46
Notes to the consolidated financial statements continued
Pressure Technologies plc
Annual Report 2011
47
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
20. Financial instruments continued
Fair value hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
20. Financial instruments continued
At 1 October 2011, the Group’s liabilities have contractual maturities summarised below:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is clarified is determined based on the lowest level of significant input to one fair value measurement. The only
derivatives entered into by the Group are included in level 2 and consist of foreign currency forward contracts.
Forward foreign exchange contracts
The Group enters into forward foreign exchange contracts to cover specific foreign currency payments and receipts. The Group also periodically enters into forward
foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions out to between 6-12 months. The Group does not hedge
account for the forward currency exchange contracts.
At 1 October 2011, the Group had no outstanding forward exchange contracts (2010: contracts outstanding to purchase €2 million for £1,718,000).
The fair value of forward foreign exchange contracts at 1 October 2011 gave rise to a profit/loss of £nil (2010: loss of £25,000).
Interest rate risk management
Surplus cash is placed on short-term deposit.
If interest rates had been 0.5% higher/lower and all other variables were held constant, the impact on the results in the consolidated statement of comprehensive
income and equity would be an increase/decrease of £11,000 (2010: £30,000).
Price risk management
Where possible the Group enters into contracts incorporating price escalation clauses to mitigate any significant exposure to material price risk.
Credit risk management
The Group’s credit risk is primarily attributable to its trade receivables. The two largest customers within trade receivables account for 21% (2010: 48%) of debtors.
Management continually monitor this dependence on the largest customers and are continuing to seek acquisitions and are also developing new products, customers
and markets to reduce this dependence. Credit risk is managed by monitoring the aggregate amount and duration of exposure to any one customer. The Group’s
management estimate the level of allowances required for doubtful debts based on prior experience and their assessment of the current economic environment. The
Group’s maximum exposure to credit risk is limited to the carrying value of financial assets recognised at the period end. The Group’s management considers that all
financial assets that are not impaired or past due are of good credit quality.
The credit risk on liquid funds is minimized by using counterparty banks with high credit-ratings assigned by international credit-rating agencies.
Liquidity risk management
The Group manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows and by matching
the maturity profiles of financial assets and liabilities.
2011
Trade and other payables
Amounts due under hire purchase agreements
Deferred consideration
2010
Trade and other payables
Amounts due under hire purchase agreements
Forward currency contracts
Current
within
6 months
£’000
4,698
21
400
5,119
Current
within
6 months
£’000
2,978
77
1,718
4,773
Current
6-12 months
£’000
Non current
1 to 5 years
£’000
Less future
interest
£’000
Total net
payable
£’000
—
13
400
413
540
9
—
549
—
(1)
—
(1)
Current
6-12 months
£’000
Non current
1 to 5 years
£’000
Less future
interest
£’000
134
54
—
188
540
8
—
548
—
(1)
—
(1)
5,238
42
800
6,080
Total net
payable
£’000
3,652
138
1,718
5,508
The Group had an un-drawn bank overdraft facility available at 1 October 2011 of £2,000,000 (2010: £5,000,000) which is due for renewal on the 29 February 2012.
The following amounts have been recognised in the consolidated statement of comprehensive income in respect of derivative financial instruments:
Fair value through profit and loss (FVTPL)
– Derivative instrument – forward currency contract not recognised for hedge accounting
Amounts (credited)/charged to cost of sales within the consolidated statement of comprehensive income
2011
£’000
(21)
(21)
2010
£’000
25
25
Fair values
The fair values of financial assets and liabilities are determined as follows:
– Outstanding foreign currency exchange contracts are measured using quoted forward exchange rates at the balance sheet date. The Group does not hedge account.
The carrying value and fair value of the financial assets and financial liabilities are considered to be the same except for on certain debts due in more than 1 year as
explained in note16.
Pressure Technologies plc
Annual Report 2011
48
Notes to the consolidated financial statements continued
21. Deferred tax
The following are the major deferred tax assets/(liabilities) recognised by the Group and movements thereon during the current and prior reporting period.
Accelerated tax
depreciation
£’000
Intangible
assets
£’000
Short term
temporary
differences
£’000
Share Operating lease
incentives
£’000
option costs
£’000
At 3 October 2009
Al-Met Acquisition
Credit/(charge) to income
At 2 October 2010
Hydratron Acquisition
Credit/(charge) to income
At 1 October 2011
(278)
(190)
(143)
(611)
(28)
(51)
(690)
—
(103)
35
(68)
(138)
104
(102)
(3)
—
119
116
—
15
131
6
—
3
9
—
—
9
The net deferred tax balance has been analysed as follows in the consolidated balance sheet:
89
—
15
104
—
1
105
2011
£’000
Total
£’000
(186)
(293)
29
(450)
(166)
69
(547)
2010
£’000
Non-current asset
Deferred tax asset
Non-current liabilities
Deferred tax liabilities
At the balance sheet date, the Group has unused tax losses held in a subsidiary company as disclosed below:
245
229
(792)
(547)
(679)
(450)
Unprovided
2011
£’000
Unprovided
2010
£’000
43
43
2011
No.
2010
No.
2011
£’000
2010
£’000
15,000,000
15,000,000
750
750
11,349,540
11,333,620
567
567
Trading losses
22. Called up share capital
Authorised
Authorised ordinary shares of 5p each
Allotted, issued and fully paid
Ordinary shares of 5p each
During the year, the Company issued 15,920 ordinary shares at a price of 176p increasing share capital by £796 and share premium by £28,000. These shares were
issued to employees exercising their rights to acquire shares under the company’s SAYE/share option plan.
Pressure Technologies plc
Annual Report 2011
49
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
23. Share based payments
Save-as-you-earn Scheme
Pressure Technologies plc introduced a share option scheme for all employees of the Group in November 2007. A third grant of options was made in July 2011. If the
options remain unexercised after a period of 3 years and 6 months from the date of the grant, the options expire. Options are forfeited if the employee leaves the Group
before the options vest. Members of the scheme are required to remain employees of the Group and make regular contributions. The first tranche of options, initially
granted in November 2007, expired during the year.
Details of the share options outstanding during the period are as follows:
Outstanding and exercisable at the beginning of the period
Granted during the period
Lapsed during the period
Exercised during the period
Expired during the period
Outstanding and exercisable at the end of the period
2010
No.
76,650
(8,712)
2011
No.
67,938
89,028 —
(2,516)
(15,920) —
(31,715) —
106,815
67,938
The exercisable options outstanding at 1 October 2011 had a weighted average exercise price of 150p (2010: 168p) and a weighted average remaining contractual life
of 2.5 years (2010: 0.7 years). The terms of these options are as follows:
Date of grant
18 August 2009
28 July 2011
Options
outstanding
at 1 October
2011
17,787
89,028
Vesting
period
3 years
3 years
Market value
at date of
grant (p)
178
160
Exercise
price (p)
150
150
Exercise
period
6 months
6 months
There are no performance conditions that apply to these options other than continued employment.
Pressure Technologies plc Performance Share Plan – Enterprise Management Plan
Pressure Technologies plc introduced a share option scheme for senior employees of the Group in October 2009. On 7 October 2009, options were granted over
116,127 ordinary shares under the rules of the Pressure Technologies plc Performance Share Plan – Enterprise Management Plan at an exercise price of 232.5p. These
options are exercisable between 3 and 5 years following the date of grant. Options are forfeited if the employee leaves the Group before the options vest.
Details of the share options outstanding during the period are as follows:
Outstanding and exercisable at the beginning of the period
Granted during the period
Lapsed during the period
Outstanding and exercisable at the end of the period
2011
No.
73,117 —
—
—
73,117
2010
No.
116,127
(43,010)
73,117
The exercisable options outstanding at 1 October 2011 had a weighted average exercise price of 232.5p (2010: 232.5p) and a weighted average remaining contractual
life of 1 year (2010: 2 years). The terms of these options are as follows:
Date of grant
7 October 2009
Options
outstanding
at 1 October
2011
73,117
Vesting
period
3 years
Market value
at date of
grant (p)
Exercise
price (p)
Exercise
period
232.5
232.5
6 months
There are no performance conditions that apply to these options other than continued employment.
Pressure Technologies plc
Annual Report 2011
50
Notes to the consolidated financial statements continued
23. Share based payments continued
The options granted have been valued using the Black-Scholes model. The inputs into the Black-Scholes model are as follows:
Scheme:
Date granted:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Save-As
-You-Earn
30/11/07
Save-As
-You-Earn
18/08/09
220p
176p
37.6%
3 years
5.2%
0%
178p
150p
32.7%
3 years
4.6%
2.6%
Enterprise
Management
Plan
07/10/10
232.5p
232.5p
42.3%
3 years
3.4%
2.8%
Save-As
-You-Earn
28/07/11
160p
150p
45%
3 years
3.5%
3%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the period since the Group was admitted to AIM. The expected
option value used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural
considerations. The expected dividend yield was based on the Group’s dividend pay out pattern at the date of issue of the options.
The total charge to the consolidated statement of comprehensive income in the period in respect of share-based payments was £21,000 (2010: £36,000). A deferred
tax charge of £nil (2010: £3,000) was recognised in the consolidated statement of comprehensive income during the period in respect of share based payments.
24. Consolidated cash flow statement
Profit after tax
Adjustments for:
Finance costs/(income) – net
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share option costs
Income tax expense
(Profit)/loss on derivative financial instruments
Foreign exchange movement
Changes in working capital:
(Increase)/decrease in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Cash flows from operating activities
2011
£’000
401
71
518
381
21
177
(21)
(3)
(235)
1,235
550
3,095
2010
£’000
2,528
(20)
315
205
36
978
25
—
1,443
(1,673)
(446)
3,391
Pressure Technologies plc
Annual Report 2011
51
Company Overview
Business Review
Governance
Financial Statements
25. Financial commitments
(a) Capital commitments
Commitments for capital expenditure entered into were as follows:
Contracted for, but not provided in the accounts
2011
£’000
112
(b) Operating lease commitments
The Group has entered into commercial leases on certain properties, motor vehicles and items of plant and equipment. At the balance sheet date, the Group had
outstanding commitments for minimum lease payments under non-cancellable operating leases, which fall due as follows:
Land and buildings, leases expiring:
Within one year
In the second to fifth years inclusive
After more than five years
Other assets, leases expiring:
Within one year
In the second to fifth years inclusive
2011
£’000
601
2,571
2,844
6,016
43
23 4
66
01-09
10-17
18-23
24-56
2010
£’000
161
2010
£’000
475
1,916
2,497
4,888
14
18
The operating lease commitment on land and buildings includes the following significant commitments:
• a 15 year lease commenced on 1 July 2005 with rent reviews every five years on the Group factory and offices at Meadowhall, Sheffield;
• a secondary 15 year lease commenced on the same date with rent reviews every five years for the end bays at Meadowhall, Sheffield;
• a third lease was entered into on 7 February 2010, expiring on the same date as the two leases above, for new offices at the above address;
• a 15 year lease for Al-Met Limited’s property commenced on 10 November 2010 with rent reviews at the end of year 5 and year 10 of the term; and
• Hydratron Limited’s10 year property lease commenced on 28 October 2010 and has a rent review at the end of year 5.
Pressure Technologies plc
Annual Report 2011
53
Company balance sheet
As at 1 October 2011
Fixed assets
Investments
Intangible assets
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Net assets
Capital and reserves
Called up share capital
Share premium account
Equity – non distributable
Profit and loss account
Equity shareholders’ funds
The notes on pages 54 to 56 form part of these financial statements.
Approved by the Board on 6 December 2011 and signed on its behalf by:
JTS Hayward
Director
Company Overview
Business Review
Governance
Financial Statements
Notes
4
5
6
7
8
9
9
9
10
01-09
10-17
18-23
24-56
2010
£’000
3,358
300
3,658
403
5,331
5,734
(576)
5,158
2011
£’000
6,687
—
6,687
4,097
640
4,737
(1,354)
3,383
10,070
8,816
567
5,369
50
4,084
10,070
567
5,341
41
2,867
8,816
Pressure Technologies plc
Annual Report 2011
52
Notes to the consolidated financial statements continued
26. Acquisition of subsidiary
On 15 October 2010, the Group acquired 100% of the issued share capital of the Hydratron Group of Companies for an initial cash consideration of £2.5 million to
be followed by two deferred payments of £400,000 each payable on 15 October 2011 and 8 August 2012. 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 transaction has been accounted for by the acquisition
method of accounting.
Intangible assets
recognised on
acquisition
£’000
Book value
£’000
Fair value
£’000
Net assets acquired:
Property, plant and equipment
Intangibles
Inventories
Trade and other receivables
Cash and cash equivalents
Borrowings
Finance leases
Trade and other payables
Current tax liabilities
Deferred tax liability
Goodwill
Total consideration
Satisfied by:
Cash
Deferred cash consideration
Net cash outflow arising on acquisition
Cash consideration
Cash and cash equivalents acquired
275
—
1,230
1,164
336
(574)
(55)
(1,249)
(119)
(28)
980
—
766
—
—
—
—
—
—
—
(138)
628
275
766
1,230
1,164
336
(574)
(55)
(1,249)
(119)
(166)
1,608
1,692
3,300
2,500
800
3,300
2,500
(336)
2,164
Acquisition fees of £94,000 were incurred in the year. These have been recognised in the consolidated statement of comprehensive income.
The £574,000 borrowings in the acquired balance sheet relate to invoice discounting liabilities which were settled by the Group after acquisition and are included
within the consolidated statement of cash flow under repayment of borrowings.
The intangible assets acquired with the business comprise £676,000 for non-contractual customer relationships and £90,000 for the order book.
The goodwill arising on the acquisition of Hydratron is mainly attributable to the skills and talent of the workforce and the anticipated value of new business that the
operation is capable of securing.
The fair value of receivables shown above represents the gross contractual amounts receivable. These have now been collected in full.
The Hydratron Group contributed £6,531,000 to Group revenue and a profit before amortisation and tax of £457,000 for the period between the date of acquisition
and the balance sheet date. The acquisition was completed on 15 October 2010 which is marginally later than the Group’s previous year end of 2 October 2010. The
effect of the inclusion of the acquisition had it been completed on the first day of the financial year is considered to be immaterial upon the Group’s revenue and
profit before tax.
Pressure Technologies plc
Annual Report 2011
54
Notes to the Company financial statements
Pressure Technologies plc
Annual Report 2011
55
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
1. Accounting policies
These financial statements have been prepared under the historical cost convention and in accordance with applicable UK accounting standards and the Companies
Act 2006. Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account. The profit for the
financial year dealt within the financial statements of the holding Company was £2,021,000 (2010: £1,746,000).
4. Investments
Investments
Investments in subsidiary undertakings are stated at cost subject to provision for impairment where the underlying business does not support the carrying value of the
investment. Where the ownership of investments has been transferred between Group undertakings, this has been accounted for at nominal value under the provisions
of merger relief.
Pensions
The Company makes contributions to a defined contribution scheme with costs being charged to the profit and loss account in the period to which they relate.
Share based payments
The share option programme allows Pressure Technologies plc to grant options to Group employees to acquire shares in Pressure Technologies plc. The fair value is
measured at the date of granting the options and spread over the period during which the employees become unconditionally entitled to the options. The fair value
of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount
recognised as fair value is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the
threshold for vesting. Deferred taxation is recognised over the vesting period.
Where the individuals are employed by the parent Company, the fair value of options granted is recognised as an employee expense with a corresponding increase
in equity. Where the individuals are employed by a subsidiary undertaking, the fair value of options to purchase shares in the Company that have been issued to
employees of subsidiary companies is recognised as an additional cost of investment by the parent Company. An equal amount is credited to other equity reserves.
This treatment is in accordance with UITF 44 and FRS 20: Share based payments.
2. Employees
Average weekly number of employees, including Executive Directors:
Administration
Staff costs, including Directors:
Wages and salaries
Social security costs
Other pension costs
Share based payments
Further details of Directors’ remuneration are provided in note 6 to the consolidated financial statements.
3. Operating profit
The Auditors’ remuneration for the audit and other services is disclosed in note 5 to the consolidated financial statements.
2011
Number
4
2010
Number
4
2011
£’000
351
35
19
12
417
2010
£’000
239
31
22
12
304
Cost
At 2 October 2010
Additions (see note 26 to the consolidated financial statements)
Acquisition costs
Inter-group transfer of shares in subsidiary undertakings
Share options granted to subsidiary company employees
At 1 October 2011
The principal subsidiaries which are all 100% owned, are:
Name
Al-Met Limited
Chesterfield BioGas Limited (“CBG”)
Chesterfield Special Cylinders Limited (“CSC”)
Hydratron Limited
Hydratron Inc
The trade and assets of the biogas division of CSC were transferred to CBG with effect from 3 October 2010.
5. Intangible assets
Cost
At 2 October 2010
Transfer to CBG
At 1 October 2011
Amortisation
At 2 October 2010
Transfer to CBG
At 1 October 2011
Net book value
At 1 October 2011
At 2 October 2010
The licence and distribution agreement was transferred to CBG at book value during the year.
6. Debtors
Amounts: falling due within one year
Prepayments and accrued income
Amounts owed by Group companies
Investment
in subsidiary
companies
£’000
3,358
3,300
94
(74)
9
6,687
Country of incorporation
Principal activity
England & Wales
England & Wales
England & Wales
England & Wales
USA
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Licence and
distribution
agreement
£’000
400
(400)
—
100
(100)
—
—
300
2010
£’000
41
362
403
2011
£’000
49
4,048
4,097
Pressure Technologies plc
Annual Report 2011
57
Company Overview
Business Review
Governance
Financial Statements
01-09
10-17
18-23
24-56
Pressure Technologies plc
Annual Report 2011
56
Notes to the Company financial statements continued
7. Creditors: amounts falling due within one year
Trade creditors
Other tax and social security
Accruals and deferred income
Deferred consideration
Amounts owed to Group companies
2011
£’000
24
14
53
800
463
1,354
8. Share capital
Details of the Company’s authorised and issued share capital and of movements in the year are given in note 22 to the consolidated financial statements.
9. Reserves
At beginning of period
Profit for the financial period
Share option costs
Share options granted to subsidiary employees
Shares issued
Dividends
At end of period
Share
premium
account
2011
£’000
5,341
—
—
—
28
—
5,369
Equity – non
distributable
2011
£’000
41
—
—
9
—
—
50
Profit
and loss
account
2011
£’000
2,867
2,021
12
—
—
(816)
4,084
Share
premium
account
2010
£’000
5,341
—
—
—
—
—
5,341
10. Reconciliation of movements in equity shareholders’ funds
Equity shareholders’ funds at beginning of period
Profit for the financial period
Dividends paid
Share option costs
Share options granted to subsidiary employees
Share issued
Equity shareholders’ funds at end of period
Equity – non
distributable
2010
£’000
20
—
—
21
—
—
41
2011
£’000
8,816
2,021
(816)
12
9
28
10,070
2010
£’000
35
7
69
—
465
576
Profit
and loss
account
2010
£’000
1,880
1,746
12
—
—
(771)
2,867
2010
£’000
7,808
1,746
(771)
12
21
—
8,816
11. Related party transactions
The company has taken advantage of the exemption available under FRS 8 not to disclose transactions with fellow members of the Pressure Technologies plc Group.
The interests of Directors’ in dividends paid during the year are disclosed in note 6 to the consolidated financial statements.
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Pressure Technologies plc
Meadowhall Road
Sheffield
S9 1BT
UK
Telephone +44 (0) 114 242 7500
Fax +44 (0) 114 242 7502
www.pressuretechnologies.co.uk