Pressure Technologies plc
Annual Report 2014
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Engineered Products
Cylinders
Alternative Energy
Pressure Technologies plc Annual Report 2014
Strategic Report
Welcome
A leading designer and
manufacturer of high pressure
engineering systems, serving
the global energy, defence
and industrial gases markets.
Chesterfield Special Cylinders scoops
top award at Made in Sheffield 2014
As the overall Made in Sheffield winner, CSC was deemed
by the judges to have contributed most to maintaining the
national and international renown of the Made in Sheffield
Brand for the high quality craftsmanship so synonymous
with the Sheffield city region.
Find out the latest online at
www.pressuretechnologies.com
01 Pressure Technologies plc Annual Report 2014
Highlights
£54.0m
Record Revenue
(2013: £34.4m) – up 57%
28.5p
Basic Earnings per Share
(2013: 19.4p) – up 47%
£7.8m
8.4p per share
Underlying Operating Profit*
(2013: £3.3m) – up 138%
Total Dividend
(2013: 7.8p)
£5.6m
Operating Profit
(2013: £2.9m) – up 93%
£5.8m
Net Funds
(2013: £4.0m)
*Before acquisition costs, amortisation on acquired businesses and exceptional costs
Record revenues and profits with all divisions growing in the year
Successful share placing in March, raising £16.1 million net
Strategy of product and market diversification to reduce impact
of cyclicality in the oil and gas industry continues apace:
– Acquisition of Roota Engineering, March
– Acquisition of Greenlane Biogas and Quadscot, post year-end
Engineered Products division is now the largest contributor
to revenue and profit
New organisational structure with four divisions and divisional
MDs to be introduced in 2015
Strong management teams and market positions across
all the Group’s businesses driving growth
New financial year began with underlying order book 14% higher
than the prior year
Welcome to Pressure Technologies
“The Group will continue its growth
strategy of combining acquisitions
and organic growth. The priority with
recent acquisitions is to complete their
successful integration, but we may
pursue further acquisitions if the right
opportunities present themselves.”
Alan Wilson
Chairman
Strategic Report
Highlights
Chairman’s Statement
Group Structure and Markets
Business Review
Financial Review
Key Performance Indicators
Risks and Uncertainties
Governance
Directors and Advisers
Report of the Remuneration Committee
Directors’ Report
Report of the Independent Auditor to
the Members of Pressure Technologies plc
Financial Statements
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
Company Balance Sheet
Notes to the Company
Financial Statements
01
02
04
10
14
18
20
22
24
27
31
32
33
34
35
36
44
66
67
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 02 Pressure Technologies plc Annual Report 2014
Strategic Report
Chairman’s Statement
“This has been an
excellent year for
Pressure Technologies
in all respects, with the
Group delivering record
sales and profits.”
This has been an excellent year for
Pressure Technologies in all respects,
with the Group delivering record sales
and profits. The Group received strong
support from existing and new investors,
who backed a successful share placing
which raised £16.1 million in March. The
Board has already put these funds to
work in support of its strategy to continue
broadening the Group’s market presence
in selective growth markets. Roota
Engineering was acquired in March, using
£10.5 million of the placing proceeds and
we completed the groundwork for the
acquisitions of Greenlane and Quadscot
immediately after close of the financial
year. A strategic investment in Kelley GTM,
a US-based manufacturer and developer
of composite cylinder technology, was
also completed in January to widen our
market and knowledge base in one of
our core technologies.
Results
The Group ended the year strongly
with revenue at £54.0 million (2013:
£34.4 million). Underlying operating
profit more than doubled to £7.8 million
(2013: £3.3 million), yielding a strong
return on sales of 14.5% (2013: 9.5%).
As a measure of consistency and solidity
throughout the Group, it is encouraging
to note that all three operating Divisions
recorded improved sales and profits.
The Group’s balance sheet continued
to strengthen on the back of improved
trading results and acquisitions, with
a year-end net asset value of £36.5
million (2013: £17.5 million) and £5.8
million of net cash (2012: £4.0 million).
The Board is continuing its progressive
dividend policy and proposes an 8%
increase in the final dividend to 5.6p
per share (2013: 5.2p), giving a total
dividend for the year of 8.4p (2013:
7.8p), which will be paid to shareholders
on 17 March 2015.
Trading and Market Conditions
We started the year with strong order
books and overall market conditions
were mostly favourable for Pressure
Technologies’ companies. Our two
Divisions that are dominated by the
upstream oil & gas industry, Cylinders
and Engineered Products, enjoyed an
increasing order intake trend during
the first three quarters, with a gradual
decline in order intake thereafter in
line with market changes. Nonetheless,
both Divisions finished the year with
order books higher, or similar, to last
year-end levels.
Our Alternative Energy division generated
a strong order intake, particularly during
the second-quarter, ending the year
with an order book 30% higher than the
comparable figures from last year. There
are substantial market opportunities for
expansion, particularly now that we have
secured Greenlane Biogas as part of
the Group.
Following the addition of Roota,
Greenlane Biogas and Quadscot to the
Group, we are changing our organisation
structure and adding a Precision
Machined Components Division, which
comprises Al-Met, Roota and Quadscot.
The two Hydratron companies will form
the Engineered Products Division, whilst
Alternative Energy will include Chesterfield
Biogas (“CBG”) and Greenlane. The
Cylinders Division remains unchanged.
The Board’s strategy to reduce the impact
of cyclicality in the oil and gas industry,
primarily via acquisition, has lessened the
historic dependence on large contracts
for major capital assets. The Group’s
diverse product portfolio and broader
industrial focus now encompasses
smaller capital projects and consumables.
Pressure Technologies is now a more
£54.0m
Revenue (2013: £34.4m)
£7.8m
Underlying Operating
Profit (2013: £3.3m)
14.5%
Return on Sales (2013: 9.5%)
03 Pressure Technologies plc Annual Report 2014
balanced Group and the contribution
from each Division will be quite different
in this new financial year, in comparison
to last year, where revenues were
dominated by Cylinders and Engineered
Products. In the future, we expect that
each of Precision Machined Components,
Engineered Products and Alternative
Energy will drive the Group’s growth, with
Cylinders enhancing Group profitability.
The Group has grown rapidly in the
last year. We have increased Group
staff to manage this growth, introducing
a Director of Strategy Development and
supporting commercial and financial
expertise to maintain appropriate
corporate governance and control.
The Board has been careful to acquire
companies with strong management
teams and we are very pleased with
the quality of senior management that
has been added to the Group since
the Spring.
Outlook
The Group will continue its growth
strategy of combining acquisitions
and organic growth. The priority with
recent acquisitions is to complete their
successful integration, but we may
pursue further acquisitions if the right
opportunities present themselves.
Continued organic growth must be
viewed against a background of low
global economic growth, geopolitical
tensions and oil price uncertainty. Whilst
it is pleasing to report that the Group
ended the year with a like for like order
book 14% higher than last year, we expect
a reduction in sales into the deepwater
oil and gas market in Cylinders, but
continued growth through our other
divisions as a result of our market position
and the full year contribution of recent
acquisitions. The Board views current
market conditions with caution, but
we start 2015 in a much stronger and
more balanced position overall, so
I am optimistic about the year ahead.
Alan Wilson
Chairman
9 December 2014
Vision and Strategy
Vision
Our vision is to create a highly profitable group of companies, specialising
in technology for the containment and control of liquids and gases in
pressure systems.
Strategy
Our strategy to achieve this is to identify and develop, profitable niche
opportunities in growth sectors for pressure products through a combination
of organic initiatives and by acquisition.
Opportunities are identified through a combination of internal knowledge
gained from collective Group awareness of our markets, primarily gained from
our customers, agents, distributors and suppliers. This is further underpinned
by detailed market research prepared both internally and through third parties.
The strategy is designed to minimise risk to the Group by overconcentration
in any one product line or market, whilst at the same time minimising the risk
of expansion by focusing on markets and technologies immediately adjacent
to our current ones. As a result of this, we build a better balanced Group.
Organic growth opportunities are identified by the individual businesses
within the Group, reviewed and supported by the Group executive. Technology
risk is minimised by focusing on evolutionary development, building on our
existing capabilities and knowledge base.
Profitability is underpinned by a continuous process of cost and
waste minimisation, controlled by the individual Group businesses.
Acquisition opportunities are kept under review by the Board, working
together with the Group businesses. The Group has structured acquisition
criteria to maintain the focus on the vision and to minimise risk.
Acquisitions are generally of businesses with closely related technologies and
manufacturing capabilities to our existing businesses, in markets where the
Group has a developed presence. They should be profitable or at a stage of
development where profitability is close to being achieved and there is a clear
path for the growth of the business. Management teams of the acquisition
target should be stable, talented and capable of delivering growth with
support from Group.
Share Price
Total Shareholder Return (TSR) is calculated to show the theoretical
growth in the value of a shareholding over a specified period assuming
that dividends are reinvested to purchase additional shares.
Pressure Technologies
FTSE AIM All-Share
450
400
350
300
250
200
150
100
50
0
Oct
2009
Oct
2010
Oct
2011
Oct
2012
Oct
2013
Oct
2014
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 04 Pressure Technologies plc Annual Report 2014
Strategic Report
Group Structure and Markets
10
years of
progress
During the period under review the
Group was organised into three
divisions: Engineered Products,
Cylinders and Alternative Energy.
These divisions serve four markets:
Oil and Gas, Defence, Industrial
Gases and Alternative Energy.
Historically, the divisions have been heavily directed from
Group Head Office. The growth of the Group in recent
months means this is no longer viable and a new four
division structure has been developed to tackle this.
Each division will be headed by a Managing Director,
supported by a dedicated Finance Director. The move
towards a new divisional structure has already begun
and will be fully implemented during the 2015 financial
year. Some of the new positions created will be
filled by talented managers from within the Group,
augmented by external hires where necessary. Divisional
Managing Directors will report to the Chief Executive.
Management buy
out of the Special
Products Division
of Chesterfield
Cylinders
2004
Floated on the
AIM market
2007
2008
Set up
Chesterfield
BioGas
2005
Moved to
Sheffield
Engineered Products
The Engineered Products division has been constructed from
acquisitions made since 2010. During the period under review,
this comprised precision machining companies, Al-Met, based
near Cardiff and Roota Engineering, based in Rotherham, and
pump and pressure test and control systems manufacturer
Hydratron based in Altrincham and Houston, Texas, USA.
Al-Met was acquired in the 2010 financial year, Hydratron
in 2011 and Roota Engineering in March 2014.
Immediately after the year-end, a further precision machining
company, Quadscot, based near Glasgow, was acquired. As a
result of this latest acquisition, the division will be split into two,
Precision Machined Components and Engineered Products and
the Group will report as four divisions with effect from the start
of the current financial year.
Read more information on our acquisition of Roota Engineering on p12
05 Pressure Technologies plc Annual Report 2014
Acquisition
of Al-Met &
Hydratron to form
the Engineered
Products Division
2010
Kelley GTM
strategic investment
£
2013
Acquisition of
Greenlane Biogas
and Quadscot
2014
2010
First Biogas to
Grid plant in
the UK
2014
Secondary raise on AIM
& Acquisition of Roota
Engineering
Cylinders
Alternative Energy
The Cylinder division is comprised of wholly owned subsidiary,
Chesterfield Special Cylinders Ltd (“CSC”) based in Sheffield
and associate company Kelley GTM based in Amarillo, Texas,
USA. Chesterfield Special Cylinders was the core of the Group
at IPO on AIM in 2007.
This division supplies a range of high pressure cylinder systems
into the oil and gas, defence and industrial gases markets.
During the period under review the Alternative Energy division
was solely comprised of Chesterfield BioGas, an organically
grown business started by the Group in 2008 using licensed
technology to enter the emerging market for equipment
to upgrade biogas to create biomethane in the UK (see
Markets on page 09).
Immediately after the period end, the Group acquired the
business and assets of Greenlane Biogas creating a global
presence in the biogas upgrading market with subsidiaries
in the UK, Canada and New Zealand.
Read more information on our acquisition of Kelley GTM on p11
Read more information on BioGas on p13
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 06 Pressure Technologies plc Annual Report 2014
Strategic Report
Group Structure and Markets continued
07 Pressure Technologies plc Annual Report 2014
Overview of our Markets
Oil and Gas
Market served by:
Cylinders / Engineered Products
£39.6m
2014 Revenue
73%
2014 % of
Group Revenues
2013
2012
2011
2010
£27.6m
£24.0m
£15.4m
£13.8m
2013
80%
2012
79%
2011
2010
67%
64%
As the largest market for the Group, the oil and gas market
provides the prime focus for both the Cylinder and Engineered
Products divisions. In the Cylinders division, CSC supplies
a range of ultra-large high-pressure cylinders for motion
compensation systems on drill-ships, semi-submersible
drilling rigs, floating cranes and diving support vessels.
It has also developed inspection services to inspect cylinders
in-situ on rigs and vessels, marketed under the Integrity
Management brand.
In the Engineered Products division, Al-Met and Roota supply
a range of components for flow control and downhole tools.
Hydratron supplies a range of high-pressure pumps, power
units, control panels and test rigs.
The five-year revenue profile shows the positive impact of
diversification through acquisition. In 2010, CSC accounted
for 85% of turnover, centred on the supply of equipment
into large capital infrastructure projects. In 2014, CSC’s sales
only accounted for 32% of the Group total, with the balance
being generated by the Engineered Products division, supplying
into much smaller capital projects and consumable equipment.
Overall market conditions were favourable for Pressure
Technologies companies during most of the year. The price
of Brent crude oil, our primary market indicator, remained
above US$100 per barrel until mid-June 2014, underpinned
by a forecast increase of 0.8% in global oil demand during
2014, reaching 91.53 million barrels per day. Declining
demand from quarter-three onwards, as a result of lower
than expected global economic growth, has since caused
a significant reduction in the oil price, reaching a four-year
low in December. As a result of our strong order backlog,
the oil price dip did not materially impact sales during our
second-half year of trading.
The reduction in spending by major oil companies, mentioned
in the interim report, continued into the second half of 2014,
with firms such as Royal Dutch Shell and Exxon Mobil turning
to asset sales and spending cuts, thereby delivering higher
shareholder returns as opposed to production growth.
The medium and long-term outlook remains favourable. There
is general agreement amongst market commentators that the
world demand for energy is set to grow by over 50% between
2010 and 2035. According to OPEC projections, energy from
renewable sources is forecast to provide around 3% of global
demand by 2035, whilst biomass and nuclear could account
for 9% and 6% respectively. Consequently, energy derived from
fossil fuels will continue to make up over 80% of world demand
by 2035.
Whilst the long-term demand for more energy seems beyond
doubt, the short-term picture is uncertain. At the present time,
there are three major factors that make market forecasting
rather difficult: the much reported oil price war between the
USA and Saudi Arabia, lower global economic growth than
expected and geopolitical tensions in several countries such
as: Iraq, Iran, Libya, Egypt, Tunisia, Nigeria, Syria, Yemen,
Somalia and Ukraine.
This general air of uncertainty has resulted in major
development projects being postponed, or re-engineered
to reduce costs. Day rates and utilisation of semi-submersible
drilling rigs have been in decline for the past year, as new rigs
come to market and oil companies delay drilling programmes
until there is more market certainty. At year-end, there was
a 10% reduction in the number of semi-submersibles and
drillships due for delivery in the next 3-4 years compared
to last year.
The impact of these developments in the market differs
across the Group and is discussed in the business review.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 08 Pressure Technologies plc Annual Report 2014
Strategic Report
Group Structure and Markets continued
Overview of our Markets continued
Defence
Industrial Gases
Market served by:
Cylinders / Engineered Products
Market served by:
Cylinders / Engineered Products
£3.5m
2014 Revenue
7%
2014 % of
Group Revenues
2013
2012
2011
2010
£3.8m
£2.2m
£4.5m
£3.7m
2013
2012
2011
2010
11%
7%
19%
17%
£2.3m
2014 Revenue
4%
2014 % of
Group Revenues
2013
2012
2011
2010
£1.8m
£3.9m
£2.3m
£3.5m
2013
5%
2012
13%
2011
2010
10%
16%
The major driver for the Industrial Gases market is GDP growth.
Our principal markets are Europe and the UK, so recent years
have seen low capital expenditure from the gas majors and
little infrastructure development. CSC supplies a range of
high-pressure trailers and bulk storage packs into the market.
Hydratron supplies test systems for pressure components
(e.g. valves, hoses, transducers).
In the medium term, significant growth is expected in the
market for Hydrogen as a fuel source. This market will be at
pressures significantly above the normal 200 to 300 bar range
for standard industrial gases. Demands of this market suit the
product range of both CSC and Hydratron and, for cylinders,
are at pressures that most competitors lack proven capability.
This is the second largest market for CSC, which has specialist
capability in the manufacture of high-pressure cylinders for
submarines, surface vessels and military aircraft. Work done
over the last decade to expand the customer base for naval
applications has reduced the “lumpiness” of defence revenue
and there is a good forward visibility on projects in Germany,
South Korea and the UK. Although defence budgets around
the world are under pressure, submarine build programmes
have continued.
The market is less sensitive to competition due to the
complexity of products, quality requirements and the
bureaucratic overhead. However, countries, such as the
USA, have regulations which protect indigenous suppliers.
CSC is the major supplier in the naval market to NATO and
NATO friendly nations with the exception of the USA.
There are significant medium term opportunities, the
largest of which is the UK’s Trident replacement programme
for which we are working with defence OEMs on initial,
small-scale prototypes.
Integrity Management services are widely used in the UK naval
sector and are now being offered on overseas naval contracts.
09 Pressure Technologies plc Annual Report 2014
Alternative Energy
Market served by:
Chesterfield BioGas
£8.6m
2014 Revenue
16%
2014 % of
Group Revenues
2013
2012
2011
2010
£1.2m
£0.3m
£0.9m
£0.7m
2013
2012
2011
2010
4%
1%
4%
3%
Through its subsidiary CBG, the Group specialises
in technology for the upgrading of biogas produced
from the anaerobic digestion of organic waste. A typical
composition for biogas could be 65% methane, 35% carbon
dioxide and traces of Hydrogen Sulphide and Siloxanes.
A biogas upgrader removes the majority of carbon dioxide
and trace gases to give 98%-99% pure methane, termed
biomethane. Biomethane can then be injected into the
natural gas grid, or may be used as a vehicle fuel as
a substitute for diesel or petrol. The principal market
in the UK is for upgraded biogas to be put into the gas
grid, termed Biogas to Grid (“BtG”).
CBG was an early entrant into the BtG market having
the licence to provide proven upgrading technology from
Greenlane Biogas, New Zealand, for the UK market. CBG
completed the first BtG project in the 2011 financial year
at Didcot in Oxfordshire. The UK market has been slow
to develop for three major reasons:
1) The Gas industry is very cautious and was unwilling
to accept evidence from successful European projects
as proof that the technology was suitable for the UK.
The installation at Didcot helped to dispel this caution.
2) BtG competes against Combined Heat and Power (“CHP”)
as a use of biogas. Although burning raw biogas in a CHP
engine to create electricity is a less energy efficient process,
CHP had the advantage that it was heavily subsidised,
therefore there was little incentive to invest in BtG. The
Renewable Heat Incentive (“RHI”) corrected this situation,
but took over two years from inception to passing into law
in 2012. Following the release of the RHI, a second BtG
project was completed at the beginning of the 2013
financial year.
3) The Health and Safety Executive (“HSE”) was concerned over
the allowable levels of oxygen in biomethane and insisted
on a full review which resulted in levels being brought into
line with the rest of Europe in 2013. Prior to this all projects
were approved on a case by case basis.
The HSE action in 2013 opened up the market as
demonstrated by the 2014 step up in sales. However,
the market is still highly sensitive to the level of incentive/
subsidy and a recent delay in publishing the results of
a review of the RHI has slowed down the receipt of new
orders in the UK.
Immediately after the 2014 financial year-end, the Group
purchased the business and assets of Greenlane Biogas,
giving us a global presence in the biogas upgrading market.
Greenlane’s experience mirrors that of CBG in that high
activity markets are generally incentivised. Particularly active
markets for Greenlane are USA, Canada, Brazil and France.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 10 Pressure Technologies plc Annual Report 2014
Strategic Report
Business Review
Cylinders
£21.4m
2014 Revenue
2013
2012
2011
2010
£17.3m
£16.3m
£11.3m
£19.1m
£3.8m
2014 Operating Profit
2013
2012
2011
2010
£3.6m
£2.3m
£1.4m
£4.8m
“The past year has seen
another material step
change in our businesses.
Once again the Group
delivered improved
results and diversification
continued apace.”
The past year has seen another material
step change in our businesses. Once
again the Group delivered improved
results and diversification continued
apace. Our three divisions, Cylinders,
Engineered Products and Alternative
Energy, experienced growth in revenue
and operating profit. The Group is much
better balanced and with a significant
contribution from the Alternative Energy
division reducing the dependence on
the oil and gas market. The March 2014
acquisition of Roota Engineering, coupled
with growth at Al-Met and Hydratron,
ensured that the Engineered Products
division overtook Cylinders on revenue
and operating profit, giving a much better
balance in Group revenue across the oil
and gas sector cycle.
With a placing on AIM in the year and two
major acquisitions immediately after year
end, this has been an incredibly busy year
for the Group.
The key points for the year are:
Cylinders Division
Chesterfield Special Cylinders (“CSC”)
had another good year, underpinned
by significant volume growth in its
principal market, the supply of Air
Pressure Vessels (“APVs”) for motion
compensation systems in the deep water
oil and gas market. This volume growth
was achieved after agreeing significant
price reductions to maintain a market
presence against stiff competition from
South Korea. The impact of competition
in this market is amply demonstrated by
the reduction in margins in 2014, where
revenues were 38% higher compared
to 2010 at which time CSC had almost
a 100% share of the market.
The general air of uncertainty in the oil
and gas sector has resulted in major
development projects being postponed,
or re-engineered to reduce costs. Day
rates and utilisation of semi-submersible
drilling rigs have been in decline for the
past year, as new rigs come to market and
oil companies delay drilling programmes
until there is more market certainty. At
year end, there was a 10% reduction in
the number of semi-submersibles and
drillships due for delivery in the next 3-4
years compared to last year. Order intake
for this market has slowed markedly and
we continue to expect lower revenues
in the current financial year as a result.
Defence sales were slightly down on
the prior year due to the phasing of
submarine build programmes. Further
contracts were won in the UK, Germany
and South Korea, which give a solid
foundation to the defence order book
for the next two years.
Sales of services were in line with last year
with an increase in Integrity Management
sales being masked by a reduction in
factory based retest work due to a slower
industrial gases market and a reduction
in specialist cleaning due to phasing of the
Astute submarine programme. Integrity
Management is now being offered on
overseas naval contracts and has built
steadily in the UK defence and the oil
and gas markets.
11 Pressure Technologies plc Annual Report 2014
The market for new high pressure gas
trailers has continued to be depressed.
We did, however, complete orders for
two new state-of-the-art compressed
natural gas (“CNG”) trailers. These trailers,
developed with a major industrial gases
company, were designed and built by
CSC using lightweight, composite cylinders
supplied by Worthington. As previously
stated, as the use of alternative fuels
such as CNG and hydrogen increases,
we expect the market for this type of
trailer and large high pressure storage
facilities to increase. This view is backed
by third-party market research. CSC
remains actively engaged in this market
through its German subsidiary, CSC
Deutschland GmbH.
Capital spend in the year of £1 million
was centred on forging equipment
for ultra-large cylinders. This is due
to enter production in January 2015.
A further £0.7 million is planned for
2015 to complete this investment.
In January 2014, the Group took
a 40% stake in Kelley GTM (“KGTM”)
a manufacturer of packaged, type II
composite, welded ultra-large cylinders
known as GTMs (Gas Transportation
Modules). This start-up business is
focused on the sale of GTMs into the
onshore oil and gas market, for the
delivery of CNG to displace diesel fuel
on drilling rigs and for the capture of
gas currently burned in flares at oil
wells. US environmental legislation will
eventually lead to a total ban of flaring
at oil wells. That said, development
of the market has been slower than
anticipated and the Group has taken
a cautious approach to the valuation
of its £2.4 million investment in KGTM.
The Group has the option in 2015
to increase its stake in the business
to 80%. The decision to exercise and
the cost of doing so is dependent on
the performance of KGTM in calendar
years 2014 and 2015. For further details,
see the Financial Review on page 16.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 12 Pressure Technologies plc Annual Report 2014
Strategic Report
Business Review continued
Engineered Products
£24.1m
2014 Revenue
2013
2012
2011
2010
£16.0m
£13.9m
£11.2m
£2.0m
£4.0m
2014 Operating Profit
2013
2012
2011
2010
£1.6m
£1.0m
£1.0m
£0.0m
Engineered Products Division
As forecast, the division became the
largest in the Group both in terms
of revenue and operating profits. Progress
is illustrated by the five-year performance
with Al-Met acquired part-way through
2010, Hydratron at the beginning of 2011
and Roota Engineering acquired in March
2014. A further acquisition, Quadscot,
was made shortly after the year end
and the division will be split in 2015
with Al-Met, Roota and Quadscot forming
the Precision Machined Components
division and the Hydratron businesses
in the UK and USA in the Engineered
Products division. It is pleasing to note
that Hydratron and Al-Met achieved
a payback on initial investment during
2014; both have now contributed more
in terms of profit before taxation and
amortisation charges than they cost
to buy.
Hydratron manufactures a range of
air operated high pressure hydraulic
pumps, gas boosters, power packs,
hydraulic control panels and test rigs,
mainly for use in the oil and gas sector.
Al-Met produces wear-resistant
components in a range of high alloy
steels and tungsten carbides for use
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. Roota and Quadscot make
a wide range of components for oil and
gas pressure systems and downhole tools
with Roota generally focusing on larger,
longer products and Quadscot focusing
on smaller product in a range of high
alloy materials.
Market conditions for the division started
the year well, with OEMs reporting record
order intake and profits during 2013.
However, the market became somewhat
subdued during the second-half of 2014
as oil companies began to delay major
projects for the reasons stated earlier.
Nonetheless, the underlying order book
for Engineered Products ended the year
at the same level as last year.
The Hydratron businesses had record
sales and profits with its US subsidiary
making a full-year profit for the first time.
The project to reduce the level of in-house
manufacture of components in the UK
to free up additional space for assembly
of pumps and systems was completed in
the year and increased the space available
by 50%, whilst giving a saving on the cost
of components.
Hydratron is an order of magnitude
smaller than its major competitors,
so growth is possible even in a slowing
market by taking market share. This
will be the focus for 2015, particularly in
the USA, where our market presence is
very small. There will also be a continued
focus on product development
particularly in automation of control
panels and component test systems.
The precision machining businesses
have an advantage over both Hydratron
and CSC as many of the products they
manufacture are consumables, so
there is an ongoing requirement for
replacement parts from oil and gas
production. This, coupled with the
In support of changes at the senior levels,
our graduate and apprentice recruitment
programmes move forward rapidly. At
the financial year-end the Group had six
graduate trainees and 14 apprentices
out of a total work force of 278. The
acquisition of Quadscot brings a further
11 apprentices into the Group. Greenlane
does not have any apprentices but it has
the highest concentration of graduate and
post-graduate qualified staff in the Group.
Summary and Outlook
This was a notable year for the Group, not
just because of the record revenue and
operating profit, but growth in Engineered
Products and Alternative Energy, coupled
with recent acquisitions means, that the
Group is much better balanced both in
its oil and gas market sales and across its
wider markets. The current financial year
will be tougher due to the slowdown in
the oil and gas market, but we still expect
to see growth in the Group as a whole
due to this diversification. This is a very
exciting time for Pressure Technologies.
John Hayward
Chief Executive
9 December 2014
13 Pressure Technologies plc Annual Report 2014
full year effect of ownership of Roota
and Quadscot, should give further
progress in the current year. Critical
to this is on-time, in-full delivery on sales
orders, which all the businesses have
a focus on. Capital expenditure on new
machining equipment will almost double
in 2015, from just over £1 million in 2014
to around £2 million. This will be mainly
financed through leasing, on attractive
terms, to smooth cash flows.
Once again, we have significant organic
growth potential which we will vigorously
pursue and we need to ensure we
bed-in the latest acquisitions, but we
will also continue looking for acquisition
opportunities to expand the range of
products in both Precision Machined
Components and Engineered Products.
Alternative Energy
£8.4m
2014 Revenue
2013
2012
2011
2010
£1.1m
£0.2m
£0.9m
£0.7m
£1.1m
2014 Operating Profit/ (Loss)
2013
2012
2011
2010
(£0.5)m
£(0.5)m
£(0.5)m
£(0.3)m
Alternative Energy Division
2014 was the year when Chesterfield
BioGas (“CBG”) delivered on its long-term
goal. CBG sells a range of equipment
for cleaning raw biogas produced by
anaerobic digestion of organic waste.
The cleaning process uses water to
strip out unwanted gases, such as
carbon dioxide, producing almost pure
methane, known as biomethane, which
is then injected into the UK natural gas
grid. In the energy sector, this is termed
Biogas to Grid (“BtG”). The technology was
licensed from Greenlane Biogas, a leading
developer and global supplier of patented
technology for upgrading raw biogas to
high purity biomethane.
CBG was the first company in the UK
to provide equipment for BtG at Didcot
in 2010. In October 2012, CBG delivered
its second BtG project to a waste
processing site in Stockport and this was
the reason for the increase in sales over
2012. The market was slow to grow due
to a combination of delays in releasing
the Renewable Heat Incentive (“RHI”) and
regulatory hurdles to large scale injection
of biomethane into the UK gas grid. These
were overcome in 2013, resulting in the
transformational increase in the business
in 2014.
As well as delivering on revenue and
profits, CBG enjoyed a strong order
intake, particularly during the second-
quarter, ending the year with an order
book 30% higher than the comparable
figure from last year.
The Board continue to see substantial
market opportunities for CBG, which
justified our acquisition of the business
and assets of Greenlane Biogas when
the opportunity occurred at the end of
the financial year. This move significantly
strengthens our market position, by giving
us access to the full range of project
execution skills from design through
to plant hook-up and commissioning
and a world-wide market. Greenlane
has subsidiaries in New Zealand, Canada
and Europe. The European business
covers Europe and the Middle East. It is
now managed out of the UK by CBG and
will rebrand to Greenlane during 2015.
The Canadian business covers North
and South America. The New Zealand
business will focus on sales into new
markets in Australasia, South East Asia
and China.
People
The depth and breadth of senior
management in the Group has been
significantly enhanced by recent
acquisitions. This, together with our
ongoing commitment to strengthening
our existing senior management
through training, development and
targeted recruitment is key to the
successful progress of the Group.
Introduction of the new structure
in 2015, with divisional Managing
Directors is necessary to maintain the
progress of Group companies due to
the size and complexity of the Group.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 14 Pressure Technologies plc Annual Report 2014
Strategic Report
Financial Review
“Revenue grew by 57%
to £54.0 million (2013:
£34.4 million) with
growth seen across
all three divisions.”
Revenue
Revenue grew by 57% to £54.0 million (2013: £34.4
million) with growth seen across all three divisions.
Revenue in the Alternative Energy division grew by
£7.3 million as a result of work on four (2013: one)
projects for biomethane upgrade units. Revenue in
the Engineered Products division includes £5.8 million
following the acquisition of Roota Engineering in March.
Profitability
The movement in profitability between the two years
was as follows:
Earnings before interest, taxation,
depreciation and amortisation
(“EBITDA”)
(Stated before charging acquisition costs of £0.9m
(2013: £0.2m) and provisions associated with the
Group’s investment in KGTM of £0.7m (2013: £nil)
Depreciation
Amortisation –
Chesterfield BioGas licence
Operating profit before acquisition
costs, amortisation re: acquired
businesses and provisions associated
with the Group’s investment
in KGTM
Amortisation charges arising
from the acquisition of
Al-Met and Hydratron
Amortisation charge arising from
the acquisition of Roota Engineering
Acquisition costs
Provisions associated with the
Group’s investment in KGTM
Share of KGTM’s results
Profit before taxation
2014
£m
8.7
2013
£m
4.0
(0.8)
(0.1)
(0.6)
(0.1)
7.8
3.3
(0.2)
(0.2)
(0.5)
(0.9)
(0.7)
(0.2)
5.3
–
(0.2)
–
–
2.9
The Group seeks to target niche markets which offer
the prospect of both high margins and significant growth.
The Group uses return on revenue as a key performance
indicator. This indicator is set before taking into account
the cost of acquiring businesses and the subsequent
amortisation charge on the intangible assets so acquired,
and this year, the provisions associated with the Group’s
option in and loan to KGTM as detailed more fully on
page 46.
Disclosure of acquisition related costs and
amortisation charges for acquired businesses
Growth is expected to be achieved both by organic
means and by acquiring businesses which are
themselves then capable of achieving significant
growth. As a consequence, acquisition costs, goodwill
and intangible assets are expected to be a recurring
theme within the Group’s financial statements.
In accordance with International Financial Reporting
Standard (IFRS) 3, the cost of market research and
professional fees in relation to possible acquisitions
is expensed in the year in which it is incurred.
The remaining carrying value of the intangible assets
with respect to the 2010 acquisitions of Al-Met and
Hydratron of £0.1 million (2013: £0.3 million) will be
fully amortised in 2014/15. It is pleasing to report that
in the four years since these businesses were bought
they have now contributed more in terms of profit
before taxation and amortisation charges than they
cost to buy.
The annual amortisation charge in respect of Roota
Engineering is expected to be £0.9 million per annum
for the next seven years.
15 Pressure Technologies plc Annual Report 2014
Earnings as reported
Adjustment for:
Acquisition costs
Amortisation charge on acquired businesses
Deferred tax release on amortisation charge
Provisions made against investment in KGTM
2014
£’000
2013
£’000
2014
Earnings
per share
2013
Earnings
per share
3,711
2,200
28.5p
19.4p
862
694
(138)
718
220
187
(37)
–
6.6p
5.3p
(1.0p)
5.5p
1.9p
1.6p
(0.3p)
–
Adjusted (“Normalised”) earnings
5,847
2,570
44.9p
22.6p
Weighted average number of shares in issue in the period
13,025,349
11,361,221
Management of foreign exchange exposure
The Group has two major exposures to movements
in foreign exchange rates. Historically these have
mainly related to trading in international markets
but increasingly and particularly with the Greenlane
acquisition which was completed post the year end,
the Group is now also exposed to currency movements
with respect to the value of its overseas investments.
In the year under review, the principal exposure, which
arose from trading activities, was to movements in the
value of the Euro and US Dollar relative to Sterling.
As Group companies both buy and sell in overseas
currencies, particularly the Euro, there is a degree of
natural hedge already in place. At the transactional level,
where exchange movements are quickly realised, foreign
exchange contracts are taken out to cover the majority
of this exposure. As at the 27 September contracts were
in place to cover the forward sale of Euro’s 2.9 million
and US$0.7 million.
At the present time no cover is held against the value of
overseas investments as these are expected to be held
for the long term and over the next year dividend flows
are not expected to be significant.
The effect of acquisition costs, the amortisation charge
that relates to acquired businesses and provisions
associated with the Group’s investment in KGTM had
a significant effect on earnings per share as the table
above shows.
Given the significance to the Group of the acquisition
of Roota Engineering and of the acquisitions completed
shortly after the financial year end, the Board intends
to publish both reported and normalised earnings per
share figures in future.
Taxation
The effective tax rate for the Group in 2014 was 30.6%
(2013: 23.6%). Adjusting to exclude acquisition related
costs of £0.9 million and the provisions made against the
investment in KGTM of £0.7 million for which no tax relief
is available, the effective tax rate would have been 23.6%.
Corporation tax (all of which relates to the UK), paid
during 2014 totalled £1.7 million.
Accounting policies
The Group adopted International Accounting Standard
(IAS) 11 on accounting for “Construction contracts” for
the first time this year. Revenue and profits on such
projects are now taken in proportion to the stage of
completion of each contract. Adoption of the standard
had no effect on the comparative figures as there were
no such projects in existence at that time. At the end of
the current financial year three projects were in progress
and following the acquisition of Greenlane immediately
after the financial year end, such contracts will
henceforth form a much larger part of Group revenue.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
16 Pressure Technologies plc Annual Report 2014
Strategic Report
Financial Review continued
Corporate activity during 2013/14
The Group completed two investments during the year
with the first being funded from existing cash resources
and the second via a share placing.
Investment in and loan provided to KGTM
In December the Group announced that it would,
effective from 1 January 2014, be making a strategic
investment to acquire a 40% stake in KGTM at a cost
of US$0.5 million (£0.3 million). As part of the investment
package the Group also agreed to provide a working
capital loan of US$3.5 million (£2.1 million) and was
granted an option to acquire a further 40% stake.
Pressure Technologies has a “one off” ability to exercise
this option within a period of 90 days from receipt of
the audited results for 2014.
The price of exercising the option is dependent on the
level of profitability in calendar years 2014 and 2015
with a minimum exercise price of US$5 million and
maximum of US$16 million if key profitability targets
are met. As detailed below, the target for 2014 will not
be met so the maximum exercise price, based on hitting
the performance target for 2015, is now US$11 million.
KGTM is a leading manufacturer of gas transportation
modules (“GTMs”) which utilise a standard 20 foot ISO
container to transport gas cost effectively. The business
is based in Amarillo, Texas. Whilst the rate of order
enquiries is steadily increasing, the rate of conversion
of these into firm orders has, to date, been behind
expectations. The Group’s share of KGTM’s losses for
the nine months to the end of September of £0.2
million is included within the Group’s Consolidated
Statement of Comprehensive Income.
In light of the above trading performance and the knock
on effect on future year’s profitability from the delay
in building up production levels, the Board has taken
a cautious view in assessing the carrying value of its
investment in KGTM. A provision of £0.4 million has
been made against the value placed on the option
at inception and a provision of £0.3 million has been
made against the carrying value of the loan provided
to KGTM. These provisions, which in aggregate total
£0.7 million, represent one third of the total value
of the loan provided to KGTM. In addition, as detailed
in note 2 to the financial statements, no credit has
been taken for any interest receivable on the
loans made.
Purchase of Roota Engineering
In March the Group purchased 100% of the share
capital of Roota Engineering Ltd for an initial
consideration of £9.0 million (plus surplus cash
balances of £1.5 million) with additional deferred
consideration of up to £4.5 million based on the
financial performance of the business over the two
year period following acquisition. Further details on
this acquisition can be found in note 28.
Share placing
The initial purchase consideration for the acquisition
of Roota Engineering was financed by a vendor placing
of 1,856,174 new ordinary shares at a price of 575 pence
per share. At the same time 1,048,174 new ordinary
shares were also placed, again at a price of 575 pence
per share, to raise £6.0 million Gross for corporate
purposes. Net of expenses, the Group raised
£16.1 million from the share placing.
Cash flow
The Group started the year with cash of £4.0 million
and ended the year with cash (net of borrowings) of
£5.8 million.
The table below sets out the main movements during
the year in the net cash position of the Group:
Earnings before interest, tax,
depreciation and amortisation
(EBITDA)
Movement in working capital
Capital expenditure (net of disposals)
Operating cash flow
UK Corporation tax paid
Dividend paid
Share issues
Investment in KGTM
Purchase of Roota Engineering
(net of cash acquired)
Loan advanced to Greenlane
Biogas Holdings Limited
2014
£m
7.1
2013
£m
3.8
(3.8)
(2.2)
1.1
(1.7)
(1.0)
16.2
(2.4)
(7.6)
(0.2)
(0.8)
2.8
(0.6)
(0.9)
–
–
–
(2.8)
–
Net movement
1.8
1.3
17 Pressure Technologies plc Annual Report 2014
The Group delivered a strong trading performance with
EBITDA of £7.1 million. Revenue in the final quarter of
the financial year at £18.5m was particularly strong with
£5.7 million of revenue recognised in the Alternative
Energy division. As a result of this strong trading
performance, year-end trade receivables are at
a much higher level than normal, resulting in an
adverse movement in working capital during the year.
Acquisition of Quadscot Holdings Ltd
On 1 October 2014 the Group acquired 100% of the
share capital of Quadscot Holdings Ltd for an initial
consideration of £7.3 million (plus cash balances
acquired) and deferred consideration up to a maximum
of £3.0 million based on the financial performance
of the business over the two years immediately
following acquisition.
Capital expenditure at £2.2 million (net of disposals)
was higher than in recent years with expenditure of
£1.0 million in the Cylinders division and £1.3 million
in the Engineered Products division.
The Group raised £16.1 million in a placing of shares
to finance both the acquisition of Roota Engineering
and to provide resources to finance future acquisitions
and internal growth opportunities. The Group invested
£2.4 million in KGTM in January 2014 and advanced
£2.8 million to Greenlane Biogas Holdings Limited
by way of a secured loan prior to completion of the
acquisition on 1 October.
The acquisition was funded by drawing on £7.0 million
from the Group’s new banking facility with the balance
funded from the Group’s existing cash resources.
Ongoing financial management of the Group
Following recent corporate activity the Group has grown
considerably in size and further growth is planned.
Against this background, the finance function in each
division is being strengthened with the appointment
of an operationally focused finance director. The small
head office finance team will concentrate on corporate
reporting, the review of divisional performance,
acquisitions appraisal, treasury and taxation matters.
James Lister
Group Finance Director
9 December 2014
Events after the reporting period
Banking facilities
Immediately after the financial year-end the Group
concluded a new four year banking facility with Bank
of Scotland (part of the Lloyds banking group). The facility
which is available until 30 September 2018 comprises
a £15 million multi-currency revolving credit facility and
an accordion feature that allows the total revolving
credit facility to be expanded by a further £10 million.
Acquisition of Greenlane
On 1 October 2014 the Group completed the acquisition
of the business and assets of Greenlane Biogas Holdings
Ltd and its various subsidiaries. The maximum total
consideration is NZ$25 million (£12.4 million) comprising
an initial consideration of NZ$12.0 million (£6.0 million)
with additional deferred payments split over four years
of up to a maximum of NZ$13.0 million (£6.4 million).
The initial consideration is being met from the Group’s
existing cash resources.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 18 Pressure Technologies plc Annual Report 2014
Strategic Report
Key Performance Indicators (“KPIs”)
The Board uses key performance indicators
when assessing the performance of the Group.
These KPIs are divided into three sections:
Revenue – £ million
54.0
34.4
30.4
21.7 23.1
2010 2011 2012 2013 2014
54.0m
Revenue
Financial Performance
Growth is measured in terms of sales revenue.
The efficiency of converting sales into profits
is measured in terms of return on revenue.
Return on revenue is calculated as operating
profit pre acquisition costs and related amortisation,
the results of associated companies and the effect
of the provisions associated with the investment
in KGTM, divided by revenue. In previous years
it was stated after excluding Chesterfield BioGas
which was still considered to be in start-up mode.
However, this is not the case in the current year
and as such the return on revenue includes all
subsidiaries. The Group target return on revenue
is 15%.
Return on revenue – %
19.0
14.5
10.8
8.1
6.7
2010 2011 2012 2013 2014
14.5%
Return on Revenue
19 Pressure Technologies plc Annual Report 2014
Adjusted earnings per share – pence
44.9
23.1
22.6
12.5
6.2
2010 2011 2012 2013 2014
Reportable accidents
2
1
1
Shareholders
Adjusted earnings per share is used as a measure
of shareholder return.
Details of the calculation of adjusted earnings per
share can be found in the Finance Director’s report.
Corporate Social Responsibility (CSR)
This is sub-divided into two areas:
44.9p
Adjusted Earnings
per Share
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 opposite.
0
0
1
Environmental incidents are not graphed as there has
been no reportable incident for the five year period.
2010 2011 2012 2013 2014
Reportable Accident
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 20 Pressure Technologies plc Annual Report 2014
Strategic Report
Risks and Uncertainties
Specific principal risks identified by management are
described below together with management actions
to minimise these risks:
Risk and Impact
Strategic risks
Management Strategy
Economic / Market downturn
The Group has a significant exposure to large capital
infrastructure projects in the deep water oil and gas
market sector.
The Group has development programmes for new products
and services to dilute the proportion of total revenues into
these markets and are growing other activities of the Group,
both organically and by acquisition.
A downturn in the deep water oil and gas market
may have a significant impact on results of the
Cylinder division.
Competition
The Group has a number of suppliers who are also
competitors.
The Group has a number of major competitors in some
of its key markets who offer a wider range of products.
Some of these competitors are also suppliers to various
Group businesses. This exposes the Group to a risk that
they might seek to displace Pressure Technologies
position in the market.
Operational risks
Management resource
The Group has a small management team.
The Group is a relatively small, but fast-growing business
and relies on a 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.
Key employee knowledge / skill base
The Group relies on skilled artisans who are often difficult
to find in the market.
For certain business units, skills required on the shop floor
are difficult to acquire and the age profile of the workforce
means that there is a risk that knowledge will be lost or
there will not be enough staff available to support ongoing
business and planned expansion.
The acquisition of Roota Engineering and Quadscot
has increased revenue in the oil and gas consumable
equipment market which the Board believes is less
sensitive to oil price fluctuations.
CBG and the recent acquisition of Greenlane Biogas
has helped balance the Group’s portfolio away from
the traditional oil and gas sector.
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.
As part of the longer term strategy, the Group continues
to expand into high value, niche markets, where there
are fewer competitors and the barriers to entry are higher.
Product development is pursued in order to maintain
and grow the product range and reduce reliance on
competitive suppliers.
As the Group grows, increasing staff numbers makes
succession planning easier and recruitment is already
in hand to ensure that management skills and expertise
is broadened.
The introduction of divisional Managing Directors will
increase the pool of senior managers in the Group.
Individual business units are tasked with ensuring
adequate cover to maintain operations.
There is a programme of training around the Group
businesses to ensure the company develops the skills
required via apprenticeship programmes, graduate
training schemes and internal development.
The Group provides attractive employment terms
and conditions to ensure it attracts and retains suitable
skill sets.
21 Pressure Technologies plc Annual Report 2014
Risk and Impact
Management Strategy
Customer concentration / disruption
The Group has a number of businesses with a high
dependence on a very small number of customers.
The Cylinder and Precision Engineering divisions both have
businesses where a small number of customers account for
a large proportion of their respective revenue. The loss of
one these customers would materially affect Group results.
The Group actively manages the customer selection
and retention process. Key customers have long-standing
(> 10 years) relationships with the businesses and
considerable effort goes into maintaining these
relationships.
The Group’s strategic plan focuses on increasing the
customer base to mitigate this risk through acquisition
and diversification.
Financial risks
Liquidity and funding management
The Group’s growth requires higher funding requirements.
The Group may not be able to generate sufficient funds
internally to finance all opportunities to profitably grow.
Foreign currency
Movements in exchange rates could potentially impact
Group revenue.
The Group has operations and contracts in a number
of overseas countries and purchases some of its raw
materials and receives payment for some of its products
in a number of currencies.
Compliance risks
Compliance and corruption risks
The Group is subject to risk from a failure to comply with
laws and regulations.
The Group has contracts and operations in many
parts of the world and operates in a highly regulated
environment. The Group must ensure that all of its
businesses, its employees and third party parties
providing services on its behalf comply with all relevant
legal obligations as non-compliance would expose the
Group to fines, penalties, suspension, debarment and
reputational damage.
The Group agreed new banking facilities extending until
end September 2018 which provides up to £25 million
for investment.
The Group has a long-standing shareholder base from which
additional capital may be raised for larger opportunities.
The Group’s liquidity and funding requirements are
monitored and reviewed at Board meetings.
The Group has natural hedges for much of its foreign
currency exposure.
Regular reviews of the net exposure are performed and
where it is deemed necessary the exposure is reduced
by the use of forward exchange contracts.
The Group operates under the principles defined in the
UK Bribery and Corruption Act which stipulates the
standards of acceptable business conduct required from
all employees and third parties acting on the Group’s behalf.
A program of training in relation to ethics and corruption,
based on the UK Bribery and Corruption Act has been
implemented.
Approval of the Strategic report
The Strategic Report, as set out on pages 01 to 21, has been approved by the Board.
By order of the Board
John Hayward
Chief Executive
9 December 2014
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 22 Pressure Technologies plc Annual Report 2014
Governance
Directors and Advisers
1. AJS Wilson
Non-executive Chairman
Alan is a degree-qualified Chartered Engineer with 33 years of
experience from working in the oil & gas industry, the majority of which
has been served at senior management and board level. His experience
spans most aspects of the industry life cycle including; oil company
operations, major capital projects, support services and product
manufacturing. Alan joined the board of Pressure Technologies in
February 2013 and also serves as Chairman and Non-executive Director
of other private equity-backed and privately owned companies within
the oil & gas sector.
2. JTS Hayward
Chief Executive
John joined the Company in 1997 when it was part of United
Engineering Forgings. He led the MBO in 2004 that created
Chesterfield Special Cylinders and then assumed the role of Chief
Executive of Pressure Technologies on admission to AIM. John is
a qualified accountant and has finance and general management
experience in the steel, chemicals and engineering sectors. In 2008
he was the UK Ernst and Young Entrepreneur of the Year® for
manufacturing. He holds a degree in Physics from Oxford University.
3. TJ Lister
Finance Director
James has been Finance Director since 2008. Previous engineering
industry experience includes seven years with The 600 Group 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.
Membership of Board Committees
Nomination
Committee
Remuneration
Committee
Audit and Risk
Committee
AJS Wilson
PS Cammerman
NF Luckett
NA MacDonald
Chairman
✓
✓
✓
✓
Chairman
✓
✓
✓
✓
✓
Chairman
Directors
AJS Wilson
Non-executive Chairman
JTS Hayward
Chief Executive
PS Cammerman
Non-executive Director
TJ Lister
Finance Director
NF Luckett
Non-executive Director
NA MacDonald
Non-executive Director
Secretary
TJ Lister
23 Pressure Technologies plc Annual Report 2014
4. PS Cammerman
Non-executive Director
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 the most active investor in UK SMEs. Following
his retirement from the YFM Group in 2008, he has developed a small
but proactive portfolio of non-executive directorships in the engineering
and finance sectors.
5. NF Luckett
Non-executive Director
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.
6. NA MacDonald
Non-executive Director
Neil is a Chartered Accountant with 25 years of experience in the oil
and gas and engineering industries. He was Group Finance Director
of AES Engineering Limited (AES), a successful, fast growing, privately
owned mechanical seals manufacturer, until September 2012.
Prior to this, he was Group Finance Director of the international
aerospace company, Firth Rixson. Neil has valuable experience
of fast growth in the oil and gas sector and general M&A.
Company Information
Registered office
Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire
S35 2PH
Registered number
06135104
Website
www.pressuretechnologies.com
Nominated adviser
Charles Stanley Securities
131 Finsbury Pavement
London, EC2A 1NT
Auditor
Grant Thornton UK LLP
No 1 Whitehall Riverside
Leeds, LS1 4BN
Solicitors
hlw Keeble Hawson LLP
Commercial House
Commercial Street
Sheffield
S1 2AT
Bankers
Lloyds Bank
14 Church Street
Sheffield, S1 1HP
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0LA
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 24 Pressure Technologies plc Annual Report 2014
Governance
Report of the Remuneration Committee
The Remuneration Committee comprises four non-executive Directors and is chaired by Philip Cammerman. The committee meets when
necessary, usually at least three times annually, and is responsible for determining the remuneration packages of the executive Directors
and the Chairman. The remuneration of the non-executive Directors is set by the board annually.
Policy on remuneration of executive Directors
The committee aims to ensure that the remuneration packages offered are designed to attract, maintain and motivate high calibre Directors
without paying more than necessary for this purpose. The remuneration policy and packages attempt to match the interest of the executive
with those of shareholders by providing:
a) Basic salary and benefits
Executive Directors’ basic salaries are reviewed each year, taking into account the performance of the individual and rates of salary and
benefits for similar jobs in companies of comparable size.
Benefits include all assessable tax benefits arising from employment by the Company and relate mainly to the provision of private medical
and life assurance cover.
The Company pays 5% of basic salary into individual money purchase pension schemes so long as this is matched, by salary sacrifice,
by the individual.
b) Annual performance related cash bonus scheme
In order to link executive remuneration to Group performance, executive Directors participate in a cash bonus scheme which, in the event
of exceptional performance, can pay out up to a maximum of 50% of basic salary.
c) Long Term Incentive Plan
The Company has introduced a long term incentive plan whereby, at the discretion of the Remuneration Committee, share options are
granted to executive Directors and senior managers on a rolling annual basis.
The extent to which options granted vest is dependent on the cumulative growth in earnings per share (EPS) over the three year period
following the grant relative to the EPS in the period immediately prior to grant as follow:
Increase in EPS over three year period
33%
50%
100%
% of annual salary over
which options granted vest
25%
50%
100%
The maximum grant of options in any one year is fixed at 100% of basic salary for executive Directors of Pressure Technologies plc and 50%
of salaries for other senior managers in the Group.
The option price is set at the outset and is in line with the share price at that time. Executives who leave the Group before the expiry of the
three year vesting period will lose their right to exercise their options.
d) Service Contracts
All executive Directors have rolling service contracts terminable on no more than one year’s notice.
25 Pressure Technologies plc Annual Report 2014
Directors’ Remuneration
Particulars of Directors’ emoluments are as follows:
Salary
and
fees
£’000
48
30
30
45
—
166
134
453
Benefits
£’000
Bonus
£’000
Pension
£’000
—
—
—
—
—
1
2
3
—
—
—
—
—
90
73
163
—
—
—
—
—
18
14
32
Total
2014
£’000
48
30
30
45
—
275
223
651
Employers’
national
insurance
2014
£’000
Total
2013
£’000
Employers’
national
insurance
2013
£’000
38
28
28
10
19
202
183
508
—
3
1
5
—
34
27
70
—
3
2
—
—
24
22
51
Non-Executive:
AJS Wilson
PS Cammerman
NF Luckett
NA MacDonald
RL Shacklady
(Resigned 21 March 2013)
Executive:
JTS Hayward
TJ Lister
Total emoluments
The remuneration of AJS Wilson and, from April 2013 to March 2014, for NF Luckett, was paid to management companies which they
control. All the payments shown for RL Shacklady were paid to RLS Associates, a partnership which he controlled.
The number of Directors who are accruing benefits under money purchase pension arrangements is two (2013: two).
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:
PS Cammerman
NF Luckett
RL Shacklady (Resigned 21 March 2013)
Executive:
JTS Hayward
TJ Lister
Total dividends paid to Directors
Total
2014
£’000
Total
2013
£’000
3
6
—
80
2
91
3
4
3
76
1
87
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
26 Pressure Technologies plc Annual Report 2014
Governance
Report of the Remuneration Committee continued
Directors’ Options
The Directors’ interests in share options are as follows:
JTS Hayward
TJ Lister
TJ Lister
TJ Lister
TJ Lister
TJ Lister
Scheme
Long Term Incentive Plan
Share Options Plan
Save-as-you-earn Scheme
Enterprise Management Plan
Long Term Incentive Plan
Save-as-you-earn Scheme
Date granted
Number Option price
3 April 2014
23 February 2012
6 August 2012
9 August 2013
3 April 2014
31 July 2014
24,972
73,089
6,000
53,000
20,116
1,517
720.8p
150.5p
150.0p
242.5p
720.8p
593.0p
On 11 July 2014, one Director exercised 51,612 share options in the year. The options were exercised at a price of 232.5p per share.
The market value of shares on the date of exercise was 727.5p.
The movements in share options held by Directors in the period is as follows:
Outstanding at the beginning of the period
Granted during the period
Exercised during the period
Outstanding at the end of the period
On behalf of the Board
Philip Cammerman
Chairman, Remuneration Committee
9 December 2014
JTS Hayward
No.
—
24,972
—
24,972
TJ Lister
No.
183,701
21,633
(51,612)
153,722
27 Pressure Technologies plc Annual Report 2014
Directors’ Report
The Directors present their report and the audited financial statements for the period from 29 September 2013 to 27 September 2014.
Principal activities
During the period, Pressure Technologies plc (“PT”) was the holding Company for the following Group operations:
Cylinders
Chesterfield Special Cylinders Limited (“CSC”) whose principal activities are the design, manufacture, testing and reconditioning
of seamless steel high pressure gas cylinders. CSC has one subsidiary, CSC Deutschland GmbH, based in Germany.
On 1 January 2013, the Group acquired a 40% strategic investment in Kelley GTM, LLC, whose principal activity is the manufacture
of high pressure vessels for gas transport solutions. The company is based in Amarillo, Texas. Further details of the investment are given
in note 16 to the financial statements.
Engineered Products
Al-Met Limited (‘Al-Met’) whose principal activity is the manufacture of precision engineered valve components for use in the oil and
gas industry.
The Hydratron Group of Companies’, (‘Hydratron Ltd’ and ‘Hydratron Inc’) whose 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.
On 5 March 2014, the Group acquired 100% of the issued share capital of Roota Engineering Limited, whose principal activity
is the manufacture of precision engineered products for use in the oil and gas industry. Further details of the investment are given
in note 28 to the financial statements.
Alternative Energy
Chesterfield BioGas Limited (“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.
Results and dividends
The consolidated statement of comprehensive income is set out on page 32. The profit on ordinary activities before taxation of the Group
for the period ended 27 September 2014 amounted to £5.3 million (2013: £2.9 million).
An interim dividend of 2.8p per share was paid during the period (2013: 2.6p). The Directors recommend the payment of a final dividend
of 5.6p per share (2013: 5.2p).
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:
• 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 2014 (2013: nil).
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 28 Pressure Technologies plc Annual Report 2014
Governance
Directors’ Report continued
Substantial shareholdings
As at 31 October 2014, the following held or were beneficially interested in 3% or more of the Company’s issued ordinary share capital:
Liontrust Asset Management
JTS Hayward
Hargreave Hale
Investec Asset Management
Foreign and Colonial Asset Management
Charles Stanley
Standard Life Investments
Artemis Investment Management
River & Mercantile Asset Management
Schroder Investment Management
Unicorn Asset Management
Hargreaves Lansdown
Slater Investments
Aviva Investors
Directors and their interests
The present Directors of the Company are set out on pages 22 and 23.
All Directors were Directors throughout the period.
Ordinary shares
JTS Hayward
PS Cammerman
TJ Lister
NF Luckett (including 7,667 shares held by his wife)
NA MacDonald
Number of
Percentage of
issued share
shares capital owned
1,306,783
1,002,221
750,850
703,000
651,531
640,633
572,594
525,000
497,500
483,130
467,167
460,021
450,000
435,662
9.1%
7.0%
5.2%
4.9%
4.5%
4.5%
4.0%
3.7%
3.5%
3.4%
3.3%
3.2%
3.1%
3.0%
27 September 28 September
2013
No.
2014
No.
1,002,221
33,395
66,000
70,000
5,200
1,002,221
33,395
30,000
70,000
—
Share options
On 3 April 2014, options were granted over 77,493 ordinary shares under the rules of the Company’s long term incentive plan. The options
have an exercise price of 720.8p. The options are exercisable between three and six years following the date of grant.
On 31 July 2014 options were granted over 98,143 ordinary shares under the rules of the Pressure Technologies plc Save-As-You-Earn Scheme
at an exercise price of 593p. The options are exercisable after three years and lapse six months after this date if they are not exercised.
The Directors’ interests in share options are disclosed in the report of the Remuneration Committee.
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 23 to the consolidated financial
statements.
29 Pressure Technologies plc Annual Report 2014
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 engages, promotes, and trains 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 that the Group
is forecast to generate profits and cash in 2014/2015 and beyond and that the Group has sufficient cash reserves and bank facilities 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.
Statement of Directors’ responsibilities for the financial statements
The Directors are responsible for preparing the Strategic report, the Directors’ 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
to prepare the Group’s financial statements in accordance with International Financial Reporting Standards as adopted by the European
Union (IFRSs). The Directors have elected to prepare the parent Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (UK GAAP). 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 and parent Company for that
period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements 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.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 30 Pressure Technologies plc Annual Report 2014
Governance
Directors’ Report continued
Statement of Directors’ responsibilities for the financial statements continued
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.
The Directors confirm that:
• so far as each Director is aware, there is no relevant audit information of which the company’s auditor is unaware; and
•
the Directors have taken all steps that they ought to have taken as Directors to make themselves aware of any relevant audit
information and to establish that the auditor is 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.
Auditor
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
9 December 2014
31 Pressure Technologies plc Annual Report 2014
Report of the Independent Auditor
to the members of Pressure Technologies plc
We have audited the financial statements of Pressure Technologies plc for the period ended 27 September 2014 which comprise the
consolidated statement of comprehensive income, the consolidated balance sheet and parent company balance sheet, the consolidated
statement of changes in equity, the consolidated statement of cash flows and the related notes. 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 of 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 Statement of Directors Responsibilities set out on pages 29 and 30, 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 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 Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
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
27 September 2014 and of the Group’s profit for the period then ended;
the Group financial statements have been properly prepared in accordance with IFRSs 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 Strategic Report and 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.
Andrew Wood
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Leeds
9 December 2014
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
32 Pressure Technologies plc Annual Report 2014
Financial Statements
Consolidated Statement of Comprehensive Income
For the 52 week period ended 27 September 2014
52 weeks
ended
52 weeks
ended
27 September 28 September
2013
£’000
2014
£’000
Notes
Revenue
Cost of sales
Gross profit
Administration expenses
Operating profit pre acquisition costs, amortisation on acquired businesses
and exceptional costs
Separately disclosed items of administrative expenses:
Acquisition costs and amortisation on acquired businesses
Exceptional costs in relation to the option on and loan to KGTM
Operating profit
Finance income
Finance costs
Share of losses of associate
Profit before taxation
Taxation
Profit for the period attributable to owners of the parent
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Currency translation differences on translation of foreign operations
Total comprehensive income for the period attributable to the owners of the parent
Earnings per share – basic
– diluted
All of the above results are from continuing operations.
The accounting policies and notes on pages 36 to 65 form part of these financial statements.
1
1
5
4
2
3
16
4
9
10
10
54,015
(38,277)
15,738
(7,904)
34,383
(24,088)
10,295
(7,012)
7,834
3,283
(1,556)
(718)
5,560
32
(60)
(183)
5,349
(1,638)
3,711
10
3,721
28.5p
27.9p
(407)
—
2,876
11
(9)
—
2,878
(678)
2,200
19
2,219
19.4p
19.2p
33 Pressure Technologies plc Annual Report 2014
Consolidated Balance Sheet
As at 27 September 2014
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax asset
Trade and other receivables
Investment in associates
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total assets
Current liabilities
Trade and other payables
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
27 September 28 September
2013
£’000
2014
£’000
Notes
12
13
14
24
18
16
17
18
19
20
21
20
21
24
25
7,081
6,960
7,802
155
1,575
123
23,696
8,819
20,561
6,356
43
35,779
59,475
(16,453)
(180)
(1,183)
(17,816)
(2,909)
(324)
(1,897)
(5,130)
(22,946)
36,529
718
21,463
35
14,313
36,529
1,964
1,221
4,767
138
163
—
8,253
7,206
8,705
4,044
71
20,026
28,279
(9,236)
—
(448)
(9,684)
(593)
—
(538)
(1,131)
(10,815)
17,464
568
5,387
25
11,484
17,464
The accounting policies and notes on pages 36 to 65 form part of these financial statements.
The financial statements were approved by the Board on 9 December 2014 and signed on its behalf by:
JTS Hayward
Director
Company number: 06135104
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
34 Pressure Technologies plc Annual Report 2014
Financial Statements
Consolidated Statement of Changes in Equity
For the 52 week period ended 27 September 2014
Balance at 29 September 2012
Dividends
Share based payments
Shares issued
Transactions with owners
Profit for the period
Other comprehensive income:
Exchange differences on translating
foreign operations
Total comprehensive income
Balance at 28 September 2013
Dividends
Share based payments
Shares issued
Transactions with owners
Profit for the period
Other comprehensive income:
Exchange differences on translating
foreign operations
Total comprehensive income
Balance at 27 September 2014
Notes
11
11
26
25
Share
capital
£’000
568
—
—
—
—
—
—
—
568
—
—
150
150
—
—
—
718
Share
premium
account
£’000
5,378
—
—
9
9
—
—
—
5,387
—
—
16,076
16,076
—
—
—
21,463
Translation
reserve
£’000
6
—
—
—
—
—
19
19
25
—
—
—
—
—
10
10
35
Profit
and loss
account
£’000
10,103
(863)
44
—
(819)
2,200
—
2,200
11,484
(991)
109
—
(882)
3,711
—
3,711
14,313
Total
equity
£’000
16,055
(863)
44
9
(810)
2,200
19
2,219
17,464
(991)
109
16,226
15,344
3,711
10
3,721
36,529
The accounting policies and notes on pages 36 to 65 form part of these financial statements.
35 Pressure Technologies plc Annual Report 2014
Consolidated Statement of Cash Flows
For the 52 week period ended 27 September 2014
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax paid
Net cash inflow from operating activities
Investing activities
Interest received
Proceeds from sale of fixed assets
Purchase of property, plant and equipment
Cash outflow on purchase of subsidiary net of cash acquired
Cash outflow on investment in associate
Cash outflow on loans made to associate
Cash outflow on third party loans
Net cash used in investing activities
Financing activities
Repayment of borrowings
Dividends paid
Shares issued
Net cash inflow/(outflow) from financing activities
Net increase 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 36 to 65 form part of these financial statements.
52 weeks
ended
52 weeks
ended
27 September 28 September
2013
£’000
2014
£’000
Notes
27
3,411
(7)
(1,766)
1,638
19
155
(1,792)
(7,630)
(306)
(2,147)
(2,782)
(14,483)
(78)
(991)
16,226
15,157
2,312
4,044
6,356
3,544
(8)
(558)
2,978
—
9
(776)
—
—
—
—
(767)
(6)
(863)
9
(860)
1,351
2,693
4,044
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
36 Pressure Technologies plc Annual Report 2014
Financial Statements
Accounting Policies
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 66 to 71.
Pressure Technologies plc, company number 06135104, is incorporated and domiciled in the United Kingdom.
The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ended 27 September
2014. The consolidated financial statements have been prepared on a going concern basis.
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 2014/2015 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.
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 beginning on or after the dates given below and are expected to be relevant to the financial statements. These standards will
be effective in future periods. All standards listed below are effective for accounting periods commencing on or after 1 January 2014.
•
•
•
•
•
•
•
•
•
IFRS 7 (amendments) Disclosures – Offsetting Financial assets and liabilities
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IAS 27 (Revised), Separate Financial Statements
IAS 28 (Revised), Investments in Associates and Joint Ventures
IAS 32 (amendments) Offsetting Financial assets and liabilities
IAS 36 (amendments) Impairment of assets
IAS 39 (amendments) Novation of derivatives and continuation of hedge accounting
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.
Changes in accounting policies
In the period, the Group adopted IFRS 13, “Fair value measurement”. The impact of this has been to include increased disclosure on the
measurement basis of items initially recognised, or carried, at fair value.
In prior years, the Group did not have any material construction contracts in place at the reporting date. Given the contracts in place
in the Alternative Energy division as at the reporting date, IAS 11 has been applied for the first time in the current financial period.
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:
37 Pressure Technologies plc Annual Report 2014
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 specific recognition criteria are met. The key judgement required
to capitalise 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 into 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 indefinite life
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 recoverable amount 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 their recoverable amount.
Stage of completion on construction contracts
The Group assess the stage of completion on construction contracts based on key contract milestones which are determined by
internal inspections.
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. The level
of inventory provisions is disclosed in note 17 to the financial statements.
Discount rate on the loan to Kelley GTM
The loan receivable from Kelley GTM bears interest at a rate of 4.5%. It is discounted with reference to a theoretical market rate of interest
of 12%. The carrying value of this loan can be seen in note 18 to the financial statements.
Valuation of intangible assets acquired through business combinations
As far as possible, professional advice is sought on the valuation of intangible assets. The Directors estimate the value of intangible assets
with reference to any advice received, based on their experience of the value of such assets in similar businesses and under similar market
conditions. The carrying value of intangible assets can be seen in note 13 to the financial statements.
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 27 September 2014
(2013: to 28 September 2013). 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. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
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 measured at their acquisition-date fair values, which are also used as the bases for subsequent measurement
in accordance with the Group accounting policies.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 38 Pressure Technologies plc Annual Report 2014
Financial Statements
Accounting Policies continued
Business combinations and goodwill continued
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 consideration transferred, the excess amount (i.e. 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.
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 rewards 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 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 in accordance with IAS 11, ‘Construction contracts’.
Chesterfield BioGas Limited (‘CBG’) designs and constructs biogas upgrading units for the production of biomethane for supply to the gas
grid. CBG holds the exclusive license to distribute and install equipment designed by Greenlane in the UK and Ireland. This equipment can
either be bought from Greenlane or manufactured under license by CBG. To date, CBG has chosen to buy in key components and conduct
final assembly in the UK under its supervision.
As a result, no costs or revenue are recognised in the consolidated statement of comprehensive income in relation to contracts until such
time as the key components in question have been received and inspected by CBG. Stage payments received from customers and made
to suppliers up to this point are recorded in the consolidated balance sheet as trade and other receivables and trade and other payables
as appropriate.
Once these key components have been received and the outcome of the construction contract can be measured reliably, contract revenue,
costs and profits are recognised over the period of the contract by reference to the stage of completion of each contract. The stage of
completion of a contract is determined by internal inspections. Revenue is recognised in proportion to the total revenue expected on
the contract.
If contract costs are expected to exceed contract revenue, then the expected loss is recognised immediately in the consolidated statement
of comprehensive income.
Contract revenue includes an assessment of the amounts agreed in the contract, plus or less any variations in contract work and claims
to the extent that they are approved and can be measured reliably.
Once revenue has started to be recognised on an individual contract, the Group reports the position for each contract as either an asset
or a liability. In instances where costs incurred plus recognised profits exceed billings to date an asset is recognised. Similarly, a liability
is recognised where billings to date exceed costs incurred and profits recognised.
39 Pressure Technologies plc Annual Report 2014
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 share options 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 the consolidated statement of comprehensive income 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. Property, plant and equipment is held at
historical cost with the exception of assets acquired on business combinations. These are added at their fair value and depreciated
accordingly. 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
Buildings
4 – 15 years
50 years
The estimates used for residual values and useful lives are reviewed as required, but at least annually. 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.
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 on a straight line basis 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;
the project is technically and commercially feasible;
the Group intends to and has sufficient resources to complete the projects;
the Group has the ability to use or sell the asset; 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 consolidated statement of comprehensive income.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 40 Pressure Technologies plc Annual Report 2014
Financial Statements
Accounting Policies continued
Intangible assets continued
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.
Amortisation on intangible assets is charged in cost of sales, with the exception of that on intangible assets acquired on business
combinations, which is disclosed separately in the consolidated statement of comprehensive income.
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 one year
5 – 10 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.
Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination
and represent the lowest level within the group at which management monitors goodwill. Cash-generating units to which goodwill has
been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 where 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.
All other leases are treated as operating leases. Payments under operating leases are charged to profit or loss 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.
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.
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 recognised in other comprehensive income or directly in equity,
in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively.
41 Pressure Technologies plc Annual Report 2014
Accounting for financial assets
The Group has financial assets in the following categories:
•
•
loans and receivables (trade and other receivables, cash and cash equivalents); and
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 other comprehensive income.
All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument.
Financial assets categorised as at fair value through profit or loss are recognised initially at fair value with transaction costs expensed
through profit or loss. 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.
Loans and receivables are initially recognised at fair value plus transaction costs, and subsequently measured at amortised cost using
the effective interest method, less provision for impairment. Receivables are considered for impairment on a case-by-case basis, and
impairment is recognised 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 initially held at fair value (including transaction costs) after discounting and the difference is
recognised in the consolidated statement of comprehensive income under financing costs, or asset. Long term retentions due on contracts
are the main balances where such treatment is required.
Receivables are considered for impairment on a case-by-case basis.
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. After initial recognition, all but the latter are measured at amortised cost using the
effective interest rate method. Discounting on financial liabilities is omitted where the effect is immaterial. However, where it is required, the
liability is initially recognised at fair value after discounting and the difference is recognised in the consolidated statement of comprehensive
income under financing costs. Deferred consideration on acquisitions are the main balances where such treatment is required.
Measurement of fair value financial instruments
The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation
with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each
instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to the Finance
Director and to the audit committee. Valuation processes and fair value changes are discussed at least every year, in line with the Group’s
reporting dates.
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.
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.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 42 Pressure Technologies plc Annual Report 2014
Financial Statements
Accounting Policies continued
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 into the presentation currency of the consolidated financial statements.
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.
The consolidated financial statements are presented in Pounds Sterling, which is also the functional currency of the parent company.
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 charged/credited to other
comprehensive income and recognised in the translation reserve in equity. On disposal of a foreign operation the cumulative translation
differences are transferred to profit or loss 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 profit or loss over the expected useful lives of the assets
concerned. Other grants are credited to profit or loss in the same period as the related expenditure is incurred.
Pensions
The Group operates defined contribution schemes with costs being charged to profit or loss 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 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. The Group’s share of the results of KGTM
are included within the cylinders segment.
• Engineered products: the manufacture of precision engineered products, air operated high pressure hydraulic pumps, gas boosters,
power packs, hydraulic control panels and test rigs.
• Alternative energy: marketing, selling and manufacture of biogas upgrading equipment to produce high purity biomethane.
Each of these operating segments is managed separately as each requires different technologies, resources and marketing approaches.
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.
43 Pressure Technologies plc Annual Report 2014
Investments in associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity
method, the investments are initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s
share of the profit or loss of the investee after the date of acquisition.
The Group’s share of post-acquisition profit or loss is recognised in the income statement. When the Group’s share of losses in an associate
equals or exceeds this interest in the associate, the Group does not recognise further losses unless is has incurred legal or constructive
obligation or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the associate is impaired. If this is the case,
the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value
and recognises the amount adjacent to ‘share of profit/(loss) of associates’ in the consolidated statement of comprehensive income.
Exceptional items
One off, non-trading items with a material effect on results are disclosed separately on the face of the Consolidated Statement of
Comprehensive Income. The Directors apply judgement in assessing the particular items, which by virtue of their scale and nature,
should be classified as exceptional items. The Directors consider that separate disclosure of these items is relevant to an understanding
of the Group’s financial performance.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 44 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements
1. Segment analysis
The financial information by segment detailed below is frequently reviewed by the Chief Executive who has been identified as the
Chief Operating Decision Maker (CODM).
For the 52 week period ended 27 September 2014
Revenue
– from external customers
Engineered Alternative Unallocated
Cylinders
£’000
Products
£’000
Energy
£’000
Amounts**
£’000
Total
£’000
21,443
24,133
8,439
—
54,015
Operating profit/(loss) before acquisition costs,
amortisation on acquired businesses and exceptional costs
Acquisition costs*
Amortisation in relation to intangible assets acquired
on business combinations
Provisions in relation to the option on and loans to KGTM
Operating profit/(loss)
Share of losses of associate
Net finance income/(costs)
Profit/(loss) before tax
3,791
—
—
—
3,791
(183)
11
3,619
4,649
—
(694)
—
3,955
—
(2)
3,953
1,094
—
—
—
1,094
—
2
1,096
(1,700)
(862)
—
(718)
(3,280)
—
(39)
(3,319)
7,834
(862)
(694)
(718)
5,560
(183)
(28)
5,349
Segmental net assets***
7,336
22,716
2,767
3,710
36,529
Other segment information:
Capital expenditure
Depreciation
Amortisation
52 week period ended 28 September 2013
Revenue
– from external customers
Operating profit/(loss) before acquisition costs,
amortisation on acquired businesses and exceptional costs
Acquisition costs*
Amortisation in relation to intangible assets acquired
on business combinations
Operating profit/(loss)
Net finance income/(costs)
Profit/(loss) before tax
1,040
312
—
1,266
451
694
40
37
70
28
4
—
Cylinders
£’000
Engineered
Products
£’000
Alternative
Energy
£’000
Unallocated
Amounts**
£’000
2,374
804
764
Total
£’000
17,306
15,942
1,135
—
34,383
3,558
—
—
3,558
7
3,565
1,562
—
(187)
1,375
(2)
1,373
(480)
—
—
(480)
—
(480)
(1,357)
(220)
—
(1,577)
(3)
(1,580)
3,283
(220)
(187)
2,876
2
2,878
Segmental net assets***
6,940
7,728
153
2,643
17,464
Other segment information:
Capital expenditure
Depreciation
Amortisation
396
295
—
362
309
187
6
34
70
12
8
—
776
646
257
* Acquisition costs include fees associated with making acquisitions.
** Unallocated amounts include central costs, central assets and unallocated consolidation adjustments.
*** Segmental net assets comprise the net assets of each division adjusted to reflect the elimination of the cost of investment
in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.
45 Pressure Technologies plc Annual Report 2014
1. Segment analysis continued
The following table provides an analysis of the Group’s revenue by geographical destination.
Revenue
United Kingdom
Europe
Rest of the World
2014
£’000
25,730
7,658
20,627
54,015
2013
£’000
10,639
5,690
18,054
34,383
The UK is the entity’s country of domicile with revenue of £25,730,000 (2013: £10,639,000) being obtained during the period.
Revenue of £28,285,000 (2013: £23,744,000) has been generated overseas.
The Group’s largest customer contributed 23% to the Group’s revenue (2013: 34%) which is reported within the Cylinders segment.
No other customer contributed more than 10% in the year to 27 September 2014 (2013: nil).
The following table provides an analysis of the Group’s revenue by market.
Revenue
Oil and gas
Defence
Industrial gases
Alternative energy
2014
£’000
39,607
3,478
2,309
8,621
54,015
2013
£’000
27,640
3,793
1,793
1,157
34,383
The above table is provided for the benefit of shareholders. It is not provided to the PT board on a regular monthly basis and consequently
does not form part of the divisional segmental analysis.
The following table provides an analysis of the carrying amount of non-current assets, additions to property, plant and equipment.
United
Kingdom
£’000
23,645
2,369
Rest of
the World
£’000
51
5
2014
Total
£’000
23,696
2,374
United
Kingdom
£’000
8,188
724
Rest of
the World
£’000
65
52
Non-current assets
Additions to property, plant and equipment
2. Finance income
Interest receivable on bank deposits
Discounting adjustment on loans and receivables (note 18)
Interest receivable on assets under finance leases
2014
£’000
19
11
2
32
2013
Total
£’000
8,253
776
2013
£’000
—
11
—
11
Interest of £73,000 receivable on the loan made to associated company, KGTM has been provided for in full and therefore is not
disclosed above.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
46 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
3. Finance costs
Interest payable on bank loans and overdrafts
Interest payable on finance leases
Discounting adjustment on trade and other payables
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
(Profit)/loss on disposal of fixed assets
Amortisation of intangible assets – licence and distribution agreement
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 (profit)/loss
2014
£’000
—
7
53
60
2014
£’000
783
21
(7)
70
(107)
9,670
28,581
644
67
(26)
2013
£’000
5
1
3
9
2013
£’000
646
—
8
70
(39)
6,904
16,327
627
66
275
Exceptional costs
The exceptional costs of £718,000 relate to a provision made against the value of the option held to acquire a further 40% of KGTM of
£388,000 and a provision made against the loan issued to KGTM of £330,000. Further details of the investment in KGTM can be seen in
note 16 of the financial statements, details of the option in note 16 to the financial statements and details of the loan in note 18 to the
financial statements.
The Group calculated at inception that the option had a maximum value of £388,000, being the difference between the fair value of
the equity investment, the loan receivable and the amount paid to KGTM. The Board consider that due to uncertainty around take up
of the option, the option has a £nil value at the reporting date. As such, the provision against the value in the option is recorded in the
consolidated statement of comprehensive income. See page 16 in the Financial review for further details on the determination of the
valuation.
In addition, the Directors have taken a cautious view on the carrying value of the loan receivable from KGTM. An additional £330,000
has been charged to the consolidated statement of comprehensive income as a provision against the loan.
Given the magnitude of the amounts and the fact that they are non-trading items, they are disclosed separately on the face of the
consolidated statement of comprehensive income as exceptional items.
5. Acquisition costs and amortisation on acquired businesses
Amortisation of intangible assets arising on a business combination
Acquisition costs
2014
£’000
694
862
1,556
2013
£’000
187
220
407
47 Pressure Technologies plc Annual Report 2014
6. Auditor’s remuneration
Fees payable to the Company’s Auditor for the audit of the company and consolidated 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 Auditor for non-audit services:
– Tax services
– Other services
7. Employee costs
Particulars of employees, including executive Directors:
Wages and salaries
Social security costs
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. Directors’ emoluments
Particulars of Directors’ emoluments are as follows:
Emoluments – short term employee benefits
Pension costs – post employment benefits
Employers’ national insurance
2014
£’000
27
51
17
11
2014
£’000
8,520
819
222
109
9,670
2014
No.
185
24
36
245
2014
£’000
619
32
70
721
2013
£’000
13
36
21
10
2013
£’000
6,080
608
172
44
6,904
2013
No.
151
17
23
191
2013
£’000
480
28
51
559
Please see the Report of the Remuneration Committee on pages 24 to 26 for full details of Directors’ emoluments which have been audited.
Included in the aggregate emoluments for the period ended 27 September 2014 are payments of £63,000 (2013: £72,000) made by the
Company to third parties. The highest paid Director received total emoluments of £275,000 including pension contributions of £18,000
(2013: total emoluments of £202,000 including pension contributions of £15,000).
On 11 July 2014, one Director exercised 51,612 share options. The options were exercised at a price of 232.5p per share. The market value
of shares on the date of exercise was 727.5p.
The Group believe that the Directors of Pressure Technologies plc are the only key management personnel under the definition of IAS 24
‘Related party disclosures’.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
48 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
9. Taxation
Current tax
Current tax expense
Over provision in respect of prior years
Deferred tax
Origination and reversal of temporary differences
(Over)/under provision in respect of prior years
Total taxation charge
2014
£’000
1,737
(34)
1,703
(65)
—
1,638
Corporation tax is calculated at 22% (2013: 23.5%) of the estimated assessable profit for the period. Deferred tax is calculated at 20%
(2013: 20%).
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 22% (2013: 23.5%)
Effects of:
– non-deductible expenses
– disallowable acquisition costs
– research and development allowance
– adjustments in respect of prior years
– effect of unrealised overseas (profits)/losses
– change in taxation rates
Total taxation charge
2014
£’000
5,349
1,177
301
190
—
(34)
(12)
16
1,638
2013
£’000
775
(19)
756
(74)
(4)
678
2013
£’000
2,878
676
39
52
(115)
(23)
121
(72)
678
10. Earnings per ordinary share
Basic and diluted earnings per share have been calculated 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
2014
£’000
3,711
2013
£’000
2,200
No.
No.
13,025,349
263,283
11,361,221
78,069
13,288,632
11,439,290
28.5p
27.9p
19.4p
19.2p
49 Pressure Technologies plc Annual Report 2014
11. Dividends
The following dividend payments have been made on the ordinary 5p shares in issue:
Final 2011/12
Interim 2012/13
Final 2012/13
Interim 2013/14
Rate
5.0p
2.6p
5.2p
2.8p
Date
8 March 2013
8 August 2013
7 March 2014
8 August 2014
Shares
in issue
11,362,249
11,362,249
11,362,249
14,268,733
2014
£’000
—
—
591
400
991
2013
£’000
568
295
—
—
863
At 27 September 2014 the 2013/14 final dividend had not been approved by Shareholders and consequently this has not been included
as a liability. The proposed dividend of 5.6p per share will, if approved at the AGM, be paid on 17 March 2015 at a total cost of £804,000.
12. Goodwill
Cost and gross carrying amount
At 29 September 2012 and 28 September 2013
Acquired through business combinations (note 28)
As at 27 September 2014
Engineered Product division
Al-Met Limited
The Hydratron Group
Roota Engineering Limited
Total
£’000
1,964
5,117
7,081
Original
cost
£’000
272
1,692
5,117
7,081
Date of
acquisition
February 2010
October 2010
March 2014
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 three separate cash generating units (CGUs) all held within the Engineered Products division, Al Met
Limited, The Hydratron Group and Roota Engineering Limited.
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 3.1% which equates to the Group’s weighted average cost of capital. The same discount rate is used for all
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 and have been based on the extrapolated year one forecast.
No terminal value has been assumed in this calculation.
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. At 27 September 2014, no reasonable expected change in the key assumptions would give rise to an impairment charge for
any CGU and the assumptions accordingly are not sensitive.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
50 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
13. Intangible assets
Cost
At 29 September 2012 and 28 September 2013
Acquired through business combination
Disposed of in the period
At 27 September 2014
Amortisation
At 30 September 2012
Charge for the period
At 28 September 2013
Charge for the period
Disposed of in the period
At 27 September 2014
Net book value
At 27 September 2014
At 28 September 2013
Licence and
distribution Development
agreement expenditure
£’000
£’000
Non
contractual
customer
order book relationships
£’000
Customer
£’000
1,200
—
—
1,200
253
70
323
70
—
393
807
877
234
—
(234)
—
234
—
234
—
(234)
—
—
—
—
197
—
(197)
—
197
—
197
—
(197)
—
—
—
—
Total
£’000
2,568
6,503
(431)
8,640
1,090
257
1,347
764
(431)
1,680
937
6,503
—
7,440
406
187
593
694
—
1,287
6,153
6,960
344
1,221
7 years
Remaining useful economic life at 27 September 2014
12 years
51 Pressure Technologies plc Annual Report 2014
14. Property, plant and equipment
Cost
At 30 September 2012
Additions
Disposals
At 29 September 2013
Additions
Acquisition through business combinations
Disposals
Net exchange differences
At 27 September 2014
Depreciation
At 30 September 2012
Charge for the period
Disposed of in the period
At 29 September 2013
Charge for the period
Disposed of in the period
At 27 September 2014
Net book value
At 27 September 2014
At 28 September 2013
Land and
Plant and
buildings machinery
£’000
£’000
Total
£’000
7,772
776
(391)
8,157
2,374
1,615
(444)
(2)
7,772
776
(391)
8,157
2,374
815
(444)
(2)
10,900
11,700
3,118
646
(374)
3,390
795
(296)
3,889
3,118
646
(374)
3,390
804
(296)
3,898
—
—
—
—
—
800
—
—
800
—
—
—
—
9
—
9
791
7,011
7,802
—
4,767
4,767
Included within the net book value of £7,802,000 is £607,000 (2013: £nil) 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 £21,000 (2013: £nil).
15. 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 68.
16. Investments in associates
As at 29 September 2013
Investments made in the year
Share of profits/(losses)
As at 27 September 2014
£’000
—
306
(183)
123
On 1 January 2014, the Group made a strategic investment to acquire 40 per cent of the common stock of GTM Manufacturing, LLC, a
leading manufacturer of high-pressure vessels for gas transport solutions based in Amarillo, Texas. The company subsequently changed its
name to Kelley GTM, LLC. The Group also acquired an option to purchase a further 40% of the company. This option can only be exercised
by the Group and is exercisable for 90 days after the publication of the audited accounts for KGTM for the financial year end 31 December
2014. See page 16 of the Financial Review for further details.
The Group’s share (being 40%) of the revenues and losses of KGTM are £1,374,000 and (£183,000) respectively. As at the reporting date,
the Group’s share of the non-current assets is £281,000, and its share of the current assets is £331,000. The Group’s share of the current
liabilities is £281,000 and its share of the non-current liabilities is £4,143,000. The non-current liabilities held by KGTM relate chiefly to loans
provided by the Group and other shareholders.
KGTM has a year-end date of 31 December. The period for which the results of KGTM have been included in the Group’s financial
statements is from 1 January 2014 to 27 September 2014.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
52 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
17. Inventories
Raw materials and consumables
Work in progress
2014
£’000
4,081
4,738
8,819
Included in the total net value above are gross inventories of £624,000 (2013: £1,668,000) over which provisions have been made
of £623,000 (2013: £707,000).
18. Trade and other receivables
Current
Trade receivables
Amounts due from customers for construction contract work
Other receivables
Prepayments and accrued income
Non-current
Loans to associated companies
Accrued income
2014
£’000
13,924
383
5,012
1,242
20,561
2014
£’000
1,436
139
1,575
2013
£’000
3,649
3,557
7,206
2013
£’000
6,796
—
399
1,510
8,705
2013
£’000
—
163
163
Included in non-current and accrued income are debts not due for settlement for a number of years. Management have reviewed the book
value of these assets and applied discounting to reduce the balances by £9,000 (2013: £20,000) to £148,000 (2013: £163,000). The release
during the year was £11,000 (2013: £11,000).
The average credit period taken on the sale of goods and services was 63 days (2013: 63 days) in respect of the Group. Three debtors
accounted for over 10% of trade receivables and represented 14%, 13% and 11% of the total balance. In 2013, one debtor accounted
for over 10% of trade receivables and represented 24% of the total balance.
The loan to the associated company above relates to a loan made as part of the investment in KGTM. This loan is held within trade and
other receivables. This is held at its discounted fair value of £1,766,000, less a provision made of £330,000. The discounting of the loan has
been made over a three year period. The actual rate of interest is 4.5% and the discounting is made with reference to a theoretical market
rate of 12%.
Other receivables due within one year includes £2,782,000 advanced to Greenlane Biogas Holdings Limited on a secured basis.
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
2014
£’000
2,330
855
257
86
47
3,575
2013
£’000
825
365
106
20
100
1,416
53 Pressure Technologies plc Annual Report 2014
19. Derivative financial instruments
Derivatives carried at fair value not recognised for hedge accounting
– Forward foreign currency contracts
Asset
20. Trade and other payables
Amounts due within 12 months
Trade payables
Progress billings on construction contracts in excess of work completed
Other tax and social security
Accruals, deferred income and other payables
Deferred consideration
Total due within 12 months
Amounts due after 12 months
Deferred consideration
Other payables
Deferred income
Total due after 12 months
2014
£’000
43
43
2014
£’000
4,930
2,331
1,096
6,111
1,985
16,453
2,432
313
164
2,909
2013
£’000
71
71
2013
£’000
2,903
—
329
6,004
—
9,236
—
337
256
593
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.
21. Borrowings
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 two to five years
Obligations under finance leases are secured on the plant & machinery assets to which they relate.
2014
£’000
2013
£’000
504
180
324
2014
£’000
180
324
—
—
—
2013
£’000
—
—
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
54 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
22. Construction contracts
Construction contracts are accounted for in accordance with IAS 11, ‘Construction Contracts’. The position on individual contracts is held
as ‘Amounts due from customers for contract work’ within trade and other receivables or as ‘Progress billings on construction contracts in
excess of work completed’ within trade and other payables as applicable.
Costs incurred and profit recognised to date
Less: Progress billings
Net balance sheet position for ongoing contracts
2014
£’000
8,348
(10,296)
(1,948)
2013
£’000
—
—
—
23. 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.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 21, 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
2014
£’000
(504)
6,356
5,852
2013
£’000
—
4,044
4,044
36,529
17,464
Debt is defined as long and short-term borrowings, as detailed in note 21. Equity includes all capital and reserves of the Group attributable
to equity holders of the parent.
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 Group held the following categories of financial instruments:
Financial assets
Loans and receivables:
– Trade receivables
– Other receivables
– Cash and cash equivalents
– Other receivables – greater than one year
Fair value through the profit and loss (FVTPL):
– Derivative instrument – forward currency contract not recognised for hedge accounting
Financial liabilities
Financial liabilities – held at amortised cost
– Trade payables
– Accruals
– Deferred consideration payable
– Borrowings
2014
£’000
13,924
5,012
6,032
1,436
43
2013
£’000
6,796
399
4,044
—
71
26,447
11,310
2014
£’000
4,930
3,328
4,416
504
13,178
2013
£’000
2,903
2,129
—
—
5,032
The fair value of the financial instruments set out above is not materially different from their book value, with the exception of the loan
made to KGTM. This loan is discounted as set out in note 18.
55 Pressure Technologies plc Annual Report 2014
23. 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 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 enters into forward currency contracts during the period to
mitigate foreign currency risk, it does 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.
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 carrying amounts of the Group’s foreign currency denominated monetary financial assets and monetary financial liabilities at the
reporting date are as follows:
Euro
Norwegian Krone
US Dollar
Financial
assets
2014
£’000
2,859
5
458
3,322
Financial
assets
2013
£’000
Financial
liabilities
2014
£’000
3,994
6
522
4,522
320
—
210
530
Financial
liabilities
2013
£’000
1,863
30
215
2,108
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:
Euro
currency
impact
2014
£’000
Norwegian
Krone
currency
impact
2014
£’000
Euro
currency
impact
2013
£’000
Norwegian
Krone
currency
impact
2013
£’000
US Dollar
currency
impact
2014
£’000
US Dollar
currency
impact
2013
£’000
Profit or loss
231
194
—
2
23
28
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.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
56 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
23. Financial instruments continued
Fair value hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
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 Group holds level 2 and level 3 financial instruments as detailed below.
Forward foreign exchange contracts – Level 2
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 27 September 2014, the Group had contracts outstanding to sell €2.850 million for £2.287 million and to sell $0.700 million for
£0.421 million. (2013: sell €3.950 million for £3.393 million).
The fair value of forward foreign exchange contracts at 27 September 2014 gave rise to a loss of £28,000 (2013: gain of £71,000).
Option to acquire 40% of KGTM – Level 3
The Group holds an option to acquire a further 40% of KGTM, an associated company. This option was value at a maximum of £388,000
at outset and a provision is made against this value as at the year end. The fair value of this option at outset has been estimated with
reference to expected future income streams of KGTM and the effective interest rate on the working capital loans which would be provided.
A loss of £388,000 is recorded in the consolidated statement of comprehensive income. See page 16 of the Financial review for further
details.
Interest rate risk management
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 £35,000 (2013: £15,000).
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 27%
(2013: 33%) 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.
57 Pressure Technologies plc Annual Report 2014
23. Financial instruments continued
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.
At 27 September 2014 the Group’s liabilities have contractual maturities summarised below:
2014
Trade and other payables
Amounts due under hire purchase agreements
2013
Trade and other payables
Current
within
6 months
£’000
10,247
90
10,337
Current
within
6 months
£’000
Current
6 to 12 Non-current
months 1 to 5 years
£’000
£’000
1,984
90
2,074
3,228
324
3,552
Current
6 to 12 Non-current
1 to 5 years
months
£’000
£’000
6,824
1,248
835
Total net
payable
£’000
15,459
504
15,963
Total net
payable
£’000
8,907
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
– Option held to acquire a further 40% of the issued share capital of KGTM
Amounts charged/(credited) to cost of sales within the consolidated statement of comprehensive income
2014
£’000
28
388
416
2013
£’000
(71)
—
(71)
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 reporting 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.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
58 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
24. 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
option costs
£’000
Operating
lease
incentives
£’000
At 29 September 2012
Credit/(charge) to income
At 28 September 2013
Credit/(charge) to income
Acquired through business combinations
At 27 September 2014
(466)
(4)
(470)
(81)
(106)
(657)
(122)
54
(68)
138
(1,301)
(1,231)
17
34
51
(19)
—
32
13
6
19
30
—
49
80
(12)
68
(3)
—
65
The net deferred tax balance has been analysed as follows in the consolidated balance sheet:
Total
£’000
(478)
78
(400)
65
(1,407)
(1,742)
Non-current asset
Deferred tax asset
Non-current liabilities
Deferred tax liabilities
25. Called up share capital
Allotted, issued and fully paid
Ordinary shares of 5p each
2014
£’000
2013
£’000
155
138
(1,897)
(1,742)
(538)
(400)
2014
No.
2013
No.
2014
£’000
2013
£’000
14,362,813
11,362,249
718
568
On 5 March 2014 the Company issued 2,904,348 ordinary shares at a price of 575p as part of a placing. The Company also issued 44,604
ordinary shares at a price 150p to employees exercising their rights to acquire shares under the Company’s SAYE scheme throughout
the year, and 51,612 shares at 232.5p to a Director exercising his right to acquire shares under the Company’s share option plan on 11
July 2014. The effect of these issues has been to increase share capital by £150,000 and share premium by £16,737,000, less expenses of
£661,000, giving a net increase in share premium of £16,076,000.
59 Pressure Technologies plc Annual Report 2014
26. 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 sixth grant of options
was made in July 2014. 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.
Details of the share options outstanding during the period are as follows:
Outstanding at the beginning of the period
Granted during the period
Lapsed during the period
Exercised during the period
Expired during the period
Outstanding at the end of the period
Weighted
average
exercise
price
152p
593p
215p
150p
—
361p
2014
No.
166,071
98,143
(17,147)
(44,604)
—
202,463
Weighted
average
exercise
price
150p
156p
151p
150p
150p
152p
2013
No.
128,537
57,213
(9,757)
(6,050)
(3,872)
166,071
14,317 of the outstanding options were exercisable at the end of the period. The options outstanding at 27 September 2014 had
a weighted average remaining contractual life of 2.0 years (2013: 1.8 years). The terms of these options are as follows:
Date of grant
28 July 2011
6 August 2012
29 July 2013
31 July 2014
Options
outstanding at
27 September
2014
Market value
at date of
grant (p)
Vesting
period
14,317
42,600
49,831
95,715
3 years
3 years
3 years
3 years
160
175
247.5
719
Exercise
price (p)
150
150
156
593
Exercise
period
6 months
6 months
6 months
6 months
Total options outstanding at 27 September 2014
202,463
There are no performance conditions that apply to these options other than continued employment.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
60 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
26. Share based payments continued
Pressure Technologies plc Performance Share Plan – Enterprise Management Plan
Pressure Technologies plc introduced this share option scheme in October 2009. These options are exercisable between three and
five 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 at the beginning of the period
Granted during the period
Exercised during the period
Outstanding at the end of the period
Weighted
average
exercise
price
222p
—
232.5p
219p
2014
No.
257,768
—
(51,612)
206,156
Weighted
average
exercise
price
191p
242.5p
—
222p
2013
No.
104,768
153,000
—
257,768
The options outstanding at 27 September 2014 had a weighted average remaining contractual life of 4.2 years (2013: 3.8 years). The terms
of these options are as follows:
Date of grant
23 February 2012
9 August 2013
Total options outstanding at 27 September 2014
Options
outstanding at
27 September
2014
53,156
153,000
206,156
Market value
at date of
grant (p)
Vesting
period
3 years
3 years
150.5
242.5
Exercise
price (p)
150.5
242.5
There are no performance conditions that apply to these options other than continued employment. The options will lapse if not exercised
by 5 years from the date of grant. No options were exercisable under this scheme as at the period end.
Pressure Technologies plc Performance Share Plan – Share Options Plan
Pressure Technologies plc introduced this share option scheme in February 2012. These options are exercisable between three and five
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 at the beginning and end of the period
2014
No.
2013
No.
73,089
73,089
The exercisable options outstanding at 27 September 2014 had a weighted average exercise price of 150.5p (2013: 150.5p) and a weighted
average remaining contractual life of 2.4 years (2013: 3.4 years). The terms of these options are as follows:
Date of grant
23 February 2012
Options
outstanding at
27 September
2014
Market value
at date of
grant (p)
Vesting
period
Exercise
price (p)
73,089
3 years
150.5
150.5
There are no performance conditions that apply to these options other than continued employment.
61 Pressure Technologies plc Annual Report 2014
26. Share based payments continued
Pressure Technologies plc – Long Term Incentive Plan
Pressure Technologies plc introduced this share option scheme in April 2014. These options are exercisable between three and
six years following the date of grant. Options are forfeited if the employee leaves the Group before the options vest, unless certain
conditions are met.
Details of the share options outstanding during the period are as follows:
Outstanding at the start of the period
Granted during the period
Outstanding at the end of the period
2014
No.
—
77,493
77,493
The outstanding options outstanding at 27 September 2014 had a weighted average exercise price of 720.8p and a weighted average
remaining contractual life of 5.5 years. The terms of these options are as follows:
Date of grant
3 April 2014
Options
outstanding at
27 September
2014
Market value
at date of
grant (p)
Vesting
period
Exercise
price (p)
77,493
3 years
720.8
720.8
There are performance related conditions that apply to these options. The figures disclosed above show the options exercisable if all
performance conditions are met. Full details of the performance conditions can be found in the report to the remuneration committee.
The options lapse if not exercised 6 years after the grant date. No options were exercisable as at the reporting date.
The options granted during the period have been valued using the Black-Scholes model. The inputs into the Black-Scholes model
are as follows:
Scheme:
Date granted:
Share price at date of offer
Exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Long Term
Incentive Plan
03/04/2014
Save-As-
You-Earn
31/07/2014
721p
721p
45%
5 years
1.9%
2.2%
719p
593p
34%
3 years
1.4%
2.2%
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.
In line with HMRC approved schemes, share options under the Save-As-You-Earn scheme may be exercisable at a discount of up to 20%
of the market value of the shares at the time of issue.
The total charge to the consolidated statement of comprehensive income in the period in respect of share-based payments was £109,000
(2013: £44,000). A deferred tax credit of £30,000 (2013: £6,000) was recognised in the consolidated statement of comprehensive income
during the period in respect of share based payments.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
62 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
27. 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
Loss/(profit) on derivative financial instruments
(Profit)/loss on disposal of property, plant and equipment
Exceptional charges associated with Kelley GTM
Loss on investment in associate
Changes in working capital:
(Increase) in inventories
(Increase) in trade and other receivables
Increase in trade and other payables
Cash flows from operating activities
2014
£’000
3,711
28
804
764
109
1,638
28
(7)
718
183
(440)
(7,449)
3,324
3,411
2013
£’000
2,200
(2)
646
257
44
678
(71)
8
—
—
(284)
(1,448)
1,516
3,544
28. Business combinations
On 5 March 2014, Pressure Technologies plc acquired 100% of the issued share capital of Roota Engineering Limited (“Roota”) for an initial
consideration of £10,673,000, plus contingent consideration with an undiscounted value of £4,500,000, as reflected in the consolidated
statement of cash flows. Following the finalisation of the completion accounts, the initial consideration was adjusted to £10,478,000.
The difference between these amounts of £195,000 was repaid to Pressure Technologies by the vendors in the year.
The fair value of contingent consideration related to the acquisition of Roota is estimated using a present value technique. The £4,364,000
fair value is estimated by probability-weighting the estimated future cash outflows, adjusting for risk and discounting at 2%. The probability-
weighted cash outflows before discounting are £4,500,000 and reflect management’s estimate that all profit targets are expected to be met.
The effects on the fair value of risk and uncertainty in the future cash flows are dealt with by adjusting the estimated cash flows rather than
adjusting the discount rate.
Roota specialises in the manufacture of bespoke engineered products for the oil and gas industry, such as components for high added
value ball valves, mandrels, connectors and well-head cleaning tools and is based in Rotherham. The transaction has been accounted for
using the acquisition method of accounting.
The Directors believe that Roota is complementary to the Group’s other subsidiary businesses and provides cross selling opportunities
between the respective customer bases.
63 Pressure Technologies plc Annual Report 2014
28. Business combinations continued
The table below summarises the consideration paid for Roota Engineering Limited and the fair value of the assets and liabilities acquired.
Intangible
assets
recognised
on
acquisition
£’000
Fair value
uplift on
acquisition
£’000
Fair value
£’000
Book value
£’000
Recognised amounts of identifiable assets acquired
and liabilities assumed:
Property plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Deferred tax liabilities
Goodwill
Total consideration
Satisfied by:
Cash
Deferred cash consideration
Net cash outflow arising on acquisition
Initial cash consideration
Cash and cash equivalents acquired
1,424
—
1,173
1,583
2,848
(1,792)
(798)
(68)
4,370
—
6,503
—
—
—
—
—
(1,301)
5,202
191
—
—
—
—
—
—
(38)
153
1,615
6,503
1,173
1,583
2,848
(1,792)
(798)
(1,407)
9,725
5,117
14,842
10,478
4,364
14,842
10,478
(2,848)
7,630
The intangible assets acquired with the business comprise £6,503,000 in relation to non-contractual customer relationships.
The goodwill arising on the acquisition of Roota 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 revenue included in the consolidated statement of comprehensive income since 5 March 2014 contributed by Roota was £5,814,000.
Roota also contributed profit of £1,612,000 over the same period.
Had Roota been consolidated since 28 September 2013, the consolidated statement of income would show pro-forma revenue
of £57,608,000 and profit before taxation of £6,345,000.
The amount of contingent consideration recognised at the acquisition date was £4,500,000, discounted to fair value. This contingent
consideration is payable should Roota meet profit targets as set out in the agreement. The Directors expect that all profit targets will
be met and that the maximum consideration of £4,500,000 will become payable.
Details of acquisition costs paid in the year are given in note 5 to the financial statements.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
64 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Consolidated Financial Statements continued
29. Financial commitments
(a) Capital commitments
Commitments for capital expenditure entered into were as follows:
Contracted for, but not provided in the accounts
2014
£’000
—
2013
£’000
—
(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:
Within one year
In the second to fifth years inclusive
After more than five years
Other assets:
Within one year
In the second to fifth years inclusive
2014
£’000
673
2,831
830
4,334
57
59
116
2013
£’000
641
2,711
1,517
4,869
53
56
109
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;
• Hydratron Limited’s 10 year property lease commenced on 28 October 2010 and has a rent review at the end of year 5; and
• A 5 year lease for the Group’s head office commenced on 31 July 2014, at Chapeltown, Sheffield.
30. Related party transactions
The interests of Directors in dividends paid during the year are disclosed in the Report of the Remuneration Committee which has
been audited.
During the period the Group issued a loan of $3,500,000 to an associate company, KGTM. This loan was made at an interest rate of 4.5%
which is considered to be below the market rate of a company such as KGTM. As such, the loan is discounted to determine fair value on
initial recognition. More details of the loan and the discounting provided can be seen in note 18. The fair value of the loan after discounting
is £1,766,000. A provision has also been applied against this loan of £330,000 bringing the carrying value to £1,436,000.
65 Pressure Technologies plc Annual Report 2014
31. Events after the reporting period
The Group entered into three key transaction after the reporting date of 27 September 2014.
1) The Group agreed new bank facilities with Bank of Scotland, part of Lloyds Banking Group the Company’s current bankers on the
30 September 2014. The facilities comprise a £15.0 million multi-currency revolving credit facility, available to the Company until
30 September 2018. In addition, the new facility also contains an accordion feature that allows the total revolving credit facility to
expand by a further £10.0 million.
2) On 1 October 2014, Pressure Technologies plc completed the purchase of the business and certain assets of New Zealand based
Greenlane Biogas Holdings Limited and those of its various subsidiary companies. The maximum total consideration for the Acquisition
is NZ$25 million (£12.4 million), comprising an initial consideration of NZ$12.0 million (£6.0 million) with additional deferred payments,
split over four years, of up to a maximum of NZ$13.0 million (£6.4 million), based on the future financial performance of Greenlane.
The Directors consider that the business combination is highly complementary to its existing subsidiary in the Alternative Energy division.
3) On 1 October 2014, Pressure Technologies plc purchased the entire issued share capital of Quadscot Holdings Limited, a provider
of high quality computer controlled and conventional precision engineering and machining services primarily to the oil, gas and
petrochemical industries. The maximum total consideration for the Acquisition is £10.3 million (plus cash balances), comprising an initial
cash consideration of £7.3 million (plus cash balances) with additional deferred payments, split over two years, of up to a maximum of
£3.0 million, based on the future financial performance of Quadscot. The Directors believe that Quadscot has significant opportunities
to expand and extend its customer base following a recent large scale expansion of its manufacturing facilities.
Due to the proximity of the above business combinations to the reporting date, the initial accounting for these transactions has still to be
completed, and consequently details of the amounts of assets and liabilities acquired and fair value of contingent consideration are not
disclosed within these financial statements.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 66 Pressure Technologies plc Annual Report 2014
Company Balance Sheet
As at 27 September 2014
Fixed assets
Investments
Tangible fixed assets
Investment in associate
Debtors
Current assets
Debtors
Cash at bank and in hand
Total assets
Creditors: amounts falling due within one year
Creditors: amounts falling due after more than one year
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Equity – non distributable
Profit and loss account
Equity shareholders’ funds
The accounting policies and notes on pages 67 to 71 form part of these financial statements.
Approved by the Board on 9 December 2014 and signed on its behalf by:
JTS Hayward
Director
Notes
4
5
6
7
7
8
8
10
12
12
12
13
2014
£’000
21,447
28
221
7,151
28,847
3,483
3,476
6,959
2013
£’000
6,373
4
—
—
6,377
4,536
2,181
6,717
35,806
13,094
(2,639)
(2,639)
(2,432)
(2,432)
(5,071)
30,735
718
21,463
182
8,372
30,735
(530)
(530)
—
—
—
12,564
568
5,387
114
6,495
12,564
67 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Company Financial Statements
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 £2,827,000 (2013: £1,765,000) after applying a tax credit (note 9) of £13,000 (2013: £8,000) to the profit before tax of £2,814,000
(2013: £1,757,000).
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.
Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation and any reduction for recognised impairment in value with a corresponding
charge to the profit and loss account. Cost reflects purchase price or construction cost of the asset together with any incidental costs of
bringing the asset into use. 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
Four years
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.
Investments in associates
Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under
the equity method, the investments are initially recognised at cost, and the carrying amount is increased or decreased to recognise the
investor’s share of the profit or loss of the investee after the date of acquisition.
The Company’s share of post-acquisition profit or loss is recognised in profit and loss. When the Group’s share of losses in an associate
equals or exceeds this interest in the associate, the Group does not recognise further losses unless is has incurred legal or constructive
obligation or made payments on behalf of the associate.
Deferred tax
Deferred income taxes are calculated using the liability method on timing differences. Deferred tax is generally provided on the difference
between the carrying amounts of assets and liabilities and their tax bases. Deferred tax on timing differences associated with shares in
subsidiaries is not provided if reversal of these timing differences can be controlled by the Company 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 Company
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 timing 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.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71 68 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Company Financial Statements continued
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
2014
Number
6
2013
Number
5
2014
£’000
563
68
45
41
717
2013
£’000
455
59
43
15
572
Further details of Directors’ remuneration are provided in the Report of the Remuneration Committee.
3. Operating profit
The Auditor’s remuneration for the audit and other services is disclosed in note 6 to the consolidated financial statements.
4. Investments in subsidiary companies
Cost
At 29 September 2013
Investments made in the year
Share options granted to subsidiary company employees
At 27 September 2014
Investment
in subsidiary
companies
£’000
6,373
15,006
68
21,447
Further details of the investments made in the year are given in note 28 to the Group financial statements. In the holding company financial
statements certain acquisition costs are capitalised alongside the consideration paid. These costs are written off in full in the Group
Consolidated Statement of Comprehensive Income, which is prepared under IFRS.
The principal subsidiaries as at the balance sheet date, which are all 100% owned, are:
Name
Country of incorporation
Al-Met Limited
Chesterfield BioGas Limited (“CBG”)
Chesterfield Special Cylinders Limited (“CSC”)
CSC Deutschland GmbH
Hydratron Limited
Hydratron Inc
Roota Engineering Limited
Pressure Technologies US, Inc
England & Wales
England & Wales
England & Wales
Germany
England & Wales
USA
England & Wales
USA
Principal activity
Manufacturing
Manufacturing
Manufacturing
Sales and marketing
Manufacturing
Manufacturing
Manufacturing
Holding company
The Company also has an indirect holding of 40% in Kelley GTM, LLC, a manufacturing company based in the USA.
69 Pressure Technologies plc Annual Report 2014
5. Tangible fixed assets
Cost
At 28 September 2013
Additions
At 27 September 2014
Depreciation
At 28 September 2013
Charge for the period
At 27 September 2014
Net book value
At 27 September 2014
At 28 September 2013
6. Investments in associated companies
Investments made in the year
Share of losses
At 27 September 2014
Plant and
machinery
£’000
12
28
40
8
4
12
28
4
£’000
404
(183)
221
Further details of the investments in associated companies, including the Group’s share of assets and liabilities, are set out in note 16 to the
consolidated financial statements.
In the holding company financial statements certain acquisition costs are capitalised alongside the consideration paid. These costs are
written off in full in the Group Consolidated Statement of Comprehensive Income, which is prepared under IFRS.
7. Debtors
Amounts: falling due within one year
Prepayments and accrued income
Other debtors
Amounts owed by Group companies
Deferred tax (note 11)
Amounts: falling due after one year
Loans to associated companies
Amounts owed by Group companies
2014
£’000
45
2,874
543
21
3,483
2014
£’000
1,436
5,715
7,151
2013
£’000
194
100
4,234
8
4,536
2013
£’000
—
—
—
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
70 Pressure Technologies plc Annual Report 2014
Financial Statements
Notes to the Company Financial Statements continued
8. Creditors
Amounts: falling due within one year
Trade creditors
Other tax and social security
Corporation tax
Accruals and deferred income
Deferred consideration
Amounts: falling due after one year
Deferred consideration
9. Taxation
Current tax
Current tax expense
Over provision in respect of prior years
Deferred tax
Origination and reversal of temporary differences
Total taxation charge
2014
£’000
41
32
—
581
1,985
2,639
2014
£’000
2,432
2,432
2014
£’000
—
—
—
(13)
(13)
Corporation tax is calculated at 22% (2013: 23.5%) of the estimated assessable profit for the period. Deferred tax is calculated at 20%
(2013: 20%).
10. Share capital
Details of the Company’s authorised and issued share capital and of movements in the year are given in note 25 to the consolidated
financial statements.
11. Deferred tax
Opening balance for the period
Credit for the period
Closing balance for the period
The provision for the deferred taxation asset is made up as follows:
Cost of share options
Accelerated capital allowance
2014
£’000
8
13
21
2014
£’000
20
1
21
2013
£’000
87
16
1
426
—
530
2013
£’000
—
—
2013
£’000
1
(1)
—
(8)
(8)
2013
£’000
—
8
8
2013
£’000
7
1
8
71 Pressure Technologies plc Annual Report 2014
12. Reserves
Share
premium Equity – non
account distributable
2014
£’000
2014
£’000
Profit
and loss
account
2014
£’000
Share
premium
Equity – non
account distributable
2013
£’000
2013
£’000
At beginning of period
Profit for the financial period
Share option cost
Share options granted to subsidiary employees
Shares issued
Dividends
At end of period
5,387
—
—
—
16,076
—
21,463
114
—
—
68
—
—
182
6,495
2,827
41
—
—
(991)
8,372
5,378
—
—
—
9
—
5,387
85
—
—
29
—
—
114
See note 25 in the Group financial statements for details of the movements on share capital and share premium in the year.
13. Reconciliation of movements in equity shareholders’ funds
Equity shareholders’ funds at beginning of period
Profit for the financial period
Dividends paid
Share option cost
Share options granted to subsidiary employees
Shares issued
Equity shareholders’ funds at end of period
2014
£’000
12,564
2,827
(991)
41
68
16,226
30,735
Profit
and loss
account
2013
£’000
5,578
1,765
15
—
—
(863)
6,495
2013
£’000
11,609
1,765
(863)
15
29
9
12,564
14. 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 the Report of the Remuneration Committee.
During the period the Group issued a loan of $3,500,000 to an associate company, Kelley GTM, LLC. This loan was made at a rate of 4.5%
which is considered to be below the market rate of a company such as Kelley GTM. As such, the loan is discounted to determine fair value
on initial recognition. More details of the loan and the discounting provided can be seen in note 18 of the Group financial statements.
15. Ultimate controlling party
The Directors consider that there is no ultimate controlling party.
Strategic Report 01 – 21Governance 22 – 31Financial Statements 32 – 71
72 Pressure Technologies plc Annual Report 2014
Notes
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Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire
S35 2PH
UK
Telephone +44 (0) 114 257 3616
www.pressuretechnologies.com