Pressure Technologies plc Annual Report 2016

FY2016 Annual Report · Pressure Technologies plc

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ANNUAL REPORT 2016

High quality engineering
for demanding markets

WHO WE ARE

Pressure Technologies plc Annual Report 2016

A specialist engineering
Group supplying safety-
critical products and
services world-wide

Pressure Technologies
was founded on its leading
market position as a
designer and manufacturer
of high pressure systems
serving the global energy,
defence and industrial
gases markets. Today
it continues to serve
those markets from a
broader engineering base
with specialist precision
engineering businesses
and has a worldwide
presence in Alternative
Energy as a global leader
in biogas upgrading.

AT A GLANCE

WHERE WE OPERATE

Manufacturing

Agents and distributors

Sales and engineering

Associated company

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HOW WE OPERATE

The Group operates across four
divisions. Three of the divisions are
manufacturing businesses and the
fourth is our Alternative Energy
Division, which is a contracting
business.

All our manufacturing is UK based, exporting products
to a global blue chip customer base. Our businesses
have a recognised reputation for quality, reliability
and are trusted suppliers of safety-critical products
and services.

We specialise in designing, engineering, manufacturing
and servicing what is deemed ‘difficult’ giving us our
niche position in the markets we serve and reinforcing
our strong partnerships with customers.

Group revenue 2016

£35.8m

Group revenue 2015

£53.8m

Contracting

Alternative Energy is
our only contracting
business and we discuss
it separately from
our manufacturing
businesses. As a project
based business the risk,
revenue and cash flow
profiles are typical of
large capital projects.

Alternative Energy

Activity: Greenlane is one of the world’s
largest suppliers of biogas upgrading
equipment with an installed base of over
100 upgraders world-wide. It is also the
only company in its market to supply three
of the main biogas upgrading technologies.

Upgrading biogas takes a problem for
businesses, local authorities and the
environment and creates a profitable
and green solution using existing waste
to create renewable energy.

Biogas is a mixture of methane and
carbon dioxide and is produced naturally
when organic matter such as food waste
from households, manure, or crops from
agriculture is broken down by micro-
organisms in anaerobic digesters
(“AD”), landfill sites and wastewater
treatment plants.

Upgrading equipment takes the raw biogas
and removes the methane to produce a
high purity of biomethane or Renewable
Natural Gas (“RNG”) as it is also known,
that can then be used as a vehicle fuel or
injected directly into the gas grid network.

Market: The global biogas upgrading
market was estimated to be worth
$0.33 billion in 2015 and is expected to
reach $1.97 billion by 2022 growing at a
combined annual growth rate (“CAGR”)
of 28.7%.

Read more on
page 12

Governance
Introduction to Governance

Directors and Advisers

Report of the
Remuneration Committee

Directors’ Report

Independent Auditor’s
Report to the Members of
Pressure Technologies plc

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CHAIRMAN’S STATEMENT

Pressure Technologies plc Annual Report 2016

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of the Group continues

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Our Manufacturing
Divisions are firmly focused
on expanding revenues
outside the oil and gas
sector and the medium-
term aim is to have a better
balance of business within
these divisions.”

The last 12 months have been incredibly
busy for the Group, as we realigned our
manufacturing businesses to remain
profitable at the current volumes from the
oil and gas sector, whilst working to build
the order book for Alternative Energy.
For the first time in the Group’s history,
less than half, 43%, of our revenues
came from the oil and gas sector, with
alternative energy and defence making
significant contributions of 32% and
18% respectively.

The underlying qualities of our
Manufacturing Divisions and the
swift management action taken at the
beginning of the downturn in the oil
and gas market are evidenced by the
results from these divisions, which
overall remained both profitable and
cash generative.

Post year-end we added another business
to the Precision Machined Components
Division (“PMC”), Martract Limited, which
is a strong strategic fit, strengthens
our existing market position and gives
significant opportunity to penetrate
new markets.

There continues to be substantial potential
for the Alternative Energy Division. That
said, it had a somewhat frustrating year,
suffering from contract award delays

and some legacy costs which adversely
impacted revenues and profits. However,
as a result of much hard work, it is
encouraging to report that we ended the
year with an upgrader order book value of
£14.2 million, which is £11.5 million higher
than the same point last year.

and delayed contract awards. The impact
on adjusted operating profit was a loss
of £0.4 million (2015: £3.8 million profit).
Adjusted operating profit is defined as
operating profit before acquisition costs,
amortisation and exceptional charges
and credits.

The speed and degree of change across
the Group would not have been possible
without the dedication and commitment of
our employees at all levels. As a specialist
engineering Group we rely on the skills of
our employees to maintain our reputation
for quality and integrity. On behalf of the
Board, I would like to take this opportunity
to thank them all for their continued hard
work and support.

Results
Following the closure of Engineered
Product’s US manufacturing facility in
September, the results for the year only
show the continuing operations and
the prior year comparison has been
represented. On this basis, revenues for
the Group fell by over 33% to £35.8 million
(2015: £53.8 million) as our manufacturing
businesses continued to face declining
sales volume from the oil and gas market.
Anticipated volume from our Alternative
Energy Division, which is unaffected by the
oil and gas market, did not materialise in
the period due to delays to certain projects

Net asset value was £34.8 million (2015:
£36.3 million) and operating cash
generation was £4.4 million (2015: £7.9
million) after reorganisation costs. At
the year-end, net debt was £6.6 million
(2015: £7.1 million). Given the reduction
in revenues and that the final deferred
consideration for Roota of £2.5 million
was paid out of cash, along with other
non-operating cash inflows of £0.4 million,
this result is pleasing and reflects the
underlying disciplines in place.

Restructuring and redundancy costs in
the period were £0.7 million (2015: £0.7
million) giving total annualised savings of
£3.8 million, bringing the total annualised
savings since October 2014 to £5.4 million.

Given the Board’s outlook for oil and gas
for 2017 and with the enlarged Alternative
Energy Division still to deliver a profit, the
Board has taken the decision that a final
dividend will not be paid this year and as
no interim dividend was paid there is no
dividend payment for the year (2015: 8.4p).

Pressure Technologies plc Annual Report 2016

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The Precision Machined Components
and Engineered Products Divisions will
continue to take opportunities to expand
customer and geographic focus within the
oil and gas market, but will also expand
into other market sectors going forward.
The acquisition of Martract Limited, will
assist with this process given that 60%
of its business is from a range of
industries outside of oil and gas.

In the near-term, Alternative Energy
remains an exciting area of growth
for the Group. The global market
for biogas upgrading is growing at a
combined annual rate of nearly 30%,
driven predominantly by Government
regulations and greenhouse gas emission
targets. Greenlane is a well-known
established global brand and as one of
the only companies to offer three of the
main upgrading technologies, we are well
positioned to realise our potential over
the medium-term. With a strong order
book for 2017 and a considerable pipeline
of follow-on projects the Board expects
the potential within this division to
be realised.

The Board remain confident in the
medium to long-term prospects for
the Group.

Alan Wilson
Chairman
12 December 2016

Outlook
The Group will continue its growth
strategy, combining acquisitions and
organic growth. Our Manufacturing
Divisions are firmly focused on expanding
revenues outside the oil and gas sector
and the medium-term aim is to have a
better balance of business within these
divisions, as well as realising the potential
of the Alternative Energy Division, which
has different market drivers to the rest
of the Group.

In the oil and gas market, global oil
demand is forecast to marginally increase
by 1.5% in 2017 to 96.89 million barrels
per day (“mbpd”) driven by demand from
non-OECD Asia. Before OPEC’s recently
announced output reductions, global
oil production was projected to remain
essentially steady at 95.69mbpd in 2017.
However, any projection is fraught with
uncertainty. The cuts may only have a
small impact on global oil production
growth, since compliance by some states
has historically proven to be highly
unreliable. The recent increase in drilling
activity seen in USA shale oil fields, spurred
on by a relatively stable oil price of around
$50 barrel, may well give rise to increasing
output, thereby pinning prices at today’s
levels. Rex Tillerson, CEO at Exxon Mobile,
recently commented that production
from USA shale regions will keep oil prices
subdued in the medium term.

The Board’s views concur with those of
Tillerson and our Manufacturing Divisions
are structured to continue making profits
in the current market environment, with
a focus to diversify outside of oil and
gas markets.

The Cylinders Division has long-term
defence market orders and the prospect
of further growth in this sector from
future UK, Australian and US submarine
build programmes. Short-term growth
will be derived from the expansion of the
division’s service offerings, particularly
our unique Integrity Management service,
which brings laboratory level inspection
direct to site.

OUR BUSINESS MODEL

How we run
our business

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Our goal is to build a
highly profitable group
of companies, specialising
in the technology for the
containment and control
of liquids and gases in
pressure systems.

Pressure Technologies plc Annual Report 2016

3.
Identify and develop
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opportunities

1.
Consolidate
and build on the
current business

Business
Model

2.
Identify and develop
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opportunities in
growth sectors

See pages 06 and 07 for our Strategy in full

Market Growth Drivers

Our KPIs

Markets we Serve

Risk Management

The Alternative Energy
market is driven by a global
commitment to reducing
greenhouse gases and a
need to reduce waste and
specifically for the Group, by
locally incentivised investment
in biogas upgrading.

Demand for oil is driven
by growth from non-OECD
countries and in addition for
the Group by technological
advancement that reduces
the cost of investment.

Defence is driven by the
global submarine build
programme and industrial
gases by GDP growth.

We measure our
performance over
three areas, financial
performance, shareholder
returns and corporate
social responsibility.
Financial performance is
primarily measured on
the conversion of sales to
profit, earnings per share
are used to show how we
are delivering value for
shareholders. We measure
reportable accidents and
environmental incidents
across the Group as part
of our corporate social
responsibility.

MANUFACTURING

Oil & Gas

Defence

Industrial Gases

CONTRACTING

Alternative Energy

We maintain a
comprehensive Risk
Register and have an audit
and risk committee made
up of Board members who
meet regularly to review it.
We take the view that all
business activity contains
risk and our focus is on
managing and, ultimately,
minimising it.

See more on pages 08 to 11

See more on pages 26 and 27

See more on pages 08 to 11

See more on pages 28 to 31

Pressure Technologies plc Annual Report 2016

Precision

O r g a n ic Growth

Our Business Model

Our businesses provide niche and highly
specialised products and services, which
set us apart from other companies.
We do this by employing engineering
and technical expertise and serving
strong markets that we understand.
A highly skilled workforce and continual
investment in new technologies are
fundamental to our sustainability.

Contractin
Alternative E n

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Shareholder
Value

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Creating Value

Building the Group by focusing on highly
specialised businesses with limited
competitors, we create long-term value
for our:

Employees
An opportunity to gain specialist skills
and qualifications in a business that
is growing.

Shareholders
Higher returns on sales, less vulnerability
during market downturns and strong
growth prospects.

Customers
Unrivalled and trusted products
and services.

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OUR STRATEGY

Pressure Technologies plc Annual Report 2016

Constantly assessing the
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Our Strategy

Our Progress

Our strategy is to identify and develop,
profitable niche opportunities in growth
sectors for pressure products and
services through a combination of
organic initiatives and by acquisitions.

1. Consolidate and

build on the current
business

2. Identify and develop

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opportunities in
growth sectors

See pages 14 to 17 for our Business Review

Headcount around the Group has reduced again this year to align with market
volumes, but efficiencies gained through investment and working practices have left
latent capacity ahead of an upturn in the oil and gas market.

The divisional structure of the Group allows for natural internal synergies. This year we
have categorised the divisions into two areas: Manufacturing and Contracting to better
describe and understand the different business needs.

Almost all of the group companies’ bespoke component manufacturing is in-sourced
at Quadscot.

Engineered Products’ US manufacturing facility was closed as it became clear that it did
not have sufficient scale to penetrate the US market effectively.

Expansion of the customer base in Precision Machined Components and Cylinders.

In Alternative Energy: The launch of the Kauri water-wash system as the world’s largest
ever biogas upgrader was completed and two upgrading systems, pressure swing
adsorption and membrane separation were added making it technology agnostic.

In Cylinders: Substantial progress was made in furthering the development of the US
market and also in its high added value service offering.

In Engineered products: There was an expansion of its distributor networks.

In Precision Machined Components: Al-Met gained Fit for Nuclear status.

3. Identify and develop
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opportunities

Acquisitions are kept under review by the Board and in conjunction with the Group
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acquisition criteria, which minimises risk.

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Pressure Technologies plc Annual Report 2016

Our Risk Awareness

Our Future

The risks below are those most likely to
affect the development of the strategy.

Central to our strategy is continual
development of the Group and identification
of organic growth and acquisition opportunities.

See pages 28 to 31 for our Risks and Uncertainties

See page 17 for our Summary and Outlook

The risks to this element of the strategy
come from management resource,
employee skill base and the
economic environment.

Continue to leverage synergies and
production efficiencies.

Build on the existing customer base and
develop new customer partnerships.

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The risks to this element of the strategy
come from competition, access to
funding, management resource, employee
skill base and the economic environment.

Expansion into new geographical markets
where opportunities for our products and
services exist.

Development of new markets where our
niche engineering skills apply.

The risks to this element of the strategy
come from competition, access to
funding, management resource, employee
skill base and the economic environment.

Continue to seek out suitable acquisition
opportunities with a close strategic fit that
meet our acquisition criteria.

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OVERVIEW OF OUR MARKETS

Pressure Technologies plc Annual Report 2016

Harnessing our capabilities
across our markets

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Oil and Gas

Division
Manufacturing

Market Served by
Cylinders
Engineered Products
Precision Machined Components

2016 Revenue

£15.5m

(2015: £30.8m)

2016 % of Group Revenue

43%

Oil and gas has been the main market
served by the Group’s manufacturing
businesses since its inception in 2007.
For the year under review, and for the
first time for the Pressure Technologies
Group, less than half our revenue came
from this sector.

This over production of oil at a time when
the demand growth for oil had slowed,
due primarily to slower growth in China,
led to historically high oil stocks, fuelling
global headlines of a world ‘awash with oil’
and a crash in the oil price to below $30
a barrel at one point.

year and reduced operational spend by
$9 billion. Shell recently completed the
integration of its merger with BG Group
and reported that the combined company
now spends less than Shell did previously
as a single entity. BP also reported a 60%
decline in year on year earnings.

Set out here is our view of the oil and
gas market.

Why has the Oil Price Collapsed?
The downturn witnessed in oil and
gas over the last two years has been
described as the worst in a generation.
Unlike other downturns, the normal rules
of this market were altered when US shale
producers significantly increased their
supply of oil and OPEC, the traditional
swing producers, maintained their
output to protect market share. This was
further exacerbated as Russia increased
production and Iran re-entered the
global market.

What was the Impact?
Reduced Spending – As the price of oil
fell so too did the profits of the major oil
companies and over the past two years
the industry has seen a fundamental
restructuring. Well over 350,000 jobs
globally have been cut with the majority
in the oil services sector. In addition
over $1 trillion has been cut from 2015-
2020 investment plans and there has
been around $100 billion of cancelled
investments.

Oil Company Losses – The major oil
companies have seen their earnings crash
over the last two years with many being
unprofitable at the lower oil price. Actions
taken to align with market conditions
have seen the budgets for operational
expenditure and investment slashed.
In Shell’s third quarter 2016 results, it
reported earnings 45% down year on

Bankruptcies – In North America around
100 oilfield service companies have gone
bankrupt in 2015 and 2016. Debt that was
taken on when the oil price was north of
$100 barrel, is now proving difficult
to manage.

Dividend Reductions – While the oil
majors have cut investments to preserve
their dividends, many other oil and gas
companies have cut theirs with a cost to
shareholders of more than $7.4 billion in
lost income. Fears for future dividends still
exist as debt levels remain high despite
cost reductions and reduced investments.

Pressure Technologies plc Annual Report 2016

GLOBAL OIL PRODUCTION AND CONSUMPTION

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100

1,300

1,250

1,200

1,150

1,100

1,050

1,000

950

900

Our Manufacturing
Divisions are
structured to
continue making
profits in the
current market
environment.”

b
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Alan Wilson
Chairman

2014

2015

2016

2017

Total World Production

Total World Consumption

OECD – CRUDE OIL STOCKS

6
0
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6
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7
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7
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8
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OECD Crude Oil Stocks

Stockpiling – Supply outpacing demand
growth has led to record inventory levels
around the world. In addition countries
such as China have taken the opportunity
to fill up their strategic reserves with cheap
oil. The high levels of oil in storage make it
more difficult for the oil price to rebound
as even a drop in current production levels,
unless significant, are offset by the glut.

Production Costs Dramatically reduced
– US shale production costs have fallen
by as much as 40% over the downturn.
In parts of Texas it is reported that shale
can breakeven at a Brent Crude price of
between $39 and $48 a barrel. A report
in the Financial Times in July this year
noted that 60% of oil production that
is profitable at $60 a barrel is US shale,
while only 20% of deep-water oil is.

Less Exploration – As a result of
investment cuts, 2015 saw the lowest
discoveries of new oil reserves for more
than 60 years with only 2.8 billion barrels
of crude and related liquids found, the
lowest annual volume recorded since
1954. Continual exploration is needed in
the sector to counter production declines
and fulfil future demand.

Rigs Being Scrapped – In 2012 Baker
Hughes recorded that the worldwide
rig count averaged 3,518 over the year.
For 2016, up to October, it is showing
as an average of 1,561. Day rates for
rigs, the cost of hiring a rig, have fallen
from $650,000 a day to $200,000. Many
unutilised rigs have been scrapped and
orders for new rigs have been cancelled
either during or after build.

Saudi Economy Damaged – The Saudi
economy, which is almost totally reliant
on oil production has been significantly
damaged, swinging from a budget surplus
just a few years ago to a budget deficit
of $100 billion. Direct government debt
stands at around $73 billion and the
International Monetary Fund (“IMF”), has
said that the country needs an oil price
of near $80 to balance its budget. The
country has recently announced austerity
measures and broke records with a
sovereign bond sale of $17.5 billion.

What is Likely to Happen?
Inefficiencies that were uncorrected
during the high oil price period, have
now largely been resolved and this has
resulted in a fundamental restructure of

the sector that is likely to remain in place,
even when prices eventually increase. BP,
amongst others, has said that it intends to
maintain 75% of all cost reductions.

Traditionally, oil demand growth has been
just under 0.5% per 1% growth in Gross
Domestic Product (“GDP”). However, the
volume of oil consumed per unit of GDP is
falling as energy efficiency increases. Since
1995 the quantity of oil needed per GDP
unit has fallen by 13.6%. It is estimated
that GDP could grow at 2.15% per year
without any increase in oil needed.

Given these efficiencies and the current flat
economic environment in OECD countries
would indicate that increased demand for
oil is unlikely in the short to medium term.
Market commentators agree that a stable
oil price of around $50 a barrel would
encourage increased production from US
shale, which is now effectively the swing
producer. These factors would lead us
to believe that the oil price could remain
flat in the medium term if nothing else
changes.

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OVERVIEW OF OUR MARKETS continued

Pressure Technologies plc Annual Report 2016

Defence

Division
Manufacturing

Market Served by
Cylinders
Engineered Products

2016 Revenue

£6.5m

(2015: £7.5m)

2016 % of Group Revenue

18%

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Industrial Gases

Division
Manufacturing

Market Served by
Cylinders
Engineered Products

2016 Revenue

£2.4m

(2015: £1.5m)

2016 % of Group Revenue

This is the third largest market for the
Group where Chesterfield Special Cylinders
(“CSC”) 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 variability
of defence revenue and there is a good
forward visibility on projects globally.

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 standards
and through-life support requirements.
CSC is the principal supplier in the naval
market to NATO and NATO friendly
nations with the exception of the USA,
with Germany now our largest market.

There are significant medium-term
opportunities, the largest being the UK
Successor Programme, which replaces
the Vanguard class of submarines and we
are working with defence OEMs on initial,
small-scale prototypes. This programme
has also provided the opportunity to
promote CSC’s capabilities in the USA.
The Australian Government announced in
April 2016 it is to build its new fleet of 12
submarines on a French design for which
we already provide cylinders. In addition
Integrity Management services are widely
used in the UK naval sector and are now
being offered on overseas naval contracts.

For the Engineered Products Division,
Hydratron supplies a range of high
pressure pumps and test equipment
into this market.

Alternative Energy

Division
Contracting

Market Served by
Greenlane Biogas

2016 Revenue

£11.4m

(2015: £14.0m)

2016 % of Group Revenue

32%

Industrial gases has been an important
market for Chesterfield Special Cylinders
(“CSC”) for over 100 years. The Group
supplies a diverse range of products and
services, ranging from bulk gas storage
for large industrial applications, to the
reconditioning and retest of cylinders
and trailers.

Trailers for the transportation of bulk
gases are also an important part of this
market. The Group manufactures a
range of high pressure gas trailers and
provides a one-stop-shop management
of reconditioning and retest of cylinders.

Growth in the “in-situ” testing market
continues, driven by a European standard
developed at CSC for the inspection of
hard to reach / impossible to move gas
tubes. CSC is currently the only company
capable of delivering this strict new testing
regime worldwide.

On the back of our established sales team
in the USA opportunities are opening up in
the US industrial gases market where our
pricing is competitive.

Through Hydratron, the Engineered
Products Division, supplies a range of test
equipment for valves, fittings and hoses
into this market. Working closely with
customers, Hydratron is able to supply
leading edge equipment incorporating the
latest in digital systems that increase the
range and accuracy of testing and improve
operator safety.

Pressure Technologies plc Annual Report 2016

Now the Group’s second largest market,
the Global biogas upgrading market is
growing rapidly. According to a recent
report it is anticipated to reach $1.97
billion by 2022, which represents a
compound annual growth rate (“CAGR”)
of 28.7%. Government regulations,
greenhouse gas emission targets, an
increased need to treat residues and
wastes coupled with a growing demand
for renewable energy are driving growth
in this market. These drivers exist as part
of the world’s commitment to reduce
its greenhouse gas emissions, concern
over air and water pollution, security of
energy supply and reducing reliance on
fossil fuels while continuing to meet rising
energy demands.

Biogas is produced naturally when
organic matter such as food waste from
households, manure, or crops from
agriculture is broken down by micro-
organisms in anaerobic digesters (“AD”),
landfill and wastewater treatment plants.
It is a mixture of around 60% methane
and 40% carbon dioxide. Upgraded
biogas, known as either biomethane
or Renewable Natural Gas (“RNG”) can
then be used as a vehicle fuel or injected
directly into the gas grid network. It uses
existing waste and infrastructure to create
a renewable energy within a relatively
short time frame and in addition creates
a profit for the gas producers.

There are four main biogas upgrading
technologies, water-wash, pressure
swing adsorption (“PSA”), chemical
scrubbing and membrane separation.
Water-wash is the most widely used
technology, accounting for around 40%
of the market, closely followed by PSA at
25%, with membrane separation taking
a growing market share. Greenlane is
a market leader in water-wash and the
only company to also supply PSA and
membrane, making it technology agnostic.

The opportunities for biogas upgrading
are world-wide. Europe is the most
mature market for biomethane and
further significant growth opportunities
exist here driven by Government targets
and support. In France for example, the
vision of the French Environment and
Energy Management Agency is to produce
70TWh biogas annually by 2030, with 50%
of the biogas produced, injected into the
grid. North America is expected to see
a major expansion in biogas upgrading
where the scope for upgrading is
substantial. Greenlane is a market
leader in Europe and North America.

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Q&A WITH MICK PINDER – MD, CSC

Pressure Technologies plc Annual Report 2016

Q&A with Mick Pinder,
Managing Director at
(cid:38)(cid:75)(cid:72)(cid:86)(cid:87)(cid:72)(cid:85)(cid:564)(cid:72)(cid:79)(cid:71)(cid:3)(cid:54)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:92)(cid:79)(cid:76)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)

Q. How long have you been MD at CSC?

Q. Could the US develop in the same way

that Germany did?

A. Absolutely. We are using the same
strategy in the US that we used
in Germany, opening an office,
employing people who already know
this market and knocking on doors.
While the US will be a much slower
burn, we have made a lot of progress
over there. This is potentially a huge
market for us.

Q. What about engineering services,

how much potential do you see in this?

Integrity Management, like expansion
of defence, began four years ago
but was set up from scratch. The
aim is to achieve 50% of our profit
from services and we are making
solid progress. Today we are the go
to inspection team for the Ministry
of Defence and offer market leading
services for in-situ inspections around
the world. We definitely haven’t
seen the full potential from Integrity
Management yet and as it operates
at a much higher margin, it will have
a greater impact on the bottom line
going forward.

Q. What excites you about the future

for CSC?

A. Everything. We have a strong lean
workforce that is highly skilled. We
invest substantially in our people
and recognise the importance of
developing the next generation of
engineers and senior managers. There
are many opportunities out there for
us to expand our existing products
and services. New geographies is one
such area and we are actively looking at
India, Asia and Australia. The downturn
in oil and gas, has given us the space
to expedite the development of other
more profitable areas.

I joined Chesterfield Special Cylinders
as Managing Director in 2010. I have
spent my entire career in engineering
businesses. Starting as an apprentice,
I spent nine years working on the
shop floor before progressing into
engineering and then operations.
Understanding how a customer’s
requirement translates through the
manufacturing process is essential to
delivering their product solutions. It’s
a route that’s worked well for me and
one that we encourage throughout
the business.

Q. How many different sizes of cylinders

do you make here?

A. The largest cylinder we make is 11.5

meters long and the smallest is about
7 inches. We can also make curved
cylinders, which I can tell you is quite
a feat!

Q. How has the downturn in oil and gas

affected your business?

A. We had planned for it. Four years

ago we asked ourselves the question:
What would we do if there was no
oil and gas? We identified two crucial
areas, defence and engineering
services both of which required
niche and highly specialised skills.

Q. So how did you go about building the

defence side of the business?

A. We already had a really good

relationship with the British and
French Navies but recognised that
there was substantial potential in
targeting Germany. It didn’t happen
overnight but we set up an office and
kept knocking on doors and were able
to take the order book from our main
competitor over there. Opening up
this market was fundamental, not just
for the sales volumes but because
the modular design used in Germany
enabled us to expand our product
range to other navies such as Turkey,
Israel and Egypt.

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The downturn
in oil and gas,
has given us
the space to
expedite the
development
of other more
profitable areas.”

Pressure Technologies plc Annual Report 2016

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BUSINESS REVIEW

Pressure Technologies plc Annual Report 2016

Focus on expanding into
new markets

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The Group is far more resilient,
with Manufacturing Divisions
now aligned to be proﬁtable
in the current market and an
Alternative Energy Division
on the brink of a breakthrough
to sustainable revenues
and proﬁts.”

The year has seen both the rebuilding of
our Alternative Energy Division, following its
restructuring in 2015, and the completion
of the restructuring of our Manufacturing
Divisions. The Group is far more resilient,
with Manufacturing Divisions now aligned
to be profitable in the current market and
an Alternative Energy Division on the brink
of a breakthrough to sustainable revenues
and profits.

Whilst oil and gas remained the major
market for the Group’s products,
accounting for 43% of Group revenues
in the year, this was a marked reduction
from 2015 where 57% of revenues were
to this market. The five-year picture shows:

Oil and Gas Market Revenue

Revenue

2016

£15.5m

43%

2015

£30.8m

57%

2014

£36.7m

2013

£25.4m

2012

£21.9m

72%

79%

77%

Expansion of the Alternative Energy
Division and further diversification in our
Manufacturing Divisions will see this trend
continue in 2017.

The key points for the year are:

Manufacturing Divisions
The Group’s Manufacturing Divisions
have made significant additional cost
reductions in the year, the full benefits of
which will be realised in 2017. Headcount
has been reduced by a further 77
employees, making an overall decrease
of 44% since October 2014. Whilst cuts
have been significant, key skills have
been retained, so there will not be any
adverse impact on quality and service.
The divisions are structured to be
profitable in the current oil market
climate and will continue to diversify
their customer base and end markets.

Precision Machined Components
Division (“PMC”)
This division comprises Al-Met, Roota
Engineering and Quadscot Precision
Engineers. 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 on smaller
product in a range of high-alloy materials.

PMC’s revenues are almost wholly derived
from the oil and gas market, so have
been impacted by reductions in customer
spending. However, Al-Met’s world-class
lead-times and Roota’s niche capability for
machining complex geometrical shapes
in unforgiving materials have given both
increased market share and developed
new customers in the falling market.
Quadscot has experienced more difficult
trading conditions, due to its reliance
on making components for subsea oil
exploration and production, plus a larger
pool of competitors chasing volume at low
prices. However, in-sourcing component
manufacture from Chesterfield Special
Cylinders and Hydratron has given
Quadscot some cushion against the
downturn. The division is profitable
at current order levels.

Headcount reduction has continued in
PMC, as we aligned costs with current
order levels. Since its October 2014
peak, headcount has been reduced
by 49% (2015: 22%). At the same
time, technical capability has been

Pressure Technologies plc Annual Report 2016

Precision Machined
Components

Revenue

2016

2015

2014

2013

£6.4m

2012

£4.8m

£10.7m

£18.8m

£13.0m

Adjusted Operating Profit*

£1.4m

2016

2015

2014

2013

£1.0m

2012

£0.1m

£4.5m

£3.0m

Engineered Products

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2016

2015

2014

2013

2012

£4.1m

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£6.7m

£8.1m

£7.3m

£6.9m

Adjusted Operating (Loss) / Profit*

£(0.3)m

£0.1m

2016

2015

2014

2013

2012

* As defined on page 02

£1.6m

£1.1m

strengthened through recruitment, which
is yielding improvements in processes
and, when volumes recover, will give rise
to significant productivity gains as the
division has significant latent capacity.

Customer ordering patterns remain
unpredictable, but do not appear to be
subject to further deterioration. Al-Met
took a $1.2 million order, its largest ever,
for an oil and gas project in the Middle-
East for delivery in 2017, but this was
exceptional in an otherwise subdued
market. This order was previously
reported as a water industry project
but it became apparent during order
fulfilment that it was for the oil industry.

The oil and gas market will remain very
important to the division, which has
market leading capabilities to manufacture
highly complex components to exacting
tolerances in demanding materials. These
capabilities are important to the market
irrespective of activity levels. However, the
division continues to seek out opportunities
for diversification away from the oil and
gas market. In the longer-term work done
to obtain “Fit for Nuclear” accreditation
should translate into incremental revenues
and the division continues to seek entry
points into the defence, aerospace and
automotive markets.

The purchase of Martract Ltd in
December 2016, as well as being
immediately earnings enhancing, brings
several benefits, such as expanding
relationships with existing customers,
reducing order delivery lead-times
through vertical integration within the
division and giving access to non-oil
and gas markets.

Capital expenditure was £0.3 million,
principally on equipment to improve
productivity with the major spend in
the year centred on Roota. No major
capital expenditure is required in 2017,
unless new customer demand requires
investment to extend the current
product range.

Engineered Products Division (“EP”)
The EP Division manufactures a range of
Hydratron branded 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. The division’s products
are typically capital equipment purchases,
so sales have been severely impacted by
the downturn in the oil and gas sector
where budgets have seen major cutbacks.

At the start of the year, the division
comprised Hydratron Ltd, based in
Altrincham in the UK, plus a satellite
facility, Hydratron Inc, based in Houston
Texas. During 2016, it became apparent
that this US manufacturing facility
was too small to achieve meaningful
market penetration, so a distributor was
appointed in September to handle sales.
Key operational staff and inventories
were transferred to the distributor and
international sales and design staff
relocated back to the UK. This has the
double advantage of eliminating fixed
costs, whilst unlocking much larger
market opportunities in the Americas.

The UK operation has been radically
restructured. Since October 2014,
headcount has been reduced by 64%,
the majority of which was in the year
under review (2015: 28%). The whole
business is in the process of implementing
a lean operating system to reduce lead
times and costs. Breakeven sales levels
have been reduced in the year from over
£700,000 per month to under £400,000.
Delivery lead times for standard pumps
and power packs have been reduced from
over two months to under two weeks and
in some cases next day delivery. A review
of core competencies has resulted in
external sourcing of clamping systems
for test benches which significantly
reduces costs whilst at the same time
expands the product range.

BUSINESS REVIEW continued

Pressure Technologies plc Annual Report 2016

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Cylinders

Revenue

2016

2015

2014

2013

2012

£9.5m

£14.3m

£21.4m

£17.3m

£16.3m

Adjusted Operating Profit*

2016

£1.1m

2015

2014

2013

2012

£2.1m

£2.3m

£3.8m

£3.6m

Alternative Energy

Revenue

2016

2015

2014

2013

£1.1m

2012

£0.2m

£11.3m

£14.0m

£8.4m

Revenues have been constrained by
its limited geographical reach. Strong
distribution channels exist in the UK, USA,
Arabian Gulf, Australia and Singapore,
but this leaves a significant number of
regions to be targeted. Consequently,
the business is focused on expanding
sales channels and new distribution
agreements have recently been
concluded for South and West Africa
and Italy. Other regions will be included
in due course.

Cylinders Division
Chesterfield Special Cylinders (“CSC”),
supplies a range of high-pressure cylinder
systems into the defence, oil and gas and
industrial gases markets. The principal
reduction in revenues in the year was
due to a further £4 million fall in sales
into the oil and gas market. Over the last
two years, revenues from this sector have
reduced by £15 million, as the market
for Air Pressure Vessels (“APVs”) used
in motion compensation systems has
to all intent and purpose disappeared.
Major recovery in this market depends
on orders being placed for new drillships
and semi-submersible drilling rigs, which
is highly unlikely as long as current market
conditions continue. The remainder of the
decline in the year was due to reduced
defence sales, partially offset by growth
in service projects.

Adjusted Operating Result*

2016

2015

2014

2013

2012

£(1.1)m

£(0.5)m

* As defined on page 02

£1.1m

The fall in defence sales was a result of
phasing on submarine projects, rather
than any softening in the market and the
defence orderbook and pipeline remains
healthy. CSC remains the established
leader in sales to NATO and NATO-friendly
nations outside the USA.

After 18 months of operation, our sales
team in the USA continues to make good
progress in entering the US defence and
commercial markets. Entry into a new
market typically takes three to five years
and progress is in line with management
expectations. Inspectors from the
US Department of Transportation
conducted a certification audit at CSC
in the summer and we now have all the
required approvals to sell into the US
transportable gases market.

Sales of services increased by 28% year-
on-year, with the start of a new cycle
of trailer reconditioning and a further
increase in the Integrity Management
service. Revenues from Integrity
Management increased by 14% to
just over £1.0 million, primarily due to
increased activity in the defence sector.
Services now account for 25% of sales and
approximately 28% of the Divisional gross
margin (2015: 13% and 17% respectively).

Headcount reduction in CSC has been
less marked than in PMC and EP, as
significant overhead is required to
support the defence and services
revenue streams. The business operates
in highly specialised markets with few
people worldwide having relevant skills
and experience. That said, the division
has reduced headcount by 15% over the
period since October 2014 (2015: 6%) and
significant work has been carried out to
improve productivity and eliminate waste.

The year’s capital expenditure of £0.4
million was spread across a range of
productivity, process and health and
safety projects. Capital expenditure for
2017 is anticipated to be similar to 2016.

Alternative Energy Division (“AE”)
The division is a designer and supplier
of equipment used to upgrade biogas
produced by the anaerobic digestion
of organic waste to high-quality methane,
which is suitable either for injection
into the gas grid, or used as vehicle
fuel. The upgrader market is driven by
environmental subsidy rather than oil
and gas prices, giving a welcome source
of sales diversification for the Group.
Unlike our three Manufacturing Divisions,
AE subcontracts manufacturing to a
number of specialists that are located
close to installation sites. This avoids the
fixed costs of maintaining manufacturing
facilities and gives the flexibility to move
production to suit customer needs.

The division was transformed by the
purchase of the business and certain
assets of its technology provider,
Greenlane, in October 2014 and now
trades under that name. This has given

Pressure Technologies plc Annual Report 2016

the division a worldwide platform for
selling biogas upgrading technology,
trading out of the UK, Canada and New
Zealand. In 2012, the division accounted
for 1% of Group revenues, in 2016 it
accounted for 32% of Group revenues
(2015: 26%).

Following major restructuring of the
division in 2015, the past year has focused
on rebuilding the order book and it is
pleasing to note upgrader contracts worth
£20.8 million were secured. However,
due to customer enforced delays, the full
financial benefit of these contracts will not
be realised until 2017. As a result of this,
plus additional costs on legacy contracts,
the division was loss making for the year.

Development activity was spread across
projects for water-wash technology,
pressure swing adsorption (“PSA”) and
membrane technologies making the
division the only “technology agnostic”
provider of upgrader equipment in the
market. Consequently, Greenlane can
offer its customers the most appropriate
solution for each project. Developments
in water-wash technology have been at
both ends of the processing size range. At
the high-volume end, the new Kauri water
wash upgrader is capable of processing
up to 5,000 cubic meters of biogas per
hour and is the largest system on the
market. At the low-volume end of the
market, the Kanuka Gen 2.0 is a low-cost
value engineered upgrader designed for
entry level projects, with volumes of up
to 300 cubic metres of biogas per hour.
Greenlane has orders for both models
for delivery in 2017. Two PSA systems are
currently being installed in North America
and several membrane systems have
been quoted.

Over £14 million of upgrader orders
were carried over for delivery in 2017,
destined for the North American, UK
and European markets. The pipeline
of potential contracts with a medium
to high probability of securing orders
in the first-half of the year is in excess
of £13 million. The division’s business
model is to focus on markets where
subsidies and incentives are certain.

Market activity continues to grow in
the USA, Canada, Brazil, the UK, the
Netherlands and France and we are
concentrating our efforts in these areas
and Italy where the market activity is
just beginning.

The operational businesses in the
division have a target of covering
100% of their fixed costs through
maintenance contracts. In 2016, the
UK and Europe achieved 30% coverage
and the North American business 7%.
The lower coverage in North America
is a combination of lack of development
of the market and customers preferring
to maintain their own equipment.

Capital expenditure for the year was less
than £0.1 million, whilst £0.2 million will
be invested this year, primarily in new
business systems.

People
Continuing weakness in the oil and
gas market resulted in a second wave
of redundancies in the Manufacturing
Divisions. These redundancies have been
backed up by investment in equipment
and working practices to ensure that the
flexibility and ability to expand as market
conditions improve have not been lost.
As ever, we have been careful to ensure
that we have retained our core skills.

Our apprentice and graduate training
schemes have continued. I am pleased to
report that one of our CSC apprentices
won Apprentice of the Year at the Made
in Sheffield Awards, another former
apprentice was awarded a first class
honours degree in engineering and the
Finance Director of the PMC Division has
been awarded an MBA with distinction,
all sponsored by the Group.

There will be a focus in 2017 on
succession planning and management
training. The Group has a cadre of young
talent that will form part of the next
generation of senior management. It is
crucial to the Group‘s long-term success
that we nurture and develop these
people, as well as developing the skills
of our existing senior management teams.

Summary and Outlook
This was another busy year for the Group
as the restructuring and rebuilding begun
in 2015 in all important respects was
completed, resulting in a much better
balanced mix of revenues from the oil
and gas, defence and alternative energy
markets.

The oil and gas market will remain an
important revenue and profit generator
for the Group. However, we also expect
to make further progress in diversifying
our Manufacturing Divisions to reduce the
dominance that the oil and gas market
has in Group results. Significant progress
in diversification has been made in the
Cylinders Division and we continue to
seek out new products and markets for
the EP and PMC Divisions. The acquisition
of Martract Ltd in December 2016 will
assist with this process.

The value of firm contracts for 2017 in
Alternative Energy is very encouraging.
The prospective new orders pipeline
beyond this remains strong across the UK,
Europe and North America and we expect
the division to be a major profit generator
for the Group in 2017 and beyond.

The Board remains confident in the
medium to long-term prospects for
the Group and believes that when
the oil and gas market returns it will
present considerable opportunities.
In the meantime, we have taken and will
continue to take the action necessary to
ensure the resilience of our businesses
whilst continuing to invest in the future
of the Group and implement strategic
objectives to broaden our customer,
technology and industrial base.

John Hayward
Chief Executive
12 December 2016

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SUSTAINABLE AND RESPONSIBLE BUSINESS

Pressure Technologies plc Annual Report 2016

Investing in our
people’s future

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At the core of every business in the
Pressure Technologies Group is a
highly skilled and specialist workforce.

Four of our divisional MDs are former apprentices.
The benefits of apprenticeship training are manifold
as learning from the shop floor up develops a
comprehensive understanding from product
development through to production. We believe this
is the essence of meeting specific customer product
requirement and enables us to command a high
regard and reputation in the markets we serve.

Career development is actively encouraged through
suitable training and education. The Group operates
a number of formal education programmes
extending from apprenticeships to post graduate
development and we have funded and supported
a number of senior managers to undertake MBAs.

During the year we had two graduations (featured
opposite), Kathy Van Hee, Finance Director of
Precision Machined Components and former
apprentice, James Taylor, now Design Engineer at
Chesterfield Special Cylinders. Kathy obtained her
MBA with distinction and James attained a first class
honours for his Batchelor of Engineering Degree.

At the end of the year we had a total of 15 apprentices
around the Group, with Tom Bruce at Chesterfield
Special Cylinders winning the prestigious Apprentice
of the Year award at the Made in Sheffield awards
and Joe Priestley at Hydratron nominated for The
National Apprentice of the Year Awards for his work
on Hydratron’s lean implementation programme.

“I completed my
dissertation on 3D
printing, exploring
how this state of the
art technology could
be used within our
Group businesses,
whilst contributing
to disruptive process
innovation literature.”

Kathy Van Hee
Finance Director of Precision
Machined Components Division

“The Executive MBA has
provided me with a wider
understanding of the business
environment aside of my
ﬁnance background. I am
grateful for the opportunity
and support from Pressure
Technologies as it enabled
me to achieve a lifetime goal.
The qualiﬁcation was indeed
challenging at times although
well worth the effort and has
enabled me to perform my role
more effectively.”

Pressure Technologies plc Annual Report 2016

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Chesterfield Special Cylinders’
technical design engineer
James Taylor achieved a first
class honours in his Bachelor
of Engineering degree

A key member of the integrity management
team, James is currently working towards
Chartered Engineer status.

James’ other notable projects include
designing the UK’s first 500bar composite
hydrogen trailer for alternate fuels and a
£1.1 million project for a saturation dive
system on vessel Deep Explorer. He has
also been calculating and designing blast
walls for on-site testing purposes.

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SUSTAINABLE AND RESPONSIBLE BUSINESS continued

Pressure Technologies plc Annual Report 2016

Supporting the community

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Chesterfield Special Cylinders
employee wins major
Apprentice of the Year Award

Chesterfield Special Cylinders (“CSC”)
apprentice Tom Bruce, 19, has won the highly-
coveted Apprentice of the Year Award at the
annual Made in Sheffield ceremony.

Tom joined CSC in 2014 and his attitude and
aptitude are praised by John Pease, Quality
Manager, saying: “Tom impressed with his
attitude and passion for engineering from
the moment he joined the team at CSC.
It is obvious that he enjoys both the practical
and academic side of the program and he is
excelling in both.”

Tom’s education at the prestigious AMRC
is fully-funded by the company and he has
recently completed his NVQ Level 2. He will
complete his BTEC National in Manufacturing
Engineering in summer 2016, having passed
all first year modules, attaining merits and
distinctions.

Tom’s enthusiasm for engineering is clear.
He says: “An engineering apprenticeship gives
me the mixture of hands-on work, such as
operating machinery, and technical problem-
solving such as diagnosing a machine fault,
which I had always loved.

“Even though I am only 19, I have real
responsibilities – CSC respects people coming
through the apprenticeship program. It is an
honour for me to win this prestigious award
and it is the highlight of my career so far. It
is a reflection of the time and effort that I,
my tutors and the staff at CSC have put into
the apprenticeship scheme. I enjoy learning,
applying skills and am ambitious to succeed.”

Herd of Sheffield, in association with Wild in Art,
was a major fundraising event for the region’s
Children’s Hospital Charity. We were proud to
have been part of it through the sponsorship
of our shiny elephant, Inconelly.

58 large elephant sculptures took to the streets of Sheffield over the
summer of 2016 and were auctioned off at a major event in October
event raising £410,600 for the charity and enabling the purchase
of a much needed Fluroscopy Machine.

The name Inconelly was chosen as the winner of an internal
competition. The name was put forward by Liz Dixon at Roota.

Visit Inconelly’s twitter page at
twitter.com/ptinconelly

Andrew Green, Chesterfield Special Cylinders’ key account manager in
the offshore and UK defence sectors, completed a gruelling 24-mile,
24-hour open water swimming marathon raising over a £1,000 for
Alzheimer’s Research. While his colleague technical manager, Clare
Wesley-Holley, completed her brave 15,000-foot tandem skydive
raising almost £500 for Macmillan.

Visit our website for the more information on
apprenticeships pressuretechnologies.com

Both Greenlane Biogas UK and Chesterfield Special Cylinders have
charity committees who meet regularly to nominate charities for support.

Hiring a diverse and well
(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:83)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)

Other than training new talent, one of Pressure
Technologies’ goals is to hire staff from a
varied and experienced background.

ex-Army commander hired as first director
of global Integrity Management business
at CSC

“My background in the repair
and maintenance of vital
military systems, working in
hostile environments and under
great pressure, combines
well with my hands-on
experience inspecting and
testing gas cylinders in all
their applications.”

Stephen Butler
Ex-Army commander & Director
of Integrity Management

Former Red Arrows engineer joins CSC
Before joining CSC, Craig Peckett was an
engineer in the RAF for 16 years and his tours
of duty included The Falklands and Iraq.

Craig Peckett comments: “Having been in the RAF
for 16 years I am fully aware of the reputation
CSC holds amongst the armed forces and in
other sectors, where people’s lives often depend
on their oxygen and propellant cylinders. We
relied on CSC’s safety-critical cylinders every day.”

Pressure Technologies plc Annual Report 2016

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Joe Priestley from Hydratron
was nominated for The National
Apprentice of the Year Award

FINANCIAL REVIEW

Pressure Technologies plc Annual Report 2016

A busy year of change
and consolidation

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Overview
I am pleased to present the results in
what has been an incredibly busy year of
change and consolidation for the Group.

The financial results show a clear
difference emerging between the
Manufacturing Divisions, which are higher
margin, book and ship with short working
capital cycle and Alternative Energy, which
is lower margin long term contracting
with much higher individual value projects
characterised by a variable working
capital profile.

Much work has been done over the year
to maintain cash generation and this
achievement has enabled continued
investment in capital assets during the
year and a strategic acquisition post
year-end.

Manufacturing
Overall the Manufacturing Divisions
continued to perform in line with the
latest market expectations and there
have been some positive developments
in the year.

Much work has been
done over the year
to maintain cash
generation and this
achievement has
enabled continued
investment.”

IFRS5 “Non-current Assets Held for Sale
and Discontinued Operations” and the
2015 results have been represented
accordingly. This operation had been
loss making for the last two years and
it had become clear that it was not of a
sufficient scale to penetrate the US market
effectively and should be closed. Further
details of this are given in Note 8 to the
financial statements.

adversely impacted by the significant
sales volume reduction, decrease in
gross margin and comparatively higher
fixed cost in the first half whilst the
restructuring was ongoing. This is now
largely complete and the divisions have
been scaled down to be profitable at
the low volumes experienced in the
second half. The impact of this is a 4ppt
improvement in RoS in the second half.

Revenue in the continuing operations has
been significantly impacted by the lower
oil and gas market volumes and fell to
£24.4 million (2015: £39.8 million). This is
particularly marked in the PMC Division,
which experienced a 43% reduction from
the prior year.

Cash generation is, and remains, strong
in the Manufacturing Divisions with an
operating cash inflow of £5.2 million
(before exceptional redundancy costs)
demonstrating the underlying stability
and strength in this part of the Group.

Gross Profit Margin held up at 31%
(2015: 32.2%). The first half of the year
was stronger than the second half, which
was impacted by competitive pricing
pressures in PMC and the mix of work
in CSC. The success of the restructuring
of the Engineered Products Division is
evidenced by the 4.2ppt improvement
in year-on–year gross margin.

Alternative Energy
As noted in the August trading update
statement delays both in timing of award
and the commencement on a number of
contracts, particularly in the USA, have
had a significant impact on the expected
results for the year as a whole. The
operating loss (before acquisition costs,
amortisation and exceptional charges)
was £1.1 million, slightly ahead of the
latest market expectation for the year
(2015: loss £1.1 million).

In September the closure of the
Engineered Products US manufacturing
facility was completed as part of the
Group restructuring and this is presented
as a discontinued operation under

Operating profit in the Manufacturing
Divisions (before acquisition costs,
amortisation and exceptional charges)
reduced to £2.2 million (2015: £6.7
million). The return on sales (RoS) was

Pressure Technologies plc Annual Report 2016

FINANCIAL HIGHLIGHTS

5 YEAR SALES HISTORY – CONTINUING OPERATIONS

Revenue

£35.8m

(2015*: £53.8m)

Adjusted Operating Loss**

£(0.4)m

(2015*(cid:29)(cid:3)(cid:101)(cid:22)(cid:17)(cid:27)(cid:80)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:12)

Net Debt

£6.6m

(2015: £7.1m)

(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:36)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:55)(cid:68)(cid:91)

£0.6m

(2015: £1.2m)

* Represented to show results of the
Engineered Products US operation
as discontinued

** Before acquisition costs, amortisation and

exceptional charges and credits

Greenlane Biogas, has expanded
(cid:76)(cid:87)(cid:86)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:605)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)
Pittsburgh, Pennsylvania to deliver
enhanced service levels in the
US market.

Read more of our news at
pressuretechnologies.com/news

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Manufacturing

Alternative Energy

FIVE YEAR OPERATING PROFIT HISTORY – CONTINUING OPERATIONS

(2)

(4)

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Manufacturing

Alternative Energy

Central

Group

Greenlane Biogas has received
a multi-million pound contract
from ReFood Ltd, part of the
SARIA Group, to supply and install
a ‘Totara’ biogas-to-biomethane
upgrading plant at a new food
waste processing site under
development in Dagenham,
Essex, UK.

2000 Nm3/hr

Output of biomethane
to the national gas grid

Read more of our news at
pressuretechnologies.com/news

FINANCIAL REVIEW continued

Pressure Technologies plc Annual Report 2016

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2016 CASH FLOW BRIDGE – CONTINUING OPERATIONS

operating cash inﬂow -£5.1m

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(1.0)

(2.0)

(3.0)

(4.0)

(5.0)

(6.0)

(7.0)

(8.0)

W orking capital inﬂo w – AE
O perating loss – AE
C entral costs
W orking capital inﬂo w – m an ufacturing
O perating proﬁt – m an ufacturing
O pening N et D ebt

Red u n dancy

Tax & Interest
Capex less disp osal proceeds

FY15 ﬁnal dividen d
Shares issued
R o ota D C

Closing N et debt

In addition to the slippage of sales, we
also encountered some unanticipated,
additional legacy costs (£0.4 million) and
margin erosion on a first of type project in
North America. As a result gross margin
fell to 17.4% for the full year (2015: 20.8%).
Profitability improved over the year with
the first half loss of £0.9 million reducing
to £0.2 m in the second half, as the
phasing of work and momentum in order
award and commencement picked up.

The Group continued to invest in
technology in the Alternative Energy
Division and R&D costs of £0.2 million
have been expensed in the year
(2015: £0.7 million).

The remaining provision for deferred
consideration of £3.3 million (net of
foreign currency losses on revaluation)
was released in the first half. The delays
in the timing of orders and operating loss
means the relevant businesses are no
longer expected to hit the future trigger
points for the earn-out payments which
are fixed with the financial year. Given this
is a non-trading item it has been presented
as an exceptional item, in accordance with
Group’s accounting policies.

As the Alternative Energy Division grows
the short-term challenge is managing the
working capital requirement. Individual
projects are planned to be at least
working capital neutral throughout,
however, given the size of the contracts
and associated invoicing milestones
the cash flows can be variable and
disconnected from the profit recognition.
The division was cash generative in the
year generating £0.9 million operating
cash inflow, despite the losses, as a result
of the phasing of the contracts in the
second half (2015: operating cash
inflow £0.2 million).

Central Costs
Unallocated central costs (before
acquisition costs, amortisation on
acquired businesses and exceptional
charges and credits) were £1.5 million
(2015: £1.8 million). This reduction reflects
the Group wide focus on cost reduction
and combining of roles as part of the
Group wide restructuring.

Foreign Exchange
The Group has a number of major
exposures to movements in foreign
exchange rates related to both
transactional trading and translation
of overseas investments.

In the year under review, the principal
exposures which arose from trading
activities, were to movements in the value
of the Euro and the US Dollar relative to
Sterling. As the Group companies both
buy and sell in overseas currencies,
particularly the Euro and the US Dollar,
there is a degree of natural hedge
already in place. In the Alternative Energy
Division the currency exposure is actively
managed at the outset of a project and
appropriate forward contracts taken out
to cover the majority of the exposure. As
at 1 October 2016 there were no forward
contracts in place (2015: £26k).

In 2016 a net gain of £0.7 million (2015:
£0.2 million) has been recognised in
adjusted operating profit in respect of
realised and unrealised transactions
in Euro, US Dollar, Canadian Dollar
and New Zealand Dollar. A loss of £0.5
million (2015: £0.4 million gain) has been
recorded below adjusted operating
profit in respect of the retranslation
of the deferred consideration liability
denominated in New Zealand Dollars.

At the present time no cover is held
against the value of overseas investments
or intercompany loans with overseas
entities as these are expected to be held
for the long term and over the next year
dividend flows are not expected to be
significant.

Taxation
The tax credit for the year was £1.0 million
(2015: £0.1 million). The loss before
tax, effect of the change in tax rates in
the year and adjustments in respect of
prior years have all contributed to the
significant credit in the current year.

The applicable current tax rate for the
year is 20% (2015: 20.5%). The reduction
in rate of tax and the utilisation of losses
have resulted in a lower effective tax rate
than the current rate of tax.

Corporation tax refunded in the year
totalled £0.5 million (2015: tax paid
£1.8 million), all of which relates to the UK.

Post Balance Sheet Events
On 7 December 2016 the Group acquired
the entire issued share capital of UK
based Martract Limited. The maximum
total consideration for the acquisition
was £4.3 million on a cash free, debt
free basis, comprising an initial cash
consideration of £3.7 million plus cash
balances (“initial consideration”) and a
conditional deferred payment of up to
£0.6 million (“additional consideration”).
The additional consideration payable
in respect of the 12 month period
following the acquisition (the “earn-out
period”) is dependent on the future
EBITDA performance of Martract. The
initial consideration will be met from the
Group’s existing bank facilities and cash.

Joanna Allen
Finance Director
12 December 2016

Funding and Cash Flow
Net debt reduced to £6.6 million (2015:
£7.1 million) as the strong cash generation
in the Manufacturing Divisions combined
with the Alternative Energy Division to
generate operating cash inflow of £5.1
million, before restructuring costs of £0.7
million (2015: cash inflow £7.9 million). Net
debt would have been in line with market
expectation had a number of significant
expected receipts in the AE Division been
received before the balance sheet date.
Operating cash generation in second
half was stronger (£2.7 million vs £2.4
million in the first half) before exceptional
redundancy costs due to the profitability
of the Manufacturing Divisions.

Cash conversion in the Manufacturing
Divisions was a ratio of 2.4:1. Cash
conversion ratio is defined as cash inflow
from operating activities divided by
adjusted operating profit. The losses
in AE and overall Group operating loss
(before acquisition costs, amortisation
and exceptional charges) mean a Group
cash conversion ratio is not calculated
this year (2015: 2.41:1).

Non-trading cash flows reflect the
continued investment in the business
through capital expenditure of £0.9
million and payment of the final Roota
acquisition deferred consideration of
£2.5 million, along with the final 2015
dividend payment £0.8 million.

The Group complied with all financial
covenants on the banking facilities
during the year.

Pressure Technologies plc Annual Report 2016

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KEY PERFORMANCE INDICATORS

Pressure Technologies plc Annual Report 2016

Measured performance

The Board uses key performance
indicators (“KPIs”) when assessing
the performance of the Group. These
KPIs are divided into three sections:

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FINANCIAL PERFORMANCE

Growth and Return
Growth is measured in terms of sales revenue.

The efficiency of converting sales into profits is measured in
terms of return on revenue, calculated as operating profit
divided by revenue. The Group targets an overall return on
revenue of at least 15%.

Growth and Return

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Revenue

Return on Revenue

16%

14%

12%

10%

Cash Conversion
The cash conversion ratio measures the proportion of
adjusted operating profit converted into cash in the period.
This is calculated as “cash flows from operating activities”
divided by adjusted operating profit. The minimum target
cash conversion ratio is 1, although each division has a
separate target relevant to its business activity and cycle.

Cash conversion in the Manufacturing Divisions was a ratio
of 2.4:1. The losses in AE and overall Group operating loss
mean a group cash conversion ratio is not calculated this
year (2015: 2.41:1).

Pressure Technologies plc Annual Report 2016

FINANCIAL PERFORMANCE continued

CORPORATE SOCIAL RESPONSIBILITY

Net Debt Ratio
In 2015 the Group took on bank borrowings and the ratio
of Net Debt to EBITDA is therefore relevant to be measured
from 2015 onwards. This is calculated as Net Debt (cash and
cash equivalents less borrowings) divided by EBITDA.

Health & Safety
The measure used is reportable accidents where the target
is zero across the Group.

Health & Safety

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2014

2015

2016

Environment
The measure used is number of reportable environmental
incidents. The target is zero across the Group. Environmental
incidents are not graphed as there has been no reportable
incident for the five year period.

Environmental Incidents

A full-time health, safety and environmental manager is
employed by GBUK but has responsibility for these matters
across the Group and reports directly to the Group CEO.

Net Debt Ratio

1.51x

3.67x

(2015: 1.51x)

2016

2015

SHAREHOLDERS

Earnings per Share
Adjusted earnings per share is used as a measure
of shareholder return. Details of the calculation
of adjusted EPS can be found in the Finance
Director’s report.

Earnings per Share

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RISKS AND UNCERTAINTIES

Pressure Technologies plc Annual Report 2016

Minimising risks

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Specific principal risks identified by
management are described below
together with management actions
taken to minimise these risks. This
year, and only where applicable,
the risk has been split for our
manufacturing businesses and
our contracting business,
Alternative Energy.

A REMINDER OF OUR STRATEGY

DIRECTION OF CHANGE

Consolidate and build
on the current business

Identify and develop profitable niche
opportunities in growth sectors

Identify and develop profitable
acquisition opportunities

Increase

No change

Decrease

Risk and Impact

Strategic

Macro-Economic Environment
The Group’s manufacturing businesses have
a significant exposure to the deep-water oil
and gas sector.

The Alternative Energy business is exposed
to changes in the regulatory regime and
cuts to subsidies.

Manufacturing
A continued downturn in the deep-water
oil and gas sector would have a significant
impact on results of the Cylinder and
Engineered Products and Precision
Machined Components Divisions.

Alternative Energy
The Alternative Energy business
operates in a subsidy / regulatory driven
environment which is not directly linked to
the oil and gas market.

Brexit
The Group conducts a significant
amount of business with EU customers,
sources material from EU suppliers and
manufactures in the EU.

Operationally there is little risk as
alternative suppliers and fabricators
can be used, the main risk arises from
fluctuations in foreign exchange and
VAT regulations.

Impact on
Strategy

Management Strategy

Change, Probability,
and Impact

The Group has development programmes for new
products and services to dilute the proportion of
total revenues into these markets and, by growing
other activities of the Group, both organically and
by acquisition.

High Probability

Medium Impact

Restructuring across the Group continues to
ensure that the Group has a suitable structure and
product offerings for the new market conditions.
The acquisition of Greenlane Biogas has helped
balanced the Group’s portfolio away from the
deep-water oil and gas sector.

The division has a wide geographical spread
which helps to minimise risk of lowering or loss
of subsidies in any one market.

Where required the Group is registered in the EU
for VAT.

Alternative Energy has subcontractors in both the
UK and the EU and subcontracts depending on
project location.

There is no large requirement for movement
of employees between countries.

High Probability

Medium Impact

Medium
Probability

Low Impact

High Probability

Low Impact

Risk and Impact

Strategic continued

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
and this exposes the Group to a risk that
they might seek to displace Pressure
Technologies’ position in the market.

Pricing
The Group is exposed to considerable price
pressure in the oil and gas sector as well as
facing increasing competition from low cost
manufacturers.

Manufacturing
The Manufacturing Divisions face
continued price pressure due to the
current market dynamics following the fall
in oil and gas prices. Certain businesses
also increasingly operate in markets where
their major competitors are based in low
cost countries which have considerable
cost advantages and they are able to
undercut on pricing.

Alternative Energy
The division has a number of major
competitors operating in the same
markets both geographically and by
product technology for example
water-wash and PSA.

Operational

Management Resource
The Group has a small management team.

The Group is small and relies on a small
number of key Directors, senior managers
and specialists. A loss of a small number of
such staff could have a major impact
on Group revenues and development.

Pressure Technologies plc Annual Report 2016

Impact on
Strategy

Management Strategy

Change, Probability,
and Impact

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.

Key Account Management, to build long term
relationships and retain high value customers,
forms part of the Group’s strategic plan.

The Group has set minimum return on sales and
gross margin levels and does not reduce prices to
unacceptable levels as experience indicates that
these pressures reduce in the medium term.

Product development is pursued in order to
maintain a technical lead and a range of high value
added service offerings is under development to
reduce dependence on markets where this pricing
pressure exists.

Medium
Probability

Medium Impact

High Probability

Medium Impact

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Cost reduction through lean manufacturing
and supply chain management to mitigate
the impact of pricing pressures. Divisional
purchasing initiatives are in place across Precision
Machining Components as well as ‘insourcing’ of
manufacturing within the Group utilising Quadscot.

High Probability

Medium Impact

The division maintains a focused but diversified
geographical spread on growth markets and seeks
to develop long term partnerships within these
markets.

Medium
Probability

Medium Impact

The business is also pursuing a ‘technology
agnostic’ approach offering a mix of upgrading
technologies to best suit end user’s needs.

As the business grows, increases in staff numbers
make succession planning easier and recruitment
is already carried out to ensure that skills and
expertise can be duplicated.

The Group has adopted a policy restricting
the number of Directors travelling together.

Low Probability

Medium Impact

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RISKS AND UNCERTAINTIES continued

Pressure Technologies plc Annual Report 2016

Risk and Impact

Impact on
Strategy

Management Strategy

Change, Probability,
and Impact

Operational continued

Key Employee Knowledge / Skill Base
The Group relies on skilled artisans who
are often difficult to find in the market.

Manufacturing
For certain business units key 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 / not enough
staff will be available to support ongoing
business and the planned expansion of
the businesses.

Alternative Energy
Within Alternative Energy certain key
design skills are difficult to acquire and
detailed knowledge of legacy upgrading
products is not widespread.

Customer Concentration / Disruption
The Group has a number of businesses
with a high dependence on very small
number of customers.

Manufacturing
The long term relationships and niche nature
of the Group’s businesses particularly within
the Precision Machined Components and
Precision Engineering Divisions, meant that
the businesses have a strong concentration
of key customers accounting for over 70%
of their respective sales revenue. The loss of
one these customers would materially affect
Group results.

Alternative Energy
The market, by its nature has a limited
number of projects, and subsequently a
limited number of customers and funders.

Alternative Energy Division Growth
The Group has a high reliance on the
growth of the Alternative Energy Division
in order to support the overall Group.

The growth in the coming 12–18 months
is reliant on the Alternative Energy Division
and its failure to achieve its growth targets
would have a material impact on 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 and internal development.

Medium
Probability

Medium Impact

As business grows additional management capacity
is added, ensuring capacity / duplication is available
for critical mass particular on the machining side.

The Group provides attractive employment terms
and conditions to ensure we attract and retain
suitable skills / craftsmen.

The Group seeks to intelligently manage the
customer selection and retention program.
The Group’s strategic plans focus on increasing
the customer base to mitigate this risk through
acquisition, diversification and customer retention.

Key Account Management across the Group
is incorporated into the Group’s strategic plan.

In both Manufacturing and Alternative Energy the
businesses are forging long-term partnerships and
securing repeat business.

Medium
Probability

Medium Impact

The division is focusing on developing key
relationships with funders and major Engineering
Procurement Contractors, positioning itself as a
preferred partner in order to secure long term
business through repeat orders.

New product development forms a core strategic
objective with the development of PSA and
membrane technology to enable the division
to become ‘technology independent’ and gain
additional market share.

Medium
Probability

High Impact

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Risk and Impact

Financial

(cid:47)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)
The Group’s growth requires higher funding
requirements.

The Group faces the risk that the facility
becomes unavailable due to a failure to
meet covenants.

Furthermore the Group is dependent on
the availability of funding for growth.

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.

The acquisition of Greenlane has further
exposed the Group to foreign exchange risk.

Compliance

Pressure Technologies plc Annual Report 2016

Impact on
Strategy

Management Strategy

Change, Probability,
and Impact

The Group extended Group banking facilities until
the end of September 2018.

The Group’s liquidity and funding position is
monitored at least monthly and reviewed at
Group Board level.

Implementation, and continued development,
of reliable and accurate reporting methodology,
remains an ongoing project.

Medium
Probability

High Impact

The Group has natural hedges for its Euros and
US Dollar foreign currency exposure. It remains
less covered for SEK and NZ Dollars transactions,
although volume of these is limited.

Medium
Probability

The Group Treasury discipline does not allow the
divisions to do any foreign exchange trading.

High Impact

Regular reviews of the net exposure are carried out
and where it is deemed necessary the exposure is
reduced by the use of forward exchange contracts.

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Tax
Risk of failure to comply with tax regulations.

With the wider geographic spread of the
Group and the different operating activities
within Group businesses, the Group is
exposed to a variety of tax regimes and
risks failing to understand the requirements
of individual country tax regulations.

There is also the risk that the Group fails to
maximise opportunities from efficient tax
planning.

Compliance and Corruption Risks
The Group is subject to risk from a failure
to comply with laws and regulations.

Contracts
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 outsources certain compliance
functions, principally in more remote locations like
New Zealand and makes use of third party advice
on a region by region basis.

Low Probability

Group tax planning strategy and policies.

Medium Impact

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.

Low Probability

Medium Impact

A program of training in relation to ethics
and corruption, based on the UK Anti-Bribery
and Corruption Act is in place.

Approval of the Strategic Report
The Strategic Report, as set out on pages 01 to 31, has been approved by the Board.

By order of the Board

John Hayward
Chief Executive
12 December 2016

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INTRODUCTION TO GOVERNANCE

Pressure Technologies plc Annual Report 2016

During times of change, good
governance is paramount

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Pressure Technologies
prides itself on the
Group’s reputation
for being honest and
fair in the way we do
business.”

Pressure Technologies prides itself on
the Group’s reputation for being honest
and fair in the way we do business. This
reputation has been hard won over
many years. When we use the phrase
do, or doing business, it applies to the
way we work with customers, suppliers,
governments, fellow employees,
shareholders, competitors and our
local communities.

In addition, the Board fully supports
the underlying principles of corporate
governance contained in the UK
Corporate Governance Code (“the
Code”). Although as an AIM listed
company we are not required to comply
with these recommendations, the
Board is committed to adopting the
Quoted Companies Alliance Corporate
Governance Code for Small and Mid-Sized
Quoted Companies (“the QCA Code”)
as a demonstration of our belief in, and
commitment to, good governance.

As a Group we comply with the twelve
principles set out in the QCA Code,
however in terms of disclosure, either
in our annual report, or on our website
we do not currently disclose the points
listed below. All of these points will be
addressed this year.

• Audit committee report

• Performance evaluation descriptions

• Detailed results of shareholder voting

How the Code works in Practice for
Pressure Technologies
Dealing Code
Since the introduction of the European
Union’s Market Abuse Regulation the
Company has adopted the Quoted
Companies Alliance Code for Directors’
Dealings and, as applicable to AIM
companies, this provides a clear process
for compliance by our Directors and
relevant employees of the code.

Communication with Shareholders
The Company actively encourages good
communication with all its shareholders.
Presentations to institutional and mid-sized
investors are offered at the full-year and
half-year and all investor presentations are
posted to the Group website. Our Annual
General Meeting, which is the platform for
our private investors to directly question
the Board, is held at Group company
offices and where presentations are given
by the Chairman and Chief Executive, as
well as by an MD from a Group company.
This is an exceptionally well attended
event. A tour of the site is also offered for
anyone who wishes to see the sharp end
of the business.

Culture and Ethics
The Group has clear values, which are
set out on the website. In practice, these
are implemented through a variety of
procedures. For example, the Group
operates a detailed bribery and corruption
policy which applies to every person in the
Group, as well as a whistle blowing policy
linked to a Non-executive Director and an
external company, to ensure that anyone
can raise an issue or concern.

Alan Wilson
Chairman
12 December 2016

Pressure Technologies plc Annual Report 2016

How we Govern our Company

Every member of our Board is there for the benefit of Pressure
Technologies plc. Each recognising their responsibility to the
Company’s shareholders and employees.

Board
The Board comprises a Non-executive Chairman, three
Non-executive Directors and two Executive Directors. Across
the members there is fair balance of skills, experience,
independence and knowledge of the company, representing
industry experience and knowledge from engineering,
operational, finance and investment.

Audit and Risk
Committee
Chaired by Neil MacDonald

Nomination
Committee
Chaired by Alan Wilson

Remuneration
Committee
Chaired by Philip Cammerman

The Committee meets not less than
four times a year and is responsible
for making recommendations
to the Board on the appointment
of the auditors and the audit fee,
for reviewing the conduct and control
of the annual audit and for reviewing
the operation of the internal financial
controls. It also has responsibility
for the reporting of the financial
performance of the Company and for
reviewing financial statements prior
to publication. The Audit and Risk
Committee has unrestricted access
to the Group’s auditors and will
ensure that auditor independence
has not been compromised.

Risk is reviewed and updated as to
whether it has increased, deceased,
remained the same or is no longer
a risk. New risks are also addressed
at these meetings.

The Nomination Committee meets
at least once a year and at such
other times as the Chairman of the
Committee shall require. It has the
responsibility for leading the process
for Board appointments and making
recommendations to the Board
accordingly via a formal, transparent
and rigorous appointment procedure.

The committee is also responsible
for succession planning.

The Remuneration Committee meets
at least four times a year and reviews
the performance of the Executive
Directors and sets the scale and
structure of their remuneration and
the basis of their service agreements
with due regard to the interests of
shareholders. It also determines
the allocation of share options to
employees.

It is a rule of the Remuneration
Committee that a Director shall
not participate in discussions or
decisions concerning his / her own
remuneration.

See page 36 to read more

Attendance and Meetings Record
Set out below is a summary of Board meetings held during the period and how they were attended.

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Alan Wilson
Philip Cammerman
Brian Newman
Neil MacDonald
John Hayward
Joanna Allen

Board

12 (12)
11 (12)
12 (12)
12 (12)
12 (12)
12 (12)

DIRECTORS AND ADVISERS

Pressure Technologies plc Annual Report 2016

Our multifaceted leadership

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Company information

Registered office
Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire, S35 2PH

Registered number
06135104

Website
pressuretechnologies.com

Company secretary
Alexander Tristram

Investor relations
Keeley Clarke

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

Nominated advisor
Cantor Fitzgerald Europe
1 Churchill Place
London, E14 5RB

Registrars
Neville Registrars
Neville House
18 Laurel Lane
Halesowen, B63 3DA

Pressure Technologies plc Annual Report 2016

Committees

Audit and Risk Committee

Nomination Committee

Remuneration Committee

Chairman

Member

1. Alan Wilson
Independent
Non-executive Chairman

Appointed: February 2013

2. John Hayward
Chief Executive

A N R

3. Joanna Allen
Group Finance Director

Appointed: June 2007

Appointed: July 2015

Experience: Alan is a degree qualified
Chartered Engineer with 33 years of
experience from working in the oil and
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.

Other roles: Alan also serves as Chairman
and Non-executive Director of other
private equity-backed and privately
owned companies within the oil and
gas sector.

Experience: 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.

Experience: Joanna joined Pressure
Technologies in July 2015 from PwC
where she was a Director in their North
Assurance practice, based in Sheffield.
She has a BA Honours degree in Business
Studies from the University of Sheffield
and joined PwC as a graduate in 1998,
qualifying as a Chartered Accountant in
2001. Her experience with PwC covers
both audit and transaction services with
a particular focus on working with
clients in the manufacturing and
engineering sectors.

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4. Philip Cammerman
Independent
Non-executive Director

A N R

5. Brian Newman
Independent
Non-executive Director

A N R

6. Neil MacDonald
Senior Independent
Non-executive Director

A N R

Appointed: April 2008

Appointed: September 2015

Appointed: June 2013

Experience: 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.

Other roles: 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.

Experience: Brian is a Chartered
Engineer with a degree in Engineering
from Cambridge University and an
MBA from Penn State University, USA.
He has been a Divisional Director at
two FTSE 100 companies, latterly at
Melrose plc as EMEA Managing Director
at its subsidiary, Bridon International
Group. Prior to that he spent nine years
as a Divisional Managing Director at
international engineering group GKN plc,
with responsibility for its global Wheels
and Axles Divisions. He has over 40 years’
experience in engineering having also
previously served on the boards of two
listed companies.

Other roles: He is currently a Non-
executive Director with Shrewsbury and
Telford Hospital NHS Trust and a number
of other organisations.

Experience: 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,
a successful, fast growing, privately owned
mechanical seals manufacturer, for five
years until September 2012. Prior to this,
he was Group Finance Director of the
international aerospace company, Firth
Rixson, both as a listed company and
under private equity ownership. Neil has
valuable experience in the oil and gas
sector and general M&A.

Other roles: Neil is a Non-executive
Director of Sheffield Children’s Hospital
NHS Foundation Trust, an Independent
Governor on the Board of Sheffield
Hallam University and is a Trustee of
various charitable organisations.

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REPORT OF THE REMUNERATION COMMITTEE

Pressure Technologies plc Annual Report 2016

The Remuneration Committee comprises four Non-executive Directors and is chaired by Philip Cammerman. The Committee meets
when necessary, usually at least four 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.

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Policy on Remuneration of Executive Directors
The Committee aims to ensure that the remuneration packages offered are designed to attract, retain 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 operates 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 follows:

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.

Pressure Technologies plc Annual Report 2016

Directors’ Remuneration
Particulars of Directors’ remuneration are as follows:

Salary
and
fees
£’000

56
38
—
40
38

203
143
—

518

Benefits
£’000

Bonus
£’000

Pension
£’000

—
—
—
—
—

1
1
—

—
—
—
—
—

—
—
—

—

—
—
—
—
—

21
20
—

Total
2016
£’000

56
38
—
40
38

225
164
—

561

Non-Executive:
Alan Wilson
Philip Cammerman
Nigel Luckett*
Brian Newman**
Neil MacDonald
Executive:
John Hayward
Joanna Allen***
Thomas James Lister****

Total remuneration

*(Resigned 1 September 2015)
**(Appointed 1 September 2015)
***(Appointed 13 July 2015)
****(Resigned 30 June 2015)

Employers’
national
insurance
2016
£’000

Total
2015
£’000

Employers’
national
insurance
2015
£’000

45
30
28
3
30

213
32
115

496

2
4
—
4
4

27
19
—

—
3
3
—
3

25
4
13

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Part of the remuneration of Alan Wilson was paid to a management company which he controls.

The number of Directors who accrued benefits under money purchase pension arrangements in the period was two (2015: three).

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:
Philip Cammerman
Nigel Luckett (Resigned 1 September 2015)
Executive:
John Hayward
Thomas James Lister (Resigned 30 June 2015)

Total dividends paid to Directors

Total
2016
£’000

2
—

56
—

Total
2015
£’000

3
6

84
6

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REPORT OF THE REMUNERATION COMMITTEE continued

Pressure Technologies plc Annual Report 2016

Directors’ Options
The Directors’ interests in share options are as follows:

John Hayward
John Hayward
John Hayward
Joanna Allen
Joanna Allen

Scheme

Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Save-as-you-earn Scheme
Long Term Incentive Plan

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

Outstanding at the end of the period

On behalf of the Board

Philip Cammerman
Chairman, Remuneration Committee
12 December 2016

Date granted

Number Option price

3 April 2014
12 December 2014
21 December 2015
30 July 2015
21 December 2015

24,972
38,028
104,219
4,466
71,366

720.80p
473.33p
196.17p
161.20p
196.17p

John Hayward Joanna Allen
No.

No.

63,000
104,219

167,219

4,466
71,366

75,832

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DIRECTORS’ REPORT

Pressure Technologies plc Annual Report 2016

The Directors present their report and the audited financial statements for the period from 4 October 2015 to 1 October 2016.

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.

The Company holds a 40% strategic investment in Kelley GTM, LLC, whose principal activity is the manufacture of high pressure
vessels for gas transport solutions. Kelley GTM, LLC is based in Amarillo, Texas.

Precision Machined Components
Al-Met Limited (“Al-Met”) whose principal activity is the manufacture of precision engineered valve components for use in the
oil and gas industry.

Roota Engineering Limited (“Roota”) whose principal activity is the manufacture of precision engineered products for use in the
oil and gas industry.

The Quadscot Group of Companies (“Quadscot Holdings Limited” and “Quadscot Precision Engineers Limited”) whose principal
activity is the manufacture of precision engineered products for use in the oil and gas industry.

Engineered Products
The Hydratron Group of Companies, (“Hydratron Limited” 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 6 September 2016 the Group finalised the closure of its manufacturing facility in Houston. Further details on this discontinued
operation can be seen in note 8 to the financial statements.

Alternative Energy
The Greenlane Group of Companies (“Greenlane Biogas UK Limited”, “Greenlane Biogas Europe Limited”, “Greenlane Biogas North
America Limited”, “Greenlane Technologies Limited”, “PT Biogas Technologies Limited” and “PT Biogas Holdings Limited”) whose
principal activities are the provision of turnkey solutions for the cleaning, storage and dispensing of gas for injection into the grid
or use as a vehicle fuel, and the sale of heat exchange and gas compression units.

Results and dividends
The consolidated statement of comprehensive income is set out on page 44. The loss on ordinary activities before taxation of the
Group for the period ended 1 October 2016 amounted to £0.4 million (2015: £1.1 million profit).

No interim dividend was paid in the period (2015: 2.8p). The Directors do not recommend the payment of a final dividend
(2015: 5.6p).

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 2016 (2015: nil).

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DIRECTORS’ REPORT continued

Pressure Technologies plc Annual Report 2016

Substantial Shareholdings
As at 17 November 2016, the following held or were beneficially interested in 3% or more of the Company’s issued ordinary
share capital:

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Liontrust Asset Management
Schroder Investment Management
City Financial
J.T.S.Hayward
Hargreaves Lansdown
Hargreave Hale
James Sharp
Unicorn Asset Management
Artemis Investment Management
Bank of America Merrill Lynch
A J Bell Securities
Slater Investments

Directors and their Interests
The present Directors of the Company are set out on page 35.

All Directors were Directors throughout the period unless otherwise stated.

Ordinary Shares

John Hayward
Philip Cammerman
Neil MacDonald
Alan Wilson
Joanna Allen
Brian Newman

Number of

Percentage of
issued share
shares capital owned

1,352,783
1,165,701
1,080,000
1,002,221
813,323
812,950
677,055
567,167
517,500
515,743
502,927
465,000

9.3%
8.1%
7.8%
7.0%
5.6%
5.6%
4.7%
3.9%
3.6%
3.6%
3.4%
3.2%

1 October
2016
No.

1,002,221
33,395
5,200
—
—
—

3 October
2015
No.

1,002,221
33,395
5,200
—
—
—

Share Options
On 21 December 2015, options were granted over 410,391 ordinary shares under the rules of the company’s long term incentive plan.
The options have an exercise price of 196.17p. The options are exercisable between three and six years following the date of grant.

On 2 August 2016 options were granted over 85,440 ordinary shares under the rules of the Pressure Technologies plc Save-As-You-
Earn Scheme at an exercise price of 150p. 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 26 to the consolidated
financial statements.

Pressure Technologies plc Annual Report 2016

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
The financial statements have been prepared on a going concern basis. The company’s business activities, together with the
factors likely to affect its future development, performance and position are set out in the Strategic Report. The principal risks and
uncertainties are set out from page 28. The Financial Reporting council issued “Guidance on the Going Concern based of Accounting
and Reporting on solvency and Liquidity risks” in 2016. The Directors have considered this when preparing these financial statements.

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 2016 / 2017 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 twelve months from when these financial
statements have been signed.

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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.

Events after the reporting period
On 7 December 2016, the Pressure Technologies plc purchased the entire issued share capital of Martract Limited. The maximum
total consideration for the Acquisition is £4.3 million on a cash free, debt free basis, comprising an initial cash consideration
of £3.7 million plus cash balances (“Initial Consideration”) and a conditional deferred payment of up to £0.6 million (“Additional
Consideration”). The Additional consideration payable in respect of the 12 month period following the Acquisition (the “Earn-out
Period”) is dependent on the future EBITDA performance of Martract.

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
Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (“FRS 101”). 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:

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• 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.

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.

DIRECTORS’ REPORT continued

Pressure Technologies plc Annual Report 2016

Statement of Directors’ Responsibilities for the Financial Statements continued
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.

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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.

Corporate Governance
The Group’s corporate governance is set out on its website under the AIM rule 26 section.

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

John Hayward
Chief Executive
12 December 2016

INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PRESSURE TECHNOLOGIES PLC

Pressure Technologies plc Annual Report 2016

We have audited the financial statements of Pressure Technologies plc for the year ended 1 October 2016 which comprise
the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes
in equity, the consolidated statement of cash flows, the accounting policies, the notes to the consolidated financial statements,
the company balance sheet, the company statement of changes in equity and the notes to the company financial statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law
and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. The financial reporting framework
that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 101
‘Reduced Disclosure Framework’.

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 Directors’ Responsibilities Statement set out on page 41, 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.

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Opinion on financial statements
In our opinion:

• The financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at

1 October 2016 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 Chairman’s Statement, Strategic Report, Report of the Remuneration Committee 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.

Mark Overfield BSc FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Leeds
12 December 2016

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 week period ended 1 October 2016

Pressure Technologies plc Annual Report 2016

Revenue
Cost of sales

Gross profit
Administration expenses

Operating (loss) / profit before acquisition costs, amortisation
and exceptional charges and credits
Separately disclosed items of administrative expenses:
Amortisation and acquisition related exceptional items
Other exceptional charges and credits

Operating (loss) / profit
Finance income
Finance costs
Exceptional costs in relation to the option on and loan to KGTM
Share of losses of associate

(Loss) / profit before taxation
Taxation

Profit for the period from continuing operations

Discontinued operations
Loss for the year from discontinued operations

(Loss) / 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

Basic earnings per share
From continuing operations
From discontinued operations

From (loss) / profit for the period

Diluted earnings per share
From continuing operations
From discontinued operations

From (loss) / profit for the period

The accounting policies and notes on pages 48 to 80 form part of these financial statements.

52 weeks
ended
1 October
2016
£’000

35,753
(26,211)

9,542
(9,923)

53 weeks
ended
3 October
2015
£’000

53,816
(38,056)

15,760
(11,942)

(381)

3,818

1,123
(798)

(56)
32
(335)
—
—

(359)
1,002

643

(1,331)

(688)

(426)

(1,114)

4.4p
(9.2)p

(4.8)p

4.4p
(9.2)p

(4.8)p

(291)
(425)

3,102
15
(457)
(1,408)
(151)

1,101
121

1,222

(523)

699

(10)

689

8.5p
(3.6)p

4.9p

8.4p
(3.6)p

4.8p

Notes

5
6

2
3
7
19

4
12

13
13

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CONSOLIDATED BALANCE SHEET
As at 1 October 2016

Pressure Technologies plc Annual Report 2016

Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax asset
Investment in associates

Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Current tax asset

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

1 October
2016
£’000

3 October
2015
£’000

Notes

15
16
17
27
19

20
21

23
24

23
24
27

15,020
11,329
13,765
544
—

40,658

5,210
11,279
6,073
—
—

22,562

63,220

(12,069)
(242)
(258)

(12,569)

(1,398)
(12,411)
(2,027)

(15,836)

(28,405)

34,815

724
21,620
(401)
12,872

34,815

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15,020
13,451
14,348
270
—

43,089

7,414
13,539
3,459
26
82

24,520

67,609

(13,025)
(337)
—

(13,362)

(5,078)
(10,236)
(2,592)

(17,906)

(31,268)

36,341

721
21,539
25
14,056

36,341

The accounting policies and notes on pages 48 to 80 form part of these financial statements.

The financial statements were approved by the Board on 12 December 2016 and signed on its behalf by:

Joanna Allen
Director
Company number: 06135104

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 week period ended 1 October 2016

Pressure Technologies plc Annual Report 2016

Balance at 27 September 2014
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 3 October 2015
Dividends
Share based payments
Shares issued

Transactions with owners

Loss for the period
Other comprehensive income:
Exchange differences on translating
foreign operations

Total comprehensive income

Balance at 1 October 2016

Notes

14
29
28

Share
capital
£’000

premium Translation
reserve
£’000

account
£’000

718
—
—
3

—

721
—
—
3

—

21,463
—
—
76

—

21,539
—
—
81

—

724

21,620

35
—
—
—

—

(10)

25
—
—
—

—

(426)

(401)

Profit
and loss
account
£’000

14,313
(1,209)
253
—

(956)

699

—

699

14,056
(810)
314
—

(496)

(688)

—

(688)

12,872

Total
equity
£’000

36,529
(1,209)
253
79

(877)

699

(10)

689

36,341
(810)
314
84

(412)

(688)

(426)

(1,114)

34,815

The accounting policies and notes on pages 48 to 80 form part of these financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS
For the 52 week period ended 1 October 2016

Pressure Technologies plc Annual Report 2016

Operating activities
Cash flows from operating activities
Finance costs paid
Income tax refund / (paid)

Net cash inflow from operating activities

Investing activities
Proceeds from sale of fixed assets
Purchase of property, plant and equipment
Cash outflow on purchase of subsidiaries net of cash acquired
Cash outflow on payment of deferred consideration

Net cash used in investing activities

Financing activities
New borrowings
Repayment of borrowings
Dividends paid
Shares issued
Receipt of government grants

Net cash from financing activities

Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

The accounting policies and notes on pages 48 to 80 form part of these financial statements.

Notes

52 weeks
ended
1 October
2016
£’000

53 weeks
ended
3 October
2015
£’000

4,405
(228)
504

4,681

84
(883)
—
(2,500)

(3,299)

2,300
(342)
(810)
84
—

1,232

2,614
3,459

6,073

7,925
(220)
(1,770)

5,935

181
(6,250)
(9,648)
(2,000)

(17,717)

10,000
(185)
(1,209)
79
200

8,885

(2,897)
6,356

3,459

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ACCOUNTING POLICIES

Pressure Technologies plc Annual Report 2016

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 Financial
Reporting Standard 101 (“FRS 101”). These are presented on pages 81 to 90.

Pressure Technologies plc, company number 06135104, is incorporated and domiciled in the United Kingdom. The registered office
address is Unit 6b Newton Business Centre, Newton Chambers Road, Chapeltown, Sheffield, South Yorkshire, S35 2PH.

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The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ended
1 October 2016. 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 2016/2017 and beyond and that the Group has sufficient cash reserves and
headroom in borrowing 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.

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.

IFRS 9 Financial Instruments (effective date 1 January 2018)
IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016)
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)

•
•
•
• Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (effective date 1 January 2016)
• Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 (effective

date 1 January 2016)

• Annual Improvements to IFRSs 2012-2014 Cycle (effective 1 January 2016)
• Amendments to IAS 16 and IAS 41: Bearer Plants (effective 1 January 2016)
• Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016)
• Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (effective 1 January 2016)
• Disclosure Initiative: Amendments to IAS 1 Presentation of Financial Statements (effective 1 January 2016)
•
• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (effective 1 January 2017)
• Amendments to IFRS 2: Classification and measurement of Share-based Payment Transactions (effective 1 January 2018)
• Amendments to IAS 7: Disclosure Initiative (effective date 1 January 2017)

IFRS 16 Leases (effective date 1 January 2019)

Management have assessed the impact that the implementation of IFRS 15 will have on revenue recognition, particularly with
reference to construction contracts. Changes have been made to internally reported management information to ensure complete
and accurate data capture.

Other than in respect of IFRS 16 Leases, the application of these standards and interpretations is not expected to have a material
impact on the Group’s reported financial performance or position. However, they may give rise to additional disclosures being made
in the financial statements.

Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described below, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.

Pressure Technologies plc Annual Report 2016

The estimates and assumptions that have a material risk to the carrying value of assets and liabilities within the next financial year
are discussed below:

Critical accounting judgements
Revenue recognition
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.

Stage of completion on construction contracts
The Group assess the stage of completion of a contract based on internal estimates, with reference to the proportion of costs
incurred and the proportion of work performed.

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.

Deferred consideration
The Group has acquired, as a result of acquisition activity, significant liabilities in respect of deferred consideration. The payment
of this consideration is contingent on the results of the acquired entities. Upon acquisition, deferred consideration is recognised
at fair value. The Directors review the amount of deferred consideration alongside forecast results for the relevant businesses and
assess the amount considered to be payable. Where an adjustment to deferred consideration is deemed necessary, the difference
is recognised in profit and loss as an exceptional item.

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 20 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 is disclosed in note 16 to the financial statements.

Warranty Provisions
Under certain contractual arrangements, the Group provides a warranty in relation to some products sold, which could result
in the future transfer of economic benefits from the entity. The Directors review the products for which a warranty is provided,
and assess the amount of provision required to meet future potential liabilities. Warranty periods vary between products but
are typically one year in duration.

Stage of completion on construction contracts
The carrying amount of construction contracts and revenue recognised from construction contracts reflects management’s
best estimate about each contract’s outcome and stage of completion but are subject to estimation uncertainty.

Deferred consideration
The Directors have assessed the carrying value of deferred consideration that is contingent on the future results of acquired
entities by reviewing forecasts. These forecasts by nature are subject to an element of estimation uncertainty.

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ACCOUNTING POLICIES continued

Pressure Technologies plc Annual Report 2016

Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 1 October
2016 (2015: to 3 October 2015). 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’s accounting policies.

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.

Deferred 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. Where this deferred consideration arises in a currency
other than Sterling, the liability is revalued at each period end date.

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 and Precision Machined Components
In applying the above policy, revenue is recognised in the Engineered Products segment when production is complete, the goods
are ready to be despatched, the goods have passed any applicable factory and customer acceptance tests 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.

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Alternative Energy
Revenue is recognised in the Alternative Energy segment in accordance with IAS 11, ‘Construction contracts’ for biogas
upgrader projects.

The division designs and constructs biogas upgrading units for the production of biomethane for supply to the gas grid or for
use as vehicle fuel. Once a contract is sufficiently advanced and the outcome of the 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 estimates, with reference to the proportion of costs incurred.
Revenue is recognised in proportion to the total revenue expected on the contract.

Prior to this recognition, stage payments received from customers and made to suppliers are recorded in the consolidated balance
sheet as trade and other receivables and trade and other payables as appropriate.

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.

The Alternative Energy segment also enters into maintenance and service agreements with customers. Revenue on these
agreements is recognised in accordance with IAS18, ‘Revenue’. Revenue is recognised in accordance with the stage of completion
of the maintenance or service agreement.

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.

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Pressure Technologies plc Annual Report 2016

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. Land is not depreciated. Assets under construction are recognised when costs are incurred in the construction of an
asset and are not depreciated until the asset is ready for use. Depreciation on other assets 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:

Buildings
Plant and machinery

50 years
3 – 15 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
Development costs
Development costs are recognised at cost, net of amortisation or provision for impairment, where the recognition requirements
under IAS 38 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 project;
• 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.

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
License and distribution agreement
Non-contractual customer relationships
Technology

Over life of the order book – typically one year
15 years
5 – 10 years
7.5 years

Impairment testing of non-current assets
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-
generating unit level. 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.

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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 the 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.

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Accounting for financial assets
The Group has financial assets in the following categories:

• Loans and receivables (trade and other receivables);
• 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.

ACCOUNTING POLICIES continued

Pressure Technologies plc Annual Report 2016

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 Group 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.
At certain times 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.

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.

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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.

As a result of corporate acquisition activity, the Group has significant potential deferred consideration balances denominated in
foreign currencies. Any exchange differences arising on these balances are recognised in profit and loss. Given the large balances
and therefore the potential effect on the results of the Group, the Directors consider it appropriate to disclose these foreign
exchange movements as an exceptional item.

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 four
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.

• Precision Machined Components: the manufacture of specialised, precision engineered valve wear parts used in the oil and gas

industries.

• 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.

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Pressure Technologies plc Annual Report 2016

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 it 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.

The Group considers that it has significant influence over another entity when it has less than 50% but more than 20% of the voting
rights of that entity. Given Pressure Technologies has 40% of the voting rights of Kelley GTM, the Directors consider that it has
significant influence and therefore it is treated as an associate.

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.

Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised
cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity
services and amortised over the period of the facility to which it relates.

Operating profit
Operating profit is stated before finance costs, finance income, share of profits and losses from associates and finance related
exceptional costs. Adjusted operating profit is stated after adding back any other exceptional items.

Discontinued operations
A discontinued operation is a component of the Company that has either been disposed of or meets the criteria to be classified as
held for sale and represents a separate major line of business or geographical area of operations or is part of a single co-ordinated
plan to dispose of a separate major line of business or geographical area of operations.

The results of discontinued operations are analysed separately from continuing operations on the face of the Statement of
Comprehensive Income and the related notes. Where there is a newly identified discontinued operation in the year, the prior
year Statement of Comprehensive Income and the related notes are restated as if the operation was classified as discontinued
at that time.

The results of discontinued operations include the post-tax profit or loss on the discontinued operation along with the post-tax gain
or loss recognised on the re-measurement of the non-current assets of the discontinued operation to fair value less costs to sell,
and the subsequent gain or loss on disposal of the discontinued operation.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Pressure Technologies plc Annual Report 2016

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”). The Manufacturing and Alternative Energy Divisions are distinct due to the nature of the
underlying businesses and as such are grouped on that basis.

Manufacturing

For the 52 week period
ended 1 October 2016

Revenue
– total
– revenue from other segments

Revenue from
external customers

Precision
Machined Engineered
Products
£’000

Cylinders Components
£’000

£’000

Manu-

facturing Alternative
Energy
sub total
£’000
£’000

Central
costs
£’000

9,538
—

11,319
(576)

4,163
(23)

25,020
(599)

11,335
(3)

9,538

10,743

4,140

24,421

11,332

Total
£’000

36,355
(602)

35,753

9,542

—
—

—

Gross Profit

3,226

3,350

994

7,570

1,972

Operating profit / (loss)
before acquisition costs,
amortisation on acquired
businesses and exceptional
charges and credits
Acquisition related exceptional
items and amortisation
(charges) / credits
Other exceptional charges

Operating profit / (loss)
Exceptional costs in relation
to the option on and loan to KGTM
Share of losses of associate
Net finance (costs) / income

Profit / (loss) before tax

1,053

1,398

(291)

2,160

(1,060)

(1,481)

(381)

—
(84)

969

—
—
—

969

(1,462)
(359)

(423)

—
—
(11)

(434)

—
(333)

(624)

—
—
—

(624)

(1,462)
(776)

(78)

—
—
(11)

(89)

(703)
(22)

(1,785)

—
—
29

(1,756)

3,288
—

1,807

—
—
(321)

1,486

1,123
(798)

(56)

—
—
(303)

(359)

Segmental net assets*

7,132

22,153

2,868

32,153

13,876

(11,214)

34,815

Other segment information:
Capital expenditure
Depreciation
Amortisation

419
330
—

268
822
1,462

140
128
—

827
1,280
1,462

92
95
703

42
102
1

961
1,477
2,166

* 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

(cid:581)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

Pressure Technologies plc Annual Report 2016

1. Segment analysis continued

Manufacturing

For the 53 week period
ended 3 October 2015

Revenue
– total
– revenue from other segments

Revenue from
external customers

Precision
Machined
Cylinders Components
£’000

£’000

Engineered
Products
£’000

Manu-
facturing
sub total
£’000

Alternative
Energy
£’000

Central
costs
£’000

14,343
—

18,815
—

6,687
—

39,845
—

13,971
—

14,343

18,815

6,687

39,845

13,971

Total
£’000

53,816
—

53,816

15,760

—
—

—

Gross Profit

5,289

6,250

1,311

12,850

2,910

2,111

Operating profit / (loss)
Exceptional costs in relation
to the option on and loan to KGTM
Share of losses of associate
Net finance (costs) / income

Profit / (loss) before tax

2,408

—
(151)
—

2,257

4,512

122

6,745

(1,142)

(1,785)

3,818

(1,425)
—

3,087

—
—
(30)

(135)
(263)

(276)

—
—
2

3,057

(274)

(1,560)
34

5,219

—
(151)
(28)

5,040

(720)
(309)

(2,171)

—
—
3

(2,168)

1,989
(150)

(1,408)
—
(417)

(1,771)

(291)
(425)

3,102

(1,408)
(151)
(442)

1,101

Segmental net assets**

7,452

23,671

4,594

35,717

11,321

(10,697)

36,341

Other segment information:
Capital expenditure
Depreciation
Amortisation

1,254
318
—

1,058
770
1,425

110
104
135

2,422
1,192
1,560

123
93
720

3,757
85
—

6,302
1,370
2,280

There has been no significant trading between the segments in the period.

* Includes fees associated with making acquisitions
** 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

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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

2016
£’000

17,235
7,817
10,701

35,753

2015
£’000

29,211
8,929
15,676

53,816

The Group’s largest customer contributed 7% to the Group’s revenue (2015: 12%) and is reported within the Precision Machined
Components segment. No customers contributed more than 10% in the period to 1 October 2016 (2015: 1).

The following table provides an analysis of the Group’s revenue by market.

Revenue

Oil and gas
Defence
Industrial gases
Alternative energy

2016
£’000

15,527
6,469
2,372
11,385

35,753

2015
£’000

30,822
7,471
1,502
14,021

53,816

The above table is provided for the benefit of shareholders. It is not provided to the PT board or the CODM 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 and additions to property, plant
and equipment.

United

Rest of
Kingdom the World
£’000

£’000

Non-current assets
Additions to property, plant and equipment

40,581
859

77
102

2. Finance income

Interest receivable on bank deposits
Discounting adjustment on loans and receivables

3. Finance costs

Interest payable on bank loans and overdrafts
Interest payable on finance leases
Discounting adjustment on trade and other payables

2016

Total
£’000

40,658
961

United
Kingdom
£’000

42,954
6,191

Rest of
the World
£’000

135
111

2016
£’000

32
—

2016
£’000

246
14
75

335

2015

Total
£’000

43,089
6,302

2015
£’000

6
9

2015
£’000

195
31
231

457

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Pressure Technologies plc Annual Report 2016

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
Loss / (profit) on disposal of fixed assets
Amortisation of intangible assets acquired on business combinations
Amortisation of grants receivable
Staff costs (see note 10)
Cost of inventories recognised as an expense
Operating lease rentals:
– Land and buildings
– Machinery and equipment
Foreign currency gain
Share based payments
Research and development

5. Amortisation and acquisition related exceptional items

Amortisation of intangible assets
Acquisition costs
Deferred consideration write back
Foreign currency (loss) / gain on revaluation of deferred consideration liability

2016
£’000

1,387
90
9
2,166
(99)
12,911
20,538

323
90
(711)
311
209

2016
£’000

(2,166)
—
3,766
(477)

1,123

2015
£’000

1,271
99
(10)
2,280
(104)
16,366
27,615

638
94
(215)
253
748

2015
£’000

(2,280)
(177)
1,749
417

(291)

The deferred consideration write back relates to the deferred consideration arising from the acquisition of the Greenlane Group
of Companies. The payment of this consideration is contingent on the future results of the acquired entities. The Directors have
reviewed forecasts in relation to Greenlane and consider that it is unlikely that the consideration will be paid, and as such it has
been released. Given the magnitude of the release and the fact that it is non-trading, the Directors consider it appropriate to
disclose this as an exceptional item.

The revaluation of deferred consideration liability relates to the exchange differences calculated on the deferred consideration
arising from the acquisition of The Greenlane Group, which was denominated in New Zealand Dollars, before it was written back.
Given the large balance and therefore the effect on the results of the Group, the Directors consider it appropriate to disclose this
foreign exchange movement as an exceptional item.

6. Other exceptional (charges) / credits

Reorganisation and redundancy
Costs in relation to HSE investigation
Release of rent provision

2016
£’000

(732)
(66)
—

(798)

2015
£’000

(747)
—
322

(425)

The reorganisation costs relate to costs of restructuring across the Group. They are recognised in accordance with IAS 19.

Costs in relation to the HSE investigation are costs borne by the Group as a direct result of the accident at Chesterfield Special
Cylinders which are not recoverable through insurance. Given the non-trading nature of these costs, the Directors consider
it appropriate to disclose this as an exceptional item. Further details on the HSE investigation can be seen in note 32.

The release of the rent provision related to a provision made in relation to IAS 17 with regards to the lease held by Chesterfield
Special Cylinders at the Meadowhall site. Following the purchase of the site by the Group in January 2015, this provision was
no longer required and was consequently released. Given its non-recurring nature it was disclosed as an exceptional item.

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7. Exceptional costs – KGTM write off

Exceptional provisions in relation to the option on and loans to KGTM

2016
£’000

—

2015
£’000

1,408

The exceptional costs in the prior year in relation to the options on and loans to KGTM relate to provisions made by the Board
against the balance of the loans receivable from KGTM, an associated company. Due to the uncertainty of repayment, the entire
balance of the loan outstanding was provided for.

8. Results of discontinued operation

Revenue
Expenses

Operating Profit pre-exceptional costs

Exceptional costs:
Reorganisation and redundancy
Impairment of assets on closure

Loss before taxation
Taxation

Profit for the year

2016
£’000

1,267
(1,865)

(598)

(278)
(455)

(1,331)
—

(1,331)

Due to the oil and gas market conditions that continued into the second half of the accounting period, as part of the groups
restructuring, the US operation of the engineered products division was closed during the year. The manufacturing facilities
were wound down and fully closed in early September.

Cash flows from discontinued operations
Net cash used in operating activities
Net cash from / (used in) investing activities
Net cash from financing activities

Net cash flows for the year

9. Auditor’s remuneration

Fees payable to the Company’s Auditor for the audit of the company and consolidated financial statements

2016
£’000

(679)
27
783

131

2016
£’000

2015
£’000

1,754
(2,277)

(523)

—
—

(523)
—

(523)

2015
£’000

(150)
(40)
135

(55)

2015
£’000

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 Company’s Auditor for non-audit services:
– Tax services
– Other services

107

104

34
17

26
12

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

Pressure Technologies plc Annual Report 2016

10. 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

The total number of employees, employed by the group on 1 October 2016 was 244 (2015: 351).

11. Directors’ remuneration
Particulars of Directors’ remuneration are as follows:

Emoluments – short term employee benefits
Pension costs – post employment benefits
Employers’ national insurance
Share based payments

2016
£’000

11,422
1,042
447
311

13,222

2016
No.

175
41
74

290

2016
£’000

520
41
60
65

686

2015
£’000

14,176
1,378
463
253

16,270

2015
No.

249
39
95

383

2015
£’000

460
34
51
4

549

Please see the Report of the Remuneration Committee on pages 36 to 38 for full details of Directors’ emoluments which
have been audited.

No Directors exercised any share options in the year.

During the year retirement benefits were accruing to 2 (2015: 3) Directors in respect of defined contributions schemes.

Included in the aggregate emoluments for the period ended 1 October 2016 are payments of £36,000 (2015: £48,000) made
by the Company to third parties. The highest paid Director received total emoluments of £204,000 and pension contributions
of £21,000 (2015: total emoluments of £193,000 and pension contributions of £20,000).

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’.

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Pressure Technologies plc Annual Report 2016

2016
£’000

2015
£’000

—
(163)

(163)

(839)
—

(839)

(1,002)

12. Taxation

Current tax
Current tax expense
Over provision in respect of prior years

Deferred tax
Origination and reversal of temporary differences
Over provision in respect of prior years

Total taxation credit

Corporation tax is calculated at 20% (2015: 20.5%) of the estimated assessable profit for the period. Deferred tax is calculated
at the rate expected to be substantively enacted when the temporary differences unwind (2015: 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 20% (2015: 20.5%)
Effect of (credits) / charges:
– non-deductible expenses and other timing differences
– disallowable release of deferred consideration
– other disallowable acquisition costs
– Research and development allowance
– adjustments in respect of prior years
– effect of unrealised overseas
– change in taxation rates

Total taxation credit

2016
£’000

(359)

(72)

131
(658)
—
(54)
(160)
126
(315)

(1,002)

269
(79)

190

(307)
(4)

(311)

(121)

2015
£’000

1,101

226

(46)
(369)
126
(23)
(83)
46
2

(121)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

Pressure Technologies plc Annual Report 2016

13. 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 adjusted earnings per share is also calculated based on the
basic weighted average number of shares.

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.

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For the 52 week period ended 1 October 2016

Profit / (loss) 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

The Group adjusted earnings per share is calculated as follows:
Profit / (loss) after tax
Amortisation and acquisition related exceptional items (note 5)
Other exceptional charges and credits (note 6 and 8)
Impairment of assets on closure
Theoretical tax effect of above adjustments

Adjusted earnings

Adjusted earnings per share

For the 53 week period ended 3 October 2015

Profit / (loss) 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

The Group adjusted earnings per share is calculated as follows:
Profit / (loss) after tax
Amortisation and acquisition related exceptional items (note 5)
Other exceptional charges and credits (note 6)
Exceptional costs in relation to the option on and loan to KGTM
Theoretical tax effect of above adjustments

Adjusted earnings

Adjusted earnings per share

Continuing Discontinued
£’000

£’000

643

(1,331)

Total
£’000

(688)

No.

14,449,195
1,983

14,451,178

4.4p
4.4p

(9.2)p
(9.2)p

(4.8)p
(4.8)p

643
(1,123)
798
—
(688)

(370)

(2.6)p

(1,331)
—
278
455
(56)

(654)

(4.5)p

Continuing Discontinued
£’000

£’000

1,222

(523)

(688)
(1,123)
1,076
455
(744)

(1,024)

(7.1)p

Total
£’000

699

No.

14,378,392
144,690

14,523,082

8.5p
8.4p

(3.6)p
(3.6)p

4.9p
4.8p

1,222
291
425
1,408
(739)

2,607

18.1p

(523)
—
—
—
—

(523)

(3.6)p

699
291
425
1,408
(739)

2,084

14.5p

14. Dividends
The following dividend payments have been made on the ordinary 5p shares in issue:

Final 2013/14
Interim 2014/15
Final 2014/15

Rate

5.6p
2.8p
5.6p

Date

Shares
in issue

17 March 2015
7 August 2015
18 March 2016

14,377,130
14,414,930
14,471,481

2016
£’000

—
—
810

810

No dividends have been declared in respect of the year ended 1 October 2016.

15. Goodwill

Cost and gross carrying amount
At 27 September 2014
Acquired through business combinations

At 3 October 2015
Acquired through business combinations

At 1 October 2016

Precision Machined components
Al-Met Limited
Roota Engineering Limited
The Quadscot Group

Engineered Products
Hydratron Limited

Alternative Energy
The Greenlane Group

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 Goodwill in relation to five acquisitions: Al-Met Limited, The Hydratron Group,
Roota Engineering Limited, The Quadscot Group and The Greenlane Group.

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 11.6% which equates to the Group’s weighted average cost of capital. The same
discount rate is used for all CGUs due to the businesses having common sources of finance and operating in very similar markets.
The discount rate used has increased from the prior year due to changes in the Group structure and sources of finance.

The forecast for year one is the forecast approved by management and used within the Group, and is based on a bottom up
assessment of costs and uses the known and estimated pipeline.

In the Manufacturing Divisions, the forecasts used for years two to four assume revenue growth, returning to levels achieved
in 2014 by 2021 and into perpetuity, no long-term rate of growth is incorporated into perpetuity. In the Alternative Energy
Division, the forecasts used for years two onwards, prudently assume no revenue growth. A perpetuity is used as a terminal
value in this calculation.

Pressure Technologies plc Annual Report 2016

Date of
acquisition

February 2010
March 2014
October 2014

October 2010

1,692

October 2014

4,860

15,020

2015
£’000

805
404
—

1,209

Total
£’000

7,081
7,939

15,020
—

15,020

Original
cost
£’000

272
5,117
3,079

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Pressure Technologies plc Annual Report 2016

15. Goodwill continued
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 in the assumptions underlying the value in use calculation would have an impact on the
carrying value of goodwill.

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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 1 October 2016, no reasonable expected change in the key assumptions would give rise
to an impairment charge for any CGU. Quadscot Precision Engineers has faced the toughest market conditions and this CGU has
the least headroom of any CGU in the group. A 1% point increase in discount rate would not change this assessment.

Non
contractual
Software
customer
Licenses Technology relationships
£’000

£’000

—
5,316
—

5,316
—
—
—

5,316

—
720
—

720
703
—

1,423

7,440
4,262
—

11,702
—
—
—

11,702

1,287
1,560
—

2,847
1,462
—

4,309

Total
£’000

8,640
9,578
(1,200)

17,018
44
—
—

17,062

1,680
2,280
(393)

3,567
2,166
—

5,733

3,893

7,393

11,329

4,596

8,855

13,451

3 years

6 years

5 years

—
—
—

—
44
—
—

—
—
—

—
1
—

—

16. Intangible assets

Cost
At 27 September 2014
Acquired through business combination
Disposed of in the period

At 3 October 2015
Additions
Acquired through business combination
Disposed of in the period

At 1 October 2016

Amortisation
At 27 September 2014
Charge for the period
Disposed of in the period

At 3 October 2015
Charge for the period
Disposed of in the period

At 1 October 2016

Net book value
At 1 October 2016

At 3 October 2015

Remaining useful economic life at 1 October 2016

There are no internally generated fixed assets.

Licence and
distribution
agreement
£’000

1,200
—
(1,200)

—
—
—
—

—

393
—
(393)

—
—
—

—

Pressure Technologies plc Annual Report 2016

Assets under
construction
£’000

Land and
Plant and
buildings machinery
£’000

£’000

1,229
608
—
—
—

1,837
359
—
—
—

2,196

—
—
—

—
—
—
—

—

800
3,434
660
—
—

4,894
75
—
(17)
—

4,952

9
57
—

66
63
—
(11)

118

9,671
2,260
1,121
(511)
4

12,545
527
(204)
(52)
34

12,850

3,889
1,313
(340)

4,862
1,414
(112)
(49)

6,115

Total
£’000

11,700
6,302
1,781
(511)
4

19,276
961
(204)
(69)
34

19,998

3,898
1,370
(340)

4,928
1,477
(112)
(60)

6,233

2,196

4,834

6,735

13,765

1,837

4,828

7,683

14,348

17. Property, plant and equipment

Cost
At 28 September 2014
Additions
Acquired through business combinations
Disposals
Net exchange differences

At 3 October 2015
Additions
Disposals
Impairment
Net exchange differences

At 1 October 2016

Depreciation
At 27 September 2014
Charge for the period
Disposed of in the period

At 3 October 2015
Charge for the period
Disposed of in the period
Impaired in the period

At 1 October 2016

Net book value
At 1 October 2016

At 3 October 2015

Included within the net book value of £13,765,000 is £828,000 (2015: £900,000) relating to assets held under finance lease
agreements. The depreciation charged to the financial statements in the period in respect of such assets amounted to £90,000
(2015: £99,000).

18. Subsidiaries
A list of 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 87.

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Pressure Technologies plc Annual Report 2016

19. Investments in associates

At 27 September 2014
Investments made in the year
Share of profits / (losses)

As at 3 October 2015
Investments made in the year
Share of profits / (losses)

As at 1 October 2016

£’000

123
—
(123)

—
—
—

—

Note that the share of losses of associates as set out in the Consolidated Statement of Comprehensive Income in the prior year
were set first against the investment and then against the value of other receivables from KGTM, as shown below. The remaining
value of these receivables was provided against as set out in note 7.

Amount of losses set against investment
Amount of losses set against other receivables from KGTM

2016
£’000

—
—

—

2015
£’000

123
28

151

The group’s share of the results of its principal associates and its aggregated assets (including goodwill) and liabilities, are as follows:

At 3 October 2015
Kelley GTM, LLC.

At 1 October 2016
Kelley GTM, LLC.

Country of
incorporation

Assets
£’000

Liabilities
£’000

Revenues
£’000

Loss
£’000

USA

578

(5,273)

793

(741)

USA

473

(6,202)

918

(195)

Interest
held
%

KGTM has a year-end date of 31 December. The period for which the results of KGTM have been shown in the table above is from
4 October 2015 to 1 October 2016. The group’s share of the results of KGTM are not included in the group’s financial statements
as the investment and loans made to KGTM are fully written down and there is no legal or constructive obligation to recognise any
further losses and no further payments have been made on behalf of the associate.

The total losses recognised against the investment and other receivables from KGTM for the period were £nil (2015: £151,000)
leaving unrecognised losses of £195,000 (2015: £590,000).

20. Inventories

Raw materials and consumables
Work in progress
Finished goods

2016
£’000

2,917
402
1,891

5,210

2015
£’000

3,825
3,292
297

7,414

Included in the total net value above are gross inventories of £498,000 (2015: £1,414,000) over which provisions have been made
of £498,000 (2015: £832,000).

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21. Trade and other receivables

Current
Trade receivables
Amounts due from customers for construction contract work
Other receivables
Prepayments and accrued income

Pressure Technologies plc Annual Report 2016

2016
£’000

7,536
1,827
602
1,314

11,279

2015
£’000

11,015
756
545
1,223

13,539

The average credit period taken on the sale of goods and services was 47 days (2015: 79 days) in respect of the Group. One debtor
individually accounted for over 10% of trade receivables and represented 26% of the total balance. In 2015, two debtors accounted
for over 10% of trade receivables and both individually represented 10% of the total balance.

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

The Group’s doubtful debt provision is not a significant balance.

22. Derivative financial instruments

Derivatives carried at fair value not recognised for hedge accounting
– Forward foreign currency contracts

Asset

23. 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
Accruals, deferred income and other payables

Total due after 12 months

2016
£’000

1,310
242
220
65
389

2,226

2016
£’000

—

2016
£’000

6,903
931
301
3,934
—

2015
£’000

1,221
539
129
77
885

2,851

2015
£’000

3,447
2,131
903
4,044
2,500

12,069

13,025

—
1,398

1,398

3,531
1,547

5,078

Deferred income due after 12 months includes grant income received and customer prepayments for contracts in delivery
in a number of years. There are no unfulfilled conditions or other contingencies attached to these grants.

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Pressure Technologies plc Annual Report 2016

24. Borrowings

Non-current
Bank borrowings
Finance lease liabilities

Current
Finance lease liabilities

Total borrowings

2016
£’000

12,300
111

12,411

242

2015
£’000

10,000
236

10,236

337

12,653

10,573

Bank borrowings mature in 2018 and bear average coupons of 2% above LIBOR annually.

Total borrowings include secured liabilities of £12.3 million. Bank borrowings are secured on the property, plant and equipment
of the group (note 17). Obligations under finance leases are secured on the plant & machinery assets to which they relate.

The carrying amounts of the Group’s borrowings are all denominated in GBP.

The maturity profile of long-term loans is as follows:

Due within one year
Finance lease liabilities

Due within two to five years
Bank borrowings
Finance lease liabilities

The Group has the following undrawn borrowing facilities:

Expiring beyond one year

2016
£’000

2015
£’000

242

337

12,300
111

10,000
236

2016
£’000

2,700

2015
£’000

5,000

The facility also includes an accordion feature option allowing for an additional facility for £10 million subject to certain conditions
set out in the agreement.

25. Construction contracts
Construction contracts are accounted for in accordance with IAS 11, ‘Construction Contracts’ and IAS18, ‘Revenue’. 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

2016
£’000

16,083
(15,187)

896

2015
£’000

14,488
(15,863)

(1,375)

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Pressure Technologies plc Annual Report 2016

26. 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 24, 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 debt

Equity

2016
£’000

(12,653)
6,073

(6,580)

2015
£’000

(10,573)
3,459

(7,114)

34,815

36,341

Debt is defined as long and short-term borrowings, as detailed in note 24. 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
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

The fair value of the financial instruments set out above is not materially different from their book value.

2016
£’000

7,536
602
6,073

2015
£’000

11,015
545
3,459

—

14,211

15,045

2016
£’000

2015
£’000

6,903
2,792
—
12,653

22,348

3,447
2,042
6,031
10,573

22,093

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Pressure Technologies plc Annual Report 2016

26. 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, CAN Dollars, NZ 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, CAN Dollars, NZ Dollars, Euros and Pounds Sterling and receives
payment for its products in US Dollars, CAN Dollars, NZ Dollars, Euros and Pounds Sterling. After netting off foreign currency
receipts and payments, there is a net exposure to the risk of currency movements in US Dollars, CAN Dollars, NZ 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
CAN Dollar
NZ Dollar

Financial
assets
2016
£’000

Financial
assets
2015
£’000

Financial
liabilities
2016
£’000

1,853
—
3,563
540
21

5,977

1,777
4
3,056
179
92

5,108

1,087
—
2,514
653
71

4,325

Financial
liabilities
2015
£’000

1,834
—
2,286
243
3,576

7,939

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
2016
£’000

Euro
currency
impact
2015
£’000

Norwegian
Krone
currency
impact
2016
£’000

Norwegian
Krone
currency
impact
2015
£’000

US Dollar
currency
impact
2016
£’000

US Dollar
currency
impact
2015
£’000

—

NZ Dollar
currency
impact
2016
£’000

NZ Dollar CAN Dollar
currency
currency
impact
impact
2016
2015
£’000
£’000

CAN Dollar
currency
impact
2015
£’000

317

Profit or loss

The use of a 10% movement in exchange rates is considered appropriate given recent movements in exchange rates.

A substantial amount of the Group’s sales and purchases are made in foreign currencies. The exposure to foreign exchange rates
varies throughout the year depending on the volume and timing of transactions in foreign currencies.

Pressure Technologies plc Annual Report 2016

26. 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 financial instruments as detailed below. No transfers in either direction have been
made between the levels of fair value hierarchy.

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 1 October 2016, the Group had no contracts outstanding (2015: sell €1.000 million for £0.714 million, sell $0.400 million
for £0.273 million).

Forward exchange contracts gave rise to a loss of £26,000 in the period ended 1 October 2016. The fair value of forward foreign
exchange contracts at 3 October 2015 gave rise to a loss of £17,000.

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 decrease / increase of £31,000 (2015: £22,000).

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 36% (2015: 20%) 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 minimised by using counterparty banks with high credit-ratings assigned by international credit-rating agencies.

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Pressure Technologies plc Annual Report 2016

26. 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 1 October 2016, the Group’s liabilities have contractual maturities summarised below:

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2016

Trade and other payables
Bank borrowings
Amounts due under hire purchase agreements

2015

Trade and other payables
Bank borrowings
Amounts due under hire purchase agreements

Current
within
6 months
£’000

9,540
—
143

9,683

Current
within
6 months
£’000

7,756
—
168

7,924

Current

6 to 12 Non-current
months 1 to 5 years
£’000

£’000

Total net
payable
£’000

155
—
99

254

—
12,300
111

12,411

9,695
12,300
353

22,348

Current
6 to 12 Non-current
1 to 5 years
months
£’000
£’000

2,235
—
169

2,404

5,078
10,000
236

15,314

Total net
payable
£’000

15,069
10,000
573

25,642

The following amounts have been recognised in the consolidated statement of comprehensive income in respect of derivative
financial instruments:

Fair value through profit and loss (“FVTPL”)
– Derivative instrument – forward currency contract not recognised for hedge accounting

Amounts charged to cost of sales within the consolidated statement of comprehensive income

2016
£’000

2015
£’000

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.

Pressure Technologies plc Annual Report 2016

27. 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
Share
temporary
differences option costs
£’000

£’000

Operating
lease
incentives
£’000

At 27 September 2014
(Charge) / credit to income
Acquired through
business combinations

At 3 October 2015
Credit / (charge) to income

At 1 October 2016

(657)
(62)

(39)

(758)
40

(718)

(1,231)
313

(852)

(1,770)
514

(1,256)

32
79

—

111
(16)

49
46

—

95
(29)

65
(65)

—

—
—

—

The net deferred tax balance has been analysed as follows in the consolidated balance sheet:

Non-current asset
Deferred tax asset

Non-current liabilities
Deferred tax liabilities

Unused
losses
£’000

—
—

—

—
330

330

Total
£’000

(1,742)
311

(891)

(2,322)
839

(1,483)

2016
£’000

2015
£’000

544

270

(2,027)

(1,483)

(2,592)

(2,322)

Deferred tax is expected to be recoverable against future profits generated by the Group.

28. Called up share capital

Allotted, issued and fully paid
Ordinary shares of 5p each

2016
No.

2015
No.

2016
£’000

2015
£’000

14,471,295

14,414,930

724

721

The Company issued 56,365 ordinary shares at a price of 150p to employees exercising their rights to acquire shares under the
company’s SAYE scheme throughout the year. The effect of these issues has been to increase share capital by £3,000 and share
premium by £81,000.
(cid:581)

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Pressure Technologies plc Annual Report 2016

29. 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. An eighth grant
of options was made in August 2016. 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 and are treated
as a cancellation if the employee chooses to stop contributing. 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
Forfeited during the period
Cancelled during the period
Exercised during the period
Expired during the period

Outstanding at the end of the period

Weighted
average
exercise
price

186.9p
150p
—
189.1p
221.8p
153.4p
150p

169.4p

2016
No.

355,293
85,440
—
(79,912)
(59,957)
(6,551)
(1,800)

292,513

Weighted
average
exercise
price

361p
161.2p
—
520.1p
584.8p
150p
—

186.9p

2015
No.

202,463
282,681
—
(16,295)
(61,439)
(52,117)
—

355,293

32,067 of the outstanding options were exercisable at the end of the period. The options outstanding at 1 October 2016 had
a weighted average remaining contractual life of 1.8 years (2015: 2.5 years). The terms of these options are as follows:

Date of grant

29 July 2013
31 July 2014
30 July 2015
2 August 2016

Total options outstanding at 1 October 2016

Options
outstanding at
3 October
2016

32,067
7,765
181,641
71,040

292,513

Vesting
period

3 years
3 years
3 years
3 years

Market value
at date of
grant (p)

247.5
719
238
147.5

Exercise
price (p)

156
593
161.2
150

Exercise
period

6 months
6 months
6 months
6 months

There are no performance conditions that apply to these options other than continued employment.

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Pressure Technologies plc Annual Report 2016

29. 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 and are
treated as a cancellation if the employee chooses to stop contributing.

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

Outstanding at the end of the period

Weighted
average
exercise
price

210.6p
—
—
—

210.6p

2016
No.

153,156
—
—
—

153,156

Weighted
average
exercise
price

219.0p
—
242.5p
—

210.6p

2015
No.

206,156
—
(53,000)
—

153,156

All of the outstanding options were exercisable at the end of the period. The options outstanding at 1 October 2016 had a weighted
average remaining contractual life of 1.3 years (2015: 2.3 years). The terms of these options are as follows:

Date of grant

23 February 2012
9 August 2013

Total options outstanding at 1 October 2016

Options
outstanding at
1 October
2016

53,156
100,000

153,156

Vesting
period

3 years
3 years

Market value
at date of
grant (p)

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 five years from the date of grant. All of the 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 and are
treated as a cancellation if the employee chooses to stop contributing.

Details of the share options outstanding during the period are as follows:

Outstanding at the beginning of the period
Lapsed during the period

Outstanding at the end of the period

No options were exercisable under this scheme as at the period end.

Weighted
average
exercise
price

—
—

—

2016
No.

—
—

—

Weighted
average
exercise
price

150.5p
150.5p

—

2015
No.

73,089
(73,089)

—

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Pressure Technologies plc Annual Report 2016

29. 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 and are treated as a cancellation if the employee chooses to stop contributing.

Details of the share options outstanding during the period are as follows:

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Outstanding at the beginning of the period
Granted during the period
Lapsed during the period

Outstanding at the end of the period

Weighted
average
exercise
price

421.2p
196.2p
225p

285.5p

2016
No.

259,589
410,391
(23,333)

646,647

Weighted
average
exercise
price

720.8p
354.2p
571.4p

421.2p

2015
No.

77,493
232,846
(50,750)

259,589

None of the outstanding options were exercisable at the end of the period. The outstanding options outstanding at 1 October 2016
had a weighted average remaining contractual life of 4.9 years (2015: 5.3 years). The terms of these options are as follows:

Date of grant

3 April 2014
12 December 2014
25 June 2015
21 December 2015

Total options outstanding at 1 October 2016

Options
outstanding at
1 October
2016

57,377
90,547
88,332
410,391

646,647

Vesting
period

3 years
3 years
3 years
3 years

Market value
at date of
grant (p)

720.8
473.3
212
196.2

Exercise
price (p)

720.8
473.3
225
196.2

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 six 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
21/12/2015

Save-As-
You-Earn
02/08/2016

196p
196p
48%
5 years
1.2%
5.2%

148p
150p
61%
3 years
0.2%
5.2%

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 £311,000 (2015: £253,000). The charge is calculated in accordance with IFRS2, ‘Share Based Payments’.

A deferred tax charge of £29,000 (2015: £46,000 credit) was recognised in the consolidated statement of comprehensive income
during the period in respect of share based payments.

Pressure Technologies plc Annual Report 2016

2016
£’000

(688)

303
1,477
2,166
314
(1,002)
26
8
—
—
(3,289)
464
—

1,749
1,948
929

4,405

2015
£’000

699

442
1,370
2,280
253
(121)
17
(10)
1,408
(322)
(2,166)
—
151

1,693
5,964
(3,733)

7,925

2016
£’000

—

2015
£’000

—

30. Consolidated cash flow statement

(Loss) / Profit after tax
Adjustments for:
Finance costs – net
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share option costs
Income tax credit
Loss on derivative financial instruments
Loss / (profit) on disposal of property, plant and equipment
Exceptional charges associated with Kelley GTM
Exceptional IFRS rent adjustment release
Exceptional deferred consideration released and revaluation
Exceptional impairment of assets
Loss on investment in associate

Changes in working capital:
Decrease in inventories
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables

Cash flows from operating activities

31. Financial commitments
(a) Capital commitments

Commitments for capital expenditure entered into were as follows:

Contracted for, but not provided in the accounts

(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

2016
£’000

293
936
729

1,958

75
92

167

2015
£’000

302
1,009
928

2,239

69
55

124

The operating lease commitment on land and buildings includes the following significant commitments:

• A 15 year lease for Al-Met Limited’s property commenced on 10 November 2010 with rent reviews at the end of year five

and year ten of the term;

• Hydratron Limited’s ten year property lease commenced on 28 October 2010 and had a rent review at the end of year five;

and

• A five year lease for the Group’s head office commenced on 31 July 2014, at Chapeltown, Sheffield.

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Pressure Technologies plc Annual Report 2016

32. Contingent liabilities
Following the fatal accident at Chesterfield Special Cylinders (“CSC”) in June 2015, whilst the police have confirmed no charges for
manslaughter will be brought, the HSE investigation remains ongoing. On 1 February 2016 the Sentencing Council’s new “Health
and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences Definitive Guideline” (2016) came into force.

The guidelines set a range of fines dependent on the levels of harm and culpability. These levels are assessed by the Judge when
sentencing and not at the time of charges being brought. We continue to cooperate fully with the HSE and we have engaged an
independent expert to investigate the root cause of the accident. Until this investigation is complete neither CSC’s legal adviser nor
the HSE are in a position to assess what charges may be brought. As a result of this and the nature of the sentencing guidelines it
is not possible to determine with any degree of certainty what, if any, financial penalties may be levied on CSC or any other group
company as a result of this investigation. At such time as the quantum and likelihood of any penalty is able to be reliably determined
further disclosure or provision will be made in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”.

33. 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 prior year, Pressure Technologies purchased five GTMs from Kelley GTM, LLC, in which the Group owns a 40% stake.
These GTMs were purchased at a cost of £391,000 with the intention of entering them into a lease fleet of GTMs in operation,
in which they remain at the period end. The GTMs owned by the Pressure Technologies Group are disclosed within property,
plant and equipment at their carrying value. The transaction was completed on an arm’s length basis.

The Group also has loans outstanding from Kelley GTM, LLC of $3,500,000. The Directors consider that the recoverability of these
loans is not certain and therefore have made full provision against the full value of the loans in the prior year.

34. Events after the reporting period
The Group entered into a key transaction after the reporting date of 1 October 2016.

On 7 December 2016, Pressure Technologies plc purchased the entire issued share capital of Martract Limited. The maximum
total consideration for the Acquisition is £4.3 million on a cash free, debt free basis, comprising an initial cash consideration
of £3.7 million plus cash balances (“Initial Consideration”) and a conditional deferred payment of up to £0.6 million (“Additional
Consideration”). The Additional consideration payable in respect of the 12 month period following the Acquisition (the “Earn-out
Period”) is dependent on the future EBITDA performance of Martract.

Due to the proximity of the above business combination 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.

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COMPANY BALANCE SHEET
As at 1 October 2016

Fixed assets
Investments
Intangible fixed assets
Tangible fixed assets

Current assets
Debtors
Cash at bank and in hand

Creditors: amounts falling due within one year

Net current assets / (liabilities)

Creditors: amounts falling due after more than one year

Net assets

Capital and reserves
Called up share capital
Share premium account
Profit and loss account

Equity shareholders’ funds

Pressure Technologies plc Annual Report 2016

Notes

4
5
6

10
12
12

2016
£’000

36,430
42
3,640

40,112

13,575
57

13,632
(607)

2015
£’000

36,213
—
3,700

39,913

12,653
359

13,012
(4,325)

13,025

8,687

(12,369)

40,768

(13,346)

35,254

724
21,620
18,424

40,768

721
21,539
12,994

35,254

The accounting policies and notes on pages 83 to 90 form part of these financial statements.

Approved by the Board on 12 December 2016 and signed on its behalf by:

Joanna Allen
Director

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COMPANY STATEMENT OF CHANGES IN EQUITY
For the 52 week period ended 1 October 2016

Pressure Technologies plc Annual Report 2016

Balance at 27 September 2014
Dividends
Share based payments
Share options granted to subsidiary companies
Shares issued

Transactions with owners

Profit for the period

Balance at 3 October 2015
Dividends
Share based payments
Share options granted to subsidiary companies
Shares issued

Transactions with owners

Profit for the period

Balance at 1 October 2016

Share
capital
£’000

Share
premium
account
£’000

Profit
and loss
account
£’000

Notes

718
—
—
—
3

—

721
—
—

—

21,463
—
—
—
76

—

21,539
—
—

—

8,554
(1,209)
23
230
—

(956)

5,396

12,994
(810)
99
217
—

(494)

5,924

Total
equity
£’000

30,735
(1,209)
23
230
79

(877)

5,396

35,254
(810)
99
217
84

(410)

5,924

724

21,620

18,424

40,768

The accounting policies and notes on pages 83 to 90 form part of these financial statements.

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NOTES TO THE COMPANY FINANCIAL STATEMENTS

Pressure Technologies plc Annual Report 2016

1. Accounting policies
Statement of compliance
These financial statements have been prepared in accordance with applicable accounting standards and in accordance with
Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (FRS 101). The principal accounting policies adopted
in the preparation of these financial statements are set out below. These policies have all been applied consistently throughout
the year unless otherwise stated.

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 £5,924,000
(2015: £5,396,000) after applying a tax charge (note 10) of £nil (2015: charge £97,000) to the profit before tax of £5,924,000
(2015: £5,493,000).

Changes in accounting policies
This is the first year in which the financial statements have been prepared in accordance with FRS 101. The date of transition
to FRS 101 is 28 September 2014. An explanation of the transition is included in note 18 to the financial statements. In applying
FRS 101 for the first time the Company has applied early the amendment to FRS 101 which permits a first time adopter not to
present an opening statement of financial position at the beginning of the earliest comparative period presented.

Going concern
The financial statements have been prepared on a going concern basis. The Company’s business activities, together with the
factors likely to affect its future development, performance and position are set out in the Group Strategic Report. The principal
risks and uncertainties are set out from page 28. The Financial Reporting council issued “Guidance on the Going Concern based
of Accounting and Reporting on solvency and Liquidity risks” in 2016. The Directors have considered this when preparing these
financial statements.

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 2016/2017 and beyond and that the Group has sufficient cash reserves
and bank facilities to enable it to meet its obligations as they fall due for a period of at least 12 months from when these financial
statements have been signed.

Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:

(cid:898) A statement of cash flows and related notes
2 the requirement to produce a balance sheet at the beginning of the earliest comparative period
3 the requirements of IAS 24 related party disclosures to disclose related party transactions entered in to between two

or more members of the group as they are wholly owned within the group
4 Presentation of comparative reconciliations for property, plant and equipment
5 Capital management disclosures
6 Presentation of comparative reconciliation of the number of shares outstanding at the beginning and at the end of the period
7 The effect of future accounting standards not adopted
8 Certain share based payment disclosures

Investments
Investments in subsidiary undertakings, associates and joint ventures are stated at cost less any applicable provision for
impairment. Contingent consideration classified as an asset or liability is subsequently remeasured through profit or loss.

Intangible assets
Intangible assets are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over
their estimated useful lives. Cost reflects purchase price of the asset together with any incidental costs of bringing the asset into
use. Residual values and useful lives are reviewed at each reporting date.

The following useful lives are applied:

Software – 3 years

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NOTES TO THE COMPANY FINANCIAL STATEMENTS continued

Pressure Technologies plc Annual Report 2016

1. Accounting policies continued
Tangible assets
Property, plant and equipment (“PPE”) is initially recognised at acquisition cost or manufacturing cost, including any costs directly
attributable to bringing the assets to the location and condition necessary for them to be capable of operating in the manner
intended by the Company’s management.

PPE is subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation is recognised on
a straight-line basis (unless otherwise stated) to write down the cost less estimated residual value of PPE. The following useful
lives are applied:

Plant and machinery
Buildings
Computer equipment

3-4 years
50 years
3 years

Material residual value estimates and estimates of useful life are updated as required, but at least annually.

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal
proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other expenses.

Finance leases
Leases of assets that transfer substantially all the risks and rewards incidental to ownership are classified as finance leases.

Management applies judgement in considering the substance of a lease agreement and whether it transfers substantially all the
risks and rewards incidental to ownership of the leased asset. Key factors considered include the length of the lease term in relation
to the economic life of the asset, the present value of the minimum lease payments in relation to the asset’s fair value, and whether
the Company obtains ownership of the asset at the end of the lease term.

Finance leases are capitalised at commencement of the lease as assets at the fair value of the leased asset or, if lower, the present
value of the minimum lease payments calculated using the interest rate implicit in the lease. Where the implicit rate cannot be
determined the Group’s incremental borrowing rate is used. Incremental direct costs, incurred in negotiating and arranging the
lease, are included in the cost of the asset.

Assets are depreciated over the shorter of the lease term and the estimated useful life of the asset. Assets are assessed for
impairment at each reporting date.

The capital element of lease obligations is recorded as a liability on inception of the arrangement. Lease payments are apportioned
between capital repayment and finance charge, using the effective interest rate method, to produce a constant rate of charge on
the balance of the capital repayments outstanding.

For leases of land and buildings, the minimum lease payments are first allocated to each component based on the relative fair
values of the respective lease interests. Each component is then evaluated separately for possible treatment as a finance lease,
taking into consideration the fact that land normally has an indefinite economic life.

All other leases are treated as operating leases.

Post-employment benefit plans
Contributions to defined contribution pension schemes are charged to profit or loss in the year to which they relate. Prepaid
contributions are recognised as an asset. Unpaid contributions are reflected as a liability.

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Pressure Technologies plc Annual Report 2016

1. Accounting policies continued
Share based payments
Where equity settled share options are awarded to employees of this Company the fair value of the options at the date of grant
is charged to profit or loss over the vesting period with a corresponding entry in the profit and loss account. The fair value of awards
made with market performance conditions has been measured by a Black-Scholes model.

Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each
reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options
that eventually vest.

Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other
vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative
expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining
vesting period.

Equity, reserves and dividend payments
Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition
of a financial liability or financial asset.

The Company’s ordinary shares are classified as equity. Transaction costs on the issue of shares are deducted from the share
premium account arising on that issue. Dividends on the Company’s ordinary shares are recognised directly in equity.

Interim dividends are recognised when they are paid. A liability for unpaid dividends is recognised when the dividends have been
approved in a general meeting prior to the reporting date.

Income taxes
Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive
income or directly in equity.

Calculation of current tax is based on tax rates and laws that have been enacted or substantively enacted by the end of the
reporting period. Deferred income taxes are calculated using the liability method.

Calculation of deferred tax is based on tax rates and laws that have been enacted or substantively enacted by the end of the
reporting period that are expected to apply when the asset is realised or the liability is settled.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the entity expects
to recover the related asset or settle the related obligation.

Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference
will be utilised against future taxable income. This is assessed based on the Company’s forecast of future operating results, adjusted
for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit. Deferred tax assets
are not discounted.

Deferred tax liabilities are generally recognised in full with the exception of the following:

• On the initial recognition of a transaction that is not a business combination and at the time of the transaction affects

neither accounting or taxable profit.

Deferred tax liabilities are not discounted.

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NOTES TO THE COMPANY FINANCIAL STATEMENTS continued

Pressure Technologies plc Annual Report 2016

2. Employees
Average weekly number of employees, including Executive Directors:

Administration

Staff costs, including Directors:

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Wages and salaries
Social security costs
Other pension costs
Share based payments

2016
Number

2015
Number

2016
£’000

1,065
128
116
88

1,397

2015
£’000

821
127
105
23

1,076

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 9 to the consolidated financial statements.

4. Investments in subsidiary companies

Cost and net book value
At 3 October 2015

Investments made in the year
Share options granted to subsidiary company employees

At 1 October 2016

Investment
in subsidiary
companies
£’000

36,213

—
217

36,430

Included in the cost and net book value at 3 October 2015 is £4,860,000 relating to the acquisition of Greenlane that was
previously disclosed as Goodwill. As part of the FRS 101 transition the Directors have reviewed the substance of the transaction
and have concluded that classification as an investment is more appropriate. There has been no effect to profit and loss from this
reclassification.

Pressure Technologies plc Annual Report 2016

4. Investments in subsidiary companies continued
The subsidiaries as at the balance sheet date, which are all 100% owned, are:

Name

Country of incorporation

Principal activity

Al-Met Limited
Greenlane Biogas UK Limited (“GBUK”)
Chesterfield Special Cylinders Limited (“CSC”)
CSC Deutschland GmbH*
Hydratron Limited
Hydratron Inc
Roota Engineering Limited
Pressure Technologies US, Inc
Quadscot Precision Engineers Limited*
Quadscot Holdings Limited
Greenlane Biogas Europe Limited*
PT Biogas Holdings Limited
PT Biogas Technology Limited*
Greenlane Technologies New Zealand*
Greenlane Biogas North America*
Chesterfield Tube Company Limited
Chesterfield Pressure Systems Group Limited
Chesterfield Cylinders Limited

* Indirectly held subsidiaries

England & Wales
England & Wales
England & Wales
Germany
England & Wales
USA
England & Wales
USA
Scotland
Scotland
England & Wales
England & Wales
England & Wales
New Zealand
Canada
England & Wales
England & Wales
England & Wales

Manufacturing
Manufacturing
Manufacturing
Sales and marketing
Manufacturing
Manufacturing
Manufacturing
Holding company
Manufacturing
Holding company
Manufacturing
Holding company
Research and development
Manufacturing
Manufacturing
Dormant
Dormant
Dormant

The Company also has an indirect holding of 40% in Kelley GTM, LLC, a manufacturing company based in the USA.

5. Intangible fixed assets

Cost
At 3 October 2015
Additions

At 1 October 2016

Depreciation
At 3 October 2015
Charge for the period

At 1 October 2016

Net book value
At 1 October 2016

At 3 October 2015

Software
£’000

—
43

—
1

—

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NOTES TO THE COMPANY FINANCIAL STATEMENTS continued

Pressure Technologies plc Annual Report 2016

6. Tangible fixed assets

Cost
At 3 October 2015
Additions

At 1 October 2016

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At 3 October 2015
Charge for the period

At 1 October 2016

Net book value
At 1 October 2016

At 3 October 2015

Land and
buildings
£’000

Plant and
machinery
£’000

Computer
equipment
£’000

3,355
—

3,355

10
10

3,335

3,345

442
—

442

87
91

178

264

355

—
42

—
1

—

Total
£’000

3,797
42

3,839

97
102

199

3,640

3,700

Land and buildings relate to the Meadowhall Road site, which is leased to other Group companies. The Meadowhall Road site
is recorded at costs less depreciation.

7. Debtors

Amounts: falling due within one year
Prepayments and accrued income
Other debtors
Amounts owed by Group companies
Deferred tax (note 11)

8. Creditors

Amounts: falling due within one year
Trade creditors
Other tax and social security
Amounts owed by Group companies
Accruals and deferred income
Corporation tax
Deferred consideration
Amounts due on hire purchase contracts

Amounts: falling due after one year
Deferred consideration
Amounts owed by Group companies
Bank loan
Amounts due on hire purchase contracts

Details of bank borrowings are set out in note 24 to the consolidated financial statements.

2016
£’000

138
92
13,324
21

13,575

2016
£’000

99
42
—
329
120
—
17

607

2016
£’000

—
—
12,300
69

12,369

2015
£’000

198
108
12,326
21

12,653

2015
£’000

62
89
1,285
424
97
2,368
—

4,325

2015
£’000

3,346
—
10,000
—

13,346

9. Taxation

Current tax
Current tax expense
Under provision in respect of prior years

Deferred tax
Origination and reversal of temporary differences

Total taxation charge

Pressure Technologies plc Annual Report 2016

2016
£’000

2015
£’000

—
—

—

—
97

—

Corporation tax is calculated at 20% (2015: 20.5%) of the estimated assessable profit for the period. Deferred tax is calculated
at 17% (2015: 20%).

10. Share capital
Details of the Company’s authorised and issued share capital and of movements in the year are given in note 28 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

12. Reserves

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

2016
£’000

21
—

2016
£’000

30
(9)

Share
premium
account
2016
£’000

21,539
—
—
—
81
—

21,620

Profit
and loss
account
2016
£’000

12,994
5,924
99
217
—
(810)

18,424

Share
premium
account
2015
£’000

21,463
—
—
—
76
—

21,539

2015
£’000

21
—

2015
£’000

25
(4)

Profit
and loss
account
2015
£’000

8,554
5,396
23
230
—
(1,209)

12,994

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See note 28 in the Group financial statements for details of the movements on share capital and share premium in the year.

13. Related party transactions
As permitted by FRS 101 related party transactions with wholly owned members of the Pressure Technologies plc group have
not been disclosed.

The interests of Directors in dividends paid during the year are disclosed in the Report of the Remuneration Committee.

For details on other related party transactions, see note 33 in the Group financial statements.

NOTES TO THE COMPANY FINANCIAL STATEMENTS continued

Pressure Technologies plc Annual Report 2016

14. Ultimate controlling party
The Directors consider that there is no ultimate controlling party.

15. Transition to FRS 101
The Company has adopted FRS 101 for the first time having previously applied UK GAAP that was effective before periods
commencing on or after 1 January 2015. The date of transition to FRS 101 was 28 September 2014. The Company has restated
its comparatives for the year ended 3 October 2015.

15.1 Transition to FRS 101 – reconciliations

Restated Company statement of financial position

Shareholders’ funds under previous UK GAAP

Effect of changes to (see below):
1) Goodwill
2) Investments

Sub-total – conversion adjustments

Restated shareholders’ funds

Restated profit for the 53 weeks ended 3 October 2015

Original profit for the financial year

Effect of changes to (see below):
1) Goodwill
2) Investments

Sub-total – conversion adjustments

Restated profit for the financial year

3 October 28 September
2014
£’000

2015
£’000

32,857

30,735

648
1,749

2,397

—
—

—

35,254

30,735

53 weeks
ended
3 October
2015
£’000

2,999

648
1,749

2,397

5,396

15.2 Explanation of changes
1) Goodwill
Under previous UK GAAP goodwill was amortised to profit or loss over its expected useful life of 7.5 years.

Under FRS 101 goodwill is not amortised but is instead subject to an annual impairment review. Subsequently this Goodwill
has been reclassified as an investment, see note 4 for further details.

2) Investments
Under previous UK GAAP contingent consideration adjustments were adjusted against the cost of the investment.

Under FRS 101 there is an accounting policy choice and the Directors have concluded that contingent consideration adjustments
are recognised in the Profit and Loss Account.

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Photography:
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Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire
S35 2PH
UK

Telephone +44 (0) 114 257 3616
pressuretechnologies.com