Annual Report 2017
Specialist engineering • Engineering excellence
• Organic growth • Future growth • Acquisition
of Martract • Unique solutions • Integrity
management services • World leader • 120
years of engineering heritage • Highly skilled
craftsmen • Creativity and ingenuity • Close
collaboration with customers • Creation of PMC
brand • Collaboration • Investment in people
• Investment in IT • Investment in systems
• Substantial potential • New customers
• New markets • Product development • Trusted
suppliers • Niche specialism • Niche markets
• Precision Machined Components • Cylinders
• Engineered Products • Alternative Energy •
Oil and gas • Industrial gases • Defence
• Design and development • Safety critical
Pressure Technologies was founded on its leading
market position as a designer and manufacturer
of high pressure components and 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.
P Visit us online at www.pressuretechnologies.com
Our vision
P See IFC
To build a Group that is globally
recognised within our markets as the
leading provider of pressure containment
and control products and services
to customers who operate in highly-
demanding, safety-critical environments
where the consequences of product
failure could be catastrophic.
What we do
P See p04
Our values
P See p04
The three point strategy
P See p05
• To be honest and open in the way we do
business and maintain high standards
of integrity.
Our goal is to build a highly profitable
group of companies by:
• Consolidating and building on
• To comply with both the spirit and
the businesses.
the letter of the law.
• To operate in a safe and
responsible way.
• Identifying and developing profitable,
niche opportunities in growth sectors.
• Identifying and pursuing profitable
acquisition opportunities.
We work in close collaboration with our
customers who require unique solutions
when developing and manufacturing
highly engineered products for use
in harsh operating environments.
We capitalise on our unrivalled 120 years
of engineering heritage, by hiring and
developing highly skilled craftsmen
and design engineers who have the
creativity and ingenuity required to solve
complex design and manufacturing
challenges. This differentiates us from
our competitors and we are committed to
continuously investing in our people and
technologies to keep us at the forefront
of engineering excellence.
The world we serve
P See p08
Structure
P See IFC
Where we operate
P See IFC
We serve four core market sectors
• Oil and gas
• Defence
• Industrial gases
• Alternative energy
We have four Divisions within the Group,
three are Manufacturing, serving oil and
gas, defence and industrial gases and
one is Contracting, serving alternative
energy. All of our businesses are world
class, with niche specialisms and
technical capability, supported through
ongoing investment programmes in skills,
technology and capital equipment.
Our manufacturing is UK based with our
businesses serving a global blue chip
customer base from operations around
the globe, either wholly owned offices
or through agents and distributors
covering Europe, America, Asia,
Africa and Australasia.
Pressure Technologies plc Annual Report 2017
Section 1 Strategic Report
The World of Pressure Technologies
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.
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.
Our vision is to build a Group
that is globally recognised
within our markets as the
leading provider of pressure
containment and control
products and services to
customers who operate
in highly-demanding,
safety-critical environments
where the consequences
of product failure could
be catastrophic.
Group Revenue 2017
£38.4m
Group Revenue 2016
£35.8m
Contracting
Manufacturing
Alternative Energy
Precision Machined Components
With an unrivalled installed base
of over 100 upgraders world-wide,
Greenlane is one of the world’s
largest suppliers of biogas upgrading
equipment. Founded on its leading
water-wash technology, Greenlane
is now the only company to offer
the three main biogas upgrading
technologies to a global market.
Waste from agriculture, landfill,
wastewater treatment plants and
food and drink production can be
used to produce biomethane, or
Renewable Natural Gas (“RNG”) as it
is also termed, for injection into the
gas grid network or as a vehicle fuel.
The market for biogas upgrading
is driven at a global governmental
level by the commitment to reduce
greenhouse gases and meet
renewable energy targets, while
drivers at a local governmental level
are to reduce waste and improve
air quality.
This Division comprises, Roota
Engineering, Quadscot Precision
Engineering, Al-Met and Martract.
These businesses are leaders in
their markets, with world-class lead
times, highly specialised precision
engineering skills and a blue chip
customer base. Strong partnerships
are formed with customers to develop
technical solutions for their end
product applications.
They specialise in supplying key
components, made to exacting
standards and tolerances, that
are destined for extreme or hostile
environments such as deepwater and
subsea oil exploration and wear parts
for oil production, setting themselves
apart from competitors with world-
class lead times. The addition of
Martract to the Division in December
2016 has brought exposure to new
industrial markets and services such
as refurbishment.
Highlights
Revenue
£38.4m
(2016: £35.8m)
Adjusted operating profit*
£1.1m
(2016: £(0.4)m)
Reported loss before tax
£(1.9)m
(2016: £(0.4)m)
Adjusted earnings per share
6.3p
(2016: (2.6)p**)
Reported basic loss per share
(7.9)p
(2016: earnings 4.4p**)
Operational cash inflow before working
capital movement***
£2.5m
(2016: £0.5m)
Closing net debt
£11.1m
(2016: £6.6m)
Post year-end fundraising of net
£4.8m
Net
• Precision Machined Components Division
(PMC) order intake more consistent with
stronger second half
• Manufacturing gross margins increased
to 35% (2016: 31%)
• Acquisition of Martract in December 2016
• Creation of PMC brand to give improved
customer offer
• Alternative Energy restructured from a
regional to a functional model and broke
even (2016: loss £(1.1) million)
• Full review of management capability resulting
in additional senior management appointments
• Investment in IT systems to improve
communication and promote collaboration
* Before M&A costs, amortisation and exceptional charges
and credits.
** From continuing operations.
*** Before payment of redundancy and reorganisation costs.
Cylinders
Engineered Products
Chesterfield Special Cylinders
(“CSC”) has over a century of industry
knowledge and expertise and is a
world-leading provider of bespoke,
high-pressure gas containment
solutions and services. It is one
of only five companies globally
who can compete for ultra large
cylinder contracts.
CSC provides high pressure gas
containment solutions over several
markets and applications, from ultra
large air pressure vessel systems used
for motion compensation on floating
oil rigs, high pressure ‘banana’ shaped
cylinders on defence submarines, to
oxygen cylinders in fighter jets as well
as for the bulk storage of gases.
Integrity Management services
are a growing part of the business,
where cylinders cannot be removed
for routine maintenance and are
inspected and certified in-situ.
The service has been built on CSC’s
unrivalled industry knowledge
and experience.
Hydratron is a manufacturer and
global supplier of high pressure
testing equipment. Its customers are
high pressure original equipment
manufacturers (“OEMs”), suppliers
and service providers. The business
has a strong global reputation
for high quality products and
service excellence.
High pressure testing equipment
is required wherever there is a
need to test pressure for safety
critical applications. Hydratron
manufactures standard pumps as
well as bespoke systems designed
to exact customer specifications.
The majority of their products go
into the oil and gas market but the
business also supplies into the
petrochemical, aerospace, marine,
automotive and power generation
markets either directly to the end
customer or through its distributor
network, including covers North and
South America, Norway, Italy, South
and West Africa, the Middle East,
South East Asia and Australia.
Pressure Technologies plc
Annual Report 2017
Contents
01
A specialist
engineering Group
supplying safety-
critical products
and services
world-wide
P Visit us online at www.pressuretechnologies.com
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Section 1 – Strategic Report
< The World of Pressure Technologies
< Highlights
02 Chairman’s Statement
04 How We Run Our Business
06 Why Invest?
08 Our Marketplace
10 Q&A
12 Business Review
16 Sustainable and Responsible Business
18 Financial Review
23 Key Performance Indicators
24 Risks and Uncertainties
Section 2 – Governance
28
Introduction to Governance
30 Directors and Advisers
32 Report of the Remuneration Committee
35 Directors’ Report
39 Audit and Risk Committee Report
42
Independent Auditor’s Report to the
Members of Pressure Technologies plc
Section 3 – Financial Statements
48
Consolidated Statement
of Comprehensive Income
49 Consolidated Balance Sheet
50
Consolidated Statement
of Changes in Equity
51 Consolidated Statement
of Cash Flows
52 Accounting Policies
62
Notes to the Consolidated
Financial Statements
88 Company Balance Sheet
89
90
Company Statement
of Changes in Equity
Notes to the Company
Financial Statements
Pressure Technologies plc Annual Report 2017
02
Chairman’s Statement
Long term growth through sustainable and
responsible business
We pride ourselves on our ethical principles and
commitment to:
Alan Wilson
Chairman
• Environmental
• Social
• Governance
“The Board is optimistic that the
Group is well prepared to capitalise
on opportunities as they arise.”
P To read more on our business practice see page 16
Overview
I look back on this past year for the Group
as one of preparing for future growth
across all our Divisions, whilst at the
same time maintaining stability against
a backdrop of very challenging oil and
gas market conditions.
During the past three years, it is estimated
that global oil and gas Capex and
Opex spending has reduced by some
30%. Reports indicate that Capex and
exploration spending will have reduced
by $1 trillion from 2015 through 2020.
The net impact on job losses worldwide is
estimated at 440,000, with 124,000 in the
UK alone.
Within the Group, we have reacted to these
unprecedented market conditions by
reducing our headcount by 40%, but we
have been careful to protect our knowledge
and skills base, to be well positioned to
respond to increased demand when it
arrives. We have also invested in further
development of our people and added key
leadership and sales resources across the
Group. Given the tough market conditions
we’ve traded through for the past three
years, I’d like to express my respect and
admiration for the way our people have
steadfastly risen to the various challenges
we’ve encountered.
In addition to developing and adding to our
skills base, we have invested in systems
and process that make us more efficient
and productive and have restructured the
Alternative Energy Division from a regional
to a functional model, which will improve
efficiency and the ways we win and
execute projects.
It is heartening to report that, towards
year-end, we were approached by
institutional investors who expressed
a desire to make further investment in
the Group. I see this as a sign that many
market observers anticipate that the
oil and gas market is about to rebound
and they see Pressure Technologies as
an enterprise that has been resilient in
the downturn and is primed for growth.
This investment gives us more fire power
to react to opportunities as they arise.
Whilst the oil and gas market has been
in the doldrums, we have of course been
busy pursuing other industrial sectors.
The biogas market continues to offer
substantial potential, but has been
frustratingly slow to deliver due to a
whole range of factors, but we remain
committed to retaining and building on
our position as the market leader within
our sphere. CSC’s market leadership in
large high-pressure cylinders maintains
our enviable position as the company of
choice for many of the world’s navies and
air forces.
In December 2016, we acquired Martract,
a business that specialises in the grinding
and lapping of ball valves. Martract is
a company that we monitored for some
time as a potential add-on to our PMC
companies. It offered us potential for
vertical integration by extending our
core skill sets, along with pull-through
opportunities into new industrial sectors,
as 60% of Martract sales come from
outside the oil and gas market.
Results
I am pleased to report that Group revenue
increased to £38.4 million, a 7.5%
increase on last year, whilst adjusted
operating profits (operating profit
before M&A costs, amortisation and
exceptional charges and credits) were
£1.1 million, a substantial improvement
from a loss of £0.4 million recorded
last year. The increase in revenue was
primarily driven by a 40% increase in
sales seen in Alternative Energy on the
back of a strong opening order book.
The improvement in adjusted operating
profit was primarily driven by Alternative
Energy, which broke even for the first time
since the acquisition of Greenlane and
the contribution from Precision Machined
Components, including nine months
of Martract.
Operating cash inflow before movements
in working capital and reorganisation
and redundancy costs was £2.5 million,
significantly better than £0.5 million
recorded last year. Net debt was £11.1
million, an increase of £4.5 million versus
last year, primarily due to the acquisition
of Martract and net investment in
working capital. Post year-end the Group
completed a share placing, raising
net proceeds of £4.8 million.
Despite the fact that this year’s financial
results are a clear improvement over
last year, the Board has resolved that no
dividend shall be paid to shareholders
this year, as cash reserves will be key
to funding profitable growth in the
coming months.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report Outlook
The level of optimism within the oil and
gas market is increasing by the month.
Major oil companies reported healthy
profits for quarter-three 2017, which
is a sure sign that their attentions will
start to move towards investment and
growth. Recent assurances by OPEC that
production cuts will be sustained until
supply-demand has been rebalanced is
encouraging. Even the top three US-based
shale producers have issued a cautionary
note on the speed and level of investment
that is prudent in order to sustain a
profitable oil price.
Renewable energy is becoming more
topical amongst the public at large and
governments are making bold statements
about moving away from carbon-based
fuel sources. Whether some of these
rather ambitious political statements
are achievable remains to be seen, but
the general increase in awareness of
what renewable energy has to offer is
helpful. The potential market for biogas
is enormous and we remain confident it
will materialise and offer us substantial
opportunities for increasing sales
and profits.
Given that we are already working on the
design of cylinders for the Dreadnought-
class of nuclear-powered submarines for
the UK Ministry of Defence, which offers
us a visible order pipeline for some years
ahead, it is pleasing to conclude that all
three of our major industrial markets look
promising for the foreseeable future.
Given a more positive outlook on our core
markets and the recent fundraise that
has bolstered our financial resources,
supported by steps we’ve taken to ready
our businesses for growth, the Board
is optimistic that the Group is well
prepared to capitalise on opportunities
as they arise.
Alan Wilson
Chairman
11 December 2017
Our Board structure
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.
P To read more about our Board structure see page 29
03
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Pressure Technologies plc Annual Report 2017
04
How We Run Our Business
What we do
We work in close collaboration with our customers who require unique solutions when
developing and manufacturing highly engineered products for use in harsh operating
environments. We capitalise on our unrivalled 120 years of engineering heritage, by hiring
and developing highly skilled craftsmen and design engineers who have the creativity
and ingenuity required to solve complex design and manufacturing challenges. This
differentiates us from our competitors and we are committed to continuously investing
in our people and technologies to keep us at the forefront of engineering excellence.
Defence
Oil and gas
Renewable energy
Our Cylinders Division is the world leader
in naval and aviation defence markets
for high-pressure cylinders and integrity
management services.
Our Manufacturing Divisions design
and manufacture bespoke components
and products for customers who
often face unique challenges in harsh
operating environments.
Greenlane Biogas has installed the
largest population of biogas upgraders
in the world. World leader in water-wash
technology and the only company to also
offer membrane and PSA technologies.
Market sectors
• Oil and gas
• Defence
• Renewable energy
• Industrial gases
O U R STRATEGY
i d a t e and build the business
n s o l
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1 .
Customer value proposition
• World class
• Niche specialism
• Technical capability
• Agility
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Our purpose
Push high pressure
engineering forward
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Growth model
• Organic development through
investment and acquisition
• Synergy
• Value chain
• Market and technical
development
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Revenue model
• Low volume/high margin
• Strategic partnerships
• Long-term relationships/
contracts
• Services and aftercare
Shareholders
Employees
Customers
We deliver shareholder value by growing
our businesses in profitable niche
markets. We have demonstrated strong
resilience in adverse market conditions.
We strive to create a working
environment where our employees can
fulfil their potential. By doing so, we get
the best from our people and they enjoy
working with us. Our aim is to be the
employer of choice within our industry.
Our customers are pioneers in what they
do and we work in close collaboration
with them. These strong relationships
are built on the honest and open way in
which we do business and our culture of
delivering excellence.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report
05
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How we do it
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.
Our strategy
1 Consolidate and build
the business
2 Identify and develop profitable
niche opportunities in
growth sectors
3 Identify and develop profitable
acquisition opportunities
How we delivered in 2017
How we delivered in 2017
How we delivered in 2017
Precision Machined Components
is now being marketed as one
company, four engineering
businesses. New Divisional
MD, Business Development
and Technical Directors have
been appointed.
Alternative Energy restructured from
a regional to a functional model,
centred in Vancouver, Canada with
sales and engineering support
regionally based. Headcount
reduced by 20%, whilst at the same
time, sales resources have been
strengthened. New President for the
Division joined in November 2017.
Precision Machined Components
secured eight new customers
following the appointment of the
business development Director.
Engineered Products appointed
seven new distributors.
Cylinders appointed a naval
products expert as Director of
US technical sales in its US office
as it continues to develop its
US operation.
Alternative Energy developed
and launched the world’s largest
biogas upgrader, the Kauri and
second generation of its entry level
upgrader, the Kanuka. Further
development of the Division’s
technology agnostic position.
Martract Limited acquired in
December 2016 giving vertical
integration and customer and
market expansion for Precision
Machined Components. Martact
is a highly specialised engineering
business with a significant
technical capability and intellectual
property. The majority of Martract’s
revenue comes from a number of
wide-reaching industrial sectors
including nuclear and presents an
opportunity to diversify from oil
and gas.
Related risk factors
Related risk factors
Related risk factors
Global economic conditions
Global economic conditions
Global economic conditions
Competitors and commercial
relationships
Funding
Availability of key resources
Technology and innovation
Governmental policy and legislation
Funding
Funding
Availability of key resources
Availability of key resources
Technology and innovation
P To read more about our related risks and uncertainties see page 24
Pressure Technologies plc Annual Report 2017
06
Why Invest?
Potential
Entrepreneurship
Heritage
Our
investment
case
Leadership
Trusted
Skilled
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report 07
1 Potential
P See p10
2 Heritage
P See p04
• We have an enviable track record of delivering growth and
profits in strong markets, yet we have proven resilient
in the face of adverse market conditions. After re-
aligning the businesses exposed to the downturn in the
oil and gas market, we turned our focus to putting in
the foundations for the market upturn and have been
supported by our largest investors.
• Investment in sales and productivity with the
appointment of a Sales Director and a Technical Director,
as well as a Divisional MD in PMC.
• We have appointed an experienced Sales Director-Europe
for the Greenlane Biogas business and a new President
for the Division based in Vancouver.
• Post year end fundraising of £5 million (gross).
• We have an unrivalled heritage, with over 120 years of
experience and knowledge making us clear leaders in
our markets.
• Chesterfield Special Cylinders is the world's leading
supplier of cylinders and inspection services into the
naval and aviation markets.
• Our Precision Machined Components and Engineered
Products businesses are trusted suppliers to the world’s
leading oil and gas innovators.
• Greenlane Biogas is the pioneer in biogas upgrading; a
world leader with the largest installed base of upgraders,
having supplied the world’s two largest upgrading
projects and recently developed the world’s largest ever
upgrader, the Kauri.
3 Trusted
P See p12
4 Skilled
P See p16
Our businesses supply products, components, systems and
service for demanding applications, where failure is not an
option, due to the potential threat to life, the environment or
investment. Our customers require the security of knowing
their products are of the highest possible standard,
carefully designed to meet their exacting requirements.
This trusting relationship creates significant barriers
to entry into the sections of the market we serve and
supports our global reputation for excellence.
• We strive to attract the best employees and have a
culture of not just retaining talent but investing in and
developing our people to be the best that they can be.
• Low staff turnover.
• NVQ4 and Higher qualifications.
• Higher education funded.
5 Leadership
P See p17
6 Entrepreneurship
P See p11
Ethical principles – at the heart of the business ethos.
We have a strong culture, that is driven from the top.
We are quick to recognise opportunities and threats and
we always rise to the various challenges that come our
way. We have systems that ensure high levels of awareness
of what’s happening within our markets and businesses,
so that we can inspire a dynamic and entrepreneurial
culture throughout.
Our investment in people ensures that we are developing
our leaders of the future.
Our entrepreneurial culture is supported by strong core
values and ethics (see page 16) and a structure that
enables rapid decision making at appropriate levels of the
business. Our businesses work in close collaboration with
pioneering companies who require our depth of knowledge,
ingenuity and creative thinking to solve their most
technically demanding problems.
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Pressure Technologies plc Annual Report 2017
08
Our Marketplace
Oil and gas
2017 % of Group Revenue
36%
Division
Manufacturing
Market served by
Cylinders
Engineered Products
Precision Machined Components
2017 Revenue
£13.8m
(2016: £15.5m)
The markets we serve
As a Group, our companies serve four
main markets.
Defence
2017 % of Group Revenue
17%
Industrial gases
2017 % of Group Revenue
6%
Division
Manufacturing
Market served by
Cylinders
Engineered Products
2017 Revenue
£6.5m
(2016: £6.5m)
Division
Manufacturing
Market served by
Cylinders
Engineered Products
2017 Revenue
£2.3m
(2016: £2.4m)
Renewable energy
2017 % of Group Revenue
41%
Division
Contracting
Market served by
Greenlane Biogas
2017 Revenue
£15.8m
(2016: £11.4m)
Oil and gas
Defence
Industrial gases
Renewable energy
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report
09
The market environment
Market potential
The contribution to Group revenue from oil and gas fell to an
historic low in the year, as the well-documented downturn
continued. However, during the second-half, some stability
returned to the market as OPEC oil production cuts and
consequent reduction in oil stocks began to have a positive
effect on the oil price. More recently, oil majors reported
a return to profit in their third-quarter results.
Defence continues to be a key contributor to Group revenues.
Although defence budgets are under pressure, submarine
build programmes have continued apace. Chesterfield Special
Cylinders (“CSC”) has specialist capability in the manufacture of
high-pressure cylinders for submarines, surface warships and
military aircraft. The market is less sensitive to competition due
to our unrivalled knowledge, hard-won approvals, cutting-edge
engineering design and highly skilled manufacturing techniques
that are required to deliver complex products and integrity
services. CSC is the principal supplier of high-pressure cylinders
to NATO and NATO-friendly nations, with the exception of the USA.
Germany is now our largest market.
Oil and gas remains a key target market for growth across the
Manufacturing Divisions, especially our precision machining
businesses. We are now marketing the businesses within the
Precision Machining Components Division under one brand,
creating an opportunity to expand our customer base and the
products we supply. Having four companies within the PMC
Division enhances our competitive advantage by reducing
the supply chain risk for customers as we are able to supply
from multiple locations. Substantial rationalisation of the
global supply chain has occurred during the market downturn,
from which we have emerged strong and well positioned to take
advantage of the upturn when it transpires.
Work done over the last decade to expand our customer base
for naval applications has stabilised our defence revenue and
there is good visibility on potential projects. There are significant
medium-term opportunities, the largest being the UK Successor
Programme, Dreadnought, which replaces the Vanguard class
of submarines, and we are already working with defence
OEMs on initial prototyping. This programme has also provided
the opportunity to promote CSC’s capabilities in the USA,
where there is a substantial market.
The industrial gases market has played an important role for
CSC for over 100 years. The Group supplies a diverse range of
products and inspection services, ranging from bulk gas storage
for large industrial applications, to the reconditioning and retest
of cylinders and road trailers.
The growth of in-situ testing continues to be driven by a European
Standard, developed at CSC, for the inspection of hard to reach,
or impossible to move gas cylinders. CSC is currently the only
company capable of delivering this strict new testing service.
Trailers for the road transportation of bulk gases are also an
important part of this market. The Group manufactures a range
of high-pressure gas trailers, supported by a one-stop-shop
reconditioning and retest service.
CSC mainly serves the UK and European markets, but there are
opportunities in other geographies such as the US where we are
building a presence.
On a macro level, there is growing potential for gas storage, which
is being driven by the growth in alternative energy, particularly the
need for power-to-gas storage.
The global biogas upgrading market is growing at a CAGR of
28.7% pa, and is anticipated to reach $1.97 billion by 2022.
It is supported globally by government incentives both at
national and regional levels.
Organic waste is an increasing global problem, primarily caused
by population growth; particularly middle-classes in developing
countries where consumption increases create more waste.
Using our technology, biomethane, or Renewable Natural Gas,
can be created from raw biogas produced from organic waste
to give a renewable energy that is green and profitable.
Significant opportunities exist in Europe, for example, Germany has
8,000 biogas to power, CHP installations many of which are forecast
to convert to biomethane production. Italy has 1,000 natural gas
refuelling stations with 800,000 gas fuelled vehicles and new
legislation is expected which favours biomethane as a transport
fuel. The UK is set for further expansion of biomethane production
when the amended Renewable Heat Incentive legislation is passed
in early 2018.
While much comment has been made about President Trump’s
move to withdraw from the Paris Climate Agreement, many of
the market drivers in the US are at a State rather than Federal
level. The US has more than 2,200 sites producing biogas and a
recent industry assessment estimates nearly 14,000 sites are
ripe for development. If 10% of these opted to upgrade to biogas,
it represents a potential $2 billion market for Greenlane Biogas.
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Pressure Technologies plc Annual Report 2017
10
Q&A with the new members of the team
at Precision Machined Components
Precision Machined Components is now the largest Division in the Group by number of
employees and adjusted profit. It comprises Al-Met, Roota Engineering, Quadscot Precision
Engineers and Martract, which was acquired in December 2016.
As a consequence of the sustained
downturn in the oil and gas market
customers have become increasingly
risk averse and the financial security
of the Pressure Technologies Group has
become a key strength for the Division.
In addition customers are rationalising
their supplier lists and there is clear
evidence of major customers placing
orders on the back of the Group’s
financial stability and the Division’s
ability to supply out of multiple locations,
minimising supply chain risk.
To capitalise on this growing trend
we have strengthened the Divisional
team. As well as a new Divisional MD,
who will start with us early in 2018, a
Business Development Director has been
appointed to expand the customer base
within oil and gas and find opportunities
in new target markets.
A Technical Director with a commercial
focus has also been appointed to
maximise productivity and efficiency,
plan for future capacity, identify
opportunities to expand the range of
products we offer to existing customers
and inform the investment decisions
to support the growth of this Division.
The aim of all these appointments
is to sustainably grow the Division.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report 11
Phil Simpson
Technical Director
Shaun Newby
Business Development Director
We talked to the Division’s newest recruits, Shaun Newby, Business Development Director,
and Phil Simpson, Technical Director, about how they see the future of PMC
Q What sectors are a good or natural fit
for PMC?
A Shaun: Nuclear. There are currently
15 nuclear plants in decommissioning
in the UK and our engineering skills
and experience of working with exotic
alloys are a natural fit. Martract
already supplies into the nuclear
industry, Al-Met has Fit for Nuclear
status and the other businesses in
the Division are working towards it.
There are also opportunities for us for
power station commissioning and our
businesses are geographically well
placed to serve this market.
Phil: Renewable energy. At the
development stage this market is well
supplied but there is a significant
opportunity for the aftermarket
with spares and parts. Quadscot in
particular is well situated to serve
this market.
Q How long you have been with PMC?
A Shaun: I have been with PMC since
March 2017 but I have been working
in precision engineering in the
subsea and oil gas markets for over
14 years. I began as an apprentice
engineer before moving into project
management and then sales.
Phil: I have been with the Division
for two years, originally working for
Roota but then as Divisional Technical
Director. I have been working in
precision engineering for 20 years and
like Shaun, and many of the senior
management team around the Group,
I began as an apprentice engineer.
Q Can you tell me what your roles are
here at PMC?
A Shaun: There is plenty of work for
niche businesses like ours. My job
is threefold, to look at expanding
the scope of the work we do with
our existing customers, to bring new
customers into the Division and to
make introductions into new markets
where our skills are relevant.
Phil: My role is to inform the Division’s
investment decisions ensuring we are
using the best production techniques,
making the most of the latest
innovations available and to plan our
future capacity. Investment is key
to capitalising on the opportunities
that are being presented by the new
customers that Shaun is introducing
to the Division.
Q The downturn in the oil and gas sector
has been well documented, how do
you see the market now?
A Shaun: While I think the days of three
digit oil prices are over, the market
only needs a consistent $60 per barrel
to see new orders come in. We have
been focusing our sales effort on
operational expenditure but we are
now seeing more capital expenditure
projects as the oil price recovers and
balance returns.
Phil: And $60 is a good price, beyond
that there is always the threat of
increased production from US shale,
which could upset the balance. I think
the market is happy at this price.
Q What excites you about the potential
for this Division?
A Shaun: Everything. The downturn
has changed customer behaviour,
they want a wider offering from
their suppliers, which plays to our
strengths. We have four engineering
businesses within one Division.
This means our customers only have
to deal with one company but they
get four highly skilled ones. There is
substantial potential for growth just
within our core oil and gas market as
customers, both existing and new,
consolidate their vendor lists.
Phil: There are also a number of
opportunities, again just within oil
and gas, to expand our product lines,
which will create significant potential
for the Division. Being part of a larger
group means we can make the
investment needed to do this.
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Pressure Technologies plc Annual Report 2017
12
Business Review
John Hayward
CEO
“The reorganisation in recent years means that there are significant operational
gearing gains to be made as volumes increase. The recent share issue improves
the Group’s ability to support large-scale organic growth, and with no immediate
major capital expenditure required the Group is in good shape.”
Increasing order volumes have given
more consistent order intake patterns
for Roota and Al-Met. This has resulted
in improvements in gross margins, as
the benefits of latent capacity created
by investment in new technology and
better productivity have been realised.
Quadscot remained affected by reduced
customer spending throughout the
majority of the year. A combination
of increased activity from core and
new customers lifted its final-quarter
sales, which has continued into the new
financial year.
The appointment of a Business
Development Director in March has
resulted in winning work from new
customers, a trend that is expected
to continue. To date, the Division
has secured orders from eight new
customers, with a focus on technical
equipment manufacturers. The
purchase of Martract in December
2016 is giving further opportunities to
secure new customers, since 60% of
their customers are outside the oil and
gas industry. As a result, opportunities
exist to cross-sell the Division’s
capabilities into other industries,
such as chemical processing and
nuclear decommissioning.
The key points for the year are:
Manufacturing Divisions
Precision Machined Components
Division
PMC comprises Al-Met, Roota
Engineering, Quadscot Precision
Engineers and Martract – which was
acquired in December 2016. Al-Met
produces wear resistant components
in a range of high alloy steels and
tungsten carbide for using high-
pressure 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 down-hole
tools, with Roota generally focusing on
larger, longer product and Quadscot on
smaller components, manufactured in
a range of high alloy materials. Martract
specialises in grinding and lapping ball
and seat assemblies and gate valves,
which is highly complementary to the
Division, enabling it to offer a product
that is unmatched by competitors.
Significant progress has been made in
the Division since the second-half of
the 2016 financial year, which marked
the low point for order intake from the
core oil and gas market. In 2017, first
and second-half sales were 1.7% and
10.4% higher than the second-half of
2016 respectively.
The Group’s core technical skills are highly
valued by our customers, many of whom
are pioneers in what they do. They choose
to work with us because of our ability to
transform their innovative ideas into high-
quality, safety-critical products where the
opportunity cost of failure is often orders
of magnitude higher than the cost of the
product. This creates strong relationships
built on the honest and open way in
which we do business and our culture
of delivering excellence.
We have an unrivalled heritage, with over
120 years of experience and knowledge
making us clear leaders in our markets.
Chesterfield Special Cylinders is the
world's leading supplier of cylinders
and inspection services into the naval
and military aerospace markets.
Our Precision Machined Components
and Engineered Products businesses are
trusted suppliers to the world’s leading
oil and gas innovators. Greenlane Biogas
is a pioneer in biogas upgrading, a world
leader with the largest installed base of
upgraders, having supplied the world’s
two largest upgrading projects and
recently developed the world’s largest
ever upgrader, the Kauri.
The year witnessed further significant
changes in the Group. The impact of major
reorganisation in our three manufacturing
Divisions: Precision Machined
Components, Engineered Products and
Cylinders undertaken in prior years
began to show material bottom-line
impact particularly in PMC and Cylinders.
Further progress was made in the
Alternative Energy Division, which broke-
even, whilst at the same time undergoing
a radical restructuring.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report 13
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Precision Machined Components
Division
Revenue £m
2017
2016
2015
2014
2013
10.4
10.7
18.8
13.0
6.4
Adjusted operating profit* £m
2017
2016
2015
2014
2013
1.8
1.4
1.0
4.5
3.0
Engineered Products Division
Revenue £m
2017
2016
2015
2014
2013
3.9
4.1
6.7
8.1
7.3
Adjusted operating (loss) / profit* £m
2017 (0.5)
(0.3)
0.1
2016
2015
2014
2013
1.6
1.1
* Before M&A costs, amortisation and
exceptional charges and credits.
The strategy for PMC is to grow revenue
and profits by building on the existing
businesses through collaboration,
cross-selling, product and key-account
expansion, as well as the development
of new markets, that offer growth and
strengthen the Division’s resilience.
Any acquisitions will be complementary
to this positioning. In furtherance of
this strategy, a rebranding exercise has
been completed to give a common “feel”
to logos and websites. This involved
the creation of a PMC brand, which is
important when dealing with major
customers, as it highlights the strength
in depth of the Division. Promoting the
brand highlights our ability to minimise
supply chain risk, as we are able to move
work between sites. At a time when our
customers are also looking to reduce the
number of companies on their Approved
Vendor Lists (“AVL”), contracting with the
PMC Division gives them four vendors for
one entry in their AVL.
Near-term prospects for PMC remain
positive, with our core customers
expressing a more upbeat outlook for
2018 and significant potential for growth
from new customers and markets.
The Division is recruiting additional
skilled engineers and operators and
investing in new equipment to benefit
profitably from increasing sales revenue.
Engineered Products Division
EP 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 continued to be impacted
by reduced capital expenditure and
discretionary spend from its core oil and
gas market, so sales were 7% lower than
2016. The second-half of the financial
year saw some patchy improvement in
order intake and the engineered systems
sales team was expanded to meet this
increased level of activity. Action taken
in 2016 to reduce costs and improve
productivity contained the losses
in 2017.
Considerable effort was focused on
expanding the number and quality of
distributors, with seven new distributors
appointed, which should yield increasing
revenues as 2018 progresses. The first
quarter of this new financial year has
seen a continuation of the improved
ordering pattern, with a more profitable
mix of projects but, as yet, there is no
clear pattern of improvement in their
core oil and gas market.
Pressure Technologies plc Annual Report 2017
14
Business Review continued
Cylinders Division
Chesterfield Special Cylinders (“CSC”)
supplies a range of high-pressure gas
cylinder systems into the defence, oil
and gas and industrial gases markets.
Revenue for the year was lower by
£1.1 million, as revenue from oil and gas
reduced again. However, operating profit
was maintained through a better mix of
higher added value work in other markets.
The defence market is now the mainstay
of the business, where the Division has
over 80 years of experience in providing
cylinders and services to the naval and
military aerospace markets. This heritage
in a highly demanding market, makes
CSC the natural choice for cutting edge
product development, as evidenced
by the award of cylinder design for the
Dreadnought class submarine, Trident’s
successor. Cylinders for the first boat-set
will be delivered during 2018, along with
further deliveries into overseas markets.
Business Development efforts continue to
focus on breaking into the substantial US
defence market and the Pittsburgh sales
team has recently been strengthened.
For CSC, the oil and gas market remains
depressed. The largest volume of
sales has traditionally come from Air
Pressure Vessels (APVs) for motion
compensation systems on drillships and
semi-submersible drilling rigs for the
deepwater subsea sector. Fewer than
50% of the available vessels are currently
utilised in this market and no major build
program is forecast. Revenue in 2017
was limited to small projects for floating
cranes; that said, CSC was awarded a
contract to supply APVs for delivery in
2018 for a new drillship, the only such
order placed in the last three years.
Revenue in the industrial gases market
has largely come from service work
with an upturn in the volume of high-
pressure gas trailer statutory re-test and
refurbishment arising from the phasing
of prior capital expenditure by the Gas
Majors. This work is forecast to increase
further in 2018 and, together with our
integrity management offering into the
defence and oil and gas markets, will
help underpin continued profitability.
It is worth noting that since 2014, higher
margin service related revenue has
grown by almost 45%.
Capital investment in 2017 was centred
on the ultra large cylinder forge project
which is now complete. Investment in
2018 is planned to improve CSC’s small
cylinder spinning capability, which
will increase productivity and also the
potential product range.
The outlook for 2018 is positive,
underpinned by the Dreadnought
work and further expansion of CSC’s
service offerings.
Alternative Energy Division
AE is a designer and supplier of
equipment used to upgrade biogas
produced by the anaerobic digestion of
organic waste into high-quality methane,
which is suitable either for injection into
the gas grid, or used as vehicle fuel. It
trades under the name of Greenlane,
the long-established market leader in
water-wash biogas upgrader equipment
acquired by the Group at the beginning of
financial year 2015.
Against a backdrop of a further radical
reorganisation, the Division broke-even,
on an adjusted basis, for the first time
since the acquisition of Greenlane.
During the first-half of the year, a full
review of the management structure and
effectiveness was conducted. A functional
structure has been implemented with
the Division now centred in Vancouver,
Canada. Sales and engineering support
are still regionally based with Vancouver
covering the Americas and China;
Sheffield in the UK will be responsible
for Europe, Africa and Asia. As a result of
the reorganisation, headcount has been
reduced by 20%, whilst at the same time,
sales resources have been strengthened
and a new President for the Division
joined in November 2017.
Product development remained a
priority for the Division with a first
order received for a Kauri upgrader, the
world’s largest single upgrader plant,
which is currently being commissioned
in the USA. A second generation, entry
level, Kanuka upgrader has also been
installed and commissioned in Finland.
In addition to core water-wash technology,
Greenlane is currently commissioning
a biogas plant using pressure swing
adsorption technology (PSA) in California.
The Division also offers membrane
technology for cleaning gas, which
Cylinders Division
Revenue £m
2017
2016
2015
2014
2013
8.4
9.5
14.3
21.4
17.3
Adjusted operating profit* £m
1.1
1.1
2.1
2017
2016
2015
2014
2013
3.8
3.6
Alternative Energy Division
Revenue £m
2017
2016
2015
2014
2013
8.4
1.1
15.8
11.3
14.0
Adjusted operating result* £m
2017
2016 (1.1)
2015 (1.1)
2014
2013
0.0
(0.5)
1.1
* Before M&A costs, amortisation and
exceptional charges and credits.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report 15
Across all its markets, the Group is
well positioned with solid, long-term
relationships with global blue chip
customers and a growing pool of new
customers, distributors and partners.
Renewed confidence in the oil and gas
market will eventually extend to growth
in Cylinders and Engineered Products,
as it is currently doing in Precision
Machined Components.
The reorganisation in recent years means
that there are significant operational
gearing gains to be made as volumes
increase. The recent share issue improves
the Group’s ability to support large scale
organic growth, and with no immediate
large-scale capital expenditure required
the Group is in good shape.
John Hayward
Chief Executive Officer
11 December 2017
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differentiates Greenlane as the only
“technology agnostic” provider of biogas
upgraders in the world.
The closing order book at year end was
£5 million, compared to £14 million at the
end of 2016. The significant pipeline of
good quality sales opportunities proved
frustratingly slow to convert to orders,
partly due to the disruptive effect of the
reorganisation, but in the main external
factors were the root cause. In the UK,
a proposed change to the Renewable
Heat Incentive, which favoured biogas
upgrading, was initially delayed by
a drafting error in the legislation,
then further delayed by the general
election and is now expected at the end
of the first quarter of calendar year 2018.
In North and South America, several
potential orders were delayed due to
customer issues around project funding
and environmental permits. Since year
end, one contract has been secured in
the UK and three projects are at final
negotiation in the UK, USA and Brazil.
The sales pipeline has a value in excess
of $200 million and the market in the
USA is set for rapid expansion, a major
reason for the centring of the Division
in North America. To rapidly extend
market reach, AE is in negotiation with
a number of potential collaborators
with allied technology, for example
anaerobic digester manufacturers,
to pool opportunities and present a
“one stop shop” to potential customers.
Pooling will also give the opportunity to
bring third-party funding into projects
where our current individual projects are
too small to warrant investors’ attention.
At the same time, AE is looking to licence
upgrading technology for markets that
are either too small, or complicated for
direct selling.
People
The Group has undergone substantial
downsizing during the past three years in
response to the downturn in the oil and
gas market, resulting in a 40% reduction
in headcount overall. We have, however,
been careful to protect our knowledge
and skill base and taken steps to prepare
the Divisions for the inevitable market
recovery. During the course of 2017,
we have undertaken a thorough review
of management competence, capability
and bench strength throughout the Group.
As a consequence of this review, a number
of development programs have been
implemented and additional management
resource has been hired in the shape
of a Head of HR at Group level and new
Divisional Directors in AE and PMC.
As ever, we remain committed to
training, education and continuous
development. The apprentice levy will
have no impact on the Group as we
expect to fully recover this through
our apprentice and management
training programmes. We work in a
high-technology environment where
continuous improvement in our levels of
training and education is essential if we
are to maintain competitive advantage.
To improve communication and
collaborative working across the Group,
office systems are in the process of
migration from local server based
software to Google Suite, thereby allowing
real time sharing and collaboration
between individuals and businesses.
This has been completed for Head Office
and the Manufacturing Divisions and will
be extended to Alternative Energy during
2018. Health and Safety management
is now run on a Group-wide basis with
regular meetings involving all Divisions
and this model has been extended to
include cyber security and information
technology management in 2018.
All manufacturing businesses in the
Group, with the exception of Martract,
now have OH SAS 18001 accreditation for
health and safety. Martract will gain this
as a branch of Roota Engineering during
2018. In the Alternative Energy Division,
Vancouver does not yet have accreditation
and is targeted to achieve this by the end
of 2018 as is Head Office.
Outlook
The outlook for Cylinders and Precision
Machined Components is much stronger
than it was a year ago. Defence work
in Cylinders and more stable ordering
patterns in PMC gives far greater
visibility and confidence in forecasts.
Engineered Products is still experiencing
unpredictable ordering patterns but
at a level that makes the business
sustainable. Alternative Energy remains
in a position of unfulfilled promise but the
reorganisation and market dynamics give
cause for optimism.
Pressure Technologies plc Annual Report 2017
16
Sustainable and
Responsible Business
Long term growth and profitability is enhanced when businesses behave in a sustainable and
responsible manner, with respect for the environment and all their stakeholders, those who support
the growth of the company as well as those who are critical to its success.
Our ethical principles have been in place since the formation of the Group and they underline the way
we do business and inform our responsible business practices. Here we have used the FTSE Russell
Environmental Social Governance (“ESG”) Model as a base for showcasing how this works in practice.
Environment
Overview
Social
Overview
As a Group we recognise that our
activities have an impact on the
environment and incidents are reported
each year in this report as part of the
Group’s Key Performance Indicators.
Managing this impact is an integral part
of our responsible corporate governance
and good management practice.
The Group has developed environmental
policies that follow the principles of
ISO14001, of which 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.
Our stakeholders are our employees, our
investors, our customers, our suppliers,
our advisors and the communities in which
we operate.
Employees
It is the policy of the Group to communicate
with employees by employee representation
on works and staff committees and by
regular briefing meetings conducted by
senior management. A long-term view of
the business is encouraged through the
provision of defined contribution pension
schemes and SAYE share option schemes
for UK based employees and Long Term
Incentive Plans (“LTIPs”) for the senior
management team.
Equal opportunities
The Group is an equal opportunity
employer. The Group is committed to being
a successful, caring and welcoming place
for all employees. We want to create a
supportive and inclusive environment where
our employees can reach their full potential,
without prejudice and discrimination. We are
committed to a culture where respect and
understanding is fostered and the diversity
of people's backgrounds and circumstances
will be positively valued.
Whistleblowing
The Group operates a third party
whistleblowing procedure, which falls under
the remit of the Audit and Risk Committee
(see page 41) to ensure that every single
employee has a route to raise a concern
without prejudice.
Health and Safety
The Group has a Health and Safety
Committee which consists of the Group
Health and Safety manager, the CEO, a
Non-Executive Director, the head of Group
HR, and senior managers and health and
safety managers from across the Group.
This committee meets formally four times
per year with ad-hoc working meetings
in between. Health and safety is reported
at every Board meeting and continual
monitoring processes are in place.
The Group Health and Safety manager
coordinates with the individual health
and safety managers from the Group’s
subsidiary businesses, with regular site
meetings and visits to ensure consistent
best practice is maintained across the
Group. Relevant training is ongoing
for all employees at all levels. All our
manufacturing businesses and the UK and
New Zealand subsidiaries of the Alternative
Energy Division hold OH SAS 18001
accreditation. The Canadian subsidiary of
the AE Division and Group Head Office are in
the process of gaining accreditation.
Charity
We support a number of local charities as
well as our employees who individually
raise money for causes close to their
heart. In addition we host an annual Cross
Company Quiz for our Sheffield based
businesses, which raises money for the
Sheffield Children’s Hospital.
Training
Training is at the very heart of our business
fuelling the skills engine that turns us. From
apprenticeships and industry qualifications
to undergraduate and postgraduate degrees,
the niche and highly specialised nature of
our business relies on a highly skilled and
motivated workforce, from the shop floor to
the Boardroom and everyone in between.
Modern Slavery
The Group acknowledges its
responsibilities in relation to tackling
modern slavery and commits to complying
with the provisions in the Modern Slavery
Act 2015. The Group understands that
this requires an ongoing review of both
its internal practices in relation to its
labour force and, additionally, its supply
chains. We are currently conducting an
internal review of our suppliers list and our
position will be disclosed on the Group’s
website on or before March 2018. A review
of the jurisdictions and markets in which
we operate shows that we have a low
risk of exposure to human rights issues.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report 17
Governance
Ethical principles
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.
Bribery and corruption policy
The Group has put in place policies and
procedures to ensure compliance with the
Bribery Act 2010. We require compliance
with our Bribery and Corruption policy,
from everyone connected with our
business, and demand the highest ethical
standards. Integrity and transparency are
of utmost importance to us and we have
a zero tolerance attitude towards corrupt
activities of any kind, whether committed
by Group employees or by third parties
acting for or on behalf of the Group.
P Governance is also covered
on pages 28 and 29
Pressure Technologies plc is proud of its
reputation for being honest and fair in the
way it does business. This reputation has
been hard won over many years and would
be easily lost if all employees do not hold
to our ethical principles. These principles
apply to the way we work with customers,
suppliers, governments, employees,
shareholders, competitors and our local
communities and are summarised below:
To be honest and open in the way we do
business and maintain high standards
of integrity
• We will do business honestly. We will not
over-promise and we will be realistic
when we give a commitment to do
something. Our business processes
will be transparent and we will not
seek to gain unfair advantage through
misrepresentation and deceit. We will
maintain high standards of integrity.
Honesty, openness and integrity generate
trust and trust is fundamental to the
success of our business.
• We will honour our contractual
commitments.
• We will not steal and we will respect
the physical and intellectual property
of others.
• We will not make or take bribes and we
will ensure that we have robust systems
in place across the Group to ensure
employees and agents of the Group
understand and comply with our legal
obligations under the Bribery Act. We
will not offer or accept gifts except for
small, token items neither will we offer or
accept excessive business entertaining.
• We will not take part in anti-
competitive behaviour.
To comply with both the letter and the
spirit of the law
• We are subject to many laws and
regulations. We will observe these both to
specific wording and the intended spirit
of the law or regulation.
To operate in a safe and responsible way
• We will maintain strong health and safety
systems to ensure that our employees,
customers and the public are not in
danger of injury from our operations or
our products.
• We will comply with all environmental
legislation and ensure that we
minimise the impact of our operations
on the environment.
• We will be good neighbours and ensure
that our operations do not adversely
impact the communities in which we
are located.
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Pressure Technologies plc Annual Report 2017
18
Financial Review
“The Manufacturing Divisions are
beginning to experience an uplift
in activity: on a like-for-like basis,
second-half oil and gas sector revenue
was a further 3.4% up on the first-half,
demonstrating that the second-half
of 2016 was a clear low point.”
Joanna Allen
CFO
Revenue
Adjusted operating profit*
Adjusted operating cash inflow**
Acquisition of Martract Ltd
£38.4m
(2016: £35.8m)
£1.1m
(2016: loss £(0.4)m)
£1.0m
(2016: £5.1m)
£3.6m
Revenue per employee***
Return on revenue
Closing net debt
Post year-end fundraising
£161k
(2016: £126k)
2.9%
(2016: (1.1)%)
£11.1m
(2016: £6.6m)
£4.8m
Net
Excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits. Including nine months post-acquisition result of Martract.
*
** Before payment of reorganisation and redundancy costs.
*** Based on straight average number of employees.
I am pleased to present the results of
what has been a very busy and progressive
year for the Group. The Manufacturing
Divisions are beginning to experience an
uplift in activity: on a like-for-like basis,
second-half oil and gas sector revenue
was a further 3.4% up on the first-half,
demonstrating that the second-half of
2016 was a clear low point. We have also
seen profitability continue to improve.
Like-for-like, the 3.7ppt year-on-year
increase in gross margin percentage is
a reflection of both the impact of actions
taken by management in recent years,
plus the volume and mix of work in the
high margin niche sectors supplied by
the Group.
Our acquisition of Martract was completed
in December 2016 and in the nine months
since acquisition the business has
contributed £0.3 million of operating profit.
Alternative Energy has delivered the
contracts in the opening order book
posting £15.8 million total revenue in
the year (2016: £11.3 million) of which
£12.6 million was for biogas upgrader
projects (2016: £8.9 million). Expected
gross margin improvement has, however,
yet to be seen due to cost overruns on
certain European projects, and reported
gross margin is slightly lower than prior
year at 17.3% (2016: 17.4%).
Across the Group, we have continued
to invest in new products and capital
equipment for both production capability
and IT systems. Some £0.3 million in plant
and machinery has been invested in the
Manufacturing Divisions, £0.6 million in
new product development and a further
£0.4 million in Group-wide IT.
In the short-term, the financial priorities
continue to focus on the reduction in net
debt with working capital management to
the fore. While debtor days are generally
acceptable in the Manufacturing
Divisions, we have seen certain oil and
gas customers routinely stretch payment
beyond terms at quarter-ends. Good
progress has however been made in the
control and reduction of raw material and
consumable stock, particularly in the EP
Division. This, combined with the phasing
of contract revenue, has resulted in a net
investment in working capital in 2017 of
£1.5 million (2016: net benefit £4.6 million).
The post year-end oversubscribed share
placing, which resulted in net proceeds of
£4.8 million, immediately reduced net debt
and positions the Group well to capitalise
on the clear momentum in market
opportunity being experienced, particularly
in the PMC Division.
Trading result
Manufacturing
• Revenue down 7.4% to £22.6 million
(2016: £24.4 million)
• Gross profit margin 35.4% (2016: 31.0%)
• Adjusted operating profit* up 12.5%
to £2.4 million (2016: £2.2 million)
• Return on revenue 10.7% (2016: 8.8%)
• Revenue per employee** up 13.1% to
£124,000 (2016: £109,000)
• Adjusted operating cash inflow***
£2.7 million (2016: £5.0 million)
• Cash conversion 1.1: 1 (2016: 2.4:1)
• Restructuring costs £0.1 million
(2016: £0.8 million)
PMC and CSC are beginning to experience
an uplift in activity, with increased
confidence in the oil market providing PMC
with a stabilised and increasing order-load,
whilst strong defence contracts secured
in CSC stretch into the medium-term.
These two Divisions contributed £2.9m
of operating profit in 2017, an increase of
18.4%. Return on revenue has increased
by 3.4ppt to 15.5%, demonstrating the
benefits of both the mix of work in CSC and
the volume of activity in PMC, underpinned
by cost reduction initiatives implemented
in recent years.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report 19
profit and return on revenue, which in the
second-half was adversely impacted by
both the weighting of sales to the first-half
and lower gross margins.
The result for the full-year was in-line with
the latest market expectations.
Central costs
Unallocated central costs (before M&A,
amortisation on acquired businesses
and exceptional charges) were £1.4
million (2016: £1.5 million). The reduction
continues to reflect the Group-wide focus
on cost reduction, investment in IT systems
and combining of roles.
In respect of the Group’s various
share option plans a share based
payment cost of £0.1 million has been
recognised in adjusted operating profit
(2016: £0.3 million).
Exceptional items
Reorganisation and redundancy costs
in the year were £0.7 million (2016:
£0.7 million), which predominantly relate
to the AE Division and Group.
M&A related exceptional items and
amortisation costs were £2.0 million
(2016: £1.1 million credit) and include the
£0.6 million write-back of the deferred
consideration of Martract Limited.
Underlying amortisation charges were
£2.4 million compared to £2.2 million in
the prior year, the increase being solely
due to the acquisition of Martract.
Taxation
The tax credit for the year was £0.8 million
(2016: £1.0 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 tax credit in the 2017. The applicable
current tax rate for the year is 19.5% (2016:
20%). 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 £0.2 million (2016: £0.5 million),
which relate to the UK and Canada.
Foreign exchange
The Group has exposure to movements
in foreign exchange rates related to both
transactional trading and translation of
overseas investments.
In the year under review, the principal
exposure arising from trading activities,
was to movements in the value of the
Euro and the US Dollar relative to Sterling.
As 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 AE Division, currency exposure is
actively managed at the outset of a project
and where appropriate forward contracts
taken out to cover the majority of the
exposure. Exposure (both translational and
transactional) to the movements in the
USD versus the CAD and GBP are expected
to increase as the focus of the AE Division
turns to this market.
In 2017 the net loss recognised in adjusted
operating profit in respect of realised
and unrealised transactions in Euro, US
Dollar, Canadian Dollar and New Zealand
Dollar was immaterial (2016: net gain
£0.7 million). In 2016, a loss of £0.5 million
was recorded below adjusted operating
profit in respect of the retranslation
of the deferred consideration liability
denominated in New Zealand Dollars.
As at 30 September 2017 there were no
forward contracts in place (2016: none).
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 from these to Group are not expected
to be significant.
Acquisition of Martract
On 7 December 2016, the Group acquired
100% of the issued share capital of
Martract Limited for an initial consideration
less net cash acquired of £3.6 million,
plus maximum contingent deferred
consideration of £0.6 million.
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Restructuring benefits in EP are still to be
reflected in the bottom-line, as low oil and
gas volumes continue to impact. Second-
half revenue increased 23% over the first-
half, with a 7.6ppt increase in return on
revenue. Whilst encouraging, this was not
enough to exceed their break-even point.
The current low market volumes magnify
the effects of the mix of work and, together
with the impact of lower spares sales in
the summer months, was a contributory
factor in the second-half operating loss.
The Manufacturing Divisions’ £2.4 million
adjusted operating profit for the full-year
was slightly ahead of the latest market
expectation (£2.3 million).
Alternative Energy
• Revenue £15.8 million (2016: £11.3 million)
• Gross profit margin 17.3% (2016: 17.4%)
• Adjusted operating profit* at break-even
(2016: loss £(1.1) million)
• Return on revenue 0.0%
(2016: loss (9.4)%)
• Revenue per employee** up 40%
to £353,000 (2016: £242,000)
• Adjusted operating cash outflow***
£(0.8) million (2016: inflow £0.9 million)
• Closing order book £5.0 million
(2016: £14.2 million)
• Restructuring costs £0.4 million
(2016: £0.8 million)
Revenue from the installation and
commissioning of biogas upgraders in the
year was delivered from the opening order
book. No new biogas upgrader projects
commenced in the year, although there
was a scope increase on one project.
Non-upgrader sales for aftermarket
support and other products were
£3.2 million.
Gross margins were adversely impacted
in the second-half due to cost overruns
on certain European projects, which
negated the benefit of the 5.5ppt margin
improvement in the first-half versus
the second-half of 2016, resulting in a
marginally reduced gross margin for the
full year.
The Division began restructuring in March
2017, and this was largely complete by
the fourth-quarter. The benefits of this
have yet to come through to the operating
Pressure Technologies plc Annual Report 2017
20
Financial Review continued
Intangible assets acquired with the
business comprise £0.9 million in relation
to non-contractual customer relationships
and £2.8 million in relation to the
manufacturing intellectual property.
The contingent consideration was initially
recorded at a fair value of £0.6 million,
which had been estimated based on future
earnings, with a discount rate of 3%,
assuming that £0.6 million would become
payable. Subsequently, the second-half
performance and forecasts have been
reviewed by the Directors and they consider
it unlikely that the contingent deferred
consideration will be paid and the provision
has been released.
A fair value adjustment related to an
Employment Related Securities liability
was made as a result of the vendors’
shareholder restructuring immediately prior
to completion. This liability was funded by
the vendors of Martract Limited and was
settled in January 2017.
Financing, cash flow and leverage
Operating cash inflow before movements
in working capital and reorganisation and
redundancy costs was £2.0 million higher at
£2.5 million (2016: £0.5 million). After a net
investment in working capital of £1.5 million
(2016: net reduction £4.6 million), cash
generated from operations was £1.0 million
(2016: £5.1 million). Our investment in
working capital shows a significant increase
during the year arising from the timing of
large contract down payments, phasing of
contract revenue and the adverse impact
of certain major customers stretching
payment terms at the end of 2017.
Cash flows from investment activities total
£4.5 million and comprise predominantly
the acquisition of Martract. No item
of capital expenditure is individually
significant in the year, so the spend
reflects general ongoing investment.
Where appropriate new machines are
now acquired using dedicated equipment
finance and these assets are then self
financing through trading cash inflow.
The significant increase in adjusted EBITDA
means the Net Debt to Adjusted EBITDA
leverage ratio in respect of the revolving
credit facility (RCF) reduced to 3.1:1 at
30 September 2017 (2016: 3.7:1). All facility
covenants have been complied with
throughout the period and the facility has
now been extended to March 2019.
Net debt was £11.1 million (2016:
£6.6 million), the increase driven primarily
by the acquisition of Martract and net
investment in working capital. The Group’s
£15 million RCF was fully drawn at the year-
end. Post year-end the Group completed
a share placing, raising net proceeds of
£4.8 million. Some £2.7 million was repaid
immediately as a tranche of debt, leaving
the Group £12.3 million drawn at the time
of writing.
Earnings per share and dividends.
Adjusted earnings per share increased to
6.3 pence (2016: (2.6) pence loss per share).
Basic loss per share was (7.9) pence (2016:
4.4 pence from continuing operations).
No dividends were paid in the year
(2016: £0.8 million) and no dividends have
been declared in respect of the year ended
30 September 2017 (2016: nil). Distributable
reserves in the parent Company increased
20.1% to £22.1 million (2016: £18.4 million).
Statement of financial position
Goodwill and intangible assets (at cost)
increased by £5.8 million to £37.9 million
(2016: £32.1 million). £4.8 million related
to the acquisition of Martract, the
remainder was investment in new product
development and investment in IT systems.
Amortisation in the year was £2.4 million
(2016: £2.2 million).
Net current assets reduced to £9.1 million
(2016: £10.0 million). This decrease is
predominantly due to net investment
in working capital in the year.
Non-current liabilities increased to
£18.0 million (2016: £15.8 million) after
borrowings increased to £15.6 million
(2016: £12.4 million).
Net assets decreased by 2.9% to
£33.8 million (2016: £34.8 million) and
therefore net asset value per share
decreased to 233 pence (2016: 241 pence).
Had the post year-end fundraising taken
place at the year-end date, the net asset
value per share would have been 207 pence.
Joanna Allen
Chief Financial Officer
11 December 2017
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report 21
Financial dashboard
Five year sales history by Division £m
Five year operating profit history by Division £m
60
50
40
30
20
10
0
13
14
15
16
17
12
10
8
6
4
2
0
(2)
(4)
13
14
15
16
17
Manufacturing
Alternative Energy
Manufacturing
Alternative Energy
Central
Group
2017 Cash flow bridge £m
(2.0)
(3.0)
(4.0)
(5.0)
(6.0)
(7.0)
(8.0)
(9.0)
(10.0)
(11.0)
(12.0)
Operating cash inflow £1.0m
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Pressure Technologies plc Annual Report 2017
22
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report Key Performance Indicators
Measuring performance
Key Performance Indicators
Shareholders
The Board uses Key Performance Indicators (“KPIs”) when
assessing the performance of the Group. These KPIs are divided
into three sections:
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%.
Revenue and return on revenue
£m
60
50
40
30
20
10
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18
16
14
12
10
08
06
04
02
00
-2
13
14
15
16
17
Revenue
Return on revenue
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 (before
reorganisation costs)” 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
1.1:1 (2016: 2.4:1). Cash conversion for the Group was a ratio of
0.9:1 (2016: not calculated due to the losses in AE and overall
Group adjusted operating loss).
Net Debt ratio
This is calculated as Net Debt (cash and cash equivalents less
borrowings) divided by adjusted EBITDA.
Revenue
3.06x
(2016: 3.67x)
2017
2016
3.06
3.67
Adjusted 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 note 12 of the notes to the consolidated
financial statements.
Adjusted earnings per share pence
50
45
40
35
30
25
20
15
10
5
0
-5
13
14
15
16
17
Corporate Social Responsibility
Health and Safety
The measure used is reportable accidents where the target is
zero across the Group.
Reportable accidents
2
1
0
13
14
15
16
17
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
0
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.
23
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Pressure Technologies plc Annual Report 2017
24
Risks and Uncertainties
The principal risks identified by management are
described below. This year we have changed the
headings used, which the management believes
better reflects the nature of the risk. Any changes
to the risks are detailed below.
Risk heatmap – impact and likelihood
A reminder of our strategy
Direction of change
1
Consolidate and build on
the business
2
Identify and develop profitable niche
opportunities in growth sectors
3
Identify and develop profitable
acquisition opportunities
Increase
No change
Decrease
Risk management process
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Risk context
Risk
monitoring
and review
Risk
assessment
(identification
and analysis and
evaluation)
Risk
treatment
Likelihood
Global economic conditions
Governmental policy and legislation
Competitors and commercial relationships
Funding
Availability of key resources
Technology and innovation
Risk and impact
Management strategy
Change
1. Global economic conditions 1 2 3
The Group is affected by the macro
conditions in the oil and gas, defence
and renewable energy markets
• The Group has increased its exposure to other markets such as
defence and alternative energy and revenues from these areas
have risen.
• The businesses in the Group were aligned to the recent adverse
conditions in oil and gas but have retained and invested in their core
capability pending a return to normal market conditions.
• The businesses serve both production and exploration of the oil and
gas market, production being less volatile during a market downturn.
• Increased sales focus to expand customer base and product lines.
• As oil prices have increased, volumes are increasing in the
Manufacturing Divisions and the Group is no longer solely dependent
on the AE Division for short-term growth.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report
25
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Risk and impact
Management strategy
Change
1. Global economic conditions 1 2 3
continued
Brexit
• Limited impact on the Group.
• VAT and duty particularly related to the import of raw materials.
• Exchange rate, which has gone in our favour to date.
• The details of how a final deal may look and its impact on the Group
will be monitored.
Foreign currency
Pricing
• Natural hedges are in place for the currencies the Group is exposed
to and all FX trading is done from Group treasury including forward
exchange contracts.
• As our AE business grows and becomes increasingly profitable the
relationship between the USD and CAD will become more prominent.
• Adverse market conditions in oil and gas can have a considerable
impact on pricing. The Group has set minimum gross margins
and does not reduce prices to unacceptable levels as experience
indicates that the cost of failure of a part outweighs the initial
product cost in the medium-term.
• AE contracts are complex with a number of third party variables upon
which contract completion are dependent. The Division has seen a
number of legacy costs on contracts where initial pricing negatively
affected the overall profit on the contract. Robust pricing procedures
and a global procurement structure are now in place.
2. Governmental policy and legislation 2
Revenue generated from defence
contracts and alternative energy
contacts are impacted by government
policies and legislation.
• Changes that impact our defence contracts have enough visibility for
management to implement plans that could mitigate them.
NEW
• Globally AE revenue is impacted by political initiatives to support the
uptake of biogas upgrading. For example, the UK has suffered order
slippage with the delay of the UK’s Renewable Heat Incentive (RHI)
but the business is benefiting from State landfill policies in the US.
In addition the business operates across multiple geographies and
jurisdictions adapting its sales strategy accordingly, which mitigates
much of the risk from any one in particular.
3. Competitors and commercial relationships 1
The Group has a number of major
competitors in its key markets who offer
a wider variety of products and some of
which who are also suppliers.
• Requirements from suppliers are split out and a constant review
is maintained.
• Investment in product expansion and development to maintain
leading market position.
• Strategic acquisition of Martract strengthened our position in the
supply chain and other similar opportunities are frequently reviewed.
• Branding and marketing of the PMC Division as one entity increases
the number of products available to existing customers and
strengthens the Division’s standing alongside major competitors.
• Increased investment in sales and technical efficiencies.
Pressure Technologies plc Annual Report 2017
26
Risks and Uncertainties continued
Risk and impact
Management strategy
Change
3. Competitors and commercial relationships 1
continued
Customer concentration
4. Funding 1 2 3
• There are a number of individual businesses within the Group with
a high dependence on a very small number of customers and much
work has been done to develop the distribution channels and expand
the customer base.
• Key account management is a focus of all the businesses across the
Group and we have a history of strong customer relationships.
The Group’s growth requires access to
funding
• The Group recently raised £4.8 million net of expenses as a result
of investor interest, which it will use primarily to underpin its
operational gearing ahead of an upturn in the oil and gas market.
• The Group extended its banking facilities until the end of March 2019.
The facility provides access to £15m in total which was fully drawn
at the year end date. Robust procedures and reliable and accurate
reporting ensures covenants are well managed.
5. Availability of key resources 1 2 3
Management resource
• The Group has a small management team with reliance on a number
Key employee knowledge and skill
base
of key Directors, senior management and specialists. A policy
restricts the number of Directors permitted to travel together.
• Investment in recruitment extends and enhances existing skills
within the Group and strengthens succession planning.
• A Human Resource specialist has recently joined the Group
management team.
• The high added value products and services provided by all the
businesses are reliant on the skills and knowledge of our employees
and there is a programme of training around the Group to ensure
the development and retention of these key skills and employees.
The training programme includes apprenticeships, industry
qualifications and through to postgraduate degrees.
• The Group is seen as a good employer, with attractive employment
terms, SAYE schemes and career and skill development
opportunities.
Major capital assets
• Certain of the Group’s businesses rely on large or critical pieces of
equipment. These key assets are subject to ongoing maintenance
programmes and strategic spares are held.
NEW
• The risk is further mitigated in the Precision Machined Components
Division by the number of manufacturing sites.
• Investment in capital assets is constantly reviewed.
Pressure Technologies plc Annual Report 2017Section 1 Strategic Report Risk and impact
Management strategy
Change
6. Technology and innovation 1 2
Product development
Disruptive technologies
Cyber security
• Investment in product development and services is key to
the continued growth of the Group and maintaining a leading
market position.
• The monitoring of evolving technologies that may disrupt the market
is ongoing, looking to both capitalise on the opportunities they may
provide as well offsetting any potential threats.
• Cyber security is a growing risk for all businesses. The Group
operates a Cyber Security committee comprising members of the
Board, the senior management team and our IT providers.
• A full assessment of cyber security arrangements has been carried
out at each of the Group’s businesses and actions to mitigate risk
are ongoing.
• The Group recently invested in collaborative working systems with
cloud storage where there are increased security advantages for
data protection.
NEW
NEW
What's changed
• The impacts of low cost competitors has been removed from the principal risks as
the Group is now competitive in the markets where this was an issue, in addition
many of the markets we serve are focused on the cost of failure rather than cost
to produce.
• The tax and compliance risks have been removed as at the current levels, they are
not considered a principal risk. However, as overseas profits grow it may become
relevant. Its inclusion in the principal risks will be reviewed annually.
27
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Introduction to Governance
Alan Wilson
Chairman
“The Group has clearly defined values
that emanate from the top down and
dictate how we conduct our business
and engage with all our stakeholders.”
As a Group we comply with
the 12 principles set out in
the QCA Code, however at the
time of writing last year there
were three elements which
we did not comply with. We
have progressed two of these.
In this year’s report you will
find our first Audit and Risk
Committee Report set out on
page 39 and on our website
you will find the detailed
results of shareholder
voting. Only details of the
performance evaluation
procedures for each Director,
the whole Board and each
committee are not disclosed
but this will be reviewed in
the coming year.
How the code works in practice for
Pressure Technologies
Dealing code
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.
Communication with Shareholders
The Company actively encourages good
communication with all its shareholders
from the largest to the smallest.
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 where
presentations are given by the Chairman
and Chief Executive as well as by an MD
from a Group company. This is a 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
We believe that an effective Board, which
provides strong leadership and engages
well with both management and the
senior management team, is essential to
underpinning the culture within the Group
from the top down.
The Board does this by holding Board
meetings at subsidiary sites and is active
on sub-committee groups, such as,
Health and Safety and Cyber Security.
In addition Divisional managers are
regularly invited to present to the Board
and can gain valuable feedback drawn
from the considerable experience of the
Non-Executive Directors.
The Group has clear ethical values,
which are set out in the Sustainable and
Responsible Business section on page
16 of this report, implemented through
sound procedures.
Alan Wilson
Chairman
11 December 2017
Pressure Technologies plc Annual Report 2017Section 2 Governance 29
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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.
Board meeting attendance
Alan Wilson
Philip Cammerman
Brian Newman
Neil MacDonald
John Hayward
Joanna Allen
12/12
10/12
12/12
11/12
12/12
12/12
A
Audit and Risk
Committee
N
Nomination
Committee
R
Remuneration
Committee
Chaired by Neil MacDonald
Chaired by Alan Wilson
Chaired by Philip Cammerman
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.
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.
Pressure Technologies plc Annual Report 2017
30
Directors and Advisers
5
3
1
2
4
6
Company information
Registered office
Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire, S35 2PH
Registered number
06135104
Website
pressuretechnologies.com
Company Secretary
Joanna Allen
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 adviser
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 2017Section 2 Governance Committee key
A
Audit and Risk Committee
N
Nomination Committee
R
Remuneration Committee
Chairman
Member
31
1 Alan Wilson
A N R
2 John Hayward
3 Joanna Allen
Independent Non-executive Chairman
Chief Executive Officer
Chief Financial Officer
Appointed
• February 2013
Appointed
• June 2007
Appointed
• July 2015
Relevant strengths
• Engineering expertise
• Oil and gas sector knowledge
• Growing businesses and funding
Relevant experience
• Alan is a degree-qualified Chartered
Engineer with 37 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.
External commitments
• Alan serves as Chairman of two private
equity-backed businesses and is a Non-
executive Director of a privately owned
company operating within the oil and
gas sector. He also chairs another listed
company, Modern Water plc.
Relevant strengths
• Entrepreneurship
• Management and leadership
Relevant strengths
• Audit and M&A
• Financial due diligence
Relevant 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.
• In 2008 he was the UK Ernst and
Young Entrepreneur of the Year®
for manufacturing.
• John is a qualified accountant and
has finance and general management
experience in the steel, chemicals and
engineering sectors.
• He holds a degree in Physics from
Oxford University.
Relevant experience
• Audit and Transaction Services Director
with PWC. Her experience covers
both audit and corporate transaction
services with a particular focus on
working in the manufacturing and
engineering sectors.
• In 2017 she was shortlisted in the
Northern Finance Director Awards
• Qualified Chartered Accountant with
the ICAEW.
• She has a degree in Business Studies
from the University of Sheffield.
4 Philip Cammerman
A N R
5 Brian Newman
A N R
6 Neil MacDonald
A N R
Independent Non-executive
Independent Non-executive
Independent Non-executive
Appointed
• April 2008
Appointed
• September 2015
Appointed
• June 2013
Relevant strengths
• SME managerial expertise in UK
and USA
Relevant strengths
• Engineering expertise
• Knowledge of global industrial
• Funding and investment expertise
• Growth funding and M&A expertise
businesses, including cross-border M&A.
• Divisional management experience
Relevant strengths
• M&A expertise
• Growing businesses
• Chartered Accountant
Relevant experience
• Philip has over 20 years’ industrial
Relevant experience
• Brian is a Chartered Engineer with a
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.
• Mentoring SMEs and Early
Stage Businesses.
• Non-executive directorships across
listed businesses, private companies
and early stage businesses.
External commitments
• Following his retirement from the YFM
Group in 2008, Phil developed a small
but proactive portfolio of Non-executive
directorships in the engineering and
finance sectors.
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.
External commitments
• He is currently a Non-executive Director
with The Shrewsbury and Telford
Hospital NHS Trust and a number
of other organisations.
Relevant 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 the international
mechanical seals manufacturer; and
previously Group Finance Director of
the international aerospace company,
Firth Rixson.
• He has held numerous non executive
roles in the public and private sector.
External commitments
• Neil is a Governor of Sheffield
Hallam University, a private sector
Board Member of the Sheffield
City Region Local Enterprise
Partnership and a trustee of
various charitable organisations.
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Report of the Remuneration Committee
The Remuneration Committee comprises four Non-executive Directors and is chaired by Philip Cammerman. The Committee
meets when necessary, usually at least 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.
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 2017Section 2 Governance
33
Directors’ remuneration
Particulars of Directors’ remuneration are as follows:
Non-executive:
Alan Wilson
Philip Cammerman
Brian Newman
Neil MacDonald
Executive:
John Hayward
Joanna Allen
Total remuneration
Salary
and
fees
£’000
64
41
50
40
205
154
554
Benefits
£’000
Pension
£’000
—
—
—
—
2
1
3
—
—
—
—
22
19
41
Total
2017
£’000
64
41
50
40
229
174
598
Employers’ Employers’
national
insurance
2016
£’000
national
insurance
2017
£’000
Total
2016
£’000
56
38
40
38
225
164
561
5
4
5
4
27
20
65
2
4
4
4
27
19
60
Part of the remuneration of Alan Wilson and Brian Newman were paid to management companies which they control.
The number of Directors who accrued benefits under money purchase pension arrangements in the period was two (2016: two).
The Group believes that the Directors of Pressure Technologies plc are the only key management personnel under the definition
of IAS 24 ‘Related party disclosures’.
In addition to the above, Directors have received dividends during the year as follows:
Non-executive:
Philip Cammerman
Executive:
John Hayward
Total dividends paid to Directors
Total
2017
£’000
—
—
—
Total
2016
£’000
2
56
58
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Report of the Remuneration Committee continued
Directors’ options
The Directors’ interests in share options are as follows:
Scheme
Date granted
Number Option price
John Hayward
John Hayward
John Hayward
Joanna Allen
Joanna Allen
Long Term Incentive Plan
Long Term Incentive Plan
Long Term Incentive Plan
Save-as-you-earn Scheme
Long Term Incentive Plan
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
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
11 December 2017
John Hayward Joanna Allen
No.
No.
167,219
—
167,219
75,832
—
75,832
Pressure Technologies plc Annual Report 2017Section 2 Governance
Directors’ Report
35
The Directors present their report and the audited financial statements for the period from 2 October 2016 to 30 September 2017.
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. Also within the
Cylinders Division is our US sales team, Chesterfield Special Cylinders Inc, based in Pittsburgh.
The Company holds a 40% 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.
Martract Limited (“Martract”) whose principal activity is the provision of grinding and lapping services for ball and seal assemblies
and gate valves.
Engineered Products
Hydratron Limited 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.
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 48. The profit on ordinary activities before taxation of the
Group for the period ended 30 September 2017 amounted to £1.1 million (2016: £0.4 million).
No interim dividend was paid in the period (2016: nil). The Directors do not recommend the payment of a final dividend (2016: nil).
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 2017 (2016: nil).
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Directors’ Report continued
Substantial shareholdings
As at 15 November 2017, the following held or were beneficially interested in 3% or more of the Company’s issued ordinary
share capital:
Artemis Investment Management LLP
Liontrust Asset Management
City Financial
Canaccord Genuity Group Inc
Schroder Investment Management
John Hayward
James Sharp
Hargreaves Lansdown
A J Bell Securities
Unicorn Asset Management
Directors and their interests
The present Directors of the Company are set out on pages 30 and 31.
All Directors were Directors throughout the period and since unless otherwise stated.
Ordinary shares
John Hayward
Philip Cammerman
Neil MacDonald
Alan Wilson
Joanna Allen
Brian Newman
Share options
Number of
Percentage of
issued share
shares capital owned
2,648,648
1,766,619
1,694,754
1,517,178
1,232,304
1,002,221
999,529
623,880
577,389
567,167
14.24%
9.50%
9.11%
8.16%
6.63%
5.39%
5.38%
3.36%
3.11%
3.05%
30 September
2017
No.
1,002,221
30,000
5,200
—
—
—
1 October
2016
No.
1,002,221
33,395
5,200
—
—
—
No share options were granted during the period.
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 loans 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 24 to the consolidated
financial statements.
Pressure Technologies plc Annual Report 2017Section 2 Governance
37
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 24. The Financial Reporting Council issued “Guidance on the Going Concern Basis of
Accounting and Reporting on Solvency and Liquidity risks” in 2016. The Directors have considered this when preparing these
financial statements.
The Group’s existing bank borrowings have been extended to March 2019 and management have 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 2017/2018 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.
Management have modelled the financial covenants in the forecasts and no breach is expected.
As such, the Directors are satisfied that the Company and Group have adequate resources to continue to operate for the
foreseeable future. For this reason they continue to adopt the going concern basis for preparing the financial statements.
Statement of Directors’ responsibilities for the financial statements
The Directors are responsible for preparing the Strategic Report, the Directors’ report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group financial statements for each financial year. Under that law the Directors
have to prepare the Group’s financial statements in accordance with International Financial Reporting Standards as adopted by
the European Union (“IFRSs”). The Directors have elected to prepare the parent Company financial statements in accordance with
Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (“FRS 101”) (UK Accounting Standards). Under company
law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state
of affairs and profit or loss of the Group and parent Company for that period. In preparing these financial statements, the Directors
are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• For the Group financial statements, state whether applicable IFRSs have been followed, subject to any material departures
disclosed and explained in the financial statements;
• For the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
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Pressure Technologies plc Annual Report 2017
38
Directors’ Report continued
Statement of Directors’ responsibilities for the financial statements continued
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that:
• So far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
• The Directors have taken all steps that they ought to have taken as Directors to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Auditor
Grant Thornton UK LLP are willing to continue in office and a resolution to reappoint them will be proposed at the Annual
General Meeting.
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 Officer
11 December 2017
Pressure Technologies plc Annual Report 2017Section 2 Governance Audit and Risk Committee Report
39
Members and meetings
The Group’s Audit and Risk Committee (“the Committee”) is chaired by Neil MacDonald. Its members and their attendance at
meetings during the year are highlighted in our report on governance. The Committee meets not less than four times a year in
a formal capacity and forms sub-groups to address specific matters as necessary outside of these meetings.
Role of the Committee
The Committee’s primary responsibilities are to:
• Oversee the relationship with the external auditor and make recommendations to the Board on the appointment and
remuneration of the auditors
• Review the conduct and control of the annual audit and the operation of the internal controls and advise the Board on principal
risks and uncertainties
• Report on the financial performance of the Company and review financial statements prior to publication
• Review annually the Company’s anti-bribery and corruption policy
• Review the Company’s procedures for handling reports by ‘whistleblowers’
Terms of Reference
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-Size Quoted Companies
(“the QCA Code”) as a demonstration of our belief in, and commitment to, good governance. The Terms of Reference for this
Committee are available for inspection on the Company’s website.
External audit
The Group’s external auditors are Grant Thornton UK LLP (“Grant Thornton”). They were appointed at the Group’s 2008 AGM
following a casual vacancy that was filled by them after their merger with RSM Robson Rhodes LLP, the Group’s incumbent
auditors at that time, in July 2007.
The Committee will ensure that at least once every ten years the audit services contract is put out to tender to enable comparison
of the quality and effectiveness of the services provided by the incumbent auditor with those of other audit firms. The audit will
therefore be put out to tender once the 2017 audit is complete.
The Committee has unrestricted access to the Group's auditors and will ensure that auditor independence has not
been compromised.
The Committee met with Grant Thornton twice during the year to approve the annual audit plan and after the conclusion of the
audit when the audit findings were presented.
In order to ensure the independence of the external auditors, the Committee monitors the non-audit services provided by them
to the Group.
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Pressure Technologies plc Annual Report 2017
40
Audit and Risk Committee Report continued
Market Abuse Regulation
The Committee has reviewed the impact of the Market Abuse Regulation including its treatment of inside information;
the relationship with our stockbrokers and analysts; the obligations of Persons Discharging Managerial Responsibilities;
and the Company’s share dealing code. We have taken appropriate measures to ensure compliance with the implementation
of the EU Market Abuse Regulation which came into effect from 3 July 2016.
Significant matters addressed during the year
During the year in carrying out its main responsibilities the Committee has spent its time in the following proportions:
How the Committee has spent its time
Governance 35%
Risk management 30%
Financial reporting 20%
Audit 15%
Internal controls
Details of the key risks which the Group faces, the key controls in place to control those risks and the system of risk management
adopted by the Group are set out on pages 24 to 27. The Committee has evaluated the effectiveness of the internal controls and
the risk management system operated. The evaluation covered all controls including financial, operational, risk management
and compliance.
The Alternative Energy Division (“AE”) has been an area of particular focus in the year given the global restructuring and nature
of the business being different to the other Manufacturing Divisions. Post-acquisition integration has also been considered,
particularly where the acquired businesses are SMEs and unfamiliar with some aspects of corporate governance.
The Group continues to evolve and the Committee will review and advise on the design and operation of internal controls.
Pressure Technologies plc does not have a specific internal audit department. The need for an internal audit department is
considered from time to time but currently it is regarded that the costs would outweigh the benefits. If required, external
specialists are brought in to perform specific reviews of areas considered a risk.
The Committee has reviewed the following areas:
Contract accounting judgements
As explained more fully in our accounting policies on page 53, the Cylinder and Alternative Energy Divisions derive a significant
proportion of their turnover from contracts that span one or more years and are accounted for under the relevant accounting
standards.
Contract costs and revenues may be affected by a number of uncertainties that are dependent on the outcome of future events
and therefore estimates may need to be revised as events unfold and uncertainties are resolved.
During the year, the Committee examined the judgements and methodologies applied to key contract judgements and were in
agreement with the position adopted.
Pressure Technologies plc Annual Report 2017Section 2 Governance 41
Impairment and going concern
The Committee reviewed and considered the papers relating to the impairment and going concern disclosures in the Annual Report
and Financial Statements. The Strategic Report discloses the conclusion of these reviews on page 37.
Contingent liabilities
The Committee reviewed the contingent liabilities disclosure set out in note 31 of the financial statements and were satisfied it
fairly reflects the current circumstances.
Other
The Group has operated a ‘whistleblowing’ policy and arrangement for many years so that all employees of the Group are able, via
an independent external third party, to confidentially report any malpractice or matters of concern they have regarding the actions
of employees, management and Directors and any breaches of the Company’s Anti-Bribery and Corruption policy. No matters have
been reported to the Chair of the Committee, who is the nominated contact for the third party provider, in the year.
One isolated case of employee expenses fraud was reported to the Committee during the year. Upon review, they were satisfied that
the internal controls that detected the fraud were adequate and had operated effectively.
Approved by the Board and signed on its behalf by
Neil MacDonald
Chairman of the Audit and Risk Committee
11 December 2017
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Pressure Technologies plc Annual Report 2017
42
Independent Auditor’s Report
to the Members of Pressure Technologies plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Pressure Technologies plc (the ‘parent company’) and its subsidiaries (the ‘group’)
for the year ended 30 September 2017 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 Company
balance sheet, the Company statement of changes in equity and the notes to the financial statements, including a summary
of significant accounting policies. 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, including Financial Reporting Standard 101 Reduced Disclosures
Framework (United Kingdom Generally Accepted Accounting Practice).
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
30 September 2017 and of the group’s loss for the year 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
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.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• The Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• The Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
• Overall materiality: £169,000, which represents 0.4% of the group’s revenue.
• The key audit matters were identified as revenue recognition, the contingent liability in relation to the Chesterfield Special
Cylinders Limited (“CSC”) incident and the accounting for the acquisition of Martract Limited.
• We have assessed the components within the group and performed a combination of comprehensive audits, targeted audit
procedures and analytical procedures.
Pressure Technologies plc Annual Report 2017Section 2 Governance 43
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 1 – Revenue recognition
There is a risk that revenue may be misstated due to the
improper recognition of revenue.
In respect of revenue recognised for sale of goods, there is a
risk that revenue is recognised before the risk and rewards of
ownership have transferred to the customer.
In respect of contractual arrangement with the customers there
is a risk that revenue is misstated as each contract’s outcome
and stage of completion required management judgement.
Therefore, we identified revenue recognition as a significant
risk, and as one of the most significant assessed risks of
material misstatement (whether due to fraud or error).
Our audit work included, but was not restricted to:
• Walkthrough of the systems and controls in place around
the recording of revenue.
• Evaluation of the revenue recognition policies for
appropriateness with IAS 18 ‘Revenue’ and IAS 11
‘Construction Contracts’, as applicable and consistency
with the prior period.
• Testing a sample of revenue transactions in respect of sale
of goods and agreeing them to supporting documentation
to vouch that income has been appropriately recognised in
accordance with IAS 18 ‘Revenue’ and the accounting policy.
• Testing revenue from contracts, on a sample basis to
determine whether the revenue has been recognised in
accordance with IAS 11 ‘Construction Contracts’ and the
accounting policy.
• For a sample of contracts, testing the percentage of
completion calculations by inspection of contract checklist
documents and challenging the operations team as to
the stage of completion, to determine if the revenue was
recognised in accordance with accounting policy.
• We have compared the revenue from the sale of goods
and from contractual arrangements with the revenues in
the prior year and obtained explanations for significant or
unusual variances.
The group’s accounting policy on revenue recognition including
the key sources of estimation uncertainty are shown in the
Accounting policies section and related disclosures are
included in note 1. The Audit Committee identified revenue
recognition as a significant issue in its report on page 40 where
the Audit Committee also described the action that it has taken
to address this issue.
Key observations
Based on our audit work, we have found that revenues were
being accounted for in line with the Group's accounting policies,
IAS 18 ‘Revenues’ and IAS 11 ‘Construction Contracts’.
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Pressure Technologies plc Annual Report 2017
44
Independent Auditor’s Report
to the Members of Pressure Technologies plc continued
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 2 – Contingent liability in relation to the CSC incident
Following the fatal accident in June 2015 the Health and Safety
Executive (“HSE”) opened an investigation into this accident.
The group are cooperating with the HSE and have performed
their own inquiries to investigate the root cause of the accident.
Until the investigation is complete, the Group are unable to
assess what charges may be brought.
Management have concluded that it is not possible to
determine with any degree of certainty what, if any, financial
penalties may be levied on the group.
Our audit work included, but was not restricted to:
• Reading the correspondence between HSE and the group
• Inquiring of management and the group’s legal advisor.
• Assessing the adequacy of the disclosure included within
the financial statements.
The group’s accounting policy on provisions is shown in the
Accounting policies section and related disclosures are
included in note 31. The Audit Committee identified this matter
as a significant issue in its report on page 41 where the Audit
Committee also described the action that it has taken to
address this issue.
No provision has been recorded within the financial statements
however disclosure has been made in accordance with IAS 37
‘provisions, contingent liabilities and contingent assets’.
Key observations
Based on our audit work, no audit findings were noted.
We consider that the disclosure in note 31 to the financial
statements appropriately describes this matter.
Therefore, we identified this incident as a significant risk,
and as one of the most significant assessed risks of material
misstatement (whether due to fraud or error).
Risk 3 – Accounting for the acquisition of Martract Limited
On 7 December 2016, the group acquired 100% of the issued
share capital of Martract Limited.
IFRS 3 ‘Business Combinations’ require acquired assets and
liabilities in the consolidated financial statements to be
recorded at their fair value. There is management judgement in
relation to the fair value of the assets and liabilities acquired
and the consideration paid.
Therefore, we identified acquisition accounting as a significant
risk, and as one of the most significant assessed risks of
material misstatement.
Our audit work included, but was not restricted to:
• Obtaining an understanding of the valuation methodology
used by management to calculate the fair value of the
customer relationships and intellectual property intangible
assets and comparing with accepted valuation methods.
• Using internal valuation specialists to check the integrity
of valuation calculation.
• Assessing the appropriateness of the assumptions used in
the valuation calculations for consistency with other financial
information and forecasts of the acquired company.
• Checking the accounting for the consideration by reference to
the clauses in the acquisition agreement.
• Challenging management as to the amount of the contingent
consideration recognised.
• Assessing the adequacy of the disclosures included within
the financial statements.
The group’s accounting policy on business combinations
including the key sources of estimation uncertainty are shown
in the Accounting policies section and related disclosures are
included in note 29.
Key observations
Based on our audit work, we have concluded that the
acquisition of Martract Limited was accounted for in line
with the Group’s accounting policies and IFRS 3 ‘Business
Combinations’. We consider that the disclosure in note 29
to the financial statements appropriately describes the
management judgement.
Pressure Technologies plc Annual Report 2017Section 2 Governance 45
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a whole
£169,000 which is 0.4% of revenue.
This benchmark is considered the most
appropriate because revenue is a key
performance indicator of the group and
is a stable base.
Materiality for the current year is
consistent with the level that we
determined for the year ended
1 October 2016.
Materiality is based on 0.5% of total
assets, capped to 75% of group
materiality, which is £127,000. This
benchmark is considered the most
appropriate given the activities of
the parent company primarily being
a holding company and its major activities
relate to fixed assets included in the
financial statements.
Materiality for the current year is
consistent with the level that we
determined for the year ended
1 October 2016.
Performance materiality used
to drive the extent of our testing
Tolerance for potential uncorrected
misstatements
Communication of misstatements
to the audit committee
75% of financial statement materiality.
75% of financial statement materiality
25% of financial statement materiality
25% of financial statement materiality
£8,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£6,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
Component materiality
Our audit work at the components is executed at levels of materiality appropriate for such components, which in all instances
are capped at 75% of group materiality.
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Pressure Technologies plc Annual Report 2017
46
Independent Auditor’s Report
to the Members of Pressure Technologies plc continued
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment
and risk profile and in particular included:
• Documenting the processes and controls covering all of the Key Audit Matters.
• The group has components across Europe, North America and New Zealand. We have assessed the risk of material misstatement
for each of these components to conclude which components are in scope for a comprehensive audit approach.
• A comprehensive audit approach included a combination of transactional testing and analytical procedures.
• The components subject to a comprehensive audit approach cover 96% of the consolidated revenues.
• The audit was performed such that we had appropriate oversight of the component auditor. This included briefing the
component audit team, directing the risk assessment and fraud discussions and evaluating and reviewing the work performed
by the component auditor for the purpose of the group audit.
• For those components where a comprehensive audit was not performed, we have carried out a combination of targeted
audit procedures and analytical procedures.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual
report set out on pages 2 to 3, 30 to 34 and 39 to 41 other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify
such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which 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
Pressure Technologies plc Annual Report 2017Section 2 Governance 47
Responsibilities of directors for the financial statements
As explained more fully in the statement of directors’ responsibilities statement set out on page 37 the Directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Mark Overfield BSc FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountant
Leeds
11 December 2017
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Pressure Technologies plc Annual Report 2017
48
Consolidated Statement
of Comprehensive Income
For the 52 week period ended 30 September 2017
52 weeks
ended
30 September
2017
£’000
Notes
Revenue
Cost of sales
Gross profit
Administration expenses
Operating profit / (loss) before M&A costs, amortisation
and exceptional charges and credits
Separately disclosed items of administrative expenses:
Amortisation and M&A related exceptional items
Other exceptional charges and credits
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation
(Loss) / profit for the period from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Loss 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 operation
From discontinued operations
From (loss) / profit for the period
Diluted earnings per share
From continuing operation
From discontinued operations
From (loss) / profit for the period
The accounting policies and notes on pages 52 to 87 form part of these financial statements.
1
1
5
6
2
3
4
11
7
12
12
12
12
52 weeks
ended
1 October
2016
£’000
35,753
(26,211)
9,542
(9,923)
38,418
(27,710)
10,708
(9,611)
1,097
(381)
(1,968)
(703)
(1,574)
4
(343)
(1,913)
766
(1,147)
1,123
(798)
(56)
32
(335)
(359)
1,002
643
—
(1,147)
(1,331)
(688)
(4)
(426)
(1,151)
(1,114)
(7.9)p
—
(7.9)p
(7.9)p
—
(7.9)p
4.4p
(9.2)p
(4.8)p
4.4p
(9.2)p
(4.8)p
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
Consolidated Balance Sheet
As at 30 September 2017
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
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
49
30 September
2017
£’000
Notes
1 October
2016
£’000
14
15
16
25
19
20
21
22
21
22
25
26
16,062
13,658
12,583
343
42,646
4,986
11,339
4,791
21,116
63,762
(11,748)
(219)
(23)
(11,990)
(238)
(15,642)
(2,089)
(17,969)
(29,959)
33,803
725
21,637
(405)
11,846
33,803
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
The accounting policies and notes on pages 52 to 87 form part of these financial statements.
The financial statements were approved by the Board on 11 December 2017 and signed on its behalf by:
Joanna Allen
Director
Company number: 06135104
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Pressure Technologies plc Annual Report 2017
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Consolidated Statement of Changes in Equity
For the 52 week period ended 30 September 2017
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
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 30 September 2017
Notes
13
27
26
13
27
26
Share
capital
£’000
721
—
—
3
3
—
—
—
724
—
—
1
1
—
—
—
725
Share
premium
account
£’000
21,539
—
—
81
81
—
—
—
21,620
—
—
17
17
—
—
—
Translation
reserve
£’000
25
—
—
—
—
—
(426)
(426)
(401)
—
—
—
—
—
(4)
(4)
21,637
(405)
Profit
and loss
account
£’000
14,056
(810)
314
—
(496)
(688)
—
(688)
12,872
—
121
—
121
(1,147)
—
(1,147)
11,846
Total
equity
£’000
36,341
(810)
314
84
(412)
(688)
(426)
(1,114)
34,815
—
121
18
139
(1,147)
(4)
(1,151)
33,803
The accounting policies and notes on pages 52 to 87 form part of these financial statements.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
Consolidated Statement of Cash Flows
For the 52 week period ended 30 September 2017
51
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax refund
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
Net cash from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accounting policies and notes on pages 52 to 87 form part of these financial statements.
52 weeks
ended
30 September
2017
£’000
Notes
52 weeks
ended
1 October
2016
£’000
28
29
319
(324)
216
211
21
(961)
(3,597)
—
(4,537)
3,350
(324)
—
18
3,044
(1,282)
6,073
4,791
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
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Pressure Technologies plc Annual Report 2017
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Accounting Policies
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
adopted for use in the European Union and IFRIC interpretations issued by the International Accounting Standards Board and the
Companies Act 2006. The Company has elected to prepare its parent Company financial statements in accordance with Financial
Reporting Standard 101 (FRS 101). These are presented on pages 90 to 98. The financial statements are made up to the Saturday
nearest to the period end for each financial period.
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.
The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ended
30 September 2017. The consolidated financial statements have been prepared on a going concern basis.
The Group’s existing bank borrowings have been extended to March 2019 and management have 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 2017/2018 and beyond and that the Group has sufficient cash reserves and headroom in borrowing costs 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.
Management have modelled the financial covenants in the forecasts and no breach is expected.
As such, the Directors are satisfied that the Company and Group have adequate resources to continue to operate for the
foreseeable future. For this reason they continue to adopt the going concern basis for preparing the financial statements.
The financial statements have been prepared under the historical cost convention, except for derivative financial instruments
which are carried at fair value.
Standards and interpretations not yet applied by the Group
There are a number of standards and interpretations issued by the International Accounting Standards Board that are effective
for financial statements beginning on or after the dates given below and are expected to be relevant to the financial statements.
These standards will be effective in future periods.
• IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
• Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 (effective date
1 January 2016)
• Annual Improvements to IFRSs 2014-2016 Cycle (effective 1 January 2018)
• IFRS 16 Leases (effective date 1 January 2019)
• 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)
Management are in the process of assessing the impact that the implementation of IFRS 15 will have on revenue recognition,
particularly with reference to construction contracts and other income streams. 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. IFRS 16 will not come into effect until our 2020 year end,
therefore the impact assessment will be done nearer the time. However, it is likely to result in the current operating leases being
recognised on the balance sheet (see note 30).
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements 53
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described below, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and assumptions that have a material risk to the carrying value of assets and liabilities within the next financial year
are discussed below:
Critical accounting judgements
Revenue recognition
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 assesses 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 & tangible 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 potential 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.
Business combinations – retention cash
The Group records retention cash balances for business combinations as part of the consideration, where it is expected to be paid.
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 19 to the financial statements.
Valuation of intangible assets acquired through business combinations
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 15 to the financial statements.
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Pressure Technologies plc Annual Report 2017
54
Accounting Policies continued
Key sources of estimation uncertainty continued
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. This includes judgements based on historical warranty
spend and consideration of contracts that are currently within a warranty period. Warranty periods vary between products but are
typically one year in duration. The level of warranty provisions is disclosed in note 21 to the financial statements.
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. See notes 5 and 29
for further details.
Contingent liabilities
There is judgement in respect of the accounting for provisions and contingent liabilities. Further details are disclosed in note 31
to the financial statements.
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to
30 September 2017 (2016: to 1 October 2016). Subsidiaries are all entities over which the Group has the power to control. 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.
Control is achieved when the Company:
• Has the power over the investee;
• Is exposed, or has rights, to variable return from its involvement with the investee; and
• Has the ability to use its power to affect returns.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from
the date that control ceases.
Intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements.
Business combinations and goodwill
The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair
values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any
asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.
The Group recognises identifiable assets acquired and liabilities assumed, including contingent liabilities, in a business
combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the
acquisition. Assets acquired and liabilities assumed are measured at their acquisition-date fair values, which are also used
as the bases for subsequent measurement in accordance with the Group accounting policies.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements 55
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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 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,
• 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.
Sale of goods
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.
Rendering of services
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.
Contracts revenue
Contracts revenue is recognised in accordance with IAS 11, ‘Construction Contracts’.
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.
Pressure Technologies plc Annual Report 2017
56
Accounting Policies continued
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, EPS and sales growth targets).
All share-based remuneration is ultimately recognised as an expense in the consolidated statement of comprehensive income with
a corresponding credit to the profit and loss reserve.
If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available
estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the
number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the
number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised
in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised
are different to that estimated on vesting. Upon exercise of share options, the proceeds received net of any directly attributable
transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as
additional paid-in capital.
The cancellation of equity-settled share based payments is accounted for as an acceleration of vesting.
Dividends
Interim dividends are charged in the period in which they are paid. Final dividends are only provided when approved by the shareholders.
Property, plant and equipment
Plant and equipment is stated at cost, net of depreciation and any provision for impairment. Property, plant and equipment
is held at historical cost with the exception of assets acquired on business combinations. These are added at their fair value
and depreciated accordingly. 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 projects;
• the Group has the ability to use or sell the asset; and
• the cost of the asset can be measured reliably.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements 57
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
Intellectual Property
IT systems & software licenses
Development expenditure
Impairment testing of non-current assets
Over life of the order book – typically one year
15 years
5 – 10 years
7.5 – 15 years
15 years
5 years
5 – 15 years
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at
cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies
of the related business combination and represent the lowest level within the Group at which management monitors goodwill.
Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets
or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the assets or cash-generating unit’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal discounted cash flow evaluation.
Leased assets
In accordance with IAS 17 ‘Leases’, the economic ownership of a leased asset is transferred to the lessee if the lessee bears
substantially all the risks and rewards related to the ownership of the asset. The related asset is recognised at the inception of the
lease at its fair value or, if lower, the present value of the lease payments. A corresponding liability is recognised where the interest
element of the lease payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss
over the period of the lease.
All other leases are treated as operating leases. Payments under operating leases are charged to profit or loss on a straight-line
basis over the term of the lease. Lease incentives are spread over the term of the lease. Benefits received as an incentive to enter
into an operating lease are spread over the lease term on a straight line basis.
Inventories
Inventories are stated at the lower of cost and net realisable value, on a first in first out basis. Cost includes materials, direct labour
and an attributable proportion of manufacturing overheads based on normal levels of activity. Net realisable value is based on the
estimated sales price after allowing for all further costs of completion and disposal. Provision is made for obsolete, slow-moving or
defective items where appropriate.
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Pressure Technologies plc Annual Report 2017
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Accounting Policies continued
Income taxes
The tax expense represents the sum of the tax currently payable and deferred tax. Current tax is the tax currently payable based
on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on
the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on
the initial recognition of goodwill nor on the initial recognition of an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not
provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in
the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are
assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable
that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred
tax assets and liabilities are calculated at tax rates that are expected to apply to their respective periods of realisation, provided
they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets and liabilities are recognised as a component of tax expense in the consolidated statement of
comprehensive income, except where they relate to items that are recognised in other comprehensive income or directly in equity,
in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively.
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.
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.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements 59
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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.
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.
Pressure Technologies plc Annual Report 2017
60
Accounting Policies continued
Foreign currency translation continued
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.
• 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.
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.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements 61
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.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle that obligation with an outflow of economic benefits and a reliable estimate can be made
of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using
the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Where a liability is contingent on the occurrence or non-occurrence of uncertain future events or circumstances it is only
recognised if a reliable estimate can be made of the amount of obligation.
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Notes to the Consolidated Financial Statements
1. Segment analysis
The financial information by segment detailed below is frequently reviewed by the Chief Executive who has been identified as the
Chief Operating Decision Maker (CODM). The Manufacturing and Alternative Energy Divisions are distinct due to the nature of the
underlying businesses and as such are grouped on that basis.
For the 52 week period ended 30 September 2017
Precision
Machined Engineered
Products
£’000
Cylinders Components
£’000
£’000
Manu-
facturing Alternative
Energy
sub total
£’000
£’000
Central
costs
£’000
Revenue
– total
– revenue from other segments
Revenue from
external customers
8,403
—
10,703
(340)
3,861
(9)
22,967
(349)
15,800
—
8,403
10,363
3,852
22,618
15,800
—
—
Total
£’000
38,767
(349)
38,418
Gross profit
3,408
3,591
1,002
8,001
2,731
(24)
10,708
Operating profit / (loss)
before M&A costs,
amortisation and exceptional
charges and credits
Amortisation and M&A
related exceptional items
Other exceptional charges
Operating profit / (loss)
Net finance (costs) / income
Profit / (loss) before tax
1,062
1,840
(471)
2,431
3
(1,337)
1,097
—
(34)
1,028
(9)
1,019
(1,691)
(57)
92
(6)
86
—
(36)
(507)
—
(507)
(1,691)
(127)
613
(15)
598
(708)
(413)
(1,118)
4
(1,114)
431
(163)
(1,069)
(328)
(1,397)
(1,968)
(703)
(1,574)
(339)
(1,913)
Segmental net assets*
6,271
24,370
2,526
33,167
14,736
(14,100)
33,803
Other segment information:
Capital expenditure
Depreciation
Amortisation
(37)
403
—
166
700
1,691
23
108
—
152
1,211
1,691
72
105
708
68
122
8
292
1,438
2,407
* 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.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
63
Total
£’000
36,355
(602)
35,753
9,542
1. Segment analysis continued
For the 52 week period ended 1 October 2016
Precision
Machined
Cylinders Components
£’000
£’000
Engineered
Products
£’000
Manu-
facturing
sub total
£’000
Alternative
Energy
£’000
Central
costs
£’000
Revenue
– total
– revenue from other segments
Revenue from
external customers
9,538
—
11,319
(576)
4,163
(23)
25,020
(599)
11,335
(3)
9,538
10,743
4,140
24,421
11,332
Gross profit
3,226
3,350
994
7,570
1,972
—
—
—
—
Operating profit / (loss)
before M&A costs,
amortisation and exceptional
charges and credits
Amortisation and M&A
related exceptional items
1,053
1,398
(291)
2,160
(1,060)
(1,481)
(381)
—
(1,462)
—
(1,462)
(703)
3,288
1,123
Other exceptional charges
Operating profit / (loss)
Net finance (costs) / income
Profit / (loss) before tax
(84)
969
—
969
(359)
(423)
(11)
(434)
(333)
(624)
—
(624)
(776)
(78)
(11)
(89)
(22)
(1,785)
29
(1,756)
—
1,807
(321)
1,486
(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.
The following table provides an analysis of the Group’s revenue by geographical destination.
Revenue
United Kingdom
Europe
Rest of the World
2017
£’000
15,451
7,050
15,917
38,418
2016
£’000
17,235
7,817
10,701
35,753
The Group’s largest customer contributed 12% to the Group’s revenue (2016: 7%) and is reported within the Alternative Energy
segment. No other customer contributed more than 10% in the period to 30 September 2017 (2016: nil).
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Notes to the Consolidated Financial Statements continued
1. Segment analysis continued
The following table provides an analysis of the Group’s revenue by market.
Revenue
Oil and gas
Defence
Industrial gases
Alternative energy
2017
£’000
13,775
6,471
2,347
15,825
38,418
2016
£’000
15,527
6,469
2,372
11,385
35,753
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.
Revenue
Sale of goods
Rendering of services
Total sales – continuing operations
Discontinued operations
Sale of goods
Total sales
2017
£’000
34,420
3,998
38,418
2016
£’000
32,591
3,162
35,753
—
38,418
1,230
36,983
The following table provides an analysis of the carrying amount of non-current assets and additions to property, plant and equipment.
United
Kingdom
£’000
42,594
240
Rest of
the World
£’000
52
52
2017
Total
£’000
42,646
292
United
Kingdom
£’000
40,581
859
Rest of
the World
£’000
77
102
Non-current assets
Additions to property, plant and equipment
2. Finance income
Interest receivable on bank deposits
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
2016
£’000
32
32
2016
£’000
246
14
75
335
2017
£’000
4
4
2017
£’000
309
19
15
343
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
65
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2016
£’000
1,387
90
9
2,166
(99)
12,911
20,538
323
90
(711)
311
209
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2016
£’000
(2,166)
—
3,766
(477)
1,123
2017
£’000
1,382
56
21
2,407
(94)
11,058
21,418
353
89
37
121
—
2017
£’000
(2,407)
(158)
597
—
(1,968)
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 on disposal of fixed assets
Amortisation of intangible assets acquired on business combinations
Amortisation of grants receivable
Staff costs – excluding share based payments (see note 9)
Cost of inventories recognised as an expense
Operating lease rentals:
– Land and buildings
– Machinery and equipment
Foreign currency loss / (gain)
Share based payments
Research and development
5. Amortisation and M&A related exceptional items
Amortisation of intangible assets
M&A costs
Deferred consideration write back
Foreign currency loss on revaluation of deferred consideration liability
The deferred consideration write back in this period relates to the deferred consideration arising from the acquisition of
Martract Limited. The deferred consideration write back in the prior period related to the deferred consideration arising from the
acquisition of the Greenlane Group of Companies. The payment of these considerations are contingent on the future results of the
acquired entities. The Directors reviewed forecasts in relation to Martract and Greenlane and considered that it was unlikely that
the considerations would be paid, and as such they were released. Given the magnitude of the amounts released and the fact that
they are non-trading, the Directors considered it appropriate to disclose them as exceptional items.
The revaluation of the deferred consideration liability related 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 considered it appropriate to disclose
this foreign exchange movement as an exceptional item.
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Notes to the Consolidated Financial Statements continued
6. Other exceptional (charges) / credits
Reorganisation and redundancy
Costs in relation to HSE investigation
Write back of KGTM loan previously provided for
2017
£’000
(710)
(21)
28
(703)
2016
£’000
(732)
(66)
—
(798)
The reorganisation costs relate to costs of restructuring across the Group, the Divisional split is given in note 1. 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 31.
The write back of KGTM loan previously provided for, relates to a receipt from KGTM for a loan amount that was previously provided
for (reversal of the provision).
7. 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
Loss for the year
2017
£’000
—
—
—
—
—
—
—
—
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 prior accounting period, as part of the Group’s
restructuring, the US operation of the Engineered Products Division was closed during the prior year. The manufacturing facilities
were wound down and fully closed in early September 2016.
Cash flows from discontinued operations
Net cash used in operating activities
Net cash from investing activities
Net cash from financing activities
Net cash flows for the year
2017
£’000
—
—
—
—
2016
£’000
(679)
27
783
131
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
8. Auditor’s remuneration
Fees payable to the Company’s Auditor for the audit of the Company and consolidated financial statements
Fees payable to the Company’s Auditor and its associates for other services:
– Audit of the Company’s subsidiaries pursuant to legislation
Fees payable to the Company’s Auditor for non-audit services:
– Tax compliance services
– Other services
– All other assurance services
9. 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 30 September 2017 was 240 (2016: 244).
67
2017
£’000
46
2016
£’000
40
115
107
32
6
10
34
17
—
2017
£’000
9,739
852
467
122
11,180
2017
No.
144
30
65
239
2016
£’000
11,422
1,042
447
311
13,222
2016
No.
175
41
74
290
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Notes to the Consolidated Financial Statements continued
10. Directors’ remuneration
Particulars of Directors’ remuneration are as follows:
Emoluments
Pension costs
Employers’ national insurance
Share based payments
2017
£’000
557
41
65
63
726
2016
£’000
520
41
60
65
686
Please see the Report of the Remuneration Committee on pages 32 to 34 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 two (2016: two) Directors in respect of defined contributions schemes.
Included in the aggregate emoluments for the period ended 30 September 2017 are payments of £27,050 (2016: £36,000) made to
company’s controlled by the Directors. The highest paid Director received total emoluments of £207,000 and pension contributions
of £22,000 (2016: total emoluments of £204,000 and pension contributions of £21,000).
11. Taxation
Current tax (credit) / expense
Current tax
Over provision in respect of prior years
Foreign tax
Deferred tax (credit) / expense
Origination and reversal of temporary differences
Over provision in respect of prior years
2017
£’000
2016
£’000
—
(405)
49
(356)
(534)
124
(410)
—
(163)
—
(163)
(839)
—
(839)
Total taxation credit
(766)
(1,002)
Corporation tax is calculated at 19.5% (2016: 20%) of the estimated assessable profit for the period. Deferred tax is calculated
at the rate applicable when the temporary differences unwind.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
69
2016
£’000
(359)
(72)
131
(658)
—
(54)
(160)
126
(315)
—
—
(1,002)
11. Taxation continued
The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
Loss before taxation
Theoretical tax at UK corporation tax rate 19.5% (2016: 20%)
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
– differences in corporation tax rates
– losses not previously recognised now utilised
Total taxation credit
12. Earnings per ordinary share
2017
£’000
(1,913)
(373)
204
(113)
(49)
—
(281)
—
(2)
(68)
(84)
(766)
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.
Additional shares were issued post year end as part of a share placing, see note 33.
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Notes to the Consolidated Financial Statements continued
12. Earnings per ordinary share continued
For the 52 week period ended 30 September 2017
Loss after tax
Weighted average number of shares – basic
Dilutive effect of share options
Weighted average number of shares – diluted
Basic loss per share
Diluted loss per share
The Group adjusted earnings per share is calculated as follows:
Loss after tax
Amortisation and M&A related exceptional items (note 5)
Other exceptional charges and credits (note 6)
Theoretical tax effect of above adjustments
Adjusted earnings
Adjusted earnings per share
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 / (loss) per share
Diluted earnings / (loss) per share
The Group adjusted loss per share is calculated as follows:
Profit / (loss) after tax
Amortisation and M&A related exceptional items (note 5)
Other exceptional charges and credits (note 6)
Impairment of assets on closure
Theoretical tax effect of above adjustments
Adjusted loss
Adjusted loss per share
Continuing Discontinued
£’000
£’000
(1,147)
—
Total
£’000
(1,147)
(7.9)p
(7.9)p
(1,147)
1,968
703
(606)
918
6.3
—
—
—
—
—
—
—
—
Continuing Discontinued
£’000
£’000
643
(1,331)
No.
14,485,099
75
14,485,174
(7.9)p
(7.9)p
(1,147)
1,968
703
(606)
918
6.3
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)
(688)
(1,123)
1,076
455
(744)
(654)
(4.5)p
(1,024)
(7.1)p
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
71
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£’000
—
—
2016
£’000
810
810
Total
£’000
15,020
—
15,020
1,042
16,062
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Date of Original cost
£’000
acquisition
February 2010
March 2014
October 2014
December 2016
272
5,117
3,079
1,042
October 2010
1,692
October 2014
4,860
16,062
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13. Dividends
The following dividend payments have been made on the ordinary 5p shares in issue:
Final 2014/15
5.6p
18 March 2016
14,471,481
Rate
Date
Shares
in issue
No dividends have been declared in respect of the year ended 30 September 2017 or 1 October 2016.
14. Goodwill
Cost and gross carrying amount
At 3 October 2015
Acquired through business combinations
At 1 October 2016
Acquired through business combinations (note 29)
At 30 September 2017
Precision Machined Components
Al-Met Limited
Roota Engineering Limited
The Quadscot Group
Martract Limited
Engineered Products
Hydratron Limited
Alternative Energy
The Greenlane Group
At 30 September 2017
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 six acquisitions shown above.
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% (2016: 11.6%). 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 forecast is approved by management and the Board of Directors, 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 or inflation 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 2017
72
Notes to the Consolidated Financial Statements continued
14. 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.
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 30 September 2017, no reasonable expected change in the key assumptions (including
a 5% decrease in forecast cash flows) would give rise to an impairment charge for any CGU.
15. Intangible assets
Cost
At 3 October 2015
Additions
At 1 October 2016
Additions
Acquired through business combination
(note 29)
At 30 September 2017
Amortisation
At 3 October 2015
Charge for the period
At 1 October 2016
Charge for the period
At 30 September 2017
Net book value
At 30 September 2017
At 1 October 2016
IT systems
Intellectual & Software Development
Licenses expenditure
£’000
Property
£’000
£’000
Non
contractual
customer
Technology relationships
£’000
£’000
5,316
—
5,316
—
—
5,316
720
703
1,423
708
2,131
11,702
—
11,702
—
944
12,646
2,847
1,462
4,309
1,535
5,844
Total
£’000
17,018
44
17,062
996
3,740
21,798
3,567
2,166
5,733
2,407
8,140
—
—
—
564
—
564
—
—
—
—
—
564
3,185
6,802
13,658
—
3,893
7,393
11,329
—
—
—
—
2,796
2,796
—
—
—
155
155
2,641
—
—
44
44
432
—
476
—
1
1
9
10
466
43
Remaining useful economic life at
30 September 2017
14 years
5 years
10 years
5 years
6 years
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
73
Total
£’000
19,276
961
(204)
(69)
34
19,998
292
16
(76)
—
(11)
1
20,220
4,928
1,477
(112)
(60)
6,233
1,438
(34)
7,637
Assets under
construction
£’000
Land and
Plant and
buildings machinery
£’000
£’000
1,837
359
—
—
—
2,196
—
—
—
(2,008)
—
—
188
—
—
—
—
—
—
—
—
4,894
75
—
(17)
—
4,952
6
—
—
—
—
—
4,958
66
63
—
(11)
118
76
—
194
12,545
527
(204)
(52)
34
12,850
286
16
(76)
2,008
(11)
1
15,074
4,862
1,414
(112)
(49)
6,115
1,362
(34)
7,443
188
4,764
7,631
12,583
2,196
4,834
6,735
13,765
16. Property, plant and equipment
Cost
At 3 October 2015
Additions
Disposals
Impairment
Net exchange differences
At 1 October 2016
Additions
Acquired through business combinations (note 29)
Disposals
Transfers
Impairment
Net exchange differences
At 30 September 2017
At 3 October 2015
Charge for the period
Disposed of in the period
Impaired in the period
At 1 October 2016
Charge for the period
Disposed of in the period
At 30 September 2017
Net book value
At 30 September 2017
At 1 October 2016
Included within the net book value of £12,583,000 is £374,000 (2016: £828,000) 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 £56,000
(2016: £90,000).
17. 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 94.
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Notes to the Consolidated Financial Statements continued
18. Investments in associates
The investment in Kelley GTM, LLC was fully written down in the period ended 3 October 2015.
Had this not been the case the Group’s share of the results of its principal associates and its aggregated assets (including goodwill)
and liabilities, would be as follows:
At 1 October 2016
Kelley GTM, LLC.
At 30 September 2017
Kelley GTM, LLC.
Country of
incorporation
Assets
£’000
Liabilities
£’000
Revenues
£’000
Loss
£’000
USA
473
(6,202)
918
(195)
USA
1,004
(7,189)
908
(652)
Interest
held
%
40
40
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
2 October 2016 to 30 September 2017. 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 (2016: nil) leaving
unrecognised losses of £652,000 (2016: £195,000).
19. Inventories
Raw materials and consumables
Work in progress
Finished goods
Inventories are stated net of provisions of £547,000 (2016: £498,000).
2017
£’000
2,959
1,982
45
4,986
2016
£’000
2,917
402
1,891
5,210
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
75
2017
£’000
8,820
1,256
216
1,047
2016
£’000
7,536
1,827
602
1,314
11,339
11,279
20. Trade and other receivables
Current
Trade receivables
Amounts due from customers for construction contract work
Other receivables
Prepayments and accrued income
The average credit period taken on the sale of goods and services was 61 days (2016: 47 days) in respect of the Group. One debtor
individually accounted for over 10% of trade receivables and represented 14% of the total balance. In 2016, one debtor accounted
for over 10% of trade receivables and represented 26% 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.
21. 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
Total due within 12 months
Amounts due after 12 months
Accruals, deferred income and other payables
Total due after 12 months
2017
£’000
1,702
310
360
50
84
2,506
2017
£’000
5,030
1,368
757
4,593
2016
£’000
1,310
242
220
65
389
2,226
2016
£’000
6,903
931
301
3,934
11,748
12,069
238
238
1,398
1,398
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.
The warranty provision at 30 September 2017 is £491,000 (2016: £306,000).
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Notes to the Consolidated Financial Statements continued
22. Borrowings
Non-current
Bank borrowings
Finance lease liabilities
Current
Finance lease liabilities
Total borrowings
2017
£’000
15,000
642
15,642
2016
£’000
12,300
111
12,411
219
219
242
242
15,861
12,653
At the balance sheet date, the above bank borrowings were due for repayment on 30 September 2018, being exactly 12 months
from the balance sheet date. The Group’s next accounting period ends on 29 September 2018. Accordingly the Directors have
concluded that it is appropriate to present the loan as due for repayment after one year.
The borrowing facility repayment date has since been extended to March 2019. The bank loan bears average coupons of 2% above
LIBOR annually.
Total borrowings include secured liabilities of £15 million. Bank borrowings are secured on the property, plant and equipment of the
Group (note 16). 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 for settlement after one year
Bank borrowings
Finance lease liabilities
The Group has the following undrawn borrowing facilities:
Expiring beyond one year
2017
£’000
2016
£’000
219
242
15,000
642
12,300
111
2017
£’000
—
2016
£’000
2,700
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.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
77
23. 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
24. Financial instruments
2017
£’000
19,862
(19,974)
(112)
2016
£’000
16,083
(15,187)
896
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 22, 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
2017
£’000
(15,861)
4,791
(11,070)
2016
£’000
(12,653)
6,073
(6,580)
33,803
34,815
Debt is defined as long and short-term borrowings, as detailed in note 22. 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
2017
£’000
8,820
216
4,791
2016
£’000
7,536
602
6,073
13,827
14,211
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Notes to the Consolidated Financial Statements continued
24. Financial instruments continued
Financial liabilities
Financial liabilities – held at amortised cost
– Trade payables
– Accruals
– Borrowings
2017
£’000
2016
£’000
5,030
2,081
15,861
22,972
6,903
2,792
12,653
22,348
The fair value of the financial instruments set out above is not materially different from their book value.
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. There are no open contracts at 30 September 2017 (2016: none).
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
US Dollar
CAN Dollar
NZ Dollar
Financial assets
Financial liabilities
2017
£’000
1,107
2,159
777
169
4,212
2016
£’000
1,853
3,563
540
21
5,977
2017
£’000
1,347
478
936
53
2,814
2016
£’000
1,087
2,514
653
71
4,325
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
79
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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:
Profit or loss
Profit or loss
Euro
currency impact
CAN Dollar
currency impact
US Dollar
currency impact
2017
£’000
22
2016
£’000
70
2017
£’000
14
2016
£’000
10
2017
£’000
148
2016
£’000
95
NZ Dollar
currency impact
2017
£’000
10
2016
£’000
5
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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.
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 30 September 2017, the Group had no contracts outstanding (2016: no contracts outstanding).
Forward exchange contracts gave rise to a loss of £nil in the period ended 30 September 2017. The fair value of forward foreign
exchange contracts at 1 October 2016 gave rise to a loss of £26,000.
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 £48,000 (2016: £31,000).
Price risk management
Where possible the Group enters into contracts incorporating price escalation clauses to mitigate any significant exposure
to material price risk.
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80
Notes to the Consolidated Financial Statements continued
24. Financial instruments continued
Credit risk management
The Group’s credit risk is primarily attributable to its trade receivables. The two largest customers within trade receivables account
for 22% (2016: 36%) 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.
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.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Group can be required to pay. The contractual maturity is based on the earliest date on which the
Group may be required to pay.
2017
Trade and other payables
Bank borrowings
Amounts due under hire purchase agreements
2016
Trade and other payables
Bank borrowings
Amounts due under hire purchase agreements
Current
within
6 months
£’000
Current
6 to 12 Non-current
1 to 5 years
months
£’000
£’000
7,111
—
123
7,234
Current
within
6 months
£’000
9,540
—
143
9,683
—
—
96
96
—
15,000
642
15,642
Current
6 to 12 Non-current
1 to 5 years
months
£’000
£’000
155
—
99
254
—
12,300
111
12,411
Total net
payable
£’000
7,111
15,000
861
22,972
Total net
payable
£’000
9,695
12,300
353
22,348
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
Fair values
The fair values of financial assets and liabilities are determined as follows:
2017
£’000
—
—
2016
£’000
26
26
• 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 2017Section 3 Financial Statements
81
25. Deferred tax
The following are the major deferred tax assets / (liabilities) recognised by the Group and movements thereon during the current
and prior reporting period.
Accelerated tax
depreciation
£’000
Intangible
assets
£’000
Short term
temporary
Share
differences option costs
£’000
£’000
At 3 October 2015
Credit / (charge) to income
At 1 October 2016
Prior year adjustment
Credit / (charge) to income
Acquired through business combinations
At 30 September 2017
(758)
40
(718)
(3)
291
—
(430)
(1,770)
514
(1,256)
—
325
(673)
(1,604)
111
(16)
95
(13)
68
—
150
95
(29)
66
56
16
—
138
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
(40)
(290)
—
—
Total
£’000
(2,322)
839
(1,483)
—
410
(673)
(1,746)
2017
£’000
2016
£’000
343
544
(2,089)
(1,746)
(2,027)
(1,483)
Deferred tax is expected to be recoverable against future profits generated by the Group.
26. Called up share capital
Allotted, issued and fully paid
Ordinary shares of 5p each
2017
No.
2016
No.
2017
£’000
2016
£’000
14,495,165
14,471,481
725
724
The Company issued 11,189 ordinary shares at a price of 156p to employees exercising their rights to acquire shares under
the company’s SAYE scheme throughout the year. The Company issued 12,495 ordinary shares at a price of 5p to an employee
exercising their rights to acquire shares under an Enterprise Management Plan issued. The effect of these issues has been to
increase share capital by £1,000 and share premium by £17,000.
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Notes to the Consolidated Financial Statements continued
27. 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. The scheme rules
were reviewed and updated in 2017 as required by HMRC. If the options remain unexercised after a period of three years and six
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
169.4p
—
—
164.6p
171p
156p
156p
2016
No.
355,293
85,440
—
(79,912)
(59,957)
(6,551)
(1,800)
174p
292,513
Weighted
average
exercise
price
186.9p
150p
—
189.1p
221.8p
153.4p
150p
169.4p
2017
No.
292,513
—
—
(63,758)
(56,820)
(11,189)
(20,878)
139,868
5,217 of the outstanding options were exercisable at the end of the period. The options outstanding at 30 September 2017 had a
weighted average remaining contractual life of 1.1 years (2016: 1.8 years). The terms of these options are as follows:
Date of grant
31 July 2014
30 July 2015
2 August 2016
Total options outstanding at 30 September 2017
Options
outstanding at
30 September
2017
5,217
92,771
41,880
139,868
Market value
at date of
grant (p)
Vesting
period
3 years
3 years
3 years
719
238
147.5
Exercise
price (p)
593
161.2
150
Exercise
period
6 months
6 months
6 months
There are no performance conditions that apply to these options other than continued employment.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
83
27. 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
—
150.5p
150.5p
242.5
2017
No.
153,156
—
(40,661)
(12,495)
100,000
Weighted
average
exercise
price
210.6p
—
—
-
210.6p
2016
No.
153,156
—
—
—
153,156
All of the outstanding options were exercisable at the end of the period. The options outstanding at 30 September 2017 had a
weighted average remaining contractual life of 0.8 years (2016: 1.3 years). The terms of these options are as follows:
Date of grant
9 August 2013
Total options outstanding at 30 September 2017
Options
outstanding at
30 September
2017
100,000
100,000
Market value
at date of
grant (p)
Vesting
period
Exercise
price (p)
3 years
242.5
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 – 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 the 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:
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
285.5p
—
262.5p
296.1p
2017
No.
646,647
—
(204,490)
442,157
Weighted
average
exercise
price
421.2p
196.2p
225p
285.5
2016
No.
259,589
410,391
(23,333)
646,647
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Notes to the Consolidated Financial Statements continued
27. Share based payments continued
None of the outstanding options were exercisable at the end of the period. The outstanding options outstanding at 30 September
2017 had a weighted average remaining contractual life of 3.9 years (2016: 4.9 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 30 September 2017
Options
outstanding at
1 October
2016
45,239
68,893
46,666
281,359
442,157
Market value
at date of
grant (p)
Vesting
period
3 years
3 years
3 years
3 years
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.
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 £121,000 (2016: £311,000). The charge is calculated in accordance with IFRS 2, ‘Share Based Payments’.
A deferred tax credit of £16,000 (2016: £29,000) was recognised in the consolidated statement of comprehensive income during
the period in respect of share based payments.
28. Consolidated cash flow statement
Loss 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 on disposal of property, plant and equipment
Exceptional deferred consideration released and revaluation
Exceptional impairment of assets
Changes in working capital:
Decrease in inventories
Decrease in trade and other receivables
(Decrease) / increase in trade and other payables
Cash flows from operating activities
2017
£’000
(1,147)
339
1,438
2,407
121
(766)
—
21
(597)
11
243
413
(2,164)
319
2016
£’000
(688)
303
1,477
2,166
314
(1,002)
26
8
(3,289)
464
1,749
1,948
929
4,405
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
85
29. Business combinations
On 7 December 2016, the Group acquired 100% of the issued share capital of Martract Limited for an initial consideration of
£3,997,000, plus maximum deferred consideration of £600,000.
In calculating goodwill below, the contingent consideration is held at fair value of £583,000. This has been estimated based on
future earnings. The fair value estimate is based on a discount rate of 3% and assumes that £583,000 of deferred consideration
is payable.
Subsequently the post acquisition performance and forecasts have been reviewed by the Directors and they consider that it is
unlikely that the consideration will be paid, and as such it has been released (note 5).
Martract has unique capabilities in spherical grinding that ensures the perfect sphericality of new and refurbished ball valves,
such that the valve will seal in any position, through the opening and closing process. It is based in Barton-upon-Humber.
The transaction has been accounted for by the acquisition method of accounting.
The table below summarises the consideration paid for Martract and the fair value of the assets and liabilities acquired.
Intangible
assets
recognised on
acquisition
£’000
Book value
£’000
Fair value
adjustment
£’000
Fair value
£’000
Recognised amounts of identifiable
assets acquired and liabilities assumed:
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Deferred tax liabilities
Goodwill
Total consideration
Satisfied by:
Initial cash
Retention cash
Deferred cash consideration
Net cash outflow arising on acquisition
Initial & retention cash consideration
Cash and cash equivalents acquired
Initial consideration less net cash acquired
16
—
19
162
400
(101)
(25)
—
471
—
3,740
—
—
—
—
—
(673)
3,067
—
—
—
363
—
(488)
125
—
—
16
3,740
19
525
400
(589)
100
(673)
3,538
1,042
4,580
3,634
363
583
4,580
3,997
(400)
3,597
The intangible assets acquired with the business comprise £944,000 in relation to non-contractual customer relationships and
£2,796,000 in relation to the manufacturing intellectual property.
The fair value adjustment relates to an Employment Related Securities liability that arose as a result of the vendors shareholder
restructuring immediately prior to completion. This liability was funded by the vendors of Martract Limited.
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Notes to the Consolidated Financial Statements continued
29. Business combinations continued
The goodwill of £1,042,000 arising from the acquisition consists largely of the synergies and economies of scale expected
from combining the operations of Martract with the rest of the PMC Division. None of the goodwill recognised is expected to be
deductible for income tax purposes.
Martract contributed £671,000 revenue and £236,000 to the Group’s profit after tax for the period between the date of acquisition
and the balance sheet date. The effect of the inclusion of the acquisition had it been completed on the first day of the financial year
is considered to be immaterial upon the Group’s revenue and profit after tax.
30. Financial commitments
(a) Capital commitments
Commitments for capital expenditure entered into were as follows:
Contracted for, but not provided in the accounts
2017
£’000
—
2016
£’000
—
(b) Operating lease commitments
The Group has entered into commercial leases on certain properties, motor vehicles and items of plant and equipment. At the
balance sheet date, the Group had outstanding commitments for minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Land and buildings:
Within one year
In the second to fifth years inclusive
After more than five years
Other assets:
Within one year
In the second to fifth years inclusive
2017
£’000
322
972
594
2016
£’000
293
936
729
1,888
1,958
67
61
128
75
92
167
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 5 and
year 10 of the term;
• Hydratron Limited’s 10 year property lease commenced on 28 October 2010 and had a rent review at the end of year 5; and
• A five year lease for the Group’s head office commenced on 31 July 2014, at Chapeltown, Sheffield.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
87
31. Contingent liabilities
Following the fatal accident at Chesterfield Special Cylinders (“CSC”) in June 2015, other than the submission by CSC of written
responses to questions from the Health and Safety Executive (“HSE”), there have been no further developments since the interim
statement on 13 June 2017 and the HSE investigation into this accident 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. Until the HSE investigation is
complete CSC’s management and legal adviser are not 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”.
32. Related party transactions
Key management personnel are considered to be the Executive and Non-Executive Directors of the Group. Details of their
remuneration is set out below:
Short-term employee benefits (including Employers’ NI)
Post-employment benefits
Share based payments
Total remuneration
2017
£’000
622
41
63
726
2016
£’000
580
41
65
686
The interests of Directors in dividends paid during the year are disclosed in the Report of the Remuneration Committee.
During the period ended 30 September 2017, Pressure Technologies spent £64,779 with Vias Digital Limited of which one of the
Non-Executive Directors, Alan Wilson, is a connected person.
During the period ended 3 October 2015, 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 period ended 3 October 2015.
33. Post balance sheet event
On 6 November 2017, a total of 4,100,000 new Ordinary Shares of 5 pence each in the Company were placed at a price of
122 pence, raising proceeds of £5,002,000 before expenses. Net proceeds of the placing were £4,764,000.
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88
Company Balance Sheet
As at 30 September 2017
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
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
30 September
2017
£’000
Notes
1 October
2016
£’000
4
5
6
7
8
41,092
291
3,587
44,970
14,745
585
15,330
(717)
36,430
42
3,640
40,112
13,575
57
13,632
(607)
14,613
13,025
8
(15,090)
(12,369)
44,493
40,768
10
12
12
725
21,637
22,131
44,493
724
21,620
18,424
40,768
The Company reported a profit for the financial year ended 30 September 2017 of £3,586,000 (2016: £5,924,000). The accounting
policies and notes on pages 90 to 98 form part of these financial statements.
Approved by the Board on 11 December 2017 and signed on its behalf by:
Joanna Allen
Director
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
Company Statement of Changes in Equity
For the 52 week period ended 30 September 2017
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
Dividends
Share based payments
Share options granted to subsidiary companies
Shares issued
Transactions with owners
Profit for the period
Balance at 30 September 2017
Share
capital
£’000
Share
premium
account
£’000
Profit
and loss
account
£’000
Notes
721
—
—
—
3
3
—
724
—
—
—
1
1
—
725
21,539
—
—
—
81
81
—
21,620
—
—
—
17
17
—
21,637
12,994
(810)
99
217
—
(494)
5,924
18,424
—
39
82
—
121
3,586
22,131
The accounting policies and notes on pages 90 to 98 form part of these financial statements
89
Total
equity
£’000
35,254
(810)
99
217
84
(410)
5,924
40,768
—
39
82
18
139
3,586
44,493
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90
Notes to the Company Financial Statements
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 £3,586,000
(2016: £5,924,000) after applying a tax credit (note 9) of £117,000 (2016: charge £nil) to the profit before tax of £3,469,000
(2016: £5,924,000).
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 24. The Financial Reporting Council issued “Guidance on the Going Concern Basis
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 2017/2018 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.
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.
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:
1 A statement of cash flows and related notes
2 The requirements of IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more
members of the Group as they are wholly owned within the Group
3 Capital management disclosures
4 The effect of future accounting standards not adopted
5 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:
IT systems & software – 3-5 years
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements 91
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
3-5 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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Notes to the Company Financial Statements continued
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.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements 93
2017
Number
2016
Number
10
10
12
12
2017
£’000
993
125
84
39
1,241
2016
£’000
1,065
128
116
88
1,397
2. Employees
Average weekly number of employees, including Executive Directors:
Administration
Staff costs, including Directors:
Wages and salaries
Social security costs
Other pension costs
Share based payments
Further details of Directors’ remuneration are provided in the Report of the Remuneration Committee.
3. Operating profit
The Auditor’s remuneration for the audit and other services is disclosed in note 8 to the consolidated financial statements.
4. Investments in subsidiary companies
Cost and net book value
At 1 October 2016
Investments made in the year
Share options granted to subsidiary company employees
At 30 September 2017
The Company acquired 100% of the issued share capital of Martract Limited on 7 December 2016.
Investment
in subsidiary
companies
£’000
36,430
4,580
82
41,092
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Notes to the Company Financial Statements continued
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
Chesterfield Special Cylinders Inc (formerly 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
Martract Limited
PT Precision Machined Components Limited
Precision Machined Components 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
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
Manufacturing
Holding company
Holding company
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 1 October 2016
Additions
At 30 September 2017
Amortisation
At 1 October 2016
Charge for the period
At 30 September 2017
Net book value
At 30 September 2017
At 1 October 2016
IT systems
& software
£’000
43
258
301
1
9
10
291
42
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
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Total
£’000
3,839
66
3,905
199
119
318
3,587
3,640
Land and
Plant and
buildings machinery
£’000
£’000
Computer
equipment
£’000
3,355
—
3,355
20
10
30
3,325
3,335
442
1
443
178
90
268
175
264
42
65
107
1
19
20
87
41
6. Tangible fixed assets
Cost
At 1 October 2016
Additions
At 30 September 2017
Depreciation
At 1 October 2016
Charge for the period
At 30 September 2017
Net book value
At 30 September 2017
At 1 October 2016
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)
2017
£’000
144
8
14,575
18
14,745
2016
£’000
138
92
13,324
21
13,575
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Notes to the Company Financial Statements continued
8. Creditors
Amounts: falling due within one year
Trade creditors
Other tax and social security
Accruals and deferred income
Other payables
Corporation tax
Amounts due on hire purchase contracts
Amounts: falling due after one year
Bank loan
Amounts due on hire purchase contracts
Details of bank borrowings are set out in note 22 to the consolidated financial statements.
9. Taxation
Current tax
Current tax credit
Over provision in respect of prior years
Deferred tax
Origination and reversal of temporary differences
Total taxation credit
2017
£’000
2016
£’000
237
28
325
99
—
28
717
2017
£’000
15,000
90
15,090
99
42
329
—
120
17
607
2016
£’000
12,300
69
12,369
2017
£’000
2016
£’000
—
(120)
(120)
3
(117)
—
—
—
—
—
Corporation tax is calculated at 19.5% (2016: 20%) of the estimated assessable profit for the period. Deferred tax is calculated
at 18% (2016: 17%).
10. Share capital
Details of the Company’s authorised and issued share capital and of movements in the year are given in note 26 to the consolidated
financial statements.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements
97
2016
£’000
21
—
21
2016
£’000
30
(9)
—
21
Profit
and loss
account
2016
£’000
12,994
5,924
99
217
—
(810)
18,424
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
Other temporary differences
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
2017
£’000
21
(3)
18
2017
£’000
37
(20)
1
18
Share
premium
account
2017
£’000
21,620
—
—
—
17
—
21,637
Profit
and loss
account
2017
£’000
18,424
3,586
39
82
—
—
22,131
Share
premium
account
2016
£’000
21,539
—
—
—
81
—
21,620
See note 26 in the Group financial statements for details of the movements on share capital and share premium in the year.
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Notes to the Company Financial Statements continued
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 32 in the Group financial statements.
14. Ultimate controlling party
The Directors consider that there is no ultimate controlling party.
15. Post balance sheet event
On 6 November 2017, a total of 4,100,000 new Ordinary Shares of 5 pence each in the Company were placed at a price of 122 pence,
raising proceeds of £5,002,000 before expenses. Net proceeds of the placing were £4,764,000.
Pressure Technologies plc Annual Report 2017Section 3 Financial Statements Photography:
www.charliefawell.com
Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire
S35 2PH
UK
Telephone +44 (0) 114 257 3616
pressuretechnologies.com