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ANNUAL REPORT 2019
INTRODUCTION
CONTENTS
02
06
08
10
14
20
04
Overview
Strategic Report
Business Review
Our Marketplace
Financial Review
Our Stakeholders
Vision and Strategy
Chairman’s Statement
Key Performance Indicators
Sustainable and Responsible Business
Leading UK designers
and manufacturers of
high-integrity, safety-
critical components
and systems serving
global supply chains
in oil and gas,
defence, industrial
gases and hydrogen
energy markets.
Independent Auditor's Report
to the Members of Pressure Technologies 44
Report of the Remuneration Committee 36
Introduction to Corporate Governance
Audit and Risk Committee Report
Risks and Uncertainties
Directors and Advisors
Directors' Report
Governance
26
22
30
34
28
42
38
Financial Statements
Consolidated Statement
of Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Accounting Policies
Notes to the Consolidated
Financial Statements
Company Statement of
Financial Position
Company Statement of
Changes in Equity
Notes to the Company
Financial Statements
Company Information
50
51
52
53
54
65
86
87
88
95
Please visit our website
for more information:
www.pressuretechnologies.com
CONTENTS
Strategic Report
Overview
Chairman’s Statement
Our Stakeholders
Vision and Strategy
Our Marketplace
Business Review
02
04
06
08
10
12
Sustainable and Responsible Business 18
Financial Review
Key Performance Indicators
Risks and Uncertainties
Governance
Introduction to Governance
Directors and Advisors
20
24
26
30
34
Report of the Remuneration Committee 36
Directors’ Report
Audit and Risk Committee Report
Independent Auditor’s Report
to the Members of Pressure
Technologies
Financial Statements
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Accounting Policies
Notes to the Consolidated
Financial Statements
Company Statement
of Financial Position
Company Statement
of Changes in Equity
Notes to the Company
Financial Statements
Company Information
38
42
44
50
51
52
53
54
65
86
87
88
95
INTRODUCTION
Our Vision
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.
Our Mission
To create value for our customers by
enhancing the performance of their
safety-critical supply chains and
to advance safety and reliability in
demanding environments through
technology, high-quality engineering
and the skills of our people.
OUR BUSINESSES
Our businesses work
in close collaboration
with our customers
who require unique
engineering solutions
for their products used
in harsh operating
environments.
To read more see page
03
Please visit our website
for more information:
www.pressuretechnologies.com
GROUP HIGHLIGHTS
I am pleased with the significant improvement in trading performance this year. We have
made important management and operational changes within the business over the
course of the year. I am also pleased with the way our teams have responded during this
transitional period and encouraged by the progress we have made with organisational
development and culture that is key to delivering sustainable growth.
Chris Walters
Chief Executive
Group revenue*
£28.3M
(2018: £21.2m)
Gross profit margin
32.4%
(2018: 34.2%)
Adjusted earnings per share*
7.8P
(2018: 2.9p)
Reported basic loss per share
(2.1)P
(2018: (7.5)p)
Adjusted operating profit**
Adjusted net operating cash inflow***
£2.2M
(2018: £1.0m)
Reported loss before tax
£0.5M
(2018: £1.7m)
£2.0M
(2018: £1.9m)
Net debt
£11.4M
(2018: £6.7m)
Continuing operations only excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits.
*
** Operating profit excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits.
*** Before cash outflow for exceptional costs.
OUR BUSINESSES
CHESTERFIELD SPECIAL CYLINDERS
PRECISION MACHINED COMPONENTS
Operating for over a century, Chesterfield
Special Cylinders designs and manufactures
high-pressure gas containment systems
and provides through-life integrity
management services for safety-critical
applications in defence, oil and gas,
industrial and energy markets.
The Precision Machined Components
division comprises the Roota Engineering,
Quadscot Precision Engineering, Al-Met
and Martract brands, with world-class
lead times, highly specialised precision
engineering skills and a blue chip customer
base in the global oil and gas market.
01
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 OVERVIEW
Focused on keeping us at the
forefront of engineering excellence
BUSINESS MODEL
We are UK based with our divisions serving a global blue
chip customer base working in close collaboration with our
customers who require unique engineering solutions for their
products used in harsh operating environments in the oil and
gas, defence, industrial gases and hydrogen energy sectors.
WHO WE ARE
AIM listed group, headquartered in Sheffield, England, operating through two manufacturing
divisions over five sites with over 220 people across the UK and Europe.
WHAT WE DO
Leading UK designers and
manufacturers of high-integrity,
safety-critical components and
systems serving global supply chains
in oil and gas, defence, industrial
gases and hydrogen energy markets.
To read more see page
10
Oil and Gas
Defence
Industrial
gases
Hydrogen
energy
INVESTING IN KEY AREAS OF OUR BUSINESS
1. Investment in our people
2. Investment in technology
3. Investing in our culture
The success of the Group
comes from our people. Our
performance and our reputation
are achieved through their skills,
experience and relationships.
Investment in new equipment
and technology skills enables us
to deliver an extended range of
products, while improving quality
and efficiency.
Organisational development
and culture is key to delivering
sustainable growth and
continuous improvement.
To read more see page
18
WHAT WE VALUE MOST
Everything we do as a company
stems from our core values.
02
Honesty
Integrity
Service
Teamwork
Pressure Technologies plc Annual Report 2019 More information
Business Review
12
OUR BUSINESSES
CHESTERFIELD SPECIAL CYLINDERS
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’s high pressure cylinders are a critical component for
a number of end applications from defence submarines, to
oxygen cylinders in fighter jets, the bulk storage of gases
to ultra large air pressure vessel systems used for motion
compensation on floating oil rigs.
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.
To read more see page
14
Revenue
£13.9m
Profit
£2.1m
PRECISION MACHINED COMPONENTS
The Precision Machined Components (PMC)
division comprises the four brands of Roota
Engineering, Quadscot Precision Engineering,
Al-Met and Martract.
These brands 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.
Serving the oil and gas market, these businesses specialise
in supplying key components, made from super alloys,
manufactured to exacting standards and tolerances, that
are destined for extreme or hostile environments such as
deepwater and subsea oil exploration and wear parts for
offshore and onshore oil production.
To read more see page
15
Revenue
£14.4m
Profit
£1.9m
03
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 CHAIRMAN'S STATEMENT
Committed to delivering
quality and value
Good progress has been made
in both divisions with positive
market conditions prevailing
and, whilst 2019 had its
challenges, I am pleased to
report substantially improved
trading results.
Overview
Many steps have been taken
to prepare the business for the
improving conditions in our core
markets. As momentum builds
in the oil and gas industry and
our presence grows further in
global defence markets and
the emerging hydrogen energy
sector, we have strengthened
and diversified our order book
and have a clearer view of our
customers’ project pipeline
today than at any point in the
past five years.
The strategy review undertaken
during the first half of the year
confirmed focus on organic
growth opportunities and
I am pleased with the progress
made in this phase of executing
the strategy.
As reported at the interim
results, we were pleased to
complete in June the sale
of our Alternative Energy
division to Vancouver-based
Creation Capital Corporation
LLC, now renamed Greenlane
Renewables Inc. This strategic
divestment gives the Group
a clear focus on the growth
and development of its
core specialist engineering
activities.
In the remaining Group
businesses, key initiatives
covering sales effectiveness,
production planning and
efficiency, engineering
processes and supply chain
management are expected to
drive the delivery of organic
revenue growth and margin
improvement, which is a key
priority in the second phase
of our strategy.
Results
Overall Group revenue
increased by 34% to £28.3
million (2018: £21.2 million) and
the adjusted operating profit
for the period increased to
£2.2 million (2018: £1.0 million).
This improvement represents
an increase in return on
revenue to 8% (2018: 5%)
and reflects, in particular, the
strength of UK and overseas
defence projects in our
Chesterfield Special Cylinders
division (CSC).
Neil MacDonald
Independent Non-Executive Chairman
Our vision for growth comes as part of
As Chairman of the Board I have a
our three phase plan for the continued
clear focus on good governance and
success of our Company.
ensuring that the Company stays on
track to success.
Phase One
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06
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Audit and Risk Committee Report
Phase Two
42
To read more see page
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Phase Three
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04
Pressure Technologies plc Annual Report 2019 financial statements on
a going concern basis.
Further details are in
Note 31 to these financial
statements.
People
We have recently received the
results from our second people
engagement survey undertaken
with ‘Best Companies’. This
shows encouraging progress
with an increase in both the
number of respondents and
engagement scores and it is
pleasing to note that a number
of respondent groups have
been classed as ‘Ones to
Watch’. I would like to thank all
our teams for their hard work
throughout the year and their
contributions during a period
of significant change.
We reported in June that we
were looking to strengthen the
Board. The search and selection
process is nearing completion
and we expect to make new
non-executive appointments
early in the New Year.
Outlook
The current trading
performance, order intake
and strategic progress made
in both divisions give the
Board confidence in the
outlook for 2020.
Neil MacDonald
Independent
Non-Executive
Chairman
17 December 2019
Favourable conditions in the
oil and gas market have driven
higher revenue and profitability
in our Precision Machined
Components (PMC) division
this year and the order book
is at the highest level for five
years. However, operational
improvements have been
slower to come through than
we had planned, impacting
performance through the
second half. The changes
made over the past year have
been fundamental to building
a stronger and more scalable
base for PMC that will help us
realise the potential for growth.
It remains a priority to reduce
the overall leverage of the
Group, whilst supporting the
business with the capital
investment programme and
achieving a minimum 20%
headroom in our facility
covenants. The Group’s
Revolving Credit Facility (RCF)
was renegotiated in September
and the new facility was fully
documented and signed post
year end on 10 December 2019.
The Board has again resolved
that no dividend shall be paid
to shareholders this year as
investment in the organic
growth strategy remains the
priority for capitalising on the
improving market conditions.
In November we announced
that a trial had commenced
in respect of the prosecution
by the Health & Safety
Executive (HSE) following the
fatal accident at CSC in June
2015. At the conclusion of the
trial, in late November, the
jury delivered a guilty verdict
pursuant to Section 2 of the
Health and Safety at Work
Act 1974 and we await the
sentencing hearing which is
now expected to take place
in the New Year. The outcome
of the sentencing hearing
is uncertain and whilst the
range of possible outcomes
is significant, the Directors
are satisfied that the Group
can continue to prepare its
Breakthrough customer: IM gains multiple
periodic inspection and testing contracts
for Rever Offshore
CSC’s Integrity Management team has
secured multiple contracts with Rever
Offshore, one of the world’s leading
subsea construction and offshore
management services providers.
IM’s acoustic emission testing techniques are winning new
work because they demonstrate many advantages over
traditional hydro testing, including speed, budget and –
importantly – keeping water out of safety-critical cylinders.
Breakthrough customer: CSC’s £3 million-plus
contract with EDF Energy
CSC has won a contract valued in
excess of £3 million to supply nitrogen
storage solutions to EDF Energy’s UK
nuclear power plants at Heysham,
Torness and Hartlepool.
This highly prestigious design and supply contract follows
a successful collaboration with the EDF Energy team.
The turn-key solution incorporates an innovative modular
design for the cylinder assemblies optimised for through-
life integrity management and recertification.
05
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 OUR STAKEHOLDERS
Responding to our
stakeholders’ needs
The Board fully recognises that long-term growth and profitability
are enhanced when businesses behave in a sustainable and
responsible manner, with respect for the environment and all
stakeholders. The Group’s stakeholders include Customers,
Employees, Shareholders, and the communities in which the
Group’s businesses operate. The Company actively encourages
good communications with all stakeholders.
OUR STAKEHOLDERS
OUR STAKEHOLDERS
CUSTOMERS
EMPLOYEES
We do this by
Our customers are pioneers in
what they do.
We work in close collaboration with
them to develop technical solutions
for their engineering needs and produce
products that can be trusted to deliver
in environments where failure would
be catastrophic.
Customer feedback helps us measure
customer satisfaction. Customer
satisfaction and loyalty are crucial factors
that determine our financial performance
and we look to improve this constantly.
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.
We implemented the Group’s first
“Employee Engagement Survey” in January
2018 and the second survey has recently
concluded. We recently received a great
71% response rate with very pleasing
results and positive progress in many
areas. The survey is intended to provide
a benchmark for continual improvement.
Key areas of interest
• Our customers are essential to the
successful delivery of our products
and their outcomes.
• Committed, well trained, highly skilled
and motivated employees are at the
heart of our business.
• Building and maintaining robust
relationships and maintaining an
appropriate level of communication
with our customers will ensure that:
• they receive the information
they require;
• they are consulted;
• their needs and requirements
are heard and actioned; and
• there is a formal feedback
process in place.
• We strive to create a working
environment where our employees can
fulfil their potential by offering training,
career opportunities and a platform for
innovation.
• By doing this, we get the best from our
people who enjoy working with us.
06
06
Pressure Technologies plc Annual Report 2019 OUR STAKEHOLDERS
SHAREHOLDERS
COMMUNITY
More information
Sustainable and Responsible Business
18
Through strong management, we
have demonstrated resilience during
challenging market conditions, responding
to changing environments and reviewing
the focus of the Group to ensure we
remain well positioned to deliver value
to shareholders.
The Chief Executive and Chief Financial
Officer meet regularly with the Group’s
larger financial investors.
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.
To support the launch of our Health
and Wellbeing initiative, the Group has
made MIND, the mental health charity,
its nominated charity for 2019.
The Group also continues to support
local charities and employees who
individually raise money for charities
lose to their heart.
• The Company actively encourages good
communication with all shareholders
from the largest to the smallest.
• Feedback is obtained following all
investor meetings and this is reviewed
by the Board.
• The executives will often host or attend
events for new and existing private
investors.
• The Company has always aimed
to accommodate investors who
wish to visit its manufacturing sites.
• 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.
• Employees are given as much
information, training and equipment
as is necessary to enable them to
undertake their work with the minimum
impact on the environment.
Pressure Technologies plc Annual Report 2019
07
07
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 VISION AND STRATEGY
Vision for
Growth
Creating value for investors,
customers, colleagues and
the communities we operate
in through:
• Quality of our products and services
• Financial Performance – revenue, operating
profit, EPS, dividend
• Customer Preference – market share, repeat
business, new customers
• Operational Excellence – margins, lead times,
supply chain performance
Our Vision
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.
The Group is well placed to take advantage of
improving market conditions and realise the
benefits of the investment in people, new
equipment and supporting processes.
To find out more please see the Business
Review on pages 12 to 17.
Our Strategy
In March 2019, we completed a strategic review
and set out the vision for growth in three phases:
1. Refocus
2. Deliver Organic Growth
3. Accelerate Growth and Build Scale
PHASED APPROACH
Phase 1 - Refocus
Divestment of non-core divisions
• Completed sale of Hydratron in June 2018.
• Completed sale of the Alternative Energy
division in June 2019.
• Group now focused on its two core divisions.
Recover profitability and cash generation
• Increase in adjusted operating profit and
Return on Revenue increased by 2.9ppt
in 2019.
• Ongoing investment in advanced CNC
machine tools across the Group to improve
productivity and increase the range and
scope of products.
• Operating cash inflows from continuing
operations in 2019, although working
capital was higher than internal targets
at the year end.
Confirm strategic focus and growth plans
• Strategy review undertaken and strategic
focus areas and priorities set out in the
2019 interims.
• Management changes and reorganisation
to bring clearer accountability in both
divisional teams.
• Integrated divisional operating structure
implemented in PMC.
• Appointment of a Group Head of IT to
advance systems and infrastructure to
support operational improvements and
enhanced information security.
• Appointment of HR business partners to
support management teams to navigate
change effectively, enable recruitment and
training and address welfare matters.
08
2019
2020
Pressure Technologies plc Annual Report 2019 PHASED APPROACH
Phase 2 - Deliver
Organic Growth
Grow revenue and margin from existing and new customers
• Increase in revenue across the Group from existing and
new customers.
• 27% increase in order intake compared to the same period
in 2018 in PMC.
• New customers in both divisions and a substantial
contract with EDF Energy for Chesterfield Special
Cylinders for delivery in 2020.
• New customer acquisitions in PMC.
Grow revenue and margin from extended
product scopes and emerging sectors
• Investment in advanced CNC machine tools across
the Group which adds capability, scope and efficiencies.
• Delivery of first projects into the Hydrogen Energy
sector by CSC.
• New product scope and size delivered by PMC.
• Qualifying R&D projects supported new product
development.
Grow margins through operational improvements
and growth
• £0.8 million has been invested in IT systems and
infrastructure to support operational improvements.
• Commenced operational improvements to deliver
growth in margins.
Phase 3 - Accelerate
Growth and Build Scale
Growth from new sectors
Growth from new regions
Scale from acquisitions
• Our priority is to demonstrate the organic growth
potential of the focused Group, but we continue
to appraise growth and development through
acquisition where we see opportunity to advance
our scale, technical capability and reach into new
sectors and regions.
2021
2022
2023
09
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 OUR MARKETPLACE
Adapting in a
dynamic market
During the last year our two key
markets, oil and gas and defence, have
shown strong growth which is predicted
to continue and constituted nearly 90%
of the Group’s revenue in 2019. Growth
in the emerging hydrogen energy supply
chain is a key area of focus with the
first orders into this sector being
delivered in 2019.
How we reacted
We have remained focused on increasing the capability,
scale and reach of the Group’s core specialist manufacturing
activities in target oil and gas and defence markets. We are
well placed to take advantage of improving market conditions
and realise the benefits of the investment in people, new
equipment and supporting processes.
OIL AND GAS
This market is primarily served by businesses in our
Precision Machined Components division but also by
our Cylinders division.
The precision machining businesses in the Group are leaders
in their markets, supplying high integrity components for
subsea applications to global oil services companies. The Group
has embraced the shift to collaborative working and invested in
sales and technical capabilities.
Cylinders are focused on defence, and will benefit from an
upturn in the oil and gas sector, with demand for its motion
compensation systems on offshore oil platforms anticipated
to recover in 2021.
DEFENCE
CSC has long-term contracts to supply bespoke products
and services for the key submarine build programmes and
for surface vessels such as the Type 26 Frigate. Its status
as the leading global supplier of high pressure gas storage
solutions to NATO member states and NATO-friendly nations
remains stronger than ever, underpinned by the growing
importance of Chesterfield Integrity Management (CSC IM),
which is the principal provider of inspection and testing
services to the MoD for ongoing cylinder performance and
safety management on the Astute, Vanguard and Trafalgar
classes of nuclear submarines.
CSC IM’s five year strategy to develop a long-term defence
sector order book through its German office continues to secure
contracts with a growing number of navies around the world.
INDUSTRIAL GASES
This market is predominantly served by our Cylinders division
but also by Martract, a business within our Precision Machined
Components division.
This market crosses multiple sectors for CSC including
cryogenics and bulk gas transport and storage, as well as
scientific research facilities and universities. As disciplines such
as cryogenics continue to expand, the demand for bespoke, high
quality gas containment systems also grows, driven by safety
and control requirements. The growth of gas management
systems within the higher education sector is being driven
by the expansion of vocational and practical courses nationally
and internationally.
Market Revenue
4
3
2
1
Oil and gas: £16.3m
Defence: £9.1m
Industrial gases: £2.2m
Hydrogen energy: £0.7m
HYDROGEN ENERGY
Growth in the emerging hydrogen energy supply chain is a
key area of focus, with two orders for large high-pressure
ground storage cylinders secured over the past year for
projects in the UK and overseas. With a dedicated hydrogen
solutions team and extensive sales pipeline, we are well
positioned to secure a strong share of this market as it
expands further in the UK and globally.
10
Pressure Technologies plc Annual Report 2019 POTENTIAL
Global demand for oil remains strong at near 100 million
barrels per day (mbd), supported by growth from emerging
markets. The low oil price environment of recent years
has seen large scale investment cuts in oil exploration,
resulting in fewer oil discoveries. With an oil price above
$50, confidence to sanction new projects has returned.
The sustained low oil price environment of recent years has
advanced technical innovation in the oil service industry
and reduced the cost of oil exploration and production. An
era of collaboration between the oil service majors and
component manufacturers now exists to produce parts
more efficiently, on a ‘cost-out’ basis, without compromising
integrity and often improving it.
CSC
PMC
Revenue (£’000)
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
+31.2%
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
POTENTIAL
Revenue (£’000)
The current defence spending is being driven by the need to
update ageing warcraft and pressure from the US for NATO
allies to increase defence spending.
Military spending globally is at record levels, having risen to
$1.74 trillion in 2017. In the UK, the MoD spend for 2018/19
was £38 billion. The committed spend over the next 10 years
is almost £180 billion, £44 billion of which is on submarines,
principally Dreadnought, and £19 billion on ships, including
the Type 26 Frigate.
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
+42.0%
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
POTENTIAL
Revenue (£’000)
CSC provides both storage solutions and inspection,
reconditioning and retest services. The industry has a
CAGR of 7.7% and further opportunities for CSC will come
from education, nuclear power, gas storage, and scientific
research. CSC is renowned across the UK higher education
sector for its ability to meet the highest design and
manufacturing standards.
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
-7.1%
POTENTIAL
Revenue (£’000)
The growth in renewable energy as part of the energy mix is
driving the need for gas storage, particularly hydrogen and
as the hydrogen market grows so too does the need for gas
storage, creating opportunities for CSC in particular with
refuelling stations for mass transport.
This sector has the potential to become a significant
long-term growth opportunity.
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
n/a
11
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 BUSINESS REVIEW
Strategic progress and market
conditions underpin our outlook
The past year has been a period
of significant change for the
Group and I am pleased with
the developments and progress
we have made.
Chris Walters
Chief Executive
When I joined the business just over
a year ago, I commented that we were
preparing for improving conditions
in the oil and gas market and these
conditions have contributed to a
considerable improvement in our
trading performance.
We have made important
management and operational
changes within the business
over the course of the year.
I am pleased with the way
our teams have responded
during this transitional period
and have been encouraged
by the progress made with
organisational development
and culture that is key to
delivering sustainable growth
and continuous improvement.
Good strategic progress and
the favourable conditions in
core markets underpin our
confidence in the outlook
for 2020. Both divisions
hold strong order books
with reduced customer
concentrations and have
recently posted record
contract wins from an
increasingly diverse and
buoyant sales pipeline.
12
Pressure Technologies plc Annual Report 2019 major contract wins in new
target markets. Investment
in new equipment and skills
has enabled us to deliver an
extended range of products,
while improving quality and
efficiency.
Looking beyond the financial
performance, there are
encouraging signs of the
cultural and behavioural
changes necessary to deliver
stronger performance and
sustainable growth. Further
progress has been made in
modernising and standardising
people management policies
with dedicated HR support in
each division. This has helped
the divisional management
teams navigate recent
changes effectively and
enabled recruitment, training
and welfare issues to be
managed successfully across
the divisions. We have also
strengthened our IT systems
and infrastructure during the
year to support operational
improvements and enhanced
information security.
Further progress has been made in modernising
and standardising people management policies
with dedicated HR support in each division.
Performance
£ million revenue
Group Revenue
Oil and Gas
Defence
Industrial Gases
Hydrogen Energy
Group Operating Profit
2019
2018
2017
2016
28.3 21.2 18.8 20.3
16.3 12.4 10.6 12.5
9.1
2.2
6.4
2.4
6.4
1.8
6.5
1.3
0.7 — — —
2.2
1.0
1.6
1.0
Overall Group revenue for
the year was £28.3 million
(2018: £21.2 million), up
34% as a result of stronger
performance in both divisions,
driven by UK and overseas
defence contracts, increasing
momentum in the oil and gas
market and the delivery of our
first orders to hydrogen energy
customers.
Adjusted operating profit
more than doubled to £2.2
million (2018: £1.0 million),
driven by increased revenue
in both divisions, but offset by
a lower overall gross margin
and investment in operational
improvements, sales and
support functions.
Order backlog and delayed
output increased working
capital and slowed cash
generation, especially during
the second half. Overall
leverage remains higher than
our internal target of 20%
headroom, with debt levels
impacted further by cash
outflows in the year from
discontinued operations.
We expect working capital
to unwind early in 2020 as
the order backlog clears and
operational initiatives take
effect, delivering shorter lead
times, improved margins and
recovering cash flows.
The strategy review undertaken
during the first half of the year
confirmed areas of strategic
focus and at the interims we
set out our three-phase vision
for growth over the next five
years. Priorities for the first
phase included the divestment
of non-core divisions, returning
the Group to profitable
trading and establishing the
foundations for organic growth
in the second phase.
I am pleased to report that
we have made good progress
in the first phase, with the
divestment of the Alternative
Energy division in June,
enabling the Group to focus
on its core divisions. We
have started to demonstrate
the Group’s organic growth
potential across both divisions,
with increased sales volume
from existing customers, new
customer acquisitions and
£28.3m
Group revenue
£2.2m
Adjusted operating profit
13
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 BUSINESS REVIEW continued
CHESTERFIELD SPECIAL CYLINDERS (CSC)
£ million revenue
Divisional Revenue
Oil and Gas
Defence
Industrial Gases
Hydrogen Energy
Gross Margin
Operating Profit
Return on Revenue
Divisional revenue for the year was up
39% to £13.9 million (2018: £9.9 million),
driven by UK and export defence contracts,
offshore drilling unit air pressure vessel
orders, Integrity Management deployments
and our first cylinder deliveries for
hydrogen refuelling station projects.
Total defence market revenue increased
by 42% to £9.1 million (2018: £6.4 million),
representing 66% of divisional sales.
Revenue for the supply of ultra-large
cylinders to UK defence contracts nearly
doubled to £4.1 million (2018: £2.1 million),
driven by the phasing of activity on the
Dreadnought submarine programme.
Revenue for export naval contracts
increased by 12% to £3.2 million (2018:
£2.8 million) for new construction projects
in Germany, France and South Korea.
Total oil and gas market revenue increased
by 55% to £2.2 million (2018: £1.4 million),
representing 16% of divisional sales.
Performance was driven by ultra-large
cylinder demand for semi-submersible
drilling unit projects in Singapore for our
new customer MH Wirth.
The first ultra-large cylinders for hydrogen
refuelling stations in the UK and France
delivered revenues of £0.7 million,
representing 5% of divisional sales in 2019
and demonstrating strategic progress in
this exciting target market.
2019
13.9
2.2
9.1
1.9
0.7
36%
2.1
15%
2018
2017
2016
9.9
1.4
6.4
2.1
—
35%
1.1
11%
8.4
0.8
6.4
1.2
—
41%
1.1
13%
9.5
1.8
6.4
1.3
—
34%
1.1
11%
Industrial gases market revenue fell to
£1.9 million (2018: £2.1 million) due to a
reduction in space programme projects,
but the order book was strengthened
significantly at year end with a major
contract win with EDF Energy.
Integrity Management services delivered
strong growth for the fourth consecutive
year, with total revenue up 48% to £1.2
million (2018: £0.8 million). Revenue from
UK naval deployments increased by 82% to
£0.6 million, driven by the steady increase
in adoption of in-situ inspection and
recertification across the UK submarine
and surface vessel fleets. Non-naval
revenues increased by 18% to £0.2 million
with major new customer acquisitions in
the diving support vessel market.
Overall divisional gross margin increased
to 36% (2018: 35%), with higher margin
UK naval projects in the first half offset by
export naval contracts and non-defence
projects in the second half.
Operating profit for the division increased
by £1.0 million to £2.1 million (2018: £1.1
million) and return on revenue increased
to 15% (2018: 11%).
£13.9m
Divisional revenue
£2.1m
Divisional operating profit
14
We have focused on the key strategic
initiatives set out previously at the interims
to support the organic growth plan and
the results of these changes have already
been seen with the division securing new
projects in both traditional and new target
markets. The investment in technology
made this year will advance our handling
and finishing processes, bringing improved
production efficiency and throughput
capacity that will underpin the delivery
of improved margins.
Successful diversification into the nuclear
power generation market came during the
year with our largest ever non-defence
contract award from EDF Energy for the
supply of ultra-large nitrogen storage
cylinders to four sites in the UK. This
market also presents a major recurring
revenue opportunity for through-
life technical support and Integrity
Management services for installed cylinder
fleets in the UK and worldwide.
I am pleased with performance for the
year at CSC and with the progress made
in strategic focus areas. The order book
for 2020 is strong and the division is
well positioned to benefit from exciting
opportunities in the sales pipeline across
all target markets.
Pressure Technologies plc Annual Report 2019 PRECISION MACHINED COMPONENTS (PMC)
£ million revenue
Divisional Revenue
Oil and Gas
Industrial Gases
Gross Margin
Operating Profit
Return on Revenue
Divisional revenue for the year was £14.4
million (2018: £11.2 million), up 30% as
a result of increased order volumes from
oil and gas customers as momentum
continues to build in the market.
Demand for highly specialised drilling,
production and valve components from
OEM customers increased sharply in
the first half of the year and steadily
thereafter, driven by the continuing
recovery in global exploration and
production activity.
Market dynamics and improved sales
effectiveness helped increase order intake
by 27% over the year to September 2019.
However, the sharp upturn in order intake
and customer demand for shorter lead
times strained the PMC businesses as
capacity and operational improvements
lagged the increase in secured orders. This
resulted in delayed output and adversely
affected margins and cash flows in the
second half. Delays were compounded
by constraints in the supply chain for
specialist coatings and treatments,
which further extended delivery
schedules. To address this, management
and operational changes were made
during the year, along with significant
capacity increases and improvements to
production planning and the management
of subcontracted processes. Good
progress has been made with the recovery
of on-time delivery performance as noted
by our customers and the improvement of
margins and cash generation is expected
in the first half of 2020.
2019
14.4
14.0
0.4
29%
1.9
13%
2018
11.2
11.0
0.2
33%
1.5
13%
2017
10.4
9.8
0.6
35%
1.8
18%
2016
10.7
10.7
—
31%
1.4
13%
Changes made to drive the turnaround
at the Quadscot site, after four years of
loss making performance, failed to deliver
sufficient improvement through the first
half. Output delays and increasing backlog
through the second half resulted in site
output falling significantly behind plan,
which adversely impacted divisional
performance and contributed to a lower
than forecast improvement in margin for
the second half. However, operational
improvements made since year end
have positioned Quadscot to recover
profitability and be a positive contributor
to the division in 2020. These changes
demonstrate the developments that have
been required during the initial phase of
the strategy.
Overall divisional gross margin reduced
to 29% (2018: 33%), impacted by
the delayed output, new customer
onboarding, extended commissioning
of new machining centres and early
recruitment to build operational capacity.
Operating profit for the division increased
by 25% to £1.9 million (2018: £1.5 million).
Return on revenue remained flat at 13%.
The strengthening of the divisional sales
team with assigned responsibilities for
key accounts has delivered significant
growth from existing and returning
customers across all sites. Considerable
progress was also made during the year
with new major customer acquisitions,
including Halliburton, GE Baker Hughes,
TechnipFMC, Aker and Schlumberger,
widening regional coverage and extending
product scope. Revenues from new
customers represented 11% of the
divisional total in 2019 and more than
35% at both Quadscot and Martract sites,
showing good progress in reducing long-
standing customer concentrations.
Production headcount increased
significantly over the year and further
recruitment is ongoing for specialist skills
in milling, turning and grinding at all sites
to support the growing order book and
improving outlook. The introduction of
seven new advanced CNC machine tools
during the year completed the current
planned capital expenditure programme,
with no major expenditure planned
for 2020. The new machine tools have
extended product scope and range to
meet the current and future demand from
our target customers and to compete in
new areas. This major investment will help
shorten lead times and improve margins
across a wider product range.
Management changes and the new
divisional operating structure for PMC
have been fundamental to planning
for sustainable growth and underpin
scalability across the division. New
leadership and the integrated structure
have enabled improved collaboration
between site teams and a single business
information system now gives visibility of
performance in sales, production, quality
and safety across the division. Centralised
production planning implemented in the
second half supports increased sharing
and utilisation of capacity and skills
between sites and will improve margins
and reduce lead times.
It has taken longer than expected to
address and recover performance in
the division, but I am pleased with the
progress made more recently with
operational improvements, lead time
reduction and the recovery of quality and
on-time delivery performance, as better
planning, production control and supplier
management take effect across all sites.
£14.4m
Divisional revenue
£1.9m
Divisional operating profit
15
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 BUSINESS REVIEW continued
Strategic progress
In March 2019, we completed a strategic
review and set out the vision for growth
in three phases:
Phase 1 – Refocus (to mid-2020)
• Divestment of non-core divisions
• Recover profitability and cash
generation
• Confirm strategic focus areas,
develop growth plans
Phase 2 – Deliver Organic Growth
(from mid-2019)
• Grow revenue and margin from
existing and new customers
• Grow revenue and margin from
extended product scopes and
emerging sectors
• Grow margins through operational
improvements
Phase 3 – Accelerate Growth & Build
Scale (from late-2021)
• Growth from new sectors
• Growth from new regions
and regional operations
• Scale from acquisitions
As reported, progress has been made
under Phase 1 with the divestment of
the Alternative Energy division in the
year and the Engineered Products
division in the prior year. The recovery
of profitable performance and cash
generation for the remaining two
divisions is clear in the reported results
and further progress is expected. The
strategy review confirmed the areas of
strategic focus and the key initiatives
that will deliver growth and create value
over the next three to five years.
Organic growth has already been
demonstrated in both divisions,
with increased revenue from existing
customers, new customer acquisitions
and major contract wins in new target
markets. We have also started to see
the positive impact of investment in
new equipment through improved
product scope, quality performance
and efficiency gains. This strategic
progress supports the divisional
outlook for 2020 and beyond.
Outlook
Chesterfield Special Cylinders
The outlook for UK naval contracts remains
strong, with order book visibility to 2023
for Dreadnought submarine and Type-26
frigate programmes. The strategic focus
for UK naval programmes is to increase
contract margins through stronger project
management, operational improvements
and supply chain efficiencies. Savings
have already been identified in the supply
chain and are expected to deliver margin
improvements for UK and export projects
from 2020.
Export defence contracts were strong in
2019, but project phasing will drive fewer
orders and lower revenues in 2020. A
recovery of submarine build programmes
for foreign navies is expected in 2021,
with major projects in the pipeline for the
Australian and Indonesian navies. As the
preferred supplier to the world’s NATO-
friendly navies, the strategic focus is to
maximise our share of new construction
programmes and to develop an export
market for through-life technical support
and Integrity Management services,
thereby growing recurring revenue
and margin from in-situ testing and
recertification.
The outlook in oil and gas markets for
drilling unit air pressure vessels and diving
support systems remains unpredictable,
but we are well positioned for a recovery
and the opportunity pipeline is currently
stronger for 2020 and 2021 than previously
expected. We are seeing a slow but steady
increase in new project enquiries for air
pressure vessels, with returning customers
looking for product and system innovation,
where we can add value.
16
Pressure Technologies plc Annual Report 2019 Outlook
Momentum is building steadily in the
hydrogen energy market as the focus
on low-emission and low-carbon
transportation and power generation
increases globally. Following the delivery
of two breakthrough contracts over the
past year for projects in the UK and
Europe, we are well positioned to win
further contracts independently and with
our tendering partners for the supply and
through-life support of ultra-large high
pressure cylinders for hydrogen refuelling
stations worldwide. A new contract was
secured post year end with another major
hydrogen refuelling systems integrator
and a growing opportunities pipeline
underpins our confidence in the outlook
for significant growth in this strategic
focus area from 2021.
Following the delivery of two
breakthrough hydrogen energy
contracts over the past year for
projects in the UK and Europe,
we are well positioned to win
further contracts independently.
Our Integrity Management services are
highly valued by existing customers and
have tremendous growth potential in
the UK and worldwide. The outlook for
these recurring revenue services remains
positive with increasing demand from
the UK submarine and surface vessel
fleet maintenance programme for in-situ
cylinder testing and recertification. Diving
support vessel contracts are expected
to deliver further growth for in-situ
inspection in 2020, following several new
customer acquisitions and increasing
offshore activity.
Precision Machined Components
Momentum in the oil and gas market
continues and demand for highly
specialised drilling, production and
valve components from existing and new
customers is expected to remain strong
through 2020. Our customers forecast
further growth in 2021 as activity ramps
up on their offshore engineering projects
in the US Gulf of Mexico, South America,
West Africa, Australia and the North Sea.
We have increasingly diverse opportunities
in a growing sales pipeline. Deep water
subsea tree components, landing strings
and flow control and valve assemblies
have been dominant, while enquiries
for down-hole analytic components are
growing steadily.
New product development undertaken
with customers during 2018 and 2019
has resulted in orders for 2020 delivery,
demonstrating the value of time invested
in these collaborative projects.
I am pleased to report that order intake
continued to accelerate post year end,
with record levels in November 2019
and the highest 12-month intake for
over five years. The Al-Met team secured
their largest ever contract from a major
oilfield services customer, providing
recurring monthly revenues for the year
ahead. The divisional order book at the
end of November 2019 was 70% higher
than in 2018, with the Roota site having
increased their order book threefold in
12 months. The Quadscot site continues
to show strong growth from newly
acquired customers, with an order
book over 40% higher than at year end.
The completion of divisional integration
and operational improvements together
with new machine tools and the ongoing
investment in capacity are expected
to increase margins in the year ahead
and allow the division to capitalise
further on opportunities for growth and
diversification in a strong oil and gas
market.
We remain committed to creating value for
shareholders through the delivery of our
vision for growth. Strategic progress and
favourable conditions in target markets
underpin confidence in the outlook
for 2020, with both divisions holding
strong order books, posting recent major
contract wins and seeing increasingly
diverse opportunities in the sales pipeline.
Our focus is to ensure that operational
performance, margins and cash
generation keep pace with the progress
made in sales.
I look forward to the year ahead with
confidence as we start to see the benefits
of operational changes and strategic
progress made during the course of
this year. I would like to thank the
management team and all colleagues
for their commitment and support
through this busy year of change.
Chris Walters
Chief Executive
17 December 2019
17
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 SUSTAINABLE AND RESPONSIBLE BUSINESS
Investing in and supporting our
business and communities
2
4 5
3
1
6
CSC and PMC at its Roota Engineering
(“Roota”) operation have both made
major investments in new machinery
and equipment to improve their
manufacturing capabilities and
to meet rising demand for their
specialist products.
At CSC, the installation of a DMG four-axis horizontal
milling machine followed the securing of new orders for
safety-critical gas storage systems from various NATO
navies globally and from the nuclear power sector, most
notably the £3 million-plus contract from EDF Energy.
The new machine features a bespoke loading mechanism for
CSC’s specialist requirements and takes the company forward
in terms of capacity and capabilities, as well as improving the
control and monitoring of the manufacturing process thanks
to its integration features.
Additionally, CSC has upgraded its shot-blasting booth
and committed to a state-of-the-art Ultrasonic Testing
robotic system.
Over in Rotherham, Roota is also a beneficiary of the Group's
£2 million investment programme having taken delivery of a
new Soraluce milling machine which gives an extra dimension
to our milling capabilities.
The investment at Roota is designed to boost productivity
following a major sales drive into all four of the PMC
division’s target sectors – oil and gas, nuclear, defence and
petrochemical. It will also enable the division to produce more
complex and intricate products, reduce turnaround times and
extend its manufacturing capabilities.
Our Sites
Number of Employees
1 Al-Met: 47
2 Quadscot: 28
3 CSC/Head Office: 97
4 Roota: 39
5 Martract: 10
6 CSC Germany: 2
18
Pressure Technologies plc Annual Report 2019 £2.8m
Investment in
machine tools
>70%
Response rate to
employee engagement
survey
223
Total number of
employees
Serena Walks the Walk...In a Kilt
2
4 5
3
1
6
Across the Pressure Technologies Group
people are committed to contributing to their
local communities. Active either as volunteers
or charity fundraisers, the PT team reflects
a positive and forward-looking ethos that
sees them playing a key part in helping others
and taking responsibility outside the work
environment.
At Quadscot, administrator Serena Khan and
her friends raised an impressive £3,367 for
Glasgow Children's Hospital by taking part in
the 2019 Kilt Walk, an arduous 23-mile route
from central Glasgow all the way to the bonnie,
bonnie banks of Loch Lomond while wearing
the traditional Scottish garment. Serena
joined more than 13,000 other participants in
what was the biggest ever Kilt Walk, an annual
event in various cities across Scotland where
everyone taking part must wear a kilt.
No Holds Barred for MMA Fundraiser
Nothing quite so gentle for CSC’s Josh Parkin
who, having already conquered all-comers in
his charity boxing matches, returned to the
ring for a second major battle to raise funds
for Cancer Research UK. This time ‘Jabbing’
Josh upped the ante by participating in an
MMA (mixed martial arts) fight at Sheffield
United’s Bramall Lane where he not only beat
his opponent on points but also smashed his
fundraising target for Cancer Research UK.
Josh’s MMA fight was a much tougher physical
challenge than his previous efforts as it
combined boxing with wrestling moves, judo,
jiu-jitsu and karate among other contact
sports. MMA rules allow all manner of
punches, kicks and knees to the body and legs,
as well as punches to the head while standing,
choke holds and slams.
A victorious Josh nursed his wounds but was
proud of his fundraising efforts.
19
EMPLOYEE RETENTION
25%
>10 years’ service
11%
>20 years’ service
5%
>30 years’ service
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 FINANCIAL REVIEW
Focused on balancing investment
and net debt reduction
In the short term, the financial
priority continues to be
focused on the reduction of
net debt with working capital
management at the fore.
Joanna Allen
Chief Financial Officer
Revenue Split
2
1
Total: £28.3m
Precision Machined
Components: £14.4m
Chesterfield Special
Cylinders: £13.9m
More information
Business review
Risks and uncertainties
12
26
20
I am pleased to present the
results of what has been
another very busy year for
the Group.
Following the disposal of PT
Biogas Holdings Limited in the
year and Hydratron Limited in
the prior year, all results and
costs for the Alternative Energy
division and the Engineered
Products division have been
presented as discontinued
operations. The following trading
commentary is in respect of
continuing operations only.
Group revenue has increased
34% on the prior year. As
expected, phasing of large
defence projects in CSC was
weighted to the first half
although overall divisional
revenue was up 39% on the prior
year. PMC’s second half was 11%
up on the first half reflecting
the continued momentum in
the oil and gas sector and three
consecutive reported halves of
revenue growth.
We stepped up investment in
new equipment and technology
with £2.8 million of new plant
and machinery, £2.1 million of
which was on new machining
centres in the PMC division to
add capacity and capability. The
use of asset finance facilities to
fund this programme efficiently
resulted in new asset finance
leases of £2.0 million in the
year. The R&D tax credit relief
remains above 4% of revenue
with claims in 2019 expected to
be in excess of this (2018: 4.8%).
Our Group Head of IT, which is
a new role, joined the Group
in December 2018 to lead
the Group’s IT strategy and
associated risk management.
In the year a further £0.8
million has been invested in
IT systems and technology
to standardise systems and
improve infrastructure and
communications. We have also
made further progress with
automation of data analysis
and real-time management
information.
Pressure Technologies plc Annual Report 2019 In the short term, the financial
priority continues to be focused
on the reduction of net debt with
working capital management
at the fore. Financial covenants
on the Group’s revolving credit
banking facility (RCF) were
complied with throughout
the period. The operating
cash inflows overall were
positive, however the phasing
of contracts in CSC and the
order backlog in PMC adversely
impacted working capital in
the fourth quarter and cash
conversion was lower than
targeted at 0.5x (target over
1x); this will unwind through
2020. These factors, along with
the significant cash outflow of
discontinued operations up to
the date of disposal, have led to
an overall increase in net RCF
debt (excluding finance leases)
at the year-end of £2.9 million.
Following the disposal of the
Alternative Energy division,
a re-financing was undertaken
to review the banking facilities
required to support the Group's
post-divestment strategy, as
set out in the interim financial
statements. The Group's
RCF, which was put in place
in October 2014, had been
extended a number of times,
and was due to expire in April
2020. Fully committed and
credit approved terms were
reached for the replacement
RCF facility with the incumbent
bank in September 2019.
Documentation and signing
was completed on 10 December
2019 and, in accordance with
IAS 1, the borrowing has been
classified as a current liability
due within 6-12 months at the
balance sheet date. At the date
of these preliminary results the
facility is classified as a long-
term liability.
The new facility is on
substantially the same terms,
with the exception of a higher
and fixed margin. The total
facility is £12 million until the
end of November 2020 and
£10 million for the remainder
of the term and expires in
December 2021.
FINANCIAL HIGHLIGHTS
£28.3m
Group revenue*
(2018: £21.2m)
7.9%
Return on revenue***
(2018: 5.0%)
£(1.4)m
Total loss reduced
(2018: £(5.1)m)
32.4%
Gross profit margin
(2018: 34.2%)
£2.0m
Net operating cash inflow****
(2018: £1.9m)
£2.2m
Adjusted operating profit**
(2018: £1.0m)
£8.6m
Closing net RCF debt
(2018: £5.7m)
26%
Net working capital
as a % of revenue
(2018: 25%)
2019 CASH FLOW BRIDGE (£M)
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
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*
**
All information relates to continuing operations only, prior
period comparatives have been restated to remove discontinued
operations.
Operating profit excluding acquisition costs, amortisation on
acquired businesses and exceptional charges and credits.
*** Adjusted operating profit divided by revenue.
**** Before cash outflow for exceptional costs and excluding cash
flows associated with discontinued operations.
21
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019
FINANCIAL REVIEW continued
Trading results
2019 was the year of adoption
of IFRS 15 ‘Revenue from
contracts with customers’,
which we have applied using
the modified retrospective
approach without restatement
as it had no material impact
on previously reported results
or retained earnings. In
accordance with the transition
guidance, IFRS 15 has only been
applied to contracts that were
incomplete as at 30 September
2018 and the adoption of
this new standard has only
impacted the CSC division,
specifically the ultra-large
cylinder contracts.
CSC
39%
Revenue increase
Revenue increased nearly
40% on the prior year due
principally to the volume of
activity and number of projects
completed or in progress at the
year-end but also due to the
adoption of IFRS 15 ‘Revenue
from contracts with customers’
which for CSC has resulted in
£1.7 million of revenue being
recognised in the period ended
28 September 2019 that would
have been recognised in future
periods if IFRS 15 had not been
adopted. Consideration has
been given to the potential
impact of recognition over time
on the results for the period
ended 29 September 2018,
but due to the mix of ongoing
contracts at 29 September
2018, the impact would have
been immaterial.
22
Eleven contracts that are
categorised as ‘recognised
over time’ were in progress
at the end of the year with
seven customers. £5.2 million
of future revenue on these
contracts relates to as yet
unfulfilled performance
obligations which are due
for delivery in 2020.
Gross profit has increased
significantly in the year almost
entirely due to the volume of
activity; there was a 0.7ppt
increase in the gross margin
which reflects the actual mix
of work in the year.
As a direct result of the volume
of activity, CSC's operating
profit has nearly doubled to £2.1
million (2018: £1.1 million) and
there has been a 4ppt increase
in the Return on Revenue in the
year to 15.1% (2018: 11.1%).
PMC
30%
Revenue increase
PMC revenue has increased
almost 30% as volume of
activity and opportunity in
the oil and gas market has
continued through the year.
PMC’s second half was 11% up
on the first half reflecting the
continued momentum in the
oil and gas sector and three
consecutive reported halves
of revenue growth.
Gross profit has not increased
at the same rate as sales and
there was a 3.9ppt reduction
in gross margin, compared
to 2018, to 29%. The most
significant contributor to this
was the poor performance,
particularly in the second half,
of the Quadscot site which
failed to deliver sufficient
improvement through the
first half. Output delays and
increasing backlog through
the second half resulted in
site output falling significantly
behind plan, which adversely
impacted gross margin.
Operating profit increased 25%
to £1.9m which represents a
Return on Revenue of 13%,
a 0.4ppt fall from 2018.
Central costs
Unallocated central costs
(before M&A, amortisation
on acquired businesses and
exceptional charges) were £1.7
million (2018: £1.6 million).
In respect of the Group’s various
share option plans there was
a net cost in the year of £0.1
million (2018: net nil).
Exceptional items
Reorganisation and redundancy
costs in the year were £0.5
million (2018: £0.5 million),
which predominantly relate to
the restructuring of the PMC
division.
Amortisation costs were £1.8
million (2018: £1.8 million).
Discontinued operations
On 4 June 2019, the Group
completed the disposal of the
entire issued share capital
of its subsidiary, PT Biogas
Holdings Limited which was the
holding company for the Group’s
Alternative Energy division, to
Creation Capital Corp, a capital
pool company listed on the TSX
Venture Exchange. The business
was reported by the Group as
the Alternative Energy division.
In the prior year on 7 June
2018, the Group completed the
disposal of the entire issued
share capital of its subsidiary,
Hydratron Limited, to Pryme
Group Limited, majority owned
by Simmons Private Equity LLP.
This business was reported by
the Group as the Engineered
Products division.
£1.2m
Loss from discontinued operations
The £1.2 million loss from
discontinued operations in
2019 comprises the operating
loss of the Alternative Energy
division for the period up to
disposal, costs to sell and
impairment charges associated
with the business. The prior
year loss from discontinued
operations of £3.7 million
includes the results of both
disposals. Further details are
in Note 6 of these financial
statements.
Taxation
£1.2m
R&D tax credit
The tax credit for the year was
£0.1 million (2018: £0.3 million).
The loss before tax,
impact of the disposal of
the Alternative Energy division
and adjustments in respect of
prior years have all contributed
to the credit in 2019. The
applicable current tax rate
for the year is 19% (2018: 19%).
The utilisation of losses and
R&D tax credits has resulted
in a lower effective tax rate
than the current rate of tax.
R&D tax credit benefits across
the Group in respect of 2019
are projected to be around
£1.2 million (2018: £1.0 million).
Corporation tax refunded in
the year totalled £0.2 million
(2018: paid £0.1 million),
which relates to the UK. Tax in
overseas territories is minimal.
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 which arose
from trading activities was to
movements in the value of the
Euro, the CA Dollar and the US
Dollar relative to Sterling. As
the Group companies both buy
and sell in overseas currencies,
particularly the Euro and the
US Dollar, there is a degree of
natural hedge already in place.
Pressure Technologies plc Annual Report 2019 Eleven contracts in CSC that are categorised as ‘recognised
over time’ were in progress at the end of the year with
seven customers. £5.2 million of future revenue on
these contracts relates to as yet unfulfilled performance
obligations which are due for delivery in 2020.
Following the disposal of the
Alternative Energy division the
overall exposure of the Group to
currency fluctuations in respect
of trading has reduced. The
Group is however more exposed
to the translational impact of
the CA Dollar in respect of the
Greenlane Renewables Inc
Promissory Note, 50% of which
is denominated in that currency.
Where appropriate, and when
timing of future cash flows is
able to be reliably estimated,
forward contracts are taken
out to cover exposure.
In 2019 the net gain recognised
in adjusted operating profit
in respect of realised and
unrealised transactions in
Euro, US Dollar, Canadian
Dollar and New Zealand Dollar
was immaterial (2018: £0.1m).
In 2019 a loss of £0.1 million
(2018: loss £0.1 million) was
initially recorded below adjusted
operating profit in respect of
the retranslation of foreign
operations. On disposal of the
Alternative Energy division all
historic accumulated gains
and losses on retranslation
of its foreign operations were
removed from the translation
reserve and reclassified to the
profit and loss account, which
resulted in a £0.3 million gain
being recorded below adjusted
operating profit.
As at 28 September 2019 there
were no forward contracts in
place (2018: none).
Financing, cash flow
and leverage
£8.6m
RCF debt
Operating cash inflow for
continuing operations before
movements in working capital
and reorganisation and
redundancy costs was £3.7
million (2018: £1.9 million).
After a net working capital
outflow of £2.0 million (2018:
neutral), cash generated from
continuing operations was £2.0
million (2018: £1.9 million).
Cash outflow in respect of
discontinued operations trading
up to the point of disposal was
£2.5 million (2018: £0.4 million).
Gross cash consideration in
respect of the disposal of the
Alternative Energy division was
£2.0 million (2018: cash inflow
on disposal of EP £1.1 million).
Cash outflow in the year in
respect of exceptional costs
was £1.6 million (2018: £1.0
million), this includes cash flows
in relation to certain items that
were recognised in the prior year
profit and loss.
Net RCF debt was £8.6 million
(2018: £5.7 million), the £2.9
million increase driven primarily
by working capital outflow,
planned capital expenditure and
the operating cash outflow of
the AE division prior to disposal.
The Group’s £15 million facility
was £10.8 million drawn at
the year-end (2018: £11.8
million). The continued capital
investment programme has
resulted in a net increase in
the finance lease debt of £1.7
million to £2.8 million (2018: £1.1
million) leading to total net debt
at the year-end of £11.4 million.
Capital expenditure will reduce
in 2020 as planned, following
the significant investments
made in 2019.
The increase in adjusted
EBITDA has more than
offset the increase in net debt
which means the measured
Net Debt to Adjusted EBITDA
leverage ratio reduced to 1.8:1
at 28 September 2019 (2018:
2.3:1). All facility covenants
have been complied with
throughout the period.
Earnings per share
and dividends
7.8p
Adjusted earnings per share
Adjusted earnings per share
increased to 7.8 pence (2018:
2.9 pence) for continuing
operations. Basic loss per share
was (2.1) pence (2018: (7.5)
loss per share) for continuing
operations.
No dividends were paid in the
year (2018: nil) and no dividends
have been declared in respect
of the year ended 28 September
2019 (2018: nil). Distributable
reserves in the parent company
decreased 61% to £6.7 million
(2018: £16.9 million), driven by
the disposal of the Alternative
Energy division. The parent
company also has £26.2 million
of share premium reserves
which is readily convertible
to a distributable reserve.
Statement of
financial position
£32.1m
Net assets
Goodwill and intangible assets
(at cost) decreased by £10.8
million to £25.0 million (2018:
£35.8 million). £11.0 million
related to the disposal of the
Alternative Energy division,
the balance was investment
in new product development
and investment in IT systems.
Amortisation in the year on
continuing operations was
£1.8 million (2018: £1.8 million).
£9.1m
Net current assets
The consideration received on
the disposal of the Alternative
Energy division included, in
addition to cash on completion,
shares in the newly listed
Greenlane Renewables Inc and
a Promissory Note. These are
recognised as ‘Other long-
term financial assets’ and in
accordance with IFRS 9 the
equity investment has been
classified as a FVTPL asset
and the Promissory Note is
held at amortised cost.
Net current assets,
excluding the renegotiated
RCF borrowings, decreased
to £9.1 million (2018: £9.6
million). Non-current liabilities,
including the renegotiated RCF
borrowings now classified as
long term, increased slightly
to £14.7 million (2018: £14.4
million) after borrowings
increased to £13.0 million
(2018: £12.6 million).
Net assets decreased by 3.8%
to £32.1 million (2018: £33.4
million) and net asset value
per share decreased to 176
pence (2018: 180 pence).
Joanna Allen
Chief Financial Officer
17 December 2019
23
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 KEY PERFORMANCE INDICATORS
How we measure
our success
Key Performance Indicators
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 £m
Cash conversion
Net debt ratio
R&D (tax credits as % of revenue)
Revenue and return on revenue
Revenue
Return on revenue
£m
35
30
25
20
15
10
5
0
%
16
14
12
10
8
6
4
2
0
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0.5
0.5
0.9
N/A
9
1
0
2
8
1
0
2
7
1
0
2
6
1
0
2
5
1
0
2
1.8
1.6
9
1
0
2
8
1
0
2
7
1
0
2
6
1
0
2
5
1
0
2
2.4
1.8
2.3
3.1
3.7
2.40
1.5
4.3%
9
1
0
2
8
1
0
2
7
1
0
2
1.8
4.3
4.8
2.40
Growth is measured in
terms of sales revenue.
The efficiency of converting
sales into profits is
measured in terms of
return on revenue. This is
calculated as operating
profit divided by revenue.
The Group has a target of at
least 15% return on revenue.
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.
The measured net debt ratio
is specific to the Group’s RCF
facility. It is calculated as
net debt attributable to the
lender divided by adjusted
EBITDA.
A measure of innovation in
the Research & Development
(R&D) tax credits as a % of
revenue. The Group is targeting
achieving credits of at least
5% of revenue.
The targeted ratio is less
than 2.6:1.
Rolling 12 month intake – PMC
Rolling 12 month intake – CSC
+27%
9
1
0
2
8
1
0
2
7
1
0
2
6
1
0
2
+27%
+24%
-3%
-32%
-19%
9
1
0
2
8
1
0
2
7
1
0
2
6
1
0
2
-19%
-4%
+8%
+69%
24
Pressure Technologies plc Annual Report 2019 FINANCIAL PERFORMANCE
SHAREHOLDERS
ALTERNATIVE PERFORMANCE MEASURES
Adjusted earnings per share
Health and safety
Environmental
7.8p
7.8
2.9
10.0
7.4
9
1
0
2
8
1
0
2
7
1
0
2
6
1
0
2
5
1
0
2
0
9
1
0
2
8
1
0
2
7
1
0
2
6
1
0
2
5
1
0
2
17.7
0
incidents
1
Adjusted earnings
per share is used as a
measure of shareholder
return. Details of the
calculation of adjusted
EPS can be found in Note
11 of the notes to the
consolidated financial
statements.
Safety performance is measured against reportable
accidents. The Group target is zero.
The environment measure currently used is the number
of reportable environmental incidents and as with health
and safety, the target across the Group is zero.
The Group has not had any incidences over the last
five years.
The Group plans to adopt a suite of environmental KPIs
in the coming year.
The Group employs a Director of Group Health, Safety,
Quality and Environment, who reports directly to the
Chief Executive. He is responsible for ensuring that the
Group employs best practice that is consistent around
the Group and leads the team of health and safety
managers employed at each business in the Group.
25
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 RISKS AND UNCERTAINTIES
Managing risk
effectively
The principal risks identified by management and
any changes to those risks are detailed below.
Direction of change
Risk heat map – impact and likelihood
Increase
No
Decrease
NEW New Risk
change
Risk management process
Risk context
Risk
monitoring
and review
Risk
assessment
(identification
and analysis and
evaluation)
Risk
treatment
4
5
1
6
3
2
t
c
a
p
m
I
5
4
3
2
1
1
2
3
4
5
Likelihood
1 Global economic conditions: 20 (2018: 25)
2 Governmental policy and legislation
(around energy & renewables): 6 (2018: 15)
3 Competitors and commercial
relationships: 12 (2018: 12)
4 Funding: 25 (2018: 15)
5 Availability of key resources: 25 (2018: 20)
6 Technology and innovation: 16 (2018: 15)
26
Pressure Technologies plc Annual Report 2019
RISK AND IMPACT
STATUS AND MANAGEMENT STRATEGY TO MITIGATE
CHANGE
1. Global economic conditions and market volatility
Market sectors
The Group operates in and is therefore
impacted by the macro conditions in the
oil and gas, defence and renewable energy
markets. We need to remain sufficiently
flexible to allow us to anticipate
downturns, to allow us to adjust our
operations accordingly, and equally
to meet growth in demand when our
customers’ markets are buoyant.
BREXIT
There remains significant uncertainty
and concern upon what form Brexit will
take due to the relative lack of detail
and clarity provided by Government.
The potential implications for the Group
tend to focus around currency fluctuation
and cross-border business.
Potential changes to cross-border
trading, including tariffs and non tariff
barriers, could affect both working
capital requirements, by extending
supply chains, and the costs of both
manufacturing and sales.
Foreign exchange
A proportion of the Group’s business
is carried out in currencies other than
Sterling. To the extent that there are
fluctuations in exchange rates, this may
have an impact on the Group’s financial
position or results.
The Group may engage in foreign currency
hedging transactions to mitigate potential
foreign currency exposure which is
dependent on the certainty of value
and timing of cash flows.
• The Group has increased its exposure to markets outside of O&G
such as defence and energy storage and revenues from these
areas have risen.
• The Group responded to adverse conditions in oil and gas by
restructuring through the downturn but has retained and
invested in its core capabilities as confidence in market
recovery has grown.
• The PMC businesses serve both production and exploration
in the oil and gas market, with production being less volatile
during a market downturn.
• Increased sales focus across the Group to expand customer base
and product lines.
• AE division divested with refocus back on core manufacturing
capabilities in PMC and CSC which reduces the impact of volatility
in the Renewable Natural Gas sector.
• Long-term agreements with customers and suppliers are not
prevalent in the Group which typically quotes for business on a
short quote expiry and there is considered to be a limited impact
on the Group in the following areas:
• VAT and duty particularly related to the import of raw
materials.
• Exchange rate, which has gone in our favour to date.
• The Group is actively working with the Sheffield Chamber of
Commerce and Industry to assess risk and is in the final stages
of the process to obtain Authorised Economic Operator Status
(“AEO”) as part of its risk mitigation procedures.
• The details of how a final Brexit deal may look and its impact on
the Group will be monitored.
• Natural hedges are in place for the predominant currencies the
Group is exposed to and all foreign currency trading is completed
by Group treasury, including forward exchange contracts when
appropriate.
• The Group typically quotes for business on a short quote expiry
and where appropriate will include price escalation clauses to
limit exposure to fluctuations in foreign currencies.
• Following the sale of the Alternative Energy division in the year
there is an increased potential volatility on a translational basis
to movement between the CAD:GBP due to the Promissory Note
due from Greenlane Renewables Inc. which is denominated 50:50
GBP:CAD.
2. Governmental policy, regulation, legislation and compliance
Government policies
Revenue generated from defence
contracts is impacted by government
policies which the Group may not be
able to influence.
Change of government may result in
amendments to tax and employment
policies that could affect the business
e.g. R&D tax credit regime, worker
representation and rights.
Health and Safety
The Group operates manufacturing
facilities therefore has a fundamental
duty to protect its people and other
stakeholders from harm whilst conducting
its business.
• Changes that impact our defence contacts have enough visibility
for management to implement plans that could mitigate them.
A change of government is the greatest risk to the UK defence
programme spending.
• Changes to R&D tax credits for development projects may reduce
claims levels, increase overall tax and increase project funding
requirement.
• The Group has an established HSE Committee which monitors
NEW
and assesses risk and leads a continuous improvement
programme across all Group facilities.
• CSC was charged in February 2019 by the HSE under Section 2
of the H&S at Work Act following a fatal accident at the site in
June 2015 and was, at the trial in November 2019, found guilty.
The sentencing hearing is expected to be early in 2020. Further
details in Note 31 to the financial statements.
27
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 RISKS AND UNCERTAINTIES continued
RISK AND IMPACT
STATUS AND MANAGEMENT STRATEGY TO MITIGATE
CHANGE
3. Market conditions and commercial relationships
• The prevalence of significant and complex contracts in the CSC
NEW
division has continued to increase.
• The Group’s governance policies and procedures in relation
to contract risk have been reviewed and enhanced and a new
governance framework established.
• Key account management is a focus across the Group
and we have a history of strong customer relationships.
• The Group has a high dependence on a small number
of customers and much work continues to develop the
distribution channels and expand the customer base
in both Divisions.
• The Group’s re-financing was completed in December 2019 and
the replacement revolving credit banking facilities now expire in
December 2021. We continue to focus on reducing the overall Net
Debt in the business, balancing this with the need to invest to
support the organic growth strategy.
• Long-term finance products are used for core debt items such
as capital investments.
• Management have targets on leverage and working capital
and cash conversion which are linked to incentive schemes.
• Restructuring and new leadership of the Precision Machined
Components division was undertaken in the second half of 2019
which will underpin the strategy for organic growth and drive
operational efficiencies, cost savings and improved margins.
• A similar programme commenced with the Cylinders division
at the end of the financial year and has now been concluded.
• 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 post-graduate degrees.
• 2019 has been a period of transition for the Group including
operational management changes and progress made with
organisational development and culture.
• Policies and procedures are reviewed at least annually.
• Investment in the use of third party recruitment resource extends
and enhances existing skills within the Group and strengthens
succession planning.
• Employee engagement surveys are periodically undertaken
to benchmark and assess progress in employee engagement
and development and a second survey commenced in 2019.
Contract risk
Failure to adequately manage contract
risk and, as a result, commit to obligations
which the Group is unable to meet without
incurring significant unplanned costs.
Customer concentration
Customer concentration is high in
both divisions of the Group and our
relationships with these key customers
could be materially adversely affected
by several factors, including: a decision
to diversify or change how, or from
whom, they source components that we
currently provide, an inability to agree
on mutually acceptable pricing or a
significant dispute with the Group. If
the Group was unable to enter similar
relationships with other customers on a
timely basis, or at all, our business could
be materially adversely affected.
4. Funding and liquidity
Funding
The Group requires a working capital
facility for trading and the growth strategy
may require access to specific project
funding. There remains significant
uncertainty in the UK economy as a result
of Brexit and this has had an impact on
the availability of bank funding for the
Group’s requirements.
Should revenue or margins be materially
reduced, or working capital requirements
significantly increase, there would be
an immediate reduction in the facility’s
covenant headroom.
5. Availability and use of key resources
Leadership
As an SME, the Group has certain roles
that are critical to business performance
and growth and a higher level of reliance
on certain individuals.
Retention of key staff in business
critical roles
Failure to continue to evolve organisation
structure and culture could prevent us
from employing and retaining the right
talent, knowledge and skills to deliver
the strategy.
As markets improve and the Group
develops into new markets we need to
continue to recruit high quality staff,
building on existing capability while
recruiting skilled expertise in the right
areas of the business, at the right time.
28
Pressure Technologies plc Annual Report 2019 RISK AND IMPACT
STATUS AND MANAGEMENT STRATEGY TO MITIGATE
CHANGE
5. Availability and use of key resources continued
Major capital assets
Certain of the Group’s businesses rely on
large or critical pieces of equipment and
major breakdown could affect our ability
to maintain delivery performance and
customer growth.
• Key assets are subject to ongoing maintenance programmes
and strategic spares are held.
• The risk is further mitigated in the Precision Machined
Components division by the number of manufacturing sites.
• Investment in capital assets is constantly reviewed and in 2019
£2.8 million was invested in new advanced machining centres
across the Group.
Estates and premises
Through the O&G downturn the availability
of resources to invest in the estate has
been limited and the estate may not
support the growth strategy.
6. Technology & innovation
Product development
The strength of our business is built
upon a history of delivering products
that advance safety and reliability in
demanding environments. If we fail
to keep abreast of market needs or to
innovate solutions, we are at risk of losing
market share to our competitors and
lowering margins as demand will reduce.
Disruptive technologies
Technological advances in production
processes or materials may cause a
reduction in demand for the Group's
products.
Cyber crime
At present, the Group’s principal
exposures to cyber crime relate to the
misappropriation of cash and data. Our
revenue streams are largely protected as
our products are not currently electronic
in nature and we do not, as a rule, transact
over the internet.
• A review of facilities will be undertaken in 2020 to determine
NEW
requirements to support the organic growth strategy and address
employee welfare matters.
• Investment in product development and services is key to the
continued growth of the Group and we strive to embed a culture
of research and development initiatives within the business,
which are enhanced through engagement with advanced
university research institutes.
• The monitoring of evolving technologies that may disrupt the
market is ongoing, looking to both capitalise on the opportunities
they may provide as well offset any potential threats.
• Cyber security is a growing risk for all businesses and in late 2018
the Group appointed a Group Head of IT who now chairs the Cyber
Security Committee.
• The Cyber Security Committee comprises members of the Board,
the senior management team and third party IT service providers.
• Assessment of cyber security arrangements is a continuous
process and external resources are engaged as necessary to
support the Group to both assess risk and implement solutions.
• The Group uses collaborative working systems with cloud storage
where there are increased security advantages for data protection
and a programme of investment in MRP and ERP systems is
underway.
Following the divestment of AE, confirmation of the Group’s strategy
and increasing risk in other areas, the following risks have fallen out
of the PR&U category:
• The Group has a number of major competitors in its key
markets who offer a wider variety of products and some
of which are also suppliers.
• Pricing – due to the specialist and niche products across the
Group and size and scale, price exposure can lead to volatility
in the reported sales and margin against forecasts and market
expectations.
29
Strategic ReportGovernanceFinancial StatementsPressure Technologies plc Annual Report 2019 INTRODUCTION TO GOVERNANCE
Ensuring effective
corporate governance
Compliance with each of
the ten principles set out
in the revised QCA Code is
summarised below:
1. Establish a strategy and
business model which
promote long-term value
for shareholders
Pressure Technologies has
an established strategy for
growth, which it reports on
annually to its shareholders in
the Company’s Annual Report,
indicating how it has delivered
on the strategy and how it has
managed strategic risks. The
Board reviews the strategy at
least once a year to ensure
that it remains relevant and
sustainable.
The Company’s business
model is clearly set out on
page 2 of this report.
2. Seek to understand and
meet shareholder needs
and expectations
The Company actively
encourages good
communication with all
shareholders from the largest
to the smallest. Presentations
to institutional and mid-sized
investors (typically by the Chief
Executive and Chief Financial
Officer) are offered at the
full-year and half-year and
all investor presentations are
posted to the Group’s website.
Feedback is obtained following
all investor meetings and
this feedback is reviewed by
the Board. The Company has
always aimed to accommodate
investors who wish to visit its
manufacturing sites.
3. Take into account wider
stakeholder and social
responsibilities and their
implications for long-term
success
The Board fully recognises
that long-term growth and
profitability are enhanced
when businesses behave in
a sustainable and responsible
manner, with respect for
the environment and all
stakeholders.
The Group’s stakeholders
include employees, customers,
investors, suppliers, advisors
and the communities in which
the Group’s businesses operate.
The Group’s approach to
sustainable and responsible
business is set out on the
website and on page 18 of
this report.
4. Embed effective risk
management, considering
both opportunities and
threats, throughout the
organisation
The Committee conducts
regular reviews of business
risk and oversees the approach
to risk management.
Acknowledging the increasing
threat to cyber security, the
Group has recruited new
skills and resources to ensure
effective risk management
and protection in this critically
important area. The Group
also has an established HSE
Committee which monitors
and assesses risk and leads
a continuous improvement
programme across all Group
facilities.
The risk reporting model,
set out on page 26 of this
report, includes a risk heat
map and links the key risks
to the Group’s strategy.
Neil MacDonald
Independent Non-Executive Chairman
The Board fully supports the
underlying principles of Corporate
Governance contained in the Corporate
Governance Code (“the Code” and
the Board adopted the revised QCA
Code, released in April 2018. The
responsibility for ensuring compliance
and accurate reporting of Corporate
Governance resides with the Audit and
Risk Committee (“the Committee”).
Corporate Governance will be
continually monitored and reviewed
formally by the Committee annually,
following publication of the report and
accounts each year.
30
Pressure Technologies plc Annual Report 2019 Board of Directors’ Purpose Statement
Operational Board and Subcommittees
In addition to the main Board committees, the Group also
has subcommittees as set out below.
Health, Safety and Environment
A quarterly strategy meeting is held with the Director of
Group Health, Safety, Quality and Environment, his team
of Health and Safety Managers, the Chief Executive, Brian
Newman, one of our Non-Executive Directors and the HR
Director. Additional operational meetings are held monthly,
which the senior executive team do not attend. The
purpose of the committee is to embed a culture of safety
and wellbeing from the top down and ensure that best
practice is always employed at each Group Company.
Cyber Security
A Cyber Security Committee was established two years
ago to address this growing risk faced by all businesses.
It meets at least three times a year and is headed by our
recently appointed Group Head of IT. Its members include
the Chief Executive, the CFO, key senior management,
a Non-Executive Director and the HR Director. Our third
party IT providers also attend these meetings. The
purpose of the meeting is to ensure that the best security
measures are continually employed by the Group.
Establish and maintain vision, mission and values
• Determine and maintain the Company's vision and
mission to guide and set the pace for its current
operations
• Determine and maintain the values to be promoted
throughout the Company
• Determine, maintain and review Company goals
• Determine and maintain Company policies
Decide strategy and structure
• Review and evaluate present and future opportunities,
threats, risks in the external environment; current and
future strengths, weaknesses and risks relating to the
Company
• Determine strategic options, select those to be
pursued and decide the means to implement and
support them
• Determine the business strategies and plans that
underpin the corporate strategy
• Ensure that the Company's organisational structure
and capability are appropriate for implementing the
chosen strategies
Delegate to management
• Delegate authority to management and evaluate
the implementation of policies, strategies and
business plans
• Determine the monitoring criteria to be used
by the Board
• Ensure the internal controls are effective
• Communicate with senior management
• Account to shareholders and be responsible
to stakeholders
Ensure that communications both to and from
shareholders and relevant stakeholders are effective
• Understand and take into account the interests of
shareholders and relevant stakeholders
• Monitor relations with shareholders and relevant
stakeholders by gathering and evaluating appropriate
information
• Promote the goodwill and support of shareholders
and relevant stakeholders
31
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements INTRODUCTION TO GOVERNANCE continued
and depth of skills to support
the ongoing development of
the Group. The approach to
maintaining relevance and
diversity on the Board as well
as assigning internal advisory
responsibilities, such as those
of the Company Secretary and
Senior Independent Director,
are continuously reviewed by
the Committee.
On the Group’s website and
on page 34 of this report,
the skills that each member
brings to the Board are clearly
set out.
The Chief Executive, in
conjunction with the executive
team, ensures that the
Directors’ knowledge is kept
up to date on key issues and
developments pertaining to
the Group, its operational
environment and to the
Directors’ responsibilities
as members of the Board.
During the course of the year,
Directors received updates
from the Company Secretary
and various external advisors
on a number of corporate
governance matters.
7. Evaluate Board
performance based on clear
and relevant objectives,
seeking continuous
improvement
The corporate governance
statement on page 29 of the
2017 Annual Report notes that
details of the performance
evaluation procedures for
each Director, the whole Board,
or each committee, are not
currently disclosed.
A Board evaluation was
carried out in January 2014.
The Board evaluation process
will be reviewed, updated and
re-implemented following the
appointments planned for
early 2020.
The updated evaluation
process and schedule will
be published through the
Group’s website.
5. Maintain the Board as a
well-functioning, balanced
team led by the Chair
The Board comprises a
Non-Executive Chairman,
Neil MacDonald, who has
served the business for
six years and a Senior
Independent Non-Executive
Director, Brian Newman, who
has served the business for
four years. There are two
Executive Directors, Chris
Walters, Chief Executive, who
joined the Group in September
2018 and Joanna Allen, Chief
Financial Officer, who joined in
July 2015. We reported in June
2019 that we were looking to
strengthen the Board.
The search and selection
process is nearing completion
and we expect to make new
Non-Executive appointments
early in 2020.
Board meeting and committee
meeting frequency and
attendance are set out on
page 35 of this report and
the Terms of Reference for
each committee can be found
on the website.
The Group uses specialist
software for its Board reports
which facilitates the quality
and timeliness of getting
information to the Board.
6. Ensure that between
them the Directors have
the necessary up-to-date
experience, skills and
capabilities
The Board comprises
an effective balance of
knowledge, skills, experience
and independence. The Board
represents relevant industry
experience from engineering,
operational management,
finance and investment.
Every member of the Board
is there for the benefit of
Pressure Technologies plc
and each recognises his
or her responsibility to the
Company’s stakeholders.
The Board regularly reviews
its composition to ensure that
it has the necessary breadth
32
Pressure Technologies plc Annual Report 2019 The Chief Executive and the
Chief Financial Officer meet
regularly with the Group’s larger
institutional investors and
feedback is always obtained.
Pressure Technologies has
a reputation amongst its
investors for its fair and frank
disclosure on the Company’s
performance. All investor
presentations are available on
the Group’s website.
The voting statistics from
AGMs are disclosed in a
Regulatory News release
on the day of the AGM. If
relevant, details of any
actions to be taken as a
result of resolutions for
which votes against had been
received from at least 20% of
independent shareholders,
would also be disclosed.
The Group’s website is
regularly updated and historic
documents dating back to
the Company’s listing in 2007
are available.
The Annual Report is reviewed
against FTSE 350 best practice
and best practice is adopted,
where relevant and practical.
From time to time the
executives attend private
investor events and welcome
investors to the manufacturing
facilities.
Neil MacDonald
Independent
Non-Executive
Chairman
17 December 2019
8. Promote a corporate
culture that is based
on ethical values and
behaviours
Pressure Technologies plc
is proud of its reputation
for being honest and fair
in the way it does business.
This reputation has been
established over many years
through leadership and
continuous reinforcement
of ethical principles by
managers and all employees.
These principles apply to
how the Group works with
its customers, suppliers,
governments, employees,
shareholders, competitors
and the local communities
in which it operates and are
set out on the website.
9. Maintain governance
structures and processes
that are fit for purpose and
support good decision-
making by the Board
The roles of each of the
Board Committees are set
out in their Terms of Reference,
which can be found on the
website along with Matters
Reserved for the Board.
The roles of individual
Directors are not formally
described, but this will be
reviewed and disclosed if
relevant.
The responsibility for ensuring
governance structures are
continually reviewed and
relevant to the business and
its stakeholders falls to the
Audit and Risk Committee.
10. Communicate how
the Company is governed
and is performing by
maintaining a dialogue
with shareholders and
other relevant stakeholders
The Group’s Governance
structure is set out on pages
34 to 35 of this report. In
addition to a Directors’ Report,
reports from the Remuneration
Committee and the Audit
and Risk Committee are
included in the Annual Report.
33
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements DIRECTORS AND ADVISORS
Experienced leadership
Neil MacDonald
Independent Non-Executive
Chairman
Brian Newman
Senior Independent
Non-Executive Director
Chris Walters
Chief Executive
Appointed
June 2013
A N R
Appointed
September 2015
A N R
Appointed
September 2018
Relevant strengths
• Engineering expertise
• Knowledge of global industrial
businesses, including cross-border M&A
Relevant strengths
• Business regeneration and growth
• Engineering expertise and credentials
• Energy and marine sector knowledge
• Divisional management experience
and network
Relevant experience
• A Chartered Engineer with a degree
in Engineering from Cambridge
University and an MBA from Penn
State University, USA.
• Former Divisional Director at two FTSE
100 companies, latterly at Melrose plc as
EMEA Managing Director at its subsidiary,
Bridon International Group.
• Former Divisional Managing Director at
international engineering group GKN plc,
with responsibility for its global Wheels
and Axles Divisions.
• Over 40 years’ experience in engineering
having also previously served on the
boards of two listed companies.
External commitments
• Non-Executive director of The
Shrewsbury and Telford Hospital NHS
Trust, The Woodard Corporation Ltd
and a number of other organisations.
• Multi-division, multi-region operations
management
Relevant experience
• Master’s degree-qualified Chartered
Engineer with over 25 years of experience.
MBA from Imperial College, London.
• Fellow of the Royal Institution of Naval
Architects and Fellow of the Institution of
Marine Engineers, Science & Technology.
• Background in engineering design,
construction and through-life integrity
management for marine and oil & gas
operational assets.
• Senior executive career with Lloyd’s
Register Group, including roles in the UK
and overseas and the management of
the Group’s global marine and oil & gas
certification businesses.
• Chief Executive and co-owner of VCT-
backed oil & gas technology SME, TSC
Inspection Systems.
External commitments
• Trustee of the Royal National Lifeboat
Institution (RNLI) and member of the
Technical Committee, Freeman of the
Company of Cutlers in Hallamshire.
Relevant strengths
• M&A expertise
• Growing businesses
• Chartered Accountant
Relevant experience
• A Chartered Accountant with 25 years
of experience in the oil and gas and
engineering industries.
• Former Group Finance Director of AES
Engineering Limited, the international
mechanical seals manufacturer; and
previously Group Finance Director of
the international aerospace company,
Firth Rixson.
• Numerous non-executive roles
in the public and private sector.
External commitments
• Non-Executive Director of Autins plc,
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. Member and
Past Master of the Freeman of the
Company of Cutlers in Hallamshire.
COMMITTEE KEY
A Audit and Risk Committee
N Nomination Committee
R Remuneration Committee
Chairman
Member
34
Pressure Technologies plc Annual Report 2019
Joanna Allen
Chief Financial Officer
Appointed
July 2015
Relevant strengths
• IFRS financial reporting for AIM companies
• M&A, in particular financial due diligence
• Management information and data
analytics
• Audit
Relevant experience
• AIM company board and committees,
in particular Audit and Risk Committee
function and effectiveness.
• Audit and Transaction Services Director
with PwC, focused on manufacturing
and engineering clients.
• Shortlisted in the 2018 and 2017
Northern Finance Director Awards
and the 2018 Yorkshire Finance
Leader Awards.
• Qualified Chartered Accountant
with the ICAEW.
• Degree in Business Studies from
the University of Sheffield.
External commitments
• Governor of Sheffield Hallam University,
Vice-chair of Governors at Hunter’s Bar
Infant School in Sheffield, Freeman of
the Company of Cutlers in Hallamshire.
BOARD COMPOSITION
1
2
1. Executive
Directors: 2
2. Non-Executive
Directors: 2
GENDER BALANCE
1/4
BOARD ATTENDANCE
12/12
BOARD MEETING ATTENDANCE
AUDIT AND RISK ATTENDANCE
12/12
12/12
12/12
12/12
8/8
8/8
NOMINATION ATTENDANCE
REMUNERATION ATTENDANCE
2/2
2/2
3/3
3/3
35
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
REPORT OF THE REMUNERATION COMMITTEE
The Remuneration Committee comprises at least two Non-Executive Directors and is chaired by Brian Newman. 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 a maximum of 7% of basic salary into individual money purchase pension schemes so long as this is matched
by a minimum of 5%, 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.
2014-2017 schemes
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
% of annual salary over which options granted vest
33%
50%
100%
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.
2018 onwards schemes
On 3 September 2018 the Group approved a new Long Term Incentive Plan. Under the terms of this plan, each participant will
have the right to receive new ordinary shares of 5 pence each in the Company equal to a fixed percentage of the value created
for shareholders above a hurdle over the period from the date of grant. Awards are subject to certain performance conditions,
principally delivering growth in the value of the Company above a share price hurdle which is adjusted for value returned to
shareholders over the Performance Period. In this way, the Board can incentivise senior employees in a manner that is closely
aligned with the interests of the Company’s shareholders.
The awards, which can be acquired for nil consideration, are subject to an individual maximum value. 50% of awards will vest
after the expiry of the Performance Period, 30% on the first anniversary of the expiry of the Performance Period and 20% on the
second anniversary of the expiry of the Performance Period in accordance with the rules of the LTIP. The participants will have no
right to any payment of cash, rather they will become shareholders in the Company. In this way, the interests of the participants
will be aligned with those of all other shareholders.
On 4 September 2018 awards were granted to two Executive Directors and three senior managers. The fair value of these awards
at time of grant, as estimated by the Group’s external valuation specialists, was £239,000. As of 28 September 2019 only two
Executive Directors and one senior manager remain part of the scheme.
d) Service contracts
All Executive Directors have rolling service contracts terminable on no more than one year’s notice.
36
Pressure Technologies plc Annual Report 2019 Directors’ remuneration
Particulars of Directors’ remuneration are as follows:
Salary,
expenses
and fees*
£’000
Benefits
£’000
Pension
£’000
Total
2019
£’000
Total
2018
£’000
Employers’
national
insurance
2019
£’000
Employers’
national
insurance
2018
£’000
43
—
45
43
—
191
250
572
—
—
—
—
—
1
2
3
—
—
—
—
—
23
23
46
43
—
45
43
—
215
275
621
63
20
46
40
535
199
19
922
3
—
5
5
—
25
32
70
5
3
4
4
57
23
2
98
Non-Executive:
Alan Wilson
Philip Cammerman
Brian Newman
Neil MacDonald
Executive:
John Hayward
Joanna Allen
Christopher Walters
Total remuneration
*
Inclusive of reimbursement of expenses subject to tax and bonus payments.
Part of the remuneration of Alan Wilson and Brian Newman was paid to management companies which they control.
The number of Directors who accrued benefits under money purchase pension arrangements in the period was two (2018: three).
The Group believes that the Directors of Pressure Technologies plc are the only key management personnel under the definition
of IAS 24 ‘Related Party Disclosures’.
No Directors received dividends during the year (2018: nil).
Directors’ options
The Directors’ interests in share options are as follows:
Joanna Allen
Joanna Allen
Joanna Allen
Chris Walters
Joanna Allen
Scheme
Save-as-you-earn Scheme
Long Term Incentive Plan
Save-as-you-earn Scheme
Long Term Incentive Plan
Long Term Incentive Plan
Date granted
Number
Option price
30 July 2015
21 December 2015
27 July 2018
3 September 2018
3 September 2018
4,466
71,366
18,442
*
**
161.20p
196.17p
97.6p
Nil*
Nil**
* Chris Walters will receive such number of shares as equals 3% of the growth in value above a share price hurdle of £2.50 (adjusted for value returned to shareholders, i.e.,
any dividend, over the performance period).
** Joanna Allen will receive such number of shares as equals 2% of the growth in value above a share price hurdle of £2.50 (adjusted for value returned to shareholders,
i.e., any dividend, over the performance period).
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
Lapsed during the period
Outstanding at the end of the period
Joanna Allen
No.
94,274
—
—
94,274
No movements for the LTIP granted in the period are included in the table above as the scheme does not define a set number
of options.
On behalf of the Board
Brian Newman
Chairman, Remuneration Committee
17 December 2019
37
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
DIRECTORS’ REPORT
The Directors present their report and the audited financial statements for the period from 30 September 2018 to 28 September 2019.
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 seat assemblies
and gate valves.
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. On 4 June 2019, the Group completed the disposal
of the entire issued share capital of PT Biogas Holdings Limited.
Results and dividends
The consolidated statement of comprehensive income is set out on page 50. The operating profit on ordinary activities of the Group
for the period ended 28 September 2019 amounted to £2.2 million (2018 restated: £1.0 million).
No interim dividend was paid in the period (2018: nil). The Directors do not recommend the payment of a final dividend (2018: 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 environmental incidents in 2019 (2018: nil).
38
Pressure Technologies plc Annual Report 2019 Substantial shareholdings
As at 1 November 2019, the following held or were beneficially interested in 3% or more of the Company’s issued ordinary
share capital:
Gresham House
Artemis Investment Management LLP
Schroder Investment Management
James Sharp & Co
Mr John Hayward
Hargreaves Lansdown
Interactive Investor Trading
Mr Matthew Crampin
Unicorn Asset Management
Directors and their interests
The present Directors of the Company are set out on pages 34 to 35.
During the year the following Directors held office:
JTS Hayward (retired 1 October 2018)
AJS Wilson (resigned 6 June 2019)
All Directors were Directors throughout the period and since unless otherwise stated.
Ordinary shares
Neil MacDonald
Joanna Allen
Brian Newman
Number of
shares
3,650,000
3,598,648
1,232,304
1,171,067
1,007,500
762,185
595,028
575,214
567,167
Percentage of
issued share
capital owned
19.63%
19.35%
6.63%
6.30%
5.42%
4.10%
3.20%
3.09%
3.05%
28 September
2019
No.
29 September
2018
No.
45,200
5,000
10,000
45,200
5,000
10,000
Share options
Details of the share options granted in the period are disclosed in Note 27 to the consolidated financial statements.
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. Where it is considered appropriate to, the Group enters 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.
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.
39
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
DIRECTORS’ REPORT continued
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 Group Strategic Report. The principal
risks and uncertainties are set out from page 27. 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 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 2019/20 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 part of the assessment process a number of scenarios have been modelled that consider a range
of outcomes of the Contingent Liability disclosure in Note 31 to these financial statements and management have sought expert
opinion to inform this.
As such, the Directors are satisfied that the Company and the 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.
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.
40
Pressure Technologies plc Annual Report 2019 Auditor
Grant Thornton UK LLP are willing to continue in office and a resolution to reappoint them will be proposed at the next
Annual General Meeting.
Corporate governance
The Group’s corporate governance statement is set out on its website under the AIM rule 26 section and on pages 30 to 33.
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
Chris Walters
Chief Executive
17 December 2019
41
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements AUDIT AND RISK COMMITTEE REPORT
Members & meetings
The Group’s Audit and Risk Committee (“the Committee”) is chaired by Brian Newman. Its members are set out on the Group’s
website; all members attended all six meetings during the year. 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 auditors 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
• Review the adoption of and compliance with the relevant Corporate Governance Code
• 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 ‘whistle-blowers’
Terms of Reference
The Board fully supports the underlying principles of Corporate Governance contained in the Corporate Governance Code
(“the Code”) and in 2018 adopted the revised Quoted Companies Alliance Code for Small and Mid-sized Quoted Companies
(“the QCA Code”).
The responsibility for ensuring compliance and accurate reporting of Corporate Governance resides with the Committee.
Corporate Governance will be continually monitored and reviewed formally by the Committee annually, following the
publication of the report and accounts each year.
Terms of Reference for the Committee, which are reviewed annually, can be found on the Company’s website.
External audit
The Group’s external auditors are Grant Thornton UK LLP (“Grant Thornton”).
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 most recent
tender was completed in 2018.
The Committee has unrestricted access to the Group’s auditors and will ensure that auditor independence has not been
compromised.
The Committee formally 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.
Market Abuse Regulation
The Committee periodically reviews 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. Appropriate measures are taken 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: 30%
Risk management: 40%
Financial reporting: 15%
Audit: 15%
42
Pressure Technologies plc Annual Report 2019
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 26 to 29. 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.
Post-acquisition reorganisation has continued in Precision Machined Components with management changes and transition
to an integrated divisional operation.
In the coming year the Committee will continue to be focused on investment in MRP and ERP systems in both the PMC and
CSC divisions, which underpin the continuous improvement in the internal control environment. There will also be increased
focus on the assessment of new areas of risk as the Group delivers its organic growth strategy.
The Committee will continue to review and advise on the design and operation of internal controls as the organisational
structure evolves.
The Group 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. During the year consultants have been engaged for specific tax matters.
Contract accounting judgements
As explained more fully in our accounting policies on page 56, the CSC division derives a significant proportion of turnover from
contracts that span one or more years and are accounted for under the relevant accounting standard, IFRS 15, which the Group
adopted fully this year.
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 methodologies applied to key judgements and were in agreement
with the position adopted.
Impairment
The Committee reviewed and considered the papers relating to the impairment and going concern disclosures in the Annual Report
and Financial Statements..
Going concern
Following the conclusion of the trial on 27 November 2019 at which the jury delivered a guilty verdict pursuant to Section 2
of the Health and Safety at Work Act 1974 in relation to the fatal accident at Chesterfield Special Cylinders Limited (“CSC”)
in June 2015 the Committee has considered the impact of the verdict on the ability of the Group to continue as a going concern.
Further information in respect of the impact on the Group’s ability is set out in the basis of preparation statement on page 54
and in Note 31 of these financial statements.
Contingent liabilities
The Committee reviewed the contingent liabilities disclosure set out in Note 31 of the financial statements and was satisfied
it fairly reflects the current circumstances.
Other matters
The Group has operated a ‘whistle-blowing’ 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.
There were two instances of minor fraud that were reported to the Committee during the year, one of which resulted in an
immaterial loss. Updates to internal control procedures were implemented where necessary and in one case a third party
investigation was carried out.
Approved by the Board and signed on its behalf by:
Brian Newman
Chair of the Audit and Risk Committee
17 December 2019
43
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements 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 52 week period ended 28 September 2019, which comprise the consolidated statement of comprehensive
income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated
statement of cash flows, the company statement of financial position, the company statement of changes in equity, the
notes to the consolidated financial statements, the notes to the company financial statements and the 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
28 September 2019 and of the group’s loss for the period then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
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.
Material uncertainty related to going concern
We draw attention to the disclosure on page 54 (Basis of preparation) and page 85 (Contingent liabilities) of the financial
statements, which together indicate that the directors await the outcome of a sentencing hearing at which the financial
penalty for a charge brought by the Health and Safety Executive will be determined, and that the directors have concluded
that a reasonable estimate of liability cannot be made until that time.
As described within those disclosures, the directors have concluded that these conditions, along with the other matters described
therein, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue
as a going concern. Our opinion is not modified in respect of this matter.
Overview of our audit approach
• Overall materiality: £145,000, which represents 0.5% of the group’s revenue;
• Key audit matters for the group were identified as revenue recognition, the contingent liability in relation to the Chesterfield
Special Cylinders Limited (“CSC”) incident, and the impairment of goodwill and other non-current assets;
• The key audit matter for the parent company was identified as the impairment of investments; and
• We have assessed the components within the group and performed a full scope audit on the financial statements of
Pressure Technologies plc and on the financial information of all non-dormant UK components.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
44
Pressure Technologies plc Annual Report 2019 Key Audit Matter – Group
How the matter was addressed in the audit – Group
Revenue recognition
Revenue is a major driver of the business and under ISA (UK)
240 ‘The Auditor’s Responsibilities Relating to Fraud in an
Audit of Financial Statements’, there is a presumed risk of
fraud in revenue recognition that could result in material
misstatements.
As described on page 54 the Group adopted IFRS 15 ‘Revenue
from Contracts with Customers’ in the current year, choosing
to apply the “cumulative effect” modified retrospective
method of transition. There is significant judgement required
in applying the standard’s five step model to the Group’s
contracts, including:
• Identifying the relevant contract(s) requires judgement in
determining at what point an agreement with a customer
creates enforceable rights and obligations;
• Identifying the performance obligations in the contract
requires judgement as to whether the Group is obligated to
provide goods or services (or a bundle of goods or services)
that are distinct or a series of distinct goods or services
that are substantially the same and that have the same
pattern of transfer to the customer;
• Determining the transaction price requires judgement in
assessing the best estimate of the variable consideration
that is due;
• Allocating the transaction price to the performance
obligations in the contract requires judgement; and
• Recognising revenue when (or as) the entity satisfies a
performance obligation requires judgement as to whether
revenue should be recognised at a point in time, or over
time. Where revenue is recognised over time, management
judgement is required in assessing the expected contract
outcome and measuring the stage of completion at each
reporting date.
As a result of the above, there is a risk that revenue is
recognised in advance of performance obligations being
completed, or in advance of their stage of completion where
revenue is recognised over time.
We therefore identified revenue recognition as a significant
risk, which was one of the most significant assessed risks
of material misstatement.
Our audit work included, but was not restricted to:
• Assessing whether the group’s revenue recognition policy
is in accordance with IFRS 15;
• Comparing a sample of contract revenue to the group’s
accounting policy to determine whether it has been
recognised in line with the policy by:
• Confirming that a valid contract existed with the customer
by reference to evidence such as written agreements
• Challenging whether the identification of the
performance obligations within the contract by
management is appropriate
• Challenging the appropriateness of the transaction
price determined by management by reference to
relevant contract(s)
• Determining whether the allocation of transaction price
to performance obligations is appropriate
• Challenging whether management’s assessment as to
whether performance obligations have been met, including
the percentage of completion assessment made by
management where performed over time, is appropriate in
light of relevant evidence, including manufacturing records
and customer acceptance records;
• Agreeing a sample of revenue transactions to customer
payments, remittances and evidence of performance
of the service;
• Analytically reviewing sales, including trend and ratio
analysis comparing results to prior year; and
• Testing that management’s cut-off procedures have been
appropriately applied by agreeing a sample of revenue
transactions to supporting manufacturing, despatch,
and customer acceptance records as appropriate.
The group’s accounting policy on revenue recognition, including
the key judgements and estimates in relation to it, are shown
in the accounting policies section on page 56 and related
disclosures are made in Note 1. The Audit and Risk Committee
identified contract accounting judgements as a significant
matter in its report on page 43, where it also describes the
action that it has taken to address this issue.
Key observations
From the work performed we identified that the group’s
accounting policy in relation to revenue recognition over
time was not accurately reflected in the revenue per the draft
financial statements. As a result of this challenge, a material
adjustment to reduce revenue and profit has been made to the
financial statements by management. No other issues were
identified from the work we performed in this area.
Based on our audit work, we have found that revenue was
accounted for in accordance with the group’s accounting
policies and IFRS 15.
45
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements 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
Contingent liability in relation to the CSC incident
Following the fatal accident at Chesterfield Special Cylinders
Limited (“CSC”) in June 2015, the resulting prosecution
brought by the HSE and the guilty verdict delivered pursuant
to Section 2 of the Health and Safety at Work Act 1974,
the Group is awaiting the outcome of a sentencing hearing
expected to be scheduled in early 2020.
No provision has been recorded within the financial
statements in relation to this as management consider it
is not possible to determine with sufficient certainty what
financial penalties will be levied as a result of the guilty
verdict. However disclosure has been made in accordance
with International Accounting Standard (IAS) 37 ‘Provisions,
Contingent Liabilities and Contingent Assets’.
The assessment of whether a reliable estimate can be
made of the fine that the group will be required to pay is a
significant judgement by management.
We therefore identified the disclosures in relation to this
incident as a significant risk, which was one of the most
significant assessed risks of material misstatement.
Impairment of goodwill and other non-current assets
The carrying value of goodwill and other non-current
assets at 28 September 2019 was £30.3 million. There is a
risk that the carrying value of these assets exceeds their
recoverable amount.
Management performs an impairment review on
an annual basis using discounted cash flows on a
value in use basis. This involves management making
a number of key judgements.
The key judgements in assessing goodwill and other
non-current assets for impairment include:
• The growth and discount rates applied in the discounted
cash flow calculations, due to the sensitivity of these
assumptions to changes; and
• The identification of cash generating units following
the divisional restructuring of the group.
We therefore identified impairment of goodwill and other
non-current assets as a significant risk, which was one of the
most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
• Making enquiries of management and of the group’s
legal advisors to understand and assess management’s
conclusions in relation to the range of sentence (fine and
costs) that could be awarded under the Sentencing Council’s
guidelines; and
• Assessing the adequacy of the disclosures included within
the financial statements.
The group’s accounting policy on provisions is shown in
the accounting policies section on page 56 of the financial
statements and related disclosures are included in Note 31.
The Audit and Risk Committee identified this matter as a
significant matter in its report on page 43, where it also
describes the action that it has taken to address this issue.
Key observations
Based on our audit work, we have found that this matter has
been accounted for in accordance with IAS 37 ‘Provisions,
Contingent Liabilities and Contingent Assets’, and that the
disclosures made in Note 31 to the financial statements
appropriately describe the matter.
Our audit work included, but was not restricted to:
• assessing the integrity of the impairment models
by testing the mechanical accuracy;
• understanding the underlying process used by management
to determine the discount rates, and using auditor’s experts
to assess them for reasonableness;
• assessing the appropriateness of any changes
to assumptions since the prior period;
• challenging the identification of cash generating units
following the divisional restructure of the group, with
reference to the interdependence of the cash flows arising
from the statutory entities within the divisions;
• challenging the cash flow forecasts with reference to
historical forecasts, actual performance and independent
evidence to support any significant expected future changes
to the business; and
• assessing the adequacy of the disclosures included within
the financial statements for compliance with IAS 36
‘Impairment of Assets’.
The group’s accounting policy on impairment of goodwill and
other non-current assets is shown in the accounting policies
section on page 56 and related disclosures are included in
Note 13. The Audit and Risk Committee identified impairment of
goodwill and other non-current assets as a significant matter in
the ‘Impairment’ section of its report on page 43, where it also
describes the action that it has taken to consider this matter.
Key observations
Based on our audit work, we have concluded that the valuation
of non-current assets has been accounted for in accordance
with IAS 36, and that the disclosures made in Note 13 to the
financial statements appropriately describe this matter.
46
Pressure Technologies plc Annual Report 2019 Key Audit Matter – parent
How the matter was addressed in the audit – parent
Impairment of investments in subsidiaries
The carrying value of investments in subsidiaries and other
non-current assets was £43.9 million as at 28 September
2019. There is a risk that the carrying value of these assets
exceeds their recoverable amount.
Management performs an impairment review on an annual
basis using discounted cash flows on a value in use basis.
The key judgements in assessing the valuation of
investments include the growth and discount rates applied in
the discounted cash flow calculations, due to the sensitivity
of these assumptions to changes.
We therefore identified impairment of investments and other
non-current assets as a significant risk, which was one of the
most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
• determining the integrity of the impairment models
by testing the mechanical accuracy;
• understanding the process used by management to
determine the discount rates, and using auditor’s experts
to assess them for reasonableness;
• assessing the appropriateness of any changes to
assumptions since the prior period; and
• challenging management’s cash flow forecasts with
reference to historical forecasts, actual performance
data and independent evidence supporting any significant
expected future changes to the business.
The company’s accounting policy on valuation of investments
is shown in the accounting policies section to the financial
statements on page 57 and related disclosures are included
in Note 4 to the company financial statements.
Key observations
Based on our audit work, we have concluded that the valuation
of investments is accounted for in accordance with the
requirements of IAS 36.
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
Performance materiality used to drive
the extent of our testing
Communication of misstatements to the
audit committee
£145,000 which is 0.5% 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 lower
than the level that we determined for
the period ended 29 September 2018
to reflect the year on year revenue
reduction.
Materiality is based on 0.5% of total
assets, capped at 75% of group
materiality, which is £109,000.
Total assets is considered the most
appropriate benchmark as the parent
company is primarily a holding company
and its major activities relate to its
investments in subsidiary undertakings.
Materiality for the current year is lower
than the level that we determined for
the period ended 29 September 2018 to
reflect the reduction in group materiality.
75% of financial statement materiality.
75% of financial statement materiality.
£7,250 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£5,450 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
47
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements 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:
• evaluation by the group audit team of identified components to assess the significance of each component and to determine
the planned audit response based on a measure of materiality;
• full scope audit procedures on the financial information of the parent company and all other non-dormant UK-based group
components;
• targeted procedures for non-significant components with no external revenue; and
• the components subject to full scope audit procedures represent 100% of group revenue.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, 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.
Responsibilities of directors for the financial statements
As explained more fully in the statement of directors’ responsibilities for the financial statements set out on pages 38 to 41, 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.
48
Pressure Technologies plc Annual Report 2019 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.
Use of our report
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.
Mark Overfield BSc FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Leeds
17 December 2019
49
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 week period ended 28 September 2019
Revenue
Cost of sales
Gross profit
Administration expenses
Operating profit before M&A costs, amortisation
and exceptional charges and credits
Separately disclosed items of administrative expenses:
Amortisation
Other exceptional charges
Operating loss
Finance costs
Loss before taxation
Taxation
Loss for the period from continuing operations
Discontinued operations
Loss for the period from discontinued operations
Loss for the period attributable to the owners of the parent
Notes
1
1
4
5
2
3
10
6
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Currency exchange differences on translation of foreign operations
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:
Exchange differences on translation of discontinued foreign operations
Total comprehensive income for the period
attributable to the owners of the parent
Basic earnings per share
From continuing operations
From discontinued operations
From loss for the period
Diluted earnings per share
From continuing operations
From discontinued operations
From loss for the period
11
11
11
11
The accounting policies and notes on pages 50 to 85 form part of these financial statements.
52 weeks
ended
28 September
2019
£’000
52 weeks
ended
29 September
2018
£’000
28,291
(19,119)
9,172
(6,938)
2,234
(1,832)
(450)
(48)
(467)
(515)
126
(389)
(1,203)
(1,592)
(140)
325
21,167
(13,932)
7,235
(6,186)
1,049
(1,816)
(511)
(1,278)
(400)
(1,678)
313
(1,365)
(3,723)
(5,088)
(60)
—
(1,407)
(5,148)
(2.1)p
(6.5)p
(8.6)p
(2.1)p
(6.5)p
(8.6)p
(7.5)p
(20.5)p
(28.0)p
(7.5)p
(20.5)p
(28.0)p
50
Pressure Technologies plc Annual Report 2019
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 28 September 2019
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax asset
Other long-term financial assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax
Total assets
Current liabilities
Trade and other payables
Borrowings – asset finance leases
Borrowings – revolving credit facility*
Non-current liabilities
Other payables
Borrowings – asset finance leases
Borrowings – revolving credit facility*
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Translation reserve
Retained earnings
Total equity
28 September
2019
£’000
29 September
2018
£’000
Notes
13
14
15
25
18
19
20
21
22
22
21
22
22
25
26
9,510
6,598
14,042
278
7,350
37,778
5,115
9,541
2,208
95
16,959
54,737
(7,360)
(656)
(10,800)
(18,816)
(158)
(2,116)
—
(1,561)
(3,835)
(22,651)
32,086
930
26,172
(280)
5,264
32,086
14,370
11,444
12,032
402
—
38,248
4,383
11,998
6,140
35
22,556
60,804
(12,745)
(241)
—
(12,986)
(198)
(836)
(11,800)
(1,591)
(14,425)
(27,411)
33,393
930
26,172
(465)
6,756
33,393
* The Group’s existing RCF, which was put in place in October 2014, had been extended a number of times, and was due to expire in April 2020. Committed and credit approved
terms were reached for the replacement RCF facility with the incumbent bank in September 2019. Documentation and signing was completed on 10 December 2019 and, in
accordance with IAS 1, the borrowing has been classified as a current liability due within 6-12 months at the balance sheet date. At the date of these preliminary results the
facility is classified as a long-term liability.
The accounting policies and notes on pages 50 to 85 form part of these financial statements.
The financial statements were approved by the Board on 17 December 2019 and signed on its behalf by:
Joanna Allen
Director
Company Number: 06135104
51
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 week period ended 28 September 2019
Balance at 30 September 2017
Share based payments
Shares issued
Transactions with owners
Notes
27
26
Loss for the period – continuing operations
Loss for the period – discontinued operations
Other comprehensive income:
Exchange differences on translating foreign operations
Total comprehensive income
Balance at 29 September 2018
Share based payments
Transactions with owners
27
Loss for the period – continuing operations
Loss for the period – discontinued operations
Other comprehensive income:
Exchange differences on translating foreign operations
Other comprehensive income:
Exchange differences on translation of discontinued
foreign operations
Total comprehensive income
Balance at 28 September 2019
Share
capital
£’000
725
—
205
205
—
—
—
—
930
—
—
—
—
—
—
—
930
Share
premium
account
£’000
21,637
—
4,535
4,535
—
—
—
—
26,172
—
—
—
—
—
—
—
26,172
Translation
reserve
£’000
Profit
and loss
account
£’000
(405)
—
—
—
—
—
(60)
(60)
(465)
—
—
—
—
(140)
325
185
(280)
11,846
(2)
—
(2)
(1,365)
(3,723)
—
(5,088)
6,756
100
100
(389)
(1,203)
—
—
(1,592)
5,264
Total
equity
£’000
33,803
(2)
4,740
4,738
(1,365)
(3,723)
(60)
(5,148)
33,393
100
100
(389)
(1,203)
(140)
325
(1,407)
32,086
The accounting policies and notes on pages 50 to 85 form part of these financial statements.
52
Pressure Technologies plc Annual Report 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
For the 52 week period ended 28 September 2019
Operating activities
Cash flows from operating activities
Finance costs paid
Income tax (paid)/refunded
Cash flows from discontinued operations
Net cash outflow from operating activities
Investing activities
Proceeds from sale of fixed assets
Purchase of property, plant and equipment
Cash inflow on disposal of subsidiaries net of cash disposed of
Net cash used in investing activities
Financing activities
Repayment of borrowings
Proceeds from lease financing
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
Notes
28
29
52 weeks
ended
28 September
2019
£’000
52 weeks
ended
29 September
2018
£’000
628
(464)
159
(2,534)
(2,211)
—
(3,693)
1,277
(2,416)
(1,307)
2,002
—
695
(3,932)
6,140
2,208
291
(394)
(56)
—
(159)
127
(1,463)
1,088
(248)
(3,438)
454
4,740
1,756
1,349
4,791
6,140
The accounting policies and notes on pages 50 to 85 form part of these financial statements.
53
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
adopted for use in the European Union and IFRIC interpretations issued by the International Accounting Standards Board and the
Companies Act 2006. The Company has elected to prepare its parent company financial statements in accordance with Financial
Reporting Standard 101 (FRS 101). These are presented on pages 86 to 94. 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
28 September 2019. The consolidated financial statements have been prepared on a going concern basis.
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 27. 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 renegotiated revolving credit facility expires in December 2021 (see Note 22) 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 2019/2020 and beyond and that the Group has sufficient cash reserves and headroom in financial covenants
to enable the Group to meet its obligations as they fall due for a period of at least 12 months from the date when these financial
statements have been signed.
Management have modelled the financial covenants in the forecasts and no breach is expected.
The Contingent Liability disclosed in Note 31 to these financial statements is a critical judgement in respect of going concern.
Uncertainty over the outcome of the sentencing hearing and level of fine arises in particular in relation to the following:
• the level of culpability;
• the likelihood of harm;
• the matrix applied and starting point of the fine; and
• mitigations presented.
In relation to the Sentencing Guidelines and the quantum of any fine, which could be material, specific consideration
has also been given to:
• Sentencing mitigation factors;
• Rights of appeal;
• Time to pay;
• Alternative sources of finance; and that
• The fine should be proportionate to the overall means of the offender in accordance with section 164 of the Criminal
Justice Act 2003.
As part of the assessment process a number of scenarios have been modelled that consider the wide range of potential outcomes
of the Contingent Liability. Management have sought expert option to inform their assessment, however there remains inherent
uncertainty as to the outcome of the sentencing hearing and therefore the potential mitigations which leads to a material
uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern.
Nevertheless, after undertaking the assessments they have and considering the uncertainties set out above, the Directors have
a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future and for these
reasons they continue to adopt the going concern basis for preparing the financial statements.
New standards adopted as at 30 September 2018
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 replaces IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and several revenue-related interpretations. As part of the
transition to IFRS 15 the Group has assessed whether the IFRS 15 criteria for the recognition of revenue over time are met. This
has resulted in £1.7 million of revenue being recognised in the period ended 28 September 2019 that would have been recognised
in future periods if IFRS 15 had not been adopted. Consideration has been given to the potential impact of recognition over time
on the results for the period ended 29 September 2018, but due to the mix of ongoing contracts at 29 September 2018, the impact
would have been immaterial.
54
Pressure Technologies plc Annual Report 2019 New standards adopted as at 30 September 2018 continued
IFRS 15 ‘Revenue from Contracts with Customers’ continued
The new standard has been applied using the modified retrospective approach without restatement as it had no material impact
on previously reported results or retained earnings. In accordance with the transition guidance, IFRS 15 has only been applied to
contracts that were incomplete as at 30 September 2018.
IFRS 15 does not include any guidance on how to account for loss-making contracts. Accordingly, such contracts are accounted
for using the guidance in IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’.
Under IAS 37, the assessment of whether a provision needs to be recognised takes place at the contract level and there are no
segmentation criteria to apply. As a result, there are some instances where loss provisions recognised in the past have not been
recognised under IFRS 15 because the contract as a whole is profitable. In addition, when two or more contracts entered into at or
near the same time are required to be combined for accounting purposes, IFRS 15 requires the Group to perform the assessment
of whether the contract is onerous at the level of the combined contracts. The Group also notes that the amount of loss accrued
in respect of a loss-making contract under IAS 11 takes into account an appropriate allocation of construction overheads.
This contrasts with IAS 37 where loss accruals may be lower as they are based on the identification of ‘unavoidable costs’.
There were no onerous contracts identified on adoption or during the year.
IFRS 9 ‘Financial Instruments’
IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. It makes major changes to the previous guidance
on the classification and measurement of financial assets and introduces an ‘expected credit loss’ model for impairment of
financial assets.
When adopting IFRS 9, the Group has applied transitional relief and opted not to restate prior periods.
The adoption of IFRS 9 has impacted the impairment of financial assets to which the expected credit loss model applied.
This affects the Group’s trade receivables. For contract assets arising from IFRS 15 and trade receivables, the Group applies
a simplified model of recognising lifetime expected credit losses as these items do not have a significant financing component.
The financial assets are initially measured at fair value and subsequently measured at amortised cost.
As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group’s financial liabilities
were not impacted by the adoption of IFRS 9. The Group’s financial liabilities include borrowings and trade and other payables.
Standards and interpretations not yet applied by the Group
The following standard will be effective in future periods:
• IFRS 16 Leases (effective date 1 January 2019)
IFRS 16 will replace IAS 17 ‘Leases’ and three related interpretations. It completes the IASB’s long-running project to overhaul lease
accounting. Leases will be recorded in the statement of financial position in the form of a right-of-use asset and a lease liability.
There are two important reliefs provided by IFRS 16 for assets of low value and short-term leases of less than 12 months.
IFRS 16 is effective from periods beginning on or after 1 January 2019. Early adoption is permitted; however, the Group has decided
not to early adopt.
Management is in the process of assessing the full impact of the standard. So far, the Group:
• has decided to make use of the practical expedient not to perform a full review of existing leases and apply IFRS 16 only to new or
modified contracts. As some leases will be modified or renewed in 2020, the Group has reassessed these leases and concluded
they will be recognised on the statement of financial position as a right-of-use asset.
• believes that the most significant impact will be that the Group will need to recognise a right-of-use asset and a lease liability
for the offices and production buildings currently treated as operating leases. At 28 September 2019 the future minimum lease
payments amounted to £1,264,000. This will mean that the nature of the expense of the above cost will change from being an
operating lease expense to depreciation and interest expense.
• concludes that there will not be a significant impact to the finance leases currently held on the statement of financial position.
The Group has adopted IFRS 16 with effect from 29 September 2019 using the standard’s modified retrospective approach. Under
this approach the cumulative effect of initially applying IFRS 16 is recognised as an adjustment to equity at the date of initial
application. Comparative information is not restated.
Choosing this transition approach results in further policy decisions the Group needs to make as there are several other
transitional reliefs that can be applied. These relate to those leases previously held as operating leases and can be applied on a
lease-by-lease basis. The Group is currently assessing the impact of applying these other transitional reliefs.
55
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements ACCOUNTING POLICIES continued
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
Contingent liabilities
In respect of the 2019 financial statements there is critical judgement in respect of the accounting for provisions and contingent
liabilities and the impact on the Directors’ assessment of Going Concern. Further details are disclosed in Note 31 to the financial
statements. Uncertainty arises in particular in relation to the following:
• the level of culpability;
• the likelihood of harm;
• the matrix applied and starting point of the fine; and
• mitigations presented.
Revenue recognition
Continuing revenue arises mainly from the manufacture of pressure containment products and components and related services
in the Group’s core sectors which are Oil and Gas, Defence, Industrial Gases and Hydrogen Energy.
Under IFRS 15, in order to determine whether to recognise revenue, the Group follows a five-step process:
• Identifying the contract with a customer.
• Identifying the performance obligations.
• Determining a transaction price.
• Allocating the transaction price to the performance obligations.
• Recognising revenue when/as performance obligation(s) are satisfied.
Revenue in the Cylinders division is recognised over time as the product is being manufactured or a service being provided
if any of the following criteria are met:
• The Group is creating a bespoke item which doesn’t have an alternative use to the Group, the time between order and completion
of the contract is over six months and the entity has a right to payment for work completed to date including a reasonable profit.
• The customer controls the asset that is being created or enhanced during the manufacturing process.
• Services provided where the customer simultaneously receives and consumes the benefits provided by the Group’s performance
as the Group performs.
Judgement is required when determining if a contract meets the criteria for recognition over time and the proportion of revenue
to recognise as products are being manufactured. Judgement is also applied in determining how many performance obligations
there are within each contract and whether the development phase represents a separate obligation. The stage of completion of
a contract is determined either by reference to the proportion that contract costs incurred for work performed to date bear to the
estimated total contract costs, or by reference to the completion of a physical proportion of the contract work. The basis used is
dependent upon the nature of the underlying contract and takes into account the degree to which the physical proportion of the
work is subject to certification procedures. Losses on contracts are recognised at the point when such losses become probable.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases
or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to
the revision become known by management.
The revenue is measured at the fixed transaction price agreed under the contract. If the contract includes an hourly fee for services,
revenue is recognised in the amount to which the Company has a right to invoice. Customers are invoiced on a bi-monthly basis and
consideration is payable when invoiced. The Group does not expect to have any contracts where the period between the transfer of
the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does
not adjust any of the transaction prices for the time value of money.
Revenue of the Cylinders division that does not meet the criteria for recognition over time is recognised at a point in time
on notification that the product is ready for collection, despatch or delivery dependent on terms of sale.
Revenue of the Precision Machined Components division is not considered to meet the criteria for recognition over time
and is recognised at a point in time on notification that the product is ready for collection, despatch or delivery dependent
on terms of sale.
56
Pressure Technologies plc Annual Report 2019 Critical accounting judgements continued
Stage of completion on contracts
The majority of contracts have payment terms based on contractual milestones, which are not always aligned to when revenue
is recognised. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance
obligations and reports these amounts as a contract liability in the statement of financial position. Similarly if the Group satisfies
a performance obligation before it receives the consideration, then it will recognise either a contract asset or a receivable in its
statement of financial position.
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.
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.
Accounting for associates
Pressure Technologies plc holds 21% of the shares of Greenlane Renewables Inc (“GRN”). The resulting shareholding on completion
of the disposal of the Alternative Energy division was a direct function of the funds raised by the Creation Capital Corporation on
the Private Placement, over which the Group had no influence. The voting rights of the shares held by the Group are also restricted
by certain escrow conditions and terms of associated agreements. As such the Group considers that it does not have significant
influence over GRN and has not accounted for the investment as an associate entity.
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 14 to the financial statements.
Stage of completion on contracts
Revenue recognised from construction contracts reflects management’s best estimate about each contract's outcome and stage
of progress but is subject to estimation uncertainty. For more complex contracts in particular, costs to complete and contract
profitability are subject to more significant estimation uncertainty.
Contract costs
The Cylinders division has a number of sources of revenue, not all of which meet the criteria for recognition over time. The resources
deployed are common to all activities and therefore internal labour and overhead costs attributed to a contract in determining the
total contract cost reflect management’s best estimate of the hours dedicated to the individual contracts.
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 28 September
2019 (2018: to 29 September 2018). Subsidiaries are all entities 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 power over the investee;
• is exposed, or has rights, to variable returns 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.
57
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements ACCOUNTING POLICIES continued
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.
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.
Revenue
Revenue is recognised in accordance with IFRS 15, ‘Revenue from Contracts with Customers’. See ‘Critical accounting judgements’
and ‘Key sources of estimation uncertainty’ for details.
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 those 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.
58
Pressure Technologies plc Annual Report 2019 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.
These costs are capitalised up to the point development is complete and the asset is then amortised over the period in 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:
Non-contractual customer relationships
Technology
Intellectual Property
IT systems & software licences
Development expenditure
5 – 10 years
7.5 – 15 years
15 years
5 years
5 – 15 years
Impairment testing of non-current assets
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at
cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies
of the related business combinations 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 asset’s 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.
59
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements 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 the 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.
Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the
financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset
expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised
when it is extinguished, discharged, cancelled or expires.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a significant financing component and are measured at the transaction
price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where
applicable).
Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:
• amortised cost
• fair value through profit or loss (FVTPL)
• fair value through other comprehensive income (FVOCI).
In the periods presented the Group does not have any financial assets categorised as FVOCI.
The classification is determined by both:
• the entity’s business model for managing the financial asset
• the contractual cash flow characteristics of the financial asset.
All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance
income or other financial items, except for impairment of trade receivables which is presented within other expenses.
Subsequent measurement of financial assets
• Financial assets at amortised cost: Financial assets are measured at amortised cost if the assets meet the following conditions
(and are not designated as FVTPL):
• they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows
• the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where
the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this
category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under IAS 39.
60
Pressure Technologies plc Annual Report 2019 Financial instruments continued
Subsequent measurement of financial assets continued
• Financial assets at fair value through profit or loss (FVTPL): Financial assets that are held within a different business model
other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of
business model, financial assets whose contractual cash flows are not solely payments of principal and interest are accounted
for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging
instruments, for which the hedge accounting requirements apply (see below).
The category also contains an equity investment. The Group accounts for the investment at FVTPL and did not make the irrevocable
election to account for the investment in Greenlane Renewables Inc. to be held at fair value through other comprehensive income
(FVOCI). In the current financial year, the fair value was determined in line with the requirements of IFRS 9, which does not allow for
measurement at cost.
Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial
assets in this category are determined by reference to active market transactions or using a valuation technique where no active
market exists.
• Financial assets at fair value through other comprehensive income (FVOCI): The Group accounts for financial assets at FVOCI
if the assets meet the following conditions:
• they are held under a business model whose objective is to ‘hold to collect’ the associated cash flows and sell and,
• the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest
on the principal amount outstanding.
Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon derecognition of the asset.
• Financial assets classified as available for sale (AFS) under IAS 39 (comparative periods): AFS financial assets are
non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other
categories of financial assets (FVTPL or held to maturity and loans and receivables).
Any AFS financial assets will be measured at fair value. Gains and losses will be recognised in other comprehensive income and
reported within the AFS reserve within equity, except for interest and dividend income, impairment losses and foreign exchange
differences on monetary assets, which are recognised in profit or loss. When the asset is disposed of or was determined to be
impaired, the cumulative gain or loss would be recognised in other comprehensive income after being reclassified from the equity
reserve to profit or loss. Interest would be calculated using the effective interest method and dividends would be recognised in
profit or loss within finance income.
Impairment of financial assets
IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit
loss (ECL) model’. This replaces IAS 39’s ‘incurred loss model’.
Instruments within the scope of the new requirements include loans and other debt-type financial assets measured at amortised
cost and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some
financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.
Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers
a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current
conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
• financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk
(‘Stage 1’) and
• financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low
(‘Stage 2’).
‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the
second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life
of the financial instrument.
Previous financial asset impairment under IAS 39
In the prior year, the impairment of trade receivables was based on the incurred loss model. Individually significant receivables
were considered for impairment when they were past due or when other objective evidence was received that a specific counterparty
will default. Receivables that were not considered to be individually impaired were reviewed for impairment in groups, which are
determined by reference to the industry and region of the counterparty and other shared credit risk characteristics. The impairment
loss estimate was then based on recent historical counterparty default rates for each identified group.
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Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements ACCOUNTING POLICIES continued
Impairment of financial assets continued
Trade and other receivables and contract assets
The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records
the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the
potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience,
external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.
The Group assesses impairment of trade receivables on a collective basis; as they possess shared credit risk characteristics they
have been grouped based on the days past due.
Classification and measurement of financial liabilities
As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group’s financial liabilities
were not impacted by the adoption of IFRS 9. However, for completeness, the accounting policy is disclosed below.
The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group
designated a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and
financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit
or loss (other than derivative financial instruments that are designated and effective as hedging instruments).
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included
within finance costs or finance income.
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 the
rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost
in a foreign currency are not retranslated. The consolidated financial statements are presented in Pounds Sterling, which is also the
functional currency of the parent company.
The results of overseas subsidiary undertakings are translated at the average exchange rate (being an approximation to the rate at
the date of transactions throughout the year) and the balance sheets of such undertakings are translated at the year-end exchange
rates. Exchange differences arising on the retranslation of opening net assets of overseas subsidiary undertakings are charged/
credited to other comprehensive income and recognised in the translation reserve in equity. On disposal of a foreign operation the
cumulative translation differences are transferred to profit or loss as part of the gain or loss on disposal.
Grants
Grants are recognised where there is reasonable assurance that the entity complies with the conditions attached to them. Grants
relating to property, plant and equipment are treated as deferred income and released to profit or loss over the expected useful
lives of the assets concerned. Other grants are credited to profit or loss in the same period as the related expenditure is incurred.
Pensions
The Group operates defined contribution schemes with costs being charged to profit or loss in the period to which they relate.
62
Pressure Technologies plc Annual Report 2019 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 two 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.
During the year the Alternative Energy segment was disposed of (see Note 29).
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 a legal or
constructive obligation to do so or has made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the associate is impaired. If this is the
case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and
its carrying value and recognises the amount adjacent to ‘share of profit/(loss) of associates’ in the consolidated statement of
comprehensive income.
The Group considers that it is likely to have 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.
Pressure Technologies plc holds 21% of the shares of Greenlane Renewables Inc (“GRN”). The resulting shareholding on completion
of the disposal of the Alternative Energy division was a direct function of the funds raised by the Creation Capital Corporation on
the Private Placement, over which the Group had no influence. The voting rights of the shares held by the Group are also restricted
by certain escrow conditions and terms of associated agreements. As such the Group considers that it does not have significant
influence over GRN and has not accounted for the investment 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.
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Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements ACCOUNTING POLICIES continued
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 coordinated
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.
64
Pressure Technologies plc Annual Report 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Segment analysis
The financial information by segment detailed below is frequently reviewed by the Chief Executive who has been identified
as the Chief Operating Decision Maker (CODM).
For the 52 week period ended 28 September 2019
Revenue
– total
– revenue from other segments
– intra-segment revenue from discontinued operations
Revenue from external customers
Precision
Machined
Components
£’000
14,449
(18)
—
14,431
Cylinders
£’000
13,860
—
—
13,860
Central
costs
£’000
—
—
—
—
Total
£’000
28,309
(18)
—
28,291
Gross profit
4,996
4,198
(22)
9,172
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
Profit/(loss) before tax
2,089
—
—
2,089
(15)
2,074
1,879
(1,750)
(398)
(269)
(30)
(299)
(1,734)
(82)
(52)
(1,868)
(422)
(2,290)
2,234
(1,832)
(450)
(48)
(467)
(515)
Segmental net assets*
7,946
54,403
(30,263)
32,086
Other segment information:
Capital expenditure – property, plant and equipment
Depreciation
Amortisation
1,359
505
—
2,080
733
1,750
13
119
82
3,452
1,357
1,832
* 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.
65
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. Segment analysis continued
For the 52 week period ended 29 September 2019
Revenue
– total
– revenue from other segments
– intra-segment revenue from discontinued operations
Revenue from external customers
Gross profit
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
Profit/(loss) before tax
Precision
Machined
Components
£’000
Cylinders
£’000
9,942
—
—
9,942
3,511
1,099
—
(27)
1,072
(15)
1,057
11,551
(83)
(243)
11,225
3,694
1,501
(1,741)
(60)
(300)
(8)
(308)
Central
costs
£’000
—
—
—
—
30
(1,551)
(75)
(424)
(2,050)
(377)
(2,427)
Total
£’000
21,493
(83)
(243)
21,167
7,235
1,049
(1,816)
(511)
(1,278)
(400)
(1,678)
Segmental net assets*
6,392
54,254
(39,045)
21,601
Other segment information:
Capital expenditure – property, plant and equipment
Depreciation
Amortisation
410
473
—
600
635
1,741
18
125
75
1,028
1,233
1,816
* 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 Group’s revenue disaggregated by primary geographical markets is as follows:
Revenue
United Kingdom
Europe
Rest of the World
Precision
Machined
Components
£’000
7,411
4,467
2,553
14,431
Cylinders
£’000
8,388
2,701
2,771
13,860
2019
Total
£’000
15,799
7,168
5,324
28,291
Precision
Machined
Components
£’000
5,904
3,758
1,563
11,225
Cylinders
£’000
5,123
2,363
2,456
9,942
2018
Total
£’000
11,027
6,121
4,019
21,167
The Group’s largest customer, which is reported within the Cylinders segment, contributed 13% to the Group’s revenue (2018: 7%
reported in the Precision Machined Components segment).
The following table provides an analysis of the Group’s revenue by market.
Revenue
Oil and gas
Defence
Industrial gases
Hydrogen energy
2019
£’000
16,272
9,118
2,175
726
28,291
2018
£’000
12,405
6,420
2,342
—
21,167
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.
66
Pressure Technologies plc Annual Report 2019
1. Segment analysis continued
The Group’s revenue disaggregated by pattern of revenue recognition and category is as follows:
Revenue
Sale of goods transferred at a point in time
Sale of goods transferred over time
Rendering of services
2019
Precision
Machined
Components
£’000
14,431
—
—
14,431
Cylinders
£’000
8,996
1,739
3,125
13,860
2018
Precision
Machined
Components
£’000
11,225
—
—
11,225
Cylinders
£’000
7,646
—
2,296
9,942
The following aggregated amounts of transaction values relate to the performance obligations from existing contracts that are
unsatisfied or partially unsatisfied as at 28 September 2019:
Revenue
Sale of goods – Cylinders
The following table provides an analysis of the carrying amount of non-current assets and additions to property, plant and
equipment.
United
Kingdom
£’000
37,778
3,452
Rest of
the World
£’000
—
—
2019
Total
£’000
37,778
3,452
United
Kingdom
£’000
38,194
1,030
Rest of
the World
£’000
54
63
Non-current assets
Additions to property, plant and equipment
2. Finance costs
Interest payable on bank loans and overdrafts
Interest payable on finance leases
3. Loss before taxation
Loss before taxation is stated after charging/(crediting):
Depreciation of property, plant and equipment – owned assets
Depreciation of property, plant and equipment – assets under finance lease
and hire purchase agreements
(Profit)/loss on disposal of fixed assets
Amortisation of intangible assets acquired on business combinations
Amortisation of grants receivable
Staff costs – excluding share based payments (see Note 8)
Cost of inventories recognised as an expense
Operating lease rentals:
– Land and buildings
– Machinery and equipment
Foreign currency (gain)/loss
Share based payments
2020
£’000
5,158
2018
Total
£’000
38,248
1,093
2018
£’000
377
23
400
2018
£’000
1,173
60
(73)
1,816
(86)
8,654
9,318
162
36
(102)
30
67
2019
£’000
421
46
467
2019
£’000
1,291
66
—
1,832
(40)
9,765
13,921
360
62
10
100
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
4. Amortisation
Amortisation of intangible assets
5. Other exceptional charges
Reorganisation and redundancy
CEO retirement costs
Costs in relation to HSE investigation
2019
£’000
(1,832)
(1,832)
2019
£’000
(450)
—
—
(450)
2018
£’000
(1,816)
(1,816)
2018
£’000
(156)
(346)
(9)
(511)
The reorganisation costs (which are recognised in accordance with IAS 19) relate to costs of restructuring across the Group;
the divisional split is given in Note 1.
6. Discontinued operations
On 4 June 2019, and as separately communicated to shareholders on that date, the Group completed the disposal of the entire
issued share capital of its subsidiary, PT Biogas Holdings Limited (“Greenlane”), which was the holding company for the Group’s
Alternative Energy division. The loss for the year ended 28 September 2019 relating to this division was £2.8 million (period ended
29 September 2018: £1.1 million).
In the previous financial year, on 7 June 2018, the Group completed the disposal of its subsidiary Hydratron Limited.
The loss for the year ended 28 September 2019 relating to this entity was £nil (period ended 29 September 2018: £1.9 million).
The results of both disposals are reflected in the prior period.
36 weeks to
4 June
2019
£’000
52 weeks to
29 September
2018
£’000
2,143
(4,271)
(2,128)
(558)
3
—
(1,694)
3,095
—
(1,282)
79
(1,203)
2019
£’000
(2,534)
—
—
(2,534)
13,454
(14,204)
(750)
(768)
(6)
(192)
(457)
(114)
(1,692)
(3,967)
244
(3,723)
2018
£’000
755
(65)
505
1,195
Revenue
Expenses
Operating loss pre-exceptional costs
Amortisation
Finance (costs)/income
Exceptional costs:
Reorganisation and redundancy
Costs to sell
Profit/(loss) after tax on disposal (Note 29)
Goodwill impairment
Loss before taxation
Taxation
Loss for the year
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
68
Pressure Technologies plc Annual Report 2019
2019
£’000
2018
£’000
37
63
37
58
—
14
2019
£’000
8,234
848
437
100
354
9,973
40
100
25
35
11
10
2018
£’000
7,130
736
313
30
475
8,684
2018
No.
130
20
34
184
7. 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
– Tax advisory services
– Other services
– All other assurance services
8. Employee costs
Particulars of employees, including Executive Directors:
Wages and salaries
Social security costs
Pension costs
Share based payments
Exceptional costs
The average monthly number of employees (including Executive Directors) during the period was as follows:
Production
Selling and distribution
Administration
2019
No.
147
23
41
211
The total number of employees employed by the Group in its continuing operations on 28 September 2019 was 223 (2018: 196).
9. Directors’ remuneration
Particulars of Directors’ remuneration are as follows:
Emoluments
Pension costs
Employers’ national insurance
Share based payments
Exceptional costs
2019
£’000
575
46
70
43
—
734
2018
£’000
571
45
68
(12)
336
1,008
Please see the Report of the Remuneration Committee on pages 36 to 37 for full details of Directors’ emoluments.
No Directors exercised any share options in the year.
During the year retirement benefits were accruing to two (2018: three) Directors in respect of defined contributions schemes.
Included in the aggregate emoluments for the period ended 28 September 2019 are payments of £16,367 (2018: £25,100) made
to companies controlled by Directors.
The highest paid Director received total emoluments of £252,000 and pension contributions of £23,000 (2018: total emoluments
of £513,000 and pension contributions of £22,000).
69
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
10. 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
Deferred tax assets no longer recognised
Over provision in respect of prior years
2019
2019
Continuing Discontinued
£’000
£’000
—
(220)
—
(220)
(133)
—
227
94
—
(79)
—
(79)
—
—
—
—
2019
Total
£’000
—
(299)
—
(299)
(133)
—
227
94
2018
2018
Continuing Discontinued
£’000
£’000
—
—
—
—
(231)
—
(82)
(313)
—
—
—
—
(293)
52
(3)
(244)
2018
Total
£’000
—
—
—
—
(524)
52
(85)
(557)
Total taxation (credit)/expense
(126)
(79)
(205)
(313)
(244)
(557)
Corporation tax is calculated at 19% (2018: 19%) of the estimated assessable profit for the period. Deferred tax is calculated at the
rate applicable when the temporary differences unwind.
The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
2019
2019
Continuing Discontinued
£’000
£’000
2019
Total
£’000
2018
2018
Continuing Discontinued
£’000
£’000
2018
Total
£’000
Loss before taxation
(515)
(1,282)
(1,797)
(1,618)
(4,027)
(5,645)
Theoretical tax at UK corporation
tax rate 19% (2018: 19%)
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
– non-taxable profit on disposal
– effect of unrealised losses on
discontinued operations
– change in taxation rates
– effect of discontinued operations
translation rates
– differences in corporation tax rates
– losses not previously recognised
now utilised
– deferred tax assets no longer recognised
Total taxation credit
(98)
(243)
(341)
(307)
(765)
(1,073)
51
—
—
(118)
7
—
—
—
62
—
(30)
—
(126)
1
52
258
332
590
—
—
—
(79)
(293)
535
—
—
—
—
—
(79)
—
—
(118)
(72)
(293)
535
—
62
—
(30)
—
(205)
—
—
(68)
(82)
—
(36)
(5)
—
—
(73)
—
(313)
—
—
—
(3)
—
76
—
11
54
—
52
(244)
—
—
(68)
(85)
—
40
(5)
11
54
(73)
52
(557)
70
Pressure Technologies plc Annual Report 2019
11. Earnings per ordinary share
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.
For the 52 week period ended 28 September 2019
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 4)
Other exceptional charges and credits (Note 5)
Theoretical tax effect of the above adjustments
Adjusted earnings
Adjusted earnings per share
For the 52 week period ended 29 September 2018
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 loss per share is calculated as follows:
Loss after tax
Amortisation and M&A related exceptional items (Note 4)
Other exceptional charges and credits (Note 5)
Theoretical tax effect of the above adjustments
Adjusted earnings
Adjusted earnings per share
Continuing
£’000
Discontinued
£’000
(389)
(1,203)
Total
£’000
(1,592)
No.
18,595,165
9,234
18,604,399
(2.1)p
(2.1)p
(6.5)p
(6.5)p
(8.6)p
(8.6)p
(389)
1,832
450
(434)
1,459
7.8p
(1,203)
558
(1,401)
(428)
(2,474)
(1,592)
2,390
(951)
(862)
(1,015)
(13.3)p
(5.5)p
Continuing
£’000
Discontinued
£’000
(1,365)
(3,723)
Total
£’000
(5,088)
No.
18,178,407
17,944
18,196,351
(7.5)p
(7.5)p
(20.5)p
(20.5)p
(28.0)p
(28.0)p
(1,365)
1,816
511
(442)
520
2.9p
(3.723)
2,460
763
(591)
(1,091)
(5,088)
4,276
1,274
(1,033)
(571)
(6.0)p
(3.1)p
71
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
12. Dividends
No dividends have been declared in respect of the year ended 28 September 2019 or were declared in respect of the year ended
29 September 2018.
13. Goodwill
Cost and gross carrying amount
At 30 September 2017
Removed upon business disposal
At 29 September 2018
Removed upon business disposal (Note 29)
At 28 September 2019
Total
£’000
16,062
(1,692)
14,370
(4,860)
9,510
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 the 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 14.7% to the Precision Machined Components division (2018: 12.5%). The 2019
assessment, following the reorganisation of PMC to an integrated division, has been carried out at the divisional level.
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. The forecasts used for years two to four assume revenue growth, returning to levels achieved
in 2014 by 2022 and into perpetuity, no long-term rate of growth or inflation is incorporated into perpetuity.
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 the 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 believes that no impairment is required for Precision Machined Components.
Management is not aware of any other changes that would necessitate changes to its key estimates. At 28 September 2019,
no reasonable expected change in the key assumptions (including a 5% decrease in forecast cash flows) would give rise to
an impairment charge for Precision Machined Components.
72
Pressure Technologies plc Annual Report 2019
14. Intangible assets
Cost
At 30 September 2017
Additions
Acquired through business combination
At 29 September 2018
Additions
Removed upon business disposal (Note 29)
At 28 September 2019
Amortisation
At 30 September 2017
Charge for the period
Removed upon business disposal
At 29 September 2018
Charge for the period
Charge for the period – business disposal
Removed upon business disposal (Note 29)
At 28 September 2019
Net book value
At 28 September 2019
At 29 September 2018
IT systems
Intellectual & Software Development
licences expenditure
£’000
property
£’000
£’000
2,796
—
—
2,796
—
—
2,796
155
187
—
342
186
—
—
528
2,268
2,454
476
326
—
802
226
(397)
631
10
98
—
108
91
—
(22)
177
454
694
564
44
—
608
—
(433)
175
—
40
—
40
—
47
(87)
—
175
568
Non
contractual
customer
Technology relationships
£’000
£’000
5,316
—
—
5,316
—
(5,316)
—
2,131
703
—
2,834
—
511
(3,345)
—
12,646
—
(766)
11,880
—
—
11,880
5,844
1,556
(766)
6,634
1,555
—
(10)
8,179
Total
£’000
21,798
370
(766)
21,402
226
(6,146)
15,482
8,140
2,584
(766)
9,958
1,832
558
(3,464)
8,884
—
3,701
6,598
2,482
5,246
11,444
Remaining useful economic life
at 28 September 2019
12 years
3 years
8 years
3 years
4 years
73
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
15. Property, plant and equipment
Cost
At 30 September 2017
Additions
Removed upon business disposal
Disposals
At 29 September 2018
Additions
Additions – business disposal
Removed upon business disposal (Note 29)
Disposals
Transfers
At 28 September 2019
Depreciation
At 30 September 2017
Charge for the period
Removed upon business disposal
Disposals
At 29 September 2018
Charge for the period
Charge for the period – business disposal
Removed upon business disposal (Note 29)
Disposals
At 28 September 2019
Net book value
At 28 September 2019
At 29 September 2018
Assets under
construction
£’000
Land and
buildings
£’000
Plant and
machinery
£’000
188
64
—
—
252
1,359
—
—
—
(1,108)
503
—
—
—
—
—
—
—
—
—
—
503
252
4,958
1
(234)
—
4,725
1
—
—
—
—
4,726
194
66
(135)
—
125
43
—
—
—
168
4,558
4,600
Total
£’000
20,220
1,093
(941)
(494)
19,878
3,452
15
(272)
(259)
—
22,814
7,634
1,378
(732)
(436)
7,846
1,357
20
(192)
(259)
8,772
15,074
1,028
(707)
(494)
14,901
2,092
15
(272)
(259)
1,108
17,585
7,443
1,312
(598)
(436)
7,721
1,314
20
(192)
(259)
8,604
8,981
14,042
7,180
12,032
Included within the net book value of £14,042,000 is £1,120,000 (2018: £679,000) 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 £66,000
(2018: £60,000).
16. 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 on page 91.
Al-Met Limited, Martract Limited, Quadscot Holdings Limited, Quadscot Precision Engineers Limited and Roota Engineering Limited
are exempt from the requirement of the Companies Act relating to the audit of individual financial statements by virtue of s479A of
the Companies Act 2006.
74
Pressure Technologies plc Annual Report 2019
17. 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 29 September 2018
Kelley GTM, LLC.
At 28 September 2019
Kelley GTM, LLC.
Country of
incorporation
Assets
£’000
Liabilities
£’000
Revenues
£’000
Loss
£’000
USA
548
(7,624)
703
(677)
USA
1,128
(8,624)
1,123
(151)
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
29 September 2018 to 28 September 2019. 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 (2018: nil) leaving
unrecognised losses of £151,000 (2018: £677,000).
18. Other long-term financial assets
Listed Security
Promissory Note
2019
£’000
1,250
6,100
7,350
2018
£’000
—
—
—
The Group holds a listed security asset which related entirely to its shareholding in Greenlane Renewables and a Promissory Note
which formed part of the consideration on sale of the Alternative Energy division in the year.
The fair value of the shareholding in Greenlane Renewables Inc was determined by reference to published price quotations
in an active market (classified as level 1 in the fair value hierarchy – see Note 24).
The Promissory Note is valued at amortised cost. The term of the note is four years with a repayment date of 3 June 2023.
The note can be repaid any time within that time period. Interest is charged at 7% rolled up into the principal unless a trigger
event occurs under the terms of the note which causes interest payments to be satisfied in cash. On initial recognition the value
was assessed to be the face value. The note is denominated 50% in GBP and 50% in Canadian dollars. The asset is held solely to
collect associated cash flows which relate to principal and interest only.
19. Inventories
Raw materials and consumables
Work in progress
Finished goods
Inventories are stated net of provisions of £330,000 (2018: £325,000).
2019
£’000
2,023
3,010
82
5,115
2018
£’000
2,428
1,890
65
4,383
75
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
20. Trade and other receivables
Current
Trade receivables
Contract assets
Other receivables
Prepayments and accrued income
2019
£’000
7,058
1,056
425
1,002
9,541
2018
£’000
8,384
1,106
646
1,862
11,998
All amounts are short term. The net carrying value of trade receivables is considered a reasonable approximation of fair value.
All of the Group’s trade and other receivables have been reviewed for indicators of impairment.
Note 24 includes disclosures relating to the credit risk exposures and analysis relating to the allowance for expected credit losses.
The above comparative for impairment provisions refers to the IAS 39 measurement basis which applied an incurred loss model,
whereas the current year applies IFRS 9, which is an expected loss model.
21. Trade and other payables
Amounts due within 12 months
Trade payables
Contract liabilities
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
2019
£’000
3,341
—
369
3,650
7,360
158
158
2018
£’000
3,741
3,698
689
4,617
12,745
198
198
With the exception of the non-current part of finance lease liabilities, all amounts are short term. The carrying values of trade
payables and other payables are considered to be a reasonable approximation of fair value.
Deferred income due after 12 months relates to grant income received. There are no unfulfilled conditions or other contingencies
attached to these grants.
22. Borrowings
Non-current
Finance lease liabilities
Revolving credit facility
Current
Finance lease liabilities
Revolving credit facility
2019
£’000
2,116
—
2,116
656
10,800
11,456
2018
£’000
836
11,800
12,636
241
—
241
Total borrowings
13,572
12,877
During the period the bank loan bore average coupons of 2% above LIBOR annually.
During the year the Group had in place a £15 million Revolving Credit Facility (RCF) which was drawn £10.8 million at the year end
date. These bank borrowings are secured on the property, plant and equipment of the Group (see Note 15) by way of a debenture.
Obligations under finance leases are secured on the plant & machinery assets to which they relate.
76
Pressure Technologies plc Annual Report 2019
22. Borrowings continued
The Group’s existing RCF, which was put in place in October 2014, had been extended a number of times, and was due to expire in
April 2020. Fully sanctioned terms were reached for the replacement RCF facility with our incumbent bank in September 2019.
Documentation and signing was however not completed until 10 December 2019 and as a result, in accordance with IAS 1, the
borrowing has been classified as a current liability at the balance sheet date. The new facility, which is on substantially the same
terms as the previous facility, is £12 million until end November 2020 and £10 million for the remainder of the term and expires in
December 2021.
The key financial covenant remains the leverage covenant, which is tested quarterly, and has a maximum permitted net debt to
adjusted EBITDA ratio of 3.25:1 for the first four quarterly test dates reducing to a maximum of 3:1 in the second year of the term.
The carrying amount of the other bank borrowings is considered to be a reasonable approximation of fair value. 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
Revolving credit facility
Due for settlement after one year
Finance lease liabilities
Revolving credit facility
The Group has the following undrawn borrowing facilities:
Expiring within one year
Expiring beyond one year
23. Contract balances
Costs incurred and profit recognised to date
Less: Progress billings
Net balance sheet position for ongoing contracts
Representing:
Contract assets (Note 20)
Contract liabilities (Note 21)
Net balance sheet position for ongoing contracts
2019
£’000
656
10,800
2,116
—
2019
£’000
4,200
—
2019
£’000
10,354
(9,298)
1,056
2019
£’000
1,056
—
1,056
2018
£’000
241
—
836
11,800
2019
£’000
—
3,200
2018
£’000
18,268
(20,860)
(2,592)
2018
£’000
1,106
(3,698)
(2,592)
24. Financial instruments
Financial assets and liabilities recorded or disclosed at fair value in the consolidated statement of financial position are
categorised based on the level of judgement associated with inputs used to measure the fair value.
The following fair value hierarchy reflects the significance of inputs of valuation techniques used in making fair value
measurements and/or disclosures:
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 classified is determined based on the lowest level of significant input
to one fair value measurement. No transfers in either direction have been made between the levels of fair value hierarchy
during the period to 28 September 2019.
77
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
24. Financial instruments continued
The Group held the following categories of financial instruments:
Amortised cost
£’000
2019
FVTPL
£’000
2018
Total
£’000
Amortised cost
£’000
Financial assets
– Trade receivables
– Other receivables
– Cash and cash equivalents
– Long-term financial asset – Listed Security
– Long-term financial asset – Promissory Note
Level 3
Level 3
Level 3
Level 1
Level 2
7,058
1,427
2,208
—
6,100
16,793
Financial liabilities
– Trade payables
– Accruals
– Borrowings
Amortised cost
£’000
Level 3
Level 3
Level 3
3,341
1,321
13,572
18,234
—
—
—
1,250
—
1,250
2019
FVTPL
£’000
—
—
—
—
7,058
1,427
2,208
1,250
6,100
18,043
8,384
646
6,140
—
—
15,170
2018
Total
£’000
Amortised cost
£’000
3,341
1,321
13,572
18,234
3,741
1,775
12,877
18,393
Financial assets at FVTPL includes the equity investment in Greenlane Renewables Inc. The Group accounts for the investment at
FVTPL and chose not to make the irrevocable election to account for it at FVOCI.
Following the application of IFRS 9, the investment was revalued as at 28 September 2019 and no impairment was deemed
necessary, and therefore it is being held at its fair value.
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 also based on the earliest date on which the
Group may be required to pay.
2019
Trade and other payables
Bank borrowings
Amounts due under hire purchase agreements
2018
Trade and other payables
Bank borrowings
Amounts due under hire purchase agreements
Current
within
6 months
£’000
4,662
—
328
4,990
Current
within
6 months
£’000
5,516
—
121
5,637
Current
6-12 months
£’000
Non-current
1 to 5 years
£’000
—
10,800
328
11,128
—
—
2,116
2,116
Current
6-12 months
£’000
Non-current
1 to 5 years
£’000
—
—
120
120
—
11,800
836
12,636
Total net
payable
£’000
4,662
10,800
2,772
18,234
Total net
payable
£’000
5,516
11,800
1,077
18,393
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, price 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 and credit risk. The Group does not enter into or trade
financial instruments, including derivative financial instruments, for any speculative purposes. Whilst the Group enters into forward
currency contracts during the period to mitigate foreign currency risk, it does not apply hedge accounting.
78
Pressure Technologies plc Annual Report 2019
24. Financial instruments continued
Foreign currency risk management
The Group purchases its principal raw materials in US Dollars, Euros and Pounds Sterling and receives payment for its products in
US 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 and Euros.
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
2019
£’000
556
784
3,051
2
4,393
2018
£’000
2,156
2,158
2,114
74
6,502
2019
£’000
196
477
4
—
677
2018
£’000
767
437
372
16
1,592
Foreign currency sensitivity analysis
The Group’s exposure to a 10% exchange rate movement on its foreign currency denominated financial assets and financial
liabilities is as follows:
Euro
currency impact
CAN Dollar
currency impact
US Dollar
currency impact
Profit or loss
Profit or loss
2019
£’000
33
2018
£’000
126
2019
£’000
277
2018
£’000
158
2019
£’000
28
2019
£’000
—
2018
£’000
156
NZ Dollar
currency impact
2018
£’000
5
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.
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 £41,000 (2018: £38,000).
Price risk management
Where possible the Group enters into contracts incorporating price escalation clauses to mitigate any significant exposure
to material price risk.
Credit risk management
The Group’s credit risk is primarily attributable to its trade receivables. At 28 September 2019 the largest customer within trade
receivables accounted for 12% (2018: 36%) of debtors. Management continually monitor this dependence on the largest customers
and are continuing to seek new customers and enter new 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 consider 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.
79
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
24. Financial instruments continued
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 – Revolving credit facility
Debt – Finance leases
Cash and cash equivalents
Net debt
Equity
2019
£’000
(10,800)
(2,772)
2,208
(11,364)
2018
£’000
(11,800)
(1,077)
6,140
(6,737)
32,086
33,393
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.
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
Unused
losses
£’000
At 30 September 2017
Prior year adjustment
Credit/(charge) to income
Acquired through business combinations
At 29 September 2018
Prior year adjustment
Credit/(charge) to income
Removed upon business disposal (Note 29)
At 28 September 2019
(430)
—
244
—
(186)
(211)
(80)
—
(477)
(1,604)
—
296
—
(1,308)
—
295
—
(1,013)
150
—
(97)
—
53
—
(2)
—
51
138
—
(33)
—
105
—
18
—
123
—
—
147
—
147
(16)
(98)
—
33
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
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
80
2019
No.
2018
No.
18,595,165
18,595,165
2019
£’000
278
(1,561)
(1,283)
2019
£’000
930
Total
£’000
(1,746)
—
557
—
(1,189)
(227)
133
—
(1,283)
2018
£’000
402
(1,591)
(1,189)
2018
£’000
930
Pressure Technologies plc Annual Report 2019
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. A tenth grant of
options was made in July 2019. 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
2019
No.
452,473
109,110
—
(40,559)
(10,474)
—
(49,900)
460,650
Weighted
average
exercise price
106.6p
99.2p
—
97.6p
97.6p
—
161.2p
99.9p
2018
No.
139,868
385,533
—
(38,963)
(28,748)
—
(5,217)
452,473
Weighted
average
exercise price
174p
97.6p
—
157.1p
157.1p
—
593p
106.6p
17,040 of the outstanding options were exercisable at the end of the period. The options outstanding at 28 September 2019
had a weighted average remaining contractual life of 2.0 years (2018: 2.4 years). The terms of these options are as follows:
Date of grant
2 August 2016
26 July 2018
15 July 2019
Total options outstanding at 28 September 2019
Options
outstanding at
28 September
2019
17,040
335,225
108,385
460,650
Market value
at date of
grant (p)
Vesting
period
3 years
3 years
3 years
147.5
122.0
119.0
Exercise
price (p)
150.0
97.6
99.2
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 – Long Term Incentive Plan – Type 1
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
2019
No.
206,469
—
(91,717)
114,752
Weighted
average
exercise price
259.0p
—
269.5p
250.6p
2018
No.
442,157
—
(235,688)
206,469
Weighted
average
exercise price
—
328.6p
259.0p
81
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
27. Share based payments continued
Pressure Technologies plc – Long Term Incentive Plan – Type 1 continued
114,752 of the outstanding options were exercisable at the end of the period. The options outstanding at 28 September 2019 had a
weighted average remaining contractual life of 2.1 years (2018: 3.0 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 28 September 2019
Options
outstanding at
28 September
2019
6,589
10,035
—
98,128
114,752
Vesting
period
3 years
3 years
3 years
3 years
Market value
at date of
grant (p)
720.8
473.3
212.0
196.2
Exercise
price (p)
720.8
473.3
225.0
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 of the Remuneration
Committee. The options lapse if not exercised six years after the grant date. 114,752 options were exercisable as at the reporting date.
Pressure Technologies plc – Long Term Incentive Plan – Type 2
The Group adopted a new Long Term Incentive Plan (LTIP) on 3 September 2018; awards were granted to two Executive Directors
and three senior managers under the scheme.
LTIP awards give a conditional right to shares at three separate points in time: 13 August 2021, 13 August 2022 and 13 August 2023,
and the percentage of the total award of shares to be granted at these dates is 50%, 30% and 20% respectively. The amount of the
award is determined by the participant’s percentage entitlement to the award pool at 13 August 2021, and the size of the award
pool itself is based upon performance criteria relating to growth in the parent company’s share price and dividends over the period
to 13 August 2021. The entitlement of Chris Walters and Joanna Allen in the overall award pool is 38% and 25% respectively.
The value of payouts from the plan are capped on an individual basis but there is no specific limit on the number of share
options that can be granted.
The fair value of the award pool is £239,000.
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 current and prior 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
All of these options have now lapsed.
2019
No.
—
—
—
—
—
Weighted
average
exercise price
—
—
—
—
—
2018
No.
100,000
—
(100,000)
—
—
Weighted
average
exercise price
242.5p
—
242.5p
—
—
82
Pressure Technologies plc Annual Report 2019
27. Share based payments continued
Valuation models
The SAYE options granted during the period have been valued using the Black-Scholes model. The inputs into the Black-Scholes
model are as follows:
Model
Scheme:
Date granted
Share price at date of offer
Exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Fair value
Black-Scholes
SAYE
15/07/2019
119.0p
99.2p
44%
3 years
0.5%
0.0%
£48,008
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the three year period to the
grant date. The expected option value used in the model has been adjusted, based on management’s best estimate, for the effects
of non-transferability, exercise restrictions and behavioural considerations. The expected dividend yield was based on the Group’s
dividend pay-out pattern at the date of issue of the options.
In line with HMRC approved schemes, share options under the Save-As-You-Earn scheme may be exercisable at a discount
of up to 20% of the market value of the shares at the time of issue.
The total charge to the consolidated statement of comprehensive income in the period in respect of share based payments was
£100,000 (2018: £2,000 credit). The charge is calculated in accordance with IFRS 2, ‘Share Based Payments’. A deferred tax credit
of £18,000 (2018: charge of £33,000) 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 – continuing operations
Loss after tax – discontinued operations
Adjustments for:
Finance costs – net
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share option costs
Income tax credit
Profit on disposal of property, plant and equipment
Goodwill impairment
Changes in working capital:
Increase in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash flows from operating activities
2019
£’000
(389)
(1,203)
467
1,377
2,390
100
(126)
—
—
(1,234)
402
(1,156)
628
2018
£’000
(1,365)
(3,723)
394
1,378
2,584
(2)
(589)
(69)
1,692
(521)
(1,613)
2,125
291
83
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
29. Business disposals
On 4 June 2019, and as separately communicated to shareholders on that date, the Group completed the disposal of the entire
issued share capital of its subsidiary, PT Biogas Holdings Limited, which was the holding company for the Group’s Alternative
Energy division, to Creation Capital Corp, a capital pool company listed on the TSX Venture Exchange. The business was reported
by the Group as the Alternative Energy segment.
Following the conclusion of the private placement by Creation Capital Corp, the final consideration for the sale of £10.1 million
comprised:
• £2.0 million cash;
• £2.0 million of Consideration Securities in Greenlane Renewables Inc (“Greenlane”), representing a 21% holding after satisfaction
of certain fees and completion incentives; and
• £6.1 million by way of a Promissory Note. The Promissory Note will (i) be denominated 50% in pounds sterling and 50%
in Canadian dollars; (ii) mature 48 months from Completion; (iii) bear interest at the rate of 7% per annum; and (iv) be secured
by a pledge of all of the issued and outstanding Greenlane Ordinary Shares and all of the assets of Greenlane.
The table below summarises the profit on disposal of PT Biogas Holdings Limited:
Sale proceeds
Net book value of assets disposed of:
Goodwill
Property, plant & equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Profit on disposal
Other comprehensive income
Exchange differences on translation of discontinued foreign operations
Profit on disposal net of other comprehensive income
30. Financial commitments
(a) Capital commitments
Commitments for capital expenditure entered into were as follows:
Contracted for, but not provided in the accounts
£’000
10,100
4,860
80
2,682
502
2,055
723
(4,222)
3,420
(325)
3,095
2018
£’000
—
2019
£’000
632
This relates to the purchase of a long-lead-time robotic scanner for the Cylinders division due for delivery in the first half of the next
financial year.
(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
84
2019
£’000
230
879
155
1,264
49
35
84
2018
£’000
215
736
153
1,104
72
67
139
Pressure Technologies plc Annual Report 2019
30. Financial commitments continued
(b) Operating lease commitments continued
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;
• A 10 year lease on the property previously occupied by Hydratron Limited which commenced on 1 April 2015.
31. Contingent liabilities
Following the fatal accident at Chesterfield Special Cylinders Limited (“CSC”) in June 2015, on 8 February 2019 upon the
conclusion of their investigation, the Health and Safety Executive ("HSE") advised CSC that it intended to prosecute CSC in relation
to the accident. During the preliminary hearing held on 6 March 2019 at Sheffield Magistrates Court, CSC submitted a plea
of not guilty to a charge brought by HSE pursuant to the Health and Safety at Work Act 1974. The Company emphatically denied
the charge brought by the HSE and the case was referred to Sheffield Crown Court and listed for trial. Trial proceedings concluded
on 27 November 2019 and the jury delivered a guilty verdict pursuant to Section 2 of the Health and Safety at Work Act 1974.
A sentencing hearing is expected to be scheduled in early 2020 and the financial penalty will be assessed and determined by the
Court at that time. The Company continues to take legal advice on this matter and further information in respect of the impact on
the Company and the Group’s ability to continue as a going concern is set out in the basis of preparation statement on page 54.
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 guideline, which is publically available and can be found
on the Sentencing Council’s website at www.https://www.sentencingcouncil.org.uk/offences/crown-court/item/organisations-
breach-of-duty-of-employer-towards-employees-and-non-employees-breach-of-duty-of-self-employed-to-others-breach-of-
health-and-safety-regulations/, sets a range of fines dependent on the levels of harm and culpability, and the size of the Company
being charged. These levels are assessed by the Judge when sentencing and not at the time of charges being brought. At this time,
due to the nature of the sentencing guidelines, it is not possible to determine with any degree of certainty what financial penalties
will be levied on CSC as a result of the guilty verdict. At such time as the quantum of the penalty is able to be reliably determined,
further disclosure and provision will be made in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”.
Given the nature of the contingent liability the Director’s have determined that the exemption given in IAS 37 from providing all
disclosures where disclosure can be expected to prejudice seriously the position of the entity in relation to the sentencing hearing
is appropriate.
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 Employer’s NI)
Post-employment benefits
Share based payments
Total remuneration
2019
£’000
645
46
43
734
2018
£’000
975
45
(12)
1,008
The interests of Directors in dividends paid during the year are disclosed in the Report of the Remuneration Committee.
During the period ended 28 September 2019, Pressure Technologies spent £14,494 (2018: £37,108) with Vias Digital Limited
in which one of the previous Non-Executive Directors, Alan Wilson, is a connected person. £1,800 was outstanding to be paid
at the year end date (2018: nil). The transactions were completed on an arm’s length basis.
During the period ended 3 October 2015, Pressure Technologies purchased five Gas Transportation Modules (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 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 due from Kelley GTM, LLC of $3,500,000. The Directors consider that the recoverability of these loans
is not certain and therefore made full provision against the value of the loans in the period ended 3 October 2015.
85
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
COMPANY STATEMENT OF FINANCIAL POSITION
As at 28 September 2019
Fixed assets
Investments
Other long-term financial assets
Intangible fixed assets
Tangible fixed assets
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Borrowings – trade and other payables
Borrowings – revolving credit facility*
Net current (liabilities)/assets
Creditors: amounts falling due after more than one year
Borrowings – amounts due on hire purchase contracts
Borrowings – revolving credit facility
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Equity shareholders’ funds
28 September
2019
£’000
29 September
2018
£’000
Notes
4
5
6
7
8
9
9
9
9
11
13
13
32,918
7,350
244
3,374
43,886
997
203
1,200
(496)
(10,800)
(10,096)
(31)
—
33,759
930
26,172
6,657
33,759
37,778
—
320
3,484
41,582
14,790
440
15,230
(916)
—
14,314
(61)
(11,800)
44,035
930
26,172
16,933
44,035
* The Group’s existing RCF, which was put in place in October 2014, had been extended a number of times, and was due to expire in April 2020. Committed and credit approved
terms were reached for the replacement RCF facility with the incumbent bank in September 2019. Documentation and signing was completed on 10 December 2019 and, in
accordance with IAS 1, the borrowing has been classified as a current liability due within 6-12 months at the balance sheet date. At the date of these preliminary results the
facility is classified as a long-term liability.
The Company reported a loss for the 52 week period ended 28 September 2019 of £10,333,000 (2018: loss of £5,196,000).
The accounting policies and notes on pages 86 to 94 form part of these financial statements.
Approved by the Board on 17 December 2019 and signed on its behalf by:
Joanna Allen
Director
86
Pressure Technologies plc Annual Report 2019
COMPANY STATEMENT OF CHANGES IN EQUITY
For the 52 week period ended 28 September 2019
Balance at 30 September 2017
Share based payments
Share options granted to subsidiary companies
Shares issued
Transactions with owners
Loss for the period
Balance at 29 September 2018
Share based payments
Transactions with owners
Loss for the period
Balance at 28 September 2019
Share
capital
£’000
725
—
—
205
205
—
930
—
—
—
930
Share
premium
account
£’000
21,637
—
—
4,535
4,535
—
26,172
—
—
—
26,172
Profit
and loss
account
£’000
22,131
(8)
6
—
(2)
(5,196)
16,933
57
57
(10,333)
6,657
Total
equity
£’000
44,493
(8)
6
4,740
4,738
(5,196)
44,035
57
57
(10,333)
33,759
The accounting policies and notes on pages 86 to 94 form part of these financial statements.
87
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
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 loss for the financial year in the financial statements of the holding Company was £10,333,000 (2018: £5,196,000) after applying a
tax credit (Note 10) of £90,000 (2018: £49,000) to the loss before tax of £10,423,000 (2018: £5,245,000).
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 27. 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 2019/2020 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
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.
88
Pressure Technologies plc Annual Report 2019 1. Accounting policies continued
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 the 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 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.
Share based payments
Where equity settled share options are awarded to employees of the 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.
89
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
1. Accounting policies continued
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
the accounting nor taxable profit.
Deferred tax liabilities are not discounted.
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
Exceptional costs
2019
Number
10
2018
Number
10
2019
£’000
969
123
97
57
100
2018
£’000
966
119
86
(8)
416
1,346
1,579
Further details of Directors’ remuneration are provided in the Report of the Remuneration Committee and Note 9 to the
consolidated financial statements.
3. Operating profit
The auditor’s remuneration for the audit and other services is disclosed in Note 7 to the consolidated financial statements.
90
Pressure Technologies plc Annual Report 2019
4. Investments in subsidiary companies
Cost and net book value
At 29 September 2018
Disposed of in the year
At 28 September 2019
The subsidiaries as at the balance sheet date, which are all 100% owned, are:
Name
Country of incorporation
Al-Met Limited*
Chesterfield Special Cylinders Limited (“CSC”)
CSC Deutschland GmbH*
Chesterfield Special Cylinders Inc (formerly Hydratron Inc)*
Roota Engineering Limited*
Pressure Technologies US, Inc
Quadscot Precision Engineers Limited*
Quadscot Holdings Limited*
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
Germany
USA
England & Wales
USA
Scotland
Scotland
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Investment
in subsidiary
companies
£’000
37,778
(4,860)
32,918
Principal activity
Manufacturing
Manufacturing
Sales and marketing
Manufacturing
Manufacturing
Holding company
Manufacturing
Holding company
Dormant
Dormant
Dormant
Manufacturing
Holding company
Dormant
All the UK based subsidiaries have as their registered office the following address:
Unit 6b, Newton Business Centre, Newton Chambers Road, Chapeltown, Sheffield, S35 2PH.
The Company also has an indirect holding of 40% in Kelley GTM, LLC, a manufacturing company based in the USA.
Al-Met Limited, Martract Limited, Quadscot Holdings Limited, Quadscot Precision Engineers Limited and Roota Engineering Limited
are exempt from the requirement of the Companies Act relating to the audit of individual financial statements by virtue of s479A of
the Companies Act 2006.
5. Other long-term financial assets
Listed Security
Promissory Note
2019
£’000
1,250
6,100
7,350
2018
£’000
—
—
—
The Group holds a listed security asset which related entirely to its shareholding in Greenlane Renewables and a Promissory Note
which formed part of the consideration on sale of the Alternative Energy division in the year.
The fair value of the shareholding in Greenlane Renewables Inc was determined by reference to published price quotations
in an active market (classified as level 1 in the fair value hierarchy – see Note 24 of the consolidated statements).
The Promissory Note is valued at amortised cost. The term of the note is four years with a repayment date of 3 June 2023. The note
can be repaid any time within that time period. Interest is charged at 7% rolled up into the principal unless a trigger event occurs
under the terms of the note which causes interest payments to be satisfied in cash. On initial recognition the value was assessed to
be the face value. The note is denominated 50% in GBP and 50% in Canadian dollars. The asset is held solely to collect associated
cash flows which relate to principal and interest only.
91
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
6. Intangible fixed assets
Cost
At 29 September 2018
Additions
At 28 September 2019
Amortisation
At 29 September 2018
Charge for the period
At 28 September 2019
Net book value
At 28 September 2019
At 29 September 2018
7. Tangible fixed assets
Cost
At 29 September 2018
Additions
At 28 September 2019
Depreciation
At 29 September 2018
Charge for the period
At 28 September 2019
Net book value
At 28 September 2019
At 29 September 2018
IT Systems
& Software
£’000
405
6
411
85
82
167
244
320
Total
£’000
3,927
9
3,936
443
119
562
3,374
3,484
Land and
buildings
£’000
Plant and
machinery
£’000
Computer
equipment
£’000
3,355
—
3,355
40
10
50
3,305
3,315
445
—
445
356
80
436
9
89
127
9
136
47
29
76
60
80
Land and buildings relate to the Meadowhall Road site, which is leased to other Group companies. The Meadowhall Road site is
recorded at cost less depreciation.
8. Debtors
Amounts: falling due within one year
Trade debtors (net of doubtful debt provision)
Prepayments and accrued income
Other debtors
Amounts owed by Group companies
Corporation tax
Deferred tax (Note 12)
92
2019
£’000
9
214
250
367
95
62
997
2018
£’000
—
153
313
14,257
—
67
14,790
Pressure Technologies plc Annual Report 2019
9. Creditors
Amounts: falling due within one year
Trade creditors
Other tax and social security
Accruals and deferred income
Other payables
Amounts due on hire purchase contracts
Revolving credit facility
Amounts: falling due after one year
Amounts due on hire purchase contracts
Revolving credit facility
2019
£’000
174
40
225
28
29
496
10,800
2019
£’000
31
—
2018
£’000
187
47
653
—
29
916
—
2018
£’000
61
11,800
Details of bank borrowings are set out in Note 22 to the consolidated financial statements. All of the Company’s assets are subject
to fixed and floating charges as part of the Group’s cross-guarantee agreement with the Bank of Scotland. At 28 September 2019
the amount thus guaranteed by the Company was £nil (2018: £nil).
10. Taxation
Current tax
Current tax credit
Over provision in respect of prior years
Deferred tax
Origination and reversal of temporary differences
Over provision in respect of prior year
Total taxation credit
2019
£’000
2018
£’000
—
(95)
(95)
(15)
20
(90)
—
—
—
(18)
(31)
(49)
Corporation tax is calculated at 19% (2018: 19%) of the estimated assessable profit for the period.
Deferred tax is calculated at 17% (2018: 17%).
11. 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.
12. Deferred tax
Opening balance for the period
(Charge)/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
2019
£’000
67
(5)
62
2019
£’000
46
15
1
62
2018
£’000
18
49
67
2018
£’000
36
30
1
67
93
Pressure Technologies plc Annual Report 2019Strategic ReportGovernanceFinancial Statements
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
13. Reserves
At beginning of period
Loss for the financial period
Share option cost
Share options granted to subsidiary employees
Shares issued
At end of period
Share
premium
account
2019
£’000
26,172
—
—
—
—
26,172
Profit
and loss
account
2019
£’000
16,933
(10,333)
57
—
—
6,657
Share
premium
account
2018
£’000
21,637
—
—
—
4,535
26,172
Profit
and loss
account
2018
£’000
22,131
(5,196)
(8)
6
—
16,933
See Note 26 in the consolidated financial statements for details of the movements on share capital and share premium in the year.
14. 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
of other related party transactions, see Note 32 in the consolidated financial statements.
15. Ultimate controlling party
The Directors consider that there is no ultimate controlling party.
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Pressure Technologies plc Annual Report 2019
COMPANY INFORMATION
Directors
N.A. MacDonald – Non-Executive Chairman
C.L Walters – Chief Executive
J.C. Allen – Chief Financial Officer
B.M. Newman – Non-Executive Director
Secretary
J.C. Allen
Investor relations
Registered office
IFC Advisory Ltd
24 Cornhill
London
EC3V 3ND
Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire
S35 2PH
Registered number
06135104
Website
www.pressuretechnologies.com
Nominated advisor
Auditor
Solicitors
Bankers
Registrars
N+1 Singer
1 Bartholomew Lane
London
EC2N 2AX
Grant Thornton UK LLP
No 1 Whitehall Riverside
Leeds
LS1 4BN
Keebles LLP
Commercial House
Commercial Street
Sheffield
S1 2AT
Lloyds Bank
14 Church Street
Sheffield
S1 1HP
Neville Registrars
Neville House
18 Laurel Lane
Halesowen
B63 3DA
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Pressure Technologies plc Annual Report 2019
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9
Pressure Technologies plc
Newton Business Centre
Newton Chambers Road
Chapeltown
Sheffield
South Yorkshire
S35 2PH
UK
+44 (0) 114 257 3616
www.pressuretechnologies.com