27 April 2016

Pressure Technologies plc

("Pressure Technologies" or the "Group")

Update on Recent Trading

The Board of Pressure Technologies plc (AIM: PRES) today issues a trading update following the end of the six month's period to 2 April 2016.

As highlighted at the AGM in mid-February, the difficult trading conditions in the oil and gas market continued into the first quarter of 2016. Whilst the Board indicated that no significant pick up was expected this year, the Group's businesses dependent on the industry have since experienced a further, substantial decline in orders in quarter two, which has been complicated by unpredictable demand and very short lead times.

Despite some recovery in oil prices, the outlook is for a slow recovery, particularly as oil inventories remain at historic highs. Capital expenditure for oil exploration and production remains under pressure with further cuts possible this year and we now anticipate the pick up in this market to be delayed into 2017.

Whilst we continue to align costs to trading conditions, there is no escaping the effect the prolonged downturn is having and the difficulty in trying to call the "bottom" of this cyclical downturn.  On the other hand, prospects for Alternative Energy remain positive, but the timing of contracts are a significant factor in determining the outturn for the full-year. 

Reflecting the Board's continued caution, we therefore now anticipate that the result for the year ending 1 October 2016 will be substantially below current market expectations.  

The Board has continued to take measures to ensure the Group remains cash positive, including a further significant reduction in headcount, alongside a commitment to productivity efficiencies that are already yielding improvements.  The preservation of our key core skills remains paramount; consequently we have seen gains in market share, as a result of market pressures on some of our competitors and our dependability and reputation for delivering quality products on time and in full.

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

Divisional review

Precision Machined Components

Since the AGM we have seen an overall decline in the quantity and predictability of orders in the division. Headcount has been reduced in all three businesses and the division remains profitable, but we anticipate that it will be behind expectations for the year.

Headcount reduction has been severest in Quadscot, whose primary end market is subsea oil exploration and production, an area that has been particularly hard hit by capital expenditure reductions and delays.  Despite this, Quadscot is winning more than its market share of available orders.

Whilst Roota has also been affected by lower order levels, it has recently secured several new customers.

Al-Met's world-class lead times continue to see it punching above its weight in securing wear part orders. The business has also benefitted from increased productivity from previous investment in new machining equipment and management systems.

Engineered Products

Hydratron continues to suffer from the decline in discretionary spend in the oil and gas market and this, coupled with the ongoing restructure of this business, has had a significant effect on the profitability of this division. Consequently, the division will be loss making in the first-half, but following the restructuring and the implementation of lean manufacturing, we expect it to be close to breakeven in the second-half and to return to profit as volumes increase.

Cylinders

The oil and gas market for CSC, as expected, shows no signs of recovery for the foreseeable future, however the business continues to increase defence work and service provision. Given the long lead times for this division, which give us good visibility, we expect it to be broadly in line with expectations at the full-year.

Alternative Energy

We are pleased with the progress in this division since the completion of the planned restructuring and particularly with the improving level of new orders.

Having started the current financial year with contracts totalling £2.8 million, we have since secured contracts for a further two projects in the UK and three in North America, totalling £8.4 million. This includes a first order for equipment to clean biogas to pipeline standards meeting California's stringent rule 30 regulations.

There are currently a further 13 projects, four in the UK, four in Europe and five in North America, which are in final negotiation and where Greenlane is either the preferred bidder or one of two potential suppliers. Four of these projects are with existing customers.

Project completion lead times are of the order of seven to nine months and revenues and profits are recognised at key stages of the project, therefore, as previously highlighted, the timing of orders, including delivery, has a significant impact on the full-year result for the division and the Group. The revenue and profits from certain projects, which were expected to fall in the fourth quarter of the current financial year will probably fall into the first quarter of next year. This means that results for the current year will be below market expectations.

Beyond the current year there remains a substantial pipeline of projects in all areas. It is pleasing to note that our New Zealand subsidiary is now receiving enquiries from Australasia and South East Asia and we anticipate that these markets will develop over the next 18 months.

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COMPANY DESCRIPTION

Company description - www.pressuretechnologies.com

With its head office in Sheffield, Pressure Technologies was founded on its leading market position as a designer and manufacturer of high-pressure systems serving the global energy, defence and industrial gases markets. Today it continues to serve those markets from a broader engineering base with specialist precision engineering businesses and has a worldwide presence in Alternative Energy as the global leader in biogas upgrading. On this foundation, the company is building a highly profitable group of companies through a combination of organic initiatives and acquisitions.

Pressure Technologies has four divisions, Precision Machined Components, Engineered Products, Cylinders and Alternative Energy, serving four markets: oil and gas, defence, industrial gases and alternative energy.

Precision Machined Components

·      Al-Met, Mid Glamorgan, acquired in 2010 www.almet.co.uk

·      Roota Engineering, Rotherham, acquired in March 2014 www.roota.co.uk

·      Quadscot, Glasgow, acquired in October 2014 www.quadscot.co.uk

Engineered Products

·      Hydratron, Manchester and Houston, acquired in 2010 www.hydratron.com

Cylinders

·      Chesterfield Special Cylinders, Sheffield, IPO cornerstone in 2007 www.chesterfieldcylinders.com

·      Kelley GTM Manufacturing, Amarillo - 40% stake acquired by the Group in December 2013 www.kelleygtm.com

Alternative Energy

·      Chesterfield BioGas, Sheffield, founded in 2008. Renamed Greenlane Biogas UK on 5 June 2015.

·      Greenlane, Vancouver, Canada and Auckland, New Zealand, acquired in October 2014 www.greenlanebiogas.com