Pressure Technologies plc
(“Pressure Technologies” or the “Group”)
Full-Year Trading Update
Pressure Technologies (AIM: PRES), the specialist engineering group, provides a trading update for the 52 weeks ending 1 October 2022.
The results for the first half of the year, which were announced on 28 June 2022, indicated an adjusted operating loss1 of £2.1 million for the first half, but with a much stronger performance expected for the second half of the year, on the basis of a strong order book in the Chesterfield Special Cylinders division and an expected recovery in order intake in the Precision Machined Components division. However, whilst the second half of the year is expected to show an adjusted operating profit1, the recovery has been significantly below that anticipated at the half year and the Group is now expecting to report an adjusted operating loss for the full year.
Chesterfield Special Cylinders (CSC)
In CSC, progress on major defence contracts in the fourth quarter was impacted by a combination of unexpected customer delays, supply chain disruption and the unplanned outage of key equipment, delaying significant revenue into the first half of FY23. Similarly, several Integrity Management deployments planned for the second half have been delayed by customers into FY23 and beyond. Input costs from raw materials and energy-intensive processes increased significantly throughout the year, further impacting margins where the costs could not be recovered through price escalations and permitted contract variations within the period.
However, the outlook for CSC in FY23 remains positive, supported by an order book of £5.9 million, major defence contract placements expected in the first quarter, and a strong pipeline of defence contracts, Integrity Management deployments and hydrogen storage and transportation projects.
Hydrogen revenue for FY22 is expected to be £2.7 million (2021: £2.2 million) and the current opportunities pipeline underpins confidence in further significant hydrogen revenue growth in FY23, weighted towards the second half of the year.
Precision Machined Components (PMC)
In PMC, there was an unexpected slowdown in order placement from oil and gas customers over the summer period, which recovered later in the fourth quarter. Together with supply chain delays and cost increases, the temporary slowdown resulted in lower revenue and a significantly greater adjusted operating loss1 than anticipated for the full year.
Order intake since the summer holiday period has been strong and the PMC order book at the beginning of FY23 is expected to be around £3.3 million (2021: £1.8 million). OEM customers forecast continued recovery in demand for specialised components for oil and gas exploration and production projects into 2023 and beyond. This is reflected in the expected fourth quarter FY22 order intake of around £3.0 million, the highest quarterly intake since April 2020. The Board now expects PMC to return to profitability in the second quarter of FY23.
Banking Facilities
The Group's revolving credit facility with Lloyds Bank currently runs to 30 June 2023 and at the end of FY22 is expected to be fully drawn at £2.4 million (2 October 2021: £4.8 million drawn). The net debt position, which includes asset finance and right of use lease liabilities, at the end of FY22 is expected to be around £3.9 million (2 October 2021: £4.9 million).
As a result of the expected adjusted operating loss for the full year, the Group now anticipates that it will not be able to meet the requirements of the two existing financial covenants contained within the current facility. These covenants relate to leverage and interest cover and a first test is currently required at the end of October based on full-year performance to 30 September 2022. The Group is currently in constructive dialogue with Lloyds Bank regarding these covenants and ongoing facility requirements.
Ernst & Young LLP continues to support the Group with the review of funding options to replace the Lloyds Bank facility with new arrangements that provide increased liquidity, greater flexibility and the required working capital to support the Group's strategic investment in CSC, in particular for growth opportunities in hydrogen energy.
Outlook
Notwithstanding the disappointing trading performance for FY22, the Board is confident in underlying market opportunities and expects a return to profitability and positive cash generation in FY23. The positive outlook for the Group in the medium and longer term is underpinned by a strong defence orderbook and pipeline, the completion of projects deferred from FY22, improving order placement in PMC over recent weeks and exciting opportunities in hydrogen storage and transportation.