Pressure Technologies plc
(“Pressure Technologies” or the “Group”)
Trading Update
Pressure Technologies plc, the specialist engineering Group today issues an update ahead of its interim results for the 26 weeks to 31 March 2018, which will be announced on Tuesday 12 June 2018.
Alternative Energy Division
The Alternative Energy Division (AE Division) has scored several notable successes since the start of the current financial year, which demonstrates our continued leadership in the biogas upgrading market. Notably, we have installed the world's first biogas upgrader which complies with very strict Californian standards and we have commissioned the world's largest biogas upgrader, in Arizona. Strategic relationships have been formed one of which will give us access to Pressure Swing Adsorption (PSA) technology, thereby expanding our product portfolio and broadening our market access.
As mentioned in the 2017 annual report, the biogas market offers substantial potential, but has been frustratingly slow to deliver and it is disappointing to report that only three new upgrader contracts have been awarded since October 2017. The most common reason for this is delays in customer decision making. In North and South America, delays have arisen due to slowness in obtaining environmental permits, complexity of contract negotiations and customer funding arrangements. Delays in the UK have been primarily caused by the Renewable Heat Incentive (RHI) legislation progressing slowly through Parliament, which was approved on 22 May 2018, some four months later than the energy market expected.
Profit recognition for our upgrading projects is necessarily skewed towards completion, so delays in contract awards experienced to-date will negatively impact our 2018 results and the Division will be loss making for the year.
Following a detailed review of the AE Division and its target markets, we are exploring a number of strategic options that have the potential to unlock value for shareholders.
Set against the background of increasing opportunities in North America and Europe, the Board's view remains positive for the prospects of the Division.
Manufacturing Divisions
Of the three Manufacturing Divisions, Precision Machined Components (“PMC”) and Engineered Products (“EP”) remain predominantly focused on the global oil and gas market with Cylinders transitioned from a reliance on oil and gas to the defence market.
Precision Machined Components and Engineered Products
It is clear that the oil and gas market is improving, although we see some variability in the order intake. For the last three half-years, PMC has consistently seen order intake rising: from £4.9 million in the first-half of 2017, to £6.5 million during the first-half of this year. Order intake at the start of the third-quarter has been a little muted, but requests for quotations have accelerated, particularly at Quadscot, and are at the highest level since the start of the market downturn in 2014. The recent slowing of order intake makes us slightly more cautious about PMC Division's full-year outlook but with short order to delivery lead-times now the market norm, this can change within a quarter.
EP started from a lower base than PMC and is trading in line with management expectations with a significantly stronger second-half pipeline of quotations.
Cylinders
The Division's major focus for the current and next financial year is to supply the first boat set of cylinders for the Dreadnought submarine programme (Trident replacement). Manufacturing of standard design naval cylinders has commenced for this project, but we await the order to start manufacture of the programme specific cylinders. Timing of this will now move revenue and profit between financial years, with any shortfall in 2018 recovered in 2019. Encouragingly, a number of other UK and overseas defence projects have been won, including an order for cylinders for the MoD's Type 26 Frigate programme.
The Division's Integrity Management service has had considerable success in the defence market, with the award of contracts in the UK and in Germany, the timing of which will benefit 2019 sales.
Whilst the oil and gas market has reduced in importance for the Division, it is pleasing to note that two orders for the supply of air pressure vessels for drillship projects have been secured; the only two new projects placed globally in the last three years. This demonstrates the Division's reputation and continuing cost competitiveness in this market.
Outlook
Our Manufacturing Divisions continue to have a strong position in the global, safety critical markets they serve. With an upturn in the oil and gas market and a well developed position in the defence market, the short-term challenges for these Divisions are largely ones of timing. Similarly, while markets for our AE Division are expanding we continue to experience frustration in the timing of securing contracts.
Whilst these timing issues do not affect the medium-term prospects for the Group they do have a material short-term impact. The outturn for the AE Division is now dictated by projects already in execution, which are insufficient to avoid incurring financial losses for the full-year. Delays to the start of the next stage of the Dreadnought programme will also impact Cylinder's current year but the full extent of this will not be clear until quarter four. The cumulative short-term effect of these means that the Group's results for the full year are expected to be substantially below market expectations.
The interim results will be announced at 07:00 on Tuesday 12 June 2018.