FULL-YEAR TRADING UPDATE, BOARD CHANGES AND NOTICE OF RESULTS
Revenue of approximately £25 million (2020: £25.4 million) and an adjusted operating loss1 of c.£0.8 million (2020: £2.4 million loss) reflect a strong performance in defence, nuclear and hydrogen energy markets, offset as expected by the impact of difficult trading conditions in the oil and gas market, supply chain disruptions and the delay of Integrity Management deployments from the second half of the year into FY22 and FY23.
CHESTERFIELD SPECIAL CYLINDERS
Chesterfield Special Cylinders (CSC) delivered revenue of approximately £18.6 million (2020: £11.2 million) and is expected to report an adjusted operating profit1 of c.£2.5 million (2020: £0.1 million loss).
The phasing of major defence contracts resulted in significantly higher revenue and profitability in the first half of the year, which also included the positive impact of a major defence contract delayed from FY20 into Q1 FY21. Revenue for UK and export defence contracts was approximately £11.0 million (2020: £5.1 million) and the contract pipeline continues to strengthen, providing good visibility of major naval construction and refit programmes going into FY22.
As expected, momentum has continued to build in the fast-developing hydrogen energy market, with revenue of approximately £2.2 million (2020: £0.2 million) driven by the success of CSC's optimised Type 1 steel cylinder designs that meet customer demand for safe and efficient hydrogen storage across projects in the UK, Europe and Australia.
As governments increasingly acknowledge the role of hydrogen in net zero carbon targets for transportation and in decarbonising industry, hydrogen energy storage remains a strategically important market for the Group. The pipeline of opportunities for static and mobile hydrogen storage systems continues to grow and the visibility of future demand is improving.
Collaboration with our major steel tube suppliers has been strengthened further to support competitive product development and to underpin the delivery of our future order book. The purchase of strategic steel tube stock for popular hydrogen cylinder designs in early 2021 has proved to be important in mitigating raw material cost escalation, supply chain disruption and increasing lead times.
PRECISION MACHINED COMPONENTS
Precision Machined Components (PMC) delivered revenue of approximately £6.4 million (2020: £14.2 million) and an adjusted operating loss1 of c.£1.7 million (2020: £0.7 million loss), reflecting the challenging trading conditions in the oil and gas market throughout FY21.
As expected, the demand for subsea well intervention tools, valve assemblies and control module components continued to recover strongly from March 2021, exceeding pre-pandemic order intake levels and resulting in a profitable second half of the year for our Roota and Martract sites.
However, this improving performance was offset by the slower than expected recovery in demand for subsea trees and the associated production drilling and flow control components, which severely impacted order intake at our Al-Met site. In addition, Covid-19 disruption and supply chain constraints resulted in several delays to output.
Cost-saving measures completed in February 2021 helped to minimise losses and conserve cash, whilst previous investments in equipment, systems and people have underpinned continuous improvement in operational efficiency and competitiveness.
Further strategic progress has been made on reducing customer concentrations and extending the range of products covered by the long-term supply agreements established over the past two years. We have also made initial progress in diversifying our end markets, with the first orders secured for offshore wind turbine components and for specialised fittings for UK defence projects in collaboration with CSC, which are expected to continue into FY22.
Our focus remains on the recovery of profitability and cash generation. We are encouraged by recent increases in order intake and by efficiency and margin gains achieved from operational improvements. Major OEM customers are reporting a stronger outlook for the oil and gas market during 2022 and while we remain cautious regarding the pace of recovery, the division is well placed to deliver an improved performance in FY22.
BANKING
In June 2021, the Group announced that it was in default under the terms of its Revolving Credit Facility (RCF) with Lloyds Bank due to a minor breach of covenant relating to interest cover. We are pleased to announce that amendments to the RCF were agreed with Lloyds Bank in October 2021 and the default has been remedied.
The RCF has been reduced from £6.0 million to £4.0 million and the facility term has been extended from November 2022 to June 2023.
BOARD CHANGES
Sir Roy Gardner has informed the Company of his intention to step down as Chairman and Non-Executive Director before the next Annual General Meeting in March 2022, considering his other personal commitments. With ample notice of Sir Roy's intentions, a process has been initiated to identify and appoint a Non-Executive Director to succeed to the position of Chair and to ensure a smooth handover. Sir Roy will continue to support the Company in an advisory role.
Since his appointment in January 2020, Sir Roy has overseen important developments in the Group, including the strengthening of the Board and the successful £7.5 million fundraising in December 2020, providing the Group with the resources to capitalise on opportunities in the hydrogen energy market and accelerate growth in Integrity Management services.
NOTICE OF RESULTS
On 15 December 2021, the Group will announce its preliminary results for the 52 weeks to 2 October 2021.
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