Engineering group expected to suspend shares after audit problems
Engineering group Pressure Technologies expects to suspend its shares in two weeks’ time after its audit raised problems with how it has been reporting profits.
The issue, which relates to the timing of costs with certain contracts but not the overall profitability, will mean the audit and annual report are expected to be delayed.
The group’s shares would then be suspended from trading on the Alternative Investment Market from the day after its AGM, March 31, until the report is published. Pressure Technologies’ share price fell 13% when the market opened before recovering to be down 5% by 9am.
The problems have arisen at a time when Pressure Technologies does not have a CFO in post – James Locking left at the end of February, in a move announced in November, while his replacement Steve Hammell will join in May.
Sheffield-based Pressure Technologies has two divisions, Chesterfield Special Cylinders and Precision Machined Components, manufacturing safety-critical components and systems for global supply chains in oil and gas, defence, industrial and hydrogen energy markets.
Pressure Technologies had advised in November that its adjusted operating losses would be £1.4m in the year to October 1, 2022. It now expects those losses to be increased by £1.2m, while there will be restatements of the previous three years’ accounts.
The audit by Grant Thornton is now reviewing its accounting policy and past accounting treatment of “a small number” of long-term defence contracts within its Chesterfield Special Cylinders division (“CSC”).
For the past four years, costs have been accrued to achieve a uniform profit margin throughout the multi-year life of the contracts, resulting in cost deferrals at financial period ends.
But auditors have now said this approach is not in compliance with IFRS 15, which requires that all costs incurred in the period relating to the contract should be immediately expensed.
Pressure Technologies said: “Whilst this cost treatment impacted the timing of profit recognition between financial periods, it had no impact on either the total profitability of the contracts over their entire lives, nor the quantum or timing of cash flows.”
However it will mean there is an increase in operating profits of £2.3m over the remaining lives of these contracts, the majority of which is expected to be in this year’s and next year’s accounts.
Pressure Technologies also sought to reassure investors and said it “remains confident in underlying market opportunities and continues to foresee a return to profitability and positive cash generation in FY23”.
It announced an £18.2m contract to supply air pressure vessels for a major UK naval new construction programme last month, which is part of “a strong defence order book and pipeline”.