Advancing safety and reliability in demanding environments
Annual report 2018
A specialist UK based engineering Group supplying safety-critical products and services world-wide
Our Vision
Our vision is to build a Group that is globally recognised within our markets as the leading provider of pressure containment and control products and services to customers who operate in highly-demanding, safety-critical environments where the consequences of product failure could be catastrophic.
Oil and gas
Defence
Industrial
Gases
Renewable Energy
- Oil and gas
- Defence
- Renewable energy
- Industrial gases
- World class
- Niche specialism
- Technical capability
- Agility
- Organic development through
investment and acquisition - Synergy
- Value chain
- Market and technical development
- Low volume/high margin
- Strategic partnerships
- Long-term relationships/
contracts - Services and aftercare
Our Trading Divisions
Precision Machined Components
The Division comprises, Roota Engineering, Quadscot Precision Engineering, Al-Met and Martract operating under the PMC brand. These businesses are leaders in their markets, with world-class lead times, highly specialised precision engineering skills and a blue chip customer base. Strong partnerships are formed with customers to develop technical solutions for their end product applications.
Serving the oil and gas market, these businesses specialise in supplying key components, made from super alloys, manufactured to exacting standards and tolerances, that are destined for extreme or hostile environments such as deepwater and subsea oil exploration and wear parts for offshore and onshore oil production.
Revenue
£11.2m
Adjusted operating Profit
£1.5m
Cylinders
Chesterfield Special Cylinders (CSC), has over a century of industry knowledge and expertise and is a world leading provider of bespoke, high-pressure gas containment solutions and services. It is one of only five companies globally who can compete for ultra large cylinder contracts.
CSC’s high pressure cylinders are a critical component for a number of end applications from defence submarines, to oxygen cylinders in fighter jets, the bulk storage of gases to ultra large air pressure vessel systems used for motion compensation on floating oil platforms.
Integrity Management services are a growing part of the business, where cylinders cannot be removed for routine maintenance and are inspected and certified ‘in-situ’. The service has been built on CSC’s unrivalled industry knowledge and experience.
Revenue
£9.9m
Adjusted operating Profit
£1.1m
Alternative Energy
With an unrivalled installed base of over 100 upgraders world-wide, Greenlane is one of the world’s largest suppliers of biogas upgrading equipment. Founded on its leading water-wash technology, Greenlane is the only company to offer the three main biogas upgrading technologies to a global market.
Waste from agriculture, landfill, wastewater treatment plants and food and drink production can be used to produce biomethane, or Renewable Natural Gas (RNG) for injection into the gas grid network or as a vehicle fuel.
The market for biogas upgrading is driven at a global governmental level by the commitment to reduce greenhouse gases and meet renewable energy targets, while drivers at a local governmental level are to reduce waste and improve air quality.
Revenue
£11.1m
Adjusted operating loss
£(0.5)m
Highlights
We are committed to continuously investing in our people and technologies to keep us at the forefront of engineering excellence.
Reported basic loss per share
(13.9)p
(2017: (4.0)p*)
* Continuing operations only.
Adjusted net operating cash inflow***
£0.5m
(2017: £0.9m)
*** Before cash outflow for exceptional costs.
Closing net debt
£6.7m
(2017: £11.1m)
Precision machined components
Revenue £m
2018
11.2
2017
10.4
2016
10.8
2015
18.8
2014
13.0
Adjusted operating profit* £m
2018
1.5
2017
1.8
2016
1.4
2015
4.5
2014
3.0
Cylinders
Revenue £m
2018
9.9
2017
8.4
2016
9.5
2015
14.3
2014
21.4
Adjusted operating profit* £m
2018
1.1
2017
1.1
2016
1.1
2015
2.1
2014
3.8
Alternative energy
Revenue £m
2018
11.1
2017
15.8
2016
11.3
2015
14.0
2014
8.4
Adjusted operating result* £m
2018
0.5
2016
1.1
2015
1.1
2014
1.1
Where we operate
Our manufacturing is UK based with our businesses serving a global blue chip customer base from operations in Europe and North America.
North America
Precision Machined Components
United Kingdom
Cylinders
Europe
Alternative Energy
Adapting in a dynamic market
As a Group, our companies serve four core markets.
2018 % of group revenue
Oil and gas
Market served by
Precision Machined Components
Cylinders
%
12
12
2018
88
39
2017
93
07
07
31
2016
85
15
15
38
2015
75
25
25
53
2014
44
25
56
69
2018 Total revenue
£12.5m
(2017: £10.6m)
The market environment
The sustained low oil price environment of recent years has advanced technical innovation in the oil service industry and reduced the cost of oil exploration and production. An era of collaboration between the oil service majors and component manufacturers now exists to produce parts more efficiently, on a ‘cost-out’ basis, without compromising integrity and often improving it.
Market potential
The precision machining businesses in the Group are leaders in their markets, supplying high integrity components for subsea applications to global oil services companies. The Group has embraced the shift to collaborative working and invested in sales and technical capabilities. See pages 30 and 52 for examples of how we are working with new and existing customers.
Cylinders is focused on defence, and will benefit from an upturn in the oil and gas sector, with demand for its motion compensation systems on offshore oil platforms anticipated to recover from 2020.
Market drivers
Global demand for oil remains strong at near 100 million barrels per day (mbd), supported by growth from emerging markets. The low oil price environment of recent years has seen large scale investment cuts in oil exploration, resulting in lower oil discoveries . With an oil price above $50, confidence to sanction new projects has returned.
2018 % of group revenue
Defence
Market served by
Cylinders
%
2018
21
2017
19
2016
21
2015
16
2014
08
2018 Total revenue
£6.6m
(2017: £6.4m)
The market environment
Military spending globally is at record levels, having risen to $1.74 trillion in 2017. In the UK, the MoD spend for 2017/2018 was £36.6 billion, with an additional £1 billion promised in the 2018 Autumn budget. The committed spend over the next 10 years is almost £180 billion, £44 billion of which is on submarines, principally Dreadnought and £19 billion on ships, including the Type 26 Frigate.
Market potential
CSC has long-term contracts to supply bespoke products and services for the key submarine build programmes and for surface vessels such as the Type 26 Frigate. Its status as the leading global supplier of high pressure gas storage solutions to NATO member states and NATO-friendly nations remains stronger than ever, underpinned by the growing importance of Chesterfield Integrity Management (CSC IM), which is the principle provider of inspection and testing services to the MoD for ongoing cylinder performance and safety management on the Astute, Vanguard and Trafalgar classes of nuclear submarines.
CSC IM’s five year strategy to develop a long-term defence sector order book through its German office continues to secure contracts with a growing number of navies around the world.
Market drivers
The current defence spend is being driven by the need to update aging warcraft and pressure from the US for NATO allies to increase defence spending.
Industrial gases
2018 % of group revenue
Market served by
Precision Machined Components
Cylinders
%
2018
13
87
87
06
2017
31
69
69
05
2016
100
04
2015
100
01
2014
100
03
2018 Total revenue
£2.0m
(2017: £2.3m)
The market environment
This market crosses multiple sectors, for Chesterfield Special Cylinders (CSC) this is cryogenics and bulk gas transport and storage, as well as scientific research facilities and universities. As disciplines such as cryogenics continue to expand the demand for bespoke, high quality gas containment systems also grows, driven by safety and control requirements. The growth of gas management systems within the education sector is being driven by the expansion of vocational and practical courses nationally and internationally.
Market potential
CSC provides both storage solutions as well as inspection, reconditioning and retest services through its Integrity Management team. The industry has a CAGR of 7.7% and further opportunities for CSC will come from education, nuclear power, gas storage, and scientific research. CSC is renowned across the UK education sector for its ability to meet the highest design and manufacture standards.
Market drivers
The key drivers are the growth of education as a business, increasing knowledge based economies, the ongoing development of the cryogenic industry.
Renewable energy
2018 % of group revenue
Market served by
Greenlane biogas
%
2018
35
2017
46
2016
36
2015
30
2014
20
2018 Total revenue
£11.1m
(2017: £15.8m)
The market environment
The Global biogas upgrading market is growing at a CAGR if 28.7% pa, and is anticipated to reach $1.97 billion by 2022. It is supported globally by government initiatives both at national and regional levels. The market for biogas generation (RNG) is estimated to grow significantly due to its better efficiency as compared to other renewable energy resources.
As the Hydrogen market grows so too does the need for gas storage, creating opportunities for CSC.
Market potential
Greenlane is strategically located to capitalise on demand from countries focused on developing or renewing biogas facilities. The total biogas market in Canada has potential to reach 1,000-1,500 facilities, requiring investment of $3 billion in the next 15-20 years. In Europe, France has targets for the injection of RNG into the grid, of 10% by 2030. In Italy it is estimated that by 2030 RNG could meet the 10% of domestic natural gas demand.
Market drivers
Strict Government regulations, greenhouse gas emissions reductions, renewable energy demand and the banning of organic waste to landfill, are key drivers for biogas upgrading. Energy providers are increasingly investing in RNG to meet sustainability targets.
The growth in renewable energy as part of the energy mix is also driving the need for gas storage, particularly hydrogen.
5 yr sales history by sector £m
5 yr sales operating profit by sector £m
2018 Cash flow bridge £m
Trusted by the World’s Navies and Air Forces
Chesterfield Special Cylinders is the leading global supplier of high pressure gas storage solutions to NATO member states and NATO-friendly nations*. Its specialist cylinders are vital components in many of the world’s submarines, aircraft and surface vessels.
Chesterfield Special Cylinders is the leading global supplier of high pressure gas storage solutions to NATO member states and NATO-friendly nations*. Its specialist cylinders are vital components in many of the world’s submarines, aircraft and surface vessels.
As a long-term key partner to navies globally, CSC’s reputation for designing and manufacturing high pressure cylinders goes back to the 1930’s, when it first developed safety-critical solutions for the Royal Navy. That partnership continues today and CSC now also benefits from a five-year strategy - developed in the face of a shrinking oil and gas market - to develop a long-term defence sector order book through its office in Germany into a growing number of navies around the world.
The company also manufactures cylinders for global aerospace applications, with customers including the USAF and RAF. In alliances that date back to the early 20th century, the company’s cylinders are integral to the lightweight gas containment systems essential for the safe operation of leading edge military aircraft, including the latest 5th generation fighter aircraft.
In addition, Chesterfield Integrity Management is the leading provider of inspection and testing services to the MOD and is responsible for ongoing cylinder performance on the Astute, Vanguard and Trafalgar classes of nuclear submarines. Known for its highly-respected rapid response unit, the CSC IM team’s reputation continues to grow globally following successful deployments in many sectors and in challenging conditions.
*With the exception of the USA
Unrivalled technical solutions
The PMC division consists of four highly experienced and specialist precision engineering companies. The expertise of the Division’s technical and sales team allows us to work in collaboration with customers to make their products more cost efficient through a ‘cost-out’ approach.
The PMC Division consists of four highly experienced and specialist precision engineering companies. The expertise of the Division’s technical and sales team allows us to work in collaboration with customers to make their products more cost efficient through a ‘cost-out’ approach.
The prolonged downturn in the oil and gas market has created a number of new businesses offering technical solutions to reduce the cost of oil production. The Division is winning new customers by working in collaboration with some of these new companies to create design and material solutions for their proprietary technology. Manufacturing products that meet their customers’ end use specification at an economically viable price.
The team recently offered a solution to a customer, adjusting their design to offer economic manufacturing costs without compromising on integrity. The solution removed complexity from the manufacturing process, including the need to weld and use materials that were more compatible with their customers’ end use specification. The overall benefits were:
- Reduced manufacturing lead time
- Reduced overall cost
- Risk from weld defects removed
- Created better interchangeability to reduce the down time during field service
- Greater ability to scale up production
- No other competitor offered this solution.
Innovative technical and cost saving solutions through industry leading expertise
Driven by the market’s need to reduce the cost of oil production, new products are also being developed with existing customers.
Driven by the market’s need to reduce the cost of oil production, new products are also being developed with existing customers.
The PMC Division’s Technical and sales team recently worked with a blue chip customer to take a product that went through several stages of manufacture, including outsourcing during the process, and comprising different base materials, to create a part made in one piece from a single alloy. The collaboration created numerous benefits:
- Reduced manufacturing lead time
- Lower cost per unit
- Superior product
- Risk from weld defects removed
- Further reduced risk of failure in service
- Decreased demand on customer’s document control requirement
- Improved manufacturing control through the elimination of outsourcing during the process
- Potential to extend solution to product families
- Supply chain strengthened with PMC sole supplier