13 December 2013
Pressure Technologies plc
Strategic Investment in GTM Manufacturing, LLC
The Board of Pressure Technologies ("Pressure Technologies" or the "Company") (AIM: PRES) is pleased to announce that it has today agreed to make a strategic investment to acquire 40 per cent. of the common stock of GTM Manufacturing, LLC ("GTM") (the "Investment"), a leading manufacturer of high pressure vessels for gas transport solutions based in Amarillo, Texas.
Under the terms of the Investment, the Company is providing a US$4 million loan to GTM, of which US$500,000 will on 1 January 2014 convert to a 40 per cent. stake in GTM's common stock. The Company is funding the loan to GTM from its existing resources.
The Company has also been granted an option to acquire a further 40 per cent. stake in GTM and will be providing a working capital loan facility to GTM, further details of which are set out below.
Founded in 2008, GTM is part of the Kelley Family of Companies in Texas ("Kelley"), a group that has led the speciality gas transportation industry in the United States and globally for over 60 years. Following the Investment, GTM will be re-named Kelley GTM, LLC.
Ken Kelley, founder and President of GTM, will continue to work for GTM alongside other senior management. In addition, representatives of Pressure Technologies will join the Board of GTM.
Alan Wilson, Pressure Technologies Chairman, said: "It is the Board's strategy to complement organic growth with acquisitions that enhance and broaden the Company's existing operations. We believe that the agreement reached with GTM affords Pressure Technologies an excellent means by which to participate in the growth in the market for the transportation of gases across a wide number of sectors, particularly oil and gas where we already have considerable experience.
"The Investment allows the Company to join the expertise of the design and manufacture of high pressure gas cylinders in our subsidiary Chesterfield Special Cylinders ("CSC"), with GTM's expertise in the production of light-weight composite cylinders and to develop and expand GTM's product range for use in the United States and subsequently further afield. We are very excited to be working with Ken Kelley and his team at GTM.
"The Board believes that the combination of Pressure Technologies and GTM will enhance the ability to capitalise on the growing market in the transportation of gases."
Overview of GTM
GTM manufactures gas containers known as GTMs. Each GTM is made up of 9 high pressure type II composite cylinders consisting of a welded steel cylinder liner, hoop wrapped with high strength glass-fibre mounted in a standard 20 foot ISO container. The technology employed allows the manufacture of stronger, lighter storage units for gas, capable of working under high pressure. This in turn maximises the amount of gas able to be transported thereby giving large savings in logistics and transportation costs for customers. Under US Department of Transportation regulations GTMs are approved for road, rail, sea and air transportation. These containers are used for the transportation and storage of a wide range of compressed gases including natural gas, methane, hydrogen, helium and argon.
Flare gas, shale gas, landfill gas, anaerobic digesters and continuing high oil prices are, in the Board's opinion, increasing the demand for natural gas sourced from and supplied to multiple locations. GTM's pressure vessels meet this demand and provide a quick and efficient transportation solution for areas and geographies where pipeline supply of gas does not exist, cannot be developed or where it is not economically viable to put in a pipeline supply system. The GTM modules are ideally suited to transport gas economically for distances up to 150 miles.
Since incorporation, GTM has been gradually developing its market presence and has been loss making during this early start up stage. During 2013, GTM experienced a marked increase in the numbers of GTM modules sold and as a result sales are expected to be in excess of US$5 million for the year ending 31 December 2013, with an associated near break-even result, before financing costs.
Current order and enquiry levels for the coming financial year are encouraging and a much improved operating result is anticipated. This reflects the high operational gearing of the GTM business and the expected benefits of CSC working alongside GTM.
The Market Opportunity for GTM
There are multiple applications for the GTM modules including, for example, the transportation of compressed gas from existing supply lines to a remote or unconnected dispensing station (referred to as the "mother-daughter" principle in a "virtual pipeline"). Due to increasing environmental legislation, there is an opportunity to capture and transport "stranded gas", such as flare gas from oil rigs, in remote locations, unconnected by pipeline, to a base station some distance away.
There is also a significant potential market opportunity arising from the economic benefits of using gas to power oil drilling rigs where fuel cost savings of up to 45 per cent. can be achieved. A growing number of oil & gas companies in the United States are switching to gas powered drill rigs. The Board believes that there will be a substantial market opportunity over the next 3 to 5 years, particularly for GTM modules to service small and mid-sized rigs that are located close to gas supply stations.
Alongside the oil & gas industry, which is expected to be the largest user of GTM modules, the provision of temporary gas solutions will provide opportunities where customers are delivering gas during periods of maintenance or repair work. The use of GTM modules to deliver industrial and commercials gases to end users, particularly for petrochemical companies, and the storage & transportation of compressed natural gas for gas vehicle fleets, both offer strong opportunities for future long term growth.
The Board believes that the market for GTMs in the US is set for rapid expansion. Whilst there are a number of businesses in competition with GTM, no company has a dominant position in the US and the Kelley brand gives GTM the potential to be a major player in the US and beyond.
Planned Development
GTM together with CSC will undertake a range of developments to expand the product range into higher pressure and larger cylinders utilising carbon fibre technology to decrease weight and further increase the amount of gas transported. CSC will lead a programme to apply for regulatory approval for use of GTMs in the European Union and ultimately worldwide through ISO.
Terms of the Investment
As stated above, under the terms of the Investment, the Company is providing a US$4 million loan to GTM, of which US$500,000 will on 1 January 2014 convert to a 40 per cent. stake in GTM's common stock. The Company is funding the Investment in GTM from its existing resources.
The Company has also been granted an option to acquire a further 40 per cent. stake in GTM (the "Option"). The Option can be exercised for a period of 90 days after publication of GTM's audited accounts for the financial year ending 31 December 2014.
The total payments falling due on exercise of the Option will be determined by reference to certain EBITDA targets for the financial years ending 31 December 2014 and 2015. The payment due to the Vendors would be a minimum of US$5 million and a maximum of US$16 million, based on the reported EBITDA for 2014 and 2015. The maximum payment due for 2014 would be US$10 million and for 2015 it would be up to a further US$6 million. These payments would be payable within 90 days of the publication of the audited accounts for GTM for each of those respective periods.
Upon exercise of the Option, US$500,000 would be paid for the additional 40 per cent. stake in GTM (thereby increasing Pressure Technologies' shareholding to 80 per cent.). The remaining consideration would be satisfied by way of further loans to GTM, thereby allowing GTM to repay certain loans which the Vendors provided to fund the business during the start-up phase of GTM.
The loan being provided by the Company to GTM will be subordinated to certain existing borrowings of GTM and will bear interest at 4.5 per cent. per annum. The interest will be accrued and paid once the principal amount becomes eligible for repayment. The Company's loan will become repayable once GTM's existing borrowings have been repaid or following the fifth anniversary of the Investment, whichever is the earlier.
In addition, the Investment agreement contains warranties and indemnities from the Vendors in favour of the Company, which are subject to certain limitations on the Vendors' liability.
ENDS
For further information, please contact:
Pressure Technologies plc John Hayward, Chief Executive James Lister, Group Finance Director |
Tel: 0114 242 7500 www.pressuretechnologies.co.uk |
Tavistock Communications Catriona Valentine / Keeley Clarke |
Tel: 020 7920 3150 |
Charles Stanley Securities (Nomad and broker) Philip Davies / Carl Holmes |
Tel: 020 7149 6942 |
Company description
Pressure Technologies is an AIM listed, leading designer and manufacturer of speciality engineering solutions for high pressure systems serving large global markets. The Group is organised into three divisions: Cylinders, Engineered Products and Alternative Energy.
Cylinders
Chesterfield Special Cylinders is a global market leader in the design and manufacture of speciality high pressure, seamless steel gas cylinders for the offshore oil and gas, defence, industrial gases and alternative energy markets and retesting and refurbishment services.
The company has unparalleled industry knowledge, gathered over the last 100 years' trading. As a trusted supplier with unrivalled expertise, Chesterfield Special Cylinders plays an integral role in the project design and engineering process, working closely with its customers on design solutions for high pressure systems.
The core activity of Chesterfield Special Cylinders is the design and manufacture of Air Pressure Vessel systems for oil rig motion compensation systems and deepwater offshore platforms. This is closely followed in importance by activity in the naval market. Chesterfield Special Cylinders provides cylinders for a wide range of applications in submarines and surface ships to a significant proportion of the world's navies.
The company's product and process knowledge has led, in recent years, to an expansion from manufacturing into value added services, making full use of expertise in the business. Chesterfield Special Cylinders has developed a number of service offerings for the inspection and revalidation of cylinders including a novel "in-situ" testing service, which is driven by a new BSI standard for the inspection of hard to reach/impossible to move gas tubes. Chesterfield Special Cylinders is the only company capable of delivering this strict new testing regime worldwide.
More information is available on the company's website www.chesterfieldcylinders.co.uk.
Engineered Products
This division comprises Al-Met Limited ("Al-Met") and the Hydratron group of companies ("Hydratron").
Al-Met is a niche manufacturer of specialised, precision engineered valve wear parts used in the oil and gas industries, acquired by Pressure Technologies plc in 2010. Its products are used in high-pressure choke and flow control valves, designed to regulate flow volumes in extremely demanding applications in the subsea and surface oil and gas industries. The business, established in 1985, has developed a market leading capability in precision machining carbides, high grade stainless steels and super alloys. More information is available on the company's website www.almet.co.uk.
Hydratron designs, manufactures and sells a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs. The business, which was also acquired in 2010, operates out of two locations situated in the UK and USA. Hydratron also has an extensive network of distributors in key locations around the world. Formed in 1981, Hydratron has established itself as a leading supplier of quality high pressure equipment to the oil and gas industries. The full range of Hydratron products may be viewed at www.hydratron.co.uk.
Alternative Energy:
Chesterfield BioGas Limited was founded in November 2008, following the signing of a co-operation agreement with Greenlane® Biogas Limited, the world leader in biogas upgrading, which gives Pressure Technologies exclusive rights to market and manufacture Greenlane® equipment in the UK and Eire.
Chesterfield BioGas provides turnkey solutions for the cleaning, storage and dispensing of biomethane for injection into the gas grid or use as a vehicle fuel. In 2010, Chesterfield BioGas installed the UK's first biogas upgrader supplying biomethane to the national grid at a Thames Water site in Didcot. A second upgrader was delivered in October 2012.
For more information visit the company's website www.chesterfieldbiogas.co.uk.
