TPG.L Regulatory News (TPG)

9 Mar 2007 07:01

Corac Group Plc09 March 2007 FOR IMMEDIATE RELEASE 9 March 2007 CORAC GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Corac Group plc ("Corac") the intellectual property, engineeringand licensing group specialising in compressor technology, announces itspreliminary results for the year ended 31 December 2006 demonstrating continuedsuccess in the commercialisation of its technology. Operational Highlights Downhole Gas Compressor ('DGC') • Funding for 2007 released from three major oil and gas companies following satisfactory progress to date in the DGC programme; • Prototype test in simulated downhole conditions under way in Cumbria. Two partners are actively planning for field deployment in 2008; • EUREKA status awarded by EU Commission for advances in the DGC programme. Two DTI Grants awarded for enhancement of Downhole electrics. Industrial Air • Following the delivery of a 150kW turbo booster demonstrator to its Austrian partner, an order for a further four machines received in January 2007; • Joint Development Agreement signed with Fu Sheng for a hybrid turbo boosting water screw compressor, to optimise opportunities in the vibrant South East Asian market. Financial Highlights • Increased contributions from industrial partners and R&D tax credits reduced net losses after tax to £1.4m (2005: £1.9m) • Year-end cash balance of £3.5m has remained static due in part to a share placing of £1.1m (net of expenses) as well as tight working capital management. Commenting on the future, Chairman, Professor Gerry Musgrave, said: "It is pleasing that the benefits of our no-oil compressors are being more widely recognised in the industry because they are contaminant free and offer significant efficiency improvements over existing air compressor systems. The Downhole Gas Compressor development continues to reduce risk and will soonbe demonstrating its ability to recover stranded gas reserves and boost fieldperformance by up to 40%. In the meantime, it is important that our other targetmarkets have products that also deliver income and cash flow now, establishingthe Company's presence in these respective sectors." For further information: Professor Gerry Musgrave, Executive ChairmanThomas Ivings, Finance DirectorCorac Group plc 01895 813463 Richard Darby, Suzanne Brocks, Ben RomneyBuchanan Communications 020 7466 5000 NOTES TO EDITORS Corac is an intellectual property, engineering and licensing group which holdsmany patents. It focuses on high speed electrical direct drive turbo machinerybased on its unique expertise in gas bearings. Corac has created an innovative'no oil' turbo compressor together with a unique gas seal, and is part of a joint industry programme for the downhole gas extraction industry. Further information on Corac is available on the internet at www.corac.co.uk CHAIRMAN'S STATEMENT Introduction I am pleased to report that the Company has continued to make good developmentprogress towards commercialisation of our Downhole Gas Compressor (DGC) as wellas achieving success with our Industrial Air partners. The Company has increasedresearch and development expenditure to more rapidly achieve the technicalrequirements of the industry. It is pleasing that the benefits of our no-oilcompressors are being more widely recognised in the industry for their greencredentials, being contaminant free and offering significant efficiencyimprovements over existing air compressor systems. The Company has reduced net losses after tax to £1.4 million through increasedcontributions from our industrial partners and from R&D tax credits. Theyear-end cash balance has remained static at £3.5 million, due in part to ashare placing of £1.1 million (net of expenses) at a price of 32 pence pershare, as well as tight working capital management. Our pioneering work at the forefront of high speed motors and drives has enabledus to secure two DTI grants for further advancements in this area. Inparticular, the Company is working with leading universities to enable our powerelectronics systems to withstand extreme high temperatures. Additionally, wehave recently been recognised by the EU Commission for EUREKA status reflectingthe advance of the DGC programme given the technological challenges and theunique benefits to the industry. This status validates our ability to developinnovative solutions in advanced technology areas. Our ability to now securecontracts with industry leaders gives us confidence that our revolutionarytechnology is being accepted in the market place. Downhole Gas Compressors The DGC programme is the most dynamic aspect of Corac's business.Working with leading international exploration/gas production companies andusing their knowledge of gas wells has challenged us to design suitable systemsfor extremely hazardous environments. The Company has taken its proven air turbocompressor design to new levels with breakthroughs in: • High speed gas-filled brushless permanent magnet motors; • Outstanding compact downhole power electronics with excellent power transmission; • Gas lubricated bearings enabling high speed one-piece shaft design; • The design of low speed turbo-blading to cope with water and sand. The Company, together with its field operators, is now able to predictproduction enhancement and the rejuvenation of uneconomic fields. It is thesecapabilities that support the reason why three major oil and gas companies,Conoco Phillips (UK) Limited, Eni SpA and Repsol YPF, have invested £3.7 millionto date in this project. In the final quarter of 2006, the Company'spartners in the Joint Industry Programme were sufficiently satisfied withprogress to release further funding for 2007. The main work to be undertaken in the current phase is the loop testing.Simulated downhole conditions in a flow loop have been set up on a test rig inCumbria, following agreement with Advantica, a subsidiary of National Grid.Specifically, downhole conditions are being simulated where the gas iscirculated at various controlled rates, pressures and temperatures, therebyverifying performance parameters in as near downhole well conditions aspossible. This will further establish reliability and enable the Company torework designs and remove risks before the units are inserted into a well. Twoof our partners have already identified suitable assets and are activelyplanning for field deployment in 2008. The existing price of energy and the needfor increased recovery from existing gas wells is increasing the market need forthe Company's Downhole Compressor units. Industrial Air The Company successfully delivered its 150 kW turbo booster demonstrator to itsAustrian partner Leobersdorfer Maschinenfabrik AG (LMF), in September 2006. LMFis a specialist compressor manufacturer with a strong international reputation.It supplies compressors for seismic work for the oil and gas industry, highpressure process applications, as well as PET blowers for the plastic bottleindustry. Many of LMF's clients are internationally well knowncompanies. LMF are seen as premium suppliers who have patented economicsolutions for applications in these areas. Following the delivery of the demonstration unit, an order for a further fourmachines was received at the beginning of January 2007 to assist LMF develop anew range of machines for their customers. The Company has good relations withits Austrian partner to ensure cost effective solutions to the end customer.Industry statistics indicate a conservative market of €35m per annum.The turbo boosting concept for high pressure applications has a much greatermarket potential and could exceed €150m per annum. Further progress has also been made in the area of turbo boosting water screwmachines. A Joint Development Agreement has been signed with Fu Sheng, theTaiwanese conglomerate which has a significant market share in South East Asia.Having successfully used Corac's 50 kW turbo demonstrator with Fu Sheng's mono water screw, the Company was able to provide significant improvement inefficiency over the traditional dry screw machines. This hybrid machine combinesthe benefits of both machine types by providing good variable output at highpressure compressed air with no oil contamination. The Development Agreementwill allow both companies to optimise the combination of both machines andestablish production procedures ensuring cost effective solutions for thevibrant South East Asian market. High Pressure Gas Seals Licence The dry gas seals business continues to progress with AESSEAL taking totalresponsibility for intellectual property rights, manufacturing and marketing ofour technology. Selective presentations to potential end customers continue tobe encouraging. As a result of our agreement with AESSEAL, the Company will notincur any further costs but will retain the benefit of the royalty stream onfuture sales of gas seals. Our highly skilled seals team is now making acontribution towards the downhole project. Board Appointment Alan Wood, CBE, currently Chief Executive Officer of Siemens in the UK, wasappointed to the Board in April 2006 as Non Executive Director. He joined theAudit and Remuneration committees to replace John Grant who stepped down inDecember 2006. I take this opportunity of thanking John Grant for his invaluablecontribution to Corac over the last six years. Outlook The DGC development continues to reduce risk and will soon be demonstrating itsability to recover stranded gas reserves and boost field performance by up to40%. Whilst the DGC will not be a full commercial product until 2009, it isimportant that our other target markets have products that deliver income andcash flow now, establishing the Company's presence in these respectivesectors. We are pleased with the Company's ongoing progress and continue to lookforward to the future with enthusiasm. Professor G MusgraveExecutive Chairman8 March 2007 PROFIT AND LOSS ACCOUNT for the year ended 31 December 2006 2006 2005 (restated) Note £ £ Turnover 1,642,040 835,860 Cost of sales (1,479,209) (795,698) Gross profit 162,831 40,162 Development costs (1,117,287) (974,434) Other administrative expenses (1,434,823) (1,358,704) Administrative expenses (2,552,110) (2,333,138) Other operating income - grant receivable 24,314 82,737 Operating loss (2,364,965) (2,210,239) Interest receivable 165,226 182,128 Loss on ordinary activities before taxation (2,199,739) (2,028,111) Taxation 2 826,712 116,335 Loss for the financial year (1,373,027) (1,911,776) Loss per share Basic loss, pence per share 3 (1.8) (2.8) All results relate to continuing activities. There were no recognised gains and losses in 2006 or 2005 other than thoseincluded in the profit and loss account. BALANCE SHEET at 31 December 2006 2006 2005 (restated) Note £ £Fixed assets Tangible assets 191,996 273,118 Current assetsStock - 45,571Debtors 770,429 555,728Cash at bank and in hand 3,526,350 3,460,665 4,296,779 4,061,964CreditorsAmounts falling due within one year (1,312,448) (1,067,462) Net current assets 2,984,331 2,994,502 Total assets less current liabilities 3,176,327 3,267,620 Capital and reservesCalled up share capital 4 7,442,970 7,057,822Share premium account 5 858,351 11,025Capital redemption reserve 5 575,000 575,000Own shares held by Employee Benefit Trust 5 (298,105) (299,604)Share based payment reserve 5 150,539 102,778Profit and loss account 5 (5,552,428) (4,179,401) Equity shareholders' funds 3,176,327 3,267,620 CASH FLOW STATEMENT for the year ended 31 December 2006 2006 2005 £ £ £ £ Net cash outflow from operating (1,831,685) (1,472,931)activities Returns on investment and servicing offinanceInterest received 165,226 182,128 Net cash inflow from returns on 165,226 182,128investment and servicing of finance Taxation 515,415 494,715 Capital expenditurePurchase of tangible fixed assets (17,559) (13,078)Sale of assets 315 - Net cash outflow from capital expenditure (17,244) (13,078) Net cash outflow before use of liquid (1,168,288) (809,166)resources and financing Management of liquid resourcesCash transferred (to/)from long-term (42,258) 633,437deposits FinancingNew share capital subscribed 1,232,474 186,916EBT shares transferred on exercise of 1,499 -option Net cash inflow from financing 1,233,973 186,916 Increase in cash in the year 23,427 11,187 NOTES TO THE PRELIMINARY ANNOUNCEMENT Reconciliation of movement in shareholders' funds 2006 2005 (restated) £ £ Shareholders' funds at 1 January 2005 as previously reported(consolidated) - 4,961,232Effect of non-consolidation of subsidiaries - (5,296) Shareholders' funds at 31 December 2005 (company only) - 4,955,936 Shareholders' funds at 1 January 2006 3,267,620 4,955,936 Loss for the year (1,373,027) (1,911,776)New shares issued 1,232,474 186,916Movement in share based payment reserve 47,761 36,544Reduction in shares held by EBT 1,499 - Net reduction to shareholders' funds (91,293) (1,688,316) Shareholders' funds at 31 December 2006 3,176,327 3,267,620 For the year ended 31 December 2005, the change in accounting policy in respectof FRS 20 share-based payments has resulted in an increase in the loss for theyear of £36,544 and an increase in the loss brought forward at 1 January 2005 of£66,234. The balance sheet at 31 December 2005 has been restated to reflect therecognition of a share based payment reserve of £102,778. For the year ended 31 December 2006 the change in accounting policy has resultedin a net charge to the profit and loss account of £47,761. At 31 December 2006,the share based payment reserve amounted to £150,539. The change in accounting policy has no effect on net assets and shareholders'funds. Reconciliation of operating loss to net cash outflow from operating activities 2006 2005 (restated) £ £ Operating loss (2,364,965) (2,210,239)Loss on disposal of assets 144 -Depreciation 98,222 112,655Decrease in stock and work in progress 45,571 4,429Decrease/(increase) in debtors 96,596 (84,268)Increase in creditors 244,986 667,948Increase in share-based payments provision 47,761 36,544 Net cash outflow from operating activities (1,831,685) (1,472,931) NOTES TO THE PRELIMINARY ANNOUNCEMENT (Continued) Reconciliation of net cash flow to movement in net funds 2006 2005 £ £ Increase in cash 23,427 11,187Cash effect of increase/(decrease) in liquid resources 42,258 (633,437) Movement in net funds in the year 65,685 (622,250)Net funds at 1 January 2006 3,460,665 4,082,915 Net funds at 31 December 2006 3,526,350 3,460,665 NOTES TO THE PRELIMINARY ANNOUNCEMENT (Continued) 1. Accounting policies The financial statements have been prepared in accordance with applicable UnitedKingdom accounting standards (generally accepted accounting principles) andunder the historical cost convention. The principal accounting policies of the Company have remained unchanged fromthe previous year except for the adoption of FRS 20 'Share based payments' andthe effect of not consolidating the Company's wholly-owned dormant subsidiaries.The effects of these changes are shown in the Reconciliation of movement inshareholders' funds. Basis of preparation Consolidation The Group's operations are conducted by its parent company, Corac Group plc, andthere is no activity within its two wholly-owned subsidiaries. The Company haspreviously consolidated the accounts of these subsidiaries and produced groupaccounts. The Directors have reconsidered this treatment and determined that itis more appropriate not to produce group accounts since the amounts involved arenot material and greater clarity of presentation is provided by the presentationof accounts for the Company as an individual undertaking and not about itsgroup. The Directors have therefore claimed exemption from producing groupaccounts under Section 229 of the Companies Act 1985. International Financial Reporting Standards Since the Alternative Investment Market has not prescribed a date by whichcompanies who do not produce group accounts are required to comply, the Companyhas decided not to adopt International Financial Reporting Standards at thistime. Going concern The Company incurred a loss during the year ended 31 December 2006 and furtherlosses are being incurred in the current financial period as the development ofthe compressor range and the downhole compressor continues. The accounts havebeen prepared on a going concern basis which assumes that the Company willcontinue in operational existence for the foreseeable future. The directors are confident that sufficient funds have been raised for the nextdevelopment stage and to provide working capital. Therefore they believe it isappropriate for the accounts to be prepared on a going concern basis. Turnover Turnover on contracts is recognised using the percentage-of-completion method.Under this method revenues recorded represent the aggregate of costs incurredduring the year and a portion of estimated profit on individual contracts basedon the relationship of costs incurred to total estimated costs for eachcontract. Revisions in estimates are reflected in the accounting period whenthe revision becomes known. Anticipated losses on contracts are charged toincome in their entirety when the losses become evident. Turnover from engineering services is recognised over the period services areprovided and turnover from up front licence fees is taken to income oncommencement of the licence. Turnover from research and development servicesfor third parties, including cost recharges, is recognised over the period suchservices are provided. All amounts exclude Value Added Tax. 2. Taxation Current taxation 2006 2005 £ £ Corporation tax - research and development credit - current year 423,000 111,703 - prior year 403,712 4,632 826,712 116,335 Taxation (continued) 2006 2005 (restated) £ £The tax credit for the period is lower than the standard rate of corporation tax inthe UK of 30% (2005 - 30%). The differences are explained as follows: Loss on ordinary activities before taxation (2,199,739) (2,028,111) Loss on ordinary activities multiplied by standard rate of corporation tax in theUK of 30% (2005 - 30%) 659,922 608,433Effect of:Expenses not deductible for tax purposes (1,179) (1,445)Depreciation in excess of capital allowances (23,513) (28,251)Share - based payments 2,310 (2,139)Research and development enhanced relief 311,512 82,481Research and development difference in tax rate (370,125) (97,740)Trading losses carried forward (155,927) (449,636)Adjustment in respect of prior periods 403,712 4,632Current tax credit for the period 826,712 116,335 Deferred taxation 2006 2005 (restated) £ £ Accelerated capital allowances and other timing differences 142,783 213,458Losses (142,783) (213,458) - - Subject to agreement by HMRC, Corac Group plc has approximately £5,700,000 (2005- £6,900,000) of unrelieved tax losses. A deferred tax asset has not beenrecognised due to lack of certainty surrounding future utilisation of theselosses. 3. Loss per share The calculation of basic loss per share for the year ended 31 December 2006 isbased upon a loss after tax of £1,373,027 (2005 restated: loss £1,911,776), anda weighted average number of shares of 74,211,163 (2005: 68,905,374). Dilutedloss per share is not calculated since the conversion to ordinary shares ofshare options would be anti-dilutive. 4. Share capital 2006 2005 £ £Allotted, called up and fully paid74,429,700 (2005: 70,578,220) ordinary shares of 10p each 7,442,970 7,057,822 Number £ At 1 January 2006 70,578,220 68,709,061Issued in respect of placing 3,528,900 -Issued in respect of share option exercise 322,580 1,869,159 At 31 December 2006 74,429,700 70,578,220 During the year the Company issued 3,528,900 ordinary shares of 10p each forcash at 32p per share by means of a placing. Also during the year the Company issued 322,580 ordinary shares of 10p for cashat 32p each on the exercise of share options. After the year-end, the Company issued 384,800 ordinary shares of 10p each forcash at 11.5385p per share on the exercise of share options. As a result ofthis issue the total issued share capital of the Company at the date of thisreport was 74,814,500 ordinary shares of 10p each. 5. Reserves Own shares held by Share based Capital Employee Share premium payment Profit and redemption Benefit account reserve loss account reserve Trust (restated) (restated) Total £ £ £ £ £ £ At 1 January 2006 575,000 (299,604) 11,025 - (4,076,623) (3,790,202)Prior year adjustment - - - 102,778 (102,778) -At 1 January 2006(restated) 575,000 (299,604) 11,025 102,778 (4,179,401) (3,790,202)Loss for the year - - - - (1,373,027) (1,373,027)Shares transferred onexercise of option - 1,499 - - - 1,499Issue of shares - - 847,326 - - 847,326FRS20 share option charge - - - 47,761 - 47,761At 31 December 2006 575,000 (298,105) 858,351 150,539 (5,552,428) (4,266,643) 6. The financial information contained herein does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985.The balance sheet at 31 December 2006 and the profit and loss account, cash flowstatement and associated notes for the year then ended have been extracted fromthe Company's 2006 statutory financial statements upon which the auditors'opinion is unqualified and does not include any statement under Section 237 ofthe Companies Act 1985. 7. Copies of this statement will be available from the Company's registered office: Brunel Science Park, Kingston Lane, Uxbridge,Middlesex, UB8 3PQ. The Company's AGM will be held on 24 April 2007. This information is provided by RNS The company news service from the London Stock Exchange