TPG.L Regulatory News (TPG)

19 Feb 2008 07:00

Corac Group Plc19 February 2008 FOR IMMEDIATE RELEASE 19 February 2008 CORAC GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Corac Group plc ("Corac") the intellectual property, engineeringand licensing group specialising in compressor technology, announces itspreliminary results for the year ended 31 December 2007 demonstrating continuedsuccess in the commercialisation of its technology. Operational Highlights Downhole Gas Compressor ('DGC') . DGC unit subjected to rigorous testing throughout the year; . Progression of DGC prototype through flow loop testing, demonstrating performance, capability and reducing risks associated with deployment; . JIP partners witnessed DGC module operational in October 2007. The tests were representative of requirements for field trial units; . Field trials planned with two JIP partners in Argentina and Italy later this year. Industrial Air . LMF and Fu Sheng satisfied with demonstrators supplied in 2007; . Pre-production units being supplied, one of which is being used in a major international soft drinks company's facility; . Engaged with LMF and Fu Sheng to increase scope of machines as well as reduce the build cost through volume manufacturing. Financial Highlights . Loss after tax increased to £1.7m (2006: £1.4m), caused by acceleration in the development of the DGC, is in line with management expectations; . Strong support from existing and new institutional shareholders raised £4.4m (net) in December 2007 placing; . Cash at bank at 31 December 2007 was £5.2m (2006: £3.5m). Commenting on the future, Chairman, Professor Gerry Musgrave, said: "Our Industrial Air products are opening up market opportunities as ourpre-production units are being used in end user process industries. Prospectsfor our Downhole Gas Compressor are exciting: as energy prices continue toescalate and gas resources diminish, the economic need and strategic value forthe global energy market to lift stranded gas from depleting wells isconsiderable. With deployment of our novel technology scheduled for 2008, welook forward to the year ahead with confidence and enthusiasm." 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, andis 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 EXECUTIVE CHAIRMAN'S STATEMENT Introduction I am pleased to report further solid progress on all fronts. The development andoperation of our unique Downhole Gas Compressor ("DGC") moves forward at a paceas we approach procurement, which is due to start in the first quarter of 2008.Our industrial air products are gaining traction in the market, with pre-production units being supplied to our business partners and one of these unitsis being used in a final end user process industry. Positive progress in thesekey elements of the business culminated in an oversubscribed institutionalplacing in December 2007. Financial Review The financial results for the year ended 31 December 2007 show a loss after taxof £1.7 million (2006: £1.4 million). The increased loss is largely caused bythe acceleration in the development of the DGC and is in line with managementexpectations. Turnover for the year under review was £1.4 million (2006: £1.6million) and the Company also received £0.12 million (2006: £0.024 million) ofgrant income. At 31 December 2007, the number of ordinary shares in issue was86,254,059 after a placing in December 2007 of 11,222,160 new ordinary shares at42 pence per ordinary share, raising approximately £4.4 million (net ofexpenses). Cash balances at 31 December 2007 were £5.25 million. In line with our strategic plan to develop and commercialise the DGC technology,and following comprehensive flow-loop testing of this technology, the Boardconsidered it appropriate to raise further equity capital to strengthen thebalance sheet and, among other things: • facilitate acceleration of the development of the DGC technology; • finance a separate final assembly and test facility when required; • provide additional working capital; • enable the Board to strengthen the management team; • further protect the Company's intellectual property rights by extending its patent portfolio. The result of raising further equity and the concomitant reduction in our riskprofile has placed us in a stronger position in our negotiations with potentialcustomers for our industrial air turbo boosting compressors as well as expandingour market presence in this sector. It is particularly pleasing that we receivedsuch strong support for the placing from existing and new institutionalshareholders in the current market environment. Downhole Gas Compression We have undertaken exhaustive tests at Spadeadam, Cumbria throughout the year,subjecting the DGC unit to extreme conditions of high temperature, pressure andwater ingress. The Cumbrian test rig, commissioned in 2006, replicates theenvironment of the downhole well and is able to accommodate our five compressorsin a string. Progressive testing has provided valuable results with designmodifications being made in line with a planned testing programme. Simulatingtypical downhole conditions of high temperature and high pressure, the moduleshave been operated at 55kW and 45,000 rpm. In October 2007, our JIP partnersConoco Phillips (UK) Ltd, Eni SpA and Repsol YPF, witnessed the DGC modulerunning at constant speeds as well as repeated starting and stopping. The testswere representative of requirements for our field trial units. More recently,we have determined the capabilities required of the machine in this environmentand rigorous testing procedures continue to minimise the risks of potentialfailure. Progression of the DGC prototype through flow loop testing has been an importantand significant milestone for the project, demonstrating performance, capabilityand progress in 2007, as well as reducing the risks associated with deploymentin gas producing fields. We are heavily engaged with two of our JIP partners in planning the field trialsthat will take place in Argentina and Italy later this year. Both partners arespending considerable resource in building up their teams and performinganalysis with us to ensure the right specification for deployment in these wellsand they have also sought to ensure that they have the appropriate budgets toacquire the machines and deploy them. As the units will be operating inproducing wells, our partners have to be confident as installation willinitially interrupt the gas flow. When the units are deployed in a gas well, itis expected that the artificial lift of gas could improve flow rates by 30% to40%. As there are similarities between DGC and the deployment of Electric SubmersiblePumps (ESPs), a major oil service company has been working with us to assist ourJIP partners in understanding the engineering requirements. As the cost ofenergy continues to rise, it is becoming increasingly attractive to deploy ourunique patented DGC for artificially lifting stranded gas from gas wells. Aleading industrialist recently commented that the world has 5,000 trillion cubicfeet of proven stranded gas reserves seeking markets and customers. The DGC's potential, therefore, to make a major contribution to the worldenergy market is beginning to be recognised by industry and governmentsinternationally. Industrial Air Our two business partners in the industrial air sector, LeobersdorferMaschinenfabrik ("LMF") and Fu Sheng, have been satisfied withour demonstrators supplied in 2007 and we are now supplying pre-productionunits, one of which is being used in a major international soft drinks company's facility. In both applications our 'turbo boosting'improves our partners' traditional compressors whilst delivering muchmore efficient compressed air. Efficiency improvement from our hybrid machinesis approximately 20% compared to the very best dry screw compressor producedtoday. Such an improvement from a compressor delivering between 100 kW and 300kW working 24/7 represents a considerable saving in electricity costs as well asbeing less damaging to the environment. We are now engaged with LMF and Fu Sheng to increase the scope of our machines,as well as work alongside them to achieve a reduction in the cost ofconstruction. Further cost reduction through volume manufacturing together withoperating efficiency improvement and low maintenance characteristics makes ourindustrial air unit extremely cost effective. We have researched and analysed suitable locations for final assembly and testand are investigating local area redevelopment grants to subsidise ourdevelopment. The process of securing a facility will start when orders reach anappropriate threshold that cannot be realised via our existing facility. The future Our Industrial Air products are opening up market opportunities as ourpre-production units are being used in end user process industries. Prospectsfor our Downhole Gas Compressor are exciting: as energy prices continue toescalate and gas resources diminish, the economic need and strategic value forthe global energy market to lift stranded gas from depleting wells isconsiderable. With deployment of our novel technology scheduled for 2008, welook forward to the year ahead with confidence and enthusiasm. PROFESSOR G MUSGRAVEEXECUTIVE CHAIRMAN18th February 2008 PROFIT AND LOSS ACCOUNTfor the year ended 31 December 2007 2007 2006 Note £ £ Turnover 1,438,443 1,642,040 Cost of sales (1,210,427) (1,479,209) Gross profit 228,016 162,831 Development costs (1,549,047) (1,117,287) Other administrative expenses (1,282,235) (1,434,823) Administrative expenses (2,831,282) (2,552,110) Other operating income - grant receivable 117,224 24,314 Operating loss (2,486,042) (2,364,965) Interest receivable 147,923 165,226 Loss on ordinary activities before taxation (2,338,119) (2,199,739) Taxation 5 605,567 826,712 Loss for the financial year (1,732,552) (1,373,027) Loss per share Basic and diluted loss, pence per share 6 (2.3) (1.8) All results relate to continuing activities. There were no recognised gains and losses in 2007 or 2006 other than thoseincluded in the profit and loss account. BALANCE SHEETat 31 December 2007 2007 2006 Note £ £Fixed assets Tangible assets 151,532 191,996 Current assets Debtors 1,098,913 770,429Cash at bank and in hand 5,249,765 3,526,350 6,348,678 4,296,779CreditorsAmounts falling due within one year (379,804) (1,312,448) Net current assets 5,968,874 2,984,331 Total assets less current liabilities 6,120,406 3,176,327 Capital and reservesCalled up share capital 7 8,625,406 7,442,970Share premium account 8 4,249,513 858,351Capital redemption reserve 8 575,000 575,000Own shares held by Employee Benefit Trust 8 (280,722) (298,105)Share based payment reserve 8 236,189 150,539Profit and loss account 8 (7,284,980) (5,552,428) Equity shareholders' funds 1 6,120,406 3,176,327 CASH FLOW STATEMENTfor the year ended 31 December 2007 2007 2006 Note £ £ £ £ Net cash outflow from operating activities 2 (3,491,265) (1,831,685) Returns on investment and servicing of financeInterest received 147,923 165,226 Net cash inflow from returns on investment and servicing of finance 147,923 165,226 Taxation 518,567 515,415 Capital expenditurePurchase of tangible fixed assets (43,541) (17,559)Proceeds on sale of tangible fixed assets 750 315 Net cash outflow from capital expenditure (42,791) (17,244) Net cash outflow before use of liquid resources and financing (2,867,566) (1,168,288) Management of liquid resourcesCash transferred (to)/from long-term deposits (1,537,067) (42,258) FinancingNew share capital subscribed (net of expenses) 4,573,598 1,232,474 EBT Shares transferred on exercise of option 17,383 1,499 Net cash inflow from financing 4,590,981 1,233,973 Increase in cash in the year 186,348 23,427 NOTES TO THE PRELIMINARY ANNOUNCEMENT31 December 2007 1 Reconciliation of movement in shareholders' funds 2007 2006 £ £ Shareholders' funds at 1 January 2007 3,176,327 3,267,620 Loss for the year (1,732,552) (1,373,027)New shares issued 4,573,598 1,232,474Movement in share based payment reserve 85,650 47,761Reduction in shares held by EBT 17,383 1,499 Net addition/(reduction) to shareholders' funds 2,944,079 (91,293) Shareholders' funds at 31 December 2007 6,120,406 3,176,327 2 Reconciliation of operating loss to net cash outflow from operating activities 2007 2006 £ £ Operating loss (2,486,042) (2,364,965)(Profit)/loss on disposal of assets (750) 144Depreciation 84,005 98,222Decrease in stock and work in progress - 45,571(Increase)/decrease in debtors (241,484) 96,596(Decrease)/increase in creditors (932,644) 244,986Increase in share-based payments provision 85,650 47,761 Net cash outflow from operating activities (3,491,265) (1,831,685) 3 Reconciliation of net cash flow to movement in net funds 2007 2006 £ £ Increase in cash 186,348 23,427Cash effect of increase in liquid resources 1,537,067 42,258 Movement in net funds in the year 1,723,415 65,685Net funds at 1 January 2007 3,526,350 3,460,665 Net funds at 31 December 2007 5,249,765 3,526,350 NOTES TO THE PRELIMINARY ANNOUNCEMENT (Continued)31 December 2007 4 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 are set out below and remainunchanged from the previous year. 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 Directorshave determined that it is more appropriate not to produce group accounts sincethe amounts involved are not material and greater clarity of presentation isprovided by the presentation of accounts for the Company as an individualundertaking and not about its group. The Directors have therefore claimedexemption from producing group accounts under Section 229 of the Companies Act1985. Going concern The Company incurred a loss during the year ended 31 December 2007 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. Following the placing in December 2007, the directors are confident thatsufficient funds have been raised for the next development stage and to provideworking capital. Therefore they believe it is appropriate for the accounts tobe 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 to theProfit and Loss account 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. 5 Taxation Current taxation 2007 2006 £ £Corporation tax - research and development credit - current year 510,000 423,000 - prior year 95,567 403,712 605,567 826,712 NOTES TO THE PRELIMINARY ANNOUNCEMENT (Continued)31 December 2007 5 Taxation (continued) 2007 2006 £ £The tax credit for the period is lower than the standard rate of corporation taxin the UK of 30% (2006 - 30%). The differences are explained as follows: Loss on ordinary activities before taxation (2,338,119) (2,199,739) Loss on ordinary activities multiplied by standard rate of corporation tax in theUK of 30% (2006 - 30%) 701,436 659,922Effect of:Expenses not deductible for tax purposes (1,181) (1,179)Depreciation in excess of capital allowances (16,196) (23,513)Share - based payments 66,096 2,310Research and development enhanced relief 345,302 311,512Research and development difference in tax rate (446,250) (370,125)Trading losses carried forward (139,207) (155,927)Adjustment in respect of prior periods 95,567 403,712 Current tax credit for the period 605,567 826,712 Deferred taxation 2007 2006 £ £ Accelerated capital allowances and other timing differences 414,321 247,988Losses (414,321) (247,988) - - Subject to agreement by HMRC, Corac Group plc has approximately £5,600,000 (2006- £5,700,000) of unrelieved tax losses. A deferred tax asset has not beenrecognised due to lack of certainty surrounding future utilisation of theselosses. 6 Loss per share The calculation of basic loss per share for the year ended 31 December 2007 isbased upon a loss after tax of £1,732,552 (2006: loss £1,373,027), and aweighted average number of shares of 75,730,433 (2006: 74,211,163). Dilutedloss per share is not materially different to the basic loss per share, and theconversion to ordinary shares of share options would be anti-dilutive. NOTES TO THE PRELIMINARY ANNOUNCEMENT (Continued)31 December 2007 7 Share capital 2007 2006 £ £Authorised200,000,000 ordinary shares of 10p each 20,000,000 20,000,000 Allotted, called up and fully paid86,254,059 (2006: 74,429,700) ordinary shares of 10p each 8,625,406 7,442,970 Number Number At 1 January 2007 74,429,700 70,578,220Issued in respect of placing 11,222,160 3,528,900Issued in respect of share option exercise 602,199 322,580 At 31 December 2007 86,254,059 74,429,700 During the year the Company issued 11,222,160 ordinary shares of 10p each forcash at 42p per share by means of a placing, generating cash of £4,447,642, netof expenses of £265,665. Also during the year the Company issued 602,199 ordinary shares of 10p for cashat an average price of 20.9p each on the exercise of share options, generatingcash of £125,956. 8 Reserves Own shares held by Capital Employee Share Share based Profit and redemption Benefit premium payment loss account reserve Trust account reserve Total £ £ £ £ £ £ At 1 January 2007 575,000 (298,105) 858,351 150,539 (5,552,428) (4,266,643)Loss for the year - - - - (1,732,552) (1,732,552)Shares transferred onexercise of option - 17,383 - - - 17,383Issue of shares - - 3,391,162 - - 3,391,162FRS 20 share optioncharge - - - 85,650 - 85,650At 31 December 2007 575,000 (280,722) 4,249,513 236,189 (7,284,980) (2,505,000) 9 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 2007 and the profit and loss account, cash flowstatement and associated notes for the year then ended have been extracted fromthe Company's 2007 statutory financial statements upon which the auditors'opinion is unqualified and does not include any statement under Section 237 ofthe Companies Act 1985. 10 Copies of this statement will be available from the Company's registered office: Brunel Science Park, Kingston Lane, Uxbridge, Middlesex, UB8 3PQ. TheCompany's AGM will be held on 28 April 2008. This information is provided by RNS The company news service from the London Stock Exchange