17 Apr 2012 07:00
17 April 2012
CORAC GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
Corac Group plc ("Corac") the innovative technology-led engineering group, specialising in patented high speed compressor and power electronics technology serving the global energy and resources sector, announces its preliminary results for the year ended 31 December 2011.
Operational Highlights
§ Signed a partnership agreement with Aramco Overseas Company B.V ("AOC") part of The Saudi Arabian Oil Company ("Saudi Aramco") for the development of an In-line Gas Compressor ("IGC")
§ Completed Saudi Aramco IGC project concept design and specification stage
§ Patent application filed for IGC modular compression system incorporating 14 new inventions after year end
§ Implemented second generation downhole power electronics across both Downhole Gas Compressor ("DGC") development programmes
§ Signed and completed a Feasibility Study with OMV Austria Exploration & Production GmbH ("OMV") for the application of Corac's DGC
§ Eight EU design registrations submitted and approved across DGC and Turbocompressor programmes
§ Memorandum of Understanding ("MoU") signed with a global market leader in the compressed air industry
§ Successfully relocated to the new Technology Centre in Slough on time and within budget resulting in a lower annual rental cost
Financial Highlights
§ Results in line with expectations, reflecting increased development spending, investment and some revenue deferred to 2012
§ Revenues of £0.32m (2010: £0.66m)
§ Total R&D* spend of £3.35m (2010: £3.22m)
§ Loss before tax of £5.67m (2010: loss before tax of £4.77m)
§ £1.61m (2010: nil) invested in new Technology Centre
§ £15.33m cash at year end (2010: £21.76m)
(* Total R&D spend includes cost of sales)
Post Year End Acquisition
§ Transformational £10.75m acquisition of Wellman Hunt Graham Ltd and Wellman Defence Limited in April 2012
§ Acquisition adds significant source of sustainable revenue and profit contribution
§ Diversifies technology risk, strengthens IP portfolio and reduces cash burn
Commenting, Phil Cartmell, Executive Chairman, said:
"2011 was a year of business and commercial transformation for Corac. We have built a broader portfolio of technology programmes to address market opportunities and meet demand.
"The acquisition of Wellman has added management and engineering expertise, facilities, markets, revenues and profitability that will transform Corac into a commercial, technology led engineering group with sources of sustainable revenue and contribution.
"The enlarged group accelerates the recognition of Corac as a more commercial proposition for all our stakeholders."
For further information please contact:
Corac Group plc | www.corac.co.uk |
Phil Cartmell, Executive Chairman | 01753 285 800 |
Mark Crawford, Group Managing Director and Chief Financial Officer | |
Cenkos | |
Ivonne Cantú - Nomad | 020 7397 8980 |
Jeremy Warner-Allen - Sales | |
MHP Communications |
020 3128 8100 |
Reg Hoare / Vicky Watkins |
NOTES TO EDITORS
Corac is an innovative technology-led engineering group, specialising in patented high speed compressor and power electronics technology serving the global energy and resources sector, trading shares on the London Alternative Investment Market (AIM) since July 2001.
Executive Chairman's Report
Introduction
This has been a year of business and commercial transformation for the Company through the investment in the new generation of technologies that strengthen the portfolio of applications and the move into the new Technology Centre in Slough. Corac is now well positioned with its technology, people, facilities and partners and focused on the market needs that can provide a return for the Company, its partners and future customers.
Following the year end, we completed a major transaction, the acquisition of Wellman Hunt Graham and Wellman Defence; this has transformed Corac into a technology-led engineering group serving major global industries with established commercial relationships and a track record of revenue and profit contribution.
Results
The financial results for the year as expected show a loss reflecting Corac's status as a technology research and development company. The loss before tax was £5.67m (2010: loss before tax of £4.77m), reflecting a planned increase in development and investment spending and some revenues being deferred to 2012. Revenue in the period was £0.32m (2010: £0.66m) representing work undertaken on the ENI SpA ("ENI") and North American DGC projects as well as the feasibility study with OMV.
Cash at year end was £15.33m compared to £21.76m at the end of 2010. Operating cash outflow was £5.11m (2010: £3.06m). The reduction in cash reflects the losses incurred during the year.
Business Review 2011
Technology programmes (IGC and DGC)
The last 12 months have seen advances in Corac's technology which have led to the development and implementation of the second generation electronics for the final assembly for the North American DGC.
In addition the progress made in commercialising our technology has led to the significant partnership with Saudi Aramco for developing the IGC. This programme will assist Saudi Aramco in managing network gas flows which we see as having the potential of opening up new markets and appealing to wider group of commercial partners.
Our current programmes are also benefitting from the facilities at Corac's new Technology Centre in Slough. This allows us to demonstrate our technical and commercial readiness to secure future development partners as well as our capability to deliver multiple projects.
The build of the DGC for the ENI project has benefitted from the enhanced North American system. Subsequent to year end both projects are now progressing towards final assembly stages, with testing and analysis at a module and full systems level prior to releasing to our partners for field trials.
We now have three substantial development and build projects across the IGC and DGC development programmes with major oil and gas partners on three continents.
We continue to work alongside major industrial engineering companies who are interested in adopting our turbocompressor technologies in a number of applications in a range of global markets.
To support this we have strengthened our focus on IPR protection with new patents and design registrations.
Our advances in technologies and IP portfolio have helped us to identify new potential partners, for example in water treatment, steam regeneration, renewable energy and in the oil industry. Our continuing relationship with Baker Hughes has also helped identify and introduce new potential partners to our technologies.
New Technology Centre
The opening of the new Technology Centre in Slough in January 2011 marks the transformation of Corac from a University R&D spin off to a commercial technology development business and is in line with the Board's strategic commitment to sustainable growth outlined in December 2010 as part of the successful fund raising.
The new Technology Centre is a major step for Corac, as it improves the overall quality and capacity of the Company's facilities and enhances the working environment for both our employees and partners. We believe it will be a major catalyst for the development and future success of Corac and look forward to the facility supporting the next phase of Corac's growth.
We were delighted that the move to our new home was completed on time and within budget. The significantly increased floor area of 28,000 sq.ft at a much lower rental rate means that Corac now operates from more than three and a half times the space at a lower annual cost. In addition, the Technology Centre has lower service charges and the lease was negotiated with a significant rent free period.
Several leading global organisations in the energy and industrial sectors with whom Corac are in on-going discussions relating to future projects have also visited to verify the technology readiness and capabilities and have provided very positive feedback on the Centre's technology, facilities and environment. We anticipate that the Technology Centre will help provide further confidence for new partners to join Corac in support of future development projects as well as attract and retain the skilled engineers our technology requires.
Transformational acquisition (post year end)
On 5 April 2012 we completed the acquisition of Wellman Hunt Graham and Wellman Defence for an aggregate consideration of £10.75m. The acquisition was funded by our own cash and a share placing which raised approximately £6.35m. The price paid represented an attractive 3.6 times EBITDA multiple.
Wellman Defence is a leading global supplier of submarine air purification equipment and clean air ventilation, with proprietary technology and a pipeline of innovations.
Wellman Hunt Graham is a UK based manufacturer and supplier of shell and tube heat exchangers, supplying a number of industries including downstream oil and gas, chemical, energy and food.
The acquisition brings the following strong strategic and financial benefits for the Company:
§ Diversifies technology risk and strengthens Corac's IP portfolio - Corac's existing business is in pre-commercial stage and is focused on its core compressor technology. The acquired businesses have proven, proprietary technologies in commercial stage which diversify Corac's exposure to its core technology.
§ Introduces sustainable revenues and contribution, reducing Corac's cash burn - Corac's existing business is in pre-commercial stage. The acquired businesses are well established profitable businesses. Their anticipated financial contribution is expected to partially offset Corac's current cash burn.
§ Creates an opportunity to leverage Corac's management and resources to develop further the acquired businesses - through Corac's resources and management focus there is an opportunity to grow and improve profitability in the future.
§ Contributes complementary, engineering design capabilities to Corac.
§ Strengthens Corac's presence in the oil and gas markets - Wellman Hunt Graham has a number of customers in the oil and gas markets which enhances the Group's routes to market for its core technologies.
§ Enhances skill sets and management experience gained through developing and commercialising technology within the Wellman Defence business as well as the existing manufacturing, assembly and supply chain management capability within Wellman Hunt Graham to enhance the delivery of Corac's technology to market.
We believe this will further strengthen the Corac proposition for our partners, customers and investors. It will transform Corac into a technology-led engineering group serving major global industries with established commercial relationships and a track record of revenue and profit contribution.
Management and staff
During the year we have strengthened the experience and depth of management at all levels whilst building our core R&D engineering expertise and knowledge with engineers joining us from a cross-section of industry.
The establishment of the Business Development team is now delivering benefits as seen by the launch of our new website, improved industrial communications, and customer engagement.
I have been delighted by the enthusiasm and commitment shown by our employees to the challenges and demands faced by the significant changes that have taken place within the business in the year.
Summary and Outlook
Significant progress has been made within Corac's business over the last year, strengthening the intellectual property portfolio, multiplying the number of future commercialisation opportunities and creating the platform for anticipated delivery of projects in 2012/13. Subject to successful subsequent partner field trial testing, the commencement of commercial exploitation across all three development programmes can be expected to follow.
Corac now has a strong pipeline of opportunities for its IGC and DGC applications as well as renewed interest in industrial compressor applications, derived from a much more diverse group of companies encompassing not just oil and gas majors, but also industrial engineering groups.
Over the last 18 months Corac has secured £1.5m new partner income to support our R&D development programmes. This will be recognised over the life of the projects with the majority expected to fall into 2012 linked to successful delivery and partner acceptance.
The acquisition of Wellman has added management and engineering expertise, facilities, markets, revenues and profit contribution that will transform Corac into a commercial technology-led engineering group with sources of sustainable revenue and contribution. On a pro forma basis, the revenues and operating profit generated by the acquired businesses will significantly reduce the Group's losses and cash burn in 2012 and accelerate progress towards profitability.
I believe the enlarged group accelerates the recognition of Corac as a more commercial proposition for all our stakeholders.
Phil Cartmell
Executive Chairman
17 April 2012
Group Managing Director and Chief Financial Officer's Report
Operational Review
Following the successful fundraising at the end of 2010 and the progress made on commercial negotiations with additional development partners, we entered 2011 with the aim to create a technology development business with a broader technology platform and to move away from the limited R&D operation that existed in our Brunel Science Park offices. Our focus within the business has been structured around a set of specific objectives:
Establishing credibility of existing core technology applications
The DGC programme has developed an integrated compression system that can be located several miles underground in the confines of a seven inch diameter gas well. The objective is to assist the flow of gas from a reservoir deeper underground and help it to reach the surface where it can feed into the gas transmission system and ultimately be used as fuel. Without such assistance gas pressure and flow can reduce so that water vapour in the flow begins to condense. This can block the well even though there is valuable gas below. The DGC programme has developed compressors that are much smaller than were previously available, driven by high power electronic drive systems designed to operate far underground in temperatures greater than 120°C. The goal is to extend the life of a gas well and enable additional gas recovery.
With two projects in build and test phase during 2011, the DGC programme reached a number of key milestones:
§ Built compressor modules for the American field trial with enhanced thermal management. Significantly reduced component temperatures will extend life and higher pressure ratios will increase gas uplift. These evolved from the proven compressor designs of the ENI DGC.
§ Developed and implemented a second generation downhole electronics module for enhanced reliability and ease of manufacture. The enhanced system has successfully operated for twice the running hours required to meet the system test protocol.
§ Conducted successful initial endurance running tests of an end-to-end single compressor system for the American DGC with more than 150 successful restarts, five times the expected number that a DGC motor would be subjected to in its lifetime
The focus for the DGC programme has been to produce a standard design for a range of flow and thermal conditions which will be used as the basis for future DGC implementations. This design for manufacture approach will allow us to produce systems with common elements and to the extent possible limit bespoke engineering.
The Turbocompressor programme has re-focused on the application of Corac's core technologies in innovative areas in partnership with established industrial producers. Within the turbocompressor programme during 2011 we have:
§ conducted research and analysis into the fundamental properties of gas bearings to build a computer simulation model that will be used to design bearing systems to meet a wider range of operating duties and conditions
§ prepared outline designs for systems based upon the field proven compressors in areas such as heat pumps, waste heat recovery and cryogenic refrigeration
§ worked with industry leaders to establish requirements in markets not currently served by conventional systems
There is considerable interest from potential industrial partners alongside the MoU partner involved in applying Corac's technology to the water treatment market and progress towards securing and commencing prototype development projects is anticipated in 2012.
Develop and deploy new applications
During the year Corac launched the first IGC project following the successful negotiations to secure Saudi Aramco as a cornerstone development partner. This programme is developing a compression system that operates at the surface, close to the wellhead, boosting gas flow from a single well or pipeline. Locations are typically remote, either on land or on offshore production platforms, and so high reliability is a major objective to minimise the need for service visits.
The IGC has just two moving parts and can be installed in the flowing pipeline to perform reliably and securely. On platforms, space and weight are at a premium, so the compact and lightweight nature of Corac's technology means that our compressors can operate where conventional systems cannot. In a field of several wells, assisting the low pressure wells means that the field can achieve higher production rates overall.
Within the IGC programme we have:
§ developed an in-pipe gas compressor configuration in partnership with Saudi Aramco
§ established a modular system approach through which major components can be integrated from a selection of Corac's and other proven third party technologies. This provides flexibility and speed of response to partner requirements and minimises bespoke engineering.
§ identified partners to supply robust and market proven subsystems to complement Corac's core technologies
§ filed a patent on the modular system configuration which includes 14 new inventions
Innovate new Technology
We have continued to seek to fill the gaps in our technology portfolio during the year, and set out to develop a balanced technology plan that will deliver larger, heavier shafts to support more demanding flow regimes, liquids management methods to expand applications in oil and gas, and electronics that would survive even more challenging conditions.
The resulting roadmap of future technology development includes work on integrating magnetic bearings and couplings to complement our existing gas bearings, developing more powerful permanent magnet motors and optical devices to extend the range of our power electronics.
Establish a market presence to exploit Corac technology
The Business Development team have actively engaged with industry associations such as the SPE and regional bodies in Aberdeen and the Arabian Gulf and established frequent contact with a growing network of companies in Houston.
As a result of the increased market presence and awareness of progress on the technology development, in 2011 Corac engaged in significantly greater level of discussion regarding new partner supported projects with a number of major global companies across the energy and industrial engineering sectors. It is anticipated that some of these detailed discussions and negotiations will, subject to mutual technical and commercial agreements being completed, result in additional projects commencing in 2012.
Building a sustainable business
Changes in engineering management and recruitment within the teams throughout the year have introduced new methods and experience from a wide range of industries. This more robust production engineering capability has had a very positive impact on our approach to system implementation with greater focus on quality and reliability and not only improved the existing development programmes but will also support our future plans.
As described in the Chairman's statement, the Company successfully completed the single largest transformation project in its history on time and within budget to create the right facilities to support the businesses technology development and commercial plans. Corac identified suitable premises with greater capacity in Slough and equipped them with high quality technical facilities. In December 2011 the entire business moved over a single weekend and through excellent planning and co-ordination was functional within a few hours of arrival.
Financial Review
Corac continued to invest heavily in its development programmes during the year, and this together with the investment in the new Technology Centre, and a deferral of some revenue into 2012, led to a slightly higher loss being reported in 2011 compared to 2010.
Overall, despite this continued investment and development spending, Corac retained a strong financial position during the year.
Revenues from partner funding of £0.32m (2010: £0.66m) were largely derived from activity within our DGC programme. This was made up of income from percentage of completion on the American DGC project and completion of a feasibility study for OMV. The revised work plan for ENI following the decision to switch to the second generation electronics means that milestone related income will fall into 2012.
Following detailed negotiations to secure the ownership of our IP, we signed an agreement to develop an IGC with Saudi Aramco, operator of the world's largest single hydrocarbon network, The Master Gas System. The resulting work completed in 2011 resulted in limited recognition of the project funding income.
Total R&D spend of £3.35m (2010: £3.22m) includes cost of sales which represented that proportion of R&D spend financed by partners. This was broadly in line with the prior year and was driven by investment in the IGC and DGC programmes plus investment in on-going R&D technology development.
Administration costs were £2.88m (2010: £2.27m), the £0.6m increase is partly explained by a full year invested in our new Business Development team. Established at the end of 2010 this team is now producing a stronger pipeline and greater market presence. Administration costs also include £0.3m of exceptional costs associated with the Wellman acquisition.
The resulting operating losses of £5.91m (2010: £4.81m) were broadly in line with expectations; the increased losses reflected the additional investment in support of three development projects across the IGC and DGC programmes as opposed to a single programme for the majority of 2010 and continuing investment in the core technology and business development to secure future partners.
R&D Tax Credits of £0.71m (2010: £0.77m) were claimed, linked to our continued investment in technology development.
Corac invested £1.61m in building infrastructure within the new Technology Centre designed to deliver the correct facilities and space to better deliver multiple development projects.
Cash used in operating activities was £5.11m (2010: £3.06m) which, along with spend on the Technology Centre of £1.61m in the year, offset by R&D tax credits received of £0.71m and interest received of £0.24m resulted in a decrease in cash of £6.43m (2010: increase of £16.42m). Cash at year end totalled £15.33m (2010: £21.76m).
Going forwards the acquisition of Wellman Hunt Graham and Wellman Defence in 2012 will fundamentally change the Group's income statement generating significant revenues and enhancing profitability. The accounts of Wellman Hunt Graham and Wellman Defence show combined revenues of £19.77m, operating profit of £2.86m and EBITDA of £2.99m in 2011. The aggregate consideration of £10.75m settled in 2012 was funded through a share placing of £6.35m and the balance of £4.4m settled through our cash resources.
Mark Crawford
Group Managing Director & Chief Financial Officer
17 April 2012
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2011
2011 | 2010 | ||
Note | |||
£000 | £000 | ||
Revenue | 4 | 322 | 663 |
Cost of sales | (322) | (663) | |
Gross profit | - | - | |
Other income | - | 21 | |
Research and development costs | (3,029) | (2,561) | |
Administrative expenses | (2,883) | (2,266) | |
Operating loss | 5 | (5,912) | (4,806) |
Finance income | 242 | 34 | |
Loss before income tax | (5,670) | (4,772) | |
Income tax credit | 6 | 700 | 768 |
Loss and total comprehensive expense for the year attributable to shareholders | (4,970) | (4,004) | |
Loss per share expressed in pence per share | |||
Basic and diluted loss per share | 7 | (2.0) | (3.5) |
Consolidated Statement of Financial Position
as at 31 December 2011
2011 | 2010 | ||
Note | £000 | £000 | |
ASSETS | |||
Non current assets | |||
Property, plant and equipment | 8 | 1,858 | 59 |
1,858 | 59 | ||
Current assets | |||
Trade and other receivables | 1,410 | 631 | |
Taxation recoverable | 700 | 710 | |
Cash and cash equivalents | 15,332 | 21,761 | |
17,442 | 23,102 | ||
Total assets | 19,300 | 23,161 | |
LIABILITIES | |||
Current liabilities | |||
Trade and other payables | (2,153) | (1,361) | |
Net assets | 17,147 | 21,800 | |
EQUITY | |||
Share capital | 24,740 | 24,740 | |
Share premium | 13,523 | 13,523 | |
Capital redemption reserve | 575 | 575 | |
Own shares held by the EBT | (551) | (551) | |
Share-based payments reserve | 883 | 566 | |
Retained earnings | (22,023) | (17,053) | |
Total equity | 17,147 | 21,800 | |
Consolidated Statement of Changes in Equity
for the year ended 31 December 2011
Capital | Own shares | Share-based | |||||
Share | Share | redemption | held by | payments | Retained | ||
capital | premium | reserve | EBT | reserve | earnings | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Balance at 1 January 2010 | 10,834 | 7,939 | 575 | (551) | 295 | (13,049) | 6,043 |
Issue of shares | 13,906 | 5,584 | - | - | - | - | 19,490 |
IFRS 2 share option charge | - | - | - | - | 271 | - | 271 |
Transactions with owners | 13,906 | 5,584 | - | - | 271 | - | 19,761 |
Loss and total comprehensive expense for the year | - | - | - | - | - | (4,004) | (4,004) |
Balance at 31 December 2010 | 24,740 | 13,523 | 575 | (551) | 566 | (17,053) | 21,800 |
IFRS 2 share option charge | 317 | 317 | |||||
Transactions with owners | - | - | - | - | 317 | - | 317 |
Loss and total comprehensive expense for the year | - | - | - | - | - | (4,970) | (4,970) |
Balance at 31 December 2011 | 24,740 | 13,523 | 575 | (551) | 883 | (22,023) | 17,147 |
Consolidated Statement of Cash Flows
for the year ended 31 December 2011
2011 | 2010 | ||
£000 | £000 | ||
Operating activities | |||
Loss before income tax | (5,670) | (4,772) | |
Adjustments for: | |||
Depreciation | 24 | 40 | |
Finance income | (242) | (34) | |
Share-based payment expense | 317 | 271 | |
Decrease in inventories | - | 136 | |
(Increase) in trade and other receivables | (779) | (128) | |
Increase in trade and other payables | 523 | 689 | |
(5,827) | (3,798) | ||
Income tax received | 710 | 739 | |
Net cash used in operating activities | (5,117) | (3,059) | |
Investing activities | |||
Finance income | 242 | 34 | |
Purchase of property, plant and equipment | (1,554) | (48) | |
Net cash used in investing activities | (1,312) | (14) | |
Financing activities | |||
Proceeds from issue of shares | - | 20,859 | |
Expenses of issue of shares | - | (1,369) | |
Net cash from financing activities | - | 19,490 | |
Net (decrease) / increase in cash and cash | (6,429) | 16,417 | |
equivalents | |||
Cash and cash equivalents at beginning of year | 21,761 | 5,344 | |
Cash and cash equivalents at end of year | 15,332 | 21,761 | |
Notes to the Preliminary Announcement
1. Nature of Operations
The principal activity of Corac Group plc and its subsidiaries (the "Group") comprise innovation, research & development work in a number of technology programmes to develop products of value to users in our target markets. These programmes draw upon our own investment funding and through partnership with world leaders in the energy and other industries.
Our leading programmes are developing innovative gas compressor technology for two applications, the IGC and DGC, and the development of innovative products based upon our solid engineering expertise in the turbo machinery sector:
IGC - The IGC programme is Corac's implementation of above ground high speed compression technology to assist natural gas production. The prototype systems currently under development will provide low to zero maintenance, lightweight and compact compression solutions that will be located at wellheads, nearby in pipelines within the production pipework or on offshore platforms.
DGC - The DGC programme has developed compact high speed compressors for declining gas fields. The DGC runs on contactless gas bearings and uses the production gas as both a bearing fluid and a coolant and is therefore more efficient and requires lower maintenance than existing technologies. The DGC programme exploits Corac's IP in gas bearings, permanent magnet motors and power electronics packaging for downhole use.
Turbo-compressors - Corac is a leading developer of innovative products based upon solid engineering expertise in the turbo machinery sector. Through our Turbo-compressor programme we have developed and applied a range of technologies to the production of extremely compact high speed turbo compressors, delivering machines that have run in excess of 20,000 hours in field trials.
Corac Group plc (the "Parent Company") is the Group's ultimate parent company which is incorporated and domiciled in the United Kingdom. The address of the Company is Technology Centre, 683-685 Stirling Road, Slough, Berkshire, SL1 4ST. The Parent Company's shares are listed on AIM.
2. Basis of Preparation
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in May 2012.
This financial information does not constitute the company's statutory accounts for the years ended 31 December 2010 or 2011, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
Going Concern
The Directors are satisfied that the Group, despite the general economic uncertainty, has adequate resources to continue in business for the foreseeable future, and accordingly continue to adopt the going concern basis in preparing the accounts. In reaching this conclusion, the directors have considered forecasts that cover a period of greater than twelve months from the date of these accounts and include Wellman Hunt Graham Ltd and Wellman Defence Limited. The forecasts take into account the Group's existing cash resources, adjusted for funds applied on 5 April 2012 on completion of the acquisition of Wellman Hunt Graham Ltd and Wellman Defence Limited, and available overdraft facilities of £2.5m. The forecasts include consideration of certain downside scenarios that demonstrate the resilience of the Group's financial position
3. Responsibility Statement of the Directors on the Annual Report
The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 31 December 2011. Certain parts thereof are not included within this announcement.
The directors confirm that to the best of their knowledge the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Group taken as a whole, together with a description of the principal risks and uncertainties that it faces.
4. Segmental Reporting
Business Segments
For management purposes, the Group is treated as a single business unit comprising the R&D of high speed compressors, and as such a single reportable business segment exists. Current activities in this reportable segment are the continued innovation, research & development and partner testing and proof of its core technology in order to lead to the commercialisation of technology applications. These activities are based on common intellectual property relating to air and gas bearings, high speed shafts and motor drives which is applicable to high speed compressors used in the DGC and other compressor applications.
Revenue in 2011 from three customers amounted to more than 10% of total revenue, contributing £229,000 (2010: £171,000), £63,000 (2010: £nil) and £30,000 (2010: £nil) respectively. All revenues relate to the single reportable business segment. In 2010, revenue from a further two customers amounted to more than 10% of total revenue in that year, contributing £365,000 and £112,000 respectively.
Geographical Segments
The Group's operations are solely in the United Kingdom although many of the Group's revenues are to customers outside the UK. All segment assets are located in the UK. The Group's revenues from external customers are analysed into the following geographical areas:
2011 | 2010 | |
£000 | £000 | |
United Kingdom | - | 10 |
Rest of European Union | 63 | 477 |
North America | 229 | 171 |
Rest of the World | 30 | 5 |
322 | 663 | |
5. Operating Loss
The Group operating loss for the year is stated after charging the following:
2011 | 2010 | |
£000 | £000 | |
Staff costs | ||
Wages and salaries | 2,862 | 2,401 |
Social security costs | 300 | 255 |
Other pension costs | 143 | 132 |
3,305 | 2,788 | |
Depreciation of property, plant & equipment | 24 | 40 |
Operating lease expense - rent | 234 | 162 |
Exceptional items: costs associated with the Wellman acquisition | 332 | - |
Auditor's remuneration | ||
Audit fees | ||
Fees payable for the audit of the Parent Company and consolidated financial statements | 26 | 25 |
Non-audit fees | ||
Fees payable for statutory and regulatory services | 5 | 90 |
Corporate finance services | 189 | - |
Total audit and audit related services | 220 | 115 |
Tax services | 25 | 25 |
Total auditor remuneration | 245 | 140 |
Included in wages and salaries is a total expense of share-based payments of £317,000 (2010: £271,000), all of which arises from transactions accounted for as equity-settled share-based payment transactions.
Exceptional items relate to costs associated with the Wellman acquisition detailed in the Executive Chairman's Report.
6. Taxation
Credit to consolidated income statement
2011 | 2010 | |
£000 | £000 | |
Corporation tax - R&D credit | ||
Current year | 700 | 710 |
Prior year under provision | - | 58 |
700 | 768 | |
The tax credit for the period is lower than the standard rate of corporation tax in the UK of 26.5% (2010: 28%). The differences are explained as follows:
2011 | 2010 | |
£000 | £000 | |
Loss on ordinary activities before taxation | 5,670 | 4,772 |
Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 26.5% (2010: 28%) |
1,501 |
1,336 |
Effect of: | ||
Expenses not deductible for tax purposes | (109) | (1) |
Depreciation in excess of capital allowances | 9 | (5) |
Share -based payments | (84) | (73) |
R&D enhanced relief | 716 | 609 |
Surrender of tax losses for R&D credit | (780) | (711) |
Trading losses carried forward | (555) | (453) |
Other short term timing differences | 2 | 8 |
Adjustment in respect of prior years | - | 58 |
Current tax credit for the year | 700 | 768 |
Subject to agreement by HM Revenue & Customs, Corac Group plc has approximately £11,000,000 (2010: £9,000,000) of unrelieved tax losses.
7. Loss per Share
The calculation of basic loss per share for the year ended 31 December 2011 is based upon a loss after tax of £4,970,000 (2010: £4,004,000) and a weighted average number of shares of 245,897,878 (2010: 115,769,849). The weighted average number of shares has been reduced by the weighted average number of shares held by the Employee Benefit Trust. The weighted average number of shares for the purposes of calculating basic earnings per share has been adjusted to reflect the placing and open offer in 2010.
The issue of additional shares on exercise of employee share options would decrease the basic loss per share and there is therefore no dilutive effect of employee share options.
8. Property, plant and equipment
Short | Office | ||||
leasehold | Computer | furniture | Plant & | ||
improvements | equipment | & fittings | machinery | Total | |
£000 | £000 | £000 | £000 | £000 | |
Cost | |||||
At 1 January 2010 | 190 | 290 | 25 | 373 | 878 |
Additions | 3 | 24 | 1 | 20 | 48 |
At 31 December 2010 | 193 | 314 | 26 | 393 | 926 |
Additions Disposals | 1,612 (193) | 34 - | 21 (3) | 156 - | 1,823 (196) |
At 31 December 2011 | 1,612 | 348 | 44 | 549 | 2,553 |
Accumulated depreciation | |||||
At 1 January 2010 | 173 | 282 | 25 | 347 | 827 |
Charge for year | 20 | 9 | - | 11 | 40 |
At 31 December 2010 | 193 | 291 | 25 | 358 | 867 |
Charge for year Disposals | 3 (193) | 7 - | - (3) | 14 - | 24 (196) |
At 31 December 2011 | 3 | 298 | 22 | 372 | 695 |
Net book value | |||||
At 1 January 2010 | 17 | 8 | - | 26 | 51 |
At 31 December 2010 | - | 23 | 1 | 35 | 59 |
At 31 December 2011 | 1,609 | 50 | 22 | 177 | 1,858 |
9. AGM
The Annual General Meeting of Corac Group plc will be held at 10.00am on 29 May 2012 at Technology Centre, 683-685 Stirling Road, Slough, Berkshire SL1 4ST.