29 Mar 2011 07:00
For Immediate Release | 29 March 2011 |
CORAC GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
Corac Group plc ("Corac") the innovative research and development ("R&D") group, specialising in compressor technology, announces its preliminary results for the year ended 31 December 2010.
Operational Highlights
·; Completion of the first full system test of the integrated Downhole Gas Compressor ("DGC")
·; Second DGC project with North American partners progressing well
·; DGC feasibility study signed with OMV Austria Exploration & Production GmbH, part of the OMV Group after year end
·; DGC marketing and sales agreement signed with Baker Hughes
·; MoU signed with new global industrial compressor partner after year end
·; Two additional industrial clean air booster compressors delivered to Austria
·; Three new patent applications filed
·; Successful firm placing and placing and open offer
·; Board and senior management team strengthened
Financial Highlights
·; Revenues of £0.66m (2009: £1.34m)
·; Total R&D* spend £3.22m (2009: £3.38m)
·; Net loss after tax £4.00m (2009: £2.93m)
·; Loss per share 3.5p (2009: loss per share 3.1p)
·; £19.49m net cash raised from investors during the year
·; £21.76m cash at year end (2009: £5.34m)
(* Total R&D spend includes cost of sales)
Commenting on the future, Executive Chairman & CEO, Phil Cartmell, said:
"We have built a strong platform across the key areas of Innovation, Operations, Business Development and Finance. We now have clarity of purpose with a clear strategy and business model and an internal culture aligned to deliver it. Importantly, Corac is ready to drive the next commercialisation phase through strong relationships, a clear customer focus together with a positioning that is broader than just a DGC business."
For further information:
Corac Group plc
Phil Cartmell - Chairman & Chief Executive Officer
Mark Crawford - Commercial & Finance Director
Tel: 01895 813463
Cenkos
Jeremy Warner-Allen - Sales
Liz Bowman/Ivonne Cantú - Nomad
Tel: 020 7397 8980
Buchanan Communications Ltd
Richard Darby/Ben Romney/Helen Chan
Tel: 020 7466 5000
NOTES TO EDITORS
Corac is an innovative research and development group, specialising in compressor and power electronics technology, developing patented applications and creating value for end customers.
EXECUTIVE CHAIRMAN & CHIEF EXECUTIVE OFFICER'S REPORT
Introduction
During 2010 Corac built a strong platform, supporting the move towards a more dynamic commercial business approach. This involved strengthening the Company's financial position, investing in restructuring and implementing a cultural change throughout the business.
We have made significant advances with Corac's DGC technology throughout the year culminating in the first full system test of the integrated DGC at our facilities in Uxbridge. In addition, a second field trial partner financed development program was secured.
Changes were made during the year to the Corac organisation at Board level and throughout the Company in order to establish the discipline, accountability and controls necessary to support our R&D activities and build a business with commercial values.
In December 2010 net proceeds of £19.49m were raised from investors through the firm placing and placing and open offer. We appreciate the continued support of our shareholders.
Financial Review
The financial results for the year ended 31 December 2010 show a loss before tax of £4.77 million (2009: £3.69 million). Revenue in the period was £0.66 million (2009: £1.34 million) representing work done on the ENI SpA ("ENI") and North American DGC projects as well as payment for two final industrial booster machines delivered to Austria.
Cash at the year-end amounted to £21.76 million (2009: £5.34 million), supported by the successful raising of £19.49m net of costs through a firm placing and placing and open offer, which was completed on 6 December 2010.
At 31 December 2010, there were 247,404,225 ordinary shares of 10p each in issue with voting rights.
The financial review is covered in more detail in the Commercial & Finance Director's report.
Strengthened Financial Platform
The fundraising strengthened Corac's balance sheet and the improved working capital position provides the security to support continued investment in Corac's R&D activities. This includes the intended recruitment of additional high quality engineers and scientists to support technical innovation, solutions architects to drive application development and additional projects and trials.
Now, with a strong balance sheet and secure financial footing, Corac is in a vastly improved position to negotiate more effectively with large multinational potential partners.
In the coming year Corac intends to relocate its facilities at Uxbridge to an alternative site that is able to meet Corac's specific requirements for power, noise control and harsh gas management as well as being in the right catchment area to attract suitably skilled personnel.
Investment in equipment will provide high precision engineering tooling and measurement equipment, systems and unit test capability as well as analysis and simulation systems to support ongoing technology development.
Operational Highlights
In 2010 management renegotiated contract terms with a number of our major partners which are now much better aligned with maximising shareholder value.
There has been significant progress made on our DGC development project with our partner ENI, in Southern Italy. In December, following the completion of the first full system test of the integrated DGC at our Uxbridge site, Corac completed a two week test programme at the Company's methane test facility at Spadeadam in Cumbria. This represented the first time that three compressors had been tested together in the downhole configuration.
We encountered technical challenges in the tests at Spadeadam which have previously been reported and have since identified resolutions for these issues. We completed our rectification work and testing at Uxbridge in early March 2011, and also ran successful initial tests of the fully integrated DGC at our dedicated flow loop in Spadeadam. Further work is required to prepare the DGC and flow loop in order to simulate and test a range of operating scenarios in preparation for partner acceptance. We expect this work and subsequent tests to be completed by the end of May 2011 and if successful, ENI will make arrangements for the transfer of the DGC to Italy for field trials. This is addressed in more detail in the Chief Technical Officer's report.
In August we secured an agreement with a new development partner in the USA for a well completion deployment system that is less expensive and more flexible than that adopted for the ENI field trial.
The agreement has a maximum value of $1.50 million, based on achieving milestones over a period of eighteen months, with an upfront payment of $0.75 million. Progress to date is on track to complete the development phase in 2011.
In November we formalised a marketing and sales collaboration agreement with Baker Hughes which enables them to market and sell the DGC alongside Baker Hughes' related technology, providing Corac with a scalable route to a worldwide gas market.
Subsequent to the year end, Corac successfully secured two important additional partnerships which are covered in more detail in the Commercial & Finance Directors report. We signed our first funded DGC feasibility study with OMV Austria Exploration & Production GmbH ("OMV"). This route provides a lower barrier to entry for Corac to secure partners to support the development and testing of the DGC technology. We also agreed a memorandum of understanding ("MoU") with a global market leader in the compressed air industry to jointly develop Corac's existing core technology for applications within the Clean Air and Efficient Air Power business streams.
Both of these agreements are significant for Corac and in line with our stated strategy to strengthen and broaden the commercial application opportunities for our core technology. In addition, the partners that we are working with are market leaders and offer a combination of financial support as well as technical and commercial experience that are necessary for Corac as we head into the commercialisation phase of our strategy.
Towards the end of 2010, a Business Development Team was established to build relationships and business networks across a number of different industrial and energy markets in order to profile Corac's core technology. The team works alongside Corac's Innovation Team ensuring that both business and technology decision makers are reached in existing and new global industrial operators. Through this approach, increased interest is now being seen in the existing and new technology applications and markets where the technology has potential.
Our Industrial Air business is now part of the Clean Air and Efficient Air Power business streams. The Business Development and Innovation Teams are seeking to identify future global partners to further develop applications in these areas, in addition to the MoU signed at the end of March 2011.
We continue to focus on our internal technology development with 3 additional applications for patents made in 2010 to complement the 45 patents already held.
Board Changes
As previously reported, the Board was strengthened in the first half of 2010, to better support the commercialisation phase of the Company's growth. This started with the appointment of Rohan Courtney OBE, following the departure of the previous Non-Executive Directors.
In June 2010 Professor Gerry Musgrave, the Group's former Executive Chairman, stepped down from the Board.
In February 2011 Richard King was appointed to the Board as Non-Executive Director. Richard was previously Managing Partner of UK and Ireland for Ernst & Young LLP and his experience will support the Company's strategic development and monitor corporate governance.
Strategy
The Board is committed to commercialising Corac's technology, whilst retaining its core R&D credentials, by realising future value through the delivery of innovative applications for use within the global energy marketplace.
Corac's approach is to continue to develop its core technology and IP through externally financed development projects as well as internally funded R&D. This will ensure that Corac not only delivers on the existing technology applications of the DGC and core compressor, but importantly continues to develop new patented technology across broader application areas.
Following the fundraising in December, we have strengthened our management team with Heads of Operations, Business Development and Finance in place reporting directly to the Executive Board. This team works directly with the Executive Directors to run and manage the day to day business.
Markets
We continue to see growing interest in Corac's technology and applications across a number of markets and applications. Individual elements of Corac's core technology such as our power electronics module are already generating interest from global industrial operators with identified opportunities for a variety of uses in the gas industry and broader clean air and efficient air power marketplaces.
Methods
Significant progress has been made through the development of the Programme Management Office established last year. Corac has now created the culture and infrastructure to manage and deliver multiple complex projects. In addition, tighter financial and operational controls have been embedded in the Corac organisation.
These will be critical in 2011 and beyond as we look to deliver the existing development projects as well as work on and conclude a broader range of projects to prove the commercial value of the core technology.
Staff
Corac currently employs 37 staff, mostly involved directly in the R&D of our technology. We have recently recruited engineers into the electrical and mechanical teams, reducing the reliance on long term contractors in 2010. We also invested in business development resource and in 2011 we will seek to attract high calibre individuals to join the Corac team in order to meet our growing development and commercial requirements.
Innovation
Innovation is at the heart of our business and in order to ensure that this focus continues, a new Innovation Team has been created headed by our Chief Technical Officer. Led by both internal and external ideas the innovation team drives the ongoing technology development to create new IP as well as supporting existing development projects.
Value Creation
We plan to continue investing in R&D projects, the development of technical skills as well as the commercialisation of our technology applications across an extended market through relationships with key partner organisations
Our commitment is that we will continue to develop our sustainable talented workforce that creates wide ranging patented IP. Through a strong and diverse partner network providing global access to markets and users we will commercialise our technology applications.
I believe this will generate greater enterprise and shareholder value by way of income growth through financed development partnerships and future royalties from licensed IP.
Summary
We have built a strong platform across the key areas of Innovation, Operations, Business Development and Finance. We now have clarity of purpose with a clear strategy and business model and an internal culture aligned to deliver it. Importantly, Corac is ready to drive the next commercialisation phase through strong relationships, a clear customer focus together with a positioning that is broader than just a DGC business.
Phil CartmellExecutive Chairman & Chief Executive Officer28 March 2011
COMMERCIAL & FINANCE DIRECTOR'S REPORT
Finance
Revenues of £0.66m (2009: £1.34m) were lower than the prior year largely driven by the cessation of JIP partner revenues, but in line with forecast. 2010 revenue derived from the completion of work relating to the ENI and North American DGC projects as well as income from the two booster compressors delivered to Austria.
Total R&D spend of £3.22m (2009: £3.38m) includes cost of sales which represents that proportion of R&D spend financed by partners. The spend in 2010 was lower than the prior year due to lower materials spend on the ENI project during the completion stage and better project cost controls. This also included investment in the Head of Operations role.
Administration costs of £2.27m (2009: £1.73m) were higher than in 2009 due in part to investment in Board and senior management and also £0.25m of one off restructuring costs associated with commercial and employee contracts.
Operating losses of £4.81m (2009: £3.73m) were broadly in line with expectations with the increased loss a direct result of reduced revenue combined with investment in operating infrastructure and one off costs.
R&D Tax Credits of £0.77m (2009: £0.75m) were claimed, consistent with prior years, linked to our investment in ongoing technology development.
Cash used in operating activities was broadly in line with prior year at £3.06m (2009: £3.09m). The increase in cash of £16.42m (2009: £3.22m) was driven by £19.49m of net cash proceeds from the issue of shares in December 2010.
Operations
The focus for 2010 has been to establish a commercial infrastructure combined with a delivery culture to facilitate future value creation. Discipline has been created within core support areas of the business such as financial control, supply chain management, IT and project management to support the business as we take on more projects to prove the value of our core technology.
Critically, every part of the business has now been reviewed including contracts, IP, systems and office administration and many parts of the business have subsequently been improved to better meet current and future demands.
Tighter budgetary control of cashflows is now in place to meet project requirements including planning and control processes to more accurately support multiple large scale projects.
Improved cash management has been implemented to provide direct relationships with established high profile, low risk, banking institutions. These were previously managed by a third party.
Commercial
2010 was a year of challenging commercial negotiations to resolve contractual and legal issues with agreements initiated by the previous management. These were successfully concluded in two key areas; finalising the second DGC development project in North America as well as formalising the marketing and sales agreement with Baker Hughes, providing Corac with a scalable route to market for our DGC application.
During the year, we engaged in extensive negotiations with a potential partner in the Middle East looking to apply Corac's core technology through the development of an in-pipe gas compressor located above ground to optimise network gas pipeline pressures. These are ongoing and have taken considerably longer than anticipated. One of the fundamental factors in the delay has been ensuring Corac retains protection of its core technology and IP generated in the development stages.
In each case, key lessons have been learned and processes improved so that Corac is better placed with improved legal templates and a more commercial approach to progress future agreements more efficiently both in terms of costs and time.
In the first quarter of 2011, Corac secured two significant new agreements. A first phase DGC feasibility study was secured with OMV, the leading oil and gas corporation of Central Europe which if successful will lead to two further phases comprising detailed design, build and test and finally field deployment and monitoring. This is an important third DGC project for Corac as it will develop and test the DGC in a significantly different well environment to our existing projects and specifically looks to deploy the DGC earlier in the wells life cycle, which could extend the commercial application of Corac's DGC.
In March 2011, an MoU was agreed with a global market leader in the compressed air industry. Through the partnership, Corac intends to build on the efficiency and low maintenance characteristics of its high speed industrial compressors to identify opportunities within water treatment, pneumatic conveying and boosting of conventional compressor arrangements. We believe that this offers Corac a partnership that may lead to the manufacture, marketing and selling of end applications providing Corac with a global market leading partner to commercialise our technology within our Clean Air and Efficient Air Power business streams.
Corac is now positioned to combine the core R&D activities with a business approach. With the team and capabilities within the Company, we are able to develop our core technology and then protect and control ownership of our IP, whilst developing scalable routes to global markets. We have demonstrated that this is possible even when negotiating with major global oil and gas operators.
Following the fundraising, we established a Business Development Team and the structure is now in place to open up new markets for Corac's core technology across each of the business streams as well as broaden the horizons for Corac into new markets.
We are now raising the profile of Corac by building commercial networks across a number of significant market sectors as opposed to focusing wholly on the initial DGC project and we are consistently gaining interest from global industrial operators.
Mark CrawfordCommercial & Finance Director28 March 2011
CHIEF TECHNICAL OFFICER'S REPORT
Technology
The Technical team at Corac entered the year with objectives to stabilise the delivery of our core projects, learn the necessary lessons to improve our future capability, stimulate the further innovation of our core technologies and connect with the markets and users that will drive demand for our ideas.
The priority for much of the year has been in ensuring the delivery of the ENI field trial DGC, which led to the first assembly of the complete system in the downhole configuration, which was tested at Spadeadam in the latter part of the year.
We encountered and resolved many technical challenges en route. In power electronics, we have developed new encapsulation methods for the reliable insulation of high power devices. New techniques for managing the distortion and interference of control signals by the close proximity of high speed, high power circuits and power units were also required. Within the compressor itself, we overcame challenges regarding the reliable operation of gas bearings at high speed and the development of motor windings to withstand high temperature operation.
The December test at Spadeadam was compromised by leakage of insulating oil into the compressor bearings. Testing proved the viability of the system as a whole and established that fundamentally, the technology works.
Whilst one motor failed to start due to a soldered contact failure, an issue which has since been corrected, another motor only ran at slow speed due to oil leakage. The leakage issue has now been resolved, and is a further reminder that Corac's technology operates at the limits of knowledge in conventional sealing systems.
At the end of March 2011, Corac completed a series of re-engineering and test activities at Uxbridge to resolve the technical challenges identified at Spadeadam, previously reported in December. As a result, the integrated DGC was transported to Cumbria where it completed a series of tests in Corac's dedicated flow loop. The DGC reached full speed at representative operating temperatures and pressures and completed a number of stop and start sequences to simulate operating events in the field. Further proof and endurance testing will follow in preparation for partner acceptance.
The Project Management Office ("PMO") has enhanced our ability to capture and organise development information and lessons from past projects are already being applied to refine the technical architecture of the North American DGC project announced in August.
Innovation
The Innovation Team, formed in 2010 is tasked with using our technology to identify further and wider application opportunities. The team is also responsible for assessing and executing preliminary feasibility studies on specific applications of Corac technology, typically financed by customers.
The Innovation Team is closely integrated with the Business Development Team to jointly identify, assess and secure new project opportunities.
Working closely with the project engineering teams managed by the PMO, the Innovation Team then ensures close alignment of project output to meet end user requirements including specification, execution and successful delivery of the resulting solution.
During the year we identified several potential application areas which included compressed and liquefied natural gas and shale gas applications. These culminated in two patent applications relating to the enhanced liquefaction of natural gas and its transportation.
Many oil and gas production facilities require power supply in remote and hostile environments. We are therefore examining the potential to further develop our power electronics applications to exploit high speed power inversion at significant distances from the main supply in a hot and hostile environment.
In other areas, we continue to build experience with successful factory trials of our industrial compressors towards new applications for a range of compressors from 30 to 300kw and pressures from 1 to 10 bar that can be applied within the Clean Air business stream.
Through these activities, the Innovation Team will be the primary generators of patented IP to add to the three further patent applications generated in 2010. Corac clearly recognises that future growth will be dependent on licensable technology and "know-how".
Julian ReedChief Technical Officer28 March 2011
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2010
2010 | 2009 | ||
Note | As restated | ||
£ | £ | ||
Revenue | 3 | 663,133 | 1,336,750 |
Cost of sales | (663,133) | (1,336,750) | |
Gross profit | - | - | |
Other income | 20,537 | 36,045 | |
Research and development costs | (2,560,770) | (2,038,717) | |
Administrative expenses | (2,265,854) | (1,729,789) | |
Operating loss | 4 | (4,806,087) | (3,732,461) |
Finance income | 34,286 | 47,147 | |
Loss before income tax | (4,771,801) | (3,685,314) | |
Income tax credit | 5 | 768,247 | 750,747 |
Loss and total comprehensive expense for the year attributable to shareholders |
(4,003,554) |
(2,934,567) | |
Loss per share expressed in pence per share | pence | pence | |
Basic and diluted loss per share | 6 | (3.5) | (3.1) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 31 December 2010
2010 | 2009 | |||
Note | £ | £ | ||
ASSETS | ||||
Non current assets | ||||
Property, plant and equipment | 59,333 | 51,360 | ||
Amounts owed by EBT | - | - | ||
59,333 | 51,360 | |||
Current assets | ||||
Inventories | - | 135,900 | ||
Trade and other receivables | 631,218 | 503,515 | ||
Taxation recoverable | 710,000 | 680,342 | ||
Cash and cash equivalents | 21,760,824 | 5,343,988 | ||
23,102,042 | 6,663,745 | |||
Total assets | 23,161,375 | 6,715,105 | ||
LIABILITIES | ||||
Current liabilities | ||||
Trade and other payables | (1,361,181) | (672,307) | ||
Net assets | 21,800,194 | 6,042,798 | ||
EQUITY | ||||
Share capital | 7 | 24,740,423 | 10,834,398 | |
Share premium | 7 | 13,522,572 | 7,938,737 | |
Capital redemption reserve | 575,000 | 575,000 | ||
Own shares held by the EBT | (551,226) | (551,226) | ||
Share-based payments reserve | 565,938 | 294,848 | ||
Retained earnings | (17,052,513) | (13,048,959) | ||
Total equity | 21,800,194 | 6,042,798 | ||
Consolidated Statement of Changes in Equity
For the year ended 31 December 2010
Capital | Own shares | Share-based | |||||
Share | Share | redemption | held by | payments | Retained | ||
capital | premium | reserve | EBT | reserve | earnings | Total | |
£ | £ | £ | £ | £ | £ | £ | |
Balance at 1 January 2009 | 8,654,932 | 4,332,769 | 575,000 | (551,226) | 184,153 | (10,114,392) | 3,081,236 |
Issue of shares | 2,179,466 | 3,605,968 | - | - | - | - | 5,785,434 |
IFRS 2 share option charge | - | - | - | - | 110,695 | - | 110,695 |
Transactions with owners | 2,179,466 | 3,605,968 | - | - | 110,695 | - | 5,896,129 |
Loss and total comprehensive expense for the year | - | - | - | - | - | (2,934,567) | (2,934,567) |
Balance at 31 December 2009 |
10,834,398 |
7,938,737 |
575,000 |
(551,226) |
294,848 |
(13,048,959) |
6,042,798 |
Issue of shares | 13,906,025 | 5,583,835 | - | - | - | - | 19,489,860 |
IFRS 2 share option charge | - | - | - | - | 271,090 | - | 271,090 |
Transactions with owners | 13,906,025 | 5,583,835 | - | - | 271,090 | - | 19,760,950 |
Loss and total comprehensive expense for the year | - | - | - | - | - | (4,003,554) | (4,003,554) |
Balance at 31 December 2010 | 24,740,423 | 13,522,572 | 575,000 | (551,226) | 565,938 | (17,052,513) | 21,800,194 |
Consolidated Statement of Cash Flows
For the year ended 31 December 2010
2010 | 2009 | ||
£ | £ | ||
Operating activities | |||
Loss before income tax | (4,771,801) | (3,685,314) | |
Adjustments for: | |||
Depreciation | 39,715 | 51,363 | |
Finance income | (34,286) | (47,147) | |
Share-based payment expense | 271,090 | 110,695 | |
Decrease/(increase) in inventories | 135,900 | (135,900) | |
(Increase)/decrease in trade and other receivables | (127,703) | (62,840) | |
Increase in trade and other payables | 688,874 | 88,040 | |
(3,798,211) | (3,681,103) | ||
Income tax received | 738,589 | 590,405 | |
Net cash used in operating activities |
(3,059,623) |
(3,090,698) | |
Investing activities | |||
Finance income | 34,286 | 47,147 | |
Purchase of property, plant and equipment | (47,688) | (19,258) | |
Net cash (used in)/from investing activities |
(13,402) |
27,889 | |
Financing activities | |||
Proceeds from issue of shares | 20,859,037 | 5,946,137 | |
Expenses of issue of shares | (1,369,177) | (160,703) | |
Cash transferred from short term deposits | - | 500,000 | |
Net cash from financing activities | 19,489,860 | 6,285,434 | |
Net increase in cash and cash | 16,416,836 | 3,222,625 | |
equivalents | |||
Cash and cash equivalents at beginning of year | 5,343,988 | 2,121,363 | |
Cash and cash equivalents at end of year |
21,760,824 |
5,343,988 |
Notes to the preliminary announcement
1. Nature of operations and general information
The principal activity of Corac Group plc and its subsidiaries (the "Group") comprises the innovation, research & development and partner testing of its core technology leading to the commercialisation of applications of this technology, currently within three business streams:
• Gas in Harsh Environments - end to end movement of gases in harsh environments using Corac's high speed, compact compressors that are tolerant of a wide range of gas and environmental characteristics, including temperature and contamination. This includes pursuing the development of the DGC.
• Clean Air Supply - Utilising Corac's compressed air technology for use where there is a critical requirement for cleanliness, for example in water treatment and in the production and handling of foods and pharmaceuticals.
• Efficient Air Power - air power in factories has been described as the "fourth utility" and therefore simple, low maintenance uncontaminated yet highly efficient supply is essential. The simplicity of Corac's high speed compressors provides variable high performance from a small package with low maintenance and low life cycle cost.
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 Brunel Science Park, Kingston Lane, Uxbridge, Middlesex UB8 3PQ. The Parent Company's shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange.
2. Basis of Preparation
This preliminary announcement is for the year ended 31 December 2010 and has been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended 31 December 2009 except for the reclassification of cost of sales described below and the adoption of the following new standards and interpretations that have not impacted the reported results or the financial position:
• IFRIC 9 and IAS 39 "Embedded Derivatives"
• IFRIC 17 "Distribution of Non-cash Assets to Owners"
• IFRIC 18 "Transfer of Assets from Customers"
• IAS 28 (revised) "Investments in Associates"
• IAS 39 (amended) "Eligible Hedged Items"
• IFRS 1 (amended) "Additional Exemption for First Time Presentation"
• IFRS 3 (revised) "Business Combinations"
• IAS 27 (revised) "Consolidated and Separate Financial Statements"
• IFRS 2 (amended) "Group Cash-settled Share-based Payment Transactions"
• Improvements to IFRSs 2009 (April 2009)
This financial information does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2010, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 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.
Reclassification of cost of sales
In prior years, cost of sales consisted of an allocation of R&D expenditure. In the current year cost of sales is deemed to represent that element of R&D cost financed by development partners. As such this is set to equal revenues recognised from R&D activity. The Company believes that this better represents the nature of its operations and the costs associated with revenues from development partners.
Going concern
Following the fundraising in December 2010, the Group has considerable cash resource. The Directors confirm that having considered the forecast spend on anticipated operations, sensitised for unplanned overspend and current uncertain economic outlook, they are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.
3. 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 2010 from three customers amounted to more than 10% of total revenue, contributing £364,642 (2009: £604,956), £170,948 (2009: £nil) and £112,238 (2009: £45,300) respectively. All revenues relate to the single reportable business segment. In 2009, revenue from a further three customers amounted to more than 10% of total revenue in that year, contributing £271,089, £245,000 and £170,000 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:
2010 | 2009 | |
£ | £ | |
United Kingdom | 10,026 | 170,000 |
European Union | 476,880 | 895,256 |
North America | 170,948 | 271,089 |
Rest of the World | 5,279 | 405 |
663,133 | 1,336,750 |
4. Operating loss
The Group operating loss for the year is stated after charging the following:
2010 | 2009 | |
£ | £ | |
Staff costs | ||
Wages and salaries | 2,400,730 | 1,922,610 |
Social security costs | 254,842 | 187,888 |
Other pension costs | 132,166 | 105,959 |
2,787,738 | 2,216,457 | |
Depreciation of property, plant & equipment | 39,715 | 51,363 |
Operating lease expense - rent | 161,990 | 156,164 |
Auditor's remuneration Deloitte (Grant Thornton in 2009) | ||
Fees payable for the audit of the Parent Company and consolidated financial statements | 25,000 | 21,000 |
Amounts for statutory and regulatory services | 90,000 | - |
Total audit and audit related services | 115,000 | 21,000 |
Tax services | 25,000 | 5,000 |
Total auditor remuneration | 140,000 | 26,000 |
Included in wages and salaries is a total expense of share-based payments of £271,090 (2009: £110,695), all of which arises from transactions accounted for as equity-settled share-based payment transactions.
Fees of £103,000 payable to Deloitte were deducted from share premium. Further audit fees of £2,087 were paid to Grant Thornton in 2010 whilst they were auditors of the Group.
5. Taxation
Credit to consolidated income statement
2010 | 2009 | |
£ | £ | |
Corporation tax - R&D credit | ||
Current year | 710,000 | 680,342 |
Prior year under provision | 58,247 | 70,405 |
768,247 | 750,747 |
The tax credit for the period is lower than the standard rate of corporation tax in the UK of 28% (2009: 28%). The differences are explained as follows:
2010 | 2009 | |
£ | £ | |
Loss on ordinary activities before taxation | 4,771,801 | 3,685,314 |
Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 28% (2009: 28%) |
1,336,104 |
1,031,888 |
Effect of: | ||
Expenses not deductible for tax purposes | (564) | (3,245) |
Depreciation in excess of capital allowances | (5,283) | (6,431) |
Share -based payments | (73,126) | (30,995) |
R&D enhanced relief | 608,963 | 587,001 |
Surrender of tax losses for R&D credit | (1,420,914) | (1,360,684 |
R&D tax credit | 710,000 | 680,342 |
Trading losses carried forward | (453,522) | (217,658) |
Other short term timing differences | 8,342 | 124 |
Adjustment in respect of prior years | 58,247 | 70,405 |
Current tax credit for the year | 768,247 | 750,747 |
Subject to agreement by HM Revenue & Customs, Corac Group plc has approximately £9,000,000 (2009: £7,500,000) of unrelieved and unrecognised tax losses.
6. Loss per share
The calculation of basic loss per share for the year ended 31 December 2010 is based upon a loss after tax of £4,003,554 (2009: £2,934,567) and a weighted average number of shares of 115,769,849 (2009: 95,809,034). 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.
7. Share issues
On 6 December 2010 the company announced a Firm Placing and Placing and Open Offer of 139,060,248 new ordinary shares of 10p each at 15.00 pence per share. Expenses associated with the issue of shares were £1,369,177. These have been accounted for as a deduction from equity.
On 2 February 2009 the Company announced the placing of 7,662,835 new ordinary shares of 10p each at 13.05 pence per share. On 28 September 2009 the Company announced the placing of 14,131,820 ordinary shares of 10p each at 35.00 pence per share. Expenses associated with the issue of shares were £160,703. These have been accounted for as a deduction from equity.
All these shares were subsequently admitted for trading on AIM.
8. AGM
The Annual General Meeting of Corac Group plc will be held at 11:00 a.m. on 19 May 2010 at Buchanan Communications, 107 Cheapside, London, EC2V 6DN.