PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

RNS Number : 8388A

Corac Group Plc

26 March 2013

 

 

Tuesday 26th March 2013

 

CORAC GROUP PLC

("Corac" or the "Group")

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

 

Corac Group plc, a leading engineering company in energy and environmental technologies, serving the global oil and gas, defence and industrial markets, today announces its preliminary results for the year ended 31 December 2012.

Operational Highlights

Group

· Acquired two companies from Wellman Group and managed transition of three operating companies into the Group

· Opened new Technology Centre in Slough

· Continuing investment in business processes to meet quality standards and business growth needs

ACI

· Delivered submarine systems to Navantia for the Spanish navy

· Secured a multi-million pound project with DCNS for the French Navy's Barracuda class programme

· Extended a worldwide in-service maintenance and support contract for the UK submarine programme

CET

· Continued to grow the value of intellectual property with recognition from major customers in significant unit sale enquiries

· Completed factory and flowloop testing of the first deployable DGC and delivered to customer for field trials

· Significant new contracts signed for new applications to develop industrial waste energy recovery systems

HG

· Delivered a technically challenging multiple heat exchanger project for a major oil and gas customer

· Completed a high volume refurbishment programme at one of the largest refineries in the UK

Finance Highlights

· Group revenue of £15.3m (2011: £0.3m)

· Group revenue on a pro forma2 basis, including the full year revenue for the acquired business was £19.3m

· Total R&D4 spend of £3.2m (2011: £3.4m)

· Loss before tax of £6.1m (2011: loss before tax of £5.7m)

· Adjusted Group EBITDA3 loss of £4.1m (2011: loss £5.2m)

· Adjusted Group EBITDA3 loss on a pro forma2 basis was £3.9m

· £6.7m cash at year end (2011: £15.3m)

· Group year end order book stood at £14.4m (2011: £0.7m) with a significant pipeline of qualified potential sales opportunities.

Phil Cartmell, Chairman of Corac commented on today's announcement:

 

"This has been a year of great achievement and transformation for Corac. We have expanded the Group through successful acquisition and opened a new purpose-designed facility to support our engineering and delivery activities. We have enhanced the value of the Group by adding cash earnings, investing in our intellectual property and commercialising our technologies.

 

"A stronger Group with a collection of mature and maturing technologies and enhanced routes to market is yielding increasing interest from ever wider markets.  We will continue to deliver high value propositions to our customers with increasingly positive results from these in 2013. On this basis I have great confidence in the prospects for the Group going forwards."

 

Ends

For further information please contact:

Corac Group plc

www.corac.co.uk

Mark Crawford, Chief Financial Officer


Cenkos


Jeremy Warner-Allen - Sales


MHP Communications

020 3128 8100

Reg Hoare / Vicky Watkins / Naomi Lane


 

NOTES TO EDITORS

Corac is a leading UK based engineering company in energy and environmental technologies. The Group produce valuable solutions in compression systems, atmosphere control and heat exchangers for government, energy and industrial users. It has traded shares on the London Alternative Investment Market (AIM) since July 2001.

 

 

Notes

EBIDTA is defined as operating profit adjusted to add back depreciation of property, plant and equipment and amortisation of acquired intangible assets.

2 The directors have provided the pro forma financial information to give an indication of performance as though the acquisitions of ACI and HG had occurred on 1 January 2012.  The pro forma financial information is based on the unaudited management accounts of both ACI and HG for the period from 1 January 2012 to 4 April 2012, aggregated with the trading results of the Group for the nine month period ended 31 December 2012, which include the trading results of ACI and HG for the period of 5 April 2012 to 31 December 2012.  The aggregated financial information is then further adjusted to eliminate certain exceptional items that do not relate to underlying trading contained in the accounts of both ACI and HG for the period for 1 January 2012 to 4 April 2012.

3 Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment, amortisation of acquired intangible assets and any other acquisition related charges, share based payment charges and exceptional items.  Exceptional items are those items believed to be exceptional in nature by virtue of their size and or incidence, and in the current period comprise costs associated with the acquisitions of ACI and HG on 5 April 2012 and associated equity fundraising on 2 April 2012.

4Total R&D spend includes cost of sales within CET. 

Executive Chairman's Statement

This has been a year of great achievement and transformation for Corac. We have expanded the Group through successful acquisition and opened a new purpose-designed facility to support our engineering and delivery activities. We have enhanced the value of the Group by adding cash earnings, investing in our intellectual property and commercialising our technologies.

The significant effort made in transforming the Group over the past 12 months, turning Corac into a balanced solution delivery organisation, has been reflected in the strength and quality of a growing pipeline of opportunities across all three businesses. I believe that we are now very well positioned to embark upon our next phase of business growth towards sustainable revenues and profits.

We have continued to focus on customer solution programmes based upon proven technologies.  We are pleased to see growing interest in our applications from established relationships in energy, defence and petrochemicals and interesting new challenges in areas such as energy recovery. Within these programmes we achieved a significant milestone when a factory tested DGC was accepted for delivery by our American partner for trials in their gas field.

Evolving Strategy

Last year I spoke of our strategy to invest in and focus on technology programmes to bring commercially valuable propositions to market. Through the year we have expanded our commercial engagements through a broader portfolio of core technologies.  This was aided by the mid-year acquisitions which position us well to support our partners' energy and environmental challenges.

Our strategy is to grow the Group significantly by supplying engineered solutions that add value both for us and our customers. As a trusted innovator and provider of specialised systems based on our proprietary core technologies, we will maintain a position closely aligned with the needs of our markets.

Players in the markets in which we operate, make large investments in capital equipment and face their own performance and efficiency challenges.  We have identified opportunities for our high value contributions to their programmes, and once established with them we see opportunities for repeat sales and long term maintenance agreements.

The Board will continue to consider partnership and acquisition opportunities to enhance and broaden the Group's service offerings, extend its geographic reach and take the Group into new markets such as aviation, space or renewable energy where there is potential demand for its technologies.

Successful Acquisitions

We were pleased to announce on 5 April 2012 that we had acquired Wellman Defence Limited and Wellman Hunt Graham Limited for a cash consideration of £10.9 million from the Wellman Group. The two companies have since been renamed as Atmosphere Control International Limited and Hunt Graham Limited, and are a key part of our strategy to broaden our technical and market proposition and add revenue and profit to support long term investment in technology development.

The acquired companies give us major defence industry clients and extend our reach in oil and gas and process industries which is vital in extending our market presence and our geographic footprint.  They also open opportunities to cross-sell technology solutions across the Group.

Performance

I am pleased to report that the Group's results are ahead of expectations.  Adjusted Group EBITDA loss (before share based payment and exceptional items) was reduced to £4.1m (2011: loss £5.2m).  This is the net effect of positive contributions from ACI and HG alongside continued development spending and investment in the Group.

The Group had £6.7m net cash at year end (2011: £15.3m) and has built a Group order book of £14.4m (2011: £0.7m), benefitting in particular from ACI's strong long term order book. Our focus on business development around a wider portfolio of engineering propositions has provided us with a significant pipeline of qualified potential sales opportunities.

Solutions and Applications

I believe we now have a much clearer, simpler and more compelling set of commercial propositions based upon the core solution components that Corac companies can call upon to help our clients. These can be summarised as:

· A clean gas business based upon oxygen generation, gas cleansing and contaminant removal (ACI)

· A rotating machines business that combines advanced motors, contactless bearings, motor drive systems, sensors and advanced aerodynamics (CET)

· A thermal engineering business with great experience in heat exchangers, condensers, design and through life support (HG)

The Group business development plan is to mobilise all of these as technology components and to work with customers on their operational problems and to offer solutions that draw upon the full breadth of the Group's capability. The first evidence of this has been seen with the inclusion of shell and tube heat exchange designs in a CET compression system.

Widening Geographic Footprint

The expanded Group enjoys a wider geographic footprint through its customers and partners and this gives us great opportunities to engage with new international customers.  Multiple propositions for thermal engineering, turbomachinery, compression and defence applications have recently been presented during business development visits to the United States, Europe and the Middle East.

Going forward, I intend for the geographies to receive increasing emphasis, as we move to a more holistic technology proposition based upon our Group-wide capabilities.

Broadening Market Focus

The Group's market focus has significantly broadened following the acquisition of ACI and Hunt Graham to be in energy, industrial turbomachinery and defence. We have strengthened the senior business development team with programme experience in these areas to take advantage of new business opportunities.

Creative use of our technology elements has also opened up opportunities in adjacent markets such as power generation and the nuclear build programme.  We will continue to respond to user problems in new arenas where our technologies can provide positive outcomes.

This encourages me to believe that there is significant room for growth in each of our traditional markets, and also in the relevance of Corac's miniaturised technologies operating in harsh environments.  This leads us to opportunities in other markets such as aerospace, renewable energy or carbon management, where the need for compact, efficient and innovative engineering is driving investment.

Corporate Development

Corporate development activity around strategic partnerships, potential mergers and acquisitions continues to be, and will remain, an important part of our growth strategy.

We intend to expand our partnerships, such as that already established with Baker Hughes, with a focus on marketing, sales, technology development and delivery.

We will look to make complementary acquisitions where established technologies enhance our existing business and will also consider opportunities for the Group to support under achieving or under valued technology companies and transform them for future success.

Talented People

Corac depends on the talent and commitment of its people and I would again like to thank all our staff for their part in working through the changes and delivering the progress made this year.

We now have a very strong management team with a breadth of experience supporting the executive directors which enables the business to succeed whilst at the same time allowing the executive directors to focus on the continuing development and growth of the Group.

Corac currently employs 165 staff, with a comparatively lean overhead and high proportion of technical and delivery staff. We have continued to build teams around the high level appointments of previous years, through leadership development from within, strategic external recruitment and careful use of associates and contractors to manage peaks of activity.

We have also continued our commitment to apprenticeships, with six young people currently engaged across the Group.

Our goal is to make Corac a place where talent can thrive and be recognised, where we share the excitement and rewards of what we and our customers achieve and we enjoy the route that takes us there.

Outlook

A stronger Group with a collection of mature and maturing technologies and enhanced routes to market is yielding increasing interest from ever wider markets.  Our immediate focus will be to:

· Build on the strength of the capital expenditure in the markets we supply

· Apply Group resources to invest in technology evolution and staff capability

· Maintain strong technical and commercial relationships with our key customers and partners

· Offer engineering propositions that exploit our mature and emerging technologies

Investment is growing in energy and environment markets and Corac's technologies are well placed to meet this demand.

We will continue to deliver high value propositions to our customers with increasingly positive results from these in 2013.  We start the year with a strong order book and pipeline, and our strategy will continue to reduce losses further through 2013 and 2014 and become a business delivering strong margins and generating shareholder value.

On this basis I have great confidence in the prospects for the Group going forwards.

Phil Cartmell

Executive Chairman

26th March 2013

Chief Financial Officer's Report

Corac was transformed through the acquisition of Wellman Hunt Graham Limited and Wellman Defence Limited on 5 April 2012. This changed the Group's income statement through the introduction of significant revenues and operating profits. The mid-year acquisition makes comparisons to the prior year as separate businesses not meaningful.

Group Financial Review

Corac uses adjusted EBITDA figures as a key performance measure in addition to those reported under International Financial Reporting Standards (IFRS).  The directors believe that these are more representative of underlying performance. Adjusted EBITDA figures are used unless otherwise stated and they exclude amortisation of acquired intangible assets and any other acquisition related charges, share based payments and exceptional items.

The acquisition of Wellman Defence and Wellman Hunt Graham was completed in July 2012 for a consideration of £10.9m, with net cash of £6.3m raised from the placing of shares in April 2012.

Group Financial Performance

Group revenues of £15.3m (2011: £0.3m) arose predominantly from the two acquired businesses which totalled £15.1m in the period post acquisition. The pro forma revenues for ACI and HG were £19.1m which are in line with the baseline annual expectations at the time of the purchase and are covered in more detail in the operational review.

The Group continues to invest in R&D at a level in line with 2011 at a total of £3.2m (2011: £3.4m) all of which was invested in the core technologies within the CET business. Re-scheduling of expenditure on individual development projects means this is lower than anticipated at the start of the year.  The Board is committed to continued investment in technology, with R&D spend in CET and additional investment in ACI to generate future commercial revenues.

Administration costs of £6.6m (2011: £2.9m) includes £0.8m arising from the two acquired businesses and £0.4m of incremental depreciation charges relating to the 2011 investment in the new Technology Centre in Slough. £1.0m exceptional costs were incurred as a result of the acquisition (due diligence, advisor and broker fees) together with £0.6m of intangible asset amortisation charges. The remaining additional spend relates to re-organisation costs and investment in central senior management, gearing up in line with the strategy to deliver growth through the enlarged Group.

Adjusted EBITDA operating losses of £4.1m (2011: £5.2m) were lower than expectations due to phasing of positive adjusted EBITDA contributed post-acquisition from ACI and HG, and re-scheduling of R&D investment at CET. The pro forma adjusted EBITDA from the two acquisitions generated £2.6m, in line with full year expectations.  The statutory operating loss before tax for the year was £6.1m (2011: statutory operating loss before tax £5.7m).

Group Financial Position

R&D tax credits for the Group relate to the reclaim for investment made within CET.  The Group has claimed £0.7m (2011: £0.7m) in line with last year linked to a similar level of R&D investment, discussed in more detail within the CET operations report.

Corac has utilised tax losses across the enlarged group to offset taxable profits within the two acquired subsidiaries within the post acquisition trading period and has therefore not incurred a tax charge in the period.

At year end, the Group order book stood at £14.4m. £9.6m, which is equivalent to approximately half of the Groups 2012 pro forma revenues, relates to orders that are expected to be completed in 2013.  Within ACI and CET, the longer term nature of the contracts and development projects means that the balance of orders will be completed over several years.

The year-end cash together with the support of the future cash generated by ACI and HG provides the Group with adequate funds to continue to invest in the CET business and support the overall Group's operations as planned.

Net cash used in operating activities was £4.1m (2011: £5.1m) and broadly in line with last year after taking into account £1.0m exceptional acquisition expenses in the year and £1.9m cash inflow from operating activities of the two acquired subsidiaries. Cash at year end totalled £6.7m (2011: £15.3m) the movement explained in part by the net cash used in operating activities alongside the net balance of cash used to support the acquisition.

In line with the Group's current strategy, no dividend has been declared.

Group Operations Review

Since the acquisition, the three businesses run autonomously, with support from a small Group team, particularly in cross-selling between the companies with shared account planning and joint proposition development.

Developing people and processes

Following the acquisition, we reviewed structures and business processes to strengthen local leadership and allow them to function independently within the Group strategy.

We have developed existing staff and added external talent to produce a blended team. Most notably, we recruited Melanie Rigby from a global compressor manufacturer to become Managing Director of CET.  Below each MD, we have focused on developing the existing local leadership teams.

We seek to develop youth and talent across the Group and are encouraged by the progress of our apprenticeship schemes with the addition of an Electrical Technician Apprentice at ACI, bringing the group-wide total to six, representing 7% of the overall engineering workforce.

We have also continued our commitment to improving business processes and best practices. The formation of a cross-Group team achieved successful accreditation of CET under ISO9001.

Atmosphere Control International

In 2012, ACI conducted significant business in the UK, France, Spain and Japan contributing to the overall revenues post acquisition of £7.5m which on a pro forma basis were £9.7m. Due to the nature of the defence sector, long term contract revenues can fluctuate on an annual basis.

The adjusted EBITDA contribution from ACI was £1.7m which equated to £2.0m on a pro forma basis in line with acquisition expectations.

Significant programme milestones were achieved:

· Delivery of the final two CO2 removal Units to Navantia for the Spanish S-80 submarine programme

· Delivery of the First oxygen generator to DCNS for the French Barracuda submarine programme

· Sea Trials of the first COGS units (3rd generation oxygen production system) for the UK MoD

Domestically the Company has seen the start of life extension work on its equipment for Trafalgar submarines with two Lifex programmes being completed.

Overseas, ACI has continued to expand its business with further orders for a CO2 removal system for a non-European navy and a second order from DCNS for two further O2 production systems for the French Barracuda programme.

These additional orders strengthened the long term order book to assure future activity levels at the Portsmouth plant. The Board has approved an R&D investment to enhance the CO2 scrubbing technology to meet stricter future requirements and maintain ACIs leading position in this field.

Further discussions continue with two other non-European defence forces on future projects.

Corac Energy Technologies

Revenues of £0.2m (2011: £0.3m) for CET currently represent recognition of partner contribution to long term development projects. CET has continued to invest in the R&D aspects of these projects with £3.2m of R&D expenditure (2011: £3.4m) and has achieved significant progress in maturing the core technologies. CET has stimulated interest from major partners for additional multi-million pound projects which were expected to progress in 2012.  Growth of the order book reflects early success of this activity, whilst some are subject to prolonged startup processes and will launch in 2013.

The resulting adjusted EBITDA loss of £4.7m (2011: £4.2m) was lower than anticipated for the year linked to re-scheduling of individual partner development projects.

The new Technology Centre at Slough has proved its value very quickly. Enhanced technical, meeting and staff facilities allow more effective presentations to prospective partners. Demonstration of functioning technology has led directly to funded engineering studies with major partners with much shorter business development cycles.

Significant achievements included:

· A long term development and product licensing agreement with a global manufacturer in a new turbomachinery application. Partner investment of £0.8m will lead to a five year exploitation agreement

· Agreement with major corporate partners in the UK and United States to develop an electricity generation system using waste energy in the gas transmission network.

· The first integrated DGC system successfully completed a test programme at the Spadeadam facility in Cumbria.  The tests represented the conditions that will be faced in the field deployment.

· The Board committed to continued investment in the CET business, with a focus on design for performance and reliability that adds value for global customers

CET will pursue a balanced strategy with continuing investment in technology programmes to prove the maturity and capability of intellectual property whilst working with partners to produce innovative systems based on the core technologies.

Hunt Graham

The fabrication plant near Manchester and on-site activities on customer plants has generated revenues of £7.6m and adjusted EBITDA of £0.6m in the period post acquisition. Both measures are in line with acquisition baseline expectations.  Due to the timing of contract completions HG broke even in the first quarter and giving an adjusted adjusted EBITDA on a pro-forma basis of £0.6m.

During 2012 the team achieved:

· Completion of a long term, high volume contract for a global oil and gas major

· Increased market share to supply to 80% of the UK Dryer manufacturers, a key market for the Extended Surface business line

· Supported an intense refurbishment programme at one of the largest refineries in the UK - during a 28 day programme window HG were able to retube, hydrotest and re-commission 21 heat exchangers in 25 days.

The high volume contract was especially significant as it demonstrated Hunt Graham's specialist technical capability. It showed HG's ability to work with advanced materials using new automatic welding production technology.  This technique is the result of significant investment in 2011 that was commissioned during 2012. 18 units between 14 and 30 tons each were delivered in a mixture of regular carbon steel and high strength stainless steel.

Sales and marketing activity has continued in Germany, United States and Turkey together with increasing activities with key accounts in oil and gas and chemical processing.

Mark Crawford

Chief Financial Officer

26th March 2013

 

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2012



Group



2012

2011


Note





£000

£000





Revenue

3

15,299

322

Cost of sales


(11,845)

(322)





Gross profit


3,454

-





Distribution costs


(172)

-

Research and development costs


(2,986)

(3,029)

Administrative expenses


(6,570)

(2,883)





Operating loss

4

(6,274)

(5,912)

Finance income

7

180

242





Loss before income tax


(6,094)

(5,670)

Income tax credit

8

870

700





Total comprehensive loss for the year attributable to shareholders


(5,224)

(4,970)





Loss per share expressed in pence per share




Basic and diluted loss per share

9

(1.8)

(2.0)

All results relate to continuing activities.

 



 

Consolidated  Statement of Financial Position

as at 31 December 2012

 



Group

Parent Company



2012

2011

2012

2011


Note

£000

£000

£000

£000

ASSETS






Non current assets






Goodwill

10

4,953

-

-

-

Other intangible assets

11

11,631

-

-

-

Property, plant  and equipment

12

1,828

1,858

1,590

1,858

Investments

13

-

-

10,910

-

Amounts owed by EBT

14

-

-

198

250



18,412

1,858

12,698

2,108







Current assets






Inventories

15

44

-

-

-

Trade and other receivables

18

3,339

1,410

1,266

1,410

Taxation recoverable


700

700

700

700

Cash and cash equivalents

19

6,651

15,332

4,714

15,297



10,734

17,442

6,680

17,407







Total assets


29,146

19,300

19,378

19,515







LIABILITIES






Current liabilities






Trade and other payables

20

(7,347)

(2,153)

(2,283)

(2,156)

Taxation payable


(52)

-

-

-



(7,399)

(2,153)

(2,283)

(2,156)







Non-current liabilities






Deferred taxation

22

(2,675)

-

-

-

Provisions

23

(712)

-

(150)

-



(3,387)

-

(150)

-







Total liabilities


(10,786)

(2,153)

(2,433)

(2,156)







Net assets


18,360

17,147

16,945

17,359







EQUITY






Share capital

24

30,788

24,740

30,788

24,740

Share premium


13,769

13,523

13,769

13,523

Capital redemption reserve


575

575

575

575

Own shares held by the EBT


(551)

(551)

-

-

Share-based payments reserve


1,026

883

932

789

Retained earnings


(27,247)

(22,023)

(29,119)

(22,268)







Total equity


18,360

17,147

16,945

17,359

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2012


Group

 




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 2011

24,740

13,523

575

(551)

566

(17,053)

21,800









IFRS 2 share option charge

-

-

-

-

317

-

317

Transactions with owners

-

-

-

-

317

-

317

Total comprehensive loss

-

-

-

-

-

(4,970)

(4,970)









Balance at

31 December 2011

24,740

13,523

575

(551)

883

(22,023)

17,147









Issue of shares

6,048

246

-

-

-

-

6,294

IFRS 2 share option charge

-

-

-

-

143

-

143

Transactions with owners

6,048

246

-

-

143

-

6,437

Total comprehensive loss

-

-

-

-

-

(5,224)

(5,224)

Balance at

31 December 2012

30,788

13,769

575

(551)

1,026

(27,247)

18,360

 

 



 

Parent Company Statement of Changes in Equity

for the year ended 31 December 2012

 

 


Parent Company




Capital

Share-based




Share

Share

redemption

payments

Retained



Capital

premium

reserve

reserve

earnings

Total


£000

£000

£000

£000

£000

£000








Balance at

1 January 2011

24,740

13,523

575

472

(17,303)

22,007








IFRS 2 share option charge

-

-

-

317

-

317

Transactions with owners

-

-

-

317

-

317

Total comprehensive loss

-

-

-

-

(4,965)

(4,965)








Balance at

31 December 2011

24,740

13,523

575

789

(22,268)

17,359








Issue of shares

6,048

246

-

-

-

6,294

IFRS 2 share option charge

-

-

-

143

-

143

Transactions with owners

6,048

246

-

143

-

6,437

Total comprehensive loss

-

-

-

-

(6,851)

(6,851)








Balance at

31 December 2012

30,788

13,769

575

932

(29,119)

16,945

 

 

 

Consolidated and Parent Company Statement of Cash Flows

for the year ended 31 December 2012



Group

Parent Company



2012

2011

2012

2011


Note

£000

£000

£000

£000

Operating activities






Loss before income tax


(6,094)

(5,670)

(7,940)

(5,665)

Adjustments for:






Depreciation


478

24

418

24

Amortisation


605

-

-

-

Finance income


(180)

(242)

(180)

(242)

Share-based payment expense


143

317

143

317

Increase in impairment on loan to the EBT

14

-

-

52

-

Decrease in inventories


95

-

-

-

Decrease/(increase) in trade and other receivables


2,455

(779)

502

(779)

(Decrease)/increase in trade and other payables


(2,303)

523

277

524



(4,801)

(5,827)

(6,728)

(5,821)

Income tax received


731

710

731

710

Net cash used in operating activities


(4,070)

(5,117)

(5,997)

(5,111)







Investing activities






Interest received


180

242

180

242

Purchase of property, plant and equipment


(175)

(1,554)

(150)

(1,554)

Acquisition of subsidiary undertakings

5

(10,910)

-

(10,910)

-

Net cash used in investing activities


(10,905)

(1,312)

(10,880)

(1,312)







Financing activities






Proceeds from issue of shares

24

6,350

-

6,350

-

Expenses of issue of shares

24

(56)

-

(56)

-

Net cash from financing activities


6,294

-

6,294

-







Net decrease in cash equivalents


(8,681)

(6,429)

(10,583)

(6,423)







Cash and cash equivalents at beginning of year


15,332

21,761

15,297

21,720







Cash and cash equivalents at end of year


6,651

15,332

4,714

15,297

 

 

 

Notes to the Preliminary Announcement

1          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.

2          Going concern

The Directors are satisfied that the Group 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.  The forecasts take into account the Group's existing cash resources, and include consideration of certain downside scenarios, in particular in relation to CET where there is inherently greater uncertainty as to the future cashflows of that business.  The Directors have also considered the mitigating actions available to them, including the ability of management to make certain reductions to the Group's discretionary expenditure if required.

3              Segmental Reporting

Business segments

For management purposes, the Group is treated as three business units comprising:

· Corac Energy Technologies - activities include the continued innovation, research & development and partner testing and proof of its core technology in order to lead to the commercialisation of technology applications.

· Atmosphere Control International - activities include the provision of air purification equipment for submarines including oxygen/hydrogen generation and purification, air handling and distribution systems.

· Hunt Graham - activities include the manufacture of heat exchange equipment used in the heating and cooling of large scale industrial processes.

Group Central Team - team costs incurred to support the businesses are charged out to the operating companies leaving central unallocated costs that relate to specifically by the Corac Group Plc operations.

The following table presents group revenue, profit and certain net asset information for each business segment.

 

 

 


2012

2011


£'000

£'000

Revenue


Corac Energy Technologies

220

322

Atmosphere Control International

7,496

-

Hunt Graham

7,583

-

Group

15,299

322




Segment Operating Result



Corac Energy Technologies

(5,082)

(4,207)

Atmosphere Control International

1,053

-

Hunt Graham

578

-

Central unallocated costs4

(2,823)

(1,705)

Group

(6,274)

(5,912)




Loss from operations

(6,274)

(5,912)

Finance Income

180

242

Loss before income tax

(6,094)

(5,670)

Income tax credit

870

700

Loss after tax

(5,224)

(4,970)




Segment net assets / (liabilities)



Corac Energy Technologies

6,112

17,147

Atmosphere Control International

10,254

-

Hunt Graham

2,244

-

Group

18,610

17,147

Other liabilities

(280)

-

Cash

30

-

Total net assets

18,360

17,147




Geographical segments

The Group's operations are solely in the United Kingdom although some 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:

Geographical analysis - revenue



United Kingdom

12,541

-

Rest of European Union

857

63

North America

10

229

Asia

1,073

-

Middle East

642

-

Rest of the World

176

30




Total revenue

15,299

322

       



 

 


Corac Energy Technologies

Atmosphere Control International

Hunt Graham

Central unallocated costs

Group


£'000

£'000

£'000

£'000

£'000







2012






Segment operating result

(5,082)

1,053

578

(2,823)

(6,274)

Depreciation and amortisation

418

600

65

-

1,083

EBITDA1

(4,664)

1,653

643

(2,823)

(5,191)

Share based payments

-

-

-

143

143

Exceptional items

-

-

-

980

980

Adjusted EBITDA3

(4,664)

1,653

643

(1,700)

(4,068)







2011






Segment operating result

(4,207)

-

-

(1,705)

(5,912)

Depreciation and amortisation

24

-

-

-

24

EBITDA1

(4,183)

-

-

(1,705)

(5,888)

Share based payments

-

-

-

317

317

Exceptional items

-

-

-

332

332

Adjusted EBITDA3

(4,183)

-

-

(1,056)

(5,239)

 

 

1 EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment and amortisation of acquired intangible assets.

3 Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment, amortisation of acquired intangible assets and any other acquisition related charges, share based payment charges and exceptional items. Exceptional items are those items believed to be exceptional in nature by virtue of their size and or incidence, and in the current period comprise costs associated with the acquisitions of ACI and HG on 5 April 2012 and the associated equity fundraising on 2 April 2012.

4 Central unallocated costs include exceptional items of £980,000 associated with the due diligence, advisor and broker fees relating to the acquisition of Atmosphere Control International Limited and Hunt Graham Limited (2011: £332,000).

 


4              Operating Loss

 

The Group operating loss for the year is stated after charging the following:

 

 


Group


2012

2011


£000

£000

Staff costs



Wages and salaries

6,241

2,862

Social security costs

718

300

Other pension costs

326

143





7,285

3,305




Amortisation of intangible assets

605

-

Depreciation of property, plant & equipment

478

24

Operating lease expense - rent

611

234

Loss on foreign exchange

50

3

Exceptional items: costs associated with the Wellman acquisition

980

332

Auditor's remuneration



Audit fees



Fees payable for the audit  of the Parent Company

and consolidated financial statements

53

26

Non-audit fees



Fees payable for statutory and regulatory services

10

5

Corporate finance services

95

189

Tax services

25

25

Total auditor remuneration

184

245

 

Included in wages and salaries is a total expense of share-based payments of £143,000 (2011: £317,000), all of which arises from transactions accounted for as equity-settled share-based payment transactions.

Exceptional items relate to costs associated with the due diligence, advisor and broker fees relating to the acquisition of Atmosphere Control International Limited and Hunt Graham Limited as detailed in the Chief Financial Officer's Report.

Staff numbers

 

The average number of employees, including Directors, employed by the Group during the year and including employees of Atmosphere Control International Limited and Hunt Graham Limited from 5 April 2012, was as follows:

 


Group


2012

2011


Number

Number




Engineering

87

28

Business Development

17

2

Administration

27

10





131

40

 

Pension costs

The Group operates a money purchase pension scheme and a group stakeholder pension scheme.  The assets of these schemes are held separately from those of the Group in separately administered funds.  The pension cost charge represents contributions payable by the Group to these funds and amounted to £326,000 (2011: £143,000).  No contributions were prepaid or overdue at 31 December 2012. (2011: £nil).  The nature of the Group's schemes is such that there is no possibility of a surplus or deficiency in funding arising from past service.

 

 

5              Taxation

 

Credit to consolidated income statement


Group


2012

2011


£000

£000

Corporation tax - R&D credit



Current year

700

700

Prior year under provision

31

-





731

700

Deferred tax

139

-





870

700

 

 

The tax credit for the period is lower than the standard rate of corporation tax in the UK of 24.5% (2011: 26.5%).  The differences are explained as follows:


Group


2012

2011


£000

£000




Loss on ordinary activities before taxation

6,094

5,670




Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 24.5% (2011: 26.5%)

 

1,493

 

1,501




Effect of:



Expenses not deductible for tax purposes

(317)

(109)

Depreciation in excess of capital allowances

(67)

9

Share -based payments

(35)

(84)

R&D enhanced relief

714

716

Surrender of tax losses for R&D credit

(728)

(780)

Trading losses carried forward

(501)

(555)

Utilisation of losses brought forward

135

-

Other short term timing differences

6

2

Deferred taxation

139

-

Adjustment in respect of prior years

31

-




Tax credit for the year

870

700

 

At the balance sheet date the Group has approximately £15.1m (2011: £11.0m) of unrelieved tax losses for offset against future taxable profit.  A deferred tax asset of £0.1m has been recognised in respect of £0.5m (2011: £nil) of such losses (see note 18).  No deferred tax asset has been recognised in respect of the remaining £14.6m (2011: £11.0m) as it is not considered probable that there will be future taxable profits available.

 

6              Loss per Share

The calculation of basic loss per share for the year ended 31 December 2012 is based upon a loss after tax of £5,224,000 (2011: £4,970,000) and a weighted average number of shares of 291,007,168 (2011: 245,897,878).  The weighted average number of shares has been reduced by the weighted average number of shares held by the Employee Benefit Trust.

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.

7              Cash and Cash Equivalents

 


Group

Parent Company


2012

2011

2012

2011


£000

£000

£000

£000






Cash and cash equivalents

6,651

15,332

4,714

15,297

The funds were placed on deposit as follows:

 



Group

Parent Company


Interest

Rate type

2012

2011

2012

2011


£000

£000

£000

£000







Cash at bank and in hand

Floating

6,651

4,832

4,714

4,797

Short term deposits

Fixed

-

10,500

-

10,500









6,651

15,332

4,714

15,297

 

 

Notice of Annual General Meeting

The Annual General Meeting of Corac Group plc will be held at 10.30am on 16 May 2013 at Abbotts House, Abbey Street, Reading RG1 3BD.

 

END