Interim Results to June 2008

Corac Group plc announces its interim results for the six months ended 30 June 2008.  

Operational Highlights 

Downhole Gas Compressor ('DGC')

  • Implementation of DGC technology and field trial progresses - flow loop testing demonstrates performance, capability and reduced risks associated with deployment; JIP partners satisfied with field trial results to date

  • Eni SpA field trial order win

  • Increasing interest from other gas majors as DGC becomes better known in industry 

Industrial Air

  • Further compressor units with customers for evaluation

  • Pre-production Industrial Air units operating in Taiwan, China and Austria

  • Corac's units 20% more energy efficient than competitors' products

Financial Highlights

  • Loss after tax £1.28m reflecting increased investment in R & D in line with managements' expectations

  • Strong support from existing and new institutional shareholders raised £4.4m (net) in December 2007 placing

  • Cash available £4.1m (£3.6m cash, £0.5m R & D tax credit) 

Commenting on the future, Chairman, Gerry Musgrave, said:

"It is pleasing to report six months of solid progress since our year end results.  Operationally we have made great headway, announcing the first order for our downhole gas compressor in June and have seen considerable interest from other gas majors as our technology becomes increasingly known in the industry.

Corac now has pre-production Industrial Air units operating in factories in Taiwan, China and Austria and anticipates further orders in due course. In the current climate the power savings that our units provide become ever more significant to our end users and demonstrate the importance of green credentials now required by companies.  

The economic case for DGC deployment in gas fields is compelling. Recent energy price increases strengthens this case.   We remain focussed on delivering a successful field trial and being in an excellent position to address the increasing market opportunities."

Chairman's Statement

Introduction

It is pleasing to report a further six months of solid progress since our year end results.

Operationally we have made great headway and, as the implementation of our Downhole Gas Compression (DGC) programme progresses, we have considerably enhanced our team at Corac, particularly in the power electronics field.  

We are pleased to welcome Philip Newell as our first full-time Finance Director who brings extensive financial and commercial experience gained in international groups and smaller high growth technology companies. 

We have also appointed Siân Westerman, Managing Director in the Investment Banking Division of NM Rothschild & Sons Limited as a Non-Executive Director to the Board. Siân's wise counsel and experience with corporates will be an invaluable support to our growing business as we address a marketplace dominated by large players.

Operational Highlights

Downhole Gas Compression (DGC)

In June we were very pleased to announce the first order for our downhole gas compressor.  

ENI SpA, a Joint Industry Programme (JIP) partner, placed an order for the field trial unit to be deployed in its assets in Southern Italy. It had been expected that the first field trial would be for Repsol YPF, another JIP partner, in Argentina. However it became clear in the first quarter of this year that politics in the region would prevent this. Repsol is now looking for other sites for its field trial. This change, and the bringing forward of ENI's plans, has required re-design of the DGC for the specific conditions in the Italian gas field and hence we are aiming for deployment in the first quarter of 2009.

Our other JIP partner, Conoco Phillips (UK) Ltd. continues to actively support the Programme.

There is increasing interest in the DGC from other gas majors as it becomes better known in the industry. By placing a compressor near the mouth of a well, as opposed to on a rig at the surface, extra artificial lift can be obtained from a flowing well to give enhanced recovery over a shorter period of time and deployment towards the end of the life of a well can give up to five years of additional positive production. 

Since January 2007 the DGC has been subjected to extensive trials in simulated downhole conditions in a flow loop test rig at Spadeadam in Cumbria. The tests have proved very encouraging with all three JIP partners being satisfied with progress for the development and operation of the DGC and with results of tests to date. 

One of the world's leading service companies shares our vision of the potential of DGC and is working closely with us and ENI to ensure success. This will considerably benefit the detailed and complicated deployment of the DCG and help to ensure that the most appropriate and reliable ancillary equipment is used. The remaining two JIP partners will continue to be active members of the Consortium and will be involved in studying the field trial results for their own deployments.

Industrial Air

Corac now has pre-production Industrial Air units operating in factories in Taiwan, China and Austria. We anticipate further orders in due course as a result of our partners' continuing marketing efforts. Meanwhile work continues to further improve the unit's efficiency and to reduce manufacturing costs. Our units have approximately 20% greater energy efficiency than those of our competitors which will provide significant power savings and also assist in demonstrating potential green values for our end users.

Financials

The Board has decided to adopt International Financial Reporting Standards (IFRS) which has resulted in a requirement to restate last year's figures on an IFRS basis.

The six months to 30 June 2008 show a loss after tax of £1,280,000 (six months to 30 June 2007 - loss of £725,000). This is a consequence of the ongoing significant investment in our technology and business to fully develop the DCG and take it to market.  

The number of shares in issue as at 30 June 2008 was 86,549,322.

Summary

We have been very encouraged by the positive feedback that we have received from our customers following the factory deployment of pre-production Industrial Air units and expect further orders in due course.

The Company believes that the economic case for gas operating companies to deploy Corac's DGC machines is compelling, particularly given the recent unprecedented growth in turnover and profits seen in the gas industry.

Our preparations for the field trial are helping us to increase our practical knowledge and experience of deployment in the field and to strengthen our valuable operational relationships with suppliers and service providers.  This should provide us with procedures for the future roll out of the DGC.  We believe that the DGC field trial will increase our credibility and profile within the gas industry and should encourage early additional deployments.  

In the short term we remain focused on ensuring that the DGC field trial progresses smoothly. 

Professor G. Musgrave
Executive Chairman

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