Corac's Preliminary Results for the Year Ended December 2008
RNS Number : 0212R
Corac Group Plc
23 April 2009
Corac Group plc (‘Corac’), the intellectual property, engineering and licensing group, specialising in compressor technology, announces its preliminary results for the year ended 31 December 2008.
Operational Highlights
Downhole Gas Compressor (‘DGC’)
• DGC modules subjected to continuing extensive trials in Cumbria
• Eni committed to first field trial unit in Southern Italy
• Field trial targeted for Q4 2009 following a delay relating to safety equipment, now resolved
• Joint Development relationship with Baker Hughes to assist with deployment and marketing of DGC
• Growing interest from other gas majors in DGC technology
Industrial Air
• Pre-production units operating in Taiwan, China and Austria are performing well
• Four pre-production units ordered in December 2008
Financial Highlights
• Loss after tax £3.0m reflecting reduced revenues from delay in field trial
• R&D costs in line with management’s expectations
• Cash at bank of £2.6m at 31 December 2008
• Continued support from shareholders with £1m (net) raised from a Placing in February 2009
Commenting on the future, Chairman, Gerry Musgrave, said:
“I am pleased to report further solid progress during 2008, as the Company has continued to develop its compressor technology in close collaboration with its partners. Our industrial air units have now completed several thousand hours of operation in factories in China, Taiwan and Austria.
Our unique downhole gas compressors have been undergoing severe testing throughout the year at our Spadeadam facility in Cumbria as we look forward to deployment of these units in field trials.
For further information:
Professor Gerry Musgrave
Corac Group plc Tel: 01895 813463
Ivonne Cantu/Camilla Hume – Corporate Finance
Christian Hobart - Sales
Cenkos Securities plc Tel: 020 7397 8900
Richard Darby/Ben Romney
Buchanan Communications Ltd Tel: 020 7466 5000
NOTES TO EDITORS
Corac is an intellectual property, engineering and licensing group which holds many patents. It focuses on high speed electrical direct drive turbo machinery based on its unique expertise in gas bearings. Corac has created an innovative ‘no oil’ turbo compressor together with a unique gas seal, and is part of a joint industry programme for the downhole gas extraction industry.
Further information on Corac is available on the internet at www.corac.co.uk
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report further good progress during 2008, as the Company has continued to develop its compressor technology in close collaboration with its partners. Our industrial air units have now completed several thousand hours of operation in factories in China, Taiwan and Austria. Our unique downhole gas compressors (DGC) have been undergoing severe testing throughout the year at our Spadeadam facility in Cumbria as we look forward to deployment of these units in field trials.
Financial Review
The Board has adopted International Financial Reporting Standards (IFRS) which has resulted in the previous year’s figures being restated on an IFRS basis.
The financial results for the year ended 31 December 2008 show a loss after tax of £2.97 million (2007: £1.74 million). The increased loss was largely due to the delay associated with our field trial with Eni SpA (‘Eni’), a Joint Industry Programme (‘JIP’) partner, as reported in December 2008.
Following the year end, we considered it appropriate to raise £1 million net of expenses through a placing of 7.6 million shares at the then market price of 13.05 pence per Ordinary Share to strengthen the balance sheet and provide additional working capital. The Board believes that the additional financial resource together with our cash reserves of £2.6 million at 31 December 2008, will reduce the risk arising from the delay in the deployment of the DGC to field trial and strengthen our ability to fulfil further orders for turbo boosting machines from industrial air customers.
We anticipate that our cash reserves are sufficient for the Company’s development through to the end of 2010, when we would expect further DGC opportunities and orders from our other partners to have been realised.
At 31 December 2008, there were 86,549,322 ordinary shares of 10p each in issue, and pursuant to the placing in February 2009, there were 94,212,157 ordinary shares of 10p each in issue.
Operational Highlights
Since January 2007, the DGC modules have been subjected to extensive trials in simulated downhole conditions in a flow loop test rig in Cumbria. Tests for reliability and performance targets with our three JIP partners continue to be very encouraging.
In June 2008, Eni committed to the first field trial DGC unit to be deployed in one of their gas wells in Southern Italy. The delay in the field trial relating to additional safety equipment being supplied by third parties has now been resolved and we are working with partners towards deployment of the DGC. This will, of course, be the first time technology of this kind has been implemented in a gas well and there are inevitable hurdles to be overcome on an innovative project of this size. Our JIP partners continue to be supportive and, whilst general gas prices are lower in the short term, opportunities still abound for our technology in global energy supply and in realising strategic reserves that are otherwise considered depleted. The long term trend in gas prices is generally upwards and this only serves to increase the importance of our ability to recover more gas from reservoirs. Even with the very recent low gas prices, the business case for deployment of the DGC is excellent.
The Joint Development relationship with Baker Hughes in October 2008 came at a significant time in the DGC’s development. Baker Hughes’ experience of oil field operations and equipment has many parallels with gas extraction and their expertise in bespoke equipment, deployment and cabling is now being embedded into Corac’s technology. Baker Hughes will also be key in our future marketing strategy and field support activities.
As a result of our association with Baker Hughes and because of their established presence in the oil and gas environment, further opportunities are maturing for our technology. There is considerable interest from other gas majors in the DGC as our technology and engineering resource achieves greater recognition from our enhanced exposure through Baker Hughes and from a realisation that our ability to offer leading edge solutions for artificial gas lift is unique.
Our industrial air machines continue to perform well. Leobersdorfer Maschinenfabrik GmbH & Co. KG (‘LMF’) has trialled our industrial air units for the last two years and more recently a machine has been operating in a major international food and beverage company. As a result of these successful trials, LMF placed an order for a further four pre-production industrial air machines in December 2008 for the purposes of supercharging LMF’s piston compressors used in high pressure applications.
The Joint Development Agreement with Fu Sheng is progressing with two turbo boosting machines operating and continuing to provide 18% efficiency gains against equivalent competitive systems. Further orders are anticipated for 2009. The overall efficiency improvement in our industrial machines indicates that in energy consumption alone, users can recover their initial costs within one year.
In December, we received a cash lump sum in lieu of royalties on our patented high pressure gas seals. In February 2007, we had announced an agreement to transfer our Intellectual Property Rights on our gas seals to AESSEAL plc, who would continue the engineering development, manufacture and sale of the product. The proceeds from this transaction have been used on our DGC and industrial air products.
Board Changes
Philip Newell was appointed to the Board in March 2008 as a full time Finance Director and Company Secretary replacing Tom Ivings, who stepped down as part time Finance Director. Sian Westerman was appointed to the Board in July 2008 as Non-Executive Director. Gerd Cromm retired from the Board in December 2008, but remains as a part-time consultant, with Corac retaining the benefit of his experience and contacts within the compressor industry. John Gunn, Non-Executive Director stepped down from the Board in December 2008. I take this opportunity of thanking John for his significant contribution to the development of the Company since his appointment in July 2000.
Summary
We continue to be encouraged by the positive feedback that we receive from our customers regarding deployment of our Industrial Air units. Improvements in efficiency and energy savings are placing us in an excellent position commercially and the gas recovery capability of the DGC makes Corac a world leader to succeed and grow in the current economic environment. We have confidence in our products and our engineers to meet the needs of the market in the future.
Professor G Musgrave
Executive Chairman
22 April 2009
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