Preliminary Results for the Year Ended 31 December 2007

RNS Number:2493O
Corac Group Plc
19 February 2008 
  
Corac Group plc, the intellectual property, engineering and licensing group specialising in compressor technology, announces its preliminary results for the year ended 31 December 2007 demonstrating continued success in the commercialisation of its technology. 

Operational Highlights


Downhole Gas Compressor ('DGC') 

  • DGC unit subjected to rigorous testing throughout the year.
  • Progression of DGC prototype through flow loop testing, demonstrating  performance, capability and reducing risks associated with deployment.
  • JIP partners witnessed DGC module operational in October 2007. The tests were representative of requirements for field trial units.
  • Field trials planned with two JIP partners in Argentina and Italy later this year. 

Industrial Air

  • LMF and Fu Sheng satisfied with demonstrators supplied in 2007.
  • Pre-production units being supplied, one of which is being used in a major international soft drinks company's facility.
  • Engaged with LMF and Fu Sheng to increase scope of machines as well as reduce the build cost through volume manufacturing.

Financial Highlights

  • Loss after tax increased to £1.7m (2006: £1.4m), caused by acceleration  in the development of the DGC, is in line with management expectations
  • Strong support from existing and new institutional shareholders raised  £4.4m (net) in December 2007 placing
  • Cash at bank at 31 December 2007 was £5.2m (2006: £3.5m). 

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

"Our Industrial Air products are opening up market opportunities as our pre-production units are being used in end user process industries. Prospects for our Downhole Gas Compressor are exciting: as energy prices continue to escalate and gas resources diminish, the economic need and strategic value for the global energy market to lift stranded gas from depleting wells is considerable. With deployment of our novel technology scheduled for 2008, we look forward to the year ahead with confidence and enthusiasm." 

For further information:
 
Professor Gerry Musgrave, Executive Chairman
Thomas Ivings, Finance Director
Corac Group plc                                                  01895 813463
 
Richard Darby, Suzanne Brocks, Ben Romney
Buchanan Communications                                   020 7466 5000 

Executive Chairman's statement


Introduction

I am pleased to report further solid progress on all fronts. The development and operation of our unique Downhole Gas Compressor ("DGC") moves forward at a pace as we approach procurement, which is due to start in the first quarter of 2008. Our industrial air products are gaining traction in the market, with pre- production units being supplied to our business partners and one of these units is being used in a final end user process industry. Positive progress in these key elements of the business culminated in an oversubscribed institutional placing in December 2007.

Financial Review

The financial results for the year ended 31 December 2007 show a loss after tax of £1.7 million (2006: £1.4 million). The increased loss is largely caused by the acceleration in the development of the DGC and is in line with management expectations. Turnover for the year under review was £1.4 million (2006: £1.6 million) and the Company also received £0.12 million (2006: £0.024 million) of grant income. At 31 December 2007, the number of ordinary shares in issue was 86,254,059 after a placing in December 2007 of 11,222,160 new ordinary shares at 42 pence per ordinary share, raising approximately £4.4 million (net of expenses). Cash balances at 31 December 2007 were £5.25 million. In line with our strategic plan to develop and commercialise the DGC technology, and following comprehensive flow-loop testing of this technology, the Board considered it appropriate to raise further equity capital to strengthen the balance sheet and, among other things: 

  • facilitate acceleration of the development of the DGC technology.
  • finance a separate final assembly and test facility when required
  • provide additional working capital.
  • enable the Board to strengthen the management team.
  • further protect the Company's intellectual property rights by extending  its patent portfolio. 

The result of raising further equity and the concomitant reduction in our risk profile has placed us in a stronger position in our negotiations with potential customers for our industrial air turbo boosting compressors as well as expanding our market presence in this sector. It is particularly pleasing that we received such strong support for the placing from existing and new institutional shareholders in the current market environment.

Downhole Gas Compression

We have undertaken exhaustive tests at Spadeadam, Cumbria throughout the year, subjecting the DGC unit to extreme conditions of high temperature, pressure and water ingress. The Cumbrian test rig, commissioned in 2006, replicates the environment of the downhole well and is able to accommodate our five compressors in a string. Progressive testing has provided valuable results with design modifications being made in line with a planned testing programme. Simulating typical downhole conditions of high temperature and high pressure, the modules have been operated at 55kW and 45,000 rpm. In October 2007, our JIP partners Conoco Phillips (UK) Ltd, Eni SpA and Repsol YPF, witnessed the DGC module running at constant speeds as well as repeated starting and stopping. The tests were representative of requirements for our field trial units.  More recently, we have determined the capabilities required of the machine in this environment and rigorous testing procedures continue to minimise the risks of potential failure.
 
Progression of the DGC prototype through flow loop testing has been an important and significant milestone for the project, demonstrating performance, capability and progress in 2007, as well as reducing the risks associated with deployment in gas producing fields.
 
We are heavily engaged with two of our JIP partners in planning the field trials that will take place in Argentina and Italy later this year. Both partners are spending considerable resource in building up their teams and performing analysis with us to ensure the right specification for deployment in these wells and they have also sought to ensure that they have the appropriate budgets to acquire the machines and deploy them. As the units will be operating in producing wells, our partners have to be confident as installation will initially interrupt the gas flow. When the units are deployed in a gas well, it is expected that the artificial lift of gas could improve flow rates by 30% to 40%.
 
As there are similarities between DGC and the deployment of Electric Submersible Pumps (ESPs), a major oil service company has been working with us to assist our JIP partners in understanding the engineering requirements. As the cost of energy continues to rise, it is becoming increasingly attractive to deploy our unique patented DGC for artificially lifting stranded gas from gas wells. A leading industrialist recently commented that the world has 5,000 trillion cubic feet of proven stranded gas reserves seeking markets and customers. The DGC's potential, therefore, to make a major contribution to the world energy market is beginning to be recognised by industry and governments
internationally.  

Industrial Air

Our two business partners in the industrial air sector, Leobersdorfer Maschinenfabrik ("LMF") and Fu Sheng, have been satisfied with our demonstrators supplied in 2007 and we are now supplying pre-production units, one of which is being used in a major international soft drinks company's  facility. In both applications our 'turbo boosting' improves our partners' traditional compressors whilst delivering much more efficient compressed air. Efficiency improvement from our hybrid machines is approximately 20% compared to the very best dry screw compressor produced today. Such an improvement from a compressor delivering between 100 kW and 300 kW working 24/7 represents a considerable saving in electricity costs as well as being less damaging to the environment. We are now engaged with LMF and Fu Sheng to increase the scope of our machines, as well as work alongside them to achieve a reduction in the cost of construction. Further cost reduction through volume manufacturing together with operating efficiency improvement and low maintenance characteristics makes our industrial air unit extremely cost effective. We have researched and analysed suitable locations for final assembly and test and are investigating local area redevelopment grants to subsidise our development. The process of securing a facility will start when orders reach an appropriate threshold that cannot be realised via our existing facility.  

The future

Our Industrial Air products are opening up market opportunities as our pre-production units are being used in end user process industries. Prospects for our Downhole Gas Compressor are exciting: as energy prices continue to escalate and gas resources diminish, the economic need and strategic value for the global energy market to lift stranded gas from depleting wells is considerable. With deployment of our novel technology scheduled for 2008, we look forward to the year ahead with confidence and enthusiasm. 
 
PROFESSOR G MUSGRAVE
EXECUTIVE CHAIRMAN
18th February 2008 
 

Click to view the full financial statement in pdf format.

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