1st Mar 2005 07:02
KBC Advanced Technologies plc01 March 2005 Embargoed until 07.00 Tuesday, 1 March 2005 KBC Advanced Technologies plc ("KBC") Preliminary results for the year ended 31 December 2004 12 months to 12 months to 31 December 31 December 2004 2003Turnover £29.3m £32.3mOperating (loss)/profit* (£1.1m) £0.7mLoss before tax (£0.5m) (£2.0m)Basic loss per share (1.76p) (3.19p)* before goodwill amortisation and exceptional item Highlights •Successful resolution of software litigation •Launch of new service offerings and software products •Positive economic environment for our customers •Final dividend payment prudently withheld •Positioned for growth in 2005 Commenting on the results, Christopher Powell-Smith, Chairman of KBC said: "Inthe current market environment, and with the software difficulties behind us,KBC is looking forward to a period of growth and increasing profitability. Itwill always be the case, however, that the timing of major projects will have amaterial impact on our performance. In many parts of the world forecasting thetiming of these projects may continue to be difficult. Turning to the immediate prospects for 2005, we expect to grow our revenues inthe first half of the year such that we will return to profitability in thesecond quarter and move towards a break even position overall at the operatinglevel for the first half year. The continuation of this growth in the secondhalf of the year should enable us to deliver an operating profit for the year inline with current market expectations. We already have contracted revenues forclose to half of this target and, although sales have yet to be confirmed forthe balance, we are confident that sufficient opportunities exist in the currentclimate." - Ends - For further information, please contact: KBC Advanced Technologies plc www.kbcat.comPeter Close, Chief Executive On 1 March: 020 7067 0700; thereafter: 01932 236314Nick Stone, Finance Director Weber Shandwick Square MileMike Kirk/Rachel Taylor/Yvonne Alexander 020 7067 0700 Notes to Editors: KBC Advanced Technologies plc is the leading independentprocess engineering group delivering improved profitability through consultingservices and practical solutions to owners and operators of oil refineries andother clients in the process industries worldwide. KBC analyses plant operationsand management systems, recommends changes that deliver material and measurableimprovements in profitability and provides implementation services to assistclients in realising measurable financial improvements. KBC also forecasts crudeand petroleum products prices, and offers economic and pricing studies focusedon the future outlook for the oil industry. KBC works with its clients both toimplement its recommendations and to realise and monitor the resultingimprovements in profits on a continuing basis. In carrying out this work itsconsultants make extensive use of the process simulation software tools whichKBC has developed. Embargoed until 07.00 Tuesday, 1 March 2005 KBC Advanced Technologies plc ("KBC", "the Group" or "the Company") Preliminary results for the year ended 31 December 2004 2004 was a year of transition for KBC. Our focus has been on building a stableplatform for the resumption of revenue growth and profitability in 2005. As wesaid in our trading statement in October 2004, two key events were required inorder for this to happen: firstly, the resolution of the software litigationand, secondly, the launch of our new service offerings and software products. Iam pleased that we succeeded in achieving both of these goals during the secondhalf of 2004 and we review these in more detail later. Given the long lead times in our sales process, there was always going to be alag effect on our trading performance in 2004 as we focused on achieving thesegoals which were essential to re-position the business for growth in 2005 andbeyond. As we move into 2005, we are now well-placed to concentrate on ensuringthat the goals of revenue and profit growth are achieved. The economic environment for our customers has improved over the year with highdemand for oil products leading to high refining margins throughout the world.The refining sector of the oil industry is traditionally cautious on committingto new spending plans, and in many cases this has had to await approval as partof the 2005 budget cycle. However, we are now seeing real demand from refinerswho are committing to increased spending in 2005 in the confidence that theeconomic environment will be sustained in the medium term, thereby justifyinginvestment. Results Turnover was down year on year by 9% from £32.3m to £29.3m. Prior to exceptionaloperating income and charges, and goodwill amortisation, the operating loss of£1.1m compares with a profit of £0.7m in 2003, a fall of £1.8m. These resultshave been materially impacted by the decrease in the sterling value of US dollarrevenues which accounted for 71% of KBC's overall revenues (2003: 84%). Atconstant exchange rates, the reduction in revenues would have been 4%. After exceptional operating income, goodwill amortisation and interest earningsthe Group realised a loss before tax of £0.5m (2003: £2.0m). Basic loss pershare was 1.76p (2003: 3.19p), with loss per share before exceptional operatingincome and goodwill falling from earnings of 1.37p in 2003 to a loss of 2.08p in2004. We stated in our 2004 interim statement that we would be relating dividendpayments more closely to the underlying earnings of the business. In the lightof the financial performance of the Group over the period, the Board is notproposing to recommend a final dividend for 2004. The total dividend for theyear will therefore amount to 0.2p per share, which was paid as an interimdividend in October 2004. The Board is looking forward to resuming dividends in2005 as the expected recovery in earnings and cash resources is delivered. Software dispute During 2004 we made substantial progress in our software business. Through thearbitration process we obtained the source code for HYSYS.Refinery in May 2004, with costs awarded in KBC's favour. In October 2004 we announced the settlement with Aspen Technology Inc ("Aspen")of all legal disputes. As part of the settlement Aspen recognised KBC's right todevelop, market and license HYSYS.Refinery, and KBC recognised Aspen's right todevelop, market and license Aspen RefSYS. In addition, Aspen has licensed to KBCthe Aspen HYSYS(TM), Aspen PIMS(TM) and Aspen Orion(TM) software for use as part ofits consulting services business. KBC has also been paid $3.75 million inrespect of costs incurred in the dispute. Since gaining the rights to HYSYS.Refinery we have rebranded the product asPetro-SIM(TM) and the first release was in November 2004. It has been wellreceived by the market and a team of developers continues to work on theproduct. We anticipate being able to announce the first commercial licenses inearly 2005. Board changes There have been several Board changes during 2004, starting at the time of the2003 results announcement with the appointment of Christopher Powell-Smith asChairman and the appointment of George Bright as a new Executive Director. Wewere delighted to welcome to the Board in October 2004 Ian Miller and MichaelKirk as new Non-Executive Directors and look forward to the benefit of theirskills and experience. In December 2004 Stephen Pettit stood down from the Boardafter six years of service in order to concentrate on his other commitments.Finally, we also announced during the year that Peter Plant will stand down atthe AGM in 2005 after more than 11 years' service. I would like to thank bothStephen and Peter for their valuable contributions to KBC during their time asDirectors. In particular Peter's long experience of KBC's business has been ofgreat value during the recent trading difficulties. We shall miss theparticipation of both of them at Board discussions. REVIEW OF OPERATIONS Business repositioning The Group continues to pursue its strategy of building long-term clientrelationships and diversifying its range of consultancy services. With therelease of Petro-SIM in November KBC was once again at the forefront of theprovision of simulation software for refinery-wide optimisation. Petro-SIM isthe platform on which we are building the ProfitManager(TM) suite of applications.These applications enable KBC to provide clients with the work processes toensure that best practice can deliver improvements in refining operatingmargins. With our new Strategic and Commercial Advisory Service we have securedconsulting assignments for asset evaluation and due diligence work throughclients in the banking and investment communities. In turn, this has createdadditional opportunities for our process technical and profit improvementbusiness. Long-term relationships with our clients continue to be thecornerstone of our business and we are seeing the success of this in bothReliability & Maintenance and Operations Planning Services. Account managementhas been emphasised and strengthened as the key aspect of building the breadthand depth of our client relationships. Consulting activities Although the order book for our traditional Process Consulting activity remainedunder pressure throughout 2004, business prospects strengthened during the finalquarter. We expect that the revitalised approach to providing our skill andexpertise through ProfitManager and through long term service contracts ratherthan one-off consulting projects will ensure that Process Consulting remains thecore of KBC's business. We are seeing a heightened level of interest in allregions as a result of the tight supply position of refined petroleum productswhich resulted in a shortage of refining capacity for much of 2004. However, itwas most noticeable in Asia, driven by the strong economic growth in both Indiaand China which led to increased demand for refined products. KBC has increasedits resources in Asia with the expansion of our Singapore office to support thegrowth potential as we see an increasing proportion of future revenues beinggenerated from this region. With the change in economic conditions we are seeing a sharp increase in designprojects for refinery upgrades and expansions in order to increase refiningcapacity and processing flexibility. This has started to provide additionalbusiness for us and we have entered into joint projects with establishedengineering contractors. KBC's Profit Improvement Program (PIP) has focused inthe past on generating efficiency improvement without major capital expenditure.This new emphasis by KBC on capital projects is an exciting realignment of ourservices, which helps us respond to the broader demands of our clients. Crude oil prices (Brent) continue to trade in the range of 40-50 US dollars perbarrel, significantly increasing energy costs, thereby placing an increasedemphasis on energy conservation. At the same time, environmental pressure onemissions reduction continues to increase the importance of energy efficiency inthe refining process and we have been able to focus KBC's Energy Servicesproducts in this area. Significant energy conservation projects have beensecured in the US, Singapore and China, and as we enter 2005 we are now seeingincreased interest in Europe. KBC relaunched its services to the Petrochemicals industry during 2004, afterdeveloping commercial and techno-economic databases, with a new core offeringtying together all KBC's profit improvement capabilities. Significant newclients were added, with major projects in Hungary and Thailand executed in2004. Both of these assignments led to continuing business and expandingrelationships. Other material work for petrochemical clients was undertaken inEurope, Asia and the Americas. It is expected that there will be further growthin this area and accelerated development of new simulation tools within Petro-SIM is already underway for this market. KBC's Reliability, Availability & Maintenance (RAM) services continued todevelop in 2004 through extension of existing client relationships combined withengagements in new markets. The shortage of refining capacity accentuates theneed for reliable operations and is fuelling the market for RAM consultingservices. The continuing needs of existing clients, and the potential forsecuring additional business outside the refining industry, will be crucial tothe expected revenue growth in this area in 2005 and beyond. In Planning Services the scope of our project work is demonstrated bythree significant multi-disciplinary projects that we performed in 2004 : completion of a Strategic Investment Study, the continuation of work as a primary services provider for a North American oil company, and the continuation of Linear Program work at multiple refineries for two Latin American national oilcompanies. KBC's Planning Services group advises clients on planning andscheduling work processes and building or upgrading the models which act asdecision support tools. During 2004 efforts were directed at establishing and securing commercialconsulting studies with financial institutions in Europe and in the US throughthe new Strategic and Commercial Advisory Services team. This is a new revenuestream for KBC, with due diligence engagements in both Europe and Asia. Theacquisition of Petroleum Economics in 2002 has enabled KBC to enter this marketand we expect to see this revenue growing as KBC becomes a recognised providerof these services. Software services The dispute with AEA Technology Plc and Aspen having been successfully resolved,the development and initial release of KBC's refinery wide simulation product,Petro-SIM, went ahead in November. Interest in this product from our clients hasbeen extremely high. Orders for the new product were received in 2004 (which wasearlier than expected) and licences should be executed in early 2005. Our consultants are already using Petro-SIM to support their work with good results. In 2004 KBC also released new versions of most of its Profimatics reactor models, in both their standalone form and within Petro-SIM. These models are market leaders in the refining industry and new sales in 2004 helped our software revenues to grow by 7%. The release of Petro-SIM should see further revenue growth in software in 2005. Moreover, it is also an enabler to our consulting services: already in 2005 two North American refiners have entered into advisory service arrangements with KBC which include the provision of Petro-SIM for the duration of the service contract. Sales and marketing Despite record margins in the refining sector the order book remained weakthroughout the year and it was not until November that the market for high valuejobs started to improve. Delays in project start dates also negatively impacted2004 revenues. The North American market proved particularly difficult, although there has beensome success in establishing and maintaining longer term, services basedcontracts in this region. Sales in Central and Latin America were lower than hadbeen expected in 2004. Year-on-year sales performance in the Europe, Middle East and Africa regionsstrengthened, although contract size was significantly lower than our historicalaverage. During the first quarter of 2004 we opened a representative office inMoscow to help secure contracts in the Former Soviet Union. Asia remains a key growth market for KBC and saw sustained performancethroughout the period. Significant projects covering the full range of KBCservices were started in Japan, Korea, China, India and Taiwan. In order toservice this region better, sales and marketing efforts for Asia are now drivenfrom our Singapore and Japanese offices. Throughout the year we have been reinforcing our sales efforts through theconsultant/client relationship. This system of account management is key toestablishing recurring, rateable revenue derived from a services driven businessmodel, rather than KBC's traditional project approach. This transition willcontinue throughout 2005. Outlook for the future The refining industry faces significant challenges to maintain an adequatelyskilled workforce, which impacts all segments of the industry, including thelarge multinational oil companies. This is driving the oil industry to continueto re-assess its core competencies and to look for alternative ways of sourcingthe services which KBC can provide. With many oil companies planning refinery expansions and upgrading projects tomeet more stringent fuel specifications and tighter environmental compliance,there are significant opportunities for KBC to work with both refinery ownersand contracting companies to develop projects which both minimise risk andprovide high return on capital for refinery operators. The use of Petro-SIM asan integral part of capital project evaluation enables KBC to play a moresubstantial role in the development and execution of these projects. Licenserevenues from software and related services look set to increase. Provision ofrelated services and consultancy with the software leads to greater stability and continuity of client relationships, further improves our ability to maximise staff utilisation and provides a stable base of recurring revenues. In the current market environment, and with the software difficulties behind us,KBC is looking forward to a period of growth and increasing profitability. Itwill always be the case, however, that the timing of major projects will have amaterial impact on our performance. In many parts of the world forecasting thetiming of these projects may continue to be difficult. Turning to the immediate prospects for 2005, we expect to grow our revenues inthe first half of the year such that we will return to profitability in thesecond quarter and move towards a break even position overall at the operatinglevel for the first half year. The continuation of this growth in the secondhalf of the year should enable us to deliver an operating profit for the year inline with current market expectations. We already have contracted revenues forclose to half of this target and, although sales have yet to be confirmed forthe balance, we are confident that sufficient opportunities exist in the currentclimate. - Ends - For further information, please contact: KBC Advanced Technologies plc www.kbcat.comPeter Close, Chief Executive On 1 March: 020 7067 0700; thereafter: 01932 236314Nick Stone, Finance Director Weber Shandwick Square MileMike Kirk/Rachel Taylor/Yvonne Alexander 020 7067 0700 GROUP PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2004 Before exceptional income/ (charges) and Exceptional goodwill Income/ Goodwill Total Total amortisation (charges) amortisation 2004 2003 Notes £000 £000 £000 £000 £000________________________________________________________________________________Turnover 29,252 - - 29,252 32,274________________________________________________________________________________Other operating income - 2,083 - 2,083 -Staff costs (15,746) - - (15,746) (17,491)Depreciation and amortisation (806) - (491) (1,297) (1,437)Other operating charges (13,775) (1,111) - (14,886) (15,529)________________________________________________________________________________Operating loss 2 (1,075) 972 (491) (594) (2,183)________________________________________________________________________________Interest receivable 46 - - 46 200________________________________________________________________________________Loss on ordinary activities before taxation (1,029) 972 (491) (548) (1,983)Taxation on loss on ordinary activities 3 62 (330) - (268) 499________________________________________________________________________________Loss on ordinary activities after taxation (967) 642 (491) (816) (1,484)Dividends - equity interests (93) (1,906)________________________________________________________________________________Retained loss for the period (909) (3,390)________________________________________________________________________________Loss per share (pence) - basic 4 (1.76) (3.19)Basic (loss)/earnings per share (pence) before exceptional items and goodwill amortisation 4 (2.08) 1.37________________________________________________________________________________ Group statement of total recognised gains and lossesfor the year ended 31 December 2004 Notes 2004 2003 £000 £000________________________________________________________________________________ Loss attributable to shareholders of the Group (816) (1,484)Exchange difference on retranslation of net assets of subsidiary undertakings (383) (594)________________________________________________________________________________Total recognised losses for the year (1,199) (2,078)Prior year adjustment 5 1,451 - ________________ 252 (2,078) ________________ The cumulative impact of implementing UITF 38 is to reduce shareholders' funds by £685,000 as at 1 January 2003. GROUP BALANCE SHEETat 31 December 2004 Restated (Note 2) 2004 2003 __________________ ________________ £000 £000 £000 £000________________________________________________________________________________Fixed assetsIntangible assets 4,094 4,770Tangible assets 1,809 1,999Investments 2 302________________________________________________________________________________ 5,905 7,071Current assetsDebtors 13,215 12,664Investments 300 300Cash and short term deposits 1,696 4,275________________________________________________________________________________ 15,211 17,239Creditors: amounts falling due within one year (4,120) (4,932)________________________________________________________________________________Net current assets 11,091 12,307________________________________________________________________________________Total assets less current liabilities 16,996 19,378 Creditors: amounts falling due after one year - (300) Provision for liabilities and charges (390) (1,180)________________________________________________________________________________ 16,606 17,898________________________________________________________________________________ Capital and reservesCalled-up share capital 1,202 1,202Share premium account 6,038 6,038Capital redemption reserve 79 79Merger reserve 147 147Reserve for own shares (2,136) (2,136)Profit and loss account 11,276 12,568________________________________________________________________________________Shareholders' funds: equity interests 16,606 17,898________________________________________________________________________________ GROUP STATEMENT OF CASH FLOWSfor the year ended 31 December 2004 2004 2003 £000 £000______________________________________________________________________________Net cash outflow from operating activities (138) (1,571)______________________________________________________________________________Returns on investments and servicing of financeInterest received 46 200______________________________________________________________________________Taxation (593) 769______________________________________________________________________________Capital expenditure and financial investmentPayments to acquire tangible fixed assets (457) (257)______________________________________________________________________________AcquisitionsPayment of acquisition loan notes (300) (710)Cash returned from deposit in respect of acquisition loan notes 300 300______________________________________________________________________________Net cash outflow from acquisitions - (410)______________________________________________________________________________Equity dividends paid (1,395) (1,906)______________________________________________________________________________Management of liquid resourcesDecrease in short-term deposits 2,567 2,806______________________________________________________________________________Increase / (decrease) in cash in the period 30 (369)______________________________________________________________________________ Reconciliation of net cash flows to movements in net funds Increase / (decrease) in cash in the period 30 (369)Decrease in short-term deposits (2,567) (2,806)______________________________________________________________________________Change in net funds resulting from cash flow (2,537) (3,175)Loan notes 300 710Cash returned from deposit in respect of acquisition loan notes (300) (300)Translation difference (42) (173)______________________________________________________________________________Movement in net funds in the period (2,579) (2,938)Net funds at start of the period 4,275 7,213______________________________________________________________________________Net funds at end of the period 1,696 4,275______________________________________________________________________________ KBC Advanced Technologies plc Notes 1 Basis of preparation The above financial information does not constitute statutory accounts asdefined by section 240 of the Companies Act 1985. The results for the year ended31 December 2004 and the balance sheet at that date are extracted from thestatutory accounts (on which the auditors have given an unqualified opinion)which will be filed with the Registrar of Companies. The accounts have beenprepared in accordance with UK generally accepted accounting principles on abasis which is consistent with those applied in previous periods. Thecomparative financial information is extracted from the statutory accounts forthe year ended 31 December 2003 (on which the auditors gave an unqualifiedopinion). 2 Exceptional items Other operating incomeDuring the year a settlement was reached in respect of the previously ongoingarbitration process and legal proceedings initiated by the Company in the UnitedStates. The settlement is more fully covered in the text of the press release.KBC has received £2.1m in lieu of costs incurred in the dispute. This incomeincreased profit after tax by £1.4m, with a cash inflow during the year of£1.4m. Other operating chargesLegal costs of £1.1m (2003: £1.3m) have been incurred in respect of the nowsettled arbitration process and legal proceedings initiated by the Company inthe United States. The settlement is more fully covered in the text of the pressrelease. These costs decreased profit after tax by £0.7m (2003: £0.9m), with acash outflow of £1.2m (2003: £1.1m). 3 Tax on loss on ordinary activities The Group's effective rate of current tax is influenced by the continuedrecognition of a deferred tax asset of £1.2m in respect of carry forward tradinglosses within the UK subsidiary. The Directors believe that it is more likelythan not that the UK subsidiary will earn sufficient taxable profits within thenext two years to realise this deferred tax asset. 4 Loss per share The calculation of basic loss per share is based upon a loss of £816,000 (2003:loss of £1,484,000) and on 46,491,000 (2003: 46,491,000) Ordinary shares, beingthe weighted average number of Ordinary shares in issue during the period afterexcluding shares owned by the KBC Advanced Technologies plc Employee Trust. The calculation of basic loss per share before exceptional items and goodwillamortization is based upon earnings of £967,000 (2003: £637,000) and on46,491,000 (2003: 46,491,000) Ordinary shares, being the weighted average numberof Ordinary shares in issue during the period after excluding shares owned bythe KBC Advanced Technologies plc Employee Trust. 5 Prior year adjustment - Accounting for ESOP trusts UITF 38 Accounting for ESOP trusts was issued on 15 December 2003 and ismandatory for accounting periods ending on or after 22 June 2004. The UITF 38abstract states that until such time as the Company's own shares held by theESOP trust vest unconditionally in employees, the consideration paid for sharesshould be deducted in arriving at shareholders' funds. The Company has adoptedthis abstract as at 31 December 2004 and therefore a prior year adjustment hasbeen included within this financial information. Comparative amounts have beenrestated accordingly. This change in accounting policy has had the effect of reducing investments by£685,000. There is no effect on the profit and loss account of the Company orGroup in either the current or the prior year. Retained earnings at 1 January2003 have been increased to restate the previously recognized impairment of£1,451,000 charged to the profit and loss account in 2002. 6 Copies of the Annual Report will be sent to shareholders. Further copies maybe obtained from the Company Secretary, KBC Advanced Technologies plc, KBCHouse, 42-50 Hersham Road, Walton on Thames, Surrey, KT12 1RZ. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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