15th Mar 2007 07:03
KBC Advanced Technologies plc15 March 2007 Embargoed until 07.00 15 March 2007 KBC Advanced Technologies plc ("KBC" or "the Group") Preliminary results for the year ended 31 December 2006 KBC Advanced Technologies plc, a leading consultant to the energy industry,today announces its preliminary results to 31 December 2006. 12 months to 12 months to 31 December 31 December 2006 2005Revenue £35.4m £28.5mOperating profit/(loss) £1.9m £(2.0)mBasic profit/(loss) per share 2.1p (4.2)pDividend per share 0.5p 0.0p Highlights • Turnaround has been achieved with return to profitability• Strong growth in revenue and workload backlog• Increasing contribution from software revenues• Acquisitions successfully integrated and already delivering• Favourable market environment provides increasing confidence in outlook• Board recommending first and final dividend for 2006 Commenting on the results, Christopher Powell-Smith, Chairman of KBC, said: "Wehave seen significant revenue growth and return to profitability over the last18 months and the level of contract awards continues to rise. 2007 has startedwell and we remain very busy. The Board expects this to continue. The markets inwhich KBC operates remain strong and opportunities for major contract awardscontinue to be positive. This market environment, coupled with the turnaround inperformance, provides the Board with increasing confidence in the outlook forthe business." - Ends - For further information, please contact: KBC Advanced Technologies plcGeorge Bright, Chief Executive On 15 March: 020 7067 0700Nicholas Stone, Operations and Finance Director thereafter: 01932 236314 Weber Shandwick FinancialRichard Hews/Rachel Taylor 020 7067 0700 Notes to Editors:KBC Advanced Technologies plc, a leading independent consulting, processengineering and software group, delivers improved operating performance to theoil refining, petrochemical, and other process industries worldwide. We provideprocess consulting, strategic planning advice, energy price forecasting andmarket analysis, economic studies, capital project services, and training tohelp clients achieve their business objectives and improve their competitiveposition. KBC's human performance improvement division, TTS Performance Systems,provides organisational effectiveness services, training programmes, operationsmanuals, and personnel development services. KBC's consultants recommend changesfor material and measurable improvements in profitability. To assist clients inrealising such improvements, KBC provides implementation services and softwaresolutions, including the KBC SIM models and Petro-SIM TM for processoptimisation, and the Linnhoff March and Veritech energy optimisation softwarepackages. Formed in 1979, KBC has offices in the UK, USA, Canada, Singapore, theNetherlands, Russia, China, and Japan. For more information, visitwww.kbcat.com. KBC Advanced Technologies plc ("KBC" or "the Group") Preliminary results for the year ended 31 December 2006 CHAIRMAN'S STATEMENT Summary I am pleased to report that, as we anticipated, 2006 proved to be a year ofcontinued progress for KBC and saw a return to profitability. Growth in profits,turnover and workload backlog confirmed the significant turnaround in thebusiness that started in the last quarter of 2005. This turnaround demonstratesa material and sustained improvement in business performance and reflects thealignment of our services and products with changing market requirements. Revenue has grown by more than 24% year on year and significant losses inprevious years have been turned into the first reported full year profit for KBCsince 2001. Sales awards also continued to grow in 2006 (exceeding 2005 by morethan 10%) and we ended the year with a confirmed backlog of work of £27mcompared to £18m a year earlier. This backlog includes an increase of around £2mon a like for like basis (growth of approximately 10%) as well as £7m from theacquisition of TTS Performance Systems Inc ("TTS") and Veritech Inc("Veritech"). The economic environment for our refining clients was the strongest for manyyears and we expect it to remain favourable for several years to come. Thisenvironment still provides our clients with many new challenges and we believethat KBC is in an unrivalled position to help them address these challenges andtherefore benefit from the higher level of activity that we anticipate in 2007and beyond. We started 2007 with a healthy order book and, as we near the end ofthe first quarter, progress is being maintained and we remain confident thatthis will continue. Results Revenue for the year was up on 2005 by 24%, from £28.5m to £35.4m. The operatingprofit of £1.9m in 2006 compares with a loss of £2.0m in 2005. This strongperformance has been delivered despite a sharp reduction in the sterling valueof US dollar revenues as a result of the £/$ exchange rate moving by 14% duringthe year. On a constant exchange rate basis, revenue would have been £35.9m andoperating profit £2.0m. These results include revenue of £2.1m and operatingprofit of £0.2m from the acquisition of TTS in February 2006, and £0.14m ofrevenue and £0.05m of operating profit from the acquisition of Veritech inNovember 2006. After net finance costs the Group realised a profit before tax of£1.7m (2005: loss before tax of £2.0m). Basic earnings per share were 2.1p(2005: loss of 4.2p). Dividend In the light of the financial performance of the Group in the last year theBoard is pleased to recommend a first and final dividend for 2006 of 0.5p pershare. The dividend will be payable on 22 May 2007 to shareholders on theregister at close of business on 11 May 2007. No dividend was paid in respect of2005. Acquisition of TTS And Veritech The acquisitions of TTS and Veritech are fully in line with our strategy toincrease the breadth and depth of KBC's services and strengthen relationshipswith our clients. With KBC's high operational gearing, the increase in scale ofour business has had a positive impact on profitability and we continue to lookfor opportunities to accelerate this process. Board Changes As previously announced, on 25 May 2006 Peter Close informed the Board of hisintention to retire and George Bright was appointed as Chief Executive. At thesame time Nick Stone assumed overall responsibility for Operations as well asFinance. I would like to thank Peter for his contribution to KBC following hisreturn to the Company in 2003, and to wish him well for the future. The Board is pleased to see the progress made under the new executive team andis confident in the future development of the Company under their management. Current Trading and Outlook We have seen significant revenue growth and return to profitability over thelast 18 months and the level of contract awards continues to rise. 2007 hasstarted well and we remain very busy. The Board expects this to continue. Themarkets in which KBC operates remain strong and opportunities for major contractawards continue to be positive. This market environment, coupled with theturnaround in performance, provides the Board with increasing confidence in theoutlook for the business. CHRISTOPHER B POWELL-SMITH CHAIRMAN CHIEF EXECUTIVE'S REPORT The Refiner's Challenge 2006 saw continued volatility in crude oil prices and refining margins, with oilprices peaking at over US$70 per barrel during the summer, before falling backby around 25% by the end of the year. This fall in prices was driven by theshort term effects of stockpiling and a mild northern hemisphere winter, withthe long term trend expected to remain positive during 2007. Economic growth isforecast to be robust in 2007, albeit with regional variations. Hence we believethat 2007 will be another good year for refiners with margins remaining buoyantas inventory levels fall and growth in demand continues. In this environment we anticipate that strong refining margins will continue todrive the growth of both new and revamp projects as refiners increase or protectmarket share. Over the next two to three years, as new refining capacity comeson stream, we expect to see the current shortage in capacity reduce and currenthigh refining margins decline to lower levels. Whilst refiners will continue to face the challenge of operating theirfacilities in a safe and environmentally acceptable way, it is the increase incapital project related work that will present them with significant issues in2007. The industry continues to suffer from a skills shortage. Engineeringprofessionals are currently in demand but the focus is likely to shift tooperations staff over the next few years as new plants come on stream. KBC's Response A core element of KBC's strategy during the turnaround in our business has beento align our services and products to changing market requirements. In the new investment segment, a programme supporting both owners and operatorswas launched: Capital Excellence (CapX). This service covers strategy, marketanalysis, refinery configuration studies, design and project management supportfrom concept through to start-up. We have entered into several relationshipswith both engineering and operating companies, including Fluor and SKCorporation. More than half the process engineering work carried out in the UKin 2006 was related to CapX programmes for our clients. KBC has offered services related to plant operations for many years. Theacquisition of TTS in February 2006, however, provided us with a framework tomatch our services with clients' operational needs. Operational Excellence (OpX)is a programme that helps clients to ensure that their facilities are operatedin a safe, environmentally acceptable and profitable manner. The service coversplanning and scheduling, reliability and maintenance, safety, health andenvironment, leadership, human performance and continuous improvement. During2006 our R&D efforts included the documentation of best practice in this area.In 2007 we anticipate a growing need for this service as clients strive to meetincreasing operational challenges driven by tightening of safety and environmental standards and capacity expansion. To help ensure an agile response to client needs, we have consolidated andsimplified our organisational structure. At each of our main operational centresin London, Houston and Singapore, the senior management team comprises the headof Operations and the head of Business Development. The three regions operate ona semi autonomous basis to ensure they are responsive to local marketdevelopments. The Executive Committee, which includes these regional executives,together with other senior managers and the Executive Directors, ensures thatcommon standards are applied and optimises the use of resources across allregions. Sales Contract awards in 2006 amounted to £35.4m, an increase of 10% over 2005. TheEurope, Middle East and Africa region returned it's strongest ever performancewith sales of £14.1m. Sales in the Americas were healthy at £11.6m, withparticularly strong demand in Central America. Sales awards in Asia of £9.7mshowed a satisfactory increase on the underlying 2005 figure, excluding theeffect of the £6.5m Sinopec contract awarded in 2005. Key contracts awardedinclude: • Multi year Technical Services Alliance with PETRONAS• Refinery Reconfiguration/Clean Fuel Studies for five PEMEX Refineries• Multi year Technical Services Alliance with Nerefco• Central America Grass Roots Refinery Study for the Inter-American Development Bank• Development of operating procedure manuals for Valero Refining Company in the US Since the year-end, the Group has been awarded an extension of its TechnicalServices contract with Irving Oil. Software 2006 showed an increasing contribution from software, with revenues growing by15%. KBC's flagship product, Petro-SIM, is now licensed by more than 50 sites inall regions of the world. Major new software licenses were signed with SaudiAramco, Reliance and PEMEX during the year. Version 3 of Petro-SIM was released,extending our technology lead with the addition of two new reactor models,together with enhanced integration with desktop and plant software. We alsoreleased Petro-SIM Express, a reduced capability version priced to compete withbasic flowsheeting tools. The first license for Petro-SIM Express was to OMV, asa replacement and upgrade for their existing tools. During the year we announcedan agreement with ABB Lummus to integrate their ethylene cracking furnace modelinto Petro-SIM. This arrangement allows us to identify opportunities forimprovement in the interface between refining and basic petrochemicalfacilities, and is part of our continuing development of Petro-SIM. Version 4 ofPetro-SIM, due for release in 2008, will include full integration of theethylene model as well as support for the latest versions of Microsoft products(Vista and Office 2007). Acquisitions TTS, acquired in February 2006, operates in process industry managementconsulting, training, and organisational development, and has substantiallyexpanded KBC's range of services. It provides a hub for further development ofour OpX consulting model. Human performance is often a limiting factor inprocess plant optimisation and our combined offering has been well received bythe market. We are delighted with the rapid progress made in integrating TTS andin expanding its reach outside its historic North American market using KBC'sexisting infrastructure. In November 2006 we acquired Veritech Inc, a leading energy consultant in the USmarket. Veritech provides services and software in the field of energyoptimisation and management for clients in the process industries. Through KBC'sacquisition of the Linnhoff March group in 2002, KBC's energy optimisationservices business has been very successful in Europe, the Middle East and Asia.Veritech's track record in the Americas is a significant addition to KBC'scoverage of this important sector of our market. Veritech was itself initiallypart of the former Linnhoff March group and therefore uses methodology and toolscommon to those used by KBC's consultants. As a result we have already seenrapid progress in assimilating and developing this business. Industry Outlook The shortfall in skilled engineering resource in the industry is both anopportunity and a challenge for KBC. In 2006 we moved from being salesconstrained to resource constrained, and recruitment in a very tough labourmarket suggests that we will remain a resource constrained operation in 2007.Our plan for 2007 requires a significant increase in consultant resources and wewill be meeting this through more efficient use of existing resources, trainingand recruitment. In the current tight labour market this is an area on which wewill need to focus throughout the year. In the short term we will continue to execute contracts associated with asignificant increase in capital spending in the industry, as well as traditionalKBC optimisation work. As stated earlier, we anticipate that a number of largenew refineries will come on stream within two to three years. As a consequencethe current shortage of refining capacity will be significantly relieved andrefinery margins will once again be under pressure. KBC will be well placed tomeet the demands of this environment through its optimisation and humanperformance improvement services. W GEORGE BRIGHT CHIEF EXECUTIVE OPERATIONAL AND FINANCIAL REVIEW Consulting Activities 2006 saw KBC executing a balance of long term consulting contracts (eitherthrough the traditional Profit Improvement Programs ("PIP") structure or throughlong term technical service type arrangements) and shorter term engagements withmore sharply focused objectives. As the year progressed, this allowed us tomanage resources in a more efficient manner and deliver a consistently highlevel of manpower utilisation in the second half of the year. Our effort duringthe year was aimed at delivering an improved financial performance from theworkload backlog and improving the operating efficiency of the business. Our newmanagement structure has enabled the consulting operations to concentrate ondelivering the results required by our clients at an acceptable margin to KBC.The financial performance shows that in the second half of the year theseefforts have delivered the desired result. The PIPs at Sinopec, which commenced at the end of 2005, progressedsatisfactorily during the year and the first major contractual milestones weremet in September. These projects have now reached the implementation phaserequiring full time KBC employees on site to ensure that opportunitiesidentified by KBC are progressed. The project has involved implementation ofPetro-SIM at each site to analyse and create opportunities for improvement. A project conducted for PEMEX including refinery reconfiguration and clean fuelsstudies was executed during the second half of 2006 with the final reportdelivered during January 2007. This was the second of two major projects for KBCin Central America during the year. The first was a study for the Inter-AmericanDevelopment Bank to identify the best location and configuration of a proposednew refinery in Central America where existing refining resources produce lessthan a quarter of the oil product demand for the region. The proposed project isnow undergoing review by potential investors with continued support from KBC. A feature of the changing relationship between KBC and its clients in thecurrent environment is the increase in the use of the "technical service"arrangement where we agree a framework that governs how we work together withoutdefining in advance the actual work to be undertaken. This can then be agreed ona regular basis as priorities change without having to execute contractualamendments. This type of arrangement is common in the upstream oil and gasindustry. Examples include the projects for Nerefco in Holland and Irving Oil inCanada, both of which have been renewed for 2007 with an increased level ofactivity. A contract confirmed with PETRONAS in Malaysia towards the end of2006, which is expected to last for two years, demonstrates that we are meetingclient requirements for a more flexible approach in each of our regions. Following the acquisition of TTS in February, there has been a strong focus onthe delivery of Human Performance Improvement ("HPI") services in addition tothe technical excellence of KBC's consulting services. A number of KBC employeeshave supported and been involved in HPI projects, thus broadening the range ofexperience and skills throughout KBC that will be necessary to support the needsof the industry over the coming years. The development of the OpX model combining both technical and human aspects of the work needed in process plants provides a framework in which to facilitate this joint approach. KBC has continued to be a provider of strategic commercial services, includingmarket and engineering expertise for both purchasers and sellers of refiningassets and advice to the investment community handling these transactions. ThePetroleum Economics market analysis division has also been a key factor inwinning this type of project work and continues to provide economic reportingand forecasting services to the industry on a subscription basis. The increasein capital activity in the industry during 2006 and the nature of this type ofwork has led to some intense periods of activity on tight deadlines in order tomeet client expectations. It has also led to developing relationships with newindustry investors such as Citadel Capital. Operating Results Group revenue increased during 2006 by 24% from £28.5m to £35.4m. If measured atconstant exchange rates the reported value would be £35.9m. The year saw acontinued increase in software revenue from licence sales and maintenance andsupport agreements which totalled £5.8m in 2006, up from £5.0m in 2005: growthof 16%. Consulting revenues increased by 26% from £23.5m to £29.6m. There wasnotably strong growth from the Energy product line, which now incorporates theacquisitions of Linnhoff March in 2002 and Veritech in 2006. Without theacquisitions made in 2006 revenue would have increased by 16% to £33.2m. Contribution from the software revenue was 69% after the carry forward ofdevelopment costs, or 59% if they are included (2005: 40%). Contribution fromthe consulting revenue was 33% (2005: 25%). Group costs increased overall by 10%before acquisition costs but by only 3% if these are excluded. The weak USdollar lowered costs by £0.4m giving an increase on a constant exchange ratebasis of £3.3m, or 11%, over 2005. Staff costs increased by only 2%, directcosts by 20% and other operating charges by 24%. The resultant operating profit of £1.9m before net finance costs was up by £3.9mwhen compared to the loss of £2.0m reported for 2005. A measure of underlyingoperating profit for the year has been calculated and reconciled in note 3(d) tothis statement. It excludes the impact of the carry forward of softwaredevelopment costs and provision for an onerous lease mentioned below, as well asthe amortisation of intangible assets. This measure shows a profit of £2.0m(2005: loss of £1.8m). The finance cost of £0.185m includes £0.082m representing the unwinding of thediscount applied to the deferred consideration for the year's acquisitions inorder to record on the balance sheet the net present value of those futurepayments. Profit Before Tax The profit before tax of £1.7m compares with a loss of £2.0m in 2005. Tax The tax charge of £0.7m for the year is a combination of a charge of £0.6 forforeign taxes incurred that are not expected to be recoverable in the nearfuture, a charge of £0.9m on taxable profits made during the year and a creditfor tax losses and foreign tax credits expected to be recovered against futureprofits. The tax charge of £0.015m for 2005 reflected a charge of £0.3m forforeign taxes incurred in that year offset by a credit for UK tax lossesexpected to be utilised in future years. Earnings and Dividends The profit after tax of £1.1m (2005: loss of £2.0m) equates to earnings pershare of 2.1p, compared to a loss per share of 4.2p in 2005. Earnings per shareon the underlying profit measure are 2.3p (2005: loss of 3.8p). A first and final dividend of 0.5p per share is proposed for 2006 in line withthe Board's stated intention of resuming dividend payments with the recovery ofthe business. No dividend was paid for 2005. Provision for Onerous Lease The Company holds a lease for an office property originally occupied by thebusiness until May 2001 and recently vacated by a subtenant. The rental markethas weakened since 2001 and the Board, having re-assessed the probable cashoutflow from the lease, has determined that an addition of £0.55m to the currentonerous lease provision is required to cover the expected cost over itsremaining life. Carry Forward of Software Development Costs The Group has previously written off all software development costs to theIncome Statement each year. Under UK GAAP there was discretion for Directors towrite off expenditure as incurred, irrespective of the stage of development ofthe software product. However, under IAS, that discretion is no longer availableand, under the accounting policy adopted last year on conversion to IAS,development expenditure is carried forward when "its future recoverability canbe reasonably regarded as assured and technical feasibility and commercialviability can be demonstrated". In the Board's view the Petro-SIM developmenthas now reached this stage. Hence, after a charge for the current year'samortisation, net expenditure of £0.61m has been carried forward againstexpected future sales. Development expenditure is likely to continue at asimilar level in 2007 and 2008 and consideration of the same issues will berequired at the end of 2007 to determine the appropriate accounting treatment. NICHOLAS P STONEOPERATIONS AND FINANCE DIRECTOR GROUP INCOME STATEMENT YEAR ENDED 31 DECEMBER 2006 Notes 2006 2005 £000 £000-------------------------------------------------------------------------------Revenue 35,378 28,493Direct costs (6,342) (5,272)Staff and associate costs (18,698) (18,326)Depreciation and amortisation (742) (738)Other operating charges (7,702) (6,194)-------------------------------------------------------------------------------Operating profit/(loss) 3 1,894 (2,037) Finance revenue 28 32Finance cost (185) (29)-------------------------------------------------------------------------------Profit/(loss) before tax 1,737 (2,034)Tax expense (663) (15)-------------------------------------------------------------------------------Profit/(loss) for the year 1,074 (2,049)=============================================================================== Earnings/(loss) per share Basic 4 2.1p (4.2)pDiluted 4 2.0p (4.2)p=============================================================================== GROUP BALANCE SHEETAT 31 DECEMBER 2006 2006 2005 £000 £000------------------------------------------------------------------------------Non-current assetsProperty, plant and equipment 1,314 1,591Goodwill 6,714 3,952Intangible assets 1,665 417Deferred tax asset 2,603 1,947------------------------------------------------------------------------------ 12,296 7,907============================================================================== Current assetsTrade and other receivables 13,423 10,657Income tax asset 326 149Cash and short-term deposits 1,178 1,802Other financial assets 56 ------------------------------------------------------------------------------- 14,983 12,608------------------------------------------------------------------------------Total assets 27,279 20,515============================================================================== Non-current liabilitiesTrade and other payables (1,376) -Provisions - (113)Deferred tax liabilities (868) (59)------------------------------------------------------------------------------ (2,244) (172)==============================================================================Current liabilitiesTrade and other payables (5,752) (3,951)Income tax payable (6) (84)Provisions (663) (24)Other financial liabilities - (51)------------------------------------------------------------------------------ (6,421) (4,110)------------------------------------------------------------------------------Total liabilities (8,665) (4,282)------------------------------------------------------------------------------Net assets 18,614 16,233============================================================================== Equity attributable to equity holders of parentIssued capital 1,370 1,262Share premium 7,782 6,740Other reserves 984 202Own shares (2,136) (2,136)Retained earnings 10,614 10,165------------------------------------------------------------------------------Total equity 18,614 16,233------------------------------------------------------------------------------Total equity and liabilities 27,279 20,515============================================================================== GROUP CASH FLOW STATEMENTYEAR ENDED 31 DECEMBER 2006 2006 2005 £000 £000------------------------------------------------------------------------------Net cash flow from operating activitiesProfit /(loss) before tax 1,737 (2,034)Finance revenue (28) (32)Finance cost 185 29------------------------------------------------------------------------------Operating profit/(loss) 1,894 (2,037)Depreciation and amortisation 742 738Share-based payment expense 210 144Movement in working capital:- trade and other receivables (2,144) 606- trade and other payables 1,332 481- exchange differences (775) 229- financial assets and liabilities (107) 153------------------------------------------------------------------------------Cash generated from operations 1,152 314Finance revenue received 28 32Finance costs paid (103) (29)Income taxes paid (766) (726)------------------------------------------------------------------------------Net cash flow from operating activities 311 (409)------------------------------------------------------------------------------ Cash flow from investing activitiesPurchase of tangible non-current assets (171) (270)Purchase of intangible non-current assets (730) -Purchase of subsidiary undertaking including costs (1,168) -Net funds acquired with subsidiary undertakings 6 -Repayment of deposits - 300------------------------------------------------------------------------------Net cash flow from investing activities (2,063) 30------------------------------------------------------------------------------ Cash flow from financing activitiesPayment of loan notes - (300)Issue of shares 1,159 762------------------------------------------------------------------------------Net cash flow used in financing activities 1,159 462------------------------------------------------------------------------------ Net (decrease)/increase in cash and cash equivalents (593) 83Cash and cash equivalents at 1 January 1,802 1,696Exchange adjustments (31) 23------------------------------------------------------------------------------Cash and cash equivalents at 31 December 1,178 1,802============================================================================== GROUP STATEMENT OF RECOGNISED INCOME AND EXPENDITURE YEAR ENDED 31 DECEMBER 2006 2006 2005 £000 £000------------------------------------------------------------------------------Attributable profit/(loss) for the period 1,074 (2,049)Foreign currency translation (835) 284------------------------------------------------------------------------------Total recognised income and expenditure for the year 239 (1,765) NOTES TO THE FINANCIAL INFORMATION 1 Basis of preparation The above financial information does not constitute statutory financialstatements as defined by section 240 of the Companies Act 1985. The results forthe year ended 31 December 2006 and the balance sheet at that date are extractedfrom the statutory financial statements (on which the auditors have given anunqualified opinion) which will be filed with the Registrar of Companies. Thecomparative financial information is extracted from the statutory accounts forthe year ended 31 December 2005 (on which the auditors gave an unqualifiedopinion). The financial statements are prepared under the historical cost convention,except for certain financial instruments which are measured at fair value. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements, and the reportedamounts of revenues and expenses during the reporting period. Although theseestimates are based on the Directors' best knowledge of current events andactions, actual results ultimately may differ from those estimates. 2 Segmental information The primary segment reporting format is determined to be business segments asthe Group's risks and rates of return are affected predominantly by differencesin the products and services provided. The operating businesses are organisedand managed separately according to the nature of the products and servicesprovided, with each segment representing a strategic business unit that offersdifferent products and serves different markets. The consultancy segment delivers improved operational efficiency and financialperformance through consulting services to owners and operators of oilrefineries and process industries worldwide. The software segment produces and maintains process modelling and refinery widesimulation technology for the oil industry. Primary Segment is strategic business unit 2006 Consultancy Software Unallocated GroupIncome Statement £000 £000 £000 £000------------------------------------------------------------------------------External sales 29,611 5,767 - 35,378Direct project costs (19,973) (1,571) - (21,544)Depreciation and amortisation (189) (553) (742)Sales and marketing (3,736) (3,736)Facilities and communications (4,231) (4,231)Management and support services (3,231) (3,231)------------------------------------------------------------------------------Trading profit/(loss) (segment result) 9,638 4,007 (11,751) 1,894Finance revenue 28 28Finance cost (185) (185) --------Profit before tax 1,737Tax expense (663)------------------------------------------------------------------------------Profit for the year 1,074============================================================================== 2005 Consultancy Software Unallocated GroupIncome Statement £000 £000 £000 £000-------------------------------------------------------------------------------External sales 23,479 5,014 - 28,493Direct project costs (17,508) (2,784) - (20,292)Depreciation and amortisation (200) (538) (738)Sales and marketing (3,454) (3,454)Facilities and communications (2,961) (2,961)Management and support services (3,085) (3,085)-------------------------------------------------------------------------------Trading profit/(loss) (segment result) 5,971 2,030 (10,038) (2,037)Finance revenue 32 32Finance cost (29) (29) --------Loss before tax (2,034)Tax expense (15)-------------------------------------------------------------------------------Loss for the year 2,049)=============================================================================== 3 Group operating profit/(loss) This is stated after charging/(crediting) the following: 2006 2005 £000 £000------------------------------------------------------------------------------ Depreciation and amortisation- Depreciation 463 538- Amortisation of intellectual property rights - Acquisitions 90 - - Existing intellectual property rights 67 200 - Development costs 122 ------------------------------------------------------------------------------- 742 738Included in other operating charges- Operating lease rentals - Minimum lease payments 1,747 1,647 - Sublease rentals received (425) (545)- Net foreign exchange differences 80 (235) - Onerous lease provision 550 -============================================================================== (a) Research and development costsDuring 2006 the Group incurred research and development costs of £1.7m (2005:£2.6m). Of this amount £730,000 related to development expenditure for Petro-SIMand has been carried forward as an intangible asset to be amortised againstexpected future sales. The balance was charged directly to staff and associatecosts and direct costs in the income statement. (b) Intangible assetsDuring the year the expected useful economic life of the Group's existingintellectual property rights was assessed and its useful life extended toreflect the value that these rights have in the Group's business. This hasresulted in amortisation for these existing rights being £133,000 lower than theprevious year. (c) Non-trading itemsProvisionsA provision of £550,000 has been made in relation to a property formerlyoccupied by the business. This provision reflects the Directors' best estimateof what would be required by way of exit premium to terminate the lease during2007. (d) Underlying operating profit 2006 2005 £000 £000-------------------------------------------------------------------------------Operating profit/(loss) 1,894 (2,037)Amortisation of acquisition intangibles 157 200Research and development costs carried forward (730) -Amortisation of research and development costs carried forward 122 -Onerous lease provision 550 --------------------------------------------------------------------------------Underlying operating profit/(loss) 1,993 (1,837)=============================================================================== 4 Earnings/(loss) per share Basic earnings/(loss) per share is calculated by dividing after tax profit/(loss) for the year attributable to ordinary shareholders of the parent companyby the weighted average number of Ordinary shares in issue during the year. 2006 2005 £000 £000-------------------------------------------------------------------------------Profit/(loss) for the year 1,074 (2,049)=============================================================================== number number 000 000-------------------------------------------------------------------------------Weighted average number of Ordinary shares in issue 53,826 50,056Shares owned by the KBC employee trust (1,575) (1,575)------------------------------------------------------------------------------- 52,251 48,481=============================================================================== Pence Pence-------------------------------------------------------------------------------Basic earnings/(loss) per share 2.1p (4.2)pUnderlying earnings/(loss) per share 2.3p (3.8)pDiluted earnings/(loss) per share 2.0p (4.2)p=============================================================================== Earnings/(loss) per share for underlying profit/(loss) as defined in note 3(d)is based upon an after tax profit/(loss) of £1.19m (2005: loss £2.06m) and on52,251,000 (2005: 48,481,000) Ordinary shares, being the weighted average numberof Ordinary shares in issue during the period after excluding the shares ownedby the KBC Advanced Technologies plc Employee Trust. 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