23rd Mar 2006 07:02
KBC Advanced Technologies plc23 March 2006 Embargoed until 07.00 23 March 2006 KBC Advanced Technologies plc ("KBC" or "the Group") Preliminary results for the year ended 31 December 2005 KBC Advanced Technologies plc, provider of systems and services to optimiserefining assets, today announces its preliminary results to 31 December 2005. 12 months to 12 months to 31 December 31 December 2005 2004Turnover £28.5m £29.3mTrading loss (£2.0m) (£1.3m)Loss before tax (£2.0m) (£0.3m)Basic loss per share (4.23p) (1.12p) Highlights • Profitable trading in fourth quarter• Successful acquisition of TTS which is performing well• Board changes - Chief Executive, Peter Close, announces retirement• Increase of over 80% in forward order book to £19m (2005: £10m)• Total order book now £26m over four year period• Strong first year Petro-SIM software sales of £3m• Favourable refining market conditions Commenting on the results, Christopher Powell-Smith, Chairman of KBC, said: "2005 was a year of significant progress for KBC. As we go into 2006 we areconfident that the industry's strong market dynamics will provide the Group withthe opportunities to drive the business forward and continue the excellentprogress that we have made during 2005." For further information, please contact: KBC Advanced Technologies plcChris Powell-Smith, Chairman (Peter Close, Chief Executive ( On 23 March: 020 7067 0700; thereafter: 01932 236314Nicholas Stone, Finance Director ( Weber Shandwick Square MileJames Chandler/Lana Pugh 020 7067 0700 Notes to Editors: KBC Advanced Technologies plc, a leading independentconsulting and process engineering group, delivers improved operatingperformance to the oil refining, petrochemical, and other process industriesworldwide. KBC provides process consulting, strategic planning advice, energyprice forecasting and market analysis, economic studies, and capital projectservices to help clients achieve their business objectives and improve theircompetitive position. KBC analyses plant operations and management systems,recommends changes for material and measurable improvements in profitability,and provides implementation services and solutions to assist clients inrealising these improvements. In carrying out this work KBC makes extensive useof Petro-SIM, its proprietary refinery-wide simulation and process modellingtechnology. Formed in 1979, KBC has offices in the UK, USA, Singapore, theNetherlands, Russia, China, and Japan. For more information, visit www.kbcat.com. KBC Advanced Technologies plc ("KBC" or "the Group") Preliminary results for the year ended 31 December 2005 CHAIRMAN'S STATEMENT 2005 was a year of significant progress for KBC. Following the resolution of thesoftware litigation and the launch of our new service offerings and softwareproducts in 2004, the next key step in the recovery process was to build thesales pipeline and forward order book. We have firmly taken this step, and I am very pleased to report that salesawards have increased by more than 90% compared to 2004. As a result KBC hasended the year with a confirmed forward order book of £18.6m (2004: £10.3m), anincrease of more than 80%. As expected, KBC is reporting an overall loss for thefull year but it is very encouraging that profitable trading was achieved in thelast quarter of 2005, providing a sound platform for the ultimate goal ofsustained profitable trading. The economic environment for our customers is currently strong, with continuingincreased demand for oil products leading to high refining margins throughoutthe world. It is expected that these conditions will continue in the medium termwhilst new refining capacity is developed, providing an additional window ofopportunity for KBC. Although the refining sector is traditionally cautious incommitting to new capital investment, in 2005 there were numerous feasibilitystudies, for both new refineries and for increased capacity at existing sites.As we go into 2006 this planned expenditure, and the continued focus on runningrefineries efficiently and safely, will provide the Group with the opportunitiesto drive the business forward and continue the excellent progress we have madeduring 2005. Results Revenue in 2005 was down year on year by 3% from £29.3m to £28.5m. As indicatedin our half year results announcement in September, there was a trading loss of£2.0m, which compares with a trading loss of £1.3m in 2004 prior to exceptionaloperating income and charges. The first half year delivered revenues of £13.6mwith a stronger performance in the second half year when revenues increased by9% to £14.9m. This enabled the Group to return to profitability in the lastquarter and reduce the loss from £1.7m in the first half year to £0.3m in thesecond half. Sterling/US dollar exchange rate movements have not had a materialimpact on the results. After net interest the Group realised a loss before tax of £2.0m (2004: £0.3m).Basic loss per share was 4.23p (2004: 1.12p). We stated in our 2004 annualreport that we would in future be linking dividend payments more closely to theunderlying earnings of the business. In the light of the financial performanceof the Group over the period, and a desire to focus funds on growing thebusiness, the Board is not proposing a dividend for 2005. Given our move intoprofitability, the Board is looking forward to resuming a progressive dividendpolicy and the resumption of dividend payments at the appropriate point in theexpected recovery in earnings and cash resources. Acquisition of TTS In January 2006 we announced the acquisition of TTS for an aggregateconsideration of £3.4m. Funding for the initial consideration was providedthrough the placing of 2,403,320 new ordinary shares in KBC with institutionalinvestors and the issue of a further 1,121,849 new ordinary shares to thevendors. TTS is a private company operating in process industry management consulting,training, and organisational development. Whilst clearly there is nocontribution from TTS to the 2005 results, this acquisition has added a further£8.8m to the Group's order book, spread over four years, making a total for thecombined Group of £25.9m at the end of February 2006. The acquisition will substantially expand KBC's range of services. Humanperformance is often a limiting factor in process plant optimisation and ourcombined offering will provide the services to meet the needs of the processindustries. We are delighted with the rapid progress made in integrating TTS,which is performing in line with our expectations, and KBC is already engaged inthree refinery projects with TTS. This acquisition marks an important step in a strategy to increase the breadthand depth of services that KBC is able to provide. This will allow astrengthening of relationships with our customers and an increase in scale ofoperations that will take advantage of our global industry presence. A number ofopportunities have been identified to continue this process and work continuesto assess their suitability. Board changes Having helped to guide the business through its recovery programme, Peter Closefeels that it is the right time for him to announce his retirement which will beeffective from 30 September 2006. Peter, who is 60, was a founder of KBC andrejoined the Board in September 2003 for a period of up to three years to helpto reshape the business. As the preliminary results for 2005 demonstrate,significant progress has been made in rebuilding the business and Peter hasplayed a material part in this together with George Bright, Nick Stone and othersenior managers. The Board would like to thank Peter for his input over the lastthree years. We have a strong and committed team to take the business forward and the Boardis actively reviewing all options in appointing a replacement for Peter. Anannouncement will be made in due course. In the meantime the team will continueto push forward actively with our growth plans to build on the turnaroundachieved in 2005. Move to AIM It is our intention to continue with an acquisition program to build KBC into astronger and more robust business and included within our AGM resolutions willbe a proposal to move onto AIM (the Alternative Investment Market of the LondonStock Exchange). This is a step that we are recommending to shareholders inorder to better facilitate our intended acquisition program as a result of thesimpler administrative requirements and more flexible regulatory regime of AIM.In essence, it is a growth market suitable for our current ambitions and theBoard is confident that it will help us achieve our strategic goals withoutcompromising the standards of reporting and governance that we have alwaysmaintained. Subject to approval by shareholders, the move to AIM will becomeeffective shortly after the AGM. Outlook Given the favourable market in which we operate and our ability to deliver worldclass consultancy, technology and advice, we remain confident of the Group'sprospects for 2006 and our ability to build upon the profitability achieved inthe last quarter of 2005. We will continue to focus our activities on capitalproject support, operational excellence, and investment planning, building onKBC's high reputation within the oil refining industry, and capitalising on ourglobal reach. As part of the drive for growth, the Group will continue to lookat value-enhancing acquisition opportunities. CHIEF EXECUTIVE'S REVIEW OF OPERATIONS Market outlook In 2005 the demand for refined oil products led global refinery utilisation toan unprecedented 90% of capacity. With a typical annual downtime of 4% forstatutory maintenance shutdowns, there is essentially no margin for unforeseenproduction stoppages. As a result, refiners have shifted their priority toimproving plant reliability and availability as part of their efforts toincrease refining capacity. After a slow start most oil companies are now makingplans to respond to the universally recognised shortage of refining capacity,with regular announcements of new projects to increase crude capacity comingalmost daily. Both refining margins and the price differential between sweet (low sulphur) andsour (high sulphur) crudes are at unprecedented levels. The cheaper sour crudesare harder to process, but tend to make up the majority of new marginal crudeproduction capacity. This leads to a strong drive to increase upgrading capacityto process sour crudes and take advantage of the increased margins available. Most of the refined product demand growth comes from China and India, wheregrowth rates are very high, albeit from a low base, together with the US, whichhas a lower rate of increase but from a substantially higher base. Consensusestimates indicate that total oil demand will grow from 83m bpd currently to 91mbpd by 2010, and to 96m bpd by 2015. New production to meet this increaseddemand is generally of heavier sour crudes. Despite the increasing volumes ofcondensate available as new gas fields are brought on line, the average qualityof refining feedstocks continues to deteriorate. This will be compounded in theUS by new synthetic refinery feeds from Canadian tar sands and plans forincreased production from Venezuelan and Mexican heavy hydrocarbon deposits.Even if currently announced projects come onstream as planned, it will be 2009/10 before the gap closes to relieve the pressure on global refining capacity. The opportunities presented to KBC in this economic climate are many. The designand optimisation of new sites and new capacity must maximise the ability toprocess sour crudes. Energy and emission levels must be managed in anincreasingly environmentally conscious world. Maintenance schedules and planningmust be improved to minimise shut-down time. Day to day plant operations must beconducted in a safe and well-managed manner. Crude feedstock and choice ofproduction scheduling must be optimised to meet the increasing product demand.In all of these areas KBC has the experience, technology and tools to help ourclients meet these challenges and we are already working alongside major oilcorporates and refiners in advising on process optimisation solutions. Sales and order book 2005 was characterised by a significant strengthening of contract awards andsales versus the prior year. Total awards for 2005 were just over £32.2m versus2004 total awards of £16.6m. The forward order book for 2006 is £18.6m versusthe 2005 order book at the same time of year of £10.3m. This puts us in a strongposition to capitalise on the very strong economic fundamentals in thedownstream oil industry. The strongest region was in Asia where our Singaporeoffice increased its awards total by more than 200% over the previous year.Progress was also made in Europe where it was pleasing to see a successfulre-engagement of the major oil companies in the region. In addition, our 2006acquisition of TTS has strengthened our forward order book to £25.9m, addingboth additional backlog and, importantly, longer term visibility. Consulting activities The most significant award in 2005 was the refinery Profit Improvement Programwith Sinopec in China. This prestigious US$11m contract is due to run for 36months. We have also announced a further Sinopec contract for the provision ofKBC's "deep cut" vacuum distillation technology and a new technical servicesupport contract for Nerefco (Europoort) to provide consulting in technicaloperations reliability and maintenance functions, as well as an operationalexcellence program at Sasol Synfuels (South Africa) where we are providing bestpractice in production planning and scheduling. With the refining industry enjoying a period of unprecedented margins, a growingbacklog of project orientated work is being established. In particular,engineering consulting in new refinery projects and acquisition of existingplants is now a significant part of our core engineering workload. At the end of2005 KBC was involved in such studies on every continent, and we anticipate thatthis source of revenue will continue into the foreseeable future. In order toensure that KBC is correctly positioned in the market, we have entered into anon-exclusive alliance with AMEC Group Ltd ("AMEC"), with whom we won anengineering consultancy project to redesign and upgrade Belgium RefiningCompany's crude oil vacuum unit. The relationship with AMEC has allowed us toprovide a "one-stop shop" approach to the design and engineering phase of largerefinery projects. With high oil prices, conservation of energy has become a major performanceissue for most refiners. This is exacerbated by the requirements of the KyotoProtocol to reduce emissions. In both of these areas clients can call on thecapabilities of Linnhoff March, which was acquired by KBC in 2002. During 2005we conducted strategic energy reviews in North America, China, and WesternEurope which helped clients to develop long range energy management andemissions strategies for their manufacturing processes and future capitalprojects. Software services During 2005 licenses for KBC's proprietary Petro-SIM and SIM models were awardedat Cosmo Oil's four refineries, Sinopec Corporation's Yansan and Zhenhairefineries, OMV, MOL and Tamoil. At year end 23 refineries had licensedPetro-SIM and the total value of sales had reached £3.1m. This was the firstyear of sales for Petro-SIM and we are delighted to have met our revenue targetsand sales performance expectations from a standing start. We are confident thatthis strong momentum will continue. Petro-SIM enables refineries and petrochemical plants to analyse the performanceof each of their process units in order to model the entire site. This enableschanges in unit operating conditions to be evaluated and implemented so as toimprove the profit of the site as a whole. An example of the use of Petro-SIM isKBC's engagement throughout 2005 with SK Corporation, the South Koreanintegrated oil refining and petrochemical company with one of the largest oilrefineries in the world. In addition to purchasing a site-wide license forPetro-SIM, SK also employed our consulting services to train them in its use, tohelp them understand and interpret their plant results, and to advise them onopportunities to improve operating profitability. Strategic commercial services KBC has established itself as a provider of strategic commercial services,providing market and engineering expertise to both the purchasers and sellers ofrefining assets, and to advisers in the investment community handling thesetransactions. Increased exposure to the financial community from assignments inthis area is a growing source of business for KBC. A significant factor in ourability to attract and successfully deliver on these assignments is thecontribution by our Petroleum Economics market analysis and price forecastingdivision, PEL. PEL's reputation and quality of service has been a key factor inwinning these engagements and securing repeat business, adding to its provisionof continuing services to our global retainer client base. In March 2006 we wereawarded a prestigious contract by the Inter-American Development Bank to studythe integration and expansion of refining capacity in Latin America. Thecontract is worth more than US$1m and is to be executed during the first half of2006. We see significant opportunity for growth in this aspect of our consultingwork in 2006. International Financial Reporting Standards ("IFRS") This is the first set of full year results to be reported under IFRS andtherefore all figures are stated according to its principles. This involved arestatement of the 2004 comparatives, and reconciliation to UK GAAP. This waspublished on our website (www.kbcat.com) in September 2005 at the time of thepublication of our 2005 half-year results, together with the accounting policiesthat have been adopted by KBC as a result of this change and an explanation ofthe changes that were required. This information will be published again as partof the full year annual report Group income statementYear ended 31 December 2005 Notes Total Total 2005 2004 £000 £000Revenue 2 28,493 29,252Direct costs (5,272) (5,306)Staff & associate costs (18,326) (18,157)Depreciation and amortisation (738) (806)Other operating charges (6,194) (6,256) -----------------------Trading loss (2,037) (1,273)Software litigation costs - (1,111)Software litigation proceeds - 2,083 -----------------------Operating loss (2,037) (301)Finance revenue 32 46Finance cost (29) - -----------------------Loss before tax (2,034) (255)Tax expense 3 (15) (268) -----------------------Loss for the year (2,049) (523) ----------------------- -----------------------Attributable to equity holders of the parent (2,049) (523) ======================= Loss per share (total and continuing)Basic and diluted (4.23)p (1.12)p Group balance sheetAt 31 December 2005 2005 2004 £000 £000Non-current assetsProperty, plant and equipment 1,591 1,809Goodwill 3,952 3,952Intangible assets - intellectual property rights 417 633Investments - 2Deferred tax asset 1,947 1,623 ----------------------- 7,907 8,019 ----------------------- Current assetsTrade and other receivables 10,657 11,263Income tax asset 149 271Cash and short term deposits 1,802 1,696Other financial assets - 402 ----------------------- 12,608 13,632 -----------------------Total assets 20,515 21,651 ======================= Non-current liabilitiesProvisions (113) (137)Deferred tax liabilities (59) (208) ----------------------- (172) (345)Current liabilitiesTrade and other payables (3,951) (3,725)Income tax payable (84) (444)Provisions (24) (45)Other financial liabilities (51) - ----------------------- (4,110) (4,214) -----------------------Total liabilities (4,282) (4,559) ----------------------- Net assets 16,233 17,092 ======================= Equity attributable to equity holders of parentIssued capital 1,262 1,202Share premium 6,740 6,038Other reserves 202 202Own shares (2,136) (2,136)Retained earnings 10,165 11,786 -----------------------Total equity 16,233 17,092 -----------------------Total equity and liabilities 20,515 21,651 ======================= Group cash flow statementYear ended 31 December 2005 2005 2004 £000 £000Net cash flow from operating activitiesOperating loss before tax and financing (2,037) (301)Depreciation and amortisation 738 806Share based payment expense 144 50Movement in working capital Trade and other receivables 606 (156) Trade and other payables 481 (120) Exchange differences 229 (316) Financial assets and liabilities 153 (102) -----------------------Cash generated from operations 314 (139)Finance revenue 32 46Finance costs (29) -Income taxes paid (726) (592) -----------------------Net cash flow from operating activities (409) (685) ----------------------- Cash flow from investing activitiesCapital expenditure (270) (457)Repayment of deposits 300 300 -----------------------Net cash flow from investing activities 30 (157) ----------------------- Cash flow from financing activitiesDividends paid to equity holders of parent - (1,395)Payment of loan notes (300) (300)Issue of shares 762 - -----------------------Net cash flow used in financing activities 462 (1,695) ----------------------- Net increase/(decrease) in cash and cash equivalents 83 (2,537)Cash and cash equivalents at 1 January 1,696 4,275Exchange adjustments 23 (42) -----------------------Cash and cash equivalents at 31 December 1,802 1,696 ======================= Group statement of changes in equityYear ended 31 December 2005 2005 2004 £000 £000 Opening equity at 1 January 17,092 19,343Attributable loss for the period (2,049) (523)Foreign currency translation 284 (383)Share based expense recognised in the income statement 144 50Issue of share capital 762 -Equity dividends paid - (1,395) -----------------------Closing equity 16,233 17,092 ======================= 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 2005 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 2004 (on which the auditors gave an unqualifiedopinion). This is the first year in which the group has prepared its financial statementsunder IFRSs and the comparatives have been restated from UK Generally AcceptedAccounting Practice (UK GAAP) to comply with IFRSs. The reconciliations to IFRSsfrom the previously published UK GAAP financial statements were published withthe Groups' 2005 interim announcement and are available on the KBC website(www.kbcat.com). 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. Secondary segment information is reportedgeographically by client location. The operating businesses are organised andmanaged 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 to the oil industry. Primary Segment is strategic business unit. 2005 Consultancy Software Unallocated GroupIncome statement £000 £000 £000 £000External sales 23,479 5,014 - 28,493Depreciation 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 (loss)/profit (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) (15) -------Loss for the year (2,049) ------- Balance sheetOperating assets 417 18,147 18,564Financial and tax assets 1,951 1,951Operating liabilities (4,088) (4,088)Financial and tax liabilities (194) (194)Capital expenditure 293 293 2004 Consultancy Software Unallocated GroupIncome statement £000 £000 £000 £000External sales 25,018 4,234 - 29,252Depreciation and amortisation (200) (606) (806)Sales and marketing (3,264) (3,264)Facilities and communications (2,880) (2,880)Management and support services (2,764) (2,764)Trading (loss)/profit (segment result) 6,316 1,925 (9,514) (1,273)Software litigation costs (1,111) (1,111)Software litigation proceeds 2,083 2,083 -------Operating loss (301)Finance revenue 46 46 -------Loss before tax (255)Tax expense (268) -------Loss for the year (523) ------- Balance sheetOperating assets 633 18,649 19,282Financial and tax assets 2,369 2,369Operating liabilities (3,907) (3,907)Financial and tax liabilities (652) (652)Capital expenditure 466 466 Secondary segment Income Statement is geographical area by client location. Europe, Africa Americas Asia Group & Middle East £000 £000 £000 £0002005External sales 10,475 8,273 9,745 28,4932004External sales 9,981 10,529 8,742 29,252 3 Taxation Tax on profit charged in the Income Statement 2005 2005 2005 £000 £000 £000 UK Foreign TotalCurrent income taxCurrent income tax charge - 767 767Adjustment in respect of prior periods - (284) (284)Double taxation relief on tax on income for the year - - -Double taxation relief in respect of prior periods - - - --------------------------------Total Group current tax - 483 483 -------------------------------- Deferred income taxOrigination and reversal of other temporary differences - (164) (164)Unrelieved tax losses carried forward against profits of future years (193) - (193)Asset amortisation temporary differences (93) (18) (111) --------------------------------Total Group deferred tax (286) (182) (468) -------------------------------- --------------------------------Income tax expense reported in Group income statement (286) 301 15 -------------------------------- 2004 2004 2004 £000 £000 £000 UK Foreign TotalCurrent income taxCurrent income tax charge - 1,223 1,223Adjustment in respect of prior periods - (155) (155)Double taxation relief on tax on income for the year (43) - (43)Double taxation relief in respect of prior periods 15 - 15 --------------------------------Total Group current tax (28) 1,068 1,040 -------------------------------- Deferred income taxOrigination and reversal of other temporary differences - (506) (506)Unrelieved tax losses carried forward against profits of future years (135) - (135)Asset amortisation temporary differences (111) (20) (131) --------------------------------Total Group deferred tax (246) (526) (772) -------------------------------- --------------------------------Income tax expense reported in Group income statement (274) 542 268 -------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
KBC.L