Half Yearly Report

RNS Number : 6087S

KBC Advanced Technologies plc

14 September 2010

 

 

 

 

 

 

 

Embargoed until 07.00 14 September 2010

 

KBC Advanced Technologies plc

("KBC" or "the Group")

 

Interim Results for the six months ended 30 June 2010

 

KBC Advanced Technologies plc, a leading consultant to the energy industry, today announces its half year results for the six months ended 30 June 2010.

 

	6 months to 30 June 2010	6 months to 30 June 2009
Revenue	£25.6m	£27.1m
Profit before tax	£1.8m	£1.5m
Underlying profit before tax*	£1.4m	£2.4m
Basic earnings per share	1.9p	1.6p
Dividend per share	0.55p	0.45p

 

*excludes the impact of the creation and amortization of intangible assets and redundancy costs but includes foreign currency movements (see note 3 to this statement)

 

Highlights

·; Robust operational performance in challenging industry environment

·; Improvement in trading conditions expected during second half

·; Refining industry background of challenge and change offers KBC good consulting opportunities

·; Rebranding of services in 2009 is proving successful

·; As in previous years, software sales are expected to be second half weighted

·; Workload backlog at £39.8m is in line with 31 December 2009 and up 14% from £35.0m a year ago

·; Interim dividend increased by 22%

·; Results for the full year are anticipated to be in line with the Board's expectations

 

Ian Miller, Chairman of KBC, commented: 

"Despite the challenging conditions seen in the first half of 2010, the opportunities identified to develop KBC's business continue to increase. Although the refining industry appears relatively static at the moment, many underlying changes are taking place across the different geographies in which we operate. Our solutions and software tools enable our consultants to provide clients with bespoke solutions that enable them to improve their competitive position.

We expect to be very busy for the balance of the year and to again see the seasonal increase in software license revenue. The final results for the year will as usual depend on the precise timing of new contract awards but we are confident that the pipeline is sufficiently robust to deliver our current expectations."

 

- Ends -

 

For further information, please contact:

 

KBC Advanced Technologies plc
George Bright, Chief Executive Nicholas Stone, Operations and Finance Director	On 14 September 2010: 020 7067 0700 thereafter: 01932 236314
Cenkos Securities
Jon Fitzpatrick/Beth McKiernan	020 7397 8900
Weber Shandwick Financial
Nick Oborne/Clare Thomas	020 7067 0700

 

 

Notes to Editors:

For 30 years KBC's consultants have provided independent strategic and engineering expertise to enable leading companies in the global energy business and other process industries to manage risk while maximising value from their assets.

 

In times of economic uncertainty and increasing environmental pressure, KBC's proprietary methodologies and innovative tools guide its clients' key strategic decisions, enabling them to prioritise and implement initiatives that maximise return on investment and improve operational performance. KBC offers Strategic and Market, Capital Investment, Operating, Organisational and Environmental Solutions.

 

For more information, visit www.kbcat.com.

 

Chairman's Statement

As noted in the pre-close statement, we have seen an improvement in trading conditions during the latter part of the second quarter and we continue to anticipate that the results for the full year will be in line with the Board's expectations.

Against an initially challenging market backdrop, KBC has taken the opportunity to further reduce its fixed cost base by an annualised £1.3m, delivering a net current year benefit of £0.4m. At the same time our marketing messages have been revised to ensure that our suite of services and products is effectively targeted to address the different issues facing our clients in the developed and developing economies. This has been effective and is helping the business to regain momentum into what looks like being a strong second half year.

A robust operational performance saw revenues of £25.6m (2009: £27.1m) with contract awards of £23.1m against £24.5m in 2009. The resulting workload backlog at 30 June 2010 is £39.8m, in line with that at 31 December 2009, but up from the £35.0m at 30 June 2009.

Profit before tax was £1.8m (2009: £1.5m). Underlying profit before tax (see note 3 to this statement) was £1.4m compared to £2.4m in 2009. The underlying measure excludes the creation and amortisation of intangible assets and redundancy costs but not the foreign exchange movement.

 

REFINING INDUSTRY OVERVIEW

Global demand for oil products grew very slowly over the first six months of 2010. This overall picture includes areas of strong growth, such as China, India, the Middle East and Latin America, and areas of low growth or contraction including Europe where refining margins have been negative and where there is significant overcapacity. Crude oil prices held up well in the $70-$85 per barrel range, and reasonable discounts for heavy sour crude allowed some refiners with complex refining capability to make margin, even in those regions where demand was weak. Excess refining capacity in the US and Europe remains a key area for concern within the industry as well as the new clean fuels specifications and continuing uncertainty over carbon trading. Despite this, investment in new refining assets remains high in the parts of the developing world where demand is growing strongly.

This environment provides an imperative for increased M&A activity and for rationalisation of refining assets. Although there has been a lot of due diligence activity, in the short-term the gulf between buyers' and sellers' valuations and the high cost of environmental clean up has resulted in few transactions being closed. It therefore seems likely that refining margins will continue to be very weak for the foreseeable future in an industry with mixed fortunes in different parts of the world.

 

CONSULTING OPERATIONS

The industry background of challenge and change offers KBC good opportunities to sell its consulting services and products. The rebranding of our services last year into new solution sets focused on the strategic, operating, organisational, capital and environmental sectors is proving successful.

In North America we are seeing more opportunities to assist asset owners to maximise the returns from their existing assets through operational and organisational support. Good examples are with BP at their Whiting refinery near Chicago and Irving Oil in Canada. This work includes elements of operator training and development of training manuals. We believe that demand for this service will continue to grow as a result of the increased focus on the enforcement of industry standards and the expected new US Government operating/safety standards in the upstream and downstream oil and gas industry.

Whilst the need to address operating issues is actually greater in Europe, this market is proving difficult as refiners have been slow to commit to what they view as discretionary spend. However, we believe that the market will open as competitive pressure increases over the next few months. Indications that our organisational solutions message is being successful in the Middle East include the contract with Takreer in the UAE. Separately, our first operations and maintenance programme, at PetroVietnam's Binh Son refinery, has almost completed one year of execution, and we are now well positioned to engage in further operating improvement work at that site, as well as assisting in development of future plants in that region.

Consulting on new capital projects has once again held up well as many emerging countries develop infrastructure projects. Over the period we have conducted several feasibility studies, provided design packages and represented asset owners during the detailed engineering design phase of capital projects, primarily in Asia, Latin America and the Middle East. Last year we announced that we were investing in the development of a strategic consulting capability, and that practice has developed strongly during the period. Currently some 5 million barrels per day of refining capacity is notionally for sale, mostly in Europe, and we now provide a commercial, technical and environmental due diligence service covering both sides of potential transactions.

Consultant utilisation in the first half year was below our expectations, especially in Europe where our clients have been reluctant to spend money on consultancy services. We therefore took further steps in July and August 2010 to reduce costs with a redundancy programme that will yield annualised cost savings of £1.3m at a one off cost of £0.3m this year. The most significant cuts were in the senior management team as a result of streamlining the organisation structure.

In the third quarter we have already seen a return to higher utilisation levels and the demand for proposals, normally reduced during the summer months, has continued at a higher rate. Furthermore, we are in the final stages of negotiating a very large multi site profit improvement project with one of our long standing clients in Latin America. Following a competitive process we have been selected to carry out this work, have agreed the value of the first phase and are now in sole source discussions over detailed contractual terms. We expect this process will be concluded later this month with the project starting formally in October. Once concluded, the initial phase will be worth around $16m over a two year period.

For several years KBC has undertaken work for clients in Iran. New EU sanctions announced in July this year were for the first time aimed at the refining industry and therefore may prevent us from doing any further work in that country and, as a result of this, no new Iranian work has commenced recently. The situation will be reviewed once the details of the new sanctions are known.

 

SOFTWARE

This year we expect to see the same seasonality in software sales as in 2008 and 2009 with the majority of sales in the second half of the year. Nevertheless, we have concluded several corporate deals in the first half, mainly in Asia. Petro-SIM V4 has undergone extensive testing during this period and is now being supplied to clients. This version significantly improves functionality, fidelity and end user operability. Petro-SIM is now in use at more than 180 sites and this new release will allow us to increase market share through selling more seats at existing sites in addition to further refinery penetration. We have a number of significant new licence sales at an advanced stage of discussion that we expect to close before the end of the year.

Our Petro-SIM software sales have gone from strength to strength over the last few years and have started to make inroads into some areas of the market previously dominated by other competitors. One of these competitors has recently made allegations that KBC has infringed its rights in certain software code. Having made a thorough investigation, we are confident that their claims have no basis and we have refuted them in their entirety. KBC will defend its position robustly in order to protect this important part of our business. There is no indication at present that this is having any impact on our software sales.

 

RESULTS

Revenue for the period is £25.6m, down by 6% from the £27.1m reported for the same period last year. Direct costs increased by 31%, mainly due to a higher level of work carried out on client sites. Staff costs have decreased by 14% due to the cost saving measures implemented over the last 12 months, although a cost of £0.8m was incurred in 2009 for redundancy costs and we have carried forward additional software development costs this year. Other operating charges have decreased by 6%, reflecting a reduced impact of foreign exchange gains and losses on the revaluation of working capital balances (mainly Euro) during the period as sterling appreciated more slowly than in 2009.

Operating profit has increased by 22% to £1.8m (2009: £1.5m). Note 3 to this statement shows the measure of underlying profit that excludes the impact of the cost saving measures, the carry forward of software development costs and the amortisation of acquired intangible assets. Along with the redundancy cost mentioned earlier, the main impact on the increase in operating profit has been the carry forward of development costs. Now that Version 4 of our Petro-SIM software is complete and being used by clients for the first time, we have carried forward development costs incurred in the current period totalling £0.7m which will be amortised over a five year period. This measure shows underlying operating profit for the period of £1.4m compared to £2.5m in 2009, a decline of 42%.

Profit before tax after finance revenue and cost is £1.8m (2009: £1.5m). After the tax charge of £0.8m, at an effective rate of 42%, profit for the period was £1.0m (2009: £0.9m). This tax charge is based on a forecast for the current period and is higher than previously expected. The increase in tax rate results from a significant proportion of our profits being made in our US company taxed at 38%, leaving insufficient profits in the UK company to allow us to recover taxes withheld on remittances from overseas clients. More detail on this forecast charge can be seen in note 5.

Basic earnings per share are 1.9p, up from 1.6p in the first half of 2009, with the underlying measure 1.6p against 2.8p in 2009.

Net cash at 30 June 2010 was £1.7m, down from the £4.0m at 31 December 2009 and from £1.8m at 30 June 2009. The main items contributing to this decrease were share repurchases of £1.4m, a dividend of £0.6m and tax payments of £1.0m. As in 2009, we expect cash resources to increase during the second half of the year.

 

DIVIDEND

An interim dividend of 0.55p per share will be paid on 13 October 2010 to shareholders on the register at 1 October 2010. This compares to 0.45p per share paid at the interim last year and reflects the Board's confidence in the forecast improvement in business performance in the second half of 2010 and beyond, and our stated aim to increase the proportion of full year profits paid by way of dividend.

A final dividend of 1.1p per share was paid during the period for the year to 31 December 2009, making a total of 1.55p for the whole year.

 

OUTLOOK

Despite the challenging conditions seen in the first half of 2010, the opportunities identified to develop KBC's business continue to increase. Although the refining industry appears relatively static at the moment, many underlying changes are taking place across the different geographies in which we operate. Our solutions and software tools enable our consultants to provide clients with bespoke solutions that enable them to improve their competitive position.

We expect to be very busy for the balance of the year and to again see the seasonal increase in software license revenue. The final results for the year will as usual depend on the precise timing of new contract awards but we are confident that the pipeline is sufficiently robust to deliver our current expectations.

 

 

 

Ian K Miller

 

Condensed group income statement for the six months ended 30 June 2010

 

	Notes	Unaudited 6 months to 30 June 2010 £000	Unaudited 6 months to 30 June 2009 £000	Audited 12 months to 31 December 2009 £000
Revenue		25,567	27,058	52,587
Direct costs		(3,371)	(2,566)	(5,587)
Staff and associate costs		(14,417)	(16,783)	(31,032)
Depreciation and amortisation		(554)	(502)	(1,042)
Other operating charges		(5,397)	(5,712)	(10,155)
Operating profit		1,828	1,495	4,771
Finance revenue		3	2	5
Finance cost		(28)	(29)	(166)
Profit before tax		1,803	1,468	4,610
Tax expense		(757)	(558)	(1,576)
Profit for the period		1,046	910	3,034
Earnings per share
Basic	2	1.9p	1.6p	5.4p
Diluted	2	1.8p	1.6p	5.3p

 

 

Condensed group statement of comprehensive income for the six months ended 30 June 2010

 

	Unaudited 6 months to 30 June 2010 £000	Unaudited 6 months to 30 June 2009 £000	Audited 12 months to 31 December 2009 £000
Profit for the period	1,046	910	3,034
Other comprehensive income:
Exchange differences on translation of foreign operations recognised directly in equity	909	(939)	(1,103)
Total comprehensive income/(loss) recognised in period	1,955	(29)	1,931
Unaudited condensed group statement of changes in equity for the six months ended 30 June 2010

 

	Issued capital £000	Share premium £000	Capital redemption reserve £000	Merger reserve £000	Own shares £000	Share based payments £000	Foreign exchange reserve £000	Retained earnings £000	Total £000
At 1 January 2009	1,427	8,039	55	929	(998)	1,078	2,600	14,601	27,731
Total comprehensive income	-	-	-	-	-	-	(939)	910	(29)
Share-based payments	-	-	-	-	-	150	-	-	150
Shares issued	1	5	-	-	210	-	-	(211)	5
Dividends	-	-	-	-	-	-	-	(561)	(561)
At 30 June 2009	1,428	8,044	55	929	(788)	1,228	1,661	14,739	27,296
At 1 January 2010	1,429	8,060	55	929	(452)	1,305	1,497	16,273	29,096
Total comprehensive income	-	-	-	-	-	-	909	1,046	1,955
Share-based payments	-	-	-	-	-	150	-	-	150
Exchange translation adjustment	-	-	-	-	-	44	-	-	44
Shares issued	11	4	-	-	-	-	-	-	15
Shares cancelled	(58)	-	58	-	(277)	-	-	(1,187)	(1,464)
Utilisation of own shares	-	-	-	-	431	-	-	(431)	-
Dividends	-	-	-	-	-	-	-	(613)	(613)
At 30 June 2010	1,382	8,064	113	929	(298)	1,499	2,406	15,088	29,183

 

 

Condensed group balance sheet at 30 June 2010

 

		Unaudited as at 30 June 2010 £000	Unaudited as at 30 June 2009 £000	Audited as at 31 December 2009 £000
Non-current assets
Property, plant and equipment		1,485	1,760	1,584
Goodwill		7,524	8,049	7,372
Other intangible assets		1,300	1,120	939
Deferred tax asset		203	1,637	1,576
		10,512	12,566	11,471
Current assets
Trade and other receivables		23,869	21,026	20,986
Current tax receivable		772	225	123
Cash and short term deposits		1,662	1,794	3,975
Other financial assets		93	150	48
		26,396	23,195	25,132
Total assets		36,908	35,761	36,603
Non-current liabilities
Trade and other payables		-	(167)	-
Provisions		-	(127)	-
Deferred tax liabilities		-	(463)	(616)
		-	(757)	(616)
Current liabilities
Trade and other payables		(7,560)	(7,502)	(6,380)
Current tax payable		-	(53)	(326)
Provisions		(165)	(153)	(185)
		(7,725)	(7,708)	(6,891)
Total liabilities		(7,725)	(8,465)	(7,507)
Net assets		29,183	27,296	29,096
Equity attributable to equity holders of parent
Issued capital		1,382	1,428	1,429
Share premium		8,064	8,044	8,060
Other reserves		1,042	984	984
Own shares		(298)	(788)	(452)
Retained earnings		18,993	17,628	19,075
Total equity		29,183	27,296	29,096
Total equity and liabilities		36,908	35,761	36,603

 

 

Condensed group cash flow statement for the six months ended 30 June 2010

 

		Unaudited 6 months to 30 June 2010 £000	Unaudited 6 months to 30 June 2009 £000
Net cash flow from operating activities
Profit before tax		1,803	1,468
Finance revenue		(3)	(2)
Finance cost		28	29
Operating profit		1,828	1,495
Depreciation and amortisation		554	502
Share based payment expense		150	150
Movement in working capital		(1,561)	(2,891)
Cash generated from operations		971	(744)
Finance revenue received		3	2
Finance costs paid		(28)	(29)
Income taxes paid		(975)	(1,281)
Net cash flow from operating activities		(29)	(2,052)
Cash flow from investing activities
Purchase of tangible non-current assets		(134)	(415)
Purchase of intangible non-current assets		(659)	(69)
Purchase of subsidiary undertaking including costs		-	(689)
Net cash flow from investing activities		(793)	(1,173)
Cash flow from financing activities
Dividends paid to equity holders of parent		(613)	(561)
Purchase of own shares		(1,464)	-
Issue of shares		15	6
Net cash flow used in financing activities		(2,062)	(555)
Net decrease in cash and cash equivalents		(2,884)	(3,780)
Cash and cash equivalents at 1 January		3,975	5,691
Exchange adjustments		571	(117)
Cash and cash equivalents at 30 June		1,662	1,794

 

NOTES TO THE 2010 HALF YEAR RESULTS

 

 

1 BASIS OF PREPARATION

 

The Group prepares its condensed consolidated financial statements in accordance with IFRS as adopted by the European Union, and the statements have been prepared using the accounting policies set out in the Group's 2009 statutory accounts except as described below. For the purposes of this document the term IFRS includes International Accounting Standards and International Financial Reporting Interpretations (IFRICs).

 

This Half Year Report will be sent to shareholders and published on the Investor Relations section of the corporate website at www.kbcat.com. Further copies of this Half Year Report may be obtained from the Company Secretary, KBC Advanced Technologies plc, KBC House, 42-50 Hersham Road, Walton on Thames, Surrey, KT12 1RZ.

 

The financial information contained in this document does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

 

The comparatives for the full year ended 31 December 2009 are not the Group's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

 

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2010, but are not currently relevant for the Group:

 

Standard	Title	Effective date
IFRS 3 (revised)	Business combinations	1 July 2009
IAS 27 (amendment)	Consolidated and separate financial statements	1 July 2009
IAS 39 (amendment)	Financial instruments: Recognition and measurement	1 July 2009
IFRIC 17	Distribution of non-cash assets to owners	1 July 2009
IFRIC 18	Transfer of assets from customers	1 July 2009
IFRS	Improvements to IFRSs (2009)	1 January 2010
IFRS 2 (amendment)	Group cash settled share based payment transactions	1 January 2010

 

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2010 and have not been adopted early:

 

Standard	Title	Effective date
IAS 32 (amendment)	Classification of rights issue	1 February 2010
IFRIC 19	Extinguishing financial liabilities with equity instruments	1 July 2010
IAS 24 (revised)	Related party disclosures	1 January 2011
IFRIC 14 (amendment)	IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction	1 January 2011
IFRS	Improvements to IFRSs (2010)	1 January 2011
IFRS 9	Financial instruments	1 January 2013

 

The Directors are assessing whether the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

 

 

2 EARNINGS PER SHARE

 

The calculation of basic earnings per share is based upon earnings of £1.05m (Jun 2009: £0.91m, Dec 2009: £3.03m) and on 56,213,000 (Jun 2009: 56,281,000, Dec 2009: 56,330,000) ordinary shares, being the weighted average number of ordinary shares in issue during the period after excluding shares owned by the KBC Advanced Technologies plc Employee Trust.

 

The calculation of diluted earnings per share is based upon earnings of £1.05m (Jun 2009: £0.91m, Dec 2009: £3.03m) and on 57,096,000 (Jun 2009: 57,580,000, Dec 2009: 57,624,000) ordinary shares, being the weighted average number of ordinary shares in issue during the period after excluding shares owned by the KBC Advanced Technologies plc Employee Trust and adjusted for the weighted average effect of share options outstanding during the period.

 

The calculation of basic underlying earnings per share is based upon earnings of £0.88m (Jun 2009: £1.56m, Dec 2009: £3.73m) and on 56,213,000 (Jun 2009: 56,281,000, Dec 2009: 56,330,000) ordinary shares, being the weighted average number of ordinary shares in issue during the period after excluding shares owned by the KBC Advanced Technologies plc Employee Trust.

 

 

3 UNDERLYING OPERATING PROFIT

 

	Unaudited 6 months to 30 June 2010 £000	Unaudited 6 months to 30 June 2009 £000	Audited 12 months to 31 December 2009 £000
Operating profit	1,828	1,495	4,771
Amortisation of acquisition intangibles	138	126	245
Development costs carried forward	(659)	(69)	(105)
Amortisation of development costs carried forward	126	120	252
Redundancy costs	-	794	667
Underlying operating profit	1,433	2,466	5,830
Finance revenue	3	2	5
Finance cost	(28)	(29)	(166)
Underlying profit before tax	1,408	2,439	5,669
Tax expense	(533)	(879)	(1,939)
Underlying profit after tax	875	1,560	3,730

 

The basic underlying earnings per share calculated using this measure is 1.6p (Jun 2009: 2.8p, Dec 2009: 6.8p).

 

4 SEGMENTAL INFORMATION

 

The Group has adopted IFRS 8, Operating segments, which uses a "management approach", under which information is presented on the same basis as that used for internal reporting purposes.

 

Income statement for the six months ended 30 June 2010	Americas £000	Asia £000	EMEA £000	Unallocated £000	Total £000
Rendering of services (Consulting)	8,521	5,658	5,576	-	19,755
Sale of goods (Software)	2,640	1,140	2,032	-	5,812
Total revenue	11,161	6,798	7,608	-	25,567
Contribution	5,310	2,571	2,631	-	10,512
Operating profit before amortisation	2,751	649	(6)	(1,302)	2,092
Amortisation	-	-	-	(264)	(264)
Operating profit	2,751	649	(6)	(1,566)	1,828
Finance revenue	-	-	-	3	3
Finance cost	-	-	-	(28)	(28)
Profit before tax	2,751	649	(6)	(1,591)	1,803
Tax expense	-	-	-	(757)	(757)
Profit for the period	2,751	649	(6)	(2,348)	1,046

 

Income statement for the six months ended 30 June 2009	Americas £000	Asia £000	EMEA £000	Unallocated £000	Total £000
Rendering of services (Consulting)	7,331	5,019	6,602	-	18,952
Sale of goods (Software)	2,230	2,092	3,784	-	8,106
Total revenue	9,561	7,111	10,386	-	27,058
Contribution	3,234	3,843	4,831	-	11,908
Operating profit before amortisation	525	1,855	1,827	(2,466)	1,741
Amortisation	-	-	-	(246)	(246)
Operating profit	525	1,855	1,827	(2,712)	1,495
Finance revenue	-	-	-	2	2
Finance cost	-	-	-	(29)	(29)
Profit before tax	525	1,855	1,827	(2,739)	1,468
Tax expense	-	-	-	(558)	(558)
Profit for the period	525	1,855	1,827	(3,297)	910

 

 

5 TAX EXPENSE

 

The main factors affecting the forecast tax rate are as follows:

 

Higher income tax on overseas earnings		6.5% (2009: 3.2%)
Unrelieved foreign tax credits		5.7% (2009: 6.1%)
Expenses not deductible for tax purposes		6.4% (2009: 3.6%)

 

These factors are expressed as a percentage of the forecast profit before tax for 2010 and the actual profit before tax in 2009. The third item arises from foreign exchange gains that have been made in the accounts of overseas subsidiaries on intercompany loan balances that will be taxable in those entities but which are eliminated on consolidation in the Group accounts. There is therefore no reciprocal tax deduction in the holding company accounts.

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