Preliminary Results

CORAC GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009

Corac Group plc ('Corac'), the intellectual property and engineering group, specialising in direct drive turbo machinery, announces its preliminary results for the year ended 31 December 2009.

Operational Highlights

·; Continued development and testing of our Downhole Gas Compressor for the Eni SpA ('Eni') field trial

·; 2 industrial air machines each achieved c.7,000 hours factory testing

·; Industrial air booster compressor installed and running in Austria

·; New patents filed to extend the application of our core technology

·; Strengthened Board

·; Programme Management methodologies implemented

Financial Highlights

·; Revenues of £1.34m (2008: £0.66m)

·; Net loss after tax £2.93m (2008: loss £2.97m)

·; Loss per share 3.1p (2008: loss per share 3.5p)

·; £5.79m cash raised from investors during the year

·; £5.34m cash at year end (2008: £2.12m)

Commenting on the future, CEO, Phil Cartmell, said:

"Corac's strength is in the innovative ideas of its people. Progress has been made in the course of the year where we have supported new developments in the application of industrial air and DGC technologies and new patents have been filed to extend the application of our core technology.

Work is progressing on the Eni development project in Southern Italy in accordance with the revised timetable and plan. Contractual terms are ongoing with two potential development partners in the USA and the Middle East as we endeavour to commercialise the business and realise value for our stakeholders.

As outlined in his Executive Chairman's report, Professor Musgrave has decided to step down from the Board at the forthcoming AGM in June. I would particularly like to thank him for the role he has played over the last eleven years driving Corac to be where it is today and I am pleased that he will continue to work with the business in his new Research and Enterprise role."

For further information:

NOTES TO EDITORS

Corac is an intellectual property and engineering group which holds many patents. It focuses on high speed electrical direct drive turbo machinery based on its unique expertise in gas bearings. Corac has created an innovative 'no oil' turbo compressor and is part of a joint industry programme for the downhole gas extraction industry.

EXECUTIVE CHAIRMAN'S REPORT

Introduction

During 2009 interest in our core technology from existing partners and potential customers has continued. We have achieved further operational milestones from testing of our Downhole Gas Compressor (DGC) technology at our test sites and industry recognition of our technical capabilities is growing. However, as reported in November, we have experienced delays to our field trial in Italy which has been disappointing.

During the year £5.79 million was raised from investors and the Board has been strengthened.

Financial Review

The financial results for the year ended 31 December 2009 show a loss before tax of £3.69 million (2008: loss before tax £3.48 million). Revenue in the period doubled to £1.34 million (2008: £0.66 million) as a result of an increased contribution from our Joint Industry Programme ('JIP') partners in respect of the DGC field trial development.

Cash reserves at the year end amounted to £5.34 million (2008: £2.12 million), supported by the £5.79 million additional funds which were raised during the year.

At 31 December 2009 there were 108,343,977 ordinary shares of 10p each in issue with voting rights.

Operational Highlights

Interest in our DGC technology is increasing as more gas majors are examining their field dynamics and analysing the potential benefits of our technology to their business. As the trend in gas prices improves, the business case for deployment of DGCs to recover gas from depleting reserves becomes more compelling.

One potential development partner in the USA is looking for a well completion system using coil tubing. This new technique is less expensive and more flexible than that adopted for the Eni SpA ('Eni') field trial. Another potential partner in the Middle East is looking to apply our DGC technology on the surface to move gas via pipelines between wells of differing pressure. Contractual negotiations are ongoing to agree terms for both of these opportunities for new applications of our core technology.

Progress with Eni in Southern Italy has been slow and necessary development and design changes have resulted in a revised timetable and plan being put in place with the resulting field trial now planned to go live later this year as previously reported. While this is an obvious disappointment, we continue to work closely with all our partners and third parties involved in the field trial who remain committed about its execution.

Our industrial air machines have continued to perform well in the market, two of which have each achieved nearly 7,000 service hours at required higher energy efficiency. In addition, we now have an industrial air booster compressor installed and running in a bottling plant in Austria. Although the industrial air market has experienced a severe downturn during the recession, our relationships on joint development programmes with Leobersdorfer Maschinenfabrik GmbH & Co. KG ('LMF') and Fu Sheng have been maintained.

Board Changes

Phil Cartmell was appointed to the Board in September 2009 as Chief Executive and Mark Crawford was appointed as Commercial and Finance Director in November 2009. Mark, in his capacity as Finance Director, replaces Philip Newell.

In April 2010 Rohan Courtney OBE was appointed to the Board as non-executive director in place of Sian Westerman. Rohan's wealth of experience as a senior businessman, in particular within the energy sector, will be invaluable at this stage of the Company's development. Alan Wood also resigned in April and we are actively engaged in securing a new non-executive to replace Alan.

In line with the overall strategy to move the Company to become a more commercial business and now that most of the restructuring is in place following Phil's appointment, this is an appropriate time for me to step down from the Board at the forthcoming AGM in June 2010. I am pleased to be able to continue supporting Phil and his team in a new role with responsibility for Research and Enterprise, helping to drive the technical development of the business in the future.

Summary

By combining the extensive expertise of the new team and by bringing a more dynamic commercial approach, we have the potential to deliver our technology more rapidly into the market as well as ensure we invest appropriately to realise value for our stakeholders.

Professor G Musgrave

Executive Chairman

27 April 2010

Chief Executive Officer's report

Strategy

Following my appointment as CEO we have announced a number of changes to the Board. Going forward, the new Board is committed to commercialising the business and realising the future value of our core technology through the delivery of innovative applications for use within the global energy market.

Following the appointment of Mark Crawford as Commercial and Finance Director, the accounting needs of the business have been addressed to enhance the commercialisation of the Company by adopting financial practices which align with the needs of our partners and customers.

Positioning

Throughout this process, the value of Corac will be enhanced through more stringent commercial management, combined with a multi-disciplined team of skilled engineers making innovative use of our technology. Direct-drive turbo machinery is at the heart of our activities and provides simple, compact and energy efficient solutions to our industrial partners' challenges.

Activity in 2010 will focus on our innovative work in natural gas extraction, and the provision of clean, compressed gas in a wide range of commercial applications.

Given the environmental issues the world faces, we aim to capitalise upon the potential for our compressors in helping to deliver greater volumes of what is recognised as a cleaner fuel, and also to provide uncontaminated air for food production and other uses.

Markets

With the support of our Joint Industry Programme partners, Eni, Repsol and Conoco Phillips, we are progressing towards a field trial where we can demonstrate the capability and performance of our core technology within a DGC application. Additionally, following the announcement we made in late 2009 regarding the contractual negotiations with new development partners in the USA and Middle East, we have the chance to apply our technology in both additional applications and new environments.

Our market for industrial air has proved challenging due to global economic conditions. We are now analysing our position and to how best we can take forward the progress made to date to ensure we can deliver returns on the investment in this technology.

Methods

To deliver commercial success for the business and to realise the potential of our technology through these activities, we must manage the difficult demands that face a research and development business. We will adopt a more disciplined approach to enable continued innovation whilst managing risk, technical changes and the challenges of testing.

To this end, a Programme Management Office has been created and we are now implementing extensive programme management methods, tools and project processes to control delivery costs and timescales. 

Staff

Corac currently employs 37 staff, mostly involved directly in the research and development of our technology. We have some great talent and I recognise their contribution and efforts in 2009, and look forward to working with them in driving Corac's future commercial success by delivering the results that both our partners and investors expect from this business.

Innovation

Corac's strength is in the innovative ideas of its people. Progress has been made in the course of the year where we have supported new developments in the application of industrial air and DGC technologies and new patents have been filed to extend the application of our core technology. We have to ensure that through improved control of methods and processes we can support the continued evolution of our business.

Summary

In my short time with the Company, I am pleased with the commitment of all the staff and their drive to move the business forward. I would particularly like to thank Professor Musgrave for the role he has played over the last eleven years driving Corac to be where it is today and I am pleased that he will continue to work with the business in his new Research and Enterprise role. With the changes now being implemented, we can look forward to a year in which we move towards realising the potential of our technology and growing shareholder value.

Phil Cartmell

Chief Executive Officer

27 April 2010

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

All results relate to continuing activities.

Consolidated Statement of Financial Position

As at 31 December 2009

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009

Consolidated Statement of Cash Flows

For the year ended 31 December 2009

Notes to the preliminary announcement

1. Nature of operations and general information

The principal activities of Corac Group plc and its subsidiaries (the "Group") comprise the research and development of high speed, direct drive compressors based on its expertise in gas bearings and high speed shafts and motor drives for use in the extraction of gas from gas wells and for supercharging piston compressors used in factory applications. 

The Group has two main applications being:

(a) Downhole gas compressors ('DGCs') for deployment at the bottom of gas wells to increase the potential rate of extraction of gas and the absolute volume of gas that can be economically extracted. Under a Joint Industry Programme ('JIP'), the research and development has been supported by three gas operating companies ('JIP Partners'). The Group is working towards deployment of a DGC in a field trial at a gas well which is targeted for 2010.

(b) Industrial Air Compressors for use in supercharging existing piston compressors used in factory applications. Machines are currently being trialled in customers' operations, including at a food and beverage company.

Corac Group plc (the "Parent Company") is the Group's ultimate parent company which is incorporated and domiciled in the United Kingdom. The address of the Company is Brunel Science Park, Kingston Lane, Uxbridge, Middlesex UB8 3PQ. The Parent Company's shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange.

The preliminary announcement has been presented in pounds sterling (£) which is also the functional currency of the parent company.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 404 of the Companies Act 2006 for the years ended 31 December 2009 ("2009") or 31 December 2008 ("2008") but is derived from the 2009 financial statements. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009, prepared under IFRS as adopted by the EU, will be delivered in due course. The auditor's report on the 2009 financial statements was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006. The auditor's report on the 2008 financial statements was unqualified and did not contain a statement under Section 237(2) of the Companies Act 1985.

2. Basis of Preparation

This preliminary announcement is for the year ended 31 December 2009 and has been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended 31 December 2008 except for the adoption of IAS 1 Presentation of Financial Statements (Revised 2007) and IFRS 8 Operating Segments.

The adoption of IAS 1 (Revised 2007) does not affect the financial position or performance of the Group in the current or preceding periods. The measurement, classification and recognition of the Group's assets, liabilities, income and expenses is unchanged.

IFRS 8 replaced IAS 14 Segment Reporting upon its effective date. The Group concluded that a single operating segment exists in accordance with IFRS 8. IFRS 8 disclosures and the impact of the change in accounting standard are shown in Note 3.

3. Segmental reporting

Business segments

The Group has adopted IFRS 8 Operating Segments for the first time in 2009. For management purposes, the Group is treated as a single business unit comprising the research and development of high speed compressors, and as such a single reportable business segment exists. Current activities in this reportable segment are (i) the development of downhole gas compressors and (ii) the development of compressors for industrial air applications acting as superchargers for piston compressors. These activities are based on common intellectual property relating to air and gas bearings, high speed shafts and motor drives which is applicable to high speed compressors used in the DGC and Industrial Air operating activities. All activities are managed by one board and staff and operating costs are not exclusively assigned to any one activity. All income, expenses, cash flows, assets and liabilities for the current and preceding periods are attributable to this single reportable business segment.

Revenue in 2009 from four customers amounted to more than 10% of total revenue, contributing £604,956 (2008: £136,500), £271,089 (2008: £nil), £245,000 (2008: £136,500) and £170,000 (2008: £136,500) respectively. All revenues relate to the single reportable business segment.

Geographical segments

The Group's operations are solely in the United Kingdom although many of the Group's revenues are to customers outside the UK. All segment assets are located in the UK. The Group's revenues from external customers are analysed into the following geographical areas:

4. Operating loss

The Group operating loss for the year is stated after charging the following:

Included in wages and salaries is a total expense of share-based payments of £110,695 (2008: £93,810), all of which arises from transactions accounted for as equity-settled share-based payment transactions.

5. Taxation

Credit to consolidated income statement

The tax credit for the period is lower than the standard rate of corporation tax in the UK of 28% (2008: 28.5%). The differences are explained as follows:

Subject to agreement by HM Revenue & Customs, Corac Group plc has approximately £7,500,000 (2008: £6,900,000) of unrelieved tax losses.

6. Loss per share

The calculation of basic loss per share for the year ended 31 December 2009 is based upon a loss after tax of £2,934,567 (2008: £2,968,559) and a weighted average number of shares of 95,504,878 (2008: 85,156,760). The weighted average number of shares has been reduced by the weighted average number of shares held by the Employee Benefit Trust.

7. Share issues

On 2 February 2009 the Company announced the issue of 7,662,835 new ordinary shares of 10p each at 13.05 pence per share. On 28 September 2009 the Company announced the issue of 14,131,820 ordinary shares of 10p each at 35.00 pence per share. All these shares were subsequently admitted for trading on AIM. At 31 December 2009 Corac Group plc had called up share capital of 108,343,977 (31 December 2008: 86,549,322).

8. AGM

The Annual General Meeting of Corac Group plc will be held at 11:00 a.m. on 24 June 2010 at Buchanan Communications, 45 Moorfields, London EC2Y 9AE.