RNS Number:6586O
KBC Advanced Technologies PLC
14 August 2003
Embargoed until 07.00 14 August 2003
KBC Advanced Technologies plc
("KBC" or the "Group", or the "Company")
Interim results for the six months ended 30 June 2003
Chairman's Statement
On 24 April 2003, the Board of KBC announced that it would
undertake a review of the strategic options for the business in
the light of what, at the time, was a challenging trading
environment. The purpose of the strategic review was to
consider all options available to maximise the full potential
of the business to provide value for shareholders. The Board
has concluded this review and believes that at this stage,
given the expectation of an upturn in current trading,
shareholder value will be maximised by the business continuing
to pursue its strategy as an independent company, while at the
same time restructuring the balance sheet and examining
dividend policy and employee incentivisation.
As part of the strategic review the Board held discussions with
interested parties in relation to a possible offer for the
Company, as announced on 11 June 2003. Whilst approaches were
received from a number of parties, the Board believes that the
level of interest did not attribute sufficient value to the
prospects of the Company and, therefore, would not achieve full
value for shareholders. Accordingly, the Board has now
terminated all such discussions.
The Board is now examining its alternative plan to maximise the
value of the Group to shareholders as an independent company.
This alternative will not only yield value to shareholders but
will also incentivise and retain the Group's key business
asset, its people. At the present time a significant
proportion of the market value of KBC is represented by cash
and the Group is largely free from debt. In an improving
environment for the business the Board is in the early stages
of formulating proposals to establish a capital structure
appropriate for the Company and in the interests of all
shareholders in the form of either a share buy-back or a
special dividend. Concurrently, the Board will examine the
Company's dividend policy such that it more closely relates to
the earnings capacity of the business in the short to medium
term. As part of this review, and in consultation with
shareholders, the Board also intends through more appropriate
incentivisation to align the interests of management and
employees across the business more directly with those of
shareholders.
As a package of measures, the Board believes that these steps,
combined with the medium term prospects for the business as
described below, will provide a solid platform from which to
rebuild shareholder value in the business.
Results
Turnover fell from the same period last year by #2.0m, or 10%
at constant exchange rates, with the impact of the weak sales
performance in 2002 felt across most areas of the business.
Turnover was hit by a further #1.5m, or 7%, from the weakening
US dollar, making a total fall of #3.5m, or 17%.
Operating costs before exceptional items and goodwill
amortisation fell by 7%, or #1.3m at constant exchange rates,
due to the benefits of the 2002 cost reduction programme.
Staff costs in particular were reduced by 11% and comprised
#1.1m of this total. Operating costs for the period have also
benefited by #0.9m from the weak US dollar when compared to the
average rates in 2002, making a total reduction of #2.2m, or
12%.
Operating profit before exceptional charges and goodwill
amortisation fell by #1.2m to #0.04m for the period, #0.5m of
which was a result of the foreign exchange impact described
above. Operating exceptional charges totalling #1.0m have been
incurred relating to the costs of the ongoing legal proceedings
with AEA Technology PLC ("AEA") and Aspen Technology Inc
("Aspen") (#0.8m) and to the costs of the continuing office
rationalisation and redundancy programme started last year
(#0.2m). Net funds fell by #2.9m overall with the major
factors being a net cash outflow from operations of #0.9m,
exceptional operating costs of #1.0m and the 2002 final
dividend of #1.3m.
Dividend
The Board has decided to maintain the interim dividend at 1.3p
per share (2002: 1.3p), which will be paid on 26 September 2003
to shareholders on the register at the close of business on 5
September 2003. This reflects the Board's confidence that the
second half of 2003 will show an improvement on the first half
as the workload and utilisation improves.
Operational review
KBC started 2003 with a low backlog of work following
disappointing contract awards in the previous year. The order
book deteriorated further in the first quarter of 2003 as
contract awards remained low, particularly in the Middle East
where awards of new work were delayed before and during the
Iraq war. Manpower utilisation in the first quarter was low
and, despite the cost reduction programme implemented in 2002,
operating margin was negative.
Contract awards steadily improved during the second quarter.
The order book has grown from a low point at the end of April,
with utilisation for the last two months being close to
optimum. The operating margin subsequently turned positive and
ensured results somewhat better than forecast in our trading
statement of 24 April 2003 so that the first half-year as a
whole broke even at the operating level before exceptional
costs.
As part of the re-organisation implemented last year Process
Consulting and Implementation Services were merged on a
regional basis. This reflects the growing trend for Profit
Improvement Program (PIP) contracts to include early
implementation. This area suffered particularly during the
first quarter although it improved considerably after the April
low point, with material awards in Japan, the Far East and the
Middle East. Reliability and Maintenance has continued to
grow, albeit at a slower pace than in 2002. Growth has also
come in the Planning area with notable success from strategic
planning work in Latin America. Turnover from software sales
was maintained at constant exchange rates as demand for model
sales continued.
Although Process Consulting has suffered an overall fall in
revenue, the Americas region has seen stronger sales awards and
has benefited from the stability of sales and operations
resources working closer together and the success of a customer
re-engagement programme. The main impact of 2002's re-
organisation was felt outside the Americas where the new
structure has taken longer to become effective. The model
being followed outside the Americas region is that which has
become successful in the Americas after several lean years in
the late 1990s and is expected to improve future sales
performance once established.
The re-organisation programme and the office moves in the last
12 months have been highly unsettling for KBC's employees.
Further uncertainties have been created by the strategic review
announced in April. Despite this, staff turnover has remained
low and a period of stability following the completion of the
strategic review will be welcomed. The contribution of all
staff to the improvement in trading and results over recent
months is recognised.
Software Dispute
The legal proceedings with AEA and Aspen continue. The costs
incurred came mainly in the first quarter (when arbitration
hearings were held) and have reduced since then. Following the
partial arbitration award made in March, KBC gave notice of
termination of the Master Agreement with AEA in June. AEA has
contested the validity of the notice and has itself issued
notice of termination. In either event KBC is now free of the
onerous non-compete conditions of the Master Agreement which
will allow KBC greater freedom to develop and market its own
software. Discussions have been held with both Aspen and AEA in
an attempt to resolve all matters without recourse to further
legal proceedings.
2003 Outlook
Although the first half of 2003 as a whole has been
disappointing, there were clear signs of recovery during the
second quarter which have continued since the end of the
period. The cost reduction programme is complete and the
consulting staff have been at optimal utilisation in recent
months. Following the low point marked by the Trading
Statement issued on 24 April 2003 and the end of the Iraq war,
trading has picked up and indicators are for a much improved
performance in the second half of the year. The sales pipeline
has increased considerably during this period and the value of
realistic prospects stands at a two-year high point. The
conclusion of the first part of the strategic review referred
to above will allow focus to return to business performance.
Further contract awards are needed in the short term to
maintain the improved performance of recent months and
opportunities in strategic planning, software and long term
technical services are being developed to stand alongside the
traditional process consulting work.
-ends-
Enquiries:
KBC Advanced Technologies plc am: 020 7067 0700
Nicholas Stone, Finance Director pm: 01932 236314
Weber Shandwick Square Mile 020 7067 0745
Christian Taylor-Wilkinson
Notes to Editors: KBC Advanced Technologies plc is a leading
independent process engineering group which provides consulting
services and implemented solutions worldwide to owners and
operators of oil refineries and other clients in the process
industries. KBC analyses plant operations and management
systems, recommends changes that deliver material and
measurable improvements in profitability and offers
implementation services to assist clients in realising
measurable financial improvements. It also offers economic and
pricing studies focused on the future outlook for the oil
industry. KBC works with its clients both to implement its
recommendations and to realise and monitor the resulting
improvements in profits on a continuing basis. In carrying out
this work its consultants make extensive use of the process
simulation software tools which KBC has developed.
Group profit and loss account
for the six months ended 30 June 2003
Unaudited 6 months to 30 June 2003
------------------------------------------------
Before Unaudited Audited
Exceptional 6 months to 12 months to
charges & Exceptional 30 June 31 December
goodwill operating Goodwill 2002 2002
amortisation charges amortisation Total Total Total
Notes #000 #000 #000 #000 #000 #000
---------------------------------------------------------------------------------------------------------
Turnover 16,699 - - 16,699 20,186 38,193
Staff costs 4 (8,476) (108) - (8,584) (9,708) (20,028)
Depreciation and
amortisation (489) - (280) (769) (732) (1,533)
Other operating charges 4 (7,695) (912) - (8,607) (9,548) (18,623)
---------------------------------------------------------------------------------------------------------
Operating (loss) / profit 39 (1,020) (280) (1,261) 198 (1,991)
Interest receivable 74 - - 74 204 318
Amounts written off
fixed asset investments - - - - - (1,451)
---------------------------------------------------------------------------------------------------------
(Loss) / profit on ordinary
activities before taxation 113 (1,020) (280) (1,187) 402 (3,124)
Taxation on (loss) / profit on
ordinary activities (125) 296 - 171 (140) 673
---------------------------------------------------------------------------------------------------------
(Loss) / profit on ordinary
activities after taxation (12) (724) (280) (1,016) 262 (2,451)
Dividends - equity interests (605) (636) (1,938)
---------------------------------------------------------------------------------------------------------
Retained loss (1,621) (374) (4,389)
---------------------------------------------------------------------------------------------------------
(Loss)/earnings per
share (pence)
- basic 2 (2.18) 0.54 (5.08)
- diluted 2 (2.15) 0.54 (5.08)
Basic (loss) /
earnings per share
(pence) before
exceptional items
and goodwill
amortisation 2 (0.02) 2.19 3.33
---------------------------------------------------------------------------------------------------------
Group balance sheet
at 30 June 2003
Unaudited Unaudited Audited
at 30 June at 30 June at 31 December
2003 2002 2002
-----------------------------------------------------------------
#000 #000 #000 #000 #000 #000
-------------------------------------------------------------------------------------------------
Fixed assets
Intangible assets 5,082 5,797 5,464
Tangible assets 2,246 2,619 2,537
Investments 987 2,738 1,287
-------------------------------------------------------------------------------------------------
8,315 11,154 9,288
Current assets
Debtors 13,843 12,008 12,745
Investments 300 4,236 300
Cash at bank and in hand 4,294 10,744 7,623
-------------------------------------------------------------------------------------------------
18,437 26,988 20,668
Creditors: amounts falling
due within one year (4,935) (9,250) (5,825)
-------------------------------------------------------------------------------------------------
Net current assets 13,502 17,738 14,843
-------------------------------------------------------------------------------------------------
Total assets less current
liabilities 21,817 28,892 24,131
Creditors: amounts falling
due after one year (300) (600) (600)
Provision for liabilities
and charges (704) (719) (964)
-------------------------------------------------------------------------------------------------
20,813 27,573 22,567
-------------------------------------------------------------------------------------------------
Capital and reserves
Called up share capital 1,202 1,258 1,202
Share premium account 6,038 6,038 6,038
Capital reserve 79 23 79
Merger reserve 147 147 147
Profit and loss account 13,347 20,107 15,101
-------------------------------------------------------------------------------------------------
Shareholders' funds: equity
interests 20,813 27,573 22,567
-------------------------------------------------------------------------------------------------
Group statement of cash flows
for the six months to 30 June 2003
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 June 30 June 31 December
2003 2002 2002
Notes #000 #000 #000
--------------------------------------------------------------------------------------------------
Net cash (outflows) / inflow from operating
activities 3 (1,912) 817 (765)
--------------------------------------------------------------------------------------------------
Returns on investments and servicing of finance
Interest received 74 204 318
--------------------------------------------------------------------------------------------------
Taxation 352 (1,586) (1,847)
--------------------------------------------------------------------------------------------------
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (112) (397) (799)
--------------------------------------------------------------------------------------------------
Acquisitions
Purchase of subsidiary undertakings including costs - (769) (4,290)
Payment of loan notes (710) - -
Cash returned from / (placed on deposit) in
respect of acquisition loan notes 300 (4,836) (900)
Net funds acquired with subsidiary undertakings - 426 452
--------------------------------------------------------------------------------------------------
Net cash outflow from acquisitions (410) (5,179) (4,738)
--------------------------------------------------------------------------------------------------
Equity dividends paid (1,302) (1,361) (1,994)
--------------------------------------------------------------------------------------------------
Management of liquid resources
Decrease in short term deposits 3,316 2,418 9,867
--------------------------------------------------------------------------------------------------
Financing
Shares issued - 36 36
Redemption of shares - - (683)
--------------------------------------------------------------------------------------------------
Net cash inflow / (outflow) from financing - 36 (647)
--------------------------------------------------------------------------------------------------
Increase/(decrease) in cash in the period 6 (5,048) (605)
--------------------------------------------------------------------------------------------------
Reconciliation of net cash flows to movements
in net funds
Increase/(decrease) in cash in the period 6 (5,048) (605)
Cash used to decrease liquid resources (3,316) (2,418) (9,867)
--------------------------------------------------------------------------------------------------
Change in net funds resulting from cash flow (3,310) (7,466) (10,472)
Loan notes 710 - (1,310)
Cash (returned from) / placed on deposit in
respect of loan notes (300) - 900
Translation difference (19) (8) (123)
--------------------------------------------------------------------------------------------------
Movement in net funds in the period (2,919) (7,474) (11,005)
Net funds at start of period 7,213 18,218 18,218
Net funds at end of period 4,294 10,744 7,213
Notes
1 Basis of preparation
These unaudited interim financial statements, which do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985, have been
prepared using the accounting policies set out in the Group's 2002 statutory
accounts.
The statutory accounts for the year ended 31 December 2002 received an
unqualified auditor's report and have been delivered to the Registrar of
Companies.
The interim report will be sent to shareholders. Further copies may be obtained
from the Company Secretary, KBC Advanced Technologies plc, KBC House, 42-50
Hersham Road, Walton on Thames, Surrey, KT12 1RZ.
2 Loss per share
The calculation of basic loss per share is based upon a loss of #1,016,000
(2002: profit of #262,000) and on 46,490,913 (2002: 48,531,504) Ordinary Shares,
being the weighted average number of Ordinary Shares in issue during the period
after excluding the shares owned by the KBC Advanced Technologies plc Employee
Trust.
The diluted loss per share is based upon 47,184,755 (2002: 48,609,214) Ordinary
Shares, allowing for the full exercise of outstanding purchase options, and a
loss of #1,016,000 (2002: profit of #262,000).
The calculation of basic earnings per share before exceptional items and
goodwill amortisation is based upon a loss of #12,000 (2002: #1,062,000 being
profit on ordinary activities after taxation of #262,000 less exceptional
charges of #851,000 less tax thereon of #255,000 and less goodwill amortisation
of #204,000) and on 46,490,913 (2002: 48,531,504) Ordinary Shares, being the
weighted average number of Ordinary Shares in issue during the period after
excluding the shares owned by the KBC Advanced Technologies plc Employee Trust.
3 Reconciliation of operating profit to net cash inflow from operations
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
Operating (loss)/profit (1,261) 198 (1,991)
Depreciation and amortisation 769 732 1,533
Exchange differences (101) (227) (373)
Decrease / (increase) in debtors (1,225) 1,181 1,600
(Decrease) / increase in creditors (41) (1,011) (1,723)
(Decrease) / increase in provisions (53) (56) 189
-------------- -------------- ---------------
(1,912) 817 (765)
-------------- -------------- ---------------
4 Exceptional operating items
a) Staff related reorganisation costs
The exceptional staff costs of #0.1m represent the costs incurred as a result of
the re-organisation and redundancy programme commenced last year. These costs
decreased profit after tax by #0.1m, with a cash outflow of #0.1m.
b) Other operating charges
Other operating charges comprise the following items:
- Legal costs
Legal costs of #0.8m have been incurred in respect the ongoing arbitration process
concerning a joint development agreement and in respect of legal proceedings
initiated by the Company in the United States. These costs decreased profit after
tax by #0.6m, with a cash outflow of #0.8m.
- Office move
The ongoing costs of an office rationalisation programme initiated
during the second half of the year 2002 resulted in a non-recurring charge of #0.1m
related to office relocation. These costs decreased profit after tax by #0.1m, with
a cash outflow of #0.1m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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