RNS Number:0020W
KBC Advanced Technologies plc
02 March 2004
Embargoed until 07.00 2 March 2004
KBC Advanced Technologies plc
("KBC", "the Company" or "the Group")
Preliminary Results for the year ended 31 December 2003
FINANCIAL HIGHLIGHTS
2003 2002
Turnover #32.3m #38.2m
Operating profit* #0.7m* #1.5m*
Profit before tax* #0.9m* #1.8m*
Loss per share 3.19p 5.08p
Dividend per share - final 2.80p 2.80p
- total 4.10p 4.10p
* before exceptional charges and goodwill amortisation
*Difficult tradingconditions continued throughout 2003
*New Chairman and Chief Executive in place
* Business repositioning initiatives under way
* Total costs reduced by 14%
*37% growth in revenue from acquisitions made in 2002, including Energy
Services and PEL
*Turnover and operating profit significantly affected by weak US dollar
*Software revenue up 10%, despite ongoing software dispute
Commenting on the results, Peter Close, Chief Executive of KBC, said:
"During 2003 KBC's performance was adversely impacted by uncertainties as to the
future ownership of the business and the distraction of the continuing
litigation. Since September 2003 a number of strategic initiatives have been put
in place to strengthen client relationships and further improve KBC's services.
The KBC brand and reputation in the market remain strong and the longer-term
outlook is positive once the work to stabilise the business and position it for
growth has been completed.
In the year ofour 25th anniversary I find myself once again in the privileged
position of working with Chris Powell-Smith and all of the KBC team to develop
and implement these new initiatives to enable the company to realise its true
potential."
- Ends -
Enquiries:
KBC Advanced Technologies plc 01932 236314
Peter Close, Chief Executive
Nicholas Stone, Finance Director
Weber Shandwick Square Mile 020 7067 0700
Mike Kirk or Christian Taylor-Wilkinson
Notes to Editors: KBC Advanced Technologies plc is the leading independent
process engineering group delivering improved profitability through consulting
services and practical solutions to owners and operators of oil refineries and
other clients in the process industries worldwide. KBC analyses plant operations
and management systems, recommends changes that deliver material and measurable
improvements in profitability and provides implementation services to assist
clients in realising measurable financial improvements. KBC also forecasts crude
and petroleum products prices, and 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.
Embargoed until 07.00 2 March 2004
KBC Advanced Technologies plc
("KBC", "the Company" or "the Group")
Preliminary results for the year ended 31 December 2003
CHAIRMAN'S STATEMENT
2003 was a turbulent year for KBC with difficult trading
conditions prevailing throughout the period. The strategic
review carried out in the middle of the year led to
discussions with a number of interested parties, although
these were subsequently terminated when it became clear that
they would not deliver appropriate value to shareholders. In
addition, the software litigation continued throughout the
year. The combination of these factors led to high levels of
uncertainty and anxiety within the business. The appointment
of Peter Close as Chief Executive in September has gone a long
way to restoring stability within the organisation and has
ensured there has been no material loss of employees, KBC's
principal asset, during this period.
Following Peter Close's appointment, a comprehensive review of
KBC's approach to its markets wasundertaken with the
objective of repositioning the business to better meet the
needs of the industries served by KBC. A number of
initiatives have already commenced which both strengthen the
Group's existing offerings and open up opportunities for new
business.
Results
At constant exchange rates turnover was down year on year by
11% from #38.2m to #34.0m. Prior to exceptional operating
charges and goodwill amortisation, operating profit at
constantexchange rates fell by 19% from #1.5m to #1.2m. At
current exchange rates these results have been materially
impacted by the decrease in the sterling value of US dollar
revenue which accounts for approximately 80% of KBC's overall
revenues. Hence turnover has fallen by a further #1.7m, or
4%, to #32.3m, and operating profit before exceptional charges
and goodwill has fallen by a further #0.5m, or 33%, to #0.7m.
An operating exceptional charge has been made for ongoing
costs associated with the software dispute of #1.3m, costs of
the completed reorganisation of #0.9m and costs of the
strategic review of #0.2m. After these exceptional operating
charges, goodwill amortisation and interest earnings the Group
realised a loss before tax of #2.0m (2002: #3.1m). Basic loss
per share was 3.19p (2002: 5.08p), with earnings per share
before exceptional operating items and goodwill falling from
3.33p in 2002 to 1.37p in 2003.
The Board is proposing to hold the final dividend at 2.8p per
share (2002: 2.8p per share) which, subject to shareholder
approval, will be paid on 27 April 2004 to those shareholders
on the register at 13 April 2004. Total dividend for the year
will amount to 4.1p, unchanged from last year. The Board
recognises that the dividend is not covered by 2003 earnings,
but believes that it is appropriate to maintain this dividend
given the Group's current cash position.
Software dispute
The dispute with AEA Technology PLC ("AEA") regarding
HYSYS.Refinery under the software development agreement
between KBC and AEA continues. Discussions have failed to
deliver a basis for settlement. In March 2003 the arbitrator
issued an order requiring AEA to deliver version 3.01 of
HYSYS.Refinery to KBC. It was not delivered and KBC
terminated the agreement in June 2003 for material breach. A
further hearing is set for March 2004 to resolve the validity
and consequences of the termination.
In September 2003 KBC filed an injunction in the USA against
Aspen Technology Inc ("Aspen") and Hyprotech Ltd
("Hyprotech"), which is now a wholly owned subsidiary of Aspen
following its purchase from AEA in 2002, alleging violation of
non-compete obligations owed to KBC. The US court referred
the claim against Hyprotech to the UK arbitration process and
this issue will also be determined in the March 2004 hearing.
Whilst the non-availabilityof HYSYS.Refinery continues to
frustrate KBC's ability to market it, KBC is not prevented
from continuing to market the KBC/Profimatics models, over
which neither Aspen nor AEA has any legal right. In October
2003 KBC was awarded part of its costs associated with the
arbitration hearings to that date. No costs were awarded to
AEA. The extent of this award is not yet quantifiable and
has, therefore, not been recognised in the 2003 financial
statements.
Board changes
Having been on the Board since 1999, and having helped to
steer the business through a number of challenges, I have
decided to step down. The next stage of development at KBC
will cover the transition required to achievea more
satisfactory and stable level of profit. Chris Powell-Smith
will take over as Chairman of the Board with immediate effect
in order to oversee this phase. As announced in September
2003, Peter Close succeeded Don Romano as Chief Executive in
December 2003.
George Bright is appointed to the Board today as Chief
Operating Officer. Mr Bright is a Chemical Engineer and
joined KBC in 1997 to lead its emerging Reliability and
Maintenance business, having worked previously for Esso and
IBM. It is recognised that further Board appointments will be
necessary during 2004 in order to comply in full with the
revised Combined Code and steps are being taken to ensure
appropriate succession planning.
REVIEW OF OPERATIONS
Despite the recent consolidation in the oil and gas industry,
there is still strong underlying demand for the technology and
consulting services offered by KBC. During the fourth quarter
a thorough review of thebusiness and its relationship with
clients was undertaken. This highlighted significant gaps in
certain geographic regions and service lines that were
adversely impacting KBC's sales efforts, its ability to engage
with clients at the right level, and ability to offer services
aligned to the clients' needs.
A number of strategic initiatives have been put in place to
strengthen client relationships and further improve KBC's
services in the market. The aim is to differentiate KBC's
offerings and to increase the proportion of recurring
revenues. These initiatives include the generation of the
next suite of plant optimisation tools to be used in long-term
technical services contracts. Eventually these tools will be
used to monitor facilities remotely, resulting in a lower cost
and more efficient consulting operation. Furthermore, KBC
will continue to expand its consulting services into related
industries. Development of appropriate process consulting
tools for the petrochemicals sector is well established, and
efforts are under way to increase revenue from the upstream
oil and gas sector.
Consulting services
The two acquisitions made in early 2002 started to yield
material benefits in 2003. Linnhoff March provides specialist
energy services, focused on the optimisation of existing
plant, and minimising capital expenditure on new or revamped
facilities. The combination of these services with KBC's
refinery-wide operational experience has resulted in a unique
consulting service, renamed as KBC Energy Services. This was
KBC's best performing area in 2003, materially exceeding its
revenue and contribution targets for the year.With
continued emphasis on both reducing energy consumption and
minimising emissions, it is anticipated that growth will be
maintained in this area.
Petroleum Economics (PEL) offers high level price forecasting
and economic strategy consulting services, focused on
supply/demand balances and crude/product pricing. This adds a
vital commercial perspective to KBC's core technical strengths
and has allowed KBC to enter the strategic planning market,
incorporating such services as due diligence, capital
investment planning and national energy planning.
KBC's Reliability and Maintenance services continue to
spearhead the Group's diversification into the upstream
sector. Having completed a major project on a UK North Sea
oil-gathering terminal, this business line has now expanded
into offshore platform work.
Year-on-year growth has been seen in Planning Services as the
range of services continues to evolve to meet client demands.
2003 saw the execution of KBC's largest planning contract to
date, utilising tools developed for planning and screening of
investment opportunities of a whole national supply chain:
from crude production through refining, petrochemicals and
product distribution. These best practice methodologies will
form the basis for a new initiative to be launched in the
first half of 2004.
KBC's core offering of Profit Improvement Programs ("PIPs")
fell short of revenue expectation in 2003. Most of the
shortfall was due to lower sales than expected in Western
Europe, the FSU and China. Manpower adjustments were made
throughout the year to match resource with workload, and
several innovations were developed to align the services
offered with market requirements. These innovations included
programmes to identify client improvement opportunities in the
early phase of the PIP and more rapid implementation of those
recommendations.
Software services
Using the experience gained from the ongoing PIP services, a
consistent set of business applications supporting downstream
best practice has been developed using enhanced versions of
the KBC Profimatics models. These are currently being
implemented at several client sites. The potential for
continued sales of KBC's models remains good, as evidenced by
the significant corporate purchase of the FCC-SIM model by US
refiner, Valero, and several other multi-site purchases in
Asia and North and South America. KBC continues to benefit
from a regular income stream from annually renewed software
support agreements.
Sales and marketing
Sales in Latin America continued to be strong with the
extension of a multi-site PIP into a further three years of
implementation services. A PIP was sold in South Africa, the
first significant contract in that country for many years.
The Middle East, Japan and Korea continued to be areas of
strong sales.
Trading in Western Europe remained poor despite a recovery in
refining margins. The bulk of KBC's 2003 sales and marketing
effort was employed by a new sales team in rebuilding the
order book. The extended sales cycle time in both the FSU and
China led to significant slippage in prospective work, with
resultant shortfall of revenue in 2003. Nevertheless, the
level of prospective sales at the year-end has improved, and
confirmed backlog of work has also increased compared to the
position at the end of June 2003.
The sales and marketing function has been re-organised to
ensure that KBC offers services which are appropriate for the
state of development of different geographic markets and take
account of the competitive environment in the relevant region.
This repositioning should deliver benefits in 2004 and beyond.
People
KBC has continued to ensure that manpower levels are carefully
matched to market conditions, although overall reductions
obscure the growth which has been seen in some of the key
areas of the business. The numbers of both consultant and
support staff have been reduced. Given the prospective
workload, the size of the consultant base is effectively at
its minimum level, and in the support functions the cost
reduction programme is complete. The Group is now well
positioned to absorb additional revenues with little increase
in support costs.
Against this background it is pleasing to note that staff
morale and loyalty to the Group improved significantly in the
last quarter of 2003. There is strong support for, and belief
in, the redefined strategic direction. This commitment is
appreciated and will be fundamental in enabling KBC to
stabilise performance in 2004, and position it to develop new
technologies and approaches to generate growth in 2005 and
beyond.
OUTLOOK
2004 will be a year of continuing transition and turnaround
within KBC, both at Board level and within the business. The
main objectives are to create the right conditions for a
resumption of sustainable growth in 2005 and to resolve the
software litigation. The strategic initiatives are focused on
rejuvenating the core business as well as repositioning the
product and service offerings for today's market environment.
KBC's brand and reputation in the market remain strong and the
longer-term outlook is positive once the work to stabilise the
business and position it for growth has been completed.
It remains the Board's intention to review the capital
requirements of the business after the resolution of the
software dispute and in the light of progress made in
restoring profitability to the company. The Board will, in
particular, review the cash available to the Group and
consider realignment of the Company's dividend policy and
employee incentivisation to the underlying earnings of the
business, rather than to its cash resources.
- Ends -
Enquiries:
KBC Advanced Technologies plc 01932 236314
Peter Close, Chief Executive
Nicholas Stone, Finance Director
Weber Shandwick Square Mile 020 7067 0700
Mike Kirk or Christian Taylor-Wilkinson
Notes Before
exceptional
charges and
goodwill Exceptional Goodwill Total Total
amortisation charges amortisation 2003 2002
#000 #000 #000 #000 #000
------- ------- ------- ------- -------
Turnover 32,274 - - 32,274 38,193
Staff costs (16,725) (766) - (17,491) (20,028)
Depreciation and
amortisation (947) - (490) (1,437) (1,533)
Other operating
charges (13,898) (1,631) - (15,529) (18,623)
------- ------- ------- ------- -------
Operating loss 2 704 (2,397) (490) (2,183) (1,991)
------- ------- ------- ------- -------
Interest receivable 200 - - 200 318
Amounts written off
fixed asset investments- - - - (1,451)
------- ------- ------- ------- -------
Loss on ordinary
activities before taxation 904 (2,397) (490) (1,983) (3,124)
Taxation on loss on
ordinary activities 3 (267) 766 - 499 673
------- ------- ------- ------- -------
Loss on ordinary
activities after taxation 637 (1,631) (490) (1,484) (2,451)
Dividends - equity
interests (1,906) (1,938)
------- ------- ------- ------- -------
Retained loss for the
period (3,390) (4,389)
------- ------- ------- ------- -------
Loss per share
(pence) - basic 5 (3.19) (5.08)
- diluted 5 (3.17) (5.08)
Basic earnings per
share (pence) before
exceptional items and
goodwill amortisation 5 1.37 3.33
------- ------- ------- ------- -------
Group statement of total recognised gains and losses
for the year ended 31 December 2003
2003 2002
#000 #000
------ ------
Loss attributable to shareholders of the Group (1,484) (2,451)
Exchange difference on retranslation of net assets of
subsidiary undertakings (594) (563)
------ ------
Total recognised losses for the year (2,078) (3,014)
------ ------
2003 2002
----------- -----------
#000 #000 #000 #000
-------- -------- -------- --------
Fixed assets
Intangible assets 4,770 5,464
Tangible assets 1,999 2,537
Investments 987 1,287
-------- -------- -------- --------
7,756 9,288
Current assets
Debtors 12,664 12,881
Investments 300 300
Cash at bank and in hand 4,275 7,623
-------- -------- -------- --------
17,239 20,804
Creditors: amounts falling due
within one year (4,932) (5,825)
-------- -------- ----------------
Net current assets 12,307 14,979
-------- -------- -------- --------
Total assets less current
liabilities 20,063 24,267
Creditors: amounts falling due
after one year (300) (600)
Provision for liabilities and
charges (1,180) (1,100)
-------- -------- -------- --------
18,583 22,567
-------- -------- -------- --------
Capital and reserves
Called-up share capital 1,202 1,202
Share premium account 6,038 6,038
Capital redemption reserve 79 79
Merger reserve 147 147
Profit and loss account 11,117 15,101
-------- -------- -------- --------
Shareholders' funds: equity
interests 18,583 22,567
-------- -------- -------- --------
2003 2002
#000 #000
-------- --------
Net cash outflow from operating activities (1,571) (765)
-------- --------
Returns on investments and servicing of finance
Interest received 200 318
-------- --------
Taxation 769 (1,847)
-------- --------
Capital expenditure and financial investment
Paymentsto acquire tangible fixed assets (257) (799)
-------- --------
Acquisitions
Purchase of subsidiary undertakings including costs - (4,290)
Payment of acquisition loan notes (710) -
Cash returned from/(placed on deposit) in respect of
acquisition loan notes 300 (900)
Net funds acquired with subsidiary undertakings - 452
-------- --------
Net cash outflow from acquisitions (410) (4,738)
-------- --------
Equity dividends paid (1,906) (1,994)
-------- --------
Management of liquid resources
Decrease in short-term deposits 2,806 9,867
-------- --------
Financing
Shares issued - 36
Redemption of shares - (683)
-------- --------
Net cash outflow from financing - (647)
-------- --------
Decrease in cash in the period (369) (605)
-------- --------
Reconciliation of net cash flows to movements in net funds
Decrease in cash in the period (369) (605)
Decrease in short-term deposits (2,806) (9,867)
-------- --------
Change innet funds resulting from cash flow (3,175) (10,472)
Acquisition loan notes 710 (1,310)
Cash (returned from)/placed on deposit in respect of
acquisition loan notes (300) 900
Translation difference (173) (123)
-------- --------
Movement in net funds in the period (2,938) (11,005)
Net funds at start of the period 7,213 18,218
-------- --------
Net funds at end of the period 4,275 7,213
-------- --------
Notes
1 Basis of preparation
The above financial information does not constitute
statutory accounts as defined by section 240 of the
Companies Act 1985. The results for the year ended 31
December 2003 and the balance sheet at that date are
extracted from the statutory accounts (on which the
auditors have given an unqualified opinion), which will
be filed with the Registrar of Companies. The accounts
have been prepared in accordance with UK generally
accepted accounting principles on a basis which is
consistent with those applied in previous periods. The
comparative financial information is extracted from the
statutory accounts for the year ended 31 December 2002
(on which the auditors gave an unqualified opinion).
2 Exceptional items
Staff related reorganisation costs
The exceptional staff costs of #0.8m (2002: #1.0m)
represent the costs incurred as a result of the
reorganisation and redundancy programme. Amounts paid
during the year related to this item were #0.6m (2002:
#0.6m). These exceptional costs decreased profit after
tax by #0.5m (2002: #0.7m).
Other operating charges
Other operating charges comprise the following items:
Legal costs
- Legal costs of #1.3m (2002: #1.6m) have been
incurred in respect of 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
#0.9m (2002: #1.1m), with a cash outflow of #1.1m (2002:
#0.9m).
Office move
- The Group completed a significant office
rationalisation programme that commenced in the prior
year which resulted in non-recurring costs related to
office relocation of #0.1m (2002: #0.1m). These costs
decreased profit after tax by #0.1m (2002: #0.1m), with a
cash outflow of #0.1m (2002: #0.1m).
Strategic review
- The Group incurred #0.2m of non-recurring costs in
respect of the strategic review. These costs decreased
profit after tax by #0.2m, with a cash outflow of #0.2m.
3 Tax on loss on ordinary activities
The Group's effective rate of current tax is influenced
by the recognition of a deferred tax asset of #1.1m in
respect of carry forward trading losses within the UK
subsidiary. The Directors believe that it is more likely
than not that the UK subsidiary will earn sufficient
taxable profits within the next eighteen months to
realise this deferred tax asset.
4 Litigation
In March 2002 the Company entered into arbitration
proceedings with AEA Technology PLC ("AEA"), with whom it
had an alliance for joint development of a software
product, on the interpretation of the joint development
agreement. The main subjects of the arbitration were the
definition of the product developed and its completion
and delivery. Arbitration hearings took place in early
2003. In March 2003 the arbitrator issued an order
requiring AEA to deliver the latest version of
HYSYS.Refinery to KBC. It was not delivered and KBC
terminated the agreement in June 2003 for material
breach. A further hearing is set for March 2004 to
resolve the validity and consequences of the termination.
On 11 September2002 the Company served legal proceedings
in Houston, Texas, on Aspen Technology Inc ("Aspen") and
its subsidiary, Hyprotech Ltd ("Hyprotech") (formerly
owned by AEA), as an additional measure to protect its
intellectual property rights. These proceedings relate,
amongst other things, to claims arising from Hyprotech's
and Aspen's responsibility for the delay in the
commercialization of the HYSYS.Refinery software product
to the detriment of the Group. The Company's claim
relates to the consequences flowing from these delays,
including the loss of significant software and associated
consulting services contracts. Aspen and Hyprotech have
asserted various counterclaims against the Group and have
sought to abate the case. These counterclaims do not
contain sufficient detail to enable an assessment to be
made of the likelihood of success or to estimate any
award that might be made as a consequence but in any
event will be strongly defended by the Group. The case
is now scheduled to be heard in November 2004.
In September 2003 KBC filed an injunction in the USA
against Aspen and Hyprotech, which is now a wholly owned
subsidiary of Aspen following its purchase from AEA in
2002, alleging violation of non-compete obligations owed
to KBC. The US court referred the claim against
Hyprotech to the UK arbitration process and this issue
will also be determined in the March 2004 hearing.
In October 2003 KBC was awarded part of its costs
associated with the arbitration hearings to that date.
No costs were awarded to AEA. The extent of this award
is not yet quantifiable and has, therefore, not been
recognised in these accounts.
5 Loss per share
The calculation of basic loss per share is based upon a
loss of #1,484,000 (2002: loss of #2,451,000) and on
46,491,000 (2002: 48,203,000) 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 loss per share is based upon a
loss of #1,484,000 (2002: loss of #2,451,000) and on
46,821,000 (2002: 48,203,000) Ordinary shares allowing
for the full exercise of outstanding options over new
shares.
The calculation of basic earnings per share before
exceptional items and goodwill amortisation is based upon
earnings of #637,000 (2002: #1,608,000) and on 46,491,000
(2002: 48,203,000) 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.
6 Copies of the Annual 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JBMLTMMIMBJI
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