Final Results
Gas Turbine Efficiency PLC
16 April 2007
16 April 2007
Gas Turbine Efficiency plc
Preliminary Results for the year to 31 December 2006
Gas Turbine Efficiency plc ('GTE' or 'the Company'), a leading supplier of
advanced cleaning, performance monitoring and fluid and control systems for gas
turbines, announces its financial results for the year ended 31 December 2006.
Financial Highlights
•Revenues amounted to $4.7m (2005: $5.3m), reflecting the Company's
business model to invest in long term relationships with global Original
Equipment Manufacturers (OEMs)
•Gross margin broadly unchanged at 44.1% (2005: 44.8%)
•Total order intake in 2006 rose 58% to $8.6m, driven by an 158% increase
in aviation sector orders
•Net cash used by operating activities reduced by 66% to $0.75m (2005:
$2.2m)
•Basic and fully diluted loss per share were unchanged at 5 cents (2005: 5
cents)
•Cash and cash equivalents amounted to $2.9m (2005: $4.7m) as at 31
December
•On track for strong revenue growth in 2007 with total revenues up by 402%
to $3.4m in Q1 2007
•Current order book for 2007 is in excess of $10m, much of which is
expected to be turned into revenue in the first half
Operating Highlights
•Strong growth in aviation revenues, up by 29% to $2.7m
•Industrial sector revenues declined 37% to $2m reflecting the Company's
strategy to focus on long term supply agreements with global OEMs
•Won $5m contract from Pratt & Whitney for a global roll out of commercial
aviation hubs
•Multi-year agreement signed with Siemens Industrial Turbines AB
•Completed rigorous qualification process with four global OEMs in
industrial sector
•Expanded presence in Middle-East with an exclusive distribution agreement
with Nama
•Launched a Russian subsidiary to address large industrial turbines market
•Acquired Control Center LLC, a top tier supplier to the industrial
sector, in February 2007 to provide a strong platform for long term growth
•Signed a five year agreement in March 2007 with Solar, a Caterpillar
company, to design manufacture and supply cleaning systems for its entire
range of existing and new industrial turbines.
Steven Zwolinski, CEO of Gas Turbine Efficiency, said: 'We made tremendous
progress in 2006 and fulfilled all our strategic initiatives to position the
business for long term profitable growth. We strengthened relationships with key
industrial global OEMs by completing approximately 90% of their demanding
qualification tollgates for GTE technology. We have followed this up by making
the strategically important acquisition of Control Center in preparation for the
commercialisation and ramp of our industrial product lines.
'The positive impact of last year's achievements can already be seen in 2007.
Revenues in the first quarter of 2007 increased sharply and our first half order
book is almost double our revenues achieved in the whole of 2006. As a result we
have a solid platform for delivering strong growth for the year and beyond.'
Enquiries:
Gas Turbine Efficiency plc
Steven Zwolinski, CEO +44 20 7929 8989 on the day
+46 8 546 10 528
Libertas Capital
Aamir Quraishi, Charles Goodfellow +44 20 7569 9650
Corfin Communications
Neil Thapar, Harry Chathli +44 20 7929 8989
Overview
Gas Turbine Efficiency is pleased to announce a strong operational performance
for 2006, which positions the Company for sustained growth for the long term.
The period covered the Company's first full 12 month trading as an AIM-listed
company and was marked by its transformation into a much stronger business with
broader product lines, technical capabilities, global footprint, and customer
relationships. As a result of the solid foundations laid during 2006 and further
major milestones achieved early in 2007, GTE is a now a leading provider of
advanced cleaning, performance monitoring, fluid and control systems for gas
turbines primarily in the aviation, industrial, oil & gas and pharmaceuticals
sectors. The Company's customers include global OEMs such as Pratt & Whitney
(PW), Rolls-Royce, Saab, Siemens, Solar Turbines as well as gas turbine
operators such as Calpine, Norsk Hydro, SNAM, Statoil and TexasGenCo.
Total revenues during the year declined by 11% to $4.7m (from $5.3m) reflecting
a strong increase in demand for GTE's on wing advanced cleaning systems in the
aviation sector. However this was offset by a planned reduction in sales into
the industrial sector where the Company is pursuing a global strategy, discussed
below, to drive growth by focusing on long term partnership agreements with
global OEMs and major turbine operators.
Despite the lower revenues, gross margins were broadly unchanged at 44.1% (2005:
44.8%) as the Company benefited from manufacturing efficiencies and tight
control on costs. The loss before tax increased to $2.9m (2005: $2.4m) partly
due to sharply higher spending on research and development to cement
relationships with existing and potential new customers.
Operating review
The market opportunity for GTE in the global gas turbines sector is large and
growing. The global installed base for civilian and military aircraft engines is
estimated at approximately 120,000 units while the number of industrial turbines
currently in use is estimated at more than 40,000 units. The Company's core
strategy has remained consistent and simple: Combine three important business
elements:
•High Value Environmental and Performance Solutions
•Patented or Proprietary Position
•Strong Commercial Channel (Long term agreement with OEMs)
Aviation systems
Revenues from aviation systems rose by 29% to $2.7m demonstrating the successful
establishment of GTE's business model in this segment through an exclusive
partnership agreement with Pratt & Whitney. The combination of GTE's on-wing
wash technology solution and Pratt & Whitney's global commercial and operations
network yielded a 158% increase in order intake for GTE in 2006, including a $5m
order signed in December. Further, it positioned the product line for long term
opportunities in a number of new geographical and market segments.
The bulk of the $5m order will be delivered in the first half of 2007 and is
part of PW's global roll-out of an aviation services' hub that delivers
compelling cost efficiency and environmental benefits to commercial and defence
aircraft operators.
As previously announced, in January 2006, GTE's contract with PW was extended to
2014. This contract provides a solid foundation for long term growth for the
Company. GTE generates revenues under this contract from the sale of GTE
equipment as well as royalties based on the number of washes carried out by PW.
Industrial
Based on the success in the aviation sector we took on a huge challenge in 2006
to extend the business model with not one, but four industrial OEMs in parallel.
This strategy had an inherent timing risk - until approval by an OEM, industrial
sales by GTE would be essentially zero to that customer.
Revenues from the industrial segment (which includes power generation, oil & gas
and marine industries) decreased to $2m - 37% lower than the corresponding
period last year. The result was in line with the Company's expectations and its
strategy to work directly with global OEMs, and the required, non-recurring
process of GTE technology qualification. During the qualification period, GTE
was required to de-emphasise direct sales into a significant portion of its
end-customer base.
Although the strategy impacted turnover in the short term, the Company strongly
believes it will open up considerably larger market opportunities in the long
term by providing access to the global OEMs' large installed user base. To this
end, GTE is currently making excellent progress in achieving an extensive
programme of product qualifications at key global OEMs in the US and Europe.
Approximately 95% of the technical and intellectual property issues with all
four OEMs have been addressed and GTE is now in the process of completing long
term commercial contract terms with several OEMs in parallel.
Through the process, we have maintained ownership of our intellectual property
and more importantly, created a channel structure for the introduction of future
products in a much shorter cycle. Also of note is that GTE's product performed
as well or better than expected in the OEM technical evaluations.
The progress made in the industrial segment in 2006 has already begun to make a
positive impact. In March 2007 we announced a five year agreement with Solar, a
Caterpillar company, to design manufacture and supply cleaning systems for its
entire range of existing and new industrial turbines.
Control Center Acquisition
In preparation for the commercialisation and ramp up of our industrial product
lines, we made an important acquisition in February 2007 of Control Center, LLC
located in Orlando, Florida. This deal provides GTE with a proven Tier 1 OEM
supplier, US base of operations, 40 year industry track record, and world class
quality control system. In addition, it gives GTE several important
complementary product lines in the Gas Turbine market segment:
•Combustion System Monitoring
•Fuel Systems & Measurement
•Controls
•Fluid Systems and Packaging
•Parts Distribution
Of significance is that many of the core capabilities and customer base of
Control Center, LLC span several industry segments including Oil & Gas, Energy,
Pharmaceuticals and Aerospace. Their reputation as a capable, high quality
solutions provider is well founded and respected in the industry.
That said, the most important aspect of the acquisition is that when the Control
Center expertise in several important Gas Turbine sub-systems is combined with
GTE's core products and technology team, led by Tom Wagner, with over 30 years
of General Electric experience - the resulting team is significantly stronger
than either team separately.
GTE can now participate in larger, more complex systems solutions- a flexibility
that will be very important as the Power Generation, Oil & Gas and other Process
industries take on increasingly difficult Environmental, Economic and Fuel
challenges.
New geographic markets
The Company has also entered the highly promising markets in the Middle East and
Russia. Both regions are attracting major investment by the international oil
and gas industry. The Middle East is also investing heavily in water
desalination plants, which are large consumers of power. In Russia there is
already a large installed base of industrial turbines.
During the year GTE appointed Nama as its distributor in Abu Dhabi to address
the Middle East market and received its first order from that region. In Russia,
GTE has set up a new subsidiary based in St Petersburg with a sales and
marketing director.
Financial Review
Revenues decreased to $4.7m from $5.3m as strong growth from the aviation sector
was offset by a planned reduction in the industrial sector in line with the
Company's long-term strategy to focus on global OEM agreements.
The Eastern region maintained its contribution to overall revenues at $4.2m
(2005: $4.3m) while revenues from the Western region declined to $0.4m (2005:
$0.9).
Operating loss amounted to $2.7m (2005: $2.3m) partly reflecting a sharp
increase in research and development spending which more than doubled to $0.59m
(2005: $0.24m).
Loss before tax amounted to $2.9m (2005: $2.4m).
Basic and fully diluted loss per share were unchanged at $0.05 (2005: $0.05).
Cash and cash equivalents as at 31 December 2006 amounted to $2.9m (2005: $4.7m)
Outlook
During 2006 GTE focused on strengthening relationships with key global OEMs and
on expanding into new regions. These steps have made a positive impact on our
business, leading to a strong start to 2007.
Revenues in the first quarter of 2007 have increased by 402% compared with same
time last year and the total order book for first half is at a record level at
$9.7m. This provides the Company with a solid platform for delivering strong
growth for the year and beyond.
The Company is considering raising a further $5m through debt or equity sources
in order to capitalise upon its current and future growth initiatives.
CONSOLIDATED STATEMENTS OF INCOME
for the year ended 31 December 2006
Restated
Note 2006 2005
$'000 $'000
Continuing operations
Revenue 1 4 662 5 265
Cost of sales (2 608) (2 908)
Gross profit 2 054 2 357
Distribution and selling costs (843) (908)
Research and development expenses (585) (243)
Administrative expenses (3 390) (3 628)
Other operating income 50 140
Operating loss (2 714) (2 282)
Finance costs (204) (87)
Loss before tax (2 918) (2 369)
Tax 2 629 963
LOSS FOR THE YEAR ATTRIBUTABLE
TO EQUITY HOLDERS OF THE PARENT (2 289) (1 406)
Loss per share
From continuing operations
Basic and diluted loss per share ($) (0.05) (0.05)
CONSOLIDATED BALANCE SHEETS
at 31 December 2006
Restated
Note 2006 2005
ASSETS $'000 $'000
Non-current assets
Intangible assets
Capitalised expenditure for research and development 765 135
Patents 376 183
ERP-System 213 85
Goodwill 3 1 255 1 084
2 609 1 487
Tangible assets
Equipment, tools, fixtures and fittings 572 405
Financial assets
Investments 204 152
Deferred tax assets 4 1 743 1 128
Total non-current assets 5 128 3 172
Current assets
Inventories 556 442
Current receivables
Accounts receivable-trade 1 910 1 843
Income taxes recoverable 97 -
Other receivables 467 2 080
Prepaid expenses and accrued income 768 631
3 242 4 554
Cash and cash equivalents 2 855 4 705
Total current assets 6 653 9 701
TOTAL ASSETS 11 781 12 873
CONSOLIDATED BALANCE SHEETS
at 31 December 2006 (continued)
Restated
Note 2006 2005
$'000 $'000
EQUITY AND LIABILITIES
Equity
Share capital 156 156
Share premium 8 225 8 225
Capital reserve 2 636 2 636
Share based payment reserve 355 184
Revaluation reserve 59 30
Translation reserves 1 621 602
Retained earnings (4 663) (2 374)
Total equity attributable to equity holders of the 8 389 9 459
parent
Non-current liabilities
Financial liabilities - borrowings 90 94
Deferred tax liabilities 4 75 66
165 160
Current liabilities
Financial liabilities - borrowings 947 1 292
Accounts payable - trade 1 125 904
Income tax liability - 31
Other liabilities 146 142
Accrued expenses 1 009 885
3 227 3 254
Total liabilities 3 392 3 414
TOTAL EQUITY AND LIABILITIES 11 781 12 873
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended 31 December 2006
Restated
Note 2006 2005
$'000 $'000
Cash flow from operating activities
Loss after financial items (2 918) (2 369)
Adjustments to operating cash flows 723 329
Cash flow from operating activities before changes (2 195) (2 040)
in working capital
Cash flow from changes in working capital
(Increase)/decrease in inventories (41) 201
(Increase)/decrease in receivables 1 780 (1 342)
Increase in liabilities 86 1 058
1 825 (2 123)
Cash used by operations
Income taxes received - 16
Net interest paid (204) (88)
(204) (72)
Net cash used by operating activities (574) (2 195)
Cash flows from investing activities
Purchase of financial assets (27) -
Purchase of intangible fixed assets (964) (231)
Purchase of tangible fixed assets (226) (356)
Net cash used by investing activities (1 217) (587)
Cash flows from financing activities
New share issue (net of issue costs) - 5 371
Loans taken/(repaid) (523) 1 945
Net cash (used in)/generated by financing activities (523) 7 316
Net change in cash and cash equivalents (2 314) 4 534
Cash and cash equivalents at beginning of the year 4 705 137
Effect of foreign exchange rate changes 464 34
Cash and cash equivalents at end of the year 2 855 4 705
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2006
Ordinary Share Capital Share
shares premium reserves based
reserve payment
$'000 $'000 $'000 $'000
Balance at 1
January 2005 as
previously
reported 95 - 2 636 -
Change in accounting policy for test - - - -
equipment (net of income taxes)
Balance at 1
January 2005 as
restated 95 - 2 636 -
New share issue,
18,000,000 shares
at nominal £ 0.002 61 9 263 - -
IPO costs - (1 038) - -
Recognition of
share-based
payments - - - 184
Financial investments valued through - - - -
equity
Exchange differences arising on - - - -
translation of foreign operations
Net loss for the year - - - -
Balance at 31
December 2005 as
restated 156 8 225 2 636 184
Recognition of
share-based
payments - - - 171
Financial investments valued through - - - -
equity
Exchange differences arising on - - - -
translation of foreign operations
Net loss for the year - - - -
Balance at 31
December 2006 156 8 225 2 636 355
continued...
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2006
Revaluation Translation Retained Restated Total
reserve reserve earnings shareholders
Equity
$'000 $'000 $'000 $'000
Balance at 1
January 2005 - 1 039 (954) 2 816
as previously
reported
Change in
accounting
policy for - - (14) (14)
test equipment (net
of income taxes)
Balance at 1
January 2005 - 1 039 (968) 2 802
as restated
New share
issue,
18,000,000
shares at
nominal £
0.002 - - - 9 324
IPO costs - - - (1 038)
Recognition of
share-based
payments - - - 184
Financial
investments
valued through
equity 30 - - 30
- (437) - (437)
Exchange differences
arising on
translation of
foreign operations
Net loss for
the year - - (1 406) (1 406)
Balance at 31
December 2005
as restated 30 602 (2 374) 9 459
Recognition of
share-based
payments - - - 171
Financial
investments
valued through
equity 29 - - 29
Exchange
differences
arising on
translation of
foreign
operations - 1 019 - 1 019
Net loss for
the year - - (2 289)
Balance at 31
December 2006 59 1 621 (4 663) 8 389
Notes to the financial statements
Note 1 Segment information
For management purposes, the Group is currently organised into the following two
operating divisions: Eastern and Western hemisphere, where Western hemisphere
relates to US and the Americas and Eastern relates to Europe and the rest of the
world. These divisions are the basis on which the Group reports its primary and
only segment information. Inter-segment sales are charged at prevailing market
rates.
31 December 2006
Continuing Western Eastern Eliminations Total for
operations group
$'000 $'000 $'000 $'000
Revenue from sale of
goods
External sales 443 4 219 4 662
Inter-segment
sales 364 733 (1 097) -
Segment result
- operating
loss (1 421) (1 283) (10) (2 714)
Other gains and
losses
Other interest
income and
similar
profit/loss
items 155
Interest
expense for
group
companies (359)
Loss before
tax (2 918)
Income tax
credit 629
Loss for the
year (2 289)
Other information
Capital
additions 401 789 1 190
Depreciation,
amortisation
and write
downs (62) (188) (250)
Non-cash
expenses 171 - 171
Western Eastern Unallocated assets/ Total for
liabilities group
$'000 $'000 $'000 $'000
Balance sheet
Assets:
Segment
assets: 2 723 4363 4 695 11 781
Liabilities:
Segment
liabilities: 484 1795 1 113 3 392
31 December 2005
Continuing Western Eastern Eliminations Total for
operations group
$'000 $'000 $'000 $'000
Revenue from sale of
goods
External sales 917 4 348 5 265
Inter-segment
sales - 254 (254) -
Segment result
- operating
loss (1 765) (483) (34) (2 282)
Other interest
income and
similar
profit/loss
items 1
Interest
expense for
group
companies (88)
Loss before
tax (2 369)
Income tax
credit 963
Loss for the
year (1 406)
Other information
Capital
additions 244 344 588
Depreciation,
amortisation
and write
downs (4) (163) (167)
Impairment
losses
recognised in
loss (28) (28)
Non-cash
expenses 84 100 184
Western Eastern Unallocated assets/ Total for
liabilities group
$'000 $'000 $'000 $'000
Balance sheet
Assets:
Segment
assets: 2 283 4783 5 807 12 873
Liabilities:
Segment
liabilities: 647 1283 1 484 3 414
Note 2 Taxation
2006 2005
$'000 $'000
Current tax - Continuing operations - (156)
Deferred tax assets (Note 4) 630 1 121
Deferred tax liabilities (Note 4) (1) (2)
629 963
The total credit for the year can be reconciled to the accounting loss before
tax as follows:
2006 2005
$'000 $'000
Loss before tax (2 918) (2 369)
Tax at the domestic tax rate in the Group's main trading
location of Sweden of 28% (2005: 28%) 817 663
Tax effect of expenses that are not deductible in
determining taxable profit (57) (31)
Tax effect of income that is not taxable in determining
taxable profit - 15
Tax effect of utilisation of tax losses not previously
recognised - 309
Tax effect of not recognised tax losses (258) (297)
Deferred tax booked directly against equity - -
Effect of different tax rates of subsidiaries operating in
other jurisdictions 127 304
Tax credit for the year 629 963
Note 3 Intangible assets - Goodwill
2006 2005
Cost $'000 $'000
As at 1 January 1 084 1 304
Exchange differences 171 (220)
As at 31 December 1 255 1 084
Impairment
As at 1 January and 31 December - -
Net book value as at 31 December 1 255 1 084
Goodwill is allocated to the Group's cash-generating units (CGUs) identified
according to country of operation.
2006 2005
$'000 $'000
Western - -
Eastern 1 255 1 084
1 255 1 084
The Group tests goodwill annually for impairment or more frequently if there are
indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from value in use
calculations. The key assumptions for the value in use calculations are those
regarding the discount rates, growth rates and expected changes to selling
prices and direct costs during the period. Management estimates discount rates
using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the CGUs. Changes in selling prices and direct
costs are based on past practices and expectations of future changes in the
market.
The Group prepares cash flow forecasts derived from the most recent financial
forecasts approved by the Board of Directors. The view of the Board of Directors
is that the future discounted cash flows of the Company over the next 3 years
significantly exceed the currently booked goodwill asset of $1,084,000. The
company has not prepared discounted cash flow forecasts beyond these 3 years.
The rate used to discount the forecast cash flows from the business related to
Sweden is 12 per cent.
Note 4 Deferred tax
The following are the major deferred tax liabilities and assets recognised by
the Group, and the movements thereon, during the current and prior reporting
periods.
Deferred tax assets
Inventory Tax Loss Carry-forward Total
$'000 $'000 $'000
At 1 January 2005 7 - 7
Credited to the income statement 15 1 106 1 121
At 31 December 2005 22 1 106 1 128
Credited to the income statement 4 626 630
Exchange differences - (15) (15)
At 31 December 2006 26 1 717 1 743
Intangible Untaxed
Deferred tax liabilities assets reserves Total
$'000 $'000 $'000
At 1 January 2005 (17) (59) (76)
Charged to the income statement (2) - (2)
Exchange differences 2 10 12
At 31 December 2005 (17) (49) (66)
Charged to the income statement (1) - (1)
Exchange differences - (8) (8)
At 31 December 2006 (18) (57) (75)
At the balance sheet date 31 December 2006, the Group has unused tax losses of $
4,588,000 (2005: $2,770,000) available for offset against future profits. These
tax loss carry-forwards expire as follows.
Year Amount
$'000
2018 1 102
2019 1 668
2020 1 152
Later 666
4 588
On 31 December 2006, the total tax loss carry-forwards generated deferred tax
assets of $1,717,000 (2005: $1,106,000). The tax loss carry-forwards can be
utilised to reduce future taxable income. Their future utilisation does not mean
a lower tax charge for the Group.
A deferred tax asset in respect of the total amount of these losses has been
recognised as management's forecasts for the next three years indicate that
these losses will be utilised by offset against available profits over the
forecast period.
Note 5 Significant accounting policies
The financial statements have been prepared in accordance with International
Financial Reporting Standards. The financial statements have been prepared on
the historical cost basis, except for the revaluation of certain financial
instruments. The unaudited accounts for the 12 months ended 31 December 2006
have been prepared using accounting policies that are consistent with the
statutory accounts for the year ended 31 December 2005 with the exception of the
following.
Test equipment
Equipment which is held by customers was previously treated as inventory and
held at cost until disposed of. The directors have determined that, as this
equipment is used by clients for extensive periods and the value thus decreases,
this equipment should be treated as a non-current tangible asset and depreciated
over its useful life, which is estimated to be 5 years.
As this is a change in accounting policy under IAS 8, comparatives have been
restated, resulting in an increase in non-current tangible assets as at 31
December 2005 of $227,005 and an increase in the retained loss for the year
ended 31 December 2005 of $34,526 (2004: $14,000) due to depreciation on these
assets.
Available for sale financial assets
Under the amendment to IAS 39, certain investments which had previously been
classified as 'financial assets at fair value through profit or loss' have been
reclassified in the current and prior period balance sheets as 'available for
sale financial assets'. The book value of these investments at 31 December 2005
was $152,000. The net loss for the year ended 31 December 2005 has been
increased by $30,255 reflecting gains now taken through equity.
Change of format of income statement
The classification of the income statement for the year ended 31 December 2005
has been changed from by nature to by function. In the directors' view, this is
appropriate because it better describes the Company and the development of the
Company. Income statement by function is also the standard within the energy
sector.
Note 6 Basis of preparation
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2006 and these
accounts have not yet been approved, audited or filed
Copies of the 2006 Annual Report, which will be posted to shareholders in June
2007, may be obtained from the date of posting from the registered office of the
Company at 89 Fleet Street, London EC4Y 1DH. This statement, which has been
agreed with the auditors, was approved by the Board on 13 April 2007.
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