Interim Results

RNS Number : 5902T

Gas Turbine Efficiency PLC

30 September 2010

 



30 September 2010

Gas Turbine Efficiency plc

Interim results for the six months ended 30 June 2010

Gas Turbine Efficiency plc ('GTE' or 'the Group'), a leading provider of proprietary systems for enhancing the performance of industrial and aviation turbines, today announces its unaudited interim results for the six months ended 30 June 2010 (H1).

H1 2010 Highlights

-     Group revenue increased by 7% to $19.7m (H1 2009: $18.4m)

o Energy Services revenue up 13% to $16.4m (H1 2009: $14.5m)

o Long term growth areas performed strongly with the combustion business up 33% and the recently launched (3Q 2009) outage service group delivering revenues of $3.4m, exceeding expectations

o Aviation revenue down 16% to $3.3m (H1 2009: $3.9m)

-     Gross profit margin at 35% (H1 2009: 40%, FY 2009: 35%)

-     EBITDA negative $2.6m, after charging $0.9m in exceptional costs

-     Additional $10m secured credit facility agreed with existing and new investors

-     Board of Directors reconstituted, including appointment of new CFO              

-     Cash and cash equivalents of $3.3m as at 30 June 2010

Consistent with GTE's market channel strategy, in the first half of 2010, there has been a significant shift in sales mix from traditional OEMs towards direct sales to third parties and end users.   

-     Sales to third parties and end users more than doubled from $5.1m to $11.5m driven by continued investment in combustion, services and commercial resources.   This channel accounted for over half of revenue (up from approximately 30% in H1 2009).

-     Sales through the OEM channel were down 47% from $9.4m to $5.0m due to the effect of continuing recessionary pressures on customers' spending.  This channel represented approximately 25% of revenue, down from approximately 50% in H1 2009.

-     Sales to the aviation sector were down 16% from $3.9m to $3.3m due to delays in customer orders in a difficult industry environment.  Aviation sales represented 17% of total H1 2010 sales (down from 21% in H1 2009).

Current Trading 

-     Current year revenue and order backlog up 5% to $33.8m as at 1 September 2010 (2009: $32.1m)

-     Energy Services revenue and order backlog up 7% to $28.8m (2009: $27.0m)

-     Aviation revenue and order backlog reduced by 2% to $5.0m (2009: $5.1m)

-     Full year Group revenue now expected to be approximately 15% ahead of 2009, against a very challenging marketplace and economy

-     Full year gross margin performance anticipated to be broadly in line with H1 2010

Steve Zwolinski, Chief Executive Officer of GTE, commented:

"GTE delivered solid growth in the first half, with Group revenue up 7%. This growth was driven by a particularly strong performance in the combustion and services business where demand for our products and services has strengthened despite the difficult economic backdrop. Although the longer cycle segments remain sluggish due to the lingering impact of the recession, we expect improved bookings in our Energy Services business in the second half of 2010.

"GTE provides compelling economic and environmental value to customers in the multi-billion dollar market for gas turbine services and upgrades. However, in the short term, our customers' cash constraints have caused a delay in investment and plant upgrade decisions. Although these delays limit short term order visibility, general customer engagement around our current and new products has increased during the period and, longer term, we feel we are well positioned to benefit when our markets improve."

Zwolinski added: "We successfully concluded a $10m secured loan in January and arranged a further $10m secured credit facility in June with existing and new investors of which $4.5m has been drawn in the third quarter.  This confirms that our major investors remain supportive of GTE's strategy for growth."

For further information, please contact:

Gas Turbine Efficiency plc

Steven Zwolinski, CEO;

[phone]

Financial Dynamics

Jon Simmons; Susanne Yule

[phone]

Matrix Corporate Capital LLP
Nick Ellis

[phone]

About GTE

Gas Turbine Efficiency plc (GTE) designs, manufactures and supplies proprietary energy saving and performance enhancing systems and support services to the Power Generation, Oil and Gas and aviation industries.  GTE's extensive portfolio of patented solutions save fuel, reduce emissions, increase availability, and extend turbine and parts life.

The Group provides solutions for application of a wider variety and quality of primary and alternative fuels. Specific products and services developed by our world-class technology team include compressor cleaning and power augmentation systems; fuels management systems; combustion design, repair, upgrade and monitoring, fluid and control auxiliaries and outage management services. The Group's systems and associated services are provided to turbine end users and OEMs including General Electric, Pratt & Whitney, Rolls Royce, Caterpillar-Solar and Siemens from operation centers in Europe and the USA. GTE's shares are traded on London Stock Exchange's AIM (Ticker: GTE).

Overview

GTE delivered solid revenue growth in the first half with Group revenue up 7%. This growth was driven by a particularly good performance in the Energy Services division (primarily combustion and services) where demand for our products and services strengthened despite the difficult economic backdrop.

Gross margins in H1 2010 were 35% (H1 2009: 40%) reflecting both the increase in revenue contribution from Energy Services and the product mix within this division.

GTE delivered EBITDA of negative $2.6m (H1 2009: $0.7m) reflecting $0.9m of exceptional costs associated with new financing arrangements coupled with lower than anticipated sales. Net results were a loss of $3.0m (H1 2009: $0.06m). Basic and fully diluted (loss)/earnings per share was $(0.030) (H1 2009: $0.001).

The total number of patents granted increased by 20% to 24 from 20 at 31 December 2009, with an additional 18 patent applications pending or provisionally filed. The Group's cash and cash equivalents position at 30 June 2010 was $3.3m and $10m remained available for borrowing as of 30 June 2010 under GTE's recently signed secured credit facility. Approximately $4.5m of this credit facility has been utilized at the time of this announcement.

Operating Review 

Energy Services - Combustion, Services & Auxiliaries

Despite the challenging economic back drop, demand across our core range of products and services has strengthened and revenues from the Energy Services division were up 13% to $16.4m in H1 2010 as compared to H1 2009, primarily in the combustion and services segment.

Order intake for Energy Services activities increased by 30% to $18.1m in the first half of 2010 as compared to H1 2009, driven by the addition of Services as noted below.

Sales to OEMs decreased by 47%. End user sales increased by 126% to $11.5m reflecting sales to third parties and direct to end users, such as utilities, oil and gas companies and global service providers.

Combustion Business

Overall the combustion business grew 33% to $4.9m. Product development in the Energy Services sector continues on track with more than ten new product introductions and a wide range of turbine model overhaul service offerings, including extensions of capability for the 50Hz turbines used in the European market. In line with the Group's globalization strategy, the European commercial team was strengthened by significant senior hires to target the critical market segment of power generation and oil and gas.

Services

GTE entered the US turbine services market in July 2009. The new business unit was launched and the first order was received from a leading US utility within three months.  With 2010 as the first full year of turbine services operation, the new business unit exceeded plans for the first half with revenue of $3.4m and is on track to deliver comparable results in H2.  Key customer relationships and service agreements have been established with several major US power generators supporting ongoing work volume.

Auxiliaries

Our industrial business continues to be focused on three customer markets including OEMs, end users and third parties. This global market strategy shows promising growth prospects.    

First half revenues declined by 25% (from $10.8m to $8.1m) driven by lingering recessionary effects on the OEM channel which was down 46% (from $8.9m to $4.8m). The OEM decline reflects the longer cycle 'new build' segment and generally lags economic cycles.

On a very positive note, GTE's long term strategic growth areas strengthened. The GTE patented compressor cleaning solution increased 89% (from $0.9m to $1.7m). Sales direct to end users and third parties were up 74% (from $1.9m to $3.3m) and EMEA regional sales were up 13% (from $0.8m to $0.9m).

Backlog strengthened in H1 2010 as compared to H1 2009 across the board. Total backlog was up 33% (from $5.5m to $7.3m) vs. the same point in 2009.

Gross margins declined 3 pts (from 29% to 26%) due to product mix and market conditions. Backlog indicates a return to historical levels in the second half of 2010.

Aviation

The Aviation business experienced a decline in revenue of 16% in H1 2010 to $3.3m, which was below expectations.

During the first half of 2010, GTE began discussions to sell substantially all of the assets of the Aviation business.  These discussions are ongoing.

Corporate and Board Matters

During the first half of calendar 2010, GTE successfully concluded both a $10m secured borrowing and a $10m secured credit facility with existing and new investors. These credit facilities allow the Company to continue its product development as well as meeting working capital requirements. Approximately $5.5m remains available to borrow under the secured credit facility at the time of this announcement.

The Board of GTE has been reconstituted beginning in January 2010, when Mr. John Grant was appointed as the Company's Non-executive Chairman, Chairman of the Remuneration Committee, and a member of the Audit and Nomination Committees.  He brings wide experience from both executive and non-executive roles following a career spent primarily in the engineering and automotive industries in the US and the UK.

Additionally, effective 1 July 2010, Mr. Harry W. Zike was appointed as Chief Financial Officer and elected as a member of the Board of GTE.  Mr. Zike has spent his career in a variety of senior international Board and Chief Financial Officer roles within both public and private companies in the energy and technology sectors.  Further to the announcement made at the time of Mr. Zike's appointment, during the past five years Mr. Zike has also been a director at: New Energy Associates LLC, Siemens Westinghouse Power Corp, Siemens Shares Services LLP and Siemens Demag Delaval Turbomachinery, Inc. (all of which were Siemens subsidiaries).

Finally, in July, 2010, Mr. John Mapplebeck was elected as a Non-executive Director following Mr. Charles Cameron's resignation from the Board. Mr. Mapplebeck brings a wealth of experience in the energy sector from a wide range of executive and non-executive positions.  In addition to the 8,862 GTE shares he owns, Mr. Mapplebeck's wife has a beneficial interest in a further 250,000 shares in GTE, held on her behalf on a non-discretionary basis.

Current Trading & Outlook

Current year revenue and order backlog as at 1 September 2010 was up 5% to $33.8m compared to $32.1m at the same point in 2009. Energy Services revenue and order backlog is up 7% to $28.8m (2009: $27.0m). However, as noted above, Aviation revenue and order backlog for the period to 1 September was down slightly at $5.0m (2009: $5.1m).  In spite of an ongoing challenging marketplace, full year Group revenue is now expected to be approximately 15% ahead of 2009. Gross margin for the full year is anticipated to be broadly in line with the first half of the year.

Despite the energy industry continuing to conserve cash and the consequent reduced demand, GTE continues to experience growth in the combustion and service segments of its Energy Services business. GTE is well positioned to grow in this market with newly launched products and services targeted at the more "recession resistant" energy aftermarket segment.

As previously disclosed, GTE remains in discussions with a strategic investor for an investment in the Company.  These discussions are ongoing.

CONSOLIDATED STATEMENTS OF INCOME
for the period ended 30 June 2010
						6 months ended		12 months ended		6 months ended
						30 June 2010		31 December 2009		30 June 2009
				Note		unaudited		audited		unaudited
						$'000		$'000		$'000
	Continuing operations
		Revenue		2		19 723		37 074		18 436
		Cost of sales				(12 902)		(24 039)		(11 093)
	Gross Profit					6 821		13 035		7 343
		Distribution and selling costs				(2 940)		(4 287)		(1 943)
		Research and development expenses				(1 240)		(2 554)		(909)
		Administrative expenses				(6 596)		(11 486)		(4 407)
	Operating (loss) / profit			3		(3 955)		(5 292)		84
		Interest receivable				11		333		186
		Finance costs				(964)		(923)		(268)
	(Loss) / Profit before tax					(4 908)		(5 882)		2
		Tax		4		1 880		1 209		58
	(LOSS)/PROFIT FOR THE PERIOD ATTRIBUTABLE
	TO EQUITY HOLDERS OF THE PARENT					(3 028)		(4 673)		60
	(Loss) Profit per share			5
		From continuing operations:
		Basic and diluted (loss)/profit per share ($)				(0.030)		(0.052)		0.001
		(Loss)/Earnings before interest, taxes, depreciation and amortisations (EBITDA)				(2 595)		(3 434)		726
		(Loss)/Earnings before interest, taxes, amortisations and exceptional items (EBITAE)				(2 454)		(4 360)		403
		(Loss)/Earnings before interest, taxes, depreciation, amortisations and exceptional items (EBITDAE)				(1 743)		(3 434)		726
						6 months ended		12 months ended		6 months ended
						30 June 2010		31 December 2009		30 June 2009
		Consolidated Statements of Comprehensive (Loss)/ Income				unaudited		audited		unaudited
						$'000		$'000		$'000
		(Loss) / profit for the period				(3 028)		(4 673)		60
		Currency translation differences of foreign operations				(288)		(621)		32
		Currency translation differences of long-term intercompany loans				(1 127)		1 913		104
		Adjustment in fair value of available-for-sale investments				-		32		32
		Other comprehensive (loss)/income for the period				(1 415)		1 324		168
		Total comprehensive (loss)/income  for the period				(4 443)		(3 349)		228

CONSOLIDATED BALANCE SHEETS
at 30 June 2010
						6 months ended		12 months ended		6 months ended
						30 June 2010		31 December 2009		30 June 2009
						unaudited		audited		unaudited
						$000		$000		$000
	ASSETS
	Non-current assets
	Intangible assets			2
		Capitalised expenditure for R&D				14 766		12 840		10 155
		Patents				3 869		3 199		2 694
		Customer relationships				164		215		267
		ERP system				1 495		1 784		1 027
		Goodwill				6 184		6 269		6 196
						26 478		24 307		20 339
	Tangible assets
		Equipment, tools, fixtures and fittings				4 350		4 065		3 276
	Deferred tax assets					5 555		3 447		2 232
	Total non-current assets					36 383		31 819		25 847
	Current assets
		Inventories		2		5 699		5 935		3 985
	Current receivables
		Accounts receivable - trade		2		4 862		9 213		6 183
		Income taxes recoverable				18		6		377
		Other receivables				184		190		581
		Prepaid expenses and accrued income				2 049		1 601		2 092
						7 113		11 010		9 233
	Cash and cash equivalents					3 349		3 616		10 490
	Total current assets					16 161		20 561		23 708
	TOTAL ASSETS					52 544		52 380		49 555

CONSOLIDATED BALANCE SHEETS
at 30 June 2010 (continued)
						6 months ended		12 months ended		6 months ended
						30 June 2010		31 December 2009		30 June 2009
						unaudited		audited		unaudited
						$000		$000		$000
	EQUITY AND LIABILITIES
	Equity
		Share capital				362		362		362
		Share premium				41 726		41 726		41 726
		Capital reserve				2 636		2 636		2 636
		Share based payment reserve				2 006		1 660		1 172
		Translation reserves				(117)		1 298		143
		Retained earnings				(13 887)		(10 859)		(6 126)
	Total equity attributable to equity holders of the parent					32 726		36 823		39 913
	Current liabilities
		Financial liabilities - borrowings				11 586		5 244		932
		Accounts payable - trade				4 195		5 313		5 417
		Other liabilities				266		269		414
		Accrued expenses				2 804		3 560		2 605
						18 851		14 386		9 368
	Non-current liabilities
		Financial liabilities - borrowings				848		1 028		50
		Deferred tax liabilities				119		143		224
						967		1 171		274
	Total liabilities					19 818		15 557		9 642
	TOTAL EQUITY AND LIABILITIES					52 544		52 380		49 555

CONSOLIDATED STATEMENTS OF CASH FLOW
for the period ended 30 June 2010
						6 months ended		12 months ended		6 months ended
						30 June 2010		31 December 2009		30 June 2009
						unaudited		audited		unaudited
				Note		$000		$000		$000
	Cash flow from operating activities
		Loss / Profit before tax				(4 908)		( 5 882)		2
		Adjustments to operating cash flows		6		2 658		3 355		1 111
	Cash flow from operating activities before changes
	in working capital					(2 250)		(2 527)		1 113
	Cash flow from changes in working capital
		(Increase)/decrease in inventories				236		(2 525)		(560)
		(Increase)/decrease in receivables				3 909		(505)		1 205
		Increase/(decrease) in liabilities				(2 141)		1 544		(2 118)
	Cash used by operations					(246)		(7 101)		(360)
		Interest received				11		333		186
		Finance costs				(964)		(923)		(268)
	Net cash used by operating activities					(1 199)		(7 691)		(442)
	Cash flow from investing activities
		Purchase of intangible non-current assets				(4 265)		(8 120)		(4 158)
		Purchase of tangible non-current assets				(932)		(3 228)		(1 654)
		Sale of tangible non-current assets				-		228		31
	Net cash used by investing activities					(5 197)		(11 120)		(5 781)
	Cash flows from financing activities
		New share issue (net of issue costs)				-		10 500		10 500
		Loans taken				6 162		5 942		755
		Loans repaid				-		-		(3)
	Net cash  generated by/(used in) financing activities					6 162		16 442		11 252
		Effect of foreign exchange rate changes				(33)		537		13
	Net change in cash and cash equivalents					(267)		(1 832)		5 042
	Cash and cash equivalents at beginning of the period					3 616		5 448		5 448
	Cash and cash equivalents at the end of the period					3 349		3 616		10 490

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2010
				Share		Share		Capital		Share based		Revaluation		Translation		Retained		Total share-
				Capital		premium		reserve		payment reserve		reserve		reserve		earnings		holders equity
				$'000		$'000		$'000		$'000		$'000		$'000		$'000		$'000
Balance at 31 December 2008				269		31 319		2 636		781		(32)		7		(6 186)		28 794
New share issue,  29 200 000 shares at nominal £ 0.002				93		11 150		-		-		-		-		-		11 243
Placing costs				-		(743)		-		-		-		-		-		(743)
Credit to equity for share based payments				-		-		-		391		-		-		-		391
Total comprehensive income				-		-		-		-		32		136		60		228
Balance at 30 June 2009				362		41 726		2 636		1 172		-		143		(6 126)		39 913
Credit to equity for share based
payments				-		-		-		488		-		-		-		488
Total comprehensive income				-		-		-		-		-		1 155		(4 733)		(3 578)
Balance at 31 December 2009				362		41 726		2 636		1 660		-		1 298		(10 859)		36 823
Credit to equity for share based
payments				-		-		-		346		-		-		-		346
Total comprehensive income				-		-		-		-		-		(1 415)		(3 028)		(4 443)
Balance at 30 June 2010				362		41 726		2 636		2 006		-		(117)		(13 887)		32 726

Notes to the financial statements

1   Accounting policies

The unaudited interim accounts for the 6 months ended 30 June 2010 have been prepared using accounting policies that are consistent with the Company's statutory accounts for the year ended 31 December 2009.  New or amended standards and Interpretations from IFRIC have not had a material impact on the financial position or results of the Group.

2   Segment information

				Energy		Total  for
Continuing operations			Aviation	Services	Unallocated	Group
			$'000	$'000	$'000	$'000
Six months ended 30 June 2010
Revenue from sales
	External sales of goods		3 314	16 409		19 723
	Cost of Goods Sold		(1 435)	(11 467)		(12 902)
Segment result - gross profit			1 879	4 942		6 821
As at 30 June 2010 Assets
	Inventory		909	4 790		5 699
	Receivables		31	4 831		4 862
	Intangibles		6 557	19 921		26 478
	Other assets				15 505	15 505
	Segment assets		7 497	29 542	15 505	52 544
Liabilities
	Segment liabilities				19 818	19 818
Twelve months ended 31 December 2009
Revenue from sales
	External sales of goods		5 489	31 585		37 074
	Cost of Goods Sold		(1 980)	(22 059)		(24 039)
Segment result - gross profit			3 509	9 526		13 035
As at 31 December 2009 Assets
	Inventory		1 046	4 889		5 935
	Receivables		2 550	6 663		9 213
	Intangibles		4 942	19 365		24 307
	Other assets				12 925	12 925
	Segment assets		8 538	30 917	12 925	52 380
Liabilities
	Segment liabilities				15 557	15 557
				Energy		Total  for
			Aviation	Services	Unallocated	Group
			$'000	$'000	$'000	$'000
Six months ended 30 June 2009
Revenue from sales
	External sales of goods		3 925	14 511		18 436
	Cost of Goods Sold		(1 475)	(9 618)		(11 093)
Segment result - gross profit			2 450	4 893		7 343
As at 30 June 2009 Assets
	Inventory		776	3 209		3 985
	Receivables		1 776	4 407		6 183
	Intangibles*		5 458	14 881		20 339
	Other assets*				19 048	19 048
	Segment assets		8 010	22 497	19 048	49 555
Liabilities
	Segment liabilities				9 642	9 642

*  Certain amounts have been reclassified for comparability purposes

3 Operating (loss) / profit Operating (loss) / profit is after charging:
						6 months ended		12 months ended		6 months ended
						30 June 2010		31 December 2009		30 June 2009
						unaudited		audited		unaudited
						$'000		$'000		$'000
		Exceptional legal costs				467		-		-
		Exceptional loan arrangement fees				385		-		-
						852		-		-

4 Taxation
						6 months ended		12 months ended		6 months ended
						30 June 2010		31 December 2009		30 June 2009
						unaudited		audited		unaudited
						$'000		$'000		$'000
		Current tax - Continuing operations				250		229		92
		Deferred tax assets				(2 106)		(1 386)		(180)
		Deferred tax liabilities				(24)		(52)		30
						(1 880)		(1 209)		(58)

5 (Loss)/Profit per share

Basic profit or loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

							6 months ended		12 months ended				6 months ended
							30 June 2010		31 December 2009				30 June 2009
							unaudited		audited				unaudited
Profit / (loss) attributable to equity holders of the Company ($'000)							(3 028)		(4 673)				60
Weighted average number of ordinary shares in issue ('000)							101 711		89 666				77 735
Basic and diluted profit / (loss) per share - $ per share - Continuing operations							(0.030)		(0.052)				0.001
At the balance sheet date there are dilutive potential ordinary shares up to an amount of  ('000)							1 961		1 889				2 846
6 Adjustments to operating cash flow
							6 months ended			12 months ended			6 months ended
							30 June 2010			31 December 2009			30 June 2009
							unaudited			audited			unaudited
							$'000			$'000			$'000
Depreciation of tangible assets							711			932			323
Amortisation of  intangible assets							648			926			319
(Profit) / Loss on disposal of fixed assets										28			(4)
Share based payments							346			879			391
Finance costs							964			923			268
Interest received							(11)			(333)			(186)
							2 658			3 355			1 111

 7 Basis of preparation

As permitted - IAS 34, 'Interim Financial Reporting' has not been applied in this interim report.

The financial information presented in this report has been prepared using accounting policies which are in accordance with the recognition and measurement principles of International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board as endorsed for use in the European Union, and these principles are disclosed in the Group's Annual Report for the year ended 31 December 2009.

The financial information in this interim report does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.

The comparative financial information for the year ended 31 December 2009 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.

The statutory accounts of Gas Turbine Efficiency plc for the year ended 31 December 2009 have been reported on by the Group's auditors and have been delivered to the Registrar of Companies.

This interim report, which is not the Group's Statutory Accounts, was approved by the Board on 30 September 2010.

 

END

 

 

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