RNS Number:2328I
KBC Advanced Technologies PLC
04 March 2003
Press release
Embargoed until 07.00 4 March 2003
KBC Advanced Technologies plc
("KBC", "the Company" or "the Group")
Preliminary Results for the year ended 31 December 2002
FINANCIAL HIGHLIGHTS
2002 2001 Change
Turnover #38.2m #42.0m -9%
Operating profit #1.5m* #4.2m* -64%
Profit before tax #1.8m* #4.9m* -63%
Earnings per share 3.33p* 6.46p* -48%
Dividend per share - final 2.8p 2.8p
- total 4.1p 4.1p
* before exceptional items and goodwill amortisation
+ Short-term performance affected by worsening economic and political situation
+ Lengthening in sales order cycle during second half leading to reduced order
book
+ However, clear signs of long-term demand
+ Strong momentum in South America, with multi-refinery Profit Improvement
Program ("PIP"), worth over $15m
+ Focus on geographic expansion and market diversification
- PIPs completed in China, Japan, Kazakhstan and the Americas
- First PIP in Russia and second chemical PIP win
+ Two strategic acquisitions integrated successfully and profit-making:
- Petroleum Economics, a leading UK energy economics consultancy
- Linnhoff March, a leading energy conservation technology company
+ Strong growth in Reliability and Maintenance business
Commenting on the results, Don Romano, Chief Executive of KBC, said:
"2002 was a difficult year for KBC with tough trading
conditions. Uncertainties in global markets, particularly
the Middle East, are likely to limit opportunities in the
short term. However, the Board is confident that demand
for the Group's services in the longer term will remain
strong. The reorganisation put in place has improved the
business structure and will enable the Group's resources
to be focused effectively."
- Ends -
Enquiries:
KBC Advanced Technologies plc 4 March 2003: 020 7067 0700
Nicholas Stone, Finance Director Thereafter: 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.
CHAIRMAN'S STATEMENT
2002 was a difficult year for KBC with tough trading
conditions throughout the period. Despite some signs of
improvement in the second quarter, the sales order cycle
lengthened during the second half of the year. As a
consequence contract awards and revenue for the year fell
well short of planned levels. Consultant utilisation, and
hence operating margin, also fell and financial
performance suffered accordingly.
The software dispute and arbitration process with AEA
Technology PLC ("AEA") and related legal action against
Aspen Technology Inc ("Aspen") have impacted KBC's
ability to sell an integrated services and software
package. This has disappointed customers in what was
already a challenging environment in which to sell our
products and contributed to the poor sales performance.
Results
Total turnover was down year on year by 9% from #42.0m to
#38.2m. Operating profit prior to exceptional operating
income and charges and goodwill amortisation fell by 64%
from #4.2m to #1.5m and earnings per share on a
comparable basis fell by 48% from 6.46p to 3.33p.
The proposed final dividend is held at 2.8p per share
(2001: 2.8p per share) and, subject to shareholder
approval, will be paid on 29 April 2003 to those
shareholders on the register at 11 April 2003. The total
dividend for the year will, therefore, amount to 4.1p,
unchanged from last year. The Directors recognise that
the dividend for the year is not covered by earnings but
have decided to maintain its level in the light of the
relative strength of KBC's cash position and the good
longer term prospects for the business.
Business Reorganisation
With effect from 1 December 2002, the management
structure of KBC was reorganised to address more
effectively the challenges of securing contract awards in
a demanding global economic and political climate. Sales
and operations resources have been brought under common
management within the main geographic regions in which
KBC operates. At the same time staff numbers and costs
have been reduced in order to match resources more
closely with the current levels of work and revenue. An
exceptional operating charge of #1.0m has been taken in
2002 for the costs of this reorganisation.
As a consequence of the reorganisation Wayne Hutchinson,
who was President of Worldwide Sales and Marketing, left
KBC with effect from 31 December 2002 and resigned from
the Board on 14 January 2003.
Software Dispute
The hearing of an arbitration, which was started against
AEA in 2002 concerning the joint development of
HYSYS.Refinery, was held in early 2003. The arbitrator
is expected to give his ruling before the end of March
but it is unlikely to have an immediate impact on the
Group's revenue.
Legal proceedings were served on Aspen and its
subsidiary, Hyprotech Limited, in the US in 2002 and, if
they run their full course, may continue for much of the
current year and possibly even into 2004. Aspen has
recently issued a counter claim that will be heard in the
US courts as part of the same process. Provision has
been made for the costs up to the balance sheet date of
both of these actions, resulting in an operating
exceptional charge of #1.6m.
REVIEW OF OPERATIONS
During 2002 KBC completed successful PIPs in China,
Kazakhstan, Japan and the Americas, which have all
converted into second year Implementation Services. Early
implementation has become a standard part of KBC's PIP
proposals to ensure that value derived from the Group's
work is delivered to the customer as early as possible.
The re-engagement of previous PIP customers with follow
up work has also been successful, particularly in North
America.
The most successful business line within KBC during 2002
was Reliability and Maintenance where revenue grew by
more than 20% and high manhour utilisation and margins
were maintained. In addition, a material proportion of
this revenue came from the non-refining sectors of
chemicals and upstream oil. Prospects for continued
growth are good and some of the lessons learned from this
success in 2002 are being applied elsewhere in the Group
as we seek to diversify our skills into new areas.
Sales and Marketing
Petroleum refinery margins have been falling for over two
years, with product demand remaining low due to the
global economic slowdown. This is at a time when crude
oil prices have been inflated by a political premium.
These conditions have forced tight budgetary constraints
on KBC's traditional customer base. While new markets
have proved difficult to break into, several significant
contracts were won during the middle of the year
including a multi-refinery PIP contract in South America
worth in excess of $15.0m, KBC's first PIP in Russia and
its second chemical PIP.
Success was also evident in some of the smaller business
lines, where closer integration of KBC's sales and
operations functions allowed for a more flexible approach
to sales of additional services according to customers'
needs. The reorganisation ensures that KBC's sales
activity is more responsive to its customers by drawing
on the consultants working with those customers. The
business lines within KBC which demonstrated the most
success during 2002 were those that used an integrated
approach to sales and operations.
Software
The traditional KBC software business of process unit
model sales and maintenance held up in 2002 despite the
dispute in relation to the development of the new
HYSYS.Refinery software. Revenues were down by 5% from
2001 but few resources were allocated in the year to
promote licence and maintenance support agreement sales
in anticipation of the launch of the new product. In the
continuing absence of the new generation software,
additional resource will be focused on increasing the
models revenue in 2003 to ensure that KBC's current
market position in this business is maintained.
Office Consolidation
The office consolidation that began in 2001 continued in
2002 with the move during the last quarter into a new
building in Houston, which additionally accommodates the
software personnel from the Thousand Oaks office in
California who relocated in January 2003. This move
allows greater integration of the KBC models business
with other parts of the Group. The New Jersey office
also relocated in the last quarter of 2002 to a smaller
and lower cost office facility.
Cost Savings
KBC's staffing levels have been cut by 15%, with around
one third of that reduction coming from natural attrition
and the balance from redundancy programmes. Annualised
savings as a result of these and other fixed cost
reductions are #3.8m, slightly higher than anticipated in
our November statement. Of this total, #1.0m was
realised in 2002 with a further #0.6m to be realised in
2004. The benefit in 2003 in comparison to 2002, after
taking into account inflation in other areas, is expected
to be #1.7m.
Acquisitions
The two companies acquired during February 2002 have both
been successfully integrated into KBC's operations.
Petroleum Economics moved into the Walton office during
March 2002 and its employees are working alongside the
existing Planning Services team. KBC's Energy business
has merged with the Linnhoff March business in Manchester
from where the combined business is now managed. In 2002,
these businesses delivered a combined turnover of #2.9m
and operating profit of #0.5m before integration costs
and goodwill amortisation.
OUTLOOK FOR 2003
The political situation in the Middle East and the
prospect of war in the region exerts further pressure, on
both sales and operations, as we start the year. In the
short term the prospects for revenue growth do not look
promising and an immediate resolution of the software
dispute is unlikely. The order book brought forward from
2002 was low compared with recent years and as a result
the outlook for 2003 remains uncertain. However, the
reorganisation and cost saving measures place KBC in a
stronger position to withstand the continuing challenges
of the current economic environment.
Whilst this reorganisation should enhance the Group's
efficiency and sales performance, cost savings beyond
those achieved during 2002 will not be easy without
impacting KBC's ability to deliver its services across
the current breadth of locations and disciplines. Hence
decisions to make further headcount cuts in the short
term, if contract awards and revenue continue to fall,
will have to be measured against the resultant impairment
of future capability.
In the longer term it is clear that there is significant
demand for KBC's services. Considerable interest has
been shown in many parts of the world, including areas
where we have not done significant work in the past, as
evidenced by the contracts in 2002 in Russia and China.
The scale of work now being executed in South America
shows how momentum can build in a region once KBC becomes
established there. The outlook for longer term growth
remains good once the current economic and political
uncertainties can be put behind us.
- Ends -
Enquiries:
KBC Advanced Technologies plc 4 March 2003: 020 7067 0700
Nicholas Stone, Finance Director Thereafter: 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.
KBC Advanced Technologies plc
Group profit and loss account
for the year ended 31 December 2002
Before
exceptional
charges & Exceptional
goodwill charges Goodwill Total Total
amortisation (note 2) amortisation 2002 2001
#000 #000 #000 #000 #000
Notes
_____________________________________________________________________________________________________
Turnover
Ongoing 35,302 - - 35,302 42,000
Acquisitions 2,891 - - 2,891 -
_____________________________________________________________________________________________________
38,193 - - 38,193 42,000
Staff costs (18,984) (1,044) - (20,028) (17,398)
Depreciation and amortisation (1,066) - (467) (1,533) (1,235)
Other operating charges (16,656) (1,967) - (18,623) (19,209)
Other operating income - exceptional item - - - 7,414
_____________________________________________________________________________________________________
Operating (loss)/profit
_____________________________________________________________________________________________________
Ongoing 1,026 (2,612) - (1,586) 11,572
Acquisitions 461 (399) (467) (405) -
_____________________________________________________________________________________________________
1,487 (3,011) (467) (1,991) 11,572
Interest receivable 318 - - 318 713
Amounts written off fixed
asset investments 3 - (1,451) - (1,451) -
_____________________________________________________________________________________________________
(Loss)/profit on ordinary activities
before taxation 1,805 (4,462) (467) (3,124) 12,285
Taxation on (loss)/profit on
ordinary activities 4 (197) 870 - 673 (3,972)
_____________________________________________________________________________________________________
(Loss)/profit on ordinary activities
after taxation 1,608 (3,592) (467) (2,451) 8,313
Dividends - equity interests (1,938) (2,002)
_____________________________________________________________________________________________________
Retained (loss)/profit for the period (4,389) 6,311
=====================================================================================================
(Loss)/earnings per share (pence) - basic 6 (5.08) 17.20
- diluted 6 (5.08) 17.09
Basic earnings per share (pence) before
exceptional items and goodwill amortisation 6 3.33 6.46
=====================================================================================================
Group statement of total recognised gains and losses
for the year ended 31 December 2002
2002 2001
#000 #000
_____________________________________________________________________________________________________
(Loss)/profit attributable to shareholders of the Group (2,451) 8,313
Exchange difference on retranslation of net assets of subsidiary undertakings (563) 70
_____________________________________________________________________________________________________
Total recognised gains and losses for the year (3,014) 8,383
_____________________________________________________________________________________________________
KBC Advanced Technologies plc
Group balance sheet
at 31 December 2002
2002 2001
________________ _______________
#000 #000 #000 #000
____________________________________________________________________________________________
Fixed assets
Intangible assets 5,464 1,222
Tangible assets 2,537 2,577
Investments 1,287 2,138
____________________________________________________________________________________________
9,288 5,937
Current assets
Debtors 12,745 11,972
Investments 300 -
Cash at bank and in hand 7,623 18,218
____________________________________________________________________________________________
20,668 30,190
Creditors: amounts falling due within one year (5,824) (7,186)
____________________________________________________________________________________________
Net current assets 14,844 23,004
____________________________________________________________________________________________
Total assets less current liabilities 24,132 28,941
Creditors: amounts falling due after one year (600) -
Provision for liabilities and charges (965) (775)
____________________________________________________________________________________________
22,567 28,166
============================================================================================
Capital and reserves
Called up share capital 1,202 1,251
Share premium account 6,038 6,008
Capital redemption reserve 79 24
Merger reserve 147 147
Profit and loss account 15,101 20,736
____________________________________________________________________________________________
Shareholders' funds: equity interests 22,567 28,166
============================================================================================
KBC Advanced Technologies plc
Group statement of cash flows
for the year to 31 December 2002 2002 2001
#000 #000
___________________________________________________________________________________
Net cash (outflow)/inflows from operations (765) 12,849
===================================================================================
Returns on investments and servicing of finance
Interest received 318 713
___________________________________________________________________________________
Taxation (1,847) (3,176)
___________________________________________________________________________________
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (799) (2,166)
___________________________________________________________________________________
Acquisitions
Purchase of subsidiary undertakings including costs (4,290) -
Funds placed on deposit in respect of loan notes (900) -
Net funds acquired with subsidiary undertakings 452 -
___________________________________________________________________________________
Net cash outflow from acquisitions (4,738) -
___________________________________________________________________________________
Equity dividends paid (1,994) (1,893)
___________________________________________________________________________________
Management of liquid resources
Increase/(decrease) in short term deposits 9,867 (6,843)
___________________________________________________________________________________
Financing
Shares issued 36 127
Redemption of shares (683) -
___________________________________________________________________________________
Net cash (outflow)/inflow from financing (647) 127
___________________________________________________________________________________
Decrease in cash in the period (605) (389)
===================================================================================
Reconciliation of net cash flows to movements in net funds
Decrease in cash in the period (605) (389)
Cash used to (decrease)/increase liquid resources (9,867) 6,843
___________________________________________________________________________________
Change in net funds resulting from cash flow (10,472) 6,454
Loan notes (1,310) -
Translation difference (123) 6
___________________________________________________________________________________
Movement in net funds in the period (11,905) 6,460
Net funds at start of period 18,218 11,758
___________________________________________________________________________________
Net funds at end of period 6,313 18,218
===================================================================================
KBC ADVANCED TECHNOLOGIES PLC
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 2002 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 2001
(on which the auditors gave an unqualified opinion),
which have already been sent to shareholders and filed
with the Registrar of Companies.
2 Exceptional items
Staff related reorganization costs
The exceptional staff costs of #1.0 million represent the
costs incurred as a result of a fourth quarter
reorganisation and redundancy programme, as well as
additional staff costs which resulted from non-recurring
acquisition integration activities. Amounts paid during
the year related to this item were #0.6 million. These
exceptional costs decreased profit after tax by #0.7
million.
Other operating charges
Other operating charges comprise the following items:
- Legal costs
Legal costs have been incurred in respect of entering
an arbitration process concerning a joint development
agreement and in respect of legal proceedings initiated
by the Company in the USA.
- Office move
The Group executed a significant office rationalisation
programme during the second half of the year which
resulted in non-recurring costs related to office
relocation.
- Acquisition integration costs
The Group incurred non-recurring costs in respect of
the integration of two newly acquired companies into
the KBC Group.
These exceptional other operating charges decreased
profit before tax by #2.0 million and profit after tax by
#1.4 million. Amounts paid during the year related to
these charges were #1.4 million.
3 Amounts written off fixed asset investments
A #1.5m charge has been recorded in respect of the
investment in KBC's shares held in the KBC Advanced
Technologies plc Employee Trust, writing down the
investment from its average cost of #1.35 per share to
the mid market price at the balance sheet date of 43.5p
per share.
4 Tax on profit on ordinary activities
The Group's effective rate of current tax is influenced
by three major factors: (a) the charge against fixed
asset investments and group goodwill amortisation are not
deductible for tax purposes, and hence increase the
effective rate; (b) higher rates of overseas tax which
tend to increase the effective rate; and (c) under new US
tax legislation a five year loss carryback claim has been
filed reducing the Group's effective rate.
5 Litigation
In March 2002 the Company entered into arbitration
proceedings with AEA Technology PLC (with whom it has an
alliance for joint development of a software product) on
the interpretation of the joint development agreement.
The main subjects of the arbitration are the definition
of the product developed and its completion and delivery.
The arbitration hearing took place in January and
February 2003 and the arbitrator is expected to rule
before the end of March 2003. Full provision has been
made for the Group's legal costs associated with these
proceedings up to the balance sheet date as described in
note 2 above. The arbitrator may award costs against the
unsuccessful party, although no provision has been made
for costs being awarded against either party.
On 11 September 2002 the Company served legal proceedings
in Houston, Texas, on Aspen Technology Inc and its
subsidiary, Hyprotech Ltd (formerly owned by AEA
Technology PLC), as an additional measure to protect its
intellectual property rights. The 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 but
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, and in any event will be strongly defended
by the Group. The case is expected to be heard in the
autumn of 2003.
This US litigation may lead to an award of damages
against Aspen Technology Inc and its subsidiary Hyprotech
Ltd. Full provision for the Group's legal costs of this
action up to the balance sheet date has been made, but
account has not been taken of any damages that might be
awarded to either party as a result.
6 Earnings per share
The calculation of basic loss per share is based upon a
loss of #2,451,000 (2001: profit of #8,313,000) and on
48,203,000 (2001: 48,343,000) 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/earnings per share is
based upon a loss of #2,451,000 (2001: earnings of
#8,313,000) and on 48,203,000 (2001: 48,648,000) 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 #1,608,000 (2001: #3,123,000, being profit on
ordinary activities after taxation of #8,313,000 less
exceptional income of #7,414,000 less tax thereon of
#2,224,000) and on 48,203,000 (2001: 48,343,000) 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.
7 Acquisitions
On 7 February 2002 the Company acquired the share capital
of PEL Group Ltd, the parent company of Petroleum
Economics Ltd, a UK-based energy economics consultancy.
The consideration comprised of loan notes totalling #2.0m
maturing over three years.
On 27 February 2002 a subsidiary undertaking acquired the
share capital of Linnhoff March International Ltd, a UK-
based energy consultancy. The consideration was a
combination of cash and loan notes totalling #3.3m.
Goodwill on both acquisitions has been calculated as
follows and is being amortised over 10 years.
#000
Consideration 5,269
Expenses 331
Fair value of net assets acquired (691)
________
Goodwill 4,909
________
Cash placed on deposit to support loan note guarantees is
included under fixed asset investments or current asset
investments according to the redemption period of the
loan notes.
8 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
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