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. This information is provided by RNS The company news service from the London Stock Exchange

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