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Gas Turbine Efficiency plc (LSE:GTE) ("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."
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.
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