Corac Group Plc Annual Report and Financial Statements 2013

8/11/2019 Corac Group Plc Annual Report and Financial Statements 2013

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Annual Report andFinancial Statements2013

Company Number: 3152034


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Annual Report and Financial Statements 20132

Table of Contents

Strategic Report

03 Corac in Focus

04 Business Highlights05 Strategy in Action

08 Q&A With Phil Cartmell

12 Chairman and CEOsJoint Statement

16 Finance and OperationsStatement

Corporate Governance

24 Board of Directors

25 Directors Report27 Corporate Governance

Report

29 Remuneration Report

32 Independent AuditorsReport

Financial Report

33 Financial Statements

38 Notes to the FinancialStatements

Other Information

66 Company Information

is a combination of three advanced engineering and

technology businesses serving oil and gas, renewable

energy, industrial and defence sectors.

The Group works in partnership with system

integrators, prime contractors and end-users to build

sophisticated products that are placed at the heart

of business critical operational systems. These range

from offshore gas production platforms to nuclearpowered submarines.

With a consistent theme of engineering excellence

and innovation, Corac companies work on providing

advanced technologies or solutions for energy

systems, gas management and environment control.

The results are technically sophisticated, often

unique in their field, and form the basis of long -term,

successful relationships.

The Group employs more than 170 people across three

sites in the UK, and supplies systems and services tocustomers worldwide.


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Annual Report and Financial Statements2013 3

Two established profitable businesses and one

investing in future technology propositions.

A two-part strategy:

work closely with and maximise return from

an established global customer base

develop and commercialise new technologies

that drive long-term value

Atmosphere ControlInternational (ACI)

a defence business building upon

strong relationships in the UK

and Europe, whilst adding new

customers in Asia a strong

platform for long-term value.

Corac EnergyTechnologies (CET)

a compressor company that

develops, tests and applies compact

high-speed turbomachinery.

Patented technologies are at

the core of customer systems in

gas production and renewable

energy sectors.

Hunt ThermalTechnologies (HTT)

a thermal engineering company

that builds large heat exchangers

for technically challenging

downstream oil and gas or process

industrial plants, worldwide.

Corac in Focus


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Business Highlights

Notes1The comparative 2012 gures include a 9 month period post acquisition for ACI and HTT.

2Adjusted EBITDA is dened as operating prot adjusted to add back depreciation of property, plant and equipment, amortisation andimpairment of acquired intangible assets, share based payment charges and exceptional items. Exceptional items are those items believed tobe exceptional in nature by virtue of their size and or incidence. See note 3 to the Financial Statements.

Financial1

19.3m (2.9m) 13.7mGroup Revenue Adjusted EBITDA2 Group Cash

2012: 15.3m 2012: (4.1m) 2012: 6.7m

Group Net Assets were 25.7m(2012: 18.4m).

Group year end order book stood at 14.2m(2012: 14.4m).

provides strong visibility for 2014 revenue

supported by a significant pipeline of qualified potential sales opportunities

ACI - Strong financial performance and

development of international business

3rd generation Combined Oxygen Generator System hasbeen successfully proven at sea and will become a corecontributor to ACIs business for the next 10 years

successful delivery of a CO2scrubber to an Asian customer

within a long-term, multi-unit programme, and agreementto design and manufacture further improved CO

2

scrubbers for the follow-on class of vessels

rst sale of a re-generable CO2removal system for an Air

Independent Propulsion (AIP) submarine to another Asian

Navy provides a platform to expand in thatemerging market

CET - Proof of core technology and entry towider applications with additional partners

compact compressors were proven in customer tests bothwith industrial process gases in the UK and in methaneat CETs proving ground in Cumbria, and more than 6,000feet underground in a live gas well in Texas

expander technology in successful testing with our partner

which showed economic power generatedfrom waste process gases in a very compact andecient package

orders received for design of a compression system foroshore platform application and expander for generationof electricity from waste energy in the gas network

HTT - Successful restructuring andrepositioning provides momentum for 2014

fundamental business review resulting in a change ofmanagement, and a refocusing on its core strengths

and major customers

won and completed the early stages of a 1.6m orderfor ve specialised heat exchanger units to be delivered inSaudi Arabia in 2014

order from the UK division of a global speciality chemicalcompany worth approximately 1.1m for the designand manufacture of 4 exchangers plus a full set ofinterchangeable spares to be delivered in the UK during 2014


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Strategy in Action

Life Support Systems on Naval Vessels - ACIACI is recognised as a leading supplier of specialistsubmarine air purication equipment. The success of theCompany is founded on:

innovation and engineering excellence in its coreatmosphere management products

design-level integration in the vessel during construction

intimate knowledge of the challenges and uniqueness ofthe submarine environment

a track record of rst class delivery and service over

decades of system life

The solutions have lifetimes measured in decades, and ACIprovides through-life support that includes both scheduledrefurbishment and unscheduled service and repair.

The key technology underpinning the international salesof CO

2removal equipment is liquid MEA (Mono Ethanol

Amine) direct scrubbing technology. Variants have been inuse throughout the entire nuclear submarine communityfor almost 50 years. This has been extended and developedwithin the last 15 years for AlP (Air Independent Propulsion)diesel electric submarines. Innovations developed by ACIoer the prospect of at least another 30 years of service.

The core technology is supported by other systemsfor oxygen generation and removal of refrigerants andother toxic gases to provide an integrated atmosphere

management solution which also meets the stringentdemands for noise, vibration and discharge thatcharacterise long-term submarine deployments.

The 3rd generation O2production system, known as the

Combined Oxygen Generation System (COGS) has beensuccessfully proven at sea and will become the backboneof the ACI business for the next 10 years, with service andrefurbishment business potentially long after that.

ACI is exploring opportunities to transfer thesetechnologies into other environments that call for cleanair in conned spaces.

Coracs technologies at the heart of customer systems

Corac Group is a combination of three operating companies, two of which offer mature products

in their established markets, are profitable and generate cash. The third company is investing

in commercialising future technology propositions. The Group strategy has two main elements.

First, we maximise the return from our tier 1 customer base: we work with some of the largest

and most successful organisations in the world and commit to delivering excellent products and

services to them, working efficiently to create the greatest value from those relationships.

Secondly, we recognise the future value of innovation, and focus on the development of a selectgroup of technologies in which we have experience and identify a commercial opportunity. A

disciplined approach to development, working in partnership with integrators and end-users,

with constant technical and commercial review will drive long-term benefit from this investment.

The strategy is implemented and supported by a management team that brings international,

technical and commercial experience, and a track record of success at this level. This team will

drive the Group towards profit and build shareholder value as a result.


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Annual Report and Financial Statements 20136

CET technologies have been

subject to extensive laboratory,

flowloop and field testing withdevelopment partners in live gas

wells and industrial applications

in Europe, the United States

and the Far East.


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Compact Compressors and Expanders forEnergy and Oil & Gas Markets - CET

CET is a compressor company that was the rst to use gasbearings for high-speed, compact, no-oil turbomachines. Itis an innovative business that develops technologies thatare at the heart of performance-enhancing systems in oiland gas production and waste energy recovery.

As a technology developer, CET has created a portfolio ofpatented IP. These technologies are deployed either as:

a central part of an end-user system, built to servespecic, site-related needs

the core of a volume commercial product, produced byan OEM with technology licensed to the manufacturer

Coracs core technologies are:

compact, oil free compressors

contactless expanders for energy generation

rugged and compact electronic drive systems to controlelectrical machines in harsh environments

CET technologies have been subject to extensive laboratory,owloop and eld testing with development partners inlive gas wells and industrial applications in Europe, theUnited States and the Far East. An industrial compressorusing contactless bearings has been operating on a clientsite for more than 4 years, accumulating more than 25,000hours at 60 to 70 thousand rpm, with minimal service ormaintenance intervention.

The same technology has been applied in gas productionwith a landmark test carried out during 2013 in Texas.Three compressors acting together as a multi-stage systemran for 140 hours, more than 6,000 feet underground,in a live gas well.

Heat Exchange Systems for DownstreamPetrochemical and Industrial Plants - HTT

Hunt Thermal Technologies is a leading supplier of heat

exchangers operating in demanding applications, withcomplex metallurgy and highly specialised technicalrequirements in markets like downstream oil and gas orchemical process industries.

The company applies advanced manufacturing techniquesto work with exotic metals. These are pioneeringmanufacturing procedures that typically exceed industrycode requirements and are supported with exhaustivequality testing.

Proven experience with exotic metals, including Duplex,Super Duplex, Hastelloy and Cupronickel, meansthe company can dierentiate itself from standard

commoditised fabrication, and oer competitive solutionsto international customers in diverse market sectors.

HTT also designs and manufactures extended surface heatexchangers for all forms of air and gas treatment and theheating, cooling and condensing of all types of liquids andvapours. All are custom designed and constructed to suitspecic requirements. The full service includes problemsolving, analysis and design of bespoke units, manufacture,installation and support.

Example installations include:

shell and tube exchangers in duplex and carbon steel foroshore platform operation in the southern North Sea

multiple duplex heat exchangers (each 14m long, weighing13 tonnes) for a hydrocracker unit at an onshore oiland gas facility

Combined Heat and Power (CHP) - gas to thermal uidRecuperator, heating almost 5000 kg/hr of thermal uidfrom 100C to 300C using exhaust gas at 400Cthrough a multi-section custom-designed extendedsurface exchanger.


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The focus is on proving technologiesin customer environments. There is adelicate balance between proving that atechnology performs and can be madeavailable for general commercial use, andthe particular demands of a single use.

We also test in productive customerfacilities, which are only available tous at certain times as dictated by theirbusiness needs.

We feel that complex solutions can bedelivered, but these will involve many

parties, as we experienced during testingin Texas. Our contribution may in fact bea relatively small part of the deployment,and focused on our specialist area, thecompact compressor.

At the Board level, we felt we werespread a bit thin in key areas, so satdown to work out the best shape totake us forward. That was partly aboutwhat the business had become, andalso where we saw it going in the nextfew years. We needed to separatethe Chairmanship from the executiveleadership function, to focus more onthe operational performance of theestablished businesses and to balancethis with strong nancial controls. So, we

set about putting square pegs in squareholes and I am pleased that Jon andJulia have joined us. It is a much morebalanced team and I am happy with howit has worked so far.

HTT needed some work, as I felt they werenot making the most of what they had.I am a rm believer in the value of goodleadership and I was delighted when wemet Neville Vickery in the spring. He was

just what we needed at the time andhas settled in very well at Dukineld. Hiseorts to simplify the business and bringin a business development specialist towork alongside him have paid o wellwith a strong second half and more tocome from that business.

We were really pleased to get ourcompressors working on site in Texasin April. This was a big step into newterritory, and we learned a lot as a result.

We did a lot of simulation and owlooptesting before we went to Texas, basedon data supplied from the well by ourpartner. Once in place, the compressorsworked well, but as they went throughthe running sequence it was dicult totune them to get the full output. Whenwe took it out we could see why it cameout black and oily, which was a surprisein what we understood was a relativelyclean and dry well.

We worked with our partners to gurethings out, and two possibili ties emerged.Either the normal gas stream is worsethan we thought, or some material hit thecompressor as a result of the start-upprocedures.

We agreed that the compressor mustwithstand both conditions, so ourpartners are looking at the startingprocedures to minimise bad eects

whilst we look at making the compressormore resilient. We are now waitingfor these actions to complete and anopportunity to revisit the eld testing.

I look at it more as a Group plan, withdierent contributions coming from eachof the three businesses. It is true, whilstCET is still in the development phaseit is burning some cash and the othercompanies contribute prots to reducethe overall burn. The real integration

is deeper than that though. HTT areexpert fabricators and are supplyinggoods to the CET build programme ata much more economic rate than wecould achieve by sourcing from the openmarket. Both companies are establishedin mature markets with good long-termprospects and that adds somestability into the package that we weremissing before.

We have agency agreements in variouscountries that originated in one of thecompanies but are now being opened upto allow access for the others products inthose locations, and this is proving to bea very positive step.

The net amount raised was 10.8 millionand as explained in the placing documentthis will be used to invest to complete thedevelopment of our existing technologies,including the completion of projectswith existing customers, building of testfacilities and investment in equipment formulti-unit testing.

As we found in Texas, each well is unique,and the systems we provide will bebespoke variations on a core technology.We think the focus will be on proving the

core technology; applications like theDGC will then be built on that foundation.

For example, at the wellhead we can domore to condition the gas before it getsto the compressor, and that will helpus to deliver more standard systems inthose locations.

The compressor is the central part ofbigger systems with many other partiesinvolved. Our true skills lie with thecompressor, and I think this is wherewe will focus our eorts in the future.We can then work with others to add

ancillary systems and put the wholepackage together at the well-site.

What are the businesschallenges facing CET?

There were somemanagement changes.What drove those?

What happened onthe DGC tests?

How are the acquiredcompanies supporting

the CET plan?

You raised funds inDecember. How willthey be used?

How do you see theDGC going forward?

Q Q Q

Q

Q

Q

both companies are

established in mature

markets with good

long-term prospects

work together

flexibly to solve

a production

problem using our

core technology


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Q&AWith PhilCartmell (continued)

This is a big step forward. It cameas a result of us showing a workingcompressor in our owloop at Slough,and is the path we would like to followmore often in the future.

It takes existing technology and uses itas a base for use in other locations andapplications. I think BP must have seenthe potential of the technology, not justin Trinidad but possibly elsewhere.

The master agreement was set up tomake it easier for both parties to worktogether exibly to solve a productionproblem using our core technology.

It was a similar story to BP really. Wehave some proven technologies thatcan show prospective partners what ispossible. We also have some creativeand talented engineers who can describewhat is possible in a range of uses. In thiscase, the compressor acting in reverseis an ecient generator of electricity ina small package. To the engineers it isa logical step; there is a lot of work todo to make it real, but that is what CETis in business to do make valuablesystems from a growing range of proventechnologies.

Protable, and to be delivering provenengineered solutions in strong marketsacross the globe, with our innovationskills working to add more productsto the portfolio that will improve thereturns in our businesses even more.

What does a MasterService Agreementwith an oil major likeBP mean to Corac?

How did you get intothe renewable energymarket?

Where do you seethe group in three

years time?

Q Q Q

make valuable

systems from

a growing

range of proventechnologies


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Additional funding

From revenue of 18.3m (2012 9 months: 15.1m) ACIand HTT generated a combined Adjusted EBITDA of 2.6m(2012 9 months: 2.3m) which underpinned the nancialperformance of the Group. ACI grew its prots last year,and HTT reshaped its management team and put in placethe foundations for growth in 2014. The focus of bothcompanies is to grow their businesses organically fromtheir stable markets and strong customer bases. Notable

successes have already been seen with additional exportbusiness for heat exchangers in Saudi Arabia and CO

2

scrubbers in South East Asia.

Board changes

In March 2013, the company announced the appointmentof an independent non-executive Chairman, reecting thesignicant acceleration of the Groups development in thepreceding year, with the Chief Executive Ocer continuing tofocus on providing vision, strategy and communication with

investors, customers and sta. Richard King, an existingnon-executive director, was appointed non-executiveChairman and Phil Cartmell as Chief Executive Ocer.

At the same time, we also appointed Julia Henderson as anadditional non-executive director, adding her experience ofadvising entrepreneurial growth companies in a wide rangeof sectors. In July, we separated the roles of Chief FinancialOcer (CFO) and Chief Operating Ocer (COO) to reectthe increasing breadth of business activities. We welcomed

Jon Carter as CFO with a background in private equitybacked and leveraged companies in the manufacturingand technology sectors, and Mark Crawford, previously CFO,

was appointed COO to drive business growth and deliveryacross the three operating companies.These changes equipthe Board with a range and balance of skills and position uswell to continue the expansion of the Group.

19.3m (2.9m) 13.7mGroup Revenue Adjusted EBITDA2 Group Cash

2012: 15.3m 2012: (4.1m) 2012: 6.7m

... the Groups geographical presence

has been extended with the

appointment of a commercial agent

in North Africa and the opening of

discussions with potential partners in

South America and Eastern Europe...


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Chairman and CEO joint statement(continued)

Financial results

Group revenue increased to 19.3m (2012: 15.3m), andour Adjusted EBITDA loss before tax was 2.9m (2012:4.1m). This improvement on 2012 was driven by a full-yearAdjusted EBITDA contribution from the ACI/HTT businessesof 2.6m (2012 9 months: 2.3m), and a reduced AdjustedEBITDA loss at CET of 3.5m (2012: 4.7m). The Groups lossbefore tax for the year was 4.3m (2012: 6.1m).

Following the successful fundraising in December, weclosed the year with 13.7m (2012: 6.7m) of cash, whichallows us to continue to support the key development andgrowth initiatives across the Group.

Outlook

The Group enjoys long-term successful relationships witha number of tier 1 customers and partners. We have alsoassembled a high quality leadership team, with an enviablegroup of talented engineers, technicians, commercial andadministrative sta. We also have a growing portfolio ofproducts and an exciting innovation pipeline that will serve

us well for many years. The combination of all these factorsprovides encouragement for 2014 and beyond.

The operational improvements made at ACI and HTT havealready led to further orders being secured soon after theyear end (as announced 14 January 2014). This growth ofthe Group order book since the year end provides greatervisibility of revenue for the balance of 2014.

We anticipate the business development initiatives in thesecompanies to extend their products into new markets andbuild propositions for emerging products. These plans areexpected to yield additional sales this year. Building upon

the technical milestones achieved this year, the CET strategyis to focus on the demonstration of functioning systemsthat can deliver the performance and reliability expected bythe markets in which we operate.

We are then condent of moving to the next phase ofthe product life with follow-on orders in 2014, and insome cases the preparation for manufacturing by ourindustrial partners.

Overall, we are pleased with the progress made in 2013and how we are building the future value of the Group.

Phil CartmellChief Executive Ocer

Richard KingNon-executive Chairman


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Finance and Operations statement

Operational Focus

The operational focus in 2013 has concentrated on a number of areas:

Bedding in the ACI and HTT businesses and providing the platform for growth

Restructuring the HTT management team

Focus on the core technologies at CET and their applications in different sectors

Using the CET innovation skills to enhance the solutions across the group

Delivering the milestones on the CET partner programmes

Financial overview

The Group narrowed its losses in the year and is focusing on becoming profitable within the nexttwo years. The decision to acquire ACI and HTT in 2012 has positioned the Group with twobusinesses generating profits and cash, and poised for growth. CET is moving towardscommercialisation and continuing to invest in compressor and expander technology. The successfulfundraising in December 2013 helped to boost cash reserves to 13.7m at year end, and Group NetAssets to 25.7m (2012: 18.4m). The Group reduced its loss before tax by 1.8m to 4.3m and itsAdjusted EBITDA loss by 1.2m to 2.9m.

2013 2012

Adjusted EBITDA1 M M Change %

ACI 2.3 1.7 35%

CET (3.5) (4.7) 26%

HTT 0.3 0.6 (50%)

Central costs (2.0) (1.7) 18%

Adjusted EBITDA1loss (2.9) (4.1) 29%

Note: The comparative 2012 figures for ACI and HTT were for a 9 month period post acquisition in2012.

1 Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment,amortisation and impairment of acquired intangible assets, share based payment charges and exceptional items.Exceptional items are those items believed to be exceptional in nature by virtue of their size and or incidence.

December 2013 Share Placing and Open Offer

The Group raised 10.8m (net of expenses) in a Placing and Open Offer completed in December2013. The funds were raised principally to accelerate the CET path to commercialisation by fundingthe completion of the existing research programmes, capital expenditure to fund improved testingfacilities and the build of multiple systems, permitting parallel testing to increase the efficiency ofthe development cycle.


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Group Financial Key Performance Indicators

The Group Board and Executive Board monitor the performance of the business through monthlyreporting packs and in particular the following Key Performance Indicators (KPIs)

2013 2012

M M

Group

Revenue 19.3 15.3

Closing order book 14.2 14.4

Operating loss (4.3) (6.3)

Adjusted EBITDA loss (2.9) (4.1)

Net Cash 13.7 6.7

ACIRevenue 10.7 7.5


Operating profit 1.5 1.1

Adjusted EBITDA 2.3 1.7

Margin 22% 23%

CET

Revenue 1.0 0.2


Operating loss (4.0) (5.1)

Adjusted EBITDA loss (3.5) (4.7)

R&D spend 3.0 3.2

HTT

Revenue 7.6 7.6


Operating profit 0.2 0.6

Adjusted EBITDA 0.3 0.6

Margin 4% 8%

Central Costs Adjusted EBITDA loss (2.0) (1.7)

Note: The comparative 2012 figures for ACI and HTT were for a 9 month period post acquisition in2012.

Revenue

The Revenue movement was driven by the full year impact at ACI and HTT. This compares with a 9month post acquisition period reported in 2012 for these businesses. ACI revenue increased slightlyon a pro-rata basis to 10.7m (2012 9 months 7.5m). HTT revenue for the full year in 2013 of7.6m was equivalent to the 7.6m achieved in 9 months in 2012, reflecting a weak first half year

followed by the disruption caused by the management changes. Revenue at CET grew to 1.0mfrom 0.2m in 2012 as the development contracts progressed steadily.


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Order Book

The Group order book remained steady at 14.2m (2012 14.4m) providing strong visibility forrevenue in 2014, as the majority of this work will be delivered in the year. Furthermore, thepipeline of qualified opportunities was substantial at the year end and new orders taken since theyear end have led to the order book growing in the early part of 2014.

Adjusted EBITDA Loss

The Group Adjusted EBITDA loss was 2.9m (2012: 4.1m), which is an improvement on 2012,driven principally by an improved Adjusted EBITDA performance from the ACI/HTT businesses of2.6m (2012 9 months: 2.3m), and a reduced Adjusted EBITDA loss at CET of 3.5m (2012: 4.7m).

The movement between Group EBITDA loss and Group Adjusted EBITDA loss was 68k related toshare based payments. The statutory operating loss before tax for the year was 4.3m (2012:6.1m).

Group Balance SheetThe Groups net assets increased to 25.7m (2012: 18.4m), principally due to the Placing andOpen offer which raised 10.8m net of expenses.

Group Cash Flow

The Group ended the year with cash reserves of 13.7m (2012: 6.7m). The Placing and Open offerincreased cash reserves, and significantly reduced the financial risk profile of the business. Suchfunding should permit the Group to progress the journey towards profitability as ACI and HTTimprove their revenue streams and CET technologies reach commercial readiness. The Groupsoperations continue to absorb cash, 3.7m (2012: 4.1m) to fund the development projects,despite the reduction in loss before tax reducing from 6.1m in 2012 to 4.3m in 2013. The relative

size of the Groups contracts continue to impact on the working capital requirements of thebusiness, as the movement in inventories, receivables and payables in 2013 was an outflow of1.5m (2012: inflow 0.2m). This is due to the material nature of the cash flows of each project,rather than any issues over recoverability of cash.

Risk Management

The Directors Report on page 25 describes the principal risks and uncertainties affecting the Groupand a summary of the actions taken by the Directors to mitigate the key financial risks.

Going concern

The Directors are satisfied that, notwithstanding economic uncertainty, the Group has adequateresources to continue in business for the foreseeable future, and accordingly continue to adopt thegoing concern basis in preparing the accounts. In reaching this conclusion, the directors haveconsidered forecasts that cover a period of greater than twelve months from the date of theapproval of these financial statements. The forecasts take into account the Groups existing cashresources, and include consideration of certain downside scenarios, in particular in relation to CETwhere there is inherently greater uncertainty as to the future cash flows of that business. TheDirectors have also considered the mitigating actions available to them, including the ability ofmanagement to make certain reductions to the Groups discretionary expenditure if required.


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Facilities

The methane compressor development has led to an enhancement of the company capability inflowloop testing. As a result of experience in Texas, the company has built additional test facilitiesin Slough to provide a true multi-phase facility. This will allow engineers to explore the boundariesof operation with the introduction of fluids and solids into the gas stream. Commissioned in 2013,the facilities will be completed early in 2014 to provide more comprehensive demonstration andtesting regime before compressors are deployed into live conditions.

People

Corac Group employs a diverse and highly talented mix of technical, commercial and administrativestaff. Total staff employed at the end of 2013 was 170 (31 December 2012: 165).

Some parts of the business must manage short-term fluctuations in activity levels and so aproportion of contract resources are used. The Group does enjoy great continuity from itspermanent staff, and at the year end, just 5% of the workforce were contractors. Among our

permanent staff, we are proud of our low levels of turnover. Staff attrition in 2013 was less than 7%of the permanent workforce.

Group companies work in highly technical and scientific disciplines and a significant proportion ofthe team hold first degrees, Masters and PhDs. 11% of employees are women including several insenior executive and technical positions, and we have 13 different nationalities bringing a broadexperience of global business and technology.

In the central team, we have a small group of flexible, highly skilled and widely experiencedbusiness managers who work across the operating companies to provide specialist support andextended coverage more efficiently than would be possible from inside the companies.

Youth development is also important to Corac companies and we currently have four apprenticesundergoing training and development, as well as many senior employees who have graduated from

our apprenticeship programme.

Processes

All operating companies are accredited to ISO 9001. ACI also has ISO 14001 and plans are in placefor all three companies to be accredited to ISO 9001, 14001 and 18001 by the end of 2014.

As part of the growing focus on managing our positions within contracts and projects, the functionof commercial management was concentrated in a Group function that supports the needs of theoperating businesses. Access to specialist skills provided in this way has allowed us to negotiatemore effectively with the large organisations we deal with, and has also shortened the lead time toconcluding sales in the year.

Group-wide health and safety procedures have led to the introduction of standard site risk

assessments and a series of factory-floor initiatives including regular team meetings and briefingson local topics relevant to safety. This work began at HTT and is being extended further across theGroup. The Group has joined the British Safety Council and all employees will undergo their initialtraining module and be certified as trained.


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Atmosphere Control International

In the first full year of Group ownership, ACI has made good progress. Revenue and AdjustedEBITDA were slightly ahead of the comparative figures for the 9 month period of ownership in 2012,

and Adjusted EBITDA margins were consistent at around 23%. The segment operating profit of ACIwas 1.5m (2012 9 months: 1.1m). The order book did reduce from an exceptionally high 9.6m in2012 (following the DCNS order announced in October 2012) to 5.9m in 2013, the majority ofwhich is due for completion in 2014. More than 3m in new orders have since been taken in the firstquarter of 2014.

Management priorities

ACI enjoys a very strong relationship with its primary customers, the UK MoD and BAeSystems, theprime contracting shipbuilder. Established over many years and providing the bulk of the companysrevenue, maintaining these relationships is a priority. The approach is to deliver committed work toexpectations whilst also being proactive to understand future needs and respond effectively toprovide long-term business.

Growth will be incremental, and will come from two sources: other international programmesspecifying ACIs existing technologies, and cross selling other ACI equipment to extend the reach inexisting UK and international customers. Greater focus was paid to the business developmentactivity in 2013 with presence at exhibitions, new marketing material and lead generationinitiatives, creating a pipeline of sales opportunities that are expected to mature during 2014.

Submarine breathing system

Defence is a nationally focused business where large naval fleets will typically look for a domesticsource for major systems. ACI is the only UK provider of atmosphere management systems forsubmarines. It also competes very effectively for business in nations that may not have their ownnational source. In 2013 ACI was awarded contracts by two countries in the Asia Pacific region, onefor a further unit to continue an existing successful programme, and one was to enter a newprogramme, which was secured against international competition. In these fleets, the submarinesare smaller, Air Independent Propulsion (AIP) boats, more commonly known as diesel-electric.

Development lead times are long in this sector, and work has started on an enhanced CO2scrubbingsystem that will form the backbone of ACIs business over the next thirty years, as it responds tocalls for lower threshold levels of CO2on future vessels.

Textile ducting TexVent

ACIs TexVent product has received a lot of business development support during the year. As aresult of enhanced marketing effort, it was showcased at the DSEI exhibition at Excelin theLondon Docklands. This has led to engagement with several potential new customers andopportunities to apply the system beyond naval vessels. Civilian maritime markets and other

military uses such as temporary buildings, field hospitals etc. are all potential uses for this product.


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Hunt Thermal Technologies

HTT had a challenging year during which the management team was restructured and many of theprocesses in the business were re-engineered. Following a weak first half performance, HTT

delivered an Adjusted EBITDA of 0.3m (2012 9 months: 0.6m), which was achieved principally inthe second half of the year. The segment operating profit for HTT was 0.1m (2012 9 months:0.6m). Furthermore, the improved processes have led to a closing order book of 5.4m (2012:3.4m) all of which will be completed in the early stages of 2014.


HTT has capabilities in design and manufacturing with advanced metals, which differentiate it fromthe mass market (which tends to be commoditised, and with lower margins) and managementpriorities are to exploit these qualities and maximise their impact and growth potential.

The management restructuring led the company to recognise and play to these strengths. NevilleVickery, an experienced engineering business leader was recruited from David Brown Ltd, as

Managing Director. There followed a restructuring programme that reinforced the existingoperational management with new hires in finance and business development.

This leadership team has concentrated on what differentiates HTT from the commodity market andpromoted high specification systems in domestic and international markets. The result has followedthrough into the order book with significant new orders and an active pipeline to prepare thebusiness for 2014.

HTT Renaming

Hunt Graham Limited was renamed to Hunt Thermal Technologies Limited at the end of the year.The change provided an opportunity to reflect more accurately the nature of the business and itsstrengths in the market.

Shell and tube heat exchangersHTT set out in 2013 to consolidate its core business in the UK petrochemical sector, build upon thisand also extend into new export business that would be driven from its capability in complex andlarge thermal systems.

This approach led to a significant contract award, as announced in July 2013, to supply multipleheat exchangers to a major project in Saudi Arabia. This was secured through a competitive bidprocess against an international peer group and demonstrates that HTT can compete on a globalscale where complex, high-integrity systems are the key requirement.

The order was placed by a global Engineering, Procurement and Construction (EPC) company whoare a leading supplier of process systems to the Oil and Gas industry. That project was valued inexcess of 1.6m to deliver five specialised heat exchanger units for delivery within one year. This

route to market is expected to be an increasing part of HTTs future business approach.The contract has further value for the Group as it extends our activities in Saudi Arabia, alongsideCorac Energy Technologies' gas field compressor project and demonstrates the Group's strategy ofextending geographic presence and supporting key clients across the combined range of CoracGroup business.


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Corac Energy Technologies

CET has continued to invest in the development of its compressor and expander technology,resulting in the Adjusted EBITDA loss narrowing to 3.5m (2012: 4.7m). The segment operating lossfor CET was 4.0m (2012: 5.1m). Revenue at CET of 1.0m (2012: 0.2m) was a fivefold increaseon 2012, and was achieved across a number of development projects in both the oil and gas andindustrial sectors. Furthermore, the order book at year end stood at 2.9m (2012: 1.4m) of which2.2m is in the oil and gas sector and 0.7m is in the industrial sector. The order book relates tothe value of partner funding for the development projects rather than true commercial sales, whichare expected to follow in 2014. The R&D spend of 3.0m (2012: 3.2m) remains significant, but waslower than the previous year due to greater focus on efficiency and cost control.


At CET there has been much progress made during the year on the core technology elements.Extensive testing of compressors and expanders has demonstrated the readiness of the coretechnologies and the opportunities to develop them further towards new applications.

The management focus has evolved to ensure that the building blocks of technology are robust anddemonstrable. Field deployments of integrated systems rely on a number of external factors, manyoutside our control. The focus has therefore evolved to maximise the confidence in the buildingblocks and then to work with partners to put them into field applications.

Compact compressor single-stage

This is the application group that is growing from the original downhole systems. It is, relativelyspeaking, the simpler of the methane compression systems, with a single stage of compression permotor. Each motor/compressor unit produces a modest pressure ratio and will be deployed withseveral in series to deliver higher ratios.

Following extensive testing in workshop and flowloop conditions, both at the Slough Technology

Centre and the methane test facility in Cumbria, compressors were deployed for the first time aspart of an integrated downhole compressor in a producing gas well in Texas in April 2013. Thecompressors performed well for 140 hours at depths in excess of 6,000 feet, with inlettemperatures approaching 100 degrees Celsius, and with condensate and other fluids in the gasstream. These conditions are as harsh as these solutions are expected to meet in the intendedapplication wells. Work with the development partner continues in order to optimise the resilienceof the compressor to erosion and fouling challenges.

The success of this work was the stimulus for other projects to take the single-stage compressorinto new application areas. After much investigation of the potential for the technology, we signeda Master Service Agreement in July 2013 with BP Trinidad and Tobago to create a larger variant ofthe base compressor to be deployed on the deck of an unmanned offshore production platform.This is an exciting development as it builds upon successful R&D work already completed to find a

new application point on high production rate wells.

Compact compressor multi-stage

This is regarded within CET as a separate development path with different challenges to the single-stage machines. Based on a single, high power motor, this compressor has multiple stages mountedon a single shaft within the enclosed compressor casing that sits between flanges in the productionpipework. The first application is under development with Saudi Aramco, having agreed anextension to the original contract during 2013. The intent is to deploy the compressor withsupporting liquid management systems close to the wellhead.

Compact expander

The expander has been developed as a further variant to the compact single-stage compressor as a

means of identifying further application areas for the core technology. In this case, pressurised gasspins the impeller to drive a permanent magnet generator, running on gas bearings, similar to thoseused in the compressor, to produce electricity. The first system of its kind was developed with our


23/68


industrial partner and successfully tested to show function and performance at the intended levels.The system has since completed endurance testing over several months at the partner site.

A further contract was signed in December 2013 to extend the use of these systems in renewableenergy applications.

Outlook

The next phase of the Groups evolution will focus on getting the balance right between costs inthe operational businesses and investment across the Group to drive growth. We will invest in newtechnologies plus any necessary facilities to improve operational efficiency and other support tomaximise returns from the regular business activities.

There will also be challenges as a result of growth. Capacity, skills, processes and the generalability to deliver will be closely managed alongside external factors such as the supply chain to addvalue and efficiency from the increased scale of the Groups activities.

Approval

The Strategic Report was approved by the Board of Directors on 1 April 2014 and signed onits behalf by:

Registered number: 3152034

Registered office: 683-685 Stirling Road, Slough, Berkshire SL1 4ST

JP CarterChief Financial Ocer

MS CrawfordChief Operating Ocer


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Board of Directors

Executive Directors

Phil Cartmell

Chief Executive Officer

Phil Cartmell was appointed to the Board in September2009. He has a highly active career in business, havingformerly been Chief Executive of Vega Group plc between2001 and 2008, where he grew the company into a leadingEuropean aerospace and defence business. In February2008, Vega Group was acquired by Italian multi-national,Finmeccanica, for a substantial premium. Phil has servedas a Non-Executive Director and adviser for a number ofcompanies including Alterian plc a leading provider ofGlobal Information Management solutions, where he wasNon-Executive Chairman until its acquisition by SDL plc inJanuary 2012 and Trafficmaster.

Jon Carter

Chief Financial Officer

Jon Carter was appointed to the Board in July 2013. Jonwas previously CFO at IPL Group Limited, a softwareconsultancy business, and part of a team that completedan award winning leveraged buy-out in 2008. Jon startedhis career in the corporate finance and corporate recoverypractices of Coopers and Lybrand in South Wales where hequalified as a Chartered Accountant. Besides blue chipexperience at Compass plc, Jon has led the finance teamsin PE backed and leveraged businesses and successfullycompleted a buy-out and exit at leading short run bookmanufacturers Antony Rowe Group Limited.

Mark Crawford

Chief Operating Officer

Mark Crawford was appointed to the Board in November2009. Prior to joining Corac Mark worked in a number ofcommercial roles, the last of which was as a Director withprivate equity backed Gondola, having previously gainedinternational experience with PepsiCo, Inc. Mark startedhis career with Glaxo Pharmaceuticals UK Limited invarious strategic planning and financial roles and where hegained his accountancy qualification with the CharteredInstitute of Management Accountants.

Non-Executive Directors

Richard King

Non-Executive Chairman

Richard King was appointed to the Board in February 2011and became Chairman in March 2013. Richard spent 35years with Ernst & Young LLP, becoming Managing Partnerof UK & Ireland and a member of both the EMEIA Boardand Global management group. Richard is a Fellow of theInstitute of Chartered Accountants in England and Walesand worked extensively with growing businesses. Richardis Chairman of both the Orchid Group and Grass RootsGroup, Non-Executive Director of CSF Group plc andAllocate Software plc, is an advisory partner at RockpoolInvestments LLP and is on the advisory board of FrogmoreProperty Group. He is also Chair of Trustees for the WillowFoundation, a charitable organisation for seriously illchildren and adults.

Rohan Courtney OBE

Non-Executive Director

Rohan Courtney was appointed to the Board in April 2010and chairs the Remuneration Committee. He was a careerbanker for 27 years including 8 years as Chief Executive inEurope of State Bank of New South Wales. He cofoundedUCG Association where he is a Trustee (first Chairman ofTrustees from 2009-2013), is Executive Chairman andmajor shareholder in Clean Coal Limited, a UCG operator,and has been involved in energy businesses for most of hiscareer. Rohan has served on a number of public companyboards and was a non-executive director of Tullow Oil plc,one of Europe's largest Independent Oil and Gas

companies, from 1993 to 2007 (Senior IndependentDirector from 2000-2007).

Julia Henderson

Non-executive Director

Julia Henderson was appointed to the board in March 2013as a non-executive director and chairman of the AuditCommittee. Julia has over twenty five years' experience ofadvising entrepreneurial growth companies in a widerange of sectors. Her corporate finance career began atANZ Merchant Bank after which she became a co-founderof Beeson Gregory, a mid-market investment bank (nowpart of Investec). Julia is now an independent consultantand non-executive director with private and quoted mid-

market companies. She was non-executive Chairman ofGTL Resources plc until its takeover in 2012 and is a non-executive director of Alkane Energy plc and ECO AnimalHealthcare plc and Amati VCT plc.


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Directors Report

The directors present their report and audited financialstatements for the year ended 31 December 2013.

Principal Activity

Corac is a UK based group of advanced technology andengineering companies.

Atmosphere Control International provides air purificationand oxygen generation equipment for submarines togetherwith air handling and distribution systems.

Corac Energy Technology specialises in the research anddevelopment of technologies in the field of gascompression and the design and manufacture of highspeed motors and generators using proprietary permanentmagnetic rotor and oil-less bearings.

Hunt Thermal Technologies is a leading manufacturer ofheat exchange equipment used in the cooling and heatingof large scale industrial processes.

Results and DividendsThe directors do not recommend the payment of adividend (2012: nil) and propose that the loss be added tothe deficit on reserves.

Research and Development

Total R&D expenditure in the year, including 2.0m costof sales within CET (2012: 0.2m), was 3.0m (2012:3.2m), all of which was charged to the income statementin the year.

Principal Risks and Uncertainties

In addition to financial risk management that is detailed innote 25 to the financial statements, there are a number of

risks and uncertainties that could have a material impacton the Group. Risks are reviewed by the Board andappropriate processes and controls have beenimplemented in respect of monitoring and control.

Principal business risks are as follows:

Commercial contracts for customers may be largeand long-term, with risks relating to contractdelivery and performance, including cost. Internalprocedures are designed to ensure that risks aremanaged on a contract-by-contract basis so thatcontracts are successfully delivered to customers ontime, on budget and to the highest qualityspecification.

The Group has a niche position in the Defence

(naval) and Oil and Gas markets supplying specialistequipment to a relatively narrow customer base andthe main external market risks relate to theenvironmental factors within these specialistsectors.

Researching and developing innovative technologiescarries a risk of failure to deliver within budgetedcost and timetable or with adequate operatingperformance and reliability. The Group hasassembled a broad based team with experience ofmanaging, developing technologies and projectmanagement and has secured appropriate externalresources.

The market may not accept the Groups technologysolutions to achieve continuing support of existingsales channels and the anticipated level and rate of

growth of future revenues. The Group continuallymonitors the market place and works closely with

development partners and customers to advance theGroups technologies.

General economic conditions and uncertainties onpotential partners plans for capital expenditure andtheir ability and appetite to fund projects may

affect the business.

Technological change and the potential ofcompetitors to develop alternative solutions maythreaten the business. The Group has registeredpatents covering key areas of its technology,monitors relevant third party patents and hasdeveloped significant know how.

It is important to retain key employees in thedevelopment of the Groups technologies andexecution of its business plan. The Group seeks toavoid over dependence upon specific employees andformally documents key areas. The Group seeks toretain staff and encourage their long-termcommitment by providing competitive remunerationpackages including company-wide share options.

The principal financial risk is the management of cashduring the development phase for the Group including:

Liquidity risk - the Group seeks to manage financialrisk by ensuring that sufficient liquidity is availableto meet foreseeable needs and by investing cashassets safely and profitably. The Groups policythroughout the year has been to achieve thisobjective through managements day-to-dayinvolvement in business decisions rather than settingmaximum or minimum liquidity ratios. Grouppolicies are aimed at maximising liquidity and returnon cash through the use of short and medium termbank deposits;

Foreign exchange risk - the Group undertakescontracts denominated in foreign currencies

(principally Euro and US dollar) leading to anexposure in exchange rate movements for both salesand purchase transactions. Where they cannot beoffset, forward exchange contracts are utilised tominimise the risk.

Credit risk - the Groups principal financial assetsare cash and trade receivables. The credit riskassociated with cash is managed by ensuring thatcounterparties have high credit ratings assigned byinternational credit rating agencies.

Interest rate risk - the Groups policy throughoutthe year has been to place funds on deposit directlywith an approved list of banks maturities to matchthe anticipated cash requirements of the Group; and

Capital Management

Capital consists of equity attributable to the equityholders of the parent.

The primary objective of the Groups capital managementis to ensure that it maintains sufficient capital to supportthe on-going expenditure requirements of the businesswith a view to future commercial success from theseactivities in order to maximise shareholder value.

The Group manages its capital structure and makesadjustments to it in light of working capital requirements.To adjust the capital structure, the Group issues newshares. The Group currently has no debt financing.


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Directors Report continued

Creditor payment policy

The Group and Parent Company seek to agree paymentterms with their suppliers in advance of a transaction andwill pay in accordance with the agreed terms as long as

the Group and Parent Company are satisfied that thesupplier has provided goods and services in accordancewith the order.

The Groups creditor payment period was 40 days (2012:54 days). The Parent Companyscreditor payment periodwas 46 days (2012: 54 days).

Employee Involvement

The Groups policy is to encourage involvement at alllevels, as it believes that this is essential for the successof the business.

Disabled Employees

Full consideration is given to employment applicationsfrom disabled persons who have the necessary aptitudesand abilities. Where an employee becomes disabled whileemployed, arrangements are made wherever practicableto maintain employment. The company seeks to developthe skills of disabled persons by providing applicabletraining, taking into account their particular needs.

Directors' and Officers' LiabilityInsurance

The Parent Company has purchased liability insurancecovering its directors and officers.

Directors and their Interests

The directors during the year were as follows:

Executive

P Cartmell

M S Crawford

J P Carter (appointed 22 July 2013)

Non-executive

R W King

R R Courtney OBE

J A Henderson (appointed 26 March 2013)

Directors interests in shares are shown in theRemuneration report.

Related Party Transactions

These have been disclosed within note 28 to the accounts.

Auditor

Each of the persons who is a Director at the date ofapproval of this Annual Report confirms that:

so far as the director is aware, there is norelevant audit information of which thecompanys auditors are unaware; and

the director has taken all steps that he/sheought to have taken as a director in order tomake themselves aware of any relevant audit

information and to establish that the companysauditors are aware of that information.

This confirmation is given and should be interpreted inaccordance with the provisions of section 418 of theCompanies Act 2006.

Deloitte LLP has expressed willingness to continue in

office. In accordance with s489(4) of the Companies Act2006 a resolution to re-appoint Deloitte LLP will beproposed at the Annual General Meeting.

This report was approved on behalf of the Board on 1 April2014 and signed by order of the Board.

M J WebbCompany Secretary

1 April 2014

M J Webb

Company Secretary

1 April 2014


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28/68


As far as each of the directors is aware, there is norelevant information of which the Parent Companysauditor is unaware. Each director has taken all the stepsthat they ought to have taken as a director in order tomake themselves aware of any relevant information andto establish that the Parent Companys auditor is aware ofthat information.

Audit Committee

During the year, the Audit Committee comprised threenon-executive directors (two until March 2013). TheCommittee has specific terms of reference that deal withits authority and duties. It meets at least twice a year,with the Executive Directors, and the auditor attending byinvitation. The Committee reviews the independence andobjectivity of the auditor each year. The Committee

overviews the adequacy of the Group and ParentCompany's internal controls, accounting policies andfinancial reporting and provides a forum through whichthe Company's external auditor reports to the non-executive directors.

The Board has decided that the size of the Group does notjustify a dedicated internal audit function. This positionwill be reviewed as the Group's activities increase.

Going Concern

Discussion of going concern is included within theaccounting policies described in note 2 of the Notes to theFinancial Statements.

Internal Control and RiskManagement

The Board has overall responsibility for ensuring that theGroup and Parent Company have processes to identify,evaluate and manage key risks. The nature of the Groupsbusiness comprises a mix of commercial design,manufacturing and service/maintenance as well as on-going R&D. This calls for rigorous cost analysis and marketrisk assessment. The system is designed to manage andminimise risk of failure to achieve the Parent Company'sstrategic objectives, and can only provide reasonable, andnot absolute, assurance against material misstatement orloss.

Key areas of internal control are listed below:

the review of contract progress against milestonesand forecast expectations to ensure that contractsare delivered on time and on budget

regular review of the technical developmentprogrammes, the commercialisation of the Groupstechnology and the financial performance of theGroup in the context of the Parent Company'sbusiness plan

an organisation structure with clear executivepolicies on recruitment, training, appraisals andproject management

an annual budget showing projected revenues,costs, funding requirements and operational targetsapproved by the Board and monitored forperformance against it

a system to ensure the security of the Groups

intellectual property

The directors consider that the present system of internalcontrol is sufficient for the needs of the Group and ParentCompany and adequately addresses the risks to which theGroup is perceived to be exposed.

On behalf of the Board

J A Henderson

Chairman

Audit Committee

1 April 2014

Corporate Governance Report continued

J A Henderson

Chairman

Audit Committee

1 April 2014


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Remuneration Report

Unaudited Information

Remuneration Committee

During the year, the Remuneration Committee was made up of three non-executive directors. TheRemuneration Committee was chaired by Mr R R Courtney OBE and was attended by the ChiefExecutive by invitation. The Remuneration Committee sets and annually reviews the terms andconditions of employment of the executive directors. The remuneration of non-executive directorsis fixed by the Board as a whole. The Remuneration Committee also monitors and reviews theGroup-wide appraisal process and approves the proposals from the executive directors for allemployees' remuneration and option arrangements.

Remuneration Policy

The Parent Company's policy on executive directors' remuneration is to attract and retain highquality executives by paying competitive remuneration packages relevant to each director's role,experience and the external market. The packages include a basic salary, pension contributions andshare options. Up to 2010, options granted incorporated individual performance conditions. From2010, all new options were granted without performance conditions. On 24 September 2013,options over 500,000 shares were granted to J P Carter. The options are exercisable in three equalinstalments, from 20 September 2014 at a price of 13.58 pence. No options were granted to theDirectors during the year to 31 December 2012.

Service Agreements

All Directors are appointed on 12 months rolling contracts and therefore have 12 month noticeperiods. Non-Executive Directors are appointed on three year contracts, with no notice period.

Audited Information

Directors' Emoluments

Basicsalary

or feesPension

contributionsOther

Benefits

Totalemoluments

2013

Totalemoluments

2012

000 000 000 000 000

Executive

P Cartmell 260 17 - 277 518

J P Carter (appointed 22 July 2013) 60 - - 60 -

M S Crawford 205 14 - 219 203

Non-executive

R W King 41 - - 41 32

R R Courtney 35 - - 35 35

J A Henderson (appointed 26 March 2013) 23 - - 23 -

624 31 - 655 788


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Directors' Share Options

The interests of the directors, who were in office at the end of the financial year, in options overthe shares of the Parent Company at 31 December 2013 and 31 December 2012 were:

As at Exercised Lapsed Issued As at

31 Dec 2012 in year in year in year 31 Dec 2013 Exercise

number number number number number price (p) Lapse date

Executive

P Cartmell 2,000,000 - - - 2,000,000 42.00 30 September 2019

P Cartmell 300,000 - - - 300,000 21.75 30 April 2020

P Cartmell 3,000,000 - - - 3,000,000 15.00 9 December 2020

J P Carter - - - 500,000 500,000 13.58 24 September 2023

M S Crawford 300,000 - - - 300,000 39.00 21 October 2019

M S Crawford 200,000 - - - 200,000 34.75 11 December 2019

M S Crawford 300,000 - - - 300,000 21.75 30 April 2020

M S Crawford 1,950,000 - - - 1,950,000 15.00 9 December 2020

Non-executive

R W King 250,000 - - - 250,000 15.00 7 February 2021

R R Courtney OBE 250,000 - - - 250,000 15.00 9 December 2020

The closing mid-market price of the Parent Companys shares as quoted on the Daily Official List aspublished by the London Stock Exchange was 10.38p at 31 December 2013 and in the period 1January 2013 to 31 December 2013 was a closing mid-market high of 16.88p per share and a low of10.25p per share.

Remuneration Report continued


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Remuneration Report continued

Directors' Interests

The directors who held office at the end of the financial year had the following beneficial interestsin the ordinary share capital of the Parent Company at 31 December 2013, at 31 December 2012and at the date of this report:

Number held at Number held at

31 December 2013 31 December 2012

Ordinary Shares of Ordinary Shares of

10 pence each 10 pence each

P Cartmell 1,737,920 1,187,920

J P Carter 250,000 -

M S Crawford 370,207 180,167

R W King 440,476 290,476

J A Henderson 100,000 -

On behalf of the Remuneration Committee

R R Courtney OBE

Chairman

Remuneration Committee

1 April 2014


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We have audited the financial statements of Corac Groupplc for the year ended 31 December 2013, whichcomprise the consolidated statement of comprehensiveincome, the consolidated and parent company statementof financial position, the consolidated and parentcompany statements of changes in equity, theconsolidated and parent company statement of cashflows and the related notes 1 to 28. The financialreporting framework that has been applied in theirpreparation is applicable law and International FinancialReporting Standards (IFRSs) as adopted by the EuropeanUnion and, as regards the parent company financialstatements, as applied in accordance with the provisionsof the Companies Act 2006.

This report is made solely to the companys members, asa body, in accordance with Chapter 3 of Part 16 of theCompanies Act 2006. Our audit work has been

undertaken so that we might state to the companysmembers those matters we are required to state to themin an auditors report and for no other purpose. To thefullest extent permitted by law, we do not accept orassume responsibility to anyone other than the companyand the companys members as a body, for our auditwork, for this report, or for the opinions we haveformed.

Respective Responsibilities ofDirectors and Auditor

As explained more fully in the directors responsibilitystatement within the corporate governance report, thedirectors are responsible for the preparation of thefinancial statements and for being satisfied that theygive a true and fair view. Our responsibility is to auditand express an opinion on the financial statements inaccordance with applicable law and InternationalStandards on Auditing (UK and Ireland). Those standardsrequire us to comply with the Auditing Practices BoardsEthical Standards for Auditors.

Scope of the Audit of the FinancialStatements

An audit involves obtaining evidence about the amountsand disclosures in the financial statements sufficient togive reasonable assurance that the financial statementsare free from material misstatement, whether caused byfraud or error. This includes an assessment of: whether

the accounting policies are appropriate to the groupsand the parent companys circumstances and have beenconsistently applied and adequately disclosed; thereasonableness of significant accounting estimates madeby the directors; and the overall presentation of thefinancial statements. In addition, we read all thefinancial and non-financial information in the annualreport to identify material inconsistencies with theaudited financial statements and to identify anyinformation that is apparently materially incorrect basedon, or materially inconsistent with, the knowledgeacquired by us in the course of performing the audit. Ifwe become aware of any apparent materialmisstatements or inconsistencies we consider theimplications for our report.

Opinion on Financial Statements

In our opinion:

the financial statements give a true and fair viewof the state of the groups and of the parentcompanys affairs asat 31 December 2013 and ofthe groups loss for the year then ended;

the group financial statements have been properlyprepared in accordance with IFRSs as adopted bythe European Union;

the parent company financial statements havebeen properly prepared in accordance with IFRSs asadopted by the European Union and as applied inaccordance with the provisions of the CompaniesAct 2006; and

the financial statements have been prepared inaccordance with the requirements of the

Companies Act 2006.

Opinion on other matter prescribedby the Companies Act 2006

In our opinion;

the information given in the Strategic Report andthe Directors' Report for the financial year forwhich the financial statements are prepared isconsistent with the financial statements.

Matters on which we are required toreport by exception

We have nothing to report in respect of the followingmatters where the Companies Act 2006 requires us toreport to you if, in our opinion:

adequate accounting records have not been keptby the parent company, or returns adequate forour audit have not been received from branchesnot visited by us; or

the parent company financial statements are not inagreement with the accounting records andreturns; or

certain disclosures of Directors remunerationspecified by law are not made; or

we have not received all the information andexplanations we require for our audit.

Darren Longley FCASenior Statutory Auditor

for and on behalf of Deloitte LLP

Chartered Accountants and Statutory Auditor

Reading, UK

1 April 2014

Independent Auditors Report


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Consolidated Statement of Comprehensive Income

for the year ended 31 December 2013

Group

2013 2012

Note

000 000

Revenue 3 19,330 15,299

Cost of sales (15,858) (11,845)

Gross profit 3,472 3,454

Distribution costs (219) (172)

Research and development costs (1,049) (2,986)

Administrative expenses (6,544) (6,570)

Operating loss 4 (4,340) (6,274)

Finance income 6 4 180

Loss before income tax (4,336) (6,094)

Income tax credit 7 780 870

Total comprehensive loss for the year attributable toshareholders

(3,556) (5,224)

Loss per share expressed in pence per share

Basic and diluted loss per share 8 (1.1) (1.8)

All results relate to continuing activities.

The notes on page 38 to 65 form part of these financial statements.


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Consolidated and Parent Company Statement of Financial Position


Group Parent Company

2013 2012 2013 2012

Note 000 000 000 000

ASSETS

Non current assets

Goodwill 9 4,953 4,953 - -

Other intangible assets 10 10,739 11,631 - -

Property, plant and equipment 11 1,365 1,828 3 1,590

Investments 12 - - 16,147 10,910

Amounts owed by EBT 13 - - 167 198

17,057 18,412 16,317 12,698

Current assets

Inventories 14 38 44 - -

Trade and other receivables 17 2,716 3,339 683 1,266

Taxation recoverable 266 700 - 700

Cash and cash equivalents 18 13,749 6,651 10,537 4,714

16,769 10,734 11,220 6,680

Total assets 33,826 29,146 27,537 19,378

LIABILITIES

Current liabilities

Trade and other payables 19 (4,059) (7,347) (1,287) (2,283)Taxation payable (51) (52) - -

(4,110) (7,399) (1,287) (2,283)

Non-current liabilities

Deferred taxation 21 (2,148) (2,675) - -

Provisions 22 (1,862) (712) - (150)

(4,010) (3,387) - (150)

Total liabilities (8,120) (10,786) (1,287) (2,433)

Net assets 25,706 18,360 26,250 16,945

EQUITY

Share capital 23 42,246 30,788 42,246 30,788

Share premium 13,769 13,769 13,769 13,769

Capital redemption reserve 575 575 575 575

Own shares held by the EBT (561) (551) - -

Share-based payments reserve 1,094 1,026 1,000 932

Retained earnings (31,417) (27,247) (31,340) (29,119)

Total equity 25,706 18,360 26,250 16,945

The financial statements were approved and authorised for issue by the Board of Directors and were signed on its behalf on1 April 2014. The notes on pages 38 to 65 form part of these financial statements.

P Cartmell J Carter

Chief Executive Chief Financial Officer

(Company number: 3152034)


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Consolidated Statement of Changes in Equity


Group

CapitalOwn

sharesShare-based

Share Share redemption held by payments Retained

capital premium reserve EBT reserve earnings Total

000 000 000 000 000 000 000

Balance at

1 January 201224,740 13,523 575 (551) 883 (22,023) 17,147

Issue of shares 6,048 246 - - - - 6,294

IFRS 2 share option charge - - - - 143 - 143

Transactions with owners 6,048 246 - - 143 - 6,437

Total comprehensive loss - - - - - (5,224) (5,224)

Balance at

31 December 201230,788 13,769 575 (551) 1,026 (27,247) 18,360

Issue of shares 11,458 - - (10) - - 11,448

IFRS 2 share option charge - - - - 68 - 68

Transactions with owners 11,458 - - (10) 68 - 11,516

Total comprehensive loss - - - - - (3,556) (3,556)

Share issue costs - - - - - (614) (614)

Balance at

31 December 201342,246 13,769 575 (561) 1,094 (31,417) 25,706



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Parent Company Statement of Changes in Equity


Parent Company

Capital Share-based

Share Share redemption payments Retained

Capital premium reserve reserve earnings Total

000 000 000 000 000 000

Balance at

1 January 201224,740 13,523 575 789 (22,268) 17,359

Issue of shares 6,048 246 - - - 6,294

IFRS 2 share option charge - - - 143 - 143

Transactions with owners 6,048 246 - 143 - 6,437

Total Comprehensive Loss - - - - (6,851) (6,851)

Balance at

31 December 201230,788 13,769 575 932 (29,119) 16,945

Issue of shares 11,458 - - - - 11,458

IFRS 2 share option charge - - - 68 - 68

Transactions with owners 11,458 - - 68 - 11,526

Total comprehensive loss - - - - (1,607) (1,607)

Share issue costs - - - - (614) (614)

Balance at

31 December 201342,246 13,769 575 1,000 (31,340) 26,250



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Consolidated and Parent Company Statement of Cash Flows


Group Parent Company

2013 2012 2013 2012

Note 000 000 000 000

Operating activities

Loss before income tax (4,336) (6,094) (2,053) (7,940)

Adjustments for:

Depreciation 505 478 1 418

Amortisation 816 605 - -

Impairment of other intangible assets 76 - - -

Finance income (4) (180) (4) (180)

Share-based payment expense 68 143 41 143

Increase in impairment on loan to the EBT 13 - - 31 52

Decrease in inventories 6 95 - -

Decrease in trade and other receivables 623 2,455 1,029 502

(Decrease)/increase in trade and other payables (3,288) (2,303) (996) 277

Increase/(decrease) in provisions 1,150 - (150) -

(4,384) (4,801) (2,101) (6,728)

Income tax received 686 731 700 731

Net cash used in operating activities (3,698) (4,070) (1,401) (5,997)

Investing activities

Transfer of property plant and equipment to subsidiary - - 1,590 -Interest received 4 180 4 180

Purchase of property, plant and equipment (42) (175) (4) (150)

Long-term loan to subsidiary - - (5,210) -

Acquisition of subsidiary undertakings - (10,910) - (10,910)

Net cash used in investing activities(38) (10,905) (3,620) (10,880)

Financing activities

Proceeds from issue of shares 23 10,844 6,350 10,844 6,350

Purchase of own shares (10) - - -

Expenses of issue of shares 23 - (56) - (56)

Net cash from financing activities 10,834 6,294 10,844 6,294

Net increase/(decrease) in cash equivalents 7,098 (8,681) 5,823 (10,583)

Cash and cash equivalents at beginning of year 6,651 15,332 4,714 15,297

Cash and cash equivalents at end of year 13,749 6,651 10,537 4,714



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Notes to the Financial Statements

1. Nature of Operations

The principal activities of Corac Group plc and its

subsidiaries (the Group) undertaken by the ACI, CET andHTT businesses comprise:

ACI: supplies air purification equipment, oxygen/hydrogengeneration and purification for submarines and air handlingand distribution systems in maritime and otherenvironments.

CET: specialises in the research and development oftechnologies in the field of gas compression and the designand manufacture of high speed motors and generatorsusing proprietary permanent magnetic rotor and oil-lessbearings

HTT: Production of specialised heat exchange equipmentused in the cooling and heating of large scale industrialprocesses. HTT supply original equipment and spares, and

perform refurbishment and term support services to usercommunities in oil & gas, chemical processing, powergeneration, foods and pharmaceuticals from an integrateddesign and production facility.

Corac Group plc (the Parent Company) is the Groupsultimate parent company, which is incorporated under theCompanies Act and domiciled in the United Kingdom. Theaddress of the registered office of the Company isTechnology Centre, 683-685 Stirling Road, Slough,Berkshire SL1 4ST. The Parent Companys shares are listedon AIM.

2. Summary of SignificantAccounting Policies

2.1

Basis of preparationThe consolidated and ParentCompany financial statementshave been prepared in accordance with applicableInternational Financial Reporting Standards (IFRS) issuedby the International Accounting Standards Board asadopted by the European Union. The consolidated financialstatements are presented in pounds sterling as this is thecurrency of the primary economic environment in whichthe Group operates, and all values are rounded to thenearest thousand except when otherwise indicated.

The financial statements have been prepared under thehistorical cost convention. The measurement bases andprincipal accounting policies of the Group and ParentCompany are set out below. The accounting policiesadopted are consistent with those of the previous financialyear.

At the date of authorisation of these financial statements,the following Standards and Interpretations which have notbeen applied in these financial statements were in issuebut not yet effective (and in some cases had not yet beenadopted by the EU):

IFRS9 Financial Instruments IFRS14 Regulatory Deferral Accounts IFRS10, IFRS12 and IAS27 (amended) Investment

Entities Annual Improvements to IFRSs (2010-2013) Cycles IAS19 (amended) Defined Benefit Plans: Employee

Contributions IAS32 (amended) Offsetting Financial Assets and

Financial Liabilities

IAS36 (amended) Recoverable Amount Disclosures forNon Financial Assets

IAS39 (amended) Novation of Derivatives andContinuation of Hedge Accounting.

IFRIC21 Levies

The directors do not expect that the adoption of thestandards listed above will have a material impact on thefinancial statements of the Group in future periods.

Going concern

The Directors are satisfied that the Group has adequateresources to continue in business for the foreseeablefuture, and accordingly continue to adopt the goingconcern basis in preparing the accounts. In reaching thisconclusion, the directors have considered forecasts thatcover a period of greater than twelve months from thedate of the approval of these financial statements. Theforecasts take into account the Groups existing cash

resources, and include consideration of certain downsidescenarios, in particular in relation to CET where there isinherently greater uncertainty as to the future cash flowsof that business. The Directors have also considered themitigating actions available to them, including the abilityof management to make certain reductions to the Groupsdiscretionary expenditure if required.

2.2 Significant management judgements inapplying accounting policies

The significant management judgements in applying theaccounting policies of the Group and Parent Company thathave the most significant effect on the financialstatements are set out below.

(i) Recognition of revenue

Revenue from the provision of commercial and R&Dservices is recognised when the outcome of the transactioncan be estimated reliably using the criteria set out belowin note 2.5 Revenues. As a consequence of the nature ofthese services, this requires the exercise of judgement,estimates and assumptions that are subject to uncertainty.The estimation uncertainty with respect to revenues fromservices is set out in note 2.3 Estimation uncertainty.

(ii) Capitalisation of development costs

Development costs are capitalised when all of theconditions set out below in note 2.7 Research anddevelopment have been met.

The Groups management continually monitors whether therecognition requirements for development costs have beenmet by any expenditure. The Group has not yet capitalisedany development costs as the criteria set out in IAS 38,Intangible Assets, have not been met. R&D costsexpensed for the year ended 31 December 2013 (includingthose classified as cost of sales within CET) were 3.0m(2012: 3.2m).


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Notes to the Financial Statements continued

2. Summary of Significant AccountingPolicies (continued)

2.5 Revenues

Revenue is measured by reference to the fair value ofconsideration received or receivable by the Group forgoods supplied and services provided, excluding VAT andtrade discounts. Revenue is recognised upon theperformance of services or transfer of risk to the customer.

(i) Sale of goods

Revenue from the sale of goods is recognised when all thefollowing conditions are satisfied:

the Group has transferred to the buyer the significantrisks and rewards of ownership of the goods

the Group retains neither continuing managerialinvolvement to the degree usually associated withownership nor effective control over the goods sold

the amount of revenue can be measured reliably

it is probable that the economic benefits associatedwith the transaction will flow to the entity

the costs incurred or to be incurred in respect of thetransaction can be measured reliably

(ii) Long-term contracts

Where the outcome of a long-term contract can beestimated reliably, revenue and costs are recognised byreference to the stage of completion of the contractactivity at the balance sheet date. This is measured by theproportion that contract costs incurred for work performedto date bear to the estimated total contract costs, exceptwhere this would not be representative of the stage ofcompletion. Variations in contract work, claims andincentive payments are included to the extent that the

amount can be measured reliably and its receipt isconsidered probable.

Where the outcome of a long-term contract cannot beestimated reliably, contract revenue is recognised to theextent of contract costs incurred where it is probable theywill be recoverable. Contract costs are recognised asexpenses in the period in which they are incurred.

When it is probable that total committed contract costswill exceed total contract revenue, the expected loss isrecognised as an expense immediately. In CET, theexpected loss is only recognised to the extent that there isa contractual obligation on CET to deliver under the termsof the contract.

(iii) Financing from R&D partners

When the outcome of a transaction involving prototype andconcept assessment, front end design, feasibility studiesand R&D wor

Documents

Corac Group Plc Annual Report and Financial Statements 2013