Biome Tech Regulatory News (BIOM)

28 Feb 2005 07:00

Stanelco PLC28 February 2005 Stanelco plc Preliminary Results for the Year ended 31 October 2004 Highlights 28 February 2005 • Turnover of £1.3 million (2003: £1.8 million) • Loss on ordinary activities before taxation of £2.8 million (2003: loss £0.6m) • Considerable investment and progress with tray-lidding RF sealing platform technology. Positive discussions continuing with Asda following signing of exclusive 60 day agreement • Frogpack(TM) patented and distributors appointed • Excellent progress with new product innovations using RF platform technology and biodegradeable materials including Cradlewrap(TM), Solutape (TM), airbag packaging and starch food packaging • Agreement reached with Cardinal Health regarding long term investment in InGel Technologies • Cash position strengthened since year-end through placing of 38 million shares for £4.8 million Philip Lovegrove, Chairman of Stanelco, commented: "It has been a good year forthe company, with substantial advances and progress as we pursue our strategy ofdeveloping our technologies to establish new processes and products. "The business is now in an improved financial position and is well placed toreap the benefits of all the hard work in 2004. We look forward to the yearahead with optimism for the business and its shareholders alike, as we movetowards acceptance and commercialisation of our technologies." For further information please contact: Ian Balchin, Chief Executive,Stanelco Tel: 02380 867100 Jonathon Brill/Billy CleggFinancial Dynamics Tel: 020 7831 3113 CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2004 During the year under review, the Board has been pleased to see substantialadvances towards fulfilling the strategy that was outlined in my previousChairman's statement, which indicated that significant developments to enter newmarkets based on our patented radio frequency (RF) technology were starting tobear fruit. It is therefore pleasing to be able to inform shareholders thatthese developments, based on the Group's substantial investment in research anddevelopment, have not only continued, but have gathered pace, with the resultthat a variety of products and processes are nearing commercialisation. The Board's overall strategy has been to transform the Group from a manufacturerand supplier of capital goods into cyclical markets, into an intellectualproperty business, exploiting the Group's core technologies. The most advancedapplications at present are our RF tray-lidding and thermoforming processesaimed at the global food packaging industry. The accounts for the year show a loss for the Group of £2.8m on turnover of£1.3m, which reflects an operating loss of £1.2m (before exceptionals) resultingfrom the continuing low level of orders in the historic businesses and costsassociated with developing the Group's strategic transformation. £1.7m of thedisclosed loss includes expenditure incurred in the move to new premises andcosts incurred in actively protecting the Group's intellectual property rights.The Board is currently not in a position to recommend a dividend for the periodin question, but intends to consider payments as soon as it is appropriate to doso. Two corporate transactions of note were agreed in the calendar year of 2004.Aquasol, which specialises in packaging design for water soluble andbiodegradable materials, was acquired and the joint venture with Cardinal Healthon InGel, has been successfully re-negotiated. Positive additions to the Board have been made in the period and thereafterwhich will assist us in executing the Group's new strategy. Terry Robins hasbeen appointed Chief Operating Officer with a specific remit to assist the groupin achieving final commercialisation of its tray-lidding and thermoformingproduct suite. Terry spent over 30 years working for J. Sainsbury plc, latterlyas Packaging Innovations Manager. Robert Boardman has been appointed FinanceDirector, having been Finance Director at Durlacher Corporation plc andpreviously at Altium Capital. Barrie Hozier will be retiring as a Non-ExecutiveDirector at the Annual General Meeting on 22 April 2005, and I would like totake this opportunity to thank him for his contribution and wish him well in hisretirement. Since the financial year-end, the Board, advised by KBC Peel Hunt, has placed38,000,000 shares at 12.825p, raising £4.8m before expenses. The proceeds ofthis placing will be used primarily for working capital relating to existingdevelopment projects. Shareholders will appreciate that huge efforts have been required of themanagement and staff in what has been a very busy and active time. Our thanks goto them and particularly to Howard White and Ian Balchin for the leadership theyhave exercised. The Group is currently concentrating on capitalising on its technologicalleadership in a variety of products, markets and applications. The ChiefExecutive's review gives a more detailed analysis of our prospects. The Board isextremely encouraged at the progress made by the Group in the last 18 months andit looks forward to further progress in this financial year. Philip Lovegrove, Chairman28 February 2005 CHIEF EXECUTIVE'S STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2004 The Stanelco group of companies (the 'Group') has brought together expertise inradio frequency (RF) technology, RF applications and biodegradable materialsciences to create a revolutionary range of packaging technologies. Our philosophy is simple;New products and processes must offer solutions and applications which;give higher added valueare greener and more environmentally sustainable than those they replacehave protectable intellectual property rights Stanelco develops the products and processes to a demonstration stage and thenworks with partners in order to reach the markets; and under these circumstancesStanelco will usually seek to license its technology. Stanelco investsconsiderable time and resources in ensuring its technologies are protected vialayers of patents wherever possible. In this way we believe we will minimise commercial risk and preserve the optimumvalue for shareholders. Products and processes offering the prospect of near term revenue generation aregiven priority access to the Group's resources. Tray-lidding & Thermoforming During the year Stanelco has applied its RF sealing platform technology to thewelding of recyclable plastic "mono-materials" for tray lidding andthermoforming, specifically in the food packaging area. This process offerssubstantial financial benefits to food pack houses, supermarkets and an improvedend product for consumers. The process replaces heat-sealing as the method for sealing plastic film lids onto plastic trays for food packaging, especially where modified atmospherepackaging (MAP) is employed. MAP is used to extend the life of the product andso requires high integrity hermetic sealing. The current process of heat sealinghas numerous drawbacks. It requires a laminated layer of polyethylene (PE) toact as a sealing layer. It is usually unable to reliably seal throughcontamination and is energy inefficient. By using Stanelco's sealing technologyit is possible to offer enormous savings to both packagers and supermarketsalike by; Eliminating the PE layer to reduce the cost of each tray by up to 20%Vastly reduced wastage rates, resulting from the ability to seal throughcontaminationUtilising a mono material so that trays become fully recyclableApplying RF energy only during the sealing process, providing a further energysaving of up to 70% Stanelco's RF sealing process has passed all electromagnetic compatibility tests(EMC) and its state of the art electronics achieve emission rates that aresubstantially lower than the European Union and United States recommendedlevels. In fact, our units currently emit less RF than the average mobiletelephone. At the time of writing we are in advanced negotiations with Asda Stores.Stanelco has granted Asda an option until 10 April 2005 to consider enteringinto an exclusive arrangement for a minimum of 1 year for the UK and Ireland tointroduce Stanelco's RF sealing technology to Asda's supplier base. Clearly, ifthings progress well with Asda, we would hope to introduce similar arrangementswith Asda's US parent Walmart, and its affiliate in Germany. The Group continues to negotiate with a number of equipment manufacturers,including Reiser, in regard to the roll out of our tray-lidding andthermoforming technology. Stanelco will license the technology to the end user and will retain ownershipof the patented RF generator and control system. End users will pay a yearlylicence fee that will include maintenance of the system and ongoing usertraining and operational technology updates. Patents in regard to key aspects ofthis technology have been applied for. Starpol(TM) Starpol(TM) is a range of materials that utilises a technology that enablesstarch and PVA (polyvinyl alcohol) to be combined in any proportion to form ahomogenous material. Our subsidiary Adept Polymers developed these materials toboth lower the cost of water-soluble and biodegradable materials and to producematerials with improved properties over those currently available. We intend toincorporate these materials in several of our new applications such asCradleWrap(TM). Patents in regard to key aspects of this technology have alsobeen applied for. Frog Pack(TM) Frog Pack(TM) is a patent applied for box designed to replace traditionalpackaging used for transporting delicate and/or valuable items that arevulnerable to damage in transit due to crushing or shock, such as electronics,car parts, glass items, compact discs, flowers, foodstuffs, medicines andmedical devices. Its' unique design incorporates the unique SAAP (shockabsorbing arcuate panels) technology developed by Aquasol. The registered design ensures that the optimum energy is absorbed and dissipatedthrough the package and not the product, no matter which face of the packreceives the impact. At the time of writing Stanelco has appointed its first twodistributors. More details can be found at www.frogpack.com CradleWrap(TM) CradleWrap(TM) is a new range of biodegradable air cushion packaging. The firstproduct, CradleWrap(TM) Heavy Duty is a wrapping material containing air bubblesdesigned to absorb high impact. It is currently going through its final stagesof testing and should soon be ready for manufacture on a pilot production linewhich we have installed. The material has already been demonstrated to hold itsair bubbles for longer and to provide impact resistance greater than ten timesthat of competing products. Given these properties we expect CradleWrap(TM) toreplace polyurethane foam for some applications. CradleWrap(TM) technology is an example of the kind of product that can berapidly developed through a combination of the skills that now exist within theGroup. Solutape(TM) Following the acquisition of Aquasol the group was able to acceleratedevelopment of a 100% water-soluble adhesive. This now gives rise to a new rangeof applications such as labels, tapes and films coated with the new adhesiveformulation. Work is progressing with initial applications and we expect this to move tovolume production during 2005. Biodegradable airbag packaging We are currently exploiting our low cost Starpol(TM) biodegradable materials todevelop a range of air pillows used as packaging to fill voids. We are workingclosely with an internationally recognised air pillow manufacturer with a viewto partnering with them to commercialise this technology. Food containers We announced during the year that we were working on biodegradable foodcontainers, made predominantly from starch materials. Work on the first productis now reaching an advanced stage and if successful we hope to license it duringthe next year. Traditional RF business During the year we supplied what we believe was the world's largest RF furnacefor making optical fibre to Japan. The market for this kind of furnace isshowing little sign of recovering with customers keen to minimise capitalexpenditure. We have now outsourced all manufacture of these items but retaincontrol of the intellectual property. We have, however, seen a useful recoveryin the demand for consumable items for RF furnaces. We continue to make sales of mobile RF welding units for sealing industrialplastic bags. These units are three times more energy efficient than theheat-sealing units that they are designed to replace and give a high integrityseal. Applications include the sealing of waste bags for transit. InGel Technologies InGel Technologies Limited (InGel) was established to commercialise Stanelco'sedible capsule making technology. Certain patents relating to this technology have been the subject of litigationbetween our subsidiary Stanelco RF Technologies Limited and BioProgressTechnology Limited. The litigation relates to events which took place in thelate nineteen nineties and centres on the entitlement to three families ofpatents. The court found that one of the families (making capsules from twowater-soluble films using RF) belonged to BioProgress (except for some of theclaims in the patent which were awarded jointly to Stanelco and BioProgress) andtwo of the families were found to belong to Stanelco (manufacture of capsulesusing rotary RF technology and the making of two compartment capsules using RF).For reasons which Stanelco does not accept, it was found to have breached itsduty of confidence to BioProgress. As a consequence of the courts decision,Stanelco also has a liability to BioProgress in respect of costs and damages,although these have not yet been assessed. However, in the light of furtherevidence that has been identified since the original hearing, and on the basisof legal advice received, Stanelco believes that it will be able to continue topursue this area of technology. Stanelco will also be seeking leave to appealthe court's judgement. Since the year-end Stanelco has agreed a modified arrangement with CardinalHealth in relation to its investment in InGel Technologies Limited (InGel).Cardinal Health invested further in InGel shares, in return for a sum ofapproximately £410,000 and other benefits, and depending upon certain criteriabeing met within two years, a possible further investment of up to approximately£410,000. As a result of this transaction Cardinal's ownership in InGel hasincreased in from 5% to 7.6%, and will increase if the further criteria are met,to 10%. InGel is important but, no longer a key element in the success of the Group and,in mitigation until matters are resolved, we have reduced the resource on thisproject. Financial Review The Group has invested considerable financial resources in the development andprotection of its technologies in line with its strategy. £1.5m has beeninvested in research and development during the year. £1.7m has been incurred inthe restructuring of the Group's business and the defence of patents.Outsourcing of elements of our traditional business has enabled us to move intomore suitable and cost effective premises. Together with the drop-off in tradingin the traditional RF business, this has given rise to a loss for the year of£2.8m. The Group's balance sheet has strengthened, with an increase in netassets of £3.4m and a cash inflow of £0.7m for the year. The Group has been able to fund its acquisitions, restructuring and investmentin technology primarily by the issue of shares. Approximately 130 million shareswere issued during the year at an average of 3.03 pence per share. The Board has continued to monitor costs carefully and whilst administrativecosts have risen from £1.3m to £1.7m during the year, this increase comes at atime when the number of employees, many of which directly contribute to theGroup's development of its technology platform, has grown from 36 to 44. I am pleased to report that the placing of 38 million shares for £4.8m in cashin February 2005 means that the Group has strengthened its balance sheet furtherand now has the financial resources to accelerate investment in its technologiesas they progress towards commercialisation. Outlook In the light of the Board's confidence that the Group's tray-lidding andthermoforming technology will start to fulfil its huge potential, we continue toview the forthcoming year with optimism and look forward to being in a positionto make further announcements regarding progress towards our first commercialorders for the technology soon. We are confident that negotiations with AsdaStores will continue to proceed towards agreement and that the first foodpackages sealed with our tray-lidding technology will reach supermarket shelvesimminently. Thank You Thank you again to the team of hard working people at Stanelco who inpartnership with our customers and suppliers continue to improve our business. Ian H BalchinChief Executive28 February 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED31 OCTOBER 2004 Note 2004 2003 £'000 £'000TurnoverContinuing operations 1,211 1,851 Acquisitions 121 10 ----- ----- 1 1,332 1,861Cost of sales (797) (1,028) ----- -----Gross profit 535 833Distribution costs (41) (31)Administrative expenses (1,682) (1,319)Exceptional Costs of change of strategy, restructuringitems : and 1 (1,669) (130) actions in patent defence ----- -----OPERATING LOSSContinuing operations (2,787) (563) Acquisitions (70) (84) ----- ----- (2,857) (647) Interest receivable and similar income 14 24Interest payable and similar charges (3) - ----- -----LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (2,846) (623)Taxation 59 156 ----- -----LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (2,787) (467) Minority interest 4 2Dividends (7) (70) ----- -----RETAINED LOSS FOR THE YEAR (2,790) (535) ===== ===== Basic and diluted loss per share - pence 2 (0.370) (0.068) ===== ===== All transactions arise from continuing operations. All recognised gains and losses are included in the profit and loss account. CONSOLIDATED BALANCE SHEET AS AT 31 OCTOBER 2004 Note At 31 October 2004 At 31 October 2003 £'000 £'000 £'000 £'000FIXED ASSETSIntangible assets 5,567 1,586Tangible assets 918 502 ----- ----- 6,485 2,088CURRENT ASSETSStock 610 537Debtors 651 515Cash at bank and in hand 920 264 ----- ----- 2,181 1,316CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (1,292) (648) ----- -----NET CURRENT ASSETS 889 668 ----- -----TOTAL ASSETS LESS CURRENT 7,374 2,756LIABILITIES CREDITORS: AMOUNTS FALLINGDUE AFTER MORE THAN ONE YEAR (159) - PROVISIONS FOR LIABILITIES ANDCHARGES 4 (1,093) (82) ----- ----- 6,122 2,674 ===== =====CAPITAL AND RESERVESCalled up share capital 832 702Share premium account 5,209 1,597Shares to be issued 2,500 -Profit and loss account (2,442) 348 ----- -----SHAREHOLDERS' FUNDS 6,099 2,647Minority interest - equity interest 23 27 ----- ----- 6,122 2,674 ===== ===== CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2004 2004 2003 Note £'000 £'000 NET CASH OUTFLOW FROM OPERATING ACTIVITIES 5 (731) (367) RETURNS ON INVESTMENTS AND SERVICING OF FINANCEInterest received 14 23Interest paid (3) - ----- -----NET CASH INFLOW FROM RETURNS ON INVESTMENTS ANDSERVICING OF FINANCE 11 23 ----- -----TAXATIONCorporation tax paid - (4) ----- ----- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTInvestment in intangible fixed assets (1466) (619)Sale of tangible fixed assets 79 33Purchase of tangible fixed assets (280) (144) ----- -----NET CASH OUTFLOW FROM CAPITAL EXPENDITURE ANDFINANCIAL INVESTMENT (1,667) (730) ----- -----ACQUISITIONS AND DISPOSALSCash at bank acquired with subsidiary 59 256 ----- -----EQUITY DIVIDENDS PAIDDividends paid (79) (65) ----- -----FINANCINGIssue of ordinary share capital 2,919 -Capital element of finance lease payments (3) -New bank loan 150 -Repayment of loan capital (3) - ----- -----NET CASH INFLOW FROM FINANCING 3,063 - ----- ----- ----- -----INCREASE/ (DECREASE) IN CASH 6 656 (887) ===== ===== NOTES 1. TURNOVER AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2004 2003 £'000 £'000TurnoverSales are made from the United Kingdom into the following geographicalmarkets:United Kingdom 647 800Europe 98 373Asia 472 379North America 40 304Rest of world 75 5 ----- ----- 1,332 1,861 ===== ===== The world-wide activities of Stanelco plc are highly integrated and,accordingly, it is not possible to present geographical segment information forProfit Before Tax without making internal allocations, some of which arenecessarily subjective. The net assets for the United Kingdom are as stated in the Consolidated Balance Sheet. 2004 2003 £'000 £'000The profit on ordinary activities before taxation is stated after charging/(crediting):Depreciation, amortisation and impairment: Intangible fixed assets, owned 348 59 Tangible fixed assets, owned 157 122 Tangible fixed assets, leased 14 - Goodwill on investments 60 -Loss on disposal of tangible fixed assets 68 -Auditors' remuneration: audit work 46 17 non-audit work 29 8Hire of plant and machinery 5 4Operating lease rentals: Land and buildings 123 62Loss on foreign exchange transactions 2 -Exceptional items Costs of change of strategy, restructuring and patent defence, moredetails of which are set out in the Chief Executives Statement. 1669 - Bad debt provision - 130 ===== ===== And after crediting:-Profit on disposal of tangible fixed assets - (5) ===== ===== 2. EARNINGS PER SHARE The calculation of earnings per share and diluted earnings per share is based onthe loss after tax for the year of £(2,787,000) (2003: £(467,000) and a weightedaverage of 753,303,455 (2002: 691,032,490) ordinary shares in issue. 3. DIVIDEND The directors do not recommend the payment of a dividend. 4. PROVISIONS FOR LIABILITIES AND CHARGES Deferred tax Warranty Other Total provision provision provisions £'000 £'000 £'000 £'000 At 1 November 2003 64 18 - 82Utilised in the year (64) (18) - (82)Provided in year - 12 1,081 1,093 ----- ----- ----- -----At 31 October 2004 - 12 1,081 1,093 ===== ===== ===== ===== At 1 November 2002 195 15 - 210Utilised in the year (131) (15) - (146)Provided in year 18 - 18 ----- ----- ----- -----At 31 October 2003 64 18 - 82 ===== ===== ===== ===== The warranty provision is for expected warranty claims on products sold duringthe financial year by Stanelco RF Technologies Limited (formerly Stanelco FibreOptics Limited). It is expected that this expenditure will be incurred in thenext financial year. Other provisions relate primarily to best estimates of the costs incurred andcommitted in respect of the recent change of strategy, restructuring and actionsin defence of patents. 5. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATINGACTIVITIES 2004 2003 £'000 £'000 Operating loss (2,857) (647)Amortisation and impairment of intangible fixed assets 348 59Depreciation of tangible fixed assets 171 129Amortisation of goodwill 60 -Loss / (profit) on sale of tangible fixed assets 68 (5)(Increase)/ decrease in stocks (61) 120(Increase)/ decrease in debtors (98) 314Increase/ (decrease) in creditors 563 (340)Increase in provision for liabilities and charges 1,075 3 ----- -----Net cash outflow from operating activities (731) (367) ===== ===== 6. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2004 2003 £'000 £'000Increase/ (decrease) in cash in the year 656 (887)Cash inflow from increase in debt lease financing (144) -New finance leases (54) - ----- -----Change in net debt resulting from cash flows 458 (887)Net funds at 1 November 2003 264 1,151 ===== ===== Net funds at 31 October 2004 722 264 ===== ===== 7. ANALYSIS OF CHANGES IN NET FUNDS/DEBT 1 November Cashflow Acquisition Other non- 31 October 2003 (excl. cash and cash changes 2004 overdrafts) £'000 £'000 £'000 £'000 £'000 Cash in hand and at bank 264 656 - - 920 ----- 656Bank loan - (147) - - (147)Finance leases - 3 - (54) (51) ----- ----- ----- ----- ----- 264 512 - (54) 722 ===== ===== ===== ===== ===== 8. CONTINGENT LIABILITIES Certain patents relating to Stanelco's edible capsule making technology has beenthe subject of litigation between our subsidiary Stanelco RF Technologies Ltdand BioProgress Technology Limited, more details of which are set out in theChief Executives Statement. The Board have made provision against the estimated costs associated with thislitigation and its possible outcomes based on legal advice. 9. REPORT AND FINANCIAL STATEMENTS The information relating to the year ended 31 October 2004 is extracted from theaudited accounts that have not yet been filed at Companies House and on whichthe auditors issued an unqualified opinion. The information relating to the year ended 31 October 2003 is extracted from theaudited accounts that have been filed at Companies House and on which theauditors issued an unqualified opinion. The above financial information does not constitute statutory accounts withinthe meaning of Section 240 of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange