Bioquell Regulatory News (BQE)

11 Apr 2006 07:00

Bioquell PLC11 April 2006 Date: 11 April 2006On behalf of: BIOQUELL PLC BIOQUELL PLC Preliminary results 2005 BIOQUELL PLC, the UK leader in specialist bio-decontamination technology andtesting/compliance services, announces its preliminary results for the yearended 31 December 2005. The highlights are: FINANCIALS • Turnover £17.2 million (2004: £15.5 million), an 11% increase • Strong progress in second half of 2005 with revenues of £10.2 million (2005 H1: £7.0 million), a 46% increase, and profit before tax of £0.2 million (2005 H1 loss: £0.7 million) • Gross margin 37% (2004: 37%) • Gross expenditure on product development £1.2 million (2004: £0.9 million) • Loss before tax of £0.5 million (2004: profit £0.1 million) • Net cash from operating activities £1.7 million (2004: £1.2 million), a 42% increase • Capital expenditure £1.2 million (2004: £0.8 million) • Net debt £1.6 million (30 June 2005: £0.9 million) OPERATIONAL HIGHLIGHTS Bio-decontamination solutions division • key medical data has now been presented in the US that demonstrates that BIOQUELL's technology: i. highly effective at eradicating "superbugs" from the hospital environment; and ii. can significantly reduce the patient infection rate of "superbug" Clostridium difficile • increasing demand for BIOQUELL's Room Bio-Decontamination Service (RBDS) from both hospitals and the life science sector, particularly in the US • first BIOQUELL RBDS carried out against avian flu for an Asian government research laboratory • increased demand for bio-decontamination and defence equipment in the second half of 2005 New wound healing technology • encouraging results from clinical trials: first set complete; second set nearing completion - further clinical trials will start later this year • UK regulatory approval filings are being prepared and regulatory approval is expected before the end of the year • work started on US regulatory filing process • work underway on the identification of suitable partners indifferent territories TRAC - Testing, Regulatory and Compliance - division • the TRAC division has been established to combine the Group's five specialist testing, regulatory and compliance service companies, including Cape, the Group's environmental test business • the two businesses, KTL (telecoms) and TRL Compliance (EMC), acquired in October 2005 have performed strongly since acquisition • the telecoms compliance and testing business set up in California in October 2005 is beginning to show strong growth with high levels of enquiries relating to DSL (digital subscriber line) services and VoIP (voice over internet protocol) • Cape has changed its management structure to reduce its cost base Commenting on the preliminary results, John Salkeld, Chairman of BIOQUELL, said: "Excellent progress has been made over the last twelve months on a number offronts, including the critical research which demonstrates that the use ofBIOQUELL's technology in hospitals can significantly reduce the number ofpatients being infected by hospital acquired infection. This key research wascarried out in the US and we anticipate strong levels of interest from UShealthcare groups. Development of the Group's new wound healing technology isproceeding well and we believe it has substantial international potential. The integration of the Group's specialist testing and compliance businesses intothe TRAC division will help us increase our market share and we are pleased bythe robust trading of the two businesses we acquired in October last year.Following the restructuring of Cape, the TRAC division is well positioned forstrong profit growth." Enquiries John Salkeld BIOQUELL PLC 01264 835 900Nick AdamsMark Bodeker Emma Kane Redleaf Communications 020 7955 1410Duncan McCormick CHAIRMAN'S STATEMENT Overview The BIOQUELL Group comprises two divisions: Bio-decontamination solutions andTRAC - Testing, Regulatory and Compliance - which includes Cape and the newservice businesses acquired in 2005. Results and finance The financial information for the BIOQUELL Group published in this documentreflects the application of the new International Financial Reporting Standards("IFRS") and includes reconciliations to UK GAAP. Information on the effects ofIFRS on the Group's results is set out below and was also provided at the timeof the 2005 interim results which were published in September 2005. Turnover increased by 11% to £17.2 million (2004: £15.5 million), largely due toincreases in bio-decontamination services, defence equipment and the turnoverattributable to the two businesses acquired in October 2005. Bio-decontaminationequipment saw a significant increase in revenues in the second half. The overallconsolidated gross margin remained stable at 37%. IFRS requires a new accounting treatment for research and development costs.Gross expenditure on product development in the period was £1.2 million (2004:£0.9 million). Following the application of IFRS the total amount relating toresearch and development charged to the income statement was £0.4 million (2004:£0.4 million). The principal product development activities in the yearcomprised work associated with hospital acquired infection, wound healing andadditions to the Clarus range of bio-decontamination equipment. The Groupcontinues to invest in technological innovation and upgrading its existingproduct and service ranges. Loss before tax was £0.5 million (2004: profit of £0.1 million). It is notablethat the financial performance of the Group improved in the second half of 2005with revenues of £10.2 million (2005 H1: £7.0 million), a 46% increase, andprofit before tax of £0.2 million (2005 H1 loss: £0.7 million). Net cash from operating activities improved by 42% to £1.7 million (2004: £1.2million). Capital expenditure was £1.2 million (2004: £0.8 million), principallyrelating to investment in bio-decontamination equipment for the Group's servicebusinesses and the TRAC division. During the year £0.4 million (2004: £0.2million) was paid as consideration for businesses acquired. Net debt at the year end was £1.6 million (30 June 2005: £0.9 million) and netassets were £10.1 million (30 June 2005: £9.5 million). The Group has overdraftfacilities of £2.2 million of which £1.2 million was used at the year end, aeuro denominated loan of £0.4 million and other debt finance of £0.1 million. Activities Bio-decontamination solutions Some three years ago, BIOQUELL pioneered the development of new technology whichenabled rooms or buildings to be bio-decontaminated and achieve the same levelof sterility as that achieved using a steam steriliser. Prior to this innovationit was not realistically practical or feasible for hospitals to sterilise roomsor wards - thereby eradicating problematic bacteria from the environment.Further, BIOQUELL's technology leaves no problematic residues and is compatiblewith sensitive electronics. The technology has applications in the life sciencessector - including, for example, vaccine production or the eradication of avianflu. It also has significant opportunities in the healthcare sector worldwide tohelp combat hospital acquired infection, often referred to in the UK as "superbugs". Last month data was presented at a leading US healthcare infection controlconference by a US expert and the US Government's Centers for Disease Controland Prevention ("CDC") which showed that the use of BIOQUELL's technologyreduced significantly the rate of patient infection with Clostridium difficile,a problematic "superbug". (Clostridium difficile is an antibiotic resistant "superbug" which recently mutated to produce a new, hyper-virulent strain whichcauses severe disease and sometimes death to patients; it is thought that thisnew strain is present in at least 40 hospitals in the UK.) These data areextremely important as they demonstrate scientifically for the first time thelink between the eradication of bacteria giving rise to a reduction in patientinfection rates. (There is constant re-introduction of "superbugs" back into thehospital environment from patients from other healthcare facilities,particularly nursing homes and/or long term care facilities.) Significantinterest is being shown in BIOQUELL's technology in the US healthcare sector andthe Board anticipates that strong growth will follow in this market. Other opportunities exist for the use of BIOQUELL's bio-decontaminationtechnology in the defence and life sciences sector. Further, BIOQUELL'stechnology should help combat contamination from avian flu. New wound healing technology Over the last several years the Group has invested significant resources intothe development of its novel, new wound healing technology. The technology drawsupon the Group's expertise in research and development, complex engineering andthe application of peroxy chemistry. Chronic wounds - typically wounds whichhave not healed after six weeks - are a substantial and expensive problem forhealthcare providers. For example, experts have estimated that some 0.2% to 1%of the total population - and between 1% to 3% of the elderly population -suffer from venous leg ulcers. BIOQUELL carried out successful clinical trialslast year with one of the UK's leading wound healing research units; a furtherset of clinical trials will start later this year. Work is currently underway tosecure UK regulatory approval to launch a product on the EU market; we expect togain UK regulatory approval before the end of the year. Work is also underway toobtain appropriate data to fulfil the requirements of the US regulators. TRAC - Testing, Regulatory and Compliance - division Following the acquisition of two specialist testing and compliance businesseslast year, it was decided to establish a new division: TRAC (Testing, Regulatoryand Compliance). This division comprises all the Group's testing servicebusinesses including Cape, EMC Projects, TRL Compliance and KTL. Cape, which carries out environmental testing for a range of clients includingthe aerospace and defence sectors, had a satisfactory first half but started toexperience reduced margins in the second half due, in part, to substantiallyhigher electricity costs which have proven difficult to pass on to clients todate. Following the acquisition of the new businesses and the establishment of aseparate division the management structure of Cape has been changed to reduceits cost base. We are anticipating that there will be opportunities to increaseCape's revenues as a result of cross referrals from companies within the TRACdivision. Following the "dotcom" collapse in 2000, it is now clear that large parts of thetelecoms sector have recovered and appear to be trading strongly. KTL, whichfocuses on telecoms testing with a particular focus on DSL technology, has seenstrong levels of activity in the US and, in the UK, from multi-national groups.A cost reduction programme, which was planned prior to acquisition, has beenlargely completed and involved making approximately 20% of the employeesredundant. The business is now profitable and growing. KTL Inc's newly established specialist DSL testing laboratory in Santa Clara,California has now been approved by the Regional Bell Operating Companies(RBOCs) for DSL testing and order levels are increasing. KTL Inc. has beendeliberately located close to a number of the large US telecoms hardwaremanufacturers in California which is helping this business grow fast. TRL Compliance, which focuses principally on EMC testing, is also seeing stronglevels of activity, particularly from the defence sector. TRL Compliancecurrently operates from six sites and planned site consolidation will improvethe services which TRL Compliance provides to its clients. Plans are underway toensure closer sales and marketing co-operation between TRL Compliance, Cape andEMC Projects (Cape's existing EMC testing subsidiary). Prospects The international healthcare markets which the Group is targeting aresubstantial and the Group, in conjunction with appropriate partners, shouldbenefit significantly from being the first entrant to these markets with newtechnology. As with all new technologies, forecasting adoption rates isdifficult; however, the successful trials in the US mean that we areincreasingly confident about achieving fast growth in North America. Theopportunities relating to BIOQUELL's new wound healing technology also lookattractive. Moreover, the significant expansion of the Group's testing servicesvia the acquisitions in October 2005 and the establishment of the TRAC divisionmeans that the funding of the development of the Group's "blockbuster"technologies will be assisted by this profitable and growing division. John SalkeldChairman11 April 2006 REVIEW OF ACTIVITIES Bio-decontamination solutions RBDS RBDS - the Group's Room Bio-Decontamination Service - continues to grow withincreasing levels of repeat business particularly from pharmaceutical companies. In 2004, significant progress was made in demonstrating the effectiveness of theRBDS technology to eradicate problematic micro-organisms - bacteria, viruses andfungi - from the hospital environment. In 2005, the technology was used to stop"superbug" infection outbreaks or reduce infections in endemic settings. InMarch 2006, Dr John M. Boyce, Professor of Clinical Medicine at Yale UniversitySchool of Medicine, presented data at SHEA, a leading US infection controlconference, which showed the results of a collaborative trial with the USCenters for Disease Control and Prevention (CDC) and BIOQUELL. In summary, thetrial showed that by having a BIOQUELL RBDS "implant" permanently on site at thehospital a statistically significant reduction in the level of new strainClostridium difficile infection was seen among its patients. Clostridium difficile ("C.diff") is a "superbug" which attracted extensive presscoverage in 2005 as a new strain (NAP1/BI/027) of C.diff has spread widely inthe US and the UK. It appears that the new strain is significantly more virulentthan previous C.diff strains with substantially higher sickness and mortalityrates, which can cost hospitals large amounts. In the UK Stoke Mandeville wasthe first hospital to admit publicly to having a problem with the new C.diffstrain although at least 40 hospitals in the UK are thought to be suffering fromit. BIOQUELL helped Stoke Mandeville eradicate this problematic bacteria fromthe hospital during last year and we continue to help hospitals in the UK andthe US eradicate this hyper-virulent organism from the hospital environment. Problems with new strains of hospital acquired infection continue to be reportedin the scientific literature. At the same time problems with antibioticresistance continue to increase. For example, a number of US hospitals on theEast Coast are believed to be suffering from a new highly resistant strain ofAcinetobacter. Given the underlying focus on the economics of healthcare in theUS and the poor financial state of many NHS hospitals, BIOQUELL anticipatessignificantly faster adoption of its technology in the US healthcare sector thanin the UK. BIOQUELL is beginning to see growth and increasing levels of repeat business inits RBDS activities in the life sciences sector in Europe and the US. The RBDSservice is quick and highly effective and as a result tends to attract highlevels of repeat business. The RBDS service is also helpful in promoting salesof BIOQUELL's bio-decontamination equipment. Clarus range of bio-decontamination equipment The Clarus range of bio-decontamination equipment had a good second half withrecord levels of orders. This was in marked contrast to the first half where wehad experienced reduced order intake as a result of reduced levels of capitalexpenditure by a number of multi-national pharmaceutical groups. Followinginternational concerns over the possibility of pandemic avian flu, there hasbeen an increased level of interest in BIOQUELL's bio-decontamination equipmentfrom vaccine and biologics manufacturers. The Clarus PORT, a low temperature rapid cycle bio-decontamination unit, enjoyedgood levels of orders from hospital pharmacies in 2005; these orders will beconverted into revenues in 2006. Investment in the development of the Clarus range continues as the marketopportunities for hydrogen peroxide vapour technology increase. In 2006resources will also be invested in expanding the international networksupporting the Clarus range, particularly in the Far East. EBDS and Service BIOQUELL provides an Equipment Bio-Decontamination Service (EBDS) andpreventative maintenance service support principally to the life sciencesresearch sector. It also provides service to its bio-decontamination equipmentcustomers on an international basis. In the UK there is increasing demand for combined EBDS and preventativemaintenance service contracts, and on a number of large pharmaceutical sites inthe UK the Group has one or more engineers permanently on site. Given the uniquenature of the EBDS service further growth from the larger sites is expected inthe UK. Laboratory equipment Sales of the Group's HEPA and activated carbon filtered products, which are soldprincipally into the laboratory sector, grew in 2005. However, the internationalmarket for laboratory equipment remains extremely competitive and there isconstant pressure on margins. Accordingly, a number of steps have been taken tofocus on higher margin work, principally in the UK, and reduce the volumes oflower margin international business. Further, the cost base of the direct salesnetwork linked directly or indirectly with the laboratory sector in the UK hasbeen reduced which should significantly help the Group's breakeven point. Investment continues in key parts of the laboratory equipment product range toensure that BIOQUELL's products retain their premium position in the market. Defence In contrast with 2004, the Group's CBRN (chemical, biological, radiological andnuclear) filtration defence business showed strong growth in 2005 after securinga large contract from a US military vehicle manufacturer. A further contract hasbeen won in 2006. We anticipate that further overseas contracts will be won thisyear although predicting the timing of such contract wins remains difficult inthe defence market and possible instability in Iraq may affect order levelssignificantly. Research and development The Group continues to invest significant sums in research and development as itbelieves that innovation is critical to its future success and there are anumber of opportunities for it to commercialise its low temperature,residue-free, bio-decontamination technology. In addition to research anddevelopment relating to the Group's hydrogen peroxide vapour technology, workcontinues on aqueous oxygen peroxide-based equipment. Careful analysis of anymarket, particularly market size, is undertaken prior to any R&D or productdevelopment taking place. Significant time and resources are spent in filingappropriate patent protection for the Group's technology and innovations. New wound healing technology The Group has been carrying out innovative research and development into novelwound healing technology for over five years using its expertise in applyingperoxide-based technology. The wound healing market is large with, for example,one estimate suggesting that 4.5 million Americans per year suffer from chronicwounds with an estimated cost of $9.5 billion. Appropriate patent applicationshave been made in a number of jurisdictions and patent examination is underway. Clinical trials started last year on venous leg ulcers at the Wound HealingResearch Unit, part of the University of Wales College of Medicine in Cardiffand one of the UK's leading centres for wound healing research. Venous legulcers are generally recognised to be one of the hardest chronic wounds to healand as a result BIOQUELL has been focussing its trials on such wounds. We alsointend to carry out research into other problematic chronic wounds such asdiabetic foot ulcers. The results of these trials are encouraging and should bemade public by the academic team leading the trials later this year. Thenecessary research, development and engineering required to bring a high qualitymedical device to market is substantially advanced. We anticipate being in aposition to launch the product on the UK market at the end of this year. Workhas started in relation to the information needed to satisfy the US and otheroverseas regulators, although at the current time it is difficult to forecastthe timing of any international regulatory approvals. TRAC - Testing, Regulatory and Compliance - division The Group's TRAC division comprises the following service businesses: Cape, EMCProjects, TRL Compliance, KTL and KTL Inc. The process of integrating fullythese businesses within this new division is still underway and the respectivemanagement teams are working on plans to exploit better the numerousopportunities for the cross selling of services. Cape - environmental testing Cape had a reasonable first half but saw more varied performance in the secondhalf from its core environmental testing business and finite element analysisconsultancy arm. Although the number of long term contracts with large blue chipclients is increasing, the business experienced unacceptably large swings inactivity during the year. Given the successful acquisition of two othercomplementary service businesses in the second half, we have decided to refocusCape on its core environmental testing business and restructure it to make itbetter able to cope with the inevitable fluctuations in demand. This shouldincrease the profitability of the business although revenue growth is likely tobe more subdued. TRL Compliance - EMC testing TRL Compliance is one of the new businesses bought by Cape in October 2005. Whencombined with Cape's subsidiary, EMC Projects, it is the largest independentsupplier of EMC (Electro-magnetic compatibility) testing and associatedregulatory compliance services in the UK. Further growth in the EMC market,particularly within the substantial and specialist defence and aerospace sector,is likely to increase, in part due to new EU regulations. During this year we intend to reduce the number of sites from which TRLCompliance is operating. We will also focus on how best to optimise the crossselling of the environmental and EMC testing businesses within the TRACdivision. KTL - telecoms testing KTL operates from Hull in the UK and KTL Inc from Santa Clara in California. TheHull business was acquired in October 2005. The Californian business wasestablished by BIOQUELL pursuant to a licence agreement in the second half of2005 and uses specialist software and techniques developed by the UK business.Following the acquisition of KTL a cost reduction programme was implemented andapproximately 20% of the employees were made redundant; this action has movedthe business into profit. Many parts of the global telecoms sector are showing strong growth and activitylevels are high. KTL has an international reputation in the DSL (digitalsubscriber line) segment of the market. (In summary, DSL relates to thetechnology required to transmit broadband, high speed internet information downtelephone (copper) wires which eliminates the need to install high cost coaxialcable or satellite links.) In the US KTL Inc. has seen strong demand from theRegional Bell Operating Companies (which in the US are broadly equivalent toBritish Telecom in the UK) to set up a DSL testing and compliance facility closeto the telecoms device manufacturers in California. We are also seeing strongdemand for VoIP - voice over internet protocol - testing from large US hardwaremanufacturers and we are in the process of evaluating this opportunity. We areconfident that this business will show strong growth rates in 2006. Nick AdamsChief Executive OPERATIONS AND FINANCE Operations As the Group increases in size its operations are becoming more complex. Thereare an increasing number of international sites. The proportion of the Group'srevenues attributable to service businesses continues to get larger. More of theGroup's products and services are becoming subject to onerous regulatoryrequirements which in turn adds complexity to the operations, particularly withregard to the quality systems. In order to help us address these challenges wecontinue to invest substantial sums in systems. The Group's expansion has particularly focused on the US and we anticipate thatthis trend will continue. In addition to the Philadelphia office where theGroup's US bio-decontamination business is headquartered, the Group's West Coastbio-decontamination business and KTL Inc. are co-located in facilities in SantaClara, California. In addition, there are two BIOQUELL employees permanentlybased at an East Coast hospital providing an RBDS implant to help minimise thelevel of hospital acquired infection within the hospital. During the year wehave expanded the size of the operation's infrastructure in the US. The acquisition of TRL Compliance and KTL in October 2005 meant that, prior tothe cost reduction programme, a further 80 employees joined the Group. Prior toacquisition it was clear that the costs of these businesses were too high andthe management teams have implemented a cost reduction programme. The newlyformed TRAC division currently has 10 sites in the UK, although at least two ofthese are expected to be disposed of following this rationalisation programme. Finance and controls Despite the expansion of the Group and the continuing investment in research anddevelopment, we continue to focus the financial control teams on ways to reducecosts and improve financial performance including, as appropriate, the disposalof non-core activities. (For example, we disposed of a non-core, small steamsteriliser servicing legacy business during the year.) We also continue toinvest in new IT and management systems to assist us in managing and monitoringthe wide variety of activities within the Group. The quality of the Group's principal finance team based at Andover continues toimprove and the integration of the new businesses within the Group was achievedquickly and efficiently. During the year we improved our working capitalcontrols. Treasury management is becoming more complex as the Group expandsinternationally and we continue to hedge, as appropriate, a proportion of ourexpected dollar receipts. We had no open derivative contracts at the balancesheet date. BIOQUELL's detailed management information helps to ensure that there is arigorous control of costs and detailed financial data across all parts of thebusiness. This helps us to make informed and appropriate investments in capitalequipment and acquisitions, which totalled £1.6 million during 2005 (2004: £1.0million). The Group generated net cash from operating activities of £1.7 million(2004: £1.2 million). International Financial Reporting Standards BIOQUELL has adopted International Financial Reporting Standards (IFRS) as from1 January 2005. This has affected the reporting of the Group's financial resultsin a number of ways. For example, IFRS 2 "Share based payment" requirescompanies to expense via the income statement the value intrinsic in shareoptions awarded to employees under the Group's Share Option Schemes.Historically no charges for the award of options arose under UK GAAP. Goodwillarising on acquisition is also frozen and a test for impairment is undertakenannually. As a result charges previously made to the income statement relatingto goodwill amortisation no longer occur. All development expenditure,previously written off in the year in which it was incurred, is now capitalisedand amortised under IAS 38 providing that the costs meet certain criteria.Actuarial gains and losses on the defined benefit pension scheme are, for thefirst time, recognised within the accounts as an income or expense movement forthe period as part of IAS 19. Mark BodekerChief Operating Officer and Finance Director Consolidated income statementfor the year ended 31 December 2005 2005 2004 Notes £'000 £'000 Revenue 2 17,220 15,494Cost of sales (10,925) (9,736) Gross profit 6,295 5,758 37% 37% Operating expenses:Sales & marketing costs (3,118) (2,425) Administration costs before share based payments andnon-recurring inventory write off (2,507) (2,380) Share based payments (196) (137)Non-recurring inventory write off on business disposal 5 (101) - Administration costs (2,804) (2,517)R&D and Engineering costs (767) (615) (Loss)/profit from operations before share based payments andnon-recurring inventory write off on business disposal (97) 338 (Loss)/profit from operations (394) 201 Finance costs 3 (100) (72)Pension scheme net interest (7) - (Loss)/profit before tax (501) 129Tax 4 177 173 (Loss)/profit for the year (324) 302 (Loss)/earnings per share - basic 6 (0.8)p 0.8p - diluted (0.8)p 0.7p All amounts are derived from continuing operations Consolidated statement of recognised income and expensefor the year ended 31 December 2005 2005 2004 £'000 £'000 Net (loss)/profit for the year (324) 302Actuarial loss on defined benefit pension scheme (57) 5Exchange differences on translation of foreign operations 105 (136)Prior year adjustment (note 7) (186) - Total recognised (expense)/income since last annual report (462) 171 Consolidated balance sheetAs at 31 December 2005 2005 2004 £'000 £'000 Notes *(restated)Non-current assets: Goodwill 665 333 Other intangible assets 5,666 4,570 Property, plant & equipment 3,263 2,849 9,594 7,752 Current assets: Inventories 7 2,147 2,348 Trade and other receivables 5,573 4,591 Deferred tax 55 55 Cash and cash equivalents 113 430 7,888 7,424 Total assets 17,482 15,176 Current liabilities: Trade and other payables (4,451) (3,438) Obligations under finance leases (30) (30) Bank overdraft (1,189) (569) Provisions (820) (180) Net current assets 1,398 3,207 Non-current liabilities Total non-current liabilities (847) (858)Total liabilities (7,337) (5,075) Net assets 10,145 10,101 Equity Share capital 4,032 4,016 Share premium account 10,393 10,285 Equity reserve 365 169 Capital reserve 255 255 Translation reserve (31) (136) Retained earnings/(deficit) (4,869) (4,488) Equity attributable to equity holders of the parent 10,145 10,101 * restated - see note 7, inventories Consolidated cash flow statementfor the year ended 31 December 2005 2005 2004 £'000 £'000 Net cash from operating activities 1,691 1,246 Investing activitiesProceeds on disposal of property, plant & equipment 46 105Purchases of property, plant & equipment (1,192) (755)Expenditure on product development (1,182) (906)Acquisition of trade and assets (364) (222) Net cash used in investing activities (2,692) (1,778) Financing activitiesProceeds on issue of ordinary shares 124 188Repayment of borrowings (25) (35)Repayment of obligations under finance leases (35) (29) Net cash from financing activities 64 124 Increase in bank overdrafts (937) (408) Bank (overdraft)/cash at beginning of year (139) 269Bank (overdraft) at end of year (1,076) (139) Notes to the consolidated financial statementsfor the year ended 31 December 2005 1. Basis of Preparation The financial information set out in the preliminary announcement does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985, but is derived from those accounts. While the financial informationin this preliminary announcement has been prepared in accordance withInternational Financial Reporting (IFRS), this announcement does not itselfcontain sufficient information to comply with IFRS. The IFRS accountingpolicies applied in respect of the current and prior years have previously beendisclosed in the Group's Interim Report for the six months ended 30 June 2005.Statutory accounts for the year ended 31 December 2004, prepared usingaccounting principles generally accepted in the United Kingdom, have beendelivered to the Registrar of Companies. Those for the year ended 31 December2005 will be delivered following the Company's Annual General Meeting. Thestatutory accounts for the year ended 31 December 2005 will be despatched toshareholders by 15 April for approval at the Annual General Meeting on 18 May2006. The auditors have reported on these accounts - their reports areunqualified and did not contain statement under Section 237(2) or (3) of theCompanies Act 1985. 2. Business and geographical segments For management purposes, the Group is currently organised into two divisions -Bio-decontamination Solutions and Testing, Regulatory and Compliance. Thesedivisions are the basis on which the Group reports its primary segmentinformation. Segment information about these businesses is presented below. Year ended 31 December 2005 Bio-decontamination Testing, Consolidated regulatory & compliance £'000 £'000 £'000RevenueTotal revenue 11,483 5,737 17,220ResultSegment result (309) 795 486 Unallocated head office costs (880) Loss from operations (394)Finance costs & pension scheme net interest (107) Loss before tax (501)Tax 177 Loss for the year (324) Other information Capital additions 1,642 1,909 3,551Depreciation and amortisation 1,021 371 1,392 Notes to the consolidated financial statementsfor the year ended 31 December 2005 continued 2. Business and geographical segments continued Balance sheet as at 31 December 2005 Bio-decontamination Testing, regulatory Consolidated & compliance £'000 £'000 £'000AssetsSegment assets 12,018 5,362 17,380Unallocated corporate assets 102Consolidated total assets 17,482 LiabilitiesSegment liabilities (4,083) (2,273) (6,356) Unallocated corporate liabilities (981)Consolidated total liabilities (7,337) Year ended 31 December 2004 Bio-decontamination Testing, regulatory Consolidated & compliance £'000 £'000 £'000RevenueTotal revenue 11,267 4,227 15,494ResultSegment result 492 623 1,115 Unallocated head office costs (914) Profit from operations 201Finance costs (72) Profit before tax 129Tax 173 Profit after tax 302 Other information Capital additions 1,390 913 2,303Depreciation and amortisation 897 266 1,163Impairment losses - 14 14 Notes to the consolidated financial statementsfor the year ended 31 December 2005 continued 2. Business and geographical segments continued Balance sheet as at 31 December 2004 Bio-decontamination Testing, regulatory Consolidated & compliance £'000 £'000 £'000AssetsSegment assets 11,716 3,233 14,949 Unallocated corporate assets 227 Consolidated total assets 15,176 Liabilities Segment liabilities (2,714) (1,465) (4,179) Unallocated corporate liabilities (896) Consolidated total liabilities (5,075) Geographical segments The Group's Bio-decontamination equipment is manufactured within the UK and soldinto the UK, Europe and Rest of World markets. The Testing, Regulatory andCompliance segment offers services from bases within the UK and the USA. The following table provides an analysis of the Group's sales by geographicalmarket, irrespective of the origin of the goods or services: Sales revenue by geographical market Year ended 31 Year ended 31 December 2005 December 2004 £'000 £'000 UK 10,727 9,657Rest of Europe 2,520 2,435Rest of World 3,973 3,402 17,220 15,494 Notes to the consolidated financial statementsfor the year ended 31 December 2005 continued 2. Business and geographical segments continued The following is an analysis of the carrying amount of segments assets, andadditions to property, plant and equipment and intangible assets, analysed bythe geographical area in which the assets are located: Carrying amount of segment assets Additions to property, plant & equipment and intangible assets Year ended 31 Year ended 31 Year ended 31 Year ended 31 December 2005 December 2004 December 2005 December 2004 £'000 £'000 £'000 £'000 UK 15,480 13,479 3,085 2,246Rest of Europe 869 745 3 22Rest of World 1,133 952 463 35 17,482 15,176 3,551 2,303 3. Finance costs 2005 2004 £'000 £'000 Interest on bank loans and overdrafts 83 51Interest on obligations under finance leases 6 10Dividend payable on 7.5% preference shares 11 11 100 72 4. Tax 2005 2004 £'000 £'000 Current tax credit 177 116Deferred tax credit - 57 177 173 Corporation tax is calculated at 30% (2004: 30%) of the estimated assessableprofit for the year. Taxation for other jurisdictions is calculated at the ratesprevailing in the respective jurisdictions. Notes to the consolidated financial statementsfor the year ended 31 December 2005 continued 4. Tax continued The charge for the year can be reconciled to the profit per the income statementas follows 2005 2004 £'000 £'000 (Loss)/profit before tax (501) 129 Tax at the UK corporation rate of 30% (2004: 30%) 150 (39)Adjusted for:Tax effect of expenses not deductible in determining taxable profit (92) (52)Tax effect of utilisation of tax losses not previously recognised 76 313Utilisation of tax losses brought forward 70 -R&D tax credit (44) (26)Tax effect of different tax rate of subsidiaries operating in other jurisdictions 17 4Prior year adjustment - (27) 177 173 5. Business Disposal In October 2005 the Group entered into an agreement to dispose of the steriliserservicing business. This business had not made a material contribution to theGroup in the preceding years. The disposal has resulted in an inventory writedown of £101,000. 6. (Loss)/earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: (Loss)/earnings Year ended 31 Dec Year ended 31 Dec 2005 2004 £'000 £'000 (Loss)/earnings for the purposes of basic earnings per share being net(loss)/profit attributable to equity holders of the parent (324) 302 Number of shares Year ended 31 Dec Year ended 31 Dec 2005 2004Weighted average number of ordinary shares for the purposes of basicearnings per share 40,225,216 39,967,560Effect of dilutive potential ordinary shares: - share options 3,615,000 3,470,900 Weighted average number of ordinary shares for the purposes of dilutedearnings per share 43,840,216 43,438,460 For a loss making company with outstanding share options, net loss per sharewould only be increased by the exercise of out-of-the-money options. Sinceoption holders would normally only exercise for gain and there are no otherdiluting future share issues, diluted EPS equals basic EPS. Notes to the consolidated financial statementsfor the year ended 31 December 2005 continued 7. Inventories 2005 2004 £'000 £'000 Raw materials, spare parts and consumables 1,688 1,941Work in progress 259 223Finished goods and goods for resale 200 184 2,147 2,348 The Group has reconsidered the basis of accounting for material handling in rawmaterials as a result of the closure of the Weston-super-Mare site and no longerconsiders it appropriate to include the cost of materials handling in thevaluation of inventories. Consequently opening equity and inventories have beenreduced by £186k. This valuation has remained substantially unchanged andconsequently has no material impact on the income statements for the reportedperiods. This information is provided by RNS The company news service from the London Stock Exchange