Bioquell Regulatory News (BQE)

10 Mar 2008 07:00

Bioquell PLC10 March 2008 TO: CITY EDITORSFOR IMMEDIATE RELEASE 10 March, 2008 BIOQUELL PLC 2007 preliminary results: significant increase in revenues and profits Proposed payment of an ordinary dividend Board changes, including new Chairman from 2009 AGM BIOQUELL PLC ("BIOQUELL"), the UK leader in specialist decontaminationtechnology and testing/compliance services, announces its preliminary resultsfor the year ended 31 December 2007. The highlights are: FINANCIALS * turnover £34.1 million (2006: £25.2 million), a 35% increase - all from organic growth * profit before tax: £4.2 million (2006: £1.2 million) - a 250% increase in pre-tax profit * earnings three times the level of last year at £3.7 million (2006: £1.2 million) and basic earnings per share 8.9p (2006: 2.9p) * net cash £2.7 million (2006: net debt £(0.6) million) - a £3.3 million improvement * net assets £16.1 million (2006: £11.5 million) * proposed final dividend of 2p per ordinary share (the Group last paid a dividend on the ordinary shares in 1989) BOARD CHANGES * Nigel Keen joins the Board of BIOQUELL today. Mr Keen is currently Chairman of The Laird Group PLC, Axis-Shield plc, Oxford Instruments plc and Deltex Medical Group plc * John Salkeld, Chairman of BIOQUELL, has informed the Board that he wishes to retire from the Board at the 2009 AGM - and it is intended that Nigel Keen will replace him as Chairman from this date * Dick Towner has informed the Board that he wishes to retire from the Board at this year's AGM on 27 May, 2008 ACTIVITIES Decontamination division * turnover £23.6 million (2006: £14.6 million), organic growth of 62% * healthcare ("superbugs" / hospital acquired infection): The Group's strategy of offering hospitals a range of solutions to combat hospital acquired infection - from long term in situ BIOQUELL "implant" teams to "outbreak" emergency deployments - is beginning to show meaningful growth, with long term BIOQUELL "implant" teams currently in place in three US hospitals and two UK hospitals. "Outbreak" emergency deployments in the UK have also shown significant growth in recent months * life sciences: the new BIOQUELL Z - for zone or room decontamination - was launched in April 2007 and during last year achieved encouraging unit sales in the life sciences sector * defence: the Group saw strong growth in its defence activities in the year, including the Joint Materials Decontamination System ("JMDS") sub-contract win for the US Department of Defense and significantly increased sales of chemical, biological, radiological and nuclear ("CBRN") filtration systems to a number of international military vehicle manufacturers * healthcare (wound healing): a major clinical trial relating to BIOQUELL's new wound healing technology started at the beginning of 2008 and preliminary results are expected before the year end TRAC (Testing, Regulatory and Compliance) division * turnover £10.5 million (2006: £10.6 million), 1% decline influenced by the move of two major testing facilities in the year * high levels of military / aerospace orders continuing across the TRAC division * the new TRAC brand achieving increased levels of market penetration Commenting on the preliminary results, John Salkeld, Chairman of BIOQUELL PLCsaid: "This is a good set of results showing strong growth, robust profitability andsome £2.7 million of net cash on the balance sheet at the year end. I amdelighted that the Board is able to propose the payment of a final dividend of2p per ordinary share. It is most encouraging to see our strategy delivering international revenuegrowth across the healthcare, life sciences and defence sectors. It isparticularly gratifying that we are now seeing significant levels of interest inthe use of BIOQUELL's technology to eradicate "superbugs" from the hospitalenvironment - and I am pleased that we currently have BIOQUELL "implant"technicians and equipment deployed at 3 US and 2 UK hospitals. Notwithstanding the challenges associated with moving two core facilities, theTRAC division is making good progress at increasing its market share in the keymilitary and aerospace market. I am delighted that Nigel Keen, who has extensive, successful experience withinternational healthcare and technology companies, has agreed to join the Boardand will be able to help the Group with the next stage of its growth. I wouldalso like to thank, on behalf of the Board and shareholders, Dick Towner for hiswise counsel, sound judgement and sense of humour during his 16 years as adirector of the Group." Enquiries John Salkeld BIOQUELL PLC 01264 835 900 Nick Adams Mark Bodeker CHAIRMAN'S STATEMENT BIOQUELL PLC - preliminary results for the year ended 31 December, 2007 Overview The BIOQUELL Group comprises two divisions: Decontamination and TRAC (Testing,Regulatory and Compliance). The Group's hydrogen peroxide vapour ("HPV")decontamination technology Chemical, Biological, Radiological and Nuclear("CBRN") defence filtration technology and specialist laboratory filtrationequipment make up the Decontamination division. The TRAC division comprisesspecialist service businesses carrying out electromagnetic compatibility("EMC"), environmental and telecoms testing. Results and finance Turnover for the Group increased by 35% to £34.1 million (2006: £25.2 million)with all the increase in revenues being generated from organic growth. TheGroup's international revenues increased by 87% from £10.4 million to £19.4million, reflecting the Decontamination division's increasingly internationalclient base. The Decontamination division's revenues in 2007 were £23.6 million (2006: £14.6million), representing growth of 62%. The TRAC division's revenues were £10.5 million (2006: £10.6 million),representing a small decline of some 1% as a result of the inevitable businessdisruption from the move of the Malvern (EMC) and Hull (Telecoms) testingfacilities during 2007. Gross expenditure on product development in the year was £1.2 million (2006:£1.0 million). This reflects continuing investment in the development of newproducts across the healthcare, life sciences and defence sectors as well asfurther research and the development of technology specifically relating to theeradication of "superbugs" / nosocomial pathogens from hospitals. Total Group overheads increased by 21% from £8.4 million to £10.2 million. Asignificant proportion of this increase relates to investment in infrastructureand personnel in the United States. Profit before tax increased 250% to £4.2 million (2006: £1.2 million). Thesubstantial increase in profitability was due to significantly higher Grouprevenues with improved gross margins and only moderately increased overheads. In 2007 the Group effectively used up its carried forward tax losses and othertax assets and had a tax rate in the year of 12%. In the future the Groupanticipates having to pay a normalised tax rate on its consolidated profit. Earnings for the year were £3.7 million (2006: £1.2 million); basic earnings pershare were 8.9p (2006: 2.9p), representing a 200% increase. The Group had net cash at 31 December 2007 of £2.7 million (2006: net debt of £(0.6) million). The Group had net positive cashflow during the year of some £3.2million (2006: £1.4 million) notwithstanding significant demands on workingcapital associated with the increase in revenues and ongoing investment inresearch and development as well as capital expenditure. Capital expenditure was £1.8 million (2006: £0.9 million) relating principallyto the investment in new proprietary bio-decontamination equipment used byBIOQUELL and its licensees to provide its HPV-based room bio-decontaminationservice (RBDS) and investment in specialist testing and move-related equipmentfor the TRAC division. Net cash from operating activities was £5.2 million (2006: £3.5 million). Cashinflow after expenditure on product development and before capital investmentwas £4.5 million (2006: £2.5 million). Net assets at 31 December 2007 were £16.1 million (2006: £11.5 million). TheGroup had net cash on its balance sheet at the year end. Given the substantial increase in profitability, the net cash position at theyear end and the much improved strategic position of the Group, the Board isproposing the payment of a final dividend of 2 pence per ordinary share whichwould represent a total payment of approximately £0.8 million. (The ex-dividenddate will be 28 May, the record date 30 May and the payment date 1 July, 2008.)It is the Board's current intention only to propose the payment of a finaldividend each year. Decontamination division The Decontamination division displayed significant growth in 2007, in large partas a result of improved sales into the defence sector. During the year, theGroup extended the strong position of its HPV decontamination technology with anumber of international clients in the life sciences sector, with a notableincrease from the French market. The prospects look promising in 2008 forincreased revenues from the healthcare sector - principally as a result of theuse of BIOQUELL's HPV technology to eradicate nosocomial pathogens responsiblefor hospital acquired infection (so-called "superbugs"). Due to the expiry of a35 year building lease, during 2008 the principal operating company within thedivision will move to a recently acquired modern, refurbished facility inAndover; provisions were made in the 2007 accounts for a substantial proportionof the estimated move-related costs. TRAC division Although the TRAC division's revenues were subdued in 2007, this maskedsignificant and strategically important changes within the division. The move oftwo of the division's largest facilities created inevitable disruption - butthese businesses are now well positioned to increase their revenues, marketshare and extend the services which they offer. KTL Inc's specialist telecom'stesting facility in Santa Clara, California showed strong growth, albeit from alow base - and we anticipate further growth from this business in 2008. Furtherwork will take place this year to increase the proportion of UK revenues fromthe important aerospace and military sector, as well as promote further the TRACbrand and increase the average size of contract. Another property move isanticipated in 2008 to consolidate further TRAC's UK facilities. Prospects The Group has excellent opportunities with international clients in threesectors: healthcare, life sciences and defence - which are unlikely to besignificantly adversely affected by the expected global slowdown, although thetiming and quantum of some of the orders from the defence and healthcare sectorsare hard to predict. The Group now has a broad range of well establishedproducts and services as well as a number of new product development programmesin place, including innovative patent protected wound healing technology whichis undergoing clinical trials. The Group has no net borrowings and is in aposition to fund significant organic growth from its existing cash resources.Based on the above and the execution skills demonstrated by the Group'smanagement, your Board believes that the Group is well positioned strategicallyand its prospects are continuing to improve. John SalkeldChairman10 March, 2008 SUMMARY OF ACTIVITIES Decontamination division Hydrogen peroxide vapour ("HPV") decontamination technology Overview The Group has developed specialist, patent protected HPV decontaminationtechnology which is used principally in the healthcare, life sciences anddefence sectors. This unique HPV technology, which is the result of more thanten years of research, sterilises rooms and equipment at ambient temperature andpressure, and is compatible with sensitive electronics. Moreover, at the end ofthe sterilisation process the HPV is passed through a catalyst and breaks downto water vapour and oxygen - hence representing an extremely "green" orenvironmentally friendly biocide. (The efficacy of the microbiologicaldeactivation achieved by BIOQUELL's HPV technology can be verified usingstandard biological indicators, similar to those used to check the efficacy ofsteam autoclaves.) BIOQUELL's Clarus product range comprises HPV equipment which can sterilisedifferent sized enclosures, and their contents, ranging from small researchchambers to large hospital wards or bio-pharmaceutical vaccine productionfacilities. RBDS is the Group's Room Bio-Decontamination Service - which represents aspecialist HPV-based sterilisation service using proprietary BIOQUELL equipmentand specially trained technicians employed by the Group, or its internationallicensees. In 2007 RBDS was deployed across the world, including, for example, asubstantial decontamination for a bio-pharmaceutical company in Australia. During the year the Group saw strong growth from its US and French operations -and BIOQUELL anticipates investing further amounts in 2008 in these and otheroverseas BIOQUELL facilities. Healthcare: hospital acquired infection and "superbugs" Over the last decade BIOQUELL has been carrying out detailed research anddevelopment to build up an appropriate and robust scientific evidence base forthe use of its HPV technology to eradicate "superbugs", including MRSA andClostridium difficile ("C.diff"), from the hospital environment. This researchhas been carried out in a number of European countries and in the United States.We expect research to be published shortly which shows that, in summary, usingBIOQUELL's technology in a US hospital resulted in a statistically significant53% reduction in C.diff associated disease. BIOQUELL now has impressivescientific data which demonstrates the efficacy of its technology againstsubstantially all of the pathogens usually responsible for hospital acquiredinfection ("HAI"). These data were formally recognised in October 2007 when theRapid Review Panel (comprising leading UK scientific experts involved ininfection control) of the Department of Health announced the upgrade ofBIOQUELL's HPV technology to 'Category One' status meaning that "Basic researchand development, validation and recent in use evaluations have shown benefitsthat should be available to NHS bodies to include as appropriate in theircleaning, hygiene or infection control protocols". BIOQUELL's HPV technology isone of only two decontamination technologies in this category - the other beinga topical antiseptic. The DOH has also uploaded to its 'Clean, Safe Care'website eight case studies relating to the use of BIOQUELL's HPV technology tocombat "superbugs". (www.clean-safe-care.nhs.uk/Public/default.aspx?level=2&load=ArticleViewer&ArticleID=465) In summary, BIOQUELL is able to offer its healthcare clients four differentdeployment solutions to combat HAI (with some clients using more than oneBIOQUELL solution): * a long term "implant" team located at the hospital comprising proprietary BIOQUELL equipment and highly trained technicians - which are normally used in a preventative manner to combat "superbugs"; * a scheduled decontamination of high risk rooms or contaminated equipment - for example a number of NHS hospitals in the UK use BIOQUELL's decontamination services on a scheduled basis to decontaminate their C.diff cohort wards; * an emergency "outbreak" response service - used to decontaminate at short notice equipment or rooms implicated in a "superbug" outbreak. Examples include the decontamination of incubators used in neonatal intensive care units which are often implicated in HAI outbreaks; and * the sale of BIOQUELL HPV equipment - including the new BIOQUELL Z - when the hospital concludes that it wishes its own employees to carry out the decontamination using BIOQUELL's equipment. Although there are some signs of improvement in the MRSA and C.diff ratesrecorded in NHS hospitals in the UK, this is against a more general trend ofhospitals seeing an increasing number of antibiotic resistant organisms - someof which are becoming more virulent. In addition, whereas in the past there wasa clear distinction between antibiotic resistant infections contracted in thehospital - hence the term "hospital acquired infection" - there are now moreresistant organisms in the community, which can be readily introduced intohospitals. This phenomenon is seen clearly with MRSA - with both "hospitalacquired" and "community acquired" strains causing real problems to healthcareproviders. The international location of a hospital also tends to affect the type or strainof "superbug" that may infect patients. For example, in addition to MRSA andC.diff, US hospitals tend to have significant issues with other "superbugs" suchas VRE, multi-drug resistant Acinetobacter and the KPC2 strain of Klebsiella. Asa result of the wide range of nosocomial pathogens, BIOQUELL is seeing a broadand increasing number of opportunities whereby its technology and "real world"hospital deployment experience can be used in healthcare facilities toameliorate the problems caused by "superbugs". Life sciences In 2007 the Group experienced increased interest in BIOQUELL's HPVdecontamination technology in the life sciences sector, principally relating tothe Clarus range of HPV equipment. There were three principal factors drivingthe increased order intake for BIOQUELL's technology in the life sciencessector: * an increasing proportion of new drugs being developed by biotechnology or bio-pharmaceutical groups are biologically active - and hence susceptible to biological contamination. The Group's technology is able to provide high level bio-decontamination of research and production facilities with no problematic residues - and BIOQUELL now has an impressive list of reference sites to demonstrate the efficacy and competence of its equipment to new clients; * many organisations, particularly in continental Europe, are moving away from the use of formaldehyde, which is a confirmed human carcinogen and which leaves problematic residues, to sterilise equipment or rooms; and * the launch of the new BIOQUELL Z - with automated, predictive cycle control - makes zone or room decontamination significantly easier, more practical and more affordable. In addition, BIOQUELL was able to sell a number of BIOQUELL Z units through its international network of distributors. These factors should continue to affect positively order activity for the lifesciences sector in 2008. Defence Joint Materials Decontamination System ("JMDS") Following a joint submission with prime contractor Teledyne Brown Engineering,Inc to the United States Department of Defense ("DOD"), the Group was awarded a"cost plus" sub-contract relating to the technology and manufacturing elementsof the JMDS. The initial System Development and Demonstration phase is expectedto be worth approximately US$7 million to the Group. It is not yet possible topredict the eventual size of the manufacturing element of the JMDS contract. The JMDS will use BIOQUELL's HPV technology to decontaminate a range of militaryequipment and assets from biological weapon agents and chemical weapon agents.BIOQUELL's technology was selected after an extensive, in-depth internationalreview by the DOD of available technologies. The JMDS sub-contract award hashelped materially to promote the Group's HPV technology, and market positionmore generally, in the defence sector. Moreover, it is likely that other USorganisations and overseas governments will be interested in purchasing the JMDStechnology once its development and testing is completed. Chemical, biological, radiological and nuclear filtration technology In 2007 the Group saw strong growth in revenues from its chemical, biological,radiological and nuclear ("CBRN") filtration systems technology. The Group hasbeen involved in the development of CBRN systems and filters since the 1970s andin recent years BIOQUELL's defence team has significantly upgraded theperformance of these systems - resulting in a number of contract awards from arange of clients which significantly positively affected the Group's results in2007. A proportion of these contracts related to CBRN filtration systems for theDOD's mine resistant, ambush protected ("MRAP") vehicles. It is likely that theDOD will reduce investment in MRAP vehicles in 2008 and divert vehicle-relatedinvestment to the new 'Joint Light Tactical Vehicle' ("JLTV"). BIOQUELL'sdefence team are in discussions relating to the supply of CBRN filtrationsystems with a number of potential JLTV suppliers. However, it remains difficultto predict the quantum and timing of sales of future JLTV-related CBRNfiltration system orders. Separately, the Group has also won contracts for CBRNequipment destined for use in vehicles purchased by the Royal Saudi Land Forces,and currently has order cover on this contract to 2009. The Group also has anumber of European CBRN filtration equipment contracts to fulfil this year. Many security experts believe that the CBRN threat remains real and problematic- and BIOQUELL believes that there are other ways to extend sales of its CBRNequipment and associated technology. BIOQUELL is examining a number ofdevelopment programmes which, if successful, would extend the range and marketshare of its CBRN products. Given the size and importance of the DOD and their clear preference for USmanufacturing, BIOQUELL has invested in manufacturing facilities in Pennsylvaniafor its growing defence-related activities. Wound healing technology Background Based on its experience of hydrogen peroxide, BIOQUELL started developinginnovative wound healing technology using applied peroxy chemistry some sevenyears ago. This resulted in prototype equipment being built which was used totreat 30 patients with venous leg ulcers in 2003 / 2004 in a pilot study carriedout with experts at the Wound Healing Research Unit at Wales College ofMedicine, Biology, Life and Health Sciences. The results of this first pilotstudy were sufficiently encouraging for the Board to approve further investmentin research and development of this new wound healing equipment, which is thesubject of patent filings, and to fund a randomised, double blind controlledclinical trial which should involve approximately 112 patients with venous legulcers. It has taken longer than expected to gain UK regulatory approval forthis clinical trial which finally started at the beginning of 2008. Preliminaryresults from this trial are anticipated to be available later this year,although this data will depend largely on the rate of patient acquisition intothe trial which itself is a function of the carefully selected clinical criteriaused to determine which patients are eligible for treatment. Market size Chronic wounds - which are typically defined to be wounds which remain unhealedafter three months - are a major problem and expense for healthcare providersaround the world. The scientific community does not understand fully why certainwounds do not heal and become chronic, although a number of theories exist.Chronic wounds include venous leg ulcers, bed sores (technically decubitusulcers) and diabetic foot ulcers. It is notable that many of these wounds canbecome colonised or infected with "superbugs" if the patients are hospitalised.The healing of chronic wounds represents a large potential market with estimatesfrom the scientific literature suggesting that up to 1% of the population at anytime can be affected by chronic wounds. Further, one estimate suggests that theannual cost to the US healthcare system of chronic wounds is some US$ 9.5billion. Accordingly there are prima facie good commercial opportunities for atechnology which can assist in the treatment or healing of chronic wounds. After-sales service and support The demand for high quality after-sales service and support, including sparesand training, is increasing as the Group continues to increase its HPV equipmentunit sales both in the UK and overseas. (BIOQUELL's Service department alsosupports the Group's laboratory filtration equipment business.) During 2007 the management of the Group's Service department was strengthenedsignificantly and investment in IT and hardware is currently underway toincrease the efficiency and customer service levels which the Service Departmentcan provide. BIOQUELL believes that it is strategically important to have a highquality and well resourced after-sales service department - and furtherprofitable growth is expected from this department in 2008. TRAC DIVISION Overview The Group's testing service businesses have been positioned under the TRAC -Testing, Regulatory and Compliance - Global divisional brand. The division wasformed in 2005 to combine Cape and EMC Projects with TRL Compliance and KTL (thetwo businesses acquired in October 2005). Most of TRAC's businesses areprimarily involved in the testing of new products or devices in the 'R&D' orproduct development stage - and little work is related to clients' actualmanufacturing processes (which are often in the Far East). Work continued in 2007 in the melding together of the separate businesses into acoherent specialist testing service division, well positioned to win largecontracts from multi-national groups - particularly in the military andaerospace sectors. Mark Heaven has recently been appointed Managing Director ofTRAC - and he will continue the integration of the businesses and theoptimization of TRAC's market position during 2008. During 2007 two significant property moves took place which had an inevitableadverse effect on the division's financial performance and a furtherconsolidation is planned in Ringwood during 2008. TRAC will then have fourwell-invested and substantial centres of excellence in Malvern (EMC), Warwick(environmental), Ringwood (EMC and environmental) and Hull (telecoms). EMC Electromagnetic compatibility ("EMC") remains a major cause of concern forregulators as well as large aerospace and military companies. Electronic devicescan give out or be susceptible to electromagnetic radiation which can causedevices to interact and/or malfunction. As a result specialist EMC testing isneeded and such testing is particularly onerous for military and aerospaceequipment. Over recent years the scale of EMC testing has increased with newactivities such as lightning testing or testing at higher frequencies beingintroduced and these have resulted in increased revenues for the division's EMCbusinesses. The costs of purchasing specialist EMC testing equipment is high andas a result there are significant barriers to entry as such costs make itdifficult for smaller EMC businesses, or companies' in-house laboratories, tojustify the investment in new EMC equipment and/or find the necessary trainedand experienced EMC test engineers. TRL Compliance Limited is the TRAC division's principal EMC testing businesswhich moved its headquarters and two smaller testing facilities to Malvernduring 2007. The Malvern facilities now comprise an EMC centre of excellencewith state-of-the-art equipment including seven high capacity EMC chambersincluding one which can accommodate larger vehicles such as main battlefieldtanks. TRL Compliance addresses the EMC market in the North of England via itsfacilities in Lancashire which, in addition to EMC testing, also providespecialist ATEX and DSEAR testing for explosive atmospheres. EMC ProjectsLimited, located close to Ringwood, Hampshire provides EMC testing services tothe important South of England market which includes a number of multi-nationalaerospace groups. In 2007 TRAC's EMC business saw a significant level of revenues from thestrategically important military / aerospace sector. (It is notable that manymilitary / aerospace clients have order books extending out many years.) It isalso clear that new aerospace or military equipment is going to contain highlevels of electronics and hence the opportunities for increased levels of EMCtesting appear encouraging. Environmental Cape Engineering had a good year under a new management team and increased itsprofitability on higher revenues. Given the high fixed costs associated withrunning Cape, the trend towards increased profitability should continue in 2008in large part as Cape and TRAC's EMC businesses are beginning to bid jointly -and offer an integrated testing package - for a number of large contracts. Cape Engineering is the Group's original testing business with its headquartersin Warwick and is less than one hour's drive from TRL Compliance's headquartersin Malvern. Environmental testing comprises vibrating, heating or otherwiseexerting environmental stress on components or products. Environmental testingtends to require larger facilities than EMC or telecoms testing and is in manyrespects a more mature business. However, the high replacement costs of theseassets and the requisite technical expertise to use them, and interpret theresults successfully, also represents a substantial barrier to entry. Cape'sfacilities at Warwick comprise an environmental centre of excellence able toprovide substantially all of the specialist environmental tests required byclients. In addition, Cape has a specialist environmental testing facility atWimborne (some 10 miles from EMC Projects) in the South of England which isco-located on the facilities of a large aerospace group. Cape also provides'Cape-on-Call' where clients are able to call upon Cape's specialist testingexperts to assist at the clients' facilities. Although environmental testing does not benefit from the same regulatory driverswhich tend to increase the underlying demand for EMC and telecoms testing, it isclear that most clients who require EMC testing will require environmentaltesting - and vice versa. During 2007 TRL Compliance, EMC Projects and Capesucceeded in winning a number of substantial contracts under the TRAC brand andthis success is anticipated to continue in 2008. Telecoms KTL Limited ("KTL") has its headquarters in new facilities which it moved intoin Hull at the end of 2007. The business was originally the telecoms testlaboratory of Kingston Communications. KTL has worldwide expertise in a broadrange of analogue and digital telecoms testing to ensure interoperability -essentially the ability of the telecoms device to communicate successfully withthe telecoms network without causing interference. In addition, KTL hasinternationally recognised expertise in DSL technology - digital subscriber line- which enables high speed, high capacity broadband internet access to betransmitted down conventional copper wire telephone lines which are installed inmost houses in Europe and North America. Given the significant increase inbroadband internet access globally, KTL continues to carry out a high volume ofDSL testing. This work is being extended by new DSL standards - including ADSL,ADSL2+ and VDSL - which will increase data transmission speeds and capacityresulting in, for example, the download of films or TV programmes over theinternet or to mobile phones. KTL is also looking at other new technologieswhere it can exploit its specialist telecoms-related testing skills includingWiMAX (broadband wireless internet), ZigBee (the use of wireless technology tocontrol industrial and domestic appliances including electronics and lighting)and VoIP (voice over internet protocol, used to facilitate telephone calls overthe internet). In 2005 KTL Inc was established with unique digital testing facilities inSilicon Valley, California and during 2007 further investment in this facilityoccurred with a particular focus on VDSL testing. KTL Inc draws upon KTL'stelecoms expertise from its UK operations, with a particular focus on DSL, andsells specialist testing services to "blue chip" hardware manufacturers based inor close to Silicon Valley. There were a number of changes to the managementteam at KTL Inc in 2007 and the business is well positioned for further growthin 2008. Consolidated income statement for the year ended 31 December 2007 -------- --------- --------- Notes 2007 2006 £'000 £'000 -------- --------- ---------Revenue 34,096 25,238Cost of sales (19,684) (15,521) -------- --------- ---------Gross profit 14,412 9,717Gross profit margin 42% 39% -------- --------- ---------Operating expenses:Sales & marketing cost (3,392) (2,952)Administration costs (5,165) (4,082)R&D and Engineering costs (1,607) (1,362) -------- --------- ---------Profit from operations 4,248 1,321 -------- --------- ---------Investment revenues 3 75 9Finance costs 4 (157) (173) -------- --------- ---------Profit before tax 4,166 1,157Tax 5 (516) 4 -------- --------- ---------Profit for the year 3,650 1,161 -------- --------- ---------Profit per share - basic 6 8.9p 2.9p - diluted 6 8.2p 2.6p -------- --------- --------- All amounts are derived from continuing operations Consolidated statement of recognised income and expense for the year ended 31 December 2007 2007 2006 £'000 £'000 --------- ---------Net profit for the year 3,650 1,161Actuarial gain on defined benefit pension scheme 154 56Movement in deferred tax in relation to pension asset (12) -Exchange differences on translation of foreign operations 45 (225)-------------------------------------- --------- ---------Total recognised income 3,737 992-------------------------------------- --------- --------- Consolidated balance sheet As at 31 December 2007 2007 2006 £'000 £'000Non-current assets:Goodwill 691 730Other intangible assets 6,324 6,108Property, plant & equipment 4,261 3,596 -------- --------- --------- 11,276 10,434 -------- --------- ---------Current assets: Inventories 1,547 1,415Deferred tax - 100Trade and other receivables 8,736 5,570Cash and cash equivalents 3,500 306Derivative financial instruments 6 - ------------------------------- -------- --------- --------- 13,789 7,391 -------- --------- ---------Total assets 25,065 17,825------------------------------- -------- --------- ---------Current liabilities:Trade and other payables 7 (5,920) (4,072)Obligations under finance leases (212) (205)Deferred tax (141) -Provisions (1,896) (1,136) ------------------------------- -------- --------- ---------Net current assets 5,620 1,978Non-current liabilities (756) (955)Total non-current liabilitiesTotal liabilities (8,925) (6,368)------------------------------- -------- --------- ---------Net assets 16,140 11,457------------------------------- -------- --------- ---------EquityShare capital 8 4,136 4,069Share premium account 10 10,933 10,506Equity reserve 11 875 525Capital reserve 12 255 255Translation reserve 13 (229) (274)Retained earnings 14 170 (3,624)------------------------------- -------- --------- ---------Equity attributable to equity holders of the 16,140 11,457parent -------- --------- ---------------------------------------- Consolidated cash flow statement for the year ended 31 December 2007 Notes 2007 2006 £'000 £'000 --------- --------- ---------Net cash from operating activities 15 5,233 3,505------------------------------ --------- --------- ---------Investing activitiesProceeds on disposal of property, plant & 33 20equipmentPurchases of property, plant & equipment (1,565) (933)Purchases of patents and trademarks (17) -Expenditure on product development (843) (1,031)------------------------------ --------- --------- ---------Net cash used in investing activities (2,392) (1,944)------------------------------ --------- --------- ---------Financing activitiesProceeds on issue of ordinary shares 494 150Movement in borrowings 26 (20)Repayment of obligations under finance leases (275) (132)------------------------------ --------- --------- ---------Net cash from/(used in) financing activities 245 (2)------------------------------ --------- --------- ---------Net increase in cash & cash equivalents 3,086 1,559------------------------------ --------- --------- ---------Bank cash/(overdraft) at beginning of year 306 (1,076)Effect of foreign exchange rate changes 108 (177)Bank cash at end of year 3,500 306------------------------------ --------- --------- --------- Notes to the consolidated financial statements 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 information inthis preliminary announcement has been prepared in accordance with InternationalFinancial Reporting (IFRS), this announcement does not itself contain sufficientinformation to comply with IFRS. The IFRS accounting policies applied in respectof the current and prior years have previously been disclosed in the Group'sAnnual Report for the year ended 31 December 2006. Statutory accounts for theyear ended 31 December 2006 have been delivered to the Registrar of Companies.Those for the year ended 31 December 2007 will be delivered following theCompany's Annual General Meeting. The statutory accounts for the year ended 31December 2007 will be despatched to shareholders by 25 March for approval at theAnnual General Meeting on 19 May 2007. The auditors have reported on theseaccounts - their reports are unqualified and did not contain statement underSection 237(2) or (3) of the Companies 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 2007 Decontamination TRAC Consolidated £'000 £'000 £'000 ------------ ----------- -----------RevenueTotal revenue 23,561 10,535 34,096ResultSegment result 3,717 980 4,697---------------------- ------------ ----------- -----------Unallocated head office costs (449) -----------Profit from operations 4,248Finance costs and investment revenue (82) -----------Profit before tax 4,166Tax (516) -----------Profit for the year 3,650 =========== Other information---------------------- ------------ ----------- -----------Capital additions 1,574 1,051 2,625Depreciation and amortisation 944 772 1,716---------------------- ------------ ----------- ----------- Notes to the consolidated financial statements for the year ended 31 December 2007 continued 2. Business and geographical segments continued Balance sheet as at 31 December 2007 Decontamination TRAC Consolidated £'000 £'000 £'000 ------------- ----------- -----------AssetsSegment assets 13,276 5,032 18,308 ------------- ----------- -----------Unallocated corporate assets 6,757 -----------Consolidated total assets 25,065 =========== LiabilitiesSegment liabilities (3,768) (2,516) (6,284) ------------- ----------- -----------Unallocated corporate liabilities (2,641) -----------Consolidated total liabilities (8,925) =========== Year ended 31 December 2006 Decontamination TRAC Consolidated £'000 £'000 £'000 ------------- ----------- -----------RevenueTotal revenue 14,607 10,631 25,238ResultSegment result 749 913 1,662---------------------- ------------- ----------- -----------Unallocated head office costs (341) -----------Loss from operations 1,321Finance costs (164) -----------Loss before tax 1,157Tax 4 -----------Loss after tax 1,161 =========== Other information---------------------- ------------- ----------- -----------Capital additions 1,250 1,278 2,528Depreciation and amortisation 969 662 1,631---------------------- ------------- ----------- ----------- Notes to the consolidated financial statementsfor the year ended 31 December 2007 continued 2. Business and geographical segments continued Year ended 31 December 2006 Decontamination TRAC Consolidated £'000 £'000 £'000 ------------- ----------- -----------Assets ------------- ----------- -----------Segment assets 11,558 6,196 17,754 ------------- ----------- -----------Unallocated corporate assets 71 -----------Consolidated total assets 17,825 =========== Liabilities ------------- ----------- -----------Segment liabilities (2,409) (2,814) (5,223) ------------- ----------- -----------Unallocated corporate liabilities (1,145) -----------Consolidated total liabilities (6,368) =========== Geographical segments The Group's Decontamination equipment is manufactured within the UK and soldinto the UK, Europe and Rest of World markets. The TRAC segment offers servicesfrom 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 2007 December 2006 £'000 £'000 ----------- ----------- UK 14,718 14,822Rest of Europe 5,612 3,368Rest of World 13,766 7,048-------------------------------- ----------- ----------- 34,096 25,238 ----------- ----------- Notes to the consolidated financial statementsfor the year ended 31 December 2007 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 by the geographical area inwhich the assets are located: Carrying amount of segment Additions to property, plant & assets equipment and intangible assets Year ended 31 Year ended 31 Year ended 31 ear ended 31 December 2007 December 2006 December 2007 December 2006 £'000 £'000 £'000 £'000 ---------- ---------- ---------- ---------- UK 21,683 15,521 2,392 2,342Rest of Europe 1,809 932 48 9Rest of World 1,573 1,372 185 177 ---------- ---------- ---------- ---------- 25,065 17,825 2,625 2,528 ---------- ---------- ---------- ---------- 3. Investment Revenues 2007 2006 £'000 £'000 -------- --------Bank Deposits 75 9--------------------------------------- -------- -------- 4. Finance costs 2007 2006 £'000 £'000 -------- --------Interest on bank loans and overdrafts 106 156Interest on obligations under finance leases 41 24Interest on defined benefit pension scheme 5 -Dividend payable on 7.5% preference shares 11 11Fair value gains on hedging (6) (18)--------------------------------------- -------- -------- 157 173 -------- -------- 5. Tax 2007 2006 £'000 £'000 -------- --------Current tax credit - (41)Deferred tax charge (516) 45--------------------------------------- -------- -------- (516) 4 -------- -------- Corporation tax is calculated at 30% (2006: 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 statements for the year ended 31 December 2007 continued 5. Tax continued The charge for the year can be reconciled to the profit per the income statementas follows 2007 2006 £'000 £'000 -------- --------Profit before tax 4,166 1,157 -------- --------Tax at the UK corporation rate of 30% (2006: 30%) (1,250) (347)Adjusted for:Tax effect of expenses not deductible in determining taxableprofit (74) (44)Effect of accelerated capital allowances not previouslyrecognised - 265Tax effect of utilisation of tax losses not previouslyrecognised 408 109Utilisation of tax losses brought forward - 19R&D tax credit 173 95Tax effect of different tax rate of subsidiaries operatingin other jurisdictions 32 2Deferred tax not recognised on other timing differences 43 (54)Prior year adjustment 203 (41)Effect on deferred tax balances due to the change income taxrates from 30% to 28% (effective 1 April 2008) (51) ---------------------------------------- -------- -------- (516) 4 -------- -------- 6. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data:Earnings Year ended 31 Year ended 31 Dec 2007 Dec 2006 £'000 £'000Earnings for the purposes ofbasic earnings per sharebeing net profitattributable to equityholders of the parent 3,650 1,161 ========== =========== Number of shares Year ended 31 Year ended 31 Dec 2007 Dec 2006Weighted average number ofordinary shares for thepurposes of basic earningsper share 41,118,083 40,495,439 ----------- ------------Effect of dilutive potentialordinary shares: 3,199,500 3,707,000 - share options ----------- ------------Weighted average number ofordinary shares for thepurposes of diluted earningsper share 44,317,583 44,202,439 =========== ============ For a profit making company with outstanding share options, net profit per shareis decreased by the exercise of share options. Therefore diluted earnings pershare are calculated by including 'live' share options in the denominator. Notes to the consolidated financial statementsfor the year ended 31 December 2007Continued 7. Provisions Warranty Restructuring Other Total provision provision £'000 £'000 £'000 £'000 At 1 January 2007 63 544 529 1,136Additional provision inthe year 126 - 1,254 1,380Utilisation of provision (63) (447) (110) (620)--------------------------- -------- ---------- -------- --------At 31 December 2007 126 97 1,673 1,896--------------------------- -------- ---------- -------- --------Included in currentliabilities 126 97 1,673 1,896Included in non-current liabilities - - - ---------------------------- -------- ---------- -------- -------- 126 97 1,673 1,896 -------- ---------- -------- -------- The warranty provision represents management's best estimate of the Group'sliability under 12 month warranties granted on products and services, based onpast experience. The restructuring provision represents the estimated cost ofmoving the newly acquired businesses as required in the purchase agreement.Other provisions primarily represent property maintenance required under leaseobligations within the subsidiaries. 8. Share capital 2007 2006 Number £'000 Number £'000 --------- ------- --------- -------Authorised 55,947,780 5,595 55,947,780 5,595Ordinary shares of 10p eachRedeemable deferred ordinaryshares of £1 each 255,222 255 255,222 255--------------------------- --------- ------- --------- ------- 5,850 5,850 --------- ------- --------- -------Called up, allotted and fully paidOrdinary shares of 10p each 41,358,045 4,136 40,694,545 4,069--------------------------- --------- ------- --------- ------- 4,136 4,069 --------- ------- --------- ------- During the year the Company issued a total of 663,500 ordinary shares of 10peach for £494,000 on the conversion of options under the executive share optionschemes, which is being used to provide additional working capital. 9. Analysis of net cash/(debt) 2007 2006 £'000 £'000 -------- --------Cash and cash equivalents 3,500 306Finance leases - due within one year (212) (205) - due after one year (178) (260)Bank loan - due after one year (428) (402)--------------------------------------- -------- --------Net cash/(debt) 2,682 (561)--------------------------------------- -------- -------- Notes to the consolidated financial statements for the year ended 31 December 2007 Continued 10. Share premium account £'000 ------------Balance at 1 January 2006 10,393Premium arising on issue of equity shares 113------------------------------------------ ------------Balances at 31 December 2006 10,506Premium arising on issue of equity shares 427------------------------------------------ ------------Balance at 31 December 2007 10,933------------------------------------------ ------------ 11. Equity reserve £'000 ------------Balance at 1 January 2006 365Credit to equity for share-based payments 188Debit to equity on exercise of share options (28)------------------------------------------ ------------Balance at 31 December 2006 525Credit to equity for share-based payments 163Movement in deferred tax charged to equity 288Debit to equity on exercise of share options (101)------------------------------------------ ------------Balance at 31 December 2007 875------------------------------------------ ------------ 12. Capital reserve £'000 ------------Balance at 1 January 2006 & 1 January 2007 255Additions ------------------------------------------- ------------Balance at 31 December 2006 and 31 December 2007 255------------------------------------------ ------------ 13. Translation reserve £'000 ------------Balance at 1 January 2006 (31)Effects of foreign exchange in the period (225)Fair value gain on hedging (18)------------------------------------------ ------------Balance at 31 December 2006 (274)Effects of foreign exchange in the period 45------------------------------------------ ------------Balance at 31 December 2007 (229)------------------------------------------ ------------ Notes to the consolidated financial statementsfor the year ended 31 December 2007Continued 14. Retained earnings £'000 ------------Balance at 1 January 2006 (4,869)Net profit for the year 1,161Actuarial loss on defined benefit pension scheme 56Exercised share options 28------------------------------------------ ------------Balance at 1 January 2007 (3,624)Net profit for the year 3,650Actuarial gain on defined benefit pension scheme 54Movement in deferred tax in relation to pension asset (12)Exercised share options 102------------------------------------------ ------------Balance at 31 December 2007 170------------------------------------------ ------------ 15. Notes to the cash flow statement 2007 2006 £'000 £'000 ----------- ------------Profit from operations 4,248 1,321Adjustments for:Depreciation of property, plant and equipment 1,051 1,042Amortisation and impairment losses of intangible 665 589assetsAdjustment to deferred consideration 39 -Share based payments 163 188Profit on disposal of property, plant and equipment (12) (11)Increase in provisions 760 251---------------------------------- ----------- ------------Operating cash flows before movements in working 6,914 3,380capital(Increase)/decrease in inventories (132) 732Increase in receivables (3,121) (42)Increase in payables 1,524 (383)---------------------------------- ----------- ------------Cash generated by operations 5,185 3,687Additional deferred benefit contribution 136 -Non equity preference share dividends paid (11) (11)Investment revenues 75 9Interest paid (152) (180)---------------------------------- ----------- ------------Net cash from operating activities 5,233 3,505---------------------------------- ----------- ------------ Of the new additions to fixtures and equipment during the year assets to thevalue of £200,000 (2006: £499,000) were financed by new finance leases. Cash andcash equivalents (which are presented as a single class of assets on the face ofthe balance sheet) comprise cash at bank and short term bank deposits with amaturity of three months or less. This information is provided by RNS The company news service from the London Stock Exchange