Bioquell Regulatory News (BQE)

26 Sep 2005 07:01

Bioquell PLC26 September 2005 TO: CITY EDITORSFOR IMMEDIATE RELEASE 26 September, 2005 BIOQUELL PLC Interim results 2005 BIOQUELL PLC, the UK developer of specialist bio-decontamination technology andtesting services, today announces its interim results under IFRS for the sixmonths ended 30 June 2005. The highlights are: FINANCIALS * Turnover £7.0 million (2004: £7.2 million) - reflecting lower bio-decontamination equipment sales to pharmaceutical groups; however, order intake has increased significantly in the second half * Gross expenditure on research & development before application of IFRS £0.6 million (2004: £0.5 million) * Sales & marketing costs £1.5 million (2004: £1.1 million) - reflecting increased sales activity in the US * Loss before tax £0.7 million (2004: £30,000) * Net debt £0.9 million (31 December 2004: £0.7 million) * Net assets £9.5 million (31 December 2004: £10.1 million) OPERATIONAL * Sale of first long term, on site implant Room Bio-Decontamination Service (RBDS) contract into a US hospital - discussions about a second RBDS implant contract ongoing with another US hospital * Increasing levels of emergency and scheduled RBDS being carried out for NHS hospitals * Assisting US and UK hospitals in combating the new highly toxic strain of Clostridium difficile which has recently emerged - hospital acquired infection (so called superbugs) problems continuing to increase globally * Encouraging results continuing from clinical trials of new wound healing technology - product launch anticipated for next year * Current record order book for bio-decontamination equipment * Strong defence order intake including first order for specialist nuclear, biological and chemical filtration equipment in the US * Significant opportunities to expand Cape and testing services Commenting on the interim results, John Salkeld, Chairman of BIOQUELL said:"I am delighted that BIOQUELL has secured its first long term on site RBDSimplant contract in a US hospital. It is disappointing that this preventativeapproach to the control of superbugs has not yet been adopted in the UK,although we are obtaining increasing levels of emergency and scheduled RBDS workin NHS hospitals. I am also pleased to see the continuing, encouraging resultsfrom BIOQUELL's new wound healing technology which is in clinical trials; webelieve that this technology has substantial potential. Although we saw adecline in bio-decontamination equipment sales in the first half, there has beena significant improvement in the second half. Enquiries John Salkeld BIOQUELL PLC 01264 835 900Nick AdamsMark Bodeker Emma Kane Redleaf Communications 020 7955 1410 Results The financial information for the BIOQUELL Group published in this documentreflects the application for the first time of the new International FinancialReporting Standards ("IFRS"). There have been a number of significant changesaffecting the presentation of the information, principally relating to thetreatment of research & development costs and the expensing of options.Reconciliation of the previous UK GAAP format and the new IFRS-based format areattached. Group revenues for the period declined by 2% to £7.0 million (2004: 7.2million). Notwithstanding the increase in revenues from RBDS and Cape, sales ofbio-decontamination equipment to the pharmaceutical sector declined in the firsthalf as anticipated in the preliminary statement in April 2005 and this alsoaffected the overall gross margin. However, there has been a significantimprovement in this market in the second half. Gross expenditure on research & development in the period, prior to theapplication of IFRS, was £0.6 million (2004: £0.5 million). The slight increasereflects the costs associated with trials of BIOQUELL's uniquebio-decontamination technology in hospitals and the costs associated withclinical trials of its new wound healing technology. Expenditure on sales and marketing increased significantly year on year by £0.4million. This reflects increased investment in sales activities in the US aswell as increased marketing spend across the Group. The Group remains efficient at managing its working capital. The bank overdraftincreased by only £0.2 million in the period (2004: £0.1 million). Depreciationof fixed assets was £0.4 million (2004: £0.4 million). Cash inflow afterexpenditure on research & development and before capital investment andacquisitions was £0.3 million (2004: £0.5 million). Bio-decontamination products and services Hospital Acquired Infection Hospital Acquired Infection ("HAI") continues to create substantial problems forhealthcare providers globally. In recent years the problems associated withMethicillin resistant Staphyloccus aureus ("MRSA") have been well publicised. Itis now clear that healthcare providers in North America and the UK are facingsevere problems with a new, highly toxic strain of Clostridium difficile ("C.difficile") which is affecting younger patients and in some cases causing death.Multi-drug resistant Acinetobacter is also a major problem. In addition to theseproblematic micro-organisms, healthcare providers are also facing continuingproblems from other so-called superbugs comprising bacteria (many of which areincreasingly antibiotic resistant), viruses and fungi that patients acquire inhospitals or nursing homes. First RBDS implant contract BIOQUELL is helping hospitals in the US and Europe combat superbugs, inparticular MRSA, Acinetobacter and the new highly toxic strain of C. difficile.As part of this BIOQUELL has recently secured its first long term, on siteimplant contract for its Room Bio-Decontamination Service ("RBDS") in a UShospital. This involves a specialist BIOQUELL RBDS team working closely with thehospital's Infection Control team and eradicating superbugs from the hospitalenvironment on an ongoing and preventative basis. BIOQUELL is in discussionswith a second US hospital relating to an RBDS implant contract. The Boardbelieves that the potential for the healthcare sector remains substantial andwinning this first RBDS implant contract in a US hospital should make itsignificantly easier to win further healthcare RBDS implant contracts. Emergency RBDS deployments and ongoing trials in hospitals So far in 2005 BIOQUELL has carried out fee-paying emergency or scheduled RBDSdeployments in 12 hospitals in the UK and carried out trials or demonstrationsin a further 20. BIOQUELL anticipates that the number of UK hospitals using itsemergency RBDS service on a reactive basis will continue to increase. Notwithstanding the significant direct and indirect costs associated with HAI,it is clear that most NHS hospitals are facing significant financialdifficulties and the Board now anticipates faster adoption of BIOQUELL'stechnology in the healthcare sector in North America, particularly for thepreventative RBDS implant model. As a result BIOQUELL continues to expand its USoperations and is proactively increasing the scale of its sales and marketingoperations in North America. BIOQUELL continues to run trials and carry out research into the eradication ofHAI from the hospital environment and monitor the effect on patient infectionacquisition rates. The results of a RBDS implant trial in a US hospital, whichis being carried out in conjunction with a US Government agency, should be madepublic later this year. Life sciences sector Sales of RBDS continue to grow in the life sciences sector. As alreadymentioned, sales of BIOQUELL's Clarus range of bio-decontamination equipmentinto the pharmaceutical sector were slow in the period. However, there are signsthat the large pharmaceutical groups are starting to increase their capitalexpenditure again and the Group currently has a record bio-decontaminationequipment order book. Sales of the Clarus PORT, a new rapid cyclebio-decontamination device, are increasing. International operations BIOQUELL's operations in the US are expanding. Although the business alsoexperienced a reduced level of order intake for bio-decontamination equipment inthe first half, service sales were significantly increased. An office has nowbeen opened on the West coast of the US to allow BIOQUELL to market its productsand services to the substantial biotechnology market based around San Francisco.BIOQUELL's operations in France had a slow first half although order intake isbeginning to increase in the second half for bio-decontamination equipment andservices from the life sciences sector. Wound healing BIOQUELL announced that it had developed novel wound healing technology in itspreliminary results in April 2005. Since this time clinical trials have beenongoing and the results continue to look encouraging. A second series ofclinical trials have recently started. The scientific and clinical results willbe made public in 2006 by the academic team working with BIOQUELL on this newtechnology. Product development and engineering relating to this novel wound healingtechnology is ongoing. The Board anticipates that a wound healing product willbe launched on the market in 2006. The Board believes that this productrepresents substantial potential value to shareholders. The wound healing market is large and international. Chronic wounds such asvenous leg ulcers affect a significant proportion of the elderly. Other chronicwounds include foot ulcers, pressure sores and surgical wounds. The US NationalInstitute of Nursing Research has published data that suggest that chronicwounds affect up to 4.5 million Americans at a cost of US$ 9.5 billion a year. Defence BIOQUELL has won its first order for specialist nuclear, biological and chemicalfiltration equipment in the United States. Further orders are anticipated andthe results of this division are expected to improve significantly in the secondhalf. Cape - specialist testing services Cape continues to grow organically and is actively pursuing a number ofoutsourcing contracts, particularly where it is able to increase its long termtesting order book. Cape is undertaking increasing levels of outsourcing workfor Rolls-Royce and Flight Refuelling. It remains clear that a number of largegroups are considering more seriously the benefits of outsourcing large elementsof their testing programmes. Regulations relating to EMC (Electro-magnetic compatibility) continue toincrease and Cape is exploring ways of expanding substantially its testingservice revenues in markets which are driven in large part by increasinglystringent regulations. Cape believes that certain of its highly specialist testing services have theopportunity to generate high margin revenues in the US. As a result Cape is inthe process of setting up a small service office in the US using office spaceshared with BIOQUELL's bio-decontamination business. Finance Net assets at 30 June 2005 were £9.5 million (31 December 2004: £10.1 million).Net debt at the end of the period was £0.9 million (31 December 2004: £ 0.7million). The movement in the period showed an increase in the bank overdraft by£0.2 million.Capital expenditure in the first half was £0.5 million (2004: £0.5 million)which largely related to the expansion of the bio-decontamination servicebusiness and investment in fixed assets at Cape.The Board is proposing the payment of an interim dividend on the firstpreference shares of 3.75p per share, payable on 28 February 2006 (representinga total payment of £5,625). The record date for this payment will be 27 January2006. The Board does not believe it to be appropriate to pay a dividend on theordinary shares at this stage. Prospects The prospects for BIOQUELL's bio-decontamination technology in the healthcaresector are improving, particularly following the sale of its first RBDS implantcontract into a US hospital. Further, the Board believes that the Group's newwound healing technology has substantial potential. Order intake forbio-decontamination equipment sales has been strong since the period end and theGroup currently has record order books. John SalkeldChairman26 September 2005 Consolidated income statement unaudited interim results for the six months ended 30 June 2005 6 months 6 months 12 months to 30 June to 30 June to 31 December 2005 2004 2004 £'000 £'000 £'000 ---------- ----------- -----------Revenue 6,996 7,151 15,494Cost of sales (4,638) (4,479) (9,736) ---------- ----------- -----------Gross profit 2,358 2,672 5,758 34% 37% 37%================================================================================Research & development costs (15) (12) (29)directly expensed (pure research) (178) (149) (313)amortised (1,476) (1,099) (2,304)Sales & marketing costs===============================================================================Net operating expenses (3,053) (2,673) (5,557) ---------- ----------- -----------Operating (loss)/profit (695) (1) 201 ---------- ----------- -----------Finance costs (43) (29) (72) ---------- ----------- -----------(Loss)/profit on ordinaryactivities before tax (738) (30) 129Tax credit on (loss)/profit onordinary activities 78 72 173 ---------- ----------- -----------(Loss)/profit for the period (660) 42 302 ---------- ----------- -----------(Loss)/earnings per share - basicand diluted (1.6p) 0.1p 0.8p ---------- ----------- -----------================================================================================Gross expenditure on research &development prior to application ofIFRS (552) (514) (936)=============================================================================== Notes: 1. On 19 July 2002, the European Parliament adopted Regulation No. 1606/2002 requiring listed companies in the Member States of the European Union toprepare their consolidated financial statements in accordance with InternationalFinancial Reporting Standards ('IFRS') from 2005. IFRS will apply for the firsttime to the Group's Annual report for the year ending 31 December 2005.Consequently the Group's interim results for the six months to 30 June 2005 arepresented under IFRS together with restated information for the six months ended30 June 2004 and the year ended 31 December 2004. Further information on theGroup's adoption of IFRS is given under "Explanation of transition to IFRS". 2. The financial information for the six months ended 30 June 2005 and thecomparative figures for the six months ended 30 June 2004 have not been reviewedor audited by the Group's auditors and have been prepared on the basis of theaccounting policies adopted by the Group under IFRS. These accounting policiesare set out under 'Statement of Accounting Policies'. 3. The unaudited comparative figures for the 12 months to 31 December 2004have been prepared under IFRS. They do not constitute statutory accounts withinthe meaning of section 240 of the Companies Act 1985. The unqualified auditedaccounts for the 12 months ended 31 December 2004, under previous UK GAAP, havebeen filed with the Registrar of Companies and did not contain statements undersection 237(2) or (3) of the Companies Act 1985. 4. Tax credits shown on the Income Statement relate to Research andDevelopment costs. There is no change in the recognised deferred tax asset dueto the Group's adoption of IFRS. 5. The value of intangible assets acquired on the purchase of EMC ProjectsLtd is calculated as the anticipated generation of revenue from customers new tothe BIOQUELL Group, discounted over five years. This intangible asset isamortised in a straight line over five years. 6. Loss per share for the half-year has been calculated on the loss onordinary activities after taxation, after deducting dividends on non-equity(preference) shares due but not paid, divided by the weighted average number ofordinary shares in issue during the period. The Group's basic and fully dilutedearnings per share are equal. 7. Copies of this statement will be available to members of the public atthe company's registered office: 34A Walworth Road, Andover, Hampshire SP10 5PYand on the Group's website at www.bioquell.com Consolidated statement of recognised income and expense 6 months 6 months 12 months to to 30 June to 30 June 31 December 2005 2004 2004 £'000 £'000 £'000----------------------------- --------- --------- ----------- Net (loss)/ profit for theperiod (660) 42 302 Exchange differences on thetranslation of foreignoperations (31) (26) (136)----------------------------- --------- --------- ----------- Total recognised net(loss)/profit for the period (691) 16 166----------------------------- --------- --------- ----------- Prior period adjustment (186) - ------------------------------ --------- --------- ----------- Total recognisedincome/expense since lastannual report (877) 16 166----------------------------- --------- --------- ----------- Consolidated balance sheet 30 June 30 June 31 December 2005 2004 2004 --------- --------- ----------- £'000 £'000 £'000 *(restated) *(restated) --------- --------- -----------Non-current assetsGoodwill 333 376 333Other intangible assets 4,903 4,356 4,570Property, plant & equipment 2,890 2,822 2,849----------------------------- --------- --------- ----------- 8,126 7,554 7,752----------------------------- --------- --------- -----------Current assetsInventories 2,534 2,426 2,348Trade and other receivables 3,542 4,192 4,646Cash and cash equivalents - 146 430----------------------------- --------- --------- ----------- 6,076 6,764 7,424----------------------------- --------- --------- -----------Total assets 14,202 14,318 15,176----------------------------- --------- --------- ----------- Current liabilities (3,514) (3,619) (3,648)Other current liabilities (355) - (569)Bank overdraft----------------------------- --------- --------- -----------Net current assets 2,207 3,145 3,207----------------------------- --------- --------- ----------- Non-current liabilities (807) (878) (858)----------------------------- --------- --------- ----------- Total liabilities (4,676) (4,497) (5,075)----------------------------- --------- --------- -----------Net assets 9,526 9,821 10,101----------------------------- --------- --------- ----------- EquityShare capital 4,018 4,011 4,016Share premium account 10,298 10,242 10,285Equity reserve 270 86 169Capital reserve 255 255 255Translation reserve (167) (26) (136)Retained earnings (5,148) (4,747) (4,488)----------------------------- --------- --------- -----------Equity attributable to equity holders ofthe 9,526 9,821 10,101parent --------- --------- ----------------------------------------Total Equity 9,526 9,821 10,101----------------------------- --------- --------- ----------- * Opening equity and inventory balances as at 1 January 2004 have been restatedby £186k to reflect the change of accounting policy for material handling charges recognised on the closure of the Group'sWeston-super-Mare site in 2002. Consolidated cash flow statement six months ended 30 June 2005 6 months 6 months 12 months to 30 June to 30 June to 31 December 2005 2004 2004 £ 000s £ 000s £ 000s ----------- ----------- -----------Cash generated by operations 859 996 1,317 Non-equity preference sharedividends paid (6) (6) (11)Net Interest paid (37) (23) (62)-------------------------- ----------- ----------- -----------Net cash from operating activities 816 967 1,244-------------------------- ----------- ----------- ----------- Investing activities Proceeds on disposal of property,plant & equipment - - 105Purchases of property, plant &equipment (479) (506) (751)Expenditure on product development (537) (502) (907)Acquisition of a subsidiary - (204) (222)-------------------------- ----------- ----------- -----------Net cash used in investingactivities (1,016) (1,212) (1,775)-------------------------- ----------- ----------- ----------- Financing activitiesProceeds on issue of ordinaryshares 15 141 188Repayment of borrowings (14) - (36)Repayment of obligations underfinance leases (17) (19) (29)-------------------------- ----------- ----------- -----------Net cash (used in)/from financingactivities (16) 122 123-------------------------- ----------- ----------- ----------- -------------------------- ----------- ----------- -----------Increase in bank overdraft (216) (123) (408)-------------------------- ----------- ----------- -----------Bank (overdraft) / cash atbeginning of year (139) 269 269Bank (overdraft) / cash at end ofyear (355) 146 (139)-------------------------- ----------- ----------- ----------- Note to the cash flow statement-------------------------- ----------- ----------- ----------- 6 months 6 months 12 months to 30 June to 30 June to 31 December 2005 2004 2004 £ 000s £ 000s £ 000s-------------------------- ----------- ----------- -----------Operating (Loss)/profit (695) (1) 201-------------------------- ----------- ----------- -----------Adjustments for:Depreciation of property, plant &equipment 438 418 855Amortisation of intangible assets 204 135 312Cost of share based payments 101 54 137Loss on disposal of fixed asset - - 5(Decrease)/increase in provisions (9) 19 102-------------------------- ----------- ----------- -----------Operating cashflows beforemovements in working capital 39 625 1,612-------------------------- ----------- ----------- ----------- (Increase)/decrease in inventories (186) (13) 82Decrease/(increase) in receivables 1,152 (616) (776)(Decrease)/increase in payables (146) 1,000 399-------------------------- ----------- ----------- -----------Cash generated by operations 859 996 1,317-------------------------- ----------- ----------- ----------- Statement of accounting policies - updated for IFRSs GeneralBIOQUELL PLC (the Company) is a Public Limited Company incorporated in theUnited Kingdom. The financial statements are presented in pounds sterling (£)since that is the currency in which the majority of the Group's transactions aredenominated. Summary of significant accounting policiesThe financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS). The financial statements have been prepared on the historical cost basis. Theprincipal accounting policies adopted are set out below. They have been appliedconsistently throughout the period and in the preceding periods. Basis of consolidationThe consolidated financial statements incorporate the financial statements ofthe Company and enterprises controlled by the Company (its subsidiaries). Revenue recognitionSales of goods are recognised when goods are delivered and title has passed.Revenue from services is recognised throughout the contract as services areprovided or upon completion dependent upon contractual terms. Property, plant and equipmentFixtures and equipment are stated at cost less accumulated depreciation and anyrecognised impairment loss. Depreciation is charged so as to write off the costor valuation of assets, over their estimated useful lives, using thestraight-line method, on the following bases:Buildings 10 yearsFixtures and equipment 3 to 8 years Patents and trademarksPatents and trademarks are measured initially at purchase cost and are amortisedon a straight line basis over their estimated useful lives as part ofdevelopment expenditure. InventoriesInventories are stated at the lower of cost and net realisable value. Costcomprises direct materials and, where applicable, direct labour cost and thoseoverheads that have been incurred in bringing the inventories to their presentlocation and condition. LeasesLeases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases.Assets held under finance leases are recognised as assets of the Group at theirfair value at the date of acquisition or, if lower, at the present value of theminimum lease payments. The corresponding liability to the lessor is included inthe balance sheet as a finance lease obligation.Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. TaxationIncome tax expense represents the sum of the tax currently payable and deferredtax. The Group's liability for current tax is calculated using tax rates thathave been enacted or substantively enacted by the balance sheet date. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Bank borrowingsInterest-bearing bank loans and overdrafts are recorded as the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccrual basis to the profit and loss account using the effective interest methodand are added to the carrying amount of the instrument to the extent that theyare not settled in the period in which they arise. GoodwillGoodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary at the date of acquisition. Goodwill ispresented separately on the balance sheet. Goodwill is tested for impairmentannually and whenever there is an indication that it may be impaired a provisionis made for any impairment. Intangible assetsIntangible fixed assets comprise customer relationships acquired in businesscombinations and development expenditure. Customer relationships are included atcost, based on the Group valuation methodology, using discounted cash flows, andamortised over their useful lives, deemed to be five years. Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. An internally-generated intangible asset arising from the Group's developmentactivity is recognised only if all of the following conditions are met: - an asset is created that can be identified (such as products, service and new processes related to decontamination solutions) - it is probable that the asset created will generate future economic benefits; and - the development cost of the asset can be measured reliably. Internally-generated intangible assets are amortised on a straight-line basisover their useful lives which is deemed to be 15 years. Where nointernally-generated intangible asset can be recognised, development expenditureis expensed in the period in which it is incurred. Impairment of tangible and intangible assets excluding goodwillAt each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthese assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Provision is made for any impairment andimmediately expensed in the period. Foreign currenciesTransactions in currencies other than sterling are initially recorded at therate of exchange prevailing on the dates of the transactions. Monetary assetsand liabilities denominated in such currencies are retranslated at the rateprevailing on the balance sheet date. Profits and losses arising on exchange areincluded in net profit or loss for the period. On consolidation, the assets and liabilities of the Group's overseas operationsare translated at the exchange rates prevailing on the balance sheet date.Income and expense items are translated at the average exchange rates for theperiod. Exchange differences arising, if any, are classified as equity andtransferred to the Group's translation reserve. Such translation differences arerecognised as income or as expenses in the period in which the operation isdisposed of. Retirement benefit costsPayments to defined contribution retirement benefit plans are charged as anexpense as they fall due. The defined benefit scheme has been closed to new members since May 1990 andrelated solely to former employees of the Group. The retirement benefitobligation recognised in the balance sheet represents the present value of thedefined benefit obligation as adjusted for unrecognised actuarial gains andlosses and unrecognised past service cost, and as reduced by the fair value ofthe plan assets. Share-based paymentsThe Group has applied the requirements of IFRS 2 Share-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2005. The Group is able to issue equity-settled and cash-settledshare-based payments to certain employees. Equity-settled share-based paymentsare measured at fair value at the date of grant. The fair value determined atthe grant date of the equity-settled share based payments is expensed on astraight line basis over the vesting period, based on the Group's estimate ofshares that will eventually vest. Fair value is measured by use of the BlackScholes model. The expected life used in the model has been adjusted, based onmanagement's best estimate, for the effects of non-transferability, exerciserestrictions and behavioural considerations. Business segments For management reporting purposes the Group is currently organised into twooperating divisions - 'Decontamination Solutions' and 'Test & EMC'. Thesedivisions are the basis on which the Group reports its primary segmentinformation. Segment information about these businesses is presented below. Six months ended 30 June 2005 Decontamination Test & EMC Consolidation Solutions £000s £000s £000sRevenue Total revenue 4,707 2,289 6,996Result Segment result (518) 238 (280)---------------------- ----------- ----------- -----------Head office costs (415) -----------Loss from operations (695) -----------Finance costs (43) -----------Loss before tax (738) ----------- Revenue Geographically (Market)UK 2,417 2,289 4,706EU 736 - 736ROW 1,554 - 1,554 ----------- ----------- ----------- 4,707 2,289 6,996 ----------- ----------- ----------- Six months ended 30 June 2004 Decontamination Test & EMC Consolidation Solutions £000s £000s £000sRevenue Total revenue 5,257 1,894 7,151Result Segment result 211 240 451---------------------- ----------- ----------- -----------Head office costs (452) -----------Loss from operations (1) -----------Finance costs (29) -----------Loss before tax (30) ----------- Revenue Geographically (Market)UK 2,692 1,894 4,586EU 1,411 - 1,411ROW 1,154 - 1,154 ----------- ----------- ----------- 5,257 1,894 7,151 ----------- ----------- ----------- Year ended 31 December 2004 Decontamination Test & EMC Consolidation Solutions £000s £000s £000sRevenue Total revenue 11,267 4,227 15,494Result Segment result 329 652 981---------------------- ----------- ----------- -----------Head office costs (780) -----------Profit fromoperations 201 -----------Finance costs (72) -----------Profit before tax 129 ----------- Revenue Geographically (Market)UK 5,430 4,227 9,657EU 2,435 - 2,435ROW 3,402 - 3,402 ----------- ----------- ----------- 11,267 4,227 15,494 ----------- ----------- ----------- Change to Group accounting policies 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 in 2002 andno longer considers it appropriate to include the cost of materials handling inthe valuation of inventories. Consequently opening equity and inventories havebeen reduced by £186k. This valuation has remained substantially unchanged andconsequently has no material impact on the income statements for the reportedperiods. Explanation of transition to IFRS IFRS 1 First-time adoption of International Financial Reporting Standards setsout the procedures that the Group must follow as it adopts IFRS for the firsttime as the basis for preparing its consolidated financial statements. The Groupis required to establish its accounting policies as at 31 December 2005 and, ingeneral, apply these retrospectively to determine the IFRS opening balance sheetat its date of transition, 1 January 2004. The standard allows a number ofexceptions to this general principal. Those that affect the Group are set outbelow: • Use of the exemption in IFRS 3 to only restate Business Combinations arising after 1 January 2004. • Adoption of the amendment to IAS 19 'Employee Benefits', issued in December 2004, in advance of the effective date of 1 January 2006, resulting in actuarial gains and losses arising on the Defined Benefits Scheme being presented in the Statement of Recognised Income and Expense. • IFRS 2 has been applied to all share options issued after 7 November 2002 and not vested as at 1 January 2005. Reconciliations of the adjustments to profit and loss for the reported periodsare shown below: Reconciliation of (loss)/profit for the period Notes 6 months 6 months 12 months to 30 June to 30 June to 31 December 2005 2004 2004 £'000 £'000 £'000 ------ --------- --------- ---------(Loss)/profit for the periodunder previous UK GAAP (892) (272) (175)AdjustmentsAcquired goodwill 1 - 14 46Development costs 2 359 354 594Share based payments 3 (101) (54) (137)Amortisation of acquiredintangible assets 4 (26) - (26)------------------------- ------ --------- --------- ---------(Loss)/ profit for the periodunder IFRS (660) 42 302------------------------- ------ --------- --------- --------- Notes1. Reversal of goodwill amortisation2. Development costs capitalised at point of expense (IAS 38)3. Share option expense (IFRS 2)4. Amortisation of intangible assets acquired with EMC Projects Ltd More detailed analysis of the adjustments made to the Group's accounts as aresult of the transition from UK GAAP to IFRS follow. Included is areconciliation of the balance sheet at 1 January 2004, the date of transition toIFRS. Reconciliation of profit for six months ended 30 June 2005 £000's Previous Transition to IFRS IFRS UK GAAPRevenue 6,996 6,996Cost of sales (4,638) (4,638)-------------------------- ----------- ---------- -----------Gross Margin 2,358 2,358 34% 34%Distribution costs (1,492) (1,492)Administration costs (1,793) 232 (1,561)Finance costs (37) (6) (43)-------------------------- ----------- ---------- -----------Total Costs (3,322) 226 (3,096)(Loss)/profit on ordinary activitiesbefore tax (964) 226 (738)-------------------------- ----------- ---------- -----------Adjustments:£232k represents £359k net capitalisation of development expenditure, £101k costof share based payments and £26k amortisation of acquired intangible assets.Finance costs include the dividend paid on non-equity preference shares. Reconciliation of profit for the six months ended 30 June 2004 £000's Previous Transition to IFRS IFRS UK GAAPRevenue 7,151 7,151Cost of sales (4,493) 14 (4,479)-------------------------- ----------- ---------- -----------Gross Margin 2,658 14 2,672 37% 37%Distribution costs (1,149) (1,149)Administration costs (1,823) 299 (1,524)Finance costs (23) (6) (29)-------------------------- ----------- ---------- -----------Total Costs (2,995) 293 (2,702)-------------------------- ----------- ---------- -----------(Loss)/profit on ordinary activitiesbefore tax (337) 307 (30)-------------------------- ----------- ---------- -----------Adjustments:£299k represents £353k net capitalisation of development expenditure and £54kcost of share based payments.£14k represents reversal of goodwill amortisation Reconciliation of profit for the year ended 31 December 2004 £000's Previous Transition to IFRS IFRS UK GAAPRevenue 15,494 15,494Cost of sales (9,782) 46 (9,736)-------------------------- ----------- ---------- -----------Gross Margin 5,712 46 5,758 37% 37%Distribution costs (2,416) (2,416)Administration costs (3,572) 431 (3,141)Finance costs (61) (11) (72)-------------------------- ----------- ---------- -----------Total Costs (6,049) 420 (5,629)-------------------------- ----------- ---------- -----------(Loss)/profit on ordinary activitiesbefore tax (337) 466 129-------------------------- ----------- ---------- -----------Adjustments:£46k represents a reversal of goodwill amortisation. Valuation of customerrelationships acquired with EMC results in amortisation in the period of £26k,which is included in the £431k along with £594k net capitalisation ofdevelopment expenditure and £137k cost of share based payments. Non-equitypreference dividends are now included in Finance costs. Reconciliation of balance sheet at 31 December 2004 (date of last UK GAAPfinancial statements) Notes Previous Transition to IFRS IFRS UK GAAP *(restated)Goodwill 1,2 550 (217) 333Intangible assets 2,3 - 4,570 4,570Property, plant & equipment 2,849 2,849--------------------- ------- ----------- ---------- -----------Total non-current assets 3,399 4,353 7,752 Inventories 2,348 2,348Trade and other receivables 3,644 3,644Other receivables 1,002 1,002Cash & cash equivalents 430 430--------------------- ------- ----------- ---------- -----------Total current assets 7,424 7,424--------------------- ------- ----------- ---------- -----------Total assets 10,823 4,353 15,176--------------------- ------- ----------- ---------- ----------- Current liabilities (4,217) (4,217)Non current liabilities 4,5 (570) (288) (858)--------------------- ------- ----------- ---------- -----------Total liabilities (4,787) (288) (5,075)--------------------- ------- ----------- ---------- -----------Total assets less totalliabilities 6,036 4,065 10,101--------------------- ------- ----------- ---------- ----------- Called up share capital 5 4,166 (150) 4,016Share premium 10,285 10,285Equity reserve 6 - 169 169Capital reserve 255 255Translation reserve 7 - (136) (136)Profit & loss account (8,670) 4,182 (4,488)--------------------- ------- ----------- ---------- -----------Total equity 6,036 4,065 10,101--------------------- ------- ----------- ---------- ----------- Notes:1. Reversal of goodwill amortisation (IFRS 3)2. Net capitalisation of value of customer relationships acquired with EMC Projects Ltd3. Cumulative capitalised net development expenditure (IAS 38)4. Pension liability (IAS 19) recognised on the balance sheet5. Reclassification of preference share capital to non-current liabilities6. Share based payments (IFRS 2)7. Exchange gain on translation of foreign operations now shown in translation reserve * Equity and inventory balances as at 31 December 2004 have been restated by£186k to reflect the change of accounting policy for material handling chargesrecognised on the closure of the Group's Weston-super-Mare site in 2002. Reconciliation of balance sheet at 30 June 2004 Notes UK GAAP Transition to IFRS IFRS *(restated)Goodwill 2 625 (249) 376Intangible assets 2,3 - 4,356 4,356Property, plant & equipment 2,822 2,822--------------------- ------- ----------- ---------- -----------Total non-current assets 3,447 4,107 7,554 Inventories 2,426 2,426Trade and other receivables 3,030 3,030Other receivables 1,162 1,162Cash & cash equivalents 146 146--------------------- ------- ----------- ---------- -----------Total current assets 6,764 6,764--------------------- ------- ----------- ---------- -----------Total assets 10,211 4,107 14,318--------------------- ------- ----------- ---------- ----------- Current liabilities (3,619) (3,619)Non current liabilities 4,5 (590) (288) (878)--------------------- ------- ----------- ---------- -----------Total liabilities (4,209) (288) (4,497)--------------------- ------- ----------- ---------- -----------Total assets less totalliabilities 6,002 3,819 9,821--------------------- ------- ----------- ---------- ----------- Called up share capital 4,161 (150) 4,011Share premium 10,242 10,242Equity reserve 6 - 86 86Capital reserve 255 255Translation reserve 7 - (26) (26)Retained Profit & loss (8,656) 3,909 (4,747)--------------------- ------- ----------- ---------- -----------Total equity 6,002 3,819 9,821--------------------- ------- ----------- ---------- -----------Notes:2. Net capitalisation of value of customer relationships acquired with EMC Projects Ltd3. Cumulative capitalised net development expenditure (IAS 38)4. Pension liability (IAS 19) recognised on the balance sheet5. Reclassification of preference share capital to non-current liabilities6. Share based payments (IFRS 2)7. Exchange gain on translation of foreign operations now shown in translation reserve * Equity and inventory balances as at 30 June 2004 have been restated by £186kto reflect the change of accounting policy for material handling chargesrecognised on the closure of the Group's Weston-super-Mare site in 2002. Reconciliation of equity at 1 January 2004 (date of transition to IFRSs) Notes UK GAAP Transition to IFRSs IFRSs *(restated)Goodwill 265 265Intangible assets 3 - 3,740 3,740Property, plant & equipment 2,721 2,721--------------------- ------- ----------- ---------- -----------Total non-current assets 2,986 3,740 6,726 Inventories 2,413 2,413Trade and other receivables 2,731 2,731Other receivables 773 773Cash & cash equivalents 269 269--------------------- ------- ----------- ---------- -----------Total current assets 6,186 6,186--------------------- ------- ----------- ---------- -----------Total assets 9,172 3,740 12,912--------------------- ------- ----------- ---------- ----------- Current liabilities (2,470) (2,470)Non current liabilities 4,5 (543) (288) (831)--------------------- ------- ----------- ---------- -----------Total liabilities (3,013) (288) (3,301)--------------------- ------- ----------- ---------- -----------Total assets less totalliabilities 6,159 3,452 9,611--------------------- ------- ----------- ---------- ----------- Called up share capital 4,124 (150) 3,974Share premium 10,139 10,139Equity reserve 6 - 32 32Capital reserve 255 255Profit & loss account (8,359) 3,570 (4,789)--------------------- ------- ----------- ---------- -----------Total equity 6,159 3,452 9,611--------------------- ------- ----------- ---------- ----------- Notes:3. Cumulative capitalised net development expenditure (IAS 38)4. Pension liability (IAS 19) recognised on the balance sheet5. Reclassification of preference share capital to non-current liabilities6. Share based payments (IFRS 2) * Opening equity and inventory balances as at 1 January 2004 have been restatedby £186k to reflect the change of accounting policy for material handlingcharges recognised on the closure of the Group's Weston-super-Mare site in2002 This information is provided by RNS The company news service from the London Stock Exchange