10th Apr 2007 07:01
Kenetics Group Limited10 April 2007 Kenetics Group Limited ("Kenetics" or the "Group" or the "Company") Preliminary Results for the Year Ended 31 December 2006 Kenetics Group Limited (Kenetics or the Company), the Radio FrequencyIdentification (RFID) company focused on Security and RFID systems and products,announces the Preliminary Results for the year ended 31 December 2006. Financial Highlights • Revenue of £ 316,176 (2005: £ 916, 942) • Pre-tax losses of £ 449,034 (2005: Pre-tax profit of £303,122) • Free Cash position as at end of the year of £ 290,417 (2005: £ 167,372) Operational Highlights • Listed on AIM in August 2006 • Established a subsidiary in Beijing to tap business opportunities in China • Embarked on the development of new GEN 2 product lines • Implemented structural changes to improve operational efficiencies • Entered into technical collaborations with two major chip manufacturers to develop RFID products Commenting on the Preliminary Results, Ken Wong, Chairman of Kenetics said: "The Group had a challenging 2006 which resulted in the company falling into thered after three years of profitability. Nonetheless, the listing has improvedthe international profile of the company and has provided us a platform to growthe business. With the implementation of structural changes almost completed andthe launch of the new range of GEN 2 product lines, we are confident that theGroup is in a strong position to recover from its temporary setback and to growthe business. 2007 is expected to show a marked improvement. " Contact: Ken WongKenetics Group LimitedTel: +65 9616 6883 Tim ThompsonBuchanan CommunicationsTel: + 44 20 7466 5000 Nandita SahgalInsinger de BeaufortTel: + 44 20 7190 7000 Chairman's Statement Introduction This is the first financial result since Kenetics was admitted on AIM of theLondon Stock Exchange on 18 August 2006. It marked the transformation of theCompany from a start-up in 2001 to a full-fledged publicly-listed corporation.The Company raised £ 827,000 in pre-IPO funds before listing the company on AIM,through means of an introduction. We believe our listing on AIM hassignificantly improved our profile internationally, provided us with a platformto grow the business and paved the way for us to work closely with many globalpartners. Financial Results Group sales in 2006 amounted to £ 316,176, a decrease of 66% on the prior period(2005: £ 916,942). Operating expenses were £ 765,297 (2005: £ 665,810). The lossbefore tax amounted to £ 449,034 against a profit before tax of £ 303,122 for2005. The decrease in sales was the result of delays in the completion of someprojects and the deferral of several other major projects to 2007. As a resultof the delayed projects, additional resources had to be committed to bring theseprojects back on track. Higher costs were incurred which also contributed to theloss for 2006. On a more positive note, we are pleased to mention that some ofthese deferred projects have already begun and these should deliver improvedsales for the company in 2007. During the year, the Kenetics Innovations (Beijing) Co Limited subsidiary wasestablished to spearhead the Group's business in China. Start-up expensesrelating to the establishment of the subsidiary have contributed to the increasein operating expenses for the Group. Free cash at the end of the year was at £ 290,417 (2005: £ 167,372). Theincrease is due mainly to proceeds from the issue of ordinary shares of theCompany prior to the listing on AIM. As the Company is in an early stage of development, the Directors do not feel itappropriate to recommended payment of a dividend. Sales and Marketing As reported in the half-year results ended June 2006, two projects for our ODM(Original Design Manufacturer) customers were delayed and not completed asscheduled. In addition, a key ODM RFID project with Singapore's HousingDevelopment Board that we expected to be launched in 2006 was deferred to 2007.We are pleased to announce that this project, with a sales value of about £250,000, was secured by the Company's Singapore subsidiary in February 2007.Delivery began in March 2007 and it is expected that the project will becompleted within 12 calendar months. In addition, the anticipated projects inChina have also been revived and we are expecting the projects to begin in Q2 of2007. During the second half of 2006, we commenced the development of a newgeneration of product lines to meet market requirements. We are delighted toannounce that two of these products have been developed in collaboration withmajor global partners. One of these products is a RFID reader incorporatingIntel's new Integrated GEN2 Ultra High Frequency (UHF) R1000 Reader ChipPlatform. The product is expected to be ready for the market in the secondquarter of 2007. We believe that these collaborations will open up businessopportunities for the Company in Europe and the US and are expected to bringimmediate revenue opportunities in 2007 and further growth in 2008. We are optimistic that 2007 will bring greater sales revenues and opportunitiesfor the Company. We are currently exploring a number of different options toextend our European marketing and sales network, including the setting up of aEuropean sales office to manage our sales distribution channels. With the newrange of products and Kenetics' entry into the European and US markets the Boardis confident for the medium term business outlook. Operating Review It became apparent in 2006 that the Company needed to improve its managementstructure and operating procedures. During 2006, the Company did notsufficiently monitor the progress of several projects, which affected revenuegeneration and the profitability of the Company. Manpower turnover and the lackof experienced RF engineers had also contributed to the slow progress made inboth the development of new products and the completion of ODM projects. Despitethese challenges, several measures were implemented in 2006 to improveoperational efficiency. These include: • Putting in place a Project Management System to plan and monitor on-going projects • Intensifying recruitment efforts especially for capable technical staff • Tracking sales performance, retaining customers and monitoring project tender opportunities • Establishing financial procedures and practices for efficient use of resources • Improving production processes and controlling work in progress For 2007, the management will focus on the following operational actions: • Continue to recruit, retain and develop capable technical staff • Strengthen the middle management team • Accelerate the establishment of new distribution channels to improve revenue • Establish new partnerships to enhance and improve market opportunities • Build up the sales momentum and strengthen our relationships with key customers • Lower manufacturing costs through strategic outsourcing of certain manufacturing requirements to China • Implement operating practices to ensure timely deliveries • Co-ordinate global sales and marketing efforts to achieve operational efficiencies New Product Development A significant amount of resources were spent in the second half of 2006 todevelop a new range of products (GEN 2). The new high frequency (HF) productlines should open new market opportunities especially in Europe. Our newhandheld HF RFID reader was showcased recently in CEBIT 2007 (an internationalInformation and Communication Technology trade exhibition in Hanover that hadover 400,000 visitors), and has attracted significant interests especially forlogistics and library applications. Volume production and shipment of thishandheld reader is ongoing for a Japanese customer and it will be made availablein Europe by the second quarter of 2007. The first half of 2007 will also see the launch of our new GEN 2 Ultra HighFrequency (UHF) reader in the US. This UHF reader developed in collaborationwith Intel is expected to provide an important springboard into the vast USmarket. We are pleased to report that, with the launch of this UHF reader,Kenetics has the full capabilities to address various market needs andopportunities in the Asia Pacific region, Europe and the US. Outlook for 2007 We are confident that 2007 will bring in many new business opportunities for theGroup. With the launch of the new GEN 2 product lines and the establishment ofnew sales and distributing channels, the Board is confident that the outlookwill improve significantly in the medium term. Ken WongChairman, Kenetics Group Limited10th April 2007 CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2006 Group 2006 2005 Proforma £ £Continuing operations Revenue 316,176 916,942Other operating income 87 51,990Changes in inventories of finished goodsand work-in-progress 29,112 (7,092)Raw materials and consumables used (139,210) (261,345)Employee benefits expenses (382,398) (269,069)Depreciation of plant and equipment (49,605) (44,879)Other operating expenses (225,649) (83,679)Finance costs 2,453 254(Loss)/profit before tax (449,034) 303,122Income tax expenses - (55,639)(Loss)/profit for the year (449,034) 247,483 Attributable to:Equity holders of the company (446,414) 247,483Minority interests (2,620) - (449,034) 247,483 (Loss)/ Earnings per share (cents)- Basic and diluted (1.93) 2.20 BALANCE SHEETSAS AT 31 DECEMBER 2006 Group Company 2006 2005 2006 Proforma £ £ £ Non-Current Assets Plant and equipment 144,950 136,491 -Investment in subsidiaries - - 235,928Available for sale financial asset 138,861 - -Total non-current assets 283,811 136,491 235,928 Current Assets Contract work-in-progress 5,277 20,430 -Stocks and work-in-progress 155,114 38,887 -Trade receivables 101,159 181,771 -Other receivables 65,644 93,606 240,782Cash and cash equivalents 375,751 255,312 154,044 Total current assets 702,945 590,006 394,826 Total assets 986,756 726,497 630,754 Equity Share capital 263,495 152,944 263,495Share premium 280,204 - 280,204Share application - 4,146 -Share option reserve 26,481 - 26,481Merger reserve 369,579 - -Foreign currency translation reserve (17,649) 10,774 -(Accumulated losses)/ Retained profits (205,556) 240,858 5,945Total equity 716,554 408,722 576,125 Non-Current Liabilities Amount owing to director 47,977 - -Obligations under finance leases 5,758 11,342 -Total non-current liabilities 53,735 11,342 - Current liabilities Excess of progress billings over contract work-in-progress 33,554 24,140 -Trade payables 31,633 95,510 -Other payables 136,506 41,356 54,629Amount owing to directors 9,710 88,246 -Obligations under finance leases 5,064 5,039 -Provision for taxation - 52,142 -Total current liabilities 216,467 306,433 54,629 Total liabilities 270,202 317,775 54,629Total equity and liabilities 986,756 726,497 630,754 KENETICS GROUP LIMITED (Incorporated in Jersey) STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006 Attributable to Equity Holders of the Company Foreign Retained Share Currency Profits/ Share Share Share Option Merger Translation (Accumulated Minority Capital Premium Application Reserve Reserve Reserve Losses) Subtotal Interest Total £ £ £ £ £ £ £ £ £ £ Balance as at 1/1/05 *(Proforma) 152,944 - 2,936 - - - 70,347 226,227 - 226,227 Additional share application - - 1,210 - - - - 1,210 - 1,210 Currencytranslation differences - - - - - 10,774 - 10,774 - 10,774 Dividend paid - - - - - - (76,972) (76,972) - (76,972) Net profit for the year - - - - - - 247,483 247,483 - 247,483 Balance as at 31/12/05(Proforma)152,944 - 4,146 - - 10,774 240,858 408,722 - 408,722 Movementarising fromRestructuringExercise Increase in paid up capitalby a sub-sidiary 449,939 - - - - - - 449,939 - 449,939 Refund of shareapplicationmonies of subsidiary - - (1,522) - - - - (1,522) - (1,522) Adjustmentarising fromRestruct-uring Exercise #(366,955) - (2,624) - 369,579 - - - - - Sub-total 82,984 - (4,146) - 369,579 - - 448,417 - 448,417 Currencytranslationdifferences - - - - - (28,423) - (28,423) - (28,423) Issue of newshares inconnection withthe AIM listing 27,567 799,433 - - - - - 827,000 - 827,000 AIM listing expenses - (519,229) - - - - - (519,229) - (519,229) Share option granted - - - 26,481 - - - 26,481 - 26,481 Net loss for the year - - - - - - (446,414) (446,414) (2,620) (449,034) Incorporation of a subsidiary - - - - - - - - 2,620 2,620 Balance as at 31/12/06 263,495 280,204 - 26,481 369,579 (17,649) (205,556) 716,554 - 716,554 * The share capital, share application monies and retained profits represent theshare capital, share application monies and retained profits of the subsidiaryprior to the Restructuring Exercise. # The adjustment arising from the Restructuring Exercise represents the excessof the nominal value of shares acquired by the Company over the nominal value ofshares issued by the Company in exchange for those shares, accounted for usingmerger accounting. CONSOLIDATED CASH FLOWS STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Group 2006 2005 Proforma £ £Cash Flow From Operating Activities (Loss)/ Profit before taxation (449,034) 303,122Adjustments for:Depreciation 49,605 44,879Interest received (3,123) (1,134)Operating profit before working capital changes (402,552) 346,867 Decrease in contract work-in-progress/ Excess of progressbillings over contract work-in-progress 24,738 -Decrease/ (Increase) in trade and other receivables 98,885 (39,892)(Increase) in inventories (118,010) (11,206)Increase/ (Decrease) in trade and other payables 37,548 (94,036)Cash generated used in operations (359,391) 201,733 Income tax paid (52,688) (11,755) Net cash flows used in operating activities (412,079) 189,978 Cash Flows from Investing Activities Purchase of unquoted shares (138,861) -Purchase of plant and equipment (64,321) (37,289)Capital contribution from minority interests 2,620 -Interest received 3,123 1,134Net cash flows used in investing activities (197,439) (36,155) Cash Flows from Financing Activities Loan to director (26,513) (14,402)Proceed from issue of ordinary shares of holding company 827,000 -Proceed from issue of ordinary shares of subsidiary 449,939 -Payment of trust receipts - (78,750)Payment of AIM listing expenses (492,748) -Receipt of share application monies - 1,242 Payment of dividend (1,522) (76,972)Difference of fixed deposit balance due to accumulation ofinterest (1,426) (689)Loan from hire purchase creditor (4,808) -Net cash flows from financing activities 749,922 (169,571) Net increase in cash and cash equivalents 140,404 (15,748) Effect of exchange rate changes (17,359) 15,532Cash and cash equivalents at beginning of year 167,372 167,588 Cash and cash equivalents at end of year 290,417 167,372 1. Abbreviated notes to the financial statements Accounting policies Financial information The preliminary results were approved by the Board of Directors on 10 April2007. The financial information set out above does not comprise the Company'sstatutory accounts for the year ended 31 December 2006, but is derived fromthose accounts. The auditors have yet to sign their report on the 2006accounts. The statutory accounts for the year ended 31 December 2006 will befinalized on the basis of the financial information presented by the Directorsin this preliminary announcement. Exchange Rates The financial statements of the Group are presented in Sterling Pounds, which isthe Company's functional currency. The functional currencies of KeneticsInnovations Pte Ltd and Kenetics Innovations (Beijing) Co Ltd are in SingaporeDollars and Renminbi respectively. The following exchange rates have been usedin preparing the financial statements as at 31 December 2006: SGD 1 = £0.33300RMB 1 = £0.06549 Basis of preparation These preliminary results have been prepared in accordance with the accountingpolicies normally adopted by the Company which are consistent with those adoptedin the Accountants' Report. These preliminary results have also been preparedin accordance with International Financial Reporting Standards and preparedunder the historical cost convention. Basis of consolidation For the purpose of the Company's listing on AIM, the Company undertook aRestructuring Exercise. The Group Restructuring has been accounted for usingmerger accounting as it involved combinations of entities under common control.Accordingly, the Group's consolidated figures for the years ended 31 December2005 and 2006 have been prepared as if the Group had been in existence prior tothe Group Restructuring Exercise. The consolidated results of the Group havebeen accounted for since 1 January 2005. The assets and liabilities are broughtinto the consolidated balance sheet at their existing carrying amounts. Thecomparative figures of the Group represent the combined results, state ofaffairs, changes in equity and cash flows of the Group pursuant to theRestructuring Exercise has existed since 1 January 2005. Subsidiaries Subsidiaries are entities (including special purpose entities) over which theGroup has power to govern the financial and operating policies, generallyaccompanying a shareholding of more than one half of the voting rights. Theexistence and effect of potential voting rights that are currently exercisableor convertible are considered when assessing whether the Group controls anotherentity. Subsidiaries are consolidated from the date on which control is transferred tothe Group. They are de-consolidated from the date on which control ceases. Inpreparing the consolidated financial statements, transactions, balances andunrealised gains on transactions between group companies are eliminated.Unrealised losses are also eliminated but considered an impairment indicator ofthe asset transferred. Accounting policies of subsidiaries have been changedwhere necessary to ensure consistency with the policies adopted by the Group. Minority interests are that part of the net results of operations and of netassets of a subsidiary attributable to interests which are not owned directly orindirectly by the Group. It is measured at the minorities' share of the fairvalue of the subsidiaries' identifiable assets and liabilities at the date ofacquisition by the Group and the minorities' share of changes in equity sincethe date of acquisition, except when the losses applicable to the minorityinterests in a subsidiary exceed the minority interests in the equity of thatsubsidiary. In such cases, the excess and further losses applicable to theminority interests are attributed to the equity holders of the Company, unlessthe minority interests have a binding obligation to, and are able to, make goodthe losses. When that subsidiary subsequently reports profits, the profitsapplicable to the minority interests are attributed to the equity holders of theCompany until the minority interests' share of losses previously absorbed by theequity holders of the Company have been recovered. Plant and Equipment Measurement (i) Plant and equipment All items of plant and equipment are initially recognised at cost andsubsequently carried at cost less accumulated depreciation and accumulatedimpairment losses. (ii) Components of costs The cost of an item of plant and equipment includes its purchase price and anycost that is directly attributable to bringing the asset to the location andcondition necessary for it to be capable of operating in the manner intended bythe management. The projected cost of dismantlement, removal or restoration isalso included as part of the cost of plant and equipment if the obligation forthe dismantlement, removal or restoration is incurred as a consequence ofacquiring or using the asset. Depreciation Depreciation on items of plant and equipment is calculated using thestraight-line method to allocate their depreciable amounts over their estimateduseful lives as follows: Useful livesComputers 3 yearsFurniture and Fittings 5 yearsTools and Equipment 5 yearsRenovation 5 years The residual values and useful lives of plant and equipment are reviewed, andadjusted as appropriate, at each balance sheet date. The effects of any revisionof the residual values and useful lives are included in the income statement forthe financial year in which the changes arise. Subsequent expenditure Subsequent expenditure relating to plant and equipment that has already beenrecognized is added to the carrying amount of the asset only when it is probablethat future economic benefits associated with the item will flow to the Groupand the cost of the item can be measured reliably. Other subsequent expenditureis recognised as repair and maintenance expense in the income statement duringthe financial year in which it is incurred. Disposal On disposal of an item of plant and equipment, the difference between the netdisposal proceeds and its carrying amount is taken to the income statement. Financial Assets Classification The Group classifies its financial assets in the following categories: at fairvalue through profit or loss, loans and receivables, held-to-maturity, andavailable for sale. The classification depends on the purpose for which theassets were acquired. Management determines the classification of its financialassets at initial recognition and re-evaluates this designation at everyreporting date. The designation of financial assets at fair value through profitor loss is irrevocable. (i) Loan and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They are includedin current assets, except those maturing later than 12 months after the balancesheet date which are classified as non-current assets. Loans and receivables areclassified within " trade and other receivables " and "cash and cash equivalents" on the balance sheet. (ii) Financial assets, available-for-sale Financial assets, available-for-sale are non-derivatives that are eitherdesignated in this category or not classified in any of the other categories.They are included in non-current assets unless management intends to dispose ofthe assets within 12 months after the balance sheet date. Recognition and derecognition Regular purchases and sales of financial assets are recognised on trade-date -the date on which the Group commits to purchase or sell the asset. Financialassets are derecognised when the rights to receive cash flows from the financialassets have expired or have been transferred and the Group has transferredsubstantially all risks and rewards of ownership. On sale of a financial asset, the difference between the net sale proceeds andits carrying amount is taken to the income statement. Any amount in the fairvalue reserve relating to that asset is also taken to the income statement. Initial measurement Financial assets are initially recognised at fair value plus transaction costsexcept for financial assets at fair value through profit or loss, which arerecognised at fair value. Transaction costs for financial assets at fair valuethrough profit and loss are recognised in the income statement. Subsequent measurement Financial assets, available-for-sale and at fair value through profit or lossare subsequently carried at fair value. Investments in equity instruments thatdo not have a quoted market price in an active market and the fair value cannotbe reliably measured shall be measured at cost. Loans and receivables andfinancial assets, held-to-maturity are carried at amortised cost using theeffective interest method. Changes in the fair value of monetary assets denominated in a foreign currencyand classified as available-for-sale are analysed into translation differencesresulting from changes in amortised cost of the asset and other changes. Thetranslation differences are recognised in the income statement, and otherchanges are recognised in the fair value reserve within equity. Changes in fairvalues of other monetary and non-monetary assets that are classified asavailable-for-sale are recognised in the fair value reserve within equity. Interest on financial assets, available-for-sale, calculated using the effectiveinterest method, is recognised in the income statement. Dividends onavailable-for-sale equity securities are recognised in the income statement whenthe Group's right to receive payment is established. When financial assetsclassified as available-for-sale are sold or impaired, the accumulated fairvalue adjustments are recognised in the fair value reserve within equity areincluded in the income statement as "gains and losses from investment securities". Impairment The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. (i) Loans and receivables An allowance for impairment of loans and receivables, including trade and otherreceivables, is recognised when there is objective evidence that the Group willnot be able to collect all amounts due according to the original terms of thereceivables. Significant financial difficulties of the debtor, probability thatthe debtor will enter bankruptcy or financial reorganisation, and default ordelinquency in payments are considered indicators that the receivable isimpaired. The amount of the allowance is the difference between the asset'scarrying amount and the present value of estimated future cash flows, discountedat the original effective interest rate. The amount of the allowance forimpairment is recognised in the income statement within "Other operatingexpenses". (ii) Financial assets, available-for-sale In the case of an equity classified as available-for-sale, a significant orprolonged decline in the fair value of the security below its cost is consideredan indicator that the security is impaired. When there is objective evidence that an available-for-sale financial asset isimpaired, the cumulative loss that has been recognised directly in the fairvalue reserve is removed from the fair value reserve within equity andrecognised in the income statement. The cumulative loss is measured as thedifference between the acquisition cost (net of any principal repayments andamortisation) and the current fair value, less any impairment loss on thatfinancial asset previously recognised in income statement. Impairment losses recognised in the income statement on equity instrumentsclassified as available-for-sale financial assets are not reversed through theincome statement. Inventories Inventories are stated at the lower of cost and net realisable value afteradequate allowance has been made for deteriorated, damaged, obsolete orslow-moving inventories on the weighted average basis. Cost includes all costsof purchase and other costs incurred in bringing the inventories to theirpresent location and condition. In the case of finished goods and work-in-progress, cost includes directmaterials, direct labour and allocation of related production overheads. Net realisable value represents the estimated selling price less all estimatedcosts to completion and costs to be incurred in marketing, packing anddistribution. Contracts Profit on contract with completion dates extending over more than one financialyear are brought to account using the percentage of completion method, thepercentage used being the proportion of costs incurred at the balance sheet dateto estimated total cost. Losses are taken to the income statement in the periodin which they are identified. Cash and Cash Equivalents Cash and cash equivalents comprise cash in hand, cash at bank and fixeddeposits, which are subject to insignificant risks of changes in value. Cashequivalents are stated at amounts at which they are convertible into cash. Trade and Other Payables Trade and other payables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method. Income Taxes Current income tax liabilities (and assets) for current and prior periods arerecognised at the amounts expected to be paid to (or recovered from) the taxauthorities, using the tax rates (and tax laws) that have been enacted orsubstantially enacted by the balance sheet date. Deferred income tax assets/liabilities are recognised for all deductible taxabletemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the financial statements except when the deferredincome tax assets/liabilities arise from the initial recognition of an asset orliability in a transaction that is not a business combination and at the time ofthe transaction, affects neither accounting nor taxable profit or loss. Deferred income tax liability is recognised on temporary differences arising oninvestments in subsidiaries, except where the Group is able to control thetiming of the reversal of the temporary difference and it is probable that thetemporary differences will not reverse in the foreseeable future. Deferred income tax asset is recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred income tax assets and liabilities are measured at: (i) the tax rates that are expected to apply when the related deferredincome tax assets are realised or deferred income tax liability is settled,based on tax rates (and tax laws) that have been enacted or substantiallyenacted by the balance sheet date; and (ii) the tax consequence that would follow from the manner in which theGroup expects, at the balance sheet date, to recover or settle the carryingamounts of its assets and liabilities. Current and deferred income tax are recognised as income or expenses in theincome statement for the period, except to the extent that the tax arises from abusiness combination or a transaction which is recognised directly in theequity. Currency translation (a) Functional and presentation currency Items included in the financial statements of each entity in the Group aremeasured using the currency of the primary economic environment in which theentity operates ("functional currency"). The financial statements are presentedin Sterling Pounds, which is the Company's functional currency. The figurespresented in the financial statements are rounded to the nearest SterlingPounds. (b) Transactions and balances Transactions in a currency other than the functional currency ("foreign currency") are translated into the functional currency using the exchange ratesprevailing at the dates of the transactions. Currency translation gains andlosses resulting from the settlement of such transactions and from thetranslation of monetary assets and liabilities denominated in foreign currenciesat the closing rates at the balance sheet date are recognised in the incomestatement, except for currency translation differences on the net investment inforeign operations, borrowings in foreign currencies and other currencyinstruments qualifying as net investment hedges for foreign operations, whichare included in the currency translation reserve within equity in theconsolidated financial statements. (c) Translation of Group entities' financial statements The results and financial position of all the group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency as follows: (i) Assets and liabilities are translated at the closing ratesat the date of the balance sheet; (ii) Income and expenses are translated at average exchangerates (unless the average is not a reasonable approximation of the cumulativeeffect of the rates prevailing on the transaction dates, in which case incomeand expenses are translated using the exchange rates at the dates of thetransactions); and (iii) All resulting exchange differences are taken to thecurrency translation reserve within equity. Revenue Recognition (a) Sales of goods Revenue from sale of good is recognised upon delivery of the goods andacceptance by the customer. (b) Interest income Interest income is recognised on a time-proportion basis, using the effectiveinterest method, unless collectibility is in doubt. Employee Benefits (a) Defined contribution plans As required by the law, the Group makes contributions to the state providentfunds of the respective countries. Such contributions are recognised ascompensation expenses in the same period as the employment that gave rise to thecontributions. (b) Short-term compensated absences Employees entitlements to annual leave are recognised when they accrue toemployees. A provision is made for the estimated liability for employeeentitlements to annual leave as a result of services rendered by employees up tothe balance sheet date. Impairment of non-financial assets Plant and equipment Investment in subsidiaries Plant and equipment and investments in subsidiaries are reviewed for impairmentwhenever there is any indication that these assets may be impaired. If any suchindication exists, the recoverable amount (ie. the higher of the fair value lesscost to sell and the value-in-use) of the asset is estimated to determine theamount of impairment loss. For the purpose of impairment testing of these assets, recoverable amount isdetermined on an individual asset basis unless the asset does not generate cashflows that are largely independent of those from other assets. If this is thecase, recoverable amount is determined for the CGU to which the asset belongs. If the recoverable amount of the asset (or CGU) is estimated to be less than itscarrying amount, the carrying amount of the asset (or CGU) is reduced to itsrecoverable amount. The impairment loss is recognised in the income statement unless the asset iscarried at revalued amount, in which case, such impairment loss is treated as arevaluation decrease. An impairment loss for an asset other than goodwill is reversed if, and only if,there has been a change in the estimates used to determine the asset'srecoverable amount since the last impairment loss was recognised. The carryingamount of an asset other than goodwill is increased to its revised recoverableamount, provided that this amount does not exceed the carrying amount that wouldhave been determined (net of amortisation or depreciation) had no impairmentloss been recognised for the asset in prior years. A reversal of impairmentloss for an asset other than goodwill is recognised in the income statementunless the asset is carried at revalued amount, in which case, such reversal istreated as a revaluation increase. However, to the extent that an impairmentloss on the same revalued asset was previously recognised in the incomestatement, a reversal of that impairment is also recognised in the incomestatement. Provisions Provisions are recognised when the Group has a present legal or constructiveobligation as a result of past events, it is probable that an outflow ofresources will be required to settle the obligation, and a reliable estimate ofthe amount can be made. Leases (a) Finance leases Leases which effectively transfer to the Group substantially all the risks andbenefits incidental to ownership of the leased item are classified as financeleases. When the Group is the lessee, property, plant and equipment acquired byway of finance leases are capitalised at an amount equal to the lower of itsfair value and the present value minimum lease payments at the inception of thelease, less accumulated depreciation and any impairment losses. Lease paymentsare apportioned between the finance charges and reduction of the lease liabilityso as to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged to the income statement. If there is no reasonable certainty that the lessee will obtain ownership by theend of the lease term, the capitalised leased asset is depreciated over theshorter of the estimated useful life of the asset and the lease term. (b) Operating leases Leases whereby the lessor effectively retains substantially all the risks andbenefits of ownership of the leased item are classified as operating leases. When the Group is the lessee, operating lease payments are recognised as anexpense in the income statement on a straight line basis over the lease term. Research and development costs Costs associated with research activities are expensed as they occur. During theyear, the research and development costs incurred were charged to the incomestatement. Borrowing costs Borrowing costs, interest paid on finance leases, are recognised as expenses inthe period in which they are incurred. Related parties Related parties are entities with common direct or indirect shareholders ordirectors. Or, parties are considered to be related if one party has the abilityto control the other party or exercise significant influence over the otherparty in making financial and operation decisions. Investment in subsidiaries Investments in subsidiaries are stated at cost less accumulated impairmentlosses in the Company's balance sheet. On disposal of investments insubsidiaries, the difference between net disposal proceeds and the carryingamounts of the investments are taken to the income statement. 2) (Loss)/Earnings per share Basic (loss)/earnings per share has been calculated by dividing the net lossattributable to the equity holders of the Company of £446,414 (2005: profitattributable to the equity holders of the Company of £247,483) by the weightedaverage number of ordinary shares outstanding during the financial year of23,125,500 (2005: 11,252,500). The number of ordinary shares used for the calculation of basic (loss)/earningsper share in 2005 and 2006 where merger accounting is applied, is based on thecontributed capital of Kenetics Innovations Pte Ltd, adjusted to equivalentshares of the Company whose shares are outstanding after the combination. 3) Segment Reporting Business Segments For management purposes, the Group is currently organized into three operatingdivisions - Original Design Manufacturer ("ODM"), Industrial System andIndustrial Products. These divisions are the basis on which the Group reportsits primary information. Group 2006 2005 £ £Segment revenueODM 46,396 141,065Industrial systems - 551,400Industrial products 269,780 224,477 316,176 916,942 Segment resultsODM (128,840) 11,284Industrial systems - 311,023Industrial products 152,930 119,210 24,090 441,517Unallocated corporate expenses (475,664) (190,639)Other operating income 87 51,990Finance costs 2,453 254(Loss)/Profit before taxation (449,034) 303,122Income tax expenses - (55,639)(Loss)/Profit after taxation (449,034) 247,483 Unallocated capital expenditure 64,321 53,669Unallocated depreciation 49,605 44,879 Segment assetsODM 54,109 28,257Industrial systems 42,817 142,431Industrial products 205,529 31,514Unallocated corporate assets 684,301 524,295Total assets 986,756 726,497 Segment liabilitiesODM 46,850 32,568Industrial systems - 84,688Industrial products 22,105 2,394Unallocated corporate liabilities 201,247 198,125Total liabilities 270,202 317,775 Segment revenue by location ofcustomersPeople's Republic of China 4,368 19,751Asia Pacific 249,085 854,887Europe 62,152 42,304Others 571 - 316,176 916,942 Capital expenditure by geographical location of assetsPeople's Republic of China 6,135 -Asia Pacific 58,186 53,669 64,321 53,669 Segment assets by geographical location of assetsPeople's Republic of China 35,905 19,751Asia Pacific 946,348 689,607Europe 4,503 17,139 986,756 726,497 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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