2nd May 2008 16:23
Kenetics Group Limited02 May 2008 Kenetics Group Limited ("Kenetics" or the "Group" or the "Company") Preliminary Results for the Year Ended 31 December 2007 Kenetics Group Limited ("Kenetics" or the "Group" or the "Company"), the RadioFrequency Identification ("RFID") Group focused on Security and RFID systems andproducts, announces the Preliminary Results for the year ended 31 December 2007. Period Highlights • Sales revenue increased by 121% to £699,768 (2006: £316,176). Sale of industrial products amounted to £694,500 as compared to £269,780 in the previous year, representing an increase of £424,720 (157%). • Reduction in pre-tax losses to £433,084, including a write-down due to impairment loss in an investment of £122,159 in 2007 (2006: Pre-tax loss of £449,034). Without this impairment loss, the pre-tax loss would have been £310,925, which represents a 31% reduction over the previous year. • Significant investments in research and development ("R&D") and product development resulting in the successful development of a range of High Frequency ("HF") and Ultra High Frequency ("UHF") GEN2 products to replace older existing products. • A partnership with Intel expedited the development of a new Kenetics UHF Technology platform based on Intel's new R1000 RFID chip, opening up markets in US and Europe. • Enlarged global sales network and improved customer support provided the platform for increased sales revenue. • Recruited and retained a team of skilled R&D engineers to form the backbone for the development of core technologies and new products • Structural changes were implemented to improve operational efficiencies and controlling operating costs. Commenting on the Preliminary Results, Ken Wong, Chairman of Kenetics said: "2007 has shown a marked improvement in sales revenue over the previous year.With the implementation of several structural changes, we are beginning to seeour efforts bearing fruit. Sales revenue has more than doubled and the operatingloss before an impairment charge was reduced by a third. The substantialinvestments in R&D and product development have resulted in a range of new RFIDGEN2 products that will be rigorously marketed in 2008. The new UHF platformdeveloped by Kenetics based on Intel's R1000 RFID chip is expected to open thesubstantial US UHF market for Kenetics. With the new products and backed by thesupport from our distribution channels, our focus for 2008 will be placed onexpanding our Europe and US markets, increasing market share, strengthening ourSales team and further developing our distribution networks. With our clearstrategy in place, we are confident that further progress will continue into2008 and that the Group is in a strong position to seize the opportunities togrow the business." Contact : Ken WongKenetics Group LimitedTel: +65 9616 6883Website: www.kenetics-group.com Graeme ThomZimmerman Adams International LtdTel: + 44 (0) 20 7060 1760Website: www.zimmit.com Chairman's Statement Review of Operations One of the major focuses for 2007 was to re-organise the Company and itssubsidiaries with the objective of overcoming the structural deficiencies andthereby prepare Kenetics for sustainable growth and profitably as a publiclisted company. Taking this to heart, Kenetics have identified major areas forimprovements among which are the development of a new generation of products ("GEN2") to replace the existing product lines which had been in existence since2001, recruit and develop a core team of highly-skilled technical staff, and toexpand the marketing and distribution networks for greater sales revenue. I ampleased to report that while it takes time to fulfill these objectives, we aremaking good progress on all these fronts, forming the foundation for the futuregrowth. Financial Results Group sales in 2007 were £699,768, an increase of 121% on the previous year(2006: £316,176), brought about by very significant improvements in IndustrialProduct sales. In delivering on our strategy of reducing reliance on theOriginal Design Manufacturers ("ODM") and Systems business that had previouslybrought about great fluctuations in sales revenue, new products were introducedin the second half of 2007 to complement the range of existing products thathave been in the market for the past few years. With the product sales expectedto increase over the next few years, we should be on track for a more balancedand even revenue growth between ODM project business and Industrial Productsales. Operating expenses in 2007 were £1,182,456 (2006: £765,297), with a substantialelement being invested in research and development ("R&D") and productdevelopment. The loss before tax amounted to £433,084 (2006: £449,034) a reduction of 4%,despite a write-down due to impairment loss (£122,159) relating to an investmentmade prior to the Company's admission to the AIM Market of the London StockExchange. Without this impairment loss, the loss before tax from its businesswould have been £310,925, a reduction of 31% over the prior year. Sales and Marketing The priority for Kenetics for 2007 was for sales growth and capturing marketshare. Following closely to the long-term strategy of giving equal emphasis toODM projects and sales of industrial products, the Company implemented a seriesof actions to bring this about. 1) Developing New Generation ("GEN2") Industrial Products Some of the products that have been developed in the past, are moving graduallytowards obsolescence as new Global Radio Frequency Identification ("RFID")standards are introduced. Coupled with new competitors entering into the market,such products have become more price-sensitive with a gradual erosion of marginsin a wide range of first generation ("GEN1") products. This move is critical asit allows Kenetics to maintain its competitive advantage and to tap on a growingearly user market where margins are higher. In the longer term, this strategyallows the Company to offset any potential shortfall in sales from industrialproducts or more importantly, a hollowing out of its Industrial Product sales. 2) Developing New Ultra High Frequency ("UHF") Technology Platform It was becoming more apparent that while there is some demand for High Frequency("HF") products in the USA, the market preference is essentially towards the useof Ultra High Frequency ("UHF") products for logistics and pharmaceuticalindustries as examples. Without UHF products in the past, Kenetics was not ableto effectively tap into the substantial US market. Taking full advantage of itspartnership with Intel, the leading international chip manufacturer, Keneticsembarked on the development of a new UHF GEN2 technology platform from which itcan launch a series of new UHF industrial products. To date, Kenetics hadintroduced two of these products and a third will be launched during the firsthalf of 2008. 3) Increasing Product Visibility and Branding In 2007, our partners exhibited Kenetics products in 3 shows in Hanover,Germany, Birmingham, UK and Dallas, USA. Response to our products wasencouraging but the impact on potential customers was generally small as only ahandful of Kenetics products were displayed along with those of our partners. Itwas felt that without its own presence at these shows, Kenetics' branding andproduct visibility could not be achieved. Nevertheless, the exposure in thesedifferent geographical exhibitions has provided us with useful feedback oncustomers' preferences and requirements. This has led us to develop a marketingstrategy to gain more market exposures through direct participation at selectiveexhibitions where connectivity to targeted customers are expected to be high.Our marketing plans have been finalised and these initiatives will beimplemented in 2008. Research and Development In addition to new product development to replace the older products, weremained focused in investing in R&D to maintain our position as one of theleading players in the RFID industry. This has enabled Kenetics to put what webelieve to be the most advanced products into the market, targeting specificniche customers, avoiding price-sensitive and lower margin markets. To expand our outreach beyond Asia, the Group has placed special emphasis on R&Dfor a new UHF Technology platform, which has been predominantly adopted as theRFID platform of most applications in the USA. On this front, we are proud to beone of the original group of partners worldwide selected by Intel to develop UHFreaders based on its new integrated GEN2 RFID reader chip. The chip wasofficially launched in Dallas in March 2007, together with Kenetics' long rangeGEN2 UHF reader. One of the unique product features introduced by Kenetics is amore compact and smaller footprint coupled with its long reading distance andcompetitive pricing. As a result of this product introduction, several potentialcustomers have requested product prototypes for evaluation before adoption. Based on this new technology platform, Kenetics will be poised to developproducts that will meet a wider range of applications and functionalitiesdemanded by the market. With multiple products offered, Kenetics can expect togain wider acceptance in the US, an increase of share of the vast UHF market andcater to the needs of the existing and emerging market needs. Employees Despite a very tight labour market in Singapore, higher wages and increasingcompetition for highly skilled and capable technical staff, we are pleased toreport that Kenetics have a strong R&D team in place to bring about innovationsand new products into the market. I am grateful for the team's dedication andhard work during the year. Their intense energy and late nights have enabledKenetics to successfully develop an impressive range of technologies andproducts that the Group will fully exploit in the years ahead. I am confidentthat their commitment and motivation will continue into 2008 as we work towardsmaintaining our technological leadership and market expansion. Outlook for 2008 We are beginning to see a positive upturn in our business that was reflected ina strong fourth quarter of 2007. We are confident that the progress made willcontinue into 2008 as our new GEN2 products enter into the market. For 2008, theGroup will be participating selectively in key RFID shows, notably in USA,Europe and Japan. Coupled with our efforts to rapidly increase our distributionchannels especially in Europe and the USA, we can expect to grow our industrialproducts business rapidly to complement our ODM business. On the ODM project front, we have been maintaining strong customer support andservice, which has helped us to keep close track on customers needs. A number ofsignificant projects are in the pipeline for 2008 and Kenetics is ready to seizethese opportunities. These projects are expected to roll out in 2008 and somewill stretch over to 2009 and beyond. With the building of a strong customer and distribution channel relationship,greater marketing efforts in Europe and the USA, a new range of GEN2 products,together with encouraging projects on offer, Kenetics is expected to benefitsignificantly in 2008 and the years ahead. We expect further improvements over2007 and a turnaround for the Group. Ken WongChairmanKenetics Group Limited KENETICS GROUP LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 2007 2006 £ £Continuing operations Revenue 699,768 316,176Other operating income 49,604 87Changes in inventories of finished goodsand work-in-progress 80,075 29,112Raw materials and consumables used (408,045) (139,210)Employee benefits expenses (491,594) (382,398)Depreciation of plant and equipment (59,578) (49,605)Other operating expenses (301,405) (225,649)Finance costs (1,909) 2,453Loss before tax (433,084) (449,034)Income tax 6,217 -Loss for the year (426,867) (449,034) Attributable to:Equity holders of the Company (426,867) (446,414)Minority interests - (2,620) (426,867) (449,034) Loss per share (pence)- Basic and diluted (1.62) (1.93) KENETICS GROUP LIMITED BALANCE SHEET AS AT 31 DECEMBER 2007 2007 2006 £ £ Non-Current Assets Plant and equipments 143,437 144,950Investment in subsidiaries - -Available for sale financial asset 22,332 138,861Total non-current assets 165,769 283,811 Current Assets Contract work-in-progress - 5,277Inventories 236,610 155,114Trade receivables 139,226 101,159Other receivables 31,774 65,644Cash and cash equivalents 172,865 375,751 Total current assets 580,475 702,945 Total assets 746,244 986,756 Equity Share capital 263,495 263,495Share premium 280,204 280,204Share option reserve 27,411 26,481Merger reserve 369,579 369,579Foreign currency translation reserve (26,514) (17,649)(Accumulated losses)/ Retained profits (632,423) (205,556)Total equity 281,752 716,554 Non-Current LiabilitiesAmount owing to director - 47,977Obligations under finance leases 457 5,758Total non-current liabilities 457 53,735 Current liabilitiesExcess of progress billings overcontract work-in-progress - 33,554Trade payables 146,521 31,633Other payables 138,225 136,506Amount owing to directors 51,447 9,710Obligations under finance leases 5,535 5,064Bank overdraft - secured 122,307 -Total current liabilities 464,035 216,467 Total liabilities 464,492 270,202Total equity and liabilities 746,244 986,756 KENETICS GROUP LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 2007 2006 £ £ Cash Flow From Operating Activities Loss before taxation (433,084) (449,034)Adjustments for:Depreciation 59,578 49,605Impairment loss 122,159 -Plant and equipment written off 266 -Provision for inventory obsolescene 9,654 -Share option 930 -Interest received (1,579) (3,123)Interest paid 3,488 670 Operating loss before working capital changes (238,588) (401,882) (Increase)/decrease in contract work-in-progress/Excess of progress billings over contractwork-in-progress (29,424) 24,738Decrease in trade and other receivables 2,632 98,885Increase in inventories (84,376) (118,010)Increase in trade and other payables 105,937 37,548Cash used in operations (243,819) (358,721) Interest paid (3,488) (670) Income tax refunded/(paid) 6,378 (52,688) Net cash flows used in operating activities (240,929) (412,079) Cash Flows from Investing Activities Purchase of unquoted shares - (138,861)Purchase of plant and equipment (56,392) (64,321)Capital contribution from minority interests - 2,620Interest received 1,579 3,123Net cash flows used in investing activities (54,813) (197,439) Cash Flows from Financing Activities Loan to director (8,579) (26,513)Proceed from issue of ordinary shares of holdingcompany - 827,000Proceed from issue of ordinary shares of subsidiary - 449,939Payment of AIM admission expenses - (492,748)Payment of dividend - (1,522)Difference of fixed deposit balance due toaccumulation of interest (1,603) (1,426)Loan from hire purchase creditor (5,269) (4,808)Net cash flows (used in)/generated from financingactivities (15,451) 749,922 KENETICS GROUP LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 2007 2006 £ £ Net (decrease)/increase in cash and cash equivalents (311,193) 140,404Effect of exchange rate changes (19,062) (17,359)Cash and cash equivalents at beginning of year 290,417 167,372 Cash and cash equivalents at end of year (39,838) 290,417 Abbreviated notes to the financial statements 1. Financial information The preliminary results were approved by the Board of Directors on 30 April2008. The financial information set out above does not comprise the Company'sstatutory financial statements for the years ended 31 December 2007 and 2006,but is derived from those financial statements. The auditors have reported onthe statutory financial statements for the years ended 31 December 2007 and2006; their report was unqualified. 2. Exchange rates The financial statements of the Group are presented in Pound Sterling ("£")which is the Company's functional currency. The functional currencies ofKenetics Innovations Pte Ltd and Kenetics Innovations (Beijing) Co Ltd areSingapore Dollars ("S$") and Renminbi ("RMB") respectively. The followingexchange rates have been used in preparing the financial statements as at 31December 2007: S$1 = £ RMB1 = £31 December 2007 0.3465 0.06868Average rates 0.3319 0.06582 3. Basis of preparation These preliminary results have been prepared in accordance with theaccounting policies adopted by the Company which are consistent with thoseadopted in annual report and accounts for the period ended 31 December 2006.These preliminary results have also been prepared in accordance withInternational Financial Reporting Standards. 4. Loss per share Basic loss per share has been calculated by dividing the net lossattributable to equity holders of the Company of £426,867 (2006: £446,414) bythe weighted average number of ordinary shares outstanding during the financialyear of 26,349,466 (2006: 23,125,500). The number of ordinary shares used for the calculation of basic loss pershare in 2007 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. 5. Income tax The income tax credit attributable to the loss of £6,217 (2006: Nil) ismade up of over-provision of tax provision in prior year. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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