28th Jun 2007 07:01
Accsys Technologies PLC28 June 2007 28th June 2007 AiM: AXS Accsys Technologies PLC ("Accsys" or "the Company") PRELIMINARY RESULTS FOR THE 12 MONTHS ENDED 31 MARCH 2007 (audited) Highlights • Successful construction, commissioning and start up of 30,000 cubic metre commercial AccoyaTM wood production plant in Arnhem • Demand for production capacity for current year and beyond, with trading agreements in place • Large order for AccoyaTM to be used to construct heavy-traffic road bridges, confirms a major new global market opportunity • Immediate plans to double capacity of the Arnhem facility to 60,000 m3 by mid 2009 • Strategic Partnership with Celanese Corporation, including 5.5% equity investment and twenty year long term supply agreement • Licence agency agreement signed with Skanfore S.A., for 500,000 cubic metres capacity giving €10 million upfront licence revenue • Expectations of additional licence options and agreements and confidence of profitability in current financial year • Investment in the business resulted in a loss of €22.6m (2006: €5.0m) after impairment charges of €12.4m • €27.5 million of liquid financial resources, no debt, before receipt of Skanfore payment • Willy Paterson-Brown, Executive Chairman, takes on the role of Chief Executive Officer as well; Edward Pratt to become 'Senior Advisor, Projects' • Agreement with Fortis, with plans to list the Company's shares on Eurolist by Euronext Amsterdam by end of 2007 • Additional product development progress in wood fibre applications Willy Paterson-Brown, Chairman and CEO, said: "This has been an excellent yearfor Accsys with progress on many fronts and we have high expectations for 2007/8. Accsys has moved from a technology development company to a full scalecommercial operator with far reaching potential on a global basis. In AccoyaTMwood, we have a quality product, universally accepted as being of the higheststandards with multiple applications." The audited financial statements for the year ended 31st March 2007 follow. For further information, please contact: Accsys Technologies PLC Willy Paterson-Brown, +44 (0) 20 8144 2510www.accsysplc.com Chairman & Chief Executive Collins Stewart Europe Limited Tim Mickley / Michael O'Brien +44 (0) 20 7523 8000Parkgreen Communications Justine Howarth / Clare Irvine +44 (0) 20 7851 7480 ACCSYS TECHNOLOGIES PLC Consolidated Financial Statements Year Ended 31 March 2007 Annual report and financial statements for the year ended 31 March 2007 Chairman & Chief Executive's Business Review Directors' Report Corporate Governance Report of the independent auditors Consolidated profit and loss account Balance sheets Consolidated cash flow statement Notes forming part of the financial statements Directors William Paterson-Brown Chairman & Chief Executive Stefan Allesch-Taylor Non-Executive Director Gordon Campbell Non Executive Director Tim Paterson-Brown Non-Executive Director Glyn C Thomas Chief Financial Officer Company Secretary Christopher C Morse Company Number 5534340 Registered Office 7 Queen Street Mayfair London W1J 5PB Bankers Barclays Bank PLC ABN Amro Bank Sarasin & Cie AG 180 Oxford Street Gele Rijdersplein Elisabethenstrasse 62 London 6800 KW Arnhem CH 4002 Basel W1D 1EA The Netherlands Switzerland Registrars SLC Registrars Limited 42 - 46 High Street Esher Surrey KT10 9QY Auditors BDO Stoy Hayward LLP 8 Baker Street London W1U 3LL Lawyers Lawrence Graham LLP 4 More London Riverside London SE1 2AU Chairman & Chief Executive's Business Review It is a great pleasure to be writing this statement. The last twelve monthshave seen significant progress for your company and, in fact, we have achievedthe majority of the goals that we set for ourselves during the course of theyear. We continue to increase our shareholder base, the list of which I believe anycompany on AiM would be proud, and I would like to thank so many of you for thestrong support that you have given me personally and the Company as a whole,over the past year. Your Company, at the time of writing, has a market capitalization of over €600million, the stock enjoying strong liquidity with an average of several hundredthousand shares per day traded over the course of the year. The year has witnessed many achievements, only some of which I summarize below: Construction and commissioning of the wood modification plant During the financial year we completed the physical construction of ourcommercial scale wood modification plant, with the first batch of Accoya beingproduced on 11th March 2007. We anticipate a period of around six months willbe required to optimise operation of the plant as operating processes arefinessed for the range of dimensions and conditions of the timber processed. The wood modification reactors represent a substantial scale up of noveltechnology to achieve full commercial scale. The capacity of the large scalereactors is 30 m3 compared with 0.4 m3 for our pilot. Whilst we are still at arelatively early stage of working up the plant and, as would be typical for anew technology plant, we believe it will take us up to a year to bring theoperation to full capacity utilisation. Our team are confident that the corereactor design is substantially validated by its performance so far. This is ofcritical importance for our licensing plans. We now have a series of trading agreements in place, including ones with BSWTimber in the UK and Roggemann in Germany, and an agreement to supply Accoya forthe construction of two road bridges in the Netherlands. Due to growingawareness and interest in Accoya's properties we are now planning to double ourcapacity in Arnhem at the earliest opportunity to take our annual capacity toaround 60,000 cubic metres. Celanese partnership agreement In March 2007, we announced an agreement with Celanese Corporation which securesa number of advantages for the Company and for potential licensees. • It provides priority customer status for the group and its potential licensees, worldwide; • It underwrites the availability of the key bought-in raw material for the Accsys process; • It removes a key layer of operating risk for licensees The acetyls supply and recycle agreement transaction with Celanese enables TitanWood to concentrate on its core wood acetylation technology. It gives ourfuture technology licensees the certainty that they will have a dependablesupply of the key raw material that they need, as well as offtake and re-cyclingof their spent by-product, wherever they are in the world. It has been a goal of your board to secure a substantial strategic partner tohelp us to accelerate the growth of our business. The equity investment andcontractual support of Celanese gives us a huge fillip, not only with theadditional financial resources needed to accelerate our market development work,but also through their global presence and commitment to the growth of ourbusiness. Funds The Celanese investment of €22m followed a small fund-raising of €9.5m completedin November 2006, giving your Company the wherewithal to pursue its businessaggressively and exploit the competitive advantages during the coming years. Asof the time of writing, the Company has no debt and a cash position of €27m. Developing end product applications With our full scale plant coming into production, greater volumes of Accoya willbecome available to facilitate the development of key end product applicationsin a number of major national markets. A good example of this is the bridgescontract with the Province of Friesland. Extensive research and productdevelopment confirmed the excellent properties of our material, with projectedlife of 80 years in this demanding structural application. The award opens up amajor new market segment for your Company. We shall prioritise such newapplication work as it drives demand generation, enables nationalspecifications and regulatory approval processes to be understood and tackled -thereby opening up high volume end use opportunities for potential licensees. Licensing With our technology being validated at full commercial scale, we have been ableto progress discussions with a number of interested parties, in many parts ofthe world, who are enthusiastic about the potential that Accoya offers. We havetesting programmes with large-scale licensees in windows, decking, cladding andpanel products in the USA, with sawmill operators and distributors in Europe,with companies in the Middle East including a major construction company andwith large scale suppliers in Australasia, South America and the Far East. The main revenue driver for our business is licensing. We are developinglicensing packages and gearing up to resource the negotiation and supportrequired to secure a portfolio of licensed manufacturers of Accoya. We expectto announce a number of new licenses during the course of the year on a widegeographic scale, with the first significant licence revenue having already beensecured by our agreement with Skanfore S.A., described below: Skanfore licensing agreement Skanfore LLC is a privately owned trading group, based in Abu Dhabi, whoseevaluation of current and projected building projects within the GCC countriesidentified significant opportunities for licensing Accoya production.Accordingly, at the end of 2005, Skanfore took an initial option over licensedcapacity of 50,000 m3 per annum. During the past fifteen months, Skanfore has identified a number of potentiallicensees including three in the Gulf region - for Saudi Arabia, Dubai and AbuDhabi - each interested in a minimum 50,000 m3 capacity, as well as interestfrom South Africa, Malaysia, China and Russia. Having sensed the potentialscale of demand for Accoya, Skanfore believes it can deploy substantialresources to develop licensee demand across a large part of the globe and hasagreed to underwrite a substantial upfront payment to secure rights to licenseAccoya. Under the agreement announced on June 25th, Skanfore S.A. has taken rights tolicense 500,000 m3 of annual production capacity and will make a payment of€10m, representing 10% of the technology fees associated with this volume.Skanfore will then receive a share of Technology Fees received by Accsys fromlicenses it arranges. The Group stands to benefit substantially from Skanfore'sintroductions whilst also reducing execution risk. The payment of €10m willclearly represent the start of significant licence income for the Company, beingthe main source of profits going forward. Management Edward Pratt, our Chief Executive Officer, has made a unique contribution to thedevelopment of your business, over many years. Anyone who knows Eddie, knowshis passion and enthusiasm for Accoya, but will also be aware of his longstanding back injury. Having successfully seen the business through to thecommissioning of its full scale technology validation plant, Eddie is nowstepping down from his executive duties, as well as from the board, and willtake a break to undergo major spinal surgery. Following his treatment andrecuperation, he will take on the role of 'Senior Advisor, Projects', where, inparticular he will be closely involved in the development of our wood fibreacetylation technology. We all wish him well and look forward to his returnlater in the year. Effective immediately, I will now take over as CEO. I also welcome a new General Manager of our Arnhem facility, Rombout vanHerwijnen, who joined us in May. Rombout will drive forward the development ofthe end product applications, oversee the expansion of our Accoya productionfacilities and lead a highly motivated high performance team who have helped tocreate and grow this business from its inception. Review of the Business Our focus over the past year has been on: • The commissioning of our novel acid cracking facility • The construction and commissioning of the wood modification plant • Recruiting and training our operating teams • Securing reliable sources of raw materials, principally wood and acetyls • Building brand equity and international recognition of our Accoya mark • Developing key end product applications in large national markets • Building interest amongst potential licensees in anticipation of our plant coming on stream and providing validation of the process technology and the economics The financial results reflect the build up of operating costs, as staffing andmaterials for commissioning activity is expensed, and the strengthening ofmanagement to encompass marketing and licensing activities, with total operatingexpenditure reported in the Profit & Loss Account rising from €5.9m to €10.3m. The widespread enthusiasm shown for Accoya and our assessment of the scale ofinterest that we see emerge to license our technology has led us to concludethat the business should focus resolutely on wood acetylation. Accordingly, wehave scaled down our other activities apart from our development work onacetylated wood fibre boards. As a result, we have terminated our efforts tolicense other potential applications of our cracking technology, which withoutthe prospect of our deriving income become fully impaired in accounting termsrequiring the charge of €5.9m shown in the Profit & Loss Account as animpairment of intangible assets. Following our agreement with Celanese, our strategy on acetyls supply haschanged. We have undertaken a review of the commissioning work done on ournovel cracker design, concluding that without some considerable remediation workon ancillary process equipment we would not be able to fully commission it. Asthe cracker was out of use at 31st March 2007 and also required the remediationwork to be completed prior to it being fired up again, the "value in use" foraccounting purposes became zero at the balance sheet date - requiring theimpairment charge of €6.6m shown in the Profit & Loss Account as an impairmentof tangible assets. The loss for the year amounted to €22.6m (2006: €5.0m). Conclusion Your Company is well positioned for the challenges in the year ahead. We havecreated a strong, solid base from which we are able to expand our business on aglobal scale. Over the past two years, we have moved from a technologydevelopment business to a full commercial operating business, with an order bookthat is testament to the quality of our product, a brand that is increasinglyrecognised as leading its field and an extremely promising new businesspipeline. In addition, our competitive advantage, financial strength andlicensing proposition has been reinforced by the exclusive support of theworld's largest acetyl's supplier, Celanese. 2006-7 has been a landmark year for your Company. The prospects for 2007-8 areexciting. We expect to see significant revenue during the course of the yearahead and hope to be able to report a profit for the year. We will continue to explore ways to create the best shareholder value and returnpossible. One such strategy will be to explore the opportunity of listing theCompany's shares on Eurolist by Euronext Amsterdam during the course of the nextsix months, and to that end, we have engaged Fortis, one of Benelux's largestbanks. As mentioned at the beginning of my statement, it has been a pleasure to serveas your Chairman during the past year and I am confident that we can betremendously successful with the foundations that we have built and, perhapsmost importantly, with the continued excellent support from all ourshareholders. Willy Paterson-Brown, Chairman & Chief Executive 28 June 2007 Directors' Report for the year ended 31 March 2007 The directors present their report together with the audited financialstatements for the year ended 31 March 2007. Results and dividends The consolidated profit and loss account for the year is set out on page 14. The directors do not recommend payment of a dividend. Principal activities and review of the business The principal activity of the group is the development and commercialisation ofits proprietary technology for the manufacture of Accoya branded acetylatedwood. The group is also engaged in the development of other related processtechnologies with potential applications in the wood and chemicals industries.A review of the business is set out in the Chairman & Chief Executive's BusinessReview on pages 1 to 3. Financial instruments Details of the use of financial instruments by the Company and its subsidiaryundertakings are set out in Note 22 of the financial statements. Share issue On 8 November 2006, the Company completed the placing of 6,623,172 new Ordinaryshares at a price of €1.48 each, raising €9,557,000 net of expenses. Theseshares were issued under the dis-application authority vested in the directorsby the shareholders to issue additional shares up to 5% of the shares then inissue. Strategic Partnership with Celanese Corporation On 28 March 2007, the Company announced a strategic partnership with CelaneseCorporation ("Celanese"). The arrangements provide for a long term exclusivesupply agreement for the provision of acetyls, the principal raw material toacetylate wood, to both the group and its future licensees worldwide. Celanesealso signed an option agreement to evaluate and acquire the group's proprietaryacetic anhydride technology. Celanese also agreed to subscribe for new Ordinary shares, subject to consent bythe Company's shareholders. Such consent was duly granted at an ExtraordinaryGeneral Meeting held on 15th May 2007 and Celanese duly subscribed for 8,115,883new Ordinary shares at a price of €2.72 per share, a price determined as beingat a 5% premium to the closing share price on 27 March 2007, the date thestrategic partnership was entered into. The Extraordinary General Meeting alsoapproved the granting of an option to Celanese to subscribe for additionalOrdinary shares to increase its holding in the Company to 29.9% at the marketprice when the option is exercised. This option has a life of three years andmay be exercised from the first anniversary of 15 May 2007. Principal risks and uncertainties The business, financial condition or results of operations of the Group could beadversely affected by any of the risks set out below. The Group's systems ofcontrol and protection are designed to help manage and control risks to anappropriate level rather than to eliminate them. The directors consider that the principal risks to achieving the Group'sobjectives are those set out below. (a) Economic and market conditions The Group's operations comprise the manufacture of Accoya and licensing thetechnology to do so to third parties. The cost and availability of key inputsaffects the profitability of the Group's own manufacturing whilst also impactingthe potential profitability of third parties interested in licensing the Group'stechnology. The price of key inputs and security of supply are managed by thegroup, partly through the development of long term contractual supplyagreements. (b) Regulatory, legislative and reputational risks The Group's operations are subject to extensive regulatory requirements,particularly in relation to its manufacturing operations and employmentpolicies. Changes in laws and regulations and their enforcement may adverselyimpact the Group's operations in terms of costs, changes to business practicesand restrictions on activities which could damage the Group's reputation andbrand. (c) Employees The Group's success depends on its ability to continue to attract, motivate andretain highly qualified employees. The highly qualified employees required bythe Group in various capacities are sometimes in short supply in the labourmarket. (d) Intellectual property The Group's strategy of licensing technology depends upon maintaining effectiveprotection of its intellectual properties. Protection is afforded by acombination of patents, secrecy, confidentiality agreements and the structuringof legal contracts relating to key engineering and supply arrangements.Unauthorised use of the Group's intellectual property may adversely impact itsability to license the technology and lead to additional expenditures to enforcelegal rights. Key performance indicators The directors consider the following to be key performance indicators by whichprogress in the development of the business may be assessed: • Progress in introducing Accoya into key end use applications (including external doors, windows, decking and cladding) in major markets, which is seen as an indicator of high volume future demand requiring supply from local or foreign technology licensees of the group. Good progress has been achieved in developing the first two such large national market end product applications in Germany and the UK. • Future expansion of licensed Accoya production capacity. • Process improvements to reduce progressively the direct cost per m3 to produce Accoya, optimising the utilisation of direct materials, utilities and capacity utilised in the wood modification process. Future developments The directors' priorities for the Group's future development include: • Driving the development of major end use applications adopting Accoya in major markets • Exploiting global demand for licensing proprietary technology for wood modification • Developing a commercial scale manufacturing process for the production of acetylated wood fibre products in the MDF, OSB and fibreboard space. Impact of adoption of International Financial Reporting Standards (IFRS) A review of the impact of adopting IFRS has been undertaken and, other than inrespect of the amortisation of goodwill arising on consolidation (€412,000), thedirectors are not aware of any significant adjustments that would be made to thegroup and parent company financial statements of Accsys Technologies PLC for theyear ended 31 March 2007 or the comparative figures when the results and netassets are reported under IFRS. Significant shareholdings The following shareholders held beneficial interests in the Ordinary sharesexceeding 3%: MacNiven and Cameron Equity Holdings Limited 13.44%Saad Investments Company Limited 8.61%Oak Foundation USA Inc, and related parties 8.07%Rajhi Holdings 6.07%Celanese Chemicals Europe GmbH 5.46%Rathbone Investment Management Limited 3.90%UBS Wealth Management (UK) Limited 3.83%Axa Framlington 3.50% Directors The directors of the company throughout the year were: Willy Paterson-BrownStefan Allesch-TaylorGordon CampbellTim Paterson-BrownEdward J Pratt resigned 26 June 2007Glyn C Thomas Directors' interests in the Ordinary shares of the Company are set out below: Ordinary shares Options over Ordinary shares 31 March 2007 31 March 2006 31 March 2007 31 March 2006 Willy Paterson-Brown *20,000,000 *20,000,000 2,440,000 1,440,000Stefan Allesch-Taylor *20,000,000 *20,000,000 - -Gordon Campbell 48,172 48,172 - -Tim Paterson-Brown *20,000,000 *20,000,000 - -Edward J Pratt 720,618 618 1,720,000 1,440,000Glyn C Thomas 480,618 618 1,230,000 960,000 Note * 20,000,000 Ordinary shares and 415,184 Deferred shares areregistered in the name of MacNiven and Cameron Equity Holdings Limited. MessrsS Allesch-Taylor, W Paterson-Brown and Mr T Paterson-Brown have beneficialinterests in those shares as they are three of the discretionary beneficiariesof a trust which owns the majority of the issued share capital of MacNiven andCameron Equity Holdings Limited. None of these persons can exercise, orinfluence the exercise of, the voting rights of the Ordinary and Deferred sharesheld by MacNiven and Cameron Equity Holdings Limited. Directors' share options: At Granted Exercised At 31 1 April 2006 during year during year March 2007Willy Paterson-BrownVested at €0.46 720,000 - - 720,000Unvested at €0.46 720,000 - - 720,000Unvested at €2.59 - 1,000,000 - 1,000,000 Edward PrattVested at €0.46 720,000 - 720,000 -Unvested at €0.46 720,000 - - 720,000Unvested at €2.59 - 1,000,000 - 1,000,000 Glyn ThomasVested at €0.46 480,000 - 480,000 -Unvested at €0.46 480,000 - - 480,000Unvested at €2.59 - 750,000 - 750,000 Options granted on 1 March 2005 at an exercise price of €0.46 per Ordinary sharevested 50% upon grant and 50% will vest upon the group achieving a cumulative €1million in revenue from 1 April 2005. Once vested, these options may beexercised until 30 March 2015. Options granted on 28 March 2007 at an exercise price of €2.59 per Ordinaryshare vest as to one third of the options granted upon achievement of each ofthe following: • Cumulative €5 million licence income recognised under group accounting policies • Cumulative €20 million revenue from sales of Accoya • Announcement of annual group distributable earnings exceeding €5 million • Once vested, these options may be exercised until 31 March 2017. Employment policies The Group operates an equal opportunities policy from recruitment and selection,through training and development, appraisal and promotion to retirement. It isour policy to promote an environment free from discrimination, harassment andvictimisation, where everyone will receive equal treatment regardless of gender,colour, ethnic or national origin, disability, age, marital status or sexualorientation. All decisions relating to employment practises will be objective,free from bias and based solely upon work criteria and individual merit. Health and safety Group companies have a responsibility to ensure that all reasonable precautionsare taken to provide and maintain working conditions for employees and visitorsalike, which are safe, healthy and in compliance with statutory requirements andappropriate codes of practice. The avoidance of occupational accidents and illnesses is given a high priority.Detailed policies and procedures are in place to minimise risks and ensureappropriate action is understood in the event of an incident. A dedicatedhealth and safety officer is retained at the Group's manufacturing facility. Creditor payment policy The Group's policy, in relation to all of its suppliers, is to negotiate termsof payment when agreeing the terms of transactions, to ensure that thosesuppliers are made aware of the terms of payment and to abide by those termsprovided that it is satisfied that the supplier has provided the goods orservices in accordance with the agreed terms and conditions. The Group does notfollow any universal code or standard on payment practice but subsidiarycompanies are expected to establish payment terms consistent with localprocedures, custom and practice. The average number of days credit taken by theCompany is not a meaningful expression. Going concern After making enquiries, the Directors have a reasonable expectation that theCompany has adequate resources to continue in operational existence for theforeseeable future. For this reason, they continue to adopt the going concernbasis in preparing the financial statements. Disclosure of information to auditors All of the current directors have taken all the steps that they ought to havetaken to make themselves aware of any information needed by the company'sauditors for the purposes of their audit and to establish that the auditors areaware of that information. The directors are not aware of any relevant auditinformation of which the auditors are unaware. Auditors BDO Stoy Hayward LLP have expressed their willingness to continue in office anda resolution to re-appoint them will be proposed at the annual general meeting. By order of the Board C C MorseSecretary Date: 28 June 2007 Accsys Technologies PLC Corporate governance Details of the Company's corporate governance arrangements are set out below.The Board of Directors acknowledges the importance of the Principles set out inThe Combined Code issued by the Committee on Corporate Governance. Although theCombined Code is not compulsory for AIM listed companies, the Board has appliedthe principles as far as practicable and appropriate for a relatively smallpublic company. We give below a statement as to how the Company applies the principles ofSection 1 of the Revised Code, together with a statement regarding itscompliance with specific provisions. The Board consists of an executiveChairman, one other executive Director, and three non-executive Directors.Gordon Campbell is considered to be the only independent non-executive. TheCompany has been in compliance throughout the year with the provisions set outin the Combined Code for Corporate Governance with the following exceptions: • The Company does not meet the requirements regarding the independence of non-executive directors. • There is no formal training programme for new Directors on joining the Board. This is contrary to provision A.5.1; • The Board has not undertaken a formal and rigorous annual evaluation of its own performance and the individual Directors. This is contrary to provision A.6.1 but this is being reviewed; • The non-executive Directors of the Company have not been appointed for specific terms as required by provision A.7.2 but this is being reviewed; and • There is no formal performance evaluation or election process for the appointment of non-executive Directors. This is contrary to provision A.7.2. Following Willy Paterson-Brown's appointment, as of the date of this report, asChairman & Chief Executive, the Company does not meet the requirement for theseposts to be held separately. The Board of Directors Throughout the period, the Board comprised a Chairman, and at least oneexecutive Director. The Board meets regularly and is responsible for strategy, performance, approvalof major capital projects and the framework of internal controls. The Board hasa formal schedule of matters specifically reserved to it for decision. To enablethe Board to discharge its duties, all Directors receive appropriate and timelyinformation. Briefing papers are distributed to all Directors in advance ofBoard meetings. All Directors have access to the advice and services of theCompany Secretary. The appointment and removal of the Company Secretary is amatter for the Board as a whole. In addition, procedures are in place to enablethe Directors to obtain independent professional advice in the furtherance oftheir duties, if necessary, at the Company's expense. During the year, all serving Directors attended the quarterly Board meetingsthat were held. In addition to the scheduled meetings there is frequent contactbetween all the Directors in connection with the Company's business includingaudit and nomination & remuneration committee meetings which are held asrequired, but as a minimum twice per annum. Directors are subject to re-election by the shareholders at Annual GeneralMeetings. The Articles of Association provide that Directors will be subject tore-election at the first opportunity after their appointment and the Boardsubmit to re-election at intervals of three years. Audit Committee The Audit Committee consists of Gordon Campbell (Chairman), Tim Paterson-Brownand Stefan Allesch-Taylor. The Audit Committee meets at least twice a year andis responsible for monitoring compliance with accounting and legal requirementsand for reviewing the annual and interim financial statements prior to theirsubmission for approval by the Board. The Committee also discusses the scope ofthe audit and its findings and considers the appointment and fees of theexternal auditors. The Audit Committee believes that it is not currentlyappropriate for the company to maintain an internal audit function due to itssize. The Audit Committee considers the independence and objectivity of the externalauditors on an annual basis, with particular regard to non-audit services. Thenon-audit fees are considered by the Board not to affect the independence orobjectivity of the auditors. The Audit Committee monitors such costs in thecontext of the audit fee for the period, ensuring that the value of non-auditservice does not increase to a level where it could affect the auditors'objectivity and independence. The Board also receive an annual confirmation ofindependence from the auditors. Nomination & Remuneration Committee The Nomination & Remuneration Committee consists of S. Allesch-Taylor(Chairman), Tim Paterson-Brown and G Campbell. The Committee's role is toconsider and approve the nomination of directors and the remuneration andbenefits of the executive Directors, including the award of share options. Inframing the Company's remuneration policy, the Nomination & RemunerationCommittee has given full consideration to Section B of The Combined Code. Internal financial Control The Board is responsible for establishing and maintaining the Company's systemof internal financial control and places importance on maintaining a strongcontrol environment. The key procedures which the Directors have establishedwith a view to providing effective internal financial control are as follows: • The Company's organisational structure has clear lines of responsibility. • The Company prepares a comprehensive annual budget that is approved by the Board. Monthly results are reported against the budget and variances are closely monitored by the Directors. • The Board is responsible for identifying the major business risks faced by the Company and for determining the appropriate courses of action to manage those risks. The Directors recognise, however, that such a system of internal financialcontrol can only provide reasonable, not absolute, assurance against materialmisstatement or loss. The Directors have reviewed the effectiveness of thesystem of internal financial control as it operated during the period to 31March 2007 and up to the date of approval of the annual report and accounts. Relations with shareholders Communications with shareholders are given high priority. There is regular dialogue with shareholders including presentations after theCompany's preliminary announcement of the year end results. The board uses theAnnual General Meeting to communicate with investors and welcomes theirparticipation. The Chairman aims to ensure that the Directors are available atAnnual General Meetings to answer questions. Directors' responsibilities statement The directors are responsible for preparing the Annual Report and the financialstatements in accordance with applicable law and United Kingdom GenerallyAccepted Accounting Practice. Company law requires the Directors to prepare financial statements for eachfinancial year which give a true and fair view of the state of affairs of theGroup and Company and of the profit or loss of the Group for that year. Inpreparing those financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theCompany and of the Group in order to enable them to ensure that the financialstatements comply with the Companies Act 1985. They are also responsible forsafeguarding the assets of the Company and hence for taking reasonable steps forthe prevention and detection of fraud and other irregularities. Financial statements are published on the group's website in accordance withlegislation in the United Kingdom governing the preparation and dissemination offinancial statements, which may vary from legislation in other jurisdictions.The maintenance and integrity of the group's website is the responsibility ofthe directors. The directors' responsibility also extends to the on-goingintegrity of the financial statements contained therein. Report of the independent auditors Independent Auditor's Report to the Shareholders of Accsys Technologies PLC We have audited the group and parent company financial statements (the''financial statements'') of Accsys Technologies PLC for the year ended 31 March2007 which comprise the Group Profit and Loss Account, the Group and CompanyBalance Sheets, the Group Cash Flow Statement and the related notes. Thesefinancial statements have been prepared under the accounting policies set outtherein. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the financial statements inaccordance with applicable law and United Kingdom Accounting Standards (UnitedKingdom Generally Accepted Accounting Practice) are set out in the Statement ofDirectors' Responsibilities Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a trueand fair view and have been properly prepared in accordance with the CompaniesAct 1985 and whether the information given in the Directors' Report isconsistent with those financial statements. We also report to you if, in ouropinion, the company has not kept proper accounting records, if we have notreceived all the information and explanations we require for our audit, or ifinformation specified by law regarding directors' remuneration and othertransactions is not disclosed. We read other information contained in the Annual Report and consider whether itis consistent with the audited financial statements. The other informationcomprises only the Directors' Report, the Chairman's Business Review and thestatement of Corporate Governance. We consider the implications for our reportif we become aware of any apparent misstatements or material inconsistencieswith the financial statements. Our responsibilities do not extend to any otherinformation. Our report has been prepared pursuant to the requirements of the Companies Act1985 and for no other purpose. No person is entitled to rely on this reportunless such a person is a person entitled to rely upon this report by virtue ofand for the purpose of the Companies Act 1985 or has been expressly authorisedto do so by our prior written consent. Save as above, we do not acceptresponsibility for this report to any other person or for any other purpose andwe hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgments made by the directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the group's and company's circumstances, consistently applied and adequatelydisclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements. Opinion In our opinion: • the group financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the group's affairs as at 31 March 2007 and of its loss for the year then ended; • the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company's affairs as at 31 March 2007; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors' Report is consistent with the financial statements. BDO Stoy Hayward LLPChartered Accountants and Registered AuditorsLondon Date: 28 June 2007 Consolidated profit and loss account for the year ended 31 March 2007 Note 2007 2006 •'000 •'000 Turnover 50 80 Administration expenses General administrative expenses (10,265) (5,860) Impairment of intangible fixed 11 (5,850) - assets Impairment of tangible fixed assets 12 (6,569) - (22,684) (5,860) Operating loss 5 (22,634) (5,780) Interest receivable and similar income 6 37 782 Loss on ordinary activities before andafter taxation 19 (22,597) (4,998) Basic and diluted loss per ordinary share 9 •(0.17) •(0.04) All amounts relate to continuing activities. There are no recognised gains or losses other than the loss for the year. The notes on pages 17 to 32 form part of these financial statements. Balance sheets at 31 March 2007 Note Group Group Company Company 2007 2006 2007 2006 •'000 •'000 •'000 •'000 Fixed assets Intangible assets 11 7,437 13,715 - - Tangible assets 12 21,611 10,693 - - Investments 13 - - 6,000 11,383 29,048 24,408 6,000 11,383 Current assets Stock 14 910 - - - Debtors 15 1,085 8,411 38,668 19,646 Other investments 16 - 15,513 - 15,513 Cash at bank 10,825 4,577 10,455 4,023 12,820 28,501 49,123 39,182 Creditors: amounts falling duewithin one year 17 3,102 1,984 3,581 23,666 Net current assets 9,718 26,517 45,542 15,516 Net assets 38,766 50,925 51,542 26,899 Capital and reserves Called up share capital 18 1,554 1,473 1,554 1,473 Share premium account 19 35,689 25,504 35,689 25,504 Merger reserve 19 106,707 106,707 - - Profit and loss account 19 (105,184) (82,759) 14,299 (78) Shareholders' funds 38,766 50,925 51,542 26,899 The financial statements were approved by the Board and authorised for issue on28 June 2007 Glyn Thomas ) ) DirectorsWilly Paterson-Brown ) The notes form part of these financial statements. Consolidated cash flow statement for the year ended 31 March 2007 Note 2007 2007 2006 2006 •'000 •'000 •'000 •'000 Net cash outflow from operatingactivities 25 (8,454) (4,468) Returns on investments andservicing of finance Interest received 284 269 Net cash flow from returns on 284 269investments and servicing of finance Capital expenditure and financialinvestment Purchase of intangible fixed assets (200) - Purchase of tangible fixed assets (18,220) (7,925) Sale of tangible fixed assets - 53 (18,420) (7,872) Cash outflow before use of liquidresources and financing (26,590) (12,071) Management of liquid resources Decrease/(increase) in short term bank and other deposits 1,726 (1,690) Decrease/(increase) in other investments 15,266 (15,000) 16,992 (16,690)Financing Issue of share capital 10,518 27,000 Expenses of issue of share capital (252) (1,226) Shares issued by subsidiary - 3,000 10,266 28,774 Increase in cash 26 668 13 The notes form part of these financial statements Notes forming part of the financial statements for the year ended 31 March 2007 1 Corporate restructuring During the comparative period the Group carried out a corporate re-restructuringincluding the introduction of a new holding company, Accsys Technologies PLC.The corporate restructuring was accounted for as a merger in accordance withFinancial Reporting Standard 6 'Acquisitions and Mergers' (FRS 6) see accountingpolicies (note 2). The profit and loss account for the comparative year wasaccordingly prepared as if the new holding company had been in existencethroughout both 2006 and prior periods. 2 Accounting policies The financial statements have been prepared under the historical cost conventionand are in accordance with applicable accounting standards. In preparing these financial statements, the group has adopted FRS20 'ShareBased Payments' for the first time. The following principal accounting policies have been applied: Basis of consolidation The consolidated financial statements incorporate the financial statements ofAccsys Technologies PLC and all its subsidiary undertakings throughout the yearended 31 March 2007 and the comparative year, using the merger or acquisitionmethod of accounting as required. Where the acquisition method is used, theresults of subsidiary undertakings are included from the date of acquisition.Intra-group sales and losses are eliminated fully on consolidation. If the acquisition meets the criteria of a group reconstruction mergeraccounting is used. In such instances the investment is recorded in theCompany's balance sheet at the nominal value of the shares issued together withthe fair value of any additional consideration paid. In the Group financial statements, merged subsidiary undertakings are treated asif they had always been a member of the Group. The results of such a subsidiaryare included for the whole period in the year it joins the Group. Thecorresponding figures for the previous year include its results for that period,the assets and liabilities at the previous balance sheet date and the sharesissued by the Company as consideration as if they had always been in issue. Anydifference between the nominal value of the shares acquired by the Company andthose issued by the Company to acquire them is taken to a merger reserve. Goodwill Goodwill arising on the acquisition of a subsidiary undertaking is thedifference between the fair value of the consideration paid and the fair valueof the identifiable assets and liabilities acquired. It is capitalised and isbeing amortised over the directors' estimate of its remaining useful economiclife, of nine years from the date of acquisition. Intellectual property rights Intellectual property rights, including patents, which cover a portfolio ofnovel chemical processes and products, are shown in the financial statements atcost less any amounts by which the carrying value is assessed during an annualreview to have been impaired. No amortisation charge is made until plantslicensed to exploit the intellectual property are fully commissioned, thereafterthe carrying value is amortised in equal amounts over the useful economic lifeup to a maximum of 20 years. Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less depreciation. Depreciation isprovided at rates calculated to write off the cost less estimated residual valueof each asset, except freehold land, over its expected useful life on a straightline basis, as follows: Plant and machinery These assets comprise pilot plants and productionfacilities. The pilot plants are designed to validate technology designs andgenerally have short lives, with depreciation rates between 33% and 50%.Production facilities are depreciated from the start of commissioning at ratesapplicable to the average asset lives expected for each class of asset, withrates between 5% and 20%. Office equipment between 20% and 50%. Motor vehicles 20%. Impairment of tangible and intangible fixed assets The need for any fixed asset impairment write-down is assessed by comparison ofthe carrying value of the asset against the higher of realisable value and valuein use. Operating leases The annual rentals payable under operating leases are charged to the profit andloss account on a straight line basis over the term of the lease. Development costs Product development costs are written off as incurred. Investments Fixed asset investments are stated at cost less provision for diminution invalue. Financial assets Financial assets are recognised and derecognised on the trade date of theirpurchase or sale. The group classifies its financial assets into one of thefollowing categories, depending on the purpose for which the asset was acquired. The group's accounting policy for each category is as follows: Loans and receivables: These assets are non-derivative financial assets withfixed or determinable payments that are not quoted in an active market. Theyare carried at cost less any provision for impairment. Stock Stock is carried at the lower of cost and net realisable value. Share based payments Effective 1 April 2006, the Group adopted FRS20 Share Based Payments. A fairvalue for the share options awarded is measured at the date of grant. Theaggregate amount of the cumulative charge in respect of all periods to 31 March2007 is €172,000. This includes an amount of €95,000 in respect of priorperiods which is considered immaterial in the context of the prior periodresults. Accordingly, the results and the balance sheets for the prior periodhave not been restated and the entire amount has been charged in arriving at theresult for the year to 31 March 2007. Share based payments, continued Where share options are awarded to employees, the fair value of the options atthe date of grant is charged to the profit and loss account over the vestingperiod. Non market vesting conditions are taken into account by adjusting thenumber of equity instruments expected to vest at each balance sheet date sothat, ultimately, the cumulative amount recognised over the vesting period isbased on the number of options which eventually vest. Market vesting conditionsare factored into the fair value of the options granted. The cumulative expenseis not adjusted for failure to achieve a market vesting condition. Pensions The pension costs charged in the financial statements represent thecontributions payable by the company to individuals personal money purchaseschemes during the period in accordance with FRS 17. Deferred taxation Deferred tax is provided in full in respect of taxation deferred by timingdifferences between the treatment of certain items for taxation and accountingpurposes except for deferred tax assets which are only recognised to the extentthat the group anticipates making sufficient taxable profits in the future toabsorb the reversal of the underlying timing differences. Deferred tax balancesare not discounted. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translatedinto euro at the rates of exchange ruling at the balance sheet date.Transactions in other currencies are recorded at the rate ruling at the date ofthe transaction. All differences are taken to profit and loss account. The exchange rate used at 31 March 2007 was €1.47 to £1 (2006: €1.45 to £1). Government grants Grants relating to expenditure on tangible fixed assets are credited to theprofit and loss account at the same rate as the depreciation on the assets towhich the grant relates. The deferred element of grants is included increditors as deferred income. Grants of a revenue nature are credited to theprofit and loss account in the period to which they relate. Liquid resources For the purposes of the cash flow statement, liquid resources are defined ascurrent asset investments and short term deposits. 3 Employees Group Group 2007 2006 •'000 •'000Staff costs consist of:Wages and salaries 2,392 1,609Social security costs 606 189Other pension costs 89 122 3,087 1,920 The average number of employees, including executive directors, duringthe year was as follows: Number Number Administration 17 11Operating 18 10 35 21 The Company has no employees. 4 Directors' remuneration 2007 2006 •'000 •'000Directors' remuneration consists of:Directors' emoluments 725 743Gains on exercise of share options 2,556 -Company contributions to money purchase pension schemes 64 71Amounts paid to third parties in respect of directors' services 407 362 3,752 1,176 Emoluments disclosed above include the following amounts paid to the highest paid director: Emoluments for qualifying services 1,903 419Company contributions to money purchase pension schemes 21 21 The group makes contributions to 2 (2006: 2) directors' personal pension plans.Out of the share based payments charge (note 5) €107,000 (2006: • nil) relates to the directors. 5 Operating loss 2007 2006 •'000 •'000This has been arrived at after charging: Depreciation of tangible assets 733 21Impairment of plant and machinery 6,569 531Amortisation of intangible fixed assets 628 - Impairment of intangible fixed assets 5,850 - Product development costs 277 380Operating lease rentals 361 286Auditors' remuneration for audit services 80 54Remuneration of auditors for non-audit - -workAdmission to AiM expenses - 565 Foreign exchange costs 7 3Share based payments 172 - and after crediting: Research subsidies from governmental agencies (43) (308) Included in admission to AiM expenses in 2006 are corporate finance fees of€110,000 paid to the auditors. A further €38,000 of corporate finance fees paidto the auditors in 2006 was charged to the share premium account. 6 Interest receivable and similar income 2007 2006 •'000 •'000 Interest receivable on bank and other deposits 284 269(Decrease)/increase in market value of current asset investments (247) 513 37 782 7 Taxation on loss from ordinary activities 2007 2006 •'000 •'000Current taxUK corporation tax on loss for the year - -Adjustment in respect of previous years - - Total current tax - - Factors affecting the corporation tax charge for the yearLoss on ordinary activities before tax (22,597) (4,998) Loss on ordinary activities at the standard rateof corporation tax in the UK of 30% (2006 - 30%) (6,779) (1,499) Effects of:Expenses not deductible for tax purposes 1,983 345Capital allowances in excess of depreciation (599) (125) Increase in tax losses carried forward 5,395 1,279 Current tax charge for year - - Deferred taxation The potential deferred tax asset of the group arising from tax losses carriedforward and the excess of depreciation over capital allowances are set outbelow. As the recoverability of these amounts in the foreseeable future isuncertain, the potential deferred tax assets have not been recognised. 2007 2006 •'000 •'000 Tax losses carried forward 8,939 2,793Excess of depreciation over capital allowances 179 264 9,118 3,057 The Company has no significant potential deferred tax assets or liabilities 8 Loss for the financial period As permitted by section 230 of the Companies Act 1985, the parent company'sprofit and loss account has not been included in these financial statements.The loss for the financial period includes a profit of €6,195,000 (2006: loss of€78,000) which is dealt with in the financial statements of the parent company.The result for year includes a realised gain of €10,881,000 arising from theliquidation of a former holding company. 9 Loss per Accsys Technologies PLC share The loss per share shown below is calculated based upon the weighted averagenumber of Accsys Technologies PLC Ordinary shares in issue 2007 2006 Weighted average number of Ordinary shares in issue 135,217,231 116,975,026 Loss for the year •'000 (22,597) (4,998) Loss per share •(0.17) •(0.04) Since none of the Accsys Technologies PLC's potential Ordinary shares are dilutive, there is nodifference between basic and diluted loss per share. At 31 March 2007, the Company had 9,660,500(2006: 5,688,000) options over Ordinary shares which are potentially dilutive in the future. 10 Share based payments Options granted on 1 March 2005 at an exercise price of €0.46 perOrdinary share vested 50% upon grant and 50% will vest upon the group achievinga cumulative €1 million in revenue from 1 April 2005. Once vested, theseoptions may be exercised until 30 March 2015. At 31 March 2007, 4,129,000 ofthese options were outstanding. Options granted on 14 June 2006 at an exercise price of €1.20 per Ordinary sharevested immediately but are not exercisable before 14 June 2009. These optionsmay be exercised until 14 June 2016. At 31 March 2007, 438,500 of these optionswere outstanding. Options granted on 28 March 2007 at an exercise price of €2.59 per Ordinaryshare vest as to one third of the options granted upon achievement of each ofthe following: • Cumulative €5 million licence income recognised under group accounting policies • Cumulative €20 million revenue from sales of Accoya • Announcement of annual group distributable earnings exceeding €5 million Once vested, these options may be exercised until 31 March 2017. At 31 March2007, 5,093,000 of these options were outstanding. Unless discretion is exercised by the Nomination & Remuneration Committee, alloptions are forfeit following an optionholders termination of contract. Outstanding options granted under the share option scheme are as follows: Number of outstanding Weighted average remaining options at 31 March contractual life, in years OptionDate of grant 2007 2006 2007 2006 price 1 March 2005 4,129,000 5,688,000 7.9 8.9 • 0.4614 June 2006 438,500 - 9.2 - • 1.2028 March 2007 5,093,000 - 10.0 - • 2.59 Movements in the weighted average values are as follows: 2007 2007 2006 2006 Weighted Weighted average average exercise exercise price Number price Number Outstanding at 1 April • 0.46 5,688,000 • 0.46 5,688,000Granted during the year • 2.48 5,531,500 -Exercised during the year • 0.46 (1,559,000) - Outstanding at 31 March • 1.62 9,660,500 • 0.46 5,688,000 The exercise price of options outstanding at the end of the year ranged between€0.46 and €2.59 (2006: €0.46) and their weighted average contractual life was9.1 years (2006: 8.9 years). Of the total number of options outstanding at the year end, 1,285,000 (2006:2,844,000) had vested and were exercisable at the end of the year. The weighted average share price (at the date of exercise) of options exercisedduring the year was €2.37 (2006: not applicable). The weighted average fair value of each option granted during the year was €0.33(2006: not applicable). The fair value of executive share options granted during the year is calculatedbased on a modified Black-Scholes model assuming inputs shown below: Grant date 28 Mar 07 14 Jun 06 1 Mar 05Share price at grant date • 2.59 • 1.20 • 0.46Exercise price • 2.59 • 1.20 • 0.46Expected life 3 3 3Contractual life 10 10 10Risk free rate 4.92% 4.63% 4.37%Expected volatility 15% 15% 15%Expected dividend yield 0% 0% 0%Fair value of option • 0.346 • 0.120 • 0.044 10 Share based payments (continued) Volatility has been estimated by reference to the historic volatility sinceOctober 2005 when the Company's shares were listed on AiM. The resulting fairvalue is expensed over the vesting period of the options on the assumption thata proportion of options will lapse over the service period as employees leavethe Group. 11 Intangible fixed assets Intellectual Goodwill property onGroup rights consolidation Total •'000 •'000 •'000Cost At 1 April 2006 73,000 4,249 77,249Additions 200 - 200 At 31 March 2007 73,200 4,249 77,449 AmortisationAt 1 April 2006 62,985 549 63,534Amortisation 216 412 628Impairment 5,850 - 5,850 At 31 March 2007 69,051 961 70,012 Net book valueAt 31 March 2007 4,149 3,288 7,437 At 31 March 2006 10,015 3,700 13,715 The directors have undertaken an impairment review (using the value in usemethod) of the carrying value of the intellectual property rights. These rightsrelate to a number of potential technology applications. Following the mostrecent impairment review, the directors resolved that the carrying value inrespect of potential applications which are no longer being actively pursued,nor are likely to be resourced in the foreseeable future, should be treated asfully impaired. The carrying value in respect of applications which arecurrently being developed is based upon an evaluation of future potentiallicence fees and production royalty fees using a post tax discount rate of 25%. 12 Tangible assets Freehold Production OfficeGroup land facilities equipment Total •'000 •'000 •'000 •'000Cost or valuationAt 1 April 2006 950 10,490 40 11,480 Additions 329 17,774 117 18,220Disposals - (134) (4) (138) At 31 March 2007 1,279 28,130 153 29,562 DepreciationAt 1 April 2006 - 768 19 787Charge for the year - 683 50 733Impairment - 6,569 - 6,569Disposals - (134) (4) (138) At 31 March 2007 - 7,886 65 7,951 Net book valueAt 31 March 2007 1,279 20,244 88 21,611 At 31 March 2006 950 9,722 21 10,693 The directors have reviewed the economic lives of the tangible fixed assets.Following extensive commissioning trials, the prototype anhydride cracker hasbeen decommissioned pending remediation work required before it can be broughtinto service. Accordingly, at the balance sheet date it is treated as fullyimpaired. Following completion of the remediation work and successfulcommissioning of the cracker, its useful life will be re-estimated. Accordingly,an amount of €6,569,000 has been recognised as an impairment. 13 Fixed asset investments CompanyShares in subsidiary undertakings •'000CostAt 1 April 2006 11,383Liquidation of subsidiary (1,203) At 31 March 2007 10,180 ImpairmentAt 1 April 2006 -Impairment charge (4,180) At 31 March 2007 (4,180) Net book value At 31 March 2007 6,000 At 31 March 2006 11,383 Shares in subsidiaries have been impaired following the impairment reviewundertaken on intangible and tangible assets referred to in notes 11 and 12.The following were the principal subsidiary undertakings at the end of the yearand have all been included in the financial statements: Country of registration % sharesSubsidiary undertakings or incorporation Class held International Cellulose Company Overseas Limited Gibraltar Ordinary 100International Chemical Company BV Netherlands Ordinary 100Titan Wood BV Netherlands Ordinary 100Titan Wood Limited England Ordinary 100 The shares in Titan Wood BV are held indirectly by the company. The principal activities of these companies were as follows: International Cellulose Company Overseas Limited The ownership and exploitation of patents and technical know how (collectively intellectual property rights), relating to the acetylation of cellulose and production of acetic anhydride. International Chemical Company BV The technical validation and demonstration of patents and technical know-how relating to the acetylation of wood fibre, cellulose and production of acetic anhydride. Titan Wood BV The manufacture of Accoya, acetylated wood. Titan Wood Limited Establishing global market penetration of Accoya as the premium wood for external applications requiring durability, stability and reliability through the licensing of the Group's proprietary process for wood acetylation. 14 Stock Group Group 2007 2006 •'000 •'000 Raw materials 898 -Finished goods 12 - 910 - 15 Debtors Group Group Company Company 2007 2006 2007 2006 •'000 •'000 •'000 •'000 Amounts owed by subsidiary - - 38,638 12,316undertakings Other debtors 906 943 - -Other loans and deposits - 7,306 - 7,306 Prepayments and accrued income 179 162 30 24 1,085 8,411 38,668 19,646 All amounts fall due for payment within one year. Other loans and deposits at31 March 2006 included €5,616,000 of interest bearing deposits. 16 Other investments Group Group Company Company 2007 2006 2007 2006 •'000 •'000 •'000 •'000 Unlisted securities available for resale - 15,513 - 15,513 At 31 March 2006, the Company held 9,643,256 redeemable shares of €0.000015 each in the Tactica Euro Balanced Opportunities Fund, managed by Goldman Sachs International. 17 Creditors: amounts falling due within one year Group Group Company Company 2007 2006 2007 2006 •'000 •'000 •'000 •'000 Trade creditors 1,938 1,777 134 -Amounts owed to subsidiary undertakings - - 3,432 23,651Taxes and social security costs 470 55 - -Accruals and deferred income 694 152 15 15 3,102 1,984 3,581 23,666 18 Share capital 2007 2006 •'000 •'000AuthorisedEquity share capital200,000,000 ordinary shares of €0.01 each 2,000 2,0001,000,000 deferred shares of 10p each 148 148 2,148 2,148 AllottedEquity share capital140,645,619 (2006: 132,463,447) ordinary shares of €0.01 each 1,406 1,3251,000,000 deferred shares of 10p each 148 148 1,554 1,473 The deferred shares have no right to receive a dividend, no right to attend,speak or vote at general meetings of the Company and only a right to participatein a winding up after €100,000 has been paid on each Ordinary share. Movements in allotted, called up and fully paid share capital comprise: Deferred Ordinary shares of shares of 10p each €0.01 each •'000 •'000 At 31 March 2006 148 1,325Placing - 66On exercise of share options - 15 At 31 March 2007 148 1,406 On 14 September 2005, the Company made offers for the entire issued sharecapital of Accsys Chemicals PLC on the basis of one new Ordinary share of €0.01for each existing Ordinary share and of one new Deferred share of 10p for every48.1715 existing Deferred shares. After acceptances exceeded 90%, the Companyexercised compulsory purchase powers under the Companies Act to acquire theoutstanding Ordinary and Deferred shares. A total of 105,463,445 Ordinaryshares and 1,000,000 Deferred shares were issued in consideration. On 22November 2005, the Company completed its acquisition of the Ordinary andDeferred shares of Accsys Chemicals PLC, which became wholly owned, and alsocompleted the offer in respect of options over Ordinary shares in AccsysChemicals PLC. On 26 October 2005, the Company placed 27,000,000 new Ordinary shares at a priceof €1.00 each raising €25,209,000 after expenses and its Ordinary shares wereadmitted to AIM. On 8 November 2006, the Company placed 6,623,172 new Ordinary shares at a priceof €1.48 each raising €9,557,000 after expenses. Options over 1,559,000 Ordinary shares were exercised during the year at a priceof €0.46 each. Details of outstanding options granted over Ordinary shares inthe Company are set out in Note 10. 19 Reserves Share Profit premium Merger and loss account reserve accountGroup •'000 •'000 •'000 Balance at 1 April 2006 25,504 106,707 (82,759)Premium on shares issued 10,437 - -Issue costs (252) - -Share based payment charges - - 172Loss for the period - - (22,597) Balance at 31 March 2007 35,689 106,707 (105,184) Share Profit premium and loss account accountCompany •'000 •'000 Balance at 1 April 2006 25,504 (78)Premium on shares issued 10,437 -Issue costs (252) -Share based payment charges - 172Profit for the period - 6,195Unrealised gain on liquidation of former holding company - 8,010 Balance at 31 March 2007 35,689 14,299 In the comparative period, the Company utilised merger relief available under(S)131 of the Companies Act 1985 in respect of the shares issued to acquire theformer holding company, Accsys Chemicals PLC. The Profit and loss account ofthe Company includes €8,010,000 of non distributable reserves arising from theliquidation of Accsys Chemicals PLC 20 Commitments under operating leases As at 31 March 2007, the group had annual commitments under non-cancellableoperating leases as set out below: Land and Land and buildings buildings 2007 2006 •'000 •'000Operating leases which expire:In two to five years 361 286 The company has no annual commitments under non-cancellable operating leases. 21 Reconciliation of movements in shareholders' funds 2007 2006Group •'000 •'000 Loss for the financial year (22,597) (4,998)Share based payment charges 172 -Proceeds from issue of shares 10,266 25,774Shares issued by subsidiary - 4,195 Net (decrease)/increase in shareholders' funds (12,159) 24,971 Opening shareholders' funds 50,925 25,954 Closing shareholders' funds 38,766 50,925 Company Profit/(loss) for the financial year 6,195 (78)Unrealised gain on liquidation of former holding company 8,010 -Share based payment charges 172 -Shares issued to acquire Accsys Chemicals PLC - 1,203Proceeds from issue of shares 10,266 25,774 Net increase/(decrease) in shareholders' funds 24,643 26,899 Opening shareholders' funds 26,899 - Closing shareholders' funds 51,542 26,899 22 Financial instruments The group's treasury policy is structured to ensure thatadequate financial resources are available for the development of its businesswhilst managing its currency, interest rate and counterparty credit risks. Thegroup's Treasury strategy and policy are developed centrally and approved by theboard. Currency exposures are limited as the Group's functional currencyis the euro. A minor proportion of administrative expenditure is incurred inpounds sterling. Counterparty credit risks arise principally in relation to theGroup's short term liquid resources of €9,580,000 (2006: €26,819,000). Thesehave been placed directly or indirectly with high quality financial institutionsor are represented by a diversified portfolio managed within clearly definedinvestment guidelines by a highly reputable investment manager. Group Group Company Company 2007 2006 2007 2006 •'000 •'000 •'000 •'000Gross financial assets comprise:Redeemable preference shares - 15,513 - 15,513 Other financial assets:Other loans and deposits - 7,306 - 7,306Money market deposits 9,580 4,000 9,580 4,000Money at call 1,220 540 872 21Money at call in sterling 25 37 3 2 10,825 27,396 10,455 26,842 Redeemable preference shares were redeemable at the holder's option on onemonth's notice and are carried at fair value. This was been determined as thenet asset value reported by the investment manager at the balance sheet date.In the opinion of the directors, there is no material difference between thebook value and the fair value of other financial assets. All other financialassets have interest rates fixed for less than nine (2006: three) months at aweighted average of 3.12% (2006: 2.55%). Apart from minimal amounts denominatedin sterling currency, all financial assets are denominated in euro. At the balance sheet date, the Group has financial liabilities of €1,938,000(2006: €1,777,000) comprising trade creditors. The Company has no financialliabilities. In the opinion of the directors, there is no material differencebetween the book value and the fair value of financial liabilities. 23 Related party transactions Mr William Paterson-Brown is a director of Khalidiya Investments SA. During theyear the Company paid €406,795 (2006: €425,376) in respect of directors servicesprovided by Khalidiya Investments SA. 24 Capital commitments 2007 2006Group •'000 •'000 Contracted but not provided for 1,776 8,936 25 Reconciliation of operating loss to net cash outflow fromoperating activities 2007 2006 •'000 •'000 Operating loss (22,634) (5,780)Share based payment charges 172 -Depreciation of tangible fixed assets 733 21Impairment of tangible fixed assets 6,569 -Amortisation of intangible fixed assets 628 531Impairment of intangible fixed assets 5,850 -(Increase) in stock (910) -Decrease/(increase) in debtors 20 (497)Increase in creditors 1,118 1,257 Net cash outflow from operating activities (8,454) (4,468) 26 Reconciliation of net cash inflow to movement in net funds 2007 2006 •'000 •'000 Increase in cash in the year 668 13Cash (inflow)/outflow from changes in liquid resources (16,992) 16,690Shares issued in subsidiary in settlement of debt - 1,195 Movement in net funds in the year (16,324) 17,898(Decrease)/increase in value of current asset investment (247) 513Opening net funds 27,396 8,985 Closing net funds 10,825 27,396 27 Analysis of net funds 2007 2006 •'000 •'000 Increase in cash in the year 668 13Cash (inflow)/outflow from changes in liquid resources (16,992) 16,690Shares issued in subsidiary in settlement of debt - 1,195 Movement in net funds in the year (16,324) 17,898(Decrease)/increase in value of current asset investment (247) 513Opening net funds 27,396 8,985 Closing net funds 10,825 27,396 28 Post balance sheet events On 21 May 2007, 8,115,883 new Ordinary shares were issued to CelaneseCorporation at a price of €2.72 each for a cash consideration of €22,075,000. On 25 June 2007, the Company announced an agreement with Skanfore SA under whichrights to negotiate certain technology licenses were exchanged for a premiumpayable to the Group of €10m. Further details of the transaction are provided in the Chairman's Statement andthe Directors' Report. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Accsys Tech