Interim Results
Stanelco PLC
29 June 2004
29 June 2004
STANELCO PLC
UNAUDITED INTERIM CONSOLIDATED ACCOUNTS
for the six months ended 30 April 2004
CHIEF EXECUTIVE'S STATEMENT
This period saw Stanelco plc, the RF (radio frequency) applications group,
continue to successfully progress its strategic diversification away from its
traditional business of high technology furnaces for optical fibre manufacture,
into the exciting area of RF technology applications. The opportunities for the
Group in this area are great. The Group has already demonstrated the
commercial-scale application of several of its new technologies and is poised to
make a commercial breakthrough. The commercialisation of new applications and
routes to market based upon our core technology remains the key and exciting
focus for the business.
Much of the hard work undertaken in this period has seen us reap rewards in
announcements made since the end the interim period. In particular the
announcement to acquire Aquasol was a great step forward for the Group. Already
we are seeing the benefit from this in helping us open doors to new and exciting
applications. We stand at the very front of the line in this revolutionary area
of using RF sealing technology on polymer films to provide genuine products for
use in the marketplace, often improving quality and reducing costs along the
way. In addition the technology and process provides an environmentally sound
solution, being energy efficient and replacing oil based products with
sustainable easily replenished biodegradable materials which is becoming
increasingly more important in today's society.
As a result, the Group continues to invest heavily in the development, patenting
and commercialisation of its RF technology for applications including ingestible
capsules, food sachets, detergent capsules and packaging materials. The Group is
currently negotiating with 15 major corporations including machinery
manufacturers, packaging suppliers and end users regarding its new technologies.
The Group has lodged four patent applications in the period and following the
acquisition of Aquasol Limited, we are working on a number of inventive
technologies and expect to file several patent applications with good commercial
prospects in the coming months.
The majority of anticipated revenues are unaffected by the court case with
BioProgress Technologies Limited.
The Group is incurring significant costs in the preparation of its case against
BioProgress which concerns the determination of patent ownership. Stanelco
considers that the BioProgress claims are entirely without merit and is strongly
resisting them. Stanelco will take all actions necessary to protect its
ownership of all patents and thereby safeguard shareholder value. This case is
due to be heard in the High Court commencing on 8 July this year with a
determination expected in September. During this transition phase, whilst
these negotiations and the court action remain ongoing and we continue to invest
in development, the Group continued to be loss making for the half year to 30
April 2004. However the £1.5m injection of funds at the Rights Issue means that
the Group has cash reserves and no net borrowings.
Stanelco continues to find trading difficult in its traditional business of high
technology furnaces for optical fibre manufacture due to the telecommunications
market downturn. Steps are being taken to further reduce costs in this area.
Results
Turnover has reduced by 64 per cent to £320,000 compared to £889,000 for the
same period last year. This has resulted in a pre-tax loss before exceptional
items of £265,000 compared to the underlying pre-tax loss of £96,000 last year.
There is an exceptional loss of £226,000 in the year relating to the costs of
the BioProgress legal action. We are advised that should we be successful, a
significant proportion will be recoverable. The current period trading has
resulted in a basic loss per share of 0.067p compared to a reported basic loss
per share of 0.006p for the corresponding period last year.
We continue to monitor our cost base and we are focusing the majority of our
resources on developing and commercialising new applications.
At the half-year, net cash increased by £593,000 from that reported at the end
of our previous financial year. The Rights issue in January 2004 combined with
the exercise of some share options contributed £1,702,000 to the cash reserves,
operational activities resulted in an outflow of £282,000 of cash but a
significant proportion of this relates to the previously mentioned legal action.
The group invested £831,000 of funds in an intensive period of research and
development. During the period £831,000 of costs were capitalised. The
substantial proportion of these costs arises from the development of ingestible
capsules through InGel Technologies Ltd (InGel), film development projects
through Adept Polymers Ltd and developing a commercial detergent capsule process
( in conjunction with Aquasol Ltd which was subsequently acquired in June 2004).
Dividend
The Directors' current intention is to consider the final dividend for the
current financial year pending a review of trading conditions at the financial
year-end.
Acquisition of Aquasol Limited
At the beginning of the second half of the current financial year the Group
acquired 100% of the issued share capital of Aquasol Limited (Aquasol) for a
maximum consideration of £3.1 million, the majority of which is subject to the
achievement of performance criteria related to the financial contribution made
to the Group.
Aquasol is the world leader in water-soluble packaging innovation, products and
processes. The intellectual property based company has over 18 years experience
in water-soluble packaging technology and its team has been named inventors in
44 international patent applications. Aquasol are the creators of Unilever's
Persil capsule, Reckitt Benckiser's gelcaps including Electrasol, Woolite and
Calgonit brands and Schering-Plough Animal Health's Coopers Ectoforce Sheep Dip.
Aquasol has dedicated development facilities near Chelmsford, Essex. Aquasol
currently has a turnover of around £400k of which a significant and growing
portion is in the form of royalties. Royalties and profit sharing that would
have been due to Aquasol under the collaborative agreement between Stanelco and
Aquasol, announced in November, will now remain within the Group. Aquasol's last
audited accounts at 31 August 2003 showed a turnover of £476k, net assets of
£220k and was at breakeven at the pre-tax profit level.
The Group has successfully converted the first commercial-scale thermoforming
machine using its RF sealing technology. This equipment is now being
demonstrated to potential customers using polymer films from Stanelco and other
suppliers to make products filled with fluids or powders. The RF sealing
technology offers customers the prospect of significantly improving product
quality and reducing product cost. This technology also enables the production
of a new range of edible sachet products.
At the time of the acquisition I said that we believed that our combined
technologies and customer relationships will offer an exciting opportunity for
customers to become more eco-friendly whilst at the same time significantly
improving operating margins. I am pleased to inform you that two new and
exciting classes of products have been added to the Group's portfolio as a
result of the collaborative efforts of Aquasol with the other parts of the group
and third parties.
The first of these is water-soluble, biodegradable packaging material containing
air bubbles to replace bubble wrap made from conventional plastics. The film
material that we can supply and process has been assessed to be close in cost to
conventional plastics, it is less abrasive and holds air in the bubbles for
longer. The material can be reused or discarded and composted; consumers could
even dispose of it in dishwashers or washing machines.
The second is a self-adhesive water-soluble film material that has a 100%
water-soluble adhesive. This opens up markets for protective film, tapes and
labels.
Aquasol remains an intellectual property based company and a leader in the field
of developing water-soluble packaging and delivery systems. Aquasol's technology
and future direction have a strong strategic fit with those of Stanelco.
InGel Technologies
We are pleased to report significant progress with the InGel Technologies
Limited venture. Stanelco has successfully demonstrated the use of RF technology
to rapidly manufacture soft, one-piece capsules for oral and topical (applied to
skin) applications using water-soluble materials. With the success of this
demonstration, the company is now designing and building a pilot commercial
scale machine for manufacturing capsules to nutritional- and pharmaceutical
standards.
This is a true breakthrough in the commercial processing of water-soluble and
edible materials which I believe is leading to a revolutionary new generation of
commercial RF processing equipment. We have achieved a major milestone for all
parties involved. Work is now focusing on further optimising all aspects of the
processing economics prior to the anticipated commercial launch.
InGel Technologies is a co-venture between Stanelco, plc. and Cardinal Health,
the leading provider of products and services for the health care industry.
Cardinal Health is ranked 17th on the current Fortune 500 list.
Optical fibre
This traditional business is becoming less of a focus for the Group's future
activities due to its cyclical nature. The Group is in the process of supplying
a significant system to Japan, but is not anticipating a market recovery during
the next 12 months.
Waste packaging
Stanelco's RF sealing technology enables customers to seal hazardous materials
in industrial grade plastic bags. Unlike heat sealing and other traditional RF
methods, we can seal through liquids, dusts and particulates without burning the
plastic to produce a high integrity seal. We continue to anticipate sporadic
sales of batches of waste packaging equipment. The group has increased prices in
order to make this business sufficiently attractive to it.
We have now made our first overseas' sale of this equipment.
Detergent Capsules
We are currently undertaking trials on commercial scale equipment for a range of
laundry and dishwasher applications. We are anticipating that this work will
result in equipment sales, royalties and the sale of water-soluble films.
R&D Work
During the first half of the current financial year we invested the equivalent
of approximately 260 per cent. of our turnover into research and development
activities, the funding of which has been supported by the January 2004 Rights
Issue. When it makes sense, we seek to protect our intellectual property through
patenting and we work closely with intellectual property specialists in this
regard. We continue to anticipate significant R&D expenditure as we develop new
products for the future.
Prospects
At the date of this report, the order book stands at £432,000.
Based upon the current projects that are under negotiation, we expect to see an
increasing level of sales for machinery and royalties based upon cost savings
and added value our technology brings to our new applications. We are not
anticipating a growth in our traditional business of optical fibre furnaces and
we are expecting sales of waste packaging systems to be sporadic, although we
have become the sole supplier of such systems to the largest UK based end user.
Any one of several significant pending negotiations could significantly
transform the financial performance of the group during the second half of the
financial year.
Ian Balchin
Chief Executive
28 June 2004
For further information:
Ian Balchin
Stanelco plc 01489 570991
Jonathon Brill
Financial Dynamics 020 7831 3113
CONSOLIDATED SUMMARISED
PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 APRIL 2004
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2004 2003 2003
£'000 £'000 £'000
TURNOVER 320 889 1,851
Operating results before exceptional items (271) (111) (517)
Exceptional item (226) - (130)
OPERATING (LOSS)/PROFIT (497) (111) (647)
Net interest receivable 7 15 24
(LOSS)/PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION (490) (96) (623)
Taxation - 55 156
(LOSS)/PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION (490) (41) (467)
Minority interest - - 2
(LOSS)/PROFIT FOR THE PERIOD (490) (41) (465)
Dividends (7) - (70)
RETAINED (LOSS)/PROFIT FOR THE PERIOD (497) (41) (535)
EARNINGS PER SHARE
Basic (loss) / earnings per share (pence) (0.067) (0.006) (0.068)
Fully diluted (loss)/earnings per share (pence) (0.062) (0.006) (0.067)
DIVIDENDS PER SHARE (pence) - - 0.01
NOTES TO THE CONSOLIDATED SUMMARISED
PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 APRIL 2004
Notes
1. Earnings per share
The basic loss per share is based on an attributable loss after tax of £490,000
(2003 £41,000) and on the basic weighted average ordinary shares in issue during
the period of 733,889,937 (2003: 686,829,750). The fully diluted earnings per
share are based on an attributable loss after tax of £490,000 (2003:(£41,000)
and on the diluted share holding of 785,187,525 (2003: 687,556,312).
2. Research and development expenditure of £831,000 (2003: £357,000) has been
incurred in the period. Of this expenditure £831,000 (2003: £357,000) has been
capitalised as an intangible asset to be amortised against future revenues.
Expenditure of this type is only capitalised where the Board is of the opinion
that future revenues will exceed the costs incurred over the expected product
life in accordance with Statement of Standard Accounting Practice Number 13.
3. Exceptional Items of £226,000 relate to the costs associated with the High
Court action that Stanelco Fibre Optics Limited, a wholly owned subsidiary of
Stanelco Plc, is taking against BioProgress. The action relates to determining
that BioProgress has no claim of entitlement to patents granted to Stanelco
Fibre Optics Limited. The Board are advised that the group should recover a
significant amount of the costs incurred following a successful outcome.
4. There is an additional provision for dividends payable in the period in
respect of the final dividend for year end 2003 following the rights issue.
5. The figures for the year ended 31 October 2003 are an abridged statement of
the full Group Accounts for that year which have been delivered to the Registrar
of Companies and on which the Auditors made an unqualified report and which did
not contain a statement under Section 237 of the Companies Act 1985.
The principal accounting policies of the Group have remained unchanged from
those set out in the Group's 2003 Annual Report and Financial Statements. The
financial information set out in this Interim Report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985.
The interim financial information in this report has been neither audited, or
reviewed by the Company's auditors.
6. Copies of this statement are being sent to all shareholders and will be
available to the public at the Company's registered office.
CONSOLIDATED
RECONCILIATION OF MOVEMENTS
IN SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 30 APRIL 2004
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2004 2003 2003
£'000 £'000 £'000
(Loss)/profit for the financial period (490) (41) (467)
Minority interest - - 2
Dividends (7) - (70)
(497) (41) (535)
Rights Issue 58,527,479 Ordinary 0.1p shares 1,568 - -
New share capital subscribed 456 - 531
Net addition to shareholders' funds 1,527 (41) (4)
Opening shareholders' funds 2,647 2,651 2,651
Closing shareholders' funds 4,174 2,610 2,647
CONSOLIDATED BALANCE SHEET
AT 30 APRIL 2004
Unaudited Audited
At 30 April 2003 At 31 October 2002
£'000 £'000 £'000 £'000
FIXED ASSETS
Intangible assets 2,384 1,586
Tangible assets 747 502
3,131 2,088
CURRENT ASSETS
Stocks 589 537
Debtors 265 515
Cash at bank and in hand 857 264
1,711 1,316
CREDITORS: amounts falling due
within one year (559) (648)
NET CURRENT ASSETS 1,152 668
TOTAL ASSETS LESS CURRENT LIABILITIES 4,283 2,756
PROVISIONS FOR LIABILITIES AND CHARGES (82) (82)
4,201 2,674
CAPITAL AND RESERVES
Called up share capital 772 702
Share premium account 3,551 1,597
Profit and loss account (149) 348
SHAREHOLDERS' FUNDS 4,174 2,647
Minority interest 27 27
4,201 2,674
The Interim Accounts were approved by the Board on 28 June 2004
Signed on behalf of the Board of Directors
Ian H Balchin (Chief Executive)
Barrie C Hozier (Finance Director)
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 APRIL 2004
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2004 2003 2003
£'000 £'000 £'000
Note
NET CASH (OUTFLOW) /INFLOW FROM
OPERATING ACTIVITIES 1 (282) 139 (367)
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
Interest received 8 15 23
Interest paid (1) - -
NET CASH INFLOW/ (OUTFLOW) FROM RETURNS
ON INVESTMENTS AND SERVICING OF FINANCE 7 15 23
TAXATION
Corporation tax (paid) - (2) (4)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Investment in intangible fixed assets (831) (357) (619)
Purchase of tangible fixed assets (12) (13) (144)
Sale of tangible fixed assets 12 6 33
NET CASH OUTFLOW FROM CAPITAL
EXPENDITURE AND FINANCIAL INVESTMENT (831) (364) (730)
ACQUISITIONS AND DISPOSALS
Cash at bank acquired with subsidiary - - 256
EQUITY DIVIDENDS PAID
Dividend paid (3) (2) (65)
FINANCING
Issue of ordinary share capital 1,702 - -
NET CASH INFLOW FROM
FINANCING 1,702 - -
INCREASE / (DECREASE) IN CASH 2 593 (214) (887)
NOTES TO THE CONSOLIDATED
CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 APRIL 2004
1. RECONCILIATION OF OPERATING PROFIT TO THE NET CASH INFLOW
FROM OPERATING ACTIVITIES
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2004 2003 2003
£'000 £'000 £'000
Operating (loss) for the period (497) (111) (647)
Amortisation of intangible fixed assets 33 25 59
Depreciation of tangible fixed assets 67 43 129
Loss/(profit) on disposal of tangible fixed assets 10 (2) (5)
(Increase)/decrease in stocks (52) (17) 120
Decrease in debtors 250 424 314
(Decrease) in creditors due within one year (93) (215) (340)
(Decrease) in provision for liabilities
and charges - (8) 3
Net cash (outflow)/inflow from operating activities (282) 139 (367)
2. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Unaudited Unaudited Unaudited Audited
Six months Six months Six months Year
ended ended ended ended
30 April 30 April 30 April ctober
2004 2003 2003 2002
£'000 £'000 £'000 £'000
Increase/(decrease) in cash in the period 593 (214) (887) 374
3
Change in net debt resulting from cash flows 593 (214) (887) 377
Net funds at beginning of period 264 1,151 1,151 774
Net funds at end of period 857 937 264 1,151
NOTES TO THE CONSOLIDATED
CASH FLOW STATEMENT
CONTINUED
3. ANALYSIS OF CHANGES IN NET FUNDS
At At
1 November 30 April
2003 Cash flow 2004
Unaudited £'000 £'000 £'000
Cash at bank and in hand 264 593 857
At At
1 November 30 April
2002 Cash flow 2003
Unaudited £'000 £'000 £'000
Cash at bank and in hand 1,151 (214) 937
At At
1 November 31 October
2002 Cash flow 2003
Audited £'000 £'000 £'000
Cash at bank and in hand 1,151 (887) 264
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