Preliminary Results

Stanelco PLC 21 March 2007 21st March 2007 Stanelco Plc ('Stanelco','the Company' or 'the Group') Preliminary Results for the 14 months ended 31st December 2006 Financial Highlights • Group revenue £6.7m; trading loss before exceptional items (£6.4m) • Exceptional write-offs after strategic review (£8.4m) • Closing Group cash position £12.9m • Loss per share (1.179p) Business Highlights • Strategic review conducted - streamlined focus on core developments with an emphasis on the most viable commercial offerings • Strengthened Board and senior management team • Significantly reduced cost base and maximised operational efficiency • Two successful placings of Ordinary Shares raising a total of £19.6m (before expenses) Martin Wagner, Chief Executive said: 'Although challenging, the last fourteen months have seen Stanelco progress its portfolio of products and developments towards commercialisation. The Board believes that Stanelco is capable of offering packaging applications that provide added value and environmental benefits which are more sustainable than existing products these replace. 'We believe demand for our current and future products will be enhanced by favourable political and economic policies to reduce environmental damage. Although there may be further challenges ahead, following our strategic review we believe that Stanelco is well placed to maximise opportunities to commercialise our products.' - Ends - For further information please contact: Martin Wagner, Chief Executive, Stanelco plc Tel: +44 (0) 20 7831 3113 Clive Warner, Finance Director, Stanelco plc (on 21st March only) Jonathon Brill/Caroline Stewart, Tel: +44 (0) 20 7831 3113 Financial Dynamics Chairman's Statement for the 14 months ended 31st December 2006 CHAIRMAN'S STATEMENT The Company has undergone a significant change over the past 14 months as we continue to develop our product portfolio towards achieving commercialisation. This included a fundamental review of our business to identify the key areas to move forward and focus on by determining which are the most viable to commercialise at the earliest opportunity. The share placing in November 2006 raised £14.5m (net of expenses) to meet our working capital requirements. These funds will enable the necessary investments to be made and supported as the Company works towards achieving market success with its portfolio of products. This followed an equity placing in June 2006, when £3.7m was raised (net of expenses) to use as working capital and to meet the second stage payment for the acquisition of Biotec. Specifically the new funds will be used to: • expand manufacturing capabilities in Germany and the US to meet increasing global demand for Starpol resins; • meet the final stage payment of £1.6m net due in June 2007 to EKI for the Biotec acquisition; • provide sufficient working capital for the Group to fund the next stage of commercial development of the Group's products; and • provide additional funds for joint venture partnerships to capitalise on the Group's intellectual property portfolio. We continue to review our product developments in order to maintain momentum for successful commercialisation. Importantly we also continue to drive both sales of those of our products which are currently commercially available and to extract value from our patent portfolio. The executive team consists of a Chief Executive and Finance Director. Three executive functions have been consolidated into the Chief Executive role and we aim to have a majority of non-executive Directors on the Board in the future. We have strengthened our Board with the appointments of Martin Wagner as Chief Executive in November 2005 and Clive Warner as Finance Director in June 2006. Martin was previously Head of Packaging Development at ASDA Stores Limited, and Clive, a Chartered Accountant, has previously gained extensive Finance Director experience in the leisure & retail sectors. During the period the Board was restructured. Robert Duggan, Terry Robins and Graham Whitchurch resigned from the Board but remained as executives. Also during the period, Ian Balchin, Robert Boardman and Howard White left the Board. Beyond the period end, we announced that John Standen has been appointed as a Non-Executive Director. John will succeed me as Chairman when I step down at the Annual General Meeting, after four years as Chairman. He is an experienced Director of publicly listed companies, following a career in corporate finance. John's knowledge of the City and wide-ranging commercial experience gives the Board confidence that he will play a key role in the future development of the Company and we are pleased to welcome him. Group revenue increased to £6.7m during the fourteen month period (12 months to 31st October 2005: £1.5m, which included only two months of results from Biotec). We started the period with a cash position of £4.4m and closed with £12.9m in cash, which includes the funds raised within the period. We report a loss per share of 1.179p. The underlying trading loss before exceptional items for the period, £6.4m, was in line with management's expectations at the time of the placing in November 2006. A strategic review of the business identified a series of measures which were taken during the period and has resulted in the charge of a number of one-off largely non-cash items. The Board viewed these measures as important for the long-term benefit of the Company. The net loss following these decisions is £14.8m. The Board do not recommend any dividend. We expect to further strengthen the non-executive presence on the Board in due course to ensure we have the best advice from experienced people in order that the Company can achieve its strategic objectives. I would also like to take this last opportunity as Chairman to thank the shareholders, employees and other Board Members for their continued support. I believe that although there will be further challenges ahead, the Board has the breadth of skills and relevant experience to further develop the Company's portfolio of global market products successfully over the financial year ahead. Philip Lovegrove Chairman 21st March 2007 Chief Executive's Statement for the 14 months ended 31st December 2006 CHIEF EXECUTIVE'S STATEMENT Stanelco's business model has transformed from being only a manufacturer of equipment to concentrating on developing a range of packaging and related products which address today's demands for sustainable packaging and the wider green issues facing consumers. Much of this is derived from our groundbreaking research and development facilities in both Germany and the UK. The Group's philosophy is that new products and processes must offer solutions and applications which provide added value and environmental benefits and which are more sustainable than those products they replace. The management team is concentrating on developing our technologies towards a profitable and environmentally sustainable range of products. We continue to be an active member of the WalMart Sustainable Value Network and we are developing close relationships with our fellow members. We now have two Starpol products on WalMart shelves in the US with a third imminent. We are excited about the opportunities that being part of this network has created. In addition, we are in discussions with other members regarding Aquasol's product range. At the start of the period we had high expectations of our GREENSEAL technology. As previously indicated, the time taken to commercialise this technology and the ongoing hurdles have proved to be a major disappointment. Over this period, commercial trials have identified areas for improvement which have been undertaken to make it operational in a factory environment. These trials continue. The Board believes that there will be significant value within its portfolio of products. A comprehensive review has been conducted in order to assess the priorities and to determine the appropriate cost and management structure. Strategic Review This review resulted in three major divisions - Biotec, Aquasol and RF developments (including GREENSEAL). Measures taken following this strategic review include: • strengthening the Company's sales function. David Wetters was appointed as Sales Director on the management board in November 2006. David has particular expertise in the sale of technical machinery and compounding resins and has experience of working across the global market; • reduction of the UK and US cost base by 40%; • reduction in the UK and US employee headcount by over 40%; • closure of the US office - this move does not compromise our ability to engage with US partners as we maintain a presence in the US; and • closure of Adept Polymers' PVOH manufacturing facility. Supplies of PVOH are being sourced externally. The Board believes these measures will help Stanelco to deliver on its potential for the benefit of its shareholders. The Company is balancing short-term deliverables with long-term opportunities. We now have a stronger team dedicated to delivering our goals. Operational Review BIOTEC Biotec is responsible for researching, developing and manufacturing a range of biodegradable products from its base in Germany, led by its Managing Director, Harald Schmidt. It is a subsidiary jointly-owned in equal shares with SPhere, a European manufacturer of household products. Development of the Biotec group of products remains core for the Company and this division continues to grow strongly, having doubled its sales in the period. We are delighted that the relationship with SPhere has developed positively to the continuing benefit of both parties. There is considerable demand for Biotec's range of products. However, the pace at which we can deliver these products is currently being influenced by a shortage of one of its core ingredients, PLA (polylactic acid) resin. The Company is pursuing several options to obtain further material and is also trialling alternative materials. Until such alternatives are in place, there will be some delay with investment in manufacturing facilities in the US. The products commercially available, including Starpol NS, Starpol 2000 and WRAP 100, are being used to make a full range of products, from flexible film to food trays and golf tees. Other products being developed within this division are: • Starpol 3000 - over the period we have completed the initial stages of development and we are working with a number of companies in order to undertake full commercial trials. • Starpol 4000 - this is a blend of biodegradable and conventional plastics. We are currently working on hybrid solutions to deliver specific materials required in the global market place. We continue to develop the starch cigarette filter technology and will provide an update when the filtration trials have reached a more advanced stage. AQUASOL The Company is optimistic that this division has a range of packaging and related products which have a strong market potential. We have a small, energetic team, led by David Edwards, who is well respected globally in this particular sector. The Company has appointed Pricewaterhouse Coopers to review a number of Aquasol patents. They have been engaged to determine the relevant markets, the extent of competition and potential revenues, and will then advise on the best routes to market and commercialisation. Examples of Aquasol products currently available include FrogPack, Pulsline and a range of third party manufactured products earning royalties. FrogMat, a fully biodegradable and sustainable protective product with exceptional cushioning properties and many other features, continues to be developed. We have commissioned ShrinkWrap, a packaging machinery company, to design and manufacture machines and we are working with a US partner to produce and sell the product. Good progress is being made. Royalty and commission agreements are in place for Quantum Finish with Reckitt Benckiser, for FrogPack with Merlin Products and for Pulsline with Berkshire Labels. Revenues being received are increasing and are expected to continue to do so. The existing sales in this division generate sufficient revenue to cover the costs of development. We expect that current developments will enable us to grow sales from this division significantly in the future. The Board believes that developing joint ventures will be key to the future of this division. RF DEVELOPMENTS There are two main areas within this division - traditional applications (being radio frequency thermal processing equipment) and GREENSEAL. RF Applications Our traditional RF business has provided Stanelco with a presence in markets including mobile welders, fibre optics, zirconia tubes and general parts and servicing. This is a core business which provides a steady revenue stream with current customers BNFL and Nextrom. We believe there is scope for growth in the global market, particularly in the US and Japan. GREENSEAL GREENSEAL is an environmentally friendly sealing solution used for food trays in the retail marketplace. Trials have been ongoing since 2005 with several major packaging companies and a number of original equipment manufacturers have been monitoring our progress. In particular, the trials with Hitchen Foods are ongoing. Co-ordinating opportunities for prolonged trials with packaging processors has proved more difficult than anticipated. The complexities are associated with tooling and the changing demands from retailers. We have been frustrated by the time taken to exploit this technology and we continue to explore different opportunities to effect the roll out. However, this will take longer, and the revenues generated will be less, than originally indicated. Sealed Air, one of the world's largest packaging companies, is undertaking various trials at Marchwood. It is examining the potential use of RF technology applications within its group. Financial Review Following the acquisition of Biotec, the Company's financial year-end was changed in line with Biotec's year-end to 31st December. These accounts therefore cover the fourteen month period from 1st November 2005. The Group's revenue increased to £6.7m during the fourteen month period (12 months to 31st October 2005: £1.5m). This has been largely driven by Biotec, where volumes have increased following the post-acquisition investment in the manufacturing facilities and a full year of trading as part of Stanelco. The opening cash position was £4.4m. The Company has raised £18.2m (post £1.4m expenses) which is being used as working capital, stage payments for the Biotec acquisition and capital expenditure. The closing cash position was £12.9m. The Company has taken a firm control on its expenditure and over the period has reduced its UK and US cost base by 40%. This has been through reducing headcount and costs to align the expenditure to the current business model. The underlying trading loss for the period, £6.4m, was in line with management's expectations at the time of the placing in November 2006. However, the measures taken as part of the strategic review resulted in the following one-off items in the period: • review of intangible assets for GREENSEAL and other technologies has resulted in a write down of £5.5m; • closure of Adept's manufacturing facility resulted in a write off of £1.2m; • redundancies and restructuring costs following the re-organisation has resulted in a charge of £0.5m; and • review of the net book value of assets and valuation of stock, especially in the GREENSEAL division, has resulted in a write off £1.1m. While the Company is aware that these one-off charges have had a significant impact on the period's results, the Directors believe these measures have been necessary for the long-term benefit of the Company. The net loss following these one-off items is £14.8m. The resulting loss per share is 1.179p. The Board do not recommend any dividend. Employees I would like to thank our employees and partners for their continued support in improving the efficiency and effectiveness of our business during a period of important change for Stanelco. I also look forward to continuing to improve the performance of the Company during 2007. Outlook We believe demand for our current and future products will be enhanced by favourable political and economic policies to reduce environmental damage. Although there may be further challenges ahead, following our strategic review we believe that Stanelco is well placed to maximise opportunities to commercialise its products. Martin Wagner Chief Executive 21st March 2007 Consolidated income statement FOR THE PERIOD ENDED 31 DECEMBER 2006 Note 14 Months ended 12 Months ended 31 December 2006 31 October 2005 as restated £'000 £'000 _________________________________________________________________________________________________________ REVENUE 3 6,670 1,454 Cost of sales (4,668) (889) --------- --------- GROSS PROFIT 2,002 565 Distribution costs (220) (67) Administrative expenses 3 (8,201) (3,200) --------- --------- LOSS FROM OPERATIONS BEFORE EXCEPTIONAL ITEMS (6,419) (2,702) Exceptional items 4 (8,416) (690) --------- --------- LOSS FROM OPERATIONS AFTER EXCEPTIONAL ITEMS (14,835) (3,392) Investment revenue 134 168 Finance costs (163) (35) --------- --------- LOSS BEFORE TAXATION (14,864) (3,259) Taxation 446 37 --------- --------- LOSS FOR THE PERIOD (14,418) (3,222) ========= ========= Attributable to: Equity holders of the parent (14,289) (3,150) Minority interest (129) (72) --------- --------- RETAINED FOR THE PERIOD (14,418) (3,222) ========= ========= Basic and diluted loss per share - pence 5 (1.179) (0.363) ========= ========= All transactions arise from continuing operations. All recognised gains and losses are included in the income statement. Consolidated balance sheet AS AT 31 DECEMBER 2006 At 31 December 2006 At 31 October 2005 as restated Note £'000 £'000 £'000 £'000 _________________________________________________________________________________________________________ NON-CURRENT ASSETS Goodwill 14,067 13,930 Other intangible assets 979 5,755 Property, plant and equipment 4,018 3,235 ------- ------- 19,064 22,920 CURRENT ASSETS Inventories 1,854 2,604 Trade and other receivables 1,152 1,155 Amounts due on part disposal of subsidiary 1,597 3,531 Corporation tax 439 60 Cash and cash equivalents 12,916 4,396 ------- ------- 17,958 11,746 ------- ------- TOTAL ASSETS 37,022 34,666 ======= ======= CURRENT LIABILITIES Trade and other payables 1,479 1,581 Amounts due to third party in respect of purchase of subsidiary 3,194 3,531 Promissory notes 5,205 5,168 Tax liabilities - 8 Obligations under finance lease 40 38 Bank overdrafts and loans 5 21 Short term provisions 7 857 1,453 ------- ------- 10,780 11,800 ------- ------- NON-CURRENT LIABILITIES Amounts due to third party in respect of purchase of subsidiary - 3,531 Obligations under finance lease 27 36 Bank loans - 111 ------- ------- 27 3,678 ------- ------- TOTAL LIABILITIES 10,807 15,478 ======= ======= NET ASSETS 26,215 19,188 ======= ======= Consolidated balance sheet (continued) AS AT 31 DECEMBER 2006 At At 31 December 2006 31 October 2005 as restated £'000 £'000 ____________________________________________________________________________________________________________ EQUITY Share capital 2,978 929 Share premium account 37,932 19,899 Shares to be issued 800 1,050 Share options reserve 1,016 393 Hedging and translation reserves 243 19 Retained losses (19,826) (5,600) --------- --------- EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 23,143 16,690 Minority interest 3,072 2,498 --------- --------- TOTAL EQUITY 26,215 19,188 ========= ========= Consolidated statement of changes in equity AS AT 31 DECEMBER 2006 Share Share Shares to Share Hedging & capital premium be issued options translation account reserve reserves £'000 £'000 £'000 £'000 £'000 _____________________________________________________________________________________________________________ Balance at 1 November 2004 832 5,209 2,500 71 - ------------------------------------------------------- Exchange differences arising on translation of overseas operation - - - - 19 ------------------------------------------------------- Net income recognised directly in equity - - - - 19 Loss for the period - - - - - ------------------------------------------------------- Total recognised income and expense for the period - - - - 19 New share capital subscribed 97 14,498 - - - Share premium on new shares subscribed in subsidiary - 192 - - - Shares issued in respect of purchase of subsidiary - - (500) - - Adjustment to contingent consideration on purchase of subsidiary - - (950) - - Minority interest arising on part disposal of subsidiaries - - - - - Share option charges in period - - - 325 - Share options exercised in period - - - (3) - ------------------------------------------------------- Balance at 31 October 2005 929 19,899 1,050 393 19 ======================================================= Balance at 1 November 2005 929 19,899 1,050 393 19 ------------------------------------------------------- Exchange differences arising on translation of overseas operation - - - - 224 ------------------------------------------------------- Net income recognised directly in equity - - - - 224 Loss for the period - - - - - ------------------------------------------------------- Total recognised income and expense for the period - - - - 224 New share capital subscribed 2,049 18,033 - - - Minority share of increase in subsidiaries capital reserve - - - - - Shares issued in respect of purchase of subsidiary - - (400) - - Adjustment to contingent consideration on - - 150 - - purchase of subsidiary Share option charges in period - - - 686 Share options exercised in period - - - (63) - ------------------------------------------------------- Balance at 31 December 2006 2,978 37,932 800 1,016 243 ======================================================= Consolidated statement of changes in equity (continued) AS AT 31 DECEMBER 2006 Retained ATTRIBUTABLE TO Minority TOTAL losses EQUITY HOLDERS OF interest EQUITY THE PARENT £'000 £'000 £'000 £'000 Balance at ------------------------------------------------------ 1 November 2004 (2,453) 6,159 23 6,182 ------------------------------------------------------ Exchange differences arising on translation of overseas operation - 19 - 19 ------------------------------------------------------ Net income recognised directly in equity - 19 - 19 Loss for the period (3,150) (3,150) 72 (3,078) ------------------------------------------------------ Total recognised income and expense for the period (3,150) (3,131) 72 (3,059) New share capital subscribed - 14,595 - 14,595 Share premium on new shares subscribed in subsidiary - 192 13 205 Shares issued in respect of purchase of subsidiary - (500) - (500) Adjustment to contingent consideration on purchase of subsidiary - (950) - (950) Minority interest arising on part disposal of subsidiaries - - 2,390 2,390 Share option charges in period - 325 - 325 Share options exercised in period 3 - - - ------------------------------------------------------ Balance at 31 October 2005 (5,600) 16,690 2,498 19,188 ------------------------------------------------------ Balance at 1 November 2005 (5,600) 16,690 2,498 19,188 ------------------------------------------------------ Exchange differences arising on translation of overseas operation - 224 21 245 ------------------------------------------------------ Net income recognised directly in equity - 224 21 245 Loss for the period (14,289) (14,289) (129) (14,418) ------------------------------------------------------ Total recognised income and expense for the period (14,289) (14,065) (108) (14,173) New share capital subscribed - 20,082 - 20,082 Minority share of increase in subsidiaries capital reserve - - 682 682 Shares issued in respect of purchase of subsidiary - (400) - (400) Adjustment to contingent consideration on purchase of subsidiary - 150 - 150 Share option charges in period - 686 686 Share options exercised in period 63 - - - ------------------------------------------------------ Balance at 31 December 2006 (19,826) 23,143 3,072 26,215 ------------------------------------------------------ Consolidated cash flow statement AS AT 31 DECEMBER 2006 12 Months ended 14 Months ended 31 October 2005 31 December 2006 As restated Note £'000 £'000 ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ NET CASH OUTFLOW FROM OPERATING ACTIVITIES 8 (6,926) (4,138) ____________________________________________________________________________________________________________ INVESTING ACTIVITIES Interest received 134 168 Proceeds on disposal of property, plant and equipment 34 25 Investment in intangible assets (1,406) (3,436) Purchase of property, plant and equipment (2,067) (807) Purchase of Biotec Holdings GmbH (3,438) (7,082) Part disposal of Biotec Holdings GmbH 1,719 3,372 Cash at bank acquired with Biotec Holdings GmbH - 65 ____________________________________________________________________________________________________________ NET CASH USED IN INVESTING ACTIVITIES (5,024) (7,695) ____________________________________________________________________________________________________________ FINANCING ACTIVITIES Dividend paid - (1) Repayment of loan capital (132) (15) Repayment of obligations under finance lease (83) (19) Proceeds of issue of ordinary share capital 19,682 14,287 Proceeds of issue of shares in subsidiary to minority interest 682 1,015 New finance lease 76 42 ____________________________________________________________________________________________________________ NET CASH FROM FINANCING ACTIVITIES 20,225 15,309 ____________________________________________________________________________________________________________ NET INCREASE IN CASH AND CASH EQUIVALENTS 8,275 3,476 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,396 920 Effect of foreign exchange rate changes 245 - ____________________________________________________________________________________________________________ CASH AND CASH EQUIVALENTS AT END OF PERIOD 12,916 4,396 ======== ======== NOTES TO THE PRELIMINARY STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2006 1. CHANGES IN ACCOUNTING POLICIES The principal accounting policies of the Group have remained unchanged as stated in the Group's 2005 Annual Report and Financial Statements with the exception of those set out in the Transition Statement which was published with the Interim Consolidated accounts on 13 July 2006 to reflect changes required as a result of adopting IFRS. The financial information for the year to 31 October 2005 has been extracted from the Group's IFRS transitional document, which was based on the 2005 Annual Report. 2. CHANGE OF ACCOUNTING PERIOD The Group has changed its financial accounting period to end on 31 December to bring it into line with its German subsidiary. These Financial Statements therefore report results for a 14 month period and as a result comparative amounts in the income statement, changes in equity, cash flows and related notes are not comparable. 3. REVENUE AND LOSS FROM OPERATIONS BEFORE EXCEPTIONAL ITEMS AND TAXATION 14 Months ended 12 Months ended 31 December 31 October 2005 2006 as restated £'000 £'000 _______________________________________________________________________________________________________ Revenue Sales are made from the United Kingdom into the following geographical markets: United Kingdom 631 492 Europe 231 121 Asia 285 142 North America 284 430 Rest of world 57 7 ----- ----- 1,488 1,192 ===== ===== Sales are made from Germany into the following geographical markets: United Kingdom 14 - Europe 5,154 262 North America 14 - ----- ----- 5,182 262 ===== ===== ----- ----- Total revenue 6,670 1,454 ===== ===== The world-wide activities of Stanelco plc are highly integrated and, accordingly, it is not possible to present geographical segment information for loss before taxation without making internal allocations, some of which are necessarily subjective. 14 Months ended 12 Months ended 31 December 31 October 2005 2006 as restated £'000 £'000 _______________________________________________________________________________________________________ Net Assets Net assets of the Group are located in the following geographical markets: United Kingdom 14,820 8,536 Europe 11,386 10,596 North America 9 56 ------- ------- 26,215 19,188 ======= ======= 14 Months ended 12 Months ended 31 December 31 October 2005 2006 as restated £'000 £'000 ______________________________________________________________________________________________________ The loss on operations before exceptional items and taxation is stated after charging/(crediting): Depreciation, amortisation and impairment: Other intangible fixed assets, owned 503 422 Property, plant and equipment, owned 607 202 Property, plant and equipment, leased 13 14 Loss on disposal of property, plant and equipment 9 10 Auditors' remuneration: audit work 82 75 non-audit work 90 37 Hire of plant and machinery 34 20 Operating lease rentals: Land and buildings 217 140 (Gain) / loss on foreign exchange transactions (187) 317 Charge for share based payments 686 325 Bad debt provision 6 2 ======= ======= 4. EXCEPTIONAL ITEMS 14 Months ended 12 Months ended 31 December 31 October 2005 2006 As restated £'000 £'000 _____________________________________________________________________________________________________ The loss from operations after exceptional items and before taxation is stated after charging / (crediting): Exceptional items: Best estimate of liabilities in relation to conclusion of patent defence - 690 Charges following strategic review: Bad debt provision 66 - Impairment of other intangible assets 5,529 - Impairment of inventories 1,416 - Impairment and disposal of property, plant and equipment 696 - Provision for costs relating to strategic review 709 - ------- ------- 8,416 690 ======= ======= Further details of these items are explained in the Chief Executive Officer's statement. 5. EARNINGS PER SHARE The calculation of earnings per share is based on the loss after tax for the year of £(14,418,000) (2005: £(3,222,000)) and a weighted average of 1,223,004,193 (2005: 888,097,434) ordinary shares in issue. 6. DIVIDEND The directors do not recommend the payment of a dividend. 7. PROVISIONS FOR LIABILITIES AND CHARGES Warranty Other Total provision provisions £'000 £'000 £'000 At 1 November 2004 12 1,081 1,093 Utilised in the year (12) (444) (456) On acquisition 99 - 99 Provided in year 2 715 717 ----- ----- ----- At 31 October 2005 as restated 101 1,352 1,453 ===== ===== ===== At 1 November 2005 101 1,352 1,453 Utilised in the period (3) (1,302) (1,305) Provided in period - 709 709 ----- ----- ----- At 31 December 2006 98 759 857 ===== ===== ===== Warranty Provision The warranty provision is for expected warranty claims on products sold during the financial period. It is expected that this expenditure will be incurred in the next financial year. Other provisions The provision brought forward at 1 November 2005 relates primarily to best estimates of the liabilities incurred in respect of action in defence of patents. On 9th February 2006 Stanelco Plc announced that it had reached a settlement of the legal dispute between two of their subsidiaries with BioProgress Plc. Stanelco plc agreed to issue to BioProgress new ordinary 0.1p shares and/or cash up to a maximum market value of £1,000,000. Stanelco Plc subsequently announced that these shares had been issued and sold by BioProgress Plc and that this represents full and final settlement of the dispute. Amounts utilised in the year offset the settlement and legal costs associated with this matter. The Board have made provision during the year against the estimated liabilities associated with the strategic review. This provision of £709,000 includes estimates of costs related to the departure of Directors and employees and also other operational obligations. The Board considers that disclosure of more detailed information would be prejudicial to the business in concluding these matters. 8. NOTES TO CONSOLIDATED CASH FLOW STATEMENT 14 Months ended 12 Months ended 31 December 2006 31 October 2005 £'000s as restated £'000 __________________________________________________________________________________________________________ Loss from operations and exceptional items (14,835) (3,393) Adjustment for:- Amortisation and impairment of intangible fixed assets 6,032 422 Depreciation of property, plant and equipment 1,276 216 Share based payments 686 325 Loss on disposal of property, plant and equipment 49 10 (Decrease)/increase in provisions (596) 262 ---------- ---------- Operating cash flows before movement in working capital (7,388) (2,158) Decrease / (increase) in inventories 750 (1,504) Decrease / (increase) in receivables 218 (172) (Decrease) in payables (461) (261) ---------- ---------- Cash utilised by operations (6,881) (4,095) Corporation tax received/(paid) 59 (10) Interest paid (104) (33) ---------- ---------- Net cash (outflow) from operating activities (6,926) (4,138) ========== ========== Additions to property, plant and equipment during the period amounting to £76k were financed by new finance leases. 9. CONTINGENT LIABILITIES An un-quantified claim has been made against the Company by an individual following their departure from the Company during the period. The Board strenuously believe the claim is unfounded, and accordingly no provision has been made. 10. REPORT AND FINANCIAL STATEMENTS The financial information set out in this preliminary announcement does not constitute the group's statutory accounts for the period ended 31 December 2006 or the year ended 31 October 2005. The statutory accounts for 2006 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the group's Annual General Meeting. The information relating to the year ended 31 October 2005 is extracted from the audited accounts that have been filed at Companies House and on which the auditors issued an unqualified opinion. The above financial information does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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