Final Results

RNS Number : 7516P

Kenetics Group Limited

31 March 2009

 



Embargoed Until: 0700, 31 March 2009

Kenetics Group Limited

('Kenetics', the 'Group' or the 'Company')

Preliminary Results for the year ended 31 December 2008

Kenetics Group Limited (AIM:KEN), the Radio Frequency Identification ('RFID') group focussed on security and RFID systems and products, announces its Preliminary Results for the year ended 31 December 2008.

Highlights

• Consolidated revenue fell to £556,397 (2007:£699,768)

• Operating expenses reduced 3% to £1.15 million (2007:£1.18 million)

• Pre-tax loss for the year of £590,741 (2007:£433,084)

• Board satisfied that the Group has sufficient cash reserves for foreseeable future

• Major agreements signed with Singapore Land Transport Authority for Contactless Smart Card Readers, On board Bus Equipment and wireless local area network

• Appointment of distribution partner in Japan

Commenting on the results, Ken Wong, Chairman of Kenetics said: 

'The agreements we have signed with the Singapore LTA are transformational for Kenetics enhancing our capabilities and growth in the Automated Fare Collection Systems market.' He added: 'The global markets remain volatile and challenging, however your board feels that the significant transitional steps taken during 2008 will stand us in good stead to realise the significant opportunity our technology afford us and drive the business forward during the coming year.'

For more information, please contact:

Ken Wong, Chairman and CEO Kenetics Group Limited	Graeme Thom / David Newton  Zimmerman Adams International Ltd
Tel: [phone]	(Nominated Advisor)
Website:www.kenetics-group.com	Tel: [phone]
Peter Ward / Ian Callaway SVS Securities (PLC)	Jeremy Carey / Andrew Dunn Tavistock Communications Ltd
(Broker)	Tel: [phone]
Tel: [phone]

Chairman's Statement

In my last annual statement I reported that the Group had embarked upon a reorganisation programme with the objective of overcoming structural deficiencies and preparing the business for sustainable growth and profitability.  

During 2008, the Group maintained good progress with the restructuring and the development of a new generation of products, recruiting a team of highly skilled technical staff and expanding the sales and distribution networks.

These efforts have resulted in our securing contracts with the Singapore Land Transport Authority ('LTA'), which are transformational for the Group, and which we anticipate will be reflected in our results in 2009 and beyond.

Financial results

Consolidated revenue for the period fell to £556,397 (2007: £699,768) reflecting both the downturn in the global economy and the Group's focus during the first eight months of the year on securing the relationship with LTA.  

Operating expenses were £1.15 million (2007: £1.18 million) down 3% on the previous year with a substantial part being the continued investment in research and product development as well as sales and marketing.

The pre tax loss for the year was £590,741 (2007: £433,084).  

Finances

In July 2008, the Group announced that it had raised S$1 million (£372,000) by the issue of a convertible loan, due on 30 June 2009. Interest was not due and payable save in the event that the Company fails to repay the loan on the due date. The lender has subsequently agreed to extend the loan for a further twelve months with interest being payable at 6% per annum from 30 June 2009. 

Post the period end, in March 2009 the Group received a S$500,000 (£232,340) bridging loan from United Overseas Bank to provide additional working capital in respect of our contracts with the LTA, 80% of which was underwritten by the Government of Singapore. The loan is repayable over two years and carries a fixed interest rate of 5% per annum. We are pleased to receive two such endorsements of our strategy in the support provided both by the bank and the Government of Singapore. This shows confidence in our model and our capabilities as a technology leader in our field.  

These loans coupled with the beginning of payments from the LTA contracts means that the Board is satisfied that the Group has sufficient cash reserves for the foreseeable future. The Group will be seeking additional funds in the form of equity financing in the later part of the year to build on its business and allow the Company to exploit the potential provided by the LTA contracts.

Dividend policy

Because of its continuing commitment to invest in growing further the business and establishing Kenetics at the forefront of RFID technology and services, the Company does not have distributable reserves at this time. Consequently the Board is not recommending a dividend.

Product Development

Kenetics remains committed to its strategy of replacing existing product lines by developing new generation products ('GEN2') and growing our core team of leading technical staff to help us achieve this.  

We are also reducing our reliance on Original Design Manufacturers ('ODM') and systems business where traditionally returns on sales revenue have fluctuated, to better balance the income stream between ODM project work and Industrial product sales.

One of these new products, the Ultra High Frequency (UHF) USB RFID Reader has received wide interest in USA, Europe and Japan. This reader is believed to be the smallest currently commercially available in the market, being the size of an ordinary thumbdrive. Initial shipments have been made and it is expected that volume sales will pick up during 2009.  

Sales and Marketing

During the year we have taken major steps to improve our brand presence in our markets. During the first half of the 2008, we began exhibiting at industry trade shows in Hanover, Germany, Tokyo, Japan and Dallas, USA. Several of our products were displayed and we received very useful feedback from potential customers and partners alike, highlighting that Kenetics would benefit from a higher profile at such trade shows.  

A major step forward has been the appointment of a distribution partner in Japan. Several of Kenetics' RFID products were tested by TELEC, Japan and subsequently qualified for sale in Japan. In passing these stringent tests, Japanese customers are reassured of Kenetics product quality and advanced technology. Sales enquiries have been received from major Japanese companies and we are expecting to turn some of these enquiries into sales orders in the near future.

We are aware that these transitional processes will take time, and whilst they are very much ongoing, we are pleased to report that they are progressing well and in line with our expectations.

Research and Development

Besides continuing to enhance its new UHF technology platform and developing new generation RFID products, Kenetics began investing into the development of advanced Automated Fare Collection (AFC) technologies in early 2008. Strategically, Kenetics has identified a growing market towards automation in the public mass transport sectors, particularly in automated fare collection for rail and bus systems. To cater for global requirements, we have developed a short-range reader that is capable of reading most of the world's fare cards including the Oyster card used by London Transport.  

Singapore Land Transport Authority 

With our Interim results in September 2008, we announced that we had secured a contract with the LTA for the supply of a Contactless Smart Card ('CSC') Readers capable of reading both the current public transport fare cards and new CSCs. We also announced that the contract allows the LTA the option to purchase additional card readers, reportedly requiring a number of 22,000 card readers on buses and at train stations with the implementation of the new CSC.

The relationship with the LTA developed further post the period end as we announced in January 2009 an additional agreement to supply on-board bus equipment ('OBE') with a wireless local area network ('WLAN'). The agreement includes the design, manufacture, supply, delivery, installation, testing and commissioning of the new OBE and WLAN. The contract is expected to complete within 15 months of the contract award and is subject to extensive trials on existing buses. If successful, the Board anticipates that the contract will enhance Kenetics' capabilities and growth in the Automated Fare Collection Systems market.

Advisers

In March 2009, Kenetics appointed SVS Securities Ltd as broker to the Company. We welcome their enthusiasm and contribution and look forward to working with them over the coming months. SVS will work alongside Zimmerman Adams International, which remains the Company's nominated adviser.

Directors and Employees

Kenetics was pleased to appoint Mr Terry Fuller to our Board as non-executive director in March 2008. Mr Fuller has contributed considerable experience to the Group and his assistance during the year has proven invaluable.

We thank our dedicated staff across the Group, whose hard work and enthusiasm has helped us progress this year.

Outlook

The global markets remain volatile and challenging, however your Board feels that the significant transitional steps taken during 2008 will stand us in good stead to realise the significant opportunity our technology affords us and drive the business forward during the coming year.

Ken Wong

Chairman

Kenetics Group Ltd

30 March 2009

KENETICS GROUP LIMITED

(Incorporated in Jersey)

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

	Note	2008		2007
		£		£
Continuing operations
Revenue		556,397		699,768
Other operating income		512		49,604
Changes in inventories of finished goods
and work-in-progress		(3,515)		80,075
Raw materials and consumables used		(292,738)		(408,045)
Employee benefits expenses		(463,182)		(491,594)
Depreciation of plant and equipment		(90,938)		(59,578)
Other operating expenses		(283,418)		(301,405)
Finance costs		(13,859)		(1,909)
Loss before tax		(590,741)		(433,084)
Income tax	5	(315)		6,217
Loss for the year		(591,056)		(426,867)
Attributable to:
Equity holders of the company		(580,254)		(426,867)
Minority interests		(10,802)		-
		(591,056)		(426,867)
Loss per share (pence)
- Basic and diluted	4	(2.24)		(1.62)

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2008

			2008		2007
			£		£
Non-Current Assets
Plant and equipments			120,749		143,437
Available for sale financial asset			-		22,332
Total non-current assets			120,749		165,769
Current Assets
Inventories			332,314		236,610
Trade receivables			68,253		139,226
Other receivables			71,421		31,774
Cash and cash equivalents			168,952		172,865
Total current assets			640,940		580,475
Total assets			761,689		746,244
Equity
Share capital			263,495		263,495
Share premium			280,204		280,204
Share option reserve			3,415		27,411
Equity component  of convertible loan			16,260		-
Merger reserve			369,579		369,579
Foreign currency translation reserve			21,343		(26,514)
Accumulated losses			(1,186,196)		(632,423)
Total equity			(231,900)		281,752
Non-Current Liabilities
Obligations under finance leases			-		457
Amount owing to a director			272,007		-
Total non-current liabilities			272,007		457
Current liabilities
Trade payables			49,989		146,521
Other payables			115,205		138,225
Amount owing to directors			20,489		51,447
Obligations under finance leases			632		5,535
Convertible loan			362,938		-
Bank overdraft - secured			172,329		122,307
Total current liabilities			721,582		464,035
Total liabilities			993,589		464,492
Total equity and liabilities			761,689		746,244

CONSOLIDATED CASH FLOW STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2008

		2008		2007
		£		£
Cash Flow From Operating Activities
Loss before taxation		(590,741)		(433,084)
Adjustments for:
Depreciation		90,938		59,578
Impairment loss		30,884		122,159
Plant and equipment written off		-		266
Provision for inventory obsolescence		39,774		9,654
Share option		2,485		930
Interest income		(1,358)		(1,579)
Interest expense		15,217		3,488
Operating loss before working capital changes		(412,801)		(238,588)
Increase in contract work-in-progress		(23,969)		(29,424)
Decrease in trade and other receivables		94,220		2,632
Increase in inventories		(19,752)		(84,376)
(Decrease)/increase in trade and other payables		(362,997)		105,937
Cash used in operations		(725,299)		(243,819)
Interest paid		(7,766)		(3,488)
Income tax (paid)/refunded		(315)		6,378
Net cash flows used in operating activities		(733,380)		(240,929)
Cash Flows from Investing Activities
Purchase of plant and equipment		(12,851)		(56,392)
Capital contribution from minority interests		10,802		-
Interest received		1,358		1,579
Net cash flows used in investing activities		(691)		(54,813)
Cash Flows from Financing Activities
Loan from/(to) director		221,346		(8,579)
Proceeds from convertible loan		371,747		-
Difference of fixed deposit balance due to accumulation of interest		(2,250)		(1,603)
Loan from hire purchase creditor		(7,654)		(5,269)
Net cash flows generated from/(used in) financing activities		583,189		(15,451)
Net decrease in cash and cash equivalents		(150,882)		(311,193)
Effect of exchange rate changes		60,077		(19,062)
Cash and cash equivalents at beginning of year		(39,838)		290,417
Cash and cash equivalents at end of year		(130,643)		(39,838)

NOTES TO THE FINANCIAL INFORMATION

1. Financial information

The preliminary results were approved by the Board of Directors on 30 March 2009. The financial information set out above does not comprise the Company's statutory financial statements for the years ended 31 December 2008 and 2007, but is derived from those financial statements. The auditors have reported on the statutory financial statements for the years ended 31 December 2008 and 2007; their report was unqualified.

2. Exchange rates

The financial statements of the Group are presented in Pound Sterling ('£') which is the Company's functional currency. The functional currencies of Kenetics Innovations Pte Ltd and Kenetics Innovations (Beijing) Co Ltd are Singapore Dollars ('S$') and Renminbi ('RMB') respectively. The following exchange rates have been used in preparing the financial statements as at 31 December 2008:

	S$1 = £	RMB1 = £
31 December 2008	0.47920	0.10140
Average rates	0.38437	0.07863

3. Basis of preparation

These preliminary results have been prepared in accordance with the accounting policies adopted by the Company which are consistent with those adopted in annual report and accounts for the period ended 31 December 2007.

These preliminary results have also been prepared in accordance with International Financial Reporting Standards.

4. Loss per share

Basic loss per share has been calculated by dividing the net loss attributable to equity holders of the Company of £591,056 (2007: £426,867) by the weighted average number of ordinary shares outstanding during the financial year of 26,349,466 (2007: 26,349,466).

The number of ordinary shares used for the calculation of basic loss per share in 2008 and 2007 where merger accounting is applied, is based on the contributed capital of Kenetics Innovations Pte Ltd, adjusted to equivalent shares of the Company whose shares are outstanding after the combination.

5. Income tax

The income tax credit attributable to the loss of £315 (2007: Over-provision of £6,217) is made up of under-provision of tax provision in prior year.

 

END

 

 

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