Preliminary Results

Sarantel Group PLC 28 November 2006 Embargoed until 7:00 28 November 2006 Sarantel Group PLC Preliminary results for the year ended 30 september 2006 Sarantel Group PLC (AIM: SLG.L), the leading manufacturer and supplier of filtering antennas for wireless devices, today announces its preliminary results for the year ended 30 September 2006. Highlights are as follows: • Turnover grew by 43% to £4.0m (2005: £2.8m) • Loss before tax of £6.1m (before exceptional items) (2005: £5.3m) and £6.9m after exceptional items (2005: £5.6m) • Sales in the second half were flat • Recent GPS sales momentum with design wins at Hewlett Packard and TomTom • MoU signed with Samina SCI for Asian outsourced manufacturing (as announced separately today) • Significant expansion into US satellite radio market • Restructuring announced in October completed with cost saving of £1m annually • Cash balances of £5.1m at year end (of which £1.3m is in a blocked account) (2005: £13.1m) Geoff Shingles, Chairman, commented: 'I am now confident that the shape and direction of Sarantel are set for the exciting markets we are addressing in both satellite navigation and satellite radio where the size and performance of our antennas become increasingly desirable and necessary as time passes. Customers, and hence manufacturers, are demanding slimmer, more accurate and higher performance designs for portable and handheld products. We are uniquely positioned to meet these requirements with our compact high sensitivity devices. The recent wins with Hewlett Packard and TomTom attest to this demand.' An analyst briefing will be held at 9.30am today at the offices of Smithfield, 10 Aldersgate Street, London, EC1A 4HJ. For further information please contact: Sarantel Group PLC 01933 670560 Geoff Shingles, Chairman www.sarantel.com David Wither, CEO Smithfield 020 7360 4900 Sara Musgrave/Tania Wild Pictures are available for the media to view and download from www.vismedia.co.uk Notes to Editors: About Sarantel Sarantel designs, manufactures and sells patented, ceramic, filtering antennas for use in portable wireless devices. These antennas allow a clearer signal than conventional antennas whilst reducing the amount of energy absorbed by the body by approximately 90 per cent. They also simplify system design, thus allowing design standardisation and reduced time to market and cost for manufacturers. Sarantel's antennas significantly improve the performance of wireless systems by increasing their range and effective bandwidth. The Company supplies antennas to the Global Positioning Satellite (GPS) market and the North American satellite radio market and Sarantel's antennas have been successfully designed into Personal Navigation Devices (PNDs), laptops and Personal Digital Assistants (PDAs). Sarantel's antenna technology is also capable of servicing multiple high volume markets such as Wi-Fi, 3G and Bluetooth. Sarantel is listed on AIM, a market operated by the London Stock Exchange and is included in the IT Hardware sector (93) within the Telecommunications equipment sub-sector (938) and has a RIC code of SLG.L CHAIRMAN'S STATEMENT In June, I was pleased to join Sarantel and have the opportunity to lead the Board. We have just completed a year of considerable change, some low points and recently achieved some high points in our chosen markets. During the year we did not make the expected sales progress in the satellite radio market with XM Radio and since the year end we have put in place the necessary cost savings to ensure future sustainability. Despite this it was still pleasing to see that Sarantel revenues grew 43%. We were recently delighted to announce that Sarantel's antenna has been chosen by Hewlett Packard for their recently launched iPAQ rx5000 Travel Companion series. This is a major win for Sarantel and clearly shows the unrivalled performance of our technology. The MoU signed with Sanmina-SCi this month is very exciting news not only because of their reputation as the world's 3rd largest CEM, but also the potential that this relationship brings to Sarantel. Since the year ended we also announced Ambrian Partners as our financial advisor and corporate broker. Ambrian Partners are enthusiastic about our company, our marketplace and in particular our leading edge technology. We look forward to their strong support and commitment. In October 2006, we strengthened the talent available to Sarantel with non-executive director appointments at board level. These are Philip David, General Counsel at ARM who brings invaluable experience in the intellectual property field and Colin Tucker, Executive Director at Hutchinson Whampoa. Colin has spent his career in the areas of the telecoms market that are key for us in the future. Their appointments are a huge endorsement for the company. I am now confident that the shape and direction of Sarantel are set for the exciting markets we are addressing in both satellite navigation and satellite radio where the size and performance of our antennas become increasingly desirable and necessary as time passes. Customers, and hence manufacturers, are demanding slimmer, more accurate and higher performance designs for portable and handheld products. We are uniquely positioned to meet these requirements with our compact high sensitivity devices. The recent wins with Hewlett Packard and TomTom attest to this demand. I look forward to a year of more predictable progress especially after the actions we have recently taken to manage and control our business. Geoff Shingles Non-Executive Chairman CHIEF EXECUTIVES STATEMENT Financial Results Sarantel grew its turnover by 43% to £4.02m. Loss before taxation was £6.1m (before exceptional charges of £0.8m) compared with £5.3m in 2005 (before exceptional charges of £0.3m) as the company made investments in the resources necessary to address the rapidly growing GPS and Satellite Radio markets. After investing £2.7m in capital items cash balances at the end of September were £5.1m, of which £1.3m were committed to secure asset financing obligations. Year in Review Customers, Markets and Products The GPS navigation market grew strongly in 2006 and, according to industry analysts this strong growth is expected to continue for the foreseeable future. Despite this, Sarantel's GPS sales during the year remained flat. There were three contributing factors for this: loss of sales momentum due to our inability to deliver sufficient volume to our largest GPS customer in 2005, excess inventory held by our 2nd largest customer and the transition to our 2nd generation GPS antenna. The new GPS antenna was introduced to the market in January 2006 and customer reception has been very positive. Sales of this second generation antenna are helping us to regain sales momentum in our core market and customer inventory levels have started to return to normal. We were very pleased to announce that HP had selected our antenna technology for their HP iPAQ rx5000 Travel Companion series, which offers best in class performance in the industry's thinnest package. We believe this product marks the beginning of a market trend towards more portable, slim-line multi-function navigation devices. The company's entry into the US Satellite Radio market was bittersweet. After a number of significant customer related delays, we successfully ramped-up volume production of our new satellite radio product. This was an enormous achievement for Sarantel as it was the first product that used our newly developed assembly process. The ramp up in production went according to plan and yields exceeded our expectations. As announced on 20 July 2006, after a very strong start we were informed by XM Satellite Radio that sales of the Pioneer Inno and Samsung Helix were well below expectations. This was a major setback for Sarantel and resulted in the Company missing its revenue forecasts for the year. Indications are, however, that this market will begin to recover in the 2nd half of our FY2007. Satellite Radio is a rapidly emerging market and Sarantel's technology is well positioned to capture a significant portion of the portable radio market. We continue to work closely with XM Satellite Radio and expect to benefit from this relationship when their business recovers. Manufacturing Sarantel also announced today that it has signed a memorandum of understanding with Sanmina-SCI to sub-contract production processes to a manufacturing facility based in Singapore. We are very excited to work with Sanmina-SCI, the world's 3rd largest Contract Electronic Manufacturer ('CEM') with annual turnover approaching $11b per year, and we are confident that this relationship will create new opportunities for Sarantel. In addition to providing Sarantel with a highly credible second source to supply major OEMs, Sanmina-SCI will help to build a resilient and low cost supply chain in Asia. We expect the transfer of our production process to be largely completed during 2007 with volume production beginning in 2008. As demand for our technology grows we intend to expand our volume production footprint with Sanmina-SCI in Asia. Sarantel remains committed to UK production and it is essential to our business to maintain a manufacturing operation in Wellingborough. This operation will provide supply chain redundancy and facilities for new product introduction and technology development. At the beginning of the year, the company continued to invest in manufacturing capacity in Wellingborough in order to meet customer demand and to avoid the capacity shortfall which hampered the business in the previous year. However, the expected demand did not materialise leading to low capacity utilisation in the second half of the year. We expect this situation to improve as our 2nd generation GPS product ramps-up with multiple customers. Additionally, XM Satellite Radio have indicated they will have consumed their antenna inventory and will be placing new orders during the 2nd half of 2007. Regardless of the setbacks in demand, the company continued to make great progress on its cost reduction efforts and we have made a number of dramatic improvements in operational efficiency. These fundamental improvements should positively impact on our business when demand improves. Patented Technology Huge importance is placed on the quality of our intellectual property and on the proper maintenance and growth of our intellectual property portfolio. During 2006, Sarantel filed five new patent applications to protect our existing position and extend the application of our products. As the scope of our business grows, we naturally address new technical problems which require adaptations of our existing intellectual property to provide new solutions. These innovations are particularly interesting as they are stimulated by real-market needs and complement the original research based intellectual property of the Company. Management and staff I would like to take this opportunity to sincerely thank all of the employees of Sarantel during what has been a very difficult year for the Company. Unfortunately, the unexpected drop in demand left Sarantel with no choice but to restructure the business, as announced in early October. These painful cost reduction steps are necessary to preserve the company's resources and to align the organisation with market demand. We will be forever indebted to those dedicated former employees who remained focused, and helped to build this business from the start. Summary The company has made significant progress with a number of major OEMs during the year and I believe we are now well positioned for continued growth. In addition to this we have also: • successfully launched a new GPS product which is attracting broad market interest from a number of leading OEMs including companies like HP; • successfully entered the US satellite radio market and won deals with major OEMs like Samsung and Pioneer. In spite of lower than expected demand for the first generation of product we remain convinced that this market will recover as our customer refines their marketing strategy; • Signed an Asian outsource manufacturing deal with Sanmina-SCI, the world's 3rd largest CEM; • continued to develop our well-protected core technology with the addition of five new patents; and • strengthened our relationship with a number of top-tier customers around the world and restructured our sales team to improve our focus on our core GPS market. Outlook The Company's top priority is to execute its strategy to successfully expand our GPS market share. The market trend towards slim-line, hand-portable products gives Sarantel an advantage as the incumbent technologies are struggling to maintain reasonable performance levels in smaller products. We believe that customers who value performance and want a small product are finding our technology increasingly attractive. Additionally, we believe the setback in the U.S. satellite radio market was temporary, and we are well positioned to grow with this market in the future. We are excited about our partnership with Sanmina-SCI and remain confident that our ongoing cost reduction efforts, coupled with the uniqueness of our patent protected technology, will enable us to meet the market challenges while expanding our margins. We look forward to another year of continued growth. David Wither Chief Executive Officer Finance Director's Review Overview Financial Review Turnover grew by 43% in the year reaching £4m, and this growth was driven by shipments of our satellite radio antennas. The average selling price improved slightly compared to 2005 as a result of a favourable mix of GPS products shipped and deliveries of satellite radio antennas. Product cost reduction is a key element of the company's strategy and during the year we continued to reduce costs through improved yields and lower material cost. As a result our material margins improved to 47% (after adjusting for labour and overheads included in Finished goods stock) against 45% in 2005. Operating costs before depreciation grew by 19%. Part of this growth is related to growth in the number of units manufactured but in the second half, our costs were adversely affected by higher IP related costs, additional office space and industrialisation of our GPS II antenna. In October 2006, we announced a restructuring of the company which has now been completed. As a result, we expect to achieve net cost savings of around £1m in 2007 of which approximately 50% relate to personnel costs, having reduced staff numbers from 110 to 75. Non Financial KPI Delivery precision is measured as the percentage of orders that are delivered on time compared to customer request. During 2006 the delivery precision achieved was 90% (2005: 90% (from the date this KPI was adopted)). Customers are always kept informed of delivery dates, especially when they do not match their requested dates. Foreign currencies The company sells antennas in US$ while costs are principally in UK£. The exchange rate during the year varied widely between 1.86 and 1.75. The group follows a policy to hedge its exposure to exchange rate movements through forward contracts and option agreements. Consequently, the net impact of this volatility was immaterial to the results for the year. Exceptional Item We conducted a review of our fixed assets at the end of September and concluded that certain fixed assets with a written down value of £0.8m were no longer required because of improvements in our manufacturing processes. This amount has been written off in the profit and loss account for the year. Taxation The group estimates that it is entitled to a refund for research and development tax credit amounting to approximately £0.2m for 2006. Loss per share The loss per share was 12.4 pence compared with 12.3 pence for 2005. Inventories Due to the lower than expected sales in our second half, inventories grew to £1.7m, of which £1.4m were Finished Goods stock. A thorough review of this stock has been conducted and the Board is of the opinion that the stock will be consumed within the foreseeable future and therefore no provision has been considered necessary. Cash During the year, net cash outflow amounted to £8.1m. Capital expenditure totalled £2.7m, of which £0.8m was financed through leases and hire-purchase agreements. The net outflow from operating activities was £6.2m, including an amount of £1.6m used to build up stock. We believe that the amount of capital investment made in 2006 will bring our production capacity to a level which is more than sufficient to enable the company to breakeven. As a consequence, our cash burn in future years has been reduced, assisted by the cost savings from the restructuring programme and consumption of stock of finished goods. There is also the potential that the MoU signed with Sanmina-CSI will positively impact the cash position of Sarantel in future years if they acquire some of our manufacturing assets. IFRS The group has prepared a transition plan to implement International Financial Reporting Standards (IFRS) for the year ended 30th September 2008, including comparatives for the year ended 30th September 2007. The Group is required to report under IFRS for the first time in the Group's interim results for the six months ended 31 March 2008, with comparatives for the six months ended 31 March 2007. Based on an initial assessment of the potential impact of IFRS, the directors expect that the areas that will need to be considered are functional currency to be adopted and the treatment of Research and Development expenditure. Sitkow Yeung Finance Director Basis of Accounting The financial statements have been prepared under the historical cost convention, and in accordance with applicable United Kingdom accounting standards. The principal accounting policies of the Group have remained unchanged from those used in the previous year. Basis of Preparation These financial statements have been prepared on a going concern basis. After making due enquiries, the directors have a reasonable expectation at the time of approving the financial statements that the group has adequate financial resources to continue to operate for the foreseeable future and, consequently, continue to use the going concern basis for preparing the financial statements which follow. Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and all Group undertakings (see note 11). Merger accounting was applied in the prior period in respect of the acquisition of Sarantel Limited via a share for share exchange on 23 February 2005 as part of a Group reconstruction. The investment has been recorded in the Company's balance sheet at the nominal value of the shares issued. Turnover Income is recognised on despatch of goods. The turnover shown in the profit and loss account represents amounts receivable for goods supplied during the year, exclusive of Value Added Tax. Research and Development Research and development expenditure is written off in the year in which it is incurred. Intangible Fixed Assets Patents are included at cost, representing third party costs of registering. Purchased goodwill representing the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is capitalised and was fully amortised at 30 September 2004. Amortisation Amortisation is calculated on a straight line basis so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Patents - ten years from year following acquisition Depreciation Depreciation is calculated on a straight line basis so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Leasehold improvements - 10% Plant and machinery - 20% - 33% from date asset is put into use Fixtures and fittings - 20% Computer equipment - 33% Stocks Stocks are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items. Cost includes material, direct labour and an appropriate proportion of manufacturing overheads based on normal levels of activity. Net realisable value represents the estimated selling price less all estimated costs of completion, marketing, selling and distribution. Leasing and Hire Purchase Commitments Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have passed to the Group, and hire purchase contracts, are capitalised in the balance sheet and are depreciated over their useful lives. The capital elements of future obligations under the leases and hire purchase contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged in the profit and loss account over the periods of the leases and hire purchase contracts and represent a constant proportion of the balance of capital repayments outstanding. Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term. Deferred Taxation Deferred tax is recognised on all timing differences where the transactions or events that give the Group an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantially enacted at the balance sheet date. Foreign Currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating loss. Pensions The Group operates a Group personal pension plan (a money purchase arrangement) for the benefit of certain Directors and employees. Pension costs are charged to the profit and loss account in the period to which they relate. Financial Instruments Financial assets are recognised in the balance sheet at the lower of cost and net realisable value. Interest receivable and payable is accrued and charged or credited to the profit and loss account in the period to which it relates. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity. 2006 2005 Note £ £ --------------------------------- -------- --------- --------- Turnover 1 4,021,532 2,802,454 Operating costs: Change in stocks of finished goods and work in progress (1,452,526) 92,319 Raw materials and consumables 3,004,319 1,464,061 Other operating costs 3 - 115,000 Other external charges 527,650 677,930 Staff costs 4 4,061,185 3,034,483 Depreciation and other amounts written off tangible and intangible assets 9/10 2,391,627 1,087,982 Other operating charges 2,630,495 2,220,937 -------------------------------- -------- ---------- --------- 11,162,750 8,692,712 -------------------------------- -------- ---------- --------- Operating loss 2 (7,141,218) (5,890,258) -------------------------------- -------- ---------- --------- Operating loss before depreciation, amortisation and exceptional items (4,749,591) (4,497,310) Exceptional non-recurring costs 3 (770,134) (304,966) Depreciation (1,621,493) (1,087,982) -------------------------------- -------- ---------- ---------- Net interest 5 237,551 328,447 -------------------------------- -------- ---------- ---------- Loss on ordinary activities before taxation (6,903,667) (5,561,811) Tax on loss on ordinary activities 6 168,920 150,215 -------------------------------- -------- ---------- ---------- Loss for the financial year 22 (6,734,747) (5,411,596) -------------------------------- -------- ---------- ---------- Basic loss per share 8 (12.4)p (12.3)p -------------------------------- -------- ---------- ---------- During the prior year, the Group carried out a corporate restructuring including the introduction of a new holding company. There were no recognised gains or losses other than the loss for the financial year. All the activities of the Group are classed as continuing. The accompanying accounting policies and notes form an integral part of these financial statements. 2006 2005 Note £ £ ------------------------------ -------- ---------- ---------- Fixed assets Intangible assets 9 861,408 576,619 Tangible assets 10 4,743,006 4,671,031 ------------------------------ -------- ---------- ---------- 5,604,414 5,247,650 Current assets Stocks 12 1,709,683 126,281 Debtors 13 795,918 1,046,655 Cash at bank and in hand 26 5,050,123 13,134,412 ------------------------------ -------- ---------- ---------- 7,555,724 14,307,348 Creditors: amounts falling due within one year 14 1,969,910 2,009,708 ------------------------------ -------- ---------- ---------- Net current assets 5,585,814 12,297,640 ------------------------------ -------- ---------- ---------- Total assets less current liabilities 11,190,228 17,545,290 Creditors: amounts falling due after more than one year 15 618,844 460,257 ------------------------------ -------- ---------- ---------- 10,571,384 17,085,033 ------------------------------ -------- ---------- ---------- Capital and reserves Called-up equity share capital 20 5,494,039 5,355,891 Share premium account 21 14,424,857 14,341,907 Other reserves 21 13,389,536 13,389,536 Profit and loss account 21 (22,737,048) (16,002,301) ------------------------------ -------- ---------- ---------- Shareholders' funds 10,571,384 17,085,033 ------------------------------ -------- ---------- ---------- The accompanying accounting policies and notes form an integral part of these financial statements. These financial statements were approved by the Board of Directors on 27 November 2006 and are signed on its behalf by: John Uttley Sitkow Yeung Director Director 2006 2005 Note £ £ --------------------------------- ------ ---------- --------- Fixed assets Investments 11 3,080,348 3,080,348 --------------------------------- ------ ---------- --------- Current assets Debtors 13 14,034,770 6,154,394 Cash at bank and in hand 3,286,240 10,914,530 --------------------------------- ------ ---------- --------- 17,321,010 17,068,924 Creditors: amounts falling due within one year 14 28,187 107,769 -------------------------------- ------ ---------- ---------- Net current assets 17,292,823 16,961,155 -------------------------------- ------ ---------- ---------- Total assets less current liabilities 20,373,171 20,041,503 -------------------------------- ------ ---------- ---------- Capital and reserves Called-up equity share capital 20 5,494,039 5,355,891 Share premium account 21 14,424,857 14,341,907 Profit and loss account 21 454,275 343,705 -------------------------------- ------ ---------- ---------- Shareholders' funds 20,373,171 20,041,503 -------------------------------- ------ ---------- ---------- The accompanying accounting policies and notes form an integral part of these financial statements. These financial statements were approved by the Board of Directors on 27 November 2006 and are signed on its behalf by: John Uttley Sitkow Yeung Director Director 2006 2005 Note £ £ ----------------------------------- ------ --------- --------- Net cash outflow from operating activities 23 (6,244,443) (3,950,835) Returns on investments and servicing of finance Interest received 321,270 406,803 Interest paid (121) (31,980) Finance lease interest paid (83,598) (46,376) --------------------------------- ------ ---------- ---------- Net cash inflow from returns on investments and servicing of finance 237,551 328,447 --------------------------------- ------ ---------- ---------- Taxation received 149,821 165,215 Capital expenditure Payments to acquire tangible fixed assets (2,395,345) (2,007,309) Payments to acquire intangible fixed assets (353,047) (241,216) --------------------------------- ------ ---------- ---------- Net cash outflow from capital expenditure (2,748,392) (2,248,525) --------------------------------- ------ ---------- ---------- Cash outflow before financing (8,605,463) (5,705,698) Financing Issue of shares 221,094 18,099,187 Expenses paid in connection with issue of shares - (1,481,735) Issue of shares in subsidiary prior to reconstruction - 345,198 Net cash movement in respect of capital element of finance lease rentals 24 300,080 (191,586) --------------------------------- ------ ---------- ---------- Net cash inflow from financing 521,174 16,771,064 --------------------------------- ------ ---------- ---------- Decrease/(increase) in cash 24 (8,084,289) 11,065,366 --------------------------------- ------ ---------- ---------- The accompanying accounting policies and notes form an integral part of these financial statements. 1 Turnover An analysis of turnover by geographical market or segmental information has not been disclosed as, in the opinion of the Directors, it would be seriously prejudicial to the Group. 2 Operating Loss Operating loss is stated after charging: 2006 2005 £ £ ---------------------------------------- -------- -------- Amortisation of intangible fixed assets 68,258 208,511 Depreciation of owned tangible fixed assets 872,723 811,991 Impairment of owned tangible fixed assets 770,134 - Depreciation of assets held under finance leases and hire purchase agreements 680,512 67,480 ---------------------------------------- -------- -------- 2006 2005 £ £ ---------------------------------------- -------- -------- Audit services: Audit of parent company accounts 1,000 1,000 Audit of parent company and consolidated accounts 12,500 10,500 Non-audit services: Audit of subsidiaries 14,000 10,000 Tax compliance 5,850 1,800 Tax advisory 4,200 21,150 Interim review 6,500 6,000 IFRS conversion 6,500 - Other services 700 - ---------------------------------------- -------- -------- In 2005, £84,500 paid to the auditors in respect of the flotation was included in the share premium account. 2006 2005 £ £ ---------------------------------------- -------- -------- Research and development costs: 704,165 615,147 The comparative figure for research and development expenditure for 2005 has been restated to make it comparable with the current year disclosure. The amount for 2006 includes an appropriate proportion of wages and salaries and other overheads which the directors consider to be a more appropriate treatment. 2006 2005 £ £ Operating lease costs: ---------------------------------------- -------- -------- Land and buildings 128,004 101,170 ---------------------------------------- -------- -------- 3 Exceptional Non-Recurring Items Charged in Arriving at Operating Loss 2006 2005 £ £ ---------------------------------------- -------- -------- Stock write-off - 109,198 Non-recurring professional charges - 80,768 Variation of Share Exchange Agreement - 115,000 Impairment of tangible fixed assets 770,134 ---------------------------------------- -------- -------- 770,134 304,966 ---------------------------------------- -------- -------- Stock Write-Off: The prior year stock write-off relates to one discontinued product and other stock rendered obsolete through continuing process improvement. Variation of Share Exchange Agreement: During the year ended 30 September 2004, Sarantel Limited purchased and subsequently sold a company, recognising a profit on disposal, after associated costs, of £94,736. The purchase was via a share for share exchange which on 23 February 2005 was varied, following shareholders' consent, and additional shares were issued to the parties to the Share Exchange Agreement to the value of the consideration received for the sale of the subsidiary amounting to £115,000. This was recognised as an exceptional cost in the prior year. Professional Charges: Prior year non-recurring legal and professional charges relate to aborted fundraising prior to flotation. Impairment of Tangible Fixed Assets: Continuing process improvements have caused certain items of plant to become obsolete. It is the Directors' opinion that the carrying value of this plant should therefore be permanently written down. 4 Directors and Employees The average number of staff employed by the Group during the financial year amounted to: 2006 2005 Number Number --------------------------------------- --------- -------- Management 3 2 Technical 14 6 Finance and administration 6 5 Sales and marketing 6 4 Operations 86 55 --------------------------------------- --------- -------- 115 72 --------------------------------------- --------- -------- 4 Directors and Employees (continued) The aggregate payroll costs (including Directors' emoluments) were: 2006 2005 £ £ --------------------------------------- --------- -------- Wages and salaries 3,632,304 2,654,923 Social security costs 349,621 299,488 Pension costs 79,260 80,072 --------------------------------------- --------- -------- 4,061,185 3,034,483 --------------------------------------- --------- -------- Remuneration in respect of Directors was as follows: 2006 2005 restated * £ £ --------------------------------------- --------- -------- Emoluments 655,691 368,427 Pension contributions to money purchase pension scheme 23,350 26,350 Payment to third parties for Directors' services 42,709 22,083 --------------------------------------- --------- -------- 721,750 416,860 --------------------------------------- --------- -------- The amounts set out above include remuneration in respect of the highest paid Director as follows: 2006 2005 £ £ --------------------------------------- --------- -------- Emoluments 182,348 177,387 Pension contributions to money purchase pension schemes 15,250 17,186 --------------------------------------- --------- -------- 197,598 194,573 --------------------------------------- --------- -------- Share options exercised by Directors during the year were: 2006 2005 No No ------------------------------------- ------------ -------- D Wither 75,000 - D Dey 444,900 - ------------------------------------- ------------ -------- Details of the share options granted to Directors in the year, together with further details of their remuneration, are shown in the report of the Remuneration Committee. During the year two Directors (2005: 2) participated in money purchase pension schemes. * 2005 restated to reflect amounts actually paid. 5 Net Interest 2006 2005 £ £ ------------------------------------- ----------- --------- Interest receivable and similar income 379,519 406,803 Finance charges in respect of finance leases (83,598) (46,376) Other interest payable and similar charges (58,370) (31,980) ------------------------------------- ----------- --------- 237,551 328,447 ------------------------------------- ----------- --------- 6 Taxation on Ordinary Activities 2006 2005 £ £ ------------------------------------- ----------- --------- Current tax: UK corporation tax based on the results for the year at 19% (2005: 19%) (169,000) (150,000) Adjustment in respect of prior year 80 (215) ------------------------------------- ----------- --------- Total current tax (168,920) (150,215) ------------------------------------- ----------- --------- The taxation credit arises in respect of research and development expenditure and is subject to agreement with the Inland Revenue. The standard rate of tax for the year based on the UK standard rate of corporation tax is 19% (2005: 19%). The actual tax credit for the year differs from the standard rate for the reasons set out in the following reconciliation: 2006 2005 £ £ ------------------------------------- ----------- --------- Loss on ordinary activities before taxation (6,903,667) (5,561,811) ------------------------------------- ----------- --------- Loss on ordinary activities multiplied by rate of tax (1,311,697) (1,056,744) Effect of: Expenses not deductible for tax purposes 28,914 222,870 Depreciation for the period in excess of capital allowances 441,185 144,572 Other timing differences 4,650 - Tax losses carried forward 836,948 689,302 Research and development tax credit (169,000) (150,000) Prior year over provision 80 (215) ------------------------------------ ----------- ---------- Total current tax (168,920) (150,215) ------------------------------------ ----------- ---------- Tax losses available, subject to agreement with the Inland Revenue, to offset future taxable trading income amount to approximately £13.8m. A deferred tax asset amounting to approximately £4.1m (2005: £3.0m) arising from taxable trading losses has not been recognised on the grounds that at the current time there is insufficient evidence that the asset will be recoverable in the foreseeable future. 7 Result for the Financial Year The parent company has taken advantage of Section 230 of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The parent company's profit for the year was £110,570 (2005: £343,075). 8 Loss Per Share The calculation of basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. 2006 2005 £ £ ------------------------------------ ----------- ---------- Loss from continuing operations (6,734,747) (5,411,596) Weighted average number of shares 54,331,745 43,867,040 ------------------------------------ ----------- ---------- Per share amount in pence (12.4)p (12.3)p ------------------------------------ ----------- ---------- The issue of additional shares on the exercise of options would decrease the basic loss per share and there is, therefore, no dilutive effect of share options. 9 Intangible Fixed Assets The Group Goodwill Patents Total £ £ £ ----------------------------- ----------- --------- ---------- Cost At 1 October 2005 760,632 805,049 1,565,681 Additions - 353,047 353,047 ----------------------------- ----------- --------- ---------- At 30 September 2006 760,632 1,158,096 1,918,728 ----------------------------- ----------- --------- ---------- Amortisation At 1 October 2005 760,632 228,430 989,062 Charge for the year - 68,258 68,258 ----------------------------- ----------- --------- ---------- At 30 September 2006 760,632 296,688 1,057,320 ----------------------------- ----------- --------- ---------- Net book value At 30 September 2006 - 861,408 861,408 ----------------------------- ----------- --------- ---------- At 30 September 2005 - 576,619 576,619 ----------------------------- ----------- --------- ---------- 10 Tangible Fixed Assets The Group Leasehold Plant and improvements machinery Total £ £ £ ---------------------------- ----------- --------- ---------- Cost At 1 October 2005 196,646 6,433,527 6,630,173 Additions - 2,395,690 2,395,690 Disposals - (2,072) (2,072) ---------------------------- ----------- --------- ---------- At 30 September 2006 196,646 8,827,145 9,023,791 ---------------------------- ----------- --------- ---------- Depreciation At 1 October 2005 68,826 1,890,316 1,959,142 Charge for the year 19,456 1,533,779 1,553,235 Impairment - 770,134 770,134 Eliminated on disposal - (1,726) (1,726) ---------------------------- ----------- --------- ---------- At 30 September 2006 88,282 4,192,503 4,280,785 ---------------------------- ----------- --------- ---------- Net book value At 30 September 2006 108,364 4,634,642 4,743,006 ---------------------------- ----------- --------- ---------- At 30 September 2005 127,820 4,543,211 4,671,031 ---------------------------- ----------- --------- ---------- Fixtures and fittings and computer equipment are not significant and so are included in plant and machinery. Included within the net book value of £4,743,006 is £1,843,537 (2005: £642,526) relating to assets held under finance leases and hire purchase agreements. The depreciation charged to the financial statements in the year in respect of such assets amounted to £680,512 (2005: £67,480). 11 Investments The Group At 30 September 2005, the Group held more than 20% of a class of the allotted share capital of the following: Country of Class of Proportion Nature of business incorporation share held held -------------------------------------------------------------------------------- Sarantel Limited England and Ordinary 100% Design and manufacture Wales shares of antennas Sarantel USA Inc* USA Ordinary 100% Marketing support shares services Sarantel Asia Pacific Pte. Ltd* Singapore Ordinary 100% Marketing support shares services -------------------------------------------------------------------------------- * Owned by Sarantel Limited 11 Investments (CONTINUED) The Company Shares in subsidiary undertakings £ ------------------------------------ ------------------ Cost and net book amount At 1 October 2005 3,080,348 Additions - ------------------------------------ ------------------ At 30 September 2006 3,080,348 ------------------------------------ ------------------ The Company purchased 100% of the issued share capital of Sarantel Limited on 23 February 2005 in a share for share exchange in order to facilitate the subsequent flotation of Sarantel Group PLC on the Alternative Investment Market. 12 Stocks The Group The Company 2006 2005 2006 2005 £ £ £ £ ------------------------------- ------- ------- -------- ------- Raw materials 238,816 107,941 - - Work in progress 69,298 15,457 - - Finished goods 1,401,569 2,883 - - ------------------------------- ------- ------- -------- ------- 1,709,683 126,281 ------------------------------- ------- ------- -------- ------- 13 Debtors The Group The Company 2006 2005 2006 2005 £ £ £ £ ------------------------------- ------- ------- -------- ------- Trade debtors 363,783 566,158 - - VAT recoverable 54,703 159,549 - - Amounts owed by Group undertakings - - 14,034,770 6,153,706 Corporation tax recoverable 169,000 150,000 - - Other debtors 91,708 66,195 - 688 Prepayments and accrued income 116,724 104,753 - - ------------------------------- ------- ------- -------- ------- 795,918 1,046,655 14,034,770 6,154,394 ------------------------------- ------- ------- -------- ------- The debtors above include the following amounts falling due after more than one year: The Group The Company 2006 2005 2006 2005 £ £ £ £ ------------------------------- ------- ------- -------- ------- Other debtors 66,938 59,938 - - ------------------------------- ------- ------- -------- ------- 14 Creditors: Amounts Falling Due Within One Year The Group The Company 2006 2005 2006 2005 £ £ £ £ ------------------------------- ------- ------- -------- ------- Trade creditors 603,083 1,053,475 - - Other taxation and social security 105,589 193,531 8,874 107,769 Amounts due under finance leases and hire purchase agreements 492,641 351,151 - - Other creditors 108,822 8,810 1,186 - Accruals and deferred income 659,775 402,741 18,127 - ------------------------------- ------- ------- -------- ------- 1,969,910 2,009,708 28,187 107,769 ------------------------------- ------- ------- -------- ------- 15 Creditors: Amounts Falling Due After More Than One Year The Group The Company 2006 2005 2006 2005 £ £ £ £ ------------------------------- ------- ------- -------- ------- Amounts due under finance leases and hire purchase agreements 618,844 460,257 - - ------------------------------- ------- ------- -------- ------- 16 Borrowings Borrowings are repayable as follows: The Group The Company 2006 2005 2006 2005 £ £ £ £ ------------------------------- ------- ------- -------- ------- Within one year: Finance leases and hire purchase agreements 492,641 351,151 - - After one year and within two years: Finance leases and hire purchase agreements 506,178 233,008 - - After two years and within five years Finance leases and hire purchase agreements 112,666 227,249 - - ------------------------------- ------- ------- -------- ------- 1,111,485 811,408 - - ------------------------------- ------- ------- -------- ------- 17 Financial Instruments The Group uses financial instruments comprising borrowings, cash, liquid resources and various items such as trade debtors, trade creditors, etc. that arise directly from its operations. The Group uses derivatives which are limited to those described under currency exchange risk below. The main purpose of these financial instruments is to raise finance for, and manage risks of, the Group's operations. Short-term debtors and creditors Short-term debtors and creditors have been excluded from the following disclosures, other than currency risk disclosures. 17 Financial Instruments (continued) Interest rate risk The Group finances its operations through share capital and leasing. The Group mixes the duration of its deposits to reduce the impact of interest rate fluctuations. Liquidity risk The Group seeks to manage financial risk by ensuring that sufficient financial liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Currency exchange risk The Group operates in overseas markets and is subject to currency exposures on transactions undertaken during the year. The Group has options to sell currency at certain defined rates, and these option contracts are reviewed quarterly. There were no material option contracts in place at the year end. Borrowings The Group has purchased some fixed assets through finance leasing and hire purchase agreements at fixed interest rates. Financial assets The Group's cash deposits of £5.05m (2005: £10.7m) are divided evenly between 3 banks at an average interest rate of 4.84% (2005: 4.52%). The Directors have given serious consideration and have reached the conclusion that there is no significant difference between the book and the fair value of assets and liabilities of the Group at the balance sheet date. 18 Leasing Commitments At 30 September 2006 the Company had aggregate annual commitments under non-cancellable operating leases as set out below. Land and buildings 2006 2005 £ £ ------------------------------------------- ------- ------- Operating leases which expire: After more than five years 135,000 101,170 ------------------------------------------- ------- ------- 19 Related Party Transactions Under an agreement dated 24 February 2005 between the Company and MTI Partners Limited ('MTI'), MTI provides an authorised representative to serve as a non-executive Director of the Company for a fee of £20,000 per annum payable quarterly. MTI controls 20.4% of the share capital of the Company. At 30 September 2006, the amount outstanding to MTI was £nil (2005: £965). Under an agreement dated 28th February 2006 between the Company and Foresight Venture Partners ('VCF'), VCF provides an authorised representative to serve as a non-executive director of the Company for a fee of £20,000 per annum payable quarterly. VCF controls 28.9% of the share capital of the Company. At 30 September 2006 the amount outstanding to VCF was £1667 (2005: nil). With effect from 21 June 2006, Geoffrey Shingles was appointed Chairman of the board of directors for a fee of £55,000 per annum payable quarterly by invoice from Geoff Shingles Partnership ('GSP'), together with an engagement fee of £70,000. At 30 September 2006 the amount outstanding to GSP was £13,750 (2005: nil). 20 Share Capital Authorised share capital: 2006 2005 No £ No £ ------------------------------ -------- ------- -------- ------- A ordinary shares of £0.10 each 63,000,000 6,300,000 63,000,000 6,300,000 B ordinary shares of £0.10 each 2,000,000 200,000 2,000,000 200,000 ----------------------- ---------- --------- ---------- --------- 65,000,000 6,500,000 65,000,000 6,500,000 ----------------------- ---------- --------- ---------- --------- Allotted, called-up and fully paid: 2006 2005 No £ No £ ----------------------------- -------- -------- -------- ------- A ordinary shares of £0.10 each 53,904,045 5,390,405 52,522,562 5,252,257 B ordinary shares of £0.10 each 1,036,340 103,634 1,036,340 103,634 ----------------------- ---------- --------- ---------- --------- 54,940,385 5,494,039 53,558,902 5,355,891 ----------------------- ---------- --------- ---------- --------- Although the Company was not incorporated until 30 November 2004, comparative balances have been prepared on a proforma basis as though it had existed throughout the period. This is to comply with the requirements of merger accounting. The shares issued at 30 September 2004 therefore reflect the share for share exchange explained below, less the shares issued by the subsidiary between 1 October 2004 and the date of the share for share exchange. Allotments during the year The Company made the following allotments in the period: A ordinary shares of £0.10 £ --------------------------------------- --------- -------- Allotted to Mr Geoff Shingles on his appointment as Chairman of the Board of Directors 170,732 17,073 Options exercised during the year 1,210,751 121,075 Total share premium 82,950 --------------------------------------- --------- -------- Total consideration 221,098 --------------------------------------- --------- -------- A and B shares rank pari passu in all respects, save that the subscribers for B Ordinary shares are only entitled to receive ten clear days notice from the Directors requiring payment of any moneys unpaid on their shares, whereas the holders of A Ordinary shares are entitled to 14 clear days' notice. The B Ordinary shares will automatically convert into A Ordinary shares forthwith on the subscribers thereof transferring or disposing of the shares. 20 Share Capital (continued) Exercise of Options During the year employees of the group exercised share options as follows: 2006 2005 Number of shares exercised 1,210,751 804,209 --------------------------------------- --------- -------- Value of shares exercised £ £ --------------------------------------- --------- -------- Nominal value 121,075 80,421 Share premium 58,023 18,765 --------------------------------------- --------- -------- Total consideration 179,098 99,186 --------------------------------------- --------- -------- Share Options 2006 2005 --------------------------------------- --------- -------- Number of Share Options at the beginning of the year 7,102,081 8,806,740 Options granted during the year 1,069,750 1,360,202 Number of Options lapsed and eliminated (474,817) (2,260,652) Number of Options exercised during the year (1,210,751) (804,209) ------------------------------------- ---------- ---------- Balance at end of the year 6,486,263 7,102,081 ------------------------------------- ---------- ---------- Share options at 30 September 2006 are exercisable as follows: Date of grant Number of Exercise price (pence) Last date for shares exercise --------------- --------------- --------------- --------------- 26/02/2003 128,841 10 25/02/2013 26/02/2003 431,082 25 25/02/2013 04/08/2004 1,406,062 10 03/08/2014 04/08/2004 18,379 25 03/08/2014 17/02/2005 640,330 27.5 16/02/2015 04/08/2004 1,391,488 10 03/08/2014 04/08/2004 296,571 10 03/08/2014 05/08/2004 787,090 25 04/08/2014 17/02/2005 316,670 27.5 16/02/2015 17/01/2006 109,750 35.8 16/01/2016 07/02/2006 75,000 31.8 06/02/2016 01/03/2006 885,000 38 28/02/2016 --------------- --------------- --------------- --------------- Details of the share options granted to the Directors are shown in the report of the Remuneration Committee. 21 Reserves The Group Share premium Other Profit and account reserves loss account £ £ £ -------------------------- ----------- ----------- ---------- At 1 October 2005 14,341,907 13,389,536 (16,002,301) Loss for the year - - (6,734,747) Premium arising on shares issued 82,950 - - -------------------------- ----------- ----------- ---------- At 30 September 2006 14,424,857 13,389,536 (22,737,048) -------------------------- ----------- ----------- ---------- The Company Share premium Profit and account loss account £ £ -------------------------- -------------------- ---------- At 1 October 2005 14,341,907 343,705 Profit for the year - 110,570 Premium arising on shares issued 82,950 - -------------------------- -------------------- ---------- At 30 September 2006 14,424,857 454,275 -------------------------- -------------------- ---------- 22 Reconciliation of Movements in Shareholders' Funds Equity shareholders' funds 2006 2005 £ £ ------------------------------------- ---------- ---------- Loss for the financial year (6,734,747) (5,411,596) Issue of new shares (net of issue expenses) 221,098 16,617,450 Issue of shares in subsidiary prior to reconstruction - 533,841 ------------------------------------- ---------- ---------- (Decrease)/increase in shareholders' funds in the year (6,513,649) 11,739,695 Opening shareholders' equity funds 17,085,033 5,345,338 ------------------------------------- ---------- ---------- Closing shareholders' equity funds 10,571,384 17,085,033 ------------------------------------- ---------- ---------- 23 Reconciliation of Operating Loss to Net Cash Outflow From Operating Activities 2006 2005 £ £ ------------------------------------ ---------- ---------- Operating loss (7,141,218) (5,890,258) Depreciation and amortisation 2,391,627 1,087,982 Increase/(decrease) in stocks (1,583,402) 237,534 Decrease/(increase) in debtors 269,837 (448,303) Decrease/(increase) in creditors (181,288) 947,210 Non-cash item re exceptional item - see note 3 - 115,000 ------------------------------------ ---------- ---------- Net cash outflow from operating activities (6,244,443) (3,950,835) ------------------------------------ ---------- ---------- 24 Reconciliation of Net Cash Flow to Movement in Net Funds 2006 2005 £ £ ------------------------------------- ---------- ---------- Decrease/(increase) in cash in the period (8,084,289) 11,065,366 Cash outflow in respect of finance leases and hire purchase 484,757 191,586 New finance leases and hire purchase agreements (784,834) (949,842) ------------------------------------- ---------- ---------- Change in net funds resulting from cash flows (8,384,366) 10,370,110 Net funds at start of the year 12,323,004 2,015,894 ------------------------------------- ---------- ---------- Net funds at end of the year 3,938,638 12,323,004 ------------------------------------- ---------- ---------- 25 Analysis of Changes in Net Funds At 1 October At 30 September 2005 Cash flows 2006 £ £ £ ----------------------------- ---------- ---------- ---------- Net cash: Cash in hand and at bank 13,134,412 (8,084,289) 5,050,123 Debt: Finance leases and hire purchase agreements (811,408) (300,077) (1,111,485) ----------------------------- ---------- ---------- ---------- Net funds 12,323,004 (8,384,366) 3,938,638 ----------------------------- ---------- ---------- ---------- 26 Cash at Bank Cash balances of £5,050,123 (2005: £13,134,412) at the end of the year include an amount of £1,350,000 (2005: £1,000,000) on an interest bearing deposit account with a financial institution which can only be repaid when the amounts owed to it under hire purchase agreements are settled in full. At the year end, the amount owed was £1,161,823 (2005: £726,000). 27 Capital Commitments 2006 2005 £ £ ------------------------------------- ---------- ---------- Amounts contracted for but not provided in the financial statements 827,310 827,409 ------------------------------------- ---------- ---------- 28 Pensions The Group makes payments into a Group personal pension scheme for certain employees and Directors. The assets of the scheme are administered by trustees in a fund independent from those of the Group. This information is provided by RNS The company news service from the London Stock Exchange

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