PRELIMINARY RESULTS

Accsys Technologies PLC 28 June 2007 28th June 2007 AiM: AXS Accsys Technologies PLC ('Accsys' or 'the Company') PRELIMINARY RESULTS FOR THE 12 MONTHS ENDED 31 MARCH 2007 (audited) Highlights â€¢ Successful construction, commissioning and start up of 30,000 cubic metre commercial AccoyaTM wood production plant in Arnhem â€¢ Demand for production capacity for current year and beyond, with trading agreements in place â€¢ Large order for AccoyaTM to be used to construct heavy-traffic road bridges, confirms a major new global market opportunity â€¢ Immediate plans to double capacity of the Arnhem facility to 60,000 m3 by mid 2009 â€¢ Strategic Partnership with Celanese Corporation, including 5.5% equity investment and twenty year long term supply agreement â€¢ Licence agency agreement signed with Skanfore S.A., for 500,000 cubic metres capacity giving â‚¬10 million upfront licence revenue â€¢ Expectations of additional licence options and agreements and confidence of profitability in current financial year â€¢ Investment in the business resulted in a loss of â‚¬22.6m (2006: â‚¬5.0m) after impairment charges of â‚¬12.4m â€¢ â‚¬27.5 million of liquid financial resources, no debt, before receipt of Skanfore payment â€¢ Willy Paterson-Brown, Executive Chairman, takes on the role of Chief Executive Officer as well; Edward Pratt to become 'Senior Advisor, Projects' â€¢ Agreement with Fortis, with plans to list the Company's shares on Eurolist by Euronext Amsterdam by end of 2007 â€¢ Additional product development progress in wood fibre applications Willy Paterson-Brown, Chairman and CEO, said: 'This has been an excellent year for Accsys with progress on many fronts and we have high expectations for 2007/ 8. Accsys has moved from a technology development company to a full scale commercial operator with far reaching potential on a global basis. In AccoyaTM wood, we have a quality product, universally accepted as being of the highest standards with multiple applications.' The audited financial statements for the year ended 31st March 2007 follow. For further information, please contact: Accsys Technologies PLC Willy Paterson-Brown, +44 (0) 20 8144 2510 www.accsysplc.com Chairman & Chief Executive Collins Stewart Europe Limited Tim Mickley / Michael O'Brien +44 (0) 20 7523 8000 Parkgreen Communications Justine Howarth / Clare Irvine +44 (0) 20 7851 7480 ACCSYS TECHNOLOGIES PLC Consolidated Financial Statements Year Ended 31 March 2007 Annual report and financial statements for the year ended 31 March 2007 Chairman & Chief Executive's Business Review Directors' Report Corporate Governance Report of the independent auditors Consolidated profit and loss account Balance sheets Consolidated cash flow statement Notes forming part of the financial statements Directors William Paterson-Brown Chairman & Chief Executive Stefan Allesch-Taylor Non-Executive Director Gordon Campbell Non Executive Director Tim Paterson-Brown Non-Executive Director Glyn C Thomas Chief Financial Officer Company Secretary Christopher C Morse Company Number 5534340 Registered Office 7 Queen Street Mayfair London W1J 5PB Bankers Barclays Bank PLC ABN Amro Bank Sarasin & Cie AG 180 Oxford Street Gele Rijdersplein Elisabethenstrasse 62 London 6800 KW Arnhem CH 4002 Basel W1D 1EA The Netherlands Switzerland Registrars SLC Registrars Limited 42 - 46 High Street Esher Surrey KT10 9QY Auditors BDO Stoy Hayward LLP 8 Baker Street London W1U 3LL Lawyers Lawrence Graham LLP 4 More London Riverside London SE1 2AU Chairman & Chief Executive's Business Review It is a great pleasure to be writing this statement. The last twelve months have seen significant progress for your company and, in fact, we have achieved the majority of the goals that we set for ourselves during the course of the year. We continue to increase our shareholder base, the list of which I believe any company on AiM would be proud, and I would like to thank so many of you for the strong support that you have given me personally and the Company as a whole, over the past year. Your Company, at the time of writing, has a market capitalization of over â‚¬600 million, the stock enjoying strong liquidity with an average of several hundred thousand shares per day traded over the course of the year. The year has witnessed many achievements, only some of which I summarize below: Construction and commissioning of the wood modification plant During the financial year we completed the physical construction of our commercial scale wood modification plant, with the first batch of Accoya being produced on 11th March 2007. We anticipate a period of around six months will be required to optimise operation of the plant as operating processes are finessed for the range of dimensions and conditions of the timber processed. The wood modification reactors represent a substantial scale up of novel technology to achieve full commercial scale. The capacity of the large scale reactors is 30 m3 compared with 0.4 m3 for our pilot. Whilst we are still at a relatively early stage of working up the plant and, as would be typical for a new technology plant, we believe it will take us up to a year to bring the operation to full capacity utilisation. Our team are confident that the core reactor design is substantially validated by its performance so far. This is of critical importance for our licensing plans. We now have a series of trading agreements in place, including ones with BSW Timber in the UK and Roggemann in Germany, and an agreement to supply Accoya for the construction of two road bridges in the Netherlands. Due to growing awareness and interest in Accoya's properties we are now planning to double our capacity in Arnhem at the earliest opportunity to take our annual capacity to around 60,000 cubic metres. Celanese partnership agreement In March 2007, we announced an agreement with Celanese Corporation which secures a number of advantages for the Company and for potential licensees. â€¢ It provides priority customer status for the group and its potential licensees, worldwide; â€¢ It underwrites the availability of the key bought-in raw material for the Accsys process; â€¢ It removes a key layer of operating risk for licensees The acetyls supply and recycle agreement transaction with Celanese enables Titan Wood to concentrate on its core wood acetylation technology. It gives our future technology licensees the certainty that they will have a dependable supply of the key raw material that they need, as well as offtake and re-cycling of their spent by-product, wherever they are in the world. It has been a goal of your board to secure a substantial strategic partner to help us to accelerate the growth of our business. The equity investment and contractual support of Celanese gives us a huge fillip, not only with the additional financial resources needed to accelerate our market development work, but also through their global presence and commitment to the growth of our business. Funds The Celanese investment of â‚¬22m followed a small fund-raising of â‚¬9.5m completed in November 2006, giving your Company the wherewithal to pursue its business aggressively and exploit the competitive advantages during the coming years. As of the time of writing, the Company has no debt and a cash position of â‚¬27m. Developing end product applications With our full scale plant coming into production, greater volumes of Accoya will become available to facilitate the development of key end product applications in a number of major national markets. A good example of this is the bridges contract with the Province of Friesland. Extensive research and product development confirmed the excellent properties of our material, with projected life of 80 years in this demanding structural application. The award opens up a major new market segment for your Company. We shall prioritise such new application work as it drives demand generation, enables national specifications and regulatory approval processes to be understood and tackled - thereby opening up high volume end use opportunities for potential licensees. Licensing With our technology being validated at full commercial scale, we have been able to progress discussions with a number of interested parties, in many parts of the world, who are enthusiastic about the potential that Accoya offers. We have testing programmes with large-scale licensees in windows, decking, cladding and panel products in the USA, with sawmill operators and distributors in Europe, with companies in the Middle East including a major construction company and with large scale suppliers in Australasia, South America and the Far East. The main revenue driver for our business is licensing. We are developing licensing packages and gearing up to resource the negotiation and support required to secure a portfolio of licensed manufacturers of Accoya. We expect to announce a number of new licenses during the course of the year on a wide geographic scale, with the first significant licence revenue having already been secured by our agreement with Skanfore S.A., described below: Skanfore licensing agreement Skanfore LLC is a privately owned trading group, based in Abu Dhabi, whose evaluation of current and projected building projects within the GCC countries identified significant opportunities for licensing Accoya production. Accordingly, at the end of 2005, Skanfore took an initial option over licensed capacity of 50,000 m3 per annum. During the past fifteen months, Skanfore has identified a number of potential licensees including three in the Gulf region - for Saudi Arabia, Dubai and Abu Dhabi - each interested in a minimum 50,000 m3 capacity, as well as interest from South Africa, Malaysia, China and Russia. Having sensed the potential scale of demand for Accoya, Skanfore believes it can deploy substantial resources to develop licensee demand across a large part of the globe and has agreed to underwrite a substantial upfront payment to secure rights to license Accoya. Under the agreement announced on June 25th, Skanfore S.A. has taken rights to license 500,000 m3 of annual production capacity and will make a payment of â‚¬10m, representing 10% of the technology fees associated with this volume. Skanfore will then receive a share of Technology Fees received by Accsys from licenses it arranges. The Group stands to benefit substantially from Skanfore's introductions whilst also reducing execution risk. The payment of â‚¬10m will clearly represent the start of significant licence income for the Company, being the main source of profits going forward. Management Edward Pratt, our Chief Executive Officer, has made a unique contribution to the development of your business, over many years. Anyone who knows Eddie, knows his passion and enthusiasm for Accoya, but will also be aware of his long standing back injury. Having successfully seen the business through to the commissioning of its full scale technology validation plant, Eddie is now stepping down from his executive duties, as well as from the board, and will take a break to undergo major spinal surgery. Following his treatment and recuperation, he will take on the role of 'Senior Advisor, Projects', where, in particular he will be closely involved in the development of our wood fibre acetylation technology. We all wish him well and look forward to his return later in the year. Effective immediately, I will now take over as CEO. I also welcome a new General Manager of our Arnhem facility, Rombout van Herwijnen, who joined us in May. Rombout will drive forward the development of the end product applications, oversee the expansion of our Accoya production facilities and lead a highly motivated high performance team who have helped to create and grow this business from its inception. Review of the Business Our focus over the past year has been on: â€¢ The commissioning of our novel acid cracking facility â€¢ The construction and commissioning of the wood modification plant â€¢ Recruiting and training our operating teams â€¢ Securing reliable sources of raw materials, principally wood and acetyls â€¢ Building brand equity and international recognition of our Accoya mark â€¢ Developing key end product applications in large national markets â€¢ Building interest amongst potential licensees in anticipation of our plant coming on stream and providing validation of the process technology and the economics The financial results reflect the build up of operating costs, as staffing and materials for commissioning activity is expensed, and the strengthening of management to encompass marketing and licensing activities, with total operating expenditure reported in the Profit & Loss Account rising from â‚¬5.9m to â‚¬10.3m. The widespread enthusiasm shown for Accoya and our assessment of the scale of interest that we see emerge to license our technology has led us to conclude that the business should focus resolutely on wood acetylation. Accordingly, we have scaled down our other activities apart from our development work on acetylated wood fibre boards. As a result, we have terminated our efforts to license other potential applications of our cracking technology, which without the prospect of our deriving income become fully impaired in accounting terms requiring the charge of â‚¬5.9m shown in the Profit & Loss Account as an impairment of intangible assets. Following our agreement with Celanese, our strategy on acetyls supply has changed. We have undertaken a review of the commissioning work done on our novel cracker design, concluding that without some considerable remediation work on ancillary process equipment we would not be able to fully commission it. As the cracker was out of use at 31st March 2007 and also required the remediation work to be completed prior to it being fired up again, the 'value in use' for accounting purposes became zero at the balance sheet date - requiring the impairment charge of â‚¬6.6m shown in the Profit & Loss Account as an impairment of tangible assets. The loss for the year amounted to â‚¬22.6m (2006: â‚¬5.0m). Conclusion Your Company is well positioned for the challenges in the year ahead. We have created a strong, solid base from which we are able to expand our business on a global scale. Over the past two years, we have moved from a technology development business to a full commercial operating business, with an order book that is testament to the quality of our product, a brand that is increasingly recognised as leading its field and an extremely promising new business pipeline. In addition, our competitive advantage, financial strength and licensing proposition has been reinforced by the exclusive support of the world's largest acetyl's supplier, Celanese. 2006-7 has been a landmark year for your Company. The prospects for 2007-8 are exciting. We expect to see significant revenue during the course of the year ahead and hope to be able to report a profit for the year. We will continue to explore ways to create the best shareholder value and return possible. One such strategy will be to explore the opportunity of listing the Company's shares on Eurolist by Euronext Amsterdam during the course of the next six months, and to that end, we have engaged Fortis, one of Benelux's largest banks. As mentioned at the beginning of my statement, it has been a pleasure to serve as your Chairman during the past year and I am confident that we can be tremendously successful with the foundations that we have built and, perhaps most importantly, with the continued excellent support from all our shareholders. Willy Paterson-Brown, Chairman & Chief Executive 28 June 2007 Directors' Report for the year ended 31 March 2007 The directors present their report together with the audited financial statements for the year ended 31 March 2007. Results and dividends The consolidated profit and loss account for the year is set out on page 14. The directors do not recommend payment of a dividend. Principal activities and review of the business The principal activity of the group is the development and commercialisation of its proprietary technology for the manufacture of Accoya branded acetylated wood. The group is also engaged in the development of other related process technologies with potential applications in the wood and chemicals industries. A review of the business is set out in the Chairman & Chief Executive's Business Review on pages 1 to 3. Financial instruments Details of the use of financial instruments by the Company and its subsidiary undertakings are set out in Note 22 of the financial statements. Share issue On 8 November 2006, the Company completed the placing of 6,623,172 new Ordinary shares at a price of â‚¬1.48 each, raising â‚¬9,557,000 net of expenses. These shares were issued under the dis-application authority vested in the directors by the shareholders to issue additional shares up to 5% of the shares then in issue. Strategic Partnership with Celanese Corporation On 28 March 2007, the Company announced a strategic partnership with Celanese Corporation ('Celanese'). The arrangements provide for a long term exclusive supply agreement for the provision of acetyls, the principal raw material to acetylate wood, to both the group and its future licensees worldwide. Celanese also signed an option agreement to evaluate and acquire the group's proprietary acetic anhydride technology. Celanese also agreed to subscribe for new Ordinary shares, subject to consent by the Company's shareholders. Such consent was duly granted at an Extraordinary General Meeting held on 15th May 2007 and Celanese duly subscribed for 8,115,883 new Ordinary shares at a price of â‚¬2.72 per share, a price determined as being at a 5% premium to the closing share price on 27 March 2007, the date the strategic partnership was entered into. The Extraordinary General Meeting also approved the granting of an option to Celanese to subscribe for additional Ordinary shares to increase its holding in the Company to 29.9% at the market price when the option is exercised. This option has a life of three years and may be exercised from the first anniversary of 15 May 2007. Principal risks and uncertainties The business, financial condition or results of operations of the Group could be adversely affected by any of the risks set out below. The Group's systems of control and protection are designed to help manage and control risks to an appropriate level rather than to eliminate them. The directors consider that the principal risks to achieving the Group's objectives are those set out below. (a) Economic and market conditions The Group's operations comprise the manufacture of Accoya and licensing the technology to do so to third parties. The cost and availability of key inputs affects the profitability of the Group's own manufacturing whilst also impacting the potential profitability of third parties interested in licensing the Group's technology. The price of key inputs and security of supply are managed by the group, partly through the development of long term contractual supply agreements. (b) Regulatory, legislative and reputational risks The Group's operations are subject to extensive regulatory requirements, particularly in relation to its manufacturing operations and employment policies. Changes in laws and regulations and their enforcement may adversely impact the Group's operations in terms of costs, changes to business practices and restrictions on activities which could damage the Group's reputation and brand. (c) Employees The Group's success depends on its ability to continue to attract, motivate and retain highly qualified employees. The highly qualified employees required by the Group in various capacities are sometimes in short supply in the labour market. (d) Intellectual property The Group's strategy of licensing technology depends upon maintaining effective protection of its intellectual properties. Protection is afforded by a combination of patents, secrecy, confidentiality agreements and the structuring of legal contracts relating to key engineering and supply arrangements. Unauthorised use of the Group's intellectual property may adversely impact its ability to license the technology and lead to additional expenditures to enforce legal rights. Key performance indicators The directors consider the following to be key performance indicators by which progress in the development of the business may be assessed: â€¢ Progress in introducing Accoya into key end use applications (including external doors, windows, decking and cladding) in major markets, which is seen as an indicator of high volume future demand requiring supply from local or foreign technology licensees of the group. Good progress has been achieved in developing the first two such large national market end product applications in Germany and the UK. â€¢ Future expansion of licensed Accoya production capacity. â€¢ Process improvements to reduce progressively the direct cost per m3 to produce Accoya, optimising the utilisation of direct materials, utilities and capacity utilised in the wood modification process. Future developments The directors' priorities for the Group's future development include: â€¢ Driving the development of major end use applications adopting Accoya in major markets â€¢ Exploiting global demand for licensing proprietary technology for wood modification â€¢ Developing a commercial scale manufacturing process for the production of acetylated wood fibre products in the MDF, OSB and fibreboard space. Impact of adoption of International Financial Reporting Standards (IFRS) A review of the impact of adopting IFRS has been undertaken and, other than in respect of the amortisation of goodwill arising on consolidation (â‚¬412,000), the directors are not aware of any significant adjustments that would be made to the group and parent company financial statements of Accsys Technologies PLC for the year ended 31 March 2007 or the comparative figures when the results and net assets are reported under IFRS. Significant shareholdings The following shareholders held beneficial interests in the Ordinary shares exceeding 3%: MacNiven and Cameron Equity Holdings Limited 13.44% Saad Investments Company Limited 8.61% Oak Foundation USA Inc, and related parties 8.07% Rajhi Holdings 6.07% Celanese Chemicals Europe GmbH 5.46% Rathbone Investment Management Limited 3.90% UBS Wealth Management (UK) Limited 3.83% Axa Framlington 3.50% Directors The directors of the company throughout the year were: Willy Paterson-Brown Stefan Allesch-Taylor Gordon Campbell Tim Paterson-Brown Edward J Pratt resigned 26 June 2007 Glyn C Thomas Directors' interests in the Ordinary shares of the Company are set out below: Ordinary shares Options over Ordinary shares 31 March 2007 31 March 2006 31 March 2007 31 March 2006 Willy Paterson-Brown *20,000,000 *20,000,000 2,440,000 1,440,000 Stefan Allesch-Taylor *20,000,000 *20,000,000 - - Gordon Campbell 48,172 48,172 - - Tim Paterson-Brown *20,000,000 *20,000,000 - - Edward J Pratt 720,618 618 1,720,000 1,440,000 Glyn C Thomas 480,618 618 1,230,000 960,000 Note * 20,000,000 Ordinary shares and 415,184 Deferred shares are registered in the name of MacNiven and Cameron Equity Holdings Limited. Messrs S Allesch-Taylor, W Paterson-Brown and Mr T Paterson-Brown have beneficial interests in those shares as they are three of the discretionary beneficiaries of a trust which owns the majority of the issued share capital of MacNiven and Cameron Equity Holdings Limited. None of these persons can exercise, or influence the exercise of, the voting rights of the Ordinary and Deferred shares held by MacNiven and Cameron Equity Holdings Limited. Directors' share options: At Granted Exercised At 31 1 April 2006 during year during year March 2007 Willy Paterson-Brown Vested at â‚¬0.46 720,000 - - 720,000 Unvested at â‚¬0.46 720,000 - - 720,000 Unvested at â‚¬2.59 - 1,000,000 - 1,000,000 Edward Pratt Vested at â‚¬0.46 720,000 - 720,000 - Unvested at â‚¬0.46 720,000 - - 720,000 Unvested at â‚¬2.59 - 1,000,000 - 1,000,000 Glyn Thomas Vested at â‚¬0.46 480,000 - 480,000 - Unvested at â‚¬0.46 480,000 - - 480,000 Unvested at â‚¬2.59 - 750,000 - 750,000 Options granted on 1 March 2005 at an exercise price of â‚¬0.46 per Ordinary share vested 50% upon grant and 50% will vest upon the group achieving a cumulative â‚¬1 million in revenue from 1 April 2005. Once vested, these options may be exercised until 30 March 2015. Options granted on 28 March 2007 at an exercise price of â‚¬2.59 per Ordinary share vest as to one third of the options granted upon achievement of each of the following: â€¢ Cumulative â‚¬5 million licence income recognised under group accounting policies â€¢ Cumulative â‚¬20 million revenue from sales of Accoya â€¢ Announcement of annual group distributable earnings exceeding â‚¬5 million â€¢ Once vested, these options may be exercised until 31 March 2017. Employment policies The Group operates an equal opportunities policy from recruitment and selection, through training and development, appraisal and promotion to retirement. It is our policy to promote an environment free from discrimination, harassment and victimisation, where everyone will receive equal treatment regardless of gender, colour, ethnic or national origin, disability, age, marital status or sexual orientation. All decisions relating to employment practises will be objective, free from bias and based solely upon work criteria and individual merit. Health and safety Group companies have a responsibility to ensure that all reasonable precautions are taken to provide and maintain working conditions for employees and visitors alike, which are safe, healthy and in compliance with statutory requirements and appropriate codes of practice. The avoidance of occupational accidents and illnesses is given a high priority. Detailed policies and procedures are in place to minimise risks and ensure appropriate action is understood in the event of an incident. A dedicated health and safety officer is retained at the Group's manufacturing facility. Creditor payment policy The Group's policy, in relation to all of its suppliers, is to negotiate terms of payment when agreeing the terms of transactions, to ensure that those suppliers are made aware of the terms of payment and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any universal code or standard on payment practice but subsidiary companies are expected to establish payment terms consistent with local procedures, custom and practice. The average number of days credit taken by the Company is not a meaningful expression. Going concern After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Disclosure of information to auditors All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. Auditors BDO Stoy Hayward LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the annual general meeting. By order of the Board C C Morse Secretary Date: 28 June 2007 Accsys Technologies PLC Corporate governance Details of the Company's corporate governance arrangements are set out below. The Board of Directors acknowledges the importance of the Principles set out in The Combined Code issued by the Committee on Corporate Governance. Although the Combined Code is not compulsory for AIM listed companies, the Board has applied the principles as far as practicable and appropriate for a relatively small public company. We give below a statement as to how the Company applies the principles of Section 1 of the Revised Code, together with a statement regarding its compliance with specific provisions. The Board consists of an executive Chairman, one other executive Director, and three non-executive Directors. Gordon Campbell is considered to be the only independent non-executive. The Company has been in compliance throughout the year with the provisions set out in the Combined Code for Corporate Governance with the following exceptions: â€¢ The Company does not meet the requirements regarding the independence of non-executive directors. â€¢ There is no formal training programme for new Directors on joining the Board. This is contrary to provision A.5.1; â€¢ The Board has not undertaken a formal and rigorous annual evaluation of its own performance and the individual Directors. This is contrary to provision A.6.1 but this is being reviewed; â€¢ The non-executive Directors of the Company have not been appointed for specific terms as required by provision A.7.2 but this is being reviewed; and â€¢ There is no formal performance evaluation or election process for the appointment of non-executive Directors. This is contrary to provision A.7.2. Following Willy Paterson-Brown's appointment, as of the date of this report, as Chairman & Chief Executive, the Company does not meet the requirement for these posts to be held separately. The Board of Directors Throughout the period, the Board comprised a Chairman, and at least one executive Director. The Board meets regularly and is responsible for strategy, performance, approval of major capital projects and the framework of internal controls. The Board has a formal schedule of matters specifically reserved to it for decision. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all Directors in advance of Board meetings. All Directors have access to the advice and services of the Company Secretary. The appointment and removal of the Company Secretary is a matter for the Board as a whole. In addition, procedures are in place to enable the Directors to obtain independent professional advice in the furtherance of their duties, if necessary, at the Company's expense. During the year, all serving Directors attended the quarterly Board meetings that were held. In addition to the scheduled meetings there is frequent contact between all the Directors in connection with the Company's business including audit and nomination & remuneration committee meetings which are held as required, but as a minimum twice per annum. Directors are subject to re-election by the shareholders at Annual General Meetings. The Articles of Association provide that Directors will be subject to re-election at the first opportunity after their appointment and the Board submit to re-election at intervals of three years. Audit Committee The Audit Committee consists of Gordon Campbell (Chairman), Tim Paterson-Brown and Stefan Allesch-Taylor. The Audit Committee meets at least twice a year and is responsible for monitoring compliance with accounting and legal requirements and for reviewing the annual and interim financial statements prior to their submission for approval by the Board. The Committee also discusses the scope of the audit and its findings and considers the appointment and fees of the external auditors. The Audit Committee believes that it is not currently appropriate for the company to maintain an internal audit function due to its size. The Audit Committee considers the independence and objectivity of the external auditors on an annual basis, with particular regard to non-audit services. The non-audit fees are considered by the Board not to affect the independence or objectivity of the auditors. The Audit Committee monitors such costs in the context of the audit fee for the period, ensuring that the value of non-audit service does not increase to a level where it could affect the auditors' objectivity and independence. The Board also receive an annual confirmation of independence from the auditors. Nomination & Remuneration Committee The Nomination & Remuneration Committee consists of S. Allesch-Taylor (Chairman), Tim Paterson-Brown and G Campbell. The Committee's role is to consider and approve the nomination of directors and the remuneration and benefits of the executive Directors, including the award of share options. In framing the Company's remuneration policy, the Nomination & Remuneration Committee has given full consideration to Section B of The Combined Code. Internal financial Control The Board is responsible for establishing and maintaining the Company's system of internal financial control and places importance on maintaining a strong control environment. The key procedures which the Directors have established with a view to providing effective internal financial control are as follows: â€¢ The Company's organisational structure has clear lines of responsibility. â€¢ The Company prepares a comprehensive annual budget that is approved by the Board. Monthly results are reported against the budget and variances are closely monitored by the Directors. â€¢ The Board is responsible for identifying the major business risks faced by the Company and for determining the appropriate courses of action to manage those risks. The Directors recognise, however, that such a system of internal financial control can only provide reasonable, not absolute, assurance against material misstatement or loss. The Directors have reviewed the effectiveness of the system of internal financial control as it operated during the period to 31 March 2007 and up to the date of approval of the annual report and accounts. Relations with shareholders Communications with shareholders are given high priority. There is regular dialogue with shareholders including presentations after the Company's preliminary announcement of the year end results. The board uses the Annual General Meeting to communicate with investors and welcomes their participation. The Chairman aims to ensure that the Directors are available at Annual General Meetings to answer questions. Directors' responsibilities statement The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that year. In preparing those financial statements, the Directors are required to: â€¢ Select suitable accounting policies and then apply them consistently; â€¢ Make judgements and estimates that are reasonable and prudent; â€¢ State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and â€¢ Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group in order to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Financial statements are published on the group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the group's website is the responsibility of the directors. The directors' responsibility also extends to the on-going integrity of the financial statements contained therein. Report of the independent auditors Independent Auditor's Report to the Shareholders of Accsys Technologies PLC We have audited the group and parent company financial statements (the ''financial statements'') of Accsys Technologies PLC for the year ended 31 March 2007 which comprise the Group Profit and Loss Account, the Group and Company Balance Sheets, the Group Cash Flow Statement and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the Directors' Report is consistent with those financial statements. We also report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors' Report, the Chairman's Business Review and the statement of Corporate Governance. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: â€¢ the group financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the group's affairs as at 31 March 2007 and of its loss for the year then ended; â€¢ the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company's affairs as at 31 March 2007; â€¢ the financial statements have been properly prepared in accordance with the Companies Act 1985; and â€¢ the information given in the Directors' Report is consistent with the financial statements. BDO Stoy Hayward LLP Chartered Accountants and Registered Auditors London Date: 28 June 2007 Consolidated profit and loss account for the year ended 31 March 2007 Note 2007 2006 â‚¬'000 â‚¬'000 Turnover 50 80 Administration expenses General administrative expenses (10,265) (5,860) Impairment of intangible fixed 11 (5,850) - assets Impairment of tangible fixed assets 12 (6,569) - (22,684) (5,860) Operating loss 5 (22,634) (5,780) Interest receivable and similar income 6 37 782 Loss on ordinary activities before and after taxation 19 (22,597) (4,998) Basic and diluted loss per ordinary share 9 â‚¬(0.17) â‚¬(0.04) All amounts relate to continuing activities. There are no recognised gains or losses other than the loss for the year. The notes on pages 17 to 32 form part of these financial statements. Balance sheets at 31 March 2007 Note Group Group Company Company 2007 2006 2007 2006 â‚¬'000 â‚¬'000 â‚¬'000 â‚¬'000 Fixed assets Intangible assets 11 7,437 13,715 - - Tangible assets 12 21,611 10,693 - - Investments 13 - - 6,000 11,383 29,048 24,408 6,000 11,383 Current assets Stock 14 910 - - - Debtors 15 1,085 8,411 38,668 19,646 Other investments 16 - 15,513 - 15,513 Cash at bank 10,825 4,577 10,455 4,023 12,820 28,501 49,123 39,182 Creditors: amounts falling due within one year 17 3,102 1,984 3,581 23,666 Net current assets 9,718 26,517 45,542 15,516 Net assets 38,766 50,925 51,542 26,899 Capital and reserves Called up share capital 18 1,554 1,473 1,554 1,473 Share premium account 19 35,689 25,504 35,689 25,504 Merger reserve 19 106,707 106,707 - - Profit and loss account 19 (105,184) (82,759) 14,299 (78) Shareholders' funds 38,766 50,925 51,542 26,899 The financial statements were approved by the Board and authorised for issue on 28 June 2007 Glyn Thomas ) ) Directors Willy Paterson-Brown ) The notes form part of these financial statements. Consolidated cash flow statement for the year ended 31 March 2007 Note 2007 2007 2006 2006 â‚¬'000 â‚¬'000 â‚¬'000 â‚¬'000 Net cash outflow from operating activities 25 (8,454) (4,468) Returns on investments and servicing of finance Interest received 284 269 Net cash flow from returns on 284 269 investments and servicing of finance Capital expenditure and financial investment Purchase of intangible fixed assets (200) - Purchase of tangible fixed assets (18,220) (7,925) Sale of tangible fixed assets - 53 (18,420) (7,872) Cash outflow before use of liquid resources and financing (26,590) (12,071) Management of liquid resources Decrease/(increase) in short term bank and other deposits 1,726 (1,690) Decrease/(increase) in other investments 15,266 (15,000) 16,992 (16,690) Financing Issue of share capital 10,518 27,000 Expenses of issue of share capital (252) (1,226) Shares issued by subsidiary - 3,000 10,266 28,774 Increase in cash 26 668 13 The notes form part of these financial statements Notes forming part of the financial statements for the year ended 31 March 2007 1 Corporate restructuring During the comparative period the Group carried out a corporate re-restructuring including the introduction of a new holding company, Accsys Technologies PLC. The corporate restructuring was accounted for as a merger in accordance with Financial Reporting Standard 6 'Acquisitions and Mergers' (FRS 6) see accounting policies (note 2). The profit and loss account for the comparative year was accordingly prepared as if the new holding company had been in existence throughout both 2006 and prior periods. 2 Accounting policies The financial statements have been prepared under the historical cost convention and are in accordance with applicable accounting standards. In preparing these financial statements, the group has adopted FRS20 'Share Based Payments' for the first time. The following principal accounting policies have been applied: Basis of consolidation The consolidated financial statements incorporate the financial statements of Accsys Technologies PLC and all its subsidiary undertakings throughout the year ended 31 March 2007 and the comparative year, using the merger or acquisition method of accounting as required. Where the acquisition method is used, the results of subsidiary undertakings are included from the date of acquisition. Intra-group sales and losses are eliminated fully on consolidation. If the acquisition meets the criteria of a group reconstruction merger accounting is used. In such instances the investment is recorded in the Company's balance sheet at the nominal value of the shares issued together with the fair value of any additional consideration paid. In the Group financial statements, merged subsidiary undertakings are treated as if they had always been a member of the Group. The results of such a subsidiary are included for the whole period in the year it joins the Group. The corresponding figures for the previous year include its results for that period, the assets and liabilities at the previous balance sheet date and the shares issued by the Company as consideration as if they had always been in issue. Any difference between the nominal value of the shares acquired by the Company and those issued by the Company to acquire them is taken to a merger reserve. Goodwill Goodwill arising on the acquisition of a subsidiary undertaking is the difference between the fair value of the consideration paid and the fair value of the identifiable assets and liabilities acquired. It is capitalised and is being amortised over the directors' estimate of its remaining useful economic life, of nine years from the date of acquisition. Intellectual property rights Intellectual property rights, including patents, which cover a portfolio of novel chemical processes and products, are shown in the financial statements at cost less any amounts by which the carrying value is assessed during an annual review to have been impaired. No amortisation charge is made until plants licensed to exploit the intellectual property are fully commissioned, thereafter the carrying value is amortised in equal amounts over the useful economic life up to a maximum of 20 years. Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset, except freehold land, over its expected useful life on a straight line basis, as follows: Plant and machinery These assets comprise pilot plants and production facilities. The pilot plants are designed to validate technology designs and generally have short lives, with depreciation rates between 33% and 50%. Production facilities are depreciated from the start of commissioning at rates applicable to the average asset lives expected for each class of asset, with rates between 5% and 20%. Office equipment between 20% and 50%. Motor vehicles 20%. Impairment of tangible and intangible fixed assets The need for any fixed asset impairment write-down is assessed by comparison of the carrying value of the asset against the higher of realisable value and value in use. Operating leases The annual rentals payable under operating leases are charged to the profit and loss account on a straight line basis over the term of the lease. Development costs Product development costs are written off as incurred. Investments Fixed asset investments are stated at cost less provision for diminution in value. Financial assets Financial assets are recognised and derecognised on the trade date of their purchase or sale. The group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The group's accounting policy for each category is as follows: Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at cost less any provision for impairment. Stock Stock is carried at the lower of cost and net realisable value. Share based payments Effective 1 April 2006, the Group adopted FRS20 Share Based Payments. A fair value for the share options awarded is measured at the date of grant. The aggregate amount of the cumulative charge in respect of all periods to 31 March 2007 is â‚¬172,000. This includes an amount of â‚¬95,000 in respect of prior periods which is considered immaterial in the context of the prior period results. Accordingly, the results and the balance sheets for the prior period have not been restated and the entire amount has been charged in arriving at the result for the year to 31 March 2007. Share based payments, continued Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the profit and loss account over the vesting period. Non market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options which eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Pensions The pension costs charged in the financial statements represent the contributions payable by the company to individuals personal money purchase schemes during the period in accordance with FRS 17. Deferred taxation Deferred tax is provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes except for deferred tax assets which are only recognised to the extent that the group anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. Deferred tax balances are not discounted. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at the balance sheet date. Transactions in other currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to profit and loss account. The exchange rate used at 31 March 2007 was â‚¬1.47 to Â£1 (2006: â‚¬1.45 to Â£1). Government grants Grants relating to expenditure on tangible fixed assets are credited to the profit and loss account at the same rate as the depreciation on the assets to which the grant relates. The deferred element of grants is included in creditors as deferred income. Grants of a revenue nature are credited to the profit and loss account in the period to which they relate. Liquid resources For the purposes of the cash flow statement, liquid resources are defined as current asset investments and short term deposits. 3 Employees Group Group 2007 2006 â‚¬'000 â‚¬'000 Staff costs consist of: Wages and salaries 2,392 1,609 Social security costs 606 189 Other pension costs 89 122 3,087 1,920 The average number of employees, including executive directors, during the year was as follows: Number Number Administration 17 11 Operating 18 10 35 21 The Company has no employees. 4 Directors' remuneration 2007 2006 â‚¬'000 â‚¬'000 Directors' remuneration consists of: Directors' emoluments 725 743 Gains on exercise of share options 2,556 - Company contributions to money purchase pension schemes 64 71 Amounts paid to third parties in respect of directors' services 407 362 3,752 1,176 Emoluments disclosed above include the following amounts paid to the highest paid director: Emoluments for qualifying services 1,903 419 Company contributions to money purchase pension schemes 21 21 The group makes contributions to 2 (2006: 2) directors' personal pension plans. Out of the share based payments charge (note 5) â‚¬107,000 (2006: â‚¬ nil) relates to the directors. 5 Operating loss 2007 2006 â‚¬'000 â‚¬'000 This has been arrived at after charging: Depreciation of tangible assets 733 21 Impairment of plant and machinery 6,569 531 Amortisation of intangible fixed assets 628 - Impairment of intangible fixed assets 5,850 - Product development costs 277 380 Operating lease rentals 361 286 Auditors' remuneration for audit services 80 54 Remuneration of auditors for non-audit - - work Admission to AiM expenses - 565 Foreign exchange costs 7 3 Share based payments 172 - and after crediting: Research subsidies from governmental agencies (43) (308) Included in admission to AiM expenses in 2006 are corporate finance fees of â‚¬110,000 paid to the auditors. A further â‚¬38,000 of corporate finance fees paid to the auditors in 2006 was charged to the share premium account. 6 Interest receivable and similar income 2007 2006 â‚¬'000 â‚¬'000 Interest receivable on bank and other deposits 284 269 (Decrease)/increase in market value of current asset investments (247) 513 37 782 7 Taxation on loss from ordinary activities 2007 2006 â‚¬'000 â‚¬'000 Current tax UK corporation tax on loss for the year - - Adjustment in respect of previous years - - Total current tax - - Factors affecting the corporation tax charge for the year Loss on ordinary activities before tax (22,597) (4,998) Loss on ordinary activities at the standard rate of corporation tax in the UK of 30% (2006 - 30%) (6,779) (1,499) Effects of: Expenses not deductible for tax purposes 1,983 345 Capital allowances in excess of depreciation (599) (125) Increase in tax losses carried forward 5,395 1,279 Current tax charge for year - - Deferred taxation The potential deferred tax asset of the group arising from tax losses carried forward and the excess of depreciation over capital allowances are set out below. As the recoverability of these amounts in the foreseeable future is uncertain, the potential deferred tax assets have not been recognised. 2007 2006 â‚¬'000 â‚¬'000 Tax losses carried forward 8,939 2,793 Excess of depreciation over capital allowances 179 264 9,118 3,057 The Company has no significant potential deferred tax assets or liabilities 8 Loss for the financial period As permitted by section 230 of the Companies Act 1985, the parent company's profit and loss account has not been included in these financial statements. The loss for the financial period includes a profit of â‚¬6,195,000 (2006: loss of â‚¬78,000) which is dealt with in the financial statements of the parent company. The result for year includes a realised gain of â‚¬10,881,000 arising from the liquidation of a former holding company. 9 Loss per Accsys Technologies PLC share The loss per share shown below is calculated based upon the weighted average number of Accsys Technologies PLC Ordinary shares in issue 2007 2006 Weighted average number of Ordinary shares in issue 135,217,231 116,975,026 Loss for the year â‚¬'000 (22,597) (4,998) Loss per share â‚¬(0.17) â‚¬(0.04) Since none of the Accsys Technologies PLC's potential Ordinary shares are dilutive, there is no difference between basic and diluted loss per share. At 31 March 2007, the Company had 9,660,500 (2006: 5,688,000) options over Ordinary shares which are potentially dilutive in the future. 10 Share based payments Options granted on 1 March 2005 at an exercise price of â‚¬0.46 per Ordinary share vested 50% upon grant and 50% will vest upon the group achieving a cumulative â‚¬1 million in revenue from 1 April 2005. Once vested, these options may be exercised until 30 March 2015. At 31 March 2007, 4,129,000 of these options were outstanding. Options granted on 14 June 2006 at an exercise price of â‚¬1.20 per Ordinary share vested immediately but are not exercisable before 14 June 2009. These options may be exercised until 14 June 2016. At 31 March 2007, 438,500 of these options were outstanding. Options granted on 28 March 2007 at an exercise price of â‚¬2.59 per Ordinary share vest as to one third of the options granted upon achievement of each of the following: â€¢ Cumulative â‚¬5 million licence income recognised under group accounting policies â€¢ Cumulative â‚¬20 million revenue from sales of Accoya â€¢ Announcement of annual group distributable earnings exceeding â‚¬5 million Once vested, these options may be exercised until 31 March 2017. At 31 March 2007, 5,093,000 of these options were outstanding. Unless discretion is exercised by the Nomination & Remuneration Committee, all options are forfeit following an optionholders termination of contract. Outstanding options granted under the share option scheme are as follows: Number of outstanding Weighted average remaining options at 31 March contractual life, in years Option Date of grant 2007 2006 2007 2006 price 1 March 2005 4,129,000 5,688,000 7.9 8.9 â‚¬ 0.46 14 June 2006 438,500 - 9.2 - â‚¬ 1.20 28 March 2007 5,093,000 - 10.0 - â‚¬ 2.59 Movements in the weighted average values are as follows: 2007 2007 2006 2006 Weighted Weighted average average exercise exercise price Number price Number Outstanding at 1 April â‚¬ 0.46 5,688,000 â‚¬ 0.46 5,688,000 Granted during the year â‚¬ 2.48 5,531,500 - Exercised during the year â‚¬ 0.46 (1,559,000) - Outstanding at 31 March â‚¬ 1.62 9,660,500 â‚¬ 0.46 5,688,000 The exercise price of options outstanding at the end of the year ranged between â‚¬0.46 and â‚¬2.59 (2006: â‚¬0.46) and their weighted average contractual life was 9.1 years (2006: 8.9 years). Of the total number of options outstanding at the year end, 1,285,000 (2006: 2,844,000) had vested and were exercisable at the end of the year. The weighted average share price (at the date of exercise) of options exercised during the year was â‚¬2.37 (2006: not applicable). The weighted average fair value of each option granted during the year was â‚¬0.33 (2006: not applicable). The fair value of executive share options granted during the year is calculated based on a modified Black-Scholes model assuming inputs shown below: Grant date 28 Mar 07 14 Jun 06 1 Mar 05 Share price at grant date â‚¬ 2.59 â‚¬ 1.20 â‚¬ 0.46 Exercise price â‚¬ 2.59 â‚¬ 1.20 â‚¬ 0.46 Expected life 3 3 3 Contractual life 10 10 10 Risk free rate 4.92% 4.63% 4.37% Expected volatility 15% 15% 15% Expected dividend yield 0% 0% 0% Fair value of option â‚¬ 0.346 â‚¬ 0.120 â‚¬ 0.044 10 Share based payments (continued) Volatility has been estimated by reference to the historic volatility since October 2005 when the Company's shares were listed on AiM. The resulting fair value is expensed over the vesting period of the options on the assumption that a proportion of options will lapse over the service period as employees leave the Group. 11 Intangible fixed assets Intellectual Goodwill property on Group rights consolidation Total â‚¬'000 â‚¬'000 â‚¬'000 Cost At 1 April 2006 73,000 4,249 77,249 Additions 200 - 200 At 31 March 2007 73,200 4,249 77,449 Amortisation At 1 April 2006 62,985 549 63,534 Amortisation 216 412 628 Impairment 5,850 - 5,850 At 31 March 2007 69,051 961 70,012 Net book value At 31 March 2007 4,149 3,288 7,437 At 31 March 2006 10,015 3,700 13,715 The directors have undertaken an impairment review (using the value in use method) of the carrying value of the intellectual property rights. These rights relate to a number of potential technology applications. Following the most recent impairment review, the directors resolved that the carrying value in respect of potential applications which are no longer being actively pursued, nor are likely to be resourced in the foreseeable future, should be treated as fully impaired. The carrying value in respect of applications which are currently being developed is based upon an evaluation of future potential licence fees and production royalty fees using a post tax discount rate of 25%. 12 Tangible assets Freehold Production Office Group land facilities equipment Total â‚¬'000 â‚¬'000 â‚¬'000 â‚¬'000 Cost or valuation At 1 April 2006 950 10,490 40 11,480 Additions 329 17,774 117 18,220 Disposals - (134) (4) (138) At 31 March 2007 1,279 28,130 153 29,562 Depreciation At 1 April 2006 - 768 19 787 Charge for the year - 683 50 733 Impairment - 6,569 - 6,569 Disposals - (134) (4) (138) At 31 March 2007 - 7,886 65 7,951 Net book value At 31 March 2007 1,279 20,244 88 21,611 At 31 March 2006 950 9,722 21 10,693 The directors have reviewed the economic lives of the tangible fixed assets. Following extensive commissioning trials, the prototype anhydride cracker has been decommissioned pending remediation work required before it can be brought into service. Accordingly, at the balance sheet date it is treated as fully impaired. Following completion of the remediation work and successful commissioning of the cracker, its useful life will be re-estimated. Accordingly, an amount of â‚¬6,569,000 has been recognised as an impairment. 13 Fixed asset investments Company Shares in subsidiary undertakings â‚¬'000 Cost At 1 April 2006 11,383 Liquidation of subsidiary (1,203) At 31 March 2007 10,180 Impairment At 1 April 2006 - Impairment charge (4,180) At 31 March 2007 (4,180) Net book value At 31 March 2007 6,000 At 31 March 2006 11,383 Shares in subsidiaries have been impaired following the impairment review undertaken on intangible and tangible assets referred to in notes 11 and 12. The following were the principal subsidiary undertakings at the end of the year and have all been included in the financial statements: Country of registration % shares Subsidiary undertakings or incorporation Class held International Cellulose Company Overseas Limited Gibraltar Ordinary 100 International Chemical Company BV Netherlands Ordinary 100 Titan Wood BV Netherlands Ordinary 100 Titan Wood Limited England Ordinary 100 The shares in Titan Wood BV are held indirectly by the company. The principal activities of these companies were as follows: International Cellulose Company Overseas Limited The ownership and exploitation of patents and technical know how (collectively intellectual property rights), relating to the acetylation of cellulose and production of acetic anhydride. International Chemical Company BV The technical validation and demonstration of patents and technical know-how relating to the acetylation of wood fibre, cellulose and production of acetic anhydride. Titan Wood BV The manufacture of Accoya, acetylated wood. Titan Wood Limited Establishing global market penetration of Accoya as the premium wood for external applications requiring durability, stability and reliability through the licensing of the Group's proprietary process for wood acetylation. 14 Stock Group Group 2007 2006 â‚¬'000 â‚¬'000 Raw materials 898 - Finished goods 12 - 910 - 15 Debtors Group Group Company Company 2007 2006 2007 2006 â‚¬'000 â‚¬'000 â‚¬'000 â‚¬'000 Amounts owed by subsidiary - - 38,638 12,316 undertakings Other debtors 906 943 - - Other loans and deposits - 7,306 - 7,306 Prepayments and accrued income 179 162 30 24 1,085 8,411 38,668 19,646 All amounts fall due for payment within one year. Other loans and deposits at 31 March 2006 included â‚¬5,616,000 of interest bearing deposits. 16 Other investments Group Group Company Company 2007 2006 2007 2006 â‚¬'000 â‚¬'000 â‚¬'000 â‚¬'000 Unlisted securities available for resale - 15,513 - 15,513 At 31 March 2006, the Company held 9,643,256 redeemable shares of â‚¬0.000015 each in the Tactica Euro Balanced Opportunities Fund, managed by Goldman Sachs International. 17 Creditors: amounts falling due within one year Group Group Company Company 2007 2006 2007 2006 â‚¬'000 â‚¬'000 â‚¬'000 â‚¬'000 Trade creditors 1,938 1,777 134 - Amounts owed to subsidiary undertakings - - 3,432 23,651 Taxes and social security costs 470 55 - - Accruals and deferred income 694 152 15 15 3,102 1,984 3,581 23,666 18 Share capital 2007 2006 â‚¬'000 â‚¬'000 Authorised Equity share capital 200,000,000 ordinary shares of â‚¬0.01 each 2,000 2,000 1,000,000 deferred shares of 10p each 148 148 2,148 2,148 Allotted Equity share capital 140,645,619 (2006: 132,463,447) ordinary shares of â‚¬0.01 each 1,406 1,325 1,000,000 deferred shares of 10p each 148 148 1,554 1,473 The deferred shares have no right to receive a dividend, no right to attend, speak or vote at general meetings of the Company and only a right to participate in a winding up after â‚¬100,000 has been paid on each Ordinary share. Movements in allotted, called up and fully paid share capital comprise: Deferred Ordinary shares of shares of 10p each â‚¬0.01 each â‚¬'000 â‚¬'000 At 31 March 2006 148 1,325 Placing - 66 On exercise of share options - 15 At 31 March 2007 148 1,406 On 14 September 2005, the Company made offers for the entire issued share capital of Accsys Chemicals PLC on the basis of one new Ordinary share of â‚¬0.01 for each existing Ordinary share and of one new Deferred share of 10p for every 48.1715 existing Deferred shares. After acceptances exceeded 90%, the Company exercised compulsory purchase powers under the Companies Act to acquire the outstanding Ordinary and Deferred shares. A total of 105,463,445 Ordinary shares and 1,000,000 Deferred shares were issued in consideration. On 22 November 2005, the Company completed its acquisition of the Ordinary and Deferred shares of Accsys Chemicals PLC, which became wholly owned, and also completed the offer in respect of options over Ordinary shares in Accsys Chemicals PLC. On 26 October 2005, the Company placed 27,000,000 new Ordinary shares at a price of â‚¬1.00 each raising â‚¬25,209,000 after expenses and its Ordinary shares were admitted to AIM. On 8 November 2006, the Company placed 6,623,172 new Ordinary shares at a price of â‚¬1.48 each raising â‚¬9,557,000 after expenses. Options over 1,559,000 Ordinary shares were exercised during the year at a price of â‚¬0.46 each. Details of outstanding options granted over Ordinary shares in the Company are set out in Note 10. 19 Reserves Share Profit premium Merger and loss account reserve account Group â‚¬'000 â‚¬'000 â‚¬'000 Balance at 1 April 2006 25,504 106,707 (82,759) Premium on shares issued 10,437 - - Issue costs (252) - - Share based payment charges - - 172 Loss for the period - - (22,597) Balance at 31 March 2007 35,689 106,707 (105,184) Share Profit premium and loss account account Company â‚¬'000 â‚¬'000 Balance at 1 April 2006 25,504 (78) Premium on shares issued 10,437 - Issue costs (252) - Share based payment charges - 172 Profit for the period - 6,195 Unrealised gain on liquidation of former holding company - 8,010 Balance at 31 March 2007 35,689 14,299 In the comparative period, the Company utilised merger relief available under (S)131 of the Companies Act 1985 in respect of the shares issued to acquire the former holding company, Accsys Chemicals PLC. The Profit and loss account of the Company includes â‚¬8,010,000 of non distributable reserves arising from the liquidation of Accsys Chemicals PLC 20 Commitments under operating leases As at 31 March 2007, the group had annual commitments under non-cancellable operating leases as set out below: Land and Land and buildings buildings 2007 2006 â‚¬'000 â‚¬'000 Operating leases which expire: In two to five years 361 286 The company has no annual commitments under non-cancellable operating leases. 21 Reconciliation of movements in shareholders' funds 2007 2006 Group â‚¬'000 â‚¬'000 Loss for the financial year (22,597) (4,998) Share based payment charges 172 - Proceeds from issue of shares 10,266 25,774 Shares issued by subsidiary - 4,195 Net (decrease)/increase in shareholders' funds (12,159) 24,971 Opening shareholders' funds 50,925 25,954 Closing shareholders' funds 38,766 50,925 Company Profit/(loss) for the financial year 6,195 (78) Unrealised gain on liquidation of former holding company 8,010 - Share based payment charges 172 - Shares issued to acquire Accsys Chemicals PLC - 1,203 Proceeds from issue of shares 10,266 25,774 Net increase/(decrease) in shareholders' funds 24,643 26,899 Opening shareholders' funds 26,899 - Closing shareholders' funds 51,542 26,899 22 Financial instruments The group's treasury policy is structured to ensure that adequate financial resources are available for the development of its business whilst managing its currency, interest rate and counterparty credit risks. The group's Treasury strategy and policy are developed centrally and approved by the board. Currency exposures are limited as the Group's functional currency is the euro. A minor proportion of administrative expenditure is incurred in pounds sterling. Counterparty credit risks arise principally in relation to the Group's short term liquid resources of â‚¬9,580,000 (2006: â‚¬26,819,000). These have been placed directly or indirectly with high quality financial institutions or are represented by a diversified portfolio managed within clearly defined investment guidelines by a highly reputable investment manager. Group Group Company Company 2007 2006 2007 2006 â‚¬'000 â‚¬'000 â‚¬'000 â‚¬'000 Gross financial assets comprise: Redeemable preference shares - 15,513 - 15,513 Other financial assets: Other loans and deposits - 7,306 - 7,306 Money market deposits 9,580 4,000 9,580 4,000 Money at call 1,220 540 872 21 Money at call in sterling 25 37 3 2 10,825 27,396 10,455 26,842 Redeemable preference shares were redeemable at the holder's option on one month's notice and are carried at fair value. This was been determined as the net asset value reported by the investment manager at the balance sheet date. In the opinion of the directors, there is no material difference between the book value and the fair value of other financial assets. All other financial assets have interest rates fixed for less than nine (2006: three) months at a weighted average of 3.12% (2006: 2.55%). Apart from minimal amounts denominated in sterling currency, all financial assets are denominated in euro. At the balance sheet date, the Group has financial liabilities of â‚¬1,938,000 (2006: â‚¬1,777,000) comprising trade creditors. The Company has no financial liabilities. In the opinion of the directors, there is no material difference between the book value and the fair value of financial liabilities. 23 Related party transactions Mr William Paterson-Brown is a director of Khalidiya Investments SA. During the year the Company paid â‚¬406,795 (2006: â‚¬425,376) in respect of directors services provided by Khalidiya Investments SA. 24 Capital commitments 2007 2006 Group â‚¬'000 â‚¬'000 Contracted but not provided for 1,776 8,936 25 Reconciliation of operating loss to net cash outflow from operating activities 2007 2006 â‚¬'000 â‚¬'000 Operating loss (22,634) (5,780) Share based payment charges 172 - Depreciation of tangible fixed assets 733 21 Impairment of tangible fixed assets 6,569 - Amortisation of intangible fixed assets 628 531 Impairment of intangible fixed assets 5,850 - (Increase) in stock (910) - Decrease/(increase) in debtors 20 (497) Increase in creditors 1,118 1,257 Net cash outflow from operating activities (8,454) (4,468) 26 Reconciliation of net cash inflow to movement in net funds 2007 2006 â‚¬'000 â‚¬'000 Increase in cash in the year 668 13 Cash (inflow)/outflow from changes in liquid resources (16,992) 16,690 Shares issued in subsidiary in settlement of debt - 1,195 Movement in net funds in the year (16,324) 17,898 (Decrease)/increase in value of current asset investment (247) 513 Opening net funds 27,396 8,985 Closing net funds 10,825 27,396 27 Analysis of net funds 2007 2006 â‚¬'000 â‚¬'000 Increase in cash in the year 668 13 Cash (inflow)/outflow from changes in liquid resources (16,992) 16,690 Shares issued in subsidiary in settlement of debt - 1,195 Movement in net funds in the year (16,324) 17,898 (Decrease)/increase in value of current asset investment (247) 513 Opening net funds 27,396 8,985 Closing net funds 10,825 27,396 28 Post balance sheet events On 21 May 2007, 8,115,883 new Ordinary shares were issued to Celanese Corporation at a price of â‚¬2.72 each for a cash consideration of â‚¬22,075,000. On 25 June 2007, the Company announced an agreement with Skanfore SA under which rights to negotiate certain technology licenses were exchanged for a premium payable to the Group of â‚¬10m. Further details of the transaction are provided in the Chairman's Statement and the Directors' Report. This information is provided by RNS The company news service from the London Stock Exchange

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