Final Results

Gas Turbine Efficiency PLC 08 April 2008 8 April 2008 Gas Turbine Efficiency plc Preliminary Results for the year to 31 December 2007 Gas Turbine Efficiency plc ('GTE' or 'the Group'), a leading provider of advanced systems to enhance the performance of aviation and industrial turbines, announces its financial results for the year ended 31 December 2007. Financial Highlights •Group revenues increased by 279% to $17.8m reflecting first time acquisitions and organic growth (2006: $4.7m) •Industrial sector revenues up 530% to $12.6m (2006: $2.0m) •Aviation sector revenues rose 93% to $5.2m (2006: $2.7m) •Operating loss amounted to $2.9m (2006: $2.7m) •Reduced operating loss, excluding exceptional legal costs, of $1.7m (2006: $2.7m) •Fully diluted loss per share of $0.037 (2006: $0.052) •Raised $10.9m through two institutional share placings •Record current order backlog of $17.4m underpins strong outlook for 2008 Operating Highlights •Accelerated expansion with two strategic acquisitions, Control Center LLC and ARES Technology LLC, for a total $4.3m •Signed long-term commercial contracts with four global Original Equipment Manufacturers (OEMs) in the industrial sector including Rolls Royce, Siemens AB, and Solar Turbines Incorporated •OEM direct sales increased more than 330% from $3.9m to $13m •Key OEM accounts doubled to 8 reflecting the broad appeal of GTE's solutions •Strengthened management and technology leadership team by recruiting world-class turbine industry experts •Established third growth platform with launch of Advanced Fuel & Combustion business in January 2008 •Number of patents awarded doubled to 8 (2006: 4); 17 more in pipeline •Patent lawsuit by GTE resolved successfully on 7 April 2008 •Opened branch office in Abu Dhabi, United Arab Emirates, and launching subsidiaries in Russia and Singapore Commenting on the results Steven Zwolinski, CEO of Gas Turbine Efficiency, said: 'I am delighted with the strong growth achieved by GTE in 2007, which reflects several strategic initiatives taken by the Group to position for long term growth trends in the $10 billion gas turbine infrastructure and services market. We have a record 2008 order backlog and demand for our products and services continues to ramp up as turbine operators and manufacturers come under increasing pressure to reduce fuel costs, carbon emissions and equipment downtime. As a result GTE remains exceptionally well-placed to deliver robust growth in 2008 and beyond.' Enquiries: Gas Turbine Efficiency plc Steven Zwolinski, CEO +44 20 7977 0020 on the day +46 8 546 10 528 thereafter Libertas Capital Aamir Quraishi, Matthew Hindhaugh +44 20 7569 9650 Corfin Communications Neil Thapar, Harry Chathli, Alexis Gore +44 20 7977 0020 About GTE Gas Turbine Efficiency plc, whose shares are traded on London Stock Exchange's AIM market (Ticker: GTE), designs, manufactures and markets advanced integrated solutions for environmental, process and asset optimisation of gas turbines primarily in the aviation, industrial and oil & gas sectors. These solutions include compressor cleaning systems, performance monitoring, fuels management, OEM approved combustion design and repair services and fluid and control sub-systems that improve turbine performance and availability, fuel efficiency and parts life, resulting in increased profits for its clients and a cleaner environment. The Group sells its products to blue chip customers worldwide from operational centres in Europe and the USA. Overview GTE is pleased to report strong growth in 2007 driven by increasing demand for its advanced solutions to lower fuel costs, carbon emissions and turbine downtime primarily in the aviation, power generation and oil & gas sectors. Group turnover increased by 279% to $17.8m (2006: $4.7m) led by an almost six-fold increase in sales into the industrial sector and a 93% increase in revenues in the aviation sector. The strong growth was attributable to both organic expansion of the Group's activities as well as first time revenue contributions from acquisitions, which contributed $10.2m. Revenues from organic growth increased by 60%. During the year GTE also took major strategic steps to diversify its solutions portfolio enabling it to move up the value chain in the $10 billion global gas turbine infrastructure and services market and align with the critical long term industry growth drivers that include: •Increased energy demand and need for infrastructure solutions •Rising fuel costs and need for efficiency solutions •Strengthening environmental regulatory frameworks •Fuel diversity challenges as industry moves toward alternate fuel sources The Group also achieved a strong result at the operating level, reducing the full year operating loss to $1.7m, excluding exceptional legal costs arising from a US lawsuit initiated by GTE against a former employee to protect its intellectual property, compared with a $2.7m operating deficit in 2006. Operating review Industrial Revenues from the industrial sector (which includes power generation and oil & gas industries) rose by over 530% to $12.6m compared with revenues of $2.0m in the corresponding period last year. Sales to leading OEMs increased more than three-fold from $3.9m to $13.0m while end user sales increased from $0.8m to $4.8m. Early in the year, GTE laid a strong platform for its long term growth with the acquisitions of Control Center LLC and ARES Technology LLC for a total $4.3m. Integration efforts following the deals exceeded management expectations with faster time-to-market development of new products and a higher level of order intake than initially anticipated. The acquisitions contributed revenues of $10.2m to the Group in 2007 and provide significant long term operational and synergy benefits including a Tier 1 supplier to OEMs and turbine end users; a scalable and cost effective US operational base; and a significantly broader product portfolio. During the year GTE also successfully concluded an extensive programme of product qualifications with four global industrial OEMs, culminating in four major long term commercial contracts. These were a five-year agreement with Solar, a Caterpillar company, which specialises in manufacturing small to mid-range turbines; a three-year extension of GTE's exclusive agreement with Siemens AB; a three-year contract extension with Rolls Royce and a new three-year contract with one of the world's largest OEMs in the sector. These key strategic steps in 2007 will continue to drive the Group in three key ways: •It moves GTE up the value chain and closer to integrated solutions, positioning the Group for long term growth in the gas turbine infrastructure and services market which is valued at up to $10 billion •It opens up additional high-value products to sell through existing channels and customer relationships; and finally •It creates a broader technology team and patent portfolio. Aviation The aviation business, where GTE is the exclusive supplier of on-wing wash systems to Pratt & Whitney, continued to perform strongly by increasing revenues 93% to $5.2m in 2007. This strong performance has continued into 2008 with GTE receiving new orders worth $3m from Pratt & Whitney as it rolls out its EcoPower (R) aviation services business worldwide. Underlying demand drivers in this sector have continued to strengthen as an increasing number of aircraft operators focus on achieving significant fuel efficiencies and environmental benefits. These on-wing wash systems can reduce fuel burn by as much as 1 percent and increase exhaust gas temperature margin by as much as 15 degrees C. According to Pratt & Whitney, Singapore Airlines is expected to save close to $15m in fuel costs and reduce CO2 emissions by 128 million pounds by using Pratt & Whitney Global Services' EcoPower(R) wash services, for its entire aircraft fleet. Advanced Fuel & Combustion As announced on 29 January 2008, GTE launched the Advanced Fuel & Combustion business which represents the third leg of the Group's strategy to broaden its products and services portfolio in the energy services market. This business unit provides a range of highly specialised services including consulting, design, root cause analysis and manufacturing. GTE is currently working in this capacity with several leading OEMs, which is expected to generate material revenues from 2008. With the launch of this business unit GTE has positioned itself for future participation in a number of new segments by adding a world class technology capability. Demand for advanced fuel and combustion solutions is expected to grow strongly over the long term as turbine operators are driven to fuel flexible combustors that will operate on conventional fuels and on a wider variety of fuels such as liquefied natural gas, clean coal, and bio-fuel blends to reduce costs and carbon emissions. In addition, many industries want to decrease the flaring of gas due to tighter environmental controls, the rising cost of carbon allocations and the value of surplus gas. As a result, GTE is well-positioned to benefit from growing demand for advanced solutions that are not only environmentally friendly, but also deliver value to turbine operators. Senior members of this business unit's leadership team include four recognised industry 'gurus' with a combined experience base of over 80 years on leading edge combustion programs. They are: John Battaglioli, Advanced Fuel and Combustion Solutions; Bill Barras, Combustion Repairs; Robert Bland, Chief Technologist - Combustion Architecture; Andrew Hamer, Chief Technologist - Fluid Mechanics Modeling; John Barnes, Chief Technologist - Solid Mechanics Modeling. The total number of employees increased from 23 to 72 during the year. New geographic markets To better align with customers, GTE continued to expand its global footprint with a branch office in Abu Dhabi, United Arab Emirates, and by launching subsidiaries in Russia and Singapore to target the fast growing Asian markets. Research & Development The Group further expanded its intellectual property position through innovation. Total number of patents granted to GTE increased to 8 from 4 in the year and another 17 patent application have been filed or currently in the process of being filed. In addition, the Group also substantially strengthened its technology edge by investing $4.0m in R&D. In keeping with the strategy of building a strong intellectual property portfolio and protecting customer relationships, the Group launched a patent defense lawsuit against a former employee during the first half of 2007. This lawsuit was resolved on 7 April 2008 to GTE's satisfaction and reinforces GTE's strong patent position. As part of the settlement GTE will acquire assets of approximately $350,000, to be accounted for in the Group's 2008 results. Management and staff GTE has built up its management team with the recruitment of world-class industry experts who have significantly enhanced the Group's capabilities. This team has been involved in both GTE and leading OEM product development that has a track record of producing over two dozen granted patents and applications. The expertise gathered has helped diversify GTE's product lines as illustrated with the launch of the Advanced Fuel & Combustion business discussed above. Financial Review Turnover increased to $17.8m (2006: $4.7m) due to significant revenue increases in both the aviation and industrial sectors, driven by organic growth as well as first time contribution from acquisitions, which contributed $10.2m. Revenues from organic growth increased by 60%. Operating loss amounted to $2.9m (2006: $2.7m). The Group incurred exceptional legal costs of $1.2m relating to a US lawsuit initiated by GTE against a former employee to protect its intellectual property. Pre-tax loss amounted to $2.9m compared with a $2.9m loss in 2006. Basic and fully diluted loss per share was $0.037 (2006: $0.052). Cash and cash equivalents totaled $2.3m as at 31 December 2007 (2006: $2.9m). Outlook The benefits of GTE's long term strategy resulted in tremendous progress in 2007 which has continued into 2008. The Group's integrated solutions are gaining increasing acceptance from industrial turbine operators and OEMs worldwide, which has resulted in a record order book with 2008 backlog currently amounting to $17.4m. This represents a 69% increase compared with the same time last year. With trading conditions expected to remain favourable, the Group looks to the future with great confidence and expects to deliver another year of strong growth. CONSOLIDATED STATEMENTS OF INCOME In thousands of US dollars, except share data CONSOLIDATED STATEMENTS OF INCOME for the year ended 31 December 2007 Note 2007 2006 $'000 $'000 Continuing operations Revenue 1 17 830 4 662 Cost of sales (10 358) (2 608) ------- ------- Gross profit 7 472 2 054 Distribution and selling costs (2 204) (843) Research and development expenses (1 130) (585) Administrative expenses (7 124) (3 390) Other operating income 78 50 ------- ------- Operating loss (2 908) (2 714) Interest receivable 164 155 Finance costs (150) (359) ------- ------- Loss before tax (2 894) (2 918) Tax 2 880 629 ------- ------- LOSS FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT (2 014) (2 289) ======= ======= Loss per share From continuing operations Basic and diluted loss per share ($) (0.037) (0.052) ======= ======= Administrative expenses include exceptional legal costs of $1 159 000 (2006: $Nil) CONSOLIDATED BALANCE SHEETS at 31 December 2007 Note 2007 2006 ASSETS $'000 $'000 Non-current assets Intangible assets Capitalised expenditure for research and development 2 904 765 Patents 928 376 Customer relations 421 - ERP-System 506 213 Goodwill 3 6 306 1 255 ------- ------- 11 065 2 609 Tangible assets Equipment, tools, fixtures and fittings 1 282 572 ------- ------- Financial assets Available for-sale investments 187 204 ------- ------- Deferred tax assets 4 2 611 1 743 ------- ------- Total non-current assets 15 145 5 128 Current assets Inventories 1 525 556 ------- ------- Current receivables Accounts receivable-trade 4 525 1 910 Income taxes recoverable 201 97 Other receivables 633 467 Prepaid expenses and accrued income 469 768 ------- ------- 5 828 3 242 Cash and cash equivalents 2 284 2 855 ------- ------- Total current assets 9 637 6 653 TOTAL ASSETS 24 782 11 781 ======= ======= CONSOLIDATED BALANCE SHEETS at 31 December 2007 (continued) Note 2007 2006 $'000 $'000 EQUITY AND LIABILITIES Equity Share capital 207 156 Share premium 20 705 8 225 Capital reserve 2 636 2 636 Share based payment reserve 540 355 Revaluation reserve (8) 59 Translation reserves 1 967 1 621 Retained earnings (6 677) (4 663) ------- ------- Total equity attributable to equity holders of the parent 19 369 8 389 Non-current liabilities Financial liabilities - borrowings 90 90 Deferred tax liabilities 266 75 ------- ------- 356 165 Current liabilities Financial liabilities - borrowings 243 947 Accounts payable - trade 2 550 1 125 Other liabilities 307 146 Accrued expenses 1 957 1 009 ------- ------- 5 057 3 227 Total liabilities 5 413 3 392 ------- ------- TOTAL EQUITY AND LIABILITIES 24 782 11 781 ======= ======= CONSOLIDATED STATEMENTS OF CASH FLOWS for the year ended 31 December 2007 Note 2007 2006 $'000 $'000 Cash flow from operating activities Loss after financial items (2 894) (2 918) Adjustments to operating cash flows 668 576 ------- ------- Cash flow from operating activities before changes in working capital (2 226) (2 342) Cash flow from changes in working capital (Increase)/decrease in inventories (327) (41) (Decrease)/increase in receivables (1 580) 1 780 Increase in liabilities 937 85 ------- ------- Cash used by operations (3 196) (518) Interest received 151 155 Finance costs (169) (189) ------- ------- Net cash used by operating activities (3 214) (552) Cash flows from investing activities Purchase of financial assets - (27) Purchase of intangible non current assets (2 931) (988) Purchase of tangible non current assets (667) (302) Operations acquired (2 524) - Sale of tangible non current assets - 73 ------- ------- Net cash used by investing activities (6 122) (1 244) Cash flows from financing activities New share issue (net of issue costs) 10 572 - Loans taken 158 61 Loans repaid (2 015) (584) ------- ------- Net cash (used in)/generated by financing activities 8 715 (523) Net change in cash and cash equivalents (621) (2 314) Cash and cash equivalents at beginning of the year 2 855 4 705 Effect of foreign exchange rate changes 50 464 ------- ------- Cash and cash equivalents at end of the year 2 284 2 855 ======= ======= CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2007 Share Share Capital Share based Capital premium reserve payment reserve $'000 $'000 $'000 $'000 ------ ------- ------ ----------- Balance at 31 December 2005 156 8 225 2 636 184 Credit to equity for equity-settled - - - 171 share-based payments Increase in fair value of available- for-sale investments - - - - Exchange differences arising on translation of foreign operations - - - - Net loss for the year - - - - ------ ------- ------ ----------- Balance at 31 December 2006 156 8 225 2 636 355 New share issue, 5 144 954 shares at nominal £ 0.002 20 4 480 - - New share issue, 250 000 shares at nominal £ 0.002 1 - - - New share issue, 7 456 140 shares at nominal £ 0.002 29 8 363 - - Placing costs - (423) - - New share issue, 100 000 shares at nominal £ 0.002 1 60 - - Credit to equity for equity-settled share-based payments - - - 185 Decrease in fair value of available- for-sale investments - - - - Exchange differences arising on translation of foreign operations - - - - Net loss for the year - - - - ------ ------- ------ ----------- Balance at 31 December 2007 207 20 705 2 636 540 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2007 (continued) Revaluation Translation Retained Total share- reserve reserve earnings holders equity $'000 $'000 $'000 $'000 -------- -------- ------- --------- Balance at 31 December 2005 30 602 (2 374) 9 459 Credit to equity for equity-settled share-based payments - - - 171 Increase in fair value of available-for-sale investments 29 - - 29 Exchange differences arising on translation of foreign operations - 1 019 - 1 019 Net loss for the year - - (2 289) (2 289) -------- ------- ------- --------- Balance at 31 December 2006 59 1 621 (4 663) 8 389 New share issue, 5 144 954 shares at nominal £ 0.002 - - - 4 500 New share issue, 250 000 shares at nominal £ 0.002 - - - 1 New share issue, 7 456 140 shares at nominal £ 0.002 - - - 8 392 Placing costs - - - (423) New share issue, 100 000 shares at nominal £ 0.002 - - - 61 Credit to equity for equity- settled share-based payments - - - 185 Decrease in fair value of available-for-sale investments (67) - - (67) Exchange differences arising on translation of foreign operations - 345 - 345 Net loss for the year - - (2 014) (2 014) -------- -------- ------- --------- Balance at 31 December 2007 (8) 1 966 (6 667) 19 369 Note 1 Segment information For management purposes, the Group is currently organised into the following two operating divisions: Eastern and Western hemisphere, where Western hemisphere relates to US and the Americas and Eastern relates to Europe and the rest of the world. These divisions are the basis on which the Group reports its primary and only segment information. Inter-segment sales are charged at prevailing market rates. 31 December 2007 Continuing operations Western Eastern Eliminations Total for group $'000 $'000 $'000 $'000 ------- ------- ------- ------- Revenue from sales External sale of goods 10 203 7 627 17 830 Inter-segment sale of goods & services 2 150 320 (2 470) - ------- ------- ------- ------- Segment result - operating loss (2 205) (523) (180) (2 908) Other interest income and similar profit/loss items 164 Interest expense for group companies (150) ------- Loss before tax (2 894) Tax credit 880 ------- Loss for the year (2 014) ======= Other information Capital additions 593 3 004 3 597 Depreciation, amortisation and write downs 233 250 483 Unallocated assets/ Western Eastern liabilities Total for group Balance sheet $'000 $'000 $'000 $'000 ------- ------- ------- ------- Assets: Segment assets: 10 106 9 580 5 096 24 782 ------- Liabilities: Segment liabilities: 2 803 2 011 599 5 413 ------- 31 December 2006 Continuing operations Western Eastern Eliminations Total for group $'000 $'000 $'000 $'000 ------- ------- ------- ------- Revenue from sales External sale of goods 443 4 219 - 4 662 Inter-segment sale of goods & services 364 733 (1 097) - ------- ------- ------- ------- Segment result - operating loss (1 421) (1 283) (10) (2 714) Other interest income and similar profit/loss items 155 Interest expense for group companies (359) ------- Loss before tax (2 918) Tax credit 629 ------- Loss for the year (2 289) ======= Other information Capital additions 480 874 1 374 Depreciation, amortisation and write downs (62) (211) (273) Unallocated assets/ Western Eastern Liabilities Total for group Balance sheet $'000 $'000 $'000 $'000 ------- ------- ------- ------- Assets: Segment assets: 2 723 4 363 4 695 11 781 ------- Liabilities: Segment liabilities: 484 1 795 1 113 3 392 ------- Note 2 Taxation 2007 2006 $'000 $'000 Current tax - Continuing operations - - Deferred tax assets 840 630 Deferred tax liabilities 40 (1) ------- ------- 880 629 ======= ======= The total credit for the year can be reconciled to the accounting loss before tax as follows: 2007 2006 $'000 $'000 Loss before tax (2 894) (2 918) Tax at the domestic tax rate in the Group's main trading location of Sweden of 28% (2005: 28%) 810 817 Tax effect of expenses that are not deductible in determining taxable profit (65) (57) Tax effect of income that is not taxable in determining taxable profit 15 - Tax effect of utilisation of tax losses not previously recognised 34 - Tax effect of not recognised tax losses (131) (258) Effect of different tax rates of subsidiaries operating in other jurisdictions 217 127 ------- ------- Tax credit for the year 880 629 ======= ======= Note 3 Intangible assets - Goodwill 2007 2006 $'000 $'000 Cost As at 1 January 1 255 1 084 Operations acquired 5 074 Exchange differences (23) 171 ------- ------- As at 31 December 6 306 1 255 ======= ======= Impairment As at 1 January and 31 December - - ------- ------- Net book value as at 31 6 306 1 255 ======= ======= Goodwill is allocated to the Group's cash-generating units (CGUs) identified according to country of operation. 2007 2006 $'000 $'000 Western 5 074 - Eastern 1 232 1 255 ------- ------- 6 306 1 255 ======= ======= The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The Group prepares cash flow forecasts derived from the most recent financial forecasts approved by the Board of Directors. The view of the Board of Directors is that the future discounted cash flows of the Company over the next 3 years significantly exceed the currently booked goodwill asset of $6 306 000. The company has not prepared discounted cashflow forecasts beyond these 3 years. The rate used to discount the forecast cash flows from the business related to the Eastern and Western CGU is 12 per cent. Note 4 Deferred tax The following are the deferred tax liabilities and assets recognised by the Group, and the movements thereon, during the current and prior reporting periods. Deferred tax assets Research & Tax Loss Inventory Development Carry Forward Total $'000 $'000 $'000 $'000 ------- ------- ------- -------- At 1 January 2006 22 - 1 106 1 128 Credited to the income statement 4 - 626 630 Exchange differences - - (15) (15) ------- ------- ------- -------- At 31 December 2006 26 - 1 717 1 743 Credited to the income statement (3) 53 790 840 Exchange differences (1) - 29 28 ------- ------- ------- -------- At 31 December 2007 22 53 2 536 2 611 ======= ======= ======= ======== Intangible Untaxed Deferred tax liabilities assets reserves Total $'000 $'000 $'000 ------- ------- -------- At 1 January 2006 (17) (49) (66) Charged to the income statement (1) - (1) Exchange differences - (8) (8) ------- ------- -------- At 31 December 2006 (18) (57) (75) Operations acquired (225) - (225) Charged to the income statement 40 - 40 Exchange differences (3) (3) (6) ------- ------- -------- At 31 December 2007 206 (60) (266) ======= ======= ======== At the balance sheet date 31 December 2007, the Group has unused tax losses of $ 6 261 000 (2006: $4 588 000) available for offset against future profits. These tax loss carry forwards expire as follows. Year Amount $'000 2016 89 2017 111 2018 1 102 2019 1 668 2020 1 152 2021 1 737 2022 206 Later 696 ----- 6 261 ======= At 31 December 2007, the total tax loss carry forwards generated deferred tax assets of $2 536 000 (2005: $1 717 000). The tax loss carry forwards can be utilised to reduce future taxable income. Their future utilisation does not mean a lower tax charge for the Group. A deferred tax asset has not been recognised in respect of tax losses of $1 884 000 (2006: $1 377 000) due to the unpredictability of future income streams. A deferred tax asset in respect of the total amount of these losses has been recognised as management's forecasts for the next three years indicate that these losses will be utilised by offset against available profits over the forecast period. Note 5 Business Combinations On 6 February 2007, Gas Turbine Efficiency plc, announced its acquisition of Control Center LLC ('Control Center') for $4 million, payable in cash and new ordinary GTE shares. The results of the Control Center LLC operations have been included in the consolidated financial statements as of 6 February 2007. On 13 June 2007, Gas Turbine Efficiency plc announced the acquisition of ARES Technology LLC, a specialist gas turbine services and repair business, for a cash consideration of $300,000. The results of the ARES Technology operations have been included in the consolidated financial statements as of 13 June 2007. Financial effects The acquired businesses impacted consolidated revenue and net income, including the effects of fair value adjustments as follows. Revenue Net Income $'000 $'000 Control Center LLC 9 514 112 ARES Technology LLC 670 (141) ------- ------- 10 184 (29) ======= ======= The following table shows Gas Turbine Efficiency plc pro forma revenue, net income and earnings per share, including the effects of fair value adjustments, had the acquisitions taken place at 1 January 2007. Gas Turbine Control ARES Gas Turbine Efficiency Center Technology Efficiency Group Group LLC LLC pro forma $'000 $'000 $'000 $'000 Pro forma revenue 17 830 888 316 19 034 Pro forma net income (2014) (155) (12) (2 181) Pro forma basic and diluted earnings per share ($ per share) (0.037) (0.040) Cost of combination, goodwill, acquired intangible assets and cash-flow effects Details of the cost of combination goodwill and acquired intangible assets is Control Center ARES Technology LLC LLC $'000 $'000 Cash purchase consideration 2 000 300 Share issue consideration 2 000 - Transaction related direct expenses 373 43 Total cost of combination 4 373 343 Less fair value of net liabilities acquired (639) (55) ------- ------- Goodwill and acquired intangible assets 5 012 398 ======= ======= Control Center ARES Technology LLC LLC Allocation: $'000 $'000 Goodwill US based entities 4 704 369 Acquired intangible assets Customer relations 514 - R&D Intangible assets - 48 Deferred tax liability (206) (19) The cash flow effects were as follows Control Center ARES Technology LLC LLC $'000 $'000 Total cost of combination paid in cash 2 373 343 Less Acquired cash and cash equivalents (174) (18) ------- ------- Net cash outflow from the combination 2 199 325 Assets acquired and liabilities assumed Carrying value equals fair value. Control Center ARES Technology LLC LLC $'000 $'000 Financial assets 14 - Property and equipment 127 167 Receivables and other currentsets 1 369 43 Cash and cash equivalents 174 18 -------- ------- Total assets 1 684 228 ======== ======= Non-current Financial liabilities - borrowings (75) (100) Current Financial liabilities (942) - Other non- interest bearing liabilities (1 306) (183) -------- ------- Total liabilities (2 323) (283) ======== ======= Total value of net liabilities acquired (639) (55) ======== ======= There were no collateral pledged or contingent liabilities arising from the acquisition Note 6 Significant accounting policies The financial statements have been prepared in accordance with International Financial Reporting Standards. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The unaudited accounts for the 12 months ended 31 December 2007 have been prepared using accounting policies that are consistent with the statutory accounts for the year ended 31 December 2006. The adoption of the following IFRSs has not impacted the financial statements. • IFRS 7 Financial Instruments: Disclosure and the related amendment to IAS 1 on capital disclosures • IFRIC 7 Applying the Reassessment Approach under IAS • IFRIC 8 Scope of IFRS2 • IFRIC 9 Reassessment of embedded derivatives • IFRIC 10 Interim Financial Reporting and Impairment Note 7 Basis of preparation The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 December 2007 and these accounts have not yet been approved, audited or filed Copies of the 2007 Annual Report, which will be posted to shareholders in June 2008, may be obtained from the date of posting from the registered office of the Company at 89 Fleet Street, London EC4Y 1DH. This statement, which has been agreed with the auditors, was approved by the Board on 7 April 2008. This information is provided by RNS The company news service from the London Stock Exchange

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