Final Results

Sarantel Group PLC 31 March 2008 31 March 2008 Sarantel Group PLC ('Sarantel' or 'the Group') Preliminary results for the year ended 30 September 2007 Sarantel Group PLC (AIM: SLG.L), the leading manufacturer of revolutionary filtering antennas for mobile and wireless devices, today announces its preliminary results for the year ended 30 September 2007 and Placing of 101,167,400 New Ordinary Shares at a placing price of 3 pence per share raising approximately Â£3 million (gross of expenses). The net proceeds of the Placing of Â£2.7 million will be used to continue to develop the customer pipeline for both its second and third generation GPS antennas and provide working capital generally. Highlights are as follows: â€¢ Turnover of Â£2m (2006: Â£4m). Recovery in sales apparent by year end â€¢ Loss before tax of Â£5.8m (2006: Â£7m (including exceptional items of Â£0.8m)) â€¢ Prompt action taken to re-align the business in 2007 â€¢ Significant design win with Garmin â€¢ Considerable progress in developing the GPS customer pipeline â€¢ Diversification strategy on track â€¢ Major cost breakthrough in manufacturing processes â€¢ Cash balances of Â£2.4m at year end (of which Â£0.7m is in a blocked account) (2006: Â£5.1m (of which Â£1.3m was in a blocked account)) â€¢ Placing of 101,167,400 New ordinary Shares at a placing price of 3p per share raising Â£3m (gross) Geoff Shingles, Chairman, commented: 'During the financial year ended 30 September 2007, the Board took prompt action to re-align the business in the light of the more difficult trading conditions. We reshaped the Company but continued to make good progress with our diversification programme and design wins, especially with Garmin. I remain very excited in my belief that the Company's product offering has a unique position in the developing GPS market. As more GPS devices demand accurate hand held performance, we expect the special capabilities of our antenna technology to become more and more in demand. I am also very pleased that investors have agreed to invest Â£3m (gross) to provide the financial resources to achieve our growth plans. ' For further information please contact: Sarantel Group PLC 01933 670560 Geoff Shingles, Chairman www.sarantel.com David Wither, CEO John East and Partners Limited 020 7628 2200 Simon Clements Virginia Bull College Hill 020 7457 2020 Adrian Duffield/Ben Way Notes to Editors: Sarantel (www.sarantel.com) Sarantel is a leader in the design of high-performance miniature antennas for portable wireless applications including hand-held navigation, satellite radio and laptop computers. Sarantel's revolutionary ceramic filtering antennas offer dramatically improved performance over existing antenna designs, resulting in a clearer signal, better range and a 90 per cent reduction in the amount of signal radiation absorbed by the body. Because of their smaller size and higher capabilities, Sarantel's antennas enable manufacturers to create innovative high-volume consumer products incorporating technologies such as GPS, Wi-Fi, WiMax, 3G, GPRS, Satellite Radio and Bluetooth. Chairman's statement I am pleased to report on my first full financial year as Chairman of Sarantel. The Company has raised approximately Â£3 million before expenses by way of a placing by our new nominated adviser and broker John East & Partners Limited. These funds will be used to continue the development of the customer pipeline as Sarantel's antenna technology gains greater traction with key customers and to provide working capital generally. A circular is being posted to shareholders giving notice of the General Meeting of the Company to be held on 24th April 2008 to approve, inter alia, the allotment of the placing shares and to disapply statutory pre-emption rights in connection with the placing. During 2007, we continued to manage the effects of the considerable challenges in the portable satellite radio market and also the delayed take up of our 2nd generation Global Positioning System ('GPS') antenna. However, we did make considerable progress in developing the GPS customer pipeline as well as implementing our diversification strategy. Sales fell to Â£2m (2006: Â£4m) but the operating loss reduced by 18 per cent. to Â£5.9m (2006: Â£7.2m). Our net cash outflow (before financing) similarly reduced by 52 per cent. to Â£4.1m (2006: Â£8.6m). Good progress has been manifested in our core GPS market, with the very significant adoption of our antenna technology by Garmin, the top tier GPS company. We also announced other design successes including two golf rangefinders and seven personal tracking devices. We are confident that our antenna technology has an increasing relevance in these developing GPS markets, as the international trend to hand-held devices continues. We are also making good progress in our diversified markets, especially in military and satellite phones applications. These markets traditionally have a longer lead time to achieve design wins and the Board is pleased with the progress made to date. Diversification into these markets provides a more stable environment for the Company's future progress. During the financial year ended 30 September 2007, the Board took prompt action to re-align the business in the light of the more difficult trading conditions, which resulted in a restructuring of both the Board and the Company. We welcomed Philip David and Colin Tucker as Non Executive Directors in October 2006 whilst Matt Taylor and David Ward, stepped down in December 2006. The latter was replaced by Ernie Richardson (a director of MTI Partners Ltd, one of the Company's largest shareholders). Finally, in June 2007, Philip David, Bill Taylor and Colin Tucker stepped down from the Board. I would like to thank all the directors for their very valuable contribution during a highly dynamic period. A number of members of staff also left Sarantel during the year as we reduced our headcount to 47 by the end of the financial year. I would like to express my thanks to everyone who made a contribution to the Company during the year under review. In 2007, we reshaped the Company but we continued to make good progress with our diversification programme and design wins, especially with Garmin. We do now believe that we have an organisation in place which, because of manufacturing process improvements and other methods of going to market, will be in a position to successfully implement our strategic plan. We continue to work hard to realise Sarantel's potential and I wish to thank my fellow board members and our staff who as always, apply maximum effort to achieve that objective. I remain very excited in my belief that the Company's product offering has a unique position in the developing GPS market. As more GPS devices demand accurate hand held performance, we expect the special capabilities of our antenna technology to become more and more in demand. Chief Executive's statement Sales of Â£2m for the year were disappointing as highlighted in the Group's interim results and announced in our recent trading update. However, during the year a great deal of focus was placed on developing our customer pipeline in our core GPS business and a number of new sectors which we are addressing as part of our diversification strategy. As a result of these focused efforts we have seen a number of very encouraging developments which we believe validate the importance of our technology. Additionally, the Company took aggressive action to rationalise the business and bring costs in line with the current level of trading activity. Financial Review Sales reduced to Â£2m (2006: Â£4m) due to the considerable challenges in the portable satellite radio market and also the delayed take up of our 2nd generation GPS antenna. The US Dollar weakened during the year thereby reducing our reported sales by 4.3 per cent. equating to approximately Â£0.1m of sales as the majority of our customers are invoiced in US Dollars. During the year, we shipped our entire stock of satellite radio antennas to XM satellite radio at a discounted price. This one-off sale, together with the expected lower yields experienced as we began initial production of our 2nd generation GPS antenna reduced our material margin for the year to 6 per cent. (2006: 47 per cent.). In line with the lower level of activity, the Company reduced headcount levels which resulted in a 31 per cent. reduction in staff costs when compared to 2006. We ended the year on a monthly expenses run rate of Â£0.3m which was 39 per cent. lower compared to the beginning of the year. As a result, we were able to reduce our operating loss, before depreciation and amortisation, to Â£4.3m (2006: Â£4.8m) despite a lower turnover. Non-financial KPI We make use of delivery precision percentage as a measure of our delivery performance to our customer request. During 2007 we achieved 100 per cent. delivery precision (2006: 90 per cent.) as we were able to deliver antennas from inventory. Taxation The Group estimates that it is entitled to a refund for research and development tax credit amounting to approximately Â£0.2m for 2007. Loss per share The loss per share in the year reduced to 9.6p compared to 12.5p for 2006. Cash outflow During the year under review, we raised Â£2.1m (before costs) through a placing. Our annual cash outflow before this funding exercise was Â£4.1m, a reduction of 52 per cent. compared with 2006. In addition to the reduced operating loss before depreciation and amortisation, the Company also reduced stock levels by Â£1m and capital expenditure by Â£2.1m as the capacity expansion programme was completed. IFRS As reported last year, the Group has prepared a transition plan to implement International Financial Reporting Standards (IFRS) for the year ended 30 September 2008, including comparatives for the year ended 30 September 2007. The Group will report under IFRS for the first time in the Group's interim results for the six months ended 31 March 2008, with comparatives for the six months ended 31 March 2007. Based on the work completed so far, the Directors expect that the main area potentially affected is the treatment of Research and Development expenditure. Operational Review Turnover in 2007 was impacted by the slower than expected development in the handheld GPS market, which affected the take up of the Group's 2nd generation GPS antenna. Additionally, sales of satellite radios into North America were also very disappointing. However, the Company made very significant progress in developing the customer pipeline in its core GPS markets and is engaged with a number of different major potential customers under the diversification strategy. Design win with Garmin In January 2008 we announced a significant breakthrough order from Garmin, a top tier GPS device supplier, for the Colorado series of hand portable outdoor GPS navigation devices, which were launched in early 2008. This development is particularly important because it validates the Company's ability to break-in to a top-tier GPS supplier and validates the relevance of the Company's antenna technology in performance oriented, hand portable GPS devices. The GPS market is forecast to grow to over 500 million units by 2010. Personal Tracking devices During 2007 we announced seven new designs for our antenna in the personal tracking market, bringing the total to over 20 personal tracking devices that use our antenna in this market segment. We believe that this segment is particularly interesting because these devices are essentially small, battery operated, hand-held or body worn GSM phones with embedded GPS capability. Additionally, in a personal tracker, GPS accuracy and reliability are of paramount importance because they are often used in safety critical applications. We believe the same characteristics of reliable and accurate GPS functionality will become increasingly important in the mobile handset as the location based services market matures. Golf range finder We also announced that our GPS antenna had been designed into two recently launched versions of the SkyGolf range finder. The customer chose our antenna not only because of its small size, robust hand-held performance but also for its ability to provide unmatched positional accuracy in an easy to use, compact hand portable device. Diversification As announced at our interim results, the Board stated that it planned to diversify the Group's product portfolio to ensure Sarantel generated short-term revenues whilst the performance oriented, high-volume hand portable GPS business developed towards mass adoption. Customers in these market segments tend to be very conservative, focused on performance and have a long design lead time. However I am pleased to report that we are making very good progress in both the military and satellite phone segments. This was highlighted in our recently announced development contract win with a major US military radio supplier. Satellite Radio Despite disappointing sales of antennas into the portable satellite radio sector, our antenna remains a key component for XM Satellite radio. We remain engaged with them and are discussing options for the fully funded development of an antenna for their next generation of portable satellite radio devices. 3rd generation GPS antenna - the world's smallest GPS antenna On 13 February 2008, we announced that we had begun prototype deliveries of our 3rd generation GPS antenna, the world's smallest stand-alone GPS antenna. This product is a dramatic step forward in technology and is a compelling solution for a broader range of mobile devices where consumers require embedded GPS capabilities. Although 2007 has been disappointing, we remain very encouraged by the developments in our GPS business and with the range and stature of customers who are now evaluating the Sarantel antenna solutions. Market development The GPS market, which is forecast to grow to over 500 million units by 2010, has seen a large number of high value M&A activities in the past 12 months, of which the $8bn acquisition of Navteq by Nokia was the most high profile. This is a very exciting development for Sarantel, because large players are now implementing strategies to develop the location-based-services market and pedestrian navigation. We believe that the most exciting location-based services, especially pedestrian navigation, will require more accurate and reliable GPS to be embedded into small, hand-portable devices. As a result, we believe that potential customers will become increasingly attracted to our antenna technology because we have the ability to demonstrate that we can successfully overcome these challenges. The number of design wins announced for our antenna technology in the past six months would support this view. Manufacturing Process developments During the year, we maintained our efforts to improve our manufacturing processes continuously to increase yields and reduce operating and manufacturing costs. I am pleased that we were able to achieve a number of significant breakthroughs, which enabled us to reduce the number of components required and introduce industry-standard manufacturing processes, and have the potential to generate significant cost reductions. We believe that these process improvements are essential in positioning our technology for high volume production and outsource manufacturing. Our diversification strategy requires the Company to react to new antenna requirements from a broad range of customers and applications. During the year we were able to fully test our product development capability and exercise our rapid prototyping processes by meeting the challenges of designing and delivering prototype antennas to a number of different sectors with a very short lead time. The Company now has a mature platform for developing new antennas and during the year we successfully demonstrated that our antenna technology is applicable to a number of applications beyond GPS and satellite radio. Patented Technology We continued to extend our technology and we applied for six new patents during 2007. At the same time, we continued to receive grants for a number of countries for our patents filed in previous years. Summary During 2007, we focussed our efforts on developing key customer relationships and adding depth to our customer pipeline. The recent design win announcements in the GPS sector are very encouraging. Additionally, we have made significant progress with customers in the military and satellite phone sectors, but these relationships take a longer time to develop. Our efforts to improve our manufacturing processes have led to significant breakthroughs and we have further reduced our cost base during the year. Overall, we believe that the Company is well positioned for future growth. We are very pleased to have successfully raised Â£3m before expenses, which will provide the Company with the financial resources to achieve the growth targets. Outlook With the GPS market developing well and encouraging progress being made with our diversification strategy, we expect 2008 will be a year during which the business will be repositioned for strong growth. Principal Accounting Policies Basis of Accounting The financial statements have been prepared under the historical cost convention, and in accordance with applicable United Kingdom accounting standards. The principal accounting policies of the Group have remained unchanged from those used in the previous year with the exception of the adoption on 1st October 2006 of Financial Reporting Standard 20 'Share-based payment'. The effect of this on the year and in respect of the prior year is disclosed in note 7. Basis of Preparation These financial statements have been prepared on a going concern basis. After making due enquiries, the directors have a reasonable expectation at the time of approving the financial statements that the group has adequate financial resources to continue to operate for the foreseeable future and, consequently, continue to use the going concern basis for preparing the financial statements which follow. Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and all Group undertakings (see note 12). Turnover Income is recognised on despatch of goods. The turnover shown in the profit and loss account represents amounts receivable for goods supplied during the year, exclusive of Value Added Tax. Research and Development Research and development expenditure is written off in the year in which it is incurred. Intangible Fixed Assets Patents are included at cost, representing third party costs of registering. Purchased goodwill representing the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is capitalised and was fully amortised at 30 September 2004. Amortisation Amortisation is calculated on a straight line basis so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Patents - ten years from year following acquisition. Depreciation Depreciation is calculated on a straight line basis so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Leasehold improvements 10% Plant and machinery 20% - 33% from date asset is put into use Stocks Stocks are valued on a FIFO basis at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items. Cost includes material, direct labour and an appropriate proportion of manufacturing overheads based on normal levels of activity. Net realisable value represents the estimated selling price less all estimated costs of completion, marketing, selling and distribution. Leasing and Hire Purchase Commitments Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have passed to the Group, and hire purchase contracts, are capitalised in the balance sheet and are depreciated over their useful lives. The capital elements of future obligations under the leases and hire purchase contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged in the profit and loss account over the periods of the leases and hire purchase contracts and represent a constant proportion of the balance of capital repayments outstanding. Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term. Deferred Taxation Deferred tax is recognised on all timing differences where the transactions or events that give the Group an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantially enacted at the balance sheet date. Foreign Currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating loss. Pensions The Group operates a Group personal pension plan (a money purchase arrangement) for the benefit of certain Directors and employees. Pension costs are charged to the profit and loss account in the period to which they relate. Financial Instruments Financial assets are recognised in the balance sheet at the lower of cost and net realisable value. Interest receivable and payable is accrued and charged or credited to the profit and loss account in the period to which it relates. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity. Share-based payments The Group operates a group share option scheme under which certain employees and directors of the company have been granted options to subscribe for shares in Sarantel Group PLC. The Group has adopted Financial Reporting Standard 20 'Share-based payment' with effect from 1 October 2006. In accordance with the transitional provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 October 2006. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by use of the Cox Rubenstein binomial model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Consolidated Profit and Loss Account for the year ended 30 September 2007 2007 2006 Note Â£ Â£ as restated --------------------------------- ------ --------- --------- Turnover 1 2,016,462 4,021,532 Operating costs: Change in stocks of finished goods and work in progress 828,627 (1,452,526) Raw materials and consumables 1,062,441 3,004,319 Other external charges 65,102 527,650 Staff costs 4/7 2,851,805 4,139,185 Depreciation and other amounts written off tangible and intangible assets 10/11 1,608,586 2,391,627 Other operating charges 1,512,311 2,630,495 --------------------------------- ------ --------- --------- 7,928,872 11,240,750 --------------------------------- ------ --------- --------- Operating loss (5,912,410) (7,219,218) --------------------------------- ------ --------- --------- Operating loss before depreciation, amortisation and exceptional items (4,303,824) (4,827,591) Exceptional non-recurring costs 3 - (770,134) Depreciation and other amounts written off tangible and intangible assets (1,608,586) (1,621,493) --------------------------------- ------ --------- --------- Net interest 5 97,340 237,551 --------------------------------- ------ --------- --------- Loss on ordinary activities before taxation (5,815,070) (6,981,667) Tax on loss on ordinary activities 6 184,192 168,920 --------------------------------- ------ --------- --------- Loss for the financial year 22 (5,630,878) (6,812,747) --------------------------------- ------ --------- --------- Basic loss per share 9 (9.6)p (12.5)p --------------------------------- ------ --------- --------- There were no recognised gains or losses other than the loss for the financial year. All the activities of the Group are classed as continuing. The comparative figure for staff costs has been revised to reflect the adoption of FRS 20 'Share-based payments'. The accompanying accounting policies and notes form an integral part of these financial statements. Consolidated Balance Sheet as at 30 September 2007 2007 2006 Note Â£ Â£ as restated -------------------------- -------- ---------- --------- Fixed assets Intangible assets 10 1,094,664 861,408 Tangible assets 11 3,539,771 4,743,006 -------------------------- -------- ---------- ---------- 4,634,435 5,604,414 Current assets Stocks 13 741,280 1,709,683 Debtors 14 705,466 795,918 Cash at bank and in hand 27 2,430,071 5,050,123 -------------------------- -------- ---------- ---------- 3,876,817 7,555,724 Creditors: amounts falling due within one 15 1,355,880 1,969,910 year -------- ---------- ---------- -------------------------- Net current assets 2,520,937 5,585,814 -------------------------- -------- ---------- ---------- Total assets less current liabilities 7,155,372 11,190,228 Creditors: amounts falling due after more than one 16 112,666 618,844 year -------------------------- -------- ---------- ---------- 7,042,706 10,571,384 -------------------------- -------- ---------- ---------- Capital and reserves Called-up equity share capital 21 7,643,553 5,494,039 Share premium account 22 14,252,078 14,424,857 Other reserves 22 13,593,001 13,467,536 Profit and loss account 22 (28,445,926) (22,815,048) -------------------------- -------- ---------- --------- Shareholders' funds 7,042,706 10,571,384 -------------------------- -------- ---------- --------- The comparative figure for other reserves and the profit and loss account have been revised to reflect the adoption of FRS 20 'Share-based payments'. Company Balance Sheet as at 30 September 2007 2007 2006 Note Â£ Â£ as restated ---------------------------- ------ ---------- -------- Fixed assets Investments 12 3,283,813 3,158,348 ---------------------------- ------ ---------- --------- Current assets Debtors 14 17,779,647 14,034,770 Cash at bank and in hand 1,559,464 3,286,240 ---------------------------- ------ ---------- --------- 19,339,111 17,321,010 Creditors: amounts falling due within one 15 - 28,187 year ------ ---------- --------- ---------------------------- Net current assets 19,339,111 17,292,823 ---------------------------- ------ ---------- --------- Total assets less current liabilities 22,622,924 20,451,171 ---------------------------- ------ ---------- --------- Capital and reserves Called-up equity share capital 21 7,643,553 5,494,039 Share premium account 22 14,252,078 14,424,857 Other reserves 22 203,465 78,000 Profit and loss account 22 523,828 454,275 ---------------------------- ------ ---------- --------- Shareholders' funds 22,622,924 20,451,171 ---------------------------- ------ ---------- --------- The comparative figure for other reserves and investments has been revised to reflect the adoption of FRS 20 'Share-based payments'. Consolidated Cash Flow Statement for the year ended 30 September 2007 2007 2006 Note Â£ Â£ as restated ----------------------------- ----- --------- -------- Net cash outflow from operating activities 24 (3,760,139) (6,244,447) Returns on investments and servicing of finance Interest received 147,226 321,270 Interest paid (257) (121) Finance lease interest paid (49,629) (83,598) ----------------------------- ----- --------- --------- Net cash inflow from returns on investments and servicing of finance 97,340 237,551 ----------------------------- ----- --------- --------- Taxation received 197,792 149,821 Capital expenditure Payments to acquire tangible fixed assets (303,807) (2,395,345) Payments to acquire intangible fixed assets (335,858) (353,047) Proceeds of sale of equipment 525 - ----------------------------- ----- --------- --------- Net cash outflow from capital expenditure (639,140) (2,748,392) ----------------------------- ----- --------- --------- Cash outflow before financing (4,104,147) (8,605,467) Financing Issue of shares 2,149,515 221,098 Expenses paid in connection with issue of shares (172,779) - Net cash movement in respect of capital element of finance lease rentals 25 (492,641) 300,080 ----------------------------- ----- --------- --------- Net cash inflow from financing 1,484,095 521,178 ----------------------------- ----- --------- --------- Decrease in cash 25 (2,620,052) (8,084,289) ----------------------------- ----- --------- --------- The accompanying accounting policies and notes form an integral part of these financial statements Notes to the Financial Statements 1 Turnover An analysis of turnover by geographical market or segmental information has not been disclosed as, in the opinion of the Directors, it would be seriously prejudicial to the Group. 2 Operating Loss Operating loss is stated after charging: 2007 2006 Â£ Â£ ----------------------------------- -------- -------- Amortisation of intangible fixed assets 102,602 68,258 Depreciation of owned tangible fixed assets 1,063,086 872,723 Impairment of owned tangible fixed assets - 770,134 Depreciation of assets held under finance leases and hire 442,898 680,512 purchase agreements -------- -------- ----------------------------------- 2007 2006 Â£ Â£ ----------------------------------- -------- ------- Audit services: Audit of parent company accounts 1,000 1,000 Audit of parent company and consolidated accounts 11,500 12,500 Non-audit services: Audit of subsidiaries 14,000 14,000 Tax compliance 5,665 5,850 Tax advisory - 4,200 Interim review 6,700 6,500 IFRS conversion - 6,500 Other services - 700 ----------------------------------- -------- ------- 2007 2006 Â£ Â£ ----------------------------------- -------- -------- Research and development costs: 647,552 704,165 ----------------------------------- -------- -------- 2007 2006 Â£ Â£ Operating lease costs: ----------------------------------- -------- -------- Land and buildings 135,000 128,004 ----------------------------------- -------- -------- 3 Exceptional Non-Recurring Items Charged in Arriving at Operating Loss 2007 2006 Â£ Â£ ----------------------------------- -------- -------- Impairment of tangible fixed assets - 770,134 ----------------------------------- -------- -------- Impairment of Tangible Fixed Assets: During the prior year, continuing process improvements caused certain items of plant to become obsolete. The carrying value of this plant was therefore written down to nil. 4 Directors and Employees The average number of staff employed by the Group during the financial year amounted to: 2007 2006 Number Number ---------------------------------- --------- ------- Management 1 3 Technical 12 14 Finance and administration 5 6 Sales and marketing 4 6 Operations 55 86 ---------------------------------- --------- -------- 77 115 ---------------------------------- --------- -------- The aggregate payroll costs (including Directors' emoluments) were: 2007 2006 Â£ Â£ as restated ---------------------------------- --------- -------- Wages and salaries 2,402,911 3,632,304 Social security costs 258,636 349,621 Pension costs 64,793 79,260 Share based payments 125,465 78,000 ---------------------------------- --------- -------- 2,851,805 4,139,185 ---------------------------------- --------- -------- Remuneration in respect of Directors was as follows: 2007 2006 Â£ Â£ ---------------------------------- --------- -------- Emoluments 448,363 655,691 Pension contributions to money purchase pension scheme 24,882 23,350 Payment to third parties for Directors' services 48,716 42,709 ---------------------------------- --------- -------- 521,961 721,750 ---------------------------------- --------- -------- The amounts set out above include remuneration in respect of the highest paid Director as follows: 2007 2006 Â£ Â£ -------------------------------- ----------- -------- Emoluments 154,504 182,348 Pension contributions to money purchase pension schemes 17,201 15,250 -------------------------------- ----------- -------- 171,705 197,598 -------------------------------- ----------- -------- Share options exercised by Directors during the year were: 2007 2006 No No -------------------------------- ----------- ------- D Wither - 75,000 D Dey - 444,900 ------------------------------- ----------- -------- Details of the share options granted to Directors in the year, together with further details of their remuneration, are shown in the report of the Remuneration Committee. During the year 2 Directors (2006: 2) participated in money purchase pension schemes. 5 Net Interest 2007 2006 Â£ Â£ -------------------------------- ---------- -------- Interest receivable and similar income 148,101 379,519 Finance charges in respect of finance leases (49,629) (83,598) Other interest payable and similar charges (1,132) (58,370) -------------------------------- ---------- -------- 97,340 237,551 -------------------------------- ---------- -------- 6 Taxation on Ordinary Activities 2007 2006 Â£ Â£ -------------------------------- ---------- -------- Current tax: UK corporation tax based on the results for the year at 19% (2006: 19%) (155,400) (169,000) Adjustment in respect of prior year (28,792) 80 -------------------------------- ---------- -------- Total current tax (184,192) (168,920) -------------------------------- ---------- -------- The taxation credit arises in respect of research and development expenditure and is subject to agreement with HM Revenue & Customs. The standard rate of tax for the year based on the UK standard rate of corporation tax is 19% (2006: 19%). The actual tax credit for the year differs from the standard rate for the reasons set out in the following reconciliation: 2007 2006 Â£ Â£ as restated Loss on ordinary activities before taxation (5,815,070) (6,903,667) Prior year adjustment in respect of share based payments - (78,000) ------------------------------- ---------- -------- Loss on ordinary activities before taxation (5,815,070) (6,981,667) ------------------------------- ---------- -------- Loss on ordinary activities multiplied by rate of tax (1,104,863) (1,326,517) Effect of: Expenses not deductible for tax purposes 139,194 43,734 Depreciation for the period in excess of capital allowances 277,347 441,185 Other timing differences 7,829 4,650 Tax losses carried forward 680,493 836,948 Research and development tax credit (155,400) (169,000) Prior year over provision (28,792) 80 ------------------------------- ---------- -------- Total current tax (184,192) (168,920) ------------------------------- ---------- -------- Tax losses available, subject to agreement with the Inland Revenue, to offset future taxable trading income amount to approximately Â£18m (2006: Â£13.8m). A deferred tax asset amounting to approximately Â£5.0m (2006: Â£4.1m) arising from taxable trading losses has not been recognised on the grounds that at the current time there is insufficient evidence that the asset will be recoverable in the foreseeable future. 7 Prior Year Adjustments The group has adopted Financial Reporting Standard 20 'Share-based payment' as disclosed in the Principal Accounting Policies. As a result of adopting this Financial Reporting Standard the group has recognised additional costs of Â£78,000 in the year ended 30 September 2006 within Staff Costs: share based payments. Additionally, at 30 September 2006 the group recognised the resulting Employee Share Scheme Reserve of Â£78,000. There has been no net effect on Shareholders Funds as at 30 September 2006. The share options were granted to employees of a subsidiary and therefore in the parent company's own financial statements, as at 30 September 2006, Â£78,000 was added to the cost of investment in that subsidiary with a corresponding entry to the Employee Share Scheme Reserve. 8 Result for the Financial Year The parent company has taken advantage of Section 230 of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The parent company's profit for the year was Â£69,553 (2006 as restated: Â£32,570). 9 Loss Per Share The calculation of basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. 2007 2006 Â£ Â£ as restated ------------------------------- ---------- -------- Loss for the financial year (5,630,878) (6,812,747) Weighted average number of shares 58,806,617 54,331,745 ------------------------------- ---------- --------- Per share amount in pence (9.6)p (12.5)p ------------------------------- ---------- --------- The issue of additional shares on the exercise of options would decrease the basic loss per share and there is, therefore, no dilutive effect of share options. 10 Intangible Fixed Assets The Group Goodwill Patents Total Â£ Â£ Â£ ------------------------ ---------- --------- --------- Cost At 1 October 2006 760,632 1,158,096 1,918,728 Additions - 335,858 335,858 ------------------------ ---------- --------- --------- At 30 September 2007 760,632 1,493,954 2,254,586 ------------------------ ---------- --------- --------- Amortisation At 1 October 2006 760,632 296,688 1,057,320 Charge for the year - 102,602 102,602 ------------------------ ---------- --------- --------- At 30 September 2007 760,632 399,290 1,159,922 ------------------------ ---------- --------- --------- Net book value At 30 September 2007 - 1,094,664 1,094,664 ------------------------ ---------- --------- --------- At 30 September 2006 - 861,408 861,408 ------------------------ ---------- --------- --------- 11 Tangible Fixed Assets The Group Leasehold Plant and improvements machinery Total Â£ Â£ Â£ ------------------------ ----------- --------- --------- Cost At 1 October 2006 196,646 8,827,145 9,023,791 Additions - 303,807 303,807 Disposals - (4,435) (4,435) ------------------------ ----------- --------- --------- At 30 September 2007 196,646 9,126,517 9,323,163 ------------------------ ----------- --------- --------- Depreciation At 1 October 2006 88,282 4,192,503 4,280,785 Charge for the year 19,437 1,486,547 1,505,984 Eliminated on disposal - (3,377) (3,377) ------------------------ ----------- --------- --------- At 30 September 2007 107,719 5,675,673 5,783,392 ------------------------ ----------- --------- --------- Net book value At 30 September 2007 88,926 3,450,845 3,539,771 ------------------------ ----------- --------- --------- At 30 September 2006 108,364 4,634,642 4,743,006 ------------------------ ----------- --------- --------- Fixtures and fittings and computer equipment are not significant and so are included in plant and machinery. Included within the net book value of Â£3,539,771 is Â£1,327,901 (2006: Â£1,843,537) relating to assets held under finance leases and hire purchase agreements. The depreciation charged to the financial statements in the year in respect of such assets amounted to Â£442,898 (2006: Â£680,512). 12 Investments The Group At 30 September 2007, the Group held more than 20% of a class of the allotted share capital of the following: Country of Class of share Proportion held Nature of ------------- incorporation held -------- business ----------- --------- ------------ Sarantel Limited England and Ordinary shares 100% Design and Wales manufacture of antennas Sarantel USA Inc* USA Ordinary shares 100% Marketing support services Sarantel Asia Pacific Pte. Ltd* Singapore Ordinary shares 100% Marketing --------- ------------ ---------- -------- support services --------------- * Owned by Sarantel Limited The Company 2007 2006 Shares in subsidiary undertakings Â£ Â£ as restated ------------------------------------ --------- --------- Cost and net book amount At 1 October 2006 3,158,348 3,080,348 Additions 125,465 78,000 ------------------------------------ --------- --------- At 30 September 2007 3,283,813 3,158,348 ------------------------------------ --------- --------- 13 Stocks The Group The Company 2007 2006 2007 2006 Â£ Â£ Â£ Â£ --------------------------- ------- ------- --- -------- ------- Raw materials 99,041 238,816 - - Work in progress 138,243 69,298 - - Finished goods 503,996 1,401,569 - - --------------------------- ------- ------- --- -------- ------- 741,280 1,709,683 - - --------------------------- ------- ------- --- -------- ------- 14 Debtors The Group The Company 2007 2006 2007 2006 Â£ Â£ Â£ Â£ --------------------------- ------- ------- --- -------- -------- Trade debtors 216,373 363,783 - - VAT recoverable 11,540 54,703 - - Amounts owed by Group undertakings - - 17,779,647 14,034,770 Corporation tax recoverable 155,400 169,000 - - Other debtors 83,568 91,708 - - Prepayments and accrued income 238,585 116,724 - - --------------------------- ------- ------- --- -------- -------- 705,466 795,918 17,779,647 14,034,770 --------------------------- ------- ------- --- -------- -------- Amounts due from group undertakings will not be repayable until they are trading satisfactorily. The debtors above include the following amounts falling due after more than one year: The Group The Company 2007 2006 2007 2006 Â£ Â£ Â£ Â£ -------------------------- ------- -------- --- -------- ------- Other debtors 66,938 66,938 - - -------------------------- ------- -------- --- -------- ------- 15 Creditors: Amounts Falling Due Within One Year The Group The Company 2007 2006 2007 2006 Â£ Â£ Â£ Â£ -------------------------- ------- ------- --- -------- ------- Trade creditors 294,484 603,083 - - Other taxation and social 196,541 105,589 - 8,874 security Amounts due under finance leases and 506,178 492,641 - - hire purchase agreements Other creditors 32,277 108,822 - 1,186 Accruals and deferred income 326,400 659,775 - 18,127 -------------------------- ------- ------- --- -------- ------- 1,355,880 1,969,910 - 28,187 -------------------------- ------- ------- --- -------- ------- 16 Creditors: Amounts Falling Due After More Than One Year The Group The Company 2007 2006 2007 2006 Â£ Â£ Â£ Â£ --------------------------- ------- ------- --- -------- ------- Amounts due under finance leases and hire 112,666 618,844 - - purchase agreements ------- ------- --- -------- ------- --------------------------- 17 Borrowings Borrowings are repayable as follows: The Group The Company 2007 2006 2007 2006 Â£ Â£ Â£ Â£ -------------------------- ------- -------- --- -------- ------- Within one year: Finance leases and hire purchase 506,178 492,641 - - agreements After one year and within two years: Finance leases and hire purchase 112,666 506,178 - - agreements After two years and within five years Finance leases and hire purchase - 112,666 - - agreements ------- -------- --- -------- ------- -------------------------- 618,844 1,111,485 - - -------------------------- ------- -------- --- -------- ------- 18 Financial Instruments The Group uses financial instruments comprising borrowings, cash, liquid resources and various items such as trade debtors, trade creditors, etc. that arise directly from its operations. The Group uses derivatives which are limited to those described under currency exchange risk below. The main purpose of these financial instruments is to raise finance for, and manage risks of, the Group's operations. Short-term debtors and creditors Short-term debtors and creditors have been excluded from the following disclosures, other than currency risk disclosures. Interest rate risk The Group finances its operations through share capital and leasing. The Group mixes the duration of its deposits to reduce the impact of interest rate fluctuations. Liquidity risk The Group seeks to manage financial risk by ensuring that sufficient financial liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Currency exchange risk The Group's sales are predominantly made in US$ and are subject to currency risks on translation. The Group has options to sell currency at certain defined rates, and these option contracts are reviewed quarterly. There were no material option contracts in place at the year end. Borrowings The Group has purchased some fixed assets through finance leasing and hire purchase agreements at fixed interest rates. Financial assets The Group's cash deposits of Â£2.43m (2006: Â£5.05m) are spread between three banks. The Directors have given serious consideration and have reached the conclusion that there is no significant difference between the book and the fair value of assets and liabilities of the Group at the balance sheet date. 19 Leasing Commitments At 30 September 2007 the Company had aggregate annual commitments under non-cancellable operating leases as set out below. Land and buildings 2007 2006 Â£ Â£ ------------------------------------- ------ ------ Operating leases which expire: After more than five years 105,000 135,000 ------------------------------------- ------ ------ 20 Related Party Transactions Under an agreement dated 24 February 2005 between the Company and MTI Partners Limited ('MTI'), MTI provides an authorised representative to serve as a non-executive Director of the Company for a fee of Â£20,000 per annum payable quarterly. From 8 May 2007, MTI agreed to waive their fee until such time as the company is trading satisfactorily. MTI controls 22.5% of the share capital of the Company. At 30 September 2007, the amount outstanding to MTI was Â£198 (2006: Â£nil). Under an agreement dated 28th February 2006 between the Company and Foresight Venture Partners ('VCF'), VCF provides an authorised representative to serve as a non-executive director of the Company for a fee of Â£20,000 per annum payable quarterly. This agreement was terminated on 11th December 2006. VCF controls 29.5% of the share capital of the Company. At 30 September 2007 the amount outstanding to VCF was Â£nil (2006: nil). The Chairman, Geoff Shingles invoices his fees through Geoff Shingles Partnership ('GSP'). From 8 May 2007, GSP agreed to waive their fee until such time as the company is trading satisfactorily At 30 September 2007 the amount outstanding to GSP was Â£6,324 (2006: Â£13,750). 21 Share Capital Authorised share capital: 2007 2006 No Â£ No Â£ ----------------------- -------- -------- -------- ------- A ordinary shares of Â£0.10 118,000,000 11,800,000 63,000,000 6,300,000 each B ordinary shares of Â£0.10 2,000,000 200,000 2,000,000 200,000 each --------- -------- -------- -------- ---------------------- 120,000,000 12,000,000 65,000,000 6,500,000 ---------------------- --------- -------- -------- -------- Allotted, called-up and fully paid: 2007 2006 No Â£ No Â£ ------------------------ -------- -------- -------- ------- A ordinary shares of Â£0.10 each 75,399,191 7,539,919 53,904,045 5,390,405 B ordinary shares of Â£0.10 each 1,036,340 103,634 1,036,340 103,634 ----------------------- -------- -------- -------- -------- 76,435,531 7,643,553 54,940,385 5,494,039 ----------------------- -------- -------- -------- -------- Allotments during the year The Company made the following allotments in the period: A ordinary Â£ ---------------------------------- shares of Â£0.10 -------- --------- Options exercised during the year 195,146 19,514 Shares issued during the year 21,300,000 2,130,000 Total share premium - - ---------------------------------- --------- -------- Total consideration 21,495,146 2,149,514 ---------------------------------- --------- -------- Equity-settled share option scheme The company has a share option scheme for all employees for the Group. Options are exercisable at a price equal to the average quoted market price of the Company's shares on the date of grant. The vesting conditions of these grants were 3 years service. Options are forfeited if the employee leaves the Group before the options vest. The Company operates a SAYE scheme, whereby employees are allowed to subscribe to a monthly savings amounts for a period of 3 years. At the end of that period, the employee is allowed to either receive their saved amount plus interest and a bonus or purchase shares in the Company at a price based on the average share price on the three days prior to the contract invitation date. This scheme is open to all employees subject to Inland Revenue approved limits on total investment. Exercise of Options During the year employees of the group exercised share options as follows: 2007 2006 Number of shares exercised 195,146 1,210,751 ------------------------------------ ------- -------- Value of shares exercised Â£ Â£ ------------------------------------ ------- -------- Nominal value 19,514 121,075 Share premium - 58,023 ------------------------------------ ------- -------- Total consideration 19,514 179,098 ------------------------------------ ------- -------- Share Options Details of the share options outstanding during the year are as follows: 2007 2006 ----------------------- -------------- -------------- As restated ----------------------- -------------- -------------- Number of share Weighted Number of share Weighted options average options average exercise price exercise price (in Â£) (in Â£) Number of Share Options at the beginning of the year 7,643,935 0.212 7,102,081 0.332 SAYE granted during the prior year - - 1,157,672 0.242 SAYE eliminated during the year (694,047) 0.242 - - Options granted during the year 671,750 0.134 1,069,750 0.371 Number of Options lapsed and eliminated (357,154) 0.232 (474,817) 0.393 Number of Options exercised during the year (195,146) 0.100 (1,210,751) 0.361 ----------------------- -------- -------- -------- -------- Balance at end of the year 7,069,338 0.201 7,643,935 0.212 ----------------------- -------- -------- -------- -------- The number of share options and weighted average exercise price for 2006 has been restated to include the SAYE scheme. The weighted average fair value per option for options granted during the year was Â£0.096 (2006 Â£0.28). The weighted average share price at the date of exercise for share options exercised during the period was Â£0.163 (2006 Â£0.361) The options outstanding at 30 September 2007 had a weighted average remaining contractual life of 7.2 years (2006 8 years). Share options at 30 September 2007 are exercisable as follows: Date of grant Number of Exercise price Last date for ------------- shares (pence) exercise ------------- ------------- ------------ 26/02/2003 128,841 10 25/02/2013 26/02/2003 431,082 25 25/02/2013 04/08/2004 2,584,904 10 03/08/2014 04/08/2004 220,050 25 03/08/2014 05/08/2004 787,090 25 04/08/2014 17/02/2005 934,000 27.5 16/02/2015 17/01/2006 82,499 35.8 16/01/2016 07/02/2006 75,000 31.8 06/02/2016 01/03/2006 834,997 38 28/02/2016 28/11/2006 149,750 20 17/11/2016 11/07/2006 463,625 24.2 10/07/2016 30/07/2007 377,500 10 29/07/2017 Details of the share options granted to the Directors are shown in the report of the Remuneration Committee. The inputs into the Cox Rubenstein binomial model are as follows: 2007 2006 Weighted average share price Â£0.117 Â£0.371 Weighted average exercise price Â£0.134 Â£0.371 Expected volatility 75% 107% Expected life 10 years 10 years Risk free rate 4% 4.91% Expected dividend yield 0% 0% ======== ======== Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous 180 days. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The Group recognised total expenses of Â£125,465 and Â£78,000 related to equity-settled share-based payment transactions in 2006 and 2007 respectively. 22 Reserves The Group Share scheme Other reserves Total other Share premium Profit and loss reserve reserves account account Â£ Â£ Â£ Â£ Â£ At 1 October 2006 as previously reported - 13,389,536 13,389,536 14,424,857 (22,737,048) Prior year adjustment (see note 7) 78,000 - 78,000 - (78,000) ----------------- --------- -------- -------- -------- --------- At 1 October 2006 restated 78,000 13.389,536 13,467,536 14,424,857 (22,815,048) Loss for the year - - - - (5,630,878) Expenses incurred re shares issued - - - (172,779) - Increase in employee share scheme reserve 125,465 - 125,465 - - ----------------- --------- -------- -------- -------- --------- At 30 September 2007 203,465 13,389,536 13,593,001 14,252,078 (28,445,926) ----------------- --------- -------- -------- -------- --------- Other reserves result from the application of merger accounting on the acquisition of Sarantel Ltd on 23 February 2005. The Company Share premium Share scheme Profit and loss account reserve account Â£ Â£ Â£ At 1 October 2006 as previously reported 14,424,857 - 454,275 Prior year adjustment (see note 7) - 78,000 - ---------------------------- -------- --------- --------- At 1 October 2006 restated 14,424,857 78,000 454,275 ---------------------------- -------- --------- --------- Profit for the year - - 69,553 Expenses incurred re shares issued (172,779) - - Increase in employee share scheme reserve - 125,465 - ---------------------------- -------- --------- --------- At 30 September 2007 14,252,078 203,465 523,828 ---------------------------- -------- --------- --------- 23 Reconciliation of Movements in Shareholders' Funds Equity shareholders' funds 2007 2006 Â£ Â£ as restated ---------------------------------- ---------- --------- Loss for the financial year (5,630,878) (6,812,747) Issue of new shares (net of issue expenses) 1,976,735 221,098 Employee share scheme reserve 125,465 78,000 ---------------------------------- ---------- --------- Decrease in shareholders' funds in the year (3,528,678) (6,513,649) Opening shareholders' equity funds 10,571,384 17,085,033 ---------------------------------- ---------- --------- Closing shareholders' equity funds 7,042,706 10,571,384 ---------------------------------- ---------- --------- 24 Reconciliation of Operating Loss to Net Cash Outflow From Operating Activities 2007 2006 Â£ Â£ As restated ---------------------------------- ---------- --------- Operating loss (5,912,410) (7,219,218) Depreciation and amortisation 1,608,586 2,391,627 Loss on sale of equipment 532 - Employee share scheme charge 125,465 78,000 Decrease/(Increase) in stocks 968,403 (1,583,402) Decrease in debtors 76,851 269,837 Decrease in creditors (627,566) (181,291) ---------------------------------- ---------- --------- Net cash outflow from operating activities (3,760,139) (6,244,447) ---------------------------------- ---------- --------- 25 Reconciliation of Net Cash Flow to Movement in Net Funds 2007 2006 Â£ Â£ ---------------------------------- ---------- --------- Decrease in cash in the period (2,620,052) (8,084,289) Cash outflow in respect of finance leases and hire purchase 492,641 484,757 New finance leases and hire purchase agreements - (784,834) ---------------------------------- ---------- --------- Change in net funds resulting from cash flows (2,127,411) (8,384,366) Net funds at start of the year 3,938,638 12,323,004 ---------------------------------- ---------- --------- Net funds at end of the year 1,811,227 3,938,638 ---------------------------------- ---------- --------- 26 Analysis of Changes in Net Funds At 1 October Cash flows At 30 September 2006 2007 Â£ Â£ Â£ ----------------------------- --------- -------- --------- Net cash: Cash in hand and at bank 5,050,123 (2,620,052) 2,430,071 Debt: Finance leases and hire purchase agreements (1,111,485) 492,641 (618,844) ----------------------------- --------- -------- --------- Net funds 3,938,638 (2,127,411) 1,811,227 ----------------------------- --------- -------- --------- 27 Cash at Bank Cash balances of Â£2,430,071 (2006: Â£5,050,123) at the end of the year include an amount of Â£715,700 (2006: Â£1,350,000) on an interest bearing deposit account with a financial institution which can only be repaid when the amounts owed to it under hire purchase agreements are settled in full. At the year end, the amount owed was Â£614,497 (2006: Â£1,161,823). 28 Capital Commitments 2007 2006 Â£ Â£ -------------------------------- --------- --------- Amounts contracted for but not provided in the financial statements 98,541 827,310 -------------------------------- --------- --------- 29 Pensions The Group makes payments into a Group personal pension scheme for certain employees and Directors. The assets of the scheme are administered by trustees in a fund independent from those of the Group. This information is provided by RNS The company news service from the London Stock Exchange

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