Information  X 
Enter a valid email address

Kenetics Group Ltd (KEN)

  Print      Mail a friend

Tuesday 10 April, 2007

Kenetics Group Ltd

Final Results

Kenetics Group Limited
10 April 2007

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

Preliminary Results for the Year Ended 31 December 2006

Kenetics Group Limited (Kenetics or the Company), the Radio Frequency
Identification (RFID) company focused on Security and RFID systems and products,
announces the Preliminary Results for the year ended 31 December 2006.

Financial Highlights

  • Revenue of £ 316,176   (2005: £ 916, 942)

  • Pre-tax losses of £ 449,034   (2005:  Pre-tax profit of  £303,122)

  • Free Cash position as at end of the year of £ 290,417   (2005: £ 167,372)

Operational Highlights

  • Listed on AIM in August 2006

  • Established a subsidiary in Beijing to tap business opportunities in China

  • Embarked on the development of new GEN 2 product lines

  • Implemented structural changes to improve operational efficiencies

  • Entered into technical collaborations with two major chip manufacturers to
    develop RFID products

Commenting on the Preliminary Results, Ken Wong, Chairman of Kenetics said:

'The Group had a challenging 2006 which resulted in the company falling into the
red after three years of profitability. Nonetheless, the listing has improved
the international profile of the company and has provided us a platform to grow
the business. With the implementation of structural changes almost completed and
the launch of the new range of GEN 2 product lines, we are confident that the
Group is in a strong position to recover from its temporary setback and to grow
the business. 2007 is expected to show a marked improvement. '


Ken Wong
Kenetics Group Limited
Tel: +65 9616 6883

Tim Thompson
Buchanan Communications
Tel:  + 44 20 7466 5000

Nandita Sahgal
Insinger de Beaufort
Tel:  + 44 20 7190 7000

Chairman's Statement


This is the first financial result since Kenetics was admitted on AIM of the
London Stock Exchange on 18 August 2006. It marked the transformation of the
Company from a start-up in 2001 to a full-fledged publicly-listed corporation.
The Company raised £ 827,000 in pre-IPO funds before listing the company on AIM,
through means of an introduction. We believe our listing on AIM has
significantly improved our profile internationally, provided us with a platform
to grow the business and paved the way for us to work closely with many global

Financial Results

Group sales in 2006 amounted to £ 316,176, a decrease of 66% on the prior period
(2005: £ 916,942). Operating expenses were £ 765,297 (2005: £ 665,810). The loss
before tax amounted to £ 449,034 against a profit before tax of £ 303,122 for

The decrease in sales was the result of delays in the completion of some
projects and the deferral of several other major projects to 2007. As a result
of the delayed projects, additional resources had to be committed to bring these
projects back on track. Higher costs were incurred which also contributed to the
loss for 2006. On a more positive note, we are pleased to mention that some of
these deferred projects have already begun and these should deliver improved
sales  for the company in 2007.

During the year, the Kenetics Innovations (Beijing) Co Limited subsidiary was
established to spearhead the Group's business in China. Start-up expenses
relating to the establishment of the subsidiary have contributed to the increase
in operating expenses for the Group.

Free cash at the end of the year was at £ 290,417 (2005: £ 167,372). The
increase is due mainly to proceeds from the issue of ordinary shares of the
Company prior to the listing on AIM.

As the Company is in an early stage of development, the Directors do not feel it
appropriate to recommended  payment of a dividend.

Sales and Marketing

As reported in the half-year results ended June 2006, two projects for our ODM
(Original Design Manufacturer) customers were delayed and not completed as
scheduled. In addition, a key ODM RFID project with Singapore's Housing
Development Board that we expected to be launched in 2006 was deferred to 2007.
We are pleased to announce that this project, with a sales value of about £
250,000, was secured by the Company's Singapore subsidiary in February 2007.
Delivery  began in March 2007 and it is expected that the project will be
completed within 12 calendar months. In addition, the anticipated projects in
China have also been revived and we are expecting the projects to begin in Q2 of

During the second half of 2006, we  commenced  the development of a new
generation of product lines to meet market requirements. We are delighted to
announce that two of these products have been developed in collaboration with
major global partners. One of these products is a RFID reader incorporating
Intel's new Integrated GEN2 Ultra High Frequency (UHF) R1000 Reader Chip
Platform. The product is expected to be ready for the market in the second
quarter of 2007. We believe that these collaborations will open up business
opportunities for the Company in Europe and the US and are expected to bring
immediate revenue opportunities in 2007 and further  growth in 2008.

We are optimistic that 2007 will bring greater sales revenues and opportunities
for the Company. We are currently exploring a number of different options to
extend our European marketing and sales network, including the setting up of a
European sales office to manage our sales distribution channels. With the new
range of products and Kenetics' entry into the European and US markets the Board
is confident for the medium term business outlook.

Operating Review

It became apparent in 2006 that the Company needed to improve its management
structure and operating procedures. During 2006, the Company did not
sufficiently monitor the progress of several projects, which affected revenue
generation and the profitability of the Company. Manpower turnover and the lack
of experienced RF engineers had also contributed to the slow progress made in
both the development of new products and the completion of ODM projects. Despite
these challenges, several measures were implemented in 2006 to improve
operational efficiency. These include:

  • Putting in place a Project Management System to plan and monitor on-going

  • Intensifying recruitment efforts especially for capable technical staff

  • Tracking sales performance, retaining customers and monitoring project
    tender opportunities

  • Establishing financial procedures and practices for efficient use of

  • Improving production processes and controlling work in progress

For 2007, the management will focus on the following operational actions:

  • Continue to recruit, retain and develop capable technical staff

  • Strengthen the middle management team

  • Accelerate the establishment of new distribution channels to improve

  • Establish new partnerships to enhance and improve market opportunities

  • Build up the sales momentum and strengthen our relationships with key

  • Lower manufacturing costs through strategic outsourcing of certain
    manufacturing requirements to China

  • Implement operating practices to ensure timely deliveries

  • Co-ordinate global sales and marketing efforts to achieve operational

New Product Development

A significant amount of resources were spent in the second half of 2006 to
develop a new range of products (GEN 2). The new high frequency (HF) product
lines should open new market opportunities especially in Europe. Our new
handheld HF RFID reader was showcased recently in CEBIT 2007 (an international
Information and Communication Technology trade exhibition in Hanover that had
over 400,000 visitors), and has attracted significant interests especially for
logistics and library applications. Volume production and shipment of this
handheld reader is ongoing for a Japanese customer and it will be made available
in Europe by the second quarter of 2007.

The first half of 2007 will also see the launch of our new GEN 2 Ultra High
Frequency (UHF) reader in the US. This UHF reader developed in collaboration
with Intel is expected to provide an important springboard into the vast US
market. We are pleased to report that, with the launch of this UHF reader,
Kenetics has the full capabilities to address various market needs and
opportunities in the Asia Pacific region, Europe and the US.

Outlook for 2007

We are confident that 2007 will bring in many new business opportunities for the
Group. With the launch of the new GEN 2 product lines and the establishment of
new sales and distributing channels, the Board is confident that the outlook
will improve significantly in the medium term.

Ken Wong
Chairman, Kenetics Group Limited
10th April 2007


                                                                                     2006             2005
                                                                                        £                £
Continuing operations

Revenue                                                                           316,176          916,942
Other operating income                                                                 87           51,990
Changes in inventories of finished goods
and work-in-progress                                                               29,112          (7,092)
Raw materials and consumables used                                              (139,210)        (261,345)
Employee benefits expenses                                                      (382,398)        (269,069)
Depreciation of plant and equipment                                              (49,605)         (44,879)
Other operating expenses                                                        (225,649)         (83,679)
Finance costs                                                                       2,453              254
(Loss)/profit before tax                                                        (449,034)          303,122
Income tax expenses                                                                     -         (55,639)
(Loss)/profit for the year                                                      (449,034)          247,483

Attributable to:
Equity holders of the company                                                   (446,414)          247,483
Minority interests                                                                (2,620)                -
                                                                                (449,034)          247,483

(Loss)/ Earnings per share (cents)
- Basic and diluted                                                                (1.93)             2.20


                                                                      Group                   Company
                                                                   2006            2005             2006
                                                                      £               £                £

Non-Current Assets

Plant and equipment                                             144,950         136,491                -
Investment in subsidiaries                                            -               -          235,928
Available for sale financial asset                              138,861               -                -
Total non-current assets                                        283,811         136,491          235,928

Current Assets

Contract work-in-progress                                         5,277          20,430                -
Stocks and work-in-progress                                     155,114          38,887                -
Trade receivables                                               101,159         181,771                -
Other receivables                                                65,644          93,606          240,782
Cash and cash equivalents                                       375,751         255,312          154,044

Total current assets                                            702,945         590,006          394,826

Total assets                                                    986,756         726,497          630,754


Share capital                                                   263,495         152,944          263,495
Share premium                                                   280,204               -          280,204
Share application                                                     -           4,146                -
Share option reserve                                             26,481               -           26,481
Merger reserve                                                  369,579               -                -
Foreign currency translation reserve                           (17,649)          10,774                -
(Accumulated losses)/ Retained profits                        (205,556)         240,858            5,945
Total equity                                                    716,554         408,722          576,125

Non-Current Liabilities

Amount owing to director                                         47,977               -                -
Obligations under finance leases                                  5,758          11,342                -
Total non-current liabilities                                    53,735          11,342                -

Current liabilities

Excess of progress billings over contract

work-in-progress                                                 33,554          24,140                -
Trade payables                                                   31,633          95,510                -
Other payables                                                  136,506          41,356           54,629
Amount owing to directors                                         9,710          88,246                -
Obligations under finance leases                                  5,064           5,039                -
Provision for taxation                                                -          52,142                -
Total current liabilities                                       216,467         306,433           54,629

Total liabilities                                               270,202         317,775           54,629
Total equity and liabilities                                    986,756         726,497          630,754

                              KENETICS GROUP LIMITED
                             (Incorporated in Jersey)
                          STATEMENT OF CHANGES IN EQUITY
                       FOR THE YEAR ENDED 31 DECEMBER 2006

                Attributable to Equity Holders of the Company

                                                               Foreign      Retained
                                           Share               Currency      Profits/
          Share     Share        Share    Option     Merger   Translation  (Accumulated              Minority 
        Capital   Premium  Application   Reserve    Reserve      Reserve        Losses)    Subtotal  Interest      Total
              £         £           £          £        £            £             £           £       £             £

as at     
1/1/05 *
(Proforma) 152,944      -     2,936        -          -             -         70,347     226,227      -         226,227

application     -       -     1,210         -         -             -              -       1,210      -           1,210

differences     -       -         -         -         -        10,774              -      10,774      -          10,774

Dividend paid   -       -         -         -         -             -       (76,972)    (76,972)      -        (76,972)

Net profit for  
the year        -       -         -         -         -             -        247,483     247,483      -         247,483

as at     
(Proforma)152,944       -     4,146         -         -        10,774        240,858     408,722      -         408,722

arising from

in paid up 
by a 
sidiary   449,939       -         -         -         -             -              -     449,939      -         449,939

of share
monies of     
subsidiary      -       -    (1,522)        -         -             -              -     (1,522)      -         (1,522)

arising from
Exercise #(366,955)     -    (2,624)        -   369,579             -              -          -       -              -

Sub-total   82,984      -    (4,146)        -   369,579             -              -     448,417      -         448,417

differences     -       -         -         -         -      (28,423)              -    (28,423)      -        (28,423)

Issue of new
shares in
the AIM 
listing    27,567 799,433         -         -         -             -              -     827,000      -         827,000

expenses       - (519,229)        -         -         -             -              -   (519,229)      -       (519,229)

granted        -        -         -    26,481         -             -              -      26,481      -          26,481

Net loss 
for the 
year           -        -         -         -         -             -      (446,414)   (446,414)   (2,620)    (449,034)

of a 
subsidiary     -        -         -         -         -             -             -           -     2,620        2,620

Balance as 
31/12/06 263,495  280,204         -    26,481   369,579      (17,649)      (205,556)    716,554         -      716,554

* The share capital, share application monies and retained profits represent the
share capital, share application monies and retained profits of the subsidiary
prior to the Restructuring Exercise.

# The adjustment arising from the Restructuring Exercise represents the excess
of the nominal value of shares acquired by the Company over the nominal value of
shares issued by the Company in exchange for those shares, accounted for using
merger accounting.

                FOR THE YEAR ENDED 31 DECEMBER 2006

                                                                                     2006              2005
                                                                                        £                 £
Cash Flow From Operating Activities

(Loss)/ Profit before taxation                                                  (449,034)           303,122
Adjustments for:
Depreciation                                                                       49,605            44,879
Interest received                                                                 (3,123)           (1,134)
Operating profit before working capital changes                                 (402,552)           346,867

Decrease in contract work-in-progress/ Excess of progress
billings over contract work-in-progress                                            24,738                 -
Decrease/ (Increase) in trade and other receivables                                98,885          (39,892)
(Increase) in inventories                                                       (118,010)          (11,206)
Increase/ (Decrease) in trade and other payables                                   37,548          (94,036)
Cash generated used in operations                                               (359,391)           201,733

Income tax paid                                                                  (52,688)          (11,755)

Net cash flows used in operating activities                                     (412,079)           189,978

Cash Flows from Investing Activities

Purchase of unquoted shares                                                     (138,861)                 -
Purchase of plant and equipment                                                  (64,321)          (37,289)
Capital contribution from minority interests                                        2,620                 -
Interest received                                                                   3,123             1,134
Net cash flows used in investing activities                                     (197,439)          (36,155)

Cash Flows from Financing Activities

Loan to director                                                                 (26,513)          (14,402)
Proceed from issue of ordinary shares of holding company                          827,000                 -
Proceed from issue of ordinary shares of subsidiary                               449,939                 -
Payment of trust receipts                                                               -          (78,750)
Payment of AIM listing expenses                                                 (492,748)                 -
Receipt of share application monies                                                     -             1,242

Payment of dividend                                                               (1,522)          (76,972)
Difference of fixed deposit balance due to accumulation of
                                                                                  (1,426)             (689)
Loan from hire purchase creditor                                                  (4,808)                 -
Net cash flows from financing activities                                          749,922         (169,571)

Net increase in cash and cash equivalents                                         140,404          (15,748)

Effect of exchange rate changes                                                  (17,359)            15,532
Cash and cash equivalents at beginning of year                                    167,372           167,588

Cash and cash equivalents at end of year                                          290,417           167,372

1.         Abbreviated notes to the financial statements

Accounting policies

      Financial information

The preliminary results were approved by the Board of Directors on 10 April
2007.  The financial information set out above does not comprise the Company's
statutory accounts for the year ended 31 December 2006, but is derived from
those accounts.    The auditors have yet to sign their report on the 2006
accounts.  The statutory accounts for the year ended 31 December 2006 will be
finalized on the basis of the financial information presented by the Directors
in this preliminary announcement.

                        Exchange Rates

The financial statements of the Group are presented in Sterling Pounds, which is
the Company's functional currency. The functional currencies of Kenetics
Innovations Pte Ltd and Kenetics Innovations (Beijing) Co Ltd are in Singapore
Dollars and Renminbi respectively. The following exchange rates have been used
in preparing the financial statements as at 31 December 2006:

SGD 1 = £0.33300
RMB 1 = £0.06549

Basis of preparation

These preliminary results have been prepared in accordance with the accounting
policies normally adopted by the Company which are consistent with those adopted
in the Accountants' Report.  These preliminary results have also been prepared
in accordance with International Financial Reporting Standards and prepared
under the historical cost convention.

Basis of consolidation

For the purpose of the Company's listing on AIM, the Company undertook a
Restructuring Exercise.  The Group Restructuring has been accounted for using
merger accounting as it involved combinations of entities under common control.
Accordingly, the Group's consolidated figures for the years ended 31 December
2005 and 2006 have been prepared as if the Group had been in existence prior to
the Group Restructuring Exercise.  The consolidated results of the Group have
been accounted for since 1 January 2005.  The assets and liabilities are brought
into the consolidated balance sheet at their existing carrying amounts.  The
comparative figures of the Group represent the combined results, state of
affairs, changes in equity and cash flows of the Group pursuant to the
Restructuring Exercise has existed since 1 January 2005.


Subsidiaries are entities (including special purpose entities) over which the
Group has power to govern the financial and operating policies, generally
accompanying a shareholding of more than one half of the voting rights. The
existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the Group controls another

Subsidiaries are consolidated from the date on which control is transferred to
the Group. They are de-consolidated from the date on which control ceases. In
preparing the consolidated financial statements, transactions, balances and
unrealised gains on transactions between group companies are eliminated.
Unrealised losses are also eliminated but considered an impairment indicator of
the asset transferred. Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies adopted by the Group.

Minority interests are that part of the net results of operations and of net
assets of a subsidiary attributable to interests which are not owned directly or
indirectly by the Group. It is measured at the minorities' share of the fair
value of the subsidiaries' identifiable assets and liabilities at the date of
acquisition by the Group and the minorities' share of changes in equity since
the date of acquisition, except when the losses applicable to the minority
interests in a subsidiary exceed the minority interests in the equity of that
subsidiary. In such cases, the excess and further losses applicable to the
minority interests are attributed to the equity holders of the Company, unless
the minority interests have a binding obligation to, and are able to, make good
the losses. When that subsidiary subsequently reports profits, the profits
applicable to the minority interests are attributed to the equity holders of the
Company until the minority interests' share of losses previously absorbed by the
equity holders of the Company have been recovered.

Plant and Equipment


(i)         Plant and equipment

All items of plant and equipment are initially recognised at cost and
subsequently carried at cost less accumulated depreciation and accumulated
impairment losses.

(ii)         Components of costs

The cost of an item of plant and equipment includes its purchase price and any
cost that is directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by
the management. The projected cost of dismantlement, removal or restoration is
also included as part of the cost of plant and equipment if the obligation for
the dismantlement, removal or restoration is incurred as a consequence of
acquiring or using the asset.


Depreciation on items of plant and equipment is calculated using the
straight-line method to allocate their depreciable amounts over their estimated
useful lives as follows:

                                         Useful lives
Computers                                3 years
Furniture and Fittings                   5 years
Tools and Equipment                      5 years
Renovation                               5 years

The residual values and useful lives of plant and equipment are reviewed, and
adjusted as appropriate, at each balance sheet date. The effects of any revision
of the residual values and useful lives are included in the income statement for
the financial year in which the changes arise.

Subsequent expenditure

Subsequent expenditure relating to plant and equipment that has already been
recognized is added to the carrying amount of the asset only when it is probable
that future economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably. Other subsequent expenditure
is recognised as repair and maintenance expense in the income statement during
the financial year in which it is incurred.


On disposal of an item of plant and equipment, the difference between the net
disposal proceeds and its carrying amount is taken to the income statement.

Financial Assets


The Group classifies its financial assets in the following categories: at fair
value through profit or loss, loans and receivables, held-to-maturity, and
available for sale. The classification depends on the purpose for which the
assets were acquired. Management determines the classification of its financial
assets at initial recognition and re-evaluates this designation at every
reporting date. The designation of financial assets at fair value through profit
or loss is irrevocable.

(i)         Loan and receivables

Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are included
in current assets, except those maturing later than 12 months after the balance
sheet date which are classified as non-current assets. Loans and receivables are
classified within ' trade and other receivables ' and 'cash and cash equivalents
' on the balance sheet.

(ii)         Financial assets, available-for-sale

Financial assets, available-for-sale are non-derivatives that are either
designated in this category or not classified in any of the other categories.
They are included in non-current assets unless management intends to dispose of
the assets within 12 months after the balance sheet date.

Recognition and derecognition

Regular purchases and sales of financial assets are recognised on trade-date -
the date on which the Group commits to purchase or sell the asset. Financial
assets are derecognised when the rights to receive cash flows from the financial
assets have expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership.

On sale of a financial asset, the difference between the net sale proceeds and
its carrying amount is taken to the income statement. Any amount in the fair
value reserve relating to that asset is also taken to the income statement.

Initial measurement

Financial assets are initially recognised at fair value plus transaction costs
except for financial assets at fair value through profit or loss, which are
recognised at fair value. Transaction costs for financial assets at fair value
through profit and loss are recognised in the income statement.

Subsequent measurement

Financial assets, available-for-sale and at fair value through profit or loss
are subsequently carried at fair value. Investments in equity instruments that
do not have a quoted market price in an active market and the fair value cannot
be reliably measured shall be measured at cost. Loans and receivables and
financial assets, held-to-maturity are carried at amortised cost using the
effective interest method.

Changes in the fair value of monetary assets denominated in a foreign currency
and classified as available-for-sale are analysed into translation differences
resulting from changes in amortised cost of the asset and other changes. The
translation differences are recognised in the income statement, and other
changes are recognised in the fair value reserve within equity. Changes in fair
values of other monetary and non-monetary assets that are classified as
available-for-sale are recognised in the fair value reserve within equity.

Interest on financial assets, available-for-sale, calculated using the effective
interest method, is recognised in the income statement. Dividends on
available-for-sale equity securities are recognised in the income statement when
the Group's right to receive payment is established. When financial assets
classified as available-for-sale are sold or impaired, the accumulated fair
value adjustments are recognised in the fair value reserve within equity are
included in the income statement as 'gains and losses from investment 


The Group assesses at each balance sheet date whether there is objective
evidence that a financial asset or a group of financial assets is impaired.

                 (i)         Loans and receivables

An allowance for impairment of loans and receivables, including trade and other
receivables, is recognised when there is objective evidence that the Group will
not be able to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganisation, and default or
delinquency in payments are considered indicators that the receivable is
impaired. The amount of the allowance is the difference between the asset's
carrying amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. The amount of the allowance for
impairment is recognised in the income statement within 'Other operating

(ii)                 Financial assets, available-for-sale

In the case of an equity classified as available-for-sale,  a significant or
prolonged decline in the fair value of the security below its cost is considered
an indicator that the security is impaired.

When there is objective evidence that an available-for-sale financial asset is
impaired, the cumulative loss that has been recognised directly in the fair
value reserve is removed from the fair value reserve within equity and
recognised in the income statement. The cumulative loss is measured as the
difference between the acquisition cost (net of any principal repayments and
amortisation) and the current fair value, less any impairment loss on that
financial asset previously recognised in income statement.

Impairment losses recognised in the income statement on equity instruments
classified as available-for-sale financial assets are not reversed through the
income statement.


Inventories are stated at the lower of cost and net realisable value after
adequate allowance has been made for deteriorated, damaged, obsolete or
slow-moving inventories on the weighted average basis. Cost includes all costs
of purchase and other costs incurred in bringing the inventories to their
present location and condition.

In the case of finished goods and work-in-progress, cost includes direct
materials, direct labour and allocation of related production overheads.

Net realisable value represents the estimated selling price less all estimated
costs to completion and costs to be incurred in marketing, packing and


Profit on contract with completion dates extending over more than one financial
year are brought to account using the percentage of completion method, the
percentage used being the proportion of costs incurred at the balance sheet date
to estimated total cost. Losses are taken to the income statement in the period
in which they are identified.

              Cash and Cash Equivalents

Cash and cash equivalents comprise cash in hand, cash at bank and fixed
deposits, which are subject to insignificant risks of changes in value. Cash
equivalents are stated at amounts at which they are convertible into cash.

Trade and Other Payables

Trade and other payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.

                        Income Taxes

Current income tax liabilities (and assets) for current and prior periods are
recognised at the amounts expected to be paid to (or recovered from) the tax
authorities, using the tax rates (and tax laws) that have been enacted or
substantially enacted by the balance sheet date.

Deferred income tax assets/liabilities are recognised for all deductible taxable
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements except when the deferred
income tax assets/liabilities arise from the initial recognition of an asset or
liability in a transaction that is not a business combination and at the time of
the transaction, affects neither accounting nor taxable profit or loss.

Deferred income tax liability is recognised on temporary differences arising on
investments in subsidiaries, except where the Group is able to control the
timing of the reversal of the temporary difference and it is probable that the
temporary differences will not reverse in the foreseeable future.

Deferred income tax asset is recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.

               Deferred income tax assets and liabilities are measured at:

(i)       the tax rates that are expected to apply when the related deferred
income tax assets are realised or deferred income tax liability is settled,
based on tax rates (and tax laws) that have been enacted or substantially
enacted by the balance sheet date; and

(ii)     the tax consequence that would follow from the manner in which the
Group expects, at the balance sheet date, to recover or settle the carrying
amounts of its assets and liabilities.

Current and deferred income tax are recognised as income or expenses in the
income statement for the period, except to the extent that the tax arises from a
business combination or a transaction which is recognised directly in the

Currency translation

(a)                Functional and presentation currency

Items included in the financial statements of each entity in the Group are
measured using the currency of the primary economic environment in which the
entity operates ('functional currency'). The financial statements are presented
in Sterling Pounds, which is the Company's functional currency. The figures
presented in the financial statements are rounded to the nearest Sterling

(b)                Transactions and balances

Transactions in a currency other than the functional currency ('foreign currency
') are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Currency translation gains and
losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies
at the closing rates at the balance sheet date are recognised in the income
statement, except for currency translation differences on the net investment in
foreign operations, borrowings in foreign currencies and other currency
instruments qualifying as net investment hedges for foreign operations, which
are included in the currency translation reserve within equity in the
consolidated financial statements.

(c)                 Translation of Group entities' financial statements

The results and financial position of all the group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:

(i)                   Assets and liabilities are translated at the closing rates
at the date of the balance sheet;

(ii)                 Income and expenses are translated at average exchange
rates (unless the average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated using the exchange rates at the dates of the
transactions); and

(iii)                All resulting exchange differences are taken to the
currency translation reserve within equity.

                        Revenue Recognition

(a)        Sales of goods

Revenue from sale of good is recognised upon delivery of the goods and
acceptance by the customer.

        (b)        Interest income

Interest income is recognised on a time-proportion basis, using the effective
interest method, unless collectibility is in doubt.

                        Employee Benefits

        (a)        Defined contribution plans

As required by the law, the Group makes contributions to the state provident
funds of the respective countries. Such contributions are recognised as
compensation expenses in the same period as the employment that gave rise to the

        (b)        Short-term compensated absences

Employees entitlements to annual leave are recognised when they accrue to
employees. A provision is made for the estimated liability for employee
entitlements to annual leave as a result of services rendered by employees up to
the balance sheet date.

                        Impairment of non-financial assets

Plant and equipment

Investment in subsidiaries

Plant and equipment and investments in subsidiaries are reviewed for impairment
whenever there is any indication that these assets may be impaired. If any such
indication exists, the recoverable amount (ie. the higher of the fair value less
cost to sell and the value-in-use) of the asset is estimated to determine the
amount of impairment loss.

For the purpose of impairment testing of these assets, recoverable amount is
determined on an individual asset basis unless the asset does not generate cash
flows that are largely independent of  those from other assets. If this is the
case, recoverable amount is determined for the CGU to which the asset belongs.

If the recoverable amount of the asset (or CGU) is estimated to be less than its
carrying amount, the carrying amount of the asset (or CGU) is reduced to its
recoverable amount.

The impairment loss is recognised in the income statement unless the asset is
carried at revalued amount, in which case, such impairment loss is treated as a
revaluation decrease.

An impairment loss for an asset other than goodwill is reversed if, and only if,
there has been a change in the estimates used to determine the asset's
recoverable amount since the last impairment loss was recognised. The carrying
amount of an asset other than goodwill is increased to its revised recoverable
amount, provided that this amount does not exceed the carrying amount that would
have been determined (net of amortisation or depreciation) had no impairment
loss been recognised for the asset in  prior years. A reversal of impairment
loss for an asset other than goodwill is recognised in the income statement
unless the asset is carried at revalued amount, in which case, such reversal is
treated as a revaluation increase. However, to the extent that an impairment
loss on the same revalued asset was previously recognised in the income
statement, a reversal of that impairment is also recognised in the income


Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate of
the amount can be made.


        (a)        Finance leases

Leases which effectively transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item are classified as finance
leases. When the Group is the lessee, property, plant and equipment acquired by
way of finance leases are capitalised at an amount equal to the lower of its
fair value and the present value minimum lease payments at the inception of the
lease, less accumulated depreciation and any impairment losses. Lease payments
are apportioned between the finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged to the income statement.

If there is no reasonable certainty that the lessee will obtain ownership by the
end of the lease term, the capitalised leased asset is depreciated over the
shorter of the estimated useful life of the asset and the lease term.

(b)        Operating leases

Leases whereby the lessor effectively retains substantially all the risks and
benefits of ownership of the leased item are classified as operating leases.

When the Group is the lessee, operating lease payments are recognised as an
expense in the income statement on a straight line basis over the lease term.

Research and development costs

Costs associated with research activities are expensed as they occur. During the
year, the research and development costs incurred were charged to the income

Borrowing costs

Borrowing costs, interest paid on finance leases, are recognised as expenses in
the period in which they are incurred.

                        Related parties

Related parties are entities with common direct or indirect shareholders or
directors. Or, parties are considered to be related if one party has the ability
to control the other party or exercise significant influence over the other
party in making financial and operation decisions.

Investment in subsidiaries

Investments in subsidiaries are stated at cost less accumulated impairment
losses in the Company's balance sheet. On disposal of investments in
subsidiaries, the difference between net disposal proceeds and the carrying
amounts of the investments are taken to the income statement.

2)         (Loss)/Earnings per share

Basic (loss)/earnings per share has been calculated by dividing the net loss
attributable to the equity holders of the Company of £446,414 (2005: profit
attributable to the equity holders of the Company of £247,483) by the weighted
average number of ordinary shares outstanding during the financial year of
23,125,500 (2005: 11,252,500).

The number of ordinary shares used for the calculation of basic (loss)/earnings
per share in 2005 and 2006 where merger accounting is applied, is based on the
contributed capital of Kenetics Innovations Pte Ltd, adjusted to equivalent
shares of the Company whose shares are outstanding after the combination.

3)            Segment Reporting

                        Business Segments

For management purposes, the Group is currently organized into three operating
divisions - Original Design Manufacturer ('ODM'), Industrial System and
Industrial Products. These divisions are the basis on which the Group reports
its primary information.

                                                                   2006                2005
                                                                      £                   £
Segment revenue
ODM                                                              46,396             141,065
Industrial systems                                                    -             551,400
Industrial products                                             269,780             224,477
                                                                316,176             916,942

Segment results
ODM                                                           (128,840)              11,284
Industrial systems                                                    -             311,023
Industrial products                                             152,930             119,210
                                                                 24,090             441,517
Unallocated corporate expenses                                (475,664)           (190,639)
Other operating income                                               87              51,990
Finance costs                                                     2,453                 254
(Loss)/Profit before taxation                                 (449,034)             303,122
Income tax expenses                                                   -            (55,639)
(Loss)/Profit after taxation                                  (449,034)             247,483

Unallocated capital expenditure                                  64,321              53,669
Unallocated depreciation                                         49,605              44,879

Segment assets
ODM                                                              54,109              28,257
Industrial systems                                               42,817             142,431
Industrial products                                             205,529              31,514
Unallocated corporate assets                                    684,301             524,295
Total assets                                                    986,756             726,497

Segment liabilities
ODM                                                              46,850              32,568
Industrial systems                                                    -              84,688
Industrial products                                              22,105               2,394
Unallocated corporate liabilities                               201,247             198,125
Total liabilities                                               270,202             317,775

Segment revenue by location of
People's Republic of China                                      4,368               19,751
Asia Pacific                                                  249,085              854,887
Europe                                                         62,152               42,304
Others                                                            571                    -
                                                              316,176              916,942

Capital expenditure by geographical location of assets
People's Republic of China                                      6,135                    -
Asia Pacific                                                   58,186               53,669
                                                               64,321               53,669

Segment assets by geographical location of assets
People's Republic of China                                     35,905               19,751
Asia Pacific                                                  946,348              689,607
Europe                                                          4,503               17,139
                                                              986,756              726,497

                      This information is provided by RNS
            The company news service from the London Stock Exchange                                                                                                                                                           

a d v e r t i s e m e n t