Preliminary Results

Kenetics Group Limited
02 May 2008


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

            Preliminary Results for the Year Ended 31 December 2007


Kenetics Group Limited ('Kenetics' or the 'Group' or the 'Company'), the Radio
Frequency Identification ('RFID') Group focused on Security and RFID systems and
products, announces the Preliminary Results for the year ended 31 December 2007.


                               Period Highlights

  • Sales revenue increased by 121% to £699,768 (2006: £316,176). Sale of
    industrial products amounted to £694,500 as compared to £269,780 in the
    previous year, representing an increase of £424,720 (157%).

  • Reduction in pre-tax losses to £433,084, including a write-down due to
    impairment loss in an investment of £122,159 in 2007 (2006:  Pre-tax loss of
    £449,034). Without this impairment loss, the pre-tax loss would have been
    £310,925, which represents a 31% reduction over the previous year.

  • Significant investments in research and development ('R&D') and product
    development resulting in the successful development of a range of High
    Frequency ('HF') and Ultra High Frequency ('UHF') GEN2 products to replace
    older existing products.

  • A partnership with Intel expedited the development of a new Kenetics UHF
    Technology platform based on Intel's new R1000 RFID chip, opening up markets
    in US and Europe.

  • Enlarged global sales network and improved customer support provided the
    platform for increased sales revenue.

  • Recruited and retained a team of skilled R&D engineers to form the
    backbone for the development of core technologies and new products

  • Structural changes were implemented to improve operational efficiencies
    and controlling operating costs.


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

 '2007 has shown a marked improvement in sales revenue over the previous year.
With the implementation of several structural changes, we are beginning to see
our efforts bearing fruit. Sales revenue has more than doubled and the operating
loss before an impairment charge was reduced by a third. The substantial
investments in R&D and product development have resulted in a range of new RFID
GEN2 products that will be rigorously marketed in 2008. The new UHF platform
developed by Kenetics based on Intel's R1000 RFID chip is expected to open the
substantial US UHF market for Kenetics. With the new products and backed by the
support from our distribution channels, our focus for 2008 will be placed on
expanding our Europe and US markets, increasing market share, strengthening our
Sales team and further developing our distribution networks.  With our clear
strategy in place, we are confident that further progress will continue into
2008 and that the Group is in a strong position to seize the opportunities to
grow the business.'


Contact :

Ken Wong
Kenetics Group Limited
Tel: [phone]
Website: www.kenetics-group.com

Graeme Thom
Zimmerman Adams International Ltd
Tel:  + 44 (0) 20 7060 1760
Website: www.zimmit.com


Chairman's Statement


Review of Operations

One of the major focuses for 2007 was to re-organise the Company and its
subsidiaries with the objective of overcoming the structural deficiencies and
thereby prepare Kenetics for sustainable growth and profitably as a public
listed company. Taking this to heart, Kenetics have identified major areas for
improvements among which are the development of a new generation of products ('
GEN2') to replace the existing product lines which had been in existence since
2001, recruit and develop a core team of highly-skilled technical staff, and to
expand the marketing and distribution networks for greater sales revenue. I am
pleased to report that while it takes time to fulfill these objectives, we are
making good progress on all these fronts, forming the foundation for the future
growth.



Financial Results



Group sales in 2007 were £699,768, an increase of 121% on the previous year
(2006: £316,176), brought about by very significant improvements in Industrial
Product sales. In delivering on our strategy of reducing reliance on the
Original Design Manufacturers ('ODM') and Systems business that had previously
brought about great fluctuations in sales revenue, new products were introduced
in the second half of 2007 to complement the range of existing products that
have been in the market for the past few years. With the product sales expected
to increase over the next few years, we should be on track for a more balanced
and even revenue growth between ODM project business and Industrial Product
sales.



Operating expenses in 2007 were £1,182,456 (2006: £765,297), with a substantial
element being invested in research and development ('R&D') and product
development.



The loss before tax amounted to £433,084 (2006: £449,034) a reduction of 4%,
despite a write-down due to impairment loss (£122,159) relating to an investment
made prior to the Company's admission to the AIM Market of the London Stock
Exchange. Without this impairment loss, the loss before tax from its business
would have been £310,925, a reduction of 31% over the prior year.



Sales and Marketing



The priority for Kenetics for 2007 was for sales growth and capturing market
share. Following closely to the long-term strategy of giving equal emphasis to
ODM projects and sales of industrial products, the Company implemented a series
of actions to bring this about.



1)      Developing New Generation ('GEN2') Industrial Products



Some of the products that have been developed in the past, are moving gradually
towards obsolescence as new Global Radio Frequency Identification ('RFID')
standards are introduced. Coupled with new competitors entering into the market,
such products have become more price-sensitive with a gradual erosion of margins
in a wide range of first generation ('GEN1') products. This move is critical as
it allows Kenetics to maintain its competitive advantage and to tap on a growing
early user market where margins are higher. In the longer term, this strategy
allows the Company to offset any potential shortfall in sales from industrial
products or more importantly, a hollowing out of its Industrial Product sales.



2)      Developing New Ultra High Frequency ('UHF') Technology Platform



It was becoming more apparent that while there is some demand for High Frequency
('HF') products in the USA, the market preference is essentially towards the use
of Ultra High Frequency ('UHF') products for logistics and pharmaceutical
industries as examples. Without UHF products in the past, Kenetics was not able
to effectively tap into the substantial US market. Taking full advantage of its
partnership with Intel, the leading international chip manufacturer, Kenetics
embarked on the development of a new UHF GEN2 technology platform from which it
can launch a series of new UHF industrial products. To date, Kenetics had
introduced two of these products and a third will be launched during the first
half of 2008.



3)      Increasing Product Visibility and Branding



In 2007, our partners exhibited Kenetics products in 3 shows in Hanover,
Germany, Birmingham, UK and Dallas, USA. Response to our products was
encouraging but the impact on potential customers was generally small as only a
handful of Kenetics products were displayed along with those of our partners. It
was felt that without its own presence at these shows, Kenetics' branding and
product visibility could not be achieved. Nevertheless, the exposure in these
different geographical exhibitions has provided us with useful feedback on
customers' preferences and requirements. This has led us to develop a marketing
strategy to gain more market exposures through direct participation at selective
exhibitions where connectivity to targeted customers are expected to be high.
Our marketing plans have been finalised and these initiatives will be
implemented in 2008.



Research and Development



In addition to new product development to replace the older products, we
remained focused in investing in R&D to maintain our position as one of the
leading players in the RFID industry. This has enabled Kenetics to put what we
believe to be the most advanced products into the market, targeting specific
niche customers, avoiding price-sensitive and lower margin markets.



To expand our outreach beyond Asia, the Group has placed special emphasis on R&D
for a new UHF Technology platform, which has been predominantly adopted as the
RFID platform of most applications in the USA. On this front, we are proud to be
one of the original group of partners worldwide selected by Intel to develop UHF
readers based on its new integrated GEN2 RFID reader chip. The chip was
officially launched in Dallas in March 2007, together with Kenetics' long range
GEN2 UHF reader. One of the unique product features introduced by Kenetics is a
more compact and smaller footprint coupled with its long reading distance and
competitive pricing. As a result of this product introduction, several potential
customers have requested product prototypes for evaluation before adoption.



Based on this new technology platform, Kenetics will be poised to develop
products that will meet a wider range of applications and functionalities
demanded by the market. With multiple products offered, Kenetics can expect to
gain wider acceptance in the US, an increase of share of the vast UHF market and
cater to the needs of the existing and emerging market needs.



Employees



Despite a very tight labour market in Singapore, higher wages and increasing
competition for highly skilled and capable technical staff, we are pleased to
report that Kenetics have a strong R&D team in place to bring about innovations
and new products into the market. I am grateful for the team's dedication and
hard work during the year. Their intense energy and late nights have enabled
Kenetics to successfully develop an impressive range of technologies and
products that the Group will fully exploit in the years ahead. I am confident
that their commitment and motivation will continue into 2008 as we work towards
maintaining our technological leadership and market expansion.



Outlook for 2008



We are beginning to see a positive upturn in our business that was reflected in
a strong fourth quarter of 2007. We are confident that the progress made will
continue into 2008 as our new GEN2 products enter into the market. For 2008, the
Group will be participating selectively in key RFID shows, notably in USA,
Europe and Japan. Coupled with our efforts to rapidly increase our distribution
channels especially in Europe and the USA, we can expect to grow our industrial
products business rapidly to complement our ODM business.



On the ODM project front, we have been maintaining strong customer support and
service, which has helped us to keep close track on customers needs. A number of
significant projects are in the pipeline for 2008 and Kenetics is ready to seize
these opportunities. These projects are expected to roll out in 2008 and some
will stretch over to 2009 and beyond.



With the building of a strong customer and distribution channel relationship,
greater marketing efforts in Europe and the USA, a new range of GEN2 products,
together with encouraging projects on offer, Kenetics is expected to benefit
significantly in 2008 and the years ahead. We expect further improvements over
2007 and a turnaround for the Group.

Ken Wong
Chairman
Kenetics Group Limited



                             KENETICS GROUP LIMITED
                         CONSOLIDATED INCOME STATEMENT
                      FOR THE YEAR ENDED 31 DECEMBER 2007


                                                                      2007             2006
                                                                       £                £
Continuing operations

Revenue                                                           699,768          316,176
Other operating income                                            49,604           87
Changes in inventories of finished goods
and work-in-progress                                              80,075           29,112
Raw materials and consumables used                                (408,045)        (139,210)
Employee benefits expenses                                        (491,594)        (382,398)
Depreciation of plant and equipment                               (59,578)         (49,605)
Other operating expenses                                          (301,405)        (225,649)
Finance costs                                                     (1,909)          2,453
Loss before tax                                                   (433,084)        (449,034)
Income tax                                                        6,217            -
Loss for the year                                                 (426,867)        (449,034)

Attributable to:
Equity holders of the Company                                     (426,867)        (446,414)
Minority interests                                                -                (2,620)
                                                                  (426,867)        (449,034)

Loss per share (pence)
- Basic and diluted                                                  (1.62)           (1.93)



                            KENETICS GROUP LIMITED
                                 BALANCE SHEET
                             AS AT 31 DECEMBER 2007

                                                    2007            2006
                                                      £               £

Non-Current Assets

Plant and equipments                             143,437         144,950
Investment in subsidiaries                       -               -
Available for sale financial asset               22,332          138,861
Total non-current assets                         165,769         283,811

Current Assets

Contract work-in-progress                        -               5,277
Inventories                                      236,610         155,114
Trade receivables                                139,226         101,159
Other receivables                                31,774          65,644
Cash and cash equivalents                        172,865         375,751

Total current assets                             580,475         702,945

Total assets                                     746,244         986,756

Equity

Share capital                                    263,495         263,495
Share premium                                    280,204         280,204
Share option reserve                             27,411          26,481
Merger reserve                                   369,579         369,579
Foreign currency translation reserve             (26,514)        (17,649)
(Accumulated losses)/

Retained profits                                 (632,423)       (205,556)
Total equity                                     281,752         716,554

Non-Current Liabilities
Amount owing to director                         -               47,977
Obligations under finance leases                 457             5,758
Total non-current liabilities                    457             53,735

Current liabilities
Excess of progress billings over
contract work-in-progress                        -               33,554
Trade payables                                   146,521         31,633
Other payables                                   138,225         136,506
Amount owing to directors                        51,447          9,710
Obligations under finance leases                 5,535           5,064
Bank overdraft - secured                         122,307         -
Total current liabilities                        464,035         216,467

Total liabilities                                464,492         270,202
Total equity and liabilities                     746,244         986,756




                             KENETICS GROUP LIMITED
                              CASH FLOW STATEMENT
                      FOR THE YEAR ENDED 31 DECEMBER 2007

                                                                2007             2006
                                                                 £                £

Cash Flow From Operating Activities

Loss before taxation                                        (433,084)        (449,034)
Adjustments for:
Depreciation                                                59,578           49,605
Impairment loss                                             122,159          -
Plant and equipment written off                             266              -
Provision for inventory obsolescene                         9,654            -
Share option                                                930              -
Interest received                                           (1,579)          (3,123)
Interest paid                                               3,488            670

Operating loss before working capital changes               (238,588)        (401,882)

(Increase)/decrease in contract work-in-progress/
Excess of progress billings over contract
work-in-progress                                            (29,424)         24,738
Decrease in trade and other receivables                     2,632            98,885
Increase in inventories                                     (84,376)         (118,010)
Increase in trade and other payables                        105,937          37,548
Cash used in operations                                     (243,819)        (358,721)

Interest paid                                               (3,488)          (670)

Income tax refunded/(paid)                                  6,378            (52,688)

Net cash flows used in operating activities                 (240,929)        (412,079)

Cash Flows from Investing Activities

Purchase of unquoted shares                                 -                (138,861)
Purchase of plant and equipment                             (56,392)         (64,321)
Capital contribution from minority interests                -                2,620
Interest received                                           1,579            3,123
Net cash flows used in investing activities                 (54,813)         (197,439)

Cash Flows from Financing Activities

Loan to director                                            (8,579)          (26,513)
Proceed from issue of ordinary shares of holding
company                                                     -                827,000
Proceed from issue of ordinary shares of subsidiary         -                449,939
Payment of AIM admission expenses                           -                (492,748)
Payment of dividend                                         -                (1,522)
Difference of fixed deposit balance due to
accumulation of interest                                    (1,603)          (1,426)
Loan from hire purchase creditor                            (5,269)          (4,808)
Net cash flows (used in)/generated from financing
activities                                                  (15,451)         749,922


                             KENETICS GROUP LIMITED
                              CASH FLOW STATEMENT
                      FOR THE YEAR ENDED 31 DECEMBER 2007


                                                                2007              2006
                                                                  £                £

Net (decrease)/increase in cash and cash equivalents        (311,193)         140,404
Effect of exchange rate changes                             (19,062)          (17,359)
Cash and cash equivalents at beginning of year              290,417           167,372

Cash and cash equivalents at end of year                    (39,838)          290,417

                        


Abbreviated notes to the financial statements





1.  Financial information



     The preliminary results were approved by the Board of Directors on 30 April
2008. The financial information set out above does not comprise the Company's
statutory financial statements for the years ended 31 December 2007 and 2006,
but is derived from those financial statements. The auditors have reported on
the statutory financial statements for the years ended 31 December 2007 and
2006; their report was unqualified.



2.  Exchange rates



     The financial statements of the Group are presented in Pound Sterling ('£')
which is the Company's functional currency. The functional currencies of
Kenetics Innovations Pte Ltd and Kenetics Innovations (Beijing) Co Ltd are
Singapore Dollars ('S$') and Renminbi ('RMB') respectively. The following
exchange rates have been used in preparing the financial statements as at 31
December 2007:




                                                    S$1 = £                    RMB1 = £
31 December 2007                                     0.3465                    0.06868
Average rates                                        0.3319                    0.06582





3.  Basis of preparation



     These preliminary results have been prepared in accordance with the
accounting policies adopted by the Company which are consistent with those
adopted in annual report and accounts for the period ended 31 December 2006.
These preliminary results have also been prepared in accordance with
International Financial Reporting Standards.



4. Loss per share



     Basic loss per share has been calculated by dividing the net loss
attributable to equity holders of the Company of £426,867 (2006: £446,414) by
the weighted average number of ordinary shares outstanding during the financial
year of 26,349,466 (2006: 23,125,500).



     The number of ordinary shares used for the calculation of basic loss per
share in 2007 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.



5. Income tax



     The income tax credit attributable to the loss of £6,217 (2006: Nil) is
made up of over-provision of tax provision in prior year.


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