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Kenetics Group Ltd (KEN)

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Tuesday 11 May, 2010

Kenetics Group Ltd

Preliminary Results

RNS Number : 6602L
Kenetics Group Limited
11 May 2010

11 May 2010



Kenetics Group Limited

("Kenetics", the "Group" or the "Company")


Preliminary Unaudited Results for the year ended 31 December 2009


Kenetics Group Limited (AIM:KEN), the Radio Frequency Identification ("RFID") group  focussed on security and RFID systems and products, announces its Preliminary Unaudited Results for the year ended 31 December 2009.




·     Consolidated revenue increased by 156% to £1,42 million (2008: £556,397)


·     Operating expenses increased by 49% to £1.71 million (2008: £1.15 million)


·     Pre-tax loss for the year decreased by 65% to £204,594 (2008: £590,741)


·     The Singapore Land Transport Authority (LTA) Contactless Smart Card Readers ("CSC Readers") have been successfully commissioned in the Mass Rapid Transit subway rail system.


·     The CSC Readers are already in commercial operation across 16 stations with mass roll-out to begin in the second half of 2010.


·     The CSC Readers are certified by FCC and CE bodies for sale in the US and European markets respectively


·     Development of the LTA On board Bus Equipment and wireless local area network has been completed. Trials are on-going and production units are targeted to go on commercial trials from the second half of 2010 and are expected to be completed by the 3rd quarter of 2010.


Commenting on the results, Ken Wong, Chairman of Kenetics said:


"The Singapore LTA contracts have provided Kenetics with the opportunity to enter the Automated Fare Collection Systems market.  Development work for the rail and bus systems has been successfully completed and these systems are undergoing commercial trials. The Contactless Smart Card Readers have been installed in 16 stations of the new Circle Line and are now in commercial operation. We are expecting the mass roll-out of these readers for the whole subway system to begin in the second half of the year. The On Board Bus Equipment (OBE) is now ready for commercial trials, which are expected to begin in the second half of the year. Similarly, upon successful completion of these trials by the 3rd quarter of 2010, commercial roll-out is expected to begin on the rest of the public bus system in Singapore."


Ken added: "The board feels that with the significant development work completed in 2009, we are ready to realise the significant opportunity offered by the roll-out of the LTA contracts. With the expectation that the current global markets will continue to improve, Kenetics is in a good position to leverage upon the momentum and growth built in 2009."


For more information, please contact:



Ken Wong, Chairman and CEO

Kenetics Group Limited


David Galan

ZAI Corporate Finance Ltd

Tel: +65 6749 0083

(Nominated Advisor)


Tel: +44 207 060 1760




Peter Ward / Ian Callaway

SVS Securities (Ltd)

Jeremy Carey

Tavistock Communications Ltd


Tel: +44 207 920 3150

Tel: +44 207 638 5600




Chairman's Statement


Despite the challenging and volatile market in 2009, the Group has seen its sales revenue increase by one and a half fold, putting it in the right path to further exploit and grow its business.


Last year, we secured a significant contract with the Singapore Land Transport Authority ("LTA"), for the development and production of On Board Bus Equipment. The Board believes that this contract will be significant for the growth of the Group.


Coupled with an earlier contract win in 2008 for the supply of Contactless Smart Card Readers for both the public rail and bus systems, we have made good progress and are now poised to take advantage of the opportunities in the Automated Fare Collection Systems market.


The Group has also maintained steady revenue from its industrial RFID product sales despite challenging market conditions. This has contributed a steady source of sales revenue for the Group in 2009.



Financial results


Consolidated revenue for the period increased by 156% to £1,422,156 (2008: £556,397) reflecting the good progress made in the two LTA contracts.


Operating expenses were £1.71 million (2008: £1.15 million), an increase of only 49%, compared to the 156% increase in sales revenue.


The pre tax loss for the year was decreased by 65% to £204,594 (2008: £590,741). In the half-year interim results announced in September 2009, a consolidated pre-tax loss of £202,400 was reported, which indicates that the company was close to break-even for the second half of the year. A foreign exchange loss of £66K (2008: gain of £45K) was incurred due mainly to the weakening of Sterling against the Singapore Dollar. Financing costs rose to £57K (2008: £14K) predominantly due to an increase in bank interest rates and interest rates charged on the convertible loan. The aggregate of the foreign exchange loss and the increase in financing cost accounted for more than half of the pre tax loss for the year.



Working Capital


Owing to the growth in its business activities, the Group needed additional working capital to fund the increase in sales revenue. In November 2009, the Group successfully raised a total of £192,500 before expenses. The money raised was used to fund the development and supply of equipment mainly for the two LTA contracts.


In 2009, the Group secured an extension of the S$1 million (£458,716) convertible loan, which will be due on 30 June 2010.  We are pleased to mention that the lender has further agreed to extend the loan for another twelve months based on the current interest being payable at 6% per annum. 


In March 2009 the Group received a S$500,000 (£223,354) bridging loan from United Overseas Bank to provide additional working capital in respect of our contracts. The loan is repayable over two years and carries a fixed interest rate of 5% per annum.


The Group will be seeking additional funds in the form of equity financing in two phases during 2010. The first phase will take place during the early part of the year to provide continued working capital to fulfil the LTA contracts whereas the latter phase will focus in raising £2.5 million to provide the company with the necessary financial resources for the subsequent commercial roll-out contracts for both the rail and bus systems.



Dividend policy


Because of the Board's continuing commitment to invest in growing the business further and establishing Kenetics at the forefront of RFID technology and services, the Company does not have distributable reserves at this time. Consequently the Board is not recommending a dividend.



Product Development


For 2009, Kenetics focussed mainly in developing the CSC Readers and the On Board Bus Equipment, which will form the backbone of its entry into the Automated Fare Collection
Systems used widely in public transport such as the subway and bus systems.


Improvements were made to its existing industrial product range including the Ultra High Frequency (UHF) USB RFID Reader that are currently being sold in USA, Europe and Japan.



Sales and Marketing


During the year, Kenetics conserved its resources and cut back on its marketing efforts in Europe and the US. For 2009, the RFID market conditions in Europe and US were challenging, resulting in shift in directional focus by the Group to preliminary marketing efforts of the On Board Bus Equipment system mainly in South East Asia.


Despite the reduced marketing efforts, we are happy to note that our distribution partners in Japan, Europe and US continued to service their respective customers with the longer term view of riding the recovery and exploiting market opportunities when the global economy improves.


We are aware that global economic recovery will take time, but with the ongoing efforts of our distribution partners, we are beginning to see more sales enquiries from these partners, in line with our expectations.



Research and Development


Since Kenetics began investing into the development of advanced Automated Fare Collection (AFC) technologies in early 2008, it has made significant progress in its R&D efforts in developing what we believe to be technologically advanced innovations for the rail and bus systems. To cater for global requirements, the short-range reader that is capable of reading most of the world's fare cards including the Oyster card used by London Transport, has been successfully developed and certified by FCC and CE bodies for sale in US and European markets respectively.  



Singapore Land Transport Authority Contracts


In March 2010, Kenetics reported on the progress of the LTA contracts. Under the first contract with the LTA, its Contactless Smart Card Reader, installed in the mass rapid transit ('MRT') stations of the new MRT Circle Line, are now running as part of the operational phase of trials in 16 stations with the opening of a new section of the MRT Circle Line on 17 April 2010. Upon successful completion of these operational trials in the first half of 2010, Kenetics is expecting the commercial roll-out phase to begin which will include not only the remaining MRT Circle line stations but also more significantly, the rest of the subway rail system. Kenetics expects that the roll-out will begin from the 3rd quarter of 2010 and will extend to 2011. We are expecting the total requirement to exceed 20,000 readers for both the rail and bus systems.


Under its second LTA contract, Kenetics reported that it has built the prototypes of its On-board Bus Equipment and initial testing and trials of these prototypes has commenced. Pre-production units are currently being built and installed progressively on more than 150 buses for field trials on various bus routes.Commercial trials on these buses will be conducted beginning July 2010 and are expected to complete by September this year. The current contract allows the LTA to exercise an option to purchase additional sets of OBE for commercial roll-out on the 4,000-bus fleet. Kenetics expect the roll-out phase to begin in the 3rd quarter of 2010 with about 500 buses and full rollout of 3,500 buses in 2011. To finance the rollout, the Company will require additional capital, which the Board believes will be approximately £2.5million. The Company plans to raise this working capital from investors before the roll out phase begins.


In November 2009, the Group projected that the revenues from the smart card readers and the OBE were expected to be £4.0 million and £5.36 million for 2010 and 2011 respectively. Owing to the testing and trials being extended from the 4th quarter of 2009 to the 2nd and 3rd quarters of 2010 for both the readers and the OBE, the projected revenue for 2010 is expected to be lower at £3.0 million. With the completion of trials in 2010, installations of the readers and OBE are expected to speed up with the Group projecting revenue of £8.96 million for 2011.



Directors and Employees


The developmental work for the two contracts discussed above, which required substantial technical manpower resources, has been completed. Technical specialists, including network engineers and RF hardware engineers were recruited to complement the Kenetics R&D team. Kenetics are currently in the production phase as we commence the trials for the two contracts in 2010. During the commercial roll-out stages in the second half of 2010, manufacturing of the products will be contracted out, as Kenetics does not have mass production facilities and equipment. As such, we are expecting to see a reduction in manpower costs.


We thank our dedicated staff across the Group, whose hard work and enthusiasm has helped us progress this year and express our appreciation to our Non-Executive Directors, Mr Lynton Jones and Mr Terry Fuller for their invaluable guidance.





The Board feels that significant progress has been achieved and the Group is moving ahead in accordance with its strategic plans put in place during 2009.  We believe that the progress made will stand us in good stead to follow through and develop the significant opportunities in the Automated Fare Collection System business during the coming year.




Ken Wong


Kenetics Group Limited

11 May 2010







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1.  Financial information


The financial information set out in this preliminary results announcement does not constitute the Group's financial statements for the year ended 31 December 2009.


The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC preparations) ("IFRS") which are effective, or issued and early adopted as at the date of the statement.


Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, it does not include sufficient information to comply with IFRS.


The auditors have yet to sign their report on the 2009 financial statements. The financial statements for the year ended 31 December 2009 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement, and will be delivered to the Companies Registry following the Company's Annual General Meeting. Whilst the auditors have not yet reported on the financial statements for the year ended 2009, they anticipate issuing an unqualified report.


The financial information for the year ended 31 December 2008 is derived from the financial statements for that year. The auditors have reported on the 2008 financial statements; their report was unqualified.


The financial information set out in this announcement was approved by the board on 7 May 2010.


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 2009:



S$1 = £

RMB1 = £

31 December 2009                      



Average rates                              





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 the annual report and accounts for the year ended 31 December 2008.



4. Loss per share


Basic loss per share has been calculated by dividing the net loss attributable to equity holders of the Company of £187,581 (2008: £591,056) by the weighted average number of ordinary shares outstanding during the financial year of 27,480,973 (2008: 26,349,466).


The number of ordinary shares used for the calculation of basic loss per share in 2009 and 2008 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 £17,013 (2008: Charge of £315) is made up of over-provision of income tax expense in the prior year.


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

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