2 December 2008

Sarantel Group PLC

Preliminary Results  

Sarantel (AIM: SLG), the leading manufacturer of revolutionary filtering antennas for mobile and wireless devises, announces its preliminary results for the year ended 30 September 2008. 

Highlights: 

• Successful diversification into high-value markets

• Iridium design win converts into volume monthly shipments

• First military contract, for US forces

• Third-generation GPS antenna launched for consumer applications

• Low-cost assembly process implemented as part of focus on cost controls

• £3.4 million fund raising provides sufficient capital for the foreseeable future

• Revenues of £1.9 million, cash balance £3.0 million at year end  

Geoff Shingles, chairman, said:

"The diversification strategy adopted by the Board in 2007 is producing encouraging results that are translating into increased sales and reduced cash burn. As our antenna technology continues to gain more widespread acceptance across a number of customers and markets, we are increasingly confident that the Group has a valuable asset with substantial potential for application in specialist military, satellite communications and retail GPS markets."

Enquiries:

Notes to Editors:

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, WiMax, Satellite Radio and Mobile Satellite Services (MSS).  www.sarantel.com

Chairman's Statement

I am pleased to report encouraging progress for Sarantel despite challenging conditions in the whole economy.

Financials

Although our revenue in the year ended 30 September 2008 declined to £1.86 million (2007: £2.02 million), we finished the year with an order book that provides good visibility for the first half of the new financial year. We reduced our loss before tax by 20 per cent. to £4.67 million (2007: £5.82 million) as we benefit from a lower cost base following the restructuring of the business undertaken in 2006 and 2007. We have reduced our net cash outflow in the year before financing, by 43 per cent. to £2.34 million (2007: £4.10 million). 

In March and April this year, we announced the successful completion of two placings to raise approximately £3.4 million (before expenses) to provide additional working capital which is enabling the Group to exploit the opportunities we continue to see in our markets. In July this year, we announced the completion of a sale and leaseback agreement with Close Leasing, for £0.5 million. At the end of the year, our cash balances stood at £2.96 million (2007: £2.38 million), which the Board believes provides sufficient cash resources to support the business for the foreseeable future. 

Current trading

The diversification strategy adopted by the Board in 2007 is producing encouraging results that are translating into increased sales and reduced cash burn. During September, we delivered the first production shipments of satellite telephone antennas to Iridium. In the Global Positioning System ("GPS") business, we won new designs amongst niche customers and are seeing an escalating level of activity in high-value markets, which include satellite phones and the military. 

The adoption of our antenna technology by customers in these demanding markets provides evidence of its value and we believe this will have a positive impact on its wider adoption in commercial and retail markets.

During the year, we launched our third generation GPS antenna, the LBS Pro, which has started to gain traction in this market. 

Staff

I would like to thank the directors and staff for all their efforts, hard work and dedication during 2008. The Group is well positioned from a technology perspective, with some exciting opportunities mainly in the satellite phone and military markets and I am confident that we have the team to capitalise on them.

As our antenna technology continues to gain more widespread application across a number of customers and markets, we are increasingly confident that the Group has a valuable asset with substantial potential for acceptance in specialist and retail markets. We are determined to maximise its value for the benefit of all our shareholders.  

Geoff Shingles

Chairman

2 December 2008

Chief Executive's Statement

About Sarantel

Sarantel owns a patented antenna technology which has been developed to take advantage of continuing miniaturisation of electronics and the growth of the GPS and mobile markets.  

We design and manufacture our PowerHelix™ antennas at our factory in Wellingborough, England. Our customers, who design wireless devices, are located primarily in the United States and we ship the majority of our antennas to their manufacturing sub-contractors in Asia.

Sarantel's technology and selling points

Personal electronic devices are increasingly featuring GPS navigation as standard. For example, there are multiple high-end mobile phones that feature GPS navigation while several digital cameras, including the Ricoh 500SE, which uses Sarantel's antenna, use GPS for "geotagging" photos. In time, we believe GPS functionality will be commonplace in consumer electronics.  

As these devices become smaller and more integrated, the performance of the antenna can suffer though wireless interference and the device's close proximity to the body. Under these circumstances, we believe Sarantel's antenna technology provides superior performance than conventional designs and offers the potential for lower cost in a number of applications.

Sarantel competes with a broad range of incumbent antenna designs: Patch, Chip and PIFA antennas. Compared with these conventional designs, Sarantel's GeoHelix antennas have the following advantages:

• They lose less energy when used close to the body, therefore maintaining good performance while in use.

• They do not require customisation for each device, which offers the possibility for customers to reduce their development cost and improve time to market.

• They do not require a ground plane for good performance, enabling smaller, thinner, portable devices such as SiriusXM's new XMp3 satellite radio.

The choice of antenna in today's mass-market consumer GPS devices (mobile phones, PNDs) is driven primarily by BOM (bill of material) costs and therefore low cost, conventional antennas are typically preferred at the expense of functionality. Device manufacturers then employ a number of strategies to overcome the poor performance of these devices. 

However, we believe that as new location-based services are rolled out, consumers will demand more reliable performance in increasingly smaller wireless devices and as a consequence the need for superior antenna performance will increase. 

In demanding applications beyond the mass consumer market, such as satellite phones or military GPS, superior antenna performance is essential and low cost is a secondary factor. Conventional antenna technologies sold into these markets are bespoke designs produced in low volumes, so they tend to be more expensive. Since entering these markets in 2007, we have found that we are able to leverage our automated production process to produce antennas which offer superior performance at a significantly lower cost and smaller size. Therefore, in these markets, our value proposition is clear.

Financial review

These financial statements are for the first period that the Group has applied International Financial Reporting Standards (IFRS).  

Revenues for the year ended 30 September 2008 were £1.86 million (2007: £2.02 million) with the decline principally due to the cancellation of a number of GPS projects with certain of our GPS customers in the second half, partly offset by increased demand from smaller niche customers. Shipments of the Iridium antenna began in September 2008, consequently there was no material impact of Iridium shipments in the year under review. Our revenues include £0.2 million of sales of non-recurring engineering services ("NRE"), which we believe provides an indication of the interest in our antenna technology that we hope to turn into orders in the future.

Gross margins were positive but were impacted by the write off of £0.26 million of overhead costs previously included in inventory and the under-recovery of direct labour costs in the second half of the year, when some GPS projects were cancelled.  

Operating costs before depreciation reduced by 18 per cent. to £2.85 million (2007: £3.47 million) as the full-year effect of the restructuring changes made in 2007 were realised. Depreciation includes a charge of £0.5 million following an impairment review of certain production equipment. 

Losses before tax were £4.7 million, a reduction of 20 per cent. compared to the previous year. The Group estimates that it is entitled to a refund for research and development tax credit amounting to approximately £0.2 million for 2008. 

The loss per share in the year reduced to 3.5p compared to 9.6p for 2007. 

Cash outflow

Net cash outflow from operating activities in the year reduced by 47 per cent. to £1.9 million (2007: £3.6 million). 

For the financial year, the net cash used before financing activities reduced to £2.3 million (2007: £4.1 million) and with cash balances of £3 million at the year-end, we have sufficient cash resources to support the business for the foreseeable future.

Non-financial Key Performance Indicators

During 2008, delivery precision (a measure of our delivery performance compared to customer requests) was maintained at 100 per cent. (2007: 100 per cent.)

Sarantel's markets

Sarantel's technology can be adapted to design antennas for a number of different applications, but using the same production process for each, which reduces costs. We have also developed a rapid development process which enables the company to deliver prototype antennas within a very short time-scale. With Iridium, for example, Sarantel made its first production shipments of satellite phone antennas, less than 12 months after sampling the first prototype design. 

Today, Sarantel addresses the consumer GPS, military GPS, satellite radio and satellite phone markets.

Consumer GPS (Global Positioning System)

The current economic downturn has had a major effect on the consumer electronics markets and this has affected our GPS sales. However, the GPS market continues to develop and the trend in consumer GPS applications is towards smaller handheld and multifunctional devices that are especially suited to the benefits our technology can bring.  We continue to win designs for our antenna in niche GPS applications and during the year, we announced the following key wins:

• Garmin: The world's largest satellite navigation device supplier selected Sarantel's GeoHelix antenna for its Colorado series of hand portable outdoor GPS navigation devices, which launched in early 2008.  

• SkyGolf:  Following the first design win last year for the SkyCaddie SG5, one of SkyGolf's series of golfing rangefinders, our antenna has since been selected for a further two designs. SkyGolf chose our antenna because it was the only antenna that was able to attain the level of accuracy demanded by users of their devices.  

• Sonim: On 19 February 2008, we announced a design-win with Sonim Technologies for a rugged mobile phone, which has integrated Assisted-GPS functionality. Sonim selected our antenna because it needed superior antenna performance to ensure its handset continued to operate properly in harsh environments. 

High-value markets

The high value markets cover a wide range of discrete markets including the military, marine and the mobile satellite service sector (MSS). These markets require higher antenna performance but are generally lower volume. In these markets, the benefits of using Sarantel's technology are very compelling, not only in terms of performance and size but also cost.  

Sarantel is currently involved in the following markets:

• Satellite phones: During the year, we announced that we had begun shipments of satellite phone antennas to Iridium for their newly launched 9555 satellite phone. Initial shipments began in September 2008, but we expect the main impact of deliveries to Iridium to be felt in the coming financial year. We are also in discussions with a number of other satellite phone operators to develop antennas for their phones.

• Military applications: On 19 February 2008, we announced our first military contract, to develop a rugged version of our second generation GPS antenna for a major supplier of tactical radios to the US military. We are currently in discussions with other potential customers in this market to develop military GPS antennas and are pleased that the benefits of our antenna technology are being recognised for such demanding applications.

Research and development

The design cycle varies from customer to customer and depends on a number of factors. Consumer products generally have a shorter design-cycle which take around 9-15 months from the date of a confirmed design-win until volume production begins. In the high-value markets, the design cycle is typically longer, but in the case of Iridium, we made the first shipments less than 12 months after the confirmed design win. 

In order to respond quickly to our customers, our engineering and development teams have developed a number of proprietary tools that allow rapid simulation of antenna designs and a rapid prototype production. In general, our cycle time to deliver first prototypes to customers is around 2-3 months from the start of a new project. 

During the year we continued to enhance our antenna technology and currently have over 300 patent filings internationally, of which approximately 30 per cent. have been granted. As the demand for new and more complex antenna designs grows, we are finding the value of our patent portfolio is becoming more evident.  

Manufacturing

Our manufacturing operation successfully brought two new products into production during the year - the Iridium antenna and our third generation GPS antenna. We were able to accomplish this by using existing production equipment and modifying it to accommodate the physical size differences from existing antennas. Additionally, Sarantel successfully implemented a new lower-cost assembly process which will enable the production process to scale up to very high volume with minimal additional investment.

Pipeline and order book

At the end of September 2008 our order book was at record levels, despite a downturn in the number of GPS designs from certain of our customers in the second half of the year. Demand in the satellite phone and military markets remains robust.  

Summary and outlook

We are seeing a lot of activity in the high-value markets, where the superior performance and cost advantage that our antenna technology offers are becoming recognised. We made the first deliveries of the satellite phone antenna in September and are in discussions to develop multiple antennas for a number of customers in the high-value market. 

Our order book continues to hold up and although we remain cautious in the face of the current market conditions, we are encouraged by the level of design activity for our antenna technology, particularly for the high-value market. 

David Wither

Chief Executive Officer

2 December 2008

Consolidated Income Statement 
for the year ended 30 September 2008

All the activities of the Group are classed as continuing.

Consolidated Balance Sheet

as at 30 September 2008

Consolidated Statement of Changes in Equity

for the year ended 30 September 2008

Consolidated Cash Flow Statement

for the year ended 30 September 2008

Notes to the Company Financial Statements

1.  General information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2008 or 2007. The information provided in these preliminary financial statements is extracted from the audited accounts for the year ended 30 September 2008. The auditor's report was unqualified.

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

The Group expects to publish full financial statements that comply with IFRS on 15 December 2008.

2.  Transition to International Financial Reporting Standards

These consolidated preliminary financial statements are for the first period that the Group is required to and has applied International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

The transition from UK GAAP to IFRS has been made in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards. Consistent accounting standards under IFRS have been applied from 1 October 2006.

3.  Adoption of new and revised international financial reporting standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning 1 October 2007.

4.  Dividend

The directors do not propose the payment of a dividend.

5.  Operating loss

Operating loss is stated after charging:

6.  Revenue

7.  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.

* The effect of options and warrants are anti-dilutive.

8.  Property, plant and equipment

The Group carried out an impairment review of property, plant and equipment as at the end of the year, as part of the annual review cycle and in view of the deteriorating economic conditions. As a result, the Group has identified items of production equipment which are not required due to improvements in production methods and changes in product mix. Consequently, the carrying value of this plant of £512,819 has been treated as impaired and written down to zero.  

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.

During the year, the Group settled all the finance leases and hire purchase agreements relating to certain plant and equipment it held. Subsequently, the Group completed a sale and leaseback comprising all plant and machinery, test and computer equipment for £500,000.

The principal terms of the sale and leaseback agreement are a 24 months term at a monthly rent of approximately £24,000. In common with similar agreements, the lessor may adjust the amounts payable by the Group if assumptions (principally UK taxation laws) underpinning their eventual net return, as calculated at inception, are materially incorrect. At the end of the term and subject to meeting certain conditions, the Group is appointed as the agent of the lessor, to sell the goods to a third party for a minimal nominal sum. The sale and leaseback agreement requires the Group to maintain a cash balance of at least three times the capital outstanding at any time.  

In accordance with IAS17 - Leases, the sale and leaseback transaction has been classified as a finance lease. No adjustment has been made for the difference between the carrying value of the assets and the sale proceeds under the sale and leaseback agreement. Further disclosures are set out in Note 23 of the Report and Accounts.

 Capital Commitments

9.  Inventories

The cost of inventories recognised as an expense and included in 'cost of sales' amounted to £998,180 (2007: £1,688,428)

10.  Copies of the Report and Accounts

Copies of the Report and Accounts are expected to be posted to Shareholders on 15 December 2008. It is anticipated that on the same date they will be available from the Company's registered office, Unit 2 Wendel Point, Ryle Drive, Park Farm South, Wellingborough NN8 6BA and will be available from the Company's website www.sarantel.com.