Final Results

RNS Number:9222V
Cartucho Group Ltd
02 May 2007



                             Cartucho Group Limited

                  ("Cartucho" or "the Company" or "the Group")

               Final results for the year ended 31 December 2006


Further to its statement made on 1 March 2007, Cartucho, a developer and
manufacturer of ink refill kiosks, is pleased to announce its final results for
the year ended 31 December 2006 and that the kiosk roll out to its major US
customer has been continuing, the migration to an in-house service and support
function has been completed and its own call centre has begun operations.


HIGHLIGHTS

*         Revenue #1.63 million

*         Loss from operations #4.38 million

*         445 Kiosks deployed and revenue generating

*         610 Kiosks manufactured and shipped

*         Migration in-house of all core support services

*         Flagship customer recommenced installations



Commenting on the results, Roger Pellew, Chief Executive, said: "Despite
numerous operational and commercial challenges during the last eighteen months,
the Group has achieved some significant milestones. The 2006 results reflect
both these challenges and achievements and I am confident that we will see an
improvement in our finances following the improvement in service and support
activities. As previously announced the extension to the US contract will mean
that in accordance with the terms of the supply agreement we will benefit from
shared revenues in all kiosks under that agreement until 2010".


As at 25 April 2007 the Company had 592 kiosks in operation generating revenues
within the US and the directors are pleased to announce continued increases in
revenue derived from cartridge refilling.


The increasing benefits at operational level are notable, as demonstrated by
certain key statistics based on results to the end of last week


  * 99% kiosk up time
  * Service level response times are 100% compliant to contracted service
    levels


A new suite of software has been released for upgrading the existing kiosk
portfolio. Key new functionality covers; online consumables ordering, online
support call logging, field engineering reporting and parts ordering. These are
all integrated into new warehouse management and dispatch systems and our call
centre.

Development has been completed on a new refilling model the "Compact Desktop
Refill Unit". Using the same proven technology but housed in a smaller body, the
compact unit has already garnered industry interest and is part of a package
which has been short listed by a major US retail chain in their process to
procure an in-store ink refill solution.

Commenting on progress, Roger Pellew, said: "We have made significant
operational strides over the last two months and can now offer our US customers
field engineering and support from our own in-house technical support teams. The
latest product development is exciting as it reduces the amount of dedicated
floor space required for operation, which is a key driver in some retail
environments. The addition of increased software functionality both in the kiosk
and operationally will benefit our customers and improve our efficiency".


CHAIRMAN'S STATEMENT

The financial results declared for the year ended 31 December 2006 reflect the
challenges which the Group faced during 2006 and also the solutions implemented
during the year as a response. We are reporting revenues of #1.63 million and a
loss from operations of #4.38 million. As we have previously publicly reported
the Group tackled some major operational and commercial issues during the year
under review. It is worthwhile summarising these and also highlighting some of
the solutions found:

Manufacturing

During 2005 the Group manufactured less than 60 kiosks and the challenge for
2006 was to ramp up supply chain operations and manufacturing capability at our
facility in Mijas, Spain to meet the delivery schedules of our US based
customer. During the early summer of 2006 we reached a maximum production rate
approaching 50 kiosks per week and during the year we manufactured and shipped
over 600 completed kiosks.

Freight and Delivery

In the first half of the year we decided to air freight kiosks to the United
States in order to accelerate the deployment and hence the revenue earning
opportunities. This shipment process involved extra production steps,
disassembly and re-assembly as well as additional costs. During the second half
of the year, all kiosks were shipped, successfully, by land and sea-freight.

Product Development

Through the deployment in larger numbers of our ink refill kiosk and the vital
feedback loop from customers and field engineering staff to our development and
manufacturing functions, we were able to identify and make positive and cost
effective modifications to the kiosk. This included but was not limited to new
synchronized pumps, better electrical grounding, revised kiosk body design,
enhanced printer controller boards and a complete software revision which
included a new suite of inter-active reporting tools adding value to both
Cartucho and its customers.

US Infrastructure

On 1 January 2006 the Group had just short of 50 kiosks in operation in the US
which were supported entirely by our own small team of engineers. By the end of
the year we had an additional 400 kiosks in operation having installed, trained
the operators for and provided maintenance in 16 geographically spread US
states. In order to achieve this breadth and depth of operations the Group's
strategy was a partnership with a US based service and support partner. The
results of this out-sourcing exercise have been publicly reported and well
documented; therefore I will not re-iterate them here. Suffice to say owing to
service and support difficulties the US roll out suffered a temporary suspension
during the third quarter of 2006 and the out-source decision was reversed by the
board. A steady migration to an entirely in-house direct tech-support model
began in late 2006 and was substantially completed by the end of February 2007.

Intellectual Property

In mid-2006 the Group faced a legal challenge over the inks it uses in its
refilling process and some resources were quite rightly diverted into defending
this. I am delighted to report that this wholly un-merited challenge was
successfully defended.

Working Capital Management

The company continues to exercise caution in relation to cash management, and
the year-end net cash position of #127,000 overdrawn reflects this approach.
During the course of the year, #3.6 million of expenditure was incurred on the
manufacture of new ink refilling kiosks.

The value of trade receivables has risen sharply at the year end from #67,000 to
#245,000, an increase that is in direct relation to the increase in revenue.
Payables have fallen from #863,000 at the previous balance sheet date to
#727,000. Whilst these movements are symptoms of wide-scale changes in the Group
during its first full trading period, both payables and receivables are being
carefully managed.

Total equity in the company has fallen by 51% to #4 million and the loss per
share is 4.87 pence.

In order to continue with the revenue share kiosk roll-out the Group has secured
additional debt funding to enable the capital build and provide the working
capital required to deploy and operate a number of kiosks which will give the
Group sufficient momentum to trade profitably. Inherently, there can be no
certainty in relation to additional future funding requirements and I therefore
would like to draw attention to the Group's policy in relation to going concern,
contained in note 2.

Looking ahead your Board remains committed to its objectives and will examine
all opportunities to create shareholder value. Our current trading is improving
with the deployment of additional kiosks and average refill rates being
maintained. This is in part due to new initiatives implemented by the Group
under its CSR program which is achieving good early results.

Furthermore, I am delighted to report that due to the increased overall
performance of the Group covering service, refill rates and the CSR program, the
contract with its major US retailer has been extended for an additional 12
months, this is validation that we have made significant improvements in all
aspects of its operations and will mean income from the revenue share contract
through to 2010.

In continuing to strengthen the board, we have sought to fill management
positions from within the ink and retail industries and I welcome two new
non-executive directors to the board:

Marc Caparrelli

US based, Marc, was Senior VP and co-owner of a leading US ink cartridge
re-manufacturer, recognised as one of the top 100 fastest growing companies by
Entrepreneur Magazine two years running.

Steven Cackett

A UK national, Steve, has significant experience in the ink cartridge refilling
industry and was involved in one of the first ever in store refill programs. He
has worked in a number of sales and operational roles within the retail sector
and has particular expertise in European retailer sales.

As with every new industry there are new and daily challenges. However I am
delighted to report that the extension of the contract with our major US
customer is evidence that the many improvements made by the Cartucho team over
the past few months have been effective. A good customer experience and quality
of service remain the keys to success.

Our employees have worked extremely hard throughout the year, rising to the
challenges and supporting Group endeavours. I continue to be impressed by their
commitment, enthusiasm and professionalism and extend grateful thanks to them
all.





Roger Pellew
Chairman & CEO




CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2006
                                                                    Year ended           Period ended
                                                              31 December 2006       31 December 2005
                                                                         #'000                  #'000

Revenue                                                                  1,627                     86
Cost of sales                                                            (596)                   (40)
Gross profit                                                             1,031                     46
Administrative expenses                                                (5,488)                  (720)
Loss from operations                                                   (4,457)                  (674)
Interest expense                                                          (10)                      -
Interest income                                                             84                      -
Loss before taxation                                                   (4,383)                  (674)
Income tax expense                                                           -                      -
Loss after taxation                                                    (4,383)                  (674)
Basic loss per ordinary share - pence                                     4.87                   0.75
Diluted loss per ordinary share - pence                                   4.87                   0.75





CONSOLIDATED BALANCE SHEET
As at 31 December 2006

                                                                31 December 2006     31 December 2005
                                                                           #'000                #'000
Assets
Non-current assets
Intangible assets                                                            146                  183
Property, plant and equipment                                              2,275                  262
                                                                           2,421                  445

Current assets
Inventories                                                                2,036                  629
Trade and other receivables                                                  712                  403
Cash and cash equivalents                                                    291                7,613
                                                                           3,039                8,645
Total assets                                                               5,460                9,090

Current liabilities
Trade and other payables                                                   1,059                  909
Bank overdrafts                                                              418                    -
Total liabilities                                                          1,477                  909

Equity
Share capital                                                                900                  900
Share premium                                                              7,955                7,955
Retained earnings                                                        (5,057)                (674)
Merger reserve                                                             (365)                (365)
Share based payment reserve                                                  550                  365
Total equity                                                               3,983                8,181
Total equity and liabilities                                               5,460                9,090





CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2006

                                                                      Year ended         Period ended
                                                                31 December 2006     31 December 2005
                                                                           #'000                #'000

Operating activities
Loss for the year                                                        (4,383)                (674)
Depreciation                                                                 540                    9
Amortisation                                                                  37                    -
Share based payment provision                                                185                    -
Interest paid                                                                 10                    -
Interest received                                                           (84)                    -
Increase in inventories                                                  (1,407)                (629)
Increase in receivables                                                    (309)                (403)
Increase in trade payables and other liabilities                             150                  909
Net cash outflow from operating activities                               (5,261)                (788)

Investing activities
Net additions to property, plant and equipment                           (2,553)                (271)
Additions to intangible assets                                                 -                (183)
Interest received                                                             84                    -
Net cash outflow from investing activities                               (2,469)                (454)

Financing activities
Interest paid                                                               (10)                    -
Proceeds from share issue                                                      -                8,855
Net cash inflow from financing activities                                   (10)                8,855

Net (decrease)/increase in cash and cash                                 (7,740)                7,613
equivalents
Net cash and cash equivalents at the beginning of                          7,613                    -
the year
Net cash and cash equivalents at the end of the                            (127)                7,613
year





CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2006


                                 Share capital        Share     Retained         Share       Merger      Total
                                                    premium     earnings         based      reserve     equity 
                                                                               payment
                                                                               reserve        
                                         #'000        #'000        #'000         #'000        #'000      #'000          
             

At 28 January 2005                           -            -            -             -            -          -
Shares issued                              900        9,500            -             -                  10,400
Share issue costs                            -      (1,180)            -             -            -    (1,180)
Share based payment provision                -        (365)                        365            -          -
Loss for the period to 31 Dec                -            -        (674)             -            -      (674)
2005
Group formation                              -            -            -             -        (365)      (365)
Balance at 31 December 2005                900        7,955        (674)           365        (365)      8,181
Loss for the year                            -            -      (4,383)             -            -    (4,383)
Share based payment provision                -            -            -           185            -        185
Balance at 31 December 2006                900        7,955      (5,057)           550        (365)      3,983





Note 1 - Status of financial information

The financial information set out in this preliminary announcement does not
constitute a full set of financial statements.  The financial information has
been extracted from the company's financial statements for the year ended 31
December 2006 on which the auditor has given an unmodified opinion, although
their report includes an emphasis of matter paragraph in respect of the going
concern basis of preparation.

Copies of the financial statements will be sent to shareholders shortly and are
available from the Group's UK offices at 268 Bath Road, Slough, Berkshire SL1
4DX and on the Group's website (www.cartucho.com)

Note 2 - Extracts of principal accounting policies

Basis of preparation

The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU. The financial
statements are presented in sterling as this is the currency in which the main
trading entity, Cartucho Holdings Limited, conducts its business. There is no
requirement for transitional disclosures under IFRS1 as all accounts including
comparatives have been prepared under IFRS.

Basis of consolidation

The Group financial statements consolidate the results of the Company and of its
subsidiary undertakings drawn up to 31 December 2006. On 9 December 2005
Cartucho Group Limited assumed ownership of Cartucho Holdings Limited via a
share for share exchange, there being no change in the ultimate ownership of
that company. This transaction was therefore a group reorganisation and not a
business combination as defined by IFRS3. Accordingly, it has been accounted for
using merger accounting which includes the results, assets and liabilities of
all subsidiaries as if the group had been in existence throughout the period
giving rise to a merger reserve in the consolidated balance sheet. The Company's
other subsidiary undertakings had not traded prior to this reorganization.
Profits or losses on intra-group transactions are eliminated in full.

Unrealised gains on transactions between the group companies are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Amounts reported in the financial
statements of subsidiary entities have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group.

Going concern basis

The Directors have assessed the appropriateness of the going concern basis,
taking into account existing cash and debt resources, the reduced cost base, the
expectation of future revenues from deployed and planned kiosks and from new
sales. The Directors believe that the trading performance in 2007 will benefit
from the investment in the deployment of kiosks during 2006 which take time to
become fully revenue generating and which will benefit from the effect of a full
year of revenue from these assets in 2007.

The Directors believe further that the ink refilling retail market is starting
to grow; are confident that the market will continue to mature and that the
Group will secure a higher share of this growing market and significantly
increased sales in the future. The going concern basis of preparation is
dependent upon the Company securing increased sales and increased market share.

As publicly stated on 1 March 2007, the Group entered into non-binding terms
with a funder to provide a secured revolving credit facility of up to US$4.5
million. A loan agreement for this facility was signed on 1 May 2007. In
addition, the Group has also concluded loan arrangements with three of its
founder shareholders with them providing a further facility to the Group of up
to US$475,000.

The Directors have prepared and approved projected cash flow information for the
period ending 31 December 2007 and having reviewed the Group's financial
facilities, budgets and cash forecasts consider that the Group can continue to
operate under present and expected funding facilities for the foreseeable
future. However the margin of cash availability, before new debt or further
equity funding is required to be put in place, is not large and inherently there
can be no certainty in relation to these matters. Therefore, the Directors
intend, if necessary, to raise additional resources from new debt or further
equity funding during the next year to ensure that the Group will continue to
operate and fund the expected growth.

The Group is well placed to continue the roll-out of the remaining kiosks to its
major US customer into the second half of 2007 but it requires this further
funding to enable such roll-out to be fully implemented. The Group's existing
bank continues to be supportive. Furthermore, due to the increased overall
performance of the Group covering service, refill rates and sales initiatives
the contract with its major US retailer has recently been extended for a further
12 months.

After considering all of the above factors the directors have concluded that the
Company and the Group will have sufficient resources to continue trading for the
foreseeable future. For this reason the directors consider the going concern
basis of preparation to be appropriate.

The financial statements do not include any adjustments that would be required
to the amounts included at 31 December 2006 in the event that financial
facilities were not adequate and that new debt funding facilities were not made
available to the Group or that new equity funding could not be generated.



                                    - Ends -



For further information:

Cartucho Group Limited
Roger Pellew, Chief Executive                              Tel:  [phone]
[e-mail]                                        www.cartucho.com


Collins Stewart Europe Limited
Adrian Hadden                                         Tel:  [phone]
[e-mail]


Media enquiries:

Abchurch
Chris Lane                                             Tel: [phone]
[e-mail]                             www.abchurch-group.com




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