Final Results

RNS Number:1641D
AeroBox plc
18 May 2006


18 May 2006

                                  AEROBOX PLC

                Audited results for year ended 31 December 2005

Highlights
     
*    Equity placing of #2m coupled with key strategic acquisition of 
     UniversalCore and OvoCorp

*    $3m working capital debt funding secured for US subsidiaries

*    $4.5m order book for delivery in 2006

*    Currently $4.8m order book for 2007 and beyond

*    #500,000 of sales in second half of 2005

Commenting on prospects, David Sebire, Chairman, said:

"Your Company has reached a number of key milestones this year. The AeroBox ULD
concept is proven and has been adopted by a number of the world's major users.
We have also acquired two key strategic partners as a means of broadening our
technology base to open new markets, and as a result two major automotive
component suppliers are currently evaluating our thermoplastic honeycomb Core.
In addition we have secured working capital funding to finance the growth in our
US businesses and made appropriate management changes to achieve sustainable
profitable growth."
     

Enquiries:
Ray Gibbs Managing Director          Aerobox plc             [phone]
Jeremy Porter                        Seymour Pierce          [phone]
Trevor Phillips                      Holborn                 [phone]



                              Chairman's Statement

Results

The financial statements cover the year ending 31 December 2005. Sales in the
year were #524,000 (2004: #172,000) of which #467,000 was in the second half of
the year. An operating loss excluding goodwill amortisation amounted to
#4,046,000 (2004: #3,094,000). Goodwill amortisation of #882,000 has been
charged in the year (2004: #882,000). Net interest receivable of #27,000
compares to a net nil sum in 2004. Loss on ordinary activities before taxation
for the year was #4,901,000 (2004: #3,976,000), representing a loss per share of
3.63p (2004: 4.0p).


Finance

During the period under review the Company announced an equity fund raise of
#2,000,000 before costs through the issue of a total of 33,333,334 shares
details of which were set out in the circular dated 14 December 2005. This was
in the form of a placing of 16,699,999 new ordinary shares and a second fund
raising of 16,633,335 which was approved at an EGM held on 6 January 2006. Of
the net funds raised, #650,000 was received in December 2005 and #1.6m in
January 2006.

In addition, the Company announced the acquisition of UniversalCore LLC ("
UniversalCore") and OvoCorp LLC ("OvoCorp") for a consideration of #4,295,431,
to be satisfied by the issue of shares in the Company. Of this sum, 60% is
contingent upon the acquired businesses achieving sales of $17.5m over the
period to 30 June 2009.

The EGM approval of the second equity placing and acquisition means that
additional shares were issued of 45,269,541, which together with the first
placing increased the current shares in issue to 196,478,849.

I am pleased that we have been able to secure a three year secured revolving
debt facility with Laurus Master Fund Limited ("Laurus") which provides the US
operations with up to $3m of working capital. The debt is based on levels of the
AeroBox Composite Structures LLC ("ACS") debtors and inventory, together with an
advance of $500,000 to fund specific capital expenditure in the year.

As part of the transaction, options of up to 26,143,791 for the issue of new
ordinary shares have been granted at an exercise price of 6.375p. Part of this
option is subject to passing of appropriate resolutions at the forthcoming AGM
to be held on 20 June. Under the terms of the funding, Laurus can exercise the
options up to the amount of debt outstanding under the facility and then seek
repayment of the debt to fund payment of the exercise under the option. The cash
effect on the Group is therefore neutral. Laurus have taken a first lien over
the assets of ACS and the accounts receivable of UniversalCore and OvoCorp.
Under the agreement Laurus are entitled to subscribe for 8,510,638 new ordinary
shares through an option at an exercise price of 6.75p per share. The options
are exercisable at any time until 28 April 2013.

A further option, subject to shareholder approval was granted as part of the
facility to Able Global Partners for 522,876 new ordinary shares at an exercise
price of 6.75p. These options can be exercised at any time until 28 April 2011.


Review of operations

In the interim statement I reported that the three base Unit Load Device ("ULD")
models had been finalised to an initial design specification. We subsequently
experienced additional design changes specified by existing customers that have
added to costs and delays in delivery. The second half of the year has been
dominated by developing our production methods and techniques to cope with the
large scale manufacture anticipated in 2006. In that process the three ULD
variants were built and shipped on a piece meal basis and our direct costs in
this pre-production phase have exceeded the sales value. Prudently, we have not
sought to capitalise these costs and amortise them over subsequent periods.


ULD sales and orders

The aim at the half year was to ship the order book of $1.5m. We successfully
completed the American Airlines order for 500 units within their accepted
timeframe. In addition we manufactured 115 standard units for Virgin, while the
remaining 135 have now been made awaiting despatch. These ULDs were a lighter
weight box that required sourcing, testing and regulatory approval of new skin
material. In respect of the Saudi Arabian Airlines order, production commenced
in December 2005 and 60 boxes were dispatched in that month. The remaining 440
were delivered in the first quarter of 2006. The delay in completing this
delivery was due to attempts to gain regulatory approval for the boxes to be
shipped flat and assembled in country.  To meet the immediate needs of this key
customer a decision was taken to fully assemble the ULDs at the ACS plant and
then ship to specific US airports for integration in the Saudi fleet.

ACS also suffered delays in production as a result of hurricane Katrina which
impacted on a key supplier of the thermoplastic skin used in the panel
production when product supply was badly interrupted in December and January.
The quality of the delivered components did not meet our stringent technical
specifications which significantly affected production and impacted on sales.
The team at ACS has sourced and agreed terms with an alternative supplier whilst
retaining the previous vendor as back up.

We currently have orders worth over $4.5m for delivery in 2006 and an unexecuted
order book of $4.8m for delivery in subsequent years. The agency agreement
concluded in October 2005 with Watermark Limited has produced $8.8m of orders to
date. Watermark is focusing on customers in the Middle, Far East and Indian sub
continent where the solid door variant is especially suited and is the lightest
ULD on the market. This focus is producing new sales leads with expected orders
for delivery in this year and beyond. The second Unitpool order announced on 6
April has been particularly important. Their first order represented a
significant trial of the AeroBox and at the time Unitpool indicated that
satisfactory results would lead to further requirements. The subsequent contract
was placed before delivery and operational use of their primary order and as
such represented a display of significant confidence in our ULD product. The
lower repair rate and health and safety aspects are key unique selling points
for this new customer and we anticipate more orders from them in future.

In late 2005 we experienced a small number of reported damages to our product,
which on closer inspection were all minor in nature or related to damage on the
aluminium extrusions used in the box construction. Our thermoplastic composite
panels have remained virtually intact and the rate of repair is still less than
half that of our competition. Currently there are over 1,600 AeroBox ULDs in use
and they have now flown in excess of 125,000 flights with reported damage
running at an average of under 1.2 damage events per annum.

We initially chose to support our trial and pre production prototype ULDs
through Airbase Services in Heathrow and Dallas. Airbase Systems in the UK was
placed into administration in May 2006, which has caused us and our customers
some disruption. We are currently setting up a full service and maintenance
network for the AeroBox product to meet the needs of our customers both now and
in the future. This will ensure minimum disruption to their operations. We are
working with our customers to appoint and train regulatory approved maintenance
and assembly centres in the USA, Europe and the Middle East.


Core and Panel

Our sales of thermoplastic honeycomb Core to UniversalCore amounted to $190,000
in 2005. Ongoing deliveries with these existing customers have continued at 2005
levels and are expected to amount to approximately $300,000 in 2006. A
comprehensive product evaluation and testing programme was initiated by three
potential customers introduced by UniversalCore and the preliminary results look
very encouraging. If successful these opportunities are expected to form the
basis of the sales target for 2006 as set out in the purchase agreement of
$2.5m. The expectation is for the UniversalCore and OvoCorp operations, to cover
their overheads in the second half of 2006.


Production

We have previously indicated that capacity to produce the thermoplastic Core
could be exceeded with anticipated sales demand. Currently this expectation is
likely to happen in the second half of the year, although it is dependent upon
the speed of orders for "Core" from UniversalCore. To address this, low cost
production facilities are under further evaluation in the Far East and we expect
to agree terms for further production capacity within the current financial
period.  As we announced on 6 April 2006 in response to demand for the ULD
products the US facility in New Mexico has moved to a two shift system which
will double capacity to approximately 800 units per month commencing in May.
Operational efficiency and appropriate margins are anticipated as a consequence
of order visibility and long run production planning now being implemented.

In the shareholder circular issued on 15 December 2005 reference was made to
upgrading our laminator machine at ACS in preparation for anticipated future
panel sales from OvoCorp to improve the yield and throughput on the current ULD
panels. We have been working with a specialist engineering firm in
Leicestershire, Euro-Projects (LTTC) Limited ("EPL") to accomplish this in the
first half of 2006. Initial trials are very encouraging from the test rig being
used by EPL. This work has identified the critical process parameters which
enable us to more accurately control our thermofusing technology, thereby
producing consistent quality panels which will greatly reduce scrap rates on the
ULD production line.


Overheads

A reduction in overheads in the second half of 2005 of #83,000 was achieved
although the expectation is, on a like for like basis, for this to be
significantly lower in the following year when the benefits of indirect and
sales staff changes flow through.

In February 2006 agreement was reached with HM Revenue & Customs to recognise
the parent company as registerable for VAT and a subsequent refund was received
in March. This will also reduce the annual head office costs by #30,000.


Management and Business Reorganisation

There has been significant change in personnel in 2005 with further
reorganisations in the current period. To create focus on our business sectors
we have now created three dedicated lines of business in Core, Panel and ULD. In
that respect Charles Edwards has agreed to relinquish operational responsibility
for the Rio Rancho site and head up a newly formed ULD division with immediate
effect. Charles has agreed to step down as a main board director to concentrate
on the ULD development while UniversalCore and OvoCorp will remain focussed on
Core and Panel respectively. The current facility in Rio Rancho, New Mexico will
now be focussed solely on production, aimed at fulfilling the sales demands of
our three business units. This critical role is now filled by the recruitment of
an experienced interim operations manager Rob Collins to run the New Mexico
operations. Rob brings a wealth of operational and change management experience
gained in both the oil and gas industry, as well as with BAe in the Middle East.
His impact has been immediate and very beneficial.

I previously reported that we would look for a Group Finance Director when the
business demands on Ray Gibbs meant that this was necessary. The Board has
agreed that now is the right time to do so and we are actively looking to
recruit for that role. It is with regret that I have to announce the death of
Dan Goodwin, the much respected Vice President of production engineering at ACS.
Dan's responsibilities have been redistributed internally. The Board is grateful
to all management and staff for their hard work and contribution in a difficult
year.


Cost and Risk Management

As ACS moves from development of the ULD product line to full-scale production
of ULDs, Core and Panel, the management is undertaking a number of focussed
initiatives to reduce costs and manage the risks across all lines of business.
These initiatives include strategic sourcing of key materials (aluminium,
polypropylene and composite skins), greater production efficiencies and
near-term capacity planning. These initiatives have started to deliver benefits
in this current financial period principally in the form of lower materials
costs, diversified supply for lower operating risks and greater productivity of
resources employed. UniversalCore and OvoCorp are assisting in this effort
through their extensive supply chain management and thermoplastic industry
capabilities and relationships.


Prospects

In the 2004 financial statements I set out 4 objectives for the year. We have
successfully completed three of these. A decision was made in July 2005 to
terminate the temperature sensitive ULD project. The cost incurred in 2005 was
$162,000.

2005 has been a transitional year in moving the ULD concept from small, short
run volumes to a major manufacturing process requiring a number of management
changes. The highly regulated ULD industry has created challenges for us,
particularly in managing the requirements of our regulators, finalising our
designs and getting our Rio Rancho site ready for significant production.
Preparing the business for the supply and ongoing support of ULD "systems" has
taken considerable time and effort which has impacted on our profitability and
cash position. Our priority remains to find a lower cost ULD manufacturing
facility to augment the supply from Rio Rancho.

The acquisition of UniversalCore and OvoCorp was a key strategic move as it has
enabled us to better utilise our thermoplastic composite technology. We believe
that these key acquisitions will play a fundamental role in driving the growth
of the business. I am pleased with the new opportunities the UniversalCore and
OvoCorp team are bringing to the Group. The focus on thermoplastic composite
technology as a platform, and of which the ULD is one "system", introduces
significant sales avenues for development offering good profit potential. We
have received substantial interest from a number of target customers where our
thermoplastic platform technology will create substantial benefits for them.
For example, two major US automotive component suppliers are currently
evaluating our thermoplastic honeycomb core technology and if adopted could lead
to significant repeat sales.

For the first time we started a new fiscal year with a significant order book.
The ULD product is established and accepted in the air cargo container market.
Sales are encouraging and prospects are good. We believe that Core and Panel
sales will grow substantially through 2006 and 2007.

Your company has a clear strategy to utilise the enhanced thermoplastic
technology to deliver cost effective solutions for customers needs. The Laurus
funding has secured the working capital requirements of the Company. I look
forward to reporting continued progress in this year as the executive team now
in place delivers on the strategy.


D J Sebire
Chairman


                      CONSOLIDATED PROFIT AND LOSS ACCOUNT
                         For the year ended 31 December
                                                                           2005                  2004
                                                               #'000      #'000      #'000      #'000

TURNOVER                                                                    524                   172
Cost of sales                                                             1,297                   320
GROSS LOSS                                                                (773)                 (148)
Administrative expenses - goodwill amortisation                (882)                 (882)
                                        - other              (3,273)               (2,946)
                                                                        (4,155)               (3,828)

OPERATING LOSS                                                          (4,928)               (3,976)

Net interest receivable and similar charges                              27                         -

LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION                             (4,901)               (3,976)
TAX ON LOSS ON ORDINARY ACTIVITIES                                            -                     -

LOSS ON ORDINARY ACTIVITIES AFTER TAXATION                              (4,901)               (3,976)

Loss per share - basic and diluted                                      (3.63)p                (4.0)p


All results relate to continuing activities.



CONSOLIDATED BALANCE SHEET

As at 31 December
                                                                      2005                 2004

                                                                   #'000      #'000     #'000     #'000
FIXED ASSETS

Intangible fixed assets                                                       6,373               7,255

Tangible fixed assets                                                         1,481               1,606

                                                                              7,854               8,861
CURRENT ASSETS
Stock and work in progress                                           624                    -
Debtors                                                              522                  141
Cash at bank and in hand                                             417                3,886

                                                                   1,563                4,027

CREDITORS: amounts falling due within one year                   (1,226)                (694)

NET CURRENT ASSETS                                                              337               3,333

TOTAL ASSETS LESS CURRENT LIABILITIES                                         8,191              12,194

CREDITORS: amounts falling due after more than one year                  (217)                    (172)

NET ASSETS                                                                    7,974              12,022

CAPITAL AND RESERVES

Called up share capital                                                       1,512               1,345
Share premium account                                                        10,097               9,319
Other reserve                                                                 5,526               6,408
Profit and loss account                                                     (9,161)             (5,050)

SHAREHOLDERS' FUNDS - All Equity                                              7,974              12,022




                        CONSOLIDATED CASH FLOW STATEMENT

                                                                              2005                 2004
                                                                             #'000                #'000

Net cash flow from operating activities                                    (3,980)              (2,462)
Returns on investments and servicing of finance                                 27                    -
Capital expenditure and financial investment                                   (8)              (1,381)

CASH OUTFLOW BEFORE FINANCING                                              (3,961)              (3,843)
Financing                                                                      492                7,213

DECREASE/(INCREASE) IN CASH IN THE PERIOD                                  (3,469)                3,370


RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS

                                                                              2005                 2004
                                                                             #'000                #'000

(Decrease)/Increase in cash in the period                                  (3,469)                3,370
Cash decrease from decrease in debt and lease financing                      (127)                 (78)

MOVEMENT IN NET FUNDS IN THE PERIOD                                        (3,596)                3,292
Net funds at 31 December 2004                                                3,654                  362

NET FUNDS AT 31 DECEMBER 2005                                                   58                3,654




NOTES

1. LOSS PER SHARE

The calculation of loss per share is based on the loss for the financial year of
#4,901,000 (2004: #3,976,000) and a weighted average number of ordinary shares
in issue during the year of 135,151,617 (2004: 98,719,000). There are 3,266,667
share options in issue at the period end. Separate diluted loss per share
figures are not disclosed due to the group's loss making position.


2. STATUS OF FINANCIAL INFORMATION

The financial information set out in this report does not constitute the
Company's statutory accounts for the year ended 31 December 2005, but is derived
from those accounts. Statutory accounts for the year ended 31 December 2005 will
be delivered to the Registrar of Companies shortly. The auditors have reported
on the statutory accounts for the year ended 31 December 2005 and their opinion
was unqualified for these financial statements.


3. GOODWILL

Goodwill arising on the acquisition of AeroBox Composite Structures LLC
amounting to #8,827,000 has been capitalised and amortised through the profit
and loss account on a straight line basis over a period of 10 years.


4. TAXATION

The group has no liability to current taxation due to the existence of tax
losses. The group has no potential liability to deferred taxation.


5. DIVIDEND

The Directors are not recommending the payment of a dividend.


6. COPIES OF THE REPORT AND ACCOUNTS

The report and accounts for the period ended 31 December 2005 will be posted to
shareholders in due course and further copies will be available from 26 May 2006
at the registered office.




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