2007 Highlights

• Substantial underlying organic growth leading to the first year of significant profitability and operating cash inflows
• Revenue increased by 19% to £17.8m (2006: £15.0m) and by 22% on a constant currency basis
• Operating profit increased to £1.39m (2006: £0.05m)
• Earnings before interest, tax, depreciation and amortization (EBITDA) increased by 192% to £2.01m (2006: £0.69m)
• First significant operating cash inflow reported at £1.72m (2006: £0.12m)
• Improvement in gross margin to 57% (2006: 54%)
• Increase in earnings per share to 0.59p (2006: 0.06p)
• Strong sales growth in the Molecular Diagnostics division driven by the LifeMatch range of products
• Major investment in the future of the Research Products and Services division with the completion of the new pharmaceutical facility in Livingston, Scotland and newly launched service lines

Commenting on Tepnel’s full year results, Ben Matzilevich, CEO, said:

“2007 has been a breakthrough year for Tepnel resulting in impressive revenue growth and the first year of significant profitability. This is the result of our strategy of establishing leadership positions in niche areas of molecular diagnostics and research products and services. The major investment the Group has made in the new facilities, new service lines and product development has enabled Tepnel to build an exceptional product and service pipeline. Tepnel is well positioned for future growth.”


CHAIRMAN’S STATEMENT

2007 has been a breakthrough year for Tepnel. The Group has delivered significant profits, sales growth and operating cash inflows. This performance has, for the first time, allowed Tepnel to make substantial capital investment in the future of the Company. In particular, the construction of the new facility in Livingston, Scotland and the launch of the new services for the pharmaceutical outsourcing business has placed the Group in a strong position for growth in 2008 and 2009.

Operating profits from continuing operations were £1.39m (2006: £0.05m) on revenue of £17.82m (2006: £15.0m). Revenue growth on a constant currency basis was 22% (2006: 23%). The performance in 2007 is a direct result of Tepnel’s corporate strategy to build leadership positions in attractive niche markets in the molecular diagnostics and research products and services sectors.

The Group continues to reap the benefits of the strategic reorganisation of the business in 2005 and the successful integration of its acquisitions has allowed Tepnel to exploit operational and sales and marketing synergies in advance of those anticipated.

Molecular Diagnostics

The Molecular Diagnostics division has demonstrated strong growth with a 39% increase in revenues compared to the prior year. This division focuses on the growth markets of transplant diagnostics, foetal distress diagnosis and genetic disease testing. Tepnel’s innovative product range includes the LifeMatch transplant monitoring assays and the ELUCIGENE genetic predisposition assays.

The LifeMatch range of products, based on the highly multiplexed Luminex platform, continues to perform strongly in the market place, capturing additional market share and delivering sales growth of over 55% compared to the prior year. In 2007, Tepnel extended its licence with Luminex for access to the xMAP technology. This, along with continued new product development, leaves the Group well placed for further growth in this market.

Tepnel closed its Transplant Diagnostics Service business towards the end of 2007. This had become loss making and this closure allows the Transplant Diagnostics business to focus on sales of its core product lines. The results from this business have been disclosed as discontinued operations in the financial statements.

The launch of the QST*R range in 2006 was highly successful resulting in significant sales in key territories. The DNA-based assay is used for the rapid detection during pregnancy of common genetic abnormalities, including Down syndrome, Edwards syndrome and Patau syndrome. During the year the product was successfully evaluated by the National Genetic Research Laboratory which concluded QST*R was a high quality, reliable product that is easy to use.

Research Products and Services

This division provides outsourcing services for the pharmaceutical, biotechnology and healthcare industries, food testing products and services and immunological reagents. Our client base includes many of the top 20 pharmaceutical companies. The Research Products and Services division has delivered good sales growth with turnover increasing 4% on 2006. The impact of the relocation of the pharmaceutical services business and the completion of the Boehringer Ingelheim contract in 2006 offset the otherwise strong underlying growth.

Tepnel has made significant capital investment in its pharmaceutical services outsourcing business in 2007. In July, the Group announced the completion of Phase I of its 18,000 sq ft laboratories on time and to budget. In the same month, the existing businesses based in Edinburgh and Glasgow were relocated and in October 2007 work commenced on Phase II. The second phase, the remaining 4,000 sq ft, is being used for Tepnel’s new services including genotyping and biopharmaceutical services.

In July 2007, the Group completed the acquisitions of laboratory service providers Wildlife DNA Services and Food DNA Services. Wildlife DNA Services is an established provider of genotyping services, specifically in the area of wildlife crime investigation and wildlife conservation. The acquisition will accelerate Tepnel’s entry into the clinical genotyping market, broadening its service offering to the pharmaceutical industry. Food DNA Services provides high quality genetic information for identifying food composition and origin. Both of these businesses have now been relocated and integrated with Tepnel’s existing operations.

Future Prospects

Following the strategic reorganisation and integration of the businesses acquired in 2004, the Group has significantly improved its year on year performance. Each year since 2004 the Group has grown organically by over 20% culminating in this year’s operating profit of £1.39m and operating cash inflow of £1.72m.

The Group is focusing its Molecular Diagnostics division into key growth markets, principally organ transplant monitoring and foetal distress diagnostics, and developing products which utilise its technologies for new markets, including the blood bank market. The strategic objectives for Molecular Diagnostics include expanding the product lines for pre and post transplant monitoring assays with the aim of becoming a market leader in this sector. The division is also focusing on developing molecular diagnostics for the highly mutated multi gene disease states within the ELUCIGENE and QST*R lines.

The Research Products and Services division is focused on expanding its capabilities in the development of assays and services in immunology, genotyping, food allergens and protein analysis. In particular, the capital investment in the pharmaceutical outsourcing services business, means that it is well placed for future growth.

Current Trading

Tepnel has made a good start to the new financial year. The Board is confident that the Group will report continued improvements in its performance in 2008.

Alec Craig
Non-Executive Chairman
14 March 2008