The performance in 2006 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 reorganization 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.

Research Products & Services

The Research Products and Services division has delivered strong sales growth with turnover increasing 24% on 2005. 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.

Tepnel is now firmly established as one of the largest providers of Nucleic Acid Purification (NAP) and analysis services in Europe and during the year delivered major contracts for large pharmaceutical companies and expanded its customer base significantly. This included signing two major agreements with Pfizer and AstraZeneca.

The increase in customer demand for our outsourced services has made essential the construction of the new state-of-the-art pharmaceutical testing facility in Livingston, Scotland. Construction began in July 2006 and the facility is scheduled to be fully operational by July 2007. The new facility will allow us to add further capacity, develop additional services and strengthen our position in the genomic and protein analysis sectors.

Our food safety business delivered good growth during the year and we saw significant improvements in US sales. This was driven by the establishment of direct sales and marketing capabilities, together with a complete range of inventory in the US. In 2006, a range of new ELISA and RAPID 3-D food allergen kits were launched leaving the business well placed for growth in 2007.

In December 2006, Tepnel signed a global licensing agreement with the world’s largest online supplier of antibody products, Abcam, for the distribution of our immunological reagents. The move significantly extends Tepnel’s reach and will provide immediate access to a broad range of customers from both academia and industry.

Molecular Diagnostics

The Molecular Diagnostics division continues to see strong growth with a 15% increase in sales for the year. This division is focusing on the growth markets of organ transplant monitoring, foetal distress diagnosis and genetic predisposition testing. Tepnel’s innovative product range includes the LifeMatch transplant monitoring assay range 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 40% compared to the prior year. There were two major product launches during the year: Donor Specific Antibodies (DSA), novel assays for the detection of antibodies which can be used in pre-transplant antibody detection, and the Lifecodes Single Antigens (LSA) assays which improve antibody detection in patients prior to solid organ transplant through increased sensitivity and specificity. These product launches will help Tepnel achieve its aim of being a market leader in the organ transplant monitoring market.

The ELUCIGENE QST*R product, launched throughout Europe in March 2006, continues to gain momentum and is now used in 30 laboratories in over 15 countries. The DNA-based assay is used for the rapid detection during pregnancy of common genetic abnormalities, including Down syndrome, Edwards syndrome and Patau syndrome. The diagnostic test is a highly sensitive and rapid test that can provide results within 4 hours, compared with 12-14 days needed for current standard tests. The test has been approved for in-vitro diagnostic use in Europe and Canada, and further regulatory approvals are in process.

Financial Results

Turnover for the year increased by 19% to £16.16m (2005: £13.60m) with double digit growth across both operating divisions. Research Products and Services generated a 24% increase to £7.28m (2005: £5.88m) and Molecular Diagnostics grew by 15% to £8.88m (2005: £7.72m), now comprising 45% and 55% of Group turnover respectively.

Sales to Asia represented the largest growth as a market, growing from 4% to 11% of Group turnover in 2006, while 85% of the Company’s revenues continue to be derived from the key markets of the US, UK and the rest of the EU.

Operating profits before interest, tax, depreciation, amortization (EBITDA) and exceptional items for the year ended 31 December 2006 were £0.92m compared to losses on the same basis of £0.17m in the previous year (See Note 23). Operating profit pre-exceptional items was £0.21m compared to losses on the same basis of £0.92m in 2005. The retained profit for the year after taxation was £0.18m (2005: retained loss of £1.91m).

Basic earnings per share for the year were 0.08 pence (2005: basic loss per share of 0.89 pence).

Net cash inflow from operating activities of £0.05m was reported, having reported a net outflow of £0.17m in the previous year. Cash balances at 31 December 2006 amounted to £3.86m (2005: £2.28m) with net funds of £2.26m (2005: £2.26m). Net assets at the year end totalled £6.97m, up from £5.68m at the prior year end.

Overall, Tepnel has continued to record strong year on year growth in sales and gross profits. Importantly, the Company has achieved its first full year of profitability along with improving operating cash flows and a strong balance sheet.

Future Prospects

Following the strategic reorganization and integration of the businesses acquired in 2004, the Group has significantly improved its year on year performance.

The Group is focusing its Molecular Diagnostics division into key growth markets principally organ transplant monitoring and foetal distress diagnostics. The strategic objectives for Molecular Diagnostics include expanding the product lines for pre and post operating 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. The new laboratory will be used to develop epigenetic and genotyping capabilities to increase our market share in these areas.

Current Trading

Tepnel has made a good start to the new financial year. The Board is confident the Group will report continued improvements in its performance in 2007.

Alec Craig
Non-Executive Chairman
15 March 2007