Flomerics Group PLC - Interim Results

7 August 2006

Flomerics Group plc, the global supplier of simulation software to the engineering and electronics industries, today announces its results for the six months ended 30 June 2006.

• Turnover £5.7 million (2005: £5.3 million)
• Adjusted Profit Before Tax £238,000 following an exceptional item and increased investment in sales (2005: £380,000)
• Strong cash position £4.0 million (2005: £3.5 million)
• US sales up 29% and Asia Pacific sales up 16% (excluding MicReD and at constant rates of exchange)
• Electronics thermal line of business sales up 10%
• Sales and operational staff numbers strengthened globally
• Post results - NIKA acquisition 6 July 2006: established European and Russian based supplier of fluid flow simulation tools

Commenting on the results, Gary Carter, CEO of Flomerics plc, said: “During the first half of this year we have achieved sales of £5.7m and seen an extremely promising performance from our product lines in both the US and Asia Pacific. Profit is down on 2005 but this is due in part to costs relating to the strengthening of our sales operations and Flomerics is now in an extremely strong position to drive the business forward into new markets for our electromagnetic, thermal and recently acquired product lines.”

Chairman’s Statement

Introduction

Flomerics has made a good start to the year with sales reaching £5.7 million and strong performances in the US and Asia Pacific. We have also made an adjusted profit for the period of £238,000, which was subject to a 13% increase in administrative costs mainly due to key recruitment. While our European operations saw a decline, due in part to relatively flat economic conditions in the region, our integration of Nika GmbH, acquired in July 2006, brings considerable extra resources in the region as well as exposure to significant new markets around the world.

Results

Turnover was £5.7 million (2005: £5.3 million) achieving growth of 8%.

Profit before taxation, amortisation of goodwill and share-based payment was £238,000. While this is down on the 2005 figure of £380,000 the period saw administrative costs increase by 13% on a like-for-like basis, including an exceptional charge of £58,000.

Our cash balance continues to be strong with £4.0 million at 30 June 2006, compared with £3.5 million a year earlier.

In order to compare like-with-like, the comparisons made below with the same period last year are all at constant rates of exchange. Similarly, the figures for the regions exclude the contribution from MicReD, which was acquired in April 2005.

The US had very strong growth (29% with strong contributions from both the thermal and electromagnetic). Asia Pacific also performed well (up 16%) with particularly strong performances from our thermal products in China and Japan. In contrast European sales were down 13% partly attributable to the relatively flat economy in the region’s markets. A key objective for Flomerics during the next 12 months is to increase sales productivity in Europe. This will partly be achieved through pursuing synergies between our existing and acquired businesses.

Looking at sales by product, our electronics thermal line of business grew by 10% (2005: 16%), FLOVENT by 6% (2005: 14%) and the electromagnetics line of business by 4% (2005: 8%). In order to drive our electromagnetics products more aggressively, we have recently hired an experienced sales professional with a background in EM software to take complete responsibility for this line of business. In addition, and in order to improve profitability in this area, we have committed to moving FLO/EMC and Microstripes to a common development platform.

MicReD contributed £128,000 to first half turnover (2005: £264,000). We are delighted with the performance in the US, where we achieved the first sales of T3Ster to open up this very significant market. There was some slippage of MicReD sales in Europe and Asia Pacific, but there continue to be good prospects in both regions

NIKA

In June we announced the proposed acquisition of NIKA GmbH, which was completed on 6 July 2006. NIKA develop and sell a suite of software tools for the simulation of fluid flow that are tightly integrated with leading Mechanical Computer-Aided Design (MCAD) tools. The NIKA organisation is headquartered in Germany, and has other operations in France and Russia, with all software development taking place in Moscow. Over the coming months we will be working to integrate the organisations and take full and rapid advantage of the significant opportunities facing the new combined group. In particular we will be investing in sales organisations in the US and in the UK where NIKA has had minimal presence up to now.

Dividend

Having carefully considered the dividend policy, the board has decided that it is appropriate for the Company to continue to pay only a final dividend. Therefore, as in previous years, we will not be paying an interim dividend.

Outlook

Flomerics’ strategy has been to continue to maximise the sales opportunities associated with the growth in the electronics industries through our market leading products and our global presence. At the same time we have been looking to widen the range of applications and markets we address which we have been able to do by the 2005 acquisition of MicReD and now the addition of the NIKA business to the Flomerics organisation. We see the latter as bringing a transformation in the growth of the business over the next few years.

The directors believe that investment in sales and the recent acquisitions have created increasing momentum in the business. There is now a strong platform for growth and there are good prospects for the remainder of this year and beyond.

NOTES TO THE INTERIM REPORT

1. ACCOUNTING POLICIES

The financial information contained in this Interim Report does not constitute statutory accounts. The interim results, which have not been audited, have been prepared using accounting policies consistent with those used in the preparation of the Annual Report and Accounts for the year ended 31 December 2005 with one exception: in accordance with FRS 20, ‘Share based payments’, the group has now recognised the cost of share based payments in these financial statements.

The accounts for the year ended 31 December 2005 have been filed with the Registrar of Companies and received an unqualified audit report.

2. TAXATION

Taxation for the six months to 30 June 2006 is based on the effective rate of taxation that is estimated to apply to the year ending 31 December 2006.

3. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit on ordinary activities after taxation in the period by the weighted average number of shares in issue in the period as follows:

The diluted earnings per share calculation is based on a fair value of 99p per share (30 June 2005: 68p).

* As restated - see Note 7.

4. SEGMENTAL INFORMATION

The group’s turnover for each geographic area of operation is:

Segmental information on profit before tax and net assets is disclosed in the Annual Report.

5. ANALYSIS OF NET FUNDS

Debt represents a mortgage that was taken out on a property acquired in 2001.

6. RESERVES

* As restated - see Note 7.

7. PRIOR YEAR ADJUSTMENT

Share based payments

In order to conform with the requirements of FRS 20, ’Share Based Payments’, share options that have been granted to employees have been recognised as an expense as part of employee remuneration. The cost is spread over the vesting period and has been calculated using a Black-Scholes valuation model.

The effect on the comparatives of this change in accounting policy is that administrative expenses have increased by £26,000 for the six months to 30 th June 2005 and by £66,000 for the year to 31 December 2005. In the six months ended 30 th June 2006 the charge was £49,000.

Dividends paid

In order to conform with the requirements of FRS 21’ Events after the Balance Sheet Date’, dividends have been restated and are recorded in the profit and loss account in the period that they have been declared.

The effect of this change in accounting policy on the comparatives is that dividends have increased by £161,000 for the six months to 30 June 2005.