Preliminary Results for the Year Ended 29 February 2008

ClinPhone plc (“ClinPhone”, “the Company” or “Group”), the leading provider of technology for clinical trials, is pleased to announce its preliminary results for the year ended 29 February 2008.

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ClinPhone’s technology reduces the cost and duration of running clinical trials and improves the accuracy, integrity and consistency of data collected.

On 18 February 2008, the Company confirmed that it had received and rejected a preliminary approach from Parexel International Corporation (“Parexel”) regarding a possible offer for the Company. Since this announcement, Parexel has remained in discussions with the ClinPhone Board regarding a possible offer for the Company. The Company has not provided access to due diligence and no agreement has been reached on any of the terms on which an offer might be made. Despite the unsettling effect that this preliminary approach has had on the Company, the ClinPhone Board is pleased to report the continued improvement in the Company’s performance. There continues to be no certainty that an offer will be made.

Highlights
o Operational difficulties in the RTSM business experienced last summer now rectified.

o Investment in system resilience has restored customer confidence.

o Focus of sales efforts on smaller customers to counter temporary loss of some larger customers proved successful; increased total customers to 196 at end FY2008 from 159 at end FY2007.

o Revenue growth for FY2008 was 15% on a constant currency basis, while reported revenue increased 10% to £47.3 million (£43.1 million FY2007).

o Investment in the product base continued, with R&D representing 12% of Group revenues (7% FY2007).

o Significant progress was made in developing an integrated ‘one-stop-shop’ solution for technology-based clinical trials.

o During FY2008 the contracted order book fell below the highs reported at end FY2007. However, the recent return of business has seen the contracted order book achieve a level of £52.9 million (unaudited) as at 31 March 2008, including the five major new contract wins announced post year-end.

FY2006 FY2007 FY2008 12 Month Movement
Order Book (£000’s) 50,574 59,580 51,516 (13.5)%
Revenue (£000’s) 33,903 43,064 47,277 9.8%
Normalised Profit (£000’s)* 5,749 6,771 2,906 (57.1)%
Operating (Loss) / Profit (£000’s) 2,941 4,738 (1,547) -
Diluted EPS (p) (0.19)p 4.92p 0.40p (91.9)%
Fully Diluted Adjusted EPS** (p) 4.86p 6.04p 2.77p (54.1)%

* Normalised Profit is the Operating Profit before gains and losses on foreign exchange instruments, listing associated share based payments and expenses, amortisation of acquired intangible assets and restructuring expenses.

** Fully Diluted Adjusted EPS is calculated using all share capital capable of being issued at the year end.
Steve Kent, Chief Executive of ClinPhone, commented:

“Over the past year the clinical trials market has continued to evolve at a rapid pace. The market place remains attractive and technology adoption continues to become more widespread as customers use it to assist them to speed up and improve the effectiveness of their drug development programmes.

With only an estimated 30% of all clinical trials today fully exploiting the technology available to them, there remain considerable growth opportunities and ClinPhone is well placed to capitalise upon these.
FY2008 was a difficult year for ClinPhone but the Group has emerged stronger for it. Following the operational difficulties experienced during the summer 2007, we have implemented a number of changes which have restored customer confidence, reduced our cost base and improved efficiency. We had a strong finish to FY2008 following the restructuring and operational improvements with 60% of normalised profit delivered in the last four months of our financial year.
Against the backdrop of strong industry fundamentals, our trusted brand and leading technology, I look forward to the next year with confidence.”

About ClinPhone
ClinPhone plc is a specialist Clinical Technology Organisation (CTO) working with the leading global biotech and pharmaceutical organisations. With its corporate headquarters in Nottingham, UK, ClinPhone is the largest and most accomplished CTO with experience in over 2,000 clinical trials spanning 90 countries and 71 languages. The Company’s solutions enable its clients to manage their clinical trials more effectively through the use of technology. Building on its telephone and web-based randomisation and medication management expertise, ClinPhone can offer a wide range of innovative products covering all aspects of a clinical trial, including Electronic Patient Reported Outcomes (ePRO), Interactive Voice and Web Response (IVR and IWR), Patient Recruitment Solutions, Electronic Data Capture (EDC) and Clinical Trial Management Software (CTMS).

Enquiries

ClinPhone Plc +44 (0) 115 955 7333
Steve Kent, Chief Executive Officer
Scott Brown, Chief Financial Officer

Scott Harris
+44 (0) 207 653 0030
Annabel Michie
Harry Dee



Chairman’s Report
This was a difficult year for ClinPhone but the Group has emerged stronger for it. The year started with the challenges of integrating the DataLabs business acquired in November 2006, followed by operational difficulties and delays in the recognition of licence revenue; this in a year when the volatility of the US Dollar proved particularly painful. In the second half of the year the Group implemented a business process improvement plan together with a restructuring which successfully regained customer confidence and led to an increase in activity and recovery of profitability.

The DataLabs business is now fully integrated and is contributing to the enhancement of our customer and revenue base. This is supportive of the Group’s strategy to provide a more comprehensive technology solution for the clinical trials market.
The overall results for the financial year ended 29 February 2008 do not fully convey the volatility we experienced. Overall revenue grew by 10% (15% on a constant currency basis), diluted EPS was 0.40p and fully diluted adjusted EPS was 2.77p, all low results compared to the previous year. However, within these results there was a significant improvement in the second half of the year compared to the first with 60% of the Normalised Profit resulting in the last four months of the year. The results to 29 February 2008 are substantially ahead of analysts’ recent expectations.
I firmly believe that the key lessons from last year have been learnt and our business has improved as a result.

Credit for the rapid turnaround should go to the entire ClinPhone team and is indicative of the fundamental quality and resilience of the Group. The Board believes that the Group’s strong offering of products and services, together with its talented and committed employees provide a firm basis for confidence in the future prospects of ClinPhone in a market which continues to show healthy growth and development.
Edwin Moses, Chairman

Chief Executive Officer’s Report
Over the past year the clinical trials market has continued to change at a rapid pace. The marketplace remains attractive and technology adoption continues to become more widespread as customers endeavour to increase the effectiveness of their drug development programmes. Customers are increasingly sophisticated in terms of how they want to deploy the technology, incorporating it into their processes and expecting an increasing and broader level of functionality. This is leading to a more strategic approach to sourcing the use of technology and a desire to source systems and services with a higher degree of integration from the few vendors who have the size and capability to deliver such solutions.

ClinPhone is well placed to exploit this market trend; we already have a broader established product set than any other company in the market. The Group further developed its Connect platform which gives closer integration between its products and easier integration with third party applications. Our strategy of creating greater harmonisation of our products and integrating closely with other ‘best in class’ niche solutions from partner companies progressed last year with the announcement of partnerships in two areas and the recent launch of a new service the combination of our Randomisation and Trial Supply Management (“RTSM”) and Electronic Data Capture (“EDC”) platforms. This new service is unique in the market and offers a number of attractive benefits to our customers.
In this market, we believe smaller competitors are finding it increasingly difficult to compete.

Against this positive market backdrop, ClinPhone experienced a difficult year. The weakness of the US Dollar reduced the Sterling value of our US Dollar denominated revenue. The Electronic Data Capture business, being the DataLabs, Inc business acquired in November 2006, grew strongly last year from a low base. However, a change in revenue model from licence sales to software as a service model resulted in a significant portion of the expected revenue delayed into future years.

ClinPhone also experienced some operational difficulties last summer in the Randomisation and Trial Supply Management business. These RTSM operational issues had three separate causes:
• Specific quality of delivery issues which affected four customers.

• Two separate interruptions of supply from third party telephony suppliers.

• A problem with the IBM operating system used to run the main software platform.

Those customers affected cancelled some future RTSM business that they were about to place with ClinPhone, and others became concerned that they might be affected and delayed the award of business. This resulted in a significant reduction in the order book.

ClinPhone has grown very rapidly for a number of years and the problems we encountered last year catalysed a major review of the business resulting in the following actions:
• Sourced improved telephony supply, and invested in the IBM operating platform.

• Restructured the Group, reducing headcount by 40.

• Accelerated a business process review that was already under way. This process is ongoing but has already had a positive impact.

• Countered the temporary loss of some larger customers by focusing its sales efforts on smaller customers with which the Group had not previously worked. This was highly successful, 37 new customers were added, increasing the number from 159 to 196.

• Focussed on cost control initiatives including the Board and Management taking a significant pay cut during the second half of the year.

• Appointment of a Chief Operating Officer to ensure processes and systems scale in line with growth of the business.

I am pleased to report that since the system investments were completed there has been 100% resilience. The organisational restructuring has reduced our cost base and the business process review has improved both our efficiency and the quality of our operational delivery, so that despite a lower headcount operational capacity has been maintained.

Included within the process was the three year review by the Medicines and Healthcare Products Regulatory Agency (“MHRA”) which was completed in February 2008. This is a particularly important audit by the UK regulator of the industry and Management are pleased to report that there were no significant adverse findings. These improvements have started to restore customer confidence in the service and, helped by the broadening of the customer base, there was a marked improvement in revenue and business won by the RTSM unit in the fourth quarter.
Overall the operational issues, change in the EDC revenue model and a weakening US Dollar combined to reduce revenue in the first three quarters below management’s expectations. However, the corrections have meant that the revenue position improved for the final quarter to be in line with management expectations. This increased revenue coupled with a reduced cost base substantially increased the profitability of the business in the final quarter of the year.

Our policy of locating sales and operating staff in offices near our clients is highly valued and helps us deliver our services to them. In the year, ClinPhone opened a new office in Paris and we will add further offices as the need and opportunities arise.

In 2008, Research and Development investment was 12% (FY2007: 7%) of Group revenue. The Board believes that this level of investment is appropriate for ClinPhone as it enhances shareholder value in the medium term by maintaining and improving the Group’s competitive position by developing improved product features and functionality. A number of patents were filed in the year to protect the intellectual property created by this Research and Development investment.

Outlook
In the immediate term the technology innovations that we have made continue to make our products and services ever more attractive. I also believe our customers will increasingly turn to companies that have the critical mass to deliver in a reliable, robust and integrated way across their clinical development programmes.

In the longer term as functionality and connectivity improves, I am confident that the wide scale adoption of technology will significantly improve the efficiency of clinical development programmes. ClinPhone is well placed to deliver on the promise that the technology holds for the pharmaceutical industry.

I am again indebted to the tremendous people that I work with at ClinPhone for their hard work this past year. We faced significant difficulties last summer and it is their skill and dedication that has allowed us to make such a strong recovery and why I look forward to next year with confidence.
Steve Kent, Chief Executive Officer

Business Review
ClinPhone provides its offering to the market as a combination of services and licenced products depending upon the requirements of the client. All services and products are offered on a study by study basis or as an enterprise solution. Services are primarily hosted on the Group’s technology infrastructure while licenced offerings are delivered through a combination of hosting and software provision.

The service business consists of three main phases:
• Set-up or Implementation – where the product offerings are tailored to the client’s internal processes and specific study specifications. This phase typically lasts for 12 weeks although more complete and integrated offerings have historically required a 6 month period of implementation.

• Maintenance and Events – where the product is in use and ClinPhone is providing the infrastructure and a 24/7 support service. The average individual study will last for approximately 18 months.

• Closure – Once the trial is nearing completion the reconciliation, packaging and transfer of the data to the customer facilitates the appropriate submission to authorities.

The licence business involves a form of technology transfer to the client. This generally involves some form of bespoke preparation, training and implementation of our products and services at our client’s premises and directly with their staff. However, in the majority of cases the hosting of part of the service is still maintained by the Group and consequently a licence sale is generally followed by further service revenue. The licence revenue recognised in the accounts is that associated with the technology transfer and implementation of the licenced product. Licence contracts are generally term related and usually dependant upon the number of users on the system.

The results show that the proportion of licence revenue decreased from 5% in the year ended 28 February 2007 to 3% in the year ended 29 February 2008. This was contrary to the Group’s expectation and as management have highlighted throughout the year the shift in the market to demand service based technology appears to be a continuing one. Consequently the Group is reconsidering its reporting segments and may be changing them for the financial year ending 28 February 2009 to be by Geography and by Customer Type, although the information regarding service and licence revenue will continue to be published as part of the Business Review. Management believes this segmentation of reporting will better represent the business mix of the Group going forward.

Despite the issues experienced in the summer, overall the Group’s revenue has shown significant growth during the year of 10% (FY2007: 27%). This is despite the significant proportion of revenue derived from the US (FY2008: 61%, FY2007: 65%) which given the US Dollar to Pound Sterling rate fluctuation during the year depressed the revenue growth by 5% (FY2007: 3%) if the revenue were to be calculated using constant exchange rates.

Acquisition of DataLabs
In November 2006, the Group acquired the share capital of DataLabs, Inc. as part of the strategy to provide a complete technology solution to the clinical trials market. This acquisition added a significant EDC product set to compliment the Group’s existing products. The growth of revenue year on year has been enhanced by 5% (FY2007: 3%) by the acquisition of DataLabs. The fourth quarter of this financial year is the first quarter where the Group has directly comparable revenue statistics for the DataLabs acquisition with the prior year. Management is pleased to report that the service revenue specifically from EDC in the last quarter has grown by over 70% in comparison to the same period last year demonstrating that the Group is gaining some real traction in this market despite the changing market conditions resulting in lower than expected licence revenue.

As part of the acquisition agreement certain revenue targets were agreed with the vendors. The deadlines for these targets have all now passed with no additional consideration passing to the vendors.

Development work on integrating the technology of DataLabs has been ongoing since shortly after acquisition. Further development work is planned as part of the ongoing investment in the development of the Group’s information technology. The Group has launched an integrated service offering successfully.

Revenue by Customer Type
Within the clinical trials industry the Group experiences different market trends and buying habits within the different segments of the customer base. Management believes that maintaining a diverse customer base will promote the long term growth of the Group without exposing it to undue risk from being over exposed to any particular segment or client.

The table below shows the split of revenue by customer segment. The definitions of the segments are as follows:
• Large Pharmaceuticals – Any pharmaceutical group of companies operating under the same banner with a published research and development spend of greater than $300 million per annum. These customers tend to have very formalised buying practices and typically will maintain competitive tension by ensuring more than one supplier of any technology.

The Group has 27 (FY2007: 25) customers with which it did business with in this financial year out of a total estimated market of 42 companies.

• Small Pharmaceuticals and Biotechs – Any pharmaceutical or Biotech group of companies operating under the same banner not included within the large pharmaceuticals segment. These customers tend to have less formalised, quicker buying decisions and will generally only single source the technology.

• CRO – Any Clinical Research Organisation that runs a clinical trial or elements of a trial under contract to a Pharmaceutical or Biotech company (sponsor). These customers tend to involve ClinPhone when proposing to a sponsor for an overall contract for the trial. They tend to have alternative offerings either internally that compete with some of ClinPhone’s offerings or they have alternate sources for those services. The Group has 37 (FY2007: 28) customers with which it did business with in this financial year.

• Other – These are medical institutions and research centres that may or may not be non-profit organisations. They tend to be smaller customers who buy new products or services infrequently.

Revenue (£’000) 2008 % 2007 %
Large Pharmaceuticals 28,272 60 24,634 57
Small Pharmaceuticals and Biotechs 10,258 22 10,120 24
CRO 6,667 14 4,563 11
Other 2,080 4 3,747 8
Total 47,277 100 43,064 100

ClinPhone has a diverse customer base that shows a high level of repeat buying. In 2008, the Group provided products and services to 196 (2007:
159) different clients with no single customer accounting for more than 8% (2007: 9%) of revenue. In defining a customer, we have treated all affiliated entities as one customer even where we have customer relationships with more than one entity or group in a larger organisation.

High Revenue Visibility
The unaudited Order Book consists of Contracted Orders which are orders for which formal contractual documentation has been signed by the relevant parties and Business Authorisations which are orders where confirmation have been received but the contractual documentation is still pending.

(£’000) 2008 2007
Contracted Orders 40,520 43,730
Business Authorisations 10,996 15,850
Total Order Book 51,516 59,580

The Total Order Book has decreased by 14% (FY2007: increased by 18%). The primary reason for this was the lower than expected win rate of new business during the year and the cancellations experienced as a result of the issues the Group faced in the summer.

In addition to the above the Group had proposals outstanding as at the year end in excess of £12.9 million (FY2007: £18.0 million). During the year the average win rate by value of these proposals was 31% (FY2007: 44%).

Historically the Group has had a win rate of 40% by number of all proposals, however, with the impact of the issues during the summer this rate dropped to 35% in the year ended 29 February 2008 (FY2007: 39%).

Also due to the issues in the summer, the Group experienced a higher than usual level of cancellations that reduced the overall Order Book. The focus of sales efforts on smaller customers to counter the temporary loss of some larger customers aided the situation but has led to a shortening of the overall length of the Order Book.
Business Activity and Key Performance Indicators

The revenue of ClinPhone is determined to a significant extent by the number of new trials hosted on our systems (“Go-Lives”), the average number of existing live trials and the average value per trial.
2008 2007
Number of Go-Lives 238 232
Average Number of Live Trials 546 464
Average Value per Trial (£’000) 149 171

The Number of Go-Lives increased by 3% year on year (FY2007: 13%) which is a key indicator of the activity underlying the service business. The lower than expected increase in the number of new trials was as a direct result of the impact of the issues the Group faced in the summer, however expansion to new customers has helped increase the result over the previous year.

The Average Number of Live Trials grew by 18% (FY2007:13%). This level of activity supports the level of on-going revenue the Group receives from its services. Over the long-term this indicator is expected to grow in line with the number of Go-Lives.

Average Value per Trial is defined as the total revenue that is budgeted at the beginning of a contract to be invoiced over the duration of a trial. A number of factors have lead to a decline in this value.
• During the year the Group did not deliver any very large trials being trials of value greater than £1,000,000 whereas past averages have included such trials;

• The issues faced in the summer forced the Group to diversify it’s customer base away from some of the larger pharmaceutical companies who typically sponsor the larger trials; and
• During the year the Group successfully introduced its ‘Compact’ product in RTSM which is specifically aimed at efficiently delivering the smaller value trials.

In longer term trends, management expects to see an increase in the Average Value per Trial as the complexity and size of trials is generally increasing. However, the dilution of this value by the success of the Group’s Compact product may reduce this trend in the short to medium term.

The number of customers taking licence products has not performed to management’s past expectations. The primary driver for this has been a shift in the market place away from licensing arrangements toward provision of software as a service. Going forward the Group is considering changing its reporting segments to reflect this change. However, the Group continues to have discussions about and win licencing solutions on both small and large scale implementations and will continue to report licence revenue.

Employees
As at 29 February 2008 ClinPhone had 731 (FY2007: 737) employees who have collectively undertaken over 2,000 trials. Of these, 441 employees were based in the UK and 290 were based in the US. This workforce is well qualified with over 64% of employees at graduate level or above, predominantly in science or IT subjects. The two factors that drive the labour costs of the Group are the staff turnover rate and average cost of a full time equivalent.
• The growth of the Group means that it is essential to maintain a consistently high level of recruitment effort for new employees. Staff turnover for the year was 16% (FY2007: 13%) but would have been 12% without the restructuring exercise undertaken in September 2007.

• The average number of full time equivalent employees (“FTE”) throughout the year was 748 (FY2007:662).
Gross Profit

(£’000) 2008 2007
Direct Labour Costs 15,283 13,094
Direct Purchases 3,218 2,868
Other Costs 807 1,158
Cost of Sales 19,308 17,120
Gross Profit 27,969 25,944
Gross Margin 59% 60%

As shown in the table above, the gross profit margin in 2008 of 59% is lower than the previous year of 60%. The primary factor that contributed to the decline in margin were the issues experienced in the summer that left the Group exposed for a short period with some idle capacity which has depressed margins. This capacity was filled in the last quarter of the year to produce improved gross margins.

Investment in Quality Control
The clinical trials industry is a highly regulated industry and the Group must invest in its quality control to maintain its compliance and competitive position. We strive to achieve the highest standards of quality, compliance and integrity throughout our business and in the software and services we deliver. ClinPhone has 64 (2007: 58) employees dedicated full time to quality assurance and quality control. During the year, the Company underwent 61 (2007: 39) successful audits by clients, designed to ensure that ClinPhone complies with the many regulations that govern the industry.

Administrative Expenses
Administrative expense grew by 35% (2007: 22%) during the year. The majority of this cost increase was a full year charge for amortisation of acquired intangibles, increase in Research and Development and an increase in variable costs such as Sales and Marketing.
(£’000) 2008 2007
Research and Development Expense 5,205 2,901
Sales and Marketing Expenses 4,541 3,988
Overheads 15,849 13,695
Amortisation of acquired intangible assets 3,487 939
Administrative Expenses 29,082 21,523
Research and Development Costs

ClinPhone has developed specialised technology through internal research and development. The Group has used its industry knowledge and expertise to develop software products and services which are delivered as managed services from centralised data centres or as licensed software products purchased and operated by ClinPhone’s customers.
Included within the administrative expenses are the research and development costs of £5.8 million (FY2007: £3.0 million). This investment is primarily through 100 (FY2007: 87) staff dedicated to research and development. After 30% (FY2007: 40%) of these expenses were capitalised, the net charge to the income statement was £5,205,000 (FY2007: £2,901,000).
(£’000) 2008 2007
Gross Research and Development Expense 5,796 3,015
Capitalisation during the Year (1,739) (1,195)
Amortisation of Research and Development 1,148 1,081
Net Impact to Operating Profit 5,205 2,901
Percentage Capitalised 30% 40%

Significant achievements in this area during the year were major releases of software technology driving the Group's strategy. This includes dedicated software product lines covering the business domains for Randomisation and Trial Supply Management including Patient Reported Outcomes, Electronic Data Capture, Clinical Trial Management Systems and the domain of system integration using ClinPhone's technology and framework (“Connect”). Specific software products developed and released include:
• Enterprise Synapse Platform V4 which includes the introduction of .NET technology, unicode support for multi-lingual web forms, functional and usability enhancements to the integrated development environment and the medication management engine. In addition the design and deployment of new technology to increase the 24/7 availability of the platform during scheduled maintenance windows was delivered.

• Electronic Data Capture, DataLabs V4.2 which includes enhanced workflow and collaboration capabilities such as item level flagging for improved source data verification, partial form entry, customisable event notifications and also wizards to perform rolling upgrades from earlier versions of DataLabs.

• Clinical Trial Management Platform, TrialWorks V1.3 and associated Monitoring Module with improvements to functionality and usability covering site management, security administration, scheduling of monitoring visits and ad hoc reporting.

• Integration Platform, Connect V2.1. has been deployed on customer projects requiring automated integration of their electronic data capture processes with randomisation and trial supply management needs in addition to integrations with external partners and customers.

ClinPhone has also significantly expanded its patent portfolio with filings in the areas of study design, data management and integration. Filings were made in the areas of:
• The method of manipulating clinical trial data within a study and the aggregation of data across studies.

• The method of providing a secure audit trail for clinical trial data.

• The method of cataloging remote systems and data and the execution of dynamic code on remote systems.

The investment above represents 12% (FY2007: 7%) of revenue in research and development activity. Going forward, management estimates that this will be approximately 11% of revenue. This investment is targeted at maintaining and improving the Group’s competitive position as well as enhancing its intellectual property.

Normalised Profit
Normalised Profit is Operating Profit before gains and losses on foreign exchange instruments, listing associated share based payments and expenses, restructuring expenses and amortisation of acquired intangible assets. It can be reconciled to the Operating (Loss) / Profit as follows.
(£’000) 2008 2007
Operating profit before gains and losses on foreign exchange instruments, listing associated share based payments and expenses, restructuring expenses and amortisation of acquired intangible assets. 2,906 6,771
Normalised operating margin 6% 16%
Amortisation of acquired intangible assets (3,487) (939)
Gains and losses on foreign exchange instruments (434) 317
Listing associated share based payments and expenses - (1,411)
Restructuring expenses (532) -
Operating (Loss)/Profit (1,547) 4,738
Operating Margin (3)% 11%
The Group’s Normalised Operating Margin fell from 16% in 2007 to 6% over the last financial year. This fall came about primarily due to the lower than expected revenue and the fall in the gross margin discussed above. In the latter half of the year, after the restructuring the Group enjoyed a positive trend in the Operating Margin such that 60% of the year’s Normalised Profit was earned in the last four months of the financial year.

Amortisation of Acquired Intangible
Assets
With the acquisition of DataLabs the Board commissioned an independent expert to review the assets and liabilities acquired in order to determine the fair value of those assets so that the value could be recognised on the balance sheet as required by International Financial Reporting Standards (“IFRS”). Where those assets have resulted in intangible assets being recognised, the amortisation that results from such assets is separately disclosed to aid in understanding the results. This expense is expected to be recognised each year for the next three years after which it will decrease to approximately £2,600,000 for one year and then nil.

Unrealised Gains and Losses on Foreign Exchange Instruments
Under IFRS, ClinPhone is required to recognise the unrealised gains and losses on the forward contracts it holds. The Group has a long-term policy of managing its foreign exchange exposure up to a maximum of 80% of the expected net US Dollar receipts typically twelve months in advance. These gains and losses may or may not be realised but must be recognised under IFRS. The unrealised element of these gains and losses is shown on the face of the Consolidated Income Statement. The long-term policy above has now also been expanded to cover the Euro. Consequently the unrealised gains and losses experienced on those instruments are also included here.
In order to summarise the Group’s exposure to the different foreign currencies within the Income Statement, the table below shows the percentage revenue split by the currency in which the contract is agreed.
(£’000) 2008 % 2007 %
Pound Sterling 9,862 21 8,092 19
United States Dollar 31,094 66 30,897 72
Euro 5,689 12 3,638 8
Swiss Franc 632 1 437 1
Revenue 47,277 100 43,064 100

The forward contracts we have in place under the current policy effectively average to a rate of USD:GBP 2.00 and for the EUR:GBP 1.31. To the extent that the average exchange rate varies by 5% over the year the impact on Normalised Profit is expected to be approximately £400,000.

Listing Associated Share Based Payments and Expenses
The Group is required to recognise the cost associated with the issuing of equity and equity based transactions. For the year ended 28 February 2007, the costs specifically identified on the face of the Consolidated Income Statement as listing associated share based payments and expenses relate only to the issue of equity associated with the float. All subsequent share options, long term incentive plans and equity issued in association with the DataLabs acquisition have been recognised as an operating cost or capitalised on the balance sheet in accordance with IFRS. These costs for the year ended 29 February 2008 were £322,000 (FY2007: £43,000)

Restructuring Expenses
In September, management addressed the issue of declining profitability by restructuring parts of the business, continuing the retraining of its sales teams and putting in place the necessary measures to improve the efficiency of operating and quality systems. These plans were designed to return the Group to historic levels of profitability whilst maintaining the necessary capacity and development activity to deliver the strategic plan.
As part of these plans management has restructured the organisation of the Group in order to better align the Human Resources with the future needs of the business. This has resulted in a non-recurring cost of £532,000. The restructuring has primarily affected supporting roles and has not impaired the capacity or quality of delivery of the Group’s products and services. In addition the senior management of the Group reduced their salary an average of 13% on average for the second half of the year.

Taxation
The tax credit for the Group was £2,768,000 (FY2007: £1,166,000 charge). The tax credit is the net effect of the recognition of prior year’s research and development tax credits and the recognition of operating tax losses in the US for realisation in future years.
During the year the Group received approval from the HMRC for the claim of additional research and development tax credits for the years 2003, 2004 and 2005.

The table below sets out the adjustments to the tax charge to calculate a normalised tax charge with an effective tax rate of 10% (FY2007: 31%).
(£’000) 2008 2007
Normalised Profit before Tax 2,202 6,119
Tax Credit / (Charge) 2,768 (1,166)
Add Back Research and Development Credit Relating to Prior Years (1,302) -
Add Back Deferred Tax on Acquired Intangibles (1,769) (282)
Add back Deferred Tax on Share Based Payments 407 (543)
Add Back Other Items (316) 95
Normalised Tax Charge (212) (1,896)
Effective Tax Rate 10% 31%
Going forward, management expects to be able to achieve an effective tax rate of approximately 28% through effective tax management and continuing Research and Development credits.

Capital Structure
Net Debt
The Net Debt position being financial liabilities less cash and cash equivalents of the Group has remained within the funding levels supported by the Group previously. The Net Debt balance has decreased from £10,192,000 at the end of the previous year to £8,005,000, the main movement during the year being the free cash flow generated by the Group.

Working Capital
The net working capital position, being the difference between current assets and current liabilities increased by £678,000 (FY2007: £1,003,000) during the year. The significant changes resulting in this movement were:
• A decline in the trade and other receivables of £887,000, partly due to improved debtor days of 58 (FY2007: 66);
• A decline in current liabilities of £451,000, partly due to reducing creditor days of 26 (FY2007: 32); and
• Significant cash inflows from retrospective tax credits of £1,302,000.
Cash generated from operations showed a significant improvement this year at £8,188,000 (FY2007: £6,769,000) being almost three times (FY2007: 99%) of the Operating Profit before gains and losses on foreign exchange instruments, listing associated share based payments and expenses, restructuring expenses and amortisation of acquired intangible assets. This movement was helped by the improvement in working capital cited above.

Net Financing Costs
Net finance costs primarily relate to the cost of bank borrowings, pre-listing loan note interest and unrelated gains and losses on interest rate hedges less interest received on short term bank balances. During the year the Group experienced an effective interest rate before unrealised gains and losses on interest rate swaps and collars and amortised loan costs of 7% (FY2007: 7%). As part of the Group’s long term funding arrangements, various interest rate swaps and collars are maintained to protect the Group from adverse movements in the base interest rates. The current hedging policy is to maintain hedge cover for one third at fixed rates, one third capped and one third left unhedged.
The majority of the Group’s debt is linked to US LIBOR and management expects the effective interest rate to track this indicator.
Scott Brown, Chief Financial Officer

Consolidated Income Statement
For the year ended 29 February 2008
Note 2008 2007
£’000 £’000
Revenue 47,277 43,064
Cost of sales (19,308) (17,120)
Gross profit 27,969 25,944
Other income - 317
Administrative expenses (29,082) (21,523)
Other expenses (434) -
Operating profit before gains and losses on foreign exchange instruments, listing associated share based payments and expenses, amortisation of acquired intangible assets and restructuring expenses 2,906 6,771
Amortisation of acquired intangible assets (3,487) (939)
Gains and losses on foreign exchange instruments 1 (434) 317
Listing associated share based payments and expenses 1 - (1,411)
Restructuring expenses 1 (532) -
Operating (loss) / profit (1,547) 4,738
Finance income 220 142
Finance costs (1,173) (794)
(Loss) / profit before taxation (2,500) 4,086
Taxation 2,768 (1,166)
Profit attributable to equity shareholders 268 2,920
Earnings per share expressed in pence per share
- basic 2 0.42p 5.12p
- diluted 2 0.40p 4.92p

All of the Group’s trading activities relate to continuing operations.
Consolidated Statement of Recognised Income and Expense
For the year ended 29 February 2008
2008 2007
£’000 £’000
Profit attributable to equity shareholders 268 2,920
Net exchange adjustment offset in reserves (185) (169)
Total recognised income for the year 83 2,751


Consolidated Balance Sheet
As at 29 February 2008
2008 2007
Restated*
£'000 £'000
Assets
Non-current assets
Goodwill 32,288 32,332
Intangible assets 15,921 19,063
Property, plant and equipment 3,750 3,822
Deferred tax assets 2,912 1,500
Trade and other receivables - 923
54,871 57,640
Current assets
Inventories 256 246
Trade and other receivables 13,284 14,171
Financial assets
- derivative financial instruments - 155
Cash and cash equivalents 2,959 1,700
16,499 16,272
Liabilities
Current liabilities
Financial liabilities
- borrowings (951) (562)
- finance leases (170) (209)
- derivative financial instruments (434) (21)
Trade and other payables (10,169) (10,459)
Current tax liabilities (351) (1,275)
(12,075) (12,526)
Net current assets 4,424 3,746
Non-current liabilities
Financial liabilities
- borrowings (9,706) (10,807)
- finance leases (137) (314)
- derivative financial instruments (116) -
Deferred tax liabilities (5,883) (7,374)
Other payables (157) -
(15,999) (18,495)
Net assets 43,296 42,891
Shareholders’ equity
Share capital 671 664
Share premium account 25,874 24,270
Shares to be issued - 1,611
Merger relief reserve 8,265 8,265
Reverse acquisition reserve (18,502) (18,502)
Retained earnings 26,988 26,583
Total equity 43,296 42,891

* The comparatives at 28 February 2007 have been restated due to adjustments to the fair value of intangible assets acquired and deferred consideration payable on the purchase of DataLabs.

Consolidated Cash Flow Statement
For the year ended 29 February 2008
Note 2008 2007
£’000 £’000
Cash flows from operating activities
Cash generated from operations 3 8,188 6,769
Finance income received 105 142
Finance costs paid (903) (675)
Tax paid (1,076) (1,931)
Net cash from operating activities 6,314 4,305
Cash flows from investing activities
Purchase of business (784) (11,898)
Purchase of property, plant and equipment (1,519) (1,695)
Purchase of intangible assets (1,934) (1,576)
Net cash used in investing activities (4,237) (15,169)
Cash flows from financing activities
Net proceeds from issue of new bank loan and loan stocks - 10,273
Proceeds from the issue of new share capital - 18,840
Repayment of borrowings (808) (18,553)
Dividends paid - (626)
Net cash (used in)/ from financing activities (808) 9,934
Effects of exchange rate changes (10) (153)
Net increase / (decrease) in cash and cash equivalents 1,259 (1,083)
Cash and cash equivalents at start of year 1,700 2,783
Cash and cash equivalents at end of year 2,959 1,700


Notes to the Preliminary Results

1. (Loss) / Profit Before Taxation
The (loss) / profit before taxation is stated after charging / (crediting):
2008 2007
£’000 £’000
Amortisation of intangible assets (included in administrative expenses) 4,763 2,346
Depreciation of property, plant and equipment:
- owned 1,385 997
- under finance leases 185 126
Profit on disposal of property, plant and equipment - 20
Operating lease rentals:
- plant and machinery 135 105
- other 1,329 1,016
Research and development expenditure 4,057 1,820
Repairs and maintenance expenditure on property, plant and equipment 252 219
Trade receivables impairment provision release - (11)
Loss/(gain) on forward exchange contracts at fair value through the income statement (note c) 434 (317)
Listing associated share based payments and expenses (note b) - 1,411
Share based payment on ordinary activities (note b) 322 43
Restructuring expenses (note a) 532 -
Notes
a. The Group restructured in the year as part of a management plan to return the Group to historic levels of profitability whilst maintaining the necessary capacity and development activity to deliver the strategic plan. The cost of the exercise was a non recurring amount of £532,000.
b. The share based payment charge of £322,000 (FY2007: £43,000) on ordinary activities relates to LTIP, SAYE and ESPP plans which were issued in December 2006 and December 2007. The Group incurred £1,246,000 of one-off share based payment charges in 2007 for options and ratchet shares issued whilst a private company and £165,000 of listing expenses.
c. The Group has significant sales in US Dollars and Euros where costs are being incurred in Pounds Sterling. To ensure it can implement commercial responses to currency volatility, the Group enters into foreign exchange contracts. There is uncertainty in the timing of cashflows relating to the start of contracts, so satisfying the detailed requirements for hedge accounting under IAS 39 “Financial instruments: recognition and measurement” would require a less flexible approach to currency risk management. As a result the Group is not applying hedge accounting to any of its forward exchange contracts. Gains and losses arising on forward exchange contracts have been recognised in administrative expenses.
2. Earnings Per Share
Basic earnings per share is calculated on the profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period. The weighted average number of shares for the year ended 28 February 2007 has been adjusted to reflect the bonus issues made on listing.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

Basic Earnings Per Share
2008 2007
Earnings Weighted
average
number of
shares Per share
amount
Earnings Weighted
average
number of
shares Per Share amount
£’000 ’000 pence £’000 ’000 pence

Profit attributable to ordinary shareholders 268 64,561 0.42p 2,920 57,017 5.12p
Effect of dilutive share options 1,731 (0.02)p 2,354 (0.20)p
Diluted EPS 268 66,292 0.40p 2,920 59,371 4.92p


Adjusted Earnings Per Share
2008 2007
Earnings /
(loss)

Weighted
average
number of
shares Per share
amount
Earnings /
(loss)
(Restated) Weighted
average
number of
shares Per share
amount
(Restated)
£’000 ’000 pence £’000 ’000 pence
Profit attributable to equity shareholders 268 64,561 0.42p 2,920 57,017 5.12p
Operating gains and losses on foreign exchange instruments 434 0.67p (317) (0.56)p
Interest gains and losses on foreign exchange instruments 250 0.39p - -
Listing expenses - - 165 0.29p
Listing associated share based payments - - 1,246 2.18p
Restructuring expenses 532 0.82p - -
Amortisation of acquired intangible assets 3,487 5.40p 939 1.65p
Effect of prior year research and development tax credits (1,302) (2.02)p - -
Tax effect of listing associated share based payments 407 0.63p (613) (1.07)p
Tax effect of other adjustments (2,158) (3.34)p (243) (0.43)p
Adjusted EPS 1,918 64,561 2.97p 4,097 57,017 7.18p
Effect of dilutive share options 1,731 (0.08)p 2,354 (0.28)p
Diluted adjusted EPS 1,918 66,292 2.89p 4,097 59,371 6.90p
Fully diluted adjusted EPS 1,918 69,173 2.77p 4,097 67,783 6.04p
To understand the underlying trading performance, the directors consider it appropriate to disclose earnings both before and after gains and losses on financial instruments, amortisation of acquired intangible assets, restructuring expenses, listing associated share based payments and expenses and prior year research and development tax credits.
The tax effect of other adjustments for the year to 28 February 2007 has been restated as per the trading announcement on 31 July 2007.
Fully diluted adjusted EPS is calculated using all share capital capable of being issued at the year end.
3. Cash Generated from Operations

2008 2007
£’000 £’000
Profit attributable to equity shareholders 268 2,920
Adjustments for:
Tax (2,768) 1,166
Finance income (220) (142)
Finance expense 1,173 794
Depreciation 1,570 1,123
Profit on disposal of property, plant and equipment - 20
Amortisation of intangibles 4,763 2,346
Other non cash charges – share-based payments 322 1,289
Changes in working capital:
Increase in inventories (10) (36)
Decrease/(increase) in trade and other receivables 1,976 (2,896)
Increase in payables 1,114 185
Cash generated from operations 8,188 6,769

4. Other information
The Consolidated Financial Statements of ClinPhone plc are prepared in accordance with International Financial Reporting Standards (“IFRS”) and International Financial Reporting Interpretations Committee interpretations, as adopted by the European Union and with those parts of the Companies Act 1985 applicable to those companies reporting under IFRS.
These results for the year to 29 February 2008 together with the corresponding for the year to 28 February 2007 are extracts from the 2008 annual report and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 (as amended).
The annual report for the year to 29 February 2008, on which the auditors have issued a report that does not contain a statement under section 237(2) or (3) of the Companies Act 1985, will be available on the Company’s investor relations website at www.clinphone.com. For those shareholders requiring a hard copy these will be posted to shareholders by 9 May 2008 and will be delivered to the Registrar of Companies in due course.