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Datong PLC (DTE)

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Tuesday 06 December, 2011

Datong PLC

Final Results

RNS Number : 3945T
Datong PLC
06 December 2011
 



 

Press Release

6 December 2011

DATONG PLC

("DATONG" or "the Group")

 

Final Results

 

DATONG PLC (DTE.L), a leading provider of covert intelligence gathering solutions, today announces its final results for the 12 month period to 30 September 2011. 

 

Highlights

· 

Revenue of £11.75 million (2010: £14.06 million)

· 

Operating profit before exceptional items of £0.05 million (2010: £0.80 million)

· 

Earnings per share of 1.03p (2010: adjusted earnings per share of 6.38p)

· 

Net cash of £1.27 million (2010: £2.58 million) and no debt on the balance sheet

· 

Growth in Own Products revenues of 26% on the back of a strong US performance

· 

Significant orders received for new products

· 

New joint venture formed focusing on developing and commercialising interoperable capability across a number of industry players

· 

Agreement formed introducing software analytical capability to the product portfolio

 

Commenting on the results, Brian Smith, Chief Executive Officer, said:

"Good progress continues to be made in DATONG's Own Products business with strong customer interest in new products and significant sales being made.  However, Third Party product sales volatility has had a short term adverse impact.  The current world economic climate and its affect on our customers' budgetary policies is impacting DATONG with the timing of orders not following usual trends. 

 

"Nevertheless, DATONG is well positioned in the intelligence gathering sector with a good sales pipeline and consequently the Board remains confident that the Group's strategy will continue to drive the business forward."

 

Enquiries:

DATONG PLC

Tel: +44 (0) 113 239 5350

Brian Smith, Chief Executive Officer

Stephen Ayres, Finance Director


 

Nominated adviser and broker

Canaccord Genuity

Tel: +44 (0) 207 050 6500

Simon Bridges / Kit Stephenson


 

Media enquiries

Abchurch Communications

Tel: +44 (0) 207 398 7729

Sarah Hollins / Mark Dixon / Oliver Hibberd

mark.dixon@abchurch-group.com


 



CHAIRMAN'S STATEMENT

 

The effective combating of terrorist and criminal activity remains a key priority for policy makers in the Group's major target markets with proactive intelligence gathering seen as a key activity.  The reliable provision of usable intelligence for our customers underpins the Group's continuing strategy and growth plans.  During the period DATONG has made progress in diversifying its customer base and with the broadening and integration of its technology portfolio.  However, in the current economic climate, DATONG's business is proving to be volatile with a high degree of dependency on budgetary policy within the Group's markets.  This volatility is reflected in the mixed financial result for the period.  Overall, following a particularly strong year in 2010, revenues have decreased to £11.75 million (2010: £14.06 million) and operating profit before exceptional items to £0.05 million (2010: £0.80 million).  The earnings per share was 1.03 pence (2010: adjusted 6.38 pence).

 

Revenues in the Own Products reportable segment have increased 26% to £9.41 million (2010: £7.47 million; 2009: £6.22 million), reflecting a continuing strong performance in the Americas and growing demand in certain Rest of World ("ROW") countries.  This performance has been underpinned by an expansion in our sales activity, particularly in the US, and the benefits of sustained investment in the Group's product portfolio.  Over the past two years, DATONG has launched a new generation of products and solutions addressing the evolving needs and demands of the Group's customers.  These products and solutions are being very well received with significant orders being taken during the final quarter of the year. 

 

Third Party product revenues in the period decreased to £2.34 million (2010: £6.59 million; 2009: £1.60 million).  This performance reflects the inherent volatility of revenues from this segment of the business.  2010 represented a strong year following a number of major projects, the volume and scale of which was not repeated in 2011.  Protracted sales cycles in certain ROW territories and the change of certain territory rights have also had an adverse impact during the year.  Although an element of volatility is likely to persist, the Board expects to see growth from this segment in future periods.

 

Dividend

The Board considers it prudent to preserve the existing strength of the Group's balance sheet and, consequently at this time, does not recommend the payment of a dividend (2010: £nil).  It remains the Board's intention to adopt a progressive dividend policy when the Group's financial performance allows.

 

Board changes

Dean Blood stood down from his role as Chief Executive Officer in July 2011.  Dean had been with the Group for nearly three years, initially as Chief Operating Officer and subsequently serving two years as Chief Executive Officer during a period of considerable change and difficult trading conditions.  The Group is now actively seeking a new Chief Executive Officer.  As an interim measure, Brian Smith, a Non-executive Director and the previous Chief Executive Officer of DATONG, has taken over as interim Chief Executive Officer.

 

Following his initial appointment in January 2010 as Head of Group Sales, John Kirtland was appointed to the Board on 17 January 2011.  The depth of international experience and knowledge that John has brought to DATONG is proving invaluable in developing the sales structure and markets of the Group.

 

Outlook

DATONG is well positioned in the intelligence gathering sector, a sector expected to be more robust than others within the budgets of international military and security agencies. However, the current world economic situation and resultant budgetary policies makes forecasting the timing of orders a more challenging exercise.

 

The Board is confident of growth for the 2012 financial year however it expects slower progress in the first half as a number of larger sales opportunities in progress are not expected to be deliverable until the second half.  During the first quarter of the year DATONG is prudently restructuring its cost base with a view to reducing costs by £0.50 million on an annualised basis but without impacting our capability and capacity or our ability to meet the existing and medium term delivery and quality needs of our customers.

 

The Board is encouraged by the strategic progress made by the Group in the period in terms of customer interest in new products and solutions and the continuing success being achieved in customer diversification, and remains confident that the Group's strategy will continue to drive the business forward.

 

Paul Lever

Chairman

6 December 2011

 

 

BUSINESS REVIEW

 

Strategy

Government funding for defence, security and law enforcement is being adversely impacted in this continuing period of economic pressure.  However, in the face of persistent and increasingly sophisticated terrorist and criminal activity, strategic spending reviews across a number of DATONG's key geographic markets are delivering a common message.  The priority focus is on the use of special military, intelligence and law enforcement units and the gathering of intelligence in order to proactively prevent incidents and any breach of borders or security. 

 

Over 35 years, DATONG has established a leading brand as a provider of advanced location based intelligence gathering solutions to military, security and law enforcement agencies on an international scale.  Our focus is on fulfilling our customers' high-end specialist tracking, location and surveillance requirements.  The core strategy of the Group is to deliver profitable organic growth through continued investment in leading-edge product, software and service solutions, whilst developing and extending its routes to market and customer base.  Furthermore, strategic alliances and/or acquisitions will be considered to provide such enhanced routes to market or access to complementary technology or service offerings.

 

As set out in more detail below, during the year the Group has made strong progress against these strategic intents and consequently in the short term DATONG will build upon these solid business foundations and focus upon delivering an improved financial return on the investments made. 

 

Investments in associates

In August 2011, in line with demand from major customers, and with three other industry partners, DATONG established a new corporate entity, Medusa Consortium Limited, to commercialise and market for sale a covert tracking system that was interoperable across the partners.  DATONG has a 25% interest in the voting share capital of the new company.  The venture is in its early stages of set up and the Board expects it to be earnings neutral for DATONG in the 2012 financial period.

 

 Market developments

 

An analysis of the revenue for the period by reportable segment and geographic market is set out below.

 



Unaudited



12 months ended

12 months ended

Year on year change


30 September

30 September



2011

2010



£'000

£'000

%

Revenue




Own Products

9,407

7,473

26%

Third Party products

2,338

6,591

-65%


11,745

14,064

-16%

Revenue




UK

2,738

3,896

-30%

Europe

2,648

4,356

-39%

Americas

4,557

3,358

36%

Rest of World

1,802

2,454

-27%


11,745

14,064

-16%





 

DATONG has achieved strong growth in its Own Products segment reflected in a 26% increase in segment revenues for the period.

 

A strong performance from the Americas underpins the segment with a 36% increase in revenues, continuing the growth achieved in 2010.  DATONG has expanded its sales activity in the region during the period and is starting to gain traction with a number of new important customer groups.  This, together with strong customer interest and the sales achieved in the territory from the Group's recently launched products, gives the Board confidence of continued future growth from this critical territory.  Budgetary policy in the territory however continues to impact the timing of orders within any particular financial year. 

 

Following a very strong close to the 2011 financial year, order intake in the first two months of the current year has been comparatively low as our customers have been operating under a continuing resolution where operating budgets have been uncertain and capital spending has been minimal.  Budget appropriations however started to be finalised for a number of key customers at the end of November 2011.

 

Demand for Own Products in the UK and Europe has been solid.  Although a relatively smaller market for Own Products, a number of important customer order wins have been achieved in the Rest of World territory during the period.  Historically the Group has seen greater demand for Third Party products in ROW where there is a high density of mobile phones.  The use of advanced location technology is not as prevalent as in DATONG's traditional markets.  However, customer relationships built largely on the back of Third Party product demand are now starting to provide a route to market for Own Products.

 

Year on year revenues from Third Party products tend to be more volatile than those for Own Products reflecting the nature of the solution, low volume and high price.  Following a particularly strong period in 2010, revenues from Third Party products have declined in all geographic markets.  Whilst DATONG has been successful in expanding its sales activities into certain Eastern European countries, the short term requirements of a number of UK and European customers were fulfilled by a small number of large projects during 2010 and consequently these customers have not placed orders this year.  Meanwhile protracted sales cycles and budgetary delays experienced in the ROW are reflected in reduced revenues for that territory. 

 

Research and Development

 

Research and development (R&D) is a fundamental and central part of DATONG's organic growth strategy.  Consequently, and despite the financial pressures experienced in the period, the Group has continued to invest heavily in this area in response to both customers' funded and non-funded needs.  The main development drivers have been around miniaturisation, longevity of mission life, ease of use and increased interoperability and integration.

 

With the high level of development done over the last two years and with a number of new product launches expected during the next 12 months, the Group has enhanced its product portfolio with the launch of a number of new beacon types and a new next generation range of fixed site and portable receivers. 

 

Supporting its hardware developments, DATONG has also introduced an integrated mapping software suite to the market covering a breadth of applications including operations centres, web based and mobile phone based platforms, all providing the visualisation and analysis of geolocation data to end users. 

 

Customer interest is strong, particularly from the traditional geographic markets, and sales from these new products represented circa 30% of Own Product revenues in the year and with strong customer interest the Board expects this to rise significantly during the current year.

 

To further enhance its software based analysis capability, in July 2011 DATONG formed an exclusive agreement with a software house that has specifically focused on data analysis over recent years.  The introduction of this capability to the DATONG portfolio enables our customers to analyse their location based intelligence more effectively.  Although no sales of this enhanced capability have been recognised in the period, customer interest is strong and the Board expects to see sales in the current period.

 

Current development activity is focussed on the development of additional features and capability aimed at increasing possible market applications of the technology and to support DATONG's strategy of broadening its customer base.

 

Third Party products

 

In April 2011, DATONG extended its territory rights with the Group's cellular Third Party product partner.  The revised agreement introduced some territorial revisions permitting both parties to strengthen their market positions and offering.

 

Territories that are key to supporting the development of the product will now be managed by the partner directly.  This means that DATONG is no longer selling the cellular Third Party product in certain historic territories (including the UK) (the "Lost Territories") but will be developing a number of new significant international markets including the US.  In the period, the Lost Territories contributed £0.22 million to the Group's revenue.

 

This agreement builds upon a successful relationship which, over the last five years, has generated significant sales and successful international market entry for DATONG. Building upon the routes to market DATONG has developed, it is anticipated that these new territories will bring a fresh appetite and new demands for these systems, with DATONG well positioned to support such customer developments.

 

Patent infringement litigation

 

As more fully described in note 9 of these financial statements, DATONG has been subject to a patent infringement claim since 2006.  Having taken appropriate legal advice, the Board has remained confident in DATONG's case throughout the period and, as such, has continued with the defence.  A court of appeal hearing took place on 22 and 23 November 2011 but the substantive judgement has not yet been handed down.  There has been no other material change in the position from that disclosed in the Annual Report and Accounts for the 18 months to 30 September 2010.  A provision for £0.30 million is being carried in respect of the expected share of costs and damages to be borne by the Group for the sums that may ultimately become payable. 

 

 

FINANCIAL REVIEW

 

Basis of financial information

 

We are reporting on the results for the 12 months ended 30 September 2011.  As more fully described in the Annual Report and Accounts 2010, the Group changed its financial year end to 30 September during the previous financial period and therefore the audited statutory comparative financial statements represent the results for the 18 months ended 30 September 2010. For transparency and clarity of the year on year performance and development of DATONG, we are also providing unaudited results for the 12 month period to 30 September 2010.

 



Summary financial information



Unaudited

Audited


12 months to 30 September 2011

12 months to 30 September 2010

18 months to 30 September 2010


£'000

£'000

£'000

Revenue

11,745

14,064

16,874

Adjusted operating profit/(loss)*

48

802

(513)

Adjusted profit/(loss) before tax*

48

819

(495)

Adjusted EPS (pence)*

1.03

6.38

(0.51)

(Decrease)/increase in cash

(1,311)

880

345

Net cash at period end

1,268

2,575

2,575

* Adjusted to exclude the exceptional costs incurred in 2010 as detailed in note 7.

Revenue and profit from operations

The Group revenue for the period fell to £11.75 million (2010: £14.06 million) reflecting the continued growth in the Own Products reportable segment offset by a reduction in Third Party products.  Profit from operations before exceptional items fell to £0.05 million (2010: £0.80 million). 

 

By the nature of its operations, the Group is exposed to fluctuations in the US dollar exchange rate, which is largely managed by way of forward exchange contracts.  The average rate in the period was $1.60 (2010: $1.54) resulting in an adverse translational impact compared to a constant currency position of £0.16 million in revenues and £0.10 million in profit.

 

A modest improvement in the Own Products margin was offset by an increase in overhead costs arising from employment termination costs recognised in the period of £0.30 million (2010: £nil).  The improved margins reflect a number of business improvement initiatives designed to improve quality and efficiency throughout the organisation.  Tangible benefits are already being seen and they are expected to lead to continued margin improvement in the current period.

 

Gross R&D expenditure in the year was £1.74 million (2010: £1.96 million) representing 18% of Own Product revenues and the net costs written off against profits were £1.54 million (2010: £1.62 million).

 

The Group revenue for the 18 months ended 30 September 2010 was £16.87 million and the loss from operations before exceptional items was £0.51 million.

 

Taxation

The tax credit for the period of £0.10 million (18 months to 30 September 2010: £0.42 million) incorporates a debit adjustment of £0.06 million (2010: credit of £0.08 million) in respect of prior years and includes the continuing benefit of UK tax incentives associated with the Group's research and development activities.

 

Earnings per share and dividends

Earnings per share for the period were 1.03 pence per share (2010 adjusted: 6.58 pence).  The 2010 adjusted earnings per share was calculated using the unaudited profit for the period before exceptional items divided by the weighted average number of shares in issue.  The loss per share for the 18 months ended 30 September 2010 was 2.95 pence. 

The Board is not recommending the payment of a dividend (2010: £nil).

 

Cash flow and net cash

The net cash outflow from operating activities but after the purchase of tangible and intangible assets during the period was £1.67 million (2010: inflow of £0.88 million) and was adversely affected by the build up of working capital, which is expected to reverse during the first half of 2012 and which reflects the timing of certain deliveries to customers and from suppliers around the year end.  Net trade receivables and trade payables at the year end were £2.68 million (2010: £1.20 million). 

 

Cash of £375,000 was received in the period from the sale of old premises no longer used by the Group and previously classified in the balance sheet as assets held for sale.

 

Cash and cash equivalents at 30 September 2011 were £1.27 million (2010: £2.58 million). The Group had no debt.

 

For the 18 months ended 30 September 2010 the net cash inflow from operating activities but after the purchase of tangible and intangible assets was £0.35 million.

 



PRINCIPAL RISKS

 

The Board monitors potential business risks and endeavours to manage those risks through appropriate means including employee involvement, robust financial and business controls and polices and contracts of insurance.

 

As an international provider of advanced electronic systems into government bodies, DATONG is subject to many of the same risks faced by similar such organisations. Specific risks to DATONG include:

 

Customer base

DATONG's customer base largely compromises government bodies and as such DATONG faces risks and opportunities associated with changes in political and economic policies and changes to international trade relationships and restrictions. DATONG's strategy involves further expansion of its product and service portfolio, customer base and geographic markets that will further diversify this risk.

 

Technological changes

The electronics market in which DATONG operates is characterised by technological change, changes in customer requirements and changes in industry standards resulting in the frequent introduction of new products. 

 

DATONG has created and maintains appropriate personnel policies necessary to attract, develop and retain appropriately qualified personnel and ensures sufficient resources are allocated to the research and development activities to meet the technical demands.

 

Third Party product supply

Third Party sales represent products bought in from third parties and distributed by DATONG. They represented 20% (2010: 47%) of the Group revenues in the period. Distribution rights have been protected by formal agreements and strong relationships have been built with our partners.

 

Foreign currency risk

DATONG is exposed to movements in foreign exchange rates, particularly the US dollar, which is managed by way of forward exchange contracts. The exchange rates used during the period to translate dollar based transactions and year end dollar based assets are shown in the table below:

 

 

US Dollar

Average* rate during the 12 months to 30 September 2011

Average* rate during the 12 months to 30 September 2010

Period end rate at 30 September 2011

Period end rate at 30 September 2010

£1

1.60

1.54

1.56

1.57

*Average represents the average rate weighted by sales distribution.

 

KEY PERFORMANCE INDICATORS

The key performance indicators used to measure the performance of the Group are as follows:



Unaudited

Audited


12 months ended 30 September 2011

12 months ended 30 September 2010

18 months ended 30 September 2010

Orders received (£'000)

10,742

13,757

18,667

Revenue (£'000)

11,745

14,064

16,874

Revenue per employee (£'000)

129

165                                      

199

Profit/(loss) from operations before exceptional items (£'000)

48

   802

(513)

Operating margin (%)*

0.41

5.70

(3.04)

Return on capital employed (%)**

0.56

10.94

(7.00)

*Operating margin is the profit from operations before exceptional items expressed as a percentage of revenues.

** Return on capital employed is the profit from operations before exceptional items expressed as a percentage of capital employed. Capital employed is net assets less net cash.

 

CURRENT TRADING AND PROSPECTS

Order intake in the weeks since the period end has been below expectations reflecting the continuing sales volatility experienced over recent periods.  The sales order pipeline however remains strong although a number of the larger opportunities are expected to have delivery timescales in the second half year.

 

The Board believes that the first half year of the current period will be below last year. However, from the current sales pipeline and with the positive strategic progress made on product development and customer diversification to build upon, the Board expects to achieve profit growth for the full year.

 

Over 2012 whilst we will continue to maintain focus and capability on our customers and driving revenue growth we will also prudently restructure the cost base during the first quarter with a view to reducing costs by £0.50 million on an annualised basis, thereby improving operating margins.

 

Brian Smith

Chief Executive

 

Stephen Ayres

Finance Director

 

6 December 2011



Consolidated Income Statement for the year ended 30 September 2011



12 months

Unaudited 12 months

Audited

18 months



ended

ended

ended



30 September

30 September

30 September



2011

2010

2010

Continuing operations

Note

£'000

£'000

£'000

Revenue

2

11,745

14,064

16,874

Cost of sales


(6,563)

(8,312)

(10,310)

Gross profit


5,182

5,752

6,564

Overhead costs


(5,126)

(4,950)

(7,077)

Share of post-tax result of associate


(8)

-

-

Exceptional impairment charge

7

-

(337)

(337)

Profit/(loss) from operations

2

48

465

(850)

Investment income


1

20

22

Finance costs


(1)

(3)

(4)

Profit/(loss) before taxation


48

482

(832)

Taxation

3

95

64

424

Profit/(loss) for the period attributable to equity holders of the Company


143

546

(408)

Profit/(loss) per ordinary share (pence)





Basic

4

1.03

3.95

(2.95)

Diluted

4

1.03

3.95

(2.95)






 



Consolidated Statement of Comprehensive Income for the year ended 30 September 2011


12 months

Unaudited 12 months

Audited

18 months


ended

Ended

ended


30 September

30 September

30 September


2011

2010

2010


£'000

£'000

£'000

Profit/(loss) for the period

143

546

(408)

Other comprehensive income




Currency translation differences

(18)

2

9

Total comprehensive income for the period attributable to equity holders of the Company

125

548

(399)

 



Consolidated Statement of Financial Position at 30 September 2011



2011


2010


Note

£'000

£'000


£'000

£'000

Assets







Non-current assets







Intangible assets


3,070



2,866


Property, plant and equipment


1,148



1,406


Investments in associates


(8)



-


Deferred tax assets


4



334





4,214



4,606

Current assets







Inventories

5

2,028



1,965


Trade and other receivables

6

4,112



2,893


Derivative financial instruments


-



22


Tax receivables


161



10


Cash and cash equivalents


1,268



2,575





7,569



7,465

Assets held for sale

7


-



375

Total assets


11,783



12,446

Liabilities







Current liabilities







Trade and other payables

8

(1,563)



(2,154)


Obligations under finance leases


-



(16)





(1,563)



(2,170)

Non-current liabilities







Deferred tax liabilities


(48)



(68)


Provisions

9

(300)



(300)





(348)



(368)

Total liabilities



(1,911)



(2,538)

Net assets


9,872



9,908

Equity







Share capital


69



69


Share premium


4,468



4,468


Currency translation reserve


(17)



1


Retained earnings


5,352



5,370


Equity attributable to equity holders of the Company


9,872



9,908

 



 

Consolidated Statement of Changes in Equity for the year ended 30 September 2011




Currency




Share

Share

translation

Retained



capital

premium

reserve

earnings

Total


£'000

£'000

£'000

£'000

£'000

At 1 April  2009

69

4,468

(8)

5,676

10,205

Loss for the period

-

-

-

(408)

(408)

Cost of share-based incentives

-

-

-

102

102

Currency translation differences

-

-

9

-

9

At 30 September 2010

69

4,468

1

5,370

9,908

Profit for the year

-

-

-

143

143

Cost of share-based incentives

-

-

-

(161)

(161)

Currency translation differences

-

-

(18)

-

(18)

At 30 September 2011

69

4,468

(17)

5,352

9,872

 



Consolidated Statement of Cash Flows for the year ended 30 September 2011



12 months

Unaudited

12 months

Audited

18 months



ended

Ended

ended



30 September

30 September

30 September



2011

2010

2010



£'000

£'000

£'000

Cash flows from operating activities





Profit/(loss) from operations


48

465

(850)

Adjustments for:





Depreciation and amortisation


1,576

1,685

2,516

Impairment of assets held for sale


-

324

324

Share of post-tax result of associate


8

-

-

Profit on disposal of property, plant and equipment


-

(1)

(1)

Cost of share-based incentives


(161)

42

102

Fair value loss/(gain) on derivative financial instruments


22

(20)

(28)

(Increase)/decrease in inventories


(45)

243

3

Increase in trade and other receivables


(1,224)

(1,750)

(181)

(Decrease)/increase in trade and other payables


(627)

1,135

275

Tax received


254

650

703

Net cash (used in)/generated from operating activities


(149)

2,773

2,863

Cash flows from investing activities





Interest received


1

20

22

Sales of property, plant and equipment


375

1

1

Purchases of property, plant and equipment


(203)

(354)

(425)

Purchase of intangible assets


(1,318)

(1,543)

(2,091)

Net cash used in investing activities


(1,145)

(1,876)

(2,493)

Cash flows from financing activities





Interest paid


(1)

(3)

(4)

Capital element of finance leases repaid


(16)

(14)

(21)

Net cash used in financing activities


(17)

(17)

(25)

Net (decrease)/increase in cash and cash equivalents


(1,311)

880

345

Cash and cash equivalents at the start of the period


2,575

1,704

2,236

Effect of foreign currency translation


4

(9)

(6)

Cash and cash equivalents at the end of the period


1,268

2,575

2,575



Notes

1.   Basis of preparation

This financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The accounting policies used in its preparation are the same as those applied and set out in the Company's financial statements for the 18 months to 30 September 2010.  The financial information represents consolidated financial information for the Company and its subsidiary undertakings and is derived from the Group's consolidated financial statements for the year ended 30 September 2011.  It does not constitute the Company's statutory accounts.  Statutory accounts for the 18 months to 30 September 2010 have been delivered to the registrar of companies, and those for the year ended 30 September 2011 will be delivered in due course.  The Group's auditors, Saffery Champness, gave an unqualified report on the 2010 financial statements.

2. Segment information

 

Information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on types of goods delivered. The Group's reportable segments under IFRS 8 Operating Segments are Own products and Third Party products. Own products represents products developed, manufactured and distributed by the Group. Third Party products represents products bought in from a third party and distributed by the Group.

 

Segment revenues and results

The segment results for the year are as follows:


12 months ended 30 September 2011

Unaudited

12 months ended

30 September 2010

 

 

Audited

18 months ended

30 September 2010





Revenue

Result

Revenue

Result

Revenue

Result


£'000

£'000

£'000

£'000

£'000

£'000

Segment revenue and results







Own products

9,407

4,205

7,473

3,214

10,053

3,770

Third Party products

2,338

832

6,591

2,352

6,821

2,513


11,745

5,037

14,064

5,566

16,874

6,283

Unallocated costs


(4,981)


(5,101)


(7,133)

Share of post-tax result of associate


(8)


-


-

Profit/(loss) from operations


48


465


(850)

Investment income


1


20


22

Finance costs


(1)


(3)


(4)

Profit/(loss) before taxation


48


482


(832)

Taxation


95


64


424

Profit/(loss) for the period


143


546


(408)

 

Segment revenue represents revenue generated from external customers. Inter segment sales were not significant.

 

The products from both reportable segments are offered for sale in the same market sectors and consequently the reportable segments are managed together as one business operating from the same locations. Accordingly only directly attributable items have been allocated across the segments.

 

An analysis of the Group's revenue by its major products and services is represented by the above analysis by reportable segment.

 

Other segment information

The segments' assets and liabilities at 30 September 2011 for the period then ended are as follows:


2011


2010


Assets

Liabilities


Assets

Liabilities


£'000

£'000


£'000

£'000

Segment assets and liabilities






Own products

9,087

794


6,245

1,211

Third Party products

1,014

798


1,741

1,091


10,101

1,592


7,986

2,302

Unallocated

1,682

319


4,460

236


11,783

1,911


12,446

2,538

 

Segment assets principally relate to property, plant and equipment, intangible assets, inventories and trade and other receivables. Unallocated assets principally relate to unallocated property, plant and equipment, tax receivables, assets held for sale and cash and cash equivalents.

 

Segment liabilities principally relate to provisions and trade and other payables. Unallocated liabilities principally relate to tax payables and borrowings.


Geographical information

The Group's two reportable segments operate in four main geographical areas, even though they are managed on a worldwide basis.  The revenue from external customers across those geographic areas was:


 

12 months ended 30 September 2011

Unaudited

12 months ended 30 September 2010

Audited

18 months ended 30 September 2010

Geographical segments




United Kingdom

2,738

3,896

4,713

Europe

2,648

4,356

4,792

Americas

4,557

3,358

4,894

Rest of World

1,802

2,454

2,475


11,745

14,064

16,874

Revenue is reported by the geographical location of customers.

 

3. Taxation





12 months

18 months


ended

ended


30 September

30 September


2011

£'000

2010

£'000

UK tax:



- current year

(151)

-

- prior year

-

(74)

Total UK tax

(151)

(74)

Deferred tax:



- current year

(2)

(347)

- prior year

58

(3)

Total deferred tax

56

(350)




Tax credit for the period

(95)

(424)




The tax credit included in the share of the post-tax result of associate is £2,000 (2010: £nil).

 

The current tax credit differs from the theoretical amount that would arise using the profit/(loss) before taxation and the standard rate of UK corporation tax as follows:


12 months

18 months


Ended

ended


30 September

30 September


2011

2010


£'000

£'000

Profit/(loss) before taxation

48

(832)

Tax at UK corporation tax rate of 26% (2010: 28%)

13

(233)

Effects of:



- permanent timing differences

(176)

(201)

- adjustment in respect of prior years

58

(77)

- unrecognised deferred tax assets

8

87

- share of tax on result of associate

2

-

Tax credit for the period

(95)

(424)

 

4. Earnings per ordinary share

 

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

 

Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive shares arising from outstanding share options. For this adjustment, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price during the period) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of share options. The difference is added to the denominator as additional shares for no consideration. There is no adjustment made to the numerator.

 


12 months

18 months


ended

ended


30 September

30 September


2011

2010

Profit/(loss) for the period attributable to equity holders of the Company (£'000)

143

(408)

Weighted average number of ordinary shares in issue for basic and diluted earnings per share

13,834,375

13,834,375

Basic and diluted earnings/(loss) per share (pence)

1.03p

(2.95)p

 

At 30 September 2011 options over 737,010 (2010: 1,145,695) additional shares had been granted that could potentially dilute basic earnings per share in the future, but were not included in the calculation of dilutive shares because, based on the conditions during the period, the effect would not have been dilutive.

 

5. Inventories


2011

2010



£'000

£'000


Raw materials

851

732


Work in progress

355

500


Finished goods and goods for resale

822

733



2,028

1,965






 

6. Trade and other receivables


2011

2010



£'000

£'000


Trade receivables

3,685

2,717


Less: provision for impairment of trade receivables

-

(43)



3,685

2,674


Other receivables

258

34


Prepayments and accrued income

169

185



4,112

2,893






 

Movements on the provision for impairment of trade receivables are as follows:


2011

2010



£'000

£'000


At start of year

43

49


Receivables written off during the year

(43)

(6)


At end of year

-

43


 

7. Assets held for sale






2011

2010






£'000

£'000

Non-current assets classified as held for sale:







Property, plant and equipment





-

375








 

Assets held for sale represent a vacant freehold property no longer used by the Group. During 2010 the Board re-assessed the value of the property to £375,000 and accordingly the Group recognised an exceptional impairment loss of £337,000 in that period. The property was sold for £375,000 during the year ended 30 September 2011.

 

 

8. Trade and other payables


2011

2010



£'000

£'000


Trade payables

1,010

1,476


Other taxes and social security

108

136


Other creditors

163

16


Accruals and deferred income

282

526



1,563

2,154






 

9. Contingent liabilities

Since 2006 the Company has been a party to court proceedings in which MMI Research Limited ("MMI") alleged that a Third Party product for which the Company acts as a reseller infringes the UK element of a patent that MMI jointly owns. The proceedings were brought against the Company's supplier and the Company (the "Defendants") by virtue of its reselling activities.

 

In March 2009, the High Court passed judgement in favour of MMI. An injunction was subsequently granted prohibiting the Defendants from selling infringing products into the UK and MMI are now seeking damages for past infringements in the UK and a payment of their costs. A number of open issues surrounding the case make it difficult to determine the damages which may become payable to MMI as a result of the court's decision. The amount of damages and costs payable by the Defendants will be quantified at further court proceedings and, when assessed, the liability to pay them will be between the Defendants on a joint and several basis and is thus a contingent liability of the Company. As between the Defendants the Company's supplier is meeting the legal costs of the proceedings.

 

The Company has made five potentially infringing sales at a total value of approximately £0.4m. It is expected that MMI will be seeking circa £1.4 million in relation to its legal costs (of which the Company's supplier has already paid £0.4 million on account).

 

During 2009 the Company made a provision of £0.3 million in respect of the expected share of costs and damages to be borne by the Company for the sums that may ultimately become payable to MMI. The assumptions made in establishing this provision relate to the number of infringing acts, an estimate of the damages per infringement, the legal costs claimed by MMI and the continued solvency of the co-defendants. Given the open issues surrounding the case and the inherent difficulties in estimating liabilities it cannot be guaranteed that additional costs will not be incurred beyond the amounts provided.

 

Notwithstanding the judgement and the progression of proceedings in respect of damages and costs, having taken appropriate legal advice, the Defendants continue to have confidence in their case and, as such, continue with their defence.  A court of appeal hearing took place on 22 and 23 November 2011 but the substantive judgement has not yet been handed down. 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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