Final Results

OMG PLC 02 December 2004 OMG plc ('OMG' or 'the Company') Preliminary results for the year ended 30 September 2004 OMG, the global leader in 3D capture and analysis of movement, providing tools and services for life sciences, entertainment and engineering applications, announced today its preliminary results for the year ended 30 September 2004. Highlights: • Turnover increased 13% to £10.9m (2003 restated*: £9.6m) • Record level of trading in the second half following the launch of Vicon MX product range with the worlds first 4 million pixel optical motion capture system (announced 3 June 2004) • Profitable trading period with profit before tax of £0.5m (2003 restated *: £0.8m) • Gross profit temporarily impacted by cost of transition to new product range but higher volumes already leading to lower cost of manufacture • House of Moves, acquired at the end of May 2004, made positive contribution to operating profit • Change of Japanese distributor caused disruption to order flow, now growing with good prospect list • Strong growth in Europe and UK • Strong market positioning in the Entertainment sector continues Julian Morris, Chief Executive, commented: 'It has been a hugely eventful period with the integration of House of Moves, launch of Vicon MX and record trading levels. We are now over the hump of higher manufacturing costs and are looking forward to improved profitability. We continue to evaluate opportunities for diversification and growth through acquisitions.' For further information please contact: Julian Morris, Chief Executive, julian.morris@omg3d.com Peter Wharton, Finance Director, peter.wharton@omg3d.com Tel: 01865 261800 Tim Thompson / Tom Carroll Buchanan Communications Tel: 020 7466 5000 About OMG OMG plc (LSE: OMG) trades through operating subsidiaries in the name of VICON Motion Systems in the UK and USA and through a network of distributors in other major countries. OMG subsidiary 2d3 Limited produces innovative visual geometry software deriving 3D data from moving images. Since 1984, VICON has been providing professionals with the latest tools to accurately capture the subtleties of three-dimensional human motion for research, life science, sport, engineering, game development, broadcast and film. Recently acquired House of Moves provides motion capture services to leading games and film producers in the USA from one of the worlds largest dedicated motion capture studios based in the Hollywood area. For more information about OMG, or it subsidiaries, visit www.omg3d.com www.vicon.com, www.2D3.com, or www.moves.com. JOINT STATEMENT BY THE CHAIRMAN AND THE CHIEF EXECUTIVE The Company has made significant progress during the year ended 30 September 2004 with record full and second half year revenues. Other highlights for the year include the Company's first acquisition and its most significant new product release in a decade. Costs of manufacture were higher than expected but are already significantly reduced through use of new manufacturing channels. Financial Summary Turnover from continuing operations (excluding the House of Moves acquisition) rose 7% to £10.3m (2003 restated*: £9.6m), although underlying growth after removing the effect of the weaker dollar was 13%. The impact on revenues of the weaker dollar was partially offset by dollar denominated costs in OMG's two US operating companies and from some of the component purchases being priced in US dollars. The transition to the new product range impacted gross profit in three ways: lower margins on the existing product range during the transition, higher than expected initial manufacturing costs, and additional provisions for stock obsolescence. As a result, gross profit on continuing operations (excluding the House of Moves acquisition) was £0.3m lower than the previous year at £5.7m (2003 restated*: £6.0m), representing 55% of turnover (2003 restated*: 62%). House of Moves, acquired at the end of May, contributed £0.6m to revenues, £0.4m to gross profit and £76,000 to operating profit (net of goodwill amortisation) for the four months it was part of the Group. Overall, Group revenues rose 13% to £10.9m (2003 restated*: £9.6m).Profit before tax was lower at £0.5m (2003 restated*: £0.8m). Earnings per share for the period was 0.77p (2003 restated*: 1.52p). The cash position remained strong at £4.1m (2003: £4.8m) after the purchase of House of Moves using £0.6m and investment in infrastructure and equipment across the Group of £0.8m. Market & Business Review Global Markets 2004 has been an eventful year. Annual revenues and unit shipments were both at all-time highs. As predicted at the half year, sales were heavily weighted into the second half, following the release of new products. OMG brands continue to dominate their market sectors against strong competition from a wide range of smaller suppliers. Global markets for OMG's products and services are growing, but with significant variations by geography and application. Sales to UK markets achieved an all-time high of £2.2m, 149% up on last year (2003 restated*: £0.9m) and representing 20% of global sales. A large number of Life Science and Engineering sales to academic departments were facilitated by a general increase in UK government research spending. As anticipated in last year's statement, Continental European sales recovered well, more than doubling from last year's doldrums to £1.7m (2003 restated*: £0.8m). Performance has been particularly strong in Scandinavia, Italy and German speaking countries. Total revenues from US markets were up 7% to £5.1m compared with last year (2003 restated*: £4.8m) including a significant contribution from House of Moves. US revenue growth was led by the Entertainment market and dominated by a single large contract for over £800,000. As reported in the first half, the decision to change Vicon's Japanese Life Science and Engineering distributor at the start of the year, together with generally weaker markets in the Far East, had a significant impact on Far East sales which were 47% down at £1.7m (2003 restated*: £3.2m). Recent market feedback indicates that, as a result of significant investment by the new distributor, there is good potential for growth and upgrades to the large installed Japanese user base. House of Moves Acquisition In May, OMG completed its first acquisition of House of Moves, a motion capture service business located in Hollywood, close to its client base of film and games production companies. The synergy between Vicon Motion Systems, the leading supplier of motion capture equipment, and House of Moves, the leading supplier of mocap services, is clear. The integration has been very successful and has enabled House of Moves to make a significant contribution to profits for the year after only four month of the combined operation. Application Highlights Vicon's new distributor in Japan has demonstrated its capabilities by winning a major contract to install a 3D optical tracking system to measure the dynamics of buildings during earthquakes. Full-scale building sections are mounted on a 20m-square, 6 degree-of-freedom hydraulic shaker table requiring so much power that it is driven by a private power station. In what is believed to be the largest volume optical motion capture installation in the world, an array of 48 Vicon cameras monitors the 3D movements of points distributed throughout the building model. Polar Express, starring Tom Hanks and released in the US and UK during November 2004, is the first animated feature film to make use of a star-billed actor not only for voice-over but also to drive the motion of the characters. The Vicon system used for that film was supplied to Sony Pictures in California during 2003. Following the success of this project, an even larger system has been created, generating revenues of over £800,000 during the second half year. 2d3 has been a lead partner in a European government-funded project testing technologies to allow visitors to archaeological sites to visualise their surroundings as they would once have been. Users wear a light-weight head-mounted stereo display. As they move around they see a 3D image which combines the real scene today with structures and people from the past. To achieve convincing realism the real and virtual worlds must be very accurately superimposed. 2d3 developed a highly accurate real-time tracker based on images from a tiny video camera mounted on the subject's head. Board & Management Changes During the year, the company implemented a significant restructuring of its Board and senior management. Retirement On 30 September 2004, after 14 years with the company, Peter Meddings, Director of Sales and Marketing, retired and resigned from the Board. On behalf of all staff and shareholders, we wish him well. US Management The growth in the scale of our US business requires a strong management team responding to local conditions. Of particular note: sales to North American customers are made directly rather than through distributor channels, global entertainment is dominated by the US market and many of the Company's key manufacturing components and services are sourced in the US. Brian Nilles, Chief Executive of Vicon Motion Systems Inc since 1999, was appointed to the Board as Director of US Operations on 14th September 2004 including responsibility for Vicon Motion Systems Inc and House of Moves Inc. UK Management UK operations covering research and development, international sales, customer support, production management and final assembly and QA have been brought together under a new management team. Chris Steele, Director of Business Development since 2003, was appointed Director of UK Operations on 1st September 2004 including responsibility for Vicon Motion Systems Ltd and 2d3 Ltd. Marketing Directorship The company is currently seeking to appoint a Director of Marketing, completing the planned changes to the Executive board. Managing Diversified Growth An important element of the company's strategy is diversified growth based on its wide portfolio of technologies and application experience. Julian Morris, Chief Executive, takes over responsibility for directing this strategy. Technology & Engineering Update More than one third of OMG employees are engaged in Research and Development. While the costs of R&D are relatively steady, the fruits of these labours do not appear at regular intervals. In June 2004, the Company announced the release of Vicon MX, a new motion capture system. Developed over three years, Vicon MX represents the Company's most significant product upgrade in a decade. New design and manufacturing methods will make it possible for Vicon MX to span a very wide range of specification, price and cost. Shipments of the new system started at the end of July 2004. Vicon MX - 'Smart' Cameras Vicon has been building special-purpose motion-capture cameras since 2000: MCam, MCam2, VCam and SVCam. These are essentially very high performance video cameras whose images are analysed on a central electronic processing unit, known as a 'datastation'. The new family of Vicon MX cameras, which began deliveries to customers in July 2004, can no longer be described as 'video'. Behind the lens of every MX camera is a high speed imaging sensor with up to 4 million pixels connected directly to multiple digital processors within the camera itself. These processors complete an analysis of each image, with over 10 times previous levels of accuracy, in a few thousandths of a second. The results of the analysis are then transmitted by a high-speed Ethernet stream to the central PC for further analysis. Multiple camera/processors are networked together to create an integrated 3D measurement system. The networked interconnection of camera/processors also means that any individual Vicon MX camera installed anywhere in the world can in principle be remotely accessed, tested and/or upgraded by qualified Vicon support staff working anywhere with an Internet connection. Vicon System Software In a Vicon MX system, software is now distributed among multiple cameras and at least one central Vicon PC processor. This has provided the opportunity for a major redesign of Vicon's primary software products, Vicon Workstation and Vicon iQ. Higher accuracy and system performance have been achieved both by distributing the workload among the many processors but also by use of more accurate algorithms, for example to make better corrections for lens distortions. All Vicon markets have welcomed the release of the new system which is considered to give the Company a clear lead over all competitors in the market. boujou Bullet A new version of 2d3's market-leading camera tracking software, code-named 'Bullet', was announced at SIGGRAPH in July 2004. Bullet is equal in performance to earlier versions of boujou but also includes features making it even easier to use. With a much lower price ($2,500) and sale exclusively over the Internet (except in Japan), Bullet is reaching new customers outside the specialised visual effects market. A further release (v3) of boujou with major new features for the visual effects market will start to ship later in the current year. Manufacturing Costs A significant design objective for the Vicon MX system was to lower manufacturing costs by taking advantage of the latest electronic production methods applied to Vicon's increased unit volumes. When Vicon MX was announced in June 2004, the upturn in demand was immediate with the result that shipments in the final quarter were higher than the whole first half of the year. This high level of demand, coinciding with the need to build prototype batches of a completely new product, meant that initial production costs were higher than anticipated. However, planned efficiencies in manufacture are now beginning to deliver significantly lower costs and as a result, gross margins and are expected to continue to improve throughout the current year. Once these changes are fully implemented, manufacturing costs should be significantly lower than for previous generations of the product. Outlook OMG is pursuing a four-part strategy for growth. The company will continue to invest in those areas of its core business which show the greatest potential for profitable growth. At the same time it will to continue to deliver attractive hardware and software upgrade options to its large user base. The global marketplace in which the company now operates provides opportunities for mutually beneficial business relationships, including opportunities for mergers and acquisitions which we continue to evaluate. Lastly, the company continuously assesses opportunities for significant diversifications based on its wide portfolio of technologies and application experience. The short-term impact of high transition and start-up costs associated with the new Vicon product range should not disguise the fact that the Company has taken specific steps to achieve significant improvements in gross margin through improved product design and new manufacturing channels. The benefits of these changes will flow through during the current year. Dividend Policy As in previous years, the directors are not declaring a dividend, although the dividend policy will be kept under review. Shareholder, Employee and Director Support We should like to thank all shareholders, employees, directors and customers for their continuing support and hope that they will enjoy a long association with the company. Anthony Simonds-Gooding, Chairman Julian Morris, Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 2004 2003 2004 2004 2004 (As restated Continuing Continuing Continuing See Note 1) Operations Operations- Operations Continuing Acquisitions Total Operations £'000 £'000 £'000 £'000 Turnover 10,329 566 10,895 9,649 Cost of sales (4,637) (181) (4,818) (3,677) ------ ---- ------ ------ Gross profit 5,692 385 6,077 5,972 Sales, support and marketing costs (2,330) (30) (2,360) (2,165) Research and development (1,356) (43) (1,399) (1,378) Administrative expenses (1,910) (236) (2,146) (1,826) Grant income 114 - 114 80 ------ ----- ------ ------ Operating profit 210 76 286 683 Interest receivable and similar income 171 120 ------ ------ Profit on ordinary activities before taxation 457 803 Tax charge on profit on ordinary activities (51) (34) ------ ------ Retained profit for the financial year 406 769 ====== ====== Basic earnings per ordinary share 0.77p 1.52p Diluted earnings per ordinary share 0.71p 1.37p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2004 2003 (As Restated See 2004 Note 1) £'000 £'000 Retained profit for the financial year 406 769 Exchange differences (7) (4) ---- ---- Total recognised gains and losses for the year 399 765 ==== Prior Year Adjustment (note 1) (227) ---- Total Recognised gains and losses since the last annual report 172 ==== BALANCE SHEETS AT 30 SEPTEMBER 2004 Group Group Company Company 2003 (As restated 2004 See Note 1) 2004 2003 £'000 £'000 £'000 £'000 Fixed assets Intangible assets 891 - 56 - Tangible assets 863 324 195 33 Investments - - 645 107 ----- ---- ---- ---- 1,754 324 896 140 Current assets Stocks 1,712 1,365 - - Debtors 3,239 2,506 2,794 2,180 Cash at bank and short term deposits 4,096 4,826 3,152 4,334 ----- ----- ----- ----- 9,047 8,697 5,946 6,514 Creditors: amounts falling due within one year (2,558) (1,578) (240) (178) ------ ------- ----- ----- Net current assets 6,489 7,119 5,706 6,336 ------ ------- ----- ----- Total assets less current liabilities 8,243 7,443 6,602 6,476 ====== ======= ===== ===== Creditors : amounts falling due after more than one year (82) - - - ------ ------- ----- ----- Net Assets 8,161 7,443 6,602 6,476 ====== ======= ===== ===== Capital and reserves Share capital 138 129 138 129 Share premium account 5,370 5,301 5,370 5,301 Shares to be issued 241 - - - Profit and loss account 2,412 2,013 1,094 1,046 ----- ----- ----- ----- Total equity shareholders' funds 8,161 7,443 6,602 6,476 ===== ===== ===== ===== CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 2004 2004 2003 £'000 £'000 Net cash inflow from operating activities 236 962 Returns on investments and servicing of finance Interest received 169 120 Taxation 164 (38) Capital expenditure and financial investment Purchase of tangible fixed assets (780) (256) Disposal of tangible fixed assets 43 179 Acquisitions Purchase of subsidiary undertaking (629) - Financing Issue of ordinary share capital 78 36 ----- ----- (Decrease) / increase in cash (719) 1,003 ===== ===== NOTES TO THE PRELMINARY ANNOUNCEMENT For the year ended 30 September 2004 1. Basis of Preparation The financial statements have been prepared on the going concern basis, under the historical cost convention and in accordance with the Companies Act 1985 and applicable accounting standards in the United Kingdom. The principal accounting policies, which except for where noted, have been applied consistently throughout the year, are stated below. The principal accounting policies of the Group have remained unchanged from the previous year except for the adoption of Financial Reporting Standard ('FRS') 5, Application Note G 'Reporting the Substance of Transactions': Revenue Recognition. The comparative figures have been restated to reflect this change of accounting policy. Application Note G, which became effective for accounting periods ending after 23 December 2003 provides specific guidance to certain types of transactions, which have previously been subject to a range of differing but acceptable interpretations. In implementing the new guidance the Directors have conducted a re-evaluation of the separable components included within a sales transaction, and re-assessed the fair value attributed to each component. The effect of adopting this new policy has been to increase the fair value of components, which are recognised as revenue after the delivery of the system. The effect on existing revenue and results can be summarised as follows: - For the 12 months to 30 September 2004, revenues have been decreased by £38,000, profit before tax has been decreased by £31,000, and net assets have been decreased by £258,000. - For the 12 months to 30 September 2003, revenues have been decreased by £109,000, cost of sales decreased by £21,000, and so profit before tax has been decreased by £88,000, and net assets have been decreased by £227,000. The tax effect of the prior year adjustment on 2003 is to reduce the tax charge to the group by £4,000, which in the balance sheet has increased the corporation tax recoverable from £166,000 to £170,000. The balance of £231,000 in unrecognised revenues has increased accruals and deferred income from £790,000 to £1,021,000. The directors have taken the view that clearer categorization on the face of the profit and loss account would enhance the presentation to the user. Therefore costs relating to sales, support, and marketing have been separately analysed, where previously they were classified with administration expenses. Additionally, the group's definition of costs of sales has been broadened to include all other production overheads, resulting in the cost of sales for 2003 increasing by £394,000, and gross profit and administration expenses reducing by the same amount. 2. Basis of Consolidation The consolidated financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 30 September 2004. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting from the date of acquisition. 3. Turnover and Segmental Analysis An analysis of turnover destination by geographical market is given below: 2004 2003 (As restated) £'000 £'000 United Kingdom 2,217 891 Continental Europe 1,746 775 North America 5,082 4,751 Far East 1,691 3,177 Other 159 55 ------ ----- 10,895 9,649 ====== ===== An analysis of turnover by origin is given below: 2004 2003 (As restated) £'000 £'000 United Kingdom 5,965 5,163 North America 4,930 4,486 ------ ----- 10,895 9,649 ====== ===== An analysis of operating profit and net assets by geographical origin is given below: Operating profit / (loss) Net Assets/(liabilities) 2004 2003 2004 2003 (As restated) (As restated) £'000 £'000 £'000 £'000 United Kingdom 177 709 8,147 7,516 North America 109 (26) 14 (73) --- --- ----- ----- 286 683 8,161 7,443 === === ===== ===== All of the turnover, operating profit and net assets attributable to the acquisition is from North America. 4. Tax On Profit On Ordinary Activities The tax charge is based on the profit for the year and represents: 2004 2003 Current tax £'000 £'000 United Kingdom corporation tax at 30% (2003: 30%) - - Overseas taxation 51 34 -- -- Total current tax 51 34 == == At 30 September 2004, the group had an undiscounted deferred tax asset of £255,000 (2003:£187,000), which has not been recognised. The asset is due to the combination of accelerated capital allowances of £124,000 (2003: £nil), and the accumulated unrelieved tax losses of £725,000 (2003: £623,000) available to a subsidiary undertaking of the Group, to offset against future taxable trading profits of the same trade. Due to the risks and uncertainties over the subsidiary's timing and extent of future profits, the deferred tax asset has not been recognised. The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 30% (2003: 30%). The differences are explained as follows: 2004 2003 £'000 £'000 Profit on ordinary activities before tax 457 803 === === Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2003: 30%) 137 241 Effect of: Expenses not deductible for tax purposes 10 5 Depreciation in excess of capital allowances (53) 32 Utilisation of losses - (160) Taxation effect of Prior year adjustment (Note 1) (68) - Adjustments to tax charge in respect of prior year - (11) Higher rates on overseas taxation 15 25 Unrecognised deferred tax on losses 50 - Research and development tax credit (40) (98) --- --- Current tax charge for the year 51 34 === === 5. Earnings Per Share 2004 2003 weighted weighted average (As restated average number of Per share Note 1) number of Per share Earnings shares amount Earnings shares amount £'000 pence £'000 pence Basic earnings per share Earnings attributable to ordinary 406 52,887,870 0.77 769 50,479,806 1.52 shareholders Dilutive effect of securities Options - 4,222,384 (0.06) - 5,768,707 (0.15) ---- ---------- ------ --- ---------- ------ Diluted earnings per share 406 57,110,254 0.71 769 56,248,513 1.37 ==== ========== ====== ==== ========== ====== 6. Reconciliation Of Movements In Shareholders' Funds 2003 (As 2004 restated) £'000 £'000 Retained profit for the financial year 406 803 Issue of shares 78 36 Contingent shares to be issued 241 - Currency movements (7) (4) ------ ------ Net movements in shareholders' funds 718 835 Shareholders' funds at 1 October 2003 (originally £7,670,000 before deducting prior year adjustment of £227,000) 7,443 6,608 ------ ------ Shareholders' funds at 30 September 2004 8,161 7,443 ====== ====== 7. Reconciliation Of Operating Profit To Net Cash Outflow From Operating Activities 2004 2003 £'000 £'000 Operating profit / (loss) 286 683 Depreciation and amortisation 268 249 (Profit)/ loss on disposal of fixed assets (4) (31) Decrease /(increase) in stock (347) 244 (Increase)/decrease in debtors (837) (738) Increase in creditors 870 555 ---- ---- Net cash outflow from operating activities 236 962 ==== ==== 8. Acquisitions During the year, the Group incorporated a wholly owned US subsidiary, House of Moves Inc, with an issued and fully paid share capital of 1,000 shares of common stock, for the purposes of acquiring the business assets of House of Moves LLC. On 26 May 2004 the Group completed the acquisition of the trade and assets of House of Moves LLC for a cash consideration of £596,000, with an additional contingent consideration of both cash and shares currently expected to amount to £348,000. Other acquisition costs were incurred of £33,000. The total provisional goodwill arising upon acquisition was £862,000, which is being written off over 10 years. The provisional fair value of the business assets acquired were as follows, there is no difference between the book value and the provisional fair value. Fair Value £000 Fixed Assets 37 Intangible Assets 55 Other debtors 13 Prepayments and accrued income 49 Accruals and deferred income (39) --- Net business assets acquired at book and fair value 115 === Provisional consideration: Cash 596 Contingent share consideration 205 Contingent cash and shares consideration:- Cash 107 Shares 36 --- 143 --- Total provisional consideration 944 Costs of acquisition 33 --- Provisional purchase consideration and costs of acquisition 977 === Provisional goodwill arising 862 === The contingent share consideration represents 965,927 ordinary shares in the company, and is contingent upon the achievement of a gross revenue target in the first 12 months of acquisition. Should the target not be achieved, the vendor will be issued with options to purchase 965,927 ordinary shares in the company at £0.2045 per share. The contingent cash and shares consideration, is dependent on the amount of gross revenues in each of the two subsequent twelve month periods following acquisition. The potential payment under this arrangement ranges from nothing through to a capped maximum of an aggregate for the two years of US$2million. The company has the right to settle up to 25% of this additional consideration by the issue of ordinary share capital. The directors have made use of all the available information at the year end in order to estimate the likely value of the contingent consideration. This value will be subject to continued re-assessment until it is crystallised. In its last financial year to 31 December 2003, House of Moves LLC, had revenues of £1,125,000, and made a profit before tax of £25,000. 9. Publication of non-statutory accounts The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The balance sheet as at 30 September 2004 and the group profit and loss account, statement of total recognised gains and losses, consolidated cashflow statement and associated notes for the year then ended have been extracted from the group's 2004 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. 10. Copies of announcement Copies of this announcement will be available from the Company's registered office at 14 Minns Business Park, West Way, Oxford OX2 0JB. This information is provided by RNS The company news service from the London Stock Exchange

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