Preliminary Results

RNS Number : 1230T

OMG PLC

01 December 2011

 



Thursday, 1 December 2011

OMG plc

Preliminary Results for the financial year ended 30 September 2011

OMG plc (LSE: OMG) ("OMG" or the "Group"), the technology group providing image understanding products for the entertainment, defence, life science and engineering industries, announces preliminary results for the financial year ended 30 September 2011.

Financial Key Points

·      Group Revenue of £26.4m (FY10: £29.2m)

o  Revenue impacted by £1.0m due to difficulties with the Guardian Project within House of Moves

o  Strong performance within 2d3 and core Vicon systems business

·      Profit Before Tax from continuing operations of £0.7m (FY10: £3.7m)

·      Adjusted* Profit Before Tax from continuing operations of £1.1m (FY10: £3.9m)

·      Loss from discontinued operations of £0.8m (FY10: £2.6m) in respect of Yotta MVS

·      Net Cash balance at 30 September of £2.8m (30 September 2010: £6.2m; 31 March 2011: £2.4m)

o  Reflects £1.3m utilised in the acquisition of Sensing Systems, increased investment in group-wide R&D, and expenditure on House of Moves Guardian Project

·      Proposed dividend maintained at 0.3p (FY10: 0.3p)

Operational Key Points

·      Vicon

o  Strong level of system sales and improved divisional Profit Before Tax

o  Improvement in Vicon Gross Margin and positive impact from cost controls

o  Vicon technology used on top selling games "Call of Duty: Black Ops" and "Assassin's Creed: Brotherhood" and the successful films "Green Lantern", "Black Swan" and "The Chronicles of Narnia: The Voyage of the Dawn Treader"

·      Yotta

o  Yotta impacted by Comprehensive Spending Review, particularly in H2

o  Two new products developed within the year

§ Horizons: SaaS-delivered data product launched, generating encouraging customer interest

§ Tempest: new Yotta scanning vehicle, built in-house at significantly reduced cost

·      2d3

o  2d3 revenue more than doubled, assisted by acquisition of Sensing Systems in H1

o  Segment achieved first break-even performance, at the adjusted level*

·      Life

o  Investment in OMG Life, OMG's new consumer-facing division, has continued to plan

o  Group remains excited about the new segment's prospects

o  Initial OMG Life product remains on track for launch in current financial year

* Profit Before Tax from continuing operations before group recharges adjusted for share based payments, Amortisation of Intangibles and acquisition costs of £1.1m (FY10: £3.9m) (see notes 3 and 5).

Commenting on the results Nick Bolton, Chief Executive Officer of OMG plc said:

"A significant amount of good work and a number of important, positive developments have taken place this year which are, to a degree, masked by the financial results announced today. Our 2d3 defence segment has broken even for the first time; our Vicon systems segment has improved its profitability; and our newly formed Life offering opens up a new avenue for growth. We continue to believe that OMG's greatest strength is its diversity. It is the careful, targeted application of our core imaging technology that has delivered good growth in previous years. With the right balance of investment and execution, it will do so again and we remain confident in our ability to meet our expectations for the year ahead."

For further information please contact:

OMG plc                                                                       [phone]

Nick Bolton, CEO

David Deacon, CFO

FTI Consulting                                                             + 44 (0)20 7831 3113

Matt Dixon / Emma Appleton / Charles Palmer

Evolution Securities (Nomad to OMG plc)                    [phone]

Jeremy Ellis

About OMG:

OMG plc (Oxford Metrics Group. LSE: OMG) is a group of technology companies producing image understanding products and services for the entertainment, defence, life science and engineering industries.

Be it for capturing the movements of actors (for the movie industry),sportsmen (for video games or improving team performance), or children with Cerebral Palsy, rehab patients and animals (for medical, life science and research industries); or recording the condition of highways and the assets that surround them; or even providing image intelligence and situational awareness from drone aircraft. Through this diversified offering the Group has earned its strong international reputation for precision from pixels.

Founded in 1984, the Group is headquartered in Oxford, UK, and has four offices in the US and two in the UK. It has customers in over 50 countries and is a quoted company listed on AIM, a market operated by the London Stock Exchange. The Group trades through four operating subsidiaries: Vicon, the world's largest motion capture and movement analysis company, 2d3, a manufacturer of specialised image understanding software for defence applications, Yotta, our highways surveying business and OMG Life our new consumer subsidiary.

The Group's global clients spanning the worlds of science, medicine, sport, engineering, gaming, film and broadcast include: major hospitals and research facilities such as Guy's Hospital, Nuffield Orthopaedic Centre and Loughborough University, engineering industry leaders including: Ford Motor Company, BMW, Airbus and Toyota, and in the entertainment sector; Sony, Industrial Light and Magic, The Moving Picture Company (MPC), Sega, Nintendo, UbiSoft, EA and Square Enix. In surveying clients include Atkins and Oxfordshire, Cumbria, Derbyshire and Pembrokeshire County Councils as well as many others.

For more information about OMG and its subsidiaries, visit www.omgplc.com, www.vicon.com, www.2d3.com, www.yottadcl.com.

CHAIRMAN'S STATEMENT

The financial year in review tells two quite different stories. The first story, our financial results, is one of disappointment; particularly when compared to the exciting, record breaking performance delivered in 2009/10 ('FY10'). By far and away, the largest single impact on our result this year has come from the performance of our House of Moves segment which has been impacted by difficulties experienced with the Guardian Project. To a lesser, but important degree, tough trading conditions in some of our other businesses have compounded this effect.

At the same time, and while they may at first appear masked by the year's financial conclusion, 2010/11 ('FY11') has seen a number of important and positive operational developments within the business.

First, we made an important acquisition, which establishes our 2d3 segment as a clear leader in its market. Sensing Systems, acquired in February 2011, has added momentum to our 2d3 operations this year, unearthing new business opportunities, driving revenue and enabling 2d3 to achieve its first full-year breakeven at the adjusted level*.

FY11 also saw us take decisive steps to cut costs and build resilience across the Group. These measures, in combination with important customer wins and new product launches, resulted in some of our newer businesses becoming stronger, as well as enabling our core Vicon systems business to improve its profitability. Looking to the future, and perhaps most exciting of all, we entered the final stage of preparations for our launch of OMG Life's first consumer-facing product, planned for the financial year now ahead.

Financial performance in close-up

The Group's key performance indicators ('KPIs') are as follows:

KPI	FY11	FY10	Change
Group Revenue	£26.4m	£29.2m	-£2.8m
Group Cash position	£2.8m	£6.2m	-£3.4m
Group Adjusted* Profit before Tax	£1.1m	£3.9m	-£2.8m

The movements on these KPIs are discussed below:

The Group reported revenues from continuing operations of £26.4m (FY10: £29.2m) representing a decline of 9.7% compared to the record breaking previous financial year. As a consequence the Group reported lower adjusted* Profit before Tax from continuing activities ('PBT') of £1.1m (FY10: £3.9m) compared to last year. Individual segment performance can be broken down as follows:

Vicon Group

	Revenue		PBT		Adjusted* PBT
	FY11	FY10	FY11	FY10	FY11	FY10
Vicon UK	£9.5m	£9.9m	£4.6m	£4.9m	£3.4m	£3.2m
Vicon US	£8.5m	£8.8m	£0.4m	(£0.4m)	£2.2m	£2.0m
Total Vicon	£18.0m	£18.7m	£5.0m	£4.5m	£5.6m	£5.2m
HoM	£2.0m	£4.4m	(£1.8m)	£0.9m	(£1.8m)	£0.9m

Vicon reported system sales of £18.0m (FY10: £18.7m), with the USA proving to be a relatively stable market while sales in the Rest of the World fell slightly. Despite challenging economic conditions globally, Vicon achieved an improvement in overall gross margin, rising to 70.9% (FY10: 69.5%). A combination of this improved gross margin and effective cost control allowed us to increase Vicon Systems' overall adjusted* profit  to £5.6m (FY10: £5.2m). These cost control measures, aimed at effectively "recession-proofing" Vicon for future years, aim to deliver £1.4m in annualised cost savings at Vicon.

House of Moves, in contrast, reported revenues of £2.0m (FY10: £4.4m) representing a significant decline on the prior year, caused largely by difficulties with the Guardian Project. The entertainment market also remained severely depressed throughout the financial year, compounding this effect. The business reported a loss for the year of £1.8m (FY10: profit of £0.9m), largely as £1.0m of revenue attributable to the Guardian Project has not been recognised. This performance at House of Moves is the largest single contributing factor to this year's disappointing financial performance.

 Yotta Group

	Revenue		PBT		Adjusted* PBT
	FY11	FY10	FY11	FY10	FY11	FY10
UK	£3.8m	£4.8m	(£1.0m)	(£0.7m)	(£0.5m)	(£0.1m)

Yotta UK reported revenue this year of £3.8m (FY10: £4.8m). The year-on-year decline here was largely due to the impact of the UK Government's Comprehensive Spending Review ('CSR'), which resulted in reduced margins - particularly in H2 - and increased competition in an already competitive market. The operation reported an adjusted* loss of £0.5m (FY10 loss: £0.1m). Clearly a loss is disappointing, but in the context of the revenue decline the loss was mitigated to some extent by a good operational performance and cost control.

Following a strategic review, we've taken steps to put more distance between our highways business and the competition, in an increasingly cost-conscious market. The key here is to take maximum advantage of OMG technology to add value to our offering. To that end, two new products have been developed during the year: Horizons, which is a Software-as-a-Service ('SaaS') based data product and Tempest, which is a significantly redesigned and cost-reduced surveying vehicle.

In June 2011, the Group's Yotta USA business was sold to Tyler Technologies. The operation, acquired in 2008, was hit, shortly afterward, by a severe downturn in the US residential property market. Despite the Group's best endeavours to turn the business around market forces were simply overwhelming resulting in FY10's results including a full impairment of goodwill and intangibles. FY11's results include a final loss attributable to discontinued operations of £0.8m (FY10 loss: £2.7m), which includes a trading loss of £0.5m and a Net Asset write-off of £0.3m.

2d3 Group

	Revenue		PBT		Adjusted* PBT
	FY11	FY10	FY11	FY10	FY11	FY10
UK	£0.9m	£0.6m	(£0.2m)	(£0.8m)	£0.1m	£0.1m
US	£0.6m	£0.6m	(£0.6m)	£0.1m	(£0.6m)	(£0.3m)
Sensing	£1.1m	-	£0.3m	-	£0.5m	-
Total 2d3	£2.6m	£1.2m	(£0.5m)	(£0.7m)	£0.0m	(£0.2m)

Overall, 2d3 reported significantly enhanced revenue this year of £2.6m (FY10: £1.2m) and an adjusted* breakeven result (FY10 loss: £0.2m). This performance included the positive impact of Sensing Systems, acquired in February 2011, which added £1.1m to revenue and an adjusted* profit of £0.5m. The UK consolidated its position as a respected advisor to the UK Defence market and increased revenues to £0.9m (FY10: £0.6m) while the USA produced revenues of £0.6m (FY10: £0.6m), similar to last year. The loss reported in the US reflects continued investment during the year in business development and other resources that are expected to yield benefits in the future, with effect from October 2011 our US operations will be merged completely.

This result, delivered for the first time in 2d3's fourth full year of operations, takes 2d3 to a new level, cementing its ability to offer defence industry clients an unmatched range of video intelligence capabilities.

OMG Life

	Revenue		PBT		Adjusted* PBT
	FY11	FY10	FY11	FY10	FY11	FY10
UK	-	-	(£0.9m)	(£0.5m)	(£0.7m)	(£0.2m)

During the year OMG Life continued its product development in line with plan and established a strategic relationship with advertising agency Bartle Bogle Hegarty ('BBH') to assist with marketing strategy and execution. In total, OMG Life invested £1.0m (before Group recharges) which included capitalised Research & Development ('R&D') of £0.3m, and remains firmly on track to launch its first exciting product to market within the financial year just started.

Returning to a Group level, foreign exchange rates, in particular the dollar sterling rate, have been relatively stable during the financial year and have had no material impact on Group performance which included a £0.1m (FY10: Nil) book gain which has in previous years influenced the results of the Vicon Group.

The Group proudly continues to invest in R&D, spending £3.7m (FY10: 3.1m) representing an increase of 22% over the previous financial year. The investment has been across the Group which is intended to maintain Vicon's market leading position, to provide Yotta with a technological edge over its competitors, to further enhance the intelligence offering of 2d3 and to deliver OMG Life's camera. From this total spend the Group expensed £1.9m (FY10: 2.3m) and capitalised £1.8m (FY10: £0.8m) in this year's results.

The Group finished the year with a cash balance of £2.8m (30 September 2010: £6.2m, 31 March 2011: £2.4m) with cash decreased year-on-year due to the acquisition of Sensing Systems, increased R&D investment and costs associated with the Guardian Project. The Statement of Financial Position looks a little different compared with last year, mainly due to the addition of Sensing Systems Intangible Assets and Goodwill and the associated contingent consideration. A net decline in Trade and other receivables is reported; Trade Receivables increased reflecting a strong finish to the financial year whilst Prepayments decreased as did Amounts due from customers for contract work reflecting the disposal of Yotta MVS which accounted for a significant portion of both balances in last year's accounts. A decline in Trade and other payables is reported: the movement in Trade Payables reflects the general level of trading during the financial year and the decrease in Accruals and deferred income is lower due to lower bonus provisions and the removal of deferred income in relation to the Guardian Project. Stock, which increased, is now considered to be at a normal level compared to the very low position reported a year ago. As a whole the Statement of Financial Position remains robust.

Current year taxation is minimal as the Group has been able to offset losses against profits. In addition, the US arm of the Group was restructured at the start of the financial year, resulting in a more efficient tax position. A claim for R&D tax relief for the prior year impacted on the current year expense. This was off-set by recognition of the related deferred tax liability. The increase in deferred tax assets and liabilities carried on the Statement of Financial Position is a result of the aforementioned R&D deferred tax liability, an adjustment in the current year for a previous netting of the US deferred tax position and the recognition of a deferred tax liability in relation to the intangible assets purchased as part of the Sensing acquisition.

The Group is pleased to confirm its proposal to pay a dividend for the year, maintained at the same level as the previous financial year at 0.3p.

Looking ahead

As we look forward to FY12, global economic instability remains. But we believe OMG's diversified portfolio of businesses offers a degree of robustness in this uncertain world.

With its reduced cost base and reinvigorated focus on its core markets, we expect Vicon to continue to deliver profitably on its solid sales pipelines with opportunities broadly spread across geographies and markets. We have high hopes for 2d3 in FY12 with a stronger business development team focussed on a larger and better visibility sales pipeline than ever before. Turning to Yotta, although we anticipate continuing pressure on margins for the least sophisticated surveys, we do expect Tempest to provide competitive advantage in the mandatory machine-based surveys market. The sales pipeline for Horizons is good but this needs to be converted to demonstrate the commercial success of the product. Lastly, the product and opportunity for OMG Life remain exciting and while this is our first step in the consumer environment we believe there is demand in the targeted marketplace and the product has clear differentiation.

In summary, the Board remains confident in the Group's ability to meet its expectations in the year ahead and believes there is much to be excited about in OMG for the year and years ahead. 

* Profit Before Tax from continuing operations before group recharges adjusted for share based payments, Amortisation of Intangibles and acquisition costs of £1.1m (FY10: £3.9m) (see notes 3 and 5).

CEO STATEMENT

For me personally, it has been an exciting year of sharply contrasting challenges and outcomes. It has been a busy one too, following my adoption of a leadership role at OMG Life, in addition to my responsibilities as Group Chief Executive.  Naturally, I share Anthony's disappointment with the financial result delivered this year. Nevertheless, my overwhelming feeling after 12 months very much at the sharp end of our business is that OMG moves ahead now in more resilient shape, with greater vibrancy and a clearer sense of direction than ever.

I'm fully aware that, in view of our results, many readers may be approaching this document in quite a sceptical frame of mind. I hope that, when reviewing the hard evidence of the operational progress our businesses have made over the last 12 months, and of their potential for growth, readers will - as I do - continue to believe in the prospects for our Group.

Our astounding people 

Before taking a closer look at how our individual businesses performed, I'd like to take this opportunity to thank all of our brilliantly talented and dedicated people for their continuing hard work in fairly testing conditions. We remain as conscious as ever of our debt to them, for their fantastic contribution over the last year and their continued commitment to building an even better future for OMG.

Contrasting challenges, consistent strategy

For me, one of the most interesting effects of tackling challenges as diverse as getting our newest venture off the ground while helping to ensure the future of our longest established business, has been to make me more strongly aware of OMG's "strength in diversity."

I realise that some might look at the same picture and see a lack of coherence and a business spread across different markets. But, at the end of this year, I am more convinced than ever that our strategy of diversification into profitable niche markets is the right one for OMG.

At first sight, there may seem to be a gulf between our state-of-the-art motion capture cameras and our soon-to-be-launched consumer-oriented camera. But what they have in common - with each other and with everything else OMG does - is brilliant pixel-related technology that allows them to meet a customer need better than the competition, and thereby lead their respective markets.

Launching OMG Life

If you've read our last two annual reports, you may remember that in 2009 we signed an agreement with Microsoft, to develop their SenseCam technology: a wearable automatic camera that we re-developed and marketed as Vicon Revue. Things have moved on dramatically over the last 12 months to the extent that in May, we set up a new consumer-facing division - OMG Life - to take some of its technology to market in a new consumer-orientated camera.

To say that I and all of us at OMG are excited about this new project would be something of an understatement. We're not quite ready to unveil the first Life product at the moment, but it is planned for launch in the current financial year just started. And, whilst you cannot yet see it, we can tell you that it is based on the ground-breaking Revue "moment-capture" technology and that by this time next year, we expect it to be selling in numbers that will make a real impact on Group profit.

Life - the story so far

We originally saw this innovative technology being of greatest value to people with memory impairment including Alzheimers, in helping them to recover "lost" memories and manage their lives more effectively. Vicon Revue has indeed been successful playing this valuable role. But, since we first laid hands on this technology, our view of its potential has rapidly evolved. We have come to believe, very strongly indeed, that it has much, much wider applications.

BBH: partners for Life

To help us maximise the potential of Revue in consumer markets, we knew we needed top quality marketing, brand and product development expertise. And that's precisely what we secured in July when we formed a new strategic partnership with BBH, one of the world's most widely respected and creatively garlanded brand communications agencies. We have been working closely with BBH and its  brand invention division Zag on the development and market testing of the product itself, as well as on developing the marketing strategy and positioning for what we intend to be a highly desirable new consumer brand. This partnership has been further strengthened by acceptance of OMG shares by BBH in part consideration for their contribution.

Seeing the unseen

By the time you read this, we expect to be taking delivery of the first examples of the finished product. We cannot unveil it here, but we can assure you that it is something quite special; an aesthetically delightful piece of design, with an understated elegance that allows it to take on the style of the individual wearing it.

In terms of market positioning, the key to understanding the potential of Product X (we're currently keeping the brand name under wraps) is that it genuinely offers something different from other types of serious camera and the camera in your mobile phone. Summed up in the line above, it's about capturing the moments that would otherwise be missed; it is a quite different proposition to a serious photographer's SLR, or the compact digital that we all use on holiday or at Christmas, but never seem to have with us at other times when we might need it.

Working with BBH, we have rigorously tested this positioning, and found that it strikes a powerful chord with potential buyers. And they won't have to wait much longer to start "seeing the unseen."

A potential market of millions

We will launch Product X in 2011/12 ('FY12'), initially only in the UK and online, but subsequently also through carefully chosen retail outlets. As for the size of the market we plan to reach, our preliminary work has confirmed our belief that this is a product with mass appeal. We have identified a potential audience of between 3.5 and 4.5 million people, in the UK alone. Even a relatively low level of penetration, to begin with, would represent an enticingly high number of units.

Expect more from Life

We would be the first to acknowledge that, for OMG, moving into consumer markets for the first time represents a big step into new and unfamiliar territory. But we see it very clearly as a natural progression: our technology already touches millions of people's lives all over the world, and we have always believed in its potential to make an even wider impact. In addition, we are happy to have the support and enthusiastic involvement of one of the world's leading suppliers of brand expertise and creative thinking. That may not guarantee Product X will hit the jackpot, but it greatly increases our chances of scoring a major success.

And one final point we need to underline. While we are excited about the forthcoming launch of our first consumer product, it is only the beginning for OMG Life. We are already hard at work, thinking about further potentially profitable ways to apply OMG's brilliant technology to making life better for consumers. Expect more from Life.

Smarter Vicon

At the other end of the spectrum from our consumer start-up, I have also derived a lot satisfaction from playing a hands-on role within OMG's longest established business: though I have to say this hasn't always been a comfortable experience.

I took over as CEO of Vicon in October 2011, at the start of the current financial year. But in the second half of FY11, I started working with the Vicon management team on a major project aimed at focussing the business on its core markets and getting it into the best possible shape to continue trading profitably for another 25 years.

This on-going programme, which will continue into FY12, is about increasing innovation while at the same time reducing fixed costs, in a variety of ways - from reducing unnecessary expenditure to getting smarter about how we manage stock. And, as our Chairman mentioned, the overall objective is to achieve a total saving of £1.4m a year, which we believe will make a huge difference to the long term resilience of the business - building a smarter Vicon.

A mixed year performance-wise

Overall, it was another tough market for Vicon this year. Yet thanks in part to our improving cost control, profitability on system sales actually increased, despite overall segment revenue being slightly down.

The economic downturn continued to have an adverse effect on sales in some territories. But in others, we performed well - with France, for example, delivering a record year and healthy sales in Australia, too. In Japan, we were unable to match our record-breaking performance in 2009/10, but sales held up pretty well, and the Asia Pacific region, as a whole, had a strong year.

In the US, the entertainment sector remained very slow although, as we explain later, we are optimistic that ground-breaking new software, soon to be launched, will make a major impact over the next few years. But we maintained our recent encouraging progress in the life sciences field, with our lower cost Bonita camera system performing impressively for us in this area. Our increased focus on the engineering sector also started to deliver good results, with sales to multiple Boeing sites across the US as well as to other major clients, such as Hyundai in South Korea, the French Atomic Energy Commission and ASICS in Japan.

Another significant development in the year was the appointment of our first ever dedicated salesperson for South America, reflecting our belief that the region's exciting growth potential deserves our focussed attention.

Still achieving incredible things

We have mentioned a few important sales above, but there were many more in FY11, which further demonstrate the incredible diversity of applications for Vicon motion capture technology. These range from our exciting involvement in a new UK-based centre of excellence for performance capture, founded by actor and director Andy Serkis, to our key role in the vital work being done at Headley Court, the UK armed forces rehabilitation centre, which is funded by Charity Help for Heroes and acquired a Vicon system in FY11.

Motion capture: let's take this outside

The year's big technological breakthrough - and the latest example of Vicon's unrelenting drive to stay two or three steps ahead of the field - came, in February, with the launch of a new addition to our flagship T-Series family that takes high quality motion capture ('mocap') out of the studio for the first time.

Building on the speed and flexibility of the T-Series, which offers up to four times the resolution of any other mocap camera, the new S-Edition range are capable of performing to the highest standards of accuracy in outdoor conditions, including full sunlight. For clients in fields such as sport, there are major benefits. Using the S-Edition, athletes' performance can now be measured and assessed in "natural" conditions, rather than in the inevitably somewhat artificial setting of an indoor studio. For a case in point, look no further than the work the University of Western Australia has done with the S-Edition, developing the gold standard for testing the action of bowlers on the cricket field.

Meanwhile, back in the studio

As it has always been, Vicon remains the go-to provider of motion capture technology to the entertainment industry, with our T-Series system still the natural first choice for jaw-dropping visual effects. Our movie credits in FY11 included "The Chronicles of Narnia: The Voyage of the Dawn Treader," "Gulliver's Travels" and "Black Swan." And among the high profile games we worked on were Call of Duty:Black Ops, Assassin's Creed: Brotherhood, and Gears of War 3.

Taking mocap into real time

Despite the successes above, our traditional entertainment markets have remained slow and not just because of external economic factors. Another issue for us is that our clients in this sector have been perfectly happy with the Vicon systems and technology they are currently using. So slower sales have, to an extent, been a consequence of our own success.

Nevertheless, we are confident that one of our latest technological advances will breathe new life into this sector over the next few years. During FY11, we have rewritten our software from the ground up to enable directors to direct motion capture in real time. We demonstrated an early version of the new software in August to 50 key clients at EA's studios in Vancouver and received an extremely enthusiastic response. When the finished product is launched in FY12, we will be looking for equally meaningful sales.

Always leading, never satisfied

In a year when our commercial focus was on cost management, we remained as keenly aware as ever of the crucial importance of maintaining the "technology gap" between Vicon and its competitors. Another example of our commitment to continuous innovation came with the launch in September of a new version of our Polygon Life Sciences software - also well received, and expected to deliver healthy revenues in FY12.

As a Group, we are looking to our younger businesses to deliver dynamic growth over the next few years. But we are as committed as ever to ensuring that Vicon continues to deliver steady and sustainable profitability, by remaining the natural first choice for motion capture, in all its worldwide markets.

House of Moves

By far and away, the largest single impact on our performance this year has come from the delays experienced with the Guardian Project in our House of Moves ('HoM') segment. First highlighted in the Group's Interim Results in May, funding of the Project remains unresolved and the Group remains unpaid for services provided by House of Moves during the first half. While the Board still believes that the Group could ultimately be paid, neither revenue nor accounts receivable have been recognised in the financial statements in respect of this project, meaning that the Group has no further exposure in this respect.

Even this bad news story turns out to have an important upside. Working on the Guardian project, the HoM team rapidly accelerated the development of ground-breaking new technology which offers enormous benefits to producers of 3D animation for movies, TV and games. Specifically, HoM technology can now massively reduce the amount of time and work it takes to create high quality 3D animation, enabling directors to bring characters to life in real time. Just as important, the content created can be easily re-used across different media; which means, for example, that animation assets created for a blockbuster movie can be simultaneously incorporated into the related video game, and subsequently used again in the spin-off TV show. Until now, the animated content for each medium would have had to be recreated from scratch.

This simultaneous creation of content across media is known as Transmedia content production. It represents a genuine technological breakthrough, with the potential to dramatically reduce the time and cost involved in 3D animation, while delivering real creative advantages for directors and producers. And it makes HoM a world leader in Transmedia content, with valuable IP that greatly increases the capability and value of the business.

A breakthrough year for 2d3 

2d3 has had an exceptional year. The headline news was obviously our acquisition of Sensing Systems Inc, which brings together two relatively small and young businesses to create something greater than the sum of the parts; a new market leader in the defence-related video intelligence market. But everywhere you look, there's evidence of our aerial imaging business moving onto a higher plane - from winning coveted "prime contractor" contracts to making key hires that are transforming the professionalism of 2d3's business development process. We have never made any secret of our belief that our aerial imaging business can achieve great things in the defence industry. That belief is now stronger than ever.

An acquisition that makes perfect sense

When acquisitions don't work out, it's usually because there's no genuine fit between the two parties. In contrast, as the next major step in the development of 2d3, our acquisition in February of Sensing Systems Inc made perfect sense.

Crucially, the two businesses already had a strong and productive working relationship, with 2d3 having used Sensing's flagship product, Tungsten, libraries, for some time. So we knew for certain that there were complementary skills and technological capabilities, as well as good personal chemistry.

When we first approached Sensing in 2010, they also had offers from other would-be buyers, including major defence contractors. But they chose to join forces with us, seeing 2d3 as kindred spirits; a business at the same stage in its development, offering an opportunity to work together to build something new.

Tungsten 3.0: first fruits of integration 

Bringing together 2d3's proven vision science capabilities with Sensing's expertise in digital media software for aerial platforms greatly strengthens our position in the growing video intelligence market. And, while we believe the potential for long term growth is immense, the acquisition has delivered real benefits for us and our clients almost from day one.

In fact, the first product developed by 2d3 Sensing was launched in August just five months after the acquisition was completed, when we unveiled Tungsten 3.0 at the AUVSI show in Washington DC. This new product combines Tungsten's well known qualities as a software development kit with new computer vision capabilities, greatly increasing its value to customers - by giving developers the power to build motion imagery solutions quickly and easily. It is a winning combination: orders for Tungsten alone post acquisition amounted to more than Sensing's entire revenue for the whole of last year.

A broader customer base

More widely, too, the acquisition has already strengthened our business, greatly increasing 2d3's customer base, and giving us credibility with the many major US defence contractors that Sensing Systems was already doing business with. A case in point is our new contract for high value computer vision work with the key prime contractor working on perhaps the most significant Wide Area Motion Imagery ('WAMI') system in development today, a win we would never have secured without the Sensing connection. This and other major contracts with big players in the US defence industry - including Boeing subsidiary, Insitu - represent a very positive sign for the new, improved 2d3. These are large companies that would be perfectly capable of developing systems themselves, but choose to depend on us, knowing we can provide what they need, when they need it.

It is not just our technology that these organisations value, but also our agility and responsiveness. We achieve this by developing off-the-shelf products that meet 'generic' needs, then sending in our Solutions Group - which combines 2d3 and Sensing expertise - to tailor the product precisely to the client's specific requirements.

Further UK success

The key developments in the 2d3 story in FY11 were undoubtedly in the US; but in the UK, too, it was another very good year for the business - with record revenue in the first half of FY11, from further Ministry of Defence ('MoD') Defence Science and Technology Laboratory ('Dstl') contract wins - and more in the pipeline.

Right people, right process

Since 2d3 started, our plans for growth have always been based upon creating "demand-pull"; persuading people high up in the defence establishment to become advocates for our technology and to put pressure on major contractors to involve us in their projects. In the US, this hasn't always been easy for a relatively small foreign-owned newcomer. So, one of the most important developments this year was our decision to add top notch business development professionals to our team, in the UK as well as the US. We knew what we were looking for: people who understand our technology and, even more important, have in-depth first-hand knowledge of how the defence procurement system works, from the inside - and good relationships at the highest level. And that is precisely what we found.

In the US, our new business development specialist is based in Washington DC, putting us close to the seat of power, enabling us to attend all key briefings, and helping to ensure we're developing products that correspond to current Department of Defense ('DoD') priorities. Similarly, in the UK, our business development specialist is now giving us a necessary inside track in to the Ministry of Defence.

We are very clear that the purpose of these key hires is to bring real discipline and structure to 2d3's new business development process, with people who know the right way to go about winning government contracts. It's a crucial part of 2d3's coming of age as a business; a clear and strong indication that we now belong among the big boys in the defence industry, and deserve to be taken seriously.

2d3: prime contractors

Already, our new more professional approach to winning business is getting results - one of the first examples being a big contract with the US Army Geospatial Center ('AGC'), the research body responsible for maximising the military value of geospatial data collection. We have been engaged by AGC to perform applied research work geared toward generating 3D information from 2D imagery sources in urban environments. For us, the most exciting aspect of this project is that 2d3 is the prime contractor; that is to say we have been hired directly by the US government, not brought in by a third party. This represents a real step forward for 2d3. And, having established 2d3 as worthy of prime contractor status, we expect it to be much easier to persuade the DoD to see us in that role on future projects.

Yotta - tighter margins, wider horizons

This has been a challenging 12 months for Yotta. In terms of the amount of work we did, it was actually a pretty good year for our highways business. But massive pressure on UK public spending meant that Yotta's Local Authority clients were simply unable to pay as much for surveys, resulting in lower revenues and much tighter margins. Our response to this situation has, however, been positive. Recognising that conditions in the UK are unlikely to improve any time soon, we refocused our efforts on developing technologically advanced new products that will not just give us the edge on our home turf, but also open up exciting possibilities in overseas markets.

Raising our game

It is worth underlining that, in terms of the competition, Yotta's position is as strong as ever. What has changed is our clients' ability to pay for our services. And in many cases their procurement process is now based exclusively on price: provided the survey supplier has the necessary accreditation, nothing else is taken into account. In view of this, it wasn't hard to recognise that, to make Yotta successful, we needed to raise our game. Rather than get into an unwinnable price-war, we were perfectly clear that our strategy should be to capitalise on OMG's brilliant technology, to set us apart and provide us with a clear competitive advantage. To that end, in FY11, we've been busy developing two important new products.

Tempest: a SCANNER van that changes everything

When Yotta started in 2006, our two high tech SCANNER survey vans had been purchased and equipped at a cost of around £800,000 each. As they approach the end of the road, having covered over 600,000 miles between them, we set ourselves the challenge of building our own better vehicle, at greatly reduced cost.

At the time of writing, the first new Tempest van is undergoing the accreditation process. Costs for it came in at around £300,000: a saving of half a million pounds compared to its predecessors. And we're hoping subsequent Tempest vans will cost less than £250,000. These large-scale savings will make a big difference to our ability to carry out technologically sophisticated surveys at relatively low cost, while remaining profitable. We also strongly believe that Tempest has potential for overseas sales, and we're currently just starting to explore that possibility. We hope to have good news to report by this time next year.

Horizons: putting data on the map

For Yotta, the year's second leap forward through innovation was the launch in April of our new Horizons SaaS software product. It's a major breakthrough in terms of making road condition data more user-friendly and valuable for Yotta's local authority clients. From their point of view, there are two main aspects to Horizons. The first is that, for the first time, it presents the vast amount of data that Yotta collects in a format that can be understood by anyone. Our Horizons product does this by projecting all the information onto Google Maps, where it appears in the form of simple graphics. This means valuable data can now be used by virtually anyone within the client organisation, not just a select handful of specialists.

The second key function of Horizons is analysis; taking all the information collected by Yotta, and creating schemes showing precisely what needs to be done to maintain the condition of roads, and how it can be done most cost-effectively.

By pulling together all the relevant data, and presenting it in an easily understood form, Horizons greatly simplifies the decision-making process. At a time when Yotta's Local Authority clients are under enormous pressure to spend every penny wisely, the arrival of Horizons could hardly be more in tune with their needs. We are pleased to report that the system has already gone live in Nottinghamshire and many other Authorities are currently showing a strong interest.

New surveys...and repeat business

Despite the cost pressures we have talked about, our surveying business has continued to flourish. During the year, we have been awarded contracts by six new local authority clients. And, pleasing in a different way, we have won further good-sized projects from satisfied customers around the country, including the Tyne and Wear and Tees Valley Consortium, Lincolnshire County Council and the Cheshire and Merseyside consortium.

Last year, we talked here about our biggest ever contract, with the Welsh Assembly Government, worth over £4m and covering around 15,000 km of the country's road network. Just to update you, we're now half-way through this enormous project and it is progressing well. In addition to giving Yotta a healthy regular income, it's also served as a valuable platform for winning further new business from Local Authorities in Wales.

Yotta: the road ahead

We cannot deny that the local government spending squeeze has made this a difficult year for Yotta, but we have ended FY11 looking ahead with real optimism. External economic pressures have sharpened our awareness of the need to focus on the areas where our technology and our ability to innovate give us a clear advantage, and can earn us higher margins.

This isn't just about developing new products. Our professional services team have had another good year, offering a consultancy service that is of even greater value to local authorities desperate to find ways of reducing costs, but with much less expertise available in-house.

We still have big ambitions, too. Looking ahead, we don't see Yotta as just a UK highways business, but as a provider of technology with wider applications - equally valuable, for example, to railways and public utility networks. And, as you've read, we certainly don't see Yotta being confined to UK markets. With new products like Tempest and Horizons, we've mapped out the way forward for Yotta, and given ourselves a clear vision of a more profitable future.

* Profit Before Tax from continuing operations before group recharges adjusted for share based payments, Amortisation of Intangibles and acquisition costs of £1.1m (FY10: £3.9m) (see notes 3 and 5).

consolidated INCOME statement

for the year ended 30 september 2011

		2011	2010
	Note	£'000	£'000
Revenue	3	26,366	29,203
Cost of sales		(12,088)	(12,878)
Gross profit		14,278	16,325
Sales, support and marketing costs		(4,962)	(4,427)
Research and development costs		(1,931)	(2,213)
Administrative expenses		(6,956)	(6,190)
Other income		293	168
Operating profit		722	3,663
Finance income		4	11
Finance expense		(5)	(22)
Profit before taxation	3,4	721	3,652
Taxation	6	(80)	(745)
Profit from continuing operations		641	2,907
Loss on discontinued operation net of tax	8	(828)	(2,585)
(Loss)/profit for the financial year attributable to owners of the parent during the year		(187)	322
Earnings per share for profit attributable to owners of the parent during the year
Basic (loss)/earnings per ordinary share (pence)	7	(0.27)p	0.47p
Diluted (loss)/earnings per ordinary share (pence)	7	(0.27)p	0.45p
Continuing operations
Basic earnings per ordinary share (pence)	7	0.92p	4.26p
Diluted earnings per ordinary share (pence)	7	0.90p	4.08p

COnsolidated statement of comprehensive income

FOR THE YEAR ENDED 30 sEPTEMBER 2011

		2011	2010
		£'000	£'000
Net (loss)/profit for the year		(187)	322
Other comprehensive income
Exchange differences on retranslation of overseas subsidiaries		(59)	(75)
Tax recognised directly in equity		(58)	(14)
Total other comprehensive income		(117)	(89)
Total comprehensive income for the year attributable to owners of the parent		(304)	233

consolidated statement of financial position

AS AT 30 september 2011

		2011	2010
	Note	£'000	£'000
Non-current assets
Goodwill and intangible assets		11,071	5,175
Property, plant and equipment		2,137	2,367
Financial asset - investments		69	69
Deferred tax asset		711	505
		13,988	8,116
Current assets
Inventories		1,768	1,475
Trade and other receivables		8,535	9,413
Current tax debtor		35	-
Cash and cash equivalents		2,817	6,198
		13,155	17,086
Current liabilities
Trade and other payables		(4,523)	(5,651)
Current tax liabilities		-	(783)
		(4,523)	(6,434)
Net current assets		8,632	10,652
Total assets less current liabilities		22,620	18,768
Non-current liabilities
Financial liabilities		(2,028)	(9)
Deferred tax liability		(1,425)	(120)
		(3,453)	(129)
Net Assets		19,167	18,639
Capital and reserves attributable to owners of the parent
Share capital		178	171
Shares to be issued	9	65	-
Share premium account	9	6,998	6,773
Merger reserve	9	3,546	2,928
Retained earnings	9	8,349	8,677
Foreign currency translation reserve	9	31	90
Total equity shareholders' funds		19,167	18,639

 

consolidated STATEMENT of CASHFLOWS

for the year ended 30 september 2011

		2011	2010
		£'000	£'000
Cash flows from operating activities - continuing operations
Operating profit		723	3,663
Depreciation and amortisation		1,265	1,218
Impairment of intangibles		36	-
Loss on disposal of property, plant and equipment		-	(2)
Share-based payments		399	167
Exchange adjustments		(186)	35
(Increase) / decrease in inventories		(288)	840
Decrease / (increase) in receivables		193	(1,415)
(Decrease) / increase in payables		(1,232)	536
Cash generated from continuing operations		910	5,042
Discontinued operations		(157)	29
Cash generated from operating activities		753	5,071
Tax paid		(332)	(179)
Net cash from operating activities		421	4,892
Cash flows from investing activities
Purchase of property, plant and equipment		(963)	(864)
Purchase of intangible assets		(1,843)	(753)
Proceeds on disposal of property, plant and equipment		419	284
Interest received		4	11
Proceeds from disposal of discontinued operation		81	-
Acquisition of subsidiary undertaking net of cash acquired		(1,306)	-
Net cash used in investing activities		(3,608)	(1,322)
Cash flows from financing activities
Payment of finance lease liabilities		(18)	(32)
Interest element of finance lease repayments		(1)	(4)
Other interest paid		(7)	(18)
Issue of ordinary shares		20	-
Equity dividends paid		(207)	(102)
Net cash used in financing activities		(213)	(156)
Net (decrease) / increase in cash and cash equivalents		(3,400)	3,414
Cash and cash equivalents at beginning of the period		6,198	2,776
Effect of exchange rate changes		19	8
Cash and cash equivalents at end of the period		2,817	6,198

Major non-cash transactions

Part of the consideration paid during the year for the purchase of Sensing Systems Inc. comprised shares.

During the year the Group issued ordinary shares in exchange for services received from Bartle Bogle Hegarty.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 SEPTEMBER 2011

	Share Capital	Shares to be issued	Share premium account	Merger reserve	Retained earnings	Foreign currency translation reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 October 2009	171	-	6,773	2,928	8,304	165	18,341
Net profit for the year	-	-	-	-	322	-	322
Exchange differences on retranslation of overseas subsidiaries	-	-	-	-	-	(75)	(75)
Tax recognised directly in equity	-	-	-	-	(14)	-	(14)
Transactions with owners:
Dividends	-	-	-	-	(102)	-	(102)
Movement in relation to share options	-	-	-	-	167	-	167
Balance as at 30 September 2010	171	-	6,773	2,928	8,677	90	18,639
Net loss for the year	-	-	-	-	(187)	-	(187)
Exchange differences on retranslation of overseas subsidiaries	-	-	-	-	-	(59)	(59)
Tax recognised directly in equity	-	-	-	-	(58)	-	(58)
Transactions with owners:
Dividends	-	-	-	-	(207)	-	(207)
Issue of share capital	7	-	225	618	-	-	850
Shares to be issued	-	65	-	-	-	-	65
Movement in relation to share options	-	-	-	-	124	-	124
Balance as at 30 September 2011	178	65	6,998	3,546	8,349	31	19,167

1.   Basis of preparation of the financial statements

The financial information in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in December 2011.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.  It also requires management to exercise judgement in the process of applying the Group's accounting policies which affect the reported amount of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reported period.  Although the estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. There have been no significant changes to the Group's accounting policies during the year.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 for the years ended 30 September 2011 and 30 September 2010, but is derived from those accounts.  The statutory accounts for the year ended 30 September 2010 have been delivered to the Registrar of Companies and those for the year ended 30 September 2011 will be delivered following the Company's annual general meeting.  The auditors have reported on those accounts: their report was unqualified, did not contain references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498 of the Companies Act 2006 for the year ended 30 September 2011 or 30 September 2010.

2.     Basis of consolidation

The consolidated financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 30 September 2011.

3.     Segmental analysis

The Group comprises the following business segments:

·      Vicon Group: This is the development, production and sale of computer software and equipment for the engineering, entertainment and life science markets;

·      Yotta Group: This is services for the management of infrastructure and taxation, highway surveying and associated software development;

·      2d3 Group: This is the development and sale of computer software for the defence market; and

·      OMG Life: This is the direct to consumer segment currently engaged in product development.

 Business segments are analysed below:

	Revenue		Profit before tax		Underlying profit before tax *		Non-current assets
	2011	2010	2011	2010	2011	2010	2011	2010
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Vicon UK	9,455	9,936	4,591	4,940	4,606	4,962	2,454	1,565
Vicon USA	8,523	8,789	423	(438)	423	(438)	1,364	1,381
House of Moves USA	1,986	4,448	(1,772)	936	(1,772)	936	900	771
Vicon Group	**19,964	**23,173	3,242	5,438	3,257	5,460	4,718	3,717
Yotta UK	3,847	4,791	(1,048)	(747)	(942)	(638)	3,841	3,791
Yotta Group	3,847	4,791	(1,048)	(747)	(942)	(638)	3,841	3,791
2d3 UK	869	610	(235)	(796)	(235)	(796)	164	44
2d3 USA - acquisition	1,072	-	326	-	510	-	4,472	-
2d3 USA - continuing operations	614	629	(632)	113	(632)	113	308	141
2d3 Group	2,555	1,239	(541)	(683)	(357)	(683)	4,944	185
OMG Life	-	-	(940)	(461)	(940)	(461)	299	-
Unallocated	-	-	8	105	103	234	177	309
Continuing operations	26,366	29,203	721	3,652	1,121	3,912	13,979	8,002
Yotta USA - discontinued operation	900	1,976	(828)	(2,698)	(513)	(681)	9	114
OMG Group	27,266	31,179	(107)	954	608	3,231	13,988	8,116

*Underlying profit before tax is detailed in note 5.

By origin
UK	14,171	15,337
USA - continuing operations	12,195	13,866
Continuing operations	26,366	29,203
USA - discontinued operation	900	1,976
OMG Group	27,266	31,179

By destination
UK	5,851	6,891
Europe	2,934	2,525
North America	12,002	13,279
Asia Pacific	5,018	5,762
Other	561	746
Continuing operations	26,366	29,203
North America - discontinued operation	900	1,976
OMG Group	27,266	31,179

**The following additional information is provided to the Chief Operating Decision Maker.  Further analysis by market is not available.

	2011	2010
	£'000	£'000
Revenue by market
Engineering	4,111	3,889
Entertainment	5,790	9,213
Life sciences	10,063	10,071
Vicon Group	19,964	23,173

In the 2010 annual report engineering sales were previously included within the life sciences market.

An analysis of adjusted profit before tax net of Group recharges is provided below:

	2011			2010
	Underlying profit before tax	Group recharges	Adjusted profit before tax (net of Group recharges)	Underlying  profit before tax	Group recharges	Adjusted profit before tax (net of Group recharges)
	£'000	£'000	£'000	£'000	£'000	£'000
Vicon UK	4,606	(1,180)	3,426	4,962	(1,789)	3,173
Vicon USA	423	1,762	2,185	(438)	2,432	1,994
House of Moves USA	(1,772)	-	(1,772)	936	-	936
Vicon Group	3,257	582	3,839	5,460	643	6,103
Yotta UK	(942)	489	(453)	(638)	539	(99)
Yotta Group	(942)	489	(453)	(638)	539	(99)
2d3 UK	(235)	381	146	(796)	873	77
2d3 USA - acquisition	510	-	510	-	-	-
2d3 USA - continuing operations	(632)	-	(632)	113	(445)	(332)
2d3 Group	(357)	381	24	(683)	428	(255)
OMG Life	(940)	243	(697)	(461)	271	(190)
Unallocated	103	(1,695)	(1,592)	234	(1,881)	(1,647)
Continuing operations	1,121	-	1,121	3,912	-	3,912

	Additions to non-current assets		Carrying amount of segment  assets		Carrying amount of segment  liabilities		Segment depreciation and amortisation
	2011	2010	2011	2010	2011	2010	2011	2010
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Vicon UK	1,611	900	4,924	7,235	(2,211)	(2,894)	379	370
Vicon USA	71	403	5,777	5,123	(1,475)	(1,293)	129	191
House of Moves USA	154	92	1,282	1,730	(199)	(344)	125	134
Vicon Group	1,836	1,395	11,983	14,088	(3,885)	(4,531)	633	695
Yotta UK	435	169	8,000	7,967	(762)	(1,142)	419	468
Yotta Group	435	169	8,000	7,967	(762)	(1,142)	419	468
2d3 UK	62	23	2,134	1,137	(86)	(53)	29	18
2d3 USA - acquisition	4,435	-	5,304	-	(2,631)	-	150
2d3 USA - continuing operations	135	16	835	734	(187)	(99)	18	18
2d3 Group	4,632	39	8,273	1,871	(2,904)	(152)	197	36
OMG Life	274	-	(324)	(93)	(160)	(127)	1	-
Other unallocated	37	-	(868)	198	(260)	(423)	15	20
Continuing operations	7,214	1,603	27,064	24,031	(7,971)	(6,375)	1,265	1,219
Yotta USA - discontinued operation	-	14	79	1,171	(5)	(188)	27	139
OMG Group	7,214	1,617	27,143	25,202	(7,976)	(6,563)	1,292	1,358

4.   Profit before taxation

The profit before taxation is stated after charging / (crediting):

	2011	2010
	£'000	£'000
Profit on disposal of property, plant and equipment	-	(2)
Depreciation of property, plant and equipment - owned	787	825
- under hire purchase/finance lease	13	128
Amortisation of customer relationships	117	174
Amortisation of intellectual property	115	9
Amortisation of brand name	-	7
Amortisation of development costs	260	215
Impairment of intangible fixed assets	36	1,920
Share based payments - equity settled	124	167
Operating lease charges - other than plant and machinery	690	638
Foreign exchange	(104)	(33)
Research and development costs	1,931	2,335

5.   Reconciliation of underlying profit before tax

	2011	2010
	£'000	£'000
Profit before tax - continuing operations	721	3,652
Share based payments - equity settled	124	167
Amortisation of intangibles arising on acquisition	232	93
Acquisition costs	44	-
Underlying profit before tax - continuing operations	1,121	3,912
Profit before tax - discontinued operations	(828)	(2,698)
One off expenses	315	-
Amortisation of intangibles arising on acquisition	-	97
Impairment of intangible fixed assets	-	1,920
Underlying profit before tax - discontinued operations	(513)	(681)

Acquisition costs in the year ended 30 September 2011 comprise costs relating to the acquisition of Sensing Systems Inc.

One off expenses in the year ended 30 September 2011 comprise redundancy and restructuring costs associated with the disposal of Yotta MVS Inc.

6.   Taxation

The tax charge is based on the profit for the year and represents:

	2011	2010
	£'000	£'000
United Kingdom corporation tax at 27% (2010: 28%)	68	782
Overseas taxation	32	186
Adjustments in respect of prior year	(499)	(100)
Current taxation	(399)	868
Deferred taxation	479	(123)
Total taxation expense	80	745

At 30 September 2011, the Group had an undiscounted deferred tax asset of £711,000 (2010: £505,000).  The asset comprises principally accelerated capital allowances, the accumulated unrelieved tax losses available to Group undertakings to offset against future taxable trading profits of the same trade and future tax relief available on the exercise of outstanding employee share options in OMG plc.

Deferred tax assets and liabilities have been measured at an effective rate of 25% and 36% in the UK and USA, respectively (2010: 27% and 36%, respectively).

The adjustment to current tax in respect of the prior year is as a result of a claim for tax relief on research and development expenditure from prior years. 

In addition to the changes in rates of corporation tax announced in The Emergency Budget on 22 June 2010, a number of further changes to the UK corporation tax system were announced in the 2011 Budget on 23 March 2011.

A reduction in the main rate of corporation tax to 26% from 1 April 2011 was substantively enacted on 29 March 2011.  The inclusion of legislation to reduce the main rate of corporation tax from 26% to 25% from 1 April 2012 was substantively enacted on 5 July 2011.  Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014.

For the purposes of deferred tax, the rate change from 27% to 25% had been substantively enacted before the balance sheet date. The other proposed rate changes were not substantively enacted on or before the balance sheet date and it is not yet possible to quantify the full anticipated effect of the announced further 2% rate reduction, although this will further reduce the Company's future current tax charge and reduce the Company's deferred tax assets accordingly.

The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 27% (2010: 28%).
The differences are explained as follows:

	2011	2010
	£'000	£'000
Profit on ordinary activities before tax	721	3,652
Expected tax charge based on the standard rate of corporation tax in the UK of 27% (2009: 28%)	195	1,023
Effect of:
Expenses not deductible for tax purposes	127	15
Unrelieved current year losses	493	-
Adjustments to tax charge in respect of prior year current tax	(499)	(100)
Adjustments to tax charge in respect of prior year deferred tax	396	(90)
Higher rates on overseas taxation	(136)	56
Research and development tax credit	(473)	(165)
Effect of rate change	(23)	6
Total tax expense	80	745

7.   Loss per share

		2011			2010
	Earnings	weighted average number of shares	Per share amount	Earnings	weighted average number of shares	Per share amount
	£'000		(pence)	£'000		(pence)
Continuing operations
Basic earnings per share
Earnings attributable to ordinary shareholders	641	69,967,082	0.92	2,907	68,306,306	4.26
Dilutive effect of employee share options	-	1,659,412	(0.02)	-	3,005,229	(0.18)
Diluted earnings per share	641	71,626,494	0.90	2,907	71,311,535	4.08
Total operations
Basic earnings per share
Earnings attributable to ordinary shareholders	(187)	69,967,082	(0.27)	322	68,306,306	0.47
Dilutive effect of employee share options	-	1,659,412	-	-	3,005,229	(0.02)
Diluted earnings per share	(187)	71,626,494	(0.27)	322	71,311,535	0.45

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 year.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares (share options).  For share options a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscriptions rights and outstanding share based payment charges 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 price of the share options.

The loss used in the calculation of loss per share for discontinued operations is £828,000 (note 8).

8.   Discontinued operations

On 30 June 2011 the Group sold those assets relating to the former business segment 'Yotta USA' for a cash consideration of £81,000.  In accordance with IFRS 5, the comparatives for 2010 have been restated for income generated and expenses incurred by Yotta USA in 2010 as these are already accounted for to arrive at the loss on discontinued operations.

	2011	2010
	£'000	£'000
Cash received	81	-
Net assets disposed of:
Property, plant and equipment	55	-
Amounts due from customers for contract work	265	-
	320	-
Pre tax loss on disposal of discontinued operation	(239)	-
Related tax expense	-	-
	(239)	-

The post tax loss on disposal of discontinued operations was determined as follows:

	2011	2010
	£'000	£'000
Result of discontinued operation
Revenue	900	1,977
Expenses other than finance costs	(1,486)	(2,642)
Impairment of intangible fixed assets	-	(1,920)
Finance costs	(3)	-
Loss from selling discontinued operations after tax	(239)	-
Loss for the year	(828)	(2,585)
Basic loss per ordinary share (pence)	(1.18)	(3.79)
Diluted loss per ordinary share (pence)	(1.18)	(3.79)

The statement of cash flows includes the following amounts relating to discontinued operations:

	2011	2010
	£'000	£'000
Operating activities	(157)	29
Investing activities	101	29
Financing activities	(3)	-
Net cash flow from discontinued operations	(59)	58

9.   Movement in reserves

	Share premium account	Merger reserve	Retained earnings	Shares to be issued	Foreign currency translation reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 October 2010	6,773	2,928	8,677	-	90	18,468
Retained profit for the year	-	-	(187)	-	-	(187)
Currency translation differences on foreign currency net investment	-	-	-	-	(59)	(59)
Tax recognised directly in equity	-	-	(58)	-	-	(58)
Premium on issue of shares	225	618	-	-	-	843
Shares to be issued	-	-	-	65	-	65
Dividend paid	-	-	(207)	-	-	(207)
Share-based payments	-	-	124	-	-	124
At 30 September 2011	6,998	3,546	8,349	65	31	18,989

	Share premium account	Merger reserve	Retained earnings	Shares to be issued	Foreign currency translation reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 October 2009	6,773	2,928	8,304	-	165	18,170
Retained profit for the year	-	-	322	-	-	322
Currency translation differences on foreign currency net investment	-	-	-	-	(75)	(75)
Tax recognised directly in equity	-	-	(14)	-	-	(14)
Shares issued	-	-	-	-	-	-
Premium on issue of shares			-	-	-	-
Dividend paid	-	-	(102)	-	-	(102)
Share-based payments	-	-	167	-	-	167
At 30 September 2010	6,773	2,928	8,677	-	90	18,468

The following describes the nature and purpose of each reserve within owner's equity.

Reserve	Description and purpose
Share capital	Amount subscribed for share capital at nominal value.
Shares to be issued	Shares to be issued to Bartle Bogle Hegarty in the year ending 30 September 2012 in exchange for services received.
Share premium account	Amount subscribed for share capital in excess of nominal value.
Foreign currency translation	Gains/losses arising on retranslation of the net assets of overseas operations into sterling.
Retained earnings	Cumulative net gains and losses recognised in the consolidated income statement.
Merger reserve	Excess of the fair value of the shares issued for the acquisition made in the year to 30 September 2007 and for the acquisition made in the year to 30 September 2011 over the aggregate of the nominal value of shares issued by the Company to the former shareholders of the acquired company, which qualify for merger relief under Section 612(2) of the Companies Act 2006.

10.   Business combinations

On 21 February 2011 the Group purchased 100% of the share capital of Sensing Systems Inc, a company whose principal activity is the provision of software products and services for aerial platforms, for a total consideration with a provisional fair value of up to £3,913,000.  This includes deferred consideration of up to £1,952,000 subject to certain performance conditions.  The purchase has been accounted for as an acquisition.

All intangible assets were recognised at their respective fair values.  The residual excess over the net assets acquired, including intangible assets, is recognised as goodwill in the financial statements.

The total provisional goodwill arising on acquisition was £3,137,000 which is subject to an annual impairment review.

The fair value of the business assets acquired was as follows:

	Book value	Alignment of accounting policy	Fair valuation	Fair value
	£'000	£'000	£'000	£'000
Intangible assets	-	-	1,255	1,255
Property, plant and equipment	3	12	-	15
Accounts receivable	127	8	-	135
Cash	34	-	-	34
Accruals	(159)	(53)	-	(212)
Deferred tax liability	-	-	(451)	(451)
Net business assets acquired	5	(33)	804	776

Consideration:				£'000
Cash				1,340
Share consideration				621
Deferred contingent consideration				1,952
Total provisional consideration				3,913
Provisional goodwill arising				3,137

The intangible assets acquired as part of the business combination significantly relate to intellectual property and existing customer relationships.

The main factors leading to the recognition of goodwill are the presence of certain intangible assets, such as the assembled workforce of the acquired entity, that do not qualify for separate recognition and synergistic cost savings that result in the Group being prepared to pay a premium.

The contingent consideration is denominated in US dollars and is dependent upon certain revenue milestones being achieved in the period commencing from the date of acquisition and ending on 21 February 2015.  The contingent consideration is payable 90 days after achievement of the revenue milestone.  If the revenue milestones are achieved the undiscounted value of possible outcomes is between £466,000 and £3,106,000.  If the performance conditions are not met the conditional portion is not payable.

The acquired business contributed revenues of £1,072,000 and net profit of £326,000 to the Group for the period from 21 February 2011 to 30 September 2011.  If the acquisition had occurred on 1 October 2010, Group revenue would have been £27,587,000 and net loss would have been £521,000.  These amounts have been calculated using the Group's accounting policies.

11.  Dividend

	2011	2010
Equity - ordinary	£'000	£'000
Final 2009 paid in 2010 (0.15 pence per share)	-	102
Final 2010 paid in 2011 (0.30 pence per share)	207	-

The directors are proposing a final dividend in respect of the financial year ended 30 September 2011 of 0.3 pence per share (2010: 0.3 pence per share) which will absorb an estimated £214,000 of shareholders' funds.  This dividend will be paid on 12 March 2012 to shareholders who are on the register of members at close of business on 16 December 2011 subject to approval at the AGM. This dividend has not been accrued in these financial statements.

12.  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.

 

END

 

 

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