Interim Results

RNS Number : 7458M
Quadnetics Group PLC
04 February 2009
 



Press Release

4 February 2009





Quadnetics Group plc



Interim results for the six months ended 30 November 2008


Quadnetics Group plc, a leader in the development, design, integration and control of advanced CCTV and networked video systems, reports its interim results for the six months ended 30 November 2008.


Highlights

 

Revenue virtually unchanged at £35.8m (2007: £35.9m)


Underlying profit* before tax £0.5m (2007: £1.3m), after £0.6m development and start up costs for Synectics' new product range (2007: Nil)


Interim dividend maintained at 2.5p (2007: 2.5p)


Net cash as at 30 November 2008 £7.1m (2007: £7.9m)


Resilience in several core markets, notably transport, oil & gas and high security sectors, offsetting weakness in defence, retail, banking and casinos


New CEO appointed in November


Actions taken to reduce cost base by an annualised £1.0 million


Recurring revenue order book up 14%, within total order book of £26 million


Outlook for significantly stronger second half, and full year in line with market expectations



*Underlying profit represents profit before tax, goodwill reduction in respect of tax losses, and share-based payments charges



Commenting on the results, John Shepherd, Chief Executive, said:  

'This steady result, when viewed in the light of the current global economic uncertainties, is testament to the underlying strength of the Group's product and service capabilities in our core customer sectors. It demonstrates the resilience of some of our end-customer markets. We will continue to focus on those sectors where we are an integral part of our customers' operations and seek to build on this strength in global markets.'


  For further information, please contact:

Quadnetics Group plc

Tel: +44 (0) 1527 850080

John Shepherd, Chief Executive


email: john.shepherd@quadnetics.com


Brewin Dolphin Investment Banking

Tel: +44 (0) 113 241 0130

Neil Baldwin



Media enquiries: 

  Buchanan Communications Limited

Tel: +44 (0) 207 466 5000

  Isabel Podda / Tim Anderson / Ben Romney


  email: isabelp@buchanan.uk.com


  Chairman's Statement


Introduction


The first half of this year was a period of mixed performance for Quadnetics. Compared to the same period last year, the Group experienced decreased contributions from defence, banking and casino customers, offset in major part by gains in the oil & gas and high security sectors. 


Action has been taken to reduce the Group's cost base by around £1.0 million on an annualised basis. Net of restructuring costs, these savings will make a small positive contribution this financial year, prior to having a full impact in 2009/10.


As anticipated, the half year results include net costs incurred for the development and bringing to market of Synectics' new product range which will not make a major contribution until our next financial year. This is an important investment that looks, from achieved product performance and customer reactions so far, to have the potential to provide significant future profit growth for the Group. Significant first orders have now been received.


Financial Results


Consolidated revenue for the half year was virtually unchanged from the same period last year at £35.8 million (2007: £35.9 million). Underlying profits (that is, profits before tax, goodwill reduction in respect of tax losses and share-based payments) were £0.5 million (2007: £1.3 million), after charging £0.6 million (2007: Nil) in respect of net development and start up costs for Synectics' new product range. Therefore on a like-for-like basis, excluding the impact of the new product costs, underlying profits were down 14% at £1.1 million. The main factors behind these results are explained in the Operating Review below.


Underlying earnings per share were 2.4 pence (2007: 6.0 pence).


The Group's total firm order book at 30 November 2008 was £26.0 million (2007: £27.2 million). Of this total, recurring revenue orders, an important measure of our earnings visibility and quality, were up 14% to £13.2 million compared with £11.6 million at the same point last year.


Cash Position and Dividend


The Group's consolidated net cash as at 30 November 2008 was £7.1 million (2007: £7.9 million).


In light of the Group's strong cash position, and the continued strength of its order book and visible pipeline of anticipated orders, the Board has decided to maintain an unchanged interim dividend of 2.5 pence per share, payable on 12 March 2009 to shareholders on the register at 13 February 2009. 


Operating Review


Quadrant Security - the security services division, providing integrated security systems, mobile surveillance and security management support services


Quadrant reported revenue of £26.7 million for the half year (2007: £26.0 million), on which it earned an operating profit of £1.4 million (2007: £1.3 million), an increase of 3% and 4% respectively compared with the same period last year. Within these figures, there were strong gains in the high security sector (both in the UK and Middle East) and in mobile transport, offset by a significant decline in retail banking.


Notable new business won in the period included a large UK Police custody suite system, prison security systems for the Home Office, extensions of a long-running Middle Eastern border security project, a security maintenance contract for a major palace in Saudi Arabia, and expansion of the relationship with Stagecoach. The growth of activity in the Middle East is particularly pleasing, and is beginning to provide solid returns on the investment put into this area in the past two years.


The operational focus is on improving margins through increased efficiency and further growth of recurring revenues. Cost reduction plans have been implemented that will generate around £800,000 of annualised savings in this division.



Synectics - the security technology division, providing security network products and software, hazardous area systems and high security surveillance technology


Synectics' revenue in the period was £10.3 million (2007: £10.6 million). The aggregate operating result was a loss of £0.3 million (2007: profit £0.7 million), after charging £0.6 million (2007: Nil) for development and start up costs for Synectics new product range as reported above. 


Two areas experienced relatively poor results in the first half. In both defence and US gaming, revenue was significantly below plan due to large projects being delayed or cancelled, particularly towards the end of the period. Action has been taken to reduce the cost base in the defence sector until we have a clearer perspective on realistic new business levels. In the US gaming market, discretionary customer spending has been adversely affected by conditions in the economy generally; nevertheless, electronic security requirements in North American casinos are dictated by regulation, and the Group expects many of the delayed projects will of necessity progress in the coming months. 


Elsewhere, there were strong performances in Synectics network products and in the hazardous area oil & gas sector. Of particular note, Synectics has won a multi-vessel oil & gas tanker project in Brazil, opening up our presence in this important geographical area. Last year's operational issues have now been successfully overcome.


The T-1000 mobile digital video recorder, a cornerstone product in Synectics' new H.264 range, has won important orders in its target bus and light rail markets, and performed well in extensive trials. The supply chain is now being adapted to volume production. This is a product that is expected to solidify Synectics' leading UK market position and that has the potential for real growth into European and other global markets from our next financial year onwards.


Objectives and Outlook


The Board has recently appointed John Shepherd as Group Chief Executive and asked him to lead a thorough review of Quadnetics' strategy and objectives. This review will be complete within the next few months and the Board will give an update to shareholders in its June trading statement, prior to setting out its conclusions in detail with our preliminary results and Annual Report in September. John has an established track record of achieving major growth in medium-to-large technology businesses. Initial indications are that he will be seeking to narrow further the Group's focus on its core customer sectors and opportunities and accelerate geographic expansion, building on the strong market and technology positions that have been established over the past few years.


As in previous years, Quadnetics expects to have a substantially stronger second half of this financial year, particularly in the Synectics division. The net impact of costs associated with Synectics' new products is likely to be similar to that of the first half. Allowing for this, and based on the Group's order book and pipeline of new business, the Board anticipates that full year results will be in line with current market expectations.


 


David Coghlan
4 February 2009 




  

Consolidated Income Statement

For the half year ended 30 November 2008


 
 
 
 
Notes
Unaudited
 Half year to
30 Nov
2008
 
Unaudited
 Half year to
30 Nov
2007
 
 
Year to
31 May
2008
 
 
£’000
 
£’000
 
£’000
Continuing operations
 
 
 
 
 
 
Revenue
3
35,847
 
35,939
 
79,174
Cost of sales
 
(26,668)
 
(26,175)
 
(57,849)
Gross profit
 
9,179
 
9,764
 
21,325
Net operating expenses
 
(8,777)
 
(7,865)
 
(17,147)
Profit from operations
 
 
 
 
 
 
Excluding goodwill reduction and share-based payments
3
407
 
1,235
 
3,514
Goodwill reduction in respect of tax losses
 
-
 
(141)
 
(141)
Share-based payments (charge)/credit
 
(5)
 
805
 
805
Total profit from operations
 
402
 
1,899
 
4,178
Finance income
 
366
 
303
 
459
Finance costs
 
(241)
 
(232)
 
(243)
Profit before tax
 
 
 
 
 
 
Excluding goodwill reduction and share-based payments
 
532
 
1,306
 
3,730
Goodwill reduction in respect of tax losses
 
-
 
(141)
 
(141)
Share-based payments (charge)/credit
 
(5)
 
805
 
805
Total profit before tax
 
527
 
1,970
 
4,394
Income tax expense
4
(159)
 
(610)
 
(1,037)
Profit for the period
 
368
 
1,360
 
3,357
Basic and diluted earnings per Ordinary share
6
2.4p
 
8.8p
 
21.6p
 
 
 
 
 
 
 

 


Consolidated Statement of Recognised Income and Expense

For the half year ended 30 November 2008

 
Unaudited
 Half year to
30 Nov
2008
 
Unaudited
 Half year to
30 Nov
2007
 
 
 Year to
31 May
2008
 
£’000
 
£’000
 
£’000
Profit for the period
368
 
1,360
 
3,357
Exchange differences on translation of foreign operations
157
 
(14)
 
-
Total recognised income and expense for the period
525
 
1,346
 
3,357

 



Consolidated Balance Sheet

30 November 2008

 
Unaudited
30 Nov
2008
 
Unaudited
30 Nov
2007
 
 
31 May
2008
 
£’000
 
£’000
 
£’000
Non-current assets
 
 
 
 
 
Property, plant and equipment
1,993
 
2,002
 
1,951
Intangible assets
18,333
 
17,246
 
17,938
Interest in joint venture
38
 
-
 
-
Deferred tax asset
391
 
641
 
502
 
20,755
 
19,889
 
20,391
Current assets
 
 
 
 
 
Inventories
5,281
 
4,718
 
4,249
Trade and other receivables
23,590
 
22,765
 
29,502
Cash and cash equivalents
7,089
 
7,863
 
7,940
 
35,960
 
35,346
 
41,691
Total assets
56,715
 
55,235
 
62,082
Current liabilities
 
 
 
 
 
Trade and other payables
(22,780)
 
(21,368)
 
(27,777)
Tax liabilities
(296)
 
(968)
 
(372)
Current provisions
(871)
 
(329)
 
(380)
 
(23,947)
 
(22,665)
 
(28,529)
Non-current liabilities
 
 
 
 
 
Non-current provisions
(75)
 
(709)
 
(691)
 
(75)
 
(709)
 
(691)
Total liabilities
(24,022)
 
(23,374)
 
(29,220)
Net assets
32,693
 
31,861
 
32,862
 
 
 
 
 
 
Equity attributable to equity holders of parent company
 
 
 
 
 
Called up share capital
3,382
 
3,382
 
3,382
Share premium account
14,851
 
14,851
 
14,851
Merger reserve
9,565
 
9,565
 
9,565
Other reserves
(2,486)
 
(2,486)
 
(2,486)
Currency translation reserve
144
 
(27)
 
(13)
Retained earnings
7,237
 
6,576
 
7,563
Total equity
32,693
 
31,861
 
32,862


 



  Consolidated Cash Flow Statement

For the half year ended 30 November 2008

 

 
Unaudited
 Half year to
30 Nov
2008
 
Unaudited
 Half year to
30 Nov
2007
 
 
 Year to
31 May
2008
 
£’000
 
£’000
 
£’000
Cash flows from operating activities
 
 
 
 
 
Profit for the period
368
 
1,360
 
3,357
Income tax expense
159
 
610
 
1,037
Finance income
(366)
 
(303)
 
(459)
Finance costs
241
 
232
 
243
Depreciation and amortisation charge
504
 
391
 
611
Goodwill reduction in respect of tax losses
-
 
141
 
141
(Profit)/loss on disposal of non-current assets
(13)
 
10
 
13
Share-based payments charge/(credit)
5
 
(805)
 
(805)
Operating cash flows before movement in working capital
898
 
1,636
 
4,138
(Increase)/decrease in inventories
(998)
 
356
 
825
Decrease/(increase) in receivables
6,753
 
(2,243)
 
(9,057)
(Decrease)/increase in payables and provisions
(6,625)
 
2,377
 
8,813
Cash generated from operations
28
 
2,126
 
4,719
Interest received
111
 
76
 
249
Tax paid
(144)
 
(481)
 
(1,368)
Net cash (used in)/from operating activities
(5)
 
1,721
 
3,600
Cash flows from investing activities
 
 
 
 
 
Purchase of property, plant and equipment
(267)
 
(763)
 
(892)
Sale of property, plant and equipment
13
 
-
 
52
Capitalised development costs
(167)
 
(484)
 
(1,132)
Purchased software
(49)
 
(163)
 
(236)
Sale of property held for resale
-
 
2,060
 
2,060
Deferred consideration on acquisition made in 2005
(383)
 
(99)
 
(99)
Interest in joint venture
(38)
 
-
 
-
Net cash (used in)/from investing activities
(891)
 
551
 
(247)
Cash flows from financing activities
 
 
 
 
 
Interest paid
-
 
(5)
 
-
Dividends paid
-
 
-
 
(1,009)
Net cash used in financing activities
-
 
(5)
 
(1,009)
Effects of exchange rate changes on cash and cash equivalents
45
 
-
 
-
Net (decrease)/increase in cash and cash equivalents
(851)
 
2,267
 
2,344
Cash and cash equivalents at the beginning of the period
7,940
 
5,596
 
5,596
Cash and cash equivalents at the end of the period
7,089
 
7,863
 
7,940

  

 

Notes

1.            General information

      These consolidated interim financial statements were approved by the Board of Directors on 4 February 2009.

2.            Basis of preparation

     These consolidated interim financial statements of the Group are for the six months ended 30 November 2008.

The comparative figures for the financial year ended 31 May 2008 are not the Group's statutory accounts for that financial year.  Those statutory accounts have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. 

The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 May 2008.

The condensed consolidated interim financial statements for the six months to 30 November 2008 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. 

The condensed consolidated interim financial statements for the six months to 30 November 2008 have been prepared on the basis of the accounting policies expected to be adopted for the year ended 31 May 2009. These are anticipated to be consistent with those set out in the Group's latest annual financial statements for the year ended 31 May 2008. These accounting policies are drawn up in accordance with adopted International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

     Significant accounting policies

AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

3.            Segmental analysis

Turnover and underlying operating profit (operating profit before goodwill reduction and share-based payments credit or charge) derives from the Group's two business segments as follows:

 

 
Unaudited
 Half year to
30 Nov
2008
 
Unaudited
 Half year to
30 Nov
2007
 
 
 Year to
31 May
2008
 
£’000
 
£’000
 
£’000
Turnover
 
 
 
 
 
Services
26,735
 
26,016
 
57,920
Products and software
10,314
 
10,601
 
23,140
Intra-group sales
(1,202)
 
(678)
 
(1,886)
 
35,847
 
35,939
 
79,174
Underlying operating profit
 
 
 
 
 
Services
1,376
 
1,328
 
3,545
Products and software
(297)
 
734
 
1,584
Central costs
(672)
 
(827)
 
(1,615)
 
407
 
1,235
 
3,514


 

4.            Tax charge

The tax charge for the period is based on the estimated rate of corporation tax that is likely to be effective for the full year to 31 May 2009.

5.            Dividends

An interim dividend of 2.5p per share (2007: 2.5p), totalling approximately £388,000 (2007: £388,000) will be paid on 12 March 2009 to shareholders on the register as at 13 February 2009.

A final dividend of 4.5p per share totalling £699,000 for the year ended 31 May 2008 was approved at the Company's Annual General Meeting on 26 November 2008 and accordingly has been included as a liability as at 30 November 2008. 

6.           Earnings per share

   Earnings per Ordinary share are as follows:

 

 
Unaudited
Half year to
30 Nov
2008
Unaudited
Half year to
30 Nov
2007
 
Year to
31 May
2008
Unaudited
Half year to
30 Nov
2008
Unaudited
Half year to
30 Nov
2007
 
Year to
31 May
2008
 
£’000
£’000
£’000
p
p
p
Basic earnings
368
1,360
3,357
2.4
8.8
21.6
Goodwill reduction
-
141
141
-
0.9
0.9
Share-based payments charge/(credit)
5
(805)
(805)
-
(5.2)
(5.2)
Impact of share-based payments (credit)/charge on tax charge for the period
 
(2)
 
242
 
249
-
 
1.5
 
1.6
Underlying earnings
371
938
2,942
2.4
 
6.0
18.9
Basic earnings – diluted
368
1,360
3,357
2.4
8.8
21.6
Underlying earnings – diluted
371
938
2,942
2.4
6.0
18.9
 
 
 
 
’000
’000
‘000
Weighted average number of Ordinary shares – basic calculation
15,529
15,529
15,529
Dilutive potential Ordinary shares arising from share options
-
13
7
Weighted average number of Ordinary shares – diluted calculation
15,529
15,542
15,536


7.    Copies of this statement will be sent to shareholders and will be available on the Group's website (www.quadnetics.com) and from Quadnetics  
      Group plc, Haydon House, 5 Alcester Road, Studley, Warwickshire B80 7AN.


- Ends - 



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