Interim Results

RNS Number : 7432R

Digital Barriers plc

22 November 2012

 



22 November 2012

Digital Barriers plc

("Digital Barriers" or the "Company")

Interim Results for the six months ended 30 September 2012

Digital Barriers (LSE AIM: DGB), the specialist provider of advanced surveillance technologies to the international homeland security and defence markets, announces unaudited results for the six months ended 30 September 2012.

Key Highlights

·      Revenue growth of 68% over the six month period to 30 September 2011

o  31% revenue growth on a pro forma basis1

o  International revenue now accounts for 27% of group total (2011: 22%)

·      Contracted order growth significantly ahead of pro forma revenue growth

·      Increased focus on our three highly differentiated "core technologies"

·      Additional licensing and partnering revenue models developed to further exploit the Company's world-class intellectual property (IP) in all regions

·      All 12 acquisitions made since IPO now fully integrated with on-going consolidation to focus resources on our three core technologies

¹  Assuming all prior period acquisitions occurred on 1 April 2011 and excluding all current period acquisitions.

Commenting on the results Dr Tom Black, Executive Chairman of Digital Barriers said:

"We are pleased with the growth in revenues and contracted orders that the business has generated during this period. We are particularly encouraged that orders growth is tracking significantly ahead of revenue, almost doubling last year's level on a like for like basis. With our seasonally stronger second half of the year to come, and our cost base under tight control, we remain confident about our future prospects."

For further information please contact:
Digital Barriers plc	[phone]
Tom Black, Executive Chairman
Colin Evans, Managing Director
Investec Investment Banking	[phone]
Andrew Pinder / Dominic Emery
FTI Consulting	[phone]
Edward Bridges / Matt Dixon / Elodie Castagna

About Digital Barriers:

Digital Barriers provides advanced surveillance technologies to the international homeland security and defence markets, specialising in 'edge-intelligent' solutions that are designed for remote, hostile or complex operating environments. We work with governments, multinational corporations and system integrators in the defence, law enforcement, critical infrastructure, transportation and natural resources sectors. Our surveillance technologies have been successfully proven on some of the most demanding operational and environmental deployments around the world.

www.digitalbarriers.com

Chairman's Statement

Introduction

We have achieved good growth across both products and services during the first half of this year. In a business that shows strong seasonality each half, the period saw a 68% increase in revenues against the comparable prior year period (31% on a pro forma basis), with contracted order growth tracking materially ahead of this. Driving international sales is a key focus for our team. It is therefore encouraging to see that our international revenues have increased in the first half to 27% of group revenue (2011: 22%). We have seen a strong performance in Asia Pacific, and important early wins with flagship customers in the United States and the Middle East. The Company continues to track material opportunities across all regions, although much of the revenue growth achieved in this half was delivered through run-rate sales across multiple customers rather than individually material headline wins.

Asia Pacific has seen particularly strong growth and is the region outside the UK where we have operated longest. We have now built sound relationships with flagship customers and partners across the region, achieving important sales across all our core technologies and to a variety of customers, including specialist military and customs and border agencies. We see our initial success in Asia Pacific as a positive indicator of what can ultimately be achieved across other target regions, specifically the United States and the Middle East.

Core technologies for growth

During the first half of the year we have carefully assessed the international market appetite for the different technologies within our surveillance portfolio. The results of this exercise have led us to sharpen our focus on the three core technologies that, we believe, offer the greatest strategic opportunity for growth. Each of these technologies is highly disruptive; occupies a clearly differentiated position in the marketplace; is scalable internationally; and is leading edge. In this half we have maintained strong momentum and achieved important sales in each of these three core technologies, which are:

TVI is our world-class wireless transmission technology for live video streaming. We have continued to generate significant interest in TVI and have made sales across all our target regions in this area. In the UK, United States and Middle East for example, we have sold TVI into major law enforcement agencies (LEAs) and specialist parts of the military.

RDC is our Remote Detection and Classification ground sensor. We have generated real customer excitement, especially in the border control sector, through the early marketing and trials of this technology. RDC itself is a class-leading product, with superior on-board detection and analysis technology, long battery life, simple deployability, and superior performance / price point. Used as part of a surveillance system with our TVI video products, it provides a genuinely disruptive capability to the homeland security market. Advanced customer trials are already underway with a major border security customer in Asia Pacific and the sales pipeline is strengthening ahead of our formal product launch in January 2013. We expect the first orders to ship on launch.

ThruVision provides a passive stand-off body scanning capability for concealed object detection, for example to identify drugs, weapons or explosives hidden under clothing. This is a truly differentiated product on the international market, with unique capabilities, portability and stand-off range. We are in discussions around adoption of this technology with customs and border agencies in a number of our key markets and have seen notable early success in Asia Pacific. We also continue to develop the next generation of ThruVision technology, now being trialled with core US and UK customers.

In tandem with developing our growing products business, we are exploring additional ways in which to monetise the world-class IP under our ownership. This includes OEM manufacturing arrangements, software licensing arrangements and mixed revenue models where we leverage the sale of our software and hardware through a partner organisation's own sales infrastructure, to their existing customer base. In particular from the latter route, discussions are already underway with our partners regarding opportunities to take TVI into a broader commercial marketplace.

Enhancing our platform

With a world-class platform of cutting edge surveillance technologies now in place, and increased focus on those technologies which offer the greatest strategic opportunity, we have invested further in these priority areas whilst diverting resource away from areas that are less core to our strategy. This has given us an opportunity to rationalise our cost base, target research and development more effectively and deliver efficiencies within the organisation and its management.

With 12 acquisitions made to date, Digital Barriers is now a fully integrated business with a tightly unified organisation and management structure, a single brand and a clear strategic focus. We are increasingly integrating our technologies and now have greater coherence and focus on our key product family roadmaps. With a world-class modular surveillance platform now built, the pace of acquisitions is inevitably slowing in favour of a focus on international sales growth and targeted product development. However, acquisitions remain a core part of our strategy and we expect to add further new leading edge capabilities in the future.

Financials

Revenue in the period was £8.1 million (2011: £4.8 million), generating an adjusted loss before tax of £5.0 million (2011: adjusted loss before tax £2.9 million) and adjusted loss per share of 11.06 pence (2011: adjusted loss per share 6.79 pence). The cash balance at the end of the period was £7.3 million (2011: £25.0 million).

We have seen impressive growth across all core revenue streams resulting in a 31% increase in revenues over the first half of last year on a pro forma basis. The adjusted loss of £5.0 million resulted primarily from the investment in our core technologies and setting our cost base for our traditionally stronger H2.

KPIs

We monitor a number of key metrics, both financial and non-financial on a monthly basis. The most important of these are as follows:

·      Revenue growth: 68% for the period compared to the prior year comparative period, growing from £4.8 million in 2011 to £8.1 million

·      Pro forma organic revenue growth: 31% for the period compared to the prior year comparative period, growing from £6.2 million to £8.1 million

·      Gross margin: 46.1% for the period (2011: 45.7%)

·      Corporate overhead: £3.3 million for the period (2011: £2.0 million)

·      Number of employees: 190 at 30 September 2012 (30 September 2011: 145)

·      Cash: £7.3 million at 30 September 2012 (30 September 2011: £25.0 million)

Outlook

Our revenue and contracted order growth in period, combined with the increasingly positive reaction to our world-class surveillance products from flagship customers and partners around the world, has confirmed the genuinely disruptive nature of the technologies we now have under ownership. We have focused our investment and our sales efforts around these core technologies, where we see significant opportunities to maintain the strong growth achieved in this period. These factors combined give us continued confidence that the opportunity for Digital Barriers to further its development and growth in the medium term remains compelling.

Independent auditor's review report to Digital Barriers plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 6 months ended 30 September 2012 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated statement of cash flows, and related notes 1 to 6. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with International Accounting Standards 34, "Interim Financial Reporting," as adopted by the European Union.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standards 34, "Interim Financial Reporting," as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 6 months ended 30 September 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

Ernst & Young LLP

London

21 November 2012

DIGITAL BARRIERS PLC

Consolidated income statement

for the six months ended 30 September 2012

		6 months ended		6 months ended	12 months ended
		30 September 2012		30 September 2011	31 March 2012
		Unaudited		Unaudited	Audited
	Note	£'000		£'000	£'000
Revenue	2	8,078		4,806	14,996
Cost of sales		(4,353)		(2,611)	(8,939)
Gross profit		3,725		2,195	6,057
Administration costs		(10,299)		(6,610)	(15,782)
Other income		647		-	5,828
Other costs		(1,087)		-	-
Operating loss		(7,014)		(4,415)	(3,897)
Finance revenue		15		115	160
Finance costs		(62)		(180)	(365)
Loss before tax		(7,061)		(4,480)	(4,102)
Income tax		417		50	561
Loss for the period		(6,644)		(4,430)	(3,541)
Adjusted loss:	3
Loss before tax		(7,061)		(4,480)	(4,102)
Amortisation of intangibles initially recognised on acquisition		1,123		940	2,024
Placing and deal costs		35		449	754
Adjustments to deferred consideration		(585)		172	(5,004)
Gain on bargain purchase		-		-	(152)
Impairment of intangibles		1,087		-	-
Reorganisation costs		372		-	510
Adjusted loss before tax for the period		(5,029)		(2,919)	(5,970)
(Loss) per share - basic	4	(15.18p)		(10.16p)	(8.11p)
(Loss) per share - diluted	4	(15.18p)		(10.16p)	(8.11p)
(Loss) per share - adjusted	4	(11.06p)		(6.79p)	(12.83p)
(Loss) per share - adjusted diluted	4	(11.06p)		(6.79p)	(12.83p)

The results for the period and the prior period are derived from continuing activities

Consolidated statement of comprehensive income

for the six months ended 30 September 2012

		6 months ended		6 months ended	12 months ended
		30 September 2012		30 September 2011	31 March 2012
		Unaudited		Unaudited	Audited
	Note	£'000		£'000	£'000
Loss for the period		(6,644)		(4,430)	(3,541)
Exchange differences on retranslation of foreign operations		13		(77)	(246)
Total comprehensive loss attributable to owners of the parent		(6,631)		(4,507)	(3,787)

DIGITAL BARRIERS PLC

Consolidated balance sheet

at 30 September 2012

			30 September 2012		30 September 2011	31 March 2012
			Unaudited		Unaudited	Audited
	Note		£'000		£'000	£'000
Assets
Non current assets
Property, plant and equipment			1,197		475	892
Goodwill	5		21,880		19,874	21,716
Other intangible assets	5		5,986		7,810	8,150
			29,063		28,159	30,758
Current assets
Inventories			2,896		797	1,788
Trade and other receivables			5,523		3,426	6,760
Current tax recoverable			761		246	655
Cash and cash equivalents			7,258		25,049	15,289
			16,438		29,518	24,492
Total assets			45,501		57,677	55,250
Equity and liabilities
Attributable to owners of the parent
Equity share capital	6		438		437	437
Share premium	6		48,118		48,012	48,012
Capital redemption reserve			4,735		4,735	4,735
Merger reserve			348		348	348
Translation reserve			(233)		(77)	(246)
Other reserves			(307)		(307)	(307)
Retained earnings			(14,177)		(8,677)	(7,687)
Total equity			38,922		44,471	45,292
Non current liabilities
Deferred tax liabilities			184		416	414
Financial liabilities			1,031		4,892	1,000
			1,215		5,308	1,414
Current liabilities
Trade and other payables			4,170		3,449	6,794
Income tax payable			-		69	-
Financial liabilities			1,194		4,380	1,750
			5,364		7,898	8,544
Total liabilities			6,579		13,206	9,958
Total equity and liabilities			45,501		57,677	55,250

DIGITAL BARRIERS PLC

Consolidated statement of changes in equity

for the 6 months ended 30 September 2012

	Share capital	Share Premium account	Capital Redemption reserve	Merger reserve	Translation reserve	Other reserves	Profit and loss reserve	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31 March 2011	436	48,012	4,735	-	-	(307)	(4,305)	48,571
Total comprehensive loss	-	-	-	-	(77)	-	(4,430)	(4,507)
Issue of shares on acquisition of Keeneo	1	-	-	348	-	-	-	349
Share-based payment credit	-	-	-	-	-	-	58	58
At 30 September 2011	437	48,012	4,735	348	(77)	(307)	(8,677)	44,471
Total comprehensive income / (loss)	-	-	-	-	(169)	-	889	720
Share-based payment credit	-	-	-	-	-	-	101	101
At 31 March 2012	437	48,012	4,735	348	(246)	(307)	(7,687)	45,292
Total comprehensive income / (loss)	-	-	-	-	13	-	(6,644)	(6,631)
Share-based payment credit	-	-	-	-	-	-	154	154
Issue of shares regarding the acquisition of Keeneo	1	106	-	-	-	-	-	107
At 30 September 2012	438	48,118	4,735	348	(233)	(307)	(14,177)	38,922

DIGITAL BARRIERS PLC

Consolidated statement of cash flows

for the 6 months ended 30 September 2012

		6 months ended	6 months ended	12 months ended
		30 September 2012	30 September 2011	31 March 2012
		Unaudited	Unaudited	Audited
		£'000	£'000	£'000
Operating activities
Loss before tax		(7,061)	(4,480)	(4,102)
Non-cash adjustment to reconcile loss before tax to net cash flows
	Depreciation of property, plant and equipment	318	82	193
	Amortisation of intangible assets	1,168	941	2,056
	Impairment of intangible assets	1,087	-	-
	Share-based payment transaction expense	154	58	159
	Gain on bargain purchase	-	-	(152)
	Release of deferred consideration	(647)	-	(4,021)
	Reassessment of deferred consideration	-	(35)	(1,693)
	Disposal of fixed assets	-	-	5
	Finance income	(15)	(115)	(160)
	Finance costs	62	180	365
Working capital adjustments:
	Decrease / (increase) in trade and other receivables	1,260	164	(2,896)
	(Increase) / decrease in inventories	(959)	(208)	(372)
	(Decrease) / increase in trade and other payables	(2,637)	(2,064)	526
Cash utilised in operations		(7,270)	(5,477)	(10,092)
Income tax received / (paid)		81	38	(34)
Net cash flow from operating activities		(7,189)	(5,439)	(10,126)
Investing activities
Purchase of property, plant & equipment		(616)	(176)	(443)
Expenditure on intangible assets		(33)	(225)	(563)
Acquisition of subsidiaries		(144)	(2,494)	(5,249)
Payment of deferred consideration		(60)	(200)	(2,034)
Acquisition of cash and cash equivalents of subsidiaries		-	22	31
Interest received		15	47	160
Net cash flow from investing activities		(838)	(3,026)	(8,098)
Financing activities
Proceeds from issue of shares		-	-	-
Share issue costs		-	-	-
Interest paid		-	(8)	(8)
Net cash flow from financing activities		-	(8)	(8)
Net (decrease) / increase in cash and cash equivalents		(8,027)	(8,473)	(18,232)
Cash and cash equivalents at beginning of period		15,289	33,524	33,524
Effect of foreign exchange rate changes on cash and cash equivalents		(4)	(2)	(3)
Cash and cash equivalents at end of period		7,258	25,049	15,289

DIGITAL BARRIERS PLC

Notes to the financial statements

for the 6 months ended 30 September 2012

1. Accounting policies

Basis of preparation

The consolidated interim financial statements include those of Digital Barriers plc and all of its subsidiary undertakings (together "the Group") drawn up at 30 September 2012, and have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' ('IAS 34') as adopted for use in the European Union ('EU'). The consolidated interim financial statements have been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the period ended 31 March 2012. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within its current level of cash reserves of £7.3 million. The Directors have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future, and for this reason they have adopted the going concern basis in these consolidated interim financial statements.

The annual consolidated financial statements of the Group are prepared on the basis of International Financial Reporting Standards ('IFRS'). The consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all the disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the most recent Annual Report and Accounts which were approved by the Board of Directors on 28 May 2012 and have been filed with Companies House. The condensed interim financial statements do not constitute statutory accounts as defined in Section 435 of the Companies Act 2006 and are unaudited for all periods presented. The financial information for the 12 month period ended 31 March 2012 is extracted from the financial statements for that period. The auditors' report on those financial statements was unqualified and did not contain an emphasis of matter reference and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The Company is a limited liability company incorporated and domiciled in England & Wales and whose shares are quoted on AIM, a market operated by The London Stock Exchange.

2. Segmental information

The Group is organised into the Services and Products divisions for internal management, reporting and decision-making, based on the nature of the products and services of the Group's businesses. These are the reportable operating segments in accordance with IFRS 8 'Operating Segments'. As the Group continues to develop and change, the Directors closely monitor these reporting operating segments to ensure they remain relevant to the management of the Group.

	6 months ended 30 September 2012				6 months ended 30 September 2011
	Services	Products	Total		Services	Products	Total
	Unaudited	Unaudited	Unaudited		Unaudited	Unaudited	Unaudited
	£'000	£'000	£'000		£'000	£'000	£'000
Total segment revenue	2,395	5,926	8,321		1,934	2,894	4,828
Inter-segment revenue	-	(243)	(243)		-	(22)	(22)
Revenue	2,395	5,683	8,078		1,934	2,872	4,806
Segment operating profit / (loss)	150	(1,808)	(1,658)		(186)	(649)	(835)
Corporate overheads			(3,324)				(2,019)
Net adjusted loss items (see note 3)			(2,032)				(1,561)
Operating loss			(7,014)				(4,415)
Finance income			15				115
Finance costs			(62)				(180)
Loss before tax			(7,061)				(4,480)
Income tax			417				50
Loss for the period			(6,644)				(4,430)

	12 months ended 31 March 2012
	Services	Products	Total
	Audited	Audited	Audited
	£'000	£'000	£'000
Total segment revenue	6,324	8,721	15,045
Inter-segment revenue	-	(49)	(49)
Revenue	6,324	8,672	14,996
Segment operating profit / (loss)	143	(947)	(804)
Corporate overheads			(4,961)
Net adjusted loss items (see note 3)			1,868
Operating loss			(3,897)
Finance income			160
Finance costs			(365)
Loss before tax			(4,102)
Income tax			561
Loss for the period			(3,541)

3. Adjusted loss

An adjusted loss before tax measure has been presented as the Directors believe that this is a more relevant measure of the Group's underlying performance. Adjusted loss is not defined under IFRS and has been shown as the Directors consider this to be helpful for a better understanding of the performance of the Group's underlying business. It may not be comparable with similarly titled measurements reported by other companies and is not intended to be a substitute for, or superior to, IFRS measures of profit. The net adjustments to loss before tax are summarised below:

	6 months ended	6 months ended	12 months ended
	30 September 2012	30 September 2011	31 March 2012
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Amortisation of intangibles initially recognised on acquisition	1,123	940	2,024
IPO, Placing and deal costs	35	449	754
Adjustments to deferred consideration (i)	(585)	172	(5,004)
Gain on bargain purchase	-	-	(152)
Impairment of intangible assets (ii)	1,087	-	-
Reorganisation costs (iii)	372	-	510
Total adjustments	2,032	1,561	(1,868)

(i)          The adjustment to deferred consideration in the current period comprises a release of £647,000, partly offset by the unwind of discount on deferred consideration of £62,000. In relation to the LMW acquisition deferred consideration of £60,000 was paid in the period and the remaining balance of £30,000 was released. An interim time-constrained financial target was not met in relation to the Zimiti acquisition, resulting in the release of £617,000 of deferred consideration; the remaining balance held in respect of Zimiti is unchanged at £1,031,000.

(ii)        The performance of the Keeneo and Waterfall entities within the products division has been below the level used to determine the intangible assets recognised on acquisition. The carrying value of the intangible assets has been re-evaluated using a value in use model, with discount rates of 10.9% and 10.8% respectively. As a result the intangible assets of each entity have been impaired by £457,000 and £630,000 respectively.

(iii)       Reorganisation costs relate to the rationalisation of the organisational and geographical design, information systems and support functions within both the services and products divisions. As the expenditure relates to transforming the divisions for the future these costs are not directly related to current operations.

4. Loss per share

The basic loss per share is calculated on the loss after tax and the weighted average number of shares in issue during the period.

The basic adjusted loss per share is calculated on the adjusted loss after tax and the weighted average number of shares in issue during the period.

Diluted earnings per share measures are calculated using the same number of shares as the basic loss per share measures, as the inclusion of potential Ordinary Shares arising from share options and Incentive Shares in issue would be anti-dilutive.

The following reflects the loss and share data used in the basic and diluted loss per share calculations:

	6 months ended	6 months ended	12 months ended
	30 September 2012	30 September 2011	31 March 2012
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Loss after tax	(6,644)	(4,430)	(3,541)
Amortisation of intangibles initially recognised on acquisition, net of tax	1,044	849	1,833
IPO, placing and deal costs	35	449	754
Adjustments to deferred consideration	(585)	172	(5,004)
Gain on bargain purchase	-	-	(152)
Impairment of intangibles, net of tax	936	-	-
Reorganisation costs	372	-	510
Adjusted loss after tax	(4,842)	(2,960)	(5,600)
Weighted average number of shares	43,776,498	43,593,381	43,660,670
Basic and diluted loss per share	(15.18p)	(10.16p)	(8.11p)
Basic and diluted adjusted loss per share	(11.06p)	(6.79p)	(12.83p)

5. Business combinations

Business combinations during the 6 months ended 30 September 2012

On 23 April 2012, the Group acquired the complete product set and intellectual property, along with certain customer contracts, of Enterprise Technologies (UK) Limited ('E-Tech'). Under the terms of the acquisition the Group has acquired the intellectual property, products, know-how, stock and certain customer contracts of E-Tech for the purchase on completion of E-Tech stock in the amount of £149,000. In addition, deferred consideration will be payable on E-Tech products sold by Digital Barriers in the period between completion and 31 March 2013.

E-Tech's exceptionally skilled staff have backgrounds in technical surveillance, military and commercial communications technologies across the defence and security sectors. These employees have now joined the Group under the terms of the acquisition. Together with their very highly regarded, and complementary to the Group, technology capabilities, they are expected to expand the range of solutions the Group can offer to its customers. E-Tech is part of the Group's products division.

The provisional fair value of the identifiable assets and liabilities of E-Tech at acquisition date are set out below. The fair values will be finalised within 12 months of acquisition.

	Carrying value	Adjustments	Fair value
	£'000	£'000	£'000
Non-current assets
Property, plant and equipment	7	-	7
Customer relationships - intangible	-	58	58
Total non-current assets	7	58	65
Current assets
Trade & other receivables	10	-	10
Inventories	149	-	149
Total current assets	159	-	159
Total assets	166	58	224
Current liabilities
Trade & other payables	17	-	17
Total current liabilities	17	-	17
Net assets / (liabilities) acquired	149	58	207
			£'000
Cash consideration			149
Fair value of deferred consideration			227
Total consideration			376
Goodwill arising from acquisition			169

Trade and other receivables acquired have been recognised at fair value, which equates to the gross contractual amounts receivable. All amounts recognised are expected to be collected.

The fair value of the deferred consideration is based on the discounted cash flows of the expected consideration payable, using a pre-tax cost of debt of 5.9%. In accordance with IFRS3R the Directors have assessed the fair value of deferred consideration payable to be £231,000, and consequently this amount has been used in the calculation of the discounted fair value.

The goodwill of £169,000 comprises the value of expected synergies with the Group's operations, customer loyalty and the value of the assembled workforce including industry specific knowledge and technical skills. All of the goodwill recognised is expected to be deductible for income tax purposes.

Business combinations during the 12 months ended 31 March 2012

During the year ended 31 March 2012, the Group acquired Zimiti Limited ("Zimiti"), Keeneo SAS ("Keeneo"), Stryker Communications Limited ("Stryker"), the product set, intellectual property and certain customer contracts of LMW Electronics Limited ("LMW"), Codestuff Limited ("CS") and the assets, intellectual property and customer contracts of ThruVision Systems Limited ("TV").

The fair value of the identifiable assets and liabilities of the acquisitions are set out below.

	Zimiti	Keeneo	Stryker	LMW	CS	TV	Other	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Property, plant and equipment	-	37	42	113	11	56	-	259
Intangible assets	1,809	771	170	149	293	525	53	3,770
Trade and other receivables	23	262	159	4	113	-	-	561
Current tax recoverable	30	58	-	-	70	-	-	158
Inventories	-	-	194	-	-	634	-	828
Cash and cash equivalents	6	16	14	-	(5)	-	-	31
Trade and other payables	(694)	(1,210)	(290)	(4)	(228)	(85)	-	(2,511)
Tax payable	-	-	(2)	-	(76)	(28)	-	(106)
Deferred tax liabilities	-	-	(41)	-	(58)	-	-	(99)
Net assets acquired	1,174	(66)	246	262	120	1,102	53	2,891
Initial cash consideration	878	1,416	716	450	639	950	200	5,249
Issue of share capital	-	349	-	-	-	-	-	349
Fair value of deferred consideration	3,168	2,139	717	89	-	-	-	6,113
Total consideration	4,046	3,904	1,433	539	639	950	200	11,711
Goodwill arising from acquisition	2,872	3,970	1,187	277	519	(152)	147	8,820

Movements on deferred consideration

Since 30 September 2011 the following movements in the amounts recognised for deferred consideration have taken place:

	SAL2	WS3	EVS4	Zimiti	Keeneo	Stryker	LMW	E-Tech	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30 September 2011	850	1,443	1,426	3,215	2,121	-	-	-	9,055
On acquisition	-	-	-	-	-	717	89	-	806
Unwind of discount	-	20	24	84	43	12	1	-	184
Paid	(850)	(669)	-	-	(315)	-	-	-	(1,834)
Released	-	(794)	(1,450)	-	(1,742)	-	-	-	(3,986)
Reassessed	-	-	-	(1,693)	-	-	-	-	(1,693)
At 31 March 2012	-	-	-	1,606	107	729	90	-	2,532
On acquisition	-	-	-	-	-	-	-	227	227
Unwind of discount	-	-	-	42	-	16	-	4	62
Paid (i)	-	-	-	-	(107)	-	(60)	-	(167)
Released	-	-	-	(617)	-	-	(30)	-	(647)
At 30 September 2012	-	-	-	1,031	-	745	-	231	2,007

(i)          Final Keeneo payment settled via the issue of Ordinary Shares (see note 6).

As at 30 September 2012, the maximum deferred consideration payable in the future is £5.5 million, up to £1.5 million of which may be satisfied through the issue of new Ordinary Shares, and the remainder satisfied in cash.

2 Security Applications Limited ("SAL")

3 Waterfall Solutions Limited ("WS")

4 Essential Viewing Systems Limited ("EVS")

6. Issued share capital

On 4 May 2012, 59,216 Ordinary Shares were issued in final settlement of deferred consideration payable of £107,000 in respect of the acquisition of Keeneo.

At 30 September 2012 there were 43,787,176 Ordinary Shares in issue (30 September 2011: 43,727,960, 31 March 2012: 43,727,960).

 

END

 

 

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