25 Sep 2008 07:00
Embargoed for release until 7.00am 25 September 2008
IndigoVision Group plc ("IndigoVision")
Preliminary Results for the year to
31 July 2008
Highlights
Financial Highlights
| * | Revenues up 37% to record £18.4m |
| * | Gross margin 71%, up from 66% |
| * | Operating profit tripled to £2.05m |
| * | Operating margin 11%, up from 5% |
| * | Adjusted basic earnings per share up 102% to 21.4p |
| * | Good start to current year |
Operating Highlights
| * | Expansion and strengthening of the direct sales force |
| * | Expansion of operations in the US, Dubai, France, Germany, China, India and Mexico |
| * | Supporting open standards for IP cameras |
| * | Product range extended:
- High-Definition (HD) IP cameras - Enterprise alarm management - Network Video Recorder range broadened
|
| * | Major installations across all geographies in 20 vertical markets including: - Casinos - Rail - Police and prisons - Airports - Oil, gas and petrochemicals - City installations including crime reduction projects |
Oliver Vellacott, Chief Executive, said
'We are delighted to be able to report strong results for the year to 31 July 2008, with record sales, margins and profits. We are particularly pleased with the sales increases in the Americas of 51% and EMEA of 45% and to have tripled profits against a more difficult economic backdrop.
Growth is continuing in the current year, with sales and new orders won for the first seven weeks well ahead of the corresponding period last year. The strength of IndigoVision's products, technology, markets and customers together with the continuing move from analogue to digital systems have more than offset the dampening effect of economic weakness. We are confident that the current year will be one of further progress for IndigoVision.'
Notes to Editors
About IndigoVision
IndigoVision is a leading manufacturer of complete end-to-end IP video and alarm management solutions. IndigoVision is widely chosen for applications in airports, city centers, ports, mines, road and rail systems, education, banking, casinos, prisons, government and the military. These enterprise-class systems improve organisations' operational efficiency, enhance public safety and enable timely emergency response. IndigoVision is headquartered in Edinburgh UK, with local sales and support offices across the world. IndigoVision partners with over 200 authorised system integrators and installers in 40 countries to provide local system design, installation and service to end users.
Enquiries to:
| IndigoVision Group plc | Oliver Vellacott CEO Marcus Kneen CFO | ++44 (0) 131 475 7200 |
| Brewin Dolphin Ltd Nominated Advisor | Alan Stewart | ++44 (0) 141 221 7733 |
Chairman's Statement
In the year to 31 July 2008, at a time when many organisations experienced reductions in performance, IndigoVision achieved record sales, profits, margins and earnings per share.
This relative strength is no accident. Firstly, IndigoVision operates at the leading edge of a market in which the key determinant of the size of the available market is the rate at which networked solutions are supplanting analogue technology. Secondly, by the testimony of its customers, IndigoVision's products are the best available. Thirdly, the business model is well thought out, IndigoVision being strong in offering an end to end solution developed entirely in house. Fourthly, the pricing, margins, costs and cash are carefully managed to ensure appropriate returns and sound finances.
Against the current economic background, the board remains confident in the medium and long term prospects for IndigoVision. In the short term, despite turmoil in financial markets and the consequent effect on business generally, the record of growth is currently continuing and IndigoVision has had a good start to the year to 31 July 2009.
Results
In the year to 31 July 2008, revenues grew 37% to a record £18.4m, with revenue growth achieved in all regions. Growth was strong in the Americas, up 51% to £5.5m, and in Europe, Middle East and Africa, up 45% to £10.2m. Growth was less impressive in Asia Pacific, up only 11% to £2.5m, but we believe this to be as a result of poor execution on our part rather than market weakness. Given the corrective action which has already been taken internally, we anticipate that performance in this region will improve.
Gross margins were again strong, reflecting the quality of IndigoVision's products, and were 70.8% overall in the year to 31 July 2008, compared with 65.6% in the previous year. This increase was largely attributable to a change in the mix of sales and to lower product build costs. The contribution from gross margin grew by 48% to a record £13.0m. The year saw a lower rate of cost increases than in previous years, and total operating costs grew 35% to £10.97m, on a total headcount (including retained agents) which grew to 118 from 99 last year end. Within this, selling and distribution costs grew 29% to £5.57m, administrative costs grew 58% to £3.64m, and research and development costs were 19% higher at £1.77m. The high rate of increase in administrative costs was largely attributable to a broadening and strengthening of the management team and support infrastructure which we deemed necessary to develop the scale of the Group's business in line with the market opportunity available.
Operating profits reached a record £2.05m, up 211% on the previous year. These profits represent an operating margin on sales of 11.2% compared with 4.9% in the previous year. This excellent increase arose primarily as a result of sales growth, margin improvement and cost management. After financing charges, profit before tax was £2.04m, three times last year's figure. The Group has reported an income tax credit of £4.5m, predominantly due to an exceptional deferred tax credit of £5.0m relating to recognised past trading losses. The exceptional deferred tax credit has been stripped out in calculating the adjusted basic earnings per share, which rose 102% to a record 21.4p.
At the beginning of the year, IndigoVision had net cash and cash equivalents of £0.18m. During the year, cash inflows from trading, after adjusting for non-cash items, amounted to £2.61m, capital expenditure amounted to £0.34m, and £1.18m was absorbed by increased working capital to finance the increased level of sales. As a result, net cash and cash equivalents increased by £1.19m to £1.37m at the year end, and the Group's overdraft facilities were unutilised at that date.
Global sales reach
IndigoVision now has its own people in 18 countries, partnering some 250 trained integrators who together support thousands of end users in over 43 countries. Over 100,000 units of our products have been in use for some time now, spanning several generations of technology supported by full backwards compatibility with common management software. Despite rapid sales growth, the rate of warranty returns continues to reduce year on year. IndigoVision products operate effectively in some of the harshest environments in the world - deserts, mines, oil rigs, even the South Pole.
IndigoVision's sales strategy is to achieve maximum market penetration with the minimum number of partners. We expect loyalty and commitment from our partners and recognise that requires loyalty and commitment from us too. For this reason we minimise the number of our partners, do not sell through distribution and avoid selling directly to end users - three commercial aspects which differentiate IndigoVision in the market. To consolidate a fast-growing global footprint we have invested in a worldwide supply chain capable of supporting much higher volumes. The basis of this is three stock & service hubs operated by us in Singapore, New Jersey and the UK. In addition an office was opened in Dubai supporting the sales success in that region. To be successful, our partners need: local and responsive account management, strong sales engineering assistance on larger bids, rapid supply of product, fast warranty response and 24 hour local support from our global technical team to complement the strength of our technology.
This strategy is serving IndigoVision well and we are now active in twenty vertical markets including casinos, rail, police and prisons, airports, oil and gas, cities including crime prevention projects, university and campuses, the military, education, mining, ports, industrial and retail. IndigoVision's challenge is to replicate local successes in these markets to pan-regional and global scale.
Outstanding people
The total number of staff and retained agents employed in customer facing areas, namely sales, marketing, sales support, customer service and distribution increased by 27% to 70 from 55 last year.
Key to continuing IndigoVision's record of growth is recruiting the best quality people in all areas of our operations, including sales. We have created an extensive professional training programme for our sales people, the key challenge for each team member being to gain a close understanding of the end user requirement and match this against IndigoVision's extensive proposition. There are more than 300 significant features and benefits in IndigoVision's 'Control Center' software and that breadth & depth demands a high level sales professional to understand and convey this to the partner, consultant and end user. We have created the foundation for a rapidly expanding sales & support team with sales vice presidents covering all major geographies. The Group's engineering team is world class, and fully exploits the competitive advantage we currently enjoy in owning the technology for the enterprise end-to-end solution under one roof: compression chips, over 40 hardware platforms, firmware and management software.
Open architecture
IndigoVision's products and software operate as an open system, conforming to video and networking standards wherever they exist, such as MPEG-4 and H.264. To give our end users and partners freedom to choose we also integrate with sixteen 3rd party access control systems including Lenel, Software House, Honeywell and GE, and continue to develop integration, targeting one new access control manufacturer each month. All integration with 3rd party manufacturers is built using IndigoVision's Software Developers' Kit (SDK), which is freely available to anyone who wishes to use the same proven platform to integrate with IndigoVision.
IndigoVision are members of the Open Network Video Interface Forum (ONVIF) and in the process of joining the Physical Security Interoperability Alliance (PSIA), through which we are working to define communication standards for IP Cameras. We are committed to supporting these standards once ratified. This will confirm IndigoVision as a completely open system, giving end users and partners the power to choose whatever best meets their needs in video, access control and alarms - and indeed any other aspect of a security system through our SDK.
Exceptional technology
Within the three main areas of the security market (video, access and alarms), IndigoVision's strategy is to consolidate its very strong position in Video, extend capability in Alarm Management and integrate with 3rd party manufacturers of Access Control. We believe that end users have an increasing desire for integrated security solutions and our strategy supports this objective without forcing end users to compromise on choice. The new version 4.0 of IndigoVision's 'Control Center' security management software marks a major step into enterprise alarm management to match IndigoVision's already strong video capability. This continues IndigoVision's evolution from a provider of Video Management Systems to a provider of Security Management Systems.
We have just launched the first in what will become a wide range of High Definition (HD) IP cameras, fully integrated within IndigoVision's end-to-end solution. We anticipate that this will speed up the rate at which digital solutions replace analogue technology as IndigoVision HD IP cameras deliver upwards of three times as many pixels as analogue cameras, but using very low bandwidth and at a highly competitive cost. We expect that HD will become our standard IP camera offering within the medium-term and have designed and priced it accordingly. We believe that analogue will become obsolete because IP is the only way in which HD can be delivered.
Capital reduction and future dividends
On 30 May 2008, the Company passed a special resolution to reduce its share premium account by £22,849,853. This was confirmed by an Order of the Court of Session, Scotland on 3 July 2008. As a result, as at 31 July 2008, the Company has distributable reserves of £564,000 and is now able to pay dividends to shareholders.
As at 31 July 2008, the board is not recommending payment of a dividend to shareholders. As part of the financial planning which the board regularly undertakes, it is an aim to commence paying dividends at some point in the future. The board will continue to review that in light of progress towards the overall objectives of growth, generating appropriate operating margins and meaningful positive cashflows, and will take into account the necessary re-investment in the business to maintain its strong competitive position.
Current trading and outlook
Growth has continued into the current year. Sales and order intake for the first 7 weeks of the current year are well ahead of the corresponding period last year. The pipeline of potential new business is at record levels and, at this stage, there is every reason to expect that we will be able to report a further increase in annual sales at the year end. In particular, the board believes that the rate of increase in the available market is likely to more than offset any slowdown arising from economic weakness.
In the current year, we are not expecting further gross margin improvement. Whilst high gross margins are necessary to support both growth, and the engineering resource necessary to maintain a leading position as the market develops, any further gains in efficiency are likely to be applied to aid sales growth. We expect costs to increase, but at a materially lower rate than last year, and we are aiming at least to maintain the operating margins generated last year.
The Group remains in a strong position, both operationally and financially. The opportunity for developing a more substantial and profitable business, and generating meaningful net cash flow, is clearly available to IndigoVision. In the current year, we expect further progress in the development of the Group, and look forward to the medium and long term with a sense of confidence.
Hamish Grossart
Chairman
24 September 2008
Consolidated income statement
For the year ended 31 July 2008
| £'000 | 2008 | 2007 |
| Revenue | 18,403 | 13,385 |
| Cost of sales | (5,375) | (4,610) |
| Gross profit | 13,028 | 8,775 |
| Research and development expenses | (1,766) | (1,490) |
| Selling and distribution expenses | (5,572) | (4,315) |
| Administrative expenses | (3,637) | (2,309) |
| Operating profit | 2,053 | 661 |
| Financial income | 7 | 21 |
| Financial expenses | (24) | - |
| Net financing (costs)/ income | (17) | 21 |
| Profit before tax | 2,036 | 682 |
| Income tax credit* | 4,502 | 2,125 |
| Profit for the year attributable to equity holders of the parent | 6,538 | 2,807 |
| Basic earnings per share (pence) | 91.7 | 40.1 |
| Diluted earnings per share (pence) | 82.6 | 35.9 |
Revenue and profit for the year and comparative year relate wholly to continuing activities.
* The income tax credit includes an exceptional credit of £5,011,000 (2007: £2,066,000) relating to recognition of prior year tax losses. The impact on earnings per share has been shown in the adjusted earnings per share calculation in note 4.
Consolidated balance sheet
As at 31 July 2008
| £'000 | 2008 | 2007 |
| Non-current assets | ||
| Property, plant and equipment | 413 | 385 |
| Intangible assets | 64 | - |
| Deferred tax | 7,103 | 3,498 |
| Total non-current assets | 7,580 | 3,883 |
| Current assets | ||
| Inventories | 2,470 | 1,533 |
| Trade and other receivables | 4,683 | 4,211 |
| Cash and cash equivalents | 1,371 | 179 |
| Total current assets | 8,524 | 5,923 |
| Total assets | 16,104 | 9,806 |
| Current liabilities | ||
| Trade and other payables | 2,760 | 2,463 |
| Provisions | 150 | 120 |
| Total current liabilities | 2,910 | 2,583 |
| Non-current liabilities | ||
| Provisions | 30 | 30 |
| Total non-current liabilities | 30 | 30 |
| Total liabilities | 2,940 | 2,613 |
| Net assets | 13,164 | 7,193 |
| Equity | ||
| Called up share capital | 72 | 71 |
| Share premium account | 1,241 | 24,045 |
| Other reserve | 5,146 | 8,562 |
| Translation reserve | (16) | (11) |
| Profit and loss account | 6,721 | (25,474) |
| Total equity attributable to equity holders of the parent | 13,164 | 7,193 |
Consolidated statement of cash flows
For the year ended 31 July 2008
| £'000 | 2008 | 2007 |
| Cash flows from operating activities | ||
| Profit/ (loss) for the year | 6,538 | 2,807 |
| Adjusted for: | ||
| Depreciation and amortisation | 240 | 130 |
| Financial income | (7) | (21) |
| Financial expenses | 24 | - |
| Share based payment expense | 289 | 209 |
| Foreign exchange gain | - | (11) |
| Income tax credit | (4,502) | (2,125) |
| Increase in inventories | (937) | (1,135) |
| (Increase)/decrease in trade and other receivables | (538) | (2,040) |
| Increase in trade and other payables | 297 | 1,033 |
| Increase in provisions | 30 | 60 |
| Cash generated from/ (absorbed by) operations | 1,434 | (1,093) |
| Income taxes refunded | 66 | - |
| Net cash inflow/ (outflow) from operating activities | 1,500 | (1,093) |
| Cash flows from investing activities | ||
| Interest received | 7 | 21 |
| Acquisition of property, plant and equipment | (335) | (275) |
| Net cash outflow from investing activities | (328) | (254) |
| Cash flows from financing activities | ||
| Proceeds from the issue of share capital | 47 | 73 |
| Interest paid | (24) | - |
| Net cash inflow from financing activities | 23 | 73 |
| Net increase/ (decrease) in cash and cash equivalents | 1,195 | (1,274) |
| Cash and cash equivalents at 1 August | 179 | 1,454 |
| Effect of exchange rate fluctuations on cash held | (3) | (1) |
| Cash and cash equivalents at 31 July | 1,371 | 179 |
Consolidated statement of recognised income and expense
For the year ended 31 July 2008
| £'000 | 2008 | 2007 |
| Foreign exchange translation differences on foreign operations | (5) | (11) |
| Net losses recognised directly in equity | (5) | (11) |
| Profit for the year | 6,538 | 2,807 |
| Total recognised income and expense for the year | 6,533 | 2,796 |
Notes to the accounts:
1 Principal Activity
The principal activity of the Group and its subsidiaries continues to be the design, development, manufacture and sale of software and hardware products. These products provide CCTV and alarm integrators with a complete enterprise video and alarm management system that allows full motion real time video to be transmitted worldwide, in real-time, with digital quality and security, using local or wide area networks, wireless links or the Internet.
2 Basis of preparation
The preliminary financial information is presented in sterling, rounded to the nearest thousand and has been prepared on the historical cost basis.
For the first time, the preliminary financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union (adopted IFRSs). An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Group can be found in note 25 of the IndigoVision Group plc Directors' report and consolidated financial statements 2008.
The accounting policies used in preparing the preliminary financial statements are set out in note 1 of the IndigoVision Group plc Directors' report and consolidated financial statements 2008.
3 Annual accounts
The financial information set out in this announcement does not constitute the Group's statutory accounts for the year ended 31 July 2008 or 2007 but is derived from those accounts. The statutory accounts of IndigoVision Group plc for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered to the Registrar of Companies following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.
4 Income tax
Recognised in the income statement
| 2008 | 2007 | |
| £000 | £000 | |
| Current tax expense | ||
| Current year charge/ (credit) | - | (66) |
| Overseas tax | 1 | - |
| 1 | (66) | |
| Deferred tax expense | ||
| Origination and reversal of temporary differences | 405 | 7 |
| Reduction in tax rate | 103 | - |
| Adjustments relating to prior year trading losses | (5,011) | (2,066) |
| (4,503) | (2,059) | |
| Total income tax credit in income statement | (4,502) | (2,125) |
At the end of the previous financial year, following a second period of profitable trading, a deferred tax asset of £2,066,000 was recognised in respect of prior period trading losses. Following another year of profitable trading the directors now consider it appropriate to recognise the balance of the previously unrecognised deferred tax asset. Accordingly, the financial statements for the year ended 31 July 2008 include an exceptional credit of £5,011,000 relating to the balance of past trading losses.
5 Profit per share
| 2008 | 2007 | |
| £000 | £000 | |
| Profit for the year attributable to equity shareholders (basic and diluted) | 6,538 | 2,807 |
| Exceptional deferred tax credit | (5,011) | (2,066) |
| Adjusted profit for the year attributable to equity shareholders (basic & diluted) | 1,527 | 741 |
| Pence | Pence | |
| Basic earnings per share | 91.7 | 40.1 |
| Diluted earnings per share | 82.6 | 35.9 |
| Adjusted basic earnings per share | 21.4 | 10.6 |
| Adjusted diluted earnings per share | 19.3 | 9.5 |
The weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share for each year were calculated as follows:
| 2008 | 2007 | |
| No of shares | No of shares | |
| Issued ordinary shares at start of year | 7,082,176 | 6,927,976 |
| Effect of shares issued during the year from exercise of employee share options | 49,318 | 64,333 |
| Weighted average number of ordinary shares for the year - for basic earnings per share | 7,131,494 | 6,992,309 |
| Effect of share options in issue | 783,300 | 819,300 |
| Weighted average number of ordinary shares for the year - for diluted earnings per share | 7,914,794 | 7,811,609 |
Basic earnings per share
The calculation of basic earnings per share for the year ending 31 July 2008 was based on the profit attributable to equity shareholders of £6,538,000 (2007: £2,807,000) and a weighted average number of ordinary shares during the year ending 31 July 2008 of 7,131,494 (2007:6,992,309), calculated as shown above.
Diluted earnings per share
The calculation of diluted earnings per share for the year ending 31 July 2008 was based on the profit attributable to equity shareholders of £6,538,000 (2007: £2,807,000) and a weighted average number of ordinary shares during the year ending 31 July 2008 of 7,914,794 (2007: 7,811,609), calculated as shown above.
The average market value of the Company's shares for the purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.
Adjusted basic earnings per share
The calculation of adjusted basic earnings per share for the year ending 31 July 2008 was based on a profit of £1,527,000 (2007: £741,000), which excluded the tax credit relating to adjustments for prior years of £5,011,000 (2007: £2,066,000), and a weighted average number of ordinary shares during the year ending 31 July 2008 of 7,131,494 (2007:6,992,309), calculated as shown above.
Adjusted diluted earnings per share
The calculation of adjusted diluted earnings per share for the year ending 31 July 2008 was based on a profit of £1,527,000 (2007: £741,000), which excluded the tax credit relating to adjustments for prior years of £5,011,000 (2007: £2,066,000), and a weighted average number of ordinary shares during the year ending 31 July 2008 of 7,914,794 (2007: 7,811,609), calculated as shown above.
6 Reconciliation of movement in capital and reserves
| Share capital £000 | Share premium £000 | Other reserve £000 | Translation reserve £000 | Retained earnings £000 | Total equity £000 | |
| Balance at 1 August 2006 | 69 | 23,974 | 8,562 | - | (29,134) | 3,471 |
| Total recognised income and expense | - | - | - | (11) | 2,807 | 2,796 |
| Share options exercised by employees | 2 | 71 | - | - | - | 73 |
| Equity-settled transactions, including deferred tax effect | - | - | - | - | 853 | 853 |
| Balance at 31 July 2007 | 71 | 24,045 | 8,562 | (11) | (25,474) | 7,193 |
| Balance at 1 August 2007 | 71 | 24,045 | 8,562 | (11) | (25,474) | 7,193 |
| Total recognised income and expense | - | - | - | (5) | 6,538 | 6,533 |
| Court sanctioned capital reduction | - | (22,850) | - | - | 22,850 | - |
| Reserve transfer | - | - | (3,416) | - | 3,416 | - |
| Share options exercised by employees | 1 | 46 | - | - | - | 47 |
| Equity-settled transactions, including deferred tax effect | - | - | - | - | (609) | (609) |
| Balance at 31 July 2008 | 72 | 1,241 | 5,146 | (16) | 6,721 | 13,164 |
Secretaries and Advisors
| Secretary and Registered Office | The Company Secretary |
| | Charles Darwin House |
| | The Edinburgh Technopole |
| | Edinburgh EH26 OPY |
| | |
| Nominated Advisor and Stock Brokers | Brewin Dolphin Ltd |
| | 48 St Vincent Street |
| | Glasgow G2 5TS |
| | |
| Auditors | KPMG Audit plc |
| | Saltire Court |
| | 20 Castle Terrace |
| | Edinburgh EH1 2EG |
| | |
| Solicitors | Shepherd & Wedderburn LLP |
| | 1 Exchange Crescent |
| | Conference Square |
| | Edinburgh EH3 8UL |
| | |
| Bankers | Royal Bank of Scotland plc |
| | 36 St Andrews Square |
| | Edinburgh EH2 2YB |
| | |
| Registrars | Computershare Investor Services plc |
| | The Pavilions Bridgwater Road |
| | Bristol BS13 8AE |
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