Oxford Metrics Regulatory News (OMG)

4 June 2014

OMG plc

("OMG" or the "Group")

Interim Results for the six months ended 31 March 2014

OMG plc (LSE: OMG), the technology group providing image understanding products for the entertainment, defence, life science and engineering industries, announces interim results for the six months ended 31 March 2014.

Financial Key Points

· Group Revenue of £14.3m up 9.9% (H1 FY13: £13.0m)

· Group adjusted* loss before tax of £1.5m (H1 FY13: adjusted* loss before tax of £0.2m)

o Overall Group trading is in line with achieving market expectations for the full year

o OMG Life revenue performance slower than hoped but attracting interest in IP created

· Group cash position stable at £6.5m (H1 FY13: £4.0m)

Operational Key Points

· Vicon

o Secured record sales of entry-level Bonita camera

o Motion capture used in Hollywood blockbuster Gravity and upcoming summer movie Transformers: Age of Extinction and video games including the EA hit, Battlefield 4 and the Xbox One exclusive video game, Ryse: Son of Rome

o Worked with Concept Space to create the mascots for the 2014 Winter Olympics and Paralympics

o A non-legally binding Letter of Intent has been signed relating to the sale of House of Moves which is expected to be concluded in the second half

· Yotta

o Mayrise, acquired July 2013, integrated and delivering tangible results

o Expected synergies realised as highlighted by combination contract win with Telford & Wrekin Council

o Landmark deal with Highways Agency - largest ever order for Horizons

o Customer wins include London Borough of Tower Hamlets, Gloucestershire County Council, Hounslow Highways as well as with Liverpool, Hertfordshire and Hampshire Councils

· 2d3

o Contract secured with UK Ministry of Defence ("MoD") for five research projects

o Secured additional relationships with key US agencies, including US National Geospatial Agency

o Continued focus on robust, cutting edge product development

o Largest ever pipeline entering second half

· OMG Life

o Progress in building a valuable intellectual property asset and brand

o Expanded indirect retail channels into the US, Middle East, Japan and Europe

o Excellent response to Autographer at the Consumer Electronics Show in January

o Well placed to capitalise on growing wearable tech trend

* Profit before tax from continuing operations before group recharges adjusted for share based payments, amortisation of intangibles arising on acquisition, fair value adjustment to contingent consideration, unwinding of discount on contingent consideration, acquisition costs and redundancy costs.

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

"The Group has made clear operational and strategic progress in the first half but, as is typical for us, we expect revenues and profitability to be weighted to the second half.

Whilst one of the key strengths to OMG is our diversity, it's becoming increasingly apparent that there is also significant latent value in OMG's IP which is not yet being captured. With this in mind, we are looking at new ways to realise this value in order to continue delivering sustained, balanced and profitable growth over the longer term.

We enter the second half with a solid pipeline of prospects driven by continued sales of existing products and services across all subsidiaries. We remain confident in the Group's strategy and, as such, are confident in meeting current expectations for the full year."

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About OMG plc

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 four 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 leader movement analysis systems; 2d3 Sensing, providing video intelligence software for defence and civil applications, Yotta, our infrastructure software and services business and OMG Life, our 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, Sega, Nintendo, UbiSoft, EA and Square Enix. Infrastructure clients include Highways Agency, Atkins and Cumbria, Derbyshire and Pembrokeshire County Councils amongst others.

For more information about OMG and its subsidiaries, visit www.omgplc.com, www.vicon.com, www.2d3.com, www.yotta.co.uk and www.autographer.com 

Chairman and Chief Executive's Statement

Overall the Group remains on track for 2013/14 with progress made during the first half in each subsidiary. Vicon has made a solid and profitable start, Yotta's software and services continue to gain traction boosted by the Mayrise acquisition, 2d3 achieved record first half revenues and OMG Life successfully shipped its Autographer camera to an increasing number of geographies through an expanding retailer network.

Whilst the loss in the first half is largely attributable to OMG Life, the division has made progress in building a valuable intellectual property asset and brand. In certain instances we have filed a number of patent applications which give the Group an expanding set of options on how to leverage this in the future.

At the time of the preliminary results, the Group indicated that it would be undertaking a strategic review of House of Moves ("HOM") during the first half of the year. It is clear that HOM played an important role in establishing the credibility of Vicon's technology within the Entertainment market in the past and today this technology is now proven. Furthermore the business model has been shifting toward content creation using advanced animation services. As a result of the strategic review, the Board has determined that whilst HOM has an exciting future in content creation this does not fit with the overall strategic direction of the Group, which is fundamentally a software and hardware technology business. The Board is pleased to announce that negotiations for the sale of HOM are now well advanced having signed a non-legally binding Letter of Intent ("LOI") and expect a transaction will be concluded in the second half. Further announcements will be made in due course. 

We have long believed that one of the key strengths to our Group is our diversity. It has always been clear to the Board that there is significant shareholder value to be gained through adapting our technology, experience and leadership in imaging to multiple commercial opportunities. That belief is evident in the Group we have today, with everything from the most advanced and powerful Vicon camera to our Yotta surveying system, and the software that surrounds it, all evolved from our core IP. Having a broad-based Group has offered us a wider spread of opportunity and better balance to our revenue than would have been the case if we were a single business, competing in a single market, using just one business model. Maintaining this balance remains an important consideration for the Board going forward.

At the same time, whilst the goal to deliver sustained, balanced and profitable growth over the long-term is our driving principle as a Board, the best routes to achieving that value can differ from time-to-time and from asset to asset. Certain of our businesses lend themselves very well to long-term, sustainable growth. The core of our Vicon business, for example, has long been a leader in its field and has consistently grown and maintained its earning power. Similarly, the work we have done within Yotta to both enhance the offer through acquisition and to add a solid, scalable and recurring software revenue base to the sales mix have put this business on a firmer, clearer growth path.

What has become increasingly apparent is that there is significant latent value in OMG's IP itself, which is not currently being captured. To that end, the Board has resolved to find new ways to realise this value. This may involve the licensing of certain technologies where external companies see value in deploying our IP to pursue their own business goals. It may also involve the sale of certain assets where we believe that greater shareholder value can be realised in the near term. The Board is currently exploring a range of such opportunities in detail and with interest.

Financial Summary

During the first half, Group revenue increased year on year by 9.9% to £14.3m (H1 FY13: £13.0m) driven by Mayrise, acquired in July 2013, which continued to perform well together with some progress in 2d3. The Group reports an adjusted loss before tax for the period of £1.5m (H1 FY13: loss before tax £0.2m). Excluding OMG Life the Group reported a first half adjusted profit of £0.6m (H1: FY13 £0.8m), consistent with guidance given at the time of the AGM. OMG Life continued to make progress in many areas but reported an adjusted loss of £2.1m (H1 FY13: Loss £1.0m) and so remains in-line with market expectations for the full year at this stage.

Compared to 30 September 2013 the Balance sheet now includes the issue of equity in the first half to satisfy the remaining consideration for Sensing Systems. Group cash position as at 31 March 2014 stood at £6.5m (H1 FY13: £4.0m).

OMG Vicon

Our Vicon systems' business reported a good start to FY14 and overall remains on track to achieve market expectations. Revenues in UK / Rest of World ("ROW") were up compared with a year ago but a weaker performance in the US accounted for a slight net decline of 1.5% in revenues overall. Vicon reported an adjusted profit before tax of £2.3m (H1 FY13: £3.0m). The slight decline is attributed to lower revenues, competitive pressure in the entertainment market, which has affected gross margins there, together with an increase in R&D amortisation charges relating to previously capitalised projects.

Vicon, which is celebrating its 30th year, continued in the first half to welcome new customers and break into new territories, including sales to Uruguay and Armenia. Key customer wins included Quantic Dream & Konami who both invested in T-Series camera expansions. In addition we sold large UAV tracking systems to the US Army Research Lab ("USARL") and the Space and Naval Warfare Systems Command ("SPAWAR"). Sales of Vicon Cara, our head-mounted camera system, continued to gather pace with sales in combination with body motion capture systems and also as standalone units progressing. We also announced partnerships with Faceware and Dynamixyz to further broaden Cara's appeal.

Sales of Vicon's entry-level camera, the Bonita, have continued to grow on the back of positive trends from the widened application use and broadened geographic reach. In fact, we shipped another new record number of Bonita cameras over the period.

Our Vicon systems continue to be featured in top video game and film releases. During the period, Vicon was used to help create Hollywood blockbuster film 'Gravity' as well as the upcoming summer movie Transformers: Age of Extinction and video games including the EA hit, Battlefield 4. Additionally, Vicon customer The Imaginarium, used our T-Series cameras for outstanding character realism in the Microsoft Studios Xbox One exclusive game, Ryse: Son of Rome. Finally, we also announced that Vicon worked with Concept Space, a Russian animation studio, to create and animate 3D mascots for the 2014 Winter Olympics and Paralympics.

Overall, the outlook for Vicon Systems for the second half remains solid and is expected to have a stronger trading period which has often been the case in previous years.

HOM, our motion capture and animation services studio in Los Angeles, reported revenues of £1.2m for the period (H1 FY13 £1.2m). Whilst revenues were unchanged the adjusted loss was improved slightly to £0.3m (H1 FY13: loss £0.4m).

OMG Yotta

Yotta reported revenues up 35.7% compared to the same period last year at £3.3m (H1 FY13: £2.5m). This increase has been achieved through the growth of the software and consulting services parts of the business. Yotta reported an adjusted profit before tax of £0.3m (H1 FY13: loss £0.2m).

Mayrise, the software company we acquired in July 2013, continued to perform well, driven by post-acquisition initiatives to improve sales execution and consulting revenues. Mayrise has now been successfully integrated into the business and has seen growth in software license sales and professional services revenue. New customers include London Borough of Tower Hamlets, Telford & Wrekin Council and Gloucestershire County Council. We have also progressed our cross-selling activities with a number of existing customers. In fact, Telford & Wrekin Council is a new customer for both Yotta and Mayrise, and has purchased the full software range and surveying services too.

Further, Yotta's Horizons SaaS product continues to gain market traction, with the user base increasing to 37 customer organisations (H1 FY13: 22). This user base now also includes the highly prized Highways Agency contract, our largest contract win to date, along with a number of new Horizons customer wins. The Highways Agency will use Horizons to incorporate data gathered from condition surveys and provide visualised asset coverage of England's trunk roads and motorways. Horizons will act as the Agency's Decision Support Tool and will be a prime example of best practice supporting decision making within the Highways Agency.

The combined software and services business now has annual recurring software revenues of £2.4m (H1 FY13: £0.2m) and including other software related income accounted for 46% of H1 revenues.

Whilst Yotta's surveying activities were hampered by the wet winter, on a positive note the surveying teams have won new business with Hounslow Highways as well as with Liverpool, Hertfordshire and Hampshire Councils.

Yotta saw professional services achieve year-on-year revenue growth of 35%. The growth has been driven by demand for consultancy and training services from its Horizons customers and the provision of strategic-level Asset Management advice to Local Authorities. The outlook for the second half is encouraging for all aspects of the operation: in software, services and surveying and remains on track to deliver market expectations.

OMG 2d3

2d3, our intelligence from imagery business serving the defence and civil aviation industry, reported revenues of £1.3m (H1 FY13: £1.0m) and an improved adjusted operating loss of £0.7m (H1 FY13 loss: £0.8m) before allocation of Group overheads. Revenues improved in the US but the overall improvement was largely due to a pleasing result in the UK, which included a contract with the German Navy. Indirect OEM sales have continued to grow, through relationships with companies including Insitu, Integraph and L3, and now represent 48% of total 2d3 revenues.

During the first half 2d3 secured additional relationships with key US agencies, which included the US National Geospatial Agency, and continued to deliver on UK MoD research and development programs. Our product development team continues to produce robust, cutting edge products for our customer base. For example, our Reticle capability is now fully integrated into the TacitView and Catalina software suite, which automatically corrects aerial imagery for geospatial errors using OMG's proprietary computer vision techniques. This allows our customers to get trustworthy geospatial data from noisy and erroneous video data from manned or unmanned aerial platforms.

In the context of market expectations, the business as a whole remains dependent on the US Defence market in the run up to the US fiscal year-end which coincides with our own. As a consequence, revenues for the full year are expected to be skewed toward the second half as was the case last year and the year before.

The 2d3 revenue pipeline for the second half is the highest ever and, assuming the trading environment is not destabilised by further US Government difficulties, the division is expected to fulfil current market expectations.

OMG Life

The reported adjusted loss for OMG Life of £2.1m (H1: FY13 loss: £1.0m) reflected an increase in R&D amortisation of £0.5m (H1: FY13 Nil) and increased in sales and marketing activities.

Given the newness of the product category and the relatively limited marketing resources at our disposal in the consumer electronics marketplace, we have not been able to engage with as many customers as we would have liked during H1. However, as demonstrated by Autographer's excellent reception at the Consumer Electronics Show ("CES") in January, interest in wearable technology has soared over the past year and Autographer is well positioned to capitalise in this arena. During this time the company has been honing the offer based on early user feedback and is well placed to take advantage of this increased market interest in wearables. Indeed, the product has featured on The Jonathan Ross Show and The Gadget Show in the UK, appeared on Japanese and US TV shows and is actively involved in a range of brand collaborations including Red Bull, Top Man and Lulu Guinness.

As sales build, in addition to our direct online stores which now cover global shipments, indirect retail channels are being established in the US, Middle East, Japan and Europe. Autographer has been picked up by a range of specialist stores in the areas of fashion, outdoor sports, photography, technology and lifestyle along with some of multiples. Discussions are currently on-going with some of the larger tier 1 US and European retail chains. The diversity of retail sector interest highlights the broad appeal potential of Autographer and supports our belief in the market potential for wearable camera devices.

On the technology side we have continued to make breakthroughs in the areas of wearable imaging and image management software and, where appropriate, have filed patents. As a result this growing bank of IP, experience and category leadership is generating interest from several external parties. Discussions are at any early stage but the Board believe there is potential for additional value to be realised through licensing or some other form of partnership.

We remain excited about the future potential for the OMG Life business and see valuable opportunities ahead.

Outlook

As is typical for our Group, we anticipate a second half trading performance that is stronger than the first half.

At a Group level, excluding OMG Life, we anticipate that our full year revenue performance and adjusted PBT will be in line with current market expectations, driven by continued sales of existing products and services across all subsidiaries. OMG Life revenues remain uncertain but the overall loss from this business unit is expected to be in line with market expectations.

The Board remains confident in the Group's strategy; in the strength of our offering and position in key markets; and of its ability to deliver sustained, balanced and profitable growth over the long term.

CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS

CONDENSED CONSOLIDATED STATEMENT OF CHANGES TO EQUITY

The accompanying notes are an integral part of this interim financial information

NOTES TO THE CONDENSED CONSOLIDATED INTERIM STATEMENTS

1. Basis of preparation

OMG Plc (the "Company") is a company domiciled in England. The condensed consolidated interim financial statements of the Company for the six months ended 31 March 2014 comprise the Company and its subsidiaries (together referred to as the "Group").

The following IFRIC amendments and IASs have been issued by the IASB, but are applicable to future periods. They are not expected to have any material impact on the Group's reporting:

· IFRS 9 'Financial Instruments'

· IFRS 10 'Consolidated Financial Statements'

· IFRS 11 'Joint Arrangements'

· IFRS 12 'Disclosure of Interests in Other Entities'

· IFRS 13 'Fair Value Measurement'

· IAS 27 'Separate Financial Statements'

· IAS 28 'Investments in Associates and Joint Ventures'

· IFRIC 20 'Stripping Costs in the Production Phase of a Surface Mine'

· Amendments to IFRS1 ' Government Loans'

· Amendments to IFRS7 ' Disclosures: Offsetting Financial Assets and Financial Liabilities'

· Amendments to IAS 19 'Employee Benefits'

· Amendments to IAS 32 'Offsetting Financial Assets and Financial Liabilities'

Otherwise, the condensed consolidated interim financial statements have been prepared using accounting policies consistent with those of the annual financial statements for the year ended 30 September 2013. They are in accordance with IAS 34.

The interim financial statements have not been audited or reviewed and the financial information contained in this report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The comparative figures for the year ended 30 September 2013 are not the statutory accounts but have been extracted from the Group's 2013 financial statements which have been delivered to the Registrar of Companies.The auditors' report on those financial statements was unqualified did not contain references to any matters to which the auditors drew attention without qualifying the report and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. 

2. Segmental reporting

Segment information is presented in the condensed consolidated interim financial statements in respect of the Group's business segments, which are reported to the Chief Operating Decision Maker (CODM). The Group has identified the Board of Directors of OMG plc ("the Board") as the CODM. The business segment reporting reflects the Group's management and internal reporting structure.

The Group comprises the following business segments:

Vicon Group: This is the development, production and sale of computer software and equipment for the entertainment, engineering and life science markets; HOM provides motion capture and animation services using Vicon technology.

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 and equipment for the defence market;

OMG Life: This is the consumer electronics segment.

Other unallocated costs represent head office expenses not recharged to subsidiary companies.

Business segments are analysed below:

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

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

3. Reconciliation of underlying (loss)/profit before tax

Acquisition costs in the prior year relate to the acquisition of Mayrise Limited.

Redundancy costs in the prior year relate to the restructuring of the 2d3 UK business.

4. Taxation

The Group's consolidated effective tax rate for the six months ended 31 March 2014 was 28.7% (for the six months ended 31 March 2013: 31.5%; for the year ended 30 September 2013: 65.8%).

In accordance with IAS 34 the tax charge for the half year is calculated on the basis of the estimated full year tax rate.

5. Earnings per share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.

6. Share capital

During the six month period ended 31 March 2014 9,356,691 shares were issued in relation to the contingent consideration payable for the acquisition of Sensing Systems Inc. (six month period ended 31 March 2013: 1,400,988 shares).

There were no shares were issued for cash in respect of share options exercised (six month period ended 31 March 2013: 3,334 shares).

7. Dividends

The following dividends were recognised as distributions to equity holders in the period:

The final dividend for 2013 was paid to shareholders on 11 March 2014 at 0.40 pence per share, a total of £429,000.

8. Copies of the interim statement

Copies of the interim statement will be sent to shareholders. Further copies will be available from the Company's registered office at 14 Minns Business Park, West Way, Oxford OX2 0JB, and from the Company's website: www.omgplc.com.