Synectics Regulatory News (SNX)

5 Sep 2007 07:01

Quadnetics Group PLC05 September 2007 For Immediate Release 5 September 2007 Quadnetics Group plc Preliminary Results for the year ended 31 May 2007 Quadnetics Group plc, a leader in the design, integration and control ofadvanced CCTV and networked video systems, reports its preliminary results forthe year ended 31 May 2007. HighlightsTurnover £66.1m (2006: £49.6m) - up 33%Sales in North America increase 111%Underlying profit* before tax £5.3m (2006: £3.6m) - up 47%Profit before tax £3.8m (2006: £1.3m) - up 199%Underlying* EPS 26.1p (2006: 24.2p) - up 8%Basic EPS 17.4p (2006: 8.6p) - up 102%Recurring revenue £12.8m (2006: £11.0m) - up 16%Proposed final dividend 4.0p per share making 6.0p for the full year - up 20%Significant increase in product development activitiesOverall, a year of good growth and sound financial resultsStrong order intake in current year*Underlying profit represents profit before tax, exceptional items, goodwillamortisation, and share based payment costs Commenting on the results, Russ Singleton, Chief Executive, said: "Quadnetics has been consistently beating competitors by demonstrating the valueand strength of its products and services to produce a 33% increase in turnoverand a 47% increase in underlying profit before tax. We are now making realprogress in the important electronic surveillance markets in North American, theMiddle East and the Far East." For further information, please contact:Quadnetics Group plc Tel: +44 (0) 1527 850080Russ Singleton, Chief ExecutiveEmail: russ.singleton@quadnetics.com www.quadnetics. comBrewin Dolphin Securities Tel: +44 (0) 113 241 0130Neil Baldwin Media enquiries: Buchanan Communications Limited Tel: +44 (0) 20 7466 5000Isabel PoddaEmail: isabelp@buchanan.uk.com Chairman's Statement Overview I am pleased to report that last year Quadnetics achieved another year of goodgrowth and sound financial results, most notably realising substantial growthand profitability from its North American activities, and successfullycompleting the integration of the businesses acquired in 2005/6. We have alsomade significant progress in defining more rigorously the road ahead forQuadnetics. Results In the year ended 31 May 2007, Quadnetics achieved a 47% increase in underlyingprofit (that is, profit before tax, exceptional items, goodwill amortisation andshare-based payment costs) to £5.3 million (2005/6: £3.6 million), on turnoverup 33% to £66.1 million (2005/6: £49.6 million). These results include the firstfull year of the businesses acquired the previous year, however a true like forlike comparison is not possible following the integration of the acquiredactivities into the existing Group. Group consolidated operating margins for the year increased to 7.7%, up from7.0% in 2005/6. Underlying earnings per share increased by 8% to 26.1p (2005/6: 24.2p). TheGroup's underlying corporation tax rate for 2006/7 is 24%, compared with 8% inthe prior year; therefore, a more valid comparison of performance would be on anotional like-for-like full tax basis, where underlying earnings per share wereup by 31% to 24.1p (2005/6: 18.4p). Consolidated net cash at 31 May 2007 was £5.6 million, compared with £8.9million at the previous year end. Approximately £2.1 million of the net cashoutflow resulted from the purchase of a new building to accommodate the growthand consolidation of Synectics' activities in Sheffield. We expect that most ofthe cash impact of the purchase will be reversed in the current year, once asale and leaseback of the building is agreed and completed. There was also asignificant increase in working capital during the year, part of which came fromthe previously anticipated resolution of creditor provisions within thebusinesses acquired in 2005/6. Dividend The Board is proposing a final dividend of 4.0p (2005/6: 3.5p), payable on 7December 2007 to shareholders registered on 9 November 2007, making a total of6.0p for the full year (2005/6: 5.0p). Business Review Quadnetics is currently organised into two primary business areas: QuadrantSecurity Group ("QSG"), which designs, installs, maintains and managesintegrated electronic security systems for customers primarily in the UK andMiddle East; and Synectics, which designs, manufactures and supports softwareand hardware products for sale worldwide both through security systemsintegrators and direct to end users in a limited number of specialist marketsectors. QSG grew turnover in the year by 29% to £46.6 million, on which it recordedunderlying operating profits up by 31% to £4.2 million. Growth was mainly drivenby inclusion of a full year of contribution and integration benefits from theformer Protec businesses acquired in November 2005. This acquisition was a majorstep for QSG, and the integration of the two sets of activities has proceededwell on plan, much to the credit of the management teams and employees from bothsides of what is now a fully combined business. Within the various customer and geographical sectors, contribution from themanaged security services business area was exceptionally strong, benefitingfrom higher than anticipated profits achieved in managing the run-off of large,low margin historical contracts as the activity is transitioned to a highermargin business model where it provides more comprehensive outsourced securitymanagement to its multi-site retail clients. We believe the potential in thisnew area is substantial, particularly in its ability to generate contractedrecurring revenues, but it will require investment in systems and personnel overthe next couple of years. Elsewhere, contributions were below plan in our MiddleEast activities, as certain major projects experienced customer delays prior tocontract award, and in on-bus CCTV. Both these areas regained their order intakemomentum towards the end of the year, and have carried on the improvement intothe current period. Synectics achieved turnover up by 42% in the year to £20.8 million, andunderlying operating profit up by 68% to £2.5 million. The most significantcontribution was organic growth from our US casino surveillance systemsactivities, which delivered turnover more than double that of the previous yearand good profit margins. Given the risks inherent in any ambitious growth planfor a UK company in North America, this was an excellent result and givesconfidence for the development of our wider activities in that very largemarket. Product development activities were stepped up significantly during the year, inparticular focused on transition to the next generation of digital videocompression technology and on development of Synectics' ruggedised digital videorecorder for the on-vehicle transport market, where QSG has a leading UK marketshare as a systems integrator. This new suite of products will be launched inautumn 2007. Group Direction and Objectives The electronic security and surveillance market is large, growing and in theprocess of fundamental structural change. Advances in technology over the past3-5 years have allowed digital recording, transmission, storage and networkingof real-time video images to become viable and economic in mainstreamsurveillance applications for the first time. This shift to underlying digitaltechnology will continue for some while yet to create substantial opportunitiesand threats within the established competitive order of security equipment andsystems suppliers. Current manifestations include the raft of new marketentrants offering the latest and best digital recorder, camera, analyticsoftware or "end-to-end IP video solution". A small number of these new entrantsmay succeed; most will fail. Quadnetics' approach is based on certain assumptions about where these markettrends are leading, including that: - an understanding of information technology and networking will continue to create opportunities and ultimately be vital for success at any level; - margins available on most hardware sales will be heavily eroded over time; - sales and margins from software will grow and are likely to be sustainable; - security systems integrators will continue to consolidate, becoming bigger, more diverse and more global; - information technology companies will seek and gain an increasing share of the security market; - digital video surveillance is still sufficiently complex and demanding that it is unlikely to become simply a sub-set of the IT industry, at least not for many years; - certain specialist customer applications requirements are likely to diverge increasingly from mainstream high volume market offerings. We believe Quadnetics is well positioned to address these trends, in particularbecause of its critical mass, extensive experience in the technologies ofdigital video, leading market positions in certain customer sectors, record ofsuccessful acquisitions, and its heritage of combining both technologydevelopment and customer applications integration. Our primary objective is tobuild a sizeable, broadly-based company, with sustainable long term growthprospects, providing integrated security and surveillance applications andmanaged services to specialist customer sectors. To achieve this objective, we aim to: - focus on a small number of customer sectors whose requirements will be sufficiently and sustainably different from the mainstream, and in which we can achieve a significant market share; - maintain our core of increasingly software-based proprietary technology, adapted to the specialist needs of our target customer sectors; - expand the scope of applications and innovative services provided to these customers to maximise recurring revenues and market share; - seek further bolt-on acquisitions to add market share, specialist capabilities and/or geographical position in our chosen sectors; The primary characteristics of the customer sectors we target are that they haveeither a very high cost-of-failure in their security systems, or highlydemanding environmental or usage conditions, in both cases limiting the degreeof competition from non-specialist suppliers. Since 2001/2 when Quadnetics moved to AIM and focused exclusively on theelectronic security market, total revenues have grown at a compound rate of 38%per year, of which 15% per year has been organic growth and the remainder fromacquisitions. Over the last four years, underlying profits before tax have grownat 38% per year and, more tellingly, underlying earnings per share on alike-for-like tax basis have grown at 18% per year. This is a sustainedperformance that the Board feels justifies its confidence in the Company'sability to continue to deliver value to shareholders from the direction that hasbeen laid out. People I would like once again to express the Board's very genuine thanks to theGroup's employees for a year of considerable effort and achievement. As alludedto above, the task of integrating two similar sized activities within QSG wasalways going to be difficult and at times painful, and it has therefore beenespecially gratifying to see how effectively and professionally it has beencarried out by all concerned. Across the Group we have seen evidence from ourpeople of flexibility, common sense and dedication to the interests of ourbusiness and customers that have underpinned the continued strengthening ofQuadnetics' position in its market. During the year we have had one change on the Board, resulting from theretirement of Bob Westcott. As I noted at the time, Bob was the founder andinspiration behind the SDA business that formed the core of Protec Group plcthat we acquired in 2005. Our Board much appreciated his insightfulcontributions during his time with us. Outlook The pace of order intake activity in most of our business sectors increasedtowards the latter stages of last financial year and this has continued into thefirst few months of this year, in particular with the award of significantcontracts for integrated systems in the UK and Middle East that had beenanticipated for some time, and additional casinos in North America. Prior to the award of these contracts, the Group's total outstanding firm orderbook at 31 May 2007 was £24 million, a small decrease on the corresponding pointlast year. Of this figure, £12.8 million represented orders in the nature ofrecurring revenue, an increase of 16% on last year and a positive indication ofprogress in this important area. During the year just started, we expect to see increased investment in newproduct development and a reduced contribution from historical elements of ourmanaged services activities, together more than offset by continued revenuegrowth and margin improvements elsewhere. Overall, the Board is looking forwardto another year of good progress for the Group. David Coghlan Chairman 5 September 2007 Consolidated Profit & Loss Account For the year ended 31 May 2007 Notes 2007 Restated Total 2006 £'000 Total £'000 Turnover 3 66,065 49,642Cost of sales (44,234) (34,495) ------- -------Gross profit 21,831 15,147Net operating expenses (18,242) (13,715) ------- ------- ------- -------Operating profit before goodwillamortisation, exceptional items andshare-based payments charge 3 5,095 3,467Goodwill amortisation (911) (740)Exceptional items - restructuring costs - (965)Share-based payments charge (595) (330) ------- -------Total operating profit 3,589 1,432Exceptional item in respect of a subsidiarydisposed of in a previous year - (300)Net interest receivable 230 147 ------- ------- ------- -------Profit before tax, goodwill amortisation,exceptional items and share-based paymentscharge 5,325 3,614Goodwill amortisation (911) (740)Exceptional items - (1,265)Share-based payments charge (595) (330) ------- -------Profit on ordinary activities beforetaxation 3,819 1,279Tax charge on ordinary activities 4 (1,117) (92) ------- -------Profit for the financial year 2,702 1,187 ------- ------- Basic and diluted earnings per Ordinaryshare 6 17.4p 8.6p ------- -------Underlying basic and diluted earnings perOrdinary share 6 26.1p 24.2p ------- ------- All activities are continuing. Consolidated Balance Sheet At 31 May 2007 Notes 2007 Restated £'000 2006 £'000Fixed assetsIntangible assets 7 16,344 16,925Tangible assets 1,780 2,049 -------- ------- 18,124 18,974 -------- -------Current assetsProperty held for resale 8 2,056 -Stocks 5,074 4,281Debtors 21,508 19,990Cash at bank and in hand 5,596 8,940 -------- ------- 34,234 33,211 Creditors: amounts falling due within one year (20,587) (22,046) -------- -------Net current assets 13,647 11,165 -------- ------- Total assets less current liabilities 31,771 30,139 Provisions for liabilities and charges (1,312) (1,763) -------- -------Net assets 30,459 28,376 -------- ------- Capital and reserves Called up share capital 3,382 3,263 Share premium account 14,851 13,634 Merger reserve 9,565 9,565 Other reserves (2,486) (1,307) Profit and loss account 5,147 3,221 -------- -------Equity shareholders' funds 9 30,459 28,376 -------- ------- Consolidated Cash Flow Statement For the year ended 31 May 2007 2007 2006 £'000 £'000 Net cash inflow from operating activities 612 3,246Returns on investments and servicing of finance 233 132Taxation (712) (299)Net capital expenditure and financial investment (2,789) (238)Acquisitions - 3,220Equity dividends paid (825) (573) -------- --------Cash (outflow)/inflow before use of liquid resources andfinancing (3,481) 5,488Financing 137 (110) -------- --------(Decrease)/increase in cash (3,344) 5,378 -------- -------- Reconciliation of Net Cash Flow to Movements in Net Funds For the year ended 31 May 2007 2007 2006 £'000 £'000 (Decrease)/increase in cash in the year (3,344) 5,378Decrease in debt and lease financing 20 395 -------- --------Change in net funds resulting from cash flows (3,324) 5,773Acquisitions - (53) -------- --------Movement in net funds in the year (3,324) 5,720Opening net funds 8,920 3,200 -------- --------Closing net funds 5,596 8,920 -------- -------- Statement of Total Recognised Gains and Losses For the year ended 31 May 2007 2007 Restated 2006 £'000 £'000 Profit for the financial year 2,702 1,187 ------- -------Other recognised gains and losses relating to the year- (4) (9)currency translation adjustment ------- -------Total recognised gains and losses relating to the year 2,698 1,178 -------Prior year adjustment in respect of FRS 20 (note 2) (244) -------Total recognised gains and losses recognised since lastannual report 2,454 ------- Reconciliation of Movements in Shareholders' Funds For the year ended 31 May 2007 2007 2006 £'000 £'000 Profit for the financial year 2,702 1,187Dividends (825) (573) ------- ------- 1,877 614Other recognised gains and losses relating to the year - (4) (9)currency translation adjustmentCredit in relation to share-based payments 53 42Issue of shares 157 9,477Share buy-back - (77) ------- -------Net movement in shareholders' funds 2,083 10,047 ------- -------Opening shareholders' funds as originally stated in yearended 31 May 2006 28,578 18,329Prior year adjustment in respect of FRS 20 (note 2) (202) - ------- ------- Restated opening shareholders' funds 28,376 18,329 ------- -------Closing shareholders' funds 30,459 28,376 ------- ------- Notes to the Accounts For the year ended 31 May 2007 1. These preliminary results for the year have not been audited by theGroup's auditors and do not constitute statutory accounts. The comparativefigures for 2006 have been abridged from the statutory accounts for the yearended 31 May 2006, as amended by the prior year adjustment as set out in note 2.The auditors' opinion on these accounts was unqualified and did not contain anystatements under section 237(2) or (3) of the Companies Act 1985. The statutoryaccounts for the year ended 31 May 2006 have been filed with the Registrar ofCompanies, and those for the year ended 31 May 2007 will be delivered followingthe Company's Annual General Meeting. The Company's auditors have reported onthe full accounts for the year ended 31 May 2007 and have issued an unqualifiedreport. 2. The Group issues equity-settled share-based payments and cash-settledshare-based payments to certain employees, in the form of share options andawards under the Quadnetics Group Employee Share Scheme, which fall within thescope of FRS20 which is applicable for years commencing on or after 1 January2006 Therefore the Group has applied FRS 20 for the first time and as thisconstitutes a change in accounting policy, it has been treated as a prior periodadjustment and comparative figures have been restated to reflect the new policy.The effects of the change in policy are set out below: 2007 2006 £'000 £'000Profit and loss accountNet operating expenses (595) (330)Tax charge on ordinary activities - Deferred taxation 165 86 -------- --------Loss for the financial year (430) (244) -------- -------- Balance sheet 137 120Debtors: Amounts falling due in less than one year - deferred taxation 165 86Creditors: Amounts falling due in less than one year - other creditors (542) (288) -------- --------Net assets (377) (202) -------- -------- Profit and loss account reserveCredit in relation to share-based payments 53 42 -------- -------- 3. Turnover and underlying profit (operating profit before goodwillamortisation, exceptional items and share-based payments charges) derives fromthe Group's two business segments as follows: 2007 2006 £'000 £'000TurnoverServices 46,579 36,241Products and software 20,765 14,595Intra-group sales (1,279) (1,194) -------- -------- 66,065 49,642 -------- -------- Underlying profitServices 4,200 3,198Products and software 2,468 1,466Central costs (1,573) (1,197) -------- -------- 5,095 3,467 -------- -------- 4. The Group has tax losses available to be carried forward for offsetagainst the future taxable profits of certain group companies amounting toapproximately £1.9 million (2006: £3.1 million). A deferred tax asset in respectof part of these losses, amounting to £0.4 million (2006: £0.5 million), hasbeen recognised in the year as the Group believes that there will be futuretaxable profits against which the losses will be relieved. 5. The Directors recommend a final dividend of 4.0p per share amountingto £621,000 and, subject to approval, this is expected to be paid on 7 December2007 to shareholders on the register at 9 November 2007. This will give a totaldividend for the year of 6.0p (2006: 5.0p). 6. Earnings per Ordinary share are as follows: 2007 Restated Pence 2006 per Pence share per share Basic and diluted earnings per Ordinary share 17.4 8.6 -------- --------Underlying basic and diluted earnings per Ordinary share 26.1 24.2 -------- -------- The calculation of basic earnings per Ordinary share is based on the profitafter taxation for the year of £2,702,000 (2006: £1,187,000) and on 15,494,999shares, being the weighted average number of shares in issue and ranking fordividend during the year (2006: 13,781,617). The calculation of diluted earnings per Ordinary share is based on the profitafter taxation for the year of £2,702,000 (2006: £1,187,000) and on 15,503,696shares, being the weighted average number of shares that would be in issue afterconversion of all the dilutive potential Ordinary shares into Ordinary shares(2006: 13,789,163). Profit after Weighted Earnings per tax average Ordinary £'000 number of share Ordinary p per share sharesYear ended 31 May 2007Basic earnings per Ordinary share 2,702 15,494,999 17.4Dilutive potential Ordinary sharesarising from share options - 8,697 - -------- -------- -------Diluted earnings per Ordinary share 2,702 15,503,696 17.4 -------- -------- ------- Year ended 31 May 2006Basic earnings per Ordinary share 1,187 13,781,617 8.6Dilutive potential Ordinary sharesarising from share options - 7,546 - -------- -------- -------Diluted earnings per Ordinary share 1,187 13,789,163 8.6 -------- -------- ------- The calculation of underlying earnings per Ordinary share, which the Directorsconsider gives a useful additional indication of the underlying performance ofthe Group, is based on the profit after taxation for the year, but beforededucting exceptional items (net of tax), amortisation of goodwill andshare-based payments charge (net of tax) of £4,043,000 (2006: £3,338,000) and on15,494,999 shares, being the weighted average number of shares in issue andranking for dividend during the year (2006: 13,781,617). Profit after Weighted Earnings per tax average Ordinary £'000 number of share Ordinary p per share sharesYear ended 31 May 2007Basic earnings per Ordinary share 2,702 15,494,999 17.4Exceptional items - -Impact of exceptional items on tax - -charge for the yearGoodwill amortisation 911 5.9Share-based payments charge 595 3.8Impact of share-based payments chargeon tax charge for the year (165) (1.0) ------- -------- --------Underlying earnings per Ordinaryshare 4,043 15,494,999 26.1 ------- -------- --------Year ended 31 May 2006Basic earnings per Ordinary share 1,187 13,781,617 8.6Exceptional items 1,265 9.1Impact of exceptional items on taxcharge for the year (98) (0.7)Goodwill amortisation 740 5.4Share-based payments charge 330 2.4Impact of share-based payments chargeon tax charge for the year (86) (0.6) ------- -------- --------Underlying earnings per Ordinaryshare 3,338 13,781,617 24.2 ------- -------- -------- The calculation of underlying diluted earnings per Ordinary share is based onthe profit after taxation for the year, but before deducting exceptional items(net of tax), amortisation of goodwill and share-based payments charge (net oftax) of £4,043,000 (2006: £3,338,000) and on 15,503,696 shares being theweighted average number of shares that would be in issue after conversion of allthe dilutive potential Ordinary shares into Ordinary shares (2006: 13,789,163). Profit after Weighted Earnings per tax average Ordinary £'000 number of share Ordinary p per share sharesYear ended 31 May 2007Underlying earnings per Ordinaryshare 4,043 15,494,999 26.1Dilutive potential Ordinary sharesarising from share options - 8,697 - ------- -------- --------Underlying diluted earnings perOrdinary share 4,043 15,503,696 26.1 ------- -------- --------Year ended 31 May 2006Underlying earnings per Ordinaryshare 3,338 13,781,617 24.2Dilutive potential Ordinary sharesarising from share options - 7,546 - ------- -------- --------Underlying diluted earnings perOrdinary share 3,338 13,789,163 24.2 ------- -------- -------- 7. Intangible fixed assets includes development costs of £420,000, whichare capitalised in accordance with Statement of Standard Accounting Practice No.13 "Accounting for research and development". 8. During the year, the Group acquired a property for £2,056,000, usingexisting funds, to facilitate the growth and consolidation of Synectics'activities. Subsequent to the year end, it is intended to sell and lease backthe property, and accordingly this asset has been classified as a current asset. 9. Movements in shareholders' funds during the year were as follows: Share Share Merger Other Profit Total capital premium reserve reserves and loss £'000 £'000 account £'000 £'000 account £'000 £'000GroupAt 31 May 2006 3,263 13,634 9,565 (1,307) 3,423 28,578Prior periodadjustment (note1) - - - - (202) (202) ------- ------- ------- ------- ------- -------At 1 June 2006 (asrestated) 3,263 13,634 9,565 (1,307) 3,221 28,376Issue of shares toemployee sharescheme 108 1,071 - (1,179) - -Issue of shares toshare optionholders 11 146 - - - 157Profit after taxfor the year - - - - 2,702 2,702Dividends paid - - - - (825) (825)Credit in relationto share-basedpayments - - - - 53 53Foreign exchangetranslationadjustment - - - - (4) (4) ------- ------- ------- ------- ------- -------At 31 May 2007 3,382 14,851 9,565 (2,486) 5,147 30,459 ------- ------- ------- ------- ------- ------- 10. Copies of this preliminary statement are available from Quadnetics Groupplc, Haydon House, 5 Alcester Road, Studley, Warwickshire B80 7AN or on theCompany website at www.quadnetics.com. - Ends - This information is provided by RNS The company news service from the London Stock Exchange