Thruvision Grp Regulatory News (THRU)

RNS

28 May 2014

Digital Barriers plc

("Digital Barriers or the ''Group")

Preliminary Results for the year ended 31 March 2014

The Board of Digital Barriers plc (AIM:DGB), the specialist provider of advanced surveillance technologies to the security and defence sectors, announces audited results for the year ended 31 March 2014.

Key Highlights

· Group revenues for the year were £19.0 million (2013: £23.3 million).

· Revenues from Core Products grew 18% to £9.9 million (2013: £8.4 million) and now account for 52% of Group revenue (2013: 36%).

· International revenue from Core Products increased by 78% and covered a significantly expanded geographic footprint.

· £18.0 million (net of placing costs) raised through the issue of new ordinary shares in November 2013.

· Restructuring programme undertaken to rationalise cost base and concentrate resources on Core Products.

· 8 new products launched to extend and enhance our key product platforms.

· Q4 FY14 represented our best ever sales quarter for the Group.

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

"Looking forward, the volatile international security context confirms that the market for security products such as ours will continue to grow rapidly. This, combined with our new generation of products which have been designed specifically to combat this threat, and the sales traction which we have achieved thus far, give me confidence that Digital Barriers is on track to become an important player in the international security marketplace. We therefore look forward to significant growth in revenues and reiterate our aspiration to move towards breakeven in the current financial year."

For further information, please contact:

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

This last year proved to be one of mixed fortunes for Digital Barriers. Whilst our reported revenues are somewhat lower than FY13, we made very significant progress in shaping the Group for the growth which we expect in the current financial year and in growing the contribution to revenues from our core product set. Revenues were £19.0m of which 52% came from sales of our three core product ranges TVI, RDC and ThruVision (''Core Products'' (FY13: 36%).

The drop in revenues was due to three factors: a declining contribution from legacy or non-core products, longer-than expected customer procurement cycles and delays in bringing our new generation of products to market. The first of these was expected and is of little strategic importance as we focus increasingly on Core Products. The second is an ongoing feature of our business, although its impact will reduce as we grow. The third has been overcome and we saw a range of new products come to market in our fourth quarter, resulting in our best ever quarterly sales performance, although much of this did not convert to revenues in the year but remained as sales backlog to be fulfilled this year.

During the year we raised a further £18m from shareholders to fund the losses incurred, to strengthen the balance sheet and to provide working capital for growth. The vast majority of this cash remained on the balance sheet at the year-end (£14.2m). We also transitioned emphatically from our acquisition phase to focus on business rationalisation, sales team development and product development. The rationalisation project has resulted in a lower headcount and fewer offices, thereby reducing our cost base by some £3m per annum and, equally importantly, allowing us to invest in our sales teams and our engineering capability.

In particular, our US sales team has been significantly upgraded and we saw the fruits of this investment towards the end of the year with material sales of our new products into US Federal and Defense Agencies. Elsewhere we added a range of new customers in countries as diverse as Nigeria, Turkey and Japan. In the commercial sector we saw the first material sales of our TVI-based Minicam product through a major telecoms operator mostly into the UK Local Authority marketplace. Our UK Services business navigated a difficult year with UK budget constraints much in evidence, although recent sales successes suggest that the current year will see a return to modest growth in this area.

Our engineering teams worked hard through the year to bring to market an entirely new generation of products. Our TVI video range was extended to include High Definition and IP variants, which open up entirely new markets for us in the US, Asia Pacific and the Middle East. We also launched a software version of TVI which runs on iOS devices and which was sold successfully at enterprise level to a US Federal Agency during the year. Our RDC product, which was launched towards the end of the previous year, achieved good market traction during the year and forms a major part of our FY15 sales pipeline. RDC also provides additional impetus to our TVI range as RDC sales are almost always combined with TVI to produce our Integrated Surveillance Platform, a compelling solution for the protection of borders or vulnerable facilities. ThruVision, our personnel scanning technology, was a modest contributor to revenues but was developed significantly during the year resulting in an important new product launch and significant sales success in the final quarter.

Although Digital Barriers' success will be built in large part on the quality of our products, these in turn depend on high quality and dedicated staff. Our headcount reduced to 163 at the date of this announcement as a result of our strategic re-focus and rationalisation project and voluntary departures remained rare. The tempo of the business remained high and the commitment and professionalism demonstrated by all staff was exemplary. I would like to extend a warm personal thanks to all of my colleagues for their hard work and dedication. Our Board saw only one change with the addition of Sharon Cooper as CFO who joined us in March from Sophos and is already making a full contribution.

Looking forward, the fragile international security context confirms that the market for security products such as ours will continue to grow rapidly. This, combined with our new generation of products which have been designed specifically to combat this threat, and the sales traction which we have achieved thus far, give me confidence that Digital Barriers is on track to become an important player in the international security marketplace. We therefore look forward to significant growth in revenues and reiterate our aspiration to move towards breakeven in the current financial year.

Operational strategic review

Since our IPO in 2010 we have made strong progress in validating our strategy of providing advanced surveillance technologies to governments, multinational corporations and system integrators in the international defence, law enforcement, critical infrastructure, transportation and natural resources sectors.

At IPO we described the three phases of our growth strategy in the following way:

· Phase One: to undertake acquisitions to collate core products to drive Digital Barriers' organic growth; integration will be limited at this early stage.

· Phase Two: to focus on international development and additional material acquisitions to enhance the scale of our business. This will coincide with further integration and a deepening of specialist prime system integrator and other channel sales partner relationships.

· Phase Three: to focus on further geographical and product expansion.

We are currently transitioning from Phase Two to Phase Three. No further acquisitions were undertaken during FY14 and our internal focus was on the final stages of integration and rationalisation as outlined in the Chairman's Statement above. We did, however, expend considerable effort in developing a new generation of products across our core technologies of TVI, RDC and ThruVision and extending our geographic reach into numerous additional countries, including Nigeria, Turkey and Japan.

Our assessment of the growth potential that our market offers remains unchanged. Global spending remains strong with a number of notable trends emerging in the last year, namely:

· Continued demand for upgrading capability in established markets (core UK and US) for leading agencies, as well as the adoption of UK-proven technology overseas.

· Recovery in US Federal Government budgets and, because of major changes to telecoms video transmission costs, major investment in wireless video technology refresh.

· Ongoing weekly insurgency and terrorist attacks in high-risk countries in the Middle East, Africa and parts of Asia, continuing to drive demand for border and wide-area surveillance, VIP and natural resources protection, and transportation security.

· Continued long-term trends around cross-border terrorism and organised crime driving demand for enhanced border check-point security measures, critical national infrastructure protection and tactical law enforcement surveillance capability.

· Increasing adoption of mainstream commercial solutions such as mobile handsets, cellular and satellite networks to satisfy demand for wide distribution of video and data.

Our new products are well positioned to address these critical trends and we continue to position ourselves as providers, in the first instance, of sophisticated new tactical capability. Increasingly, however, we are being seen as credible providers of "Enterprise-grade" technology, allowing us to access our customers' spend on much larger programmes.

The growing international customer interest and engagement, combined with the sales traction that we have seen in the last year, confirms that our original strategy remains valid and we will continue to pursue it.

Business Review

Introduction

FY14 was a year in which we focused our attention on extending our international sales capability and developing new products in all three of our core technology areas - TVI, RDC and ThruVision. With 8 new products coming to market in the year across these areas, we achieved a number of landmark sales in terms of scale and strategic importance. These have also underpinned our three new propositions that are driving growth in major international customer accounts.

Sales

Headlines

We achieved a number of notable successes in terms of international reach and successful new product launches in the last year, including:

· First "enterprise-grade" sale of TVI - £1.8m sale of 3,000 TVI iPhone licences following ongoing work with a major US law enforcement customer. This capability will provide a range of benefits including increased surveillance effectiveness, situation awareness and officer safety.

· Landmark ThruVision sale into Middle East - £2.0m sale via a partner into the government of a major country in the Middle East for the protection of key government facilities and airports, to be delivered over the course of FY15.

· Strategic adoption by major Asian ally for critical defence surveillance - £1.0m sale after a year of extended trials, RDC has been adopted as the core sensor as part of its national-level strategic surveillance investment programme.

· Launch and initial sale of new 'Safe City' camera product - developed in partnership with the UK's largest telecoms operator, the MiniCam was launched in March to take the UK public safety CCTV market wireless. It offers the potential to extend our managed service offering moving forward.

· First sale of RDC in the Oil and Gas sector - initial sale of our RDC solution to a multi-national oil company to help protect key assets in a Middle Eastern country.

· Initial sales of a range of new TVI products - our High Definition and IP camera variants, launched in Q4, achieved initial sales into customers in each of our regions.

· Prestige integration services contract win - £2.1m sale of security system integration services, via a major system integrator into a major UK sporting event, to be delivered over the course of FY15.

· Other noteworthy sales - we announced repeat sales of £2.3m and £0.75m to existing UK Government RDC and Asian transportation customers, respectively.

· Sales traction continuing - since the period end, we have secured a further major contract in our Middle East and Africa region, with an initial contract valued at £1.5 million for the protection of key government facilities, to be delivered over the course of FY15.

Our sales pipeline continues to build with international interest in our three new key 'proposition' areas, namely:

· Our "Integrated Surveillance Platform" combining our RDC sensors with TVI, allowing unauthorized intrusions to be viewed securely anywhere in the world. Our customers see this rapidly deployed, covert solution as the ideal way to meet a number of requirements, including protection of hostile borders, oil pipelines, government buildings and remote military facilities.

· Our "Video Distribution Platform", based on TVI and providing our customers with the ability to wirelessly enable their legacy fixed security video infrastructure and add the ability to send and watch live video using smart phones and tablets. Demand is expanding out from our traditional government security market, through Smart City initiatives into the broader corporate world.

· Our "Safe Search People Screening" solution uses our ThruVision product set to facilitate the screening of people without the need for intrusive and time consuming physical searches. Our customers see this "virtual pat-down" as an efficient, repeatable and reliable procedure for looking for weapons, contraband or stolen goods in a safe and respectful manner.

International expansion

We continued our strategy of targeting key nations with material defence and security budgets across the US, Asia Pacific and the Middle East and Africa regions. With the support of the UK government where necessary, we aim to build relationships with key government agencies and procurement authorities and move through an increasingly streamlined evaluation cycle. This approach, coupled with the appointment and management of a number of local partner companies, resulted in sales to numerous new countries as well as repeat sales to existing ones in the last 12 months.

Our principal export market remains the US and we made very strong progress here after the hiatus of sequestration in FY13. With an expanded sales presence, we have established strong positions in agencies across the Departments of Defense, Justice and Homeland Security. With a number of market trends in our favour, including new investment in wireless video capability, ongoing investment in counter-insurgency and counter-IED technology, and ongoing investment in border surveillance technology, we are now poised for strong growth here across all of our key technologies.

Asia Pacific is a more fragmented region and we have been focused on a number of key countries including the Republic of Korea, Japan, Singapore, Malaysia, Indonesia, Hong Kong and Australia. Our focus is on a number of strategic border and maritime surveillance initiatives and achieving further TVI penetration into national law enforcement agencies. We have established a permanent presence in Seoul on the strength of the strategic interest shown by major Korean government agencies in RDC.

In the Middle East and Africa, we are focused on a number of key Gulf states, notably Qatar and UAE, and other key regional powers including Turkey and Nigeria, and we have achieved early sales successes in all of these. Given the heightened security state in several of these countries, we see strong interest in ThruVision for protective security, and our Integrated Surveillance Platform for force protection, border surveillance and critical asset protection including oil and gas.

UK market

The UK Government market has continued to see spend being tightly controlled. We continue to focus on working closely with the Home Office and its agencies, major law enforcement organisations, large public sector transport operators and the Ministry of Defence. As well as generating revenue, these close working relationships remain vital for our broader export efforts in terms of direct UK Government support and the implicit comfort this gives our foreign government customers.

With our expanding product range, we are also seeing increasing interest from the more mainstream "CCTV" market in the UK. This interest is coming from both the local authority market, from the security departments of commercial organisations and from large security service providers.

With this growing domestic interest, and after a relatively weak year for the division, we are starting to make increasing use of our Integration Services business to sell, deploy and maintain TVI solutions into this broader security equipment market. We also intend using its 24/7 support and callout infrastructure as an integral part of our post-sales support capability moving forward.

OEMs and other commercial models

We noted twelve months ago that we were seeing interest from the broader commercial market, principally via telecoms operators, in TVI. This is because we are able to offer a fully mobile, affordable and real-time video capability at a level of quality unmatched by any competing technologies. This meets the needs of a number of industry trends. These include the ongoing rollouts of city-wide wifi networks and national 4G wireless infrastructure, and the continued focus by network operators on selling "Machine to Machine" (M2M) data plans to maintain data revenue growth.

This commercial interest represents another large, high growth market for us, and one that is potentially less prone to slower government sales cycles. We have invested in both sales and product development resource over the last year to build our presence here and exploit this leveraged sales route to market. We are now engaged with five international telecoms providers where our TVI technology, through its highly efficient bandwidth management, has the potential to help better monetise cellular, wifi and satellite communication infrastructures. We also continue to partner with the world's largest system integrators on embedding our TVI and broader video analytics capability into their global 'smart city' and 'mobile workforce' propositions.

Finally, we have also made very good progress with achieving tight technical and commercial integration with other video industry vendors, again to exploit a leveraged sales model. Most advanced is our relationship with Axis Communications, one of the world leaders in IP cameras. By embedding our new video analytics product, SafeZone Edge, on Axis cameras, we both differentiate Axis' offering and open up its distribution network in 70 countries to our products.

Technology and Products

Introduction

Substantial effort has been invested in the last year driving our product portfolio forward in our three core product families - TVI, RDC and ThruVision - that now represent the key focus of the business, representing 52% of FY14 revenues (FY13 36%). We remain confident that all three families are highly disruptive, occupy clearly differentiated positions in the market, are internationally scalable and are built on class-leading intellectual property. Most significantly, these core product families have been rounded-out with additional capabilities to form our new propositions that are driving international sales activity.

With a number of products being delivered to market later in Q4 than we had planned, we have now introduced a new Product Management process to significantly improve our product development and launch capabilities. This will ensure that we optimise the use of finite development resource to produce differentiated products on schedule. It will also make sure we continue to identify significant and growing market niches and ensure our products contain the features that our increasingly large and international customer base demands.

We have continued the process of retiring non-core products and technologies that do not have differentiation and scalability, helping us sharpen our focus and increase resource in those areas that are strategically important.

TVI

TVI represents the largest market opportunity for us. As a proven, world-class video distribution technology, it offers large organisations the opportunity, for the first time, to adopt video as an affordable, core enterprise tool for a range of security applications in the first instance, but increasingly for more mainstream "enterprise applications" moving forward.

We have made significant progress in the last year moving TVI from its tactical roots to focus on products for both our specialist market (law enforcement, defence) and, increasingly, on the wider commercial security market. This has involved embracing a number of significant video industry technology trends and 'benchmarks', including High Definition (HD) video, IP video and video management system compatibility (through the ONVIF standard).

These developments, as well as meeting the needs of a rapidly increasing number of potential customers, have also ensured we remain very confident about our competitive positioning.

Highlights in FY14 included:

· Launch of new HD video product - developed to meet the needs of top-end law enforcement agencies around the world, the HD-S600 was launched in March. Combining highly efficient, wireless HD video streaming with local recording functionality, we achieved initial sales in a number of UK and international customers.

· Launch of new 'Safe City' camera product - developed in partnership with the UK's largest telecoms operator, The MiniCam was launched in March to enter the UK public safety CCTV market wireless.

· Launch of new IP product series - developed as highly cost-effective general purpose wireless video recording and streaming devices, our one-and four-camera models support customers migrating from analogue to IP cameras. We launched in March and immediately sold into both the US law enforcement and UK transportation security markets. We have since sold our TVI IP products into customers in each of our regions.

· Launch of new man-wearable military product - developed to meet emerging needs of UK/US military, we launched in March and sold to both UK and other allied military customers.

Plans for the coming year include expanding our HD range, developing a number of team-working tools for TVI on smart phones, scaling the server software and releasing software development kits for use by third party developers.

RDC

RDC is our unique ground sensor for the Remote Detection and Classification of unauthorised people or vehicles in locations where communications and power infrastructure are limited. Following its introduction around 18 months ago and its initial sale to a major UK government organisation, RDC has been deployed for a wide range of protection applications, including defence force/bases, oil and gas pipelines and VIP locations as well as more traditional border surveillance and control.

Our key differentiation remains the combination of seismic sensor algorithms, with mesh radio and tight coupling to real-time video. Taken together, these form our Integrated Surveillance Platform and provide a cost effective way of maintaining real-time "eyes on" coverage of large swathes of territory and we therefore remain confident about our competitive positioning.

In the last year RDC has moved from 'pathfinder projects' and early adopter trials to a pipeline of mature procurements and, perhaps most encouragingly, repeat sales from existing customers. The breadth of live opportunities across all regions provides confidence for realising further growth in the coming year and beyond.

Highlights include:

· Continued development of our sensor node detection algorithm for US government - we have broadened the range of threats that we can detect to meet specific operational needs.

· Continued development of node 'mesh' networking - we launched "multi-hop" capability to our sensor nodes to allow them to operate in long-linear arrays. This makes them ideal for protecting assets such as oil pipelines.

Plans for the coming year include continued work on improving the range of threats that can be detected and further tightening of the integration with TVI.

ThruVision

ThruVision is our passive, standoff people screening technology for protection of high-profile buildings and VIPs, the detection of concealed contraband by Customs organisations, high-threat military checkpoint screening and the efficient searching of employees to reduce theft in retail and distribution environments.

Based on patented intellectual property in the field of Terahertz scanning, the last year has seen further fundamental improvements in both image quality and use of video processing techniques to automatically detect concealed items of interest. This, combined with further manufacturing improvements to reduce the cost of production, has generated much broader market interest.

Highlights include:

· Assessed as 'operationally proven' following extensive testing by UK Government - We are now embarked on a number of operational trials with various UK agencies in a range of security and contraband applications.

· Launch of new "SafeSearch" proposition - bringing our new technology advances together, we have improved system usability by increasing the speed with which individuals can be scanned in partnership with a major British retailer. This 'virtual pat-down' now forms a proven new security procedure.

Plans for the coming year include the addition of a "zoom" function to enhance detection capability, improving the software interface to improve usability and continued work to allow future scaling of production.

Face recognition and video analytics applications

We have concluded that the major value from the OmniPerception acquisition is most likely to come through software implementation of face recognition on the TVI platform, although some alternative opportunities for the OmniPerception product set will still occur.

Accordingly, our face recognition and video applications work aims to ensure that, as TVI achieves increased international traction, we can maintain our strategic differentiation by offering mission-critical video tools running within TVI's video distribution architecture.

With this in mind we have been investing in redeveloping our applications from server-based systems to software that we can embed on a range of devices including smart phones, tablets, our own TVI products and an emerging range of high performance IP cameras. We believe this strategy will create new markets by offering a disruptive combination of performance, simplicity and affordability.

Highlights include:

· Achieved the highest level of UK Home Office "iLids" approval for performance - Our SafeZone Edge product, an automated intrusion detection application, achieved this internationally recognised standard in [April 2014].

· Adoption by Axis, the world's leading IP camera manufacturer - we have embedded SafeZone Edge on Axis' latest range of IP cameras and have agreed a leveraged channel sales model with Axis. We believe this partnership will allow us to assess the potential to exploit leveraged sales models.

· Ongoing refinement of face recognition algorithms - we have re-engineered our face recognition technology to operate solely in the visible light domain (as opposed to IR) as part of our plan to integrate face recognition within our Video Distribution Platform.

Plans for the coming year are to maintain the good progress we have made to integrate these applications into our Video Distribution Platform.

Mature and Non-Strategic products

We continue to generate profitable but increasingly modest revenues from our legacy products family (ie fixed infrastructure video management and transmission systems). These derive principally from the transportation and natural resources sectors, including a number of international customers.

During the year, we have exited non-strategic products where there is insufficient scope for differentiation or scalability. We also decided to cease offering bespoke video R&D services to UK customers due to the lack of scalability offered by this service line.

Operational review

People

We continue to aim to provide exciting careers for highly talented sales and engineering staff who, despite the geographically distributed nature of the business, are integrating into an increasingly recognisable culture of innovation.

In the last year, we have substantially strengthened our US team and have recruited our first permanent Korean staff into a new office in Seoul. We have substantially increased the size of our TVI engineering team in Glasgow and we have strengthened our pre-sales capability across all products.

With voluntary attrition already very low, we plan to introduce a Save-As-You-Earn share option scheme to enable staff to benefit from the company's growth moving forward and build long-term careers with us.

Cost base

Through the second half of the last year, we conducted a major strategic review of activities to ensure all our resources were focused on the most compelling growth opportunities in a fully integrated way. This contributed to a cost reduction programme that has reduced our overall net cost based by £3.0m, and allowed further investment in international sales and engineering. We also started the process of centralising a number of support functions to achieve improved service levels and better economies of scale.

Infrastructure

We further consolidated key activities into a smaller number of principal offices to improve effectiveness and focus. This resulted in the closure of 5 offices around the UK.

Looking forward, we plan further expansion of our TVI engineering office in Glasgow and investment in our Oxfordshire hub to increase ThruVision manufacturing and broader product delivery capacity. We are also investing in a new, secure, group-wide IT infrastructure to allow more efficient working for our staff around the world, while also better securing our core intellectual property.

Performance Indicators

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

· Revenue: £19.0million for the year under review (2013: £23.3 million);

· International revenues: 26% of total (2013: 29%);

· Gross margin: 45.8% for the year under review (2013: 42.8%);

· Sales & Marketing costs: £5.4 million for the year (2013: £3.8 million);

· Corporate overheads: £4.7 million for the year (2013: £3.1 million);

· Number of employees: 193 at 31 March 2014 (2013: 212); and

· Cash: £14.2 million at 31 March 2013 (2013: £5.5 million).

Financial review

For the year ended 31 March 2014, Digital Barriers delivered revenue of £19.0 million (2013: £23.3 million) generating an adjusted loss before tax of £12.0 million (2013 loss: £7.6 million) and adjusted loss per share of 21.49 pence (2013 loss: 16.45 pence). On an unadjusted basis, the loss before tax was £15.1 million (2013 loss: £10.8 million) and loss per share was 25.87 pence (2013 loss: 21.78 pence).

Revenue and margins

Of the £19.0 million of revenue in the year, £14.5 million was delivered from Product revenue streams, with £4.5 million from the Services Division.

The decrease in revenue over the prior year was due to three factors: a declining contribution from legacy or non-core products, longer-than expected customer procurement cycles and delays in bringing our new generation of products to market, now addressed. There were no acquisitions in the year.

Results by division are discussed below:

(i) Core Products: greatest strategic opportunity for growth.

(ii) Mature products: established in the market and capable of steady on-going profitable revenue.

(iii) Non-strategic products: underlying IP being transferred into Core product families.

Revenue from the Services division declined £(1.8) million (28%) on the prior year, reflecting a difficult year with UK budget constraints. This contraction in revenues led to a £(0.8) million fall from £0.7 million segmental operating profit to a £(0.1) million operating loss.

Products division revenue declined £(2.5) million (15%) on the prior year, with all the reduction in Mature and Non-Strategic categories. Core Products increased £1.5 million (18%), primarily driven by TVI growth, with International Core Products revenues up 78% and UK revenues down 2%. The operating loss associated with the Products division increased £(0.4) million in the year to £(1.9)m as a result of reduced revenues.

Revenue in the year was split 76%: 24% (2013: 73%: 27%) between Products and Services respectively. The continuing trend towards products reflects the on-going strategic focus of the Group and drives the improvement in gross margin, increasing from 42.8% to 45.8%.

The Services gross margin decreased to 19.1% in the year (2013: 29.0%), driven by the reduction in revenues and a higher proportion of lower margin project work, with higher product costs elements compared to the prior year. The Products gross margin was 54.2% (2013: 47.9%). This increase is largely associated with sales mix with a marked increase in software sales in the year, alongside a reduction in product hardware sales with a lower gross margin.

Adjusted loss

An adjusted loss before tax figure is presented as the Directors believe that this is a more relevant measure of the Group's underlying performance. For the year this was £12.0 million (2013: £7.6 million) and is detailed in the table below:

(i) Relates to the release of deferred consideration payable against the Zimiti and Visimetrics acquisitions plus reassessment of the remaining Visimetrics deferred consideration balance to zero, partly offset by the unwind of discount.

(ii) Relates to a restructuring programme to rationalize the Group's cost base and concentrate its resources on Core Products. As the expenditure relates to transforming the divisions for the future these costs are not directly related to current operations.

(iii) Relates to certain intangibles acquired with Visimetrics and LMW which are no longer seen as core to the business and generate returns below the level used to determine the value of the assets initially recognised on acquisition.

The increased year on year adjusted loss has been driven by three key factors:

· continued investment in sales and marketing required to drive international expansion;

· investments in operations, particularly in new product releases to address customer demand; and

· lower group revenues (referred to above)

Central overheads are broken down as follows:

Sales and marketing costs have increased £1.6 million to £5.4 million (2013: £3.8 million) as existing regional sales teams have been expanded and strengthened, and investments have been made into new sales and marketing teams internationally. These investments enable a greater level of engagement in both established and high-potential markets, building customer relationships and pipeline to drive sales growth.

The operations teams have also been strengthened in the year to further support product development and customer procurement processes. This, along with investment in the IT infrastructure, are the key drivers of the £1.4 million increase to £4.1 million (2013: £2.7 million) in central overheads.

Taxation

As a result of losses acquired through acquisitions and central overheads we do not expect to pay the full rate of UK corporation tax for a number of years. The Income Statement tax credit for the year of £0.5 million (2013: £0.8 million) principally relates to R&D tax credits. At 31 March 2014, the Group had unutilised tax losses carried forward of approximately £44.0 million (2013: £26.4 million). Given the varying degrees of uncertainty as to the timescale of utilisation of these losses, the Group has not recognised £8.5 million (2013: £5.6 million) of potential deferred tax assets associated with £42.3 million (2013: £23.7 million) of these losses.

At 31 March 2014, the Group's net deferred tax liability stood at £0.2 million (2013: £0.4 million), relating to acquired intangible assets of £0.6 million (2013: £1.0 million), offset by £0.4 million (2013: £0.6 million) relating to tax losses.

Loss per share

The reported loss per share is 25.87 pence (2013 loss: 21.78 pence). The adjusted Loss per share is 21.49 pence (2013 loss: 16.45 pence).

Cash and treasury

The Group ended the year with a cash balance of £14.2 million (2013: £5.5 million).

The £8.7 million year on year increase in net cash consists of £18.0 million (net of placing costs) proceeds from an equity fund raise less £(8.5) million (2013: £(14.1)million outflow) outflow from operating activities and £(0.8)million (2013:£(5.7) million) investing spend. No new businesses were acquired during the year.

The £(8.5) million (2013:£(14.1) million)outflow from operating activities included a £2.3 million net working capital inflow / reduction (2013: £(6.9) million outflow), largely as a result of lower fourth quarter revenues than in the prior year, partially offset by an inventory increase. The balancing £(10.8) million outflow from operating activities (2013: £(7.2) million outflow) relates principally to the "cash" operating loss (operating loss excluding non-cash items).

Investing spend included £(0.6) million of capital expenditure, mainly demonstration stock, and a £(0.2) million payment made to e-Tech in relation to a deferred consideration earn out due.

Dividends

The Board is not recommending the payment of a dividend (2013: £nil).

Consolidated income statement

for the year ended 31 March 2014

The results for the year and the prior year are derived from continuing activities.

Consolidated statement of comprehensive income

for the year ended 31 March 2014

Consolidated balance sheet

at 31 March 2014

Consolidated statement of changes in equity

for the year ended 31 March 2014

Consolidated statement of cash flows

for the year ended 31 March 2014

1. Accounting policies

Basis of preparation

The consolidated financial statements for the year include those of Digital Barriers plc and all of its subsidiary undertakings (together 'the Group') drawn up at 31 March 2014. The Financial Statements were authorised for issue by the Board of Directors on 27 May 2014 and the Balance sheet was signed on the Board's behalf by Colin Evans and Sharon Cooper.

Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control arises when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Subsidiaries are consolidated using the Group's accounting policies. Business combinations are accounted for using the acquisition method of accounting except for the acquisition of Digital Barriers Services Limited by Digital Barriers plc which has been accounted for using the pooling of interests method. All inter-company balances and transactions, including unrealised profits arising from them, are eliminated on consolidation.

All values are rounded to £'000 except where otherwise stated.

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

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 March 2014 and applied in accordance with the Companies Act 2006. The accounting policies which apply in preparing the financial statements for the period are set out below.

The Group's financial statements have been prepared on a going concern basis. Forecasts and projections, taking into account reasonably possible changes in trading performance, show that the Group will be able to operate within the level of current funding resources. Given this and in view of the cash reserves of £14.2 million held on the balance sheet, the Directors are satisfied that the Group has adequate resources to continue operating for the foreseeable future. For this reason they have adopted the going concern basis in preparing the accounts.

2. Adjusted loss before tax

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:

(i) Adjustments to deferred consideration in the current year comprise releases of £494,000 and reassessments of £212,000  partly offset by the unwind of discount on deferred consideration balances of £27,000. In relation to the e-Tech acquisition deferred consideration of £188,000 was paid in the year clearing the remaining balance. The remaining £260,000 balance at Zimiti was released in the year as the target was not achieved. At Visimetrics £234,000 was released and the remaining £212,000 balance has all been reassessed. The releases and reassessments of deferred consideration totalling £706,000 have been separately disclosed within Other Income in the Consolidated Income Statement.

(ii) Adjustments to deferred consideration in the prior year comprise releases of £678,000 and reassessments of £805,000 partly offset by the unwind of discount on deferred consideration balances of £99,000. In relation to the LMW acquisition deferred consideration of £60,000 was paid in the year 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 has been reassessed and reduced by £805,000 to £253,000. In relation to the E-Tech acquisition deferred consideration of £12,000 was paid in the year with a further £188,000 paid after year-end in April 2013; the remaining balance of £31,000 was released. The releases and reassessments of deferred consideration totalling £1,484,000 have been separately disclosed within Other Income in the Consolidated Income Statement.

(iii) The restructuring programme has resulted in an impairment in the year of customer relationships and intellectual property in relation to the LMW and Visimetrics acquired businesses. The total impairment of £160,000 has been separately disclosed within Other Costs in the Consolidated Income Statement.In the prior year the performance of the Keeneo, Waterfall and Codestuff entities were below the level used to determine the intangible assets initially recognised on acquisition. The carrying value of the intangible assets has been re-evaluated using a value in use model, with discount rates of between 10.8% and 11.7%. As a result the intangible assets of each entity have been impaired by £577,000, £630,000 and £129,000 respectively. The total impairment of £1,336,000 has been separately disclosed within Other Costs in the Consolidated Income Statement.

3. Reorganisation costs

During the year the Group recognised £1,860,000 of pre-tax reorganisation costs in relation to a restructuring programme to rationalise its cost base and concentrate resources on its strategic products. Office closure relates to five properties and covers rent, rates and dilapidation costs. Other primarily relates to stock write-down.

Reorganisation costs in the prior year 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

Unadjusted loss per share

5. Adjusted loss per share

The Directors consider that adjusted loss per share better reflects the underlying performance of the Group.

The inclusion of potential Ordinary Shares arising from LTIPs and Incentive Shares would be anti-dilutive. Basic and diluted loss per share has therefore been calculated using the same weighted number of shares. If the Incentive Shares had become convertible on 31 March 2014 and based on the share price of £0.875 (2013: £1.850) on that day, no (2013: 1,540,401) Ordinary Shares would have been issued in respect of the Incentive Share conversion. Full details of the basis of calculation is given in the Admission Document available on the Company's website. The Incentive Shares will immediately vest on change of control of the Company.

6. Trade and other receivables

The Group's credit risk on trade and other receivables is primarily attributable to trade receivables and amounts recoverable on contracts. One customer represents £1,103,000 (2013: £2,426,000) of the Group's trade receivables at 31 March 2014. There is no other significant concentration of credit risk.

In the prior year fair values of the assets and liabilities arising from the Visimetrics acquisition were provisional. Acquisition accounting allows for a review of these values within a 12 month period post acquisition. This has resulted in a £155,000 reduction in the fair value of trade receivables and consequent equal increase in goodwill in the prior year.

7. Trade and other payables

8. Financial liabilities

9. Issued Share Capital

On 5 September 2013, 25,171 Ordinary Shares were issued to satisfy obligations under the Long Term Incentive Plan.

On 4 November 2013, 13,357,143 Ordinary Shares were issued at 140 pence per share for a total cash consideration of £18,700,000.

On 16 December 2013, 54,376 incentive shares were converted into 282,712 Ordinary Shares.