Thruvision Grp Regulatory News (THRU)

22 November 2011

Digital Barriers plc

("Digital Barriers" or the "Group")

Interim Results for the six months ended 30 September 2011

Digital Barriers (LSE AIM: DGB), the specialist provider of advanced surveillance technologies to the international homeland security and defence markets, announces unaudited results for the six months ended 30 September 2011.

Key Highlights

A period of good strategic progress for Digital Barriers:

·; Expanded international platform provides sales reach into all four of our current target regions: UK/Europe, US, Middle-East and Asia-Pacific;

·; Improved sales traction with flagship customers and partners in each of these four regions;

·; Genuinely world-class advanced surveillance IP under ownership enhanced by the acquisitions of Zimiti and Keeneo;

·; Sharpened our focus on defence, law enforcement and natural resources market segments; and

·; Readily-deployed product range integrating core elements of our IP will reach the international market in 2012.

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

"The last six months has been a defining period for Digital Barriers. We have tightened our focus on advanced surveillance technologies and have successfully sold our solutions into flagship customers in the UK, US, Middle East and Asia Pacific, and to partners such as Boeing, Thales and Singapore Technologies. During the period we also made a further two acquisitions that bring additional world-class IP to our Group and since the period end we have made a further small acquisition that adds significantly to our product engineering capabilities.

"Our strategy continues to be validated by this international progress and we can already see our technology making a genuine difference to our customers in the field. This level of customer and partner interest in Digital Barriers gives me real confidence that we can build the Group into a leading player in our sector."

For further information please contact:

About Digital Barriers plc:

Digital Barriers provides advanced surveillance technologies to the international homeland security and defence markets. Specialising in 'edge-intelligent' solutions that can be deployed across 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.

www.digitalbarriers.com 

Chairman's Statement

Introduction

Digital Barriers listed in March last year to provide advanced surveillance technologies to the international homeland security and defence markets. Since that time we have worked hard to establish an international platform for our Group. Today we have offices in the UK and France, Singapore and the US, and it is our intention to establish an office in Dubai in the next few months. Through these offices we manage relationships with key government defence and law enforcement agencies, with prime system integrators and with multinational corporations operating critical infrastructure facilities in transportation and natural resources.

Despite the economic turbulence currently impacting countries around the world, the market for specialist technologies in homeland security and defence continues to grow. In North America and Europe we are seeing a shift towards cost-effective solutions that can increase operational efficiency and effectiveness in targeting terrorism or serious and organised crime, or in force protection and counter-insurgency in military operations around the world. In Asia we are seeing on-going civil infrastructure development driving spending on homeland security technologies, including the protection of transportation infrastructure. At the same time in the Middle East the threat of domestic and international terrorism is leading to homeland security and defence budgets increasing in our key target markets. This increased spending is also driving technical innovation to collect intelligence as close to the scene under surveillance as possible.

Our strategy

Digital Barriers' strategy is to acquire compelling IP and to build an international platform through which to market that IP to key customers and partners around the world. We also invest in the internal development of new IP to innovate continually in our areas of expertise. We work directly with key government agencies and commercial organisations, where we often engage on joint R&D programmes, adapting and enhancing our IP to meet specific operational requirements. We are also working to develop a range of readily-deployed surveillance solutions, that can be easily procured by a wider range of customers around the world through channel partners and system integrators. The first of these productised solutions will be available in early 2012.

We specialise in delivering surveillance information from remote, hostile and mobile environments. This has particular applicability to specialist areas of defence, law enforcement, and to the natural resources and transportation sectors. We also develop specialist technology suited to large-scale surveillance schemes where the challenge is intelligent networking across wide areas and between many thousands of sensors. This applies to mass-transit and public safety schemes, force protection and national surveillance infrastructures.

We will continue to build and foster relationships with customers and partners through each of our regional offices, and to develop innovative products based on our advanced surveillance technologies.

Progress in period

We have made good strategic progress in the period since 31 March 2011:

·; Our international platform now reaches each of our target regions: UK/Europe, US, Middle-East and Asia-Pacific.

·; We have made our first Digital Barriers advanced technology sales into the Americas and the Middle East, with additional sales into Asia-Pacific. We have also made material sales into a UK government department and the UK Ministry of Defence, with follow-on opportunities that should include products which integrate together different elements of our IP, both acquired and home-grown.

·; In June of this year we acquired Zimiti, a company in the latter stages of the development of a next-generation Unattended Ground Sensor technology. This is built on proprietary networking and power management technology, and has a revolutionary design enabling covert deployments. This is especially well suited to the protection of very wide areas, such as borders, critical infrastructure facilities, and oil and gas pipelines.

·; In August we acquired Keeneo, based in Sophia-Antipolis, France. Keeneo has pioneered 3D video analytics which enable the real-time detection of human intrusion and other pre-defined activities or incidents within a targeted 3D area or zone. Keeneo also offers a patented "4D" solution that can intelligently adapt its surveillance to manage changing environmental effects, bringing significant operational and deployment benefits to large-scale surveillance networks. We are now beginning to integrate Keeneo's technology onto our other platforms.

·; We are developing a range of advanced surveillance products, which are designed to be easily procured and readily-deployed by customers. These are targeted primarily at the defence, law enforcement and natural resources sectors. They will incorporate acquired and home-grown Digital Barriers IP and the first of these products will reach the international market in 2012.

·; In November we acquired Stryker, a specialist engineering business that focuses on re-deployable integrated wireless CCTV systems, having developed products integrating cameras, transmission technologies and DVR recording for both overt and covert surveillance. Stryker's core engineering strengths will accelerate the development of our advanced surveillance products.

Financials

These interim results reflect the steady performance of prior period acquisitions plus the phased acquisitions by the Group during the current period and on-going central costs. As such, they are not wholly representative of the underlying trading performance of the Group.

Revenues in the period were £4.8 million (2010: £1.3 million), generating an adjusted loss before tax of £2.9 million (2010: £1.1 million) and adjusted loss per share of 6.79 pence (2010: 5.08 pence).

Consideration for acquisitions in the period totalled £2.9 million (2010: £9.2 million), with £2.5 million (2010: £8.5 million) of this paid in cash in the period. The cash balance at the end of the period was £25.0 million (2010: £14.0 million).

Outlook

We continue to see the opportunity for Digital Barriers as very compelling over the medium to long term. Furthermore, the sales traction we are achieving and the positive feedback from customers and partners that our IP significantly outperforms its competition, gives us high levels of confidence in the future prospects of the Group.

We will continue to invest in our existing regional offices and to open an office in Dubai as a hub from which to service a fast-growing market in the Middle East region, where we are seeing strong interest in our technologies. With our expanded international platform and compelling IP under ownership, we are already seeing encouraging market traction with flagship defence, law enforcement and natural resources customers and partners. In the coming period we will introduce a range of easily procured and readily-deployed products based on our IP that can be marketed through sales channels to a broader range of customers. We will also continue to work with our flagship customers to further innovate in our areas of expertise, ensuring our technology continues to outperform its competition.

DIGITAL BARRIERS PLC

Consolidated income statement

for the six months ended 30 September 2011

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

Consolidated statement of comprehensive income

DIGITAL BARRIERS PLC

Consolidated balance sheet

at 30 September 2011

DIGITAL BARRIERS PLC

Consolidated statement of changes in equity

For the 6 months ended 30 September 2011

DIGITAL BARRIERS PLC

Consolidated statement of cash flows

for the 6 months ended 30 September 2011

DIGITAL BARRIERS PLC

Notes to the financial statements

for the 6 months ended 30 September 2011

1. Accounting policies

Basis of preparation

The consolidated interim financial statements include those of Digital Barriers plc and all of its subsidiary undertakings (together "the Group") drawn up at 30 September 2011, and have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' ('IAS 34') as adopted for use in the European Union ('EU'). The consolidated interim financial statements have been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the period ended 31 March 2011. The Directors are satisfied, in view of the cash reserves of £25.0 million held on the balance sheet, that the Group has adequate resources to continue operating for the foreseeable future. For this reason they have adopted the going concern basis in these consolidated interim financial statements.

The annual consolidated financial statements of the Group are prepared on the basis of International Financial Reporting Standards ('IFRS'). The consolidated interim financial statements are presented on a condensed basis as permitted by IAS 34 and therefore do not include all the disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the most recent Annual Report and Accounts which were approved by the Board of Directors on 31 May 2011 and have been filed with Companies House. The condensed interim financial statements do not constitute statutory accounts as defined in Section 435 of the Companies Act 2006 and are unaudited for all periods presented. The financial information for the 13 month period ended 31 March 2011 is extracted from the financial statements for that period. The auditors' report on those financial statements was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

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

2. Segmental information

The Group is organised into the Services and Products divisions for internal management, reporting and decision-making, based on the nature of the products and services of the Group's businesses. These are the reportable operating segments in accordance with IFRS 8 'Operating Segments'.

3. Adjusted loss

An adjusted loss before tax measure has been presented which excludes the amortisation of intangibles created on acquisition £940,000 (30 September 2010: £151,000; 31 March 2011 £668,000), the cost of the initial public offering and placing £nil (30 September 2010: £185,000; 31 March 2011 £233,000), the costs of acquisitions £449,000 (30 September 2010: £500,000; 31 March 2011 £892,000) and the unwind of discount on deferred consideration £172,000 (30 September 2010: £58,000; 31 March 2011: £89,000) 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 30 September 2010 adjusted loss has been restated to adjust for the unwind of discount on deferred consideration, to be consistent with the adjusted loss measure used in the financial statements for the periods ended 31 March 2011 and 30 September 2011.

4. Loss per share

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

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

The adjusted loss per share measures for the period ended 30 September 2010 have been restated to adjust for the unwind of discount on deferred consideration, to be consistent with the adjusted loss per share measures used in the financial statements for the periods ended 31 March 2011 and 30 September 2011.

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

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

5. Acquisitions

Acquisitions during the 6 months ended 30 September 2011

Zimiti Limited

On 18 June 2011, the Group acquired the entire share capital of Zimiti Limited ('Zimiti') for a maximum consideration of £10.0 million in cash and new Ordinary Shares on a cash-free, debt-free basis. Initial cash consideration of £1.5 million was paid less debt and working capital adjustments of £0.6 million. Deferred consideration of up to £8.5 million is payable over the period from completion to 30 September 2013, subject to revenue, profit and operational targets. Up to £4.25 million of the deferred consideration may be satisfied through the issue of new Ordinary Shares, with the balance satisfied in cash. Up to £1.25 million of the deferred consideration is based on operational targets through to 18 June 2012, but can be achieved and paid prior to this date. Up to £1.25 million of the deferred consideration is based on operational targets through to 30 September 2012, but can be achieved and paid prior to this date. Up to £3.0 million of the deferred consideration is based on revenue and profit targets for the year ended 30 September 2012 and a further £3.0 million on the year ended 30 September 2013.

Zimiti is a wireless communications specialist that develops very low power, wireless, autonomous networks that operate securely over long ranges using small power sources for long periods of time. Its technology is used to enable sensor systems to operate in intelligent networks, or to enhance existing fixed networks by making them more flexible and cheaper to install and improve. Zimiti is currently focusing on the development of unattended ground sensor technology that can be used in a range of surveillance and protective applications across both the defence and security sectors, being particularly effective in remote or hostile locations. Zimiti is part of the Group's Products Division.

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

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

The fair value of the deferred consideration is based on the discounted cash flows of the expected consideration payable, using a pre-tax cost of debt of 7.2%. In accordance with IFRS3R the Directors have assessed the fair value of deferred consideration payable to be £3.4 million, and consequently this amount has been used in the calculation of the discounted fair value.

The goodwill of £2,881,000 comprises the value of expected synergies with the Group's operations and the value of the assembled workforce including industry specific knowledge and technical skills. None of the goodwill recognised is expected to be deductible for income tax purposes.

Keeneo SAS

On 29 July 2011, the Group acquired the entire share capital of Keeneo SAS ('Keeneo') for a maximum consideration of €6.5 million in cash and new Ordinary Shares. The Group will also assume debt of up to €1.0 million. Initial consideration paid on completion was €2.0 million of which €1.6 million was paid in cash and a further €0.4 million was satisfied through the issue of new Ordinary Shares. Deferred consideration of up to €4.5 million is payable over the period from completion to 31 March 2014, subject to revenue and profit targets. Up to €2.25 million of the deferred consideration may be satisfied through the issue of new Ordinary Shares, with the balance satisfied in cash. €0.5 million of this deferred consideration is based on certain financial targets for the year ended 31 March 2012, €2.0 million on the year ended 31 March 2013 and €2.0 million on the year ended 31 March 2014.

Keeneo was founded in 2005 as a spin-out from INRIA, the French institute for computer science and automatic control research, and provides proprietary video analytics software solutions to the security, aviation, mass-transit, energy and industrial sectors from its operational base in Sophia-Antipolis, France. Keeneo operates primarily in Europe but has recently begun to extend its presence into other regions, most notably the Middle East.

Keeneo's solutions enable the real-time detection of human intrusion and other pre-defined activities or incidents within a targeted 3D area or zone. Keeneo also offers a patented "4D" solution that can intelligently adapt its surveillance to manage adverse environmental effects, such as changing light or weather conditions. Keeneo is part of the Group's Products Division.

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

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

The fair value of the deferred consideration is based on the discounted cash flows of the expected consideration payable, using a pre-tax cost of debt of 7.0%. In accordance with IFRS3R the Directors have assessed the fair value of deferred consideration payable to be €2.7 million, and consequently this amount has been used in the calculation of the discounted fair value.

The goodwill of £3,954,000 comprises the value of expected synergies with the Group's operations, customer loyalty and the value of the assembled workforce including industry specific knowledge and technical skills. None of the goodwill recognised is expected to be deductible for income tax purposes.

Other acquisitions

During the 6 months ended 30 September 2011 the Group made other non-material acquisitions for total cash consideration of £0.2 million, paid on completion.

The provisional fair value of the identifiable assets and liabilities of the other acquisitions are set out below. The fair values will be finalised within 12 months of acquisition.

The goodwill of £147,000 comprises the value of expected synergies with the Group's operations, customer loyalty and the value of the assembled workforce including industry specific knowledge and technical skills. Some of these relate to intangible assets, however they do not meet the criteria to recognise separately. None of the goodwill recognised is expected to be deductible for income tax purposes.

Acquisitions during the period ended 31 March 2011

During the period ended 31 March 2011, the Group acquired Digital Barriers Services Limited ('DBSL'), Security Applications Limited ('SAL'), Overtis Solutions (now known as Digital Barriers Integration Services ('DBIS')), COE Group plc ('COE'), Waterfall Solutions Limited ('WS') and Essential Viewing Systems Limited ('EVS').

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

As at 30 September 2011, the maximum deferred consideration payable in the future is £17.9 million, up to £6.2 million of which may be satisfied through the issue of new Ordinary Shares, and the remainder satisfied in cash. The fair value of deferred consideration in the balance sheet at 30 September 2011 is £9.1 million.

6. Issued share capital

On 5 August 2011 the Company issued 195,460 Ordinary Shares on the acquisition of Keeneo (note 5).

At 30 September 2011 there were 43,727,960 Ordinary Shares in issue (30 September 2010: 24,782,500, 31 March 2011: 43,532,500).

7. Post balance sheet events

On 18 November 2011, the Group acquired the entire share capital of Stryker Communications Limited ('Stryker') for a maximum consideration of £1.5 million in cash. Initial cash consideration of £0.75 million was paid on completion. Deferred consideration of up to £0.75 million is payable in cash subject to certain financial and operational conditions.

Stryker is a specialist engineering business that focuses on re-deployable integrated wireless CCTV systems. Stryker has developed a range of products that integrate various types of camera, transmission technologies and DVR recording that can be used for both overt and covert surveillance.