Preliminary Results

RNS Number : 8586S

OMG PLC

06 December 2012

 



Thursday, 6 December 2012

OMG plc

("OMG" or the "Group")

Preliminary Results for the financial year ended 30 September 2012

OMG plc (LSE: OMG), the technology group providing image understanding products for the entertainment, defence, life science and engineering industries, announces preliminary results for the financial year ended 30 September 2012.

Financial Key Points

·      Group Revenue of £29.5m (FY11: £26.4m)

o  Improved performance driven by stronger 2d3 and Vicon group performance

·      Significantly improved Profit Before Tax from continuing operations of £1.8m (FY11: £0.7m)

·      Adjusted* Profit Before Tax from continuing operations of £3.0m (FY11: £1.1m)

·      Net Cash balance at 30 September of £4.3m (FY11: £2.8m)

·      Proposed dividend increased by 17% to 0.35p (FY11: 0.3p)

Operational Key Points

·      Vicon

o  Installed more Vicon systems and cameras in 2011/12 than previous years

o  Launched Bonita Video, the world's first reference video camera designed specifically for motion capture

o  Introduced a lower cost Bonita camera range

o  Vicon technology used in the film "Avengers Assemble" as well as top selling games including "Call of Duty: Black Ops II" and "Assassin's Creed III" 

·      Yotta

o  Improved operating margin and recurring revenue base

o  Traction with Horizons SaaS offering

§ Introduced Version 2 of Yotta's Horizons SaaS software

§ Customer base increased to 16 local authorities

o  Secured major national survey contract with Highways Agency Traffic Speed Condition Survey (TRACS)

·      2d3

o  Achieved maiden adjusted profit

o  Secured two defence software license contracts worth over $1m each

o  Established solid presence within US defence market

o  Full integration of 2d3 Sensing products

·      OMG Life

o  Launched OMG Life's first consumer product on time

§ Autographer, the world's first intelligent, wearable camera

o  Simon Randall hired as Managing Director to run the division

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

"OMG has made good progress reflecting both an improved operational and financial performance as we execute against our strategy. Our 2d3 defence business delivered a maiden adjusted profit; our Vicon division has installed more systems and cameras than ever before; Yotta our highways, software and services business has improved its forward visibility; and OMG Life has entered the consumer market, opening a new avenue for growth."

"We will continue to refine our offering to ensure future growth and whilst remaining cautiously optimistic, we believe that with our diversified strategy the Group is well placed to deliver on the Board's expectations for the year ahead."

For further information please contact:

OMG plc	[phone]
Nick Bolton, CEO
David Deacon, CFO
FTI Consulting	[phone]
Matt Dixon / Emma Appleton / Charles Palmer / Jessica Liebmann
N+1 Singer (NOMAD to OMG)	[phone]
Shaun Dobson / Jenny Wyllie

About OMG

OMG plc (Oxford Metrics Group. LSE: OMG) is a group of technology companies producing image understanding products and services for the entertainment, defence, life science and engineering industries.

Be it for capturing the movements of actors (for the movie industry),sportsmen (for video games or improving team performance), or children with Cerebral Palsy, rehab patients and animals (for medical, life science and research industries); or recording the condition of highways and the assets that surround them; or even providing image intelligence and situational awareness from drone aircraft. Through this diversified offering the Group has earned its strong international reputation for precision from pixels.

Founded in 1984, the Group is headquartered in Oxford, UK, and has four offices in the US and two in the UK. It has customers in over 50 countries and is a quoted company listed on AIM, a market operated by the London Stock Exchange. The Group trades through four operating subsidiaries:  Vicon, the world's largest motion capture and movement analysis company, 2d3, a manufacturer of specialised image understanding software for defence applications, Yotta, our highways surveying business and OMG Life our new consumer subsidiary.

The Group's global clients spanning the worlds of science, medicine, sport, engineering, gaming, film and broadcast include: major hospitals and research facilities such as Guy's Hospital, Nuffield Orthopaedic Centre and Loughborough University, engineering industry leaders including: Ford Motor Company, BMW, Airbus and Toyota, and in the entertainment sector; Sony, Industrial Light and Magic, The Moving Picture Company (MPC), Sega, Nintendo, UbiSoft, EA and Square Enix. In highways, clients include: East Sussex, Lancashire, Transport for London, Cheshire East and West as well as many others.

For more information about OMG, visit www.omgplc.com.

Chairman's Statement: A straightforwardly good year

I'm pleased to say it's been a straightforwardly good 12 months for OMG. We've made steady progress on our strategic aims, and achieved what we said we would. In terms of headline results, we've delivered a result ahead of market expectations with Group revenue up by 11.9% and an improved adjusted* profit before tax result of £3.0m (FY11: £1.1m). On an unadjusted basis the Group reported a profit before tax for continuing operations of £1.8m (FY11: £0.7m). As at 30 September 2012, cash stood at £4.3m (FY11: £2.8m).

Turning to our businesses, Nick Bolton, our CEO, will talk you through their progress in more detail later, but noteworthy achievements in 2011/12 included OMG Life's successful launch of Autographer, a new kind of camera with the potential to change the way people think about photography; further evidence that our aerial imaging business 2d3 has arrived as a force in the defence industry, with two $1m plus contract wins; excellent sales of Vicon's new lower cost Bonita camera, in line with our aim of further expanding the appeal of our market-leading range; and real progress in our highways business, where version 2 of Yotta's new Horizons software took off, with exciting implications for the future.

This doesn't mean, of course, that all our objectives have been achieved. In their different ways, all of these achievements are staging-posts or stepping stones, on the way to future sustainable growth. To mention just one example, the rapturous reception given to Autographer at launch will be worth nothing unless the product ships successfully, and converts interested potential buyers into satisfied and enthusiastic "moment capture" photographers. Everyone here at OMG is well aware there remains a lot of hard work to be done, and a huge amount that we're still pushing to achieve.

Which leads me on naturally to thanking all our people very warmly indeed for their brilliant and dedicated hard work in 2011/12; and, of course, to expressing our gratitude to all the Group's customers and shareholders for their continued support.

Before I turn to look more at the Group's financial performance, a brief reminder of what this business is about. As a Group, our strategy is to deliver growth by combining a strong core of unique expertise in imaging technology with the other resources necessary (people, money, marketing) to grow a portfolio of profitable diversified businesses.

We achieve this by applying the most appropriate business model for the specific market in which we've identified a clear opportunity. In one market, this may mean delivering exceptional service enabled by our technology; in another, we may integrate our technology into a powerful and transformative hardware or software product.

Because our businesses operate in different markets, each is subject to a different set of market forces, which we believe provides the Group with a wider spread of opportunity and better balance than would be the case for a single business, competing in a single market, using just one business model.

Turning now to our financial performance in more detail. Key performance indicators (KPIs) for the Group are as follows:

KPI	FY12	FY11	Change
Group revenue	£29.5m	£26.4m	+£3.1m
Group cash position	£4.3m	£2.8m	+£1.5m
Group adjusted* profit before tax	£3.0m	£1.1m	+£1.9m

The Group reported revenues from continuing operations of £29.5m (FY11: £26.4m), representing an increase of 11.9% compared to the previous financial year. On an adjusted* basis the Group reports a profit before tax of £3.0m, up £1.9m compared to last year. For the figures and key performance indicators achieved by our four businesses, please turn to the relevant sections in the Chief Executive's statement.

The Income Statement includes a significant Finance expense of £0.5m (FY11: £0.0m), this relates to the unwinding of the discount on contingent consideration relating to the acquisition of Sensing Systems which is a non-cash moving IFRS adjustment.

Foreign exchange rates - in particular, the US dollar-sterling rate - have been relatively stable during 2011/12, and has not made any real impact on year-on-year Group performance. However, the closing rate did give rise to a book loss of £0.3m (FY11 book gain: £0.1m).

The Group continues to invest in Research and Development (R&D) and spent £5.0m (FY11: £3.7m) during the year. The return we saw on this investment in 2011/12 included the launch of Vicon's Bonita Video, further Horizon modules from Yotta, and full integration of 2d3 Sensing products - as well as the successful launch of our first consumer product, Autographer. From this total spend, we expensed £2.7m (FY11: £1.9m) and capitalised £2.3m (FY11: £1.8m) in this year's results.

The Statement of Financial Position shows an increase in Non-Current Assets due to R&D Capitalisation and an increase in Current Assets due to particularly strong revenues in September from 2d3 - which contributed to an increase in Trade Receivables to £8.2m (FY11: £7.6m). The Group finished the year with a cash balance of £4.3m (30 September 2011: £2.8m, 31 March 2012: £3.9m). Current Liabilities increased due to higher Trade Payables reflecting the general level of trading, Accruals included additional Group Bonus accruals and contingent consideration relating to Sensing Systems increased given we now expect earn-outs to be paid earlier due to revenue performance. As a whole, the Statement of Financial Position remains robust.

The current tax liability for this year is again minimal, as the Group has been able to make use of excess losses brought forward from previous years. The effective rate of 39% is higher than the previous year, mainly due to deferred taxation movements. The Group deferred tax asset has decreased by £0.3m due to making use of losses and the reversal of temporary timing differences on expenses. The Group deferred tax liability has increased by £0.3m due to the increase in deferred tax liability on the R&D costs, which are wholly deductible for tax purposes, but capitalised and amortised for accounting purposes. This increase has been offset in part by a decrease in the deferred tax liability relating to intangible assets arising on recent acquisitions, as they are amortised through the income statement.

In view of the Group's steady progress, I'm pleased to confirm the Board's proposal to increase the dividend for the year to 0.35p (FY11: 0.3p) in line with our stated progressive dividend policy.

Looking ahead

While global economic instability remains, we believe our diversified portfolio of businesses continues to offer a degree of robustness in an uncertain world. Our strategy is clear and unchanged, and our achievements this year support our belief that the Group is better positioned and in more resilient shape as it enters the year ahead. Vicon now has an even stronger product offering; Yotta now has even better software and state-of-the-art vehicles on the road; 2d3 software is now being deployed; and with Autographer now launched, OMG Life is ready to open the next exciting chapter.

So we enter 2012/13 with cautious optimism, excited, in particular, by the prospects for OMG Life and 2d3. And we believe our strategy of market-focused diversification will enable the Group to deliver on the Board's expectations for the year ahead.

* Profit Before Tax from continuing operations before group recharges adjusted for share based payments, amortisation of intangibles arising on acquisition, fair value adjustment to contingent consideration, unwinding of discount on contingent consideration, acquisition costs and redundancy costs. (see notes 4 and 5).

Chief Executive's Statement: According to plan

In our last few reports, I've tended to think aloud here about some of the bigger issues facing OMG, as a Group, operating in a fairly unfriendly environment. But this time, I think we should just get down to business. Because, as you've read, 2011/12 was a year in which things went pretty much according to plan for the Group. Which means that for me, all the interesting developments over the last 12 months are to be found within the detail of how our four businesses performed.

In other words, the story of the year is all about execution; how our brilliant people and incredible technology enabled us to turn the strategy that Anthony has outlined above into solid achievement, with the promise of even better things to come.

Let's start with Life…

OMG Life: seizing our moment

Last year, we told you how excited we were about Product X, a completely new kind of camera aimed at consumer markets, still firmly under wraps at the time. Launched on 24 September 2012, OMG Life's first product has now been unveiled as Autographer: the world's first intelligent, wearable camera. We said the world was ready for "moment capture" and the positive initial reaction suggests that the world agrees. We'll find out for certain when, very soon now, we start to see the sales figures for Autographer.

KPI	Revenue		PBT		Adjusted* PBT
	FY12	FY11	FY12	FY11	FY12	FY11
UK	£0.1m	-	(£1.2m)	(£0.9m)	(£1.0m)	(£0.7m)

The loss reported by our new consumer business reflects the investment we made in preparing for the launch of Autographer, and getting ready to go into full scale production. In addition to the costs expensed, OMG Life also capitalised R&D costs of £0.9m (FY11: £0.3m).

So first, a quick recap on product and positioning. Autographer offers spontaneous hands-free image capture. Featuring a custom wide angle "eye-view" lens, it has five in-built sensors, which choose the right moments to take photos.

Crucially, Autographer doesn't replace - or even refine - any existing type of camera. It offers something different and new. Autographer isn't just a new camera but the start of a whole new approach to photography: one which enables moments to be captured without interrupting them. The first really positive sign during 2011/12 was that all the consumer testing we did before launch strongly confirmed that positioning. People instantly "got" Autographer. Again and again, we heard participants in research mirror back to us what we think makes Autographer exciting and unique.

More valuably, our eager testers helped us learn more about the potential of Autographer. For one thing, we quickly became aware that they wanted to use it to capture, moment by moment, the things they love doing, whether that might be playing with their kids or mountain-biking; it instantly became part of their lives. For another, things we'd only suspected that people would like about Autographer leapt out of the research, as fully formed USPs. Most notably the fact that the sequence matters. That's to say a series of consecutive images, taken at varying intervals, capturing a piece of action occurring in real time, conveys something qualitatively different than either conventional photographs or video footage of the same event. And that applies whether the event in question is something exciting like a bungee jump, or a more mundane part of everyday life, like a walk to the shops.

Above all, though, what our consumer testing confirmed was that potential customers agreed that Autographer delivers incredible images.

Working closely with our strategic partners BBH, who know all about creating great consumer brands, we launched Autographer on (in relative terms) a modest budget, but with maximum impact. Around two weeks before the official launch date, we briefed a wide range of media. Then on 24 September, we went live with the website and other targeted communications, introducing the launch product - which retails at £399 - and asking potential customers to register their interest online.

And they have done. We're not going to reveal figures here, but they have far exceeded what we expected. As has media interest. In the immediate post-launch period, over 270 articles on Autographer appeared, in the widest possible variety of publications, from fashion magazines to national newspapers. Twitter was alive with the sound of people tweeting about moment capture, with Autographer reaching somewhere north of 20 million users, at the last count. The phenomenon went global much faster than we expected, too, with major interest in the US and Japan, and throughout Europe, very soon indeed after the wraps came off.

Autographer will be exclusively available through our own online store. We've taken the decision to go direct to customers, at least to begin with, because that will give us greater control over the brand, and a closer relationship with users, which in turn will ensure good feedback on how they use the product. We expect to learn a huge amount in these first few months of Autographer's existence. Already, though, we've had interest from retailers, so we'll certainly be talking to them, in due course, with a view to making Autographer more widely available.

We'd love to be able to make impressive predictions about the level of sales we expect to achieve, but we think it would be better to wait until we can give you the hard numbers. But we will just remind you that we've identified between 3.5 and 4.5 million potential customers for Autographer in the UK alone.

In January 2012, we appointed Simon Randall as Managing Director of OMG Life, bringing with him a wealth of knowledge and experience in consumer electronics acquired during a successful 11 years with Nokia. And since his arrival, Simon has focused on strengthening the team, hiring heavyweight talent in areas such as distribution, engineering and aftersales; all with a view to scaling up our operation, as Autographer seizes its moment. We very much look forward to updating you on Autographer's progress.

OMG Vicon: capturing a wider market

For our longest established business - not far off 30 years old now - it was a good year. Conditions are still tough out there, but Vicon remains a dominant force in the field of motion capture. Budgets are tighter, so we've needed to be more flexible. But we installed more systems and cameras in 2011/12 than ever before. We continued to innovate, and with our lower cost Bonita camera range, we made further excellent progress in our quest to widen the reach and appeal of the brand. Vicon has always stood for excellence in mocap; now, that encompasses affordable excellence.

KPI	Revenue		PBT		Adjusted* PBT
	FY12	FY11	FY12	FY11	FY12	FY11
Vicon UK/ROW	£9.1m	£9.5m	£2.9m	£4.6m	£2.0m	£3.4m
Vicon US	£7.9m	£8.5m	£0.4m	£0.4m	£2.7m	£2.2m
Total Vicon Systems	£17.0m	£18.0m	£3.3m	£5.0m	£4.7m	£5.6m
House of Moves	£4.0m	£2.0m	£0.9m	(£1.8m)	£0.9m	(£1.8m)
Vicon Group	£21.0m	£20.0m	£4.2m	£3.2m	£5.6m	£3.8m

With total system sales of £17.0m, Vicon's revenues fell slightly compared to last year - reflecting tough trading conditions in most markets and increased competition. Despite this, Vicon achieved a further improvement in overall gross margin, which rose to 71.1% (FY11: 70.9%) per the Management Accounts. Overall adjusted* profit was down, partly due to lower revenues and the impairment of previously capitalised R&D (£0.4m), however, this impact was mitigated to some extent by cost control measures, aimed at effectively "recession-proofing" Vicon for future years, delivering savings which helped maintain underlying profitability.

House of Moves (HoM), our service-based motion capture business, recovered well after a disappointing FY11, doubling revenues to £4.0m, and delivering an adjusted* profit of £0.9m. The entertainment market in general, subdued in FY11, bounced back and HoM performed particularly well in the second half. This strong performance underlines the value to Vicon of having a service offering, as an alternative to a full system purchase, particularly in tough economic times.

Geographically, we continued to widen the reach of Vicon, making sales to three new countries this year: Abu Dhabi, Haiti and Chile. This means we now have Vicon system customers in over 50 countries worldwide. The sales in Haiti and Chile are a direct result of our decision to focus on South America, and our recent appointment of a dedicated salesperson for the region. Overall, South American sales improved compared with 2010/11, with particularly good progress in Brazil - related in part to the boost provided by the forthcoming World Cup and Olympics. Sales in China were also strong again. 

As we mentioned, our lower cost Bonita camera range did really well, with sales up by 55%. In April 2012, we further strengthened this increasingly important part of our product offering with the launch of Bonita Video, the world's first reference video camera designed specifically for motion capture. Put simply, this new addition enables us to compete in markets where price would previously have ruled us out of contention. Now more customers in life sciences and engineering than ever before can enjoy the reassurance of technological excellence and reliability that comes as standard with the Vicon name.

While Bonita helped widen our franchise, top of the range Vicon systems continued to raise our profile. Among a number of prestige projects in 2011/12, one of the most visible was our involvement in the Red Bull Project sports performance programme. Using our state-of-the-art outdoor motion capture technology, Red Bull delivered an unprecedentedly high level of data and video analysis to top US hurdler Lolo Jones, in her preparations for the Olympics. Meanwhile, back in Hollywood, visual effects powerhouse Industrial Light & Magic used Vicon systems for the incredibly complex motion capture scenes they developed for one of the year's biggest box office hits, Avengers Assemble. Other major Vicon credits included two of this holiday season's biggest games in Call of Duty: Black Ops II and Assassin's Creed III.

At Vicon, we never stop thinking of new ways to make motion capture better for our customers - and to put more distance between us and our competitors. Towards the end of the year, we showcased three innovative new products at key industry event Siggraph 2012. First up was Blade 2, a new completely re-engineered version of our industry-leading real-time motion capture software that takes real-time mocap to a new level. For the virtual reality market, we presented a new Interaction Device, a precise and robust hand-held tracking tool that makes it easy to interact with virtual objects in any 3D environment. And finally, there was our new head-mounted facial capture system, another significant step towards making mocap more mobile and more versatile.   

Finally, following the period end, we appointed Imogen Moorhouse as Vicon's new CEO. Having joined Vicon 11 years ago as a junior sales engineer, Imogen has come up through the business and knows an enormous amount about motion capture - and helping customers get the best from it. We're absolutely delighted that the future of our most mature business lies in such experienced and dedicated hands.

OMG Yotta: moving in virtuous circles

During the year, Yotta has seen an improvement in its operating performance and we believe it was a much better year for our highways business than the figures suggest. We continued to make real progress in our efforts to expand the base of the business, with a focus on making Yotta less dependent on surveying (where rates remain under pressure) by making our expertise available in the form of software and professional services.

KPI	Revenue		PBT		Adjusted* PBT
	FY12	FY11	FY12	FY11	FY12	FY11
UK	£4.3m	£3.8m	(£0.8m)	(£1.0m)	(£0.3m)	(£0.5m)

Yotta UK's revenue this year was up to £4.3m, resulting in a smaller adjusted* loss of £0.3m. This improvement was achieved through a combination of factors, including better operating margins, the start of the TRACS contract and a growing contribution from Horizons. The impact of the Government's Comprehensive Spending Review, which adversely affected results in recent years, has now been largely absorbed.

Last year, we told you about the launch of our Horizons Software as a Service (SaaS) software, describing it as a breakthrough in terms of making road condition data more user-friendly and valuable for our Local Authority clients. This year saw Horizons make a breakthrough in terms of sales - from just one customer at the end of 2010/11 to 16 at the end of 2011/12. The annual value of total recurring contracted software revenues is now £0.44m (FY11: £0.27m).

As ever within OMG, it is technological innovation that underpins commercial success. The progress made by Horizons is largely due to version 2.0 of our Analysis Module introduced in April 2012, which helps customers analyse and understand road condition data, enabling them to make better decisions about when to carry out repairs, and how to optimise resources.

And here's where we see a virtuous circle. When customers start to realise how valuable the right data can be with the right software, they want more of the high quality data that Yotta surveys supply. That's why, for example, we saw sales of our Yotta Asset Video survey rise by nearly 30% during the year. 

Increasingly, our software is also helping us sell professional services, as Local Authorities call in our consultants to help them configure Horizons to deliver the greatest possible benefit. Overall, revenue from professional services was fairly flat in 2011/12; but we saw a big increase in the second half, which leaves us feeling positive about the future. The Horizons effect was only one of the reasons for this. Another important factor was our continuing drive to push Yotta higher up the value chain, by getting involved in the Local Authority decision-making process; making our expertise available to help councils make strategic decisions about their road networks. 

Two professional services contract wins - with Halton and Gwent Consortium - highlight this positive trend. These are both high-end consultancy projects, with technical services outsourced to Yotta; work that we would never have been considered capable of undertaking just a year or two ago.   

Last year, we told you about Tempest, our new generation survey vehicle. We explained how designing and building it ourselves would help us keep costs down, while providing clients with the most technologically advanced surveys. Twelve months later, Tempest is delivering on that promise. Without our new van, we would never have won the Highways Agency Traffic Speed Condition Survey (TRACS) contract, a major national survey covering 140,000 lane kilometres of motorways and major roads in England, worth £2.27m over four years. We competed for this highly prestigious project against three other companies, all of which have their own vehicle manufacturing capability - and, thanks to Tempest, we secured the deal on both quality and price. 

We end 2011/12 feeling encouraged by the progress made within Yotta during the year to better align the business for future success. With accelerating sales in software and professional services, we're making real headway in establishing Yotta as a broader-based business, supplying technology and expertise in the form that's most valuable to our customers. Our surveys provide better quality data; our systems and people help our customers make better use of it. That virtuous circle looks like a ring road to a profitable future.

OMG 2d3: breakthrough, and beyond

2011/12 was the year in which 2d3 grew up, establishing not just a foothold but a really solid presence within the US defence market. The best evidence for that claim is provided by the division securing not one, but two software license contracts worth over $1m, and delivering record revenues that take 2d3 comfortably into profit for the first time.

KPI	Revenue		PBT		Adjusted* PBT
	FY12	FY11	FY12	FY11	FY12	FY11
UK	£0.5m	£0.9m	(£0.3m)	(£0.2m)	(£0.3m)	£0.1m
US	£3.6m	£1.7m	(£0.1m)	(£0.3m)	£1.1m	(£0.1m)
Total 2d3	£4.1m	£2.6m	(£0.4m)	(£0.5m)	£0.8m	£0.0m

Overall, 2d3's revenue was significantly up 62% at £4.1m, resulting in an adjusted* profit of £0.8m. This first full year of profitability for 2d3 included a landmark deal, which will see the deployment of 2d3 technology in real tactical situations: a major breakthrough in the development of the business.

This progress is chiefly due to continuously improving our product offering and sharpening our market-focus. As a result, both military and civilian customers with mission-critical needs have started to see 2d3 as the go-to supplier of software that delivers high quality intelligence from aerial imagery.

That may sound straightforward, but a huge amount of effort, energy and expertise has gone into taking 2d3 so far, in such a short time. During 2011/12 we released new versions of each product in our portfolio, reflecting a major architectural re-design to support a vastly higher level of performance and functionality. Incorporating the library capabilities that we added with last year's acquisition of Sensing Systems, we've been able to deliver on our strategy of technology development with a razor-sharp enterprise focus. At the same time, we've been honing other areas of execution, notably sales. Our decision to hire high calibre business development professionals, which we reported last year, has made a real impact. Quite simply, we understand how defence purchasing works; how it specifies; how it deploys; and, most important, how it reaches buying decisions. We've invested in that understanding, and now we're seeing a healthy return in terms of contract wins and satisfied customers.

But the most significant development in 2d3's year was nothing directly related to technology or sales. We established a US board of directors, with American citizens making up the majority of its membership. Crucially, this enabled us to sign a Special Security Agreement with the US Department of Defense (DoD), which means we can compete freely, and on a level playing field, for DoD contracts.

In effect, this makes 2d3 a US company when operating on American soil. And, more to the point, it means that 2d3 looks right to potential customers within the US defence establishment. We've always had the technology to fill an important capability gap, but the fact that 2d3 is British-owned has been a barrier to achieving our full potential in the USA. That final obstacle has now been removed.

Another important development in 2011/12 came in July, when we received a judgment from the US Department of State putting our software outside of US International Traffic of Arms Regulations (ITAR) export controls. We argued successfully that since our products are not exclusively for military use they should not be subject to export controls. Removing this restraint of trade means 2d3 now has much greater freedom to compete internationally.

For security reasons, we're unable to provide any further details on the two $1m plus deals we've mentioned, beyond telling you that they are with the US Navy and US Air Force, and that in both cases there is potential for possible follow-on contracts. 

Back on OMG's home turf, in the UK, 2d3 has continued to make progress, despite cuts in defence spending. We've further strengthened our relationship with Defence Science and Technology Laboratory (DSTL) through The Centre for Defence Enterprise (CDE), which serves as a technology gateway between the outside world and the Ministry of Defence (MoD), ensuring frontline forces have the best battle-winning capabilities for the future. During 2011/12, 2d3 has delivered six CDE funded projects with a combined value of £450,000.

The UK remains an important market, offering real growth potential for 2d3. But, crucially, the UK defence industry is inextricably linked and tied to its vastly larger and wealthier US counterpart. Building strong relationships here in Britain is not only profitable in its own right, but also helps to improve our connections and gives us further traction on the other side of the Atlantic. 

We briefly mentioned above that our acquisition of Sensing Systems early in 2011 has enhanced our software capabilities. More generally, we're pleased to report that we are seeing the benefits of bringing together two relatively small businesses with complementary expertise. Just 18 months on, the two businesses are seamlessly integrated, combining their talents to pursue opportunities that neither could have competed for alone. We've talked in recent years about our policy of "acquiring to amplify" OMG's existing strengths and assets. The new, improved 2d3 Sensing demonstrates how this strategy works in practice. 

Looking ahead, we're confident that there are potentially many profitable non-military applications for 2d3's aerial imaging expertise, from surveying pipelines to border patrols. But progress so far in these more fragmented civilian markets has been slower. We strongly believe, however, that as US airspace is opened up to unmanned vehicles, more opportunities will present themselves.

Quietly confident about the future

In their different ways, all of our businesses have contributed to an encouraging overall result. We remain optimistic about the prospects for OMG Life and 2d3, both of which we believe have the potential for successful future growth. We're happy with the progress that Yotta has made in broadening the base of its offering, while at the same time increasing its recurring revenue. And we're confident that Vicon will continue to lead the world in motion capture, and to deliver solid and sustainable profitability. In 2011/12, we've achieved what we said we would. Now everyone at OMG is working hard to ensure we continue to deliver on our objectives and to deliver on the Board's expectations for the year ahead.

consolidated INCOME statement

for the year ended 30 september 2012

		2012	2011
	Note	£'000	£'000
Revenue	3	29,504	26,366
Cost of sales		(11,797)	(12,088)
Gross profit		17,707	14,278
Sales, support and marketing costs		(4,681)	(4,962)
Research and development costs		(2,697)	(1,931)
Administrative expenses		(8,189)	(6,956)
Other income		168	293
Operating profit		2,308	722
Finance income	6	8	4
Finance expense	6	(540)	(5)
Profit before taxation	3,4	1,776	721
Taxation	7	(685)	(80)
Profit from continuing operations		1,091	641
Loss on discontinued operation net of tax	9	(34)	(828)
Profit/(loss) for the financial year attributable to owners of the parent during the year		1,057	(187)
Earnings per share for profit attributable to owners of the parent during the year
Basic earnings/(loss) per ordinary share (pence)	8	1.48p	(0.27)p
Diluted earnings/(loss) per ordinary share (pence)	8	1.43p	(0.27)p
Continuing operations
Basic earnings per ordinary share (pence)	8	1.53p	0.92p
Diluted earnings per ordinary share (pence)	8	1.47p	0.90p

COnsolidated statement of

comprehensive income FOR THE YEAR

ENDED 30 sEPTEMBER 2012

		2012	2011
		£'000	£'000
Net profit/(loss) for the year		1,057	(187)
Other comprehensive income
Exchange differences on retranslation of overseas subsidiaries		(52)	(59)
Tax recognised directly in equity		(2)	(58)
Total other comprehensive income		(54)	(117)
Total comprehensive income for the year attributable to owners of the parent		1,003	(304)

CONSOLIDATED STATEMEMT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2012

		2012	2011
		£'000	£'000
Non-current assets
Goodwill and intangible assets		11,967	11,071
Property, plant and equipment		2,162	2,137
Financial asset - investments		69	69
Deferred tax asset		362	711
		14,560	13,988
Current assets
Inventories		1,874	1,768
Trade and other receivables		9,415	8,535
Current tax debtor		-	35
Cash and cash equivalents		4,341	2,817
		15,630	13,155
Current liabilities
Trade and other payables		(6,115)	(4,523)
Current tax liabilities		(36)	-
		(6,151)	(4,523)
Net current assets		9,479	8,632
Total assets less current liabilities		24,039	22,620
Non-current liabilities
Financial liabilities		(2,255)	(2,028)
Deferred tax liability		(1,742)	(1,425)
		(3,997)	(3,453)
Net Assets		20,042	19,167
Capital and reserves attributable to owners of the parent
Share capital		179	178
Shares to be issued		65	65
Share premium account		7,028	6,998
Merger reserve		3,546	3,546
Retained earnings		9,245	8,349
Foreign currency translation reserve		(21)	31
Total equity shareholders' funds		20,042	19,167

CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 30 SEPTEMBER 2012

		2012	2011
		£'000	£'000
Cash flows from operating activities - continuing operations
Operating profit		2,308	722
Depreciation and amortisation		1,387	1,265
Impairment of intangibles		456	36
Share-based payments		80	399
Exchange adjustments		288	(186)
Increase in inventories		(135)	(288)
(Increase)/decrease in receivables		(1,162)	194
Increase/(decrease) in payables		1,245	(1,232)
Cash generated from continuing operations		4,467	910
Discontinued operations		(19)	(157)
Cash generated from operating activities		4,448	753
Tax paid		50	(332)
Net cash from operating activities		4,498	421
Cash flows from investing activities
Purchase of property, plant and equipment		(535)	(963)
Purchase of intangible assets		(2,315)	(1,843)
Proceeds on disposal of property, plant and equipment		174	419
Interest received		8	4
Proceeds from disposal of discontinued operation		-	81
Acquisition of subsidiary undertaking net of cash acquired		-	(1,306)
Net cash used in investing activities		(2,668)	(3,608)
Cash flows from financing activities
Payment of finance lease liabilities		(53)	(18)
Interest element of finance lease repayments		(3)	(1)
Other interest paid		-	(7)
Issue of ordinary shares		6	20
Equity dividends paid		(214)	(207)
Net cash used in financing activities		(264)	(213)
Net increase/(decrease) in cash and cash equivalents		1,566	(3,400)
Cash and cash equivalents at beginning of the period		2,817	6,198
Effect of exchange rate changes		(42)	19
Cash and cash equivalents at end of the period		4,341	2,817

Major non-cash transactions

During the year the Group entered into new finance leases to the value of £343,000.  In addition the Group issued shares in exchange for services received from Sacker Gooding Limited.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2012

	Share Capital	Shares to be issued	Share premium account	Merger reserve	Retained earnings	Foreign currency translation reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 October 2010	171	-	6,773	2,928	8,677	90	18,639
Net loss for the year	-	-	-	-	(187)	-	(187)
Exchange differences on retranslation of overseas subsidiaries	-	-	-	-	-	(59)	(59)
Tax recognised directly in equity	-	-	-	-	(58)	-	(58)
Transactions with owners:
Dividends	-	-	-	-	(207)	-	(207)
Issue of share capital	7	-	225	618	-	-	850
Shares to be issued	-	65	-	-	-	-	65
Movement in relation to share options	-	-	-	-	124	-	124
Balance as at 30 September 2011	178	65	6,998	3,546	8,349	31	19,167
Net profit for the year	-	-	-	-	1,057	-	1,057
Exchange differences on retranslation of overseas subsidiaries	-	-	-	-	-	(52)	(52)
Tax recognised directly in equity	-	-	-	-	(2)	-	(2)
Transactions with owners:
Dividends	-	-	-	-	(214)	-	(214)
Issue of share capital	1	-	30	-	-	-	31
Movement in relation to share options	-	-	-	-	55	-	55
Balance as at 30 September 2012	179	65	7,028	3,546	9,245	(21)	20,042

(1)  Basis of preparation of the financial statements

The financial information in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRS on 6^th December 2012.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies which affect the reported amount of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reported period.  Although the estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. There have been no significant changes to the Group's accounting policies during the year.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 for the years ended 30 September 2012 and 30 September 2011, but is derived from those accounts. The statutory accounts for the year ended 30 September 2011 have been delivered to the Registrar of Companies and those for the year ended 30 September 2012 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts dated 5^th December 2012: their report was unqualified, did not contain references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498 of the Companies Act 2006 for the year ended 30 September 2012 or 30 September 2011.

(2)  Basis of consolidation

The consolidated financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 30 September 2012.

(3)  Segmental analysis

The Group comprises the following business segments:

·      Vicon Group: This is the development, production and sale of computer software and equipment for the engineering, entertainment and life science markets;

·      Yotta Group: This is services for the management of infrastructure and taxation, highway surveying and associated software development;

·      2d3 Group: This is the development and sale of computer software for the defence market; and

·      OMG Life: This is the direct to consumer segment currently engaged in product development.

Business segments are analysed below:

	Revenue		Profit before tax		Underlying profit before tax *		Non-current assets
	2012	2011	2012	2011	2012	2011	2012	2011
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Vicon UK	9,055	9,455	2,854	4,591	2,842	4,606	2,377	2,454
Vicon USA	7,915	8,523	378	423	564	423	1,155	1,364
House of Moves USA	4,024	1,986	917	(1,772)	920	(1,772)	682	900
Vicon Group	**20,994	19,964	4,149	3,242	4,326	3,257	4,214	4,718
Yotta UK	4,278	3,847	(803)	(1,048)	(677)	(942)	4,365	3,841
Yotta Group	4,278	3,847	(803)	(1,048)	(677)	(942)	4,365	3,841
2d3 UK	467	869	(255)	(235)	(255)	(235)	24	164
2d3 USA	3,662	1,686	(99)	(306)	738	(122)	4,641	4,780
2d3 Group	4,129	2,555	(354)	(541)	483	(357)	4,665	4,944
OMG Life	103	-	(1,151)	(940)	(1,142)	(940)	1,150	299
Unallocated	-	-	(65)	8	(27)	103	166	177
Continuing operations	29,504	26,366	1,776	721	2,963	1,121	14,560	13,979
Yotta USA - discontinued operation	-	900	(33)	(828)	(33)	(513)	-	9
OMG Group	29,504	27,266	1,743	(107)	2,930	608	14,560	13,988

	2012	2011			2012	2011
	£'000	£'000			£'000	£'000
Revenue by origin				Revenue by destination
UK	13,904	14,171		UK	6,298	5,851
USA - continuing operations	15,600	12,195		Europe	2,679	2,934
				North America	15,466	12,002
Continuing operations	29,504	26,366		Asia Pacific	4,482	5,018
				Other	579	561
USA - discontinued operation	-	900		Continuing operations	29,504	26,366
OMG Group	29,504	27,266		North America - discontinued operation	-	900
				OMG Group	29,504	27,266

	2012	2011
	£'000	£'000
Vicon revenue by market
Engineering	2,983	4,111
Entertainment	9,239	5,790
Life sciences	8,772	10,063
Vicon Group	**20,994	19,964

*Underlying profit before tax is detailed in note 5.

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

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

	2012			2011
	Underlying profit before tax*	Group recharges	Adjusted profit before tax (net of Group recharges)	Underlying profit before tax	Group recharges	Adjusted profit before tax (net of Group recharges)
	£'000	£'000	£'000	£'000	£'000	£'000
Vicon UK	2,842	(859)	1,983	4,606	(1,180)	3,426
Vicon USA	564	2,091	2,655	423	1,762	2,185
House of Moves USA	920	-	920	(1,772)	-	(1,772)
Vicon Group	4,326	1,232	5,558	3,257	582	3,839
Yotta UK	(677)	400	(277)	(942)	489	(453)
Yotta Group	(677)	400	(277)	(942)	489	(453)
2d3 UK	(255)	5	(250)	(235)	381	146
2d3 USA	738	315	1,053	(122)	-	(122)
2d3 Group	483	320	803	(357)	381	24
OMG Life	(1,142)	132	(1,010)	(940)	243	(697)
Unallocated	(27)	(2,084)	(2,111)	103	(1,695)	(1,592)
Continuing operations	2,963	-	2,963	1,121	-	1,121

	Additions to non-current assets		Carrying amount of segment  assets		Carrying amount of segment  liabilities		Segment depreciation and amortisation
	2012	2011	2012	2011	2012	2011	2012	2011
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Vicon UK	926	1,611	8,684	4,924	(2,309)	(2,211)	483	379
Vicon USA	57	71	4,069	5,777	(1,204)	(1,475)	45	129
House of Moves USA	11	154	1,802	1,282	(264)	(199)	123	125
Vicon Group	994	1,836	14,555	11,983	(3,777)	(3,885)	651	633
Yotta UK	908	435	8,122	8,000	(1,358)	(762)	390	419
Yotta Group	908	435	8,122	8,000	(1,358)	(762)	390	419
2d3 UK	7	62	1,447	2,134	(63)	(86)	24	29
2d3 USA	401	4,570	7,183	6,139	(3,594)	(2,818)	296	168
2d3 Group	408	4,632	8,630	8,273	(3,657)	(2,904)	320	197
OMG Life	878	274	(487)	(324)	(710)	(160)	8	1
Other unallocated	5	37	(677)	(868)	(641)	(260)	18	15
Continuing operations	3,193	7,214	30,143	27,064	(10,143)	(7,971)	1,387	1,265
Yotta USA - discontinued operation	-	-	47	79	(5)	(5)	-	27
OMG Group	3,193	7,214	30,190	27,143	(10,148)	(7,976)	1,387	1,292

(4)  Profit before taxation

The profit before taxation is stated after charging / (crediting):

	2012	2011
	£'000	£'000
Loss on disposal of property, plant and equipment	9	-
Depreciation of property, plant and equipment - owned	559	787
- under hire purchase/finance lease	77	13
Amortisation of customer relationships	134	117
Amortisation of intellectual property	192	115
Amortisation of development costs	425	260
Impairment of intangible fixed assets	456	36
Share based payments - equity settled	55	124
Operating lease charges - other than plant and machinery	734	690
Fair value adjustment to contingent consideration	69	-
Foreign exchange	280	(104)
Research and development costs	2,697	1,931

(5)  Reconciliation of underlying profit before tax

	2012	2011
	£'000	£'000
Profit before tax - continuing operations	1,776	721
Share based payments - equity settled	55	124
Amortisation of intangibles arising on acquisition	323	232
Fair value adjustment to contingent consideration	69	-
Unwinding of discount on contingent consideration	537	-
Acquisition costs	-	44
Redundancy costs	203	-
Underlying profit before tax - continuing operations	2,963	1,121
Profit before tax - discontinued operations	(33)	(828)
One off expenses	-	315
Underlying profit before tax - discontinued operations	(33)	(513)

The redundancy costs in the year ended 30 September 2012 are associated with the restructuring of the Vicon USA business.

Acquisition costs in the year ended 30 September 2011 comprise costs relating to the acquisition of Sensing Systems Inc.

One off expenses in the year ended 30 September 2011 comprise redundancy and restructuring costs associated with the disposal of Yotta MVS Inc.

(6)  Finance income and expense

	2012	2011
	£'000	£'000
Finance expense   - Hire purchase liabilities	(3)	(1)
- Unwinding of discount on contingent consideration	(537)	-
- Other interest payments	-	(4)
	(540)	(5)
Finance income - Interest income on short term bank deposits	8	4

In February 2011 the Group acquired Sensing Systems Inc.  The deferred contingent consideration was dependent upon certain revenue milestones being achieved and was accounted for at a discounted fair value of £1,952,000.  At 30 September 2012 the fair value of the contingent consideration has been reassessed as the revenue milestones are expected to be achieved at a faster rate than originally anticipated.  This has resulted in an increase of £69,000 in the fair value being recognised in the income statement as part of administrative expenses (note 4), and a charge of £537,000 relating to the unwinding of the discounted value of the contingent consideration has been recognised as part of the finance expense above.

(7) Taxation

The tax charge is based on the profit for the year and represents:

	2012	2011
	£'000	£'000
United Kingdom corporation tax at 25% (2011: 27%)	4	68
Overseas taxation	93	32
Adjustments in respect of prior year	(99)	(499)
Current taxation	(2)	(399)
Deferred taxation	687	479
Total taxation expense	685	80

At 30 September 2012, the Group had an undiscounted deferred tax asset of £362,000 (2011: £711,000).  The asset comprises principally accelerated capital allowances, the accumulated unrelieved tax losses available to Group undertakings to offset against future taxable trading profits of the same trade and future tax relief available on the exercise of outstanding employee share options in OMG plc.

Deferred tax assets and liabilities have been measured at an effective rate of 23% and 38% in the UK and USA, respectively (2011: 25% and 38%, respectively).

The adjustment to current tax in respect of the prior year is as a result of a claim for tax relief on research and development expenditure from prior years. 

A number of changes to the UK corporation tax system were announced in the 2012 Budget of 21 March 2012. The Chancellor of the Exchequer announced that the corporation tax rate would decrease from 26% to 24% from the 1 April 2012 instead of the corporation tax rate of 25% which had been announced in the 2011 Budget and never came into application.

The inclusion of legislation to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013 was substantively enacted on 3 July 2012.  Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014.

For the purposes of deferred tax, the rate change from 25% to 23% had been substantively enacted before the balance sheet date. The other proposed rate changes were not substantively enacted on or before the balance sheet date and it is not yet possible to quantify the full anticipated effect of the announced further 2% rate reduction, although this will further reduce the Company's future current tax charge and reduce the Company's deferred tax assets accordingly.

The tax assessed for the year is higher than the standard rate of corporation tax in the UK of 25% (2011: lower than 27%).  The differences are explained as follows:

	2012	2011
	£'000	£'000
Profit on ordinary activities before tax	1,776	721
Expected tax charge based on the standard rate of corporation tax in the UK of 25% (2011: 27%)	444	195
Effect of:
Expenses not deductible for tax purposes	325	127
Unrelieved current year losses	534	493
Utilisation of losses brought forward	(396)	-
Adjustments to tax charge in respect of prior year current tax	(99)	(499)
Adjustments to tax charge in respect of prior year deferred tax	-	396
Higher rates on overseas taxation	268	(136)
Research and development tax credit	(411)	(473)
Effect of rate change	20	(23)
Total tax expense	685	80

(8)  Earnings per share

	2012			2011
	Earnings	Weighted average number of shares	Per share amount	Earnings	Weighted average number of shares	Per share amount
	£'000		(pence)	£'000		(pence)
Continuing operations
Basic earnings per share
Earnings attributable to ordinary shareholders	1,091	71,452,933	1.53	641	69,967,082	0.92
Dilutive effect of employee share options	-	998,124	(0.03)	-	1,659,412	(0.02)
Dilutive effect of contingent shares	-	1,562,500	(0.03)	-	-	-
Diluted earnings per share	1,091	74,013,557	1.47	641	71,626,494	0.90
Total operations
Basic earnings per share
Earnings attributable to ordinary shareholders	1,057	71,452,933	1.48	(187)	69,967,082	(0.27)
Dilutive effect of employee share options	-	998,124	(0.02)	-	1,659,412	-
Dilutive effect of contingent shares	-	1,562,500	(0.03)	-	-	-
Diluted earnings per share	1,057	74,013,557	1.43	(187)	71,626,494	(0.27)

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares (share options).  For share options a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscriptions rights and outstanding share based payment charges attached to outstanding share options.  The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise price of the share options.

The loss used in the calculation of loss per share for discontinued operations is £34,000 (2011: £828,000)

(9)  Discontinued operations

On 30 June 2011 the Group sold those assets relating to the former business segment 'Yotta USA' for a cash consideration of £81,000.

	2012	2011
	£'000	£'000
Cash received	-	81
Net assets disposed of:
Property, plant and equipment	-	55
Amounts due from customers for contract work	-	265
	-	320
Pre tax loss on disposal of discontinued operation	-	(239)
Related tax expense	-	-
	-	(239)

The post tax loss on disposal of discontinued operations was determined as follows:

	2012	2011
	£'000	£'000
Result of discontinued operation
Revenue	-	900
Expenses other than finance costs	(34)	(1,486)
Finance costs	-	(3)
Loss from selling discontinued operations after tax	-	(239)
Loss for the year	(34)	(828)
Basic loss per ordinary share (pence)	(0.05)	(1.18)
Diluted loss per ordinary share (pence)	(0.05)	(1.18)

The statement of cash flows includes the following amounts relating to discontinued operations:

	2012	2011
	£'000	£'000
Operating activities	(19)	(157)
Investing activities	-	101
Financing activities	-	(3)
Net cash flow from discontinued operations	(19)	(59)

(10) Dividend

	2012	2011
Equity - ordinary	£'000	£'000
Final 2010 paid in 2011 (0.30 pence per share)	-	207
Final 2011 paid in 2012 (0.30 pence per share)	214	-

The directors are proposing a final dividend in respect of the financial year ended 30 September 2012 of 0.35 pence per share (2011: 0.3 pence per share) which will absorb an estimated £250,000 of shareholders' funds.  This dividend will be paid on 1^st April  2013 to shareholders who are on the register of members at close of business on 21 December 2012 subject to approval at the AGM. This dividend has not been accrued in these financial statements.

(11) Copies of announcement

Copies of this announcement will be available from the Company's registered office at 14 Minns Business Park, West Way, Oxford, OX2 0JB.

 

END

 

 

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