Interim Results
Quadnetics Group PLC
20 February 2006
Press Release 20 February 2005
Quadnetics Group plc
Interim Results for the six months ended 30 November 2005
Quadnetics Group plc, a leader in the design, integration and control of
advanced CCTV and networked video systems, reports its interim results for the
half-year ended 30 November 2005.
Highlights
- Successful acquisition of Protec plc, creating leading independent CCTV
security services provider in the UK
- Consolidation of enlarged Quadnetics Group into two focused, scale
security businesses
- Investment in launch of new US subsidiary for local support of Synectics
security systems technology
- Strengthened senior management team and group infrastructure to support
growth
- First half underlying consolidated sales ahead 13% versus last year. Total
sales ahead 40% (including one month's contribution from Protec).
- First half profit before tax, exceptional costs and goodwill amortisation
in line with expectations at £0.9 million (2004: £1.2 million), with
strong second half anticipated
- Net cash of £7.9 million at 30 November 2005
- Interim dividend 1.5p per share (2004: 1.0p)
- Overall, the Board continues to anticipate a satisfactory financial result
for the year as a whole, and substantial further progress next year.
Commenting on the results, Russ Singleton, Chief Executive, said:
'The last six months have seen some significant changes in the Group. While our
underlying business has continued to grow, the recent acquisition of Protec plc
has provided additional scale, access to new markets and territories as well as
opportunities to cross-sell within the Group. We are now working hard to
integrate the Companies into two distinctive business areas: security products
and software under the brand name of Synectics; and security services under the
brand name Quadrant.'
For further information, please contact:
Quadnetics Group plc Tel: +44 (0) 1527 850 080
Russ Singleton, Chief Executive
Email: r.singleton@quadnetics.com www.quadnetics.com
Brewin Dolphin Securities Tel: +44 (0) 113 241 0130
Neil Baldwin
Media enquiries:
Abchurch Communications Ltd Tel: +44 (0) 20 7398 7700
Martin Sutton / Ariane Comstive
Email: ariane.comstive@abchurch-group.com
Chairman's Statement
Overview
The current financial year has seen some crucial developments for Quadnetics.
The acquisition of Protec plc, completed in early November, will result in a
doubling of the Group's sales revenues as well as, more importantly, allowing us
to consolidate and integrate our activities into two focused security systems
businesses, each with scale and significant market presence.
The Group's businesses now comprise Synectics (Security Products & Software) and
Quadrant Security (Security Services).
This integrated structure enables the Group to take maximum advantage of the
benefits of, for example, consolidated purchasing power, cross-selling of Group
products and shared administrative overheads. It also provides increased
leverage to our senior operating managers in exploiting growth opportunities
from a broader base of activity. Implementation of the new structure should be
substantially complete by the end of May this year.
The first half of this financial year was also the first period of operation for
Synectics' US subsidiary, Synectic Systems Inc. Following important contract
wins last year for our digital CCTV systems in the casino market in North
America, it became clear that this opportunity could not be properly addressed
from the UK, and that further growth required a credible local presence for
sales management and customer support. To short-circuit the recruitment process,
we acquired in late May last year a small team of industry and technical
specialists with the assets of Alphapoint LLC. Our Group Technical and Business
Development Director has also been seconded full-time to Synectic Systems Inc.
for 12 months to ensure proper integration of the UK and US activities from both
a product development and operations point of view. Further casino contracts
have since been won in the US and Canada, and the pipeline of upcoming bids
looks very promising. Accelerated expansion of Synectics' activities in these
areas remains a key objective for the Group.
Results
In the half year to 30 November 2005, Quadnetics produced a profit before tax,
exceptional costs and goodwill amortisation of £923,000 (2004: £1.2 million) on
consolidated turnover of £17.8 million (2004: £12.7 million). These results
include one month's contribution of £52,000 from the Protec companies.
Underlying earnings per share were 7.2p (2004: 7.7p).
Exceptional costs of £555,000 were incurred relating to Protec, principally the
cost of redundancies and provision for the closure of one operating site
following acquisition.
Net cash on hand at 30 November was £7.9 million (31 May 2005: £3.6 million).
However, this is before payment of acquisition costs and related one-off costs
within Protec anticipated to be up to £2 million in total.
Dividend
An interim dividend of 1.5p per share (2004: 1.0p) will be paid on 31 March 2006
to shareholders on the register as at 3 March 2006.
Operational Review
Quadrant Security, our security services business, designs, installs and
maintains electronic security systems, and provides security monitoring and
facilities management services, to clients in the local government, retail,
transport, police, prisons, petrochemical, large corporate, military and
specialist high security sectors. It operates primarily in the UK, Middle East
and the Republic of Ireland. With a full contribution from the Protec acquired
businesses, Quadrant Security has current run-rate annual sales of over £50
million and is significantly profitable. We believe it is now the UK's largest
independent CCTV security company.
During the half year, the Quadnetics continuing businesses within Quadrant
Security increased like-for-like turnover by 14% to £9.2 million (2004: £8.1
million). Operating profit (before central cost allocations) declined to
£869,000 (2004: £1.0 million), due primarily to three factors: increased costs
from moving our on-vehicle CCTV operation to larger, more professional premises;
moving a large customer from spot orders to a committed long term contract at a
slightly lower gross margin; and continued margin pressure and contract delays
in the local government town centre market. The first two factors result from
deliberate decisions that have increased the quality of the relevant business,
and we are confident will pay future dividends. The local government market is
showing some signs of improving, as public perception of the importance of
public space CCTV has led to discussions of renewed financial support from
central government for such systems.
The acquired Protec security services activities (Protec SDA and Protec SSS)
have generally been experiencing a continuation of positive momentum over recent
months and performed above budget in the short period following acquisition. The
integration of these businesses into Quadnetics is proceeding ahead of
expectations.
During the first half, David Orme, formerly Chief Operating Officer of Bell
Group plc, was recruited to Quadnetics as Group Operations Director, in
particular to lead the integration and development of Quadrant Security. He has
already had a major positive impact on the business. The appointment allows Russ
Singleton, our Group Chief Executive, to spend proportionately more time on
critical issues relating to the expansion of Synectics.
Synectics is the Group's security surveillance products and software business.
Over recent years, Synectics CCTV recording and control systems have evolved to
become what we believe is the industry standard for public space CCTV systems in
the UK and some overseas markets, particularly South Africa. This strength led
on to success in other market sectors, including police, financial services,
casinos and, with the help of a small acquisition, marine and offshore oil and
gas. Protec Falcon's special projects military surveillance business is
currently being integrated into Synectics to capitalise on expansion
opportunities in a further attractive market sector that is a natural fit for
Synectics' skills.
The Quadnetics continuing businesses within Synectics grew turnover for the half
year by 25% to £5.9 million (2004: £4.7 million), and gross profit by 29% to
£2.3 million (2004: £1.8 million). Operating profits, however, were virtually
flat at £379,000 (2004: £392,000), due to the costs of operating the new US
subsidiary and of additional R&D expenditure for product developments required
for the US market. The US subsidiary is already profitable in its own right,
although its contribution was small in the first half.
Significant successes during the period included contracts for explosion rated
surveillance systems for a series of oil platforms in the Caspian Sea, and the
adoption of Synectics' Synergy software by the Group's first Indian casino
customer in the United States.
Strategic Objectives
Quadnetics' strategy has two principal objectives:
- To maximise the growth opportunities of Synectics' digital CCTV
control systems and recording technology/solutions; and
- To become one of the UK's leading electronic security services
companies through creating and building on market leadership positions in
key vertical customer sectors (and thereby increasing penetration of
Synectics products into those sectors).
The acquisition of Protec will enable us substantially to accomplish the second
objective. In addition, the creation of the integrated Quadrant Security
structure should facilitate solid future profit growth through continuous
operational improvements in a single business of market-leading scale.
Obviously, there will be challenges to overcome, requiring commitment, skill and
clear direction, but the path is reasonably well defined. We believe we now have
the management and resource requirements in place to achieve the new goals the
Board will be setting for this activity.
Synectics involves a potentially substantial growth opportunity on a global
scale and, of course, corresponding risks inherent in any relatively new
technology-based business. The essence of Synectics' success to date has been to
deliver innovative surveillance systems that provide, in an integrated Synectics
control environment, all the benefits of the latest digital CCTV image storage
and retrieval technology, while enabling customers an upgrade path that protects
their investment in expensive installed CCTV cameras and communications
infrastructure.
In the US in particular, the market for large-scale digital CCTV systems is new,
rapidly evolving and potentially very large. The market now has the attention of
a number of the world's largest electronics and information technology
companies, as well as dozens of smaller competitors. The Board believes that, in
order to succeed, Synectics must focus rigorously on its specific areas of
experience and technical competitive advantage in two sectors: casinos and
public space surveillance. Synectics has the advantages of a leading position in
its UK home market, technical solutions (especially systems control software) we
believe to be as good as anything available, and successful reference sites in
some of the largest implementations to date of digital CCTV in casinos in North
America. This is an excellent base to build from.
Outlook
The second half of the current financial year should produce significantly
increased profits compared with those in the first half. This will flow from
inclusion of a full period of contribution from the acquired Protec activities,
traditional second half improvements in the local government sector and, most
notably, increased sales of Synectics products outside the US that are already
either contracted or confidently expected. Although the bid pipeline in the US
is encouraging, the timing of contracts is difficult to predict and we expect
most of the benefit of the increased activity there to fall in our next
financial year.
Overall, the Board continues to anticipate a satisfactory financial result for
the year as a whole, and substantial further progress next year.
David Coghlan
Chairman
20 February 2006
Consolidated Profit & Loss Account
For the half year ended 30 November 2005
Restated
Unaudited Unaudited Restated
Before goodwill Half year Half year Year to
amortisation to 30 Nov to 30 Nov 31 May
Notes and exceptional Exceptional Goodwill 2005 2004 2005
items items amortisation Total Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Turnover 1
Continuing operations 14,455 - - 14,455 12,743 26,761
Acquisitions 3,335 - - 3,335 - -
17,790 - - 17,790 12,743 26,761
Cost of sales (12,623) - - (12,623) (8,700) (18,107)
Gross profit 5,167 - - 5,167 4,043 8,654
Net operating expenses (4,296) (555) (283) (5,134) (3,143) (6,528)
Operating profit
Continuing operations 819 - (247) 572 900 2,126
Acquisitions 52 (555) (36) (539) - -
871 (555) (283) 33 900 2,126
Net interest receivable 52 - - 52 82 139
Profit on ordinary activities 923 (555) (283) 85 982 2,265
before taxation
Tax charge on ordinary 2 (37) (286) (48)
activities
Profit on ordinary activities 48 696 2,217
after taxation
Basic earnings per ordinary 4 0.4p 6.0p 19.2p
share
Diluted earnings per ordinary 4 0.4p 6.0p 19.1p
share
Underlying earnings per 4 7.2p 7.7p 20.0p
ordinary share
In the half year ended 30 November 2004 and the full year ended 31 May 2005 net
operating expenses included amortisation of goodwill amounting to £198,000 and
£396,000 respectively. There were no exceptional operating expenses in either
period.
Consolidated Balance Sheet
30 November 2005
Notes Unaudited Restated Restated
30 Nov Unaudited 31 May
2005 30 Nov 2005
2004
£'000 £'000 £'000
Fixed assets
Intangible assets 5 17,788 7,523 9,183
Tangible assets 2,264 933 1,280
20,052 8,456 10,463
Current assets
Stocks 3,463 2,407 3,040
Debtors 17,511 8,220 9,896
Cash at bank and in hand 7,899 3,997 3,562
28,873 14,624 16,498
Creditors: amounts falling due within one year (20,301) (6,107) (7,527)
Net current assets 8,572 8,517 8,971
Total assets less current liabilities 28,624 16,973 19,434
Creditors: amounts falling due after more than one - (4) (3)
year
Provisions for liabilities and charges (1,414) (84) (1,102)
Net assets 27,210 16,885 18,329
Capital and reserves
Called up share capital 6 3,244 2,311 2,341
Share premium account 6 14,346 12,267 12,622
Merger reserve 6 8,436 - -
Other reserves 6 (1,164) 715 715
Profit and loss account 6 2,348 1,592 2,651
Equity shareholders' funds 27,210 16,885 18,329
Consolidated Cash Flow Statement
For the half year ended 30 November 2005
Notes Unaudited Restated Restated
Half year to Unaudited Audited
30 Nov Half year to Year to
2005 30 Nov 31 May
2004 2005
£'000 £'000 £'000
Net cash inflow from operating activities 462 234 1,939
Returns on investments and servicing of finance 82 58 107
Taxation 7 176 (437) (1,398)
Net capital expenditure and financial investment (156) (92) (497)
Acquisitions and disposals 8 3,782 (446) (867)
Equity dividends paid - - (462)
Cash inflow/(outflow) before use of liquid resources 4,346 (683) (1,178)
and financing
Management of liquid resources - amounts (placed on)/ (1,396) 2,500 2,500
withdrawn from bank deposit
Financing (9) (31) 29
Increase in cash 2,941 1,786 1,351
Reconciliation of net cash flow to movements in net funds
For the half year ended 30 November 2005
Restated Restated
Unaudited Unaudited Audited
Half year to Half year to Year to
30 Nov 30 Nov 31 May
2005 2004 2005
£'000 £'000 £'000
Increase in cash in the year 2,941 1,786 1,351
Increase/(decrease) in bank deposits 1,396 (2,500) (2,500)
Decrease in debt and lease financing 359 55 63
Change in net funds resulting from cash flows 4,696 (659) (1,086)
Acquisitions (53) - -
Movement in net funds in the year 4,643 (659) (1,086)
Opening net funds 3,200 4,286 4,286
Closing net funds 7,843 3,627 3,200
Notes
1. All turnover derives from the Group's continuing activities comprising
Quadnetics Group plc, Quadrant Video Systems plc, Synectic Systems Limited,
Synectic Systems, Inc., Look CCTV (trading as a division of Quadnetics Group
plc) and Coex Limited, together with that of the businesses of Protec plc,
trading as SDA Protec, SSS Protec and Falcon Protec, which were acquired in
November 2005 (see note 8). The turnover and results of the Protec businesses
are shown under Acquisitions within these statements.
2. The tax charge for the period is based on the estimated rate of
corporation tax that is likely to be effective for the full year to 31 May 2006.
3. Dividend distributions have been accounted for in accordance with FRS
21 which has resulted in a restatement of the results for the half year ended 30
November 2004 and the full year ended 31 May 2005, as explained more fully in
note 9.
An interim dividend of 1.5p per share, totalling approximately £225,000 will be
paid on 31 March 2006 to shareholders on the register at 3 March 2006.
4. Basic, diluted and underlying earnings per share have been calculated
on the following earnings and numbers of shares:
Earnings Earnings per share
Half year Half year Year to Half year Half year Year to
to 30 Nov to 30 Nov 31 May to 30 Nov to 30 Nov 31 May
2005 2004 2005 2005 2004 2005
£'000 £'000 £'000 p p p
Basic 48 696 2,217 0.4 6.0 19.2
Exceptional item 555 - (302) 4.5 - (2.6)
Goodwill 283 198 396 2.3 1.7 3.4
Amortisation
Underlying 886 894 2,311 7.2 7.7 20.0
Diluted 48 696 2,217 0.4 6.0 19.1
'000 '000 '000
Weighted average number of ordinary shares - basic 12,318 11,527 11,546
calculation
Dilutive potential ordinary shares arising from share 7 38 44
options
Weighted average number of ordinary shares - diluted 12,325 11,565 11,590
calculation
5. Intangible assets include £8.8m of goodwill arising on the acquisition
of Protec plc.
6. Movements on shareholders funds in the period are as follows:
Share Share Other Profit and Total
capital premium Merger reserves loss account
reserve
£'000 £'000 £'000 £'000 £'000 £'000
b/f at 1 June 2005 2,341 12,622 - 715 2,300 17,978
Restatement of dividends - - - - 351 351
Restated 2,341 12,622 - 715 2,651 18,329
Profit after tax - - - - 48 48
Final dividend for 2005 - - - - (351) (351)
Issue of shares to Employee 156 1,724 - (1,880) - -
Share Scheme
Acquisition of Protec plc 747 - 8,436 - - 9,183
Currency translation - - - 1 - 1
adjustment
3,244 14,346 8,436 (1,164) 2,348 27,210
Movements on share capital and share premium shown as arising from the
acquisition of Protec plc include £185,000 and £1,981,000 respectively in
respect of shares which will be issued after 30 November 2005.
During the half year ended 30 November 2005 780,000 ordinary shares of the
Company were allotted at a value of £2.41 each to the Quadnetics Group Employee
Share Scheme with the substantial majority of the funding for subscription for
these shares provided as an interest-free loan by the Company. In accordance
with UITF 38 the value of the shares has been deducted from shareholders' funds
and the number of shares has been excluded from the earnings per share
calculations.
7. Net cash inflows from taxation include a corporation tax repayment of
£249,000.
8. On 9 November the Recommended All Share Offer made by Brewin Dolphin
Securities Ltd on behalf of Quadnetics for Protec Plc ('Protec') was declared
wholly unconditional, and therefore the results of Protec and its subsidiaries
have been included in the results with effect from that date. On 8 February 2006
notice was given to those Protec Shareholders who had not accepted the Offer
informing them that Quadnetics will compulsorily acquire their Protec Shares by
applying sections 428 to 430F of the Companies Act 1985. Therefore the Company
expects to acquire the entire issued share capital of Protec plc before its year
end at 31 May 2006, and no minority interest (which would amount to
approximately £0.1 million) has been reflected in these financial statements.
Net cash inflows from acquisitions comprise bank balances acquired in Protec of
£4.132 million less a payment of £350,000 in settlement of loan notes issued as
consideration for Look Closed Circuit TV Limited in February 2004.
9. The interim accounts and the comparative figures are prepared on the
basis of the accounting policies set out in the financial statements of the
Group for the year ended 31 May 2005, except in respect of dividends which have
been dealt with in accordance with FRS 21 whereby dividends are not recognised
in the profit and loss account until, in the case of final dividends, they have
been approved at a general meeting of the company, or, in the case of interim
dividends they have been paid.
10. The half year results have not been audited by the Group's auditors and
do not constitute statutory accounts. The comparative figures for the year ended
31 May 2005 have been abridged from the statutory accounts for the year ended on
that date, subject only to the restatement for dividends explained in note 9.
The Auditors' opinion on those accounts was unqualified and did not contain any
statements under section 237(2) or (3) of the Companies Act 1985. The statutory
accounts for the year ended 31 May 2005 have been filed with the Registrar of
Companies.
11. Copies of this statement will be sent to shareholders and will be
available on the Group's website (www.quadnetics.com) and from Quadnetics Group
plc, Haydon House, 5 Alcester Road, Studley, Warwickshire B80 7AN.
- Ends -
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