Preliminary Results
Quadnetics Group PLC
05 September 2007
For Immediate Release 5 September 2007
Quadnetics Group plc
Preliminary Results for the year ended 31 May 2007
Quadnetics Group plc, a leader in the design, integration and control of
advanced CCTV and networked video systems, reports its preliminary results for
the year ended 31 May 2007.
Highlights
Turnover £66.1m (2006: £49.6m) - up 33%
Sales in North America increase 111%
Underlying profit* before tax £5.3m (2006: £3.6m) - up 47%
Profit before tax £3.8m (2006: £1.3m) - up 199%
Underlying* EPS 26.1p (2006: 24.2p) - up 8%
Basic EPS 17.4p (2006: 8.6p) - up 102%
Recurring revenue £12.8m (2006: £11.0m) - up 16%
Proposed final dividend 4.0p per share making 6.0p for the full year - up 20%
Significant increase in product development activities
Overall, a year of good growth and sound financial results
Strong order intake in current year
*Underlying profit represents profit before tax, exceptional items, goodwill
amortisation, and share based payment costs
Commenting on the results, Russ Singleton, Chief Executive, said:
'Quadnetics has been consistently beating competitors by demonstrating the value
and strength of its products and services to produce a 33% increase in turnover
and a 47% increase in underlying profit before tax. We are now making real
progress in the important electronic surveillance markets in North American, the
Middle East and the Far East.'
For further information, please contact:
Quadnetics Group plc Tel: +44 (0)
1527 850080
Russ Singleton, Chief Executive
Email: russ.singleton@quadnetics.com www.quadnetics.
com
Brewin Dolphin Securities Tel: +44 (0)
113 241 0130
Neil Baldwin
Media enquiries:
Buchanan Communications Limited Tel: +44 (0) 20
7466 5000
Isabel Podda
Email: isabelp@buchanan.uk.com
Chairman's Statement
Overview
I am pleased to report that last year Quadnetics achieved another year of good
growth and sound financial results, most notably realising substantial growth
and profitability from its North American activities, and successfully
completing the integration of the businesses acquired in 2005/6. We have also
made significant progress in defining more rigorously the road ahead for
Quadnetics.
Results
In the year ended 31 May 2007, Quadnetics achieved a 47% increase in underlying
profit (that is, profit before tax, exceptional items, goodwill amortisation and
share-based payment costs) to £5.3 million (2005/6: £3.6 million), on turnover
up 33% to £66.1 million (2005/6: £49.6 million). These results include the first
full year of the businesses acquired the previous year, however a true like for
like comparison is not possible following the integration of the acquired
activities into the existing Group.
Group consolidated operating margins for the year increased to 7.7%, up from
7.0% in 2005/6.
Underlying earnings per share increased by 8% to 26.1p (2005/6: 24.2p). The
Group's underlying corporation tax rate for 2006/7 is 24%, compared with 8% in
the prior year; therefore, a more valid comparison of performance would be on a
notional like-for-like full tax basis, where underlying earnings per share were
up by 31% to 24.1p (2005/6: 18.4p).
Consolidated net cash at 31 May 2007 was £5.6 million, compared with £8.9
million at the previous year end. Approximately £2.1 million of the net cash
outflow resulted from the purchase of a new building to accommodate the growth
and consolidation of Synectics' activities in Sheffield. We expect that most of
the cash impact of the purchase will be reversed in the current year, once a
sale and leaseback of the building is agreed and completed. There was also a
significant increase in working capital during the year, part of which came from
the previously anticipated resolution of creditor provisions within the
businesses acquired in 2005/6.
Dividend
The Board is proposing a final dividend of 4.0p (2005/6: 3.5p), payable on 7
December 2007 to shareholders registered on 9 November 2007, making a total of
6.0p for the full year (2005/6: 5.0p).
Business Review
Quadnetics is currently organised into two primary business areas: Quadrant
Security Group ('QSG'), which designs, installs, maintains and manages
integrated electronic security systems for customers primarily in the UK and
Middle East; and Synectics, which designs, manufactures and supports software
and hardware products for sale worldwide both through security systems
integrators and direct to end users in a limited number of specialist market
sectors.
QSG grew turnover in the year by 29% to £46.6 million, on which it recorded
underlying operating profits up by 31% to £4.2 million. Growth was mainly driven
by inclusion of a full year of contribution and integration benefits from the
former Protec businesses acquired in November 2005. This acquisition was a major
step for QSG, and the integration of the two sets of activities has proceeded
well on plan, much to the credit of the management teams and employees from both
sides of what is now a fully combined business.
Within the various customer and geographical sectors, contribution from the
managed security services business area was exceptionally strong, benefiting
from higher than anticipated profits achieved in managing the run-off of large,
low margin historical contracts as the activity is transitioned to a higher
margin business model where it provides more comprehensive outsourced security
management to its multi-site retail clients. We believe the potential in this
new area is substantial, particularly in its ability to generate contracted
recurring revenues, but it will require investment in systems and personnel over
the next couple of years. Elsewhere, contributions were below plan in our Middle
East activities, as certain major projects experienced customer delays prior to
contract award, and in on-bus CCTV. Both these areas regained their order intake
momentum towards the end of the year, and have carried on the improvement into
the current period.
Synectics achieved turnover up by 42% in the year to £20.8 million, and
underlying operating profit up by 68% to £2.5 million. The most significant
contribution was organic growth from our US casino surveillance systems
activities, which delivered turnover more than double that of the previous year
and good profit margins. Given the risks inherent in any ambitious growth plan
for a UK company in North America, this was an excellent result and gives
confidence for the development of our wider activities in that very large
market.
Product development activities were stepped up significantly during the year, in
particular focused on transition to the next generation of digital video
compression technology and on development of Synectics' ruggedised digital video
recorder for the on-vehicle transport market, where QSG has a leading UK market
share as a systems integrator. This new suite of products will be launched in
autumn 2007.
Group Direction and Objectives
The electronic security and surveillance market is large, growing and in the
process of fundamental structural change. Advances in technology over the past
3-5 years have allowed digital recording, transmission, storage and networking
of real-time video images to become viable and economic in mainstream
surveillance applications for the first time. This shift to underlying digital
technology will continue for some while yet to create substantial opportunities
and threats within the established competitive order of security equipment and
systems suppliers. Current manifestations include the raft of new market
entrants offering the latest and best digital recorder, camera, analytic
software or 'end-to-end IP video solution'. A small number of these new entrants
may succeed; most will fail.
Quadnetics' approach is based on certain assumptions about where these market
trends are leading, including that:
- an understanding of information technology and networking will continue to
create opportunities and ultimately be vital for success at any level;
- margins available on most hardware sales will be heavily eroded over time;
- sales and margins from software will grow and are likely to be sustainable;
- security systems integrators will continue to consolidate, becoming bigger,
more diverse and more global;
- information technology companies will seek and gain an increasing share of
the security market;
- digital video surveillance is still sufficiently complex and demanding that
it is unlikely to become simply a sub-set of the IT industry, at least not
for many years;
- certain specialist customer applications requirements are likely to diverge
increasingly from mainstream high volume market offerings.
We believe Quadnetics is well positioned to address these trends, in particular
because of its critical mass, extensive experience in the technologies of
digital video, leading market positions in certain customer sectors, record of
successful acquisitions, and its heritage of combining both technology
development and customer applications integration. Our primary objective is to
build a sizeable, broadly-based company, with sustainable long term growth
prospects, providing integrated security and surveillance applications and
managed services to specialist customer sectors.
To achieve this objective, we aim to:
- focus on a small number of customer sectors whose requirements will be
sufficiently and sustainably different from the mainstream, and in which we
can achieve a significant market share;
- maintain our core of increasingly software-based proprietary technology,
adapted to the specialist needs of our target customer sectors;
- expand the scope of applications and innovative services provided to these
customers to maximise recurring revenues and market share;
- seek further bolt-on acquisitions to add market share, specialist
capabilities and/or geographical position in our chosen sectors;
The primary characteristics of the customer sectors we target are that they have
either a very high cost-of-failure in their security systems, or highly
demanding environmental or usage conditions, in both cases limiting the degree
of competition from non-specialist suppliers.
Since 2001/2 when Quadnetics moved to AIM and focused exclusively on the
electronic security market, total revenues have grown at a compound rate of 38%
per year, of which 15% per year has been organic growth and the remainder from
acquisitions. Over the last four years, underlying profits before tax have grown
at 38% per year and, more tellingly, underlying earnings per share on a
like-for-like tax basis have grown at 18% per year. This is a sustained
performance that the Board feels justifies its confidence in the Company's
ability to continue to deliver value to shareholders from the direction that has
been laid out.
People
I would like once again to express the Board's very genuine thanks to the
Group's employees for a year of considerable effort and achievement. As alluded
to above, the task of integrating two similar sized activities within QSG was
always going to be difficult and at times painful, and it has therefore been
especially gratifying to see how effectively and professionally it has been
carried out by all concerned. Across the Group we have seen evidence from our
people of flexibility, common sense and dedication to the interests of our
business and customers that have underpinned the continued strengthening of
Quadnetics' position in its market.
During the year we have had one change on the Board, resulting from the
retirement of Bob Westcott. As I noted at the time, Bob was the founder and
inspiration behind the SDA business that formed the core of Protec Group plc
that we acquired in 2005. Our Board much appreciated his insightful
contributions during his time with us.
Outlook
The pace of order intake activity in most of our business sectors increased
towards the latter stages of last financial year and this has continued into the
first few months of this year, in particular with the award of significant
contracts for integrated systems in the UK and Middle East that had been
anticipated for some time, and additional casinos in North America.
Prior to the award of these contracts, the Group's total outstanding firm order
book at 31 May 2007 was £24 million, a small decrease on the corresponding point
last year. Of this figure, £12.8 million represented orders in the nature of
recurring revenue, an increase of 16% on last year and a positive indication of
progress in this important area.
During the year just started, we expect to see increased investment in new
product development and a reduced contribution from historical elements of our
managed services activities, together more than offset by continued revenue
growth and margin improvements elsewhere. Overall, the Board is looking forward
to another year of good progress for the Group.
David Coghlan
Chairman
5 September 2007
Consolidated Profit & Loss Account
For the year ended 31 May 2007
Notes 2007 Restated
Total 2006
£'000 Total
£'000
Turnover 3 66,065 49,642
Cost of sales (44,234) (34,495)
------- -------
Gross profit 21,831 15,147
Net operating expenses (18,242) (13,715)
------- -------
------- -------
Operating profit before goodwill
amortisation, exceptional items and
share-based payments charge 3 5,095 3,467
Goodwill amortisation (911) (740)
Exceptional items - restructuring costs - (965)
Share-based payments charge (595) (330)
------- -------
Total operating profit 3,589 1,432
Exceptional item in respect of a subsidiary
disposed of in a previous year - (300)
Net interest receivable 230 147
------- -------
------- -------
Profit before tax, goodwill amortisation,
exceptional items and share-based payments
charge 5,325 3,614
Goodwill amortisation (911) (740)
Exceptional items - (1,265)
Share-based payments charge (595) (330)
------- -------
Profit on ordinary activities before
taxation 3,819 1,279
Tax charge on ordinary activities 4 (1,117) (92)
------- -------
Profit for the financial year 2,702 1,187
------- -------
Basic and diluted earnings per Ordinary
share 6 17.4p 8.6p
------- -------
Underlying basic and diluted earnings per
Ordinary share 6 26.1p 24.2p
------- -------
All activities are continuing.
Consolidated Balance Sheet
At 31 May 2007
Notes 2007 Restated
£'000 2006
£'000
Fixed assets
Intangible assets 7 16,344 16,925
Tangible assets 1,780 2,049
-------- -------
18,124 18,974
-------- -------
Current assets
Property held for resale 8 2,056 -
Stocks 5,074 4,281
Debtors 21,508 19,990
Cash at bank and in hand 5,596 8,940
-------- -------
34,234 33,211
Creditors: amounts falling due within one year (20,587) (22,046)
-------- -------
Net current assets 13,647 11,165
-------- -------
Total assets less current liabilities 31,771 30,139
Provisions for liabilities and charges (1,312) (1,763)
-------- -------
Net assets 30,459 28,376
-------- -------
Capital and reserves
Called up share capital 3,382 3,263
Share premium account 14,851 13,634
Merger reserve 9,565 9,565
Other reserves (2,486) (1,307)
Profit and loss account 5,147 3,221
-------- -------
Equity shareholders' funds 9 30,459 28,376
-------- -------
Consolidated Cash Flow Statement
For the year ended 31 May 2007
2007 2006
£'000 £'000
Net cash inflow from operating activities 612 3,246
Returns on investments and servicing of finance 233 132
Taxation (712) (299)
Net capital expenditure and financial investment (2,789) (238)
Acquisitions - 3,220
Equity dividends paid (825) (573)
-------- --------
Cash (outflow)/inflow before use of liquid resources and
financing (3,481) 5,488
Financing 137 (110)
-------- --------
(Decrease)/increase in cash (3,344) 5,378
-------- --------
Reconciliation of Net Cash Flow to Movements in Net Funds
For the year ended 31 May 2007
2007 2006
£'000 £'000
(Decrease)/increase in cash in the year (3,344) 5,378
Decrease in debt and lease financing 20 395
-------- --------
Change in net funds resulting from cash flows (3,324) 5,773
Acquisitions - (53)
-------- --------
Movement in net funds in the year (3,324) 5,720
Opening net funds 8,920 3,200
-------- --------
Closing net funds 5,596 8,920
-------- --------
Statement of Total Recognised Gains and Losses
For the year ended 31 May 2007
2007 Restated 2006
£'000 £'000
Profit for the financial year 2,702 1,187
------- -------
Other recognised gains and losses relating to the year
- (4) (9)
currency translation adjustment
------- -------
Total recognised gains and losses relating to the year 2,698 1,178
-------
Prior year adjustment in respect of FRS 20 (note 2) (244)
-------
Total recognised gains and losses recognised since last
annual report 2,454
-------
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 May 2007
2007 2006
£'000 £'000
Profit for the financial year 2,702 1,187
Dividends (825) (573)
------- -------
1,877 614
Other recognised gains and losses relating to the year - (4) (9)
currency translation adjustment
Credit in relation to share-based payments 53 42
Issue of shares 157 9,477
Share buy-back - (77)
------- -------
Net movement in shareholders' funds 2,083 10,047
------- -------
Opening shareholders' funds as originally stated in year
ended 31 May 2006 28,578 18,329
Prior year adjustment in respect of FRS 20 (note 2) (202) -
------- -------
Restated opening shareholders' funds 28,376 18,329
------- -------
Closing shareholders' funds 30,459 28,376
------- -------
Notes to the Accounts
For the year ended 31 May 2007
1. These preliminary results for the year have not been audited by the
Group's auditors and do not constitute statutory accounts. The comparative
figures for 2006 have been abridged from the statutory accounts for the year
ended 31 May 2006, as amended by the prior year adjustment as set out in note 2.
The auditors' opinion on these accounts was unqualified and did not contain any
statements under section 237(2) or (3) of the Companies Act 1985. The statutory
accounts for the year ended 31 May 2006 have been filed with the Registrar of
Companies, and those for the year ended 31 May 2007 will be delivered following
the Company's Annual General Meeting. The Company's auditors have reported on
the full accounts for the year ended 31 May 2007 and have issued an unqualified
report.
2. The Group issues equity-settled share-based payments and cash-settled
share-based payments to certain employees, in the form of share options and
awards under the Quadnetics Group Employee Share Scheme, which fall within the
scope of FRS20 which is applicable for years commencing on or after 1 January
2006
Therefore the Group has applied FRS 20 for the first time and as this
constitutes a change in accounting policy, it has been treated as a prior period
adjustment and comparative figures have been restated to reflect the new policy.
The effects of the change in policy are set out below:
2007 2006
£'000 £'000
Profit and loss account
Net operating expenses (595) (330)
Tax charge on ordinary activities - Deferred taxation 165 86
-------- --------
Loss for the financial year (430) (244)
-------- --------
Balance sheet 137 120
Debtors: Amounts falling due in less than one year
- deferred taxation 165 86
Creditors: Amounts falling due in less than one year
- other creditors (542) (288)
-------- --------
Net assets (377) (202)
-------- --------
Profit and loss account reserve
Credit in relation to share-based payments 53 42
-------- --------
3. Turnover and underlying profit (operating profit before goodwill
amortisation, exceptional items and share-based payments charges) derives from
the Group's two business segments as follows:
2007 2006
£'000 £'000
Turnover
Services 46,579 36,241
Products and software 20,765 14,595
Intra-group sales (1,279) (1,194)
-------- --------
66,065 49,642
-------- --------
Underlying profit
Services 4,200 3,198
Products and software 2,468 1,466
Central costs (1,573) (1,197)
-------- --------
5,095 3,467
-------- --------
4. The Group has tax losses available to be carried forward for offset
against the future taxable profits of certain group companies amounting to
approximately £1.9 million (2006: £3.1 million). A deferred tax asset in respect
of part of these losses, amounting to £0.4 million (2006: £0.5 million), has
been recognised in the year as the Group believes that there will be future
taxable profits against which the losses will be relieved.
5. The Directors recommend a final dividend of 4.0p per share amounting
to £621,000 and, subject to approval, this is expected to be paid on 7 December
2007 to shareholders on the register at 9 November 2007. This will give a total
dividend for the year of 6.0p (2006: 5.0p).
6. Earnings per Ordinary share are as follows:
2007 Restated
Pence 2006
per Pence
share per
share
Basic and diluted earnings per Ordinary share 17.4 8.6
-------- --------
Underlying basic and diluted earnings per Ordinary share 26.1 24.2
-------- --------
The calculation of basic earnings per Ordinary share is based on the profit
after taxation for the year of £2,702,000 (2006: £1,187,000) and on 15,494,999
shares, being the weighted average number of shares in issue and ranking for
dividend during the year (2006: 13,781,617).
The calculation of diluted earnings per Ordinary share is based on the profit
after taxation for the year of £2,702,000 (2006: £1,187,000) and on 15,503,696
shares, being the weighted average number of shares that would be in issue after
conversion of all the dilutive potential Ordinary shares into Ordinary shares
(2006: 13,789,163).
Profit after Weighted Earnings per
tax average Ordinary
£'000 number of share
Ordinary p per share
shares
Year ended 31 May 2007
Basic earnings per Ordinary share 2,702 15,494,999 17.4
Dilutive potential Ordinary shares
arising from share options - 8,697 -
-------- -------- -------
Diluted earnings per Ordinary share 2,702 15,503,696 17.4
-------- -------- -------
Year ended 31 May 2006
Basic earnings per Ordinary share 1,187 13,781,617 8.6
Dilutive potential Ordinary shares
arising from share options - 7,546 -
-------- -------- -------
Diluted earnings per Ordinary share 1,187 13,789,163 8.6
-------- -------- -------
The calculation of underlying earnings per Ordinary share, which the Directors
consider gives a useful additional indication of the underlying performance of
the Group, is based on the profit after taxation for the year, but before
deducting exceptional items (net of tax), amortisation of goodwill and
share-based payments charge (net of tax) of £4,043,000 (2006: £3,338,000) and on
15,494,999 shares, being the weighted average number of shares in issue and
ranking for dividend during the year (2006: 13,781,617).
Profit after Weighted Earnings per
tax average Ordinary
£'000 number of share
Ordinary p per share
shares
Year ended 31 May 2007
Basic earnings per Ordinary share 2,702 15,494,999 17.4
Exceptional items - -
Impact of exceptional items on tax - -
charge for the year
Goodwill amortisation 911 5.9
Share-based payments charge 595 3.8
Impact of share-based payments charge
on tax charge for the year (165) (1.0)
------- -------- --------
Underlying earnings per Ordinary
share 4,043 15,494,999 26.1
------- -------- --------
Year ended 31 May 2006
Basic earnings per Ordinary share 1,187 13,781,617 8.6
Exceptional items 1,265 9.1
Impact of exceptional items on tax
charge for the year (98) (0.7)
Goodwill amortisation 740 5.4
Share-based payments charge 330 2.4
Impact of share-based payments charge
on tax charge for the year (86) (0.6)
------- -------- --------
Underlying earnings per Ordinary
share 3,338 13,781,617 24.2
------- -------- --------
The calculation of underlying diluted earnings per Ordinary share is based on
the profit after taxation for the year, but before deducting exceptional items
(net of tax), amortisation of goodwill and share-based payments charge (net of
tax) of £4,043,000 (2006: £3,338,000) and on 15,503,696 shares being the
weighted average number of shares that would be in issue after conversion of all
the dilutive potential Ordinary shares into Ordinary shares (2006: 13,789,163).
Profit after Weighted Earnings per
tax average Ordinary
£'000 number of share
Ordinary p per share
shares
Year ended 31 May 2007
Underlying earnings per Ordinary
share 4,043 15,494,999 26.1
Dilutive potential Ordinary shares
arising from share options - 8,697 -
------- -------- --------
Underlying diluted earnings per
Ordinary share 4,043 15,503,696 26.1
------- -------- --------
Year ended 31 May 2006
Underlying earnings per Ordinary
share 3,338 13,781,617 24.2
Dilutive potential Ordinary shares
arising from share options - 7,546 -
------- -------- --------
Underlying diluted earnings per
Ordinary share 3,338 13,789,163 24.2
------- -------- --------
7. Intangible fixed assets includes development costs of £420,000, which
are capitalised in accordance with Statement of Standard Accounting Practice No.
13 'Accounting for research and development'.
8. During the year, the Group acquired a property for £2,056,000, using
existing funds, to facilitate the growth and consolidation of Synectics'
activities. Subsequent to the year end, it is intended to sell and lease back
the property, and accordingly this asset has been classified as a current asset.
9. Movements in shareholders' funds during the year were as follows:
Share Share Merger Other Profit Total
capital premium reserve reserves and loss £'000
£'000 account £'000 £'000 account
£'000 £'000
Group
At 31 May 2006 3,263 13,634 9,565 (1,307) 3,423 28,578
Prior period
adjustment (note
1) - - - - (202) (202)
------- ------- ------- ------- ------- -------
At 1 June 2006 (as
restated) 3,263 13,634 9,565 (1,307) 3,221 28,376
Issue of shares to
employee share
scheme 108 1,071 - (1,179) - -
Issue of shares to
share option
holders 11 146 - - - 157
Profit after tax
for the year - - - - 2,702 2,702
Dividends paid - - - - (825) (825)
Credit in relation
to share-based
payments - - - - 53 53
Foreign exchange
translation
adjustment - - - - (4) (4)
------- ------- ------- ------- ------- -------
At 31 May 2007 3,382 14,851 9,565 (2,486) 5,147 30,459
------- ------- ------- ------- ------- -------
10. Copies of this preliminary statement are available from Quadnetics Group
plc, Haydon House, 5 Alcester Road, Studley, Warwickshire B80 7AN or on the
Company website at www.quadnetics.com.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 2 days ago The Renewables Infrastructure Group Limited
- 2 days ago The Renewables Infrastructure Group Limited
- 2 days ago Smurfit Westrock (DI)
- 2 days ago Menhaden Resource Efficiency
- 2 days ago BP