Preliminary Results

RNS Number : 4588Y

Quadnetics Group PLC

01 March 2012

 



Press Release

1 March 2012

 

Quadnetics Group plc

Preliminary Results for the year ended 30 November 2011

Quadnetics Group plc, a leader in the design, integration and control of advanced surveillance technology, networked security systems and strategic security solutions, reports its preliminary results for the year ended 30 November 2011.

Financial highlights*

·	Revenue up 13% to £69.1 million  (2010*:  £61.3 million)
·	Profit before tax £2.5 million (2010*: £1.4 million)
·	Underlying profit** before tax up 36% to £3.5 million (2010*: £2.6 million)
·	Underlying operating margin up to 5.1% (2010*: 4.2%)
·	Basic EPS 10.2p (2010*: 6.4p)
·	Underlying EPS** up 31% to 16.4p (2010*: 12.5p)
·	Recommended  final dividend 4.5p per share making 7.0p for the year (2010*: 7.0p)
·	Net cash at 30 November 2011: £1.3 million (2010: £3.3 million), after payment of initial consideration for the acquisition of Indanet AG in July 2011
·	Like-for-like (excluding Indanet) year end order book up 19% to £32.5 million (2010: £27.3 million)

Operational highlights

·	Increased investment in new product development
·	Significant contract wins in all sectors
·	Acquisition of Indanet AG, a highly complementary leading German provider of integrated surveillance systems for major transport hubs

* All comparatives refer to proforma unaudited figures for the 12 months to 30 November 2010

** Underlying profit represents profit before tax, non-underlying items (amortisation of acquired intangibles, acquisition expenses, restructuring costs, and share based payments charges) and interest charges on deferred and contingent consideration. Underlying earnings per ordinary share is based on profit after tax but before non-underlying items and interest charges on deferred and contingent consideration

John Shepherd, Chief Executive, commented:

"We continue to make good progress against our stated targets of growing revenues, operating profit and return on sales. I am pleased to report that this significant improvement in performance has been achieved whilst still being able to increase R&D investment in new systems and products as well as completing the acquisition of Indanet in the period. We start 2012 with increased technical capability, geographical and market reach and most importantly a larger order book - all factors which give us confidence that further good progress will be achieved in 2012. Our highly capable and committed workforce can feel justifiably proud of delivering this result and I thank them all on behalf of the executive team."

For further information, please contact:

Quadnetics Group plc	Tel: [phone]
John Shepherd, Chief Executive
Email: [e-mail]	www.quadnetics.com

Westhouse Securities Limited	Tel: [phone]
Tom Griffiths
Buchanan	Tel: [phone]
Tim Anderson/Isabel Podda	Email: [e-mail]

Chairman's Statement

 

Introduction

During the last financial year Quadnetics continued to make solid progress towards its strategic, operational and financial objectives.  Demand for Synectics' surveillance systems in our targeted critical security and oil & gas sectors increased significantly compared with the prior year, enabling the Group to achieve a good overall performance. The resilience of these results underscores the benefits of our strategy of developing proprietary systems and services specialised for those customer sectors willing and able to pay for high-end surveillance capabilities.

 

Results

For the year to 30 November 2011, Quadnetics Group recorded consolidated revenue of £69.1 million (2010¹: £61.3 million). On a like-for-like basis, excluding the impact of the acquisition of Indanet AG, this represented organic growth of 7.9% over the comparable period last year. The Group made an underlying profit before tax² of £3.5 million (2010: £2.6 million) which, adjusted for the acquisition, equated to like-for-like growth of 30%. The underlying operating margin was 5.1% (2010: 4.2%).

Further details on operating performance are set out in the divisional business review below.

Group profit before tax was £2.5 million (2010: £1.4 million), after charging non-underlying costs of £0.9 million (2010: £1.2 million) (including acquisition and restructuring costs (£0.7 million) and share-based payments charge (£0.2 million). Underlying basic earnings per share increased by 31% to 16.4p (2010: 12.5p).

Quadnetics had net cash of £1.3 million at 30 November 2011 (2010: £3.3 million). The reduction in net cash was primarily due to the payment of initial consideration for the acquisition of Indanet AG and to a large delayed customer payment received after the year end. Free cash flow, that is cash generated from operations less capital expenditure, was £2.7 million (2010: £2.1 million), before cash payments in respect of non-underlying items of £0.7 million (2010: £1.5 million).

Dividend

In view of the increasing growth opportunities we see for the Group, and our cautious approach to gearing in current credit markets, the Board has decided to recommend an unchanged final dividend of 4.5p payable on 9 May 2012 to shareholders on the register on 16 March 2012. If approved by shareholders, this would bring the total dividend for the year to 7.0p (2010: 7.0p).

Business Review

Quadnetics' business is to provide integrated electronic security systems and services to specialist high-end markets. Our systems are based on core proprietary technology, in particular integration software. This technology is developed for our specific target customer sectors, and provides fundamental differentiation from mainstream suppliers in the wider electronic security market.

 

¹Quadnetics' 2009/10 financial year covered 18 months to 30 November 2010. To provide fair comparisons, however, all results for 2009/10 quoted in this statement are unaudited proforma figures for the 12 months ended 30 November 2010.

²Underlying profit before tax represents profit before tax, non-underlying items (amortisation of acquired intangibles, acquisition expenses, restructuring costs, and share based payments charges) and IAS 39 interest charges on deferred and contingent consideration.

Our business is organised in four divisions.

 

 

 

Integration & Managed Services

Quadnetics' IMS division is one of the leading UK providers of design, integration, turnkey supply, monitoring and management of large-scale electronic security systems. Its main markets are in critical infrastructure, public space and multi-site systems. Its capabilities include a nationwide network of service engineers, UK government security-cleared personnel and facilities, and an in-house 24-hour monitoring centre and help desk. The IMS division supplies proprietary products and technology from other Quadnetics divisions as well as from third parties.

Revenue                                  £32.6 million (2010: £32.0 million)

Gross Margin                           22.2% (2010: 24.0%)

Operating Profit**                      £1.5 million (2010: £1.3 million)

Operating Margin**                    4.5% (2010: 4.2%)

In the year to 30 November 2011 revenue increased by 2% to £32.6 million and underlying operating profit by 10% to £1.5 million. This result was achieved against a background of continuing market weakness in the UK, in particular in the retail sector, and was in line with expectations for the division set at the beginning of the year. The increased operating margin was primarily a result of reduced overheads following the restructuring and site consolidation within Quadrant Security Group undertaken in 2010.

Important contract wins in the period included several major prison upgrades for the Ministry of Justice, nuclear power plant security system upgrades and maintenance, and a police authority custody suite.

In the North West of England IMS won a landmark project, using Synectics' proprietary hardware and software, to streamline security operations by upgrading and integrating CCTV provision in three town centre locations and consolidating control into one main management base in Chester. 

A pleasing feature of the year was the division's success in winning a number of new pan-European contracts for large financial institutions and multinational companies. This is very much in line with the Group's objective of fostering the standardisation and consolidation of electronic security control across multiple regional or global sites of large organisations.

The process of positioning the IMS division to win larger-scale contracts, and to increase the proportion of business including in-house systems solutions from Synectics, is proceeding on plan. Considerable further progress on these two objectives is expected in the current financial year, as is continued progress towards the division's medium-term operating margin target of 6-8%.

Synectics Network Systems

The SNS Division provides specialist video-based electronic surveillance systems and technology globally to end customers with large scale high security requirements, particularly for critical infrastructure protection. It is co-located in our Sheffield facility with the Synectics Technology Centre, which provides R&D, and products and systems expertise to each of the other divisions. 

Revenue                                      £16.2 million (2010: £12.7 million)

Gross Margin                              47.8% (2010: 45.5%)

Operating Profit**                         £3.8 million (2010: £1.9 million)

Operating Margin**                      23.2% (2010: 15.3%)

Synectics Network Systems produced an excellent performance for the year. Revenue rose by 28% to £16.2 million with a near-doubling of operating profit to £3.8 million, representing an operating margin of well over 20%. Major sources of growth included a continuation of the strong recovery in the North American gaming market, a significant improvement in results from the Middle East and competitive share gains within relatively subdued markets in the UK and Europe.

SNS benefitted from the reorganisation implemented in 2010 to provide a clean separation between operations and R&D activities. Both areas now have a sharper focus and increased efficiency.

An important sales success in the year was the high-profile upgrade of a major US city centre surveillance system, as part of the security measures for the up-coming presidential elections. This is the first Synectics city-wide system in the United States, and should provide an excellent reference site as more US cities look to install the type of public space surveillance common in the UK, and for which Synectics is the market leader.

During 2011 SNS achieved a healthy mix of upgrades and expansions for existing customers as well as systems for new customers. Major activity included systems for the Northern Ireland Prison Service, the Stormont Assembly Building, three out of five of the largest UK retail banks, Cheshire East Council, Sheffield City Centre, Centro and Belfast Harbour in the UK. In the USA we added the Genting Group, and, in the Middle East, NCP car parks UAE, the Atlantis Hotel in Dubai, Duqum Port and high security applications for the Omani government.

As a result of both the volume increase and improved average gross margins, SNS exceeded its medium term operating margin target of mid-to-high teens per cent. We now believe that 20% returns for this division are capable of being sustained for the medium term.

The current year has begun well. We do not expect activity in the US gaming market to continue at the exceptional levels of 2011, but otherwise look forward to further progress in what are likely to remain challenging market conditions.

Synectics Mobile Systems

Synectics Mobile Systems provides specialist surveillance systems and products for integrated transport and defence customers.

Revenue                            £13.5 million³ (2010: £11.9 million)

Gross Margin                     29.7% (2010: 35.0%)

Operating Profit**               £0.3 million (2010: £1.2 million)

Operating Margin**             2.1% (2010: 10.1%)

Synectics Mobile Systems division had a mixed year. On the negative side, the defence activities recorded a loss for the year as a result of delayed orders, principally in the Middle East due to the ongoing political upheaval, and slippage of the development timetable for its new product suite, brought in-house from a former partner at the beginning of the year. Action has been taken to address these issues, and we are already seeing improved results. We do not anticipate a continuation of this unacceptable performance in the current year.

Conditions in the UK on-bus surveillance market improved in the second half of last year. This improvement meant that results for SMS' transport activities for the year as a whole were broadly flat compared with the prior year.  In addition to our ongoing multi-year contract with Stagecoach, SMS won significant orders in the year from National Express, First Group, Caetano, CentreBus and Bus Eireann.

The most significant event in this division during the year was the acquisition of Indanet AG, a leading German supplier of electronic surveillance systems for major transport hubs. Indanet is a software intensive business with a close cultural and strategic fit to Synectics. Its customers include the Berlin, Munich and Frankfurt public transport authorities, as well as Deutsche Bahn, the German national railway. In addition to its own growth plans in Germany and other northern and eastern European markets, the management of Indanet see opportunities to lead the sales of Synectics' existing specialised surveillance systems, for applications such as prisons, city centres and critical infrastructure, into those verticals within Indanet's home markets. In the four-and-a-half month period post acquisition, Indanet contributed revenue of £2.9 million and operating profit of £0.2 million.

As set out in the announcement of the acquisition on 18 July 2011, we plan for Indanet to invest significantly in sales and engineering resources during 2012 to support expected growth from the second half of the current year onwards. These additional costs will mean that Indanet will report a negative contribution in the first half of this year.

With Indanet, the Group's medium term operating margin target for this division remains in the mid-to-high teens per cent, though on a higher and faster-growing revenue base.

³ Figures for 2011 include the results of Indanet AG from the date of acquisition in July 2011.

Synectics Industrial Systems

Synectics Industrial Systems designs, manufactures and supplies surveillance systems for extreme or hazardous environments. Applications include offshore and onshore oil & gas facilities, ships and industrial process control

Revenue                                      £7.9 million (2010: £6.3 million)

Gross Margin                              38.1% (2010: 33.3%)

Operating Profit**                         £1.3 million (2010: £0.7 million)

Operating Margin**                      15.8% (2010: 11.9%)

SIS had an excellent year, marked by the successful delivery of its new range of COEX3000 hazardous area camera stations, completion of its largest ever project for phase 1 of the Gorgon natural gas field off Western Australia and by moving into expanded new premises.

Revenue increased by 26% to £7.9 million. Costs were well managed, leading to a 68% increase in operating profit to £1.3 million. The division's operating margin has moved into its medium term target range of mid-to-high-teens per cent.

Additional orders were received for the Gorgon natural gas project, including a complete Synectics solution comprising COEX™ hazardous area and safe area Tri-Mode PTZ thermal camera stations, SynergyPro^TM command and control system and associated server and storage systems. SIS also completed systems for the Jasmine & Judy fields in the North Sea, which were the first significant deployment of the new COEX3000 camera station.

The underlying markets served by SIS remain healthy, especially in the Far East and the Middle East. SIS ended last year with a firm order book of £6.2 million, more than double the figure a year earlier, and we anticipate another strong performance in 2012.

Research and Development

Group expenditure on technology development during 2011 totalled £1.8 million (2010: £1.4 million). Of this, £0.8 million was capitalised, and the remaining £1.0 million expensed to the profit and loss account. £0.6 million of previously capitalised development was amortised during the year.

2011 was the first full year of operation of the Synectics Technology Centre, created as a consolidated development unit for the Group as a whole. The benefits of this organisation were borne out by increased focus, efficiency and schedule adherence in development projects undertaken during the year.

People

We have been pleased to welcome a substantial number of new people to the Group over the past year, both from Indanet and from new hires across all divisions, in particular in a number of senior positions to help us achieve and manage the next phase of Quadnetics' growth.

With a large amount of change being implemented over the past two years, our employees have continued to demonstrate extraordinary skill and commitment in delivering superior electronic surveillance systems and services to our customers. On behalf of the Board and shareholders, I gladly record our thanks.

Strategy and Financial Objectives

Quadnetics' strategy and financial objectives were set out in detail in the chairman's statement in both the interim and annual reports last year. They have not changed since.

In summary, we aim to use proprietary technology, particularly software, and market knowledge to create complex surveillance systems, increasingly differentiated to serve the needs of the specialist customer sectors we target - critical infrastructure, transport and hazardous areas.

With the Group's current mix of business, the Board's stated objective is for Quadnetics to achieve an overall underlying operating profit margin of 8-10%, after all R&D and central costs, within a reasonable time frame and given normal economic conditions. In 2011, we increased our performance on this measure to 5.1%, up from 4.2% in the previous year. Against a prevailing market background that was in many parts unhelpful, and combined with respectable organic revenue growth, the Board views that level of progress as satisfactory.

Proposed Name Change

For many years now the Group has been developing the Synectics brand in electronic surveillance markets around the world. The Board believes that this brand has now achieved substantial recognition and that both the operating businesses and the parent company would benefit if the quoted entity carried the same name.

We will therefore propose a resolution for consideration by shareholders at our upcoming Annual General Meeting to authorise the Board to change the name of Quadnetics Group plc to Synectics plc.

 

Outlook

 

The Group's consolidated order book at 30 November 2011 stood at £35.9 million, or £32.5 million excluding Indanet, a like-for-like increase of 19% compared with the previous year.  Trading in the first two months of the year has been encouraging.

On the basis of the existing strong order book and bid pipeline, and on the assumption of no significant worsening in our markets, the Board expects Quadnetics to deliver another good performance in the current financial year.

David Coghlan

Chairman

1 March 2012

**before non-underlying items, research & development and Group central costs

Consolidated Income Statement

For the 12 months ended 30 November 2011

	Notes	12 months ended 30 November 2011		18 months ended 30 November 2010		12 months ended 30 November 2010
		£'000		£'000		£'000
						Unaudited proforma information (note 2)
Revenue	3	69,083		91,124		61,280
Cost of sales		(47,062)		(62,276)		(41,545)
Gross profit		22,021		28,848		19,735
Operating expenses		(19,418)		(27,703)		(18,402)
Profit from operations
Excluding non-underlying items	3	3,541		2,714		2,552
Non-underlying items	4	(938)		(1,569)		(1,219)
Total profit from operations		2,603		1,145		1,333
Finance income	5	268		441		295
Finance costs	6	(409)		(415)		(272)
Share of results of joint venture		-		-		4
Profit before  tax
Excluding non-underlying items and finance cost of deferred consideration		3,510		2,740		2,579
Non-underlying items	4	(938)		(1,569)		(1,219)
IAS 39 charge on deferred and contingent consideration		(110)		-		-
Total profit before tax		2,462		1,171		1,360
Income tax expense	7	(874)		(311)		(366)
Profit for the year attributable to equity holders of the parent		1,588		860		994
Basic earnings per Ordinary share	8	10.2p		5.5p		6.4p
Diluted earnings per Ordinary share	8	10.0p		5.5p		6.4p

Non-underlying items comprise amortisation of acquired intangibles, acquisition expenses, restructuring costs and share based payment charges. See note 4.

Consolidated Statement of Comprehensive Income

For the 12 months ended 30 November 2011

		12 months ended 30 November 2011		18 months ended 30 November 2010
		£'000		£'000
Profit for the year		1,588		860
Exchange differences on translation of foreign operations		(21)		13
Actuarial gains		114		104
Effect of not recognising the pension scheme surplus		(114)		(104)
Total comprehensive income for the year attributable to equity holders of the parent		1,567		873

Consolidated Statement of Financial Position

30 November 2011

	Notes	30 November 2011		30 November 2010
		£'000		£'000
Non-current assets
Property, plant and equipment		1,618		1,503
Intangible assets		25,189		17,292
Deferred tax asset		-		176
		26,807		18,971
Current assets
Inventories		7,459		5,897
Trade and other receivables		26,501		22,511
Cash and cash equivalents		3,098		3,349
		37,058		31,757
Total assets		63,865		50,728
Current liabilities
Trade and other payables		(22,507)		(18,256)
Tax liabilities		(861)		(535)
Current provisions	10	(44)		(112)
		(23,412)		(18,903)
Non-current liabilities
Loans and borrowings		(1,843)		-
Non-current provisions	10	(6,028)		(25)
Deferred tax liabilities		(133)		-
		(8,004)		(25)
Total liabilities		(31,416)		(18,928)
Net assets		32,449		31,800
Equity attributable to equity holders of parent company
Called up share capital		3,514		3,514
Share premium account		15,719		15,719
Merger reserve		9,565		9,565
Other reserves		(3,486)		(3,486)
Currency translation reserve		96		117
Retained earnings		7,041		6,371
Total equity		32,449		31,800

Consolidated Statement of Changes in Equity

For the 12 months ended 30 November 2011

	Called up share capital £'000	Share premium account £'000	Merger reserve £'000	Other reserves £'000	Currency translation reserve £'000	Retained earnings £'000	Total £'000
At 1 June 2009	3,382	14,851	9,565	(2,486)	104	6,742	32,158
Issue of shares	132	868	-	(1,000)	-	-	-
Profit after tax for the period	-	-	-	-	-	860	860
Dividends paid (note 9)	-	-	-	-	-	(1,480)	(1,480)
Credit in relation to share based payments	-	-	-	-	-	249	249
Currency translation adjustment	-	-	-	-	13	-	13
At 30 November 2010	3,514	15,719	9,565	(3,486)	117	6,371	31,800
Profit after tax for the year	-	-	-	-	-	1,588	1,588
Dividends paid (note 9)	-	-	-	-	-	(1,110)	(1,110)
Credit in relation to share based payments	-	-	-	-	-	192	192
Currency translation adjustment	-	-	-	-	(21)	-	(21)
At 30 November 2011	3,514	15,719	9,565	(3,486)	96	7,041	32,449

Consolidated Cash Flow Statement

For the 12 months ended 30 November 2011

		12 months ended 30 November 2011	18 months ended 30 November 2010	12 months ended 30 November 2010
		£'000	£'000	£'000
				Unaudited proforma information (note 2)
Cash flows from operating activities
Profit for the year		1,588	860	994
Income tax expense		874	311	366
Finance income		(268)	(441)	(295)
Finance costs		409	415	272
Depreciation and amortisation charge		1,268	1,846	1,215
(Profit)/ loss on disposal of non-current assets		(10)	2	5
Share based payments charge		192	249	169
Operating cash flows before movement in working capital		4,053	3,242	2,726
Increase in inventories		(871)	(535)	(473)
(Increase)/decrease in receivables		(3,175)	55	(1,791)
Increase/(decrease) in payables and provisions		3,423	(4,407)	1,185
Cash generated from operations		3,430	(1,645)	1,647
Interest received		11	52	33
Tax (paid)/received		(485)	(38)	722
Net cash from operating activities		2,956	(1,631)	2,402
Cash flows from investing activities
Purchase of property, plant and equipment		(566)	(493)	(244)
Sale of property, plant and equipment		10	29	26
Acquisition of subsidiaries (note 11)		(2,556)	-	-
Capitalised development costs		(747)	(891)	(699)
Purchased software		(69)	(210)	(75)
Deferred consideration on acquisition made in 2005		-	(79)	-
Net cash used in investing activities		(3,928)	(1,644)	(992)
Cash flows from financing activities
New borrowings		1,843	-	-
Interest paid		(33)	(21)	(10)
Dividends paid		(1,110)	(1,480)	(1,480)
Net cash used in financing activities		700	(1,501)	(1,490)
Effect of exchange rate changes on cash and cash equivalents		21	14	21
Net decrease in cash and cash equivalents		(251)	(4,762)	(59)
Cash and cash equivalents at the beginning of the year		3,349	8,111	3,408
Cash and cash equivalents at the end of the year		3,098	3,349	3,349

Notes

1          Basis of preparation

The information contained within this Preliminary Announcement has been extracted from the financial statements which have been prepared in accordance with IFRS as adopted by the European Union ('adopted IFRS'), and with those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS. They have been prepared using the historical cost convention except where the measurement of balances at fair value is required.

2          Proforma information

Following the change in the Company's year end date to November the comparative results in this statement are the reported figures for the 18 months to 30 November 2010. Therefore in order to provide meaningful comparability of data, unaudited proforma results for the 12 months to 30 November 2010, are presented on the Income Statement, the Cash Flow Statement and the segmental analysis in note 3 below.

3          Segmental analysis

Revenue and underlying operating profit (operating profit before non-underlying items (amortisation of acquired intangibles, acquisition expenses, restructuring costs and share based payments charges)), derives from the Group's four operating segments as follows:

	12 months ended	18 months ended	12 months ended
	30 Nov  2011	30 Nov  2010	30 Nov  2010
	£'000	£'000	£'000
			Unaudited proforma information (note 2)
Revenue
Integration & Managed Services	32,622	49,439	32,039
Network Systems	16,230	17,625	12,719
Mobile Systems	13,461	17,080	11,890
Industrial Systems	7,943	9,639	6,286
Total segmental revenue	70,256	93,783	62,934
Reconciliation to consolidated revenue:
Intra-group sales	(1,173)	(2,659)	(1,654)
	69,083	91,124	61,280
Underlying operating profit
Integration & Managed Services	1,460	2,125	1,333
Network Systems	3,762	2,220	1,949
Mobile Systems	280	1,319	1,198
Industrial Systems	1,258	1,252	747
Total segmental underlying operating profit	6,760	6,916	5,227
Reconciliation to underlying operating profit:
Research & Development costs	(1,025)	(1,341)	(656)
Central costs	(2,194)	(2,861)	(2,019)
	3,541	2,714	2,552

There has been no aggregation of the operating segments in arriving at these reportable segments.

4          Non-underlying items

	12 months ended 30 November 2011 £'000		18 months ended 30 November 2010 £'000
Acquisition costs	352		-
Restructuring costs	346		1,320
Share based payments charge	192		249
Amortisation of intangible assets acquired as a result of business combinations	48		-
	938		1,569

The acquisition expenses relate to the acquisition of Persides Technology Limited in December 2010 and Indanet AG in July 2011.

The restructuring costs relate to reorganisation of the Mobile division.

The 2010 non-underlying restructuring costs related to the reorganisation of operations in Watford, Guildford and Tewkesbury in the UK and certain operations in the Middle East.  This included the cost of integrating these operations into other Group sites. 

A new Group Executive Share Ownership Plan (the 'ExSOP') was introduced in July 2009 and awards were made under this scheme in July 2009, September 2009 and March 2011. Accordingly a share-based payment charge of £192,000 arises in respect of the ExSOP during the year.

5          Finance income

	12 months ended 30 November 2011 £'000		18 months ended 30 November 2010 £'000
Bank interest receivable	11		14
Expected return on pension scheme assets	257		394
Interest receivable on tax repayments	-		33
	268		441

6          Finance costs

	12 months ended 30 November 2011 £'000		18 months ended 30 November 2010 £'000
Interest payable on bank overdrafts	28		8
Interest payable on bank loans	8		-
Other interest payable	6		13
Interest on pension scheme liabilities	257		394
IAS 39 charge on deferred and contingent consideration	110		-
	409		415

7          Taxation

Tax charge	12 months ended 30 November 2011 £'000		18 months ended 30 November 2010 £'000
Current taxation:
UK tax	84		267
Overseas tax	955		418
Adjustments in respect of prior periods	(230)		(617)
Total current tax	809		68
Deferred taxation:
Origination and reversal of temporary differences	48		(67)
Adjustments in respect of prior periods	17		310
Total deferred tax	65		243
	874		311

Reconciliation of tax charge for the year

The corporation tax assessed for the year differs from the standard rate of corporation tax in the UK of 26.67% (18 months ended 30 November 2010: 28%). The differences are explained below:

	12 months ended 30 November 2011 £'000		18 months ended 30 November 2010 £'000
Profit on ordinary activities before tax	2,462		1,171
Tax on profit on ordinary activities before tax at standard rate of 26.67% (18 months ended 30 November 2010: 28%)	657		328
Effects of:
Expenses not deductible for tax purposes and temporary differences	308		157
Overseas profits taxed at higher rate	252		103
Tax losses not recognised	-		24
Tax losses utilised	(126)		-
Rate change on deferred tax balance	(4)		6
Adjustment in respect of prior periods	(213)		(307)
Total tax charge for the period	874		311

The Group has tax losses available to be carried forward for offset against the future taxable profits of certain Group companies amounting to approximately £1.0 million (30 November 2010: £1.4 million). A deferred tax asset in respect of these losses, amounting to £0.1 million (30 November 2010: £0.2 million), has been recognised at the year end as the Group believes that there will be future taxable profits against which the losses will be relieved.

In addition to the above, the Group has capital losses of approximately £19 million (30 November 2010: £19 million) available for offset against future taxable gains. No deferred tax asset in respect of these losses, which would amount to £5 million, has been recognised in these financial statements as there is insufficient certainty that the asset will be recovered against future capital gains.

8          Earnings per Ordinary share

	12 months ended 30 November 2011 Pence per share	18 months ended 30 November 2010 Pence per share
Basic earnings per Ordinary share	10.2	5.5
Diluted earnings per Ordinary share	10.0	5.5
Underlying basic earnings per Ordinary share	16.4	13.3
Underlying diluted earnings per Ordinary share	16.2	13.2

Basic and diluted earnings per Ordinary share

The calculation of basic earnings per Ordinary share is based on the profit after taxation for the year of £1,588,000 (18 months to 30 November 2010: £860,000) and on 15,528,934 shares, being the weighted average number of shares in issue and ranking for dividend during the year (18 months to 30 November 2010: 15,528,934).

The calculation of diluted earnings per Ordinary share is based on the profit after taxation for the year of £1,588,000 (18 months to 30 November 2010: £860,000) and on 15,803,076 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 (18 months to 30 November 2010: 15,612,180).

	Profit after tax £'000		Weighted average number of Ordinary shares		Earnings per Ordinary share p per share
12 months ended 30 November 2011
Basic earnings per Ordinary share	1,588		15,528,934		10.2
Dilutive potential Ordinary shares arising from share options	-		274,142		(0.2)
Diluted earnings per Ordinary share	1,588		15,803,076		10.0
18 months ended 30 November 2010
Basic earnings per Ordinary share	860		15,528,934		5.5
Dilutive potential Ordinary shares arising from share options	-		83,246		-
Diluted earnings per Ordinary share	860		15,612,180		5.5

Underlying basic and diluted earnings per Ordinary share

The calculation of underlying basic 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 non-underlying items (net of tax) and IAS 39 charge on contingent deferred consideration on 15,528,934 shares, being the weighted average number of shares in issue and ranking for dividend during the year (18 months to 30 November 2010: 15,528,934).

	Profit after tax £'000		Weighted average number of Ordinary shares		Earnings per Ordinary share p per share
12 months ended 30 November 2011
Basic earnings per Ordinary share	1,588		15,528,934		10.2
Non-underlying items (note 4)	938		-		6.1
Impact of non-underlying items on tax charge for the period	(82)		-		-
IAS 39 charge on deferred and contingent consideration	110		-		0.1
Underlying basic earnings per Ordinary share	2,554		15,528,934		16.4
18 months ended 30 November 2010
Basic earnings per Ordinary share	860		15,528,934		5.5
Non-underlying items (note 4)	1,569		-		10.1
Impact of non-underlying items  on tax charge for the period	(370)		-		(2.3)
Underlying basic earnings per Ordinary share	2,059		15,528,934		13.3

The calculation of underlying diluted earnings per Ordinary share is based on the profit after taxation for the year, but before deducting underlying items (net of tax) and IAS 39 charge on  deferred and contingent consideration and on 15,803,076 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 (18 months to 30 November 2010: 15,612,180).

	Profit after tax £'000		Weighted average number of Ordinary shares		Earnings per Ordinary share p per share
12 months ended 30 November 2011
Underlying earnings per Ordinary share	2,554		15,528,934		16.4
Dilutive potential Ordinary shares arising from share options	-		274,142		(0.2)
Underlying diluted earnings per Ordinary share	2,554		15,803,076		16.2
18 months ended 30 November 2010
Underlying earnings per Ordinary share	2,059		15,528,934		13.3
Dilutive potential Ordinary shares arising from share options	-		83,246		(0.1)
Underlying diluted earnings per Ordinary share	2,059		15,612,180		13.2

9          Dividends

The Directors recommend the payment of a final dividend of 4.5p per share totalling £791,000, and subject to approval, this is expected to be paid on 9 May 2012 to shareholders on the register at 16 March 2012.  This will give a total dividend for the year of 7.0p (18 months to 30 November 2010: 9.5p).

10         Provisions

	Deferred consideration £'000		Restructuring £'000		Property £'000		Total £'000
At 1 June 2009	755		776		129		1,660
Utilised in year	(79)		(2,001)		(103)		(2,183)
Charge to income statement	-		1,320		16		1,336
Deferred consideration adjustment	(663)		-		-		(663)
Currency translation adjustment	(13)		-		-		(13)
At 30 November 2010	-		95		42		137
Utilised in period	-		(58)		(16)		(74)
Charge to income statement	-		-		28		28
Acquisition made during year (note11)	6,012		-		-		6,012
IAS 39 charge on deferred and contingent consideration	110		-		-		110
Currency translation adjustment	(141)		-		-		(141)
At 30 November 2011	5,981		37		54		6,072

11         Acquisitions

Acquisition of Indanet AG

On 15 July 2011 Quadnetics Group plc , through its subsidiary Synectic Systems GmbH, agreed to acquire 100% of the issued share capital of Indanet AG ("Indanet"), a leading German provider of integrated surveillance and security management systems to the transport industry, for a maximum total consideration of €10 million. Consideration of €2 million in cash was paid on completion for an initial tranche of shares equivalent to 51% of Indanet's issued share capital. Further consideration of between €1 million and €8 million for the remaining 49% of Indanet will be payable in three tranches between 2013 and 2015, dependent on Indanet's profits for the period from completion to 31 May 2015. The anticipated acquisition method has been applied in accounting for this acquisition.

Indanet's technology and market positions are highly complementary to those of Quadnetics' Mobile Systems and Network Systems divisions, and the acquisition is expected to accelerate significantly the Group's expansion into specialist transport surveillance markets in northern, central and eastern Europe in particular. It should also provide enhanced opportunities for the sales of Synectics high security surveillance systems into those regions.

Recognised amounts of identifiable assets acquired and liabilities assumed	Book value £'000		Provisional fair value £'000
Identifiable assets
Property, plant and equipment	62		62
Trade and other receivables	729		729
Inventory	687		687
Identifiable intangible assets	-		754
Identifiable liabilities
Overdraft	(573)		(573)
Trade and other payables	(731)		(731)
Deferred tax	-		(249)
Net identifiable assets	174		679
Goodwill			7,085
Total consideration			7,764
Satisfied by:
Cash			1,752
Deferred consideration			785
Contingent consideration arrangement			5,227
Total consideration transferred			7,764
Net cash outflow arising on acquisition
Cash consideration			1,752
Add: bank overdraft			573
			2,326

The fair values shown above are provisional and may be amended if information not currently available comes to light.

The fair value of the financial assets includes trade receivables with a fair value of £644,000.

The fair value adjustment in relation to intangible assets recognises customer relationships (£231,000) and software (£523,000) in accordance with IFRS 3.

The goodwill of £7,085,000 arising from the acquisition consists of the assembled workforce and increased geographical presence in Europe together with software development opportunities.

The deferred consideration arrangement requires a further €1,000,000 to be paid on 31 December 2013. The contingent consideration arrangement of up to €7,000,000 is dependent on Indanet's profits for the period from completion to 31 May 2015, and is payable in two tranches in 2014 and 2015. A maximum of €3.5 million of the contingent consideration may be paid, at Quadnetics' option, in new Quadnetics' Ordinary shares, with the remainder in cash.

Acquisition related costs (included in non-underlying operating expenses) amounted to £333,000.

Indanet AG contributed £2.9 million revenue and £0.2 million operating profit to the Group's profit for the period between the date of acquisition and the balance sheet date.

Acquisition of Persides Technology Limited

On 22 December 2010 Synectic Systems Group Limited ("SSGL") acquired the entire issued share capital of Persides Technology Limited ("PTL") for a total consideration of £230,000 in cash and the trade and assets of PTL were hived up to SSGL at fair value.

PTL specialises in advanced battlefield electronic monitoring systems (EMS) and ruggedized hand-held digital video systems (VEEcam Ò) for use in extreme environments, and was a technology partner to the Group's defence business, playing an important role in the development of Synectics' latest generation radio frequency detection system, Chili.

12         Company information

Full Financial Statements

The auditors have issued an unqualified opinion on the full financial statements for the year ended 30 November 2011 which will be distributed to shareholders and delivered to the Registrar of Companies in due course.  The financial information for 2011 and 2010 does not comprise statutory financial statements.  Statutory financial statements for the 18 month period ended 30 November 2010, on which the auditors gave an unqualified opinion, have been delivered to the Registrar of Companies.  Further copies of these preliminary results, and the full financial statements when published, will be available at the Company's registered office: Quadnetics Group plc, Haydon House, 5 Alcester Road, Studley, Warwickshire, B80 7AN or on the Company website at www.quadnetics.com.

Forward-looking statements

This report may contain certain statements about the future outlook for Quadnetics Group plc. Although the directors believe their expectations are based on reasonable assumption, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

- Ends -

 

END

 

 

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