NEW! Investment Companies Centre
- Login to your account
- Free Membership to Digital Look
- Site Map
- Company A-Z
- Finance A-Z
- News Archive
- Events
- Give Us Feedback
Digital Look
- Company A-Z
- Company Search
- MarketStars Premium
- Portfolios & Watchlists
- Charting
- Screening Tools
- Visual Tools
- Mobile Tools / PDA
- Education Guides
- UK Shares
- Investment Companies
- Funds
- International Shares
- Bonds
- Currencies
- Commodities
- Covered Warrants
Virgin Credit Card:
Market Cap
£17.75m
Change Today
-1.00p ()
Share Price
105.00p
Quadnetics Group plc: Preliminary Results for the year ended 31 May 2006
LONDON, UNITED KINGDOM--(CCNMatthews - Sept. 19, 2006) - Quadnetics Group plc (AIM:QDG), 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 2006.
Highlights
- Successful acquisition of Protec plc, creating leading independent CCTV security services provider in the UK
- Consolidation of enlarged Quadnetics Group into two focused electronic security business units with significant scale
- 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
- Turnover Pounds Sterling 49.6 million (2004/5: Pounds Sterling 26.8 million), with 7 months contribution from Protec
- Profit before tax, exceptional costs and goodwill amortisation up 36% to Pounds Sterling 3.6 million; underlying earnings per share up 21% to 24.2p (again benefiting from a reduced tax rate)
- Net cash Pounds Sterling 8.9 million
- Order books up 30% at year end
- Proposed final dividend 3.5p per share, making 5.0p for the full year (up 25%)
- Overall, a very satisfactory year, which has positioned the Group for further growth in a large and attractive market
Commenting on the results, Russ Singleton, Chief Executive, said:
"Over the last 12 months we have transformed Quadnetics. Through the successful acquisition and integration of Protec plc, Quadnetics has become a major CCTV security services business in the UK with market leading positions in a number of customer sectors. Backed up by significant financial resources and an enviable management team we now have a great platform in place to move the Group forward"
Chairman's Statement
Overview
In our last interim results statement, I commented that the acquisition of Protec in November 2005 was a crucial development for Quadnetics that would 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, Quadrant Security Group and Synectic Systems Group, each with scale and significant market presence. I am happy to report that the integration of these businesses and the post-acquisition financial performance of the enlarged Group have been fully in line with the Board's expectations.
Results and Dividend
In the year to 31 May 2006, Quadnetics produced a profit before tax, exceptional costs and goodwill amortisation of Pounds Sterling 3.6 million (2004/5: Pounds Sterling 2.7 million) on consolidated turnover of Pounds Sterling 49.6 million (2004/5: Pounds Sterling 26.8 million). These results include seven months' contribution from the Protec acquisition. Underlying earnings per share were ahead 21% at 24.2 p (2004/5: 20.0p) including the benefit of a reduced tax rate of 8% (2004/5: 13%) stemming mainly from useable tax losses in the acquired Protec businesses.
Since the continuing and acquired businesses have been managed as integrated activities for most of the second half, like-for-like comparisons of performance against the previous year inevitably involve some arbitrary cost allocations. Nevertheless, the broad picture is that the Group's continuing activities produced consolidated turnover growth of around 12%, on which underlying operating profit (that is, operating profit before exceptional items and goodwill amortisation) declined slightly to just under Pounds Sterling 2.5 million. This broadly static profit figure from continuing activities stems primarily from reduced activity levels and margins in the UK town centre security sector, and the additional costs associated with establishing infrastructure for Synectics to support its growth in North America. These were offset in part by increased turnover and gross margins from Synectics. The performance of the individual business segments is discussed in more detail below.
During the year, exceptional costs of Pounds Sterling 965,000 were incurred relating to Protec, principally the cost of redundancies and provision for the closure of one operating site following acquisition. A further exceptional cost of Pounds Sterling 300,000 was provided against a claim for dilapidations relating to a long lease held by a business sold by Quadnetics many years ago.
Net cash on hand at the year end was Pounds Sterling 8.9 million (2005: Pounds Sterling 3.6 million). The Board is proposing a final dividend of 3.5p, making a total dividend of 5p for the full year, an increase of 25% on the amount distributed for the prior year.
Business Review
Quadrant Security Group ("QSG"), 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. QSG has annualised current run-rate sales of around Pounds Sterling 50 million and is significantly profitable. We believe it is now the UK's largest independent CCTV security company.
On a like-for-like basis, the Quadnetics continuing businesses within QSG increased turnover in the year by 8% to Pounds Sterling 18.3 million (2004/5: Pounds Sterling 17.0 million). Underlying operating profit declined to Pounds Sterling 1.8 million (2004/5: Pounds Sterling 2.1 million). Part of the profit decline arose from deliberate decisions to improve the quality and growth prospects of the businesses through, for example, long term contracts with large customers that initially carry lower margins. The major factor, however, was temporarily reduced activity, and consequent tighter margins, in the UK local government CCTV sector. As anticipated in our interim report, this area of business improved in the second half and the positive momentum continues.
The acquired Protec security services activities have performed well since acquisition, particularly in the area of prisons and other government high security applications. Planned integration benefits were successfully realised, most notably in cost reductions from consolidated purchasing. Further benefits are expected to arise in the current year from cross-selling of services in different customer segments, and from the marketing and sales advantages of the business' significantly increased scale.
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 has led on to success in other market sectors, including police, financial services, casinos, marine and offshore oil and gas. Protec's special projects surveillance business has been integrated into Synectics to capitalise on expansion opportunities in a further attractive market sector that is a natural fit for Synectics' products and systems expertise.
The continuing businesses within Synectics grew turnover for the year by 25% to Pounds Sterling 12.9 million (2004/5: Pounds Sterling 10.3 million), and gross profit by 34% to Pounds Sterling 5.5 million (2004/5: Pounds Sterling 4.1 million). Growth in underlying operating profits, however, was constrained to 15% (Pounds Sterling 1.4 million in 2005/6 versus Pounds Sterling 1.2 million in 2004/5), due to the costs of operating the new US subsidiary and of additional research and development expenditure for product enhancements required for the US market.
These investments in North America are now generating the sort of customer response we had hoped for, and further substantial orders are expected in the first half of the current year.
Outside North America, Synectics continued to achieve good sales growth during 2005/6 in most of its traditional markets, including the UK, Europe, South Africa and the Middle East.
Group Objectives
In Quadnetics' last interim statement I set out a summary of our reasons for acquiring Protec and some background to the overall objectives the Board has set for the enlarged Group. Developments since have confirmed the Board's confidence in these objectives, and our assessment of the opportunities and risks that accompany them, so it is worth repeating them here.
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.
People
In the face of potentially disruptive change in most areas, the commitment, enthusiasm and energetic common sense demonstrated during the year by the vast majority of employees in the enlarged Group have been truly heartening. In large measure their efforts have been responsible for the excellent progress the Group has made, and I am delighted to pass on the Board's very sincere thanks.
The Group's senior management has been strengthened by a number of new appointments, coming both from internal promotion and external recruitment. Under our new structure, we believe the team now in place is well capable of leading the Group through the next stage of its development.
Quadnetics' Board expanded significantly last year. We were joined by Bob Westcott and Dennis Bate as independent non-executive directors, and by two new executive directors, David Orme as Operations Director, and Glenn Robinson as Technical and Business Development Director. The diversity of relevant experience and robust viewpoints this group brings to the Board are proving of great benefit to us.
Outlook
Overall, 2005/6 was a very satisfactory year, which has positioned Quadnetics for further growth. The Group has entered its current financial year with confidence and a real sense of momentum.
Aggregate order books for the continuing and acquired businesses at 31 May 2006 were approximately 30% higher than at the corresponding date a year earlier.
Quadnetics has created significant opportunities through the combination of strong positions as a service provider in specific customer sectors, and market leading Synectics technology in certain key elements of security systems solutions. We plan to capitalise on these opportunities by increasing product development expenditure for Synectics, both to broaden the product range and to enable it to scale more easily.
With strong order books and increased earnings visibility across our businesses, the Board expects further good progress in financial results for the current year.
David Coghlan
19 September 2006
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 SSS Management Services Limited, SDA Protec and Falcon Protec, which were acquired in November 2005 (see note 10). The turnover and results of the Protec businesses are shown under Acquisitions within these statements.
2. Exceptional operating expenses arise in relation to the restructuring of the Group's business as a result of the acquisition of Protec plc.
3. The Company has made provision of Pounds Sterling 300,000 for dilapidations and other costs in relation to its liabilities as a former lessee of a property. The property was, until recently, occupied by a former subsidiary which was sold in 1996, and which has now gone into administration.
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 Pounds Sterling 2.7 million (2005: Pounds Sterling 1.1 million). These tax losses will reduce the corporation tax payable in future years until the companies concerned achieve sufficient taxable profits to utilise the losses. A deferred tax asset in respect of part of these losses, amounting to Pounds Sterling 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. A final dividend of 3.5p per share, totalling approximately Pounds Sterling 542,000 will be paid on 7 December 2006 to shareholders on the register on 10 November 2006, subject to approval at the Company's Annual General Meeting.
In accordance with FRS21 and the Companies Act 1985, dividends are no longer presented on the face of the profit and loss account but are charged directly to reserves when they are paid or approved by shareholders. As a result, comparative figures have been amended to exclude the 2004/5 dividends of Pounds Sterling 467,000 from the face of the profit and loss account, and to make a prior year adjustment of Pounds Sterling 351,000 to exclude from reserves the proposed 2004/5 final dividend.
6. Earnings per Ordinary share are as follows:
The calculation of basic earnings per ordinary share is based on the profit after taxation for the year of Pounds Sterling 1,431,000 (2005: Pounds Sterling 2,217,000) and on 13,781,617 shares, being the weighted average number of shares in issue and ranking for dividend during the year (2005:11,546,335).
The calculation of diluted earnings per ordinary share is based on the profit after taxation for the year of Pounds Sterling 1,431,000 (2005: Pounds Sterling 2,217,000) and on 13,789,163 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 (2005:11,590,130).
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 (after adjusting for their impact on the tax charge for the year) and amortisation of goodwill, of Pounds Sterling 3,338,000 (2005: Pounds Sterling 2,311,000) and on 13,781,617 shares, being the weighted average number of shares in issue and ranking for dividend during the year (2005:11,546,335).
The calculation of underlying diluted earnings per ordinary share is based on the profit after taxation for the year, but before deducting exceptional items (after adjusting for their impact on the tax charge for the year) and amortisation of goodwill of Pounds Sterling 3,338,000 (2005: Pounds Sterling 2,311,000) and on 13,789,163 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 (2005:11,590,130).
7. Intangible assets include Pounds Sterling 8.5 million of goodwill arising on the acquisition of Protec plc.
8. Provisions for liabilities and charges comprises provision for deferred consideration payable in respect of the trade and assets of Alphapoint, Inc in May 2005 (Pounds Sterling 1.1million), restructuring provisions (Pounds Sterling 0.2 million) and property provisions (Pounds Sterling 0.5 million).
9. Movements on shareholders' funds in the period are as follows:
During the year ended 31 May 2006 842,000 ordinary shares of the Company were allotted to the Quadnetics Group Employee Share Scheme at a value of Pounds Sterling 2.03 million with the substantial majority of the funding for subscription for these shares provided as an interest-free loan by the Company. The value of own shares held within the Quadnetics Group Employee Share Scheme has been deducted from shareholders' funds and the number of shares has been excluded from the earnings per share calculations.
The Merger reserve has been created in accordance with s131 of the Companies Act 1985 whereby the premium on Ordinary shares in the Company issued to acquire shares has been credited to the Merger reserve rather than the Share premium account.
10. On 9 November 2005 the Offer made by Brewin Dolphin Securities Ltd on behalf of the Company for 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.
Under the terms of the offer Protec shareholders would receive one new Ordinary share of 20p each in Quadnetics Group plc for every 43 Ordinary shares of 1p each in Protec plc.
On 8 February 2006 notice was given to those Protec shareholders who had not accepted the Offer informing them that Quadnetics would compulsorily acquire their Protec shares by applying sections 428 to 430F of the Companies Act 1985. As a result the Company had issued 3,113,150 ordinary shares, valued at Pounds Sterling 2.50 each, to former holders of Protec shares as at 31 May 2006. In addition, at that date, a further 619,711 ordinary shares remained to be issued to Protec shareholders who had irrevocably accepted the Offer, thus transferring beneficial interest in their Protec shares to the Company, but who had not at that time perfected their acceptance by submitting valid share certificates to the Company's registrars.
Net cash inflows from acquisitions comprise bank balances acquired in Protec of Pounds Sterling 4.1 million less acquisition expenses of Pounds Sterling 0.5 million. In addition a payment of Pounds Sterling 350,000 was made during the year in settlement of loan notes issued as consideration for Look Closed Circuit TV Limited in February 2004.
11. The preliminary results for the year have not been audited by the Group's auditors and do not constitute statutory accounts. The comparative figures for 2005 have been abridged from the statutory accounts for the year ended 31 May 2005. 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 2005 have been filed with the Registrar of Companies.
12. 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.
‚© 2006 - CCNMatthews
Highlights
- Successful acquisition of Protec plc, creating leading independent CCTV security services provider in the UK
- Consolidation of enlarged Quadnetics Group into two focused electronic security business units with significant scale
- 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
- Turnover Pounds Sterling 49.6 million (2004/5: Pounds Sterling 26.8 million), with 7 months contribution from Protec
- Profit before tax, exceptional costs and goodwill amortisation up 36% to Pounds Sterling 3.6 million; underlying earnings per share up 21% to 24.2p (again benefiting from a reduced tax rate)
- Net cash Pounds Sterling 8.9 million
- Order books up 30% at year end
- Proposed final dividend 3.5p per share, making 5.0p for the full year (up 25%)
- Overall, a very satisfactory year, which has positioned the Group for further growth in a large and attractive market
Commenting on the results, Russ Singleton, Chief Executive, said:
"Over the last 12 months we have transformed Quadnetics. Through the successful acquisition and integration of Protec plc, Quadnetics has become a major CCTV security services business in the UK with market leading positions in a number of customer sectors. Backed up by significant financial resources and an enviable management team we now have a great platform in place to move the Group forward"
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: Abchurch Communications Ltd Tel: +44 (0) 20 7398 7703 Martin Sutton Email: martin.sutton@abchurch-group.com
Chairman's Statement
Overview
In our last interim results statement, I commented that the acquisition of Protec in November 2005 was a crucial development for Quadnetics that would 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, Quadrant Security Group and Synectic Systems Group, each with scale and significant market presence. I am happy to report that the integration of these businesses and the post-acquisition financial performance of the enlarged Group have been fully in line with the Board's expectations.
Results and Dividend
In the year to 31 May 2006, Quadnetics produced a profit before tax, exceptional costs and goodwill amortisation of Pounds Sterling 3.6 million (2004/5: Pounds Sterling 2.7 million) on consolidated turnover of Pounds Sterling 49.6 million (2004/5: Pounds Sterling 26.8 million). These results include seven months' contribution from the Protec acquisition. Underlying earnings per share were ahead 21% at 24.2 p (2004/5: 20.0p) including the benefit of a reduced tax rate of 8% (2004/5: 13%) stemming mainly from useable tax losses in the acquired Protec businesses.
Since the continuing and acquired businesses have been managed as integrated activities for most of the second half, like-for-like comparisons of performance against the previous year inevitably involve some arbitrary cost allocations. Nevertheless, the broad picture is that the Group's continuing activities produced consolidated turnover growth of around 12%, on which underlying operating profit (that is, operating profit before exceptional items and goodwill amortisation) declined slightly to just under Pounds Sterling 2.5 million. This broadly static profit figure from continuing activities stems primarily from reduced activity levels and margins in the UK town centre security sector, and the additional costs associated with establishing infrastructure for Synectics to support its growth in North America. These were offset in part by increased turnover and gross margins from Synectics. The performance of the individual business segments is discussed in more detail below.
During the year, exceptional costs of Pounds Sterling 965,000 were incurred relating to Protec, principally the cost of redundancies and provision for the closure of one operating site following acquisition. A further exceptional cost of Pounds Sterling 300,000 was provided against a claim for dilapidations relating to a long lease held by a business sold by Quadnetics many years ago.
Net cash on hand at the year end was Pounds Sterling 8.9 million (2005: Pounds Sterling 3.6 million). The Board is proposing a final dividend of 3.5p, making a total dividend of 5p for the full year, an increase of 25% on the amount distributed for the prior year.
Business Review
Quadrant Security Group ("QSG"), 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. QSG has annualised current run-rate sales of around Pounds Sterling 50 million and is significantly profitable. We believe it is now the UK's largest independent CCTV security company.
On a like-for-like basis, the Quadnetics continuing businesses within QSG increased turnover in the year by 8% to Pounds Sterling 18.3 million (2004/5: Pounds Sterling 17.0 million). Underlying operating profit declined to Pounds Sterling 1.8 million (2004/5: Pounds Sterling 2.1 million). Part of the profit decline arose from deliberate decisions to improve the quality and growth prospects of the businesses through, for example, long term contracts with large customers that initially carry lower margins. The major factor, however, was temporarily reduced activity, and consequent tighter margins, in the UK local government CCTV sector. As anticipated in our interim report, this area of business improved in the second half and the positive momentum continues.
The acquired Protec security services activities have performed well since acquisition, particularly in the area of prisons and other government high security applications. Planned integration benefits were successfully realised, most notably in cost reductions from consolidated purchasing. Further benefits are expected to arise in the current year from cross-selling of services in different customer segments, and from the marketing and sales advantages of the business' significantly increased scale.
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 has led on to success in other market sectors, including police, financial services, casinos, marine and offshore oil and gas. Protec's special projects surveillance business has been integrated into Synectics to capitalise on expansion opportunities in a further attractive market sector that is a natural fit for Synectics' products and systems expertise.
The continuing businesses within Synectics grew turnover for the year by 25% to Pounds Sterling 12.9 million (2004/5: Pounds Sterling 10.3 million), and gross profit by 34% to Pounds Sterling 5.5 million (2004/5: Pounds Sterling 4.1 million). Growth in underlying operating profits, however, was constrained to 15% (Pounds Sterling 1.4 million in 2005/6 versus Pounds Sterling 1.2 million in 2004/5), due to the costs of operating the new US subsidiary and of additional research and development expenditure for product enhancements required for the US market.
These investments in North America are now generating the sort of customer response we had hoped for, and further substantial orders are expected in the first half of the current year.
Outside North America, Synectics continued to achieve good sales growth during 2005/6 in most of its traditional markets, including the UK, Europe, South Africa and the Middle East.
Group Objectives
In Quadnetics' last interim statement I set out a summary of our reasons for acquiring Protec and some background to the overall objectives the Board has set for the enlarged Group. Developments since have confirmed the Board's confidence in these objectives, and our assessment of the opportunities and risks that accompany them, so it is worth repeating them here.
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.
People
In the face of potentially disruptive change in most areas, the commitment, enthusiasm and energetic common sense demonstrated during the year by the vast majority of employees in the enlarged Group have been truly heartening. In large measure their efforts have been responsible for the excellent progress the Group has made, and I am delighted to pass on the Board's very sincere thanks.
The Group's senior management has been strengthened by a number of new appointments, coming both from internal promotion and external recruitment. Under our new structure, we believe the team now in place is well capable of leading the Group through the next stage of its development.
Quadnetics' Board expanded significantly last year. We were joined by Bob Westcott and Dennis Bate as independent non-executive directors, and by two new executive directors, David Orme as Operations Director, and Glenn Robinson as Technical and Business Development Director. The diversity of relevant experience and robust viewpoints this group brings to the Board are proving of great benefit to us.
Outlook
Overall, 2005/6 was a very satisfactory year, which has positioned Quadnetics for further growth. The Group has entered its current financial year with confidence and a real sense of momentum.
Aggregate order books for the continuing and acquired businesses at 31 May 2006 were approximately 30% higher than at the corresponding date a year earlier.
Quadnetics has created significant opportunities through the combination of strong positions as a service provider in specific customer sectors, and market leading Synectics technology in certain key elements of security systems solutions. We plan to capitalise on these opportunities by increasing product development expenditure for Synectics, both to broaden the product range and to enable it to scale more easily.
With strong order books and increased earnings visibility across our businesses, the Board expects further good progress in financial results for the current year.
David Coghlan
19 September 2006
Consolidated Profit & Loss Account
For the year ended 31 May 2006
Before
excep-
tional
items and Excep-
goodwill tional Goodwill Restated
amorti- items amorti- 2006 2005
sation (note 2) sation Total Total
Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling
Notes '000 '000 '000 '000 '000
Turnover 1
Continuing
operations 29,987 - - 29,987 26,761
Acquisitions 19,655 - - 19,655 -
---------------------------------------------
Total turnover 49,642 - - 49,642 26,761
Cost of sales (34,495) - - (34,495) (18,107)
---------------------------------------------
Gross profit 15,147 - - 15,147 8,654
Net operating expenses (11,680) (965) (740) (13,385) (6,528)
---------------------------------------------
Operating profit
Continuing ---------------------------------------------
operations 2,452 (260) (492) 1,700 2,126
Acquisitions 1,015 (705) (248) 62 -
---------------------------------------------
Total operating profit 3,467 (965) (740) 1,762 2,126
Exceptional item in
respect of a
subsidiary
disposed of in
a previous year 3 - (300) - (300) -
Net interest
receivable 147 - - 147 139
---------------------------------------------
Profit on ordinary
activities before
taxation 3,614 (1,265) (740) 1,609 2,265
---------------------------
---------------------------
Tax charge on ordinary
Activities 4 (178) (48)
-----------------
Profit for the
financial year 1,431 2,217
-----------------
-----------------
Basic earnings per
ordinary share 6 10.4p 19.2p
-----------------
-----------------
Diluted earnings per
ordinary share 6 10.4p 19.1p
-----------------
-----------------
All activities are continuing.
In 2005 net operating expenses included amortisation of goodwill
amounting to Pounds Sterling 396,000 and the tax charge on ordinary
activities included an exceptional tax credit of Pounds Sterling
302,000.
Consolidated Balance Sheet
31 May 2006
Restated
2006 2005
Pounds Pounds
Sterling Sterling
Notes '000 '000
Fixed assets
Intangible assets 7 16,925 9,183
Tangible assets 2,049 1,280
--------------------
18,974 10,463
--------------------
Current assets
Stocks 4,281 3,040
Debtors 19,904 9,896
Cash at bank and in hand 8,940 3,562
--------------------
33,125 16,498
Creditors: amounts falling due within
one year (21,758) (7,527)
--------------------
Net current assets 11,367 8,971
--------------------
Total assets less current liabilities 30,341 19,434
Creditors: amounts falling due after more
than one year - (3)
Provisions for liabilities and charges 8 (1,763) (1,102)
--------------------
Net assets 28,578 18,329
--------------------
--------------------
Capital and reserves
Called up share capital 9 3,263 2,341
Share premium account 9 13,634 12,622
Merger reserve 9 9,565 -
Other reserves 9 (1,307) 715
Profit and loss account 9 3,423 2,651
--------------------
Equity shareholders' funds 28,578 18,329
--------------------
--------------------
Consolidated Cash Flow Statement
For the year ended 31 May 2006
2006 2005
Pounds Pounds
Sterling Sterling
Notes '000 '000
Net cash inflow from operating activities 3,246 1,939
Returns on investments and servicing of
finance 132 107
Taxation (299) (1,398)
Net capital expenditure and financial
investment (238) (497)
Acquisitions 10 3,220 (867)
Equity dividends paid (573) (462)
--------------------
Cash inflow/(outflow) before use of liquid
resources and financing 5,488 (1,178)
Management of liquid resources - 2,500
Financing (110) 29
--------------------
Increase in cash 5,378 1,351
--------------------
--------------------
Reconciliation of Net Cash Flow to Movements
in Net Funds
For the year ended 31 May 2006
2006 2005
Pounds Pounds
Sterling Sterling
Notes '000 '000
Increase in cash in the year 5,378 1,351
Decrease in bank deposits - (2,500)
Decrease in debt and lease financing 395 63
--------------------
Change in net funds resulting from
cash flows 5,773 (1,086)
Acquisitions (53) -
--------------------
Movement in net funds in the year 5,720 (1,086)
Opening net funds 3,200 4,286
--------------------
Closing net funds 8,920 3,200
--------------------
--------------------
Statement of Total Recognised Gains
and Losses
For the year ended 31 May 2006
2006 2005
Pounds Pounds
Sterling Sterling
Notes '000 '000
Total gains recognised since the last
annual report:
Profit for the financial year 1,431 2,217
Other recognised gains and losses
relating to the year - currency
translation adjustment (9) -
--------------------
1,422 2,217
--------------------
--------------------
Reconciliation of Movements in Shareholders'
Funds
For the year ended 31 May 2006
Restated
2006 2005
Pounds Pounds
Sterling Sterling
Notes '000 '000
Profit for the financial year 1,431 2,217
Dividends (573) (462)
--------------------
858 1,755
Other recognised gains and losses
relating to the year - currency
translation adjustment (9) -
Issue of shares 9,477 410
Share buy-back (77) -
--------------------
Net movement in shareholders' funds 10,249 2,165
Opening shareholders' funds (originally
Pounds Sterling 17,978,000 (2005: Pounds
Sterling 15,818,000) before adding prior
year adjustment of Pounds Sterling 351,000
(2005: Pounds Sterling 346,000)) in respect
of dividends 18,329 16,164
--------------------
Closing shareholders' funds 28,578 18,329
--------------------
--------------------
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 SSS Management Services Limited, SDA Protec and Falcon Protec, which were acquired in November 2005 (see note 10). The turnover and results of the Protec businesses are shown under Acquisitions within these statements.
2. Exceptional operating expenses arise in relation to the restructuring of the Group's business as a result of the acquisition of Protec plc.
3. The Company has made provision of Pounds Sterling 300,000 for dilapidations and other costs in relation to its liabilities as a former lessee of a property. The property was, until recently, occupied by a former subsidiary which was sold in 1996, and which has now gone into administration.
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 Pounds Sterling 2.7 million (2005: Pounds Sterling 1.1 million). These tax losses will reduce the corporation tax payable in future years until the companies concerned achieve sufficient taxable profits to utilise the losses. A deferred tax asset in respect of part of these losses, amounting to Pounds Sterling 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. A final dividend of 3.5p per share, totalling approximately Pounds Sterling 542,000 will be paid on 7 December 2006 to shareholders on the register on 10 November 2006, subject to approval at the Company's Annual General Meeting.
In accordance with FRS21 and the Companies Act 1985, dividends are no longer presented on the face of the profit and loss account but are charged directly to reserves when they are paid or approved by shareholders. As a result, comparative figures have been amended to exclude the 2004/5 dividends of Pounds Sterling 467,000 from the face of the profit and loss account, and to make a prior year adjustment of Pounds Sterling 351,000 to exclude from reserves the proposed 2004/5 final dividend.
6. Earnings per Ordinary share are as follows:
2006 2005
Pence Pence
per per
share share
Basic earnings per ordinary share 10.4 19.2
-----------------------
-----------------------
Diluted earnings per ordinary share 10.4 19.1
-----------------------
-----------------------
Underlying earnings per ordinary share 24.2 20.0
-----------------------
-----------------------
Underlying diluted earnings per ordinary share 24.2 19.9
-----------------------
-----------------------
The calculation of basic earnings per ordinary share is based on the profit after taxation for the year of Pounds Sterling 1,431,000 (2005: Pounds Sterling 2,217,000) and on 13,781,617 shares, being the weighted average number of shares in issue and ranking for dividend during the year (2005:11,546,335).
The calculation of diluted earnings per ordinary share is based on the profit after taxation for the year of Pounds Sterling 1,431,000 (2005: Pounds Sterling 2,217,000) and on 13,789,163 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 (2005:11,590,130).
Profit Weighted
after tax average
Pounds number of Earnings per
Sterling ordinary ordinary share
'000 shares p per share
Year ended 31 May 2006
Basic earnings per ordinary share 1,431 13,781,617 10.4
Dilutive potential ordinary shares
arising from share options - 7,546 -
------------------------------------
Diluted earnings per ordinary share 1,431 13,789,163 10.4
------------------------------------
------------------------------------
Year ended 31 May 2005
Basic earnings per ordinary share 2,217 11,546,335 19.2
Dilutive potential ordinary shares
arising from share options - 43,795 (0.1)
------------------------------------
Diluted earnings per ordinary share 2,217 11,590,130 19.1
------------------------------------
------------------------------------
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 (after adjusting for their impact on the tax charge for the year) and amortisation of goodwill, of Pounds Sterling 3,338,000 (2005: Pounds Sterling 2,311,000) and on 13,781,617 shares, being the weighted average number of shares in issue and ranking for dividend during the year (2005:11,546,335).
Profit Weighted
after tax average
Pounds number of Earnings per
Sterling ordinary ordinary share
'000 shares p per share
Year ended 31 May 2006
Basic earnings per ordinary share 1,431 13,781,617 10.4
Exceptional items 1,265 - 9.1
Impact of exceptional items on tax
charge for the year (98) - (0.7)
Goodwill amortisation 740 - 5.4
------------------------------------
Underlying earnings per ordinary
share 3,338 13,781,617 24.2
------------------------------------
------------------------------------
Year ended 31 May 2005
Basic earnings per ordinary share 2,217 11,546,335 19.2
Exceptional items - tax credit (302) - (2.6)
Goodwill amortisation 396 - 3.4
------------------------------------
Underlying earnings per ordinary
share 2,311 11,546,335 20.0
------------------------------------
------------------------------------
The calculation of underlying diluted earnings per ordinary share is based on the profit after taxation for the year, but before deducting exceptional items (after adjusting for their impact on the tax charge for the year) and amortisation of goodwill of Pounds Sterling 3,338,000 (2005: Pounds Sterling 2,311,000) and on 13,789,163 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 (2005:11,590,130).
Profit Weighted
after tax average
Pounds number of Earnings per
Sterling ordinary ordinary share
'000 shares p per share
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
------------------------------------
------------------------------------
Year ended 31 May 2005
Underlying earnings per ordinary
share 2,311 11,546,335 20.0
Dilutive potential ordinary shares
arising from share options - 43,795 (0.1)
------------------------------------
Underlying diluted earnings per
ordinary share 2,311 11,590,130 19.9
------------------------------------
------------------------------------
7. Intangible assets include Pounds Sterling 8.5 million of goodwill arising on the acquisition of Protec plc.
8. Provisions for liabilities and charges comprises provision for deferred consideration payable in respect of the trade and assets of Alphapoint, Inc in May 2005 (Pounds Sterling 1.1million), restructuring provisions (Pounds Sterling 0.2 million) and property provisions (Pounds Sterling 0.5 million).
9. Movements on shareholders' funds in the period are as follows:
Profit
Share Share Merger Other and loss
capital premium reserve reserves account Total
Pounds Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling Sterling
'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
for the year - - - - 1,431 1,431
Dividends paid - - - - (573) (573)
Issue of shares to
Protec share
option holders 15 130 - - - 145
Issue of shares to
Employee Share
Scheme 168 1,862 - (2,030) - -
Transfer between
reserves in
respect of
previous
acquisition - (980) 980 - - -
Consideration for
acquisition of
Protec plc
- shares issued 623 - 7,160 - - 7,783
- shares to be
issued 124 - 1,425 - - 1,549
Share buy back (8) - - 8 (77) (77)
Currency
Translation
adjustment - - - - (9) (9)
-----------------------------------------------------
3,263 13,634 9,565 (1,307) 3,423 28,578
-----------------------------------------------------
During the year ended 31 May 2006 842,000 ordinary shares of the Company were allotted to the Quadnetics Group Employee Share Scheme at a value of Pounds Sterling 2.03 million with the substantial majority of the funding for subscription for these shares provided as an interest-free loan by the Company. The value of own shares held within the Quadnetics Group Employee Share Scheme has been deducted from shareholders' funds and the number of shares has been excluded from the earnings per share calculations.
The Merger reserve has been created in accordance with s131 of the Companies Act 1985 whereby the premium on Ordinary shares in the Company issued to acquire shares has been credited to the Merger reserve rather than the Share premium account.
10. On 9 November 2005 the Offer made by Brewin Dolphin Securities Ltd on behalf of the Company for 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.
Under the terms of the offer Protec shareholders would receive one new Ordinary share of 20p each in Quadnetics Group plc for every 43 Ordinary shares of 1p each in Protec plc.
On 8 February 2006 notice was given to those Protec shareholders who had not accepted the Offer informing them that Quadnetics would compulsorily acquire their Protec shares by applying sections 428 to 430F of the Companies Act 1985. As a result the Company had issued 3,113,150 ordinary shares, valued at Pounds Sterling 2.50 each, to former holders of Protec shares as at 31 May 2006. In addition, at that date, a further 619,711 ordinary shares remained to be issued to Protec shareholders who had irrevocably accepted the Offer, thus transferring beneficial interest in their Protec shares to the Company, but who had not at that time perfected their acceptance by submitting valid share certificates to the Company's registrars.
Net cash inflows from acquisitions comprise bank balances acquired in Protec of Pounds Sterling 4.1 million less acquisition expenses of Pounds Sterling 0.5 million. In addition a payment of Pounds Sterling 350,000 was made during the year in settlement of loan notes issued as consideration for Look Closed Circuit TV Limited in February 2004.
11. The preliminary results for the year have not been audited by the Group's auditors and do not constitute statutory accounts. The comparative figures for 2005 have been abridged from the statutory accounts for the year ended 31 May 2005. 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 2005 have been filed with the Registrar of Companies.
12. 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 -
‚© 2006 - CCNMatthews