TIDMDGB
RNS Number : 2782C
Digital Barriers plc
27 June 2016
27 June 2016
Digital Barriers Plc
("Digital Barriers" or the "Group")
Preliminary Results for the year ended 31 March 2016
Digital Barriers (AIM: DGB) the specialist provider of visually
intelligent technologies to the global surveillance, security and
safety markets, announces audited results for the year ended 31
March 2016.
Key Highlights
-- Revenues for continuing operations in line with expectations at GBP21.1 million
-- Solutions division revenues increased organically 53% to
GBP18.2 million (2015: GBP11.9 million)
-- International revenues increased organically 113% to GBP15.1
million (2015: GBP7.1 million) to account for 83% of total organic
revenues (2015: 59%)
-- Adjusted losses reduced by 56% to GBP4.7 million (2015: GBP10.6 million)
-- Enhanced strategic alignment of business through acquisition
of Brimtek Inc. in the United States and divestment of UK Services
division (completed after period-end)
-- GBP27.1 million (net of placing costs) raised through new
share issue in December 2015 to fund acquisition of Brimtek and
working capital for enlarged Group
-- First global industry partner OEM contract secured, with Axis
Communications for SafeZone analytics
Commenting on the results Zak Doffman, CEO of Digital Barriers,
said
The strong international growth we have announced today shows
the potential for us to sell solutions differentiated by our
world-class IP into an extremely large global market. In addition
to strong revenue growth in our core business, we have also
delivered on our promise to secure significant channels to market,
with deals announced with Axis and Mobily and the launch of a
wireless safe city camera with Canon.
The divestment of our non-core UK Services division, coming very
shortly after the acquisition of Brimtek in the United States, has
ensured that we are now consistently focused with a platform for
future growth in each of our regions. In addition to supporting
customer organisations tasked with addressing the degrading global
security situation, we also have ongoing discussions with an
increasing number of channel and technology partners in the network
video and IOT domains. As such, we are well positioned to deliver
the continued momentum and further growth we need to achieve
profitability in the current financial year.
For further information
please contact:
Digital Barriers Plc +44 (0)20 3553 5888
Zak Doffman, Chief Executive
Officer
Sharon Cooper, Chief Financial
Officer
Investec Investment Banking +44 (0)20 7597 5970
Andrew Pinder / Dominic
Emery
FTI Consulting LLP +44 (0)20 3727 1000
Edward Bridges / Matt Dixon
About Digital Barriers:
Digital Barriers provides visually intelligent solutions to the
global surveillance, security and safety markets. We deliver
zero-latency streaming and analysis of secure video and related
intelligence over wireless networks, including cellular, satellite,
IP mesh and cloud, utilising significantly less bandwidth than
standard technologies.
Our rapidly-installed fixed and mobile solutions for covert,
remote and wide-area deployments, as well as vehicle and body-worn
applications, have been sold into more than fifty countries, and
have been proven in some of the world's most demanding operational
environments. We also provide advanced video content analysis and
body scanning to identify safety concerns and threats in
real-time.
www.digitalbarriers.com
Chairman's statement
This was an important year for the Group in delivering against
our strategy to establish a high-momentum surveillance and security
technology business capable of generating strong growth by selling
proprietary, IP-rich solutions to flagship customers around the
world. The momentum of our Solutions division, which delivered
organic revenue growth of 53% over the prior year, has seen us
reach an inflection point - both in terms of our growth and in our
relevance to customers. Our Solutions division traded strongly
throughout the period, but especially so in the second half, with
organic revenues 72% higher than the first half. International
revenue growth was even stronger, increasing organically 113%
(2015: 42%) through the year to GBP15.1 million (2015: GBP7.1
million), accounting for 83% of total organic revenues (2015: 59%).
This has firmly established the Group as an export-led business,
selling into a significant number of customers across our Americas,
EMEA and Asia-Pacific regions, reducing the risk from exposure to
any single customer or market.
This revenue growth is, in part, attributable to the shift from
products to solutions that I detailed last year, transitioning from
discrete hardware and software products to fully integrated
solutions, built around our world-class IP. This has helped secure
long-term relationships with key customers and partners, it has
enabled us to standardise offerings and also to control the quality
of customer experience. This, in turn, has led to a material
increase in gross margins across our Solutions division to 50%
(2015: 43%), with organic Solutions gross margins up to 55%.
Selling integrated solutions has also accelerated the pace of
repeat sales to existing customers and has opened up a pipeline of
larger opportunities.
This was also an important year for the Group in the United
States with the acquisition of Brimtek, providing us with a solid
platform for future growth in the largest single market for defence
and homeland security technologies in the world. The importance of
the US market has been increased further by the on-going funding
allocated for new equipment following the Federal Communications
Commission's 2015 auction of cellular spectrum which is expected to
drive material investment in surveillance technology over the
coming three to four years. Brimtek designs highly specialised
solutions which provide increased situational awareness and
operational advantages for its customers across defence, law
enforcement and counter-terrorism, with whom it has key contracting
relationships. Historically Brimtek has partnered with a range of
other technology providers to develop integrated solutions tailored
for this specialist marketplace. Moving forwards, their focus will
be on developing highly differentiated solutions built around
technologies from Digital Barriers and a select number of our
strategically important technology partners.
In order to fund the acquisition of Brimtek, and to provide
additional working capital for the enlarged Group, we raised
GBP27.1 million after placing costs from existing and new investors
in December 2015. Once again we were gratified by the strength and
depth of support from our shareholders, who recognise the
compelling potential of our technology portfolio and the markets we
can access around the world. We were also delighted to welcome a
number of new, material investors to the Group.
By the end of the year it had already been clear for some time
that our UK Services division had become non-strategic to the
Group's future, and following the acquisition of Brimtek the Board
announced its intention to dispose of the division to its existing
management team for a nominal consideration. The disposal was
completed on 19 May 2016 following the required employment
processes for the transfer of staff. The Services division was the
first part of Digital Barriers to be developed after the Group's
flotation in 2010. It provided tremendous value in customer
references and credibility as we acquired and developed our
technology portfolio and international network. Now, with strong
continuing momentum in our Solutions division, this is no longer
needed. The disposal of the division, whose performance lagged
significantly behind the Solutions division in terms of both growth
and gross margins, tightens the Group's strategic focus on
developing and selling high-tech, higher margin solutions into the
global surveillance, security and safety markets. The division is
treated as a discontinued business in the Group's financial results
for the period.
We are now diversifying beyond our traditional intelligence,
defence and law enforcement markets, to extend our technical
solutions to include broader security and safety applications.
However, the global security context has undoubtedly worsened this
year, and this has maintained our focus on serving our key
customers tasked with combating the threat from international and
domestic terrorism, as well as with the commercial operators of
critical infrastructure facilities, mass transportation networks
and key natural resources. The degrading security situation is
particularly apparent close to home in Europe, with high-profile
terrorist attacks on public spaces, increasing tensions on the
region's eastern borders, and the continuing migration crisis.
Countries across Asia Pacific, North, West and East Africa, the
Indian Subcontinent, and of course the Middle East, face the same
set of challenges in keeping their public safe from harm, and
securing their borders and critical infrastructure, and we are
heavily engaged in these regions. Meanwhile, the US is maintaining
its technical leadership in defence and law enforcement, whilst
addressing domestic radicalisation and organised threats to public
safety at home as well as continued engagements overseas, and we
are extremely proud to be heavily engaged in supporting primary US
agencies. Many of our technologies are unique, providing a level of
capability that is quite simply unavailable from anyone else,
designed to meet the highly demanding requirements of these
flagship customers around the world.
As a business focused on sustained investment in this portfolio
of world-class intellectual property, finding highly scaleable
channels to market via global industry players is a key part of our
strategy, As such, developing industry recognition is extremely
important to us and our first major success in this area has been
an OEM contract for our SafeZone video analytics software with Axis
Communications. As a global market leader in network cameras, Axis
will now distribute our software globally under its brand. The new
product won Best Analytic on its formal April 2016 launch at ISC
West in the United States. Axis and its parent, Canon, are
important partners to the Group, and we were delighted to win the
2015 Axis ASEAN Project of the Year Award for a major Police
Project in Asia. We were also delighted that ThruVis, the only
rapidly deployable camera capable of detecting objects such as
weapons and explosives concealed under clothing, secured a Frost
and Sullivan Best Practice Award during the year for Technology
Innovation in Terahertz Security Systems; these best practice
awards are presented to companies predicted to encourage
significant growth through the creation of advanced technologies
that will transform industries in the near future.
Behind the strong organic growth we delivered during the year,
there are of course an increasing number of highly-valued, and
increasingly long-standing, relationships with customers and
partners, and much of our sales pipeline is now repeat sales.
Revenue growth during the year was especially strong in Asia
Pacific and the United States, with a strong pipeline built into
the Middle East and Europe to be converted as we look to maintain
our momentum. The UK endured another difficult year, with further
pressure on public spending leading to delays in procurements
across our defence and security customers. Fortunately, the Group
has now reached a scale in its overseas regions to hedge against UK
performance, albeit we feel extremely well positioned given our
heritage and the quality of our technologies for when spending in
the UK returns to more normal levels. As regards the UK exit from
the European Union, we do not currently envisage any material
trading implications for the Group given the nature of our
customers and the channels to market, although we will be keeping
the currency implications under review.
We continue to invest in building a high performing culture
within the business. Particular focus has been given to
strengthening our sales and pre-sales teams in Asia and the US,
where we have added individuals with excellent customer
relationships. Encouraged by our progress with Axis, we have
created a new senior management role to focus on these types of
global technology partnerships. Finally, we have been building a
common culture and set of values across our offices through a staff
mentoring programme which aims to improve communication and enhance
a common sense of purpose across the company.
In combination, our strong organic growth and continued
momentum, our acquisition of Brimtek, and our divestment of the UK
Services division, has enabled the Group to start the new financial
year in better shape than ever before, with our sights firmly set
on delivering the growth needed to deliver profitability in the
period now underway. I am confident in our strategy and the Board
remains comfortable with its expectations for this financial year
driven by continued international growth and high-quality
engineering to maintain significant technical leadership in our
field.
Update on strategy
What we do
We provide visually intelligent solutions for the global
surveillance, security and safety markets, specialising in
zero-latency streaming and analysis of secure video and related
intelligence over wireless networks, including cellular, satellite,
IP mesh and cloud.
The evolving global security context increases demand for the
types of solutions that we develop and sell. Our solutions for
covert, remote and wide-area installations, as well as vehicle and
body-worn applications, require significantly less network
bandwidth than standard technologies and have been sold into more
than fifty countries, including some of the world's most hostile
and demanding operational environments. We also provide advanced
video content analysis and body scanning to identify threats to
life, safety concerns and illicit activity in real-time.
Our solutions have been developed for specialist areas of
security and defence, as well as for the protection of high-profile
locations such as borders, airports, military bases, public
transportation systems and natural resources.
Our heritage
From IPO in 2010 to 2013, we acquired fourteen businesses with
compelling intellectual property (IP) and capabilities. We fully
integrated these businesses into a single platform for the
continual innovation of proprietary IP-rich solutions and a sales
organisation covering key regions around the world.
Since late 2014, with our hardware and software products now
fully updated, we have introduced a set of integrated solutions
designed to deliver an end-user capability rather than standalone
hardware and software applications. This evolution from products to
solutions has significantly eased the deployment of customer
solutions and has allowed us to exercise more control over the
quality of user experience for our customers.
Our operations today
We operate in three regions around the world: EMEA, from
regional offices in London, Nice and Dubai; Asia-Pacific, from
regional offices in Singapore, Kuala Lumpur and Seoul, and the
Americas from an office in Ashburn, in the Washington DC
Metropolitan area.
Our focus is on the continual development of class-leading
hardware and software solutions based on our portfolio of IP, and
selling these solutions to flagship customers across our regions,
either with partners, through our cloud-based offering, or through
OEM channels to market where our IP is white-labelled on a
non-exclusive basis.
Market positioning
With a very clear view now established on the competitiveness of
our technology portfolio, we undertook a major rebranding exercise
across the company. This resulted in our "Visually Intelligent
Solutions for Surveillance, Security and Safety" tagline, selected
to focus on our video-related technologies, the differentiation we
achieve through ground-breaking video analytics and how we intend
moving beyond today's core position in the government surveillance
market towards the broader network video market and on into new
emerging markets for real-time video services (for example,
autonomous vehicle safety).
We introduced new solution family brands, incorporating the
Visually Intelligent Solutions ("VIS") theme as follows:
-- EdgeVis Live - Real time video streaming from anywhere to
anywhere even over bandwidth constrained and congested networks
using 60% less bandwidth than standard technologies
-- EdgeVis Shield - An integrated surveillance platform that
provides real time video streaming and early warning intrusion
alerts for remote locations
-- ThruVis - A unique rapidly-deployable camera capable of
detecting weapons and explosives concealed under clothing from a
range of up to 15 metres or identifying a drug smuggler at a busy
border crossing.
-- SmartVis - Our range of intelligent edge-based advanced video
analytic solutions and automation tools such as intrusion detection
and facial recognition
-- CloudVis - Cloud-based visually intelligent video analytics
for facial recognition and detecting intrusions with an
unprecedented record for filtering out false alarms
Business Review
Regional updates
Asia Pacific
We achieved growth of 171% in the period, building on our
progress over the last two years. We have achieved this success by
staying focused on key markets and developing strategic
implementation partners with good relationships into major
government clients. In particular, large follow-on sales have been
a key driver of growth and we expect this to continue to increase
as we embed our solutions into a wider client base.
This is especially apparent with ThruVis, where we established
key reference customers in prior years and are now successfully
converting these to material sales. We continue to invest in
expanding our pipeline by seeking these smaller initial deployments
aided by our strong credentials.
Key sales were:
-- EdgeVis Live vehicle solution - GBP2.6 million repeat sales
of our video surveillance solution sold into a national police
force for use in its police cars. We anticipate that this
deployment will continue to expand and will act as a reference for
other customers in the region.
-- EdgeVis Shield maritime border surveillance solution - in
total, GBP2.8 million sale of our wide-area border surveillance
solution incorporating video, thermal cameras, radars and our
ground sensors.
-- ThruVis border checkpoint solution - GBP1.6 million sale of
ThruVis units to a major government agency for border protection
and anti-terrorism applications. With major reference clients for
large deployments, and a large number of existing clients trialling
systems on a small scale, we expect growth to continue.
North America
In FY16 we achieved organic revenues growth of 60% to GBP2.8
million and added GBP2.9 million of revenues from Brimtek
post-acquisition. After considerable R&D effort, we now have
the EdgeVis Live products and enterprise-grade software scalability
required by various Federal government agencies, and we expect to
see increasing scale of adoption as these agencies move through
their major equipment refresh programme, stimulated by spectrum
sale proceeds.
Brimtek performance post-acquisition has been encouraging with
the expected benefits from framework contract ownership being
realised. Our Federal government clients have responded very
positively to the fact that they can now buy our solutions from a
US-based company. Through Brimtek, we are also now building on our
end-to-end capability to design, engineer, manufacture, integrate
and deliver solutions which we will exploit to iterate at a faster
pace on local requirements.
We continue to address the quasi-governmental and commercial
markets with specific focus on taking EdgeVis Live into the Oil and
Gas market given new regulations for real-time monitoring post the
Deepwater Horizon oil spill in 2010, and ThruVis into the broader
aviation security market.
Key sales were:
-- EdgeVis Live IP250 and derivative solutions - $2.3 million
sale of newly developed, EdgeVis live products to a US government
agency for operational surveillance requirements. This includes our
first contract to integrate some of our SmartVis video analytics to
provide a ground-breaking new surveillance capability. This order
is part of a significant trend towards strategic adoption of
EdgeVis Live by Federal government agencies.
-- Continued success for Brimtek - $5.9 million contract award
for third-party products under an existing procurement framework,
demonstrating the ongoing viability of these contracts.
EMEA
Progress in Europe has been encouraging with 36% growth achieved
bringing revenues above GBP1 million in the year. This success is
attributed to increased focus on a number of countries, especially
post the attacks on Paris and Brussels, and by working even more
closely with a handful of key implementation partners. With our
SmartVis video analytics work being lead from our office in Nice,
it has been especially pleasing to see continued penetration of
SmartVis technology into the French market. Broader demand is
expected to be driven by immigration issues in southern Europe and
ongoing geopolitical uncertainty in Eastern Europe.
Weak UK government spending and limited progress diversifying
into broader commercial markets, meant UK revenues disappointed at
GBP3.1 million.
In the Middle East we continue to focus on the major economies
in the region dealing with various forms of extremist threats. Our
approach is to work with key partners that have ethical access to
projects in our core markets. This led to a partnership agreement
with Mobily, a major Saudi Arabian mobile phone operator,
illustrating the potential for this approach and positioning us
well for further expansion. Relatively long sales cycles means the
Middle East remains an investment market for Digital Barriers.
Key sales were:
-- EdgeVis Live security solution - GBP1.0 million agreement for
the supply of Mosque protection systems via Mobily, a major Saudi
Arabian mobile phone operator.
-- SmartVis face recognition sale - our first material face
recognition sale to a major European government agency for use in
building a suite of face recognition applications.
-- EdgeVis Live sales integrators - our existing relationships
continue delivering, including GBP0.6 million repeat sales to BT
Redcare.
-- EdgeVis Shield pipeline protection solution to oil major -
GBP0.2 million sale of video, thermal cameras and ground sensors to
oil major in West Africa seeking to better protect its oil pipeline
infrastructure from substantial organised crime threat.
Core Solutions and Products
Our solutions and products are built around proprietary
world-class intellectual property, providing the Group with a
defensible and highly differentiated position in the
marketplace.
-- ThruVis is the only camera in the world that can be used to
detect threats to life such as weapons and explosives concealed
under multiple layers of clothing. It offers a level of protection
for airports, public transportation networks, shopping malls,
schools, universities and other secure or high-profile locations
that has never been available before. ThruVis is mobile and
discreet, flexible and rapidly deployed, requiring no fixed
infrastructure unlike other screening technologies such as those
deployed at airports and secure buildings. All of these attributes
make ThruVis unpredictable and much more difficult for a would-be
adversary to rehearse against. It can be intelligence-led,
responding to specific threats or operational needs. The uniqueness
of ThruVis, and its potential to defend against the types of
attacks now being seen around the world, has led to significant
media attention for the technology and a marked increase in demand
as more organisations around the world become aware of the
capability.
-- EdgeVis, our platform for streaming live video from anywhere
to anywhere, featuring end-to-end security, real world resilience
and network optimisation to provide usable live video using 60%
less bandwidth than standard technologies, is equally unique. We
are increasingly seeing emergency and public service vehicles
equipped with live video systems, body-worn cameras being widely
deployed for law enforcement, military and lone or vulnerable
worker applications, and safe or smart city schemes leading to the
installation of significant numbers of network cameras. With this
exponential rise in the requirement for live video, the perceived
benefits of the immediacy of live video over the storage of video
on data cards for after-event analysis, the potential of our
EdgeVis Live and EdgeVis Shield solutions which can deliver live
video at a fraction of the bandwidth required by competing
technologies, and which integrate "glass to glass" between standard
cameras and standard video management systems, is exceptional.
-- The SmartVis suite of applications has been designed to
provide customers with the flexibility to focus their surveillance,
security and safety technologies on what's important to them. In a
world where immediacy of information is paramount, providing only
what's needed but doing so in real time, intelligent analytics has
become critical. This includes cameras that reliably alert on
specific events, software that can adapt video streams to changing
environments, an application to automatically check the performance
and even positioning of entire networks of thousands of camera
ensuring that an incident will be captured and won't be missed. Our
SmartVis software library is expanding, and over the coming months
will include our advanced facial recognition technology for the
first time. Our software has been designed to be embedded on
cameras and other 'edge' devices, such as our EdgeVis hardware
products. Simplifying deployment and cutting costs for customers.
The launch of CloudVis during the period takes this a stage
further, and many of our applications are available online
providing more flexible revenue models.
New solutions and products
Our sales model involves generating exceptionally close
relationships high levels of intimacy with customer organisations
and their end-users around the world. We constantly listen to their
emerging needs and requirements and we use this input to develop
and refine our solutions. These are based around our core product
set, with carefully selected and integrated "best of breed" third
party components. This allows us to deliver and support complete
capabilities for our customers, driving additional revenue and
generating better "sum of the parts" margins, given the value-add
of our solutions.
In the last year, we have introduced a number of new solutions
including;
-- Body-worn live streaming video using EdgeVis Live - we have
worked with another UK-based vendor of body worn camera and
evidence management software to produce the world's first fully
functioning live streaming body worn capability. This has already
generated significant interest and we expect to see very rapid
developments in this market in the coming months.
-- Specialist variants of EdgeVis Live - we extended our core
EdgeVis Live products to meet the very specific covert surveillance
needs of various US government customers.
-- Motorbike-based surveillance - we have extended our live
video solution for police cars onto motorbikes and included
tethered body cams to provide extra protection and live video
coverage for dismounted officers.
-- Railway asset protection - we have optimised the performance
of our ground sensors, as part of an EdgeVis Shield solution, to
filter false alarms created by train vibrations, to protect railway
assets from attack. Initial sales to a major European railway
operator saved over GBP0.5 million and reduced vandalism in 6
months.
-- Cloud delivery models for video analytics - CloudVis is
designed for users who need flexibility in how they apply
intelligence to their video. Early CloudVis traction is being
generated with an application to provide automatic health checks on
networks of thousands of deployed cameras.
Channel partners
Our principal go-to-market approach has been to influence end
clients direct and, where we are not able to sell direct, to work
through local champion implementation partners to sell and deliver.
As an increasing number of market opportunities open up outside our
core government surveillance niche, we have invested in building
broader industry partnerships with major global technology groups.
Our aim is to utilise these organisations' brands and global reach
to generate additional demand and brand recognition for Digital
Barriers. We remain confident that these channel and OEM
relationships will, in due course, deliver potentially highly
scalable revenues with significantly reduced cost of sale,
complementing our current direct sales model.
In this period, we have taken several significant steps to
realising the potential of this approach to the market, examples of
which are as follows:
-- OEM deal with Axis - Our relationship with Axis, one of the
world's leading network camera manufacturers (now owned by Canon),
has developed into an OEM agreement to supply a white label version
of SafeZone-edge. Axis Perimeter Defender was launched in early
2016 which give our intrusion detection analytic access to a much
larger distribution network as well as previously untapped markets
such as the US.
-- Joint market development with Canon - based on the progress
with Axis, we are now also working with Axis' parent, Canon, on the
joint development of a wirelessly enabled "safe city camera". This
is targeted initially at the very rapidly expanding Asian market
for wireless video infrastructure. This initiative will be launched
with Canon at London's IFSEC security show in June.
-- Mobily VSAAS for Saudi Arabia - Launch of a VSAAS offering:
the first of its kind, secure zero-latency solution will be
critical to helping ensure continued safety and security across the
country.
Based on the progress we are making in this area, we have
created a new senior management role to focus on these types of
global technology partnerships.
Research and development
We maintain a very active research and development programme
that aims to ensure we retain a substantial competitive advantage
against general industry trends and specific competitor threats.
Highlights of the last year are:
-- Emerging industry standards - we continue to invest in
developing our core video compression technology (TVI) on which our
EdgeVis solution sets are based. This development work is focused
on ensuring we remain highly competitive as new video compression
standards, such as H.265, emerge in product format, and will allow
us to work with increasing camera resolutions (such as 4K
cameras).
-- Exploiting next generation chipsets - the ongoing video
intensive demands of the smartphone, gaming and autonomous vehicle
is leading to new microprocessor architectures with substantially
improved video processing. We are actively researching how to
exploit these as the basis of future EdgeVis Live products.
-- ThruVis development - driven by needs of mass transit
security post-Paris and Brussels attacks, we continue to work
closely with government sponsors to develop our ThruVis technology
to identify weapons and explosives concealed in clothing as people
walk through crowded spaces such as railway and airport
concourses.
-- Development of deep learning analytics - this year we have
progressed our facial recognition technology using revolutionary
"deep learning" algorithm development techniques. This places us
firmly in the vanguard on this exciting new area of artificial
intelligence development.
Operations
We continue to work to improve our ability to deliver high
quality solutions in a timely manner to our customers, and provide
responsive post-sales support. To achieve this, we have focused on
the following areas in the last year:
-- Improving our facilities in the UK and US - we have expanded
and improved our solutions assembly, test and delivery centres in
both Didcot and Ashburn, US following the Brimtek acquisition.
These ongoing investments will allow us to continue scaling
operations.
-- Strengthening our supply chain management - we have reduced
the number of suppliers we work with and have continued to mature
processes in this area to improve stock availability and cash
flow.
-- Improving our post-sales support arrangement - we continue to
improve our management information tools and have increased
staffing levels in this area.
-- IT security improvements - we continue to invest in
streamlining and improving the security of our IT
infrastructure.
With rapid growth in US and Asia, will be replicating best
practice in UK into our US office and then into a new Asia-based
operations centre which we anticipate opening later in FY17 to
service rapid growth in that region.
People
Given strategic progress now being made in Asia and the US, we
have invested in strengthening our sales and pre-sales teams to
ensure we exploit fully the market opportunities that are now
opening up to us
The main people focus in the last year has been building a
common culture and value set across the many offices we operate
from in UK, France, US, Dubai, Singapore, Malaysia and South Korea.
We are doing this through a staff mentoring programme which links
individuals performing similar roles across different offices to
encourage information sharing and best practice creation. The very
modest cost this entails is already paying back in terms of
improved communication and common sense of purpose across the
company.
We continue to enjoy high levels of staff loyalty and very low
levels of voluntary attrition, giving us a very stable human
capital base.
Performance indicators
We monitor a number of metrics, both financial and
non-financial, on a monthly basis. The most important of these are
as follows:
-- Revenue attributable to continuing operations: GBP21.1
million for the year under review (2015: GBP11.9 million)
-- International organic revenues: 83% of total organic revenues (2015: 59%)
-- Gross margin: 50% for the year under review (2015: 43%)
-- Adjusted loss before tax: GBP4.7 million for the year under review (2015: GBP10.6 million)
-- Administration costs: GBP17.5 million for the year under review (2015: GBP17.7 million)
-- Number of employees: 189 at 31 March 2016 (2015: 150); and
-- Cash, net of overdrafts: GBP10.8 million at 31 March 2016 (2015: GBP8.7 million)
Financial review
For the year ended 31 March 2016, Digital Barriers delivered
revenues from continuing operations of GBP21.1 million (2015:
GBP11.9 million) generating an adjusted loss before tax of GBP4.7
million (2015 loss: GBP10.6 million) and an adjusted loss per share
of 3.82 pence (2015 loss: 14.27 pence). On an unadjusted basis, the
loss for the year was GBP12.6 million (2015 loss: GBP17.9 million)
and loss per share was 7.42 pence (2015 loss: 26.00 pence).
Revenue
GBP21.1 million of continuing revenue in the year, includes
GBP18.2 million (2015: GBP11.9 million) organic Solutions revenues,
and GBP2.9 million contributed by Brimtek in the period following
acquisition on 2 March 2016. The 53% increase in organic revenues
over the prior year reflects continued expansion of our customer
base in international markets. International revenues for the year
totalled GBP18.0 million, compared to GBP7.1 million in the prior
year. This equates to growth of 154%, or 113% on an organic basis.
International revenues now account for 83% (2015: 59%) of total
organic revenues. The growth in international revenues was partly
offset by a reduction in revenues in a challenging UK market.
Results by region are detailed below:
2016 2015
Revenue GBP'000 GBP'000
----------------- --------- ---------
Solutions:
----------------- --------- ---------
International 18,028 7,093
----------------- --------- ---------
UK 3,108 4,849
----------------- --------- ---------
Solutions total 21,136 11,942
----------------- --------- ---------
Of which:
----------------- --------- ---------
Organic 18,212 11,942
----------------- --------- ---------
Acquisition 2,924 -
----------------- --------- ---------
Solutions total 21,136 11,942
----------------- --------- ---------
Gross margin
Gross margin for continuing operations increased to 50% in the
year (2015: 43%). Underlying this, the gross margin attributable to
organic revenues materially increased to 55% (2015: 43%) with
Brimtek gross margin around 20% for the period. Increases in the
gross margin of the organic business is the result of continued
growth in the sales of solution offerings to customers, which
attract a higher premium compared to historical product only sales.
In addition, whilst delivering growth in unit sales in the period
(up from 33 units last year to 45 this year) Thruvision revenues,
which attract a lower gross margin, were a smaller percentage of
total revenues in the year compared to the prior period.
2016 2015
GBP'000 GBP'000
---------------------- --------- ---------
Revenue 21,136 11,942
---------------------- --------- ---------
Gross margin 10,517 5,155
---------------------- --------- ---------
Gross margin % 50% 43%
---------------------- --------- ---------
Overheads
Administration costs are broken down as follows:
2016 2015
Overheads GBP'000 GBP'000
----------------------------------------------------------------- --------- ---------
Solutions administration costs 11,794 12,201
----------------------------------------------------------------- --------- ---------
Amortisation of intangibles initially recognised on acquisition 1,320 1,435
----------------------------------------------------------------- --------- ---------
Central costs
----------------------------------------------------------------- --------- ---------
Board, operations, finance and facilities 3,594 3,578
----------------------------------------------------------------- --------- ---------
Share based payment charge 792 438
----------------------------------------------------------------- --------- ---------
4,386 4,016
----------------------------------------------------------------- --------- ---------
Total administration costs 17,500 17,652
----------------------------------------------------------------- --------- ---------
Administration costs within the Solutions division largely
consist of sales & marketing costs, together with research
& development spend.
In total Solutions administration costs in the year have
decreased 3% to GBP11.8 million (2015: GBP12.2 million). This
decrease reflects continued tight cost control within the Group
following a restructuring exercise undertaken at the end of FY14.
Investments have been funded through targeted redeployment of cost
savings made on the prior year. Central costs, excluding
acquisition costs and share based payment charges, have grown only
marginally year on year (up 0.5%). This increase reflects expansion
of the central delivery team required to support the significant
revenue growth.
Overall administration costs have remained broadly flat year on
year at GBP17.5 million (2015: GBP17.7 million).
Loss for the year
The Group continues to show material reductions in losses year
on year.
An adjusted loss before tax figure is presented as the Directors
believe that this is a more relevant measure of the Group's
underlying performance. For the year ended 31 March 2016 the
adjusted loss from continuing operations was GBP4.7 million
compared to a prior year loss of GBP10.6 million. The reduction in
the adjusted loss year on year has been primarily driven by three
key factors:
-- growth in international revenues (113% growth organically)
-- gross margin improvements across the Group (organic gross
margin up from 43% in FY15 to 55% in FY16) and;
-- tight cost control (overheads flat year on year)
The unadjusted loss before tax from continuing operations for
the year amounts to GBP8.5 million (2015 loss: GBP18.8 million). In
addition to the three key factors detailed above, the reduction in
the unadjusted loss is also attributable to an impairment charge of
GBP6.25 million recorded in the prior year that has not repeated in
the current year. This is partly offset by GBP1.7 million of
one-time costs associated with the acquisition of Brimtek Inc. and
an exceptional write off of bad debt.
Loss details are provided in the table below:
2016 2015
GBP'000 GBP'000
---------------------------------------------------------------------- --------- ---------
Loss before tax (8,506) (18,805)
---------------------------------------------------------------------- --------- ---------
Add back:
---------------------------------------------------------------------- --------- ---------
Amortisation of intangibles initially recognised on acquisition 1,320 1,435
---------------------------------------------------------------------- --------- ---------
Share based payment charges(i) 792 438
---------------------------------------------------------------------- --------- ---------
Acquisition related costs and exceptional write off of bad debt (ii) 1,718 -
---------------------------------------------------------------------- --------- ---------
Loss on disposal of businesses(iii) - 103
---------------------------------------------------------------------- --------- ---------
Impairment of goodwill and intangibles(iv) - 6,250
---------------------------------------------------------------------- --------- ---------
Adjusted loss before tax (4,676) (10,579)
---------------------------------------------------------------------- --------- ---------
(i) The basis of calculation has been updated to adjust for
share based payment charges. The Directors consider this to be a
more helpful measure in understanding the true underlying costs of
the business.
(ii) During the year ended 31 March 2016 the Group acquired 100%
of the share capital of Brimtek Inc. Costs in relation to the
acquisition totalled GBP1.7 million. These included GBP0.5 million
in relation to an amount due from Brimtek to Digital Barriers which
was fully provided for immediately prior to the acquisition of
Brimtek.
(iii) Relates to the disposals of two wholly owned subsidiaries,
Margaux Matrix Limited and Visimetrics (UK) Limited. Each was
disposed of for GBP1 consideration during the year. The Group did
not sell any intellectual property as part of these
transactions.
(iv) Relates to the reassessment of the carrying value of
goodwill and intangibles within the Solutions division. The
impairment of goodwill reflects a period of product development
which has impacted the Group's ability to leverage value from the
integrated businesses in the original timeframes expected.
Taxation
As a result of losses acquired through acquisitions and central
overheads we do not expect to pay the full rate of UK corporation
tax for a number of years. The Income Statement tax credit for the
year of GBP0.7 million (2015: GBP0.8 million) principally relates
to R&D tax credits. At 31 March 2016, the Group had unutilised
tax losses carried forward of approximately GBP55.5 million (2015:
GBP47.5 million). Given the varying degrees of uncertainty as to
the timescale of utilisation of these losses, the Group has not
recognised GBP10.9 million (2015: GBP9.8 million) of potential
deferred tax assets associated with GBP55.3 million (2015: GBP46.6
million) of these losses.
At 31 March 2016, the Group's net deferred tax liability stood
at GBP0.1million (2015: GBP0.1 million).
Loss per share
The reported loss per share on continuing operations is 7.42
pence (2015 loss: 26.00 pence). The adjusted loss per share on
continuing operations is 3.82 pence (2015 loss: 14.27 pence).
Discontinued operations
As indicated in the interim results announcement on 11 December
2015, the Board believed that the Services division was no longer
strategic to the Group. As a consequence on 1 April the Board
signed an agreement for the proposed disposal of the business for
nominal consideration. The disposal completed on 19 May 2016.
Consequently the trading results of this operation for the period
have been presented under discontinued operations and the prior
period has been restated accordingly. Revenues from the Services
business declined significantly in the year, down from GBP7.5
million in 2015 to GBP3.8 million in 2016. This decline was in part
due to the delivery of a large system into a major UK sporting
event in 2015 which did not repeat in 2016, and in part due to UK
Government austerity measures. The loss attributable to
discontinued operations was GBP4.8 million (2015: profit GBP0.1
million), including a GBP3.6 million impairment of goodwill
attributable to the Services segment, which arises on remeasurement
of the Services disposal group to fair value less costs of
disposal.
Cash and treasury
The Group ended the year with a net cash balance of GBP10.8
million (2015: GBP8.7 million).
The GBP2.1 million year on year increase in net cash consists of
GBP27.1 million (net of placing costs) proceeds from an equity fund
raise, along with GBP7.1 million (2015: GBP12.1 million) outflow
from operating activities and GBP17.9 million (2015: GBP0.5
million) investing spend.
The GBP7.1 million (2015: GBP12.1 million) outflow from
operating activities included a GBP1.4 million net working capital
outflow (2015: GBP1.9 million outflow), largely the result of
higher fourth quarter revenues than in the prior year, along with a
GBP1.1 million (2015: GBPnil) tax refund received. The balance of
GBP6.8 million outflow from operating activities (2015: GBP10.2
million outflow) relates principally to the "cash" operating loss
(operating loss excluding non-cash items), with the Brimtek
acquisition costs largely unpaid as at 31 March 2016.
Investing spend included GBP17.5 million (2015: GBPnil) in
relation to the acquisition of Brimtek, and GBP0.4 million (2015:
GBP0.5 million) of capital expenditure, mainly demonstration stock
to support sales activities.
In April 2015 the Group entered into an agreement with HSBC Bank
plc for a GBP5.0million secured working capital facility to provide
pre and post-shipment finance in relation to export activities
across the Group. The facility is partially guaranteed by the UK
Export Finance Guarantees Department. The interest rate for any
borrowings under this facility is 3% over the bank's sterling base
rate. This facility was reviewed and renewed as part of our wider
annual banking facility review in September. No amounts were drawn
down on the facility as at 31 March 2016, but at time of approval
of the financial statements is GBP600,000 (2015: GBPnil).
Dividends
The Board is not recommending the payment of a dividend (2015:
GBPnil).
Consolidated income statement
for the year ended 31 March 2016
Year ended 31 March 2016 Year ended 31 March 2015
Note GBP'000 GBP'000
--------------------------------------------------------- ----- ------------------------- -------------------------
Continuing operations
--------------------------------------------------------- ----- ------------------------- -------------------------
Revenue 2 21,136 11,942
--------------------------------------------------------- ----- ------------------------- -------------------------
Cost of sales (10,619) (6,787)
--------------------------------------------------------- ----- ------------------------- -------------------------
Gross profit 10,517 5,155
--------------------------------------------------------- ----- ------------------------- -------------------------
Administration costs (17,500) (17,652)
--------------------------------------------------------- ----- ------------------------- -------------------------
Other costs (1,718) (6,353)
--------------------------------------------------------- ----- ------------------------- -------------------------
Operating loss (8,701) (18,850)
--------------------------------------------------------- ----- ------------------------- -------------------------
Finance revenue 227 45
--------------------------------------------------------- ----- ------------------------- -------------------------
Finance costs (32) -
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss before tax from continuing operations (8,506) (18,805)
--------------------------------------------------------- ----- ------------------------- -------------------------
Income tax 716 785
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss after tax from continuing operations attributable
to owners of the parent (7,790) (18,020)
--------------------------------------------------------- ----- ------------------------- -------------------------
Discontinued operations
--------------------------------------------------------- ----- ------------------------- -------------------------
(Loss) / profit from discontinued operation (net of tax) (4,832) 108
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss for the year (12,622) (17,912)
--------------------------------------------------------- ----- ------------------------- -------------------------
Adjusted loss: 3
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss before tax from continuing operations (8,506) (18,805)
--------------------------------------------------------- ----- ------------------------- -------------------------
Amortisation of intangibles initially recognised on
acquisition 1,320 1,435
--------------------------------------------------------- ----- ------------------------- -------------------------
Share based payment charge 792 438
--------------------------------------------------------- ----- ------------------------- -------------------------
Acquisition related costs and exceptional write off of
bad debt 1,718 -
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss on disposal of businesses - 103
--------------------------------------------------------- ----- ------------------------- -------------------------
Impairment of goodwill - 6,250
--------------------------------------------------------- ----- ------------------------- -------------------------
Adjusted loss before tax for the year from continuing
operations (4,676) (10,579)
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - continuing operations
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - basic 4 (7.42p) (26.00p)
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - diluted 4 (7.42p) (26.00p)
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - adjusted * 4 (3.82p) (14.27p)
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - adjusted diluted * 4 (3.82p) (14.27p)
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - continuing and discontinued operations
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - basic 4 (12.01p) (25.85p)
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss per share - diluted 4 (12.01p) (25.85p)
--------------------------------------------------------- ----- ------------------------- -------------------------
* - As explained in note 4, the basis of calculation has been
adjusted to include share based payment charges. Comparative
figures have been updated to incorporate this change.
Consolidated statement of comprehensive income
for the year ended 31 March 2016
Year ended 31 March 2016 Year ended 31 March 2015
GBP'000 GBP'000
------------------------------------------------------------- ------------------------- -------------------------
Loss for the year from continuing operations (7,790) (18,020)
-------------------------------------------------------------- ------------------------- -------------------------
(Loss) / profit for the year from discontinued operations (4,832) 108
-------------------------------------------------------------- ------------------------- -------------------------
Loss for the year attributable to owners of the parent (12,622) (17,912)
-------------------------------------------------------------- ------------------------- -------------------------
Other comprehensive income from continuing operations
------------------------------------------------------------- ------------------------- -------------------------
Other comprehensive income that may be subsequently
reclassified to profit and loss:
------------------------------------------------------------- ------------------------- -------------------------
Exchange differences on retranslation of foreign operations 123 (656)
-------------------------------------------------------------- ------------------------- -------------------------
Net other comprehensive income to be reclassified to profit
or loss in subsequent years 123 (656)
-------------------------------------------------------------- ------------------------- -------------------------
Total comprehensive loss attributable to owners of the parent (12,499) (18,568)
-------------------------------------------------------------- ------------------------- -------------------------
Consolidated statement of financial position
at 31 March 2016
31 March
31 March 2015
2016 GBP'000
Note GBP'000 **
------------------------------------- ----- --------- ---------
Assets
------------------------------------- ----- --------- ---------
Non-current assets
------------------------------------- ----- --------- ---------
Property, plant and equipment 828 683
------------------------------------- ----- --------- ---------
Goodwill 5 23,323 18,186
------------------------------------- ----- --------- ---------
Other intangible assets 11,397 2,092
------------------------------------- ----- --------- ---------
35,548 20,961
------------------------------------- ----- --------- ---------
Current assets
------------------------------------- ----- --------- ---------
Inventories 4,906 4,499
------------------------------------- ----- --------- ---------
Trade and other receivables 6 13,239 8,869
------------------------------------- ----- --------- ---------
Other financial asset 193 -
------------------------------------- ----- --------- ---------
Current tax recoverable 1,022 1,513
------------------------------------- ----- --------- ---------
Cash and cash equivalents 25,599 17,407
------------------------------------- ----- --------- ---------
44,959 32,288
------------------------------------- ----- --------- ---------
Non-current assets classified
as held for sale 10 35 -
------------------------------------- ----- --------- ---------
Total assets 80,542 53,249
------------------------------------- ----- --------- ---------
Equity and liabilities
------------------------------------- ----- --------- ---------
Attributable to owners of the
Parent
------------------------------------- ----- --------- ---------
Equity share capital 8 1,760 845
------------------------------------- ----- --------- ---------
Share premium 109,078 82,757
------------------------------------- ----- --------- ---------
Capital redemption reserve 4,786 4,786
------------------------------------- ----- --------- ---------
Merger reserve 454 454
------------------------------------- ----- --------- ---------
Translation reserve (745) (868)
------------------------------------- ----- --------- ---------
Other reserves (307) (307)
------------------------------------- ----- --------- ---------
Retained earnings (60,656) (48,826)
------------------------------------- ----- --------- ---------
Total equity 54,370 38,841
------------------------------------- ----- --------- ---------
Non-current liabilities
------------------------------------- ----- --------- ---------
Deferred tax liabilities 57 116
------------------------------------- ----- --------- ---------
Financial liabilities 975 -
------------------------------------- ----- --------- ---------
Provisions 119 134
------------------------------------- ----- --------- ---------
1,151 250
------------------------------------- ----- --------- ---------
Current liabilities
------------------------------------- ----- --------- ---------
Trade and other payables 7 9,126 5,261
------------------------------------- ----- --------- ---------
Financial liabilities 1,097 163
------------------------------------- ----- --------- ---------
Bank overdraft* 14,763 8,706
------------------------------------- ----- --------- ---------
Provisions 35 28
------------------------------------- ----- --------- ---------
25,021 14,158
------------------------------------- ----- --------- ---------
Liabilities directly associated
with non-current assets classified
as held for sale 10 - -
------------------------------------- ----- --------- ---------
Total liabilities 26,172 14,408
------------------------------------- ----- --------- ---------
Total equity and liabilities 80,542 53,249
------------------------------------- ----- --------- ---------
* - Net cash and cash equivalents
(grossed up above in accordance
with IAS 32) 10,836 8,701
------------------------------------- ----- --------- ---------
** - restated for gross up of cash and bank overdraft position
in accordance with IAS 32
Consolidated statement of changes in equity
for the year ended 31 March 2016
Share Capital Profit and
Share premium redemption Merger Translation Other loss Total
capital account reserve reserve reserve reserves reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
At 31 March
2014 646 75,879 4,786 454 (212) (307) (31,352) 49,894
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Loss for
the year - - - - - - (17,912) (17,912)
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Other
comprehensive
loss - - - - (656) - - (656)
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Total
comprehensive
loss - - - - (656) - (17,912) (18,568)
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Share
placement 199 7,151 - - - - - 7,350
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Share issue
costs - (273) - - - - - (273)
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Share based
payment
credit - - - - - - 438 438
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
At 31 March
2015 845 82,757 4,786 454 (868) (307) (48,826) 38,841
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Loss for
the year - - - - - (12,622) (12,622)
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Other
comprehensive
income - - - - 123 - - 123
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Total
comprehensive
loss - - - - 123 - (12,622) (12,499)
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Share
placement 806 27,394 - - - - - 28,200
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Share issue
costs - (1,073) - - - - - (1,073)
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Incentive
share
conversion 109 - - - - - - 109
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Share based
payment
credit - - - - - - 792 792
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
At 31 March
2016 1,760 109,078 4,786 454 (745) (307) (60,656) 54,370
--------------- --------- ----------- ----------- --------- ------------ ------------ ----------- ------------
Consolidated statement of cash flows
for the year ended 31 March 2016
Year ended 31 March 2016 Year ended 31 March 2015
Note GBP'000 GBP'000
-------------------------------------- ----- ------------------------- -------------------------
Operating activities
-------------------------------------- ----- ------------------------- -------------------------
Loss before tax (13,338) (18,697)
-------------------------------------- ----- ------------------------- -------------------------
Non-cash adjustment to reconcile
loss before tax to net cash
flows
-------------------------------------- ----- ------------------------- -------------------------
Depreciation of property,
plant and equipment 415 630
-------------------------------------- ----- ------------------------- -------------------------
Amortisation of intangible
assets 1,530 1,971
-------------------------------------- ----- ------------------------- -------------------------
Impairment of goodwill 3,582 6,250
-------------------------------------- ----- ------------------------- -------------------------
Impairment of intangible
assets 37 -
-------------------------------------- ----- ------------------------- -------------------------
Share-based payment transaction
expense 792 438
-------------------------------------- ----- ------------------------- -------------------------
Unrealised loss / (gains)
on foreign exchange 42 (95)
-------------------------------------- ----- ------------------------- -------------------------
Disposal of fixed assets 15 56
-------------------------------------- ----- ------------------------- -------------------------
Finance income (227) (45)
-------------------------------------- ----- ------------------------- -------------------------
Finance costs 32 -
-------------------------------------- ----- ------------------------- -------------------------
Working capital adjustments:
-------------------------------------- ----- ------------------------- -------------------------
Increase in trade and other
receivables (2,452) (1,262)
-------------------------------------- ----- ------------------------- -------------------------
Decrease / (increase) in
inventories 2,088 (604)
-------------------------------------- ----- ------------------------- -------------------------
Decrease in trade and other
payables (1,047) (62)
-------------------------------------- ----- ------------------------- -------------------------
Increase / (decrease) in
deferred revenue 300 (285)
-------------------------------------- ----- ------------------------- -------------------------
Decrease in provisions (8) (419)
-------------------------------------- ----- ------------------------- -------------------------
Cash utilised in operations (8,239) (12,124)
-------------------------------------- ----- ------------------------- -------------------------
Interest paid (32) -
-------------------------------------- ----- ------------------------- -------------------------
Tax received 1,146 3
-------------------------------------- ----- ------------------------- -------------------------
Net cash flow from operating
activities (7,125) (12,121)
-------------------------------------- ----- ------------------------- -------------------------
Investing activities
-------------------------------------- ----- ------------------------- -------------------------
Purchase of property, plant
and equipment (375) (532)
-------------------------------------- ----- ------------------------- -------------------------
Expenditure on intangible
assets (12) (3)
-------------------------------------- ----- ------------------------- -------------------------
Payment of deferred consideration - -
-------------------------------------- ----- ------------------------- -------------------------
Interest received 27 45
-------------------------------------- ----- ------------------------- -------------------------
Acquisition of subsidiary,
net of debt acquired 9 (17,511) -
-------------------------------------- ----- ------------------------- -------------------------
Net cash flow utilised in
investing activities (17,871) (490)
-------------------------------------- ----- ------------------------- -------------------------
Financing activities
-------------------------------------- ----- ------------------------- -------------------------
Proceeds from issue of shares 28,200 7,350
-------------------------------------- ----- ------------------------- -------------------------
Share issue costs (1,073) (273)
-------------------------------------- ----- ------------------------- -------------------------
Net cash flow from financing
activities 27,127 7,077
-------------------------------------- ----- ------------------------- -------------------------
Net increase / (decrease)
in cash and cash equivalents 2,131 (5,534)
-------------------------------------- ----- ------------------------- -------------------------
Net cash and cash equivalents
at beginning of year 8,701 14,246
-------------------------------------- ----- ------------------------- -------------------------
Effect of foreign exchange
rate changes on cash and
cash equivalents 4 (11)
-------------------------------------- ----- ------------------------- -------------------------
Net cash and cash equivalents
at end of year 10,836 8,701
-------------------------------------- ----- ------------------------- -------------------------
Reconciliation of net cash
and cash equivalents
-------------------------------------- ----- ------------------------- -------------------------
Cash and cash equivalents
(disclosed within current
assets) 25,599 17,407
-------------------------------------- ----- ------------------------- -------------------------
Bank overdraft (disclosed
within current liabilities) (14,763) (8,706)
-------------------------------------- ----- ------------------------- -------------------------
Net cash and cash equivalents
at end of year 10,836 8,701
-------------------------------------- ----- ------------------------- -------------------------
Notes to the financial information
1. Accounting policies
Basis of preparation
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards
('IFRSs') as adopted by the European Union as they apply to the
financial statements of the Group for the year ended 31 March 2016
and applied in accordance with the Companies Act 2006.
The Financial Statements were authorised for issue by the Board
of Directors on 26 June 2016 and the Statement of Financial
Position was signed on the Board's behalf by Zak Doffman and Sharon
Cooper.
All values are rounded to GBP'000 except where otherwise
stated.
The Company is a public limited company incorporated and
domiciled in England and Wales and whose shares are quoted on AIM,
a market operated by the London Stock Exchange.
Accounting policies
The accounting policies which apply in preparing the financial
statements for the period are set out below. These policies have
been consistently applied to all periods presented in these
consolidated financial statements. The comparative statement of
comprehensive income has been re-presented as if an operation
discontinued during the current year had been discontinued from the
start of the comparative year (see note 10). The comparative
statement of financial position has been restated to gross up cash
and cash equivalent balances and bank overdraft positions (all held
within a pooling arrangement within the Group) in accordance with
IAS 32.
Basis of measurement
Going concern
The Group's loss before tax for continuing operations for the
year was GBP8.5 million (2015: GBP18.8 million). As at 31 March
2016 the Group had net current assets of GBP19.9 million (2015:
GBP18.1 million) and net cash reserves of GBP10.8 million (2015:
GBP8.7 million).
In April 2015 the Group entered into an agreement with HSBC Bank
plc for a GBP5.0 million secured working capital facility to
provide pre and post-shipment finance in relation to export
activities across the Group. The facility is partially guaranteed
by the UK Export Finance Guarantees Department. The interest rate
for any borrowings under this facility is 3% over the bank's
sterling base rate. The facility was reviewed and renewed in
September 2015 as part of the annual review of our wider banking
facilities with HSBC Bank Plc. There are no indications that the
facility (along with our wider banking facilities) will not be
renewed again in September and as a result this facility has been
factored in to cash flow projections for the Group. Should the
facility not be renewed in September, mitigating actions can be
taken to manage our cash flows.
The Board has reviewed these cash flow forecasts for the period
up to and including 30 September 2017. These forecasts and
projections take into account reasonably possible changes in
trading performance and show that the Group will be able to operate
within the level of current funding resources. The Directors
therefore believe there is sufficient cash available to the Group
to manage through these requirements.
As with all businesses, there are particular times of the year
where the Group's working capital requirements are at their peak.
However, the Group is well placed to manage business risk
effectively and the Board reviews the Group's performance against
budgets and forecasts on a regular basis to ensure action is taken
where needed.
The Directors therefore are satisfied that the Group has
adequate resources to continue operating for a period of at least
12 months from the approval of these accounts. For this reason they
have adopted the going concern basis in preparing the financial
statements.
2. Segmental information
During the year the Group has been organised into 'Services' and
'Solutions' (previously known as 'Products') Divisions for internal
management, reporting and decision-making, based on the nature of
the products and services of the Group's businesses. Managers have
been appointed within Services and Solutions, who report to members
of the Board. These are the reportable operating segments in
accordance with IFRS 8 'Operating Segments'.
The Group's Services Division is predominantly focused on the UK
market and integrates third party technology and own product into
UK Services customers. The Services Division is established with a
number of key UK Government organisations in the secure government,
law enforcement and transportation sectors. As announced on 1 April
2016, the Board believes that the Services Division is no longer
strategic to the Group, and has signed an agreement for the
disposal of the business. The sale completed on 19 May 2016. Full
details are provided in note 10.
The Group's Solutions Division is focused on the advanced
surveillance market. This covers image and data capture (for
example, stand-off passive body scanning and unattended ground
sensors), a range of processing and enhancement techniques (for
example, thermal image processing, image stabilisation, and
enhancing low light performance), image transmission (both wired
and wireless technologies) and a range of analytics algorithms.
In accordance with IFRS 8, the Group has derived the information
for its operating segments using the information used by the Chief
Operating Decision Maker. The Group has identified the Board of
Directors as the Chief Operating Decision Maker as it is
responsible for the allocation of resources to operating segments
and assessing their performance.
Central overheads, which primarily relate to operations of the
Group function, are not allocated to the business units. Group
financing (including finance costs and finance revenue) and income
taxes are managed centrally and are not allocated to an operating
segment. No operating segments have been aggregated to form the
above reportable segments.
Services (discontinued) Solutions (continuing) Central (continuing) Total
2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Total segment revenue 3,777 21,427 - 25,204
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Inter-segment revenue - (291) - (291)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Revenue 3,777 21,136 - 24,913
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Depreciation 66 349 - 415
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Segment adjusted operating loss (565) (1,277) (3,594) (5,436)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Amortisation of intangibles
initially recognised on
acquisition (120) (1,320) - (1,440)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Share based payment charge - - (792) (792)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Acquisition related costs and
exceptional write off of bad
debt - - (1,718) (1,718)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Exit costs attributable to
discontinued operations (528) - - (528)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Impairment of goodwill and
intangibles (3,619) - - (3,619)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Segment operating loss (4,832) (2,597) (6,104) (13,533)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Loss attributable to
discontinued operations 4,832
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Segment operating loss from
continuing operations (8,701)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Finance income 227
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Finance costs (32)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Loss before tax from continuing
operations (8,506)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Income tax credit 716
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Loss for the year from
continuing operations (7,790)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Services (discontinued) Solutions (continuing) Central (continuing) Total
2015 2015 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Total segment revenue 7,460 12,272 - 19,732
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Inter-segment revenue - (330) - (330)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Revenue 7,460 11,942 - 19,402
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Depreciation 55 575 - 630
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Segment adjusted operating
profit/(loss) 538 (7,046) (3,578) (10,086)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Amortisation of intangibles
initially recognised on
acquisition (430) (1,435) - (1,865)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Share based payment charge - - (438) (438)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Loss on disposal of businesses - (103) - (103)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Impairment of goodwill - (6,250) - (6,250)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Segment operating profit/(loss) 108 (14,834) (4,016) (18,742)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Profit attributable to
discontinued operations (108)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Operating loss attributable to
continuing operations (18,850)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Finance income 45
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Loss before tax from continuing
operations (18,805)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Income tax credit 785
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Loss for the year from
continuing operations (18,020)
-------------------------------- ------------------------ ----------------------- --------------------- ----------
Analysis of revenue by customer
There have been three (2015: none) individually material
customers in the Solutions operating segment during the year. These
customers individually represented GBP2,763,000, GBP2,628,000 and
GBP2,200,000 of Group turnover for the year.
There have been no (2015: one) material customers in the
Services operating segment during the year. In the prior year the
customer represented GBP3,062,000 of Group turnover for the
year.
Other segment information
The following table provides disclosure of the Group's
continuing revenue analysed by geographical market based on the
location of the customer
2016 2015
GBP'000 GBP'000
-------------------------- --------- ---------
United Kingdom 3,108 4,849
-------------------------- --------- ---------
United States of America 5,340 1,536
-------------------------- --------- ---------
Indonesia 3,996 333
-------------------------- --------- ---------
Malaysia 2,962 43
-------------------------- --------- ---------
Rest of World 5,730 5,181
-------------------------- --------- ---------
21,136 11,942
-------------------------- --------- ---------
The Group's non-current assets by geography are detailed
below:
2016 2015
GBP'000 GBP'000
-------------------------- --------- ---------
United Kingdom 16,545 20,961
-------------------------- --------- ---------
United States of America 19,003 -
-------------------------- --------- ---------
35,548 20,961
-------------------------- --------- ---------
3. Adjusted loss before tax
An adjusted loss before tax measure has been presented as the
Directors believe that this is a more relevant measure of the
Group's underlying performance. Adjusted loss is not defined under
IFRS and has been shown as the Directors consider this to be
helpful for a better understanding of the performance of the
Group's underlying business. It may not be comparable with
similarly titled measurements reported by other companies and is
not intended to be a substitute for, or superior to, IFRS measures
of profit. The net adjustments to loss before tax are summarised
below:
2016 2015
GBP'000 GBP'000
---------------------------------------------------------------------- --------- ---------
Amortisation of intangibles initially recognised on acquisition 1,320 1,435
---------------------------------------------------------------------- --------- ---------
Share based payment (i) 792 438
---------------------------------------------------------------------- --------- ---------
Acquisition related costs and exceptional write off of bad debt (ii) 1,718 -
---------------------------------------------------------------------- --------- ---------
Loss on disposal of businesses (iii) - 103
---------------------------------------------------------------------- --------- ---------
Impairment of goodwill and intangibles (iv) - 6,250
---------------------------------------------------------------------- --------- ---------
Total adjustments 3,830 8,226
---------------------------------------------------------------------- --------- ---------
(i) The basis of calculation has been updated to adjust for
share based payment charges. The Directors consider this to be a
more helpful measure in understanding the true underlying costs of
the business. The performance condition associated with LTIP awards
made in July 2015 are subject to a non-market based performance
measure. Accordingly, should these LTIP awards fail to vest, the
share based payment charge will be added back to the income
statement. Historic LTIP awards have been made with a market based
performance measure which in the event that LTIPs fail to vest the
share based payment charge is not added back to the income
statement. To date the majority of historic LTIP awards have failed
to vest. The revised calculation provides consistency over time
allowing a better understanding of the financial position of the
Group.
(ii) During the year ended 31 March 2016 the Group acquired 100%
of the share capital of Brimtek Inc. Costs in relation to the
acquisition totalled GBP1.7 million. Included within these costs is
GBP0.5 million in relation to an amount due from Brimtek to Digital
Barriers which was fully provided for immediately prior to the
acquisition of Brimtek. Acquisition costs remained largely unpaid
as at 31 March 2016.
(iii) During the year ended 31 March 2015 Margaux Matrix Limited
and Visimetrics (UK) Limited, two wholly owned subsidiaries, were
each disposed of for GBP1 consideration.
(iv) During the year ended 31 March 2015 a GBP6.25 million
non-cash impairment charge has been recorded against the carrying
value of goodwill within the Solutions division and has been
separately disclosed within Other Costs in the Consolidated Income
Statement. This impairment reflects a period of product
development, which has delayed the Group's ability to leverage
value from the integrated businesses in the expected timeframes,
along with delays in sales cycles as reported to the market by the
Group on 11 August 2014.
4. Loss per share
Unadjusted loss per share
Weighted Weighted
Loss after average number Loss after average number
taxation 2016 of shares 2016 Loss per share taxation 2015 of shares 2015 Loss per share
GBP'000 No. 2016 Pence GBP'000 No. 2015 Pence
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Basic loss per
share -
continuing
operations (7,790) 105,052,916 (7.42) (18,020) 69,305,105 (26.0)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Diluted loss
per share -
continuing
operations (7,790) 105,052,916 (7.42) (18,020) 69,305,105 (26.0)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Basic loss per
share -
continuing and
discontinued
operations (12,622) 105,052,916 (12.01) (17,912) 69,305,105 (25.85)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Diluted loss
per share -
continuing and
discontinued
operations (12,622) 105,052,916 (12.01) (17,912) 69,305,105 (25.85)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Adjusted loss per share
Weighted Weighted
Loss after average number Loss after average number
taxation 2016 of shares 2016 Loss per share taxation 2015 of shares 2015 Loss per share
GBP'000 No. 2016 Pence GBP'000 No. 2015 Pence
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Loss from
continuing
operations
attributable
to ordinary
shareholders (7,790) 105,052,916 (7.42) (18,020) 69,305,105 (26.0)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Add back:
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Amortisation of
acquired
intangible
assets, net of
tax 1,264 - 1.20 1,341 - 1.93
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Share based
payment
charge* 792 - 0.75 438 - 0.63
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Acquisition
related costs
and
exceptional
write off of
bad debt 1,718 - 1.64 - - -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Disposal of
businesses - - - 103 - 0.15
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Impairment of
goodwill - - - 6,250 - 9.02
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Basic adjusted
loss per share (4,016) 105,052,916 (3.82) (9,888) 69,305,105 (14.27)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Diluted
adjusted loss
per share (4,016) 105,052,916 (3.82) (9,888) 69,305,105 (14.27)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
*The basis of calculation has been adjusted to include share
based payments charges. Comparative figures have been updated to
incorporate this change. The impact of this change is to increase
the adjusted loss per share by 0.75 pence in the current year
(2015: 0.63 pence)
The Directors consider that adjusted loss per share better
reflects the underlying performance of the Group.
The inclusion of potential Ordinary Shares arising from LTIPs
and Incentive Shares would be anti-dilutive. Basic and diluted loss
per share has therefore been calculated using the same weighted
number of shares. If the Incentive Shares had become convertible on
31 March 2016 and based on the share price of GBP0.475 (2015:
GBP0.385) on that day, no (2015: no) Ordinary Shares would have
been issued in respect of the Incentive Share conversion. Full
details of the basis of calculation is given in the Admission
Document available on the Company's website. The Incentive Shares
will immediately vest on change of control of the Company.
5. Goodwill
Goodwill
GBP'000
------------------------------------------------- ---------
At 31 March 2014 24,802
------------------------------------------------- ---------
Impairment of goodwill (6,250)
------------------------------------------------- ---------
Exchange movements (366)
------------------------------------------------- ---------
At 31 March 2015 18,186
------------------------------------------------- ---------
Acquisition of Brimtek 8,309
------------------------------------------------- ---------
Impairment of goodwill associated with Services
division (3,582)
------------------------------------------------- ---------
Exchange movements 410
------------------------------------------------- ---------
At 31 March 2016 23,323
------------------------------------------------- ---------
Carrying amount of goodwill allocated to operating segments
2016 2015
GBP'000 GBP'000
----------- --------- ---------
Services - 3,582
----------- --------- ---------
Solutions 23,323 14,604
----------- --------- ---------
23,323 18,186
----------- --------- ---------
Goodwill acquired through business combinations has been
allocated for impairment testing purposes to two groups of
cash-generating Units ('CGUs'). These groups of CGUs are its two
operating segments 'Services' and 'Solutions' (previously known as
'Products') as the goodwill relates to synergies at this level. The
Group conducts annual impairment tests on the carrying value of the
CGUs in the statement of financial position. Although required to
perform annual impairment tests, these do not have to take place at
31 March but the test should be consistently carried out at the
same time annually.
As indicated in the interim results announcement on 11 December
2015, the Board believed that the Services division was no longer
strategic to the Group. As a consequence the Board initiated a plan
for the potential disposal of the business, and on 1 April the
Board signed an agreement for the proposed disposal of the business
for nominal consideration. Consequently the recoverable amount of
the Services CGU is based on fair value less costs of disposal,
being the sales price of GBP1. As a result the carrying value of
the goodwill attributable to the Services segment was reduced to
GBPnil in the year ended 31 March 2016. A charge of GBP3,582,000
has been included in the loss attributable to discontinued
operations.
The Group carries out its annual impairment testing for the
Solutions (and historically for the Services) division as at 28
February each year. Impairment testing is only re-performed if an
impairment triggering event occurs in the intervening period.
Value in use calculations are used to determine the recoverable
amount of the cash-generating units. The key assumptions for the
value in use calculations include the forecast revenue growth of
the CGU, cost allocations, the discount rate applied and the
long-term growth rate of the net operating cash flows, along with
the gross margin for Solutions. In determining the key assumptions,
management have taken into consideration the nature of the markets
in which it operates, expected growth of the markets in which it
operates, the ability of the CGU to exploit those opportunities and
the current economic climate, the resulting impact on expected
growth and pre-tax discount rates, and the pressure this places on
impairment calculations.
The Group prepares cash flow forecasts for the cash-generating
unit based on the most recent three-year detailed financial
forecasts. The table below sets out the key assumptions included in
these forecasts:
Solutions Services
------------------------------------------------------------------------------ -------------- ---------
2016 2015 2015
------------------------------------------------------------------------------ ------ ------ ---------
Revenue growth compound from FY16 to FY19 (years one to three) (1) 40% 46% 0%
------------------------------------------------------------------------------ ------ ------ ---------
Revenue growth from FY20 onwards (year four onwards) (2) 2.5% 2.5% 2.5%
------------------------------------------------------------------------------ ------ ------ ---------
Gross margin improvement compound from FY16 to FY19 (years one to three) (3) 1% 8% 0%
------------------------------------------------------------------------------ ------ ------ ---------
Discount rate (4) 10.6% 10.6% 10.0%
------------------------------------------------------------------------------ ------ ------ ---------
(1) Forecasts are based on an internal assessment of the
strength of the CGU in the markets in which it operates with the
expected growth reflecting the opportunities in its core strategic
markets, sales pipeline and relationships being developed.
(2) Revenue growth of 2.5% is an external estimate of the UK's
long-term growth rate.
(3) Gross margin is forecast to improve marginally against FY16
as the product mix continues to evolve through the next three years
to include a greater proportion of software sales.
(4) Discount rate is based on the weighted cost of capital
applying to businesses in the same sector, and reflects the current
market assessments of the time value of money and of the risks
specific to the cash generating units.
No impairment loss arises in the year ended 31 March 2016 for
Solutions based on these base assumptions. In the year ended 31
March 2015 an impairment test was performed on the carrying value
of Solutions division as at 30 September 2014 in addition to the
annual impairment testing date. The 30 September impairment review
was based on revenue growth in years two and three forecast at 40%
and 20% per annum respectively, with revenue growth of 2.5% assumed
from year four onwards, being an external estimate of the UK's
long-term growth rate. A discount rate of 11.6% was applied. Based
on these assumptions the recoverable amount was determined to be
GBP24.5 million and an impairment charge of GBP6.25 million
arose.
No further impairment loss arose for Solutions based on the
assumptions detailed in the tables above for the 28 February
impairment review.
The Directors consider that an absolute change in the key
assumptions set out below is reasonably possible.
Solutions
-------------------------------------------------------------------------------------- --------------
2016 2015
-------------------------------------------------------------------------------------- ------ ------
Reduction in forecast revenue growth compound from FY16 to FY19 (years one to three) -9% -5%
-------------------------------------------------------------------------------------- ------ ------
Reduction in forecast revenue growth FY20 onwards (year four onwards) -2.5% -2.5%
-------------------------------------------------------------------------------------- ------ ------
Increase in discount rate (4) 2.5% 2.5%
-------------------------------------------------------------------------------------- ------ ------
If these assumptions were to change in isolation, they would not
result in an impairment charge of goodwill. The same applied to the
prior year assumptions. The value in use calculations are most
sensitive to changes in assumptions around forecast revenue growth
and gross margin improvement. An absolute reduction in the forecast
revenue growth of 10% (compound over years one to three) would
result in the recoverable amount of Solutions goodwill being equal
to the carrying amount (a reduction in the headroom from GBP17.5
million to GBPnil). In the prior year an absolute reduction in the
forecast revenue growth of 7% (compound over years one to three)
would have resulted in the recoverable amount of Solutions goodwill
being equal to the carrying amount (a reduction in the headroom
from GBP14.4 million to GBPnil).
If all key assumptions were to change in combination, a further
impairment charge would be recognised for the current carrying
value of goodwill in relation to the Solutions segment.
Following the completion of the fair value exercise ('the
acquisition accounting'), goodwill of GBP8.3 million was recognised
on acquisition of Brimtek Inc. The acquisition completed on 1 March
2016 and the acquisition accounting was performed subsequent to the
annual impairment testing date. A further impairment review was not
performed as there were no indicators of impairment on the goodwill
attributable to Brimtek Inc. The acquisition accounting will be
further reviewed in the coming year.
6. Trade and other receivables
Gross carrying Provision for Net carrying Gross carrying Provision for Net carrying
amounts impairment amounts amounts impairment amounts
2016 2016 2016 2015 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Trade
receivables 11,814 (431) 11,383 9,112 (1,208) 7,904
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Prepayments 780 - 780 439 - 439
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Accrued income 339 - 339 350 - 350
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Social security
and other
taxes 581 - 581 - - -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Other
receivables 156 - 156 176 - 176
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
13,670 (431) 13,239 10,077 (1,208) 8,869
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The Group experiences credit risk which reflects its early stage
of development into international markets, as reflected in the
provision for doubtful debts and ageing analysis. As the Group
further establishes itself and its products into new and existing
geographies, so its exposure to credit risk is expected to
reduce.
7. Trade and other payables
2016 2015
GBP'000 GBP'000
--------------------------------- --------- ---------
Current
--------------------------------- --------- ---------
Trade payables 4,833 3,100
--------------------------------- --------- ---------
Accruals 2,737 1,296
--------------------------------- --------- ---------
Deferred income 774 419
--------------------------------- --------- ---------
Social security and other taxes 441 279
--------------------------------- --------- ---------
Other payables 341 167
--------------------------------- --------- ---------
9,126 5,261
--------------------------------- --------- ---------
In April 2015 the Group entered into an agreement with HSBC Bank
plc for a GBP5.0 million secured working capital facility to
provide pre and post-shipment finance in relation to export
activities across the Group. The facility is partially guaranteed
by the UK Export Finance Guarantees Department. The interest rate
for any borrowings under this facility is 3% over the bank's
sterling base rate. The facility was reviewed and renewed as part
of our wider annual banking facility review with HSBC Bank plc in
September. The facility was not being utilised at 31 March 2016,
but at time of approval of the financial statements is GBP600,000
(2015: GBPnil).
8. Share capital
Number GBP'000
------------------------------------------------ ------------ --------
Authorised, allotted, called-up and fully paid
------------------------------------------------ ------------ --------
Ordinary Shares of 1 pence each
------------------------------------------------ ------------ --------
At 31 March 2014 64,624,616 646
------------------------------------------------ ------------ --------
Shares issued in the year 19,864,865 199
------------------------------------------------ ------------ --------
At 31 March 2015 84,489,481 845
------------------------------------------------ ------------ --------
Shares issued in the year 80,616,758 806
------------------------------------------------ ------------ --------
At 31 March 2016 165,106,239 1,651
------------------------------------------------ ------------ --------
Number GBP'000
------------------------------------- -------- --------
Authorised, allotted, called-up and
fully paid
------------------------------------- -------- --------
Incentive Shares of GBP1 each
------------------------------------- -------- --------
At 31 March 2015 163,124 163
------------------------------------- -------- --------
At 31 March 2016 54,375 54
------------------------------------- -------- --------
Authorised, allotted, called-up and
fully paid
------------------------------------- -------- --------
Deferred Shares of GBP1 each
------------------------------------- -------- --------
At 31 March 2015 - -
------------------------------------- -------- --------
At 31 March 2016 108,749 109
------------------------------------- -------- --------
On 5 January 2015 19,864,865 Ordinary Shares were issued at 37
pence per share for a total cash consideration of GBP7,350,000. On
30 December 2015 80,571,429 Ordinary Shares were issued at 35 pence
per share for a total consideration of GBP28,200,000, primarily
funds to be used by the group to purchase the share capital of
Brimtek Inc.
In June 2015, share options were exercised resulting in the
issue of 45,329 Ordinary Shares.
9. Business combinations
Business combinations in the year ended 31 March 2015 and
2016
On 1 March 2016, the Group acquired 100% of the issued share
capital of Brimtek Inc., a provider of state-of-the-art technical
surveillance solutions to the US defence, homeland security,
federal law enforcement and intelligence communities. Brimtek
offers an end-to-end capability for its clients, from concept
design to engineering, manufacturing, integration, delivery,
training and ongoing solution support. These capabilities, together
with Brimtek's substantial US presence and breadth of product
offerings, provide the Group with a consolidated, US-focused
platform for growth in this critical market, together with the
opportunity for significant sales synergies with Digital Barriers
in the US market.
Purchase consideration
The purchase consideration for the acquisition was as
follows:
Brimtek
GBP'000
------------------------------------------------- ---------
Cash consideration 17,443
------------------------------------------------- ---------
Discounted fair value of deferred consideration 2,080
------------------------------------------------- ---------
Total consideration 19,523
------------------------------------------------- ---------
Pre-tax cost of debt 5.05%
--------------------------------------------------- ------
Undiscounted fair value of deferred consideration 2,438
--------------------------------------------------- ------
In accordance with IFRS 3R the Directors have assessed the
undiscounted fair value of deferred consideration payable for the
acquisition based on a probability weighted average of expected
cash flows. The discounted fair value of deferred consideration
payable has been calculated from the undiscounted amounts using a
pre-tax cost of debt as stated above.
The initial cash consideration paid on completion was GBP17.4
million. Deferred consideration of up to $20 million is payable
over the period to 31 December 2017, subject to revenue and gross
margin targets. The deferred consideration can be settled in cash,
or a mixture of cash and shares, with up to 95% of the deferred
consideration capable of being settled in shares at the discretion
of Digital Barriers. Up to $10 million of the deferred
consideration is based on revenue and gross margin targets for the
year ended 31 December 2016 and a further $10 million on the year
ended 31 December 2017. Both revenue and gross margin targets have
a threshold at which the deferred consideration starts to accrue,
and targets at which the full deferred consideration is earned. If
the deferred consideration for the year ended 31 December 2016 is
not earned in full, then up to $5 million can be carried forward to
the following period and payable based on overachievement of the
revenue and gross margin targets for that period.
The fair value of deferred consideration at the acquisition date
was estimated at GBP2.1 million (discounted). This has been
estimated based on a weighted average probability calculation, with
probability distributions applied to various revenue and gross
margin ranges. The deferred consideration payable is sensitive to
movements in the revenue and gross margin outcomes versus target.
No deferred consideration is payable at threshold revenue targets
or threshold gross margin targets. A $5 million increase in the
revenue earned in the year ended 31 December 2016 compared to the
threshold target (at full target gross margin) would result in a
$2.5 million increase in the deferred consideration due.
Significant increases in the revenue and gross margins of Brimtek
Inc would result in higher fair value of the deferred consideration
liability.
Total acquisition costs of GBP1.7 million were incurred and
recorded within the administration costs line in the income
statement. This includes GBP0.5 million in relation to an amount
due from Brimtek to Digital Barriers which was fully provided for
immediately prior to the acquisition.
Assets and liabilities
The carrying amount and fair value of assets and liabilities in
the books of Brimtek at acquisition were as follows:
Book value at acquisition Fair value at acquisition
GBP'000 GBP'000
------------------------------- -------------------------- --------------------------
Property, plant and equipment 202 202
------------------------------- -------------------------- --------------------------
Intangible assets 7 11,190
------------------------------- -------------------------- --------------------------
Trade and other receivables* 1,906 1,906
------------------------------- -------------------------- --------------------------
Inventories 2,530 2,530
------------------------------- -------------------------- --------------------------
Debt (68) (68)
------------------------------- -------------------------- --------------------------
Trade and other payables (4,546) (4,546)
------------------------------- -------------------------- --------------------------
Total net assets acquired 31 11,214
------------------------------- -------------------------- --------------------------
Goodwill 8,309
------------------------------- -------------------------- --------------------------
Purchase consideration 19,523
------------------------------- -------------------------- --------------------------
* Gross contractual amounts receivable total GBP1,986,000, with
GBP80,000 not expected to be collected based on best estimate at
the date of acquisition.
Given the proximity of the acquisition to the year end, the fair
value of assets and liabilities arising from the acquisition are
still considered to be provisional as the Group expects to receive
further information relevant to the net assets acquired.
The goodwill is attributable to the value of expected sales
synergies through a more substantial US presence with access to
flagship US government customers, along with synergies attributable
to the Group's operations and the value of the assembled workforce
including industry specific knowledge and technical skills. Subject
to further review, the goodwill recognised is expected to be
deductible for income tax purposes.
From the date of acquisition to the 31 March 2015, the acquired
business contributed GBP2.9 million revenue, GBP0.2 million profit
before tax and the cash flows arising from the acquisition include
GBP17.4 million initial cash consideration on completion and GBP0.1
million net debt acquired.
If the acquisition had occurred on 1 April 2015, the Group's pro
forma annual revenue and loss before tax for the year ended 31
March 2016 (for continuing operations), based on unaudited
management information for the acquired entity, would have been
approximately GBP46 million and GBP7 million respectively.
Business disposals in the year ended 2015
On 8 May 2014, a Group company concluded a share purchase
agreement for the sale of the entire issued share capital of
Margaux Matrix Limited for GBP1 consideration. The impact of this
transaction is not material to the Group and the Group did not sell
any intellectual property as part of the transaction.
On 24 September 2014, a Group company concluded a share purchase
agreement for the sale of the entire issued share capital of
Visimetrics (UK) Limited for GBP1 consideration. The impact of this
transaction is not material to the Group and the Group did not sell
any intellectual property as part of the transaction.
On 1 April the Board signed an agreement for the proposed
disposal of the Services segment to its existing management team
for GBP1. See note 10 for further details.
Movements on deferred consideration
The following movements in the amounts recognised for deferred
consideration have taken place:
GBP'000
--------------------------- --------
As at 31 March 2015 -
--------------------------- --------
On acquisition of Brimtek 2,080
--------------------------- --------
Exchange movement (62)
--------------------------- --------
As at 31 March 2016 2,018
--------------------------- --------
The exchange movement on the deferred consideration is a
translation reserve movement.
10. Disposal group classified as held for sale
On 1 April the Board signed an agreement for the proposed
disposal of the Services segment to its existing management team
for GBP1. As indicated in the interim results announcement on 11
December 2015, this follows the view that the Board believes that
the Services division is no longer strategic to the Group's future.
The disposal group was classified as held for sale in March 2016.
The sale completed on 19 May 2016. The sale included limited
ongoing customer contracts associated with the Services segment, as
well as certain assets including vehicle leases and limited stock
and moveable assets. The book value of the assets transferred was
GBP0.1 million. In connection with the sale the Group transferred
the division's employees, by way of a TUPE process.
The following are attributable to the disposal group:
Income statement
2016 2015
GBP'000 GBP'000
---------------------------------------------------------------------------------------- --------- ---------
Revenue 3,777 7,460
---------------------------------------------------------------------------------------- --------- ---------
Cost of sales (3,114) (5,790)
---------------------------------------------------------------------------------------- --------- ---------
Expenses (1,348) (1,562)
---------------------------------------------------------------------------------------- --------- ---------
Exit costs (528) -
---------------------------------------------------------------------------------------- --------- ---------
Pre-tax (loss) / profit for discontinued operation (1,213) 108
---------------------------------------------------------------------------------------- --------- ---------
Impairment of goodwill and intangibles on valuing at fair value less costs of disposal (3,619) -
---------------------------------------------------------------------------------------- --------- ---------
(Loss) / profit attributable to discontinued operation (4,832) 108
---------------------------------------------------------------------------------------- --------- ---------
Income tax expense - -
---------------------------------------------------------------------------------------- --------- ---------
No tax arises on disposal.
Loss per share - discontinued operations
Loss Profit
attributable attributable
to to
discontinued Weighted discontinued Weighted Discontinued
operations average number Discontinued operations average number profit per
2016 of shares 2016 loss per share 2015 of shares 2015 share 2015
GBP'000 No. 2016 Pence GBP'000 No. Pence
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Basic (loss) /
profit per
share (4,832) 105,052,916 (4.60) 108 69,305,105 0.16
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Diluted (loss)
/ profit per
share (4,832) 105,052,916 (4.60) 108 69,305,105 0.16
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
The inclusion of potential Ordinary Shares arising from LTIPs
and Incentive Shares would be anti-dilutive. Basic and diluted loss
per share has therefore been calculated using the same weighted
number of shares.
Cash flows
Cash flows attributable to the disposal group include:
2016 2015
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Net cash flows attributable to operating activities (93) (1,847)
----------------------------------------------------- --------- ---------
Net cash flows attributable to investing activities (9) (143)
----------------------------------------------------- --------- ---------
Net cash flows attributable to financing activities - -
----------------------------------------------------- --------- ---------
Assets and liabilities
At the end of March 2016 the carrying amount of assets and
liabilities classified as held for sale are as follows:
Carrying amount after classification as held for sale
2016
GBP'000
------------------------------- ------------------------------------------------------
Property, plant and equipment -
------------------------------- ------------------------------------------------------
Inventories 35
------------------------------- ------------------------------------------------------
Liabilities -
------------------------------- ------------------------------------------------------
35
------------------------------- ------------------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEAFUMFMSEFM
(END) Dow Jones Newswires
June 27, 2016 02:00 ET (06:00 GMT)
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