22nd Apr 2005 12:55
Quadnetics Group PLC22 April 2005 Quadnetics Group plc22 April 2005 Acquisition, Major Contract Win and Trading Update AcquisitionQuadnetics Group plc, a leader in the design, integration and control ofadvanced CCTV and networked video surveillance systems, announces that it hasagreed to acquire the trade and assets of Alphapoint LLC, a specialist providerof digital surveillance technology in the North American market, for a maximumtotal consideration of approximately $US3.3 million. Initial consideration,payable on completion in mid May, will be approximately $US900,000, of which$US700,000 will be payable in cash and $US200,000 in approximately 33,000ordinary shares of the Company. The management team of Alphapoint will beremaining with the business, and further consideration of up to $US2.0 millionin cash and $US0.4 million in approximately 66,000 Quadnetics shares will bepayable, depending on profits over the next four years. Alphapoint, based inSanta Barbara, California is one of a small number of US based specialistsecurity IT organisations working in the IP (Internet Protocol) CCTV field, withparticular focus on casinos. In the year to 31 December 2004, Alphapoint hadunaudited turnover of $US4.3 million and profit before tax of $US0.35 million.At 31 December 2004, Alphapoint's unaudited net assets were approximately $US0.4million. Quadnetics believes that the resources and capabilities of Alphapoint'sbusiness, trading as Synectic Systems, Inc. in North America, will furtheraccelerate the penetration of Synectics technology into the casino, homelanddefence and transportation security surveillance sectors of the North Americandigital CCTV market. Major contract awardThe Company is also pleased to announce that it has secured a further order ofapproximately $US3 million to supply Synectics digital CCTV technology for fouradditional casinos in Canada. A significant proportion of this order will becompleted within the Company's current financial year. The order followssuccessful commissioning for the same customer of what is believed to be thelargest real time digital CCTV system in the world so far. Trading UpdateOn the basis of currently anticipated deliveries over the final two months, theBoard of Quadnetics expects that profit before tax and goodwill amortisation forthe year to 31 May 2005 will fall within the range of £2.6 million to £3.0million, which is below current market expectations of around £3.5 million.Turnover for the year will be approximately £27 million which would represent anincrease of around 50% on the previous year. Slightly more than half of thisturnover increase is organic growth and the remainder the result of theacquisition of Look CCTV and Coex in February 2004. The potential variation in profit depends primarily on what proportion of thehigh volume of sales expected to be made by Synectics in the next three months,following recent and immediately anticipated order wins, will arise before theyear-end. After goodwill amortisation of £(0.4) million, and the positive impactof recognising a deferred tax asset of £0.4 million, reported net profit aftertax is likely to be in the range of £1.8 million to £2.1 million. The performance of Synectics during the year continues to be outstanding, andfully in line with expectations. Turnover is expected to grow by over 100% to inexcess of £8 million, with operating profit margins increasing to around 18%.The market for large-scale digital surveillance systems remains buoyant,particularly in North America, and all indications are that Synectics'technology and systems solutions are becoming increasingly recognised as amongthe best available. Export sales to North America will have increased from avery low base in 2003/4 to over $US5 million in the current year. Theestablishment of a permanent US base, through the acquisition of Alphapoint,should support significant further growth. Elsewhere, Look CCTV has had lower than planned installation completions thisyear, due primarily to the financial collapse of the parent company of Transbus,its largest customer. Look's strong ties with the bus operating companies haveenabled it to maintain market share through this transition period and todevelop closer working relationships with Transbus' new owners, AlexanderDennis. Look has now been appointed as preferred supplier by Alexander Dennisfor a three year period. Planned increases in infrastructure and sales andmarketing expenditure have been made to enable penetration into new geographicaland product areas, and to increase the proprietary elements of the systems Looksupplies. These expenditures have reduced net operating margins to a still verycreditable 18% for the current year, and are expected to provide a solidplatform for future growth. Overall, Look's profit contribution will besatisfactory for the current year, although somewhat below originalexpectations. As announced in the Company's interim statement in January 2005, contract awardsand completions at Quadrant Video Systems in the first half of the year werelower than anticipated. The situation has reversed in the second half, withturnover increasing by around 25% compared with the first half, and the run-rateof activity returning to planned levels. Although it now appears that not all ofthe first half shortfall in operating profits against budget will be made up inthe second half, the business continues to produce strong operating margins andwill have very positive momentum going into next year. Coex, the Marine and Explosion-rated specialist acquired last year, has beendeveloping the next generation solutions for advanced CCTV monitoring andcontrol in hazardous environments, particularly within the oil and gas industry.Proprietary Synectics technology will be incorporated in future versions ofthese solutions. As new management, financial systems and sales resources havebeen brought in, the business was not anticipated to make a significantcontribution to Group results in the current year. The actual result is likelyto be a small operating loss. The changes in structure and capability haveenabled Coex to address larger and more complex sales, with the objective ofsecuring for the Group a large share of this specialist global surveillancemarket. The Board is pleased with progress to date and, in particular, withrecent orders from Far East shipyards worth initially around £0.8 million, withsubstantial follow-on orders likely. The Board believes Quadnetics is making significant progress in all of itstarget areas and achieving real success in extending its reach into new verticaland geographic market sectors. Underlying operating profits in the second halfwill be substantially higher than in the first half, and the current run-rate issatisfactorily in line with the Company's operating plan in absolute terms. TheCompany intends to strengthen the senior management team in line with theincreased growth and geographical spread of its activities, and expects to makeimportant new Group-level appointments shortly. Quadnetics' primary objective remains to seek out or develop opportunities toestablish Synectics technology and systems with significant market share in anumber of specialist sectors in the global digital CCTV surveillance market,particularly public space surveillance, casinos, government security services,transportation and oil & gas. Progress in the current year has been particularlypleasing in respect of the high rate of profit and revenue growth Synectics isnow achieving. The Company's overall pipeline of business, in particular forSynectics in both the UK and North America, gives considerable confidence fornext year. Russ Singleton, Chief Executive, commented: "We expect the acquisition of Alphapoint, bringing with it a team of respectedindustry professionals in the US digital CCTV surveillance market, tosignificantly enhance our capability to achieve our ambitious growth objectivesin North America. With existing contract wins, Synectics has already establishedthat its technology is highly competitive in this market, and we look forward toincreasing our share of the major growth opportunities now emerging." Enquiries: Peter Curtain / Ariane Vacher Tel: +44 020 7398 7700Abchurch [email protected] Neil Baldwin Tel: +44 0113 241 0130Brewin Dolphin [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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