2nd Jul 2009 07:00
2nd July 2009
OPSEC SECURITY GROUP plc
("OpSec", "the Company" or "the Group")
preliminary Announcement of Results for the Year Ended 31st March 2009
OpSec Security Group plc, the supplier of anti-counterfeiting technologies, services and programmes announces its results for the year ended 31st March 2009.
Highlights
|
2009 |
2008 |
||
|
Revenue |
£39.3m |
£33.0m |
|
|
Operating Profit |
£0.6m |
£2.7m |
|
|
Adjusted Operating Profit* |
£3.1m |
£3.6m |
|
|
Basic (Loss)/Earnings Per Share |
(3.3)p |
9.2p |
|
|
Adjusted Basic Earnings Per Share*† |
2.9p |
5.9p |
* Adjusted for the charges for intangible amortisation, exceptional charges and share based payments (note 2c)
† 2008 adjusted for the £2,583,000 deferred tax credit on recognition of deferred tax assets in the UK operations
Successful integration of two acquisitions - Light Impressions and P4M;
Group revenue increased by 19% to £39.3 million (decreased by 1% excluding acquisitions) with adjusted operating profits down to £3.1 million;
The lower operating profit reflects the impact of global economic conditions, which resulted in an unprecedented reduction in the consumer Brand Protection volumes in the last quarter of the year;
Net cash inflow from operating activities improved to £3.5 million (2008: £0.9 million);
Significant cost saving measures have been implemented which will benefit the year ending 31st March 2010;
New banking arrangements secured with The Royal Bank of Scotland.
David Mahony, Chairman, said:
"During the first quarter of the current year the general economic position has continued to have an adverse impact on the Company; particularly on our Brand Protection business. We are pursuing a number of large ID and BNHS projects, mainly outside of Europe and the US, and to the extent that these contracts are secured they will benefit both the second half and future years. The restructuring and cost reduction measures we have undertaken will have a significant positive impact on the second half of the current year whilst retaining the capacity to service both existing business and the future business we are seeking."
For further information, please contact:
|
OpSec Security Group plc |
today; 020 7067 0700 |
|
Mark Turnage, Chief Executive ([email protected]) |
thereafter: 0191 417 5434 |
|
Mike Angus, Finance Director ([email protected]) |
|
|
Weber Shandwick Financial |
020 7067 0700 |
|
Nick Oborne/ Stephanie Badjonat |
|
|
Oriel Securities Ltd |
020 7710 7600 |
|
Michael Shaw/Neil Langford |
2nd July 2009
OPSEC SECURITY GROUP plc
("OpSec", "the Company" or "the Group")
preliminary Announcement of Results for the Year Ended 31st March 2009
Chairman's Statement
Introduction
During the year to 31st March we faced the challenges of the difficult economic conditions being experienced by all major developed economies, coupled with significant instability in exchange rates.
The year saw movements in terms of our customer base throughout the Group. One significant customer was lost during the year but the Group was successful in winning other contracts, extending its contractual relationships both with three of the US Sports Leagues and other large customers and agreeing a renewed programme with 3DCD's largest customer. Inevitably contraction of US consumer spending led to sales volumes in our Brand Protection operation coming under pressure, particularly towards the end of the year. Fuller details of these changes are contained in the Chief Executive's Review.
The Group's policy of investing to improve the quality and range of its products has been coupled with a major drive to reduce operating costs by rationalising production facilities. The benefits of this approach are expected to be seen in the current year.
Despite the costs of these measures and the impact of acquisitions the Group was operating cash generative in the year and new arrangements have been agreed with RBS, the Company's bankers, including revised covenants relating to our borrowings from them.
Acquisitions
The Group made two acquisitions in the year. The first of these, Light Impressions, lost one major customer in an international tender which, although it represented only very low margin business for the Group, has required us to make an impairment charge. It should be noted that the loss of this customer will reduce the further payments that the Group was due to make in regard to this acquisition. Apart from this set back the Company has, and is expected to continue to, meet our plans for it.
P4M, based in Germany, has performed exceptionally well both as regards customer retention and winning new business. It is complementary to the earlier acquisition of GenuOne and both of these activities are firmly embedded in our Brand Protection business.
Management and Employees
The Group's management was strengthened in the year by the recruitment of a Group Chief Manufacturing Officer who has overseen the rationalisation of our production facilities referred to above. Given the difficult economic environment we undertook a pay freeze across the Group. In addition we proposed, and were gratified by the reception given to, an arrangement whereby all Directors, middle and senior management agreed to waive a percentage of their salary. These waivers are only reversible on the achievement of budgeted cash and profit goals for the current year.
Outlook
During the first quarter of the current year the general economic position has continued to have an adverse impact on the Company; particularly on our Brand Protection business. We are pursuing a number of large ID and BNHS projects, mainly outside of Europe and the US, and to the extent that these contracts are secured they will benefit both the second half and future years. The restructuring and cost reduction measures we have undertaken will have a significant positive impact on the second half of the current year whilst retaining the capacity to service both existing business and the future business we are seeking.
DA Mahony
Chairman
2nd July 2009
BUSINESS REVIEW
Chief Executive's Review
Introduction
OpSec is an international company whose mission is to provide solutions to its customers to combat counterfeiting and the related problems of diversion, grey marketing, online brand abuse and fraud. OpSec's customers include governments and many of the world's largest corporations.
OpSec supplies technologies and solutions into three core markets: Brand Protection, ID Solutions, and Banknote and High Security Documents. In addition, OpSec owns 50% of 3dcd LLC, a joint venture which licenses technologies for the protection of optical disks (CDs and DVDs).
OpSec's customers are served from Company facilities in the USA, the UK, Germany, and Hong Kong, and via a network of over 40 agents worldwide.
Review of Operations
For the year to 31st March 2009, revenue rose by 19% to £39.3 million (2008: £33.0 million), benefiting from the two acquisitions made in the year. Revenue decreased by 1% excluding the acquisitions. Adjusted operating profit of £3.1 million was 15% lower than the previous year, (2008: £3.6 million). Net cash inflow from operating activities increased to £3.5 million (2008: £0.9 million), and adjusted basic earnings per share fell to 2.9 pence (2008: 5.9 pence). It should be noted that these numbers were impacted favourably by the strengthening of the dollar and the euro against sterling.
Strategy
OpSec's strategy is to provide world-class authentication technologies and solutions into its core markets, leveraging its unique technology portfolio, its expertise, and its global distribution network. OpSec will continue to invest in people, technology, manufacturing and distribution to continue its growth and broaden its product offerings. On a selective basis the Group will also make acquisitions that fit its core market strategy or enhance its technology strategy.
Market Sectors
OpSec is organised by market-facing groups, each addressing its discrete market with dedicated management, sales, sales support, and technology development teams. The three market facing groups are supported by the manufacturing group which provides them with products and services from the Group's various manufacturing facilities.
Brand Protection
On the back of a strong performance in the first nine months, the Brand Protection group had a record year with revenue up 55% to £22.6 million (2008: £14.6 million). This included revenue from the new acquisitions, Light Impressions and P4M, of £4.0 million and £2.6 million respectively. Excluding these, Brand Protection revenue rose by 9%.
These results reflect OpSec's very strong strategic positioning in this sector, as seen in new customers won during the year and the retention and strong growth of underlying key customer accounts. OpSec is unique in providing brand protection solutions which encompass both the tagging and tracking of physical product through the supply chain, as well as the monitoring online of brand identity and activity, and the online sale of merchandise. This allows brand owners to address all facets of the problems associated with counterfeiting, grey marketing, and unlawful use and sale of branded merchandise both in retail establishments as well as online sales.
During the year OpSec negotiated multi-year extensions to contracts with seven of its major customers. This positions the Group very strongly with its key customers going forward but it remains to be seen how long the current economic conditions, which started to impact the latter part of the year, continue to depress volumes.
The acquisitions of Light Impressions and P4M were successfully integrated in to OpSec's operations during the year and the management team at P4M have become a key component of the Group's online Brand Protection team.
ID Solutions
In the year ended 31st March 2009, revenue in the ID Solutions business increased by 6% to £8.3 million, (2008: £7.8 million). This reflected the benefit of a number of significant new accounts which were secured during the year offset by the impact of the prior year loss of one contract in Latin America and a slowdown in ordering from one key government customer.
A number of the new contracts utilise the new products which were launched in the prior year. This expanded product range has positioned OpSec to compete strongly to supply products for the next generation of ID documents. This competitive position has been enhanced further by the completion of the £1.5 million investment which enables OpSec to manufacture highly specified secure ID cards at its plant in Lancaster, Pennsylvania.
Banknote and High Security Documents
Revenue in the Banknote and High Security market sector fell by 20% to £8.5 million (2008: £10.6 million). This reflected the loss of the Group's Middle Eastern tax stamp customer, as reported at the time of the interims. This loss, the full impact of which will be seen next year, was partially offset by an increase in sales of films to Russia.
During the year the Group made significant investments developing potential opportunities in the area of excise/tax stamps and in the supply of engineered films, which the Group believes could be a strong driver of future growth.
Geographical Business Units
The Group reports revenues and profitability split geographically between its European and American operations. These operations compete across all the market sectors referenced above. Manufacturing locations also lie within each geographical sector.
American Operations
Revenue in our American operations was $37.3 million, down 6% from the prior year total of $39.5 million. This reflected a reduction in sales of the Group's patented temporary licence plate product and the slow-down of Brand Protection sales in the latter part of the year. The reduced adjusted operating profit of $2.5 million (2008: $5.0 million) was due to lower sales and the cost of investments in the business made to underpin anticipated growth which did not materialise.
As a consequence of the lower sales levels and the uncertainty over future order levels the decision was taken to combine the Group's two American manufacturing locations on to its site at Lancaster, Pennsylvania. This, together with a number of other initiatives, will help the Group realise significant cost savings in the current financial year
European Operations
Revenue in the core European operations fell to £12.2 million from £15.2 million, principally as a result of the loss of the Group's Middle Eastern tax stamp customer. This decline in revenue meant that adjusted operating profit fell to £1.0 million (2008: £1.7 million).
The new equipment commissioned in the prior year has helped realise significant cost and efficiency savings and allowed the expansion of the Group's range of embossed and engineered films and foils. Investment continues to be made in the Group's optical capabilities where a number of new products are being developed.
Light Impressions
At the start of the year the Group acquired Light Impressions International Ltd. ("Light Impressions"). Light Impressions is a provider of holographic products to approximately 80 customers globally with a particularly strong presence in Asia.
Light Impressions reported revenue for the year of £4.0 million and an operating profit of £0.8 million in the year ended 31st March 2009. This business lost a major customer in the year which will impact future revenue (and reduce the contingent element of the purchase price) but the integration of this business into the Group's European operations is proceeding to plan and should realise significant cost savings.
P4M
In May 2008 the Group purchased P4M Partners 4 Management GmbH. ("P4M"). P4M is a leading provider of online brand protection and monitoring services in Europe enabling brand owners to detect illegal distribution of digital media, identify counterfeit and grey market goods on e-commerce sites, and measure online brand image and customer satisfaction.
P4M reported revenue of €3.1 million and an operating profit of €1.025 million in the 11 months to 31st March 2009. It has exceeded all expectations and has started the current financial year very strongly. The business has been successfully integrated and the senior management at P4M have been given broader global roles in the Group's global online Brand Protection business.
3dcd Joint Venture
3dcd performed in line with expectations with a contribution of £0.7 million (2008: £0.9 million).
3dcd has reached agreement with its major customer to extend its current commercial arrangements for a further three years. This extension, which is currently being documented, was achieved as a result of the development of the next generation of technology for optical disk protection which was completed during the year.
Corporate
The charge for share based payments in the current year decreased from £789,000 to a credit of £2,000, partly as a consequence of the non-achievement of the performance conditions attaching to a number of the various incentive schemes. Other corporate costs increased by 33% to £1.9 million (2008: £1.4 million). The major contributor to this increase was exchange rate movements. The increase also reflects the cost of a Chief Manufacturing Officer recruited during the year.
The profit and loss account also includes an exceptional cost of £857,000. This charge reflects the cost of the significant headcount reductions that have taken place and are scheduled to take place in the current year together with the costs of closing the Parkton facility and moving it to Lancaster.
People
OpSec has employees operating from its manufacturing facilities in North America, Germany and the United Kingdom, as well as its optical laboratories in the United Kingdom, the corporate office in Denver, and sales and support facilities in Hong Kong and Latin America.
Total Group headcount (adjusted for the acquisitions) fell from 325 at 31st March 2008 to 280 at 31st March 2009. This number has fallen to below 260 in the current year, with the move of the Parkton facility to Lancaster.
OpSec believes strongly that employee recruitment, training and retention are critical to its success as a group. The Group remains fully committed to maintaining its health, safety and environmental standards and performance.
MT Turnage
Chief Executive
2nd July 2009
BUSINESS REVIEW
Financial Review
Revenue
The year to 31st March 2009 saw Group revenue increase by 19% to £39.3 million (2008: £33.0 million). The gains, which arose from the acquisitions and an improvement in the sterling US dollar exchange rate, were offset by an end of year slow-down in ordering in the Brand Protection market and the loss of a major customer in the Banknote and High Security Documents market.
Gross profit margin
Gross profit margin for the year fell from 42% to 41%. The decrease was principally a consequence of margins in our American operations falling from 43% to 39% as the planned volumes in these facilities were not achieved. Margins in our core European operations improved from 37% to 38% as the mix of sales improved and a number of operating efficiencies were achieved.
Operating Profit
Adjusted operating profit (adjusted for the effects of intangible amortisation and share based payments) decreased to £3.1 million (2008: £3.6 million).
Finance expense
The net finance cost for the year was £1.4 million (2008: £0.1 million). This includes an exceptional write off of £0.6 million in respect of debt advisor costs.
Income Tax
The tax charge for the year of £0.9 million (2008: credit of £2.0 million) arises predominantly from the impairment of the deferred tax asset in the Group's UK based companies.
Earnings per share
Basic adjusted earnings per share decreased to 2.9p (2008: 5.9p). Adjusted fully diluted earnings per share decreased to 2.7p, (2008: 5.4p).
Balance sheet
Net assets increased by £5.4 million to £32.0 million (2008: £26.6 million). The principal movements during the year arose from foreign exchange movements of £7.6 million offset by amounts written off intangible assets and deferred tax.
Cash flow
Net cash inflow from operating activities was £3.5 million (2008: £0.9 million). In addition, the Group received dividends from its joint venture amounting to £0.7 million (2008: £1.2 million).
The principal cash outflows during the year were the acquisitions of Light Impressions and P4M for £9.0 million, property, plant and equipment additions of £2.3 million (2008: £3.2 million) and interest and bank fee payments of £1.4 million (2008: £0.1 million). These outflows were funded from a net increase in borrowings of £9.0 million.
Overall the net cash inflow for the year was £1.9 million (2008: outflow of £2.2 million). After the effects of cash acquired with acquisitions of £1.0 million and exchange rate fluctuations on cash of £0.5 million, net cash and cash equivalents increased to £4.2 million (2008: £0.8 million).
Liquidity Risk
OpSec seeks to maintain a balance between continuity of funding and flexibility. During the year the Group repaid its revolving credit facility with the Bank of America and entered into a term loan and revolving credit facility of up to £19 million with The Royal Bank of Scotland plc ("RBS"). At 31st March 2009 the available bank facilities totalled £12.5 million of which £12.0 million was drawn down.
Whilst there was no breach of the original covenants the sharp down turn in trading in the final quarter led us to negotiate new banking arrangements with RBS. These new arrangements include a new set of covenants, an increase in the interest rate margin up to a maximum of 5.25% and a reduction in the term of the facility from March 2013 to June 2012.
Foreign currency risk
A significant proportion of OpSec's net assets are in currencies other than sterling. The Company's policy is to limit the translation exposure and the resulting impact on shareholders' funds by borrowing in those currencies in which it has significant net assets.
Throughout the year borrowings were primarily denominated in sterling, Euros and US Dollars. The Company does not hedge the translation effect of exchange rate movements on the income statement.
The majority of OpSec's transactions are carried out in the functional currencies of its operations and so transaction exposure is limited.
Principal exchange rates
|
Average |
Closing |
|||
|
2009 |
2008 |
2009 |
2008 |
|
|
US$: £ |
1.72 |
2.01 |
1.43 |
1.99 |
|
€: £ |
1.21 |
1.42 |
1.07 |
1.25 |
The differences between the average and closing exchange rates are such that if the results for the year ended 31st March 2009 were translated at the closing rates rather than the average rates, revenue would be increased by £4.1 million and operating profit by £0.2 million.
MW Angus
Finance Director
2nd July 2009
OPSEC SECURITY GROUP plc
Consolidated Income Statement
|
|
Year ended
31-Mar-09
|
|
Year ended
31-Mar-08
|
|
|
£’000
|
|
£’000
|
|
|
|
|
|
|
Revenue
|
39,339
|
|
33,009
|
|
Cost of sales
|
(23,181)
|
|
(19,030)
|
|
|
|
|
|
|
Gross profit
|
16,158
|
|
13,979
|
|
|
|
|
|
|
Distribution and selling costs
|
(4,875)
|
|
(4,225)
|
|
Administrative expenses
|
(8,882)
(857)
(800)
(851)
|
|
(7,799)
-
(126)
-
|
|
Exceptional administrative expenses
Intangible amortisation
Intangible impairment
|
|||
|
Total administrative expenses
|
(11,390)
|
|
(7,925)
|
|
|
|
|
|
|
|
(107)
|
|
1,829
|
|
|
|
|
|
|
Share of profit of jointly controlled entities
|
678
|
|
884
|
|
|
|
|
|
|
Operating profit
|
571
|
|
2,713
|
|
|
|
|
|
|
Finance income
|
84
|
|
65
|
|
Finance expenses
|
(1,436)
|
|
(133)
|
|
Net finance expense
|
(1,352)
|
|
(68)
|
|
|
|
|
|
|
(Loss)/Profit before income tax
|
(781)
|
|
2,645
|
|
|
|
|
|
|
Income tax
|
(896)
|
|
1,964
|
|
|
|
|
|
|
(Loss)/Profit for the year attributable to equity holders of the parent
|
(1,677)
|
|
4,609
|
|
|
|
|
|
|
Basic (loss)/earnings per share (p)
|
(3.3)
|
|
9.2
|
|
Diluted (loss)/earnings per share (p)
|
(3.3)
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
OPSEC SECURITY GROUP plc
Consolidated Statement of Recognised Income and Expense
|
Year ended 31-Mar-09 |
Year ended 31-Mar-08 |
||
|
£'000 |
£'000 |
||
|
Foreign exchange translation differences |
7,635 |
(271) |
|
|
Effective portion of changes in fair value of cash flow hedges |
(628) |
- |
|
|
Net change in fair value of cash flow hedges transferred to profit or loss |
43 |
- |
|
|
Net income / (expense) recognised directly in equity |
7,050 |
(271) |
|
|
(Loss)/Profit for the year |
(1,677) |
4,609 |
|
|
Total recognised income for the year attributable to equity holders of the parent |
5,373 |
4,338 |
OPSEC SECURITY GROUP plc
Consolidated Balance Sheet
|
31-Mar-09 |
31-Mar-08 |
||
|
£'000 |
£'000 |
||
|
ASSETS |
|||
|
Non-current assets |
|||
|
Property, plant and equipment |
11,633 |
8,668 |
|
|
Intangible assets |
28,609 |
10,576 |
|
|
Investment in jointly controlled entity |
530 |
396 |
|
|
Other investments |
18 |
18 |
|
|
Deferred tax assets |
4,347 |
4,965 |
|
|
Total non-current assets |
45,137 |
24,623 |
|
|
Current assets |
|||
|
Inventory |
3,868 |
3,549 |
|
|
Trade and other receivables |
7,517 |
5,908 |
|
|
Cash and cash equivalents |
4,244 |
875 |
|
|
Total current assets |
15,629 |
10,332 |
|
|
Total assets |
60,766 |
34,955 |
|
|
LIABILITIES |
|||
|
Current liabilities |
|||
|
Interest-bearing loans and borrowings |
(1,249) |
(108) |
|
|
Deferred government grants |
(20) |
(20) |
|
|
Provisions |
(536) |
||
|
Income tax payable |
(252) |
(73) |
|
|
Trade and other payables |
(13,922) |
(6,182) |
|
|
Total current liabilities |
(15,979) |
(6,383) |
|
|
Non current liabilities |
|||
|
Interest-bearing loans and borrowings |
(11,787) |
(1,810) |
|
|
Deferred government grants |
(159) |
(179) |
|
|
Derivative financial instruments |
(585) |
- |
|
|
Deferred tax liabilities |
(280) |
- |
|
|
Total non current liabilities |
(12,811) |
(1,989) |
|
|
Total liabilities |
(28,790) |
(8,372) |
|
|
Net assets |
31,976 |
26,583 |
|
|
EQUITY |
|||
|
Capital and reserves |
|||
|
Issued capital |
2,669 |
2,669 |
|
|
Share premium account |
29,309 |
29,309 |
|
|
Translation reserve |
6,113 |
(1,522) |
|
|
Hedging reserve |
(585) |
- |
|
|
Retained earnings |
(5,530) |
(3,873) |
|
|
Total equity attributable to equity holders of the parent |
31,976 |
26,583 |
OPSEC SECURITY GROUP plc
Consolidated Statement of Cash Flows
|
Year ended 31-Mar-09 |
Year ended 31-Mar-08 |
||
|
£'000 |
£'000 |
||
|
Cash flows from operating activities |
|||
|
(Loss)/Profit for the year |
(1,677) |
4,609 |
|
|
Depreciation |
1,764 |
1,326 |
|
|
Amortisation/impairment of intangible assets |
1,651 |
126 |
|
|
Profit on sale of investment |
- |
- |
|
|
Release of government grants |
(20) |
- |
|
|
Equity settled share based expense |
(2) |
789 |
|
|
Share of profit of jointly controlled entities |
(678) |
(884) |
|
|
Finance income |
(84) |
(65) |
|
|
Finance expenses |
1,436 |
133 |
|
|
Income tax expense |
896 |
(1,964) |
|
|
Movement in inventory |
892 |
(832) |
|
|
Movement in trade and other receivables |
493 |
(176) |
|
|
Movement in trade and other payables |
469 |
(1,736) |
|
|
Cash from operating activities |
5,140 |
1,326 |
|
|
Interest paid |
(1,436) |
(133) |
|
|
Income tax paid - overseas |
(175) |
(278) |
|
|
Net cash inflow from operating activities |
3,529 |
915 |
|
|
Cash flows from investing activities |
|||
|
Acquisition of subsidiary undertaking (net of cash acquired) |
(7,948) |
- |
|
|
Acquisition of property, plant and equipment |
(2,340) |
(3,195) |
|
|
Proceeds from sale of property, plant and equipment |
- |
6 |
|
|
Proceeds from sale of investment |
- |
||
|
Proceeds from sale of government grants |
- |
199 |
|
|
Dividends received from jointly controlled entity |
705 |
1,163 |
|
|
Income from other fixed asset investments |
- |
||
|
Interest received |
84 |
65 |
|
|
Net cash outflow from investing activities |
(9,499) |
(1,762) |
|
|
Cash flows from financing activities |
|||
|
Payment of finance lease liabilities |
(58) |
(34) |
|
|
Drawdown of borrowings |
12,008 |
350 |
|
|
Repayment of borrowings |
(3,049) |
- |
|
|
Proceeds from sale of own shares |
83 |
102 |
|
|
Purchase of own shares |
(61) |
(1,266) |
|
|
Dividends paid |
- |
(504) |
|
|
Net cash inflow from financing activities |
8,923 |
(1,352) |
|
|
Net increase/(decrease) in cash and cash equivalents |
2,953 |
(2,199) |
|
|
Cash and cash equivalents at the start of the year |
793 |
3,073 |
|
|
Effect of exchange rate fluctuations on cash |
498 |
(81) |
|
|
Cash and cash equivalents at the end of the year |
4,244 |
793 |
OPSEC SECURITY GROUP plc
Notes to the Preliminary Announcement
For the year ended 31st March 2009
1) Basis of preparation
The financial information set out above has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the EU (Adopted IFRSs).
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31st March 2009 or 2008. The financial information for 2008 is derived from the statutory accounts for 2008 which have been delivered to the registrar of companies. The auditors have reported on the 2008 accounts; their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 237 (2) or (3) of the Companies Act 1985. The statutory accounts for 2009 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the registrar of companies in due course.
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Review above. The financial position of the group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review above
The Group meets its day to day working capital requirements through its bank loan facility with The Royal Bank of Scotland. The terms of the facility have recently been amended, including a revision to certain covenants. The amended facilities are due for renewal on 30th June 2012. The current economic conditions create uncertainty particularly over (a) the level and timing of demand for the Group's products, (b) the exchange rate between Sterling and the Euro and US Dollar, and (c) the availability of bank finance in the foreseeable future.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its revised facility. The Group will open renewal negotiations with the bank, or alternative debt providers, in due course when appropriate.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the annual report and accounts which will be finalised on the basis of the financial information presented in this preliminary announcement.
OPSEC SECURITY GROUP plc
Notes to the Preliminary Announcement
For the year ended 31st March 2009
2) Segment Information
|
Year ended |
Year ended |
||
|
31-Mar-09 |
31-Mar-08 |
||
|
£'000 |
£'000 |
||
|
a) Revenue by geographic segment |
|||
|
American operations |
22,230 |
19,649 |
|
|
European operations |
18,873 |
15,196 |
|
|
Inter-segment revenue |
(1,764) |
(1,836) |
|
|
39,339 |
33,009 |
||
|
b) Revenue by market sector |
|||
|
Bank Note and High Security Documents |
8,516 |
10,640 |
|
|
Brand Protection |
22,568 |
14,567 |
|
|
ID Solutions |
8,255 |
7,802 |
|
|
39,339 |
33,009 |
||
|
c) Operating profit by geographic segment |
|||
|
American operations |
624 |
2,375 |
|
|
European operations |
1,177 |
1,673 |
|
|
Jointly controlled entity |
678 |
884 |
|
|
Corporate costs |
(1,908) |
(2,219) |
|
|
Operating profit |
571 |
2,713 |
|
|
Exclude exceptional administrative expenses |
857 |
- |
|
|
Exclude intangible amortisation |
800 |
126 |
|
|
Exclude intangible impairment |
851 |
- |
|
|
Exclude equity settled share based payments |
(2) |
789 |
|
|
Adjusted operating profit |
3,077 |
3,628 |
|
|
d) Adjusted operating profit by geographic segment |
|||
|
American operations |
1,550 |
2,501 |
|
|
European operations |
2,759 |
1,673 |
|
|
Jointly controlled entity |
678 |
884 |
|
|
Corporate costs |
(1,910) |
(1,430) |
|
|
3,077 |
3,628 |
||
OPSEC SECURITY GROUP plc
Notes to the Preliminary Announcement
For the year ended 31st March 2009
3) Total Operating Expenses
|
2009 £'000 |
2008 £'000 |
||
|
Distribution and Selling Costs Distribution and selling costs |
4,875 |
4,225 |
|
|
Administrative Expenses Technical support |
1,022 |
828 |
|
|
Research and development costs |
1,928 |
1,796 |
|
|
Administrative costs |
5,932 |
5,175 |
|
|
Exceptional administrative expenses |
857 |
- |
|
|
Intangible amortisation |
800 |
126 |
|
|
Intangible impairment |
851 |
- |
|
|
11,390 |
7,925 |
||
|
Total operating expenses |
16,265 |
12,150 |
|
Exceptional administrative expenses reflect the cost of redundancies together with the costs of closing the Parkton facility and moving it to Lancaster.
4) Share of Profit of Jointly Controlled Entity
The share of profit of jointly controlled entity represents the Group's share of the results of 3dcd for the year ended 31st March 2009.
5) Finance Income
|
2009 £'000 |
2008 £'000 |
||
|
Interest income |
25 |
61 |
|
|
Exchange gains on foreign currency deposits |
59 |
4 |
|
|
84 |
65 |
6) Finance Expenses
|
2009 £'000 |
2008 £'000 |
||
|
Interest expense on financial liabilities measured at amortised cost |
(758) |
(145) |
|
|
Net change in fair value of cash flow hedges transferred from equity |
(43) |
- |
|
|
Exceptional cost of debt advisor fees written off |
(635) |
- |
|
|
Exchange gains on foreign currency borrowings |
- |
12 |
|
|
(1,436) |
(133) |
OPSEC SECURITY GROUP plc
Notes to the Preliminary Announcement
For the year ended 31st March 2009
7) Taxation
|
2009 £'000 |
2008 £'000 |
||
|
Corporation tax |
|||
|
Overseas taxes - current year |
(22) |
35 |
|
|
Overseas taxes - prior year |
- |
(76) |
|
|
UK taxes - prior year |
(3) |
- |
|
|
Deferred taxes |
|||
|
Current year |
921 |
(1,826) |
|
|
Prior year |
- |
(97) |
|
|
896 |
(1,964) |
No corporation tax is payable in the current year by any of the Group's UK based companies due to existing trading and non trading losses brought forward.
Current period corporation tax on profits arising in the Group's American operations comprises state taxes and federal taxes, which have been reduced due to losses brought forward from prior years and the release of a provision no longer deemed necessary. Corporation tax is also payable on the profits of P4M in Germany.
The deferred tax charge arising in the period relates mainly to the reversal of a brought forward deferred tax asset in the UK entities. A decision has been made to reduce the deferred tax assets relating to the UK operations on the basis that the utilisation of the brought forward tax losses is now expected to be slower than anticipated in the prior year.
At 31st March 2009 the Group had recognised a deferred tax asset of £4,347,000 (2008: £4,965,000) arising principally from losses available in the UK and America which can be utilised to offset future profits of the same trades and other short term timing differences.
At 31st March 2009 the Group also had an additional unrecognised deferred tax asset of £9,317,000 in respect of unutilised tax losses and tax depreciation. This additional asset has not been recognised due to uncertainty relating to the utilisation of those tax assets. In addition, there is a deferred tax asset of £163,800 relating to an interest rate swap contract which has not been recognised.
As at 31st March 2009 deferred tax liabilities of £566,413 remain in relation to the intangible assets acquired within the businesses of Light Impressions and P4M.
OPSEC SECURITY GROUP plc
Notes to the Preliminary Announcement
For the year ended 31st March 2009
8) Earnings Per Share
The calculations of earnings per share are based upon the following profits and numbers of shares.
|
2009 £'000 |
2008 £'000 |
||
|
Earnings |
|||
|
Earnings for the financial year (basic and diluted) |
(1,677) |
4,609 |
|
|
Exceptional costs |
1,492 |
- |
|
|
Exceptional deferred tax credit |
- |
(2,583) |
|
|
Intangible amortisation |
800 |
126 |
|
|
Intangible impairment |
851 |
- |
|
|
Equity settled share based payments |
(2) |
789 |
|
|
Adjusted earnings for the financial year (basic and diluted) |
1,464 |
2,941 |
|
|
Weighted average number of shares |
No. of shares |
No. of shares |
|
|
For basic EPS |
50,634,466 |
50,251,184 |
|
|
Effect of share options and other awards |
2,946,502 |
4,383,285 |
|
|
For diluted EPS |
53,580,968 |
54,634,469 |
9) Reconciliation of Movements in Capital and Reserves
|
Attributable to equity holders of the parent |
||||||
|
Share capital |
Share premium |
Translationreserve |
Hedging reserve |
Retained earnings |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
At 1st April 2008 |
2,669 |
29,309 |
(1,522) |
- |
(3,873) |
26,583 |
|
Total recognised income and expense |
- |
- |
7,635 |
(585) |
(1,677) |
5,373 |
|
Equity settled share based payments |
- |
- |
- |
- |
(2) |
(2) |
|
Own shares sold |
- |
- |
- |
- |
83 |
83 |
|
Own shares purchased |
- |
- |
- |
- |
(61) |
(61) |
|
At 31st March 2009 |
2,669 |
29,309 |
6,113 |
(585) |
(5,530) |
31,976 |
Related Shares:
OSG.L