Final Results

12th June 2014

OPSEC SECURITY GROUP PLC

("OpSec", "the Company" or "the Group")

preliminary Announcement of Results for the Year Ended 31st March 2014

OpSec Security Group plc, the supplier of anti-counterfeiting technologies, services and programmes announces its results for the year ended 31st March 2014.

Highlights

* Adjusted for the charges for intangible amortisation and impairment, exceptional charges and share based payments (notes 2b and 8)

• Group revenue increased by 7% to £55.5 million;

• Group adjusted operating profit down by 37% to £2.3 million;

• Cash inflow from operating activities of £1.6 million (2013: £8.4 million);

• Closing cash balance of £2.6 million (2013: £6.0 million).

David Mahony, Chairman, said:

"The markets we serve continue to grow and we are well placed to benefit from the opportunities this presents as demonstrated by a number of major contracts secured in the prior year. Our strengthened balance sheet means we are able fully to proceed with the rationalisation of our facilities and this, when completed, will be of significant benefit to the Group."

For further information, please contact:

OpSec Security Group plc

Mike Angus, Finance Director ([email protected]) +1 720 394 2803

Shore Capital 020 7408 4090

Stephane Auton/Patrick Castle

12th June 2014

OPSEC SECURITY GROUP PLC

("OpSec", "the Company" or "the Group")

preliminary Announcement of Results for the Year Ended 31st March 2014

Chairman's Statement

Introduction

The year to 31st March 2014 saw an increase in Group Revenue but a fall in Group Operating profit. While the full year impact of the acquisition of the holographic business of JDSU ("JDSUH") helped revenue numbers, lower ordering from certain key Government Protection customers and changes in the sales mix adversely impacted operating margins.

Exceptional Items

A number of major exceptional items impacted the year. The acquisition of JDSUH with its facility in Robbinsville New Jersey required that the Group's manufacturing facilities be rationalised. The agreement of a formal shutdown arrangement with the union representing the Robbinsville employees was a necessary element of this programme and the projected costs of this arrangement are included in these results. In the period the Group also incurred legal expenses and professional fees relating to a corporate transaction which was subsequently aborted and had to make provision for the non-recovery of monies due from a South American customer.

Capital Restructuring

In April 2014 the Company completed a Placing and Open Offer which raised approximately £7.0 million before expenses. The funds were raised to reduce the Company's borrowings, to pay the accrued dividend owing in respect of the Preferred Shares, to fund the rationalisation of the Group's manufacturing facilities, to fund certain product development and growth expansion initiatives and to provide further working capital for the Group.

Board Changes

A number of changes to the board are being made.  On 21st May 2014 Hazem Ben-Gacem re-joined the OpSec Board of Directors. At the same time Glenn Luk stood down as a non-executive director of the Company. On behalf of the Board I would like to thank Glenn for his service to the Company.

Mark Turnage will step down from the post of Chief Executive but the Group will continue to benefit from his deep knowledge of the markets in which we operate as he will serve as Vice Chairman. An announcement regarding a new Chief Executive is expected to be made shortly.

Outlook

The markets we serve continue to grow and we are well placed to benefit from the opportunities this presents as demonstrated by a number of major contracts secured in the prior year. Our strengthened balance sheet means we are able fully to proceed with the rationalisation of our facilities and this, when completed, will be of significant benefit to the Group.

DA Mahony

Chairman

12th June 2014

BUSINESS REVIEW

Business Model and Strategy

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 numerous governments and many of the world's largest corporations.

OpSec supplies technologies and solutions into three core markets: Government Protection, Brand Protection and Transaction Cards. 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 its facilities in the USA, the UK, Germany, Hong Kong, and the Dominican Republic and via a network of over 40 agents worldwide.

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 intends to invest in people, technology, manufacturing and distribution to continue its growth and broaden its product offerings. The Group will also continue to make acquisitions that fit its core market strategy or enhance its technology portfolio.

Market Sectors

OpSec's sales activities are organised by market-facing groups, each addressing its individual market with dedicated management, sales, sales support, and technology development teams. The market facing groups are supported by the operations and digital operations groups which provide them with products and services from the Group's facilities in Europe, the USA and Asia.

The year to 31st March 2014 saw Group revenue increase by 7% to £55.5 million (2013: £51.7 million). The increase is primarily attributable to the full year impact of the acquisition of JDSUH which completed in October 2012.

Government Protection

Revenue in the Government Protection market sector decreased by 17% to £12.4 million (2013: £14.8 million).

The primary reason for the decrease in Government Protection revenues during the year was the cyclical downturn in two key government accounts. We saw strong growth from our ID product portfolio, where a number of new contracts were secured. Other new contracts in the excise stamp market were won during the year, but substantial revenues will not start to be recognized until the current financial year.

Brand Protection

This sector recorded an increase in revenue of 4% for the financial year to £32.5 million (2013: £31.2 million).

The year saw strong growth in our fashion market sector, reflecting the strength of our product offering following the prior year acquisition of Delta Labelling. Numerous new accounts were added in this sector, and the company also saw significant growth in its football related apparel business. Overall American brand revenues from our core customers also increased. This was offset in Europe by a decrease in revenues from one customer who went into administration.

OpSec continues to be unique in providing brand protection solutions which encompass both the tagging and tracking of physical product through the supply chain, as well as the online monitoring of brand identity and activity, and the online sale of merchandise. This combination of online and offline solutions is driven by market needs for more timely information relating to supply chains, and OpSec believes it is well positioned to meet the needs of the market. During the year a large number of new clients were secured and this should have a positive impact on future revenues.

Transaction Cards

Revenue in the transaction card market sector for the year was £10.7 million (2013: £5.7 million for six months). Key customers served include MasterCard, Visa, American Express, Diners Club International, and Discover.

The increase in revenues from the prior year reflected the full year impact of the JDSUH acquisition. The company increased its market share in this sector, aided by the withdrawal from the market of one key competitor, but did lose significant revenue in the period due to a supply chain disruption.

Geographical Business Units

The Group has two operating segments, each of which is a reportable segment; these are the Group's geographic business units. These operations cover all the market sectors referred to above.

American Operations

Revenue in our American operations was $57.2 million, an increase of 29% against the prior year total of $44.3 million and includes a full year of revenue from the previous year acquisition of JDSUH of $18.9 million (2013: $9.9 million). The American results were also impacted positively by some new customer wins in the Government Protection group.

Gross margins increased during the year from 34.4% to 35.0%. The impact of the JDSUH acquisition, which has lower gross margins, was offset by the positive impact of increased organic sales volumes.

Overall adjusted operating profit increased by 11% from $2.6 million to $2.9 million.

EMEA Operations

Revenue in the EMEA operations decreased from £24.8 million to £21.4 million, principally as a result of lower order levels from an established Asian currency customer and lower sales to a European government customer. These irregular order cycles are a common feature of large government orders received by the Group.

The gross margin generated by the EMEA operations fell from 45.3% to 38.0% as a result of sales mix and the decreased volumes during the year.

Overheads decreased as a result of lower sales commissions and adjusted operating profit decreased to £1.8 million from £3.4 million.

3dcd Joint Venture

The contribution from our joint venture during the year remained steady at £0.5 million (2013: £0.5 million).

Corporate

The charge for share based payments in the current year was £0.23 million (2013: £0.23 million). Other corporate costs were broadly in line with the prior year at £1.7 million (2013: £1.8 million).

Exceptional costs

There were exceptional costs during the year of £2.0 million (2013: £1.2 million). The acquisition of JDSUH with its facility in Robbinsville New Jersey required that the Group's manufacturing facilities be rationalised. The agreement of a formal shutdown arrangement with the union representing the Robbinsville employees was a necessary element of this programme and the projected costs of this arrangement are included in these results. In the period the Group also incurred legal expenses and professional fees relating to a corporate transaction which was subsequently aborted and had to make provision for the non-recovery of monies due from a South American customer.

Finance expense

The Group's financing is currently provided by Investcorp Technology Partners ("Investcorp") and JP Morgan Chase Bank. At 31st March 2014 Investcorp held 34,794,963 ordinary shares and 20,000,000 7.5% redeemable convertible preferred ordinary shares of 35 pence per share.

On 30th March 2014 the Company signed an amendment to the JP Morgan Debt Facility. The amendment included an additional $1.7 million repayment in April 2014 of the principal, reset the amortisation schedule of the remaining balance due over five years and reset the financial covenants relating to the facility.

At 31st March the Group had an outstanding Term Loan of $12.2 million and a revolving credit facility of $2.0 million.

The net finance cost for the year was £1.0 million (2013: £0.7 million). This reflects the impact of exchange rate movements and the full year impact of the additional financing entered into during the previous year.

Income Tax

The tax credit in the income statement of £1.0 million (2013: credit of £1.5 million) arises predominantly from an increase in deferred tax assets related to trading losses carried forward.

Earnings per share

Basic adjusted earnings per share decreased to 2.9p (2013: 5.8p). Adjusted fully diluted earnings per share decreased to 2.9p (2013: 5.7p).

Cash flow

Net cash inflow from operating activities was £1.3 million (2013: £7.1 million), the decrease resulting from lower adjusted operating profit and adverse working capital movements in the period. In addition, the Group repaid borrowings of £2.2 million (2013: £5.0 million net draw down of additional borrowing) and received dividends from its joint venture amounting to £0.3 million (2013: £0.6 million).

The principal cash outflows during the year were property, plant and equipment additions of £2.2 million (2013: £2.9 million), earn-out payments of £0.4 million and interest and bank fee payments of £0.2 million (2013: £0.7 million).

The major capital expenditure planned for the year ending 31st March 2015 is related to the rationalisation of our manufacturing facilities.

Overall the net cash outflow for the year was £3.2 million (2013: inflow of £1.0 million). After the adverse impact of exchange rate fluctuations on cash of £0.2 million, (2013: positive £0.1 million), net cash and cash equivalents decreased to £2.6 million (2013: £6.0 million).

Subsequent Events

On 31st March 2014, the Company announced that it had conditionally placed an aggregate of 21,212,121 New Ordinary Shares with Orca Holdings Ltd ("Orca") and Herald Investment Trust Ltd ("Herald") subject to the clawback in respect of valid acceptances received pursuant to an Open Offer. Accordingly, following the result of the Open Offer, under the Placing, Orca subscribed for 13,717,951 New Ordinary Shares and Herald subscribed for 6,858,975 New Ordinary Shares.

The 21,212,121 New Ordinary Shares issued pursuant to the Placing and Open Offer were admitted to trading on AIM on 22nd April 2014.

MT Turnage

Chief Executive

12th June 2014

OPSEC SECURITY GROUP PLC

Consolidated Income Statement

Consolidated statement of comprehensive income

OPSEC SECURITY GROUP PLC

Consolidated Statement of Changes in Equity

For the year ended 31st March 2014

For the year ended 31st March 2013

OPSEC SECURITY GROUP PLC

Consolidated Balance Sheet

OPSEC SECURITY GROUP PLC

Consolidated Statement of Cash Flows

OPSEC SECURITY GROUP PLC

Notes to the Preliminary Announcement

For the year ended 31st March 2014

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 (IFRS) 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 2014 or 2013. The financial information for 2013 is derived from the statutory accounts for 2013 which have been delivered to the registrar of companies. The auditor has reported on the 2013 accounts; their report was (i) unqualified, (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2014 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 Business Review. The financial position of the group, its cash flows, liquidity position and borrowing facilities are also described in the Business Review.

The Group meets its day to day working capital requirements through its cash balances and facilities with JP Morgan Chase Bank. The Group agreed an amendment to the JP Morgan Debt Facility on 30th March 2014, including resetting the amortisation schedule of the debt and the associated financial covenants. An additional $1.7m of the facility has been repaid subsequent to the year end in line with the amended agreement.

Also subsequent to the year end, the Group raised approximately £7.0m through a Placing and Open Offer which will be used to reduce the Group's borrowings, to pay the accrued dividend owing in respect of the preferred shares, to fund the rationalisation of the Group's manufacturing facilities, to fund certain product development and growth expansion initiatives and to provide further working capital for the Group.

The Group's forecasts and projections, reflecting the new capital structure of the Group and taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its agreed facilities.

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.

New standards

The accounting policies used in the preparation of the financial information have been applied consistently throughout the Group and are unchanged from previous years.

The following new standards, amendments to standards and interpretations issued by the International Accounting Standards Board became effective and have been applied during the period, but have had no material effect on the Group's financial statements:

· IFRS 13 - Fair Value Measurement

· Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7

· Annual Improvements to IFRS - 2009-2011 Cycle

The other amendments to standards and interpretations effective for the first time in the period, being the amendments to IFRS 1 and IAS 19, and the issue of IFRIC20, are not relevant to the Group.

OPSEC SECURITY GROUP PLC

Notes to the Preliminary Announcement

For the year ended 31st March 2014

2) Segment Information

The Group has two operating segments, each of which is a reportable segment; these are the Group's geographic business units. Information regarding the results of each reporting segment is presented below.

OPSEC SECURITY GROUP PLC

Notes to the Preliminary Announcement

For the year ended 31st March 20134

3) Total Operating Expenses

The exceptional costs are detailed below.

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 2014.

5) Finance Income

OPSEC SECURITY GROUP PLC

Notes to the Preliminary Announcement

For the year ended 31st March 2014

6) Finance Expenses

7) Income Tax

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 substantially eliminated due to losses brought forward from prior years. The majority of the overseas tax payable relates to activities within the OpSec Delta Hong Kong business.

The deferred tax credit arising in the period relates to additional net operating losses arising in the American business operations due to restructuring and fixed asset timing differences.

At 31st March 2014 the Group had recognised a net deferred tax asset of £4,409,000 (2013: £3,593,000) 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 2014 the Group also had an additional unrecognised deferred tax asset of £3,581,000 (2013: £4,640,000) in respect of unutilised tax losses and tax depreciation. This asset has not been recognised due to uncertainty relating to the utilisation of those tax assets. The reduction in the asset not recognised arises from a combination of the utilisation of losses, the change in the UK's mainstream rate of corporation tax rate from 23% to 20% and losses in the US expiring unutilised.

OPSEC SECURITY GROUP PLC

Notes to the Preliminary Announcement

For the year ended 31st March 2014

8) Earnings per Share

The calculations of earnings per share are based upon the following profits and numbers of shares.

9) A copy of the preliminary statement is available from the Company Secretary, 40 Phoenix Road, Crowther District 3, Washington, Tyne & Wear, NE38 0AD.

10) The preliminary announcement was approved by the Board of Directors for release on 12th June 2014.