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Half Yearly Report

2nd Dec 2009 07:00

RNS Number : 4194D

Opsec Security Group PLC

02 December 2009

2nd December 2009

OPSEC SECURITY GROUP plc

("OpSec" or "the Group")

Interim results for the six months ended 30th September 2009

OpSec Security Group plc, the supplier of anti-counterfeiting technologies and services, announces interim results for the six months ended 30th September 2009.

Highlights

	2009 unaudited	2008 unaudited
Group revenue	£16.3m	£18.9m
(Loss)/Profit before tax	(£337,000)	£367,000
(Loss)/Profit after tax	(£358,000)	£217,000
Basic earnings per share	(0.7p)	0.4p
Adjusted basic earnings per share*	0.4p	1.4p

* Adjusted for the effects of share based payments and the charge for intangible amortisation (see note 8).

Group revenue down by 14% due to general economic conditions and prior year loss of significant tax stamp contract

Significant cost saving and rationalisation programmes put in place beginning to benefit results

Continued success winning new brand protection customers

Significant prospects in the ID Solutions and BNHS sectors

David Mahony, Chairman, said:

"Our brand protection team continues to win new customers and currently consumer spending appears stable. ID's traditional bias towards a stronger second half is expected to be reinforced by the conversion of some of its present sales pipeline, whilst bank note and high security is expected to benefit from higher sales to Eastern Europe and a number of new business wins. Operational performance going forward will be further significantly enhanced by the benefits arising from the restructuring of US operations and increased volumes of production within our UK facilities.

As always there are difficulties in predicting the incidence of major new contracts but known volumes of potential new business and the benefits that are arising from the restructuring of our US facilities lead us currently to be confident that we will see significant improvements in our operations."

- Ends -

For further information, please contact:

OpSec Security Group plc 0191 417 5434

Mark Turnage, Chief Executive/Mike Angus, Finance Director

Weber Shandwick Financial 020 7067 0700

Nick Oborne/Stephanie Badjonat

Oriel Securities Limited 020 7710 7600

Michael Shaw/Neil Langford

2nd December 2009

OPSEC SECURITY GROUP plc

("OpSec" or "the Group")

Interim results for the six months ended 30th September 2009

Chairman's Statement

In the first half of the current financial year we experienced mixed trading conditions with the first months of the period being particularly difficult. The impact of the loss last year of a Middle Eastern tax stamp contract coupled with a marked slowdown in orders by a major customer in Eastern Europe aggravated generally difficult trading in the first quarter. The second quarter was significantly more successful.

Group revenue for the six months was down by 14% to £16.3 million (2008: £18.9 million). Adjusted Operating Profit (see note 3) was reduced to £645,000 from £1,158,000 as the impact of lower revenue was partially offset by significant cost saving programmes. The result after taxation was a loss of £358,000 (2008: profit of £217,000).

Cash on the balance sheet as at 30th September 2009 amounted to £2,716,000 (2008: £2,771,000).

Brand Protection

This activity, the largest of our three market segments, suffered a fall in revenue in the period of 6%. Lower consumer spending, the driver of volume for many of our customers in this segment, led to reduced orders being placed with us, particularly in the first quarter. The second quarter saw a recovery and we continue to win new contracts both in the conventional and online sectors of this segment.

ID Solutions

Revenue in the ID solutions market grew by 4% compared to the same period in the prior year due mainly to strong ordering from the US and Canadian Governments. This segment has a historical bias towards the second half of the financial year which, coupled with a significant pipeline of potential future business, leads us to expect a strong revenue performance by this segment in the balance of the current year.

Banknote and High Security Documents

The loss of the Middle Eastern tax stamp programme and the marked slowdown in orders from an Eastern European customer referred to above severely impacted this segment of our business and revenue fell by 49% as compared to the same period last year. The development and capital expenditure programmes we have undertaken have benefitted both the range and the cost of the products we are able to offer and this has resulted in successful trials for significant new business being completed. This, coupled with the expected resumption of orders from Eastern Europe, leads us to expect a significantly stronger performance by this segment in the second half of the current year.

3DCD

The contribution from our joint venture 3DCD in the period was £114,000 compared to £261,000 in the prior year corresponding period. Royalties from our major software customer fell in the lead-up to their launch in November of a new product range and we incurred increased development costs. We have signed a new multi-year contract with that customer and this will secure the income we derive from the joint venture for the next few years.

Operations

In America the combination of our two manufacturing operations onto one site has now been completed without undue disruption of supplies to our customers. This integration and the other cost saving measures which we have implemented progressively benefited the first half year and led to a 37% increase in operating profit in America despite a 13% reduction in revenue.

European operations in the period felt the full impact of the loss of business from the Middle East and the slowdown in Eastern European ordering. The second half of the year is expected to benefit from a recovery in Eastern European volumes and the impact of production orders arising from the successful trials undertaken in the first half of the year.

Prospects

Our brand protection team continues to win new customers and currently consumer spending appears stable. ID's traditional bias towards a stronger second half is expected to be reinforced by the conversion of some of its present sales pipeline, whilst bank note and high security is expected to benefit from higher sales to Eastern Europe and a number of new business wins. Operational performance going forward will be further significantly enhanced by the benefits arising from the restructuring of US operations and increased volumes of production within our UK facilities.

DA Mahony

Chairman

2nd December 2009

OPSEC SECURITY GROUP plc

Condensed Consolidated Income Statement

	Six months ended 30-Sept-09	Six months ended 30-Sept-08	Year ended 31-Mar-09
	unaudited	unaudited	audited

	£'000	£'000	£'000

Revenue	16,287	18,912	39,339
Cost of sales	(9,868)	(11,035)	(23,181)

Gross profit	6,419	7,877	16,158

Distribution and selling costs	(1,690)	(2,613)	(4,875)
Administrative expenses	(4,418)	(4,493)	(8,882)
Exceptional administrative expenses	-	-	(857)
Intangible amortisation	(350)	(353)	(800)
Intangible impairment	-	-	(851)

Total administrative expenses	(4,768)	(4,846)	(11,390)

	(39)	418	(107)

Share of profit of jointly controlled entity	114	261	678

Operating profit	75	679	571

Financial income	(67)	4	84
Financial expenses	(345)	(316)	(1,436)

(Loss) / Profit before income tax	(337)	367	(781)

Income tax	(21)	(150)	(896)

(Loss) / Profit for the period attributable to equity holders of the parent	(358)	217	(1,677)

Earnings per share (pence)

Basic eps	(0.7)	0.4	(3.3)
Diluted eps	(0.7)	0.4	(3.3)

OPSEC SECURITY GROUP plc

Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 30 September 2009

Share Capital

Share premium

Translation reserve

Hedging reserve

Retained earnings

Total

equity

unaudited

£'000

Balance at 1 April 2009

2,669

29,309

6,113

(585)

(5,530)

31,976

Loss for the period

(358)

Other comprehensive income

Foreign exchange translation differences

(2,970)

Effective portion of changes in fair value of cash flow hedges

Net change in fair value of cash flow hedges transferred to profit or loss

Other comprehensive income/(expense) for the period, net of tax

(2,970)

(2,894)

Total comprehensive income/(expense) for the period

(2,970)

(358)

(3,252)

Transactions with owners recorded directly in equity

Share based payments

220

Own shares sold

Total by and distributions to owners

235

At 30 September 2009

2,669

29,309

3,143

(509)

(5,653)

28,959

OPSEC SECURITY GROUP plc

Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 30 September 2008

Share Capital

Share premium

Translation reserve

Hedging reserve

Retained earnings

Total

equity

unaudited

£'000

Balance at 1 April 2008

2,669

29,309

(1,522)

(3,873)

26,583

Profit for the period

217

Other comprehensive income

Foreign exchange translation differences

2,248

Effective portion of changes in fair value of cash flow hedges

Net change in fair value of cash flow hedges transferred to profit or loss

Other comprehensive income/(expense) for the period, net of tax

2,248

Total comprehensive income/(expense) for the period

2,248

217

2,465

Transactions with owners recorded directly in equity

Share based payments

126

Own shares sold

Own shares purchased

(61)

Total by and distributions to owners

148

At 30 September 2008

2,669

29,309

726

(3,508)

29,196

OPSEC SECURITY GROUP plc

Condensed Consolidated Statement of Changes in Equity

For the year ended 31 March 2009

Share Capital

Share premium

Translation reserve

Hedging reserve

Retained earnings

Total

equity

audited

£'000

Balance at 1 April 2008

2,669

29,309

(1,522)

(3,873)

26,583

Loss for the period

(1,677)

Other comprehensive income

Foreign exchange translation differences

7,635

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

Other comprehensive income/(expense) for the period, net of tax

7,635

(585)

7,050

Total comprehensive income/(expense) for the period

7,635

(585)

(1,677)

5,373

Transactions with owners recorded directly in equity

Share based payments

(2)

Own shares sold

Own shares purchased

(61)

Total by and distributions to owners

At 31 March 2009

2,669

29,309

6,113

(585)

(5,530)

31,976

OPSEC SECURITY GROUP plc

Consolidated Balance Sheet

	30-Sept-09	30-Sep-08	31-Mar-09
	unaudited	unaudited	audited

	£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment	10,039	10,619	11,633
Intangible assets	26,484	24,017	28,609
Investment in jointly controlled entity	274	421	530
Other investments	17	18	18
Deferred tax assets	4,070	5,266	4,347
Total non-current assets	40,884	40,341	45,137

Current assets
Inventory	2,691	4,026	3,868
Trade and other receivables	7,069	8,853	7,517
Cash and cash equivalents	2,716	2,771	4,244
Total current assets	12,476	15,650	15,629

Total assets	53,360	55,991	60,766

LIABILITIES
Current liabilities
Interest-bearing loans and borrowings	(1,391)	(829)	(1,249)
Deferred government grants	(51)	(20)	(20)
Provisions	(232)	-	(536)
Income tax payable	(344)	(368)	(252)
Trade and other payables	(10,975)	(15,310)	(13,922)
Total current liabilities	(12,993)	(16,527)	(15,979)

Non-current liabilities
Interest-bearing loans and borrowings	(10,356)	(10,099)	(11,787)
Deferred government grants	(213)	(169)	(159)
Derivative financial instruments	(509)	-	(585)
Deferred tax liabilities	(330)	-	(280)
Total non-current liabilities	(11,408)	(10,268)	(12,811)


Total liabilities	(24,401)	(26,795)	(28,790)

Net assets	28,959	29,196	31,976

EQUITY
Capital and reserves
Issued capital	2,669	2,669	2,669
Share premium	29,309	29,309	29,309
Translation reserve	3,143	726	6,113
Hedging reserve	(509)	-	(585)
Retained earnings	(5,653)	(3,508)	(5,530)
Total equity attributable to equity holders of the parent	28,959	29,196	31,976

OPSEC SECURITY GROUP plc

Condensed Consolidated Statement of Cash Flows

	Six months ended 30-Sept-09	Six months ended 30-Sept-08	Year ended 31-Mar-09
	unaudited	unaudited	audited
	£'000	£'000	£'000
Cash flows from operating activities
(Loss)/Profit for the year	(358)	217	(1,677)
Depreciation	1,025	766	1,764
Amortisation/impairment of intangible assets	350	353	1,651
Release of government grants	22	(10)	(20)
Equity settled share based expense	220	126	(2)
Share of profit of jointly controlled entities	(114)	(261)	(678)
Finance income	67	(4)	(84)
Finance expenses	345	316	1,436
Income tax expense	21	150	896
Movement in inventory	798	(95)	892
Movement in trade and other receivables	(14)	(946)	493
Movement in trade and other payables	(1,481)	543	469

Cash flows from operating activities	881	1,155	5,140
Interest paid	(359)	(999)	(1,436)
Income tax paid - overseas	(79)	(22)	(175)

Net cash inflow from operating activities	443	134	3,529

Cash flows from investing activities
Acquisition of subsidiary undertaking (net of cash acquired)(1)	(1,777)	(6,000)	(7,948)
Acquisition of property, plant and equipment	(374)	(1,964)	(2,340)
Proceeds from sale of investment	1	-	-
Proceeds from government grants	-	-	-
Dividends received from jointly controlled entity	310	274	705
Interest received	(67)	4	84

Net cash outflow from investing activities	(1,907)	(7,686)	(9,499)

Cash flows from financing activities
Payment of finance lease liabilities	(103)	-	(58)
Drawdown of borrowings	199	9,122	12,008
Repayment of borrowings			(3,049)
Proceeds from sale of own shares	16	83	83
Purchase of own shares	-	(61)	(61)

Net cash inflow from financing activities	112	9,144	8,923
Net (decrease)/increase in cash and cash equivalents	(1,352)	1,592	2,953
Cash and cash equivalents at the start of the period	4,244	793	793
Effect of exchange rate fluctuations on cash	(176)	386	498

Cash and cash equivalents at the end of the period	2,716	2,771	4,244

(1) The acquisition of subsidiary undertakings number in the six months ended 30th September 2009 represents deferred earn out payments

OpSec Security Group plc

Notes to the Interim Statement

1. Basis of preparation

This interim financial information has been prepared applying the accounting policies that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31st March 2009.

From 1st April 2009 the following standards, amendments and interpretations became effective and were adopted by the Group:

IFRS 8: Operating Segments

Amendments to IAS 23: Borrowing Costs

Amendments to IFRS 2: Share Based Payments

Amendments to IAS 1: Presentation of financial statements

IFRIC 16: Hedges of Net Investment in a Foreign Operation

The adoption of the above has not had a significant impact on the Group's results or equity.

IFRS 8 'Operating Segments' requires segments to be reported on the same basis as the internal reporting that is provided to, and regularly reviewed, by the chief operating decision maker of the Group. The Board has reviewed the requirements of IFRS 8, including consideration of what results it reviews regularly to assess performance and make decisions about how resources are allocated, and have concluded that, as under IAS 14, the Group's reportable segments remain geographical.

While the Board manages the business by geography we communicate externally by business segment and continue to provide additional information by business segment as included in note 3.

2. Status of financial information

The interim information for the six months ended 30th September 2009 has not been audited or reviewed by the auditors.

The comparative figures for the year ended 31st March 2009 are not the Company's statutory financial statements for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

The interim report has been sent to all shareholders. Further copies are available to members of the public from the Company's registered office, 40 Phoenix Road, Crowther, District 3, Washington, Tyne & Wear, NE38 0AD. The interim report is also available on the Company's website, www.opsecsecurity.com.

3. Segment Information	Six months ended	Six months ended	Year ended
	30-Sep-09	30-Sep-08	31-Mar-09
	unaudited	unaudited	audited

	£'000	£'000	£'000
a) Revenue by geographic segment

American operations	10,304	9,880	22,230
European operations	6,561	9,781	18,873
Intersegment sales	(578)	(749)	(1,764)
	16,287	18,912	39,339

b) Revenue by market sector

Banknote and High Security Documents	2,162	4,240	8,516
Brand Protection	10,524	11,194	22,568
ID Solutions	3,601	3,478	8,255
	16,287	18,912	39,339

c) Operating profit by geographic segment

American operations	828	518	624
European operations	639	1,399	1,177
Jointly Controlled Entity	114	261	678
Corporate costs	(1,506)	(1,499)	(1,908)
Operating profit	75	679	571
Exclude exceptional administrative expenses	-	-	857
Exclude intangible amortisation	350	353	800
Exclude intangible impairment	-	-	851
Exclude equity settled share based payments	220	126	(2)
Adjusted operating profit	645	1,158	3,077

d) Adjusted operating profit by geographic segment
	Six months ended	Six months ended	Year ended
	30-Sep-09	30-Sep-08	31-Mar-09
	unaudited	unaudited	audited

American operations	828	518	1,550
European operations	639	1,399	2,759
Jointly Controlled Entity	114	261	678
Corporate costs	(936)	(1,020)	(1,910)
Adjusted operating profit	645	1,158	3,077

4. Operating expenses
	Six months ended	Six months ended	Year ended
	30-Sep-09	30-Sep-08	31-Mar-09
	unaudited	unaudited	audited

	£'000	£'000	£'000

Distribution and Selling Costs
Selling and marketing costs	1,690	2,613	4,875

Administrative Expenses
Technical support	498	476	1,022
Research and development costs	840	880	1,928
Administrative expenses	3,080	3,137	5,932
Exceptional administrative expenses	-	-	857
Intangible amortisation	350	353	800
Intangible impairment	-	-	851
	4,768	4,846	11,390

Total Operating Expenses	6,458	7,459	16,265

5. Share of operating profit of jointly controlled entity

The share of operating profit of joint ventures represents the Group's share of the results of 3dcd for the six months ended 30th September 2009. The operating profit of 3dcd is subject to taxation in the accounts of its partners.

6. Finance income and expense
		Six months ended	Six months ended		Year ended
		30-Sep-09	30-Sep-08		31-Mar-09
		unaudited	unaudited		audited

		£'000	£'000		£'000
Financial income

Interest income		4	-		25
Foreign exchange gains on foreign currency deposits		(71)	4		59
		(67)	4		84

Financial expenses

Interest expense		(309)	(263)		(758)
Net change in fair value of cash flow hedges transferred from equity		-	-		(43)
Amortisation of bank fees		(38)	(53)		-
Exceptional cost of debt advisor fees written off		-	-		(635)
Foreign exchange gains on foreign currency borrowings		2	-		-
		(345)	(316)		(1,436)
7. Taxation

The charge for taxation is calculated by applying the Directors, best estimate of the annual effective tax rate to the profit/(loss) for the period.
8. Earnings per share

The calculations of earnings per share are based upon the following earnings and numbers of shares.
	Six months ended			Six months ended	Year ended
	30-Sep-09			30-Sep-08	31-Mar-09
	unaudited			unaudited	audited

Earnings	£'000			£'000	£'000

Earnings for the financial period	(358)			217	(1,677)
Exceptional costs	-			-	1,492
Intangible amortisation	350			353	800
Intangible impairment	-			-	851
Share-based payments	220			126	(2)
Adjusted earnings for the financial period	212			696	1,464

Weighted average number of shares	No. of shares			No. of shares	No. of shares

For Basic earnings per share	51,015,602			50,388,803	50,634,466
Effect of share options and other awards	1,551,485			4,480,951	2,946,502
For Diluted earnings per share	52,567,087			54,869,754	53,580,968

This information is provided by RNS

The company news service from the London Stock Exchange

END

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