Interim Results

IndigoVision Group plc ("IndigoVision" or "The Group")

Interim Results

IndigoVision (AIM: IND.L), a leading manufacturer of end-to-end IP video security solutions for airports, ports, rail, traffic, cities, retail, banking, mining, education, casinos, police, prisons and government is pleased to announce its results for the half year to 31 January 2012.

Financial Highlights

·; Operating profits (excluding exceptional items) up 14% to £1.59m (2011: £1.40m) and before currency movements up 25%

·; Operating margins (excluding exceptional items) 11.0% (2011: 9.3%)

·; Adjusted diluted earnings per share up 19% to 15.6p (2011: 13.1p)

·; Interim dividend up 25% to 5.0p per share (2011: 4.0p)

·; Robust financial position with net cash balances up 43% from last year end to £7.23m (31 July 2011: £5.07m)

Operational Highlights

·; Research and development spend up 9% to £1.66m (2011: £1.52m)

·; Low cost range of HD Minidome cameras launched

·; HD fixed dome camera launch imminent

·; Camera Gateway, allowing existing legacy cameras to integrate with SMS4 (Control Center) using native protocols to be launched May 2012

Hamish Grossart, Chairman, commented:

"This has been a period of significant change; management has been restructured with a view to improving process, pace and execution; a good start has been made in reshaping the business for future growth; there has been a strong recovery in operating performance driven by focusing on margins and costs; and record profits and earnings have been achieved.

IndigoVision has the potential to be substantially larger than it is today, and has positioned itself well in a growing market, but much remains to be done to achieve its potential. The restructured management team has got off to an excellent start and made a significant difference to performance in a short space of time."

 Marcus Kneen, Chief Executive, commented:

"These are strong first half results. There is a great deal of positive change taking place with a view to improving process, pace and execution. IndigoVision is a great business with clear potential to grow. The second half has got off to an encouraging start with order intake up on the same period last year."

Notes to Editors

About IndigoVision

IndigoVision is a leading manufacturer of end-to-end IP video security solutions for airports, ports, rail, traffic, cities, retail, banking, mining, education, casinos, police, prisons and government.

These enterprise-class systems improve organisations' operational efficiency, enhance public safety and enable timely emergency response. IndigoVision operates from six regional centres, in New Jersey, Sao Paulo, Singapore, Dubai, London and Edinburgh, each with training facilities and demo suites and has three further service centres in Brazil, Peru and Colombia. With sales and support staff in 24 countries, IndigoVision partners with some 500 authorised system integrators to provide local system design, installation and service to end users.

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Shareholder Information

Our website can be accessed at www.indigovision.com and contains substantial information about our business. The website also carries copies of prior year accounts and stock exchange announcements.

Shareholder calendar

Chairman's Statement

In the six months to 31 January 2012, management has been restructured with a view to improving process, pace and execution; a good start has been made in reshaping the business for future growth; there has been a strong recovery in operating performance driven by focusing on margins and costs; and record profits and earnings have been achieved.

IndigoVision has the potential to be substantially larger than it is today, and has positioned itself well in a growing market, but much remains to be done to achieve its potential. The restructured management team has got off to an excellent start and made a significant difference to performance in a short space of time. 

Since the half year end, the rate of order intake has started to improve, which is encouraging, and it now seems probable that the Group will return to sales growth at some point during the second half of the current financial year.

Results

Total revenue for the six months to 31 January 2012 was £14.5m, some 4% lower than the previous year's strong first half. However, this level of sales was 4% higher than the second half of last year.

Gross margins exceeded the targets we had set internally, and came in at a healthy 60%, a strong recovery from the depressed levels seen in the second half of last year. Overheads were 4% lower than the corresponding period last year, despite a 9% increase in product development spend.

Operating profit (before exceptional items) rose 14% to a record £1.59m. Last year's figure included a currency gain of £0.14m compared with this year's currency gain of £0.02m, and excluding these gains, operating profits rose a creditable 25%.

Exceptional charges of £0.30m were incurred during the half year. Of these, £0.21m related to board restructuring, and £0.09m to advisory costs. After these and minor financial income, profit before tax was £1.30m, compared with £1.40m in respect of the corresponding period last year.

Diluted earnings per share, excluding exceptional items, were up 19% to 15.6p. Diluted earnings per share after deducting exceptional items were down 3% to 12.7p.

Balance Sheet and Cash

It has always been IndigoVision's policy to maintain a strong balance sheet. The merits of that policy are not always apparent when the world is awash with easy credit, and financial gearing is regarded as a good thing rather than a dangerous drug. But in challenging times, financial strength and a prudent approach to gearing allows businesses time to adjust to changes in conditions, and creates a stability which reassures partners, employees and shareholders.

Net assets attributable to shareholders at 31 January 2012 amounted to £18.1m, representing some £2.40 per share. Intangibles are immaterial, and product development costs are not capitalised. These net assets consist of: £13.5m attributable to stock, trade receivables less payables and provisions, and cash; a deferred tax asset of £3.9m representing the value of tax losses expected to be utilised in the foreseeable future; and other items, mostly property plant and equipment, totaling £0.7m.

At 31 January 2011, IndigoVision had net cash balances of £5.4m, and as at the last year end, 31 July 2011, net cash balances of £5.1m. As at 31 January 2012, net cash balances amounted to £7.2m, over 40% higher than the last year end. IndigoVision has no borrowings.

Dividend

Last year's interim dividend was 4.0p per share. In view of the strong improvement in trading performance, and the healthy cash balances, the board has decided to pay an interim dividend of 5.0p per share, a 25% increase on last year's interim. The interim dividend will be paid on 19 April 2012 to shareholders on the register on 23 March 2012.

Corporate Activity

During the half year, the board received approaches, and conditional indicative proposals, from Dr Oliver Vellacott, to be financed by Scottish Equity Partners ("SEP"), in relation to possible offers for IndigoVision. These proposals were at three different prices which, in the view of the board and its advisers, were not remotely close to levels which should be put in front of shareholders and accordingly they were unequivocally rejected.

In January, the board held constructive discussions with SEP about the possibility of an offer which might properly reflect the trading position, the strength of the balance sheet, the strength of the Group's technology and the immediate and medium term prospects for the Group. SEP then indicated that they were not able to make a proposal at the levels indicated by the board and its advisers as capable of recommendation. Accordingly, discussions were terminated on an amicable basis.

Professional fees were kept to a minimum. In total, fees of some £0.09m were incurred on advisors and costs associated with preparations for a requisitioned extraordinary general meeting, which was subsequently withdrawn. These have been included in exceptional items for the half year.

Board Changes

Shortly after the beginning of the financial year, the board took the view that the best way to address the underperformance that had been evident in the second half of last year, and which resulted in falling profits and a second successive year of muted sales growth, was to expand substantially the role of Marcus Kneen, then Chief Financial Officer, with a view to improving process, pace and execution throughout the business.

The board considered that the optimum structure was to appoint Marcus Kneen as Chief Executive Officer, promote Oliver Vellacott to executive Deputy Chairman and to appoint Holly McComb as Chief Financial Officer. These proposals were not acceptable to Oliver Vellacott, who was invited to put forward alternative management structures. No alternatives were put forward. After extensive discussions, the board concluded that it was nevertheless necessary that these changes be implemented and indicated to Oliver Vellacott that the changes needed to be made notwithstanding his demurral. Dr Vellacott remained unwilling to serve in any executive role other than Chief Executive, and was unwilling to stay on the board in a non executive capacity. Accordingly, the board terminated his service contract. A payment of twelve months basic salary was made in lieu of notice, which amounted to £0.21m (inclusive of related employment taxes), and this has been included in exceptional items.

I would like to pay tribute to Oliver's significant achievement in founding IndigoVision and in building it from an idea to a good business, often in the face of adversity, and with uncommon levels of cerebral consideration and courtesy.

Marcus Kneen was appointed Chief Executive Officer on 9 December 2011, but has been fulfilling the primary executive role in the Group since August 2011. Holly McComb was appointed Chief Financial Officer on 9 December 2011. Andrew Fulton and I continue to serve in a non-executive capacity. It is our intention to add to the board in due course.

Operations

Although IndigoVision has produced strong financial results in the first half, there remain areas where improvements can be made.

The Chief Executive and his team are currently engaged on a thorough review and analysis of the business and all its constituent parts with a view to optimising business processes, increasing the pace at which the business operates and develops, and improving the standards of executing the tasks which the business undertakes. All of this is designed to put IndigoVision's product range, quality and customer service at the forefront of its industry, as the key to future growth.

At this stage, a number of areas of improvement have been identified, and in some of those change has already been implemented. The process is not yet complete but we expect to be in a position to provide further details to the shareholders along with the annual results.

Outlook

Although first half sales were 4% below the corresponding period last year, they were 4% higher than last year's second half. Since the half year end, sales have continued to track below the corresponding period last year, but there has been a good rise in the rate of order intake. So at this stage it looks probable that IndigoVision will return to period on period growth at some time during the second half, and possible that sales for the year as a whole will exceed last year's total. As ever, this comes with the caveat that IndigoVision's visible order book is a matter of weeks rather than months.

Our expectations are that gross margins for the year as a whole will come in a little below the levels achieved in the first half if sales for the year are similar to last year's total. If we do significantly improve sales, that is likely to result in lower margins overall as larger contracts will have been won and shipped. We expect to be competing for a small number of such contracts in the second half. The first of these has been won, covering 36 town centres in Colombia, and represents our largest single order to date. Costs are likely to go up a little in the second half compared with the first half, but we do not expect costs for the year as a whole to exceed last year's total.

In summary therefore, we expect profits for the year as a whole to be well up on last year's total. It is our target to equal or improve on last year's sales total for the year as a whole, and to achieve double digit operating margins. It is too early to be certain that we will achieve our goals but the board is cautiously optimistic that we can.

HAMISH GROSSART

Chairman

13 March 2012

Condensed consolidated statement of comprehensive income

For the 6 months to 31 January 2012

Revenue and profit for the current and comparative periods relate wholly to continuing activities.

Condensed consolidated balance sheet

As at 31 January 2012

Condensed consolidated statement of changes in equity

Consolidated statement of cash flows

For the 6 months to 31 January 2012

Notes to the accounts:

IndigoVision Group plc ("the Company") is domiciled in Scotland. The consolidated interim financial statements ("the interim report") of the Company for the six months ended 31 January 2012 comprise the Company and its subsidiaries together referred to as "the Group". The interim report was approved by the board of directors on 13 March 2012. 

The financial information is prepared on a historical cost basis and is presented in Sterling, rounded to the nearest thousand.

These financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published financial statements for the year ended 31 July 2011.

The financial information set out in these interim statements does not constitute the Company's statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 July 2011, which were prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU, are available on the Company's website at www.indigovision.com and have been delivered to the Registrar of Companies. The auditors have reported on those 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 report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006. The interim financial information for the 6 month period ended 31 January 2012 is unaudited.

1. Compensation for loss of office.

2. Professional advisory fees related to a requisitioned general meeting, subsequently withdrawn and a potential offer for the Company, subsequently declined.

The weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share for each period were calculated as follows:

The tax charge in the current period represents a reduction in the deferred tax asset relating to temporary differences on outstanding share option schemes and the utilisation of prior year tax losses to offset the current period taxable profits.

No provision for corporation tax is required due to the substantial tax losses available for offset against future taxable profits. At 31 July 2011 such losses amounted to £16.4m of which £1.2m has been utilised to offset the current period taxable profits. At a corporate tax rate of 25%, this is equivalent to a deferred tax asset in relation to these trading losses of £3.8m, which has been fully recognised in the financial statements.