THRUVISION GROUP PLC 27 June 2016
Digital Barriers Plc
('Digital Barriers' or the 'Group')
Preliminary Results for the year ended 31 March 2016
Digital Barriers (AIM: DGB) the specialist provider of visually intelligent technologies to the global surveillance, security and safety markets, announces audited results for the year ended 31 March 2016.
Key Highlights
· Revenues for continuing operations in line with expectations at £21.1 million
· Solutions division revenues increased organically 53% to £18.2 million (2015: £11.9 million)
· International revenues increased organically 113% to £15.1 million (2015: £7.1 million) to account for 83% of total organic revenues (2015: 59%)
· Adjusted losses reduced by 56% to £4.7 million (2015: £10.6 million)
· Enhanced strategic alignment of business through acquisition of Brimtek Inc. in the United States and divestment of UK Services division (completed after period-end)
· £27.1 million (net of placing costs) raised through new share issue in December 2015 to fund acquisition of Brimtek and working capital for enlarged Group
· First global industry partner OEM contract secured, with Axis Communications for SafeZone analytics
Commenting on the results Zak Doffman, CEO of Digital Barriers, said
The strong international growth we have announced today shows the potential for us to sell solutions differentiated by our world-class IP into an extremely large global market. In addition to strong revenue growth in our core business, we have also delivered on our promise to secure significant channels to market, with deals announced with Axis and Mobily and the launch of a wireless safe city camera with Canon.
The divestment of our non-core UK Services division, coming very shortly after the acquisition of Brimtek in the United States, has ensured that we are now consistently focused with a platform for future growth in each of our regions. In addition to supporting customer organisations tasked with addressing the degrading global security situation, we also have ongoing discussions with an increasing number of channel and technology partners in the network video and IOT domains. As such, we are well positioned to deliver the continued momentum and further growth we need to achieve profitability in the current financial year.
For further information please contact: | |
Digital Barriers Plc | +44 (0)20 3553 5888 |
Zak Doffman, Chief Executive Officer | |
Sharon Cooper, Chief Financial Officer | |
Investec Investment Banking | +44 (0)20 7597 5970 |
Andrew Pinder / Dominic Emery | |
FTI Consulting LLP | +44 (0)20 3727 1000 |
Edward Bridges / Matt Dixon |
About Digital Barriers:
Digital Barriers provides visually intelligent solutions to the global surveillance, security and safety markets. We deliver zero-latency streaming and analysis of secure video and related intelligence over wireless networks, including cellular, satellite, IP mesh and cloud, utilising significantly less bandwidth than standard technologies.
Our rapidly-installed fixed and mobile solutions for covert, remote and wide-area deployments, as well as vehicle and body-worn applications, have been sold into more than fifty countries, and have been proven in some of the world's most demanding operational environments. We also provide advanced video content analysis and body scanning to identify safety concerns and threats in real-time.
www.digitalbarriers.com
Chairman's statement
This was an important year for the Group in delivering against our strategy to establish a high-momentum surveillance and security technology business capable of generating strong growth by selling proprietary, IP-rich solutions to flagship customers around the world. The momentum of our Solutions division, which delivered organic revenue growth of 53% over the prior year, has seen us reach an inflection point - both in terms of our growth and in our relevance to customers. Our Solutions division traded strongly throughout the period, but especially so in the second half, with organic revenues 72% higher than the first half. International revenue growth was even stronger, increasing organically 113% (2015: 42%) through the year to £15.1 million (2015: £7.1 million), accounting for 83% of total organic revenues (2015: 59%). This has firmly established the Group as an export-led business, selling into a significant number of customers across our Americas, EMEA and Asia-Pacific regions, reducing the risk from exposure to any single customer or market.
This revenue growth is, in part, attributable to the shift from products to solutions that I detailed last year, transitioning from discrete hardware and software products to fully integrated solutions, built around our world-class IP. This has helped secure long-term relationships with key customers and partners, it has enabled us to standardise offerings and also to control the quality of customer experience. This, in turn, has led to a material increase in gross margins across our Solutions division to 50% (2015: 43%), with organic Solutions gross margins up to 55%. Selling integrated solutions has also accelerated the pace of repeat sales to existing customers and has opened up a pipeline of larger opportunities.
This was also an important year for the Group in the United States with the acquisition of Brimtek, providing us with a solid platform for future growth in the largest single market for defence and homeland security technologies in the world. The importance of the US market has been increased further by the on-going funding allocated for new equipment following the Federal Communications Commission's 2015 auction of cellular spectrum which is expected to drive material investment in surveillance technology over the coming three to four years. Brimtek designs highly specialised solutions which provide increased situational awareness and operational advantages for its customers across defence, law enforcement and counter-terrorism, with whom it has key contracting relationships. Historically Brimtek has partnered with a range of other technology providers to develop integrated solutions tailored for this specialist marketplace. Moving forwards, their focus will be on developing highly differentiated solutions built around technologies from Digital Barriers and a select number of our strategically important technology partners.
In order to fund the acquisition of Brimtek, and to provide additional working capital for the enlarged Group, we raised £27.1 million after placing costs from existing and new investors in December 2015. Once again we were gratified by the strength and depth of support from our shareholders, who recognise the compelling potential of our technology portfolio and the markets we can access around the world. We were also delighted to welcome a number of new, material investors to the Group.
By the end of the year it had already been clear for some time that our UK Services division had become non-strategic to the Group's future, and following the acquisition of Brimtek the Board announced its intention to dispose of the division to its existing management team for a nominal consideration. The disposal was completed on 19 May 2016 following the required employment processes for the transfer of staff. The Services division was the first part of Digital Barriers to be developed after the Group's flotation in 2010. It provided tremendous value in customer references and credibility as we acquired and developed our technology portfolio and international network. Now, with strong continuing momentum in our Solutions division, this is no longer needed. The disposal of the division, whose performance lagged significantly behind the Solutions division in terms of both growth and gross margins, tightens the Group's strategic focus on developing and selling high-tech, higher margin solutions into the global surveillance, security and safety markets. The division is treated as a discontinued business in the Group's financial results for the period.
We are now diversifying beyond our traditional intelligence, defence and law enforcement markets, to extend our technical solutions to include broader security and safety applications. However, the global security context has undoubtedly worsened this year, and this has maintained our focus on serving our key customers tasked with combating the threat from international and domestic terrorism, as well as with the commercial operators of critical infrastructure facilities, mass transportation networks and key natural resources. The degrading security situation is particularly apparent close to home in Europe, with high-profile terrorist attacks on public spaces, increasing tensions on the region's eastern borders, and the continuing migration crisis. Countries across Asia Pacific, North, West and East Africa, the Indian Subcontinent, and of course the Middle East, face the same set of challenges in keeping their public safe from harm, and securing their borders and critical infrastructure, and we are heavily engaged in these regions. Meanwhile, the US is maintaining its technical leadership in defence and law enforcement, whilst addressing domestic radicalisation and organised threats to public safety at home as well as continued engagements overseas, and we are extremely proud to be heavily engaged in supporting primary US agencies. Many of our technologies are unique, providing a level of capability that is quite simply unavailable from anyone else, designed to meet the highly demanding requirements of these flagship customersaround the world.
As a business focused on sustained investment in this portfolio of world-class intellectual property, finding highly scaleable channels to market via global industry players is a key part of our strategy, As such, developing industry recognition is extremely important to us and our first major success in this area has been an OEM contract for our SafeZone video analytics software with Axis Communications. As a global market leader in network cameras, Axis will now distribute our software globally under its brand. The new product won Best Analytic on its formal April 2016 launch at ISC West in the United States. Axis and its parent, Canon, are important partners to the Group, and we were delighted to win the 2015 Axis ASEAN Project of the Year Award for a major Police Project in Asia. We were also delighted that ThruVis, the only rapidly deployable camera capable of detecting objects such as weapons and explosives concealed under clothing, secured a Frost and Sullivan Best Practice Award during the year for Technology Innovation in Terahertz Security Systems; these best practice awards are presented to companies predicted to encourage significant growth through the creation of advanced technologies that will transform industries in the near future.
Behind the strong organic growth we delivered during the year, there are of course an increasing number of highly-valued, and increasingly long-standing, relationships with customers and partners, and much of our sales pipeline is now repeat sales. Revenue growth during the year was especially strong in Asia Pacific and the United States, with a strong pipeline built into the Middle East and Europe to be converted as we look to maintain our momentum. The UK endured another difficult year, with further pressure on public spendingleading to delays in procurements across our defence and security customers. Fortunately, the Group has now reached a scale in its overseas regions to hedge against UK performance, albeit we feel extremely well positioned given our heritage and the quality of our technologies for when spending in the UK returns to more normal levels. As regards the UK exit from the European Union, we do not currently envisage any material trading implications for the Group given the nature of our customers and the channels to market, although we will be keeping the currency implications under review.
We continue to invest in building a high performing culture within the business. Particular focus has been given to strengthening our sales and pre-sales teams in Asia and the US, where we have added individuals with excellent customer relationships. Encouraged by our progress with Axis, we have created a new senior management role to focus on these types of global technology partnerships. Finally, we have been building a common culture and set of values across our offices through a staff mentoring programme which aims to improve communication and enhance a common sense of purpose across the company.
In combination, our strong organic growth and continued momentum, our acquisition of Brimtek, and our divestment of the UK Services division, has enabled the Group to start the new financial year in better shape than ever before, with our sights firmly set on delivering the growth needed to deliver profitability in the period now underway. I am confident in our strategy and the Board remains comfortable with its expectations for this financial year driven by continued international growth and high-quality engineering to maintain significant technical leadership in our field.
Update on strategy
What we do
We provide visually intelligent solutions for the global surveillance, security and safety markets, specialising in zero-latency streaming and analysis of secure video and related intelligence over wireless networks, including cellular, satellite, IP mesh and cloud.
The evolving global security context increases demand for the types of solutions that we develop and sell. Our solutions for covert, remote and wide-area installations, as well as vehicle and body-worn applications, require significantly less network bandwidth than standard technologies and have been sold into more than fifty countries, including some of the world's most hostile and demanding operational environments. We also provide advanced video content analysis and body scanning to identify threats to life, safety concerns and illicit activity in real-time.
Our solutions have been developed for specialist areas of security and defence, as well as for the protection of high-profile locations such as borders, airports, military bases, public transportation systems and natural resources.
Our heritage
From IPO in 2010 to 2013, we acquired fourteen businesses with compelling intellectual property (IP) and capabilities. We fully integrated these businesses into a single platform for the continual innovation of proprietary IP-rich solutions and a sales organisation covering key regions around the world.
Since late 2014, with our hardware and software products now fully updated, we have introduced a set of integrated solutions designed to deliver an end-user capability rather than standalone hardware and software applications. This evolution from products to solutions has significantly eased the deployment of customer solutions and has allowed us to exercise more control over the quality of user experience for our customers.
Our operations today
We operate in three regions around the world: EMEA, from regional offices in London, Nice and Dubai; Asia-Pacific, from regional offices in Singapore, Kuala Lumpur and Seoul, and the Americas from an office in Ashburn, in the Washington DC Metropolitan area.
Our focus is on the continual development of class-leading hardware and software solutions based on our portfolio of IP, and selling these solutions to flagship customers across our regions, either with partners, through our cloud-based offering, or through OEM channels to market where our IP is white-labelled on a non-exclusive basis.
Market positioning
With a very clear view now established on the competitiveness of our technology portfolio, we undertook a major rebranding exercise across the company. This resulted in our 'Visually Intelligent Solutions for Surveillance, Security and Safety' tagline, selected to focus on our video-related technologies, the differentiation we achieve through ground-breaking video analytics and how we intend moving beyond today's core position in the government surveillance market towards the broader network video market and on into new emerging markets for real-time video services (for example, autonomous vehicle safety).
We introduced new solution family brands, incorporating the Visually Intelligent Solutions ('VIS') theme as follows:
· EdgeVis Live- Real time video streaming from anywhere to anywhere even over bandwidth constrained and congested networks using 60% less bandwidth than standard technologies
· EdgeVis Shield- An integrated surveillance platform that provides real time video streaming and early warning intrusion alerts for remote locations
· ThruVis- A unique rapidly-deployable camera capable of detecting weapons and explosives concealed under clothing from a range of up to 15 metres or identifying a drug smuggler at a busy border crossing.
· SmartVis- Our range of intelligent edge-based advanced video analytic solutions and automation tools such as intrusion detection and facial recognition
· CloudVis- Cloud-based visually intelligent video analytics for facial recognition and detecting intrusions with an unprecedented record for filtering out false alarms
Business Review
Regional updates
Asia Pacific
We achieved growth of 171% in the period, building on our progress over the last two years. We have achieved this success by staying focused on key markets and developing strategic implementation partners with good relationships into major government clients. In particular, large follow-on sales have been a key driver of growth and we expect this to continue to increase as we embed our solutions into a wider client base.
This is especially apparent with ThruVis, where we established key reference customers in prior years and are now successfully converting these to material sales. We continue to invest in expanding our pipeline by seeking these smaller initial deployments aided by our strong credentials.
Key sales were:
· EdgeVis Live vehicle solution - £2.6 million repeat sales of our video surveillance solution sold into a national police force for use in its police cars. We anticipate that this deployment will continue to expand and will act as a reference for other customers in the region.
· EdgeVis Shield maritime border surveillance solution - in total, £2.8 million sale of our wide-area border surveillance solution incorporating video, thermal cameras, radars and our ground sensors.
· ThruVis border checkpoint solution - £1.6 million sale of ThruVis units to a major government agency for border protection and anti-terrorism applications. With major reference clients for large deployments, and a large number of existing clients trialling systems on a small scale, we expect growth to continue.
North America
In FY16 we achieved organic revenues growth of 60% to £2.8 million and added £2.9 million of revenues from Brimtek post-acquisition. After considerable R&D effort, we now have the EdgeVis Live products and enterprise-grade software scalability required by various Federal government agencies, and we expect to see increasing scale of adoption as these agencies move through their major equipment refresh programme, stimulated by spectrum sale proceeds.
Brimtek performance post-acquisition has been encouraging with the expected benefits from framework contract ownership being realised. Our Federal government clients have responded very positively to the fact that they can now buy our solutions from a US-based company. Through Brimtek, we are also now building on our end-to-end capability to design, engineer, manufacture, integrate and deliver solutions which we will exploit to iterate at a faster pace on local requirements.
We continue to address the quasi-governmental and commercial markets with specific focus on taking EdgeVis Live into the Oil and Gas market given new regulations for real-time monitoring post the Deepwater Horizon oil spill in 2010, and ThruVis into the broader aviation security market.
Key sales were:
· EdgeVis Live IP250 and derivative solutions- $2.3 million sale of newly developed, EdgeVis live products to a US government agency for operational surveillance requirements. This includes our first contract to integrate some of our SmartVis video analytics to provide a ground-breaking new surveillance capability. This order is part of a significant trend towards strategic adoption of EdgeVis Live by Federal government agencies.
· Continued success for Brimtek - $5.9 million contract award for third-party products under an existing procurement framework, demonstrating the ongoing viability of these contracts.
EMEA
Progress in Europe has been encouraging with 36% growth achieved bringing revenues above £1 million in the year. This success is attributed to increased focus on a number of countries, especially post the attacks on Paris and Brussels, and by working even more closely with a handful of key implementation partners. With our SmartVis video analytics work being lead from our office in Nice, it has been especially pleasing to see continued penetration of SmartVis technology into the French market. Broader demand is expected to be driven by immigration issues in southern Europe and ongoing geopolitical uncertainty in Eastern Europe.
Weak UK government spending and limited progress diversifying into broader commercial markets, meant UK revenues disappointed at £3.1 million.
In the Middle East we continue to focus on the major economies in the region dealing with various forms of extremist threats. Our approach is to work with key partners that have ethical access to projects in our core markets. This led to a partnership agreement with Mobily, a major Saudi Arabian mobile phone operator, illustrating the potential for this approach and positioning us well for further expansion. Relatively long sales cycles means the Middle East remains an investment market for Digital Barriers.
Key sales were:
· EdgeVis Live security solution - £1.0 million agreement for the supply of Mosque protection systems via Mobily, a major Saudi Arabian mobile phone operator.
· SmartVis face recognition sale -our first material face recognition sale to a major European government agency for use in building a suite of face recognition applications.
· EdgeVis Live sales integrators -our existing relationships continue delivering, including £0.6 million repeat sales to BT Redcare.
· EdgeVis Shield pipeline protection solution to oil major -£0.2 million sale of video, thermal cameras and ground sensors to oil major in West Africa seeking to better protect its oil pipeline infrastructure from substantial organised crime threat.
Core Solutions and Products
Our solutions and products are built around proprietary world-class intellectual property, providing the Group with a defensible and highly differentiated position in the marketplace.
· ThruVisis the only camera in the world that can be used to detect threats to life such as weapons and explosives concealed under multiple layers of clothing. It offers a level of protection for airports, public transportation networks, shopping malls, schools, universities and other secure or high-profile locations that has never been available before. ThruVis is mobile and discreet, flexible and rapidly deployed, requiring no fixed infrastructure unlike other screening technologies such as those deployed at airports and secure buildings. All of these attributes make ThruVis unpredictable and much more difficult for a would-be adversary to rehearse against. It can be intelligence-led, responding to specific threats or operational needs. The uniqueness of ThruVis, and its potential to defend against the types of attacks now being seen around the world, has led to significant media attention for the technology and a marked increase in demand as more organisations around the world become aware of the capability.
· EdgeVis, our platform for streaming live video from anywhere to anywhere, featuring end-to-end security, real world resilience and network optimisation to provide usable live video using 60% less bandwidth than standard technologies, is equally unique. We are increasingly seeing emergency and public service vehicles equipped with live video systems, body-worn cameras being widely deployed for law enforcement, military and lone or vulnerable worker applications, and safe or smart city schemes leading to the installation of significant numbers of network cameras. With this exponential rise in the requirement for live video, the perceived benefits of the immediacy of live video over the storage of video on data cards for after-event analysis, the potential of our EdgeVis Live and EdgeVis Shield solutions which can deliver live video at a fraction of the bandwidth required by competing technologies, and which integrate 'glass to glass' between standard cameras and standard video management systems, is exceptional.
· The SmartVissuite of applications has been designed to provide customers with the flexibility to focus their surveillance, security and safety technologies on what's important to them. In a world where immediacy of information is paramount, providing only what's needed but doing so in real time, intelligent analytics has become critical. This includes cameras that reliably alert on specific events, software that can adapt video streams to changing environments, an application to automatically check the performance and even positioning of entire networks of thousands of camera ensuring that an incident will be captured and won't be missed. Our SmartVis software library is expanding, and over the coming months will include our advanced facial recognition technology for the first time. Our software has been designed to be embedded on cameras and other 'edge' devices, such as our EdgeVis hardware products. Simplifying deployment and cutting costs for customers. The launch of CloudVis during the period takes this a stage further, and many of our applications are available online providing more flexible revenue models.
New solutions and products
Our sales model involves generating exceptionally close relationships high levels of intimacy with customer organisations and their end-users around the world. We constantly listen to their emerging needs and requirements and we use this input to develop and refine our solutions. These are based around our core product set, with carefully selected and integrated 'best of breed' third party components. This allows us to deliver and support complete capabilities for our customers, driving additional revenue and generating better 'sum of the parts' margins, given the value-add of our solutions.
In the last year, we have introduced a number of new solutions including;
· Body-worn live streaming video using EdgeVis Live - we have worked with another UK-based vendor of body worn camera and evidence management software to produce the world's first fully functioning live streaming body worn capability. This has already generated significant interest and we expect to see very rapid developments in this market in the coming months.
· Specialist variants of EdgeVis Live- we extended our core EdgeVis Live products to meet the very specific covert surveillance needs of various US government customers.
· Motorbike-based surveillance- we have extended our live video solution for police cars onto motorbikes and included tethered body cams to provide extra protection and live video coverage for dismounted officers.
· Railway asset protection- we have optimised the performance of our ground sensors, as part of an EdgeVis Shield solution, to filter false alarms created by train vibrations, to protect railway assets from attack. Initial sales to a major European railway operator saved over £0.5 million and reduced vandalism in 6 months.
· Cloud delivery models for video analytics- CloudVis is designed for users who need flexibility in how they apply intelligence to their video. Early CloudVis traction is being generated with an application to provide automatic health checks on networks of thousands of deployed cameras.
Channel partners
Our principal go-to-market approach has been to influence end clients direct and, where we are not able to sell direct, to work through local champion implementation partners to sell and deliver. As an increasing number of market opportunities open up outside our core government surveillance niche, we have invested in building broader industry partnerships with major global technology groups. Our aim is to utilise these organisations' brands and global reach to generate additional demand and brand recognition for Digital Barriers. We remain confident that these channel and OEM relationships will, in due course, deliver potentially highly scalable revenues with significantly reduced cost of sale, complementing our current direct sales model.
In this period, we have taken several significant steps to realising the potential of this approach to the market, examples of which are as follows:
· OEM deal with Axis- Our relationship with Axis, one of the world's leading network camera manufacturers (now owned by Canon), has developed into an OEM agreement to supply a white label version of SafeZone-edge. Axis Perimeter Defender was launched in early 2016 which give our intrusion detection analytic access to a much larger distribution network as well as previously untapped markets such as the US.
· Joint market development with Canon- based on the progress with Axis, we are now also working with Axis' parent, Canon, on the joint development of a wirelessly enabled 'safe city camera'. This is targeted initially at the very rapidly expanding Asian market for wireless video infrastructure. This initiative will be launched with Canon at London's IFSEC security show in June.
· Mobily VSAAS for Saudi Arabia - Launch of a VSAAS offering: the first of its kind, secure zero-latency solution will be critical to helping ensure continued safety and security across the country.
Based on the progress we are making in this area, we have created a new senior management role to focus on these types of global technology partnerships.
Research and development
We maintain a very active research and development programme that aims to ensure we retain a substantial competitive advantage against general industry trends and specific competitor threats. Highlights of the last year are:
· Emerging industry standards- we continue to invest in developing our core video compression technology (TVI) on which our EdgeVis solution sets are based. This development work is focused on ensuring we remain highly competitive as new video compression standards, such as H.265, emerge in product format, and will allow us to work with increasing camera resolutions (such as 4K cameras).
· Exploiting next generation chipsets - the ongoing video intensive demands of the smartphone, gaming and autonomous vehicle is leading to new microprocessor architectures with substantially improved video processing. We are actively researching how to exploit these as the basis of future EdgeVis Live products.
· ThruVis development- driven by needs of mass transit security post-Paris and Brussels attacks, we continue to work closely with government sponsors to develop our ThruVis technology to identify weapons and explosives concealed in clothing as people walk through crowded spaces such as railway and airport concourses.
· Development of deep learning analytics - this year we have progressed our facial recognition technology using revolutionary 'deep learning' algorithm development techniques. This places us firmly in the vanguard on this exciting new area of artificial intelligence development.
Operations
We continue to work to improve our ability to deliver high quality solutions in a timely manner to our customers, and provide responsive post-sales support. To achieve this, we have focused on the following areas in the last year:
· Improving our facilities in the UK and US- we have expanded and improved our solutions assembly, test and delivery centres in both Didcot and Ashburn, US following the Brimtek acquisition. These ongoing investments will allow us to continue scaling operations.
· Strengthening our supply chain management- we have reduced the number of suppliers we work with and have continued to mature processes in this area to improve stock availability and cash flow.
· Improving our post-sales support arrangement- we continue to improve our management information tools and have increased staffing levels in this area.
· IT security improvements - we continue to invest in streamlining and improving the security of our IT infrastructure.
With rapid growth in US and Asia, will be replicating best practice in UK into our US office and then into a new Asia-based operations centre which we anticipate opening later in FY17 to service rapid growth in that region.
People
Given strategic progress now being made in Asia and the US, we have invested in strengthening our sales and pre-sales teams to ensure we exploit fully the market opportunities that are now opening up to us
The main people focus in the last year has been building a common culture and value set across the many offices we operate from in UK, France, US, Dubai, Singapore, Malaysia and South Korea. We are doing this through a staff mentoring programme which links individuals performing similar roles across different offices to encourage information sharing and best practice creation. The very modest cost this entails is already paying back in terms of improved communication and common sense of purpose across the company.
We continue to enjoy high levels of staff loyalty and very low levels of voluntary attrition, giving us a very stable human capital base.
Performance indicators
We monitor a number of metrics, both financial and non-financial, on a monthly basis. The most important of these are as follows:
· Revenue attributable to continuing operations: £21.1 million for the year under review (2015: £11.9 million)
· International organic revenues: 83% of total organic revenues (2015: 59%)
· Gross margin: 50% for the year under review (2015: 43%)
· Adjusted loss before tax: £4.7 million for the year under review (2015: £10.6 million)
· Administration costs: £17.5 million for the year under review (2015: £17.7 million)
· Number of employees: 189 at 31 March 2016 (2015: 150); and
· Cash, net of overdrafts: £10.8 million at 31 March 2016 (2015: £8.7 million)
Financial review
For the year ended 31 March 2016, Digital Barriers delivered revenues from continuing operations of £21.1 million (2015: £11.9 million) generating an adjusted loss before tax of £4.7 million (2015 loss: £10.6 million) and an adjusted loss per share of 3.82 pence (2015 loss: 14.27 pence). On an unadjusted basis, the loss for the year was £12.6 million (2015 loss: £17.9 million) and loss per share was 7.42 pence (2015 loss: 26.00 pence).
Revenue
£21.1 million of continuing revenue in the year, includes £18.2 million (2015: £11.9 million) organic Solutions revenues, and £2.9 million contributed by Brimtek in the period following acquisition on 2 March 2016. The 53% increase in organic revenues over the prior year reflects continued expansion of our customer base in international markets. International revenues for the year totalled £18.0 million, compared to £7.1 million in the prior year. This equates to growth of 154%, or 113% on an organic basis. International revenues now account for 83% (2015: 59%) of total organic revenues. The growth in international revenues was partly offset by a reduction in revenues in a challenging UK market.
Results by region are detailed below:
Revenue | 2016 £'000 | 2015 £'000 |
Solutions: | ||
International | 18,028 | 7,093 |
UK | 3,108 | 4,849 |
Solutions total | 21,136 | 11,942 |
Of which: | ||
Organic | 18,212 | 11,942 |
Acquisition | 2,924 | - |
Solutions total | 21,136 | 11,942 |
Gross margin
Gross margin for continuing operations increased to 50% in the year (2015: 43%). Underlying this, the gross margin attributable to organic revenues materially increased to 55% (2015: 43%) with Brimtek gross margin around 20% for the period. Increases in the gross margin of the organic business is the result of continued growth in the sales of solution offerings to customers, which attract a higher premium compared to historical product only sales. In addition, whilst delivering growth in unit sales in the period (up from 33 units last year to 45 this year) Thruvision revenues, which attract a lower gross margin, were a smaller percentage of total revenues in the year compared to the prior period.
2016 £'000 | 2015 £'000 | |
Revenue | 21,136 | 11,942 |
Gross margin | 10,517 | 5,155 |
Gross margin % | 50% | 43% |
Overheads
Administration costs are broken down as follows:
Overheads | 2016 £'000 | 2015 £'000 |
Solutions administration costs | 11,794 | 12,201 |
Amortisation of intangibles initially recognised on acquisition | 1,320 | 1,435 |
Central costs | ||
Board, operations, finance and facilities | 3,594 | 3,578 |
Share based payment charge | 792 | 438 |
4,386 | 4,016 | |
Total administration costs | 17,500 | 17,652 |
Administration costs within the Solutions division largely consist of sales & marketing costs, together with research & development spend.
In total Solutions administration costs in the year have decreased 3% to £11.8 million (2015: £12.2 million). This decrease reflects continued tight cost control within the Group following a restructuring exercise undertaken at the end of FY14. Investments have been funded through targeted redeployment of cost savings made on the prior year. Central costs, excluding acquisition costs and share based payment charges, have grown only marginally year on year (up 0.5%). This increase reflects expansion of the central delivery team required to support the significant revenue growth.
Overall administration costs have remained broadly flat year on year at £17.5 million (2015: £17.7 million).
Loss for the year
The Group continues to show material reductions in losses year on year.
An adjusted loss before tax figure is presented as the Directors believe that this is a more relevant measure of the Group's underlying performance. For the year ended 31 March 2016 the adjusted loss from continuing operations was £4.7 million compared to a prior year loss of £10.6 million. The reduction in the adjusted loss year on year has been primarily driven by three key factors:
· growth in international revenues (113% growth organically)
· gross margin improvements across the Group (organic gross margin up from 43% in FY15 to 55% in FY16) and;
· tight cost control (overheads flat year on year)
The unadjusted loss before tax from continuing operations for the year amounts to £8.5 million (2015 loss: £18.8 million). In addition to the three key factors detailed above, the reduction in the unadjusted loss is also attributable to an impairment charge of £6.25 million recorded in the prior year that has not repeated in the current year. This is partly offset by £1.7 million of one-time costs associated with the acquisition of Brimtek Inc. and an exceptional write off of bad debt.
Loss details are provided in the table below:
2016 |
2015 | |
Loss before tax | (8,506) | (18,805) |
Add back: | ||
Amortisation of intangibles initially recognised on acquisition | 1,320 | 1,435 |
Share based payment charges | 792 | 438 |
Acquisition related costs and exceptional write off of bad debt | 1,718 | - |
Loss on disposal of businesses | - | 103 |
Impairment of goodwill and intangibles | - | 6,250 |
Adjusted loss before tax | (4,676) | (10,579) |
(i)The basis of calculation has been updated to adjust for share based payment charges. The Directors consider this to be a more helpful measure in understanding the true underlying costs of the business.
(ii) During the year ended 31 March 2016 the Group acquired 100% of the share capital of Brimtek Inc. Costs in relation to the acquisition totalled £1.7 million. These included £0.5 million in relation to an amount due from Brimtek to Digital Barriers which was fully provided for immediately prior to the acquisition of Brimtek.
(iii) Relates to the disposals of two wholly owned subsidiaries, Margaux Matrix Limited and Visimetrics (UK) Limited. Each was disposed of for £1 consideration during the year. The Group did not sell any intellectual property as part of these transactions.
(iv) Relates to the reassessment of the carrying value of goodwill and intangibles within the Solutions division. The impairment of goodwill reflects a period of product development which has impacted the Group's ability to leverage value from the integrated businesses in the original timeframes expected.
Taxation
As a result of losses acquired through acquisitions and central overheads we do not expect to pay the full rate of UK corporation tax for a number of years. The Income Statement tax credit for the year of £0.7 million (2015: £0.8 million) principally relates to R&D tax credits. At 31 March 2016, the Group had unutilised tax losses carried forward of approximately £55.5 million (2015: £47.5 million). Given the varying degrees of uncertainty as to the timescale of utilisation of these losses, the Group has not recognised £10.9 million (2015: £9.8 million) of potential deferred tax assets associated with £55.3 million (2015: £46.6 million) of these losses.
At 31 March 2016, the Group's net deferred tax liability stood at £0.1million (2015: £0.1 million).
Loss per share
The reported loss per share on continuing operations is 7.42 pence (2015 loss: 26.00 pence). The adjusted loss per share on continuing operations is 3.82 pence (2015 loss: 14.27 pence).
Discontinued operations
As indicated in the interim results announcement on 11 December 2015, the Board believed that the Services division was no longer strategic to the Group. As a consequence on 1 April the Board signed an agreement for the proposed disposal of the business for nominal consideration. The disposal completed on 19 May 2016. Consequently the trading results of this operation for the period have been presented under discontinued operations and the prior period has been restated accordingly. Revenues from the Services business declined significantly in the year, down from £7.5 million in 2015 to £3.8 million in 2016. This decline was in part due to the delivery of a large system into a major UK sporting event in 2015 which did not repeat in 2016, and in part due to UK Government austerity measures. The loss attributable to discontinued operations was £4.8 million (2015: profit £0.1 million), including a £3.6 million impairment of goodwill attributable to the Services segment, which arises on remeasurement of the Services disposal group to fair value less costs of disposal.
Cash and treasury
The Group ended the year with a net cash balance of £10.8 million (2015: £8.7 million).
The £2.1 million year on year increase in net cash consists of £27.1 million (net of placing costs) proceeds from an equity fund raise, along with £7.1 million (2015: £12.1 million) outflow from operating activities and £17.9 million (2015: £0.5 million) investing spend.
The £7.1 million (2015: £12.1 million) outflow from operating activities included a £1.4 million net working capital outflow (2015: £1.9 million outflow), largely the result of higher fourth quarter revenues than in the prior year, along with a £1.1 million (2015: £nil) tax refund received. The balance of £6.8 million outflow from operating activities (2015: £10.2 million outflow) relates principally to the 'cash' operating loss (operating loss excluding non-cash items), with the Brimtek acquisition costs largely unpaid as at 31 March 2016.
Investing spend included £17.5 million (2015: £nil) in relation to the acquisition of Brimtek, and £0.4 million (2015: £0.5 million) of capital expenditure, mainly demonstration stock to support sales activities.
In April 2015 the Group entered into an agreement with HSBC Bank plc for a £5.0million secured working capital facility to provide pre and post-shipment finance in relation to export activities across the Group. The facility is partially guaranteed by the UK Export Finance Guarantees Department. The interest rate for any borrowings under this facility is 3% over the bank's sterling base rate. This facility was reviewed and renewed as part of our wider annual banking facility review in September. No amounts were drawn down on the facility as at 31 March 2016, but at time of approval of the financial statements is £600,000 (2015: £nil).
Dividends
The Board is not recommending the payment of a dividend (2015: £nil).
Consolidated income statement
for the year ended 31 March 2016
Note |
Year ended 31 March 2016 |
Year ended 31 March 2015 | |
Continuing operations | |||
Revenue | 2 | 21,136 | 11,942 |
Cost of sales | (10,619) | (6,787) | |
Gross profit | 10,517 | 5,155 | |
Administration costs | (17,500) | (17,652) | |
Other costs | (1,718) | (6,353) | |
Operating loss | (8,701) | (18,850) | |
Finance revenue | 227 | 45 | |
Finance costs | (32) | - | |
Loss before tax from continuing operations | (8,506) | (18,805) | |
Income tax | 716 | 785 | |
Loss after tax from continuing operations attributable to owners of the parent | (7,790) | (18,020) | |
Discontinued operations | |||
(Loss) / profit from discontinued operation (net of tax) | (4,832) | 108 | |
Loss for the year | (12,622) | (17,912) | |
Adjusted loss: | 3 | ||
Loss before tax from continuing operations | (8,506) | (18,805) | |
Amortisation of intangibles initially recognised on acquisition | 1,320 | 1,435 | |
Share based payment charge | 792 | 438 | |
Acquisition related costs and exceptional write off of bad debt | 1,718 | - | |
Loss on disposal of businesses | - | 103 | |
Impairment of goodwill | - | 6,250 | |
Adjusted loss before tax for the year from continuing operations | (4,676) | (10,579) | |
Loss per share - continuing operations | |||
Loss per share - basic | 4 | (7.42p) | (26.00p) |
Loss per share - diluted | 4 | (7.42p) | (26.00p) |
Loss per share - adjusted * | 4 | (3.82p) | (14.27p) |
Loss per share - adjusted diluted * | 4 | (3.82p) | (14.27p) |
Loss per share - continuing and discontinued operations | |||
Loss per share - basic | 4 | (12.01p) | (25.85p) |
Loss per share - diluted | 4 | (12.01p) | (25.85p) |
* - As explained in note 4, the basis of calculation has been adjusted to include share based payment charges. Comparative figures have been updated to incorporate this change.
Consolidated statement of comprehensive income
for the year ended 31 March 2016
Year ended 31 March 2016 |
Year ended 31 March 2015 | ||
Loss for the year from continuing operations | (7,790) | (18,020) | |
(Loss) / profit for the year from discontinued operations | (4,832) | 108 | |
Loss for the year attributable to owners of the parent | (12,622) | (17,912) | |
Other comprehensive income from continuing operations | |||
Other comprehensive income that may be subsequently reclassified to profit and loss: | |||
Exchange differences on retranslation of foreign operations | 123 | (656) | |
Net other comprehensive income to be reclassified to profit or loss in subsequent years | 123 | (656) | |
Total comprehensive loss attributable to owners of the parent | (12,499) | (18,568) |
Consolidated statement of financial position
at 31 March 2016
Note |
31 March 2016 |
31 March 2015 | |
Assets | |||
Non-current assets | |||
Property, plant and equipment | 828 | 683 | |
Goodwill | 5 | 23,323 | 18,186 |
Other intangible assets | 11,397 | 2,092 | |
35,548 | 20,961 | ||
Current assets | |||
Inventories | 4,906 | 4,499 | |
Trade and other receivables | 6 | 13,239 | 8,869 |
Other financial asset | 193 | - | |
Current tax recoverable | 1,022 | 1,513 | |
Cash and cash equivalents | 25,599 | 17,407 | |
44,959 | 32,288 | ||
Non-current assets classified as held for sale | 10 | 35 | - |
Total assets | 80,542 | 53,249 | |
Equity and liabilities | |||
Attributable to owners of the Parent | |||
Equity share capital | 8 | 1,760 | 845 |
Share premium | 109,078 | 82,757 | |
Capital redemption reserve | 4,786 | 4,786 | |
Merger reserve | 454 | 454 | |
Translation reserve | (745) | (868) | |
Other reserves | (307) | (307) | |
Retained earnings | (60,656) | (48,826) | |
Total equity | 54,370 | 38,841 | |
Non-current liabilities | |||
Deferred tax liabilities | 57 | 116 | |
Financial liabilities | 975 | - | |
Provisions | 119 | 134 | |
1,151 | 250 | ||
Current liabilities | |||
Trade and other payables | 7 | 9,126 | 5,261 |
Financial liabilities | 1,097 | 163 | |
Bank overdraft* | 14,763 | 8,706 | |
Provisions | 35 | 28 | |
25,021 | 14,158 | ||
Liabilities directly associated with non-current assets classified as held for sale | 10 | - | - |
Total liabilities | 26,172 | 14,408 | |
Total equity and liabilities | 80,542 | 53,249 | |
* - Net cash and cash equivalents (grossed up above in accordance with IAS 32) | 10,836 | 8,701 |
** - restated for gross up of cash and bank overdraft position in accordance with IAS 32
Consolidated statement of changes in equity
for the year ended 31 March 2016
Share capital | Share premium account £'000 | Capital redemption reserve £'000 | Merger reserve £'000 | Translation reserve £'000 | Other reserves £'000 | Profit and loss reserve £'000 | Total equity £'000 | |
At 31 March 2014 | 646 | 75,879 | 4,786 | 454 | (212) | (307) | (31,352) | 49,894 |
Loss for the year | - | - | - | - | - | - | (17,912) | (17,912) |
Other comprehensive loss | - | - | - | - | (656) | - | - | (656) |
Total comprehensive loss | - | - | - | - | (656) | - | (17,912) | (18,568) |
Share placement | 199 | 7,151 | - | - | - | - | - | 7,350 |
Share issue costs | - | (273) | - | - | - | - | - | (273) |
Share based payment credit | - | - | - | - | - | - | 438 | 438 |
At 31 March 2015 | 845 | 82,757 | 4,786 | 454 | (868) | (307) | (48,826) | 38,841 |
Loss for the year | - | - | - | - | - | (12,622) | (12,622) | |
Other comprehensive income | - | - | - | - | 123 | - | - | 123 |
Total comprehensive loss | - | - | - | - | 123 | - | (12,622) | (12,499) |
Share placement | 806 | 27,394 | - | - | - | - | - | 28,200 |
Share issue costs | - | (1,073) | - | - | - | - | - | (1,073) |
Incentive share conversion | 109 | - | - | - | - | - | - | 109 |
Share based payment credit | - | - | - | - | - | - | 792 | 792 |
At 31 March 2016 | 1,760 | 109,078 | 4,786 | 454 | (745) | (307) | (60,656) | 54,370 |
Consolidated statement of cash flows
for the year ended 31 March 2016
Note |
Year ended 31 March 2016 |
Year ended 31 March 2015 | |
Operating activities | |||
Loss before tax | (13,338) | (18,697) | |
Non-cash adjustment to reconcile loss before tax to net cash flows | |||
Depreciation of property, plant and equipment | 415 | 630 | |
Amortisation of intangible assets | 1,530 | 1,971 | |
Impairment of goodwill | 3,582 | 6,250 | |
Impairment of intangible assets | 37 | - | |
Share-based payment transaction expense | 792 | 438 | |
Unrealised loss / (gains) on foreign exchange | 42 | (95) | |
Disposal of fixed assets | 15 | 56 | |
Finance income | (227) | (45) | |
Finance costs | 32 | - | |
Working capital adjustments: | |||
Increase in trade and other receivables | (2,452) | (1,262) | |
Decrease / (increase) in inventories | 2,088 | (604) | |
Decrease in trade and other payables | (1,047) | (62) | |
Increase / (decrease) in deferred revenue | 300 | (285) | |
Decrease in provisions | (8) | (419) | |
Cash utilised in operations | (8,239) | (12,124) | |
Interest paid | (32) | - | |
Tax received | 1,146 | 3 | |
Net cash flow from operating activities | (7,125) | (12,121) | |
Investing activities | |||
Purchase of property, plant and equipment | (375) | (532) | |
Expenditure on intangible assets | (12) | (3) | |
Payment of deferred consideration | - | - | |
Interest received | 27 | 45 | |
Acquisition of subsidiary, net of debt acquired | 9 | (17,511) | - |
Net cash flow utilised in investing activities | (17,871) | (490) | |
Financing activities | |||
Proceeds from issue of shares | 28,200 | 7,350 | |
Share issue costs | (1,073) | (273) | |
Net cash flow from financing activities | 27,127 | 7,077 | |
Net increase / (decrease) in cash and cash equivalents | 2,131 | (5,534) | |
Net cash and cash equivalents at beginning of year | 8,701 | 14,246 | |
Effect of foreign exchange rate changes on cash and cash equivalents | 4 | (11) | |
Net cash and cash equivalents at end of year | 10,836 | 8,701 | |
Reconciliation of net cash and cash equivalents | |||
Cash and cash equivalents (disclosed within current assets) | 25,599 | 17,407 | |
Bank overdraft (disclosed within current liabilities) | (14,763) | (8,706) | |
Net cash and cash equivalents at end of year | 10,836 | 8,701 |
Notes to the financial information
1. Accounting policies
Basis of preparation
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 March 2016 and applied in accordance with the Companies Act 2006.
The Financial Statements were authorised for issue by the Board of Directors on 26 June 2016 and the Statement of Financial Position was signed on the Board's behalf by Zak Doffman and Sharon Cooper.
All values are rounded to £'000 except where otherwise stated.
The Company is a public limited company incorporated and domiciled in England and Wales and whose shares are quoted on AIM, a market operated by the London Stock Exchange.
Accounting policies
The accounting policies which apply in preparing the financial statements for the period are set out below. These policies have been consistently applied to all periods presented in these consolidated financial statements. The comparative statement of comprehensive income has been re-presented as if an operation discontinued during the current year had been discontinued from the start of the comparative year (see note 10). The comparative statement of financial position has been restated to gross up cash and cash equivalent balances and bank overdraft positions (all held within a pooling arrangement within the Group) in accordance with IAS 32.
Basis of measurement
Going concern
The Group's loss before tax for continuing operations for the year was £8.5 million (2015: £18.8 million). As at 31 March 2016 the Group had net current assets of £19.9 million (2015: £18.1 million) and net cash reserves of £10.8 million (2015: £8.7 million).
In April 2015 the Group entered into an agreement with HSBC Bank plc for a £5.0 million secured working capital facility to provide pre and post-shipment finance in relation to export activities across the Group. The facility is partially guaranteed by the UK Export Finance Guarantees Department. The interest rate for any borrowings under this facility is 3% over the bank's sterling base rate. The facility was reviewed and renewed in September 2015 as part of the annual review of our wider banking facilities with HSBC Bank Plc. There are no indications that the facility (along with our wider banking facilities) will not be renewed again in September and as a result this facility has been factored in to cash flow projections for the Group. Should the facility not be renewed in September, mitigating actions can be taken to manage our cash flows.
The Board has reviewed these cash flow forecasts for the period up to and including 30 September 2017. These forecasts and projections take into account reasonably possible changes in trading performance and show that the Group will be able to operate within the level of current funding resources. The Directors therefore believe there is sufficient cash available to the Group to manage through these requirements.
As with all businesses, there are particular times of the year where the Group's working capital requirements are at their peak. However, the Group is well placed to manage business risk effectively and the Board reviews the Group's performance against budgets and forecasts on a regular basis to ensure action is taken where needed.
The Directors therefore are satisfied that the Group has adequate resources to continue operating for a period of at least 12 months from the approval of these accounts. For this reason they have adopted the going concern basis in preparing the financial statements.
2. Segmental information
During the year the Group has been organised into 'Services' and 'Solutions' (previously known as 'Products') Divisions for internal management, reporting and decision-making, based on the nature of the products and services of the Group's businesses. Managers have been appointed within Services and Solutions, who report to members of the Board. These are the reportable operating segments in accordance with IFRS 8 'Operating Segments'.
The Group's Services Division is predominantly focused on the UK market and integrates third party technology and own product into UK Services customers. The Services Division is established with a number of key UK Government organisations in the secure government, law enforcement and transportation sectors. As announced on 1 April 2016, the Board believes that the Services Division is no longer strategic to the Group, and has signed an agreement for the disposal of the business. The sale completed on 19 May 2016. Full details are provided in note 10.
The Group's Solutions Division is focused on the advanced surveillance market. This covers image and data capture (for example, stand-off passive body scanning and unattended ground sensors), a range of processing and enhancement techniques (for example, thermal image processing, image stabilisation, and enhancing low light performance), image transmission (both wired and wireless technologies) and a range of analytics algorithms.
In accordance with IFRS 8, the Group has derived the information for its operating segments using the information used by the Chief Operating Decision Maker. The Group has identified the Board of Directors as the Chief Operating Decision Maker as it is responsible for the allocation of resources to operating segments and assessing their performance.
Central overheads, which primarily relate to operations of the Group function, are not allocated to the business units. Group financing (including finance costs and finance revenue) and income taxes are managed centrally and are not allocated to an operating segment. No operating segments have been aggregated to form the above reportable segments.
Services (discontinued) |
Solutions (continuing) |
Central (continuing) |
Total | |
Total segment revenue | 3,777 | 21,427 | - | 25,204 |
Inter-segment revenue | - | (291) | - | (291) |
Revenue | 3,777 | 21,136 | - | 24,913 |
Depreciation | 66 | 349 | - | 415 |
Segment adjusted operating loss | (565) | (1,277) | (3,594) | (5,436) |
Amortisation of intangibles initially recognised on acquisition | (120) | (1,320) | - | (1,440) |
Share based payment charge | - | - | (792) | (792) |
Acquisition related costs and exceptional write off of bad debt | - | - | (1,718) | (1,718) |
Exit costs attributable to discontinued operations | (528) | - | - | (528) |
Impairment of goodwill and intangibles | (3,619) | - | - | (3,619) |
Segment operating loss | (4,832) | (2,597) | (6,104) | (13,533) |
Loss attributable to discontinued operations | 4,832 | |||
Segment operating loss from continuing operations | (8,701) | |||
Finance income | 227 | |||
Finance costs | (32) | |||
Loss before tax from continuing operations | (8,506) | |||
Income tax credit | 716 | |||
Loss for the year from continuing operations | (7,790) |
Services (discontinued) |
Solutions (continuing) |
Central (continuing) |
Total | |
Total segment revenue | 7,460 | 12,272 | - | 19,732 |
Inter-segment revenue | - | (330) | - | (330) |
Revenue | 7,460 | 11,942 | - | 19,402 |
Depreciation | 55 | 575 | - | 630 |
Segment adjusted operating profit/(loss) | 538 | (7,046) | (3,578) | (10,086) |
Amortisation of intangibles initially recognised on acquisition | (430) | (1,435) | - | (1,865) |
Share based payment charge | - | - | (438) | (438) |
Loss on disposal of businesses | - | (103) | - | (103) |
Impairment of goodwill | - | (6,250) | - | (6,250) |
Segment operating profit/(loss) | 108 | (14,834) | (4,016) | (18,742) |
Profit attributable to discontinued operations | (108) | |||
Operating loss attributable to continuing operations | (18,850) | |||
Finance income | 45 | |||
Loss before tax from continuing operations | (18,805) | |||
Income tax credit | 785 | |||
Loss for the year from continuing operations | (18,020) |
Analysis of revenue by customer
There have been three (2015: none) individually material customers in the Solutions operating segment during the year. These customers individually represented £2,763,000, £2,628,000 and £2,200,000 of Group turnover for the year.
There have been no (2015: one) material customers in the Services operating segment during the year. In the prior year the customer represented £3,062,000 of Group turnover for the year.
Other segment information
The following table provides disclosure of the Group's continuing revenue analysed by geographical market based on the location of the customer
2016 |
2015 | |
United Kingdom | 3,108 | 4,849 |
United States of America | 5,340 | 1,536 |
Indonesia | 3,996 | 333 |
Malaysia | 2,962 | 43 |
Rest of World | 5,730 | 5,181 |
21,136 | 11,942 |
The Group's non-current assets by geography are detailed below:
2016 |
2015 | |
United Kingdom | 16,545 | 20,961 |
United States of America | 19,003 | - |
35,548 | 20,961 |
3. Adjusted loss before tax
An adjusted loss before tax measure has been presented as the Directors believe that this is a more relevant measure of the Group's underlying performance. Adjusted loss is not defined under IFRS and has been shown as the Directors consider this to be helpful for a better understanding of the performance of the Group's underlying business. It may not be comparable with similarly titled measurements reported by other companies and is not intended to be a substitute for, or superior to, IFRS measures of profit. The net adjustments to loss before tax are summarised below:
2016 |
2015 | |
Amortisation of intangibles initially recognised on acquisition | 1,320 | 1,435 |
Share based payment (i) | 792 | 438 |
Acquisition related costs and exceptional write off of bad debt (ii) | 1,718 | - |
Loss on disposal of businesses (iii) | - | 103 |
Impairment of goodwill and intangibles (iv) | - | 6,250 |
Total adjustments | 3,830 | 8,226 |
(i) The basis of calculation has been updated to adjust for share based payment charges. The Directors consider this to be a more helpful measure in understanding the true underlying costs of the business. The performance condition associated with LTIP awards made in July 2015 are subject to a non-market based performance measure. Accordingly, should these LTIP awards fail to vest, the share based payment charge will be added back to the income statement. Historic LTIP awards have been made with a market based performance measure which in the event that LTIPs fail to vest the share based payment charge is not added back to the income statement. To date the majority of historic LTIP awards have failed to vest. The revised calculation provides consistency over time allowing a better understanding of the financial position of the Group.
(ii) During the year ended 31 March 2016 the Group acquired 100% of the share capital of Brimtek Inc. Costs in relation to the acquisition totalled £1.7 million. Included within these costs is £0.5 million in relation to an amount due from Brimtek to Digital Barriers which was fully provided for immediately prior to the acquisition of Brimtek. Acquisition costs remained largely unpaid as at 31 March 2016.
(iii) During the year ended 31 March 2015 Margaux Matrix Limited and Visimetrics (UK) Limited, two wholly owned subsidiaries, were each disposed of for £1 consideration.
(iv) During the year ended 31 March 2015 a £6.25 million non-cash impairment charge has been recorded against the carrying value of goodwill within the Solutions division and has been separately disclosed within Other Costs in the Consolidated Income Statement. This impairment reflects a period of product development, which has delayed the Group's ability to leverage value from the integrated businesses in the expected timeframes, along with delays in sales cycles as reported to the market by the Group on 11 August 2014.
4. Loss per share
Unadjusted loss per share
Loss after taxation 2016 | Weighted average number of shares 2016 No. | Loss per share 2016 Pence |
Loss after taxation 2015 | Weighted average number of shares 2015 No. | Loss per share 2015 Pence | |
Basic loss per share - continuing operations | (7,790) | 105,052,916 | (7.42) | (18,020) | 69,305,105 | (26.0) |
Diluted loss per share - continuing operations | (7,790) | 105,052,916 | (7.42) | (18,020) | 69,305,105 | (26.0) |
Basic loss per share - continuing and discontinued operations | (12,622) | 105,052,916 | (12.01) | (17,912) | 69,305,105 | (25.85) |
Diluted loss per share - continuing and discontinued operations | (12,622) | 105,052,916 | (12.01) | (17,912) | 69,305,105 | (25.85) |
Adjusted loss per share
Loss after taxation 2016 |
Weighted average number of shares 2016 | Loss per share 2016 Pence |
Loss after taxation 2015 |
Weighted average number of shares 2015 | Loss per share 2015 Pence | |
Loss from continuing operations attributable to ordinary shareholders | (7,790) | 105,052,916 | (7.42) | (18,020) | 69,305,105 | (26.0) |
Add back: | ||||||
Amortisation of acquired intangible assets, net of tax | 1,264 | - | 1.20 | 1,341 | - | 1.93 |
Share based payment charge* | 792 | - | 0.75 | 438 | - | 0.63 |
Acquisition related costs and exceptional write off of bad debt | 1,718 | - | 1.64 | - | - | - |
Disposal of businesses | - | - | - | 103 | - | 0.15 |
Impairment of goodwill | - | - | - | 6,250 | - | 9.02 |
Basic adjusted loss per share | (4,016) | 105,052,916 | (3.82) | (9,888) | 69,305,105 | (14.27) |
Diluted adjusted loss per share | (4,016) | 105,052,916 | (3.82) | (9,888) | 69,305,105 | (14.27) |
*The basis of calculation has been adjusted to include share based payments charges. Comparative figures have been updated to incorporate this change. The impact of this change is to increase the adjusted loss per share by 0.75 pence in the current year (2015: 0.63 pence)
The Directors consider that adjusted loss per share better reflects the underlying performance of the Group.
The inclusion of potential Ordinary Shares arising from LTIPs and Incentive Shares would be anti-dilutive. Basic and diluted loss per share has therefore been calculated using the same weighted number of shares. If the Incentive Shares had become convertible on 31 March 2016 and based on the share price of £0.475 (2015: £0.385) on that day, no (2015: no) Ordinary Shares would have been issued in respect of the Incentive Share conversion. Full details of the basis of calculation is given in the Admission Document available on the Company's website. The Incentive Shares will immediately vest on change of control of the Company.
5. Goodwill
Goodwill | |
At 31 March 2014 | 24,802 |
Impairment of goodwill | (6,250) |
Exchange movements | (366) |
At 31 March 2015 | 18,186 |
Acquisition of Brimtek | 8,309 |
Impairment of goodwill associated with Services division | (3,582) |
Exchange movements | 410 |
At 31 March 2016 | 23,323 |
Carrying amount of goodwill allocated to operating segments
2016 |
2015 | |
Services | - | 3,582 |
Solutions | 23,323 | 14,604 |
23,323 | 18,186 |
Goodwill acquired through business combinations has been allocated for impairment testing purposes to two groups of cash-generating Units ('CGUs'). These groups of CGUs are its two operating segments 'Services' and 'Solutions' (previously known as 'Products') as the goodwill relates to synergies at this level. The Group conducts annual impairment tests on the carrying value of the CGUs in the statement of financial position. Although required to perform annual impairment tests, these do not have to take place at 31 March but the test should be consistently carried out at the same time annually.
As indicated in the interim results announcement on 11 December 2015, the Board believed that the Services division was no longer strategic to the Group. As a consequence the Board initiated a plan for the potential disposal of the business, and on 1 April the Board signed an agreement for the proposed disposal of the business for nominal consideration. Consequently the recoverable amount of the Services CGU is based on fair value less costs of disposal, being the sales price of £1. As a result the carrying value of the goodwill attributable to the Services segment was reduced to £nil in the year ended 31 March 2016. A charge of £3,582,000 has been included in the loss attributable to discontinued operations.
The Group carries out its annual impairment testing for the Solutions (and historically for the Services) division as at 28 February each year. Impairment testing is only re-performed if an impairment triggering event occurs in the intervening period.
Value in use calculations are used to determine the recoverable amount of the cash-generating units. The key assumptions for the value in use calculations include the forecast revenue growth of the CGU, cost allocations, the discount rate applied and the long-term growth rate of the net operating cash flows, along with the gross margin for Solutions. In determining the key assumptions, management have taken into consideration the nature of the markets in which it operates, expected growth of the markets in which it operates, the ability of the CGU to exploit those opportunities and the current economic climate, the resulting impact on expected growth and pre-tax discount rates, and the pressure this places on impairment calculations.
The Group prepares cash flow forecasts for the cash-generating unit based on the most recent three-year detailed financial forecasts. The table below sets out the key assumptions included in these forecasts:
Solutions | Services | ||
2016 | 2015 | 2015 | |
Revenue growth compound from FY16 to FY19 (years one to three) | 40% | 46% | 0% |
Revenue growth from FY20 onwards (year four onwards) | 2.5% | 2.5% | 2.5% |
Gross margin improvement compound from FY16 to FY19 (years one to three) | 1% | 8% | 0% |
Discount rate | 10.6% | 10.6% | 10.0% |
Forecasts are based on an internal assessment of the strength of the CGU in the markets in which it operates with the expected growth reflecting the opportunities in its core strategic markets, sales pipeline and relationships being developed.
Revenue growth of 2.5% is an external estimate of the UK's long-term growth rate. Gross margin is forecast to improve marginally against FY16 as the product mix continues to evolve through the next three years to include a greater proportion of software sales.Discount rate is based on the weighted cost of capital applying to businesses in the same sector, and reflects the current market assessments of the time value of money and of the risks specific to the cash generating units.
No impairment loss arises in the year ended 31 March 2016 for Solutions based on these base assumptions. In the year ended 31 March 2015 an impairment test was performed on the carrying value of Solutions division as at 30 September 2014 in addition to the annual impairment testing date. The 30 September impairment review was based on revenue growth in years two and three forecast at 40% and 20% per annum respectively, with revenue growth of 2.5% assumed from year four onwards, being an external estimate of the UK's long-term growth rate. A discount rate of 11.6% was applied. Based on these assumptions the recoverable amount was determined to be £24.5 million and an impairment charge of £6.25 million arose.
No further impairment loss arose for Solutions based on the assumptions detailed in the tables above for the 28 February impairment review.
The Directors consider that an absolute change in the key assumptions set out below is reasonably possible.
Solutions | ||
2016 | 2015 | |
Reduction in forecast revenue growth compound from FY16 to FY19 (years one to three) | -9% | -5% |
Reduction in forecast revenue growth FY20 onwards (year four onwards) | -2.5% | -2.5% |
Increase in discount rate (4) | 2.5% | 2.5% |
If these assumptions were to change in isolation, they would not result in an impairment charge of goodwill. The same applied to the prior year assumptions. The value in use calculations are most sensitive to changes in assumptions around forecast revenue growth and gross margin improvement. An absolute reduction in the forecast revenue growth of 10% (compound over years one to three) would result in the recoverable amount of Solutions goodwill being equal to the carrying amount (a reduction in the headroom from £17.5 million to £nil). In the prior year an absolute reduction in the forecast revenue growth of 7% (compound over years one to three) would have resulted in the recoverable amount of Solutions goodwill being equal to the carrying amount (a reduction in the headroom from £14.4 million to £nil).
If all key assumptions were to change in combination, a further impairment charge would be recognised for the current carrying value of goodwill in relation to the Solutions segment.
Following the completion of the fair value exercise ('the acquisition accounting'), goodwill of £8.3 million was recognised on acquisition of Brimtek Inc. The acquisition completed on 1 March 2016 and the acquisition accounting was performed subsequent to the annual impairment testing date. A further impairment review was not performed as there were no indicators of impairment on the goodwill attributable to Brimtek Inc. The acquisition accounting will be further reviewed in the coming year.
6. Trade and other receivables
Gross carrying amounts |
Provision for impairment |
Net carrying amounts |
Gross carrying amounts |
Provision for impairment |
Net carrying amounts | |
Trade receivables | 11,814 | (431) | 11,383 | 9,112 | (1,208) | 7,904 |
Prepayments | 780 | - | 780 | 439 | - | 439 |
Accrued income | 339 | - | 339 | 350 | - | 350 |
Social security and other taxes | 581 | - | 581 | - | - | - |
Other receivables | 156 | - | 156 | 176 | - | 176 |
13,670 | (431) | 13,239 | 10,077 | (1,208) | 8,869 |
The Group experiences credit risk which reflects its early stage of development into international markets, as reflected in the provision for doubtful debts and ageing analysis. As the Group further establishes itself and its products into new and existing geographies, so its exposure to credit risk is expected to reduce.
7. Trade and other payables
2016 |
2015 | |
Current | ||
Trade payables | 4,833 | 3,100 |
Accruals | 2,737 | 1,296 |
Deferred income | 774 | 419 |
Social security and other taxes | 441 | 279 |
Other payables | 341 | 167 |
9,126 | 5,261 | |
In April 2015 the Group entered into an agreement with HSBC Bank plc for a £5.0 million secured working capital facility to provide pre and post-shipment finance in relation to export activities across the Group. The facility is partially guaranteed by the UK Export Finance Guarantees Department. The interest rate for any borrowings under this facility is 3% over the bank's sterling base rate. The facility was reviewed and renewed as part of our wider annual banking facility review with HSBC Bank plc in September. The facility was not being utilised at 31 March 2016, but at time of approval of the financial statements is £600,000 (2015: £nil).
8. Share capital
Number | £'000 | |
Authorised, allotted, called-up and fully paid | ||
Ordinary Shares of 1 pence each | ||
At 31 March 2014 | 64,624,616 | 646 |
Shares issued in the year | 19,864,865 | 199 |
At 31 March 2015 | 84,489,481 | 845 |
Shares issued in the year | 80,616,758 | 806 |
At 31 March 2016 | 165,106,239 | 1,651 |
Number | £'000 | |
Authorised, allotted, called-up and fully paid | ||
Incentive Shares of £1 each | ||
At 31 March 2015 | 163,124 | 163 |
At 31 March 2016 | 54,375 | 54 |
Authorised, allotted, called-up and fully paid | ||
Deferred Shares of £1 each | ||
At 31 March 2015 | - | - |
At 31 March 2016 | 108,749 | 109 |
On 5 January 2015 19,864,865 Ordinary Shares were issued at 37 pence per share for a total cash consideration of £7,350,000. On 30 December 2015 80,571,429 Ordinary Shares were issued at 35 pence per share for a total consideration of £28,200,000, primarily funds to be used by the group to purchase the share capital of Brimtek Inc.
In June 2015, share options were exercised resulting in the issue of 45,329 Ordinary Shares.
9. Business combinations
Business combinations in the year ended 31 March 2015 and 2016
On 1 March 2016, the Group acquired 100% of the issued share capital of Brimtek Inc., a provider of state-of-the-art technical surveillance solutions to the US defence, homeland security, federal law enforcement and intelligence communities. Brimtek offers an end-to-end capability for its clients, from concept design to engineering, manufacturing, integration, delivery, training and ongoing solution support. These capabilities, together with Brimtek's substantial US presence and breadth of product offerings, provide the Group with a consolidated, US-focused platform for growth in this critical market, together with the opportunity for significant sales synergies with Digital Barriers in the US market.
Purchase consideration
The purchase consideration for the acquisition was as follows:
Brimtek | |
Cash consideration | 17,443 |
Discounted fair value of deferred consideration | 2,080 |
Total consideration | 19,523 |
Pre-tax cost of debt | 5.05% |
Undiscounted fair value of deferred consideration | 2,438 |
In accordance with IFRS 3R the Directors have assessed the undiscounted fair value of deferred consideration payable for the acquisition based on a probability weighted average of expected cash flows. The discounted fair value of deferred consideration payable has been calculated from the undiscounted amounts using a pre-tax cost of debt as stated above.
The initial cash consideration paid on completion was £17.4 million. Deferred consideration of up to $20 million is payable over the period to 31 December 2017, subject to revenue and gross margin targets. The deferred consideration can be settled in cash, or a mixture of cash and shares, with up to 95% of the deferred consideration capable of being settled in shares at the discretion of Digital Barriers. Up to $10 million of the deferred consideration is based on revenue and gross margin targets for the year ended 31 December 2016 and a further $10 million on the year ended 31 December 2017. Both revenue and gross margin targets have a threshold at which the deferred consideration starts to accrue, and targets at which the full deferred consideration is earned.If the deferred consideration for the year ended 31 December 2016 is not earned in full, then up to $5 million can be carried forward to the following period and payable based on overachievement of the revenue and gross margin targets for that period.
The fair value of deferred consideration at the acquisition date was estimated at £2.1 million (discounted). This has been estimated based on a weighted average probability calculation, with probability distributions applied to various revenue and gross margin ranges. The deferred consideration payable is sensitive to movements in the revenue and gross margin outcomes versus target. No deferred consideration is payable at threshold revenue targets or threshold gross margin targets. A $5 million increase in the revenue earned in the year ended 31 December 2016 compared to the threshold target (at full target gross margin) would result in a $2.5 million increase in the deferred consideration due. Significant increases in the revenue and gross margins of Brimtek Inc would result in higher fair value of the deferred consideration liability.
Total acquisition costs of £1.7 million were incurred and recorded within the administration costs line in the income statement. This includes £0.5 million in relation to an amount due from Brimtek to Digital Barriers which was fully provided for immediately prior to the acquisition.
Assets and liabilities
The carrying amount and fair value of assets and liabilities in the books of Brimtek at acquisition were as follows:
Book value at acquisition £'000 | Fair value at acquisition £'000 | |
Property, plant and equipment | 202 | 202 |
Intangible assets | 7 | 11,190 |
Trade and other receivables* | 1,906 | 1,906 |
Inventories | 2,530 | 2,530 |
Debt | (68) | (68) |
Trade and other payables | (4,546) | (4,546) |
Total net assets acquired | 31 | 11,214 |
Goodwill | 8,309 | |
Purchase consideration | 19,523 |
* Gross contractual amounts receivable total £1,986,000, with £80,000 not expected to be collected based on best estimate at the date of acquisition.
Given the proximity of the acquisition to the year end, the fair value of assets and liabilities arising from the acquisition are still considered to be provisional as the Group expects to receive further information relevant to the net assets acquired.
The goodwill is attributable to the value of expected sales synergies through a more substantial US presence with access to flagship US government customers, along with synergies attributable to the Group's operations and the value of the assembled workforce including industry specific knowledge and technical skills. Subject to further review, the goodwill recognised is expected to be deductible for income tax purposes.
From the date of acquisition to the 31 March 2015, the acquired business contributed £2.9 million revenue, £0.2 million profit before tax and the cash flows arising from the acquisition include £17.4 million initial cash consideration on completion and £0.1 million net debt acquired.
If the acquisition had occurred on 1 April 2015, the Group's pro forma annual revenue and loss before tax for the year ended 31 March 2016 (for continuing operations), based on unaudited management information for the acquired entity, would have been approximately £46 million and £7 million respectively.
Business disposals in the year ended 2015
On 8 May 2014, a Group company concluded a share purchase agreement for the sale of the entire issued share capital of Margaux Matrix Limited for £1 consideration. The impact of this transaction is not material to the Group and the Group did not sell any intellectual property as part of the transaction.
On 24 September 2014, a Group company concluded a share purchase agreement for the sale of the entire issued share capital of Visimetrics (UK) Limited for £1 consideration. The impact of this transaction is not material to the Group and the Group did not sell any intellectual property as part of the transaction.
On 1 April the Board signed an agreement for the proposed disposal of the Services segment to its existing management team for £1. See note 10 for further details.
Movements on deferred consideration
The following movements in the amounts recognised for deferred consideration have taken place:
£'000 | |
As at 31 March 2015 | - |
On acquisition of Brimtek | 2,080 |
Exchange movement | (62) |
As at 31 March 2016 | 2,018 |
The exchange movement on the deferred consideration is a translation reserve movement.
10. Disposal group classified as held for sale
On 1 April the Board signed an agreement for the proposed disposal of the Services segment to its existing management team for £1. As indicated in the interim results announcement on 11 December 2015, this follows the view that the Board believes that the Services division is no longer strategic to the Group's future. The disposal group was classified as held for sale in March 2016. The sale completed on 19 May 2016. The sale included limited ongoing customer contracts associated with the Services segment, as well as certain assets including vehicle leases and limited stock and moveable assets. The book value of the assets transferred was £0.1 million. In connection with the sale the Group transferred the division's employees, by way of a TUPE process.
The following are attributable to the disposal group:
Income statement
2016 |
2015 | |
Revenue | 3,777 | 7,460 |
Cost of sales | (3,114) | (5,790) |
Expenses | (1,348) | (1,562) |
Exit costs | (528) | - |
Pre-tax (loss) / profit for discontinued operation | (1,213) | 108 |
Impairment of goodwill and intangibles on valuing at fair value less costs of disposal | (3,619) | - |
(Loss) / profit attributable to discontinued operation | (4,832) | 108 |
Income tax expense | - | - |
No tax arises on disposal.
Loss per share - discontinued operations
Loss attributable to discontinued operations 2016 | Weighted average number of shares 2016 No. | Discontinued loss per share 2016 Pence |
Profit attributable to discontinued operations 2015 | Weighted average number of shares 2015 No. | Discontinued profit per share 2015 Pence | |
Basic (loss) / profit per share | (4,832) | 105,052,916 | (4.60) | 108 | 69,305,105 | 0.16 |
Diluted (loss) / profit per share | (4,832) | 105,052,916 | (4.60) | 108 | 69,305,105 | 0.16 |
The inclusion of potential Ordinary Shares arising from LTIPs and Incentive Shares would be anti-dilutive. Basic and diluted loss per share has therefore been calculated using the same weighted number of shares.
Cash flows
Cash flows attributable to the disposal group include:
2016 |
2015 | |
Net cash flows attributable to operating activities | (93) | (1,847) |
Net cash flows attributable to investing activities | (9) | (143) |
Net cash flows attributable to financing activities | - | - |
Assets and liabilities
At the end of March 2016 the carrying amount of assets and liabilities classified as held for sale are as follows:
Carrying amount after classification as held for sale
2016 | |
Property, plant and equipment | - |
Inventories | 35 |
Liabilities | - |
35 |
Digital Barriers plc published this content on 27 June 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 28 June 2016 23:05:03 UTC.
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