Digital Barriers PLC : Final Results

29 May 2013

Digital Barriers plc

(Digital Barriers' or the 'Company')

Preliminary Results for the year ended 31 March 2013

Digital Barriers (LSE AIM: DGB), the specialist provider of advanced surveillance technologies to the international homeland security and defence markets, announces audited results for the year ended 31 March 2013.

The Board is pleased to report that it has continued to generate significant momentum and traction during the period, the highlights of which are:

Key Highlights

·      Group revenues increased 55% (22% pro forma1) on 2012 to £23.3 million (2012: £15.0 million);

·      Products Division revenues increased 34% pro forma on 2012 to £16.6 million (2012: £12.4 million pro forma);

·      International revenues doubled from £3.3 million in 2012 to £6.7 million, representing 29% (2012: 22%) of the Group revenues as sales were made into more than twenty countries;

·      Loss before tax of £10.8 million and adjusted loss before tax of £7.6 million;

·      Class-leading RDC ground sensor launched during the second half of the period, winning a high-profile competitive tender and securing the Group's largest sale to date;

·      Notable sales successes in the period saw ThruVision double its prior year unit sales and the Group secure its first TVI sale to a multinational telecoms company, SingTel; and

·      Acquisition of OmniPerception face recognition technology.

Commenting on the results Dr Tom Black, Executive Chairman of Digital Barriers said:

''The combination of strong sales momentum and the quality of relationships we have built with key partners and customers around the world, combined with our increasing portfolio of world-class products and the strength of our engineering team, gives me confidence in our ability to grow revenue significantly and drive towards profitability. Our now proven business model and strategy gives the board confidence in the growth prospects of the Group.''

*Adjusted loss before tax is calculated after adding back amortisation of intangibles initially acquired on acquisition, acquisition costs, reorganisation costs, impairment of acquired intangibles and deducting adjustments to deferred consideration.

1Assuming all prior period acquisitions occurred on 1 April 2011 and excluding all current year acquisitions

For further information, please contact:

Digital Barriers plc	Tel: [phone]
Tom Black, Executive Chairman
Colin Evans, Managing Director
Zak Doffman, Development Director
Investec Investment Banking	Tel: [phone]
Andrew Pinder
Dominic Emery Patrick Robb
FTI Consulting	Tel: [phone]
Edward Bridges
Matt Dixon

About Digital Barriers

Digital Barriers provides advanced surveillance technologies to the international homeland security and defence markets. Specialising in 'edge-intelligent' solutions that can be deployed across remote, hostile or complex operating environments, we work with governments, multinational corporations and system integrators in the defence, law enforcement, critical infrastructure, transportation and natural resources sectors.

< p="">

Chairman's statement

Introduction and highlights

This last year has been a defining one for the Group in three respects. First, our strategy to focus on our most compelling and differentiated technologies has delivered pro forma growth within our Products Division of 34%, including a number of high-profile contract wins; this is double last year's 17% pro forma growth rate for the Division. Second, this period has seen international revenues more than doubling to £6.7 million (2012: £3.3 million), with sales into more than twenty countries across our target markets; 29% of the Group's revenues now come from outside the UK (2012: 22%). Finally, this period has seen our first significant sales of fully integrated solutions, combining multiple acquired technologies and further underpinning the potential of our business model; this includes the successful launch of our class-leading RDC ground sensor solution.

Three years on from its IPO, Digital Barriers continues to generate significant momentum and traction, taking our portfolio of products built on genuinely world-class IP to defence and security customers around the world. Our focus has now tightened onto three core product families - TVI, RDC and ThruVision - each one supplemented by additional technologies and capabilities from across the Group as we increase the pace of new product development to meet market demand. With the launch of RDC during the period, these three product families recorded 67% pro forma growth over 2012, and continue to generate significant market traction across all of our regions. These core areas now account for almost all of the Group's new technical development and planned product releases, as well as the majority of our sales pipeline. Towards the end of the period we added what we fully expect to be a fourth core product family, with the acquisition of class-leading facial recognition technology, OmniPerception.

Our Products Division grew more quickly than the overall Group, which grew at 22% pro forma (2012: 24%), including our UK Services Division that held flat despite the difficult economic conditions across the UK government market and related security sectors within which it operates.

The major highlights for the period are as follows:

·      TVI's international market penetration: Our TVI wireless video surveillance technology has continued to secure flagship customer sales around the world, selling into more than twenty different countries in the period. This included the selection of TVI by a major United States federal agency as its next generation video surveillance technology, leading to a development contract for the Group that will see a high-definition version of the technology reach the market in the second half of 2013.

·      New commercial markets for the Group:The period has seen us develop our first propositions for the broader commercial sector, with TVI selected by SingTel as the delivery platform for its new Video Surveillance as a Service (VSaaS) offering. TVI has significant potential in the telecoms sector and we expect this to form a more substantial part of our focus moving forwards, with a range of products built on our IP that are designed specifically for such customers, and including OEM and annuity license revenue models. We are also in discussions with similar partners for solutions based on our RDC and OmniPerception technologies.

·      Class-leading RDC product successfully launched: Our RDC ground sensor has been designed to deliver class-leading performance for a traditionally defence sector technology at a more effective price point than incumbent products. RDC is oriented towards the wider homeland security and critical infrastructure sectors, whilst delivering a level of performance that has seen us win competitive contracts in the defence sector against market-leading competitors. We have fully integrated RDC with our TVI platform to provide a solution that can be applied to border, critical infrastructure and force protection, and which has secured the Group's largest sale during the period. We are now seeing increasing demand for the technology in Asia and the UK, with initial trials in the Middle East and North America.

·      Excellent progress with ThruVision acquisition: The first year with the unique ThruVision technology under our ownership saw it deliver more than double its previous best annual unit sales. This technology is a safe, completely passive sensing system that is designed to see threat objects, such as guns and explosives, or smuggled contraband, concealed under multiple layers of clothing at standoff distances, indoors and outdoors. The technology generated significant press coverage when it was revealed as being behind a high-profile gun detection system under development for one of the main police departments in the United States. We also saw an important competitive sale to an Asian government customs agency, a major integrated sale including multiple ThruVision products for security operations in the Middle East, and a sale into a US customer for standoff detection of person-borne explosive devices.

·      Entry to high-growth biometrics market: At the beginning of 2013 we acquired the OmniPerception facial and object recognition technology.  We see biometric surveillance as a fourth core technology area for the Group, and believe that OmniPerception's near infrared facial recognition for consensual identity authentication and standoff facial recognition is highly differentiated. We are already seeing interest from multiple customer agencies around the world. Work is underway to enhance the OmniPerception product range by applying skills and capabilities from across the wider Group.

·      International sales model validated: We have further strengthened the sales teams in each of our regional centres serving Asia Pacific, North America and the Middle East, and provided each location with the full technology demonstration facilities needed to manage customer and partner relationships. During the period we also saw initial sales traction in Brazil, leveraging the high-profile event credentials we gained in London during the period. We are now looking at replicating our model into other key countries that spend heavily on security and defence technologies.

·      Continued interest in US despite budget uncertainties: The Group continues to see strong interest in the United States for its products, but has seen some delays to sales closures caused by federal budget uncertainty and sequestration. Despite these delays, the sales pipeline in the United States remains solid and the Group's technology has been selected by a number of major government agencies, including the £400,000 development contract awarded by a major federal agency to enhance the Group's TVI platform, incorporating multi-agency requirements.

Results

Revenue in the year was £23.3 million.  The Group's loss before tax was £10.8 million.  We recorded an adjusted loss before tax of £7.6 million, after adding back amortisation of intangibles initially acquired on acquisition of £2.0 million, impairment of intangibles of £1.3 million, acquisition costs of £0.4 million, reorganisation costs of £0.8 million and deducting adjustments to deferred consideration of £1.4 million.

Consideration for acquisitions made in the year totalled £3.3 million, all of which was paid in cash.  A further £0.8 million of cash was paid in the year as deferred consideration against current and prior year acquisitions.  The cash balance at the end of the year was somewhat lower than expected at £5.5 million. This was largely due to strong trading in March, and an increasing number of material contract wins, which have resulted in a greater balance of cash being wound into on-going trading.

People

With the addition of Visimetrics and its OmniPerception subsidiary, and continued investment in sales resources across our regions, the Digital Barriers team has increased to 212 people at the year-end based across our London headquarters, our regional centres and satellite locations, and our subsidiary technology teams across the UK. We now have people from 13 nationalities working within the Group and I am immensely proud of the integrated culture we have built across so many locations over such a short a period of time.

Our recruitment focus during the period has been on sales resources within our regions, engaging directly with key customers and partners. We continue to invest heavily in sales and marketing to ensure that we can position our core technologies into the right organisations around the world.

Bernie Waldron joined the Board in July, replacing Rupert Keeley who resigned at the last Annual General Meeting. Bernie brings significant international sales experience, primarily from his time with IBM, and I am delighted to welcome him.

Outlook

With our proven technologies delivering strong revenue growth, increasing penetration of flagship customers and partners around the world and identified sales prospects substantially ahead of this time last year, I believe that Digital Barriers continues to have compelling growth prospects.

In the coming period we will focus on three key areas:

·      Continued strong revenue growth across our core product families:Selling into flagship customers and partners in the UK, Asia Pacific, North America and the Middle East, and opening up sales channels into new markets such as Brazil is the primary focus of the Group. We expect the market traction we are seeing for our core technologies to underpin future revenue growth, and sales prospects for these products now accounts for the majority of our pipeline.

·      Positioning our technology into the commercial sector:Opening up new markets for our IP, including telecoms and broader commercial sectors, provides the Group with a significant opportunity to leverage its IP across large multinational partners where we can reach a much wider customer base for our products than we could do directly. We believe this can be a significant addition to the Group, adding to its traditional security and defence customer base. This also brings the potential for annuity and licensed revenue models, in addition to hardware and software product sales.

·      Continued development of integrated solutions:We will continue to bring technology and expertise from across the Group to enhance and further differentiate our core product families. Much of our ongoing technical development will include the integration of multiple acquired technologies into solutions designed to address market needs. We will also focus on continual innovation of the world-class IP that underpins each of our core product families, ensuring that each one retains its market-leading position.

I believe that continued success in our UK home market, backed up by strong growth in Asia Pacific, strong customer interest and initial sales traction in the Middle East and the selection of our core technologies by US customers, fully validates our strategy to sell integrated world-class surveillance technologies to the international defence and security sectors.

The combination of this strong sales momentum and the quality of relationships we have built with key partners and customers around the world, combined with our increasing portfolio of world-class products and the strength of our engineering team, gives me confidence in our ability to grow revenue significantly and drive towards profitability. Our now proven business model and strategy gives the board confidence in the growth prospects of the Group.

Business review

Introduction

The last year has seen Digital Barriers transition from its highly acquisitive phase to a defining period in which the company's international growth strategy has been validated. This was achieved by the strong sales traction of the company's three established core product families - TVI, RDC and ThruVision - into more than twenty countries outside the UK, including the US, the Middle East and Asia Pacific.

At the Group level, revenues grew 22% to £22.9 million on a pro forma basis. Growth in our Products Division was stronger at 34% (2012: 17%) and, within this, revenues from our core product families, from which we expect most of our future growth, increased by 67% on a pro forma basis. Our UK Services Division, with final integration completed during the period, moved into healthy profitability despite revenues remaining flat on the prior period. Group Gross Profit margin strengthened to 42.8% (2012: 40.4%) with our Products Division materially stronger than UK Services (47.9% and 29.0% respectively). Continued investment in international sales and marketing, and in the non-recurring costs of bringing RDC to market and turning ThruVision around, resulted in adjusted loss widening to £7.6 million (2012: £6.0 million).

Strategy

Our strategy is to provide advanced surveillance technologies to governments, multinational corporations and system integrators in the international defence, law enforcement, critical infrastructure, transportation and natural resources sectors. We specialise in delivering intelligent surveillance information from remote, hostile and complex operating environments and in applying intelligence as close as possible to the scene under surveillance. We have acquired eleven technology businesses, which have been integrated into a set of complementary product families. We have also established a regional presence in Asia Pacific, North America and the Middle East to engage directly with key customers and partners.

Market review

Our assessment of the growth potential offered by the government defence and security market remains unchanged. Global spending remains strong and there are no signs that the anticipated long-term sustained growth in spending is abating. Indeed, continued regional instability in the Middle East and North Africa in particular, together with continuing acts of terrorism in the US and elsewhere, reinforce the need for governments to spend on a range of security and rapid reaction defence tasks.

Digital Barriers has retained its focus on regions and countries where economic conditions are favourable and propensity to buy British security technology is high. In both the Middle East and much of Asia, significant funds are available for security spending now and in the long term. In addition, in newer potential markets for the company, such as Brazil, spending on core security projects is driven by these factors as well as specific events and local trends.

While the public spending climate in the UK remains challenging, the situation in the US deteriorated through the period. This has resulted in the start of a budget sequestration process to cap the spending of federal government agencies at materially lower levels. Despite this, US federal budgets for defence and security technology remain the largest in the world, with an on-going trend towards greater usage of more commercially available technology of the type that we offer.

Our strategy to date has been to focus on the international government market. However, the broader commercial security market continues to grow strongly and is less influenced by government budgets. We have been very encouraged by the initial traction we have established here, particularly in the telecoms sector, and have plans to broaden our TVI product family to exploit the potential this new market has to offer.

Technology

Overview

We have made substantial progress with our technology strategy in the last year. During the period we tightened our focus onto those core product families that offer us the greatest strategic opportunity for growth, namely TVI, RDC and ThruVision. Each of these technologies is highly disruptive; occupies a clearly differentiated position in the marketplace; is scalable internationally; and is built on class-leading intellectual property (IP).

Beyond those technologies already under ownership, we identified biometrics as an additional attractive segment of our overall security market - in particular, we recognised that facial recognition technology offered the greatest potential synergy with our other core products. On this basis, we acquired Visimetrics in January 2013 to gain access to its world-class facial recognition product, OmniPerception.

With an enhanced focus on these core technologies, we have invested significantly in extending our product range. We are doing so to ensure that our products are attractive to a broader set of customers and that they remain ahead of the competition. We have supported this investment in product family development with sales and marketing campaigns tightly focused on the unique selling points of these products.

We have also concentrated on further differentiating our market position by combining our technologies. The most compelling example is that of our RDC unattended ground sensors and TriStar, our military specification surveillance "hub" powered by TVI technology. This has driven major success in the UK and has also created new opportunities in the Middle East, Brazil and parts of Asia.

In the broader commercial security market, we have identified that the burgeoning "Machine to Machine" (M2M) sector in mobile telecommunications offers a significant opportunity for the Group and its TVI products.  We have developed a TVI product specifically for this sector, which has already been sold to SingTel as the delivery platform for its new Video Surveillance as a Service (VSaaS) offering. We are exploring further opportunities in the M2M and broader telecoms sector.

We also identified products within our portfolio that are capable of steady, on-going profitable growth ("mature products") and those that are not ("non-strategic products"). We are working on this latter small group to transfer the underlying intellectual property into the core product families.

TVI

TVI is our world-class wireless transmission technology for live video streaming. We have continued to generate significant interest in TVI and have made sales across all our target regions. In the UK, United States and Middle East for example, we have sold TVI into major law enforcement agencies (LEAs) and specialist parts of the military.

We have developed a number of new capabilities in the past year. For example, with a £400,000 development contract from a major US government agency, we have been able to develop this live video streaming and distribution technology still further to meet the specific needs of the law enforcement sector. This will result in a high-definition version of TVI being available to the market later in 2013. This year has also seen the launch of our software based encoders for both Android and iOS platforms.

RDC

RDCis our Remote Detection and Classification ground sensor. We have generated real customer excitement, especially in the border control and force protection sectors, through deployments of this technology in several parts of the world.  RDC itself is a class-leading product but when used as part of a surveillance system with TVI video products, it provides a genuinely disruptive capability to the defence and security market.

We launched the RDC product into the market in the autumn of 2012, and immediately beat more established ground sensor products to win our largest contract to date, valued at £3.6m, for the provision of an integrated unattended ground sensor solution for a major UK customer. This win has added further impetus to discussions with governments in all regions, giving us confidence that in the coming year we will see significant growth.

ThruVision

ThruVisionprovides a passive standoff scanning capability for concealed object detection, for example to identify weapons, drugs or explosives hidden under clothing. This is a truly differentiated product on the international market, with unique capabilities, portability and standoff range.

Post the acquisition of ThruVision in early 2012, we relaunched its main product with new features and at a new price point. This led to a number of key contract awards: £300,000 to an existing US customer for the detection of person-borne improvised explosive devices (IEDs); £400,000 to a major Asia government customs agency for passenger screening; and orders totalling £1,125,000 to a specialist partner working in the Middle East and Africa for the protection of high-profile government locations. We sold more than twice as many systems in the period than ThruVision had sold in the year prior to its acquisition.

With referenceable sales now achieved in all our regions around the world, and covering the border security, counter-IED, high-profile building protection and loss prevention markets, we enter the new period with a strong pipeline to build from.

OmniPerception

OmniPerception, acquired by Digital Barriers alongside its parent company Visimetrics in January 2013, provides a highly differentiated capability in the field of compliant and non-compliant standoff face recognition and identify management.  We are at a relatively early stage in bringing these products to the level of commercial maturity we require, but have already attracted significant interest in this technology from customers in each of our priority markets. Notably, we received an order for more than £300,000 for OmniPerception to work alongside ThruVision systems for a Middle East deployment.

International development

Export sales are a critical part of our growth strategy and we have continued to invest in strengthening and broadening our international sales force in Asia-Pacific, the US and the Middle East, from hubs in Singapore, Washington DC and Dubai, respectively. Fully integrated sales force management means that, despite running a highly distributed sales force, identified sales prospects are substantially stronger than this time last year.

Our strategy of focusing on flagship customers - typically key government agencies - in each region continues to be successful in supporting market entry. On the back of our work for London 2012, and with substantial support from the UK Government's defence export teams, we have also commenced a targeted market entry into Brazil - which offers significant potential - and we are refining our entry strategy for other potentially sizeable markets.

Asia Pacific

Of all our export regions, we have been operating in Asia Pacific for the longest and our early focus on direct sales in Singapore, Hong Kong and the Republic of Korea has generated significant success in the period.  Substantive trialling of RDC, first in Korea, and more recently Australia, has been successful and we have added local sales resource to both countries to build momentum for the coming year.

We have also had major success with ThruVision in the region. The £400,000 purchase of ThruVision equipment by a flagship customs agency in Asia Pacific was the significant highlight, but we are also actively pursuing other opportunities with customs and border security agencies in the region, where contraband and drug smuggling are major issues.

Asia Pacific has also been the first region in which we have successfully exploited a mixed revenue model in the M2M market.  The contract with SingTel for the provision of video surveillance as a solution, while important in its own right, provides a model for other opportunities in this sector both in Asia and other regions.

It has been a highly successful year in this region and we are confident that we will continue this growth across an even broader customer base next year.

United States

We achieved steady penetration of the US market in the period. As our most mature technology, TVI was trialled very successfully by a number of flagship government customers and this led to a strategically important sale to a key agency to develop the next generation TVI platform with support for high-definition video. This gives us confidence that TVI is competitively well positioned across the defence, homeland security and law enforcement areas of the US government.

The US has been pivotal in the development of our ThruVision capabilities. The joint development and testing with a major police department of a next generation system for detecting concealed weapons at even greater standoff ranges has been a major technical success and resulted in wide press coverage.  We expect to continue developing this exciting capability.

The US government budget sequestration caused a number of programmes of interest to us to be delayed materially, but we remain well positioned for when new budgetary priorities are established. Given the US remains the biggest single market in which we operate, we have expanded our sales presence in our Washington DC office.

Middle East

Our priorities in the Middle East remain the United Arab Emirates (UAE), Qatar and the Kingdom of Saudi Arabia (KSA). We have built a permanent presence in the region with the addition of locally based specialist sales and technical staff in our Dubai office.

The initial traction gained with law enforcement customers has been built on in the past year. We have made strategically significant initial TVI sales to flagship law enforcement customers in three countries and have seen strong interest in RDC with a number of trials on-going. In addition to the major partner sale of ThruVision into the region, we have also generated significant interest directly with flagship customers in the region around airport, customs and VIP security.

We are confident that the foundations we have laid in building relationships and carrying out trials with flagship customers in the Middle East leave us well placed to make significant progress in the region in the coming year.

Emerging Markets

In the past year we have carefully identified those new regions that we believe offer the most long term potential for growth and where the Digital Barriers technology portfolio would be most relevant.  The highest priority of these regions is Brazil, where we have launched our market entry strategy in close co-ordination with the Foreign Office and UKTI.

Early indications show that there is a large appetite for our products among flagship government customers in Brazil and funded programmes available.  We have gained considerable early traction with TVI and RDC.  Indeed, we have already made our first sale of TVI in Brazil to a flagship government customer in support of the major sporting events to be held over the next few years in the country.  We see considerable potential for growth in this market across our core technologies.

Operational review

Products Division

Our Products Division performed very strongly, with reported revenues growing by 96% to £17.0 million (2012: £8.7 million) and pro forma revenues growing by 34% to £16.6 million (2012: £12.4 million). This performance was driven by solid export progress and by some major successes in the UK. Within this, our core product families - TVI, RDC and ThruVision - grew 67% to £8.4 million on a pro forma basis.

At the divisional operating profit level, losses widened to £1.5 million (2012: £0.9 million). This was due principally to continued investment in getting RDC to market, turning ThruVision around and investing more heavily in demonstration stock for our international sales force, being offset by much more profitable performance of our mature products.

Export

With our substantial investment in international sales and marketing, export product revenues more than doubled to £6.7 million (2012: £3.3 million). This was lead by Asia Pacific but included sales into 37 countries. We expect to see continued strong growth of export sales moving forward.

UK

Against a backdrop of on-going budget pressure, UK product revenues grew by 92% to £10.3 million (2012: £5.4 million). This growth was characterised by steady, underlying growth of run-rate revenues streams that were in place in businesses prior to our acquisition, supplemented by a number of very substantial contracts wins.

We were delighted with our major UK contract wins during the period, including the use of our technology for high-profile event security in London. This has given us immediate credibility in Brazil and Qatar, where we are already involved in customer trials and demonstrations.

We expect continued strong progress in the UK market for our Products Division.

Services Division

Our Services Division operates exclusively in the UK market and installs high-grade security systems, including Digital Barriers products, into some of the most highly secure sites in the country. Against a backdrop of on-going budget pressure, the Division delivered headline revenues of £6.3 million, in line with the prior year. Whilst maintaining our market position, we have also concentrated on driving efficiencies, resulting in divisional operating profit of £0.7 million (2012: £0.1 million).

The Division successfully completed a major contract for the London 2012 Olympics. This both built the brand and helped secure further new client wins in the period. Despite continuing budget pressure, we believe the Division can deliver modest, profitable growth moving forward.

Overheads

Continued heavy investment in international sales and marketing was primarily responsible for our increased spending on overheads of £6.9 million (2012: £5.3 million). This increase included expanding regional sales teams in Middle East and Asia Pacific, expanding our pre-sales team, exhibiting at a number of key regional defence and security events and greater travel costs. We expect these investments to continue, although increasing at a level materially below our revenue growth.

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: £23.3 million for the year under review (2012: £15.0 million);

•      Pro forma organic revenue growth: 22% for the year under review, growing from £18.7 million to £22.9 million (2012: 24%);

•      International revenues: 29% (2012: 22%);

•      Gross margin: 42.8% for the year under review (2012: 40.4%);

•      Sales & Marketing costs: £3.8 million for the year (2012: £2.5 million);

•      Corporate overheads: £3.0 million for the year (2012: £2.8 million);

•      Number of employees: 212 at 31 March 2013 (2012: 183); and

•      Cash: £5.5 million at 31 March 2013 (2012: £15.3 million);

The Board is satisfied with the status of the above performance indicators given the current stage of the Group's development.

Financial review

For the year ended 31 March 2013, Digital Barriers delivered revenue of £23.3 million (2012: £15.0 million) generating an adjusted loss before tax of £7.6 million (2012 loss: £6.0 million) and adjusted loss per share of 16.45 pence (2012 loss: 12.83 pence). On an unadjustedbasis, the loss before tax was £10.8 million (2012 loss: £4.1 million) and loss per share was 21.78 pence (2012 loss: 8.11 pence).

Revenue and margins

Of the £23.3 million of revenue in year, £22.9 million was delivered from existing product and service revenue streams, and £0.4 million was contributed by acquisitions in the period.

The increase in revenue over the prior period was £8.3 million (55%). On a pro forma basis (assuming all prior year acquisitions occurred on 1 April 2011 and excluding all current year acquisitions) revenue in the year was £22.9 million, an increase of £4.2 million (22%) on the prior year.

The only significant acquisition in the year was that of Visimetrics (UK) Limited, which took place on 4 January 2013.

Results by division are discussed below, with pro forma revenues split out for clarity:

Revenue	Reported 2013 £'000	Pro forma 2013 £'000	Reported 2012 £'000	Pro forma 2012 £'000
Services	6,289	6,289	6,324	6,324
Products:
Core technologies (i)	8,421	8,421	3,248	5,039
Mature (ii)	4,705	4,288	3,441	3,662
Non-strategic (iii)	3,857	3,857	1,983	3,655
	16,983	16,566	8,672	12,356
	23,272	22,855	14,996	18,680

(i)      Core technologies: greatest strategic opportunity for growth

(ii)    Mature technologies: established in the market and capable of steady on-going profitable growth

(iii)   Non-strategic technologies: underlying intellectual property being transferred into Core product families

Revenue from the services division remained flat on the prior year at £6.3 million, reflecting a year of client account consolidation whilst driving efficiencies, resulting in a £0.6 million (414%) increase in segmental operating profit to £0.7 million. 

All of the increase in Group revenue is from the products division.  With a much lower level of acquisition activity than in previous years, revenue growth has been primarily organic and most significantly from our Core technologies, which alone have delivered pro forma revenue of £8.4 million, an increase of £3.4 million (67%) on the prior year.  By contrast, our Mature products grew by £0.6 million (17%)

to £4.3 million, and our non-strategic products grew by £0.2 million (6%) to £3.9 million, all on a pro forma basis.

	Services 2013 £'000	Products 2013 £'000	Total 2013 £'000
Revenue	6,289	16,983	23,272
Segment profit/(loss)	735	(1,455)	(720)
Corporate overheads			(6,886)
Adjusted Group operating loss			(7,606)
Interest			(31)
Adjusted Group loss before tax			(7,637)

Revenue in the year was split 73%: 27% (2012: 58%: 42%) between products and services respectively. The continued trend towards products reflects the on-going strategic focus of the Group and has continued to drive the improvement in gross margin, increasing from 40.4% to 42.8%.

The services gross margin increased to 29.0% in the year (2012: 20.8%), reflecting the efficiency gains made and a higher proportion of more profitable installation and maintenance work compared to the prior year.  The products gross margin was 47.9% (2012: 54.7%). The decrease was driven by the significant progress made with ThruVision which currently trades at a lower gross margin than our other core products, lower margin third party product included within some of our solution sales, and some modest discounting across all of our products to drive international market traction.

Adjusted loss

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 this was £7.6 million (2012: £6.0 million) and is detailed in the table below:

	2013 £'000	2012 £'000
Loss before tax	(10,756)	(4,102)
Add back:
Amortisation of intangibles initially recognised on acquisition	2,029	2,024
Acquisition costs	369	754
Adjustments to deferred consideration (i)	(1,384)	(5,004)
Gain on bargain purchase	-	(152)
Reorganisation costs (ii)	769	510
Impairment of intangibles (iii)	1,336	-
Adjusted loss before tax	(7,637)	(5,970)

(i) Relates to the reassessment of the likely deferred consideration payable for Zimiti and the release of deferred consideration payable against the LMW and E-Tech acquisitions, partly offset by the unwind of discount against deferred consideration.

(ii)     Relates to the rationalisation of the organisational and geographical design, information systems and support functions within both the services and products divisions. As the expenditure relates to transforming the divisions for the future these costs are not directly related to current operations.

(iii)   Relates to the investments in Keeneo, Waterfall and Codestuff, the performance of which has been below the level used to determine the intangible assets initially recognised on acquisition.

The adjusted loss in the year has been driven by three key trends:

·  continued and increasing investment in sales and marketing required to drive international expansion;

·  on-going investment in core technologies, specifically bringing RDC to market and turning around ThruVision; and

·  higher depreciation charges as a result of increased investment in demonstration stock to drive the international sales pipeline and one-off write downs on fixed assets within acquired businesses.

Taking into account the significant depreciation charge in the year of £0.8 million (2012: £0.2 million), the Group's underlying adjusted loss before tax and depreciation was £6.8 million (2012: £5.8 million).

Other corporate overheads have only increased modestly during the year, and the Group continues to reduce unnecessary administration costs and overhead where appropriate, as reflected in the level of exceptional reorganisation costs.

Central overheads are broken down as follows:

	2013 £'000	2012 £'000
Sales and marketing	3,824	2,498
Other corporate overheads:
Board and Plc operating costs	1,628	1,484
Operations, finance and facilities	1,098	1,177
LTIP charge	336	159
	3,062	2,820
Total	6,886	5,318

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 tax credit for the period of £0.8 million (2012: £0.6 million) principally relates to R&D tax credits.

At 31 March 2013, the Group had unutilised tax losses carried forward of approximately £26.4 million (2012: £19.6 million). Given the varying degrees of uncertainty as to the timescale of utilisation of these losses, the Group has not recognised £5.6 million (2012: £3.5 million) of potential deferred tax assets associated with £23.7 million (2012: £14.8 million) of these losses.

At 31 March 2013, the Group's net deferred tax liability stood at £0.4 million (2012: £0.4 million), relating to acquired intangible assets of £1.8 million (2012: £1.6 million), offset by £1.4 million (2012: £1.2 million) relating to tax losses.

Loss per share

The reported Loss per share is 21.78 pence (2012 loss: 8.11 pence). The adjusted Loss per share is 16.45 pence (2012 loss: 12.83 pence).

Cash and treasury

The Group ended the year with a cash balance of £5.5 million (2012: £15.3 million).

During the course of the year £3.3 million was paid to acquire new businesses, with an additional £0.4 million in associated costs, and a further £0.8 million was paid in deferred consideration in respect of current and prior period acquisitions. £13.8 million funded the Group's operating loss and working capital requirements, and the remaining cash outflow during the year of £1.5 million was invested in fixed assets including demonstration stock. In January 2013 a further £10.0 million in cash was raised through the issue of new Ordinary Shares, net of placing costs of £0.4 million.

Aside from funding the Group's operating loss during the year, the cash outflow represents the significant investment made in demonstration stock to drive interest and growth in the sale of the Group's products, and the material amount of sales made at the end of the financial year.  The latter is reflected in the high level of receivables as at 31 March 2013, which are expected to unwind into an improved cash position in the early months of the next financial year.

The maximum deferred consideration payable in the future in respect of acquisitions made to date is £8.6 million, of which up to £5.4 million may be satisfied through the issue of new Ordinary Shares.  As at 31 March 2013, £0.9 million has been provided for within the accounts. The Directors are of the opinion that any deferred consideration payments falling due will be largely self-financing, and so view the majority of the £5.5 million of cash held at the end of the year as being available to the Group to fund future losses and working capital.

Financing costs included a charge of £0.1 million in respect of the discounting of the deferred consideration for Zimiti Limited, Stryker Communications Limited, LMW, E-Tech and Visimetrics (UK) Limited.

Dividends

The Board is not recommending the payment of a dividend (2012: £nil).

Consolidated income statement

for the year ended 31 March 2013

			Year ended 31 March 2013 £'000	Year ended 31 March 2012 £'000
	Revenue		23,272	14,996
	Cost of sales		(13,322)	(8,939)

The results for the year and the prior period are derived from continuing activities.

Consolidated statement of comprehensive income

for the year ended 31 March 2013

			Year ended 31 March 2013 £'000	Year ended 31 March 2012 £'000
	Loss for the period		(9,916)	(3,541)
	Exchange differences on retranslation of foreign operations		25	(246)
	Total comprehensive loss attributable to owners of the parent		(9,891)	(3,787)

Consolidated balance sheet

at 31 March 2013

	Note	31 March 2013 £'000	31 March 2012 £'000
Assets
Non-current assets
Property, plant and equipment		1,370	892
Goodwill		24,647	21,716
Other intangible assets		5,828	8,150
		31,845	30,758
Current assets
Inventories		1,779	1,788
Trade and other receivables	4	13,239	6,760
Current tax recoverable		972	655
Cash and cash equivalents		5,544	15,289
		21,534	24,492
Total assets		53,379	55,250
Equity and liabilities
Attributable to equity holders of the Parent
Equity share capital		510	437
Share premium		57,989	48,012
Capital redemption reserve		4,735	4,735
Merger reserve		455	348
Translation reserve		(221)	(246)
Other reserves		(307)	(307)
Retained earnings		(17,268)	(7,687)
Total equity		45,893	45,292
Non-current liabilities
Deferred tax liabilities		363	414
Financial liabilities	6	202	1,000
		565	1,414
Current liabilities
Trade and other payables	5	6,038	6,794
Financial liabilities	6	883	1,750
		6,921	8,544
Total liabilities		7,486	9,958
Total equity and liabilities		53,379	55,250

Consolidated statement of changes in equity

for the year ended 31 March 2013

	Share capital £'000	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 2011	436	48,012	4,735	-	-	(307)	(4,305)	48,571
Issue of shares on acquisition of Keeneo	1	-	-	348	-	-	-	349
Share-based payment credit	-	-	-	-	-	-	159	159
Loss for the year	-	-	-	-	-	-	(3,541)	(3,541)
Other comprehensive loss	-	-	-	-	(246)	-	-	(246)
Total comprehensive loss for the year	-	-	-	-	(246)	-	(3,541)	(3,787)
At 31 March 2012	437	48,012	4,735	348	(246)	(307)	(7,687)	45,292
Issue of shares against Keeneo deferred consideration	1	-	-	106	-	-	-	107
Share issue costs	-	(351)	-	-	-	-	-	(351)
Share placement	72	10,328	-	-	-	-	-	10,400
Share-based payment credit	-	-	-	-	-	-	336	336
Loss for the year	-	-	-	-	-	-	(9,916)	(9,916)
Other comprehensive loss	-	-	-	-	25	-	-	25
Total comprehensive loss for the year	-	-	-	-	25	-	(9,916)	(9,891)
At 31 March 2013	510	57,989	4,735	454	(221)	(307)	(17,267)	45,893

Consolidated statement of cash flows

for the year ended 31 March 2013

		Year ended 31 March 2013 £'000	Year ended 31 March 2012 £'000
Operating activities
Loss before tax		(10,756)	(4,102)
Non-cash adjustment to reconcile loss before tax to net cash flows
Depreciation of property, plant and equipment		771	193
Amortisation of intangible assets		2,102	2,056
Impairment of intangible assets		1,336	-
Share-based payment transaction expense		336	159
Gain on bargain purchase		-	(152)
Release of deferred consideration		(678)	(4,021)
Reassessment of deferred consideration		(805)	(1,693)
Disposal of fixed assets		226	5
Finance income		(69)	(160)
Finance costs		100	365
Working capital adjustments:
Increase in trade and other receivables		(6,096)	(2,896)
Increase in inventories		351	(372)
(Decrease)/Increase in trade and other payables		(1,163)	526
Cash utilised in operations		(14,345)	(10,092)
Income tax received / (paid)		275	(34)
Net cash flow from operating activities		(14,070)	(10,126)
Investing activities
Purchase of property, plant and equipment		(1,453)	(443)
Expenditure on intangible assets		(97)	(563)
Acquisition of subsidiaries		(3,349)	(5,249)
Payment of deferred consideration		(822)	(2,034)
Acquisition of cash and cash equivalents of subsidiaries		(41)	31
Cash and cash equivalents arising on pooling of interest transaction		-	-
Interest received		69	160
Net cash flow utilised in investing activities		(5,693)	(8,098)
Financing activities
Proceeds from issue of shares		10,400	-
Share issue costs		(351)	-
Interest paid		-	(8)
Net cash flow from financing activities		10,049	(8)
Net (decrease)/increase in cash and cash equivalents		(9,714)	(18,232)
Cash and cash equivalents at beginning of period		15,289	33,524
Effect of foreign exchange rate changes on cash and cash equivalents		(31)	(3)
Cash and cash equivalents at 31 March		5,544	15,289

Notes to the financial information

1. Accounting policies

Basis of preparation

The preliminary results of the year 31 March 2013 have been extracted from audited accounts which have not yet been delivered to the Registrar of Companies. The Financial Statements set out in this announcement do not constitute statutory accounts for the year ended 31 March 2013. The report of the auditors on the statutory accounts for the year ended 31 March 2013 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The Financial Statements for the year ended 31 March 2013 included in this announcement were authorised for issue in accordance with a resolution of the Board of Directors on 28 May 2013.

Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control arises when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Subsidiaries are consolidated using the Group's accounting policies. Business combinations are accounted for using the acquisition method of accounting except for the acquisition of Digital Barriers Services Limited by Digital Barriers plc which has been accounted for using the pooling method. All inter-company balances and transactions, including unrealised profits arising from them, are eliminated on consolidation.

The Company is a limited liability company incorporated and domiciled in England & Wales and whose shares are quoted on AIM, a market operated by The London Stock Exchange.

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 March 2013 and applied in accordance with the Companies Act 2006.

2. 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:

	2013 £'000	2012 £'000
Amortisation of intangibles initially recognised on acquisition	2,029	2,024
Acquisition costs	369	754
Adjustments to deferred consideration (i) (ii)	(1,384)	(5,004)
Gain on bargain purchase (iii)	-	(152)
Impairment of intangible assets (iv)	1,336	-
Reorganisation costs (v)	769	510
Total adjustments	3,119	(1,868)

(i) Adjustments to deferred consideration in the current year comprise releases of £678,000 and reassessments of £805,000 partly offset by the unwind of discount on deferred consideration balances of £99,000. In relation to the LMW acquisition deferred consideration of £60,000 was paid in the year and the remaining balance of £30,000 was released.  An interim time-constrained financial target was not met in relation to the Zimiti acquisition, resulting in the release of £617,000 of deferred consideration; the remaining balance held in respect of Zimiti has been reassessed and reduced by £805,000 to £253,000.  In relation to the E-Tech acquisition deferred consideration of £12,000 was paid in the year with a further £188,000 paid after year end in April 2013; the remaining balance of £31,000 was released. The releases and reassessments of deferred consideration totalling £1,484,000 have been separately disclosed within Other Income in the Consolidated Income Statement.

(ii)     Adjustments to deferred consideration in the prior year comprise releases of £3,986,000 and reassessments of £1,693,000 partly offset by the unwind of discount on deferred consideration balances of £357,000 and legal and other fees associated with settling certain of the earn-outs of £318,000. £669,000 was paid in cash in full settlement of the Waterfall earn-out considerations and so the balance of the deferred consideration held has been released to the Other Income line within the Consolidated Income Statement. After the payment of £200,000 for excess working capital, no further deferred consideration was paid in relation to the Essential Viewing earn-out considerations and so the full balance of the deferred consideration has been released to the Other Income line within the Consolidated Income Statement. £315,000 was paid in cash in the year and a further £107,000 was issued in shares after year end in full settlement of the Keeneo earn-out considerations, and the balance of the deferred consideration held has been released to the Other Income line within the Consolidated Income Statement. The undiscounted deferred consideration in respect of Zimiti has been reassessed as at 31 March 2012 to be £1,720,000.

(iii) The gain on bargain purchase relates to the acquisition of ThruVision, and has been recognised in the Other income line within the income statement.

(iv)    The performance of the Keeneo, Waterfall and Codestuff entities within the products operating segment have been below the level used to determine the intangible assets initially recognised on acquisition. The carrying value of the intangible assets has been re-evaluated using a value in use model, with discount rates of between 10.8% and 11.7%.  As a result the intangible assets of each entity have been impaired by £577,000, £630,000 and £129,000 respectively.  The total impairment of £1,336,000 has been separately disclosed within Other Costs in the Consolidated Income Statement.

(v) Reorganisation costs relate to the rationalisation of the organisational and geographical design, information systems and support functions within both the services and products divisions. As the expenditure relates to transforming the divisions for the future these costs are not directly related to current operations.

3. Loss per share

Unadjusted loss per share

	Loss after taxation 2013 £'000	Weighted average number of shares 2013 No.	Loss per share 2013 Pence	Loss after taxation 2012 £'000	Weighted average number of shares 2012 No.	Loss per share 2012 Pence
Basic loss per share	(9,916)	45,530,712	(21.78)	(3,541)	43,660,670	(8.11)
Diluted loss per share	(9,916)	45,530,712	(21.78)	(3,541)	43,660,670	(8.11)

Adjusted loss per share

	Loss after taxation 2013 £'000	Weighted average number of shares 2013 No.	Loss per share 2013 Pence	Loss after taxation 2012 £'000	Weighted average number of shares 2012 No.	Loss per share 2012 Pence
Loss attributable to ordinary shareholders	(9,916)	45,530,712	(21.78)	(3,541)	43,660,670	(8.11)
Add back:
Amortisation of acquired intangible assets, net of tax	1,658	-	3.64	1,833	-	4.20
IPO, Placing costs and acquisition costs	369	-	0.81	754	-	1.72
Adjustments to deferred consideration	(1,384)	-	(3.04)	(5,004)	-	(11.46)
Gain on bargain purchase	-	-	-	(152)	-	(0.35)
Reorganisation costs	769	-	1.69	510	-	1.17
Impairment of acquired intangibles	1,015	-	2.23	-	-	-
Basic adjusted loss per share	(7,489)	45,530,712	(16.45)	(5,600)	43,660,670	(12.83)
Diluted adjusted loss per share	(7,489)	45,530,712	(16.45)	(5,600)	43,660,670	(12.83)

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 2013 and based on the share price of £1.850 (2012: £1.815) on that day, 1,540,401 (2012: 1,542,545) ordinary shares would have been issued in respect of the Incentive Share conversion. Full details as to 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.

The weighted average number of shares excludes any shares held by employee share ownership plan (ESOP) trusts, which are treated as cancelled.

4. Trade and other receivables

	Gross carrying amounts 2013 £'000	Provision for impairment 2013 £'000	Net carrying amounts 2013 £'000	Gross carrying amounts 2012 £'000	Provision for impairment 2012 £'000	Net carrying amounts 2012 £'000
Trade receivables	9,499	(34)	9,465	6,074	(118)	5,956
Prepayments and accrued income	2,103	-	2,103	643	-	643
Amounts recoverable on contracts	1,621	-	1,621	-	-	-
Other receivables	50	-	50	161	-	161
	13,273	(34)	13,239	6,878	(118)	6,760

5. Trade and other payables

	2013 £'000	2012 £'000
Current
Trade payables	3,892	2,807
Accruals	887	2,753
Payments received on account	190	275
Social security and other taxes	861	835
Other payables	208	124
	6,038	6,794

6. Financial liabilities

	2013 £'000	2012 £'000
Current
Incentive Shares	218	218
Deferred consideration	665	1,532
	883	1,750
Non-current
Deferred consideration	202	1,000

7. Business combinations

Business combinations in the year ended 31 March 2013

The Group has made two acquisitions during the year, each of which the Board believes has a product set and technology capabilities that are complementary to those already offered by the Group and which will expand the solutions the Group can bring to its customers. These acquisitions were all made into the Group's products division.

e-Tech

On 23 April 2012, the Group acquired the complete product set and intellectual property, along with certain customer contracts, of Enterprise Technologies (UK) Limited ('E-Tech').  E-Tech's exceptionally skilled staff have backgrounds in technical surveillance, military and commercial communications technologies across the defence and security sectors. These employees have now joined the Group under the terms of the acquisition. Together with their very highly regarded, and complementary to the Group, technology capabilities, they are expected to expand the range of solutions the Group can offer to its customers. E-Tech is part of the Group's products division.

Visimetrics

On 4 January 2013, the Group acquired 100% of the voting equity interests in Visimetrics (UK) Limited ('Visi') including its subsidiary OmniPerception Limited ('Omni').  Founded in 1996, Visi develops and manufactures high-performance digital video recording, storage and management systems for video surveillance systems.  Its customers include law enforcement, criminal justice, defence and other public sector organisations.  Its subsidiary Omni, with whom Visi merged in April 2012, is an industry leader in the design and development of facial recognition video systems and advanced image processing systems.

Purchase consideration

The purchase consideration for each acquisition was as follows:

	e-Tech £'000	Visi £'000	Total £'000
Cash consideration	149	3,200	3,349
Discounted fair value of deferred consideration	227	421	648
Total consideration	376	3,621	3,997
Pre-tax cost of debt	5.9%	6.0%
Undiscounted fair value of deferred consideration	231	457

In accordance with IFRS 3R the Directors have assessed the undiscounted fair value of deferred consideration payable for each acquisition as stated above, based on a probability weighted average of expected cash flows. The discounted fair values of deferred consideration payable have been calculated from the undiscounted amounts using the pre-tax cost of debt as stated above.

The e-Tech initial cash consideration paid on completion was £149,000.  Based on sales of E-Tech products by Digital Barriers between completion and 31 March 2013, further deferred consideration of £200,000 is payable in cash.

The Visi maximum consideration is £8.0 million payable in cash and new Ordinary Shares at the Group's discretion. Initial cash consideration of £3.3 million was paid less debt and working capital adjustments of £0.1 million. Deferred consideration of up to £4.7 million is payable over the period from completion to 31 December 2014, subject to revenue and profit targets. Up to £3.5 million of the deferred consideration may be satisfied through the issue of new Ordinary Shares, with the balance satisfied in cash. Up to £2.35 million of the deferred consideration is based on revenue and profit targets for the year ended 31 December 2013 and a further £2.35 million on the year ended 31 December 2014.

Total acquisition costs of £369,000 (2012: £754,000) were incurred and recorded within the administration costs line in the income statement.

As at 31 March 2013, the maximum deferred consideration payable in the future is £8.6 million (2012: £9.7 million), up to £5.4 million (2012: £4.3 million) of which may be satisfied through the issue of new Ordinary Shares, and the remainder satisfied in cash.  The movement from the prior year is due to the completion of the full earn-out periods for the Keeneo, Stryker and LMW acquisitions and the partial completion of the earn-out for the Zimiti acquisition, partly offset by the acquisitions of E-Tech and Visimetrics in the current year.

8. Issued share capital

On 5 August 2011 the Company issued 195,460 £0.01 Ordinary Shares on the acquisition of Keeneo.

On 3 May 2012 the Company issued 59,216 £0.01 Ordinary Shares as deferred consideration in relation to the acquisition of Keeneo.

On 2 January 2013 the Company issued 7,172,414 £0.01 Ordinary Shares for total cash consideration of £10,400,000.