COE Group plc - Audited results for the twelve months ended 30 June 2007
16 Oct 2007
COE, the AIM-quoted developer and supplier of advanced video surveillance systems, announces audited results for the 12 months ended 30 June 2007.
Financial Highlights
* Full year loss before tax down 54% to £0.6m
(2006: £1.3m), helped by
£0.4m profit from the sale of the
Company's freehold headquarters
* Full year operating loss reduced 30% to £1.0m (2006:
£1.5m)
* Full year turnover £4.0m (2006: £4.0m)
* Gross margins improved 8.2% to 43.1%
* £2.4m raised via new share issues to restructure the
balance sheet and
finance growth
* Cash position significantly strengthened. Year end net
cash £0.9m (2006:
net debt £2.1m)
* Sales force expansion completed ahead of schedule
* Sales quotes up 25% in H2 over the corresponding half in
2006
* Second half (H2) order intake the highest for 3 years
Operational Highlights
* Sharpened focus on Transport with competitive wins
including:
o Transport for London
o Randstad Rail
(Netherlands)
o Martignano Tunnel
(Italy)
*Significant repeat business in Asia and UK:
o Siemens Kowloon Canton
Railway
o London Bus Lane
enforcement
* New products launched:
o X-Net Video Management System, the
latest of COE's control room
management software
products
o X-Net Network Video Recording, a
distributed recording system for
small and large video
networks
o Further collaboration with Texas
Instruments to enhance COE's open
platform for high end
codecs
o New H-Box codec using the more
cost-effective H.264 compression
algorithm
o Integrated Video Intelligence
About COE:
COE is a leading developer of advanced video surveillance (CCTV) systems with a global customer base across three main sectors -- traffic & transport, industrial complexes, and city-centre surveillance. The Company has installed its systems in the London Congestion Charge network, in underground and high-speed rail systems worldwide, in airports across Germany, Hong Kong and SE Asia, and in road systems worldwide. City-centre systems include over 35 UK towns and cities, while industrial complexes include the South Parrs gas field in the Middle East.
With an 18 year track record of innovation in video surveillance, COE has developed integrated systems which include camera control, video transmission, scene analysis, operator display and recording. These systems are designed to work reliably in extreme environments for many years and have open interfaces offering integration with most major third party devices. The company provides support through the entire lifecycle including design, on-site test, commissioning and long-term maintenance.
CHAIRMAN'S STATEMENT
Operational Report
The company is making good progress with its growth plan which
was initiated with the fundraising completed in March 2007. The
plan to deliver this growth has 3 important elements:
1. Expansion of the field sales
team
2. Recruitment of a Finance
Director and Sales Director into the senior
management team
3. Refinement and expansion of the product portfolio
The field sales team has been doubled ahead of schedule to 10 in September 2007 (March 2007: 5). Our growth plans envisage new sales staff taking around one year to reach full productivity and no effect on turnover in the year to June 2007 was expected.
The Finance Director and Sales Director joined in February 2007 and September 2007 respectively. These key appointments have significantly increased the management capacity and skills which can be focussed on all areas of the business.
The product portfolio has been expanded to address the expanding demand for integrated IP video surveillance systems. Product launches since July 2006 include COE's latest control room management software, recording systems, and codec enhancements in conjunction with Texas Instruments.
Continuing improvements in products, management and systems have caused major improvements in several leading indicators:
* Gross margins on new orders won during the period
increased to 53% in H2
against 43% on invoiced revenue during the
period. The improvement was
driven by a change in sales force
commission plans and new product launches
in 2006.
* Gross profit attributable to new orders in H2 was
the highest in 3 years
at £946k (From 1 January 2007, gross
profit from new orders has been
measured for sales force commissioning.
Prior years gross profit of new
orders estimated from turnover and actual
gross margin; 2006 H1 £816k, 2006
H2 £863k, 2007 H1 £785k).
* Quotes submitted were also up 25% in value in H2
over the corresponding
half.
Financial Report
Turnover for the year was flat at £4.0m (2006: £4.0m) due to a poor second half. (H2 turnover: £1,499k; H1: £2,477k). A one-off supply issue caused by the insolvency of one of COE's sub-contract manufacturers (SCMs) caused turnover (approximately £300k) to be shifted from H2 into H1 FY2008.
Gross margin, however, increased by 8.2% to 43.1% for the full year and further increased from 42.6% to 44.0% from H1 to H2. This increase was due to product re-launches in late FY2006, and improved sales force management.
Admin expenses (overheads) for the year were down slightly to £2,759k (2006: £2,865k), but were 27% higher in H2 than in H1 (£1.2m). The bulk of this increase related to recruitment and salary costs in sales and finance due to the expansion announced in March 2007.
The loss for the year results from the investment in skills and resources to accelerate growth. The benefits of this investment is expected to be realised in future periods.
Subsequent financial statements will be produced using International Financial Reporting Standards. No material changes to the profit and loss account or balance sheet are expected as a result of this change.
Balance Sheet and Financing
The cash position is significantly improved at £854k (2006: £2.1m net debt) due to several transactions announced during the year. These include a placing led by IP Group plc, the sale of the Group's freehold property and further financing in March 2007.
Stocks decreased a further 65% to £167k (2006: £481k), as the Group used the change of SCMs to improve costs and to increase significantly the stock available for immediate shipment held on its suppliers' balance sheets.
The final step in the restructuring of the balance sheet will occur in December 2007. The Group has benefited from interest income from Loan Notes since its reversal onto AIM in 2003. Although generating extra interest income, these instruments have prevented Venture Capital Trusts from gaining tax relief on purchase of shares in the Group since 2003. The debt instruments will unconditionally expire on 31 December 2007 and from 1 January 2008 COE shares are expected to be eligible for tax relief for Venture Capital Trusts.
Board and Staff Changes
Several important changes have been completed to introduce new skills more suitable for a further phase of growth and investment.
Dr. Alison Fielding, an executive director of IP Group with extensive experience in technology and five years' experience at McKinsey, joined the Board in September 2006. I joined as Chairman in October 2006. I was formerly CFO and President of Micromuse and was also at McKinsey for five years. Ian Jefferson joined the board as Finance Director in February 2007. Ian was formerly Group Financial Controller of the 600 Group Plc and Finance & Operations Director of Mila Hardware Limited.
Conclusion and Outlook
These results demonstrate initial impact of the growth plan commenced by COE earlier in 2007 and the overall plan is on track. Although the second half was weak, notable progress has been made in margins, sales recruitment and product portfolio while the balance sheet has continued to improve. These changes drove improvements in new orders towards the end of the year and we expect further benefits to come through over the next 12 months.
The Group will continue to invest in building on its reputation and customer base in the fast growing transport and industrial sectors of the video surveillance markets. This growth may also help to diversify its customer base and reduce its exposure to market change.
Market demand continues to increase for surveillance systems for counter-terrorism, crime prevention and traffic efficiency and the Directors are optimistic that the Group is increasingly well positioned in these exciting markets.
I would like to thank the Group's staff for their hard work during this turnaround period and also our suppliers and customers for their continued support.
Stephen Allott
Chairman
16 October 2007
COE Group plc
Andrew Wallace, Chief Executive Officer 0113 230 8862
Ian Jefferson, Finance Director 0113 230 8826
KBC Peel Hunt Limited 0207 418 8900
Oliver Scott
Nicholas Marren
The full text of this announcement is available on RNS.
