Security Research Group plc
("Security Research Group" or the "Company")
Final Results for the year ended 31 March 2014 and notice of AGM
The Directors of Security Research Group are pleased to announce the audited
final results for the year ended 31 March 2014. The report and accounts and
notice of Annual General Meeting will shortly be posted to shareholders and a
copy will be made available on the Company's website (www.srgroupplc.com).
Notice is given to all shareholders that the Annual General Meeting of Security
Research Group for 2014 will be held at the offices of the Company, 133 Ebury
Street, London SW1W 9QU on 22 August 2014 at 12 noon.
Enquiries:
Security Research Group plc
Jonathan Mervis, Chairman 0207 881 0800
John Warwick, Finance Director
WH Ireland Limited
Chris Fielding, Head of Corporate Finance 0207 220 1650
James Bavister, Corporate Finance Manager
Chairman's statement
Revenue for the year ended 31 March 2014 was £9,061,054 compared with £
29,363,893 in the previous year. Profit for the year, before tax and
exceptional items, was £562,236 compared with a profit before tax and
exceptional items of £6,682,042 in the previous year.
The results reflect the substantial completion in December 2012 of the one-off
£50 million MoD contract and the sea change in global markets for IED detection
equipment, which was responsible for a large proportion of the profits last
year and enabled us this year to achieve a significant reduction in
administrative expenses. In addition inventories and trade and other
receivables have increased following the return to our normal sales and
customer mix.
Specialist Electronics(Audiotel)
The Specialist Electronics division, post the completion of the £50 million MoD
contract, is improving its existing range of products and is developing a range
of completely new innovative products aimed at the commercial market.
Revenue for the Specialist Electronics division for the year was £2,760,550,
compared with £23,566,245 in the previous year. The operating profit was £
26,142 compared with £6,765,220 for the previous year.
Products
A focus on Audiotel's export markets in the latter part of the year reaped
benefits with sales to 34 different countries worldwide. Of particular note
were:
* China - Sales volumes growing with agents established in Beijing, Shanghai
and Guangzhou;
* USA - A first US DOD order for specialist detectors received in Q1 2014 to
be trialled at various military locations throughout 2014;
* Egypt - A large order for 12 of our unique NLJD Archways was received in
late 2013. The equipment will be installed and commissioned in Government
locations in 2014; and
* Australia - A large order for surveillance equipment from the Queensland
Police was secured by a new agent.
Good sales were achieved of the SB range of NLJD Detectors (SuperBrooms) and
the Scanlock monitoring receivers.
Stealth Evolution surveillance equipment sales continued with purchases by 30
out of the 43 UK police forces and also by the newly formed National Crime
Agency (NCA) that replaced SOCA.
A new 24/7 eavesdropping surveillance system, `e-Shield', was launched in
January 2014 and has been trialled at large accountancy and legal firms in
London. Audiotel has received both orders and positive feedback from the trials
and indications are that future security budgets could well include provisions
to purchase these systems as they raise the level of security against the
eavesdropping threat way above that achieved by our competitors.
Audiotel is also working with a major global bank to trial a new system called
KVM-Shield which provides complete security against the threat of covert
installation of keyboard, video, mouse (KVM) devices, key loggers, network
interceptors and USB memory devices on their network.
New products in development for launch later in the year include:
* e-TAG, a security system that automatically alarms when the tag leaves a
defined area and then locates and tracks the tag, in the local vicinity, to
ensure swift recovery; and
* e-SCAN, a powerful personal counter surveillance system.
Property Information Services (PSG)
Revenue for the Property Information Services division for the year was £
4,692,537, compared with £4,234,208 in the previous year. The operating profit
before exceptional items was £844,679, significantly ahead of £152,244 for the
previous year.
PSG has a large, loyal and professional client base that is serviced by a
knowledgeable and committed franchise network across England and Wales.
The business experienced growth in revenues and profits during the year,
enhanced its cutting edge technology platform, and has set up clear
opportunities for additional growth with a robust income stream. It is poised
to capitalise on the increasing number of housing transactions.
PSG is one of the top three providers of property information searches, a
market currently worth approximately £125 million annually and underpinned by
the increasing volume of housing transactions. PSG has an estimated market
share in excess of 15%. The business is highly rated by its 2,000 registered
legal clients, with regular customer surveys indicating 100% of users would
recommend it to others.
An expanding range of property risk information products are being supplied to
conveyancing solicitors in England and Wales. These are used by solicitors as
part of their professional `due diligence' for homebuyers and lenders, and the
use of searches is embedded in best practice guidelines issued by the Law
Society and Council of Mortgage Lenders.
PSG undertakes local sales, marketing and customer service activity and
provides other services including the provision of Title Insurance and Energy
Performance Certificates (EPCs). Franchisees are required to meet prescribed
performance criteria to stay in the network.
The recovering housing market, coupled with recent improvements to systems and
contracts, means that the business is now set for a sustained period of growth.
Housing transactions are still 31% below their long-term average, and 38% off
peak. With low central costs and rapidly growing revenues, profits will grow
exponentially as house sales return to normal levels.
New franchise contracts have been established which include enforceable
performance targets, and new management information systems are enabling the
business to work closely with franchisees to improve sales.
The success of the improved online ordering platform has delivered market share
and sales growth, and the business is able to launch, up-sell and cross-sell
products and services more effectively. Further growth will come from launching
franchises to cover the regions where the final 8% of housing transactions are
not currently reached.
In the longer term, the business plans to leverage its brand and client base
into a wider range of outsourced legal services. With over 2,000 satisfied
solicitor firms, most of whom provide a range of legal services in addition to
conveyancing, the business has a real opportunity to expand into adjacent legal
sectors.
The strategic review is continuing with a further update in due course.
Packaging Solutions (Moore & Buckle)
Revenue of the Packaging Solutions division was £1,607,673, compared with £
1,563,440 in the previous year. The operating profit was £313,182 ahead of the
£301,947 in the previous year.
We are grateful to the outstanding commitment and loyalty of our employees who
have been substantially responsible for this year's achievements.
Strategic Report
The directors present their strategic report for the year ended 31 March 2014.
Strategy and Business Model
The Group has three divisions, Specialist Electronics, Property Information
Services and Packaging Solutions.
The Specialist Electronics Division manufactures and sells specialist
electronic equipment used in the surveillance and counter-surveillance market.
Underpinning this offering is a strong heritage in focused research and product
development giving the company technical leadership in its chosen area of
operations.
Sales are achieved either directly through its sales team or via its worldwide
network of distributors.
The Property Information Services Division is one of the top three providers of
property information searches. The division runs a national franchising network
together with its own large franchise and also has an energy reports business
and a regulated business sourcing financial products.
The clients are conveyancing solicitors, who undertake the legal side of a
property transaction.
The Packaging Solutions Division provides flexible packaging solutions to a
variety of industry sectors, including the food and pharmaceutical markets.
Business review
The Group's profit before tax for the year was £1,739,315 compared with £
4,978,290 in the previous year whilst revenue decreased from £29,363,893 to £
9,061,054. Included in the profit is an amount of £1,177,079 in respect of a
legal settlement with local authorities regarding overpayments in prior years
by the Property Information Services Division's own Franchise.
In the Specialist Electronics Division the operating profit was £26,142
compared with £6,765,220 in the previous year whilst revenue decreased from £
23,566,245 to £2,760,550. In the previous year a significant part of the
revenue and profits were generated by completing and delivering, on time and on
budget, a large contract with the MoD. In the current year no similarly large
contract was received.
The Specialist Electronics Division has concentrated its resources on
developing new products and markets and placing its emphasis on a global sales
drive. A number of innovative devices have been developed having unique selling
points. These products are being marketed in the UK and in a number of other
selected countries. Although well received by the market place these new
products have not as yet achieved any significant sales penetration.
In the Property Information Services Division the operating profit was £844,679
compared with £152,244 in the previous year whilst revenue increased from £
4,234,208 to £4,692,537. The division benefitted from an increasing number of
housing transactions during the year.
During the year the division enhanced its cutting edge technology platform and
there are now clear opportunities for additional growth by capitalising on
these enhancements and aided by the increasing number of housing transactions.
It was announced on 6 May 2014 that the Group is to conduct a strategic review
of its options concerning the division. The options may include the sale of the
division with the distribution of the proceeds to shareholders.
In the Packaging Solutions Division the operating profit was £313,182 compared
with £301,947 in the previous year whilst revenue increased from £1,563,440 to
£1,607,673.
This division continues to perform profitably in its niche marketplace.
With new products and markets being developed in the Specialist Electronics
Division, an increasing number of housing transactions benefiting the Property
Information Services Division and the Packaging Solutions Division continuing
to maintain its consistent level of performance the future can be viewed with
confidence.
Principal risks and uncertainties
Group
Revenue and profits are dependent on the ability to recruit and retain key
individuals.
Trading concerns are regularly reviewed with particular reference to sales,
customer loss and competition.
Specialist Electronics Division
Revenue is generated from a mix of small and large orders. The timing of the
order placement and delivery of larger orders is inherently difficult to
predict, potentially causing material fluctuations in actual results compared
with expectations.
Property Information Services Division
If the situation in the property market changes it could affect the results of
the division, either beneficially or detrimentally.
Packaging Solutions Division
The business depends on small orders and could be affected by any change in the
economic environment.
Key performance indicators (KPIs)
The board monitors progress on the overall Group strategy and the individual
strategic elements by reference to KPIs, specifically revenue growth, gross
margin, administrative expenses, profit before taxation and working capital
levels.
As noted in the business review above, the profit on ordinary activities before
taxation in the year was £1,739,315 compared with a profit of £4,978,290 in the
previous year, with turnover having reduced from £29,363,893 to £9,061,054.
This was mainly due to the large MoD contract with the Specialist Electronics
Division having been substantially completed last year.
The average number of employees in the year reduced from 193 to 98, with
employment costs reducing from £7,379,355 to £3,667,386, once again primarily
due to the reductions in the Specialist Electronics Division.
The number of housing transactions in the year increased from 650,000 to
approximately 800,000.
Cash and cash equivalents in the Group reduced from £5,397,860 at 1 April 2013
to £3,472,588 at 31 March 2014.
The environment
The Group regards compliance with relevant environmental laws and the adoption
of responsible standards as integral to its business operation. It is also
committed to introducing measures to limit any adverse effects its business may
have on the environment and will promote continuous improvement in accordance
with the best available techniques.
Consolidated income statement for the year ended 31 March 2014
2014 2013
Note £ £
Revenue 2 9,061,054 29,363,893
Cost of sales (4,102,497) (14,045,747)
Gross profit 4,958,557 15,318,146
Administrative expenses (4,413,520) (8,715,130)
Operating profit before 545,037 6,603,016
exceptional items
Exceptional administrative 3 1,177,079 (1,703,752)
credits/(expenses)
Operating profit 4 1,722,116 4,899,264
Finance costs 8 - (10,929)
Finance income 9 17,199 89,955
Profit on ordinary activities 1,739,315 4,978,290
before taxation
Income tax expense 10 (210,375) (1,295,735)
Profit on ordinary activities 1,528,940 3,682,555
after taxation
Basic earnings per share 12 7.89p 15.89p
Diluted earnings per share 12 7.86p 15.74p
The consolidated income statement has been prepared on the basis that all
operations are continuing operations.
Consolidated statement of comprehensive income for the year ended 31 March 2014
The profit on ordinary activities after taxation represents the Group's total
comprehensive income for the year.
Statements of changes in equity for the year ended 31 March 2014
Group Capital
Share Share redemption Retained
capital premium reserve earnings Total equity
£ £ £ £ £
At 1 April 2012 5,148,113 437,472 626,313 12,954,841 19,166,739
Issue of new ordinary 76,190 114,286 - - 190,476
shares on exercise of
options
Purchase of ordinary share - - - (15,191,577) (15,191,577)
capital (including costs of
£127,393)
Cancellation of own shares (1,339,038) - 1,339,038 - -
Total comprehensive income - - - 3,682,555 3,682,555
for the year
At 31 March 2013 3,885,265 551,758 1,965,351 1,445,819 7,848,193
Cancellation of own shares (19,485) - 19,485 - -
Receipt in relation to - - - 78,703 78,703
share cancellation
Total comprehensive income - - - 1,528,940 1,528,940
for the year
At 31 March 2014 3,865,780 551,758 1,984,836 3,053,462 9,455,836
Company Capital
Share Share redemption Retained
Capital premium reserve earnings Total equity
£ £ £ £ £
At 1 April 2012 5,148,113 437,472 626,313 6,241,625 12,453,523
Issue of new ordinary 76,190 114,286 - - 190,476
shares on exercise of
options
Purchase of ordinary share - - - (15,191,577) (15,191,577)
capital (including costs of
£127,393)
Cancellation of own shares (1,339,038) - 1,339,038 - -
Total comprehensive income - - - 9,025,624 9,025,624
for the year
At 31 March 2013 3,885,265 551,758 1,965,351 75,672 6,478,046
Cancellation of own shares (19,485) - 19,485 - -
Receipt in relation to - - - 78,703 78,703
share cancellation
Total comprehensive loss - - - (62,530) (62,530)
for the year
At 31 March 2014 3,865,780 551,758 1,984,836 91,845 6,494,219
Consolidated statement of financial position as at 31 March 2014
2014 2013
Note £ £ £ £
Non-current assets
Goodwill 13 3,273,142 3,273,142
Other intangible assets 14 536,476 627,271
Property, plant and equipment 15 439,833 411,514
Deferred tax asset 20 220,804 312,101
4,470,255 4,624,028
Current assets
Inventories 18 1,527,063 1,189,318
Trade and other receivables 19 2,965,999 2,721,402
Current tax asset 268,806 -
Cash and cash equivalents 3,472,588 5,397,860
8,234,456 9,308,580
Current liabilities
Trade and other payables 21 (2,864,687) (5,666,328)
Current tax liability (384,188) (418,087)
(3,248,875) (6,084,415)
Net current assets 4,985,581 3,224,165
Net assets 9,455,836 7,848,193
Represented by:
Capital and reserves
attributable to equity holders
Called up share capital 22 3,865,780 3,885,265
Share premium account 22 551,758 551,758
Capital redemption reserve 22 1,984,836 1,965,351
Retained earnings 3,053,462 1,445,819
Total equity 9,455,836 7,848,193
Company statement of financial position as at 31 March 2014
2014 2013
Note £ £ £ £
Non-current assets
Property, plant and equipment 15 29,045 34,379
Investments in subsidiaries 16 6,649,322 6,650,322
6,678,367 6,684,701
Current assets
Trade and other receivables 19 69,487 43,802
Cash and cash equivalents 147,600 1,097,303
217,087 1,141,105
Current liabilities
Trade and other payables 21 (401,235) (1,292,760)
Current tax payable - (55,000)
(401,235) (1,347,760)
Net current liabilities (184,148) (206,655)
Net assets 6,494,219 6,478,046
Represented by:
Capital and reserves
attributable to equity holders
Called up share capital 22 3,865,780 3,885,265
Share premium account 22 551,758 551,758
Capital redemption reserve 22 1,984,836 1,965,351
Retained earnings 91,845 75,672
Total equity 6,494,219 6,478,046
Statement of cash flows for the year ended 31 March 2014
Group Company
2014 2013 2014 2013
£ £ £ £
Cash flows from operating
activities
Profit /(loss) before taxation 1,739,315 4,978,290 (62,799) 9,080,624
Adjustments for:
Depreciation of property, plant 109,802 1,417,963 5,334 4,749
and equipment
Amortisation of goodwill/ - 1,703,752 - 1,703,752
investment write down
Amortisation of other intangible 494,351 533,392 - -
assets
Profit on disposal of tangible (46,108) (7,485) - -
assets
Profit on dissolution of - - (60,656) -
subsidiary
Interest expense - 10,929 - -
Interest receivable (17,199) (89,955) (705) (9,727)
Dividends receivable - - - (10,321,530)
Changes in working capital:
(Increase)/decrease in (244,597) 4,501,079 (25,685) (28,330)
receivables
(Increase)/decrease in (337,745) 123,317 - -
inventories
(Decrease)/increase in payables (2,801,641) (5,504,824) (891,525) 444,403
Cash (used in)/generated from (1,103,822) 7,666,458 (1,036,036) 873,941
operations
Interest paid - (10,929) - -
Income tax paid (421,783) (3,901,988) (54,731) -
Net cash (used in)/generated from (1,525,605) 3,753,541 (1,090,767) 873,941
operating activities
Cash flows from investing
activities
Purchase of property, plant and (175,613) (287,729) - (3,038)
equipment
Expenditure on other intangible (403,556) (472,306) - -
assets
Proceeds from the sale of 83,600 46,757 - -
property, plant and equipment
Proceeds from dissolution of - - 61,656 -
subsidiary
Dividends received - - - 10,321,530
Interest received 17,199 89,955 705 9,727
Net cash (used in)/generated from (478,370) (623,323) 62,361 10,328,219
investing activities
Cash flows from financing
activities
Issue of share capital - 190,476 - 190,476
Purchase of own shares - (15,191,577) - (15,191,577)
Received in relation to share 78,703 - 78,703 -
cancellation
Net cash generated from/(used in) 78,703 (15,001,101) 78,703 (15,001,101)
financing activities
Net decrease in cash and cash (1,925,272) (11,870,883) (949,703) (3,798,941)
equivalents
Cash and cash equivalents at 5,397,860 17,268,743 1,097,303 4,896,244
beginning of period
Cash and cash equivalents at end 3,472,588 5,397,860 147,600 1,097,303
of period