OPSEC SECURITY GROUP PLC 
By OPSEC SECURITY GROUP PLC
("OpSec" or "the Group")
Interim results for the six months ended 30th September 2013
OpSec Security Group plc, the supplier of anti-counterfeiting technologies and services, announces its interim results for the six months ended 30th September 2013.
Highlights2013 unaudited | 2012 unaudited | ||
Group revenue | £27.4m | £25.5m | |
Adjusted operating profit* | £0.8m | £3.1m | |
(Loss)/Profit before tax | £(2.2m) | £1.6m | |
Basic (loss)/profit per share | (2.8p) | 2.6p | |
Adjusted basic earnings per share* | 0.3p | 4.1p |
* Adjusted for the effects of share based payments, exceptional items and the charge for intangible amortisation (see notes 3 and 4).
· Overall Group revenue increased by 8% to £27.4 million
o Government Protection revenues down by 37% due to slippage on key accounts
o Brand Protection revenues static due to lower order levels from key American customers
o Transaction Card revenues of £5.5m
· The JDSUH acquisition contributed revenue of £6.1m
· Adjusted operating profit down by 75% to £0.8 million
· The Company is in discussion with its bank regarding re-setting financial covenants
· The significant investment already made in additional sales and marketing is now starting to yield results which the Company believes will benefit the second half and the next financial year
- Ends -
For further information, please contact:
OpSec Security Group plc +1 720 394 2803Mark Turnage, Chief Executive/Mike Angus, Finance Director
Shore Capital & Corporate Ltd 020 7408 4090
Stephane Auton/Patrick Castle
20th December 2013
OPSEC SECURITY GROUP PLC
("OpSec" or "the Group")
Interim results for the six months ended 30th September 2013
Chairman's StatementGroup revenue for the six months ended 30th September 2013 increased by 8% to £27.4 million, (2012: £25.5 million) due to the impact of the acquisition of the holographic security business of JDS Uniphase Corporation ("JDSUH") which contributed turnover of £6.1million.
Adjusted Operating Profit (see note 3) decreased from £3.1 million to £0.8 million. Lower Government Protection sales volumes, an increased overhead base and a number of exceptional items (see note 4) adversely impacted the first half resulting in a post tax loss of £2.2 million as compared to a profit of £1.7 million in the same period of the prior year.
Government Protection
The decrease in revenues which this sector experienced in the period was due primarily to a lower level of orders from a continuing currency customer in Asia and an Eastern European government. Order levels from these customers are expected to show recovery in the second half of the financial year. Future turnover levels are also expected to benefit from a number of significant new customers secured during the period.
Brand ProtectionRevenue in this market sector was flat compared to the same period in the prior year. Strong growth from existing customers in Europe was offset by a fall in American brand protection revenues. A number of new customers, both in Europe and America, have been secured which are expected to benefit revenue in the second half of the current year.
Transaction CardsThis sector performed ahead of our expectations as it gained turnover from one of the Group's competitors exiting from this market. Difficulties experienced with certain of the Group's suppliers adversely affected deliveries in the early part of the second half of the current year but these appear now to have been resolved.
Operations
The decreased sales volumes noted above, changes in sales mix and the impact of the high overhead base associated with the JDSUH acquisition all contributed to gross margins decreasing from 45% to 36%.
3dcd
The contribution from our joint venture 3dcd in the period was £226,000 (2012: £347,000). The prior year contribution benefitted from a one off order for equipment.
Breach of Financing Covenant
The Group is in technical breach of one of its covenants set against the 30th September 2013 financial results. This breach is primarily a result of the slippage in delivery dates for certain key customers and disruption to the supply chain for its Transaction Card business as described above.
Discussions with the Group's bank regarding re-setting the covenants have commenced and an exercise has started to secure additional finance to fund the capital expenditure required to rationalise the Group's manufacturing facilities and deliver the expected increase in revenue.
The Directors will provide an update to shareholders in due course.
Exceptional Items
The acquisition of JDSUH with its facility in Robbinsville New Jersey required that the Group's manufacturing facilities be rationalised. The agreement of a formal shutdown arrangement with the union representing the Robbinsville employees was a necessary element of this programme and the projected costs of this arrangement are included in these results. In the period the Group also incurred legal expenses and professional fees relating to a corporate transaction which was subsequently aborted.
Prospects
Order levels have now returned to more normal levels and the Group is starting to see the benefits of the significant investment it has already made in its sales and marketing activities with increased levels of new business being secured, particularly in the Government Protection sector. This new business is expected to have a positive impact on the second half of the current year and be of further benefit to the next financial year. The rationalisation of the Group's operating facilities should, when completed, further enhance profitability.
DA Mahony
Chairman
20th December 2013Consolidated Income Statement
Six months ended | Six months ended 30-Sept-12 | Year ended 31-Mar-13 | |||
Unaudited | Unaudited | Audited | |||
£'000 | £'000 | £'000 | |||
Revenue | 27,438 | 25,471 | 51,709 | ||
Cost of sales | (17,452) | (13,906) | (30,766) | ||
Gross profit | 9,986 | 11,565 | 20,943 | ||
Distribution and selling costs | (4,484) | (3,691) | (6,829) | ||
Administrative expenses | (5,083) | (5,405) | (11,121) | ||
Exceptional Administrative expenses | (1,147) | - | (1,213) | ||
Intangible amortisation Intangible impairment | (1,131) - | (786) - | (1,955) (2,777) | ||
Total administrative expenses | (7,361) | (6,191) | (17,066) | ||
(1,859) | 1,683 | (2,952) | |||
Share of profit of jointly controlled entities | 226 | 347 | 465 | ||
Operating (loss)/profit | (1,633) | 2,030 | (2,487) | ||
Finance income | (72) | (19) | 139 | ||
Finance expense | (485) | (385) | (851) | ||
(Loss)/Profit before income tax | (2,190) | 1,626 | (3,199) | ||
Income tax | 38 | 95 | 1,459 | ||
(Loss)/Profit for the period attributable to equity holders of the parent | (2,152) | 1,721 | |||
OPSEC SECURITY GROUP plc
Consolidated statement of changes in equity
For the 6 months ended 30th September 2013 (unaudited)
Share Capital | Share premium | Translation reserve | Hedging reserve | Retained earnings | Total equity | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Balance at 1st April 2013 | 4,000 | 38,487 | 4,077 | (42) | (7,976) | 38,546 | |
Loss for the period | - | - | - | - | (2,152) | (2,152) | |
Other comprehensive (expense)/income | - | - | (1,467) | 19 | - | (1,448) | |
| - | - | (1,467) | 19 | (2,152) | (3,600) | |
Transactions with owners recorded directly in equity | |||||||
Share based payments | - | - | - | - | 105 | 105 | |
Own shares purchased | - | - | - | - | - | - | |
Own shares issued | - | - | - | - | - | - | |
Total contributions by and distributions to owners | - | - | - | - | 105 | 105 | |
At 30th September 2013 | 4,000 | 38,487 | 2,610 | (23) | (10,023) | 35,051 |
Additional breakdown of other comprehensive income is provided in the Statement of Comprehensive Income.
OPSEC SECURITY GROUP plc
Consolidated statement of changes in equity
For the 6 months ended 30th September 2012 (unaudited)
Share Capital | Share premium | Translation reserve | Retained earnings | Total equity | ||
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Balance at 1st April 2012 | 3,000 | 29,685 | 2,837 | (6,458) | 29,064 | |
Profit for the period | - | - | - | 1,721 | 1,721 | |
Other comprehensive expense | - | - | (524) | - | (524) | |
| - | - | (524) | 1,721 | 1,197 | |
Transactions with owners recorded directly in equity | ||||||
Share based payments | - | - | - | 240 | 240 | |
Own shares purchased | - | - | - | (8) | (8) | |
Own shares issued (net of costs) | 1,000 | 8,802 | - | - | 9,802 | |
Total contributions by and distributions to owners | 1,000 | 8,802 | - | 232 | 10,034 | |
At 30th September 2012 | 4,000 | 38,487 | 2,313 | (4,505) | 40,295 |
Additional breakdown of other comprehensive income is provided in the Statement of Comprehensive Income.
OPSEC SECURITY GROUP plc
Consolidated statement of changes in equity
For the year ended 31st March 2013 (audited)
Share Capital | Share premium | Translation reserve | Hedging reserve | Retained earnings | Total equity | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Balance at 1st April 2012 | 3,000 | 29,685 | 2,837 | - | (6,458) | 29,064 | |
Loss for the period | - | - | - | - | (1,740) | (1,740) | |
Other comprehensive income/(expense) | - | - | 1,240 | (42) | - | 1,198 | |
| - | - | 1,240 | (42) | (1,740) | (542) | |
Transactions with owners recorded directly in equity | |||||||
Share based payments | - | - | - | - | 230 | 230 | |
Issuance of shares (net of costs) | 1,000 | 8,802 | - | - | - | 9,802 | |
Own shares purchased | - | - | - | - | (8) | (8) | |
Total contributions by and distributions to owners | 1,000 | 8,802 | - | - | 222 | 10,024 | |
At 31st March 2013 | 4,000 | 38,487 | 4,077 | (42) | (7,976) | 38,546 |
Additional breakdown of other comprehensive income is provided in the Statement of Comprehensive Income.
OPSEC SECURITY GROUP plc
Consolidated Balance Sheet
30-Sept-13 | 30-Sep-12 | 31-Mar-13 | ||
unaudited | unaudited | Audited | ||
£'000 | £'000 | £'000 | ||
ASSETS | ||||
Non-current assets | ||||
Property, plant and equipment | 8,552 | 7,235 | 8,946 | |
Intangible assets | 38,024 | 36,604 | 40,407 | |
Investment in jointly controlled entity | - | 48 | - | |
Deferred tax assets | 4,266 | 3,650 | 4,292 | |
Total non-current assets | 50,842 | 47,537 | 53,645 | |
Current assets | ||||
Inventory | 5,547 | 4,006 | 4,787 | |
Trade and other receivables | 9,998 | 8,670 | 9,980 | |
Cash and cash equivalents | 3,249 | 6,566 | 5,974 | |
Total current assets | 18,794 | 19,242 | 20,741 | |
Total assets | 69,636 | 66,779 | 74,386 | |
LIABILITIES | ||||
Current liabilities | ||||
Interest-bearing loans and borrowings | (8,578) | (1,000) | (2,296) | |
Deferred government grants | (20) | (20) | (20) | |
Provisions | (2,348) | - | (1,221) | |
Income tax payable | (14) | (313) | (15) | |
Trade and other payables | (12,996) | (11,268) | (12,722) | |
Total current liabilities | (23,956) | (12,601) | (16,274) | |
Non-current liabilities | ||||
Interest-bearing loans and borrowings | (7,000) | (10,160) | (15,028) | |
Derivative financial instruments | (23) | - | (42) | |
Deferred government grants | (282) | (306) | (305) | |
Provisions | (1,210) | - | (1,813) | |
Deferred tax liabilities | (699) | (1,658) | (699) | |
Other payables | (1,415) | (1,759) | (1,679) | |
Total non-current liabilities | (10,629) | (13,883) | (19,566) | |
Total liabilities | (34,585) | (26,484) | (35,840) | |
Net assets | 35,051 | 40,295 | 38,546 | |
EQUITY | ||||
Capital and reserves | ||||
Issued capital | 4,000 | 4,000 | 4,000 | |
Share premium | 38,487 | 38,487 | 38,487 | |
Hedging reserve | (23) | - | (42) | |
Translation reserve | 2,610 | 2,313 | 4,077 | |
Retained earnings | (10,023) | (4,505) | (7,976) | |
Total equity attributable to equity holders of the parent | 35,051 | 40,295 | 38,546 | |
OPSEC SECURITY GROUP plc
Condensed Consolidated Statement of Cash Flows
Six months ended 30-Sept-13 | Six months ended 30-Sept-12 | Year ended 31-Mar-13 | |
unaudited | unaudited | Audited | |
£'000 | £'000 | £'000 | |
Cash flows from operating activities | |||
(Loss)/Profit for the period (1) | (2,152) | 1,721 | (1,740) |
Depreciation | 1,081 | 910 | 1,937 |
Amortisation/impairment of intangible assets | 1,147 | 786 | 4,732 |
Profit on sale of property, plant and equipment | - | - | (18) |
Release of government grants | (13) | (13) | (26) |
Equity settled share based payment | 105 | 240 | 230 |
Share of profit of jointly controlled entities | (226) | (347) | (465) |
Finance income | 72 | 19 | (139) |
Finance expenses | 465 | 385 | 851 |
Income tax expense | (38) | (95) | (1,459) |
Movement in inventory | (1,059) | 338 | 1,558 |
Movement in trade and other receivables | (719) | 4 | 1,000 |
Movement in trade and other payables | 1,126 | 1,593 | 1,844 |
Movement in provisions | (15) | - | 72 |
Cash flows from operating activities | (226) | 5,541 | 8,377 |
Interest paid | (97) | (633) | (726) |
Income tax paid | 25 | (11) | (598) |
Net cash (outflow)/inflow from operating activities | (298) | 4,897 | 7,053 |
Cash flows from investing activities |
(1) The losses for the period ended 30th September 2013 and the year ended 31st March 2013 include the exceptional items set out in Note 4 below.
OpSec Security Group plc
Notes to the Interim Statement
1. Basis of preparation
This interim financial information has been prepared applying the accounting policies that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31st March 2013.
The following new standards, amendments to standards and interpretations issued by the International Accounting Standards Board became effective and have been applied during the period, but have had no material effect on the Group's financial statements:
· IFRS 13 - Fair Value Measurement
· Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7
· Annual Improvements to IFRS - 2009-2011 Cycle
The other amendments to standards and interpretations effective for the first time in the period, being the amendments to IFRS 1 and IAS 19, and the issue of IFRIC20, are not relevant to the Group.
As explained in the Chairman's Statement, the Company is in breach of one of its covenants set against the 30th September 2013 financial results.
The Group meets its day to day working capital requirements through a positive cash balance (£3,249,000 at 30th September 2013) and its bank facilities with JP Morgan Chase ("Chase") which include a revolving credit facility of $2 million that was unutilised at 30th September 2013. The Group also had an outstanding term loan of $13,855,000 at 30th September 2013.
The Group has received informal indications from Chase that it will not withdraw these facilities while the covenants are renegotiated. However, as the Company was in breach of a covenant all amounts outstanding under the term loan have been classified as a current liability in these financial statements.
After taking into account expected trading and cash flows for at least the next 12 months, the existing cash balance, the facilities with Chase and the current financing discussions, the Directors have a reasonable expectation that the Group has adequate resources for the foreseeable future and they continue to adopt the going concern basis in this Interim Statement.
2. Status of financial information
The interim information for the six months ended 30th September 2013 has not been audited or reviewed by the auditors.
The comparative figures for the financial year ended 31st March 2013 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
This interim report is available on the Company's website,www.opsecsecurity.com.
OpSec Security Group plc
Notes to the Interim Statement
3. Segment Information | Six months ended | Six months ended | Year ended | |||
30-Sep-13 | 30-Sep-12 | 31-Mar-13 | ||||
unaudited | unaudited | audited | ||||
£'000 | £'000 | £'000 | ||||
a) Revenue by geographic segment | ||||||
American operations | 17,482 | 11,689 | 28,098 | |||
EMEA operations | 10,830 | 14,583 | 24,825 | |||
Intersegment sales | (874) | (801) | (1,214) | |||
27,438 | 25,471 | 51,709 | ||||
b) Revenue by market sector | ||||||
OpSec Security Group plc Notes to the Interim Statement 4. Operating expenses | |||||
Six months ended | Six months ended | Year ended | |||
30-Sep-13 | 30-Sep-12 | 31-Mar-13 | |||
Unaudited | unaudited | audited | |||
£'000 | £'000 | £'000 | |||
Distribution and Selling Costs | |||||
Selling and marketing costs | 4,484 | 3,691 | 6,829 | ||
Administrative Expenses | |||||
Technical support | 452 | 513 | 1,113 | ||
Research and development costs | 1,592 | 1,155 | 2,541 | ||
Administrative expenses | 3,039 | 3,737 | 7,467 | ||
Exceptional administrative expenses | 1,147 | - | 1,213 | ||
Intangible amortisation | 1,131 | 786 | 1,955 | ||
Intangible impairment | - | - | 2,777 | ||
7,361 | |||||
Exceptional items included within administrative expenses | |||||
Acquisition and other corporate restructuring costs | 116 | - | 482 | ||
Reorganisation costs | 1,031 | - | 227 | ||
Release of provision for contingent consideration - Delta Labelling | - | - | (596) | ||
Increase in provision for contingent consideration - JDSUH | - | - | 657 | ||
Inventory impairment | - | - | 443 | ||
1,147 | - | 1,213 |
The share of operating profit of joint ventures represents the Group's share of the results of 3dcd for the six months ended 30th September 2013. The operating profit of 3dcd is subject to taxation in the accounts of its partners. |
OpSec Security Group plc
Notes to the Interim Statement
6. Finance income and expense | |||||||||
Six months ended | Six months ended | Year ended | |||||||
30-Sep-13 | 30-Sep-12 | 31-Mar-11 | |||||||
unaudited | unaudited | audited | |||||||
£'000 | £'000 | £'000 | |||||||
Financial income | |||||||||
Interest income | - | - | 2 | ||||||
Foreign exchange (losses)/gains on foreign currency deposits | (72) | (19) | 137 | ||||||
(72) | (19) | 139 | |||||||
Financial expenses | |||||||||
Interest expense | (420) | (320) | (721) | ||||||
Amortisation of debt advisor fees | (65) | (65) | (130) | ||||||
(485) | (385) | (851) | |||||||
7. Taxation | |||||||||
The charge for taxation is calculated by applying the Directors' best estimate of the annual effective tax rate to the result for the period. | |||||||||
8. (Loss)/Earnings per share | |||||||||
The calculations of (loss)/earnings per share are based upon the following earnings and numbers of shares. | |||||||||
Six months ended | Six months ended | Year ended | |||||||
30-Sep-13 | 30-Sep-12 | 31-Mar-13 | |||||||
unaudited | unaudited | audited | |||||||
(Loss)/Earnings | £'000 | £'000 | £'000 | ||||||
(Loss)/Earnings for the financial period | (2,152) | 1,721 | (1,740) | ||||||
Exceptional items | 1,147 | - | 1,213 | ||||||
Intangible amortisation | 1,131 | 786 | 1,955 | ||||||
Intangible impairment | - | - | 2,777 | ||||||
Share-based payments | 105 | 240 | 230 | ||||||
Adjusted earnings for the financial period | 231 | 2,747 | 4,435 | ||||||
Weighted average number of shares | No. of shares | No. of shares | No. of shares | ||||||
For Basic (loss)/earnings per share | 77,485,571 | 66,645,993 | 54,827,230 | ||||||
Effect of share options and other awards | 1,029,889 | 605,306 | 345,889 | ||||||
For Diluted (loss)/earnings per share | 78,515,460 | 67,251,299 | 55,173,119 | ||||||
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