Acquisition

RNS Number:4147L
Quadnetics Group PLC
22 April 2005



Quadnetics Group plc
22 April 2005

Acquisition, Major Contract Win and Trading Update

Acquisition
Quadnetics Group plc, a leader in the design, integration and control of
advanced CCTV and networked video surveillance systems, announces that it has
agreed to acquire the trade and assets of Alphapoint LLC, a specialist provider
of digital surveillance technology in the North American market, for a maximum
total consideration of approximately $US3.3 million. Initial consideration,
payable on completion in mid May, will be approximately $US900,000, of which
$US700,000 will be payable in cash and $US200,000 in approximately 33,000
ordinary shares of the Company. The management team of Alphapoint will be
remaining with the business, and further consideration of up to $US2.0 million
in cash and $US0.4 million in approximately 66,000 Quadnetics shares will be
payable, depending on profits over the next four years. Alphapoint, based in
Santa Barbara, California is one of a small number of US based specialist
security IT organisations working in the IP (Internet Protocol) CCTV field, with
particular focus on casinos. In the year to 31 December 2004, Alphapoint had
unaudited turnover of $US4.3 million and profit before tax of $US0.35 million.
At 31 December 2004, Alphapoint's unaudited net assets were approximately $US0.4
million.

Quadnetics believes that the resources and capabilities of Alphapoint's
business, trading as Synectic Systems, Inc. in North America, will further
accelerate the penetration of Synectics technology into the casino, homeland
defence and transportation security surveillance sectors of the North American
digital CCTV market.

Major contract award
The Company is also pleased to announce that it has secured a further order of
approximately $US3 million to supply Synectics digital CCTV technology for four
additional casinos in Canada. A significant proportion of this order will be
completed within the Company's current financial year. The order follows
successful commissioning for the same customer of what is believed to be the
largest real time digital CCTV system in the world so far.

Trading Update
On the basis of currently anticipated deliveries over the final two months, the
Board of Quadnetics expects that profit before tax and goodwill amortisation for
the year to 31 May 2005 will fall within the range of #2.6 million to #3.0
million, which is below current market expectations of around #3.5 million.
Turnover for the year will be approximately #27 million which would represent an
increase of around 50% on the previous year. Slightly more than half of this
turnover increase is organic growth and the remainder the result of the
acquisition of Look CCTV and Coex in February 2004.

The potential variation in profit depends primarily on what proportion of the
high volume of sales expected to be made by Synectics in the next three months,
following recent and immediately anticipated order wins, will arise before the
year-end. After goodwill amortisation of #(0.4) million, and the positive impact
of recognising a deferred tax asset of #0.4 million, reported net profit after
tax is likely to be in the range of #1.8 million to #2.1 million.

The performance of Synectics during the year continues to be outstanding, and
fully in line with expectations. Turnover is expected to grow by over 100% to in
excess of #8 million, with operating profit margins increasing to around 18%.
The market for large-scale digital surveillance systems remains buoyant,
particularly in North America, and all indications are that Synectics'
technology and systems solutions are becoming increasingly recognised as among
the best available. Export sales to North America will have increased from a
very low base in 2003/4 to over $US5 million in the current year. The
establishment of a permanent US base, through the acquisition of Alphapoint,
should support significant further growth.

Elsewhere, Look CCTV has had lower than planned installation completions this
year, due primarily to the financial collapse of the parent company of Transbus,
its largest customer. Look's strong ties with the bus operating companies have
enabled it to maintain market share through this transition period and to
develop closer working relationships with Transbus' new owners, Alexander
Dennis. Look has now been appointed as preferred supplier by Alexander Dennis
for a three year period. Planned increases in infrastructure and sales and
marketing expenditure have been made to enable penetration into new geographical
and product areas, and to increase the proprietary elements of the systems Look
supplies. These expenditures have reduced net operating margins to a still very
creditable 18% for the current year, and are expected to provide a solid
platform for future growth. Overall, Look's profit contribution will be
satisfactory for the current year, although somewhat below original
expectations.

As announced in the Company's interim statement in January 2005, contract awards
and completions at Quadrant Video Systems in the first half of the year were
lower than anticipated. The situation has reversed in the second half, with
turnover increasing by around 25% compared with the first half, and the run-rate
of activity returning to planned levels. Although it now appears that not all of
the first half shortfall in operating profits against budget will be made up in
the second half, the business continues to produce strong operating margins and
will have very positive momentum going into next year.

Coex, the Marine and Explosion-rated specialist acquired last year, has been
developing the next generation solutions for advanced CCTV monitoring and
control in hazardous environments, particularly within the oil and gas industry.
Proprietary Synectics technology will be incorporated in future versions of
these solutions. As new management, financial systems and sales resources have
been brought in, the business was not anticipated to make a significant
contribution to Group results in the current year. The actual result is likely
to be a small operating loss. The changes in structure and capability have
enabled Coex to address larger and more complex sales, with the objective of
securing for the Group a large share of this specialist global surveillance
market. The Board is pleased with progress to date and, in particular, with
recent orders from Far East shipyards worth initially around #0.8 million, with
substantial follow-on orders likely.

The Board believes Quadnetics is making significant progress in all of its
target areas and achieving real success in extending its reach into new vertical
and geographic market sectors. Underlying operating profits in the second half
will be substantially higher than in the first half, and the current run-rate is
satisfactorily in line with the Company's operating plan in absolute terms. The
Company intends to strengthen the senior management team in line with the
increased growth and geographical spread of its activities, and expects to make
important new Group-level appointments shortly.

Quadnetics' primary objective remains to seek out or develop opportunities to
establish Synectics technology and systems with significant market share in a
number of specialist sectors in the global digital CCTV surveillance market,
particularly public space surveillance, casinos, government security services,
transportation and oil & gas. Progress in the current year has been particularly
pleasing in respect of the high rate of profit and revenue growth Synectics is
now achieving. The Company's overall pipeline of business, in particular for
Synectics in both the UK and North America, gives considerable confidence for
next year.

Russ Singleton, Chief Executive, commented:

"We expect the acquisition of Alphapoint, bringing with it a team of respected
industry professionals in the US digital CCTV surveillance market, to
significantly enhance our capability to achieve our ambitious growth objectives
in North America. With existing contract wins, Synectics has already established
that its technology is highly competitive in this market, and we look forward to
increasing our share of the major growth opportunities now emerging."


Enquiries:

Peter Curtain / Ariane Vacher                  Tel: [phone]
Abchurch Communications
[e-mail]

Neil Baldwin                                   Tel: [phone]
Brewin Dolphin Securities
[e-mail]
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