Interim Results

 

TIDMQDG 
 
RNS Number : 9526P 
Quadnetics Group PLC 
27 July 2010 
 

+---------------------------------+----------------------------------------+ 
| Press Release                   | 27 July 2010                           | 
+---------------------------------+----------------------------------------+ 
 
 
                              Quadnetics Group plc 
 
              Interim results for the 12 months ended 31 May 2010 
 
Quadnetics Group plc, a leader in advanced video surveillance technology and 
security networks, reports its interim results for the 12 months ended 31 May 
2010. 
 
Highlights 
+-----+-------------------------------------------------------------------+ 
| ·   | Performance benefits of strategic review now evident              | 
|     |                                                                   | 
+-----+-------------------------------------------------------------------+ 
| ·   | Significantly stronger second half, in line with the guidance     | 
|     | provided in February                                              | 
+-----+-------------------------------------------------------------------+ 
| ·   | 12 month underlying Profit Before Tax* increased by 27% to GBP2.3 | 
|     | million (2009: GBP1.8 million)                                    | 
+-----+-------------------------------------------------------------------+ 
| ·   | 12 month Profit before Tax increased by 135% to GBP1.1 million    | 
|     | (2009: GBP0.5 million)                                            | 
+-----+-------------------------------------------------------------------+ 
| ·   | Underlying EPS up 39% to 11.4p (2009: 8.2p)                       | 
|     |                                                                   | 
+-----+-------------------------------------------------------------------+ 
| ·   | Basic EPS up 229% to 5.6p (2009: 1.7p)                            | 
|     |                                                                   | 
+-----+-------------------------------------------------------------------+ 
| ·   | Order book up 61% at GBP27.7m (2009: GBP17.2m)                    | 
|     |                                                                   | 
+-----+-------------------------------------------------------------------+ 
| ·   | 10 major project wins with a total value exceeding GBP13m         | 
|     |                                                                   | 
+-----+-------------------------------------------------------------------+ 
| ·   | Well financed for growth with net cash of GBP4.8m (2009: GBP8.1m) | 
|     |                                                                   | 
+-----+-------------------------------------------------------------------+ 
| ·   | Major operational restructuring completed in the period           | 
|     |                                                                   | 
+-----+-------------------------------------------------------------------+ 
 
*before exceptional reorganisation costs and share-based payments charge. 
 
Commenting on the results, John Shepherd, Chief Executive, said: 
"We said in February that we expected to deliver a much stronger second half and 
that is what we achieved. Market conditions are somewhat mixed overall. However, 
our strategic focus on the protection of critical infrastructure in attractive 
niche markets, has enabled our performance to improve. The expected cutback in 
UK government spending is creating new opportunities for the Group. We are able 
to offer innovative, technologically advanced and highly cost effective 
consolidated surveillance system solutions to multiple local authorities. We 
have introduced a number of new hardware and software products over the last six 
months which are gaining market acceptance, and we expect to maintain this 
increased pace of innovation. The order book position has improved and the 
restructuring programme is delivering benefits - we are positive about the 
outlook for the next six months and beyond." 
 
 
For further information, please contact: 
+---------------------------------------------------+------------------------+ 
| Quadnetics Group plc                              |      Tel: [phone] | 
|                                                   |                 850080 | 
+---------------------------------------------------+------------------------+ 
| John Shepherd, Chief Executive                    |                        | 
+---------------------------------------------------+------------------------+ 
| email: [e-mail]               |                        | 
+---------------------------------------------------+------------------------+ 
| Brewin Dolphin Corporate Advisory and Broking     |   Tel: [phone] | 
|                                                   |                   4726 | 
+---------------------------------------------------+------------------------+ 
| Neil Baldwin                                      |                        | 
+---------------------------------------------------+------------------------+ 
| Buchanan Communications Limited                   |   Tel: [phone] | 
|                                                   |                   5000 | 
+---------------------------------------------------+------------------------+ 
| Isabel Podda / Tim Anderson                       |                        | 
+---------------------------------------------------+------------------------+ 
| email: [e-mail]                    |                        | 
+---------------------------------------------------+------------------------+ 
Chairman's Statement 
 
Introduction 
Because of the previously announced change of financial year end from 31 May to 
30 November, Quadnetics is reporting interim results covering the 12 month 
period to 31 May 2010. Comparative figures are extracted from the Group's 
audited accounts for the year to 31 May 2009. 
I am pleased to report that the results in the second half of this period showed 
a considerable upturn, both compared to the first half, and also to the 
corresponding six months of the previous financial year. The improving trend 
reflects a combination of limited market recovery in some areas and the impact 
of the Group's revised strategy, which has reduced costs and brought tighter 
focus and integration of activities across our divisions. 
 
Results 
Consolidated underlying profit (that is, profit before tax, exceptional 
reorganisation costs and share-based payments charges) for the 12 months was 
GBP2.3 million, up 27% from GBP1.8 million for the comparable period last year. 
This increased profit was earned on revenue that reduced from GBP70.7 million to 
GBP62.7 million. The substantial majority of the revenue decline originated from 
the continuing transition of the Managed Services activities towards fee-based 
services rather than buying and reselling equipment as principal on behalf of 
clients. 
After charging exceptional reorganisation costs of GBP1.1 million (2009: GBP1.4 
million) and share-based payments of GBP146,000 (2009: GBP7,000), the Group 
reported a profit before tax of GBP1.1 million (2009: GBP0.5 million). The 
exceptional reorganisation costs mainly related to restructuring of the 
Integration and Managed Services division's operations in the UK and Middle 
East, and are expected to be the final costs charged for this process. 
Underlying earnings per share for the 12 months increased 39% to 11.4 pence 
(2009: 8.2 pence). 
Net cash at 31 May 2010 was GBP4.8 million (2009: GBP8.1 million), after payment 
of GBP1.1 million of restructuring costs and GBP0.8 million of tax in the 
period. Working capital rose by GBP2.6 million, largely as a result of GBP1.9 
million of negative working capital unwinding from the reduction in equipment 
sales in the Group's Managed Services business referred to above. 
The Group's order book at 31 May 2010 was GBP27.7 million compared with GBP17.2 
million at 31 May 2009. 
 
Dividend 
In this 18 month financial year as we transition to the new November year end, 
the Board has decided to pay a second interim dividend of 2.5 pence per share. 
This amount is unchanged from the interim dividend paid in respect of the first 
six month period, and also from the interim dividend paid in our previous 
financial year. The dividend will be payable on 24 September 2010 to 
shareholders on the register as of 27 August 2010. 
Operating Review 
Integration & Managed Services 
+-------------------------------------+-------------------------------------+ 
| Revenue                             | GBP35.0 million (2009: GBP43.3      | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
| Gross Margin                        | 23.9% (2009: 21.2%)                 | 
+-------------------------------------+-------------------------------------+ 
| Operating Profit*                   | GBP1.6 million (2009: GBP2.3        | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
Quadnetics' IMS division is one of the leading UK providers of design, 
integration, turnkey supply, monitoring and management of large-scale electronic 
security systems. Its main markets are in critical infrastructure, public space 
and multi-site systems. Its capabilities include a nationwide network of service 
engineers, UK government security-cleared personnel and facilities, and an 
in-house 24-hour monitoring centre and help desk. The IMS division supplies 
proprietary products and technology from other Quadnetics divisions as well as 
from third parties. 
In the 12 months to 31 May 2010, revenue declined by 19% to GBP35.0 million. 
This was primarily due to the continuing transition of the managed services 
activities towards fee-for-service and away from the direct sale of third party 
systems and components and, to a lesser extent, to the exit of the division from 
activities outside the UK. The reduction in revenue from third party systems 
also resulted in an increase in gross margin for the period, as planned. 
The IMS division suffered considerable disruption during the period from the 
Group restructuring, involving the consolidation of operational and overhead 
functions between sites, and consequent significant staff redundancies. This 
process is now close to completion, and the benefits of the restructuring should 
become apparent in the remainder of this financial year. 
Important contract wins in the period included the security system for the major 
new Pembroke Power Station at Milford Haven, London Borough of Lambeth system 
upgrade, several HM Prison establishments (including Rampton), West Midlands 
Police and the East Coast Main Line upgrade. 
The strategy of the division is steadily to improve its operating margin and 
revenue base through increased concentration on its specialised critical 
infrastructure customer sector, better exploitation of marketing synergies with 
other divisions and greater use of the in-house technology they provide. 
Although the division relies to a significant degree on government revenues, the 
need for securing important facilities, infrastructure and public spaces in the 
UK remains. As well as the obvious challenges, government budget constraints are 
expected to provide new opportunities for business growth within the high-end 
surveillance market, for example with innovative managed service and control 
room consolidation proposals. 
 
Synectics Network Systems 
+-------------------------------------+-------------------------------------+ 
| Revenue                             | GBP11.8 million (2009: GBP11.7      | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
| Gross Margin                        | 45.2% (2009: 48.3%)                 | 
+-------------------------------------+-------------------------------------+ 
| Operating Profit*                   | GBP1.7 million (2009: GBP2.1        | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
 
Synectics Network Systems provides specialist video-based electronic 
surveillance systems and technology globally to end customers with large scale 
high security requirements, particularly for critical infrastructure protection. 
 It is co-located in our Sheffield facility with the Group Technology Centre 
which provides R&D, products and systems expertise to each of the other 
divisions. 
 
After a weak first six months, especially in the US casino sector, SNS recovered 
well. 
Delayed casino contracts began to come through in the final three months, such 
that US revenues for the 12 month period finished just ahead of last year, 
having been down 32% in the first half. This trend is continuing into the 
current period. Revenues from other markets were marginally ahead of the 
previous year, also with an increased second half bias. 
Synectics continued to deliver systems for protecting important high security 
assets around the world, including a system upgrade for Lambeth Borough Council, 
protection in Durban for the World Cup in South Africa, $3m of sales to existing 
casino customers, and for our first Las Vegas casino - Stratosphere. In addition 
Sandia Casino in New Mexico has announced that we have been selected to supply a 
1400 camera IP surveillance system. 
The reduction in gross margin compared with last year reflected a return to more 
typical margins in this period following increased higher margin sales to the US 
in the second half of last year. 
The re-organisation of Quadnetics' activities in the Middle East under the 
Synectics Network Systems division, and increased resource dedicated to the 
region, negatively affected the division's profits in the period. This is an 
important market for Quadnetics, and the increased investment is expected to 
bear fruit in our next financial year. 
 
Synectics Mobile Systems 
+-------------------------------------+-------------------------------------+ 
| Revenue                             | GBP11.3 million (2009: GBP12.2      | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
| Gross Margin                        | 33.2% (2009: 25.8%)                 | 
+-------------------------------------+-------------------------------------+ 
| Operating Profit*                   | GBP0.9 million (2009: loss GBP(0.1) | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
Synectics Mobile Systems provides specialist ruggedised surveillance systems and 
products for bus, rail security, haulage and defence customers. 
Revenue in the 12 month period was GBP11.3 million (2009: GBP12.2 million) on 
which it earned an operating profit of GBP0.9 million (2009: loss GBP(0.1) 
million). Both the lower sales and increased profit are principally due to 
restructuring of the defence business, which was profitable in the period after 
two loss-making years. We are confident that future prospects for the Group in 
the defence sector are now good. 
The first implementation of Synectics' T1000 mobile digital video recorder on 
the London Underground was successfully completed with further orders expected 
in due course. The division's new "Genius" journey data management system 
continues to make progress in the UK bus market with more than 1600 systems 
already ordered. 
Orders totalling GBP0.4 million have been received for our T1000-based Insight 
360 video recorders for military armoured vehicles, an area of significant 
promise for future growth. 
Other significant contract wins included a three year deal for CCTV systems on 
all new Stagecoach buses, and ten specialist surveillance antennas for the UK 
Government. 
Synectics Industrial Systems 
+-------------------------------------+-------------------------------------+ 
| Revenue                             | GBP6.6 million (2009: GBP6.3        | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
| Gross Margin                        | 33.9% (2009: 28.4%)                 | 
+-------------------------------------+-------------------------------------+ 
| Operating Profit*                   | GBP0.9 million (2009: GBP0.5        | 
|                                     | million)                            | 
+-------------------------------------+-------------------------------------+ 
 
Synectics Industrial Systems designs, manufactures and supplies surveillance 
systems for extreme or hazardous environments. Applications mainly include 
offshore and onshore oil & gas facilities, ships and industrial process control. 
Revenue grew by 5% to GBP6.6 million (2009: GBP6.3 million), and operating 
profits by 84% to GBP0.9 million (2009: GBP0.5 million). Continuing margin 
improvements were driven by manufacturing efficiency gains and an increasing 
proportion of Synectics' proprietary technology in systems sales, as well as by 
a higher proportion of follow-on sales within large contracts. 
Major contracts were won in the following oil & gas projects - Kashagan 
(Thales);  El Merk ( Page Europa); Karan Offshore and Subsea Pipeline 
(Transtel); South Pars 15 & 16 (NesscoInvsat) and Sahil & Shah (Thales). 
Development has been completed on an important new generation of explosion-rated 
camera heads, which will be launched shortly. This new product range will be the 
first we have certified for sale in the North American market as well as the 
rest of the world. 
Although the market for surveillance systems on new-build ships is likely to 
remain depressed for another two years, the oil & gas and process control 
markets remain healthy. 
 
Research and Development 
Group expenditure on technology development during the 12-month period totalled 
GBP1.5 million (2009: GBP1.5 million). Of this, GBP0.5 million (2009: GBP0.2 
million) was capitalised, and the remainder expensed to the profit and loss 
account. 
During the period, the excellent reliability of the T1000 mobile recorder 
allowed us to wind down the development activities at Guildford and to 
consolidate the Group's technical capabilities at our Sheffield site. 
 
Group Strategy and Objectives 
Quadnetics' strategy was set out clearly in our last Annual Report. In summary, 
it is to invest to grow our technology base and market share in three security 
and surveillance end markets with complex or highly critical needs: critical 
infrastructure, on-vehicle surveillance and oil & gas/marine. The specialist 
requirements of these market niches will enable us increasingly to exploit and 
expand the differentiation of our systems solutions from competitor product 
offerings developed for higher volume applications. 
These three markets are regional or global in scope and are specifically 
addressed by our three Synectics divisions: Synectics Network Systems, Synectics 
Mobile Systems and Synectics Industrial Systems respectively. We believe that 
each of these divisions is a fundamentally sound business, with good revenue 
growth opportunities and capable of reaching and sustaining operating profit 
margins in the mid-to-high teens percent (before R&D and Group central costs). 
The Integration and Managed Services division is different in its scope and 
business characteristics. Its core skills are in security systems integration, 
project management and engineering services. It is people-intensive and operates 
mainly in a UK national, or sometimes even local, competitive arena. Its primary 
target market is medium-to-large scale critical infrastructure security projects 
in the UK and, as such, we believe it can increasingly benefit from, and 
contribute to, the success of the Synectics divisions' solutions in that market. 
Given the high bought-in content of sales in this division, we believe a 
realistic sustainable target operating profit margin is in the range of 6-8% 
(before Group central costs). 
Each of our divisions has, and will continue to have, profitable sales outside 
its core target market. Currently these sales are estimated to amount in total 
to be around 40-45% of Group revenues, the majority in the IMS division. Our 
intention is that the proportion of such ancillary sales within the Group will 
reduce over time as growth efforts and investment are directed towards the 
higher margin target market niches. 
Progress towards the Group's objectives will flow in part from continuing the 
closer integration and focus of our overall business, including management and 
administration, technology development and co-operation between divisions. A lot 
of good work has been done in the past year in creating the current divisions 
and moving them collectively towards a single company culture. In addition to 
providing a more efficient and scalable organisation, this platform will also 
allow the Group to manage bolt-on acquisitions effectively, if and when we find 
the right opportunities in line with our strategy. 
We believe that, as now structured, Quadnetics is capable of delivering 
consolidated underlying operating profit margins (after all R&D and central 
costs) in the range of 8-10%, within a reasonable time frame and given normal 
economic conditions. This is obviously a significant step up from 3.7% in the 
most recent 12 month period. Of course, any action to improve the operating 
profit margin will only be taken if it is also consistent with the Group's 
overriding financial objectives, the most important of which is sustainable 
growth in earnings per share. 
 
Outlook 
Based on current firm order books and the pipeline of anticipated new business, 
the Board is positive about the outlook for the next six months.  Improvement 
should be particularly evident in the Synectics Network Systems division, where 
the recovery in the US gaming market looks likely to continue, reinforced by 
sales growth in the Middle East and other markets. 
Although signs of recovery are evident in some markets, there is continuing 
uncertainty in others, especially those dependent on UK government spending. The 
Group's short term plans do not assume any significant improvement in the 
general external environment, but we do anticipate that recent actions will 
allow Quadnetics to increase its share of its target market sectors. 
Overall, the Board is pleased with the progress demonstrated by these results 
and is confident that the restructuring undertaken in the past year has 
positioned the Group well in a fundamentally attractive business area. 
 
 
David Coghlan 
27 July 2010 
 
Condensed Consolidated Statement of Comprehensive Income 
For the 12 months ended 31 May 2010 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
|                                            |       | Unaudited |          |          |     Year | 
|                                            |       |  Year to  |          |          |       to | 
|                                            |       |   31 May  |          |          |   31 May | 
|                                            |       |      2010 |          |          |          | 
|                                            | Notes |   GBP'000 |          |          |     2009 | 
|                                            |       |           |          |          |  GBP'000 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Continuing operations                      |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Revenue                                    |     3 |    62,731 |          |          |   70,655 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Cost of sales                              |       |  (43,051) |          |          | (50,881) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Gross profit                               |       |    19,680 |          |          |   19,774 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Operating expenses                         |       |  (18,572) |          |          | (19,578) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Profit from operations                     |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Excluding exceptional reorganisation costs |     3 |     2,322 |          |          |    1,553 | 
| and share-based payments                   |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Exceptional reorganisation costs           |     4 |   (1,068) |          |          |  (1,350) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Share-based payments charge                |     5 |     (146) |          |          |      (7) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Total profit from operations               |       |     1,108 |          |          |      196 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Finance income                             |       |       279 |          |          |      552 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Finance costs                              |       |     (280) |          |          |    (287) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Share of results of joint venture          |       |         - |          |          |       10 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Profit before tax                          |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Excluding exceptional reorganisation costs |       |     2,321 |          |          |    1,828 | 
| and share-based payments                   |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Exceptional reorganisation costs           |     4 |   (1,068) |          |          |  (1,350) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Share-based payments charge                |     5 |     (146) |          |          |      (7) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Total profit before tax                    |       |     1,107 |          |          |      471 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Income tax expense                         |     6 |     (232) |          |          |    (212) | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Profit for the period                      |       |       875 |          |          |      259 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Other comprehensive income                 |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Exchange differences on translation of     |       |        74 |          |          |      117 | 
| foreign operations                         |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Total comprehensive income                 |       |       949 |          |          |      376 | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Basic and diluted earnings per Ordinary    |     8 |      5.6p |          |          |     1.7p | 
| share                                      |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
| Underlying basic and diluted earnings per  |     8 |     11.4p |          |          |     8.2p | 
| Ordinary share                             |       |           |          |          |          | 
+--------------------------------------------+-------+-----------+----------+----------+----------+ 
 
 
 
 
Condensed Consolidated Statement of Financial Position 
31 May 2010 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
|                                            |         | Unaudited |          |          |          | 
|                                            |         |   31 May  |          |          |   31 May | 
|                                            |         |      2010 |          |          |          | 
|                                            |   Notes |   GBP'000 |          |          |     2009 | 
|                                            |         |           |          |          |  GBP'000 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Non-current assets                         |         |           |          |          |          | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Property, plant and equipment              |         |     1,635 |          |          |    1,809 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Intangible assets                          |       9 |    17,407 |          |          |   17,903 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Deferred tax asset                         |         |       394 |          |          |      414 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Interest in joint venture                  |         |         - |          |          |       55 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
|                                            |         |    19,436 |          |          |   20,181 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Current assets                             |         |           |          |          |          | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Inventories                                |         |     5,913 |          |          |    5,343 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Trade and other receivables                |         |    22,579 |          |          |   22,503 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Cash and cash equivalents                  |         |     4,811 |          |          |    8,111 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
|                                            |         |    33,303 |          |          |   35,957 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Total assets                               |         |    52,739 |          |          |   56,138 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Current liabilities                        |         |           |          |          |          | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Trade and other payables                   |         |  (19,792) |          |          | (21,767) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Tax liabilities                            |         |         - |          |          |    (553) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Current provisions                         |       9 |     (707) |          |          |  (1,585) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
|                                            |         |  (20,499) |          |          | (23,905) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Non-current liabilities                    |         |           |          |          |          | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Non-current provisions                     |       9 |      (75) |          |          |     (75) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
|                                            |         |      (75) |          |          |     (75) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Total liabilities                          |         |  (20,574) |          |          | (23,980) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Net assets                                 |         |    32,165 |          |          |   32,158 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
|                                            |         |           |          |          |          | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Equity attributable to equity holders of   |         |           |          |          |          | 
| parent company                             |         |           |          |          |          | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Called up share capital                    |         |     3,514 |          |          |    3,382 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Share premium account                      |         |    15,719 |          |          |   14,851 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Merger reserve                             |         |     9,565 |          |          |    9,565 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Other reserves                             |         |   (3,486) |          |          |  (2,486) | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Currency translation reserve               |         |       178 |          |          |      104 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Retained earnings                          |         |     6,675 |          |          |    6,742 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
| Total equity                               |         |    32,165 |          |          |   32,158 | 
+--------------------------------------------+---------+-----------+----------+----------+----------+ 
 
 
 
 
Condensed Consolidated Statement of Changes in Equity 
For the 12 months to 31 May 2009 and twelve months to 31 May 2010 
 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
|                          |  Called |   Share |  Merger |          |    Currency |          |   Total | 
|                          |      up | premium | reserve |    Other | translation | Retained | GBP'000 | 
|                          |   share | account | GBP'000 | reserves |     reserve | earnings |         | 
|                          | capital | GBP'000 |         | GBP'000  |     GBP'000 |  GBP'000 |         | 
|                          | GBP'000 |         |         |          |             |          |         | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| At 1 June 2008           |   3,382 |  14,851 |   9,565 |  (2,486) |        (13) |    7,563 |  32,862 | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Profit after tax for the |       - |       - |       - |        - |           - |      259 |     259 | 
| period                   |         |         |         |          |             |          |         | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Dividends paid           |       - |       - |       - |        - |           - |  (1,087) | (1,087) | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Credit in relation to    |       - |       - |       - |        - |           - |        7 |       7 | 
| share-based payments     |         |         |         |          |             |          |         | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Currency translation     |       - |       - |       - |        - |         117 |        - |     117 | 
| adjustment               |         |         |         |          |             |          |         | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| At 31 May 2009           |   3,382 |  14,851 |   9,565 |  (2,486) |         104 |    6,742 |  32,158 | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Issue of shares to ExSOP |     132 |     868 |       - |  (1,000) |           - |        - |       - | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Profit after tax for the |       - |       - |       - |        - |           - |      875 |     875 | 
| period                   |         |         |         |          |             |          |         | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Dividends paid           |       - |       - |       - |        - |           - |  (1,088) | (1,088) | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Credit in relation to    |       - |       - |       - |        - |           - |      146 |     146 | 
| share-based payments     |         |         |         |          |             |          |         | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| Currency translation     |       - |       - |       - |        - |          74 |        - |      74 | 
| adjustment               |         |         |         |          |             |          |         | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
| At 31 May 2010           |   3,514 |  15,719 |   9,565 |  (3,486) |         178 |    6,675 |  32,165 | 
+--------------------------+---------+---------+---------+----------+-------------+----------+---------+ 
 
 
Condensed Consolidated Cash Flow Statement 
For the 12 months ended 31 May 2010 
+--------------------------------------------------+-----------+----------+----------+---------+ 
|                                                  | Unaudited |          |          |         | 
|                                                  |  Year to  |          |          |    Year | 
|                                                  |   31 May  |          |          |      to | 
|                                                  |      2010 |          |          |  31 May | 
|                                                  |   GBP'000 |          |          |         | 
|                                                  |           |          |          |    2009 | 
|                                                  |           |          |          | GBP'000 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Cash flows from operating activities             |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Profit for the period                            |       875 |          |          |     259 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Income tax expense                               |       232 |          |          |     212 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Finance income                                   |     (279) |          |          |   (552) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Finance costs                                    |       280 |          |          |     287 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Depreciation and amortisation charge             |     1,279 |          |          |   1,140 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| (Profit)/loss on disposal of non-current assets  |       (2) |          |          |      51 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Share-based payments charge                      |       146 |          |          |       7 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Operating cash flows before movement in working  |     2,531 |          |          |   1,404 | 
| capital                                          |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Increase in inventories                          |     (511) |          |          | (1,067) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Decrease in receivables                          |       175 |          |          |   7,617 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Decrease in payables and provisions              |   (2,505) |          |          | (5,974) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Cash generated from operations                   |     (310) |          |          |   1,980 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Interest received                                |        21 |          |          |     281 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Tax (paid)/received                              |     (803) |          |          |      56 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Net cash (used in)/from operating activities     |   (1,092) |          |          |   2,317 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Cash flows from investing activities             |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Purchase of property, plant and equipment        |     (369) |          |          |   (460) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Sale of property, plant and equipment            |         - |          |          |      46 | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Capitalised development costs                    |     (483) |          |          |   (174) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Purchased software                               |     (216) |          |          |    (68) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Deferred consideration on acquisition made in    |      (79) |          |          |   (382) | 
| 2005                                             |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Interest in joint venture                        |         - |          |          |    (45) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Net cash used in investing activities            |   (1,147) |          |          | (1,083) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Cash flows from financing activities             |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Interest paid                                    |      (16) |          |          |    (11) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Dividends paid                                   |   (1,088) |          |          | (1,087) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Net cash used in financing activities            |   (1,104) |          |          | (1,098) | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Effects of exchange rate changes on cash and     |        43 |          |          |      35 | 
| cash equivalents                                 |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Net (decrease)/increase in cash and cash         |   (3,300) |          |          |     171 | 
| equivalents                                      |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Cash and cash equivalents at the beginning of    |     8,111 |          |          |   7,940 | 
| the period                                       |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
| Cash and cash equivalents at the end of the      |     4,811 |          |          |   8,111 | 
| period                                           |           |          |          |         | 
+--------------------------------------------------+-----------+----------+----------+---------+ 
Notes 
1.      General information 
These consolidated interim financial statements were approved by the Board of 
Directors on 27 July 2010. 
The Board has announced a change in the Company's year end to 30 November, by 
extending its current financial year to 30 November 2010.  The Company has 
already provided an interim report for the six months to 30 November 2009.  This 
is the second interim report for the twelve months to 31 May 2010, ensuring 
transparency and comparability with prior financial years. A full annual report 
and audited accounts will be provided for the 18 months to 30 November 2010. 
2.      Basis of preparation 
These consolidated interim financial statements of the Group are for the 12 
months ended 31 May 2010. 
The comparative figures for the financial year ended 31 May 2009 are not the 
Group's statutory accounts for that financial year.  Those statutory accounts 
have been reported on by the Group'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 237 (2) or (3) of the Companies Act 1985. 
The condensed consolidated interim financial statements do not include all the 
information and disclosures required in the annual financial statements and 
should be read in conjunction with the Group's annual financial statements as at 
31 May 2009. 
The condensed consolidated interim financial statements for the twelve months to 
31 May 2010 have not been audited or reviewed by auditors pursuant to the 
Auditing Practices Board guidance on Review of Interim Financial 
Information. 
 
 The condensed consolidated interim financial statements for 
the twelve months to 31 May 2010 have been prepared on the basis of the 
accounting policies expected to be adopted for the period ended 30 November 
2010.  These are anticipated to be consistent with those set out in the Group's 
latest annual financial statements for the year ended 31 May 2009. These 
accounting policies are drawn up in accordance with adopted International 
Accounting Standards (IAS) and International Financial Reporting Standards 
(IFRS) as issued by the International Accounting Standards Board. 
Significant accounting policies 
AIM-listed companies are not required to comply with IAS 34 'Interim Financial 
Reporting' and accordingly the Company has taken advantage of this exemption. 
3.      Segmental analysis 
The analysis below sets out the Group's revenue and underlying operating profit 
(operating profit before exceptional reorganisation costs and share-based 
payments charge) derived from the Group's four business segments which were 
identified in the Group's 2009 Annual Report following a restructuring of the 
Group's activities at the start of this period. Comparative figures have been 
restated accordingly. 
 
+----------------------------------------------+-----------+----------+----------+---------+ 
|                                              | Unaudited |          |          |         | 
|                                              |  Year to  |          |          |    Year | 
|                                              |   31 May  |          |          |      to | 
|                                              |      2010 |          |          |  31 May | 
|                                              |   GBP'000 |          |          |         | 
|                                              |           |          |          |    2009 | 
|                                              |           |          |          | GBP'000 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Revenue                                      |           |          |          |         | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Integration & Managed Services               |    35,025 |          |          |  43,325 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Network Systems                              |    11,789 |          |          |  11,655 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Mobile Systems                               |    11,271 |          |          |  12,241 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Industrial Systems                           |     6,589 |          |          |   6,305 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Intra-group sales                            |   (1,943) |          |          | (2,871) | 
+----------------------------------------------+-----------+----------+----------+---------+ 
|                                              |    62,731 |          |          |  70,655 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Underlying operating profit                  |           |          |          |         | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Integration & Managed Services               |     1,582 |          |          |   2,251 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Network Systems                              |     1,655 |          |          |   2,067 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Mobile Systems                               |       885 |          |          |    (81) | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Industrial Systems                           |       872 |          |          |     473 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Research & Development costs                 |     (983) |          |          | (1,340) | 
+----------------------------------------------+-----------+----------+----------+---------+ 
| Central costs                                |   (1,689) |          |          | (1,817) | 
+----------------------------------------------+-----------+----------+----------+---------+ 
|                                              |     2,322 |          |          |   1,553 | 
+----------------------------------------------+-----------+----------+----------+---------+ 
 
 
4.      Exceptional reorganisation costs 
Following the strategic review announced in February 2009, further 
reorganisation costs of GBP1,068,000 have been expensed in the period, 
5.      Share-based payments charge 
A new Group Executive Share Ownership Plan (the 'ExSOP') was introduced in July 
2009 and awards were made under this scheme in July and September 2009 and the 
previous Long Term Incentive Plan has been discontinued. Accordingly a 
share-based payment charge of GBP146,000 arises in respect of the ExSOP during 
the period. 
6.      Tax charge 
The tax charge for the period is based on the estimated rate of corporation tax 
that is likely to be effective for the eighteen months to 30 November 2010. 
7.      Dividends 
A second interim dividend of 2.5p per share, totalling approximately GBP388,000 
will be paid on 24 September 2010 to shareholders on the register as at 27 
August 2010. 
8.      Earnings per share 
Earnings per Ordinary share are as follows: 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
|                                      | Unaudited |          |         | Unaudited |        | 
|                                      |   Year to |          |    Year |           |   Year | 
|                                      |    31 May |          |      to |   Year to |     to | 
|                                      |      2010 |          |      31 |    31 May |     31 | 
|                                      |   GBP'000 |          |     May |      2010 |    May | 
|                                      |           |          |    2009 |         p |   2009 | 
|                                      |           |          | GBP'000 |           |      p | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Basic earnings                       |       875 |          |     259 |       5.6 |    1.7 | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Exceptional reorganisation costs     |     1,068 |          |   1,350 |       6.9 |    8.7 | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Impact of exceptional reorganisation |     (271) |          |   (342) |     (1.7) |  (2.2) | 
| costs on tax charge for the year     |           |          |         |           |        | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Share-based payments charge          |       146 |          |       7 |       0.9 |      - | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Impact of share-based payments       |      (41) |          |     (2) |     (0.3) |      - | 
| charge on tax charge for the period  |           |          |     (2) |           |      - | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Underlying earnings                  |     1,777 |          |   1,272 |      11.4 |    8.2 | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Basic earnings - diluted             |       875 |          |     259 |       5.6 |    1.7 | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Underlying earnings - diluted        |     1,777 |          |   1,272 |      11.4 |    8.2 | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
|                                      |      '000 |          |         |           |   '000 | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Weighted average number of Ordinary  |    15,529 |          |         |           | 15,529 | 
| shares - basic calculation           |           |          |         |           |        | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Dilutive potential Ordinary shares   |         1 |          |         |           |      - | 
| arising from share options           |           |          |         |           |        | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
| Weighted average number of Ordinary  |    15,530 |          |         |           | 15,529 | 
| shares - diluted calculation         |           |          |         |           |        | 
+--------------------------------------+-----------+----------+---------+-----------+--------+ 
 
 
9.      Provisions 
 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
|                            |      Deferred | |               | | Property | |         | 
|                            | consideration | | Restructuring | |  GBP'000 | |   Total | 
|                            |       GBP'000 | |       GBP'000 | |          | | GBP'000 | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
|                            |               | |               | |          | |         | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
| At 1 June 2009             |           755 | |           776 | |      129 | |   1,660 | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
| Charge to income statement |             - | |         1,068 | |        - | |   1,068 | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
| Utilised in year           |          (79) | |       (1,137) | |     (54) | | (1,270) | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
| Deferred consideration     |         (663) | |             - | |        - | |   (663) | 
| adjustment *               |               | |               | |          | |         | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
| Currency translation       |          (13) | |             - | |        - | |    (13) | 
| adjustment                 |               | |               | |          | |         | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
| At 31 May 2010             |             - | |           707 | |       75 | |     782 | 
+----------------------------+---------------+-+---------------+-+----------+-+---------+ 
Provisions have been analysed between current and non-current as follows: 
+----------------------+--------+-------+---------+-+---------+-+---------+ 
|                      |        |       |         | |  31 May | |  31 May | 
|                      |        |       |         | |    2010 | |    2009 | 
|                      |        |       |         | | GBP'000 | | GBP'000 | 
+----------------------+--------+-------+---------+-+---------+-+---------+ 
|                      |        |       |         | |         | |         | 
+----------------------+--------+-------+---------+-+---------+-+---------+ 
| Current              |        |       |         | |     707 | |   1,585 | 
+----------------------+--------+-------+---------+-+---------+-+---------+ 
| Non-current          |        |       |         | |      75 | |      75 | 
+----------------------+--------+-------+---------+-+---------+-+---------+ 
|                      |        |       |         | |    782  | |   1,660 | 
+----------------------+--------+-------+---------+-+---------+-+---------+ 
* In May 2005, the Group acquired the trade and net assets of AlphaPoint LLC, a 
specialist provider of digital surveillance technology in North America, for a 
total consideration of up to $3.3 million, made up of $1.3 million in cash and 
Ordinary shares of the Company, plus a further amount in cash, capped at $2 
million, which was dependent on the future profits of the business. Following 
the conclusion of the earn-out period surplus provisions for deferred 
consideration of GBP0.7m have been credited back to goodwill. 
The restructuring provision primarily relates to redundancy and related costs 
and costs of rationalising certain properties. 
10.    Copies of this statement will be sent to shareholders and will be 
available on the Group's website (www.quadnetics.com) and from Quadnetics Group 
plc, Haydon House, 5 Alcester Road, Studley, Warwickshire B80 7AN. 
 
                                    - Ends - 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
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