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Evolving Surveillance Solutions · 2019. 2. 19. · The Group’s balance sheet remained ungeared,...
Transcript of Evolving Surveillance Solutions · 2019. 2. 19. · The Group’s balance sheet remained ungeared,...
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Contents
Chairman’s Statement 02
Business Review 05
Board of Directors and Advisers 16
Senior Management 18
Report of the Directors 20
Independent Auditors’ Report 28
Consolidated Income Statement 30
Consolidated Statement of Recognised Income and Expense 30
Consolidated Balance Sheet 31
Consolidated Cash Flow Statement 32
Notes to the Financial Statements 33
Company Balance Sheet 65
Notes to the Company Financial Statements 66
Principal Subsidiaries 74
Adoption of New Articles of Association 75
Notice of Meeting 77
Form of Proxy 79
Quadnetics Group plc is a leader in the development,
design, integration and management of advanced surveillance
technology and security networks.
We are a UK company listed on the Alternative Investment
Market (AIM) of the London Stock Exchange with over 450
employees in the UK, the United States and in the Middle East.
We deliver security and surveillance solutions directly to end-
users through Quadrant Security Group, our security services
business, and our applications software, control systems and
imaging technology products business, Synectics, supplies its
products worldwide through a network of systems integrators,
distributors and agents.
www.quadnetics.com
www.quadnetics.comTel: +44 (0)1527 850080Fax: +44 (0)1527 850081email: [email protected]
Quadnetics Group plcHaydon House5 Alcester RoadStudleyWarwickshireB80 7ANEngland
Evolving Surveillance Solutions
Evolving Surveillan
ce Solutions
Quadnetics Group plcannual report and accounts 2008
Quadnetics G
roup plc an
nual rep
ort and accoun
ts 2008
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Contents
Chairman’s Statement 02
Business Review 05
Board of Directors and Advisers 16
Senior Management 18
Report of the Directors 20
Independent Auditors’ Report 28
Consolidated Income Statement 30
Consolidated Statement of Recognised Income and Expense 30
Consolidated Balance Sheet 31
Consolidated Cash Flow Statement 32
Notes to the Financial Statements 33
Company Balance Sheet 65
Notes to the Company Financial Statements 66
Principal Subsidiaries 74
Adoption of New Articles of Association 75
Notice of Meeting 77
Form of Proxy 79
Quadnetics Group plc is a leader in the development,
design, integration and management of advanced surveillance
technology and security networks.
We are a UK company listed on the Alternative Investment
Market (AIM) of the London Stock Exchange with over 450
employees in the UK, the United States and in the Middle East.
We deliver security and surveillance solutions directly to end-
users through Quadrant Security Group, our security services
business, and our applications software, control systems and
imaging technology products business, Synectics, supplies its
products worldwide through a network of systems integrators,
distributors and agents.
www.quadnetics.com
www.quadnetics.comTel: +44 (0)1527 850080Fax: +44 (0)1527 850081email: [email protected]
Quadnetics Group plcHaydon House5 Alcester RoadStudleyWarwickshireB80 7ANEngland
Evolving Surveillance Solutions
Evolving Surveillan
ce Solutions
Quadnetics Group plcannual report and accounts 2008
Quadnetics G
roup plc an
nual rep
ort and accoun
ts 2008
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Our Strategy
Our Markets Our StrengthsServices
■ INTEGRATED SYSTEMS■ MOBILE SURVEILLANCE■ SUPPORT SERVICES
Quadrant Security Group is one of thelargest independent integrated securitysystems providers in the UK, delivering totalsecurity and surveillance solutions fromconsultancy, systems design, projectmanagement, installation and training, throughto fully outsourced facilities management, allbacked up by our own 24 hour call centre andnationwide support teams.
Products and Software
■ SECURITY NETWORKS■ INDUSTRIAL SYSTEMS■ SURVEILLANCE TECHNOLOGY
Synectics, our surveillance technologybusiness, has operations in the UK andUSA. Our award-winning products are inuse in large numbers of major urbansurveillance schemes and other applications.Demand for our technology is increasingfrom end-users, OEMs and distributorsworldwide in response to the need fordurable high performance solutions forcritical surveillance applications.
Our strategy is to:
� Focus on customer sectors where the electronic security
systems have a critical cost-of-failure or extreme
environmental requirements.
� Develop our core of increasingly software-based proprietary
technology, adapted to the specialist needs of our target
customer sectors.
� Expand the scope of applications and innovative services
provided to these customers to maximise market share.
� Seek further bolt-on acquisitions to add market share,
specialist capabilities and/or geographical position in our
chosen sectors.
Turnover
£79.2 millionUnderlying Profit*
£3.7 millionCash Balances
£7.9 millionEmployees
455
UK & Rest of the WorldThe UK (and Rest of the World) is our largest market,accounting for 88% of total sales.
North AmericaOur North American activities, which are currently focusedprimarily on the gaming sector, were the fastest growingpart of our business in 2008 with sales increasing by 31%.
Middle EastWe are currently expanding our operations in the MiddleEast to capitalise on the growing opportunities in theregion.
Far EastWe currently supply products for use in hazardous orextreme environments to the Far East. With 23% salesgrowth in 2008, we feel the region will becomeincreasingly important to us.
Our Focus
Everything we do starts and ends with the customer:
� We design solutions using the best of breed components
to deliver reliable and value for money services.
� Where no off-the-shelf component exists to meet our
customer’s needs we will design one.
� We innovate and bring to the market valuable products
and services to improve performance and drive down
costs.
� We establish long term customer relationships through
the provision of ongoing services and support.
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Our Strategy
Our Markets Our StrengthsServices
■ INTEGRATED SYSTEMS■ MOBILE SURVEILLANCE■ SUPPORT SERVICES
Quadrant Security Group is one of thelargest independent integrated securitysystems providers in the UK, delivering totalsecurity and surveillance solutions fromconsultancy, systems design, projectmanagement, installation and training, throughto fully outsourced facilities management, allbacked up by our own 24 hour call centre andnationwide support teams.
Products and Software
■ SECURITY NETWORKS■ INDUSTRIAL SYSTEMS■ SURVEILLANCE TECHNOLOGY
Synectics, our surveillance technologybusiness, has operations in the UK andUSA. Our award-winning products are inuse in large numbers of major urbansurveillance schemes and other applications.Demand for our technology is increasingfrom end-users, OEMs and distributorsworldwide in response to the need fordurable high performance solutions forcritical surveillance applications.
Our strategy is to:
� Focus on customer sectors where the electronic security
systems have a critical cost-of-failure or extreme
environmental requirements.
� Develop our core of increasingly software-based proprietary
technology, adapted to the specialist needs of our target
customer sectors.
� Expand the scope of applications and innovative services
provided to these customers to maximise market share.
� Seek further bolt-on acquisitions to add market share,
specialist capabilities and/or geographical position in our
chosen sectors.
Turnover
£79.2 millionUnderlying Profit*
£3.7 millionCash Balances
£7.9 millionEmployees
455
UK & Rest of the WorldThe UK (and Rest of the World) is our largest market,accounting for 88% of total sales.
North AmericaOur North American activities, which are currently focusedprimarily on the gaming sector, were the fastest growingpart of our business in 2008 with sales increasing by 31%.
Middle EastWe are currently expanding our operations in the MiddleEast to capitalise on the growing opportunities in theregion.
Far EastWe currently supply products for use in hazardous orextreme environments to the Far East. With 23% salesgrowth in 2008, we feel the region will becomeincreasingly important to us.
Our Focus
Everything we do starts and ends with the customer:
� We design solutions using the best of breed components
to deliver reliable and value for money services.
� Where no off-the-shelf component exists to meet our
customer’s needs we will design one.
� We innovate and bring to the market valuable products
and services to improve performance and drive down
costs.
� We establish long term customer relationships through
the provision of ongoing services and support.
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01 Quadnetics Group plc Annual Report and Accounts 2008
■ Revenue £79.2 million (2007: £66.1 million), with sales to North American gamingsector increasing 27%
■ Underlying profit* before tax £3.7 million (2007: £5.3 million)
■ Profit before tax £4.4 million (2007: £4.4 million)
■ Underlying EPS* 18.9p (2007: 25.9p)
■ Basic EPS 21.6p (2007: 21.1p)
■ Recurring revenue £14.1 million (2007: £11.5 million)
■ Proposed final dividend 4.5p per share making 7.0p for the full year
■ Significant increase in product development activities, with successful launch of new product range
■ Net cash at 31 May 2008 £7.9 million (2007: £5.6 million)
Financial and Operational Highlights
This was a year of considerable progress in anumber of areas, in particular in strengthening ourportfolio of specialist product and service solutionsfor electronic surveillance in difficult or complexenvironments. Russ Singleton Chief Executive
Revenue£’000
Underlying profit* £’000
Underlying earnings per Ordinary sharepence
Dividends per share pence
7.0
6.0
5.0
4.0
3.0
2008
2007
2006
2005
2004
18.9
25.9
24.2
20.021.2
2008
2007
2006
2005
2004
3,730
5,314
3,614
2,661
2,328
2008
2007
2006
2005
2004
79,174
66,065
49,642
26,761
18,079
2008
2007
2006
2005
2004
www.quadnetics.com
* 2004, 2005 and 2006 measures of underlying profit and underlying earnings per share are based on previously reportedUK GAAP results whereas 2007 and 2008 are presented under adopted IFRS. There is no material difference between theunderlying UK GAAP and IFRS calculations. Underlying profit represents profit before tax, goodwill amortisation or goodwillreduction, exceptional items and share-based payments charge. Underlying earnings per Ordinary share is based on profitafter tax but before goodwill amortisation or goodwill reduction, exceptional items and share-based payments charge.
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02 Quadnetics Group plc Annual Report and Accounts 2008
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“2007/8 was in many ways a challenging year for Quadnetics, asthe Company made the transition to a new platform of coreproprietary technology and products.”David Coghlan Chairman
Chairman’s Statement
Introduction2007/8 was in many ways a challenging year for Quadnetics, as theCompany made the transition to a new platform of core proprietarytechnology and products. This transition brought with it a necessarymove to more structured development and operating disciplines toenable the Group to generate and manage continuing future growth.
In the event, Quadnetics produced underlying profits for the yearthat were somewhat down on the record results of the previousyear, though still relatively solid against a testing market background.
ResultsIn the year to 31 May 2008, Quadnetics recorded underlying profit(that is, profit before tax, goodwill reduction and share-basedpayment costs) of £3.7 million (2007: £5.3 million) on turnover thatincreased to £79.2 million (2007: £66.1 million). The primary reasonsfor the decrease in consolidated operating margin are set out in theBusiness Review on page 5. Profit before tax was £4.4 million(2007: £4.4 million), reflecting the benefit of the write-back ofpreviously expensed share-based payment costs.
Sales in the nature of recurring revenue, primarily maintenance andmanaged services, are a key measure targeted by the Group. Theseincreased by 23% to £14.1 million (2007: £11.5 million).
Underlying earnings per share were 18.9p (2007: 25.9p).
The Group’s balance sheet remained ungeared, with net cash at 31 May 2008 of £7.9 million (2007: £5.6 million). Cash inflow duringthe year was aided exceptionally by the £2.1 million sale and
leaseback of Synectics’ new building in Sheffield. Free cash flow, thatis cash inflow from operations less capital expenditure, was solid at£2.5 million (2007: £(0.1) million), despite significantly increaseddevelopment expenditure of £1.1 million on Synectics’ new products.
DividendThe Board is proposing a final dividend of 4.5p (2007: 4.0p) payable on 5 December 2008 to shareholders on the register on 7 November 2008. If approved by shareholders, this would bring the total dividend for the full year to 7.0p (2007: 6.0p). This totaldividend cost of £1.1 million is covered 3.1 times by earnings, andthe proposed increase reflects the Board’s confidence in theprospects of the Group.
PeopleOnce again I would like to thank Quadnetics’ employees on behalf ofthe Board for their continuing efforts and commitment to the successof the Group. I am regularly and pleasantly surprised by theextraordinary lengths many of our people go to in order better toserve our customers, and therefore build the value of our businesses.
OutlookIn my statement last year, I listed certain market trends theCompany perceived as important to the future shape of theelectronic security and surveillance systems market in which weoperate. These were that:
– an understanding of information technology and networking willcontinue to create opportunities and ultimately be vital forsuccess at any level;
– margins available on most hardware sales will be heavily erodedover time;
– sales and margins from software will grow and are likely to besustainable;
– security systems integrators will continue to consolidate,becoming bigger, more diverse and more global;
– information technology companies will seek and gain anincreasing share of the security market;
– digital video surveillance is still sufficiently complex anddemanding that it is unlikely to become simply a sub-set of the ITindustry, at least not for many years;
– certain specialist customer applications requirements are likely todiverge increasingly from mainstream high volume market offerings.
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Despite a longer and more expensive development cycle than
originally anticipated, we are increasingly confident of the prospects
for Synectics’ new products. In the current year Synectics expects
to make substantial sales of these products; nevertheless, because
of amortisation of capitalised development costs and lower margins
on initial batches of low volume manufacture units, as well as launch
marketing costs in the UK and other markets, their first net
contribution to Group profits is likely to be in 2009/10. As a result of
this continued investment, and uncertainties in the immediate future
for the UK and global economies generally, Quadnetics’ businesses
are being managed in the expectation of fairly modest financial
progress this year.
Overall, the Board remains confident in the quality and growth
potential of the Group’s business, and is reassured by the resilience
Quadnetics enjoys from its profitability, diversified revenue base and
ungeared balance sheet.
David Coghlan
Chairman
3 September 2008
03 Quadnetics Group plc Annual Report and Accounts 2008
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Our belief at the time was that Quadnetics was well positioned to
address these trends, in particular because of its critical mass,
extensive experience in the technologies of digital video, leading
market positions in certain customer sectors, record of successful
acquisitions, and its heritage of combining both technology
development and customer applications integration.
That belief has not changed and, if anything, these trends now look
to be accelerating.
The general economic background has deteriorated and Quadnetics
clearly is not immune from these macro-economic effects. We are
fortunate, however, in that many of the end users of our products
and services are in sectors of the economy that are, currently at
least, less exposed to the downturn. Although our financial services
and defence customer sectors are showing signs of weakness, our
markets overall, judged by the visible pipeline of future business we
have won or expect to win imminently, look to be holding up well.
The Company anticipates that position continuing, though with a
lesser degree of confidence than we would ideally like. Our firm
order book at 31 May 2008 was £22.5 million
(31 May 2007: £26.9 million) but as at 31 July 2008 had risen to
£31.1 million (31 July 2007: £26.7 million).
We remain confident in the quality and growth potential of the Group’s business, and are reassured by the resilience Quadnetics enjoys from its profitability, diversified revenue base and ungeared balance sheet.
www.quadnetics.com
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04 Quadnetics Group plc Annual Report and Accounts 2008
The electronic security and surveillance market is large, growing and in the process of fundamental structural change.
Quadnetics has been consistently beatingcompetitors by demonstrating the value and strength of its products and services.
Electronic surveillancesystems (‘ESS’) market
■ UK & Rest of World
■ North America
■ Middle East
■ Far East
Global ESS market(2007 Sources: Key Note, Frost & Sullivan, Company estimates)
£20bn
49%40%
Quadnetics turnover bygeographical segment
£79m
88%
1% 3%8%
Global ESS* market product sectors(2007 Sources: Key Note, Frost & Sullivan, Company estimates)
£20bn
27%
28%20%
25%
IntruderAlarms
VideoSurveillance
AccessControlIntegrated
Systems /Other
* Excluding Fire Detection and Remote Monitoring
5% 6%
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Business Review
Russ SingletonChief Executive
Nigel PoultneyFinance Director
2008 OverviewLast year was a challenging year for the Group as we continued togrow the scale of our business and increased total sales by 20% to£79 million, with each division posting an increase in turnover overthe previous year. Some of this increase related to low margin pass-through sales in our security management activities but even afteradjusting for this, the underlying top line sales growth was 12%.
Underlying profits fell back from last year’s record high to £3.7 million (2007: £5.3 million) due to a number of factors. Some ofthese were internal and related to higher than anticipated costs tocomplete important contracts in our hazardous area and defencesurveillance operations, but we were also affected by higher thanexpected raw material costs, particularly for stainless steel, used inour camera stations for hazardous area surveillance projects whichwere bid on fixed-price long-term programmes with limited pricingflexibility.
The performance of our two divisions, Quadrant Security andSynectics, is reviewed in more detail below:
Quadrant SecurityThe Group’s security services division, providing integrated securitysystems, security management support and mobile surveillanceservices.
Turnover £58 millionUnderlying Operating Profit £3.5 million
Quadrant Security Group (“Quadrant”) achieved an overall increaseof 24% in turnover for the year to £57.9 million (2007: £46.6 million).Of this growth, around half came from the increase in pass-throughturnover mentioned above, so a fairer measure of actual achievedgrowth would show an increase of 12%. Although operating profitsfrom the division declined from £4.2 million to £3.5 million, this reduction was entirely due to the previously flaggedexpected decline in profits from the run-off of old contracts withinthe security management activities. The overall result for the divisionwas in line with the Board’s expectations for the year.
As reported at the interim stage, the UK systems integrationactivities suffered in the first half from delays in award of centralgovernment contracts in the high security area. This effect waslargely reversed in the second half, with resulting much improvedturnover and profit levels compared with both the first half and thesecond half of the prior year.
Of particular note was the good progress made in our on-vehicleCCTV activities, which enjoyed a strong year in almost all aspects of itsoperations. In July we announced we had signed a new £1.5 millioncontract for the supply, installation and maintenance of CCTV onStagecoach’s new buses. The 12-month deal will ensure all new busesordered by Stagecoach in 2008/9 are fitted with state-of-the-art digitalCCTV systems from Look CCTV, a subsidiary of Quadnetics.
Contributions from our Middle East activities were well below ourexpectations in 2007/8 with sales being 37% below last year’slevels, despite very high levels of pre-sales activity and investment inestablishing a limited liability subsidiary within the Kingdom of SaudiArabia and obtaining the necessary official commercial registration.We have now reorganised our activities in this area to create astronger ‘Quadnetics’ regional focus in order to more rapidly achievecritical mass. We are pleased to report that the long-awaitedcontracts are now coming through to protect critical nationalinfrastructure in Saudi Arabia and Jordan and there is an increasinglevel of activity in other countries in the region.
Our Managed Service business, SSS, is predominantly focused on theUK retail market and although it benefits from fairly long-term contractsand relationships, it is not immune from the economic downturn in thissector. During the year we had planned to move to a higher marginbusiness model where SSS would provide more comprehensiveoutsourced security management services to multi-site retail clients.However, whilst we continue to believe there is good future potential inthis area, particularly in its ability to generate contracted recurringrevenues, we have delayed planned investments in systems andpersonnel until we see signs of recovery in this sector.
05 Quadnetics Group plc Annual Report and Accounts 2008
www.quadnetics.com
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Synectics have provided a comprehensive surveillance control solution to RoyalHolloway, University of London.
SynecticsThe Group’s security technology division, providing security networkproducts and software, hazardous area systems and defencesurveillance technology.
Turnover £23 millionUnderlying Operating Profit £1.6 million
Synectics’ turnover for the year grew by 11% to £23.1 million (2007: £20.8 million), the most positive component of which wascontinued growth of network products and software in the NorthAmerican gaming surveillance market where turnover grew by 27%.With new products starting to come on stream and the interest in ourSynergy software as a potential stand-alone product, we can continueto build in this territory over the next few years. In the core securitynetwork products and software area overall, average gross marginsincreased notably, though overhead cost increases associated with thenew products restricted the relative bottom line growth.
As previously announced in May, problems with two large contractsin the hazardous area and defence surveillance activities, andrelated knock-on operational effects, had a significant impact on theSynectics division expected profit. Although turnover from thoseareas rose, their combined contribution to operating profits wasaround £1.1 million lower than in the prior year.
Business Review continued
06 Quadnetics Group plc Annual Report and Accounts 2008
Our IP product portfolio was transitioned fromMPEG2 to the new H.264 platform during the year.
Management changes have been made and process improvementsimplemented in both areas. The two contracts, which neverthelesshave been profitable, are now close to finalisation and are notanticipated to have any further negative impacts. The defencesurveillance sector generally, though, continues to be adverselyaffected by customer budget constraints and contract awarddelays.
As digital surveillance and IP systems have become more widelyaccepted, margins on our broadcast TV quality MPEG2 solutionscame under pressure from competitors with lower cost or genericPC-based systems, often using alternative or proprietary encodingplatforms. Our strategy was to retain the accepted industry standardMPEG2 whilst developing the next generation H.264 platform,effectively bypassing MJPEG, Wavelet and MPEG4. Our wholeproduct portfolio was successfully transitioned to H.264 within theyear and these products are now selling well and include, for thefirst time in our product line-up, an edge-based multi-streamencoder which also has a dedicated Digital Signal Processor (DSP)capable of running real time Video Content Analysis (VCA).
The H.264 platform offers significant image quality improvement atlower bit rates than alternative formats and this has the benefit ofusing lower bandwidth for transmission over networks and requiresless storage for recording and evidential purposes. We believe thatH.264 will be a stable, long-term encoding technology with a roadmap stretching ahead for several years, including high definitioncapability for the next generation of megapixel cameras.
Towards the end of the year, Synectics launched its important newrange of H.264 digital video products, benefiting from investment inresearch and development costs capitalised in the year. This level ofcapitalised investment will reduce in the current year. Deliveries ofSynectics’ mobile video recorder will begin shortly, following recentcompletion of successful trials, and they have already received anenthusiastic response from existing and potential new customers.The manufacture of these products will be largely subcontracted.We are currently finalising manufacturing agreements to ensure thatwe successfully achieve the benefits of high quality, higher volumemanufacture as sales growth feeds through.
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“Synectics’ enterprise solution has gained market share and credibility in the hard fought gamingmarket because of our reliable, easy to use Synergy control software, backed up by first-classengineering, training and support.”John Katnic Chief Operating Officer, Synectic Systems Inc.
■ Approximately 18,000 channels of Synectics’ digital videorecording have now been installed in North Americancasinos, including multi-property gaming chains such asHyatt, Pinnacle Entertainment and Penn Gaming
■ Synectics’ technology is now used in 17 of Ontario’s24 government regulated casinos
■ First orders received for high-security sales, and mobileproducts being demonstrated at APTA trade show inOctober 2008
■ Support and training resources expanded again to meetgrowing customer base
North America Milestones
www.quadnetics.com
North America
We continue to gain market share in the NorthAmerican gaming sector with27% sales growth in 2008
North Americamarket turnover
£6.1m
£6.1m
£4.7m
£2.2m
2008
2007
2006
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“Having established the appropriate trading structures and arrangements in the Middle East we nowhave a sound platform to increase our sales in this important market.”John Kirtland Sales and Marketing Director, Quadrant Security Group: Integrated Systems
■ Subsidiary company established in Kingdom of Saudi Arabia,with important contracts now being placed
■ Partnership agreements in Jordan now close to finalisation
■ £2 million of contracts won for delivery in 2009
■ Further developments planned to extend sales presence in Dubai
Business Review continued
We have been supplying securitysolutions to the Middle East forover ten years
Middle East
Middle East Milestones
Middle Eastmarket turnover
£1.3m
£1.3m
£2.0m
£1.5m
2008
2007
2006
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MarketsOur core markets are currently continuing to enjoy growth althoughlooking forward, this view must be tempered by the generaleconomic conditions, particularly in our largest markets in the UKand North America. The security market has historically been fairlyresilient to changing market conditions, in part due to the everincreasing need for security and protection but also due to theperformance and cost advantages that networked security solutionscan deliver. These are real and valuable to all sorts of organisationsas they strive to reduce operating costs at the same time asimprove service levels to their own customers.
Despite the reduction in sales into the Middle East, Quadneticscontinues to expand into other territories and our overseas salesgrew by 13% to around £13 million in 2008. We expect this trend tocontinue.
Sales around the world have been as follows:
■ North America: +31%Our enterprise solution continues to be selected as the product ofchoice in many casino chains, with approximately $12 million ofsales to the gaming sector in the year and almost $9 million offurther commitments to our technology in the pipeline.
■ Asia Pacific: +23%Sales of our EX explosion rated, marine and hazardous areasurveillance products into the Far East continued to grow above therecord levels of last year.
■ Middle East: (37%)During the year sales declined in the Middle East owing to structuralchanges in the way our business could be done in the region, butwe have now established a subsidiary company operating in theKingdom of Saudi Arabia, and are at an advanced stage ofnegotiating partnerships in Jordan to complement our existing salesoffice in Dubai.
■ UK and Rest of World: +21%With almost £70 million of sales into the UK (and other regionsexcluding those above), Quadnetics is a sizeable business with anestimated addressable UK market share of around 10%. Themajority of our 450 people are based in the UK, where we are
09 Quadnetics Group plc Annual Report and Accounts 2008
www.quadnetics.com
Quadnetics continues to expand into otherterritories and our overseas sales grew by 13% to around £13 million in 2008.
Synectics provides long-range camera technology around the world.
recognised as one of the leaders in the marketplace for bothtechnical capability and quality of service.
Quadnetics is consistently beating competitors by demonstratingthe value and strength of its products and services. With new edge-based devices and analytic software coming to market shortly, weexpect to be opening up new channels to fuel continuing growth forthe next few years. We are constantly looking for ways to developand improve our products and services to take advantage of ourstrengths in these times of significant change.
Quality, Environment, Health & SafetyWhilst we have scaled back our planned investments in upgradingsome of our management information systems for the time being,we have continued to invest in the recruitment, development andtraining of our people to make sure that we continue to raise the barcompetitively by providing best in class products, support andservice.
Throughout the year we have continued our long-standingarrangements with external consultants and advisers to ensure thatour health and safety practices and policies are appropriate and upto date. We have also revised our personnel handbook, which isissued to all UK employees, explaining how the Group operates and
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New products are developed at Synectics’ Research Centre.
setting out our policies and attitudes in the important areas ofquality, the environment, ethical practices, and health and safety.
Quadnetics currently operates multiple ISO 9001:2000 QualityManagement Systems, rather than a single system due to the widerange of activities involved in the design, development andmanufacture of physical products and software.
During the year we were proud to announce that Quadrant achievedregistration to the National Security Inspectorate (NSI) Silver schemein CCTV, access control and intruder alarms for all sites,complementing the NSI Gold registration already in place withinSSS, our Managed Services business. We are also pleased to haveachieved accreditation to the environmental management standardsof ISO14001:2004.
Finally, as part of our continuous risk assessment and reviewprogramme, we have developed and introduced business continuityplans that should enable the business to recover quickly in theunlikely event of a major incident.
Research & DevelopmentWe continue to invest in the Group’s future through our researchand development activities with £2.0 million invested over the lastyear to bring to market new or enhanced products. Our twin-track
approach to managing R&D involves a simultaneous project andproduct focus which sets Quadnetics apart from most of its rivalsand makes the Group very responsive to changing technology andchanging customer needs.
Project FocusThe project focus allows many developments to be funded externally,by aligning the target product with the requirement of a contract withan end user. This has historically led to successful projects beingcompleted on time, on budget, with new products emerging as aresult. One of the drawbacks to this method is that it is not alwayspossible to adhere to a development road map programme due tourgent customer issues that might arise during the contract.
Product FocusIn contrast our product development team are insulated from day-to-day customer issues and as a result are able to work in apredictive manner, bringing new products to life and maintaining alife-cycle road map.
A great deal of ground-breaking research and development hasbeen carried out and patents have been filed to protect our valuableintellectual property. Our goal was to design the next generationultra-reliable H.264 based “black-box” recorder for mobileapplications and whilst the product has taken longer and cost moreto develop than originally anticipated, we have created whatappears to be a truly world-class product that is creating a lot ofinterest both in the UK and overseas. We are currently finalising aLow Cost Region supply chain to produce high quality products insignificantly higher volumes, and at lower cost than we couldachieve by UK or European based manufacture.
Group results for the yearIncome statementOverall revenue in the year amounted to £79.2 million compared with£66.1 million in 2007, an increase of 20%, although approximately£6 million of this arose from additional low margin pass-through salesfrom Quadrant’s management services business. Quadrant’s saleswere £57.9 million, up 24%. Excluding the additional pass-throughsales, Quadrant’s sales grew by 12%, boosted by some largecontracts for the high security sector. This compares with a growthrate of 11% (to £23.1 million) at Synectics, where the US businessincreased its sales to the North American gaming sector by 27%.
Business Review continued
We are constantly looking for ways to develop andimprove our products and services to take advantage of our strengths in these times of significant change.
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“We have completely restructured our manufacturing and operational processes to enable us tocontinue to grow in the Far Eastern networked adverse area surveillance market.”Paul Webb Managing Director, Synectics Industrial Systems
■ Our sales of hazardous area surveillance equipmentcontinued to grow with an annual sales increase of 17%
■ Product range expanded to include new software andencoding technology
■ New adverse area camera station planned for 2009
■ Operations team strengthened at manufacturing plant
Far East Milestones
www.quadnetics.com
Far East
Far Eastmarket turnover
£2.2m
£2.2m
£1.8m
£1.2m
2008
2007
2006
The market for specialistelectronic surveillance inthe Far East appears strong
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“We were delighted to be awarded an exclusive £1.5 million deal with Stagecoach which will allow us todevelop an even closer relationship covering both existing and new CCTV technologies.”Andrew Prince Managing Director, Look CCTV
■ £1.5 million contract signed with Stagecoach for the supply,installation and maintenance of CCTV on its new buses
■ Strong performance in the High Security sector with securitysolutions supplied to major UK prisons
■ £1.3 million contract with major builders’ merchants for securitymanagement and monitoring services
■ £0.9 million contract for digital recording solution with SwedishCasino Group
Business Review continued
UK & Rest of the World
UK & ROW Milestones
UK & Rest of the Worldmarket turnover
£69.6m
£69.6m
£57.6m
£44.7m
2008
2007
2006
Our customers havebenefited from the transitionto new IP technology duringthe year
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13 Quadnetics Group plc Annual Report and Accounts 2008
Overall reported gross margins fell from 33% to 27%, although thisreduction is distorted by the increase in low margin pass-throughsales noted above and reduced benefit from the close-out of oldcontracts in the managed services business, and the reclassificationof £0.6 million of labour costs previously included in overheads.
The underlying decline in gross margins, excluding those factors,was 2.2%, primarily resulting from the cost over-runs on contracts inthe defence and hazardous area sectors.
Underlying margins, before reclassification of direct labour costs, inthe Look mobile CCTV business and the Security Networks’activities improved during the year.
Operating expenses include both share-based payment costs andgoodwill reduction charges, as follows:
2008 2007£’000 £’000
Total operating expenses 17,147 17,651Less goodwill reduction charge (141) (309)Add/(less) share-based payments credit/(charge) 805 (595)Underlying operating expenses 17,811 16,747
Adjusting for these items, underlying operating expenses haveincreased by 6.3% from £16.7 million to £17.8 million largely as aresult of increased investment in sales and marketing (£0.6 million)both in the managed services business and Synectics; service andinstallation personnel (£0.2 million); and development expenditure(£0.1 million).
The largest of the Group’s share schemes, The Quadnetics GroupEmployee Share Scheme, is considered to be a cash settledscheme under IFRS 2: Share-Based Payment, and therefore the fairvalue of the scheme benefits is assessed at each period end. Basedon the Company’s share price at 31 May 2008 previous share-based payment charges have been reversed resulting in an overallcredit of £0.8 million to the Income Statement.
In addition, the Income Statement has been charged with £0.1 million (2007: £0.3 million) in respect of goodwill reductionrelating to tax losses. This arises as a result of the recognition of tax
losses that existed within the Protec Group at the time of itsacquisition in November 2005, but which were not included in theacquisition balance sheet and therefore the valuation of goodwill atthat time.
Net finance income arising from interest on cash balances placed ondeposit with major UK banks amounted to £0.2 million, a similarlevel to 2007.
Underlying profit before tax, being profit before tax, share-basedpayments charge and goodwill reduction, was £3.7 million andcompares with £5.3 million in 2007.
The tax charge for 2008 was £1.0 million compared with £1.1 million in 2007. The underlying tax rate (being the percentageratio of the tax charge for the year, after adding back the tax effectof share-based payments, to the underlying profit before tax,goodwill reduction and share-based payments) was 21%,compared with 24% in 2007.
The 2008 tax charge continued to benefit from the utilisation ofbrought forward tax losses which had not previously beenrecognised in the profit and loss account, and in addition frombackdated claims for additional relief on research and developmentexpenditure. At 31 May 2008 the Group had carried forward tax
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Recurring revenue increased by 23% to £14.1 million.
SynergyPro control software is Synectics’ flagship software product.
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Business Review continued
losses of £1.3 million in total, all of which have now been recognisedin the profit and loss account.
Profit after tax was £3.4 million compared with £3.3 million in 2007.
Basic earnings per share were 21.6p (2007: 21.1p). However, thesecalculations are significantly influenced by the £1.4 million swing onthe share-based payment charge year on year, and the underlyingearnings per share, based on profit after tax but before share-basedpayments (net of any tax effect) and goodwill reduction was 18.9p(2007: 25.9p).
Balance sheetMajor movements on balance sheet items were as follows:
Property, plant and equipment increased by £0.4 million in the yearprimarily as a result of expenditure on leasehold improvements andoffice furniture and equipment at Synectics’ new office building inSheffield, acquired in 2007, which was sold for around its originalcost price of £2.1 million and then leased back during the year.
During the year costs of £1.1 million incurred on productdevelopment mainly in respect of our new mobile recorder unit, werecapitalised thus increasing Intangible assets by this amount. Salesof our new E100 digital encoder technology commenced towardsthe end of the financial year and therefore capitalised costs inrespect of this product began to be amortised.
Working capital balances (excluding cash balances, property for resaleand provisions for share-based payment liabilities) were at a similarlevel to those at 31 May 2007, with increases in trade receivables as aresult of high activity levels in the last quarter, being matched bycorresponding increases in trade payables and accruals.
Non-current provisions reduced by £0.3 million at 31 May 2008 as aresult of the next deferred consideration payment in respect of theAlphaPoint acquisition in the United States falling due in 2008/9.
Consolidated net assets increased by £2.4 million to £32.8 million at31 May 2008 (31 May 2007: £30.5 million), as a result of the profit aftertax for the year of £3.4 million less dividends paid of £1.0 million.
CashThe Group ended the year with cash balances of £7.9 million,following net cash inflows of £2.3 million during the year, comparedwith an opening balance at the start of the year of £5.6 million.
Cash generated from operations of £4.7 million was further boostedby the sales proceeds of the Sheffield property of £2.1 million notedabove, and interest received of £0.2 million. Major cash outflowsarose from expenditure of £1.1 million on fixed assets and softwareand a further £1.1 million on capitalised development expenditure. Inaddition, payments of £1.4 million and £1.0 million were made fortaxation and dividends respectively.
Free cash flow, that is cash generated from operations less capitalexpenditure, was £2.5 million or 71% of underlying operating profitbefore tax. This figure reflects higher than usual expenditure on newproduct development.
The Group has no debt.
Key performance indicatorsThe Directors measure the Group’s performance, principally usingthe following financial indicators (as reflected and discussed in thisAnnual Report):
■ Sales
■ Gross profit percentage
■ Underlying operating profit and underlying profit before tax (bothprofit measures being before goodwill reduction, share-basedpayments and exceptional items)
■ Earnings per share
■ Underlying earnings per share (based on underlying profit after tax)
■ Order book
■ Recurring revenue (being contracted sales where a service isdelivered over a future time period, and revenues are recognisedin the relevant future accounting periods)
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The Group’s balance sheet remained ungeared, with net cash at 31 May 2008 of £7.9 million.
Principal risks and uncertaintiesThe principal risks facing the Group include the following:
■ Price and margin pressureThe electronic security industry in general is competitive withcontinued pressure on sales and margins. The Group’s strategy tocounteract this is to continue to focus on customer sectors whereelectronic security systems have a critical cost of failure, or anextreme environmental requirement, rather than the mass volumemarkets. In addition, we will maintain a core of increasinglysoftware-based proprietary technology giving higher marginopportunities, and focus on developing recurring revenues.
■ Technological riskAs the industry becomes increasingly technical and transitions todigital technology, there is a risk that products become obsolete orirrelevant. Quadnetics has countered this risk through its investmentin research and development resources, and a continued focus oncustomer-led development to ensure that the most appropriateproduct development paths are followed.
■ People skills and dependencyAs with most businesses, particularly those operating in a technical field,we are dependent on our employees with key managerial, engineeringand technical skills. The Group aims to offer appropriate compensationpackages and incentive arrangements, as well as maintaining certainkey-man insurance policies, in order to mitigate this risk.
■ Impact of fluctuating currency exchange ratesThe Group faces currency risk, both on transactions not undertakenin sterling, and on translation of the results of overseas operations,which it manages principally through forward exchange contracts.As the Group expands its sales and other activities outside the UK,these policies will be developed to manage the impact of currencyvariations.
SummaryWhilst we clearly did not get everything right last year as wecontinued our drive forwards taking market share from ourcompetitors and establishing positions in our target customersectors, some important and valuable lessons have been learnedand we have made personnel changes and implemented morerigorous internal procedures.
All in all, we are making good progress and have produced arelatively solid underlying profit of £3.7 million; ended the year with£7.9 million cash in the bank; increased our recurring contractedrevenue by 23%; and have designed new “world-class” productsand software that should help us to maintain or lift our margins. Wehave also created valuable intellectual property to enable the Groupto reach into other attractive economic regions by selling or licensingour technology to organisations and end-users in our targetcustomer sectors.
RC Singleton NC PoultneyChief Executive Finance Director
The Oil & Gas industry uses Synectics advanced technology.
www.quadnetics.com
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Board of Directors
Executive Directors
David CoghlanChairmanhas degrees in Law and in Finance from theUniversity of New South Wales in Sydney and anMBA from Wharton in Philadelphia. He wasformerly a partner at strategy consultants Bain &Company and is currently chairman of Evans &Sutherland Computer Corporation (listed onNASDAQ) and a director of several othercompanies.
Dennis Bate CBEDirectorhas 46 years of experience in the constructionindustry, of which 32 years were spent withBovis, most latterly as board director responsiblefor Bovis’ operations in the UK and EasternEurope, and then Bovis Lend Lease operations.He was awarded the CBE for his services withinthe industry.
Non-executive Directors
Russ SingletonChief Executiveis a Chartered Engineer and has a degree in Electricaland Electronic Engineering from Leeds MetropolitanUniversity. He became Group Chief Executive in2002. Prior to this he had been Managing Director ofQuadnetics’ Security Division comprising QuadrantVideo Systems plc, which he joined in 1984, andSynectic Systems Limited.
Nigel PoultneyFinance Directorhas a degree in Business Studies from AstonUniversity, and qualified as a Chartered Accountantwith Deloitte, Haskins and Sells in 1981. He joinedQuadnetics Group in 1991, having previously workedfor Dairy Crest and the RTZ group.
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Advisers
Steve CogginsDirectorjoined the Board as a non-executive Director inJanuary 2005. Steve has held various senior roles inboth sales and marketing and general managementin the information technology arena including SeniorVice-President at both Amdahl (now part of Fujitsu)and at Silicon Graphics. Earlier he spent time at IBMand also in engineering computing in the aircraftindustry.
Peter RaeDirectoris a graduate of Cambridge University, andformerly Chief Executive of S.W. Wood plc (nowWyndeham Press plc). He has current interestsin a wide range of engineering and otherbusinesses.
Glenn RobinsonGroup Technical and BusinessDevelopment Directorhas a degree in Industrial Mathematics fromLoughborough University and qualified as aChartered Accountant in 1992. He joined the Groupas Finance Director of Quadrant Video Systems plc in1997 and most recently has been responsible for thedevelopment and delivery of the Group’s new digitalproduct range.
Secretary and Registered OfficeNC PoultneyQuadnetics Group plcHaydon House, 5 Alcester Road, StudleyWarwickshire B80 7AN
Tel: +44 (0) 1527 850080email: [email protected]
BankersBarclays Bank PLC15 Colmore Row, Birmingham B3 2EP
StockbrokersBrewin Dolphin Securities Limited34 Lisbon Street, Leeds LS1 4LX
AuditorsKPMG Audit Plc2 Cornwall Street, Birmingham B3 2DL
Registrars and Transfer OfficeCapita RegistrarsBourne House, 34 Beckenham RoadBeckenham, Kent BR3 4TU
Corporate CommunicationsBuchanan Communications Limited45 Moorfields, London EC2Y 9AE
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Senior Management Quadrant Security Group
Mike BoddyOperations DirectorIntegrated Systemshas an engineering diploma from Rubery OwenOrganisation and was a co-founder member ofMidlands Video Systems (‘MVS’) in 1975. MVS wassubsequently acquired by Quadnetics Group and hewas Managing Director of Quadrant Video Systemsfrom 2001 until the formation of Quadrant SecurityGroup in 2006.
Paul BurchfieldManaging DirectorSSS Management Services Limitedjoined SSS Management Services Ltd in 1996 asOperations Manager, progressing through to hiscurrent position of Managing Director in September2006. Previously, he worked for Dixons Stores Groupand served in the Armed Forces as a Senior Non-Commissioned Officer for thirteen years.
Dr Bilgay AkhanHead of Research who holds a PhD in Electronics Engineering from the University of Birmingham,joined Synectics in 2006 to lead the Synectics Research Centre based in Surrey.Prior to joining Synectics, Dr Akhan was CEO of visiOprime Limited, whichsuccessfully developed sophisticated Intelligent Video Management Systems forglobal CCTV markets. visiOprime also won the UK Government’s highly prestigiousSmart Award in 2002 for its innovative applications in mobile video streaming. Priorto founding visiOprime, Dr Akhan was a Principal Lecturer at the University ofHertfordshire where he conducted research on Digital Signal Processing (‘DSP’)applications, and high-speed, high-resolution video processing. With over 20years’ experience in video processing and compression, he has written two bookswhich have become widely used as DSP teaching platforms in many leadinguniversities, and holds 12 patents in the technology.
Stuart HarveyDivisional DirectorSurveillance Technologyjoined the Group in March 2008 and has many years’experience in the defence sector, initially withtechnical and project management roles at GCHQand Motorola, before moving into operations andmanagement positions in engineering businesses.Immediately prior to joining Quadnetics, Stuart held asenior sales position with TRL.
Synectics Systems Group
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Andrew PrinceManaging DirectorLook CCTVjoined Look CCTV in 2001 as General Manager,progressing through to his current position ofManaging Director in August 2005. Previously, heworked within the PSV industry where he had a long-established career of 23 years.
Paul WebbManaging DirectorIndustrial Systemshas a degree in Physics from Imperial College,London, and has worked in the CCTV industrysince 1988, in engineering, sales and marketing,business development and general managementroles. Previously Managing Director of BewatorLimited, and following a number of years livingand working in Asia, Paul joined Quadnetics in2004 prior to the acquisition of Coex Limited.
John KatnicChief Operating OfficerSynectic Systems, Inc.was co-founder of AlphaPoint, a leading US DVRsystem supplier acquired by Quadnetics in 2005. A graduate from the University of California, SantaBarbara, he has over 25 years’ experience incorporate sales, marketing, business developmentand management with several successful hightechnology and publishing companies.
Philip LongleyManaging DirectorSecurity Networksis an engineer and one of the original founders ofSynectic Systems Limited. He joined the Group in1988 and has been instrumental in Synectics’ salesgrowth and development, becoming Synectics SalesDirector in 1996 and Managing Director in 2005.
John KirtlandSales and Marketing DirectorIntegrated Systemshas 20 years of experience in the Telecoms and ITsectors. After graduation he gained experience insoftware development, engineering and businessconsulting roles before moving to General Cable in1993 where he set up their Business Servicesoperation. In 1995 he joined Anixter, the leading globaldistributor of network products, where he becameManaging Director of their UK network integrationbusiness. Moving to Nortel in 1999 he took on the roleof Director, EMEA Network Services. He joined Protecplc in December 2002 to lead its Systems Division.
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Report of the DirectorsFor the year ended 31 May 2008
20 Quadnetics Group plc Annual Report and Accounts 2008
The Directors present their report together with the audited financial statements for the year ended 31 May 2008.
Principal activitiesThe principal activity of the Group during the year was the provision of advanced CCTV and networked video systems and related securitymanagement and support services. The principal activity of the Company was to act as a holding company for its trading subsidiaries, andthe provision of mobile CCTV surveillance systems through the Look CCTV division.
Review of business and future developmentsThe consolidated income statement for the year is set out on page 30.
A review of the Group’s activities during the year and its prospects for the future are contained in the Chairman’s Statement on pages 2and 3 and the Business Review on pages 5 through to 15 and is incorporated into this report by reference.
Group results and dividendThe consolidated profit after tax for the year was £3,357,000 (2007: £3,273,000).
The Directors recommend the payment of a final dividend of 4.5p per share (2007: 4.0p per share), totalling £699,000 on 5 December2008 to shareholders registered on 7 November 2008. Together with the interim dividend of 2.5p per share (2007: 2.0p per share), thisbrings the full year dividend to 7.0p per share (2007: 6.0p per share) amounting to £1,087,000 (2007: £922,000).
Share capital502,812 Ordinary shares were issued during the year to former holders of Protec shares in connection with the acquisition of Protec plc(see note 21).
Research and development expenditureThe Group has continued to invest in research and development of both software and hardware products for CCTV applications during theyear incurring total costs of £2,008,000 (2007: £1,104,000), of which £876,000 (2007: £684,000) has been written off to the incomestatement.
DirectorsThe Directors of the Company who served during the year ended 31 May 2008 were DJ Coghlan, D Bate, SW Coggins, DM Orme(resigned 26 October 2007), NC Poultney, PM Rae, G Robinson and RC Singleton.
In accordance with the Articles of Association of the Company, D Bate and SW Coggins retire by rotation at the Annual General Meetingand, being eligible, offer themselves for re-election at the Annual General Meeting.
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Substantial shareholdingsAs at 29 August 2008, the Company was aware of the following interests, other than Directors, in excess of 3% of the issued Ordinaryshare capital of the Company:
Numberof shares %
Chase Nominees Limited 1,638,944 9.69Giltspur Nominees Limited 1,528,573 9.04Quadnetics Group Employee Share Scheme 1,378,500 8.15HSBC Global Custody Nominee Limited 1,292,500 7.64BT Pension Scheme Trustees Limited 1,278,346 7.56Ferlim Nominees Limited 551,672 3.26
Directors’ interests in the CompanyThe Directors’ interests in the Company’s Ordinary share capital at 31 May 2008 which were all beneficial, are shown in the table below:
31 May 2008 31 May 2007Number of Number of
shares shares
DJ Coghlan 1,990,875 1,930,875RC Singleton 339,800 327,300PM Rae 178,302 20,000D Bate 100,000 50,000NC Poultney 13,000 5,000SW Coggins 11,000 11,000G Robinson 8,000 –
2,640,977 2,344,175
Between 23 and 26 June 2008 PM Rae acquired an additional 40,000 shares, resulting in a total holding of 218,302. There were no further changes in Directors’ interests in the Company between 31 May 2008 and 29 August 2008.
The interests of the Directors in the Company’s share schemes, which are not included above, are shown in the Remuneration Report onpages 25 to 27.
EmployeesEmployment policies throughout the Group have been established to comply with relevant legislation and codes of practice relating toemployment, health and safety and equal opportunities. The Group’s policy is to consult and discuss current developments within theGroup with employees and to take account of their views in making decisions likely to affect their interests.
The Group makes every effort to recruit and continue the employment, training and promotion of those persons who are or becomedisabled.
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Report of the DirectorsFor the year ended 31 May 2008
22 Quadnetics Group plc Annual Report and Accounts 2008
Policy on the payment of suppliersThe Group’s policy during the year was to pay suppliers in accordance with agreed terms and this policy will continue for the year ending 31 May 2009.
At 31 May 2008 the Group had 55 days purchases outstanding in trade payables (2007: 70 days).
Charitable donationsDuring the year the Group made charitable donations of £900.
No political donations were made during the year.
Financial instrumentsThe Group’s operations expose it to a variety of financial risks including foreign exchange rates and credit risk. Further details are set out innote 30.
AuditorsIn accordance with section 489 of the Companies Act 2006, a resolution for the reappointment of KPMG Audit Plc as auditors of theCompany is to be proposed at the forthcoming Annual General Meeting.
Authorities to buy the Company’s own shares, allot shares and disapply statutory pre-emption rightsThe following resolutions will be proposed at the Annual General Meeting as special business:
1) An Ordinary Resolution to authorise the Directors to allot Ordinary shares of up to £1,171,878 in nominal value. In accordance withguidelines issued by the Association of British Insurers, this figure comprises one third of the issued Ordinary share capital, plus a sumof £44,715.80, which is equal to the maximum nominal value of the shares which the Directors could be required to allot if the holdersof share options exercise their rights to have shares allotted to them. The Directors have no present intention of exercising the authority,except in connection with the Company’s share schemes.
2) A Special Resolution to enable the Company to purchase its own shares up to a maximum of 1,690,743 Ordinary shares, representing10% of the current issued Ordinary share capital. The Directors have no present intention to exercise such powers and would only doso if satisfied that it would be in the interests of shareholders to do so.
3) A Special Resolution to renew the existing disapplication of the pre-emption provisions of section 89(1) of the Companies Act 1985 soas to give the Directors power to allot shares for cash, firstly in relation to rights issues, and secondly in relation to the issue of Ordinaryshares for cash up to a maximum aggregate nominal value of £169,074 (which represents approximately 5% of the issued share capitalof the Company).
4) We are also asking shareholders to approve a Special Resolution to adopt new Articles of Association which incorporate a number ofamendments primarily to reflect the provisions of the Companies Act 2006. An explanation of the main changes between the proposedand the existing articles of association is set out on pages 75 and 76 and a copy of the proposed articles is available for inspection atthe registered office and on the Company’s website (www.quadnetics.com).
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Statement of Directors’ responsibilities in respect of the Annual Report and the financial statementsThe Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements, in accordancewith applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law theyhave elected to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and haveelected to prepare the Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UKGenerally Accepted Accounting Practice, ‘UK GAAP’).
The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and theperformance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part ofthat Act to financial statements giving a true and fair view are references to their achieving a fair presentation.
The Parent Company financial statements are required by law to give a true and fair view of the state of affairs of the Parent Company. In preparing each of the Group and Parent Company financial statements, the Directors are required to:
■ select suitable accounting policies and then apply them consistently;
■ make judgements and estimates that are reasonable and prudent;
■ for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
■ for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to anymaterial departures disclosed and explained in the Parent Company financial statements; and
■ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the ParentCompany will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financialposition of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 1985. They havegeneral responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detectfraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’swebsite. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in otherjurisdictions.
Information given to the auditorsEach of the Directors has confirmed that so far as he is aware, there is no relevant audit information of which the Company’s auditors areunaware, and that he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant auditinformation and to establish that the Company’s auditors are aware of that information.
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Report of the DirectorsFor the year ended 31 May 2008
24 Quadnetics Group plc Annual Report and Accounts 2008
Going concernAfter making appropriate enquiries the Directors have reasonable expectations that the Company and Group have adequate resources tocontinue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis inpreparing the financial statements.
CORPORATE GOVERNANCEAlthough not required to do so by the AIM rules the Directors have decided to provide the following corporate governance and Directors’remuneration disclosures.
The BoardThe Board currently consists of three executive and four non-executive Directors. The names, roles and biographical details of the Directorsare set out on pages 16 and 17. The Board meets at least six times a year, and relevant information is distributed to Directors in advance ofthese meetings. The Directors have access to all information and, if required, external advice at the expense of the Company, and accessto the Company Secretary. The Board has adopted a schedule of matters specifically reserved to itself for decision, which includes majorinvestment decisions, and changes in the composition of the Group. The Board approves the Group’s strategy and annual budget, andconsiders detailed financial and operational reports on the progress of the Group. In relation to non-reserved matters the Board is assistedby a number of committees with delegated authority. The Board met six times during the year with all Directors in attendance except for NC Poultney who was absent from one meeting.
The Board attaches a high priority to communication with shareholders. The Group’s annual and half yearly reports are sent to allshareholders. The Group liaises regularly with major shareholders and there is an opportunity for individual shareholders to question theChairman at the Annual General Meeting. The Company’s website (www.quadnetics.com) provides financial and business informationabout the Group, including copies of its most recent annual and interim reports.
The Board includes non-executive Directors, who bring strong judgement and considerable knowledge and experience to the Board'sdeliberations. Their service is non-pensionable and, except for DJ Coghlan (Chairman), they do not participate in the Company’s shareschemes.
D Bate, SW Coggins and PM Rae have been identified as independent non-executive Directors, with PM Rae being the SeniorIndependent Director. The Board considers them to be independent of Group management and free from any business or otherrelationships that would materially interfere with the exercise of their independent judgement.
All Directors are subject to re-election every three years. Accordingly, D Bate and SW Coggins retire by rotation at the Annual GeneralMeeting and, being eligible, offer themselves for re-election at that meeting.
The Audit CommitteeThe Audit Committee comprises PM Rae, D Bate and SW Coggins, who are all non-executive Directors, and provides a forum for reportingby the Group’s external auditors. The Audit Committee has formal written terms of reference and met three times during the course of thelast financial year, with all three members in attendance. Executive Directors do not attend other than by invitation of the Audit Committee.
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The Audit Committee’s primary task is to review the scope and results of the external audit. It is also responsible for assisting the Board todischarge its duties with regard to the Group’s financial affairs and, in liaison with the external auditors, for reviewing the adequacy of theGroup’s accounting, financial and operational controls. The Audit Committee also ensures that an appropriate relationship between theGroup and its external auditors is maintained. The Audit Committee is satisfied that the current provision of non-audit services by theGroup’s auditors does not impair their independence or objectivity.
Internal controlThe Board of Directors has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The purposeof the system of internal control is to manage rather than eliminate the risk of failure to achieve business objectives and can only providereasonable, but not absolute, assurance against material misstatement or loss.
The Directors have established an organisational structure with clear operating procedures, lines of responsibility and delegated authority. Inparticular there are clear procedures for capital investment appraisal and approval, contract risk appraisal and financial reporting within acomprehensive financial planning and accounting framework.
The Board has reviewed the need for an internal audit function and concluded that such a function is not currently appropriate given thesize of the Group.
REMUNERATION REPORTThe Company's Remuneration Committee comprises PM Rae, D Bate and SW Coggins, who are all non-executive Directors and have nopersonal or financial interests in the matters to be decided. The objective of the Remuneration Committee's policy is to attract, retain andmotivate high calibre individuals as executive directors with a competitive package of basic salary, incentives and rewards, including shareoptions, which are linked to individual performance, the overall performance of the Group and the interests of shareholders. TheRemuneration Committee is also responsible for agreeing the remuneration of the managing directors of the principal subsidiaries andmaking awards to other employees under the Group’s share option and employee share schemes.
The Remuneration Committee has formal written terms of reference and met once during the course of the last financial year, with allmembers in attendance. Executive Directors do not attend other than by invitation of the Remuneration Committee.
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Report of the DirectorsFor the year ended 31 May 2008
26 Quadnetics Group plc Annual Report and Accounts 2008
Information in a) and b) below forms part of the financial statements.
a) Remuneration2008 2007Total Total
Salary (excluding (excluding 2008 2007and fees Bonuses* Benefits pension) pension) Pension Pension
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Executive DirectorsDM Orme†(resigned 26 October 2007) 51 – 8 59 160 3 6NC Poultney 120 15 18 153 157 33 8G Robinson 105 15 19 139 120 12 9RC Singleton 175 – 35 210 266 48 18
Non-executive DirectorsDJ Coghlan 75 – 15 90 82 – –PM Rae 25 – – 25 25 – –SW Coggins 25 – – 25 25 – –D Bate 25 – – 25 25 – –RW Westcott§(resigned 5 January 2007) – – – – 19 – –
Total 601 30 95 726 879 96 41
* Bonuses were paid or accrued in 2007/8 for specific achievement of agreed personal and corporate objectives.† Amounts shown in respect of DM Orme are for the period from 1 June 2007 to the date of his resignation.§ Prior year amounts shown in respect of RW Westcott are for the period from 1 June 2006 to the date of his resignation.
Pension contributions shown above reflect pension payments into money purchase arrangements. There were no other pension paymentsor accrued pension benefits arising under money purchase schemes in respect of Directors.
b) Share schemesThe Directors did not have any interests in the Company’s share option schemes during the year and no new options were granted to, orexercised by, any Directors between 1 June 2008 and 29 August 2008.
The following Directors hold an interest in the Company’s shares through participation in the Quadnetics Group Employee Share Scheme,which was established in June 2005, as set out below and in note 22.
Under the provisions of the Quadnetics Group Employee Share Scheme the shares are held for the benefit of the Directors set out below,on terms similar to a share option scheme whereby the value of the appreciation in the Company’s share price above the issue price over aminimum three-year period accrues to the relevant Director provided that the Company meets certain performance thresholds linked to theFTSE AIM All Share Total Return Index. No rights under this scheme were exercised by Directors during the year.
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27 Quadnetics Group plc Annual Report and Accounts 2008
Number of Issue priceDate of award shares (p)
RC Singleton 17 June 2005 300,000 241.0NC Poultney 17 June 2005 160,000 241.0G Robinson 17 June 2005 160,000 241.0DJ Coghlan 12 July 2006 120,000 212.5
The mid market price of the Company’s shares at the beginning and end of the financial year was as follows:Ordinary shares
of 20p each
At 1 June 2007 337.5pAt 31 May 2008 150.0p
The maximum and minimum share prices during the year were as follows:Ordinary shares
of 20p each
Maximum 377.5pMinimum 121.5p
c) Service contractsThere are no Directors’ service contracts with notice periods in excess of one year. The service contracts of the Directors who are eligiblefor re-election at the Annual General Meeting are as follows:
Notice period
D Bate 3 monthsSW Coggins 6 months
INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘IFRS’)These financial statements have been prepared for the first time in accordance with IFRS as adopted by the European Union, and with thoseparts of the Companies Act 1985 applicable to companies reporting under IFRS. The disclosures required by IFRS 1 ‘First-time Adoption ofInternational Financial Reporting Standards’ concerning the transition from UK GAAP to IFRS are given in note 31. It is important to note that,although IFRS affects the presentation of the financial statements, it does not affect the Group’s cash flow or its future strategic direction.
By Order of the Board
NC PoultneySecretaryQuadnetics Group plcRegistered Number: 17400113 September 2008
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NC Poultney
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Independent Auditors’ Report to the members of Quadnetics Group plc
28 Quadnetics Group plc Annual Report and Accounts 2008
We have audited the Group and Parent Company financial statements (the ‘‘financial statements’’) of Quadnetics Group plc for the yearended 31 May 2008 which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, theConsolidated Cash Flow Statement, the Consolidated Statement of Recognised Income and Expense, the Company Reconciliation ofMovements in Shareholders’ Funds and the related notes. These financial statements have been prepared under the accounting policiesset out therein.
This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our auditwork has been undertaken so that we might state to the Company’s members those matters we are required to state to them in anauditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone otherthan the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditorsThe Directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law andInternational Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the Parent Company financial statements inaccordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statementof Directors’ Responsibilities on page 23.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and InternationalStandards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements havebeen properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given inthe Directors’ Report is consistent with the financial statements.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all theinformation and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and othertransactions is not disclosed.
We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements.We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financialstatements. Our responsibilities do not extend to any other information.
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Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. Anaudit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes anassessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whetherthe accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order toprovide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whethercaused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation ofinformation in the financial statements.
Opinion In our opinion:
■ the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group’saffairs as at 31 May 2008 and of its profit for the year then ended;
■ the Parent Company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, ofthe state of the Parent Company’s affairs as at 31 May 2008;
■ the financial statements have been properly prepared in accordance with the Companies Act 1985; and
■ the information given in the Directors’ Report is consistent with the financial statements.
KPMG Audit PlcChartered AccountantsRegistered Auditor2 Cornwall StreetBirmingham B3 2DL, UK3 September 2008
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Consolidated Income StatementFor the year ended 31 May 2008
30 Quadnetics Group plc Annual Report and Accounts 2008
2008 2007Notes £’000 £’000
Revenue 79,174 66,065Cost of sales (57,849) (44,234)
Gross profit 21,325 21,831Net operating expenses 3 (17,147) (17,651)
Profit from operations 5Excluding goodwill reduction and share-based payments 3,514 5,084Goodwill reduction in respect of tax losses 3 (141) (309)Share-based payments credit/(charge) 23 805 (595)Total profit from operations 4,178 4,180Finance income 8 459 460Finance costs 9 (243) (230)
Profit before taxExcluding goodwill reduction and share-based payments 3,730 5,314Goodwill reduction in respect of tax losses 3 (141) (309)Share-based payments credit/(charge) 23 805 (595)Total profit before tax 4,394 4,410Income tax expense 10 (1,037) (1,137)
Profit for the period 3,357 3,273
Basic and diluted earnings per Ordinary share 12 21.6p 21.1p
Consolidated Statement of Recognised Income and ExpenseFor the year ended 31 May 2008
2008 2007£’000 £’000
Profit for the period 3,357 3,273Exchange differences on translation of foreign operations – (4)
Total recognised income and expense for the period 3,357 3,269
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2008 2007Notes £’000 £’000
Non-current assetsProperty, plant and equipment 13 1,951 1,570Intangible assets 14 17,938 16,874Deferred tax asset 10 502 869
20,391 19,313
Current assetsInventories 15 4,249 5,074Trade and other receivables 16 29,502 20,479Cash and cash equivalents 17 7,940 5,596
41,691 31,149Assets classified as held for sale 18 – 2,056
41,691 33,205
Total assets 62,082 52,518
Current liabilitiesTrade and other payables 19 (27,777) (19,646)Tax liabilities (372) (1,071)Current provisions 20 (380) (216)
(28,529) (20,933)
Non-current liabilitiesNon-current provisions 20 (691) (1,096)
(691) (1,096)
Total liabilities (29,220) (22,029)
Net assets 32,862 30,489
Equity attributable to equity holders of parent companyCalled up share capital 21 3,382 3,382Share premium account 24 14,851 14,851Merger reserve 24 9,565 9,565Other reserves 24 (2,486) (2,486)Currency translation reserve 24 (13) (13)Retained earnings 24 7,563 5,190
Total equity 24 32,862 30,489
The financial statements were approved and authorised for issue by the Board of Directors on 3 September 2008 and were signed onits behalf by:
RC Singleton NC PoultneyDirector Director
Consolidated Balance Sheet31 May 2008
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Consolidated Cash Flow StatementFor the year ended 31 May 2008
32 Quadnetics Group plc Annual Report and Accounts 2008
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2008 2007Notes £’000 £’000
Cash flows from operating activitiesProfit for the period 3,357 3,273Income tax expense 1,037 1,137Finance income (459) (460)Finance costs 243 230Depreciation and amortisation charge 611 571Goodwill reduction in respect of tax losses 141 309Loss on disposal of non-current assets 13 20Share-based payments (credit)/charge (805) 595
Operating cash flows before movement in working capital 4,138 5,675Decrease/(increase) in inventories 825 (793)Increase in receivables (9,057) (1,357)Increase/(decrease) in payables and provisions 8,813 (2,913)
Cash generated from operations 4,719 612Interest received 249 233Tax paid (1,368) (712)
Net cash from operating activities 3,600 133
Cash flows from investing activitiesPurchase of property, plant and equipment (892) (628)Sale of property, plant and equipment 52 472Capitalised development costs (1,132) (420)Purchased software (236) (157)Sale/(purchase) of property held for resale 2,060 (2,056)Deferred consideration on acquisition made in 2005 (99) –
Net cash used in investing activities (247) (2,789)
Cash flows from financing activitiesIssue of shares – 157Payment of finance lease liabilities – (20)Dividends paid (1,009) (825)
Net cash used in financing activities (1,009) (688)
Net increase/(decrease) in cash and cash equivalents 2,344 (3,344)Cash and cash equivalents at the beginning of the period 5,596 8,940
Cash and cash equivalents at the end of the period 17 7,940 5,596
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1 PRINCIPAL ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these financial statements are set out below. These policies have beenapplied consistently to all the years presented, unless otherwise stated, and in preparing an opening International Financial ReportingStandards (‘IFRS’) balance sheet at 1 June 2006 for the purpose of transition to IFRS.
a) Basis of preparationThese financial statements have been prepared for the first time in accordance with IFRS as adopted by the European Union(‘adopted IFRS’), and with those parts of the Companies Act 1985 applicable to companies reporting under adopted IFRS. Thedisclosures required by IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ concerning the transition fromUK GAAP to adopted IFRS are given in note 31. The Company has elected to prepare its Parent Company financial statements inaccordance with UK GAAP; these are presented on pages 65 to 73.
These financial statements have been prepared using the historical cost convention except where the measurement of balancesat fair value is required as set out below. The following policies are those that the Group considers to be its principal accountingpolicies in respect of its consolidated results.
Standards and Interpretations effective in the current periodIn the current year, the Group has adopted, as part of its IFRS transition, all Standards and Interpretations in issue and effective inthe current period, up to and including IFRS 7 ‘Financial Instruments: Disclosures’ and IFRIC 11 ‘IFRS 2 – Group and TreasuryShare Transactions’ respectively. The following IFRS were available for early application but have not been applied by the Group in these financial statements:
Effective for periodsbeginning on or after:
EndorsedIFRIC 13 Customer loyalty programmes 1 July 2008IFRIC 14 The limits on a defined benefit asset, minimum funding requirements and their interaction 1 January 2008IFRIC 15 Agreements for the construction of real estate 1 January 2009IFRIC 16 Hedges of a net investment in a foreign operation 1 October 2008IAS 1 Presentation of financial statements (revised) 1 January 2009IAS 23 Borrowing costs (revised) 1 January 2009*IFRS 8 Operating segments 1 January 2009IFRIC 12 Service concession arrangements 1 January 2008IFRS 2 Share-based payment; vesting conditions and cancellations (revised) 1 January 2009
UnendorsedIFRS 3 Business combinations (revised) 1 July 2009IAS 27 Consolidated and separate financial statements (revised) 1 July 2009IAS 1 Presentation of financial statements (revised) 1 January 2009IAS 23 Borrowing costs (revised) 1 January 2009*
* Applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009.
The Directors anticipate that all of the above Standards and Interpretations will be adopted in the Group’s financial statements forthe period commencing 1 June 2008 and/or 1 June 2009 as appropriate and that their adoption will have no material impact onthe financial statements of the Group.
b) Exemptions taken on first time adoption of IFRS 1Business combinationsThe Group has applied the exemption from retrospectively recalculating goodwill which arose on acquisitions prior to the Group’sIFRS transition date, being 1 June 2006. Goodwill related to these acquisitions is included at its deemed cost, being the amountrecorded under UK GAAP as at 1 June 2006 following an IFRS impairment review.
Notes to the Financial StatementsFor the year ended 31 May 2008
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Notes to the Financial StatementsFor the year ended 31 May 2008
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1 PRINCIPAL ACCOUNTING POLICIES (CONTINUED)Share-based payment transactionsThe Group has elected to apply IFRS 2 ‘Share-based payment’ only to awards of equity instruments made after 7 November 2002that had not vested by 1 June 2006.
c) Basis of consolidationSubsidiaries are entities over which the Group has the power to govern the financial and operating policies so as to obtain benefitfrom their activities. Subsidiaries are fully consolidated from the date that control commences until the date that control ceases.
Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated infull on consolidation.
d) Business combinations and goodwillThe purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of the businesscombination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred orassumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable tothe business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions forrecognition under IFRS 3 ‘Business Combinations’ are recognised at their fair values at the acquisition date, except for non-currentassets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 ‘Non-current Assets Held for Sale andDiscontinued Operations’, which are recognised and measured at fair value less costs to sell. Any excess of the cost of thebusiness combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities isrecognised as goodwill.
Adjustments are made to fair values to bring the accounting policies of acquired businesses into alignment with those of the Group.The costs of integrating and reorganising acquired businesses are charged to the post-acquisition income statement.
Goodwill is subsequently carried at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill isallocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generatingunits to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication thatthe unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, theimpairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets ofthe unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill wouldnot be reversed in a subsequent period.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill arising on acquisitions prior to 31 May 1998 was written off directly against reserves, and will be charged to the incomestatement on the subsequent disposal of the related businesses.
e) RevenueRevenue, which excludes value added tax, is measured at the fair value of the consideration received or receivable. Revenue isreduced for estimated customer returns, rebates and other similar allowances.
Sale of goodsRevenue from the sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards ofownership of the goods, which primarily takes place on delivery of the goods.
Installation contract incomeRevenue and profits attributable to contracts are included in the income statement as the contracts proceed in proportions relevantto their state of completion, less amounts recognised in previous years.
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Maintenance contractsIncome receivable from maintenance contracts invoiced in advance is recognised in revenue on a straight-line basis over thecontract term. Income from maintenance contracts which relates to periods subsequent to the year end is included in currentliabilities as deferred income.
Contract balancesContract balances are stated at cost, net of amounts transferred to cost of sales in respect of work recorded as revenue, afterdeducting foreseeable losses and payments on account not matched with revenue. Provision is made for any losses as soon asthey are foreseen.
Amounts recoverable on contracts, which are included in receivables, are stated at the net sales value of the work done lesspayments on account. Excess payments on account are included in current liabilities.
f) LeasesAssets acquired under finance leases, including hire purchase agreements where applicable, are capitalised and depreciated inaccordance with the Group’s depreciation policy or over the term of the lease if shorter. The capital element of future leasepayments is included in the balance sheet as obligations under finance leases. Lease payments are apportioned between financecharges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.Finance charges are charged directly to income.
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
Benefits received as an incentive to sign a lease, whatever form they may take, are credited to the income statement on a straight-line basis over the lease term.
g) Foreign currencyThe individual financial statements of each group entity are presented in the currency of the primary economic environment in whichthe entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financialposition of each group entity are expressed in British pounds (‘£’), which is the presentation currency for the consolidated financialstatements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency(foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date,monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetaryitems carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fairvalue was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in the income statement in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations areexpressed in British pounds using exchange rates prevailing at the balance sheet date. Income and expense items are translated atthe average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case theexchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity andrecognised in the Group’s foreign currency translation reserve. Such exchange differences are recognised in the income statementin the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreignoperation and translated at the rates prevailing at the balance sheet date.
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Notes to the Financial StatementsFor the year ended 31 May 2008
36 Quadnetics Group plc Annual Report and Accounts 2008
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1 PRINCIPAL ACCOUNTING POLICIES (CONTINUED)h) Retirement benefit costs
Group employees are members of various pension schemes, all of which operate on a money purchase basis. Contributions tothese schemes are charged to the income statement as an expense when employees have rendered service entitling them to thecontributions.
The Group also operates a retirement benefit scheme, which has deferred defined benefit members. The expected return on thescheme’s assets and the expected increase in the present value of the scheme’s liabilities during the year are included in theincome statement as other finance income and charges as appropriate. Actuarial gains and losses are recognised in theConsolidated statement of recognised income and expense. Pension scheme liabilities and, to the extent that they are recoverable,pension scheme assets are recognised in the balance sheet and represent the difference between the market value of the scheme’sassets and the present value of the scheme’s liabilities, net of deferred taxation.
Pension scheme liabilities are determined on an actuarial basis using the projected unit credit method and are discounted at a rateusing the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. Past service cost isrecognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis overthe average period until the benefits become vested.
i) Share-based paymentsIn accordance with IFRS 2, equity-settled share-based payments are measured at fair value at the date of grant. The fair value isrecognised as an employee expense on a straight-line basis over the vesting period, based on the Group’s estimate of the numberof shares that will eventually vest. The fair value of the options granted is calculated using an option pricing model which is basedon the Black–Scholes model, taking into account the terms and conditions upon which the options were granted.
For cash-settled share-based payment transactions, the fair value of the amount payable to the employee is recognised in theincome statement with a corresponding movement in liabilities. The fair value is initially measured at grant date and spread over theperiod during which the employees become unconditionally entitled to payment. The fair value is measured based on an optionpricing model taking into account the terms and conditions upon which the instruments were granted. The liability is revalued ateach balance sheet date and settlement date with any changes to fair value being recognised in the income statement.
Transactions of the Company-sponsored Quadnetics Group Employee Share Scheme are treated as being those of the Companyand are therefore reflected in the Parent Company and Group financial statements. In particular the scheme’s purchases of sharesin the Company are debited directly to equity, within ‘Other reserves’.
j) TaxationThe income tax expense is the sum of current tax and deferred tax.
Current taxThe tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidatedincome statement because it excludes items of income or expense that are taxable or deductible in other years and it furtherexcludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date.
Deferred taxDeferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and thecorresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generallyrecognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against whichthose deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differencearises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in atransaction that affects neither the taxable profit nor the accounting profit.
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Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates,and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probablethat the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporarydifferences associated with such investments and interests are only recognised to the extent that it is probable that there will besufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in theforeseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longerprobable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability issettled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balancesheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the mannerin which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current taxliabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current taxassets and liabilities on a net basis.
Current and deferred tax for the periodCurrent and deferred tax are recognised as an expense or income in the income statement, except when they relate to itemscredited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initialaccounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculatinggoodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities andcontingent liabilities over the cost of the business combination.
k) DividendsDividends proposed by the Directors and unpaid at the year end are not recognised in the financial statements until they have beenapproved by shareholders at a general meeting of the Company. Interim dividends are recognised when they are paid.
l) Property, plant and equipmentAll property, plant and equipment assets are stated at cost less accumulated depreciation.
Depreciation is calculated so as to write off the cost of fixed assets, other than freehold land which is not depreciated, less theirestimated residual values, on a straight-line basis over the estimated useful life, commencing on the first day of the month afterbeing brought into use. The principal annual rates used for this purpose are:
● Freehold buildings – 2%● Short leasehold improvements – over the term of the lease● Plant, equipment and motor vehicles – 10% to 33%
Residual values, remaining useful lives and depreciation methods are reviewed annually and adjusted if appropriate.
Gains or losses on disposal are included in the income statement.
m) Research and development costsResearch costs are written off to the income statement as incurred.
Development costs are capitalised and held as ‘Intangible assets’ in the balance sheet when the costs relate to a clearly defined project; thecosts are separately identifiable; the outcome of such a project has been assessed with reasonable certainty as to its technical feasibilityand its ultimate commercial viability; the aggregate of the deferred costs plus all future expected costs in bringing the product to market isexceeded by the future expected sales revenue; and adequate resources are expected to exist to enable the project to be completed.Amortisation is charged to match revenue generated, over the useful life of the product, from the commencement of commercial sales.
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Notes to the Financial StatementsFor the year ended 31 May 2008
1 PRINCIPAL ACCOUNTING POLICIES (CONTINUED)Amortisation periods and methods are reviewed annually and adjusted if appropriate.
Development expenditure that does not meet these criteria is written off to the income statement as incurred.
n) Other intangible assetsOther intangible assets, such as purchased computer software, are shown at historical cost less accumulated amortisation andimpairment losses.
Amortisation is charged to the income statement on a straight-line basis from the date they are available for use over the estimateduseful lives of the intangible asset. The useful life of purchased software is 3 to 5 years.
Amortisation periods and methods are reviewed annually and adjusted if appropriate.
Impairment of tangible and intangible assets other than goodwillAt each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets, other than goodwill, todetermine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, therecoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possibleto estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unitto which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are alsoallocated to individual cash-generating units.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amountof the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately inincome.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to therevised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prioryears. A reversal of an impairment loss is recognised immediately in income.
o) Assets classified as held for saleCurrent assets held for sale are measured at the lower of carrying amount and fair value less costs to sell and are classified as held forsale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This is the case when theasset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assetsand the sale is considered to be highly probable. A sale is considered to be highly probable if the appropriate level of management iscommitted to a plan to sell the asset, and an active programme to locate a buyer and complete the plan has been initiated and further,the asset has been actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale isexpected to qualify for recognition as a completed sale within one year from the date that it is classified as held for sale.
p) InventoriesInventories are valued at the lower of cost and net realisable value on a first in, first out basis. In the case of finished goods, costincludes all direct expenditure and production overheads based on the normal level of activity. Where necessary, an appropriateallowance is made for obsolete, slow-moving and defective inventories.
q) ProvisionsProvisions are recognised in the balance sheet when there is a present legal or constructive obligation as a result of a past event,and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be madeof the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at thebalance sheet date, taking into account the risks and uncertainties surrounding the obligation.
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Deferred consideration relating to business combinationsDeferred consideration relating to business combinations is initially measured at fair value at the date of acquisition and atsubsequent reporting dates measured at the higher of the amount that would be recognised in accordance with IAS 37 ‘Provisions,Contingent Liabilities and Contingent Assets’ and the amount initially recognised less any payments made.
RestructuringA restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised avalid expectation in those affected that it will be carried out.
Onerous contractsPresent obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is consideredto exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceedthe economic benefits expected to be received under it.
r) Financial instrumentsThe Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability oran equity instrument in accordance with the substance of the contractual arrangement. Financial instruments, including short-termreceivables and payables, are recognised on the balance sheet at their amortised cost, as reduced by appropriate allowances forestimated irrecoverable amounts, on the date of the related transactions.
Cash and cash equivalentsCash and cash equivalents comprise cash held by the Group and short-term bank deposits and bank current accounts with anoriginal maturity of three months or less.
s) Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
t) Significant judgements and estimatesIn the application of the Group’s accounting policies the Directors are required to make judgements, estimates and assumptionsabout the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associatedassumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ fromthese estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised inthe period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods ifthe revision affects both current and future periods. To date there has been no material impact on the carrying value of assets orliabilities from such judgements.
Revenue recognitionFollowing detailed quantification of the Group’s assets, liabilities and revenue deriving from contracts, the Directors are satisfied thatrevenue is recognised when, and to the extent that, the Group obtains the right to consideration, which is derived on a contract-by-contract basis from an assessment of the fair value of the goods or services provided as at the reporting date as a proportion of thetotal fair value of each contract.
Capitalisation of development costsIt is Group policy to capitalise and amortise development expenditure for the production of new or substantially improved productsand processes if the product or process is technically and commercially feasible and the Group has sufficient resources tocomplete development. Such expenditure is amortised over the period which the Directors expect to obtain economic benefits.This policy includes judgements regarding the initial recognition of the asset based upon market research and expected future netrevenues. It also includes estimations regarding the period of amortisation.
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2 SEGMENTAL ANALYSISProducts Products
and Unallo- 2008 and Unallo- 2007Services software cated* Total Services software cated* Total
By business segment £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Revenue 57,920 23,140 (1,886) 79,174 46,579 20,765 (1,279) 66,065Segment result, being profit fromoperations before goodwill reductionand share-based payments charge 3,545 1,584 (1,615) 3,514 4,200 2,456 (1,572) 5,084
Goodwill reduction (141) (309)Share-based payments credit/(charge) 805 (595)
Profit from operations aftergoodwill reduction and share-basedpayments charge 4,178 4,180
Assets 23,524 14,574 23,984 62,082 16,621 13,858 22,039 52,518Liabilities (21,152) (7,866) (202) (29,220) (14,799) (6,391) (839) (22,029)
Net assets 2,372 6,708 23,782 32,862 1,822 7,467 21,200 30,489
The Directors believe that the Group’s activities can be represented in two segments, (i) Services and (ii) Products and software, andthat the best measure of performance of those segments is operating profit before goodwill reduction and share-based paymentscharge, as shown above.
Services includes the integration, installation and service businesses managed as Quadrant Security Group, whilst Products andsoftware includes the Security Networks, Industrial Systems and Surveillance Technology businesses managed as Synectic Systems Group.
Net assets attributed to each business segment represent the net external operating assets of the respective businesses excludinggoodwill, bank balances and debt which are shown as unallocated amounts.
Products Productsand Unallo- 2008 and Unallo- 2007
Supplementary Services software cated* Total Services software cated* Totalsegmental information £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Share-based payments credit/(charge) 300 380 125 805 (256) (253) (86) (595)Capital additions 253 1,993 14 2,260 370 714 121 1,205Depreciation and amortisation 272 287 52 611 324 198 49 571
* Unallocated amounts in respect of revenue represent elimination of intra-group sales, and in respect of profit from operations represent central costs.
Capital CapitalRevenue Assets additions Revenue Assets additions
By geographical segment 2008 2008 2008 2007 2007 2007Geographical location of customers: £’000 £’000 £’000 £’000 £’000 £’000
United Kingdom 65,824 57,301 2,160 54,283 47,582 1,177North America 6,106 4,669 98 4,668 4,936 28Middle East 1,287 112 2 2,041 – –Asia and Pacific 2,182 – – 1,768 – –Rest of World 3,775 – – 3,305 – –
79,174 62,082 2,260 66,065 52,518 1,205
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3 NET OPERATING EXPENSES2008 2007£’000 £’000
Distribution costs 355 276Administrative expenses (before goodwill reduction and share-based payments (credit)/charge) 17,456 16,471Goodwill reduction in respect of tax losses* 141 309Share-based payments (credit)/charge (805) 595Total administrative expenses 16,792 17,375
17,147 17,651
* The goodwill reduction in respect of tax losses arises as a result of the recognition of tax losses that were not originally included in the acquisitionbalance sheet of Protec plc in November 2005.
4 FEES PAYABLE TO THE COMPANY’S AUDITORS AND ITS ASSOCIATES2008 2007£’000 £’000
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts 27 27
Fees payable to the Company’s auditors and its associates for other services:– the audit of the Company’s subsidiaries pursuant to legislation 94 90– other services pursuant to such legislation 22 13– tax services 125 35
268 165
Amounts paid to the auditors included above for other services and not expensed through the income statement amounted to £nil(2007: £nil).
5 PROFIT FROM OPERATIONS2008 2007£’000 £’000
Profit from operations is stated after charging:Amortisation of intangible assets 160 101Depreciation of other fixed assets 451 469Research and development expenditure 876 684Cost of inventories recognised as an expense 18,000 16,608Rental payments under operating leases– plant, machinery and vehicles 850 827– other 505 482
6 DIRECTORS’ AND KEY MANAGEMENT PERSONNEL REMUNERATIONThe Directors consider that the key management personnel of the business comprises of its Board of Directors, whose remunerationis shown on pages 26 and 27 of the Report of the Directors.
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7 EMPLOYEE INFORMATIONThe average number of persons (including executive Directors) employed by the Group during the year was:
2008 2007Number Number
Class of business (see note 2)Services 287 267Products and software 159 137Central 9 8
455 412
2008 2007£’000 £’000
Staff costs (for the above persons)Wages and salaries 15,245 13,762Social security costs 1,528 1,478Pension costs 395 323Share-based payments charge (805) 595
16,363 16,158
8 FINANCE INCOME2008 2007£’000 £’000
Bank interest receivable 218 233Expected return on pension scheme assets 241 227
459 460
9 FINANCE COSTS2008 2007£’000 £’000
Interest payable on bank overdrafts 2 3Interest on pension scheme liabilities 241 227
243 230
10 TAXATION2008 2007
Tax charge £’000 £’000
Current taxation:UK tax 525 1,023Overseas tax 423 235Adjustments in respect of prior years (278) –
Total current tax 670 1,258Deferred taxation:Origination and reversal of timing differences 532 (11)Adjustments in respect of prior years (165) (110)
Total deferred tax 367 (121)
1,037 1,137
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10 TAXATION (CONTINUED)Reconciliation of tax charge for the yearThe corporation tax assessed for the year differs from the standard rate of corporation tax in the UK of 29.7% (2007: 30%). Thedifferences are explained below:
2008 2007£’000 £’000
Profit on ordinary activities before tax 4,394 4,410
Tax on profit on ordinary activities before tax at standard rate of 29.7% (2007: 30%) 1,304 1,323Effects of:Expenses not deductible for tax purposes and timing differences 231 241Other timing differences (72) (227)US profits taxed at higher rate 82 110Goodwill reduction not qualifying for tax relief 42 93Utilisation of tax losses (146) (293)Rate change on deferred tax balance 39 –Adjustment in respect of prior years (443) (110)
Total tax charge for the year 1,037 1,137
2008 2007Deferred tax £’000 £’000
At start of year 869 761(Charge)/credit to income statement (367) 121Currency translation adjustment – (13)
At end of year 502 869
The deferred taxation balances comprise:2008 2007£’000 £’000
Fixed asset timing differences 283 229Other timing differences (148) 229Tax losses 367 411
502 869
The Group has tax losses available to be carried forward for offset against the future taxable profits of certain Group companiesamounting to approximately £1.3 million (2007: £1.9 million). A deferred tax asset in respect of these losses, amounting to £0.4 million(2007: £0.4 million), has been recognised at the year end as the Group believes that there will be future taxable profits against whichthe losses will be relieved.
In addition to the above, the Group has capital losses of approximately £19 million (2007: £19 million) available for offset against futuretaxable gains. No deferred tax asset in respect of these losses, which would amount to £6 million, has been recognised in thesefinancial statements as there is insufficient evidence that the asset will be recovered against future capital gains.
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11 DIVIDENDSThe following dividends were paid by the Company during the year:
2008 2007Pence 2008 Pence 2007
per share £’000 per share £’000
Final dividend paid in respect of prior year but not recognisedas liabilities in that year 4.0 621 3.5 524Interim dividends paid in respect of current year 2.5 388 2.0 301
1,009 825
Proposed final dividend for the year ended 31 May 699 621
The proposed final dividend for the year ended 31 May 2008 of 4.5p per share has not been approved by shareholders and as suchhas not been included as a liability as at 31 May 2008. Subject to approval, this is expected to be paid on 5 December 2008 toshareholders on the register at 7 November 2008. This will give a total dividend for the year of 7.0p (2007: 6.0p).
12 EARNINGS PER ORDINARY SHARE2008 2007
Pence Penceper share per share
Basic and diluted earnings per Ordinary share 21.6 21.1
Underlying basic and diluted earnings per Ordinary share 18.9 25.9
Basic and diluted earnings per Ordinary shareThe calculation of basic earnings per Ordinary share is based on the profit after taxation for the year of £3,357,000 (2007: £3,273,000) and on 15,528,934 shares, being the weighted average number of shares in issue and ranking for dividend during the year (2007: 15,494,999).
The calculation of diluted earnings per Ordinary share is based on the profit after taxation for the year of £3,357,000 (2007: £3,273,000) and on 15,535,537 shares, being the weighted average number of shares that would be in issue after conversion of all the dilutive potential Ordinary shares into Ordinary shares (2007: 15,503,696).
Weightedaverage Earnings per
Profit number of Ordinaryafter tax Ordinary share£’000 shares p per share
Year ended 31 May 2008Basic earnings per Ordinary share 3,357 15,528,934 21.6Dilutive potential Ordinary shares arising from share options – 6,603 –
Diluted earnings per Ordinary share 3,357 15,535,537 21.6
Year ended 31 May 2007Basic earnings per Ordinary share 3,273 15,494,999 21.1Dilutive potential Ordinary shares arising from share options – 8,697 –
Diluted earnings per Ordinary share 3,273 15,503,696 21.1
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12 EARNINGS PER ORDINARY SHARE (CONTINUED)Underlying basic and diluted earnings per Ordinary shareThe calculation of underlying basic earnings per Ordinary share, which the Directors consider gives a useful additional indication of theunderlying performance of the Group, is based on the profit after taxation for the year, but before deducting the goodwill reductionand share-based payments (credit)/charge (net of tax) of £2,942,000 (2007: £4,012,000) and on 15,528,934 shares, being theweighted average number of shares in issue and ranking for dividend during the year (2007: 15,494,999).
Weightedaverage Earnings per
Profit number of Ordinaryafter tax Ordinary share£’000 shares p per share
Year ended 31 May 2008Basic earnings per Ordinary share 3,357 15,528,934 21.6Goodwill reduction 141 – 0.9Share-based payments credit (805) – (5.2)Impact of share-based payments credit on tax charge for the year 249 – 1.6
Underlying basic earnings per Ordinary share 2,942 15,528,934 18.9
Year ended 31 May 2007Basic earnings per Ordinary share 3,273 15,494,999 21.1Goodwill reduction 309 – 2.0Share-based payments charge 595 – 3.8Impact of share-based payments charge on tax charge for the year (165) – (1.0)
Underlying basic earnings per Ordinary share 4,012 15,494,999 25.9
The calculation of underlying diluted earnings per Ordinary share is based on the profit after taxation for the year, but before deductingthe goodwill reduction and share-based payments (credit)/charge (net of tax) of £2,942,000 (2007: £4,012,000) and on 15,535,537shares being the weighted average number of shares that would be in issue after conversion of all the dilutive potential Ordinaryshares into Ordinary shares (2007: 15,503,696).
Weightedaverage Earnings per
Profit number of Ordinaryafter tax Ordinary share£’000 shares p per share
Year ended 31 May 2008Underlying earnings per Ordinary share 2,942 15,528,934 18.9Dilutive potential Ordinary shares arising from share options – 6,603 –
Underlying diluted earnings per Ordinary share 2,942 15,535,537 18.9
Year ended 31 May 2007Underlying earnings per Ordinary share 4,012 15,494,999 25.9Dilutive potential Ordinary shares arising from share options – 8,697 –
Underlying diluted earnings per Ordinary share 4,012 15,503,696 25.9
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Notes to the Financial StatementsFor the year ended 31 May 2008
13 PROPERTY, PLANT AND EQUIPMENTPlant,
equipmentShort and
Freehold land leasehold motorand buildings improvements vehicles Total
£’000 £’000 £’000 £’000
Cost:At 1 June 2006 633 638 2,710 3,981Additions – 12 616 628Disposals (347) – (301) (648)Currency translation adjustment – – (4) (4)
At 31 May 2007 286 650 3,021 3,957Additions 4 375 515 894Disposals – – (156) (156)
At 31 May 2008 290 1,025 3,380 4,695
Depreciation:At 1 June 2006 68 155 2,003 2,226Charge for the year 12 54 403 469Disposals (68) – (239) (307)Currency translation adjustment – – (1) (1)
At 31 May 2007 12 209 2,166 2,387Charge for the year 5 62 384 451Disposals – – (94) (94)
At 31 May 2008 17 271 2,456 2,744
Net book value:At 31 May 2008 273 754 924 1,951
At 31 May 2007 274 441 855 1,570
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14 INTANGIBLE ASSETSCapitalised
development PurchasedGoodwill costs software Total
£’000 £’000 £’000 £’000
Cost:At 1 June 2006 17,979 – 636 18,615Additions – 420 157 577Disposals – – (217) (217)Goodwill reduction in respect of tax losses (309) – – (309)Currency translation adjustment (98) – – (98)
At 31 May 2007 17,572 420 576 18,568Additions – 1,133 233 1,366Disposals – – (3) (3)Goodwill reduction in respect of tax losses (141) – – (141)Currency translation adjustment – – – –
At 31 May 2008 17,431 1,553 806 19,790
Amortisation:At 1 June 2006 1,336 – 342 1,678Charge for the year – – 101 101Disposals – – (77) (77)Currency translation adjustment (8) – – (8)
At 31 May 2007 1,328 – 366 1,694Charge for the year – 15 145 160Disposals – – (1) (1)Currency translation adjustment (1) – – (1)
At 31 May 2008 1,327 15 510 1,852
Net book value:At 31 May 2008 16,104 1,538 296 17,938
At 31 May 2007 16,244 420 210 16,874
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14 INTANGIBLE ASSETS (CONTINUED)Annual test for impairment of goodwillDuring the year, the Group assessed the recoverable amount of goodwill by comparing it to the value in use of the cash generatingunits to which it relates. The carrying amount of goodwill was allocated to the cash generating units as follows:
2008 2007£’000 £’000
Services 10,923 11,023Products and software 5,181 5,221
16,104 16,244
The recoverable amount of the cash generating units is determined based on a value in use calculation which uses cash flowprojections based on financial budgets approved by the Directors covering a one year period, and a discount rate of 7% per annum(2007: 7.5% per annum). Cash flows beyond that one year period have been extrapolated using a steady 2.25% per annum growthrate, which the Directors consider to be specific to the business and does not exceed the UK post-war real annual average growth in GDP.
The key assumptions used in the cash flow projections are as follows:
● Capital expenditure equals the annual depreciation charge each year● Cash flows reduced by UK tax at 28% (2007: 30%) and US tax of 43%
The Directors believe that, even in the current economic conditions, any reasonable possible change in the key assumptions on whichthe recoverable amounts are based would not cause the cash generating units’ carrying amount to exceed the recoverable amount.
15 INVENTORIES2008 2007£’000 £’000
Raw materials and consumables 1,116 2,252Finished goods for resale 2,093 2,140
3,209 4,392Contract balances 1,040 682
4,249 5,074
2008 2007£’000 £’000
Contract balances comprise:Net costs incurred 1,154 746Applicable payments on account (114) (64)
1,040 682
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16 TRADE AND OTHER RECEIVABLES2008 2007£’000 £’000
Trade receivables 17,242 11,834Allowance for doubtful debts (289) (223)
16,953 11,611Amounts recoverable on contracts 10,137 6,861Other receivables 1,354 830Prepayments and accrued income 1,058 1,177
29,502 20,479
Trade receivables are non-interest bearing and generally have a 30 to 90 day term. At 31 May 2008 the Group had 65 days salesoutstanding in trade receivables (2007: 40 days).
Due to their short maturities, the fair value of trade and other receivables approximates to their book value.
Movement in allowance for doubtful debts2008 2007£’000 £’000
At start of year 223 136Doubtful debts charge recognised in the year 143 159Amounts written off as uncollectable (77) (72)
At end of year 289 223
As at 31 May 2008, trade receivables of £4,447,000 (2007: £3,330,000) were past due but not impaired. The ageing analysis of thesetrade receivables is as follows:
2008 2007£’000 £’000
Up to three months past due 3,020 2,831Three to six months past due 1,187 379Over six months past due 290 120
4,497 3,330
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17 CASH AND CASH EQUIVALENTS2008 2007£’000 £’000
Cash at bank and in hand 7,940 5,596
The fair value of cash and cash equivalents approximates to their book values.
Cash at bank earns interest at floating rates based on daily bank deposit rates.
18 ASSETS CLASSIFIED AS HELD FOR SALE2008 2007£’000 £’000
Property held for resale – 2,056
The above property was purchased during the previous year with the intention of entering into a sale and leaseback agreement. Thiswas completed during the current year, at which point the asset was derecognised from the balance sheet.
19 TRADE AND OTHER PAYABLES2008 2007£’000 £’000
Payments on account 1,338 476Trade payables 12,688 8,459Other taxation and social security 1,293 868Other payables 353 895Accruals and deferred income 12,105 8,948
27,777 19,646
Due to their short maturities, the fair value of trade and other payables approximates to their book value.
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20 PROVISIONSDeferred
consideration Restructuring Property Total£’000 £’000 £’000 £’000
At 1 June 2006 1,069 161 533 1,763Utilised in year – (158) (252) (410)(Credit)/charge to income statement – (3) 20 17Currency translation adjustment (58) – – (58)
At 31 May 2007 1,011 – 301 1,312Utilised in year (99) – (152) (251)Charge/(credit) to income statement – – 9 9Currency translation adjustment 1 – – 1
At 31 May 2008 913 – 158 1,071
Provisions have been analysed between current and non-current as follows:2008 2007£’000 £’000
Current 380 216Non-current 691 1,096
1,071 1,312
It is anticipated that the provisions carried forward at 31 May 2008 will be utilised within the following timescales:Numberof years
Deferred contingent consideration in respect of the acquisition of the trade and net assets of AlphaPoint LLC 2
Property costs provision for the future costs of empty leasehold properties and dilapidations 9
In May 2005, the Group acquired the trade and net assets of AlphaPoint LLC, a specialist provider of digital surveillance technology inNorth America, for a total consideration of up to $3.3 million, made up of $0.7 million in cash at completion, $0.2 million in Ordinaryshares of the Company, plus a further $0.4 million in Ordinary shares and $2 million in cash dependent on the profits of the businessover the four years to 31 May 2009. The deferred cash consideration is calculated at 22.5% of the amount by which cumulativeearnings before interest, tax, depreciation and amortisation (‘EBITDA’) exceed $1.1 million in aggregate in the four years, up to amaximum of $2 million. Payments are made annually once the $1.1 million threshold has been exceeded. Full provision has beenmade for this deferred consideration as the Directors believe that it is likely that the full liability of $2 million will be incurred.
In addition, the Group has a number of properties where the Directors believe that dilapidation costs may be incurred or where theproperty is sublet and the Directors believe that they may not be able to fully recover future rental costs, and therefore appropriate cost provisions have been made.
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21 CALLED UP SHARE CAPITALThe number of authorised, allotted, called up and fully paid shares is as follows:
2008 2007Number £’000 Number £’000
Ordinary shares of 20p eachAuthorised 25,000,000 5,000 25,000,000 5,000
Allotted, called up and fully paid 16,907,434 3,382 16,404,622 3,281Shares to be issued – – 503,562 101
16,907,434 3,382 16,908,184 3,382
During the year the Company issued 502,812 Ordinary shares to former holders of Protec shares in connection with the acquisition ofProtec plc.
The impact on share capital and the merger reserve was as follows:Share Merger
Number capital reserve Totalof shares £’000 £’000 £’000
Consideration for acquisition of Protec plc:– Shares to be issued at 31 May 2007 503,562 101 1,158 1,259– Shares issued in year (502,812) (101) (1,156) (1,257)– Fractional entitlement adjustment (750) – (2) (2)
Balance of shares to be issued – – – –
The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share atmeetings of the Company, with the exception of shares held by the Quadnetics Group Employee Share Scheme where the right todividends has been waived (see note 22).
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22 OPTIONS OVER SHARES OF QUADNETICS GROUP plcThe Group operates four share schemes: the Quadnetics Group EMI Share Option Scheme, the Protec plc EMI Share OptionScheme, the Protec plc AESOP Scheme and the Quadnetics Group Employee Share Scheme.
Quadnetics Group EMI Share Option SchemeThe Quadnetics EMI Scheme was adopted on 27 December 2001. It is administered by the Board but is now closed as the size ofthe Group exceeds the limits imposed by HM Revenue & Customs.
Options outstanding at 31 May 2008 are exercisable as follows, subject to the holder still being employed by the Group at the time ofexercise:
Option Number ofDate granted Exercise dates price options
11 April 2003 11 April 2005 – 10 April 2013 135.0p 10,0005 March 2004 5 March 2006 – 4 March 2014 300.0p 163,33330 September 2004 30 September 2006 – 29 September 2014 280.0p 10,715
Outstanding options at 31 May 2008 184,048
There were no movements during the year.
Protec plc EMI Share Option SchemeThe Protec EMI Share Option Scheme was adopted on 9 May 2001. It is administered by the Board but the Scheme was closed tonew members on 31 December 2005 following the acquisition of Protec plc by Quadnetics Group plc. The holders of Protec EMIoptions at the time of the acquisition were able to elect to convert these options into options of the same value over Ordinary sharesin Quadnetics Group plc in a ratio of 1 Quadnetics share for every 43 Protec shares. As a result, former Protec EMI option holdersheld options over a further 39,531 Ordinary shares at 31 May 2008, which were exercisable as follows, subject to the holder still being employed by the Group at the time of exercise:
Option Number ofDate granted Exercise dates price options
23 May 2001 23 May 2004 – 22 May 2011 301.0p 16,27824 October 2001 24 October 2004 – 23 October 2011 292.4p 3,48816 April 2002 16 April 2005 – 15 April 2012 163.4p 4,65110 December 2002 10 December 2005 – 9 December 2012 258.0p 5,81418 November 2003 18 November 2006 – 17 November 2013 516.0p 8,71930 April 2004 30 April 2007 – 29 April 2014 430.0p 581
Outstanding options at 31 May 2008 39,531
Protec plc AESOP SchemeThe Protec plc AESOP Scheme was adopted on 9 May 2001 but was closed to new members and contributions ceased on 31 December 2005 following the acquisition of Protec plc by Quadnetics Group plc. The holders of shares in the Scheme at the time of the acquisition were able to elect to convert these shares into Ordinary shares of the same value in Quadnetics Group plc in a ratioof 1 Quadnetics share for every 43 Protec shares.
Shares can be withdrawn from the Scheme by the employee at any time, subject to forfeiture of half the related matching shares ifwithdrawal is made prior to the third anniversary of the grant date. Between the third and fifth anniversary of the grant date,withdrawals can be made penalty-free but are subject to income tax; withdrawals after the fifth anniversary of the grant date can bemade in full and are tax free. Employees who leave the Group are required to withdraw all of their shares in the Scheme and aresubject to the same rules.
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Notes to the Financial StatementsFor the year ended 31 May 2008
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22 OPTIONS OVER SHARES OF QUADNETICS GROUP plc (CONTINUED)The Scheme holds 142,106 Ordinary shares at 31 May 2008, which were acquired by the Scheme trustee as follows:
2008 2007Effective date Fifth anniversary Purchase Number Numberof purchase of the grant date price of shares of shares
1 January 2002 1 January 2007 258.0p 9,572 12,9041 July 2002 1 July 2007 172.0p 16,835 21,8551 January 2003 1 January 2008 193.5p 15,998 19,7481 July 2003 1 July 2008 311.8p 10,405 12,7191 January 2004 1 January 2009 454.2p 8,661 10,6591 July 2004 1 July 2009 402.1p 11,261 13,5741 January 2005 1 January 2010 188.1p 24,875 29,8181 July 2005 1 July 2010 188.1p 24,387 28,6921 January 2006 1 January 2011 209.0p 19,262 21,84731 March 2006 (reinvestment of dividend) 31 March 2011 260.0p 850 1,010
Shares held at 31 May 142,106 172,826
At 31 May 2008 the shares held by the Protec plc AESOP Scheme had a market value of £213,000 (2007: £583,000).
Movements during the year were as follows:Numberof shares
Shares held at 1 June 2007 172,826Withdrawals by employees who left the Group during the year (27,551)Other withdrawals (3,169)
Shares held at 31 May 2008 142,106
Quadnetics Group Employee Share SchemeDetails of Ordinary shares held by the Quadnetics Group Employee Share Scheme are as follows:
2008 2007Number Number
At start of year 1,378,500 842,000Allotted by the Company during the year – 536,500
At end of year 1,378,500 1,378,500
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22 OPTIONS OVER SHARES OF QUADNETICS GROUP plc (CONTINUED)Under the provisions of the Scheme, these shares (‘the Scheme Shares’) are held for the benefit of nominated employees anddirectors on terms, similar to a share option scheme, whereby the value of appreciation in the Company’s share price over a minimumthree year period accrues to the relevant employee or director, provided the Company meets certain performance thresholds linked tothe FTSE AIM All Share Total Return Index. The substantial majority of the funding for subscription for the Scheme Shares wasprovided as an interest-free loan by the Company to Synectics Group Limited, a wholly owned subsidiary of the Company and trusteeto the Scheme, and it is intended that this loan will ultimately be repaid following sale of the Scheme Shares in the market once thethree year qualification requirements and performance criteria have been met. Dividends on the Scheme Shares have been waived.The Scheme Shares have been allocated to employees under the following grants:
Relevantshare price at Number of
Date granted Exercise dates date of grant shares
16 June 2005 16 June 2008 onwards 241.0p 620,00027 March 2006 27 March 2009 onwards 242.5p 56,00012 July 2006 12 July 2009 onwards 212.5p 500,00027 March 2007 27 March 2010 onwards 360.0p 20,5005 October 2007 5 October 2010 onwards 330.0p 30,000Balance of shares in respect of leavers 152,000
1,378,500
At 31 May 2008 the market value of the shares held by the Scheme, but not yet vested, was £2,068,000 (2007: £4,652,000).
23 SHARE-BASED PAYMENT (CREDIT)/CHARGEThe fair value of services received in return for share options granted or awards made under the Group’s share schemes aremeasured by reference to the fair value of the share options granted or share scheme shares awarded. For the equity-settled optionsgranted during the previous year, the estimate of the fair value of the services received is measured based on a Black–Scholes optionpricing model using the following assumptions:
2008 2007
Weighted average share price 207.1p 207.1pExercise price 219.8p 219.8pExpected volatility 35% 35%Option life 3.25 years 3.25 yearsDividend yield 2.86% 2.86%Risk-free interest rate (based on Government bonds) 4.78% 4.78%
The expected volatility is wholly based on the historic volatility.
Share options are granted under a service condition and also, for grants to employees under the Quadnetics Group Employee ShareScheme, a performance measure based around the Company’s share price relative to the FTSE AIM All Share Total Return Index.
The total (credit)/charge recognised for the year arising from share-based payments are as follows:2008 2007£’000 £’000
Equity-settled share-based payments 25 53Cash-settled share-based payments (830) 542
(805) 595
Total carrying value of liabilities – 830
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Notes to the Financial StatementsFor the year ended 31 May 2008
24 RECONCILIATION OF MOVEMENTS IN TOTAL EQUITYCalled up Share Currency
share premium Merger Other translation Retainedcapital account reserve reserves reserve earnings Total£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1 June 2006 3,263 13,634 9,565 (1,307) (9) 2,689 27,835Issue of shares to employee share scheme 108 1,071 – (1,179) – – –Issue of shares to EMI share option holders 11 146 – – – – 157Currency translation adjustment – – – – (4) – (4)Profit after tax for the year – – – – – 3,273 3,273Dividends paid (note 11) – – – – – (825) (825)Credit in relation to share-based payments – – – – – 53 53
At 31 May 2007 3,382 14,851 9,565 (2,486) (13) 5,190 30,489Profit after tax for the year – – – – – 3,357 3,357Dividends paid (note 11) – – – – – (1,009) (1,009)Credit in relation to share-based payments – – – – – 25 25
At 31 May 2008 3,382 14,851 9,565 (2,486) (13) 7,563 32,862
Cumulative goodwill written off directly to retained earnings at 31 May 2008 was £593,000 (2007: £593,000).
The merger reserve has been created in accordance with section 131 of the Companies Act 1985 whereby the premium on Ordinaryshares in the Company issued to acquire shares has been credited to the merger reserve rather than the share premium account.
The cost of own shares held within the Quadnetics Group Employee Share Scheme of £3,209,000 (2007: £3,209,000) has beendeducted from other reserves. The nominal value of these shares is £275,700 (2007: £275,700). Other reserves also includes acapital redemption reserve of £8,000 (2007: £8,000).
25 CONTINGENT LIABILITIESCertain subsidiary companies have agreed to guarantee a number of bank bonds, issued by Barclays Bank PLC, amounting to a totalof £1.3 million at 31 May 2008 (2007: £0.9 million). At 31 May 2008, the Group had placed cash totalling £0.2 million (2007: £nil) ondeposit with Barclays as collateral against these guarantees.
26 RELATED PARTY TRANSACTIONS1) Sales in the year of £1,000 (2007: £nil) were made to Trafficland, Inc., of which DJ Coghlan is a director and shareholder. The
balance owed by Trafficland, Inc. at 31 May 2008 was £nil (2007: £nil).
2) Sales in the year of £581,000 (2007: £873,000) were made to Coex Services Asia Pte Ltd, in which the Group has an investment(original cost: £8,000 now fully written down), but does not exercise any influence. The balance owed by Coex Services Asia PteLtd at 31 May 2008 was £284,000 (2007: £125,000).
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are notdisclosed in this note. The principal subsidiaries and divisions within the Group are listed on page 74.
All transactions with related parties were at arm’s length.
27 CAPITAL COMMITMENTSAt the year end capital commitments not provided for in these financial statements amounted to £38,000 (2007: £nil).
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28 OPERATING LEASE COMMITMENTSThe Group had total outstanding commitments for future minimum lease payments under non-cancellable operating leases, which falldue as follows:
2008 2007£’000 £’000
Within one year 690 864Within two to five years 1,486 2,515In excess of five years 1,759 172
3,935 3,551
29 PENSION COMMITMENTSThe Group operates a defined benefit pension scheme and a number of defined contribution schemes.
a) Defined benefit schemeThe Company operates the Quadrant Group plc Retirement Benefit Scheme. This scheme includes both a defined benefits section inrespect of past employees of the Group and a defined contributions section in respect of one current employee. The accrual ofbenefits in the defined benefit section ceased in 1996 and the section now relates to members whose benefits represent deferredpensions or pensions in payment only. The figures disclosed below have been calculated on an approximate basis by appropriatelyadjusting and updating the preliminary valuation results of the 1 July 2007 valuation produced by a qualified independent actuary to31 May 2008. No contributions are being made by the Group to the defined benefit section of the scheme.
The disclosures below relate to the defined benefits section, with the contributions to the defined contributions section beingdisclosed in section b).
It is the policy of the Company to recognise all actuarial gains and losses in the year in which they occur outside the incomestatement in the Statement of Recognised Income and Expense.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation2008 2007£’000 £’000
Defined benefit obligation at start of year 4,459 4,619Interest cost 241 227Actuarial gain (162) (227)Benefits paid (161) (160)
Defined benefit obligation at end of year 4,377 4,459
Reconciliation of opening and closing balances of the fair value of plan assets2008 2007£’000 £’000
Fair value of assets at start of year 4,915 5,151Expected return on assets 241 227Actuarial loss (326) (303)Benefits paid (161) (160)
Fair value of assets at end of year 4,669 4,915
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Notes to the Financial StatementsFor the year ended 31 May 2008
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29 PENSION COMMITMENTS (CONTINUED)Total expense recognised in income statement
2008 2007£’000 £’000
Expected return on assets 241 227Interest cost (241) (227)
Fair value of assets at end of year – –
Gains/(losses) recognised in statement of recognised income and expense2008 2007£’000 £’000
Difference between expected and actual return on scheme assets– Amount (£’000) (326) (303)– Percentage of plan assets 7% 6%Experience gains and losses arising on the scheme liabilities– Amount (£’000) (48) –– Percentage of plan assets (1%) –Effects of changes in the demographic and financial assumptions underlying the present valueof the scheme liabilities– Amount (£’000) 210 227– Percentage of plan assets 5% 5%Adjustment due to surplus cap– Amount (£’000) 164 76– Percentage of plan assets 4% 2%
Total amount recognised in the statement of recognised income and expense – –
The cumulative amount of actuarial gains and losses recognised in the statement of recognised income and expense since theadoption of IAS 19 is £nil.
Asset allocation and expected long term rates of return2008 2008 2007 2007
Expected Fair value of Expected Fair value ofreturn plan assets return plan assets
% £’000 % £’000
Equities 8.00 36 8.00 105Bonds 6.20 4,059 5.00 4,192Cash 5.00 574 5.50 618
Weighted average expected return 6.07 4,669 5.13 4,915
As at 31 May 2008, the fair value of the assets include holdings of £36,000 in Quadnetics Group plc shares which are employer-related investments. There are no further amounts in assets which represent the Company’s own financial instruments or any propertyoccupied by, or other assets used by, the Company.
The expected long term return on cash is equal to bank base rates at the balance sheet date. The expected return on bonds isdetermined by reference to UK long dated gilt and bond yields at the balance sheet date. The expected rate of return on equities hasbeen determined by setting an appropriate risk premium above gilt/bond yields having regard to market conditions at the balancesheet date.
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29 PENSION COMMITMENTS (CONTINUED)Actual return on plan assetsThe actual return on the plan assets over the period from 31 May 2007 to 31 May 2008 was approximately minus 1.8%.
Principal actuarial assumptions2008 2007 2006
% per annum % per annum % per annum
Inflation 3.90 3.30 3.00Salary increases – – –Rate of discount 6.50 5.50 5.00Allowance for pensions in payment increases 2.50 2.50 2.50Revaluation rate for deferred pensioners 3.90 3.30 3.00Allowance for commutation of pension for cash at retirement – – –
The mortality assumptions adopted at 31 May 2008 imply the following life expectancies at age 65: Years
Male currently age 40 23.3Female currently age 40 26.1Male currently age 65 22.0Female currently age 65 24.9
Present value of defined benefit obligations, fair value of assets and deficit2008 2007£’000 £’000
Present value of defined benefit obligation 4,377 4,459Fair value of plan assets 4,669 4,915Surplus in plan 292 456Total amount of surplus not recoverable (292) (456)Recoverable surplus/(deficit) – –
Best estimate of contributions to be paid to plan for the year ending 31 May 2009The Company estimates that no material contributions will be paid to the plan during the year ending 31 May 2009.
Three year history of experience gains and losses2008 2007 2006£’000 £’000 £’000
Fair value of plan assets 4,669 4,915 5,151Present value of defined benefit obligation 4,377 4,459 4,619
Surplus in plan 292 456 532
Experience adjustment on plan liabilities (48) – –Experience adjustment on plan assets (326) (303) (2)Effects of changes in the demographic and financial assumptions underlyingthe present value of the plan liabilities 210 227 (30)
b) Defined contribution schemesThere are also a number of other defined contribution pension schemes operated by various companies within the Group. TheGroup’s total expense for these other schemes in the year was £395,000 (2007: £315,000).
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Notes to the Financial StatementsFor the year ended 31 May 2008
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30 FINANCIAL INSTRUMENTSCapital risk managementThe Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return toshareholders. The capital structure of the Group consists of cash held in short term bank deposits and current accounts (note 17) andequity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 21and 24. The Group is not subject to any externally imposed capital requirements.
Financial risk management objectivesFinancial risks include market risk (principally foreign currency risk), credit risk, liquidity risk and interest risk. The Group seeks tominimise the effect of these risks by developing and consistently applying Board approved policies and procedures. Such policies andprocedures are regularly reviewed for their appropriateness and effectiveness to deal with the changing nature of financial risks. TheGroup’s principal financial instruments comprise cash held in short term bank deposits and current accounts, trade receivables,amounts recoverable under contracts, other receivables, trade payables and other payables that arise directly from its operations anda provision for contingent consideration.
Foreign currency riskThe Group operates internationally giving rise to exposure from changes in foreign exchange rates, with the US dollar and the eurobeing the main foreign currencies in which the Group operates. The Group’s policy is to manage transaction exposure in respect ofthe Group’s UK subsidiaries through the use of forward exchange contracts, which are entered into in respect of forecast foreigncurrency transactions when the amount and timing of such forecast transactions becomes reasonably certain. At 31 May 2008 theGroup had the following commitments in respect of forward exchange contracts, all of which mature within the next year:
2008 2008 2008 2008 2007 2007 2007 2007Average Average Average Average
rate rate rate rate$’000 $:£ €’000 €:£ $’000 $:£ €’000 €:£
Forward sales 843 1.96 164 1.33 – – – –Forward purchases 60 1.91 – – – – – –
The fair value of these forward exchange contracts is not considered to be materially different to the value determined in the contracts. At 31 May 2008, the Group entities based in the UK had the following forecast foreign currency transactions during the next twoyears which have not been hedged, principally due to either natural hedges being available of receipts against payments or tosignificant uncertainty over the timing of the transactions:
2008 2008 2007 2007$’000 €’000 $’000 €’000
Receipts 1,532 6 2,293 636Payments 885 35 845 1,080
The Group is exposed to fluctuations in exchange rates on the translation of profits earned by its US subsidiary. These profits aretranslated at average exchange rates for the year which is an approximation to rates at the date of transaction. The Group’s USsubsidiary accounts for approximately 2% (2007: 1%) of the Group’s net assets. Translation exposure in respect of these assets is not hedged.
At 31 May 2008 the Group held cash balances of $444,000 (2007: $2,462,000), the majority of which was held by the Group’s USsubsidiary as working capital, and €159,000 (2007: €217,000).
It is estimated that a 10% fall in the year end US dollar exchange rate would have increased profits by £70,000 (2007: £32,000) andequity by £58,000 (2007: £30,000). A 10% fall in the year end euro exchange rate would not have a material impact on either profitsor equity.
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30 FINANCIAL INSTRUMENTS (CONTINUED)The table below shows the extent to which the Group had monetary assets and liabilities in currencies other than the local currency of the company in which they are recorded. Foreign exchange differences on the retranslation of these assets and liabilities arerecognised in the Group income statement.
2008 2007US dollars Euros Total US dollars Euros Total
£’000 £’000 £’000 £’000 £’000 £’000
Functional currency of Group operationSterling 63 125 188 210 147 357US dollars – – – – – –
Credit riskCredit risk refers to the risk that a customer or counterparty to a financial instrument fails to meet its contractual obligations, resultingin financial loss to the Group, and arises principally from the Group’s receivables from customers and short term bank deposits andcurrent accounts. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Creditevaluations are performed on all customers requiring credit using information supplied by independent rating agencies whereavailable. The Group also uses other publicly available information and its own trading records to rate major customers. The credit riskon short term bank deposits and current accounts is limited because the counterparties are banks with high credit-ratings assignedby international credit-rating agencies.
At the balance sheet date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is representedby the carrying amount of each financial asset in the Balance Sheet.
Liquidity riskLiquidity risk is the risk that the Group does not have sufficient cash to meet its financial obligations as they fall due. The Groupensures that sufficient cash and undrawn facilities are available to fund ongoing operations and to meet its medium term capital andfunding obligations, and to meet any unforeseen obligations and opportunities.
At the year end, the Group had net funds of:2008 2007£’000 £’000
Short term bank deposits 6,707 3,832Current accounts 1,233 1,764
7,940 5,596
The level of the Group's bank overdraft facilities is reviewed annually and at 31 May 2008 the Group had undrawn facilities of up to £3 million, on which interest would be payable at the bank base rate + 1%.
All financial liabilities of the Group, principally comprising of trade creditors, fall due for payment within twelve months of the balancesheet date (2007: twelve months).
Due to the significant amount of cash placed on short term deposit and held in current accounts, taken together with the undrawnbank overdraft facility, the Group’s exposure to liquidity risk at 31 May 2008 and 31 May 2007 was negligible.
Interest riskInterest bearing assets comprise cash held in short term bank deposits, earning interest at bank base rate adjusted for a market ratemargin. During the year these bank deposits bore interest at a rate of between 4.25% and 5.60% against base rate of between 5.0%and 5.75% (2007: 3.75% and 5.30% against base rate of between 4.5% and 5.5%). The Group benchmarks the rates being obtainedin order to maximise its returns, within the credit risk framework referred to above.
The current accounts and the Group’s financial liabilities are all non-interest bearing.
The Group's funds did not carry any significant interest rate risk at 31 May 2008 and 31 May 2007.
A 1% fall in interest rates would have reduced profit for the year and equity by £44,000 (2007: £51,000).
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Notes to the Financial StatementsFor the year ended 31 May 2008
31 RECONCILIATIONS FROM UK GAAP TO ADOPTED IFRSRestated income statementFor the year ended 31 May 2007 Measurement Restated in
UK GAAP as and accordancepreviously Presentation recognition with adoptedreported adjustments adjustments IFRS
£’000 £’000 £’000 £’000
Continuing operationsRevenue 66,065 – – 66,065Cost of sales (44,234) – – (44,234)
Gross profit 21,831 – – 21,831Net operating expenses (18,242) – 591 (17,651)
Profit from operationsExcluding goodwill amortisation, goodwill reduction andshare-based payments 5,095 – (11)(7) 5,084Goodwill amortisation (911) – 911(8) –Goodwill reduction in respect of tax losses – – (309)(9) (309)Share-based payments charge (595) – – (595)
Total profit from operations 3,589 – 591 4,180Finance income 230 230(1) – 460Finance costs – (230)(1) – (230)
Profit before taxExcluding goodwill amortisation, goodwill reduction andshare-based payments 5,325 – (11)(7) 5,314Goodwill amortisation (911) – 911(8) –Goodwill reduction in respect of tax losses – – (309)(9) (309)Share-based payments charge (595) – – (595)
Total profit before tax 3,819 – 591 4,410Income tax expense (1,117) – (20)(10) (1,137)
Profit for the period 2,702 – 571 3,273
IFRS transition adjustments
Presentation adjustments(1) separate disclosure of interest payable on the face of the income statement(2) reclassification of purchased software as an intangible asset(3) reclassification of deferred tax asset as a non-current asset(4) separate disclosure of tax liabilities on the face of the balance sheet(5) split of provisions into current and non-current liabilities(6) reclassification of currency translation adjustment to a separate reserve
Measurement and recognition adjustments(7) accrual for untaken holiday pay(8) removal of UK GAAP goodwill amortisation(9) goodwill reduction in respect of tax losses acquired as part of a business combination that were not initially recognised(10) deferred tax on holiday pay accrual, on the reversal of the amortisation of goodwill arising on a trade and asset purchase and on
the depreciation of short leasehold improvements acquired as part of a business combination.
The cash flow statement has been re-presented to conform with adopted IFRS presentation requirements. There has been no impacton cash and the Group continues to reconcile to the same cash and cash equivalents balance.
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31 RECONCILIATIONS FROM UK GAAP TO ADOPTED IFRS (CONTINUED)Restated balance sheetAt the date of transition (being 1 June 2006) Measurement Restated in
UK GAAP as and accordancepreviously Presentation recognition with adoptedreported adjustments adjustments IFRS
£’000 £’000 £’000 £’000
Non-current assetsProperty, plant and equipment 2,049 (295)(2) – 1,754Intangible assets 16,925 295(2) (282)(9) 16,938Deferred tax asset – 901(3) (140)(10) 761
18,974 901 (422) 19,453
Current assetsProperty held for resale – – – –Inventories 4,281 – – 4,281Trade and other receivables 19,990 (901)(3) – 19,089Cash and cash equivalents 8,940 – – 8,940
33,211 (901) – 32,310Assets classified as held for sale – – – –
33,211 (901) – 32,310
Total assets 52,185 – (422) 51,763
Current liabilitiesTrade and other payables (22,046) 536(4) (119)(7) (21,629)Tax liabilities – (536)(4) – (536)Current provisions – (509)(5) – (509)
(22,046) (509) (119) (22,674)
Non-current liabilitiesNon-current provisions (1,763) 509(5) – (1,254)
(1,763) 509 – (1,254)
Total liabilities (23,809) – (119) (23,928)
Net assets 28,376 – (541) 27,835
Equity attributable to equity holders of parent companyCalled up share capital 3,263 – – 3,263Share premium account 13,634 – – 13,634Merger reserve 9,565 – – 9,565Other reserves (1,307) – – (1,307)Currency translation reserve – (9)(6) – (9)Retained earnings 3,221 9(6) (541) 2,689
Total equity 28,376 – (541) 27,835
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Notes to the Financial StatementsFor the year ended 31 May 2008
31 RECONCILIATIONS FROM UK GAAP TO ADOPTED IFRS (CONTINUED)Restated balance sheetAt 31 May 2007 Measurement Restated in
UK GAAP as and accordancepreviously Presentation recognition with adoptedreported adjustments adjustments IFRS
£’000 £’000 £’000 £’000
Non-current assetsProperty, plant and equipment 1,780 (210)(2) – 1,570Intangible assets 16,344 210(2) 320(8),(9) 16,874Deferred tax asset – 1,029(3) (160)(10) 869
18,124 1,029 160 19,313
Current assetsProperty held for resale 2,056 (2,056) – –Inventories 5,074 – – 5,074Trade and other receivables 21,508 (1,029)(3) – 20,479Cash and cash equivalents 5,596 – – 5,596
34,234 (3,085) – 31,149Assets classified as held for sale – 2,056 – 2,056
34,234 (1,029) – 33,205
Total assets 52,358 – 160 52,518
Current liabilitiesTrade and other payables (20,587) 1,071(4) (130)(7) (19,646)Tax liabilities – (1,071)(4) – (1,071)Current provisions – (216)(5) – (216)
(20,587) (216) (130) (20,933)
Non-current liabilitiesNon-current provisions (1,312) 216(5) – (1,096)
(1,312) 216 – (1,096)
Total liabilities (21,899) – (130) (22,029)
Net assets 30,459 – 30 30,489
Equity attributable to equity holders of parent companyCalled up share capital 3,382 – – 3,382Share premium account 14,851 – – 14,851Merger reserve 9,565 – – 9,565Other reserves (2,486) – – (2,486)Currency translation reserve – (13)(6) – (13)Retained earnings 5,147 13(6) 30 5,190
Total equity 30,459 – 30 30,489
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2008 2007Notes £’000 £’000
Fixed assetsGoodwill 5 4,455 4,736Plant, equipment and motor vehicles 6 181 247Investments in subsidiary undertakings 7 17,273 17,918
21,909 22,901
Current assetsStocks 8 1,053 1,339Debtors 9 14,945 16,512
15,998 17,851
Creditors: amounts falling due within one year 10 (4,114) (9,147)
Net current assets 11,884 8,704
Total assets less current liabilities 33,793 31,605Creditors: amounts falling due after more than one year 10 (2,531) (703)Provisions for liabilities and charges 11 (5) (3)
Net assets 31,257 30,899
Capital and reservesCalled up share capital 12 3,382 3,382Share premium account 13 14,851 14,851Merger reserve 13 9,565 9,565Other reserves 13 (2,486) (2,486)Profit and loss account 13 5,945 5,587Equity shareholders’ funds 31,257 30,899
The financial statements were approved and authorised for issue by the Board of Directors on 3 September 2008 and were signed onits behalf by:
RC Singleton NC PoultneyDirector Director
Company Balance Sheet31 May 2008
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Notes to the Company Financial StatementsFor the year ended 31 May 2008
The principal activity of the Company was to act as a holding company for its trading subsidiaries, and the provision of mobile CCTVsurveillance systems through the Look CCTV division.
1 PRINCIPAL ACCOUNTING POLICIESThe financial statements have been prepared in accordance with applicable Accounting Standards in the United Kingdom (‘UK GAAP’).A summary of the more important Company accounting policies, which have been consistently applied, is set out below.
a) Basis of accountingThe financial statements are prepared in accordance with the historical cost convention.
b) TurnoverTurnover, which excludes value added tax and trade discounts, represents the value of goods and services supplied during theyear. Income receivable from maintenance contracts invoiced in advance is recognised in turnover on a straight-line basis over thecontract term. Income from maintenance contracts which relates to periods subsequent to the year end is included in creditors asdeferred income.
c) GoodwillGoodwill represents the excess of the purchase price over the fair value of the net assets purchased at the date of acquisition, andis capitalised as a fixed asset and amortised on a straight-line basis over its estimated useful life of up to 20 years.
d) Tangible fixed assetsTangible fixed assets are stated at cost less accumulated depreciation.
Depreciation is calculated so as to write off the cost of fixed assets, less their estimated residual values, on a straight-line basis overthe expected useful economic lives of the assets concerned, commencing on the first day of the month after being brought intouse. The principal annual rates used for this purpose are 10%–33%.
e) Leased assetsRentals payable under operating leases are written off to the profit and loss account on a straight-line basis over the term of the lease.
f) Stocks and work in progressStocks are stated at the lower of cost and net realisable value. In the case of finished goods, cost includes all direct expenditureand production overheads based on the normal level of activity. Where necessary, provision is made for obsolete, slow-moving anddefective stocks.
g) TaxationThe charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differencesbetween the treatment of certain items for taxation and accounting purposes.
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or aright to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timingdifferences arise from the inclusion of income and expenditure in taxation computations in periods different from those in which theyare included in the financial statements. Deferred tax assets are recognised to the extent that it is more likely than not that they willbe recovered. Deferred tax balances are not discounted.
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h) Pension costsCompany employees are members of two pension schemes, both of which operate on a money purchase basis. Contributions tothese schemes are charged to the profit and loss account as incurred.
The Company also operates a retirement benefit scheme, which has deferred defined benefit members. The expected return on thescheme’s assets and the expected increase in the present value of the scheme’s liabilities during the year are included in the profitand loss account as other finance income or charges as appropriate. Actuarial gains and losses are recognised in the statement oftotal recognised gains and losses. Pension scheme liabilities and, to the extent that they are recoverable, pension scheme assetsare recognised in the balance sheet and represent the difference between the market value of the scheme’s assets and the presentvalue of the scheme’s liabilities, net of deferred taxation.
Pension scheme liabilities are determined on an actuarial basis using the projected unit method and are discounted at a rate usingthe current rate of return on a high quality corporate bond of equivalent term and currency to the liability.
i) Foreign currencyTransactions denominated in foreign currency are translated into sterling at the exchange rates prevailing at the date of thetransaction. Monetary assets and liabilities in foreign currencies are retranslated into sterling at rates of exchange ruling at the endof the financial year or, if appropriate, at the forward contract rate. Exchange differences arising on these transactions are taken tothe profit and loss account in the year in which they arise.
j) DividendsDividends proposed by the Directors and unpaid at the year end are not recognised in the financial statements until they have beenapproved by shareholders at a general meeting of the Company. Interim dividends are recognised when they are paid.
k) Employee share schemesTransactions of the Company-sponsored Quadnetics Group Employee Share Scheme are treated as being those of the Companyand are therefore reflected in the Parent Company financial statements. In particular, the scheme’s purchase of shares in theCompany are debited directly to equity.
2 DIRECTORS’ REMUNERATIONDirectors’ remuneration is shown on pages 26 and 27 of the Report of the Directors.
3 EMPLOYEE INFORMATIONThe average number of persons (including executive Directors) employed by the Company during the year was:
2008 2007Class of business Number Number
Services 40 34Central 9 8
49 42
2008 2007Staff costs (for the above persons) £’000 £’000
Wages and salaries 1,902 2,119Social security costs 225 204Pension costs 122 53Share-based payments (credit)/charge (159) 119
2,090 2,495
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4 DIVIDENDSThe following dividends were paid by the Company during the year:
2008 2007Pence 2008 Pence 2007
per share £’000 per share £’000
Final dividend paid in respect of prior year but not recognisedas liabilities in that year 4.0 621 3.5 524Interim dividends paid in respect of current year 2.5 388 2.0 301
1,009 825
Proposed final dividend for the year ended 31 May 699 621
The proposed final dividend for the year ended 31 May 2008 of 4.5p per share has not been approved by shareholders and as suchhas not been included as a liability as at 31 May 2008. Subject to approval, this is expected to be paid on 5 December 2008 toshareholders on the register at 7 November 2008. This will give a total dividend for the year of 7.0p (2007: 6.0p).
5 GOODWILL£’000
Cost:At 1 June 2007 and 31 May 2008 5,627Amortisation:At 1 June 2007 891Charge for the year 281
At 31 May 2008 1,172
Net book value:At 31 May 2008 4,455
At 31 May 2007 4,736
Goodwill is amortised on a straight-line basis over its estimated useful life of 20 years, being the period over which the Directorsestimate that the values of the underlying businesses acquired are expected to exceed the value of the underlying assets. TheDirectors have conducted an impairment review of goodwill and concluded that it is not impaired.
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6 PLANT, EQUIPMENT AND MOTOR VEHICLES£’000
Cost:At 1 June 2007 509Additions 33Disposals (51)
At 31 May 2008 491
Depreciation:At 1 June 2007 262Charge for the year 85Disposals (37)
At 31 May 2008 310
Net book value:At 31 May 2008 181
At 31 May 2007 247
7 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS£’000
Cost at 1 June 2007 26,100Disposals:– share-based payments credit in respect of employees of subsidiary undertakings (645)
At 31 May 2008 25,455
Provision for impairment as at 1 June 2007 and 31 May 2008 (8,182)
Net book value:At 31 May 2008 17,273
At 31 May 2007 17,918
At 31 May 2008 the Company held the following direct shareholdings in its subsidiaries which had been active during the year:
PercentageClass of Country of held at
Subsidiary and activity share Incorporation 31 May 2008
Synectic Systems Group Limited Ordinary UK 100%Design and manufacture of video systems control products, integrated digital CCTV sharessystems and CCTV equipment and systems for extreme or hazardous environments
Quadrant Security Group Limited Ordinary UK 100%Design, installation and maintenance of CCTV security systems and integrated sharessecurity systems
SSS Management Services Limited Ordinary UK 100%Security management and support services shares
Synectic Systems, Inc. Common USA 100%Design and supply of video systems control products and integrated digital stockCCTV systems
Details of the principal subsidiaries are shown on page 74.
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8 STOCKS2008 2007£’000 £’000
Finished goods for resale 1,053 1,339
9 DEBTORS2008 2007£’000 £’000
Amounts falling due within one yearTrade debtors 1,525 904Deferred taxation 22 92Other debtors 22 293Amounts due from subsidiaries 12,783 14,460Prepayments and accrued income 206 376
14,558 16,125Amounts falling due after more than one yearAmounts due from subsidiaries 387 387
14,945 16,512
2008 2007£’000 £’000
Deferred taxationAt 1 June 2007 92 38Credit/(charge) to profit and loss account (70) 54
At 31 May 2008 22 92
The deferred taxation balances comprise:2008 2007£’000 £’000
Fixed asset timing differences 19 15Other timing differences 3 49Tax losses – 28
22 92
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10 CREDITORS2008 2007£’000 £’000
Amounts falling due within one yearBank overdrafts 2,369 6,897Trade creditors 759 820Amounts owed to subsidiaries 13 35Corporation tax 228 –Other taxation and social security 228 107Other creditors 4 844Accruals and deferred income 513 444
4,114 9,147Amounts falling due after more than one yearAmounts owed to subsidiaries 2,531 703
6,645 9,850
2008 2007£’000 £’000
BorrowingsBank overdrafts repayable within one year 2,369 6,897
11 PROVISIONSProperty
£’000
At 1 June 2007 3Charge to profit and loss account 2
At 31 May 2008 5
The Company has a property which it currently sublets, where the Directors believe that they may not be able to fully recover futurerental costs, and therefore appropriate cost provisions have been made.
It is anticipated that the provision carried forward at 31 May 2008 will be utilised within three years.
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12 CALLED UP SHARE CAPITALThe number of authorised, allotted, called up and fully paid shares is as follows:
2008 2007Number £’000 Number £’000
Ordinary shares of 20p eachAuthorised 25,000,000 5,000 25,000,000 5,000
Allotted, called up and fully paid 16,907,434 3,382 16,404,622 3,281Shares to be issued – – 503,562 101
16,907,434 3,382 16,908,184 3,382
During the year the Company issued 502,812 Ordinary shares to former holders of Protec shares in connection with the acquisition ofProtec plc.
The impact on share capital and the merger reserve was as follows:Share Merger
Number capital reserve Totalof shares £’000 £’000 £’000
Consideration for acquisition of Protec plc:– Shares to be issued 503,562 101 1,158 1,259– Shares issued in year (502,812) (101) (1,156) (1,257)– Fractional entitlement adjustment (750) – (2) (2)
Balance of shares to be issued – – – –
For details of options over shares of Quadnetics Group plc and the Employee Share Scheme, see notes 22 and 23 of the Groupfinancial statements.
13 PROFIT AND LOSS ACCOUNTThe movements on equity shareholders’ funds during the year were as follows:
Called up Shareshare premium Merger Other Retainedcapital account reserve reserves earnings Total£’000 £’000 £’000 £’000 £’000 £’000
At 1 June 2007 3,382 14,851 9,565 (2,486) 5,587 30,899Profit after tax for the year – – – – 1,342 1,342Dividends paid (note 4) – – – – (1,009) (1,009)Credit in relation to share-based payments – – – – 25 25
At 31 May 2008 3,382 14,851 9,565 (2,486) 5,945 31,257
Cumulative goodwill written off directly to the profit and loss account at 31 May 2008 was £593,000 (2007: £593,000).
The consolidated result attributable to the shareholders of Quadnetics Group plc for the year includes a profit of £1,342,000 (2007: £2,985,000) which has been dealt with in the financial statements of the Company. Quadnetics Group plc has takenadvantage of the legal dispensation under section 230(4) of the Companies Act 1985 allowing it to not publish a separate profit and loss account.
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14 CONTINGENT LIABILITIESThe Company has agreed, in some instances jointly with subsidiary companies, to guarantee borrowings, annual operating leaserentals and performance bonds amounting to £1.2 million at 31 May 2008 (2007: £0.9 million).
15 CAPITAL COMMITMENTSAt the year end capital commitments not provided for in these financial statements amounted to £37,000 (2007: £nil).
16 OPERATING LEASE COMMITMENTSThe Company is committed to making operating lease payments during the next year as follows:
Land and 2008 Land and 2007buildings Other Total buildings Other Total
£’000 £’000 £’000 £’000 £’000 £’000
Operating leases which expire:Within one year – 6 6 – 16 16Within two to five years 27 76 103 27 59 86In excess of five years 20 – 20 19 – 19
47 82 129 46 75 121
17 PENSION COMMITMENTSEmployees of the Company are members of the defined contribution section of a defined benefit pension scheme (The QuadrantGroup plc Retirement Benefit Scheme) and two defined contribution schemes operated by the Group. For further details of theQuadrant Group plc Retirement Benefit Scheme, see note 29 of the Group financial statements.
Defined contribution schemesContributions made by the Company to the defined contribution section of the Quadrant Group plc Retirement Benefit Schemeamount to £33,000 in the year (2007: £8,000).
In addition, the Company’s total expense for two further defined contribution pension schemes during the year was £89,000 (2007: £45,000).
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The principal subsidiaries and divisions within the Group are asfollows:
Quadrant Security Group LimitedDesign, installation, maintenance and management of advancedintegrated CCTV and security systems
www.qsg.co.uk
Axis 7, Rhodes WayRadlett RoadWatfordHertfordshire WD24 4TPTel: +44 (0) 1923 211550
3A Attenborough LaneChilwellNottingham NG9 5JNTel: +44 (0) 115 925 2521
9 Hadrian CourtTeam Valley Industrial EstateGatesheadTyne and Wear NE11 0XWTel: +44 (0) 191 487 2342
Look CCTVDevelopment and supply of CCTV systems for bus manufacturersand operators
www.lookcctv.com
Unit 4WyrefieldsPoulton-le-FyldeLancashire FY6 8JXTel: +44 (0) 1253 891222
Look CCTV trades as a division of Quadnetics Group plc
SSS Management Services LimitedTotal security outsourcing support and management services toretail and multi-site customers
www.sss-support.co.uk
Shannon House245 Coldharbour LaneAylesfordKent ME20 7NSTel: +44 (0) 1622 798200
Synectic Systems Group LimitedDesign and development of advanced surveillance technology,operating through the three divisions shown below
www.synx.com
Synectics House3-4 Broadfield CloseSheffield S8 0XNTel: +44 (0) 114 255 2509
Synectics – Industrial SystemsSpecialist manufacturer of CCTV equipment and systems forextreme or hazardous environments
www.synx.com
The FlarepathElsham WoldBriggNorth Lincolnshire DN20 0SPTel: +44 (0) 1652 688908
Synectics – Security NetworksDevelopers of integrated software solutions and products forcomplex security and surveillance networks
www.synx.com
Synectics House3–4 Broadfield CloseSheffield S8 0XNTel: +44 (0) 114 255 2509
Synectics – Surveillance TechnologyAdvanced imaging systems and radio frequency technology for thedefence and private sectors
www.synx.com
Unit 32, Alexandra WayAshchurch Business CentreTewkesburyGloucestershire GL20 8NBTel: +44 (0) 1684 295807
Synectic Systems, Inc.Developers of integrated software solutions and products forcomplex security and surveillance networks
www.synecticsusa.com
4180 Via Real, Suite ACarpinteriaCalifornia 93013USATel: 00 1 805 745 1920
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The following explanatory notes summarise the principal changesbetween the Company’s current articles of association (‘OldArticles’) and the articles of association which are proposed to beadopted at the Annual General Meeting (‘New Articles’). Theopportunity is being taken to update the Company’s articles ofassociation by adopting the New Articles as a result of the cominginto force of the Companies Act 2006.
The principal changes introduced in the New Articles aresummarised below. Other changes, which are of a minor,technical or clarifying nature and also some more minor changeswhich merely reflect changes made by the Companies Act 2006have not been noted in the description below. The New Articlesare available for inspection at the Registered Office and on theCompany’s website (www.quadnetics.com).
1. Articles which duplicate statutory provisions Provisions in the Old Articles which replicate provisionscontained in the Companies Act 2006 are in the mainamended to bring them into line with the Companies Act2006. Certain examples of such provisions include provisionsas to the form of resolutions, the requirement to keepaccounting records and provisions regarding the period ofnotice required to convene general meetings.
2. Form of resolutionsIn accordance with the Companies Act 2006 the New Articlesrefer only to ordinary and special resolutions and do notcontain any reference to extraordinary resolutions.
3. Amendments to resolutionsThe New Articles provide that at any general meetingamendments can be proposed to any ordinary resolution if theChairman believes it appropriate. However, only amendmentsto correct an obvious error may be proposed in relation to aspecial resolution.
4. Class rights and meetingsThe proceedings and specific quorum requirements for ameeting convened to vary class rights are contained in theCompanies Act 2006. As the Old Articles contain provisionsregarding the variation of class rights, the relevant provisionshave therefore been amended in the New Articles.
5. Convening general meetings The Companies Act 2006 requires that a public companymust now hold its Annual General Meeting within the sixmonth period beginning with the day following its accountingreference date. Twenty-one days clear written notice must begiven for these meetings, however, these meetings may becalled on shorter notice providing all members entitled toattend and vote thereat agree.
To achieve consistency with the Companies Act 2006 theNew Articles refer to all meetings other than annual generalmeetings as general meetings. Directors may call a general
meeting whenever they think fit and when required by thestatutes. Fourteen days clear written notice must also begiven. Shorter notice may be given provided that a majority innumber of members having a right to attend and vote, being amajority holding not less than 95% in nominal value of theshares giving that right, consent.
6. Voting on a poll at general meetingsA poll may be requested at a general meeting by either theChairman, not less than five members having the right to voteon the resolution, by members holding not less than 10% ofthe voting rights of all members having the right to vote onthat resolution, or members holding shares on which anaggregate sum of not less than 10% of the total sum paid upon all shares conferring the right to vote on that resolution.
7. Shares held in certificated and uncertificated formThe New Articles contain provisions which are appropriate fora company whose shares are publicly traded in uncertificatedform. The New Articles also provide that when the Companysends a share certificate to a member, such share certificateis sent at the risk of the member.
8. Calls on sharesUnder the New Articles, at least seven days clear notice mustbe given prior to calls being made. This time limit waspreviously set at fourteen days notice in the Old Articles.
9. Exercise of members rights – Nomination noticesThe New Articles reflect a change brought in by theCompanies Act 2006 which enables a member to nominate aperson, or persons, to enjoy some or all of the rights of thenominating member.
10. Untraced membersSubject to restrictions contained in the New Articles andprovided that it has given prior notice, the Company is able tosell at the best price reasonably obtainable any share ofuntraced members provided that for a period of twelve yearsno cheque or warrants sent by the Company through the postto the member have been cashed and no communication hasbeen received by the Company from the member or theperson entitled to such share by transmission.
The Company must account to the member or other personentitled to the share for the net proceeds of the sale and willbe deemed to be his debtor and not a trustee for him inrespect of the sale. Any monies not accounted for must betransferred to a separate account and will be a permanentdebt of the Company that may either be employed in thebusiness of the Company or invested in such investments asthe Director thinks fit.
Adoption of New Articles of Association
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11. Votes of members Under the Companies Act 2006 proxies are entitled to vote on ashow of hands whereas under the Old Articles proxies are onlyentitled to vote on a poll. The time limits for the appointment ortermination of a proxy appointment have been altered by theCompanies Act 2006 so that any provision in the articles whichrequires any appointment of a proxy to be received by theCompany more than 48 hours before the meeting is void(weekends and bank holidays may be excluded from these timeperiods).
Multiple proxies may be appointed provided that each proxy isappointed to exercise the rights attached to a different shareheld by the member. Multiple corporate representatives may beappointed (but if they purport to exercise their rights in differentways, then the power is treated as not being exercised). TheNew Articles reflect these new provisions. In addition, theCompany will now put in place provisions which facilitate theattendance at any meeting of multiple corporate representativesand which enable all of such representatives’ voting intentions tobe recorded.
12. Directors’ feesThe Old Articles contain an aggregate limit on the total sumwhich may be paid by way of Directors’ fees of £20,000.This sum is now insufficient and needs to be increased. It isproposed that the aggregate cap on non-executives’ feesshould be increased to £200,000. Remuneration for theexecutive Directors will not be included within this cap as itcould hinder the recruitment and retention of directors ofhigh calibre, and in any event the remuneration of theexecutive Directors is approved by the Company’sRemuneration Committee.
13. Conflicts of interestThe Companies Act 2006 sets out directors’ general dutieswhich largely codify the existing law but with some changes.Under the Companies Act 2006, from 1 October 2008 a directormust avoid a situation where he has, or can have, a direct orindirect interest that conflicts, or may conflict with theCompany’s interests. The requirement is very broad and couldapply, for example, if a director becomes a director of anothercompany or a trustee of another organisation. The CompaniesAct 2006 allows directors of public companies to authoriseconflicts and potential conflicts, where appropriate, where thearticles of association contain a provision to this effect. The NewArticles give the Directors authority to approve such situations,and to allow conflicts of interest to be dealt with provided certaincriteria are met, for example a conflicted director must not countin the quorum of the meeting or participate in any associateddecision making.
In taking the decision the Directors must act in a way theyconsider, in good faith, will be most likely to promote theCompany’s success. The Directors will be able to impose limitsor conditions when giving authorisation if they think this isappropriate.
14. Distribution of assets otherwise than in cashThe Old Articles contain provisions dealing with the distributionof assets in kind in the event of the Company going intoliquidation. These provisions have been amended in the NewArticles allowing a distribution in specie or in kind provided theliquidator has been given authority by special resolution.
15. Electronic and web communications Provisions of the Companies Act 2006 which came into force inJanuary 2007 enable companies to communicate with membersby electronic and/or website communications. The New Articlesallow communications to members in electronic form and, inaddition, they also permit the Company to take advantage of thenew provisions relating to website communications. Before theCompany can communicate with a member by means ofwebsite or electronic communication, the relevant member mustbe asked individually by the Company to agree that theCompany may send or supply documents or information to himby means of a website or other electronic means, and theCompany must either have received a positive response or havereceived no response within the period of 28 days (in the case ofwebsite communication) beginning with the date on which therequest was sent. The Company will notify the member (either inwriting, or by other permitted means) when a relevant documentor information is placed on the website and a member canalways request a hard copy version of the document orinformation. Shareholder consent must, however, be obtained inorder for the Company to communicate in this way.
16. Power to borrow moneyIt is proposed that the Board’s power to borrow money onbehalf of the Company be amended in the New Articles so as toenable it to borrow up to two times the adjusted capital andreserves of the Company. The change is being proposed inorder to preserve the Company’s borrowing power and ability tomake acquisitions.
17. Directors’ indemnities and loans to fund expenditureThe Companies Act 2006 has in some areas widened the scopeof the powers of a company to indemnify directors and to fundexpenditure incurred in connection with certain actions againstdirectors. In particular, a company that is a trustee of anoccupational pension scheme can now indemnify a directoragainst liability incurred in connection with the company’sactivities as trustee of the scheme. In addition, the existingexemption allowing a company to provide money for thepurpose of funding a directors defence in court proceedingsnow expressly covers regulatory proceedings and applies toassociated companies.
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Notice is hereby given that the twenty-fifth Annual GeneralMeeting of Quadnetics Group plc will be held at the offices ofBrewin Dolphin Securities Limited, 12 Smithfield Street, London,EC1A 9BD on 26 November 2008 at 10.00 a.m. for the followingpurposes:
Ordinary BusinessTo consider and, if thought fit, to pass the following Resolutionsas Ordinary Resolutions:
1. To receive and adopt the Report of the Directors and AuditedAccounts for the year ended 31 May 2008.
2. To declare a final dividend for the year ended 31 May 2008 of4.5p per Ordinary share to be paid on 5 December 2008 tomembers whose names appear on the register of members atthe close of business on 7 November 2008.
3. To re-elect as a Director D Bate who, being eligible, submitshimself for re-election.
4. To re-elect as a Director SW Coggins who, being eligible,submits himself for re-election.
5. To reappoint KPMG Audit Plc as Auditors to hold office untilthe conclusion of the next Annual General Meeting and toauthorise the Directors to set their remuneration.
Special BusinessTo consider and, if thought fit, to pass the following Resolutions.Resolution 6 will be proposed as an Ordinary Resolution andResolutions 7, 8 and 9 as Special Resolutions:
6. That, in substitution for the existing general authorities grantedat the last Annual General Meeting of the Company, inaccordance with section 80 of the Companies Act 1985 (‘theAct’), the Directors be and are hereby generally andunconditionally authorised to exercise all powers of theCompany to allot relevant securities (as defined in section 80of the Act) up to an aggregate nominal amount of £1,171,878(being approximately 34% of the present issued share capitalof the Company) provided that this authority (unless previouslyrevoked or renewed) shall expire on the conclusion of the nextAnnual General Meeting of the Company after the passing ofthis resolution or, if earlier, on 31 December 2009 save thatthe Company may before such expiry make an offer oragreement which would or might require relevant securities tobe allotted after such expiry and the Directors may allotrelevant securities in pursuance of such offer or agreement asif the authority conferred hereby had not expired.
7. That, the Company be and is hereby generally andunconditionally authorised pursuant to section 166 of the Actto make one or more market purchases (as defined in section163(3) of the Act) of its Ordinary shares of 20p each on such
terms and in such manner as the Directors shall determine,provided that:
(1) The maximum number of Ordinary shares herebyauthorised to be acquired is 1,690,743 (representing 10%of the present issued Ordinary share capital of theCompany);
(2) The minimum price which may be paid for such shares is20p per share (exclusive of all expenses);
(3) The maximum price which may be paid for such shares is,in respect of a share contracted to be purchased on anyday, an amount (exclusive of expenses) equal to 5%above the average middle market quotations for anOrdinary share of the Company as derived from the AIMAppendix to the Daily Official List of the London StockExchange on the five dealing days immediately precedingthe day on which the share is contracted to bepurchased;
(4) The power hereby granted shall expire on the conclusionof the next Annual General Meeting of the Company after the passing of this Resolution or, if earlier, on 31 December 2009; and
(5) The Company may make a contract to purchase itsOrdinary shares under the authority hereby granted priorto the expiry of such authority which will or may beexecuted wholly or partly after the expiry of such authority,and may make a purchase of its Ordinary shares inpursuance of such contract.
8. That
(1) Conditionally upon the passing of Resolution 6 and insubstitution for all existing powers, in accordance withsection 95 of the Act, the Directors be and are herebygiven power to allot equity securities (as defined in section94 of the Act) for cash pursuant to the authority conferredby Resolution 6 as if sub-section (1) of section 89 of theAct did not apply to any such allotment PROVIDED THAT:
a) the power hereby granted shall be limited to theallotment of equity securities in connection with orpursuant to an offer by way of rights issue in favour ofthe existing holders of Ordinary shares in the capital ofthe Company and other persons entitled to participatetherein in proportion (as nearly as may be) to suchholders’ holdings of such shares (or, as appropriate, tothe numbers of shares which such other persons arefor these purposes deemed to hold) subject only tosuch exclusions or other arrangements as theDirectors may deem necessary or expedient to deal
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with fractional entitlements or legal problems under thelaws of any territory or the requirements of anyrecognised regulatory body or stock exchange;
b) the power hereby granted shall be limited to theallotment (otherwise than pursuant to sub-paragraph (a)of this proviso) of equity securities up to an aggregatenominal amount of £169,074, being approximately 5%of the Company’s present issued share capital;
c) the power hereby granted shall expire on the conclusionof the next Annual General Meeting of the Companyafter the passing of this Resolution or, if earlier, on 31 December 2009; and
d) the power hereby granted shall apply in relation to a sale ofshares which is an allotment of equity securities by virtueof section 94 (3A) of the Act as if the words ‘pursuant tothe authorities conferred by Resolution 6’ in the firstparagraph of this Resolution 8 were omitted.
(2) The said power shall allow and enable the Directors to makean offer or agreement before the expiry of that power whichwould or might require equity securities to be allotted aftersuch expiry and the Directors may allot equity securities inpursuance of such an offer or agreement as if the powerconferred hereby had not expired.
9. That the Articles of Association produced to the meeting andinitialled by the Chairman of the meeting for the purpose ofidentification be adopted as the Articles of Association of theCompany in substitution for, and to the exclusion of, the existingArticles of Association.
By Order of the Board
NC PoultneySecretary Registered office3 September 2008 Haydon House
5 Alcester Road, StudleyWarwickshire B80 7AN
Notes:1. Further to Regulation 41 of the Uncertificated Securities
Regulations 2001 only those shareholders registered in theregister of members of the Company as at 6.00 p.m. on 24 November 2008 shall be entitled to attend or vote at thismeeting in respect of the number of shares registered in theirname at that time. Changes to entries on the register after thistime will be disregarded in determining the rights of any personto attend or vote at the meeting.
2. A member entitled to attend and vote at the meeting mayappoint a proxy (who need not be a member) to attend or voteinstead of him. A shareholder may appoint more than one proxyin relation to the Annual General Meeting provided that eachproxy is appointed to exercise the rights attached to a differentshare or shares held by that shareholder. A proxy need not be ashareholder of the Company. A proxy form which may be usedto make such appointment and give proxy instructionsaccompanies this notice. A member submitting a proxy is notprecluded from attending the meeting and voting if they wish todo so. To be effective, proxy forms and the power of attorney orother authority (if any) under which it is signed, or a notariallycertified copy of such power of authority, must be received atthe office of the Registrars of the Company, Capita Registrars,Proxy Department, The Registry, 34 Beckenham Road,Beckenham, Kent, BR3 4TU, not less than 48 hours before thetime appointed for the holding of the meeting, or anyadjournment thereof.
3. Copies of the Directors’ service agreements will be available forinspection at the Registered Office of the Company duringnormal working business hours on each business day and willbe available for inspection on the day of the Annual GeneralMeeting for 15 minutes prior to and during the continuance ofthe meeting.
4. In the case of joint holdings, the vote of the senior holder shallbe accepted to the exclusion of the other joint holders, whetherin person or by proxy. For this purpose, seniority shall bedeemed by the order of the names of the holders as entered inthe Company’s Register of Members in respect of relevant jointholdings.
5. In order to facilitate voting by corporate representatives at themeeting, arrangements will be put in place at the meeting sothat (i) if a corporate shareholder has appointed the Chairman ofthe meeting as its corporate representative with instructions tovote on a poll in accordance with the directions of all of the othercorporate representatives for that shareholder at the meeting,then on a poll those corporate representatives will give votingdirections to the Chairman and the Chairman will vote (orwithhold a vote) as corporate representative in accordance withthose directions; and (ii) if more than one corporaterepresentative for the same corporate shareholder attends themeeting but the corporate shareholder has not appointed theChairman of the meeting as its corporate representative, adesignated corporate representative will be nominated, fromthose corporate representatives who attend, who will vote on apoll and the other corporate representatives will give votingdirections to that designated corporate representative.Corporate shareholders are referred to the guidance issued bythe Institute of Chartered Secretaries and Administrators onproxies and corporate representatives – www.icsa.org.uk – forfurther details of this procedure. The guidance includes asample form of representation letter if the Chairman is beingappointed as described in (i) above. A letter in this form wouldbe acceptable to the Company and its Registrars.
78 Quadnetics Group plc Annual Report and Accounts 2008
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www.quadnetics.com
79 Quadnetics Group plc Annual Report and Accounts 2008
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For use at the Annual General Meeting to be held on 26 November 2008 commencing at 10.00 a.m. or at any adjournment thereof.
I/We . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(please complete in block capitals)
of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .being (a) holder(s) of Ordinary shares in Quadnetics Group plc (the ‘Company’) hereby appoint the Chairman of the Meeting (see note 2)
or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .as my/our proxy to vote for me/us and on my/our behalf in the manner indicated below at the Annual General Meeting of the Company to be held on 26 November 2008 at 10.00 a.m. or at any adjournment thereof in connection with the Resolutions set out in the Notice ofMeeting.
RESOLUTIONS
DISCRE- VOTETIONARY WITHHELD
ORDINARY BUSINESS FOR (see note 3) AGAINST (see note 5)1. To receive and adopt the Report and Accounts2. To declare a final dividend3. To re-elect D Bate as a Director4. To re-elect SW Coggins as a Director5. To reappoint KPMG Audit Plc as AuditorsSPECIAL BUSINESS6. To authorise the Directors to allot shares7. To authorise the Company to purchase its own shares 8. To authorise the Directors to allot shares and to disapply
statutory rights of pre-emption9. To approve the new Articles of Association of the Company
Dated this . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . day of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2008
Signature(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTES1. Completed forms of proxy must be lodged with the Company’s registrars, Capita Registrars, Proxy Department, The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, not later than 48 hours before the time fixed for the meeting. The completion and return of the form of proxy will not, however,preclude a member from attending and voting at the Annual General Meeting should they so wish.
2. To appoint as a proxy a person other than the Chairman of the Meeting insert the full name in the space provided. A proxy need not be a member of theCompany. You can also appoint more than one proxy provided each proxy is appointed to exercise the rights attached to a different share or shares held by you.The following options are available:(a) To appoint the Chairman as your sole proxy in respect of all your shares, simply fill in any voting instructions in the appropriate box and sign and date the
Form of Proxy.(b) To appoint a person other than the Chairman as your sole proxy in respect of all your shares, delete the words ‘the Chairman of the Meeting (or)’ and insert
the name and address of your proxy in the spaces provided. Then fill in any voting instructions in the appropriate box and sign and date the Form of Proxy.(c) To appoint more than one proxy, you may photocopy this form. Please indicate the proxy holder’s name and the number of shares in relation to which they
are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instructionis one of multiple instructions being given. If you wish to appoint the Chairman as one of your multiple proxies, simply write ‘the Chairman of the Meeting’.All forms must be signed and should be returned together in the same envelope.
3. Please indicate how you wish your votes to be cast by inserting a cross in the relevant box. If you select ‘discretionary’ or fail to select any of the given options,the proxy can vote as he chooses or can decide not to vote at all. The proxy will act at his own discretion in relation to any other business arising at the meeting,including any resolution to adjourn the meeting. This proxy will only be used in the event of a poll being directed or demanded.
4. In the case of a corporation this form should be executed, signed as a deed or signed on its behalf by an attorney or a duly authorised officer. In the case of anindividual this form should be signed by that individual or by his attorney.
5. The ‘vote withheld’ option is provided to enable you to abstain on any particular Resolution. However, it should be noted that a vote withheld is not a vote in lawand will not be counted in the calculation of the proportion of votes ‘for’ and ‘against’ a Resolution.
6. Any alterations to this Form of Proxy should be initialled.
Form of Proxy
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BUSINESS REPLY SERVICELicence No. MB122
Capita Registrars (Proxies) PO Box 25BECKENHAMBR3 4BR
Second fold
Third foldand tuck in flap opposite
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Our Strategy
Our Markets Our StrengthsServices
■ INTEGRATED SYSTEMS■ MOBILE SURVEILLANCE■ SUPPORT SERVICES
Quadrant Security Group is one of thelargest independent integrated securitysystems providers in the UK, delivering totalsecurity and surveillance solutions fromconsultancy, systems design, projectmanagement, installation and training, throughto fully outsourced facilities management, allbacked up by our own 24 hour call centre andnationwide support teams.
Products and Software
■ SECURITY NETWORKS■ INDUSTRIAL SYSTEMS■ SURVEILLANCE TECHNOLOGY
Synectics, our surveillance technologybusiness, has operations in the UK andUSA. Our award-winning products are inuse in large numbers of major urbansurveillance schemes and other applications.Demand for our technology is increasingfrom end-users, OEMs and distributorsworldwide in response to the need fordurable high performance solutions forcritical surveillance applications.
Our strategy is to:
� Focus on customer sectors where the electronic security
systems have a critical cost-of-failure or extreme
environmental requirements.
� Develop our core of increasingly software-based proprietary
technology, adapted to the specialist needs of our target
customer sectors.
� Expand the scope of applications and innovative services
provided to these customers to maximise market share.
� Seek further bolt-on acquisitions to add market share,
specialist capabilities and/or geographical position in our
chosen sectors.
Turnover
£79.2 millionUnderlying Profit*
£3.7 millionCash Balances
£7.9 millionEmployees
455
UK & Rest of the WorldThe UK (and Rest of the World) is our largest market,accounting for 88% of total sales.
North AmericaOur North American activities, which are currently focusedprimarily on the gaming sector, were the fastest growingpart of our business in 2008 with sales increasing by 31%.
Middle EastWe are currently expanding our operations in the MiddleEast to capitalise on the growing opportunities in theregion.
Far EastWe currently supply products for use in hazardous orextreme environments to the Far East. With 23% salesgrowth in 2008, we feel the region will becomeincreasingly important to us.
Our Focus
Everything we do starts and ends with the customer:
� We design solutions using the best of breed components
to deliver reliable and value for money services.
� Where no off-the-shelf component exists to meet our
customer’s needs we will design one.
� We innovate and bring to the market valuable products
and services to improve performance and drive down
costs.
� We establish long term customer relationships through
the provision of ongoing services and support.
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Contents
Chairman’s Statement 02
Business Review 05
Board of Directors and Advisers 16
Senior Management 18
Report of the Directors 20
Independent Auditors’ Report 28
Consolidated Income Statement 30
Consolidated Statement of Recognised Income and Expense 30
Consolidated Balance Sheet 31
Consolidated Cash Flow Statement 32
Notes to the Financial Statements 33
Company Balance Sheet 65
Notes to the Company Financial Statements 66
Principal Subsidiaries 74
Adoption of New Articles of Association 75
Notice of Meeting 77
Form of Proxy 79
Quadnetics Group plc is a leader in the development,
design, integration and management of advanced surveillance
technology and security networks.
We are a UK company listed on the Alternative Investment
Market (AIM) of the London Stock Exchange with over 450
employees in the UK, the United States and in the Middle East.
We deliver security and surveillance solutions directly to end-
users through Quadrant Security Group, our security services
business, and our applications software, control systems and
imaging technology products business, Synectics, supplies its
products worldwide through a network of systems integrators,
distributors and agents.
www.quadnetics.com
www.quadnetics.comTel: +44 (0)1527 850080Fax: +44 (0)1527 850081email: [email protected]
Quadnetics Group plcHaydon House5 Alcester RoadStudleyWarwickshireB80 7ANEngland
Evolving Surveillance Solutions
Evolving Surveillan
ce Solutions
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