REG - Digital Barriers plc - Divestment of Services Division and Trading Update <Origin Href="QuoteRef">DGB.L</Origin>

ThruvisionAnnouncement

01/04/2016 18:19

RNS Number : 8478T
Digital Barriers plc
01 April 2016
1 April 2016
Digital Barriers plc
("Digital Barriers")
Divestment of Services Division and Trading Update
The Board of Directors (the "Board") of Digital Barriers (AIM: DGB) (the "Group"), the specialist provider of visually intelligent solutions to the global surveillance, security and safety markets,today announces the proposed disposal of its non-core Services Division and an update on trading for the continuing businesses for the financial year ended 31 March 2016.
Divestment of Services division
As indicated in the interim results announcement on 11 December 2015, the Board believes that the Services division is no longer strategic to the Group's future. As a consequence, the Board has now signed an agreementfor the proposed disposal of the business to its existing management team for a nominal consideration. The transaction is expected to complete within six weeks. The division will be treated as a discontinued business in the Group's financial results for the year ended 31 March 2016.
The disposal of the Services division, the performance of which has lagged significantly behind the Solutions division for both growth and gross margins, significantly tightens the Group's strategic focus on developing and selling high-tech, higher margin solutions into the global surveillance, security and safety markets.
The Group is selling the limited ongoing customer contracts, records and relationships within its Services division, as well as certain assets including vehicle leases and limited stock and moveable assets. The approximate book value of the assets expected to be transferred is 0.2 million. The Group is also transferring the division's employees, by way of a TUPE process. In combination the Board expects annualised savings from its cost base of approximately 1.0 million from this disposal. The purchaser is Esotec Limited, a private limited company owned by Andrew Durham, one of the current employees of the division. In the financial year ended 31 March 2015, the last period for which audited financials are available, the division recorded revenues of 7.5 million and segment adjusted profits of 0.1 million, these results reflected a non-repeating project for the protection of a major UK sporting event which was valued at around 3.1 million. For the period just ended, the Board expects the division to record materially reduced revenues of around 4.0 million and a segment adjusted loss of approximately 1.0 million. The non-cash goodwill write down on disposal will be approximately 3.5 million. Despite the nominal consideration being paid on disposal, the Board believes that the transaction represents good value for the Group's shareholders given the reduction in cost base,whilst enabling the Group to focus entirely on its strategic Solutions division which delivers materially better growth and margin potential.
Trading performance of the Services Division in the period
The performance of the Services division was anticipated to be significantly weighted towards the second half of the financial year after a disappointing first half and as the result of continued budgetary pressures across its UK Government customer base. Although the division has delivered sequential growth in revenue in the second half of approximately 50%, it has not recovered as much as the Board originally expected and sales for the year ended 31 March 2016 are expected to be circa 4.0m (2015: 7.5m). 
Continuing Group Trading and Outlook
The Group's continuing business comprises the Solutions division and Brimtek, the US surveillance technology company acquired by the Groupon 2 March 2016. 
The Solutions division has traded strongly throughout the period, delivering year-on-year organic revenue growth of around 50% and revenue in the second half of the financial year approximately 70% higher than in the first half. Driven by this strong momentum, revenue for the Solutions division, including Brimtek, is anticipated to be in line with the Board's expectations, with adjusted losses for the division expected to reduce by around 50% year-on year.
The integration of Brimtek is well underway and the business is trading modestly ahead of original expectations for the first month under ownership. This includes the $5.9 million contract with a government agency, as announced on 15 March 2016, which will be delivered in the first half of the new financial year. 
International performance this year has been particularly strong, with non-UK revenue expected to grow more than 100% year-on-year to now represent approximately 80% of the Group's overall Solutions revenue (excluding Brimtek). Growth has been especially strong in Asia Pacific and the United States, with multiple significant contracts secured in both regions. The Middle East has made good progress in the period, establishing a much improved pipeline which includes the framework contract secured with Etihad Etisalat (Mobily) as announced on 29 February 2016. Within Europe, whilst the UK remains a challenging market, the Group's increased focus on the wider Continental Europe region is yielding some positive early momentum.
The Group continues to secure material contracts with new and existing customers and can announce that contracts with major government agencies in Asia Pacific, valued at more than 2 million in combination, were secured and delivered late in the period. These wins build on notable successes for each of the Group's solution areas, with the period representing the most successful ever for the Group's class-leading EdgeVis, ThruVision and SafeZone technologies. 
Looking ahead, the continued momentum within the Solutions division and the addition of Brimtek to the Group gives the Board renewed confidence in delivering a profit in the financial year ending 31 March 2017. This confidence is further underscored by the proposed disposal of the non-core Services division, which will improve overall gross marginsfor the Group going forward. 
Zak Doffman, Chief Executive Officer of Digital Barriers commented:
"Our strategy since inception has been to establish a high-momentum technology business capable of delivering continued growth by selling proprietary, IP-rich solutions to flagship customers around the world. This has been an important year for us in delivering against our strategy and the strong growth and continued momentum of our Solutions division has seen us reach an inflexion point - both in terms of our growth and in our relevance to customers.
Our Services division helped us to establish our technology credentials across major government agencies in our early years, but it is no longer strategic to the future of the Group. The proposed and advanced divestment of this division, combined with the acquisition of Brimtek, means that we enter the new financial year in better shape than ever before, with our sights set firmly on delivering the growth needed to deliver profitability in the year now underway."
For further information, please contact:
Digital Barriers plc
Tel: 0203 553 5888
Zak Doffman, Chief Executive Officer

Sharon Cooper, Chief Financial Officer





Investec Investment Banking
Tel: 020 7597 5970
Andrew Pinder/ Dominic Emery





FTI Consulting
Tel: 020 3727 1000
Edward Bridges/ Matt Dixon/ Harry Staight



About Digital Barriers
Digital Barriers provides visually intelligent solutions to the global surveillance, security and safety markets. We deliver zero-latency streaming and analysis of secure video and related intelligence over wireless networks, including cellular, satellite, IP mesh and cloud, utilising significantly less bandwidth than standard technologies. Our rapidly-installed fixed and mobile solutions for covert, remote and wide-area deployments, as well as vehicle and body-worn applications, have been sold into more than fifty countries, and have been proven in some of the world's most demanding operational environments. We also provide advanced video content analysis and body scanning to identify safety concerns and threats in real-time.
www.digitalbarriers.com

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