DATONG PLC

("DATONG" or "the Group")

Interim Results

DATONG PLC (DTE.L), the designer and manufacturer of advanced high performance intelligence gathering equipment, today announces its interim results for the six months ended 30 September 2009.

Highlights

Commenting on the results, Dean Blood, Chief Executive, said:

"I am delighted with DATONG's performance for the period and am further encouraged by the orders we have won since the period end as it reinforces our growth and diversification strategy. Whilst the market in the Americas has continued to perform below our expectations largely due to customer budget constraints, we maintain a positive outlook for the longer term opportunities within the region. On the back of continuing demand for our Third Party products and a good order book, we are looking forward to a strong performance in the second half year."

- Ends - 

Enquiries:

Nominated adviser and broker

Media enquiries

  Chairman's Statement

Despite the very challenging global economic environment over the last 18 months, DATONG has remained focused on its organic growth strategy and has delivered a record order intake for the period of £4.91m (2008: £1.47m) including the successful conversion of £0.8m order opportunities carried forward from the last financial year. However, subsequent to the period end, and despite a license initially being granted allowing DATONG to conduct the pre delivery sales process, the UK authorities have declined an export license application relating to £0.8m of these orders into a single country due to a trade embargo.  DATONG has initiated a 2 month appeal process to reverse this decision but there is an increased risk of our ability to deliver these orders.  

Good order intake has continued post the period end with orders of £2.86m (2008: £2.06m) being received in October and November.  

Our order success in the year to date includes important and strategic wins in the UK, Europe and Rest of World (ROW) markets and confirms our strategic intent to not only grow within our existing markets but also to enter new markets, thereby reducing the risk and dependence on any single market.

Patent Infringement Litigation

In July 2009 we announced that we had received legal confirmation that the prior patent infringement judgement against DATONG did not restrict the Group selling the affected Third Party products outside of the UK market and that the current variants of the products do not infringe the patent. Subsequently sales activities were resumed in all our markets. Significant progress is now being made with these products with an order intake of £1.67m (2008: £nil) achieved in the period and a further £2.50m achieved by the end of November.  

The £0.3m financial provision established at 31 March 2009 is still carried forward to cover the potential costs and damages expected to be borne by the Group in respect of the original judgement and potential historic infringements. Notwithstanding that provision, we continue to have confidence in our defence of the claim and have been granted permission to submit new evidence for consideration by the courts.

Strategy  

DATONG is a leading supplier of advanced location based intelligence gathering equipment to military, security and law enforcement agencies around the world. The strategic focus is to deliver organic growth through the continued investment in leading edge product and service solutions whilst developing and extending its routes to market.  

Strategic partner alliances, and where appropriate acquisitions, will be considered to provide access to new markets or complementary product or service offerings in the intelligence gathering market. 

Markets

DATONG has continued to make progress in developing and strengthening its routes to market during the period, with important order wins in a number of ROW markets totalling £1.32m (2008: £0.19m) in the period although these had not been converted into revenue by the period end. These initial orders have largely been achieved with Third Party products but we expect sales of Own Products to follow as the confidence in DATONG's capabilities grow. 

Progress is also being made in our traditional markets with order wins for both product sales and funded development contracts. However, sales within the Americas market still remains below our expectations with law enforcement budgets continuing to be constrained in the current economic environment and no sustained upturn yet in order visibility from the US federal or military markets. We maintain a positive outlook for the longer term opportunities from the Americas and DATONG has continued to develop its presence in the market during the period by strengthening its distribution network and consequently broadening its accessible market. Coupled with the current product development plans, we expect to be well positioned to benefit when the market returns to growth.  

Product and Service Portfolio

Gross R&D expenditure in the period reduced to £0.82m (2008: £0.93m) but the net costs written off against profits in the period increased to £0.89m (2008: £0.54m) reflecting a greater amortisation charge. 

Activity during the period was focused on supporting the sales effort in new markets and developing the product and service portfolio to meet the current and future needs of our customers; from the launch of a new small simple beacon (the RD2) aimed at specific customers to the development of the next generation core product families important in both our existing and new markets; Neon (a range of beacons), Axiom (fixed site receivers) and Vector (portable receivers). 

Development has similarly continued within our Third Party product partner including the launch of a smaller more portable product variant, the Quadra.

Financial Performance

Revenue in the period increased 86% to £2.81m (2008: £1.51m). The lag behind the order intake is unusually high at the period end due to a number of orders requiring some development/customisation, a longer lead time installation service or an export license approval prior to delivery. The confirmed order book at 30 September 2009 was £2.32m (2008: £0.28m) substantially all of which is expected to convert into revenue during the period to 31 March 2010, subject to the export control approval referred to above.

The sales mix in this financial year is expected to be more heavily weighted towards our Third Party products than previously seen, resulting in a consequential adverse impact on margin. As new customer relationships mature and the Americas market returns to historic volumes, we expect the sales mix to return to levels seen in previous years.

The operating loss for the period improved to £1.32m (2008: £1.67m) reflecting the increased sales volume and an improved operating efficiency but offset by the increased R&D amortisation and increased overhead costs associated with the sales growth strategy. Basic and diluted loss per ordinary share was 6.90p (2008: 9.32p).

By the nature of its operations, DATONG is exposed to fluctuations in the US dollar exchange rate, which is largely managed by way of short term forward exchange contracts. The average rate in the period was $1.63 (2008: 1.96) resulting in a positive translation impact in the period of £0.17m compared to a constant currency position.

Net cash decreased in the period by £0.54m (2008: £1.12m) principally reflecting the operating performance offset by a reduction in working capital of £0.46m. At the period end net cash stood at £1.7m (2008: £1.7m). 

Board Changes 

As previously announced Dean Blood was appointed as Chief Executive in July 2009 and Brian Smith was appointed as Executive Deputy Chairman. Richard Brearley was appointed as a Non-executive Director with effect from 1 September 2009 and replaced James Cooke, who after nine successful years on the DATONG Board, resigned to pursue other opportunities. 

Outlook

The Board is confident in the implementation of its growth strategy and has been encouraged by recent successes in developing new markets. We expect to see continued success from these regions in the second half year together with a stronger performance from the UK and European markets. We do not, however, anticipate any significant upturn in the Americas market in this financial year but we remain confident of the ongoing requirement for tracking and surveillance technology and expect to see increased sales again in the longer term. 

With a strong confirmed order book and good order visibility, particularly for Third Party products, we look forward to the coming trading periods with renewed confidence.

Paul Lever

Chairman

1 December 2009

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2009

  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

  CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

  NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

1  Accounting policies

Basis of Preparation

These financial statements are the unaudited interim consolidated financial statements of Datong plc, a company incorporated in the United Kingdom, and its subsidiaries (together referred to as the "Group") for the six month period ended 30 September 2009. They have been prepared in accordance with IAS 34 'Interim Financial Reporting' and should be read in conjunction with the consolidated financial statements for the year ended 31 March 2009. They were approved for issue by the Board of Directors on 1 December 2009.

The accounting policies used in the preparation of the interim financial statements are the same as those applied in the preparation of the financial statements for the year ended 31 March 2009.

The preparation of the interim financial statements requires the use of certain estimates and requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the interim financial statements are consistent with those disclosed in the consolidated financial statements for the year ended 31 March 2009.

The comparative figures for the year ended 31 March 2009 have been taken from but do not constitute the company's statutory financial statements for that financial year. Those financial statements have been reported on by the Company's Auditors and delivered to the Registrar of Companies. Their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

Adoption of new and revised International Financial Reporting Standards (IFRSs)

The following new and revised standards have been adopted in the current period and affect the presentation and disclosures in the interim condensed financial statements:

The Group has implemented the revised IAS 1 Presentation of Financial Statements (2007), which became effective for accounting periods beginning on or after 1 January 2009. As a result the consolidated statement of changes in equity shows all changes relating to the shareholders in their capacity as owners and all other changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented on a consistent basis.

IFRS 8 Operating Segments has been adopted, as described further at note 3.

2    Seasonality of revenue

The Group operates in markets where there are significant seasonal variations in sales and consequently in profits. Historically sales have been heavily weighted towards the last and first quarters of the calendar year, primarily reflecting the procurement practises of our customers. Historically revenues in this 6 month interim period have typically been at 30% of those achieved in a full financial year.

3    Segmental Information

The Group has adopted IFRS 8 Operating Segments which became effective for accounting periods beginning on or after 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision makers in order to allocate resources to the segments and to assess their performance. In contrast the predecessor standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical), using a risks and returns approach, with the entity's 'system of internal financial reporting to key management personnel' serving only as the starting point for the identification of such segments. Following the adoption of IFRS 8 the Group's reportable segments are the same as those previously identified as 'business segments' under IAS 14. Comparative figures are therefore unchanged.

Reportable segments

The Group's reportable segments under IFRS 8 are Own Products and Third Party Products. Own products represent products developed, manufactured and distributed by the Group. Third Party Products represent products bought in from a third party and distributed by the Group.

The products from both reportable segments are offered for sale in the same market sectors and consequently are managed together as one business operating from the same locations. Accordingly only directly attributable income and costs have been allocated across the segments.

The segment results for the period are as follows:

Revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the period (2008 - £nil).

Segment profit represents the profit earned by each segment without allocation of unallocated costs (primarily central overheads), investment income, finance costs and taxation. This is the measure reported to the chief operating decision makers for the purpose of resource allocation and assessment of segment performance.  

The segments' assets and liabilities at the period end are as follows: 

Geographical information

The Group's two reportable segments operate in four main geographical areas, although they are managed on a worldwide basis.

4     Earnings per ordinary share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive shares arising from outstanding share options. For this adjustment, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price during the period) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of share options. The difference is added to the denominator as additional shares for no consideration. There is no adjustment made to the numerator

5  Dividend

No interim dividend is proposed for the period (2008:£nil).

6 Contingent liabilities

There has been no material change in contingent liabilities from that disclosed in the Annual Report and Accounts for the year ended 31 March 2009.

RNS news service provided by Hemscott Group Limited.