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OpSec's profits down, pins hopes on acquisitions.

In its preliminary announcement on June 4, OpSec reported static sales for the year ended March 31 2008 and a decline in profits.

Sales for the year were [pounds sterling]33m compared with [pounds sterling]33.lm in the previous year. The lack of growth was partially due to the decline of the dollar--the American operations actually grew 7% but this was reduced to just 2% in the currency translation. The sales from European operations declined 4%, resulting in a static performance overall.

3DCD Declines

Operating profit fell 49% from [pounds sterling] 5.3m in the year ending March 2007 to [pounds sterling] 2.7m last year. A decline had been forecast following the return to more normal levels of contribution from 3dcd, OpSec's joint venture that licenses technologies for the protection of compact discs. In 2007, 3dcd benefitted from the launch of Microsoft's new operating system, Vista and contributed [pounds sterling] 3.3m (62.3%) of the company's operating profit compared with [pounds sterling]0.88m (32.6%) last year. With 3dcd included, OpSec's operating margin (operating profit/sales) declined from 16% to 8.2%. Without this income, the operating margin fell from 6% to 5.5%.

Profits last year were also adversely affected by the write off in respect of abortive costs of [pounds sterling]0.23m in regard to an intended acquisition. The Group's net profit (after tax) received a boost in the form of a tax credit of [pounds sterling]l.96m arising from previous trading losses in its UK-based companies. Profit after tax for the year was [pounds sterling]4.61m, compared with [pounds sterling] 3.92m in 2007, an increase of 17.6%. Net cash inflow from operating activities fell from [pounds sterling]3.7m in 2007 to [pounds sterling]0.9m last year and overall the net cash outflow for the year was [pounds sterling]2.2m, leaving the net cash and cash equivalents at year end at [pounds sterling]0.8m compared with [pounds sterling]3.1m in 2007.

OpSec's results by market sector were as follow. Brand protection grew 11% to [pounds sterling]14.6m (2007:[pounds sterling] 13.2m) and represented 44.2% of group sales; ID Solutions fell 9% to [pounds sterling]7.8 (2207: [pounds sterling]8.6m) and represented 23.6% of group sales; surprisingly given the buoyancy of the currency sector, Banknote and High Security sales fell 7% to [pounds sterling]10.6m (2007: [pounds sterling] 11.4m) representing 32.2% of group sales.

Positive Statement

OpSec chairman David Mahony was positive despite the decline, stating, 'Given these factors' (ie 3dcd's return to normality, the declining dollar and abortive acquisition costs) - 'and the Group's strong and successful investment programme, the year represented a year of further progress for the Group.' He also noted that two acquisitions, Light Impressions and P4M GmbH (see HN 22, Vols 4 and 5) had been successfully completed after the year end, as had a new funding line of [pounds sterling]19m to help finance future organic growth and acquisitions.'

Heavy Borrowing

These acquisitions, for which OpSec has borrowed heavily, appear key to its growth prospects. They will undoubtedly be expected to perform better than GenuOne, which was acquired in 2006 (see HN Vol 20, No 6) but which appears to have little impact on the Group's performance.

With respect to 2008/2009, Mahony commented: 'The markets which the Group serves continue to be robust and offer exciting opportunities for growth. The Board believes that the current year, which has started well, will see good organic growth in both its core revenue and earnings, enhanced by the two acquisitions that have recently been completed'.
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Title Annotation:COMPANY NEWS
Publication:Holography News
Date:Jun 1, 2008
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