Datong shares take a dive in wake of warning over profits

The Leeds-based group, which makes technology used to track criminals and terrorists, said orders from Europe and its Rest of World territory have slowed, hitting profits and revenues.

Datong announced last month that chief executive Dean Blood was leaving immediately, without giving a reason for his departure.

Brian Smith, Datong’s former CEO, has returned as temporary chief executive while the company searches for a permanent replacement.

Shares in the company slumped 8.5p to close at 32.5p. The 21 per cent fall values Datong at about £4.5m.

Datong said revenues and profits would be “materially lower than previously expected” in the year to the end of September as expected sales to some of its customers in its Rest of World territory – South East Asia and the Middle East – will not be booked this financial year.

Datong insisted the orders have not gone away, but have simply been deferred to its next financial year.

The profits warning contrasts with a month ago, when Datong’s finance director Stephen Ayres insisted trading was fine.

“There is no change to the business,” he said at the time. “This is just a person issue. We would have made a profits warning if we needed to. We’ve not done so so you should take that in the context of there’s nothing to come.”

Yesterday Mr Ayres said Datong had hoped orders would materialise before the end of July, in time for them to be delivered by the end of September, but this did not happen.

“Within the Rest of World (territory) the order cycle can be variable,” said Mr Aryes. “We’ve got these opportunities that we were expecting to come in before the end of July and they have not done. We are still expecting them to come in but the end of July was critical.

“It would be a two-month lead time to turn it round and ship the order.

“We’ve got a hole that’s developed in our third party business compared to our expectations.”

Analysts at house broker Canaccord Genuity had been expecting Datong to deliver £1.1m of annual pre-tax profits on sales of £12.5m.

In Europe, Datong said the tough economic climate continued to hit its law-enforcement customers, driving sales lower as a result. It added this has affected its third party products in particular, after it supplied a number of projects last year, and as a result new orders have not been placed.

Mr Smith said sales of the group’s own products into its core markets of the United States and the UK were doing well. However, sales of third party products tend to be “lumpy” and high value orders.

“In some of the Rest of World markets your grip (on order cycles) is never as tight as you would like,” he said.

“If you cannot actually take their hand to the piece of paper it does take time and there’s always the risk of delays.”

The profits downgrade follows Datong’s warning in March that budgets in the Middle East, South-East Asia and the Indian sub-continent were being squeezed, and would result in lower-than-expected annual sales. At the time it had said profits would not be affected, thanks to selling more of its own products, which are sold at greater margin.

Mr Smith said: “Probably one of the most exciting things (since returning as CEO) was to run through the new products. The company has made big strides there and I’m impressed with the stuff that we’ve got.”

Datong has been trying to diversify beyond its traditional markets of the UK, western Europe and the US to boost revenues.

It is targeting areas such as Mexico, India and Eastern Europe, where the battle against drug cartels, terrorism and organised crime is fuelling demand for covert surveillance technology.

Analysts at Canaccord said the group is believed to have “more than sufficient cash to support its working capital requirements”.

PRODUCTS MOVED INTO NEXT GENERATION

Datong has been growing and upgrading its portfolio of products to meet the increasingly sophisticated demands of customers.

Datong recently launched its next generation of products, which have more power, plus 3G capability to allow real-time tracking over the internet.

These products are designed for hours of continuous use in hostile environments, and allow users to track suspects remotely using satellite location. Earlier this year it also signed a new third-party deal, which allows it to offer remote video surveillance.

This has triggering so users do not have to watch hours of video back. It is also high definition, high resolution and low bandwidth.