Datong spies an opportunity for acquisitions as markets recover

The Leeds-based firm, whose technology helps track criminals and terrorists, saw a strong financial recovery after enduring a tough time during the global recession.

Sales leapt 80 per cent to 14.1m in the year to the end of September, while it returned to the black with pre-exceptional operating profits of 0.8m, compared with 1.2m losses a year earlier.

Datong suffered during the downturn as deferred orders, litigation and exporting licence delays hampered growth. But the resumption of orders from the United States, previously held up by the administration change in 2009, is now driving its recovery.

"The US has been quite depressed for the last couple of years," said finance director Stephen Ayres. "That's showing good signs of growth and we're more confident, indeed than we were six months ago.

"We've seen a strong performance – that's across all markets and product lines."

About 3.4m of its sales during the year were from the Americas, although this was some way off the 6m US sales peak achieved prior to the downturn.

Datong's results beat City expectations of 0.5m profits and 13.4m sales. Its shares surged 15.5 per cent yesterday to close at 63.5p. They have increased by almost 60 per cent over the past 12 months.

The group ended the year with net cash of 2.58m, some of which it hopes to use on acquisitions.

It aim to take part in a wave of consolidation sweeping the surveillance and security sector, and has drawn up a shortlist of targets. These are dotted around the globe and must add new capabilities, but are likely to be relatively small and early-stage companies.

The group has also 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 are currently being evaluated by high-ranking US and UK military personnel, and Datong said feedback has been very positive.

It has also signed a new third-party deal, which will allow it to offer video surveillance.

"It has triggering so that you don't have to watch hours and hours of video back," said chief executive Dean Blood. "It is high definition and high resolution and over a low bandwidth."

Despite total military budgets being squeezed by cash-strapped governments in the UK and the US, Mr Blood said he believes special forces' budgets – some of its key customers – are likely to grow.

"There will be greater emphasis placed on intelligence-gathering going forward," he said. "We have seen some budget being preserved for special forces. Intelligence-gathering has a premium in the market."

The group continues to spread its wings geographically, and is also 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.

Aside from the UK, Europe and the Americas, its sales have grown from "next to nothing" to 17 per cent or 2.5m.

Its plan is to step up sales of its own, more advanced products rather than relying on its distributor agreement for a third-party cellular handset device.

"These territories are not as advanced," said Mr Blood. "The challenge over the next 12 to 24 months is to take our own products in as well."

During the year Datong has also expanded its team, adding 13 staff to now employ about 95.

Analysts at house brokers Canaccord Genuity highlighted the group's "return to growth".

"Growth was driven by an improving Americas market and successful expansion into the rest of the world," they said.

"Datong's growth outlook appears positive, with opportunities to improve the sales mix towards its higher-margin own products.

"Datong is increasingly confident of a sustained recovery in the Americas.

"We believe there is significant room for growth in the region."

Prior to any acquisitions, it sees Datong earning profits of 1.1m and sales of 15m this year.

Move to add to americas' team

DATONG is stepping up its expansion in the Americas to target the growing demand for covert surveillance.

It plans to double the size of its team in the Americas to about 12 over the next six months.

Since orders from the US began picking up, following the change in administration, it has made "steady progress" with military, federal and law enforcement sectors in the Americas territory. Sales to the US and Americas region have traditionally been the company's biggest geographically.