Quadnetics has higher hopes for next year

The group, which has its Synectics security technology business in Sheffield, blamed the "last-minute slippage" of deliveries by one of its key component suppliers for slowing several large orders to United States casinos.

Quadnetics said the delays drove earnings for the final few months of the its financial year to the end of November "somewhat below the board's expectations".

Analysts at brokerage FinnCap downgraded their revenue expectations for the year by 3.3m to 61.5m. They also moved pre-tax profits forecasts down by 0.8m to 2.5m.

However, shares in the company slipped only 1p, a 0.6 per cent fall, to close at 177.5p.

"We are frustrated that supply chain and customer delays have held back the finish of what has otherwise been a very solid year," said Quadnetics.

"However, the group's rising order book, successful new product launches and energised organisation give the board increasing confidence of further good progress in 2011."

AIM-listed Quadnetics supplies CCTV systems to customers ranging from casinos and cash-in-transit vehicles to oil storage depots and London Underground Tube carriages.

Its firm order book had grown to 28m by the end of November, from 22m a year earlier.

It said the large casino orders would not be delivered until a few weeks after its year end, shifting margin into its new financial year.

In addition, a large order from an unnamed local authority has been delayed until next year, and a new banking customer changed its schedule to a November roll-out of branch CCTV upgrades.

Quadnetics said: "Timing of specific orders in the UK local government sector, a relatively small part of our business, remains difficult to predict."

But despite these delays, the group said an overall improvement in most of its business areas has continued.

Like-for-like results in the year to the end of November were "very significantly ahead" of a year earlier. "The group remains on track towards its objective of doubling operating margins over the next few years," it said.

Key new orders include the first phase of a 25bn natural gas project in Australia, incorporating a new "explosion-rated" camera system; a major UK bank using Synectics' new hybrid digital video recorder, and UK prisons and young offenders' institutions.

The group added Synectics would soon announce a further "significant" new product launch in the defence protection market.

The group ended the year with net cash of about 3m, compared with 3.4m a year earlier.

Over the past 18 months, Quadnetics has bolstered management and consolidated sites under new chief executive John Shepherd.

This focused on improving efficiency, and "dramatically increasing" cross-selling, and integrating systems and skills across its three specialist customer sectors – high security infrastructure protection, mobile surveillance and oil and gas.

It included restructuring its integration and managed services division's operations in the UK and Middle East. In addition, Synectics' defence business, which was based in Tewkesbury, was moved to the group's main manufacturing site in Brigg, North Lincolnshire.

The group said: "Quadnetics continues to operate in a more than usually uncertain market environment, but is doing so with increased internal effectiveness."

Analysts at FinnCap reiterated a "buy" recommendation and said: "We recognise that it will take time for Quadnetics to realise its potential but timing favours the group.

"While the comprehensive spending review has introduced new challenges (and opportunities) which affect IMS (integration and managed services division), retail bank spending is recovering and prison work is still forthcoming. The gaming market has been slow but opportunities exist."

Firm seen as buyer in sector

ANALYSTS expect a tide of consolidation in the surveillance sector to continue – with Quadnetics a potential buyer.

"Despite delays over (Quadnetics') contract completion, there is little doubt that growth expectations remain intact and the sector is witnessing renewed consolidation moves," said analysts at brokerage FinnCap.

Digital Barriers recently raised 30m to fund corporate expansion on top of 20m raised earlier. United States industrial group Cooper Industries recently agreed to pay 32.5m to acquire Hernis from Vislink. "The group also has scope for acquisitive growth in what is still a highly-fragmented sector," said FinnCap analysts.