World of troubles hits sales for spy gadgets

SHARES in spy gadgets firm Datong dropped more than 11 per cent yesterday after it warned annual sales will be lower than last year as defence and security budgets in the Middle East, South-East Asia and the Indian sub-continent are squeezed.

Datong told shareholders at its annual meeting that order intake and sales of third party cellular products in its “rest of world” territory have “slowed dramatically”, reflecting drawn out procurement and tighter budgets.

Shares in the company, which designs and sells advanced electronic devices to track criminals and terrorists, closed the day down 7p at 54p.

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However, the Leeds-based group insisted profitability will not be affected, thanks to selling more of its own products, which has boosted margins.

It said profits in its first half, the six months to the end of March, as well as its financial year ending September 30, will be in line with market expectations.

“There are lots of things going on in the world which are beyond our control,” said chief executive Dean Blood.

“We’ve given quite a strong message that profitability is going to be maintained.

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“We just got caught up with the impact of other news – we all know about the impact in Japan. If we continue to hit the profitability levels that we say we’re going to hit that’s going to be recognised by the market.”

Datong suffered during the downturn as deferred orders, litigation and exporting licence delays hampered growth.

It was boosted in 2010 by the resumption of orders from the United States, previously held up by the administration change in 2009.

Sales hit £14.1m in the year to the end of September 2010, an 80 per cent increase, while it returned to the black with pre-exceptional operating profits of £0.8m, compared with £1.2m losses a year earlier.

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Last year the group changed its year end to September 30 from March 31 to improve the reliability of its year-end forecasting and smooth out the lumpiness of orders.

“Following a promising start to the period, order intake and revenue from third party products in the rest of world territories have slowed dramatically reflecting protracted procurement cycles and budgetary delays in certain countries,” Mr Blood told shareholders.

“Despite a healthy sales opportunity pipeline, current market conditions are expected to lead to a material reduction in third party product revenues in the current half-year period resulting in full year revenues for the group being lower than those in 2010.

“However, profits for the half-year and full-year periods are expected to be in line with market expectations due to the mix of strong performance in own products, and weaker performance in third party products having a resultant improvement on margins.”

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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.

Mr Blood said while sales may have fallen, “that does not mean they have gone away”. He said the group expects to win these orders in coming years.

“It’s more a question of when than if,” he added.

“I know that some of our competitors will be feeling the same sort of issues.”

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Mr Blood said its UK and European markets are “performing in line with management expectations”.

It is doubling the size of its team in the Americas, where growth has continued slightly ahead of its expectations, to about 12.

It has seen continued strong interest in new products launched there.

“We believe that expansion of the sales activity in the region will deliver further organic growth in those markets during the second half of the year,” said Mr Blood.

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“We believe the group’s strategy of diversification and its focus on investment in technology will continue to drive the business forward and the board looks forward to 2011 and beyond with confidence.”

All resolutions were passed at the annual meeting held in London.

Mr Blood added the company is currently assessing the impact of Japan’s earthquake, tsunami and nuclear crisis, which has forced a number of electronics manufacturers to halt production.

However, he said any impact on Datong will be less than that experienced by large-scale manufacturers.

Technology keeping track of threats

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

These products are designed for hours of continuous use in hostile environments, and allow users to track suspects remotely using satellite location. It has also signed a new third-party deal, which will allow it to offer remote 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.”

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.

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