Datong celebrates major £7.5m deal with UK security services

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SHARES in Datong rose 25 per cent yesterday after the spy gadgets company announced a major contract with the UK security services.

The Leeds-based company said it had agreed a £7.5m two-year deal to develop and supply an innovative system.

Mark Cook, chief executive, would not discuss the identity of the customer or the nature of the contract “due to sensitivities”, but described the win as “a massive success” for the business.

Datong, which turned over £9.7m last year, makes intelligence-gathering equipment for select governments and law enforcement agencies.

Mr Cook told the Yorkshire Post: “It’s something we have been working on for the last two years. It sets us up very nicely for the next two years.”

He said the money will help the company to develop new revenue streams alongside its core business in tracking solutions.

Mr Cook said Datong is increasing its software services to meet demand from the market.

In common with other industries, advances in technology are enabling users to buy “software as a service” rather than pay for expensive hardware.

This presents opportunities for Datong, which is looking at partnerships with other providers as it tries to grow the business.

“More and more customers are asking us to offer more comprehensive software solutions,” said Mr Cook.

“Customers will pay for enhanced software capability to gain an edge with their security operations. They will provide ongoing revenue in terms of software support agreements.

“We are looking at integrating other third party software applications into our software architecture.

“Traditionally, it’s been homegrown but there’s value to be added building in other companies’ software to increase the capability that end users get.”

Given the nature of its work, Datong is always reluctant to discuss its products and services and end users in detail.

But Mr Cook gave an insight into trends in global security requirements. His customer base is made up of “a very small circle of trusted countries”.

He said his customers are “placing more and more emphasis on how they can gather as much intelligence as possible” and “not just looking for single sources of intelligence”.

“It’s the old adage: the total is greater than the sum of the parts,” added Mr Cook. “Offering multiple ways of pulling the intelligence together is a key trend.”

Indebted Western nations are grappling with deficits while trying to maintain security, but so far this has not hit Datong, said Mr Cook. He added: “There seems to be no let up in the amount of spend that’s going into intelligence-gathering applications.”

Mr Cook took over as chief executive of Datong in January 2012 following the departure of Dean Blood in summer 2011. A year into his new role, he said: “It’s a very strong business in a niche market. Right now, it’s a little bit too niche. We just need to offer more to the customers and find new revenue streams.”

Datong, which employs 80 people, saw revenues fall 17 per cent last year due to weakness caused by uncertainty in the US market.

Canaccord Genuity, the company broker, is forecasting a large jump in revenue next year.

“We agree that the long-term outlook for location-based intelligence gathering solutions remains solid, supported by the growing use of intelligence to combat terrorist and criminal activity,” it said on December 5.

“However, Datong is a small company in this highly volatile market.” Shares closed last night at 39.50p, a rise of 8p.