Economic indicators have taken a hit with major concerns about the need for countries within the Euro Zone to cut back on public expenditure in order to repay their massive debts. It is possible that the fragile recovery in the economy that has been experienced in the last nine months will be extinguished in a number of European countries. This will have an adverse impact on world trade. Stock markets across the world have significantly marked down share prices and this has forced some IPO's to be temporarily delayed.
However the emerging markets of China, India and Brazil have so far not been affected. For some years financial markets have turned tail at the mere hint of bad news and have exaggerated the possible consequences but by the same token the upswing also responds as rapidly. The facts and statistics do not flag up any adverse trends that will reduce the opportunity to grow the security business in the near term of the next 6 months.
Security acquisition activity has marginally slowed down, but Nice Systems have again come to the rescue completing their third acquisition in the last nine months with the purchase of Lamda Communication Networks. All three companies are based in Israel and manufacture very specialist products and have been strategic acquisitions to enhance their security offerings. According to Israel Liynat President of Nice, "The acquisition of Lamda strengthens NICE's market leading position and will enable us to address the growing demand for satellite communications interception as part of the security solution deployment." Not in the commercial/industrial markets I trust. They are rumored to be very interested in Verint another company based in Israel having a similar portfolio of businesses. They have well delivered on an official statement over a year ago that they would make a number of acquisitions in 2009 / 2010 financial year.
This month we have shown financial reports on G4S, Securitas, Siemens, Nice, Mobotix, China Fire & Security, Checkpoint Systems, L1-Identity Solutions, Optelecom- NKF, Vicon, Napco, Identive and the system installer/integrator Henry Bros.
Analysis of the financial performance of these companies shows the same trend that we have noted over the last 7 months with the specialist companies in this case Nice, Mobotix, L1 Identity Solutions and Identive, delivering growth in sales and profit and showing better than expected results, whilst the more traditional generalist companies, less involved in IP, have had a mixed performance during the last year and first quarter of this financial year.
Nice first quarter 2010 non-GAAP revenues reached US$162.6 million, up 17 percent from $139.2 million in the first quarter of 2009. Gross Profit: First quarter non-GAAP gross profit increased to $104.2 million, or 64.1 percent gross margin, up from $88.0 million, or 63.2 percent in the first quarter of 2009. Although the first quarter is traditionally a seasonally softer quarter in this industry, they achieved significant year-over-year growth in bookings, and ended the quarter with a record backlog. This month Nice notched up their third acquisition in 9 months.
Mobotix achieved revenue growth of 15.3 percent to $46.09 million in the first 9 months of the fiscal year 2009/10. In particular the last quarter contributed to this result with a corporate growth of nearly 30 percent and an export ratio of more than 77 percent. China Fire & Security, Checkpoint Systems, Napco and Verint also increased sales and forecast that 2010 financial performance will improve on 2009. This recovery has yet to be shared by Optelecom and Vicon. They both saw their first quarter revenues fall in 2010.
We have included the financial report of the system integrator Henry Bros. Electronics. Such companies feel the effects of any change in market forces before the manufacturers. This company is confident that the first quarter of 2010 is the trough in revenue and net income due to the difficult economic environment experienced throughout 2009 and they believe their business is now on the upswing. There are several factors that make them cautiously optimistic about 2010. Normally they would expect revenue in the first quarter to be slow but this quarter is well up on 2010. But the key factor is their current backlog which is up compared with the fourth quarter and same period of the prior year.
The IP manufacturer's results confirm a steady growth in sales over the last four months together with improved profitability. Mainstream business appears to have stablized for most, but the return to the average growth achieved in 2007/8 is unlikely to be realized until the end of 2010 beginning of 2011. However the balance sheets of many companies are looking a lot healthier. Many of these have been fortified by an injection of funds through debt or equity. This month 2 investment announcements were identified but this is well down on 11 for the combined months of March and April.
Whilst consolidation in the security business, together with the influx of investment funds to strengthen balance sheets, has enabled this industry to outperform many of its peers it is the advancement and application of new technology that has been the major driver and reason for its robust performance in these difficult times. In Technology Sections 4.3 and 4.4 we identify articles on some interesting trends in technology.
Throughout the last decade IP struggled to gain a foothold, now it appears that the recession is part of a perfect storm that has increased IP sales in 2009 while analog video systems declined. IP video has now become the standard system specification instead of the exception. The reason for this is that customers are demanding a better return on their investment. IP can achieve much more for them and make substantial gains in productivity driving down staff numbers and operational costs.
There is of course much more to come. Just one example is the benefit that the iPad could bring to video surveillance users. A major pain for surveillance is that it is difficult and expensive to dedicate people in front of monitors. Laptops help but they are still bulky, have short battery times, take a while to resume and have limited range without costly add-ons. The 3-G iPad is the ideal portable video surveillance tool, lightweight, runs all day long without charging, instantly comes back on and for $30 per month lets you access video from anywhere.
The physical security business has in the last two years proven its resilience and now growth has returned to the market. There is a need to strengthen balance sheets so that manufacturers are able invest in these new opportunities both organically and through acquisition.
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