Redflex increases revenues in second half 2006
South Melbourne, Victoria, Australia – The Company has recorded revenue from continuing operations of $32.2 million which was up 38 % on the corresponding first half of the previous financial year. The net profit before tax for the Group from Continuing operations was $5.1 million compared to the previous corresponding half year profit of $2.6 million, an increase of 94%. The net profit after tax for the group from Continuing
operations was $3.3 million compared to the previous corresponding half year profit of $1.4 million, an increase of 138%. The increase in revenue arose predominantly from the growth in our Traffic photo enforcement business in the USA.
OPERATING AND FINANCIAL REVIEW
Redflex Holdings Limited has been in business since 1995. The Company was originally involved in a number of research and development activities and was listed on the ASX in February 1997. Over the last few years, the digital Traffic camera photo
enforcement business has been highly successful, with the Company now enjoying market leadership in the North American market
from a Build Own Operate and Maintain business model (BOOM). This business model is now contracted in 120 cities over 17
states within the USA.
The Company also operates from within Australia, a digital Traffic camera photo enforcement business which supplies world markets
with camera and back office products. Revenue for this entity arises from sales of product and services.
The digital Traffic camera photo enforcement business is capital intensive and delivers recurring revenues from programs with cities
within the USA. This has now become the core business for the company after the sale of the Communications business which
allows the full focus and resources of the company to be applied to the traffic business.
With the divestment of the Redflex Communications business now complete, the Redflex Group is exclusively focused on its Traffic
Systems business – in the USA through Redflex Traffic Systems Inc, and in Australia and the rest of the world through Redflex Traffic
Systems Pty Ltd.
USA Traffic Operations
Redflex continues to grow in its USA market and has achieved an increasing share of a rapidly growing market.
In the USA new contracts with cities have been signed at a record rate. 26 new contracts were signed in the six months to
December, compared to 26 contracts for the whole of the 2006 financial year, and 10 in the previous financial year. These contracts
have been won in a competitive environment, and account for over 60% of new business won in the whole of the industry. Based on
best available information through public sources, Redflex’ overall market share in the USA is now approximately 48%.
Since 1 January 2007 to the date of this report, a further 9 contracts have been signed with US cities, indicating that the growth in the
industry is continuing.
The new contracts signed since 1 July 2006 and subsequently are:
- Moultrie, GA St Peters, MO;
- El Paso, TX Hapeville, GA
- Lancaster, CA Prescott Valley, AZ
- Riverside, CA Grand Prairie, TX
- Farmers Branch, TX Tifton, GA
- University Park, TX Walnut, CA
- Montebello, CA Moses Lake, WA
- SeaTac, WA Harlingen, TX
- Longview, TX Oak Lawn, IL
- Richland Hills, TX Coppell, TX
- Menlo Park, CA Dalworthington Gardens, TX
- North Richland Hills, TX Saugus, MA
- Kingsport, TN Sioux City, IA
- Marshall, TX * Rio Vista, CA*
- Commerce, CA * Northfield, IL*
- Burlingame, CA * Terrell, TX*
- Redding, CA * Corpus Christi, TX*
- McKinney, TX*
* Contracts signed in H2 FY2007.
Each new contract requires a significant amount of work to set up the program and incorporate the specific requirements of the city.
The Redflex team has grown to accommodate this challenge and continues to keep up with an accelerating demand for these new
cities to be implemented and activated.
The new contracts in the state of Texas have moved that state to have the second largest number of city contracts, after California.
The addition of programs in two new states, Missouri and Massachusetts also indicates the expanding market. Redflex now has
programs in 17 states.
Redflex has committed further resources to its strategic marketing efforts and is refining the long term strategy for the business.
Legislative and legal issues
Issues arising from legislation and legal challenges continue to be a risk to the business. We are managing this risk through a
number of ongoing initiatives, and expect to do so for the foreseeable future. There have been some positive developments in this
area in recent times:
- House Bill 56, the Ohio proposed legislation that had the potential to severely curtail city enforcement programs, was
vetoed by the governor of the state. This is a very positive development for both the industry and those cities that have, or
are contemplating, photo enforcement programs;
- In the city of Bellwood, IL Redflex has worked closely with the city to convert the program that was initially commenced as
a speed enforcement program to a red-light program which has now commenced operations;
- Legislation supportive of photo enforcement has been passed in Virginia and supportive legislation has also been
introduced into legislatures in Connecticut and South Carolina.
However, other programs that have been reported as temporarily suspended have not yet been reinstated due to the complexities of
the legislative or legal issues involved. Other issues have been:
- Legislation opposing photo enforcement has been introduced into the Texas legislature;
- The city of Davenport in Iowa recently requested that the program there, comprising 5 camera systems, be suspended
pending the outcome of an appeal process arising from a challenge to an individual citation;
- Redflex has also been named as a co-defendant in a number of law suits brought against cities by individuals contesting
their infringements. Redflex attorneys are working closely with the city attorneys in these cases.
We continue to manage these situations, through the use of attorneys who are expert in the legal issues, by the use of lobbyists in
circumstances where this is appropriate, and by providing assistance to cities in dealing with issues. We take a proactive approach
in identifying potential issues and proposing solutions to cities as part of our overall service offering. We also assess the
appropriateness of the legislative framework in new states, prior to committing to contracts in those states.
The legislative/legal landscape is complex and will require continued investment and management to ensure that our leading
position in the photo enforcement industry is protected and advanced.
Australian Traffic Operations
The first half has shown impressive performance for the Australian Traffic business, which provides photo enforcement products
and services for the Australian market and to the rest of the world. Some of the key achievements of the Australian Traffic business
in the period since June 2006 have been:
- Following the system going live in June 2006, we have undertaken ongoing enhancements to the Integrated Infringement
Processing Systems to meet Western Australia Police user requirements, including an order to upgrade the product to
support digital cameras in addition to the existing wet-film cameras in use in that State;
- A contract was signed and we have now delivered digital red light and speed camera systems for South Australia. A
number of further enhancements to operations in that state are in progress or are planned;
- Orders were received for a range of additional cameras for NSW, including a contract for a first of its type bus lane
enforcement system, and cameras systems for the Lane Cove tunnel;
- Additional maintenance contracts have been signed for: point-to-point cameras on the Hume Hwy; and combination red
light/speed cameras in the Melbourne metropolitan area in Victoria;
- In the state of Victoria our Stage 2 implementation of combination red light/speed cameras is now operational. Redflex
now has 52 of these latest technology systems in operation in Victoria, in addition to the other camera types in use on
- A rail crossing system has been delivered to the USA where it will be the first operational system of its type. The work
done on rail crossing enforcement delivered to USA and has also been ordered for Western Australia;
- We have identified and are pursuing opportunities for outsourcing business models for photo enforcement operations in a
number of countries, and are optimistic that these may lead to our involvement in Build-Own-Operate programs;
- Redflex Australia continues to ship cameras to meets the growing requirements for installations in the USA.
As part of our ongoing commitment to excellence in all that we do, we have committed to take the company’s Occupational Health
and Safety (OH&S) systems to independent accreditation to Australian Standard 4801.
We have continued our thrust of investing in technologies relating to our market and are progressively delivering new products and
enhancements to existing products. We have delivered systems with sensor technologies based on in-roads loops and pressure
sensors, video loops, radar and laser to suit specific customer off site requirements. Having available the full range of sensors in this
area is seen as an important element of our competitive advantage in the market. Further development in these and other
technologies is planned, with the investment in technology development at around 5% of revenue expected to continue.
Redflex Group Developments
The Board recently announced the appointment to the board of two USA based directors : Roger Sawley as an independent nonexecutive director, and Karen Finley as an executive director. This added focus on the US business at Board level reflects the
significance of that market to the company as a whole.
In addition, the Board has recently invested significant time in the update of the group 5-year strategic plan, which will underpin all
activities of the group for that timeframe.
The introduction of a Dividend Reinvestment Plan is another initiative following the indication given at the AGM that an initial dividend
is likely to be paid early in the 2008 financial year. Under the DRP shares will be issued at a 5% discount to market for those
shareholders who elect to participate. The DRP document is available on www.redflex.com.au
and a copy will be mailed to all shareholders giving the option to elect to participate.
Redflex Communications Systems
The Communications division was divested in December 2006 to the Allied Technologies Group. The final price to be paid by Allied
will be determined by the performance of the division against its budget for the 2007 financial year. We will be in a position to make
the final determination on price after the audited accounts for the business are available following the end of the financial year. A
nominal price of $8.2 million will be received if the business meets budget, with adjustment up or down for performance over or
under budget. $4 million of the purchase price has been received to date. The divestment has allowed a sharp focus on the
development and growth of the Traffic business.
During the half, Redflex has had proceeding initiated against it in relation to the Interactive Telephony Partnership, an ongoing matter
which has been detailed in the notes to the annual accounts for the past three years. Redflex has indicated an intention to defend the
proceedings. In addition RTS Inc has been named as co-defendant in several cases in the USA relating to individual infringements,
and intends to defend all of these and to assist the cities in which these proceedings have arisen.
Redflex continues in its dominant position in the emerging US market, and we intend to maintain that position through the strength of
our customer relationships, the quality and scope of our service offering, and through product and technology developments, to stay
at the forefront of the industry in which we specialise. The growth in the market is evident in the progression of new contracts
emerging. The increasing emphasis on speed enforcement is very encouraging, particularly the announcement by the governor of
the State of Arizona that the state will investigate the potential rollout of the pilot 101 freeway program across the whole of the state.
Outside of the USA, we have seen strong prospects for future business, new opportunities emerging and a growing base of long
term revenue for maintenance and support services as the installed base of cameras continues to grow. This long term revenue
base provides stability and support for the business going forward.
We remain optimistic about the size of the potential market and the rate at which growth is occurring, and believe that Redflex is
strongly positioned to take advantage of the global market for Traffic Photo Enforcement as it builds out progressively.
Operating results for the half year
The Company showed revenue from continuing operations of $32.2 million which was up 38% on the corresponding first half of the
previous financial year (H1 2005 – $23.4 million). The increase in revenue was predominantly due to an increase in the number of
revenue generating camera installations within our USA Build Own Operate and Maintain business.