Redflex report first financial half-year
REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2007
RESULTS FOR ANNOUNCEMENT TO THE MARKET AND LODGED WITH THE AUSTRALIAN SECURITIES EXCHANGE
South Melbourne, Victoria, Australia – The company has recorded revenue from continuing operations of $42.67 million which was up 32.3 % on the corresponding first half of the previous financial year. The net profit before tax for the Group from continuing operations was $6.87 million compared to the previous corresponding half year profit of $5.09 million, an increase of 35.0%. The net profit after tax for the Group from continuing operations was $4.72 million compared to the previous corresponding half year profit of $3.337 million, an increase of 41.4%. The increase in revenue arose predominantly from the growth in the Redflex 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 January 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 more than 190 cities over 20 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.
The Redflex Group is exclusively focused on its Traffic systems business, which entails the provision of photo enforcement related products and services – in the USA through Redflex Traffic Systems Inc, and in Australia and the rest of the world through Redflex Traffic Systems Pty Ltd. The major highlights for the half year were:
• 57 new USA contracts since 1 July 2007;
• 1,064 cameras installed at 31 December 2007, an increase of 187 in six months;
• Contracts in 2 new states since 1 July 2007;
• New speed programs in Louisiana and Tennessee;
• The award of a large contract for 86 RedLight/Speed cameras to Qatar;
• New and enhanced technologies in cameras, sensors, back office and remote camera management.
USA Traffic Operations
Redflex continues to grow in the rapidly expanding market in the USA, with increased sales and an increase in the rate of new camera system installations. Redflex now has contracts in 20 states with two new states, Mississippi and Nevada, added since 1 July 2007. In addition, Redflex saw growth in the speed market with the Department of Public Safety (DPS) pilot program in Arizona, as well as new speed programs in Louisiana and Tennessee.
Contracts with new cities have been signed at a record rate again in the current financial year. 57 new contracts have been signed since 1 July 2007. This compares with 59 for the whole of the 2006/2007 financial year, 26 in the 2005/2006 financial year, and 10 for the 2004/2005 financial year. The environment remains competitive, yet Redflex has maintained and grown its Number 1 position in the US market, with around 50% of the installed base of photo enforcement cameras in the USA, based on the best information available from public sources.
At 31 December 2007, the number of camera installations had grown to 1064, an increase of 187 over the 877 cameras installed at the end of June 2007. This is consistent with the ‘over 360’ indication given at the 2007 annual general meeting for the expected number of camera installations in the 2007/2008 financial year.
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 signed since 1 July 2007 are:
Tempe, AZ; New Lenox, IL; Moreno Valley, CA; Columbus, MS; Lewisville, TX; Northlake, IL; St Charles, IL; Edmundson, MO; Hurst, TX; Bedford, TX; Baker, LA; Mesquite, TX; Killeen, TX; Allen, TX; Haltom, TX; Southlake, TX; Tomball, TX; Roanoke, TX; Star Valley, AZ; Arizona DPS, AZ; Glendale, CA; Oroville, CA; Bremerton, WA; Fife, WA; Monroe, WA; Granite Shoals, TX; Forney, TX; Mountlake Terrace, WA; South Holland, IL; Broussard, LA; Selmer, TN; Peoria, AZ; Richton Park ,IL; Countryside, IL; Oakland, CA; Victorville, CA; Beverly Hills, CA; Carrolton, TX; North Las Vegas, NV; Hayward, CA; San Carlos, CA; Stickney, IL; Mount Carmel, TN; Gurnee ,IL; Palos Heights, IL; Festus, MO; Rancho Cucamonga, CA; Citrus Heights, CA; Geneva, IL*; Carol Stream, IL*; Aurora, IL*; Redlands, CA*; Chillicothe, OH*; Burien, WA*; Balch Springs, TX*; Belmont, CA*; Port Lavaca, TX*.
*Contracts signed since 1 January 2008
USA Legislative and Legal Challenges
Legislative issues and legal challenges continue to be a risk to the business. The legislative and legal issues are complex and require ongoing investment and management to ensure that our leading position in the photo enforcement industry is protected and advanced. We are managing this risk through a number of ongoing initiatives, and expect to do so for the foreseeable future. We continue to manage these situations through the use of attorneys who are experts in 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 to 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. There have been some positive developments in this area in recent times.
In January 2008, the Ohio Supreme Court ruled that municipalities have the power under home rule authority granted by the Constitution of Ohio to enact civil penalties for traffic signal light or speeding violations, provided a city does not alter statewide traffic regulations. This underpins our existing operations and provides a clear way forward for future opportunities in that state. It is also seen as a positive for a number of legal cases that involve Redflex and cities in Ohio.
Supportive legislation was passed in Texas which protects the programs that came under legislative scrutiny as reported last year. However, several programs that have been temporarily suspended in Minnesota, North Carolina and Iowa have not yet been reinstated due to the complexities of the legislative or legal issues involved.
Redflex has 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 cities’ attorneys in these cases.
>International Traffic Operations
Redflex Traffic Systems in Australia continues to perform well. A highlight of the year was a major success in the Middle East with the award of a large project to supply 86 Red-Light/Speed Cameras to Qatar. The traffic safety program in Qatar is one of the largest programs in the region. Additional orders have been achieved and we are hopeful of expanding our relationship with the Ministry of the Interior.
The Red-light/Speed Camera Program for South Australia has been a great success. The cameras are installed and operating, the back-office is processing the notices, and the Digital Camera Management System is controlling the cameras through an on-line network. Subsequently, we have received a number of orders for new cameras which are now being delivered. We provide a high level of support for the program in South Australia.
Redflex continues to supply enforcement camera systems to the Roads and Traffic Authority of New South Wales (RTA). New orders were received for Speed Cameras, Bus Lane Cameras, and Toll Enforcement Cameras. The RTA has also deployed the Redflex Digital Camera Management System to control their cameras on-line.
Also in New South Wales, the BORDERcam system for the enforcement of border crossings with Queensland to prevent the introduction of cattle ticks has been installed. The system monitors all vehicles heading in a southbound direction, to identify “vehicles of interest” to the investigators. Redflex added the Northern Territory as a customer with a contract for Red-light/Speed cameras to be installed at various intersections throughout Darwin. Subsequently, we received a contract to supply mobile LASERcam speed cameras and backoffice solutions.
Redflex continues its partnership with the Victorian Government with the installation of additional Railway Crossing Enforcement Camera trial sites. This follows the success of the Redflex Railway Crossing Enforcement Cameras in Western Australia and the two previous studies in Victoria.
Redflex has recently been awarded a two camera Redlight pilot system for Auckland, New Zealand.
Redflex Research and Development continues to achieve significant milestones. High performance, high resolution cameras have been deployed and are now extensively installed around the world. Redflex systems have world-leading independent secondary speed checking systems. These act as a double safeguard for ourselves and our customers, and the red-line system confirms the speed of a vehicle from video captured in real-time. New in-road sensors have been developed for highly accurate detection, combined with fully integrated non-intrusive detection systems. A next generation Lasercam system has been developed. New compact enclosures have been developed with unobtrusive pole-mount systems and small auxiliary camera systems. This allows our programs to increase prosecution rates by allowing facial photographs from multiple positions, in large and complex intersections, in the United States. Back-office development continues with new systems installed and the Digital Camera Management System delivered to the USA, NSW and South Australia.
Redflex Group Developments
The inaugural dividend for Redflex Holdings Limited was paid during the half, in conjunction with the operation of the Dividend Reinvestment Plan (DRP). The take-up of approximately 55% in the DRP was seen as a strong indication of shareholder support for the company.
In December 2006, Redflex had proceedings 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 four years. Redflex has indicated an intention to defend the proceedings. Recently the court ordered that the parties engage in a mediation process, which is due to take place in the near future.
Redflex has again maintained its dominant position in the US market. 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 our industry. Our forecast for the full year, of around $15 million Net Operating Profit Before Tax remains unchanged. Our expectation of installing over 360 camera systems in the USA for the full financial year also remains unchanged. We expect to continue with our policy of one dividend payment per year, payable in November based on the results of operations for the current financial year.
The Australian based operation has had a number of significant successes both in Australia and elsewhere during the year, and we have seen strong prospects and opportunities identified into the future. The growing base of long term revenue for maintenance and support services provides stability and support for the business.
We remain optimistic about the size of the potential market and the rate at which it is growing. We continue to 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 $42.666 million which was up 32.3% on the corresponding first half of the previous financial year (H1 2007 – $32.2 million). The increase in revenue was predominantly due to an increase in the number of revenue generating camera installations within our USA Build Own Operate and Maintain business and strong sales from the Australian operation.
The increased revenue and profits arose despite a 13.8% adverse movement in the average AU$/US$ exchange rates between the comparative periods.
Your directors submit their report for the half-year ended 31 December 2007 The names of the company’s directors in office during the half-year and until the date of this report are:
• Christopher Cooper (Chairman)
• Robin Debernardi
• Graham Davie
• Peter Lewinsky
• Roger Sawley
• Karen Finley
Review and results of operations – H1 FY2008
The Group experienced an increase in revenue and before and after tax profits from continuing operations during the first half of the 2007/2008 year.
For the first half of the 2007/2008 year:
• Revenues: $42.666 million – up 32.3% on the corresponding period in the previous financial year.
• Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA): $14.865 million – up 21.4% on the corresponding period last year.
• Net profit before tax: $6.871 million – up 35.0% on the corresponding period last year.
• Net profit after tax: $4.720 million – up 41.4% on the corresponding period last year.
In the USA, Redflex Traffic Systems now has over 190 contracts with cities across 20 states, with 48 of those contracts signed in the first half of FY2008. Subsequent to 31 December 2007 Redflex has contracted with a further 9 cities.
Existing funding facilities place the company in a strong financial position going forward with the ability to maintain and increase current installation rates. Capital expenditure required for planned growth is expected to be fully fundable from net operating activities and debt facilities.
Events subsequent to 31 December 2007
There have been no events of a material nature subsequent to 31 December 2007 that are likely to have an impact on the results and not otherwise dealt with in this report.
The amounts contained in the half-year financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the Class Order applies.
The company has received the Auditor’s Independence Declaration dated 25 February 2008.
Signed in accordance with a resolution of the directors.
Melbourne, 25 February 2008
The completer report (22 pages) is available at http://www.redflex.com.au