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1Spatial – Interim Results Reaffirm Expectations; Australian Acquisition Agreed; Buy at 39.5p with Target Price of 100p

1Spatial, an industry leader in the provision of data quality and integration solutions tools for business critical location-information, has today released interim results for the 9-months trading period ended 31st December 2010. These were in line with its guidance statement of 20th January 2011, which confirmed that our expectations remained deliverable (see our note of 20th January 2011).

Not only was the trading period challenging at an operational level due the global recession and the rebalancing of many government budgets, which delayed the implementation of agreements, but the group also became publically quoted company through the reverse takeover of IQ Holdings. Additionally, the company completed its repositioning as a market leader in the provision of quality location-data and intelligent data management solutions. The group operates from centres of excellence in Cambridge (UK) for software development, operational management and marketing with Cork (Eire) and Sydney (Australia) providing both Sales/Consulting and first line customer support.

Sales revenues slipped by 2.9% from £5.554 million to £5.395 million, however, cost of sales were £33,000 lower than the comparable period. This was due to delays in the awarding and commencing of new contracts, which resulted in gross profit falling by 4.8% from £2.611 million to £2.485 million. The gross margin slipped by 0.9 basis points to 46.1%, which demonstrates the robust nature of the core business. Other administration expenses declined by 16% to £2.578 million from £3.069 million and resulted in a considerably reduced operating loss of £0.93 million against the comparable period’s  £0.458 million. Net finance expenses fell from the comparable period’s  £9,000 to £3,000 and resulted in a pre-tax loss before exceptional charges of £0.96 million (2009: £0.467 million).

Exceptional charges totalled £1.709 million (2009: £nil) and fully reflect the impact on the company completing its operational restructuring (£0.337 million), the writing down of goodwill and IPR related to earlier acquisitions (£0.621 million) and a loss of £0.751 million arising on the issue of shares as part of the reverse takeover of IQ Holdings. 1Spatial also recorded a net extraordinary profit of £22,000, which comprised the pre-acquisition losses for IQ Holdings of £0.296 million and a final profit of £0.318 million from the discontinued Laser Scan business. Consequently, the (basic) loss per share for the continuing business fell from 39.7p to 16.2p.

These largely non-cash, one-off charges reduced the group balance sheet net assets as of 31st December 2010 by £0.606 million to £2.295 million. However, the group is inherently cash generative and ended the period with net cash of £0.192 million, a swing of £0.735 million.

Table: Profit & Loss Account, £000

9 months ended 31st December	2010	2009	% Change
Revenues	5,395	5,554	(2.9)
Cost of Sales	(2,910)	(2,943)	(1.1)
Gross Profit	2,485	2,611	(4.8)
Margin	46.1%	47.0%
Other Administration Expenses	(2,578)	(3,069)	(16.0)
Operating Loss	(93)	(458)	(79.7)
Net Finance Expenses	(3)	(9)	(66.7)
Pre-tax Loss before Exceptional Items	(96)	(467)	(79.4)
Exceptional Items	(1,709)	0	NA
Pre-tax Loss	(1,805)	(467)	NA
Tax Charge	(8)	0	NA
Extraordinary Items	22	268	NA
Retained	(1,791)	(199)	NA
(Basic) Loss per share	(16.2p)	(39.7p)	(59.2)

During the reported period, the group, as part of an international consortium, completed the delivery of the geospatial data management systems that underpin all Ordnance Survey Great Britain’s data products, Project Phoenix. This solution will go into live production during the second half of current financial year and will be further extended under a long-term maintenance contract. Additionally, the group was awarded a seven figure, ground breaking 4-year framework contract with Ordnance Survey Great Britain as well as delivering data management solutions for 12 of the German Länder. In addition IGN France and KMS are just some of the clients that have all gone into operation. The group is currently generating recurring revenues in excess of £1.7 million from this segment of the location-data market.

1Spatial has not eased up on its long-term developments and is currently running a cloud-based, location-data validation service trial with customers in the UK, Eire and Australia, which if successful will result in a globally scalable SaaS-based solution. Additionally, the group is developing through its strategic ‘Data Improvement Process’ initiative a platform for organisations to efficiently exploit their location-data to improve quality that should lead to more accurate decision making for which it has high hopes of further increasing and strengthening the recurring revenue stream.

The group has signed a Heads of Agreement for the acquisition of an Australian company that will extend its position in the growing Australian location-data market. This acquisition, which is expected to complete before the end of the current financial year, is planned to be fully funded from the group’s working capital. 1Spatial is confident that, once the acquisition has been assimilated, the enlarged Australian presence will open up additional opportunities in the fast expanding Asia Pacific region.

1Spatial has a strong management team with a good track record and remains fundamentally cash generative and on an earnings growth track despite the difficult UK and global economies. Although these results reaffirm earlier confidence in our forecasts, for now we continue to value the group on an undemanding 2012 EV/EBITDA valuation multiple of 7.5 times and unchanged target price of 100p. With the shares trading at 39.5p and with a target price of 100p, we re-iterate our recommendation of Buy.

Financial Records & Forecast Table

Year to 30th June	Sales (£000)	Pre-tax Profit (£000)	Earnings per share (p)	Price Earnings Ratio (x)	Dividend (p)	Yield (%)
2009A	8,403	303	1.27	31.1	0.0	0.0
2010A	8,008	73	0.93	42.5	0.0	0.0
2011E 1	8,500	670	5.44	7.3	0.0	0.0
2012E	9,780	1,510	8.25	4.8	0.0	0.0

Notes:

1 Annual results for the 15-month trading period ending 30th June 2011.

Key Data
EPIC	SPA
Share Price	39.5p
Spread	35p – 44p
Total no of Shares	21.19 million
Market Cap	£8.37 million
Net Cash	£0.2 million (as at 31/12/2010)
12 Month Range	35p – 150p
Market	AIM
Website	www.1spatial.com
Sector	Software & Computer Services
Contact	Nic Snape Chief Executive 01223 420414