Shock profit warning wipes third off IndigoVision shares

SHARES in Scottish CCTV systems maker IndigoVision plummeted by nearly a third yesterday after the company stunned the market with a warning that profits would be significantly lower than expected.

The company, run by technology entrepreneur Oliver Vellacott, revealed that gross margins had continued to be "weak" in the second half of its financial year.

The collapse in the share price knocked 2.1 million off the value of his 22.9 per cent holding in the company he created.

Shares fell to a year-low of 220.3p before rebounding to close at 315p, a drop on the day of 125p or 28.4 per cent, valuing the company at 23.8m.

Analysts had expected the firm to return a 3.6m pre-tax profit in the year to 31 July on the back of 32.8m in revenue.

While the company confirmed it still expected to beat the previous year's 28m turnover, the firm warned that sales growth had slowed and was now expected to miss internal forecasts.

Directors at the firm say the gross margin for the year to be 2 per cent below last year's 60 per cent, which had fallen from 64 per cent in 2009.

The company - which makes digital CCTV systems for airports, casinos and other customers in 84 countries - will update the market again around its year-end on 31 July, before publishing its results in September. In March, the firm posted record sales, with interim revenue up 25 per cent to 15m and operating profits up 15 per cent at 1.4m, prompting the directors to declare a maiden interim dividend of 4p.

But the firm warned at the time that margins had fallen "a little more than we had expected" as the weak global economy squeezed customers' spending.

IndigoVision - which has bases in Dubai, London, New Jersey, Sao Paulo and Singapore as well as its head office Edinburgh - uses so-called internet technology to let customers remotely access their CCTV systems.

The firm said: "The global market for (internet protocol] video continues to develop at an encouraging rate and we remain confident in IndigoVision's future, whilst being realistic about the risks and challenges the group faces.

"As we indicated in our interim report, gross margins weakened marginally in the first half. This has continued into the second half and we now expect gross margins for the year as a whole to be some 2 per cent lower than last year.

"As a result, we anticipate that group profits for the year to 31 July will be significantly below current market expectations."

As well as having staff in 24 countries, the company uses a network of 300 engineers to design, install and service its systems.

Vellacott founded the firm in 1994 after gaining a doctorate from Edinburgh University, and he moved the company to its base at the Edinburgh Technopole business park in 2000.

Earlier this month, The Scotsman revealed that IndigoVision was recruiting 15 staff, swelling its existing headcount of about 100, and taking an extra 6,000sq ft of office space to take its presence in the park's Charles Darwin House to 15,641sq ft.

At the time, Vellacott said the creation of new products, including video management software, was driving the expansion.

In March, Andrew Fulton, chairman of the Scottish Conservative Party, was appointed as a non-executive director.

Fulton has a career spanning more than 30 years in the British diplomatic service. Among other roles, he is honorary president of the Scottish North American Business Council and a senior adviser to Memex Technology.