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Amusement Parks: Lo-Q plc Prelininary Results, for the ten month period ended 31 October 2009


Related: Lo-Q launches an enhanced version of its Q-bot system at IAAPA 2009 / Lo-Q announces proximity marketing now available on Q-bot virtual queuing wireless devices

Lo-Q plc, the AIM listed provider of virtual queuing systems for theme parks and major attractions, announces Preliminary Results for the ten months ended 31 October 2009.
Lo-Q designs, installs and operates systems which allow members of the public to make ride and show reservations when they visit a theme park or other attractions. Lo-Q’s flagship product, VQ2020, is a true virtual queuing system which uses hand-held units, called Q-bots, in major theme parks around the world. Lo-Q sites encompass 10 Six Flags theme parks in North America, Dollywood in the US, theme parks in Australia and Italy, as well as Legoland Windsor in the UK.
Lo-Q also owns a Q-txt product which allows mobile phone users to reserve their place in line. Users pay a fee and using the premium rate SMS services, avoid standing in a queue. Q-txt was first used at the London Dungeon and Madame Tussauds in London, and has been installed and is well established in Flamingo Land, Yorkshire and Parque Isla Mágica in Seville.
Highlights – 10 month period versus 12 month period last year
Revenue up 27.9% to £17.30m (2008: £13.52m)
Profit before tax up 29.2% to £2.39m (2008: £1.85m)
Profit after tax down 5.9% to £1.90m (2008: £2.02m)
Earnings per share: 
   Basic:             12.15p (2008: 13.21p)
   Diluted:          11.45p (2008: 11.99p)
Strong cash position: £4.44m in cash (2008: £2.56m); no debt
Park customers up from 11 sites to 16 sites
Commenting on Outlook, Jeff McManus, Chairman of Lo-Q, said:

“Lo-Q has added new customers, grown revenues and profits, and maintained a very strong cash position all in the face of an incredibly tough retail trading environment. Whilst we expect to see 2010 as another year of growth in the face of tough trading we are taking advantage of our secure financial position to re-invest in our existing products but also into new products that can open up whole new growth areas by targeting a wide variety of worldwide leisure parks.”
Lo-Q plc   Jeff McManus, ChairmanTel: +44(0) 1491 577 210
Arbuthnot Securities Limited  John Prior/Ed GayTel: +44 (0) 20 7012 2000
Walbrook PR Ltd  Ben KnowlesTel: +44 (0) 20 7933 8788  Mob: +44 (0) 7900 346 978

Chairman’s Report
for the ten month period ended 31 October 2009

Last year we faced the most difficult retail trading environment that we have seen for some years. Many sections of our industry, particularly in the US, reported lower earnings with significant reductions in company profitability.
Despite these difficult underlying economic conditions Lo-Q has performed very well, showing strong growth in both revenues and profits as a result of the contribution from new customer wins at the end of 2008 and during the period under review. Despite an overall optimistic outlook the Board felt it was prudent to take a cautious approach in managing our cost base and cash position and this has helped to produce a solid set of results for the 10 months ended 31 October 2009.
Year end change
In August we announced that we would change our year end to the 31 October. Lo-Q’s trading takes place in a concentrated period when the majority of our theme parks are open and that trading begins to wind down dramatically at the end of October when most parks close for the winter. This means that from now on the year end balance sheet will provide a better view of the annual cash position and company’s performance. As a consequence, this set of results for the 10 month accounting period ended 31 October 2009 is being compared to the set from the 12 months to December 2008.
2009 Financials
Turnover for the 10 months increased by 27.9% to £17.30m (2008: £13.52m), whereas profit before tax has grown by 29.2% to £2.39m (2008: £1.85m) and the number of parks using our products rose to 16 (2008: 11 parks). The Group remains debt free, with a bank balance of £4.44m at 31 October 2009 (£2.56m as at 31 December 2008).
Given the wide geographical spread and differing sizes of our customers, it is very difficult to detect a common trend to the relative performance of the Lo-Q products in individual parks. Whilst some parks performed better than others, the common feature is that overall Q-bot sales in June and October were substantially below management expectations due to bad weather.
Our customers, both existing and new, continue to be impressed with how we manage, promote and operate the Lo-Q system in the park, and the subsequent results this produces. A clear pattern is emerging whereby revenue grows strongly in both the second and third year of operation which reflects the successful take up of Q-bots in parks as customers become more used to using the product and the benefits of word of mouth bearing fruit.
R&D – existing products
The VQ2020 Q-bot system which was operating in 13 parks has now been extended to 14 as the last park operating on our previous generation product was upgraded. The product itself had significant improvements implemented including the improvement of global messaging service and re-introduction of proximity marketing.
Our engineers continued the development of the mobile phone based product, Q-txt, which we purchased at the end of 2007 and incorporated operational features and functionality which reflects our industry experience. At Isla Magica and Flamingo Land, the Q-txt mobile phone system made its first full year debut, with pleasing results and Flamingo Land in particular.
R&D – new products
Whilst R&D work continues on these systems, the company is putting large efforts into a new system that will be trialled during the coming year in two water parks.
Patent applications are underway for this system, which will be, in some ways, more revolutionary than the original Q-bot system, and this new innovation will have much wider applications than theme parks, whether attraction or water based. More detail will be released once the trials have been concluded and the patent process completed.
Lo-Q continues on a programme of larger levels of expenditure on the current systems and investigations into new applications and product areas and anticipates investing approximately £1m in the current financial year in development expenditure, including the above trials, an increase of £0.6m on the previous financial period. Therefore we expect the growth in profitability to be lower than the growth in turnover in the shorter term.
The competitive environment
Our competitive position remains largely unchanged with limited major threat within the current market. Paper ticket systems, prevalent in some park groups, provide an additional challenge in persuading them to change to the much more advanced Q-bot system, but the acceptance of parks in offering a queue line service will be beneficial to our products in the long term.
Currently, mobile technology has an impact on all organisations and we are taking appropriate action to harness this opportunity including related smart phone development. With the exception of in-park own systems, independent competitors have largely disappeared as their often ineffective systems did not earn sufficient cash to keep their businesses afloat.
Whilst the Company’s current cash position is robust and the directors expect the company to be cash generative in the current financial year; the Board is conscious that its future cash requirements will depend, inter alia, on the requirement for investment into new products and the subsequent release of these products into the market place. Once the board has a better understanding of its likely investment requirements, it will introduce an appropriate dividend policy, and expects to be in a position to do so in the last quarter of the current financial year.
Our major customer
Our major customer, representing the majority of our installations, filed for Chapter 11 bankruptcy protection in June 2009. Whilst not all of their parks were subject to this process, I am delighted to report that the operational and financial impact of this move was minimal. When the finalisation of the Chapter 11 process has been completed, we are hopeful that the negative effects on the Company’s share price will be lifted.
Summary and Outlook for 2010
Lo-Q has added new customers, grown revenues and profits, and maintained a very strong cash position all in the face of an incredibly tough retail trading environment. Whilst we expect to see 2010 as another year of growth in the face of tough trading, we are taking advantage of our secure financial position to re-invest in our existing products and also into new products that can open up whole new growth areas by targeting a wide variety of worldwide leisure parks

Jeff McManus

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