At a 'tipping point' as delighted Datong seals US defence contract

The Leeds-based company, which designs, makes and sells covert tracking devices used by law enforcement agencies and security forces across the

globe, has suffered from falling sales to the US as the change in administration meant budgets were capped and orders postponed.

But Datong said the order for tracking and location equipment, which has been freed up after being postponed a year ago, is its biggest single contract in the US for more than 18 months and suggests the tide is beginning to turn.

"It's a mixture of relief and delight," said chief executive Dean

Blood.

"This is one of the first real signs that some of the bigger demands from our long-established customers are coming through.

"It's the tipping point, a step change."

The order had been factored into Datong's expectations for the year, but came through sooner than it expected.

Sales to the United States have traditionally been the company's biggest by country, making up about 60 per cent of group revenues.

But Barack Obama's victory last year and the change of administration from Republican to Democrat meant orders slowed while staff changed over.

Budgets were put on hold as capital spending was postponed.

Last year sales to the US made up only about 23 per cent of group revenue, dipping from about 6m to 1.5m.

That helped drive sales for the year to the end of March 2009 down

almost 40 per cent to 6.51m.

Last February the company said a 1.1m order to the US had been postponed, which along with another order deferral drove Datong's shares down by 25 per cent.

Yesterday Mr Blood confirmed this is the order which has just been released.

"It doesn't mean the recovery is here," said Mr Blood. "But we always said it was a question of when, not if."

He added the group expects to deliver the order by the end of March.

Current expectations are for the group to deliver about 12m revenues this financial year, although this order will not change forecasts as it had already been factored in.

Datong is confident of sales to the US returning to normality in time.

"We can see some healthy business in the medium and long term," said Mr Blood.

In 2008 the group appointed a former FBI chief as the president of its US subsidiary to help drive growth.

Louis Quijas, a former police officer for 25 years and chief of police for six years, was assistant director at the Federal Bureau of Investigation, heading the Office of Law Enforcement Coordination in Washington, DC.

As well as tackling the mature US market, Datong hopes to expand in central and south America, where the battle against drug cartels and organised crime shows little sign of abating.

The Pentagon's recently announced quadrennial defence review said US military capability need to be refocused on "counterinsurgency, stability and counter-terrorism", much of which is expected to benefit Datong with sales of covert intelligence-gathering equipment.

Mr Blood said: "The major switch is that once upon a time all the budget would be for heavy warfare – planes, tanks and sea-borne carriers.

"What we are seeing now is they are now looking more at prevention rather than reaction. There's a lot of intelligence gathering.

"The nature of the beast or opposition is completely different to what it was."

The changing face of conflict

The Pentagon's new military strategy recognises the United States is increasingly fighting wars beyond traditional conflicts.

According to the draft 2010 quadrennial defence review: "It is no longer appropriate to speak of 'major regional conflicts' as the sole or even the primary template for sizing, shaping and evaluating US forces." The report highlights "a multiplicity of threats", including satellite and cyber attacks, as well as terrorist groups and the prospect of more nuclear-armed nations.

US forces are to be "rebalanced" to address the new threats

in "counterinsurgency, stability and counter-terrorism" operations. All of this is likely to mean higher demand for intelligence-gathering equipment.

President Barack Obama asked Congress to approve a record $708bn in defence spending for the 2011 financial year, including a 3.4 per cent increase in the Pentagon's base budget and $159bn to fund US military missions in Iraq, Afghanistan and Pakistan.