INDIGOVISION, the Scottish technology company which was at the centre of a high-profile power struggle, has increased its underlying first-half profits by 14% through cost-cutting.

The Edinburgh-based firm's revenues fell to £14.5 million in the six months to January 31, from £15m in the first half of the prior financial year. But pre-tax profits, excluding one-off costs relating to the departure of founder and 22.9% shareholder Oliver Vellacott and his unsuccessful buyout bid for the company, rose from £1.4m to £1.6m as costs were squeezed.

Mr Vellacott, whose exit was announced by IndigoVision in December and followed the board's rejection in November of three separate buy-out proposals backed by Glasgow-based venture capitalist Scottish Equity Partners, tabled a resolution to remove Hamish Grossart as the technology company's chairman but subsequently withdrew this.

Mr Grossart said yesterday: "I would like to pay tribute to Oliver's significant achievement in founding IndigoVision and in building it from an idea to a good business, often in the face of adversity, and with uncommon levels of cerebral consideration and courtesy."

Pressed for further explanation of the final part of this tribute, Mr Grossart said: "I hope my language is clear."

Shares in IndigoVision surged initially in the wake of its half-time results yesterday, hitting an intra-day high of 412p, but ended down 10p or 2.65% on the session at 367.5p to value the company at £27.7m.

IndigoVision makes internet-based, closed-circuit television surveillance systems used in airports, ports, cities, casinos, educational establishments, and rail operations, and for activities such as traffic management. It has just won a contract covering 36 town centres in Colombia.

It operates from six regional centres, in New Jersey in the US, Sao Paulo in Brazil, Singapore, Dubai, London and Edinburgh.

Elaborating on Mr Vellacott's exit, Mr Grossart told the stock market yesterday: "Shortly after the beginning of the financial year, the board took the view that the best way to address the underperformance that had been evident in the second half of last year, and which resulted in falling profits and a second successive year of muted sales growth, was to expand substantially the role of Marcus Kneen, then chief financial officer, with a view to improving process, pace and execution."

Mr Grossart said the board believed the optimum structure was to appoint Marcus Kneen as chief executive, "promote" Mr Vellacott to executive deputy chairman, and appoint financial controller Holly McComb as chief financial officer.

He added: "These proposals were not acceptable to Oliver Vellacott, who was invited to put forward alternative management structures. No alternatives were put forward.

"After extensive discussions, the board concluded that it was nevertheless necessary that these changes be implemented and indicated to Oliver Vellacott that the changes needed to be made notwithstanding his demurral.

"(Mr) Vellacott remained unwilling to serve in any executive role other than chief executive, and was unwilling to stay on the board in a non-executive capacity. Accordingly, the board terminated his service contract.

"A payment of 12 months' basic salary was made in lieu of notice, which amounted to £0.21m inclusive of related employment taxes."

Mr Vellacott had in December, following his exit, requisitioned a general meeting to vote on resolutions to remove Mr Grossart and non-executive director Andrew Fulton from the board.

Mr Vellacott was seeking election to the board with allies Sir Peter Burt, former chief executive of Bank of Scotland, and Waverley Cameron, of the Edinburgh stationery dynasty.

Mr Grossart said IndigoVision expected profits for the year as a whole "to be well up on last year's total" of £1.2m. He added that the board was "cautiously optimistic" of meeting its target of equalling or improving on the sales total of £28.9m for the 12 months to last July.

IndigoVision raised its interim dividend by 25% to 5p-a-share.

It noted its net cash balances had risen by 40% to £7.2m in the six months to January 31.

Citing the company's strong balance sheet, Mr Grossart said: "The merits of that policy are not always apparent when the world is awash with easy credit, and financial gearing is regarded as a good thing rather than a dangerous drug."