Final Results
Newmark Security PLC
07 October 2004
NEWMARK SECURITY PLC
FINAL RESULTS FOR THE YEAR ENDED 30 APRIL 2004
CHAIRMAN'S STATEMENT
Overview
The Group has been very busy in the year with a number of special exercises
namely the issue of secured loan notes, sale of Drion Security in Belgium and a
capital reduction. Following the year end we also completed the acquisition of
Custom Micro Products Limited as described below.
The Group announced in July 2003 that it had agreed terms for the issue of
secured loan notes to raise up to £1.5 million. The loan note holders committed
to subscribe in cash for £1 million, and on agreement between the parties, the
loan note holders can subscribe in cash for up to a further £0.5 million of loan
notes. The loan notes bear interest at a rate of 6% per annum payable quarterly
in arrears and are repayable three years after the date of the instrument
constituting the loan notes with an option for early repayment. As part of the
fundraising, the Company issued warrants to the loan note holders to subscribe
for ordinary shares of 1p each in the Company at any time between 24 July 2003
and 24 July 2008 at a price of 1p per ordinary share. To date, loan notes
totalling £1.3 million have been issued.
As a result of loans advanced to subsidiaries by the Company that had to be
subsequently written off, the distributable reserves of the Company were
negative and the Company was therefore unable to make dividend payments.
The Board considered options for addressing the Company's distributable reserves
position. After full consideration of the options available, the Board sought
and obtained approval for the reduction of capital and cancellation of the
Company's share premium account.
The Deferred Shares which carried no rights of any real value were cancelled,
together with the share premium account. As a consequence, the Company will be
more likely to be able to pay dividends out of future profits as and when the
Board considers it appropriate to recommend the payment of such dividends.
The financial performance of Drion Security had not met the expectations of the
Board over the last two years, with turnover in the last financial year
remaining at the same level as the previous year and losses of £624,000 incurred
for the year to 30 April 2003. This was largely due to the failure of Drion
Security to obtain both a large export order or a breakthrough in the commercial
sector. Turnover in its core Belgium banking sector was in line with
expectations, but losses had continued in the first six months of the financial
year ended 30 April 2004.
In view of these factors, in October 2003 Newmark agreed to the disposal of
Drion Security to the former Chief Executive of the Group for a maximum deferred
consideration of €500,000, payable in three annual instalments commencing in
2006 dependent upon Drion Security achieving a certain level of profits after
tax in each of the financial years ending 30 April 2006, 30 April 2007 and 30
April 2008. In view of the trading performance of Drion Security, no allowance
has been made in these accounts for any future receivable.
Financial Results
The operating profit for the year for continuing operations before exceptional
items and goodwill amortisation was £356,000 (2003 - loss £410,000), both
figures exclude the operating losses before exceptional items of £414,000 and
£624,000 respectively of Drion which was sold in the year. The operating profit
for the year is after charging £48,000 costs relating to the capital reduction
exercise. There are a number of exceptional items in the year relating to the
disposal of Drion, and underprovision for costs relating to the sale of
businesses in prior years.
Turnover for the year for continuing operations was £9.8 million (2003: £7.1
million). The main commercial factors affecting the results of the divisions are
set out below.
Electronic Division
The first full year where Grosvenor Technology and Newmark Technology have
traded as partners has seen a marked improvement in profitability for both
companies.
Grosvenor Technology continues to develop its core product JANUS access control
with the latest release boasting market leading features in both software and
hardware.
Newmark Technology has had to work doubly hard this year to achieve its targets
due to various supply problems including the manufacturer of our Par-Sec asset
management hardware going into liquidation necessitating starting with a new
sub-contract manufacturer.
The last quarter of 2004 will see a new version of Siteguard Access. Siteguard
is ADT's own brand of JANUS, designed by Grosvenor but manufactured and
distributed under licence by Tyco to the ADT group. As in JANUS, this latest
version of Siteguard will include a seamless interface to Par-Sec asset
management and so promote it into ADT via their 'own brand' access system.
The coming year will also see a new Par-Sec RFID long-range reader that will
include an interchangeable frequency module. This will allow the product to be
sold into more countries whereas the existing fixed frequency unit can only be
sold into the UK and US markets. It will also provide a suitable migration path
to a new frequency band in the UK where regulatory changes make this a necessity
before January 2007.
The underlying business trends remain very strong for both Newmark and Grosvenor
with a continuing steady volume of core business.
During the past year Grosvenor and Newmark have jointly worked to develop new
relationships with key national accounts. Both companies can capitalise from
jointly being able to offer a wider choice whilst remaining specialists with
their chosen products. The outcome of these efforts should materialise with
substantial contracts in the coming year.
On the back of other successful installations and because of our extensive
experience with access control data-communications, Grosvenor is currently
negotiating for various contracts in the Pacific Rim with a value including
adjuncts exceeding £1 million over a three year period starting 2005.
Other contracts being sought and due to be placed within the coming year include
a major bank looking to upgrade its entire security infrastructure, defence
companies and government facilities.
Asset Protection Division
Safetell's trading throughout the year was very much in line with plan and
achieved revenue growth of 10% over the previous period. Operating efficiencies
resulted in a further 1.2% increase in gross margin percentage. Overheads were
contained to the same level as the previous year resulting in a rise in
operating profit of 40% compared to the previous year.
The Eclipse rising screen programmes were maintained with long-term customers in
retail finance and petrol retailing. The newer screen products of CounterShield
and Eye2Eye continued their successful market penetration.
The demand for fixed glass security screens has continued and a third format of
FlexiGlaze was in development at the turn of the year and has since been
released to the market with three installations completed by the end of August
2004.
The demand for RollerCash and BiDi Safe cash handling equipment is dependent on
the roll-out programmes of established customers. The Post Office contract was
extended to July 2004 and sales are expected in line with the Post Office
suburban network reorganisation. In September 2004 Safetell was awarded the next
supply contract for four of the five types of Cash Handling Units for the Post
Office. New customers are being introduced to the product range and the OEM
supplier is launching a new product (CashCycler) in late 2004. This will move
the product range into new applications of teller cash dispensers.
The imminent application of the Disability Discrimination Act in October 2004
continues to fuel demand from public bodies to make reasonable adjustments to
their service areas. Police authorities and local governments are proving to be
a good source of work for all forms of screens as the best defence against
violence in the front office/reception areas. Abbey National commissioned a
product design to improve disabled access to their counters. The design was
completed in May and the £750,000 programme should be complete by the end of
October 2004.
The service and maintenance business increases pro rata to the installed base of
primary equipment. During the year a new contract was won to maintain all locks
for security doors for HBOS for a three-year period starting in April 2004 for
an initial contract value of £750,000. Further lock and door maintenance and
other service related work for third party suppliers is also being secured to
improve operational efficiency of the service technicians.
Secure Locking Division
NSP Europe has managed to increase turnover, as well as laying many new
foundations, resulting in the attainment of significant contracts such as GE.
The losses of the company increased in the year but having signed these new
distribution agreements towards the end of the period, it is targeted to break
even in the current year. The new foundations should lead to significant growth
in sales in this financial year.
Our unique standalone commercial locking system which uses 'contact less mifaire
technology' has taken some time to develop, and has finally been launched. Since
its launch it has been acquired by several large groups and been distributed
throughout Europe. It enables effective cashless vending and is a significant
advance in card technology.
During this year, the company officially changed its trading name to NSP Europe.
This reflects its growing international customer base and the opening of a Paris
based office, where the focus is clearly on the substantial French market.
Balance sheet and cash flow
The balance sheet varies from last year with the sale of Drion Security, but
also by the agreement of a payment schedule for the tax liability arising from
the sale of the Vema business and assets in 2002. This liability was previously
shown as a current liability, whereas agreement has now been reached for payment
over a three year period. Freehold properties on the balance sheet at 30 April
2004 included premises in Belgium (related to the Vema operation) with a net
book value of €348,000. This property has been sold since the year end, and the
proceeds used to repay the associated mortgage.
The operating cash flow was positive before receipt of the proceeds of the loan
notes and payment of costs related to the sale of Drion Security.
Post Balance Sheet Events
Since the year end, the Group has acquired the entire issued share capital of
Custom Micro Products Limited ('CMP') for a total consideration of up to £2.885
million.
The initial consideration of £800,000 was satisfied by cash on completion, with
two tranches of deferred consideration of £1.4 million and £685,000
respectively, the latter payable on the achievement of profit before tax of
£600,000 for the year ending 30 April 2005.
CMP was established in the early 1980s to exploit the market potential for
microprocessor-based products. CMP's products are divided into the following
core ranges: time and attendance systems, access control products, shop floor
data collection terminals, smart card applications, network connectivity
products and biometric readers.
CMP recorded turnover of approximately £3.35 million and pre-tax profits of
£500,000 as per the unaudited management accounts for the year ended 31 January
2004.
In order to part fund the acquisition of CMP, the Group raised an additional
£1,700,000 (before expenses) through a placing of 136,000,000 ordinary shares at
1.25p per share.
Employees
The Board would like to congratulate all employees on their contribution during
the year and to welcome the employees of Custom Micro Products to the Group.
The Future
The results of Safetell were ahead of plan for the year under review, whilst
Grosvenor Technology and Newmark Technology were in line with expectations. The
results of NSP Europe were disappointing with the signing of new distribution
agreements taking longer than expected. As stated above, these agreements have
now been signed and NSP Europe is projected to break even for the current year.
With the continuing profit contributions of Grosvenor, Newmark and Safetell plus
a four month contribution from Custom Micro Products, the operating profit for
the first six months should be comfortably ahead of the corresponding period
last year, and the outlook for the full year is most encouraging.
M DWEK
Chairman
7 October 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 April 2004
2004 2004 2004 2003
Before goodwill and Goodwill and Total Total
exceptional exceptional
items items
£000 £000 £000 £000
Turnover
Continuing
operations 9,830 - 9,830 7,089
Discontinued
operations 754 - 754 1,304
_______________________________________________________
10,584 - 10,584 8,393
Cost of sales (6,479) - (6,479) (5,720)
_______________________________________________________
Gross profit 4,105 - 4,105 2,673
_______________________________________________________
Administrative
expenses pre
amortisation of
goodwill and
exceptional items (4,163) - (4,163) (3,932)
Impairment of
goodwill - - - (806)
Amortisation
of goodwill - (298) (298) (287)
Termination costs - (167) (167) -
_______________________________________________________
Administrative
expenses - total (4,163) (465) (4,628) (5,025)
_______________________________________________________
Operating profit/
(loss)
Continuing
operations 356 (298) 58 (645)
Discontinued
operations (414) (167) (581) (1,707)
_______________________________________________________
(58) (465) (523) (2,352)
Loss on disposal/
closure of
subsidiary/
business and net
trading assets - (1,133) (1,133) (373)
_______________________________________________________
Loss on ordinary
activities
before interest (58) (1,598) (1,656) (2,725)
Interest
receivable 15 - 15 67
Interest -
discount charge
on deferred
consideration (179) - (179) (106)
Interest payable (51) - (51) (34)
_______________________________________________________
Loss on
ordinary
activities
before
taxation (273) (1,598) (1,871) (2,798)
Tax on loss on
ordinary
activities (146) - (146) -
_______________________________________________________
Loss on
ordinary
activities
after taxation (419) (1,598) (2,017) (2,798)
Minority
interest (27) - (27) 78
_______________________________________________________
Loss for the
financial year (446) (1,598) (2,044) (2,720)
Dividends - - - -
_______________________________________________________
Amount
withdrawn from
reserves (446) (1,598) (2,044) (2,720)
=======================================================
Pence Pence
Loss per share
- basic and
diluted (1.0p) (1.6p)
- before
exceptional
items and
goodwill
amortisation (0.2p) (0.8p)
BALANCE SHEETS
As at 30 April 2004
Group Group Company Company
2004 2003 2004 2003
£000 £000 £000 £000
Fixed assets
Intangible assets 5,287 5,585 - -
Tangible assets 903 1,844 11 19
Investments - - 15,187 15,214
______________________________________________________
6,190 7,429 15,198 15,233
______________________________________________________
Current assets
Stocks 893 1,239 - -
Debtors: amounts
falling due within one
year 1,974 2,389 66 71
Debtors: amounts
falling due after more
than one year - - 1,242 751
______________________________________________________
1,974 2,389 1,308 822
Cash at bank and in
hand 1,522 806 104 -
______________________________________________________
4,389 4,434 1,412 822
Creditors: amounts
falling due within one
year (2,911) (4,706) (9,747) (9,728)
______________________________________________________
Net current
asset/(liabilities) 1,478 (272) (8,335) (8,906)
______________________________________________________
Total assets less
current liabilities 7,668 7,157 6,863 6,327
Creditors: amounts
falling due after more
than one year (5,741) (3,263) (4,102) (2,798)
Provisions for
liabilities and
charges (201) (217) - -
______________________________________________________
1,726 3,677 2,761 3,529
======================================================
Capital and reserves
Called up share
capital 2,131 6,963 2,131 6,963
Share premium - 5,151 - 5,151
Merger reserve 801 801 801 801
Profit and loss
reserve (1,506) (9,585) (171) (9,386)
______________________________________________________
Equity shareholders'
funds 1,426 3,330 2,761 3,529
Minority interests 300 347 - -
______________________________________________________
1,726 3,677 2,761 3,529
======================================================
The financial statements were approved by the Board of Directors on 7 October
2004 and were signed on its behalf by:
M DWEK
Chairman
B BEECRAFT
Finance Director
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 April 2004
2004 2003
£000 £000
Net cash inflow/(outflow) from operating activities 252 (3,172)
___________________
Returns on investments and servicing of finance
Interest received 15 67
Interest paid (51) (34)
___________________
Net cash (outflow)/inflow from returns on investments and
servicing of finance (36) 33
___________________
Taxation - -
___________________
Capital expenditure and financial investment
Purchase of tangible fixed assets (235) (349)
Receipts from sale of tangible fixed assets 30 31
___________________
Net cash outflow from capital expenditure and financial
investment (205) (318)
___________________
Acquisitions
Purchase of subsidiary undertakings - (3,870)
Net cash acquired on purchase of subsidiary undertakings - 1,104
___________________
Net cash outflow from acquisitions - (2,766)
___________________
Disposals
Costs related to sale of subsidiary undertaking, and business
and trading assets (189) -
Cash disposed of with business (1) -
___________________
Net cash outflow from disposals (190) -
___________________
Net cash outflow before financing (179) (6,223)
___________________
Financing
New finance loans 1,100 58
Repayment of loans (176) (151)
___________________
924 (93)
Expenses paid in connection with share issues - (43)
___________________
Net cash inflow/(outflow) from financing 924 (136)
___________________
Increase/(decrease) in cash 745 (6,359)
===================
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 April 2004
2004 2003
£'000 £'000
Loss for the financial year (2,044) (2,720)
Exchange difference on translation of net assets and
results of subsidiary undertakings 123 (115)
________ ________
Total recognised gains and losses relating to the year (1,921) (2,835)
======= =======
NOTES:
1. The financial information set out above does not constitute the company's
statutory accounts for the years ended 30 April 2004 or 2003, but is derived
from those accounts. Statutory accounts for 2003 have been delivered to the
Registrar of Companies and those for 2004 will be delivered in due course. The
auditors have reported on those accounts; their reports were unqualified and did
not contain statements under the Companies Act 1985, s 237(2) or (3).
2. No final dividend is proposed.
3. Loss per share
The calculation of the basic loss per ordinary share is based on a loss of
£2,044,000 (2003: loss £2,720,000) and the weighted average number of shares in
issue during the year of 212,747,204 (2003: 174,364,102). For every £1 of loan
note issued, the loan note holder receives a warrant entitling the loan note
holder to 50 ordinary shares of 1p each on exercise of the warrant.
The conversion of those warrants into ordinary shares would reduce the net loss
per share from continuing operations and under FRS14 they are not deemed
dilutive.
The options in issue have no dilutive effect.
The basic loss per share before goodwill amortisation and exceptional items has
also been presented since, in the opinion of the directors, this provides
shareholders with a more appropriate measure of earnings derived from the
Group's businesses. It can be reconciled to basic loss per share as follows:
2004 2003
Basic loss per share (pence) (1.0) (1.6)
Goodwill amortisation and exceptional items per share 0.8 0.8
__________ __________
Loss per share before goodwill amortisation and
exceptional items (0.2) (0.8)
========= =========
4. Copies of the Report and Accounts are available from the Company's offices at
57 Grosvenor Street, London W1K 3JA.
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