Final Results

RNS Number : 2180J

Newmark Security PLC

03 August 2012

 



Newmark Security plc

("Newmark" or the "Group")

Final Results

Newmark Security plc (AIM:NWT), a leading provider of electronic and physical security systems, today announces its final results for the year ended 30 April 2012.

Financial Highlights:

·	Turnover increased by 3.5% to £13.1 million (2011: £12.7 million)
·	Gross profit remained stable at £5.3 million (2011: £5.3 million)
·	Gross margin fell slightly to 40.2% overall (2011: 42.0%)
·	Profit from operations fell to £189K (2011: £808K), mainly due to a £194k (2011: £Nil) impairment provision against certain development costs and professional fees and other costs of £176K (2011: £40K) in respect of claims for constructive dismissal by two former employees and claims made against them for infringement of intellectual property rights/breach of warranty and restrictive covenants.
·	Earnings per share of 0.04 pence (2010: 0.19 pence)
·	Cash flow from operating activities increased to £2.0 million (2011: £1.2 million)

Commenting on the results Maurice Dwek, Chairman of Newmark Security plc, said: "The Board is obviously disappointed by the trading results for the year under review. However, the Board starts this year with increased optimism especially with the news of the Post Office contract in Safetell. The Board expects an improvement in sales of our OEM product offering to the US market during the current financial year as well as significant sales growth of our new SATEON access control software in future years as the product becomes more established. Despite the continuing worldwide economic problems affecting trading levels generally, the Board believes that Newmark is well positioned for growth in the medium to long term".

For further information:

Newmark Security plc
Maurice Dwek, Chairman	Tel: [phone]
Brian Beecraft, Finance Director	www.newmarksecurity.com

Seymour Pierce Limited
Mark Percy / David Foreman, Corporate Finance	Tel: [phone]
	www.seymourpierce.com

Notes to editors

Newmark Security PLC is a leading provider of electronic and physical security systems, which focus on personal security and the safety of assets.  Operating through two established and wholly owned divisions, Grosvenor Technology (Electronic) and Safetell (Asset Protection), the Group listed on AIM in 1997.

Founded in 1989 Grosvenor Technology provides state of the art access control, security and data acquisition systems delivered via its flagship JANUS access platform and its CUSTOM brand OEM product range.  Clients include BAE Systems, UK Air Traffic Control, BSkyB, Merrill Lynch (Europe, Middle East and Asia) as well as M&S, Morrisons, Tesco, Network Rail, British Royal Palaces, government departments and many universities.  More information can be found at www.gtl.biz

Offering staff and asset protection since 1987, Safetell is the UK's leading provider of fixed and reactive security screens, reception counters, cash management systems and associated security equipment. Safetell's customers range from leading blue chip organisations to single sites including banks and building societies, police forces and the Post Office, local authorities and government departments, forecourt retailers and supermarket chains.  More information can be found at www.safetell.co.uk

CHAIRMAN'S STATEMENT

In my Chairman's statement last year, I commented on the variable trading for the few months of the year just completed, and unfortunately this continued throughout the year. The current economic difficulties in the country continued to affect us particularly reduced public sector spending and difficult trading conditions in UK retail banks.

As a precaution on 25 November 2011, the Group raised a facility of up to £300k through the issue of a 10 per cent. secured loan note on 25 November 2011 with certain Directors of the Company. Under the terms of the Loan Note instrument, the Loan Notes are repayable in full by the third anniversary of the issue of the Loan Notes. However only £105,000 of this facility had been utilised by the year end. As a result of this refinancing, the Board has decided not to recommend a dividend for the year but instead plans to repay the loan notes issued to date.

Sales in the US for Grosvenor's original equipment manufacturer ("OEM") products have been disappointing mainly due to the length of the integration period with customers, and we expect a significant increase in turnover in this market during the current year. We sold our first new SATEON access control system just before the financial year end, and are confident of increasing revenue streams from this exciting new development over the years ahead. We have been very encouraged by the reception that SATEON has received from audiences both in the UK and abroad.

Market conditions have also affected sales of our OEM range of products in the UK and Europe. However there has been a favourable response to our attempts to open up new markets for these products in Eastern Europe, with some new customers signing up as partners.

Sales of products of the asset protection division were slightly higher this year although the work was generally typified by an increase in smaller value orders. However, and as announced on 14 June 2012, we are delighted to have secured a very substantial order from Post Office Limited since the year end. Safetell has been supplying and maintaining time delayed security safes to the UK Post Office since 2004 and is proud to be associated with the largest investment and network programme in the history of the Post Office.

The £3.4 million order for the time delayed security safes covers the initial stock of which approximately £1.4 million will be supplied during the first 6 months of the contract starting in late summer. Further substantial orders are expected as the network transformation programme continues until May 2015.

Sales of services of the asset protection division were over £4 million for the first time, with the successful completion of a one off contract worth approximately £400k for a large financial institution.

Although the concept of our trials of the T9 cash transit case proved successful, the Board decided to develop a new outer casing using different and lighter materials. The new design will save costs going forward whilst at the same time offering greater flexibility. New field trials on this should be complete with our customers by the end of the current financial year.

Revenue for the year from continuing businesses was £13,094k (2011: £12,652k), an increase of 3.5 per cent. Gross profit for the year from continuing operations was £5,268k (40.2 per cent. of sales) compared to £5,312k (42.0 per cent.). The change in gross margin reflects both the mix of sales in both divisions as well as pricing pressures in the electronic division. Cost of sales also includes the impact of an impairment provision of £194k (2011: £Nil) against development costs where the future income stream appears unlikely to cover the accumulated cost.

Revenue in the asset protection division increased by 8.4 per cent. in the year from £6,510k to £7,055k, whilst the Electronic division fell 1.7 per cent. from £6,142k to £6,039k.

Earnings per share are shown in the income statement as 0.04 pence (2011: 0.19 pence). However, the earnings per share before legal costs are 0.08 pence (2011: 0.20 pence) as calculated in note 2 below.

Revenue per employee decreased to £99,954 from £100,413.

The Board believes that the OEM division of Grosvenor and Safetell are leaders in their particular markets whilst Grosvenor is a major force at the upper price end of the access control market. There were no environmental issues having a major impact on the Group in the year.

The Group continues to invest in research and development which the Board is confident will benefit the results in the future.

A detailed review of their activities, results and future developments is set out in the divisional results below.

Financial results

Revenue for the year was £13,094k (2011: £12,652k) whilst the profit from operations was £189k (2011: £808k). The main commercial factors affecting the results of the divisions are set out below.

Electronic Division

Turnover £6,039k (2011: £6,142k)

Profit from operations £318k (2011: £903k)

Profit before tax £296k (2011: £882k)

Revenue from the UK based OEM clocks division was flat in the year being £2,138k (2011: £2,188k) solely due to continuing difficult market conditions in the UK and the EU, and greater competition for fewer major projects. However, we are pleased that new customers in Eastern Europe are starting to sign up as partners and some are already promoting Grosvenor products and actively undertaking software development to interface with our IT series clocks and terminals. There is a real opportunity for growth in these new territories particularly Poland, Czech Republic and the Baltics.

The revenue of the new US operation for OEM clocks was £163k. As reported previously, revenue has been lower than originally envisaged due to the length of the customer integration period. However, we now have several customers with integrations completed and expect to see strong growth in the current year. Interest from the US continues to grow and within the last month we received confirmation from a large workforce management organisation which is signing up to use Grosvenor products for all their new system clocks. Other potential US customers are at various stages of interest and integration.

Revenue for the access control division fell to £3,738k (2011: £3,954k). Revisions and updates of the new SATEON software continue to be released adding more features and functionality to the system. The Grosvenor sales team has been introducing SATEON to a wide-ranging audience in both domestic and export markets particularly highly respected international security consultants and integrators. We have been greatly encouraged by the reception that SATEON has received and feedback confirms that people are attracted by the fact that SATEON is 100 per cent. browser based, runs on a SQL database platform, and is scalable, multilingual, and competitively priced. Most of all, SATEON looks and feels completely different to the competition and has a modern and highly intuitive user interface.

Profit from operations was lower due to the reduction in turnover, increased pricing pressures in the access control division and increased amortisation and impairment provisions of capitalised development costs.

In the UK, we can offer a clear upgrade path to SATEON from Grosvenor's historical software product, JANUS and this represents a significant opportunity to establish quickly vital reference projects. On an international level, SATEON has been introduced to integrators in Ireland, France, UAE, Turkey, Russia, Libya, Saudi Arabia, Qatar, Kuwait and Jordan, and are being invited to quote regularly on overseas projects. Consequently project quotations are being produced on a regular basis and we have built a respectable pipeline over a relatively short period. An area of great interest to many integrators is the extent of third-party integration already incorporated into what is a brand new product. SATEON version 2.4 integrates with two leading international CCTV manufacturers, a major international intruder system, and a major global fire system which has led to a number of opportunities and introductions to integrators.

A common theme with international integrators is that they have a genuine desire to move away from their current access control manufacturer. In most instances these manufacturers are large and internationally established, but have a staid outlook on the product and the business. This is a key aspect we intend to exploit as we believe SATEON is a truly viable alternative to the global 'big name' brands on both performance and costs of ownership. The key to success will be for us to offer good customer service and a commitment to working with our customers to do everything in our power to help them win projects using SATEON.

Asset Protection Division

Turnover £7,055k (2011: £6,510k)

Profit from operations £456k (2011: £531k)

Profit before tax £436k (2011: £511k)

Safetell sales were 8 per cent. higher than last year due partly to a one-off contract for the service division from a large financial institution completed over a 5 month period. Gross margin fell as a result of the changing product mix, new product developments and increased pressure from existing clients to reduce prices on long term contracts.

The Products Division sales showed a slight improvement over last year but the product mix was significantly different from the historical patterns. The number of orders received in the year increased by 34 per cent. whilst the average order value was 23 per cent. lower than last year. During the year we benefited from the supply of cash handling equipment and counter maintenance to a large financial institution but the work was undertaken at low margins. The cost of developing new products also affected the overall margins. We do not expect this work to continue at the same levels in the current financial year, particularly as we have now established ourselves as the preferred supplier and we will now seek to offer these products to other financial institutions.

The sales of Eclipse rising screens to long term customers in retail finance and petrol retailing were limited to small orders for branch reconfiguration work. Sales of traditional products including CounterShield and FixedGlazing continued to be disappointing due to budget constraints within the Public Sector. Sales to the Post Office of RollerCash and BidiSafe in cash handling products were similar to last year. Safetell's focus on continued product development and seeking new customers and markets has, to a certain extent, replaced the falling sales of traditional products and will sustain the business until we see an increase in sales of Eclipse rising screens, CounterShield and FixedGlazing.

Sales in the Service Division exceeded £4 million for the first time, exceeding the previous year by 9.8 per cent. Margins were also slightly higher resulting in growth of operating profits by 13.9 per cent. with overheads remaining static in the year. The results reflect a full years trading on the new counter equipment repair contract with a large financial institution, which was reported in my statement last year and still has two years to run. A contract with another large financial institution was renewed in 2012 worth in excess of £1 million per annum.

During the year a one off contract worth approximately £400k was received and completed for a large financial institution. During the last quarter we have commenced service work for another well-known financial institution and we are hopeful this will develop into a long term revenue stream.

The trials of the T9 Cash Transit Case with Loomis ended in March this year with the concept proving to be successful. After deliberation with the Loomis security team and the valuable information obtained from the field trials, the Board decided to improve the current design by developing a new outer casing manufactured from different materials from the original design. The new design will eliminate expensive tooling and moulds and offer greater flexibility to accommodate different customer requirements in the future. New field trials on this should be complete with our customers by the end of the current financial year.

Sales in the current financial year will also benefit from an order received from the Post Office for time delay cash handling equipment. The Post Office Network Transformation Programme to convert 6,000 sub post offices into either Local or Mains branches over the next 3 years will start in August and we have received an order for £3.4 million for time delay safes and expect further substantial orders over the next 3 years. Sales to the Post Office in the current financial year are expected to be approximately £2 million if the programme remains on track. This contract will also provide an increased revenue stream for the Service Division in future years, once warranty periods expire.

Balance sheet and cash flow

Cash flow from operating activities increased in the year from £1.1 million to £2.1 million despite the reduction in profits. We maintained our tight credit control procedures so that the increase in receivables due to timing of sales in the previous year was reversed. This control was reflected in the fact that there were no significant bad debts arising in the year despite the financial difficulties faced by many businesses. There was also a substantial favourable movement in payables reflecting advance payments from customers on projects and controls over supplier payments.

Cash outflow from investing activities was slightly lower than last year at £1.3 million (2011: £1.5 million), due mainly to the payment of deferred consideration last year. Overall there was an improvement in cash and cash equivalents of £0.5 million (2011: outflow of £0.5 million).

The tax credit for the year again reflects the benefits of tax allowances on development expenditure.

Key Financial Risks of the Group

Details of the Group's financial risks are given in the financial statements..

Key Business Risks of the Group

Competition and client relationships

The Group invests in developing new products to remain competitive by offering customers the most advanced quality products. The Group also provides support services to maintain products. The strength of the Group's relationship with clients is dependent to a large part on its performance under its support services with them. If a client is not satisfied with the Group's services it may terminate or decide not to renew their contracts. The Group responds promptly to queries to reduce the risk of losing customers and also has an excellent record of staff retention. It is essential that high quality staff are recruited and then retained if client relationships are to be maintained and new customers won.

General demand for services

If economic conditions deteriorate, there is a risk that the Group may face reduced demand from its clients for its services.  To mitigate this risk the Group focuses on diversifying its customer base in terms of business sectors and industry sectors. To mitigate the credit risk further and reduce exposure to potential bad debts, the Group maintains credit insurance policies and senor management review credit limits on a regular basis.

Employees

The Board would like to thank all the staff for their efforts, particularly given the difficult market conditions in which we currently operate.

Board Changes

The Board has agreed that I should become  executive chairman to drive the business forward especially during these difficult economic conditions and the expected growth in our activities with the completion of major developments and expansion into new geographical areas.

Dividend

Following the refinancing in the year, the Board has decided not to recommend the payment of a dividend for the year ended 30 April 2012 (2011: 0.0275 pence per share).

Outlook

The Board is obviously disappointed by the trading results for the year under review. However, the Board starts this year with increased optimism especially with the news of the Post Office contract in Safetell reflecting the quality of our product offering and excellent relationship with that customer. Sales of our OEM product offering to the US market have been slower than anticipated due to the length of software integration periods but the Board expects an improvement in the current year. Although sales of our new SATEON access control software should increase steadily during the year, the Board anticipates that more significant sales growth will be achieved in the following years when the product is more established.

Despite the continuing worldwide economic problems affecting trading levels generally, the Board believes that Newmark is well positioned for growth in the medium to long term.

M DWEK Chairman

2 August 2012

CONSOLIDATED INCOME STATEMENT for the year ended 30 April 2012
		2012	2011
		£'000	£'000
Revenue		13,094	12,652
Cost of sales		(7,826)	(7,340)
Gross profit		5,268	5,312
Administrative expenses pre legal costs		(4,903)	(4,464)
Legal costs		(176)	(40)
Administrative expenses - total		(5,079)	(4,504)
Profit from operations		189	808
Finance costs		(127)	(102)
Profit before tax		62	706
Tax credit		115	151
Profit for the year		177	857
Attributable to:
- Equity holders of the parent		177	857
Earnings per share
- Basic (pence)		0.04p	0.19p
- Diluted (pence)		0.04p	0.18p
All amounts relate to continuing activities.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME  for the year ended 30 April 2012April 2012
	2012	2011
	£'000	£'000
Profit for the year	177	857
Foreign exchange losses on retranslation of overseas operations	-	(8)
Total comprehensive income for the year	177	849
Attributable to:
- Equity holders of the parent	177	849

CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 30 April 2012 Company number: 3339998
ASSETS Non-current assets			Note	2012 £'000		2011 £'000 (Restated)		2010 £'000 (Restated)
Property, plant and equipment			10	709		788		730
Intangible assets			11	10,699		10,142		9,313
Total non-current assets				11,408		10,930		10,043
Current assets
Inventories			14	1,520		1,469		1,503
Trade and other receivables			15	2,373		2,885		2,402
Cash and cash equivalents				2,100		1,295		1,861
Total current assets				5,993		5,649		5,766
Total assets				17,401		16,579		15,809
LIABILITIES
Current liabilities
Trade and other payables			16	3,535		2,936		2,958
Other short term borrowings			17	2,147		1,752		1,962
Corporation tax liability				4		-		160
Provisions			21	81		117		123
Total current liabilities				5,767		4,805		5,203
Non-current liabilities
Long term borrowings			18	424		486		68
Provisions			21	84		84		100
Deferred tax			22	324		454		412
Total non-current liabilities				832		1,024		580
Total liabilities				6,599		5,829		5,783
TOTAL NET ASSETS				10,802		10,750		10,026
Capital and reserves attributable to equity holders of the company
Share capital			23	4,504		4,504		4,504
Share premium reserve			24	502		502		502
Merger reserve			24	801		801		801
Foreign exchange difference reserve			24	(175)		(175)		(167)
Retained earnings			24	5,130		5,078		4,346
				10,762		10,710		9,986
Non-controlling interest				40		40		40
TOTAL EQUITY				10,802		10,750		19,026
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 April 2012
		2012			2012		2011		2011
		£'000			£'000		£'000		£'000
Cash flow from operating activities
Net profit after tax		177					857
Adjustments for:
Depreciation and amortisation		913					616
Interest expense		127					102
Income tax credit		(115)					(151)
Operating cash flows before changes in working capital		1,102					1,424
Decrease/(increase) in trade and other receivables		403					(375)
Decrease in inventories		(51)					34
Increase in trade and other payables		568					109
Cash generated from operations					2,022				1,192
Income taxes received/(paid)					92				(78)
Cash flows from operating activities					2,114				1,114
Cash flow from investing activities
Payments for property, plant & equipment		(136)					(203)
Sale of property, plant & equipment		1					6
Research & development expenditure		(1,131)					(1,108)
Acquisition of subsidiary		-					(156)
					(1,266)				(1,461)
Cash flow from financing activities
Proceeds loan notes		105					-
Proceeds new bank loan		-					450
Repayment of bank loans		(96)					(210)
Repayment of finance lease creditors		(135)					(126)
Dividends paid		(124)					(125)
Interest paid		(127)					(102)
					(377)				(113)
Increase/(decrease) in cash and cash equivalents					471				(460)

         CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital	Share premium	Merger reserve	Foreign exchange reserve	Retained earnings	Minority interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
1 May 2010	4,504	502	801	(167)	4,346	40	10,026
Dividends	-	-	-	-	(125)	-	(125)
Total comprehensive income	-	-	-	(8)	857	-	849
30 April 2011	4,504	502	801	(175)	5,078	40	10,750
1 May 2011	4,504	502	801	(175)	5,078	40	10,750
Dividends	-	-	-	-	(125)	-	(125)
Total comprehensive income	-	-	-	-	177	-	177
30 April 2012	4,504	502	801	(175)	5,130	40	10,802

1.                 Basis of preparation

The financial information set out above for the years ended 30 April 2012 and 2011 does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 30 April 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting.  The auditors have reported on those accounts. The auditors' reports were unqualified and did not contain statements under s.498 (2) or (3) Companies Act 2006. The results have been prepared using accounting policies consistent with those used in the preparation of the statutory accounts.

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"), IFRIC interpretations and the parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Financial Statements have been prepared under the historical cost convention.

The preparation of Financial Statements in conformity with IFRS require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information, including the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

The Directors have restated the prior year classification of assets and liabilities to split out positive cash balances offset against the bank overdraft within other short term borrowings. The April 2011 cash and cash equivalents balance has increased by £1,295,000 and the ther short term borrowings balance has increased by the same amount. There is no impact on the consolidated income statement for the year ended 30 April 2011.

	2012	2011
	£’000	£’000
Numerator
Earnings used in basic and diluted EPS – continuing operations	177	857
Denominator	No.	No.
Weighted average number of shares used in basic EPS – continuing and discontinued operations	450,432,316	450,432,316
Effect of employee share options	-	19,800,000
Weighted average number of shares used in diluted EPS	450,432,316	470,232,316

Certain employee options have been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the year (i.e. they are out-of-the-money) and therefore it would not be advantageous for the holders to exercise those options. The total number of options in issue is disclosed in note 26.

The basic earnings per share before legal costs 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 earnings per share as follows:

	2012 pence	2011 pence
Basic earnings per share (pence) - basic	0.04	0.19
Legal costs	0.04	0.01
Earnings per share before legal costs - basic	0.08	0.20
	2012	2011
	£'000	£'000
Reconciliation of earnings
Profit used for calculation of basic earnings per share	177	857
Legal costs	176	40
Earnings before legal costs	353	897

3.                 Dividends

The directors are not proposing a final dividend (2011:0.0275 pence per share) totaling £NIL (2011: £125,000).

- Ends -

 

END

 

 

FR SSUFWEFESELA