Final Results

RNS Number : 8767M

Newmark Security PLC

19 September 2019

 

Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).

19 September 2019

Newmark Security plc

("Newmark" or the "Group")

Preliminary Results for the year ended 30 April 2019

Newmark Security plc (AIM: NWT), a leading provider of electronic and physical security systems, today announces its audited results for the year ended 30 April 2019.

Financial highlights:

·      Turnover from continuing operations was £19.6 million (2018: £16.0 million), an increase of 22%

·      Gross margin from continuing operations before exceptional items increased to 39.7% (2018: 36.1%)

·      Cost of sales within the consolidated income statement includes an exceptional provision for redundancy  costs of £60k (2018: exceptional provision for impairment of development costs £698k)

·     Gross margin from continuing operations after exceptional items increased to 39.3% overall (2018: 31.7%)

·      Profit from continuing operations before exceptional items was £644k (2018: Loss £1,039k)

·   In addition to the exceptional items included within cost of sales there were £292k (2018: £140k) of exceptional redundancy costs included within administrative expenses

·      Profit from continuing operations after exceptional items was £292k (2018: Loss of £1,877k)

·      Earnings per share of 0.04 pence (2018: Loss per share 0.40 pence)

·      Cash generated from operations was £405k (2018: cash outflow £195k)

Operational highlights

·      Sateon revenue increased by 8.9%, whilst the decline in revenue from the legacy Janus platform of 2.9% was lower than in the previous period.

·    Revenues from Human Capital Management (HCM) increased by 67.8% including a 167% rise in US revenues, which benefited from new supply agreements signed in the previous year.

·   Towards the end of the year, the new platform Janus C4 was released. This Integrated Security Management and Access Control product provides a single-platform, multi discipline solution.

·      Within the asset protection division, revenue increased by 6.3%, including a 17.9% rise in sales within the service division as bank branch upgrade work continued. Revenue in the products division decreased by 1.3% as banks and building societies moved from fortress counters to open plan branches.

Commenting on the results, Maurice Dwek, Chairman of Newmark, said "It has been a turnaround period for the Group and I am pleased to report the return to profitability in the year. The Board thanks all shareholder for their patience over what has been a challenging few years".

Annual Report and Notice of AGM

The Company's Annual Report and Accounts is being posted to shareholders this week and will be made available on the Company's website www.newmarksecurity.com. It will contain notice of the annual General Meeting of the Company to be held at 11 a.m. on 18 October 2019 at Hard Rock Hotel, Green 3 Meeting Room, Great Cumberland Place, London W1H 7DL.

For further information:

Newmark Security PLC
Marie-Claire Dwek, Chief Executive Officer	Tel: [phone]
Brian Beecraft, Finance Director	www.newmarksecurity.com

Allenby Capital Limited (Nomad & Broker)
James Reeve/ Liz Kirchner	Tel: [phone]

Chairman's Statement

Overview

Newmark is a leading provider of electronic and physical security systems through its subsidiaries, Grosvenor Technology Limited and Safetell Limited which are UK based and Grosvenor Technology LLC which is based in the US. All companies have a well-established customer base. The Group aims to help address some of the major challenges facing corporations in an environment of ever-increasing global security concerns, as well as helping to reduce carbon output and meet sustainability goals.

The Group strategy is focused on delivering growth through the development of new products and services, often supporting country specific customer requirements.

Group revenue for the year from continuing operations was £19,583k (2018: £16,052k). In last year's annual report the Board expressed the view that there should be revenue growth in the electronic division during the year under review following the completion of two major new supply agreements and that this would result in improved financial results. The Board is pleased to announce a return to profitability in the year.

Revenue in the electronic division (Grosvenor) increased by 37.9 % from £7,960k to £10,979k. As in previous years, the decline in the legacy Janus range of access control products has been compensated for by the growth in the Sateon range. Overall sales of access control increased by 6.0%. Sales of Human Capital Management globally increased by 67.8%, driven by additional sales relating to announcements made during the period regarding supply agreements to strategic partners and organic growth, particularly in the US business.

Revenue in the asset protection division (Safetell) increased by 6.3% from £8,092k to £8,604k with a 1.3% decrease in products sales mainly due to reduced revenue from high street banks and building societies. Revenue from the service business however increased by 17.9%.

Profit from operations for the year from continuing operations before exceptional items was £644k (2018: loss £1,039k). There were exceptional items in the year for redundancy costs of £352k (2018: £140k) and last year there was also an impairment provision of development costs of £698k. The impairment of development costs related to amounts previously capitalised for older versions of the Sateon platform which had been superseded. Profit from continuing operations after exceptional items was £292k (2018: loss £1,877k). In addition the remaining costs net of taxation of the Hong Kong office closed previously has been included in the consolidation income statement as a discontinued operation of £6k (2018: £113k).

A full financial review of the results for the year is included within the Strategic Report set out below.

Dividend

The Board has not recommended the payment of a dividend for the year ended 30 April 2019 (2018: £Nil).

Directors

Brian Beecraft is retiring on 31 October after 21 years with the Group. The Board would like to thank him for his tremendous efforts over that period and wish him a happy retirement. Graham Feltham has joined the Company and will be appointed as Group Finance Director from Brian's retirement. The Board is pleased to welcome Graham to the Group.

Employees

The Board would like to express its appreciation to all staff for their continuing efforts during the year.

Outlook

In the electronic division, the trend to generating more revenues from its HCM activities is set to be maintained, particularly as the long-anticipated growth in sales in North America continues. The Board believes that there will be medium-long term growth in both the divisions' core markets and it is expected that revenues will continue to grow in the recently launched Janus C4 Access Control offering.

In both Access Control and HCM, the ambition remains to generate a greater proportion of recurring revenues. In the short-medium term, it is likely that this will be more prevalent in the HCM sector where provision of Software- as-a-Service (SaaS) will increase in the future from the modest levels in 2018/19 resulting from  this new development, particularly as the divisions' value-add in terms of data protection is recognised by new and existing partners.

The asset protection division will benefit from the recent restructuring in the future. The products division will concentrate on increasing the range of physical security products with continued product development and certification. The development of staff remains at the heart of this strategy within the service division as the UK based team of field-based technicians supports an increasing number of third party products not related to Safetell's traditional core business. Additional resources have been deployed to bolster a sales and marketing effort to pursue this strategy and early stage negotiations with potential partners are initially positive.

The Board is encouraged by the Group's return to profitability and looks forward to the remainder of the current year with confidence.

M DWEK

Chairman

18 September 2019

 

Strategic Report

Business model

The Group is principally engaged in the design, manufacture and supply of products and services for the security of assets and personnel. The Group manages its operations through two divisions: Grosvenor Technology, its electronic division, and Safetell, its asset protection division.

The electronic division comprises two main product streams, being the design and distribution of:

•        access control (AC) systems (hardware and software); and

•        human capital management (HCM) hardware for time-and-attendance, shop-floor data collection, and access control systems.

Both activities have their own design teams creating products to meet the demands of their own markets and the specific needs of customers. That said, the business increasingly sees synergies between the two lines of business as end user needs are driving convergence of both access control and human capital management. In addition, centralised sales and marketing, purchasing, dispatch and finance functions supplement the requirements of both activities. Manufacturing is mainly performed by external contractors using our intellectual property.

The majority of our access control customers are security installation companies dealing directly with end users. For HCM equipment, the majority of our customers are value-added resellers (VARs) dealing with either installation companies or end users. The division also has the capability to work on special projects directly with end users, assisting with the design and specification of systems to meet specific customer requirements. These tend to be larger contracts where the end user needs to ensure that their specifications are fully met.

The asset protection division comprises two main product streams:

•        Design and installation of fixed and reactive security screens, reception counters, cash management systems and associated physical security equipment; and

•        Service and maintenance of the above equipment, as well as CCTV systems, automatic door operators, locks and other 3rd party equipment utilising a national network of security vetted installers.

The certified security products provide protection for staff and customers against the four main forms of security: risk, namely physical attacks and abuse, bombs and blasts from explosive devices, protection against gun attacks, and fire resistant protection incorporated within the products mentioned previously.

Each security risk requires unique products which are not always interchangeable and Safetell works with customers, security consultants and certification bodies to design, develop and test products to ensure their suitability and provision of effective protection.

Safetell's work is mainly project based and each project has its own customer specific needs and requires close co-operation with architects and security consultants to develop cost effective security solutions.

Safetell has forged key relationships with suppliers of other security products that complement its own range of products to provide a complete security solution to customers and will continue to seek and develop suitable security products to provide a single source supply of security products on projects.

Customers of the asset protection division range from leading blue-chip organisations to single sites, including banks and building societies, post offices, police forces, railway companies, local authorities and government departments, petrol outlets, hospitals, convenience stores, retailers and supermarket chains. The market varies across the product range.

Key performance indicators
			2018/19		2017/18
			£'000		£'000
Revenue from continuing operations			19,583		16,052
Gross profit before exceptional items from continuing operations			7,765		5,792
Gross profit from continuing operations			7,705		5,094
Gross profit percentage before exceptional items from continuing operations			39.7%		36.1%
Gross profit percentage from continuing operations			39.3%		31.7%
Financial review
Revenue in the year was again £19.6m analysed as follows:
					Increase/
	2018/19		2017/18		(decrease)
	£'000		£'000
Electronic division
Access control	4,071		3,842		6.0%
Human capital management	6,908		4,118		67.8%
Total electronic division	10,979		7,960		37.9%
Asset protection division
Products	4,810		4,874		(1.3%)
Service	3,794		3,218		17.9%
Total asset protection division	8,604		8,092		6.3%
TOTAL	19,583		16,052		22.0%

There has been some overall improvement in gross margin in the year but those margins vary across product lines and customers.

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

Electronic division (Grosvenor Technology)

Human Capital Management (HCM)

Revenues from HCM increased by 67.8% from £4,118k to £6,908k. The split we identified between North American and other HCM solutions providers, in terms of their specific needs and drivers, continues. This has allowed the business to be much more tailored in its approach to each market and that strategy continues to bear fruit.

In the US, where the HCM sector (and consequently each of its sub-sectors) is larger, growth has been aided by increasing the scope of services offered, particularly in the areas of data protection and management. HCM providers are now choosing Grosvenor to provide a range of services on a subscription Software-as-a-Service (SaaS) basis and this is expected to increase revenues from the modest levels achieved since it's inauguration in late 2018/19. These services allow our clients to add greater value to their end-user clients and better aligns our commercial model with that of our customers' downstream sales model, which itself is often on a subscription basis.

Elsewhere, the HCM sector remains less mature and of smaller scale. In Europe, for example, HCM providers often look to adjacent technology sectors to allow them to offer additional services downstream. Grosvenor's Access Control line of business has been a further driver of revenues within the HCM customer base as synergies between the product and services offerings have facilitated our cross-sale approach.

US revenues increased by 167% to £4,515k (2018: £1,689k) and has provided the most success and opportunities. While data-collection edge devices (hardware) remain at the heart of the offering, our data protection and edge-device management software services are becoming increasingly important in the purchase decision criteria of our clients.

In the rest of the world, HCM revenues remained broadly constant at £2,393k (2018: £2,429k). There were no significant major end-user projects, which have been a feature of prior periods, but organic growth was shown across the majority of existing clients. Negotiations began with several large HCM providers based in Europe and Australia, with a view to providing a range of hardware and software as a service, and those negotiations will continue into the current financial year.

The US continues to provide exciting opportunities for both software and hardware sales and is expected to continue to grow in the current financial year. Investment in the region continues to be increased and it is anticipated that both headcount and market will be increased in the forthcoming periods to ensure this opportunity is realised.

Access Control (AC)

Overall, AC revenues increased 6.0% to £4,071k (2018: £3,842k).

As reported last year, the legacy Janus platform has now been retired and the End-User upgrade programme to the later Sateon platform has now been completed. The decline in Janus revenues, however, was less pronounced than in the previous period, with sales at £1,218k (2018: £1,254k), a decrease of 2.9%. Revenues are expected to continue to decline in future periods in line with the reduced demand for the legacy hardware.

Following the trend seen in previous periods, Sateon revenues grew 8.9%, reaching £2,818k (2018: £2,588k). As anticipated, the final release of this AC platform was made available during the year and no further development is being carried out other than essential maintenance. The focus is now on maintaining revenues at the current level with existing customers.

Towards the end of the financial year Grosvenor released its new platform Janus C4, an Integrated Security Management and Access Control product aimed at the increasing industry demand for single-platform, multi- discipline solutions. The software was developed in collaboration with a third party  company and utilises the Grosvenor Advance hardware that has proved successful on the Sateon platform.

Asset Protection Division (Safetell)

Revenue in the year increased by 6.3% to £8,604k (2018: £8,092k) analysed as follows:

					Increase/
	2018/19		2017/18		(decrease)
	£'000		£'000
Products	4,810		4,874		(1.3%)
Service	3,794		3,218		17.9%
Total	8,604		8,092		6.3%

Safetell increased revenue by 6.3% with products revenue declining only slightly despite increased competition and depletion of traditional niche products. The sales of products to public sector markets continued to be affected by a lack of investment as a direct result of budgets cuts and Brexit uncertainty. As the market contracted, we experienced increased pressure from customers to reduce prices whilst we saw an increase in the number of competitors.

Products division

Products revenue decreased by 1.3% with revenue from high street banks and building societies decreasing by 33.4% and 23.8% respectively compared to last year as they move away from fortress counters to open plan branches. Revenue from sales of time delayed cash handling equipment to the Post Office increased 16.7% due to orders received as part of the Post Office's Network Development Programme. As this programme is completed, this revenue stream will reduce. Revenue from other cash handling sales increased as a result of a programme of work for a long-term customer. Revenue from sales of Security Doors decreased by 17.5% as our work is project based and we are reliant on customers and markets having programmes of work. All other product groups decreased by 7%. As in the previous year, revenue was characterised by numerous small projects with the absence of larger longer-term high value projects and, like the Service Division, continued to be affected by branch closures in the banking sector.

As a result of declining sales in this division and the lack of repeat programmes of refurbishment from our long- term and traditional customers, a business reconstruction plan was implemented in the last quarter of the year and resulted in staff reduction and other cost saving measures. Unprofitable customers and product groups have been removed and increased marketing efforts will concentrate on sales of supply only products and projects that fall within Safetell's traditional product offering. As part of the cost savings, the Kempston warehouse has been closed and plans are in place to consolidate the warehouse and main offices in Dartford which will be completed by the end of December 2019.

Despite developing new products that are certified to UK security standards, sales of counter terror security equipment for staff and customer protection have not increased and the lack of sales is due to reduced spending by Corporate and Public sectors as a result of continued uncertainty caused by Brexit. However, we believe that product certification to UK security standards is important to maintain as the standards are updated as security risks change and this ensures that the Safetell product range provides protection against all the latest security threats and forms of attack. Safetell provides its products predominately to the UK market and these standards are favoured ahead of European and other international security standards and certification. In anticipation of this, Safetell will continue with its programme of selected product certification for bullet, blast and manual attack. Product margins continue to be affected by the increased costs of raw materials and imported components and we expect this trend to continue.

Service division

The Service Division continued its bank branch upgrade work and delivered sales 17.9% higher than those reported last year. This was against a backdrop of a general reduction in bank and building society sites in the high street. Overheads were reduced by 1.7% as the business managed its field resource with less head office involvement now that the Enterprise Resource Planning ("ERP") system has been fully embedded. Margins were slightly diminished by two percentage points as a result of entering new markets which are non-niche and consequently more competitive. The strategy going forward continues to be to develop within new markets and resource has been introduced to further these aims.

Taxation

The tax charge for the year reflects the operating profit for the year and the partial utilisation of losses brought forward.

Statement of financial position and cash flow

Development costs continued to be capitalised in accordance with the accounting policy and the development costs within intangible assets on the balance sheet were £24k higher than the previous year with capitalised expenditure of £333k partly offset by amortisation of £309k.

Inventories increased from £1,608k to £2,599k due to the requirement to hold stock in an escrow account under one of the new supply agreements and the requirement to purchase stock and build finished goods for sales after the year end.

Trade receivables were £140k higher than the previous year reflecting both the timing of the increased revenue and the timing of payments by customers across the two divisions.

Trade payables increased from £1,066k to £1,565k as a result of the increased stock holding referred to above.

Overall net assets increased from £6,924k to £7,114k.

Cash inflow from operating activities for the year was £360k (2018: outflow £195k), reflecting the improved trading result for the year and the movements in working capital referred to above. Overall there was a decrease in cash and cash equivalents of £29k (2018: £297k) as a result of investment in intangibles to support new products, offset partially by funds from the invoice discounting facility and capital expenditure acquired on hire purchase.

Basic earnings per share from continuing operations are shown in the income statement as 0.04 pence (2018: basic loss per share 0.38 pence).

Divisional Strategy

Electronic division

Grosvenor is focused on delivering growth through the development of new products providing customers with business efficiency, peace of mind and flexibility through innovative technology. Our multi-regional exposure to customer needs informs both product design and ongoing product maintenance.

Grosvenor's diverse and evolving edge device product portfolio, of both access control and human capital management hardware solutions, means we are well positioned to capitalise on the crossover between these two aspects of electronic and data security. Continued investment ensures that the company stays at the forefront of this marketplace.

Long term strategies are in place to increase recurring revenues through the provision of more cloud-based services on an ongoing basis, particularly in the HCM sector. It is expected that this will deliver greater shareholder value over time as both quantity and quality of earnings increase through this strategy.

Grosvenor is well positioned with a roadmap which builds on our core competencies of technical excellence, agility and customisable products. With focus on HCM markets in the US, Europe, the Middle East and Africa ("EMEA") and access control generally, we are leveraging market growth and emerging trends and opportunities driven by both legislative and technological change.

HCM

Cloud and Software Platforms

Across 2018 and 2019 to date, Grosvenor continued to invest in developing the Cloud SaaS Platform - 'GT Services'. Utilising Microsoft's 'Azure' Cloud PaaS (Platform as a Service), GT Services offer a highly secure and scalable platform to manage Grosvenor Time Clocks, securely enrol, transmit/disseminate and store Personal Identifiable Information including Biometric Templates ('PII'). GT Services encompasses a powerful set of Clock and Data management tools to remotely provision, configure, manage and maintain Clocks. This significantly lowers the cost of ownership, providing users with proactive service irrespective of geography.

Our connected GT Services SaaS platform offers existing partners a compelling migration option from legacy 'on premise' solutions. Usage data collected from these edge devices provides analytical data and metrics on product usage, driving proactive maintenance and product roadmap design.

A key industry driver is currently, and is likely to remain, the regulation and legislation around PII. As the proliferation of biometric data-capture continues, how this data is treated remains an evolving situation. The EU and other regions operating under General Data Protection Regulation ('GDPR') currently has one standard approach to handling PII. The US however, has varying legislation on a state-by-state basis, thus causing significant challenges for HCM practitioners operating 'cross-state'.

Over the current financial year, Grosvenor will continue to invest in the development of the GT Services platform focusing on key pain points for our channel partners of PII security and regulatory compliance with GDPR and state-by-state biometric legislation in the US. This will offer key features such as recording consent of PII enrolment, encrypted storage and transmission of PII and tools to both facilitate information requests and erasure of unwanted PII. Grosvenor is now focusing all development of these services into Cloud based GT Services and as a result will no longer develop legacy on premise solutions.

The GT Services platform to be developed over the current financial year will build on this and offer a solution onto which future value-added services will be added. This abstracted and extensible approach offers an almost unlimited ability to integrate with other HCM partners' software solutions, through Cloud to Cloud or Cloud to On Prem mechanisms. Putting security, redundancy and flexibility at the core of this platform is key to its broad appeal as a vehicle for partner value added solutions.

Hardware Platforms

Grosvenor also continues to invest in developing its range of Time Clocks and this remains a key pillar of HCM growth strategy. The GT10 Android based platform has seen significant success and Grosvenor continues to build out the value-added software suite which accompanies the Android clock.

The GT4 mid-range Linux offering will be launched in the second quarter of 2019. This will offer a significantly enhanced user experience, capacity and performance gain over the IT31 which it supersedes, and which will be discontinued in due course.

Grosvenor believes that the innovative approach being taken to managing this connected estate of edge devices also offers significantly improved performance and data security whilst reducing production costs. This strategy intertwines with the business's desire to transition to a SaaS business model as customers increasingly derive additional benefit from having Grosvenor hardware continuously cloud connected.

Access Control

Software Platforms - Janus C4

In February 2019, Grosvenor launched the Janus C4 Access Control product. This Integrated Security Solution comes to the market with several key innovations, designed to provide an open integration platform with highly extensible architecture. This is fast following a growing industry trend to extend traditional 'narrow' Access Control solutions to broader integrated security management systems.

Access Control Hardware Platforms - Advance

The Advance hardware platform remains a key pillar in Grosvenor's Access Control offering. The Advance hardware platform is modular and multipurpose and now spans several distinct Grosvenor Access Control software offerings; Sateon Advance, Janus C4 and Cloud Enabled OEM variant.

The Advance hardware platform, with embedded Linux operating system has enabled Grosvenor to develop powerful "Open Protocol" industry standard Rest Application Programmer Interfaces ('API's) for third party integration. This facilitates support for the latest secure Open Supervised Device Protocol ('OSDP'). OSDP is the most contemporary and secure encrypted and performant reader solution available in the global Access Control market. Janus C4 and Advance OEM both fully support the OSDP standards.

Another key development for the current financial year includes built-in RS485 Protocol communications to support legacy wiring infrastructure, thus making the solution capable of being retrofitted into existing legacy buildings as well as the very latest "IP" or "Cloud" infrastructures.

Asset protection division

Safetell is one of the industry leaders with a number of high-demand physical security products and is well placed to service this market. The market for physical security products and services is stagnant as a direct result of the uncertainties created by the prolonged Brexit negotiations, despite the ever-increasing threat of terrorism and crime,that should place security high on the priority list for both the Public and Private sector clients. Safetell will use this lull in the market to consolidate resources and staff, review products and service offerings and update product certification to ensure readiness for a return to normal after the UK's proposed exit from the European Union.

Safetell intends to develop a strategic business model based on a continuous improvement of skills and processes and apply all requirements of its quality and environmental policies. The company's policy is to maintain the highest standards of product quality, meeting statutory and regulatory requirements by the control of its sales, purchasing, production, delivery, installation and service activities.

Safetell has developed a risk-based strategy which has been deployed, and along with identifying the owners of the risks, the company is able to quantify the levels of risk and the potential outcomes, if those risks were to materialise. All identified risks are monitored and managed by the company directors, senior management and process owners.

The strategy for the company is to broaden the customer base and product range and focus on security solutions encompassing all product groups. Safetell already has a well-established blue-chip customer list, particularly in the banking and finance sector, but aims to extend to other sectors whilst at the same time offering a greater range of products within existing sectors. Specifically, Safetell will seek to address supermarket and retail chains particularly with ATM security related products, blast and ballistic proof doors and walls, and fire resistant doors. With the increase in terrorism in the UK, products have been developed and certified with the government CPNI blast resist ant programme and existing products have been recertified to the latest BSEN 1522/23 (1999) ballistic standards. A programme of product certification with The Loss Prevention Certification Board (LPCB) will be completed in the current year, ensuring these products comply with the latest UK manual attack resistant standards. Due to the high cost of certification and testing, Safetell has entered into strategic partnerships with manufacturers of various additional security products manufactured within the UK and in Europe. Although these products are applicable to counter terrorism applications, the products are marketed to existing customers and markets who wish to strengthen their security and provide increased safety to staff.

Principal risks and uncertainties

 

Sales of new products

The Group has incurred substantial strategic expenditure on new developments within the electronic division, based on market intelligence but a risk exists due to the dynamic nature of the market itself. The Group mitigates this risk by carrying out customer trials and ascertaining features required by customers.

Service agreements

The majority of service revenues within the asset protection division are from 1 to 3 year service agreements and there is the risk that these may not be renewed. The company has service level agreements with these customers which are closely monitored and holds regular meetings with those customers to check on their satisfaction levels. If the service agreements are not renewed it is likely that those customers would still require our services but would be charged on a call out basis.

Market conditions

The asset protection division product range is targeted at both the private (particularly financial, retail and construction sectors) and the public sector. Customer refurbishment programmes within the financial sector continue to act as an underlying positive trend for demand for many of the division's products. Our business is reliant on the timing of customer programmes and there is a risk that these may be delayed. The division mitigates this risk by offering a wide range of product offerings, continuous new product development and maintaining a close working relationship with its customers so that we are aware of any potential delays. The continuing uncertainty over the possibility of Brexit continues to affect the budgets of customers and consequently the level of our order books.

Input prices and availability

Operating performance is impacted by the pricing and availability of its key inputs, which include electronic components, steel and security glass. The pricing of such inputs can be quite volatile at times due to supply and demand dynamics and the input costs of the supply base. The Group manages the effect of such demands through a rigid procurement process, long-term relationships with suppliers, economic purchasing, multiple suppliers and inventory management. Prices of imported products and components from the EU have continued to be affected after the Brexit vote as a result of the fall in value of the pound and this uncertainty continues.

The Board have been reviewing the potential impact of Brexit including looking at alternative sources of supply, as well as increasing stock levels in the short term until the outcome of the current negotiations becomes clearer. With this continuing uncertainty concerning the possible impact of the value of sterling and import tariffs following the conclusion of these negotiations, the Board continues to monitor the situation and the risks involved.

Quality control

There is the potential for functional failure of products when put to use, thereby leading to warranty costs and damage to our reputation. Quality control procedures are therefore an essential part of the process before the product is delivered to the customer. With the support of external auditors, the quality control systems are reviewed and improved on an on-going basis to ensure that the Group is addressing through a certification process which is undertaken by a recognised and reputable authority before being brought to market.

Approval

This Strategic Report was approved by order of the Board on 18 September 2019.

By order of the Board

CONSOLIDATED INCOME STATEMENT for the year ended 30 April 2019
		2019		2018
	Note	£'000		£'000
Revenue		19,583		16,052
Cost of sales (including: £60,000 exceptional redundancy cost  (2018: including £698,000 exceptional development cost impairment))		(11,878)		(10,958)
Gross profit		7,705		5,094
Administrative expenses (2019: including £292,000 exceptional redundancy costs (2018: £140,000))		(7,413)		(6,971)
Profit/(loss) from operations before exceptional items		644		(1,039)
Exceptional impairment provision of development costs		-		(698)
Exceptional redundancy cost		(352)		(140)
Profit/(loss) from operations		292		(1,877)
Finance costs		(72)		(50)
Profit/(loss) before tax		220		(1,927)
Tax (charge)/credit	3	(25)		172
Profit/(loss) for the year from continuing operations		195		(1,755)
Loss of discontinued operation net of tax		(6)		(113)
Profit/(loss) for the year		189		(1,868)
Attributable to:
- Equity holders of the parent		189		(1,868)
Earnings/(loss) per share
- Basic (pence)		0.04p		(0.40p)
- Diluted (pence)		0.04p		(0.40p)
Earnings/(loss) per share from continuing operations
- Basic (pence)		0.04p		(0.38p)
- Diluted (pence)		0.04p		(0.38p)

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME    for the year ended 30 April 2019
	2019	2018
	£'000	£'000
Profit/(loss) for the year	189	(1,868)
Items that will or may be reclassified to profit or loss:
Foreign exchange gains on retranslation of overseas operations	1	(8)
Total comprehensive income for the year	190	(1,876)
Attributable to:
- Equity holders of the parent	190	(1,876)

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 30 April 2019
		2019	2018
		£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment		491	378
Intangible assets		4,753	4,734
Total non-current assets		5,244	5,112
Current assets
Inventories		2,599	1,608
Trade and other receivables		3,262	2,834
Cash and cash equivalents		1,041	1,069
Total current assets		6,902	5,511
Total assets		12,146	10,623
LIABILITIES
Current liabilities
Trade and other payables		3,987	3,051
Other short term borrowings		796	491
Total current liabilities		4,783	3,542
Non-current liabilities
Long term borrowings		149	53
Provisions		100	100
Deferred tax		-	4
Total non-current liabilities		249	157
Total liabilities		5,032	3,699
TOTAL NET ASSETS		7,114	6,924
Capital and reserves attributed to equity holders of the company
Share capital		4,687	4,687
Share premium reserve		553	553
Merger reserve		801	801
Foreign exchange difference reserve		(132)	(133)
Retained earnings		1,165	976
		7,074	6,884
Non-controlling interest		40	40
TOTAL EQUITY		7,114	6,924

 

CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 April 2019
	2019	2019	2018	2018
	£'000	£'000	£'000	£'000
Cash flow from operating activities
Net profit/(loss) after tax	189		(1,868)
Adjustments for:
Depreciation, amortisation and impairment	619		1,582
Net interest expense	72		50
Gain on sale of property, plant and equipment	(32)		(21)
Income tax credit	25		(80)
Operating cash flow before changes in working capital	873		(337)
(Increase)/decrease in trade and other receivables	(414)		453
(Increase)/decrease in inventories	(991)		38
Increase/(decrease) in trade and other payables	937		(349)
Cash generated from operations		405		(195)
Income taxes paid		(45)		-
Cash flows from operating activities		360		(195)
Cash flow from investing activities
Payments for property, plant & equipment	(196)		(1,576)
Sale of property, plant & equipment	53		1,525
Capitalised intangible assets	(333)		(368)
		(476)		(419)
Cash flow from financing activities
Proceeds from bank loan	-		840
Repayment of bank loan	-		(840)
Repayment of finance lease creditors	(87)		(80)
Proceeds from invoice discounting	246		447
Net interest paid	(72)		(50)
		87		317
Net decrease in cash and cash equivalents		(29)		(297)
Cash and cash equivalents at beginning of year		1,069		1,370
Exchange gain on cash and cash equivalents		1		(4)
Cash and cash equivalents at end of year		1,041		1,069
			2019	2018
			£'000	£'000
Cash and cash equivalents for purposes of the statement of cash flow comprises:
Cash available on demand			1,041	1,069
Significant non-cash transactions are as follows:
Financing activities
Assets acquired under finance leases			242	-

 

	CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
		Share capital	Share premium	Merger reserve	Foreign exchange reserve	Retained earnings	Amount attributable to owners of parent	Non-controlling interest	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
1 May 2017		4,687	553	801	(125)	2,844	8,760	40	8,800
Loss for the year		-	-	-	-	(1,868)	(1,868)	-	(1,868)
Other comprehensive income		-	-	-	(8)	-	(8)	-	(8)
Total comprehensive loss for the year		-	-	-	(8)	(1,868)	(1,868)	-	(1,876)
30 April 2018		4,687	553	801	(133)	976	6,884	40	6,924
1 May 2018		4,687	553	801	(133)	976	6,884	40	6,924
Profit for the year		-	-	-	-	189	189	-	189
Other comprehensive income		-	-	-	1	-	1	-	1
Total comprehensive income for the year		-	-	-	1	189	190	-	190
30 April 2019		4,687	553	801	(132)	1,165	7,074	40	7,114

 

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 April 2019

1. Basis of preparation

The financial information set out above for the years ended 30 April 2019 and 2018 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 2018 have been delivered to the Registrar of Companies and those for 2019 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 EU endorsed International Financial Reporting Standards (IFRSs) and its interpretations (IFRICs) issued by the International Accounting Standards Board (IASB) and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS.

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of income and expenses, and assets and liabilities. These judgements and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the judgements about carrying values of assets and liabilities. Actual results may differ from these estimates.

These estimates and underlying assumptions are reviewed on an ongoing basis. Any revisions to the accounting estimates are recognized in the period in which revision is made.

2. New standards, interpretations and amendments effective from 1 May 2018

New standards impacting the Group that have been adopted in the Group annual financial statements for the year ended 30 April 2019, and which have given  rise to changes in the Company's accounting policies are:

•           IFRS 9 Financial Instruments (IFRS 9); and

•           IFRS 15 Revenue from Contacts with Customers (IFRS 15)

IFRS 9 has introduced a new classification approach for financial assets and liabilities. The categories of financial assets are now reduced from four to three categories -measured at amortised cost, fair value through other comprehensive income or fair value through profit and loss. The new classifications have had no difference on measurement as all financial assets and financial liabilities held by the Group remain at amortised cost. The standard also prescribes an "expected credit loss" model for determining the basis for providing for bad debts. The Group applied the fully retrospective transition method and concluded that there was no material impact on the Group financial statements due to the adoption of IFRS 9.

IFRS 9 has introduced a new impairment model which is applicable for financial assets including inter-company debtors for the parent company. Applying this to the financial assets held, there has been no change to the level of provisions applied.

IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Effective for periods beginning on or after 1 January 2018, IFRS 15 has superseded the previous revenue recognition guidance including IAS 18 revenue, IAS 11 construction contracts and the related interpretations. Based on management's review of IFRS 15 under the fully retrospective transition method, revenue recognition under IFRS 15 is materially consistent with previous practice for the Group's revenue recognition and there was no material impact on the financial statements due to the adoption of IFRS 15.

Under IAS 18, revenue was recognised at the point that the risks and rewards were transferred to the customer. Management have performed an assessment of the contracts for all revenue streams as IFRS 15 requires an assessment to the distinct performance obligations and when control passes to the customer. It has been concluded that the point the control passes to the customer is the same as risks and rewards under IAS 18 and, therefore, there is no impact on the figures or the timing of recognition of revenue.

New standards, interpretation and amendments not yet effective

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. All these standards, with the exception of IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019) are not expected to have a material impact on the Group.

IFRS 16 Leases

Adoption of IFRS 16 will result in the Group recognising right-of-use assets and lease liabilities for all contracts that are, or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the Group does not recognise related assets or liabilities, and instead spreads the lease payments on a straight -line basis over the lease term, disclosing in its annual financial statements the total commitment.

The Board has decided it will apply the modified retrospective adoption method in IFRS 16, and, therefore, will only recognise leases on the balance sheet as at 1 May 2019. In addition it has been decided to measure right--of--use assets by reference to the measurement of the lease liability on that date. This will ensure there is no immediate impact to net assets on that date. At 30 April 2019 operating lease commitments amounted to £1,416k, which is not expected to be materially different to the anticipated position on 30 April 2020 or the amount which is expected to be disclosed at 30 April 2020. Assuming the Group's lease commitments remain at this level, the effect of discounting those commitments is anticipated to result in right--of--use assets and lease liabilities of approximately £1.2m being recognised on 30 April 2020. However further work still needs to be carried out to determine whether and when extension and termination options are likely to be exercised, which will result in the actual liability recognised being higher than this.

Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right--of--use assets. This will increase reported EBITDA by the amount of its current operating lease cost, which for the year ended 30 April 2019 was approximately £465k.

3. Taxation

The tax charge for the year reflects the operating profit for the year and the partial utilisation of losses brought forward.

4. Segment information

Description of the types of products and services from which each reportable segment derives its revenues

The Group has 2 main reportable segments:

•        Electronic division - This division is involved in the design, manufacture and distribution of access-control systems (hardware and software) and the design, manufacture and distribution of HCM hardware only, for time-and-attendance, shop-floor data collection, and access control systems. This division contributed 56.1 per cent. (2018: 49.6 per cent.) of the Group's revenue.

•        Asset Protection division - This division is involved in the design, manufacture, installation and maintenance of fixed and reactive security screens, reception counters, cash management systems and associated security equipment. This division contributed 43.9 per cent. (2018: 50.4 per cent.) of the Group's revenue.

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that offer different products and services. The two divisions are managed separately as each involves different technology, and sales and marketing strategies. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.

Segment assets and liabilities exclude group company balances.
	Electronic	Asset Protection	Total
	2019	2019	2019
	£'000	£'000	£'000
Revenue
Total revenue	10,979	8,604	19,583
Revenue from external customers	10,979	8,604	19,583
Finance cost	50	10	60
Depreciation	87	194	281
Amortisation	314	-	314
Impairment provision	-	-	-
Segment profit before income tax from continuing activities	1,035	321	1,356
Loss before income tax of discontinued operation	(6)	-	(6)
Segment profit before income tax	1,029	321	1,350
Additions to non-current assets	454	310	764
Disposals of non-current assets	-	21	21
Reportable segment assets	9,216	3,113	12,329
Reportable segment liabilities	2,499	1,984	4,483
	Electronic	Asset Protection	Total
	2018	2018	2018
	£'000	£'000	£'000
Revenue
Total revenue	7,960	8,092	16,052
Revenue from external customers	7,960	8,092	16,052
Finance cost	28	5	33
Depreciation	111	214	325
Amortisation	534	-	534
Impairment provision	698	-	698
Segment (loss)/profit before income tax from continuing activities	(1,234)	379	(855)
Loss before income tax of discontinued operation	(21)	-	(21)
Segment profit before income tax	(1,255)	379	(876)
Additions to non-current assets	1,926	16	1,942
Disposals of non-current assets	1,525	-	1,525
Reportable segment assets	7,351	3,214	10,565
Reportable segment liabilities	1,554	1,716	3,270

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities to the Group's corresponding amounts:
	2019	2018
	£'000	£'000
Revenue
Total revenue for reportable segments	19,583	16,052
	2019	2018
	£'000	£'000
Profit or loss before income tax expense
Total profit or loss for reportable segments	1,356	(855)
Parent company salaries and related costs	(596)	(525)
Other parent company costs	(540)	(547)
Profit/(loss) before income tax expense	220	(1,927)
Corporation taxes	(25)	172
Profit/(loss) after income tax expense (continuing activities)	195	(1,755)
	2019	2018
	£'000	£'000
Assets
Total assets for reportable segments	12,329	10,565
PLC (bank overdraft set off against other group cash balances in consolidated figures)	(183)	58
Group's assets	12,146	10,623
Liabilities
Total liabilities for reportable segments	4,483	3,270
PLC	549	429
Group's liabilities	5,032	3,699

	Reportable totals	PLC	Group totals	Reportable totals	PLC	Group totals
	2019	2019	2019	2018	2018	2018
	£'000	£'000	£'000	£'000	£'000	£'000
Other material items
Capital expenditure	764	7	771	1,942	2	1,944
Disposals non-current assets	21	-	21	1,525	-	1,525
Depreciation and amortisation	595	24	619	859	25	884
Impairment of development costs	-	-	-	698	-	698

Geographical information:
	Non-current assets by location of assets
	2019	2018
UK	£'000	£'000
USA	5,243	5,109
	1	3
	5,244	5,112

There were no customers that account for more than 10% of Group revenue (2018: revenue from one customer in the asset protection division totalled £2,005,000).

5.         Dividends

The Directors are not proposing a final dividend (2018: nil pence) .

 

END

 

 

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