Half-year Report

RNS Number : 5021V

Newmark Security PLC

30 January 2017

 

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

30 January 2017

Newmark Security plc

("Newmark", the "Company" or the "Group")

Interim Results

For the six months ended 31 October 2016

Newmark Security plc (AIM: NWT), a leading provider of electronic and physical security systems, is pleased to report today on its unaudited interim results for the six months ended 31 October 2016.

Financials:

·     Revenue of £8.4m (HY 2015: £11.2m)

·     Loss from operations of £816k (HY 2015: profit £765k)

·     Loss per share of 0.17 pence (HY 2015: earnings 0.15 pence)

·     Cash outflow from operating activities was £1.148m (HY 2015: inflow £2.127m).

·     Overall cash outflow in the period was £2.397m (HY 2015:  inflow £1.189m)

·     Cash balance at 31 October 2016: £1.9m (31 October 2015: £5.4m)

Asset Protection Division

·     Revenue decreased by 39.4% from £7.6m to £4.6m, mainly as a result of the anticipated reduced contribution from sales of time delay cash handling equipment to the Post Office

·     Order inflow was lower in the lead up to the Brexit vote as many customers put plans on hold. Following the result of the Brexit vote there was the cancellation of planned work by several customers, including government departments. Other businesses in physical security have encountered similar problems

·     Focus for business development in the division is moving towards counter-terrorism solutions in line with changing global demand for physical security

Electronic Division

·     Revenue increased by 5.2% from £3.6m to £3.8m

·     SATEON revenue increased by 80% whilst JANUS revenues continued to decline in line with expectations

·     The new SATEON version 3.0 software and SATEON Advance hardware were both released post the period end, later than originally anticipated, which affected revenues in H1. Significant revenues from this new release are not now expected until the next financial year

·     In workforce management ("WFM") development resource was focussed on the GT-10 employee terminal, which has now been released

Commenting on the results, Maurice Dwek, Chairman of Newmark, said: 

"In the electronic division, the previous two years have been a period of material investment into new products and this has resulted in two new products having been launched in the second half of the year: the SATEON Advance access control system and GT-10 Android based terminal for workforce management. Both products have been well received and several potentially high volume, early stage enquiries have been received. SATEON Advance was also short-listed for an award at the prestigious Security and Fire Excellence Awards.

"In the asset protection division, business development activities have shifted focus towards the provision of counter-terrorism solutions, where the business is well positioned to drive sales and create new opportunities. This strategy will offset any sector specific downturns as the counter-terror market spans multiple sectors. The Group's expertise in ballistic resistant products will be a key advantage in responding to the rapidly increasing demand for physical security from corporates around the world.

"As previously reported, the Group has been affected by challenging market conditions and has had to navigate a period of economic uncertainty amongst our customers in the UK. This, together with the anticipated decline in sales to the Post Office, resulted in the expectation that the Group would make a loss in the current financial year.

"The Directors have reduced the Group's costs and continue to review its cost structure to improve the financial position going forward. As stated above, a number of new products have now been launched and these have already resulted in some significant interest from customers."

Copies of the interim results for the six months ended 31 October 2016 will shortly be sent to shareholders and will shortly be available on the Company's website www.newmarksecurity.com.

For further information:

Newmark Security plc
Marie-Claire Dwek, Chief Executive Officer Brian Beecraft, Group Finance Director	Tel: [phone] www.newmarksecurity.com
Allenby Capital Limited (Nominated Adviser and Broker)	Tel: [phone]
Jeremy Porter / James Reeve / Liz Kirchner
Yellow Jersey PR Limited	Tel: [phone]
Felicity Winkles / Joseph Burgess / Dom Barretto

CHAIRMAN'S STATEMENT

The Board announces the Group's interim results for the six months ended 31 October 2016.

The consolidated income statement shows a reduction in revenue of 25% from £11,180,000 to £8,368,000. This reduction was derived from the anticipated decrease in sales to the Post Office within the asset protection division, together with the cancellation and deferral of orders by customers in that division, partly due to concerns following the result of the Brexit vote. This reduction in revenue flowed through to the results for the period with a loss from operations of £816,000 (2015: profit of £765,000). Loss per share was 0.17 pence (2015: earnings 0.15 pence).

A detailed review of the activities, results and future developments of each division is set out below.

Asset Protection Division

Revenue £4,607,000 (2015: £7,606,000)

Asset protection revenue was 39.4% lower than the corresponding period last year, mainly as a result of the expected reduced contribution from sales of time-delay cash handling equipment to the Post Office, which saw the sales of cash handling equipment fall 37.3%.

Product Division revenue was 30.5% lower than the corresponding period last year. The lead up to the Brexit vote resulted in many customers putting plans on hold and afterwards there was the cancellation of planned work by several customers, including the government departments that we supply on a regular basis, resulting in reduced orders. Sales were further reduced by the cancellation of a sales order for the supply of time delay cash handling equipment to a longstanding financial institution after they entered negotiations to sell 300 of their high-street branches.

Revenues from Eclipse Rising Screens were affected by reduced spending from two long standing financial institution customers. CounterShield revenue was lower as a result of a planned refurbishment programme for a large Police Force being delayed due to the sale of its headquarters. Sales of Fixed Glazing products were unchanged with increased competition from low cost counter suppliers.

Sales within the service division in the first six months have been challenging with the impact of branch closures that have occurred in the banking sector. Towards the end of the period, we embarked on the installation of our new TC105 rising screen activation system which the Directors expect to provide good revenue streams over the next few years, replacing the now obsolete TC104. Pneumatic upgrades continue as budgeted and as mentioned in previous reports. Action to readdress resources within the division have been taken and overheads were reduced by 7%. The new field management software has now been bedded in and provides invoice capture and cash flow advantages.  We continue to explore and develop our other product offerings and to reduce our reliance on rising screen revenue streams in the future.

Electronic Division

Revenue £3,761,000 (2015: £3,574,000)

In Access Control ("AC") revenues from SATEON continued the strong growth trend shown in previous periods, increasing 80% compared to the corresponding period last year. Much of this growth came through the upgrade of existing JANUS sites, with many end users keen to continue long-standing relationships with Grosvenor. Notable projects included Greater Manchester Fire Service and a major defence contractor.

JANUS revenues continued to decline in line with expectations as less new projects were completed. JANUS remains the AC platform of choice however for many end users and a major roll-out continued for one of the world's largest data centres.

Significant investment was made during the period developing SATEON version 3.0 software and SATEON Advance hardware, both of which were released at the beginning of the second half of the financial year. V3.0 is the fastest, most intuitive iteration of SATEON Software to date, dramatically increasing the speed of configuring doors and personnel. SATEON Advance hardware represents a major step for both Grosvenor Technology and the AC sector as a whole. Its blade-based architecture allows a modular approach to system design and it is anticipated that this product will become the majority AC revenue generator through the second half of this year and into the next financial year.

In workforce management ("WFM") development resources were focussed on the GT-10 employee terminal, released towards the end of the first half. GT-10 has an Android based operating platform, allowing current and potential software partners to integrate their web-based offerings seamlessly, where they have existing Android based applications. First launched at a US trade show, negotiations have commenced with several potential major WFM software providers in the US, UK, Europe and the Middle East.

In addition to existing WFM markets, GT-10 provides an opportunity to generate revenue in entirely new markets and the firm has begun research into several vertical sectors to investigate the potential return on investment available, particularly those that offer an "as a service" ("aaS") opportunities. Increasing recurring revenue through the provision of both hardware and software on an aaS basis remains a key focus and ambition in both WFM and AC product families.

Sales of existing RS and IT series of WFM terminals continued in line with management's expectations. The Company has recently secured a new £350,000 contract with one of the world's top ten steel producers for the supply of its IT31 WFM terminals. This order will be shipped in two tranches with £200,000 realised in the current financial year and £150,000 in next year.

In North America, business development activities increased to leverage the potential that exists for growing WFM revenues. The Directors consider that the US market remains the region with the greatest growth opportunities for both the existing IT series terminals and the newly launched GT-10. For the first half, WFM revenues grew 11% compared to the corresponding period last year and a number of marketing initiatives are planned for the second half to increase brand awareness through the sales channel and into end-user markets.

The Hong Kong business was monitored closely through the period as revenues fell well short of expectations. As revenues were not forecast to significantly improve over the short to medium term a decision was taken to withdraw from Hong Kong during the period, so the business can redeploy resources into regions of greater potential and lower its total cost base.

Balance sheet and cash flow

Overall there was a cash outflow in the period of £2,397,000 (2015: inflow: £1,189,000). The outflow reflected the trading result for the period and the payment of the dividend of £469,000, as well as increased stock holding for customer orders delayed until the second half and a lower level of advance payments from customers.

Outlook

In the electronic division, the previous two years have been a period of material investment into new products and this has resulted in two new products having been launched in the second half of the financial year: SATEON Advance access control system and GT-10 Android based terminal for workforce management. Both have been well received and several potentially high volume, early stage enquiries have been received. SATEON Advance was also short-listed for an award at the prestigious Security and Fire Excellence Awards.

In the asset protection division, business development activities have shifted focus towards the provision of counter-terrorism solutions where the business is well positioned to drive sales and create new opportunities. This strategy will offset any sector specific downturns as the counter-terror market spans multiple sectors. The Group's expertise in ballistic resistant products will be a key advantage in responding to the rapidly increasing demand for physical security from corporates around the world.

As previously reported, the Group has been affected by challenging market conditions and has had to navigate a period of economic uncertainty amongst its customers in the UK. This, together with the anticipated decline in sales to the Post Office, resulted in the expectation that the Group would make a loss in the current financial year.

The Directors have reduced the Group's costs and continue to review its cost structure to improve the financial position going forward. As stated above, a number of new products have now been launched and these have already resulted in some significant interest from customers.

M DWEK Chairman

31 January 2017

CONSOLIDATED INCOME STATEMENT

For the six months ended 31 October 2016

		Unaudited Six months ended 31 October		Audited Year   ended 30 April		Unaudited Six months ended 31 October
		2016		2016		2015
	Notes	£'000		£'000		£'000
Revenue		8,368		21,823		11,180
Cost of sales		(5,322)		(12,725)		(6,623)
Gross profit		3,046		9,098		4,557
Administrative expenses		(3,862)		(7,900)		(3,792)
(Loss)/profit from operations		(816)		1,198		765
Interest received Finance costs		4 (4)		11 (13)		- (4)
(Loss)/profit before tax		(816)		1,196		761
Tax expense	2	-		31		(82)
(Loss)/profit for the period/year		(816)		1,227		679
Attributable to:
- Equity holders of the parent		(816)		1,227		679
(Loss)/earnings per share
- Basic (pence)	3	(0.17p)		0.26p		0.15p
- Diluted (pence)		(0.17p)		0.26p		0.15p

All activities relate to continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 October 2016

	Unaudited Six months ended 31 October		Audited Year ended 30 April		Unaudited Six months ended 31 October
	2016		2016		2015
	£'000		£'000		£'000
(Loss)/profit for the period/year	(816)		1,227		679
Foreign exchange gains on retranslation of overseas operation	45		9		-
Total comprehensive income for the period/year	(771)		1,236		679
Attributed to: -  Equity holders of the parent	(771)		1,236		679

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 October 2016

		Unaudited 31 October		Audited 30 April		Unaudited 31 October
		2016		2016		2015
		£'000		£'000		£'000
ASSETS
Non-current assets
Property, plant and equipment		764		738		694
Intangible assets		8,965		8,859		8,711
Total non-current assets		9,729		9,597		9,405
Current assets
Inventories		1,775		1,406		1,361
Trade and other receivables		3,575		3,715		3,085
Cash and cash equivalents		1,902		4,299		5,391
Total current assets		7,252		9,420		9,837
Total assets		16,981		19,017		19,242
LIABILITIES
Current liabilities
Trade and other payables		3,074		3,865		4,568
Other short term borrowings		78		99		101
Corporation tax liability		-		1		-
Provisions		106		106		100
Total current liabilities		3,258		4,071		4,769
Non-current liabilities
Long term borrowings		81		64		61
Provisions		100		100		100
Deferred tax		325		325		412
Total non-current liabilities		506		489		573
Total liabilities		3,764		4,560		5,342
TOTAL NET ASSETS		13,217		14,457		13,900
Capital and reserves attributable to equity holders of the company
Share capital		4,687		4,687			4,688
Share premium reserve		553		553			553
Merger reserve		801		801			801
Foreign exchange difference reserve		(128)		(173)			(182)
Retained earnings		7,264		8,549			8,000
		13,177		14,417			13,860
Minority interest		40		40			40
TOTAL EQUITY		13,217		14,457			13,900

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 31 October 2016

		Unaudited Six months ended 31 October		Audited Year ended 30 April		Unaudited Six months ended 31 October
		2016		2016		2015
		£'000		£'000		£'000
Cash flow from operating activities
Net (loss)/profit after tax from ordinary activities		(816)		1,227		679
Adjustments for: Depreciation and amortisation		648		1,201		666
Interest expense		-		2		4
Income tax expense		-		(31)		82
Operating (loss)/profit before changes in working capital and provisions		(168)		2,399		1,431
Decrease/(increase) in trade and other receivables		163		(706)		45
(Increase)/decrease in inventories		(363)		35		79
(Decrease)/increase in trade and other payables		(780)		(115)		578
Cash generated from operations		(1,148)		1,613		2,133
Income taxes (paid)/received		-		145		(6)
Cash flows from operating activities		(1,148)		1,758		2,127
Cash flow from investing activities
Payment for property, plant and equipment		(81)		(205)		(65)
Sale of property, plant and equipment		-		43		58
Research and development expenditure		(644)		(945)		(446)
		(725)		(1,107)		(453)
Cash flow from financing activities
Share issues		-		89		90
Repayment of finance lease creditors		(55)		(182)		(110)
Dividend paid		(469)		(460)		(461)
Interest paid		-		(2)		(4)
		(524)		(555)		(485)
(Decrease)/increase in cash and cash equivalents		(2,397)		96		1,189

STATEMENT OF CHANGES IN EQUITY

	Share capital	Share premium	Merger reserve	Foreign exchange reserve	Retained earnings	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2016	4,687	553	801	(173)	8,549	40	14,457
Dividends paid	-	-	-	-	(469)	-	(469)
Total comprehensive income for the period	-	-	-	45	(816)	-	(771)
As at 31 October 2016	4,687	553	801	(128)	7,264	40	13,217
At 1 May 2015	4,602	549	801	(182)	7,782	40	13,592
Share capital issued	86	4	-	-	-	-	90
Dividends paid	-	-	-	-	(461)	-	(461)
Total comprehensive income for the period	-	-	-	-	679	-	679
As at 31 October 2015	4,688	553	801	(182)	8,000	40	13,900

NOTES TO THE ACCOUNTS

1.   BASIS OF ACCOUNTS

The financial information for the six months ended 31 October 2016 and 31 October 2015 does not constitute the Group's statutory financial statements for those periods within the meaning of Section 434(3) of the Companies Act 2006 and has neither been audited or reviewed pursuant to guidance issued by the Auditing Practices Board. The annual financial statements of Newmark Security Plc are prepared in accordance with IFRS as adopted by the European Union. The principal accounting policies used in preparing the interim results are those that the Group expects to apply in its financial statements for the year ended 30 April 2017 and are unchanged from those disclosed in the Group's Annual Report for the year ended 30 April 2016.

The comparative financial information for the year ended 30 April 2016 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2016 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statement for 2016 was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2)-498(3) of the Companies Act 2006.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed consolidated financial statements.

2.   TAXATION

The tax charge is impacted by the benefits of reliefs on research and development expenditure, and the effect of items not deductible for tax purposes.

3.   EARNINGS PER SHARE

Earnings per share has been calculated based on the weighted average number of shares in issue during the period, which was 468,732,316 shares (2015: 461,646,446).

4.   DIVIDENDS

No interim dividend is proposed (2015: Nil).        

 

END

 

 

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