Interim Results
Newmark Security PLC
13 December 2007
NEWMARK SECURITY PLC
('NEWMARK SECURITY' OR THE 'COMPANY')
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2007
HIGHLIGHTS:
• Revenue from continuing operations up by 18% from £6.4m to £7.6m, with
5% increase in electronic division and 37% growth in asset protection
division
•Profit from operations for continuing businesses 32% higher, £1,194K
compared to £907K
•Earnings per share for continuing businesses increased by 13% to 0.17p
(basic and diluted) (2006: 0.15p) despite the larger average number of
shares in issue in the period compared to last year
• Earnings per share before interest discount, losses of discontinued
operations, provision for exchange losses and warrant revaluation increased
by 19% to 0.19p (2006: 0.16p)
•Total net assets increased by 26%, from £4.697m to £5.937m and will
increase substantially in the second half of the year with the recent
announcement about the favourable settlement of a tax liability. This will
result in the release of approximately £1.1m to the profit and loss account
in the second half.
•Cash flow from operating activities increased by 24% from £599K to £744K
•Trading result for the year expected to be at least in line with market
expectations
Enquiries:
Seymour Pierce Limited
Mark Percy 020 7107 8000
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2007
CHAIRMAN'S STATEMENT
The Board is pleased to announce their interim results for the six months ended
31 October 2007. The interim figures have been produced in accordance with
International Financial Reporting Standards (IFRS), and the comparative
information shown for the six months ended 31 October 2006 has been restated on
an IFRS basis as disclosed in the preliminary announcement with the results for
the year ended 30 April 2007.
Revenue in the period for continuing businesses of £7,582,000 was 18 per cent.
ahead of the corresponding period last year of £6,398,000.
The Group operating profit for the period was £1,253,000 (2006: £907,000) before
provision for exchange loss; an improvement of 47 per cent.
Earnings per share were 0.17 pence per share (2006: 0.15 pence). However, as
shown in note 4 to the accounts, the earnings per share before interest
discount, provision for exchange loss, warrant revaluation and losses of
discontinued operations were 0.19 pence (2006: 0.16 pence).
A detailed review of the activities, results and future developments of each
division is set out below.
ELECTRONIC DIVISION
Revenue 6 months 31 October 2007: £3,935,000 (2006: £3,731,000) Operating profit
6 months 31 October 2007: £1,035,000 (2006: £950,000).
Revenue in the period for the division was 5 per cent. higher than the
corresponding period last year. Revenue in Grosvenor Technology was 7 per cent.
lower than the same period last year which had included revenue of £0.5 million
for a major contract with BAe Systems. Notwithstanding this, there has been an
improvement in gross margin from 50 per cent. to 54 per cent. due to a
combination of improved manufacturing costs associated with off-shore
manufacturing (Hungary), the mix of business and salary savings where staff
leavers have not been replaced as a result of the merger of Custom Micro
Products and Grosvenor Technology.
The emerging JANUS, Siteguard and N-TEC Enterprise systems and the Admin Manager
web application, announced in the last annual report, continue to attract
significant interest. The development period was extended to permit enhanced
internet security within the initial release. Version 1.0 is due to be completed
and released during the first quarter 2008, and we already have an order book in
excess of £150,000. Two systems have been installed as working trials and are
working very well.
Revenue in Newmark Technology was 65 per cent. higher arising mainly from the
sales to Russia through Simplex Fire (part of the Tyco Group) which we had
predicted in last year's annual report. Sales to Russia to date have been in
English language only but we have now developed a Russian translation of the
core N-TEC software and further significant sales to this area are expected in
the future.
Revenue in Custom Micro Products rose by 17 per cent. overall from £1,356,000 to
£1,582,000 but there was again a major variation in the volumes of sales to our
three main geographic destinations. Sales to the US fell slightly with turnover
of £390,000 in the first half year compared to £429,000 in the corresponding
period last year. Sales to Europe and the UK increased respectively by 49 per
cent. from £322,000 to £480,000, and by 14 per cent. from £579,000 to £662,000.
Both of these increases are due to a higher level of sales by our agents and
distributors. Gross margin percentage has increased with the benefit of the
higher volumes compared to the fixed element of salaries included within cost of
sales.
The RS21 product is now complete and we are manufacturing for stock ready for an
official launch in January 2008. The product has been widely acclaimed by UK and
European customers who will be universally opting for it as their standard
offering once formally launched. The US market is opting for the IT3100 terminal
which is technically more advanced, and trials are currently underway between
our US distributors and their customers. Other modules and expansion boards for
the RS21 and the IT3100 will continue to be developed to further enhance the
products and their features and functions.
As announced previously, Grosvenor and Custom Micro Products have now merged
under the name of Grosvenor Technology. The combined business will continue to
operate from the two existing facilities but the merger provides cost benefits
from the unification of the various departments within the two organisations.
These longer term cost benefits will adversely affect the second half figures as
the company is incurring restructuring costs in merging the two businesses.
ASSET PROTECTION DIVISION
Revenue 6 months 31 October 2007: £3,647,000 (2006: £2,667,000) Operating profit
6 months 31 October 2007: £546,000 (2006: £183,000)
The increase in revenue has occurred in all the product areas and the service
business with improved volume related efficiencies resulting in an improvement
in gross margin.
Quotations and orders in the period were 21 per cent. and 37 per cent. more than
the same period last year most of which have been fast turn round projects.
Although the order backlog is 54 per cent. above last year, a number of finite
programmes are coming to their end.
Last year's trend of Eclipse rising screen programmes re-starting for long-term
customers has continued and some new customers have been introduced. Branch
reconfiguration work for Eclipse sites has seen higher demand than expected.
CounterShield sales were double the figure for the first six months last year
and Safetell has nearly £600,000 of outstanding quotes in this area, 45 per
cent. more than October 2006, the second year of this level of growth.
The Eye-2-Eye Disability Access counter module business has seen a notable
growth in quotations, orders and sales. Sales were double last year at £131,000
and the backlog of quotes at £271,000 and orders at £176,000 indicate that total
annual sales will exceed £500,000 (2006: £166,000). Network Rail and seven of
the Train Operating Companies are now established customers with repeat order
potential for the coming years.
RollerCash sales to the Sub-Post Offices have been slow relative to last year
due to continued uncertainty about government funding for the rural network.
However, the Post Office franchise agreement with WH Smith has proved successful
and boosted sales of TRIO machines so that overall cash handling sales were 20
per cent. more than the first six months last year. The supply contract with
Post Office was extended to the end of July 2009. New opportunities for cash
handling solutions are being pursued with one of the major retail banks and
smaller building societies.
The new formats of FlexiGlaze screens developed last year for petrol stations
and other applications are being more widely accepted with sales totalling
£163,000 compared to £38,000 in the first half of last year. The petrol
retailers are becoming more inclined to invest in physical staff protection to
combat a rising level of attacks and further growth is expected in this product
area.
The ongoing comprehensive service contracts with Abbey, HBOS, Nationwide and
others continue to form the backbone of the service business. Each of these
major contracts have been gradually expanded to include tills, cameras, CCTV and
locks to provide added value to Safetell, and cost reductions by single sourcing
for the customer.
A single programme of service upgrade work worth in excess of £380,000 will be
completed by March 2008 for a major client involving access control and lock
installation at several hundred sites to improve branch operational
efficiencies, £218,000 of this work having been completed in the first half
year.
The company achieved Approved Installer status for Mitsubishi Digital Security
Systems as a requirement of the Abbey service contract. This status and the
related skills and experience have enabled the acquisition of new CCTV work for
selected clients in Safetell's market environment.
BALANCE SHEET AND CASH FLOW
Stock holding at the period end includes the impact of the out-sourcing of
production within Custom Micro Products and the consequent need to hold finished
goods in stock. Stock and trade debtors also reflect the higher level of trading
activity in the period.
As part of the settlement of the loan notes related to the acquisition of
Grosvenor Technology (as detailed below), the Group has started invoice
discounting in certain subsidiary companies to finance the settlement. This was
drawn down on 31 October in readiness for the payment of these loan notes and
hence affect the cash and other creditors figures.
POST BALANCE SHEET EVENTS
The euro denominated loan notes issued by way of deferred consideration for the
acquisition of Grosvenor Technology in 2002 were repaid on 1 November 2007. The
loan notes were redeemed from the Group's own cash resources and banking
facilities which included £1.2 million by way of a loan repayable over 3 years
and invoice discounting. An exchange loss of £59,000 relating to these loan
notes was accrued in the accounts for the six months to 31 October 2007.
A favourable settlement has been reached with regard to a disputed overseas
corporation tax liability which should result in a release to the profit and
loss account of approximately £1.1 million which will be included in the
accounts for the second half of the year ended 30 April 2008. The exceptional
profit will form part of the results of discontinued operations. In addition,
the Group's Dutch subsidiary, Vema NV, has sold its remaining property to
realise a gain on disposal of approximately £50,000, which will similarly be
included in the results for the second half year.
CONCLUSION
Trading within Custom Micro Products is continuing at the same levels to date in
the second half. The Christmas period is traditionally a quiet time for our
companies but the expectation is that the last quarter will return to the same
level of trading as the first half and therefore the result for the year is
expected to be at least in line with market expectations.
CONSOLIDATED INCOME STATEMENT
For the six months ended 31 October 2007
Notes Unaudited Audited Unaudited
Six months ended Year ended Six months
ended
31 October 2007 30 April 2007 31 October 2006
£'000 £'000 £'000
Revenue 7,582 13,422 6,398
Cost of sales (4,399) (7,605) (3,620)
Gross profit 3,183 5,817 2,778
Provision for
exchange loss (59) (111) -
Administrative
expenses (1,930) (4,074) (1,871)
Profit from
operations 1,194 1,632 907
Finance income 46 30 16
Finance costs (140) (113) (36)
Other finance
losses (50) (44) (17)
Profit before
tax 1,050 1,505 870
Tax expense 2 (306) (368) (241)
Profit for the
year from
continuing
operations 744 1,137 629
Post-tax loss
related to
discontinued
operations - (48) (30)
Profit for the
year 744 1,089 599
Attributable to:
- Equity
holders of the
parent 744 1,089 599
Earnings per share
Continuing operations
- Basic and
diluted
(pence) 4 0.17p 0.25p 0.15p
Discontinued
operations
- Basic and
diluted
(pence) - (0.01p) (0.01p)
CONSOLIDATED BALANCE SHEET
At 31 October 2007
Notes Unaudited Audited Unaudited
31 30 April 31
October 2007 October
2007 £'000 2006
£'000 £'000
ASSETS
Non-current assets
Property,
plant and
equipment 1,000 880 981
Intangible
assets 7,308 7,136 7,059
Deferred tax
assets 43 37 65
Total
non-current
assets 8,351 8,053 8,105
Current assets
Inventories 1,709 1,381 1,482
Trade and
other
receivables 3,439 3,196 2,889
Cash and cash
equivalents 2,977 1,948 1,148
Total current
assets 8,125 6,525 5,519
Total assets 16,476 14,578 13,624
LIABILITIES
Current liabilities
Trade and
other payables 3,969 3,173 2,643
Other short
term
borrowings 4,065 3,930 375
Corporation
tax liability 1,758 1,443 1,420
Provisions 113 113 113
Total current
liabilities 9,905 8,659 4,551
Non-current liabilities
Long term
borrowings 486 553 718
Provisions 148 156 158
Other
creditors - - 3,500
Total
non-current
liabilities 634 709 4,376
Total
liabilities 10,539 9,368 8,927
TOTAL NET
ASSETS 5,937 5,210 4,697
Capital and reserves attributable to
equity holders of the company
Share capital 4,490 4,490 4,490
Share premium
reserve 3 493 493 493
Merger reserve 3 801 801 801
Foreign
exchange
difference
reserve 3 (74) (38) (42)
Retained
earnings 3 163 (600) (1,109)
5,873 5,146 4,633
Minority
interest 64 64 64
TOTAL EQUITY 5,937 5,210 4,697
CONSOLIDATED CASH FLOW STATEMENTS
For the six months ended 31 October 2007
Unaudited Audited Unaudited
Six months Year ended Six months ended
ended 30 April 2007 31 October 2006
31 October 2007 £'000 £'000
£'000
Cash flow from operating
activities
Net profit
after tax from
ordinary
activities 744 1,089 599
Adjustments for:
Depreciation 181 348 178
Investment
income (46) (30) (16)
Interest
expense 140 113 36
Other finance
losses 109 158 131
Income tax
expense 306 347 226
Share option
charge 19 38 19
Warrant
revaluation - (114) (114)
Operating
profit before
changes in
working
capital and
provisions 1,453 1,949 1,059
(Increase) in
trade and
other
receivables (223) (798) (560)
(Increase) in
inventories (329) (125) (225)
Increase/(decr
ease) in trade
and other
payables 765 654 (71)
Cash generated
from
operations 1,666 1,680 203
Income taxes
paid (29) (210) (21)
Cash flows
from operating
activities 1,637 1,470 182
Cash flow from investing
activities
Payment for
property,
plant and
equipment (153) (242) (143)
Sale of
property,
plant and
equipment - 47 -
Research and
development
expenditure (172) (269) (115)
Interest
received 46 30 16
(279) (434) (242)
Cash flow from financing
activities
Proceeds from
loans - 750 750
Repayment loan
notes - (750) (750)
Repayment of
bank loans (130) (194) (62)
Repayment of
finance lease
creditors (59) (154) (74)
Interest paid (140) (113) (36)
(329) (461) (172)
Increase/(decrease) in cash
and cash
equivalents 1,029 575 (232)
NOTES TO THE ACCOUNTS
1. BASIS OF ACCOUNTS
The unaudited interim figures for the six months ended 31 October 2007 have been
prepared in accordance with International Financial Reporting Standards (IFRSs)
and its interpretations issued by the International Accounting Standards Board
(IASB) and with those parts of the Companies Act 1985 applicable to companies
preparing their reports under IFRS. The comparative figures for the six months
ended 31 October 2006 have been restated on the same bases.
These figures do not constitute statutory accounts within the meaning of Section
240 of the Companies Act 1985. The results for the year ended 30 April 2007 are
an abridged version of the full accounts, which received an unqualified audit
report and have been filed with the Registrar of Companies, as restated for
IFRS.
2. TAXATION
The tax charge is affected by the effect on profits of items not deductible for
tax purposes, and the use of losses brought forward.
3. SHARE PREMIUM AND RESERVES
Share premium Merger reserve Retained earnings Foreign
£'000 £'000 £'000 exchange reserve
£'000
At 1 May 2007 493 801 (600) (38)
Retained
profit for the
period - - 744 -
Share based
payments
provision - - 19 -
Exchange
differences on
foreign
currency
investments - - - (36)
As at 31
October 2007 493 801 163 (74)
4. EARNINGS PER SHARE
The earnings per share has been calculated based on the weighted average number
of shares in issue during the period, which was 448,957,816 shares (2006:
414,311,077).
The basic earnings per share before discount charge, losses of discontinued
operations and provision for exchange losses 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:
Pence £'000
per share
Profit after taxation and minority interest 0.17 744
Discount charge on deferred consideration 0.01 59
Provision for exchange loss 0.01 59
Earnings per share before interest discount and
provision for exchange loss 0.19 862
Unaudited Audited Unaudited
Six months ended Year ended Six month ended
31 October 2007 30 April 2007 31 October 2006
Total Total Total
Pence Pence Pence
Earnings per
share before
losses of
discontinued
operations,
discount charge,
warrant revaluation
and provision
for exchange
loss 0.19 0.30 0.16
5. DIVIDENDS
No interim dividend is proposed (2006: Nil).
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