24th Jul 2006 15:50
Newmark Security PLC24 July 2006 NEWMARK SECURITY PLC FINAL RESULTS FOR THE YEAR ENDED 30 APRIL 2006 CHAIRMAN'S STATEMENT Overview The year has been a period of restructuring and consolidation. We sold NSPEurope Limited and closed down Concept Hardware & Security Solutions Limited,our two loss making businesses. The remaining businesses have all continued tobe profitable. Results were lower than anticipated at the beginning of the yeardue to three major factors: (i) the delay by the customer of one major contract for Grosvenor TechnologyLimited. However the business has not been lost and indeed is expected to startwithin the next few months. Provided that it occurs this will generate asubstantial increase in sales and profits in the current financial year, (ii) the cancellation by the Post Office of the Horizon project within SafetellLimited to install RollerCash machines and Flip Top Tills, and (iii) the fall in sales to our US distributor by Custom Micro Products Limitedduring the first six months of the year following the high level of turnover inthe last few months of the preceding year. Sales in the second half of the yearreturned to historical levels and this has been maintained in the current year. As a consequence of the above, turnover for the year from continuing businesseswas £11,839k compared to £12,348k, a fall of 4.1 per cent. Gross margin for theyear from continuing operations was £4,764k (40.2 per cent of sales) compared to£5,281k (42.8 per cent). Within the Electronic sector, the costs of thedevelopment and support teams are included within cost of sales. This representsa fixed cost to those companies and therefore their margins vary with the levelof sales. This has had an impact in the year in CMP for the reason explainedabove. Gross margin within Safetell was also lower in the year for the reasonsset out in the asset protection division review below. Administrative expenses were tightly controlled in the year increasing slightlyfrom £3,762k to £3,799k for continuing businesses before amortisation ofgoodwill. After a small increase in the amortisation of goodwill, operatingprofits from continuing operations fell from £1,148k to £572k.. Loss per share is shown in the profit and loss account as 0.11p (2005: Nil).However, the earnings per share before goodwill amortisation, interest discountadjustment, losses of discontinued operations and exceptional items are 0.22p(2005: 0.3p) as calculated in note 7 to the accounts. As a consequence of the fall in turnover, turnover per employee fell slightlyfrom £100,390 to £99,487. Both CMP and Safetell are the leaders in their particular markets whilstGrosvenor 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 theyear, although the directives on the use of leaded components did create someadditional work within CMP. The Group continues to invest in research and development which will benefit theresults in the medium to long term. Costs relating to research and developmentare expensed as incurred. The Disability Discrimination Act will, we believe, have an increasing impact onthe needs of some of our customers when the requirements are realized morefully, and this would benefit Safetell in particular. The Group net assets have reduced in the year from £3.3 million to £3.0 millionbut will be strengthened in the current year with the expiry of the loan noteswhich will result in 50 per cent of the loan notes being converted into shares.All the loan notes are currently shown in creditors: amounts falling due withinone year. Working capital does vary month by month due to the timing and amounts of someof the types of contracts that we are involved in, particularly within Safetell. During the year the deferred element of the purchase consideration for theacquisition of CMP was paid. In the current financial year, the earn out period related to the deferredconsideration for Grosvenor Technology expires and the vendors of the businessreceive loan notes as explained in note 14 to the accounts. We believe that themaximum amount under the earnout will be payable. As a consequence of this thediscount charge on deferred consideration will reduce substantially in thecurrent year. A detailed review of their activities, results and future developments is setout in the divisional results below. Share issues Shares were issued to Arbury Inc., in the year as compensation for the change ofMr M Dwek from executive to non-executive chairman at a significantly lower costto the company from 1 November 2005, (as detailed in note 24 to the accounts),and for the management fee in respect of his services for September and October2005. Financial results The operating profit for the year was £362,000 (2005: £414,000). The operating profit for the year for continuing operations before goodwillamortisation was £965,000 (2005: £1,519,000), both figures exclude the operatinglosses of £210,000 and £734,000 from the discontinued businesses. Turnover for the year for continuing operations was £11.8 million (2005: £12.3million). The main commercial factors affecting the results of the divisions areset out below. Electronic Division Turnover £6,407,000 (2005: £6,682,000)Operating profit £988,000 (2005: £1,350,000) Turnover in Grosvenor for the year was similar to last year. We had anticipateda substantial increase in the year but one major contract was delayed by thecustomer and should now fall into the current financial year. We also anticipate other major contracts for both existing and new customers forshipment some time in 2007. Our products have been approved by the customer butin view of the complexity and size of the contracts, the timing is difficult topredict. JANUS and Siteguard versions 4.0 have been released and offer greatercompatibility with third party systems such as Simplex, MX, American Dynamicsand Bosch. This version also includes additional features related to theDisability Discrimination Act. The Siteguard product, which is developed exclusively for Tyco, is now able tointegrate directly with the Tyco Intellex CCTV product as well as the Tyco MXFire Panel system and this should increase sales to the ADT branch network andopen new possibilities for Siteguard where existing Intellex or MX systemsrequire a new access control system. Newmark Technology Limited sales fell in the year with a decrease in the salesof the third party access control system C-Cure due to increased competitionfrom other distributors of the product. However the N-TEC access control system, for which Newmark has an exclusiveagreement with Simplex Fire, is starting to take off in the Middle East. Somesizable contracts are being gained and the first major sale was invoiced inApril 2006. Sales are set to grow as this is the only access control productthat Simplex is distributing in the Middle East, Africa and Russia. A software interface between N-TEC and the Simplex 4100U fire panel was launchedat the Intersec Security Exhibition in Dubai in February 2006 and the Simplexconference in Cairo in May 2006. United States UL approvals are being sought for N-TEC and phase 1 should becompleted by the first quarter 2007. This will allow the system to be sold intothose Middle East countries that require UL and eventually directly into theUnited States. Newmark has recently announced that it has formed an agreement with HID Globalwhere, from 1 July 2006, the company has become a distributor and technicalresource for their Indala brand in the UK. Indala was the first company toattain commercial success applying RFID technology to access control systems andare employed in a myriad of private and public sector organizations incorporate, education, healthcare and government. The current Indala annualturnover in the UK is approaching £1 million. Newmark has acted as sub-agent forthe product for many years and consequently already has a detailed knowledge ofthe company and its products. Newmark will be one of seven distributors. The Par-Sec RFID asset protection system is being re-developed to accommodateEuropean frequency regulations. A new reader will be available by early 2007 andwill connect to a suitable system such as JANUS, Siteguard or N-TEC viaEthernet. The new reader will not require an access control unit to interface asit will communicate directly with the main system via a TCP/IP network thussaving money for the customer and making it easier to install. As stated above, the sales of CMP were lower in the year due to an exceptionallyhigh volume of sales to our US distributor towards the end of the previousfinancial year. The uplift in orders from that source in the second half of theyear under review has been maintained in the current year to date. The increased presence of products from the Far East has also created pressureon margins. The Waste Electrical and Electronic Equipment Directive has placedrestraints on the use of leaded components which has made some componentsobsolete and caused the need for redesign work on existing products. Existing products have been re-evaluated and are being re-developed to minimizemanual assembly and reduce costs wherever possible. The RS range (RevisedSeries) will be launched at the end of this year and offer manufacture costsavings of 20/25 per cent on some products. We will also build into the redesignas standard, where possible, the ability to connect via Ethernet thus improvingthe product whilst at the same time reducing costs. Asset Protection Division Turnover £5,432,000 (2005: £5,666,000)Operating profit £490,000 (2005: £787,000) Safetell's financial year was characterised by a large number of smallerprojects with no single, major programme of work. Although total sales were£234k lower than the previous year, compound sales growth has been 8 per centper annum since April 2003. Various Eclipse rising screen programmes were maintained with long-termcustomers in retail finance, petrol retailing and some police forces. The valueof reconfiguration/refurbishment works for Eclipse again exceeded the value ofnew installations with some significant work to provide new counters to Abbey inline with the re-branding by Santander. The number of CounterShield installations increased by 17 per cent to 48 in theyear but average values decreased so that revenues increased by only 7 per centcompared to last year. Eye2Eye sales were disappointing in both numbers andvalues but each installation was for a new customer with all having thepotential for significant repeat business in 2006-07. Police Authorities, LocalAuthorities and Rail Operating Companies remain the market focus for theseproducts. Sales to Post Office of RollerCash and BiDi Safe were much lower than planneddue to the cancellation of the Horizon project and, towards the end of the year,by restrictions on Government funding for Post Office restructuring.Nevertheless, sales of cash handling equipment increased by 48 per cent comparedto the previous year. The Post Office rural network is due to receivesubstantial funding in 2006-07 so that sales volumes are expected to remainreasonably constant. Other retail finance customers are now carrying out trialsof open plan branches with cashier till positions incorporating Safetellequipment. If these trials are successful, there could be significant growth inthe next 2-3 years. Service and maintenance revenue increased by 11 per cent with more contract workbeing secured from existing customers. This part of the business is set to growfurther and acts as a catalyst for new product development to meet clientrequirements. Various factors, including adverse product mix, new clients, a few high costcontracts, investment in training and resources to meet the future demands ofthe business as well as continual competitive pressures, depressed margins fromtheir previous high level. Action was taken in late 2005 to redress theimbalance and the effects should be seen in the current financial year. Order intake in the early part of 2006 was slow and will result in sales for thefirst months of the current year being below the long-term average with norevenue and profit growth in the first half year. The prospects for the second half are more difficult to predict but the level ofcustomer enquiries with plans for major roll-out programmes offer good groundsfor growth. Balance sheet and cash flow The balance sheet reflects the disposal and closure of businesses in the year,but the components of working capital, and hence the operating cash flow, areaffected by the timing of both the project work that is undertaken by Safetell,and one off major contracts of both Grosvenor and Safetell. The cash flow in the year includes the payment of the deferred consideration forthe acquisition of Custom Micro Products Limited, which also impacted on thecomparison of creditors in the balance sheet. Employees The Board would again like to express their gratitude to all employees for theircontribution to the success of the businesses in which they work. Summary We would anticipate that the roll forward of the major contract within Grosvenorshould have a significant impact upon the results of the Group in the currentyear, whilst we would expect an upturn in the performance of CMP after adisappointing year and this is supported by initial results and orders. The £1.5 million loan notes expire in July and one half of the total will berepaid using agreed banking facilities, and the other 50 per cent converted intoordinary shares in accordance with the option in the loan note agreement. M DWEKChairman 24 July 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 30 April 2006 2006 2006 2006 2005 Before Goodwill Total Total goodwill and and exceptional exceptional items items £000 £000 £000 £000TurnoverContinuing operations 11,839 - 11,839 12,348Discontinued operations 320 - 320 1,286 __________ __________ __________ __________ 12,159 - 12,159 13,634Cost of sales (7,317) - (7,317) (8,150) __________ __________ __________ __________Gross profit 4,842 - 4,842 5,484Administrative expenses (4,087) - (4,087) (4,699)pre amortisation of goodwilland exceptional items Amortisation of goodwill - (393) (393) (371) __________ __________ __________ __________Administrative expenses -total (4,087) (393) (4,480) (5,070) __________ __________ __________ __________Operating profit/(loss)Continuing operations 965 (393) 572 1,148Discontinued operations (210) - (210) (734) __________ __________ __________ __________ 755 (393) 362 414Loss on disposal/closure - (192) (192) (13)of subsidiary/business __________ __________ __________ __________Profit/(loss) on ordinary 755 (585) 170 401activities before interestInterest receivable 20 - 20 52Interest - discount charge (251) - (251) (275)on deferred considerationInterest payable (101) (199) (300) (139) __________ __________ __________ __________Profit/(loss) on ordinary 423 (784) (361) 39activities before taxationTax on profit/(loss) onordinary activities (58) - (58) (106)Profit/(loss) on ordinary 365 (784) (419) (67)activities after taxationMinority interest - - - - __________ __________ __________ __________Profit/(loss) for the 365 (784) (419) (67) financial year __________ __________ __________ __________ pence penceLoss per share- basic and diluted (0.11)p -p BALANCE SHEETSAs at 30 April 2006 Group Group Company Company 2006 2005 2006 2005 £000 (Restated) £000 (Restated) £000 £000Fixed assetsIntangible assets 6,439 6,820 - -Tangible assets 941 803 - 5Investments - - 16,587 16,573 _________ __________ __________ __________ 7,380 7,623 16,587 16,578Current assetsStocks 1,256 1,664 - -Debtors: amounts falling 2,471 2,968 717 31due within one yearDebtors: amounts falling - - - 625due after more than one year _________ __________ __________ __________ 2,471 2,968 717 656Cash at bank and in hand 1,373 3,205 74 1,200 _________ __________ __________ __________ 5,100 7,837 791 1,856Creditors: amounts falling (4,664) (4,887) (11,598) (11,743)due within one year _________ __________ __________ __________Net currentasset/(liabilities) 436 2,950 (10,807) (9,887)Total assets less current 7,816 10,573 5,780 6,691liabilitiesCreditors: amounts falling (3,670) (5,488) (3,369) (4,431)due after more than one yearProvisions (208) (185) - -Accruals and deferred income (891) (1,580) (201) (193) _________ __________ __________ __________ 3,047 3,320 2,210 2,067 _________ __________ __________ __________Capital and reservesCalled up share capital 3,740 3,617 3,740 3,617Share premium 493 432 493 432Merger reserve 801 801 801 801Profit and loss reserve (2,051) (1,593) (2,824) (2,783)Shareholders' funds 2,983 3,257 2,210 2,067Minority interests 64 63 - - _________ __________ __________ __________ 3,047 3,320 2,210 2,067 _________ __________ __________ __________ The financial statements were approved by the Board of Directors and authorisedfor issue on 24 July 2006 and were signed on its behalf by: M DWEK B BEECRAFTChairman Finance Director CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 April 2006 2006 2005 £000 £000 Net cash inflow from operating activities 850 786 __________ __________Returns on investments and servicing of financeInterest received 20 52Interest paid (101) (139) __________ __________Net cash outflow from returns on investments andservicing of finance (81) (87) __________ __________Taxation (423) (404) __________ __________Capital expenditure and financial investmentPurchase of tangible fixed assets (469) (277)Receipts from sale of tangible fixed assets 24 247 __________ __________Net cash outflow from capital expenditure andfinancial investment (445) (30) __________ __________Acquisitions Purchase of subsidiary undertakings (1,925) (918)Costs relating to acquisition made in previous year (12) -Net cash acquired on purchase of subsidiaryundertakings - 563 __________ __________Net cash outflow from acquisitions (1,937) (355) __________ __________DisposalsCosts related to sale of subsidiary undertaking, andbusiness and trading assets (11) -Cash disposed of with business (14) - __________ __________Net cash outflow from disposals (25) - __________ __________Net cash outflow before use of liquid resources andfinancing (2,061) (90) __________ __________FinancingNew finance loans 365 329Repayment of loans (106) (209) __________ __________ 259 120Share issues less expenses paid - 1,643 __________ __________Net cash inflow from financing 259 1,763 __________ __________(Decrease)/increase in cash (1,802) 1,673 __________ __________ CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 30 April 2006 2006 2005 £000 £000 Loss for the financial year (419) (67)Exchange difference on translation of net assets andresults of subsidiary undertakings (39) (20) __________ __________Total recognised gains and losses relating to theyear (458) (87) __________ __________ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSFor the year ended 30 April 2006 2006 2005 £000 £000GROUPLoss for the financial year (419) (67)New share capital subscribed (net of issue costs) 184 1,918Exchange difference on translation of net assets andresults of subsidiary undertakings (39) (20) __________ __________Net (reduction to)/increase in shareholders' funds (274) 1,831Opening shareholders' funds 3,257 1,426 __________ __________Closing shareholders' funds 2,983 3,257 __________ __________COMPANYLoss for the financial year (41) (2,612)New share capital subscribed (net of issue costs) 184 1,918 __________ __________Increase in/(reduction to) shareholders' funds 143 (694)Opening shareholders' funds 2,067 2,761 __________ __________Closing shareholders' funds 2,210 2,067 __________ __________ Earnings/(loss) per share The calculation of the basic (loss)/earnings per ordinary share is based on aloss of £419,000 (2005: loss £67,000) and the weighted average number of sharesin issue during the year of 367,856,416 (2005: 329,241,000). For every £1 ofloan note issued, the loan note holder receives a warrant entitling the loannote holder to 50 ordinary shares of 1p each on exercise of the warrant. The options in issue have no dilutive effect. The basic earnings/(loss) per share before goodwill amortisation, interestdiscount, losses of discontinued operations and exceptional items has also beenpresented since, in the opinion of the directors, this provides shareholderswith a more appropriate measure of earnings derived from the Group'sbusinesses. It can be reconciled to basic earnings/(loss) per share as follows: 2006 2005 pence penceBasic loss per share (pence) (0.11) -Goodwill amortisation 0.11 0.1Discount charge on deferred consideration 0.07 0.1Losses of discontinued operations (after tax) 0.05 0.1Exceptional items 0.10 - _________ _________Earnings per share before goodwill amortisation,interest discount, losses of discontinued operationsand exceptional items 0.22 0.3 _________ _________ £000 £000Reconciliation of earningsLoss used for calculation of basic loss per share (419) (67)Goodwill amortisation 393 371Discount charge on deferred consideration 251 275Losses of discontinued operations (after tax) 179 548Exceptional items 391 13 _________ _________Earnings/(loss) before goodwill amortisation,interest discount, losses of discontinued operationsand exceptional items 795 1,140 _________ __________ Exceptional items include the loss on disposal or closure of a subsidiary of£192,000 (2005: £13,000) and exceptional interest payable of £199,000 (2005:£Nil). There are no potentially dilutive shares in issue. Basis of preparation The financial information set out above does not constitute the Group'sstatutory accounts, within the meaning of Section 240 of the Companies Act1985, for the year ended 30 April 2006 or 2005, but is derived from thoseaccounts. Statutory accounts for the year ended 30 April 2005 have been filedwith the Registrar of Companies. The statutory accounts for 2006 will bedelivered to the Registrar of Companies following the Company's Annual GeneralMeeting. The auditors have reported on those accounts; their report wasunqualified and did not contain a statement under Sections 235 and 237(2) or(3) of the Companies Act 1985. When published, the Company's Annual Report and Accounts will be sent toshareholders and will be made available to the public at the Company'sregistered office, 57 Grosvenor Street, London W1K 3JA. The financial information has been prepared on a basis consistent with theaccounting policies disclosed in the Group's 2006 Report and Accounts. Dividend No dividend has been proposed in respect of the year. Enquiries: Maurice Dwek, Chairman, Newmark Security PLC 020 7355 0070Brian Beecraft, Finance Director, Newmark Security PLC Mark Percy / Jeremy Porter, Seymour Pierce Limited 020 7107 8000 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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