Final Results
Newmark Security PLC
31 October 2003
NEWMARK SECURITY PLC
FINAL RESULTS FOR THE YEAR ENDED 30 APRIL 2003
CHAIRMAN'S STATEMENT
Overview
During the year we completed the acquisition of Grosvenor Technology that was
detailed in last year's annual report, and progressed with the buy back of the
minority interest in Vema N.V.
The Grosvenor acquisition is in line with the Board's strategy of creating an
integrated high value security solutions group in both mechanical and electronic
products.
Grosvenor is an established access control and security management systems
company with a strong experienced management team. It sells a sophisticated
range of proprietary products through a network of dealers and installers who
supply a predominantly blue chip customer base.
Grosvenor has a high research and development team which is responsive to market
demands and has a proven track record of product innovation and introduction. It
also has a technical support team. The businesses of Grosvenor and Newmark
Technology have been amalgamated and run by Grosvenor's management, creating
economies of scale and reducing the combined total overhead.
Financial Results
The operating loss for the year for continuing operations before exceptional
items and goodwill amortisation was £1,034,000 (2002 - £550,000), £624,000 of
this loss was incurred by Drion Security where failure to obtain a major export
order referred to before led to substantial losses and since the year end this
company has been disposed of. Losses were also incurred, as expected, at Newmark
Security Products which recorded a loss of £365,000, whilst the business was
moving from a start up position as it incurred expenditure in building up the
business.
Safetell and Grosvenor both contributed profits although in the latter case only
from its acquisition in September 2002.
There are a number of exceptional items in the year relating to the
under-provision of costs for the disposal of the Vema business and the closure
of our operation at Redhill and the closure of our sales and marketing operation
in the USA.
Turnover for the year for continuing operations was £6.6 million (2002: £6.5
million). The reasons for the more significant factors affecting the results of
the divisions are set out below.
Electronic Division
With the acquisition of Grosvenor Technology now complete, that company has
taken control of the Electronic Division. Since its acquisition in September
2002, Grosvenor has evaluated the entire product portfolio and the individual
company structures within the Division, both UK and US based.
Rationalisation has been the result which has included the closure of the
previous Newmark Technology head-office in Redhill, the assembly plant at
Rainton Bridge and the US operations. The Omni, Midi CE and TransAsset have been
pulled from production and reduced to being sold for spares and supporting
existing sites only.
Since September 2002 the rationalisation has made cost savings in excess of
£500,000 per annum and Newmark Technology is now cash positive.
The core products for the Electronic Division are:
• JANUS Access Control - Grosvenor Technology
• C-Cure Access Control - Newmark Technology
• ParSec Asset Management and Personnel Tracking - Newmark Technology
JANUS and ParSec are 'own-brand' systems and developed 'in-house' directly under
the control of Grosvenor. C-Cure is a very well respected product and is
properly supported via Tyco and Sensormatic so we now have a very stable and
easily manageable product portfolio.
Of the two in-house products, ParSec has previously suffered from not having a
software management package. The product has always been sold as component parts
to be controlled and managed by other company's software which has never been
forthcoming. JANUS is constantly being developed to remain at the forefront of
technology and continues to be a leader in its class. The latest release
includes a complete integration with ParSec which will benefit both products.
With the new control and management functionality afforded by JANUS, it is the
company's intention to re-launch the ParSec range. Although not redesigned in
itself, it has been completely re-structured with a newly designed reader PCB
and firmware, offering additional functionality. It also boasts new, stylish,
and more modern labelling and brand new literature including manuals and
datasheets.
With this news there has been positive and renewed interest from Tyco in the UK
and Honeywell/Ademco in the US, both of which are keen to revisit a revitalised
product complete with the JANUS software integration. Grosvenor will also
include the complete integration of ParSec with Siteguard, the Tyco access
control product developed specifically by Grosvenor for Tyco in the UK. This
will also further enhance the ongoing relationship between the two companies.
Grosvenor and Newmark Technology have made substantial investments in time and
money during the year on new office systems and infrastructure that will
consolidate the rationalisation and bring about further efficiencies and
tangible benefits to our customers. With the introduction of Exchequer
Enterprise, sales order processing, purchase order processing, stock control
with integrated accounting and connectivity functionality with the internet, the
company has been able to introduce its first eCommerce web site specifically
timed for the re-launch of the ParSec product range.
The new web site www.par-sec.biz is a fully integrated eCommerce site where
customers with a Newmark trading account can log on and:
• Browse the ParSec catalogue
• View and download technical information and specifications
• View our stock/inventory status in real-time
• Create, print, save and email their own quotations
• Convert quotations into purchase orders
• Print, save and email purchase order acknowledgements
• Check the status of purchase orders with real-time tracking and POD from our
couriers
• Save transactions for future reference
Many other features will be added over time.
It is our intention to offer this method of trading to all of our account
customers across the entire product range. It will produce even more
efficiencies within the company whilst at the same time provide immediate
attention and information to our customers 24/365.
The evaluation and subsequent realignment and re-branding of the ParSec product
has been the reason to close the office in USA. With so few sales into the US it
was not economical to keep a physical presence. The eCommerce site is now our
shop window on the world and has meant that we can still trade with the US in
'real-time'. An added bonus is that eCommerce is fast becoming the preferred
method of business to business trading in the US so we are ahead of the game as
well.
The advent of our more efficient systems and immediate accessibility of our
staff to the customers has rebuilt our reputation as a credible added-value
re-seller providing first class product training, technical support and product
knowledge for the C-Cure range. It is our intention to recover the lost ground
as we are now set on a solid footing for the future to build upon and expand the
Electronic Division with the people, the systems, and the products all in place,
ready for a new era of positive and purposeful trading.
Asset Protection Division
Drion Security
Turnover in the home market was on course in the banking sector but did not meet
our expectations of a major breakthrough in the commercial sector.
The shortfall against budget was mainly due to the lack of export contracts in
particular the cancellation of the tender for the Algerian national bank.
Despite many assurances that the placing of that order was imminent, it has
recently been announced that the entire project has been postponed for an
indefinite period. This affected our performance further as CNEP (the Algerian
national bank) had demanded a lot of co-operation with the company especially in
the second part of the year and we had incurred costs in preparing the tender.
Margins were also affected as the company was moving out of the non core
activities it had been engaged with over the last two years and a demand from
one of Drion's main customers to provide services as general contractor as part
of the security service and products.
Safetell
The first part of Safetell's financial year continued the healthy trading
situation in the early months of 2002. From September onwards there was a
further marked improvement in both traditional and new business resulting in
full year sales being 23% better than the previous year. The volume of work
improved operating efficiencies and gross margins so that operating profit rose
by 50% compared to last year.
The Eclipse rising screen programmes were maintained with long-term customers in
retail finance and petrol retailing. A number of police authorities and local
governments are re-entering the market for rising screens as the best defence
against violence in the front office/reception areas.
The newer screen products of InterScreen, CounterShield, Eye2Eye and MaxiView
are all becoming established in their respective niche markets with a number of
multiple site and/or repeat orders. The imminent application of the Disability
Discrimination Act in October 2004 is obliging public bodies to make adjustments
to their service areas which is increasing the available market for these
products. The sales force has been expanded by 50% to take advantage of these
opportunities.
The demand for RollerCash and BiDi Safe cash handling equipment is very
dependent on the roll-out programmes of established customers. New customers are
being introduced to the product and new applications are being implemented,
although this is a long term process. The Post Office contract has been extended
to July 2004 and volumes are expected to rise in line with its suburban network
reorganisation.
The service and maintenance business increases pro rata to the installed base of
primary equipments. Other service related work for third party suppliers is also
being secured to improve operational efficiency of the service technicians.
The early months of the current year are trading ahead of plan but the customer/
product mix remains predominantly reliant on historical situations. The intended
expansion of new products to new customers is still proving to be slow and
difficult.
Secure Locking Division
As reported last year Newmark Security Products (NSP) has been building up the
infrastructure of the company for anticipated growth in sales. The company has
moved from the Group's former head office to its own premises at Milton Keynes
where we have been establishing our sales and support team. Turnover in the year
increased substantially from £100,000 to nearly £350,000 but this was
insufficient to meet the higher level of overheads. A further substantial
increase in turnover is anticipated in the current year.
NSP is now one of the most complete and comprehensive electronic locking
suppliers in the UK with an extensive range of products, from Strikes to Video
Entry Systems, from Access Control to Cabinet Locks.
The NSP name and brand are being recognised by a wider audience. Having recently
developed and launched our own XK range of electric strikes which is proving
very successful in the UK, we have now started to launch our full portfolio
including the XK range and this has been met with enthusiasm which is now being
translated into orders.
NSP has also recently been assessed and accredited with ISO 9001, which with our
full and extensive product range, dedicated team of professionals and an eye for
the future will continue to increase market share and keep NSP amongst the
leaders in its field.
Balance Sheet and Cash Flow
The balance sheet shows significant variations from last year in many areas due
to the acquisition of Grosvenor Technology. In particular, there is the increase
in intangible assets due to the goodwill arising on the acquisition. We have
assumed that there would be the full deferred consideration of £3.5 million
based on the projected level of profits arising over the next few years, and
this is included within creditors due after more than one year after discounting
for the net present value in accordance with Financial Reporting Standards. The
unwinding of the discount factor is required to be charged to the profit and
loss account as notional interest. For the year under review this amounted to
£106,000. The acquisition of the Vema shares by share exchange has caused the
increase in share capital, creation of merger reserve and reduction of minority
interest.
The cash flow in the year reflects the initial cash consideration paid for
Grosvenor together with associated costs. However, the cash flow also reflects
the payment in the year of the last element of the deferred consideration for an
acquisition made in previous years, plus the payments of the costs associated
with the sale of the Vema business at the end of the previous year.
Board
Sassie Rajwan left the Group in August this year after over six years as Chief
Executive of the Group, and I would like to take this opportunity to thank him
on your behalf for all his efforts. He has left to pursue other business
interests, and we have subsequently reached agreement for the sale of Drion
Security to him. We wish him every success for the future.
Post Balance Sheet Events
Since the year end the Group has agreed terms for the issue of secured loan
notes to raise up to £1.5 million. The Loan Note Holders have committed to
subscribe in cash for £1 million, and on agreement between the parties, the Loan
Note Holders can subscribe in cash for up to a further £0.5 million of Loan
Notes. The Loan Notes bear interest at a rate of 6% per annum payable quarterly
in arrears and are repayable three years after the date of the instrument
constituting the Loan Notes with an option for early repayment. As part of the
fundraising, the Company issued warrants to the Loan Note Holders to subscribe
for ordinary shares of 1p each in the Company at any time between 24 July 2003
and 24 July 2008 at a price of 1p per ordinary share.
With the losses incurred by the company for the last two years and the loss of
the prospect for the Algerian export markets, we decided to sell Drion Security
to our former Chief Executive who left the Group in August to pursue other
business interests. This has necessitated the write off of the unamortised
goodwill capitalized on the original acquisition of the company.
Employees
The Board wishes to thank all employees for their efforts during the year. In
particular we send our best wishes for the future to the employees of Drion, and
to welcome the employees of Grosvenor to the Group.
The Future
With the closure of our operations at Redhill and Rainton Bridge last autumn, we
had looked forward to the rest of the year under review with some confidence.
The turnover and profit performance of Drion in the year was therefore very
disappointing. Both Grosvenor and Safetell have for the current year to date
performed ahead of plan and in the case of Grosvenor there are some very
interesting potential orders in sight. Overall I look forward to reporting an
improved result for the first six months, after excluding the financial effects
of Drion. The outlook for the full year at the current time is positive.
M DWEK
Chairman
31 October 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 April 2003
2003 2003
Before Goodwill
goodwill and and exceptional
exceptional items 2003 2002
items Total Total
£000 £000 £000 £000
Turnover
Continuing operations
6,622 - 6,622 6,479
Acquisitions
1,748 - 1,748 -
Discontinued
operations 23 - 23 5,548
8,393 - 8,393 12,027
Cost of sales
(5,720) - (5,720) (7,785)
-------- ------- ------- -------
Gross profit
2,673 - 2,673 4,242
-------- ------- ------- -------
Administrative expenses
pre amortisation of (3,932) - (3,932) (5,194)
goodwill and exceptional
items
Reorganisation and
restructuring costs - - - (391)
Amortisation of
goodwill - (1,093) (1,093) (128)
Administrative expenses
- total (3,932) (1,093) (5,025) (5,713)
-------- ------- ------- -------
Other operating income
- - - 597
-------- ------- ------- -------
Operating (loss)/
profit
Continuing operations
(1,146) (1,093) (2,239) (1,431)
Acquisitions
112 - 112 -
Discontinued
operations (225) - (225) 557
(1,259) (1,093) (2,352) (874)
Profit on part disposal
of investment in - - - 182
subsidiary company
(Loss)/profit on closure
/disposal of business - (373) (373) 3,007
and net trading assets
-------- ------- ------- -------
(Loss)/profit on
ordinary activities (1,259) (1,466) (2,725) 2,315
before interest
Interest receivable
67 - 67 -
Interest - discount
charge on deferred (106) - (106) -
consideration
Interest payable
(34) - (34) (55)
-------- ------- ------- -------
(Loss)/profit on
ordinary activities (1,332) (1,466) (2,798) 2,260
before taxation
Tax on (loss)/profit on
ordinary activities - - - (1,517)
-------- ------- ------- -------
(Loss)/profit on
ordinary activities (1,332) (1,466) (2,798) 743
after taxation
Minority interest
78 - 78 (1,702)
-------- ------- ------- -------
Loss for the financial
year (1,254) (1,466) (2,720) (959)
Dividends
- - - -
-------- ------- ------- -------
Amount withdrawn from
reserves (1,254) (1,466) (2,720) (959)
======== ======= ======= =======
Pence pence
Loss per share
- basic and diluted
(1.6p) (0.8p)
- before exceptional
items and goodwill (0.8p) (0.5p)
amortisation
BALANCE SHEETS
As at 30 April 2003
Group Group Company 2003 Company 2002
2003 2002
£000 £000
£000 £000
Fixed assets
Intangible assets
5,585 2,014 - -
Tangible assets
1,844 1,344 19 -
Investments
- - 15,214 7,218
------- ------- ------- -------
7,429 3,358 15,233 7,218
------- ------- ------- -------
Current assets
Stocks
1,239 773 - -
Debtors: amounts falling due
within one year 2,389 1,994 71 2,601
Debtors: amounts falling due
after more than one year - - 751 -
Cash at bank and in hand
806 6,409 - -
------- ------- ------- -------
4,434 9,176 822 2,601
Creditors: amounts falling
due within one year (4,706) (5,022) (9,728) (2,662)
------- ------- ------- -------
Net current (liabilities)/
assets (272) 4,154 (8,906) (61)
------- ------- ------- -------
Total assets less current
liabilities 7,157 7,512 6,327 7,157
Creditors: amounts falling
due after more than one (3,263) (525) (2,798) -
year
Provisions for liabilities
and charges (217) (453) - -
------- ------- ------- -------
3,677 6,534 3,529 7,157
======= ======= ======= =======
Capital and reserves
Called up share capital
6,963 6,060 6,963 6,060
Share premium
5,151 5,194 5,151 5,194
Merger reserve
801 - 801 -
Profit and loss reserve
(9,585) (6,750) (9,386) (4,097)
------- ------- ------- -------
Equity shareholders' funds
3,330 4,504 3,529 7,157
Minority interests
347 2,030 - -
------- ------- ------- -------
3,677 6,534 3,529 7,157
======= ======= ======= =======
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 April 2003
2003 2002
£000 £000
Net cash outflow from operating activities
(3,172) (458)
------- -------
Returns on investments and servicing of finance
Interest received
67 -
Interest paid
(34) (55)
------- -------
Net cash inflow/(outflow) from returns on investments
and servicing of finance 33 (55)
------- -------
Taxation
- (145)
------- -------
Capital expenditure and financial investment
Purchase of tangible fixed assets
(349) (200)
Receipts from sale of tangible fixed assets
31 -
------- -------
Net cash outflow from capital expenditure and
financial investment (318) (200)
------- -------
Acquisitions
Purchase of subsidiary undertakings
(3,870) -
Net cash acquired on purchase of subsidiary
undertakings 1,104 -
------- -------
Net cash outflow from acquisitions
(2,766) -
------- -------
Disposals
Proceeds on sale of subsidiary undertaking, and
business and trading assets - 5,525
Net overdraft disposed of with business
- 61
------- -------
Net cash inflow from disposals
- 5,586
------- -------
Net cash (outflow)/inflow before financing
(6,223) 4,728
------- -------
Financing
Proceeds from flotation of Vema
- 2,880
Costs related to flotation of subsidiary
- (705)
New finance loans
58 -
Repayment of loans
(151) (1,029)
------- -------
(93) 1,146
Expenses paid in connection with share issues
(43) -
------- -------
Net cash inflow from financing
(136) 1,146
------- -------
(Decrease)/increase in cash
(6,359) 5,874
======= =======
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 April 2003
2003 2002
£000 £000
Loss for the financial year
(2,720) (959)
Exchange difference on translation of net assets and
results of subsidiary undertakings (115) (66)
------- -------
Total recognised gains and losses relating to the
year (2,835) (1,025)
======= =======
Notes:
1. The financial information for 30 April 2002 and 30 April 2003 has been
extracted from the statutory financial statements for the years then ended.
The auditors' reports on those financial statements are unqualified and do
not contain any statement under Section 237(2) or (3) of the Companies Act
1985. The statutory financial statements for the year ended 30 April 2002
have been filed with the Registrar of Companies. The financial statements
for the year ended 30 April 2003 will be filed with the Registrar of
Companies in due course.
2. No final dividend is proposed.
3. Loss per share
The calculation of the basic loss per ordinary share is based on a loss of
£2,720,000 (2002: loss £959,000) and the weighted average number of shares
in issue during the year of 174,364,102 (2002: 121,208,952). The options in
issue have no dilutive effect.
The basic loss per share before goodwill amortisation and exceptional items
has also been presented since, in the opinion of the directors, this
providesshareholders with a more appropriate measure of earnings derived
from the Group's businesses. It can be reconciled to basic loss per share as
follows:
2003 2002
Basic loss per share (pence) (1.6) (0.8)
Goodwill amortisation and exceptional items per 0.8 0.3
share
____ ____
Loss per share before goodwill amortisation and (0.8) (0.5)
exceptional items
==== ====
4. Copies of the Report and Accounts are available from the offices of
Seymour Pierce Limited, Bucklersbury House, 3 Queen Victoria Street, London
EC4N 8EL for atleast one month.
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