Final Results

RNS Number : 4732N

Newmark Security PLC

23 January 2023

 

The information contained within this announcement is deemed by the Company to constitute inside information pursuant to Article 7 of EU Regulation 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 as amended.

Newmark Security plc

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

Final Results

Creating the next generation of safe workplace ecosystems

Newmark Security plc (AIM: NWT), a leading provider of electronic and physical security systems, is pleased to announce its audited results for the year ended 30 April 2022 ("FY 2022)".

Financial Highlights:

· R evenue up 8.4% to £19.1m (2021: £17.7m)

· Gross profit margin decreased by 4% pts to 33.5% (2021: 37.5%)

· EBITDA loss of £0.03m (2021 EBITDA profit: £1.0m)

· Operating loss of £1.2m (2021: £0.03m)

· Loss before tax of £1.2m (2021: £0.1m)

· Loss after tax of £0.8m (2021 profit: £0.2m)

· Loss per share of 0.32 pence (2021: earnings per share 0.03 pence)

· Investments in research and development £0.76m (2021: £0.74m)

· Net assets of £7.6m (2021: £8.2m)

Key business highlights:

· Well-placed to scale our business driven by product innovation, accessibility and capacity

· Evolution of our business model increasing traction in North America (HCM business up by 19%)

· HCM annual recurring revenues increased by over 600% year-on-year to £0.9m in April 2022

· Setting the right foundations for executing our Strategic Business Plan 

· Delivering recurring income and optimising product mix provides for sustainable growth

· Focus on cost management initiatives and product innovation

· Enhancing our product offering and end-to-end solutions to drive customer base expansion

· Navigating our business through inflationary and supply chain pressures by prudent working capital management and pricing

· The new generation of safe workplace systems will generate high quality recurring income (subscription based) - beyond the product lifecycle

Operational Highlights:

People and Data Management division - Grosvenor Technology ("Grosvenor")

Revenue information

£'000	2022	2021	Increase/ (decrease)	% change
HCM North America	8,726	6,509	2,217	34%
HCM Rest of World	2,716	3,150	(434)	(14%)
Total HCM	11,442	9,659	1,783	18%
Janus C4	833	351	482	137%
Sateon Advance	1,010	1,146	(136)	(12%)
Legacy Janus	1,274	1,491	(217)	(15%)
Total Access Control	3,117	2,988	129	4%
Division Total	14,559	12,647	1,912	15%

Grosvenor - Hardware-enabled software and services

The business achieved top-line revenue growth of 15% to £14.6 million, primarily driven by strong North American human capital management ("HCM") business growth and our expanding relationships with Tier 1 software partners. Key achievements during the period included re-platforming our core cloud control software, GT Connect, and evolving warranty and support services with GT Protect. We have seen substantial progress in our HCM hardware enabled SaaS strategy with HCM annual recurring revenue ("ARR") increasing by over 600% year-on-year to £0.9m in April 2022 driven by SaaS and ClaaS.

The success of our North American HCM operations continued to deliver double-digit growth for the fifth consecutive year, with revenues increasing by 34% to £8.7 million. The current outlook is very promising, expecting a new revenue pipeline for next year.

The Rest of World opportunity is more fragmented, and we have attracted a number of key European partners who have been essential to our local strategy.  We have developed for Protime, our largest European partner, an additional functionality within our Android feature set that enables them to adopt the new GT8 time clock.

Internationally, the emerging overlap in HCM and Access Control creates a new cloud-based opportunity for combined solutions, and together these represent a very large market for our future growth.

Access Control revenues increased by 4% to £3.1 million, with sales of our new Janus C4 product beginning to take-off, reaching £0.8 million, up by 137%.

 

Partnerships

We continued our successful partnership with major software vendors enabling us to supply directly to their large customer base. We are working with our partners to increase our share-of-wallet acting as their preferred supplier and new partnerships are being established to help us deliver our growth targets.  We are pleased to announce we have signed a GT Connect and support contract with one of the largest US retailers based in Mexico in H2 2023.  This contract will help accelerate our growth in HCM recurring revenues.

 

Product update

 

· Advanced facial recognition

· Modular design reduces development costs for new devices

· The new GT Connect secure cloud control platform, scheduled for broad release in H2 2023, is highly scalable with a modern cloud architecture, advanced multi-tenanted hosting and an enhanced security model operating on a microservices framework

· Accelerated product migration of Janus C4, simplifying transition and released our new advanced driver that enhances the performance at all sites. In addition, we launched our new software support agreement providing additional revenue streams

 

 

 

Physical Security Solutions division - Safetell - Diversifying our product portfolio

Revenue information

£'000	2022	2021	Increase/ (decrease)	% change
Products	3,131	3,220	(89)	(3%)
Service	1,455	1,791	(336)	(19%)
Division Total	4,586	5,011	(425)	(8%)

Top line revenue declined by 8% driven by less installation and maintenance services that decreased by 19% to £1.5 million. This was further impacted by a contraction in our traditional rising screen market due to an accelerated reduction in the number of bank branches across the country. Our cost control initiatives resulted in a cost margin increase to 40.4% (2021: 40.1%).

Demand for security products has normalised in recent months and our return to growth has already begun. Several delayed projects have now recommenced and demand for s ecurity products and services appears to have recovered to above pre-pandemic levels. This provides confide nce that the business is well-positioned to achieve its ambitious growth strategy.

Product update

A strategic priority in our long-term plan is to grow service and maintenance work in the UK autodoor servicing market, estimated at twice the size of Safetell's traditional target markets.

Major initiatives to strengthen our competitive position in fast-growing security markets:

· Introduction of new product lines

· New strategic partnerships and onboarding of new clients

· Organisational improvements 

· Investments in sales and marketing to support the two key areas (automatic door servicing and entrance control)

 Financial position

· Group margins reduced to 32.8% (2021: 37.5%) due to the significant increase in componentry and freight costs arising from global supply chain challenges

· We have implemented a programme of strict cost control and increased prices to mitigate the effect of higher costs. This has resulted in reduced losses for the second half of the year compared to H1

· Administrative expenses increased by 12.9% to £7.5 million (2021: £6.7 million) mainly due to the one-off COVID-19 related savings incurred last year such as furloughs, contractual pay reductions along with other savings in travel and marketing

· Net loss from operations before exceptional items at £1.3 million (2021: £0.1 million) driven by the impact of supply chain pressures on gross margins and an increase in costs to execute our plan

· Cashflow from operating activities was an outflow of £0.6 million (2021: £0.4 million inflow) driven by the operating losses and working capital outflow

· Net assets reduced to £7.1 million (2021: £8.3 million) due to loss after tax for the year

· Net decrease in cash to £0.2 million (2021: £0.5 million)

· The Group secured a $2 million US invoice financing facility in February 2022 and in January 2023 increased the UK invoice financing facility by £0.6 million to £2.3 million. These will provide additional working capital headroom to support the Group's growth.

Current trading

· Post period end, the Group returned to profitability and positive operating cashflows during FY 2023, whilst also continuing to grow revenues.

· Transition to a high margin hardware enabled SaaS HCM business is continuing with a significant increase in ARR

Maurice Dwek, Chairman of Newmark, commented: "Despite the macro challenges of the year, Newmark continued to grow and deliver against its strategic priorities. Our business model is now more resilient as our product initiatives have been carefully designed to increase recurring income, whilst leveraging our positioning to capture the industry's dynamic growth.

"Through our new solutions, customers will gain the capability to enable and connect a broad range of internet-enabled devices securely in the cloud with unified software control - creating a trusted ecosystem in the workplace.

"Our innovative complete product offering, combined with our strategic initiatives for global expansion, enhanced partnerships and efficient management of our key resources will transform our business and enable sustainable growth."

Newmark Security Plc Marie-Claire Dwek, Chief Executive Officer Paul Campbell-White, Chief Financial Officer	Tel: [phone] www.newmarksecurity.com
Allenby Capital Limited (Nominated Adviser and Broker)	Tel: [phone]
James Reeve / Lauren Wright (Corporate Finance) Amrit Nahal (Sales & Broking)

About Newmark Security plc

Newmark is a leading provider of electronic, software and physical security systems that helps organisations protect human capital and provide safe spaces seamlessly and securely.

From our locations in the UK and US, we operate through subsidiary businesses positioned in specialist, high-growth markets.

We foster an open and inclusive work environment amongst our c.100 employees, serving hundreds of blue-chip customers.

Our product portfolio consists of Human Capital Management and Access Control Systems providing both hardware and software and physical security installations to various sectors.

Newmark Security plc is admitted to trading on AIM (AIM: NWT).

For more information, please visit: https://newmarksecurity.com/

Safe. Seamless. Secure

Chairman's Statement

Overview

As we emerge from another COVID-impacted year, I am particularly pleased with the progress we have made in executing our strategy and setting the right foundations for our continued success. We are delivering on our strategic targets and achieving recurring revenue growth whilst taking prudent cost management initiatives that have enabled us to keep focusing on our new product pipeline. By offering complete solutions that are genuinely best-in-class, our reputation with clients is highly trusted and growing.

Our proactive approach through the pandemic has demonstrated our ability to manage the business for the long-term, building credibility with new clients and strengthening existing relationships through our willingness to be flexible and adapt to their needs. Our ability to provide technical solutions and hardware without requiring us to physically attend a site has been a huge advantage and will be an important factor as we scale.

We have seen the value of staying agile and prioritising our investments to create sustainable growth. With high confidence in our product portfolio and client-focused strategy, we have taken the right measures to drive our business forward with disciplined execution.

By working towards an optimal structure and product mix, we are now extremely well-placed to scale our business, converting the opportunities we have already identified, expanding our network of partners, and embedding our range of solutions as subscriptions that we can jointly promote.

This has been an exciting year in the evolution of our business model, strengthened by the increasing traction we are achieving in North America, with solid development progress across all lines of business and a tremendous opportunity to convert this effort into incremental revenue growth in North America, the UK and Rest of World markets.

Board and governance

The Board and its Committees continue to maintain a robust governance framework, led by our Chief Financial Officer, Paul Campbell-White, supported by the experience of an enhanced leadership team to provide independent challenge and ensure that good governance is promoted across the Group.

We follow the Quoted Companies Alliance Corporate Governance Code ("QCA Code").

Going concern

The Board continues to have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. We are in a stable position following market emergence from the restrictions of COVID-19, although cash remains a key focus. We have taken steps to mitigate the challenges we face managing our inventory levels and dealing with the global shortage of components we need to build our products.

During the year the Group increased its UK invoice discounting facility to £1.7 million and secured a new $2 million US facility. This, together with an increased overdraft to £0.7 million has helped finance the Group's working capital needs in the year to 30 April 2022 ("FY22").  However, as a result of a combination of customer price rises, cost savings and unwinding of inventories, the Group has reduced cash outflows at the end of the year and therefore the overdraft facility has now reverted back to the original £0.2 million.

The Group's first covenant to be tested for the £2 million HSBC CBILs facility will be for the year ended 30 April 2023 and requires the Group to deliver a pre-debt service cashflow of 1.2 times the level of debt service. The latest forecast of the Group results in exceeding the debt service covenant test by 51% and will be tested again when a revised forecast is completed in February. 

The Group is currently trading ahead of this forecast and has returned to profit after tax and operating cashflow generation in FY23.

Dividend

The Board is not recommending the payment of a dividend for the year ended 30 April 2022 (2021: £Nil).

Outlook

While the Group has again been affected by the global pandemic and restrictions imposed in the UK and internationally, I am pleased with the progress we have made this year. Despite inflationary pressures, we look forward with cautious optimism, particularly for the continued growth of our HCM business in North America, and we expect to benefit from the execution of our 2025 strategy which will see us build a greater proportion of recurring revenues. The outlook for our HCM business in the Rest of the World is also very promising, as we develop our capabilities, expand a wide range of partnership opportunities and onboard new customers.

Our Physical Security Solutions division, Safetell, will pursue its part of the strategy, growing its share of the Entrance Control and Automatic Door servicing market and by continuing to press its advantage, offering complete security solutions with services that bring rapid response to customers' needs, targeting new markets where demand is strong and growing.

Once again, I am confident we are set up for growth. We are in a strong position to benefit from the exciting opportunities that our teams across the Group have worked hard to develop in the past year. We are forecasting revenue growth for the coming year and year to date results show we are on target to achieve this.

On behalf of the Board, I would like to extend my thanks for all the hard work and resilience shown by our teams in what has been another challenging but highly productive year. I look forward to a successful year ahead.

Maurice Dwek
Chairman

23 January 2023

Chief Executive Officer's Review

Overview

In another very challenging year, the gradual easing of restrictions imposed by Covid signalled a welcome return and the beginnings of a staged recovery as traditional businesses began to emerge.

Many of our blue-chip clients were impacted whilst their recovery efforts were hit by knock-on effects felt right across the supply chain, with the rising cost of goods and services and, in many cases, delivery and logistical delays.

In this context, Newmark was quick to adapt, taking several bold and critical steps that have made a significant difference to the speed and profile of our own recovery and forward momentum.

Throughout this year, we have continuously adapted our products, software and operations to ensure our long-term partnerships remain well-served and growing, expanding our product portfolio, investing in hardware adaptations to accommodate available componentry, building up valuable stock reserves and further integrating software to accelerate partner take-up and throughput.

In the year ended 30 April 2022 (FY22), following three years of substantial investment in product innovation and software development, we have enhanced our solutions offering across all lines of business. This puts the business in a very strong position to execute on its strategic plan without requiring significant new development. This is already driving new client contracts and is building an extremely healthy pipeline for the year ahead.

This enormous effort has been achieved by an extremely committed and resilient team, to whom I am very grateful and especially proud of their significant progress and achievements.

Performance

Group revenue has grown once again, increasing by 8% year-on-year to £19.1 million. This was primarily driven by Human Capital Management (HCM) sales in North America, up by 34% to £8.7 million. HCM has a rapidly growing recurring services contribution with Software-as-a-Service (SaaS) and Clock-as-a-Service (ClaaS) annual recurring revenues (ARR) increasing over 600% to £0.9 million by April 2022. This growth was driven by the first full year of our ClaaS subscription service.

Our Access Control business grew by 4% year-on-year to £3.1 million which was in line with expectations in a year that continued to be impacted by COVID-restrictions on physical site visits, causing delays to new projects and installations. Despite this, our new Access Control product, Janus C4, has been well-received by the market and is starting to generate anticipated returns, with sales up 137% at £0.8 million.

In a similarly difficult environment for physical product sales and servicing, Safetell, our Physical Security Solutions division, dropped back slightly with revenues down 8% to £4.6 million. The team responded quickly, undertaking numerous cost-cutting and re-organisation measures that saw gross margin levels increase to 40.4%. With a number of new and exciting national opportunities in the pipeline this puts the business in a very confident position for a return to top and bottom-line growth in the year ahead.

Outlook

People and Data Management division - Grosvenor Technology

Looking ahead, we will continue to build on the positive momentum we have achieved in Human Capital Management and Access Control, focusing on converting a rising number of opportunities in these fast-growing markets with our newly developed products and software. Our goal, to create longer-term and higher margin contracts with our partners and customers, will be accelerated as we launch our upgraded HCM SaaS platform, GT Connect. This will further increase recurring revenues, driving towards an ambitious ARR target. A key component of this success will be achieved by maintaining our ongoing commitment to deliver highly secure data processing, complying with international standards such as ISO 27001.

To mitigate further supply chain effects and logistics, we are exploring the establishment of a new manufacturing facility in North America, with the intention of streamlining the delivery of in-country products in this fast-growing market.

On behalf of the Board, I would also like to take this opportunity to thank our outgoing Commercial Director, Andy Rainforth, who wanted to take on a new challenge closer to home. Andy's significant contribution, particularly helping the business navigate the recent impacts of the pandemic, has been tremendous and we are enormously grateful for the 8 years of service he has given.

I am also delighted to formally welcome Robb Scott, who has joined as interim MD of Grosvenor Technology, and whose significant leadership experience and considerable execution track record are already making a positive impact on our operating performance.

Physical Security Solutions division - Safetell

With access measures easing in recent months, the team has been hugely productive having successfully launched new products, expanded our client base, and formed new partnerships. Several delayed projects have now recommenced as we target larger contracts in entrance control, build national scale relationships for our Autodoor Service Department and extend our long-established banking experience to meet the growing demand for security screens across retailers of all sizes.

We were delighted to welcome Nick Shannon, who joined in February from G4S Secured Solutions to head up the division. He will lead the strategic focus to build the services side of the business with the aim of increasing the proportion of recurring revenues. I am delighted to report that this work is already well underway and showing early signs of success, targeting significant growth in the year ahead.

Financial

Whilst sharp increases in componentry and freight costs have impacted Group margins, we have implemented a programme of strict cost control and increased prices to mitigate the effect of higher costs. This has resulted in reduced losses for the second half of the year compared to H1. As we look forward, we expect to see the full benefit of the price rises and cost savings in the next financial year (FY23), whilst we start to utilise our recent investments in products and infrastructure to fuel our accelerating growth.

To facilitate this, we have secured a $2 million US invoice discounting facility to provide additional working capital headroom. We have also invested to mitigate supply chain challenges by securing additional inventory to satisfy ongoing customer demand and stay ahead of the competition. Our working capital level is expected to ease as we reduce the inventory we are currently holding, allowing for improved cash flow generation.

As we build on our positive momentum, I am reassured that we have strong governance in place with appropriate commercial controls to achieve a very positive market and financial result over the forthcoming year, accelerating us towards our 2025 strategy.

I am very grateful for the support of our new CFO, Paul Campbell-White, who has made a tremendous contribution, helping to ensure that sound financial discipline underpins our operations, and all investment decisions continue to align with our strategic goals.

Strategy

As a strategic priority, our product initiatives have been carefully designed to increase recurring revenues, enabling us to make a powerful evolution from hardware to hardware-enabled software and services, based on providing 'secure cloud control'.

By offering secure cloud control of people's access, time keeping and identity data at work, we are shifting the strategic value paradigm, raising the customer focus from its former dependency on hardware 'clocks' and 'access terminals', to one that empowers the intelligent enterprise. Through our solutions, customers will gain the capability to enable and connect a broad range of internet-enabled devices securely in the cloud with unified software control - creating a trusted ecosystem in the workplace.

Establishing ourselves as an experienced and trusted security partner on whom our customers rely, has been an essential factor in our success for over 25 years. Over the past year, we have succeeded in turning this trust into expanded partnerships that reach beyond pure products and hardware subscription models, into more complete solutions - increasingly contracted via ongoing service arrangements that are based on combining hardware flexibility, secure cloud control and specialist support services. Leveraging our expertise in data security, our clear strategy is to generate sustainable, high quality recurring revenues that will scale and extend, over and beyond the product lifecycle, into the longer-term.

The favourable characteristics of subscription-based business models make them particularly attractive to our customers, as worldwide consumption of software-as-service continues to grow strongly. Newmark, and in particular our People and Data Management Division, continue to follow this servitization trend with confidence.

As our business model evolution to hardware-enabled software-as-a-service gathers pace, our focus remains on winning trusted, long-term partnerships fulfilled by our unique combination of best-in-class products with market leading software and expert, specialist support services that put customers in control.

In an increasingly risk-aware enterprise environment, we have been working hard to broaden our reach and reputation as a trusted security partner, becoming a go-to brand for customers who are seeking this control to simplify the growing complexity of security and compliance requirements in the intersection between physical and digital worlds.

Our strategic focus and approach are opening a substantial market opportunity in which we now occupy a commanding position with key strategic partners. Our aim is to scale this model across an expanded partnership channel, matching this drive with speed of execution to secure greater market share. Converting our hard-earned competitive advantage will take time and we will continue to invest in people and infrastructure to drive business growth as we pursue an ambitious and achievable 2025 market strategy with a strong will to win.

Marie-Claire Dwek
Chief Executive Officer

23 January 2023

Financial Review

Revenue

Key Performance Indicators		2022		2021		Increase/ (decrease)		Percentage change
		£'000		£'000		£'000		%
People and Data Management Division
HCM		11,442		9,659		1,783		18.5%
Access Control		3,117		2,988		129		4.3%
		14,559		12,647		1,912		15.1%
Physical Security Solutions Division
Products		3,131		3,220		(89)		(2.8%)
Service		1,455		1,791		(336)		(18.8%)
		4,586		5,011		(425)		(8.5%)
Group Revenue		19,145		17,658		1,487		8.4%

Group revenue increased by 8.4% to £19.1 million (2021: £17.7 million) driven by a strong HCM performance in North America.  Revenues in the Physical Security Solutions division were impacted by further lockdown restrictions and the decline in the traditional rising screens market as more banks and building societies close. Further commentary and discussion can be found in the relevant divisional sections.

		2022		2021		Increase/ (decrease)		Percentage change
		£'000		£'000		£'000		%
Gross Profit		6,419		6,629		(210)		(3.2%)
Gross Profit Margin		33.5%		37.5%

Gross profit margins have reduced to 33.5% (2021: 37.5%) due to a rise in operating costs of the People and Data Management division. Their gross margins decreased to 31.4% (2021: 36.5%) as a result of the significant increase in componentry and freight costs arising from global supply chain challenges. However, customer price rises in the second half of the year have helped reduce the impact of these cost increases. The Physical Security Solutions division achieved a gross profit of 40.4% (2021: 40.1%) with the small increase due to headcount savings.

Administrative expenses and average employees

Administrative expenses before exceptional items have increased by 15% to £7.5 million (2021: £6.5 million). This has mainly been the result of the one-off COVID-19 related savings incurred last year such as furloughs, which saved £0.2 million group-wide contractual pay reductions along with other savings in travel and marketing. There has also been an increase in consultancy costs to support the execution of the strategic business plan, partly offset by a £0.1 million foreign currency gain due to the increase in the value of the USD versus GDP. Overall average employees have decreased to 103 (2021: 112) driven by reductions in Safetell and Grosvenor UK, partly offset by an increase in Grosvenor US.  Staff costs increased by £0.3 million or 5% to £7.1 million (2021: £6.8 million).

Exceptional costs

During the year exceptional costs of £0.1 million (2021: £0.1 million) were incurred relating to continued streamlining of positions in Grosvenor and Safetell. In 2021 there were £0.2 million of restructuring costs and an exceptional credit of £0.1 million related to the exit of a lease commitment at Safetell whereby the asset had been written down by £0.1 million in the prior year.

Profitability

The current year loss from operations before exceptional items was £1.1 million (2021: profit £0.1 million). The decline in profitability was caused by the impact of global supply chain challenges on gross margins and an increase in costs to execute the strategic business plan.

Loss after tax for the year was £0.8 million (2021: profit £0.2 million).  This is after tax credits which are discussed in more detail below.

Taxation

A tax credit of £0.6 million (2021: £0.3 million) was recognised in the year. This resulted from a current tax credit of £0.4 million (2021: £0.4 million) due to the continued R&D claims at Grosvenor of £0.3 million and for Safetell of £0.1 million and a £0.2 million deferred tax credit (2021: £0.1 million charge). The credit was primarily from the recognition of tax losses.

Earnings per share

Loss per share was 0.32p (2021: earnings of 0.03p) being a reduction of 0.35p. The decrease was due to the reduction in profitability in FY22.

Balance sheet

Net assets have reduced by £0.6 million to £7.6 million (2021: £8.2 million) due to the loss after tax for the year. This is presented as a decrease in cash and cash equivalents of £0.3 million to £0.2 million (2021: £0.5 million) and an increase in short term borrowings of £2.4 million to £3.0 million due to drawing down of invoicing discounting from both the UK and new $2 million US facility and increase in lease payments. The rise in property, plant and equipment and long-term borrowings is mainly as a result of the £0.9 million prior year adjustment to reflect a longer lease term for a land and buildings lease term. See note 2 of the financial statements for further details of this adjustment. Inventory has increased by £0.9 million to £4.0 million with additional purchases of scarce processors and screens to secure future supply and some impact of the global componentry shortage on prices. Trade and other receivables decreased by £0.5 million primarily due to a reduction in corporation tax recoverable related to the R&D tax credit. At the prior year end there were two years of R&D tax credits due, whereas there was only one year due at 30 April 2022. Trade and other payables have decreased by £0.7 million as result of unwinding of prior year creditor balances.

Research & Development (R&D)

The Group has slightly increased its R&D investment at £0.8 million (2021: £0.7 million) in the People and Data Management division. The investment this year has been focused on the cloud development of GT Connect, our upgraded SaaS platform which will be launched in FY23. There has also been further development on facial recognition technology for our clocks.

Cashflow

During the year cash reduced by £0.3 million to £0.2 million (2021: £0.5 million). Cash generated from operating activities decreased by £1.0 million to an outflow of £0.6 million (2021: inflow £0.4 million) mainly driven by a decrease in operating profits and a £1.2 million working capital outflow due to higher inventories and creditor outflows. There was also a £0.1 million outflow from exceptional items and a net tax receipt of £0.8 million (2021: £0.4 million) due to two years of R&D tax credits. As mentioned above, we have continued investment in research and development and also property plant and equipment of £1.3 million (2021: £1.0 million), the increase coming from investment in ClaaS clocks. The main financing movements related to the drawdown of £2.3 million of invoice discounting from both the UK and US facilities (2021: £0.9 million repayment), lease principal repayments of £0.4 million (2021: £0.5 million) and £0.3 million of interest and repayments from the Coronavirus Business Interruption Loan Scheme ("CBILS") which started to be paid back from September 2021 over a 5-year term.

Cashflow forward currency contracts

During the year we executed our foreign exchange strategy by entering into forward contracts. The strategy effectively hedges 75% of excess USD and reduces the level of volatility compared to using spot rates. The contracts manage our currency mismatch between an increasing US Dollars (USD) position from revenues and the existing cost base in both GBP and Euros. The adopted process involved currency forecasting three quarters ahead and taking out tranches of forward contracts for 25% of each of the forecasted quarters relating to our excess USD position.

CONSOLIDATED INCOME STATEMENT FOR THE YEAR END 30 APRIL 2022

				as restated
		2022		2021
	Note	£'000		£'000
Revenue		19,145		17,658
Cost of sales		(12,726)		(11,029)
Gross profit		6,419		6,629
Administrative expenses		(7,633)		(6,662)
(Loss)/profit from operations before exceptional items		(1,090)		84
Exceptional redundancy costs		(124)		(181)
Other exceptional credits		-		64
Loss from operations		(1,214)		(33)
Finance costs		(220)		(113)
Loss before tax		(1,434)		(146)
Tax credit	4	630		297
(Loss)/profit for the year		(804)		151
Attributable to:
- Equity holders of the parent		(804)		151
(Loss)/earnings per share
- Basic (pence)		(0.32)		0.03
- Diluted (pence)		(0.32)		0.03

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME				as restated
		2022		2021
		£'000		£'000
(Loss)/profit for the year		(804)		151
Foreign exchange on the retranslation of overseas operation		143		(196)
Total comprehensive loss for the year		(661)		(45)
Attributable to:
- Equity holders of the parent		(661)		(45)

The notes in the annual report and accounts form part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 APRIL 2022

					as restated		as restated
			2022		2021		2020
ASSETS	Note		£'000		£'000		£'000
Non-current assets
Property, plant and equipment			2,088		2,017		2,186
Intangible assets			5,564		5,505		5,234
Deferred tax			410		206		329
Total non-current assets			8,062		7,728		7,749
Current assets
Inventory			3,983		3,125		2,544
Trade and other receivables			3,979		4,438		3,664
Cash and cash equivalents			157		484		620
Total current assets			8,119		8,047		6,828
Total assets			16,181		15,775		14,577
LIABILITIES
Current liabilities
Trade and other payables			3,105		3,782		3,246
Other short-term borrowings			2,958		602		1,301
Total current liabilities			6,063		4,384		4,547
Non-current liabilities
Long term borrowings			2,447		3,066		1,673
Provisions			100		100		100
Total non-current liabilities			2,547		3,166		1,773
Total liabilities			8,610		7,550		6,157
TOTAL NET ASSETS			7,571		8,225		8,257
Capital and reserves attributable to equity holders of the company
Share capital			4,687		4,687		4,687
Share premium reserve			553		553		553
Merger reserve			801		801		801
Foreign exchange difference reserve			(159)		(302)		(106)
Retained earnings			1,649		2,446		2,282
Total attributed to equity holders			7,531		8,185		8,217
Non-controlling interest			40		40		40
TOTAL EQUITY			7,571		8,225		8,257

The financial statements were approved by the Board of Directors and authorised for issue on 20 January 2023.

Paul Campbell-White

Director

The notes in the annual report and accounts form part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 APRIL 2022

				As restated
		2022		2021
	Note	£'000		£'000
Cash flow from operating activities before exceptional items
Net (loss)/profit after tax from ordinary activities		(804)		151
Adjustments for: Depreciation, amortisation and impairment		1,248		1,028
Exceptional items		124		117
Finance cost		220		113
Gain on sale of property, plant and equipment		(30)		(5)
Share based payment		7		13
Income tax credit		(630)		(297)
Operating (loss)/profit before changes in working capital and provisions		135		1,120
Decrease/(increase) in trade and other receivables		(29)		(805)
(Increase)/decrease in inventories		(856)		(652)
(Decrease)/increase in trade and other payables		(658)		582
Cash generated from operations before exceptional items		(1,408)		245
Exceptional items		(124)		(244)
Cash generated from operations after exceptional items		(1,532)		1
Income taxes received	4	871		369
Cash flow from operating activities		(661)		370
Cash flow from investing activities
Acquisition of property, plant and equipment		(561)		(272)
Sale of property, plant and equipment		30		-
Research and development expenditure		(766)		(744)
		(1,297)		(1,016)
Cash flow from financing activities
Bank loans (paid)/received		(267)		2,000
Principal paid on lease liabilities		(376)		(487)
Proceeds/(repayment) on invoice discounting		2,263		(905)
Interest paid on lease liabilities		(48)		(37)
Interest paid		(84)		(51)
		1,488		520
Decrease in cash and cash equivalents		(470)		(126)
Cash and cash equivalents at beginning of year		484		620
Exchange differences on cash and cash equivalents		143		(10)
Cash and cash equivalents at end of year		157		484

The notes in the annual report and accounts form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital		Share premium		Merger reserve		Foreign exchange reserve		Retained earnings		Amounts attributable to owners of the parent		Non-controlling interest	Total equity
	£'000		£'000		£'000		£'000		£'000		£'000		£'000	£'000
At 1 May 2021 (as restated)	4,687		553		801		(302)		2,446		8,185		40	8,225
Loss for the year	-		-		-		-		(804)		(804)		-	(804)
Other comprehensive income	-		-		-		143		-		143		-	143
Total comprehensive income/(loss) for the year	-		-		-		143		(804)		(661)		-	(661)
Transactions with owners
Share based payment	-		-		-		-		7		7		-	7
As at 30 April 2022	4,687		553		801		(159)		1,649		7,531		40	7,571
	Share capital		Share premium		Merger reserve		Foreign exchange reserve		Retained earnings		Amounts attributable to owners of the parent		Non-controlling interest	Total equity
	£'000		£'000		£'000		£'000		£'000		£'000		£'000	£'000
At 1 May 2020	4,687		553		801		(106)		2,327		8,262		40	8,302
Effect of prior year adjustment	-		-		-		-		(45)		(45)		-	(45)
At 1 May 2020 (as restated)	4,687		553		801		(106)		2,282		8,217		40	8,257
Profit for the year	-		-		-		-		171		171		-	171
Effect of prior year adjustment	-		-		-		-		(20)		(20)		-	(20)
Profit for the year (as restated)	-		-		-		-		151		151		-	151
Other comprehensive loss	-		-		-		(196)		-		(196)		-	(196)
Total comprehensive income/(loss) for the year	-		-		-		(196)		151		(45)		-	(45)
Transactions with owners
Share based payment	-		-		-		-		13		13		-	13
As at 30 April 2021 (as restated)	4,687		553		801		(302)		2,446		8,185		40	8,225

See note 2 for details of prior year adjustment.

The notes in the annual report and accounts form part of these financial statements.

1. Accounting policies

Newmark Security PLC (the "Company") is a public limited company, limited by shares, registered number 3339998 in England & Wales. The consolidated financial statements of the Company for the year ended 30 April 2022 comprise the Company and its subsidiaries (together referred to as the "Group").

Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis.

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

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 recognised in the period in which the revision is made.

None of the new standards or amendments to standards have had any impact on the accounting policies of the group in the year.

No new standards that are not yet effective have been early adopted or are expected to have a material impact on the Group's profit or loss.

Going concern

Based on the Group's latest trading, future expectations and associated cash flow forecasts, the Directors have considered the Group cash requirements and forecast covenant compliance and are confident that the Company and the Group will be able to continue trading for a period of at least twelve months following approval of these financial statements, being the going concern period.

In August 2020, the Group secured a £2 million financing facility from its bankers, HSBC, via the Coronavirus Business Interruption Loan Scheme ("CBILS"). This loan is for a term of 6 years, with the first year being interest, repayment and covenant free under the Business Interruption Payment scheme. The original covenant required the Group to deliver a pre-debt service cashflow of 1.2 times the level of debt service commencing for the year end 30 April 2022, based on audited accounts. As a result of the Strategic Business Plan certain investments were identified and factored into a forward looking model. Management identified that the investments and cash outlay may result in a potential default of the covenant and therefore the Directors agreed a waiver of the debt service ratio to be replaced by a Tangible Net Worth ("TNW") test applicable for the year ended 30 April 2022 based on audited accounts. This test used the calculation of Net Assets less Intangible Assets and required the result to exceed £3.1 million.  In the year ended 30 April 2022 profitability and cashflows were significantly impacted by the COVID-19 pandemic, increase in freight costs and the global componentry shortage as the Group had to increase stock levels to meet anticipated demand and pay higher prices for many components. As a result of this, in January 2022, HSBC agreed to a waiver of the year ended 30 April 2022 covenant calculation.  The first covenant to be tested will be for the year ended 30 April 2023 and requires the Group to deliver a pre-debt service cashflow of 1.2 times the level of debt service commencing, based on audited accounts. No other financing facilities of the Group have any covenant requirements.

In September 2021, the Group increased its UK invoice discounting facility with HSBC to £1.7 million to provide additional working capital headroom.  At 30 April 2022, £1.4 million was being utilized.  In February 2022, the Group secured a 3 year $2 million invoice discounting facility with Seacoast National Bank against invoices raised from our US operation. At 30 April 2022, $1.1 million of the facility was being utilized.  The level of invoice discounting available varies with the open book of trade debtors at any point in time and therefore the level of financing fluctuates.  In January 2023 the Group increased the UK invoice discounting facility by another £0.6 million to £2.3 million.

As at 30 April 2022 the Group had a £0.4 million overdraft facility with its bankers, HSBC, although none was utilized as the Group had a positive bank balance of £0.2 million at year end.  This overdraft facility was reduced to £0.2 million on 31 July 2022.

The Group's going concern assessment is based on the Group returning to net cashflow generation in the year to 30 April 2023.  This is forecast to be a result of the combination of the impact of increasing customer prices in the second half of the last financial year, continued growth in revenues, cost savings introduced in May 2022 and stock levels starting to unwind from their historic high levels.

The latest forecast of the Group results in exceeding the debt service covenant test by 51% and will be tested more fully when a revised forecast is completed in February. As a consequence of the revised forecast findings, the Group would explore the existing covenant test level with our Banking partners, HSBC, should the covenant headroom fall short of the target. Further scenario testing and sensitivity analysis was completed to model certain criteria that would indicate a potential covenant breach against the latest formally approved budget. Given the 51% headroom in the latest covenant calculation it would take a large reduction in Gross Material Margin to cause in a covenant breach at April 2023.  However, management are confident that the shortfalls will not occur particularly given we are only a few months away from the year end but are undertaking regular reviews and forecasts to ensure this. 

The Group is currently trading ahead of budget and has returned to profit after tax and operating cashflow generation in FY23.

Management are confident that the Group would be able to meet loan repayments and working capital needs. The Group is expected to be able to operate within existing finance facilities, based on Management's detailed monthly cashflow forecasts to January 2024. Should profits or cashflow movements fall behind expectations in this period the Group expects to be able to utilise more of its current UK and US invoice discounting facilities and also extend the overdraft facility.  Accordingly, the Directors consider it appropriate to prepare the financial statements on a going concern basis.

2. Prior year adjustment

On adoption of IFRS 16 ("Leases") in the year ended 30 April 2020, the initial recognition of one of the Subsidiary's right of use land and building leases was based on a 5 year lease term.  A subsequent review of this lease during the year ended 30 April 2022 highlighted that the lease term was in fact 15 years and not 5 years as per the original interpretation of the lease agreement. The recognition of an additional 10 years of lease term has resulted in a prior year adjustment to increase right of use land and buildings asset net book value at 30 April 2020 and 30 April 2021 by £924,000 and £929,000 respectively.  The corresponding lease creditor increased at 30 April 2020 and 30 April 2021 by £969,000 and £994,000 respectively.  The lease creditor adjustment is split between short-term and long-term borrowings as shown in the table below.  The overall impact is a reduction in total net assets and corresponding reduction in retained earnings at these dates of £45,000 and £65,000 respectively.  In respect of the income statement for the year ended 30 April 2021, this resulted in a reduction in the depreciation charge of £5,000 and an increase in the lease interest cost of £25,000.  Net impact on the profit before tax is a reduction of £20,000.

Changes to the statement of financial position
	As previously reported	Adjustment at 1 May 2020	Adjustment at 30 April 2021	As restated at 30 April 2021
Property, plant and equipment	£'000	£'000	£'000	£'000
Right of use land buildings
Cost	614	911	-	1,525
Depreciation	(294)	13	5	(276)
Net book value	320	924	5	1,249
Other short-term borrowings
Lease creditor	(386)	50	(25)	(361)
Long-term borrowings
Lease creditor	(288)	(1,019)	-	(1,307)
Capital and reserves
Retained earnings	2,511	(45)	(20)	2,446
Changes to the income statement
		As previously reported	Adjustment	As restated
		£'000	£'000	£'000
Loss from operations is after charging for:
Depreciation of property, plant and equipment		(560)	5	(555)
Finance Costs
Lease interest cost		(37)	(25)	(62)

3. Segment information

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

The Group has two main reportable segments:

• People and Data Management 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 76.0% (2021: 71.6%) of the Group's revenue.

• Physical Security Solutions division (previously called the 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 24.0% (2021: 28.4%) 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.

		People and Data Management division		Physical Security Solutions division		Total
		2022		2022		2022
		£'000		£'000		£'000
Revenue from external customers		14,558		4,587		19,145
Finance cost		99		20		119
Depreciation		304		228		532
Amortisation		703		-		703
Segment profit/(loss) before income tax		312		(103)		209
Additions to non-current assets		1,292		158		1,450
Disposal of non-current assets		488		198		686
Reportable segment assets		13,094		2,299		15,392
Reportable segments liabilities		4,722		1,530		6,252

		as restated People and Data Management division		Physical Security Solutions division		as restated Total
		2021		2021		2021
		£'000		£'000		£'000
Revenue from external customers		12,647		5,011		17,658
Finance cost		54		18		72
Depreciation		296		246		542
Amortisation		470		-		470
Segment profit before income tax		1,120		161		1,281
Additions to non-current assets*		1,012		254		1,266
Disposal/modification of non-current assets		322		440		762
Reportable segment assets		11,586		2,515		14,101
Reportable segments liabilities		3,569		1,435		5,004

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities to the Group's corresponding amounts:

				as restated
		2022		2021
		£'000		£'000
Revenue
Total revenue for reportable segments		19,145		17,658
Profit or loss before income tax expense
Total profit or loss for reportable segments		209		1,281
Parent company salaries and related costs		(809)		(868)
Other parent company costs		(834)		(534)
Loss before income tax expense		(1,434)		(121)
Corporation taxes		630		297
(Loss)/profit after income tax expense		(804)		176
Assets
Total assets for reportable segments		15,392		14,101
Parent company assets	*	789		1,674
Group's assets		16,181		15,775
Liabilities
Total liabilities for reportable segments		6,252		5,004
Parent company liabilities	**	2,358		2,546
Group's liabilities		8,610		7,550

*PLC bank overdraft is set off against other group cash balances and has therefore been included within the asset line owing to an offsetting arrangement that is in place with HSBC.

**Parent company liabilities include dormant companies' intercompany balances which eliminate fully on consolidation therefore do not feature in the consolidated financial statements.

Geographical information:		Non-current assets by location of assets
				as restated
		2022		2021
		£'000		£'000
UK		7,092		7,522
USA		560		209
		7,652		7,731

		Reportable segment totals	PLC	Group Totals		as restated Reportable segment totals	PLC	as restated Group Totals
		2022	2022	2022		2021	2021	2021
		£'000	£'000	£'000		£'000	£'000	£'000
Other material items
Additions to non-current assets		1,450	-	1,450		1,266	-	1,266
Disposals and modifications of non-current assets		623	-	623		762	-	762
Depreciation and amortisation		1,235	13	1,248		1,022	16	1,033

4. Tax and Deferred tax

		2022		2021
		£'000		£'000
Current tax expense
UK corporation tax on profit for the year		(338)		(337)
Overseas corporation tax		-		42
Adjustment to provision in prior periods		(88)		(125)
		(426)		(420)
Deferred tax expense
Origination and reversal of temporary differences		(159)		169
Effect of change in corporation tax rate		(61)		-
Adjustment to provision in prior periods		16		(46)
		(204)		123
Total tax (credit) / charge		(630)		(297)

The reasons for the differences between the actual tax credit for the year and the standard rate of corporation tax in the UK applied to profits for the year are as follows:

				as restated
		2022		2021
		£'000		£'000
Loss before income tax		(1,434)		(146)
Expected tax (credit)/charge based on the standard rate of corporation tax in the UK of 19.0% (2021: 19.0%)		(272)		(28)
Research and development allowances		(142)		(199)
Effects on profits on items not taxable or deductible for tax purposes		24		(81)
Effects of corporation tax change		(61)		-
Losses arising in year where no deferred tax recognised		25		-
Recognition of previously unrecognised deferred tax assets		(178)		46
Write-off of previously recognised deferred tax assets		35		-
Difference arising from utilisation of capital allowances		6		71
Different tax rates applied in overseas jurisdictions		4		11
Adjustments for tax credit relating to previous periods		(71)		(125)
Total tax (credit)		(630)		(297)

The Group has the following tax losses, subject to agreement by HMRC Inspector of Taxes, available for offset against future trading profits as appropriate:

		2022		2021
		£'000		£'000
Management expenses		170		177
Trading losses		5,203		4,591
		5,373		4,768
		2022		2021
A deferred tax asset has not been recognised for the following:		£'000		£'000
Management expenses		170		8
Trading losses		732		1,691
		902		1,699

Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19% (2021: 19%). The March 2021 Budget announced a further increase to the main rate of corporation tax to 25% from 1 April 2023 and was substantively enacted in May 2021. The £61,000 increase in net deferred tax assets as a result of this change in tax rate is recorded in the year ended 30 April 2022.

Deferred tax assets have been recognised in respect of all temporary timing differences giving rise to deferred tax assets if it is probable that these assets will be recovered. The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS12) during the period are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.

Details of the deferred tax liability, and amounts (charged)/credited to the consolidated income statement are as follows:

		Total		Accelerated capital allowances	Other temporary and deductible differences	Available losses
Asset/(liability)
At 1 May 2021		206		146	(526)	586
Income statement (charge)/credit		204		(113)	(146)	463
At 30 April 2022		410		33	(672)	1,049
Asset/(liability)
At 1 May 2020		329		185	(442)	586
Income statement (charge)/credit		(123)		(39)	(84)	-
At 30 April 2021		206		146	(526)	586

Deferred tax assets have been recognised in respect of available losses which are expected to be matched against future trading profits. Management reviews the estimate mid-year and assesses whether latest projections impact the level of recognised deferred tax. Management allow for a fluctuation in projections and apply a level of cautiousness to recognition so that it allows for profit fluctuations. A 10% fluctuation in future profitability could result in a change of £17,000 to the recognition of deferred tax.

There are unrecognised deferred tax assets as listed above, which have not been recognised due to the uncertainty of the timing of future profits.

5. Dividends

The Directors are not proposing a dividend for 2022 (2021: nil pence).

6. Subsequent events

Robert Waddington, a non-executive director of the Company, decided on 6 July 2022 to step down from the Board of Directors and left the business on 8 September 2022.

 

END

 

 

FR SEUFUEEDSEEF