Interim Results

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