Newmark Security Regulatory News (NWT)

Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).

Newmark Security plc

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

Final Results

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 2020.

Highlights

Financial highlights:

· Revenue was marginally behind last year as communicated in the interim report at £18.77 million (2019: £19.58 million), a decrease of 4%

· Gross profit increased to 39.7% (2019: 39.3%)

· Operating Profit before exceptional items was £604,000 (2019: £638,000)

· Operating Profit after exceptional items was £305,000 (2019: £286,000)

· Tax credit of £896,000 (2019: charge £25,000)

· Profit after tax for the year of £1,127,000 (2019: £189,000)

· Earnings per share of 0.24 pence (2019: 0.04 pence)

· Cash generated from operations before exceptional items was £1,267,000 (2019: £518,000)

· Investment in development increased to £886,000 (2019: £333,000)

· Net Assets of £8,302,000 (2019: £7,114,000)

Operational highlights:

· People and Data Management division (Grosvenor Technology)

o Revenues from Human Capital Management (HCM) increased by 32% to reach £9,142,000 (2019: £6,908,000)

§ New US HCM contracts signed following the year end are good signs for the future

o Access Control revenues grew by 4% to £4,215,000 (2019: £4,071,000)

§ Existing Access Control Legacy Janus product revenue increased by 27% whilst Sateon revenue decreased by 19%

§ The new platform Janus C4 was released at the end of the previous year. The Integrated Security Management and Access Control product provides a single-platform, multi discipline solution and reached £383,000 of revenue (2019: £35,000).

· Physical Security Solutions division (Safetell)

o Revenue decreased by 37% to £5,410,000 (2019: 8,604,000) from the expected reduction on the Post Office Network Transformation project combined with the continued decrease in demand from high street banks and building societies.

o Following the main restructuring in the Physical Security Solutions division in the prior year a number of strategic reviews were carried out which have resulted in an improved product portfolio where we have seen some green shoots of future profitable growth

Commenting on the results, Maurice Dwek, Chairman of Newmark Security, said "Whilst the current year results will be adversely affected by COVID-19, I remain confident that there will be medium to long-term growth in both our divisions' core markets. In the People and Data Management division, we continue to build a greater proportion of recurring revenues, in line with our long-term strategy. In particular, the provision of Software-as-a-Service (SaaS) in the HCM sector is likely to increase further, as the value we can add in enhancing data protection is recognised by new and existing partners. Our Physical Security Solutions division continues to benefit from last year's restructure, as we increase the range of products we offer, through new product development and certification. With increasing crime rates and the continued threat of terrorism, our leadership team has also identified new markets and customers that will firmly position Safetell for future growth."

For further information:

CHAIRMAN'S STATEMENT

Overview

It has been a year of real progress for Newmark Security, in which we have refocused the strategic direction of the Company, rebranded our US operation, and positioned ourselves for future growth.

Continued progress and profitability

I am pleased to report a period of continued profitability for the Group this year, which has been helped by good growth in our sales in North America. The US represents a lucrative market for our People and Data Management division, and our US business, Grosvenor Technology LLC, has been rebranded as 'GT Clocks', allowing us to market the business and trade under a name that is more relevant for the US market. It puts a renewed focus on the provision of timeclocks, alongside the relevant services we can provide to both manage and maintain the devices remotely and, importantly, ensure the secure management of our clients' data.

Following a business reorganisation of our Physical Security Solutions division, Safetell, at the end of the 2019 financial year, we have seen the division delivering improved gross margins that have added to the profitability of the Group this year, despite lower revenue.

Performance in line with management's expectations

Overall performance across the Group during the year has been in line with expectations, with revenue for the year from operations slightly down at £18,767,000 (2019: £19,583,000), despite COVID-19 impacting trading in the last two months of the financial year. Profit from operations was £305,000 (2019: £286,000). Revenue in the People and Data Management division (Grosvenor) increased by 22% from £10,979,000 to £13,357,000, while revenue in the Physical Security Solutions division (Safetell) decreased by 37% from £8,604,000 to £5,410,000. A full Financial Review of our results is included below.

Our people and the response to COVID-19

Although it only affected the latter part of our financial year, the COVID-19 pandemic had a major impact on our people and the business, both operationally and financially, particularly in the final month before year-end. The Board has been extremely pleased with the rapid response from our management team, and the way they have acted to keep our people and communities safe, protect and maintain jobs and protect the business.

I would like to take this opportunity to express the Board's appreciation to all colleagues for their tremendous efforts during the year, especially in the light of recent challenges. We have a strong leadership team, and this has made a real difference as we continue to prove ourselves as an established leader in markets of increasing importance in the areas of data and physical security.

Board and governance

The Board and its Committees maintain a robust governance framework, using individuals' experience 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"), and details on how the Company applies the principles of the QCA Code are set out in our Corporate Governance section of the annual report.

As reported at half-year, our Group Finance Director, Brian Beecraft, retired during the year. Following a short handover with Brian, Graham Feltham became Group Finance Director in October 2019.

I was also pleased to welcome Terence Yap as a new Independent Non-Executive Director in May 2020. He has more than 25 years' experience in various industries, including Telecommunications, Security and Smart Cities Development, and is the Chairman of Guardforce AI, a group focusing on delivering technologically innovative security solutions within the Asia Pacific region. Terence further enhances the balance of Directors and the skill sets available to the Board, and we will benefit greatly from his strategic advice as we plan the next phase of Newmark's growth.

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. There will be an impact on the business due to the COVID-19 crisis, as described above and elsewhere in this report. However, we have worked closely with our bank (HSBC) and secured financing via a CBILS government-backed loan to the value of £2million, with opportunities to extend invoice financing and overdraft facilities if required. Overall, the business has performed better than our own forecasting had suggested during the COVID-19 period and we are optimistic that this trend will continue in these uncertain times. With the post year end securing of two significant customer agreements, with more in the pipeline, this puts us in a good position for the next twelve months.

Dividend

The Board is not recommending the payment of a dividend for the year ended 30 April 2020 (2019: £Nil).

Outlook

Whilst the current year results will be adversely affected by COVID-19, I remain confident that there will be medium to long-term growth in both our divisions' core markets. In the People and Data Management division, we continue to build a greater proportion of recurring revenues, in line with our long-term strategy. In particular, the provision of Software-as-a-Service (SaaS) in the HCM sector is likely to increase further, as the value we can add in enhancing data protection is recognised by new and existing partners.

Our Physical Security Solutions division continues to benefit from last year's restructure, as we increase the range of products we offer, through new product development and certification. With increasing crime rates and the continued threat of terrorism, our leadership team has also identified new markets and customers that will firmly position Safetell for future growth.

Maurice DwekChairman

8 September 2020

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

We strengthened our presence in high-growth, specialist markets in data and security during the 12 months to 30 April 2020. Following the impact of the COVID-19 pandemic, we are also developing 'new workplace' solutions that are helping organisations to re-think the way they work.

Building a sustainable business

Our products have become the industry standard in people and data security and Newmark Security benefits from long-term relationships with many blue-chip customers and is generating a greater proportion of its revenues from recurring services. That is reflected in a good set of results for the year, and is helping us to build a business that has long-term stability and sustainability at its core.

We were pleased with our performance in the year, despite the impact of COVID-19 at the end of the financial year. We saw a continued increase in revenue within the People and Data Management division of 22% to £13,357,000 (2019: £10,979,000). This included revenue from Human Capital Management (HCM), which was up 32% to £9,142,000 (2019: £6,908,000), and revenue from Access Control, which increased by 4% to £4,215,000 (2019: £4,071,000). Revenue in the Physical Security Solutions division decreased by 37% to £5,410,000 (2019: £8,604,000), following the changes we made at Safetell last year. Improved margins and cost efficiencies meant that Group operating profit before exceptional items was consistent at £604,000 (2019: £638,000) and which resulted in an operating profit after exceptional items of £305,000 (2019: 286,000).

Grosvenor Technology performed very well this year while the restructure and strategic turnaround at Safetell in the UK has positioned that business for growth. We are introducing new products that will help us increase our reach to more customers in new markets, and I believe we have excellent growth potential across all our businesses.

The impact of COVID-19

The COVID-19 virus has had an enormous impact on economic and personal life around the world. It affected Newmark in the last few months of our financial year, contributing to the modest drop in revenue compared to last year. While we have seen slowdowns in some sectors, such as retail and hospitality, other sectors have remained steady, or even buoyant.

Despite incredibly challenging conditions, the Group continued to trade in all divisions. Like most businesses, we had to take very quick action, and I'm immensely proud of the way our people worked extremely hard to handle different kinds of pressures. They adapted brilliantly to new ways of working, while we also took the difficult decision to furlough up to 30% of our colleagues at the height of the crisis. By employing technology to ensure our remaining colleagues were able to work seamlessly from home, we maintained productivity levels throughout and supported the opening of 40 new accounts.

As the world changed, we knew we had to change too. Safetell, who have years of experience in supplying screens and products for banking and the Post Office, created a product line of hygiene screens and security hatches, which were sold to organisations such as Amazon and Travis Perkins. We also developed new security portals with temperature and touchless sensors. Grosvenor Technology has received enquiries from clients globally looking for new ways to interact with access control door readers and traditional timeclocks. As a consequence, we are now marketing a range of existing and new touchless solutions, such as proximity cards and facial recognition.

Additional details on the impact of COVID-19 on our business and people is contained in the annual report.

Overview of Divisional performance

People and Data Management division - continued good performance

Following its significant growth trend over the last few years, Grosvenor Technology continued to perform well this year and is the focus of our investment strategy in the development of new products and services.

Human Capital Management (HCM) - US operations driving growth

Our HCM sales in North America delivered the most significant growth this year. This growth was in line with our expectations, as our major US clients continued the roll out of Grosvenor Technology's 'next generation' hardware.

During the year, we rebranded our US business as 'GT Clocks', which has enabled us to create marketing that is more specific and relevant for our US customers.

Grosvenor's UK-based HCM business, which serves the rest of the world outside of North America, also saw a growth in sales, due to a general uplift across a number of mostly European customers, as opposed to significant growth from any single client.

We are supporting the growth of the division with increased investment in new products and services, developing our HCM software platforms with a Cloud and API (Application Programming Interface) first approach. A Cloud and API first approach prioritises utilising a Cloud infrastructure along with APIs to provide seamless connectivity between back-end and front-end systems for customers. This development is focused on providing added services on a Software as a Service (SaaS) basis, which enables us to create additional value from our hardware post-deployment. This also allows for a business model where Software, Services and Terminals are bundled as a 'Clock as a Service' (ClaaS) offering, generating long-term recurring revenue potential.

Access Control - move toward an integrated platform

Overall, we delivered revenue growth in Access Control this year, in part due to price increases in the market. We launched our new Security Management System (SMS), Janus C4, which was developed in conjunction with our software development partner based in Slovakia.

The market is moving away from stand-alone Access Control solutions, towards integrated Access Control, Intruder, CCTV, Fire and Building Management, all provided within a single platform. I believe Janus C4 represents an excellent opportunity for growth, and the solution has been well received by both existing and prospective customers. As with all new Access Control sales there is an inevitable lag between pipeline generation and an upturn in revenue and to help decrease this lag and to further support clients adopting the Janus C4 platform, we have invested in additional training resource.

To rapidly adapt to COVID-19 working environments, we launched several training courses as online webinars, a move that has been very popular with installation engineers. While the majority of our Janus C4 customers and prospects have been new clients, many of our traditional customers have begun to consider Janus C4 as a natural next step and some Sateon clients began to migrate to Janus C4 during the period, a trend we expect to continue at additional pace in future years.

The development of Sateon software is now limited to critical bug fixes and maintenance, although Sateon product family sales continue to be bolstered by sales of the OEM variant, used as a component within our customers offering, of the Sateon Advance. This allows third parties to use the hardware in a non-proprietary way on their own access control platforms. We added a second OEM customer during the year and continue to explore further options with global third-party access control providers.

Physical Security Solutions division - progress following strategic review

While Safetell generated considerably lower revenue than last year, the business achieved increased margins and performed in line with internal expectations. This slowdown resulted from the expected reduction in the volume of work as the Post Office Network Transformation programme came to an end, as well as lower demand from high street banks and buildings societies and less project work coming into Safetell's service division.

Safetell has been dominant for many years in the rising screen market, but we have long recognised the need to diversify its customer base and product range. That is why we carried out a full-scale review of the division and, last year, we implemented significant changes, combining the product and service divisions and aligning divisional resources into central teams to create a much leaner organisation that offers real value to our customers.

During the year, the reorganisation started to bear fruit, and this is reflected in our improved performance, delivering improved gross margins that have added to the profitability of the Group. With increases in crime rates and the continued threat of terrorism, I am confident the division is well placed to make the most of opportunities for growth over the next few years and to gain market share.

People

I would like to convey my personal thanks to all of our colleagues for playing their part in what has overall been a successful year for Newmark Security. The changes at Safetell saw Anton Pieterse, the division's Managing Director, leave the Group in November 2019. I would like to thank Anton for his long period of service, and I warmly welcome Paul Lovell to the role. Paul joined the Group in 1991 working in various capacities and, as an accountant who qualified with KPMG, he has a wealth of experience that will benefit and support Safetell as it enters a new period of growth.

Looking ahead

With lockdown only now beginning to ease, the year has started slowly. Some clients are understandably taking longer to commit to activities, or postponing them for an indefinite period. However, we have many projects ongoing and there are many more we hope to win again when the time is right. I believe we have adapted well, both in terms of being able to continue to trade and proactively implement strategies that have led to Safetell and Grosvenor Technology receiving new enquiries to cater for the new workplaces being created by many businesses.

Both divisions are well positioned for a post COVID-19 world, with existing strategies becoming more relevant than ever before. Providing safe and secure workplaces will remain a key objective globally for organisations of every shape and size and we will continue to invest to meet this need. It remains difficult to say exactly how the market will develop over the next 12 months, but we've done what was needed - we've reduced cost in the business, we've protected our workforce, and we have continued to adapt to the needs of our customers. The year ahead will be challenging owing to the COVID-19 impact, but I am sure we have the right strategy, the best people, and the resources we need to build a solid platform for future sustainable growth.

Marie-Claire DwekChief Executive Officer

8 September 2020

OUR DIVISIONS - People and Data Management (previously Electronic Division)

Grosvenor Technology enjoyed another year of growth across both its lines of business and regions, but primarily driven by our Human Capital Management (HCM) business in North America. In this region, where we rebranded as 'GT Clocks,' we continued to see strong performance as the relevance of our specialist offering gained traction in the sector. The growth trend we have enjoyed in recent years in this region means our US based business generated 44% of our total revenues for this division.

We have received new enquiries from new and existing HCM vendors looking not just for hardware, but for an organisation that can facilitate people-data security solutions. As US state-by-state legislature pertaining particularly to biometric data evolves, we are well positioned to take advantage of this growing demand for data security and management. First and foremost, however, we have built a reputation for highly reliable and performant hardware and during this period we opened or continued negotiations with several 'Tier 1' HCM solutions providers considering their next generation 'timeclocks' decisions. We have successfully concluded one negotiation with a new 'Tier 1' vendor and, with our support, one of our HCM solution partners also closed another agreement to supply a major international retailer through an existing partner in the first half of FY2020/21 potentially worth up to $3.8m over the next two to three years. The news of the merger between Ultimate Software and Kronos, which we expect will result in a transfer of orders away from us over time to the Kronos clock, is disappointing, however we have benefited from this relationship and will continue to work with Ultimate into the foreseeable future. As in previous reports, we still feel the HCM business in the Americas is our area of greatest opportunity and during the period we increased our Business Development resource to leverage this.

In our Rest of World HCM business, we also experienced significant growth, increasing revenues by 35% as we have continued to grow the strong partnerships with our existing HCM clients, many of which have increased their spend with us. Although this growth has largely come from hardware sales, we again have seen increased enquiries for our subscription 'data management' services, a trend we expect to see continue in 2020/21.

To cater for, and drive this growing need, we intend to continue to invest in developing our offering from a Cloud first, to an eventual cloud only methodology. We remain fully committed to offering a suite of services to ensure people-data of all types is completely secure, whether at rest or in transit and we expect this to be a major recurring revenue generator for years to come.

The period also saw us launch a new mid-tier device (GT4), which we expect to replace sales of its predecessor timeclock in this market sector, as well as creating sales from new clients globally. Following the year end we have received our first major contract for the GT4, from a US client committed to purchasing a minimum of 3,000 devices and some allied services in the next three years valued in excess of $1million.

We have also shown positive movement in Access Control (AC) revenues achieving growth of 4% across our three product families.

As reported last year, the Sateon platform is considered mature and complete, with development efforts limited to essential bug fixes and maintenance. The last iteration of this platform however, Sateon Advance, is still purchased by many AC installers and integrators and many of these still install this product into new projects. This helped limit the decline in sales to 19% and the line played an important role in sustaining overall AC revenues as we gain traction in our new product line Janus C4. Our legacy AC range, Janus, continues to maintain its sales.

The majority of our sales, marketing and training activities have been linked to promotion of our new product line, Janus C4, and as a consequence we have seen the burgeoning sales begin to gain traction. Janus C4 isn't 'just another' AC product. Developed in collaboration with a Slovakian Security Management System (SMS) software business it utilises the same class-leading hardware as our popular Sateon Advance product, but has been designed to take advantage of the market trend towards the integration of traditionally disparate offerings such as CCTV, Fire Safety, Intrusion Detection and Energy Management, to create a completely seamless, single platform solution that protects buildings and the people within them, at the same time as reducing energy consumption and carbon emissions.

OUR DIVISIONS - Physical Security Solutions division (previously Asset Protection division)

At Safetell, we create safe and secure workplaces for our customers - designing, installing and maintaining a diverse range of physical security solutions to a wide range of sectors.

A transitional year for our Physical Security Solutions division

While Safetell is best known for supplying and installing fast rising screens in the banking sector, our team of industry experts are here to provide a professional service and a personal response to all our customers' needs. We carried out a full-scale review and reorganisation of the division last year and are making good progress in expanding our product range and widening our customer base.

However, Safetell remains a business in transition, having generated significantly lower revenue this year - largely due to the end of the Post Office Network Transformation programme, and lower volumes in our traditional client base of banks and building societies. During the reorganisation, we combined our product and service divisions, and aligned our divisional resources into central teams, to create a much leaner organisation that offers even better value to our customers. This has helped us to improve our gross margins and maintain performance in line with expectations prior to the impact of COVID-19.

A simplified, more agile and responsive organisation

Transforming our Safetell business has dramatically reduced overheads, while simplifying reporting lines and management structures. This has allowed for quicker and better decision making, and we are building a much more agile and responsive operation, which has already been tested during the COVID-19 crisis. Many of our clients operate from critical locations, such as hospitals, retail sites, financial hubs, and major buildings (e.g. the Shard in London). Within a week of lockdown in March, we were designing and supplying new screens and products to meet their urgent needs during the pandemic.

The growth opportunity - what makes Safetell different

The continuing threats of crime and terrorism have made physical security a priority for businesses in most sectors, while additional concerns around COVID-19 have increased demand for new and innovative solutions, as we have all been forced to adapt to new ways of working together. While we do not foresee a significant overall growth in the market for physical security products and services, we are ideally placed to make the most of the growth opportunities ahead and to gain market share.

As Safetell emerges as a leaner but more energetic and flexible organisation, we believe we are one of the few businesses of our type to offer a one-stop shop approach in a fragmented market. Our new website puts a firm focus on our expanding product range, and the wide range of bespoke services that gives us a competitive advantage in the market.

We know that most customers will come to us with a requirement for a single product, rather than a 'solution', but that can quickly become an opportunity to upsell. We have extensive expertise in every product we sell, with highly qualified and experienced technical engineers who can create the bespoke designed solutions that will ultimately save our customers money and make them safer.

This is how we build long-standing client relationships. Unlike most of our direct competitors, our people are multi-skilled, and we build ongoing revenue streams through our follow-up services, which include locksmiths, pneumatic experts, CCTV/speech systems and much more. We are even able to install third party products where necessary and support them via a service contract.

While the expansion of the business may not initially come directly from our service business, we believe that as our product sales increase, this will drive the integrated service business. Most of the products we are installing now will generate service work for Safetell, particularly those products with mechanical aspects, rather than traditional static elements like screens. This service offering will help us build recurring revenue streams and deepen our relationships with customers.

FINANCIAL REVIEW

Revenue

Group revenue reduced by (4%) to £18.77million (2019: £19.58million). The revenue performance has arrived as expected at a marginal reduction to last year which, given the impact to the Group in April 2020 from COVID-19 and the year of transition for our Physical Security Solutions division, has been a strong performance. Further commentary and discussion can be found in the divisional sections.

Key Performance Indicators

Gross profit margins have remained consistent at 39.7% (2019: 39.3%). Physical Security Solutions division obtained a gross profit of 44.4% (2019: 39.6%) and Data and People Management division reaching 37.8% (2019: 31.2%) the combined weighting of margins and product mix has resulted in the margins remaining consistent with last year.

Operating expenses & average employees

Operating expenses before exceptional items have fallen by 4.1% to £6.85million (2019: £7.13million). This has mainly been the result of the restructuring exercise in the Physical Security Solutions division carried out in the previous year resulting in a fall in average employees by 27% to 53 (2019: 73) countered by the growth in the People and Data Management division mainly in development with further roles in sales, customer services and marketing resulting in an increase of 13% to 59 employees (2019: 52). Overall average employees have fallen 10% to reach 115 (2019: 128) with a resulting 12% reduction in wages and salaries of £952,000 to £6,979,000 (2019: £7,931,000).

Exceptional costs

During the year exceptional costs of £299,000 (2019: £352,000) were incurred with £167,000 (2019: £352,000) from a continuation of streamlining and realignment of positions mainly in Safetell. Other exceptional costs of £132,000 (2019: nil) were incurred with £82,000 of asset impairment as Safetell vacated one of the division's leased properties. A further £50,000 incurred on a Group rationalisation project which commenced during the year with an objective of making the Group fit for purpose and efficient. The overarching objective is to reduce the number of companies from 17 to 4 unless management identifies a requirement to keep any of the companies that are currently dormant.

Profitability

Profit before tax grew by £17,000 to £231,000 (2019: £214,000). At the interim an improved level of profitability was expected compared to last year, which has been realised. COVID -19 reduced April revenues by an estimated £400,000 which resulted in an estimated fall in gross profit of £200,000. Without the impact of COVID-19 the performance of the Group would have been significantly improved and exceeded the expectations set at the time of announcement of our half year results.

Taxation

A tax credit of £896,000 (2019: charge £25,000) was recognised in the year. This resulted from a current tax credit of £583,000 (2019: charge £45,000) which was recognised following the review of the Research and Development claim process in the second half of the year. This resulted in a tax credit of £612,000 being a current year claim of £176,000 and revised claims for prior years of £436,000. An additional element of the claim related to RDEC (Research and Development Expenditure Claim) which resulted in a £75,000 credit shown within operating profit. A deferred tax credit of £313,000 (2019: £20,000) was driven by the recognition of a deferred tax asset relating to losses of £450,000 countered by other movements of (£137,000).

Earnings per share

Earnings per share increased by 0.20p to 0.24p (2019: 0.04p). The increase in earnings per share is mainly attributed to the current tax credit and the recognition of deferred tax assets supported by a consistent year on year profit before tax.

Balance sheet

Net assets have increased by £1,188,000 to £8,302,000 (2019: £7,114,000). This is mainly derived from an increased investment in development of £553,000 and an increase in current and deferred tax assets of £1,000,000. Other working capital movements contributed by a reduction in debtors of £269,000 and a reduction in trade and other payables of £741,000 of which £239,000 of the reduction related to a payment of prior year restructuring at Safetell and the remainder is due to a reduction in trading activities around the year end somewhat impacted by COVID-19. Invoice discounting was utilised by an additional £212,000 to £905,000 (2019: 693,000) with the Group's cash position falling by £421,000. The introduction of IFRS 16 Leases created additional assets of £766,000 and an associated additional liability related to leases previously classified as operating of £848,000 at the end of the year.

Research & Development

The Group has increased its investment by £540,000 to £873,000 (2019: £333,000) in the People and Data Management division. The investment has been focused on the cloud development of GT Connect, our SaaS platform. Clock development continued with enhancements to our existing GT10 offering and we are excited to have started development work on our next generation device. We have continued to work with our software partner on our new Janus C4 access control product. With the onset of COVID-19 we have reviewed the extent of our development work and prioritised to safeguard our cash expenditure.

Cashflow

During the year we have reduced our cash levels by £421,000 to £620,000 (2019: £1,041,000). Cash generated from operations before exceptional items increased by £749,000, however this excludes payments of £415,000 of lease liability payments now classified in financing activities following the adoption of IFRS 16. Adjusting for this movement, the like for like increase year on year is £334,000. Exceptional cash payments were made in regard to both prior and current year employment termination costs of £362,000 (2019: £113,000). With other minor variances and the additional investment in R&D of £553,000 the group had a resulting decrease in cash of £421,000.

Post Balance Sheet events

Following a detailed review of the potential impact of COVID-19 on the business Newmark Security PLC entered into a Coronavirus Business Interruption Loan Agreement with HSBC for a Loan facility of £2,000,000 at a fixed rate of 4.69% for a period of six years with the first year being interest free under the Business Interruption Payment Scheme.

CONSOLIDATED INCOME STATEMENT FOR THE YEAR END 30 APRIL 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 APRIL 2020

The financial statements were approved by the Board of Directors and authorised for issue on 8 September 2020.

MC DWEK

Director

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

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 April 2020

*Exceptional items for 2019 have been represented to show cash paid during the year and allocated from the movement in trade and other payables. Trade and other payables increase of £698,000 was previously stated at £937,000 with £239,000 being the unpaid exceptional items.

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The notes set out 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 registered in England & Wales. The consolidated financial statements of the Company for the year ended 30 April 2020 comprise the Company and its subsidiaries (together referred to as the "Group").

Basis of preparation

The financial information has been abridged from the audited financial information for the year ended 30 April 2020.

 The financial information set out above does not constitute the Company's consolidated statutory accounts for the years ended 30 April 2020 or 2019, but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports and did not contain statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

 Accounting policies have been consistently applied consistently with those set out in the 2019 financial statements, as amended when relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the year. The only new standard which had a significant impact on these financial statements is the adoption of IFRS 16 Leases as set out below.

 While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient financial information to comply with IFRS. The Group will be publishing full financial statements that comply with IFRS in September 2020.

The following principal accounting policies have been applied consistently in the preparation of these financial statements:

New standards, interpretations and amendments effective from 1 May 2019

New standards impacting the Group that have been adopted in the Group annual financial statements for the year ended 30 April 2020, and which have given rise to changes in the Company's accounting policies are:

· IFRS 16 Leases issued January 2016 and effective for annual periods beginning on or after 1 January 2019 see note 4

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 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.

In August 2021, the Group secured a £2million 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 covenant requires 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. Along with existing cash of circa £1.25million as at 31 July 2020 and existing overdraft facility of £200,000 this loan financing provides the Group with a healthy cash plus overdraft position of circa £3.45million which the Directors' believe is more than adequate to continue trading. Other sources of financing were reviewed with HSBC such as extending the UK invoice discounting from 85% to 100% coverage, commencing invoice discounting within the US, as s well as increasing the current overdraft facility from £200,000 to £400,000. The Group is currently operating ahead of expectations, with the first quarter coming in ahead of budget and a number of new wins secured, expected to provide further headroom, and therefore have been able to recommence on-hold development projects without to the need to pursue these additional financing options further, however they remain available to the Group subject to the standard approval processes. The forecasts assumed a short term reduction in trading due to the UK lockdown earlier in the year, along with remedial actions implemented to support the Group's cash position. Remedial actions undertaken relate to staff furlough, staff pay cuts, rent reductions, re-prioritisation of development expenditure, deferral of payments to HMRC and reduced overhead expenditure.

Further scenario testing and sensitivity analysis was completed to model various severe but possible COVID-19 scenarios, specifically additional lockdowns and prolonged periods of customer uncertainty. Directors have assessed that the most likely impact on the Group of these scenarios would be a reduction in revenue receipts. It was assessed that the Group could absorb the impact of approximately a prolonged 20% reduction in forecast receipts and associated materials cost outflows over the next 12 months to September 2021 without any implementing any cost cutting measures. This percentage increases to up to 30% when the cost saving impact of previously utilised remedial actions are taken resulting in a 10-15% saving of cash outflows. Finally Directors modelled the impact of a second, more severe lockdown period, noting that the Group could sustain shorter periods of revenue and material cost reductions of up to 80%.

Owing to the Group's effectiveness in reacting to the first lockdown and in the, hopefully unlikely, event of a second national lockdown we are extremely confident that the Group would be able to respond quickly and effectively with remote working and detailed review of resourcing requirements. Accordingly, the Directors consider it appropriate to prepare the financial statements on a going concern basis.

Leases

IFRS 16 was adopted 1 May 2019 without restatement of comparative figures. For an explanation of the transitional requirements that were applied see Note 4.

The following policies apply subsequent to the date of initial application, 1 May 2019. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

· amounts expected to be payable under any residual value guarantee;

· the exercise price of any purchase option granted in favour of the Group if it is reasonable certain to assess that option;

· any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

· lease payments made at or before commencement of the lease;

· initial direct costs incurred; and

· the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset (typically leasehold dilapidations)

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term. When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

All leases are accounted for by recognising a right-of-use asset and a lease liability except for:

· Leases of low value assets; and

· Leases with a duration of 12 months or less.

2. 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 (previously called the Electronic 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

71.2 per cent. (2019: 56.1 per cent.) 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 28.8 per cent. (2019: 43.9 per cent.) 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.

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

*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.

There was one customer that accounted for more than 10% of Group revenue at £3.5million (2019: no customer had greater than 10% of revenue).

3. Tax

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:

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

4. Lease transition

The group mainly enters into leases for properties, vehicles and office equipment such as photocopiers. In the assessment of the right of use asset valuation management consider available extension and termination options and apply the most likely contract end date that will be utilised.

On implementation of IFRS 16 Leases the modified retrospective approach was adopted, where leases were measured from lease commencement using the discount rate applicable at the date of transition on 1 May 2019. Practical expedients were taken for short term leases that had less than 1 year remaining and low value leases. The group recognised the following adjustments through reserves. The weighted average discount rate was 3.2%.

5. Subsequent events

Following a detailed review of the potential impact of COVID-19 on the business Newmark Security PLC entered into a Coronavirus Business Interruption Loan Agreement with HSBC for a Loan facility of £2,000,000 at a fixed rate of 4.69% for a period of six years with the first year being interest free under the Business Interruption Payment Scheme.

6. Dividends

The Directors are not proposing a final dividend (2019: nil pence).