Newmark Security Regulatory News (NWT)

13 Dec 2006 07:00

Newmark Security PLC13 December 2006 NEWMARK SECURITY PLC INTERIM REPORT for the six months ended 31 October 2006 CHAIRMAN'S STATEMENT Turnover in the period for continuing businesses of £6,398,000 was 10 per cent.ahead of the corresponding period last year £5,825,000. The Group operating profit for the period was £509,000 (2005: £43,000 restated).The Group operating profit before amortisation of goodwill and discontinuedoperations was £717,000 (2005: £450,000) an improvement of nearly 60 per cent.The Group has changed its accounting policy for share options to comply withFinancial Reporting Standard No 20, "Share based payments". The charge includedin the profit and loss account for the six months ended 31 October 2006 was£19,000, and the results for the comparative periods have been restatedaccordingly (six months ended 31 October 2005: £2,000; year ended 30 April 2006:£21,000). Earnings per share are shown as 0.04 pence per share (2005: loss per share 0.09pence). However, as shown in note 5 to the accounts, the earnings per sharebefore goodwill amortisation, interest discount and losses of discontinuedoperations were 0.12 pence (2005: 0.10 pence). The four year earn out period relating to the acquisition of GrosvenorTechnology Limited expired on 31 October 2006, and we are delighted that thevendors have achieved the maximum earn out under the acquisition agreement.Payment is due by way of loan notes, with cash payment at the holders'discretion but at the earliest 1 November 2007. Payment will be made fromforecast cash balances and a banking facility. The £1,500,000 loan notes were settled in the period. The loan note holdersexercised their warrants to acquire ordinary shares in the Company, andaccordingly 75 million new shares were issued at par. The other £750,000 loannotes were repaid. The balance sheet reflects the settlement of the loan notes in the period. Allthe trading companies are affected by the timing of large orders, and tradedebtors at the period end reflected high levels of sales in October. Stocklevels were also higher than normal due to purchases for orders expected to beshipped in the second half. These last two factors had an adverse impact on thenet cash flow from operating activities in the period, but should be reversedout in the second half. ELECTRONIC DIVISIONTurnover 6 months 31 October 2006: £3,731,000 (2005: £3,161,000)Operating profit 6 months 31 October 2006 £835,000 (2005: £483,000). Turnover in the period for the division was 18 per cent. higher than thecorresponding period last year. Turnover in Grosvenor Technology was 20 percent. higher, and this resulted in an improvement in gross margin from 50 percent. to 56 per cent. due to the fixed element of development salaries includedwithin cost of sales. This increase in turnover was assisted by a few largecontracts. However, we believe that there are some larger contracts still tocome where our JANUS system has been specified. Due to the size and nature ofthese contracts it is very difficult to determine when some will materializealthough they should transpire early to mid 2007. The larger systems are all using the JANUS eSeries controller that can beconnected directly to a network anywhere in the world. The power and flexibilityof eSeries allows world-wide corporations to easily expand and maintain theirsecurity environment and is the basis of all of the pending large contracts.UL approvals in the United States for eSeries controllers and JANUS software istaking longer than expected but we believe is on track for ratification in thethird quarter of 2007, after which JANUS can be sold into the USA and othermarkets currently unavailable to us. Turnover in Newmark Technology was 21 per cent. greater although gross marginfell due to the mix of business. Sales have generally improved across the boardwith Par-Sec, C-Cure and N-TEC access systems and indications suggest that thiswill continue into next year as interest remains strong. There is a growinginterest from Simplex Fire (part of the Tyco Group) distributors in Russia whichwe are addressing by translating the core N-TEC software into Russian. Turnover in Custom Micro Products rose by 15 per cent. overall from £1,176,000to £1,356,000 but within these figures there was a major change in the volumesof sales to our three main geographic destinations. The recovery in sales to theUS has been maintained with turnover of £429,000 in the first half year comparedto £111,000 in the corresponding period last year. Unfortunately sales withinthe UK and sales to Europe have fallen as has happened throughout the industry.The gross margin percentage dropped slightly due to the costs of redevelopingthe existing product range, developing new products and changes in sales mix. Custom Micro is changing it's emphasis from manufacturing/assembly to thoseareas that we do best, design and technology. To eliminate the majority ofexpensive hand assembly work and offer an improved and versatile product range,we have re-designed all of the existing core products, namely the 2100 and 900data collection terminals and the 700 series access controller. The new designsoffer shared ancillary components, backwards compatibility with outgoingproducts, improved product specifications and greater reliability. Externalmanufacturing will commence in the first and second quarter 2007 respectively. The new designs will be marketed as the RS Products (Revised Series) and,coupled with outsourced production, will provide a cost saving of 30 per cent.on manufacture. An important focus of the RS range is that standard equipmentcan be held in-stock and despatched the same day that we receive a customerorder. An early showing of the next generation or asp/'internet ready' data collectionterminals has been made to a select group of customers in the USA and Europe.Interface design work is ongoing with these customers who we expect to placetheir initial orders during the second or third quarter 2007. The leading edgetechnology employed within this product will open new avenues for datacollection across world markets and is Custom Micro's entry into a rental andrecurring revenue model. The initial product will offer a secure internet hosteddata solution where a small group of select customers can trial the productusing their own server systems. After which, Custom Micro will offer a fullyhosted data service to be rented by customers on a month by month basis. ASSET PROTECTION DIVISIONTurnover 6 months 31 October 2006: £2,667,000 (2005: £2,664,000)Operating profit 6 months 31 October 2006 £183,000 (2005: £248,000). Sales were virtually identical to last year but the product mix wassignificantly different with higher sales of lower margin work. Quotations andorders are 17 per cent. and 21 per cent. more than the same period last year andthat should result in improved sales and profitability for the second half ofthe year. Eclipse rising screen programmes have increased for long-term customers withsome returning to purchasing mode after years without investment in newbranches. CounterShield sales have been slow in the first half but the programme for theLondon Metropolitan Police that was expected last year has now started to flow.The public service market for CounterShield is always slow until the second halfof their fiscal year and the company has over £400,000 of outstanding quotes inthis area, 45 per cent. more than at the same time last year. RollerCash sales to the Post Office have been slow relative to last year due touncertainty about government funding for the rural sub-post office network.Lloyds TSB awarded the company a £100,000 contract for trials in 8 branches oftheir new retail delivery format. If successful and carried forward, this couldlead to a significant programme in 2007 and beyond, although the judgement ofsuccess will depend on many factors not related to Safetell's product. The finalphase of RollerCash sales to Woolwich branches of Barclays, worth approximately£300,000, has been secured and scheduled to be completed before the year end. Eye2Eye Disability Access counter module sales, although small, were five timeslast year with a £200,000 (2005: £50,000) backlog of outstanding quotes. Newformats of FlexiGlaze screens have been developed for hospital receptions andfor petrol stations with successful sales to Manchester City Hospital,Sainsburys and Shell. The latter clients are expected to place repeat orders inthe second half. Service and maintenance revenue in the period was £1,159,000 (2005: £1,011,000).The separate service contracts with HBOS to maintain all locks for securitydoors and all rising screens have been rolled into a new, single, 5-yearcontract to run until 2011. The start of the Abbey contract in January 2006 has been successful withcompliments received for customer service. The early months of the contractinvolved disproportionate expenditure on recruitment and training that depressedmargin but that should recover in the second half. New clients have beenacquired for security related work, notably Shell for the service and repair ofnight-pay hatches. The second half is expected to generate 20 per cent. more sales than in thefirst half and the added volume will increase labour efficiencies to improvemargin. CONCLUSIONWe are looking forward to the future with some confidence. We expect animprovement in the asset protection division in the second half of the year,whilst the prospects within the Electronic division are exciting. As reportedpreviously there are large contracts where the JANUS software of Grosvenor hasbeen specified, and the asp data collection terminals provide great potentialfor the future. CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the six months ended 31 October 2006 Notes Unaudited Unaudited Unaudited Audited Unaudited Six months Six months Six months Year ended Six months ended ended ended ended 31 October 31 October 31 October 30 April 31 october 2006 2006 2006 2006 2005 Before Goodwill & Total Total Total goodwill & exceptional (Restated) (Restated) exceptional items items £'000 £'000 £'000 £'000 £'000 TURNOVERContinuing 6,398 - 6,398 11,839 5,825operationsDiscontinued - - - 320 323operations 6,398 - 6,398 12,159 6,148 Cost of sales (3,735) - (3,735) (7,317) (3,759)Gross profit 2,663 - 2,663 4,842 2,389 Administrative (1,962) - (1,962) (4,108) (2,149)expensesAmortisation of - (192) (192) (393) (197)goodwill Administrative (1,962) (192) (2,154) (4,501) (2,346)expenses - total OPERATING PROFIT/(LOSS)Continuing 717 (192) 525 551 253operationsDiscontinued (16) - (16) (210) (210)operations 701 (192) 509 341 43 Loss on closure/ - - - (192) (149)disposal ofsubsidiaries PROFIT/(LOSS) 701 (192) 509 149 (106)ON ORDINARYACTIVITIES BEFOREINTEREST ANDTAXATION Interest 16 - 16 20 22receivableInterest-discount (131) - (131) (251) (139)charge ondeferredconsiderationInterest payable (65) - (65) (300) (47) PROFIT/(LOSS) ON 521 (192) 329 (382) (270)ORDINARYACTIVITIES BEFORETAXATIONTax on ordinary 2 (175) - (175) (58) (40)activities PROFIT/LOSS FOR 346 (192) 154 (440) (310)THE YEAR AFTERTAX Minority interest - - - - - 346 (192) 154 (440) Pence Pence PenceEarnings/(loss) 5 0.04 (0.11) (0.09)per share - basicand diluted CONSOLIDATED BALANCE SHEETas at 31 October 2006 Notes Unaudited Audited Unaudited 31 October 2006 30 April 2006 31 October 2005 £'000 (Restated) (Restated) £'000 £'000FIXED ASSETSIntangible assets 6,247 6,439 6,665Tangible assets 981 941 872 7,228 7,380 7,537CURRENT ASSETSStocks 1,482 1,256 1,330Debtors 2,889 2,471 1,928Cash at bank and in 1,148 1,373 1,300hand 5,519 5,100 4,558 CREDITORS: amounts (3,487) (4,664) (3,019)falling due within oneyearNET CURRENT ASSETS 2,032 436 1,539TOTAL ASSETS LESS 9,260 7,816 9,076CURRENT LIABILITIES CREDITORS: amounts (4,218) (3,670) (5,123)falling due after morethan one yearProvisions for (194) (208) (177)liabilities and chargesAccruals and deferred (881) (891) (764)incomeNET ASSETS 3,967 3,047 3,012CAPITAL AND RESERVESCalled up share capital 3 4,490 3,740 3,617Share premium 4 493 493 432Merger reserve 4 801 801 801Share based 4 40 21 2compensation reserveProfit and loss reserve 4 (1,921) (2,072) (1,903)SHAREHOLDERS' FUNDS 3,903 2,983 2,949Minority interest 64 64 63 3,967 3,047 3,012 CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 31 October 2006 Unaudited Audited Unaudited Six months ended Year ended Six months ended 31 October 2006 30 April 2006 31 October 2005 £'000 £'000 £'000 NET CASH INFLOW FROM 117 850 151OPERATING ACTIVITIESRETURNS ON INVESTMENT ANDSERVICING OF FINANCEInterest received 16 20 22Interest paid (65) (101) (47)NET CASH OUTFLOW FROM (49) (81) (25)RETURNS ON INVESTMENTS ANDSERVICING OF FINANCETAXATION (21) (423) (201)CAPITAL EXPENDITURE ANDFINANCIAL INVESTMENTPurchase of tangible fixed (216) (469) (212)assetsReceipts from sale of - 24 -tangible fixed assetsNET CASH OUTFLOW FROM (216) (445) (212)CAPITAL EXPENDITURE ANDFINANCIAL INVESTMENTACQUISITIONSPurchase of subsidiary - (1,925) (1,825)undertakingsCosts relating to - (12) -acquisition made inprevious yearNet cash acquired on - - -purchase of subsidiaryundertakingsNET CASH OUTFLOW ON - (1,937) (1,825)ACQUISITIONSDISPOSALSCosts related to closure/ - (11) -sale of subsidiariesCash disposed of with - (14) (11)businessNET CASH OUTFLOW FROM - (25) (11)DISPOSALSNET CASH OUTFLOW BEFORE USE (169) (2,061) (2,123)OF LIQUID RESOURCES ANDFINANCINGFINANCINGNew finance loans 73 365 247Repayment of loans (136) (106) (29)NET CASH (OUTFLOW)/INFLOW (63) 259 218FROM FINANCING(DECREASE) IN CASH (232) (1,802) (1,905) NOTES TO THE ACCOUNTS 1. BASIS OF ACCOUNTSThe unaudited interim figures for the six months ended 31 October 2006 have beenprepared on a basis consistent with the accounting policies disclosed in theGroup's 2006 Report and Accounts with the exception of the introduction ofFinancial Reporting Standard No. 20, "Share based payments" and do notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. The results for the year ended 30 April 2006 are an abridged versionof the full accounts, which received an unqualified audit report and have beenfiled with the Registrar of Companies. The Group has changed its accounting policy for share options granted after 7November 2002 in accordance with Financial Reporting Standard No. 20, "Sharebased payments". The charge included in the profit and loss account for the sixmonths ended 31 October 2006 was £19,000. The results for the comparable periodshave been restated accordingly (six months ended 31 October 2005: £2,000; yearended 30 April 2006: £21,000). 2. TAXATIONThe tax charge is disproportionate to the profit for the period due to theeffect on profits of items not deductible for tax purposes, and the use oflosses brought forward. 3. SHARE CAPITALDuring the period, the following shares were issued: Number of shares Share capital £'000 Shares in issue at 1 May 2006 373,957,816 3,739,578Share issues 1p per share 75,000,000 750,000Shares in issue at 31 October 2006 448,957,816 4,489,578 The shares issued in the period related to the exercise of warrants by loan noteholders to subscribe for ordinary shares of 1p each in the Company. 4. SHARE PREMIUM AND RESERVES Share premium Profit & loss Merger Share based Total £'000 reserve reserve compensation Share (restated) £'000 reserve premium £'000 (Restated) and reserves £'000 £'000 At 1 May 493 (2,072) 801 21 (757)2006Retained - 154 - 19 173profit forthe periodExchange - (3) - - (3)differenceson foreigncurrencyinvestmentsAs at 31 493 (1,921) 801 40 (587)October2006 5. EARNINGS PER SHARE Pence per share £'000 Profit after taxation and minority interest 0.04 154Goodwill amortisation 0.05 192Discount charge on deferred consideration 0.03 131Losses of discontinued operations - 16Earnings before goodwill amortisation, interest 0.12 493discount, and losses of discontinued operations The profit per share has been calculated based on the weighted average number ofshares in issue during the period, which was 414,311,077 shares (2005:361,755,016). Unaudited Six Audited Year Unaudited Six months ended ended 30 April months ended 31 October 2006 2006 31 October 2005 Total Total Total Pence Pence Pence Earnings per share before amortisation of goodwill, losses of discontinued operations,and discount charge ondeferred consideration 0.12 0.22 0.10 6. DIVIDENDSNo interim dividend is proposed (2005: Nil). 7. A copy of the interim report has been sent to shareholders and copies areavailable for inspection at the Company's registered office, 57 GrosvenorStreet, London W1K 3JA, during normal office hours, Saturdays, Sundays and bankholidays excepted, for one month. This information is provided by RNS The company news service from the London Stock Exchange