TIDMNWT
RNS Number : 8767M
Newmark Security PLC
19 September 2019
Dissemination of a Regulatory Announcement that contains inside
information according to REGULATION (EU) No 596/2014 (MAR).
19 September 2019
Newmark Security plc
("Newmark" or the "Group")
Preliminary Results for the year ended 30 April 2019
Newmark Security plc (AIM: NWT), a leading provider of
electronic and physical security systems, today announces its
audited results for the year ended 30 April 2019.
Financial highlights:
-- Turnover from continuing operations was GBP19.6 million
(2018: GBP16.0 million), an increase of 22%
-- Gross margin from continuing operations before exceptional
items increased to 39.7% (2018: 36.1%)
-- Cost of sales within the consolidated income statement
includes an exceptional provision for redundancy costs of GBP60k
(2018: exceptional provision for impairment of development costs
GBP698k)
-- Gross margin from continuing operations after exceptional
items increased to 39.3% overall (2018: 31.7%)
-- Profit from continuing operations before exceptional items
was GBP644k (2018: Loss GBP1,039k)
-- In addition to the exceptional items included within cost of
sales there were GBP292k (2018: GBP140k) of exceptional redundancy
costs included within administrative expenses
-- Profit from continuing operations after exceptional items was
GBP292k (2018: Loss of GBP1,877k)
-- Earnings per share of 0.04 pence (2018: Loss per share 0.40 pence)
-- Cash generated from operations was GBP405k (2018: cash outflow GBP195k)
Operational highlights
-- Sateon revenue increased by 8.9%, whilst the decline in
revenue from the legacy Janus platform of 2.9% was lower than in
the previous period.
-- Revenues from Human Capital Management (HCM) increased by
67.8% including a 167% rise in US revenues, which benefited from
new supply agreements signed in the previous year.
-- Towards the end of the year, the new platform Janus C4 was
released. This Integrated Security Management and Access Control
product provides a single-platform, multi discipline solution.
-- Within the asset protection division, revenue increased by
6.3%, including a 17.9% rise in sales within the service division
as bank branch upgrade work continued. Revenue in the products
division decreased by 1.3% as banks and building societies moved
from fortress counters to open plan branches.
Commenting on the results, Maurice Dwek, Chairman of Newmark,
said "It has been a turnaround period for the Group and I am
pleased to report the return to profitability in the year. The
Board thanks all shareholder for their patience over what has been
a challenging few years".
Annual Report and Notice of AGM
The Company's Annual Report and Accounts is being posted to
shareholders this week and will be made available on the Company's
website www.newmarksecurity.com. It will contain notice of the
annual General Meeting of the Company to be held at 11 a.m. on 18
October 2019 at Hard Rock Hotel, Green 3 Meeting Room, Great
Cumberland Place, London W1H 7DL.
For further information:
Newmark Security PLC
Marie-Claire Dwek, Chief Executive Tel: +44 (0) 20 7355
Officer 0070
Brian Beecraft, Finance Director www.newmarksecurity.com
Allenby Capital Limited (Nomad & Broker)
James Reeve/ Liz Kirchner Tel: +44 (0) 20 3328
5656
Chairman's Statement
Overview
Newmark is a leading provider of electronic and physical
security systems through its subsidiaries, Grosvenor Technology
Limited and Safetell Limited which are UK based and Grosvenor
Technology LLC which is based in the US. All companies have a
well-established customer base. The Group aims to help address some
of the major challenges facing corporations in an environment of
ever-increasing global security concerns, as well as helping to
reduce carbon output and meet sustainability goals.
The Group strategy is focused on delivering growth through the
development of new products and services, often supporting country
specific customer requirements.
Group revenue for the year from continuing operations was
GBP19,583k (2018: GBP16,052k). In last year's annual report the
Board expressed the view that there should be revenue growth in the
electronic division during the year under review following the
completion of two major new supply agreements and that this would
result in improved financial results. The Board is pleased to
announce a return to profitability in the year.
Revenue in the electronic division (Grosvenor) increased by 37.9
% from GBP7,960k to GBP10,979k. As in previous years, the decline
in the legacy Janus range of access control products has been
compensated for by the growth in the Sateon range. Overall sales of
access control increased by 6.0%. Sales of Human Capital Management
globally increased by 67.8%, driven by additional sales relating to
announcements made during the period regarding supply agreements to
strategic partners and organic growth, particularly in the US
business.
Revenue in the asset protection division (Safetell) increased by
6.3% from GBP8,092k to GBP8,604k with a 1.3% decrease in products
sales mainly due to reduced revenue from high street banks and
building societies. Revenue from the service business however
increased by 17.9%.
Profit from operations for the year from continuing operations
before exceptional items was GBP644k (2018: loss GBP1,039k). There
were exceptional items in the year for redundancy costs of GBP352k
(2018: GBP140k) and last year there was also an impairment
provision of development costs of GBP698k. The impairment of
development costs related to amounts previously capitalised for
older versions of the Sateon platform which had been superseded.
Profit from continuing operations after exceptional items was
GBP292k (2018: loss GBP1,877k). In addition the remaining costs net
of taxation of the Hong Kong office closed previously has been
included in the consolidation income statement as a discontinued
operation of GBP6k (2018: GBP113k).
A full financial review of the results for the year is included
within the Strategic Report set out below.
Dividend
The Board has not recommended the payment of a dividend for the
year ended 30 April 2019 (2018: GBPNil).
Directors
Brian Beecraft is retiring on 31 October after 21 years with the
Group. The Board would like to thank him for his tremendous efforts
over that period and wish him a happy retirement. Graham Feltham
has joined the Company and will be appointed as Group Finance
Director from Brian's retirement. The Board is pleased to welcome
Graham to the Group.
Employees
The Board would like to express its appreciation to all staff
for their continuing efforts during the year.
Outlook
In the electronic division, the trend to generating more
revenues from its HCM activities is set to be maintained,
particularly as the long-anticipated growth in sales in North
America continues. The Board believes that there will be
medium-long term growth in both the divisions' core markets and it
is expected that revenues will continue to grow in the recently
launched Janus C4 Access Control offering.
In both Access Control and HCM, the ambition remains to generate
a greater proportion of recurring revenues. In the short-medium
term, it is likely that this will be more prevalent in the HCM
sector where provision of Software- as-a-Service (SaaS) will
increase in the future from the modest levels in 2018/19 resulting
from this new development, particularly as the divisions' value-add
in terms of data protection is recognised by new and existing
partners.
The asset protection division will benefit from the recent
restructuring in the future. The products division will concentrate
on increasing the range of physical security products with
continued product development and certification. The development of
staff remains at the heart of this strategy within the service
division as the UK based team of field-based technicians supports
an increasing number of third party products not related to
Safetell's traditional core business. Additional resources have
been deployed to bolster a sales and marketing effort to pursue
this strategy and early stage negotiations with potential partners
are initially positive.
The Board is encouraged by the Group's return to profitability
and looks forward to the remainder of the current year with
confidence.
M DWEK
Chairman
18 September 2019
Strategic Report
Business model
The Group is principally engaged in the design, manufacture and
supply of products and services for the security of assets and
personnel. The Group manages its operations through two divisions:
Grosvenor Technology, its electronic division, and Safetell, its
asset protection division.
The electronic division comprises two main product streams,
being the design and distribution of:
-- access control (AC) systems (hardware and software); and
-- human capital management (HCM) hardware for
time-and-attendance, shop-floor data collection, and access control
systems.
Both activities have their own design teams creating products to
meet the demands of their own markets and the specific needs of
customers. That said, the business increasingly sees synergies
between the two lines of business as end user needs are driving
convergence of both access control and human capital management. In
addition, centralised sales and marketing, purchasing, dispatch and
finance functions supplement the requirements of both activities.
Manufacturing is mainly performed by external contractors using our
intellectual property.
The majority of our access control customers are security
installation companies dealing directly with end users. For HCM
equipment, the majority of our customers are value-added resellers
(VARs) dealing with either installation companies or end users. The
division also has the capability to work on special projects
directly with end users, assisting with the design and
specification of systems to meet specific customer requirements.
These tend to be larger contracts where the end user needs to
ensure that their specifications are fully met.
The asset protection division comprises two main product
streams:
-- Design and installation of fixed and reactive security
screens, reception counters, cash management systems and associated
physical security equipment; and
-- Service and maintenance of the above equipment, as well as
CCTV systems, automatic door operators, locks and other 3rd party
equipment utilising a national network of security vetted
installers.
The certified security products provide protection for staff and
customers against the four main forms of security: risk, namely
physical attacks and abuse, bombs and blasts from explosive
devices, protection against gun attacks, and fire resistant
protection incorporated within the products mentioned
previously.
Each security risk requires unique products which are not always
interchangeable and Safetell works with customers, security
consultants and certification bodies to design, develop and test
products to ensure their suitability and provision of effective
protection.
Safetell's work is mainly project based and each project has its
own customer specific needs and requires close co-operation with
architects and security consultants to develop cost effective
security solutions.
Safetell has forged key relationships with suppliers of other
security products that complement its own range of products to
provide a complete security solution to customers and will continue
to seek and develop suitable security products to provide a single
source supply of security products on projects.
Customers of the asset protection division range from leading
blue-chip organisations to single sites, including banks and
building societies, post offices, police forces, railway companies,
local authorities and government departments, petrol outlets,
hospitals, convenience stores, retailers and supermarket chains.
The market varies across the product range.
Key performance indicators
2018/19 2017/18
GBP'000 GBP'000
Revenue from continuing operations 19,583 16,052
Gross profit before exceptional items
from continuing operations 7,765 5,792
Gross profit from continuing operations 7,705 5,094
Gross profit percentage before exceptional
items from continuing operations 39.7% 36.1%
Gross profit percentage from continuing
operations 39.3% 31.7%
Financial review
Revenue in the year was again GBP19.6m
analysed as follows:
Increase/
2018/19 2017/18 (decrease)
GBP'000 GBP'000
Electronic division
Access control 4,071 3,842 6.0%
Human capital management 6,908 4,118 67.8%
------- ------- ----------
Total electronic division 10,979 7,960 37.9%
------- ------- ----------
Asset protection division
Products 4,810 4,874 (1.3%)
Service 3,794 3,218 17.9%
------- ------- ----------
Total asset protection division 8,604 8,092 6.3%
------- ------- ----------
TOTAL 19,583 16,052 22.0%
======= ======= ==========
There has been some overall improvement in gross margin in the
year but those margins vary across product lines and customers.
A detailed review of the activities, results and future
developments is set out in the divisional sections below.
Electronic division (Grosvenor Technology)
Human Capital Management (HCM)
Revenues from HCM increased by 67.8% from GBP4,118k to
GBP6,908k. The split we identified between North American and other
HCM solutions providers, in terms of their specific needs and
drivers, continues. This has allowed the business to be much more
tailored in its approach to each market and that strategy continues
to bear fruit.
In the US, where the HCM sector (and consequently each of its
sub-sectors) is larger, growth has been aided by increasing the
scope of services offered, particularly in the areas of data
protection and management. HCM providers are now choosing Grosvenor
to provide a range of services on a subscription
Software-as-a-Service (SaaS) basis and this is expected to increase
revenues from the modest levels achieved since it's inauguration in
late 2018/19. These services allow our clients to add greater value
to their end-user clients and better aligns our commercial model
with that of our customers' downstream sales model, which itself is
often on a subscription basis.
Elsewhere, the HCM sector remains less mature and of smaller
scale. In Europe, for example, HCM providers often look to adjacent
technology sectors to allow them to offer additional services
downstream. Grosvenor's Access Control line of business has been a
further driver of revenues within the HCM customer base as
synergies between the product and services offerings have
facilitated our cross-sale approach.
US revenues increased by 167% to GBP4,515k (2018: GBP1,689k) and
has provided the most success and opportunities. While
data-collection edge devices (hardware) remain at the heart of the
offering, our data protection and edge-device management software
services are becoming increasingly important in the purchase
decision criteria of our clients.
In the rest of the world, HCM revenues remained broadly constant
at GBP2,393k (2018: GBP2,429k). There were no significant major
end-user projects, which have been a feature of prior periods, but
organic growth was shown across the majority of existing clients.
Negotiations began with several large HCM providers based in Europe
and Australia, with a view to providing a range of hardware and
software as a service, and those negotiations will continue into
the current financial year.
The US continues to provide exciting opportunities for both
software and hardware sales and is expected to continue to grow in
the current financial year. Investment in the region continues to
be increased and it is anticipated that both headcount and market
will be increased in the forthcoming periods to ensure this
opportunity is realised.
Access Control (AC)
Overall, AC revenues increased 6.0% to GBP4,071k (2018:
GBP3,842k).
As reported last year, the legacy Janus platform has now been
retired and the End-User upgrade programme to the later Sateon
platform has now been completed. The decline in Janus revenues,
however, was less pronounced than in the previous period, with
sales at GBP1,218k (2018: GBP1,254k), a decrease of 2.9%. Revenues
are expected to continue to decline in future periods in line with
the reduced demand for the legacy hardware.
Following the trend seen in previous periods, Sateon revenues
grew 8.9%, reaching GBP2,818k (2018: GBP2,588k). As anticipated,
the final release of this AC platform was made available during the
year and no further development is being carried out other than
essential maintenance. The focus is now on maintaining revenues at
the current level with existing customers.
Towards the end of the financial year Grosvenor released its new
platform Janus C4, an Integrated Security Management and Access
Control product aimed at the increasing industry demand for
single-platform, multi- discipline solutions. The software was
developed in collaboration with a third party company and utilises
the Grosvenor Advance hardware that has proved successful on the
Sateon platform.
Asset Protection Division (Safetell)
Revenue in the year increased by 6.3% to GBP8,604k (2018:
GBP8,092k) analysed as follows:
Increase/
2018/19 2017/18 (decrease)
GBP'000 GBP'000
Products 4,810 4,874 (1.3%)
Service 3,794 3,218 17.9%
------- ------- ----------
Total 8,604 8,092 6.3%
======= ======= ==========
Safetell increased revenue by 6.3% with products revenue
declining only slightly despite increased competition and depletion
of traditional niche products. The sales of products to public
sector markets continued to be affected by a lack of investment as
a direct result of budgets cuts and Brexit uncertainty. As the
market contracted, we experienced increased pressure from customers
to reduce prices whilst we saw an increase in the number of
competitors.
Products division
Products revenue decreased by 1.3% with revenue from high street
banks and building societies decreasing by 33.4% and 23.8%
respectively compared to last year as they move away from fortress
counters to open plan branches. Revenue from sales of time delayed
cash handling equipment to the Post Office increased 16.7% due to
orders received as part of the Post Office's Network Development
Programme. As this programme is completed, this revenue stream will
reduce. Revenue from other cash handling sales increased as a
result of a programme of work for a long-term customer. Revenue
from sales of Security Doors decreased by 17.5% as our work is
project based and we are reliant on customers and markets having
programmes of work. All other product groups decreased by 7%. As in
the previous year, revenue was characterised by numerous small
projects with the absence of larger longer-term high value projects
and, like the Service Division, continued to be affected by branch
closures in the banking sector.
As a result of declining sales in this division and the lack of
repeat programmes of refurbishment from our long- term and
traditional customers, a business reconstruction plan was
implemented in the last quarter of the year and resulted in staff
reduction and other cost saving measures. Unprofitable customers
and product groups have been removed and increased marketing
efforts will concentrate on sales of supply only products and
projects that fall within Safetell's traditional product offering.
As part of the cost savings, the Kempston warehouse has been closed
and plans are in place to consolidate the warehouse and main
offices in Dartford which will be completed by the end of December
2019.
Despite developing new products that are certified to UK
security standards, sales of counter terror security equipment for
staff and customer protection have not increased and the lack of
sales is due to reduced spending by Corporate and Public sectors as
a result of continued uncertainty caused by Brexit. However, we
believe that product certification to UK security standards is
important to maintain as the standards are updated as security
risks change and this ensures that the Safetell product range
provides protection against all the latest security threats and
forms of attack. Safetell provides its products predominately to
the UK market and these standards are favoured ahead of European
and other international security standards and certification. In
anticipation of this, Safetell will continue with its programme of
selected product certification for bullet, blast and manual attack.
Product margins continue to be affected by the increased costs of
raw materials and imported components and we expect this trend to
continue.
Service division
The Service Division continued its bank branch upgrade work and
delivered sales 17.9% higher than those reported last year. This
was against a backdrop of a general reduction in bank and building
society sites in the high street. Overheads were reduced by 1.7% as
the business managed its field resource with less head office
involvement now that the Enterprise Resource Planning ("ERP")
system has been fully embedded. Margins were slightly diminished by
two percentage points as a result of entering new markets which are
non-niche and consequently more competitive. The strategy going
forward continues to be to develop within new markets and resource
has been introduced to further these aims.
Taxation
The tax charge for the year reflects the operating profit for
the year and the partial utilisation of losses brought forward.
Statement of financial position and cash flow
Development costs continued to be capitalised in accordance with
the accounting policy and the development costs within intangible
assets on the balance sheet were GBP24k higher than the previous
year with capitalised expenditure of GBP333k partly offset by
amortisation of GBP309k.
Inventories increased from GBP1,608k to GBP2,599k due to the
requirement to hold stock in an escrow account under one of the new
supply agreements and the requirement to purchase stock and build
finished goods for sales after the year end.
Trade receivables were GBP140k higher than the previous year
reflecting both the timing of the increased revenue and the timing
of payments by customers across the two divisions.
Trade payables increased from GBP1,066k to GBP1,565k as a result
of the increased stock holding referred to above.
Overall net assets increased from GBP6,924k to GBP7,114k.
Cash inflow from operating activities for the year was GBP360k
(2018: outflow GBP195k), reflecting the improved trading result for
the year and the movements in working capital referred to above.
Overall there was a decrease in cash and cash equivalents of GBP29k
(2018: GBP297k) as a result of investment in intangibles to support
new products, offset partially by funds from the invoice
discounting facility and capital expenditure acquired on hire
purchase.
Basic earnings per share from continuing operations are shown in
the income statement as 0.04 pence (2018: basic loss per share 0.38
pence).
Divisional Strategy
Electronic division
Grosvenor is focused on delivering growth through the
development of new products providing customers with business
efficiency, peace of mind and flexibility through innovative
technology. Our multi-regional exposure to customer needs informs
both product design and ongoing product maintenance.
Grosvenor's diverse and evolving edge device product portfolio,
of both access control and human capital management hardware
solutions, means we are well positioned to capitalise on the
crossover between these two aspects of electronic and data
security. Continued investment ensures that the company stays at
the forefront of this marketplace.
Long term strategies are in place to increase recurring revenues
through the provision of more cloud-based services on an ongoing
basis, particularly in the HCM sector. It is expected that this
will deliver greater shareholder value over time as both quantity
and quality of earnings increase through this strategy.
Grosvenor is well positioned with a roadmap which builds on our
core competencies of technical excellence, agility and customisable
products. With focus on HCM markets in the US, Europe, the Middle
East and Africa ("EMEA") and access control generally, we are
leveraging market growth and emerging trends and opportunities
driven by both legislative and technological change.
HCM
Cloud and Software Platforms
Across 2018 and 2019 to date, Grosvenor continued to invest in
developing the Cloud SaaS Platform - 'GT Services'. Utilising
Microsoft's 'Azure' Cloud PaaS (Platform as a Service), GT Services
offer a highly secure and scalable platform to manage Grosvenor
Time Clocks, securely enrol, transmit/disseminate and store
Personal Identifiable Information including Biometric Templates
('PII'). GT Services encompasses a powerful set of Clock and Data
management tools to remotely provision, configure, manage and
maintain Clocks. This significantly lowers the cost of ownership,
providing users with proactive service irrespective of
geography.
Our connected GT Services SaaS platform offers existing partners
a compelling migration option from legacy 'on premise' solutions.
Usage data collected from these edge devices provides analytical
data and metrics on product usage, driving proactive maintenance
and product roadmap design.
A key industry driver is currently, and is likely to remain, the
regulation and legislation around PII. As the proliferation of
biometric data-capture continues, how this data is treated remains
an evolving situation. The EU and other regions operating under
General Data Protection Regulation ('GDPR') currently has one
standard approach to handling PII. The US however, has varying
legislation on a state-by-state basis, thus causing significant
challenges for HCM practitioners operating 'cross-state'.
Over the current financial year, Grosvenor will continue to
invest in the development of the GT Services platform focusing on
key pain points for our channel partners of PII security and
regulatory compliance with GDPR and state-by-state biometric
legislation in the US. This will offer key features such as
recording consent of PII enrolment, encrypted storage and
transmission of PII and tools to both facilitate information
requests and erasure of unwanted PII. Grosvenor is now focusing all
development of these services into Cloud based GT Services and as a
result will no longer develop legacy on premise solutions.
The GT Services platform to be developed over the current
financial year will build on this and offer a solution onto which
future value-added services will be added. This abstracted and
extensible approach offers an almost unlimited ability to integrate
with other HCM partners' software solutions, through Cloud to Cloud
or Cloud to On Prem mechanisms. Putting security, redundancy and
flexibility at the core of this platform is key to its broad appeal
as a vehicle for partner value added solutions.
Hardware Platforms
Grosvenor also continues to invest in developing its range of
Time Clocks and this remains a key pillar of HCM growth strategy.
The GT10 Android based platform has seen significant success and
Grosvenor continues to build out the value-added software suite
which accompanies the Android clock.
The GT4 mid-range Linux offering will be launched in the second
quarter of 2019. This will offer a significantly enhanced user
experience, capacity and performance gain over the IT31 which it
supersedes, and which will be discontinued in due course.
Grosvenor believes that the innovative approach being taken to
managing this connected estate of edge devices also offers
significantly improved performance and data security whilst
reducing production costs. This strategy intertwines with the
business's desire to transition to a SaaS business model as
customers increasingly derive additional benefit from having
Grosvenor hardware continuously cloud connected.
Access Control
Software Platforms - Janus C4
In February 2019, Grosvenor launched the Janus C4 Access Control
product. This Integrated Security Solution comes to the market with
several key innovations, designed to provide an open integration
platform with highly extensible architecture. This is fast
following a growing industry trend to extend traditional 'narrow'
Access Control solutions to broader integrated security management
systems.
Access Control Hardware Platforms - Advance
The Advance hardware platform remains a key pillar in
Grosvenor's Access Control offering. The Advance hardware platform
is modular and multipurpose and now spans several distinct
Grosvenor Access Control software offerings; Sateon Advance, Janus
C4 and Cloud Enabled OEM variant.
The Advance hardware platform, with embedded Linux operating
system has enabled Grosvenor to develop powerful "Open Protocol"
industry standard Rest Application Programmer Interfaces ('API's)
for third party integration. This facilitates support for the
latest secure Open Supervised Device Protocol ('OSDP'). OSDP is the
most contemporary and secure encrypted and performant reader
solution available in the global Access Control market. Janus C4
and Advance OEM both fully support the OSDP standards.
Another key development for the current financial year includes
built-in RS485 Protocol communications to support legacy wiring
infrastructure, thus making the solution capable of being
retrofitted into existing legacy buildings as well as the very
latest "IP" or "Cloud" infrastructures.
Asset protection division
Safetell is one of the industry leaders with a number of
high-demand physical security products and is well placed to
service this market. The market for physical security products and
services is stagnant as a direct result of the uncertainties
created by the prolonged Brexit negotiations, despite the
ever-increasing threat of terrorism and crime,that should place
security high on the priority list for both the Public and Private
sector clients. Safetell will use this lull in the market to
consolidate resources and staff, review products and service
offerings and update product certification to ensure readiness for
a return to normal after the UK's proposed exit from the European
Union.
Safetell intends to develop a strategic business model based on
a continuous improvement of skills and processes and apply all
requirements of its quality and environmental policies. The
company's policy is to maintain the highest standards of product
quality, meeting statutory and regulatory requirements by the
control of its sales, purchasing, production, delivery,
installation and service activities.
Safetell has developed a risk-based strategy which has been
deployed, and along with identifying the owners of the risks, the
company is able to quantify the levels of risk and the potential
outcomes, if those risks were to materialise. All identified risks
are monitored and managed by the company directors, senior
management and process owners.
The strategy for the company is to broaden the customer base and
product range and focus on security solutions encompassing all
product groups. Safetell already has a well-established blue-chip
customer list, particularly in the banking and finance sector, but
aims to extend to other sectors whilst at the same time offering a
greater range of products within existing sectors. Specifically,
Safetell will seek to address supermarket and retail chains
particularly with ATM security related products, blast and
ballistic proof doors and walls, and fire resistant doors. With the
increase in terrorism in the UK, products have been developed and
certified with the government CPNI blast resist ant programme and
existing products have been recertified to the latest BSEN 1522/23
(1999) ballistic standards. A programme of product certification
with The Loss Prevention Certification Board (LPCB) will be
completed in the current year, ensuring these products comply with
the latest UK manual attack resistant standards. Due to the high
cost of certification and testing, Safetell has entered into
strategic partnerships with manufacturers of various additional
security products manufactured within the UK and in Europe.
Although these products are applicable to counter terrorism
applications, the products are marketed to existing customers and
markets who wish to strengthen their security and provide increased
safety to staff.
Principal risks and uncertainties
Sales of new products
The Group has incurred substantial strategic expenditure on new
developments within the electronic division, based on market
intelligence but a risk exists due to the dynamic nature of the
market itself. The Group mitigates this risk by carrying out
customer trials and ascertaining features required by
customers.
Service agreements
The majority of service revenues within the asset protection
division are from 1 to 3 year service agreements and there is the
risk that these may not be renewed. The company has service level
agreements with these customers which are closely monitored and
holds regular meetings with those customers to check on their
satisfaction levels. If the service agreements are not renewed it
is likely that those customers would still require our services but
would be charged on a call out basis.
Market conditions
The asset protection division product range is targeted at both
the private (particularly financial, retail and construction
sectors) and the public sector. Customer refurbishment programmes
within the financial sector continue to act as an underlying
positive trend for demand for many of the division's products. Our
business is reliant on the timing of customer programmes and there
is a risk that these may be delayed. The division mitigates this
risk by offering a wide range of product offerings, continuous new
product development and maintaining a close working relationship
with its customers so that we are aware of any potential delays.
The continuing uncertainty over the possibility of Brexit continues
to affect the budgets of customers and consequently the level of
our order books.
Input prices and availability
Operating performance is impacted by the pricing and
availability of its key inputs, which include electronic
components, steel and security glass. The pricing of such inputs
can be quite volatile at times due to supply and demand dynamics
and the input costs of the supply base. The Group manages the
effect of such demands through a rigid procurement process,
long-term relationships with suppliers, economic purchasing,
multiple suppliers and inventory management. Prices of imported
products and components from the EU have continued to be affected
after the Brexit vote as a result of the fall in value of the pound
and this uncertainty continues.
The Board have been reviewing the potential impact of Brexit
including looking at alternative sources of supply, as well as
increasing stock levels in the short term until the outcome of the
current negotiations becomes clearer. With this continuing
uncertainty concerning the possible impact of the value of sterling
and import tariffs following the conclusion of these negotiations,
the Board continues to monitor the situation and the risks
involved.
Quality control
There is the potential for functional failure of products when
put to use, thereby leading to warranty costs and damage to our
reputation. Quality control procedures are therefore an essential
part of the process before the product is delivered to the
customer. With the support of external auditors, the quality
control systems are reviewed and improved on an on-going basis to
ensure that the Group is addressing through a certification process
which is undertaken by a recognised and reputable authority before
being brought to market.
Approval
This Strategic Report was approved by order of the Board on 18
September 2019.
By order of the Board
CONSOLIDATED INCOME STATEMENT
for the year ended 30 April 2019
2019 2018
Note GBP'000 GBP'000
Revenue 19,583 16,052
Cost of sales (including: GBP60,000 exceptional
redundancy cost (2018: including GBP698,000
exceptional development cost impairment)) (11,878) (10,958)
-------- --------
Gross profit 7,705 5,094
Administrative expenses (2019: including
GBP292,000 exceptional redundancy costs
(2018: GBP140,000)) (7,413) (6,971)
-------- --------
Profit/(loss) from operations before exceptional
items 644 (1,039)
Exceptional impairment provision of development
costs - (698)
Exceptional redundancy cost (352) (140)
-------------------------------------------------- ---- -------- --------
Profit/(loss) from operations 292 (1,877)
Finance costs (72) (50)
-------- --------
Profit/(loss) before tax 220 (1,927)
Tax (charge)/credit 3 (25) 172
-------- --------
Profit/(loss) for the year from continuing
operations 195 (1,755)
Loss of discontinued operation net of tax (6) (113)
-------- --------
Profit/(loss) for the year 189 (1,868)
======== ========
Attributable to:
- Equity holders of the parent 189 (1,868)
======== ========
Earnings/(loss) per share
- Basic (pence) 0.04p (0.40p)
======== ========
- Diluted (pence) 0.04p (0.40p)
======== ========
Earnings/(loss) per share from continuing
operations
- Basic (pence) 0.04p (0.38p)
======== ========
- Diluted (pence) 0.04p (0.38p)
======== ========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 April 2019
2019 2018
GBP'000 GBP'000
Profit/(loss) for the year 189 (1,868)
Items that will or may be reclassified to profit
or loss:
Foreign exchange gains on retranslation of overseas
operations 1 (8)
------- -------
Total comprehensive income for the year 190 (1,876)
======= =======
Attributable to:
- Equity holders of the parent 190 (1,876)
======= =======
CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 30 April 2019
2019 2018
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 491 378
Intangible assets 4,753 4,734
------------ ---------------
Total non-current assets 5,244 5,112
------------ ---------------
Current assets
Inventories 2,599 1,608
Trade and other receivables 3,262 2,834
Cash and cash equivalents 1,041 1,069
------------ ---------------
Total current assets 6,902 5,511
------------ ---------------
Total assets 12,146 10,623
LIABILITIES
Current liabilities
Trade and other payables 3,987 3,051
Other short term borrowings 796 491
Total current liabilities 4,783 3,542
------------ ---------------
Non-current liabilities
Long term borrowings 149 53
Provisions 100 100
Deferred tax - 4
------------ ---------------
Total non-current liabilities 249 157
------------ ---------------
Total liabilities 5,032 3,699
------------ ---------------
TOTAL NET ASSETS 7,114 6,924
============ ===============
Capital and reserves attributed to equity holders
of the company
Share capital 4,687 4,687
Share premium reserve 553 553
Merger reserve 801 801
Foreign exchange difference reserve (132) (133)
Retained earnings 1,165 976
------------ ---------------
7,074 6,884
Non-controlling interest 40 40
------------ ---------------
TOTAL EQUITY 7,114 6,924
============ ===============
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 April 2019
2019 2019 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
Cash flow from operating activities
Net profit/(loss) after tax 189 (1,868)
Adjustments for:
Depreciation, amortisation and impairment 619 1,582
Net interest expense 72 50
Gain on sale of property, plant and
equipment (32) (21)
Income tax credit 25 (80)
------- -------
Operating cash flow before changes
in working capital 873 (337)
(Increase)/decrease in trade and other
receivables (414) 453
(Increase)/decrease in inventories (991) 38
Increase/(decrease) in trade and other
payables 937 (349)
------- -------
Cash generated from operations 405 (195)
Income taxes paid (45) -
Cash flows from operating activities 360 (195)
Cash flow from investing activities
Payments for property, plant & equipment (196) (1,576)
Sale of property, plant & equipment 53 1,525
Capitalised intangible assets (333) (368)
(476) (419)
Cash flow from financing activities
Proceeds from bank loan - 840
Repayment of bank loan - (840)
Repayment of finance lease creditors (87) (80)
Proceeds from invoice discounting 246 447
Net interest paid (72) (50)
------- -------
87 317
------- -------
Net decrease in cash and cash equivalents (29) (297)
Cash and cash equivalents at beginning
of year 1,069 1,370
Exchange gain on cash and cash equivalents 1 (4)
------- -------
Cash and cash equivalents at end
of year 1,041 1,069
======= =======
2019 2018
GBP'000 GBP'000
Cash and cash equivalents for purposes
of the statement of cash flow comprises:
Cash available on demand 1,041 1,069
======= =======
Significant non-cash transactions
are as follows:
Financing activities
Assets acquired under finance leases 242 -
======= =======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share premium Merger Foreign Retained Amount Non-controlling Total
capital reserve exchange earnings attributable interest equity
reserve to owners
of parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
1 May 2017 4,687 553 801 (125) 2,844 8,760 40 8,800
Loss for the
year - - - - (1,868) (1,868) - (1,868)
Other
comprehensive
income - - - (8) - (8) - (8)
-------- ------------- -------- --------- --------- -------------- --------------- -------
Total
comprehensive
loss for the
year - - - (8) (1,868) (1,868) - (1,876)
30 April 2018 4,687 553 801 (133) 976 6,884 40 6,924
======== ============= ======== ========= ========= ============== =============== =======
1 May 2018 4,687 553 801 (133) 976 6,884 40 6,924
Profit for the
year - - - - 189 189 - 189
Other
comprehensive
income - - - 1 - 1 - 1
-------- ------------- -------- --------- --------- -------------- --------------- -------
Total
comprehensive
income for the
year - - - 1 189 190 - 190
30 April 2019 4,687 553 801 (132) 1,165 7,074 40 7,114
======== ============= ======== ========= ========= ============== =============== =======
NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 April
2019
1. Basis of preparation
The financial information set out above for the years ended 30
April 2019 and 2018 does not constitute the Group's statutory
accounts within the meaning of Section 434 of the Companies Act
2006 but is derived from those accounts. Statutory accounts for the
year ended 30 April 2018 have been delivered to the Registrar of
Companies and those for 2019 will be delivered following the
Company's Annual General Meeting. The auditors have reported on
those accounts. The auditors' reports were unqualified and did not
contain statements under s.498 (2) or (3) Companies Act 2006. The
results have been prepared using accounting policies consistent
with those used in the preparation of the statutory accounts.
The financial statements have been prepared in accordance with
EU endorsed International Financial Reporting Standards (IFRSs) and
its interpretations (IFRICs) issued by the International Accounting
Standards Board (IASB) and with those parts of the Companies Act
2006 applicable to companies preparing their accounts under
IFRS.
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
recognized in the period in which revision is made.
2. New standards, interpretations and amendments effective from
1 May 2018
New standards impacting the Group that have been adopted in the
Group annual financial statements for the year ended 30 April 2019,
and which have given rise to changes in the Company's accounting
policies are:
-- IFRS 9 Financial Instruments (IFRS 9); and
-- IFRS 15 Revenue from Contacts with Customers (IFRS 15)
IFRS 9 has introduced a new classification approach for
financial assets and liabilities. The categories of financial
assets are now reduced from four to three categories -measured at
amortised cost, fair value through other comprehensive income or
fair value through profit and loss. The new classifications have
had no difference on measurement as all financial assets and
financial liabilities held by the Group remain at amortised cost.
The standard also prescribes an "expected credit loss" model for
determining the basis for providing for bad debts. The Group
applied the fully retrospective transition method and concluded
that there was no material impact on the Group financial statements
due to the adoption of IFRS 9.
IFRS 9 has introduced a new impairment model which is applicable
for financial assets including inter-company debtors for the parent
company. Applying this to the financial assets held, there has been
no change to the level of provisions applied.
IFRS 15 establishes a single comprehensive model for entities to
use in accounting for revenue arising from contracts with
customers. Effective for periods beginning on or after 1 January
2018, IFRS 15 has superseded the previous revenue recognition
guidance including IAS 18 revenue, IAS 11 construction contracts
and the related interpretations. Based on management's review of
IFRS 15 under the fully retrospective transition method, revenue
recognition under IFRS 15 is materially consistent with previous
practice for the Group's revenue recognition and there was no
material impact on the financial statements due to the adoption of
IFRS 15.
Under IAS 18, revenue was recognised at the point that the risks
and rewards were transferred to the customer. Management have
performed an assessment of the contracts for all revenue streams as
IFRS 15 requires an assessment to the distinct performance
obligations and when control passes to the customer. It has been
concluded that the point the control passes to the customer is the
same as risks and rewards under IAS 18 and, therefore, there is no
impact on the figures or the timing of recognition of revenue.
New standards, interpretation and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early. All these standards, with the exception of IFRS
16 Leases (mandatorily effective for periods beginning on or after
1 January 2019) are not expected to have a material impact on the
Group.
IFRS 16 Leases
Adoption of IFRS 16 will result in the Group recognising
right-of-use assets and lease liabilities for all contracts that
are, or contain, a lease. For leases currently classified as
operating leases, under current accounting requirements the Group
does not recognise related assets or liabilities, and instead
spreads the lease payments on a straight -line basis over the lease
term, disclosing in its annual financial statements the total
commitment.
The Board has decided it will apply the modified retrospective
adoption method in IFRS 16, and, therefore, will only recognise
leases on the balance sheet as at 1 May 2019. In addition it has
been decided to measure right--of--use assets by reference to the
measurement of the lease liability on that date. This will ensure
there is no immediate impact to net assets on that date. At 30
April 2019 operating lease commitments amounted to GBP1,416k, which
is not expected to be materially different to the anticipated
position on 30 April 2020 or the amount which is expected to be
disclosed at 30 April 2020. Assuming the Group's lease commitments
remain at this level, the effect of discounting those commitments
is anticipated to result in right--of--use assets and lease
liabilities of approximately GBP1.2m being recognised on 30 April
2020. However further work still needs to be carried out to
determine whether and when extension and termination options are
likely to be exercised, which will result in the actual liability
recognised being higher than this.
Instead of recognising an operating expense for its operating
lease payments, the Group will instead recognise interest on its
lease liabilities and amortisation on its right--of--use assets.
This will increase reported EBITDA by the amount of its current
operating lease cost, which for the year ended 30 April 2019 was
approximately GBP465k.
3. Taxation
The tax charge for the year reflects the operating profit for
the year and the partial utilisation of losses brought forward.
4. Segment information
Description of the types of products and services from which
each reportable segment derives its revenues
The Group has 2 main reportable segments:
-- 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 56.1 per cent. (2018: 49.6 per cent.) of the
Group's revenue.
-- 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 43.9 per cent. (2018: 50.4 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.
Asset
Electronic Protection Total
2019 2019 2019
GBP'000 GBP'000 GBP'000
Revenue
Total revenue 10,979 8,604 19,583
Revenue from external customers 10,979 8,604 19,583
----------- ------------ --------
Finance cost 50 10 60
Depreciation 87 194 281
Amortisation 314 - 314
Impairment provision - - -
Segment profit before income tax from continuing
activities 1,035 321 1,356
Loss before income tax of discontinued operation (6) - (6)
Segment profit before income tax 1,029 321 1,350
----------- ------------ --------
Additions to non-current assets 454 310 764
Disposals of non-current assets - 21 21
Reportable segment assets 9,216 3,113 12,329
Reportable segment liabilities 2,499 1,984 4,483
Asset
Electronic Protection Total
2018 2018 2018
GBP'000 GBP'000 GBP'000
Revenue
Total revenue 7,960 8,092 16,052
Revenue from external customers 7,960 8,092 16,052
----------- ------------ --------
Finance cost 28 5 33
Depreciation 111 214 325
Amortisation 534 - 534
Impairment provision 698 - 698
Segment (loss)/profit before income tax from
continuing activities (1,234) 379 (855)
Loss before income tax of discontinued operation (21) - (21)
Segment profit before income tax (1,255) 379 (876)
----------- ------------ --------
Additions to non-current assets 1,926 16 1,942
Disposals of non-current assets 1,525 - 1,525
Reportable segment assets 7,351 3,214 10,565
Reportable segment liabilities 1,554 1,716 3,270
Reconciliation of reportable segment revenues, profit or loss,
assets and liabilities to the Group's corresponding amounts:
2019 2018
GBP'000 GBP'000
Revenue
Total revenue for reportable segments 19,583 16,052
2019 2018
GBP'000 GBP'000
Profit or loss before income tax expense
Total profit or loss for reportable segments 1,356 (855)
Parent company salaries and related costs (596) (525)
Other parent company costs (540) (547)
-------- --------
Profit/(loss) before income tax expense 220 (1,927)
Corporation taxes (25) 172
-------- --------
Profit/(loss) after income tax expense (continuing
activities) 195 (1,755)
-------- --------
2019 2018
GBP'000 GBP'000
Assets
Total assets for reportable segments 12,329 10,565
PLC (bank overdraft set off against other group
cash balances in consolidated figures) (183) 58
Group's assets 12,146 10,623
-------- --------
Liabilities
Total liabilities for reportable segments 4,483 3,270
PLC 549 429
-------- --------
Group's liabilities 5,032 3,699
-------- --------
Reportable Group Reportable Group
totals PLC totals totals PLC totals
2019 2019 2019 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other material items
Capital expenditure 764 7 771 1,942 2 1,944
Disposals non-current
assets 21 - 21 1,525 - 1,525
Depreciation and amortisation 595 24 619 859 25 884
Impairment of development
costs - - - 698 - 698
Geographical information:
Non-current assets
by location of
assets
2019 2018
UK GBP'000 GBP'000
USA 5,243 5,109
1 3
---------- ----------
5,244 5,112
---------- ----------
There were no customers that account for more than 10% of Group
revenue (2018: revenue from one customer in the asset protection
division totalled GBP2,005,000).
5. Dividends
The Directors are not proposing a final dividend (2018: nil
pence) .
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFEFWAFUSEDU
(END) Dow Jones Newswires
September 19, 2019 02:00 ET (06:00 GMT)
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