This announcement contains inside information for the purposes of Regulation 11 of the Market Abuse (amendment) (EU Exit) Regulations 2019/310.

Newmark Security plc

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

Interim Results

for the six months ended 31 October 2020

Newmark Security plc (AIM: NWT), a leading provider of electronic and physical security systems, is pleased to announce its unaudited interim results for the six months ended 31 October 2020 ("HY 2020").

HIGHLIGHTS

Financials

·    Revenue decreased by 23% to £7.9m (HY 2019: £10.1m)

·    Operating loss of £0.2m (HY 2019: profit of £0.7m)

·    Loss before tax of £0.3m (HY 2019: profit of £0.6m)

·    Loss per share of 0.05 pence (HY 2019: earnings of 0.23 pence)

·    Cash inflow from operating activities was £0.4m (HY 2019: outflow of £0.1m)

People and Data Management division

·    Revenue decreased by 22% to £5.56m (HY 2019: £7.11m)

·    Human capital management revenue decreased by 15% to £4.1m (HY 2019: £4.9m)

·    Access control revenue decreased by 37% to £1.4m (HY 2019: £2.26m)

Physical Security Solutions division

·    Revenue decreased by 24% to £2.30m (HY 2019: £3.03m)

Commenting on the results, Maurice Dwek, Chairman of Newmark, said: 

"Whilst inevitably impacted by the global pandemic and associated restrictions in the UK and internationally, the Group has performed better than we originally anticipated, which has enabled investment activities to continue with only slight delays experienced.  We have entered the second half of the financial year with far more optimism than at the start of the year which is also helped by the UK securing a Brexit deal. For the full year, the Board expects the Group to show a reduction in revenue compared to last year although this reduction is expected to be materially less than what we experienced in the first half of the year. On behalf of the Board, I would like to extend my thanks for all the hard work and resilience shown from the team throughout this period."

Copies of the interim results for the six months ended 31 October 2020 will shortly be sent to shareholders and will be available on the Company's website www.newmarksecurity.com.

For further information:

CHAIRMAN'S STATEMENT

I am pleased to announce the Group's unaudited interim results for the six months ended 31 October 2020 ("H1 2020"). Despite commencing the period under lockdown conditions, the Group has responded proactively to the global pandemic and has seen trading activity continue to recover strongly as we moved into the second half of the year. We expect to finish the year behind last year in terms of revenue, but we consider that the Group has traded commendably through the period given the circumstances and challenges faced.

The impact of COVID-19 and the related lockdowns and restrictions put in place has impacted the Group in several ways. As a Group we quickly transitioned into working remotely utilising existing technology. We also carried out online training and proactively communicated with our stakeholders. A common factor for both divisions is the delay of some customer projects. The UK's response to COVID-19 has meant that the Access Control line of business, within the People and Data Management division, and the Physical Security Solutions division have been impeded by the ability for installers to attend sites. The impact has not been quite as significant for HCM (Human Capital Management), within our People and Data Management division, which involves us providing technical solutions and hardware without the need for us to physically attend a site.

There was a decrease in Group revenue of 22.6% to £7,857,000 (H1 2019: £10,147,000).  Revenue has shown a steadily improving trend through the year with a peak month of August benefiting from the UK recovering from the first lockdown and enabling some element of delayed trading activities to be recovered.  A series of cost reduction initiatives were implemented by the Group including furloughs, temporary pay cuts and redundancies. This supported gross profit margins at a level of 37.2% (H1 2019: 39.7%). Administrative expenses reduced by 11.1% to £3,143,000 (H1 2019: £3,535,000) from the initiatives mentioned above and other cost savings. The Group made a marginal operating loss before exceptional items of £50,000 (H1 2019: profit of £683,000). For H1 2020 the Group made a loss per share of 0.05 pence (H1 2019: earnings per share of 0.23p).

People and Data Management Division - Grosvenor Technology

Our People and Data Management division, Grosvenor Technology, operates in two primary markets: Human Capital Management and Access Control. Following significant growth in the previous three years, Grosvenor Technology revenues decreased by 22% overall, against the corresponding period last year. The reduction in revenues was felt across both lines of business as COVID-19 impacted clients' end-user projects and through the anticipated reduction in HCM sales to Ultimate Software.

Human Capital Management ("HCM")

Revenue decreased by 15% to £4,139,000 (2019: £4,851,000)

HCM sales in North America reduced by £488,000 to £2,605,000, largely because of the previously reported merger of Ultimate Software Group and Kronos ("Ultimate"). Despite this, sales to Ultimate remain higher than anticipated and consequently, revenues have held well.

During the period, Grosvenor Technology onboarded a new client onto its GT4 timeclock, a HCM software company which provides HR and Payroll solutions to over 30,000 businesses. The contract is initially for a period of three years, with a minimum contract value of c£760k over this period.

In a separate win, one of our existing partners has entered into an agreement to supply the GT10, our flagship hardware device, to an international retailer. The project, which we have now started to supply, is expected to last three years and to generate revenues of c. £2.9m.

We continue our engagement with several Tier 1 target HCM software providers and potential clients are speaking to us about the possibility of GT Clocks (the Company's trading name in the US) providing its next generation hardware.

In our Rest of World HCM business, we have also continued negotiations with several Tier 1 clients for both products and services. While we have seen the effects of COVID 19 impacting our revenues, particularly in Europe, revenues were depleted less than anticipated, reducing 13% to £1,534,000 as compared to the corresponding period in the previous year. 

Product Development - Hardware and Software

We continue to invest in development of both hardware and software platforms to support our anticipated further growth in the HCM market globally. Development of our latest Android based timeclock, the GT8 which is scheduled to be released in H2 of the current financial year, continued to be a focus for our hardware, electronics, and embedded software teams. Additionally, focus remained on developing added-value services, intended to be provisioned on an 'as a service' basis, increasingly cloud-based, aiding software vendors to reap additional value from their hardware post-deployment.

We continue to see growth in the HCM market being facilitated through the technology 'drivers' of high-speed internet availability and the subsequent mass shift to Cloud based computing. We are developing our HCM software platforms with a Cloud and Application Programming Interface ("API") first approach. A Cloud and API first approach prioritises utilising a Cloud infrastructure along with APIs to provide seamless connectivity and integration between back-end and front-end systems for customers.

During the period, three of our longstanding US HCM clients agreed to subscribe to our Cloud provisioned software, remotely connecting new and/or existing timeclock devices with our platform. By the close of the period, c5,400 'edge' devices globally were connected to our platform.

Access Control

Revenue decreased by 37% to £1,421,000 (H1 2019: £2,263,000)

Revenues from our Access Control lines of business undoubtedly suffered from the impact of the COVID 19 pandemic. The vast majority of sales from our three product families are derived from the UK and the national lockdown that began in March 2020, combined with continued regional restrictions throughout the summer, meant that many of our installation partners were only carrying out essential maintenance, rather than new installs. As a result, demand for products fell dramatically.

Sales of the legacy Janus product range decreased 17%, which was in line with management expectations as this platform is no longer installed in 'new' systems as it is based on a now unsupported version of a MS Windows™ Web browser. There are however, many end-user sites with legacy Janus products in use, and the expansion and maintenance of these sites continue to generate revenues, albeit at a diminishing rate.

Our latest access control platform, which could be considered a Security Management System (SMS) - Janus C4, has enjoyed some growth, with sales increasing 10% in the period, but from a very modest base. The anticipated growth, through onboarding new partners, has been severely hampered by the inability to conduct face to face visits and the lack of new installations taking place during the period.

Sateon (our previous flagship access control platform) sales also decreased during the period. A reduction was always anticipated, given the sales and business development focus on Janus C4, but the fall in demand during this period was higher than original management expectations. Sateon product family sales include an OEM variant of Sateon Advance hardware to third parties for non-proprietary integration with their own access control platforms. The largest of these partners is based in Belgium and has seen its business severely disrupted through the restrictions brought about because of the pandemic.

Physical Security Solutions Division - Safetell

Revenue £7,857,000 (H1 2019: £10,147,000)

Safetell revenue was 23% lower than the corresponding period last year. This was as a result of both COVID-19 impact on trading activity and the expected reduction in the volume of work relating to the Post Office Network Transformation. During the period the team adapted quickly and efficiently to minimise the impact of the pandemic in enormously challenging circumstances. Existing client relationships were further cemented, and new project wins were executed with those customers whose businesses remained in operation through the initial UK lockdown.

COVID-19 significantly impacted the ability for our service and technical engineers to work onsite safely during the lockdown and revenues were further hampered by delays to many of our customers' projects. The Company did however, successfully leverage new opportunities because of changing customer needs with regard to creating safe workspaces. Notably, there has been increased demand for products such as hygiene screens and night-pay hatches as our clients seek to create contactless environments to protect staff and their customers alike.

In the previous financial year management had identified new markets, products and customers that complement Safetell's existing offering. Market launch of these new products has been delayed, although other work has been conducted, including the construction of a full demonstration facility, which we look forward to welcoming customers into as restrictions allow.

We continue to maintain a high level of quote activity and a significant order book which includes our expanded product range and a wider customer base which we are looking forward to fulfilling as the year progresses.

Balance sheet and cash flow

Following a detailed review of the potential impact of COVID-19 on the business Newmark entered into a Coronavirus Business Interruption Loan Agreement with HSBC for a loan facility of £2,000,000 at a fixed rate of interest of 4.69% p.a. for a period of six years with the first year being interest free under the Business Interruption Payment Scheme. The facility has been fully drawn down and has enabled the business to continue with core development activities that we consider will support future growth. The drawdown has enabled us to repay our existing invoice discounting facility to reduce interest charges.

The Group holds £1,696,000 of cash with unutilised facilities for invoice discounting and bank overdraft which would provide c. £1,000,000 of additional cash.

Working capital has fluctuated as a direct response to a period of reduction in trade at the start of the period with increased trade activity towards the end of the period. This has resulted in increased trade debtor balances because of improved sales.

A tax cash credit of £0.5m was received as a result of the R&D claim review carried out at the end of the previous financial year countered by £0.1m of tax paid in the US. Lease payments have reduced whilst we discuss terms on our UK leased properties.

Directors

I am pleased to welcome Terence Yap as a new Independent Non-Executive Director following his appointment 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 skill sets across the Board, and we will benefit greatly from his strategic advice as we plan the next phase of Newmark's growth.

Outlook

Despite the challenges facing us, the Board is pleased with the progress the Group has made in the first half of the year. Although the second half of the year is expected to show an improved performance the first half revenue has been impacted along with a reduction in profit margin as costs have not reduced in line with the decrease in revenue contributing to the net loss experienced. The Board has welcomed the Government's initiatives which the Group has utilised, although we have had to make some difficult decisions along the way. As the pandemic unfurled, we worked closely with HSBC and prepared rolling forecasts and scenarios of the potential impacts. We obtained support by way of the CBILS loan based on our early forecasts. Whilst inevitably impacted by the global pandemic and associated restrictions in the UK and internationally, the Group has performed better than we originally anticipated which has enabled investment activities to continue with only slight delays experienced.  We have entered the second half of the financial year with far more optimism than at the start of the year which is also helped by the UK securing a Brexit deal. For the full year, the Board expects the Group to show a reduction in revenue compared to last year although this reduction is expected to be materially less than what we experienced in the first half of the year. On behalf of the Board, I would like to extend my thanks for all the hard work and resilience shown from the team throughout this period.

M DWEK

Chairman

25 January 2021