Newmark Securities have now released their interim results for the year ending 2019.
Revenues increased with a £1.1M growth in electronics revenue and a £508K increase in asset protection revenue. Depreciation and amortisation was down £148K but other cost of sales increased by £1.1M to give a gross profit £635K higher. Admin expenses fell by £179K, finance costs remained flat and the tax charge reduced by £67K to give a profit for the period of £432K, an improvement of £881K year on year.
When compared to the end point of last year, total assets increased by £1.8M driven by a £1.5M growth in receivables, a £591K increase in inventories and a £108K growth in property, plant and equipment, partially offset by a £411K decline in cash. Total liabilities also increased during the period due to a £763K growth in borrowings and a £616K increase in payables. The end result was a net tangible asset level of £2.6M, a growth of £430K over the past six months.
Before movements in working capital, cash profits increased by £667K to £823K. There was a cash outflow from working capital and after interest and tax payments remained broadly flat there was a net cash outflow from operations of £726K, an increase of £576K year on year. The group spent £173K on development costs and a net £97K on capex to give a cash outflow of £996K before financing. They received £616K from invoice discounting and paid £31K in finance leases to give a cash outflow for the period of £411K and a cash level of £658K at the period-end.
Revenues in the Electronic division rose by £1.1M to £5.1M. Within this division, revenues in the Human Capital Management business rose by 53% to £3M. Much of this was due to a 264% increase in revenues in the US with growth seen across all variants of the proprietary Linux based IT series terminals in addition to the first significant sales of the Android based Gt-10 terminal. Excluding the US operation, revenue increased by 10%. Revenue from the legacy range of RS terminals declined, but this was more than compensated for by an increase in revenues in the contemporary IT series. There were no significant end user projects completed in the period, the growth coming organically across a number of well-established customers.
In the US, the investment made in products and business development in prior periods has continued to take effect and the growth seen last year has continued. Revenues were driven by two major clients, Workforce Software and Ultimate Software, both of whom entered into supply agreements for their terminals as reported in previous periods.
In addition, a new project for another new customer saw orders placed for 1,000 units of the IT51 terminal complete with a five years SaaS bundle. The SaaS element of this deal will contribute towards the group’s recurring revenue ambitions, which remain a key goal in the longer term. Negotiations are underway with that customer, which is a Tier 1 HCM software vendor, with a view to that client taking an OEM variant of the GT-10 terminal. These negotiations are likely to conclude during the second half of the year.
In the HCM markets generally, growth continues to be enabled through the technological drivers of high speed internet availability and the subsequent mass shift to Cloud based computing. This shift means that the traditionally challenging to serve and fragmented SME business market is well within the reach of HCM providers leveraging a SaaS based business model.
Access Control revenues remained relatively stable, increasing by 2.4% to £2M. The Janus product is no longer installed in new systems as the platform used an historic and unsupported version of the Windows operating system. As expected the Janus revenues fell by 14% to £570K. The Janus to Sateon upgrade programme was very busy as this initiative reached its conclusion at the end of the period. In addition, the Sateon Advance hardware and software offering continued to show strong growth as an increasing number of security installers became repeat customers, as they chose to adopt the platform as their standard access control offering.
Sateon revenues were also positively affected by sales of the OEM variant of the Advance hardware which allows third parties to utilise the hardware in a non-proprietary way on their own access control platforms. To date, sales of the OEM variant have been limited to one major client, although exploratory conversations continue with a number of global third party access control providers in the US and EMEA. As a consequence of the above, sales increased 11% to £1.5M.
Development in the period was focused on pre-launch work for the new Security Management System which is being developed in conjunction with Slovakian-based Gamanet. The new platform is intended to be launched in the second half of the current year. The market is moving away from stand-alone Access Control solutions towards integrated access control, intrude, CCTV and fire and building management into a single platform, such as with the SMS. This solution will offer a number of third party integrations at launch.
Revenues in the Asset Protection division rose by 12% to £4.8M mainly as a result of the contribution from projects completed by the Service division. Trading conditions remain challenging in this market and the increased uncertainty of Brexit continued to result in budget cuts and the cancellation of planned work, including the government departments that the business has traditionally supplied. Cost saving initiatives implemented resulted in margins being maintained.
Products division revenue was 2% lower as a result of the delayed completion of a major project. Despite delays in the Post Office Network Transformation programme, revenue from that source was only 1.3% lower. Overall cash handling revenue increased by 13% due to increased sales to new customers. The products division’s work is mostly customer project base and revenue of non-cash handling equipment decreased by 6.5% as a result of fewer customer programmes.
Revenues from Eclipse Rising screens was 26% lower as a result of continued branch closures by long standing financial institution customers. Revenue for fixed glazing products increased despite clients moving away from ballistic protection counters and screens to less secure open counter trading to improve customer relations. The second half of the year is expected to be challenging for the division as there are no large projects in the pipeline and revenue will rely on smaller repeat orders from long standing customers and new smaller projects.
During the period, the service division revenue was 34.5% higher. Revenue growth was partly attributable to timing of work with some programmes concentrated in the first half of the year. Annual contracts were renewed as expected. The group continue to explore and develop other product and service offerings and these will reduce their reliance on rising screen and cash handling products in the future.
Going forward the higher level of revenue within the electronic division is expected to continue in the second half of the year but revenue in the asset protection division is expected to be lower due to seasonality factors as in previous years, and for other reasons set out above.
The group was loss making last year so the historical PE is in negative territory. I can’t find any forecasts for this year. No dividends are being paid here.
On the 5th February the group announced that non-executive director Robert Waddington acquired 750,000 shares at a value £7.5K. This was his first purchase.
Overall then this has been quite a positive period for the group. Profits were up, net assets increased and although the operating cash flow was down, this was due to working capital movements and cash profits increased. There is an issue with cash, however. There was a cash outflow at the operating level and it seems the group only managed to carry on going due to invoice discounting.
The Electronics division performed well, with human capital management being a good area but the product division was a bit more mixed due to project delays and the seemingly structural decline of the high street bank market. There are no forecasts but are told that the electronics division will continue to perform well but the product division will see revenues reduce. Unfortunately there is no profit split by division but if we assume a rough 50/50 split then profits might come in at around £600K this year? This suggests a PE of about 11 which is probably a bit high given the risks.