Newmark Security have now released their interim results for the year ending 2020.
Revenues increased when compared to the first half of last year as a £1.7M decline in asset protection revenue was more than offset by a £2.1M growth in electronics revenue. Cost of sales increased slightly to give a gross profit £290K higher. Admin expenses were up £90K, finance costs increases by £13K but there was a £463K swing to a tax income so the profit for the period was £1.1M, a growth of £650K year on year.
When compared to the end point of last year, total assets increased by £1.4M driven by a 980K growth in property, plant and equipment, a £608K increase in receivables and a £449K growth in deferred tax assets, partially offset by a £635K decline in cash. Total liabilities also increased during the period as a £765K decline in payables was more than offset by a £1M growth in borrowings. The end result was a net tangible asset level of £3.4M, a growth of £1.1M over the past six months.
Before movements in working capital, cash profits increased by £123K to £946K. There was a cash outflow from working capital but this was less than last year and after interest payments increased by £13K there was a net cash outflow of £162K from operations. The group spent £203K on property, plant and equipment along with £167K on development costs to give a cash outflow of £504K before financing. They repaid £205K in finance leases and received £72K of proceeds from invoice discounting to give a cash outflow of £637K and a cash level of £406K at the period-end.
Revenue for the Electronics division was £7.1M, a growth of £2.1M year on year following significant growth last year. This was largely due to the continued ramp-up of major US customers in the Human Capital Management business. Performance is expected to be slightly first half weighted but it is anticipated that the profitability of this division will continue into the second half.
Revenues in Human Capital Management increased by 60% to £4.9M. Sales in North America delivered the most significant growth, more than doubling to £3.1M. This was in line with expectations as major US clients continued the roll out of their next gen hardware. The number of enquiries from Tier 1 target customers increased during the period and negotiations began with two new major US-based software providers. Both have expressed an interest in the Android timeclock, the GT-10.
During the period the US business was rebranded GT Clocks and a number of market activities including the launch of a new website were conducted. The messaging focuses on the provision of timeclocks alongside the relevant services to both manage and maintain devices remotely and the secure management of clients’ data. They have continued to increase their resources in marketing and business development in North America. Outside North America revenues grew 13% to £1.8M as a result of a general uplift across a number of customers based across Europe.
In this market generally, growth continues to be facilitated through the technology 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 market is now within reach of providers. AS a consequence of this, the provision of the group’s own services increased across all clients. The long term strategy remains the increase of recurring revenues through the provision of a higher proportion and number of software sales under a subscription model. During the period they increased the resource dedicated to developing their software platforms with a Cloud and API first approach.
Access Control Revenue increased by 12% to £2.3M. The Janus product is no longer installed in new systems as it used an unsupported version of Windows although with the Janus to Sateon upgrade programme now closed, legacy sites continued to add their products. This, combined with a number of price increases, has led Janus revenues to increase by 48% to £845K.
The group completed the launch of the new Security Management System – Janus C4, which was delivered in conjunction with their software development partner in Slovakia. The market is beginning to move away from stand alone Access Control systems towards integrated Access Control, Intruder, CCTV and Fire and Building Management in a single platform. This has been well received by customers with strong pipeline growth and early sales of £83K. They are in the early stages of migrating existing Sateon customers to the platform and to help facilitate this, they are investing further resources in training.
With focus now on Janus C4, Sateon revenues decreased by 8% to £1.3M. Development of Sateon software is now limited to critical bug fixes and maintenance. Sales continue to be bolstered by the OEM variant of the Sateon Advance which allows third parties to use the hardware on their own access control platforms. They added a second OEM customer during the period and continue to have conversations with a number of third party access control providers.
Asset Protection revenue declined by £1.7M to £3M. Safetell revenue was 36% lower as a result of the expected reduction in volume of work relating to the Post Office Network Transformation and the continued shrinkage in demand from high street banks, along with reduced project work in the Service division. This has resulted in reduced revenue in products by 38% and service by 34%. As a result of the declining sales and lack of repeat programmes of refurb from their long term customers, a business reorganisation plan was implemented resulting in staff reductions and other cost saving measures.
They have seen the results of the reorganisation being reflected in the performance of the division delivering improved gross margin and being profitable. Once this is complete, a series of strategic reviews were undertaken which have identified new markets, products and customers. They have also identified an opportunity to align product and service resources and wherever possible the central teams have been combined.
The Electronic division’s performance is expected to be slightly first half weighted but it is expected that the profitability of the division will continue into the second half. The Asset Protection revenue is also expected to be weighted to the first half sue to seasonality factors which will have a corresponding impact on full year profit for that division. Once the reorganisation and strategic review are fully embedded, however, the division’s performance is expected to improve next year. Overall the board expects the group to show a marginal decline in revenue for the full year but with an improved level of operating profit.
At the current share price the shares are trading on a PE ratio of 33.7 and I can find no forecast but based on a full year profit of around £1M, this would come in at 6.6. There is no dividend here.
Overall then this has been a fairly positive period for the group. Profits were up, net assets increased and the operating cash flow improved, although the group is still cash flow negative at the operating level. The electronics division is doing well, boosted by good trade in the US and the growth of cloud-based computing. The asset protection division seems to be in structural decline due to less work with the post office and banks paring back their outlets. The reorganisation might inject some life into it though. It is very hard to value this, I suspect my prediction of a PE of 6.6 is rather optimistic but nevertheless I do seem some interesting potential here.