Newmark Security plc Annual Report 2003

Plain-text annual report

8 BY APPOINTMENT TO HER MAJESTY THE QUEEN PRINTERS GREENAWAYS, LONDON BY APPOINTMENT TO HM QUEEN ELIZABETH THE QUEEN MOTHER PRINTERS GREENAWAYS, LONDON 145024 30.10.2003 Job No: ................................................ Date: .................................................... Proof: ................................................... Ormolu House Crimscott Street London SE1 5TE Tel: 020 7417 8000 Fax: 020 7417 8001 www.greenaways.com SECURITY COVER REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS 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REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA REENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENAWAYS SECURITY COVER GREENA Annual Report For the year ended 30 April 2003 INDEX DIRECTORS, SECRETARY AND ADVISERS CHAIRMAN’S STATEMENT REPORT OF THE DIRECTORS REPORT OF THE REMUNERATION COMMITTEE REPORT OF THE INDEPENDENT AUDITORS FINANCIAL STATEMENTS ACCOUNTING POLICIES NOTES TO THE FINANCIAL STATEMENTS NOTICE OF ANNUAL GENERAL MEETING Page 2 3 7 12 14 15 19 19 36 Newmark Security PLC 1 Company number; Registered Of¢ce: Directors: Secretary: Bankers: Solicitors: Auditors: Nominated Adviser: Broker: DIRECTORS, SECRETARY AND ADVISERS 3339998 Suite 3 23 Bruton Street London W1J 6QF M Dwek (Chairman) B Beecraft FCA (Finance Director) M Rapoport (Non-Executive Director) A Reid FCA (Non-Executive Director) B Beecraft FCA Lloyds TSB PLC 1st Floor Navigation House Walnut Tree Park Walnut Tree Close Guildford Surrey GU1 4TR Travers Smith Braithwaite 10 Snow Hill London EC1A 2AL BDO Stoy Hayward Northside House 69 Tweedy Road Bromley Kent BR1 3WA Seymour Pierce Limited Bucklersbury House 3 Queen Victoria Street London EC4N 8EL Seymour Pierce Ellis Limited Talisman House Jubilee Walk Three Bridges Crawley West Sussex RH10 1LQ Newmark Security PLC 2 CHAIRMAN’S STATEMENT Overview During the year we completed the acquisition of Grosvenor Technology that was detailed in last year’s annual report, and progressed with the buy back of the minority interest in Vema N.V. The Grosvenor acquisition is in line with the Board’s strategy of creating an integrated high value security solutions group in both mechanical and electronic products. Grosvenor is an established access control and security management systems company with a strong experienced management team. It sells a sophisticated range of proprietary products through a network of dealers and installers who supply a predominantly blue chip customer base. Grosvenor has a high research and development team which is responsive to market demands and has a proven track record of product innovation and introduction. It also has a technical support team. The businesses of Grosvenor and Newmark Technology have been amalgamated and run by Grosvenor’s management, creating economies of scale and reducing the combined total overhead. Financial Results The operating loss for the year for continuing operations before exceptional items and goodwill amortisation was £1,034,000 (2002 — £550,000), £624,000 of this loss was incurred by Drion Security where failure to obtain a major export order referred to before led to substantial losses and since the year end this company has been disposed of. Losses were also incurred, as expected, at Newmark Security Products which recorded a loss of £365,000, whilst the business was moving from a start up position as it incurred expenditure in building up the business. Safetell and Grosvenor both contributed proﬁts although in the latter case only from its acquisition in September 2002. There are a number of exceptional items in the year relating to the under-provision of costs for the disposal of the Vema business and the closure of our operation at Redhill and the closure of our sales and marketing operation in the USA. Turnover for the year for continuing operations was £6.6 million (2002: £6.5 million). The reasons for the more signiﬁcant factors affecting the results of the divisions are set out below. Electronic Division With the acquisition of Grosvenor Technology now complete, that company has taken control of the Electronic Division. Since its acquisition in September 2002, Grosvenor has evaluated the entire product portfolio and the individual company structures within the Division, both UK and US based. Rationalisation has been the result which has included the closure of the previous Newmark Technology head- ofﬁce in Redhill, the assembly plant at Rainton Bridge and the US operations. The Omni, Midi CE and TransAsset have been pulled from production and reduced to being sold for spares and supporting existing sites only. Since September 2002 the rationalisation has made cost savings in excess of £500,000 per annum and Newmark Technology is now cash positive. The core products for the Electronic Division are: . . . JANUS Access Control — Grosvenor Technology C-Cure Access Control — Newmark Technology ParSec Asset Management and Personnel Tracking — Newmark Technology JANUS and ParSec are ’own-brand’ systems and developed ’in-house’ directly under the control of Grosvenor. C-Cure is a very well respected product and is properly supported via Tyco and Sensormatic so we now have a very stable and easily manageable product portfolio. Of the two in-house products, ParSec has previously suffered from not having a software management package. The product has always been sold as component parts to be controlled and managed by other company’s software which has never been forthcoming. JANUS is constantly being developed to remain at the forefront of technology and continues to be a leader in its class. The latest release includes a complete integration with ParSec which will beneﬁt both products. Newmark Security PLC 3 With the new control and management functionality afforded by JANUS, it is the company’s intention to re- launch the ParSec range. Although not redesigned in itself, it has been completely re-structured with a newly It also boasts new, stylish, and more designed reader PCB and ﬁrmware, offering additional functionality. modern labelling and brand new literature including manuals and datasheets. With this news there has been positive and renewed interest from Tyco in the UK and Honeywell/Ademco in the US, both of which are keen to revisit a revitalised product complete with the JANUS software integration. Grosvenor will also include the complete integration of ParSec with Siteguard, the Tyco access control product developed speciﬁcally by Grosvenor for Tyco in the UK. This will also further enhance the ongoing relationship between the two companies. Grosvenor and Newmark Technology have made substantial investments in time and money during the year on new ofﬁce systems and infrastructure that will consolidate the rationalisation and bring about further efﬁciencies and tangible beneﬁts to our customers. With the introduction of Exchequer Enterprise, sales order processing, purchase order processing, stock control with integrated accounting and connectivity functionality with the internet, the company has been able to introduce its ﬁrst eCommerce web site speciﬁcally timed for the re-launch of the ParSec product range. The new web site www.par-sec.biz is a fully integrated eCommerce site where customers with a Newmark trading account can log on and: . . . . . . . . Browse the ParSec catalogue View and download technical information and speciﬁcations View our stock/inventory status in real-time Create, print, save and email their own quotations Convert quotations into purchase orders Print, save and email purchase order acknowledgements Check the status of purchase orders with real-time tracking and POD from our couriers Save transactions for future reference Many other features will be added over time. It is our intention to offer this method of trading to all of our account customers across the entire product range. It will produce even more efﬁciencies within the company whilst at the same time provide immediate attention and information to our customers 24/365. The evaluation and subsequent realignment and re-branding of the ParSec product has been the reason to close the ofﬁce in USA. With so few sales into the US it was not economical to keep a physical presence. The eCommerce site is now our shop window on the world and has meant that we can still trade with the US in ’real-time’. An added bonus is that eCommerce is fast becoming the preferred method of business to business trading in the US so we are ahead of the game as well. The advent of our more efﬁcient systems and immediate accessibility of our staff to the customers has rebuilt our reputation as a credible added-value re-seller providing ﬁrst class product training, technical support and product knowledge for the C-Cure range. It is our intention to recover the lost ground as we are now set on a solid footing for the future to build upon and expand the Electronic Division with the people, the systems, and the products all in place, ready for a new era of positive and purposeful trading. Asset Protection Division Drion Security Turnover in the home market was on course in the banking sector but did not meet our expectations of a major breakthrough in the commercial sector. The shortfall against budget was mainly due to the lack of export contracts in particular the cancellation of the tender for the Algerian national bank. Despite many assurances that the placing of that order was imminent, it has recently been announced that the entire project has been postponed for an indeﬁnite period. This affected our performance further as CNEP (the Algerian national bank) had demanded a lot of co-operation with the company especially in the second part of the year and we had incurred costs in preparing the tender. Newmark Security PLC 4 Margins were also affected as the company was moving out of the non core activities it had been engaged with over the last two years and a demand from one of Drion’s main customers to provide services as general contractor as part of the security service and products. Safetell The ﬁrst part of Safetell’s ﬁnancial year continued the healthy trading situation in the early months of 2002. From September onwards there was a further marked improvement in both traditional and new business resulting in full year sales being 23% better than the previous year. The volume of work improved operating efﬁciencies and gross margins so that operating proﬁt rose by 50% compared to last year. The Eclipse rising screen programmes were maintained with long-term customers in retail ﬁnance and petrol retailing. A number of police authorities and local governments are re-entering the market for rising screens as the best defence against violence in the front ofﬁce/reception areas. The newer screen products of InterScreen, CounterShield, Eye2Eye and MaxiView are all becoming established in their respective niche markets with a number of multiple site and/or repeat orders. The imminent application of the Disability Discrimination Act in October 2004 is obliging public bodies to make adjustments to their service areas which is increasing the available market for these products. The sales force has been expanded by 50% to take advantage of these opportunities. The demand for RollerCash and BiDi Safe cash handling equipment is very dependent on the roll-out programmes of established customers. New customers are being introduced to the product and new applications are being implemented, although this is a long term process. The Post Ofﬁce contract has been extended to July 2004 and volumes are expected to rise in line with its suburban network reorganisation. The service and maintenance business increases pro rata to the installed base of primary equipments. Other service related work for third party suppliers is also being secured to improve operational efﬁciency of the service technicians. The early months of the current year are trading ahead of plan but the customer/product mix remains predominantly reliant on historical situations. The intended expansion of new products to new customers is still proving to be slow and difﬁcult. Secure Locking Division As reported last year Newmark Security Products (NSP) has been building up the infrastructure of the company for anticipated growth in sales. The company has moved from the Group’s former head ofﬁce to its own premises at Milton Keynes where we have been establishing our sales and support team. Turnover in the year increased substantially from £100,000 to nearly £350,000 but this was insufﬁcient to meet the higher level of overheads. A further substantial increase in turnover is anticipated in the current year. NSP is now one of the most complete and comprehensive electronic locking suppliers in the UK with an extensive range of products, from Strikes to Video Entry Systems, from Access Control to Cabinet Locks. The NSP name and brand are being recognised by a wider audience. Having recently developed and launched our own XK range of electric strikes which is proving very successful in the UK, we have now started to launch our full portfolio including the XK range and this has been met with enthusiasm which is now being translated into orders. NSP has also recently been assessed and accredited with ISO 9001, which with our full and extensive product range, dedicated team of professionals and an eye for the future will continue to increase market share and keep NSP amongst the leaders in its ﬁeld. Balance Sheet and Cash Flow The balance sheet shows signiﬁcant variations from last year in many areas due to the acquisition of Grosvenor Technology. In particular, there is the increase in intangible assets due to the goodwill arising on the acquisition. We have assumed that there would be the full deferred consideration of £3.5 million based on the projected level of proﬁts arising over the next few years, and this is included within creditors due after more than one year after discounting for the net present value in accordance with Financial Reporting Standards. The unwinding of the discount factor is required to be charged to the proﬁt and loss account as notional interest. For the year under review this amounted to £106,000. The acquisition of the Vema shares by share exchange has caused the increase in share capital, creation of merger reserve and reduction of minority interest. Newmark Security PLC 5 The cash ﬂow in the year reﬂects the initial cash consideration paid for Grosvenor together with associated costs. However, the cash ﬂow also reﬂects the payment in the year of the last element of the deferred consideration for an acquisition made in previous years, plus the payments of the costs associated with the sale of the Vema business at the end of the previous year. Board Sassie Rajwan left the Group in August this year after over six years as Chief Executive of the Group, and I would like to take this opportunity to thank him on your behalf for all his efforts. He has left to pursue other business interests, and we have subsequently reached agreement for the sale of Drion Security to him. We wish him every success for the future. Post Balance Sheet Events Since the year end the Group has agreed terms for the issue of secured loan notes to raise up to £1.5 million. The Loan Note Holders have committed to subscribe in cash for £1 million, and on agreement between the parties, the Loan Note Holders can subscribe in cash for up to a further £0.5 million of Loan Notes. The Loan Notes bear interest at a rate of 6% per annum payable quarterly in arrears and are repayable three years after the date of the instrument constituting the Loan Notes with an option for early repayment. As part of the fundraising, the Company issued warrants to the Loan Note Holders to subscribe for ordinary shares of 1p each in the Company at any time between 24 July 2003 and 24 July 2008 at a price of 1p per ordinary share. With the losses incurred by the company for the last two years and the loss of the prospect for the Algerian export markets, we decided to sell Drion Security to our former Chief Executive who left the Group in August to pursue other business interests. This has necessitated the write off of the unamortised goodwill capitalized on the original acquisition of the company. Employees The Board wishes to thank all employees for their efforts during the year. In particular we send our best wishes for the future to the employees of Drion, and to welcome the employees of Grosvenor to the Group. The Future With the closure of our operations at Redhill and Rainton Bridge last autumn, we had looked forward to the rest of the year under review with some conﬁdence. The turnover and proﬁt performance of Drion in the year was therefore very disappointing. Both Grosvenor and Safetell have for the current year to date performed ahead of plan and in the case of Grosvenor there are some very interesting potential orders in sight. Overall I look forward to reporting an improved result for the ﬁrst six months, after excluding the ﬁnancial effects of Drion. The outlook for the full year at the current time is positive. M DWEK Chairman Newmark Security PLC 6 REPORT OF THE DIRECTORS The Directors submit their annual report and audited ﬁnancial statements of the Group for the year ended 30 April 2003. Principal activities The Group is principally engaged in the design, manufacture and supply of products and services for the security of assets and personnel. The principal activity of the Company is that of an investment holding company. Financial results and dividends The loss on ordinary activities after exceptional items and goodwill amortisation and before interest, tax and minority interest in the year was £2,725,000 (2002: proﬁt £2,315,000). The operating loss for the year before exceptional items and goodwill amortisation for continuing operations was £1,034,000 (2002: £550,000). Turnover for the year was £8.4 million (2002: £6.5 million for continuing operations). The directors do not recommend the payment of a dividend. A review of the business and future prospects is given in the Chairman’s Statement on page 3. Change of name The name of the Company was changed from Newmark Technology Group PLC to Newmark Security PLC during the year. Share Capital By a special resolution passed at last year’s annual general meeting: (i) (ii) each of the unissued ordinary shares of 5p each in the capital of the Company were sub-divided into ﬁve ordinary shares of 1p each; and each of the issued ordinary shares of 5p each in the capital of the Company were sub-divided and converted into one ordinary share of 1p each and one deferred share of 4p each. During the year, the Company issued 90,314,814 ordinary shares of 1p each to acquire 60,209,877 Global Depository Receipts of Vema N.V. Acquisitions and disposals During the year the company acquired 100 per cent of the share capital of Grosvenor Technology Limited for an initial consideration of £3,287,000. A further maximum deferred consideration of £3.5million may be payable when the accounts for the 48 month period ended 31 October 2006 have been agreed. If the average annual proﬁt before tax is less than or equal to £450,000, the deferred consideration will be nil. If the average proﬁts before tax is greater than £450,000, the deferred consideration will be the average annual proﬁt before tax less £450,000 multiplied by seven subject to a maximum deferred consideration of £3.5million. The company also made an offer to the Global Depository Receipts (‘‘GDR’’) holders of Vema N.V. for the 49 per cent of the issued share capital of that company not already owned by Newmark. The offer represented 1.5 Newmark shares for each GDR. As at 30 April 2003, acceptances had been received for GDR’s so that the Group owned 92 per cent of Vema N.V. at 30 April 2003. Since the year end, the Group has sold its investment in Drion Security for a maximum deferred consideration of k500,000 subject to the level of proﬁts achieved in the future. The deferred consideration will be payable in three annual instalments commencing in 2006. Directors The Directors who served during the year were as follows: M Dwek S Rajwan B Beecraft M Rapoport A Reid S Rajwan resigned as a director on 27 August 2003. Newmark Security PLC 7 Details of the Directors’ service contracts are shown in the Remuneration Committee Report on pages 12 and 13. M Dwek retires in accordance with the articles of association. M Dwek being eligible, offers himself for re-election at the next annual general meeting. Directors’ interests The beneﬁcial and other interests of the Directors in the shares of the Company as at 30 April 2002 (or the date of their appointment to the Board, if later) and 30 April 2003 were as follows: M Dwek(a) M Rapoport A Reid(b) Percentage holding at 30 April 2003 30 April 2003 7.8% 16,575,000 5.0% 10,555,000 15.5% 32,858,238 30 April 2002 (or date of appointment if later) 15,075,000 1,605,000 25,208,238 (a) (b) These shares are held in the name of Arbury Inc., 51 per cent of the equity share capital of which is, at the date of this report, beneﬁcially owned by M Dwek. These shares are in part held in the name of R.K. Harrison & Co. Limited, a company the issued equity share capital of which is, at the date of this report, owned as to 70.7 per cent by A Reid of which 64.5 per cent is a beneﬁcial holding and 6.2 per cent is a non beneﬁcial holding, and the R.K. Harrison Retirement Beneﬁt Scheme in which A Reid has a beneﬁcial interest. There were no changes in these holdings to the date of this document. Since the year end the Group has agreed terms for the issue of secured loan notes to raise up to £1.5 million. The Loan Note Holders have committed to subscribe in cash for £1 million, and on agreement between the parties, the Loan Note Holders can subscribe in cash for up to a further £0.5 million of Loan Notes. The Loan Notes bear interest at a rate of 6 per cent per annum payable quarterly in arrears and are repayable three years after the date of the instrument constituting the Loan Notes with an option for early repayment. As part of the fundraising, the Company issued warrants to the Loan Note Holders to subscribe for ordinary shares of 1p each in the Company at any time between 24 July 2003 and 24 July 2008 at a price of 1p per ordinary share. Since the year end parties related to M Dwek and A Reid have subscribed for £360,000 and £90,000 of loan stock respectively. The interests of Directors (and related parties) in Share Option Schemes operated by the Company at 30 April 2002 and 2003 were as follows: Number of Ordinary Shares under the Approved Scheme 30 April 2003 — 420,000 500,000 Number of Ordinary Shares under the Unapproved Scheme 30 April 2003 5,000,000 3,180,000 1,000,000 Number of Ordinary Shares under the Approved Scheme 30 April 2002 — 420,000 375,000 Number of Ordinary Shares under the Unapproved Scheme 30 April 2002 — 1,680,000 375,000 M Dwek S Rajwan B Beecraft The Directors had no other interests in the shares or share options of the Company or its subsidiaries. S. Rajwan has left the Company since the year end, and hence his options have lapsed. Research and development The Group is committed to on-going research and development. The strategy is based upon market demand to meet identiﬁed security needs in conjunction with a commercial assessment of the short to medium term proﬁtability of each project. The amount of the costs incurred in the year are shown in note 3(b) to the accounts. Newmark Security PLC 8 Substantial shareholdings Apart from the Directors’ shareholdings detailed above, the Directors have been notiﬁed of the following additional shareholding of 3 per cent or more of the issued ordinary share capital of the Company as at the date of this document: Credit Suisse First Boston Nominees M V. Beheer BV HSBC Global Custody Nominee (UK) Limited Pershing Keen Nominees Limited PH Nominees Limited Percentage of class 3.8% 6.4% 3.2% 3.1% 4.5% Number of shares 8,100,000 13,447,725 6,666,666 6,565,000 9,437,000 Employee involvement The Group keeps employees informed of matters affecting them and employees have regular opportunities to meet and have discussions with their managers. Disabled persons The Group gives sympathetic consideration to the employment of disabled people. Whilst no special facilities are provided for training the disabled, all employees are given equal opportunities for training and promotion, having regard to their particular aptitudes and abilities. In the event of employees becoming disabled, every effort is made to retain them in order that their employment with the Group may continue. Share option schemes The Company has two employee share option schemes which enable employees and Executive Directors to be granted options to subscribe for Ordinary Shares. The Approved Scheme has been approved by the Inland Revenue in accordance with Section 185 of, and Schedule 9 to, the Income and Corporation Taxes Act 1988 (‘‘Taxes Act’’), the Unapproved Scheme not requiring such approval. The Schemes require that exercise of options be subject to the satisfaction of certain performance criteria. The Remuneration Committee administers and operates each Scheme. The maximum number of Ordinary Shares in respect of which options may be granted under each Scheme is equivalent to approximately 5 per cent in aggregate of the Company’s issued Ordinary share capital. Further details of the share option schemes are in note 16 to the accounts. Environmental Policy The Group’s environmental policy endeavours to minimise the impact of its activities on the environment through, where possible, the proper conservation of natural resources. The Group recognises its responsibility in doing so, seeks the input of to continually review and improve its environmental performance and, architects, engineers and other professional advisers. Payment of suppliers The Group requires its operational management to settle terms of payment with suppliers when agreeing the terms of the transaction to ensure that suppliers are aware of these terms and to abide by them. Trade creditors at the year end were 58 days (2002: 79 days) of average supplies for the period. Corporate governance The Company has complied throughout the year with the provisions set out in Section 1 of the Principles of Good Governance and Code of Best Practice (‘‘the Combined Code’’) which embraces the work of the Cadbury, Greenbury and Hempel Committees, in so far as this is practical and appropriate for a small public limited company. This statement indicates several ways in which the Company does not comply with the Combined Code. At 30 April 2003, the Board comprised an Executive Chairman, two Executive Directors and two Non-Executive Directors. The Board meets regularly to exercise full and effective control over the Group. The Board has a number of matters reserved for its consideration, with the principal responsibilities being to monitor performance and to ensure that there are proper internal controls in place to agree overall strategy and acquisition policy, to Newmark Security PLC 9 approve major capital expenditure and to review budgets. The Board will also consider reports from senior members of the management team. There was a clear division of responsibilities between the Chairman and Chief Executive during the year. The Chairman takes responsibility for the conduct of the Group and overall strategy. The Chief Executive has left the Group since the year end. Under the Company’s Articles of Association, the appointment of all directors must be approved by the shareholders in General Meeting, and additionally one-third of the directors are required to submit themselves for re-election at each Annual General Meeting. Additionally, each director has undertaken to submit themselves for re-election at least every three years. The Board has considered the recommendation to introduce a Nominations Committee. However, it was decided given the small size of the Board, that nominations are to remain a matter reserved for the Board. Any Director may, in furtherance of his duties, take independent professional advice where necessary, at the expense of the Company. All directors have access to the Company Secretary whose appointment and removal is a matter for the Board as a whole, and who is responsible to the Board as a whole and who is responsible to the Board for ensuring that agreed procedures and applicable rules are observed. The Company maintains an ongoing dialogue with its institutional shareholders. The Combined Code requires proxy votes to be counted and announced after any vote on a show of hands and this has been implemented by the Company. The Combined Code requires Directors to review, and report to shareholders on, the Group’s system of internal control. In September 1999 guidance to this requirement was provided to Directors by the publication of Internal Control: Guidance for Directors on the Combined Code (‘‘The Turnbull Report’’). The Board continues to report on internal ﬁnancial control in accordance with the guidance on internal control and ﬁnancial reporting that was issued by the Institute of Chartered Accountants in England and Wales in 1994. The Directors have considered the Turnbull Report but have decided that the cost of implementing the procedures contained therein is disproportionate to expected beneﬁts at this stage of the Group’s development. The Directors acknowledge their responsibility for the Group’s systems of internal ﬁnancial control which are designed to provide reasonable assurance that the assets of the Group are safeguarded and that transactions are properly authorised and recorded. During the year, key controls were: . . . . . day to day supervision of the business by the Executive Directors, maintaining a clear organisational structure with deﬁned lines of responsibility, production of management information, with comparisons against budget, maintaining the quality and integrity of personnel, Board approval of all signiﬁcant capital expenditure, and all acquisitions. Each Group company is responsible for the preparation of a budget for the following year, which is presented to and required to be agreed by the Board before the beginning of that year. The subsidiary is required to report actual performance against that plan each month. The Board has established two standing committees, the audit and remuneration committees, comprising the two independent Non-Executive Directors. Each committee has written terms of reference. The Audit Committee, comprising M Rapoport and A Reid, is responsible for the appointment of external auditors, reviewing the interim and annual ﬁnancial results, considering matters raised by the auditors and reviewing the internal control systems operated by the Group. The Remuneration Committee, comprising M Rapoport and A Reid meets at least once a year to review the terms and conditions of employment of Executive Directors including the provision of incentives and performance related beneﬁts. The report of the remuneration committee is set out on pages 12 and 13. After making enquiries, the Directors believe that the Group has sufﬁcient ﬁnancial resources to continue in operational existence for the foreseeable future. The accounts have therefore been produced on the going concern basis. Newmark Security PLC 10 Directors’ responsibilities Company law requires the Directors to prepare ﬁnancial statements for each ﬁnancial year which give a true and fair view of the state of affairs of the Company and the Group for that period. In preparing those ﬁnancial statements, the directors are required to: . . . . select suitable accounting policies and apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; and prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for maintaining proper accounting records which disclose with reasonable accuracy at any time the ﬁnancial position of the Company and to enable them to ensure that the ﬁnancial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors conﬁrm that the ﬁnancial statements comply with the above requirements. Auditors A resolution for the re-appointment of BDO Stoy Hayward, Chartered Accountants, as auditors of the Company is to be proposed at the Annual General Meeting. By order of the Board B BEECRAFT Secretary 31 October 2003 Newmark Security PLC 11 REPORT OF THE REMUNERATION COMMITTEE Authority The Remuneration Committee is responsible for approving the remuneration of Executive Directors. The remuneration of Non-Executive Directors is approved by the full Board of the Company. Membership The majority membership of the Remuneration Committee is required to comprise independent Non-Executive Directors and at 30 April 2003 comprised only the two existing Non-Executive Directors, Michel Rapoport and Alexander Reid. Michel Rapoport was previously President and Chief Executive Ofﬁcer of Mosler Inc., a manufacturer and integrator of security systems for banking, industrial and commercial organisations. Prior to that he was Vice President of Pitney Bowes International and Chairman of Pitney Bowes France. He is Chairman of Chloralp S.A., a chloralkali manufacturer in Grenoble, France, and President of La Roche Industries Inc., an ammonia distributor based in Atlanta, U.S.A. Alexander Reid is executive chairman of R.K. Harrison & Company Limited (a shareholder of the Company), a director of Yeoman Investment Trust Plc and a number of unquoted companies. He was formerly a director of the merchant bank Samuel Montagu & Co. Limited and for 15 years was a director of various investee and group companies within Invesco MIM (now Amvescap). Remuneration policy The Group’s policy is to offer remuneration packages which are appropriate to the experience, qualiﬁcations and level of responsibility of each Executive Director and are in line with Directors of comparable public companies. Service and consultancy agreements The Company entered into a Consultancy Agreement with Arbury Inc., on 1 September 1997 for the services provided to the Company by Mr Dwek. The Agreement may be terminated by either party subject to 12 months’ notice being served. Arbury Inc is paid a fee in line with the level of responsibilities of Mr Dwek who is also entitled to the provision of a car for which the Company will meet all running expenses except for lease costs. On 4 April 2001, Arbury Inc. entered into a consultancy agreement with Vema N.V. (a subsidiary company) pursuant to which Mr Dwek acts as Chairman of that Company. This agreement was terminated during the year. On 30 April 1997, the Company entered into a Service Agreement with Mr Rajwan which has been terminated since the year end. The Company entered into a Service Agreement on 5 June 1998 with Mr Beecraft which may be terminated by either party serving six months’ notice. On 4 April 2001 R.K. Harrison & Company Limited entered into a consultancy agreement with Vema N.V. pursuant to which Mr Reid acts as Finance Director of Vema N.V.. This agreement was terminated during the year. Newmark Security PLC 12 Directors’ emoluments Emoluments of the directors (including pension contributions and beneﬁts in kind) of the Company were as follows: Consultancy/ management agreement »000 Termination payments »000 Salary »000 Benefits in kind »000 Fees »000 Total »000 Executive Directors M Dwek(a) S Rajwan(b) B Beecraft Non-Executive Directors A Reid(c) M Rapoport 2002 212 — — 8 — 220 174 62 — — 16 — 78 — — 140 89 — — 229 179 — 21 6 — — 27 24 — — — 7 7 14 224 274 161 95 31 7 568 601 Pension contri- butions — 13 — — — 13 11 The directors’ share interests are detailed in the Report of the Directors on page 8. (a) (b) (c) The Company paid a consultancy fee of £179,821 (2002: £121,000) to Arbury Inc., a company 51 per cent owned by M Dwek which covers salary, pension and car beneﬁts. A consultancy fee of £31,895 (2002: £52,903 ) was paid to Arbury Inc., by Vema NV for services as Chairman of that company. In addition, Vema paid a fee to Arbury Inc., of £61,904 for the termination of his consultancy contract with that company. The salary of S Rajwan includes a special fee of £40,000 for working in Belgium at Drion. The pension contributions in respect of S Rajwan were for a money purchase pension scheme. Directors’ fees in respect of A Reid of £7,500 (2002: £7,500) were paid by the Company to R. K. Harrison & Co. Limited. Vema NV paid fees to R. K. Harrison & Co. Limited of £8,045 (2002: £14,135) for services as director of that company. In addition, Vema paid a fee to R. K. Harrison & Co. Limited, of £16,193 for the termination of his management contract with that company Newmark Security PLC 13 REPORT OF THE INDEPENDENT AUDITORS Independent Auditors’ Report to the Shareholders of Newmark Security PLC We have audited the ﬁnancial statements of Newmark Security PLC for the year ended 30 April 2003 on pages 15 to 35 which have been prepared under the accounting policies set out on pages 19 and 20. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report and the ﬁnancial statements in accordance with applicable law and United Kingdom Accounting Standards are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the ﬁnancial statement in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards. We report to you our opinion as to whether the ﬁnancial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the ﬁnancial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information speciﬁed by law regarding directors’ remuneration and transactions with the group is not disclosed. We read other information contained in the annual report and consider whether it is consistent with the audited ﬁnancial statements. This other information comprises only the Remuneration Report, the Directors’ Report and the Chairman’s Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the ﬁnancial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the ﬁnancial statements. It also includes an assessment of the signiﬁcant estimates and judgements made by the directors in the preparation of the ﬁnancial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufﬁcient evidence to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the ﬁnancial statements. Opinion In our opinion the ﬁnancial statements give a true and fair view of the state of the affairs of the Company and the Group at 30 April 2003, and of the loss of the Group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. BDO Stoy Hayward Chartered Accountants Registered Auditors 31 October 2003 London Newmark Security PLC 14 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 April 2003 Turnover Continuing operations Acquisitions Discontinued operations Cost of sales Gross pro¢t Administrative expenses pre amortisation of goodwill and exceptional items Reorganisation and restructuring costs Amortisation of goodwill Administrative expenses — total Other operating income Operating (loss)/pro¢t Continuing operations Acquisitions Discontinued operations Proﬁt on part disposal of investment in subsidiary company (Loss)/proﬁt on closure/disposal of business and net trading assets (Loss)/pro¢t on ordinary activities before interest Interest receivable Interest — discount charge on deferred consideration Interest payable (Loss)/pro¢t on ordinary activities before taxation Tax on (loss)/proﬁt on ordinary activities (Loss)/pro¢t on ordinary activities after taxation Minority interest Loss for the ¢nancial year Dividends Amount withdrawn from reserves Loss per share — basic and diluted — before exceptional items and goodwill amortisation Notes 2 3(c) 3(d) 3 3(e) 3(f) 4 4 6 18 17 7 2003 Before goodwill and exceptional items »000 2003 Goodwill and exceptional items »000 6,622 1,748 23 8,393 (5,720) 2,673 (3,932) — — (3,932) — (1,146) 112 (225) (1,259) — — (1,259) 67 (106) (34) — — — — — — — — (1,093) (1,093) — (1,093) — — (1,093) — (373) (1,466) — — — 2003 Total »000 6,622 1,748 23 8,393 (5,720) 2,673 (3,932) — (1,093) (5,025) — (2,239) 112 (225) (2,352) — (373) (2,725) 67 (106) (34) (1,332) (1,466) (2,798) — — — (1,332) 78 (1,254) — (1,254) (1,466) — (1,466) — (1,466) (2,798) 78 (2,720) — (2,720) pence (1.6p) (0.8p) Newmark Security PLC 15 2002 Total »000 6,479 — 5,548 12,027 (7,785) 4,242 (5,194) (391) (128) (5,713) 597 (1,431) — 557 (874) 182 3,007 2,315 — — (55) 2,260 (1,517) 743 (1,702) (959) — (959) pence (0.8p) (0.5p) BALANCE SHEETS As at 30 April 2003 Fixed assets Intangible assets Tangible assets Investments Current assets Stocks Debtors: amounts falling due within one year Debtors: amounts falling due after more than one year Cash at bank and in hand Creditors: amounts falling due within one year Net current (liabilities)/assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities and charges Capital and reserves Called up share capital Share premium Merger reserve Proﬁt and loss reserve Equity shareholders’ funds Minority interests Notes 8 9 10 11 12 12 13 14 15 16 17 17 17 18 Group 2003 »000 5,585 1,844 — 7,429 1,239 2,389 — 806 4,434 (4,706) (272) 7,157 (3,263) (217) 3,677 6,963 5,151 801 (9,585) 3,330 347 3,677 Group 2002 »000 2,014 1,344 — 3,358 773 1,994 — 6,409 9,176 (5,022) 4,154 7,512 (525) (453) 6,534 6,060 5,194 — (6,750) 4,504 2,030 6,534 Company 2003 »000 Company 2002 »000 — 19 15,214 15,233 — 71 751 — 822 (9,728) (8,906) 6,327 (2,798) — 3,529 6,963 5,151 801 (9,386) 3,529 — 3,529 — — 7,218 7,218 — 2,601 — — 2,601 (2,662) (61) 7,157 — — 7,157 6,060 5,194 — (4,097) 7,157 — 7,157 The ﬁnancial statements were approved by the Board of Directors on 31 October 2003 and were signed on its behalf by: M DWEK Chairman B BEECRAFT Finance Director Newmark Security PLC 16 Notes 19 3(e) 2003 »000 (3,172) 67 (34) 33 — (349) 31 2002 »000 (458) — (55) (55) (145) (200) — (318) (200) (3,870) 1,104 (2,766) — — — (6,223) — — 58 (151) (93) (43) (136) — — — 5,525 61 5,586 4,728 2,880 (705) — (1,029) 1,146 — 1,146 5,874 21 (6,359) CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 April 2003 Net cash out£ow from operating activities Returns on investments and servicing of ¢nance Interest received Interest paid Net cash in£ow/(out£ow) from returns on investments and servicing of ¢nance Taxation Capital expenditure and ¢nancial investment Purchase of tangible ﬁxed assets Receipts from sale of tangible ﬁxed assets Net cash out£ow from capital expenditure and ¢nancial investment Acquisitions Purchase of subsidiary undertakings Net cash acquired on purchase of subsidiary undertakings Net cash out£ow from acquisitions Disposals Proceeds on sale of subsidiary undertaking, and business and trading assets Net overdraft disposed of with business Net cash in£ow from disposals Net cash (out£ow)/in£ow before ¢nancing Financing Proceeds from ﬂotation of Vema Costs related to ﬂotation of subsidiary New ﬁnance loans Repayment of loans Expenses paid in connection with share issues Net cash in£ow from ¢nancing (Decrease)/increase in cash Newmark Security PLC 17 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 April 2003 Loss for the ﬁnancial year Exchange difference on translation of net assets and results of subsidiary undertakings Total recognised gains and losses relating to the year RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS For the year ended 30 April 2003 GROUP Loss for the ﬁnancial year New share capital subscribed (net of issue costs) Goodwill on disposal of business and trading assets Exchange difference on translation of net assets and results of subsidiary undertakings Net (reduction)/increase to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds COMPANY Loss for the ﬁnancial year New share capital subscribed (net of issue costs) Reduction to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2003 »000 (2,720) (115) (2,835) 2003 »000 (2,720) 1,661 — (115) (1,174) 4,504 3,330 (5,289) 1,661 (3,628) 7,157 3,529 2002 »000 (959) (66) (1,025) 2002 »000 (959) — 3,460 (66) 2,435 2,069 4,504 (1,360) — (1,360) 8,517 7,157 Newmark Security PLC 18 Accounting policies NOTES TO THE FINANCIAL STATEMENTS ACCOUNTING POLICIES Notes to the ¢nancial statements For the year ended 30 April 2003 1. The ﬁnancial statements have been prepared in accordance with applicable accounting standards in the United Kingdom and under the historical cost convention. The consolidated ﬁnancial statements include the results of subsidiaries since the date of acquisition. The principal accounting policies which the directors have adopted are set out below. Basis of preparation The ﬁnancial statements have been prepared on a going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The Group has incurred a loss for the year ended 30 April 2003 of £2,798,000, and had net current liabilities of £272,000 and net assets of £3,677,000 at that date. In arriving at their conclusion that it was appropriate to adopt the going concern basis the directors have had regard to: (a) (b) (c) current trading; trading and cash ﬂow forecasts and the issue of secured loan notes after the year end, referred to more fully in note 26 below. Turnover Turnover is stated net of value added tax. Sales of equipment are recognised when the equipment is shipped to the customer or installed. Other sales are either recognised on completion of work, or spread evenly over the term of the contract. Goodwill Goodwill represents the difference between the costs of acquisition and the fair value of the net tangible assets acquired. In accordance with Financial Reporting Standard 10 (‘‘FRS 10’’), goodwill arising on the acquisition of subsidiaries is capitalised as an intangible asset and amortised over its useful economic life. The Board considers that there should be a presumption that the useful economic life of goodwill does not exceed a speciﬁed maximum period, chosen here to be 20 years since after that date continued measurement is less reliable. Goodwill arising on the acquisition of subsidiaries prior to FRS 10 was written off immediately against reserves. The Group has adopted the transitional arrangement allowed by FRS 10 in that this goodwill remains eliminated against reserves and will be charged to the proﬁt and loss account on the subsequent disposal of the businesses to which it relates. Impairment of ﬁxed assets and goodwill The need for any ﬁxed asset impairment right down is assessed by comparing the carrying value of the asset against the higher of realisable value and value in use. Contingent deferred consideration Contingent deferred consideration is accounted for in accordance with FRS 7. The fair value of the contingent consideration payable in cash is taken to be the estimated amount of cash value discounted to its present value. Intellectual property rights and development costs Intellectual property rights and development costs are written off to the proﬁt and loss account as incurred. Tangible ﬁxed assets The Group’s tangible ﬁxed assets are stated at cost less depreciation. Provision for depreciation is made in equal annual instalments to write off the cost less estimated residual value of each asset over its estimated useful life as follows: Freehold land Freehold buildings Plant and machinery Fixtures and ﬁttings Nil 5% per annum 20% per annum 10% per annum Newmark Security PLC 19 Motor vehicles Computer equipment 25% per annum 25% per annum Leased assets and obligations Assets acquired under hire purchase contracts and ﬁnance leases are capitalised as tangible assets and depreciated over the shorter of the lease term and their useful lives. Obligations under such agreements are included in creditors net of the ﬁnance charge allocated to future periods. The ﬁnance element of the rental payment is charged to the proﬁt and loss account so as to produce a constant periodic rate of charge on the net obligation outstanding in each period. Rentals payable under operating leases are charged against income on a straight line basis over the lease term. Fixed asset investments Fixed asset investments are recorded at cost less any provision for impairments. Stock and work in progress Stocks and work in progress are stated at the lower of cost and net realisable value. Cost is determined on an average cost basis. The cost of work in progress and ﬁnished goods comprises materials, direct labour and attributable production overheads. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and disposal. Deferred taxation Deferred tax is provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax assets are only recognised when that asset is regarded as recoverable. The deferred tax balance has not been discounted. Foreign currencies Foreign currency transactions of individual companies are translated at the rates ruling when they occurred. Foreign currency monetary assets and liabilities are translated at the rate of exchange ruling at the balance sheet date. Any differences are taken to the proﬁt and loss account. The results of overseas operations are translated at the average rates of exchange during the year and the balance sheet translated into sterling at the rate of exchange ruling on the balance sheet date. Exchange differences which arise from translation of foreign subsidiary undertakings are taken to reserves. the opening net assets and results of All other differences are taken to the proﬁt and loss account. Pensions Safetell operates a fully insured money purchase scheme open to all employees and more than half are members. The scheme is funded and its assets are held by an insurance company in a separate trustee administered fund. Both the company and employees make contributions to the fund. Grosvenor operates a deﬁned contribution pension scheme. The assets of the scheme are held separately from those of the company in an independently administered fund. Contributions to these schemes are charged to the proﬁt and loss account in the year in which they become payable. The Company also made contributions in respect of S. Rajwan. Other employees of the Group contribute to state schemes. Contributions are charged to the proﬁt and loss account when paid. Analysis by geographical area 2. The analysis by geographical area of the Group’s turnover, proﬁt before taxation and net assets is set out below: Turnover UK Europe Rest of the World Total 2003 By origin »000 7,059 1,334 — 8,393 2002 By origin »000 4,918 7,109 — 12,027 2003 By destination »000 6,912 1,344 137 2002 By destination »000 4,518 7,270 239 8,393 12,027 Newmark Security PLC 20 Analysis by geographical area (continued) 2. (Loss)/pro¢t before tax UK Europe Rest of the World Net Assets UK Europe Rest of the World 2003 Before goodwill and exceptional items »000 (495) (766) (71) 2003 Goodwill and exceptional items »000 (355) (1,072) (39) (1,332) (1,466) 2003 Total »000 (850) (1,838) (110) (2,798) 2002 Total »000 (786) 3,408 (362) 2,260 2003 Net assets »000 2,306 2,141 (770) 2002 Net assets »000 550 6,708 (724) 3,677 6,534 Operating loss 3. (a) Continuing and discontinued operations 2003 Continuing operations »000 6,622 (4,581) 2003 Acquisitions »000 1,748 (1,139) 2003 Discontinued 2003 operations Total »000 »000 23 8,393 — (5,720) 2002 Continuing operations »000 6,457 (4,565) 2002 Discontinued 2002 operations Total »000 »000 5,570 12,027 (7,785) (3,220) 2,041 609 23 2,673 1,892 2,350 4,242 (3,187) (497) (248) (3,932) (3,039) (2,155) (5,194) Sales Cost of sales Gross pro¢t Administrative expenses pre-amortisation of goodwill and exceptional items Reorganisation and restructuring costs Amortisation of goodwill Impairment of goodwill Administrative expenses in total Other operating income — (287) (806) (4,280) — Operating (loss)/pro¢t (2,239) — — — (497) — 112 — — — — (287) (806) (391) (128) — — — — (391) (128) — (248) (5,025) (3,558) (2,155) (5,713) — — 597 — 597 (225) (2,352) (1,069) 195 (874) Newmark Security PLC 21 (b) Operating loss is arrived at after charging the following: Group Depreciation of tangible ﬁxed assets Amortisation of goodwill Impairment of goodwill Research and development Auditors’ remuneration: Parent company auditors Audit fees Non audit fees Other auditors Audit fees Non audit services Operating lease rentals: Property Motor vehicles and computer equipment (c) Reorganisation and restructuring costs comprised: Accrual for staff termination costs Provision for unexpired portion of property and other operating leases related to Newmark Technology Limited Exceptional depreciation of ﬁxed assets owned by Newmark Technology Limited Termination costs for restructuring in another subsidiary company 2003 »000 219 287 806 166 32 8 6 4 152 92 2003 »000 — — — — — 2002 »000 241 128 — 70 35 2 67 9 141 173 2002 »000 105 220 21 45 391 (d) Other operating income Other operating income in 2002 represented monies received from Lik On Security Limited in settlement of their purchasing commitment. (e) Pro¢t on part disposal of investment in subsidiary Proceeds from partial disposal of investment in subsidiary Goodwill on partial disposal of investment Costs of ﬂotation and share issue Share of net assets relating to minority interests at date of ﬂotation 2003 »000 — — — — — 2002 »000 2,880 (1,695) (705) (298) 182 This proﬁt related to the ﬂotation of Vema N.V. on the Alternative Investment Market, and the subscription for 49 per cent of the A issued share capital by external shareholders. (f) (Loss)/pro¢t on closure/disposal of business and trading assets Proceeds of sale received Retention receivable Net assets disposed of Goodwill on disposal of investment in subsidiary Cost of disposal Net proﬁt on disposal Under provision for costs of closure/disposal in prior years Costs of closure of operation in year (Loss)/proﬁt on closure/disposal of business and net trading assets Newmark Security PLC 22 2003 »000 — — — — — — (228) (145) (373) 2002 »000 5,525 532 (1,047) (1,760) (243) 3,007 — — 3,007 4. Interest payable and similar charges Discount charge on deferred consideration Bank loans, overdrafts and other short term ﬁnance 2003 »000 106 34 140 2002 »000 — 55 55 Employees and directors 5. The average numbers employed by the Group (including Executive Directors) within the following categories were: Management, sales and administration Production The costs incurred in respect of these employees were: Wages and salaries Social security costs Other pension costs Directors emoluments Aggregate emoluments Aggregate contributions under money purchase scheme Aggregate payments for compensation for loss of ofﬁce Emoluments of highest paid director Aggregate contributions under money purchase scheme for highest paid director Number of directors receiving beneﬁt under money purchase scheme Taxation 6. Taxation is based on the results for the year and comprises: UK Corporation taxation Overseas taxation Deferred taxation Taxation charge on loss for the year before exceptional items Taxation on gain on disposal of business and trading assets Number 73 60 133 Number 72 66 138 »000 3,238 537 138 3,913 2003 »000 490 13 78 274 — »000 3,322 520 134 3,976 2002 »000 601 11 — 319 — Number 1 Number 1 2003 »000 — — — — — — 2002 »000 — 122 — 122 1,395 1,517 The tax charged for the year is lower than the standard rate of corporation tax in the UK (30 per cent). Newmark Security PLC 23 The differences are explained below: (Loss)/proﬁt on ordinary activities before taxation (Loss)/proﬁt on ordinary activities at the standard rate of UK corporation tax of 30% (2002: 30%) Effects on proﬁts of items not deductible for the tax purposes Tax losses carried forward Timing differences including capital allowances in excess of depreciation dealt with under deferred tax Impairment goodwill amortisation Interest discount charge on deferred consideration Grossing up of foreign income Double tax relief Adjustment to tax charge in respect of previous periods Higher tax rates on overseas earnings Current tax charge for year 2003 »000 (2,798) (839) 12 541 47 242 32 2 (6) — (31) — 2002 »000 2,260 678 267 338 (3) — — 2 (6) 2 239 1,517 The Group has the following tax losses, subject to agreement by HM Inspector of Taxes, available for offset against future trading proﬁts and capital gains as appropriate: Management expenses Non-trading deﬁcit Trading losses Capital losses 2003 »000 140 4 3,532 792 2002 »000 83 4 2,905 792 Loss per share 7. The calculation of the basic loss per ordinary share is based on a loss of £2,720,000 (2002: loss £959,000) and the weighted average number of shares in issue during the year of 174,364,102 (2002: 121,208,952). The options in issue have no dilutive effect. The basic loss per share before goodwill amortisation and exceptional items has also been presented since, in the opinion of the directors, this provides shareholders with a more appropriate measure of earnings derived from the Group’s businesses. It can be reconciled to basic loss per share as follows: Basic loss per share (pence) Goodwill amortisation and exceptional items per share Loss per share before goodwill amortisation and exceptional items 2003 (1.6) 0.8 (0.8) 2002 (0.8) 0.3 (0.5) Intangible ¢xed assets 8. Group Cost At 1 May 2002 Acquisitions in the year At 30 April 2003 Amortisation At 1 May 2002 Charge for the year Impairment At 30 April 2003 Net book value At 30 April 2003 At 30 April 2002 Newmark Security PLC 24 Goodwill »000 2,328 4,664 6,992 (314) (287) (806) (1,407) 5,585 2,014 Tangible ¢xed assets 9. Group Cost At 1 May 2002 Additions Disposals Acquisition of subsidiary Exchange adjustment At 30 April 2003 Depreciation At 1 May 2002 Charge for the year Disposals Acquisition of subsidiary Exchange adjustment At 30 April 2003 Net book value At 30 April 2003 At 30 April 2002 Company Cost Additions At 30 April 2003 Depreciation Charge for the year At 30 April 2003 Net book value At 30 April 2003 Freehold land and buildings »000 Plant, machinery & motor vehicles »000 Computers, fixtures & fittings »000 1,331 59 (3) 28 160 1,575 188 26 — 20 13 247 1,328 1,143 1,060 213 (209) 501 101 1,666 918 143 (182) 262 108 1,249 417 142 427 77 (128) 32 13 421 368 50 (127) 24 7 322 99 59 Computers, fixtures & fittings »000 23 23 4 4 19 Total »000 2,818 349 (340) 561 274 3,662 1,474 219 (309) 306 128 1,818 1,844 1,344 Total »000 23 23 4 4 19 Newmark Security PLC 25 Fixed asset investments 10. Company Investment in subsidiary companies Cost At 1 May 2002 Additions Disposals At 30 April 2003 Provision for impairment At 1 May 2002 Disposals At 30 April 2003 Net book value At 30 April 2003 At 30 April 2002 »000 9,347 9,246 (3,379) 15,214 2,129 (2,129) — 15,214 7,218 The provision for impairment was calculated to state the net book value of an investment in a subsidiary company at the commercial valuation of that company. The details of the Company’s subsidiary undertakings (wholly owned unless otherwise stated) which are involved in the supply of access control and other security products, are as follows: Name Newmark Technology Limited Newmark Security Products Limited Newmark Technology (C-Cure Division) Limited Vema B.V. Vema N.V.(3) (92% owned) Newmark Technology S.A. Drion Security S.A.(2) Safetell International Limited Safetell Limited(1) Safetell Security Screens Limited(1) Newmark Onroerend Goed B.V.(2) Newmark Technology Inc. Vema U.K. Limited(4) Concept Hardware & Security Solutions Limited(5) Grosvenor Technology Limited Newmark Group Limited Newmark Security Limited Activity Trading Trading Dormant Holding Property Holding Trading Holding Trading Trading Property Dormant Finance Trading Trading Dormant Dormant Country of incorporation England & Wales England & Wales England & Wales The Netherlands The Netherlands Belgium Belgium England & Wales England & Wales England & Wales Belgium USA England & Wales England & Wales England & Wales England & Wales England & Wales Description of shares held Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary and Redeemable Preference Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary The investments in subsidiary companies are held directly by the Company apart from the following: (1) (2) (3) (4) (5) Owned by Safetell International Limited Owned by Newmark Technology S.A. Owned by Vema B.V. Owned by Vema N.V. Owned by Newmark Security Products Limited Newmark Security PLC 26 11. Stocks Raw materials Work in progress Finished goods 12. Debtors Amounts falling due within one year Trade debtors Amounts owed by subsidiary undertakings Other debtors Deferred tax asset (Note 15) Prepayments and accrued income 2003 Group »000 472 236 531 1,239 2003 Group »000 1,818 — 312 46 213 2,389 Debtors: amounts falling due after more than one year — 13. Creditors: amounts falling due within one year Bank loans and overdrafts (note 14) Trade creditors Amounts due to group companies Corporation tax Other taxation and social security Obligations under ﬁnance leases and hire purchase contracts Other creditors Accruals and deferred income 2003 Group »000 261 881 — 1,709 499 14 494 848 4,706 2002 Group »000 470 139 164 773 2002 Group »000 1,005 — 793 46 150 1,994 — 2002 Group »000 152 995 — 1,475 104 — 1,763 533 5,022 2003 Company »000 — — — 2002 Company »000 — — — — — 2003 Company »000 — 61 — — 10 71 751 2003 Company »000 28 — 9,534 — — — — 166 2002 Company »000 — 2,577 — — 24 2,601 — 2002 Company »000 — — 2,619 — — 20 23 9,728 2,662 Other creditors within the Group includes an amount of £Nil (2002: £29,775) in respect of a factoring company which was secured on trade debtors of a subsidiary company. 14. Creditors: amounts falling due after more than one year Bank loans and overdrafts Obligations under ﬁnance leases and hire purchase contracts Other creditors Group 2003 »000 421 44 2,798 3,263 Group 2002 »000 525 — — 525 Company 2003 »000 — Company 2002 »000 — — 2,798 2,798 — — Newmark Security PLC 27 Group Loans are repayable as follows: In one year or less Bank loans(a) Bank overdrafts Finance leases Shareholders loan(b) Bank loan(c) Bank loan(d) Bank loan(e) Total within one year In more than one year but not more than two years Bank loans(a) Finance leases Bank loan(c) Bank loan(d) Bank loan(e) In more than two year but not more than ¢ve years Bank loans(a) Finance leases Bank loan(d) Bank loan(e) In more than ¢ve years Bank loans(a) Bank loan(d) Total after more than one year 2003 Unsecured »000 2003 Secured »000 2002 Unsecured »000 2002 Secured »000 — 40 — 25 137 — 17 219 — — — — 11 11 — — — — — — — — 11 20 — 14 — — 22 — 56 10 14 — 18 — 42 30 30 54 — 114 179 119 298 454 — — — — 121 — 7 128 — — 121 — 8 129 — — — 9 9 — — — 138 9 — — — — 15 — 24 9 — — 15 — 24 26 — 46 — 72 168 123 291 387 (a) (b) (c) (d) The bank loan is repayable in quarterly instalments over 24 years. Interest is charged at 6.125 per cent over the ﬁrst 5 years and the loan is secured on the freehold property of Vema N.V. The shareholders loan will be set off against the loan notes issued after the year end. The bank loan is repayable in quarterly instalments over 1 year. Interest is charged at 5.25 per cent per annum. The bank loan is repayable in quarterly instalments over 14 years and is secured on the freehold property of Newmark Onroerend Goed B.V. Interest is charged at 7.05 per cent per annum. (e) The bank loan is repayable in quarterly instalments over 2 years and interest is charged at 4.6 per cent per annum. 15. Provisions for liabilities and charges Group At 1 May 2002 Provided in the year Paid in year Released in year At 30 April 2003 Reorganisation and restructuring provision »000 220 15 (235) — — Rental provision »000 168 Deferred taxation »000 — — (16) 152 — — — Newmark Security PLC 28 Other »000 65 — — 65 Total »000 453 15 (235) (16) 217 The reorganisation and restructuring provision related to the unexpired portion of property and other operating leases relating to Newmark Technology Limited. The rental provision relates to the excess of Safetell’s contractual legal obligation over the current market rental, and will be reversed over the remaining ten years of the lease. There is no provision in respect of deferred tax at 30 April 2003 (2002: £Nil). A deferred tax asset of £46,000 (2002: £46,000) is recorded within debtors in respect of timing differences on capital allowances. Other provisions relate predominantly to maintenance costs arising in respect of safety regulatory requirements, and are expected to reverse within one to two years of the balance sheet date. 16. Share capital Authorised: 1,015,164,192 (2002: Nil) Ordinary shares of 1p each 121,208,952 (2002: Nil) Deferred shares of 4p each Nil (2002: 300,000,000) Ordinary shares of 5p each Allotted, called up and fully paid: 211,523,766 (2002: Nil) Ordinary shares of 1p each 121,208,952 (2002: Nil) Deferred shares of 4p each Nil (2002: 121,208,952) Ordinary shares of 5p each 2003 » 2002 » 10,151,642 4,848,358 — — — 15,000,000 £15,000,000 £15,000,000 2,115,238 4,848,358 — — — 6,060,450 £6,963,596 £6,060,450 By a special resolution passed at last year’s annual general meeting: (i) (ii) each of the unissued ordinary shares of 5p each in the capital of the Company were sub-divided into ﬁve ordinary shares of 1p each; and each of the issued ordinary shares of 5p each in the capital of the Company were sub-divided and converted into one ordinary share of 1p each and one deferred share of 4p each. During the year, the Company issued 90,314,814 ordinary shares of 1p each to acquire 60,209,877 Global Depositary Receipts of Vema N.V. The total number of share options outstanding under the Approved and Unapproved Share Option Schemes were: Date of grant October 1997 January 1999 December 2001 September 2002 Total Subscription price payable 14.5p 8.25p 5p 2p 2003 Approved 448,000 250,000 125,000 125,000 2003 Unapproved 1,708,000 250,000 125,000 7,575,000 2002 Approved 504,000 278,000 146,000 — 2002 Unapproved 1,764,000 278,000 546,000 — 948,000 9,658,000 928,000 2,588,000 The options may be exercised within 10 years from the date of issue. 17. Share premium and reserves Group Accumulated reserves at 1 May 2002 Retained loss for the year Excess of market value over nominal value of shares issued Expenses of share issue Exchange differences on foreign currency investments Share premium account »000 5,194 — — (43) — Merger reserve »000 — — 801 — — Profit and loss account »000 (6,750) (2,720) — — (115) Accumulated reserves at 30 April 2003 5,151 801 (9,585) Newmark Security PLC 29 The cumulative amount of goodwill eliminated against reserves is £4,079,000 (2002: £4,079,000). This goodwill will be charged in the proﬁt and loss account on any eventual disposal of the businesses to which it related. Company Accumulated reserves at 1 May 2002 Excess of market value over nominal value of shares issued Expenses of share issue Retained loss for the year Share premium account »000 5,194 — (43) — Merger reserve »000 — 801 — — Profit and loss account »000 (4,097) — — (5,289) Accumulated reserves at 30 April 2003 5,151 801 (9,386) Loss attributable to the members of the parent company As permitted by section 230 of the Companies Act 1985, the parent company has not presented its own proﬁt and loss account. The loss on ordinary activities after tax dealt with in the ﬁnancial statements of the parent company for the year was £5,289,000 (2002: loss £1,360,000). 18. Minority interests At 1 May Share of net assets relating to minority interest at date of ﬂotation of Vema Minority interest purchased back in year Share of (loss)/proﬁts in year Exchange differences At 30 April 19. Reconciliation of operating loss to net cash out£ow from operating activities Operating loss Depreciation, amortisation and impairment of goodwill (Increase) in stocks Decrease in debtors (Decrease)/increase in creditors and provisions Net cash outﬂow from operating activities 20. Reconciliation of net cash £ows to movement in net (debt)/funds (Decrease)/increase in cash Decrease in debt in the year from cash ﬂows (Decrease)/increase in net (debt)/funds resulting from cash ﬂows Debt disposed of on sale of Vema business and trading assets Movement in net (debt)/funds 2003 »000 2,030 — (1,710) (78) 105 347 2003 »000 (2,352) 1,312 (194) 537 (2,475) (3,172) 2003 »000 (6,359) 93 (6,266) — (6,266) 2002 »000 — 312 — 1,702 16 2,030 2002 »000 (874) 369 (57) 59 (45) (458) 2002 »000 5,874 1,029 6,903 502 7,405 Newmark Security PLC 30 21. Analysis of changes in net (debt)/funds Cash at bank and in hand Overdrafts Debt due after one year Debt due within one year April 2002 »000 6,409 — 6,409 (525) (152) (677) Cash flow »000 (6,288) (71) (6,359) 126 (33) 93 Net funds 5,732 (6,266) Exchange adjustments »000 685 — April 2003 »000 806 (71) 685 (66) (19) (85) 600 735 (465) (204) (669) 66 Financial instruments 22. The Group’s ﬁnancial instruments comprise borrowings, cash resources, and various items, such as trade debtors, trade creditors, etc, that arise directly from its operations. The main purpose of these ﬁnancials instruments is to raise ﬁnance for the Group’s operations. It is, and has been throughout the year, the Group’s policy that no trading in ﬁnancial instruments shall be undertaken. The main risks arising from the Group’s ﬁnancial instruments are interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks. These policies have remained unchanged during the year and are summarised below. Interest rate risk The Group ﬁnances its operations through a mixture of retained proﬁts and bank borrowings. The Group borrows at ﬁxed rates of interest on long term loans to secure the Group’s exposure to interest rate ﬂuctuations. At the year end, 100 per cent (2002: 100 per cent) of the Group’s borrowings were at ﬁxed rates with Nil per cent (2002: Nil per cent) of these borrowings comprising liabilities on which no interest is paid. Liquidity risks Short-term ﬂexibility in borrowings is achieved by overdraft facilities in the UK. A long term loan existed in the Netherlands at the date of acquisition of Vema, secured on the freehold property. An unsecured loan of Euros 867,000 partly ﬁnanced the acquisition of Drion in Belgium. At the year end, 40 per cent (2002: 39 per cent) of the Group’s borrowings were due to mature in more than ﬁve years. Foreign currency risk At the year end, the Group had a signiﬁcant overseas subsidiary operating in Belgium and the Belgian acquisition was partly ﬁnanced by a loan in Belgian francs. The sales of the UK companies are predominantly priced and invoiced in sterling, whilst the Belgian company invoices its customers exclusively in Euros. Interest rate risk of ﬁnancial assets and ﬁnancial liabilities The interest rate proﬁle of the Group’s ﬁnancial assets at 30 April 2003 was: Currency Sterling Euros Dollars Floating rate financial assets »000 705 98 3 806 Financial assets on which no interest is received »000 — — — Fixed rate financial assets »000 — — — — — Total »000 705 98 3 806 Newmark Security PLC 31 The interest rate proﬁle of the Group’s ﬁnancial assets at 30 April 2002 was: Currency Sterling Euros Dollars Floating rate financial assets »000 954 5,430 25 6,409 Financial assets on which no interest is received »000 — — — Fixed rate financial assets »000 — — — — — Total »000 954 5,430 25 6,409 The interest rate proﬁle of the Group’s ﬁnancial liabilities at 30 April 2003 was: Currency Euros Floating rate financial liabilities »000 — Fixed rate financial liabilities »000 682 Financial liabilities on which no interest has been paid »000 — — 682 — Total »000 682 682 The interest rate proﬁle of the Group’s ﬁnancial liabilities at 30 April 2002 was: Floating rate financial liabilities »000 — Fixed rate financial liabilities »000 677 Financial liabilities on which no interest has been paid »000 — — 677 — Total »000 677 677 Fixed rate financial liabilities Fixed rate financial liabilities Weighted average period for which rate is fixed 2002 Years 12.44 Weighted average period for which rate is fixed 2003 Years 12.9 Weighted average interest rate 2002 % 6.03 Weighted average interest rate 2003 % 6.1 6.1 12.9 6.03 12.44 Currency Euros Currency Euros Total Currency exposures Gains and losses from the Group’s net investment overseas are recognised in the statement of total recognised gains and losses. The table below shows the Group’s currency exposures that give rise to the net currency gains and losses recognised in the proﬁt and loss account. Such exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the operating currency of the operating unit involved. Newmark Security PLC 32 As at 30 April 2003, these exposures were as follows: Functional currency of Group operation Sterling Total As at 30 April 2002: Sterling Total Maturity of ﬁnancial liabilities The maturity of proﬁle of the Group’s ﬁnancial liabilities was as follows: In one year or less or on demand In more than one year but not more than two years In more than one year but not more than ﬁve years In more than ﬁve years Net foreign currency monetary assets/ (liabilities) in »000 Total (66) US dollars (34) (34) (66) Euros (32) (32) — — (113) (113) (113) (113) 2003 »000 275 53 114 298 740 2002 »000 152 153 81 291 677 Borrowing facilities The Group has various undrawn committed borrowing facilities. The facilities available in respect of which all conditions precedent had been met were as follows: Expiring in one year or less 2003 »000 Nil 2002 »000 Nil Fair values of ﬁnancial liabilities Set out below is a comparison by category of book values and fair values of the Group’s ﬁnancial liabilities: Short-term ﬁnancial liabilities and current portion of long-term liabilities Long term borrowings Book values 2003 »000 275 465 Fair values 2003 »000 270 404 Book values 2002 »000 152 525 Fair values 2002 »000 150 347 The fair values shown above have been calculated by discounting cash ﬂows at prevailing interest rates. The fair values of all other monetary assets and liabilities is equal to their book values. 23. Acquisitions On 18 September 2002, the Company acquired the entire share capital of Grosvenor Technology Limited (‘‘Grosvenor’’) for a consideration of: (i) (ii) initial consideration of £2.5 million cash paid on completion and a further £787,000 paid on conﬁrmation that the net asset value and cash of Grosvenor exceeded certain parameters, and deferred consideration of up to £3.5 million payable dependent on the average proﬁt before taxation of Grosvenor and Newmark Technology for the four years ending 31 October 2006. On the basis of current projections, this deferred consideration will be payable in full and has been accrued (discounted) in the ﬁnancial statements. Newmark Security PLC 33 The assets and liabilities of Grosvenor at the date of acquisition which have been accounted for under acquisition accounting rules were as follows: Fixed assets Tangible Current assets Stocks Debtors Bank and cash Total assets Creditors Total liabilities Net assets Purchased goodwill Total purchase consideration Comprises: Cash Discounted deferred consideration Costs Book value »000 255 237 797 1,104 2,393 495 495 1,898 4,664 6,562 3,287 2,692 583 6,562 No fair value adjustments were required to the assets and liabilities of Grosvenor at the date of acquisition. The trading results of Grosvenor for the ten and a half months of that company’s statutory accounts for the eighteen months to 30 April 2003 that were earned in the period prior to acquisition and therefore not included in the Group’s results, were as follows: Turnover Operating proﬁt Interest Proﬁt before tax Taxation Proﬁt after tax »000 2,691 340 26 366 (28) 338 The statement of total recognised gross and losses for the ten and a half months of that company’s statutory accounts for the eighteen months to 30 April 2003 was as follows: Proﬁt for the ﬁnancial period Total recognised gains and loss relating to the period The proﬁt after tax of Grosvenor for the previous twelve months’ statutory accounts was £548,000. »000 338 338 Newmark Security PLC 34 24. Other ¢nancial commitments At 30 April 2003, the Company had annual commitments under non-cancellable operating leases as follows: Plant and equipment in one year or less in more then one year but not more than two years in more than two year but not more than ﬁve years in more than ﬁve years Property leases in one year or less in more than one year but not more than two years in more than two years but not more than three years in more than ﬁve years 2003 »000 2002 »000 4 20 21 — 40 32 20 79 128 13 17 — — 67 — 78 25. Related party transactions (a) A Reid is a director of the Company and has a controlling interest in R.K. Harrison & Co. Limited. R.K. Harrison & Co. Limited received director’s fees of £7,500 from the Company during the year (2002: £7,500) in respect of Mr. Reid. Vema NV paid fees of £8,045 (2002: £14,135) to R. K. Harrison & Co. Limited for services as director of that company. In addition Vema paid a fee to R. K. Harrison & Co. Limited of £16,193 for the termination of his management contract with that company. (b) M Dwek is a director of the Company and owns 51 per cent of the share capital of Arbury Inc., which received consultancy fees from the Company of £179,821 (2002: £121,000) in the year. A consultancy fee of £31,985 (2002: £52,903) was paid to Arbury Inc. by Vema NV for services as Chairman of that Company. In addition Vema paid a fee to Arbury Inc., of £61,904 for the termination of his consultancy contract with that company. (c) Amounts totalling £2,700 (2002: £4,521) were paid on an arm’s length basis during the year to a company of which B Beecraft is a director, in respect of consultancy and other accountancy services. The amounts outstanding at 30 April 2003 was £Nil (2002: £Nil). These amounts are included in directors emoluments. 26. Post balance sheet events (a) Since the year end the Group has agreed terms for the issue of secured loan notes to raise up to £1.5 million. The Loan Note Holders have committed to subscribe in cash for £1 million and, on agreement between the parties, the Loan Note Holders can subscribe in cash for up to a further £0.5 million of Loan Notes. The Loan Notes bear interest at a rate of 6% per annum payable quarterly in arrears and are repayable three years after the date of the instrument constituting the Loan Notes with an option for early repayment. As part of the fundraising, the Company issued warrants to the Loan Note Holders to subscribe for ordinary shares of 1p each in the Company at any time between 24 July 2003 and 24 July 2008 at a price of 1p per ordinary share. (b) Agreement has been reached to sell Drion Security S.A. to the former Chief Executive of the Group for a deferred consideration of up to Euro 0.5 million payable over 5 years subject to certain levels of proﬁt being achieved. Newmark Security PLC 35 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the Annual General Meeting of the members of Newmark Security PLC will be held at the ofﬁces of Newmark Security PLC, Suite 3, 23 Bruton Street, London W1J 6QF on 1 December 2003 at 2.30 p.m. for the purpose of considering and, if thought ﬁt, passing the following resolutions of which numbers 1 to 4 will be proposed as Ordinary Resolutions and number 5 as a Special Resolution: ORDINARY BUSINESS 1. To receive, consider and adopt the report of the Directors, and the annual accounts for the period ended 30 April 2003 and the auditors’ report thereon. 2. 3. 4. 5. (a) (b) To re-appoint M Dwek as a director of the Company. To re-appoint BDO Stoy Hayward as auditors and to authorise the directors to determine their remuneration. Directors’ authority to allot shares That the Directors be, and they are hereby, generally and unconditionally authorised pursuant to section 80 of the Companies Act 1985 (the ‘‘Act’’), in substitution for any existing authorities conferred upon the Directors pursuant to that section, to exercise all the powers of the Company to allot relevant securities of the Company (as deﬁned in that section) to such persons at such times and on such terms as they think proper up to an aggregate nominal amount equal to £2,580,000, such authority to expire upon the earlier of the conclusion of the next Annual General Meeting of the Company or the date (if any) on which the said authority is revoked, varied or renewed, save that the Company may, prior to the expiry of such period, make any offer or agreement which would or might require relevant securities to be allotted after the expiry of such period and the Directors may allot relevant securities in pursuance of such offer or agreement notwithstanding such expiry. Partial exclusion of pre-emption rights That, subject to the passing of resolution 4 above, the Directors be and they are hereby empowered pursuant to section 95(1) of the Act to allot equity securities (as deﬁned in Section 94(2) of the Act) of the Company for cash pursuant to the general authority of the Directors under section 80 of the Act conferred by resolution 4 above as if the provisions of section 89(1) of the Act did not apply to such allotment provided that the power conferred by this Resolution shall be limited to the allotment: of equity securities in connection with an offer of such securities by way of rights to holders of ordinary shares in proportion (as nearly as may be practical) to their respective holdings of such shares but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and otherwise than pursuant to paragraph (a) above, of equity securities (to the extent that they are relevant shares within the meaning of Section 94 of the Act or to the extent that they are other equity securities giving the right to subscribe for or convert into relevant shares) up to an aggregate nominal amount not exceeding £1,880,000, such power to expire at the earlier of the conclusion of the next Annual General Meeting of the Company or 15 months from the date of this resolution whichever is the earlier, save that the Company may, prior to the expiry of such period, make any offer or agreement which would or might require equity securities to be allotted after the expiry of such period and the Directors may allot equity securities in pursuance of such offer or agreement notwithstanding such expiry. By order of the Board B G Beecraft 31 October 2003 Registered Ofﬁce Suite 3 23 Bruton Street London W1J 6QF Notes: 1. 2. A member entitled to attend and vote at the meeting may appoint one or more proxies to attend and, on a poll, to vote instead of him. A proxy need not be a member of the company. In relation to uncertiﬁcated shares, only those persons who are registered on the relevant register 48 hours before the time of the meeting shall be entitled to attend and vote at the meeting. Newmark Security PLC 36 3. 4. 5. 6. 7. 8. a register in which are recorded details of all transactions in the shares of the company in respect of all Directors and their families; a copy of every service contract between the company and any Director of the company. The following documents are available for inspection at the company’s registered ofﬁce during normal business hours on any weekday (excluding Saturdays, Sundays and public holidays) until 30 November 2003 and will also be available for inspection at the place of the annual general meeting for at least 15 minutes prior to and until the conclusion of the meeting: (a) (b) Valid forms of proxy, duly signed, together with the Power of Attorney or authority (if any) under which they are signed (or a certiﬁed copy of such power or authority) must be lodged with the Company Secretary at the Registered Ofﬁce by no later than 2.30 p.m. on 29 November 2003. Completion of a form of proxy will not affect the right of a member to attend and vote at the meeting. Pursuant to Regulation 41 of the Uncertiﬁcated Securities Regulation 2001, the time by which a person must be entered on the register of members in order to have the right to attend and vote at the Extraordinary General Meeting is 2.30 p.m. on 29 November 2003 (being not more than 48 hours prior to the time ﬁxed for the meeting) or, if the Meeting is adjourned, such time being not more than 48 hours prior to the time ﬁxed for the adjourned meeting. Changes to entries on the register of members after that time will be disregarded in determining the right of any person to attend or vote at the Meeting. In the case of joint holders, the vote of the senior who tenders a vote whether in person or by proxy will be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority will be determined by the order in which the names stand in the register of members of the Company in respect of the relevant joint holding. Directors authority to allot shares: Under Section 80 of the Companies Act 1985, the Directors may not exercise any powers of the Company to allot relevant securities (as deﬁned in that section) unless authorised to do so by the Company in general meeting or by its articles. Resolution 4 authorises allotment sufﬁcient to cover the existing warrants and options granted by the Company and allotment of up to an amount approximately equal to (but not exceeding) one third of the issued share capital of the Company for the period to the conclusion of the Annual General Meeting in 2004 or until such time as the authority is revoked, varied or renewed whichever is earlier. It replaces all previous authorities and is in line with the institutional guidelines followed by other publicly listed companies. Partial exclusion of pre-emption rights: Section 89 of the Companies Act 1985 requires that a public company allotting shares for cash must ﬁrst offer them to existing shareholders following a statutory procedure which is both costly and cumbersome. Resolution 5 enables the Directors to allot sufﬁcient shares to cover the existing warrants and options of the Company and to allot shares up to an aggregate nominal amount of ﬁve per cent of the ordinary share capital of the Company in issue. It replaces all previous such powers. The taking of powers of this sort is reasonably standard practice for public companies and the Directors believe that the limited powers provided by this resolution will maintain a desirable degree of ﬂexibility. Unless previously revoked or varied the disapplication will expire on the conclusion of the next Annual General Meeting of the Company or 15 months from the date of the passing of this resolution whichever is earlier. Newmark Security PLC 37 NEWMARK SECURITY PLC Form of Proxy Annual General Meeting I/We (name(s) in full). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . being (a) holder/holders of Ordinary Shares of the above-named Company and entitled to vote at general meetings thereof hereby appoint the Chairman of the meeting or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the holders of Ordinary Shares of the Company to be held at 2.30 p.m. on 1 December 2003, and at any adjournments thereof, and direct the proxy to vote for/against the resolutions to be proposed thereat as detailed below. Note: If it is desired to appoint any other person, please insert his/her name and address above and delete the words ‘‘the Chairman of the meeting or’’. Signed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Please indicate with an ‘‘X’’ in the appropriate box below how you wish your vote to be cast. If the form is returned without any indication as to how the proxy shall vote on any particular matter, the proxy will vote or may abstain as he/she thinks ﬁt. For Against 1. 2. 3. 4. 5. To receive the report of the Directors and the annual accounts for the period ended 30 April 2003 and the auditors report thereon To re-appoint M Dwek as a director of the Company To re-appoint BDO Stoy Hayward as auditors and to authorise the directors to determine their remuneration To generally and unconditionally authorise the Directors to allot securities pursuant to section 80 of the Companies Act 1985 To partially disapply the statutory pre-emption rights pursuant to section 95(1) of the Companies Act 1985 % Newmark Security PLC 39 Printed by greenaways, a member of the ormolu group. S145024

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