Newmark Security plc Annual Report 2004

Plain-text annual report

Annual Report For the year ended 30 April 2004 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 6 10 12 13 17 17 34 Newmark Security PLC 1 Company number; Registered Of¢ce: Directors: Secretary: Bankers: Solicitors: Auditors: Nominated Adviser: Broker: Registrars: DIRECTORS, SECRETARY AND ADVISERS 3339998 57 Grosvenor Street London W1K 3JA 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 Field Fisher Waterhouse 35 Vine Street London EC3N 2AA BDO Stoy Hayward LLP 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 Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Newmark Security PLC 2 CHAIRMAN’S STATEMENT Overview The Group has been very busy in the year with a number of special exercises namely the issue of secured loan notes, sale of Drion Security in Belgium and a capital reduction. Following the year end we also completed the acquisition of Custom Micro Products Limited as described below. The Group announced in July 2003 that it had agreed terms for the issue of secured loan notes to raise up to £1.5 million. The loan note holders 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. To date, loan notes totalling £1.3 million have been issued. As a result of loans advanced to subsidiaries by the Company that had to be subsequently written off, the distributable reserves of the Company were negative and the Company was therefore unable to make dividend payments. The Board considered options for addressing the Company’s distributable reserves position. After full consideration of the options available, the Board sought and obtained approval for the reduction of capital and cancellation of the Company’s share premium account. The Deferred Shares which carried no rights of any real value were cancelled, together with the share premium account. As a consequence, the Company will be more likely to be able to pay dividends out of future proﬁts as and when the Board considers it appropriate to recommend the payment of such dividends. The ﬁnancial performance of Drion Security had not met the expectations of the Board over the last two years, with turnover in the last ﬁnancial year remaining at the same level as the previous year and losses of £624,000 incurred for the year to 30 April 2003. This was largely due to the failure of Drion Security to obtain both a large export order or a breakthrough in the commercial sector. Turnover in its core Belgium banking sector was in line with expectations, but losses had continued in the ﬁrst six months of the ﬁnancial year ended 30 April 2004. In view of these factors, in October 2003 Newmark agreed to the disposal of Drion Security to the former Chief Executive of the Group for a maximum deferred consideration of e500,000, payable in three annual instalments commencing in 2006 dependent upon Drion Security achieving a certain level of proﬁts after tax in each of the ﬁnancial years ending 30 April 2006, 30 April 2007 and 30 April 2008. In view of the trading performance of Drion Security, no allowance has been made in these accounts for any future receivable. Financial Results The operating proﬁt for the year for continuing operations before exceptional items and goodwill amortisation was £356,000 (2003 – loss £410,000), both ﬁgures exclude the operating losses before exceptional items of £414,000 and £624,000 respectively of Drion which was sold in the year. The operating proﬁt for the year is after charging £48,000 costs relating to the capital reduction exercise. There are a number of exceptional items in the year relating to the disposal of Drion, and underprovision for costs relating to the sale of businesses in prior years. Turnover for the year for continuing operations was £9.8 million (2003: £7.1 million). The main commercial factors affecting the results of the divisions are set out below. Electronic Division The ﬁrst full year where Grosvenor Technology and Newmark Technology have traded as partners has seen a marked improvement in proﬁtability for both companies. Grosvenor Technology continues to develop its core product JANUS access control with the latest release boasting market leading features in both software and hardware. Newmark Technology has had to work doubly hard this year to achieve its targets due to various supply problems including the manufacturer of our Par-Sec asset management hardware going into liquidation necessitating starting with a new sub-contract manufacturer. Newmark Security PLC 3 The last quarter of 2004 will see a new version of Siteguard Access. Siteguard is ADT’s own brand of JANUS, designed by Grosvenor but manufactured and distributed under licence by Tyco to the ADT group. As in JANUS, this latest version of Siteguard will include a seamless interface to Par-Sec asset management and so promote it into ADT via their ’own brand’ access system. The coming year will also see a new Par-Sec RFID long-range reader that will include an interchangeable frequency module. This will allow the product to be sold into more countries whereas the existing ﬁxed frequency unit can only be sold into the UK and US markets. It will also provide a suitable migration path to a new frequency band in the UK where regulatory changes make this a necessity before January 2007. The underlying business trends remain very strong for both Newmark and Grosvenor with a continuing steady volume of core business. During the past year Grosvenor and Newmark have jointly worked to develop new relationships with key national accounts. Both companies can capitalise from jointly being able to offer a wider choice whilst remaining specialists with their chosen products. The outcome of these efforts should materialise with substantial contracts in the coming year. On the back of other successful installations and because of our extensive experience with access control data- communications, Grosvenor is currently negotiating for various contracts in the Paciﬁc Rim with a value including adjuncts exceeding £1 million over a three year period starting 2005. Other contracts being sought and due to be placed within the coming year include a major bank looking to upgrade its entire security infrastructure, defence companies and government facilities. Asset Protection Division Safetell’s trading throughout the year was very much in line with plan and achieved revenue growth of 10% over the previous period. Operating efﬁciencies resulted in a further 1.2% increase in gross margin percentage. Overheads were contained to the same level as the previous year resulting in a rise in operating proﬁt of 40% compared to the previous year. The Eclipse rising screen programmes were maintained with long-term customers in retail ﬁnance and petrol retailing. The newer screen products of CounterShield and Eye2Eye continued their successful market penetration. The demand for ﬁxed glass security screens has continued and a third format of FlexiGlaze was in development at the turn of the year and has since been released to the market with three installations completed by the end of August 2004. The demand for RollerCash and BiDi Safe cash handling equipment is dependent on the roll-out programmes of established customers. The Post Ofﬁce contract was extended to July 2004 and sales are expected in line with the Post Ofﬁce suburban network reorganisation. In September 2004 Safetell was awarded the next supply contract for four of the ﬁve types of Cash Handling Units for the Post Ofﬁce. New customers are being introduced to the product range and the OEM supplier is launching a new product (CashCycler) in late 2004. This will move the product range into new applications of teller cash dispensers. The imminent application of the Disability Discrimination Act in October 2004 continues to fuel demand from public bodies to make reasonable adjustments to their service areas. Police authorities and local governments are proving to be a good source of work for all forms of screens as the best defence against violence in the front ofﬁce/reception areas. Abbey National commissioned a product design to improve disabled access to their counters. The design was completed in May and the £750,000 programme should be complete by the end of October 2004. The service and maintenance business increases pro rata to the installed base of primary equipment. During the year a new contract was won to maintain all locks for security doors for HBOS for a three-year period starting in April 2004 for an initial contract value of £750,000. Further lock and door maintenance and other service related work for third party suppliers is also being secured to improve operational efﬁciency of the service technicians. Secure Locking Division NSP Europe has managed to increase turnover, as well as laying many new foundations, resulting in the attainment of signiﬁcant contracts such as GE. The losses of the company increased in the year but having signed these new distribution agreements towards the end of the period, it is targeted to break even in the current year. The new foundations should lead to signiﬁcant growth in sales in this ﬁnancial year. Newmark Security PLC 4 Our unique standalone commercial locking system which uses ‘contact less mifaire technology’ has taken some time to develop, and has ﬁnally been launched. Since its launch it has been acquired by several large groups and been distributed throughout Europe. It enables effective cashless vending and is a signiﬁcant advance in card technology. During this year, the company ofﬁcially changed its trading name to NSP Europe. This reﬂects its growing international customer base and the opening of a Paris based ofﬁce, where the focus is clearly on the substantial French market. Balance sheet and cash £ow The balance sheet varies from last year with the sale of Drion Security, but also by the agreement of a payment schedule for the tax liability arising from the sale of the Vema business and assets in 2002. This liability was previously shown as a current liability, whereas agreement has now been reached for payment over a three year period. Freehold properties on the balance sheet at 30 April 2004 included premises in Belgium (related to the Vema operation) with a net book value of e348,000. This property has been sold since the year end, and the proceeds used to repay the associated mortgage. The operating cash ﬂow was positive before receipt of the proceeds of the loan notes and payment of costs related to the sale of Drion Security. Post Balance Sheet Events Since the year end, the Group has acquired the entire issued share capital of Custom Micro Products Limited (‘‘CMP’’) for a total consideration of up to £2.885 million. The initial consideration of £800,000 was satisﬁed by cash on completion, with two tranches of deferred consideration of £1.4 million and £685,000 respectively, the latter payable on the achievement of proﬁt before tax of £600,000 for the year ending 30 April 2005. CMP was established in the early 1980s to exploit the market potential for microprocessor-based products. CMP’s products are divided into the following core ranges: time and attendance systems, access control products, shop ﬂoor data collection terminals, smart card applications, network connectivity products and biometric readers. CMP recorded turnover of approximately £3.35 million and pre-tax proﬁts of £500,000 as per the unaudited management accounts for the year ended 31 January 2004. In order to part fund the acquisition of CMP, the Group raised an additional £1,700,000 (before expenses) through a placing of 136,000,000 ordinary shares at 1.25p per share. Employees The Board would like to congratulate all employees on their contribution during the year and to welcome the employees of Custom Micro Products to the Group. The Future The results of Safetell were ahead of plan for the year under review, whilst Grosvenor Technology and Newmark Technology were in line with expectations. The results of NSP Europe were disappointing with the signing of new distribution agreements taking longer than expected. As stated above, these agreements have now been signed and NSP Europe is projected to break even for the current year. With the continuing proﬁt contributions of Grosvenor, Newmark and Safetell plus a four month contribution from Custom Micro Products, the operating proﬁt for the ﬁrst six months should be comfortably ahead of the corresponding period last year, and the outlook for the full year is most encouraging. M DWEK Chairman 7 October 2004 Newmark Security PLC 5 REPORT OF THE DIRECTORS The Directors submit their annual report and audited ﬁnancial statements of the Group for the year ended 30 April 2004. 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 £1,656,000 (2003: loss £2,725,000). The operating proﬁt for the year before exceptional items and goodwill amortisation for continuing operations was £356,000 (2003: loss £410,000). Turnover for the year for continuing operations was £9.8 million (2003: £7.1 million). 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. During the year, the Group sold its investment in Drion Security S.A. to the former Chief Executive of the Group for a maximum deferred consideration of e500,000 subject to the level of proﬁts achieved in the future. Any 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 (resigned 27 August 2003) B Beecraft M Rapoport A Reid Details of the Directors’ service contracts are shown in the Remuneration Committee Report on pages 10 and 11. M Rapoport retires in accordance with the articles of association. M Rapoport 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 2003 (or the date of their appointment to the Board, if later) and 30 April 2004 were as follows: M Dwek(a) M Rapoport A Reid(b) Percentage holding at 30 April 2004 30 April 2004 10.0% 21,241,667 5.0% 10,555,000 16.6% 35,283,237 30 April 2003 (or date of appointment if later) 16,575,000 10,555,000 32,858,238 (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 80.3 per cent by A Reid of which 74.8 per cent is a beneﬁcial holding and 5.5 per cent is a non beneﬁcial holding, and the R.K. Harrison Retirement Beneﬁt Scheme in which A Reid has a beneﬁcial interest. During the year the Group agreed terms for the issue of secured loan notes to raise up to £1.5 million. The Loan Note Holders 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. During the year parties Newmark Security PLC 6 related to M Dwek and A Reid subscribed for £880,000 and £220,000 of loan stock respectively. Since the year end A Reid and parties related to M Dwek have acquired a further 18,300,000 and 16,000,000 shares respectively. The interests of Directors (and related parties) in Share Option Schemes operated by the Company at 30 April 2003 and 2004 were as follows: Number of Ordinary Shares under the Approved Scheme 30 April 2004 — 500,000 Number of Ordinary Shares under the Unapproved Scheme 30 April 2004 5,000,000 1,000,000 Number of Ordinary Shares under the Approved Scheme 30 April 2003 — 500,000 Number of Ordinary Shares under the Unapproved Scheme 30 April 2003 5,000,000 1,000,000 M Dwek B Beecraft The Directors had no other interests in the shares or share options of the Company or its subsidiaries. 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. Substantial shareholdings Apart from the Directors’ shareholdings detailed above, the Directors have been notiﬁed of the following additional shareholdings of 3 per cent or more of the issued ordinary share capital of the Company as at the date of this document: M V. Beheer BV HSBC Global Custody Nominee (UK) Limited Pershing Keen Nominees Limited Mrs G A B Reid Percentage of class 4.0% 3.3% 3.5% 5.1% Number of shares 13,447,725 11,000,000 11,772,500 17,050,000 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. Newmark Security PLC 7 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 to continually review and improve its environmental performance and, in doing so, seeks the input of 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 31 days (2003: 58 days) of average supplies for the period. Corporate governance The Company has complied voluntarily throughout the year as far as practicable 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 Hampel Committees, and which only applies mandatorily to fully listed companies. At 30 April 2004, the Board comprised an Executive Chairman, one Executive Director 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 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 while he was on the Board. The Chairman takes responsibility for the conduct of the Group and overall strategy. 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 In September 1999 guidance to this requirement was provided to Directors by the publication of control. 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 but not absolute 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, Newmark Security PLC 8 . . 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 10 and 11. 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. 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 On 31 December 2003, BDO Stoy Hayward, the Company’s auditors, transferred its business to BDO Stoy Hayward LLP, a limited liability partnership incorporated under the Limited Liability Partnerships Act 2000. Accordingly, BDO Stoy Hayward resigned as auditors on that date and the directors appointed BDO Stoy Hayward LLP as its successor. A resolution to reappoint BDO Stoy Hayward LLP as auditors will be proposed at the next annual general meeting. By order of the Board B BEECRAFT Secretary 7 October 2004 Newmark Security PLC 9 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 2004 comprised only the two existing Non-Executive Directors, Alexander Reid and Michel Rapoport. 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). 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. 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. 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. Newmark Security PLC 10 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)(d) B Beecraft Non-Executive Directors A Reid(c) M Rapoport 2003 198 — — — — 198 220 — — — — — — 78 — 50 99 — — 149 229 — 6 — — — 6 27 — — — 11 11 22 14 198 56 99 11 11 375 568 Pension contri- butions »000 — 8 — — — 8 13 The directors’ share interests are detailed in the Report of the Directors on page 6. (a) (b) (c) The Company paid a consultancy fee of £198,433 (2003: £179,821) to Arbury Inc., a company 51 per cent owned by M Dwek which covers salary, pension and car beneﬁts. A consultancy fee of £Nil (2003: £31,895) was paid to Arbury Inc., by Vema NV for services as Chairman of that company. In 2003, 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 in 2003 included 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 £11,250 (2003: £7,500) were paid by the Company to R. K. Harrison & Co. Limited. Vema NV paid fees to R. K. Harrison & Co. Limited of £Nil (2003: £8,045) for services as director of that company. In 2003, Vema paid a fee to R. K. Harrison & Co. Limited, of £16,193 for the termination of his management contract with that company. (d) The above emoluments exclude the payment of one year’s salary (including beneﬁts) and an ex-gratia payment of £30,000 to S Rajwan on the termination of his employment with the Group. Newmark Security PLC 11 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 2004 on pages 13 to 33 which have been prepared under the accounting policies set out on pages 17 and 18. 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 2004, 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 LLP Chartered Accountants Registered Auditors 7 October 2004 London Newmark Security PLC 12 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 April 2004 Turnover Continuing operations Discontinued operations Cost of sales Gross pro¢t Administrative expenses pre amortisation of goodwill and exceptional items Impairment of goodwill Amortisation of goodwill Termination costs Administrative expenses — total Operating pro¢t/(loss) Continuing operations Discontinued operations Loss on disposal/closure of subsidiary/business and net trading assets Loss on ordinary activities before interest Interest receivable Interest — discount charge on deferred consideration Interest payable Loss on ordinary activities before taxation Tax on loss on ordinary activities Loss 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 2004 Before goodwill and exceptional items »000 2004 Goodwill and exceptional items »000 9,830 754 10,584 (6,479) 4,105 (4,163) — — — (4,163) 356 (414) (58) — — — — — — — (298) (167) (465) (298) (167) (465) 2004 Total »000 9,830 754 10,584 (6,479) 4,105 (4,163) — (298) (167) (4,628) 58 (581) (523) 2003 Total »000 7,089 1,304 8,393 (5,720) 2,673 (3,932) (806) (287) — (5,025) (645) (1,707) (2,352) Notes 2 3 3(c) — (1,133) (1,133) (373) (58) 15 (179) (51) (273) (146) (419) (27) (446) — (446) (1,598) — — — (1,598) — (1,598) — (1,598) — (1,598) 4 4 6 18 17 7 (1,656) 15 (179) (51) (1,871) (146) (2,017) (27) (2,044) — (2,044) pence (1.0p) (0.2p) (2,725) 67 (106) (34) (2,798) — (2,798) 78 (2,720) — (2,720) pence (1.6p) (0.8p) Newmark Security PLC 13 BALANCE SHEETS As at 30 April 2004 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 asset/(liabilities) 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 2004 »000 5,287 903 — 6,190 893 1,974 — 1,974 1,522 4,389 (2,911) 1,478 Group 2003 »000 Company 2004 »000 Company 2003 »000 5,585 1,844 — 7,429 1,239 2,389 — 2,389 806 4,434 (4,706) (272) — 11 15,187 15,198 — 66 1,242 1,308 104 1,412 (9,747) (8,335) — 19 15,214 15,233 — 71 751 822 — 822 (9,728) (8,906) 7,668 7,157 6,863 6,327 (5,741) (3,263) (4,102) (2,798) (201) 1,726 2,131 — 801 (1,506) 1,426 300 1,726 (217) 3,677 6,963 5,151 801 (9,585) 3,330 347 3,677 — 2,761 2,131 — 801 (171) 2,761 — 2,761 — 3,529 6,963 5,151 801 (9,386) 3,529 — 3,529 The ﬁnancial statements were approved by the Board of Directors on 7 October 2004 and were signed on its behalf by: M DWEK Chairman B BEECRAFT Finance Director Newmark Security PLC 14 Notes 19 CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 April 2004 Net cash in£ow/(out£ow) from operating activities Returns on investments and servicing of ¢nance Interest received Interest paid Net cash (out£ow)/in£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 Costs related to sale of subsidiary undertaking, and business and trading assets Cash disposed of with business Net cash out£ow from disposals Net cash out£ow before ¢nancing Financing New ﬁnance loans Repayment of loans Expenses paid in connection with share issues Net cash in£ow/(out£ow) from ¢nancing Increase/(decrease) in cash 21 2004 »000 252 15 (51) (36) — (235) 30 2003 »000 (3,172) 67 (34) 33 — (349) 31 (205) (318) — — — (189) (1) (190) (179) 1,100 (176) 924 — 924 745 (3,870) 1,104 (2,766) — — — (6,223) 58 (151) (93) (43) (136) (6,359) Newmark Security PLC 15 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 April 2004 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 2004 GROUP Loss for the ﬁnancial year New share capital subscribed (net of issue costs) Exchange difference on translation of net assets and results of subsidiary undertakings Net reduction 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 2004 »000 (2,044) 123 (1,921) 2004 »000 (2,044) 17 123 (1,904) 3,330 1,426 (785) 17 (768) 3,529 2,761 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 Newmark Security PLC 16 Notes to the ¢nancial statements For the year ended 30 April 2004 NOTES TO THE FINANCIAL STATEMENTS ACCOUNTING POLICIES Accounting policies 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 2004 of £2,044,000, and had net current assets of £1,478,000 and net assets of £1,726,000 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) current trading; and trading and cash ﬂow forecasts. 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 fair value of consideration and the fair value of the separable 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 write 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. Newmark Security PLC 17 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 Motor vehicles Computer equipment Nil 5% per annum 20% per annum 10% per annum 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 to a personal money purchase pension scheme 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. Newmark Security PLC 18 Analysis by geographical area 2. The analysis by geographical area of the Group’s turnover, proﬁt/(loss) before taxation and net assets is set out below: Turnover UK Europe Rest of the World Total Pro¢t/(loss) before tax UK Europe Rest of the World Net assets UK Europe Rest of the World 2004 By origin »000 9,830 754 — 10,584 2003 By origin »000 7,059 1,334 — 8,393 2004 By destination »000 9,408 1,068 108 2003 By destination »000 6,912 1,344 137 10,584 8,393 2004 Before goodwill and exceptional items »000 161 (434) — 2004 Goodwill and exceptional items »000 (298) (1,300) — (273) (1,598) 2004 Total »000 (137) (1,734) — (1,871) 2003 Total »000 (850) (1,838) (110) (2,798) 2004 Net assets »000 3,129 (1,403) — 2003 Net assets »000 2,306 2,141 (770) 1,726 3,677 Operating pro¢t/(loss) 3. (a) Continuing and discontinued operations Sales Cost of sales Gross pro¢t Administrative expenses pre-amortisation of goodwill and exceptional items Termination costs Amortisation of goodwill Impairment of goodwill Administrative expenses in total Operating pro¢t/(loss) 2004 Continuing operations »000 9,830 (5,777) 2004 Discontinued 2004 operations Total »000 »000 754 10,584 (6,479) (702) 2003 Continuing operations »000 7,089 (4,518) 2003 Discontinued operations »000 1,304 (1,202) 2003 Total »000 8,393 (5,720) 4,053 52 4,105 2,571 102 2,673 (3,697) — (298) — (3,995) 58 (466) (167) — — (4,163) (167) (298) — (633) (4,628) (581) (523) (2,981) — (235) — (3,216) (645) (951) — (52) (806) (3,932) — (287) (806) (1,809) (5,025) (1,707) (2,352) The ﬁgures shown for discontinued operations in 2003 have been restated to include the results of Drion Security which was sold in October 2003. Newmark Security PLC 19 (b) Operating pro¢t/(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) Loss on disposal/closure of subsidiary/business and trading assets Net assets of subsidiary disposed of Cost of disposal Net loss on disposal (note 23) Under provision for costs of closure/disposal in prior years Costs of closure of operation in year Loss on disposal/closure of subsidiary/business and net trading assets 4. Interest payable and similar charges Discount charge on deferred consideration Loan notes, bank loans, overdrafts and other short term ﬁnance 2004 »000 261 298 — 341 63 11 10 — 151 104 2004 »000 (979) (56) (1,035) (98) — (1,133) 2004 »000 179 51 230 2003 »000 219 287 806 166 32 8 6 4 152 92 2003 »000 — — — (228) (145) (373) 2003 »000 106 34 140 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 Number 67 54 121 Number 73 60 133 »000 3,560 476 112 4,148 »000 3,238 537 138 3,913 Newmark Security PLC 20 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 Underprovision for tax in prior years 2004 »000 375 8 167 198 — 2003 »000 490 13 78 274 — Number 1 Number 1 2004 »000 — (100) — (100) (46) (146) 2003 »000 — — — — — — The tax charged for the year is greater than the standard rate of corporation tax in the UK (30 per cent). The differences are explained below: Loss on ordinary activities before taxation Loss on ordinary activities at the standard rate of UK corporation tax of 30% (2003: 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 Relief for losses brought forward Losses not utilised Adjustments to tax charge in respect of overseas tax Other timing differences Current tax charge for year 2004 »000 (1,871) 2003 »000 (2,798) (561) 267 31 3 — 54 2 (7) (46) (56) (46) 297 (100) 16 (146) (839) 12 541 47 242 32 2 (6) — (31) — — — — — 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 Newmark Security PLC 21 2004 »000 524 24 3,645 792 2003 »000 140 4 3,532 792 Loss per share 7. The calculation of the basic loss per ordinary share is based on a loss of £2,044,000 (2003: loss £2,720,000) and the weighted average number of shares in issue during the year of 212,747,204 (2003: 174,364,102). For every £1 of loan note issued, the loan note holder receives a warrant entitling the loan note holder to 50 ordinary shares of 1p each on exercise of the warrant. The conversion of those warrants into ordinary shares would reduce the net loss per share from continuing operations and therefore under FRS14 they are not deemed dilutive. 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 Intangible ¢xed assets 8. Group Cost At 1 May 2003 Disposal in the year At 30 April 2004 Amortisation At 1 May 2003 Charge for the year Disposal in the year At 30 April 2004 Net book value At 30 April 2004 At 30 April 2003 2004 (1.0) 0.8 (0.2) 2003 (1.6) 0.8 (0.8) Goodwill »000 6,992 (1,032) 5,960 1,407 298 (1,032) 673 5,287 5,585 Newmark Security PLC 22 Tangible ¢xed assets 9. Group Cost At 1 May 2003 Additions Disposals Disposal of subsidiary (note 23) Exchange adjustment At 30 April 2004 Depreciation At 1 May 2003 Charge for the year Disposals Disposal of subsidiary (note 23) Exchange adjustment At 30 April 2004 Net book value At 30 April 2004 At 30 April 2003 Company Cost At 1 May 2003 and 30 April 2004 Depreciation At 1 May 2003 Charge for the year At 30 April 2004 Net book value At 30 April 2004 At 30 April 2003 Freehold land and buildings »000 Plant, machinery & motor vehicles »000 Computers, fixtures & fittings »000 1,575 — — (852) (19) 704 247 55 — (67) (3) 232 472 1,328 1,666 183 (50) (908) (5) 886 1,249 160 (30) (854) (4) 521 365 417 421 52 — (149) 5 329 322 46 — (108) 3 263 66 99 Computers, fixtures & fittings »000 23 4 8 12 11 19 Total »000 3,662 235 (50) (1,909) (19) 1,919 1,818 261 (30) (1,029) (4) 1,016 903 1,844 Total »000 23 4 8 12 11 19 Newmark Security PLC 23 Fixed asset investments 10. Company Investment in subsidiary companies Cost At 1 May 2003 Additions At 30 April 2004 Provision for impairment At 1 May 2003 Provision in the year At 30 April 2004 Net book value At 30 April 2004 At 30 April 2003 »000 15,214 17 15,231 — 44 44 15,187 15,214 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 NSP Europe Limited Newmark Technology (C-Cure Division) Limited Vema B.V. Vema N.V.(3) (92% owned) Newmark Technology S.A. 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 De Facto 992 Limited Activity Trading Trading Dormant Holding Property Holding Holding Trading Trading Property Dormant Finance Trading Trading Holding Dormant Country of incorporation England & Wales England & Wales England & Wales The Netherlands The Netherlands 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 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 NSP Europe Limited Newmark Security PLC 24 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 Debtors: amounts falling due after more than one year Debtors: total 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 2004 Group »000 617 88 188 893 2004 Group »000 1,640 — 108 — 226 1,974 — 1,974 2004 Group »000 61 715 — 397 429 — 534 775 2003 Group »000 472 236 531 1,239 2003 Group »000 1,818 — 312 46 213 2,389 — 2,389 2003 Group »000 261 881 — 1,709 499 14 494 848 2004 Company »000 — — — 2003 Company »000 — — — — — 2004 Company »000 — 61 — — 5 66 1,242 1,308 2004 Company »000 — — 9,388 — 41 — 307 11 2003 Company »000 — 61 — — 10 71 751 822 2003 Company »000 28 — 9,534 — — — 166 9,728 2,911 4,706 9,747 Other creditors within the Group includes an amount of £63,108 (2003: £Nil) in respect of a discount company which was secured on trade debtors of subsidiary companies. 14. Creditors: amounts falling due after more than one year Loan notes and bank loans Corporation tax Obligations under ﬁnance leases and hire purchase contracts Other creditors Group 2004 »000 1,504 1,260 — 2,977 5,741 Group 2003 »000 421 — 44 2,798 3,263 Company 2004 »000 1,125 — — 2,977 4,102 Company 2003 »000 — — — 2,798 2,798 Newmark Security PLC 25 Other creditors are the fair value of the contingent consideration payable in cash related to the acquisition of Grosvenor Technology Limited, which is taken to be the estimated amount of cash value discounted to its present value. Payment is due after the agreement of the accounts for the four years ended 31 October 2006. 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) Loan notes(f) In more than ¢ve years Bank loans(a) Bank loan(d) Total after more than one year 2004 Unsecured »000 2004 Secured »000 2003 Unsecured »000 2003 Secured »000 — 20 — — — — — 20 — — — — — — — — — — — — — — — — 11 — — — — 30 — 41 9 — — 16 — 25 28 — 48 — 1,125 1,201 174 104 278 1,504 — 40 — 25 137 — 17 219 — — — — 11 11 — — — — — — — — — 11 20 — 14 — — 22 — 56 10 14 — 18 — 42 30 30 54 — — 114 179 119 298 454 (a) (b) (c) (d) (e) (f) The bank loan is repayable in quarterly instalments over 23 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 was set off against the loan notes issued during 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 13 years and is secured on the freehold property of Newmark Onroerend Goed B.V. Interest is charged at 7.05 per cent per annum. The bank loan is repayable in quarterly instalments over 2 years and interest is charged at 4.6 per cent per annum. 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. The loan notes are secured by a ﬁxed and ﬂoating charge on the assets of the UK subsidiary companies, and are repayable on 24 July 2006. Newmark Security PLC 26 15. Provisions for liabilities and charges Group At 1 May 2003 Released in year At 30 April 2004 Rental provision »000 152 (16) Deferred taxation »000 — — 136 — Other »000 65 — 65 Total »000 217 (16) 201 The rental provision relates to the excess of Safetell’s contractual legal obligation at date of acquisition over the market rental, and will be reversed over the remaining nine years of the lease. There is no provision in respect of deferred tax at 30 April 2004 (2003: £Nil). A deferred tax asset of £Nil (2003: £46,000) was recorded within debtors in respect of timing differences on capital allowances which was released during the year. 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 (2003: 1,015,164,192) Ordinary shares of 1p each Nil (2003: 121,208,952) Deferred shares of 4p each Allotted, called up and fully paid: 213,083,766 (2003: 211,523,766) Ordinary shares of 1p each Nil (2003: 121,208,952) Deferred shares of 4p each 2004 » 2003 » 10,151,642 — 10,151,642 4,848,358 £10,151,642 £15,000,000 2,130,838 — 2,115,238 4,848,358 £2,130,838 £6,963,596 At an extraordinary general meeting in the year, approval was given for the reduction of capital by cancelling all the deferred shares and the share premium account. This reduction in capital was subsequently approved by the courts. The balances from the above were transferred to the proﬁt and loss account. 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 2004 Approved 28,000 250,000 125,000 125,000 2004 Unapproved 28,000 250,000 125,000 6,075,000 2003 Approved 448,000 250,000 125,000 125,000 2003 Unapproved 1,708,000 250,000 125,000 7,575,000 528,000 6,478,000 948,000 9,658,000 The options may be exercised within 10 years from the date of issue. Newmark Security PLC 27 17. Share premium and reserves Group Accumulated reserves at 1 May 2003 Retained loss for the year Capital reduction (note 16) Exchange differences on foreign currency investments Share premium account »000 5,151 — (5,151) — Merger reserve »000 801 — — — Profit and loss account »000 (9,585) (2,044) 10,000 123 Accumulated reserves at 30 April 2004 — 801 (1,506) The cumulative amount of goodwill eliminated against reserves is £4,079,000 (2003: £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 2003 Capital reduction Retained loss for the year Accumulated reserves at 30 April 2004 Share premium account »000 5,151 (5,151) — — Merger reserve »000 801 — — 801 Profit and loss account »000 (9,386) 10,000 (785) (171) 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 £785,000 (2003: loss £5,289,000). 18. Minority interests At 1 May Minority interest purchased back in year Share of proﬁts/(loss) in year Exchange differences At 30 April 2004 »000 347 (17) 27 (57) 300 19. Reconciliation of operating loss to net cash in£ow/(out£ow) from operating activities 2004 »000 (523) 559 69 — 147 Operating loss Depreciation, amortisation and impairment of goodwill Decrease/(increase) in stocks Decrease in debtors Increase/(decrease) in creditors and provisions Net cash inﬂow/(outﬂow) from operating activities 252 2003 »000 2,030 (1,710) (78) 105 347 2003 »000 (2,352) 1,312 (194) 537 (2,475) (3,172) Newmark Security PLC 28 20. Reconciliation of net cash £ows to movement in net (debt)/funds Increase/(decrease) in cash (Increase)/decrease in debt in the year from cash ﬂows (Decrease) in net (debt)/funds resulting from cash ﬂows Cash and debt disposed of on sale of Drion Exchange adjustments Movement in net (debt)/funds 21. Analysis of changes in net (debt)/funds 2004 »000 745 (924) (179) 51 19 (109) 2003 »000 (6,359) 93 (6,266) — — (6,266) Cash at bank and in hand Overdrafts Debt due after one year Debt due within one year Net funds April 2003 »000 806 (71) 735 (465) (204) (669) 66 Cash flow »000 719 26 745 (1,068) 144 (924) (179) Disposed of with subsidiary »000 — — Exchange adjustments »000 (3) — April 2004 »000 1,522 (45) — 14 37 51 51 (3) 15 7 22 19 1,477 (1,504) (16) (1,520) (43) 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, bank borrowings and loan notes. 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 (2003: 100 per cent) of the Group’s borrowings were at ﬁxed rates with 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. At the year end, 18 per cent (2003: 40 per cent) of the Group’s borrowings were due to mature in more than ﬁve years. Foreign currency risk The sales of the UK companies are predominantly priced and invoiced in sterling, whilst the Belgian company invoiced its customers exclusively in Euros. Newmark Security PLC 29 Interest rate risk of ﬁnancial assets and ﬁnancial liabilities The interest rate proﬁle of the Group’s ﬁnancial assets at 30 April 2004 was: Currency Sterling Floating rate financial assets »000 1,522 Fixed rate financial assets »000 — Financial assets on which no interest is received »000 — Total »000 1,522 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 Fixed rate financial assets »000 — — — Financial assets on which no interest is received »000 — — — — — Total »000 705 98 3 806 The interest rate proﬁle of the Group’s ﬁnancial liabilities at 30 April 2004 was: Currency Sterling Euros Floating rate financial liabilities »000 20 — Financial liabilities on which no interest has been paid »000 — — Fixed rate financial liabilities »000 1,125 420 20 1,545 — Total »000 1,145 420 1,565 The interest rate proﬁle of the Group’s ﬁnancial liabilities at 30 April 2003 was: Currency Euros Currency Sterling Euros Total Floating rate financial liabilities »000 — Financial liabilities on which no interest has been paid »000 — Fixed rate financial liabilities »000 682 — 682 — Total »000 682 682 Fixed rate financial liabilities Fixed rate financial liabilities Weighted average period for which rate is fixed 2003 Years — 12.9 Weighted average period for which rate is fixed 2004 Years 2.7 18.3 Weighted average interest rate 2003 % — 6.1 Weighted average interest rate 2004 % 6.0 6.6 6.2 6.6 6.1 12.9 Newmark Security PLC 30 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. As at 30 April 2004, these exposures were as follows: Functional currency of Group operation Sterling Total As at 30 April 2003: Sterling Total Maturity of ﬁnancial liabilities The maturity 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 (196) US dollars (25) (25) (196) (34) (34) (66) (66) Euros (171) (171) (32) (32) 2004 »000 86 1,278 28 173 1,565 2003 »000 275 53 114 298 740 Borrowing facilities The Group has no undrawn committed borrowing facilities. The facilities available in respect of which all conditions precedent had been met were as follows: 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 2004 »000 61 1,504 Fair values 2004 »000 60 1,324 Book values 2003 »000 275 465 Fair values 2003 »000 270 404 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. Newmark Security PLC 31 23. Disposal On 30 October 2003, the Group disposed of its investment in Drion Security S.A. Net assets disposed of: Tangible ﬁxed assets Stocks Debtors Cash Creditors Debt Waiver Group loan Professional costs Loss on disposal »000 880 277 367 1 (708) (51) 213 979 56 1,035 The company was sold to the former Chief Executive of the Group for a maximum deferred consideration of e500,000, payable in three annual instalments commencing in 2006, depending upon Drion Security achieving a certain level of proﬁts after tax in each of the three ﬁnancial years to 30 April 2008. In view of the uncertainty, no allowance has been made in these accounts for any future recovery. 24. Other ¢nancial commitments At 30 April 2004, 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 ﬁve years in more than ﬁve years 2004 »000 2003 »000 7 25 68 — — 20 — 144 4 20 21 — 40 32 20 79 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 £11,250 from the Company during the year (2003: £7,500) in respect of Mr. Reid. Vema NV paid fees of £Nil (2003: £8,045) to R. K. Harrison & Co. Limited for services as director of that company. In 2003 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 £198,433 (2003: £179,821) in the year. A consultancy fee of £Nil (2003: £31,985) was paid to Arbury Inc. by Vema NV for services as Chairman of that Company. In 2003 Vema paid a fee to Arbury Inc., of £61,904 for the termination of his consultancy contract with that company. (c) Amounts totalling £Nil (2003: £2,700) 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 2004 was £Nil (2003: £Nil). These amounts are included in directors emoluments. Newmark Security PLC 32 26. Post balance sheet events Since the year end, the Group has acquired the entire issued share capital of Custom Micro Products Limited (‘‘CMP’’), for a total consideration of up to £2.885 million. The initial consideration of £800,000 was satisﬁed by cash on completion, with two tranches of deferred consideration of £1.4 million and £685,000 respectively, the latter payable on the achievement of proﬁt before tax of £600,000 for the year ending 30 April 2005. In order to part fund the acquisition of CMP, the Group raised an additional £1,700,000 (before expenses) through a placing of 136,000,000 ordinary shares at 1.25p per share. Newmark Security PLC 33 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that an Annual General Meeting of the above named Company will be held at 57 Grosvenor Street, London W1K 3JA on 18 November 2004 at 11 a.m. for the following purposes: ORDINARY BUSINESS 1. To receive and adopt the ﬁnancial statements and reports of the Directors and auditors for the ﬁnancial period ended 30 April 2004. 2. 3. To re-appoint M. Rapoport as a director of re-appointment. the Company, who retires and offers himself for To re-appoint BDO Stoy Hayward LLP as the auditors of the Company until the next Annual General Meeting and to authorise the Directors to ﬁx their remuneration. SPECIAL BUSINESS To consider and, if thought ﬁt, to pass the following Resolution as an Ordinary Resolution: 4. That the Directors be and they are hereby generally and unconditionally authorised in accordance with section 80 of the Companies Act 1985 (the ‘‘Act’’) to allot relevant securities (as deﬁned in that section) up to a maximum aggregate nominal amount of £1,745,419; and this authority will (unless renewed) expire at the conclusion of the next Annual General Meeting of the Company but the Company may, before this authority expires, make an offer or agreement which would or might require relevant securities to be allotted after the authority expires and the Directors may allot relevant securities pursuant to such offer or agreement as if the authority conferred hereby had not expired. To consider and, if thought ﬁt, to pass the following Resolution as a Special Resolution: 5. That the Directors be and they are hereby empowered pursuant to section 95 of the Act to allot equity securities (within the meaning of section 94 of the Act) for cash pursuant to the authority conferred by Resolution 4 above as if section 89(1) of the Act did not apply to any such allotment provided that this power shall be limited to: (a) the allotment of equity securities in connection with an issue in favour of the holders of ordinary shares of the Company in proportion (as nearly as may be) to their respective holdings of ordinary shares, subject only to exclusions or other arrangements which the Directors may deem necessary or expedient to deal with fractional entitlements, legal or practical problems arising in any overseas territory or the requirements of any regulatory body or stock exchange in any territory; and (b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of £872,709, and the power hereby granted shall expire at the conclusion of the next Annual General Meeting of the Company save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry but otherwise in accordance with the foregoing provisions of this power in which case the Directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. By order of the Board B G Beecraft Company Secretary 7 October 2004 Registered Ofﬁce 57 Grosvenor Street London W1K 3JA Notes: 1. 2. 3. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and, on a poll, vote instead of him. A proxy need not be a member of the Company. To be effective, completed forms of proxy and the power of attorney or other authority (if any) under which they are signed or a copy of that power or authority certiﬁed notarially or in accordance with the Powers of Attorney Act 1971 must be lodged in accordance with the instructions printed thereon, not later than 48 hours before the time appointed for the meeting or any adjourned meeting. 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 17 November 2004 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) 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. Newmark Security PLC 34 4. 5. 6. 7. Completion and return of a form of proxy will not preclude a member from attending and voting at the meeting in person should he wish to do so. The Company, pursuant to Regulation 41 of the Uncertiﬁcated Securities Regulations 2001, speciﬁes that only those members registered in the register of members of the Company 48 hours before the time of the meeting shall be entitled to attend and vote at this meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after that time shall be disregarded in determining the rights of any person to attend or vote at this meeting. In the case of joint holder, 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, carried 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 of 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 nominate amount of twenty 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 35 THIS PAGE INTENTIONALLY BLANK Newmark Security PLC 36 NEWMARK SECURITY PLC Proxy for Annual General Meeting I/We the undersigned, being (a) Member(s) of the Company, HEREBY APPOINT the Chairman of the Meeting or ... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ........ ....... ....... . (Note 1) as my/our Proxy to vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held at 57 Grosvenor Street, London W1K 3JA on 18 November 2004 at 11.00 a.m. and at any adjournment thereof. For Against (Note 2) ORDINARY RESOLUTIONS 1. 2. 3. 4. To receive and adopt the ﬁnancial statements and reports of the directors and auditors for the ﬁnancial period ended 30 April 2004. To re-appoint M. Rapoport as a director of the Company. To re-appoint BDO Stoy Hayward LLP as the auditors of the Company and authorise the Directors to ﬁx their remuneration. To approve the granting of authority pursuant to Section 80 of the Companies Act 1985 to allot relevant securities. SPECIAL RESOLUTIONS 5. To approve the granting of authority under Section 95 of the Companies Act 1985 to allot equity securities. Dated this .... ....... ........ ....... ........ ....... ....... ........ .....day of. ....... ....... ........ ....... ........ ....... ........ ....... ..2004 Signature...... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ........ ....... ....... . Full name(s) in which shares are registered.... ........ ....... ........ ....... ....... ........ ....... ........ ....... ........ ....... ....... . .... ........ ....... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ........ ....... ....... . PLEASE USE BLOCK LETTERS Notes: 1. 2. 3. 4. 5. 6. % If any other proxy is desired strike out ‘‘the Chairman of the Meeting or’’ and insert the name or names preferred. Any alterations to this form must be initialled. A proxy need not be a member of the Company. Please indicate with an ‘‘X’’ in the relevant box marked ‘‘For’’ or ‘‘Against’’ how you wish the proxy to vote on the resolutions. When no ‘‘X’’ is inserted the proxy will at his or her discretion vote as he or she thinks ﬁt or abstain from voting. The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a corporation, either under the common seal or under the hand of an ofﬁcer or attorney so authorised. In the case of joint holders of a share the vote of the ﬁrst-named holder on the Register of Members (whether voting in person or by proxy) will be accepted to the exclusion of the votes of the other joint holders in respect of the joint holding. This form of proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certiﬁed copy of such power or authority, should be returned so as to reach the Company Registrar, Capita Registrars, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote and, in default, the instrument of proxy shall not be treated as valid. Completion and return of this form of proxy will not preclude members from attending and voting in person at the meeting should they subsequently decide to do so. Pursuant to regulation 41 of The Uncertiﬁcated Securities Regulations 2001, members will be entitled to attend and vote at the meeting if they are registered on the Company’s register of members 48 hours before the time appointed for the meeting or any adjournment thereof. Newmark Security PLC 37 Printed by greenaways, a member of the ormolu group. E151380

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