Newmark Security plc Annual Report 2005

Plain-text annual report

Annual Report For the year ended 30 April 2005 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 year under review has seen the acquisition of Custom Micro Products Limited (‘‘CMP’’) as detailed below. During the year the Group disposed of its subsidiary company, Newmark Onroerend Goed SA, a property holding company in Belgium. Since the year end, NSP Europe Limited (‘‘NSP’’) has been sold and Concept Hardware and Security Solutions Limited (‘‘Concept’’) has been closed. We had been hopeful that both of these businesses would grow over the last two years to eliminate the trading losses that they had been incurring. However, as these levels of activity have still not been achieved, the decision was made to dispose of these two operations and eliminate the losses that were still being incurred. The results of these two businesses are included within discontinued operations for the year under review. Acquisitions and share issues The Group acquired the entire issued share capital of CMP, for a total consideration of £2.725 million (before costs and interest discount adjustment). Further details are included in note 23 to the ﬁnancial statements. The initial consideration of £800,000 was satisﬁed by cash on completion, with two tranches of deferred consideration of £1.4 million and £525,000 respectively, the latter payable on the basis of the proﬁt before tax 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. Financial results The operating proﬁt for the year was £414,000 (2004: loss £523,000). The operating proﬁt for the year for continuing operations before exceptional items and goodwill amortisation was £1,519,000 (2004: £935,000), both ﬁgures exclude the operating losses of £734,000 and £1,160,000 from the discontinued businesses. Turnover for the year for continuing operations was £12.3 million (2004: £8.7 million). The main commercial factors affecting the results of the divisions are set out below. Electronic Division Turnover £6,682,000 (2004: £4,032,000) Operating proﬁt £1,350,000 (2004: £828,000) The combined access control operation comprising Grosvenor and Newmark Technology was ahead of plan for the year. CMP’s sales for the ten months from date of acquisition were £2.5 million for the period under review. The previously anticipated major end-user sales opportunities did not materialise and, as a result, proﬁts were lower than the projected level. Sales of Siteguard Access (manufactured by Tyco under license from Grosvenor) remain strong and a new training initiative by Grosvenor has directly targeted the ADT branch network. This will endorse the position of the Siteguard product within the Tyco/ADT portfolio and should increase sales where some branches have yet to be converted to the product. Grosvenor continues to develop its core product, JANUS access control, and has released a new software module to allow generic CCTV control and integration. The product will be further developed to include multiple CCTV systems within the same JANUS platform and is due for release early next year. Also being systems can have their personnel developed is an Enterprise edition where multiple JANUS access administration managed from a single database source. We have developed and released a brand new high-end access control product, N-TEC Access (‘‘N-TEC’’). A distribution deal with Simplex and Thorn International has already been agreed, where N-TEC will be interfaced directly to their ﬁre systems and sold exclusively throughout the Middle East, Africa and Russia (‘‘MEAR’’). The product was launched in July 2005 in Abu Dhabi, UAE, and Amman in Jordan. MEAR is a brand new territory for the company with orders already being processed. N-TEC, being unique to Newmark Technology will run side by side with the third party C.Cure business and provides a new opportunity to revitalise sales which will be entirely under the company’s own control. The combined sales of Newmark and Grosvenor remain on-plan for the current year and are expected to remain so for the remainder of the period. Newmark Security PLC 3 The underlying business trends remain strong, particularly for Grosvenor, with a continuing steady volume of core business. Other contracts, some of which have been delayed from last year, are being sought and due to be placed in the coming period and include a major bank looking to upgrade its entire security infrastructure, defence companies and government facilities. CMP is a leader in the UK market for Time & Attendance (‘‘T&A’’) terminals and associated peripheral equipment, including access control and shop ﬂoor data collection equipment. The company has well established sales channel alliances in the UK, USA and Europe and is a UK sales channel for T&A software. CMP is set to beneﬁt from synergies with Grosvenor Technology, where mutual cooperation is enhancing the Group’s access control and T&A offering, particularly into new export markets. Recent promising discussions with new potential partners in the UK suggest that an additional share of the UK T&A market is available and CMP is diligently pursuing these prospects. CMP is also taking steps to secure and enhance it’s presence in the US market, through opening an additional sales channel. CMP maintains a UK based product development and production capability and is seeking to reinforce its current position in the T&A marketplace, whilst looking to exploit its capabilities to broaden its product base and take full advantage of its strong market position. Asset Protection Division Turnover £5,666,000 (2004: £4,694,000) Operating proﬁt £787,000 (2004: £720,000) Safetell’s trading throughout the year was broadly in line with plan with the major beneﬁt of a single programme of work for Abbey through the summer of 2004 to achieve revenue growth of 21 per cent over the previous period. However, that large programme was at lower than usual margin. The new maintenance work for HBoS that was started in March 2004 and the revised tender/contract for The Post Ofﬁce were also at lower than normal margin. These two factors on the product mix depressed the overall gross margin by 4.2 per cent compared to the previous year. Overheads were controlled to the essentials required to manage the additional business level, resulting in a rise in operating proﬁt of 9 per cent compared to last year. The Eclipse rising screen programmes were maintained with long-term customers in retail ﬁnance and petrol retailing. For the ﬁrst time, the value of reconﬁguration/refurbishment works for Eclipse exceeded the value of new installations. Both CounterShield and Eye2Eye were successful during the year with increases in revenue compared to the previous year of 21 per cent and 488 per cent respectively. The new customers for these products have been mainly Police Authorities and this market opportunity is being pursued vigorously with other forces. The demand for RollerCash and BiDi Safe cash handling equipment is dependent on the roll-out programmes of established customers. Order intake from The Post Ofﬁce for a speciﬁc programme was very high in the later months of the year but during June 2005 this project was put on hold with only one third of the originally expected value completed. New interest in this product range is being expressed by both historical and new retail ﬁnance customers who are tending towards an open plan format requiring secure cash management at the work station. The development of the new product (‘‘CashCycler’’) by the OEM supplier has been severely delayed by technical problems and the ﬁrst unit has only just been made available in July 2005. Much testing and training will be required before this product will generate any signiﬁcant volume. Changes to the premises of service providers to comply with the Disability Discrimination Act in October 2004 continue to fuel demand from public bodies to make reasonable adjustments to their service areas. Police authorities, public train and bus ticketing organisations, central 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. The service and maintenance business continues to increase pro-rata to the installed base of primary equipments. During the year new contracts were won to maintain all screen systems for a number of clients, irrespective of the screen OEM. The early months of the current year are affected by the delayed Post Ofﬁce contract works and performance will be below plan in the ﬁrst half year. Newmark Security PLC 4 The prospects for the second half are more difﬁcult to predict but the level of outstanding quotations and orders is promising and a number of excellent prospects for major roll-out programmes offer good grounds for growth. Balance sheet and cash £ow The balance sheet varies signiﬁcantly from last year with the acquisition of CMP. Goodwill on the acquisition has been calculated as set out in Note 23 to the accounts, and other creditors include the deferred element of the purchase consideration which will be paid in September 2005. Cash balances include £1.2 million held as security for the deferred payment. Working capital at April 2005 was affected by some shipping delays on major contracts with Safetell which had a signiﬁcant impact on stock holding at the year end, although this was offset by advance payments from those customers, which are included in accruals and deferred income. Trade debtors were also high at the year end with large sales volumes in CMP in April. With the shares issued in the year to ﬁnance the acquisition of CMP, shareholders funds increased from £1.4 million to £3.3 million. Net cash ﬂow from operating activities increased from £0.3 million to £0.8 million. With the disposal of the property in Belgium, net capital expenditure was minimal. Employees The Board wishes to thank all employees on their contribution during the year. Summary The results for the year have obviously been severely affected by the ongoing losses in NSP and Concept. These activities have now been terminated and all remaining businesses are proﬁtable, although the results for the current year will include the trading losses for the three months to termination and the losses on termination of the businesses. The Company has made an encouraging start to the new ﬁnancial year which will be mainly reﬂected in the second half, experiencing a high level of interest in its products and services, particularly within Grosvenor Technology, with a number of new contracts with major companies in advanced stages of discussion. M DWEK Chairman 14 September 2005 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 2005. 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 proﬁt on ordinary activities after exceptional items and goodwill amortisation and before interest, tax and minority interest in the year was £401,000 (2004: loss £1,656,000). The operating proﬁt for the year was £414,000 (2004: loss £523,000). The operating proﬁt for the year before exceptional items and goodwill amortisation for continuing operations was £1,519,000 (2004: £935,000). Turnover for the year for continuing operations was £12.3 million (2004: £8.7 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. Directors The Directors who served during the year were as follows: M Dwek B Beecraft M Rapoport A Reid Details of the Directors’ service contracts are shown in the Remuneration Committee Report on pages 10 and 11. A Reid retires in accordance with the articles of association. A Reid being eligible, offers himself for re-election at the next annual general meeting. Acquisitions and share issues The Group acquired the entire issued share capital of CMP, for a total consideration of £2.725 million before costs and interest discount adjustment. The initial consideration of £800,000 was satisﬁed by cash on completion, with two tranches of deferred consideration of £1.4 million and £525,000 respectively, the latter payable on the basis of the proﬁt before tax 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. Directors Directors’ interests The beneﬁcial and other interests of the Directors in the shares of the Company as at 1 May 2004 (or the date of their appointment to the Board, if later) and 30 April 2005 were as follows: M Dwek(a) M Rapoport A Reid(b) Percentage holding at 30 April 2005 6.5% 2.9% 15.3% 30 April 2005 23,366,667 10,555,000 55,335,237 1 May 2004 (or date of appointment if later) 21,241,667 10,555,000 35,283,237 (a) 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. Newmark Security PLC 6 (b) 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. On 6 June 2005 Arbury Inc and A. Reid each acquired an additional 500,000 shares and on 7 June 2005 a further 1,000,000 shares each. This increased their shareholdings to 24,866,667 and 56,833,237 respectively representing 6.9% and 15.7% of the issued shares. The interests of Directors (and related parties) in Share Option Schemes operated by the Company at 30 April 2004 and 2005 were as follows: Number of Ordinary Shares under the Approved Scheme 30 April 2005 — 500,000 Number of Ordinary Shares under the Unapproved Scheme 30 April 2005 5,000,000 1,000,000 Number of Ordinary Shares under the Approved Scheme 1 May 2004 — 500,000 Number of Ordinary Shares under the Unapproved Scheme 1 May 2004 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: Mrs G A B Reid L R Nominees Limited M V. Beheer BV HSBC Global Custody Nominee (UK) Limited Percentage holding 4.4% 3.8% 3.7% 3.0% Number of shares 15,750,000 13,661,163 13,447,725 11,000,000 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 review continually 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 24 days (2004: 31 days) of average supplies for the period. Corporate governance The Company has complied voluntarily throughout the year as far as practicable with the provisions of the Combined Code which only applies mandatorily to fully listed companies. At 30 April 2005, the Board comprised a 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. 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 re-election at each Annual General Meeting. Additionally, each director has undertaken to submit for 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 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, maintaining the quality and integrity of personnel, Board approval of all signiﬁcant capital expenditure, and all acquisitions. Newmark Security PLC 8 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. is responsible for the appointment of external The Audit Committee, comprising M Rapoport and A Reid, 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 incentives and terms and conditions of employment of Executive Directors including the provision of 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 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 Company Secretary 14 September 2005 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 2005 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) and a director of 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 President and Chief Executive Ofﬁcer of LII Holdings, Inc., a holding company based in Atlanta, Georgia USA. 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. It has been agreed with Arbury Inc., that, with effect from 1 November 2005, Mr Dwek will continue as Chairman and that the fee paid to Arbury Inc., for his services will be reduced from approximately £200,000 per annum to £50,000 per annum. 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 Salary »000 Benefits in kind »000 Fees »000 Total »000 198 — — — 198 198 — 99 — — 99 149 — — — — — 6 — — 15 15 30 22 198 99 15 15 327 375 Pension contri- butions »000 — — — — — 8 Executive Directors M Dwek(a) B Beecraft Non-Executive Directors A Reid(b) M Rapoport 2004 The directors’ share interests are detailed in the Report of the Directors on page 6. (a) (b) The Company paid a consultancy fee of £198,433 (2004: £198,433) to Arbury Inc., a company 51 per cent owned by M Dwek which covers salary, pension and car beneﬁts. Directors’ fees in respect of A Reid of £15,000 (2004: £11,250) were paid by the Company to R. K. Harrison & Co. Limited. 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 2005 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 statements 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 Company and other members of 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 It also includes an assessment of the signiﬁcant estimates and disclosures in the ﬁnancial statements. 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 2005, and of the proﬁt 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 14 September 2005 London Newmark Security PLC 12 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 April 2005 Turnover Continuing operations Acquisitions Discontinued operations Cost of sales Gross pro¢t Administrative expenses pre amortisation of goodwill and exceptional items Amortisation of goodwill Termination costs Administrative expenses — total Operating pro¢t/(loss) Continuing operations Acquisitions Discontinued operations Loss on disposal/closure of subsidiary/business Pro¢t/(loss) on ordinary activities before interest Interest receivable Interest — discount charge on deferred consideration Interest payable Pro¢t/(loss) on ordinary activities before taxation Tax on proﬁt/(loss) on ordinary activities Pro¢t/(loss) on ordinary activities after taxation Minority interest Pro¢t/(loss) for the ¢nancial year Dividends Amount transferred to/ (withdrawn) from reserves Earnings/(loss) per share — basic and diluted — before goodwill amortisation, interest discount, losses of discontinued operations and exceptional items 2005 Before goodwill and exceptional items »000 2005 Goodwill and exceptional items »000 Notes 2 9,804 2,544 1,286 13,634 (8,150) 5,484 (4,699) — — (4,699) 1,107 412 (734) 785 — 785 52 (275) (139) 423 (106) 317 — 317 — 317 — — — — — — — (371) – (371) (298) (73) — (371) (13) (384) — — — (384) — (384) — (384) — (384) 3 3(c) 4 4 6 18 17 7 2005 Total »000 9,804 2,544 1,286 13,634 (8,150) 5,484 (4,699) (371) – (5,070) 809 339 (734) 414 (13) 401 52 (275) (139) 39 (106) (67) — (67) — (67) pence —p 2004 Total »000 8,726 — 1,858 10,584 (6,479) 4,105 (4,163) (298) (167) (4,628) 637 – (1,160) (523) (1,133) (1,656) 15 (179) (51) (1,871) (146) (2,017) (27) (2,044) — (2,044) pence (1.0p) Newmark Security PLC 13 0.3p 0.3p BALANCE SHEETS As at 30 April 2005 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 2005 »000 6,820 803 — 7,623 1,664 2,968 — 2,968 3,205 7,837 (6,467) 1,370 Group 2004 »000 Company 2005 »000 Company 2004 »000 5,287 903 — 6,190 893 1,974 — 1,974 1,522 4,389 — 5 16,573 16,578 — 31 625 656 1,200 1,856 (2,911) 1,478 (11,936) (10,080) — 11 15,187 15,198 — 66 1,242 1,308 104 1,412 (9,747) (8,335) 8,993 7,668 6,498 6,863 (5,488) (5,741) (4,431) (4,102) (185) 3,320 3,617 432 801 (1,593) 3,257 63 3,320 (201) 1,726 2,131 — 801 (1,506) 1,426 300 1,726 — 2,067 3,617 432 801 (2,783) 2,067 — 2,067 — 2,761 2,131 — 801 (171) 2,761 — 2,761 The ﬁnancial statements were approved by the Board of Directors on 14 September 2005 and were signed on its behalf by: M DWEK Chairman B BEECRAFT Finance Director Newmark Security PLC 14 CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 April 2005 Net cash in£ow from operating activities Returns on investments and servicing of ¢nance Interest received Interest paid Net cash 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 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 Share issues less expenses paid Net cash in£ow from ¢nancing Increase in cash Notes 19 21 2005 »000 786 52 (139) (87) (404) (277) 247 2004 »000 252 15 (51) (36) — (235) 30 (30) (205) (918) 563 (355) — — — (90) 329 (209) 120 1,643 1,763 1,673 — — — (189) (1) (190) (179) 1,100 (176) 924 — 924 745 Newmark Security PLC 15 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 April 2005 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 2005 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 increase in/(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 2005 »000 (67) (20) (87) 2005 »000 (67) 1,918 (20) 1,831 1,426 3,257 (2,612) 1,918 (694) 2,761 2,067 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 Newmark Security PLC 16 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 April 2005 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 made a proﬁt for the year ended 30 April 2005 of £39,000, and had net current assets of £1,370,000 and net assets of £3,320,000 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 the consideration payable 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. 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. Development costs 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 Motor vehicles Computer equipment Nil 5% per annum 20% per annum 10% per annum 25% per annum 25% per annum Newmark Security PLC 17 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. Stocks 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. Employees of the Group contribute to state schemes. Contributions are charged to the proﬁt and loss account when paid. Newmark Security PLC 18 Segmental analysis 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 USA Rest of the World Total Pro¢t/(loss) before tax UK Europe Net assets UK Europe 2005 By origin »000 13,634 — — — 13,634 2004 By origin »000 9,830 754 — — 10,584 2005 By destination »000 11,952 767 703 212 2004 By destination »000 9,408 1,068 — 108 13,634 10,584 2005 Before goodwill and exceptional items »000 509 (86) 2005 Goodwill and exceptional items »000 (371) (13) 423 (384) 2005 Total »000 138 (99) 39 2004 Total »000 (137) (1,734) (1,871) 2005 Net assets »000 4,477 (1,157) 2004 Net assets »000 3,129 (1,403) 3,320 1,726 Operating pro¢t/(loss) 3. (a) Continuing and discontinued operations 2005 Continuing operations »000 9,804 (5,625) 2005 Acquisitions »000 2,544 (1,442) 2005 Discontinued 2005 operations Total »000 »000 1,286 13,634 (8,150) (1,083) 2004 Continuing operations »000 8,726 (4,903) 2004 Discontinued 2004 operations Total »000 »000 1,858 10,584 (6,479) (1,576) 4,179 1,102 203 5,484 3,823 282 4,105 (3,072) — (298) (3,370) 809 (690) — (73) (763) 339 (937) — — (4,699) — (371) (2,888) — (298) (1,275) (167) — (4,163) (167) (298) (937) (5,070) (3,186) (1,442) (4,628) (734) 414 637 (1,160) (523) Sales Cost of sales Gross pro¢t Administrative expenses pre-amortisation of goodwill and exceptional items Termination costs Amortisation of goodwill Administrative expenses in total Operating pro¢t/(loss) The ﬁgures shown for discontinued operations in 2004 have been restated to include the results of NSP Europe Limited and Concept Hardware and Security Solutions Limited 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 Research and development Auditors’ remuneration: Parent company auditors Audit fees (Group) Audit fees (parent company) Non audit fees (Group) Non audit fees (parent company) Operating lease rentals: Property Motor vehicles and computer equipment (c) Loss on disposal/closure of subsidiary/business Net assets of subsidiary disposed of Cost of disposal Net loss on disposal Under provision for costs of closure/disposal in prior years Costs of closure of operation in year Loss on disposal/closure of subsidiary/business 4. Interest payable and similar charges Discount charge on deferred consideration Loan notes, bank loans, overdrafts and other short term ﬁnance 2005 »000 258 371 406 54 13 11 3 247 82 2005 »000 — — — — (13) (13) 2005 »000 275 139 414 2004 »000 261 298 341 51 12 9 2 151 104 2004 »000 (979) (56) (1,035) (98) — (1,133) 2004 »000 179 51 230 Interest payable includes £40k related to discontinued operations (2004: £17k). 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 2005 Number 56 67 123 »000 4,151 451 126 4,728 2004 Number 67 54 121 »000 3,560 476 112 4,148 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 (note 15) Taxation charge on proﬁt/(loss) for the year before exceptional items Underprovision for tax in prior years 2005 »000 327 — — 198 — 2004 »000 375 8 167 198 — Number — Number 1 2005 »000 147 28 (70) 105 1 106 2004 »000 — 100 — 100 46 146 The tax charged for the year is greater than (2004: greater than) the standard rate of corporation tax in the UK (30 per cent). The differences are explained below: Proﬁt/(loss) on ordinary activities before taxation Proﬁt/(loss) on ordinary activities at the standard rate of UK corporation tax of 30% (2004: 30%) Tax losses carried forward Timing differences including capital allowances in excess of depreciation dealt with under deferred tax Goodwill amortisation Interest discount charge on deferred consideration Effects on proﬁts/(losses) of other items not deductible for tax purposes 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 2005 »000 39 2004 »000 (1,871) 12 — 2 111 82 10 2 (7) 1 — (55) 14 — 4 176 (561) 31 3 90 54 177 2 (7) 46 (56) (46) 297 100 16 146 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 2005 »000 147 — 2,569 792 2004 »000 524 24 3,645 792 Earnings/(loss) per share 7. loss The calculation of the basic earnings/(loss) per ordinary share is based on a loss of £67,000 (2004: £2,044,000) and the weighted average number of shares in issue during the year of 329,241,000 (2004: 212,747,204). 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 options in issue have no dilutive effect. The basic earnings/(loss) per share before goodwill amortisation, losses of discontinued operations 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 earnings/(loss) per share as follows: interest discount, Basic earnings/(loss) per share (pence) Goodwill amortisation Discount charge on deferred consideration Losses of discontinued operations (after tax) Exceptional items Earnings per share before goodwill amortisation, interest discount, losses of discontinued operations and exceptional items Reconciliation of earnings Earnings/(loss) used for calculation of basic earnings/(loss) per share Goodwill amortisation Discount charge on deferred consideration Losses of discontinued operations (after tax) Exceptional items Earnings/(loss) before goodwill amortisation, interest discount, losses of discontinued operations and exceptional items Intangible ¢xed assets 8. Group Cost At 1 May 2004 Addition in year (note 23) At 30 April 2005 Amortisation At 1 May 2004 Charge for the year At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 2005 pence — 0.1 0.1 0.1 — 2004 pence (1.0) 0.2 0.1 0.5 0.5 0.3 0.3 »000 »000 (67) 371 275 548 13 (2,044) 298 179 972 1,133 1,140 538 Goodwill »000 5,960 1,904 7,864 673 371 1,044 6,820 5,287 Newmark Security PLC 22 Tangible ¢xed assets 9. Group Cost At 1 May 2004 Additions Acquisition of subsidiary (note 23) Disposals Exchange adjustment At 30 April 2005 Depreciation At 1 May 2004 Charge for the year Acquisition of subsidiary (note 23) Disposals At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 Company Cost At 1 May 2004 and 30 April 2005 Depreciation At 1 May 2004 Charge for the year At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 Freehold land and buildings »000 Short leasehold improvements »000 Plant, machinery & motor vehicles »000 Computers, fixtures & fittings »000 606 — — (289) (1) 316 137 13 — (54) 96 220 469 98 — 59 — — 157 95 8 16 — 119 38 3 886 183 186 (130) — 1,125 521 146 114 (118) 663 462 365 329 94 25 (152) — 296 263 91 11 (152) 213 83 66 Computers, fixtures & fittings »000 23 12 6 18 5 11 Total »000 1,919 277 270 (571) (1) 1,894 1,016 258 141 (324) 1,091 803 903 Total »000 23 12 6 18 5 11 The net book value of tangible ﬁxed assets for the Group includes an amount of £206,837 (2004: £51,013) in respect of assets held under ﬁnance leases and hire purchase contracts. The related depreciation charge on these assets for the year was £39,979 (2004: £6,377). Newmark Security PLC 23 Fixed asset investments 10. Company Investment in subsidiary companies Cost At 1 May 2004 Additions At 30 April 2005 Provision for impairment At 1 May 2004 Provision in the year At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 »000 15,231 2,386 17,617 44 1,000 1,044 16,573 15,187 Additions in the year include an amount of £276,000 in respect of the purchase of Vema N.V. shares. 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(1) NSP Europe Limited Newmark Technology (C-Cure Division) Limited Vema B.V. Vema N.V.(3) (98% owned) Newmark Technology S.A. Safetell International Limited Safetell Limited(2) Safetell Security Screens Limited(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 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 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 The investments in subsidiary companies are held directly by the Company apart from the following: (1) (2) (3) (4) (5) Owned by Grosvenor Technology Limited Owned by Safetell International Limited Owned by Vema B.V. Owned by Vema N.V. Owned by NSP Europe Limited NSP Europe Limited has been sold since the year end. 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 2005 Group »000 1,284 150 230 1,664 2005 Group »000 2,543 — 43 70 312 2,968 — 2,968 2005 Group »000 41 1,285 — 826 491 72 2,172 1,580 6,467 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 2005 Company »000 — — — 2004 Company »000 — — — — — 2005 Company »000 — — 24 — 7 31 625 656 2005 Company »000 13 — 9,791 — 53 — 1,886 193 2004 Company »000 — 61 — — 5 66 1,242 1,308 2004 Company »000 — — 9,388 — 41 — 307 11 2,911 11,936 9,747 Other creditors within the Group includes an amount of £132,767 (2004: £63,108) 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 2005 Group »000 1,475 750 107 3,156 5,488 2004 Group »000 1,504 1,260 — 2,977 5,741 2005 Company »000 1,275 — — 3,156 4,431 2004 Company »000 1,125 — — 2,977 4,102 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 by way of loan notes is due after the agreement of the accounts for the four years ended 31 October 2006 with cash payment at the holders discretion but at earliest one year later. Group Loans are repayable as follows: In one year or less Bank loans(a) Bank overdrafts Finance leases and hire purchase contracts Bank loan(b) Bank loan(c) Total within one year In more than one year but not more than two years Bank loans(a) Finance leases and hire purchase contracts Bank loan(b) Bank loan(c) Loan notes(d) In more than two year but not more than ¢ve years Bank loans(a) Finance leases and hire purchase contracts Bank loan(b) Bank loan(c) Loan notes(d) In more than ¢ve years Bank loans(a) Bank loan(b) Total after more than one year 2005 Unsecured »000 2005 Secured »000 2004 Unsecured »000 2004 Secured »000 — 30 — — — 30 — — — — — — — — — — — — — — — — 11 — 72 — — 83 9 72 — — 1,275 1,356 28 35 — — — 63 163 — 163 1,582 — 20 — — — 20 — — — — — — — — — — — — — — — — 11 — — 30 — 41 9 — 16 — — 25 28 — 48 — 1,125 1,201 174 104 278 1,504 (a) (b) (c) (d) The bank loan is repayable in quarterly instalments over 22 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 bank loan was repayable in quarterly instalments over 13 years and is secured on the freehold property of Newmark Onroerend Goed B.V. Interest was charged at 7.05 per cent per annum. The bank loan was repayable in quarterly instalments over 2 years and interest was 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 2004 Released in year At 30 April 2005 Rental provision »000 136 (16) Deferred taxation »000 — — 120 — Other »000 65 — 65 Total »000 201 (16) 185 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 seven years of the lease. Assuming future proﬁts are taxable at a rate of 30 per cent., the Group has available tax losses for offset against future taxable proﬁts, part of which are considered capable of being offset in the foreseeable future, giving rise to a deferred tax asset. In accordance with Financial Reporting Standard 19 ‘‘Deferred taxation’’, this asset (as shown in note 12) has been provided to the extent that trade losses will be recoverable against future proﬁts in the foreseeable future and is included within current assets. 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 (2004: 1,015,164,192) Ordinary shares of 1p each Allotted, called up and fully paid: 361,755,016 (2004: 213,083,766) Ordinary shares of 1p each During the year, the following shares were issued; 2005 2004 £10,151,642 £10,151,642 £3,617,550 £2,130,838 Shares in issue at 1 May 2004 Share issues to ﬁnance acquisition of CMP 1.25p per share Share issues to buy Vema NV shares @1.53p per share @1.4p per share @2.2p per share Number of shares 213,083,766 Share capital » 2,130,838 Share premium » Total value » 136,000,000 1,360,000 340,000 1,700,000 187,500 165,000 12,318,750 12,671,250 1,875 1,650 123,187 126,712 994 660 147,825 149,479 2,869 2,310 271,012 276,191 Total share issues 148,671,250 1,486,712 489,479 1,976,191 Shares in issue at 30 April 2005 361,755,016 3,617,550 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 2005 Approved 28,000 250,000 125,000 125,000 2005 Unapproved 28,000 250,000 125,000 6,075,000 2004 Approved 28,000 250,000 125,000 125,000 2004 Unapproved 28,000 250,000 125,000 6,075,000 528,000 6,478,000 528,000 6,478,000 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 2004 Retained loss for the year Premium on share issues Expenses of share issues Exchange differences on foreign currency investments Share premium account »000 — — 490 (58) — Merger reserve »000 801 — — — — Profit and loss account »000 (1,506) (67) — — (20) Accumulated reserves at 30 April 2005 432 801 (1,593) The cumulative amount of goodwill eliminated against reserves is £4,079,000 (2004: £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 2004 Premium on share issues Expenses of share issues Retained loss for the year Accumulated reserves at 30 April 2005 Share premium account »000 — 490 (58) — Merger reserve »000 801 — — — Profit and loss account »000 (171) — — (2,612) 432 801 (2,783) 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 £2,612,000 (2004: loss £785,000). 18. Minority interests At 1 May 2004 Minority interest purchased back in year Share of proﬁts/(loss) in year Exchange differences At 30 April 2005 2005 »000 300 (237) — — 63 19. Reconciliation of operating pro¢t/(loss) to net cash in£ow from operating activities Operating proﬁt/(loss) Depreciation and amortisation of goodwill (Increase)/decrease in stocks (Increase) in debtors Increase in creditors and provisions Net cash inﬂow from operating activities 2005 »000 414 629 (441) (583) 767 786 2004 »000 347 (17) 27 (57) 300 2004 »000 (523) 559 69 — 147 252 Newmark Security PLC 28 20. Reconciliation of net cash £ows to movement in net funds/(debt) Increase in cash Increase in debt in the year from cash ﬂows Increase in liquid resources Increase/(decrease) in net funds/(debt) resulting from cash ﬂows Cash and debt disposed of on sale of Drion Exchange adjustments Movement in net funds/(debt) Net (debt)/funds at start of year Net funds/(debt) at end of year 2005 »000 473 (120) 1,200 1,553 — — 1,553 (43) 1,510 2004 »000 745 (924) — (179) 51 19 (109) 66 (43) Cash in hand at 30 April 2005 includes £1,200,000 held as security for the deferred consideration payable in respect of Custom Micro Products Limited, and is therefore not available on demand (2004: £Nil). 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 Finance leases Liquid resources Net (debt)/funds April 2004 »000 1,522 (20) 1,502 (1,504) (41) — (1,545) — (43) Cash flow »000 483 (10) 473 29 30 (179) (120) 1,200 1,553 April 2005 »000 2,005 (30) 1,975 (1,475) (11) (179) (1,665) 1,200 1,510 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, 98 per cent (2004: 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, 10 per cent (2004: 18 per cent) of the Group’s borrowings were due to mature in more than ﬁve years. Newmark Security PLC 29 Foreign currency risk The sales of the UK companies are predominantly priced and invoiced in sterling. Interest rate risk of ﬁnancial assets and ﬁnancial liabilities The interest rate proﬁle of the Group’s ﬁnancial assets at 30 April 2005 was: Currency Sterling Floating rate financial assets »000 3,205 Fixed rate financial assets »000 — Financial assets on which no interest is received »000 — Total »000 3,205 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 liabilities at 30 April 2005 was: Currency Sterling Euros Floating rate financial liabilities »000 30 — Financial liabilities on which no interest has been paid »000 — — Fixed rate financial liabilities »000 1,454 211 30 1,665 — Total »000 1,484 211 1,695 The interest rate proﬁle of the Group’s ﬁnancial liabilities at 30 April 2004 was: Currency Sterling Euros Currency Sterling Euros Total 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 Fixed rate financial liabilities Fixed rate financial liabilities Weighted average period for which rate is fixed 2004 Years 2.7 18.3 Weighted average period for which rate is fixed 2005 Years 1.5 22.0 Weighted average interest rate 2004 % 6.0 6.6 Weighted average interest rate 2005 % 6.0 6.1 6.0 4.0 6.2 6.6 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 2005, these exposures were as follows: Functional currency of Group operation Sterling Total As at 30 April 2004: 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 two years but not more than ﬁve years In more than ﬁve years Net foreign currency monetary assets/(liabilities) in »000 Total US dollars 42 168 Euros (126) (126) 168 42 (171) (171) (25) (25) (196) (196) 2005 »000 113 1,356 63 163 1,695 2004 »000 61 25 1,201 278 1,565 Borrowing facilities The Group has no undrawn committed borrowing facilities.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 2005 »000 113 1,582 Fair values 2005 »000 110 1,142 Book values 2004 »000 61 1,504 Fair values 2004 »000 60 1,324 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. Acquisitions The assets and liabilities of CMP which have been accounted for under acquisition accounting rules were as follows: Fixed assets: Tangible Current assets: Stock Trade debtors Other debtors Cash at bank Total assets Creditors: Trade creditors Other creditors Current taxation Total liabilities Net assets Purchased goodwill Total purchase consideration Comprises: Cash consideration Deferred cash consideration Costs Interest discount adjustment Book value »000 Revaluation to Fair Value »000 Fair Value »000 190 408 322 51 781 563 (61) (78) — — (78) — 129 330 322 51 703 563 1,534 (139) 1,395 (190) (189) (147) (526) 1,008 1,700 2,708 800 1,925 118 (135) 2,708 — (23) — (23) (162) 162 — — — — — — (190) (212) (147) (549) 846 1,862 2,708 800 1,925 118 (135) 2,708 Goodwill in the year also includes £42,000 on the purchase of Vema NV shares. The trading results of CMP for the two months of that company’s statutory accounts for the twelve months to 30 April 2005, that were earned in the period prior to acquisition and therefore not included in the Group results, were as follows: Turnover Loss before taxation Taxation Loss after taxation The proﬁt after tax of CMP for the previous ﬁfteen months’ statutory accounts was £454,580. »000 435 (78) 24 (54) Newmark Security PLC 32 24. Other ¢nancial commitments At 30 April 2005, 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 years 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 2005 »000 2004 »000 41 9 — — 35 24 45 144 7 25 68 — — 20 — 144 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 £15,000 from the Company during the year (2004: £11,250) in respect of Mr. Reid. (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 (2004: £198,433) in the year. 26. Post balance sheet events On 29 July 2005, the investment in NSP Europe Limited has been sold to CS (London) Limited for a nominal consideration, and the business of Concept Hardware and Security Solutions Limited has been terminated. The loss on disposal of NSP Europe Limited will be reﬂected in the ﬁnancial statements of the Group for the year ended 30 April 2006. NSP Europe had net assets at the date of disposal of approximately £0.2 million. Newmark Security PLC 33 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that an Annual General Meeting of Newmark Security PLC will be held at 57 Grosvenor Street, London W1K 3JA on 12 October 2005 at 12.00 noon 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 2005. 2. 3. To re-appoint Alexander Stuart Reid as a director of the Company, who retires in accordance with the Company’s Articles of Association and offers himself for re-appointment. 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 4. To consider and, if thought ﬁt, to pass the following Resolution as an Ordinary Resolution: 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 relevant securities of £1,205,850; 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. 5. To consider and, if thought ﬁt, to pass the following Resolution as a Special Resolution: That, subject to the passing of the previous resolution, 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; (b) the allotment otherwise than pursuant to sub-paragraph (a) above of equity securities up to an aggregate nominal amount of £723,510, 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 14 September 2005 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 12 October 2005 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) a register in which are recorded details of all transactions in the shares of the Company in respect of all Directors and their families; and a copy of every service contract between the Company and any Director of the Company. (b) 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 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 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 2006. 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 a number of shares equal to twenty 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. Pre-existing section 89 authority The Directors are authorised pursuant to an authority passed on 24 July 2003 to allot up to 75,000,000 shares on a non pre-emptive basis on the exercise of warrants granted on that date pursuant to a loan note agreement. 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 12 October 2005 at 12.00 noon 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 2005. To re-appoint A Reid 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 on a non pre-emptive basis. Dated this .... ....... ........ ....... ........ ....... ....... ........ .....day of. ....... ....... ........ ....... ........ ....... ........ ....... ..2005 Signature(s) .. ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ........ ....... ....... . Full name(s) in which shares are registered.... ........ ....... ........ ....... ....... ........ ....... ........ ....... ........ ....... ....... . .... ........ ....... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ....... ........ ....... ........ ....... ........ ....... ....... . PLEASE USE BLOCK LETTERS Notes: 1. 2. 3. 4. 5. 6. 7. % 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, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU 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. The summaries of the resolutions are for guidance only. You are advised to read the accompanying circular and notice of meeting carefully. Newmark Security PLC 37 Printed by greenaways, a member of the ormolu group. 158201

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