Newmark Security plc Annual Report 2007

Plain-text annual report

Report and Financial Statements Year ended 30 April 2007 INDEX DIRECTORS, SECRETARY AND ADVISERS CHAIRMAN’S STATEMENT REPORT OF THE DIRECTORS REPORT OF THE REMUNERATION COMMITTEE REPORT OF THE INDEPENDENT AUDITORS FINANCIAL STATEMENTS NOTES FORMING PART OF THE FINANCIAL STATEMENTS COMPANY BALANCE SHEET NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTICE OF ANNUAL GENERAL MEETING APPENDIX 1 Page 2 3 7 13 14 16 20 46 47 51 53 Newmark Security PLC 1 DIRECTORS, SECRETARY AND ADVISERS Country of incorporation of parent company: Great Britain Legal form: Directors: Public Limited Company M. Dwek B. Beecraft A. Reid M. Rapoport Secretary and registered of¢ce: B. Beecraft, 57 Grosvenor Street, London W1K 3JA Company number: 333998 Auditors: BDO Stoy Hayward LLP, 8 Baker Street, London W1U 3LL Nominated Adviser: Seymour Pierce Limited, 20 Old Bailey, London EC4M 7EN Brokers: Registrars: Solicitors: Ellis Stockbrokers Limited, Talisman House, Jubilee Walk, Three Bridges, Crawley, West Sussex RH10 1LQ Capita Registrars, Northern House, Woodsome Park, Feney Bridge, Huddersﬁeld, West Yorkshire HD8 0LA Field Fisher Waterhouse, 35 Vine Street, London EC3N 2AA Newmark Security PLC 2 CHAIRMAN’S STATEMENT Overview The year has been a period of consolidation with all businesses continuing to be proﬁtable, the completion of the earn out period for Grosvenor Technology and the repayment of the loan note. Our ﬁnancial statements have been produced in accordance with International Financial Reporting Standards (IFRS) for the ﬁrst time. Comparative information for the year ended 30 April 2006 has been restated on an IFRS basis. Full details of IFRS accounting policies applied and reconciliation of comparative ﬁgures between UK GAAP and IFRS are included within the ﬁnancial statements. The major ongoing impact on the operating proﬁt of the Group is that we are now required to capitalise development costs which fulﬁl certain criteria as set out in the accounting policies. Previously such expenditure was written off as incurred. The earn out period for the acquisition of Grosvenor Technology expired on 31 October 2006, and, as expected, the maximum payable of £3.5 million has been achieved over the four year period. On agreement of the accounts for the period, unsecured loan notes denominated in Euros were issued in accordance with the acquisition agreement. These may be settled in cash on 1 November 2007 at the earliest. Unfortunately, the loan notes were issued at a time when the Euro was particularly strong and we have been required to make a £111,000 exchange loss provision. Interest payable on these loan notes was ﬁxed at a quarter per cent. below base as part of the agreement, and has been accrued in the income statement accordingly. However, in order to comply with IFRS, we are required to discount the valuation of the loan notes using an assumed third party market rate and this has been adjusted as a ﬁnance charge in the income statement. The three directors of the company who remained with the Group after acquisition have agreed to remain with the Group for at least a further three years. The loan notes issued by the Company in 2003 were settled on 24 July 2006. When the loan notes were issued, warrants were attached so that the loan note holders could subscribe for ordinary shares of 1p each in the Company at a price of 1p per ordinary share. These warrants are captured under the heading of embedded derivatives under IFRS, and therefore were fair valued at the date of transition. The warrants were then revalued at April 2006 and the exercise date, and the changes in valuation are accounted for as other ﬁnance gains or losses in the income statement. The loan note holders exercised these warrants so that half of the loan notes were settled by issue of shares, the other half by cash payments. Turnover for the year from continuing businesses was £13,422k compared to £11,839k, an increase of 13 per cent. Gross margin for the year from continuing operations was £5,817k (43.3 per cent. of sales) compared to £4,876k (41.2 per cent.). Safetell turnover increased by 10 per cent. whilst Grosvenor Technology beneﬁted from the BAE Systems contract announced in the year. The US market for Custom Micro Products recovered from the low levels of the previous year. Within the Electronic Division, there was an improvement in margin overall, whilst there was also an improvement within Safetell as the increase in turnover improved utilisation of staff and yielded other efﬁciencies. Earnings per share are shown in the income statement as 0.25p (2006: 0.11p). However, the earnings per share before interest discount adjustments, losses of discontinued operations, provision for exchange loss and warrant revaluation are 0.30p (2006: 0.21p) as calculated in note 10 to the accounts. As a consequence of the increase in turnover and fall in number of employees, turnover per employee rose from £100,390 to £117,737. Both CMP and Safetell are the leaders in their particular markets whilst Grosvenor is a major force at the upper price end of the access control market. There were no environmental issues having a major impact on the Group in the year. The Group continues to invest in research and development which will beneﬁt the results in the future. The Disability Discrimination Act will, we believe, have an increasing impact on the needs of some of our customers when the requirements are realised more fully, and this would beneﬁt Safetell in particular. The Group net assets have increased in the year from £3.4 million to £5.2 million partly reﬂecting the translation of half of the outstanding loan notes into shares. Turnover varies month by month due to the timing and amounts of the types of contracts that we are involved in, particularly within Safetell. The asset protection division had two very busy months before the year end which has inﬂated the working capital position on the balance sheet at the year end. Newmark Security PLC 3 A detailed review of their activities, results and future developments is set out in the divisional results below. Financial results The operating proﬁt for the year was £1,632,000 (2006: £981,000). Turnover for the year for continuing operations was £13.4 million (2006: £11.8 million). The main commercial factors affecting the results of the divisions are set out below. Electronic Division Turnover £7,441,000 (2006: £6,407,000) Operating proﬁt £1,685,000 (2006: £1,100,000) Turnover in Grosvenor Technology increased by some 19 per cent. in the year to £4.3 million, and was accompanied by a 2 per cent. increase in margin. Each year turnover includes a number of larger contracts which vary in size and are difﬁcult to predict in terms of timing. During the year under review, we completed the sale of our JANUS access control and security management system to BAE Systems at their major sites in Warton, Samlesbury, Brough and others. The total sales value, including JANUS software exceeded £0.5 million. BAE Systems has been using JANUS for some years on other sites and now has the potential to link all of the systems together as an all encompassing ‘Enterprise Solution.’ As predicted, the eSeries door controller, due to its ease of connectivity on corporate networks around the world, has played a large part in this success and looks set to be the deciding factor for other large contracts still to come. To further support these larger ‘Enterprise’ type access control systems we have developed a brand new web connected application called Admin Manager. Admin Manager is part of the Head Ofﬁce suite of programs and has the potential to combine multiple systems together in a world-wide network of systems. The beneﬁts to the user are many fold and include connections to corporate HR systems, centralisation of employee records and a secure web connection from anywhere in the world. There are separate versions of Admin Manager for JANUS, N-TEC (Simplex distributorship) and Siteguard (Tyco distributorship) and for commercial reasons the different Admin Manager applications are not interchangeable and do not support each other’s protocols. Turnover in Newmark Technology increased in the year by 6 per cent. to £451k but this was offset by a reduction in margin. We now have two distributors in Russia via the Simplex Fire distributorship and the ﬁrst order for our Russian version of N-TEC has been received (£50K) for the prestigious Naberezhnaya Tower Complex in Moscow, again using eSeries controllers and has been shipped already in the current year. We have temporarily suspended UL approvals on the N-TEC product as there are new ideas that we wish to incorporate within the certiﬁcation application and changes or additions to an already UL certiﬁed product requires re-evaluation. At Custom Micro Products, turnover increased by 14 per cent. overall and was aided by a recovery in sales to the US following a drop in the previous year. We have started manufacturing the RS21 terminal (Revised Series) ready for product launch and as announced last year, the RS21 is fully compatible with the existing 2100 terminals and eliminates the need for our own in- house manufacturing. The Revised Series offers snap-together components which the customer assembles at the point of installation. This idea has been very well received and allows us to ship the product within a couple of days from receiving an order rather than the traditional 3-4 week delay for manufacturing. There will be a crossover period between the 2100 terminal phasing out and the RS21 terminal phasing in. On 14 June we announced the strategic merger of Grosvenor Technology and Custom Micro Products. The two companies will merge under the name of Grosvenor Technology and continue to operate from their respective facilities in Bishop’s Stortford in Hertfordshire and Poole in Dorset. The remit of the newly combined business is to provide innovative products and services targeted directly to the needs of key channels within the access control and data-collection industries. Combining the two businesses under a single brand enables us to better position the company to meet the future needs of our customers. The development proposition, with the two teams working as one, is an easier migration to newer and more powerful technologies and the opportunity for wider and greatly enhanced product offerings. The merger also offers the best use of company synergies and consistency of application, with more efﬁcient systems and procedures throughout. To this end it is envisaged that we will embark upon a staff restructuring process as soon as the merger process has been completed. Newmark Security PLC 4 It is important that we maintain the identity and the unique branding of the Custom Micro products and to this end we have created the ‘CUSTOM’ brand-name as an umbrella for the existing catalogue of products and the brand-new Revised Series products. This will make it easier for customers to identify and manage the CUSTOM products from within the Grosvenor Technology product range. Our next generation product, also announced last period, has been branded as ‘SATEON’ Intelligent Time Clocks and Terminals. The SATEON range also takes on the new form of snap-together modules enabling off-shore manufacturing and installer assembly on-site. To facilitate this, intelligence has been designed on-board each module so that they are aware of each other and automatically conﬁgure themselves when connected. SATEON terminals are speciﬁcally targeted at the ASP.NET environment and will allow us to enter the business of recurring revenue streams where terminals and internet hosted services are offered by us on a monthly rental to our existing customer base where they will beneﬁt from our economies of scale and our centralised and managed back-end systems. The ﬁrst SATEON terminal, the IT3100, is at an advanced stage of development on the hardware side and we expect to enter this business during the course of 2008. Asset Protection Division Turnover £5,981,000 (2006: £5,432,000) Operating proﬁt £520,000 (2006: £490,000) Total sales increased by 10.1 per cent. from product/contract sales growth of 6.9 per cent. and service revenue growth of 15.5 per cent. Eclipse rising screen programmes were maintained with various long-term customers in retail ﬁnance, petrol retailing and some Police forces. Two previous major customers who had completed their branch programmes some years ago have renewed purchases for a fresh round of branch refurbishments. Another customer lost to a competitor in 2000 has been won back. The value of reconﬁguration/refurbishment works for Eclipse dropped below the value of new installations with less work required for Abbey. Eye2Eye sales were disappointing in the ﬁrst half of the year but accelerated dramatically in the second half, 8 of the 11 units sold in the year arose in the last two months to new customers with repeat business expected in the new ﬁnancial year. Two more new rail customers placed orders in the last two months of the year under review for delivery in the current year. Rail Operating Companies remain the market focus for this product with additional demand from Police and Local Authorities. Sales to the Post Ofﬁce of RollerCash and BiDi Safe were similar to last year with the notable addition of the ﬁrst six Post Ofﬁce branches in WH Smith. That trial proved successful and a programme has been announced of approximately 70 more such combinations before the end of 2008. Woolwich branches invested in the third and ﬁnal phase of equipment for their branches before adopting a Barclays format. A client driven development contract for payment/merchandise transfer hatches was completed at the end of the year with the ﬁrst prototype installed in May. Although unit prices are relatively low, the volume for this retail customer could be substantial with opportunities to sell to other retailers. Following 18 months of preparation, the South African market has been opened with a partner who will act as a manufacturing licensee for Eclipse rising screens and as a sub-distributor for RollerCash. The ﬁrst order was taken in March for rising screens that was installed in June and one RollerCash is undergoing branch trials. Service and maintenance revenue increased by 15 per cent. mainly due to the comprehensive contract for all Abbey branches won at the beginning of 2006 and new work for Shell night pay window maintenance. This part of the business is set to grow further. Percentage gross margin was maintained at last year’s level on the increased turnover. Manufacturing efﬁciencies were achieved in the last 2 months on the increased volume in Eye2Eye resulting in much better margin for this product. Other manufacturing efﬁciencies are being introduced to improve margin on other products. The ﬁrst months of the new ﬁnancial year have continued at the average rate of the year under review but with increases expected to occur from the late summer onwards. Some of this additional business has been announced by customers but not yet conﬁrmed. Balance sheet and cash £ow The change to IFRS accounts has resulted in changes to both the balance sheet and cash ﬂow although, in respect of the latter, these are mainly presentational. Goodwill has been frozen at the amortised cost ﬁgure at Newmark Security PLC 5 the date of transition to IFRS, 1 May 2005. This ﬁgure will now remain unchanged subject only to annual impairment reviews. Intangible assets also now include development costs which meet the criteria set out in note 1, and will be written off over the expected life of the new product. Trade debtors and creditors are both higher than the previous year end, due in particular to very busy trading months towards the end of the year in the Asset Protection Division. Both operating divisions also undertake substantial contracts which impinge upon the level of working capital at any one point in time. The Grosvenor deferred consideration of £3.5 million will be paid from cash balances, which at the end of April were close to £2 million, and the balance from facilities currently being agreed with the Group’s bankers. Current liabilities last year included £1.5 million loan notes which have been settled in the year, half by the issue of shares and the other half in cash from the proceeds of a bank loan repayable over three years. Overall net assets increased from £3.4 million to £5.2 million. The improvement in proﬁt for the year increased the cash ﬂow from operating activities by £0.9 million, from £0.6 million to £1.5 million. Cash outﬂow from investing activities fell from £2.3 million to £0.3 million, primarily due to the previous year including the payment of the deferred consideration for the acquisition of Custom Micro Products Limited, £1.9 million. There was however a cash outﬂow from ﬁnancing activities of £0.5 million compared to an inﬂow of £0.3 million last year. The ﬁgures for the year under review include the partial repayment of the loan taken out to ﬁnance the repayment of the loan notes, whilst the previous year included the proceeds from loan notes issued. Employees The Board would again like to express their gratitude to all employees for their contribution to the success of the business in which they work. Summary The Board is pleased by the results achieved in the year and believe that this has resulted from the efforts made in previous years to secure a solid base for the Group. Trading for the start of the current year has been encouraging. Although the results for the ﬁrst half of the current year may be lower than the proﬁt for the ﬁrst six months of the year under review due to the impact of the contract for BAE Systems last year, the Board is conﬁdent further growth will be achieved in the current year. M DWEK Chairman 16 July 2007 Newmark Security PLC 6 REPORT OF THE DIRECTORS The Directors submit their annual report and audited ﬁnancial statements of the Group for the year ended 30 April 2007. 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 from operations on ordinary activities before interest, tax and minority interest in the year was £1,632,000 (2006: £981,000). The proﬁt for the year was £1,089,000 (2006: £389,000). Turnover for the year for continuing operations was £13.4 million (2006: £11.8 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 pages 3 to 6. 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 page 13. M Dwek retires in accordance with the articles of association. M Dwek, being eligible, offers himself for re-election at the next annual general meeting. Share capital Full details of changes to the share capital in the year are given in note 25 to the ﬁnancial statements on page 42. Financial instruments For full details of changes to the Group’s management of its ﬁnancial instruments, please refer to note 21 to the ﬁnancial statements on page 38. Directors Directors’ interests The beneﬁcial and other interests of the Directors in the shares of the Company as at 1 May 2006 (or the date of their appointment to the Board, if later) and 30 April 2007 were as follows: M Dwek(a) M Rapoport A Reid(b) Percentage holding at 30 April 2007 9.5% 2.4% 16.5% 30 April 2007 42,819,467 10,555,000 73,833,237 1 May 2006 (or date of appointment if later) 38,069,467 10,555,000 58,833,237 (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. Newmark Security PLC 7 The interests of Directors in Share Option Schemes operated by the Company at 30 April 2006 and 2007 were as follows: Number of Ordinary Shares under the Approved Scheme 30 April 2007 — 500,000 Number of Ordinary Shares under the Unapproved Scheme 30 April 2007 5,000,000 4,000,000 Number of Ordinary Shares under the Approved Scheme 1 May 2006 — 500,000 Number of Ordinary Shares under the Unapproved Scheme 1 May 2006 5,000,000 4,000,000 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 4 to the ﬁnancial statements. 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: Hillblue Investments SA Rosa Maris Limited Barclayshare Nominees Limited L R Nominees Limited Mrs G A B Reid PH Nominees Limited Percentage holding 6.7% 6.7% 6.0% 4.8% 4.4% 4.3% Number of shares 30,000,000 30,000,000 27,022,523 21,347,439 19,750,000 19,325,000 Employee involvement The Group keeps employees informed of matters affecting them and employees have regular opportunities to meet and have discussions with their managers. 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 has administered and operated each Scheme. Further details of the share option schemes are set out in note 28 to the Financial Statements on page 44. Both schemes expired in April 2007 on the tenth anniversary of the formation of these schemes. The Board now proposes to adopt the Newmark Security PLC EMI Share Option Plan (‘‘the scheme’’) which will the HM Revenue and Custom’s Enterprise enable the Board to grant qualifying share options under Management Incentive (‘‘EMI’’) tax code and also unapproved share options to employees and directors. The structure of the Scheme has been designed with the key aim of retaining employees and ensuring that their interests are fully aligned with those of shareholders – in particular to further drive the increase in the Company’s share price over the next 3 to 5 years. It has been designed to adhere to the basic principals ﬁrst agreed in the design of the original schemes although allowing ﬂexibility for change taking into account market trends as they pertain at the current time and into the future. Newmark Security PLC 8 The Scheme will grant tax efﬁcient EMI share options where the qualifying criteria are met and unapproved share options where those criteria are not met. The EMI share options will vest and become exercisable 3 years from the date of grant (subject to leaver and takeover provisions), or such other period of time speciﬁed by the Remuneration Committee. Performance conditions to be set by the Remuneration Committee will apply to these EMI options. EMI options will have an exercise price equal to the higher of the market value and the nominal value of a share in the Company at the date of grant – and therefore gains made by the participants will only arise to the extent that the Company’s share price increases above the price when the options are granted. There is a strict legislative limit imposed on the quantum of EMI options that may be granted and held by one individual (very broadly, not more than £100,000 worth of options per person calculated by reference to the share price at the date of grant of such options). It is considered that an effective incentive outside this limit should be possible, and so it is proposed that additional unapproved options may also be granted. The unapproved share options will be subject to the same set of rules as will apply to EMI Options, including the imposition of performance conditions. The Scheme contains a limit on dilution such that options may not be granted if the level of dilution of the current issued share capital by options (across all share option plans) granted over the previous 10 years exceeds 10 per cent. The Board have considered best practice and guidelines on dilution and consider that 10 per cent. is an appropriate level for an AIM listed plc of the size of the Company. It should be noted that options under the Scheme will only be granted to those key employees best placed to increase the performance of the business. Options will lapse in full if the participant leaves the company other than for a deﬁned Good Leaver provision or death. Where cessation of employment is occasioned through death or a Good Leaver provision then the Options (both EMI and unapproved) will vest and become exercisable in full, irrespective of a performance condition. In like fashion, the performance conditions will also fall away should the options vest and become exercisable in the event of a takeover of the Company or similar corporate event. Resolution 4 at the Annual General Meeting seeks the approval of shareholders to the new Scheme. 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. Group trade creditors at the year end were 27 days (2006: 41 days) of average supplies for the period, the parent company does not trade and therefore there is no corresponding ﬁgure. 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 2007, 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 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 Newmark Security PLC 9 introduce a Nominations Committee. However, nominations are to remain a matter reserved for the Board. it was decided, given the small size of the Board, that 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 Director, maintaining a clear organisational structure with deﬁned lines of responsibility, production of management information, with comparisons against budget, maintaining the quality and integrity of personnel, Board approval of all signiﬁcant capital expenditure, and all acquisitions. Each Group company is responsible for the preparation of a budget for the following year, which is presented to and required to be agreed by the Board before the beginning of that year. The subsidiary is required to report actual performance against that plan each month. The Board has established two standing committees, the audit and remuneration committees, comprising 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 page 13. After making enquiries, the Directors believe that the Group has sufﬁcient ﬁnancial resources to continue in operational existence for the foreseeable future. The accounts have therefore been produced on a going concern basis. Unauthorised brokers (Boiler Room Scams) Over the last year many listed companies in the UK have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters and unfortunately we have been advised by some of our shareholders who have been contacted in this way. These are typically from overseas based ‘brokers’ who target UK shareholders offering to buy their shares at excessive prices. They can be very persistent and extremely persuasive and a 2006 survey by the Financial Services Authority (FSA) has reported that the average amount lost by investors is around £20,000. It is not just the novice investor that has been duped in this way; many of the victims had been successfully investing for several years. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at excessive or discounted prices, or offers of free company reports. Newmark Security PLC 10 If you receive any unsolicited investment advice: . . . Make sure you get the correct name of the person and organisation. Check that they are properly authorised by the FSA before getting involved. You can check at www.fsa.gov.uk/register The FSA also maintains on its website a list of unauthorised overseas ﬁrms who are targeting, or have targeted, UK investors and any approach from such organisations should be reported to the FSA so that this list can be kept up to date and any other appropriate action can be considered. If you deal with an unauthorised ﬁrm, you would not be eligible to receive payment under the Financial Services Compensation Scheme. The FSA can be contacted by completing an online form at www.fsa.gov.uk/ pages/doing/regulated/law/alerts/overseas.shtml . Inform Capita Registrars. Details of any share dealing facilities that the Company endorses will only be included in company mailings. More detailed information can be found on the FSA website www.fsa.gov.uk/consumer/ Identity Theft Tips for protecting your shares: . . . . Ensure all your certiﬁcates are kept in a safe place or hold your shares electronically in CREST via a nominee. Keep all correspondence from the Registrar in a safe place, or destroy correspondence by shredding. If you change address inform the Registrar in writing or via the Shareholder Portal. If you receive a letter from the Registrar regarding a change of address but have not recently moved please contact them immediately. If you are buying or selling shares only deal with brokers registered in your country of residence or the UK. Directors’ responsibilities The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the ﬁnancial position of the company, for safeguarding the assets of the company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report which complies with the requirements of the Companies Act 1985. The directors are responsible for preparing the annual report and the ﬁnancial statements in accordance with the Companies Act 1985. The directors have chosen to prepare ﬁnancial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and have chosen to prepare the parent company accounts in accordance with UK Generally Accepted Accounting Practice. Group ¢nancial statements International Accounting Standard 1 requires that ﬁnancial statements present fairly for each ﬁnancial year the Group’s ﬁnancial position, ﬁnancial performance and cash ﬂows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the deﬁnitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of ﬁnancial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the Directors to: . . . consistently select and apply appropriate accounting policies; present comparable and understandable information; and including accounting policies, information, in a manner that provides relevant, reliable, provide additional disclosures when compliance with the speciﬁc requirements in IFRS is insufﬁcient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s ﬁnancial position and ﬁnancial performance. Newmark Security PLC 11 Parent company ¢nancial statements 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 of the proﬁt or loss of the Company for that period. In preparing these ﬁnancial statements, the directors are required to: . . . . select suitable accounting policies and then apply them consistently; prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. make judgements and estimates that are reasonable and prudent; and state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements. Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of ﬁnancial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the ﬁnancial statements contained therein. All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. 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 16 July 2007 Newmark Security PLC 12 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 2007 comprised 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. 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. 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. Director’s emoluments Emoluments of the directors (including pension contributions and beneﬁts in kind) of the Company were as follows: Executive Directors B Beecraft Non-Executive Directors M Dwek(a) A Reid(b) M Rapoport Consultancy/ management agreement »’000 Compensation for change of terms »’000 — 50 — — 50 — — — — — 2006 124 150 Salary »’000 104 — — — 104 99 Fees »’000 — — 15 15 30 30 Total »’000 104 50 15 15 184 403 Pension contri- butions »’000 — — — — — 8 The directors’ share interests are detailed in the Report of the Directors on pages 7 and 8. (a) (b) The Company paid a consultancy fee of £50,000 (2006: £124,127) to Arbury Inc., a company 51 per cent. owned by M Dwek which covers salary, pension and car beneﬁts. In addition the Company issued 10 million shares in the previous year as compensation for the change of terms from executive to non-executive chairman. Directors’ fees in respect of A Reid of £15,000 (2006: £15,000) were paid by the Company to R. K. Harrison & Co. Limited. Newmark Security PLC 13 REPORT OF THE INDEPENDENT AUDITORS To the shareholders of Newmark Security PLC We have audited the group and parent company ﬁnancial statements (the ’’ﬁnancial statements’’) of Newmark Security PLC for the year ended 30 April 2007 which comprise the group income statement, the group and parent company balance sheets, the group statement of change in shareholders’ equity and the related notes. These ﬁnancial statements have been prepared under the accounting policies set out therein. the group cash ﬂow statement, Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report and the group ﬁnancial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and for preparing the parent company ﬁnancial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors’ responsibilities. Where a company is fully listed, there are additional responsibilities contained in the Listing Rules of the Financial Services Authority. Newmark Security PLC has voluntarily complied with the requirements of the 2003 FRC Combined Code in preparing its annual report. Our responsibility is to audit the ﬁnancial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the ﬁnancial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the directors’ report is consistent with these ﬁnancial statements. We also report to you 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 other transactions is not disclosed. We read other information contained in the annual report and consider whether it is consistent with the audited ﬁnancial statements. The other information comprises only 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 International Standards on Auditing (UK and Ireland) 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 judgments made by the directors in the preparation of the ﬁnancial statements, and of whether the accounting policies are appropriate to the group’s and company’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. Newmark Security PLC 14 Opinion In our opinion: . . . . the group ﬁnancial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 30 April 2007 and of its proﬁt for the year then ended; the parent company ﬁnancial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company’s affairs as at 30 April 2007; the ﬁnancial statements have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors’ Report is consistent with the ﬁnancial statements. BDO STOY HAYWARD LLP Chartered Accountants and Registered Auditors London Date 16 July 2007 Newmark Security PLC 15 CONSOLIDATED INCOME STATEMENT for the year ended 30 April 2007 Revenue Cost of sales Gross pro¢t Provision for exchange loss Administrative expenses Pro¢t from operations Finance income Finance costs Other ﬁnance (losses)/gains Pro¢t before tax Tax expense Pro¢t for the year from continuing operations Post-tax loss related to discontinued operations Pro¢t for the year Attributable to: — Equity holders of the parent Earnings per share Continuing operations — Basic and diluted (pence) Discontinued operations — Basic and diluted (pence) Note 3 4 7 7 7 8 9 26 10 10 2007 »’000 13,422 (7,605) 5,817 (111) (4,074) 1,632 30 (113) (44) 1,505 (368) 1,137 (48) 1,089 2006 »’000 11,839 (6,963) 4,876 — (3,895) 981 31 (102) 147 1,057 (149) 908 (519) 389 1,089 389 0.25p 0.11p (0.01p) (0.14p) The notes on pages 20 to 45 form part of these ﬁnancial statements. Newmark Security PLC 16 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 30 April 2007 Pro¢t for the year Foreign exchange gains/(losses) on retranslation of overseas operations Total recognised income and expense for the year Attributable to: — Equity holders of the parent 2007 »’000 1,089 1 1,090 2006 »’000 389 (39) 350 1,090 350 Newmark Security PLC 17 CONSOLIDATED BALANCE SHEET at 30 April 2007 ASSETS Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets LIABILITIES Current liabilities Trade and other payables Other short term borrowings Corporation tax liability Provisions Total current liabilities Non-current liabilities Long term borrowings Provisions Other creditors Total non-current liabilities Total liabilities TOTAL NET ASSETS Capital and reserves attributable to equity holders of the company Share capital Share premium reserve Merger reserve Foreign exchange difference reserve Warrant reserve Retained earnings Minority interest TOTAL EQUITY Note 2007 »’000 2007 »’000 2006 »’000 2006 »’000 11 12 24 15 16 17 18 23 19 23 20 25 26 26 26 26 26 880 7,136 37 8,053 1,381 3,196 1,948 6,525 3,173 3,930 1,443 113 8,659 553 156 — 709 4,490 493 801 (38) — (600) 941 6,944 116 8,001 1,256 2,326 1,373 4,955 14,578 12,956 2,608 1,623 1,324 113 5,668 301 172 3,369 3,842 9,368 5,210 9,510 3,446 3,740 493 801 (39) 248 (1,861) 5,146 64 5,210 3,382 64 3,446 The ﬁnancial statements were approved by the Board of Directors and authorised for issue on 16 July 2007. M Dwek Director The notes on pages 20 to 45 form part of these ﬁnancial statements. Newmark Security PLC 18 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 April 2007 Cash £ow from operating activities Net proﬁt after tax from ordinary activities Adjustments for: Depreciation Investment income Interest expense Other ﬁnance losses Loss on sale of discontinuing operations Income tax expense Costs settled by share issues Share option charge Warrant revaluation Operating pro¢t before changes in working capital and provisions (Increase)/decrease in trade and other receivables (Increase)/decrease in inventories Increase/(decrease) in trade and other payables Cash generated from operations Income taxes paid Cash £ows from operating activities Cash £ow from investing activities Acquisition of subsidiary, net of cash acquired Disposal of subsidiary, net of cash disposed Payments for property, plant & equipment Sale of property, plant & equipment Research & development expenditure Interest received Cash £ow from ¢nancing activities Proceeds from loan notes Proceeds from loan Repayment loan notes Repayment of bank loans Repayment of ﬁnance lease creditors Interest paid Note 2007 »’000 1,089 348 (30) 113 158 — 347 — 38 (114) 1,949 (798) (125) 654 — — (242) 47 (269) 30 — 750 (750) (194) (154) (113) 2007 »’000 2006 »’000 2006 »’000 389 302 (31) 311 251 192 57 184 21 (398) 1,278 385 316 (1,017) (1,937) (25) (329) 24 (112) 31 1,680 (210) 1,470 962 (423) 539 (434) (2,348) 225 — — — (106) (112) Increase/(decrease) in cash and cash equivalents 30 (461) 575 7 (1,802) The notes on pages 20 to 45 form part of these ﬁnancial statements. Newmark Security PLC 19 NOTES FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 April 2007 Accounting policies 1. Newmark Security PLC (the ‘‘Company’’) is a company domiciled in England. The consolidated ﬁnancial statements of the Company for the year ended 30 April 2007 comprise the Company and its subsidiaries (together referred to as the ‘‘Group’’) Basis of preparation The principal accounting policies adopted in the preparation of the ﬁnancial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These consolidated ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and its interpretations (IFRICs) issued by the International Accounting Standards Board (IASB) and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under IFRS. This is the ﬁrst time the Group has prepared its ﬁnancial statements in accordance with IFRSs, having previously prepared its ﬁnancial statements in accordance with UK accounting standards. Details of how the transition from UK accounting standards to IFRSs has affected the Group’s reported ﬁnancial position, ﬁnancial performance and cash ﬂows are given in note 2. The preparation of ﬁnancial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of income and expenses, and assets and liabilities. These judgements and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the judgements about carrying values of assets and liabilities. Actual results may differ from these estimates. These estimates and underlying assumptions are reviewed on an ongoing basis. Any revisions to the accounting estimates are recognised in the period on which the revision is made. The Company has elected to prepare its parent company ﬁnancial statements in accordance with UK GAAP. These are presented on pages 46 to 50. First-time adoption In preparing these ﬁnancial statements, the Group has elected to apply the following transitional arrangements permitted by IFRS 1 ’First-time Adoption of International Financial Reporting Standards’: . . . . . Business combinations effected before 1 May 2005, including those that were accounted for using the merger method of accounting under UK accounting standards have not been restated. The carrying amount of capitalised goodwill at 30 April 2005 that arose on business combinations accounted for using the acquisition method under UK GAAP was frozen at this amount and tested for impairment at 1 May 2005 Goodwill written-off directly to reserves on business combinations effected before 1 January 1998 has not retrospectively been capitalised and will not be transferred to the income statement on the disposal of a subsidiary to which it relates. Only those exchange differences arising on the retranslation of foreign operations since 1 May 2005 have been recognised as a separate component of equity. IFRS 2 ’Share-based payments’ has been applied to employee options granted after 7 November 2002 that had not vested at the date of transition, 1 May 2005. Except as noted above, the following principal accounting policies have been applied consistently in the preparation of these ﬁnancial statements: Standards, Amendments and Interpretations Effective But Not Relevant The following standards, amendments and interpretations to the published standards are mandatory for accounting periods beginning on or after 1 May 2006 but they are not relevant to the Group for the year ended 30 April 2007. — — IAS 19 (Amendment) — Employee Beneﬁts IAS 28 — Investments in Associates Newmark Security PLC 20 — — — — — — — — IAS 39 (Amendment) — Cash Flow Hedge Accounting of Forecast Intragroup Transactions IAS 39 (Amendment) — The Fair Value Option IAS 39 and IRFS (Amendment) — Financial Guarantee Contracts IFRS 6 — Exploration for and Evaluation of Mineral Resources IFRIC 4 — Determining whether an arrangement contains a lease IFRIC 5 — Rights to Interest Arising from Decommissioning, Restoration and Environmental funds IFRIC 6 — Liabilities Arising from Participating in a Speciﬁc Market — Waste Electrical and Electronic Equipment IFRIC 7 — Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinﬂationary Economies. Standards and Interpretations to Existing Standards that are not yet effective and have not been adopted early by the Group The following standards and interpretations to published standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 May 2007 or later periods but which the Group has not adopted early. It is noted that IFRS 8 and IAS 23 (revised) have not yet been endorsed the by the EU. — — — — — — — IFRS 7 — Financial Instruments: Disclosure and the complementary amendment to IAS 1, Presentation of ﬁnancial statements — capital disclosures (applicable for annual periods beginning on or after 1 January 2007). IFRS 7 introduces new disclosures of qualitative and quantitative information about exposure to risks. This is not expected to have an impact on the classiﬁcation or valuation of the Group’s ﬁnancial instruments. IFRS 8 — Operating Segments (effective for annual periods beginning on or after 1 January 2009). IFRS 8 requires revision to the identiﬁcation of segments, the explanations of the basis on which the segment information is prepared, and provide reconciliations to the amounts recognised in the income statement and balance sheet. This is not expected to affect reported net assets or net proﬁt. IFRIC 10 — Interim Financial Reporting and Impairment (effective for annual periods beginning on or after 1 November 2006). IFRIC 10 prohibits impairment losses recognised in an interim period on goodwill, investments in equity instruments and investments in ﬁnancial assets carried at cost to be reversed at a subsequent balance sheet date. This is not expected to have any impact on the accounts. IFRIC 9 — Reassessment of Embedded Derivatives (effective for annual periods beginning on or after 1 June 2006). IFRIC 9 requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity ﬁrst becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that signiﬁcantly modiﬁes the cash ﬂows that otherwise would be required under the contact, in which case reassessment is required. The Group does not expect IFRIC 9 to have a material impact. IFRIC 11 — IFRS 2: Group and Treasury Share Transactions (effective for annual periods beginning on or IFRIC 11 contains guidance on how an entity should account for share-based after 1 March 2007). payment involving an entity’s own equity instruments in which the entity chooses or is required to buy its own equity instruments to settle the shares-based payment obligation. It also contains guidance on the treatment when a parent grants rights to it equity instruments to employees of its subsidiary or a subsidiary grants rights to equity instruments of its parent to its employee in the individual entities’ ﬁnancial statements. IFRIC 11 is not expected to have an impact on the Group because it does not intend nor is it required to purchase its own equity instrument to settle the share-based payment obligation, and the individual entities do not produce accounts under IFRSs. IFRIC 12 — Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008). IFRIC 12 clariﬁes how certain aspects of existing IASB literature are to be applied to service concession arrangements. IFRIC 12 is not relevant to the Group’s operations. IAS 23 (revised) — Borrowing costs (effective for borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009). IAS 23 (revised) requires the capitalisation of interest on qualifying assets, while these qualifying assets include development intangibles, it is not anticipated that the standard will have a material impact on proﬁt or net assets. Newmark Security PLC 21 Revenue 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. Basis of consolidation Where the company has the power, either directly or indirectly, to govern the ﬁnancial and operating policies of it is classiﬁed as a subsidiary. The another entity or business so as to obtain beneﬁts from its activities, consolidated ﬁnancial statements present formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. the Group as if the results of it Business combinations The consolidated ﬁnancial statements incorporate the results of business combinations using the purchase method other than disclosed above (see ’ﬁrst-time adoption’). In the consolidated balance sheet, the acquiree’s liabilities and contingent liabilities are initially recognised at their fair values at the identiﬁable assets, acquisition date. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal as appropriate. Goodwill Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identiﬁable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Goodwill income statement. is capitalised as an intangible asset with any impairment in carrying value being charged to the Where the fair value of identiﬁable assets, consideration paid, the excess is credited in full to the income statement. liabilities and contingent liabilities exceed the fair value of Impairment of non-ﬁnancial assets Impairment tests on goodwill and other intangible assets with indeﬁnite useful economic lives are undertaken annually on 30 April. Where the carrying value of an asset exceeds its recoverable amount (ie the higher of value in use and fair value less costs to sell), the asset is written down accordingly. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects the current market assessment of the time value of money and risk speciﬁc to the asset. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash-generating unit (ie the lowest group of assets in which the asset belongs for which there are separately identiﬁable cash ﬂows). Goodwill is allocated on initial recognition to each of the Group’s cash-generating units that are expected to beneﬁt from the synergies of the combination giving rise to the goodwill. Impairment charges are included in the administrative expenses line item in the income statement. An impairment loss in respect of goodwill In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised. is not reversed. In testing for impairment, management has to make judgements and estimates about future events which are uncertain. Adverse results compared to these judgements could alter the decision of whether an impairment is required. Foreign currency Items included in the ﬁnancial statements of each of the Group entities are measured using the currency of the primary economic environment in which the entity operates (the ‘‘functional currency’’). The consolidated ﬁnancial statements are presented in sterling, which is the Company’s functional and presentation currency. Transactions entered into by Group entities in a currency other than the functional currency of the primary economic environment in which it operates are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Newmark Security PLC 22 Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation. The results and ﬁnancial position of all Group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) assets and liabilities are translated at the closing rate at the date of the balance sheet; income and expenses are translated at average exchange rates; and (iii) all resulting exchange differences are recognised as a separate component of equity. On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at average rate are recognised directly in equity (the ‘‘foreign exchange reserve’’). Exchange differences recognised in the income statement of Group entities’ separate ﬁnancial statements on the translation of long-term monetary items forming part of the group’s net investment in the overseas operation concerned are reclassiﬁed to the foreign exchange reserve if the item is denominated in the functional currency of the Group or the overseas operation concerned. At the date of the transition to IFRS the cumulative translation differences for foreign operations have been deemed to be zero. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the proﬁt or loss on disposal. Financial assets Loans and receivables: These assets are non-derivative ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are carried at amortised cost. Other ﬁnancial liabilities: Other ﬁnancial liabilities include the following items: . . Trade payables and other short-term monetary liabilities, which are recognised at amortised cost. Bank borrowings are initially recognised at fair value. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. ‘‘Interest expense’’ in this context includes initial transaction costs, as well as any interest or coupon payable while the liability is outstanding. Share-based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Equity settled share options are recognised with a corresponding credit to equity. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisﬁed, a charge is made irrespective of whether the market vesting conditions are satisﬁed. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a ‘‘ﬁnance lease’’), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the fair value, or if lower, the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the income statement over the Newmark Security PLC 23 period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an ‘‘operating lease’’), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term. The land and buildings elements of property leases are considered separately for the purposes of lease classiﬁcation. Internally generated intangible assets (research and development costs) Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on internally developed products is capitalised if it can be demonstrated that: . . . . . . it is technically feasible to develop the product for it to be sold; adequate resources are available to complete the development; there is an intention to complete and sell the product; the group is able to sell the product; sale of the product will generate future economic beneﬁts; and expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the Group expects to beneﬁt from selling the products developed. The amortisation expense is included within the cost of sales line in the income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the income statement as incurred. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current Tax The tax currently payable is based on taxable proﬁt for the year. Taxable proﬁt differs from proﬁt as reported in the income statement because it excludes items of income or expense that are taxable or deductable in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs to its tax base, except for differences arising on: . . . . the initial recognition of goodwill; goodwill for which amortisation is not tax deductible; the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable proﬁt; and investments in subsidiaries and jointly controlled entities where the group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable proﬁt will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax balances are not discounted. Deferred tax assets and liabilities are offset when the group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: . the same taxable group company; or Newmark Security PLC 24 . different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which signiﬁcant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Property, plant and equipment Items of property, plant and equipment are recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items. The corresponding liability is recognised within provisions. Freehold land is not depreciated. Depreciation is provided on all other items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Freehold buildings Short leasehold improvements Plant and machinery Fixtures and ﬁttings Computer equipment Motor vehicles — — — — — — 5 per cent. per annum straight line evenly over the length of the lease 20 per cent. per annum straight line 10 per cent. per annum straight line 25 per cent. per annum straight line 25 per cent. per annum reducing balance Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Weighted average cost is used to determine the cost of ordinarily interchangeable items. Net realisable value is the estimated selling price in the ordinary course of business, necessary to make the sale. less estimated costs Provisions Provisions are recognised for liabilities of uncertain timing or amount that have arisen as a result of past transactions, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the estimated cashﬂow required to settle the obligation then its carrying value is the present value of those cashﬂows. Onerous contracts — Present obligations arising under onerous contacts are recognised and measured as a provision. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic beneﬁts expected to be received under it. Dilapidations — Dilapidation provisions are provided on leasehold properties where the terms of the lease require the Group to make good any changes made to the property during the period of the lease. Where a dilapidation provision is required the Group recognises an asset and provision equal to the discounted cost of restating the property to its original state. The asset is depreciated over the remaining term of the lease. Warranty — Provisions for warranty costs are recognised at the date of sale of the relevant products at the directors’ best estimate of the expenditure required to settle the Group’s obligation. Cash and cash equivalents Cash and cash equivalents in the cash ﬂow statement include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included in borrowings in current liabilities in the balance sheet. Derivative ﬁnancial instruments if later, on the date a Derivatives are initially recognised at fair value at the date of transition to IAS or, derivative is entered into. Derivatives are subsequently re-measured at their fair value at each balance sheet date. The resulting gain or loss is recognised immediately in the income statement. The fair value of derivatives has been determined by using market data and the use of established estimation techniques such Newmark Security PLC 25 as discounted cash ﬂow and option valuation models. Derivatives embedded in other ﬁnancial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in proﬁt or loss. Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred. Critical accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by deﬁnition, seldom equal the related actual results. These estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a signiﬁcant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year are discussed below. (a) (b) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. Development costs on internally developed products are capitalised if it can be demonstrated that the expenditure meets the criteria set out in note 1. These judgements are made using the historical, commercial and technical experience of senior members of the management team. First time adoption of International Financial Reporting Standards (IFRS) 2. Reconciliations and explanatory notes on how the transition to IFRS has affected proﬁt and net assets previously reported under UK Generally Accepted Accounting Principles are given below: Proﬁt and loss account reconciliation for the year ended 30 April 2006 Sub-note (ii) (ii)/(iii) UK GAAP »’000 12,159 (7,317) Adjustments »’000 (320) 354 IFRS »’000 11,839 (6,963) 4,876 (3,895) — 981 (102) 31 147 1,057 (149) (519) 389 — 389 4,842 (4,480) (192) 170 (311) 31 (251) (361) (58) — (419) — (419) 34 585 192 811 209 — 398 1,418 (91) (519) 808 — 808 Turnover Cost of sales Gross proﬁt Administrative expenses Loss on disposal/closure of subsidiary Proﬁt from operations Finance costs Finance income Other ﬁnance losses (i), (ii) and (iv) (ii) (ii) (v) (Loss)/proﬁt before tax Corporation tax expense Post-tax loss related to discontinued operations (ii), (iii), (iv), (vi), (vii) and (viii) (ii) (Loss)/proﬁt after tax Dividends Retained (loss)/proﬁt for the year Newmark Security PLC 26 IFRS »’000 803 6,820 115 7,738 1,664 2,898 3,205 7,767 15,505 30 5,037 83 826 491 93 6,560 1,582 3,156 750 169 5,657 — — 45 45 — — — — 45 — — — — — 77 77 — — — — — 77 (32) 12,217 3,288 Balance sheet reconciliation as at 1 May 2005 Sub-note UK GAAP »’000 Adjustments »’000 Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Bank overdraft Trade and other payables Other ﬁnancial liabilities Corporation tax liability Other taxation and social security Provisions Total current liabilities Non-current liabilities Financial liabilities Other creditors Corporation tax Provisions Total non-current liabilities Total liabilities TOTAL NET ASSETS AND EQUITY (vi) (vii) 803 6,820 70 7,693 1,664 2,898 3,205 7,767 15,460 30 5,037 83 826 491 16 6,483 1,582 3,156 750 169 5,657 12,140 3,320 Newmark Security PLC 27 Balance sheet reconciliation as at 30 April 2006 Sub-note UK GAAP »’000 Adjustments »’000 Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Bank overdraft Trade and other payables Other ﬁnancial liabilities Corporation tax liability Employee beneﬁts Current tax liabilities Provisions Total current liabilities Non-current liabilities Financial liabilities Other creditors Employee beneﬁts Provisions Total non-current liabilities Total liabilities TOTAL NET ASSETS AND EQUITY (i)/(iii) (vi) (iv) (vii) 941 6,439 70 7,450 1,256 2,401 1,373 5,030 12,480 — 2,268 1,623 1,324 — 340 28 5,583 301 3,369 — 180 3,850 9,433 3,047 — 505 46 551 — (75) — (75) 476 — — — — — — 77 77 — — — — — 77 399 IFRS »’000 941 6,944 116 8,001 1,256 2,326 1,373 4,955 12,956 — 2,268 1,623 1,324 — 340 105 5,660 301 3,369 — 180 3,850 9,510 3,446 Newmark Security PLC 28 Adjustments Explanations of the adjustments made to the UK GAAP income statement and balance sheets are as follows: Sub-note Explanation (i) (ii) Reversal of the goodwill amortisation charge of £393,000 in the 2006 UK GAAP accounts Transfer of results of discontinued operations to separate line comprising Turnover Cost of sales Gross proﬁt Administrative expenses Loss on disposal/closure of subsidiary Loss from operations Finance costs Tax Post-tax loss related to discontinued operations »’000 320 (242) ______ 78 (288) (192) (402) (209) 92 (519) (iii) (iv) (v) (vi) (vii) (viii) Capitalisation of development costs in cost of sales to intangible assets £112,000 Write off compensation paid to Chairman for change of role from executive to non-executive role £75,000 Adjustment to valuation of warrants attached to loan notes issued by Company, £398,000 Deferred tax recalculated in accordance with IFRS and other IFRS accounting policy changes Holiday pay provision Employee share options granted after 7 November 2002 Cash ﬂow statement for the year ended 30 April 2006 The only changes to the cash ﬂow statement are presentational. The key ones include: . . Presenting a statement showing movements in cash and cash equivalents, rather than just cash. Cash under UK GAAP comprised only amounts accessible in 24 hours without penalty less overdrafts repayable on demand. The components of cash equivalents are shown in note 30. Classifying tax cash ﬂows as relating to operating activities. 3. Revenue Revenue arises from: Sale of goods Provision of services Pro¢t from operations 4. This has been arrived at after charging/(crediting): Staff costs (note 5) Depreciation of property, plant and equipment — owned assets — leased assets Foreign exchange differences Research and development costs Operating lease expense — Plant and machinery — Property Write-down of inventory to net realisable value Audit fees Fees paid to the Group’s auditors for tax services provided to the company and UK subsidiaries (Proﬁt) on disposal of ﬁxed assets Newmark Security PLC 29 2007 »’000 10,320 3,102 13,422 2007 »’000 4,898 241 107 35 618 18 196 — 61 19 (6) 2006 »’000 8,934 2,905 11,839 2006 »’000 4,711 195 107 19 459 53 235 — 47 13 — Staff costs 5. Staff costs (including Executive Directors) comprise: Wages and salaries Short-term non-monetary beneﬁts Deﬁned contribution pension cost Share-based payment expense Employer’s national insurance contributions and similar taxes 2007 »’000 4,142 108 153 38 457 4,898 The average numbers employed (including Executive Director) within the following categories were: Management, sales and administration Production 2007 No. 73 41 114 Key management remuneration (comprising Executive Director and Directors of subsidiary companies); Salaries and beneﬁts 2007 »’000 834 2006 »’000 3,966 137 148 21 439 4,711 2006 No. 75 44 119 2006 »’000 764 Newmark Security PLC 30 Segment information 6. The Group’s primary reporting format for reporting segment information is business segments which reﬂect the management and reporting structure in the Group. Electronic division includes Grosvenor Technology, Newmark Technology and Custom Micro Products, whilst the asset protection division includes Safetell Limited and its afﬁliated companies. Revenue External Intercompany Total Proﬁt before tax Continuing operations Discontinued operations Total Balance sheet Assets Liabilities Net assets Other Capital expenditure — Tangible ﬁxed assets (net) — Intangible ﬁxed assets Depreciation, amortisation and other non- cash expenses Revenue External Intercompany Total Proﬁt before tax Continuing operations Discontinued operations Total Balance sheet Assets Liabilities Net assets Other Capital expenditure (net) — tangible — intangible Depreciation, amortisation and other non- cash expenses Business segments Asset protection division 2007 »’000 Discontinued businesses 2007 »’000 Head of¢ce 2007 »’000 5,981 — 5,981 512 — 512 — — — — (69) (69) Electronic division 2007 »’000 7,441 — 7,441 1,706 — 1,706 10,181 (1,476) 8,705 4,056 (1,908) 2,148 284 (1,634) (1,350) 181 269 147 2006 »’000 6,407 — 6,407 1,114 — 1,114 101 — 187 2006 »’000 5,432 — 5,432 516 — 516 — — 13 2006 »’000 320 — 320 — (611) (611) — — — (713) — (713) 73 (4,366) (4,293) 7 — 1 2006 »’000 — — — (573) — (573) Total 2007 »’000 13,422 — 13,422 1,505 (69) 1,436 14,594 (9,384) 5,210 289 269 348 2006 »’000 12,159 — 12,159 1,057 (611) 446 12,956 (9,510) 3,446 444 112 486 9,176 (1,093) 8,083 3,335 (1,450) 1,885 320 (1,878) (1,558) 125 (5,089) (4,964) 194 112 125 250 — 155 — — 17 — — 189 Newmark Security PLC 31 The Group’s secondary reporting format for reporting segment information is geographic segments. UK Europe USA Other Continuing operation UK Europe USA Other Discontinued operations UK Europe External revenue by location of customers 2006 »’000 10,663 943 431 122 2007 »’000 11,546 925 800 151 13,422 12,159 Revenue 2007 »’000 11,546 925 800 151 13,422 — — — 2006 »’000 10,343 943 431 122 11,839 320 — 320 Total assets by location of assets Net tangible capital expenditure by location of assets 2007 »’000 14,294 284 — — 14,578 2006 »’000 12,643 313 — — 12,956 2007 »’000 289 — — — 289 2006 »’000 444 — — — 444 Segment assets 2007 »’000 2006 »’000 Capital expenditure 2007 »’000 2006 »’000 14,294 — — — 14,294 — 284 284 12,323 — — — 12,323 320 313 633 289 — — — 289 — — — 444 — — 444 — — — 13,422 12,159 14,578 12,956 289 444 7. Finance income and expense Finance income Bank interest received Finance expense Bank borrowings Company loan notes Interest on loan notes for deferred consideration Finance leases Other ﬁnance gains/(losses) Discount charge on deferred consideration Gain on warrant valuation Interest rate adjustment on deferred consideration 2007 »’000 (30) (27) (38) (18) (131) 114 (27) 2007 »’000 30 (113) (44) (127) 2006 »’000 (5) (88) — (9) (251) 398 — 2006 »’000 31 (102) 147 76 Newmark Security PLC 32 8. Tax expense Current tax expense Continuing businesses UK corporation tax and income tax of overseas operations on proﬁts for the year Adjustment for (over)/under provision in prior periods Discontinued businesses UK corporation tax and income tax of overseas operations on proﬁts for the year Adjustment for over provision in prior periods Deferred tax expense Origination and reversal of temporary differences Total tax charge 2007 »’000 2007 »’000 2006 »’000 2006 »’000 329 (40) 5 (26) 79 98 52 289 150 29 (121) (1) (21) 79 347 (92) (1) 57 The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to proﬁts for the year are as follows: Proﬁt before tax Expected tax charge based on the standard rate of corporation tax in the UK of 30 per cent. (2006 — 30 per cent.) Interest discount charge on deferred consideration Effects on proﬁts of other items not deductible for tax purposes Grossing up foreign income Double tax relief Utilisation of previously unrecognised tax losses Adjustment to tax charge in respect of previous periods Losses not utilised Total tax charge 2007 »’000 1,505 2006 »’000 446 451 47 (48) — — (37) (66) — 347 134 78 (73) 2 (8) (39) (69) 32 57 The Group has the following tax losses, subject to agreement by HM Inspector of Taxes, available for affect against future trading proﬁts and capital gains as appropriate: Management expenses Trading losses Capital losses If the losses were to be recognised this would give rise to deferred tax assets as follows: Management expenses Trading losses Capital losses 2007 »’000 523 2,139 792 2007 »’000 157 642 238 2006 »’000 523 2,323 792 2006 »’000 157 697 238 Newmark Security PLC 33 9. Discontinued operations Turnover Cost of sales Gross proﬁt Administrative expense Loss on disposal/closure of subsidiary Loss from operations Finance costs Loss before tax Tax Post-tax loss related to discontinued operations 2007 »’000 — — — — — — (69) (69) 21 (48) The cash ﬂow statement includes the following amounts relating to discontinued operations: Operating activities Investing activities Financing activities 10. Earnings per share Numerator Earnings used in basic and diluted EPS-continuing operations (Losses) used in basic and diluted EPS-discontinued operations 2007 »’000 — — (69) (69) 2007 »’000 1,137 (48) No. 2006 »’000 320 (242) 78 (288) (192) (402) (209) (611) 92 (519) 2006 »’000 (551) (36) — (587) 2006 »’000 908 (519) No. Denominator Weighted average number of shares used in basic and diluted EPS –continuing and discontinued operations 429,437,268 367,856,416 Employee share options have been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the year (i.e. they are out-of-the-money) and therefore would not be advantageous for the holders to exercise those options. Further information concerning share options is set out in note 28. The basic earnings per share before interest discount, losses of discontinued operations, provision for exchange losses and warrant revaluation 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 per share as follows: Basic earnings per share (pence) Discount charge on deferred consideration Losses of discontinued operations Provision for foreign exchange loss Warrant revaluation Earnings per share before interest discount, losses of discontinued operations, provision for foreign exchange loss and warrant revaluation Newmark Security PLC 34 2007 pence 0.25 0.04 0.01 0.03 (0.03) 2006 pence 0.11 0.07 0.14 — (0.11) 0.30 0.21 Reconciliation of earnings Proﬁt used for calculation of basic earnings per share Discount charge on deferred consideration Losses of discontinued operations Provision for foreign exchange loss Warrant revaluation 2007 »’000 1,089 158 48 111 (114) 2006 »’000 389 251 519 — (398) Earnings before interest discount, losses of discontinued operations, provision for foreign exchange loss and warrant revaluation 1,292 761 11. Property, plant and equipment At 30 April 2006 Cost Accumulated depreciation Net book value At 30 April 2007 Cost Accumulated depreciation Net book value Year ended 30 April 2006 Opening net book value Additions Disposed through business combinations Disposals Depreciation Exchange differences Reclassiﬁcations Closing net book value Year ended 30 April 2007 Opening net book value Additions Disposals Depreciation Exchange differences Closing net book value Freehold land and buildings »’000 Short leasehold improvements »’000 Plant, machinery and motor vehicles »’000 Computers, ¢xtures and ¢ttings »’000 322 (113) 209 320 (125) 195 220 — — — (15) 4 — 209 209 — — (12) (2) 195 260 (141) 119 260 (165) 95 38 103 — — (22) — — 119 119 — — (24) — 95 1,227 (712) 515 1,332 (853) 479 462 321 — (22) (215) — (31) 515 515 274 (43) (267) — 479 336 (238) 98 364 (253) 111 83 45 (8) (3) (50) — 31 98 98 58 — (45) — 111 Total »’000 2,145 (1,204) 941 2,276 (1,396) 880 803 469 (8) (25) (302) 4 — 941 941 332 (43) (348) (2) 880 The net book value of tangible ﬁxed assets for the Group includes an amount of £131,244 (2006: £249,901) in respect of assets held under ﬁnance leases and hire purchase contracts. The related depreciation charge on these assets for the year was £106,826 (2006: £107,204). Newmark Security PLC 35 12. Intangible assets At 30 April 2006 Cost Accumulated impairment losses Net book value At 30 April 2007 Cost Accumulated impairment losses Net book value Year ended 30 April 2006 Opening net book value Additions – Internally developed – Through business combinations Closing net book value Year ended 30 April 2007 Opening net book value Additions – Internally developed Discount adjustment on contingent consideration Closing net book value Development costs (internally generated) »’000 Goodwill »’000 6,832 — 6,832 6,755 — 6,755 6,820 — 12 6,832 6,832 — (77) 6,755 112 — 112 381 — 381 — 112 — 112 112 269 — 381 Total »’000 6,944 — 6,944 7,136 — 7,136 6,820 112 12 6,944 6,944 269 (77) 7,136 The group has no contractual commitments for development costs (2006 — £Nil). All development costs have a ﬁnite useful economic life. 13. Goodwill and impairment Details of goodwill allocated to cash generating units for which the amount of goodwill so allocated is signiﬁcant in comparison to total goodwill is as follows: Electronic division Asset protection division Goodwill carrying amount 2007 »’000 5,871 961 6,832 2006 »’000 5,871 961 6,832 The recoverable amounts of all the above CGUs have been determined from value in use calculations based on cash ﬂow projections from formally approved budgets covering a ﬁve year period to 30 April 2012. The discount rate which was applied was 11.8 per cent., the estimated weighted average cost of capital. The trading companies all operate in certain niche markets, each of which can be in part project driven. Therefore the budgets produced take known future projects into account, and allow for historic projects as well. Within the electronic division, market share is assumed to remain unchanged except for these known projects. In the asset protection division, there is a range of products and different assumptions have been made about possibilities of growth for each of these products. Operating margins have been based on historic ﬁgures for each product range and overheads, mainly salaries, are expected to increase in line with inﬂation. The reviews which are carried out at 30 April each year indicated that no impairment provision was necessary. Newmark Security PLC 36 14. Subsidiaries The principal subsidiaries of Newmark Security PLC, all of which have been included in these consolidated ﬁnancial statements, are as follows: Name Newmark Technology Limited(2a) Newmark Technology (C-Cure Division) Limited Newmark Technology S.A. Safetell International Limited Safetell Limited(2b) Safetell Security Screens Limited(2b) Newmark Technology Inc. Vema B.V. Vema N.V.(2c) Vema UK Limited(2d) Grosvenor Technology Limited Newmark Group Limited Sateon Limited Country of incorporation Great Britain Great Britain Belgium Great Britain Great Britain Great Britain USA The Netherlands The Netherlands Great Britain Great Britain Great Britain Great Britain (1) (2) The shares held in all companies are ordinary shares The investments in subsidiary companies are held directly by the Company apart from the following: (a) (b) (c) (d) Owned by Grosvenor Technology Limited Owned by Safetell International Limited Owned by Vema BV 51 per cent., Newmark Security PLC 47 per cent. Owned by Vema NV 15. Inventories Raw materials and consumables Work-in-progress Finished goods and goods for resale Proportion of ownership interest(1) Activity Trading Dormant Dormant Holding Trading Trading Dormant Holding Property Finance Trading Dormant Dormant 100% 100% 100% 100% 100% 100% 100% 100% 98% 100% 100% 100% 100% 2007 »’000 740 178 463 1,381 2006 »’000 728 154 374 1,256 Finished goods include an amount of £Nil (2006: £Nil) carried at fair value less costs to sell. The value of stocks consumed in the year was £4,835,000 (2006: £4,088,000). The amount of stock write downs in the year was £19,000 (2006: £Nil). There are no stocks recoverable after 12 months (2006: £Nil). 16. Trade and other receivables Trade receivables (net) Other receivables Accrued income Prepayments 17. Trade and other payables ç current Trade payables Other tax and social security taxes Other payables Deferred income Accruals Newmark Security PLC 37 2007 »’000 2,651 80 228 237 3,196 2007 »’000 1,205 294 631 572 471 3,173 2006 »’000 2,009 74 223 20 2,326 2006 »’000 949 340 428 466 425 2,608 18. Other short term borrowings Bank loans — secured Mortgage loan-secured Finance lease creditor (note 27) Loan notes Deferred consideration loan notes 2007 »’000 250 10 109 — 3,561 3,930 2006 »’000 — 10 113 1,500 — 1,623 UK subsidiaries of the group use the same principal banker. The Group has entered into a netting arrangement with the bank which enables group companies with bank accounts in surplus to be offset against overdrawn amounts of other group companies, with a Group overdraft facility. The bank loan is secured on the assets of the UK subsidiary companies and is repayable by equal monthly instalments until July 2009. Interest is payable at 2 per cent. above base rate. The mortgage loan is secured on a freehold property in Holland. The loan notes issued by the Company were settled on 24 July 2006, and interest had been payable at 6 per cent. per annum thereon. The deferred consideration loan notes were issued in Euros, are unsecured and not repayable in cash before 1 November 2007. Interest is payable at 1ˇ/4 per cent. below base rate. Information about fair values on the ﬁnancial liabilities is given in note 22. 19. Long term borrowings Bank loans — secured (note 18) Mortgage loan-secured (note 18) Finance lease creditor (note 27) 20. Non-current other creditors Contingent consideration 2007 »’000 313 182 58 553 2007 »’000 — 2006 »’000 — 187 114 301 2006 »’000 3,369 Other creditors at 30 April 2006 comprised the fair value of the contingent consideration payable related to the acquisition of Grosvenor Technology Limited, which was taken to be the estimated amount of cash value discounted to its present value. Settlement by way of loan notes was made in the year. Financial instruments ç Risk Management 21. The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s ﬁnancial performance. The Group’s ﬁnancial instruments comprise cash and liquid resources, and various items such as trade receivables and payables that arise directly from its operations. The Group is exposed through its operations to one or more of the following ﬁnancial risks: . . . . Fair value or cash ﬂow interest rate risk Foreign currency risk Liquidity risk Credit risk Newmark Security PLC 38 The Board identiﬁes and evaluates ﬁnancial risks in conjunction with the Group’s operating companies and the policy for managing these risks is set by the Board following recommendations from the Finance Director. Certain risks are managed centrally, while others are managed locally following guidelines communicated from the centre. The policy for each of the above risks is described in more detail below, with the accounting policies as set out in Note 1. Fair value and cash ﬂow interest rate risk External group borrowings (excluding ﬁnance lease payables) are managed centrally and operating companies are not permitted to borrow long term from external sources locally. Although the Board accepts that this neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash ﬂow risk associated with interest payments, it considers that it achieves an appropriate balance of exposure to these risks. Foreign currency risk Foreign exchange risk arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. Where it is considered that the risk to the Group is signiﬁcant, a matching forward contract will be entered into with a reputable bank. Liquidity risk The liquidity risk of each group entity is managed centrally and the Group maintains a draw down facility with a major banking corporation to manage any unexpected short-term cash shortfalls. Credit risk The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. The maximum exposure to credit risk is represented by the carrying amount of each ﬁnancial asset in the balance sheet. Cash deposits are made with reputable high street banks. Financial assets and liabilities ç Numerical information 22. Maturity of ﬁnancial liabilities The carrying amounts of ﬁnancial liabilities, all of which are exposed to cash ﬂow or fair value interest rate risk, are repayable as follows: In less than one year In more than one year but not more than two years In more than two years but not more than three years In more than three years but not more than four years In more than four years but not more than ﬁve years In more than ﬁve years 2007 »’000 3,930 311 80 10 10 142 4,483 2006 »’000 1,623 99 34 10 10 148 1,924 Borrowing facilities The Group has undrawn committed borrowing facilities available at 30 April 2007 in which all conditions have been met. Expiry within 1 year Floating rate »’000 2,448 Fixed rate »’000 — 2007 Total »’000 2,448 2006 Total »’000 1,242 Newmark Security PLC 39 Interest rate risk The currency and interest proﬁle of the Group’s ﬁnancial assets and liabilities after taking account of interest rate swaps are as follows: Sterling Euro Sterling Euro Sterling Sterling Floating rate liabilities 2007 »’000 563 3,561 Fixed rate liabilities 2007 »’000 167 192 4,124 359 Floating rate liabilities 2006 »’000 — — Fixed rate liabilities 2006 »’000 1,727 197 Interest free liabilities 2007 »’000 — — Interest free liabilities 2006 »’000 — — — 1,924 — Floating rate assets 2007 »’000 1,948 Floating rate assets 2006 »’000 1,373 Fixed rate assets 2007 »’000 — Fixed rate assets 2006 »’000 — Interest free assets 2007 »’000 — Interest free assets 2006 »’000 — Total »’000 730 3,753 4,483 Total »’000 1,727 197 1,924 Total »’000 1,948 Total »’000 1,373 The weighted average interest rate of ﬁxed rate liabilities and the weighted average period for which they are ﬁxed is as follows: Sterling Euro Rate 2007 % 4.0 6.1 5.1 Period 2007 Years 0.9 20.0 11.1 Rate 2006 % 6.1 6.1 6.1 Period 2006 Years 0.4 21.0 1.6 Newmark Security PLC 40 Fair values The book value and fair value of ﬁnancial liabilities are as follows: Bank loans Mortgage loan Finance lease creditor Company loan notes Deferred consideration loan notes Book value 2007 »’000 563 192 167 — 3,561 4,483 Fair value 2007 »’000 517 118 157 — 3,561 4,353 Book value 2006 »’000 — 197 227 1,500 — 1,924 Fair value 2006 »’000 — 108 211 1,478 — 1,797 Fair values of ﬁnancial liabilities have been determined by discounting cash payments at prevailing market rates of interest having regard to the speciﬁc risks attaching to them. The fair values of all other monetary assets and liabilities at 30 April 2006 and 2007 is equal to their book value. 23. Provisions At 1 May 2006 Released in year At 30 April 2007 Due within one year or less Due after more than one year Rental provision contracts »’000 104 Leasehold dilapidations »’000 84 Warranty »’000 20 Holiday pay »’000 77 (16) 88 16 72 88 — 84 — 84 84 — 20 20 — 20 — 77 77 — 77 Total »’000 285 (16) 269 113 156 269 The rental provision related to the excess of Safetell’s contractual legal obligation at date of acquisition over the market rental, and will be reversed over the remaining six years of the lease. Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. On recognition of the initial provision, an equal amount was recognised as part of the cost of the leasehold improvements. This cost is recognised as depreciation of leasehold improvements over the remaining term of the lease. The main uncertainty relates to estimating the cost that will be incurred at the end of the lease. 24. Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 30 per cent. (2006: 30 per cent.). The movement on the deferred tax account is as shown below: (Asset)/liability At 1 May Income statement At 30 April Group 2007 2006 (116) 79 (37) (115) (1) (116) Deferred tax assets have been recognised in respect of all temporary timing differences giving rise to deferred tax assets because it is probable that these assets will be recovered. Newmark Security PLC 41 The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS12) during the period are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. Details of the deferred tax liability, and amounts charged/(credited) to the consolidated income statement and amounts charged/(credited) to reserves are as follows: (Asset)/ Liability 2007 »’000 (42) 75 (70) Charged/ (credited) to income 2007 »’000 (12) 91 — (37) 79 (Asset)/ Liability 2006 »’000 (30) (16) (70) (116) Charged/ (credited) to income 2006 »’000 (13) 7 — (6) 2007 »’000 967 2006 »’000 1,022 Accelerated capital allowances Other temporary and deductible differences Available losses Accelerated capital allowances Other temporary and deductible differences Available losses A deferred tax asset has not been recognised for the following: Unused tax losses 25. Share capital Ordinary shares of 1p each Ordinary shares of 1p each At beginning of the year Other issues 2007 Number 1,015,164,192 Authorised 2007 » 10,151,642 2006 Number 1,015,164,192 2007 Number Issued and fully paid 2007 » 2006 Number 373,957,816 75,000,000 3,739,578 750,000 361,755,016 12,202,800 2006 » 10,151,642 2006 » 3,617,550 122,028 3,739,578 At end of the year 448,957,816 4,489,578 373,957,816 Newmark Security PLC 42 26. Reserves At 1 May 2005 Proceeds on share issue Translation differences on overseas operations Share-based payment provision Proﬁt for the year At 30 April 2006 At 30 April 2006 Translation differences on overseas operations Share-based payments provision Proﬁt for the year Reclassiﬁcation between reserves Share premium »’000 432 61 Merger reserve »’000 801 — Retained earnings »’000 (2,271) — Foreign exchange reserve »’000 — — Warrant reserve »’000 646 — — — — 493 493 — — — — — — — 801 801 — — — — — 21 389 (1,861) (1,861) — 38 1,089 134 (600) (39) — — (39) (39) 1 — — — (38) — — (398) 248 248 — — (114) (134) — At 30 April 2007 493 801 The share premium account represents the excess of the market value of shares issued over the nominal value of those shares, less expenses. The merger reserve arose in the year ended 30 April 2003 when the Company made an offer to the Global Depository Receipt (‘‘GDR’’) holders of Vema N.V. for the 49 per cent. of the issued share capital of that company not already owned by the Group. The offer represents 1.5 Newmark shares for each GDR and the merger reserve represented the excess of market value over nominal value of the shares issued. Retained earnings represents the cumulative amount of retained proﬁts/losses each year as reported in the income statement, plus the exchange differences on the retranslation of foreign operations up to 1 May 2005 (the date of transition to IFRS). Foreign exchange reserve represents the cumulative exchange differences on the retranslation of foreign operations from 1 May 2005. The warrant reserve arose from the valuation of warrants attached to loan notes issued by the Company as adjusted by the subsequent revaluations of those loan notes at 30 April 2006 and at exercise date. Leases 27. Finance leases Future lease payments are due as follows: Not later than one year Later than one year and not later than ﬁve years Not later than one year Later than one year and not later than ﬁve years Newmark Security PLC 43 Minimum lease payments 2007 »’000 119 65 Interest 2007 »’000 10 7 184 17 Minimum lease payments 2006 »’000 124 128 Interest 2006 »’000 11 14 252 25 Present value 2007 »’000 109 58 167 Present value 2006 »’000 113 114 227 The present value of future lease payments are analysed as: Current liabilities Non-current liabilities 2007 »’000 109 58 167 2006 »’000 113 114 227 Operating leases — lessee The Group leases the majority of its properties. The terms of property leases vary, although they all tend to be tenant repairing with rent reviews every 2 to 5 years. Commitments under non-cancellable operating leases expiring: Not later than one year Later than one year and not later than ﬁve years Later than ﬁve years 2007 »’000 7 91 815 913 2006 »’000 6 135 963 1,104 Share-based payment 28 The Group has operated two share option schemes, a HM Custom & Revenue Approved Share Option Scheme and an Unapproved Share Option Scheme. The schemes require that exercise of options be subject to the satisfaction of certain performance criteria. Rights over share options will be forfeited after leaving the Group’s employment. 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 October 2005 Total Subscription Price payable 14.5p 8.25p 5p 2p 1.5p 2007 Approved 28,000 250,000 125,000 125,000 7,000,000 2006 Unapproved 28,000 250,000 125,000 6,075,000 7,000,000 2007 Approved 28,000 250,000 125,000 125,000 7,000,000 2006 Unapproved 28,000 250,000 125,000 6,075,000 7,000,000 7,528,000 13,478,000 7,528,000 13,478,000 The options may be exercised within 10 years from the date of issue. The remaining weighted average contractual lives for Approved and Unapproved Options were 8.1 and 6.9 years respectively (2006: 9.1 and 7.9). Of the total number of options outstanding at the end of the year 528,000 Approved and 6,478,000 Unapproved (2006: same) had vested at the end of the year. There were no options granted or exercised during the year. The following information is relevant in the determination of the fair value of options granted during the year under the equity settled share-based remuneration schemes operated by the Group. Option pricing model used: Binomial option pricing model Share price at grant date: 1.36p Exercise price: 1.5p Estimated period to exercise of options: 10 years Expected volatility: 69 per cent. Risk-free interest rate: 4.23 per cent. Dividends: nil The volatility assumption was based on a statistical analysis of daily share prices over a period of 5 years. Newmark Security PLC 44 The share based remuneration expense for equity settled schemes was £38,000 (2006: £21,000). 29. Related party transactions Details of directors’ remuneration are given in the Remuneration Report on page 13. The Group has not made any provision for bad or doubtful receivables in respect of related party debtors nor has any guarantee been given or received during 2007 or 2006 regarding related party transactions. 30. Notes supporting cash £ow statement Cash and cash equivalents comprises: Cash available on demand Net cash increase/(decrease) in cash and cash equivalents Changes in foreign exchange rates Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Signiﬁcant non-cash transactions are as follows: Financing activities Proceeds from ﬁnance lease creditor Debt converted into equity Share issues to settle expenses 2007 »’000 1,948 575 — 1,373 1,948 94 750 — 844 2006 »’000 1,373 (1,802) — 3,175 1,373 140 — 184 324 Newmark Security PLC 45 2007 »’000 16,587 6 16,593 2006 »’000 717 74 791 16 28 44 (12,816) (11,598) COMPANY BALANCE SHEET COMPANY BALANCE SHEET 30 April 2007 ç UK GAAP Financial Statements Note 2007 »’000 Fixed assets Investment in subsidiary Tangible assets Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year Accruals and deferred income Net assets Capital and reserves Called up share capital Share premium account Merger reserve Proﬁt and loss account 3 4 5 6 7 8 9 9 9 (12,772) 3,821 (313) (108) 3,400 4,490 493 801 (2,384) 3,400 2006 »’000 16,587 — 16,587 (10,807) 5,780 (3,369) (201) 2,210 3,740 493 801 (2,824) 2,210 Shareholder’s funds-Equity 10 The notes of pages 47 to 50 from part of these ﬁnancial statements. These ﬁnancial statements were approved by the Board of Directors and authorised for issue on 16 July 2007. M Dwek Director Newmark Security PLC 46 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTES FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 April 2007 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 accounts have been prepared on the going concern basis. The following principal accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s ﬁnancial statements. Proﬁt and Loss Account Under Section 230(4) of the Companies Act 1985 the Company is exempt from the requirement to present its own proﬁt and loss account. The loss for the year ended 30 April 2007 is disclosed in note 10. The charge for taxation is based on the loss for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Depreciation Depreciation is provided to write off the cost, less estimated residual values, of all ﬁxed assets evenly over their expected useful lives. It is calculated at the following rates: Computer equipment Fixtures and ﬁttings — 33 1/3 per cent. per annum straight line — 15 per cent. per annum straight line Valuation of investments Investments held as ﬁxed assets are stated at cost less any provision for impairment. Deferred taxation Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date except that the recognition of deferred tax assets is limited to the extent that the company anticipates to make sufﬁcient taxable proﬁts in the future to absorb the reversal of the underlying timing differences. Deferred tax balances are not discounted. Leased assets Operating lease rentals are charged to the proﬁt and loss account on a straight-line basis over the term of the lease. 2. Employees and staff costs The average number of employees, including directors, during the period was: Ofﬁce and management Staff costs (including Executive Director) comprise: Wages and salaries Employer’s national insurance contributions and similar taxes 2007 Number 2006 Number 2 2 2007 »’000 2006 »’000 123 14 137 117 13 130 Newmark Security PLC 47 3. Investment in subsidiary Cost At 30 April 2006 and 2007 Net book value 30 April 2006 and 2007 The subsidiaries of Newmark Security PLC, are as follows: Name Newmark Technology (C-Cure Division) Limited Vema B.V. Newmark Technology S.A. Safetell International Limited Newmark Technology Inc. Grosvenor Technology Limited Newmark Group Limited Sateon Limited 4. Tangible assets »’000 16,587 16,587 Proportion of ownership interest 100% 100% 100% 100% 100% 100% 100% 100% Country of incorporation Great Britain The Netherlands Belgium Great Britain USA Great Britain Great Britain Great Britain Computers Fixtures & Fittings »’000 Total »’000 23 7 (23) 7 23 1 (23) 1 6 — 23 7 (23) 7 23 1 (23) 1 6 — 2007 »’000 6 10 — 16 2006 »’000 14 78 625 717 Cost At 1 May 2006 Additions Disposals At 30 April 2007 Depreciation At 1 May 2006 Charge for the year Eliminated in respect of Disposals At 30 April 2007 Net book value At 30 April 2007 At 30 April 2006 5. Debtors Other debtors Prepayments Amount due from group undertaking All amounts shown under debtors fall due for payment within one year. Newmark Security PLC 48 6. Creditors: amounts falling due within one year Loan (note below) Loan notes Deferred consideration loan notes (note below) Amount due to group undertakings Other taxation and social security 2007 »’000 250 — 3,611 8,950 5 12,816 2006 »’000 — 1,500 2 10,090 6 11,598 The loan is repayable by equal monthly instalments, and is secured on the assets of the Group. Interest is payable at 2 per cent. above base rate. The loan notes issued by the Company were settled on 24 July 2006, and interest had been payable at 6 per cent. per annum thereon. The deferred consideration loan notes are denominated in Euros and derive from the contingent consideration payable on the acquisition of Grosvenor Technology Limited. The loan notes are unsecured and payable in cash on 1 November 2007 at the earliest. Interest is payable at 1ˇ/4 per cent. below base rate. 7. Creditors: amounts falling due after more than one year Loan (see note 6) Other creditors 2007 »’000 313 — 313 2006 »’000 — 3,369 3,369 Other creditors at April 2006 comprised the fair value of the contingent consideration payable related to the acquisition of Grosvenor Technology Limited, which was taken to be the estimated amount of cash value discounted to its present value. Settlement by way of loan notes was made in the year. 8. Share capital Authorised: 1,015,164,192 Ordinary shares of 1p each (2006: 1,015,164,192) Allotted, called up and fully paid: 448,957,816 Ordinary shares of 1p each (2006: 373,957,816) 9. Reserves At 1 May 2006 Retained proﬁt for the year At 30 April 2007 2007 » 2006 » 10,151,642 10,151,642 4,489,578 3,739,578 Share premium account »’000 493 — Merger reserve »’000 801 — Pro¢t and loss account »’000 (2,824) 440 493 801 (2,384) Newmark Security PLC 49 10. Reconciliation of movements in shareholder’s funds Opening shareholder’s funds Loss for the year New share capital subscribed Closing shareholder’s funds 2007 »’000 2,210 440 750 3,400 2006 »’000 2,067 (41) 184 2,210 Financial commitments 11. There was a ﬁxed and ﬂoating charge over the assets of the company in favour of the holder of Loan Notes issued by the parent undertaking, Newmark Security PLC on 24 July 2003. As at 30 April 2007 loan notes in the sum of £Nil were in issue (2006: £1,500,000), the loan notes having been settled in the year. 12. Commitments under operating leases At 30 April 2007 the company had annual commitments under non-cancellable operating leases as follows: Expiring within one year 2007 Land and buildings »’000 27 2006 Land and buildings »’000 27 Newmark Security PLC 50 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the Annual General Meeting of Newmark Security PLC will be held at 57 Grosvenor Street, London W1K 3JA on 10 September 2007 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 2007. 2. 3. 4. To re-appoint Maurice Dwek 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. To approve the adoption of the Newmark Security PLC EMI Share Option Plan (‘‘the Scheme’’) constituted by the rules produced in draft to this meeting and signed by the Chairman for the purposes of identiﬁcation (the principal terms of which are summarised in Appendix 1 to this Notice) be approved; and that the Directors be authorised to adopt the rules (subject to such modiﬁcations as the Directors may consider necessary or desirable) and do all acts and things necessary or expedient to operate the Scheme. SPECIAL BUSINESS 5. if thought ﬁt, to pass the following Resolution as an Ordinary Resolution: That the To consider and, 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 £1,496,526; 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. 6. 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; and (b) the allotment otherwise than pursuant to sub-paragraph (a) above of equity securities up to an aggregate nominal amount of £897,916, 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 16 July 2007 Registered Ofﬁce 57 Grosvenor Street London W1K 3JA Notes: 1. 2. 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. Newmark Security PLC 51 3. 4. 5. 6. 7. 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 7 September 2007 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) 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 2008. 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. Newmark Security PLC 52 APPENDIX 1 Newmark Security PLC EMI Share Option Plan (‘‘the Scheme’’) The Scheme is a share option scheme, pursuant to which employees and directors may be granted options to acquire shares in the Company (‘‘Options’’). It is proposed that tax efﬁcient Options be granted under the Scheme (‘‘EMI Options’’). There are individual limits on the value of shares in the Company that can be subject to EMI Options. Therefore, it is also possible to grant Options under the Scheme on a non-tax efﬁcient basis (‘‘Unapproved Options’’). It is proposed that the Company will adopt the Scheme and grant Options after the resolution to approve the Scheme is passed by shareholders. The Scheme will be administered by the Remuneration Committee. The headline features of the Scheme may be summarised as follows: Eligibility including executive directors, of the Company will be eligible to be granted Options. EMI Any employees, Options can be granted provided that the employees or directors meet the requirement as to commitment of working time, being at least 25 hours per week or, if less, 75 per cent. of working time. Any individual holding a ‘‘material interest’’ (being 30 per cent. or more) in the shares in the Company will be precluded from receiving an EMI Option. Where the employee or director cannot receive an EMI Option, an Unapproved Option may be granted instead. Options cannot be granted to individuals who are not employees or directors. Grant of Options The Remuneration Committee may at its discretion grant Options under the Scheme to selected employees and executive directors. The Remuneration Committee will determine the price at which shares in the Company may be acquired on the exercise of an Option (‘‘the Exercise Price’’) which price will be the higher of nominal value and market value at the date of grant. Market value means the price agreed with the HM Revenue and Customs, but will generally be the closing middle market quotation of an Ordinary Share as derived from the London Stock Exchange for the immediately preceding dealing day. Limits Ordinary Shares acquired under the Scheme may be either newly issued or purchased on the market. Grants of options to subscribe for Ordinary Shares under the Scheme or any other employee share scheme within any ten year rolling period may not exceed an overall limit of 10 per cent. of the issued share capital of the Company. Vesting of EMI and Unapproved Options EMI and Unapproved Options will vest (to the extent they have not already lapsed) and become exercisable on the earliest of the following events: (i) (ii) (iii) (iv) 3 years after the date of grant or such other period, dates or events speciﬁed by the Remuneration Committee; upon a change in control of the company, but excluding a reorganisation whereby a new holding company acquires the Company by way of share exchange where there is identity, or substantial identity, of the holders of Shares before, and of shares of the new holding company after, such share exchange; the death of the employee; or the cessation of employment of the Participant by reason of a deﬁned Good Leaver provision. Cessation of employment An Option held by an Option holder who ceases employment with the Company or its group for any reason other than death, or a deﬁned Good Leaver provision, will lapse in full on the date of such cessation of employment. For these purposes a Good Leaver is deﬁned as an employee who ceases to be employed by reason of: (i) injury or disability (in each case as evidence to the satisfaction of the Board); Newmark Security PLC 53 (ii) (iii) (iv) (v) being a female employee who is absent from work by reason of pregnancy or conﬁnement, when she ceases to be entitled to exercise her right to return to work under the Employment Rights Act 1996; the company by which he is employed or engaged leaving the Group; the transfer or sale of the undertaking or part-undertaking in which the Participant is employed and by virtue of which he is an Eligible Employee to a person other than a member of the Group; or by reason of the termination of his employment by his employing company in circumstances other than those stated above and not involving misconduct or impropriety on his part (in relation to which the determination of the Board in any case shall be conclusive). If an Option holder ceases to be employed by the Company or its group by reason of a Good Leaver provision then the Option will vest and become exercisable in full on the date of such cessation of employment, irrespective of the attainment of a performance condition. In this scenario the option holder will have a given period (six months, or twelve months in the case of cessation by reason of death) within which to exercise the Option. Takeover In the event of a change of control of the Company, liquidation or similar corporate event, the Options will vest in full and become exercisable irrespective of the performance conditions (save in the event that a change of control is effected on the voluntary winding-up of the company in which case both the initial holding period and performance conditions must have been satisﬁed). If another company obtains control of the Company in certain circumstances, existing Options may be exchanged for new options over shares in the acquiring company, if it so agrees. New options must be broadly equivalent to the original Options. Exercise of Options Options will be exercisable on payment of the Exercise Price and any liability arising to income tax and National Insurance. The rules are drafted to allow the Company’s employer’s National Insurance liability to be passed on to the employees. In the event of the Scheme no longer qualifying under the EMI legislation (i.e. due to the occurrence of a ‘‘disqualifying event’’ relating to the Company), the EMI Options may be exercised at the discretion of the Remuneration Committee within a period of 40 days following the event. Alternatively the EMI Options will continue to subsist under the Scheme but the beneﬁcial tax treatment will be reduced. In any event, unexercised Options under the Scheme will lapse on the tenth anniversary of the date of grant. Performance Conditions The exercise of an Option may be made subject to the achievement of a speciﬁc performance condition, as determined by the Remuneration Committee. If events occur which cause the Remuneration Committee to consider that any existing performance conditions have become unfair or impractical, they will retain discretion to relax, amend or waive such conditions. Issue of Ordinary Shares Ordinary Shares acquired under the Scheme will rank pari passu with Ordinary Shares in issue. Participants will be entitled to dividends where the relevant record date falls after the exercise date. Where Ordinary Shares are to be admitted to AIM, the Company will apply for admission of such Ordinary Shares. Variations of Ordinary Share Capital If the issued Ordinary Share capital of the Company is varied on a capitalisation, consolidation or reduction of capital or a rights issue or other variation in the share capital, on the advice of the auditors and with the approval of HM Revenue and Customs where necessary, the Exercise Price or the number of Ordinary Shares comprised in an Option may be adjusted. No such adjustment may reduce the Exercise Price per Ordinary Share for Options where Ordinary Shares are to be allotted under the Scheme below its nominal value unless the Remuneration Committee is authorised to capitalise from reserves a sum equal to the excess. Newmark Security PLC 54 Rights Not Pensionable Rights and beneﬁts conferred upon participating employees and executive directors under the Scheme will not be taken into account for the purposes of determining remuneration for pension, bonus or proﬁt sharing purposes, and shall not form part of the employee’s contract of employment. Amendment/Administration The Remuneration Committee may amend the Scheme as it in its discretion may determine. Newmark Security PLC 55 greenaways. 172025

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