Report and Financial Statements Year ended 30 April 2008 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 OF THE COMPANY NOTICE OF ANNUAL GENERAL MEETING Page 2 3 6 11 12 14 18 45 46 50 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 office: B. Beecraft, 57 Grosvenor Street, London W1K 3JA Company number: 3339998 Auditors: BDO Stoy Hayward LLP, 55 Baker Street, London W1U 7EU Nominated Adviser: Seymour Pierce Limited, 20 Old Bailey, London EC4M 7EN Brokers: Registrars: Dowgate Capital PLC, Talisman House, Jubilee Walk, Three Bridges, Crawley, West Sussex RH10 1LQ Capita Registrars, Northern House, Woodsome Park, Feney Bridge, Huddersfield, West Yorkshire HD8 0LA Solicitors: Field Fisher Waterhouse, 35 Vine Street, London EC3N 2AA Newmark Security PLC 2 CHAIRMAN’S STATEMENT Overview The year has been a period of further growth across all divisions. The merger of Grosvenor Technology Limited (“GT”) and Custom Micro Products Limited (“CMP”) was completed on 31 January 2008 with the transfer of the business, assets and liabilities from CMP to GT. Unfortunately this resulted in a number of redundancies including staff who had been with the Group for a number of years. The cost of the restructuring of £159,000 has been charged to the income statement in the year. Due to the timing of the completion of the merger the cost savings in the current year were not significant but are expected to result in annualised savings of £350,000 in the future. In addition, the euro denominated loan notes issued by way of deferred consideration for the acquisition of Grosvenor Technology in 2002 were repaid in the year from the Group’s own cash resources and new banking facilities including £1.2 million by way of loan repayable over 3 years, and invoice discounting. An exchange loss of £59,000 relating to these loan notes was charged in the accounts. A favourable settlement was reached with regard to an overseas corporation tax liability which resulted in a substantial credit in the results of discontinued operations in the year. The overseas subsidiary also sold its remaining property and the resulting gain on disposal is also included in discontinued operations. Turnover for the year from continuing businesses was £14.9 million compared to £13.4 million in the previous year, an increase of 11 per cent. Gross margin for the year from continuing operations was £6.6 million (44.4 per cent. of sales) compared to £5.8 million (43.3 per cent.) for the previous year. Turnover in the electronic division increased only slightly in the year but the previous year’s figures included an exceptional order from BAe for £0.5 million turnover which was highlighted in last year’s accounts. Turnover in the asset protection division increased by 25 per cent. in the year. Earnings per share are shown in the income statement as 0.55p (2007: 0.25p). However, the earnings per share before interest discount adjustments, results of discontinued operations, provision for exchange loss and warrant revaluation are 0.33p (2007: 0.30p) as calculated in note 9 to the accounts. As a consequence of the increase in turnover, turnover per employee rose to £120,870 from £117,737 in 2007. 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’s net assets have increased in the year from £5.2 million to £7.6 million. Key performance indicators The directors consider the key performance indicators of the Group to be turnover, operating profit and cash flow. A detailed review of their activities, results and future developments is set out in the divisional results below. Financial results The profit from operations for the year was £1,917,000 (2007: £1,632,000). Turnover for the year was £14.9 million (2007: £13.4 million). The main commercial factors affecting the results of the divisions are set out below. Electronic Division Turnover £7,494,000 (2007: £7,441,000) Operating profit £1,644,000 (2007: £1,685,000) Profit before tax £1,648,000 (2007: £1,706,000) The electronic division comprises Grosvenor Technology and its wholly owned subsidiary Newmark Technology Limited. Between the two companies we specialise in access control, time & attendance and asset monitoring with varying routes to market. Newmark Technology is a re-seller of third party security systems and we particularly focus on N-TEC and C.Cure access control systems. Newmark also designs and manufactures Par-Sec long-range RFID asset monitoring tags and readers. Sales of N-TEC access control are made to Tyco Fire and Integrated Solutions who export the product to their operation in the UAE for distribution through Middle East, Europe, Africa and Russia (“MEAR”). Sales of N- Tec and C.Cure are primarily project led, and there were two significant projects in Moscow in the year. Interest in N-TEC remains strong in MEAR and we are promoting further growth in the region by supporting distributors at Newmark Security PLC 3 local trade shows, seminars and targeted training sessions, Par-Sec is a niche product for protecting art galleries, museums and high value artifacts in public locations. Grosvenor Technology is a technology house where we design and distribute electronic security systems and time and attendance terminals via VAR’s and OEM’s. JANUS access control is the flagship product and consists of software and hardware and is sold as an all encompassing medium to high-end system. Interest in ‘Enterprise wide’ access control systems continues to grow for which we are about to release a new version of the JANUS Enterprise solution. This latest version will incorporate the web browser Admin Manager allowing ‘virtual access systems’ controllable by log-on, which can regulate a single system or an array of separate JANUS systems across a corporate-wide environment. The product is unique in the world and beta installations have shown it to be extremely secure and resilient with many distinctive features such as virtual access systems within a corporate environment, highly secure web access, and control and management of many thousands of staff via a single web browser interface. The systems internal and internet security have been developed with input from some of our most demanding and exacting end-user clients and will be second to none in this arena. As always, the new product will be translated into the Tyco/ADT licensed version of Siteguard and the N-TEC access product for Tyco Fire and Integrated Systems. The merger of CMP and GT is now complete and the combined companies are trading as Grosvenor Technology with offices in Bishop’s Stortford, Hertfordshire and Poole in Dorset. Rationalisation has meant the warehouse and accounting functions in Bishop’s Stortford have closed down and have been re-located to Poole necessitating some redundancies. This and other changes made in the company’s organisation will produce an annual cost saving of £350,000. Time & Attendance hardware (clocks and terminals) as previously developed by CMP are now developed by GT and are distributed via OEM software developers who integrate the terminals into their own T&A systems for re-sale into distribution and end-user markets. The recently launched CUSTOM RS21 modular terminal is now the mainstream product and has replaced the outgoing 2100 clock in the UK and mainland Europe. The American market has been slower to migrate and is still using the older 2100 but we expect the USA to move from the 2100 product to the even newer Linux brand SATEON IT3100 clock during 2008. Asset Protection Division Turnover £7,373,000 (2007: £5,981,000) Operating profit £849,000 (2007: £520,000) Profit before tax £843,000 (2007: £512,000) Safetell’s financial year was characterised by a 24 per cent. increase in traditional Eclipse work, a doubling of Eye2Eye work and a 42 per cent. increase in service work. Total sales increased by 23.5 per cent. with compound sales growth of 12.0 per cent. per annum over the last 5 years. Last year’s trend of long-term customers in retail finance and petrol retailing requiring Eclipse rising screen programmes accelerated, and customers who had completed their branch programmes some years ago renewed purchases for a fresh round of branch refurbishments. Upgrades, refurbishments and reconfigurations of previous installations accounted for 40 per cent. of Eclipse revenue. The number of CounterShield installations and values were broadly similar to last year. The market for this product is very diverse and there are few opportunities for repeat order programmes for any one client, except for the police forces. A major opportunity with the Metropolitan Police is scheduled for the current year. Eye2Eye sales were very encouraging at twice the previous year’s figure, although less than plan. Six of the 23 train operating companies are now committed customers for the product, and the product is specified in the design manual used by Network Rail. The consultants for the London Olympics 2012 infrastructure are aware of the product and are considering its application for customer information booths and transport links. To meet customer requirements during the year, the product range has been extended with options for protection, height, width, infill panels and staff/public facilities all of which increase its suitability for a wider market. The Post Office/W H Smith trial last year was followed this year as expected with the full installation programme worth £753,000. Other sales to Post Office of RollerCash and BiDi Safe were less than last year as a result of the political turmoil surrounding the closure of rural post offices. A new application of RollerCash as a “Day Safe” was trialled successfully by a building society customer and an order for 20 units was received in April. The petrol retailers remain the predominant market sector for fixed glass security screens and the company’s various FlexiGlaze products are the preferred solution for Shell, BP and Sainsburys but only where the site risk assessment warrants a screen. Newmark Security PLC 4 The first Eclipse and RollerCash installations in South Africa were a success. Customer interest is still strong and has been broadened to all the retail finance providers. In Australia, the licensee for CounterShield has installed 6 units for Caltex with a further 4 shipped in May 2008. The units are shipped in kit form with the screen material produced locally for final assembly. Service and maintenance revenue benefited from a one-off contract valued at £481,000 to install a special interlock mechanism to allow cash-in-transit personnel to access the back office area. New CCTV installation and maintenance work added £75,000 of revenue. Regular contract work increased by 18 per cent. mainly due to additional work on locks, cashier equipment and cameras for long-standing Eclipse customers. This work is added at marginal cost, without travel overheads, because the work is rarely urgent and can be added when technicians visit branches for the regular maintenance work. The current year started with a healthy backlog of orders and is planned to increase sales by 8 per cent. with major increases in Eye2Eye for the railways and RollerCash TRIO for the Post Office Crown office programme that has been announced but is not due to start until September 2008. Service revenue growth should replace last year’s one-off contract. Balance sheet and cash flow The deferred consideration for Grosvenor Technology was paid in cash in the year as outlined above, and this is the reason for the reduction in cash balances, the new bank loan and the inclusion of invoice discounting balances within creditors. Despite the increase in turnover in the year, we have been able to keep debtors at the same level as last year through our credit control procedures. However, stock has increased significantly across the Group for a variety of reasons. Within the asset protection division, the holding of finished goods which had been imported for shipment in the following months was approximately £100,000 higher than the previous year due to the timing of customer orders. The service and maintenance division has also been expanding it’s range of security products covered and this has necessitated an increased stock holding of spares at our Dartford warehouse, and in the service vans used by our technicians. Stocks have also increased in the electronic division with the cessation of our in-house manufacturing of the time and attendance terminals. This has been replaced by manufacturing by a sub-contractor in Hungary which means that we hold more stock for future consumption but there are significant manufacturing cost savings which benefit operating profit. The holding of finished goods obviously has a higher value than the previous holding of components and sub-assemblies. Margins on access control products have also benefited from reduced manufacturing costs arising from increases in batch sizes. For both Access Control and Time and Attendance products, the improved availability of finished goods for customers has strengthened our market position with the ability to satisfy customer orders more quickly. Employees The Board would again like to express its gratitude to all employees for their contribution to the success of the business in which they work. Summary The Board is delighted by the continued improvement in the trading performance of the Group. The economic position in the UK is clearly a concern with the possibility of a recession or at best only limited growth for the year. This will inevitably lead to some projects being deferred. However, initiatives already taken relating to new products and trial programmes together with the probability of two potentially significant commercial agreements lead me to believe that there should be further growth this year. Should this occur, I believe that it should be possible to eliminate the remaining deficit on parent company reserves and commence a progressive dividend policy. M DWEK Chairman 16 July 2008 Newmark Security PLC 5 REPORT OF THE DIRECTORS The Directors submit their annual report and audited financial statements of the Group for the year ended 30 April 2008. 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 £1,917,000 (2007: £1,632,000). The profit for the year was £2,483,000 (2007: £1,089,000). Turnover for the year for continuing operations was £14.9 million (2007: £13.4 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 5. 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 11. M Rapoport retires in accordance with the articles of association. M. Rapoport, being eligible, offers himself for re-election at the next annual general meeting. Share capital Full details of changes to the share capital in the year are given in note 23 to the financial statements on page 40. Financial instruments For full details of changes to the Group’s management of its financial instruments, please refer to note 19 to the financial statements on page 32. Directors Directors’ interests The beneficial and other interests of the Directors in the shares of the Company as at 1 May 2007 (or the date of their appointment to the Board, if later) and 30 April 2008 were as follows: M Dwek(a) M Rapoport A Reid(b) Percentage holding at 30 April 2008 30 April 2008 50,319,467 10,555,000 76,633,237 11.2% 2.3% 17.0% 1 May 2007 (or date of appointment if later) 42,819,467 10,555,000 73,833,237 (a) These shares are held in the name of Arbury Inc., 51 per cent. of the equity share capital of which is, at the date of this report, beneficially owned by M Dwek. (b) These shares are in part held in the name of R.K. Harrison & Co. Limited, a company the issued equity share capital of which is, at the date of this report, owned as to 80.3 per cent. by A Reid of which 74.8 per cent. is a beneficial holding and 5.5 per cent. is a non beneficial holding, and the R.K. Harrison Retirement Benefit Scheme in which A Reid has a beneficial interest. Newmark Security PLC 6 The interests of Directors in Share Option Schemes operated by the Company at 30 April 2007 and 2008 were as follows: Number of Ordinary Shares under the EMI Scheme Number of Ordinary Shares under the Approved Scheme Number of Ordinary Shares under the Unapproved Scheme 30 April 2008 30 April 2008 30 April 2008 5,000,000 4,000,000 – 1,000,000 – 500,000 Number of Ordinary Shares under the Approved Scheme 1 May 2007 – 500,000 Number of Ordinary Shares under the Unapproved Scheme 1 May 2007 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 3 to the financial statements. 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 had 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 27 to the financial statements on page 43. Both schemes expired in April 2007 on the tenth anniversary of the formation of these schemes. However the options granted under these schemes will only lapse ten years after the date the options were granted. The Board has now adopted the Newmark Security PLC EMI Share Option Plan (“the scheme”) which will enable the Board to grant qualifying share options under the HM Revenue and Custom’s Enterprise Management Incentive (“EMI”) tax code and also unapproved share options to employees and directors. The structure of the Scheme was designed with the key aim of retaining employees and ensuring that their interests are fully aligned with those of shareholders – in particular to drive further the increase in the Company’s share price. It has been designed to adhere to the basic principles 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. 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 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 apply to these EMI options. EMI options 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. Newmark Security PLC 7 The unapproved share options are subject to the same set of rules as 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. 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 26 days (2007: 27 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 2008, 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 introduce a Nominations Committee. However, it was decided, given the small size of the Board, that nominations are to remain a matter reserved for the Board. Any Director may, in furtherance of his duties, take independent professional advice where necessary, at the expense of the Company. All directors have access to the Company Secretary whose appointment and removal is a matter for the Board as a whole, and who is responsible to the Board as a whole and who is responsible to the Board for ensuring that agreed procedures and applicable rules are observed. The Company maintains an ongoing dialogue with its institutional shareholders. The Combined Code requires proxy votes to be counted and announced after any vote on a show of hands and this has been implemented by the Company. The Combined Code requires Directors to review, and report to shareholders on the Group’s system of internal control. In September 1999 guidance to this requirement was provided to Directors by the publication of Internal Control: Guidance for Directors on the Combined Code (“The Turnbull Report”). The Board continues to report on internal financial control in accordance with the guidance on internal control and financial reporting that was issued by the Institute of Chartered Accountants in England and Wales in 1994. Newmark Security PLC 8 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 11. After making enquiries, the Directors believe that the Group has sufficient financial resources to continue in operational existence for the foreseeable future. The accounts have therefore been produced on a going concern basis. 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 are also required 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 financial 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 information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and 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 9 Parent company financial 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 2008 Newmark Security PLC 10 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 2008 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. 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. This notice period was extended in October 2007 to a period of 12 months. 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 2007 Consultancy/ management agreement £’000 – Salary £’000 108 Fees £’000 – Total £’000 108 Pension contributions £’000 – – – – 50 – – – 15 15 – – – ———— ———— ———— ———— ———— – ———— ———— ———— ———— ———— – ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 50 15 15 184 108 188 104 50 30 50 30 The directors’ share interests are detailed in the Report of the Directors on pages 6 and 7. (a) The Company paid a consultancy fee of £50,000 (2007: £50,000) 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. (b) Directors’ fees in respect of A Reid of £15,000 (2007: £15,000) were paid by the Company to R. K. Harrison & Co. Limited. Newmark Security PLC 11 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 2008 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the group cash flow statement, the group statement of recognised income and expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. 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. 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, chairman’s statement and report of the remuneration committee. 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 12 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 2008 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 2008; 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 2008 Newmark Security PLC 13 2008 £’000 14,867 (8,263) 2007 £’000 13,422 (7,605) ———— ———— 5,817 6,604 (4,469) (159) (59) (4,074) – (111) (4,687) (4,185) ———— ———— 2,483 1,334 1,149 1,741 (407) 1,917 36 (212) 1,632 144 (271) ———— ———— 1,505 (368) ———— ———— 1,137 (48) ———— ———— 1,089 ———— ———— 1,089 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 0.25p ———— ———— 0.25p ———— ———— 2,483 0.55p 0.30p CONSOLIDATED INCOME STATEMENT for the year ended 30 April 2008 Revenue Cost of sales Gross profit Administrative expenses pre provision for exchange loss and redundancy and restructuring costs Redundancy and restructuring costs Provision for exchange loss Administrative expenses – total Profit from operations Finance income Finance costs Profit before tax Tax expense Profit for the year from continuing operations Post-tax profit/(loss) related to discontinued operations Profit for the year Attributable to: – Equity holders of the parent Earnings per share – Basic and diluted (pence) Continuing operations – Basic and diluted (pence) Note 2 3 6 6 7 8 24 9 9 The notes on pages 18 to 44 form part of these financial statements. Newmark Security PLC 14 2008 £’000 2,483 (109) 2007 £’000 1,089 1 ———— ———— 1,090 ———— ———— ———— ———— ———— ———— 1,090 ———— ———— 2,374 2,374 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 30 April 2008 Profit for the year Foreign exchange (losses)/gains on retranslation of overseas operations Total recognised income and expense for the year Attributable to: – Equity holders of the parent Newmark Security PLC 15 CONSOLIDATED BALANCE SHEET at 30 April 2008 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 Deferred tax 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 Retained earnings Minority interest TOTAL EQUITY Note 2008 £’000 2008 £’000 2007 £’000 2007 £’000 880 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) ———— 779 7,528 – ———— 8,307 ———— 1,902 3,191 87 ———— 5,180 ———— 3,454 809 579 123 ———— 4,965 ———— 710 140 48 ———— 898 ———— 4,504 502 801 (147) 1,924 ———— 10 11 22 14 15 16 17 21 18 21 22 23 24 24 24 24 25 13,487 5,863 ———— 7,624 ———— ———— 7,584 40 ———— 7,624 ———— ———— 14,578 9,368 ———— 5,210 ———— ———— 5,146 64 ———— 5,210 ———— ———— The financial statements were approved by the Board of Directors and authorised for issue on 16 July 2008. M Dwek Director The notes on pages 18 to 44 form part of these financial statements. Newmark Security PLC 16 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 April 2008 Note Cash flow from operating activities Net profit after tax Adjustments for: Depreciation Investment income Interest expense Other finance losses Income tax expense Share option charge Warrant revaluation Discontinued operations Operating cash flows before changes in working capital Decrease/(increase) in trade and other receivables (Increase) in inventories Increase in trade and other payables Cash generated from operations Income taxes paid Cash flows from operating activities Cash flow from investing activities Payments for property, plant & equipment Sale of property, plant & equipment Research & development expenditure Intangible asset expenditure Interest received Cash flow from financing activities Proceeds from loan Repayment loan notes Repayment of bank loans Repayment of finance lease creditors Repayment loan notes for Grosvenor deferred consideration Repayment mortgage loan Interest paid (Decrease)/increase in cash and cash equivalents 29 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) ———— 2008 £’000 2,483 345 (36) 115 97 407 41 – (757) ———— 2,695 18 (521) 114 ———— (270) 235 (368) (24) 36 ———— 1,200 – (438) (150) (3,561) (221) (115) ———— 2008 £’000 2,306 (491) ———— 1,815 (391) (3,285) ———— (1,861) ———— ———— 2007 £’000 1,680 (210) ———— 1,470 (434) (461) ———— 575 ———— ———— The notes on pages 18 to 44 form part of these financial statements. Newmark Security PLC 17 NOTES FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 April 2008 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 2008 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. 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 45 to 49. 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 2007 but they are not relevant to the Group for the year ended 30 April 2008. – 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 2008 or later periods but which the Group has not adopted early. – – – – 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 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. This standard is still to be endorsed by the EU. 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. This standard is still to be endorsed by the EU. Amendment to IFRS 2 – Share-based payments vesting conditions and cancellations (effective for accounting periods beginning on or after 1 January 2009). Management is currently assessing the impact of the Amendment on the accounts. This standard is still to be endorsed by the EU. Newmark Security PLC 18 – – – – Amendment to IAS 1 – Presentation of financial statements, a revised presentation (effective for accounting periods beginning on or after 1 January 2009). The revised IAS 1 introduces a single “statement of comprehensive income” incorporating both the profits and losses that have traditionally been reported in the income statement and other gains and losses that are currently reported in the Statement of Recognised Income and Expense or the Statement of Changes in Equity. Amendment to IAS 1 – Presentation of financial statements. Amendment to capital disclosures (effective for accounting periods beginning on or after 1 January 2009). Assuming it has been endorsed, the Group expects to apply these amendments in the accounting period beginning on 1 May 2009. As this is a disclosure standard it will not have any impact on the results or net assets of the Group. This standard is still to be endorsed by the EU. Revised IFRS 3 – Business Combinations and complementary Amendments to IAS 27. “Consolidated and separate financial statements (both effective for accounting periods beginning on or after 1 July 2009). This revised standard and amendments to IAS 27 are still to be endorsed by the EU. The revised IFRS 3 and amendments to IAS 27 arise from a joint project with the Financial Accounting Standards Board (FASB), the US standards setter, and result in IFRS being largely converged with the related, recently issued, US requirements. There are certain very significant changes to the requirements of IFRS, and options available, if accounting for business combinations. Management is currently assessing the impact of revised IFRS 3 and amendments to IAS 27 on the accounts. This standard is still to be endorsed by the EU. Amendments to IFRS 1 and IAS 27 – Cost of an Investment in a Subsidiary, Jointly-Controlled Entity or Associate (effective for accounting periods beginning on or after 1 January 2009). These amendments are still to be endorsed by the EU. The amendments permit the entity at its date of transition to IFRSs in its separate financial statements to use a deemed cost to account for its investment in subsidiary, jointly controlled entity or associate. The deemed cost of such investment could be either the fair value of the investment at the date of transition, which would be determined in accordance with IAS 39 Financial instruments: Recognition and Measurement or; the carrying amount of the investment under previous GAAP at the date of transition. Management is currently assessing the impact of the Amendment on the accounts. Improvements to IFRS (effective for accounting periods beginning on or after 1 July 2009). This improvements project is still to be endorsed by the EU. The amendments take various forms, including the clarification of the requirements of IFRS, the elimination of inconsistencies between Standards, and a restructuring of IFRS 1 First-time Adoption of IFRS. Management is currently assessing the impact of the Amendment on the accounts. Revenue Turnover is stated net of value added tax. Sales of equipment are recognised when the equipment is shipped to the customer or installed. Service and maintenance revenue is spread evenly over the term of the contract. Other sales are recognised on completion of work. Basis of consolidation Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Group as if it formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. Business combinations The consolidated financial statements incorporate the results of business combinations using the purchase method other than disclosed above. In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the 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 is capitalised as an intangible asset with any impairment in carrying value being charged to the income statement. Newmark Security PLC 19 Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the income statement. Discontinued operations Discontinued operations relate to a reportable component of the Group which ceased to trade in a previous year. 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 is not reversed. 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. 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. 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”). 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. Newmark Security PLC 20 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. Invoice discounting arrangements are for cash flow purposes. Financial assets are not derecognised until the associated risks and rewards are transferred or extinguished. 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 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. Newmark Security PLC 21 Capitalised development costs are amortised over ten years being the period 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. Intangible assets Costs associated with patents, trade marks, copyrights etc. are capitalised as incurred and are amortised over the expected life of the asset. 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 deductible 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 nor 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 substantively 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 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 Newmark Security PLC 22 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, less estimated costs necessary to make the sale. Provisions Provisions are recognised for liabilities of uncertain timing or amount that have arisen as a result of past transactions, where 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. 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 above. 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 above. These judgements are made using the historical, commercial and technical experience of senior members of the management team. Newmark Security PLC 23 2. Revenue Revenue arises from: Sale of goods Provision of services Profit from operations 3. This has been arrived at after charging/(crediting): Staff costs (note 4) 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 Other services (Profit) on disposal of fixed assets Staff costs 4. Staff costs (including the Executive Director) 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 The average numbers employed (including the Executive Director) within the following categories were: Management, sales and administration Production Key management remuneration (comprising the Executive Director and Directors of subsidiary companies); Salaries Short-term non-monetary benefits Defined contribution pension costs Share-based payment expenses Employers national insurance contributions and similar taxes The emoluments of the Directors of the parent company are set out in the Report of the Remuneration Committee on page 11. Newmark Security PLC 24 2008 £’000 11,134 3,733 2007 £’000 10,320 3,102 ———— ———— 13,422 ———— ———— ———— ———— 14,867 2008 £’000 5,406 196 149 81 526 19 229 – 73 2007 £’000 4,898 241 107 146 618 18 196 – 61 22 13 (18) 19 – (6) ———— ———— ———— ———— 2008 £’000 4,544 184 142 41 495 2007 £’000 4,142 108 153 38 457 ———— ———— 4,898 ———— ———— ———— ———— 5,406 2008 No. 80 43 2007 No. 73 41 ———— ———— 114 ———— ———— ———— ———— 123 2008 £’000 712 24 53 41 78 2007 £’000 738 23 64 38 82 ———— ———— 945 ———— ———— ———— ———— 908 Segment information 5. 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 – property, plant and equipment – 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 – property, plant and equipment – intangible Depreciation, amortisation and other non-cash expenses Business segments ————————————————————– Electronic division 2008 £’000 Asset protection division 2008 £’000 Discontinued businesses 2008 £’000 Head office 2008 £’000 Total 2008 £’000 7,373 – 7,494 – 14,867 – ———— ———— ———— ———— ———— 14,867 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 7,373 7,494 – – – – – – 843 – 1,648 – 1,872 218 ———— ———— ———— ———— ———— 2,090 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— (619) – – 218 1,648 (619) 843 218 4,378 (2,231) 9,509 (1,962) 13,487 (5,863) ———— ———— ———— ———— ———— 7,624 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— (403) (1,437) 3 (233) (1,840) 7,547 2,147 (230) 168 392 98 – – – 4 – 270 392 125 345 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 201 10 9 2007 £’000 2007 £’000 2007 £’000 2007 £’000 2007 £’000 7,441 – 5,981 – 13,422 – ———— ———— ———— ———— ———— 13,422 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 7,441 5,981 – – – – – – 512 – 1,706 – 1,505 (69) ———— ———— ———— ———— ———— 1,436 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— (713) – – (69) 1,706 (713) (69) 512 4,040 (1,892) 10,181 (1,476) 14,578 (9,368) ———— ———— ———— ———— ———— 5,210 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 284 (1,634) 73 (4,366) (1,350) (4,293) 2,148 8,705 181 269 54 – – – 7 – 242 269 147 348 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 187 13 1 Newmark Security PLC 25 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 Total assets by location of assets Net tangible capital expenditure by location of assets External revenue by location of customers 2007 £’000 11,546 925 800 151 2008 £’000 12,896 1,104 690 177 2007 £’000 195 – – – ———— ———— ———— ———— ———— ———— 289 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 2007 £’000 14,294 284 – – 2008 £’000 13,484 3 – – 2008 £’000 250 (215) – – 14,578 13,422 14,867 13,487 35 Revenue 2008 £’000 2007 £’000 Segment assets 2008 £’000 2007 £’000 Capital expenditure 2008 £’000 2007 £’000 11,546 925 800 151 12,896 1,104 690 177 195 – – – ———— ———— ———— ———— ———— ———— 195 ———— ———— ———— ———— ———— ———— 14,294 – – – 13,484 – – – 250 – – – 14,294 13,484 14,867 13,422 250 – – – – – 3 – – ———— ———— ———— ———— ———— ———— – ———— ———— ———— ———— ———— ———— 195 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— – (215) – 284 14,578 13,487 14,867 13,422 (215) 284 35 – 3 – 6. Finance income and costs Finance income Bank interest received Gain on warrant valuation 2008 £’000 2008 £’000 2007 £’000 2007 £’000 36 – ———— 36 30 114 ———— 144 Finance costs Bank borrowings Company loan notes Interest on loan notes for deferred consideration Invoice discounting Finance leases Discount charge on deferred consideration Interest rate adjustment on deferred consideration (36) – (41) (22) (16) (47) (50) ———— (30) (27) (38) – (18) (131) (27) ———— (271) ———— (127) ———— ———— (212) ———— (176) ———— ———— Newmark Security PLC 26 7. Tax expense Current tax expense Continuing businesses UK corporation tax on profits for the year Adjustment for (over)/under provision in prior periods Deferred tax expense Origination and reversal of temporary differences Discontinued businesses UK corporation tax and income tax of overseas operations on profits for the year Adjustment for over provision in prior periods Total tax (credit)/charge 2008 £’000 2008 £’000 2007 £’000 2007 £’000 324 (2) ———— 85 ———— 38 (838) ———— 329 (40) ———— 79 ———— 5 (26) ———— 322 85 ———— 407 (800) ———— (393) ———— ———— 289 79 ———— 368 (21) ———— 347 ———— ———— 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: 2008 £’000 2,090 2007 £’000 1,436 ———— ———— ———— ———— 627 29 (80) (10) (59) (840) (3) (57) 431 47 (48) – (37) (66) – 20 ———— ———— 347 ———— ———— ———— ———— (393) 2008 £’000 523 1,940 792 2007 £’000 523 2,139 792 ———— ———— ———— ———— Profit before tax Expected tax charge based on the standard rate of corporation tax in the UK of 30 per cent. (2007 – 30 per cent.) Interest discount charge on deferred consideration Effects on profits of other items not deductible for tax purposes Double tax relief Utilisation of previously unrecognised tax losses Adjustment to tax charge in respect of previous periods Reduction in future tax rate to 28% Other Total tax (credit)/charge The Group has the following tax losses, subject to agreement by HM Inspector of Taxes, available for offset against future trading profits and capital gains as appropriate: Management expenses 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 Newmark Security PLC 27 2008 £’000 146 543 222 2007 £’000 157 642 238 ———— ———— ———— ———— The cash flow statement includes the following amounts relating to discontinued operations: 8. Discontinued operations Turnover Cost of sales Gross profit Administrative expenses/miscellaneous income Earnings from operations Finance income/(costs) Profit/(loss) before tax Tax Post-tax profit/(loss) related to discontinued operations Operating activities Investing activities Financing activities 9. Earnings per share Numerator Earnings used in basic and diluted EPS Earnings used in basic and diluted EPS – continuing operations Denominator Weighted average number of shares used in basic and diluted EPS – continuing and discontinued operations – 142 2008 £’000 – – 2007 £’000 – – ———— ———— – – ———— ———— – (69) ———— ———— (69) 21 ———— ———— (48) ———— ———— ———— ———— 142 207 349 800 1,149 2008 £’000 56 215 (221) 2007 £’000 – – (69) ———— ———— (69) ———— ———— ———— ———— 50 2008 £’000 2007 £’000 2,483 1,089 ———— ———— 1,137 ———— ———— ———— ———— ———— ———— 1,334 No. No. 449,089,691 429,437,268 ———— ———— ———— ———— 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 27. The basic earnings per share before interest discount, results 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) – basic and diluted Discount charge on deferred consideration (Profits)/losses of discontinued operations Provision for foreign exchange loss Warrant revaluation Earnings per share before interest discount, results of discontinued operations, provision for foreign exchange loss and warrant revaluation– basic and diluted Newmark Security PLC 28 2008 pence 0.55 0.02 (0.25) 0.01 – 2007 pence 0.25 0.04 0.01 0.03 (0.03) ———— ———— 0.33 0.30 ———— ———— ———— ———— Reconciliation of earnings Profit used for calculation of basic earnings per share Discount charge on deferred consideration (Profits)/losses of discontinued operations Provision for foreign exchange loss Warrant revaluation Earnings before interest discount, results of discontinued operations, provision for foreign exchange loss and warrant revaluation 10. Property, plant and equipment 2008 £’000 2007 £’000 2,483 97 (1,149) 59 – 1,089 158 48 111 (114) ———— ———— 1,490 1,292 ———— ———— ———— ———— Freehold land and buildings £’000 Short leasehold improvements £’000 Plant, machinery and motor vehicles £’000 Computers, fixtures and fittings £’000 Total £’000 At 30 April 2007 Cost Accumulated depreciation Net book value At 30 April 2008 Cost Accumulated depreciation Net book value Year ended 30 April 2007 Opening net book value Additions Disposals Depreciation Exchange differences Closing net book value Year ended 30 April 2008 Opening net book value Additions Disposals Reclassifications Depreciation Exchange differences Closing net book value 320 (125) 2,276 (1,396) ———— ———— ———— ———— ———— 880 ———— ———— ———— ———— ———— 1,332 (853) 260 (165) 364 (253) 479 195 111 95 – – 2,236 (1,457) ———— ———— ———— ———— ———— 779 ———— ———— ———— ———— ———— 1,351 (821) 272 (188) 613 (448) 530 165 84 – 119 – – (24) – 209 – – (12) (2) 941 332 (43) (348) (2) ———— ———— ———— ———— ———— 880 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 515 274 (43) (267) – 98 58 – (45) – 479 195 111 95 95 12 – – (23) – 195 – (215) – (9) 29 880 450 (235) – (345) 29 ———— ———— ———— ———— ———— 779 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 479 367 (18) (36) (262) – 111 71 (2) 36 (51) – 530 165 84 – The net book value of property plant and equipment for the Group includes an amount of £207,835 (2007: £131,244) in respect of assets held under finance leases and hire purchase contracts. The related depreciation charge on these assets for the year was £149,353 (2007: £106,826). Newmark Security PLC 29 11. Intangible assets At 30 April 2007 Cost Accumulated impairment losses Net book value At 30 April 2008 Cost Accumulated impairment losses Net book value Year ended 30 April 2007 Opening net book value Additions – Internally developed Discount adjustment on contingent consideration Closing net book value Year ended 30 April 2008 Opening net book value Additions – Internally developed – External Closing net book value Development costs (internally generated) £’000 Licences, patents and copyrights £’000 Goodwill £’000 Total £’000 6,755 – 7,136 – ———— ———— ———— ———— 7,136 ———— ———— ———— ———— 381 – 6,755 381 – – – 6,755 – 7,528 – ———— ———— ———— ———— 7,528 ———— ———— ———— ———— 749 – 6,755 24 – 749 24 6,832 112 – 6,944 269 – – (77) 269 (77) ———— ———— ———— ———— 7,136 ———— ———— ———— ———— ———— ———— ———— ———— 6,755 381 – – – 6,755 381 – 7,136 – – 368 – 368 24 ———— ———— ———— ———— 7,528 ———— ———— ———— ———— ———— ———— ———— ———— 6,755 – 24 749 24 The Group has no contractual commitments for development costs (2007 – £Nil). All development costs have a finite useful economic life. 12. Goodwill and impairment Details of goodwill allocated to Cash Generating Units (“CGUs”)for which the amount of goodwill so allocated is significant in comparison to total goodwill is as follows: Goodwill carrying amount 2008 £’000 5,794 961 2007 £’000 5,794 961 ———— ———— 6,755 ———— ———— ———— ———— 6,755 Electronic division Asset protection division 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 2013. The discount rate which was applied was 16.7 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, after adjustment for the restructuring in the electronic division in the year. The reviews which are carried out at 30 April each year indicated that no impairment provision was necessary. Newmark Security PLC 30 13. Subsidiaries The principal subsidiaries of Newmark Security PLC, all of which have been included in these consolidated financial statements, are as follows: (2a) Name Newmark Technology Limited Newmark Technology (C-Cure Division) Limited Newmark Technology S.A. Safetell International Limited Safetell Limited Safetell Security Screens Limited Newmark Technology Inc. Vema B.V. Vema N.V. Vema UK Limited Grosvenor Technology Limited Newmark Group Limited Sateon Limited (2b) (2c) 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 Proportion of ownership interest(1) 100% 100% 100% 100% 100% 100% 100% 100% 98% 100% 100% 100% 100% Activity Trading Dormant Dormant Holding Trading Trading Dormant Holding Finance Finance Trading Dormant Dormant (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) Owned by Grosvenor Technology Limited Owned by Vema BV 51 per cent., Newmark Security PLC 47 per cent. Owned by Vema NV 14. Inventories Raw materials and consumables Work-in-progress Finished goods and goods for resale 2008 £’000 1,014 107 781 2007 £’000 740 178 463 ———— ———— 1,381 ———— ———— ———— ———— 1,902 Finished goods include an amount of £Nil (2007: £Nil) carried at fair value less costs to sell. The value of stocks consumed in the year was £5,033,000 (2007: £4,835,000). The amount of stock write downs in the year was £Nil (2007: £19,000). There are no stocks recoverable after 12 months (2007: £Nil). 15. Trade and other receivables Trade receivables (net) Other receivables Accrued income Prepayments 16. Trade and other payables – current Trade payables Other tax and social security taxes Other payables Deferred income Accruals Newmark Security PLC 31 2008 £’000 2,653 26 259 253 2007 £’000 2,651 80 228 237 ———— ———— 3,196 ———— ———— ———— ———— 3,191 2008 £’000 1,125 476 760 473 620 2007 £’000 1,205 294 631 572 471 ———— ———— 3,173 ———— ———— ———— ———— 3,454 17. Other short term borrowings Bank loans – secured (i) – secured (ii) Mortgage loan-secured Finance lease creditor (note 26) Deferred consideration loan notes 2008 £’000 2007 £’000 250 449 – 110 – 250 – 10 109 3,561 ———— ———— 3,930 ———— ———— ———— ———— 809 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. Bank loan (i) 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. Bank loan (ii) is secured on the assets of the UK subsidiary companies and is repayable by equal monthly instalments until November 2011. Interest is payable at 2 per cent. above base rate. The mortgage loan was secured on a freehold property in Holland and was repaid in the year. The deferred consideration loan notes were issued in Euros, were unsecured and were repaid in full in the year. Interest was payable at 1⁄4 per cent. below base rate. Information about fair values on the financial liabilities is given in note 20. 18. Long term borrowings Bank loans – secured (note 17) Mortgage loan-secured (note 17) Finance lease creditor (note 26) 2008 £’000 626 – 84 2007 £’000 313 182 58 ———— ———— 553 ———— ———— ———— ———— 710 19. Financial instruments – Risk Management 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, borrowings 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: • • • • Credit risk Liquidity risk Fair value or cash flow interest rate risk Foreign currency risk 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 Group 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. Newmark Security PLC 32 Financial Instruments Categories of financial assets and financial liabilities are detailed below Loans and receivables 2007 £’000 2008 £’000 Current financial assets Trade and other receivables Cash and cash equivalents Total current financial assets Current financial liabilities Trade and other payables Loans and borrowings Total current financial liabilities Non-current financial liabilities Loans and borrowings Total non-current financial liabilities Total financial liabilities 3,191 87 3,196 1,948 ———— ———— 5,144 ———— ———— ———— ———— 3,278 Financial liabilities measured at amortised cost 2008 £’000 2007 £’000 3,454 809 3,173 3,930 ———— ———— 7,103 ———— ———— ———— ———— 4,263 710 710 553 ———— ———— 553 ———— ———— 7,656 ———— ———— ———— ———— ———— ———— 4,973 Financial instrument risk exposure management The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises are • • • • • • trade receivables cash at bank bank overdrafts term loans invoice discounting facilities trade and other payables General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below. Credit risks Credit risk arises principally from the Group’s trade receivables and reflects the risk that the counter party fails to discharge its obligation in respect of the instrument. Newmark Security PLC 33 It is Group policy to mitigate credit risk arising from the client base through the application of credit limits based on credit ratings issued by the main credit rating agencies, and from the knowledge of the trading history with that customer. For customers with no authorised credit limit, pro forma invoices will be issued requiring payment in full before despatch of goods or provision of services. Where credit terms requested by the customer are outside the Group’s standard terms of business then authorisation is sought from the Group Finance Director. The end user of our products is often a blue chip customer but we normally invoice a contractor or installer employed by the end user. The Group subsidiary company is also often involved directly with the end user due to our knowledge of the product and its application. The subsidiary has also usually worked with many of these contractors and installers for a number of years. Within the asset protection division, there are also retentions outstanding in situations where our customer is a contractor. Credit risk is influenced by factors specific to the individuals customers, however an element of the risk is influenced by the geographic locations in which they operate. The credit quality of the financial assets are reviewed and assessed on an ongoing basis which enables timely judgements to be made on the position of each debt. This allows management to put in place action plans where necessary to ensure the recoverability of the debts and the minimisation of potential write offs. The Group records impairment losses on its trade receivables separately from gross receivables and reports these net of provisions. The movements on this allowance account during the year are summarised below Opening balance Increase in provisions Receivable written off during the year Closing balance The movement on the provision for impaired receivables has been included in the administrative expense line in the income statement. The Group provides against specific debtors. The following table illustrates the concentration of credit risk within the Group as at the balance sheet date 2008 £’000 16 11 (4) 2007 £’000 14 3 (1) ———— ———— 16 ———— ———— ———— ———— 23 2008 Geographical Area UK USA Europe Rest of the World Total 2007 Geographical Area UK USA Europe Rest of the World Total Trade Receivables Turnover £’000 12,896 690 1,104 177 60 days past due £’000 190 38 132 1 ———— ———— ———— ———— ———— 361 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 30 days past due £’000 751 121 (31) 16 Current £’000 1,361 54 42 1 Total £’000 2,302 213 143 18 14,867 2,676 1,458 857 Trade Receivables Turnover £’000 11,546 800 925 151 60 days past due £’000 271 70 19 – ———— ———— ———— ———— ———— 360 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 30 days past due £’000 779 34 58 19 Current £’000 1,347 6 57 7 Total £’000 2,397 110 134 26 13,422 2,667 1,417 890 The Group’s maximum exposure to credit risk is equal to the carrying value of trade receivables and cash and cash equivalents. Management monitors the utilisation of the credit limits regularly and does not expect any material losses from non-performance by the counterparties. Newmark Security PLC 34 Financial assets past due or impaired The analysis of Group’s provisions against trade receivables is shown in the table below: Analysis of trade receivables impairments 2008 2007 Gross Value £’000 2,302 213 143 18 Net Carrying Amount £’000 2,381 110 134 26 ———— ———— ———— ———— ———— ———— 2,651 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— Net Carrying Amount £’000 2,279 213 143 18 Provision £’000 (16) – – – Provision £’000 (23) – – – Gross Value £’000 2,397 110 134 26 2,676 2,653 2,667 (23) (16) The main factor used in assessing any impairment of trade receivables is the age of the balance and the circumstances of the individual customer. The fair value of trade receivables that are past due or impaired is their carrying amount. As at 30 April 2008 trade receivables of £702,000 (2007: £780,000) were past due but not considered to be impaired. They relate to the customers with no default history. The ageing analysis of these receivables is as follows UK USA Europe Rest of the World Total Up to 3 months 3 to 6 months 2008 £’000 651 51 2007 £’000 739 41 ———— ———— 780 ———— ———— ———— ———— 702 Liquidity risk Liquidity risk arises from the Group’s management of working capital together with the finance charges and principal payments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it has adequate financial resources to enable it to finance its day-to-day operations based on cash flow projections. The Group’s working capital requirements are generally short term in nature and as such the Group utilises short-term invoice discounting facilities. Longer term financing is utilised for the purpose of acquiring subsidiary undertakings. Cash balances are reported weekly to the Board, and the Group Finance Director compares existing resources and available facilities with projected outgoings. Monthly cash flow statements are prepared and reviewed by management with variances against budget. Cash flow budgets are produced annually and reviewed by the Board of Directors. The Group had floating rate invoice discounting facilities with a maximum aggregate facility limit at 30 April 2008 of £800,000 (2007: £Nil). These facilities are subject to 3 months’ notice period. The Group also has term loans of £876,000 (2007: £563,000). The interest rate payable on the term loans is base rate plus 2%. The loans are repayable in monthly instalments. The bank loans and overdrafts are secured by a debenture over the assets of the Group and the Company. The invoice discounting facility is secured over the book debts of the electronic division of the Group. The maturity analysis of the undiscounted financial liabilities measured at amortised costs is as follows Up to 3 months 3 to 6 months 6 to 12 months Later than 1 year and not later than 5 years Included with in 0 -3 months period is the amounts drawn down via the invoice discounting facility. Newmark Security PLC 35 2007 £’000 867 174 350 626 2006 £’000 62 62 126 313 ———— ———— 563 ———— ———— ———— ———— 2,017 Market risks Market risks arise from the Group’s use of interest bearing financial instruments. It is the risk that the fair value or future cash flow of a financial instrument will fluctuate because of changes in interest rates or other market factors. Interest rate risk The Group finances its operations through a mixture of retained profits, bank loans and invoice discounting facilities, both bank loans and invoice discounting facilities being at floating rates. Interest rate risk sensitivity of interest rate exposure The following table demonstrates the effect of a 1% movement from a base rate plus 2% based on the term loan balances as at 30 April 2008 of £1,325,000. Interest rate movement from base rate plus 2% Interest (saving)/expenses (£000’s) -1% (9) +1% 9 ———— ———— ———— ———— Interest Risk Profile The following table sets out the carrying amount of the Group’s financial instruments that are exposed to interest rate risk as at 30 April 2008. Floating rate with maturity within one year Cash and cash equivalents Advances drawn on invoice discounting Term loan Mortgage loan Floating rate with maturity over one year Term loan Deferred consideration loan notes Mortgage loan 2008 2007 Effective Interest Rate Carrying Amount £’000 Effective Interest Rate Carrying Amount £’000 2.5% 6.75% 7.00% – 7.00% – – 87 (692) (699) – (626) – – ———— (1,930) ———— ———— 2.75% – 7.25% 6.125% 7.25% 5% 6.125% 1,948 – (250) (10) (313) (3,561) (182) ———— (2,368) ———— ———— Foreign currency risk The Group’s main foreign currency risk is the short-term risk associated with trade debtors denominated in US dollars and Euros relating to the UK operations whose functional currency is sterling. The risk arises on the difference between exchange rates at the time the invoice is raised to when the invoice is settled by the customer. The Group is also exposed to currency risk on trade payables which are denominated in currencies other than sterling. The carrying values of the Group’s trade receivables and trade payables are denominated in the following currencies: Pound sterling US dollar Euro Trade receivables 2008 £’000 2,297 213 143 2007 £’000 1,026 4 175 ———— ———— ———— ———— 1,205 ———— ———— ———— ———— ———— ———— ———— ———— Trade payables 2008 £’000 1,018 – 107 2007 £’000 2,407 110 134 1,125 2,653 2,651 Newmark Security PLC 36 The effect of a 10 per cent. strengthening of the Euro and Dollar against Sterling at the balance sheet date on the Euro/Dollar denominated trade receivables and payables carried at that date would, all other variables held constant, have resulted in a net increase in pre-tax profit for the year and increase of net assets of £22,000 (2007: £16,000). A 10 per cent. weakening in the exchange rates would, on the same basis, have decreased pre-tax profit and decrease net assets by £28,000 (2007: £20,000). Capital The Group considers its capital to comprise its ordinary share capital, share premium account, foreign exchange reserve and accumulated retained earnings. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through capital growth and distributions. The Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, the Group considers not only its short-term position but also its long-term operational and strategic objectives. 20. Financial assets and liabilities – Numerical information 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 2008 £’000 809 578 132 – – – 2007 £’000 3,930 311 80 10 10 142 ———— ———— 4,483 ———— ———— ———— ———— 1,519 Borrowing facilities The Group had undrawn committed borrowing facilities available at 30 April 2008 in which all conditions have been met. Expiry within 1 year Floating rate £’000 587 2007 Total £’000 2,448 ———— ———— ———— ———— ———— ———— ———— ———— 2008 Total £’000 587 Fixed rate £’000 – Newmark Security PLC 37 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 Sterling Euro Sterling Sterling Total £’000 1,519 ———— ———— ———— ———— ———— ———— ———— ———— Total £’000 730 3,753 ———— ———— ———— ———— 4,483 ———— ———— ———— ———— ———— ———— ———— ———— 4,124 359 – Floating rate liabilities 2008 £’000 1,325 Floating rate liabilities 2007 £’000 563 3,561 Floating rate assets 2008 £’000 Floating rate assets 2007 £’000 Fixed rate liabilities 2008 £’000 194 Fixed rate liabilities 2007 £’000 167 192 Fixed rate assets 2008 £’000 Fixed rate assets 2007 £’000 Interest free liabilities 2008 £’000 – Interest free liabilities 2007 £’000 – – Interest free assets 2008 £’000 Interest free assets 2007 £’000 Total £’000 ———— ———— ———— ———— 87 ———— ———— ———— ———— ———— ———— ———— ———— 87 – – Total £’000 ———— ———— ———— ———— 1,948 ———— ———— ———— ———— ———— ———— ———— ———— 1,948 – – 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 2008 % 4.0 – Period 2008 Years 1.0 – Period 2007 Years 0.9 20.0 ———— ———— ———— ———— 11.1 ———— ———— ———— ———— ———— ———— ———— ———— Rate 2007 % 4.0 6.1 1.0 5.1 4.0 Newmark Security PLC 38 Fair values The book value and fair value of financial liabilities are as follows: 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 2008 and 2007 is equal to their book value. Bank loans Mortgage loan Finance lease creditor Deferred consideration loan notes 21. Provisions At 1 May 2007 Released in year Deferred tax asset brought forward Charged in year At 30 April 2008 Due within one year or less Due after more than one year Book value 2008 £’000 1,325 – 194 – Fair value 2008 £’000 1,293 – 185 – Fair value 2007 £’000 517 118 157 3,561 ———— ———— ———— ———— 4,353 ———— ———— ———— ———— ———— ———— ———— ———— Book value 2007 £’000 563 192 167 3,561 4,483 1,478 1,519 Rental provision contracts £’000 88 (16) – – Holiday pay £’000 77 – – 10 Leasehold dilapidations £’000 84 – – – Warranty £’000 20 – – – Total £’000 269 (16) – 10 ———— ———— ———— ———— ———— 263 ———— ———— ———— ———— ———— 123 140 ———— ———— ———— ———— ———— 263 ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— 87 – 16 56 20 – – 84 87 72 84 20 72 20 84 87 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 five 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. 22. Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28 per cent. (2007: 30 per cent.). The movement on the deferred tax account is as shown below: Group 2008 2007 Liability/(asset) At 1 May Income statement At 30 April 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. (37) 85 (116) 79 ———— ———— (37) ———— ———— ———— ———— 48 Newmark Security PLC 39 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 are as follows: 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: 48 Liability/ (Asset) 2008 £’000 (47) 160 (65) Charged/ (credited) to income 2008 £’000 (5) 85 5 ———— ———— 85 ———— ———— ———— ———— (Asset)/ Charged/ (credited) to income 2007 £’000 (12) 91 – ———— ———— 79 ———— ———— Liability 2007 £’000 (42) 75 (70) ———— ———— (37) Unused tax losses 23. Share capital Ordinary shares of 1p each Ordinary shares of 1p each At beginning of the year Issued in the year At end of the year 2008 £’000 841 2007 £’000 967 ———— ———— ———— ———— Authorised 2008 £ 10,151,642 2008 Number 1,015,164,192 2007 £ 10,151,642 —————— —————— —————— —————— Issued and fully paid —————— —————— —————— —————— 2007 Number 1,015,164,192 2008 Number 2008 £ 2007 Number 2007 £ 4,489,578 14,745 448,957,816 1,474,500 3,739,578 750,000 —————— —————— —————— —————— 4,489,578 —————— —————— —————— —————— —————— —————— —————— —————— 373,957,816 75,000,000 450,432,316 448,957,816 4,504,323 The 1,474,500 new shares were allotted on 27 March 2008 to holders of Global Depository Receipts (“GDRs”) of Vema N.V., a subsidiary company. The shares were issued and allotted in relation to a share offer originally made in 2002 to acquire the GDR’s of Vema, and Newmark repeated the Offer in the year to the remaining GDR holders. Newmark Security PLC 40 24. Reserves At 1 May 2006 Translation differences on overseas operations Share-based payment provision Profit for the year Reclassification between reserves At 30 April 2007 At 30 April 2007 Translation differences on overseas operations Share-based payments provision Excess of market price over nominal value of shares issued in year Profit for the year At 30 April 2008 Share premium £’000 493 Merger reserve £’000 801 Retained earnings £’000 (1,861) Foreign exchange reserve £’000 (39) Warrant reserve £’000 248 – – – – – – – – – – (114) (134) ———— ———— ———— ———— ———— – ———— ———— ———— ———— ———— – ———— ———— ———— ———— ———— – 38 1,089 134 1 – – – (600) (600) (38) (38) 493 493 801 801 – – – – – 41 (109) – – – – – 9 – – – ———— ———— ———— ———— ———— – ———— ———— ———— ———— ———— ———— ———— ———— ———— ———— – 2,483 1,924 (147) 502 801 – – The share premium account represents the excess of the market value of shares issued over the nominal value of those shares, less expenses of issue. 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 represented 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. 25. Minority interests At 1 May 2007 Less: Buy back of minority interest in year At 30 April 2008 £’000 64 (24) ———— 40 ———— ———— Newmark Security PLC 41 26. Leases 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 The present value of future lease payments are analysed as: Current liabilities Non-current liabilities 22 216 Minimum lease payments 2008 £’000 122 94 Interest 2008 £’000 12 10 Present value 2008 £’000 110 84 ———— ———— ———— 194 ———— ———— ———— ———— ———— ———— Minimum lease payments 2007 £’000 119 65 Interest 2007 £’000 10 7 Present value 2007 £’000 109 58 ———— ———— ———— 167 ———— ———— ———— ———— ———— ———— 184 17 2008 £’000 110 84 2007 £’000 109 58 ———— ———— 167 ———— ———— ———— ———— 194 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: 2008 £’000 – 316 796 2007 £’000 7 91 815 ———— ———— 913 ———— ———— ———— ———— 1,112 Not later than one year Later than one year and not later than five years Later than five years Newmark Security PLC 42 Share-based payment 27 The Group previously operated two share option schemes, a HM Revenue & Custom’s 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 2008 2008 Approved Unapproved – 250,000 125,000 6,075,000 7,000,000 2007 Approved Unapproved 28,000 – 250,000 250,000 125,000 125,000 6,075,000 125,000 7,000,000 7,000,000 ———— ———— ———— ———— 7,500,000 13,478,000 ———— ———— ———— ———— ———— ———— ———— ———— 28,000 250,000 125,000 125,000 7,000,000 13,450,000 7,528,000 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 7.2 and 5.9 years respectively (2007: 8.1 and 6.9). Of the total number of options outstanding at the end of the year 500,000 Approved and 6,450,000 Unapproved (2007: 528,000 and 6,478,000 respectively) had vested at the end of the year. There were no options granted or exercised during the year. The Group has now adopted the Newmark Security PLC EMI Share Option Plan which enables the Board to grant qualifying share options under the HM Revenue and Custom’s Enterprise Management Incentive (“EMI”) tax code and also unapproved share options to employees and directors. The EMI share options 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 set by the Remuneration Committee will apply to these EMI options. On 26 October 2007, the Company granted 4,800,000 options under the EMI approved share option scheme and 1,000,000 options under the EMI unapproved share option scheme. The options were granted at a price of 1.425p per share. The following information is relevant in the determination of the fair value of options granted during the year under the EMI Schemes: Option Pricing Model used: Binomial Option Pricing model. Share Price at grant date: Share Price at grant date, adjusted for a mid-market spread. Exercise Price: 1.425p. Estimated date to exercise of Options: 10 years. Expected volatility: 60 per cent. Risk-free interest rate: Yield on a zero coupon government security at grant date. Dividend Yield: 7.4 per cent. The volatility assumption was based on the weighted average share price movement over the last four years. The share based remuneration expense for equity settled schemes was £41,000 (2007: £38,000). 28. Related party transactions Details of directors’ remuneration are given in the Report of the Remuneration Committee on page 11. Newmark Security PLC 43 2008 £’000 87 2007 £’000 1,948 ———— ———— ———— ———— (1,861) 1,948 575 1,373 ———— ———— 1,948 ———— ———— ———— ———— 87 180 – 94 750 ———— ———— 844 ———— ———— ———— ———— 180 29. Notes supporting cash flow statement Cash and cash equivalents comprises: Cash available on demand Net cash (decrease)/increase in cash and cash equivalents 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 Newmark Security PLC 44 COMPANY BALANCE SHEET 30 April 2008 – UK GAAP Financial Statements Note 2008 £’000 2008 £’000 2007 £’000 2007 £’000 24 – ———— 24 (12,624) ———— Fixed assets Investment in subsidiary Tangible assets Current assets Debtors Cash at bank and in hand 3 4 5 Creditors: amounts falling due within one year 6 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 Shareholder’s funds-Equity 7 8 9 9 9 10 The notes on pages 46 to 49 from part of these financial statements. 18,869 3 ———— 18,872 16,587 6 ———— 16,593 16 28 ———— 44 (12,816) ———— (12,600) ———— 6,272 (626) (91) ———— 5,555 ———— ———— 4,504 502 801 (252) ———— 5,555 ———— ———— (12,772 ) ———— 3,821 (313) (108) ———— 3,400 ———— ———— 4,490 493 801 (2,384) ———— 3,400 ———— ———— These financial statements were approved by the Board of Directors and authorised for issue on 16 July 2008. M Dwek Director Newmark Security PLC 45 NOTES FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 April 2008 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 2008 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 – 25 per cent. per annum straight line – 10 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 2008 Number 2007 Number 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 Newmark Security PLC 46 2 2 ———— ———— ———— ———— 2008 £’000 2007 £’000 128 16 123 14 ———— ———— 137 ———— ———— ———— ———— 144 3. Investment in subsidiary Cost At 1 May 2007 Additions at 30 April 2008 Net book value 30 April 2008 Net book value 30 April 2007 £’000 16,587 2,282 ———— 18,869 ———— 16,587 ———— ———— ———— The investments in Safetell Limited and Safetell Security Screens Limited were transferred from Safetell International Limited in the year. 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 Safetell Limited Safetell Security Screens Limited Newmark Technology Inc. Grosvenor Technology Limited Newmark Group Limited Sateon Limited 4. Tangible assets Country of incorporation Great Britain The Netherlands Belgium Great Britain Great Britain Great Britain USA Great Britain Great Britain Great Britain Proportion of ownership interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Computers Fixtures & Fittings £’000 Total £’000 Cost At 1 May 2007 Additions Disposals At 30 April 2008 Depreciation At 1 May 2007 Charge for the year Eliminated in respect of Disposals At 30 April 2008 Net book value At 30 April 2008 At 30 April 2007 Newmark Security PLC 47 7 4 (2) 7 4 (2) ———— ———— 9 ———— ———— 9 1 5 – – 1 5 – – ———— ———— 6 ———— ———— 6 3 3 ———— ———— 6 ———— ———— ———— ———— ———— ———— 6 5. Debtors Other debtors Prepayments All amounts shown under debtors fall due for payment within one year. 6. Creditors: amounts falling due within one year Bank overdraft Loan (i) Loan (ii) Deferred consideration loan notes (note below) Amount due to group undertakings Other taxation and social security Bank loan (i) is repayable by equal monthly instalments until July 2009 and is secured on the assets of the UK subsidiary companies. Interest is payable at 2 per cent. above base rate. Bank loan (ii) is secured on the assets of the UK subsidiary companies and is repayable by equal monthly instalments until November 2011. Interest is payable at 2 per cent. above base rate. The deferred consideration loan notes were denominated in Euros and derived from the contingent consideration payable on the acquisition of Grosvenor Technology Limited. The loan notes were unsecured and were paid in cash on 1 November 2007. Interest was payable at 1/4 per cent. below base rate. 7. Creditors: amounts falling due after more than one year Loans (see note 6) 8. Share capital Authorised: 1,015,164,192 Ordinary shares of 1p each (2007: 1,015,164,192) Allotted, called up and fully paid: 450,432,316 Ordinary shares of 1p each (2007: 448,957,816) The 1,474,500 new shares were allotted on 27 March 2008 to holders of Global Depository Receipts (“GDRs”) of Vema N.V., a subsidiary company. The shares were issued and allotted in relation to a share offer originally made in 2002 to acquire the GDRs of Vema, and Newmark repeated the Offer in the year to the remaining GDR holders. 2008 £’000 14 10 2007 £’000 6 10 ———— ———— 16 ———— ———— ———— ———— 24 2008 £’000 441 250 449 – 11,479 5 2007 £’000 – 250 – 3,611 8,950 5 ———— ———— 12,816 ———— ———— ———— ———— 12,624 2008 £’000 626 2007 £’000 313 ———— ———— ———— ———— 2008 2007 10,151,642 10,151,642 ———— ———— ———— ———— 4,504,323 4,489,578 ———— ———— ———— ———— Newmark Security PLC 48 9. Reserves At 1 May 2007 Excess of market price and nominal value on shares issued in the year Loss for the year Dividends received At 30 April 2008 10. Reconciliation of movements in shareholder’s funds Opening shareholder’s funds Loss for the year Dividends received New share capital subscribed Closing shareholder’s funds Share premium account £’000 493 9 – – Profit and loss account £’000 (2,384) – (321) 2,453 ———— ———— ———— (252) ———— ———— ———— Merger reserve £’000 801 – – – ———— ———— ———— 502 801 2008 £’000 3,400 (321) 2,453 23 2007 £’000 2,210 (560) 1,000 750 ———— ———— 3,400 ———— ———— ———— ———— 5,555 11. Commitments under operating leases At 30 April 2008 the company had annual commitments under non-cancellable operating leases as follows: 2008 Land and buildings £’000 – 42 2007 Land and buildings £’000 27 – ———— ———— ———— ———— Expiring within one year Expiring within two to three years Newmark Security PLC 49 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 26 September 2008 at 10.00 a.m. for the following purposes: ORDINARY BUSINESS 1. To receive and adopt the financial statements and reports of the Directors and auditors for the financial period ended 30 April 2008. 2. 3. To re-appoint M. Rapoport as a director of the Company, who retires in accordance with the Company’s Articles of Association and offers himself for re-appointment. To re-appoint BDO Stoy Hayward LLP as the auditors of the Company until the next Annual General Meeting and to authorise the Directors to fix their remuneration. SPECIAL BUSINESS 4. To consider and, if thought fit, to pass the following resolution as an Ordinary Resolution: That the Directors be and they are hereby generally and unconditionally authorised in accordance with section 80 of the Companies Act 1985 (the “Act”) to allot relevant securities (as defined in that section) up to a maximum aggregate nominal amount of £1,501,441; 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, such authority to be in substitution for any existing authorities conferred on Directors pursuant to section 80 of the Act. 5. To consider and, if thought fit, to pass the following resolution as a Special Resolution: That, subject to the passing of the previous resolution, the Directors be and they are hereby empowered pursuant to section 95 of the Act to allot equity securities (within the meaning of section 94 of the Act) for cash pursuant to the authority conferred by Resolution 4 above as if section 89(1) of the Act did not apply to any such allotment provided that this power shall be limited to: (a) the allotment of equity securities in connection with an issue in favour of the holders of ordinary shares of the Company in proportion (as nearly as may be) to their respective holdings of ordinary shares, subject only to exclusion 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 £900,865, 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 agreements if the power conferred hereby had not expired and provided further that this power shall be in substitution for and supersede and revoke any previous power granted to the Directors to the extent not previously utilised. By order of the Board B G Beecraft Company Secretary 16 July 2008 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, speak and vote instead of him. A proxy need not be a member of the Company. More than one proxy may be appointed to exercise the rights attaching to the different shares held by the member but a member may not appoint more than one proxy to exercise rights attached to any one share. A form of proxy is enclosed. 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 50 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 25 September 2008 and will also be available for inspection at the place of the annual general meeting for at least 15 minutes prior to and until the conclusion of the meeting: (a) (b) a register in which are recorded details of all transactions in the shares of the Company in respect of all Directors and their families: and a copy of every service contract between the Company and any Director of the Company. 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 2009. 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 51 sterling greenaways 103368