Newmark Security (LSE:NWT) — Final Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the NEWMARK SECURITY PLC Final Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during today's meeting. However, the company review questions submitted today and publish responses where it's appropriate to do so. We'll notify you by email when they're ready for your review. I'd also like to remind you that this presentation is being recorded.

0:33 Before we begin, we would like to submit the following poll. And if you give that your kind attention, we would be most grateful. And I'd now like to hand over to Paul Campbell White, CFO, and Marie Claire Dweck, CEO from Newmark Security. Good afternoon. Good afternoon. Thank you very much, Mark, for the introduction. So as you said, I'm Mary Claire Dweck, CEO of NEWMARK SECURITY. I have worked previously at MOCUM ESTATES, which is owned by the Rubin Brothers, and I worked directly for Simon Rubin

1:04 managing strategic assets for over ten years and bringing with me a wealth of experience. I work leading from the front at Grosvenor and Safetel, and I'm very happy and very excited to introduce Paul Campbell White who joined us as chief finance officer a couple of months. So over to you, Paul.

1:24 Hi there. Yes. I'm very excited to be joining NEWMARK. I've joined from a company called CognitionX, which is in the events and software business and where I've been chief commercial officer, developing the commercial strategy for their new software products and service products. Prior to that, I was a CFO of Brave Bison Group PLC, an AIM listed digital media business where I help devise and execute a new strategy resulting in doubling the market valuation of the group.

1:57 I've also had senior finance roles in Warner Brothers, Shine Group, Channel four, and ITV. So I've gained a lot of big company experience and also smaller company experience, which is very relevant for NEWMARK. Thank you so much, Paul, for the introduction, and we're all very excited to be working with Paul and the knowledge and the experience he brings with him.

2:22 So NEWMARK SECURITY has two divisions that can broadly be described as operating in a technology and security sector. We design and manufacture products and services that both protect personnel and their data while ensuring security for organization's physical assets and workplace. We do this through Grosvenor Technology and Safetel. Newmark has a long history of innovation over thirty years.

2:52 Through our divisions, we take a good position in high growth sectors providing specialist products and services that lend themselves to having high barriers to entry with levels of experience and expertise, which is really difficult for our competitors to emulate.

3:10 Grosvenor Technology is a market leader developing hardware and software and cloud solutions for the human capital management, HCM as otherwise known, and access control markets globally. Secured data collection, collation, and processing and dissemination is at the real heart of our offering. Put it simply, we help turn diverse data into real time information while increasing security, ensuring compliance, and reducing cost and time for our partners. Safetel designs, installs, and maintains a diverse range of physical security solutions to a wide range of sectors.

3:56 Products and services range from asset protection through building security and target hardening.

4:08 NEWMARK SECURITY's revenue for the year to April 2021 was £17,700,000. That was down 5.9% year on year, which the board believes was a strong performance in a COVID impacted year. Over the last few years, we've experienced significant growth in our people and data management division in the provision of time clocks and related services within human capital management. This trend has continued in 2021. We have restructured and refocused our physical security division as a response to changing market conditions, and this is shown in the shift of revenue towards products rather than service.

5:03 Geographically, we mainly operate in The UK and Europe for our access control and physical security solution lines with a more global reach in HCM where we have most of the gains from The US market. I will go into more detail about the revenue movements later on in the presentation. Thank you very much, Paul. Recognized as being an innovator in the industry for over thirty years, our people are dedicated, passionate specialists in their field. We have long standing and deep relationships right across the value chain. Proportionate and tightly controlled investments in research and development allows us to stay ahead of the curve and ensure our products and services are both competitive and offer the highest levels of secure technologies for our customers.

6:02 One of our key differentiators is our expertise and our focus. We pride ourselves on our consultative and flexible approach. We rapidly meet our clients' needs and tailor our approach to suit them. This helps us build trusted partnerships and create an ecosystem set up for scalability. Our market our market understanding allows us to plan and be proactive as well as reactive. We are always developing new products such as cloud services, biometric technology, temperature screening, and also including facial recognition that cater for our developing market needs.

6:50 If you look at the table on the bottom left hand side where it first to our customers, this is our route to market. Human capital management is sold to value added resellers and software vendors and houses, whilst access control is sold to systems integrators and security installers. And Safetel is sold directly to the end user. We have recurring revenue streams through our cloud based subscription services in HCM, offering advanced value added data middleware, biometric data processing, and clock management services hosted in the cloud. There were also recurring revenue opportunities in SafeTel through the service division through the service and maintenance of products.

7:42 I won't go too much into the operational highlights because Paul will go through those in more detail shortly. But revenues in HCM increased by 6% in a COVID year to 9,650,000 $69,659,000, which is previously up on the previous year. We successfully onboarded new customers and showed significant growth year on year. This is after removing the impact of an unexpected reduction of revenue from Ultimate and the through Ultimate and the Cronos merger. HCM has grown 41% year on year, whilst we saw a decline in access control and in Safetel. This is just a small sample of some of our customers showing the broad range of sectors and industries we serve.

8:40 The bottom right hand cell shows some of the software houses that we sell to through HCM. The products and services we provide may be specialist or niche, but the demand for services is not. As a consequence, end users of our products operate across diverse sectors and geographies for over thirty years. We are very proud of some of our customers, clients, and partners we work with.

9:14 Oh, sorry. Missed the slide. In The US, we trade as duty GT clocks at Grosvenor Technology. And in The UK, we are Grosvenor Technology. The human capital management sector has evolved enormously in the last few years from simple clocking in to time tap time capture and time and attendance through a much broader workforce management requirements, including hardware and cloud based solutions.

9:46 Following a three year period of growth, Grosvenor Technology continued to trade well across all lines of business and regions in a more challenging year. With a robust pipeline of new hardware, with the launch of g t eight in the spring of twenty one, our specialist offering continues to gain traction in the sector. And in the year, our US based business generated 52% of our total revenues for this division.

10:17 Grosvenor technology is synonymous with access control. We were the first people to launch a PC based access control solution in the mid nineties. And since then, we have continued to innovate in what is now a competitive segment. Access control is becoming more than just a simple security solution. It is transforming into a smart hub of the building controlling access, but also bringing things in real time such as intruder detection and fire systems. We offer a class leading range of modular advanced hardware, allowing for the delivery of intuitive, scalable solutions and range of access control blades that can be mixed, matched, and deployed in either single or multiple controllers.

11:10 Janus c four, our latest access control platform has progressed well in the current year, maintaining reasonable consistent revenues despite the impact of COVID. Legacy general plat Genesys platforms continue to main sales, and such in platform development is mature, complete, and stabilized sales decline.

11:38 Contactless solutions is fair to say as a group, we have a lot of experience going back decades. From simple barcodes to prox cards, to contact smart card solutions, and more latterly smartphone credentials. The common theme being identification and verification of individuals accessing a workplace or clocking in and clocking out of work.

12:04 COVID nineteen has been transformational in people's attitudes to entering workspaces. And across our three lines of business, we've been positioned to innovate and provide solutions to meet the needs of contactless entrance experiences. This year, we introduced face recognition, thermal fever detection capability on our GT line of devices. This has been a major driver in some of the contract wins in The US and Europe, driven by the need of a contactless experience. And although we have supported biometrics for many years in the form of fingerprint readers, we now see a significant push for obvious reasons, which can now be integrated in both our access control and secure portal entrance systems, including entrance portals and speed lanes at SAFTA, which in turn provide a highly secure and frictionless experience.

13:07 GT Connect is a powerful cloud based subscription service which offers several significant benefits to our customers and I over our competition. Firstly, it allows remote management of thousands of geographically dispersed devices, reducing time, cost, and carbon footprint. The second element can be broadly categorized as middleware, offering seamless data transformation and distribution services, which facilitates fast and very cost effective onboarding of new customers. The last element, perhaps the most important is biometric data privacy. We manage the collation and processing of sensitive or special category data in line with data privacy regulations.

14:02 This is increasingly becoming more of a headache for HCM vendors, and we offer a ready made as a service solution to this problem. As GT Connect is a subscription service, it therefore minimizes capital outlay as a barrier to onboarding with us, instead, we charge a simple, inclusive price per clock, per calendar month effectively for the life of a device.

14:28 We're building a recurring revenue portfolio and moving us from a traditional hardware sales to a cloud by cloud based service provider. We anticipate growth over the next year to over 20,000 subscribed devices, and we continue to expect this to say sustained growth after this.

14:58 Safetel, the physical division, provides physical and electronic security solutions across public and private sectors, adopting a consultative approach as clients need and evolved over time. As the types of attacks an organization's face have grown and morphed, customer demands have become more varied, specific to industry type, and often bespoke to individual needs. Safehold's approach has been evolved to provide a complete tailored service. We do not simply offer a standard service or products or services. We work with our clients collaboratively and design a complete solution that exactly fulfills their specific requirements with every customer that chooses to work with us.

15:49 Typically, these are resistant to blast, bullet fire, and force entry. Additionally, we provide cash handling equipment and have introduced entrance control and auto doors into our portfolio, all of which help organization provide safe and secure environments to their employers and customers alike. We also have a network of field based technicians and engineers providing installation, maintenance, and after sales support on both our and other security solutions. This in secures ensures all products are maintained to the highest standard.

16:32 These range of services reduce risk, cost, and effects for our specifiers, contractors, and end users alike. This overall approach leads us to enduring relationships. As I said, some over thirty years with a very high degree of customer retention and a significant proportion of repeat business and long term contracts. The business serves organizations of all sizes and is particularly proud of the strength of its partnerships with many of the blue chip clients you previously saw. We focus on our core markets and look to provide the best combination of technology to provide a solution for every challenge.

17:27 We have had a very positive uptake and pipeline of our new product offering and entrance control and auto door work in the last year. We're exploiting our existing sales and broadening broadening our offering to existing and new customers. We're also very excited to announce at Safetel, Nick Shannon will be joining us as MD in February 22 from g four s with a wealth of sales experience to lead the growth and sales plan going forward. I will hand over to you, Paul. Hi. So regarding revenue, so human capital management, as we've seen, has grown 5.7% in the year.

18:15 This has been due to the successful onboarding of new customers and significant number of end users to existing customers. And after removing the impact of the expected reduction in revenue from the Ultimate and Cronos merger, HCM has grown 41% year on year. In access control, the ability to onboard new partners and to sell to our existing partners has been significantly impacted by COVID nineteen restrictions,

18:51 And this has led to the decline of 29% year on year. However, the sales focus is now on the Janus c four, our new integrated security management and access control product.

19:08 In the physical security solutions division, revenue decreased 7%, which in a year disrupted by reduced access to customer sites and other precautionary measures shows a turning point for Safetel with product being generated from new lines of business, and we expect that trend to continue into the next financial year with a new product such as auto doors and entrance controls generating revenues. Overall, for the year, as we've seen the revenue decline of 5.9%, although there was strong year on year growth in the second half of the year at 13.7%.

20:01 The reductions in revenues and product mix impacted gross margins.

20:07 Gross profit margins reduced to 37.5% compared to 39.7% in the prior year. This was primarily due to a decrease in the FISCOL SECURITY division as a result of selling lower margin COVID related products in lockdown. Administrative expenses decreased mainly due to furloughs and group wide contractual pay reductions, as overall average employees remained broadly consistent at 112 employees. Exceptional costs in the financial year relate to a £181,000 of restructuring costs, primarily in the Groves division, which has been partly offset by £64,000 credit from the exit of a lease commitment at Safetail, whereby the asset had been written down by £82,000 in the prior year.

21:24 For the cash flow statement, you can see that cash generated from operating activities was positive despite challenging trading conditions. The increase in working capital year on year is primarily due to higher levels of inventory required to meet an increase in sales orders in the HCM division. Cash benefit received in the last financial year from tax credit relating to r and d expenditure. The acquisition of property, plant and equipment increased year on year, a result of investment in computers, fixtures and fittings and motor vehicles.

22:11 And there was also the impact of a prior year credit from asset sales that makes the year on year increase look larger than it would otherwise be. We continue to invest a significant amount of money in r and d expenditure, although we there was an intentional slowdown of activity this year to preserve cash with the onset of COVID. It's obviously very important for us to continue investing in developing our new products to meet our customer needs. In the last financial year, there was also a £2,000,000 bank loan received. This was a CBILS loan with the first year being interest free.

23:01 This enabled us to repay our invoice discounting facility and continued investment in research and development. We have a stable balance sheet despite the fact that there's been a challenging environment. As I've discussed before, we have increased our inventory to meet our growing HCM sales orders, and our intangible assets have also increased as a result of the research and development expenditure. The other big movement year on year relating to our financial position concerns the six year c bills alone at £2,000,000, which is fixed at an interest rate of 4.69.

23:55 Now moving on to the current financial year, f y twenty two. So f y twenty two trading has started strongly, particularly from the human capital management sales in The United States. However, margins have been impacted in the first four months of the current financial year by a change in mix towards lower margin products. Margins have been further impacted by the well documented global supply chain issues. These issues include material increases in freight costs and shipping time frames, as well as increasing component costs and reduced availability. Cash flows have reduced as a result of lower margins and the building up of buffer stocks to ensure that the global supply chain issues do not impact the group's ability to fulfill existing and anticipated orders.

24:57 As a result of this, the group has instigated a number of initiatives to improve profitability and cash flows. These have included price rises to customers, and the the impact of this is starting to be felt. They've already resulted in improved margins and cash flows in September and October. And this, together with increasing demand from The United States for our HCM products, provides the board with confidence that the group is well positioned to navigate these market conditions for the rest of the financial year. I'll end by saying that the company will hold its annual general meeting on the November 10 at 10AM at the Holmes Hotel in London.

25:49 Now I'll move across to Maricolet. Thank you, Paul. Thank you very much for the summary of last year's results. So just in summary, just going back to Paul's point where we've sort of navigated some of these challenges and implemented a number of strategic drives to help with that. So I feel we're in a comfortable and the board feel we're in a comfortable control position at the moment, which includes price rises to some of our customers as component country costs increase, which is a worldwide phenomenon as we know. But in summary, significant progress was made in 2021 despite the impacts of COVID. New clients have been onboarded and new products and services have been launched.

26:35 Human capital management growth was driven in The US with an increase in recurring revenues from the launch as clock as a service together with growth in our SaaS platform through GT Connect and GT Protect products. With a renewed focus on Janus c four, we should see a transition away from legacy products and our access control systems. At SafeTel, the introduction of new product lines such as entrance control and automatic door installations and maintenance. And as I said, very excited to have Nick Shannon joining us in February next year. F twenty two traded trading started strongly, continuing prior year with increasing HCM sales from The US.

27:21 A number of margin and cash flow have been impacted by the global supply chain challenges, and a number of initiatives have been implemented in the business to address these issues. We're really ready to starting to see the benefits of these. And I'd like to thank you for your time, and I look forward to any questions you have. Thank you. That's great. Paul, Marie Claire, thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. Just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that the recording of this presentation, along with a copy of the slides and the published Q and A, can be available via your Investor Meet company dashboard. I'd also like to remind you that your feedback is important to the company and immediately after this presentation has ended, we'll redirect you in order that you can provide the company with your thoughts and expectations.

28:13 I haven't given you a lot of time between presenting and looking at the questions that have come through. But perhaps if I may, if I could just hand back to you to read out the questions and perhaps give a response where it's appropriate to do so, and then I'll pick up from you at the end. I will start with Simon c's questions first of all. Which business unit do you feel has the best growth potential moving forward, and can you expand on the competition you see in the market? So part one of your question, we see the most growth in the human capital management market. And as you've seen the growth last year, had and we expect continued growth in that. When we onboard one of these software houses, the revenue is recurring. It's not a one off project. We've put a lot of effort and emphasis into that in developing and supporting that business going forward.

29:03 So our competition is probably their three main competitors still left in the market, but they operate in a very different way to us. And we're very nimble. We're very niche, and we can react to our customer demand very quickly. That's ATS ZK Tetra, which is a Chinese manufacturer, more at the lower end of the market, and Cronos. But Cronos and Ultimate merge and their clocks, they have their own clocks, but they continue to buy our clocks even though we are a competitor and have increased their forecast for next year. So it sort of shows the strength and the capability and the longevity of our clocks. So we're very excited about that. And apart from the growth in the hardware sales, where really the growth in the business is gonna come from is through our SaaS and our class models. And as we see the recurring revenues generate and build up over that in the next few years, and that's where the real driver for this business going forward.

30:01 Your next question is how have your clients reacted, sorry, to your price increase making your your offering less competitive? So we were never of at the bottom end. This is an access control. I'll start with that. That's pretty simple. No one sort of there was no reaction. People talk on board the price increase. And I think what they're most confident is that we're holding stock for them. So a lot of our competitors aren't in a position to hold stock. So as we see revenues increase from access control, even though we've put price increases into the market, so that hasn't seen been seen as a negative. We put in price increases into Safetel where necessary because we revisit all the projects as steel costs have gone up, and we've gone back to our customers. And I think because this is a global issues, no one has sort of sparked to any of the increases. They know that, you know, we're not able to supply at the same prices as previously done.

31:00 And with HCM, with some of the smaller customers, they've onboarded those. And we're in discussions with our larger customers and their partners, and they're working with us. And they're all very sympathetic to the challenges we're facing because they're facing the same challenges within their business. So those are all being implemented at the moment as we speak now. So that will help with the margin increase and some of the reductions we've seen in the first half. Those will be addressed in the second half. That I think, sorry, the Manzine, can you talk about whether you have sufficient finance to fund your business growth? Yes. We're constantly looking at our finances as we've had to take more stock on board to supply.

31:45 The last thing we want to be able to do is not be able to fulfill an order, but we're working with our banks and other finance sources, and we have invoice discounting, as you know. And we're onboarding HSBC on US invoice discounting. And so we feel we're in a very comfortable position. And there are other ways to raise cash, and we're looking at those as and when we might need them. But for the moment, as a board, we're all very comfortable with our cash position. John w, do you have any plans to market our products in The EU or other countries? So we sell some Safetel products overseas. I'm working on a very large tender at the moment in Kenya, and we hope to sort of work on that. Access control is a very diluted market.

32:38 We don't see it worth our while going in that, but HCM, we're putting a lot of effort into Europe, and we've restructured the sales team to do that. And we're already starting to talk to customers and onboarding new customers in Europe. With increased traction from FM post COVID, what is the estimated turnover for the year? We don't have any forecast out at the moment, so that's difficult to sort of give you. But, I mean, Paul, do you want to elaborate on that? Yeah. So sorry. We can't give that, but we're saying is we're currently in line with trading or slightly up year on year. So we said we've got a positive outlook for the remainder of the financial year turnover.

33:25 David b, lots of great customers, good efforts from the management team and employees to reshape the business. But alas, a 3,500,000 market cap and no returns for shareholders. What is the market not seeing? Margins correct. Why should I buy more shares? Yeah. Interesting question. So, yes, our market cap is very low at the moment, and sort of the low share price doesn't help. But the new direction of travel for the business is very exciting. So, yes, we are a hardware business, but our transformation into a subscription based and cloud based business and the new recurring revenues, we'll see the valuations of the business shift direct dramatically over the next couple of years, and that's where a lot of our efforts have been put in. So, yes, we do look to drive hardware sales and increase those, it's the recurring revenue business that I will you will see sort of a lot of upside from.

34:22 Michael d, what is your r and d spend, and would you consider buying new technologies to address your clients' needs to building your own? So in some areas, we do build our own. But in other areas, such as in biometric technologies or fingerprint readers, we buy in other people's technologies, and we integrate that within our products. Paul, can I hand over to you on the r and d spend, please? Yes. We spent £744,000 on r and d in the last financial year, and that was down a £142,000 on the year before. I said before, we did reduce the level of spend as a result of COVID, but we are still investing a significant amount on r and d to develop new products.

35:13 Thank you. And I think that was the last question. So thank you very much for your time this afternoon, and thank you very much for joining our presentation. Very clear. Thank you very much and Paul for updating investors this afternoon. Ladies and gentlemen, could I please ask you not to close this session as we will now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of NEWMARK SECURITY PLC, we'd like to thank you for attending today's presentation. That now concludes today's session, and good afternoon to you all.