This announcement contains inside information for the purposes of Regulation 11 of the Market Abuse (amendment) (EU Exit) Regulations 2019/310.

 

26 September 2023

 

Newmark Security plc

("Newmark", the "Company" or the "Group")

 

Final Results

for the year ended 30 April 2023

 

 

Newmark Security plc (AIM: NWT), a leading provider of electronic, software, and physical security systems and installations is pleased to announce its audited results for the year ended 30 April 2023 ("FY23"). The Board of Newmark is pleased to reiterate a positive momentum and the Group returning to profitability.

 

Financial highlights:

·      Revenue up 6.1% to £20.3m (2022: £19.1m)

·      Gross profit margin increased by 4.1% pts to 37.6% (2022: 33.5%)

·      Human Capital Management ("HCM") annualised recurring revenues* ("ARR") increased by 133% year-on-year to £2.1 million for April 2023, positively contributing to profit margins

·      EBITDA of £1.5m (2022: £0.03m loss)

·      Operating profit of £0.3m (2022: £1.1m loss)

·      Profit after tax of £0.4m (2022: £0.8m loss)

·      Earnings per share of 3.77p (2022: 0.32p loss per share)

·      Investments in research and development £0.5m (2022: £0.8m)

·      Cash at bank of £0.6m at year end (2022: £0.2m)

·      Net assets of £7.9m at year end (2022: £7.6m)

Business highlights:

·      FY23 year-on-year revenue growth, driven by a strong performance in the Group's People, Data Management, and Physical Security divisions

·      Product innovation and efficient software systems have enhanced solutions offering, resulting in new client contracts.

·      8th consecutive year of HCM revenue growth due to increases in both North American and European markets.

·      Launched our next generation secure cloud control platform GT Connect, which will drive future recurring revenue growth.

·      Relocated Grosvenor's US headquarters to a much larger facility in Florida and brought third-party logistics in-house.

·      Physical Security division returned to revenue growth in FY23 due to an increase in service revenues and strong demand for our security-rated screens and counters in both the retail and public sectors.

·      Group returned to profitability and cash flow generation in FY23.

 

*ARR is calculated by annualising revenue recognised in a given month from all clients on deployed HCM subscription contracts

 

Maurice Dwek, Chairman of Newmark, commented:

 

"It has been a milestone year in several ways, culminating in the Group returning to full-year profitability. What might look like modest overall top line growth hides the key story underneath, which is the launch of our strategic cloud platform, GT Connect. This is vastly more scaleable as a service offering and is accelerating GT's shift from being a 'hardware only' to a 'hardware-enabled software and services' business. This, combined with the return to growth in Safetell, shows the success of our 2025 Growth Strategy.

 

"Looking ahead, the business has made a good start to FY24 with its new revenue pipeline."

 

 

 

 

Newmark Security plc Marie-Claire Dwek, Chief Executive Officer Paul Campbell-White, Chief Financial Officer	Tel: +44 (0) 20 7355 0070 www.newmarksecurity.com
Allenby Capital Limited (Nominated Adviser and Broker)	Tel: +44 (0) 20 3328 5656
James Reeve / Lauren Wright (Corporate Finance) Amrit Nahal / Tony Quirke (Sales & Corporate Broking)

About Newmark Security plc

Newmark is a leading provider of electronic, software and physical security systems and installations that helps organisations protect human capital and provide safe spaces seamlessly and securely.

From our locations in the UK and US, we operate through subsidiary businesses positioned in specialist, high-growth markets.

 

We foster an open and inclusive work environment amongst our c.100 employees, serving hundreds of blue-chip customers.

 

Our product portfolio consists of Human Capital Management and Access Control Systems providing both hardware and software and physical security installations to various sectors.

 

Newmark Security plc is admitted to trading on AIM (AIM: NWT).

 

For more information, please visit: https://newmarksecurity.com/

 

 

Safe. Seamless. Secure

 

CHAIRMAN'S STATEMENT

 

Overview

As we see a slow but steady recovery in the macro environment, I am absolutely delighted to report another year of strong performance, made possible by the resolute commitment and focus of our talented Newmark teams, as they continue to execute our 2025 Growth Strategy. As a result, during the year we made substantial progress in our mission to grow recurring revenues and services, enabled by key technology investments, achieving an overall increase in revenues and returning the business to full-year profitability. This careful balancing act is not to be under-estimated and is a testament to the leadership team's skill and efforts across the business.

Most notably, our focus on software has been a key evolutionary step in our strategy, enabling the business to target a large and growing market in people and data security, and is the result of several years of product and service innovation that now gives us a valuable strategic advantage in our journey ahead.

Once again, our proactive approach has demonstrated our ability to manage the business for the long-term, building credibility with new clients and strengthening existing relationships through services that set us apart in how we are able to comprehensively meet their needs. Our ability to provide technical solutions that include both hardware, software and services without requiring us to physically attend a site is a huge advantage and will continue to be an important factor as we scale.

With high confidence in our solutions and a client-focused strategy, we are driving our business forward with disciplined execution. We will remain agile and continue to prioritise our investments to create sustainable growth, converting the many opportunities we have already identified, expanding our network of partners, and embedding our range of solutions as subscriptions that we can jointly promote.

This has been a very impressive year, demonstrating the market-fit of our solutions and the relevance of our recurring business model. Strengthened by the increasing traction we are achieving in software-based services, we have once again positioned ourselves ideally for another tremendous opportunity to convert this effort into incremental revenue growth across North America, the UK, Europe and the Rest of World markets.

Board and governance

The Board and its Committees continue to maintain a robust governance framework, led by our Chief Financial Officer, Paul Campbell-White, supported by an experienced leadership team to provide independent challenge and ensure that good governance is promoted across the Group.

We follow the Quoted Companies Alliance Corporate Governance Code (QCA Code), and details on how the Company applies the principles of the QCA Code are set out in our Corporate Governance section in the Annual Report.

Going concern

The Board continues to have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. We remain in a stable position as the slow but steady global post-pandemic recovery continues, although cash remains a key focus. Once again, we have taken steps to mitigate the supply chain challenges we face by retaining some additional inventory and further innovating to help mitigate the global shortage of components we need to build our products.

During the year the Group increased its UK invoice financing facility by £0.5 million to £2.3 million. This, together with an overdraft facility of £0.2 million has helped finance the Group's working capital needs in the year to 30 April 2023 (FY23).  In July 2023 the overdraft facility was increased to £0.4 million to provide additional working capital headroom as the Group delivers its strategic growth plan.

The Group's next covenant to be tested for the £2 million HSBC CBILs facility will be for the year ended 30 April 2024 (FY24) and requires the Group to deliver a pre-debt service cashflow of 1.2 times the level of debt service. The latest forecast of the Group results in exceeding the debt service covenant test by 48% and will be tested again when a revised forecast is completed in October. 

The Group is currently trading ahead of this forecast and continues to generate operating cashflows in FY24.

We are optimistic that our growth will continue in the next 12 months, supported by the investments we have made in FY23. A full analysis of the Group's going concern assessment is included in the Directors' Report in the Annual Report. Accordingly, the directors consider it appropriate to prepare the accounts on a going concern basis.

Dividend

The Board is not recommending the payment of a dividend for the year ended 30 April 2023 (2022: £Nil).

Outlook

The Group has again demonstrated great resilience in the face of continued uncertainty affecting the macro-economic environment in the UK and internationally. I am absolutely delighted with the progress we have made this year. Despite continued inflationary pressures, we look forward with great optimism, particularly for the accelerating growth of our human capital management (HCM) business through new and growing partnerships in North America, Europe and the Rest of the World. We are already benefitting from the execution of our 2025 Growth Strategy and will continue to build a greater proportion of recurring revenues in the year ahead.

Our Physical Security Solutions division, Safetell, is also now well-positioned to make a greater contribution to this strategy, by growing its services to achieve national scale efficiencies as well as optimising its product portfolio and improving its competitive position with broader manufacturing and supply chain options. Already underway, these initiatives will see it continue to advance its share of the Entrance Control and Automatic Door servicing market by pressing its advantage, offering complete security solutions with services that bring rapid response to customers' needs, as well as targeting new market opportunities with an enhanced sales and marketing team.

I remain entirely convinced of the strategy and outlook for growth. We have worked hard to put ourselves in a strong position in each of our respective markets and this is beginning to show rewards that will be in further evidence in the year ahead.

On behalf of the Board, I would like to extend my thanks for all the hard work and dedication shown by our teams in what has been a highly productive year, overcoming key challenges with enormous resolve and driving forward with great confidence in addressing an exciting market opportunity that is expanding quickly. I look forward to a successful year ahead.

Maurice Dwek
Chairman

25 September 2023

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

This was another year of solid execution and progress against our strategic plan, with key improvements across the business driven by the significant efforts of the whole team, and strong business unit performances within both our People and Data Management and Physical Security divisions.

Last year's innovation efforts, in particular the development and adaptation of products and services aimed at generating increasing and new recurring revenues, has produced extremely positive results.

Specifically, the launch of GT Connect has enabled us to begin to realise our vision to create larger trusted ecosystems in the workplace that more broadly connect security device hardware with our secure cloud services, including Bring Your Own Device (BYOD) tablets and third-party products that greatly extend the reach of our solutions.

This key software enhancement enables us to push forward with our strategy, executing with a collective focus to attach services to all our products and this is yielding a dramatic increase in the recurring proportion of our revenues, creating a critical foundation and with much further growth to come.

Broadening our product portfolio once again this year, our expert teams have deployed innovative configuration and design techniques to adapt existing products and increase the range of our offering, creating a new low-cost clock solution that will challenge a hitherto under-served segment of the market with greatly enhanced cloud services.

Our sales and commercial teams have also been hard at work, progressing a very exciting pipeline of new HCM partners. With several in advanced discussions, we have been busy lining up a strong and diverse spread of revenue streams to replace the anticipated loss of UKG in the second half of FY23 who, following the 2020 merger with clock competitor, Kronos, were always clear on their intention to pursue an independent market strategy. The fact that they have used our services and products this far is testament to the quality of services provided by our team.

As a mark of the progress we have made with our strategy and strongly anticipated growth, we relocated Grosvenor's US headquarters to a much larger facility in Florida, and brought third-party logistics in-house. With triple the floor space and a greatly improved location, this gives us excellent headroom for growth in both staff and inventory capacity, as momentum continues to build.

Although the macro environment continues to be challenging, with weaker exchange rates causing some downside in foreign exchange and rising costs due to inflation, these have been partially offset by necessary and inevitable price increases.

Our supply chain continues to show resilience to global impacts, such as the war in Ukraine, but this has placed greater pressure on retaining our stock of components across a wider range of devices as our product range continues to grow and develop. By significantly enhancing our focus on inventory and supply chain management over the last three years, we have been able to create a strong competitive position, and this is one from which we can fully support our customers and meet all the commitments we have undertaken.

I was especially delighted that Safetell returned to growth once more. As the first step in its transformation, it achieved a modest increase in FY23 with further growth to come as projects and contracts delayed by Covid began to recover.  However, these projects have been operating significantly behind schedule, causing some delays in sales of security products that tend to be fitted at the tail end of infrastructure and building projects. These delays were offset by the rise in demand for security screens and the significant increase in income from services. During the year, Safetell developed a redesigned, cost-effective retail attack-resistant screen for convenience stores, and this has been subject to strong demand, having rolled out over £1 million of installations for major UK retailers and built a pipeline of over £2 million for installations for FY24. Our strategic aim, to gather more service contracts, is also progressing very strongly with commercial discussions with several major high street brands at an advanced stage. We have learnt to navigate a number of new post-pandemic approval procedures instituted by major brands, whilst this has slightly extended sales cycles, at the same time this has added further competitive advantage, giving us much increased confidence for the year ahead.

Performance

Group revenue has grown once again, increasing by 6% year-on-year to £20.3 million with gross margin increasing substantially, up 19% to £7.6 million.

This performance was primarily driven by continued success in HCM sales, up by 10% to £12.6 million, with a greatly improved gross margin contribution, up 32% to £6.0 million. At the centre of this success is the rapidly growing high margin recurring services contribution with Software-as-a-Service (SaaS) and Clock-as-a-Service (ClaaS) annual recurring revenues (ARR) increasing by 133% to £2.1 million by April 2023. As our clear strategic priority, we expect growth in HCM to accelerate in FY24 with further significant gains in annual recurring revenues.

Our Access Control business declined slightly by 3% year-on-year to £3.0 million as it underwent an important re-balancing, transitioning away from the end-of-life legacy Janus product, with revenues declining by £1 million, and towards the new Janus C4 Access Control product, with those sales increasing to £1.7 million, representing an outstanding growth rate of 108%. Together with a small 5% increase in sales of Sateon Advance to £1.1 million and the new Janus C4 Ultra product in the pipeline, the future growth outlook in Access Control is extremely positive.

Safetell revenues grew modestly by 3% to £4.7 million benefitting from its new leadership and numerous re-organisation measures which started to take effect. These are expected to have a greater impact as we move forward. With a number of exciting national opportunities in the pipeline and expected to come through in FY24, this puts the business in a very strong position to plan for more aggressive growth in the year ahead.

Financial

The Group's cash at 30 April 2023 was £0.6 million (2022: £0.2 million).

This increase was due to a significant improvement in operation cashflows driven by higher revenues, increased gross margin percentage and lower overheads. During FY22, we implemented a programme of strict cost control and increased prices to mitigate the effect of higher componentry and freight costs. With a full year of these price rises and cost savings taking effect, this resulted in improved performance in FY23 as we began to use our recent investments in products and infrastructure to accelerate growth.

Supply chain challenges have also been successfully managed by building inventory to satisfy ongoing customer demand. The inventory levels are expected to ease in FY24, allowing for further cash flow generation.

With the oversight of our CFO, Paul Campbell-White, we continue to exercise strong governance and appropriate commercial controls, ensuring that sound financial discipline underpins our operations, and all investment decisions continue to align with our strategic goals as we accelerate towards our 2025 strategy.

Outlook

People and Data Management division - Grosvenor Technology

Looking ahead to FY24, we anticipate further substantial growth as we continue to build on the positive momentum we have achieved in all our geographic markets. With our existing approach demonstrating clear success, the challenge ahead will be to accelerate the pace with the appropriate discipline required to scale effectively across every region, and in particular through our expanded presence in North America.

Our clear intention is to gain an increasing share of the enormous opportunity we have created as a market leader in secure cloud solutions for Human Capital Management and innovative products for Access Control. Our priority will be to continue leveraging GT Connect, our enhanced services, and a broader range of products as we look to further secure long-term HCM partnerships and onboard new customers. These efforts will further increase recurring revenues, driving towards an even more ambitious ARR target.

Similarly, we will drive growth in Access Control across public and private markets with our recently expanded sales team and with further investment in next-generation control, completing the development of Janus C4 Ultra, a new product which is already creating significant new interest and opportunity.

I am extremely grateful for the leadership of Colin Leatherbarrow, and his talented senior team, for their ongoing commitment to the highest professional standards, demonstrating great skill in execution and driving an excellent full-year performance. This has been an exemplary first year for Colin as MD, stepping up from his former role as CTO in November 2022, bringing his expert focus to Grosvenor's technical and commercial operations and making a wholeheartedly positive impact right across the business. As the business expands, I am confident we have the right team to guide this division to the success it deserves.

Physical Security Solutions division - Safetell

With new leadership and renewed strategic focus on growing services, the team has been busy rebuilding its operations to enable it to scale nationally. Looking ahead, the priority continues to be securing national servicing contracts, enabling efficient, profitable operations across a growing team of high quality, professionally certified engineers and service personnel.

With new projects beginning to regain their pre-pandemic momentum and new partnerships being secured, the business will also continue to optimise its product portfolio and improve its competitive position, with broader manufacturing and supply chain options already in place for FY24.

Already underway, these initiatives will see it target larger contracts in entrance control, build new national scale relationships for our Autodoor Service Department and convert the significant pipeline we have created for retail attack-resistant screens as we seek to further extend our long-established banking experience to meet the growing demand for security screens across retailers of all sizes.

By offering complete security solutions with services that bring rapid response to customers' needs, as well as targeting new market opportunities with an enhanced sales and marketing team, I am equally grateful to Nick Shannon and his leadership team for achieving revenue growth after a number of years of decline, and in challenging conditions. Safetell now stands ideally placed for further solid growth in the year ahead.

Strategy

With data security and compliance driving strong market demand, this is an opportunity which we will actively pursue to capitalise on the trust in our operations and reputation for engineering excellence that we have established over three decades.

Compliance with data remains a strong underpinning core value, and the business will seek to leverage this in winning new HCM SaaS recurring revenue business in both the North American, European and Rest of World markets.

Our strategic aim remains to increase recurring revenues and make the powerful evolution from hardware to hardware-enabled software and services, based on providing 'secure cloud control'. This strategy is already being realised, and it will continue to be the core focus underpinning all our growth initiatives as we seek to use our expertise in data security to generate sustainable, high quality revenue streams that will scale and extend, over and beyond the product lifecycle, into the longer-term.

Our valuable objective remains. By offering secure cloud control of people's access, time keeping and identity data at work, we are shifting the strategic value paradigm, raising the customer focus from its former dependency on hardware 'clocks' and 'access terminals', to one that empowers the intelligent enterprise. Through our solutions, customers will gain the capability to enable and connect a broad range of internet-enabled devices securely in the cloud with unified software control - creating a trusted ecosystem in the workplace.

As our business model evolution to hardware-enabled software-as-a-service gathers pace, our focus remains on winning trusted, long-term partnerships fulfilled by our unique combination of best-in-class products with market leading software and expert, specialist support services that put customers in control.

In an increasingly risk-aware enterprise environment, our strategic focus and approach are opening a substantial market opportunity in which we now occupy a commanding position with key partners. Our aim in FY24 is to accelerate how we scale this model across an expanded partnership channel, securing greater market share and converting our hard-earned competitive advantage as we continue to execute our 2025 growth strategy reassured by the essential feedback of our many happy customers.

Marie-Claire Dwek
Chief Executive Officer

25 September 2023

 

OUR DIVISIONS - People and Data Management

Revenue information

£'000	2023	2022	Increase/ (decrease)	% change
HCM North America	8,830	8,726	104	1%
HCM Rest of World	3,721	2,716	1,005	37%
Total HCM	12,551	11,442	1,109	10%
Janus C4	1,729	833	896	108%
Sateon Advance	1,063	1,010	53	5%
Legacy Janus	231	1,274	(1,043)	(82%)
Total Access Control	3,023	3,117	(94)	(3%)
Division Total	15,574	14,559	1,015	7%

 

Performance overview

Grosvenor Technology (Grosvenor) continues to be a market leader in time, data capture and access solutions for Human Capital Management and Access Control, helping organisations to protect and manage their most valuable assets - people in the workplace.

Once again, it has been another solid year with top line revenue growth of 7% to £15.6 million, primarily driven by strong growth of the HCM business and our expanding relationships with software partners, which have been particularly strengthened in the European market.

The year has been a clear illustration of the value of executing on our 2025 Growth Strategy, evolving our business model to hardware-enabled software and services. By connecting devices to deliver secure cloud-based control via our newly upgraded and re-launched software, GT Connect, we have been able to offer customers and partners enhanced services attached to every connection, and this now includes third party devices for the first time.

These developments mark a major strategic milestone for Grosvenor, unlocking enormous market potential across a broader range of connected devices, as well driving another substantial increase in recurring revenues, as we continue to build steady, predictable income streams across a fast-growing base of customers and partners.

As a consequence, HCM annualised recurring revenues (ARR) grew by 133% to reach an ARR of £2.1 million in April 2023. These revenues represented 12% of Grosvenor's 2023 revenues (2022: 4%). As a central focus of our strategic plan, we are confident this continued strong growth trajectory will result in an even greater share of revenue in FY24 and beyond.

During the year, significant overall HCM growth was achieved in both the North American and Rest of World (ROW) markets, however another strong US-based performance was masked by the termination of our partnership with UKG. Whilst this had always been foreseen following the 2020 merger between Ultimate Software, our original HCM partner, and Kronos, a competitor in time clock products, in prior years revenue had significantly increased due to the ease with which our clocks integrate with the Ultimate software platform. Although UKG's corporate policy decision was entirely unrelated to the performance of solutions and services from Grosvenor, the notification in Q3 FY23 left a shortfall in sales against our original plan that we were able to offset with substantial gains across our other HCM partnerships, but which combined to result in an overall flat 1% growth in the region. Progress with European HCM partners gathered pace, as ROW markets delivered underlying growth of £1.0 million, resulting in a 37% year-on-year improvement, and contributing most of the 10% growth in HCM revenues overall.

Meanwhile, Access Control solutions underwent an important re-balancing as we transitioned between new and end-of-life legacy product revenue lifecycles during FY23. Whilst at a headline level, overall revenues decreased by 3% to £3.0 million, sales of our new Janus C4 product doubled to £1.7 million (2022: £0.8 million) and this was supported by a modest 5% growth of Sateon Advance to £1.1 million (2022: £1.0 million). Although this combination was not sufficient to offset the decline in revenues from our legacy Janus product, which reduced to £0.2 million (April 2022: £1.3 million), passing through the tail-end of this legacy removal cycle clears the way for positive growth across all product lines in FY24. With additional sales resource joining this team in FY23, this provides an ideal platform to add new growth from our Janus C4 Ultra product, planned for launch 2024 and which is already generating significant customer interest.

By taking further actions to optimise our operations, including putting through necessary price increases to mitigate the inflationary environment, and growing recurring revenues, we were able to significantly increase gross margins to 38.6% (2022: 31.4%).

Below these headline financial results, we made positive operational progress that produced encouraging growth across all strategic priority areas. With the successful delivery of an ambitious upgrade to our product strategy, re-platforming our core cloud control software, GT Connect, and evolving the service model, the business enters FY24 in a commanding position to address a far broader market opportunity with substantially enhanced solutions and competitive advantage.

Evolving partnerships driving HCM growth

Grosvenor's strategic growth continues to be driven through key partnerships with a variety of HCM providers. The substantial progress made in developing existing partnerships produced another year of exceptional growth, with some notable partnership successes.

Our major European partnership grew by 23% with recurring revenue nearly doubling, driven by increased sales, planned price increases and the compounding annual effect of growing recurring revenue. As we had anticipated, this partner also began taking our GT8 product, ordering a significant number of units during the year.

Direct to end-user business grew in both revenue and margin, onboarding end-users that included notable high-profile customers such as Shangri-la hotels (The Shard), Imperial London Hotels, Dorchester Hotels and Refresco Drinks, and all attracted incremental service revenues.

We achieved major US partner success, migrating a new and large tier 1 HCM provider to GT Connect, leveraging the full range of features and benefits. By achieving the required levels of control by their channel partners via the advanced tenancy architecture, this has started to drive downstream demand via their channel partner network following a launch at their annual partner event.

Another major US HCM partner produced an outstanding growth of 27% and this was achieved through diversification of products and closely supporting larger projects.

The Grosvenor team also delivered a significant foundation of the forward outlook by migrating existing clients from legacy to GT4, including a number of well-known household name brands. This is essential groundwork for retaining existing customers in the future.

We continue to actively support another key partner in the US to enhance and scale their services with customers, and in particular their introduction to one of the world's largest retailers who we now support directly. Winning a major national contract to provide transactional cloud services across all their Mexican stores has delivered a substantial boost to our strategy and further added to growth in our recurring revenues.

 

OUR DIVISIONS - Physical Security

 

Revenue information

£'000	2023	2022	Increase/ (decrease)	% change
Products	2,840	3,131	(291)	(9%)
Service	1,900	1,455	445	31%
Division Total	4,740	4,586	154	3%

 

Performance overview

Safetell continues to develop its presence in the UK as a leading provider and installer of integrated door solutions and physical security.

FY23 was a pivotal year for the business, with a rapid turn-around conducted by MD, Nick Shannon, reversing recent years' declining revenues and achieving a small increase of 3% year-on-year to £4.7 million. This clearly demonstrated the positive effect of organisational changes implemented in FY22 and the value of our strategy to focus on growing service revenues, up 31% year-on-year, increasing the proportion of income from services which rose to 40% (2022: 32%). This transformation was achieved despite the continuing contraction of physical branches in the banking market, reducing demand for legacy rising screen services.

Our strategy to focus on services and move away from one-off supply of products had a notable impact, with a 9% contraction in product sales largely caused by temporary order delays, now planned in Q1 FY24, and which was more than offset by expected gains in service in the areas we had prioritised.

Although trading throughout the year was in line with expectations, with top line revenue rising, gross margin decreased to 34% (2022: 40%). This was due to the under-utilisation of field-based engineers as we grow capacity in order to build-up services revenue. As we secure additional service contracts in FY24, we expect this to normalise and return a net contribution.

With challenging economic conditions continuing in the form of inflationary pressures and increased supply chain volatility, our experienced team made further adaptations to enhance resilience and secure the way ahead. This included negotiating price increases in those open tenders and supply agreements where contract conditions allowed, although in many instances this was not possible due to either pre-negotiated pricing or market competition. To provide further mitigation, we sourced two alternative product manufacturers in China who can deliver at higher quality, substantially lower cost and with materially reduced lead times compared to previous 'make-to-order' supply arrangements. These advantages will not take effect until FY24 however, following from last year's enhancements to our product offering that brought automatic doors and entrance control into our product portfolio, we have now secured high specification 'standardised' alternatives across all of the key items in our portfolio. This will make us far more competitive, improving our speed of delivery and response for the year ahead.

Whilst overall demand for security products and services has recovered to above pre-pandemic levels, in FY23, we saw residual effects of continued uncertainty in the business environment causing a long-tail drag on projects, with some clients taking longer to work through their own transformation plans as a consequence. This caused a slight delay in project revenues bookings at the end of FY23, in most cases this has only been by a matter of months. With those revenues now set to come through in early FY24, this assures a particularly strong start to the new year. Together with a very positive demand outlook, evidenced by the strength of an even more rigorously qualified pipeline, we remain confident that the business is well-positioned to achieve its ambitious growth strategy.

Focused execution on areas of high demand drives growth and builds positive forward momentum

Executing on our 2025 Growth Strategy, all of our focus areas experienced strong demand in FY23, enabling us to build on the foundations laid in 2022, as we continued to drive growth and generate the momentum essential to scaling the business incrementally, in carefully planned stages.

Our security-rated screens and counters performed exceptionally well throughout the year both in the retail environment as well as within the public sector. Key to this success was developing a redesigned, retail attack-resistant screen for convenience stores which is lightweight, flexible and cost-effective.

This has received strong demand, having rolled out over £1 million of installations for major UK retailers and built a pipeline of over £2 million for installations in FY24. With the current robbery issues in the convenience store market, we believe we can further grow this order level through 2024.

Our relationship with blue light customers continued to grow with an additional £0.3 million of projects from one of the UK's largest Police Forces, following on from our work in 2022. Our development efforts in this segment were rewarded with orders from five other Police Forces, creating a strong base from which to expand. Public Sector orders in general were strong throughout the year, with projects completed in multiple healthcare settings, where our unique Countershield 'moving screen' remains popular for A&E departments, as well as prisons, transport hubs and military installations.

Our FY22 entry into the Entrance Control market also gathered pace in FY23, building on the early wins achieved in 2022 with new installations direct to end-users as well as through the enlarged construction sector, including newbuild and refurbishment. The new manufacturing arrangements we have secured are helping us to fill the gaps in our product range to enable access to markets where cost effective solutions are required. As we continue to win market share, we expect our Entrance Control business to grow significantly in 2024, with a number of projects tendered during 2023 moving into the construction phase in 2024. As before, we remain focused on targeting the larger contracts available in this area, which bring the dual benefit of the maintenance services that follow-on from initial installation, helping to grow our Autodoor Service Department.

Continuing to grow recurring service revenues, with a focus on automatic doors

In line with our strategy, service revenue increases were driven by additional wins in autodoor servicing and repairs, with new national service contracts contributing to a nearly five-fold increase in recurring revenues to £0.3 million. We expect this trend of additional autodoor works to continue into 2024, starting strongly with £0.6 million in our pipeline of service and repair contracts already quoted. With further growth expected, this remains the clear strategic priority for the future of the business.

Our record in repairing and upgrading customer doors rather than replacing them has continued to be an advantage. All of our service engineers have been security cleared to BS7858, the UK standard for vetting of people employed in the security sector, and this coupled with our 'Repair-not-replace' mentality, continues to strike a positive chord with our customers, particularly those with larger national estates. In the last year, we added a further 200 doors and now provide call-out support across over 2,000 doors, representing a substantial national footprint.

This market continues to be a strategic priority for Safetell, with autodoor servicing in the UK estimated at twice the size of Safetell's traditional markets. Our challenge in FY24 will be to gain a critical mass of contract volumes to support a more efficient scaling and deployment of our service team at competitive margins. This transition will be the key factor to overcome as we transition from high margin one-off projects and a unique legacy rising screens service to high volume service and repair contracts at reduced margins but which provide sustainable revenues and long-term stability. Our clear emphasis is on generating strong recurring revenues, and we expect the autodoor segment to account for an increasing share of turnover in the coming years.

Learning how we win, generating insights to accelerate future success

As important as our wins are, understanding why we have lost competitive tenders in the past has been just as important to us in learning how to unlock, accelerate and scale the business. Following a detailed review of current and past commercial submissions in FY23, we now have a much better understanding of why and how to win in key competitive scenarios, specifically in the Security Door, Entrance Control & Automatic Door Installation and Service sectors. The findings from this review are now being channelled into improved methods, marketing and enhanced products to help us gain additional market share in 2024 and beyond.

Overall, our pipeline grew steadily throughout the year and, at the outset of 2024, stood at £9.5 million, with a further £4.6 million of quoted 'suspects', compared to a pipeline total of £5.4 million at the outset of 2023.

The planned investment in Sales and Marketing during FY23 enabled the sales team to achieve against a significantly increased new business sales order target from 2022, gaining new orders of £3.9 million within the year, against £3.0 million in 2022. An increased delay in timing between orders being received and projects commencing served to under-represent the significant achievements made by our improved team, however we are confident this will contribute to a stronger FY24 where this will become fully visible.

Creating safe spaces for employees and colleagues

The substantial progress made by a dedicated and committed team has delivered precisely what we'd hoped for in FY23, returning the business to growth, focusing on key areas of high demand and organising to compete and win as we begin to address a much wider market opportunity, particularly in security doors and entrance control.

The market continues to experience rising demand for high specification physical security products. Increasing threats from crime and terrorism have made physical protection and security a priority for businesses in most sectors, as many businesses prepare to meet the new 'Protect Duty' legislation.

Responding to the rapid and continuous growth of high security environments, such as data centres, also provides a significant scaling opportunity for Safetell, one that we are ready for as we continue to build trusted, long-term partnerships with Facilities Management providers.

Building our reputation as a trusted service partner for the long-term will not only translate into success with our immediate growth targets, it underpins our confidence to take the next steps on the journey we have planned. Focused execution will continue to prioritise recurring revenues from services, and this transition lies at the heart of our strategy and approach.

 

FINANCIAL REVIEW

Revenue		2023		2022		Increase/ (decrease)		Percentage change
		£'000		£'000		£'000		%
People and Data Management Division
HCM		12,551		11,442		1,109		10%
Access Control		3,023		3,117		(94)		(3%)
		15,574		14,559		1,015		7%
Physical Security Solutions Division
Products		2,840		3,131		(291)		(9%)
Service		1,900		1,455		445		31%
		4,740		4,586		154		3%
Group Revenue		20,314		19,145		1,169		6%

 

Group revenue increased by 6% to £20.3 million (2022: £19.1 million) driven by growth in HCM from both North America and Rest of World.  This revenue increase was due to recurring revenues from SaaS (GT Connect) and ClaaS products. There has also been revenue increase from Services in the Physical Security Solutions Division. This growth is from traditional bank and building society clients as well as new auto-door servicing and repairs.  Further commentary and discussion can be found in the relevant divisional sections.

		2023		2022		Increase/ (decrease)		Percentage change
		£'000		£'000		£'000		%
Gross Profit		7,638		6,419		1,219		19%
Gross Profit Margin		37.6%		33.5%

 

Gross profit margins have increased to 37.6% (2022: 33.5%) due to the full year effect of customer price rises and cost savings in the People and Data Management division. Their gross margins increased to 38.6% (2022: 31.4%). The Physical Security Solutions division achieved a gross profit of 34.4% (2022: 40.4%) the decrease is primarily caused by the under-utilisation of field-based engineers as we grow capacity to serve new service contracts.

Administrative expenses and average employees

Administrative expenses before exceptional items have decreased by 2% to £7.4 million (2022: £7.5 million). This has mainly been the result of a decrease in consultancy costs to support the strategic growth plan. Overall average employees have decreased to 99 (2022: 103) driven by reductions in Grosvenor UK.  Staff costs (which are included in both cost of sales and administrative expenses) increased by £0.2 million or 2% to £7.4 million (2022: £7.1 million).

Exceptional costs

There were no exceptional costs during the year. In 2022, £0.1 million of exceptional costs were incurred relating to continued streamlining of positions in Grosvenor and Safetell.

Finance costs

Finance costs have increased by £0.1 million to £0.3 million (2022: £0.2 million) due to additional invoice financing borrowings to support higher working capital requirements and higher interest rates.

 

Profitability

The current year profit from operations before exceptional items was £0.3 million (2022: loss £1.1 million). The increase in profitability was caused by a combination of increase in gross profits from higher revenues, improved gross margins percentages and the full year effect of cost savings measures introduced in the second half of FY22.

Profit after tax for the year was £0.4 million (2022: loss £0.8 million).  This is after tax credits which are discussed in more detail below.

Taxation

A tax credit of £0.4 million (2022: £0.6 million) was recognised in the year. This resulted from a current tax credit of £0.4 million (2022: £0.4 million) due to the continued R&D claims at Grosvenor and Safetell and a £44,000 deferred tax credit (2022: £0.2 million). The prior year deferred tax credit was primarily from the recognition of tax losses.

Earnings per share

Earnings per share was 3.77p (2022: loss 0.32p) being an increase of 4.09p. The decrease was due to the increase in profitability in FY23.

Balance sheet

Net assets have increased by £0.3 million to £7.9 million (2022: £7.6 million). Property, plant and equipment increased by £0.8 million to £2.9 million mainly from right of use buildings (renewal of Safetell lease and new Grosvenor Florida office), right of use motor vehicles and ClaaS clocks. Inventory has increased by £0.2 million to £4.2 million with additional purchases of finished goods to allow extra cover for any further supply chain delays. Trade and other receivables increased by £1.0 million primarily due to a rise in trade receivables in the Physical Security Solutions Division. Cash and cash equivalents increased by £0.4 million to £0.6 million (2022: £0.6 million). Trade and other payables increased by £1.5 million as result of higher activity in Q4 FY23 in the Physical Security Solutions division. The £0.4 million increase in short term borrowings to £3.4 million was due to drawing down of the UK invoicing financing facility and increase in lease payments.

Research & Development (R&D)

The Group has decreased its R&D investment to £0.5 million (2022: £0.8 million) in the People and Data Management division. The reduction is due the completion of the development of GT Connect, our upgraded SaaS platform which was launched in the second half of FY23.

Cashflow

During the year cash increased by £0.4 million to £0.6 million (2022: £0.2 million). Cash generated from operating activities increased by £2.8 million to £2.1 million (2022: outflow £0.7 million) mainly driven by an increase in operating profits and a £1.7 million improvement working capital due to lower inventories and creditor outflows. There was also a net tax receipt of £0.4 million (2023: £0.4 million) from R&D tax credits. Cashflow from investing activities decreased by £0.5 million to £0.8 million (2022: £1.3 million) primarily due to the reduction in investment in research and development as mentioned above. The financing movements related to the drawdown of £0.3 million of invoice financing from the UK facility (2022: £2.3 million from UK and US facilities), lease principal repayments of £0.4 million (2022: £0.4 million) and £0.4 million of repayments from the Coronavirus Business Interruption Loan Scheme ("CBILS") which started to be paid back from September 2021 over a 5-year term.  There was also £0.3 million of interest paid on the debt facilities (2022: £0.1 million).

Cashflow forward currency contracts

During the year we executed our foreign exchange strategy by entering into forward contracts. The strategy effectively hedges 75% of excess USD and reduces the level of volatility compared to using spot rates. The contracts manage our currency mismatch between an increasing US Dollars (USD) position from revenues and the existing cost base in both GBP and Euros. The adopted process involved currency forecasting three quarters ahead and taking out tranches of forward contracts for 25% of each of the forecasted quarters relating to our excess USD position.

 

CONSOLIDATED INCOME STATEMENT FOR THE YEAR END 30 APRIL 2023

		2023		2022
	Note	£'000		£'000
Revenue		20,314		19,145
Cost of sales		(12,676)		(12,726)
Gross profit		7,638		6,419
Administrative expenses		(7,354)		(7,633)
Profit/(loss) from operations before exceptional items		284		(1,090)
Exceptional redundancy costs		-		(124)
Profit/(loss) from operations		284		(1,214)
Finance costs		(348)		(220)
Loss before tax		(64)		(1,434)
Tax credit	3	417		630
Profit/(loss) for the year		353		(804)
Attributable to:
- Equity holders of the parent		353		(804)
Earnings/(loss) per share
- Basic (pence)		3.77		(0.32)
- Diluted (pence)		3.69		(0.32)

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
		2023		2022
		£'000		£'000
Profit/(loss) for the year		353		151
Foreign exchange on the retranslation of overseas operation		(22)		(196)
Total comprehensive profit/(loss) for the year		331		(661)
Attributable to:
- Equity holders of the parent		331		(661)

The notes in the annual report and accounts form part of these financial statements.