Newmark Security : October 2022

Interim Report

for the six months ended 31 October 2022

Company number: 03339998

: 03339998

CHAIRMAN'S STATEMENT

I am pleased to announce the Group's unaudited interim results for the six months ended 31 October 2022 ("H1 FY23").

Group performance

	Six		Six
	months		months
	to 31		to 31
	October		October		Increase/		Percentage
Revenue	2022	2021		(decrease)		change
	£'000	£'000	£'000	%
People and Data Management division	8,415	7,129	1,286	18%
Physical Security Solutions division	2,210	2,568	(358)	(14%)
Group revenue	10,625		9,697		928		10%

Group revenue increased by 10% year-on-year to £10.6 million (H1 FY22: £9.7 million), driven by a strong performance in the People and Data Management division with double-digit growth in both Human Capital Management (HCM) and Access Control.

Gross profit in value terms is up year-on-year and the gross profit percentage has substantially increased by over 5.7 percentage points to 38.9% (H1 FY22: 33.2%). This result is due to a combination of H2 FY22 price rises flowing into higher H1 FY23 revenues, product mix and increased higher margin HCM recurring revenues.

Administrative expenses have decreased by 11% to £3.6 million (H1 FY22: £4.0 million) driven by a number of cost-saving

initiatives. Operating profit before exceptional items of £0.5 million (H1 FY22: loss of £0.6 million). Finance costs during

the period came to £0.15 million (H1 FY22: £0.06 million). This increase resulted from additional invoice financing borrowings to support higher working capital requirements and higher interest rates.

Group's earnings per share reached 4.89 pence (H1 FY22: loss per share of 0.17p).

People and Data Management division - Grosvenor Technology ("Grosvenor")

Revenue information
	Six		Six
	months		months
	to 31		to 31
	October		October		Increase/		Percentage
	2022	2021		(decrease)		change
	£'000	£'000	£'000	%
People and Data Management division
HCM US	4,875	4,209	666	16%
HCM ROW	1,507	1,249	258	21%
Total HCM	6,382	5,458	924	17%
Janus C4	1,022	270	752	279%
Sateon Advance	838	558	280	50%
Legacy Janus	173	843	(670)	(79%)
Total Access Control	2,033	1,671	362	22%
Division total revenue	8,415		7,129		1,286		18%

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Grosvenor - Hardware-enabled software and services

Human Capital Management

The business achieved revenue growth of 17% to reach £6.4 million (H1 FY22 £5.5 million), primarily driven by strong HCM business growth from both the US and Rest of World (ROW) regions as we have been expanding our relationships with Tier 1 software partners.

Our growth is driven by strong market demand for reliable data security solutions and intelligence. We are capitalising on this opportunity to continue winning in the marketplace by being a trusted security partner for our customers, offering cutting-edge,end-to end solutions. Through our advanced secure cloud control systems of people's access, identity and attendance, we are raising the quality and speed of intelligence creating the new workplace ecosystems.

Key achievements during the period included re-platforming our core cloud control software, GT Connect, and evolving warranty and support services with GT Protect. We have seen substantial progress in our HCM hardware-enabled SaaS strategy with HCM annual recurring revenue increasing by 260% year-on-year to £1.3 million in April 2022 driven by SaaS and ClaaS (clocks as a service).

We continued our successful partnership with major software vendors enabling us to supply directly to their large customer base. We are working with our partners to increase our share-of-wallet acting as their preferred supplier and new partnerships are being established to help us deliver our growth targets. We are pleased to announce we have signed a GT Connect and support contract with one of the largest US retailers based in Mexico in the second half of FY23. This contract will help accelerate our growth in HCM recurring revenues.

Access Control

The Access Control line of business has been another success story for the first half of the year. Revenue increased by 22% to £2.0 million (H1 FY22: £1.7 million).

Janus C4, our Security Management System (SMS), has seen continued year-on-year revenue growth of 297%, to £1.0 million. The onboarding of new partners has been driven by our ability to conduct face-to-face sales visits and conduct installations after many months of disruption. The increase in sales is also due to upgrades from our legacy Sateon and Janus ranges.

Grosvenor Product update

During H1 FY23, Grosvenor has undertaken the following product developments:

• Advanced facial recognition in GT Clocks
• Changed to a modular design for GT Clocks, which reduces development costs for new devices
• The new GT Connect secure cloud control platform, released in the second half of 2023 is highly scalable with modern cloud architecture, advanced multi-tenanted hosting and an enhanced security model operating on a microservices framework
• Accelerated product migration of Janus C4, simplifying transition and released our new advanced driver that enhances the performance at all sites. In addition, we launched our new software support agreement providing additional revenue streams
• Accelerated product migration of Janus C4, simplifying transition and released our new advanced driver that enhances the performance at all sites. In addition, we launched our new software support agreement providing additional revenue streams

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Physical Security Solutions division - Safetell - Diversifying our product portfolio
Revenue information
	Six		Six
	months		months
	to 31		to 31
	October		October	Increase/		Percentage
	2022	2021		(decrease)		change
	£'000	£'000		£'000	%
Physical Security Solutions division
Products	1,483	1,821		(338)	(19%)
Service	727		747		(20)		(3%)
Division total revenue	2,210		2,568		(358)		(14%)

Safetell revenue has decreased by 14% to £2.2 million compared to the corresponding prior period. We are in the process of transforming the division with a revised strategic plan, led by our new, highly experienced management and sales team that is setting the direction for sustainable growth. Our traditional work of installing and maintaining rising screens has continued to be impacted by the reduction in the number of bank and post offices across the country but we have now further diversified our product offering by bringing auto door and entrance control into our product portfolio. The demand for these products has been continuously increasing so we have shifted our product offering to capture this market opportunity.

We have also seen significant demand for our safety screens in the retail sector given the current economic climate and the need to protect their staff. We are pleased with the progress made so far as we delivered two large retail projects in H1 FY23, with another one secured for H2.

Despite the revenue decline in the six months to 31 October 2022, gross margins have increased from 38.7% in H1 FY22 to 41.9% in H1 FY23. This is a result of the implementation of operational efficiencies and cost saving initiatives.

Safetell Product update

A strategic priority in our long-term plan is to grow service and maintenance work in the UK autodoor servicing market, estimated at twice the size of Safetell's traditional target markets.

Major initiatives to strengthen our competitive position in fast-growing security markets have included:

• Focusing on the retail sector following strong market demand
• New strategic partnerships and onboarding of new clients
• Introduction of new product lines
• Investment in human capital, strengthening our sales organisational structure
• Investment in sales and marketing to support the two key areas (automatic door servicing and entrance control)

Balance sheet and financing

Inventory increased during the period by £0.1 million to £3.9 million at 31 October 2022 to secure the purchase and adequate supply of certain components in advance of the usual lead times in response to the continued global supply chain challenges.

Cash at 31 October 2022 was £0.1 million, down £0.1 million during the period since 30 April 2022. The Group has an unused £0.2 million UK overdraft facility at the balance sheet date.

Total borrowings decreased by £0.3 million in the period to £5.1 million at the balance sheet date primarily due to CBILS loan repayments which started in September 2021. Subsequent to the balance sheet date, in January 2023, the UK invoice financing facility was increased by £0.6 million to £2.3 million to provide further working capital headroom as the Group continues to grow. The Group also has a $2 million US invoice financing facility.

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Outlook

I am pleased to announce a strong trading and financial performance over this period which highlights our focus on our strategic priorities, customer service excellence, product innovation and complete product offering. We are effectively managing the supply chain, pricing and spending across our business alongside with our focus on efficiency, resulting in these positive results today.

Looking ahead, we are pleased with our robust commercial pipeline and trajectory of high-margin recurring income reflected in the year-to-date performance. Combined with our cost-saving initiatives, strong global market demand for internet-enabled software control devices and investment in human capital, we expect 2023 to be a year of profitable growth.

M DWEK

Chairman

31 January 2023

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