Newmark Security (LSE:NWT) — Final Results

0:01 Good morning, ladies and gentlemen. Welcome to the NEWMARK SECURITY PLC Annual Results Investor Presentation. Q and a tab that's just 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 the meeting itself. However, the company can review all questions submitted today, we'll and publish those responses where it's appropriate to do so. Before we begin, as usual, we would just

0:32 like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Newmark SECURITY. Mary Claire, Paul, good morning. Good morning. Thank you very much for your introduction. Good morning. I'm Mary Claire Dweck, CEO of Newmark Security. And today, we're going to look to share our results and a few highlights of 2024 with an inside look at key developments that are powering our growth strategy to go from strength to strength. First, for those of you who don't know us, let me explain in the simplest way possible what we do. We protect people in safe spaces.

1:19 How we do this is by providing secure cloud control of people's access, timekeeping, and identity data at work. This means safe spaces, seamless operations, and secure data. Everything we do is about protecting human capital, people in safe spaces. For over thirty years, NEWMARK SECURITY has been delivering long term value through products and services in enterprise security. We focus on three segments of the market, human capital management, otherwise known as HCM, access control, and physical security. And we employ a great team of experienced specialists who really understand the needs of our customers and their industries.

2:12 All of our products and services are delivered through two market facing brands, Grosvenor Technology and Safetel.

2:21 Grovner Technology, alternatively known as GT, is our people and data business. And it's a well established provider of time clocks, access control, and all of the software and services that run these devices. This business has been growing rapidly in HCM, particularly in The US and Europe. Safetel is also a well established and is a physical security business where we live deliver long term full life cycle value for our customers by manufacturing and services product servicing products like auto doors, retail protection screens, and building security. All of our products and services are delivered at high margin and increasingly generating recurring revenues through long term enterprise subscriptions and service contracts.

3:17 But first, let me hand you over to Paul, our CFO, to run through some of the key financials for 2024.

3:27 Thanks, Mary Claire. As usual, all of our results announcements are published on our website at newmarksecurity.com. So let me now take you through a brief summary of our 2,024 performance. Group revenue has grown once again, increasing by 10% year on year to £22,300,000 with key partnership successes across the business and strong performances in both the people and data management and physical security divisions. It's It's been another solid year of Grozner with top line revenue growth of 6% to 16,500,000, driven by strong performance of the HCM business. We've expanded our relationships with software partners where where we significantly increased share of wallet growing in both The US and European markets.

4:20 This is now the ninth consecutive year that HCM has delivered positive revenue growth. Headline revenues at Safetel also grew by an impressive 23% to 5,800,000, putting quickly on the modest but important turnaround achieved in f y twenty three, balancing strongly business growth with the continued decline in demand for legacy rising screens in the banking sector.

4:46 Overall, 2024 has been a very productive year, delivering with disciplined execution against a proven growth strategy and benefiting from operational initiatives taken in 2024 that are showing this performance is sustainable.

5:08 So gross profit in f y twenty four increased by 13% to 8,600,000, driven by increased revenues and a naught point nine percentage point improvement in gross margin to 38.5%. This improvement was due to a combination of customer price rises, reduction in component costs, and an increase in high margin recurring revenues. Recurring revenues has been the key metric we've been transforming in our growth strategy, and it's great to see that we've continued momentum this year with a 28% annual recurring revenue growth. And I'll talk more about this on the next slide.

5:50 EBITDA increased by 50% to 2,200,000 in 2024, and operating profit was naught 800,000, up from naught 500,000 in 2023. This was due to the strong performance of both grosser and Safetac. Whilst underlying profitability improved junior, profit after tax decreased by naught 300,000 to naught 100,000 in 2024.

6:17 This was due to a £300,000 tax charge as a result of a change in assumptions for r and d tax claims. These tax movements had a knock on effect on earnings per share, which decreased 1.4p in f y twenty four. We maintained our forward investment focus, sustaining a £400,000 investment in r and d and benefiting from slightly less capital being required as a consequence of the significant investments we've made in 2023 and prior years. The group's cash at 04/30/2024 was £1,100,000, up from 600,000 in 2023.

7:02 This increase was due to a significant improvement in operating cash flows driven by higher revenues, increased gross margin percentage, and a reduction in inventories.

7:13 Bank borrowings less cash at bank decreased from 3,300,000 at last year end to 2,000,000 at this year end.

7:25 As I mentioned earlier, Grosvenor Technology is a specialist people and data business that responds directly to the challenge of keeping people and their data safe when they enter the workplace. And this creates long term customer value by providing them with high spec hardware devices, are built to last, and equally high spec control software enabling cloud based data and device management services, which is allows us to deliver a complete solution. Essentially, this is all about giving customers better control, time clock control, access control, identity data control, and this creates compelling platform for enterprise subscriptions.

8:13 Thanks, Mariclaire. Once again, f y twenty four has been another solid year of progress with top line revenue growth of 6% to £16,500,000 with improved gross profit contribution up naught 500,000 to 6,500,000 at a 39% margin. Performance was driven by strong growth of the HCM business with expanding relationships with software partners in The US and Europe. US based HCM sales grew by 7% to £9,400,000, matched by equivalent progress with key European HCM partners. So rest of world markets delivered similar growth of 8% to £4,000,000.

8:59 This resulted in a 7% year on year improvement in HCM revenues overall. HCM annual recurring subscriptions grew by 28% year on year with an exit ARR of £2,900,000, reaching over 30,000 subscriptions by year end. This is for our software as a service and clock as a service products. Access control delivered flat revenue performance of £3,000,000, but with strong growth in the sales of Janus c four increasing by 20% to 2,100,000, adding a naught 400,000 of revenues whilst managing a migration from our legacy Janus and Satya and Advanced products, which reduced by combined naught £400,000.

9:47 Whilst the outturn fell slightly below expectations, it neutralized the migration related decrease of 3% experienced in 2023.

10:00 NEWMARK also has a well established physical security business, Safetel, where we drive long term value for customers contracting directly with end clients and also with major contractor partners. We are The UK's leading provider of high specification physical security solutions focused on three key areas, auto doors and entrances, screens and counters, and building security and asset protection. Constantly innovating, our board portfolio helps us create the safest and the best protected physical environments for workers, enabling us to provide end to end solutions for physical security.

10:44 While screens are still an important part of our business, today, we are serving a much broader range of customer requirements across public sector, private sector, and retail with a particular focus on auto door servicing where we're in major long term servicing contracts.

11:03 So f y twenty four has been an important year of strategic execution that delivered substantial growth following the turnaround in f y twenty three. F y twenty four revenues increased by 23% year on year to £5,800,000, a significant step up from the previous year's modest but transformative increase of 3%. This demonstrated the positive effect of our strategy, deploying an enhanced range of products with product revenues up 30% to £3,700,000. The headline growth of service revenues up 11% to £2,100,000, was a net result of balancing stronger growth in target sectors whilst managing anticipated ongoing decline in the banking market with continued reduction in demand for legacy rising screen services.

11:57 2024 saw a substantial 51% growth in door services and an even greater 74% increase in entrance control orders. Overall, new sales orders grew by 5% year on year, and the order pipeline expanded by 23%, reaching 11,700,000 or two times revenue across all target sectors. Accelerated growth was only slightly muted by the long expected loss of a large high street bank rising scheme contract as it rationalized its estate. Despite this, overall, gross profit grew by 26% or £400,000 to 2,100,000. This was due to the revenue increase and a 0.9 percentage point gross margin improvement to 35.3%.

12:49 This was an impressive gain in profitability on the prior year.

12:55 Thank you, Paul. Now let me give you some operational highlights. These provide evidence for continuously improving business, executing growth strategies that the market is clearly responding to. So much so that we've extended these strategies and strengthened our ambitions by approving a new five year strategic plan that is based on an execution of a proven approach in each division. Here's the summary with some of the highlights. As you know, Grosvenor's consistent strategy focuses on driving recurring revenues by attaching services to all partnerships, existing and new, and leveraging this advantage to ruin greater share of wallet.

13:43 Grosvenor's growth strategies comprise of five strategic pillars. Pillar one, we will continue to onboard traditional HCM partners. In FY '24, this included the onboarding of three new large US based partners in the latter part of the year with a strong pipeline of new partners and prospects for 2025. Pillar two, to attach services to all new business, substantially strengthening our competitive positioning by embedding a market leading solutions, combining hardware controlled by GT Connect software and incorporating GT services. This provides a compelling all round proposition that adds significant value our subscriptions, one that's really hard for competitors to match.

14:35 Pillar three, to push services to existing partners as a priority. In f y twenty four, we prioritized converting eight existing HCM customers who had previously only purchased hardware, upgrading them to recurring service based contracts with relationships expanding to attach full GT services wrapper to every sale in the future. Pillar four, to displace competitors by offering sliding scale pricing, driving maximum competitive advantage at both ends of the market and full share of wallet. This includes the entry level g t four light time clock designed to displace low cost manufacturers with a higher quality product attached with premium services, again, making it very hard for our cost competitors to match.

15:34 Pillar five, to diversify our model by seeking end user businesses via major OEM partnerships with the likes of Oracle, Workday, and SAP. Having thoroughly researched this opportunity, in 2024, we created a new offering, GT Time, shaped to target the lucrative direct to enterprise DTE market.

16:01 GT Time is a marketplace ready with per employer per month pricing and combines the choice of our entry or premium products with our market leading data and device management services. As a substantial milestone, at the end of twenty four, we secured a partnership program agreement with the first of these brand leaders, Oracle, where we'll begin marketing through this channel in 2025.

16:30 All of these pillars support our strategic strategy to deliver hardware enabled software and services with long term recurring revenues. For those of you who heard me talk about this last year, the launch of our strategic cloud platform, GT Connect, has indeed delivered nothing short of a huge shift in our market opportunity.

16:58 As it intended, in 2024, GT Connect became the central cloud based solution hub for all our HCM products, connecting over 24,000 devices and already serving 9,000,000 monthly clock ins. Through this continuous development, it's become a powerful platform, reducing time to market for new products and accelerating onboarding of our new customers. Our use of open architecture enables us quickly to connect customers as well as seamlessly embedding all the few features into our customer solutions. This simplicity enables us farther faster conversions of opportunities by being able to immediately showcase our technology working within our customer systems at the outset.

17:53 It's important competitive advantage will continue to leverage. It's also worth noting that we are now using GT Connect to act as advanced service platform for all our customers, placing it at the center of the key HCM operations provide secure cloud control over devices, services, and biometric identity data. With thousands of biometric templates already stored and safely delivered via our connected services. An exciting opportunity exists in a combination of biometric identity data, template, and compliance. GT Connect enables the delivery of biometric compliance as a key benefit to our services, helping us improve security measures, removing forward from company payrolls, and protect from the threat of noncompliance.

18:50 We will explore this further in 2025. We also at the early stages of generative AI adoptions, leveraging Microsoft and GitHub copilots to raise our productivity of our team in software engineering, report writing, technical documentation, and bid writing. These efforts are designed to support our future scaling without requiring additional resources, further improving cost efficiencies. This is an errand ongoing area of focus in 2025. As

19:34 you remember, in 2023, we introduced GT Lite, a software limited GT four edition. As we hoped in 2024, this enabled significant gains in share of wallet with partners by providing an affordable and superior alternative that comes packaged with advanced services to challenge and displace low cost manufacturers. With the introduction of g t four light terminal, we now directly address the full market from end to end, which includes targeting the lower end of the market previously dominated by a Chinese low cost manufacturer. Rather than compete on cost, our goal has to be offer an affordable and a flexible alternative that comes packaged with advanced services and the option of a rolling device replacement service that can be used to modernize device estate over the longer term.

20:33 This entirely changes the way customers think about upgrading their HCM services without being restricted to the limitations of their existing investment in hardware. Just as we hoped, this has already enabled us to displace incumbents and become the preferred supplier to key partners across all their requirements. As I said when I announced this last year, by offering customers this freedom, we've now begun to address a large segment of the market that was formerly stagnant and bring forward the time when alternatives can be sought, opening a large dormant opportunity. Clearly, this continues to be an important part of our growth forward strategy.

21:25 Grosvenor continues to be driven through partnerships and a broad array of HCM partners. The substantial progress made in expanding Sherve Wallet across our existing partnerships have produced another year of impressive grains with some notable partner successes, a combination of net growth of 35% across top 15 partnerships. In North America, we achieved major gains with two of our largest US partners growing 5243% retrospectively. In both cases, we supply a complete range of GT devices from entry level to premium with sliding scale pricing and services attached to all the clocks, replacing a major manufacturer offering low end devices without services.

22:20 This important win translates into longer term recurring revenues and services with superior customer relationships. Our major European partner also grew by 21% overall. As we anticipated, this partner appears to be pursuing highly aggressive territorial expansion across Europe, which we continue to support as they bring on new national partnerships in Spain, Germany, and beyond. End user partnerships also delivered positive growth and customer value in 2024. We successfully completed the first phase of hardware replacement projects for one of the big three UK supermarkets, providing their stores with seamless and efficient solutions fit for their longer term needs.

23:13 We're also planning a hardware replacement project for top UK retailer attaching GT Connect to provide the same level of excellence, efficiency, and control. Our focus on delivering the best possible customer experience combined with innovative technology and integrated services makes us the ideal partner for these large scale, large hardware replacement initiatives. In 2025, we will begin the testing of the DT opportunity I discussed earlier. In addition to time clock and software, Grosvenor also designs and makes class leading access control hardware that's easy to scale and extend, so it can deliver much more than just access control.

24:08 Throughout 2024, the rapid transition to our newest products continued delivering growth and demand for Janus c four products and future products. The timeless value of a good account management combined with excellent support to keep custom projects provided to be valuable in a year, were spent with public sector partners continued. Private sector business toughened considerably as some of the construction customers responded to uncertain global conditions with project delays and spending freezes. In a crowded competitive market occupied by global brands, our attention was naturally to focus where our track record was already strong, commissioning major projects with significant blue light customers.

25:00 This more than made up for the reduction in support for legacy installations. Meanwhile, upgrading large satin installations to Janus c four has provided us with an endless stream of ready made opportunities with a further pipeline of 2,500,000 target for conversion in '25 and beyond. We also continue to work hard on the development of Janus c four Ultra, an advanced hybrid cloud product with substantial potential, where we jointly developed with our partner, GammaNet. Whilst delays at GammaNet impacted progress in 2024, they have now recovered and an ambition to launch the new product in 2025 remains.

25:54 Now let's move on and look at some of the highlights in Safetel remains focused on creating safe spaces for employees and colleagues where overall demand is strong and growing. Progress has been substantial and as it continues to raise its growth trajectory and demonstrate its market advantage as a leading provider and installer of integrated door solutions and physical security. As you've already heard in 2024, disciplined execution focus on the areas of high demand, and this returned impressive revenue growth by 23%. This demonstrates the positive effect of our strategy and our focus. By deploying an enhanced range of products and services, we were able to balance stronger growth in target sectors whilst managing the anticipated growth on ongoing decline in the banking market.

26:53 The focus on the four growths pillar strategy helped SafeTel grow market share and entrance control, gain traction with differentiated products and physical security, and increased products for regional and national door servicing demands. In particular, business made substantial progress in door services, which grew by 51% with an even greater increase in entrance control orders, which grew by 74%. Our range of products also helped us win and compete significant projects in blue light, health care, and national infrastructure markets, building high profile customer references that will bring opportunities to grow further in 2025.

27:44 As Safetel continues to great performance in retail, rolling out security screens for UK's luggage supermarkets as well as working with other major supermarket chains. Against the background of considerable macroeconomic uncertainty in The across The UK, the planned mitigation measures taken in 2023 have produced a welcome impact for Safetel in 2024. In particular, sourcing alternative manufacturers delivered a clear advantage with improved product quality, more competitive cost, and reduced lead times.

28:29 These manufacturers, these advantage showed through in the delivery of key contracts with major national brands and paved the way for significant expansion potential in 2025. And with 5,500,000 opportunities added in the year, sales pipeline expanded by 23% to reach 11,700,000 giving us two times revenue coverage. I'm sure you'll agree this is a healthy way to exit 2024. Based on this positive forward outlook, naturally, our focus will intensify on conversion whilst continue to pursue this proven growth strategy.

29:15 As we look ahead, Safetail will continue to deliver complete physical security solutions and focus all its efforts on gaining market share in door services nationally and regionally, winning new winning new projects and differentiated physical security products, and converting a substantial opportunity and entrance control through great partnerships and references. This includes fast rising screens with banks and screens and counters at retailers, each providing high profile references as a trusted and established supplier, a factor that continues to be important in business development. All of the key business highlights I've shared today clearly show our forward strategy is working and sustainable.

30:17 Growing revenues and profits resulting from disciplined execution of a proven growth strategy. We've now extended and upgraded this by provide approving a new five year strategic plan. Human capital management added an important partnerships matching last year's growth and increasing annual recurring revenues by 28%. GT Connect enabled services to be attached to all devices, an impressive share of wallet expansion with ease and speed adoption across all HCM partnerships. Access control successfully balanced transition to new products with 10 20% growth of Janus c four.

31:06 Safetel accelerated its upward trajectory with an impressive 23%, building momentum with enhanced range of new products and capacity to an even larger pipeline for 2025. NEWMARK will continue to focus on accelerating growth by increasing recurring revenues, leveraging AI, and enhancing its market share to trusted partners of enterprise ready security solutions. Thank you, and we look forward to any questions you may have. Perfect. That's great. Mary Claire, Paul, thank you very much indeed for your presentation this morning. What I'll do is I'll just bring back up your your cameras there. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen.

31:58 But just while the company take a few moments to review those questions that were submitted already, I would just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboard. Marie Claire, Paul, as you can see, we have received a number of questions already, throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But, guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Thank you very much. I will start with Rob's question. Rob, your strategy emphasizing converting hardware sales to hardware enabled software and services model, how do you plan to accelerate this transition, and what proportion of total revenue do you expect to be recurring to represent the next few years?

32:52 So we I will take the first part of the question, then I'll hand over to Paul for the second part. How do you plan to accelerate this transition and what proportion of total revenues? Well, through attaching services through greater share of wallet with our current customers and onboarding new partners, and we have a very strong lock pipeline as I mentioned earlier. And we're looking to attach services to all the hardware that we sell now. And, Paul, I'll hand over to what proportion of total revenue. Great. Yes. So, obviously, its key focus is growing the recurring revenues, and we aim for the HCM element of the people and data management division.

33:37 We we aim for recurring revenues to be up to a third of the overall HCM revenues in five years' time. So, obviously, that's we're gonna be growing slowly year on year. A big driver growth for that will be our new d two e offering as well for that. So, yes, it's a it's gonna be a big growth metric for us. John, Safetel has shown impressive growth in new markets like auto door servicing and entrance control and how to balance further expansion into new sectors while maintaining focus on your core offerings. John, we're doing that sort of expanding the team as we grow at SafeTel, onboarding someone new in operations and an additional salespeople to focus on different key areas without losing the focus on previous areas of focus.

34:34 Thank you very much, Nigel. H one is more is now more than four months complete. Can you provide any estimates for h one? And if you're able unable to provide estimates, can you give a reason not? We've had a very successful h h one in both sides of the division, and I'm not able to provide estimates at this point. But I can say we have our strategic plan. We have our forecast internally, and we've achieved what we anticipated. Nigel, why does it take over four months to provide full year results when even bigger companies do this in a shorter time? Nigel, I think every year, we have sort of reduced the time to announce our results. We've done it two weeks earlier than the previous year. We do have summer in the middle, and it's very busy time for auditors and alike to sort of work on these with summer holidays.

35:35 And at the moment, we're very happy providing results in September when our year end is at the end of April. I don't think we'd be looking to deliver these in the middle of the summer when most people are away. So we possibly do it a couple of weeks earlier, but as a business, we're happy sort of delivering them at the beginning of September. Andrew, with the largest number of new clients onboarded in 2024, how will you guarantee the retention rate and maximize value for these customers moving forward? I think that's by attaching services as we mentioned earlier. They're not just reliant on us on hardware. And once they've attached services and we're managing these clocks for them in the cloud, this gives us a much higher retention rate.

36:24 The only customer we have ever lost was through previously was Ultimate, and that was through acquisition and through services and the platform. Our customers are very happy. David, fantastic results. We made point nine PBT in the h two of twenty twenty four. That's 1,800,000 in the full year for 2025 additional revenue and cost growth. You mentioned a strong pipeline, which you suggest is more than cautiously optimistic outlook. What risks are feeding into that cautiously optimistic statement? I think it's more about the timing. So while we have a strong pipeline and we're onboarding these customers and it's been very positive, sometimes we're not in control of their timing when they start placing orders and for delivery.

37:17 And it could be a couple of months delayed, and that's why we're sort of cautious about the optimistic of the timing of the delay and sort of releasing that, but nothing more than that. Once we sort of onboarded them, we're not completely in control of their timing on taking the clocks. I think that is the end of our questions. Absolutely. Marie Claire, Paul, thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review. And to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But, Marie Claire, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great.

38:11 Yes. As I said at the beginning, it's been an important year of strategic execution that's delivered positive results in every way. Looking ahead, I believe we have the right strategy, the right team, and disciplined orchestration. So I'm really confident we will continue to execute our plan with great success, energized by our customers and partners, and optimistic for our future focus on many growth opportunities we have in our sites. Alright. Thank you. Perfect. Mary Claire, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations?

39:00 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of NEWMARK SECURITY PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.