Newmark Security (LSE:NWT) — Investor Presentation

0:01 Good morning, ladies and gentlemen. Welcome to the NEWMARK SECURITY PLC 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 will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit

0:33 the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand you over to CEO, Marie Claire Dwack. Good morning. Good morning. Thank you very much, Jake, for the introduction.

0:51 Well, good morning. And today, I'm gonna share with you an update on our most recent business performance as well as giving you an exciting inside look into a strategic growth plan that is already gathering pace.

1:15 Well, first, let me explain why we do what we do and why our customers need us to do it. This simple statement describes exactly what we do. We protect people in safe spaces. How we do this is by providing secure cloud control of your people's access, timekeeping, and identity data at work. And we do this so the experience is always safe, seamless, and secure, by which we mean safe spaces, seamless operations, and secure data. Everything we do is about protecting human capital, people in safe spaces. For over thirty years, NEWMARK has delivered long term value through products and services enterprise in enterprise security.

2:11 We focus on three segments of the market, human capital management, otherwise known as HCM, access control, and physical security.

2:22 And we employ a great team of experienced specialists, extremely skilled in each area. Because of this, we know our markets very well, and we really do understand the needs of our customers and their industries. All of our products and service are delivered through two market facing brands, Safetel and Grosvenor Technology. Safetel is a well established physical security business where we deliver long term, full life cycle value for our customers by manufacturing and servicing products like auto doors, protection screens, and building security. And at Grosvenor Technology, our people and data business, we're also well established. We are growing rapidly in the HCM space, particularly in The US.

3:12 I'll explain the strategy for both of the businesses in just a moment. But so you're not left waiting for too long for the numbers until the end, let me briefly hand over to Paul, our CFO, to give you a summary of our most group wide performance.

3:32 Thanks, Marie Claire. You will have seen our recent full year '22 and half year twenty three results announcements. See our website for the full details. I'll now take you through the financial highlights. Going back to our full year '22 results, group revenue increased by 8.4% to £19,100,000. This was driven by a strong HCM performance in the people and data division. This was the seventh consecutive year that HCM delivered revenue growth. Most of this increase has been from The US, which demonstrates our successful strategy to target this large and growing market. The start of the implementation of our hardware enabled enterprise SaaS strategy can be seen by the naught £900,000 of high margin HCM annual recurring revenues at April 22. This is a 600% increase year on year.

4:28 Whilst 2022 was a challenging year, significant steps were made to ensure that the growth in '23 is sustainable.

4:38 Steps included a combination of customer price increases, cost savings, and improved commercial measures. And we can see the positive impact of these steps in the first half of twenty three. Next please, Marie Claire.

5:00 So as you can see, these results show group revenues up 10% to £10,600,000 for the six month to thirty thirty first of October. Gross margins have improved by 5.7 percentage points to nearly 39, showing positive momentum and a return to profitability. Revenue growth is driven by double digit increases from HCM and Access Control and the margin improvements are from both the People and Data and Physical Security divisions. The margin increase in the People and Data division is partly due to the continued growth of the high margin HCM annual recurring revenues, which are up 260% year on year to GBP 1,300,000 at October 2022.

5:52 Revenues and margins have also benefited from favorable dollar exchange rates. The Physical Security division continues to diversify away from its traditional bank and building society markets and has seen strong demand for its safety screens in the retail sector given the current economic climate and the need to protect staff. We are pleased with the progress made so far as we've delivered two large retail projects in the first half of twenty twenty three with another one secured for the second half of the year. By investing in inventory over the last eighteen months, we've managed to maintain deliveries to our customers despite recent global supply chain challenges. Some of our competitors have not been able to do this, resulting in additional orders for us.

6:45 Profit after tax for the half year is GBP0.5 million compared to a GBP0.8 million loss for the prior period. Returning to profitability and operating cash flow generation is a testament that our business plan set the right foundations for sustainable growth. I'll answer any questions in the Q and A session at the end, and I'll now hand back to Marie Claire who'll tell you more about our growth strategy. Thank you, Paul. Thank you very much. So let's start with the big picture and talk about security challenges that all organizations face. In security, it makes sense to look for gaps and vulnerabilities. Across enterprise, there is a large security and compliance vulnerabilities that is opened up in the intersection between physical and digital worlds.

7:38 This is shown in the Venn diagram as the overlap between identity data, IoT devices, and enterprise systems. As data legislation is strengthened around the world, organizations need to make sure they're compliant in their everyday operations with sensitive identity data traveling between devices, buildings, and company systems. Clearly, GDPR and its international equivalents is an issue for all organizations to motivate action. The breaches that are all too commonplace and substantial penalties being issued especially in The US. So when you visit the office next, ask yourself, how do I know my identity is in safe hands? How compliant is the organization?

8:25 And how will my personal identity be protected? In short, organizations need far better control of their data processing, particularly at the edge of their corporate networks. And this is an area of high growth where we bring considerable experience. It's all about creating trusted ecosystems in the workplace and ensuring identity data compliance.

8:52 It's difficult to put a size on this opportunity, but McKinsey recently gave an indication by predicting that the economic potential of IoT in office settings alone could be worth up to 500,000,000,000 by 2030.

9:12 As I mentioned earlier, Grosvenor Technology is our people and data business. The response directly to the challenge that is created created and creates long term customer value with high spec hardware devices which are built to last. Equally, high spec software control, which is cloud based, enables us to deliver a single solution with a blended subscription that combines hardware, software, services, and device warranty. As you can see in the orange blocks on the slide, it's all about control. Time clock control, access control, identity data control. So we can deliver a complete solution through as a service model via enterprise subscriptions.

10:01 Let me show you our service model, which brings it all together.

10:08 This is the complete GT business model. In the main circle, you'll notice GT Connect, the platform that delivers secure cloud control, which lies at the center of it all. Across the top are the technology assets we connect together, combining hardware, software, and data. And across the bottom are the control functions we perform, combining time clock control, access control, and identity data control. This allows organizations to choose one or any of these operations as a service and contract via one monthly subscription in a package we finally enough called GT Complete.

10:53 And on the left hand side, you'll see three key elements of this business model. Firstly, secure cloud control allows all devices to be centrally and securely controlled in the cloud. Secondly, time clock control, otherwise known as class or clock as a service in a single subscription to time clock provision control service and warranty. Thirdly, access control solutions brings together our class leading access controllers and enabling software. Let me unpack this in stages. At GT, we deliver class leading devices, software, and services. What you see on the left is our g t 10, our flagship terminal with a 10 inch screen and touchless facial recognition.

11:44 And this is accompanied by the g t eight terminal on the far right, genuinely best in class. We're extremely proud of these fully functional time and attendance terminals. All our terminals are built to be controlled on our secure cloud platform, GT Connect, and it's a software that connects and controls all the devices, which is the really exciting bit. Combining software, services, and hardware in one monthly subscription is providing an opportunity to rapidly scale our business with long term recurring revenues. And by controlling all operations through one platform, this makes it easy for our clients to simplify operations and get the solution they need. Ultimately, GT Connect will also bring together our market leading access control devices too.

12:39 This includes our best in class advanced heart hardware family of blades and controllers that controls access to the buildings and physical spaces. This is what you don't see behind closed doors and the hardware that makes access control possible. This comes together with our exclusively licensed Janus c four control software, which offers the broadest third party integration options for things like intercom, CCTV, and fire safety. This combination creates highly scalable solutions with easy to extend modular design, fast software setup, and easy to control cloud. Ultimately, this will give us access to the entire device ecosphere and increase the lifetime value of our solutions.

13:34 GT Connect gives users secure cloud control in one place by linking hardware and enterprise software such as HCM applications. This links corporate users to a range of highly secure data services, which you see on the right, including people analytics, biometric templates, and a secure cloud vault for identity data. And as you'd expect, our strict data handling procedures have certified to globally recognized standards like ISO twenty twenty seven thousand and one, ensuring appropriate procedures and safeguards for large amounts of data are kept for our customers in controlled environments.

14:20 On the left, you'll also see a broader range of services we offer to help our customers and partners by providing providing remote management to their devices, apps, and identities. Customers and partners get great peace of mind by knowing they're supported by experienced specialists who can help them quickly take control of their systems.

14:43 We even provide an enhanced hardware warranty and replacement service called GT Connect, where we aim to provide direct device replacement device replacement on the next working day, meaning our customers are never without a working device. These high levels of service completely remove the friction of managing devices, especially for our HCM software partners who are not set up to support hardware and who need to maintain security and compliance.

15:21 NEWMARK also has a well established physical security business, SAFETEL, where we drive long term value for our customers contracting directly with the end user, also with major contractors. We are The UK's leading provider of high specification physical security solutions. And as you can see, we focus on three key areas, water doors and entrances, screens and counters, building security, and asset protection. Constantly innovating. Our broad portfolio helps us create the fastest and the best protected physical environment for workers and people, enabling us to be a one shot stop shop for physical security.

16:08 And at Safetail name suggests, we originally grew out of helping banks to protect tellers. But while the screens are still a large part of our business today, we're serving a much broader range of customers across private, public sector, and retail. With a particular focus on auto doors, we're winning major long term servicing contracts.

16:37 Our breadth of products enables us to access a wide range of markets and compete by offering a complete solution end to end. From design through manufacture, installation, and services. And it's the ongoing maintenance contracts which builds attractive recurring revenues and long term relationships. Our customers really appreciate the speed of our service and repair not replace ethos, which also differentiates our qualified engineers from our under con from under qualified contractors that are often sent by competitors. Major natural national retailers and high street brands who are having to watch their margins even more closely are really noticing the difference.

17:23 We now look after around half the network for a national petrol retailer, a leading London university, and a major building society who've just started servicing half of a leading high street banks portfolio and branches. I'm really delighted to tell you that we've just won a 1,700,000 contract for screens with one of the largest food retailers in The UK and a second one for another large retailer food retailer across 22 sites, which we anticipate which will grow much further. In fact, last year, we retrofitted over a 100 sites with call out support for hundreds more across a national footprint. And as I've already said, it's a clear strategic propriety to grow service and maintenance work and generate recurring revenues.

18:16 The auto door market is twice the size of SafeTel's traditional market, And we're already winning a share through better service. An entrance control where we're targeting larger customers, building on group capabilities and securing our first orders with this new product in office, industrial and data center environments with an exciting and growing quote quote bank for future work. New legislation helps us too. The protect duty legislation means that owners and operators of business and public venues will be legally bound to protect their sites. And we're already seeing an increased interest in this area, especially from retailers looking for attack resistance screens to protect workers.

19:01 Threats from crime and terrorism continue to make physical security a priority for businesses.

19:10 And in another significant boost to the business, I'm delighted to say that SafeTeal strategy is being driven by a newly highly experienced management and sales team who brings seasoned market experience and track record of success to our industry. This is of great help as we navigate challenging times and our traditional work of installing rising screens continually continues to be impacted by the reduction in the number of banking and post offices across the country. This only accelerates our efforts to grow the auto door and entrance control segments to meet increasing demand and to engage new new strategic partnerships with well invested operations and an even stronger and sales marketing support.

20:13 So who do we work with across the group? Together with our combined businesses, we've created an enviable roster of customers across many industries, creating long term relationships with major brands such a such as H and M and Tesco's.

20:32 In fact, I'm very proud to disclose that just last month, we awarded a new three year contract with one of the world's largest retailers to connect and service over 2,000 clocks across their operations in Mexico. Our blue chip client base provides ample opportunity for upselling our solutions,

20:55 But it's the greatest but the greatest interest is in the bottom right hand block, which shows our growing base of software vendors. This is the focus of our planned growth activity. By leveraging many clients through each partnership, this avoids need to mobilize a large direct sales force, and this is how we intend to grow the business. ProTime is a very good example of this. They take a full range of our products and services and sell them onto their customers. We're paid many times for efforts to integrate our offer and maintain a very strong relationship. By focusing on HCM, particularly in The US, almost all of the top 20 largest software houses are based, We are creating exciting road map for accelerated growth.

21:51 Apologies. I'm having a bit of a problem with my mouse here. Please bear with me one moment.

22:13 Hi, Mary Claire. Just to say I've just jumped you onto the next slide, so feel free to just let me know when you'd like us to do that. Bear with me. I just have some notes on this slide, which I'm just something has bear with me. Okay. As we prioritize our US go to market within Grosvenor technology, here are the some of the things we're doing already. Firstly, we're strengthening and expanding our existing partnerships with software vendors. Secondly, we continue to die target direct opportunities. This includes competing with incumbents. Thirdly, we're strengthening our account based selling, targeting our traditional base of blue chip customers and transitioning note transitioning everyone where possible onto one subscription.

23:02 In addition, we're already expanding our US operation, taking order fulfillment in house with sufficient inventory to deliver orders directly using our in house country team.

23:16 As you can see on the main chart, these efforts are already yielding exciting growth, and we expect to continue on this trajectory of growth. As you can see in the graph at the top, as Paul already reported, this represents a rapidly growing revenue stream. And with the right support, we'll also see the opportunity grow even further.

23:44 This growth strategy drives our business mission to rapidly scale our recurring revenue business model, which I simply summarizes hardware enabled enterprise SaaS. Our vision is to build a business that generates two to three times its current revenues in the next three to five years. And as I've said, now is a very exciting time for us. With considerable recent efforts and investments, we're very well positioned to achieve this vision. We're confident because we have an enterprise recurring revenue model that's rapidly growing. We have class leading products and services, and we have an enviable blue chip client base with top tier partners ready to transition onto subscription. And we enjoy long term client relationships with set to ten year life cycles.

24:34 As the take up of our subscription model accelerate, brings much improved margins through blended subscriptions And by by positioning within the trusted walls of enterprise security, we are creating long term value that has plenty of scope to be leveraged in the future to build a strong growth record. As for the immediate short term, let me finish by giving you some of the key business highlights across the group from the last six months, which shows the road ahead will be both rewarding and sustainable for the long term. As Paul already mentioned, we're returning to profitability. It's the testament that our strategic business plan is the right set of foundation to sustainable growth.

25:22 Revenue for the six months to October 30 is up by 10% to 10,600,000 with gross margins increased by 5.7% to 39% from last year at 33%, Driven by double digit increases from HCM and access control, we've enjoyed excellent support by making use of a range of banking facilities to help fuel this growth. HCM annual subscriptions has increased 260% year on year to 1,300,000, growing a proportion of our recurring revenues and positively contributing to our profit margins. With sustainably increased net profit margins despite inflation and cost pressures and higher cost of funding required to fuel our growth, we systematically improved our operating margins through high recurring revenues, favorable FX, and higher margin new business.

26:19 We will continue to focus on cost management initiative and product innovation to drive our success even further. Further customer base expansion continues to be driven by our product offering and end to end solutions. Efficient supply chain management makes for stability and uninterrupted sales adding to our competitive edge. Our strategy is proving out right across the group group, and we're now seeing the results of our efforts translate into performance. Our focus now is to accelerate this. And I hope, me, you can now see get an exciting sense of great business with a systolic solid model and plenty of headroom for growth.

27:05 Thank you. Mary, Claire, Paul, if I may just jump back in there, and thank you very much indeed for your presentation this morning. I will just bring back up your, cameras. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Mary Claire, Paul, we did receive a number of pre submitted questions ahead of today's event. And as you can see there in the q and a tab, we have also received a number of questions throughout your presentation this morning as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And if I could just hand back to you to respond to those where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

28:01 Thank you. Thank you very much. Lily, you submitted a question. Since losing the postal contract, SafeTel sales have been steadily declining, and one restructuring program has followed another. What makes you so confident this time that the bottom has been reached and SafeTel will grow sustainably and profitably again? Does it make sense to sell the company and focus more on Grosvenor technology? Well, thank you for the question. Well, for the moment, we're driving sales and growth and profitability at SafeTel. So the time is not quite right now. And we have a new management team. We have Nick Shannon who joined us from group four and CHOP SECURITY, and he's very well positioned to drive this growth. He has very good reputation in the market, knows this market well, and onboarded a new sales team, and we're seeing positive momentum.

28:52 We have new products, entrance control, and access control and auto doors. We've won a number of new products and projects, and so we can see sort of exciting growth there. And our pipeline has grown considerably since he's been onboarded, and it's just a matter of time till we see this bearing fruits. Steve, how well positioned are you in cash terms to deliver on strategy? So for the moment, we're sort of obviously like all business, cash is key and managing our cash very carefully. And we've had wonderful support from our bank to grow the business as well. We've increased our invoice discounting in The UK. The bank have offered us facilities and overdraft facilities, and we've been paying off our seal bills CBILLS loan and other loans and actually reduced that overdraft considerably over this period.

29:45 So we we see we're sort of in in a good position on cash. Paul, do want to add anything there? No. I mean, we will look at more facilities if we need it. The main thing is we've returned to operating cash generation as you can see in our half year results as opposed to the current half year. So we are in a much better position in terms of generating cash and we can then use to fund our expansion. Thank you, Paul. Do you see the momentum continuing in access control, and what are the key reasons before behind the success? We do see the momentum continuing. I think during COVID, it was very difficult for the access control business because it is a business where you need to get face to face in front of your clients, which was very difficult. Now things are sort of back to normal.

30:34 Sales guys are out there. We're expanding the team as we speak. We sort of held back any recruitment at the time, and we're recruiting three more people on the team. And we have good products, and they're working very well received and a growing coat bag. And we see continue momentum in next HCM business as well. It's not part of your question, but I sort of will add on HCM was sort of continued growth on sales. But what we are doing now is when we sell our hardware, we're selling them that based service as well, which is at very high margins, which is sort of between 7580%. So we see continued momentum on that, and a lot of our customers are very taking on that with on with open arms. What are your plans in terms of international expansion and where is our focus?

31:22 Our focus continues within The US. We have taken a new facilities on. We're taking order fulfillment in house as we speak in the next couple of months because we want more control of that as the business grows. We have teams here that sort of focus on HCM in Europe, but on access control on Safetel, we don't particularly want to expand in those areas because there's specialists who do that. You mentioned share of wallet. What are your aspirations here? So on the access control, we sort of see the dry growing. There's a number of players in The UK. On SafeTel, we have a decent share of wallets and with sort of specialists in the screen area, and we continue. But in HCM, we sort of have probably about seven or 8% of the American market, And our aspirations are to increase that not just with hardware sales, but with software sales as well.

32:19 I think that's the end of the questions, if there's any others. Very clear. Paul, absolutely. And thank you very much for 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 for you to review to then add any additional responses, of course, where it's appropriate to do so. Marie Claire, perhaps before redirecting those on the call to provide you 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. As I mentioned, it's a particularly exciting time at NEWMARK. At Grosvenor, we were very much an engineering business and a hardware business, and we're now very much sort of hardware enterprise SaaS business and selling software with all our service.

33:09 We look to drive sales in hardware sales, but even more in our software sales. At the moment, we're sort of increasing in that dramatically, and the margins, as I said, are good. And we have the right teams. We're sort of managing cash. We're managing inventory. So we're well positioned for growth. Mary, Claire, Paul, 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 that the management team can better understand your views and expectations? 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.

33:57 That now concludes today's session. So good morning to you all. Thank you. Thank you.