28th Sep 2007 07:05
Servocell Group PLC28 September 2007 SERV.L 28 September 2007 SERVOCELL GROUP PLC ("SERVOCELL" OR THE "COMPANY") INTERIM RESULTS FOR THE PERIOD ENDED 30 JUNE 2007 Financial and operating highlights: • AL2, Active Latch product expected to be ready for volume production in November • Initial orders received for CL2, Servocell's first "Ready to Go" product • Anticipated additional equity raising prior to December 2007 • Losses of £1.5 million Servocell's Executive Chairman, Mike Hartley commented: "Servocell's patented technology has enabled the development of a great suite of"Ready to Go" products which deliver unique lock solutions. Our focus is tobring these to market as quickly as possible, delivering volume production andsales and, thereby, build shareholder value." For further information please contact:Mike Hartley, Executive Chairman, Servocell Group plc 07711 734631Gregor Paterson, Analyst, Brewin Dolphin Securities 0845 213 4211Jon Fitzpatrick, Corporate Finance (NOMAD), Brewin DolphinSecurities 0845 213 4222 About Servocell Servocell is a provider of Active Latch technology that controls with low energyinputs the movement or motion of mechanisms, such as locks. The Group's devicesare underpinned by piezo ceramic actuators, which are well established in manyapplications such as reversing sensors for motor vehicles. Through significantinvestment, Servocell has developed a unique low-cost methodology for creatingactuators which give relatively large movement at a low power input. The Companyhas applied this technology into modules under the Active Latch brand for saleinto lock manufacturers' products. More recently, to fully exploit application of the technology, the Group hasbeen developing a range of "Ready to Go" products under the Cabinet Latch andActive Escutcheon brands. These are being sold primarily through majordistributors and where appropriate as private label lock manufacturer'sproducts. EXECUTIVE CHAIRMAN'S STATEMENT As indicated in our trading update of 9 August 2007, various delays to achievingvolume production have adversely impacted revenues, which in the six months to30 June 2007 were £113,000. Lock manufacturer projects continue to progress but are taking significantlylonger to reach production than expected. The Board believes this reflects thenature of the decision making and product development processes of the largeOEMs and has adjusted its business plan to reduce dependence on theseactivities. "Ready to Go" products will be the focus of future developmentefforts, though orders will be taken from large OEMs if commerciallyappropriate. The operating loss was £1.5 million. This was affected by certain "one-off"costs, including the write off of the previously capitalised costs of certaindevelopment projects which are not now being pursued of £176,000, the provisionfor some obsolete raw materials of £52,000 and the rework of some sold stockamounting to £40,000. Outlook There have been further delays in product development, most notably with theCompany's enhanced Active Latch component, the environmentally sealed and slimsized AL2. However, progress has been made in resolving these development issuesand it is expected that AL2 will be ready for volume production in November. AL2is a critical component of the Company's first "Ready to Go" product, the CL2,production of which is expected to commence soon after AL2 components becomeavailable. Market reaction to the CL2 product is encouraging. It is expected that followingdelivery of initial orders to our channel partners and marketing activities toachieve pull though, there will be a growing level of reorders. Revenue delays have adversely affected the Company's cash resources. To fund theCompany's immediate working capital requirements, a £1 million loan has beenagreed with one of the Company's major shareholders, Greenbrook IndustriesLimited and an initial draw down has taken place. It is anticipated that theCompany will raise additional equity finance prior to December 2007 to fundfuture working capital requirements. CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2007 Six months ended 14 Feb 06 to 30 14 Feb 06 to 30 Jun 2007 June 2006 31 Dec 2006 £'000 £'000 £'000 Note unaudited unaudited audited Revenue 113 31 204Cost of sales (133) (16) (139) ------- ------ -------Gross(loss)/profit (20) 15 65 Other operating income 57 5 11Research and developmentexpenditure (449) (333) (639)General and administrativeexpenditure (1,097) (319) (1,224) ------- ------- ------ Operating loss (1,509) (632) (1,787)Interest income 40 37 103 ------- ------- ------ Loss onordinary activities (1,469) (595) (1,684) Net deficit per share 4Basic (3.9p) (1.6p) (4.5p)Diluted (3.9p) (1.6p) (4.5p) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2007 Share Share Equity Retained Capital Premium Reserve Earnings TotalUnaudited £'000 £'000 £'000 £'000 £'000 Balance at 14 February 2006 - - - - - Issue of 1p ordinary shares asconsidered to acquire PBT (IP)Limited and its subsidiaryServocell Limited 277 4,723 - - 5,000 Issue of 1p ordinary shares onadmission to AIM 102 4,533 - - 4,655 Total recognised income andexpenses for the period - - - (595) (595) ____ ____ ____ _____ _____ Balance at 30 June 2006 379 9,276 - (595) 9,060 ____ _____ ____ _____ _____ Total recognised income andexpenses for the period - - - (1,089) (1,089) Issue of share options - - 3 - 3 ____ ____ ____ ______ ______ Balance at 31 December 2006 379 9,276 3 (1,684) 7,974 ____ _____ ____ _______ ______ Total recognised income andexpenses for the period - - - (1,469) (1,469) Issue of share options - - 16 - 16 ____ _____ _____ ______ ______ Balance at 30 June 2007 379 9,276 19 (3,153) 6,521 ____ _____ _____ ______ ______ CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2007 30 June 2007 30 June 2006 31 Dec 2006 £'000 £'000 £'000 unaudited unaudited audited restated AssetsNon-current assetsProperty, plant and equipment 594 172 436Goodwill 4,673 4,673 4,673Other intangible assets 764 681 766 _____ ______ ______ Total non-current assets 6,031 5,526 5,875 Current assetsCash and cash equivalents 685 3,350 2,237Inventories 43 123 93Trade and other receivables 259 347 260 _____ ______ ______ Total current assets 987 3,820 2,590 _____ ______ ______ Total assets 7,018 9,346 8,465 _____ ______ ______ Liabilities and shareholders' funds Current liabilitiesTrade and other payables 313 231 382Accruals 184 55 109 _____ ______ ______ Total current liabilities 497 286 491 _____ ______ ______ Total liabilities 497 286 491 _____ ______ ______ Shareholders' fundsShare capital 379 379 379Share premium 9,276 9,276 9,276Accumulated deficit (3,153) (595) (1,684)Equity reserve 19 - 3 _____ ______ _______ Total shareholders' funds 6,521 9,060 7,974 _____ ______ _______ Total liabilities andshareholders' funds 7,018 9,346 8,465 _____ ______ _______ These interim financial statements were approved by the Board on 27 September2007. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Six months ended 14 Feb 06 to 14 Feb 06 to 30 June 2007 30 June 2006 31 Dec 06 £'000 £'000 £'000 unaudited unaudited audited Cash flows from operating activitiesNet deficit (1,469) (595) (1,684)Adjustments for:Loss on disposal - - 3Depreciation and amortization 422 174 442Share option compensationexpense 16 - 3Changes in working capital:Decrease /(increase) ininventories 50 (22) 8Decrease in receivables, prepaidexpenses and other currentassets 1 4 91Increase in accounts payable andaccrued expenses 6 74 279 _____ _____ _____ Net cash used in operatingactivities (974) (365) (858) Cash flows from investing activitiesAcquisition of plant andequipment (207) (76) (384)Development costs capitalised (378) (249) (561)Proceeds from sale of plantand equipment 7 - - _____ _____ _____ Net cash used in investingactivities (578) (325) (945) Cash flows from financing activitiesNet proceeds after costs fromissue of new shares - 4,655 4,655Net debt acquired onacquisition - (615) (615) _____ _____ _____ Net cash provided byfinancing activities - 4,040 4,040 Net (decrease)/increase incash and cash equivalents (1,552) 3,350 2,237 _____ _____ _____ Cash and cash equivalents,beginning of period 2,237 - - _____ _____ _____ Cash and cash equivalents,end of period 685 3,350 2,237 _____ _____ _____ NOTES TO THE INTERIM REPORT FOR THE PERIOD ENDED 30 JUNE 2007 1. Reporting entity Servocell Group plc ("the Company") is a company registered in England and Waleswhose shares are traded on the AIM Market of the London Stock Exchange. Theprincipal activities of the Company and its subsidiaries (together "the Group")are disclosed in Note 3. 2. Summary of significant accounting policies Basis of presentation These interim financial statements are unaudited condensed financial statementsfor the six months ended 30 June 2007 and do not constitute statutory accountswithin the meaning of s.240 of the Companies Act 1985. They have been preparedin accordance with IAS 34 Interim Financial Reporting and the accountingpolicies adopted by the Company in its financial statements for the year ended31 December 2006. The interim financial statements have been are prepared on a going concern basiswhich assumes that the Group has, and will have, sufficient funds and willgenerate sufficient free cash flows to meet its future working capitalrequirements. In common with many other businesses in this stage of theirdevelopment, the directors recognise that there remains some uncertaintyconcerning the timing of future revenues. However, the directors have preparedprojections which they consider realistic and which demonstrate that theprojected future revenues, together with the anticipated additional equityfinance, are sufficient to meet the Group's future cash requirements. Use of estimates The preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates. Comparative information During the period ended 30 June 2006, provisional fair value adjustments weremade to the assets and liabilities acquired. Due to the proximity of theacquisition by the company of its subsidiaries to the 30 June 2006 period end,the Group completed the detailed valuation of the intangible and tangible assetsacquired with the business during the year ended 31 December 2006. In accordancewith IFRS 3 the 30 June 2006 comparative balance sheet has been restated toreflect the final fair value adjustments made during the year ended 31 December2006. Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the new identifiable assets and liabilities acquired, and is included inintangible assets. Goodwill is tested annually for impairment and carried atcost less accumulated impairment losses. (b) Research and development Research and development costs are expensed as incurred, except for developmentcosts which are deferred as intangible assets when they can demonstrate all ofthe following: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • its intention and ability to use or sell the intangible asset; • the existence of a market for the output of the intangible asset or the intangible asset itself; • the availability of adequate technical resources to complete the development; • the availability of adequate financial and other resources to complete the development and to use or sell the intangible asset. • its ability to measure the expenditure attributable to the intangible asset during its development reliably. Deferred development costs are originally recorded at cost, which includes: • expenditure on materials and services used or consumed in generating the intangible asset; • the salaries, wages and other employment related costs of personnel directly engaged in generating the asset, and • any expenditure that is directly attributable to generating the asset, such as the amortisation of patents used to generate the asset. Capitalised development costs have a finite useful life of an estimated threeyears from the date the product is launched to market and are amortised on astraight-line basis over this period. The amortisation charge appears within theresearch and development expense in the profit and loss account. 3. List of principal consolidated companies The principal activity of the company is a holding company, with two whollyowned subsidiaries included in the consolidation. The details of the subsidiarycompanies are as follows: Nature ofName of Company Country business----------------- ------- -------------------- Servocell Limited UK Development and manufacture of piezo ceramic actuators and electronic cabinet locksPBT (IP) Limited UK Owning and licensing intellectual property 4. Earnings per share (a) Basic Basic earnings per share is calculated by dividing the loss attributable toequity holders of the company by the weighted average number of ordinary sharesin issue during the period. Jun 07 Jun 06 Dec 06 Loss attributable to equity holdersof the company (£'000) 1,469 595 1,684 Weighted average number ofordinary shares in issue (million) 37.9 36.2 37.0 Basic loss per share 3.9p 1.6p 4.5p (b) Diluted Diluted earnings per share is calculated by adjusting the weighted number ofordinary shares in issue to assume conversion of all potential dilutive ordinaryshares. However, no potential ordinary shares are considered dilutive, as lossper share would decrease had the options in issue been exercised. 5. Events subsequent to the period end Loan from related party On 8 August 2007 a loan facility of £1 million was agreed with GreenbrookIndustries Limited, a company in which Richard Green has a controlling interestand which is itself a significant shareholder in the Company, together withcertain members of Richard Green's wider family. The loan is repayable onsuccessful future equity fund raising or in any event no later than 8 August2008 and bears interest at 15% per annum. Greenbrook Industries Limited has afixed and floating charge over the assets of the Group as security for thisloan. 6. Dividends The directors do not propose an interim dividend. INDEPENDENT REVIEW REPORT BY MAZARS LLP TO THE SHAREHOLDERS OF SERVOCELL GROUPPLC Introduction We have been instructed by the Company to review the financial information forthe period ended 30 June 2007 which comprises the consolidated income statement,the consolidated statement of changes in shareholders equity, the consolidatedbalance sheet, the consolidated statement of cash flows and related notes, andwe have read the other information contained in the interim report for anyapparent misstatements or material inconsistencies with the financialinformation. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority as applicable to AIM listed companiesrequire that the accounting policies and presentation applied to the interimfinancial information should be consistent with those applied in preparing thepreceding annual accounts except where changes, and the reason for them, aredisclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with AuditingStandards and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the period ended 30June 2007. Fundamental uncertainty - going concern In reaching our conclusion we have considered the adequacy of the disclosuresmade in the interim report concerning the basis of its preparation. The interimreport has been prepared on the going concern basis, the validity of whichdepends on the group generating projected revenues and continuing to operatewithin its cash resources and borrowing facilities and on future equityfundraising. The financial information does not include any adjustment thatwould result from its failure to achieve this. Details relating to thefundamental uncertainty are described in note 2. 27 September 2007 Mazars LLP Chartered Accountants Registered Auditor 3 Sheldon Square London W2 6PS This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Servelec Group