18th Sep 2006 07:01
Servocell Group PLC18 September 2006 Servocell Group plc Interim results for the period to 30 June 2006 Servocell Group plc ("Servocell" or "the Company"), the provider of Active Latchtechnology that controls with low energy inputs the movement or motion ofmechanisms, such as locks, announces its maiden interim results for the periodto 30 June 2006. Financial and operational highlights: • AL1 product orders secured during the period including Yamaha and Beloxx • 44 AL2 prototype units sold to 25 customers • 2 AL2 product development projects with 2 global lock OEMs • New methods adopted to speed customer uptake and open new markets • Board strengthened with the appointment of David Lindsay as a Non Executive Director and Chairman of the Audit Committee • Sales Director appointment imminent • Successful flotation on AIM raising £5.5 million before expenses • Losses of £595,000 in line with Directors' expectations Mike Hartley, Non-Executive Chairman, commented: "I am delighted to report our first set of interim results following oursuccessful AIM IPO in March. Servocell has made steady progress since flotation:Beloxx and Yamaha have both brought AL1 products to the market during the periodand we have sold a significant number of AL2 prototypes. In addition, we haveproduct development projects with two major global lock manufacturers which istestimony to the strength of our technology. We have addressed our customers' reservations about the costs of development byintroducing the concept of fixed priced prototypes, and this has accelerated theadoption rate for our products. The Board remains confident of strong salesgrowth in the coming year, and we expect to achieve our medium term financialgoals". Contacts Should you have any queries. please contact: Simon Powell, Chief Executive, Servocell Group plc 01279 621 500Steven Weaver, Chief Financial Officer, Servocell Group plcMike Hartley, Non-Executive Chairman, Servocell Group plc 07711 734 631 Ian McInally, Bell Lawrie 0141 314 8109Zoe Biddick, Biddicks 0207 448 1000Shane Dolan, Biddicks Notes to Editors: Servocell's Active Latch devices are based around piezo actuators thattraditionally have high cost and limited movement. Through the application ofnovel techniques in design and manufacture, Servocell's products generaterelatively large movements and motion with low energy inputs. Active Latches aredesigned to provide lock manufacturers with a finished module that can be easilyintegrated into their product suite. Servocell's Active Latch products have been commercially launched and target theexpanding electromechanical sector of the global locks markets, valued at US$30billion in annual sales. Chief Executive's Statement These interim results, our first as a quoted company, cover the period from 14February 2006 to 30 June 2006. The Group continues to make significant progressin all areas, particularly technology development and product innovation, and weare confident that the business will continue to develop in line with our plans.As anticipated in our AIM Admission Document, the period following our IPO haswitnessed the Company begin its transition from a research and developmentoperation into a volume manufacturing and sales business. Technology Update The performance of our existing products has been improved with the developmentof added electronic functions. These advances expand the number of potentialapplications for the AL1 range, and include features for which patentapplications have been made. The patent applications are applicable to existingas well as new products. The AL2 production design is nearing completion. Testing to date shows theproduct to have the required strength, durability and moisture resistance towork in the most demanding customer applications. Production intent prototypesof the AL2 have been built and 44 have been sold to 25 customers, providing themwith a significant head start in the product development process. The AL5 concept has been progressed to a first prototype. This device permitsrelease under load for applications such as fire doors. The AL5 has beendemonstrated to several potential customers and a specific lead project is inthe contract approval phase. The AL6 concept has been developed into a revised format for retail locksmithchannels that combines high strength with easy installation. The design createdin this process can be adapted to a number of high volume applications includinga potential replacement for magnetic door locks. Management Team I am pleased to confirm that we are in the final stages of securing the keyappointment of a Sales Director to assist with our primary aim of building asolid platform for sales growth. A further, more detailed announcement will bemade shortly. During the period, David Lindsay was appointed as a Non-Executive Director.David brings to the Board over twenty years' finance experience gained withinthe international technology and engineering services sector, with the lasteight years on the main board of UK listed public companies. I would also like to take this opportunity to thank our staff for their hardwork, commitment and creativity over the period. Commercial Update New patents have been filed on applications for portable and fixed locks usingboth the AL1 and AL2. These patents will be licensed to customers to give them acompetitive advantage and encourage them to invest in tooling and marketing. The Pro-Active Partnership has been increased from 5 to 11 members with a widerrange of access control technologies, including biometrics, advanced networksand low cost solutions. The Pro-Active Partnership was developed by the Companyas a means of pre-qualifying access control solutions with AL technology. Bypresenting lock manufacturers with a range of proven technologies, the Companybelieves it has removed a major hurdle within the sales process. The Company successfully completed its ISO 9001:2000 quality audit, which is anessential measure for our customers. The Group is engaged with a number of customers and target customers to bring ALbased products to market. The most significant of these currently are: Codelocks Ltd, selling a range of AL1 based door locks in the UK and the USA; Jin Kun which has completed the manufacture of a new motorcycle and scootersteering lock on behalf of Yamaha. Yamaha is currently test marketing this newproduct on new scooters and 125cc bikes in Taiwan; Beloxx GmbH, which has signed a distribution deal with a major European contractfurniture reseller, has engaged Servocell to manufacture the entire Be-codeproduct on their behalf. The product has been presented at several internationalexhibitions and is being well received. Orders to March 2007 have beenscheduled, with good potential for increased volumes; and Lips Nederland b.v., an ASSA Abloy Group company, is at the beta productionstage of a new wireless door lock, with tooling complete and productionscheduled for early 2007. Other customers, such as Castell Safety International Ltd, continue to purchasefor existing products and to develop new products. To speed the customer development cycle, the Company has introduced a fixedprice design service that delivers a proof of principle prototype (POPP). ThePOPP demonstrates how AL technology can be applied to the customer's specificapplication. To keep costs low, this phase does not involve detailed design tomake the concept suitable for manufacture, but is of sufficient quality to allowthe customer to test the product concept with a selection of customers. POPP projects have been commissioned and delivered for the following: Bybox Ltd, for electronic access systems; KABA Mas, for a high security networked lock for container shipping that is nowbeing developed for manufacture; Oybike Ltd for the development of an intelligent lock to be used in bicyclerental stations; and Lips Nederland b.v. for the development of novel devices for key management. POPP projects, which are in current development, include: Fix AB, an ASSA Abloy Group Company, for the development of a multipoint lockfor the European and UK replacement door and window market; ODI Security Inc for the development of fingerprint controlled devices. A number of further proposals have been made and are awaiting decisions. Inaddition other customers are developing AL products using their own resources,including: Immucor for a Blood transfusion safety system, with tentativeproduct launch in Q2 2007 ; Passtech of Korea, for the development of a range of doorlocks; A leading latch manufacturer for the development of high integritycabinet locks; and A leading German manufacturer, developing domestic door locks forthe European market. Product Development A new range of complete latch assemblies has been developed through consultationwith smaller OEMs and end users so that a modest investment in design andtooling will enable a large number of applications to be serviced. Typicalapplications are cabinet and drawer locks for vending machines, medicaldispensing, key control and retail display. Drawing upon its experience ofdeveloping reference designs, the Company has designed a range of locks around aset of common components. These devices work with the AL1 and AL2 to offer awide range of locking modes and mounting positions. The Active Escutcheon product uses the reinforced mechanism concept of the AL6to allow standard mechanical door locks to be upgraded to electronic operationwithout the need for any woodwork, electrical installation or the removal of theoriginal lock. This technology is ideal for the retail locksmith and DIYchannels and the Company is in advanced discussions with UK and European brandsto introduce a range of units with various finishes and inputs. The new range of cabinet locks and Active Escutcheon offer the opportunity toplace doors, drawers and display units under traceable control for less moneythan currently available solutions. The first generation will use single pointcontrol, but collaboration with our Pro-Active Partners is expected to result incost-effective networked solutions during 2007. Advances in biometrics can alsobe accommodated within this range in due course at a price that is suitable forimpulse purchases in the DIY store. Market testing prototypes will be ready in early October. The Company proposesto market these products in collaboration with a number of national brands thathave established channels to the retail and locksmith markets in Europe and US. Market Development Since flotation the Company has witnessed an acceleration in the acceptance ofelectronic access control because of the benefits it brings in terms of keycontrol and audit. These benefits can currently only be delivered at arelatively high cost, due to the poor power consumption of electromagneticdevices. In contrast, the CL1 cabinet lock will use less than 0.5% of the powerof commonly available electromagnetic equivalents. The main beneficiaries of electronic locking are facility and security managers,for whom the benefits of local rights management, audit, networking and remotecontrol are well understood. This market awareness is creating a pull on lockcompanies and all of the major manufacturers have developments in this area. TheDirectors believe that the AL technology is easily integrated with all availableaccess control strategies and that such integration offers clear lifetime costbenefits to end users, whilst also reducing the build cost of high specificationlocks in a variety of formats. Environmental legislation and the drive to reduce emissions are forcing systemdesigners to consider the total cost of ownership in new ways, and ALtechnology's low power contributes to savings in battery waste, lower oreliminated cabling costs, and reduced labour cost to maintain the system overits life. Results Summary In the period from 14 February 2006 to 30 June 2006 the company achievedrevenues of £31,000 and made a loss of £595,000, in line with the Directors'expectations. As previously mentioned the critical strategy at this point in theCompany's development is to continue to build the solid foundations of movingthe business from the research and development phase into full scalecommercialisation and volume manufacturing. Since the flotation considerable progress has been made both in terms oftechnological developments as well as extending the product range with thelaunch of the new complete lock products. These products have been introduced toaid the sales process and encourage OEM customers to bring products to marketmore quickly. We are in negotiations with a large number of customers, as previouslydiscussed, and have been encouraged by the general level of acceptance of ourtechnology but have been disappointed by the length of time that some OEMs havetaken to adopt our technology in their product development. The launch of fixedprice design projects is aimed at easing this part of the sales process bygiving our customers fully functioning demonstrators of their application, whichsignificantly reduces the risk of adopting the technology as well as the burdenof development. In some cases, the company is changing its channel to market byoffering end users a more complete solution, as explained in the productdevelopment section above. Some customers have taken the technology on board but the product developmentcycles within their businesses have taken longer than hoped. Our continuedexpansion of the Pro-active Partnership is helping significantly with this andwe have been able to speed up some projects by introducing members of theCompany's sub-contract network to customers. As the AL2 has developed and passed various rigorous testing schedules we havefound that some customers have deferred projects from AL1 based product to thenew AL2 based product. The testing and optimisation of the AL2 has takenconsiderable time and effort due to our goal of enabling it to withstand anyexternal environmental conditions for a life of 20 years. The current build ofthe AL2 meets all of our customer's requirements. Due to the reduced thickness,greatly increased weather resistance, its availability in power to lock andpower to unlock formats, several customers have elected to await the fullavailability of the AL2. This is good news for AL2 potential sales but has ledto an inevitable reduction in expectations for sales of AL1 based product in theshorter term. As the new AL2 product completes its pre-production phase theCompany expects to more than make up these sales. Outlook Servocell has made material progress over the past six months and secured afoothold in a challenging marketplace. We believe that we will achievesignificant sales growth due to the increasing demand for intelligent and secureaccess combined with audit control and low cost of installation. In addition,Servocell's strategy of assisting customers' development and offering morecomplete lock solutions has reduced the barriers identified in the sellingprocess. The Directors are confident that the expanded range of technical solutions andthe easier path to using Active Latch technology has grown the potential marketand reduced the lead time of the sales process. As a result of these actions,sales are expected to grow steadily through to the end of 2006 and to acceleratestrongly thereafter. Simon PowellChief Executive Officer CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE PERIOD ENDED 30 JUNE 2006 £'000 unaudited Revenue 31Cost of sales (16) ---------Gross profit 15 Other operating income 5Research and development expense (333)General and administrative expenses (319) ---------Operating loss (632) Interest income 37 ---------Loss on ordinary activities before tax (595) Income tax credit - ---------Loss attributable to equity holders (595) --------- Net deficit per shareBasic (1.6p)Diluted (1.6p) Shares used in net deficit per share calculationBasic 36,208,449Diluted 36,208,449 CONSOLIDATED BALANCE SHEETAS AT 30 JUNE 2006 £'000 unauditedAssets Non-current assets Property, plant and equipment 177Goodwill 4,695Other intangible assets 698 --------- Total non-current assets 5,570 Current assetsCash and cash equivalents 3,350Inventories 175Trade and other receivables 251 ---------Total current assets 3,776 ---------Total assets 9,346 ---------Liabilities and shareholders' Funds Current liabilitiesTrade and other payables 231Accruals 55 ---------Total current liabilities 286 ---------Total liabilities 286 ---------Shareholders' fundsShare capital 379Share premium 9,276Accumulated deficit (595) ---------Total shareholders' funds 9,060 ---------Total liabilities and shareholders' funds 9,346 --------- CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE PERIOD ENDED 30 JUNE 2006 £'000 unaudited Cash flows from operating activitiesNet deficit (595)Adjustments for:Depreciation and amortisation 174Changes in working capital:(Increase)/decrease in inventories (22)(Increase)/decrease in receivables, prepaid expenses and othercurrent assets 4 Increase/ (decrease) in accounts payable and accrued expenses and provisions used 74 --------- Net cash used in operating activities (365) Cash flows from investing activitiesAcquisition of plant and equipment (76)Development costs (249) ---------Net cash used in investing activities (325) Cash flows from financing activitiesNet proceeds after costs from issue of new shares 4,655Debt acquired on acquisition of PBT (IP) Limited (615) ---------Net cash provided by financing activities 4,040 Net increase in cash and cash equivalents 3,350 ---------Cash and cash equivalents, beginning of year - ---------Cash and cash equivalents, end of year 3,350 --------- NOTES TO THE ACCOUNTSFOR THE PERIOD ENDED 30 JUNE 2006 1. Reporting entity The company was incorporated in England and Wales on 9 November 2005 andcommenced trading on 14 February 2006, and as such the interim profit and lossaccount and cash flow statement for the group are for the period from this dateto 30 June 2006. On 14 February 2006 the company acquired the entire share capital of PBT (IP)Limited for £5,000,000, with consideration being settled by way of issuing27,745,758 new ordinary shares of 1p each to the shareholders of PBT (IP)Limited on an 18:1 share exchange. On the same day the company acquired 100%shareholding in Servocell Limited for a consideration of £3,000,000 from PBT(IP) Limited. On 9 March 2006 the company placed a further 10,185,186 new ordinary shares of1p each at a price of 54p per ordinary share raising, £5,500,000 before expensesand made an application to be admitted to trade on AIM market ("AIM"). 2. Summary of significant accounting policies Basis of presentationThe interim results of the period ended 30 June 2006 are unaudited and do notconstitute statutory accounts within the meaning of s.240 of the Companies Act1985. They have been prepared in accordance with International FinancialReporting Standards (as adopted for use in the European Union) and theaccounting policies adopted by the company in the admission document issued inrelation to the admission of Servocell Group plc to AIM on 9th March 2006. Use of estimatesThe 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 figuresNo comparative figures have been presented for the period to 30th June 2006 asthis was the company's first period of trading. Intangible assets (a) GoodwillGoodwill 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 developmentResearch 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 three years and assuch, are amortised on a straight-line basis over this period. The amortisationcharge appears within the research and development expense in the profit andloss account. Government grantsRevenue based grants are credited to operating profit to match the expenditureto which they relate and are set off against research and development costs.Capital based grants for the acquisition of assets and development activitiesthat are capitalised are set off against the cost price of the assets for whichgrants are awarded. RevenueRevenue represents the invoiced value, net of value added tax, of goods sold andservices provided to customers. 3. List of principal consolidated companies The principle activity of the company is a holding company, with two whollyowned subsidiaries included in the consolidation. The details are as follows: Name of Company Country Nature of business----------------- --------- -------------------- Servocell Limited UK Development and manufacture of piezo ceramic actuators PBT (IP) Limited UK Owning and licensing intellectual property 4. Earnings per share (a) BasicBasic 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. Loss attributable to equity holders of the company (£'000) 595 Weighted average number of ordinary shares in issue (million) 36.2 Basic loss per share 1.6p (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. Analysis of net assets acquired at the acquisition When the company purchased the share capital of PBT (IP) Limited the following assets and liabilities were acquired; £'000 Inventories 153 Trade and other receivables 255 Trade and other payables, including accruals and taxes (212) Property, plant and equipment 123 Intangible fixed assets 601 ------ Assets acquired by the company 920 Debt acquired on acquisition (615) ------ Net assets acquired by the company 305 ------ Consideration: 5,000 Shares issued in the company Less: Net assets acquired (305) ------ Goodwill arising on acquisition 4,695 ------ The fair values of the assets acquired are based on provisional estimates. 6. Dividends The directors do not propose an interim dividend. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Servelec Group