Servelec Group Regulatory News (SERV)

30 May 2007 07:01

Servocell Group PLC30 May 2007 SERV.L Servocell Group Plc Trading Update Servocell is a provider of Active Latch technology that controls, with lowenergy inputs, the movement or motion of mechanisms. Servocell is exploiting its Active Latch technology in the global locks market. The Board would like to advise shareholders of its current progress and tradingperformance. Key points: •growing orders and sell-through with existing customers; •lock manufacturer projects progressing but taking longer to reach production; •increasing market pull for "Ready to Go" applications; €3 to 6 month delay in sales delivery due to resolution of product development issues; •revenue in 2007 will be significantly lower than originally anticipated. Traction with existing lock manufacturers The company has seen a number of projects progress significantly over the yearwith customers who have incorporated the Active Latch ("AL") technology intotheir own product designs: Beloxx GMBH have successfully launched their BeCode product incorporating the AL1 module in the German market. The product is now distributed internationally byWurth as announced in Jan 2007 and in addition is also being sold directly byBeloxx into the German cabinet market. Beloxx has recently completed theinstallation of 4,000 units into a major German retail organisation in the firstphase of a project which is intended for national roll out. Other national andinternational projects have been identified by Beloxx and significant sales ofthe BeCode product are anticipated for 2007 and 2008. Jin Kun is the supplier of locks to Yamaha in Taiwan and has developed withServocell a new electronic lock based around the AL1. Following an extensiveperiod of field trials and further product development, Servocell has nowsatisfied the testing requirements of Yamaha for the application of the AL 1 inmotorcycle security applications. The directors anticipate that this technologywill be formally adopted in the second half of 2007 (upon completion of Yamaha's own environmental testing) and lead to volume sales following adoption. Lips Netherland BV Following a joint development with Servocell, Lips (asubsidiary of Assa Abloy in The Netherlands) have completed their integrationactivities and are finalising test marketing plans for a new electronic lock.Test marketing of the product will start in the second half of 2007 with targetcustomers identified and waiting. Master Lock is actively working on a number of projects incorporating Servocelltechnology. The nature of the projects is at this stage confidential, whilstthey are in the latter stages of development or test marketing. Deister GmbH has applied the AL2 technology to a high volume exteriorapplication in Germany and has successfully progressed its application throughfield trials with its customer. Deister is now embarking on the next stage offield trials prior to a potential phased programme for national deployment. TheDirectors believe that this project has widespread international salespotential. Immucor a Spanish subsidiary of the major US group which specialises in theprovision of products for blood transfusion and control products for hospitalsand blood transfusion agencies has developed a specific medical applicationincorporating the AL2 module which is currently planned for test marketingduring the second half of 2007. Greenwald Industries a subsidiary of Eastern in the USA has developed a lockingapplication based around the AL2 for use in a wide variety of industrialapplications. Details are currently confidential pending patent filling. In addition to these projects a number of other companies are in developmentactivity with the AL modules. These projects are all in their infancy but thedirectors anticipate that a number of them will yield significant volumes duringthe coming 18 month period. Progress in penetrating the market with the Ready to Go products Since the release of the first samples of the Cabinet Latch ("CL") 1 in thefirst quarter of 2007 more than 320 samples have been ordered by 30 potentialdistributors and end users including some of the major lock manufacturers andaccess control suppliers. Typical applications for these products will includeretail display security, cabinet and drawer locks and door locks for commercialand office environments. The intention is to use established Distributors andValue Added Resellers (VAR) both in the UK and overseas to address specificmarket sectors. Hafele a leading UK distribution organisation for the furniture and designindustry has recently signed a distribution agreement for the CL products. Theproduct is featured in the Hafele catalogue which is issued to some 60,000buyers, specifiers and architects in the UK. In conjunction with the UKbusiness, discussions are also under way for a roll out of the Servocellproducts in other Hafele subsidiaries. Retail whilst the Company's strategy is to use distribution, a limited number ofdirect sales programmes are being pursued to prime the market and build productcredibility. Servocell is now working with several major UK retailers toimplement its first range of retail locks for customer display cabinet security.The retail sector has shown strong latent demand and so has become a focus forearly direct sales. Servocell products offer major benefits in the areas of keymanagement and the control of shrinkage - both major problems for retailers. Inthe UK alone there are some 300,000 retail establishments, all of these havelock requirements and issues around their current operations which the CL rangewill be able to address. Street Furniture In addition to the project with Deister a number of other majorprojects are under discussion. The Company has signed NDAs in this area forprojects in a number of countries. These projects are typically forinstallations in hostile climates where the Servocell AL2 technology offers themost compelling solution over traditional locking devices. Distribution There is a range of opportunities in applications such asautomotive, aviation and marine that is best served through collaborativedevelopment. The Company is in active discussions with one of the world'sleading suppliers of automotive and special purpose latches to agree terms forsuch a collaboration and potential distribution. In the UK, the Company is in discussion with a number of channel partners intarget markets with the intention of appointing 5-8 specialist distributorsduring the current year. The Company has commissioned an international marketresearch report to identify the leading distributors in each of the major EUmarkets and will appoint 8-10 partners in each country by the end of 2007. Trading Update Servocell's Annual Report and Accounts for the financial year ended 31 December2006 noted that the Company had introduced a revised business model to reducethe associated risks working with large international lock manufacturers, withthe timescales involved in converting field trials into production orders.Subsequently, there have been further delays on three projects with lockmanufacturers, • Jin Kun / Yamaha where the extensive validation testing for this automotive application has taken longer than anticipated, although it is scheduled to be completed in the second half of 2007. • Kaba Mas was a successful POPP project to retrofit an AL2 into an existing Kaba product delivered in the forth quarter 2006. However the customer re-evaluated the project and deemed it not sufficiently value adding for this application to proceed at this particular time. • A US latch manufacturer, where the original selling proposition was for a module to be fitted into the customer's product design. This has subsequently moved into a Ready to Go Cabinet Latch sales proposition, with higher margin potential, but with revenue moving backwards in time into early 2008. There have also been some delays in the availability of the AL2 module, due toincreased testing and validation requirements around the environmental sealing, which will have an adverse impact on 2007 revenues. However, capital equipment for volume production is being installed and manufacturing is now anticipated tostart in the second half of the current financial year. This activity has beenscheduled to match potential volume requirements and to enable the Company toincorporate feedback from internal and customer trials. Servocell's "Ready to Go" products continue to attract positive feedback and a growing pipeline after the initial customer samples of the CL 1 product were released to market in the first quarter of this year. Feedback from initial customer consultation has lead to a review of the product specification resulting in the decision to launch the products into production based around AL 2 technology to meet the more exacting market needs. This, combined with some minor technical hurdles, has delayed the project beyond its expected developmenttimescales by an estimated three months. The Directors now anticipate the firstCL product to be in volume manufacture late in the second half of the current financial year. The incremental activity on the first of the CL products has necessitated arefocusing of the Company's limited engineering resources to drive the productavailability. This in turn has impacted resource availability for other Ready toGo development projects which have consequently slipped into 2008. Despite the good progress developing product and the clear customer appetite forServocell's unique Active Latch technology proving the product for demandingenvironments and providing sufficient samples has taken longer than expected.Given the impact of these issues, the build of revenues in 2007 will be delayedand will be significantly lower than originally anticipated. In addition the Group has expressions of interest from two multi-nationalcompanies relating to the technology for domestic appliances and medicalapplications. In line with the procedures set out at the time of admission toAIM the company has appointed Metis Partners to support the disposal of non-coreIP contained in the gas valve patent. Servocell's Chief Executive Officer, Simon Powell commented "Whilst disappointed with delays to our product development and short termsales, I believe this is purely an issue of order timing. The rapid build ofsales to Beloxx, following product launch in late 2006, together with verypositive market reaction to Servocell's new products in other applications andmarkets gives me and the Board continuing confidence in the sales potential ofServocell's products. The decision to pursue more complete "Ready to Go"solutions has accelerated market acceptance of our technology and is rapidlyboosting the sales pipeline. By delivering a range of products in 2007 andsecuring further distribution arrangements, we are confident of achieving asignificant increase in turnover moving into 2008." For further information please contact: Simon Powell, Chief Executive Officer, Servocell Group plc 01279 621 500Steven Weaver, Chief Financial Officer, Servocell Group plc Gregor Paterson, Analyst, Bell Lawrie 0845 213 4211Jon Fitzpatrick, Corporate Finance (NOMAD), Bell Lawrie 0845 213 4222 Shane Dolan, Biddicks 0207 448 1000 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 accelerate application of the technology, the Group has beendeveloping a range of "Ready to Go" sub-assembly products under the CabinetLatch and Active Escutcheon brands. These are being sold to both lockmanufacturers and major distributors. This information is provided by RNS The company news service from the London Stock Exchange