Servision PLC Regulatory News (SEV)

30 June 2015

SerVision PLC

("SerVision" or the "Company")

Financial Results for the year ended 31 December 2014

SerVision (AIM: SEV), the AIM quoted developer and manufacturer of digital security systems, is pleased to announce its audited final results for the year ended 31 December 2014.

A copy of the annual report and accounts, along with notice of the Company's annual general meeting, to be held at the offices of Adams & Remers LLP, Dukes Court, 32 Duke Street, St James's, London, SW1Y 6DF at 11 a.m. on 23 July 2015, will today be posted to shareholders and will be available shortly from the Company's website, www.servision.net.

Chairman's statement

I am pleased to announce SerVision's consolidated group financial statements for the year ended 31 December 2014 and to report that our revenue for this twelve month period was $4.2m, an increase of 20% from the previous year. I am also happy to announce that the company generated a net profit of over $180,000 during H2 of 2014 resulting in a reduced net loss of $729,000 for the full year compared to a net loss of $2.86 million in 2013.

Sales and Marketing

SerVision's strong end-of-year sales performance in H2 2014 was bolstered by new business in China, Kazakhstan and Brazil. Upon receipt of the China Compulsory Product Certification ("CCPC") for SerVision products in late Q4, Beijing SIVI Technologies ("BST") released payment for the second half of an order valued at $500k that, as per the terms of SerVision's exclusive distribution agreement with BST, was placed in June 2014. The BST contract remains in effect, but it is currently under review as we are now negotiating terms for a new agreement which would supersede the previous one and, going forward, will provide BST with local manufacturing rights for products sold in the Chinese market. Both SerVision and BST recognize that China is a very price-sensitive market and the board believe that a local manufacturing option will considerably bolster our prospects for success. Following positive meetings with Shenzhen-based TCL Communication Technology Holdings, we are also negotiating terms for the establishment of a BST-staffed R&D centre in China which would facilitate the development of a new TCL-manufactured body-worn mobile video streaming device utilising SerVision's unique compression technology. The product will be geared toward the police market in China as well as other countries.

During the year under review, the company entered into a number of new distribution or partnership agreements which helped generate the growth in revenue when compared to 2013. These include a new distribution agreement in the United States and Canada with Live Video USA for which an initial purchase order of $500,000 was received in 2014. Further implementation of this agreement has however been delayed unfortunately due to the health condition of Sol Mayer, the company's founder and CEO. Also in late 2014, SerVision announced they had received an order valued at $415,000 for a bus project in Kazakhstan for the supply of 360 MVG400 units and an order valued at $100,000 for the distribution of video gateway products in Indonesia. Additionally, in H1 2015 SerVision secured other notable orders including a $500,000 for a bus project in Brazil and, as announced on 28 May 2015, a new order from Egged, Israel's largest bus operator, for 75 MVG400 units on Egged buses. Egged has informed SerVision that they intend to deploy, by 31 December 2016, SerVision's mobile DVR units across their entire fleet of 3,920 buses in Israel and 1,700 buses in Netherlands and Poland.

In parallel with securing these new orders, SerVision has worked to enhance co-operation with a number of well-established fleet and driver management solution providers who have since integrated SerVision's protocol into their own web-based platform. The latest companies to have supported the SerVision video protocol in their software are GreenRoad and Matrix Telematics. Based on the demand from these companies' existing customers, SerVision is highly optimistic that offering a fully integrated fleet/driver management and video platform will play a major role in driving SerVision's future sales.

New Business Model and expansion plans in the UK

I am also optimistic about future growth prospects due to new business models currently under adoption that entail direct sales to end customers and lease-based contracts which will generate monthly recurring income for SerVision. Going directly to end customers will enable SerVision to offer far more attractive pricing to end customers and it will bring higher margins to SerVision. Furthermore, charging monthly fees for data and service will provide us with a stable revenue stream over extended periods of time. We have just begun rolling out these business strategies in the UK where SerVision is in the process of opening an office. The company has already selected a Technical Adviser, Managing Director and CEO to oversee all local sales and marketing activities and to provide technical support to UK customers. There are plans to expand the staff to an additional three employees.

Research and Development

SerVision's R&D team has made significant advancements in the development of its new mobile DVR platform - the IVG400-N. Although we are a bit behind schedule, we have a limited number of sample printed circuit boards (PCBs) and moldings en route to our Israeli office, and we hope to begin sending demo units to a number of customers later this summer. The new product will support the same feature set as our current range of MVG200/400 mobile DVRs, along with support for IP cameras and full HD recording across four channels. The IVG400-N will use SerVision's proprietary codec for streaming live video over any type of cellular network so customers can view live video of their sites/vehicles during an incident, and have access to high definition recordings for follow-up investigations. The new platform will have an integrated 3G/4G module and the ability to host third party video content so it can eventually be used as a mobile advertising platform on buses and other public transport vehicles.

Also during 2014 and in the context of a company-wide audit, our CPA selected Noa TV Technologies, an independent market research firm with extensive industry knowledge about digital video solutions, to conduct an in-depth investigation of our technology and R&D assets. The report highlighted SerVision's proprietary video compression method and our superior ability to generate high quality, stable, low delay video streams from locations with spotty or low level cellular coverage. The report also emphasized SerVision's unique transcoding scheme and its role in further conserving bandwidth. Noa TV Technologies gave our R&D assets a fair value in excess of the current carrying value, and it concluded that SerVision's highly unique know how should provide us with a strategic advantage over the competition in the coming years.

Financials

· Revenues for this period were $4,236,000 compared to $3,512,000 for the same period in 2013.  

· Operating loss for the period was $665,000 compared to an operating loss of $4,236,000 for the same period in 2013. 

· Net loss for the period was $729,000 compared to a loss of $2,863,000 for the same period in 2013.

The company experienced improved trading performance in the second half of 2014. Revenues for the second half of 2014 were $2,394,000 compared to $1,842,000 in the first half and the company generated a net profit of $180,000 in the second half, compared to a net loss of $910,000 in the first year.

In May 2015 the Company announced a subscription to raise £911,927 through a subscription for new ordinary shares with existing investors and new shareholders. The net proceeds of the subscription are being utilised to satisfy the Company's existing order book and for general working capital purposes.

Conclusion

Our final results for 2014 show a solid rebound from the previous year and when I consider the opportunities in our current pipeline and the prospects for significant penetration of the Chinese and global police market with a body-worn video transmission solution, I am optimistic that we can continue on a growth trajectory. I have expectations that our sales growth will accelerate once our next generation mobile DVR is ready for market launch and our new sales strategy to generate monthly recurring revenue has been fully rolled out.

I remain very grateful to our shareholders for their ongoing support, and to our staff for their hard work and commitment to the Company's success.

Gideon Tahan

Chairman and CEO

30 June 2015

Consolidated Income Statement For the Year Ended 31 December 2014

Consolidated Balance Sheet as at 31 December 2014

Consolidated Cash Flow Statement for the Year Ended 31 December 2014

Consolidated Statement of Changes in Equity

For The Year Ended December 2014

Extracted notes to the financial statements

1. ACCOUNTING POLICIES

The accounting policies applied are consistent with those adopted and disclosed in the Group financial statements for the year ended 31 December 2013.

Basis of preparation

The financial information for the year ended 31 December 2014 does not constitute statutory accounts as defined in section 435 (1) and (2) of the Companies Act 2006. Statutory accounts for the year ended December 31, 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered to the Registrar of Companies shortly. The auditors have reported on these accounts; their reports were unqualified and included the following emphasis of matter:

In forming our opinion, which is not modified, we have considered the adequacy of the disclosures made within note 1 of the accounting policies concerning the group's and the parent company's ability to continue as a going concern. The group incurred a net loss of $729,000 during the year ended 31 December 2014 and had net current liabilities of $373,000 as at that date. This, along with the other matters explained within note 1 of the accounting policies indicate the existence of a material uncertainty which may cast a significant doubt about the group and company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group and company were unable to continue as a going concern.

No statement was made by the auditors under section 498 (2) or (3) of the Companies Act 2006.

Whilst this announcement has been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations adopted for use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting under these condensed financial statements do not contain sufficient information to comply with IFRS.

Going concern

The directors have prepared and reviewed sales forecasts & budgets for the next twelve months and are optimistic that the group will make significant progress towards these targets. Having considered these forecast cash flows together with the availability of other financing sources, including equity finance and potential sources of debt finance if required, the directors have concluded that the group will have access to sufficient resources to meet its working capital and financing commitments for at least the next twelve months from the date of this report. 

The directors believe that due to the post year end developments, including the equity fund raising that is currently in progress and the significant order detailed in the review of post balance sheet events, that the Group is a going concern. However, the future of the Group is dependent on it substantially achieving its trading projections and on the directors being successful in their bid to secure new equity funding.

Therefore, subject to the developments disclosed above, the directors review of sales and cash flow forecasts and having made further relevant enquiries, the directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

The financial statements do not include any adjustments that would be necessary should this basis not be appropriate.

2. BUSINESS SEGMENT ANALYSIS

In identifying its operating segments, management generally follows the Group's geographical regions, which represent the main way segments are analysed in the Group.

The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its financial statements. Segment assets and liabilities are not reported internally by management to the Board.

The Group's revenue from external customers are divided into the following geographical areas, by location of operation.

All of the Group's non-current assets are held in Israel.

The Group has three customers that accounted for more than 25 % of revenue in 2014 (2013: 25%) two of which are based in the rest of the world and the other in the Far & Middle East.

4. LOSS PER SHARE

Basic loss per share is calculated by reference to the loss on ordinary activities after taxation of $728,802 (2013: loss $2,863,005) and on the weighted average of 62,901,799 (2013: 56,616,482) shares in issue. The calculation of diluted loss per share is based on the loss on ordinary activities after taxation and the diluted weighted average of 62,923,706 (2013: 56,638,389) shares calculated as follows: