SVR.L Regulatory News (SVR)

24 Mar 2005 11:34

ServicePower Technologies PlcPreliminary results for the year ended 31 December 2004ServicePower Technologies PLC ("ServicePower" or the "Company") ServicePower, the recognised market leader in artificial intelligence based,field service scheduling solutions and computer services announced its resultsfor the year ended 31st December 2004.FINANCIAL AND OPERATING HIGHLIGHTS * Increased revenue - up 58% to ‚£4.1 million (2003 ‚£2.6 million) * Increased forward visibility - revenue of ‚£5.3 million already committed for 2005 * Increased recurring revenue - over ‚£380k per month * Cash in bank at year end ‚£2.8 million (2003 ‚£279k) plus ‚£250k capital bond * Loss increased by ‚£2.2 million to ‚£3.8 million Field Service Solutions Business * Purchased key assets of Keyprestige Inc * Revenue grown from zero to ‚£2.1 million in 2004 * Formed FSS Europe in January 2005 - 4 contracts won * Revenue of ‚£3.6 million already contracted for 2005 * Recurring revenue grown from zero to over ‚£300k per month * Investment in working capital ‚£1.8 million * Product development costs capitalised ‚£624k SERVICEPower Software Business * Revenue reduced by 22% to ‚£2.0 million * Contracted revenue ‚£1.7 million for 2005 * Recurring revenue ‚£80k per month * Loss increased to ‚£2.5 million (2003 ‚£1.6 million) David Brisco, ServicePower's Chief Executive, commented "this has been a yearof transition for the Company. We set up the new FSS business unit believingthere to be a market for its web-enabled applications in the US. We haveconfirmed this with rapid revenue growth from more than 30 respected brandowners and the initial response from the recent launch in Europe providessimilar positive signs. I see 2005 delivering further profitable growth".ENQUIRIES:ServicePower Technologies PLC (UK) Tel: 07831 396539 Barry Welck, Chairman David Brisco, Chief Executive Officer Tel: 0161 476 2277 Evolution Securities LimitedMichael Brennan Tel: 020 7071 4300 ServicePower Technologies PlcChairman's statement__________________________________________________________________________________________Introduction2004 has been a year of transition for the Company. The Company has moved frombeing a software provider to a provider of computer services. The Company nowoperates two core businesses units being the Field Service Solutions Business("FSS"), which operates despatch, repair and warranty claim services to majorretailers and manufacturers and the SERVICEPower Software Business which sellssoftware directly into the automated scheduling applications market.In line with the shift to a service business model, the Company raised ‚£5.9million of new cash to invest in the FSS computer services business. Further tothis, the Company acquired the key assets of Keyprestige Inc, a US basedservice and electronic warranty claim company. Through these actions, theDirectors believe the Company has the opportunity to be the leading provider ofservices to manage the delivery, repair and warranty claim processes ofretailers and manufacturers of consumer electrical goods and white goods inboth the US and Europe. The rapid acceptance of our FSS suite of serviceproducts in the US and now more recently in Europe, as described below,supports this view.Results and DividendThe revenue for 2004 was ‚£4.1 million, an increase of 58% on 2003 (2003: ‚£2.6million), of which ‚£2.1 million was contributed by FSS during less than 9months trading. I am particularly pleased that the contracted monthly recurringrevenue has grown from ‚£86k per month at the start of 2004 to over ‚£380k nowand the Company has ‚£5.3 million total committed revenue for 2005, subject tocurrent volumes continuing into the future. This is 29% more than our total2004 revenue and is particularly encouraging as several recently signedcontracts have yet to reach their full monthly revenue capability. TheDirectors expect the recurring revenue from existing customers to continue toincrease during 2005 providing substantial growth alongside further revenuefrom new customers winsThe loss before and after taxation was ‚£3.9 million (2003: loss of ‚£1.6million). The gross margin of the software business fell from 58% to 45% due tothe reduced software licence revenue while the FSS gross margin was 23% whichwas in line with the Directors' expectations. The low margins delivered by FSSin its first year of operation are due to a number of processes initially beinghandled manually. As the Company begins to use its own software applications inthe business and manual handling is reduced the gross margins will begin torise in 2005.The administrative expenses are ‚£5.3 million, ‚£2.1 million more than in 2003reflecting the investment in sales and marketing in the FSS business. During2004 the average number of full time employees rose from 48 to 77 and the totalstaff based in the US increased by 28. The development and support of the FSSapplication has been outsourced to TCS Inc., one of the largest outsourcing andsystem integration companies in the world. The strategy of partnering toachieve rapid IT development is expected to continue and expand.The loss per share for the period was 5.50p (2003: loss per share of 2.67p).The Directors do not recommend the payment of a divided.The cash position at the end of 2004 was ‚£2.8 million, plus a ‚£250k capitalbond.Field Service Solutions BusinessThis year the company acquired software and intellectual property rights fromKeyprestige, Inc., set up new offices in Kentucky, California and the UK. TheFSS business operates despatch, repair and warranty claim services to majorretailers and manufacturers. From a standing start the FSS business delivered ‚£2.1 million revenue in 2004 and currently has over ‚£3.6 million contractedrecurring revenue for 2005. Recurring revenue for FSS has grown from zero toover ‚£300k per month.The Directors have identified two different FSS business models. Firstly, ourclient may use FSS hosted software to process their own service jobs and forwhich the Company receives a transaction fee. Future gross margins will be inline with our software business, at approximately 65% as the marginal costs ofprocessing additional transactions through the system are very low. The secondmodel uses FSS infrastructure to deliver a total outsourced service to ourclient. In this model the margins are relatively low, at approximately 10% butthe potential for revenue growth is significant. In both models the inclusionof our SERVICEPower software application gives the Company competitiveadvantage and creates a significant barrier to entry. In getting the balanceright between the two models, FSS has the capacity to deliver significantprofitable revenue growth.In addition to re-signing all 23 former Keyprestige US clients includingPhillips, Denon, Hitachi, JVC; new contracts have been won with prestigiouscompanies such as GE Industrial and Consumer, Whirlpool, Westinghouse, Daewooamongst others. Other than GE, each contract alone is not significant, buttaken together these contracts underpin profitable recurring revenue in excessof ‚£2.6 million per year in the US. Shareholders will recall the Companyannounced in April 2004 a contract with US Digital Television, Inc to provideinstallation services for USDTV digital television set-top boxes. Followingearly positive growth, the USDTV rollout stalled due to a delay obtainingsecondary funding. USDTV has informed the Directors that it expects to securesignificant new funding shortly. This should allow USDTV to settle theirexisting debts and the roll out will resume leading to a positive revenueeffect for the Company.I am pleased to report the funded pilot with a Fortune 100 US retailer began inJanuary at 22 stores in Portland. It has been favourably received and isalready delivering significant productivity gains as it utilises theSERVICEPower software in the FSS application. The pilot will run for at least 3months before our client takes the decision to rollout, but it is encouragingto report approval has been given to extend the pilot to a second city. FSS inthe US has recently begun two pilots with major brand-name manufacturers ofconsumer electronics products. The Company is currently on the short-list inseveral outsourcing procurements by major organisations which gives theDirectors great confidence in the further growth potential of this newbusiness.The Company recently announced the launch of FSS into Europe using the hostedand total service models developed in the US. We have signed 4 new contractsand started one pilot in the first few weeks of operation which the directorsexpect to deliver ‚£1.0 million revenue in 2005. It is particularly pleasing tohave recently been appointed the UK Service Partner by Elesco Ltd, anassociation of European-wide independent service companies. Our clients saythey want to place business with someone that can handle service jobs on apan-European basis. This arrangement allows FSS Europe to win UK based Europeancontracts and to have business referred to FSS by our European partners on anexclusive basis. Three of our new contracts have come from Elesco partners andthe Directors expect this arrangement will deliver many more.SERVICEPower Software BusinessThe software business revenue fell 23% to ‚£2.0 million in 2004 (2003 ‚£2.6million). The trading conditions remain difficult with decisions for capitalexpenditure often being delayed. This has contributed to the softwarebusiness's loss of ‚£2.5 million. The Directors have firm plans to move thesoftware business to at least a cash neutral basis for 2005 and being on theshortlist in several procurements the Directors have confidence that the plansare achievable.In 2004 another of our pilot projects was successfully converted into anenterprise license within one of the largest insurance companies in the US andwe have a second pilot currently running with a Fortune 100 company that theDirectors expect will be converted into an enterprise license in 2005.The Directors recognise the unpredictability of the revenue stream can beaddressed by increasing the volume of contracts through the use of resellersand partners. To this end the Company has signed distributor agreements withPinnacle, Solarvista and Cognito in the UK, and implementation consultancyagreement with BearingPoint and Bat-Mann in the US. We have also set upServicePower AG to sell to German-speaking countries in Europe, following ourSAP certification of our integration to their R3 product. Our Dutch partner,Square continues to rollout out a pan-European solution for an internationaloffice equipment company, with Benelux and Italy now live.The software business has ‚£1.7 million contracted revenue for 2005 fromsoftware licences, implementation consultancy and ongoing maintenancecontracts.OutlookWe start 2005 with contracted revenue 29% higher than the total revenue for2004. This is a measure of the success in closing new FSS contracts in 2004that deliver future recurring revenue. The Directors expect the monthlyrecurring revenue to continue to increase during 2005 as more transactions areprocessed for our existing clients. In addition I expect the Company to convertsome of the FSS pilots into incremental revenue and as these are with Fortune100 companies, the volume of transactions could be significant. As aconsequence the Directors expect the FSS business to trade profitably and becash positive as it moves into its second year. The Company is well placed towin several enterprise software licences and the Directors are determined thesoftware business should be at least at break-even point in 2005 and the Boardis confident for the future of the business.Barry WelckChairman24th March 2005ServicePower Technologies PlcConsolidated profit and loss account for the year ended 31 December 2004________________________________________________________________________ Continuing operations Acquisitions Total Total 2004 2004 2004 2003 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Turnover 2,055 2,059 4,114 2,638 Cost of sales 1,199 1,589 2,788 1,114 ________ ________ ________ ________ Gross profit 856 470 1,326 1,524 ________ ________ ________ ________ Administrative 3,386 1,864 5,250 3,157expenses ________ ________ ________ ________ Operating loss (2,530) (1,394) (3,924) (1,633) Interest receivable 67 - 67 8 Interest payable and - - - (2)similar charges Other income - - - 3 ________ ________ _______ ________ Loss on ordinary (2,463) (1,394) (3,857) (1,624)activities before taxation Taxation on loss from - 172ordinary activities ________ _______ Loss on ordinary (3,857) (1,452)activities after taxation and retained deficit for the year ________ _______ Loss per share Basic and diluted (5.50) p (2.67) p ________ _______All amounts relate to continuing activities.All recognised gains and losses are included in the profit and loss account,apart from exchange translation gain differences of ‚£13,000 (2003: loss of ‚£28,000).ServicePower Technologies PlcConsolidated balance sheet at 31 December 2004_____________________________________________________________________________ 2004 2003 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Fixed assets Intangible assets 1,058 - Tangible assets 285 27 Investments 250 250 ________ ________ 1,593 277 Current assets Debtors 1,253 1,414 Cash at bank and in hand 2,788 297 ________ ________ 4,041 1,711 Creditors: amounts falling due within one year 2,009 1,717 ________ ________ Net current assets/(liabilities) 2,032 (6) Creditors: amounts falling due after (72) -more than one year ________ ________ Total assets less current liabilities 3,553 271 ________ ________ Capital and reserves Called up share capital 7,413 5,669 Share premium account 13,602 8,325 Share scheme reserve 133 28 Merger reserve (3,008) (3,008) Profit and loss account (14,587) (10,743) ________ ________ Shareholders' funds - equity 3,553 271 ________ ________The financial statements were approved by the Board on 24nd March 2005D A BriscoDirectorServicePower Technologies PlcConsolidated cash flow statement for the year ended 31 December 2004______________________________________________________________________________ 2004 2003 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Net cash outflow from operating activities (2,825) (2,412) Returns on investments and servicing of finance Interest received 67 8 Interest paid - (2) ________ ________ Net cash inflow from returns on 67 6investment and servicing of finance Taxation UK Corporation tax refund - 341 Capital expenditure and financial investment Purchase of tangible fixed assets (239) (10) Sale of tangible fixed assets 11 3 Expenditure on intangible assets (624) - ________ ________ Net cash outflow from capital (852) (7)expenditure and financial investment Acquisitions and disposals Cash acquired with KPI 168 - ________ ________ Cash outflow before use of liquid resources and financing (3,442) (2,072) Management of liquid resources Increase in short term deposits (1,900) - Financing Share issue 6,599 838 Issue costs (630) (44) Capital element of leases repaid (36) - ________ ________ Cash inflow from financing 5,933 794 ________ ________ Increase/(decrease) in cash in the 591 (1,278)year ________ ________ServicePower Technologies PlcNotes______________________________________________________________________________1 Reconciliation of operating loss to net cash outflow from operatingactivities 2004 2003 ‚£'000 ‚£'000 Operating loss (3,924) (1,633) Amortisation of intangible assets 62 - Depreciation of tangible fixed assets 85 20 (Profit)/ loss on disposal of tangible assets (5) 3 Decrease/(increase) in debtors 566 (440) Increase/(decrease) in creditors 227 (401) Change in share scheme reserve 105 11 Foreign exchange translation 59 28 _______ _______ Net cash outflow from operating activities (2,825) (2,412) _______ _______ * Reconciliation of net cash flow to movement in net funds 2004 2003 ‚£'000 ‚£'000 Increase/(decrease) in cash 591 (1,278) Cash inflow from change in liquid resources 1,900 - Cash outflow from change in debt 36 - _______ _______ Movement in debt resulting from cash flows 2,527 (1,278) Inception of finance leases (95) - _______ _______ Change in net funds 2,432 (1,278) Net funds at beginning of the year 297 1,575 _______ _______ Net funds at end of the year 2,729 297 _______ _______ServicePower Technologies PlcNotes_______________________________________________________________________________3 Analysis of net funds At start of Cash flow Non-cash At end of year items year ‚£'000 ‚£'000 ‚£'000 ‚£'000 Cash at bank and in 297 591 - 888hand Other liquid resources - 1,900 - 1,900 _______ _______ _______ _______ Total 297 2,491 - 2,788 Finance leases - 36 (95) (59) _______ _______ _______ _______ 297 2,527 (95) 2,729 _______ _______ _______ _______4 AcquisitionsOn 16th March 2004 ServicePower Inc. acquired certain assets and liabilitiesfrom Keyprestige Inc. In consideration of the purchase of the certain assetsand liabilities, ServicePower Technologies plc issued an aggregate of 2,237,082new ordinary shares of 10p at 47p. Upon purchase intangible assets were valuedat ‚£523k, which was considered to be the current fair value. These assets formthe basis of the new outsourcing revenue. Book value Fair value Fair value to adjustment group ‚£'000 ‚£'000 ‚£'000 Fixed assets Tangible 116 - 116 Intangible - 523 523 Current assets Debtors 427 - 427 Cash 168 - 168 _______ _______ _______ Total assets 711 523 1,234 Creditors 182 - 182 _______ _______ _______ Net assets 529 523 1,052 _______ _______ _______ServicePower Technologies PlcNotes_______________________________________________________________________________4 Acquisitions (Continued) ‚£'000 Non cash consideration 1,052 Net assets acquired 1,052 _______ Goodwill arising on acquisition - _______The results of KPI Inc prior to its acquisition were as follows;Profit and loss account Year ended 31 December 2003 ‚£'000 Turnover 2,162 Operating profit 170The above figures have been extracted from unaudited management accounts andare the only profit and loss account figures available for the pre acquisitionperiod. Monthly management accounts were not prepared by KPI Inc and aretherefore not available for any further periods.Cash flowsThe net inflow of cash arising from acquisition was as follows: ‚£'000 Cash acquired 168 _______ Net inflow of cash in respect of KPI Inc 168 _______ServicePower Technologies PlcNotes______________________________________________________________________________5 Loss per shareBasic and diluted loss per ordinary share was calculated by dividing the losson ordinary activities after taxation by the weighted average number of sharesin issue during the relevant financial periods.There are no dilutive potential ordinary shares in issue in 2004 or 2003. 2004 2003 Number Number Weighted average number of shares 70,127,447 54,323,309 _________ _________ ‚£'000 ‚£'000 Loss (3,857) (1,452) _________ _________ * Basis of preparation and financial information This preliminary announcement was approved by the Board on 22nd March 2005.The financial information set out in this preliminary announcement has beenprepared on the same basis as the accounting policies used in the company's2003 statutory accounts except for research and development costs, as set outbelow.Software development costsExpenditure on pure and applied research is charged to the profit and lossaccount in the year which it is incurred.Development costs are also charged to the profit and loss account in the yearof expenditure, unless individual projects satisfy all of the followingcriteria: * The project is clearly defined and related expenditure is separately identifiable; * The project is technically feasible and commercially viable; * Current and future costs are expected to be exceeded by future sales; and * Adequate resources exist for the project to be completed. In such circumstances the costs are carried forward and amortised over a periodnot exceeding 5 years commencing in the year the group starts to benefit fromthe expenditure. Previously the policy had been to charge all development coststo the profit and loss account in the year it is incurred. The change has notresulted in any prior year adjustments as the above criteria had not been met.The financial information contained in this preliminary announcement does notconstitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985 and the results for the year ended 31 December 2004 and 2003have been extracted from the audited financial statements for these years.The auditors' reports on these accounts were unqualified and did not containstatements under s237(2) or s237(3) of the Companies Act 1985.The accounts for the year ended 31 December 2003 have been filed with theRegistrar of Companies. The accounts for the year ended 31 December 2004 willbe sent to shareholders shortly and filed with the Registrar of Companies.Copies will be available from Mrs Sally Gillings at Petersgate House, StPetersgate, Stockport, Cheshire SK1 1HE.ENDSERVICEPOWER TECHNOLOGIES PLC