Half Yearly Report

RNS Number : 4587E

Sabien Technology Group PLC

10 February 2015

Sabien Technology Group Plc

("Sabien" or the "Group")

Unaudited Interim Results for the period to 31 December 2014

Sabien Technology Group plc (AIM: SNT), the manufacturer of the patented M2G energy saving devices, announces its unaudited interim results for the six month period ended 31 December 2014 (comparatives are shown for the same period in the previous year unless otherwise stated):

Highlights in the period

· Sales revenue £542k (2013/14 - £924k) with high gross margins maintained

· Sales orders received £610k (2013/14: £879k)

· Loss before tax £521k (2013/14 - £245k loss)

· Net cash at the end of the period was £1,106k (£1,425k at 30 June 2014)

· Final dividend £91k (2013/14 - £79k) paid in November

· Sales pipeline of £6.9m (£6.9m at October 2014's update)

· Tender award from Lincolnshire County Council (October 2013) - £126k revenue from this contract recognised in period. Further £1.1m revenue expected to be recognised by the end of this financial year

· New contract wins in the 6 months included NHS Scotland Ayrshire & Arran, Durham County Council, Northumbria Healthcare NHS, Jones Lang Lasalle, Sidney Sussex College, Dumfries & Galloway Council

· Recruitment of 2 additional Business Development Managers bringing team to 5 in total

· Sales from indirect partners 24% of total sales revenue (2013/14: 44%)

· Overseas sales £121k (2013/14: £66k) - Non-exclusive distribution agreements signed with Tech Centres in China, Malaysia, Taiwan, Thailand, Indonesia, Brazil, Lithuania, Latvia, Estonia

· Launch in September 2014 of M1G retrofit control for hot water heaters. First orders received from India Tech Centre

· £146k of orders received since 1 January 2015 giving total orders received for delivery this financial year of £2,000k (2013/14 - £1,100k)

Chairman and Chief Executive Officer's Report

We are pleased to report on the performance of the Group in the first half of the year.

Despite the anticipated reduced sales activity in the first half the Board expects to deliver results for the full financial year in line with its expectations due to a small number of large confirmed and expected contracts. Additionally, the recent financial commitment to strengthen our new business development is expected to bear fruit in the second half of the year and this, allied to our existing sales pipeline opportunities, provides reassurance that a return to profitability can be achieved.

The Group has a proven repeatable business model and management's efforts are now focussed on scaling this model in order to smooth our earnings profile. The recruitment of two business development managers in addition to the three recruited last year plus the expansion of our overseas Tech Centre network forms the pillars of our strategy.

The Group continues to identify and position itself for a number of larger opportunities that will generate medium term revenue growth. Some good progress has been made since our last update in October 2014 and we look forward to confirming the results of these discussions during the second half of the year.

The Group's balance sheet remains robust (end January 2015 net cash remained at £1.1m) and there have been no other significant changes to the financial position of the Group from that reported in October 2014. We have a strong order book and are continuing to grow our sales pipeline while also creating further opportunities for revenue growth in overseas markets.

Marketplace and Business Drivers

Since June 2014, wholesale gas prices in Europe have fallen by 32% as the full effects of global deflation takes its toll upon energy prices. The outlook for wholesale gas prices remains benign with the futures market pointing to further pricing pressure into the 2015 summer season with only a marginal uplift from spot levels anticipated by late 2015.

In the light of cheaper utility costs, it could be expected that energy efficiency implementation programmes would experience reduced demand. To date, Sabien has not experienced a downturn in customer enquiries, pilots and orders. Our customers are in the main large public and private sector entities where cost reduction remains a core focus.

The cost of green subsidies and taxes such as the Carbon Reduction Commitment charges has increased by over 30% for each tonne of carbon emitted by a participating Private or Public Sector organisation which acts as an additional investment driver for energy efficiency products while also adhering to good corporate governance.

The market universe for commercial boilers in the UK is estimated to be around 6 million and, to date, Sabien has sold 8,600 M2G units which indicates that it still has a substantial market opportunity. Sabien is able to gear itself to take advantage of this opportunity without incurring any major cost increases through its on-going relationships with its sub-contract installers.

Finance

The Group's turnover in the period was £542k (2013/4 - £924k) and there was a loss before tax of £521k compared to a loss of £245k in the same period last year. It is anticipated that sales revenue will be back-end loaded this year similar to what we experienced during the year ended 30 June 2014.

As at 31 December 2014, the Group's net cash reserves amounted to £1,106k compared to £1,425k at 30 June 2014 and £1,582k at 31 December 2013. The Group's target is to hold at least 6 month's worth of operating costs on current account and short term deposit.

Current Trading

Since the period ended 31 December 2014, £146k of orders have been received giving total orders received for the year to date of £2,000k. Orders from indirect partners for the year to date amount to £128k.

The sales pipeline currently stands at £6.9m. This pipeline includes both sales opportunities with an order date in the future and those where we have been asked to quote but where no order date has been indicated by the client. In our annual report published in October, we announced a sales pipeline number of £6.9m. The size of the sales pipeline is one of our key performance indicators as it gives us an indication of the level of business that could be generated over the following 6 to 24 months. Sabien's experience is that it can take between 6 to 18 months for a customer enquiry to convert to a sales order.

Product and Sales Channel Update

Why Sabien M2G and M1G?

M2G is a proven patented boiler optimisation control that has delivered verified cost-savings across numerous significant clients including BT, Royal Mail, Lincolnshire County Council, Aviva, Ministry of Defence, NHS, Standard Life, Marriott Hotels, Work Space, Regus, and the Welsh Government.

Sabien outsources the manufacture of M2G to a manufacturer in Northern Ireland and has the infrastructure in place to support the sale and installation of 600-800 M2G units per month (£1-1.5m per month).

What will lead to increased M2G, M1G sales and revenue?

The strategy is to grow UK and overseas sales revenue through the addition of new Business Development Managers and the appointment of further distribution partners in North America, and the EMEA and APAC regions.

US M2G distributor Fireye has been selected as a Technology Partner for the Los Angeles Better Building program. This is for Fireye efficiency controls specifically including the Fireye NXM2G. The aim is to seek selection to the Better Building program in every major US city.

US distributor Greffen attained M2G validation from the US Department of Energy. The US Department of Energy has confirmed that the M2G intelligent boiler control produces significant savings for heating buildings using hydronic boilers.

Since further strengthening our business development function, we have started to see an increase in the pipeline momentum and would expect these new business opportunities to progress through the pipeline to support the Group.

The indirect sales channel will also grow as new partners are established and some of our existing partners start to gain material sales traction.

Following on from the brand awareness is the focus of developing/acquiring additional products/services that also command premium margins in the boiler/burner market. We are currently in dialogue with boiler manufacturers regarding white labelling M2G and M1G and with third party energy efficiency technology companies with a view to adding their offering to our product suite.

Outlook

The Board anticipates that the trading performance will be in line with its expectations for 2015.

Increased scale and the resulting smoothing of our performance is still at an early stage. There is a great deal more work to do and no doubt further challenges to overcome. Progress has been made and the business is more focused and continues to be better placed to deliver on its potential.

Miriam Maes Alan O'Brien

Chairman Chief Executive Officer

For further information:

Sabien Technology Group plc

Alan O'Brien - Chief Executive Officer

Gus Orchard - Finance Director 020 7993 3700

Westhouse Securities Limited

Antonio Bossi 020 7601 6100

Sabien Technology Group Plc

Unaudited Condensed Group Statement of Comprehensive Income for the period ended 31 December 2014

	Notes	6 months to 31 December 2014	6 months to 31 December 2013	Year to 30 June 2014
		Unaudited	Unaudited	Audited
		£'000	£'000	£'000

Revenue		542	924	2,139
Cost of Sales		(172)	(239)	(633)

Gross Profit		370	685	1,506

Administrative expenses		(896)	(939)	(1,815)

Operating Loss		(526)	(254)	(309)

Investment revenues		6	9	16

Loss before tax		(520)	(245)	(293)

Tax credit	3	-	-	21

Loss for the period attributable to equity holders of the parent company		(520)	(245)	(272)
Other comprehensive income for the period		-	-	-

Total comprehensive income for the period		(520)	(245)	(272)

(Loss)/Earnings per share in pence - basic	4	(1.6)p	(0.8)p	(0.9)p
(Loss)/Earnings per share in pence - diluted	4	(1.6)p	(0.7)p	(0.9)p

Sabien Technology Group Plc

Unaudited Condensed Group Statement of Financial Position as at 31 December 2014

	Notes	31 December 2014	31 December 2013	30 June 2014
		Unaudited	Unaudited	Audited
		£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment		88	115	106
Other intangible assets		532	578	555
Deferred tax	3	215	-	215
Total non-current assets		835	693	876

Current assets
Inventories		265	125	142
Trade and other receivables		213	454	599
Deferred tax	3	-	194	-
Cash and cash equivalents		1,106	1,582	1,425
Total current assets		1,584	2,355	2,166

TOTAL ASSETS		2,419	3,048	3,042

EQUITY AND LIABILITIES
Current liabilities
Trade and other payables		202	292	313
Total current liabilities		202	292	313

EQUITY
Equity attributable to equity holders of the parent

Share capital	5	1,650	1,574	1,574
Other reserves		186	201	201
Retained earnings		381	981	954
Total equity		2,217	2,756	2,729
TOTAL EQUITY AND LIABILITIES		2,419	3,048	3,042

Sabien Technology Group Plc

Unaudited Condensed Group Cash Flow Statement for the period ended 31 December 2014


	6 months to 31 December 2014	6 months to 31 December 2013	Year to 30 June 2014
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Cash flows from operating activities

Loss before taxation	(520)	(245)	(293)
Adjustments for:
Depreciation and amortisation	46	41	86
Loss on disposal of property, plant & equipment	-	-	1
Finance income	(6)	(9)	(16)
Transfers to equity reserves	1	1	1
Decrease in trade and other receivables	386	627	482
(Increase)/decrease in inventories	(123)	75	58
Decrease in trade and other payables	(111)	(139)	(118)

Cash (used in)/generated from operations	(327)	351	201

Net cash (outflow)/inflow from operating activities	(327)	351	201

Cash flows from investing activities

Proceeds from share issue on warrant exercise	98	-	-
Dividend paid	(91)	(79)	(79)
Purchase of property, plant and equipment and intangible assets	(5)	(56)	(70)
Finance income	6	9	16

Net cash inflow from/(used in) investing activities	8	(126)	(133)

Net (decrease)/increase in cash and cash equivalents	(319)	225	68
Cash and cash equivalents at beginning of period	1,425	1,357	1,357
Cash and cash equivalents at end of period	1,106	1,582	1,425

Sabien Technology Group Plc

Unaudited Condensed Group Statement of Changes in Equity as at 31 December 2014

	Share capital	Share premium	Shares to be issued	Share based payment reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2013	1,574	-	38	162	1,305	3,079
Dividend paid	-	-	-	-	(79)	(79)
Loss for the period 1 July 2013 to 31 December 2013	-	-	-	-	(245)	(245)
Employee share option scheme - value of services provided	-	-	-	1	-	1
Balance at 31 December 2013	1,574	-	38	163	981	2,756

Loss for the period 1 January 2014 to 30 June 2014	-	-	-	-	(27)	(27)
Employee share option scheme - value of services provided	-	-	-	-	-	-
Balance at 30 June 2014	1,574	-	38	163	954	2,729

Share issue on exercise of warrants	76	22	(38)	-	38	98
Dividend paid	-	-	-	-	(91)	(91)
Loss for the period 1 July 2014 to 31 December 2014	-	-	-	-	(520)	(520)
Employee share option scheme - value of services provided	-	-	-	1	-	1
Balance at 31 December 2014	1,650	22	-	164	381	2,217

Sabien Technology Group Plc

Notes to the Financial Statements for the period ended 31 December 2014

1. Accounting policies

The interim financial information has not been audited or reviewed by the auditors and does not constitute statutory accounts for the purpose of Sections 434 and 435 of the Companies Act 2006.

The financial information in this document has been prepared using accounting principles generally accepted under International Financial Reporting Standards and is consistent with those used in the preparation of the most recent annual financial statements.

The following significant principal accounting policies have been used consistently in the preparation of the consolidated financial information of the Group. The consolidated information comprises the Company and its subsidiaries (together referred to as "the Group").

a) Basis of Preparation: The financial information in this document has been prepared using accounting principles generally accepted under International Financial Reporting Standards ("IFRS"), as adopted by the European Union.

The directors expect to apply these accounting policies which are consistent with International Financial Reporting Standards in the Group's Annual Report and Financial Statements for all future reporting periods.

The directors believe that the Group is a going concern and have accordingly prepared these financial statements on a going concern basis.

The interim consolidated financial statements have been prepared on the historical cost basis and are presented in £'000 unless otherwise stated.

b) Basis of consolidation: The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) at 31 December 2014. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities.

Except as noted below, the financial information of subsidiaries is included in the consolidated financial statements using the acquisition method of accounting. On the date of acquisition the assets and liabilities of the relevant subsidiaries are measured at their fair values.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Accounting for the Company's acquisition of the controlling interest in Sabien Technology Limited: The Company's controlling interest in its directly held subsidiary, Sabien Technology Limited, was acquired through a transaction under common control, as defined in IFRS 3 Business Combinations. The directors note that transactions under common control are outside the scope of IFRS 3 and that there is no guidance elsewhere in IFRS covering such transactions.

IFRS contain specific guidance to be followed where a transaction falls outside the scope of IFRS. This guidance is included at paragraphs 10 to 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. This requires, inter alia, that where IFRS does not include guidance for a particular issue, the directors may also consider the most recent pronouncements of other standard setting bodies that use a similar conceptual framework to develop accounting standards. In this regard, it is noted that the UK standard FRS 6 addresses the question of business combinations under common control.

In contrast to IFRS 3, FRS 6 sets out accounting guidance for transactions under common control. The guidance contained in FRS 6 indicates that merger accounting may be used when accounting for transactions under common control.

Having considered the requirements of IAS 8, and the guidance included in FRS 6, it is considered appropriate to use a form of accounting which is similar to pooling of interest when dealing with the transaction in which the Company acquired its controlling interest in Sabien Technology Limited.

In consequence, the consolidated financial statements for Sabien Technology Group Plc report the result of operations for the year as though the acquisition of its controlling interest through a transaction under common control had occurred at 1 October 2005. The effect of intercompany transactions has been eliminated in determining the results of operations for the year prior to acquisition of the controlling interest, meaning that those results are on substantially the same basis as the results of operations for the year after the acquisition of the controlling interest.

Similarly, the consolidated balance sheet and other financial information have been presented as though the assets and liabilities of the combining entities had been transferred at 1 October 2005.

The Group took advantage of Section 131 of the Companies Act 1985 and debited the difference arising on the merger with Sabien Technology Limited to a merger reserve.

c) Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Assets are written off on a straight-line basis over their estimated useful life commencing when the asset is brought into use. The useful lives of the assets held by the Group are considered to be as follows:

Office equipment, fixtures and fittings 4 years

d) Intangible assets: Intellectual property, which is controlled through custody of legal rights and could be sold separately from the rest of the business, is capitalised where fair values can be reliably measured.

Intellectual property is amortised on a straight line basis evenly over its expected useful life of 20 years.

Impairment tests on the carrying value of intangible assets are undertaken:

· At the end of the first full financial year following acquisition

· In other periods if events or changes in circumstances indicate that the carrying value may not be fully recoverable.

If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is the higher of the fair value, less costs to sell, and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only in so far that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised in income immediately.

e) Fixed asset investments: Fixed asset investments are stated at cost less any provision for impairment in value.

f) Inventories: Inventories are valued at the lower of average cost and net realisable value.

g) Financial Instruments

Financial Assets

The Group classifies its financial assets as loans and receivables and cash. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.

Trade receivables are classified as loans and receivables and are recognised at fair value less provision for impairment. Trade receivables, with standard payment terms of between 30 to 65 days, are recognised and carried at the lower of their original invoiced and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. Provision is made when there is objective guidance that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

Financial Liabilities

The Group classifies its financial liabilities as trade payables and other short term monetary liabilities. Trade payables and other short term monetary liabilities are recorded initially at their fair value and subsequently at amortised cost. They are classified as non-current when the payment falls due more than 12 months after the balance sheet date.

h) Cash and Cash Equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts.

i) Revenue recognition: Revenue from sale of goods is recognised upon delivery and installation at a customer site or delivery to a customer's incumbent facilities manager which subsequently carries out the installation itself. Where goods are delivered to overseas distributors, revenue is recognised at the time of shipment from the Company's warehouse.

Revenue from services generally arises from pilot projects for customers and is recognised once the pilot has been completed and the results notified to the customer. Pilot projects generally have a duration of between 1 and 3 months.

Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable.

j) Share-based payments: The Group has applied the requirements of IFRS2 Share-based Payments. The Group issues options to certain employees. These options are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period based on the Group's estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate for the effects of non-transferability, exercise restrictions and behavioural conditions.

k) Operating leases: Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to the statement of comprehensive income on the straight line basis over the lease term.

l) Taxation: The charge for current tax is based on the results for the period as adjusted for items that are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interest in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

2. Segmental reporting

Based on risks and returns, the directors consider that the primary reporting business format is by business segment which is currently just the supply of energy efficiency products, as this forms the basis of internal reports that are regularly reviewed by the company's chief operating decision maker in order to allocate resources to the segment and assess its performance. Therefore the disclosures for the primary segment have already been given in these financial statements. The secondary reporting format is by geographical analysis by destination. Non-UK revenues amounted to £146k which is 27% of total revenues for the period.

During the period, sales to the Group's largest customers were as follows:

	Sales revenue	% of total revenue
	£'000
Customer 1	126	23%
Customer 2	74	14%
Customer 3	53	10%

3. Taxation

A deferred tax asset of £215k was recognised at 30 June 2014 in respect of £1,025k of available losses brought forward as the Directors believe that the Group will be sufficiently profitable in the future to be able to utilise these losses. The Directors do not consider that any adjustment to this estimate is necessary in these interim financial statements.

4. Earnings per share (EPS)

The calculation of the basic earnings per share is based on the earnings attributable to the ordinary shareholders, divided by the weighted average number of shares in issue in the period.


	6 months to 31 December 2014	6 months to 31 December 2013	Year to 30 June 2014
	£'000	£'000	£'000
Loss for the period	(520)	(245)	(272)
Basic:
Weighted average number of shares in issue	32,751,808	31,486,511	31,486,511
Loss per share - basic	(1.6)p	(0.8)p	(0.9)p

Diluted:
Weighted average number of shares	32,751,808	32,692,236	32,484,982
Loss per share - diluted	(1.6)p	(0.7)p	(0.9)p

5. Share capital

The Company's issued Ordinary share capital is:

	Amount	Number of Ordinary Shares

Allotted, called up and fully paid:
At 31 December 2014	£1,650,243	33,004,867
At 31 December 2013 and 30 June 2014	£1,574,326	31,486,511