Remote Monitored Systems plc strong new business prospects at Geocurve and GyroMetric

Trevor Brown, CEO of Remote Monitored Systems plc, commented “The first half of 2018 saw the benefit of the decisions taken at the end of 2017, resulting in a thorough rationalisation of the cost base and significant growth at Geocurve. Following an initial investment in April 2018, the recent acquisition of a controlling interest in GyroMetric reflects the Board’s increased confidence in the prospects for GyroMetric. Strong new business prospects at Geocurve and GyroMetric allow all stakeholders to look to the future with renewed optimism. The Board continues to examine opportunities to grow both organically and through acquisition of complementary businesses and technologies which can enhance growth in shareholder value.”

Remote Monitored Systems plc (LON:RMS), the AIM quoted survey, inspection and monitoring company is today presented its unaudited half yearly report for the six-month period ended 30 June 2018.

OVERVIEW

· 47% increase in revenue to £600,330 (2017: £407,539 excluding discontinued operations)

· 72% reduction in operating loss of £199,411 (2017: £713,956)

· 39% reduction in administrative costs in continuing business in addition to reductions achieved by discontinuing training and US businesses

· 98% reduction in EBITDA loss £8,736 (2017: £514,254)

· Cash balances at the period end of £424,757 (2017: £285,898)

· Geocurve Limited is continuing to successfully transition to focus on recurring contracts and develop its reputation as an innovative industry leader

· Investment in GyroMetric Systems Limited  (and acquisition of controlling interest in September 2018)

CHAIRMAN’S STATEMENT

Survey & Inspection

Geocurve

During the first half of 2018 Geocurve continued to provide Survey and Inspection services to a range of major blue-chip companies and government agencies whilst allocating significant resources to the initial phase of the Thames Estuary contract.

In January 2018, Geocurve was awarded a contract to provide an innovative technology-based 3D and Virtual Reality survey service for the Environment Agency’s Thames Estuary Asset Management 2100 (TEAM2100) programme, which initially provides a fixed revenue of £1.1m over three years. Approximately 40% of the Thames contract was invoiced in the period to 30 June 2018.

In April 2018, Geocurve was selected as a specialist ‘UAV Survey and Inspection’ Preferred Supplier by Aviva plc to provide a range of inspection and survey services to their UK customer base. This followed the successful use of Unmanned Aerial Vehicles (UAVs) to create comprehensive roof condition surveys for a set of Aviva-insured historic properties in central Edinburgh. The high definition data captured by the UAVs was processed into a complete set of geo-tagged images by Geocurve’s Geo-Spatial Data Centre.

In July 2018, Geocurve commenced an initial four month contract with Hesselberg Hydro, a specialist in the application of asphalt in hydraulic engineering, and in particular systems for erosion protection, underwater scour protection and waterproofing. The contract can be extended on an indefinite basis and includes options to add extra services in the future.

Also in July 2018, Geocurve, in conjunction with Essex University, developed a room scale Virtual Reality suite. With this resource, using UAV captured imagery, 3D models can be developed by geo-referencing and stitching together many high-resolution images. This technique has widespread potential usage for environmental and industrial applications. Until now information has been displayed using 2D projections of 3D computer information, importing data into the new system permits visualisation and identification in a way not possible before. Geocurve has already provided the first Virtual Reality (“VR”) deliverables to a commercial client using this technology with the results significantly exceeding expectations.

Geocurve continues to focus on the acquisition of major corporate customers and to pursue its ambition to be the UK market leader in the supply of innovative VR and Artificial Intelligence (“AI”) surveying services to specialist customers on critical infrastructure projects.

The directors believe that Geocurve’s skill set and its use of innovative technology has the potential to transform the practice of surveying, and reflects Geocurve’s continuing transition to becoming:

1. A leading technology-based UK provider of data rich surveying services including multi-sensors and data analytics to create 3D mapping and VR imaging. Many of our existing clients are already showing considerable interest in VR applications, which are at the forefront of the survey industry’s innovation drive and form a powerful addition to our market leading data capture and processing capabilities.

2. A leading provider of UAV (“drone”) data collection and monitoring services specialising in over-flying sensitive and secure installations where sophisticated piloting skills are required and equally capable on land, in water or in the air.

GyroMetric

In April 2018 the Group made an initial investment to acquire 37% of GyroMetric, which develops and manufactures digital monitoring and safeguarding systems for rotating shafts. The Gyrometric technology uses proprietary algorithms, software and AI techniques to analyse remotely critical drive shaft performance so as to diagnose and predict drive system maintenance requirements before catastrophic damage occurs. The company’s technology is proven, operating reliably in harsh environments over many years. In August 2018, the Group announced a further investment in Gyrometric, increasing its shareholding to 58%.

The GyroMetric active protection system has been certified for the marine market by IACS (International Association of Classification Societies) and ABS (American Bureau of Shipping). Working with global marine coupling supplier Vulkan GmbH, GyroMetric has over 60 systems in service which protect large marine drives and couplings, producing considerable cost savings for their ship owners.

More recently, GyroMetric has moved into monitoring and protecting wind turbines, having recently completed highly successful trials using the world’s newest and most powerful offshore wind turbine drive train test facility at the Offshore Renewable Energy (ORE) Catapult at Blyth. Working with ORE Catapult’s drivetrain experts, GyroMetric’s technology has been tested to improve the understanding of the behaviour of the components in use, with a view to increasing the efficiency and output of wind turbines, whilst reducing the requirement for unplanned maintenance.

In addition to the company’s established Incremental Motion Encoder (IME) system, GyroMetric has recently filed a patent application for a new method of measuring the axial movement of rotating shafts which matches the reliability achieved by its digital radial measurement method.

Further applications in other industrial sectors are being considered as the company works to strengthen its sales and marketing resources.

The majority investment in Gyrometric provides shareholders with meaningful participation in a unique technology which is now demonstrating clear potential to transform remote monitoring of rotating shafts in a large number of settings globally. The Group’s investment in Gyrometric will continue to be developed through close operational support and involvement. We believe that Gyrometric will become a significant component of accretive shareholder value over coming months.

Financial Review

Change of presentational currency to Sterling

The interim financial statements are presented in Sterling (GBP), which is considered to be the Group’s functional and presentational currency.

The functional and presentational currency has been changed with effect from 1 January 2018 from US dollars to Sterling. The change in functional currency reflects the fact that the Group’s training and US activities have been discontinued with the closure of all US entities almost finalised, and Geocurve is now the main trading entity within the Group. All of Geocurve’s contracts are with UK customers and are invoiced in Sterling. The vast majority of the Group’s expenses are now also in Sterling. Therefore, Sterling is considered to be the functional currency. The change in functional currency has been adopted prospectively from 1 January 2018.

The change in presentational currency is considered to be a change in the Group’s accounting policies and has therefore been accounted for retrospectively as though the presentational currency of the Group was always Sterling. Opening equity as at 1 January 2017 has been translated at historic rates, the Statement of Comprehensive Income has been translated at average rates for 2017 and the Statement of Financial Position has been translated at the closing rate for 30 June 2017. The gains/losses arising from the changes in presentational currency have been recorded in other comprehensive income.

Financial Overview

During the period the Group recorded revenues of £600,330 compared with £451,842 for the six months to 30 June 2017. The operating loss for the six months to 30 June 2018 was £199,411 (Period to 30 June 2017: £713,956). Administrative expenses amounted to £346,724 (Period to 30 June 2017: £946,383), see table and the bullet points below for details in relation to the reduction in administrative expenses. The loss after tax for the period was £276,171. The loss per share (after consolidation of the share capital) was 0.14 pence (2017: loss per share after consolidation of share capital of 1.55 pence).

● The total revenue figure £600,330 for June 2018 relates to Geocurve, whereas in 2017 £407,539 was generated by Geocurve and the remaining £44,303 by the discontinued operations. Geocurve secured a £1.1m contract at the beginning of 2018 to survey the Thames. A significant investment of manpower was required to get the Thames project running successfully and efficiently; this has now been achieved and Geocurve is able to take on new projects alongside the Thames project. Approximately 40% of the Thames contract was invoiced in the period to 30 June 2018.

● Consolidated net assets at 30 June 2018 amounted to £1,153,459 (30 June 2017: £606,063).

● Cash balances at the period end amounted to £424,757 (30 June 2017: £285,898).

● During the period the Company raised £744,231 net of costs through the issue of new shares.

● Operational salaries incurred in Geocurve amounting to £182,803 have been reclassified from administrative expenses to cost of sales in 2018. When presented on a consistent basis the cost of sales for the period to 30 June 2017 were £194,156.

● Significant administrative cost reductions were achieved in comparison with 2017, both by reducing costs in the continuing operations as well as by discontinuing the training and US businesses:

● The EBITDA for June 2018 was (£8,736) an improvement of 98% compared to the previous period’s EBITDA of (£514,254).

● The reduction in audit and accountancy fees is due to a new Financial Planning and Control System implemented during the period.

● Depreciation increased to £51,893 (2017: £37,847) as a result of additional depreciation following the acquisition of the Pegasus 2 equipment by Geocurve at the beginning of March 2018.

● Amortisation of £138,782 is the release of goodwill arising from the acquisition of Geocurve in 2015 on a straight-line basis over 5 years.

● Impairment of £58,216 is a non-recurring item arising from the write off of intercompany balances relating to discontinued operations.

● Geocurve became the first company in the UK, and one of only a few companies in Europe, to acquire a Pegasus 2 multi-sensor surveying systems which has world leading surveying capabilities and opens up many business opportunities. The system, with an acquisition value of £0.5m, was acquired on 19 February 2018 from Academy Leasing Ltd under a finance lease arrangement over a period of 12 months and subject to an annual interest rate of 8.4%.

● 33% of the Pegasus 2 equipment finance was paid in the period ended June 2018 and Geocurve is on target to pay off the remaining finance before the end of Q1 2019. The prompt payment of finance is again part of the initiative to drive down costs – finance costs have decreased by 73% £16,540 (2017: £60,500). The finance costs in 2017 primarily relate to the interest on the Farina loan which was repaid in full during the period ended 30 June 2018.

● Borrowings eliminated (other than the remaining £333,333 related to the acquisition of the Pegasus 2 equipment).

● On 30 April 2018, Remote Monitored Systems granted a total of 100,000,000 options (5,000,000 after consolidation of share capital) to subscribe for ordinary shares in the Company (“Options”) to certain employees. The Options can be exercised in whole or in part, subject to meeting revenue and profit based vesting conditions, at any time up to the fifth anniversary of grant at a price of 0.06p per option (1.2p after consolidation of share capital), subject to the overriding condition that no Option may be exercised unless the quoted price of the Company’s ordinary shares is at least 2.0p.

● In April 2018, the Group announced the acquisition of 36.9% of the enlarged share capital of Gyrometric for a cash consideration of £250,000. The Gyrometric technology uses proprietary software and AI techniques to analyse remotely critical drive shaft performance to diagnose and predict drive system maintenance needs before catastrophic damage occurs. In August 2018, the Group announced a further investment of £273,600 (funded by issuing new share capital) in Gyrometric increasing the shareholding from 36.9% to 57.8%. The investment in Gyrometric provides the Group’s shareholders with a stake in a new and unique technology with promising prospects. The Group’s investment in Gyrometric will continue to be developed through close operational support and involvement. Gyrometric will be an important component of growth and shareholder value in the months and years ahead.

Consolidation of share capital

A resolution was passed at the Group’s AGM on 29 June 2018 to consolidate every 20 ordinary shares of 0.01p each in the issued share capital of Remote Monitored Systems into one ordinary share of 0.2p each. Thus, with effect from 2 July 2018, there were 308,676,386 New Ordinary Shares of 0.2p each (“Shares”) in issue compared with the June 2018 total of 6,173,527,709 Ordinary Shares of 0.01p. As there are no shares held in treasury, the total voting rights therefore changed from 6,173,527,709 to 308,676,386 (currently 332,467,690 following the issue of further shares on 3 September 2018). The EPS calculated as part of the condensed consolidated statement of comprehensive income reflects the consolidated share capital and the prior year EPS calculations have been adjusted for comparative purposes.