RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 2013

Directors' Report

 

Your directors submit their report for the half-year ended 31 December 2013.

Directors

The names of the Company's directors in office during the half-year and until the date of this report are as below.  Directors were in office for this entire period unless otherwise stated.

Terry Winters	Non-Executive Chairman
Ken Kroeger	Managing Director & CEO
David Gaul	Non-Executive Director
Alexander Zelinsky	Non-Executive Director	Resigned 15 January 2014
Michael Roberts	Non-Executive Director
Rudolph Burger	Non-Executive Director	Appointed 15 January 2014
James Walker	Executive Director & CFO	Appointed 15 January 2014

Review and results of operations

 

Review of the first half of the 2013 financial year

 

The Company achieved revenues of A$5,640,100 from the sale of goods and services and A$1,049,666 from other income resulting in total revenue for the half year to 31 December 2013 of A$6,689,766 (2012: A$5,693,634).

 

The first six months of trading in the 2014 financial year were a significant improvement over the corresponding period in the 2013 financial year.  This was primarily driven by significant growth in demand for its DSS products, evidenced by both the large increase in sales revenue realised in the period from this source, but also the increase in orders on hand at period end, amounting to more than A$2.2 million in value. 

 

The Company made a net loss of A$844,903 for the six months to 31 December 2013 compared to a net loss of A$317,919 for the period to 31 December 2012. The loss was a result of tight cash flow ahead of the raising which prevented the Company from paying for inventory that would otherwise have shipped in the first half.  In January, the company shipped the majority of the December backlog, delivering total revenues for the month of A$2.1 million.

 

Operational highlights for the half-year include:

·      >20% increase in sales, licensing and service income (A$5,640,100 compared to A$4,686,796 for 2012);

·      Continued growth of the DSS pipeline with new customers and expansion at existing sites;

·      Ongoing strong backlog of orders of A$2.2 million at end of first half to underpin next quarter revenues;

·      Significant capital raising of A$26.17 million was completed in December 2013;

·      Contracts were entering into with three Caterpillar mining dealerships to sell and maintain the DSS systems; and

·      Strategic agreement with Royal Beuk, a leading European coach fleet operator, for the deployment of automated Fatigue Monitoring Systems to ensure driver alertness and safeguard in long haul coaches.

 

Financial Results

 

The Company achieved revenues of A$5,640,100 (2012: A$4,686,796) from sale of goods and services and A$1,049,666 (2012: A$1,006,838) from other income resulting in revenue for the half year to 31 December 2013 of A$6,688,538 (2012: A$5,693,634).    Revenue for the half year for each of the three products; DSS, faceAPI and faceLAB, and Other Income compared to the same period last year is shown in the following table.

 

 

 

 

 

 

 

 

 

Product	31 December 2013 A$	31 December 2012 A$	Variance %
DSS	4,311,755	3,699,553	+17
faceLAB	817,647	693,870	+18
faceAPI	122,347	293,373	-58
Core technology integration services	388,351	0	n/a
Other income	1,049,666	1,006,838	+4
Total Revenue	6,689,766	5,693,634	+17

 

Cost of sales at A$2,317,165 (2012: A$1,799,296) was higher due to higher revenues and the proportionate cost was higher at 41% of revenue as compared to 38% of revenue for the corresponding period in 2012. This increase in cost of sales has resulted from the higher cost of the new ruggedised DSS version 3.1 product being produced in relatively small volumes via a bespoke manufacturing arrangement before the full, long-term outsourced manufacturer can commence production. Net expenditure for the half-year was A$5,217,505, up from A$4,212,257 for the period to 31 December 2012, reflecting the increased investment in research and development, and increased activity in DSS sales, distribution and marketing.   

 

Cash reserves at 31 December 2013 were A$26,449,133 compared to A$835,001 at 30 June 2013 and A$927,518 at 31 December 2012. The significant increase was due to the proceeds from the share issue completed in November and December 2013. 

 

Operational Highlights

 

DSS

DSS revenues were A$4,311,755 for the six months to 31 December 2013, reflecting a significant increase over A$3,699,553 achieved for the six months to 31 December 2012.  This was the result of the strong demand for the product range following a successful recognition of the product in the mining industry, and the Company's success in growing its customer base with a broader geographic spread.  Revenue was generated from:

 

·      sales of DSS units;

·      software licensing;

·      installation services;

·      maintenance and support fees;

·      field support services; and

·      DSSi information reporting services including event classification.

 

The Company is in the process of executing dealer agreements with the global mining centric Caterpillar dealerships.  The revenue generated in the half year did not include any revenue from these dealerships.

 

In addition, the Company is close to finalising a new outsourced manufacturing agreement that will see the current cost of DSS 3.1 units reduce significantly and deliver scalability of supply to meet expected demand. It is expected that most of the benefits from this relationship will be reflected in the 2014-15 financial year.

 

The Group continues to extend the DSS system to other markets.  DSS units installed in large road-legal transport trucks that operate on a combination of private mining roads and public highways in Australia is growing significantly. The Group also started its first long haul coach trial in Europe to expand the product offering into other sectors.  This represents an entry into a new market for the product from which we expect ongoing uptake.  The technology is also being modified for original equipment manufacturer (OEM) opportunities in the wider automotive market.

 

For the remainder of this financial year we will focus our energies on expansion of the DSS business through seeking to:

 

·     close a number of significant deals in our sales pipeline that are expected to further entrench the DSS as the superior product for the mining industry;

·     enter into more contracts with Caterpillar dealers around the world and assisting with sales through these channels;

·     order and hold sufficient inventories to ensure the backlog of outstanding orders is cleared;

·     further build the DSS team capability to support our customers in their use of the product; and

·     continue ongoing R&D aimed at keeping the technology ahead of its competitors. 

 

At 31 December 2013, Seeing Machines had 1,699 systems installed in haul trucks and other mining related vehicles.  This represents a 23.8% increase from 30 June 2013.  These systems were deployed in 77 customer sites in 16 countries.  The Company had an order backlog of over 156 systems at 31 December 2013 of which 147 systems were shipped during January.

 

faceLAB

faceLAB achieved revenue of A$817,647 (2012: A$693,870) for the six months to 31 December 2013, an increment of 18% over the six months to 31 December 2012.

 

faceAPI

faceAPI achieved revenue of A$122,347 (2012: A$293,373) for the six months to 31 December 2013, a decrease of 58% over the six months to 31 December 2012. 

 

Core technology team integration services

The wider adoption of the faceAPI developer and production licenses has created a market demand for our core technology team to provide integration services to third parties.  We expect this to continue and become a larger contributor of revenue going forward.  The company generated revenues of $388,351 from these services during the half year (2012: A$0). 

 

TrueField

We are in the process of reviewing our commercial licensing strategy for Truefield and in 2014 will announce the results from this review in due course.  The domain experts continue to believe that the product will have applicability beyond glaucoma in eye diseases such as Age Related Macular Degenerations and Diabetic Retinopathy.

 

We are continuing our R&D efforts on a new set of further improved eye gaze tracking algorithms that will be introduced across all of the Company's commercial offerings during 2014.

Summary

The Directors remain committed to delivering significant growth in shareholder value and expect revenue for the full year to 30 June 2014 to be in line with existing market expectations.

 

The additional capital raised over the past three months allows the Company to begin to accelerate investment, both capitalised and uncapitalised, in the areas targeted for growth.  The Company will seek to leverage its current competitive advantage in order to more rapidly scale revenues in future years. The acceleration of investment in the second half is expected to result in a reported loss before tax for this financial year.

 

The Company is currently mid way through the preparation and review of detailed sector specific business cases that will determine the order and timing of future plans and investments and accordingly the Company expects to provide the market with a detailed update before the end of this financial year.

 

The demand for DSS products and services by the mining and resource industry is substantial and with the successful ongoing roll out across the Caterpillar network we expect this to continue and underpin most of the Company's revenue and profit growth over the next two to three years.

 

The Company will continue to develop new markets in road transport, bus and segments where machine and plant operators face significant risk of fatigue and distraction.

 

 

Terry Winters Chairman 26 February 2014

Ken Kroeger Managing Director & CEO

Condensed Statement of Financial Position

			Consolidated
			31 DEC 2013	30 JUN 2013
AS AT 31 DECEMBER 2013		Note	A$	A$
ASSETS
CURRENT ASSETS
Cash and cash equivalents		6	26,449,133	835,001
Trade and other receivables		7	2,190,019	3,700,648
Inventories		8	2,433,936	859,343
Other current assets			79,126	91,637
TOTAL CURRENT ASSETS			31,152,214	5,486,629
NON-CURRENT ASSETS
Property, plant and equipment		9	493,276	382,052
Intangible assets		10	1,020,529	1,016,043
TOTAL NON-CURRENT ASSETS			1,513,805	1,398,095
TOTAL ASSETS			32,666,019	6,884,724
LIABILITIES
CURRENT LIABILITIES
Trade and other payables			2,462,349	2,499,882
Provisions			580,430	640,247
Deferred revenue			135,417	-
Interest bearing loans and borrowings			7,196	-
TOTAL CURRENT LIABILITIES			3,185,392	3,140,129
NON-CURRENT LIABILITIES
Provisions			128,251	10,432
Interest bearing loans and borrowings			47,196	-
TOTAL NON-CURRENT LIABILITIES			175,447	10,432
TOTAL LIABILITIES			3,360,839	3,150,561
NET ASSETS			29,305,180	3,734,163
EQUITY
Contributed equity			43,862,759	17,049,175
Treasury shares			(644,160)	-
Accumulated losses			(14,858,020)	(14,013,117)
Other reserves			944,601	698,105
TOTAL EQUITY			29,305,180	3,734,163

 

The above condensed statement of financial position should be read in conjunction with the accompanying notes.

 

Condensed Statement of Comprehensive Income

			Consolidated
			2013	2012
FOR THE HALF-YEAR ENDED 31 DECEMBER 2013		Note	A$	A$
Continuing operations
Sale of goods and license fees			4,934,042	4,114,298
Rendering of services			706,058	572,498
Revenue			5,640,100	4,686,796
Cost of Sales			(2,317,165)	(1,799,296)
Gross Profit			3,322,935	2,887,500
Other income		4	1,049,666	1,006,838
Research and development expenses			(1,411,854)	(774,711)
Distribution and marketing expenses			(1,456,115)	(1,460,829)
Occupancy and facilities expenses			(442,649)	(371,206)
Administration and support expenses			(1,906,886)	(1,535,572)
Other expenses		5	-	(69,939)
Loss before income tax			(844,903)	(317,919)
Income tax expense			-	-
Loss from continuing operations after income tax			(844,903)	(317,919)
Loss for the period			(844,903)	(317,919)
Loss attributable to equity holders of parent			(844,903)	(317,919)
Other comprehensive income - amounts maybe reclassified subsequently to profit and loss
Foreign currency translation			(1,913)	(3,520)
Other comprehensive income net of tax
Total comprehensive income			(846,816)	(321,439)
Total comprehensive income attributable to equity holders of parent			(846,816)	(321,439)
Earnings per share for profit attributable to the ordinary
equity holders of the company:
·        Basic earnings per share			(0.168)	(0.077)
·        Diluted earnings per share			(0.167)	(0.077)

 

The above condensed statement of comprehensive income should be read in conjunction with the accompanying notes.