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Formal Request to FRC to investigate Revenue Recognition at Servision

By Tom Winnifrith, The Sheriff of AIM | Thursday 11 February 2016


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


I am still waiting for Servision (SEV) to man up and send the threatened lawyers letter to me as I am spoiling for a fight with this worthless POS as it rapidly runs out of cash. Just to keep PR Himbo Christian occupied as he briefs his new best friends the Bulletin Board Morons, I have today requested that my VERY GOOD FRIENDS at the Financial Reporting Council (FRC) open a formal investigation into the revenue recognition policy of Servision. The letter follows.

Formal Request to investigate annual accounts of Servision PLC

Dear Sirs

I write to you with regard to Servision PLC with a formal request that you ope an investigation into its revenue recognition policy with regard to the 2013 and 2014 annual accounts and - based on the evidence of 2015 interims - the soon to be reported 2015 numbers.

By way of background Servision has consistently failed to generate cash and has therefore had to promote its shares aggressively in order to raise cash on the AIM Market.

I now detail the results over the past five half year reporting periods which are reported in thousands of dollars. The first number is reported sales and the second is the percentage of sales reported as bad debts, i.e invoices that have been issued and reported as sales at some stage but where the company now accepts that it will not be paid a cent.

H1 2013 $1260 $444 35.2%
H2 2013 $2252 $292 12.9%
H1 2014 $1842 $578 31.3%
H2 2014 $2394 $26 0.9%
H1 2015 $1242 $462 37.1%

We can both accept that all businesses face bad debts. But Servision appears to book bad debts at a level which I cannot recall seeing in a British quoted company in my entire career and does so on a consistent basis.

The overall pattern is clear: bad debts are a consistent feature for Servision and over the 30 months above average 20%.

How on earth have auditors HaysMacintyre not picked up on this? There can be just two explanations:

1. The company has a very aggressive revenue recognition policy aimed at maximising reported profits/minimizing reported losses to allow it to push the shares to get bailout placing after bailout placing away?

2. The company ships sub-standard products which customers routinely refuse to pay for?

If it is the latter it is not a matter for the concern of the FRC although perhaps shareholders should be told. If it is the former then it is very much something that I hope you would investigate and deal with as aggressive revenue recognition is - in this era - simply not acceptable.

I remain, as ever,

Your obedient servant


Tom Winnifrith


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