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Servision and that breach of AIM rules with the delayed (lack of) profits warning - is it even worse that we thought?

By Tom Winnifrith, The Sheriff of AIM | Monday 19 June 2017

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 have been deeply troubled by the most recent lack of profits warning from AIM listed worthless POS Servision (SEV). My initial view, expressed HERE, is that in not admitting to order slippage from December for almost six months it had committed a massive breach of AIM Rules regarding timely disclosure of price sensitive news. But I fear it may be far worse than that.

The company previously updated the market on the 2016 outlook when releasing, piss poor, interims on September 30th. Fear not it said, things are looking better. Clearly they were not. But why delay announcing that orders expected in December had slipped into 2017 until mid June? Why oh why?

The answer I think is down to aggressive accounting and revenue recognition. You may remember that Servision has massive form in this respect. Year on year it has reported sales which turned out not to be sales and so were written off as bad debts the next year, offset by new sales which were then written off the following year. This was such a pattern that I accused it of aggressive accounting and reported it to the FRC.

Now read the statement clearly from last week's warning very carefully:

The Company has previously stated that they were cautiously optimistic of an improved result for the 12 months ended 31 December 2016 when compared to the comparative period in 2015. Unfortunately, December 2016 was a disappointing month for the Company. A number of sales that had been anticipated for the period, some of which the Company had received pre-payments for, have not been recognised in 2016 and slipped into 2017. However, costs had already been incurred by the Company against their expected delivery. In addition, the Company has incurred a number of non-cash accounting adjustments.


It strikes me that the issue of what to report as 2016 sales and (lack of) profits has only arisen at this late stage because Servision is trying to get its 2016 accounts signed off by the auditors. Servision may not give a flying wotsit about the FRC but you can bet that its auditors do.

As such it seems to me more than likely that Servision presented a set of accounts to its auditors which would have indeed shown a second half 2016 improvement. However the auditors, very wisely, decided that it was recognising revenues which should have been booked in 2017 and moreover that there were a number of sales booked in prior years which were now bad debts - hence the non cash charges.

This is a very serious matter for hapless Nomad Allenby. Either its client is in clear breach of AIM Rules in terms of time disclosure ( in a period when it was issuing stacks of new shares) or, even worse, it is still trying to engage in uber-aggressive accounting in which case its September 30th 2016 statement was misleading. Allenby should talk to the auditors as a matter of urgency to establish which crime Servision is guilty of and at that point it can phrase its resignation letter appropriately.

It goes without saying that Servision shares are a sell with a target price of 0p.

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