Servocell, a small Essex-based manufacturing outfit, believes it has a product that could prove exceedingly attractive to a £4.5 billion global market.

The seemingly humdrum market in question is that of the lock. The global market for locks is approximately £30 billion, of which electro-mechanical locks (that is battery operated ones) represent over 15 per cent and rising.

Electronic lock end-users are developers of apartment blocks, business premises and hotels – which, if you think about it, have scores of doors and access points, each of which needs to be secured.

‘With a battery operating every locked door, Hilton Hotels are Duracell’s biggest customer – allegedly,’ mentions Simon Powell, the founder and chief executive of innovative lock-mechanism maker Servocell. ‘If they, or any businesses, used our locks instead of ones with bigger batteries they could increase security without an increase in cost.’

Powell leads an experienced management team and has a proven track record in selling mass-market products at privately owned Greenbrook Electrical, out of which Servocell was spun in 1997.

The team has so far overseen £8 million of investment in development and launched its first lock mechanism, the Active Latch One (AL1), in 2003. It has since sold this technology to a number of international lock manufacturers.

In response to customer demand for a product that could be used outdoors and protected from the elements, the AL2 was developed. An AL5 is coming to market in the fourth quarter, with possible applications in the doors of safes and other locks needing ‘fireable’ locking mechanisms.

Kentucky Fried Chicken

The core element common across all Servocell’s products is the patent-protected piezo-ceramic actuator – ‘our Kentucky Fried Chicken recipe’, says Powell. This is the part that controls the movement in the lock mechanism (and, in fact, a host of other possible applications). The advantage the piezo actuator gives to Servocell’s locks is that it requires much less power to function than current alternatives.

This means a smaller battery or solar cell can provide many years of operation and consequently the unit is much smaller, easier and economical to install or retrofit, even in conjunction with biometric, GSM mobile or radio-frequency (RFID) systems.

Manufacturing is currently subcontracted out to a third party in Malaysia. Servocell makes about £1.50 for each finished device it sells on to lock manufacturers to incorporate into their electro-mechanical locks.

Already seven products have been launched into the market with AL1 and AL2 mechanisms inside, including a 10,000-unit order from German furniture lock specialist Beloxx. And Burg, one of Germany's largest lock makers, just this month launched its first electronic cabinet lock with a stirring recommendation for Servocell, saying the collaboration ‘has opened up unimagined opportunities’ and that its piezo technology ‘is paving the way for innovation across the industry’.

Furthermore, nine customers are in committed development, including a Taiwanese automotive specialist and US padlock maker MasterLock, producer of around 50 million locks a year, which is hoping to take ‘at least one’ application to market in 2006.

What’s the catch?

Revenues of £164,000 were made in calendar 2005, with the pre-tax loss mounting to £1.7 million. That makes the £23 million market cap look very generous, especially when you remember that only £4.5 million was raised at floation and that this is still a relatively small, early-stage company.

Against this is the fact that the product offering is undoubtedly innovative and the client base is getting serious – as Powell says ‘we’re in with the guys that matter now and in the next 18 months we expect to sign some majors.’

With a 14.6 per cent stake, Powell has every reason to be bullish, as do the Green family, which holds 46 per cent. The lack of liquidity this represents and the dearth of other institutional shareholders might frighten some investors away. But if you like a bit of risk, this could prove an interesting ride indeed.

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