TIDMSERV
RNS Number : 6718Y
Servelec Group plc
07 March 2017
7 March 2017
Servelec Group Plc
("Servelec" or the "Group")
Preliminary results for the year ended 31 December 2016
Servelec Group plc ("Servelec" or the "Group") the UK-based
technology group which provides software, hardware and services
predominantly to the UK healthcare and social care, education, oil
and gas, power and infrastructure, utilities, broadcast and rail
sectors, today announces its results for the twelve months ended 31
December 2016.
Financial Highlights
2016 2015
(GBP'000s) (GBP'000s) % change
------------------------------ ------------ ------------ ---------
Revenue 60,957 63,095 (3)%
------------------------------ ------------ ------------ ---------
Underlying operating profit* 14,596 16,151 (10)%
------------------------------ ------------ ------------ ---------
Operating profit from
continuing operations 9,783 13,395 (27)%
------------------------------ ------------ ------------ ---------
Profit before tax from
continuing operations 9,515 13,364 (29%)
------------------------------ ------------ ------------ ---------
Order entry** 65,706 66,383 (1)%
------------------------------ ------------ ------------ ---------
Order bank*** 74,696 65,070 15%
------------------------------ ------------ ------------ ---------
Cash flow from operating
activities 8,422 19,591 (57)%
------------------------------ ------------ ------------ ---------
Cash conversion**** 58% 115%
------------------------------ ------------ ------------ ---------
Net (debt) / cash (9,558) 9,896 N/A
------------------------------ ------------ ------------ ---------
Fully diluted earnings
per share 10.8p 16.7p (35)%
------------------------------ ------------ ------------ ---------
Adjusted earnings per
share***** 16.1p 18.1p (11)%
------------------------------ ------------ ------------ ---------
Proposed final dividend
per share 4.0p 3.5p 14%
------------------------------ ------------ ------------ ---------
* Underlying operating profit excludes share based payments,
non-recurring items and amortisation from acquired intangibles.
** Order entry is the total contract value of revenue from an
order received in the period.
*** Order bank is the total future revenue we expect from orders received.
**** Cash conversion equals cash flow from operating activities
divided by underlying operating profit less non-recurring items
plus amortisation of non-acquired intangible assets and
depreciation of property, plant and equipment.
***** Adjusted earnings per share is underlying operating profit
less finance costs and tax at 20% divided by fully diluted number
of shares.
Operational Highlights
-- Results in line with revised expectations
-- Action taken to reallocate resources, strengthen sales and divisional management team
-- Synergy and Abacus acquisitions strengthen Social Care and
Education offering in local government market and have been merged
into Servelec HSC
-- Automation business recovering, especially in Q4 2016 on the
back of significant project wins
-- Improved and increasing order bank
Alan Stubbs, Chief Executive Officer commented:
"During 2016, Servelec made significant strides forward in terms
of product development, acquisitions, market development and staff
development. Whilst challenges persist I am confident in the future
outlook for the Group, with a strong order book and improving
market conditions."
For further enquiries, please contact:
Servelec Group plc
Alan Stubbs, Chief Executive
Officer
Mike Cane, Chief Financial
Officer
Pamela Weeks, Head of Corporate +44 (0) 1246 437
Communications and PR 400
Investec Bank plc
Dominic Emery/Sebastian Lawrence +44 (0) 207 597
Patrick Robb/Matt Lewis 5097
Tulchan Group +44 (0) 20 7353
James Macey-White/Matt Low 4200
Notes to Editors:
Servelec Group plc is a UK-based technology group, with
significant intellectual property, providing software, hardware and
services predominantly to the UK healthcare, oil & gas,
nuclear, power, water, utilities, broadcast and rail sectors.
Servelec has two operating divisions; Servelec HSC and Servelec
Automation:
- Servelec HSC specialises in the design, development and
implementation of Electronic Patient Record (EPR) and Patient
Administration Systems (PAS), Social Care Case Management software
and early Years education software within secondary care and social
care and education in local government settings and is a market
leader in the Mental Health, Community Health and Social Care
sectors in England.
- Servelec Automation provides complex, mission-critical control
systems to large blue-chip companies mainly in the UK, focusing on
the oil & gas, nuclear, power, infrastructure, utilities,
broadcast and rail industries. Servelec Automation also provides
services from consultancy through to design, implementation,
delivery, installation and on-going customer support and
maintenance.
Chairman's Statement
Servelec Group achieved its revised expectations for the year
ended 31 December 2016. The situation around procurement delays,
noted in our trading update in June 2016, has improved and we are
optimistic that Servelec will return to growth in 2017.
Overview
Revenue for the year ended 31 December 2016 was GBP61.0m (2015:
GBP63.1m), and underlying operating profit was GBP14.6m (2015:
GBP16.2m). Profit before taxation amounted to GBP9.5m (2015:
GBP13.4m). Adjusted earnings per share was 16.1p (2015: 18.1p),
fully diluted earnings per share 10.8p (2015: 16.7p). In 2016 the
Group invested GBP5.2m in product development (2015: GBP5.5m)
which, as in previous years, was expensed in the year.
Servelec HSC
Servelec Health & Social Care (now Servelec HSC) which
incorporates the Synergy business acquired on 1 April 2016 and the
Abacus business acquired on 4 May 2016, delivered revenues in line
with our revised expectations of GBP33.1m (2015: GBP32.5m). The
Servelec HSC business, despite a slower start to 2016, maintained a
high win rate of available opportunities with community and mental
health Trusts and social care providers. At 31 December 2016
Servelec HSC had an order bank amounting to GBP57.4m (2015:
GBP51.9m) which bodes well for 2017. The social care systems market
continues to be strong for us where we achieved success in over 50%
of the opportunities that came to market for our Mosaic product in
the year. The Synergy product set adds positively to our offering
in this market place. Overall, Servelec HSC delivered underlying
operating profit of GBP11.7m, (2015: GBP12.1m) Servelec is
committed to continuing to invest in the development of its HSC
product offerings, in 2016 development costs fully charged to the
Income Statement amounted to GBP3.3m (2015: GBP3.1m).
Servelec Automation
The Automation division which operates through two segments,
Servelec Controls and Servelec Technologies, has been challenged in
2016 by delays in orders in the early part of that year. The order
flow improved in the final quarter of the year and we ended the
year with a combined order bank of GBP17.3m (2015: GBP13.2m), an
increase of 31%.
Servelec Controls delivered revenue of GBP10.8m (2015: GBP14.4m)
and underlying operating profit of GBP1.5m (2015: GBP3.4m). Having
received a long anticipated follow-on order for the remote
operations solution with Centrica, we are seeing increasingly
positive signs in our markets. The new management teams' efficiency
improvements are bearing fruit and diversification into new
complementary markets where we already have the requisite skill
sets is anticipated to deliver further organic growth in the near
term.
As a Board, we maintain close scrutiny of the ongoing situation
with regard to the Combined Heat and Power plant in the Mardin area
of Turkey which was delivered in December 2015 and profits booked
in that year. As at 31 December 2016 Servelec is still owed GBP3.2m
in respect of this project of which GBP2.6m was reported as revenue
in the year to 31 December 2015 with the remaining amount held as
deferred revenue as at 31 December 2016. The Group is liaising
closely with the customer and its bankers to recover this amount in
full. Full recovery of this debt may take some time but we are
encouraged by the level of interaction we have with the client and
its banker and by the need and desire to bring this power plant
online to the Electricity grid in the region. We have taken steps
to ensure that future contracts of this value and type are subject
to greater governance (as noted in our Annual Report) and that our
exposure is better controlled.
Servelec Technologies delivered a 6% increase in revenue to
GBP17.1m (2015: GBP16.1m) and underlying operating profit for the
business amounted to GBP4.1m (2015: GBP3.5m). Demand through the
AMP6 procurement cycle in the UK Water Industry is continuing to
take longer than the industry originally anticipated as water
companies continue to focus their attentions on being prepared for
'Open Water'. This is also impacting our business optimisation
operation and although we have delivered a number of successful
pilot projects to the UK water industry achieving efficiencies in
their delivery are not currently front of mind with water
companies. Despite this, we continue to see growth in RTU sales
through the various framework contracts to which we have been
appointed in the UK along with international orders of RTUs through
our global distribution channel; we believe this area continues to
offer opportunities for growth.
Cash
As at 31 December 2016, Servelec had net debt of GBP9.6m (2015:
cash positive GBP9.9m). Cash generated from operating activities
amounted to GBP8.4m giving a cash conversion of 58% (2015: 115%).
We expect cash flow conversion to improve during 2017 as there were
a number of factors adversely affecting cash conversion in the
period.
Corporate Development
In April 2016, Servelec acquired Synergy, a leading supplier of
education support software to the local government market for a
cash consideration of GBP19.4m. The comprehensive suite of software
fits well with Servelec's Mosaic case management software and
enables the Group to provide the 'single view of the child' to
enable a more joined up approach to children's social care
services. Servelec's social care product suite was also
supplemented by the acquisition of Abacus, for a cash consideration
of GBP1.6m, which adds payment provision and financial assessment
functionality to the Mosaic product whilst also continuing to be
sold as a standalone product.
Dividend
The Board is proposing a final dividend of 4.0p per ordinary
share which, together with the interim dividend of 1.65p paid in
October 2016, equates to a total dividend of 5.65p per ordinary
share for the year ended 31 December 2016 an increase of 10%
compared to 2015. The final dividend, which is subject to approval
at the company's AGM, will be paid on 26 May 2017 to shareholders
registered at the close of business on 5 May 2017.
Board and Employees
I would like to take this opportunity to thank all our employees
for their hard work, dedication and support during 2016 which has
at times been a challenging year.
It was announced earlier today that Bernie Waldron,
Non-Executive Director of Servelec Group and Chairman of the
Remuneration Committee will be standing down from the Board at the
AGM in April 2017 to focus on other business opportunities
particularly in the Private Equity sector. I would like to thank
Bernie, on behalf of myself and the rest of the Board, for his
excellent contribution to Servelec since his appointment in
November 2013 and wish him every success for the future. The Board
is currently going through a process to replace Mr. Waldron and
will update the market accordingly.
Outlook
The Board looks forward to Servelec returning to growth in
2017.
Servelec HSC is expected to deliver growth in 2017 with the
social care market in particular showing strong signs of ongoing
system refresh which is driving good levels of procurement
activity. Revenue growth in Healthcare is less certain until we
have greater clarity of the Government's intentions for the acute
market. Progress is, however, expected to be made in improving the
efficiency of our existing business. With two acute customers
scheduled to go live with our Oceano software solution in 2017 we
are well positioned to benefit when spending in the acute market
starts in earnest with strong referenceability on both projects
anticipated. Additionally, growth is expected in the short term
from sales of our mobile solutions and the digital transformation
of the NHS in the community, mental health and child health
sectors.
Servelec Automation is better placed for growth compared to
previous years compared to previous years, with a focus on
diversification as well as existing markets. Although spending in
some of its markets remains fluid there are strong signs that
demand for projects that lead to improved efficiency of operations
are being considered and entered into by customers.
The Board believes Servelec is well placed to capitalise on the
many opportunities available in its markets.
Richard Last
Chairman
7 March 2017
Chief Executive's Review
Group performance in 2016 was in line with the revised market
expectations which were re-based in June 2016. Revenues in 2016
were 3% behind prior year at GBP61.0m (2015: GBP63.1m) and
underlying operating profit was also behind at GBP14.6m (2015:
GBP16.2m). Whilst our results are a backwards step on 2015, which
was in itself an exceptional year with 32% growth over 2014, the
Group has nonetheless maintained CAGR growth of 9% since IPO. The
step backwards is largely due to delays in procurement in a number
of our markets which, unusually, occurred at the same time.
During 2016 the business made significant strides forward in
terms of product development, acquisitions, market development and
staff development. I am pleased with the positive signs apparent
across our businesses and whilst challenges persist in some of our
markets the Board is confident in the future outlook for the
Group.
The business is set to reap the rewards of the various
investments we have made in the business during 2016 which position
us well for the future; including refreshing the management team in
our Controls (Oil & Gas) business, focussing sales efforts on
our global distribution channel in Technologies, strengthening our
sales team in Servelec HSC and bringing two enviable product suites
into the business; Abacus and Synergy. The outlook is positive for
the Group in 2017 with a stronger order book and improving
visibility of market conditions.
Servelec HSC
The re-branding of Servelec Health & Social Care as Servelec
HSC, as it has been known from mid-February 2017, is the logical
next step and denotes the convergence of our various care related
businesses which were previously individually branded as Servelec
Healthcare, Servelec Corelogic, Servelec Synergy and Servelec
Abacus. This division performed in line with revised market
expectations, growing recurring revenues during 2016. Social Care
performed well, bolstered by Synergy which we acquired in April
2016. Both of these provided an offset to the setback within our
healthcare business.
We maintained a high win rate in the healthcare market for the
smaller number of opportunities which were available in the market.
With our RiO Electronic Patient Record software solution we won six
contracts across the UK and Republic of Ireland. The government's
decision to delay the date by which Trusts were being incentivised
to upgrade their systems, effectively pushing the deadline out
until at least 2020, impacted sales opportunities previously
categorised as the North Refresh. Three of the contracts we won
were at North New sites (Shropshire Community Healthcare Trust,
Lancashire Care NHS Foundation Trust and Nottinghamshire Healthcare
NHS Trust), with a further pure-greenfield site award (with North
Devon NHS Trust) alongside two additional wins in Scotland and the
Republic of Ireland. The latter two contracts demonstrate positive
outcomes which are a result of our decision last year to broaden
our sales focus into new geographical areas in UK and Ireland.
Specifically, winning the contract to supply RiO across the whole
of Scotland for the Scottish Child Health & Wellbeing
demonstrates that RiO remains a leading product in its market and
continues to provide opportunities for organic growth.
Implementation of Oceano with our development partner,
University Hospitals Birmingham, is progressing well with the
system due to go live in 2017. The contract to supply Oceano to
Royal Cornwall Hospitals Trust was signed and the project is also
on course for delivery in 2017. Sales of our Flow bed management
product are positive and we have been awarded a number of contracts
to deploy Flow following successful pilots. Product development has
continued in healthcare with the re-launch of our RiO Mobile
product, eObservations for improved patient management, order
communications and of course enhanced interoperability.
We have continued our investment in the social care market and
acquired Synergy and Abacus in the first half of 2016. Our core
social care product, Mosaic, is market leading and currently only
has one real competitor. This is in a market where potential
customers are reviewing their supply chain options for the next few
years as Local Authorities, through changing Government
legislation, are being encouraged to upgrade their children and
adults' case management systems. As this system refresh continues
we have maintained a high win rate, having been awarded eight
Mosaic contracts during the year. We are also investing in
additional product development of our Corius business intelligence
product as well as the online portal product; Finestra which was
launched in the market in 2016. Both products form part of our
Mosaic offering. Abacus adds finance functionality to the existing
capabilities of Mosaic with a focus on online payment provision and
financial assessments for social care needs.
Synergy is an exceptionally strong, modular product suite. The
flagship module is Synergy's online Admissions software which has
been used by over seven million families to date to apply online
for primary school places. Following Servelec's acquisition of
Synergy and the team behind the business; Synergy has contributed
positively with a number of large contract wins for multiple
modules with Kent County Council, Durham County Council, Medway
Council, Stockport Metropolitan Borough Council and Warwickshire
County Council. The team's knowledge of customers and contacts
across the local government space also provides additional
opportunities for cross-selling products from across the combined
business.
Bringing our businesses together as Servelec HSC underpins our
long held assertion that services across health, social care and
education will increasingly have to work together more closely both
to reduce costs and improve the outcomes of care. Having one
consistent brand across the division provides our customers with
greater clarity as to the full range of capability available from
Servelec to the markets in which Servelec HSC operates.
Servelec Automation
Comprising Servelec Controls and Servelec Technologies, the
Automation division has delivered in line with the revised
expectations of the market.
Under the new management of Andrew Mills, Servelec Controls (Oil
& Gas) has a focus on re-establishing and developing
relationships across our enviable client base. In 2016 we were
appointed to the National Grid framework for five years to design
and supply system integration and maintenance support services. In
December, the long-anticipated order with Centrica, which is the
next step towards remote operations of offshore gas platforms in
the North East Irish Sea was awarded. By investing in relationships
with a broader base of customers with the objective of securing a
greater number of smaller value contracts in addition to the larger
contracts we have a strong pipeline of opportunities feeding into
2017. We have invested further in our sales team and appointed a
new Account Director at the back-end of 2016.
We continue to maintain a watching brief on the situation in
Turkey, where discussions are ongoing in relation to the completion
of the Combined Heat and Power plant and the recovery of monies we
are owed.
Servelec Controls (Power & Infrastructure) continued to
perform well and surpassed full year 2015 order bank by the half
year. The business won contracts with Sellafield, SSE Generation,
Nuvia and Westinghouse. Looking ahead, the focus moves to other
complementary vertical markets, which have a requirement for the
same type of system refurbishment we currently deliver to the Power
sector; such as defence and infrastructure where we see further
opportunities for our skill-set. During 2016 we appointed a new
Account Director for defence and infrastructure to focus on
building our presence in this market.
Servelec Technologies continues to operate in a challenging UK
market for both RTUs (Remote Telemetry Units) and our business
optimisation products but opportunities for international sales
across our product suite continue apace. There are increasingly
positive signs that the pent-up demand for product sales to the UK
water industry is slowly unlocking with a number of framework
contracts having been awarded to Servelec. However, current orders
are still modest but in-line with our expectations. In 2016 we were
awarded framework contracts with five UK water companies to supply
Remote Telemetry Units (RTUs); Anglian Water, Southern Water,
Northumbrian Water, Wessex Water and Welsh Water. With our
Telemetry and SCADA products, we were awarded a five-year contract
with Affinity Water and, outside of the water industry, with
Heathrow Airport. Sales of our business optimisation products are
gaining ground with a number of successful pilot projects delivered
to UK water companies. We have also had success in selling these
products via our international distribution channel with sales to
two Australian water authorities; PIONEER to Sydney Water and MISER
to Water Corporation in Perth.
Our focus on selling these internationally-competitive products
through our global distribution channel strengthened in 2016 and we
appointed a Channel Sales Director in June 2016 to focus us further
in this area. This is starting to bear fruit as a number of
significant contracts for overseas RTU sales have been received
during the period.
Strategy and Outlook
Our overall strategy for the business remains unchanged and we
have delivered considerable progress on all of the four distinct
elements.
-- We have achieved organic growth both in existing markets and
into new verticals in our Social Care and Power &
Infrastructure segments
-- Product development to enhance existing offerings has
continued, specifically with the TBoxnano RTU from Servelec
Technologies and the Finestra, RiO Mobile, eObservations and Corius
Business Intelligence Analytics in Servelec HSC
-- We have continued to invest in our people to develop our
distribution channels and routes to market; and
-- The integration of recently acquired businesses, Synergy and
Abacus, continues to add value for customers and shareholders and
we foresee bolt-on acquisitions continuing where they fit with our
strategy and meet our strict financial criteria.
Whilst this year has been disappointing financially, it has been
one of reflection and investment to position ourselves for growth
again in the coming years. The diversified business model continues
to be an asset to the Group as we are not solely exposed to
fluctuations in any one market place. We finish the 2016 financial
year with a strengthening order book, strong visibility of
contracts coming to market and growing pipelines of opportunities
for 2017 which underpin our budget for the year. Along with my
colleagues on the Board I am positive about the outlook for 2017.
Servelec Automation looks set for a long-anticipated year of growth
as delayed projects get off the ground and Servelec HSC will
continue to deliver solid recurring revenues along with
opportunities for growth, specifically in the social care
market.
Alan Stubbs
Chief Executive Officer
7 March 2017
Chief Financial Officers Review
Servelec delivered in line with revised expectations at the year
end. Whilst performance was a step back on prior year, the Group
has delivered CAGR growth on Underlying Operating Profit of 9%
since IPO.
Overview
Revenue for the year ending 31 December 2016 was GBP61.0m (2015:
GBP63.1m), a decrease of 3%. Underlying operating profit decreased
by 10% to GBP14.6m (2015: GBP16.2m) and after allowing for the
increased amortisation charge relating to acquisitions, profit
before taxation also decreased by 29% to GBP9.5m (2015: GBP13.4m).
Non-recurring items totalled GBP1.2m at the full year.
Servelec HSC delivered performance in line with revised
expectations with revenue up 2% to GBP33.1m (2015: GBP32.5m).
Following the high implementation revenue in 2015 from customers
exiting the Southern region of the NPfIT, organic revenue fell by
16%. Underlying operating profit was slightly down on 2015 by 3% to
GBP11.7m (2015: GBP12.1m), however due to the highlighted delays in
the Northern NPfIT refresh the reduced implementation revenue
resulted in an organic operating profit reduction of 22% to
GBP9.5m.
We acquired Synergy in April 2016 and so the year to 31 December
2016 saw nine months contribution to revenue of GBP5.1m and
underlying operating profit of GBP2.1m. Synergy has 95 local
authority customers and the business has delivered significant wins
in the nine months it has been part of the Group. Abacus was
acquired in May 2016 and has made a small contribution to HSC
revenue of GBP0.7m and underlying operating profit of GBP0.1m.
Abacus has 38 local authority customers and further enhances the
financial capability of our Mosaic product and also provides access
to new customers.
2016 revenues for Servelec Controls fell by 25% to GBP10.8m in
the year (2015: GBP14.4m) with a corresponding reduction in
underlying operating profit of 54% to GBP1.5m (2015: GBP3.4m). At
the half year, the Controls segment recruited a new Managing
Director for the Oil & Gas market. Andrew Mills brings a
renewed energy to the business and a focus on levelling out
pipeline opportunities to deliver an underlying baseline of smaller
contracts with the additional larger contracts adding to, rather
than replacing, these. Servelec Controls is showing signs of
improvement with recent contract wins and framework
appointments.
Servelec Technologies had an improved year as revenue increased
by 6% in 2016 to GBP17.1m (2015: GBP16.1m) with underlying
operating profit increasing by 18% to GBP4.1m (2015: GBP3.5m). This
was largely due to product sales through our global distribution
channel.
Procurement delays persist in the UK water industry, which
affected sales of both Remote Telemetry Units (RTUs) and our
business optimisation products. With our appointment with water
companies on five out of seven frameworks so far this AMP cycle and
subsequent small orders received there are signs of improvement in
this market, but we are seeking increased international sales with
both product ranges. We anticipate that demand will unlock further
post April when the distraction of water companies readying
themselves for the market opening up to retail competition; 'Open
Water' will have subsided.
Non Recurring Items
During the year GBP1.2m of costs were classified as
non-recurring items, which included acquisition costs,
restructuring costs and prior year research & development
expenditure credits (see taxation below). Restructuring costs were
predominantly the reduction of delivery staff in Servelec HSC
following the announcement in June that the tranche of
opportunities we have previously referred to as North Refresh was
to be delayed.
Cash
Cash flow from operating activities was GBP8.4m (2015:
GBP19.6m). The reduction was due to a number of factors; the
working capital cycle of the acquisitions made during the year; a
large RTU order delivered in December (cash received in January
2017) and the timing of receipts within social care.
As noted in our trading update in January 2017, the GBP2.6m
receivable relating to revenue taken in 2015 on the Combined Heat
and Power plant in the Mardin region of Turkey is still
outstanding.
Net debt at 31 December 2016 is GBP9.6m (2015: a cash balance of
GBP9.9m). In April 2016 the Group set up a revolving credit
facility (RCF) with Lloyds Bank and drew down GBP15.1m in order to
acquire Synergy. The overall facility is for three years and
consists of a GBP20m RCF with a GBP10m accordion.
Capital expenditure
During the year we invested GBP1.2m (2015: GBP1.4m) in IT and
office equipment including further hosting environments for
Healthcare customers. We anticipate further expenditure in this
area as hosting services become more important to our customers
across Servelec HSC.
Taxation
The underlying rate of taxation is 19% (2015: 11%). 2015 saw the
Group benefit from a time based tax credit but also from R&D
tax credits which were accounted through a reduction in the tax
charge. In 2016 the Group has adopted the Research &
Development Expenditure Credits (RDEC) regime which allows for the
benefit to be taken within operating profit. During the year the
Group reviewed the research & development claims and identified
further amounts relating to years 2014 and 2015. The credits for
these prior years have been included in the non-recurring items in
2016.
Earnings per share
Diluted earnings per share decreased to 10.8p for the year ended
31 December 2016 (2015: 16.7p), reflecting the reduction in profit
in the year.
Outlook
Having continued our investment in product development and
strengthening of the sales team, Servelec is well positioned to
take advantage of the opportunities for organic growth across all
divisions, as well as continuing to consider earnings enhancing
acquisitions.
Within Servelec HSC we are expecting organic growth to be driven
by the ongoing system refresh in the social care market both in
England and Scotland. The strength of our product suites and track
record of delivery continues to provide our customers with the
confidence to select Servelec as their partner, demonstrated by the
recent RiO win with Scottish Child Health and Wellbeing. There has
also been highly publicised public debate about the benefits of and
progress towards more closely aligning health and social care such
that we strongly believe the Integrated Care agenda will drive
further organic growth opportunities in these markets.
Our Automation division shows positive signs of progress in both
Controls and Technologies. The Centrica order provides additional
reassurance that we can further grow the business in this area and
provide similar remote operations solutions to other customers as
well as delivering a quality service to Centrica. Selling the same
skills set into new markets also offers enhanced opportunities to
the Power & Infrastructure part of the business as they look to
explore new verticals such as defence.
We have long anticipated the scalability inherent to Servelec
Technologies. Our competitive products and global distribution
channels mean we are well placed for additional organic growth in
our chosen markets. In the UK water industry, whilst delays have
persisted far longer than was anticipated, we are in a better
position than during the prior AMP cycle as we have a greater
market share of framework contracts. This indicates that our
enhanced product suite is bearing fruit. With signs that orders are
now starting to come through via these frameworks, our expectation
is that sales will increase in size and value over the remainder of
the AMP period, to 2020.
Cash will continue to be a focus in 2017 and we are targeting a
positive cash position by the end of the year, as well as a
resolution to the outstanding debt balances on the Combined Heat
and Power contract. Going forward our tax charge will be in line
with standard rates as the credits under the RDEC scheme are taken
in operating profit.
2016 has been a disappointing year financially, but with an
improved order bank and our continued investment in our products,
people and customer relationships the Group is well placed to
return to growth in 2017.
Mike Cane
Chief Financial Officer
7 March 2017
Servelec HSC
2016 2015
(GBP'000s) (GBP'000s) % change
---------------------- ------------ ------------ ---------
Segment Revenue 33,081 32,532 2%
---------------------- ------------ ------------ ---------
Gross Profit 16,538 16,185 2%
---------------------- ------------ ------------ ---------
Underlying Operating
Profit 11,706 12,080 (3)%
---------------------- ------------ ------------ ---------
Net Margin 35% 37%
====================== ============ ============ =========
Order Entry 33,742 34,622 (3)%
---------------------- ------------ ------------ ---------
Order Bank 57,412 51,874 11%
---------------------- ------------ ------------ ---------
As local demand for more integrated provision of care across
health, social care and education increases faster than the
anticipated Government-led funding, we are delivering the benefits
of an integrated product suite to support this drive in various
geographical locations. We see these markets coming together and
having acquired Corelogic, Aura, Synergy and Abacus in the past few
years, we see 2017 as the right time to bring all our products
together into one market-leading, integrated suite. As such in
mid-February 2017 we relaunched the combined business in the
marketplace as Servelec HSC, under which the combined product suite
comprising RiO, Oceano, Flow, Mosaic, Corius, Synergy and Abacus
will all continue to be sold on both a standalone and integrated
basis.
We continue to extend the best practice delivered in our
Healthcare business across our Social Care offering by replicating
the track record of excellent service delivery, deep domain
knowledge and excellent customer references.
Our Proprietary Products
In the healthcare market, Servelec HSC specialises in the
design, development and support of Electronic Patient Record (EPR)
and Patient Administration Software (PAS) within secondary care
settings and is a market leader with its RiO product in the mental
and community health sectors in England.
In the Acute setting, Servelec also supplies Patient
Administration Systems, Electronic Patient Records software with
its Oceano product offering which integrates with patient flow and
bed management software, Flow.
Servelec is also a UK market leading provider of next generation
adult social care and children's services case management software,
integrated with financial management and reporting modules. Its
flagship product, Mosaic is unique in the market as the only
product to offer all three areas of modern social care (adult,
children's and finance) within a fully integrated system. This
offering has been further enhanced by the acquisition of Abacus
which includes a number of self-service portals to enable people to
manage care provision payments online. Further enhancements to the
portal technology in our product portfolio more closely aligns with
the emergence of the personalisation agenda within social care and
the need to drive down costs through the provision of self-service
facilities.
Through the acquisition of the Synergy product suite, Servelec
also now provides a comprehensive suite of products designed to
give local authorities a practical, clear and reliable way of
managing critical information around the education, safeguarding
and care of children and young people.
The Synergy suite records and manages all aspects of Children's
Services. Information sharing is simple with Synergy products -
across systems, multi-agencies, departments or even other
authorities. Full visibility of each and every individual gives
users the insight they need to make key decisions, resulting in
powerful positive outcomes for children and young people.
2016 Performance
Servelec HSC has performed in line with revised market
expectations during 2016 with revenue at GBP33.1m, a 2% increase
over prior year and underlying operating profit of GBP11.7m (2015:
GBP12.1m). This result includes nine months of Synergy (which was
acquired in April 2016) and a small contribution from eight months
of Abacus (acquired in May 2016). Revenue from acquisitions was
GBP5.1m and GBP0.7m respectively.
The main impact on performance in the healthcare market was the
UK Government's decision in early 2016 to delay the North Refresh
and extend the deadline by which NHS Trusts are expected to upgrade
their Electronic Patient Records (EPR) and Patient Administration
Systems (PAS) from July 2016 to 2020 in line with the required
achievement of Digital Maturity.
With our market-leading RiO software, the business maintained a
high win rate on available opportunities in England, winning three
'North New' contracts awarded in 2016 as well as a greenfield site
in the Southwest of England. Our focus now extends across other
local geographies and we won one mental health system in the
Republic of Ireland and a contract with NHS Scotland to supply RiO
to manage child health across all Health Boards in Scotland.
Overall, however, much of the anticipated momentum in secondary
healthcare was moderated by the delays with the North Refresh.
In the acute market, Servelec began the implementation of Oceano
into three hospitals and 13 minor injury units across Royal
Cornwall Hospitals NHS Trust, providing a valuable reference site
for this product once funding becomes available for Trusts to
upgrade their systems. The Flow product, acquired in 2015, is sold
as a standalone product to integrate with existing Patient
Administration Systems or sold as a complete Oceano solution. Part
of the rationale behind the acquisition was the potential for Flow
sales to enable us to enter new geographies and plans are in place
to capitalise on these opportunities in 2017/18. The Flow solution
has recently been chosen by two Health Boards in Wales to manage
their inpatient beds and patient flow across the hospitals.
Maintaining a high win rate with our Mosaic product, where the
company has won eight opportunities that came to market during
2016; the Social Care business has also been further strengthened
by the acquisitions of the Synergy and Abacus product suites.
Synergy was acquired to support the aim of delivering the "Big
Picture" across health, education and social care, fully
integrating with the education services delivered by local
authorities with the aim of supporting early intervention with
children and families. The Abacus product suite strengthens the
in-built finance functionality within Mosaic and also provides
additional functionality aimed at enabling providers to self-serve
invoices with a view to helping local authorities realise
significant cost saving in payment administration.
Both acquisitions provide opportunities for cross-selling to
existing local authority customers. Given the combined footprint of
the product suites, there is plenty of opportunity to cross-sell
and up-sell our products to these customers and a consistent
account management plan is already underway to achieve this.
Synergy has delivered a strong performance in line with
expectations with a number of positive wins in the months since
acquisition. Unseating a powerful competitor to win the contract to
supply the market leading Synergy Admissions module at Durham
County Council and Medway Council is evidence of the product
suite's strength and extremely positive reputation in the market
place. Synergy also delivered a strong performance in the second
half with significant contract wins with Kent County Council and
Warwickshire County Council.
Across the markets Servelec HSC serves, we continue to support
our customers as they mobilise their workforce, creating greater
opportunities for our customers to improve the provision of care.
We have seen RiO Mobile mature further in 2016 following additional
product development and increased customer demand for mobile
working. We also continue to work closely with all our customers to
develop integration and information sharing solutions that meet the
needs of the integrated care agenda and the Five Year Forward
View.
Research & Development
We expect the demand for portal technology to increase
significantly during 2017 based on the additional development
carried out in 2016. A key aspect of our portal technology is its
complete integration with the Mosaic case management system which
is a significant unique selling point. Throughout 2016, we invested
GBP3.3m (2015: GBP3.1m) across Servelec HSC to ensure that our
portfolio of products will continue to meet the challenges and
future needs of our market; and that our products support
interoperability and paperless and mobile working.
Strategy
The combined strategy of Servelec HSC is to maximise growth
across our markets by the pursuit of joint and separate
opportunities across health and social care. Our primary objectives
are two-fold; first, to have a better understanding and more
strategic relationship with our existing customers and, second, to
offer the market the most innovative, flexible and cost-effective
products thereby securing new business and further extending our
customer base.
We will do this by:
-- Maximising opportunities arising out of the Digital Maturity
by 2020 programme focusing on mental health, community health,
child health and acute;
-- Capitalising on sales opportunities arising from the systems
refresh linked to the government's assertion for all local
authorities to have a modern care management system by 2020;
-- Delivering product enhancements aimed at further developments
towards enabling mobile working in healthcare along with
personalisation and enhanced usage in social care bringing
integration to all markets;
-- Continuing to unseat the competition selling into the local
government market by demonstrating the business case for various
modules of our products;
-- Actively participating in the integration and
interoperability agenda with Government partners including NHS
Digital, NHS England and NHS Scotland;
-- Taking a leadership role in helping to shape how technology
will deliver integrated care in partnership with Government and our
healthcare and social care customer community; and
-- Implementing plans to strengthen our strategic partnerships with existing customers.
The Market in 2017
Healthcare
The UK healthcare sector, which is primarily the NHS, deals with
around one million patients every day. Regulatory changes and
tightening budgets are focusing this market on integration and
interoperability. Servelec HSC is responding to this by
collaboratively working with our customers to enable data-sharing
underpinned by our technologies, which in turn provides our
customers with high-value outcomes to support multi-agency working.
healthcare and social care providers are also under increased
pressure to make efficiency savings whilst still delivering high
standards of care.
Social Care
The world of social care has changed dramatically over recent
years against a background of demographic change and reduced
services. Government policy is increasingly focused on giving
clients greater choice and control over services in order to
promote independence. This necessitates a re-think of business
processes. The biggest changes to adult social care from a national
policy perspective arise from the Care Act 2014. This builds on the
personalisation of adult social care and restates the importance of
personal budgets, patients' control over their care, and market
diversification to provide more choice for people with social care
funded packages as well as people funding their own care and
support.
Education
Whilst influenced, more than driven, by legislative change the
local government market within which Servelec sells the Synergy
product suite is increasingly focussed on the need for local
authorities to reduce their costs whilst still delivering the range
of services to its citizens.
Outlook for 2017
Healthcare
Growth opportunities for Servelec HSC include the Digital
Maturity agenda which requires all Trusts to have modern systems
(PAS / EPR) in place that comply with the drive towards a paperless
NHS by 2020. Whilst the funding was delayed during 2016, there is
strong indication from NHS Digital that further funding will be
announced in 2017 to support the Trusts in complying with this
demand, however, the 2020 deadline may be deemed to be unrealistic
and be pushed out further. There are also increasing opportunities
in the Acute hospital market with both the Oceano and Flow products
to those Trusts in the North of England who did not procure a new
system under the National Programme for IT (NPfIT); North New.
Further growth will also be underpinned by strong recurring
revenues of over 64% from existing customers with support
maintenance agreements.
The business is capitalising on markets in other parts of the
British Isles to help mitigate the challenges brought about by the
North Refresh being subsumed within the "Digital Maturity by 2020"
target. This is bearing fruit with the contract wins recently
awarded in Scotland, Wales and the Republic of Ireland.
Specifically, the contract win with NHS Scotland for the provision
of a RiO system covering Child Health across the country provides a
springboard to future growth in Scotland when referenceable.
To take full advantage of these future market opportunities, we
are making additional investments in our sales team including at a
more strategic level to build our links with government agencies,
further enhancing our products for the Acute hospital market and
continuing to deliver the excellent customer service through
delivery and ongoing support for which we are well-respected.
Social Care
Social Care continues to be a highly active market for Servelec
with ongoing system refresh driven by the Care Act 2014 and the
customers' desire for modern functionality and interoperability. As
such, further portal developments are a key focus as they continue
to facilitate the Personalisation Agenda and the drive for
self-service (with a view to local authorities saving money).
Within the market, there is limited competition as Servelec is
one of only a small number of providers which can offer a modern,
compliant system to local authorities. As the market continues to
refresh systems, we have strong visibility of around 20
opportunities coming to market during 2017 and similar numbers
annually up to 2019. We believe we are well positioned to take a
significant proportion of these opportunities and continue to
invest in our sales team to capitalise on them.
Education
The education market within local government remains buoyant and
is not solely driven by legislative change as with our other
markets across Servelec HSC. The Synergy product suite is sold by
presenting local authorities with a value-adding business case as a
cost/benefit proposition which sees us gain significant market
share from key competitors. We will be targeting 25 new customers
in this space over the next five years and see this as achievable
within the anticipated market conditions.
Delivering the Big Picture
In line with ongoing market developments across health, social
care and education, the positive progress made to date in more
closely aligning our people and product sets to bring together our
best of breed products for the benefit of our customers is gaining
ground. This alignment of our business will see clinicians and
practitioners across healthcare and these markets being able to
access information across the full spectrum of care settings
enabling the improvement of outcomes for individuals and
families.
With our market-leading position in healthcare and the
acquisitions of Corelogic, Synergy and Abacus enabling us to
develop a similar leading position across adult, children's and
finance in the social care and education markets, we have the
opportunity to be the first to market with the 'Big Picture' view
of providing information aimed at delivering better health and
social care.
Continued product development is absolutely vital to maintaining
our status as a leading provider of modern, desirable systems
across our markets. We have a range of market leading products
across health, social care and education and we know our markets
are moving together. We believe now is the right time to more
closely align our teams and products to allow us to share best
practice, capitalise on market opportunities and compete strongly
with other players in our markets. We will still maintain a key
focus on the individual products and make these the best they can
possibly be for our customers. Where our customers want it, we will
also provide enhanced functionality for our current products
through greater integration and product enhancement.
Our key market drivers are delivering mobile working and
self-service and we want to remain ahead of the competition in
terms of delivering the best products in our chosen care settings.
We need to continuously improve the user experience and modernise
the back-end of some of our products to continue to deliver
enhancements for new and existing customers. We need to make it
easier to deploy these improvements to make sure that we continue
to be the trusted provider of critical systems across health and
social care.
Servelec Controls
2016 2015
(GBP'000s) (GBP'000s) % change
---------------------- ------------ ------------ ---------
Segment Revenue 10,776 14,421 (25)%
---------------------- ------------ ------------ ---------
Gross Profit 3,554 5,727 (38)%
---------------------- ------------ ------------ ---------
Underlying Operating
Profit 1,534 3,356 (54)%
---------------------- ------------ ------------ ---------
Net Margin 14% 23%
====================== ============ ============ =========
Order Entry 11,461 13,818 (17)%
---------------------- ------------ ------------ ---------
Order Bank 4,678 3,993 17%
---------------------- ------------ ------------ ---------
The UK energy market continues to adapt to the changing needs of
a growing population. Our experience and skills place us in an
ideal position to play a key role, providing mission critical
control systems for national infrastructure.
Introduction
Servelec Controls - Oil & Gas works alongside many of the
world's leading owners, operators and Engineering Procurement and
Construction contractors (EPCs) providing systems and services that
improve safety and efficiency and extend the working life of oil
and gas infrastructure.
Servelec Controls - Power & Infrastructure has 40 years
experience of executing projects within the nuclear environment
during which time the business has built an excellent reputation
for technical excellence in the supply of innovative systems for
real-time control and information management within the power
industry. Underpinning our strategy of diversification into
complementary verticals, we have internally renamed what was
previously Servelec Controls (Power & Nuclear) to become
Servelec Controls (Power & Infrastructure).
2016 Performance
Servelec Controls revenue was down on prior year by 25% to
GBP10.8m (2015: GBP14.4m) as anticipated orders in the Oil &
Gas market materialised later than initially anticipated.
Underlying operating profit was reduced significantly by 54% to
GBP1.5m (2015: GBP3.4m). Order entry also reduced by 17%, but order
bank increased by 17% driven by Power & Infrastructure which
achieved record order entry in the first half of the year,
surpassing the 2015 full year order entry figure at the Half
Year.
In Oil & Gas, Servelec continues to work with Centrica to
provide enabling works for a broader project involving remote
operations via onshore automation; the order for which was received
in December 2016 and will underpin 2017 revenues. The project
involves removing redundant plant and replacing obsolescent
equipment with new Servelec-designed systems. As a result, Centrica
will maximise the value of their asset through a more
cost-effective and efficient maintenance programme, and experience
reduced downtime through the requirement for less human
intervention. In addition to the clear commercial incentive, the
project will decrease risk to personnel and improve safety by
slashing intervention time.
2016 was a challenging year for all those involved in the oil
and gas Industry. We have focused on selling service offerings that
the market needs and on proving their viability for our customers'
businesses. This renewed focus on sales including a strengthened
sales team under the leadership of new Managing Director, Andrew
Mills, is already showing positive signs of order entry and
increased customer engagement. The business is also seeing signs of
the market expanding as the larger customers are looking directly
to Tier 2 suppliers, such as Servelec Controls, enabling us to take
previously unavailable market share from Tier 1 providers in the
medium term. The business continues to focus on Opex reduction for
its existing customer base with secured spend positioning Servelec
strongly in the 'lower for longer' oil price market conditions.
Whist continuing to diversify into mid and downstream oil and
gas we broadened our role within National Grid across the
Automation division. Servelec Controls was appointed on a five year
framework for gas transmission and distribution which positions the
company well for future contract tenders in 2017 and beyond.
Through this framework Servelec will supply critical systems on a
project-by-project basis for at least the next five years and the
contract further compliments the substantial work completed by
Servelec for major upstream clients such as Centrica, Premier Oil,
Perenco, Apache and BP over the last four decades.
2015 results benefitted from a significant project designing and
implementing the control systems for a Combined Heat and Power
plant in the Mardin region of Turkey. During 2016 the project
stalled, as the end customer required some additional financing to
complete the work. In early 2017 some minor work has been performed
by Servelec to prove that the plant can generate electricity to the
grid in order to assist our end customer in discussions with their
bankers to release funding. We are encouraged by the positive
dialogue with the parties involved, and have concluded that we will
collect at least the GBP3.2m held in receivables at 31 December
2016. However it is not clear as to the timing of the receipt of
the funds.
In Power & Infrastructure, the increased focus on individual
addressable markets strengthened by additional sales resource is
delivering positive results. The business has won a number of
significant contracts that help
us to build credibility in our chosen markets including a data
and alarm management contract with Sellafield and a major systems
upgrade with SSE Generation Limited at Storrs Loch Power Station on
the Isle of Skye.
Order entry by the half year was higher than at full year 2015
and the pipeline of opportunities continues to expand giving a
solid platform for continued growth in the future. The business has
also been awarded a contract to upgrade a Westinghouse control
system for Sizewell B, the second of two contracts competed and
awarded by Sellafield as well as significant ongoing support
contracts with EDF and National Grid.
Strategy
Across both parts of Servelec Controls, we are focused on fully
maximising the potential inherent within the UK oil & gas,
energy, infrastructure and defence markets.
We will deliver this by:
-- Continuing to focus on existing and new customers in the upstream Oil & Gas market;
-- Diversifying into midstream/ downstream and infrastructure markets;
-- Moving ourselves up the value chain from a niche supplier
towards a complete solution provider;
-- Focusing on productising the proven Remote Operation and
Monitoring solution and demonstrating this as a viable option for
other large operators;
-- Exploiting opportunities with our enviable, growing client
base gaining repeat business through excellent project
delivery;
-- Applying our skills and solutions across all our vertical
markets; nuclear decommissioning, nuclear new build, power, defence
and national infrastructure; and
-- Applying a sales-led, market supported, growth strategy
providing strong foundations for now and the future.
The Market in 2017
Oil & Gas
The UK Continental Shelf (UKCS) is a mature and challenging
basin. The region has suffered from the fall in oil price which has
put pressure on all operators to reduce costs, slim down the work
force and investigate more technological efficient methods of
continuing production. Historically the North Sea has seen some of
the most advanced technology used to find and extract hydrocarbons.
Health and safety also drives a significant proportion of activity
as official bodies have the authority to close down platforms which
do not reach minimum health and safety requirements. As the 'lower
for longer' oil price continues to focus our customers on Opex
reduction, in which we have over 40 years experience, we see this
as an ongoing opportunity for our business, as initiatives to
continuously reduce the price of production remain a priority.
Due to the current price environment and inhospitable weather
conditions, the UKCS has recognised the benefit of de-manning
platforms, as technology and computer facilities operate at much
lower costs and improved overall platform efficiency. We expect to
continue discussions with new and additional customers around the
remote operation of offshore platforms in response to increased
health and safety legislation and the requirement to extend the
life of existing platforms in the face of operational cost
constraints and potential decommissioning. Oil & Gas currently
provides the majority of the UK total primary energy supply and
demand is not expected to change by 2030. In order for this rate to
be sustained, further investment is required in the short and
medium term, with current levels of investment leading to
significant shortfalls in energy supply as soon as 2020.
Power & Infrastructure
The UK power market is a diverse and vibrant industry where
innovation and efficiency are key drivers in delivering success.
Safety and regulatory compliance is at the forefront of every
decision and initiative. The market cornerstones are power
generation, decommissioning of inactive sites, defence and
reprocessing activities. During 2017 key areas of focus are:
Existing nuclear power stations: increased focus on the life
extension of existing nuclear generating sites to maximise plant
performance.
Nuclear decommissioning: the cycle of major decommissioning
projects is now moving from design to implementation phases where
Servelec can add value and provide services to major EPC
Contractors.
Defence: the market is growing for technology-based solutions
within the existing and new fleet of submarines as well as the
various sites around the UK which provide support systems and
services.
National infrastructure: the expansion of our existing offering
to the national power infrastructure network. Looking ahead there
will be a greater demand for controls system cyber security, a key
area of growth and focus for us.
2017 Outlook
Our renewed focus on the diversity of our established customer
base will begin to deliver results during 2017 and beyond. By
investing further in our sales team and pursuing a sales led growth
strategy, we are taking a fresh approach to identifying and
capitalising on market opportunities. With the growing pipeline of
opportunities this diversity is reducing our risk of focussing on a
smaller number of customers with large contracts to award.
Following the record year in Power & Infrastructure, we are
confident that the renewed sales effort will yield improved results
in the near term.
Oil & Gas
In the upstream oil and gas market, where we work with the
majority of major operators, we are renowned for our focus on the
reduction in operating costs and this will give us a clear
advantage in the 'lower for longer' economy. With the
referenceability of our remote Operation and Monitoring solution,
which is currently being delivered for a major UK operator, we can
demonstrate key benefits to other operators focussed on safety
gains and efficiency savings.
Power & Infrastructure
Servelec's expanding addressable market provides exciting
business prospects for Servelec Controls moving forward. The power
and infrastructure market is one of expanding opportunity for
Servelec Controls especially as we look to apply our core skills,
proven solutions and delivery model into complementary vertical
markets alongside those we have traditionally focussed on. The
diversity in our pipeline coupled with greater marketplace activity
gives an encouraging view moving into 2017.
Servelec Technologies
2016 2015
(GBP'000s) (GBP'000s) % change
---------------------- ------------ ------------ ---------
Segment Revenue 17,100 16,142 6%
---------------------- ------------ ------------ ---------
Gross Profit 8,491 8,368 1%
---------------------- ------------ ------------ ---------
Underlying Operating
Profit 4,084 3,471 18%
---------------------- ------------ ------------ ---------
Net Margin 24% 22%
====================== ============ ============ =========
Order Entry 20,503 17,943 14%
---------------------- ------------ ------------ ---------
Order Bank 12,606 9,203 37%
---------------------- ------------ ------------ ---------
Positive wins in the UK underpin 2016 performance and investment
in global distribution channels positions Servelec Technologies
well for future international growth.
Introduction
Servelec Technologies provides a range of hardware and software
that delivers end-to-end data acquisition, management, presentation
and optimisation of data to make customer operations more efficient
and effective.
2016 Performance
On the back of planned sales investment in defined international
geographies, Servelec Technologies performed in line with the
revised market expectations. Servelec Technologies has delivered an
increase in revenue for the year ending December 2016 to GBP17.1m
(2015: GBP16.1m). Underlying operating profit increased by 18% from
prior year to GBP4.1m (2015: GBP3.5m). Order entry has increased
year on year by 14%.
The focus for Servelec Technologies in 2016 was on further
product integration and capitalising on global market niches where
our competitors lack a focus. To this end, we have invested in
strengthening our global sales team and brought a new Global
Channel Director into the business in June. We also strengthened
our USA sales team and made gains in expanding our reach in North
America through partnerships with new distributors who want to sell
our market leading RTU products. Broadening our international RTU
sales into previously untapped markets such as Malaysia and Vietnam
has started well and opened up additional growth opportunities for
RTUs and other products.
RTUs - UK
Delays persist in AMP6 with total expenditure ('totex') by UK
water companies 8% below that forecasted by Ofwat in 2015-2016.
This was due to a range of reasons including bringing investment
forward, adjusting plans which delayed investments and simply
inefficient spend. Ofwat has published that they do not expect
companies to continue under-spending to this extent in the
remaining years in this price review period (2016-20) so we
anticipate an increase in spend during the remainder of the AMP
period.
Of those that came to market in 2016, Servelec won five major
frameworks with UK water companies to supply Remote Telemetry Units
(RTUs). Particularly significant was the Anglian Water Framework to
supply RTUs to England's geographically largest water company.
Whilst Servelec has worked with Anglian Water for many years,
providing its MISER business Optimisation software, this is the
first time we have been selected to supply RTUs.
RTUs - Global
International product sales showed some growth in the latter
part of 2016 as evidence that the investment in global channel
partners is building momentum. Significant RTU sales via channel
partners to Beijing Gas (China), Empower (Middle East) plus a
doubling of our OEM business in North America, contributed to the
delivery of Full Year 2016.
SCADA/Telemetry
As a continuation of a customer relationship spanning over 20
years, Servelec Technologies was selected by Wessex Water to
deliver an upgrade of its SCOPE Telemetry/SCADA system. The latest
Prism5 User Interface is suitable for both control room and mobile
use and Wessex Water has been using its predecessor to monitor its
entire water and wastewater estate for over two decades.
In December, Servelec secured preferred bidder status with
Affinity Water, the UK's largest water-only supplier, to replace
their Schneider regional telemetry system with a new SCOPE SCADA
system. In addition, Servelec will replace over 350 Schneider
outstations with the Seprol S2000 range of Remote Telemetry Units
and provide 24/7 support for the scheme for the next five
years.
Outside of the UK water industry an upgrade to Heathrow
Airport's Servelec-designed SCOPE SCADA system was agreed in the
latter part of the year, with Servelec to provide a support
contract to the system for a further five years. The upgrade
includes the provision of SCOPE's latest Prism5 web user interface
which provides operators with a clear graphical visualisation of
the status of airport-wide automation systems. Servelec has
supplied Heathrow with its SCADA system since 1995 and the system
provides Heathrow's operational staff with the tools and critical
information needed to control and maintain the diverse range of
systems required to keep one of the world's busiest airports
running safely and securely.
Business Optimisation
Our range of business optimisation tools has also been gaining
traction in the UK and overseas markets. We have been working with
a new customer, Sydney Water, to undertake a 'proof of concept' of
our PIONEER software. This pilot project is running well and will
conclude in early 2017 after which, if deemed successful, we expect
Sydney Water to begin using the software across its entire network.
In Western Australia we have signed an agreement to deliver our
MISER software solution with training and consultancy services to
another new client, Perth based Water Corporation.
We are proud to have delivered operational efficiencies and
significant cost savings to Wessex Water with our innovative
Optimiser closed loop control system. Optimiser has delivered
energy cost savings of 10% at key sites for Wessex Water and also
helped them to complete the first stage of their Integrated Water
Supply Grid which is the largest and most complex project the water
company has ever undertaken.
We have also successfully delivered a number of trials of our
pioneering FlowSure software to UK water companies. These trials
have demonstrated that annual six figure net savings can be
realised by use of the software. FlowSure is self-learning anomaly
detection software that helps to identify and predict emerging
network events to enable companies to prevent rather than respond
to major events.
We are now approaching proof of concept stage for expanding the
capability of FlowSure beyond leakage by adding solution modules
for identification of other network anomalies in both clean and
waste water networks, such as water quality monitoring and
pollution event avoidance.
Despite delays persisting in the industry for longer than
initially anticipated, Servelec Technologies is well placed to
succeed in AMP6 and our expectations for this market remain
unchanged. We are well positioned having won framework contracts
with new and existing customers and there are signs that orders
through these frameworks are now coming to market.
Strategy
Our strategy is to become a global brand in real-time business
optimisation, through the delivery of a unified product set, across
a developing global distributor network.
We will deliver this through:
-- Ongoing productisation developing further intuitive, easy to
use products and off the shelf solutions that will increase
recurring licence fee revenue with a focus on high volume
sales;
-- Leveraging opportunities to cross-sell to existing customers,
ensuring a seamless process and improved interface to create a low
risk sale; and
-- Developing new markets focusing on North America, China and
the wider Asia Pacific region through a growing distributor
network.
Research & Development
Having invested in GBP1.9m (2015: GBP2.5m) in the development of
our products during 2016, we will continue to invest in the
development of our product ranges against a five-year technology
roadmap aligned with our growth strategy.
The Market in 2016
The scale of opportunity presented by the global distribution
channel of Servelec Technologies presents the greatest prospect for
organically growing our business over the next five years. With
currently only a minimal share of the global addressable market for
RTU sales we see plenty of untapped potential in a market we value
at GBP5bn over the next five years. In addition to an established
global presence, Servelec is targeting significant growth in
specific regions including North America, China, Vietnam and
Malaysia.
Servelec will continue to deliver on a strategy of sector
diversification across the product range including broadcast media,
rail, power, financial services and the environment. This will be
further enhanced in 2017.
Within the UK water market, the current five-year investment
period (AMP6) which began in April 2015 is yet to gain momentum.
Supported by the published view from Ofwat, we strongly believe
AMP6 spend will unlock further post the launch of 'Open Water' in
April 2017. 'Open Water' is the opening up of the wholesale water
market for UK business' national water procurement. This new
legislative requirement, which involves the separating out of an
independent, retail business including the IT systems which our
products interface with, has been a significant corporate
distraction for most UK Water companies. Despite the distractions,
the water companies are coming to market with their framework
contracts from which we will continue to win orders.
Delivering Opex reduction and sustainable solutions for our
customers remains a key driver for our business. As our customers
continue to strive to deliver enhanced quality of service to their
end users in a cost-effective and energy-conscious way, we are the
leading UK provider of hardware and software that can support them
in this.
Product development remains targeted towards the real-time
acquisition of data with access to data on fixed and mobile
platforms as part of a situational awareness solution, coupled with
performance dashboards which show business performance against
business KPIs in real-time.
2017 Outlook
The outlook for Servelec Technologies is very positive with
continued confidence in the key market drivers for growth. The
overarching move towards automation of national infrastructure
aligns with our product range of market-leading hardware and
software that can acquire and optimise data in order to efficiently
control assets. With our global presence we have significant
opportunity to capitalise on the opportunities available across our
entire product range.
The further investment in the productisation of our software to
develop SaaS solutions in 2016 provides increased opportunities for
global growth from associated product sales in 2017. We are closely
engaging with our global distribution channel partners to enable
them to sell the full range of our products internationally. There
is a significant untapped potential for the majority of our
products across new territories, specifically for our cloud based
business optimisation products where, in many cases, we are
creating the market globally.
We are also pursuing closer collaboration across Servelec
Automation and making strides to further integrate in order to
cross sell and up-sell more effectively, where there are common
customers or known opportunities for additional product sales
Risk Management
Servelec Group adopts a formal risk identification and
management process designed to ensure that risks are properly
identified, prioritised, evaluated and mitigated to the extent that
is possible. Risk management is embedded in the operation of the
business.
Business operations maintain risk registers compiled and
monitored by the Group Quality and Compliance Manager. The Audit
Committee reports to the Board on the risk management process
including on matters of internal audit and the evaluation of
potential impacts, both financial and reputational.
The following risks are, in the opinion of the Board, the
principal risks which affect Servelec Group. It is not intended to
be a complete analysis of all risks and may change over time.
Risk Mitigation Movement Status
---------------------------------- ------------------- ----------- ------------------------
Regulatory Changes Active No change -Continued health
to legislation consultation and safety legislation
may cause with Government and the push
customers bodies for operating
to divert and dialogue efficiencies
their spending with customers ensures spending
on the Group's on their on automation
products. expected and software
project solutions.
spend profiles. -Delays in AMP6
spending has
impacted Technologies
during 2016.
------------- ------------------- ------------------- ----------- ------------------------
Public A key driver Active Increase There is a drive
Sector of the Group's consultation to improve systems
Healthcare business with Government to meet digital
Spending is the level bodies. maturity in
of UK Government Continuous the Health
spending improvement Sector, however
on IT relating of the there are significant
to healthcare product resource challenges
delivery. offering within individual
The rate to meet Trusts which
of growth the long-term may delay procurement.
in expenditure government The Group is
on healthcare objectives. well placed
related to benefit
IT may reduce from any future
significantly. changes in funding
as the country
moves to converged
care, which
is supported
by all political
parties.
------------- ------------------- ------------------- ----------- ------------------------
Competitor The Group -- Maintain No change. HSC - We continue
Activity may face strong to perform well
significant customer in procurements
competition relationships which gives
from both and high confidence that
domestic service we are meeting
and overseas levels. customer expectations.
competitors. -- Internal Automation -
review we have received
of bid positive feedback
feedback. from customers
-- Regular regarding our
customer current product
user groups ranges.
to understand
areas of
improvement.
------------- ------------------- ------------------- ----------- ------------------------
Operational The Group's The Group No change We have successfully
business has rigorous retained our
involves testing QA accreditations
providing and review during the year.
customers processes
with highly embedded
reliable in the
software design
and hardware. and development
If the software operations
or hardware of the
contain business.
undetected It
defects maintains
the Group accredited
may Quality
fail to Assurance
meet its (QA) systems
customers' which are
performance independently
requirements checked
or otherwise on a regular
satisfy basis.
the
contract
specifications.
------------- ------------------- ------------------- ----------- ------------------------
Revenue The Group The Group No change Group policies
Recognition recognises has a strong are rolled out
and Project revenue management to new acquisitions.
Control on projects system
based on and has Improved control
the percentage regular over working
complete contract capital requirements
of the individual reviews of contract
project. with key variations.
A key element management
of this to assess
calculation the performance
is the estimation of individual
of the costs contracts.
to complete
on contracts,
which is
an inherent
risk of
project
accounting.
------------- ------------------- ------------------- ----------- ------------------------
People The ability -- The Increase Changes due
of the Group Group believes to rationalisation
to retain it has of the cost
and a flexible base can be
attract benefits unsettling to
appropriately package staff.
qualified and continually
and experienced reviews
staff is the working Improvements
key to the environment to internal
continued and overall staff
success reward communications
of the business. to staff. are being implemented
-- Each in 2017.
business
regularly
matches
the future
resource
requirements
to current
staff identifying
training
and recruitment
needs.
-- Active
Graduate
Recruitment
programme.
------------- ------------------- ------------------- ----------- ------------------------
Currency The Group -- The No change The UK's vote
is exposed Group matches to leave the
to translation the revenue EU has impacted
and transaction and costs the stability
foreign of all of Sterling.
exchange foreign
risk. currency
transactions
to eliminate,
so far
as possible,
currency
exposures.
-- Foreign
exchange
policy
is monitored
by the
finance
department
under policies
approved
by the
Board.
------------- ------------------- ------------------- ----------- ------------------------
Information Loss of -- The No change There has been
Technology data from Group adheres an increase
failure to security in high profile
of systems standard global cyber-attacks
or BS in 2016.
Cyber-attack. EN ISO27001:2013.
-- We have We use third
a tried party hosting
and tested sites for customer
business hosted solutions.
continuity
plan, physical Cyber Essentials,
access a cyber security
controls accreditation
and multiple awarded during
backups 2016.
off site.
------------- ------------------- ------------------- ----------- ------------------------
Oil Price Following Servelec Decrease Customers are
the reduction Controls starting to
in the US specialises plan
Dollar price in health projects and
of oil in and safety Servelec is
the global systems well placed
market, and automation to take advantage.
it has now which results
stabilised in operational
and so projects cost savings.
are starting
to be proposed. Servelec
Technologies
provides
hardware
and software
into the
Oil & Gas
market.
------------- ------------------- ------------------- ----------- ------------------------
Statement of the Directors' Responsibility in respect of the
Annual Report and Financial Statements
We confirm that to the best of our knowledge the accounts,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company and the
undertakings included in the consolidation taken as a whole; and
the Directors' report includes a fair review of the development and
performance of the business and the position of the issuer and
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
Annual General Meeting
The Group's Annual General Meeting will take place on Wednesday
26 April 2016 at 9.30am, at the offices of Investec, 30 Gresham
Street, London, EC2V 7QN. The chairmen of the Board's committees
will be present to answer questions put to them by shareholders.
The Annual Report and Accounts and Notice of the Annual General
Meeting will be sent to shareholders at least 20 working days prior
to the date of the meeting.
To encourage shareholders to participate in the AGM process, the
Group offers electronic proxy voting through the CREST service and
all resolutions will be proposed and voted on at the meeting on an
individual basis by shareholders or their proxies. Voting results
will be announced through the Regulatory News Service and made
available on the Group's website.
Basis of Preparation
The preliminary announcement has been prepared in accordance
with applicable International Financial Reporting Standards as
adopted by the EU and applied in accordance with the Companies Act
2006.
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 31 December 2016, as
described in those annual financial statements.
These financial results do not comprise statutory accounts
within the meaning of Section 434 of the Companies Act 2006. The
Group Income Statement, Group Statement of Comprehensive Income,
Group Statement of Financial Position, Group Statement of Changes
in Equity and Group Statement of Cash Flow and selected notes for
the year then ended have been extracted from the Group's audited
financial statements for 2016 and audited financial statements for
2015. The audited financial information contained within the
preliminary announcement for the year ended 31 December 2016 was
approved by the Board on 7 March 2017. Statutory accounts for the
year ended 31 December 2015 were approved by the Board of Directors
on 1 March 2016 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified and did
not contain any statement under Section 498 of the Companies Act
2006.
The 2016 Annual Report will be available in due course on our
website:
http://www.servelec-group.com
AR Stubbs MG Cane
Chief Executive Officer Chief Financial Officer
7 March 2017 7 March 2017
Group Income Statement
2016 2015
GBP'000 GBP'000
---------------------------------------- -------- --------
Group Revenue 60,957 63,095
Cost of Sales (32,374) (32,815)
---------------------------------------- -------- --------
Gross Profit 28,583 30,280
Selling and distribution expenses (3,441) (2,427)
Administration and other expenses
before amortisation (10,546) (11,702)
---------------------------------------- -------- --------
Underlying Operating Profit* 14,596 16,151
Non-recurring items (1,200) -
Share-based payments (523) (626)
---------------------------------------- -------- --------
EBITA** 12,873 15,525
---------------------------------------- -------- --------
Amortisation on acquired intangible
assets (3,090) (2,130)
---------------------------------------- -------- --------
Operating profit from continuing
operations 9,783 13,395
Finance costs (285) (68)
Finance income 17 37
---------------------------------------- -------- --------
Profit before taxation from continuing
operations 9,515 13,364
Income tax expense (1,816) (1,466)
---------------------------------------- -------- --------
Profit for the financial period 7,699 11,898
---------------------------------------- -------- --------
Earnings per share:
Basic earnings per share for continuing
operations 11.1p 17.1p
Diluted earnings per share for
continuing operations 10.8p 16.7p
---------------------------------------- -------- --------
* Underlying Operating Profit excludes share based payments,
non-recurring items and amortisation from acquired intangibles
**EBITA equals operating profit from continuing operations
excluding acquired intangible amortisation
Group Statement of Comprehensive Income
2016 2015
GBP'000 GBP'000
------------------------------------- --------- ---------
Profit/(Loss) for the Year 7,699 11,898
------------------------------------- --------- ---------
Exchange Differences on Translation
of Foreign Operations 672 (233)
------------------------------------- --------- ---------
Total Comprehensive Income for
the Financial Period Net of Tax 8,371 11,665
------------------------------------- --------- ---------
Group Statement of Financial Position
31 Dec 31 Dec
2016 2015
GBP'000 GBP'000
ASSETS
Non-Current Assets
Property, Plant and Equipment 3,428 3,048
Intangible Assets 69,338 47,739
Deferred Tax Asset 244 270
------------------------------- --------- ---------
Total Non-Current Assets 73,010 51,057
------------------------------- --------- ---------
Current Assets
Inventories 1,684 1,482
Trade and Other Receivables 28,268 22,151
Cash and Cash Equivalents 5,555 9,896
------------------------------- --------- ---------
Total Current Assets 35,507 33,529
------------------------------- --------- ---------
TOTAL ASSETS 108,517 84,586
------------------------------- --------- ---------
EQUITY AND LIABILITIES
Current Liabilities
Trade and Other Payables 35,088 17,372
Current Corporation Tax 235 285
------------------------------- --------- ---------
Total Current Liabilities 35,323 17,657
------------------------------- --------- ---------
Non-Current Liabilities
Provisions 201 189
Deferred Tax Liabilities 3,265 2,383
------------------------------- --------- ---------
Total Non-Current Liabilities 3,466 2,572
------------------------------- --------- ---------
TOTAL LIABILITIES 38,789 20,229
------------------------------- --------- ---------
Equity shareholders' funds
Share Capital 12,501 12,491
Share premium 3,675 3,563
Share Based Payments Reserve 1,625 1,173
Currency Translation Reserve (397) (1,069)
Retained Earnings 52,324 48,199
------------------------------- --------- ---------
Total Equity Shareholders
Funds 69,728 64,357
------------------------------- --------- ---------
TOTAL EQUITY AND LIABILITIES 108,517 84,586
------------------------------- --------- ---------
Group Statement of Changes in Equity
Share
Based Currency
Share Share Payments Translation Retained
Capital Premium Reserve Reserve Earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2015 12,491 3,563 546 (836) 39,528 55,292
--------------------- --------- --------- ---------- ------------- ---------- ---------
Profit for the
Period - - - - 11,898 11,898
Other Comprehensive
Income - - - (233) - (233)
Share Based
Payments - - 626 - - 626
Tax on Share
Based Payments - - 1 - - 1
Issue of Shares - - - - - -
Dividends - - - - (3,227) (3,227)
As at 31 December
2015 12,491 3,563 1,173 (1,069) 48,199 64,357
--------------------- --------- --------- ---------- ------------- ---------- ---------
Profit for the
Period - - - - 7,699 7,699
Other Comprehensive
income - - - 672 - 672
Share Based
Payments - - 523 - - 523
Tax on Share
Based Payments - - (71) - - (71)
Issue of Shares 10 112 - - - 122
Dividends - - - - (3,574) (3,574)
As at 31 December
2016 12,501 3,675 1,625 (397) 52,324 69,728
--------------------- --------- --------- ---------- ------------- ---------- ---------
Group Statement of Cash Flow
2016 2015
GBP'000 GBP'000
------------------------------------------- --------- ---------
Profit before Tax 9,515 13,364
Adjustments to Reconcile Profit before
Tax to Net Cash Flows:
Depreciation and Impairment of Property
, Plant and Equipment 1,110 852
Share Based Payments 523 626
Amortisation and Impairment of Intangible
Assets 3,181 2,207
Finance Income (17) (37)
Finance Costs 285 68
Movement in Provisions 12 (135)
Working Capital Adjustments
(Increase)/decrease in Trade and
Other Receivables and Prepayments (4,278) 6,043
(Increase)/Decrease in Inventories (202) (202)
Increase/(Decrease) in Trade and
Other Payables (1,707) (3,195)
Cash Flows from Operating Activities 8,422 19,591
-------------------------------------------- --------- ---------
Interest Received 17 37
Interest Paid (267) (68)
Income Tax Paid (2,700) (3,814)
Net Cash Flows from Operating Activities 5,472 15,746
-------------------------------------------- --------- ---------
Investing Activities
Purchase of property, plant and equipment
and intangibles (1,245) (1,382)
Acquisition of Subsidiary Undertaking
net of Cash Acquired (20,879) (84)
Net Cash Flows from Investing Activities (22,124) (1,466)
-------------------------------------------- --------- ---------
Financing Activities
Movement in loans 15,113 (6,901)
Dividends Paid (3,574) (3,227)
Proceeds from the issue of shares 122 -
-------------------------------------------- --------- ---------
Net Cash Flow from Financing Activities 11,661 (10,128)
-------------------------------------------- --------- ---------
Net Increase in Cash and Cash Equivalents (4,991) 4,152
-------------------------------------------- --------- ---------
Net Foreign Exchange Difference 650 (216)
-------------------------------------------- --------- ---------
Cash and Cash Equivalents at 1 January 9,896 5,960
-------------------------------------------- --------- ---------
Cash and Cash Equivalents at 31 December 5,555 9,896
-------------------------------------------- --------- ---------
Segment information
For management purposes, the Group is organised into business
units according to the nature of the products and services, and has
two divisions and three reportable segments as follows:
The HSC division develops high quality, enterprise-wide systems
for implementation across community health, mental health, child
health, social care, children's services and hospital based
services. The segment supplies software and IT solutions and
services into the healthcare and social services markets. It is
made up of three business units, Healthcare, Social Care and
Children's Services, which have been aggregated as the Board
consider that they have similar economic characteristics.
The Automation division is made up of two operating segments,
Controls and Technologies. The Controls segment is engaged in the
provision of complex, mission critical control and safety systems
to the oil and gas, power and infrastructure industries.
The Technologies segment specialises in wide area telemetry
control systems, business optimisation consultancy and remote
telemetry units to the water, oil and gas and rail industries.
Management monitors the operating results of its business units
separately for the purposes of making decisions about resource
allocation and performance assessment. Segment performance is
evaluated based on operating profit or loss, which in certain
respects, as explained in the table below, is measured differently
from operating profit or loss in the consolidated financial
statements. This measurement basis excludes the effect of central
services, non-recurring expenditure, purchased intangible
amortisation and group financing costs which are not allocated to
operating segments.
Transfer prices between operating segments are on an
arm's-length basis in a manner similar to transactions with third
parties.
The following tables present revenue and profit information for
continuing operations regarding the Group's business segments for
the years ended 31 December 2016 and 31 December 2015.
Servelec Automation
--------------------------
Servelec Servelec Servelec
HSC Controls Technologies Central Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year Ended 31
December 2016
------------------------ --------- ---------- -------------- --------- ---------
Segment Revenue 33,081 10,776 17,100 - 60,957
Cost of Sales (16,543) (7,222) (8,609) - (32,374)
------------------------ --------- ---------- -------------- --------- ---------
Gross Profit 16,538 3,554 8,491 - 28,583
Overheads (4,832) (2,020) (4,407) (2,728) (13,987)
------------------------ --------- ---------- -------------- --------- ---------
Underlying Operating
Profit by Segment 11,706 1,534 4,084 (2,728) 14,596
------------------------ --------- ---------- -------------- --------- ---------
Non-recurring
Items (629) 328 (250) (649) (1,200)
Shared Based Payments - - - (523) (523)
Amortisation - - - (3,090) (3,090)
------------------------ --------- ---------- -------------- --------- ---------
Segment Operating
Profit from continued
operations 11,077 1,862 3,834 (6,990) 9,783
------------------------ --------- ---------- -------------- --------- ---------
Servelec Automation
--------------------------
Servelec Servelec Servelec Central Total
HSC Controls Technologies GBP'000 GBP'000
GBP'000 GBP'000 GBP'000
Year Ended 31
December 2015
------------------------ --------- ---------- -------------- --------- ---------
Segment Revenue 32,532 14,421 16,142 - 63,095
Cost of Sales (16,347) (8,694) (7,774) - (32,815)
------------------------ --------- ---------- -------------- --------- ---------
Gross Profit 16,185 5,727 8,368 - 30,280
Overheads (4,105) (2,371) (4,897) (2,756) (14,129)
Shared Based Payments - - - (626) (626)
Amortisation - - - (2,130) (2,130)
------------------------ --------- ---------- -------------- --------- ---------
Segment Operating
Profit from continued
operations 12,080 3,356 3,471 (5,512) 13,395
------------------------ --------- ---------- -------------- --------- ---------
Operating assets and liability information are measured on a
Group basis and so have not been disclosed at segment level.
Adjustments and Eliminations
Segment profit for each operating segment excludes net finance
charges of GBP268,000 (2015: GBP31,000).
Geographical Analysis
2016 2015
GBP'000 GBP'000
------------------- --------- ---------
United Kingdom 50,994 51,948
Europe (excl. UK) 4,950 4,123
Middle East 560 643
Africa 76 198
Far East 2,576 4,378
Australasia 1,502 1,547
North America 299 258
------------------- --------- ---------
TOTAL 60,957 63,095
------------------- --------- ---------
Non-current assets for this purpose consist of property, plant
and equipment and intangible assets and are all located in the
United Kingdom.
Group Operating Profit
2016 2015
GBP'000 GBP'000
------------------------------------------ --------- ---------
Stated after charging
Research & Development costs Written
Off 5,151 5,532
Depreciation of property, plant
& equipment - Owned Assets 1,110 852
Amortisation of Intangibles in
Admin 91 77
Amortisation of acquired intangibles 3,090 2,130
Total Depreciation and Amortisation
Expense 4,291 3,059
------------------------------------------ --------- ---------
EY Audit of Group 65 55
EY Audit of Subsid 116 78
Total Audit 181 133
Audit related assurance services 15 15
------------------------------------------ --------- ---------
Total EY Fees 196 148
------------------------------------------ --------- ---------
Foster Raffan Auditors - Audit 6 11
Foster Raffan Auditors - Non Audit - 19
BDO - Audit 36 35
BDO - Non Audit 2 1
Ellacotts - 9
Bullimores - 13
Net gain on Foreign Currency Translation (105) (52)
Operating Lease Rentals Payable 998 1,109
Cost of Inventories recognised
as an Expense 36 35
------------------------------------------ --------- ---------
Non-recurring Items
Recognised in arriving at operating 2016 2015
profit from continuing operations GBP'000 GBP'000
------------------------------------ --------- ---------
Acquisition Costs 559 -
Aborted Acquisition Costs 90 -
Research & Development Expenditure (376) -
Credits
Restructuring costs 927 -
------------------------------------ --------- ---------
Total non-recurring items 1,200 -
------------------------------------ --------- ---------
In 2013, UK legislation changed so that UK government credits
for research & development spend are now accounted for as part
of operating profit rather than part of taxation expenses. This
treatment was optional for the first three years and has been
adopted in the 2016 accounts. Credits claimed in 2016 relating to
2014 and 2015 are included in non-recurring Research &
Development Expenditure Credits (RDEC).
During the year the Group incurred restructuring costs of
GBP927,000 (2015: Nil) in relation to redundancies and office
closures following restructures predominantly in the HSC and
Technology divisions.
Earnings per Share
Basic earnings per share amounts are calculated by dividing
profit for the year attributable to ordinary equity holders of the
parent by the weighted average number of Ordinary Shares
outstanding during the year.
The following reflects the income and share data used in the
basic earnings per share computation:
2016 2015
GBP'000 GBP'000
----------------------------------------- --------- ---------
Net Profit Attributable to Shareholders 7,699 11,898
----------------------------------------- --------- ---------
Basic Weighted average number
of shares 69,429 69,394
Dilutive potential 1,919 1,697
Diluted Weighted Average 71,348 71,091
----------------------------------------- --------- ---------
Basic earnings per share 11.1 p 17.1 p
Fully Diluted Earnings per Share 10.8 p 16.7 p
----------------------------------------- --------- ---------
The following transactions involving ordinary shares have
occurred since the reporting date and the date of completion of the
historical information:
Under the Company's SAYE scheme
-- 18 January 2017 - 10,338 shares issued
-- 1 February 2017 - 196,709 shares issued
-- 7 February 2017 - 9,049 shared issued
-- 14 February 2017 - 5,027 shares issued
-- 21 February 2017 - 5,429 shares issued
Income Tax Expense
(a) Tax charged in the Income Statement
2016 2015
GBP'000 GBP'000
--------------------------------------- --------- ---------
Current Income Tax
UK & Foreign Corporation Tax 2,772 3,012
Amounts overprovided in previous
years (155) (968)
--------------------------------------- --------- ---------
Total Income Tax on Continuing
Operations 2,617 2,044
--------------------------------------- --------- ---------
Deferred Tax
Origination and Reversal of Temporary
Difference (822) (605)
Adjustment in respect of prior
periods 21 27
--------------------------------------- --------- ---------
Total Deferred Tax (801) (578)
--------------------------------------- --------- ---------
Tax Expense in the Income Statement
on Continuing Operations 1,816 1,466
--------------------------------------- --------- ---------
(b) Tax relating to items charged or credited to equity
2016 2015
GBP'000 GBP'000
------------------------------------- --------- ---------
Deferred Tax
Tax on share based payments (71) 1
------------------------------------- --------- ---------
Total Deferred Tax (71) 1
------------------------------------- --------- ---------
Tax Expense in the Income Statement
on Continuing Income (71) 1
------------------------------------- --------- ---------
(c) Reconciliation of income tax credit/charge
The income tax expense in the income statement for the period
differs from the standard rate of corporation tax in the UK of
20.00%, (2015: 20.25%). The differences are reconciled below:
2016 2015
GBP'000 GBP'000
----------------------------------------- --------- ---------
Profit before Tax from continuing
Operations 9,515 13,364
Tax on profit on ordinary activities
at 20.0% (2015: 20.25%) 1,903 2,706
Expenses not allowable for tax
purposes 117 383
Income not taxable (94) (29)
Adjustment in respect of prior
periods (55) (941)
R&D tax credits - (312)
Losses arising in period not recognised - (28)
Other Timing Differences (132) (183)
Other/Tax Rate Change 77 (130)
----------------------------------------- --------- ---------
Total Tax Expense Reported in
the Income Statement 1,816 1,466
----------------------------------------- --------- ---------
The large companies rates was reduced to 20% from 1 April 2016.
Finance (No. 2) Act 2016 received Royal Assent on 26 October 2016
and enacted a reduction in the main rate of corporation tax to 19%
from 1 April 2017 and 17% from 1 April 2020. Deferred tax has
provided at relevant rates dependent upon the timings of
reversal.
(d) Deferred Tax
Deferred tax included in the balance sheet is as follows:
31 Dec 31 Dec
2016 2015
GBP'000 GBP'000
-------------------------------- --------- ---------
Deferred tax liability
Intangible assets 3,022 2,159
Accelerated capital allowances 243 224
-------------------------------- --------- ---------
3,265 2,383
-------------------------------- --------- ---------
Deferred Tax Asset
-------------------------------- --------- ---------
Other timing differences 244 270
-------------------------------- --------- ---------
(e) Deferred Tax in the Income Statement
2016 2015
GBP'000 GBP'000
--------------------------------------- --------- ---------
Intangible assets (681) (603)
Deferred tax liability on accelerated
capital allowances 19 132
Other Timing Difference (139) (107)
--------------------------------------- --------- ---------
(801) (578)
--------------------------------------- --------- ---------
Business Combinations
a). Acquisition of Synergy
On 1 March 2016, the Group agreed to purchase the Synergy
business from Tribal Group plc for cash consideration of
GBP20,250,000 on a cash free debt free basis. On 31 March 2016, the
trade and assets were transferred to a new company, 'Elise Newco
Limited' (now Servelec Synergy Limited).
On 1 April 2016 the Group acquired 100% of the voting shares of
Elise Newco Limited for the agreed cash consideration, less a
working capital adjustment of GBP807,000.
Synergy supplies software and IT solutions and services into
local government organisations to assist in monitoring education
and Children's Services.
The fair values of the identifiable assets and liabilities of
Servelec Synergy Limited as at the date of acquisition were:
Fair value
recognised
on
acquisition
GBP'000
--------------------------------------- -------------
Assets
Property, Plant & Equipment 222
Trade and other Receivables 1,762
Intangibles 8,350
Liabilities
Trade and Other Payables (3,364)
Deferred Tax Liability (1,503)
--------------------------------------- -------------
Total Identifiable net assets at fair
value 5,467
--------------------------------------- -------------
Goodwill arising on acquisition 13,976
Total 19,443
--------------------------------------- -------------
The goodwill of GBP13,976,000 comprises the value of the
assembled workforce and expected value of synergies. Goodwill is
allocated entirely to the HSC segment. None of the goodwill is
expected to be deductible for income tax purposes.
All receivables are expected to be collected and fair value
equals gross value. From the date of acquisition, Servelec Synergy
Limited has contributed GBP5,145,000 of revenue and a profit of
GBP2,121,000 to the profit before tax from continuing operations of
the Group.
If the combination had taken place at the beginning of the year,
Group revenue from continuing operations would have been
GBP62,470,000 and the profit before tax from continuing operations
for the Group would have been GBP10,075,000.
GBP'000
----------------------------------------- ---------
Purchase consideration
Cash paid (20,250)
Working capital adjustment 807
----------------------------------------- ---------
Total consideration (19,443)
----------------------------------------- ---------
Analysis of cash flows on acquisition
Transaction costs of the acquisition
(included in cash flows from operating
activities) (478)
Net cash acquired with the subsidiary
(included in cash flows from investing
activities) (19,443)
Net cash flow on acquisition (19,921)
----------------------------------------- ---------
The fair value of the consideration given is GBP19,443,000.
Transaction costs of GBP478,000 have been expensed and are
included in non-recurring items.
b). Acquisition of Servelec Abacus Limited
On 4 May 2016, the Group acquired 100% of the voting shares of
Target eSolutions Holdings Limited (now Servelec Abacus Holdings
Limited) and its wholly owned subsidiary company Target eSolutions
Limited (now Servelec Abacus Limited). Servelec Abacus Limited
provides an integrated suite of products, designed to manage Social
Care finance.
The provisional fair values of the identifiable assets and
liabilities of Servelec Abacus Holdings Limited and Servelec Abacus
Limited as at the date of acquisition were:
Fair value
recognised
on
acquisition
GBP'000
--------------------------------------- -------------
Assets
Property, plant & equipment 10
Trade and other receivables 76
Intangible 723
Cash and cash equivalents 164
Liabilities
Trade and Other Payables (950)
Deferred tax liability (130)
--------------------------------------- -------------
Total Identifiable net assets at fair
value (107)
--------------------------------------- -------------
Goodwill arising on acquisition 1,722
--------------------------------------- -------------
Total Consideration 1,615
--------------------------------------- -------------
The goodwill of GBP1,722,000 comprises the value of the
assembled workforce and expected value of synergies. Goodwill is
allocated entirely to the HSC segment. None of the goodwill is
expected to be deductible for Income tax purposes.
All receivables are expected to be collected and fair value
equals gross value.
From the date of acquisition, Servelec Abacus Limited has
contributed GBP650,000 of revenue and a profit of GBP116,000 to the
profit before tax from continuing operations of the Group.
If the combination had taken place at the beginning of the year,
Group revenue from continuing operations would have been
GBP61,368,000 and the profit before tax from continuing operations
for the Group would have been GBP9,512,000.
GBP'000
---------------------------------------- --------
Purchase consideration
Cash paid (1,600)
Deferred Contingent consideration (15)
---------------------------------------- --------
Total consideration (1,615)
---------------------------------------- --------
Analysis of cash flows on acquisition
Transaction costs (80)
Cash acquired (1,436)
---------------------------------------- --------
Net cash flow on acquisition (1,516)
---------------------------------------- --------
The fair value of the consideration given is GBP1,615,000.
Transaction costs of GBP80,000 have been expensed and are
included in exceptional expenses.
c). Acquisition of Aura Healthcare Limited
On 5 May 2015, the Group acquired 100% of the voting shares of
Aura Healthcare Limited (now Servelec Aura Limited) to supplement
the current healthcare offering. Servelec Aura Limited is a
developer of software for the healthcare sector that controls bed
management and patient flows across hospitals, clinics and primary
care centres enabling improved care of patients.
The fair values of the identifiable assets and liabilities of
Aura Healthcare Limited as at the date of acquisition were:
Fair value
recognised
on
acquisition
GBP'000
--------------------------------------- -------------
Assets
Property, plant & equipment 69
Trade and other receivables 520
Software 646
Liabilities
Trade and Other Payables (2,003)
Bank Overdraft (84)
Loans (901)
Deferred tax liability (123)
--------------------------------------- -------------
Total Identifiable net assets at fair
value (1,876)
--------------------------------------- -------------
Goodwill arising on acquisition 1,926
--------------------------------------- -------------
Total Consideration 50
--------------------------------------- -------------
The goodwill of GBP1,926,000 comprises the value of the
assembled workforce and expected value of synergies. Goodwill is
allocated entirely to the HSC segment. None of the goodwill is
expected to be deductible for income tax purposes.
All receivables are expected to be collected and fair value
equals gross value.
GBP'000
----------------------------------------- --------
Purchase consideration
Cash paid -
Contingent consideration 50
----------------------------------------- --------
Total consideration 50
----------------------------------------- --------
Analysis of cash flows on acquisition
Transaction costs of the acquisition
(included in cash flows from operating
activities) (73)
Net cash acquired with the subsidiary
(included in cash flows from investing
activities) (84)
----------------------------------------- --------
Net cash flow on acquisition (157)
----------------------------------------- --------
The fair value of the consideration given is GBP50,001. The
contingent consideration is dependent upon receipt of a purchase
order for Flow, which was received during the year. This was
satisfied by the issue of shares on 18 January 2016.
A further maximum amount of GBP300,000 was contingent on the
attainment of certain performance conditions over a 3 year period
ending April 2018. This was dependent upon the recipient remaining
employed with the Servelec Group and is no longer payable.
Transaction costs of GBP73,000 have been expensed and are
included in administrative expenses.
Impairment Test for Goodwill
Goodwill acquired through business combinations has been
allocated for annual impairment testing purposes to five
cash-generating units, as follows:
31 Dec 31 Dec
2016 2015
GBP'000 GBP'000
----------------------------------- --------- ---------
HSC - Corelogic 16,750 16,750
HSC - Healthcare (including Aura) 1,926 1,926
HSC - Synergy & Abacus 15,698 -
Technologies(i) 5,191 5,191
Controls 11,208 11,208
----------------------------------- --------- ---------
50,773 35,075
----------------------------------- --------- ---------
(i) Technologies includes goodwill of Servelec Systems,
Semaphore and Tynemarch previously split out but now combined into
one CGU.
The recoverable amount of a CGU is determined based on value-in
use calculations. These calculations use pre-tax cash flow
projections based on financial budgets approved by management
covering a three year period extrapolated for a further two years
assuming annual growth rates of 3% in perpetuity as an
approximation to the rate of inflation. The pre-tax cash flows for
the 5-year period have been discounted back to the period end using
weighted average costs of capital of 11.7% to 18.1%. This exercise
has confirmed that there is no impairment. Cash flows beyond the
5-year period are extrapolated using the estimated growth rates
stated in the key assumptions.
Key assumptions used in value in use calculations:
The calculation of value in use for each of the CGUs is most
sensitive to the following assumptions:
-- Discount rate 11.7% to 18.1%
-- Growth rate 3% from year 4 to perpetuity
-- Gross margins in line with current values
Discount rate
Discount rates represent the current market assessment of the
risks specific to each CGU, taking into consideration the time
value of money and individual risks of the underlying assets that
have not been incorporated into the cash flow estimates. The
discount rate calculation is based on the specific circumstances of
the Group and its operating segments and is derived from its
weighted average cost of capital (WACC).
Management has applied the same assumptions, as noted above, to
all CGUs.
Sensitivity to changes in assumptions
Synergy and Abacus recoverable amount currently exceeds its
carrying value by 3,410,000 based on a discount rate of 16.0%.
The value in use of this cash generating unit is approximately
equal to its carrying amount if a discount rate of 18.0% is applied
to the calculation.
Other cash generating units
With regards to the assessment of value in use of the other cash
generating units, management believes that no reasonable change in
any of the above key assumptions would cause the carrying amount of
the unit to materially exceed its recoverable amount.
Financial Instruments and Financial Risk Management Objectives
and Policies
Fair values
The Group's financial instruments comprise cash and cash
equivalents, trade receivables trade payables and interest bearing
loans and borrowings. The carrying value of these assets and
liabilities does not differ materially from their fair value.
Financial risk management objectives and policies
The Group is exposed to market risk, liquidity risk and credit
risk. The Group's senior management oversees the management of
these risks. This note presents information about the Group's
exposure to each of the above risks, the Group's management of
capital, and the Group's objectives, policies and procedures for
measuring and managing risk. The Board of Directors has overall
responsibility for the establishment and oversight of the Group's
risk management framework.
Capital risk management
The prime objective of the Group's capital management is to
ensure that it maintains the financial flexibility needed to allow
for value-creating investments as well as healthy balance sheet
ratios.
The Group is profitable and has high cash conversion. As a
result capital risk is not significant for the Group and
measurement of capital management is not a tool used in the
internal management reporting procedures of the Group.
The Group currently has a bank loan and has significant headroom
on the current covenants. Should additional cash be required to
fund specific projects or acquisitions the Group would fund
short-term requirements by additional external borrowings.
Market risk
Market risk is the risk that the fair value of future cash flows
of a financial instrument will fluctuate because of changes in
market prices. Key market risks affecting the Group include
interest rate risk and currency risk. Financial instruments
affected by market risk include loans and borrowings and
deposits.
Interest rate risk
The Group has minimal exposure to interest rate risk.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Group's exposure to the risk
of changes in foreign exchange rates relates primarily to the
Group's operating activities (when revenue or expense is
denominated in a different currency from the Group's functional
currency) and the Group's net investments in foreign
subsidiaries.
Exposure to foreign currency risk is monitored by the Finance
Department under policies approved by the Board. An assessment of
the risks is provided to the Board at regular intervals and is
discussed to ensure the risk mitigation procedures are compliant
with Group policy and that any new risks are appropriately
managed.
The exposure to a short-term fluctuation in exchange rates on
the investment in foreign subsidiaries is not expected to have a
material impact on the results of the Group.
Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its operating activities (primarily for trade receivables) and
from its financing activities, including deposits with banks and
financial institutions, foreign exchange transactions and other
financial instruments.
The Group's principal financial assets are cash and cash
equivalents and trade and other receivables, which represent the
Group's maximum exposure to credit risk in relation to financial
assets. The Group's credit risk is primarily attributable to its
trade and other receivables. The requirement for an impairment is
analysed at each reporting date on an individual basis for major
customers. Additionally, minor receivables are grouped together
into homogenous groups and assessed for impairment collectively.
The calculation is based on actual historical data.
The Group has adopted a policy of only dealing with creditworthy
counterparties as a means of mitigating the risk of financial loss
from defaults. The carrying amount of financial assets recorded in
the financial statements, which is net of impairment losses,
represents the Group's maximum exposure to credit risk.
At 31 December 2016 there was one customer owing GBP3,179,000 of
trade receivables (31 December 2015: no single customer owing a
significant proportion of trade receivables).
GBP3,179,000 (as noted above) is included in trade receivables
relating to invoices raised for work done on a Combined Heat and
Power plant in the Mardin region of Turkey. Deferred revenue of
GBP570,000 has been included in accruals and deferred income
resulting in an exposure of GBP2,609,000 as at 31 December 2016.
This exposure relates to revenue and profits taken in 2015 and
collection of the debt has been delayed due to additional financing
requirements of the end customer. Full recovery of the debt is
expected and we are in constant dialogue with the end client and
its banker to resolve the situation. Work has been performed in
January 2017, which successfully confirmed generation of the power
plant to the Turkish Electricity grid. The Board is monitoring
events closely and is encouraged by the level of interaction
between all parties together with the need for electricity
generation in the region.
Liquidity risk
The table below summarises the maturity profile of the group's
financial liabilities at 31 December 2016 and 2015 based on
contractual undiscounted payments.
On Less than
demand 1 year Total
GBP'000 GBP'000 GBP'000
---------------------------- --------- ---------- ---------
31 December 2015
Trade and other payables 4,760 12,612 17,372
31 December 2016 -
Trade and other payables 5,831 14,144 19,975
Interest bearing loans and
borrowings 15,113 - 15,113
---------------------------- --------- ---------- ---------
20,944 14,144 35,088
---------------------------- --------- ---------- ---------
Management reviews the liquidity position of the Group on a
regular basis from KPI and other management information. All
liabilities are due within 1 year and it is therefore considered
unlikely that any would be settled significantly earlier than
indicated.
During the year the Group took out a loan with Lloyds Bank plc
consisting of a revolving credit facility of GBP20,000,000 and
accordion of GBP10,000,000 which has a termination date of 1 March
2019. Interest is charged quarterly based on LIBOR plus a margin of
between 1.00% and 1.95% depending on the Group's leverage ratio for
the relevant period.
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying amounts
and fair values of all the Group's financial instruments that are
carried in the financial statements.
Carrying Amount Fair Value
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------------------- --------- ---------
Assets
Cash and cash equivalents 5,555 9,896 5,555 9,896
Trade and other payables 26,166 21,152 26,166 21,152
---------------------------- --------- --------- --------- ---------
Liabilities
Current
Trade and other payables (18,185) (14,994) (18,185) (14,994)
Bank Loan (15,113) - (15,113) -
Non-current
Dilapidation provision (201) (189) (201) (189)
---------------------------- --------- --------- --------- ---------
For all financial instruments, their carrying amount
approximates to fair value.
Issued Capital and Reserves
Authorised Shares
31 Dec 31 Dec
2016 2015
Thousands Thousands
------------------------------------- ----------- ------------ ----------- -----------
Ordinary Shares of 18
pence each 69,448 69,394
------------------------------------- ----------- ------------ ----------- -----------
Ordinary Shares Issued 31 Dec 31 Dec 31 Dec 31 Dec
and Fully Paid 2016 2016 2015 2015
Thousands GBP'000 Thousands GBP'000
------------------------------------- ----------- ------------ ----------- -----------
Share capital
Shares at beginning
of the period 69,394 12,491 69,394 12,491
Shares issued 54 10 - -
------------------------------------- ----------- ------------ ----------- -----------
Shares at end of period 69,448 12,501 69,394 12,491
------------------------------------- ----------- ------------ ----------- -----------
31 Dec 31 Dec
2016 2015
GBP'000 GBP'000
------------------------------------- ----------- ------------ ----------- -----------
Share premium
Shares at the beginning
of the period 3,563 3,563
Shares issued 112 -
------------------------------------- ----------- ------------ ----------- -----------
3,675 3,563
------------------------------------- ----------- ------------ ----------- -----------
In 2016, the following ordinary shares were
issued with a nominal value of 18p each:
Market
value
Date issued Number per share
------------------------------------- ----------- ------------ ----------- -----------
18 January
Ordinary shares issued 2016 16,384 305p
------------------------------------- ----------- ------------ ----------- -----------
14 April
Ordinary shares issued 2016 2,317 380p
------------------------------------- ----------- ------------ ----------- -----------
16 December
Ordinary shares issued 2016 34,470 240p
------------------------------------- ----------- ------------ ----------- -----------
Share-based Payments
Group Executive Share Option Plan
In November 2013 Servelec Group plc introduced an executive
share option plan. Share options are granted to employees, as
determined by the Remuneration Committee and only vest in
accordance with the performance conditions of each executive as
determined by the Remuneration Committee. The options cannot be
exercised within three years and have a maximum life of 10 years.
The option will be settled by the issue of new shares and there are
no cash settlement alternatives.
Vesting Expiry
Number Exercise period period
Date granted granted price years years
------------------ -------------- --------- --------- -------- --------
Options granted 8 April
during the year 2016 450,000 GBP3.85 3 10
------------------ -------------- --------- --------- -------- --------
Save-As-You-Earn (SAYE) Scheme
In November 2013, Servelec Group plc introduced a SAYE scheme
which was conditional upon admission to the London Stock Exchange.
Under the scheme employees may elect to save between GBP5 and
GBP500 per month.
Vesting Expiry
Number Exercise period period
Date granted granted price years years
--------- -------- --------
Options granted 4 November
during the year 2016 307,307 GBP2.14 3 3.5
------------------- ------------ --------- --------- -------- --------
Long-term Incentive Plan
In November 2013, Servelec Group plc introduced an LTIP share
option scheme for granting options to senior executives, as
determined by the Remuneration Committee. The exercise price of the
options is Nil. The options only vest in accordance with the
performance conditions for each executive as determined by the
Remuneration Committee. The options cannot be exercised within
three years and have a maximum life of 10 years. The option will be
settled by the issue of new shares and there are no cash settlement
alternatives.
Vesting Expiry
Number Exercise period period
Date granted granted price years years
------------------ -------------- --------- --------- -------- --------
Options granted 8 April
during the year 2016 118,701 GBPnil 3 10
------------------ -------------- --------- --------- -------- --------
Deferred Share Bonus Plan (DSPB)
Share awards were granted to senior executives by the
Remuneration Committee. The exercise price of the awards will be
subject to time pro rating.
Vesting Expiry
Number Exercise period period
Date granted granted price years years
------------------ -------------- --------- --------- -------- --------
Options granted 8 April
during the year 2016 19,822 GBPnil 2 10
------------------ -------------- --------- --------- -------- --------
The following table summarises the number and weighted average
exercise prices (WAEP) of and movements in, share options during
the year.
2016 2015
2016 WAEP 2015 WAEP
No (GBP) No (GBP)
----------------------------- ---------- ------- ---------- -------
Outstanding as at 1 January 2,062,552 1.61 1,228,101 1.21
Granted during the year 895,830 2.67 941,605 2.25
Exercised during the
year (37,903) 1.79 - -
Performance condition
expired (833,713) 3.07 (107,154) 2.62
----------------------------- ---------- ------- ---------- -------
Outstanding at 31 December 2,086,766 1.51 2,062,552 1.61
----------------------------- ---------- ------- ---------- -------
There are no options exercisable at the year end.
The following table lists the inputs to the models used.
2016 2015
------------------------- ------ ------
Dividend yield 1.5% 1.5%
Volatility 0.3 0.3
3.5 - 3.5
10 - 10
Expected life of option Years Years
Share price at:
23 April 2015 - 2.80
29 October 2015 - 3.21
8 April 2016 3.85 -
4 November r106 2.47 -
Risk-free rate 1.37% 1.79%
------------------------- ------ ------
The expected life of the options has been estimated as six
months following exercise date. As there is little historical data
the volatility has been estimated at 0.35 based on similar quoted
companies.
The fair value of the share options is measured at the grant
date taking into account the terms and conditions upon which the
instruments were granted. The cost of the options is recognised
over expected vesting period. Until the liability is settled it is
re-measured at each reporting date with changes in fair value
recognised in profit or loss.
The expense recognised during the year to 31 December 2016 is
GBP523,000 (31 December 2015: GBP626,000).
<ENDS>
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DMGGFNVKGNZM
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