Source - RNS
RNS Number : 1272J
Servelec Group plc
07 September 2016
 

7 September 2016

Servelec Group PLC

("Servelec" or the "Company")

Half year results for the six months to 30 June 2016

On track for Full Year delivery despite difficult First Half

Servelec Group plc ("Servelec" or the "Group"), the UK-based technology group which provides software, hardware and services predominantly to the UK Healthcare, Local Government, Oil & Gas, Nuclear, Power and Utilities sectors, today announces its results for the six months ended 30 June 2016.

FINANCIAL HIGHLIGHTS

 

Six months to 30 June

 

 

2016 (£m)

2015 (£m)

Change (%)

Revenue

Underlying operating profit*

Operating profit from continuing operations

Profit before tax from continuing operations

Order entry**

Cash flow from operating activities

Net debt / (net cash)

Adjusted diluted earnings per share***

Basic earnings per share

Dividend per share

Notes:     *              after adding back exceptional costs, amortisation on acquired intangibles and share based payments   expense.

**            order entry is the total contract value of revenue from an order received in the period.

***          after adding back exceptional costs, amortisation on acquired intangibles, share base payments and the related tax adjustment

OPERATIONAL SUMMARY

Trading is in line with the revised Board expectations that follow from the trading update announced on 15 June 2016.  Following the slippage in contracts management swiftly took action to reallocate resources to focus more on sales and reduced project implementation and other costs. These actions are already yielding the anticipated benefits

Alan Stubbs, Chief Executive Officer, commented:

"The Board is positive about the long term prospects for Servelec Group.  Swift action has been taken to strengthen our sales team and reduce implementation resources in Healthcare and to reallocate resources across Controls and Technologies whilst maintaining our ongoing focus on reducing costs. Coupled with recent contract wins we are confident in achieving the revised market expectations for the year. Large contract wins in H2, which will be executed during 2016, 2017 and beyond together with a growing pipeline of opportunities mean that we are on track to return to growth in 2017.

The events which triggered the previous trading update are issues of timing. The long term structural demand for our technology, products and services remains.  Our customers value our products, services and our people such that Servelec continues to be their first choice when opportunities come to market."

In the first half of 2016, Servelec recorded a number of contract wins across the business which will positively impact H2 2016.

Health & Social Care

·    Healthcare maintained a high win rate including contracts for RiO systems into North Devon Healthcare NHS Trust and Shropshire Community Health NHS Trust.

·    Healthcare sold its first RiO system into the Republic of Ireland, to St Patrick's Mental Health Services, a market opened up to Servelec post the 2015 acquisition of Aura.

·     Servelec Corelogic won five of the seven contracts that came to market in the period with its Mosaic case management suite.

·    Following the acquisition of Synergy in March 2016 three major contracts were won with Durham County Council, Stockport Metropolitan Borough Council and Medway Council. Product extensions were signed with Kent County Council and Rotherham Metropolitan Borough Council.

Automation

·    Servelec Controls (Power & Nuclear) gained further momentum including contracts won with Sellafield Ltd and SSE Generation Ltd.

·   Important contracts were won by Servelec Technologies as part of the AMP6 programme, including supplying up to £5m of RTUs to Anglian Water and upgrading Wessex Water's SCADA / Telemetry system.

·   International RTU sales continue to deliver positive results in Europe, specifically in telecoms and broadcast communications with Servelec's TBox products.

POST PERIOD UPDATE

Servelec has won a number of important new contracts since the period end. These wins reassure the Board for the Full Year and into 2017/18.

Health & Social Care

Since the period close the Health & Social Care business has:

·    Won a RiO system into Lancashire Care NHS Foundation Trust and also won a significant RiO contract with NHS Scotland to provide systems across Scottish Child Health in the whole of Scotland. This signals a move into the wider UK geography with RiO and enables further opportunities in Scotland as the project gains referenceability.

·   Completed a successful pilot of Flow in Wales' Betsi Cadwaladr University Health Board, which will provide further scope for increased sales into Wales.

·     Won an additional three contracts for Mosaic with local authorities in the south-west of England and one in the Channel Islands as well as the previously announced win with Cambridgeshire County Council.

Automation

· Servelec Controls (Oil & Gas) has won a framework contract with National Grid which positions the company well for future contract tenders.

·   Servelec Controls (Power & Nuclear) has won a significant contract to upgrade a Westinghouse control system at Sizewell B.

·   Wessex Water and a number of other water company clients have given Servelec framework contract extensions of between two and five years removing the need to re-tender for this work.

 

 

For further enquiries, please contact:

 

Servelec Group plc

 

Alan Stubbs, Chief Executive Officer

Mike Cane, Chief Financial Officer

Pamela Weeks, Head of Corporate Communications

 

 

+44 (0) 1246 437 400

 

Investec Bank plc

Dominic Emery / Sebastian Lawrence

Patrick Robb / Matt Lewis

 

 

+44 (0) 207 597 4000

Tulchan Group

 

James Macey White

 

Nick Hennis

 

 

+44 (0) 20 7353 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 and gas, nuclear, power, water, utilities and broadcast sectors.

 

Servelec has two operating divisions; Servelec Health & Social Care and Servelec Automation:

 

-  Servelec Health & Social Care specialises in the design, development and implementation of Electronic Patient Record (EPR), Patient Administration Systems (PAS), bed management software and Social Care Case Management software within secondary care and social care 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 and gas, nuclear, power, water, utilities and broadcast industries.  Servelec Automation also provides services from consultancy through to design, implementation, delivery, installation and on-going customer support and maintenance. 

 

 

 

CHIEF EXECUTIVE'S REVIEW

The Board is positive about the long-term prospects for Servelec Group.  Swift action has been taken to strengthen our sales team and reduce implementation resources in Healthcare and to reallocate resources across Controls and Technologies whilst maintaining our ongoing focus on reducing costs. Coupled with recent contract wins we are confident in achieving the revised market expectations for the year. Large contract wins in H2, which will be executed during 2016, 2017 and beyond together with a growing pipeline of opportunities mean that we are on track to return to growth in 2017.

The events which triggered the previous trading update are issues of timing. The long term structural demand for our technology, products and services remains.  Our customers value our products, services and our people such that Servelec continues to be their first choice when opportunities come to market.

Our Health & Social Care business has seen a short-term contraction in previously anticipated client tendering activity but the positive momentum in our Social Care and Children's Services market is continuing and this is an area that we strengthened through acquisition during this period. Our Automation business was impacted by delays in large projects in the Controls (Oil & Gas) business as well as a continued delay in the UK water industry's AMP6 procurement cycle. International sales of Remote Telemetry Units (RTUs) continue to be strong and order entry for Controls (Power & Nuclear) is above FY 2015 levels at the Half Year.

Overall, Group revenue decreased by 5% to £28.4m (H1 2015: £30.0m).   Underlying operating profit fell 29% to £4.5m (H1 2015: £6.3m).  Order entry reduced by 15% to £37.4m (H1 2015 £44.1m) as market conditions impacted the half year in both areas of the business.  Cash generation from operations reduced to £1.6m (H1 2015: £11.2m) partly impacted by the integration of finance systems into the Synergy business upon acquisition in April but also due to the timing of some milestone payments in H1 for our Social Care business which will unwind in the second half.  The cash position moved to a net debt position of £13.0m (H1: 2015 cash balance of £5.7m) due to costs of acquisitions in the half year amounting to £20.9m.

Health & Social Care

 

 

H1 2016 (£m)

H1 2015 (£m)

Change (%)

Revenue:

15.0

15.6

(4)%

Operating profit:

4.2

4.8

(13)%

Order entry:

19.8

28.4

(30)%

Order bank:

56.7

62.3

(9)%

Our Health & Social Care division performed below original expectations in the first half of the year with operating profit decreasing to £4.2m (H1 2015: £4.8m).  Revenue was behind prior year at £15.0m (H1 2015: £15.6m).  The main impact was the UK Government's decision to delay the Northern 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. Order entry in the first half of the year was 30% behind that in the corresponding period meaning our order bank reduced to £56.7m (H1 2015: £62.3m). 

 

Healthcare

It has been a mixed first half for Servelec Healthcare.  The business maintained a high win rate on available North New opportunities, winning all three contracts awarded in the UK in the period as well as winning one Mental Health system in the Republic of Ireland. However, much of this momentum was moderated by the delays with the North Refresh as previously disclosed.

In the Acute market, Servelec began the implementation of Oceano into three hospitals and 16 minor injury units across Royal Cornwall Hospitals NHS Trust, providing a valuable reference site for this product.

The Flow product, acquired in 2015, continued to be sold both as part of our RiO and Oceano systems and on a standalone basis. Part of the rationale behind the acquisition was the potential for it to allow us to enter new geographies.  We are pleased with the traction we are beginning to get through Flow, specifically in Ireland and Wales which we see as promising geographies for us.  Plans are in place to capitalise on these opportunities through the second half of the year and into 2017.

Social Care

The Social Care market remained strong and Servelec continued to gain market share by winning a high percentage of those local authorities that came to market. There is continued system refresh by local authorities in line with the Childcare Act 2014 which requires them to have modern case management systems to provide better care and improved outcomes for young people.  Revenue from the Social Care market's perpetual licensing model is low in H1 as the majority of renewals fall in H2.

In 2016, Servelec made two strategically important acquisitions, Synergy and Abacus, to substantially strengthen its product portfolio and customer reach within Local Government.  These two acquisitions have both been successfully integrated into the Group and the focus now is to collaboratively develop a market leading, integrated product portfolio.  We are pleased with the progress to date. The combined business allows for increased cross-selling opportunities to existing customers as well as growth opportunities through the continued pursuit of competitors' market share in the local government and children's services markets.

Converged Care

Whilst there are currently no government-led opportunities around Converged Care, we have seen interest from existing customers in piloting new ways of working to satisfy the requirements of this Government-backed initiative.  The acquisition of Synergy in March 2016 is entirely consistent with the direction of travel in our markets, providing customers across healthcare, social care and children's services with real-time information aimed at providing the best possible outcomes for adults, children and families. We strongly believe this is a market that will continue to develop and one where we see ourselves as well-placed and more strongly positioned with in-house capability than many of our competitors.

HEALTH & SOCIAL CARE - POST PERIOD UPDATE

Government funds, in excess of £1bn, are to be made available from mid-2017 to incentivise the Trusts with available budgets to upgrade their systems to help achieve the Government's goal of Digital Maturity for the NHS.

The business is capitalising on markets in other parts of the British Isles to help mitigate the challenges brought about by the Northern Refresh being subsumed within the "Digital Maturity by 2020" target. This is bearing fruit with contract wins recently awarded in Scotland and the Republic of Ireland. Specifically, the contract win with NHS Scotland for the provision of a RiO system across Scottish Child Health Services provides a springboard to future growth in Scotland when referenceable.

Automation

The Automation business performed below our original expectations.  Operating profits decreased to £1.7m (H1 2015: £3.0m).  Profit performance was down in both Controls and Technologies, due to delays in large project order entry during the first half of the year and the water companies' capital expenditure plans under AMP6 being much slower to get started than originally anticipated.  Revenue across the division was down 7% to £13.4m (H1 2015: £14.4m).  However, certain aspects of order entry across both businesses has increased by 13% due to a heightened focus on addressable markets within our Controls (Power & Nuclear) business and a pleasing upturn in European sales of our RTU products. Whilst the order bank increased by 25% from the end of 2015, demonstrating that market conditions are starting to improve, growth for the division is behind original market expectations due to the delays in Oil & Gas projects and sales of RTU products in the UK.

Servelec Controls

 

H1 2016 (£m)

H1 2015 (£m)

Change (%)

Revenue:

Operating profit:

Order entry:

Order bank:

 

 

Servelec Controls operating profit was down 60% to £0.4m (H1 2015: £1.0m) and revenue down 14% to £5.4m (H1 2015: £6.3m).  Order entry and order bank remained broadly flat. However, Controls (Power & Nuclear) 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 a major energy supplier to provide enabling works for a broader project involving offshore automation that will in the future lead to remote operations via onshore automation. This gives us confidence that larger orders will materialise in the future.

 

In May 2016, the Combined Heat and Power installation in Turkey was signed off by the relevant and necessary authorities as being able to generate power for the grid. However, given the recent highly publicised instability in the region, the finalisation of the project has been delayed. Prior to 31 December 2015, Servelec had recognised £4.0m revenue and received £1.3m of cash, leaving £2.7m in amounts receivable.  As at 30 June 2016, £2.6m remains outstanding. The Board expects that the project will continue to a successful outcome and all sums will be recovered.

 

In Power & Nuclear, 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 in H1 2016 was higher than the whole of 2015 and the pipeline of opportunities continues to expand giving a solid platform for continued growth in the future.

 

 

CONTROLS - POST PERIOD UPDATE

 

In Oil & Gas, a renewed focus on sales 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.

 

In Power & Nuclear, the business has also been awarded a contract to upgrade a Westinghouse control system for Sizewell B.

 

Servelec Technologies

 

 

H1 2016 (£m)

H1 2015 (£m)

Change (%)

Revenue:

Operating profit:

Order entry:

Order bank:

 

Servelec Technologies has delivered broadly flat revenue for the first half of the year at £8.0m (H1 2015 £8.1m) as a result of a continued focus on the international distribution channels.  Profit has reduced by 36% from prior year to £1.3m (H1 2015 £2.0m) as gross margins in H1 2015 benefited from the release of a provision held against a single contract, which was successfully completed in the period. Whilst order entry and order bank have increased significantly year on year (by 24% and 30% respectively) these levels are below our original expectations. However, it does demonstrate the reasons behind our optimism in the markets that Technologies serves as we continue to focus on sales.

In the half year, we have won a major framework contract with Anglian Water to supply Remote Telemetry Units (RTUs). Servelec currently supplies Anglian Water with its MISER business optimisation software, however, this is the first time Servelec has won a contract to supply them with RTUs. Other framework contracts with UK water companies are also being renewed for up to five years rather than Servelec having to retender for this work. Despite delays persisting in the industry for longer than initially anticipated, Servelec Technologies is well placed to succeed in AMP6. Overall, our expectations for AMP6 remain unchanged. We are well positioned having won framework contracts with new (specifically Anglian Water and Northumbrian Water) and existing customers but orders through these frameworks are delayed in coming to market.

International RTU sales are positive with large orders placed across Europe in both of our core markets of rail and broadcast.

Sales of central telemetry / SCADA systems are ongoing with a significant order placed by Wessex Water for an upgrade to their system to Scope5 following an extensive exercise in benchmarking it against other products available in the market. This demonstrates that product development in this area is reaping rewards as is our ongoing focus on our UK Water customer base.

Business optimisation products continue to show great promise with recent international sales and a successful pilot of our PIONEER product with Sydney Water in Australia.

 

TECHNOLOGIES - POST PERIOD UPDATE

We are positioned well on frameworks for RTU sales into AMP6 and orders are beginning to come through for RTUs as well as for the SCADA and telemetry systems. 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 are winning orders.  We believe that the challenges posed by 'Open Water' are also delaying sales of our business optimisation products.

Broadening our international RTU sales into previously untapped markets such as Malaysia and Vietnam has started well and opened up additional growth opportunities. We are also looking to expand our reach in North America through partnerships with new distributors who want to sell our market leading RTU products.

Servelec Group Outlook

Increasingly positive signs are apparent that the pent-up demand in our markets will start to unlock at the end of 2016 and into 2017.

Good opportunities for Healthcare exist for both our core products, RiO and Oceano.  In England, Servelec will continue to bid for available RiO sales tenders that come to market.  This includes a number of contracts where the systems procured in the very early days of 'North New' have not met expectations, resulting in these Trusts coming out to tender sooner than anticipated.  We are also seeing opportunities in Scotland and Ireland with recent successes in both of these areas.  Sales also continue of additional functionality to existing customers with the company's enhancements to enable mobile working of healthcare practitioners. The Group believes that the Government is committed to its Digital Maturity agenda and Servelec is aligning its Acute sales team with the Government objective for Trusts to reach Digital Maturity by 2020.

The business will also maintain a focus on bidding the available opportunities that come to market as well as maintaining strong account management relationships with existing customers. Sales into Local Government, Social Care and Children's Services remain positive and the market continues to source modern solutions as customers seek to upgrade and integrate their systems to achieve a more holistic picture and enable better patient outcomes.

In Automation, we are seeing a growing pipeline of prospects and an increasing focus on cost savings by our customers across each core market.  Our ability to deliver strong Opex reduction means we are well positioned within these markets and we anticipate 2017 will see increased demand for our products from customers with secured spend.  

The Board remains positive about the outlook for Servelec with opportunities for growth in all areas of the business. The Company is in a robust financial position with a strong balance sheet. Net debt at the half year is £13m which is expected to reduce substantially on the back of cash collection in the business during the remainder of 2016.

CHIEF FINANCIAL OFFICERS REVIEW

The Group has traded behind original expectations in the first half of 2016 which has impacted both underlying operating profit and revenue.  Underlying operating profit decreased 28% to £4.5m (H1 2015: £6.3m) and decreased by 43% when adjusting for the contribution from acquisitions of £0.9m.  Expensed R&D costs increased to £2.8m (H1 2015: £2.4m) reflecting the continued investment in our core products. 

Revenue decreased by 5% to £28.4m (H1 2015: £30.0m), which included £2.0m contribution from the acquisitions of Synergy in April 2016 and Abacus in May 2016. On a like for like basis, organic revenue decreased by 12%.

Overheads have benefitted from cost reduction activity undertaken in the first half of 2016 as they are broadly flat across the Group including the increase due to acquisitions (H1 2016: £7.2m vs H1 2015: £7.4m).  The cost of the staff reductions in Healthcare has been taken as an exceptional cost along with the expenses incurred on acquisitions.

Exceptional costs of £0.9m (H1:2015 £nil) were incurred in the period.  £0.6m related to the costs associated with acquisitions and the remaining £0.3m relates to the costs of restructuring following the trading update issued on 15 June 2016.

Amortisation has increased to £1.4m (H1 2015: £1.1m) due to the acquisition of Synergy and the share based payment charge has increased slightly to give an overall operating profit of £1.8m (H1 2015: £4.9m).

The effective tax rate for the period is 20% (H1 2015: 24%) due to a one off benefit in Belgium and on R&D expenditure resulting in a profit in the financial period of £1.4m.

Adjusted diluted EPS has decreased to 4.9p (H1 2015: 6.7p), see Note 6.

Cashflow was disappointing in the first half of 2016 at £1.6m (H1:2015: £11.2m) with a cash conversion of 38% (H1 2015: 168%) and below our target of 80% cash conversion.  This was partly due to the implementation of systems for the Synergy acquisition but also due to the timing of milestone payments in our Social Care segment, neither of which are expected to impact FY 2016 delivery on revised expectations.  2015 benefited from the final payments of the National Programme for IT contract and was always credited as an exceptional year of cash collection.

Net debt at June 2016 is £13.0m, compared to a cash balance of £5.7m in H1 2015 (£9.9m at December 2015), following the drawdown of £15.1m of a newly established, secured revolving credit facility.  The loan together with £5.8m of cash was used to acquire Synergy and Abacus (see note 13, 14) in the period.

Capital expenditure is the same as 2015 at £0.9m (H1 2015: £0.9m) and reflects the further set up of hosting environments in the Health and Social Care division, including the Synergy acquisition.

 

 

DIVIDEND

The Board has declared an interim dividend of 1.65p per share to be paid on 28 October 2016 to shareholders on the register at the close of business on 30 September 2016.

RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results.  The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2015.  A detailed explanation of the risks summarised below, and how the Group seeks to mitigate the risks, can be found on page 32 to 34 of the annual report which is available at www.servelec-group.com

Regulatory

Changes to legislation may cause customers to divert their spending on the Group's products.

Public Sector Healthcare Spending

A key driver of the Group's business is the level of UK Government spending on IT relating to healthcare delivery.  The Government's decision to delay the funding available for the Northern Refresh and roll this into Digital Maturity by 2020 clearly impacted our outlook. This risk has been mitigated by reforecasting and we now consider there to be a low risk of any further retraction in spend.

Competitor Activity

The Group may face significant competition from both domestic and overseas competitors.

Operational

 

The Group's business involves providing customers with highly reliable software and hardware.  If the software or hardware contain undetected defects, the Group may fail to meet its customer's performance requirements or otherwise satisfy the contract specifications.

 

Revenue recognition

 

The Group recognises revenue on projects based on the percentage complete of the individual project.  A key element of this calculation is the estimation of the costs to complete on contracts, which is an inherent risk of project accounting.

 

People

The ability of the Group to retain and attract appropriately qualified and experienced staff is key to the continued success of the business.

 

 

Currency

 

The Group is exposed to translation foreign exchange risk. The annual report highlighted the potential impact of the EU Referendum result however the longer term implications and timeframe for any net effect is yet to be realised.

 

The Board is monitoring the impact of 'Brexit' on the Group's activities but has not identified any direct impact to date.

 

Information Technology

 

Loss of data from failure of systems or cyber-attack.

 

Oil Price

 

The US $ price of oil in the global market continues to remain at a low level, which may delay the start of major projects.   The Board has factored the impact of delays to large projects in the recent profit warning.

Going concern

As stated in note 2 to the condensed financial statements, the directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report.  Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

 

Servelec Group plc

Statement of directors' responsibilities

The directors confirm that to the best of their knowledge:

·      the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

·      the interim management report includes a fair review of the information required by: 

 

a)     DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

b)     DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

The directors of Servelec Group plc are listed in the Annual Report for the year ended 31 December 2015. A list of current directors is maintained on the Group website at www.servelec-group.com

By order of the Board

 

 

Alan Stubbs                                          Mike Cane

Chief Executive                                    Chief Financial Officer

 

 

 

 

 

 

 

 

Servelec Group plc

Independent Review Report to Servelec Group plc

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the condensed Group income statement, the condensed Group statement of comprehensive income, the condensed Group statement of financial position, the condensed Group statement of changes in equity, the condensed Group cash flow statement and the related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

 Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Ernst & Young LLP

Leeds

7 September 2016

 

 

Servelec Group plc

Condensed Group income statement

For the six months ended 30 June 2016

 

 

 

Note

 

30 Jun 2016 (Unaudited) £'000

 

30 Jun 2015

(Unaudited)

£'000

Year ended

31 Dec 2015

 

£'000

 

 

 

 

Revenue

3

28,377

30,006

63,095

Cost of sales

 

(16,650)

(16,393)

(32,815)

Gross profit

 

11,727

13,613

30,280

Selling and distribution expenses

 

 

(1,492)

 

(1,148)

 

(2,427)

Administration and other expenses before amortisation

 

4

 

(7,019)                                     

 

(6,475)                                     

 

(12,328)

EBITA*

 

3,216

5,990

15,525

Amortisation on acquired intangible assets

 

(1,388)

(1,113)

(2,130)

Operating profit from continuing operations

 

1,828

4,877

13,395

Finance costs

 

(99)

(54)

(68)

Finance income

 

2

21

37

Profit before taxation from continuing operations

 

 

1,731

 

4,844

 

13,364

Income tax expense

8

(346)

(1,162)

(1,466)

Profit for the financial period from continuing operations

 

 

1,385

 

3,682

 

11,898

 

 

 

 

 

Earnings per share:

6

 

 

 

Basic earnings per share for continuing operations

 

2.0p

5.3p

17.1p

Diluted earnings per share for continuing operations

 

                1.9p

                 5.2p

       16.7p

Adjusted basic earnings per share **

 

                5.1p

                 6.9p

       20.3p

Adjusted diluted earnings per share**

 

                4.9p

                 6.7p

     219.8p

* EBITA equals operating profit from continuing operations excluding amortisation on acquired intangibles.

** After adding back exceptional costs, amortisation on acquired intangibles, share based payments expense and the related tax adjustment.

Servelec Group plc

Condensed Group statement of comprehensive income

For the six months ended 30 June 2016 

 

 

 

 

 

Note

 

30 Jun 2016 (Unaudited) £'000

 

30 Jun 2015

(Unaudited)

£'000

Year ended

31 Dec 2015

 

£'000

 

 

 

 

 

 

 

 

 

Profit for the financial period

 

1,385

3,682

11,898

Other comprehensive income to be reclassified through the income statement

 

 

 

 

Exchange differences on translation of foreign operations

 

524

257

(233)

Total comprehensive income for the financial period, net of tax

 

 

1,909

 

3,939

 

11,665

 

 

            

 

 

 

Servelec Group plc

Condensed Group statement of financial position         

  

 

 

 

 

Note

 

30 Jun 2016 (Unaudited) £'000

 

30 Jun 2015

(Unaudited)

£'000

 

Year ended

31 Dec 2015

£'000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

9

3,615

3,171

3,048

Intangible assets

13, 14

70,986

47,506

47,739

Deferred tax asset

 

77

22

270

Total non-current assets

 

74,678

50,699

51,057

Current assets

 

 

 

 

Inventories

 

1,682

1,380

1,482

Trade and other receivables

 

27,247

23,018

22,151

Cash and cash equivalents

 

2,154

5,662

9,896

Total current assets

 

31,083

30,060

33,529

TOTAL ASSETS

 

105,761

80,759

84,586

EQUITY AND LIABILITIES

 

 

 

 

Current Liabilities

 

 

 

 

Trade and other payables

 

22,385

18,451

17,372

Loans and borrowings

10

15,113

-

-

Current corporation tax

 

-

2,509

285

Total current liabilities

 

37,498

20,960

17,657

Non-current liabilities

 

 

 

 

Provisions

 

195

439

189

Deferred tax liabilities

 

3,831

2,480

2,383

Total non-current liabilities

 

4,026

2,919

2,572

TOTAL LIABILITIES

 

41,524

23,879

20,229

Equity shareholders' funds

 

 

 

 

Share capital

11

12,494

12,491

12,491

Share premium

11

3,614

3,563

3,563

Share based payment reserve

 

1,519

791

1,173

Currency translation reserve

 

(545)

(1,093)

(1,069)

Retained earnings

 

47,155

41,128

48,199

Total equity shareholders' funds

 

64,237

56,880

64,357

TOTAL EQUITY AND LIABILITIES

 

105,761

80,759

84,586

Approved by the Board on 7 September 2016.

Servelec Group plc

Condensed Group statement of changes in equity

 

 

 

 

 

Note

 

 

Share capital

£'000

 

 

Share premium

£'000

Share based

 payment reserve

£'000

 

Currency transaction reserve

£'000

 

 

Retained Earnings

£'000

 

 

 

Total

£'000

Balance as at 1 January 2016

 

 

12,491

 

3,563

 

1,173

 

(1,069)

 

48,199

 

64,357

Profit for the period

 

-

-

-

-

1,385

1,385

Other comprehensive income

 

 

-

 

-

 

-

 

524

 

-

 

524

Share based payments

12

-

-

346

-

-

346

Issue of share capital

11

3

51

-

-

-

54

Deferred tax on share based payments

 

 

-

 

-

 

-

 

-

 

-

 

-

Dividends

  7

-

-

-

-

(2,429)

(2,429)

Balance as at 30 June 2016 (Unaudited)

 

 

12,494

 

3,614

 

1,519

 

(545)

 

47,155

 

64,237

 

 

 

 

 

 

 

 

Balance as at 1 January 2015

 

 

12,491

 

3,563

 

546

 

(836)

 

39,528

 

55,292

Profit for the period

 

-

-

-

-

3,682

3,682

Other comprehensive income

 

-

-

-

(257)

-

(257)

Share based payments

12

-

-

271

-

-

271

Deferred tax on share based payments

 

-

-

(26)

-

-

(26)

Dividends

 7

-

-

-

-

(2,082)

(2,082)

Balance as at 30 June 2015 (Unaudited)

 

 

12,491

 

3,563

 

791

 

(1,093)

 

41,128

 

56,880

 

 

 

 

 

 

 

 

 

 

Balance as at 1 January 2015

 

 

12,491

 

3,563

 

546

 

(836)

 

39,528

 

55,292

Profit for the year

 

-

-

-

-

11,898

11,898

Other comprehensive income

 

 

-

 

-

 

-

 

(233)

 

-

 

(233)

Share based payments

12

-

-

626

-

-

626

Deferred tax on share based payments

 

 

-

 

-

 

1

 

-

 

-

 

1

Dividends

  7

-

-

-

-

(3,227)

(3,227)

Balance as at                31 December 2015

 

 

12,491

 

3,563

 

1,173

 

(1,069)

 

48,199

 

64,357

 

 

 

Servelec Group plc

Condensed Group Cash flow statement

For the six months ended 30 June 2016

 

 

Note

30 Jun 2016 (Unaudited) £'000

30 Jun 2015

(Unaudited)

£'000

Year ended

31 Dec 2015

£'000

Profit before tax

 

 

 

 

 

Continuing operations

 

 

1,731

4,844

13,364

Operating activities

 

 

 

 

 

Profit before tax

 

 

1,731

4,844

13,364

Adjustments to reconcile profit before tax to net cash flows:

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

 

534

 

388

 

852

Share based payment expenses

 

12

346

271

626

Amortisation and impairment of intangible assets

 

 

 

1,432

 

1,113

 

2,207

Finance income

 

 

(2)

(21)

(37)

Finance costs

 

 

99

54

68

Working capital adjustments:

 

 

 

 

 

Movement in provisions

 

 

6

115

(135)

(Increase)/decrease in trade and other receivables and prepayments

 

 

 

(3,127)

 

5,176

 

6,043

(Increase) in inventories

 

 

(200)

(100)

(202)

Increase/(decrease)/increase in trade and other payables

 

 

 

765

 

(677)

 

(3,195)

Cash flows from operating activities

 

 

1,584

11,163

19,591

Interest received

 

 

2

21

37

Interest paid

 

 

(81)

(54)

(68)

Income tax paid

 

 

(752)

(1,105)

(3,814)

Net cash flows from operating activities

 

 

753

10,025

15,746

Investing activities

 

 

 

 

 

Purchase of property, plant and equipment and intangibles

 

 

(873)

(898)

(1,382)

Acquisition of subsidiary undertaking net of cash acquired

 

 

13,14

 

(20,879)

 

(84)

 

(84)

Acquisition of intangible assets

 

 

-

(62)

-

Net cash flows from investing activities

 

 

(21,752)

(1,044)

(1,466)

Financing activities

 

 

 

 

 

Proceeds from loans and borrowings

 

10

15,113

-

-

Proceeds from issue of share capital

 

11

54

-

-

Repayment of loans

 

 

-

(6,901)

(6,901)

Dividends paid

 

 

(2,429)

(2,082)

(3,227)

Net cash flows from financing activities

 

 

12,738

(8,983)

(10,128)

Net (decrease)/increase in cash and cash equivalents

 

 

 

(8,261)

 

(2)

 

(4,152)

Net foreign exchange difference

 

 

519

(296)

(216)

Cash and cash equivalents at start of period

 

 

9,896

5,960

5,960

Cash and cash equivalents at end of period

 

 

2,154

5,662

9,896

 

Servelec Group plc

Notes to the financial statements

1.            Corporate Information

Servelec Group plc is a limited liability company, incorporated and registered under the laws of England and Wales, whose shares are publicly traded. 

The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2016 comprise the Company and its subsidiaries (together referred to as the "Group") were approved by the Board on 7 September 2016. These statements have not been audited but have been reviewed by the Group's auditor pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information.

These interim condensed consolidated financial statements do not constitute statutory accounts of the Group within the meaning of Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2015 have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

New standards and interpretations

There are no accounting standards or interpretations that have become effective in the current reporting period which have had a material effect on the net assets, results and disclosures of the Group.   The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

2.            Accounting policies

                Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 "Interim Financial Reporting" as adopted by the European Union. It does not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2015.

The accounting policies, presentation and methods of computation applied by the Group in these interim condensed consolidated financial statements are the same as those applied in the Group's latest audited annual consolidated financial statements for the year ended 31 December 2015.

                Going Concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report.  Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 3.           Segment information

For management purposes, the Group is organised into business divisions according to the nature of the products and services.  It has two divisions and three reportable segments as follows:

·      The Health & Social Care division specialises in the design, development and implementation of Electronic Patient Record (EPR) and Patient Administration Systems (PAS) and Social Care Case Management software within secondary care and social care settings and is a market leader in the Mental Health, Community Health and Social Care sectors in England.

·      The Automation division is engaged in the provision of complex, mission critical systems to the oil & gas, power, nuclear and water industries.  The division specialises in safety systems, protection systems, control systems and wide area telemetry control systems.  The division also offers business optimisation consultancy and remote telemetry units, which are designed and manufactured in house.

The Health & Social Care division is made up of three operating segments, Healthcare, Social Care and Children's Services, which have been aggregated as the Board considers that they have similar economic characteristics.

The Automation division is made up of two operating segments, Controls and Technologies, both of which are reportable.

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, amortisation, share based payments 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 six months ended 30 June 2016, 30 June 2015 and the year ended 31 December 2015.

 

 

 

 

Servelec Health & Social Care

£'000

Servelec Automation

 

 

 

Central £'000

 

 

 

Total £'000

 

 

 

Servelec Controls

£'000

 

Servelec Technologies

£'000

Six months ended 30 June 2016

(Unaudited)

Segment revenue from customers

Cost of sales

Gross profit

Overheads

Exceptional costs

Share based payments

Amortisation

Segment operating profit from continuing operations

 

 

 

 

 

 

 

 

Servelec Health & Social Care

£'000

Servelec Automation

 

 

 

Central £'000

 

 

 

Total £'000

 

 

 

Servelec Controls £'000

 

Servelec Technologies

£'000

Six months ended 30 June 2015

(Unaudited)

Segment revenue from customers

Cost of sales

Gross profit

Overheads

Share based payments

Amortisation

Segment operating profit from continuing operations

 

 

 

 

Servelec Health & Social Care

£'000

Servelec Automation

 

 

 

Central £'000

 

 

 

Total £'000

 

 

 

 

Servelec Controls £'000

 

Servelec Technologies

£'000

 

Year ended 31 December 2015

 

 

Segment revenue from customers

 

Cost of sales

 

Gross profit

 

Overheads

 

Share based payments

 

Amortisation

 

Segment operating profit from continuing operations

 

 

 

 

 

 

 

 

                     

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 costs of £97,000 (H1 2015: costs of £33,000).

4.            Exceptional items

 

30 Jun  2016

30 Jun  2015

Year ended 31 Dec

 

(Unaudited)

(Unaudited)

2015

 

Recognised in arriving at operating profit from continuing operations:

 

 

 

 

 

Acquisition costs

-

-

Aborted acquisition costs

-

-

Restructuring costs

-

-

Total exceptional items

943

-

-

The aborted acquisition costs represent the professional fees incurred during a potential acquisition process which the Group's management decided to terminate before completion.

The restructuring costs relate mainly to redundancy costs incurred during the restructuring processes within the Health and Social Care and Technologies divisions during the period.                   

5.            Research and Development costs      

 

30 Jun  2016

30 Jun  2015

Year ended 31 Dec

 

(Unaudited)

(Unaudited)

2015

 

 

 

 

Research and development costs expensed

6.            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:

 

 

30 Jun

2016

30 Jun

2015

Year ended

31 Dec

 

(Unaudited)

(Unaudited)

2015

 

£'000

£'000

£'000

 

Profit attributable to ordinary equity holders of the parent

 

 

 

Basic weighted average number of shares

Dilutive potential ordinary shares

Diluted weighted average number of shares

 

Basic earnings per share from continuing operations

Diluted earnings per share from continuing operations

Adjusted earnings per share

Net profit attributable to ordinary equity holders of the parent

Amortisation of intangible assets

Share based payments

Exceptional items

Tax on adjustments

 

 

Adjusted diluted earnings per share

 

 

 

 

7.         Dividends paid and proposed

 

30 Jun         2016

30 Jun      2015

Year ended 31 Dec

 

(Unaudited)

(Unaudited)

2015

 

 

 

 

 

Declared and paid during the period

 

 

 

Final Dividend for 2015: 3.5p (2014: 3.0p)

2,429

2,082

2,082


Interim Dividend for 2015: 1.65p per share
 

 

 

1,145

Dividends Paid

2,429

2,082

3,227

Based on weighted average number of shares.

               

£'000

Proposed interim dividend for the year ended 31 December 2016 of 1.65p per share

(2015: 1.65p)

 

The proposed interim dividend of 1.65p was approved by the Board on 7 September 2016 and has not been included as a liability as at 30 June 2016.

 8.          Income tax expense

The tax charge on continuing operations for the period is based on an effective rate of 20.0% (2015: 24.0%) to reflect the R&D tax credit.

Tax rate changes that were substantially enacted at the balance sheet date have been factored into the calculation of the effective tax rates.

9.            Property, Plant and Equipment

During the six months ended 30 June 2016, the Group acquired assets with a cost of £864,000 (six months to 30 June 2015: £898,000).  £787,000 relates to computer equipment in the central segment.

 

 

 

 

10.  Loans and borrowings

 

 

30 Jun     2016

30 Jun     2015

31 Dec 2015

 

 

 

Revolving credit facility

During the period the Group established a secured revolving credit facility for £20,000,000 and accordion of £10,000,000 with Lloyds Bank plc.

£15,113,000 was drawn against the revolving credit facility on 1 April 2016 to part fund the acquisition of Servelec Synergy Limited (note 13).  £15,113,000 remained drawn against the facility at 30 June 2016.

The revolving credit facility agreement has a three year duration with amounts drawn falling due for repayment or rollover every three months.  Accordingly, the amount drawn at 30 June 2016 has been categorised within current liabilities.

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.

11.        Issued capital and reserves

Authorised shares

 

30 Jun     2016

30 Jun        2015

 31 Dec
       2015

 

 

(Unaudited)

(Unaudited)

 

 

 

Thousands

Thousands



Thousands

 

Ordinary shares of 18 pence each

69,394

 

 

 

 

 

 

               

 

Ordinary shares issued and fully paid

 

30 Jun  2016

30 Jun  2016

30 Jun  2015

30 Jun  2015

31 Dec  2015

31 Dec 2015

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

 

 

 

Share capital

 

 

 

 

 

 

Shares at the beginning of the period

 

Shares issued

-

-

 

Shares at the end of the period

 

 

30 Jun     2016

30 Jun     2015

31 Dec 2015

 

(Unaudited)

(Unaudited)

 

Share premium

Shares at the beginning of the period

Shares issued during the period

Shares at the end of the period

 

12.        Share based payments

Group executive share option plan (ESOP)

Share options were granted to employees, as determined by the Remuneration Committee.  The exercise price of the options is equal to the market price of the shares on the date of grant.  The options only vest in accordance with the performance conditions for each executive as determined by the Remuneration Committee.  Conditions are based on operating profit targets for the year to 31 December 2016, provided the employee remains in the group's employment for 3 years.  The options cannot be exercised within 3 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.

Save-as-you-earn (SAYE) scheme

The Company has an all-employee Save As You Earn share option plan whereby employees may enter into a savings contract under which they agree to save up to a maximum of £500 per month (or such limited as may be permitted by the tax legislation governing SAYE schemes from time to time) for 3 to 5 years.

Deferred share bonus plan (DSBP)

Share awards were granted to senior executives, as determined by the Remuneration Committee.  The exercise price of the awards is nil.  Awards will be subject to time pro-rating.

Long term incentive plan (LTIP)

Share options were granted 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 provided the employee remains in in the group's employment for 3 years.  The options cannot be exercised within 3 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.

Further details of the vesting conditions are in the Remuneration Committee report on pages 50 to 61 of the Annual Report for the year ended 31 December 2015.

 

Date Granted

Number Granted

Exercise Price

Vesting Period Years

Expiry Period Years

Options granted during the period:

 

LTIP

ESOP

DSBP

The following tables summarise the number and weighted average exercise prices (WAEP) of and movements in, share options during the period.

 

 

Number of Shares

 

 

 

 

Share options

ESOP

SAYE

DSBP

LTIP

Total

WAEP £

 

Outstanding at 1 January 2016

Granted

Expired

Outstanding at 30 June 2016

 

 

 

 

 

 

 

The expired options relate to options where performance conditions have not been met and leavers.

 

 

 

 

Number of Shares

 

 

 

 

Share options

ESOP

SAYE

DSBP

LTIP

Total

WAEP £

 

Outstanding at 1 January 2015

Granted

Performance conditions expired

Outstanding at 30 June 2015

Granted

Performance conditions expired

Outstanding at 31 December 2015

 

 

 

 

 

 

 

 The fair value of the options granted and the assumptions used in the model are set out below.

 

ESOP

Six months to

30 Jun     2016

 

 

DSBP

Six months to 30 Jun 2016

LTIP

Six months to

30 Jun        2016

 

ESOP

Year ended

31 Dec

2015

 

 

Grant date

 

Share price at date of grant

 

Exercise price

 

Vesting period (years)

 

Option life (years)

 

Annual volatility

 

Dividend yield

 

Risk free rate

 

 

 

Early exercise multiple

 

Fair value per option

 

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 six months to 30 June 2016 is £346,000 (six months to 30 June 2015 £271,000).

 13.         Acquisition of Servelec Synergy Limited

On 1 March 2016, the Group agreed to purchase the Synergy business from Tribal Group plc for cash consideration of £20,250,000 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 £807,000.

The provisional fair values of the identifiable assets and liabilities of Servelec Synergy Limited as at the date of acquisition were:

 

 

Fair value recognised on acquisition

£'000

Assets

Property, plant and equipment

Trade and other receivables

Software

Order backlog

Customer relationships

Liabilities

Trade and other payables

Deferred tax liability

Total identifiable net liabilities at fair value

 5,506

Goodwill arising on acquisition

Total consideration

The goodwill of £13,937,000 comprises the value of the assembled workforce and expected value of synergies. Goodwill is allocated entirely to the Healthcare 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 £1,814,000 of revenue and a profit of £850,000 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 £29,890,000 and the profit before tax from continuing operations for the Group would have been £2,291,000.

 

 

Purchase consideration

Cash paid

Working capital adjustment

Total consideration

 

Analysis of cash flows on acquisition:

Transaction costs of the acquisition (included in cash flows from operating activities)

Net cash acquired with the subsidiary (included in cash flows from investing activities)

Net cash flow on acquisition

The fair value of the consideration given is £19,443,000.

Transaction costs of £426,000 have been expensed and are included in exceptional expenses.

14.          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

£'000

Assets

Property, plant and equipment

Customer relationships

Software

Trade and other receivables

Cash and cash equivalents

 

Liabilities

Trade and other payables

Deferred tax liability

 

Total identifiable net liabilities at fair value

(45)

Goodwill arising on acquisition

Total consideration

The goodwill of £1,660,000 comprises the value of the assembled workforce and expected value of synergies. Goodwill is allocated entirely to the Healthcare 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 £192,000 of revenue and a profit of £23,000 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 £28,788,000 and the profit before tax from continuing operations for the Group would have been £1,728,000.

 

Purchase consideration

Cash paid

Deferred consideration

Total consideration

 

Analysis of cash flows on acquisition:

Transaction costs of the acquisition (included in cash flows from operating activities)

Net cash acquired with the subsidiary (included in cash flows from investing activities)

Net cash flow on acquisition

The fair value of the consideration given is £1,615,000.

Transaction costs of £80,000 have been expensed and are included in exceptional expenses.

 


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