annual report and accounts 2014 - servelec group · intangible amortisation and royalty charges...

annual report and accounts 2014

A clear growth strategy

Servelec Group plc annual report and accounts 2014

Servelec is a UK-based technology group, with significant intellectual property, providing software, hardware and services predominantly to the UK health and social care, oil and gas, nuclear, power, water, utilities and broadcast sectors.

The Group has two divisions; Servelec Health & Social Care and Servelec Automation.

Who we are

We have a strong technology and engineering heritage and leadership positions in our chosen markets.

1

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

CASH FLOW FROM OPERATING ACTIVITIES (£’000)

OPERATING PROFIT FROM CONTINUING OPERATIONS (£’000)

ORDER ENTRY (£’000)

UNDERLYING OPERATING PROFIT(1) (£’000)

REVENUE (£’000)

17,3619,0648,392

60,20032,60131,874

10,50710,85210,837

12,22511,27711,165

51,75341,99539,361

(1) Underlying operating profit excludes share based payments, exceptional costs, acquired intangible amortisation and royalty charges levied by CSE Global Limited (2012 only).

(2) Cash conversion equals cashflow from operating activities divided by underlying operating profit plus amortisation of non-acquired intangible assets.

Notes2014

£’0002013

£’0002012

£’000

Operating profit from continuing operations 10,507 10,852 10,837Add back: Royalty charge – – 165Share based payments 25 434 41 –Amortisation of acquired intangibles 14 874 384 163Exceptional costs 7 410 – –

Underlying operating profit from continuing operations 12,225 11,277 11,165

Strategic Report Governance Financial Statements

Strategic Report1 2014 highlights2 At a glance4 Divisional and segment

highlights8 Our business model9 Our strategy10 Strategy in action14 Chairman’s statement16 Business review20 Divisional and segment

reviews28 Risk management30 Corporate social responsibility

Governance34 Board of directors and

senior management36 Corporate governance report40 Nomination Committee report41 Audit Committee report44 Remuneration report – Directors’ remuneration policy – Annual report on remuneration58 Directors’ report61 Statement of Directors’

responsibilities in relation to the Group financial statements

Financial Statements62 Independent auditor’s report66 Group income statement66 Group statement of comprehensive income67 Group statement of financial position68 Group statement of changes in equity69 Cash flow statement70 Notes to the financial statements96 Company balance sheet97 Company statement of total recognised

gains and losses98 Notes to the financial statements104 Corporate directory105 Directors and advisers

Contents

Operational highlights Financial highlights

• Successful tender activity in Health & Social Care providing strong order book for 2015.

• All deployment obligations under National Programme for IT (NPfIT) completed.

• Acquisition of Corelogic Limited completed.

• Successful pilots run with existing customers in preparation for the next water investment programme (AMP6) beginning April 2015.

• Significant progress with productisation of our Technologies offerings, gaining traction through our global distributor network.

• Semaphore restructured successfully to support sustainable top line growth.

• Senior management team in Controls strengthened to provide individual focus to power and nuclear and oil and gas markets.

• Cash conversion(2) of 141% (2013: 76%) higher than normal due to large milestone payments in Health & Social Care.

• Earnings per share 12.7p, fully diluted EPS 12.5p (2013: 26.1p). Prior year is distorted by the change in number of shares just prior to the IPO.

• Proposed final dividend of 3p per ordinary share giving full year dividend of 4.5p per ordinary share.

£17.4m+92% (2013: £9.1m)

£60.2m+85% (2013: £32.6m)

£10.5m-3% (2013: £10.9m)

£12.2m+8% (2013: £11.3m)

£51.8m+23% (2013: £42.0m)

2014 highlights

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SERVELEC AUTOMATION

SERVELEC HEALTH & SOCIAL CARE

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CONTROLS

SRVE

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SE V LE

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At a glance

Servelec Group plc was founded in 1977 and has a strong technology and engineering heritage. Today the company employs a highly skilled and knowledgeable workforce of almost 600 people, operating from 14 offices across the world. The majority of the staff are based across two offices in Sheffield, one of which functions as the Group’s headquarters.

Group structure

The origins of the Group’s business were in the design and manufacture of control systems for the Sheffield steel industry. Since that time, the Group has grown both organically and by acquisition and now operates two divisions: Servelec Health & Social Care and Servelec Automation.

Servelec Health & Social Care • Employees: 243.• Offices: UK (Sheffield, London,

Edinburgh), Australia (Sydney), India (Cochin).

• Core markets: Mental, community and child health, acute care and adult and child social care.

• Market position: Market leader in mental and community health sectors in England and UK adult and child social care market.

Servelec Automation• Employees: 292.

• Offices: UK (Sheffield, Aberdeen, Glasgow, Warrington, Dorking), Australia (Melbourne), Belgium (Brussels), France (Lyon), USA (Florida).

• Core markets: Oil and gas, power and nuclear, water, broadcast, utilities, transport.

• Market position: Tier 2 support in UK oil and gas market, growing position in power and nuclear, global supplier of RTUs SCADA systems and business optimisation software.

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Servelec AutomationServelec Health & Social CareServelec Healthcare specialises in the design, development, deployment and support of software within secondary care settings and is a market leader in the mental and community health sectors in England. It has over 20 years experience in developing clinically-driven, enterprise-wide solutions for use within the NHS and private healthcare organisations and has a software suite that covers Electronic Patient Records, Patient Administration Systems, Clinical Information Systems, and e-Prescribing systems. Servelec Healthcare’s solutions are used by over 200,000 clinicians who support services available to approximately 25 per cent of England’s population across, in aggregate, 59 mental health trusts and community health providers.

Servelec acquired Corelogic Limited in December 2014. Corelogic joins our Healthcare division, now renamed Health & Social Care. Servelec Corelogic is a market leader in the adult and children’s social care market with over 15 years experience within the social care software industry. Its systems are used by 75,000 social care practitioners.

Servelec Automation provides complex, mission-critical control systems and standalone products to large, blue-chip companies in the energy, water, transport and broadcast industries. It provides whole lifecycle services from consultancy through to design, implementation, delivery, installation and on-going customer support and maintenance, as well as the sale of component products such as RTUs (Remote Telemetry Units) and SCADA software.

Servelec Automation operates as two reporting segments, Servelec Controls and Servelec Technologies.

• Servelec Controls is the largest independent integrator of safety and production control systems to large blue-chip companies mainly in the oil and gas and power and nuclear industry sectors.

• Servelec Technologies develops, manufactures and sells end-to-end telemetry monitoring, SCADA systems and business optimisation software to the utilities (water, oil and gas and transport), broadcast and industrial markets. It provides consultancy services and sells telemetry products (RTUs) and associated software solutions through its global distribution network.

£16.7m+12% (2013: £14.9m)

£35.1m+29% (2013: £27.1m)

£7.6m+0% (2013: £7.6m)

£7.4m+24% (2013: £5.9m)

£8.6m+3% (2013: £8.4m)

£14.8m+48% (2013: £10.0m)

£28.4m+319% (2013: £6.8m)

£31.8m+23% (2013: £25.8m)

REVENUE BY DIVISION OPERATING PROFIT FROM CONTINUING OPERATIONS BY DIVISION(iii)

GROSS PROFIT BY DIVISION ORDER ENTRY BY DIVISION

Health & Social Care 2014(i) Health & Social Care 2013 Automation 2014(ii) Automation 2013(ii)

(i) Includes Corelogic from 12 December 2014.(ii) Includes Tynemarch from 5 February 2013 and Semaphore from 18 October 2013.(iii) Excludes unallocated central costs (note 4 to financial statements).

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OPERATING PROFIT FROM CONTINUING OPERATIONS (£’000)*


GROSS PROFIT (£’000)*

R&D INVESTMENT (£’000)

2014 2013 2012

ORDER BANK (£’000)

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

REVENUE (£’000)

1,3039401,785

49,10922,36230,467

7,5737,5608,680

28,3636,7747,926

8,6288,3819,441

16,65714,87916,747

* 2012 excludes royalty charge levied by CSE Global Ltd of £165,000.

Health & Social Care result includes a full year of Servelec Healthcare and 2 weeks of Servelec Corelogic. Order bank for 2014 includes £15.4m from Servelec Corelogic.

Divisional highlights Servelec Health & Social CareServelec Healthcare specialises in the design, development deployment and support of Electronic Patient Record (EPR) and Patient Administration Software (PAS) software within secondary care settings and is a market leader in the mental and community health sectors in England. In December 2014, Servelec acquired Corelogic Limited which joined the Healthcare division, now renamed Health & Social Care. Servelec Corelogic is a UK market-leading provider of adult and children’s social care case management software.

5 OFFICES

243 EMPLOYEES

32% CONTRIBUTION TO GROUP REVENUE

37% CONTRIBUTION TO GROUP GROSS PROFIT

£1.3m+39% (2013: £0.9m)

£49.1m+120% (2013: £22.4m)

£7.6m0% (2013: £7.6m)

£28.4m+319% (2013: £6.8m)

£8.6m+3% (2013: £8.4m)

£16.7m+12% (2013: £14.9m)

5




GROSS PROFIT (£’000)

REVENUE (£’000)

2014 2013 2012


2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

14,81910,0327,685

7,3795,9344,683

2,9011,073811

13,17816,56514,350

31,83725,82723,948

35,09627,11622,614


Servelec Automation provides complex, mission-critical control systems and standalone products to large, blue-chip companies mainly in the UK energy, water, transport and broadcast industries. It provides whole lifecycle services from consultancy through to design, implementation, delivery, installation and on-going customer support and maintenance, as well as the sale of standalone products.

9 OFFICES

294 EMPLOYEES



Divisional highlights Servelec Automation

£2.9m+170% (2013: £1.1m)

£13.2m-20% (2013: £16.6m)

£31.8m+23% (2013: £25.8m)

£14.8m+48% (2013: £10.0m)

£7.4m+24% (2013: £5.9m)

£35.1m+29% (2013: £27.1m)

6


6


UNDERLYING OPERATING PROFIT (£’000)



REVENUE (£’000)

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

5,3825,5255,441

3,5243,6103,101

4,5966,2447,973

13,35013,57315,428

14,99815,30216,276

4 OFFICES

130 EMPLOYEES



Segment highlights Servelec ControlsServelec Controls is the largest independent UK controls integrator for the oil and gas and power and nuclear sectors, providing complex, mission critical systems to many large blue chip companies. We provide specialised software and hardware solutions using commercial off the shelf products from leading brands.

£4.6m-26% (2013: £6.2m)

£13.4m-2% (2013: £13.6m)

£5.4m-3% (2013: £5.5m)

£3.5m-2% (2013: £3.6m)

£15.0m-2% (2013: £15.3m)

7





REVENUE (£’000)

2014 2013 2012


2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

9,4374,5072,244

3,8552,3241,582

2,9011,073811

8,58210,3216,377

18,48712,2548,520

20,09811,8146,338


6 OFFICES

164 EMPLOYEES



Servelec Technologies is a product specialist, focused on the water, oil and gas and transport industries worldwide. As a technology company with high levels of IP the business is able to offer full end-to-end solutions including business optimisation and SCADA software, consultancy services, or stand-alone products which it distributes through its global distributor network.

Segment highlights Servelec Technologies

£2.9m+170% (2013: £1.1m)

£8.6m-17% (2013: £10.3m)

£18.5m+51% (2013: £12.3m)

£9.4m+109% (2013: £4.5m)

£3.9m+66% (2013: £2.3m)

£20.1m+70% (2013: £11.8m)

8


High level of intellectual propertyServelec has significant intellectual property across both its divisions which we continue to enhance. Servelec Health & Social Care’s core products include the RiO and Oceano products for mental health, community health, child health and acute care and Mosaic and Corius for the social care market. Servelec Automation has a range of products that provide end-to-end functionality, from information collection, collation, business optimisation and automated control.

Proven and experienced management teamServelec’s executive management team is backed up by a strong, long-standing and experienced operational management team and a highly skilled and knowledgeable workforce. We have recently strengthened the team further by adding expertise in power and nuclear and social care.

Strong long-term relationships with client baseServelec has established very close commercial relationships with blue-chip customers in all of its end markets with some relationships dating back 25 years. Servelec’s customers include Welsh Water, Severn Trent, Centrica, BP, EDF Energy, BT, the NHS, and a large proportion of local authorities in the UK.

Proven engineering approachThe origins of the Group’s business were in the design and manufacture of control systems for the Sheffield steel industry. This engineering ethos of delivering projects on time and on budget remains firmly in the culture of Servelec, both in software and hardware.

Servelec is focused on profitable growth. We do this by operating only in areas where we can achieve strong, sustainable margins and cash generation. We work in particular market segments which are resilient to recession and have consistently maintained our gross margins and profitability. We are a leading provider in mental and community health, social care and UK water and a Tier 2 supplier to the UK oil and gas industry.

We focus our business on maintaining these positions by building strong client relationships in markets which have high barriers to entry. We utilise our core engineering skills, especially project management, to expand into adjacent markets and pride ourselves on delivering systems on time and on budget.

Our business model

HEALTH & SOCIAL CAREAUTOMATION

SERVELEC GROUP

High level of intellectual property

management tea

m

Proven and experie

nced

relationships with client baseStrong long-term

Prov

en en

gineering

approach

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Our strategy

Our strategy is to continue to grow and increase returns by focusing on profitable markets with high barriers to entry, where our expertise and high level of IP brings a competitive advantage. Our strategy is made up of 4 distinct elements:

Drive organic growth We continue to organise the business to drive good levels of organic growth. We have a broad range of organic growth opportunities that fit with the capabilities of the business including brownfield refurbishment of platforms around our coastline, efficiency improvements and cost reductions for our utilities clients and continued delivery of true electronic patient records systems that meet the objectives set by the UK Government.

Our clients are important to us and we have been working with a number of them for many years. We always strive to maintain excellent customer relationships thus increasing our level of repeat business and recurring revenues.

Continue to enhance our product capabilityWe will continue to invest in our products across the Group to ensure that we meet the needs of our clients now and in the future and our products continue to comply with relevant legislation, regulation or changing market requirements.

Develop our distribution channels to market Servelec has proven itself with strong positions in its home market. Following the acquisition of Semaphore in 2013, Servelec has a global distributor network which provides access to increased opportunities for the Group. We will continue to invest in our distribution channels to provide access to customers, wherever they are.

Acquire where beneficial to the businessWe continue to search for potential acquisitions that will provide both short-term and long-term benefit to the Group. We seek out companies that support our overall growth strategy and where we believe our expertise and experience provides enhanced growth potential for the acquired business.


10

Strategy in action

Launch RiO mobile• Software solution providing mobile access to

patient records

• Significant take up in 2014

Hosting for the NHS• Business critical service for healthcare customers

providing an end-to-end solution

• Take up increased from 4 customers to 12 within the year

Case study RiO mobile provides access for clinical users to the patient record on a multitude of IOS and android mobile devices and can be provided in its full form or with functionality that represents a clinical users role.

The RiO mobile solution supports the user in connected and disconnected environments and is especially useful for areas where there is inconsistent or absent WiFi, 3G or 4G connectivity.

During 2014, we have seen RiO mobile mature, as NHS trusts sought to mobilise their workforce and provide efficiency savings and improvements in patient care. Servelec works with customers to optimise their configuration and to match their local requirements.

Case study During 2014, in response to customer feedback and identified market opportunities, Servelec rolled out an enhanced hosting service to customers. The service has been well received by the market with a high proportion of new customers taking up the option. The service means we can offer a total end-to-end solution to customers, providing secure and resilient hosting provision for Servelec applications, which is also fully compliant with NHS standards.

11


Strategy key

Launch of TFlo• A software solution deployed on the web enabled TBox RTU platform

• Measures gas flow to a high degree of accuracy supporting compliance requirements in the North American market

• Successful trials with major oil and gas producers in North America

Case study During the year Servelec Technologies launched a new generation of hardware and software solutions in gas flow computing. TFlo is a software solution that is deployed on the popular web enabled TBox RTU platform. Installed at production and metering locations as well as well head installations, TFlo is used to measure gas flow to a high degree of accuracy, supporting compliance with various AGA8 calculations, API 21.1 and Directive 17 for the North American market.

TFlo provides significant capabilities unavailable elsewhere in the market including integrated communications and access capability with integrated 3G, web server, immediate alarm notification technology, reporting and mobile device connectivity which provides “anytime, anywhere” measurement and control.

TFlo has undergone successful trials with major oil and gas producers in North America resulting in pilot sales. Accurate metering of gas production, coupled with efficient and timely access to metering data is a key market requirement and we are confident in the ongoing opportunities for this product.

Drive organic growth

Continue to enhance our product capability

Acquire where beneficial to the business

Develop our distribution channels to market


12

Strategy in actioncontinued

Acquisition of Corelogic• Acquired 12 December 2014

• Purchase price £23.5m

• Cash paid £14.5m

• Loan notes of £6m issued repayable by 30 June 2015

• £3m shares issued

• Strongly positions Servelec to offer integrated solution as the market moves towards converged care

• Complementary to Servelec Healthcare with a significant sharing of customer geographies, especially in London and the south

Case study On 12 December 2014 Servelec Group acquired Corelogic Limited, a high growth, UK market-leading provider of next generation adult and children’s social care case management software, together with associated financial management modules.

Corelogic is used by over 50% of local authorities in London, has a 25% share of the social care market in the UK and 75,000 end users.

The acquisition provides an excellent fit with Servelec’s strategic priorities to drive market share growth in existing areas and to expand into adjacent, complementary markets. The addition of Corelogic strongly positions Servelec to address the health and social care interoperability agenda and to offer a fully integrated solution as the market moves towards the Government’s commitment to converged care for patients. Corelogic provides Servelec with a deep presence in the key social care market and its unique product set complements Servelec’s existing RiO offering and market position in mental health, community health and child health.

Founder Kevin Moorhouse remains with the business as Executive Director to facilitate an effective integration into the Servelec Group. Work has begun to integrate the business including the rebranding to Servelec Corelogic in February 2015. The Board is pleased with the acquisition and progress made to date.

13


Drive organic growth

Continue to enhance our product capability

Acquire where beneficial to the business

Develop our distribution channels to market

Integration of Semaphore • An RTU company, bringing Kingfisher and T-Box

RTU products

• Embedded in a number of global markets, including oil and gas in Australia and the rail market in Belgium with worldwide distribution channels covering Canada, USA, Europe, China, Asia, Australia and New Zealand

• Acquired in October 2013

• In year growth plus benefits of restructuring led to net margins increasing to 17%

Case study Following the acquisition of Semaphore in October 2013, an integration plan was successfully delivered. This consolidated management roles and restructured sales & marketing and development to position the business for sustainable growth. Included within this plan was the merger of the Seprol RTU business (previously in Servelec Systems) into Semaphore to bring all RTU technology into one substantial operation, enhancing economies of scale, product range and global reach.

This successful integration supported delivery of 15% organic growth in year and positioned the business ready for opportunities in 2015 and beyond. Growth in year, coupled with the overhead savings arising from the restructure delivered an increase in net margin to 17% (2013: 6%).

Strategy key

14


14

Chairman’s statementA strong maiden year on the London Stock Exchange2014, the first full year as a fully listed company on the London Stock Exchange, has been important for Servelec Group. Servelec has delivered an excellent trading performance for the year ended 31 December 2014, in line with expectations set at the time of the IPO. The Group enters 2015 in a strong position, which has been noticeably enhanced by the acquisition of Corelogic Limited, a social care software and systems business, in December 2014.

The Automation division reported significant revenue growth in the year up 29% to £35.1m (2013: £27.1m) due to a strong performance from Servelec Technologies. This business reported a 70% increase in revenue, which included a full year’s contribution from Semaphore, acquired in October 2013. Order intake for the year increased by 23% to £31.8m (2013: £25.8m) however this was lower than planned due to delays in a number of large control systems orders and a dip in activity in the UK water sector in advance of the next water investment period (AMP6) which begins in April 2015.

As at 31 December 2014, Servelec had gross cash balances of £6.0m and net cash of zero, following the acquisition of Corelogic for £23.5m (a net cash outflow of £13.3m). During the year the Group had excellent profit to cash conversion at 141% (2013: 76%) due in part to the favourable timing of monies received from customers, but also demonstrating the Group’s focus on strong cash management.

Corporate developmentIn December 2014, Servelec acquired Corelogic Limited, a software company focused on the social care market. Corelogic joins the Healthcare division, now renamed Health & Social Care and provides potential for a strong integrated offering for new and existing customers as the market moves towards its objective of converged care. Corelogic has invested significantly to develop a modern integrated software product set and is now one of the leading providers of such systems in the market.

“This is an excellent set of results, delivered alongside important operational steps forward, positioning the business well for 2015 and beyond.”

OverviewOverall, the Group has performed well in 2014, with revenue for the year ending 31 December 2014 at £51.8m (2013: £42.0m), an increase of 23% driven by performance across both Health & Social Care and Automation divisions. Underlying operating profit increased by 8% to £12.2m (2013: £11.3m). Profit before taxation decreased 3% to £10.6m (2013: £10.9m) due to increased share based payments and increased amortisation charges. Earnings per share was 12.7p, fully diluted EPS 12.5p (2013: 26.1p). Prior year position is distorted due to the change in number of shares just prior to the IPO.

Health & Social Care, excluding Corelogic, delivered a 10% increase in revenue compared to 2013, which included the go live of RiO for West London Mental Health Trust, the first full exit from the National Programme for IT (NPfIT). Gross profit increased to £8.6 million, in line with expectations and a 3% increase on 2013. Healthcare also delivered an extremely positive performance in tender activity throughout the year with an excellent success rate in the London Refresh (the exit of trusts in London and the south from the NPfIT programme) with 17 wins at preferred status at 31 December 2014. Elsewhere in the country we were successful in winning three further contracts, creating a strong order book for 2015.

Richard LastChairman and Non-Executive Director

1515

2014 2013

REVENUE (£’000)

2014 2013


2014 2013

CASH FLOW FROM OPERATING ACTIVITIES (£’000)

17,3619,064

10,50710,852

51,75341,995


In Servelec Technologies, part of our Automation division, we continued the integration of the acquisitions made in 2013 (Semaphore and Tynemarch) creating a unified product set aligned with customer needs and creating additional value for shareholders by realising economies of scale. In 2014 we also worked with Sheffield University to develop a neural network based anomaly detection package which we believe will offer great value to our customers in the water industry in helping them to identify areas of abnormal flow, such as leaks.

In Servelec Controls, we strengthened our management team in February 2015 with the appointment of Alex Moore as Managing Director for Power & Nuclear. This appointment, alongside further strengthening of business development roles, will enable us to maximise the potential of our strong market positions across both power and nuclear and oil and gas.

DividendThe Board is proposing a final dividend of 3p per ordinary share which, together with the interim dividend of 1.5p paid in October 2014, equates to a total dividend of 4.5p per ordinary share for the year ended 31 December 2014. The final dividend, which is subject to approval at the company’s AGM, will be paid on 28 May 2015 to shareholders registered at the close of business on 1 May 2015.

Board and employeesI would like to take this opportunity to thank all our employees for their continued hard work and support during 2014. A great deal has been achieved and this is down to the contributions of individuals across the Group. I would like to welcome two new members of our senior management team; Kevin Moorhouse (Executive Director – Servelec Corelogic, who joined in December 2014 and was the founder of Corelogic Limited) and Alex Moore (Managing Director, Power & Nuclear – Servelec Controls, who joined February 2015). The Board and I are looking forward to working with them as we continue to build and grow the Group.

OutlookThe Board looks forward to 2015 with great enthusiasm and Servelec remains well placed for continued growth and development.

Our Health & Social Care division will benefit from its significant order book as well as continuing opportunities to win new business across mental health, community health, child health and acute markets. We are also excited by the opportunities for growth in revenue and market share from Servelec Corelogic.

The Automation division has great opportunities in the water industry as we move into the AMP6 period and begin to benefit from the 2014 investment made in FlowSure our flow anomaly detection product, which we began marketing to customers in the first quarter of 2015. We believe that our Technologies business will benefit from increased focus on product development as well as more focused sales and marketing, particularly in Asia Pacific and North America. In Controls we expect oil and gas contracts delayed from 2014 to begin to reach order entry status during the period 2015 to 2017 and see real benefit from having focused management for both the Oil & Gas and Power & Nuclear teams.

One of the reasons Servelec left CSE Global and listed on the London Stock Exchange was to benefit from the wider availability of capital for the development and growth of its business including funding for acquisitions. We evidenced the importance of this when we acquired Corelogic in December 2014 which would not have been possible prior to the IPO. We remain focused on growing our business organically, where suitable opportunities arise we will consider earnings enhancing acquisitions provided that they will accelerate the overall growth and development of the Group.

Servelec is positioned well within markets with high barriers to entry and strong growth potential. We believe that the Group has the necessary foundations to grow, develop its businesses and generate good returns for shareholders and other stakeholders.

Richard LastChairman and Non-Executive Director11 March 2015

16


16

Business review

We are pleased to report an excellent set of results in our first full year since admittance onto the main market of the London Stock Exchange with trading in line with market expectations.

2014 performanceServelec produced an excellent performance in its first year of trading on the London Stock Exchange.• Revenue increased 23% to £51.8m

(2013: £42.0m)• Gross profit increased 27% to £23.4m

(2013: £18.4m)• Underlying operating profit increased

by 8% to £12.2m (2013: £11.3m)• Order entry increased 85% to £60.2m

(2013: £32.6m)• Cash conversion increased to 141%

(2013: 76%)• EPS was 12.7p, fully diluted EPS 12.5p

(2013: 26.1p). Prior year was distorted by the change in the number of shares just prior to the IPO.

The Group delivered a strong performance in 2014. Revenue for the year ended 31 December 2014 was £51.8m (2013: £42.0m) with growth across the Group. Underlying operating profit increased by 8% to £12.2m (2013: £11.3m). Profit before taxation was lower at £10.6m (2013: £10.9m) due to increased share based payments and increased amortisation charges.

Health & Social Care, excluding Corelogic, delivered increased revenue up 10% to £16.3m (2013: £14.9m) alongside an improvement in gross profit up 3% to £8.6m (2013: £8.4m), marking the inflection point for the business. Excellent performance in tender activity during the year is a testament to the strength of the RiO product suite and Servelec’s ability to deliver to and support our direct customers. The Healthcare team had won 17 of the 29 contracts awarded as part of the London Refresh of the National Programme for IT (NPfIT) by the end of 2014. This provided an order bank of £33.8m, an increase of 51% on the previous year (2013: £22.4m).

In December 2014 we successfully acquired Corelogic Limited for a total consideration of £23.5 million. Corelogic joined our Healthcare division, now renamed Heath & Social Care and brings its next generation social care case management software, Mosaic, to the Group. Corelogic has a market-leading position in the UK with strong growth potential. The acquisition of Corelogic brings an additional order bank of £15.4m resulting in a total Health & Social Care order bank of £49.1m. Our Health & Social Care segment has a strong capability in preparation for the Governments agenda on converged care, with Corelogic bringing core skills and IP in this adjacent market. We welcome Kevin Moorhouse, who joins our senior management team.

The strong results for Automation were driven by the successful integration and initial restructuring of Semaphore into the Technologies business. It clearly illustrates the benefits and value from this important acquisition. Technologies revenue grew 70% to £20.1m (2013: £11.8m) and underlying operating profit grew 66% to £3.9m (2013: £2.3m). This result was supported by an increase in net margins within Semaphore to 17% (2013: 6%), in line with forecast and demonstrating the extent to which Servelec can transform a business upon acquisition.

The Controls business delivered a flat result with revenue at £15.0m (2013: £15.3m). Whilst ongoing consultancy continued at a steady level, growth was deferred by the significant delays in anticipated orders driven by the level of change in the oil and gas industry in response to the falling oil price.

Alan StubbsChief Executive Officer

Mike CaneChief Financial Officer

1717

UNDERLYING OPERATING PROFIT (£’000)(i, ii)

GROSS PROFIT (£’000)(i)

REVENUE (£’000)

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012

2014 2013 2012




PROFIT BEFORE TAX (£’000)

12,22511,27711,165

62,28738,92744,817

23,44718,41317,126

60,20032,60131,874

10,59010,90810,885

4,2042,0132,596

41,99539,361

51,753

(i) 2012 excludes £165,000 of royalty charges from CSE Global Ltd.(ii) Underlying profit excludes share based payments, acquired intangibles

amortisation and exceptional items.


Relevance and measurement This is reported in detail for the operating segments and is a key driver for the business to track our overall success in project delivery and market share growth.

Performance Revenue grew 23% with 70% growth in Technologies and 12% growth in Health & Social Care offset by a 2% drop in Controls.

Relevance and measurement This measures our operating profitability on an International Financial Reporting Standards (IFRS) basis, excluding share based payments, acquired intangible amortisation and exceptionals.

Performance Up 8% driven by Technologies, including a full year of Semaphore. Healthcare performance was in line with expectations as the division moved through the inflection point of exiting NPfIT.

Relevance and measurement This is the total future revenue we expect from orders received.

Performance Up 60%, reflecting Healthcare tender activity and incorporating £15.4m order bank from Corelogic, acquired in December 2014. Automation has reduced due to delays in oil and gas orders and the transition to AMP6 in the water industry.

Relevance and measurement This is the total contract value of orders received within the year.

Performance Up 85% driven by Healthcare’s success in the London Refresh of the National Programme for IT.

Relevance and measurement This is the total profit before operational expenses.

Performance Up 27% reflecting an increase from a full year of Semaphore business.

Relevance and measurement This is profit from ordinary activities, before tax.

Performance Profit before tax decreased 3% reflecting a full years charge of share based payments and acquired intangible amortisation.

Relevance and measurement This measures the level of investment we have made in developing new and existing products during the year.

Performance R&D investment relates to ongoing product development in Healthcare to support interoperability and paperless and mobile working, investment in 3 pilots in the water industry and RTU enhancements in Technologies (note 6).

Key Performance Indicators

£12.2m+8% (2013: £11.2m)

£62.3m+60% (2013: £38.9m)

£23.4m+27% (2013: £18.4m)

£60.2m+85% (2013: £32.6m)

£10.6m-3% (2013: £10.9m)

£4.2m+109% (2012: £2.0m)

£51.8m+23% (2013: £42.0m)

18


18

Business reviewcontinued

CashCash flow from operating activities was £17.4m (2013: £9.1m) predominantly driven by the BT work in progress unwind. Acquisitions of subsidiaries resulted in a net cash outflow of £13.3m paid out of cash reserves. Loan notes of £6m were issued in relation to the acquisition of Corelogic and will be repaid from internally generated cash reserves by 30 June 2015.

Capital expenditureDuring the year we invested in IT and office equipment, including the development of a new hosting environment for Healthcare customers. Following good take up of our hosting capabilities in 2014, we anticipate further capital expenditure will be required in 2015 to keep up with demand for hosting from our growing health and social care customer base.

In November, Healthcare relocated to a new office in Sheffield city centre to facilitate further growth. This move provided the opportunity to create one main site for our Automation business in Eckington, Sheffield. Our Controls business, previously located in Dinnington, joined the Technologies business at our Eckington site in January, following the refurbishment of the workshop.

TaxationThe underlying rate of taxation of 18% is below the UK standard rate of corporation tax of 21.5%. This difference is mainly due to time based credits in Semaphore more than offsetting higher tax rates in overseas entities. The Group also benefits from research and development tax credits.

Current tradingFollowing a strong finish to 2014, with an order bank of £62.3m (2013: £38.9m), we have seen an encouraging start to 2015.

The Healthcare market continues to be particularly active as 2015 sees the conclusion of tender activity for the London Refresh and the commencement of bidding for the North Refresh (where 667 systems should be refreshed by mid-2016). We are delighted to have been added as a preferred supplier for all six lots within a major framework that will support the North Refresh. This position enables us to bid on all system renewal activity across Core PAS; ED Emergency; Theatre; Child Health; Maternity and E-prescribing.

In Servelec Automation, we are preparing for the start of the next investment cycle for UK water, AMP6, commencing in April 2015. AMP6, which is mandated by OFWAT, will have a particular emphasis on the reduction of the cost of water production and the reduction in the leakage of clean water. Both of these targets are key to our clients and are functionality that Servelec Technologies has successfully deployed in trials with a number of major water clients. Our efforts in reviewing and simplifying our products is gaining traction as newly productised offerings, with sales performing well through our global distributor network.

In the UK we have benefited from a broader approach , increased our client base in the oil and gas sector and created further opportunity in the power and nuclear sector, exemplified by the Indassol project. Whilst clients have been reluctant to commit to some of the anticipated large projects, our close relationships with our clients has maintained a strong level of activity on the front end engineering design of these projects.

PeopleIn February, we further strengthened our senior management team within our Controls division to drive growth in the power sector. Alex Moore, Managing Director for Power & Nuclear, will head up a specialist team to handle the growing pipeline of business within this sector. This change enables Kevan Jones and his team to concentrate on the changing oil and gas market as the falling price of oil enhances the need for further cost reduction programmes provided by increased automation. We welcome Alex who joins our Senior Management Team.

Earnings per shareOn 12 December 2014 the Group issued 1,061,665 additional shares associated with the acquisition of Corelogic Limited. Earnings per share for 2014 was 13p (2013: 26p). Prior year was distorted due to the change in the number of shares issued just prior to the IPO.

OutlookServelec is well poised to take advantage of the considerable opportunities for growth and development which have been identified. We have the financial means to continue to invest in the development of the Group to make the most of opportunities within the market and ensure that each individual business delivers.

Within Health & Social Care we are expecting a busy year, both in the delivery of contracts won in 2014 and in tender activity across the UK. Our strong market position, excellent product suites and positioning on procurement frameworks ideally places us to target business across the full range of system renewal activity in the north. Our track record, which includes the successful deployment of RiO and Oceano systems in the UK, provides NHS trusts with confidence in our ability to deliver on time and on budget. We also believe there are promising opportunities for PICS in 2015, albeit later than we originally anticipated.

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The acquisition of Corelogic provides substantial opportunities for additional growth. Acquiring Corelogic means we are now very well placed to develop an integrated health and social care offering for new and existing customers as we leverage our high level of geographical alignment and market-leading offerings across both health and social care markets.

In Controls we expect a continuation of market conditions experienced in 2014 during the first half of the year. The fall in the oil price has delayed the confirmation of contracts within the oil and gas market, however, our expertise is in the automation of systems which improve operational efficiencies and ensure compliance with ever stringent health & safety requirements. Our specialism in Emergency Shutdown systems and Fire and Gas protection systems gives us the confidence that over time customers will continue this type of project work as they seek to reduce operating costs, improve the safety and increase the lifespan of existing platforms through the use of increased automation.

Within Technologies, AMP6 provides opportunities to deliver return on the investment we made in water pilots with Wessex Water and Severn Trent Water in 2014. These successful pilots provide excellent prospects within the upcoming AMP6 framework. The integration of Semaphore and productisation of our offerings is already providing opportunities to increase revenue through our global distributor network and in 2015 we will be looking to expand this further.

20


Divisional reviewServelec Health & Social Care

2121

2014 2013

REVENUE (£’000)

2014 2013


2014 2013


7,5737,560

16,65714,879

28,3636,774


Servelec Healthcare specialises in the design, development, deployment and support of Electronic Patient Record (EPR) and Patient Administration Software (PAS) within secondary care settings and is a market leader in the mental health and community health sectors in England.

On 12 December 2014, Servelec acquired Corelogic Limited. Servelec Corelogic is the UK market-leading provider of next generation adult social care and children’s services case management software, integrated with financial management and reporting modules. Corelogic joined the Healthcare division, now renamed Servelec Health & Social Care. 2014 performance*Servelec Health & Social Care has performed well during 2014 with revenue at £16.7m, an increase of 12% on the prior year (organic growth of 10%). This result includes the first full exit from the National Programme for IT (NPfIT) which was delivered on time and on budget for West London Mental Health Trust. Gross profit was £8.6m, an increase of 3% on prior year. Following highly successful tender activity, the year finished with a strong order book for 2015, with 17 wins in the London Refresh at 31 December 2014 and a further three outside of London during the year (North New). Alongside this success, the business tripled the number of customers taking up its hosting service, from four to twelve in the year.

We remain the market leader in mental health and community health and understand the demands our customers face. We are providing increasing service delivery and better access to patient information to all our customers by upgrading them to the latest version of RiO.

We also continue to support our customers as they mobilise their workforce, creating greater opportunities for our customers to improve patient care. We have seen RiO mobile mature in 2014 following further product development and increased customer demand for mobile working. During the year we also developed a first phase patient portal to support the growing demand for patients to become more active in managing their own care and we are delighted to confirm that we were successful in a key accreditation for GP integration with HSCIC (Health and Social Care Information Centre), providing further business opportunities as care settings converge around the patient.

In the acute market, the deployment of our Oceano software is nearing completion with the first phase now live in University Hospitals Birmingham (UHB), together with A&E systems for Royal Cornwall and Portsmouth. We are ready for tender activity as part of the North Refresh and we are confident that our proven product offerings, backed by our experience in the market and reputation for delivering on time and on budget, will be successful.

During the year we invested £1.3m in research and development related to ongoing product development to support interoperability and paperless and mobile working.

* Servelec Health & Social Care result for 2014 includes a full year’s trading for Servelec Healthcare and 2 weeks of Servelec Corelogic.

“Servelec’s strong position in healthcare and social care positions it well to provide an integrated solution for customers as the market makes moves towards converged care.”

22


22

Strategy Our strategy is to maximise the growth across our markets by the pursuit of joint and separate opportunities across healthcare and social care. We will do this by:• Maximising opportunities arising out of

the London Refresh and the North Refresh programme focusing on hospital based mental health, community health services and acute hospitals.

• Providing mobile and workforce mobilisation products that deliver secure access to patient data at the point of care for all involved professionals.

• Enhancing our product offering to our clients to ensure that efficient, productive and safe healthcare is delivered in a cost effective manner e.g. providing hosting solutions so that our clients can focus on patient care.

• Delivering the most modern, cost effective solutions for adult social care and children’s services that help improve the quality of care within ever diminishing budgets.

• Actively participating in the integration and interoperability agenda with Government partners including HSCIC and NHS England.

• Supporting NHS and social care customers in their delivery against the paperless agenda and patient access targets.

• Taking a leadership role in helping to shape how technology will deliver converged care in partnership with Government and our health and social care customer community.

The market in 2015 HealthcareThe UK healthcare sector, which is primarily the NHS, deals with around one million patients every day. Regulatory change and tightening budgets are focusing this market on integration and interoperability. Servelec Health & Social Care 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.

Following the acquisition of Corelogic, Servelec is well placed to integrate its solutions to include social care and support its customers in sharing data, thereby reducing pressure on acute services in the NHS.

The end of the National Programme for IT (NPfIT) contracts in 2015 and 2016 mean organisations must decommission their incumbent systems. This provides the opportunity to embrace modern system platforms that will enable individual NHS trusts to position themselves for market challenges up to and beyond 2018. For Servelec Health & Social Care this provides a major growth opportunity which it is focused on capitalising upon.

Social CareThe world of social care has changed dramatically over recent years against a background of demographic changes. 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. This builds on the personalisation of adult social care and restates the importance of personal budgets, citizen 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.

These changes will have a significant impact on local authorities, leading to increased demands on the current services, resources and infrastructure. Local authorities will need to enable citizens to move between authorities without a break in their care, taking their care accounts with them. Further, there is an increasing expectation from patients to be able to access their records online. The national government is introducing ‘Digital by Default’ for all transactional services and citizens will have the right to expect similar capabilities from local government.

2015 outlook HealthcareTender activity continues to be a large focus of the business in 2015, with the London Refresh coming to an end and further activity already beginning for the North Refresh. Servelec has recently been awarded a position on a significant framework which will support the migration of NHS trusts in the north and we are confident in our ability to build on our success in the London Refresh.

Our position in the acute market has been strengthened by the successful deployment of our Oceano product in UHB, Cornwall and Portsmouth Hospitals, all of which provide very credible reference sites for future business.

Social CareWithin the UK social care market, demand for our solutions is driven by the need to replace legacy systems with a far more modern, relevant and cost effective alternative. Innovative solutions are needed to help deliver the standards of care required by an ageing population whilst at the same time coping with tightening budgets. The Statutory Sector requires a truly innovative solution to meet the demands of the Care Act 2014 and Servelec is perfectly placed to address those needs.

Divisional reviewServelec Health & Social Care continued

2323


Converged Care The pace of change in health and social care is rapid and this is being accelerated by the need to provide patients and service users with a converged approach to health and social care service delivery to deliver better care within the constraints of government spending. This approach is being championed by the major political parties and addresses the needs of a population that is living longer and as a result has more complex medical and social needs. Our customers need to provide converged care planning that brings the needs of the patient together as one single care pathway, presenting challenges on budgets and cost containment but also on providing relevant and meaningful data across the care settings to support delivery. Servelec has recognised the challenges in providing this data sharing approach and has a product and integration strategy that provides our customers with aligned care planning for regions that have both RiO and Mosaic customers and a broader integration strategy supported by NHS Standards for interoperability between systems. The longer term strategy of complete regions that can seamlessly share information will be realised as Oceano take up increases.

Research and developmentWe continue to focus our research and development teams on the provision of web based solutions and applications that are aligned to NHS and Government policy drivers and increasingly supporting our customers within their transformation programmes. This will provide our customers in health and social care with technology solutions that will enable them to meet their requirements both operationally and strategically.

Healthcare market opportunities explained

London Refresh The London Refresh will come to an end in October 2015 with all NHS trusts replacing systems provided through the National Programme for IT (NPfIT). Trusts in London primarily utilised the Camden framework for procurement of systems where Servelec was the incumbent. All trusts have now completed this procurement work and Servelec Healthcare has won 20 Trusts (17 at 31 December 2014).

North New These are trusts in the north, north east and midlands that did not have a full solution under the Computer Science Corporation contract for the NPfIT or needed to replace their system before the main North Refresh began in 2015. Servelec have won 13 contracts to date.

North Refresh The main tranche of refresh activity for the north, north east and midlands, mostly relating to trusts who had systems from TPP or iSoft as part of the Computer Science Corporation contract for the NPfIT. Activity should be completed by June 2016. Servelec are on a number of key frameworks that can be used by NHS trusts to procure their replacement systems.

1 win

Pre 2014 2015 onward2014

16 deployments of RiO

10 wins

17 wins by end of 2014

3 wins

3 wins

Systems to be refreshed before July 2016

Existing Business

NorthNew

LondonRefresh

NorthRefresh

24


24

Segment reviewServelec Controls

2014 performance2014 was a challenging year for the Controls business with revenue broadly level at £15.0m (2013: £15.3m) as orders related to the major upgrading of control systems for a number of oil and gas platforms were delayed. Controls gross profit of £5.4m (2013: £5.5m) reflects the high labour content and lower proportion of equipment provision costs in the revenue mix during the year.

Within the power and nuclear sector, Servelec Controls reconfirmed its position on the Sellafield framework during the year. This provides significant competitive advantage as it is an industry respected position which opens opportunities to work across the whole sector, including partnership agreements with Tier 1 providers. The framework agreement will run until January 2017. To maximise opportunities, we recently strengthened our management team further with the addition of Alex Moore as Managing Director for the Power & Nuclear business, joining us from Nuclear Engineering Services and previously Capula, to drive additional revenues within this market.

StrategyWe are focused on fully maximising the potential inherent within the UK oil and gas and power markets, whilst growing a global presence in oil and gas. We will deliver this by:• Oil & Gas: leveraging our strong

position in this mature market through focus on lucrative Aberdeen and London and south east markets and targeting overseas project packages via existing and new UK customers.

• Power & Nuclear: driving specialist nuclear expertise and experience into the business to maximise existing opportunities within the UK.

The market in 2015Oil & GasThe still significant UK oil and gas market is driven both by regulatory requirements and operator cost saving initiatives focused on reducing the cost of extracting oil and gas from ageing offshore platforms. Health and safety drives a significant proportion of business as official bodies have the authority to close down platforms which do not reach minimum health and safety requirements at significant cost to the operator. Although we expect the dollar price of oil will impact investment in new projects in 2015, we see this as a medium term opportunity for our business. Mandatory health and safety control and cost reduction drivers remain and opportunities to reduce the price of production will begin to come to the fore. In addition we expect to continue discussions around the de-manning of platforms in response to increased health and safety legislation and the real requirement to significantly extend the life of existing platforms in the face of cost constraints.

The oil and gas market presents immense opportunities to Servelec, who have over 30 years experience in this sector within the UK. The challenges for global oil and gas providers are the same as in the UK, with providers seeking greater efficiencies and reduced operating costs to offset the

“We see exciting opportunities for 2015 as the dollar price of oil drives additional need for further cost reduction programmes provided by increased automation.”

2525

2014 2013

REVENUE (£’000)

2014 2013


2014 2013


3,5243,610

14,99815,302

13,35013,573


“The UK is on the cusp of realising the benefits investment in the energy market, our experience and skills place us in an ideal position to play a key role providing mission critical systems solutions.”

lowering price of oil. These drivers play to Servelec’s expertise in brownfield refurbishment and asset life extention.There is potential for a radical change in the industry’s fiscal regime by the 2015 UK budget with investment in the future of the UK continental shelf of paramount importance to the UK economy. Oil and 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 term, with current levels of investment leading to significant shortfalls in energy supply as soon as 2020.

Power & NuclearThe UK power and nuclear market is a diverse and vibrant industry where innovation and efficiency are key drivers in delivering success. As would be expected, 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 2015 key areas of focus are:• Traditional coal and gas fired power

stations: the drive for lower emissions brings opportunity to apply our skills to provide value-based solutions.

• Existing nuclear power stations: increased focus on the life extension of existing nuclear generating sites due to historical delays with the new build programme.

• 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 who provide support systems and services.

2015 outlookThe top 10 customers make up 50% of Controls business by revenue and continue to repeat buy, providing good visibility of future revenue.

The outlook for Oil & Gas and Power & Nuclear is as follows:

Oil & GasThe potential of the Control’s market within oil and gas remains with the need for operating efficiencies driving a reduced cost of production increasing in a market no longer supporting a high oil price. This provides continuing opportunity for Servelec Controls in 2015 and beyond.

Technology and innovation is the way forward and Servelec is ideally positioned to offer solutions to improve efficiencies, reduce operating costs and improve safety. Servelec also have a clear competitive advantage in terms of labour rates through the deployment of a wholly employed workforce rather than the use of contractors. For Servelec, the changing market, which has caused delays in the confirmation of contracts in 2014, provide an increase in future order intake once the market realigns itself to the new challenges of current market conditions.

Power & NuclearThe current market provides huge business prospects for Servelec Controls and we have the right people with the right skills to provide solutions that maximise value for our clients in this market. The power and nuclear market is changing in terms of how various sites are operated and who manages them. Although this can potentially bring short-term delays in placing projects the outlook is one of vibrancy.

The nuclear new build programme is starting to gain traction with several contracts due to be placed in the supply chain in 2015 and Servelec has the skills, experience and resources to play a key role in this exciting long term programme via main EPC contractors. Our success in gaining a place on the Control Systems Framework for Sellafield will also provide increased opportunity in the second half of 2015 and coupled with several projects reaching the implementation stage should mean a solid pipeline of prospects as the year progresses.

As we apply our core skills to different elements of the UK power and nuclear market we expect the source of our order intake to diversify and we believe the application of core skills to new problems represents a tangible opportunity for growth.

26


26

Segment reviewServelec Technologies

“A strong year for the Technologies business, completing the integration of acquisitions made in 2013 and making positive steps towards delivering our strategy of becoming a global brand with a growing global distributor network.”

2014 performanceServelec Technologies performed ahead of expectations in 2014. Revenue was up 70% on prior year at £20.1m (2013: £11.8m) with gross margin up 109% at £9.4m (2013: £4.5m) as the business benefited from a full year of increased revenue following the acquisition of Semaphore in October 2013.

Within the UK water market, we estimate that we hold a 20% market share for RTUs, increasing to 50% for the combined RTU and telemetry market. Servelec also holds strong positions in the water market in New Zealand (25%) and Australia (30%). In other markets, Servelec is the retained RTU partner for Infrabel, the operator of Belgian railways, where Servelec RTUs monitor the health and performance of track and trackside equipment. Servelec is also the partner for GRT Gaz and Telediffusion de France (TDF) providing data monitoring solutions for their networks.

During the year, we made significant progress with the productisation of our SCADA suite of products to assist in sales through our global distributor network. We undertook a series of vanguard development projects with existing customers in the UK water industry which have performed well and position Miser and FlowSure, our flow anomaly detection system strongly for success in the next 5-year investment period, AMP6, commencing in April 2015.

In 2014 research and development investment was £2.9m equating to 14% of revenue (2013: 9%). This investment was targeted towards the productisation of our existing suite of software products, coupled with important pilot projects for UK water companies in real-time water network optimisation, where the core driver is to reduce energy and chemical costs through the real-time management of the network.

The integration of the Semaphore and Tynemarch businesses was completed during the year. We have restructured Semaphore to support sustainable top line growth, ensuring that skills within the business are appropriately deployed to maximise growth potential in 2015 and beyond. Tynemarch has achieved its first non-UK sales in 2014 and now has a strong pipeline of opportunities outside of the UK in addition to its traditional business in the UK water sector.

2727


Global RTU markets remain strong, driven by the need for the collection and reliable transmission of data to improve business decisions. In the oil and gas sector, investments are strongly focused towards improvements in the management and reporting of network performance and reducing the operational costs of maintaining networks. The TFlo wellhead flow computer with remote communications has been specifically developed to support this trend. The North American market remains a focus of the TFlo development and associated sales activity. With an already well-established Chinese presence, Servelec expects to see strong and sustained growth in China in oil and gas and other utilities.

Aside from oil and gas, where Servelec products and services are strongly suited to drive efficiencies in business operations, utilities and infrastructure, markets continue on a path towards the more timely (if not real-time) acquisition of the data they need to manage the operations more safely, efficiently and profitably. Servelec has a track record in real-time data acquisition coupled with the business optimisation tools to exploit that data effectively and so is positioned strongly for this global market.

In addition to a strong existing global presence, in view of the positioning of our products and services, Servelec has plans for significant growth in specific regions including the Americas, China and Brazil.

2015 0utlookThe outlook for Servelec Technologies is very positive, with good visibility of future orders provided by AMP6 and continued confidence in the key market drivers for growth.

We estimate our addresable market within AMP6 to be in the region of £115-120 million. OFWAT’s continued focus on improved efficiency, reduction of water leakage and an overall lower cost of water production provides increased opportunities for Servelec Technologies. Pilots run with water companies in 2014 and the acquisition of flow anomaly detection software place us in a strong position to improve upon our share of business in AMP6 and to build upon customer relationships within the industry built up over 25 years.

Outside the water industry, we continue to build on our success in transport (for example at a large UK Airport and Infrabel, Belgian railways) and onshore gas production and distribution (eg GRT Gaz and Negev Gas) where we have delivered new deployments of TFlo and Telecoms (eg TDF, Broadcast Australia and SURF Telecom).

The investment in the productisation of our software solutions in 2014 provides increased opportunities for global growth from associated product sales in 2015.

Research and developmentWe will continue to invest in the development of our product ranges against a 5-year technology roadmap to underpin these growth opportunities.

StrategyOur 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.

• Developing new markets focusing on North America, China and Brazil through a growing distributor network.

The market in 2015Within the UK water market, the next 5-year investment period (AMP6) begins in April 2015. The regulator OFWAT’s focus within the period is towards the total cost of investments covering capital and operation costs. This is creating a more flexible approach which will have a positive impact on the supply chain. Water companies are now likely to be looking more at sourcing suppliers offering not only products or solutions, but also the expertise needed to support them throughout their working life, playing to Servelec’s key strengths.

The current UK water sector RTU estate requires regular refresh and routine replacement. This creates a strong underlying baseload of business. New equipment is also required for thousands of previously un-adopted sites which must be acquired by the water companies within this next 5 year period. Servelec has invested over the past 3 years to ensure that we have the most appropriate range of products available for the UK water sector, developed in close co-operation with these customers.

2014 2013

REVENUE (£’000)

2014 2013


2014 2013


3,8552,324

20,09811,814

18,48712,254

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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.

Risk management framework

SERVELEC BOARD

CORPORATE GO

VER

NA

NCE

Responsibility– Group executives– Business executives– Monitored function

Compliance– Financial– Business development– Health and safety

How– Internal audit– External audit

AUD

IT

COMMITTEE INTERNAL PROCESS A

ND

AC

CR

EDITATIONS

The following risks are, in the opinion of the Board, the principal risks which effect Servelec Group. It is not intended to be a complete analysis of all risks and may change over time.

2929


Risk Mitigation Movement Status

RegulatoryChanges to legislation may cause customers to divert their spending on the Group’s products.

• Active consultation with Government bodies and dialogue with customers on their expected project spend profiles.

Continued health and safety legislation and the push for operating efficiencies ensures spending on automation and software solutions.

Public Sector Healthcare SpendingA key driver of the Group’s business is the level of UK Government spending on IT relating to healthcare delivery. The rate of growth in expenditure on healthcare related IT may reduce significantly.

• Active consultation with Government bodies. Continuous improvement of the product offering to meet the long-term government objectives.

• The ending of the NPfIT contracts in England is driving market spend in our core areas of expertise. Our success in the London Refresh will assist in us winning in the North Refresh in 2015 and beyond.

• The acquisition of Corelogic ensures the Group is well placed to benefit from any future changes in funding as the country moves to converged care, which is supported by all political parties.

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

• Maintain strong customer relationships and high service levels.

• Internal review of bid feedback.• Regular customer user groups to

understand areas of improvement.

• Healthcare – The high win rate in the London Refresh and North New markets together with good feedback on our framework submissions gives us confidence that we are meeting customer expectations.

• Automation – we have received positive feedback from customers regarding our current product ranges.

OperationalThe 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 customers’ performance requirements or otherwise satisfy the contract specifications.

• The Group has rigorous testing and review processes embedded in the design and development operations of the business. It maintains accredited Quality Assurance (QA) systems which are independently checked on a regular basis.

We have successfully retained our QA accreditations during the year.

Revenue recognitionThe 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 inherant risk of project accounting.

• The Group has a strong management system and has regular contract reviews with key management to assess the performance of individual contracts.

Group policies are rolled out to new acquisitions.

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

• The Group believes it has a flexible benefits package and continually reviews the working environment and overall reward to staff.

• Each business regularly matches the future resource requirements to current staff identifying training and recruitment needs.

• Active Graduate Recruitment programme.

• Healthcare moved to a new city centre location and Servelec Controls moved onto the Eckington site following the refurbishment of the workshop area.

• Recruitment of new Power & Nuclear management team.

• Remuneration Committee to advise on any appointment with OTE over £150,000.

CurrencyThe Group is exposed to translation and transaction foreign exchange risk.

• The Group matches the revenue and costs of all foreign 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.

The Euro is currently weakening against the pound, however the US $ is strengthening.

Information TechnologyLoss of data from failure of systems or cyber attack.

• The Group adheres to security standard BS EN ISO27001:2013.

• We have a tried and tested business continuity plan, physical access controls and multiple backups off site.

We use third party hosting sites for customer hosted solutions. The new office in Sheffield city centre also provides an additional options for business continuity.

Oil PriceThe US $ price of oil in the global market has reduced significantly at the end of 2014 and the beginning of 2015 which may delay the start of major projects.

• Servelec Controls specialise in health and safety systems and automation which results in operational cost savings.

NEW We may see a further delay in the start of major projects due to management changes in our customer base.

30


30

MALE FEMALE

Gender DiversityWe want to give all our employees the opportunity to make progress at Servelec.

Corporate social responsibility

At Servelec Group, Corporate Social Responsibility (CSR) is more than just being aware of our impact on the environment. It is also about the development of our employees, how we relate to our customers, and our relationship with suppliers and our local communities.

Our responsibility framework• Our people: Within Servelec Group,

our employees are essential to the success of the business.

• Our environment: Servelec aims to improve its environmental footprint and create new value for customers through sustainable technologies, products and solutions.

• Our community: Servelec aims to make a positive contribution to the locations where it is based.

Servelec’s approach to CSR is overseen by the Company Secretary, who reports progress to the Board.

Our peopleEmployer of choiceThe commitment we have to our employees is reflected in their commitment to the Company. We maintain good retention rates amongst our employees and continue to attract new talent. As an employer of choice, we understand that benefits extend beyond pay and reward, offering interesting and rewarding career opportunities across the Group businesses. We engage with our people through a staff partnership forum to aid two-way communication. Our benefits package currently includes a complement of competitive holiday allowance, company pension scheme and life cover, flexitime, bonus scheme and save-as-you-earn share scheme.

Career development opportunitiesOur commitment to progression and development is evident in the career paths of our employees.

Equal access to ongoing development for our employees is essential and many undertake further training and professional qualifications up to and including post-graduate level. This assists the business in developing succession planning, vital for the growth and development of our business.

Student development opportunities and graduate recruitmentThrough our excellent relationships with universities located near to our various UK sites, we operate very successful student placement and graduate programmes.

Student applicants chosen to join the Group on placements soon become valued members of the team, getting involved in project work and making an important contribution. We reward our hardworking students with a placement salary and selected bursaries. A high proportion of these students return to us to take up permanent employment following graduation. This ensures a smooth integration into the business based upon their placement experience and knowledge gained.

Equal opportunitiesServelec is committed to an equal opportunities policy. We select, train and promote based on merit and aim to ensure that no employee is discriminated against, directly or indirectly, on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex or sexual orientation.

5

Gender diversity on the Board

8635

Gender diversity at management level

176

Gender diversity within Senior Management

457118

Gender diversity within the workforce

3131


Health and safetyThe health and safety of our employees and all who may be affected by our activities is given the highest priority. We endeavour to achieve high standards of health and safety and where non-conformance is identified we encourage reporting of the event so that we can learn from it and put in place preventative actions where appropriate.

Health and safety audits are carried out to an annual plan to ensure compliance of our sites to the safety standards we set and to ensure that our staff operate in a safe manner.

We believe it is essential that all employees have a clear understanding of how workplace health and safety is managed, to ensure this Health and Safety Inductions are given to all new starters.

Senior management also have a crucial role in supporting a strong safety culture. We expect internal stakeholders to take an active interest in, and ownership of, safety in the workplace. This includes:• An understanding of the legal aspects

of occupational health and safety, specifically their legal obligations and responsibilities.

• Having and articulating a clear vision for the business, including the expectation that everyone has a stake in supporting the desired safety culture.

• An appreciation of the elements of safety management, and their interactions ie. policies and procedures.

In order to improve and maintain a safe environment for our employees, safety notices are communicated throughout the organisation to improve the degree of knowledge that employees and managers have about the influence that they have on safety performance.

32


32

Our environment Environment We believe we can improve our environmental footprint and save energy. This creates new value for our customers through sustainable technologies, products and solutions. We continue to monitor the impact of our products, our operations, and our supply chain on the environment, and work to not only reduce negative externalities but create new opportunities for greater efficiencies. The energy consumed at each work place is recorded, and calculated across the business, providing the opportunity to gauge the energy efficiency of each site. In doing this we consider factors that may increase the consumption of energy that are beyond the control of the business, such as climate, or the types of power demands of that location eg. office based against electrical workshops.

The 2014 carbon footprint figures is as follows:

CO2 reporting

CO2e tonnes

Fuel type 2014 2013*

Electricity and gas 768 759Fuel for travel 360 371

Total 1,128 1,130

Greenhouse Gas Emission Intensity Ratio: 2014 2013

CO2e tonnes per £100,000 of turnover 2.18 3.71* 2013 has been restated to ensure reporting on

a consistent basis.

The business targeted a reduction in power consumption of by 5% based on turnover. During 2014 power consumption relative to turnover reduced by 18%.

Corporate social responsibilitycontinued

In 2015 the business will apply for certification to ISO50001 Energy Management, which will assist us in obtaining carbon emissions capture as well as compliance to ESOS (Energy Savings Opportunity Scheme).Energy consumption and Green House Gas (GHG) emissions are the most important and complex environmental issues for Servelec. Energy consumption includes our own operations, and the energy used by the products we market.

In 2013 we announced a number of objectives in reducing the GHG. These focused on improving the energy efficiency of our operations, for example we have made major improvements to the insulation and upgrade of lighting with energy efficient lighting at the Eckington site. Another site uses re-cycled energy for lighting and heating, and we use IT server virtualisation for the IT network infrastructure. These are examples of the continuous improvement being made by the Group, which carries on in 2015.

We have developed innovative products that promote energy efficiency and reduce waste. These products can reduce GHG emissions by users of the products. Innovation is at the core of Servelec’s environmental sustainability initiatives. In developing advanced products, solutions, and updated business processes, we are multiplying the impact of the network to create sustainable business models and increased economic opportunity.

Our aim is to build environmental sustainability into each business function and process and, ultimately, into every business decision our employees make around the world. We believe that improved sustainability creates net benefits to our business, our customers, and the planet. Our relationship with our customers is now based on cost, quality, delivery, service, and sustainability.

Environmental sustainabilityThe company has an Environment Management System (EMS) which enables us to manage our environmental impacts and programmes in a comprehensive, systematic, and planned manner. Policies are developed under the following governing principles for environmental sustainability. Servelec seeks and maintains ISO14001 certification for sites with significant potential for environmental impact.

Waste recyclingDue to the nature of our business we ensure that waste at all our sites (as required) is sorted and pretreated prior to disposal. The Group’s objective is to adopt this approach across new acquisitions to further reduce the general waste to landfill.

Environmental policyServelec recognises the importance of environmental protection and is committed to operating the Group’s business responsibly and in compliance with environmental law, regulation and approved codes of practice applicable to its business activities. The Group’s environmental policy, which is reviewed each year, outlines the Group’s key environmental impacts, targets and commitments.

Servelec proactively seeks to reduce the Group’s environmental impact, with its ultimate goal being to reduce its overall carbon footprint by embedding environmental controls and practices into the daily management of the Group’s operations and encouraging positive behaviour from its employees. The Directors believe that these environmental controls and practices can also benefit the Group’s business, by promoting the efficient use of energy and resources thereby helping to reduce costs.

3333


In 2014, the Company gained certification for its environmental management extended system to ISO14001:2004 standard to additional sites eg Warrington. This demonstrates the Group’s commitment to effective environmental management of its operations at a time when customers are increasingly concerned with environmental issues.

The ongoing environmental objectives forthe Company are to:• Reduce waste and disposal to landfill.• Reduce consumption of energy and

water.• Develop and engage environment

awareness throughout the Group.

Cycle to work schemeAs part of our increasing awareness of environmentally sustainable working practices and enhancing our reputation as a progressive employer offering a wide range of flexible benefits, Servelec offers employees the chance to participate in a Cycle to Work Scheme.

Our communityCommunity eventsServelec is committed to corporate social responsibility and a key aspect of this is the Company’s interaction with the community.

Servelec’s charities and fund raising scheme supports Servelec’s employees in their generosity and fundraising efforts. Team fundraising for registered charities associated with the provision of a healthy lifestyle and environmental improvement in the community is matched by the Company. Over the past year, we have donated to several charitable organisations which collectively cater to the broad needs of the disadvantaged, across the various age groups.

Here are a few examples of events which our employees have been involved with:• “Wear it Pink” day, donating money to

the Breast Cancer Campaign.• Coast to Coast cycling challenge to

raise money for Sheffield MIND (mental health & wellbeing).

• 10km run for Neurocare at Sheffield Hallamshire Hospital.

The strategic report has been approved by the Directors of Servelec Group plc.

Signed on behalf of the Board.

MG CaneCompany Secretary11 March 2015

34


34

Alan StubbsChief Executive Officer

Having joined the Group as a software engineer in 1984, Alan was appointed Managing Director of the Company in 2001. In June 2010, he was appointed Chief Operating Officer for parent company CSE Global before taking on the role of Chief Executive Officer of CSE Global in January 2011.

In December 2013, Alan left CSE Global to become Chief Executive Officer of Servelec Group plc following a successful IPO on the London Stock Exchange.

Appointed to the Board: 1995

Richard LastChairman and Non-Executive Director * † ‡

Richard joined the Company in 2008 as a Non-Executive Director and was appointed Chairman of the Company later that year. He has over 20 years’ senior experience in information technology having worked at Board level for a number of publicly quoted and private companies in the technology sector.

Richard is Chairman and non-executive director of AIM listed: Gamma Communications plc, a communications company; Arcontech Group plc, a financial software business and Lighthouse Group plc, a financial services business , He is also non-executive director of USA based Corero Network Security plc an IT security company listed on AIM. In addition Richard is Chairman and non-executive director of The British Smaller Companies VCT2 Plc, a venture capital trust, fully listed on the London Stock Exchange. Richard is a Fellow of The Institute of Chartered Accountants in England and Wales.


Mike CaneChief Financial Officer

Mike joined the company as Company secretary in October 2012 and Finance Director in March 2013. Prior to joining the Company, he was Finance Director of Bullock Construction Limited and SPI Limited. From 2001 until 2007 he held the position of group financial controller at Cleanaway Limited. Mike is a member of the Institute of Chartered Accountants in England and Wales having qualified in 1991 whilst working at Price Waterhouse. He holds a Bachelor of Science (Hons) from the University of Manchester.


Roger McDowellSenior Independent Non-Executive Director * † ‡

Roger joined the Company as a Non-Executive Director on the 24 October 2013. The early part of Roger’s career was spent as CEO of an independent distribution business, growing the company both organically and by acquisition, then leading the business through a main market listing. Subsequently he has served as a Non-Executive Director or Chairman of numerous listed businesses and his extensive experience includes chairing all Board Committees. Roger is currently Audit Committee Chair of Inspired Capital plc and Proteome Sciences plc.


Bernie WaldronIndependent Non-Executive Director * † ‡

Bernie joined the Company as a Non-Executive Director on 1 November 2013. Bernie has more than 30 years’ experience in the global technology marketplace including positions as director of strategy for IBM Corporation, based in New York, general manager of IBM’s industrial sector business for Europe, Middle East and Africa, and Executive Chairman of the former Maersk Data Group of companies, based in Copenhagen. He is now non-executive chair or director of a number of public and private companies.


Board of directors

Committee Membership

* Remuneration Committee † Nomination Committee ‡ Audit Committee

3535


Kevin MoorhouseExecutive Director, Servelec Corelogic

Kevin was appointed Executive Director of Servelec Corelogic in December 2014, following the acquisition of Corelogic in 2014. Kevin started Corelogic in 1999, following 7 years at OLM, a software provider in the same sector which he helped to found. Kevin has 22 years of experience in the social care case management market and over 30 years in the computing industry as a whole.

Alex MooreManaging Director, Servelec Controls – Power & Nuclear

Alex was appointed Managing Director of Servelec Controls – Power & Nuclear in February 2015. Alex has a strong background in power engineering and joined Servelec from Ansaldo NES Limited where he held the position of Business Development Director. Previous to this role Alex was Nuclear Services Director at Capula, where he spent 11 years.

Andy SullivanManaging Director, Servelec Technologies

Andy was appointed Managing Director of Servelec Technologies in 2013. A Chartered Electrical & Electronic Engineer, Andy has over 25 years experience in control and monitoring systems, product development & manufacture and consultancy, predominately in the utilities sector. Andy has operated at Senior Management / Managing Director level for the last 10 years.

Kevan JonesManaging Director, Servelec Controls – Oil & Gas

Kevan was appointed Managing Director of Servelec Controls in 2010, following the acquisition of SIA in 2010. In February 2015, Kevan moved to focus specifically on the Oil & Gas business. Kevan has 25 years’ experience in international manufacturing and process engineering at senior management levels and has 13 years’ experience at director level in control system design within the oil and gas and power industries worldwide.

Sue HawkswellManaging Director, Servelec Healthcare

Sue was appointed Managing Director of Servelec Healthcare in 2009. She started her career in healthcare IT as a key architect in the development and delivery of patient-based information solutions to the NHS and brings over 25 years’ healthcare IT experience. This blend of experience and skill has helped steer Servelec Healthcare to a market leading position.

Senior management

36


36

• Roger McDowell, Chairman

• Richard Last

• Bernie Waldron

• Bernie Waldron, Chairman

• Richard Last

• Roger McDowell

• Richard Last, Chairman

• Roger McDowell

• Bernie Waldron

See page 41 for Audit Committee report. See page 44 for Remuneration Committee report. See page 40 for Nomination Committee report.

• Richard Last, Chairman and Non-Executive Director

• Alan Stubbs, Chief Executive Officer

• Mike Cane, Chief Financial Officer

• Roger McDowell, Senior Independent Non-Executive Director

• Bernie Waldron, Non-Executive Director

SERVELEC GROUP BOARD

AUDIT COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE

Letter from the Chairman

Dear Shareholder

The reports in this section of our Annual Report explain how the Board and each of its committees function and the issues that they have been addressing over the last 12 months.

The Board is committed to the highest standards of corporate governance and to maintaining a sound framework for the control and management of the Group. Since the Group only listed at the end of 2013, work was undertaken in 2014 to ensure full compliance with the provisions of the Code. The progress made in this area is also laid out in this report.

Richard LastChairman & Non-Executive Director

The UK Corporate Governance CodeThe Board is committed to maintaining high standards of corporate governance and maintaining a sound framework for the control and management of the Group. It follows an approach that complies with provisions of the UK Corporate Governance Code dated September 2012 (the “Code”). A copy of the Code can be found at www.frc.co.uk. During the year under review, the Company has complied with the main provisions of the the Code and this Report describes how the Company has applied the relevent principles during the year.

Board and committee compositionThe Board consists of 3 Non-Executive Directors (including the Chairman) and 2 Executive Directors. Biographies of all members of the Board appear on page 34. There have not been any changes to the Board during the financial year.

Corporate governance report

37

The role of the BoardThe Board is responsible for leading and controlling the Group and has overall authority for the management and conduct of the Group’s business, strategy and development. This includes ensuring the maintenance of a sound system of internal control and risk management (including financial, operational and compliance controls), for reviewing the overall effectiveness of systems in place and for the approval of any changes to the capital, corporate and/or management structure of the Group.

The Board delegates to management the day-to-day running of the Group within defined risk parameters. Board meetings are scheduled to coincide with key events in the corporate calendar including the interim and final results and annual general meeting.

The Board has adopted a formal schedule of matters reserved for its approval and has delegated other specific responsibilities to its Committees. This schedule sets out key aspects of the affairs of the Company which the Board does not delegate, including key strategic, operational and financial issues. All Directors have access to the advice and services of the Company Secretary who has responsibility for ensuring compliance with the Board’s procedures. All the Directors have the right to have their opposition to, or concerns over, any Board decision noted in the minutes. The Board has adopted guidelines by which Directors may take independent professional advice at the Group’s expense in the performance of their duties.

The Chairman and the Non-Executive Directors met informally without the executives present 2 times during the year and will continue periodically to hold such meetings during 2015 and beyond.

Conflicts of Interests The duties to avoid potential conflicts and to disclose such situations for authorisation by the Board are the personal responsibility of each Director. Each Director is required to ensure that he keeps these duties under review and informs the Company Secretary on an ongoing basis of any change in their respective positions.

On 2 December 2013, the Company adopted new Articles of Association. Article 38 authorises the Directors, for the purposes of Section 175 of the Companies Act 2006, to authorise any potential conflict situation, being a situation in which a Director has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company. The Director in question is not counted in the quorum at the relevant meeting of the Board and does not vote on the resolution.

The Board has an agreed procedure for dealing with conflicts of interest in relation to matters which are scheduled for Board consideration. Each Director has completed a ’Directors List’ which sets out details of situations where their interests may conflict with those of the Company (’situational conflicts’). These lists have been considered by the Board and situational conflicts authorised. In addition, Directors are reminded at the beginning of each Board meeting to notify the Board of any further conflicts of interest in accordance with Sections 175, 177 and 182 of the Companies Act 2006.

The Articles of Association of the Company require it to indemnify officers of the Company, including officers of wholly-owned subsidiaries, against liabilities arising from the conduct of the Group’s business, to the extent permitted by law. The Group has therefore purchased directors’ and officers’ liability insurance during the year.

Board balance and independenceThe Code recommends that at least half the Board of Directors of UK listed companies, excluding the Chairman, should comprise Non-Executive Directors determined by the Board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the director’s judgement.

The Board regards all of the Non-Executive Directors as Independent Non-Executive Directors within the meaning of the Code and free from any business or other relationship that could materially interfere with the exercise of their independent judgement. The Board believes that the current directorate considerably enhances its ability to develop the Group’s operations.

Role of the Chairman and Chief ExecutiveThe Board is chaired by Richard Last. The Chairman is responsible for the effective leadership of the Board, having regard for the interests of all stakeholders and promoting high standards of corporate governance.

Alan Stubbs is the Chief Executive Officer and is responsible for implementing the Board’s strategy and leading the senior management team. The role is distinct and separate to that of Chairman and clear divisions of accountability and responsibility have been agreed by the Board, and are set out in writing.

Role of the Senior Independent Director (SID)Roger McDowell is the Senior Independent Director. The Code recommends that the Board of Directors of a Company with a premium listing on the Official List should appoint one of the Non-Executive Directors to be the Senior Independent Director to provide a sounding board for the Chairman and to serve as an intermediary for the other Directors when necessary. The Senior Independent Director should be available to shareholders if they have concerns which contact through the normal channels of the Chairman, CEO or other Executive Directors has failed to resolve or for which such contact is inappropriate.

Role of the Company SecretaryMike Cane is the Company Secretary. The role of the Company Secretary is to develop, implement and maintain good corporate governance practices. This includes supporting the Chairman and Non-Executive Directors as appropriate, managing Board and Board committee meetings, facilitating the induction of new Directors, ensuring that appropriate levels of directors’ and officers’ insurance is in place and that the Group is compliant with statutory and regulatory requirements. The responsibilities of the Company Secretary have been agreed by the Board and set out in writing.


38


Information, meetings and attendanceThe Board operates formally through regular scheduled Board meetings and there is also frequent communication between Directors outside these meetings including as members of the relevant committees.

The Board met formally 11 times during the year with a number of additional adhoc meetings convened to deal with specific matters requiring Board consideration or approval as required.

Member Appointed AttendedNumber of

meetings

Richard Last 2008 11 11

Alan Stubbs 1995 11 11

Mike Cane 2013 11 11

Roger McDowell 2013 11 11

Bernie Waldron 2013 11 11

During the year the Board met to review the Company’s long-term strategic direction and financial plans and monitor performance, including presentations from the Senior Management Team on strategy and performance of individual business divisions. In line with agreed strategy and plans, the Board agreed key objectives for the Chief Executive Officer. The Board also met specifically concerning the acquisition of Corelogic Limited. These meetings included the receipt of presentations on social care and the future of the health and social care market by PWC and Connell Consultants and the formal approval of the acquisition. In December the Board received a formal presentation of the annual budget for the 2015 financial year for approval.

The Chairman is responsible for ensuring that the Directors receive accurate, timely and clear information. Prior to each scheduled Board meeting, a pack is circulated in respect of each financial period, which includes an update on key performance targets, trading performance against budget and includes detailed financial data and analysis. Board packs are generally distributed between 3 and 7 days prior to each meeting to provide sufficient time for Directors to review papers in advance. If Directors are unable to attend a Board meeting for any reason, they nonetheless receive the relevant papers and are consulted prior to the meeting and their views made known to the other Directors. In addition, all Board members have full access to management reports at a Divisional level.

Board committeesThe composition and constitution of the Board’s Committees are set out on page 36. Subject to those matters reserved for its decision, the Board has delegated to its Audit, Nomination and Remuneration Committees certain authorities. There are written terms of reference for each of these committees, available on the Corporate Governance page of the website www.servelec-group.com, and separate reports for each committee are included in this Annual Report and Accounts from page 40.

DevelopmentThere have been no new appointments to the Board since December 2013. The Group has a formal induction and training process for new Directors, including meeting major shareholders and advisers as required.

During 2014, the Chairman agreed with each Director their individual training and development needs and developed specific training programmes which included deep dive product training with business directors, independent of the Executive Team.

Board evaluationThe effectiveness of the Board is essential to the success of the Group. During the year an evaluation policy was developed and implemented.

The evaluation process was based on a series of questions devised for the purpose and circulated to the directors. The process reviewed issues such as: the assessment and monitoring of the Company’s strategy;the mix of knowledge and skills on theBoard; succession; and performance of the Board Committees. The results were collated by the Company Secretary and considered by the Chairman or, in the case of the Chairman, by the Senior Independent Director. The Senior Independent Director, after consultation with the other directors, also conducted an appraisal interview with the Chairman.

The performance of the Board as a whole and of each of its principal Committees was considered. The results of the evaluation will form the basis of Board objectives for 2015.

Election of DirectorsThe Board can appoint any person to be a Director, either to fill a vacancy or as an addition to the existing Board provided that the total number of Directors does not exceed 10, the maximum prescribed in the Company’s Articles of Association. Any Director so appointed by the Board shall hold office only until the next annual general meeting and shall then be eligible for election by the shareholders.

In accordance with the Articles of Association, at every annual general meeting of the Company one-third of the Directors or the number nearest to but not exceeding one-third shall retire from office. The Directors to retire shall be those who have been longest in office since their last appointment or re-appointment. The Company intends to continue this practice but will review it regularly.

External appointmentsThe Executive Directors may accept outside appointments provided that such appointments do not in any way prejudice their ability to perform their duties as Executive Directors of the Company. None of the Executive Directors currently hold any such outside appointments and this position is reconfirmed at each Board meeting to monitor the position.

Corporate governance reportcontinued

39

The Non-Executive Directors’ appointment letters are not specific about the maximum time commitment, recognising that there is always the possibility of an additional time commitment and ad hoc matters that may arise from time to time, particularly when the Group is undergoing a period of increased activity. The average time commitment inevitably increases where a Non-Executive Director assumes additional responsibilities such as being appointed to a Board committee or as a Non-Executive Director on the boards of any of the Group’s subsidiaries, associated or joint venture companies.

Communications with shareholdersThe Board considers effective communication with its investors, whether institutional, private or employee shareholders, to be extremely important.

Investor relations activity and a review of the share register are standing items on the Board’s agenda. Reports from analysts and brokers are circulated to the Board. Members of the Board meet institutional investors regularly to provide an opportunity to discuss, in context of publicly available information, the progress of the Group. The Group also holds investor days, and held such an event, focussed on the Automation division in December 2014. Institutional investors and analysts are also invited to attend briefings by the Company following the announcement of the annual and interim results. The Chairman and Non-Executive Directors are available to attend investor relations meetings or to attend meetings with investors or analysts independent of the Group’s management if required.

The Company reports formally twice a year with the half-year results announcement and the preliminary announcement of the full-year results. An interim statement is published on the Company’s website in August and the Annual Report and Accounts is published in March. These reports and other announcements the Company makes from time to time can be found on www.servelec-group.com.

Annual General MeetingThe Company’s Annual General Meeting will take place on 28 April 2015 at 9.30am, at techUK, 10 St Bride Street, London EC4A 4AD. The chairmen of each 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 Company proposes to offer 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 Company’s website.

By order of the Board

Richard LastChairman & Non-Executive Director 11 March 2015


40


Nomination committee report

Chairman’s introduction

Dear Shareholder

The Board strongly believes that good governance and strong, responsible, balanced leadership by the Board are critical to creating long-term shareholder value and business success. Due to the relatively short period of time since the Board was appointed and the IPO, the Nomination Committee only met once during 2014. Nevertheless, the Committee is proactive in discharging its responsibilities, cognisant of the importance of succession planning and the need to align Board and executive leadership skills to the Company’s long-term strategy.

Richard LastChairman, Nomination Committee11 March 2015

Roles and responsibilitiesUnder normal circumstances, the Nomination Committee will meet not less than twice a year to assist the Board in discharging its responsibilities relating to the composition and make-up of the Board and any committees of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as Directors or committee members as the need may arise. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience and the size, structure and composition of the Board and committees of the Board, retirements and appointments of additional and replacement Directors and committee members and makes appropriate recommendations to the Board on such matters.

The full terms of reference are available on the corporate governance page of the Company’s website at www.servelec-group.com.

Committee membership and attendanceIn accordance with the UK Corporate Governance Code the nomination committee consists of 3 Non-Executive Directors. The Nomination Committee is chaired by Richard Last and its other members are Roger McDowell and Bernie Waldron. There have not been any changes to the Committee membership during the year.


meetings




Committee activities during 2014The Nomination Committee met once during the financial year to discuss Board structure, independence and skillset.

DiversityThe Company pursues diversity, including gender diversity, throughout the business. When recruiting at a Board level, the Nomination Committee requires that executive search firms have signed up to their industry’s voluntary code of conduct (prepared in response to the Davies Review of Women on Boards). The Group follows a policy of appointing talented people on merit at every level and does not have a specific target for numbers of female directors. The Board will also ensure that its own development in this area is consistent with its strategic objectives and enhances Board effectiveness.

41

Audit committee report

Chairman’s introduction

Dear Shareholder

The Audit Committee plays a central role in the review of Servelec Group’s financial reporting and internal control processes. Our aim is to ensure that these processes deliver high quality and timely information. I would like to thank my independent colleagues for their support during the period under review.

2014 marked a watershed for Servelec, a first full year as a listed business and a strategically important acquisition. Both matters required the close interest of the Audit Committee. The acquisition of Corelogic in December gave rise to careful consideration of the valuation issues involved, as detailed below. In addition, we continue to be vigilant in our monitoring of internal and external risk factors, having recently assisted the Board to conclude a thorough review of the risk register. As a committee we seek not just to respond to external factors but to endeavour to support and challenge management to anticipate future risks and opportunities.

The year has seen fewer regulatory changes than 2013 which has provided a period of stability. We remain committed to helping the Board ensure that the Annual Report, as a whole, is fair balanced and understandable.

The specific duties of the Committee, how we operate and the key areas of focus are detailed in the review below. We are very conscious of increasing shareholder expectation and scrutiny of our work and we would welcome feedback.

Roger McDowellChairman, Audit Committee11 March 2015

Roles and responsibilitiesThe Audit Committee assists the Board in discharging its responsibilities with regard to:• Financial reporting, including reviewing and monitoring the

integrity of the Group’s annual and interim financial statements. The Board has also requested that the Committee advise them in ensuring that the financial statements, when taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board.

• External auditors, including reviewing and monitoring the extent of the non-audit work undertaken by external auditors, advising on the appointment of external auditors, overseeing the Group’s relationship with its external auditors and reviewing the effectiveness of the external audit process.

• Internal audits and controls, including reviewing the effectiveness of the Group’s internal control review function.

The Audit Committee will give due consideration to laws and regulations, the provisions of the UK Corporate Governance Code and the requirements of the Listing Rules. The full terms of reference are available on the corporate governance page of the Company’s website at www.servelec-group.com.

Committee membership and attendanceThere were no changes to the composition of the Audit Committee during the financial year. In accordance with the provisions of the Code, the Audit Committee is made up of 3 independent non-Executive Directors. The Audit Committee is chaired by Roger McDowell and its other members are Richard Last and Bernie Waldron. The Board considers that Roger McDowell, by virtue of his former executive and current non-executive roles, has recent and relevant financial experience to act as Chairman of the Committee. Details of relevant experience of all members of the committee is are detailed on pages 34 – 35. The Chief Executive Officer and Chief Financial Officer attend meetings of the Audit Committee by invitation.


meetings





42


Activities of the Audit Committee in 2014The Committee met five times during the financial year. The meetings were held to review the results of the external audit for the previous financial year; discuss and agree scope of internal and external audits and reviews for the year, including the review of key areas of judgement.

The committee discharged its obligations in response of the financial year as follows:

External audit During the year the Audit committee reviewed and approved the scope and timetable for the interim review and final audit. The Committee also reviews the policies to ensure ongoing compliance with the Code. This includes the policy against which to consider the independence of the external auditor consistent with the ethical standards published by the Audit Practices Board and a policy on the engagement of external auditors for the provision of non-audit services.

Independence safeguardsIn accordance with best practice and professional standards, external auditors are required to adhere to a rotation policy whereby the audit engagement partner is rotated after 5 years. Ernst & Young LLP have been in tenure for 14 years and the current audit engagement partner was appointed in 2013. The external auditors are also required periodically to assess whether, in their professional opinion, they are independent and those view are shared with the Audit Committee. The Committee has authority to take independent advice as it deems appropriate in order to resolve issues on auditor independence. No such advice has to date been required.

Independence assessment by the Audit CommitteeThe Committee has considered the independence requirements, including that the rotation policy has been complied with. Furthermore, the level of fees paid for non-audit services does not jeopardise their independence and separate external firms are engaged for taxation advisory. The Committee has assessed the performance and independence of the external auditor and recommended to the Board the re-appointment of Ernst & Young LLP as auditor until the conclusion of the AGM in 2016.

Non-audit services provided by the external auditorThere were no non-audit services provided by the auditor in 2014.

Financial reporting The committee reviewed the interim and annual financial statements. As part of that review process, the members of the Committee were provided with a draft of the full annual report enabling them to ensure that the numbers therein are consistent with those in the financial statements or are sourced from appropriate data. More importantly, the Committee assessed whether the words used were consistent with their understanding of the Company’s business obtained through Board and Audit Committee meetings and other interaction they had had with management, using their experience to assess whether the annual report taken as a whole is fair, balanced and understandable. This additional review by the Audit Committee, supplemented by advice received from external advisors during the drafting process assisted the Board in determining that the report is fair, balanced and understandable at the time that it was approved. The Committee considered the appropriateness of preparing the accounts on a going concern basis, including consideration of forecast plans and supporting assumptions and concluded that the Company’s financial position was such that it continued to be appropriate for accounts to be prepared on a going concern basis.

The Committee, together with the Board considered what were the significant risks and issues in relation to the financial statements and how these would be addressed.

Revenue Recognition (i) Revenue recognition on long-term contracts relies on estimates of the costs to complete for each project and so has an inherent risk of misstatement in the financial statements. The Group has a clear revenue and profit recognition policy (see note 2) and performs regular contract reviews with key staff. The Committee has reviewed the control procedures and performed detailed reviews of significant contracts and analytical review of the profit and loss account. The committee is satisfied that the internal processes and controls are appropriate.

(ii) Following the acquisition of Semaphore in October 2013, product sales are now a significant part of the Group and so the Committee believes that they should be considered separately to long term contract revenue. The Committee has reviewed the controls over recording of product sales and are satisfied that they are appropriate.

Acquisition of CorelogicThe identification and valuation of intangible assets resulting from the acquisition of Corelogic were considered a risk due to the judgement and complexity associated with valuing this type of asset. An independent consultant was used to calculate the value of the intangible assets, based on management’s assumptions. The Committee reviewed the methodology and assumptions underlying the valuations and the appropriateness of any fair value adjustments.

Audit committee reportcontinued

43

Internal controls and risk managementThe Board is responsible for the overall system of internal controls for the Group and for reviewing its effectiveness. It carries out such a review at least annually, covering all material controls including financial, operational and compliance controls and risk management systems.

The system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

Operating policies and controls are in place, and cover a wide range of issues including financial reporting, capital expenditure, information technology, business continuity and management of employees. Detailed policies ensure the accuracy and reliability of financial reporting and the preparation of financial statements including the consolidation process. The key elements of the Group’s ongoing processes for the provision of effective internal control and risk management systems, in place throughout the year and at the date of this report, include:• Regular Board meetings to consider matters reserved for the

Directors’ consideration.• Regular management reporting, providing a balanced

assessment of key risks and controls.• An annual Board review of corporate strategy, including

a review of material business risks and uncertainties facing the business.

• Established organisational structure with clearly defined lines of responsibility and levels of authority.

• Documented policies and procedures.• Regular review by the Board of financial budgets, forecasts

and performance reported to the Board monthly.• A detailed investment process for major projects,

including capital investment coupled with a post-investment appraisal process.

In reviewing the effectiveness of the system of internal controls, the Committee received self-assurance statements from senior managers responsible for the principal business units confirming that controls and risk management processes in their business units have been operated satisfactorily. These returns were reviewed by the Audit Committee and challenged where appropriate.

The Company Secretary is responsible for compiling and maintaining a risk register to monitor all of the risks facing the business. The key risks were summarised for review and approval by the Audit Committee for inclusion in the annual report and accounts.

In respect of the Group’s financial reporting, the Finance Department is responsible for preparing the Group financial statements using a well-established consolidation process and ensuring that accounting policies are in accordance with International Financial Reporting Standards. All financial information published by the Group is subject to the approval of the Audit Committee.

There have been no changes in the Company’s internal control during the year that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.

The Board, with advice from the Audit Committee, is satisfied that an effective system of internal controls and risk management are in place which enable the Company to identify, evaluate and manage key risks and which accord with the guidance of the Turnbull Committee on internal control updated by the FRC in 2005. These processes have been in place since the start of the financial year and up to the date of approval of the accounts. Further details of risk management frameworks and specific material risks and uncertainties facing the business can be found on pages 28 – 29.

WhistleblowingThe Group has in place a whistleblowing policy which encourages employees to report any malpractice or illegal acts or omissions or matters of similar concern by other employees or former employees, contractors, suppliers or advisors using a prescribed reporting procedure. The policy facilitates the reporting of any ethical wrongdoing or malpractice or suspicion which may constitute ethical wrongdoing or malpractice. Examples include bribery, corruption, fraud, dishonesty and illegal practices which may endanger employees or third parties. There have been no instances of whistleblowing during the year under review.

Internal auditThe focus of the role has been on quality assurance rather than providing assurance on the adequacy of internal control and risk management processes across the Group’s operations. During 2014, under the guidance of the Audit Committee, additional training was provided to the Quality Assurance auditor to facilitate the conduct of a structured programme of reviews of risks faced by the Group.

AccountabilityThe Board is required to present a fair, balanced and understandable assessment of the Company’s financial position and prospects. The responsibilities of the Directors and external auditor are set out on pages 61 to 65. As set out in the Directors’ Report, the Directors consider the Company’s business to be a going concern.

Roger McDowellChairman, Audit Committee 11 March 2015


44


44

Remuneration report

Information not subject to audit:

Chairman’s annual statement

Dear Shareholder

I am pleased to introduce the Directors’ Remuneration Report for the 2014 financial year end. This Report has been prepared in accordance with the Schedule 8 to the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulation 2008. The Annual Report on Remuneration and the Annual Statement will be the subject of an advisory vote at the forthcoming Annual General Meeting.

The Chairman’s statement (on pages 14 to 15) provides a summary of the progress the Group has made over the financial year. In order to continue building on this performance the Remuneration Committee is committed to structuring executive remuneration that supports the Group’s strategy and performance. Short-term performance is incentivised via an annual bonus, part of which will normally be deferred and paid in shares. Long-term performance is incentivised via a long-term incentive plan (LTIP) which is based on achieving Total Shareholder Return (TSR) and Earnings per Share (EPS) growth over a 3-year measurement period. Details of the bonus schemes and LTIP awards to the Executive Directors are summarised in the relevant sections of this report.

Servelec’s remuneration policy was accepted unanimously at last year’s AGM and we are not proposing any changes to the remuneration policy for the current financial year. The Remuneration Committee will keep the policy under review to ensure that it remains appropriate to the delivery of long-term value for all stakeholders. The Committee remains confident that the policy accepted at last years AGM provides the management team with sufficient encouragement and incentive to build on the success the Group has achieved to date.

Bernie WaldronChairman, Remuneration Committee 11 March 2015

Director’s remuneration policyThis part of the Directors’ Remuneration Report sets out the remuneration policy of the Company and has been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (“the Regulations”). The policy has been developed taking into account the principles of the UK Corporate Governance Code 2012. The policy was accepted unanimously at last year’s AGM and we are not proposing any changes to the Remuneration Policy for the current financial year.

Policy on executive remunerationThe Group’s remuneration policy seeks to ensure that the Company is able to attract, retain, and motivate its executives and senior management. The retention of key management and the alignment of management incentives with the creation of shareholder value are key objectives of this policy.

Setting base salary levels for Executive Directors at an appropriate level is a key to managerial retention. Therefore, the Remuneration Committee seeks to ensure that salaries are market competitive for comparable companies. Total compensation is set within a range around the median level for the Company’s peer group.

The Remuneration Committee is directly responsible for setting the remuneration of Executive Directors and giving guidance on the remuneration of other members of the senior management team.

The Committee ensure that remuneration structures neither encourage nor reward inappropriate risk-taking and are applied with due account taken of the Company’s risk policies and systems. In addition the Committee ensures that the incentive structures for Executive Directors and senior managements will not raise environmental, social or governance risks by inadvertently motivating irresponsible behaviour. More generally, with regard to overall remuneration structures, there is no restriction on the Committee that prevents it from taking into account environment, social or governance matters.

4545

Key elements of remuneration

Remuneration element Purpose Operation Potential Remuneration Performance metrics

Base Salary To attract and retain key executives.

Reviewed annually and fixed for 12 months commencing on 1 January each year. The review is influenced by:• Role, experience and

performance• Average workforce salary

adjustments

Comparison with the Company’s peer group salaries are benchmarked by reference to companies of similar size and complexity.

The Executive Directors’ salaries will be reviewed taking account of periodic benchmarking.

The CEO’s salary has increased to £285,000 from 1 January 2015 (previously £275,000).

The CFO’s salary has increased to £150,000 from 1 January 2015 (previously £140,000).

Not applicable.

Benefits To attract and retain key executives.

An Executive Director is entitled to life assurance, a company car, medical insurance and permanent health insurance.

No maximum is set but the Remuneration Committee will monitor the overall cost of the benefits package.

Not applicable.

Pension To attract and retain key executives.

The Executive Directors are members of the Group Retirement Benefits Scheme (a money purchase pension arrangement).

Contributions of 15% and 4.5% per annum of salary are paid into the scheme on behalf of the CEO and CFO respectively.

Not applicable.

Annual Bonus To incentivise delivery of the Group’s annual financial and strategic targets.

Aligns Directors’ interests with shareholders.

Performance is measured on an annual basis for each financial year.

Targets are established at the beginning of each year that are based on the corporate targets. At the end of the year the Committee determines the extent to which these were achieved.

Bonus payments may be paid in cash. However, the Directors will normally be required to participate in the Deferred Share Bonus Plan with a third of any annual bonus being paid in shares that vest 2 years after the award is made.

Bonuses are capped at a maximum of 100% of salary.

Clawback may be applied to the number of shares, at the discretion of the Committee, if the financial results used to determine the value of the bonus are found to be misstated or if other exceptional circumstances exist, for example, a participant’s material misconduct.

Any bonus is discretionary and subject to achievement against targets set by the Remuneration Committee.

Measures and associated targets will be set and weighted each year in accordance with business priorities. Measures may include financial and non-financial metrics as well as the achievement of personal objectives.

The Committee has the discretion to adjust the formulaic bonus outcome both upwards and downwards to ensure alignment of pay with the underlying performance of the business over the financial year.


46


46


Long-Term Incentive Plan

To motivate executives and incentivise delivery of performance over the long-term and to facilitate share ownership.

The LTIP is a performance and service-related conditional share award plan.

Initial awards were made on Admission and vest in the financial year 2016 on the date the Remuneration Committee determines the extent to which the performance condition has been met.

The Remuneration Committee would in normal circumstances expect to award LTIPs annually at a maximum of 100% of base salary.

The Remuneration Committee intends to award LTIPs of 100% of base salary to the Executive Directors in the six weeks following the results announcement, in line with the scheme rules.

For these planned awards, 50% is linked to growth in earnings per share above inflation measured over a 3-year performance period whilst the remaining 50% is linked to total shareholder return over a 3 year performance period. Further details are set out in the Annual Report on Remuneration on page 56.

For future awards, the Remuneration Committee will assess what measures and targets best support the long-term focus of the company, and it is therefore possible that these measures and targets will be different from those used previously.

Policy for other employee arrangements

Save As You Earn share option plan

To motivate and facilitate share ownership.

An ’all-employee’ share option plan, approved by HMRC, supervised by the Remuneration Committee.

Employees, including Executive Directors, may enter into a savings contract under which they agree to save up to a maximum of £500 per month (or such limit as may be permitted by the tax legislation governing SAYE schemes from time to time) for 3 to 5 years.

Not applicable.

Remuneration reportcontinued

4747


Executive Share Option Plan

To motivate and facilitate share ownership.

Options to acquire shares may be granted to eligible employees at the discretion of the Remuneration Committee.

Following Admission, options were granted to certain senior managers and employees, not Executive Directors. Part A of the ESOP has been approved by HMRC for tax purposes. It is not intended to grant awards under this scheme to Executive Directors.

The number of shares in respect of which options can be granted is limited in respect of any financial year to shares with a market value of no more than 100% of salary. The aggregate market value of shares at the date of grant in respect of which unexercised options can be held at any time under the HMRC-approved scheme cannot exceed £30,000.

The Remuneration Committee may impose 1 or more objective conditions on any option preventing its exercise unless and until such condition has been satisfied. The Remuneration Committee, prior to the grant of the option, will determine such performance conditions. No options have to date been granted to Executive Directors under this scheme. The Remuneration Committee intends to award this scheme to selected employees in the six weeks following the results announcement, in line with the scheme rules.

Chairman and Non-Executive Directors

To attract and retain Non-Executive Directors of the right calibre.

The Chairman and Non-Executive Directors’ remuneration comprises only fees.

The Chairman’s fee is approved by the Board on the recommendation of the Remuneration Committee.

Fees for the Non-Executive Directors are approved by the Board on the recommendation of the Chairman and Executive Directors. The Non-Executive Directors are not involved in any discussion or decision about their own remuneration.

Additional fees, over and above the base fee for the Non-Executive Directors, are payable to the chairmen of the Audit and Remuneration Committees and to the Senior Independent Non-Executive Director.

The Chairman and the other Non-Executive Directors are entitled to reimbursement of reasonable expenses.

Details of the fees currently payable are set out in the Annual Report on Remuneration on page 53. The fees are reviewed periodically taking into consideration the time commitment and responsibilities of the role and fees paid in other companies of comparable size and complexity.

Not applicable.


48


48

Alignment of executive remuneration and the marketIn 2013, the Company engaged h2glenfern, a remuneration advisory practice, to undertake a benchmarking exercise for use in considering remuneration levels and developing the Board’s remuneration policy in respect of both the Board and senior management. h2glenfern compiled a comparator group drawn from the Official List and AIM, which was agreed with the Board. The companies selected were well-known companies in the technology sector with market capitalisations and revenue/profit profiles in a broad range around Servelec’s market capitalisation and business size, recognising that Servelec will compete with these companies for executives and senior managers and be assessed against them and compete with them for investment.

The Committee intends to formally benchmark the remuneration levels of the Board every three years.

The resulting remuneration structure reflects the Company’s financial and corporate circumstances and plans and, the Board believes, will be effective and competitive and reflect the objectives of shareholders.

How employee pay is taken into considerationWhen setting pay and benefits for Executive Directors and senior managers, the Remuneration Committee takes account of pay and conditions across the Group. The Company endeavours to provide competitive remuneration packages for all employees and carries out internal benchmarks for employees. Employees may be eligible to join the all employee ESOP at the discretion of the Remuneration Committee and all UK Employees are eligible to join the SAYE scheme.

The Company has not consulted with its employees in formulating this policy.

Shareholder views on remuneration The Chairman of the Remuneration Committee will be available for contact with institutional investors concerning the Company’s approach to remuneration. The Company welcomes dialogue with its shareholders and will seek the views of its significant shareholders if and when any major changes are being proposed to the policy. When any significant changes are proposed to the remuneration policy, the chairman of the Remuneration Committee will consult with major shareholders in advance and, if requested, will arrange meetings to discuss these.

The policy approved at the last AGM on 29 April 2014 has been developed taking into account the principles of the UK Corporate Governance Code 2012.

Policy on recruitmentThe Committee will consider the remuneration of new executive appointees to the Board by reference to the Remuneration Policy set out above. The Committee would not usually expect to pay sign-on payments or compensate new directors for any variable remuneration forfeited from any employment prior to joining the Board but may consider doing so depending on the circumstances, recognising that the Company needs to attract appropriately skilled and experienced individuals. Generally, any buy-outs of awards forfeited would be made on a comparable basis using the LTIP, within its parameters stated in the policy table, so as to align the new Executive Director’s interest with that of the shareholders. Salary will be set so as to be competitive with comparable companies and taking account of the experience and seniority of the appointee coming into the new role. New Executive Directors will receive benefits and pension contributions in line with Company’s existing policy and will be able to participate in the annual bonus scheme on a pro-rated basis for the portion of the financial year for which they are in post.

Policy on loss of officeDirectors and senior executives leaving employment from the Group, other than in circumstances of gross misconduct, will be entitled to receive salary in accordance with their notice periods and pro-rated annual bonus based on performance to the date of leaving. The notice periods and the contractual rights on termination of each Director are set out in the section on service agreements on page 49. In this regard, it should be noted that the Chief Executive’s notice period (12 months on either side) may be extended to 24 months following a change of control of the Company. The Company’s share schemes also provide leaver provisions as follows:

SAYE (Save as You Earn)An Executive Director who ceases to be a Director or employee of the group by reason of death, retirement, ill-health, injury or disability, redundancy, or the sale of the company or business for which he works will be a good leaver. As such he will be permitted to exercise his options.

If the Director ceases to be an Employee or Director either before the third anniversary of the grant of the award for any reason other than the good leaver reasons above or more than 3 years after the grant of the award as a result of being summarily dismissed, any Option granted to him shall lapse on such cessation.


4949

ESOP (Executive Share Option Plan)An Executive Director who ceases to be a Director or employee of the group by reason of death, retirement, ill-health, injury or disability, redundancy, or the sale of the company or business for which he works will be a good leaver. As such he will be permitted to exercise his options.

Where the cessation is on any other grounds, awards will lapse, provided that the Committee has discretion to treat the Executive Director as a good leaver.

Awards held by good leavers that are already capable of exercise at the date of cessation may be exercised between 6 and 12 months (depending of the reason for leaving) of the leaving date. If the good leaver ceases to be an employee or Director before the third anniversary of the grant of the award the Committee has discretion to allow the award to vest on the normal vesting date.

DSBP (Deferred Share Bonus Plan)Share awards, which represent deferrals of previously earned bonus, lapse on the Executive Director resigning or giving notice of resignation. An Executive Director who ceases to be a Director or employee of the group by reason of death, retirement, ill-health, injury or disability, redundancy, or the sale of the company or business for which he works will be a good leaver. Awards will be subject to time pro-rating.

LTIP (Long-Term Incentive Plan)An Executive Director who ceases to be a Director or employee of the group by reason of death, retirement, ill-health, injury or disability, redundancy, or the sale of the company or business for which he works will be a good leaver. Where the cessation is on any other grounds, awards will lapse, provided that the Committee has discretion to treat the Executive Director as a good leaver. Awards held by good leavers will continue and will vest on the normal vesting date, unless the Committee decides to accelerate vesting. Awards will remain subject to the performance conditions and, unless the Committee determines otherwise, subject to time pro-rating.

External appointmentsIt is the Board’s policy to allow Executive Directors to accept directorships of other quoted and non-quoted companies provided that they have obtained the consent of the Chairman of the Company. Any such directorships must be formally notified to the Board.

Service agreements

Alan Stubbs Mike Cane

Date of Service Agreement

12 November 2013 12 November 2013

Notice Period 12 months notice given by either party. This notice period extends to 24 months following a change of control of the Company

6 months notice given by either party

Basic Salary Currently £285,000 reviewed annually Currently £150,000 reviewed annually

Bonus Purely discretionary and not part of the contractual remuneration

Share Schemes May participate in any share scheme adopted by the Company

Pension Contributions Equivalent to 15% of salary contributed by the Company into the Company’s Group Retirement Benefit money purchase scheme

Equivalent to 4.5% of salary contributed by the Company into the Company’s Group Retirement Benefit money purchase scheme

Contractual Benefits Car, Life Assurance (4 x Salary),Medical and permanent health insurance, 12 months base pay for sickness

Car, Life Assurance (4 x Salary),Medical and permanent health insurance, 6 months base pay for sickness

Termination payments Company has discretion to pay a payment in lieu of notice to terminate the employment forthwith in the event of notice being given by either party. This will include the appropriate pro-rata amount for pensions contributions and contractual benefits

Chairman and Non-Executive DirectorsThe remuneration of the Chairman of the Company and the Non-Executive Directors consists of fees that are paid via the payroll, with the exception of the Chairman who invoices the Company for his fees. The Chairman and Non-Executive Directors are not entitled to receive any compensation on termination of their employment and are not entitled to participate in the Servelec Share Schemes or any of the Group’s bonus or pension schemes. Neither the Chairman nor any of the Non-Executive Directors has a service contract with the Company; however each has entered into a letter of appointment with the Company.


50


50

Non-Executive Directors’ fees and letters of appointmentThe Non-Executive Chairman has a letter of appointment stating that his appointment is expected to last at least three years from Admission to Listing. On their initial appointment, each of the Non-Executive Directors signed a letter of appointment with the Company for an initial period of 3 years from Admission. The letters of appointment of all serving Non-Executive Directors have been drafted in accordance with provision B.7.1 of the UK Corporate Governance Code, thus obliging directors to be subject to election by shareholders at the first annual general meeting after their appointment and to re-election thereafter at intervals of no more than 3 years. The amendments have been drafted such that renewed appointment will not necessitate a new letter of appointment.

Each Non-Executive Director is expected to commit sufficient time in fulfilling their duties as a Director of the Company. A base fee is paid to each Non-Executive Director to reflect the time commitment and level of involvement they are required to make in the activities of the Board as a whole. In addition to their annual base fees additional fees are paid for chairing the Board committees and for the role of Senior Independent Non-Executive Director:

BaseFee

£’000

SeniorIndependent

NED£’000

Nomination Committee

Chairmanship £’000

RemunerationCommittee

Chairmanship£’000

AuditCommittee

Chairmanship£’000

Total£’000

Richard Last 91.8 – 2.6 – – 94.4 Bernie Waldron 40.8 – – 2.6 – 43.4 Roger McDowell 40.8 5.1 – – 2.6 48.5

Unless otherwise determined, the Director concerned may give not less than 3 months’ notice of termination of the appointment. Copies of the Directors’ letters of appointment and service agreements are available for inspection at the Company’s registered office.

The key terms of the Non-Executive Directors’ letters of appointment are as follows:

DirectorDate of original letter

of appointmentNotice period from

Director to the Company Duration of term*Unexpired

termTotal fees

per annum

Richard Last 24 October 2013 6 months3 years from

Admission to Listing 21 months £94,400

Roger McDowell 24 October 2013 3 months3 years from


Bernie Waldron 30 October 2013 3 months3 years from


* Unexpired term: The Non-Executive Directors all have contracts that provide that each will serve for an initial 3-year period from the date of Admission to Listing on 2 December 2013. Each offered themselves for election at the Company’s first AGM on 29 April 2014 and their appointments are subject to the provisions of the Articles of Association that require them to offer themselves for re-election at intervals of no more than 3 years. The unexpired term is calculated with reference to the date of Admission to Listing.

Scenarios


Minimum

LTIP

Tota

l Rem

uner

atio

n (£

’000

)

Tota

l Rem

uner

atio

n (£

’000

)

Target Maximum0

100

200

300

400

500

600

700

800

900

1000

352 352

143

143

352

285

285

Minimum Target Maximum0

50

100

150

200

250

300

350

400

450

500

169 169

75

75

169

150

150

Annual Bonus

Alan Stubbs – Chief Executive Officer Mike Cane – Chief Financial Officer

Fixed LTIPAnnual BonusFixed

5151

Assumptions

Fixed • Consists of base salary, benefits and pension contributions.• Base salary is that to be paid in 2015.• Benefits measured as benefits figure in the single figure table.• The pension is measured as the amount of the employer’s contribution.

On-Target Based on what the Executive Director would receive if performance was in line with target (excluding share price appreciation and dividends):• Annual Bonus assumes annual targets set by the Remuneration Committee are met, which would pay out 50% of

bonus maximum.• LTIP: consists of the performance level at which 50% of the maximum face value vests.

Maximum Based on the maximum remuneration receivable (excluding share price appreciation and dividends):• Annual Bonus: consists of the maximum bonus (100% of base salary).• LTIP: assumes maximum vesting of awards based on the intended normal LTIP grant of 100% of salary.

Note: These scenarios assume an annual maximum LTIP grant of 100% of salary, which is the policy of the Remuneration Committee. The Remuneration Committee does have the ability to grant LTIPs at up to 200% of salary (rising to 300% for exceptional circumstances), but as stated above, in normal circumstances it would only expect to make annual grants at a maximum face value of 100% of salary.


52


52


Annual report on RemunerationIntroductionThis Annual Report on Remuneration sets out information about the remuneration of the Directors and senior management of the Company for the year ended 31 December 2014. This report has been prepared in accordance with the provisions of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) and 9.8.8R of the Listing Rules. An advisory resolution to approve this report will be put to shareholders at the forthcoming AGM. The information on pages 53 to 57 has been audited.

Remuneration Committee MembershipThe UK Corporate Governance Code provides that the Remuneration Committee should comprise at least 2 members who are independent Non-Executive Directors (other than the Chairman). Appointments to the Remuneration Committee are made by the Board on the recommendation of the Nomination Committee and are for a period of up to three years, which may be extended for further periods of up to 3 years, provided that the Director whose appointment is being considered still meets the criteria for membership. The Remuneration Committee consisted of the following Directors during the year ended 31 December 2014:

• Bernie Waldron (Chairman), Independent Non-Executive Director;• Roger McDowell, Senior Independent Non-Executive Director; and• Richard Last, Non-Executive Chairman.

Role of the Remuneration CommitteeThe Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration, including making recommendations to the Board on the Company’s policy on executive remuneration, including setting the over-arching principles, parameters and governance framework of the Group’s remuneration policy and determining the remuneration and benefits package of each of the Executive Directors and the Company Secretary and providing guidance on the remuneration of the senior management group. The Remuneration Committee also ensures compliance with the UK Corporate Governance Code in relation to remuneration wherever possible.

Terms of reference for the Remuneration Committee have been approved by the Board and are available on the corporate governance page on the Company’s website, www.servelec-group.com.

Activities of the Remuneration Committee in 2014 The Remuneration Committee met three times in 2014 to agree the remuneration report, discuss target figures for Annual Bonus, LTIP and grant SAYE options. The committee also agreed a change to the Terms of Reference for the Committee confirming that the Committee has approval rights in relation to the appointment of any new member of staff with on target earnings of over £150,000.

Advisers Prior to Listing, the Company received independent advice from h2glenfern Remuneration Advisory (a division of h2glenfern Limited) on a number of remuneration issues including helping the Board develop its remuneration policy. As mentioned earlier the Committee intends to formally benchmark the remuneration levels of the Board every three years. No advice on Remuneration was therefore taken in 2014.

The Company Secretary ensures that the Remuneration Committee fulfils its duties under its terms of reference and provides regular updates to the Remuneration Committee on relevant regulatory developments in the UK.

The following information has been subject to audit:

5353

Single total figure of remunerationDirectors’ remuneration is made up of payments from the UK. The UK payments have been accounted for in Servelec Group plc.

The detailed emoluments received by the Executive and Non-Executive Directors for the year ended 31 December 2014 are detailed below:

Director

Salary/ Fees

(£)

Taxable Benefits

(£)

Share Reward(6)

(£)

AnnualPerformance (7)

(£)Pension

(£)Total

(£)

Chairman

Richard Last

UK 92,500 (44,583) – – – – 92,500 (44,583)

Singapore Nil (24,000) – – Nil (100,000) – Nil (124,000)

Total 92,500 (68,583) – – Nil (100,000) – 92,500 (168,583)

Lim Ming Seong Resigned 1 Sep 13

Singapore Nil (24,000) – – – – Nil (24,000)

Non Executive Directors

Roger McDowell

UK 47,500 (8,952) – – – – 47,500 (8,952)

Bernie Waldron

UK 42,500 (7,027) – – – – 42,500 (7,027)

UK 182,500 (60,562) – – – – 182,500 (60,562)

Singapore Nil (48,000) – – Nil (100,000) – – (148,000)

Total Non Execs 182,500 (108,562) – – Nil (100,000) – 182,500 (208,562)

Executive Directors

Salary/ Fees

(£)

Taxable Benefits

(£)

Share Reward(6)

(£)

Annual Performance

Related Bonus

(£)Pension

(£)Total

(£)

Alan Stubbs

UK 275,000 (87,221) 23,816 (20,973) – 76,725 (Nil) 41,250 (49,271) 416,791 (157,465)

Singapore Nil (179,758) – Nil (3,000,000) – – Nil (3,179,758)

Total 275,000 (266,979) 23,816 (20,973) Nil (3,000,000) 76,725 (Nil) 41,250 (49,271) 416,791 (3,337,223)

Mike Cane

UK 140,000 (82,500) 12,542 (6,118) – 39,060 (Nil) 6,300 (2,475) 197,902 (91,093)

Singapore – – Nil (265,994) – – Nil (265,994)

Total 140,000 (82,500) 12,542 (6,118) Nil (265,994) 39,060 (Nil) 6,300 (2,475) 197,902 (357,087)

UK 415,000 (169,721) 36,358 (27,091) – 115,785 (Nil) 47,550 (51,746) 614,693 (248,558)

Singapore Nil (179,758) – Nil (3,265,994) – – Nil (3,445,752)

Total Execs 415,000 (349,479) 36,358 (27,091) Nil (3,265,994) 115,785 (Nil) 47,550 (51,746) 614,693 (3,694,310)

Notes:(1) Richard Last was also a Director of CSE Global Ltd in 2013. It is not practical to apportion his remuneration between his services as Director of the Company and his services as

Director of the holding and fellow subsidiary companies.(2) Lim Ming Seong was also a Director of CSE Global Ltd in 2013 and other CSE Group undertakings. It is not practical to apportion his remuneration between his services as Director

of the Company and his services as Director of the holding and fellow subsidiary companies.(3) Alan Stubbs was also Chief Executive Officer of CSE Global Ltd and a Director of other CSE Group undertakings in 2013. It is not practical to apportion his remuneration between

his services as Director of the Company and his services as Director of the holding and fellow subsidiary companies.(4) Mike Cane is also a Director of MGC Accounting Solutions Ltd, who indirectly received income for consultancy services of £43,400 in 2013. The consultancy services related to

work done by Mike Cane when he was not a Director of Servelec Group Plc and so is not included in the numbers above.(5) The remuneration paid via Singapore was not recharged to Servelec Group Plc.(6) The share reward was a reward, conditional upon admission to the London Stock Exchange, to key individuals involved in the IPO process. The cash value disclosed is equivalent to

the shares issued and the cash paid to cover tax and national insurance for the individual.(7) One third of 2014 bonus is to be paid in shares that vest 2 years after the award is made.


54


54

Long-term incentive planFollowing Listing in December 2013, the Remuneration Committee granted performance and service-related conditional share awards to the Executive Directors under the LTIP. No further awards were therefore made in 2014.

The Committee intends to award LTIPs of 100% of base salary to the Executive Directors in the six weeks following the results announcement, in line with the scheme rules.

Save As You Earn Option Plan

Director Award DateAwards held

at 31/12/13

Granted during the

period

Exercised/lapse in the

periodExercise Price

(£)Awards held

at 31/12/14

Mike Cane 02/12/13 5,027 Nil Nil 1.79 5,027

Directors LTIP interests

Director Award dateAwards held

at 31/12/13

Granted during the

period

Exercised/lapsed in the

periodAwards held

at 31/12/14

Alan Stubbs 02/12/13 370,263 Nil Nil 370,263Mike Cane 02/12/13 92,179 Nil Nil 92,179

Total 462,442 Nil Nil 462,442

Directors’ share interestsThe number of Ordinary Shares of the Company in which the Directors were beneficially interested at 31 December 2014 was:

Director31 December

201431 December

2013

Richard Last 418,994 418,994Roger McDowell 139,665 139,665Bernie Waldron 27,933 27,933Alan Stubbs 838,000 838,600 Mike Cane 74,300 74,300

As at 10 March 2015 this has not changed.

Share ownership guidelinesThe Remuneration Committee has considered whether a share ownership guideline should be set for Executive Directors and has determined that no such guideline should be set.

The following information has not been subject to audit:

Percentage change in the remuneration of the Chief Executive OfficerThe table below demonstrates the percentage of change in base salary, value of taxable benefits and bonus for the CEO compared to all employees of the Group.

CEO remuneration

2014 £

2013 £

2014 % increase

Employee remuneration

2014 % increase

Salary and fees 275,000 266,979 3% 3.6%Taxable benefits 23,816 20,973 13.6% n/aAnnual bonus 76,725 Nil n/a 41%Other bonuses Nil 3,000,000 (100)% n/aPension 41,250 49,271 (16)% NilTotal 416,791 3,337,223 (88)% n/aSingle total figure of remuneration 416,791 3,337,223 – –

Notes:(1) CEO remuneration is from the single total figure of remuneration table on page 53.(2) The CEO’s remuneration for 2013 also reflects his role as CEO of the previous parent company, CSE Global Ltd, and the IPO bonus earned in 2013.(3) The % increase in average remuneration for employees is calculated using wages and salaries (excluding share-based payments, overtime and allowances) for those employees

employed in 2014 and 2013. (4) The % increase in average performance related remuneration is based on the increase in bonus payments for employees of the group who were eligible for a bonus and employed

for both periods.(5) Benefits across the Group remained the same, other than amendments in accordance with HM revenue & Customs guidelines. The average percentage change in taxable benefits

does not produce a meaningful comparison.(6) Pension rates have not changed across the period.


5555

Relative importance of the spend on payThe chart below shows the Company’s total employee remuneration and dividends distributed for the year under review and the prior year as well as the year-on-year change.

2013

Tota

l Rem

uner

atio

n (£

’000

)

20140

4720

9440

14160

18880

23600

Dividends

Employee Remuneration and Dividends

Employee Remuneration

22,419

3,106

18,828

6,500

+19%

(52)%

Key highlights:• Total profit after tax from continuing operations was £8,937,000 (2013: £8,925,000).• Staff costs for 2014 were £22,419,000 (2013: £18,828,000). The increase reflects a 3.6% increase in salaries for existing staff and an

increase in overall staff numbers, predominantly from the full year of Semaphore.• The Company is proposing final dividend of 3p for the year ending 31 December 2014.

Payments to departing directorsDuring the year, the Company has not made any payments to past Directors; neither has it made any payments to Directors for loss of office.

Comparison of company performance and CEO remunerationThe following chart shows the total remuneration figure for the Chief Executive role. The current CEO, Alan Stubbs, was also appointed to Chief Executive Officer of CSE Global Ltd (the previous parent company) in January 2011 and the table includes remuneration for both roles. The Company was listed on the London Stock Exchange in December 2013.

Year ended 31 December (£’000)

CEO remuneration Paid by 2009 2010 2011 2012 2013 2014

Salary and benefits UK 405 222 177 138 157 340Singapore – 34 133 167 180 –

Annual bonus UK 450 – – – – 77Singapore – 600 300 450 3,000 –

Total remuneration 855 856 610 755 3,337 417


56


56

Comparison of company performance and CEO remuneration continuedThe TSR for Servelec Group Plc was rebased on 2 December 2013 at the opening price of £2.07 per share. The issue price was £1.79 and this table excludes the additional value created for Servelec shareholders as a result of the difference between the issue price and the opening price.

Shar

ehol

der R

etur

n (p

ence

)

95

100

105

110

115

120

125

130

Historical Total Shareholder Return Performance

FTSE Small Cap (excluding Investment Trusts)SERV

Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14

Application of the policy for 2015The policy will apply to any remuneration made on or after 29 April 2015.

SalaryThe salaries are effective from 1 January 2015 are:

£’000

Alan Stubbs 285Mike Cane 150

Benefits (excluding pension contributions)These will remain as life assurance, a company car, medical insurance and permanent health insurance.

PensionEmployer contributions to the Group Retirement Benefits Scheme money purchase pension arrangement will remain as stated in the policy.

Annual BonusThe Remuneration Committee has set stretching targets focused on both profit and cash performance for the Company. Although the target detail is considered commercially sensitive the measures and weightings for the year commencing 1 January 2015 are:

Operating Profit Operating cashflow Maximum

Alan Stubbs 66.66% 33.33% 100% salaryMike Cane 66.66% 33.33% 100% salary

Two-thirds of any bonus earned will be paid in cash and one-third in shares under the Deferred Share Bonus Plan.


5757

LTIP The committee intends to award LTIPs of 100% of base salary to the Executive Directors within six weeks of the result announcement, in line with the scheme rules. For the EPS element of the LTIPs planned to be set in 2015 the threshold will be raised to 14% with the maximum level of 18%. These levels will be reviewed by the Remuneration Committee for each future LTIP cycle to ensure that they are both realistic and suitably challenging.

The LTIP awards are subject to the following performance conditions. The vesting of 50% of an award will be subject to a condition that measures growth in earnings per share (’EPS’) of the Company above inflation over a 3-year performance period (using the financial year ending 31 December 2013 as the base year) as follows:

EPS growth above RPI over three-year period Percentage of shares subject to the condition that will vest

Less than 14% per annum above RPI Nil

14% per annum above RPI 30%


Between 14% per annum and 18% per annum above RPI Between 30% and 100% on a straight-line basis

The vesting of the remaining 50% of an award will be subject to a condition that measures the Company’s Total Shareholder Return (’TSR’) over a a 3 year performance period.

TSR growth from Admission to EPS growth determination date Percentage of shares subject to the condition that will vest

Less than 8% per annum above RPI Nil



Between 8% per annum and 14% per annum above RPI Between 30% and 100% on a straight-line basis

The Remuneration Committee may reduce the number of shares to which the LTIP awards relate if the financial results used to determine the number of shares to which any award relates or to measure the satisfaction of a performance condition have been misstated or facts or assumptions used for those purposes are discovered to be incorrect or if the Remuneration Committee determines that other exceptional circumstances exist, for example, a participant’s material misconduct.

LTIP awards will normally vest on the latter of:• The date the Remuneration Committee determines whether any performance condition and/or any other condition has been

satisfied (and then only to the extent that the performance condition and/or any other condition has been satisfied; and • The third anniversary of the grant date.

2013 Shareholder voting At the Servelec AGM held on 29 April 2014 the shareholders approved the Remuneration Report for the year ended 31 December 2013. Below is the result in respect of the resolution, which required a simple majority of the votes to be cast in favour in order for the resolution to be passed.

Votes for Votes against

100% nil

3,499 votes were withheld.

2014 Shareholder votingThe annual remuneration report will be put to an advisory shareholder vote at the forthcoming AGM to be held on 28 April 2015.

ApprovalThis Directors Remuneration Report has been approved by the Board of Directors of Servelec Group plc.

Signed on behalf of the Board of Directors.

Bernie WaldronChairman, Remuneration Committee 11 March 2015


58


Directors’ report

The Directors are pleased to present the Annual Report and consolidated financial statements of Servelec Group plc for the year ended 31 December 2014.

The corporate governance report on pages 36 to 39 and the corporate social responsibility report (with regard to information about the employment of disabled persons, employee involvement and greenhouse gas emissions) are also incorporated into this report by reference.

The Company has chosen, in accordance with section 414C (11) of the Companies Act 2006 to include the disclosure of likely future developments in the strategic report (see pages 1 to 33).

Financial risk managementThe Company’s objectives and policies on financial risk management including information on the Company’s exposures to market risk, including foreign currency, commodity price, interest rate, inflation rate and equity price risks, credit risk and liquidity risk can be found in note 23 to the financial statements.

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 1 to 33. The financial position of the Group, its cash flows and liquidity position are described in the Financial Statements on pages 62 to 103. In addition, note 23 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

Results and dividendsResults for the year are set out in the Group Income Statement on page 66

The Directors are proposing the payment of a final dividend of 3p in respect of the year ended 31 December 2014.

DirectorsThe names and biographies of the current Directors of the Company are set out on page 34 of this Annual Report.

Directors’ share interestsParticulars of the number of Ordinary Shares of the Company in which the Directors were beneficially interested on 31 December 2014 and at 31 December 2013 are set out in the Directors’ Remuneration Report on pages 44 – 57.

Directors’ indemnitiesThe articles permit the Board to grant the Directors indemnities in relation to their duties as Directors, including third party indemnity provisions (within the meaning of the Companies Act) in respect of any liabilities incurred by them in connection with any negligence, default, breach of duty or breach of trust in relation to the Company. No such indemnities have to date been granted.

Compensation for loss of officeThere are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs as a result of a takeover bid. Further details of the Directors’ service contracts can be found in the Directors’ Remuneration Report on pages 44 – 57.

Directors’ and Officers’ liability insuranceDirectors’ and Officers’ Liability Insurance cover is in place at the date of this report. The Board remains satisfied that an appropriate level of cover is in place and a review of cover will take place on an annual basis.

Significant agreements: change of control We have six major contracts within the Servelec Group which contain clauses that give the corresponding customers the right to terminate in the event of a change of control subsequent to a takeover bid. Four of these contracts are with Servelec Health & Social Care and the remaining contract is with Servelec Technologies. For three of these contracts the customer’s right of termination subsists for a period of no longer than 6 months (post-takeover) following which the right to terminate expires. In three of the contracts, the right to terminate is conditional upon the customer exercising its discretion on reasonable grounds.

As disclosed in the Remuneration Report page 49, the Chief Executive Officers notice period extends from 12 months to 24 months following a change of control of the Company.

The Company does not have any agreements with any Non-Executive Director, Executive Director or employee that would provide compensation for loss of office or employment resulting from a change of control.

Articles of associationThe Articles of Association (adopted by special resolution on 18 October 2013) may only be amended by special resolution of the shareholders. A copy of the articles is available on request from the Company Secretary.

Share capital: structure, rights and restrictionsDetails of the Company’s share capital are set out in note 24 to the Financial Statements on page 90. The Company has a single class of share capital divided into Ordinary Shares of £0.18 each. The Ordinary Shares are listed on the London Stock Exchange. The rights and obligations attaching to these shares are governed by UK law and the Company’s Articles of Association.

Voting rights attaching to sharesOrdinary shareholders are entitled to receive notice and to attend and speak at any general meeting of the Company. On a show of hands every shareholder present in person or by proxy (or being a corporation represented by a duly authorised representative) shall have one vote, and on a poll every shareholder who is present in person or by proxy shall have one vote for every share of which he is the holder. The Notice of Annual General Meeting specifies deadlines for exercising voting rights and appointing a proxy or proxies.

59

Deadlines for exercising voting rights attaching to sharesThe Articles provide a deadline for the submission of proxy forms (whether by an instrument in writing or electronically) of not less than 48 hours before the time appointed for the holding of the meeting or the adjourned meeting.

Shares in uncertificated formDirectors may determine that shares may be held in uncertificated form and title to such shares may be transferred by means of a relevant system or that shares should be cease to be so held and transferred.

Variation of rights attaching to sharesThe articles provide that rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares, or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every such separate general meeting, the quorum shall be 2 persons holding or representing by proxy at least one-third in nominal value of the issued shares (calculated excluding any shares held in treasury). The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.

Restrictions on voting rights attaching to sharesThere are no restrictions on the transfer of the Ordinary Shares other than:• the standard restrictions for a UK-quoted company set out in

article 17.5 of the Articles of Association; and• where, from time to time, certain restrictions may become

imposed by laws and regulations (for example, insider trading laws); and

• pursuant to the Listing Rules of the Financial Conduct Authority whereby certain Directors, officers and employees of the Company require the approval of the Company to deal in the Ordinary Shares.

No shareholder holds securities carrying special rights as to the control of the Company. There are no limitations on the holding of securities. There are no restrictions on voting rights or any arrangements by which, with the Company’s co-operation, financial rights carried by securities are held by a person other than the holder of the securities. There are no agreements between holders of securities that are known to the Company which may result in restrictions on the transfer of voting rights.

Authority to purchase own shares By a resolution at the AGM on 29 April 2014, the Directors were authorised to purchase up to 10% of its issued Ordinary Share capital as at the date of admission to listing. This authority will expire at the Annual General Meeting in 2015 at which a resolution to renew the authority for a further year will be proposed. No shares have been purchased by the Company in the last twelve months.

On 23 December 2014 the Company announced the admittance of 1,061,665 Consideration Shares to be admitted to the Official List and to trading on the London Stock Exchanges market for listed securities. The Consideration shares ranked pari passu with the existing Ordinary Shares in issue and were related to the acquisition of Corelogic Limited announced on 15 December 2014. The shares were awarded to Kevin Moorhouse on 12 December 2014 at a nominal value of 18p and 5 day trading price of £2.83.

As at 10 March 2015, being the latest practicable date prior to the publication of this report, the Company did not hold any shares in treasury.

Appointment and replacement of DirectorsUnless determined by ordinary resolution of the Company, the number of Directors shall not be less than 2 or more than 10 in number. A Director is not required to hold any shares in the Company by way of qualification.

The Board may appoint any person to be a Director and such Director shall hold office only until the next AGM, when he or she shall be eligible for appointment by the shareholders. The articles provide that at each AGM, one-third of the Directors for the time being (or, if their number is not a multiple of 3, then the number nearest to but not exceeding one-third) shall retire from office. A Director who retires at any AGM shall be eligible for re-appointment. In addition, any director appointed by the Board shall hold office only until the next following AGM and shall then be eligible for appointment.

Power of DirectorsSubject to the Articles, the Companies Act and any directions given by special resolution, the business of the Company shall be managed by the Board who may exercise all the powers of the Company to, for example, borrow money; mortgage or charge any of its undertaking, property and uncalled capital; and issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company.

Greenhouse Gas EmissionsThe Company’s disclosures on greenhouse gas emissions can be found in the CSR section of the Strategic Report on page 32 and form part of the Directors’ Report.

Employment PoliciesArrangements for consulting and involving Group employees on matters affecting their interests at work, and informing them of the performance of their employing business and the Group, are developed in ways appropriate to each business. A variety of approaches is adopted aimed at encouraging the involvement of employees in effective communication and consultation, and the contribution of productive ideas at all levels.


60


Employment policies are designed to provide equal opportunities irrespective of race, caste, national origin, religion, age, disability, gender, marital status, sexual orientation or political affiliation. Group policy is to ensure that disabled applicants for employment are given full and fair consideration having regard to their particular aptitudes and abilities, and that existing disabled employees are given equal access to training, career development and promotion opportunities. In the event of existing employees becoming disabled, all reasonable means would be explored to achieve retention in employment in the same or an alternative capacity, including arranging appropriate training. Further details in relation to the Group’s Employment policy is set out in the CSR section of the Strategic Report on page 30.

Political donationsThe Company has made no political donations during 2014 and intends to continue its policy of not doing so for the foreseeable future.

Major interests in sharesAs at 31 December 2014, the Company had been advised, in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, of the following notifiable interests (whether directly or indirectly held) in 3% or more of its voting rights:

Notification received fromNumber of

voting rights %

Henderson Global Investors 6,012,355 8.79Schroders plc 12,777,402 18.70SFM UK Management LLP 2,218,652 3.24

Since the year end there have been the following significant changes:

Notification received fromNumber of

voting rights %

Schroders plc 12,317,402 17.75RIT Capital Partners Plc 3,785,314 5.45

Going concernAfter making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In making this assessment they have considered the Company and Group budgets, and cash flow forecasts for the period to December 2015. The Company has considerable financial resources, negligible liquidity risk and is operating within a sector that is experiencing relatively stable demand for its products. The Directors therefore have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Audit informationEach of the Directors at the date of the approval of this report confirms that:• so far as he is aware, there is no relevant audit information of

which the Company’s auditors are unaware; and• he has taken all the reasonable steps that he ought to have

taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of the information.

The confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

AuditorsThe Auditors, Ernst & Young LLP have indicated their willingness to continue in office and a resolution seeking to reappoint them will be proposed at the Annual General Meeting.

Annual general meetingThe Company’s Annual General Meeting will be held at techUK, 10 St Bride Street, London EC4A 4AD on 28 April 2015 at 09:30. Details of the meeting venue and the resolutions to be proposed are set out in a separate Notice of Meeting which accompanies the Annual Report. The Directors consider that all of the proposed resolutions are in the best interests of the Company and its shareholders as a whole. It is the Directors’ recommendation that you support the proposed resolutions and vote in favour of them, as each of the Directors intends to do.

The Directors’ Report has been approved by the Board of Directors of Servelec Group plc.

Signed on behalf of the Board.

Richard LastChairman and Non-Executive Director11 March 2015

Servelec Group plcRegistered Office:Rotherside RoadEckingtonSheffieldSouth Yorkshire S21 4HL

Company No: 03098411

Directors’ reportcontinued

61

Statement of Directors’ responsibilities in relation to the Group financial statements

The Directors are responsible for preparing the Annual Report and the Group Financial Statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards (IFRS) as adopted by the European Union.

Under Company Law the Directors must not approve the Group Financial Statements unless they are satisfied that they present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing the Group Financial Statements, the Directors are required to:• select suitable accounting policies in accordance with IAS 8

’Accounting Policies, Change in Accounting Estimates and Errors’ and then apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance;

• state that the Group has complied with IFRSs, subject to any material departures disclosed and explained in the Financial Statements; and

• make judgements and accounting estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Financial Statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Strategic Report, Directors’ Report, the Directors Remuneration Report, the Audit Committee Report and the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules.

Directors’ Responsibility StatementEach of the Directors listed on page 34, confirms that to the best of their knowledge:• the Financial Statements, prepared in accordance with IFRS as

adopted by the European Union, give a true and fair review of the assets, liabilities, financial position and results of Servelec and its subsidiaries included in the consolidation taken as a whole;

• the Strategic Report (including the business model, the strategy, the business reviews, the divisional reviews, the risk management report and corporate Social Responsibility report) and the Directors’ Report (including the Corporate Governance Reports) include a fair review of the development and performance of the business and the position of Servelec and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

• the Report (including the Financial Statements), taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess and provide Servelec’s performance, business model and strategy.

Signed on behalf of the Board

AR Stubbs MG CaneChief Executive Officer Chief Financial Officer


62


Independent auditor’s report to the members of Servelec Group plc

Opinion on financial statementsIn our opinion:• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December

2014 and of the group’s profit for the year then ended;• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted

Accounting Practice; and• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the

group financial statements, Article 4 of the IAS Regulation.

What we have auditedWe have audited the financial statements of Servelec Group plc for the year ended 31 December 2014 which comprise the Group income statement, the Group statement of comprehensive income, the Group statement of financial position, the Group statement of changes in equity, the Group cash flow statement, the Group related notes 1 to 29, the Company balance sheet and the Company related notes (i) to (xiii).

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 61, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

63


Our assessment of risks of material misstatement We consider that the following areas present the greatest risk of material misstatement in the financial statements and consequently have had the greatest impact on our audit strategy, the allocation of resources and, the efforts of the engagement team, including the more senior members of the team:

Principal risk area and rational Audit response

Revenue recognition: long-term contract accountingRefer to page 42 (Audit Committee Report) and page 72 (notes).

We focused on this area as revenue generated from long-term contracts makes up approximately three quarters of the total Group revenue. Further, the timing of revenue recognition has inherent complexities when accounting for long-term contracts, as recognition relies on estimates of the costs to complete for each project.

As such, there is the potential for error and for management manipulation of the timing of revenue recognition.

We performed audit procedures on the controls in place to ensure the appropriate determination of the percentage completion of each contract. We performed analytical review procedures, which included comparing costs incurred, sales invoices raised and margins per contract to that at prior year. We met with the project manager for each significant contract to understand the progress during the period, the risk areas associated with each contract, appropriateness of forecast costs to complete including any contingency provisions, and comparison of margins and forecasts to the prior year position. All key terms were agreed to the contractual agreement for each significant contract.

We performed detailed tests of transactions, agreeing a sample of costs and income back to supporting evidence, such as invoices and contractual billing schedule.

We also ensured that management’s policies and processes for making these estimates continue to be robust and are applied consistently to all contracts through our test of contract management controls and discussions held with Group management and project managers. We challenged and applied professional scepticism to judgements and accounting treatments made by management arising from contractual disputes and other risks. We recalculated forecast margin, WIP and revenue for all contracts to ensure that the calculations were correctly performed and in line with the Group’s accounting policies as well as the requirements of IFRS.

We consider these to be the key judgemental areas driving the recognition of revenue and margins in respect of long term contracts.

No significant issues were noted from our work.

Revenue recognition: product salesRefer to page 42 (Audit Committee Report) and page 72 (notes).

Revenue generated from product sales makes up approximately one quarter of the total Group revenue. There is a risk concerning inappropriate revenue recognition when the risks and rewards of the product have not yet passed to the customer and revenue is recognised..

The component auditors carried out a fully substantive audit approach, which consisted of overall analytical review procedures on monthly revenue and margin analysis by product line and other substantive procedures. The other procedures performed included cut-off testing, review of credit notes raised post year end and detailed test of transactions back to supporting evidence. We reviewed and discussed the planned approach to test revenue recognition with the component auditors. We reviewed the results of the testing performed and discussed further with the component auditors as deemed necessary. For the location designation full scope, we attended the audit closing meeting and reviewed the audit working papers to verify that the audit procedures carried out on revenue testing were in line with the approach agreed in order to address the significant risk identified.

No significant issues were noted from our work.

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Principal risk area and rational Audit response

Accounting for the purchase of Corelogic Limited, in particular the recognition and valuation of goodwill and intangibles acquired Refer to page 42 (Audit Committee Report) and page 92 (notes).

We focused on this area due to the size of the intangibles recognised, being £16,050,000 goodwill and £10,296,000 identified intangibles, and judgement and complexity involved in identifying and valuing such assets.

There is also judgement inherent in fair valuing the assets and liabilities acquired.

With the support of our valuation expert, we agreed the inputs, and challenged and applied professional scepticism to management’s assumptions and methodologies applied in the model to calculate the value of intangibles and goodwill acquired, including the cash flow projections, discount rates and amortisation period. We performed a corroborative discount rate calculation, challenging key assumptions such as agreeing the risk free yield rate to government debt yields and the beta and risk premium rates to that applied for comparable companies. Our results concluded that the discount rate was within a reasonable range. We evaluated and challenged the composition of the cash flow projections, and the process by which they were drawn up. We compared projected growth rates to historical growth trends, and comparable company growth. We also compared the amortisation period to that applied by comparable companies.

From the evidence obtained we consider the value of intangibles recognised to be acceptable. We note, however, that the assumptions and judgements that are required to value the intangibles mean that there is a range of acceptable values.

Management performed a fair value exercise of the assets and liabilities acquired. We also performed specific audit procedures on the assets and liabilities acquired, as at 31 December 2014, for the purposes of opining on the consolidated balance sheet. No issues were noted from our work that would indicate an error in the fair value of assets and liabilities recognised in note 27.

Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and on the financial statements. For the purposes of determining whether the financial statements are free from material misstatement we define materiality as the magnitude of misstatement that makes it probable that the economic decisions of a reasonably knowledgeable person, relying on the financial statements, would be changed or influenced.

We determined materiality for the group to be £550,000 (2013: £520,000), which is approximately 5% (2013: 5%) of adjusted pre-tax profit. We used adjusted pre-tax profits to exclude the nonrecurring exceptional items of £410,000 as described in note 7 (2013: £nil exceptional items). This provided a basis for determining the nature, timing and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures.

On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgment was that overall performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the group should be 75% (2013: 75%) of planning materiality, namely £413,000 (2013: £390,000). Our objective in adopting this approach was to ensure that total uncorrected and undetected audit differences in all accounts did not exceed our materiality level.

Audit work at individual components is undertaken based on a percentage of our total performance materiality. The performance materiality set for each component is based on the relative size of the component and our view of the risk of misstatement at that component. In the current year the range of performance materiality allocated to components was £82,500 to £390,000.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £27,500 (2013: £26,000) as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in the light of other relevant qualitative considerations.

Independent auditor’s report to the members of Servelec Group plc continued

65


An overview of the scope of our audit Following our assessment of the risk of material misstatement to the Group financial statements, we selected seven components which represent the principal business units within the Group’s three reportable segments and account for 101% (2013: 95%) of the group’s profit before tax and 95% (2013: 89%) of the group’s total revenue. Five of these were subject to a full audit, whilst at the remaining two components specific audit procedures were performed, including a full audit of the accounts that were impacted by our assessed risks of material misstatement and the materiality of the Group’s business operations at those locations. The seven components were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. For the remaining components not selected, we performed other procedures to confirm there were no significant risks of material misstatement in the Group financial statements.

The Group audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor or his designate visits each full scope location at least once every other year on a rotational basis. This year the group team visited all full scope locations, reviewed working papers on revenue (given revenue recognition was identified as a significant risk area), participated in the component team’s planning including the component team’s discussion of fraud and error and attended the audit closing meetings. The Group audit team perform the audit of long term contract accounting and acquisition accounting, with the component teams auditing the recognition of product sales.

Opinion on other matters prescribed by the Companies Act 2006In our opinion:• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are

prepared is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following:

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of

performing our audit; or • is otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received

from branches not visited by us; or • the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement

with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review: • the directors’ statement, set out on page 61, in relation to going concern; and • the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK

Corporate Governance Code specified for our review.

Stuart Watson (Senior statutory auditor)for and on behalf of Ernst & Young LLP, Statutory AuditorLeeds11 March 2015

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Note2014

£’0002013

£’000

Revenue 3,4 51,753 41,995Cost of sales (28,306) (23,582)

Gross profit 23,447 18,413Selling and distribution expenses (1,875) (2,005)Administration and other expenses before amortisation (10,191) (5,172)

EBITA* 11,381 11,236

Amortisation on acquired intangible assets (874) (384)

Operating profit from continuing operations 6 10,507 10,852Finance costs 11 (9) (4)Finance income 10 92 60

Profit before taxation from continuing operations 10,590 10,908Income tax expense 12 (1,897) (1,983)

Profit for the financial period from continuing operations 8,693 8,925

Discontinued operationsProfit after tax for the year from discontinued operations – (15)

Profit for the financial period 8,693 8,910

Earnings per share: 8Basic earnings per share for continuing operations 12.7p 26.1pDiluted earnings per share for continuing operations 12.5p 16.1pBasic and diluted earnings per share for discontinuing operations nil nil

* EBITA equals operating profit from continuing operations excluding acquired intangible amortisation

Group statement of comprehensive income2014

£’0002013

£’000

Profit for the financial period 8,693 8,910

Other comprehensive income to be reclassified through the income statementExchange differences on translation of foreign operations (909) 138Exchange differences reclassified to income statement on sale of subsidiary 23

Total comprehensive income for the financial period, net of tax 7,784 9,071

Group income statementFor the year ended 31 December

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Group statement of financial position

Note31 Dec 2014

£’00031 Dec 2013

£’000

ASSETSNon-current assetsProperty, plant and equipment 13 2,613 1,480Intangible assets 14 46,527 21,098Deferred tax asset 12 163 18

Total non-current assets 49,303 22,596

Current assetsInventories 16 1,280 1,084Trade and other receivables 17 27,674 28,301Cash and cash equivalents 19 5,960 7,538

Total current assets 34,914 36,923

TOTAL ASSETS 84,217 59,519

EQUITY AND LIABILITIESCurrent LiabilitiesTrade and other payables 20 23,814 11,086Current corporation tax 2,053 2,137

Total current liabilities 25,867 13,223

Non-current liabilitiesProvisions 21 324 520Deferred tax liabilities 12 2,734 749

Total non-current liabilities 3,058 1,269

TOTAL LIABILITIES 28,925 14,492

Equity shareholders’ fundsShare capital 24 12,491 12,300Share premium 24 3,563 754Share-based payment reserve 25 546 41Currency translation reserve (836) 73Retained earnings 39,528 31,859

Total equity shareholders’ funds 55,292 45,027

TOTAL EQUITY AND LIABILITIES 84,217 59,519

Approved by the Board on 11 March 2015 and signed on its behalf by:


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Note

Sharecapital

£’000

Sharepremium

£’000

Share-based payment

reserve£’000

Currency translation

reserve £’000

Retainedearnings

£’000Total

£’000

As at 1 January 2013 4,578 501 – (88) 29,449 34,440

Profit for the period – – – – 8,910 8,910Other comprehensive income – – – 161 – 161Share-based payments 25 – – 41 – – 41Issue of shares 24 7,722 253 – – – 7,975Dividends 9 – – – – (6,500) (6,500)

Balance as at 31 December 2013 12,300 754 41 73 31,859 45,027

Profit for the period – – – – 8,693 8,693Other comprehensive income – – – (909) – (909)Share-based payments 25 – – 434 – – 434Tax on share-based payments – – 71 – – 71Issue of shares 24 191 2,809 – – – 3,000Dividends 9 – – – – (1,024) (1,024)

Balance as at 31 December 2014 12,491 3,563 546 (836) 39,528 55,292

Group statement of changes in equity

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Note2014

£’0002013

£’000

Profit before taxContinuing operations 10,590 10,908Discontinued operations 29 – 62Operating activities

Profit before tax 10,590 10,970Adjustments to reconcile profit before tax to net cash flows: Depreciation and impairment of property, plant and equipment 13 405 244 Share based payment expenses 25 434 41 Amortisation and impairment of intangible assets 14 929 384 Loss on disposal of property, plant and equipment – – Loss on disposal of subsidiary – 274 Finance income 10 (92) (60) Finance costs 11 9 4 Movement in provisions 21 (205) –Working capital adjustments (Increase) in trade and other receivables and prepayments 2,580 (5,039) (Increase)/decrease in inventories (196) (69) Increase/(decrease) in trade and other payables 2,907 2,315

Cash flows from operating activities 17,361 9,064

Interest received 92 60Interest paid (9) (4)Income tax paid (2,699) (2,541)

Net cash flows from operating activities 14,745 6,579

Investing activitiesPurchase of property, plant and equipment and intangibles (1,316) (1,106)Costs incurred on sale of subsidiary 29 – (204)Acquisition of subsidiary undertaking net of cash acquired 27 (13,322) 184

Net cash flows from investing activities (14,638) (1,126)

Financing activitiesDividends paid (1,024) (6,500)Proceeds from the issue of shares – 281

Net cash flows from financing activities (1,024) (6,219)

Net increase in cash and cash equivalents (917) (766)

Net foreign exchange difference (661) (245)

Cash and cash equivalents at start of period 7,538 8,549

Cash and cash equivalents at end of period 5,960 7,538

Cash flow statementFor the year ended 31 December

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1. General informationThe principal activities of Servelec Group plc (“Company”) and its subsidiaries (together “the Group”) are the design, manufacture, installation and commissioning of patient record systems, social care case management software, process automation systems, wide area Telemetry systems including pipeline control systems, management information systems and the development, manufacture and sale of electronic and microprocessor monitoring equipment.

Servelec Group plc is a public limited company incorporated and domiciled in the United Kingdom with company number 3098411. The registered office is located at Rotherside Road, Sheffield, S21 4HL. The Company wholly owns the subsidiaries listed in note 26, which together form Servelec Group plc (“the Group”). The historical financial information presented in the financial statements is at and for the years ended 31 December 2014 and 31 December 2013 and comprises a consolidation of the financial information of Servelec Group plc and all of its subsidiaries.

2. Summary of significant accounting policiesThe basis of preparation and accounting policies used in preparing the Group financial information for the years ended 31 December 2014 and 2013 are set out below. These accounting policies have been consistently applied in all material respects to all the periods presented. The financial statements are presented in Sterling (£’000).

Basis of preparationThe consolidated historical financial information has been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted for use in the European Union. The financial information has been prepared based on those standards and using the principal accounting policies outlined below.

The historical financial information has been prepared on a historical cost basis.

The historical financial information has been presented in sterling, rounded to the nearest thousand (£’000) unless otherwise stated and has been prepared on a going concern basis.

The statement of financial position has been categorised into current and non-current items in accordance with IAS 1 ’Presentation of Financial Statements’. To aid clarity, a number of items have been summarised both in the balance sheet and in the income statement. These are discussed in detail in the notes to the financial statements.

New standards and interpretationsThere are no IFRS or IFRIC interpretations effective for the first time this financial year that have had a material impact on the Group.

Adoption of new and revised standards

The IASB and IFRIC have issued the following standards and interpretations with an effective date after 1 January 2014:

• IFRS 10, IFRS 12 and IAS 27 – Investment entities (Amendments)• IAS 32 – Offsetting financial assets and liabilities (Amendments)• IAS 36 – Recoverable amount disclosures for non-financial assets (Amendments)• IAS 39 – Novation of derivatives and continuation of hedge accounting (Amendments)• IFRIC 21 – Levies• IAS 19 – Defined Benefit Plans: Employee Contributions (Amendments)• IAS 11 – Accounting for Acquisitions of Interests in Joint Operations (Amendments)• IFRS 14 – Regulatory Deferral Accounts• IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments)• IAS 27 – Equity Method in Separate Financial Statements (Amendments)• IFRS 15 – Revenue from Contracts with Customers• IFRS 9 – Financial instruments• IFRS 5 – Changes in methods of disposal (Amendment)• IFRS 7 – Servicing Contracts (Amendment)

The Group has not early adopted these amended standards and interpretations.

With the exception of changes to IFRS 15 (effective 1 January 2017), the directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s Financial Statements, other than additional disclosures, in the period of initial application.

Notes to the financial statements

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The application of IFRS 15 in the future may have a material impact on the amounts reported and disclosures made in the Group’s accounts. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review. There are no other IFRS amendments or IFRIC interpretations that are not yet effective that are expected to have a material impact on the Group’s financial statements.

Going concernThe financial statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

Further information in relation to the Group’s business activities, together with the factors likely to affect its future development, performance and position is set out in the Strategic Report on pages 1 to 33.

Note 23 to the financial statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to foreign exchange, credit and interest rate risk. Further details of the Group’s cash balances are included in note 19 of the financial statements.

The Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of cash in the business. The assessment included a detailed review of financial and cash flow forecasts for at least the 12-month period from the date of signing the Annual Report. The Directors considered a range of potential scenarios within the key markets the Group serves and how these might impact on the Group’s cash flow. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences. The Group’s forecasts and projections show that the Group should be able to operate without the need for any borrowing facilities.

Having undertaken this work, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

ConsolidationThe financial information comprises a consolidation of the financial information of Servelec Group plc and all its subsidiaries. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

Subsidiaries are all entities over which the Group has control. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Thus, the Group controls an investee if and only if the Group has all of the following: power over the investee; exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.

Segment informationOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segment has been identified as the main Board of Directors.

RevenueRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

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2. Summary of significant accounting policies continuedRendering of servicesRevenue from the rendering of services is recognised with reference to the stage of completion. Stage of completion is measured by reference to costs incurred to date as a percentage of total estimated costs. Revenue on short-term projects is recognised once the service has been fully delivered to the client.

Sale of goodsRevenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods.

Long-term contractsIn the case of long-term contracts, revenue reflects the value of contract activity during the year in proportion to the costs incurred to date. Long-term contracts are valued at cost plus attributable profit less foreseeable losses. Attributable profit is included when the outcome of a contract can be assessed with reasonable certainty. The value of long-term contracts is accounted for within revenue and the excess of this value over payments received on account is included in receivables. Payments received on account in excess of this value are included in payables.

Licence incomeLicences charged to customers for the use of proprietary software are assessed on a contract by contract basis and depending on the terms are either taken on delivery or spread on a usage basis over the term of the contract.

Interest incomeFor all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the income statement.

Foreign currencyFunctional and presentation currencyThe Group’s consolidated financial statements are presented in Sterling, which is also the parent company’s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

The functional currency is the currency of the primary economic environment in which the company operates.

Transactions and balancesTransactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Group companiesThe assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation are translated into Sterling at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at exchange rates ruling at the time of the transaction. The resulting exchange differences are taken directly to a separate component of equity.

Property, plant and equipmentProperty, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met.

Depreciation is calculated to write down the cost of the assets over the estimated useful lives on the following bases:• Plant, machinery, fixtures and fittings 10-25% per annum• Motor vehicles 25% per annum• Freehold property 2% per annum

Notes to the financial statements continued

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The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at the end of each reporting period and adjusted prospectively, if appropriate. The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

An item of property, plant and equipment and any significant part is derecognised upon disposal or where no future economic benefits are expected to arise from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.

Intangible assetsGoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ’intangible assets’. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

For the purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units (’CGUs’) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Computer software and licencesThird party software licences purchased and software recognised when acquired as part of a business combination are amortised in equal amounts over a period of 5 to 7 years, which is estimated to be their useful life.

Customer relationshipsIntangible assets classified as customer relationships are recognised when acquired as part of a business combination and are measured initially at fair value. Customer relationships are amortised evenly over their expected useful lives of 10 to 15 years.

Order backlogIntangible assets classified as order backlog are recognised when acquired as part of a business combination and are measured initially at fair value. Order backlogs are amortised evenly over their expected useful lives of between 1 and 6 years.

Research and development costsResearch costs are expensed as incurred. Development expenditures are capitalised and recognised as an intangible asset when the Group can demonstrate: it is technically feasible to complete the intangible asset so that it will be available for use or sale;• its intention to complete and use or sell the asset;• how the asset will generate probable future economic benefits;• adequate technical, financial and other resources to complete the development and to use or sell the asset; and• the ability to reliably measure the expenditure during development.

Costs that qualify for capitalisation include both internal and external costs, but are limited to those that are directly related to the specific project. Development costs are included at capitalised costs less accumulated amortisation and any recognised impairment loss.

Amortisation is calculated to write down the cost of the asset on a straight-line basis over their estimated useful lives, which range from up to 5 years. Useful lives are reviewed at the end of each reporting period and adjusted if appropriate.

Impairment of non-financial assetsAssets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit (CGU) to which the asset belongs. For tangibles and intangibles the allocation is made to those CGU units that are expected to benefit from the asset.

Any impairment charge is recognised in the income statement in the period in which it occurs. Where an impairment loss subsequently reverses due to a change in the original estimate, the carrying amount of the asset is increased to the revised estimate of its recoverable amount.

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2. Summary of significant accounting policies continuedFinancial instrumentsFinancial assetsThe Group classifies its financial assets as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting date. These are classified as non-current assets. The Company’s loans and receivables comprise ’trade and other receivables’ and cash and cash equivalents in the statement of financial position. Subsequent to initial recognition, these assets are carried at amortised cost using the effective interest method.

Financial liabilitiesThe Company initially recognises its financial liabilities at fair value and subsequently they are measured at amortised cost using the effective interest method.

Impairment of financial assetsAn assessment of whether there is objective evidence of impairment is carried out for all financial assets at the balance sheet date. This assessment may be of individual assets (’individual impairment’) or of a portfolio of assets (’collective impairment’). A financial asset is considered to be impaired if, and only if, there is objective evidence of impairment as a result of 1 or more events that occurred after the initial recognition of the asset (a ’loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

For individual impairment the principal loss event is 1 or more missed payments, although other loss events can also be taken into account, including arrangements in place to pay less than the contractual payments, fraud and bankruptcy or other financial difficulty indicators. An assessment of collective impairment will be made of financial assets with similar risk characteristics. For these assets, portfolio loss experience is used to provide objective evidence of impairment.

For financial assets carried at amortised cost, the charge to the income statement reflects the movement in the level of provisions made, together with amounts written off net of recoveries in the period.

Dividend distributionDividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Board of Directors. Dividends are paid at the discretion of the Board of Directors.

Share based paymentsThe Group operates equity settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is calculated using a Black-Scholes pricing model and is recognised as an expense over the vesting period. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options or performance shares granted. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. No expense is recognised for awards that do not ultimately vest except for awards where vesting is conditional upon market or non-vesting conditions which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied provided that all other performance or service conditions are satisfied.

PensionsThe Group operate a defined contribution scheme. Assets of the scheme are held separately from those of the company in independently administered funds. The amount charged against profits represents the contribution payable to the schemes in respect of the financial period.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at its inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent upon the use of a specific asset or assets or the arrangement conveys the right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Operating leasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognised as an operating expense in the income statement on a straight-line basis over the lease term.

InventoriesInventories are valued at the lower of cost and net realisable value.


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Cash and cash equivalentsCash and cash equivalents in the statement of financial position comprise cash at bank, short-term deposits held at call with banks and other short-term highly liquid investments with original maturities of 3 months or less, and bank overdrafts. In the balance sheet, bank overdrafts are shown as borrowings in current liabilities.

Current taxationCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance sheet date.

Income tax relating to items recognised in comprehensive income or directly in equity is recognised in comprehensive income or equity and not in the income statement.

Deferred taxationDeferred income tax is provided using the liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:• where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a

business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary

differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and• deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which

deductible temporary differences, carried forward tax credits or tax losses can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

Discontinued operationsThe Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the income statement.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Business combinations and goodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the identifiable assets acquired and liabilities assumed. If the consideration transferred is less than the fair value of the net assets acquired, the gain is recognised directly in the income statement.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

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2. Summary of significant accounting policies continuedIf the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised in profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

The preparation of the financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Estimates and assumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Contract costsAs set out in the revenue recognition accounting policy note, revenue from long-term contracts is recognised in proportion to the costs incurred to date. Costs to complete on contracts are based on management estimates and are reviewed on a monthly basis for appropriateness. Changes to estimates can result in variations in the percentage complete of a contract and therefore the amounts charged to the Group’s income statement.

Business combinationsAs set out in the business combinations and goodwill accounting policy note, intangible assets and goodwill is calculated based on management estimates of fair value calculated with reference to the information available at the time.

Exceptional itemsThe Group discloses exceptional items in a separate note (note 7) being those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

3. RevenueRevenue recognised in the income statement is analysed as follows:

2014£’000

2013£’000

Sale of goods 11,780 3,499Rendering of services 7,215 6,374Long-term contracts 32,758 32,122

51,753 41,995

No revenue was derived from exchanges of goods or services.


77


4. Segment informationFor 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 Health & Social Care division develops high quality, enterprise-wide systems for implementation across community health, mental health, child health, social care 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 two business units, Healthcare and Social Care, 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 which were previously aggregated. Following the acquisition of Semaphore at the end of 2013 the Board now consider it appropriate to report Controls and Technologies as individual segments and have therefore restated the prior year for comparative purposes.

The Controls segment is engaged in the provision of complex, mission critical control and safety systems to the oil and gas, power and nuclear 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 2014 and 31 December 2013.

Year ended 31 December 2013

ServelecHealth &

Social Care£’000

Automation

Central£’000

Total£’000

ServelecControls

£’000

Servelec Technologies

£’000

Segment revenue 14,879 15,302 11,814 – 41,995Cost of sales (6,498) (9,777) (7,307) – (23,582)

Gross profit 8,381 5,525 4,507 – 18,413Overheads (821) (1,915) (2,183) (1,467) (6,386)Related-party management charge – – – (750) (750)Share-based payments – – – (41) (41)Amortisation – – – (384) (384)

Segment operating profit from continuing operations 7,560 3,610 2,324 (2,642) 10,852

Year ended 31 December 2014

ServelecHealth &

Social Care£’000

Automation

Central£’000

Total£’000

ServelecControls

£’000

Servelec Technologies

£’000

Segment revenue 16,657 14,998 20,098 – 51,753Cost of sales (8,029) (9,616) (10,661) – (28,306)

Gross profit 8,628 5,382 9,437 – 23,447Overheads (1,055) (1,858) (5,582) (2,727) (11,222)Exceptional costs (note 7) – – – (410) (410)Share-based payments – – – (434) (434)Amortisation of acquired intangibles (note 6, 13) – – – (874) (874)

Segment operating profit from continuing operations 7,573 3,524 3,855 (4,445) 10,507

Operating assets and liability information are measured on a Group basis and so have not been disclosed at segment level.

78


4. Segment information continued Adjustments and eliminationsSegment profit for each operating segment excludes net finance costs of £9,000 (2013: £4,000).

Geographical information

Revenue from external customers

2014£’000

2013£’000

United Kingdom 40,765 36,658Europe 6,037 1,911Middle East 687 674Africa 549 984Far East 1,076 506Australasia 1,667 704North America 972 558

Total 51,753 41,995

Non-current assets for this purpose consist of property, plant and equipment and intangible assets and are all located in the United Kingdom.

Information about major customersRevenue from one customer amounted to £9,613,000 in the year ended 31 December 2014 (2013: £10,050,000) arising from sales reported in the Healthcare segment.

5. Staff costs2014

£’0002013

£’000

Wages and salaries 19,141 16,502Social security costs 2,358 1,827Pension costs for the defined contribution scheme 920 499

Total 22,419 18,828

The average monthly number of employees during the period was made up as follows:

2014 2013

Production 403 370Marketing, sales and distribution 20 19Administration 46 47

Total 469 436


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6. Group operating profit2014

£’0002013

£’000

This is stated after charging/(crediting)Research and development costs written off 4,204 2,013

Depreciation of property, plant and equipment – owned assets 405 244Depreciation of property, plant and equipment – leased assets – –Amortisation of intangible assets (included within administration & other expenses) 55 –Amortisation of acquired intangible assets 874 384

Total depreciation and amortisation expense 1,334 628

Loss on disposal of property, plant and equipment – –Fees payable to the Company’s auditor and its associates included in operating costs:– EY – Audit of Group Financial Statements 47 40– EY– Audit of Company Subsidiaries 75 65Total audit 122 105Audit related assurance services 15 –Total fees 137 105The Group’s Auditors also received fees of £450,000 for services on the IPO transaction in 2013, which were

paid by CSE Global Limited.Fees payable to the other auditors of the associates included in operating costs:– Foster Raffan - Audit services 10 8– Foster Raffan - Non-audit services 11 –– BDO 13 10Net loss on foreign currency translation (91) (36)Operating lease rentals payable 782 578Cost of inventories recognised as an expense (note 16) 41 141

7. Exceptional items2014

£’0002013

£’000

Recognised in arriving at operating profit from continuing operations:Acquisition costs (note 27) 310 –Aborted acquisition costs 100 –

Total exceptional items 410 –

During the year the Group incurred costs of £410,000 (2013: nil) in respect of successful and aborted acquisitions.

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8. Earnings per shareBasic 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:

2014£’000

2013£’000

Profit attributable to ordinary equity holders of the parent from continuing operations 8,693 8,925(Loss)/profit attributable to ordinary equity holders of the Parent from discontinued operations – (15)

Net profit attributable to ordinary equity holders of the Parent 8,693 8,910

Thousands Thousands

Basic weighted average number of shares 68,387 34,113Dilutive potential Ordinary Shares 1,417 108Diluted weighted average number of shares 69,804 34,221

Basic earnings per share from continuing operations 12.7p 26.1pDiluted earnings per share from continuing operations 12.5p 16.1pBasic and diluted earnings per share from discontinuing operations nil nil

The weighted average number of shares has been calculated assuming all shares were converted from £1 to 18p shares as from 1 January 2013 in line with IAS.33.27.

There have been no transactions involving Ordinary Shares between the reporting date and the date of completion of the historical financial information.

9. Dividends paid and proposed

Declared and paid during the year2014

£’0002013

£’000

Equity dividends on Ordinary Shares*: 1,024 6,500Dividend per share 1.5p 19p

Based on weighted average number of shares converted to 18p shares.

Proposed for approval by shareholders at the AGM:Final dividend for 2014 of 3p per share (2013: nil)

* Dividend paid in 2013 was to former parent, CSE Global Limited.

10. Finance income

2014£’000

2013£’000

Bank interest 89 32Other interest 3 28

Total interest income for financial assets measured at amortised cost 92 60

11. Finance costs2014

£’0002013

£’000

Interest on loan notes (7) –Other interest (2) (4)

Total interest expense for financial liabilities measured at amortised cost (9) (4)


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12. Income tax expense(a) Tax charged in the income statement

2014£’000

2013£’000

Current income taxUK & foreign corporation tax 2,364 2,491Amounts overprovided in previous years (319) (531)Foreign tax in current year on discontinued operations – (77)

Total income tax on continuing operations 2,045 1,883

Deferred taxOrigination and reversal of temporary difference (148) 116Impact of change in tax laws and rates – (16)

Total deferred tax (148) 100

Tax expense in the income statement on continuing operations 1,897 1,983

(b) Tax relating to items charged or credited to other comprehensive income

2014£’000

2013£’000

Deferred taxExchange differences on retranslation of foreign operations – –Changes in tax laws and rates – –Tax on share based payments 71 –

Total deferred tax 71 –

Tax expense in the statement of other comprehensive income 71 –

(c) Reconciliation of income tax credit/chargeThe income tax expense in the income statement for the period differs from the standard rate of corporation tax in the UK of 21.5%, (2013: 23.25%). The differences are reconciled below:

2014£’000

2013£’000

Profit before taxation from continuing operations 10,590 10,908Profit on discontinued operations before taxation – 336

10,590 11,244

Tax on profit on ordinary activities at 21.5% (2012: 23.25%) 2,277 2,614

Expenses not allowable for tax purposes 133 113Tax over provided in previous years (318) (531)R&D tax credits (175) (120)Utilisation of previously unrecognised tax losses – –Deferred tax rate difference – (16)Other timing differences (20) –

Total tax expense reported in the income statement 1,897 2,060

Less tax on discontinued operations – (77)

1,897 1,983

The standard rate of corporation tax in the United Kingdom for the year is 21.5% (2013: 23.25%). The Finance Act 2013 received Royal Assent on 17 July 2013 and enacted a reduction in the main rate of corporation tax to 21% with effect from 1 April 2014 and a further reduction of 1% will be applied to bring the main rate of corporation tax to 20% from 1 April 2015. Deferred tax has therefore been provided at 20%.

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12. Income tax expense continued(d) Deferred taxDeferred tax included in the balance sheet is as follows:

31 Dec 2014£’000

31 Dec 2013£’000

Deferred tax liabilityIntangible Assets 2,643 631Accelerated capital allowances 91 118

2,734 749

Deferred tax asset

Other timing differences 163 18

(e) Deferred tax in the income statement2014

£’0002013

£’000

Intangible assets (48) 32Deferred tax liability on accelerated capital allowances (27) 8Other timing difference (73) 60

(148) 100

13. Property, plant and equipmentFreehold property

£’000

Motor vehicles

£’000

Plant, machinery, fixtures & fittings

£’000Total

£’000

At 1 January 2013 640 153 1,863 2,656Acquisitions 1 8 307 316Additions – – 240 240Foreign currency adjustment (2) (1) (52) (55)

At 31 December 2013 639 160 2,358 3,157

Acquisitions – – 220 220Additions – – 1,316 1,316Disposals – (161) – (161)Foreign currency adjustment 1 3 (46) (42)

At 31 December 2014 640 2 3,848 4,490

Accumulated depreciation:At 1 January 2013 42 152 1,274 1,468Charge for the period 13 2 229 244Foreign currency adjustment (1) (1) (33) (35)

At 31 December 2013 54 153 1,470 1,677

Charge for the period 13 3 389 405Disposals – (159) – (159)Foreign currency adjustment (3) 3 (46) (46)

At 31 December 2014 64 – 1,813 1,877

Net book value

Freeholdproperty

£’000

Motorvehicles

£’000

Plant, machinery, fixtures & fittings

£’000Total

£’000

At 31 December 2013 585 7 888 1,480

At 31 December 2014 576 2 2,035 2,613


83


14. Intangible assetsGoodwill

£’000Licences

£’000

Computer software

£’000

Customer relationships

£’000

Orderbacklog

£’000Total

£’000

Cost:At 1 January 2013 11,982 192 79 1,396 298 13,947Acquisitions 4,735 – 626 1,435 391 7,187Additions – 13 1,453 – – 1,466Disposals (318) (80) – – – (398)Foreign currency adjustment – 1 – – – 1

At 31 December 2013 16,399 126 2,158 2,831 689 22,203

Acquisitions 16,050 – – – – 16,050Additions – 1 2,225 6,286 1,796 10,308At 31 December 2014 32,449 127 4,383 9,117 2,485 48,561

At 1 January 2013 318 104 5 393 298 1,118Charge for the period – 24 97 227 36 384Disposals (318) (80) – – – (398)Foreign currency adjustment – 1 – – – 1

At 31 December 2013 – 49 102 620 334 1,105

Charge for the period* – 25 410 439 55 929At 31 December 2014 – 74 512 1,059 389 2,034

Net book valueGoodwill

£’000Licences

£’000

Computer software

£’000

Customer relationships

£’000

Orderbacklog

£’000Total

£’000

At 31 December 2013 16,399 77 2,056 2,211 355 21,098

At 31 December 2014 32,449 53 3,871 8,058 2,096 46,527

* £874,000 (2013: £384,000) of amortisation in the year relates to acquired intangible assets.

Customer relationships have a remaining amortisation period of 15 years (31 December 2013: 9 years).Computer software has a remaining amortisation period of 5 years (31 December 2013: 5 years).Order backlog has a remaining amortisation period of 8 years (31 December 2013: 9 years).Licences have a remaining amortisation period of 5 years (31 December 2013: 5 years).

15. Impairment test for goodwillGoodwill acquired through business combinations has been allocated for annual impairment testing purposes to five cash-generating units, as follows:

31 Dec 2014£’000

31 Dec 2013£’000

Health & Social Care 16,050 –Servelec Systems 456 456Semaphore 3,819 3,819Tynemarch 916 916Controls 11,208 11,208

32,449 16,399

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 1-year period extrapolated for a further 2 years assuming annual growth rates of 5% and 2 years assuming annual growth rates of 2% in perpetuity. 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 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.

84


15. Impairment test for goodwill continuedKey assumptions used in value in use calculationsThe calculation of value in use for each of the CGUs is most sensitive to the following assumptions:• Discount rate 18.1%• Growth rate 5% from year 2 – 3• Growth rate 2% 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 assumptionsWith regards to the assessment of value in use of the cash generating units, management believes that no reasonable possible change in any of the above key assumptions would cause the carrying amount of the unit to materially exceed its recoverable amount.

16. Inventories31 Dec 2014

£’00031 Dec 2013

£’000

Raw materials and consumables 420 302Work in progress 256 423Finished goods and goods for resale 604 359

Total inventories 1,280 1,084

During the year ended 31 December 2014 £41,000 (2013: £141,000) was recognised as an expense for inventories carried at net realisable value. This is recognised in cost of sales.

All inventories are carried at cost less a provision to take account of slow-moving and obsolete items. Changes in the provision for slow-moving and obsolete stock were as follows:

31 Dec 2014£’000

31 Dec 2013£’000

At beginning of period 928 295Acquisitions – 492Charged to income 41 156Amount utilised (158) (15)

At end of period 811 928


85


17. Trade and other receivables

31 Dec 2014£’000

31 Dec 2013£’000

Trade receivables 15,494 14,574Less: provision for impairment of receivables (444) (505)

Trade receivables – net 15,050 14,069Amounts due from customers for contract work 11,331 12,940Prepayment and accrued income 738 474Other debtors 555 818

Total trade and other receivables 27,674 28,301

Trade receivables are non-interest bearing and are generally on terms of 30 days.

At 31 December 2014, trade receivables of an initial value of £444,000 (31 December 2013: £505,000) were impaired and fully provided for.

See below for the movements in the provision for impairment:

2014£’000

2013£’000

At 1 January 505 523Charged for period – –Utilised (61) (18)

At 31 December 444 505

The ageing analysis of trade receivables was as follows:

31 Dec 2014£’000

31 Dec 2013£’000

Neither past due nor Impaired 9,862 5,374Past Due but not Impaired Less than 30 days 3,277 7,592

30-60 days 899 67760-90 days 613 81

Greater than 90 days 399 345

15,050 14,069

86


18. Contracts in progressTotal income and expense recognised under IAS 11 on contract in progress in the year:

2014£’000

2013£’000

Costs incurred for the period 21,206 20,789Recognised profits 18,767 17,707

Contract revenue for the period 39,973 38,496Recognised losses – –Costs incurred relating to future activity – –

39,973 38,496Less progress billing and advances (40,751) (40,167)Movement relating to discontinued operations – –

(778) (1,671)Brought forward 10,047 11,718

Carried forward 9,269 10,047

Aggregate amount of costs incurred and recognised profits (less losses) to date 39,973 38,496

Retention asset 15,010 12,940Advances received (5,741) (2,893)

9,269 10,047

Retention assets are included in trade receivables. Advances are presented as part of amounts due to customers for contract work.

19. Cash and cash equivalents31 Dec 2014

£’00031 Dec 2013

£’000

Cash at bank and in hand 3,161 2,118Cash on short-term deposits 2,799 5,420

Total cash and cash equivalents 5,960 7,538

Cash at bank earns interest at a floating rate based on daily bank deposit rates. Short-term deposits are made for varying periods, depending on the immediate cash requirements of the group, and earn interest at the respective short-term deposit rates.

20. Trade and other payables31 Dec 2014

£’00031 Dec 2013

£’000

Amounts due to customers for contract work 5,741 2,894Trade creditors 2,896 1,498Other taxes and social security 3,074 3,694Other creditors 953 734Accruals and deferred income 5,150 2,266Loan notes 6,000 –

Total trade and other payables 23,814 11,086

Trade payables are non-interest bearing and are normally settled on 30 day terms and other payables are non-interest bearing and have an average term of 2 months.

Loan notes of £6,000,000 are payable in relation to the acquisition of Corelogic. £2,000,000 is payable on 31 March 2015 and £4,000,000 is payable on 30 June 2015 (see note 27).


87


21. ProvisionsDilapidations

£’000

Contingent Consideration

£’000Total

Provisions

As at 1 January 2013 150 – 150Arising during the year 10 360 370

As at 31 December 2013 160 360 520

Acquired during the year 9 – 9Arising during the year 10 – 10Released during the year – (215) (215)

As at 31 December 2014 179 145 324

31 Dec2014

£’000

31 Dec2013

£’000

Non-current provisions 324 520

DilapidationsThis provision relates to potential dilapidation costs on property leases. The provision is management’s best estimate of potential future costs expected to be incurred on exit of the leases, which is not anticipated until 2029 at the earliest.

Contingent ConsiderationA provision was established for the potential additional costs relating to an earn out on the Tynemarch acquisition – see note 23.

22. Commitments and contingenciesOperating lease commitmentsThe Company has entered into an operating lease in respect of the Eckington premises of £240,000 per annum (Dec-13 – £240,000). In 2009 the company entered a Deed of Variation with the landlord, whereby in exchange for an extension of the existing premises an extension of the lease was entered into. The extended lease will expire in 2029 and a rent review was made in October 2010 and every 5 years thereafter. In 2014 the company entered into an operating lease in respect of the Sheffield city centre premises of £170,000 per annum. The lease expires in 2029, has a break clause in 2021 and rent reviews in 2021 and 2024. There are no restrictions placed upon the Company by entering into these leases. The lease expenditure charged to the income statement during the 12 months ended 31 December 2014 is £782,000 (Dec-13: £578,000). Future minimum rentals payable under non-cancellable operating leases as at 31 December 2014 and 2013 analysed by the period in which they fall due are as follows:

2014£’000

2013£’000

Less than 1 year 1,034 689Between 1 and 5 years 2,720 1,804More than 5 years 2,731 1,441

6,485 3,934

Capital commitments2014

£’0002013

£’000

Contracted but not provided 164 68

The Company has given counter indemnities amounting to £122,000 (31 December 2013: £263,000) in respect of performance bonds issued by banks on behalf of Group companies, in the normal course of business.

88


23. Financial instruments and financial risk management objectives and policiesFair valuesThe Group’s financial instruments comprise cash and cash equivalents (note 19), trade receivables (note 17) trade payables (note 20) 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 policiesThe 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 managementThe 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 no bank loans but does have £6,000,000 of loan notes which are due to be paid by 30 June 2015 (see note 20). Should additional cash be required to fund specific projects or acquisitions the Group would fund short-term requirements by external borrowings.

Market riskMarket 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 riskThe Group has only limited exposure to interest rate risk as the interest on the loan notes is fixed at 2%.

Foreign currency riskForeign 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 riskCredit 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 2014 there was one customer that owed the Group £6,594,000 (31 December 2013: £12,730,000) which accounted for approximately 24% (2013: 45%) of net trade receivables.


89


Liquidity riskThe table below summarises the maturity profile of the group’s financial liabilities at 31 December 2014 and 2013 based on contractual undiscounted payments.

On demand£’000

Less than1 year£’000

Total£’000

31 December 2013Trade and other payables 2,002 9,084 11,086

31 December 2014Trade and other payables 4,649 19,165 17,814Interest bearing loans and borrowings – 6,000 6,000

4,649 19,165 23,814

Management review 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.

Fair values of financial assets and financial liabilitiesSet 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

2014£’000

2013£’000

2014£’000

2013£’000

AssetsCash and cash equivalents 5,960 7,538 5,960 7,538Trade and other receivables 29,936 27,827 29,936 27,827LiabilitiesCurrentTrade and other payables (14,740) (7,392) (14,740) (7,392)Loan notes (6,000) – (6,000) –Non-currentDilapidation provision (179) (160) (179) (160)Contingent consideration (145) (360) (145) (360)

For all financial instruments other than contingent consideration , their carrying amount approximates to fair value. Contingent consideration is a level 3 financial instruments under the IFRS 13 hierarchy.

The fair value of contingent consideration has been estimated based on management’s profit projections.

Contingent consideration

£’000

Fair value of contingent consideration at 1 January 2013 360Changes in fair value taken to the profit and loss account (215)

Fair value of contingent consideration at 31 December 2014 145

The consideration has been assumed at the maximum amount for the final year of £150,000 and discounted at the company WACC rate.

SensitivityShould profit projections for the 3-year earn-out period fall by 15% the fair value of contingent consideration would reduce to nil. Should profit projections fall by 5% then the fair value of contingent consideration would reduce by 33%.

Should profit projections increase then the fair value of contingent consideration will not increase.

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24. Issued capital and reservesAuthorised shares

31 Dec 2014Thousands


Ordinary Shares of 18 pence each 69,394 68,332

Ordinary Shares issued and fully paid


31 Dec 2014£’000


31 Dec 2013£’000

Share capitalShares at 1 January 2013 4,578 4,578Shares issued 7,693 7,693

12,271 12,271

Shares at 1 January 2014 68,332 12,300Converted from £1 to 18p shares 68,175 12,271Shares issued 1,062 191 157 29

Shares at the end of the period 69,394 12,491 68,332 12,300

On 15 December 2014, the Group issued 1,061,665 18p shares as part of the consideration for the purchase of the Corelogic Group of companies (see note 27).

31 Dec 2014£’000

31 Dec 2013£’000

Share premiumShares at the beginning of the period 754 501Shares issued 2,809 253

3,563 754

25. Share-based paymentsGroup executive share option planIn 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 for each executive as determined by the Remuneration Committee. 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.

Date Granted Number Granted Exercise Price Vesting Period Years Expiry Period Years

Options granted during the year 9 January 2014 47,232 £2.22 3 10

Save-as-you-earn (SAYE) schemeIn 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 £5 and £500 (2013: £250) per month.

Date Granted Number Granted Exercise Price Vesting Period Years Expiry Period Years

Options granted during the year 3 November 2014 64,667 £2.80 3 10

Long-term incentive planIn 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 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.

No options were granted in the year.

Further details of the vesting conditions are in the Remuneration Committee report on pages 44 to 57.


91


The following table summarises the number and weighted average exercise prices (WAEP) of and movements in, share options during the year.

2014No

2014WAEP(£)

2013No

2013WAEP(£)

Outstanding as at 1 January 1,357,363 1.18 – –Granted during the year 111,899 2.56 1,357,363 1.18Performance condition expired (178,161) 1.83 – –

Outstanding at 31 December 1,291,101 1.21 1,357,363 1.18

• There are no options exercisable at the year end.• The following table lists the inputs to the models used.

2014 2013

Dividend yield 1.5% –Volatility 0.3 0.3Expected life of option 3.5 years 3.5 yearsShare price at:29 November 2013 – £2.079 January 2014 £2.40 –29 November 2014 £2.72 –

The expected life of the options has been estimated as 6 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 2014 is £434,000 (31 December 2013: £41,000).

26. Related party disclosuresIdentity of related partiesServelec Group plc is the ultimate parent company.

The consolidated financial statements of the Group include:

Company Country of registration and number ClassShares held

(%)

Servelec Healthcare Limited England (No. 1323205) Ordinary 100Servelec Systems Limited England (No. 6879601) Ordinary 100Servelec Controls Limited England (No. 4608506) Ordinary 100Servelec Controls (Motherwell) Limited Scotland (No. SC050341) Ordinary 100Seprol Limited England (No. 1610543) Ordinary 100Tynemarch Holdings Limited England (No. 3397034) Ordinary 100Tynemarch Systems Limited England (No. 1774901) Ordinary 100Servelec Technologies Limited England (No. 08661987) Ordinary 100Semaphore Belgium SA Belgium (No. RLE (Nivelles) 0886.847.541) Ordinary 100Semaphore Australia Pty Limited Australia (No. CAN 006805910) Ordinary 100Semaphore America Inc USA (No. F09000000761) Ordinary 100Servelec Corelogic Limited (formerly Corelogic Limited) England (No. 03811329) Ordinary 100Corelogic Global Limited England (No. 07264571) Ordinary 100Framework Systems and Solutions Private Limited India (No. U72200KL2010FTC026591) Ordinary 100Corelogic Mosaic Pty Australia (No.160793966) Ordinary 100

92


26. Related party disclosures continuedServelec Healthcare Limited supplies software and IT solutions and services into the healthcare markets. Servelec Systems Limited is involved in the design, manufacture, installation and commissioning of control and management information systems, the development, manufacture and sale of electronic and microprocessor monitoring equipment. Servelec Controls Limited, a systems integrator, is principally engaged in the supply of computer based information solutions and services. Servelec Controls (Motherwell) Limited became a non-trading subsidiary with effect from 1 April 2011 and Seprol Limited is dormant. Tynemarch Holdings Limited is a holding company and Tynemarch Systems Limited delivers optimisation software and consultancy, predominantly in the water industry.

Semaphore Belgium SA, Semaphore Australia Pty Limited and Semaphore Inc are companies involved in the design, manufacture and sale of electronic and micro processor monitoring equipment.

Servelec Corelogic Limited and Corelogic Mosaic Pty supply adult and children’s social care case management software, together with associated financial management modules. Corelogic Global Limited is a dormant company and Framework Systems and Solutions Private Limited supplies development resources to the Group.

Transactions with related partiesThe following table provides the total amount of transactions, which have been entered into with related parties for the relevant financial year or period:

2014£’000

2013£’000

CSE Global Limited (previous parent company) and subsidiariesSales to related parties – 441Acquisition of intangible assets from related parties – 1,415Acquisition of Semaphore Group from related parties – 7,675IPO costs paid by related parties – 7,304Management charge by related parties – 765Purchase from related parties – 18Amounts owed by related parties – 77Interest received from related parties – 15

MGC Accounting Solutions LtdConsultancy services – 43

The consultancy services invoiced by MGC Accounting Solutions Ltd relate to the services of MG Cane prior to his appointment as a Director.

Terms and conditions of transactions with related partiesThe sales to and purchases from related parties are made at normal market prices. There are no outstanding balances at the year end.

Compensation of key management personnelKey management includes the Directors. The compensation paid or payable to key management for employee services is shown below:

2014£’000

Servelec Group Plc

£’000

CSE Global Ltd (1) (2)

£’000

Total2013

£’000

Short-term employee benefits 1,426 835 4,383 5,218Pension contributions 60 84 – 84Share based payments 320 24 – 24

Total compensation paid to key management personnel 1,806 943 4,383 5,326

(1) Employee benefits paid by previous holding company not recharged to Servelec Group Plc.(2) Benefits paid by CSE Global Ltd for 2013 include share rewards of £4,055,000.

Directors’ emoluments are set out in the Directors’ Remuneration Report on pages 44 – 57.


93


27. Business combinationsAcquisition of Corelogic LimitedOn 12 December 2014, the Group acquired 100% of the voting shares of Corelogic Limited and its subsidiaries Corelogic Global Limited, Corelogic Mosaic Pty and Framework Systems and Solutions Private Limited, a software company which supplies adult and children’s social care case management software, together with associated financial management modules to the UK and Australia markets.

The fair values of the identifiable assets and liabilities of the Corelogic Group of companies as at the date of acquisition were:Fair value

recognised on acquisition

£’000

AssetsProperty, plant and equipment 220Cash and cash equivalents 1,168Trade and other receivables 1,953Software 2,214Order Backlog 1,796Customer relationships 6,286

LiabilitiesTrade and other payables (4,128)Provisions (9)Deferred tax liability (2,060)

Total identifiable net assets at fair value 7,440Goodwill arising on acquisition 16,050

23,490

The goodwill of £16,050,000 comprises the value of the assembled workforce and expected value of synergies. Goodwill is allocated entirely to the Health & Social Care 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, Corelogic Limited has contributed £345,000 of revenue and a loss of £36,000 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 £60,154,000 and the profit before tax from continuing operations for the Group would have been £11,283,000.

The deferred tax liability mainly comprises the accelerated depreciation for tax purposes of tangible and intangible assets.

£’000

Purchase considerationShares issued 3,000Loan notes issued 6,000Cash paid 14,490

Total consideration 23,490

Analysis of cash flows on acquisition:Transaction costs of the acquisition (included in cash flows from operating activities) (310)Net cash acquired with the subsidiary (included in cash flows from investing activities) (13,322)

Net cash flow on acquisition (13,632)

The fair value of the consideration given is £23,495,000.

Transaction costs of £310,000 have been expensed and are included in administrative expenses and exceptional items (note 7).

94


27. Business combinations continuedThe Group issued 1,061,665 shares as part consideration for the acquisition of Corelogic Limited. The fair value of the shares is the published price of the shares of the Group at the acquisition date. Therefore the fair value of the consideration given in shares is £3,000,000.

The Group issued loan notes to the value of £6,000,000 as part consideration for the acquisition of Corelogic Limited. The details are set out below:

Loan Note Repayable Date Interest Payable

£2,000,000 31 March 2015 2%£4,000,000 30 June 2015 2%

The interest payable converts to 10% from the issue date if the loan note is not repaid on the due date.

28. PensionsThe Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. The total pension cost payable by the Group amounted to £920,000 (2013: £499,000).

29. Discontinued operationsIn December 2013, the Group disposed of the full share capital of CSE-Controls sro. The disposal has been categorised as a discontinued operation.

(i) The impact of the operations discontinued in 2013 is as follows:2014

£’0002013

£’000

Revenue – 2,891Expenses – (2,221)Gross profit – 670Administration costs – (334)Profit before tax from a discontinued operation – 336Income tax expense – (77)Profit for the financial period from a discontinued operation – 259Loss on disposal – (274)

(Loss)/profit from discontinued operations – (15)

(ii) The value of the assets and liabilities disposed of during the sale of CSE-Controls sro at the point of sale were:

£’000

Property, plant and equipment 3Debtors 1,499Cash and short-term deposits 406Creditors (1,458)

Net assets sold 450

(iii) The loss on disposal of CSE-Controls sro is analysed below:

£’000

Sale proceeds 380Costs to sell (204)Net assets disposed (Note 29 (ii)) (450)

Loss on disposal (274)

Of the sale proceeds £380,000 is included in other receivables at 31 December 2013.


95


(iv) The net cash flows attributable to CSE-Controls sro are:

2014£’000

2013£’000

Profit before tax from discontinued operations Profit before tax – 336Loss on disposal – (274)

– 62

Working capital movement – (380)Operating cash flows – (318)

Investing activities – (204)

96


Notes2014

£’0002013

£’000

Fixed assetsTangible fixed assets (i) 454 334Intangible fixed assets (ii) 1,244 1,417Deferred tax asset 150 –Investments (iii) 58,484 34,994

60,332 36,745

Current assetsDebtors (iv) 3,245 686Cash and cash equivalents 2,726 4,644

5,971 5,330Creditors: amounts falling due within one year (v) (21,756) (8,738)

Net current (liabilities)/assets (15,785) (3,408)

Total assets less current liabilities 44,547 33,337

Creditors: amounts falling due greater than one yearProvisions (vi) (315) (520)

Deferred tax liabilities (19) –

Net assets 44,213 32,817

Capital and reservesCalled up share capital (vii) 12,491 12,300Share premium (viii) 3,563 754Share based payment reserve 546 41Profit and loss account 27,613 19,722

Shareholders’ funds 44,213 32,817

Approved by the Board on 11 March 2015 and signed on its behalf by:


Company balance sheetFor the year ended 31 December 2014

97


2014£’000

2013£’000

Profit for the financial year attributable to members of the Parent Company 8,915 5,431

Total recognised gains and losses relating to the year 8,915 5,431

Company statement of total recognised gains and lossesFor the year ended 31 December 2014

98


Accounting policiesA summary of the principal Company accounting policies is set out below. These have been applied on a consistent basis unless otherwise indicated.

As permitted by section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account.

The Company has taken advantage of the exemptions in FRS 1 from preparing cash flows as the Group’s Consolidated Financial Statements, in which the Company is included, provide equivalent disclosures.

The Company has taken advantage of the exemption in FRS 8 not to disclose related party transactions with Group companies.

Going concernThe financial statements have been prepared on a going concern basis. Although the Company is in net liabilities, this is due to the bank overdraft which is cross guaranteed by other group companies and therefore the Directors believe it is appropriate basis for preparation of the financial statements (see note 2 in the Group consolidated accounts).

Basis of accountingThe accounts have been prepared in compliance with the Companies Act 2006 and in accordance with UK Generally Accepted Accounting Principles. They have been prepared under the historical cost convention.

Statement of director’s responsibilities for the Company financial statementsThe Directors are responsible for preparing the Directors’ report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:• select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent;• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained

in the financial statements; and• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue

in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Intangible fixed assetsSoftware licences are amortised in equal amounts over a period of 4 – 6 years, which is estimated to be their useful life.

Tangible fixed assetsDepreciation is provided on all tangible fixed assets, at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition of each asset evenly over its expected useful life, as follows:Plant and machinery – 25% per annumFixtures and fittings – 25% per annum

The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

InvestmentsInvestments held as fixed assets are stated at cost less provision for any permanent diminution in value.

Notes to the financial statements

99


Deferred taxationDeferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exceptions:• Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, or gains on

disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold.

• Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Foreign currenciesTransactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward foreign currency contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract rate. All differences are taken to the profit and loss account.

Pension costsThe Group operates a defined contribution pension scheme. Assets of the scheme are held separately from those of the Company in independently administered funds. The amount charged against profits represents the contribution payable to the schemes in respect of the financial period.

Share-based paymentsThe Group operates equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is calculated using a Black-Scholes pricing model and is recognised as an expense over the vesting period. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options or performance shares granted. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. No expense is recognised for awards that do not ultimately vest except for awards where vesting is conditional upon market or non-vesting conditions which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied provided that all other performance or service conditions are satisfied.

(i) Tangible fixed assets

Company

Plant and machinery, fixtures and fittings

£’000

Cost:At 1 January 2014 1,101Additions 300Transfers (117)

At 31 December 2014 1,284

Accumulated depreciation:At 1 January 2014 767Charge for the year 91Transfers (28)


Net book value:At 31 December 2014 454

At 1 January 2014 334

100


Accounting policies continued(ii) Intangible fixed assets

CompanyLicences

£’000

Cost:At 1 January 2014 1,496Additions 11Transfers 117

At 31 December 2014 1,624

Accumulated depreciation:At 1 January 2014 79Charge for the year 273Transfers 28


Net book value:At 31 December 2014 1,244

At 1 January 2014 1,417

(iii) Investments in subsidiary companies

Company

Ordinary Share in subsidiary undertakings

£’000

Cost:At 1 January 2014 34,994Investments in subsidiaries 23,490

At 31 December 2014 58,484

Shares in the subsidiaries

Company Country of registration and number Class and percentage of shares held

Servelec Healthcare Limited (formerly CSE-Healthcare Systems Limited) England (No. 1323205) Ordinary 100%

Servelec Systems Limited (formerly CSE-Servelec Limited) England (No. 6879601) Ordinary 100%Servelec Controls Limited (formerly CSE-Controls Limited) England (No. 4608506) Ordinary 100%Servelec Controls (Motherwell) Limited (formerly CSE-

Controls (Motherwell) Limited) Scotland (No.SC050341) Ordinary 100%Seprol Limited (formerly CSE-Seprol Limited) England (No. 1610543) Ordinary 100%Servelec Technologies Limited England (No. 08661987) Ordinary 100%CSE Semaphore Belgium S A Belgium (No. RLE (Nivelles) 0886.847.541) Ordinary 51%Tynemarch Holdings Limited England (No. 3397034) Ordinary 100%Servelec Corelogic Limited (formerly Corelogic Limited) England (No. 03811329) Ordinary 100%

In the opinion of the Directors the investment in the Company’s subsidiary undertakings is worth at least the amount at which it is stated in the balance sheet.

On 12 December 2014, the Company acquired 100% of the share capital of Corelogic Limited and its subsidiary companies. See note 27.

A full list of the Groups subsidiaries are detailed in note 26. The investments made by the Company in 2014 are summarised below.

£’000

Corelogic Limited (note 27) 23,490


101


(iv) Debtors

2014£’000

2013£’000

Trade debtors – 2Amounts owed by subsidiary undertakings 2,972 460Prepayments and accrued income 131 120Other debtors 22 104Corporation tax 120 –

3,245 686

(v) Creditors:Amounts falling due within one year

2014£’000

2013£’000

Bank Overdraft 7,607 7,001Amounts owed to subsidiary undertakings 6,766 –Trade creditors 538 202Current corporation tax – 136Other creditors 44 1,007Accruals and deferred income 801 392Loan notes 6,000 –

21,756 8,738

(vi) Provisions:

Dilapidations£’000

Contingent Consideration

£’000

TotalProvisions

£’000

At 1 January 2013 150 – 150Arising during the year 10 360 370

As at 31 December 2013 160 360 520Arising during the year 10 – 10Released during the year – (215) (215)

As at 31 December 2014 170 145 315

Analysed as

31 Dec 2014£’000

31 Dec 2013£’000

Non-current provisions 315 520

DilapidationsThis provision relates to potential dilapidation costs on property leases.

Contingent ConsiderationA provision was established for the potential additional costs relating to an earn out on the Tynemarch acquisition – see note 23.

(vii) Issued share capitalAuthorised shares



Ordinary Shares of 18 pence each 69,394 68,332

102


Accounting policies continuedOrdinary shares issued and fully paid

2014Thousands

2014£’000

2013Thousands

2013£’000

Share capitalShares at 1 January 2013 4,578 4,578Shares issued 7,693 7,693

12,271 12,271

Shares at 1 January 2014 68,332 12,300Converted from £1 to 18p shares – – 68,175 12,271Shares issued 1,062 191 157 29

Shares at the end of the period 69,394 12,491 68,332 12,300

On 15 December 2014, the Group issued 1,061,665 18p shares as part of the consideration for the purchase of the Corelogic Group of companies (see note 27).

(viii) Movements on reservesShare-based

payment reserve

£’000

Share Premium

£’000

Profit and loss account

£’000

At 1 January 2013 – 501 20,791Profit for the year – – 5,431Dividend paid to former parent – – (6,500)Share-based payments 41 – –Shares issued – 253 –

At 31 December 2013 41 754 19,722Profit for the year – – 8,915Dividend – – (1,024)Share-based payments 434 – –Deferred tax on Share-based payments 71 – –Shares issued – 2,809 –

At 31 December 2014 546 3,563 27,613

As permitted by Section 408 of the Companies Act 2006, no Profit and Loss Account is presented. The Company’s profit for the financial year was £8,915,000 (2013: £5,431,000).

(ix) Share-based paymentsGroup executive share option planIn 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 for each executive as determined by the Remuneration Committee. 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.

Date GrantedNumber Granted

ExercisePrice

Vesting Period Years

Expiry Period Years

Options granted during the year 9 January 2014 47,232 £2.22 3 10

Save-as-you-earn (SAYE) schemeIn 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 £5 and £500 (2013: £250) per month.

Date GrantedNumber Granted

Exercise Price

Vesting Period Years

Expiry Period Years

Options granted during the year 3 November 2014 64,667 £2.80 3 10

Long-term incentive planIn 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 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.


103


(ix) Share-based payments continuedNo options were granted in the year.

Further details of the vesting conditions are in the Remuneration Committee report on pages 44 – 57.

The following table summarises the number and weighted average exercise prices (WAEP) of and movements in, share options during the year.

2014No

2014WAEP(£)

2013No

2013WAEP(£)

Outstanding as at 1 January 1,357,363 1.18 – –Granted during the year 111,899 2.56 1,357,363 1.18Performance condition expired (178,161) 1.83 – –

Outstanding at 31 December 1,291,101 1.21 1,357,363 1.18

• There are no options exercisable at the year end.• The following table lists the inputs to the models used.

2014 2013

Dividend yield 1.5% –Volatility 0.3 0.3Expected life of option 3.5 years 3.5 yearsShare price at:29 November 2013 – £2.079 January 2014 £2.40 –29 November 2014 £2.72 –

The expected life of the options has been estimated as 6 months following exercise date. As there is little historical data the volatility has been estimated at 0.3 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 2014 is £434,000 (31 December 2013: £41,000).

(x) Contingent liabilitiesThe Company has given cross guarantees for all sums owed by Servelec Systems Limited, Servelec Healthcare Limited, Servelec Controls Limited, Seprol Limited and Servelec Controls (Motherwell) Limited. This has been secured by a debenture over all of Servelec Group plc assets.

At 31 December 2014 the amount outstanding was £nil (2013: £nil).

(xi) PensionsThe Company operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. The total pension cost payable by the Company amounted to £101,000 (2013: £68,000).

(xii) Related party transactionsThe Company has taken advantage of the exemption of FRS 8 not to disclose related party transactions with Group companies.

(xiii) Financial commitmentsThe Company has annual commitments under an operating lease in respect of the head office premises of £240,000 (2013: £240,000). The lease expires in 2029 and a rent review as made in October 2010 and every 5 years thereafter.

Capital commitments2014

£’0002013

£’000

Contracted but not provided 164 68

104


Corporate directory

Servelec Group plc (Head Office)The StraddleVictoria QuaysSheffieldS2 5SYTelephone: +44 (0) 1246 437400Email: [email protected]: www.servelec-group.com

Servelec Healthcare LimitedThe StraddleVictoria QuaysSheffieldS2 5SYTelephone: +44 (0) 1246 437500Email: [email protected]: www.servelec-healthcare.com

Servelec Technologies LimitedRotherside RoadEckingtonSheffieldS21 4HLTelephone: +44 (0) 1246 437580Email: [email protected]: www.servelec-technologies.com

Servelec Systems LimitedRotherside RoadEckingtonSheffieldS21 4HLTelephone: +44 (0) 1246 437580Email: [email protected]: www.servelec-systems.com

Servelec Controls LimitedRotherside RoadEckingtonSheffieldS21 4HLUnited KingdomTelephone: +44 (0) 1246 437060Email: [email protected]: www.servelec-controls.com

Servelec Controls Limited – AberdeenThe Technology CentreClaymore DriveAberdeen AB23 8GDTelephone: +44 (0) 1224 707 700Fax: +44 (0) 1224 707 017Email: [email protected]: www.servelec-controls.com

Servelec Controls Limited – GlasgowColtness HouseLark WayStrathclyde Business ParkBelshillLanarkshireML4 3RB Telephone: +44 (0) 1698 266 199Fax: +44 (0) 1698 253 672Email: [email protected]: www.servelec-controls.com

Servelec Controls Limited - WarringtonSuite BChadwick HouseBirchwoodWarringtonWA3 6AETelephone: + 44 (0) 1925 846200Email: [email protected]: www.servelec-controls.com

Tynemarch Systems LimitedSpring CourtStation RoadDorking, SurreyRH4 1EBUnited KingdomTelephone: + 44 (0) 1306 742772Fax: + 44 (0) 1306 742276Email: [email protected]: www.tynemarch.co.uk

Semaphore Americas Inc280 Wekiva Springs RoadSuite 3030Longwood, FL 32779USATelephone: +1 (844) 475 8020Email: [email protected]: www.servelec-semaphore.com

Semaphore Pty LimitedUnit 8 / 3-5 Gilda CrtMulgrave, Victoria 3170AustraliaTelephone: +61 (03) 8544 8544Fax: +61 (03) 8544 8555Email: [email protected]: www.servelec-semaphore.com

Semaphore S.A.Europe, Middle East, AfricaWaterloo Office Park – Building “M”Drève Richelle, 161B-1410 WaterlooBelgiumTelephone: +322.387.42.59Fax: +322.387.42.75Email: [email protected]: www.servelec-semaphore.com

Servelec Corelogic LimitedSuncourt House18-26 Essex RoadLondonN1 8LNTelephone: +44 (0) 20 7354 8000Fax: +44 (0) 207 354 6900Email: [email protected]: www.corelogic.co.uk

Servelec Corelogic LimitedCrichton House4 Crichton’s CloseEdinburghEH8 8DTTelephone: +44 (0) 131 550 0440Email: [email protected]: www.corelogic.co.uk

Corelogic Mosaic PtyUnited Overseas Bank BuildingLevel 1132 Martin PlaceSydneyNSW 2000Telephone: +61 (0) 418 510 055Email: [email protected]: www.corelogic.co.uk

Framework Systems and Solutions Private LimitedIX-B4th StageLeela InfoparkKakkanadKochi - 682030Telephone: +91 (0) 484 2415511Email: [email protected]: www.corelogic.co.uk

105


Directors Richard Last, Chairman and Non Executive Director Alan Russell Stubbs, Chief Executive Officer Michael Geoffrey Cane, Chief Financial Officer Roger Steven McDowell, Senior Independent Non-Executive Director Bernerd Joseph Waldron, Independent Non-Executive Director Company Secretary Michael Cane

Registered Office of the Company Rotherside Road Eckington Sheffield South Yorkshire S21 4HL

Sponsor, financial adviser, Investec Bank plcsole bookrunner and broker 2 Gresham Street London EC2V 7QP

English legal advisers to the LLP Company Walker Morris Kings Court 12 King Street Leeds West Yorkshire LS1 2HL

Reporting Accountant and Auditors Ernst & Young LLP 1 Bridgewater Place Water Lane Leeds West Yorkshire LS11 5QR

Registrars Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

Financial public relations advisers to the Company Tulchan Communications LLP 85 Fleet Street London EC4Y 1AE

Directors and advisers

Servelec Group plcRotherside RoadEckingtonSheffieldS21 4HLUnited Kingdom

Tel: +44 (0) 1246 437 400www.servelec-group.com

Servelec Group plc

annual report and accounts 2014

annual report and accounts 2014 - servelec group · intangible amortisation and royalty charges...

Documents