23rd Mar 2006 07:00
23 March 2006 SERVICEPOWER TECHNOLOGIES PLC ("SERVICEPOWER" OR THE "Company") Preliminary results for the year ended 31st December 2005 ServicePower Technologies plc (LSE: SVR) provides outsourcing solutions andsoftware to the mobile repair and installations industry.Highlights * Revenue increased 93% to ‚£7.9 million (2004: ‚£4.1 million) * Gross margins increased to 40% (2004: 32%) * Loss from operations reduced to ‚£1.6 million (2004: ‚£3.7 million) * Investment in new products and services of ‚£976,000 * Outsourcing revenue in US increased 38% to ‚£2.9 million (2004: ‚£2.1 million) * Outsourcing solutions launched in Europe achieves revenue of ‚£0.7 million * Software solutions revenue increased 109% to ‚£4.3 million (2004: ‚£2.1 million) * Software solutions move into profit of ‚£67k (2004: Loss ‚£2,500k) * Software licence revenue increased 300% to ‚£2.4 million (2004: ‚£0.6 million) * New software contract signed Q1 2006 worth ‚£1.1 million * 2006 revenue ‚£9 million already visible from existing contracts David Brisco, CEO, ServicePower, commented, "The investment in the outsourcingproducts in the US and Europe is now delivering returns. The Company hasdelivered a substantial increase in revenue, enjoys good visibility and, withthe strength of our current new business pipeline, we expect to delivercontinued growth in revenues and improvements in profitability. We aretherefore confident of a successful outcome for the current year."EnquiriesDavid Brisco, Chief Executive Officer Tel: 0161 476 2277Barry Welck, Non-executive Chairman Tel: 07831 396539ServicePower Technologies PLCMichael Brennan, Bobbie Hilliam Tel: 020 7071 4300Evolution Securities LimitedTom Moriarty Tel: 020 7651 8688ICIS LimitedChairman's StatementIntroductionI am pleased to report that 2005 was a highly successful year during which wegrew both our software sales and outsourcing services. Total revenue increasedby 93% to ‚£7.9m, with gross margins up to 40% and the loss from operationssubstantially reduced to ‚£1.6 million.Fundamentally however, I regard 2005 as a year during which SERVICEPower'sproduct and client offering completed a three year evolution into a businesswith a durable and scaleable business model. This now provides the kind ofsteady visibility of earnings upon which we can plan and build for the mediumterm growth of the business.The management team should be credited with successfully delivering a strategicplan that transformed the business from a single product software house, withan extended sales cycle, into a new enterprise with a scaleable model sellinginto a growing and attractive marketplace with a substantial customer base.We have made significant progress merging the broad range of product offeringsinto one coherent service package, a total solution for the service industryunder the single brand of SERVICEPower.SERVICEPower now represents a broad range of new available products andservices under a single brand. The customer remains the Service Director of aCompany that utilises mobile service engineers to install or repair productseither in the home or the office. However we now offer a broad range ofproducts including: * enterprise software for employers of service engineers which optimises the work to maximise the number of jobs completed each day; * hosted IT solutions designed for independent service provider's networks that provides electronic despatch of work and processing of warranty claim forms; * an outsourced service solution offer where there is no network that allows our clients to pass all responsibility for service delivery to ServicePower; * mobile technology solutions specifically designed for the independent service company that allows job despatch, GPS tracking, turn by turn directions to a mobile phone; and * air-time provider, offering clients lower voice and data monthly charges. Revenue from the outsourcing products grew 77% in 2005 as the Company furtherbuilt upon an established customer base. We have extended our customerportfolio to include some of the world's best known brands in industries suchas consumer goods, communications, insurance, utilities, fire & security aswell as other companies such as NCR and Argos Direct. Our customers arereporting that implementation of our software has resulted in materialincreases in efficiency, improved customer care, reduced costs and increasedrevenues.New software contracts contributed to 109% revenue growth and an increase ingross margins to 58%. The group has good visibility of revenue in 2006 andbeyond based upon the accumulation of customers on long term recurring revenuecontracts.As at March 2006, based on existing contracts, the Company has good visibilityof over ‚£9.0 million in revenue for 2006 to be delivered across the range ofour products and services as follows: * software licences ‚£1.4 million * software and maintenance services ‚£2.0 million * outsourcing services ‚£4.5 million * GPS tracking solutions ‚£1.1 million The market opportunity remains substantial and, we believe, largely untapped.For illustration, there are an estimated 7m service engineers in the US, around1,200 companies employing over 500 engineers and 24,000 with between 50 and500. Our hosted solution, introduced during 2005, has yet to make significantinroads into substantial markets such as PC repair, Heating, Ventilation & AirConditioning (HVAC), windscreen repair and home services. With the strength ofour prospects sales are expected to continue to grow during the remaining 10months trading.Although there is competition in the major market sectors and territories, webelieve that SERVICEPower has material competitive advantages based upon asignificant investment in our technology and strong partnerships. For example,GE has contracted to exclusively use ServicePower technology in its GE Consumer& Industrial business unit.Results and DividendThe revenue for 2005 was ‚£7.9 million, an increase of 93% on 2004. This yearthere has been strong growth in our software sales which grew by 109% and ourUS outsourcing business grew by 38%. In addition the Company launched our newservices products in Europe in January 2005, which made a first-timecontribution of ‚£0.7 million in revenues for the year. In total our outsourcingrevenue grew 77%.The loss before taxation was ‚£1.6 million (2004: loss of ‚£3.7 million).The gross margin for software rose to 58% compared to 43% last year due to anincreased proportion of licence revenue resulting in the software productsmoving into profitability. The gross margin on our newly released servicesproducts fell to 19% (2004: 22%) due to one-off set-up costs in the UK.Administration expenses have been reduced to ‚£4.8 million, ‚£0.2 million lessthan 2004 mainly due to exchange rate gains.The Company invested in the new products and services a total amount of ‚£976,000 plus a further ‚£632,000 has been capitalised in Intangible Assets.In December 2005 the Company secured incremental funding of ‚£1.8 million tofund the working capital requirements of new business opportunities such as theEchoStar satellite installation business in North America.The loss per share for the year was 2.14p (2004: loss per share of 5.19p). TheDirectors do not recommend the payment of a dividend at this time.Operations ReviewOutsourcing solutions revenue in the US grew by 38% in 2005 as the Companyfurther built upon an established customer base. The new contracts won willcontinue to deliver revenue in 2006 giving the Directors good visibility for2006 revenue and beyond.In January 2005 the Company commenced marketing its outsourcing services inEurope. In only a few months we have won contracts with some of the mostprestigious companies in the UK including GE Capital which underwrites manyretail warranty products, Argos Direct, the UK's leading multi-brand,multi-channel retailer, plus many others that can not be named for commercialreasons. Most of the contracts were won against incumbent suppliersdemonstrating the value that our solutions bring to our clients. Revenue fromthis new business in 2005 was ‚£0.7 million and the Directors expect thebusiness to grow substantially in 2006 as it expands in the UK and into Europe.In August the Company launched a new suite of products in North America underthe brand "SERVICEMobility". These products are a range of mobile phonesoftware applications, including job despatch, optimisation and turn-by-turndirections that can be used by major corporate customers and small independentcompanies alike to enhance service delivery as jobs can be delivered direct tothe phone.The Company also recently announced that GE Consumer & Industrial (GEC&I) hasgone live with the Company's electronic despatch system. With this and otherrecent customer additions the Company has approximately one million jobsavailable on the system.In September the Company won the right to become an approved installer ofEchoStar "DISH" satellite systems. The contract involves using ServicePowertechnology to co-ordinate and consolidate a network of dealers who will sell,and a network of independent service companies that will install, satellitesystems across North America. I am pleased to report that sales recently beganthrough our registered dealers.In December the Company added GPS tracking functionality to our SERVICEMobilityrange of applications. The Company recently announced sales of this type ofover ‚£1.3 million to two of our corporate clients. These contracts will involvethe installation of an on-board monitoring device in 2,500 vehicles in 2006. In2006 the Company has achieved "authorised air-time provider" status with amajor US wireless communications company, which will generate an additionalrevenue stream from our mobile and GPS customers.The SERVICEPower software solutions delivered significant growth during theyear. Sales in 2005 included a Fortune 20 US conglomerate, a major US insurancecompany, Elisa Corp (the second largest telecoms company in Finland) the RoyalBank of Canada and a major Canadian telecoms company. Software licence revenueincreased 300% to ‚£2.4 million, raising the software business gross margin to58% (2004: 43%). Software maintenance and implementation services revenueincreased 27% to ‚£1.9 million.Our software solutions remain high value, low volume solutions with a healthypipeline of opportunities in both the US and Europe at the present time. We areseeing an increasing number of opportunities coming through partners with twocontracts recently won by Distrix Solutions, our Canadian partner, and theElisa contract, which was won through Rossum Oy, our Finnish partner. In 2005we granted CCC Information Services Inc, an exclusive licence to sellSERVICEPower solutions to the US automotive insurance market. CCC will befocusing on the smaller end of the market whilst ServicePower continues todirect sell to the larger insurance companies thereby giving us broad marketcoverage. It is in the insurance market that the Company is doing particularlywell, with the recently announced contract award being our fifth with insuranceloss adjusters.OutlookThe investment in the outsourcing products in the US and Europe is nowdelivering returns. The Company has delivered a substantial increase inrevenue, enjoys good visibility of future revenue from current contracts and,with the strength of our current new business pipeline, we expect to delivercontinued growth in revenues and improvements in profitability. We aretherefore confident of a successful outcome for the current year.ServicePower Technologies PlcConsolidated income statement for the year ended 31 December 2005 Note 2005 2004 ‚£'000 ‚£'000 Revenue - software solutions 2 4,296 2,055 - outsourcing services 3,641 2,059 _________ _________ Total revenue 7,937 4,114 Cost of sales (4,756) (2,788) _________ _________ Gross profit 3,181 1,326 _________ _________ Administrative expenses (4,827) (5,025) _________ _________ Profit/(loss) from operations - software 67 (2,500)solutions - outsourcing services (1,713) (1,199) _________ _________ Total loss from operations (1,646) (3,699) Investment revenue 36 67 Finance costs (1) (6) _________ _________ Loss before taxation (1,611) (3,638) Taxation - - _________ _________ Loss for the year (1,611) (3,638) _________ _________ Pence Pence Loss per share 3 Basic and diluted (2.14p) (5.19p) _________ _________All amounts relate to continuing activities.ServicePower Technologies PlcConsolidated statement of recognised income and expense for the year ended 31 December 2005 2005 2004 ‚£'000 ‚£'000 Exchange differences on translation of foreign (161) 13 operations Net (loss) / income recognised directly in (161) 13 equity Loss for the year (1,611) (3,638) Total recognised income and expense for the (1,772) (3,625) year ServicePower Technologies PlcConsolidated balance sheet at 31 December 2005 2005 2004Assets ‚£'000 ‚£'000 Non-current assets Property, plant and equipment 261 285 Intangible assets 1,896 1,247 Investments - 250 _________ _________ 2,157 1,782 Current assets Trade and other receivables 3,639 1,253 Cash and cash equivalents 1,943 2,788 _________ _________ 5,582 4,041 _________ _________ Total assets 7,739 5,823 _________ _________ Current liabilities Trade and other payables (3,739) (2,009) _________ _________ Non-current liabilities Long term other payables - (72) _________ _________ Total liabilities (3,739) (2,081) _________ _________ Net assets 4,000 3,742 _________ _________ Equity Share capital 8,073 7,413 Share premium account 14,855 13,602 Share scheme reserve 203 86 Exchange translation reserve (148) 13 Other reserve (3,008) (3,008) Retained earnings (15,975) (14,364) _________ _________ Total equity 4,000 3,742 _________ _________ServicePower Technologies PlcConsolidated cash flow statement for the year ended 31 December 2005 Note 2005 2004 ‚£'000 ‚£'000 Net cash flows from operating activities 4 (2,312) (2,819) Investing activities Interest received 36 67 Proceeds on disposal of property, plant and - 11equipment Purchases of property, plant and equipment (63) (239) Proceeds of sale of available-for-sale 250 -investments Expenditure on intangible assets (632) (624) Cash acquired with KPI - 168 _________ _________ Net cash used in investing activities (409) (617) _________ _________ Financing activities Proceeds on issue of shares 1,974 6,599 Issue costs (60) (630) Capital element of lease paid (78) (36) Capital element of lease repaid (1) (6) ________ _________ Net cash from financing activities 1,835 5,927 _________ _________ Net (decrease)/increase in cash and cash (886) 2,491equivalents Cash and cash equivalents at beginning of 2,788 297year Effect of exchange rate changes 41 - __________ _________ Cash and cash equivalents at end of year 1,943 2,788 _________ _________ ServicePower Technologies PlcNotes to the consolidated financial statements for the year ended 31 December2005______________________________________________________________________________1 Significant accounting policiesBasis of accountingAccounting policiesThe financial statements of the Group have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted for use in theEuropean Union. In addition to complying with its legal obligation to complywith IFRS as adopted for use in the European Union, the Group has also compliedwith IFRS as issued by the International Accounting Standards Board.ServicePower Technologies plc's consolidated financial statements were preparedin accordance with United Kingdom Generally Accepted Accounting Principles (UKGAAP) until 1 January 2005. UK GAAP differs in some areas from IFRS.Whilst the information in this preliminary announcement has been computed inaccordance with IFRS, this announcement does not itself contain sufficientinformation to comply with IFRS. The Company expects to publish full financialstatements that comply with IFRS in April 2006.The financial statements have been prepared on the historical cost basis. Theprincipal accounting policies adopted are set out below.Basis of consolidationThe consolidated financial statements incorporate financial statements of theCompany and entities controlled by the Company (its subsidiaries) made up to 31December each year. Control is achieved where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities.The results of subsidiaries acquired in the year are included in theconsolidated income statement from the effective date of acquisition, asappropriate.Where necessary, adjustments are made to the financial statements of thesubsidiaries to bring accounting policies used into line with those used by theGroup.All intra-group transactions, balances, income and expenses are eliminated onconsolidation.Business combinationsThe acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 Business Combinations are recognised attheir fair value at the acquisition date, except for non-current assets (ordisposal groups) that are classified as held for resale in accordance with IFRS5 Non Current Assets Held for Sale and Discontinued Operations, which arerecognised and measured at fair value less costs to sell.Goodwill arising on acquisition is recognised as an asset and initiallymeasured at cost, being the excess of the cost of the business combination overthe Group's interest in the net fair value of the identifiable assets,liabilities and contingent liabilities recognised. If, after reassessment, theGroup's interest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in profit or loss.Revenue recognitionRevenue represents sales to outside customers at invoiced amounts less VAT andother sales-related taxes. It is recognised when and to the extent that theGroup has earned the right to consideration for services provided.Software licence sales are recognised during the period from delivery of thesoftware to final acceptance by the customer, based on the specific terms andrequirements of the contract.Software support is invoiced annually and taken to revenue rateably over theperiod covered. Implementation and other consultancy work is invoiced andrecognised as income as the work is performed.Where the Group enters into contracts involving a combination of one or more ofthe above activities, revenue is recognised for each component separately inaccordance with the relevant policy above.Revenue relating to outsourcing contracts and the supply of computer servicesis recognised as income as the work is performed.LeasingLeases are classified as finance leases whenever the terms of the leasetransfer substantially all the risks and rewards of ownership to the lessee.All other leases are classified as operating leases.Assets held under finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation.Lease payments are apportioned between finance charges and reduction of thelease obligation so as to achieve a constant rate of interest on the remainingbalance of the liability. Finance charges are charged directly against income,unless they are directly attributable to qualifying assets, in which case theyare capitalised in accordance with the Group's general policy on borrowingcosts (see below).Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease.Foreign currenciesThe individual financial statements of each group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each group company are expressed inpounds sterling, which is the functional currency of the Company, and thepresentation currency for the consolidated financial statements.In preparing the financial statement of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Non-monetary items carried at fair value that aredenominated in foreign currencies are translated at the rates prevailing at thedate when the fair value was determined. Non-monetary items that are measuredin terms of historical cost in a foreign currency are not retranslated.Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period except fordifferences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity.For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translatedat the average exchange rates for the period, unless exchange rates fluctuatesignificantly during that period, in which case the exchange rates at the dateof transactions are used. Exchange differences arising, if any, are classifiedas equity and transferred to the Group's translation reserve. Such translationdifferences are recognised as income or as expenses in the period in which theoperation is disposed of.Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate.Borrowing costsAll borrowing costs are recognised in profit or loss in the period in whichthey are incurred.Operating profitOperating profit is stated after charging restructuring costs but beforeinvestment income and finance costs.TaxationThe tax expense represents the sum of the tax currently payable and deferredtax.The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date.Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporarydifferences can be utilised. Such assets and liabilities are not recognised ifthe temporary difference arises from the initial recognition of goodwill orfrom the initial recognition (other than in a business combination) of otherassets and liabilities in a transaction that affects neither the tax profit northe accounting profit.Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future.The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered.Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity.Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis.Property, plant and equipmentShort leasehold interests and fixtures, fittings and equipment are stated atcost less accumulated depreciation and any recognised impairment loss.Depreciation is charged so as to write off the cost of assets over theirestimated useful lives, using the straight line method, on the following bases:Short leasehold interests - over length of leaseFixtures, fittings and equipment - 16.6% to 33.3% per annumAssets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease.The gain or loss arising on the disposal or retirement of an asset isdetermined as the difference between the sales proceeds and the carrying amountof the asset and is recognised in income.Internally-generated intangible assets - research and development expenditureExpenditure on research activities is recognised as an expense in the period inwhich it is incurred.An internally-generated intangible asset arising from the Group's softwaredevelopment is recognised only if all of the following conditions are met: * an asset is created that can be identified (such as software and new processes); * it is probable that the asset created will generate future economic benefits; and * the development cost of the asset can be measured reliably. Internally-generated intangible assets are amortised on a straight-line basisover their useful lives. Where no internally-generated intangible asset can berecognised, development expenditure is recognised as an expense in the periodin which it is incurred.Impairment of tangible and intangible assets excluding goodwillAt each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indicationthat those assets have suffered an impairment loss. If any such indicationexists, the recoverable amount of the asset is estimated in order to determinethe extent of the impairment loss (if any). Where the asset does not generatecash flows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Anintangible asset with an indefinite useful life is tested for impairmentannually and whenever there is an indication that the asset may be impaired.Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted.If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately, unless the relevant asset is carriedat a revalued amount, in which case the impairment loss is treated as arevaluation decrease.Where an impairment loss subsequently reverses, the carrying amount of theasset (cash-generating unit) is increased to the revised estimate of itsrecoverable amount, but so that the increased carrying amount does not exceedthe carrying amount that would have been determined had no impairment loss beenrecognised for the asset (cash-generating unit) in prior years. A reversal ofan impairment loss is recognised as income immediately, unless the relevantasset is carried at a revalued amount, in which case the reversal of theimpairment loss is treated as a revaluation increase.Government grantsGrants receivable in respect of specific research and development projects arecredited to the income statement over the periods necessary to match them withrelated costs incurred on those projects in the same accounting period.Financial instrumentsFinancial assets and financial liabilities are recognised on the Group'sbalance sheet when the Group becomes a party to the contractual provisions ofthe instrument.Trade receivablesTrade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts.InvestmentsInvestments held as fixed assets are stated at cost less any provision for anypermanent diminution in value.Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value.Financial liabilities and equityFinancial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Groupafter deducting all of its liabilities.Trade payablesTrade payables are not interest bearing and are started at their nominal value.Equity instrumentsEquity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs.Retirement benefit costsThe company contributes to a number of money purchase pension schemes as wellas stakeholder pension schemes. The contributions are charged to the incomestatement in the period in which they become payable.Share-based paymentsThe Group has applied the requirements of IFRS 2 Share-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2005.The Group issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date of the equity-settledshare-based payments is expensed on a straight-line basis over the vestingperiod, based on the Group's estimate of shares that will eventually vest.Fair value is measured by use of a binomial model and Monte Carlo simulation.The expected life used in the model has been adjusted, based on management'sbest estimate, for the effects of non-transferability, exercise restrictions,and behavioural considerations.ServicePower Technologies PlcNotes to the consolidated financial statements for the year ended 31 December2005_________________________________________________________________________________________2 Business and geographical segmentsFor management purposes, the Group is currently organised into two operatingdivisions - software licence sales and outsourcing services. These divisionsare the basis on which the Group reports its primary segment information.Principal activities are as follows:Software licence salesOutsourcing servicesSegment information about these businesses is presented below.2005 Software Outsourcing Group Licences Services Total 2005 2005 2005 ‚£'000 ‚£'000 ‚£'000 Revenue from external sales 4,296 3,641 7,937 _________ _________ ________ Profit/(loss) from 67 (1,713) (1,646)operations Investment income 36 Finance costs (1) ________ Loss before and after tax (1,611) ________ 2004 Software Outsourcing Group Licences Services Total 2004 2004 2004 ‚£'000 ‚£'000 ‚£'000 Revenue from external sales 2,055 2,059 4,114 _________ _________ ________ Loss from operations (2,500) (1,199) (3,699) Investment income 67 Finance costs (6) ________ Loss before and after tax (3,638) ________2005 Software Outsourcing Group Licences Services Other information 2005 2005 2005 ‚£'000 ‚£'000 ‚£'000 Capital additions 18 677 695 Depreciation and amortisation (46) (178) (224) Balance sheet Assets Segment assets 4,307 3,424 7,731 Unallocated corporate assets 8 Consolidated assets 7,739 Liabilities Segment liabilities 2,092 1,620 3,712 Unallocated corporate liabilities 27 Consolidated total liabilities 3,739 2004 Software Outsourcing Group Licences Services 2004 2004 2004 Other information ‚£'000 ‚£'000 ‚£'000 Capital additions 239 1,452 1,691 Depreciation and amortisation (32) (115) (147) Balance sheet Assets Segment assets 3,940 1,615 5,555 Unallocated corporate assets 268 Consolidated assets 5,823 Liabilities Segment liabilities 1,287 734 2,021 Unallocated corporate liabilities 60 Consolidated total liabilities 2,081 Geographical segmentsThe Group's operations are located in the United States of America, the UnitedKingdom and Europe. The Group's activities are located in all three countries.The following table provides an analysis of the Group's sales by geographicalmarket, irrespective of the origin of the services: Sales revenue by, geographical market 2005 2004 ‚£'000 ‚£'000 United States of America 6,193 3,170 United Kingdom 1,444 902 Rest of Europe 300 42 7,937 4,114The following is an analysis of the carrying amount of segment assets, andadditions to property, plant and equipment and intangible assets, analysed bythe geographical area in which the assets are located: Carrying Additions to property, plant and amount of equipment and intangible assets segment assets 2005 2004 2005 2004 ‚£'000 ‚£'000 ‚£'000 ‚£'000 United States of America (453) (1,561) 681 1,653 United Kingdom 4,569 5,323 14 38 Rest of Europe (116) (20) - - 4,000 3,742 695 1,691 3 Loss per shareThe calculation of the basic and diluted earnings per share is based on thefollowing data:Earnings 2005 2004 ‚£'000 ‚£'000 Loss for the purpose of basic and diluted loss per 1,611 3,638share _________ _________ Number of shares 2005 2004 Number Number Weighted average number of ordinary shares for the purpose of basic and diluted loss per share 75,117,779 70,127,447 _________ _________ Loss per share 2005 2004 pence pence Basic and diluted loss per share 2.14p 5.19p _________ _________4 Notes to the cash flow statement 2005 2004 ‚£'000 ‚£'000 Operating loss from continuing operations (1,646) (3,699) Adjustments for: Depreciation of property, plant and equipment 114 85 Amortisation of intangible assets 110 62 Gain on disposal of property, plant and equipment - (5) Increase in fair value of acquired assets - (189) Increase in share-based payments provision 117 75 Operating cash flows before movements in working 341 28 capital (Increase)/decrease in receivables (2,334) 566 Decrease in payables 1,327 286 Cash (consumed)/generated by operations (1,007) 852 Net cash from operating activities (2,312) (2,819) Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-termhighly liquid investments with a maturity date of three months or less.5 Non-statutory financial statementsThe financial information set out above does not constitute the Group'sstatutory financial statements for the year ended 31 December 2005 or 2004 butis derived from those financial statements. Statutory financial statements for2004 were prepared under UK GAAP and have been delivered to the Registrar ofCompanies. Those for 2005 will be delivered following the company's AnnualGeneral Meeting. The auditors have reported on those accounts: their report wasunqualified and did not contain any statement under Section 237 (2) or (3) ofthe Companies Act 1985.This report was approved by the Board of Directors on 23 March 2006.ENDSERVICEPOWER TECHNOLOGIES PLCRelated Shares:
SVR.L