Final Results

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27 June 2016

Sepura PLC

Results for the year-ended 1 April 2016

Sepura (LSE: SEPU, 'the Group', the 'Company' or 'Sepura'), a leading global provider of critical communications solutions, today announces its unaudited preliminary results for the year ended 1 April 2016.

FY16 financial performance

§ Group revenue €189.7 million (2015: €131.2 million)

§ €44.7 million contribution from Teltronic

§ 250,000 devices shipped, up 15% on FY15 (217,000)

§ Record order backlog of €75 million

§ Adjusted EBITDA1 €16.5 million (2015: €17.0 million)

§ Adjusted operating profit1 €12.4 million (2015: €15.0 million)

§ Pretax loss €19.0 million (2015: profit €16.7 million)

§ Closing net debt €119.4 million (2015: €1.1 million)

§ Net debt increase as a result of Teltronic acquisition and working capital

Capital structure revised to strengthen balance sheet

§ Proposed Firm Placing, and Placing and Open Offer (the "Capital Raising") announced today to raise gross proceeds of £65 million - see separate announcement

§ Debt facilities amended in conjunction with the Capital Raising

§ No final dividend recommended (interim dividend paid of 0.79p per share)

Management actions taken to revise business model - impacting FY17 financial performance

§ Focus on geographies and verticals with market leadership

§ Cost reduction programme well advanced

§ Improve working capital efficiency and increased focus on cash generation

Growth drivers intact

§ Long-term structural drivers remain in Professional Mobile Radio ("PMR") market through the transition to digital

§ Transportation and North America remain growth areas

§ Teltronic acquisition enhancing growth in key markets

Gordon Watling, Sepura Chief Executive Officer, said:

"The fund raising announced today will significantly strengthen our balance sheet and provide the right capital structure to support our growth strategy.

"We see significant opportunities to build on recent success in the global transport sector such as New York City Transit, as well as grow our business in North America - the world's largest PMR market. We also expect FY17 and beyond to benefit from our recent investment programmes.

"We have revised our business model and our financial focus is firmly now on cash conversion, improving operating margins and increasing our revenue visibility with contracted and recurring business. The Board believes that the Group is well positioned to exploit key growth markets."

(1) The calculations of adjusted operating profit and EBITDA, and adjusted diluted EPS, are set out in Notes 5 and 7 to the following condensed consolidated financial statements respectively.

(2) Non-recurring items in 2016 relate to the acquisition of Teltronic SAU and subsequent restructuring costs, the net movement in contingent consideration in relation to the acquisitions of Portalify OY and Fylde Micro Limited, impairments relating to the DMR business, and a provision against outstanding receivables due from a customer in Greece, as described in Note 5 to the following condensed consolidated financial statements.

Further information

Cautionary statement:

This announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of Sepura. By their nature, future events and circumstances can cause results and developments to differ from those anticipated. Nothing in this trading statement should be construed as a profit forecast. No undertaking is given to update the forward-looking statements whether as a result of new information, future events or otherwise.

Important Notice:

This Announcement is for information only and does not constitute an offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of any securities or investments or otherwise engage in any investment activity in any jurisdiction, including without limitation, the United Kingdom, the United States, Canada, Australia or Japan. Any failure to comply with this restriction may constitute a violation of the securities laws of such jurisdiction. Persons needing advice should consult an independent financial adviser.

This Announcement and the information contained herein do not constitute an offer of securities in the United States. The securities referred to in this Announcement have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration under the Securities Act or pursuant to an exemption from, or a transaction not subject to, such registration requirements. Sepura has not registered and does not intend to register the offering of any securities in the United States or to conduct a public offering of any securities in the United States.

Notes to editors:

Sepura, www.sepura.com, is a global leader in the design, manufacture and supply of digital radios, infrastructure and applications for Professional Mobile Radio ("PMR") users, providing specialist solutions for the public safety, transportation, oil and gas, mining, utilities, industrial and other commercial sectors.

Founded in the UK in 2002, Sepura has expanded rapidly across the world and is now a market leader in over 30 countries, with a network of regional partners that sell, and provide local support for, its market-leading products. Sepura's proven track record of focussing on exciting high growth opportunities, product innovation and delivering quality and customer service was recognised in April 2015 with the award of the prestigious Queen's Award for Enterprise: International Trade.

Headquartered in Cambridge, England and with over 700 employees, Sepura was admitted to the Official List of the London Stock Exchange on 3 August 2007.

Overview

2016 was a year of considerable change as Sepura continued its transformation into a global supplier of critical communications solutions. The strategic acquisition of Teltronic, in May 2015, significantly expanded the Group's geographical footprint in Latin America and enabled the Group to capitalise on further exciting early opportunities for TETRA in North America.

The core TETRA business delivered a record number of devices, the multi-year development programme on the Group's "Next Generation" platform was completed and the UK offices were consolidated into new headquarters near Cambridge.

At the same time, the Group's financial performance was adversely and materially impacted by a number of factors that have been, or are being, addressed.

The Group saw signs of softening in several important markets. The UK continues to be affected by uncertainty over the transition to the Emergency Services Network. Oil and gas markets in Russia and Australia remain subdued and weakness in the Brazilian economy is impacting ongoing projects.

Separately, the Group's DMR and Applications businesses have not grown as rapidly as expected, and the strengthening Dollar has increased product costs. These factors, combined with two significant opportunities that did not close as expected at the end of the financial year, adversely affected adjusted EBITDA for the year. However, the Group was able to close the year with a record order backlog of €75 million.

Purchasing inventory for these delayed projects, slower than expected receipts from customers who have previously paid to terms, and additional costs associated with the acquisition and integration of Teltronic, contributed to a much larger than anticipated closing net debt position of €119.4 million.

Capital structure and proposed capital raising

On 27 April 2016 as a result of this higher than expected debt position, the Group announced it was in discussion with its debt providers and major shareholders concerning its level of indebtedness.

The Group has today proposed the Capital Raising which will reduce leverage and, in conjunction with amendments made to its main banking facilities, provide working capital for the Group as it continues to grow.

The Group proposes to raise gross proceeds of approximately £65.0 million by way of a firm placing and placing and open offer of, in aggregate, 185,714,285 new ordinary shares at an offer price of 35 pence per new ordinary share. 124,258,224 new ordinary shares will be issued through the firm placing and 61,456,061 new ordinary shares will be issued through the placing and open offer on the basis of 1 new ordinary share for every 3 existing ordinary shares.

Further detail in relation to the capital raising, and the actions that the Board unanimously recommends shareholders to take, are set out in a separate announcement made today.

Management actions

In conjunction with the review of the Group's capital structure, Richard Smith, who joined the Board as Chief Financial Officer in January, is leading a comprehensive programme to drive operational improvement and strengthen cash management. The Group's business model has also been reviewed in order to shorten the Group's working capital cycle.

The Group's focus will narrow to those markets and geographies where it is clear market leader and there are more immediate cash generating opportunities. It will continue to invest in markets such as North America, while significantly reducing activity in early-stage markets which require long-term investment before generating acceptable returns.

As part of this focus, the Group has now withdrawn from DMR in order to concentrate its resources on the more attractive opportunities for TETRA in the Transportation and North American markets.

The Board are taking action to improve revenue visibility and shorten the Group's working capital cycle by reducing the revenue weighting to the final quarter of each financial year. This will reduce inventory levels and alleviate pressure to offer discounts or extended credit to customers to secure business at this critical time of year.

The Group will also reduce its credit exposure in emerging markets by only accepting business with lower levels of credit risk.

Outlook

These actions will result in some revenue being recognised later than previously expected. However, the Group will benefit substantially from the related working capital improvements. Consequently, the Board anticipates that in aggregate Group FY17 revenue and adjusted EBITDA will be lower than its original expectations by approximately €24 million and €11 million respectively.

In the light of the Group's recent financial performance and the Capital Raising, the Board is not recommending a final dividend and will suspend dividend payments until it is appropriate for distributions to be resumed.

2016 has been a particularly challenging year for Sepura. The Board believes that the Capital Raising and revised banking arrangements will strengthen the Group's capital structure and, in conjunction with the management team's actions to improve working capital efficiency and expand margins, will reduce the Group's net debt to EBITDA ratio towards the Board's medium term target of 1.5x.

The Group closed the year with an order backlog of €75m which did not include the two contracts which slipped from FY16. The strong pipeline of opportunities now totals €420m. While it is expected that the management changes implemented will help with seasonality in the medium term, for FY17 the Board still expects that revenue will be weighted towards the second half of the financial year.

With an improved business model and robust capital structure, the Board is confident that the Group will be well placed to exploit its leading position in a number of fast growing global markets.

Business review

Although the Group's overall financial performance during the year has not met the Board's expectations set earlier in the year, the Group reported a fourth consecutive year of double-digit growth in organic revenues as it continued to benefit from its leading position within the growing digital PMR market.

The acquisition of Teltronic SAU ("Teltronic") during the year added additional scale, geographical reach and product capability that positions the Group for further success in its chosen markets.

The Group has also made significant investments in organic product development, premises, people and technology which are expected to deliver operational efficiencies and strengthen operating margins in future.

Long-term structural growth within the PMR market

The world-wide PMR market continues to grow, with the estimated total spend by PMR users expected to reach $16.5 billion by 2017. Digital PMR technologies, such as those provided by the Group, currently account for an estimated 38% of the current 45 million PMR users today, with a further 11 million PMR users forecast to migrate to digital by 2019.

TETRA is a proven technology with an estimated 3.7 million users in over 100 countries at 31 December 2015. TETRA supports public safety users around the globe at critical moments where secure and effective communication helps to keep users and the public safe and secure.

While governments and public safety agencies were the principal early adopters of TETRA, increasing numbers of commercial organisations are now adopting TETRA for their own communication networks.

Transportation is the largest market for TETRA after public safety, with the demands arising from the mass movement of people sharing many of the requirements of public safety markets. Solutions for Transportation customers typically include a high infrastructure content including control rooms, signalling and telemetry applications and driver interfaces.

Sustained demand from TETRA devices markets

The Group's shipments of devices increased by 15% to 250,000 (2015: 217,000), reflecting further adoption of TETRA world-wide in emerging TETRA markets such as Saudi Arabia, where the Group delivered 63,000 devices under the contract secured last year.

The Group' now has an installed base of approximately 1.6 million TETRA devices in 120 countries, that generates a growing stream of recurring revenues as users refresh existing fleets and acquire accessories and applications to maximise the return on their investments in the Group's technology.

Volumes in Germany were up 5% to 68,000 (2015: 65,000) devices, reinforcing the Group's market leadership in the world's largest TETRA market. The initial deployment of the national TETRA network in Germany is nearing completion, and the contracted backlog at the end of the year was for 36,000 devices. The number of new users is expected to decrease in the coming year in line with the overall deployment plan while initial users are expected to commence their first refresh of devices.

Acquisition of Teltronic

The acquisition of Teltronic, a complementary Spanish PMR business, was completed in May 2015. Teltronic has accelerated the delivery of the Group's strategic objectives, and made a significant contribution to Sepura's progress:

· Scale - Teltronic contributed €44.7 million to revenues, and has a robust backlog of business that improves revenue visibility.

· Global reach - Teltronic's strong presence in both Latin and North America has significantly increased the geographical diversity of the Group's business. Revenues from Latin America increased by 604% to €33.8 million (2015: €4.8 million), and revenues in North America by 227% to €7.2 million (€2.2 million).North America remains at an early stage of development, but the Group continues to promote TETRA with commercial users, especially in the Transportation sector. This culminated in the decision by New York City Transit to deploy a Sepura TETRA network which will be delivered over the next three years.

· End-user diversity - Teltronic's comprehensive Transportation portfolio secured further important contracts in addition to New York. It is now the Group's largest commercial vertical, representing 10% of total revenues in FY16 (FY15: 7%).

· Product offering and technical breadth - In addition to its specialist Transportation products, Teltronic also enhances the Group's product portfolio through its early stage LTE and P25 products.Initial projects include integrating a mission-critical LTE network in the Canary Islands with its existing Teltronic TETRA network, reflecting a wider trend for the provision of broadband data over LTE in conjunction with established TETRA technology for voice communications.

· Synergies - The initial synergies forecast have been achieved. Synergies contributed €4 million of EBITDA compared to the €1.5m originally forecast. Synergies are now expected to contribute €7 million of EBITDA in the current financial year.

Investment in products, premises and people

The Group has also invested in organic product development, with the completion of a multi-year development programme on its "Next Generation" platform. The first product to incorporate this platform is the SC20 radio, the first TETRA terminal to incorporate multi-bearer capabilities and thereby offering customers a flexible platform, which also has the ability to support both TETRA and emerging LTE technologies. Research & development remains critical to the future success of the Group and R&D expenditure represented approximately 12.8% of revenues for the period.

In January the Group completed the consolidation of its UK operations from four separate sites into its new headquarters in Cambridge. The new building will reduce operational expenditure and enhance productivity.

The Group has also strengthened its management team through the appointment of a new Chief Financial Officer, Chief Operating Officer, VP-Devices and VP-Marketing.

The initial benefits of these, and other investments made by the Group, are already being realised and are expected to make a significant contribution to Sepura's future financial performance.

Business model review

After four years of rapid growth a programme is underway to drive operational efficiencies, improve cash management and review certain aspects of the Group's standard terms of business which could shorten the working capital cycle.

In addition, the Board has undertaken a thorough review of the Group's business model and explored ways of improving the cash generation of the business. The Board has determined to undertake the following measures:

· Improving sales phasing - the Group's revenue profile has historically been heavily weighted to the year-end, reducing visibility of earnings and necessitating increased inventory levels to support potential business. Reducing the Group's emphasis on year-end revenue by matching orders received from the Group's commercial partners to the delivery and payment schedules agreed with their end-users and placing restrictions on the approval of discounting arrangements and credit terms will provide better visibility of earnings and margin improvement;

· Aligning manufacturing timescales with customer delivery schedules - the Group has typically incurred certain costs relatively early in the contract period and recognised the associated revenues at that point. The Group intends to alter the Teltronic manufacturing process to manage working capital more effectively. As a result, product manufacturing will occur later in the contract period than is currently the case with a resultant impact on the timing of revenue being recognised. Aligning manufacturing timescales more closely to customer requirements will reduce stock holding and corresponding working capital requirements, shortening the Group's working capital cycle; and

· Reducing credit risk profile - active management of the Group's exposure of credit risk (including, where appropriate, aligning payment terms more closely to contract performance and/or product delivery and declining business until credit can be confirmed) will reduce exposure to delayed payment or non-payment of customer invoices.

While these initiatives will result in a one-off shift of revenue for the current financial year, the Group will benefit from working capital improvement and a better alignment of profitability to cash flows.

Withdrawal from DMR

In addition, the Board has undertaken a review of its DMR strategy. It now believes that it will not be possible to achieve further market penetration without significant additional investment. It has therefore decided to withdraw from the DMR market, instead allocating the Group's resources to opportunities which are more immediately revenue and cash generative within the TETRA market, such as those within the North American region and the transportation sector.

Revisions to guidance

The Board expects that the business model initiatives described above, together with the withdrawal from DMR, will have an aggregate negative impact on revenue and adjusted EBITDA for the current financial year of €24.0 million and €11.0 million respectively.

The Board believes that, despite these measures having a one-off impact on short-term financial

performance, they are in the best interests of the Group and will ensure a more robust business which delivers better visibility of revenue and improved cash conversion.

Financial review

Revenue

The Group delivered revenues of €189.7 million, up 45% from last year's €131.2 million and including a €44.7 million contribution from Teltronic. Organic revenues increased by 10%.

The total number of terminals shipped increased by 15% from 217,000 to 250,000.

Adjusted gross margin

Gross margin excluding non-recurring costs for the full year, was 40.5% (2015: 46.2%) reflecting product and customer mix and the strengthening of the US Dollar compared to the Euro which increased product costs.

On a constant currency basis the gross margin for the year was 41.5% (2015: 46.2%). Gross margin excluding non-recurring costs strengthened as expected in H2 to 41.4% (H1: 39.5%) following the high-volume, low margin contracts delivered in H1.

Research and development costs

Gross expenditure on research and development increased by 30% to €21.8 million (2015: €16.8 million) following the acquisition of Teltronic, and represented 11% of revenues (2015: 13%).

Investment in research and development continued to focus on maintaining product leadership, with significant investment in the Group's next generation platform of both terminals and infrastructure, culminating in the launch of the SC20 in May 2015.

Capitalised development expenditure represented 75% (2015: 78%) of related gross development spend. The related amortisation charge increased to €8.3 million (2015: €6.7 million) following the acquisition of Teltronic, the launch of the SC20 and a full year of amortisation of the Group's investment in its DMR products.

Selling, marketing, distribution and administrative expenses

Selling, marketing and distribution expenses, excluding non-recurring items, increased by 55% to €28.3 million (2015: €18.2 million), reflecting the additional sales resource acquired with Teltronic and investments made to expand the Group's routes to market, especially in North America.

Administrative expenses, excluding the IFRS 2 share option cost, non-recurring items and the amortisation of acquired intangibles, increased to €16.7 million (2015: €10.7 million). The Teltronic acquisition accounted for 36% of this increase.

Foreign exchange

The Group continues to be impacted by the volatility of both Euro/GBP and Euro/USD exchange rates. Adjusted operating profit on a constant currency basis, excluding the forecast impact of foreign exchange hedges, was €12.4 million, €2.7 million lower than that reported, after adjusting for the following items:

§ Revenues would have been €1.3 million higher;

§ Product costs would have been €3.0 million higher; and

§ The Group's unhedged Sterling operating costs would have been €1.0 million higher.

The Group continues to use forward contracts to sell Euros and buy Sterling to meet Sterling expenses that can be forecast with sufficient certainty as to timing and value to qualify for hedge accounting. This provides certainty as to the future Euro reporting value of these costs to the Group for the next 12 months.

The average hedge rate for the period was €1.280 / £1, based on prevailing rates during the prior year, compared to €1.190 / £1 for the same period last year which were in turn based on prevailing rates 12 months previously. As a result the Group's hedged Euro operating costs increased by 7% compared to the prior year.

The hedges outstanding at the end of the period covered £25.0 million (2015: £27.4 million) of forecast Sterling cash flows at rates ranging from €1.281 - €1.422 / £1 (2015: €1.233 - €1.354 / £1), and with a weighted average rate of €1.343 / £1 (2015: €1.274 / £1) compared to the spot rate at the end of the period of €1.25 / £1 (2015: €1.367 / £1). The translation of the Group's hedged Sterling cost base into Euros in the coming year will therefore result in higher reported Euro costs than those reported for FY16.

Operating profit

The Group presents adjusted Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA") and operating profit as key performance measures in addition to the operating profit reported under IFRS. The Group considers that the exclusion of certain non-recurring or non-cash items provides an alternative measure of the underlying trading performance of the Group.

Adjusted EBITDA and adjusted operating profit were €16.5 million and €12.4 million (2015: €17 million and €15.0 million) respectively. EBITDA was €1.0 million (2015: €27.3 million) and the operating loss was €15.8 million (2015: operating profit of €17.1 million).

Non-recurring items

The Group has incurred a number of non-recurring items in the current period, totalling €26.6 million (2015: €1.2 million) and comprising:

§ €6.6 million of costs, primarily professional fees, in connection with the acquisition of Teltronic - see Note 3

§ €11.1 million of restructuring costs relating to the combined Group

§ €1.5 million of costs incurred in association with the Firm Placing, Placing and Open Offer

§ €9.4 million of non-cash impairment costs against the Group's investment in the DMR market, including provision of €3.8 million against inventory

§ €0.3 million write off of debt issue costs for facilities replaced in the period

§ €0.3 million provision against outstanding receivables from a customer in Greece

§ €2.6 million credit for the net release of contingent consideration payable for the previous acquisitions of Fylde Micro Limited and Portalify Oy.

Non-recurring items in the prior period related to initial costs incurred in connection with the acquisition of Teltronic (€0.9 million), the acquisition of Fylde Micro Limited (€0.5 million) and subsequent restructuring (€0.4 million), together with a provision against outstanding receivables from a customer in Greece (€1.8 million) and a credit for the net release of contingent consideration of €2.4 million.

Taxation

The Group continued to benefit from tax relief on qualifying research and development expenditure and elected to participate in the R&D Enhanced Credit ("RDEC") scheme whereby a proportion of the cash spend on R&D in the UK may be recovered from the government. €3.3 million was receivable under this scheme at the end of the year.

EPS

Adjusted diluted earnings per share, based on expensing development costs as they are incurred and excluding non-recurring items, the IFRS 2 share option charge, associated National Insurance and the amortisation of acquired intangibles, was 7.2 € cents (2015: 9.7 € cents).

IFRS fully diluted loss per share was 6.1 € cents (2015: earnings per share of 10.8 € cents).

Cash flows and financing

Net debt at the end of the period was €119.4 million (2015: €1.1 million), reflecting primarily the facilities put in place to fund the acquisition of Teltronic.

The Group also experienced an expansion of working capital due to the procurement of inventory for customer orders which were not received at the end of the period, together with slower than expected receipts from customers who have previously paid to terms.

Slower debtor collection is in part a function of the Group's broader geographic diversity with some emerging markets experiencing challenging economic conditions which have impacted cash flows.

As a result the Group has been subject to short term cash constraints and discussions with its debt providers which have resulted in a waiver of year end covenants and amendments to the Group's main banking, including a bridging facility being made available pending the receipt of the proceeds of the Firm Placing, Placing and Open Offer.

Following these amendments to the Group's banking facilities, and subject to shareholder approval for the Firm Placing, Placing and Open Offer, the Board retains its medium term target of net debt to EBITDA of around 1.5x as the Group's annual average.

Significant non-operating cash flows related to:

§ €122.0 million (2015: €3.4 million) paid for acquisitions, including €120.8 million for Teltronic

§ €16.4 million (2015: €13.1 million) spent on capitalised development costs

§ €12.0 million (2015: €5.2 million) of other capital expenditure, including €6 million in relation to the Group's new headquarters near Cambridge

§ €5.2 million of interest and arrangement fees payable in respect of the Group's new banking facilities

§ €6.4 million (2015: €3.7 million) paid in relation to FY15 final dividend and FY16 interim dividend

§ €5.4 million (2015: €5.4 million) purchasing shares for Treasury

§ €0.7 million (2015: €0.2 million) received from employees exercising share options.

Dividends

The interim dividend already paid, was 0.79p per Ordinary Share (2015: 2.4p).

In view of the Capital Raising, the Board considers it appropriate to suspend the payment of dividends until further notice and will therefore not be recommending a final dividend in respect of the year.

The Board recognises that dividends are an important component of total shareholder returns and intends to resume dividend payments in the future once the financial position of the Group permits and subject to an appropriate level of dividend cover.

The balance sheet

The Group's intangible assets increased from €66.6 million to €177.4 million primarily due to the acquisition of €116.9 million of intangibles with Teltronic, including €56.4 million of goodwill, and net capitalised R&D of €6.8 million.

The Group's net assets increased from €84.6 million to €137.9 million, reflecting the additional equity raised during, and the result for, the period.

Share capital

The Group purchased 2.4 million (2015: 2.9 million) shares to be held in Treasury in anticipation of future share option awards vesting, for total consideration of €5.5 million (2015: €5.4 million). 2.8 million (2015: 2.2 million) Treasury shares were utilised to settle options that vested and were exercised during the period, leaving 0.8 million (2015: 1.2 million) shares in Treasury at the end of the period.

A further invitation for eligible employees to participate in the Company's SAYE scheme was issued in September, with options over 0.7 million (2015: 0.8 million) shares subsequently granted at an exercise price of 129p. Options were also granted to senior executives under the Company's Long-Term Incentive Plan totalling 1.7 million shares (2015: 1.8 million). These will vest if targets relating to the period to 31 March 2018 are achieved.

Consolidated Income Statement

1 Non-recurring items in 2016 relate to the acquisition of Teltronic SAU and subsequent restructuring costs, the net movement in contingent consideration in relation to the acquisitions of Portalify OY and Fylde Micro Limited, impairments relating to the DMR business, and a provision against outstanding receivables due from a customer in Greece, as described in Note 5. Non-recurring items in the prior period related to initial costs incurred in connection with the acquisition of Teltronic SAU, the acquisition of Fylde Micro Limited and subsequent restructuring costs, and include a provision against outstanding receivables due from a customer in Greece. Further information is provided in Note 5.

Consolidated Statement of Comprehensive Income (expense)

Consolidated Statement of Changes in Equity

Consolidated Balance Sheet

Consolidated Statement of Cash Flows

Notes to the accounts

1. General information

Sepura plc ("the Company") is a public limited company incorporated and domiciled in England and Wales with registered number 04353801, whose Ordinary shares of £0.0005 each are traded on the Official List of the London Stock Exchange. The Company's registered office is 9000 Cambridge Research Park, Beach Drive, Waterbeach, Cambridge, CB25 9TL.

The Board of Directors approved this unaudited preliminary announcement on 27 June 2016.

2. Basis of preparation

The Company has prepared this consolidated financial information for the period to 1 April 2016, being the nearest Friday to the end of the period (2015: 27 March).

Whilst the consolidated financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union, the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee ("IFRIC")) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS it does not contain sufficient information to comply with all the disclosure requirements of IFRS and does not constitute the statutory financial statements for that year. For the purposes of the preparation of this consolidated financial information, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 28 March 2015, none of which had an impact on the reported results of the Group.

The accounting policies applied are consistent with those stated in the financial statements for the year ended 27 March 2015. The consolidated financial information has been prepared under the historical cost basis, except for certain financial instruments that have been measured at fair value.

The financial statements for the year ended 1 April 2016 have not yet been delivered to the Registrar, nor have the auditors yet reported on them. The financial information has been prepared on a going concern basis. As disclosed the Company has today announced a fully-underwritten Firm Placing, Placing and Open Offer for £55m which is subject to shareholder approval. These proceeds in conjunction with amended banking facilities will provide working capital to support the growth of the business. If shareholder approval is not obtained there may be uncertainty over the going concern of the Group. Accordingly the audit opinion for the financial statements may be modified or qualified in this regard.

The figures and financial information for the year ended 27 March 2015 do not constitute the statutory financial statements for that year. Those financial statements have been delivered to the Registrar and included the auditors' report which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

3. Acquisition of Teltronic SAU

On 27 May 2015 the Group announced the acquisition of the entire share capital of Teltronic SAU, ("Teltronic"), which provides integrated solutions for mission critical communication activities including voice and data. The acquisition of Teltronic provides additional scale to the Group's addressable market by broadening the Group's product portfolio.

The provisional book and fair values of the assets and liabilities acquired are as follows:

The interim report for the half-year ended 2 October 2015 reported the provisional book and fair values of the assets and liabilities acquired. Finalising these values has resulted in a decrease in Goodwill of €1,167,000.

The movements in the fair values of assets and liabilities acquired from those recorded at 2 October 2015 were as follows:

· an increase of €1,562,000 relating to the valuation of buildings;

· a reduction of €3,234,000 in trade receivables and €1,425,000 in deferred income to take account of amounts where recoverability is considered uncertain, and the impact of discounting to take account of the timing of future cash receipts;

· reductions of €3,168,000 in accrued income, €1,034,000 in accruals, and €1,202,000 in provisions following a detailed review of contracts and alignment of accounting policies with the Group; and

· tax related adjustments which result in a decrease in deferred tax assets by €267,000 and an increase of €279,000 in current tax balances.

Intangible assets acquired relate to existing customer contracts and relationships together with the business' brand name. These are being amortised over the expected useful economic lives, which have been assessed as between two and seventeen years. The goodwill arising on the acquisition is attributable to the value of synergies arising from the acquisition, Teltronic's assembled workforce and future profits arising from access to new markets. None of the goodwill on this acquisition is expected to be deductible for tax.

The Group incurred €16,496,000 of costs in connection with acquisition and subsequent restructuring that have been charged to the consolidated income statement as non-recurring items.

Teltronic contributed €44.7 million of revenues and a profit of €3.6 million, after deducting amortisation of acquired intangibles, to the Group's results for the period, while the Group's revenue and loss would have been €196.5 million and €17.6 million respectively if Teltronic had been a member of the Group for the whole period.

During the period the preliminary fair values attributable to the assets and liabilities of Fylde Micro Limited, acquired on 20 May 2014, were re-assessed with no change in goodwill.

4. Segmental reporting

The Group has historically had a single reportable segment, being the design, development and supply of secure digital radio products and systems developed specifically for critical communications applications, as its operating segments could be amalgamated because they shared the same economic characteristics due to the nature of the products sold, the production processes used and the type of customer for the products.

The organisational structure for the enlarged group following the acquisition of Teltronic has resulted in an additional segment being reported to the Chief Operating Decision Maker, being the Board, reflecting the fact that Teltronic, whilst supplying similar products, generates a significant proportion of its revenue from providing infrastructure as a prime contractor and uses in-house manufacturing. Information provided to the Board for the purposes of resource allocation and assessment of segment performance is focussed on Devices (the former Sepura business, excluding its infrastructure business prior to the acquisition of Teltronic) and Systems (primarily Teltronic and Sepura's former infrastructure business).

Segment revenues and results

The following is an analysis of the Group's revenue and results by reportable segment for the period ended 1 April 2016. As Teltronic was acquired during the period under review no comparative segmental analysis has been disclosed.

5. Adjusted performance measures

The Group presents adjusted Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA") and operating profit as key performance measures in addition to the operating profit reported under IFRS. The Group considers that the exclusion of certain non-recurring or non-cash items provides an alternative measure of the underlying trading performance of the Group. They may not be comparable to measures with a similar description used by other entities.

EBITDA has been calculated as follows:

Non-recurring items in the current period relate to the acquisition of Teltronic SAU and subsequent restructuring of the Group, costs associated with the equity raise, the net movement in contingent consideration on previous acquisitions, and the impairment of DMR related balances (€3,817,000 of inventory, €1,520,000 of acquired intangibles and €4,065,000 of capitalised R&D). Non-recurring items in the prior period related to the acquisition of Fylde Micro Limited and subsequent restructuring, together with initial costs incurred in connection with the acquisition of Teltronic SAU and a provision against outstanding receivables from a customer in Greece.

Non-recurring items adjusted in calculating adjusted EBITDA comprise the following:

Adjusted performance measures have been calculated as follows:

Adjusted items comprise certain non-operational or non-cash items as follows:

(i) Reversal of capitalised development costs (see Note 9) - capitalisation of development costs is required, but as this is a cash cost to the business reversing the amount capitalised in the year, and also the amortisation associated with amounts capitalised, is considered to provide a better reflection of the underlying performance of the Group.

(ii) Reversal of associated amortisation (see Note 9) - see above.

(iii) Reversal of amortisation of acquired intangibles (see Note 9) - intangible assets acquired through business combinations are capitalised on the balance sheet and amortised over their useful economic life. The amortisation is a non-cash and non-operational cost to the business, therefore is reversed as an adjusted measure.

(iv) Reversal of IFRS 2 share-option charge - the charge recognised on issuing share options to employees is a non-cash cost to the Group, and therefore reversing the charge, and related NI payable, is considered to better reflect the performance of the Group.

(v) Reversal of the NI payable on the shares subject to the IFRS 2 share-option charge - as above

(vi) Provision against receivables in emerging markets - provisions against the recoverability of receivables in certain emerging markets were made in the period as a result of deterioration in the economic position of those markets.

(vii) Reversal of amortisation of debt issue costs, including write off unamortised arrangement fee on old facility in the period ended 1 April 2016 of €218,000 (2015: €nil) - the amortisation and write off of debt issue costs is a non-cash item, and therefore reversing the cost is considered to better reflect the performance of the Group.

6. Income tax (credit) expense

Factors affecting the tax (credit) expense for the period

The tax (credit) expense for the period is different from the standard rate of corporation tax in the UK, which was 20% (2015: 21%). The differences are explained below:

The Finance Act 2013, which provides for reductions in the main rate of corporation tax from 21% to 20% effective from 1 April 2015 and to 19% effective from 1 April 2016, was substantively enacted on 2 July 2013. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date.

7. Earnings (loss) per share

Basic earnings (loss) per share has been calculated by dividing earnings attributable to owners of the parent by the weighted average number of shares of the Company for each period. For diluted earnings per share, the weighted average number of shares is adjusted to allow for the conversion of all dilutive equity instruments.

The Group presents an adjusted earnings per share figure which excludes non-recurring items, the capitalisation of development costs (together with associated amortisation), the amortisation of acquired intangibles and the IFRS 2 share-option charge, all net of Corporation Tax at the relevant standard rate. This adjusted earnings per share figure has been based on adjusted basic earnings for each financial period and on the same number of diluted weighted average shares in issue as the GAAP earnings per share calculation above.

8. Dividends

No final dividend is proposed in respect of the financial period ended 1 April 2016.

During the current and prior periods the Company paid the following dividends:

9. Capital expenditure

Major additions during the period related to property, plant and equipment and comprised test and IT equipment and leasehold improvements for the Group's new headquarters in Cambridge. The capitalisation of RDC of €2,160,000 relates to the amount claimed for Research and Development Expenditure Credits in the current period for development costs capitalised to intangible assets in prior periods.

The impairment of capitalised development costs related to development projects which are no longer required following the acquisition of Teltronic, and also following the decision to cease investment in DMR. The impairment of acquired intangibles relates to the fair value of Teltronic's terminals business which was recognised on acquisition and then immediately impaired as the Group has ceased development of Teltronic's terminal portfolio, and also the impairment of intangibles acquired with Fylde relating to DMR. The impairment of property, plant and equipment related to leasehold improvements in properties which are being closed or relocated.

10. Borrowings and facilities

Borrowings outstanding at the end of the period

On 1 May 2015 the Group entered into a €50 million term loan for a period of five years, together with a €70 million revolving credit facility that is available for five years, as part of the financing for the acquisition of Teltronic. The total arrangement fee and related costs of €1,620,000 are being amortised over the life of the facility.

At 1 April 2016 the Group's borrowings comprised €47,000,000 of the term loan and a drawdown of €58,900,000 of the revolving credit facility, both of which bear interest at LIBOR plus 3.25%. Unamortised fees on these facilities at 1 April 2016 totalled €1,323,000.

Additional borrowings comprise loans acquired with Sepura Systems GmbH, Portalify OY and Teltronic SAU. Bank borrowings at Sepura Systems GmbH comprise an export loan of €1,500,000 which bears interest at 2.25% and a term loan of which €194,000 is outstanding, is repayable in monthly instalments of €11,000, and bears interest of 3.78%. Bank borrowings at Portalify Oy comprise development funding loans of €346,000, which are repayable in annual instalments through to 2017 and bear interest at the Bank of Finland base rate less 3% (subject to a minimum of 1%), and €225,000 of other loans repayable monthly or quarterly that bear interest at 1%. Bank borrowings at Teltronic SAU comprise loans totalling €10,205,000. €1,176,000 of this is repayable on demand, with the remainder being for specific projects and which bear interest of between 0% and 3.95% and are repayable over periods over periods of up between 4 and 10 years.

Bank overdrafts of €4,643,000 are secured against the assets of the Group.

11. Provisions

Warranty provision

A warranty provision is made at the time of sale for the estimated cost of providing standard warranty cover which cannot be separated from the sale of the underlying goods. The provision is calculated based on historical information regarding the cost and frequency of repairs required to the Group's products. Warranty cover is typically provided over a period of three to five years, depending on the product and territory concerned. The Group also has back-to-back warranties of between twelve and fifteen months with the majority of its sub-contract manufacturers to limit risk on liabilities arising on manufacturing defects.

Contingent consideration

Contingent consideration of up to €4.9 million and €2.1 million is payable to the previous owners of Portalify OY and Fylde Micro Limited respectively in the event that certain targets are met over a certain period. €1.2 million was paid during the period to the previous owners of Fylde Micro Limited. Management have considered that, based on current projections, €3.2 million of the remaining consideration will be payable.

Other

Other provisions relate to potential royalties due on products sold in previous periods.

12. Share capital

Authorised share capital

Issued share capital

During the period and the prior period the following changes occurred in the Company's issued, allotted and fully paid share capital of Ordinary shares of £0.0005 each:

Treasury shares

During the period and the prior period the following changes occurred in the number of Ordinary shares held in Treasury:

13. Cash generated from operations

Cash conversion is calculated as cash generated from operations divided by cash generated from operations before movements in working capital.

14. Reconciliation of cash flows to movements in net funds (debt)

15. Post balance sheet event

On 27 June 2016 the Company announced a Firm Placing, and Placing and Open Offer (the "Capital Raising") to raise £65 million (gross). On 17 June 2016 the Company entered into a €21 million bridging facility which will remain in place until the completion of the Capital Raising.