Final Results for year ended 31 December 2014

11 March 2015

Servelec Group plc

Preliminary results for the full year ended 31 December 2014

Strong results reflecting a good financial performance combined with important operational developments; positive momentum across the Group gives the Board confidence for the outlook in 2015 and beyond.

Servelec Group plc ("Servelec" or the "Group") the UK-based technology group which provides software, hardware and services predominantly to the UK health & social care, oil and gas, power and nuclear, water, utilities and broadcast sectors, today announces its results for the twelve months ended 31 December 2014.

FINANCIAL HIGHLIGHTS

• Cash conversion2 of 141% (2013: 76%) higher than normal due to large milestone payments in Health & Social Care.

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

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

1Underlying operating profit excludes share based payments, exceptional costs, acquired intangible amortisation

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

OPERATIONAL 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 pilot schemes run with existing customers in preparation for the next water investment programme (AMP 6) beginning in 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.

Alan Stubbs, Chief Executive Officer, commented:

I am delighted with the performance of the Servelec Group in 2014 and I look forward to 2015 with great enthusiasm. We have delivered a strong set of results within our maiden year on the London Stock Exchange, as well as making important operational strides forward which position us well for growth and development in the year ahead and beyond.

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Notes to Editors

Servelec Group plc ("Servelec" or the "Group") the UK-based technology group which provides software, hardware and services predominantly to the UK health & social care, oil and gas, power and nuclear, water, utilities and broadcast sectors.

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

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

- Servelec Automation provides complex, mission-critical control systems to large blue-chip companies mainly in the UK, focusing on the oil & gas, nuclear, power, water, utilities and broadcast industries. Servelec Automation also provides services from consultancy through to design, implementation, delivery, installation and on-going customer support and maintenance.

CHAIRMAN'S STATEMENT

Overview

Overall, 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. 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 £8.6m, 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 south from the NPfIT) 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.

The Automation division reported strong 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 years' 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 of 141% (2013: 76%) due in part to the favourable timings of monies received from customers, but also demonstrating the Group's focus on strong cash management.

Dividend

The 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 28 May 2015 to shareholders registered at the close of business on 1 May 2015.

Board and Employees

I would like to take this opportunity to thank all employees of Servelec 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.

Outlook

The 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 in the period 2015 to 2017 and we shall see real benefit from having focused management in both the Oil & Gas and Power & Nuclear teams.

One of the reasons for 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 which would not have been possible prior to the IPO. We remain focused on growing our businesses organically and 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.

CHIEF EXECUTIVE'S REVIEW

Introduction

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 by the end of 2014 providing 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.

In February we strengthened our Controls management team 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.

Group Corporate Strategy

Our strategy is to continue to grow and increase returns by focussing 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 capability:

We 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 business:

We 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.

Cash

Cash 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.

Outlook

Servelec 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.

The acquisition of Corelogic provides substantial opportunities for additional growth. Acquiring Corelogic means we are now very well placed to develop an integrated healthcare 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 & 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 with 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.

SERVELEC HEALTH & SOCIAL CARE

Performance in 2014*

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

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 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 in 2014 (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 increased 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 & 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.

The market in 2015

Healthcare

The UK healthcare sector, which is primarily the NHS, deals with around one million patients every day. Regulatory change and tightening budgets are focusing the market towards 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 is providing 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 Care

The 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 change 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.

Outlook

Healthcare

Tender 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 Northern 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, Royal Cornwall and Portsmouth Hospitals, all of which will provide very credible reference sites for future business.

Social Care

Within 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. 

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. 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 development

We 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.

SERVELEC CONTROLS

2014 Performance

2014 was a challenging year for the Controls business with revenue broadly level at £15.0m (2013: £15.3m) as orders related to 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 business, joining us from Nuclear Engineering Services and previously Capula, to drive additional revenues within this market.

The market in 2015

Oil & Gas

The 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 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 lowering price of oil. These drivers play to Servelec's expertise in brownfield refurbishment.

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 & Nuclear

The 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.

Outlook

The 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 & Gas

The potential of the Controls 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 though 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 & Nuclear

The 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.

SERVELEC TECHNOLOGIES

2014 Performance

Servelec 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.

The market in 2015

Within the UK water market, 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. Coupled with this, 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 have invested over the past 3 years to ensure that it has the most appropriate range of products available for the UK water sector, developed in close co-operation with long-standing customers.

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 Outlook

The outlook for Servelec Technologies is strong, with good visibility of future orders provided by AMP6 and continued confidence in the key market drivers for growth.

We estimate our addressable 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 water leakage 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 also provides increased opportunities for global growth from associated product sales in 2015.

Research and Development

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

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 operations 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

The following risks are, in the opinion of the Board, the principal risks which effect Servelec Group.

Statement of the Directors Responsibility in respect of the Annual Report and Financial Statements

We confirm that to the best of our knowledge the accounts, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and the Directors' report includes a fair review of the development and performance of the business and the position of the issuer and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Annual General Meeting

The 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.

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.

Basis of Preparation

The preliminary announcement has been prepared in accordance with applicable International Financial Reporting Standards as adopted by the EU and applied in accordance with the Companies Act 2006.

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2014, as described in those annual financial statements.

These financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group Income Statement, Group Statement of Comprehensive Income, Group Statement of Financial Position, Group Statement of Changes in Equity and Group Cash Flow statement and selected notes for the year then ended have been extracted from the Group's audited financial statements for 2014 and audited financial statements for 2013. The audited financial information contained within the preliminary announcement for the year ended 31 December 2014 was approved by the Board on 11 March 2015. Statutory accounts for the year ended 31 December 2013 were approved by the Board of Directors on 11 March 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.

The 2014 Annual Report will be available in due course on our website:

http://www.servelec-group.com

Group Income statement

For the year ended 31 December

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

Group statement of comprehensive income

Group statement of financial position

Group statement of changes in equity

Cash flow statement

For the year ended 31 December

SEGMENT INFORMATION

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

The Health and Social Care division develops high quality, enterprise-wide systems for implementation across community, 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 & 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 & 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.

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

Adjustments and eliminations

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

Geographical information

Revenue from external customers

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 customers

Revenue 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.

GROUP OPERATING PROFIT

Exceptional items

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

Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year.

The following reflects the income and share data used in the basic earnings per share computation:

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.

INCOME TAX EXPENSE

(a) Tax charged in the income statement

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

(c) Reconciliation of income tax credit/charge

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

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%.

(d) Deferred tax

Deferred tax included in the balance sheet is as follows:

(e) Deferred tax in the income statement

BUSINESS COMBINATIONS

Acquisition of Corelogic Limited

On 12 December 2014, the Group acquired 100% of the voting shares of Corelogic Limited and its subsidiaries Corelogic Group 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 Corelogic Group as at the date of acquisition were:

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.

The fair value of the consideration given is £23,490,000.

Transaction costs of £310,000 have been expensed and are included in administrative expenses.

The 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:

The interest payable converts to 10% from the issue date if the loan note is not repaid on the due date.