Preliminary unaudited results

Servoca plc

("Servoca" or the "Group")

Preliminary unaudited results

for the year ended 30 September 2015

Servoca (AIM: SVCA), the AIM listed specialist recruitment solutions and outsourcing provider, is pleased to announce its preliminary unaudited results for the year ended 30 September 2015.

Financial Highlights

· Revenue £58.8 million (2014: £49.0 million), an increase of 20.0%

· Gross profit £16.9 million (2014: £14.2 million), an increase of 19.0%

· 76% increase in profit before taxation to £3.0 million* (2014: £1.7 million)

· Net debt reduced to £2.0m (2014: £2.6m)

· Basic EPS of 1.91p* increased by 77% (2014: 1.08p)

· Cash generated from operations in the year of £2.2 million (2014: £0.8 million)

· Proposed maiden dividend of 0.3p per share

*Before share based payment charges, amortisation of goodwill and exceptional costs.

Commenting on the results, CEO Andy Church said:

"I am delighted to be able to announce a record year for the Group. We have delivered outstanding results and I am particularly pleased to be able to announce our maiden dividend. Our Education and Healthcare recruitment businesses have enjoyed a great year and the Group is well placed to deliver further growth, both organically and by selective bolt on acquisitions."

Enquiries:

Servoca

Andy Church 020 3031 4820

finnCap

Geoff Nash

Grant Bergman

Malar Velaigam (Broking) 020 7220 0500

Newgate PR

Robyn McConnachie

Adam Lloyd 020 7653 9850

Chairman/CEO Review and Strategic Report

Introduction

We are pleased to report that for the year ended 30 September 2015 we have delivered another year of outstanding growth with revenue, gross profit and pre-tax profits achieving record levels.

As indicated in our interim statement for the six months ended 31 March 2015, our Education and Healthcare Recruitment businesses have been the driving force behind this growth with substantial increases in their profitability and scale over the prior year.

Our Education businesses delivered a strong performance in the September period, with gross profit up over 20% on the comparative period. Our Healthcare recruitment operations went from strength to strength over the course of the year. The strong growth achieved in the first half accelerated during the second half and helped drive a 70% increase in revenues for the year.

Financial review

Group revenue was £58.8 million compared with £49.0 million (2014), an increase of 20%. Gross profit for the year was £16.9 million against £14.2 million (2014), an increase of 19%.

Operating profit for the year was £3.1 million*, compared with an operating profit in the prior year of £1.8 million (on the same basis), an increase of 72%.

Profit before taxation was £3.0 million* (2014: £1.7 million), an increase of 76%.

Profit after taxation was £2.4 million* (2014: £1.4 million), an increase of 71%.

Basic earnings per share for the year were 1.91p* compared with 1.08p (2014), an increase of 77%.

Cash generated from operations in the year was £2.2 million (2014: £0.8 million).

Net debt decreased from £2.6 million at September 2014 to £2.0 million at September 2015. This was after paying the initial consideration of £0.8 million in respect of the acquisition of A+ Teachers.

The Board is also pleased to propose a maiden dividend of 0.3p per share for the year end and we would like to thank our shareholders for their continued support.

* Before share based payment charges, amortisation of intangibles and exceptional costs.

Operational highlights

Strategy and delivery

The focus in the period has remained the development of the Group's capabilities in those areas that afford good growth opportunities. We would like to thank all of our employees for their excellent contribution to another year of outstanding performance.

Outsourcing

Our outsourcing activities are primarily based in two areas: Domiciliary Care and Security.

In our statement for the six months ended 31 March 2015 we reported that our Domiciliary Care business had started the year positively and delivered growth despite challenging trading conditions. We are pleased to report that for the full year the business has delivered an increase in revenues, gross profit and operating profit over the prior year.

To have delivered growth given the problems facing this market is a particularly creditable achievement. This performance has been achieved against a background of continued difficulties in the social care sector. The increasingly acute problem of adequate funding has been well documented in recent times. Both local authority and NHS budgets remain under severe pressure and this is generally resulting in rates of supply that are increasingly unsustainable and levels of care that are well below those funded in the past. This challenge is being exacerbated by rising costs of supply for providers, which are set to rise further with government announcements on increases to the National Minimum Wage and the Living Wage. We are managing these costs tightly.

Our Security business saw a reduction in profitability as in the previous year the business benefitted from significant non-recurring supply to the Commonwealth Games. The business does however continue to benefit from above industry standard margins as a consequence of our focus on our Event Management and Electronic Security offerings.

Recruitment

Our Education businesses delivered an outstanding performance during the period enjoying another year of significant growth. Revenues, gross profit and operating profit were all in excess of 30% higher than prior year and this performance is particularly significant given the operation is the single largest contributor to Group profits. The scale of our operation continued to increase with new branch openings and continued investment in sales headcount, which was on average 25% higher, than the prior year.

We were also pleased to complete the acquisition of A+ Teachers at the end of August. This acquisition bolsters the scale of our operations and fits well with our existing branch network. A+ Teachers gives us a presence in the Home Counties which continues to show strong demand for Education Recruitment services. 

Our Healthcare recruitment operation has gone from strength to strength this year and has delivered exceptional growth over the period. Revenues were up by 70%, which led to a 75% increase in gross profit and operating profits that were more than double the prior year.

The disposal of our Doctors recruitment business at the start of the financial year enabled an improved management focus on our Nursing recruitment operations. Our Nursing businesses had experienced considerable growth in the year ended 30 September 2014 and we are pleased to report that the scale of this growth has accelerated throughout this year with second half profitability well ahead of the first half. The business ended the year with strong momentum.

Our Police business, which operates in a niche market, enjoyed a substantially better second half to end the year with significantly improved momentum. Revenues ended the year 10% higher than the prior year with second half turnover 30% up on the first half. Despite reduced margins, the business continues to make a solid contribution to the Group and the momentum from the second half performance continues.

The Board is also pleased to propose a maiden dividend of 0.3p per share for the year end which will be paid in February 2016 to shareholders on the register on 8 January 2016. The associated ex-dividend date is 7 January 2016.

Outlook

Our Education recruitment businesses have enjoyed several years of outstanding growth and the operation now represents the most mature business within the Group and is well placed for the future. Despite school budget constraints, demand for our services is strong and there remains a shortage of teaching staff in the UK as schools struggle to meet the needs of a growing pupil population.

Our Healthcare recruitment businesses have increased their contribution to Group profitability significantly and the momentum they have established bodes well for future growth. They are experiencing strong demand for their services in both the private and public sector markets. Whilst not immune from some issues around NHS supply, our supply to the NHS is all via approved procurement frameworks at agreed rates and furthermore only represents about half our business from this area. We therefore believe the resilience of our operation will benefit from our diversified business mix. We continue to invest in additional sales headcount to maintain the strong momentum we have established and allow us to deliver further growth.

Despite ongoing challenges within some of our markets the Group is well placed to deliver further growth, both organically and by selective bolt on acquisitions.

1 Financial information

The preliminary financial information for the full year ended 30 September 2015 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The financial information for the year ended 30 September 2015 is unaudited. The comparative figures for the year ended 30 September 2014 are audited but are not the full statutory accounts for the year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors have reported on those accounts; their reports were unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under Section 498 of the Companies Act 2006.

2 Basis of preparation and accounting policies

The preliminary financial statements have been prepared using the recognition and measurement principles of IFRS as endorsed for use in the European Union.

The accounting policies adopted in the preparation of this preliminary financial information are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 30 September 2014 and no new standards or interpretations that have come into effect in the year have a material impact on the results of the business.

3 Segmental analysis

The Group's primary format for reporting segment information is by business segment, being by type of service supplied. The operating divisions are organised and managed by reporting segment where applicable and by divisions within a reporting segment where necessary. This information is provided to the Board of Directors.

The Outsourcing segment provides services to the Domiciliary Care and Security sectors.

The Recruitment segment provides recruitment services to the Healthcare, Education and Police sectors.

The majority of the Group's customers and assets are located in the UK and therefore it does not report by geographical location. There is no inter-segment revenue.

Segmental analysis (continued)

[1] The profit for each operating segment does not include holding company director costs, group legal costs, central share based payment charges or a share of central property costs.

4 Earnings per share

The calculation of earnings per share for the year ended 30 September 2015 is based on a weighted average number of shares in issue during the year of:

Basic earnings per share are calculated by dividing the net profit for the year attributable to the equity holders of the parent by the weighted average number of ordinary shares outstanding during the year excluding ordinary shares purchased by the Company and held as treasury shares.

Diluted earnings per share are calculated by dividing the net profit attributable to the equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares into ordinary shares. Share options totalling 796,000 that could potentially dilute basic earnings per share in the future have not been included in the calculation of diluted earnings per share because they are antidilutive for the periods presented.

Additional disclosure is also given in respect of adjusted earnings per share before amortisation of intangible assets, share based payments and exceptional costs as the directors believe this gives a more accurate presentation of maintainable earnings.

5 Called up share capital

The Company acquired 1,020,103 of its own shares in the year (2014: 200,613) and sold 760,616 of its own shares in the period (2014: nil). The total amount paid to acquire the shares was £195,343 (2014: £18,248) and the total amount received from the sale of these shares was £131,052 (2014: nil). These amounts have been deducted from retained earnings within shareholders' equity. The number of shares held as "treasury shares" at the year end was 460,100 (2014: 200,613). The Company has the right to re-issue these shares at a later date.

6 Acquisitions

On 28 August 2015, the Group acquired the entire issued share capital of A+ Teachers Limited for a total consideration of £2.30 million, satisfied by an initial cash consideration of £1.42 million on completion, a further cash consideration paid in October 2015 of £0.74 million and deferred cash consideration of £0.14 million. In addition, a further £0.8 million of deferred consideration is payable dependant on A+ Teachers Limited achieving certain levels of gross margin in the two years to 31 August 2017. There is potentially further cash consideration to a maximum of £0.6m payable should the results for year 2 exceed the target for that year. The payment of these additional amounts is dependant on continuing employment of one of the former shareholders and they are therefore accounted for as post-acquisition remuneration, as required by IFRS3, rather than part of the consideration on acquisition.

A+ Teachers Limited is an education recruitment company operating in Hertfordshire which will enhance the Group's geographical coverage.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

7 Cash and cash equivalents

8 Net debt

9 Annual General Meeting

The Annual General Meeting of Servoca Plc will be held at the Company's registered office on 26 January 2016 at 2pm. It is expected that the Notice of Meeting will be mailed to shareholders prior to 30 December 2015. The Financial Statements will be sent to the Registrar following the Annual General Meeting.