Servelec Group Regulatory News (SERV)

15 June 2016

Servelec Group PLC

("Servelec" or the "Group")

Trading Update

Servelec, the UK-based technology and software group, announces an update on current trading and outlook for the financial year ending 31 December 2016 ("FY16").

We had anticipated a heavier weighting towards the second half of the financial year than has historically been the case, but it is now clear, given further slippage in contracts, that there is likely to be a shortfall in our expectations for FY16 as a whole.

Whilst Social Care and our Nuclear & Power businesses continue to trade within expectations, market headwinds for our Healthcare, Technologies and Oil & Gas businesses are such that the Board now expect Group operating profits for FY16 to be significantly lower than market expectations and lower than the outturn for FY15.

In response, the Company has taken swift remedial action, reallocating company resources and reducing costs. Further detail is provided below.

Servelec Health & Social Care

The performance of the division with regard to 'North New' and 'Social Care' is in line with expectations. In 'North New' we have recently been awarded two new contracts (Shropshire and a new preferred bidder - two out of two) and have an additional win for a Mental Health system for St Patricks in Ireland. Looking forward, the pipeline of potential wins for 'North New' is in line with our expectations.

Social Care, including the acquisitions of Synergy and Abacus, continues to perform well and has a positive outlook for FY16. This is demonstrated by recent Servelec Corelogic wins in Cambridge and two other authorities in the first half of 2016, together with a significant success for Servelec Synergy.

However, the progress being made with regard to 'North Refresh' is slower than originally anticipated as the deadline by which these Trusts have to update their software and associated technology has again been extended by the Government due to pressure on healthcare funding. Whilst the performance of Social Care provides some mitigation, the overall outlook for Health & Social Care in FY16 has been impacted. In response to this management have reallocated resources to focus on sales and have reduced project implementation and other costs.

Servelec Automation

Controls

Despite generally tough market conditions, the Nuclear & Power side of Servelec Controls has been awarded the contract for a Data & Alarm Monitoring System by Sellafield Limited. The company will provide a centralised monitoring system for the area housing Sellafield's Magnox Swarf Storage Silos. This business has also won a contract for SSE Generation Limited to overhaul electrical and control equipment at Storr Lochs Power Station on the Isle of Skye. 

However, our Oil & Gas business has been impacted by further delays in the award of projects for both the refurbishment of Combined Heat and Power (CHP) plants that are to be exported and the platform refurbishment projects which are currently part of our tender process.

We have confidence in our technology and the cost savings it can deliver our potential customers but the tender and procurement cycles are unfortunately taking longer than originally anticipated.

Technologies

Servelec has strengthened its market leadership position in the UK water industry following the successful appointment to a five-year framework to supply Remote Telemetry Units (RTUs) to a major UK Water Company. Servelec currently supplies them with our MISER business optimisation software. This represents a breakthrough as it is the first time Servelec has won a contract to supply RTUs to this customer.

Following a competitive tendering process for the monitoring of power systems for the rail network in Belgium, Infrabel has confirmed Servelec Technologies as a supplier of RTUs across the entire Belgian network for railway crossing and signal monitoring.

The momentum in new opportunities is improving, and the Board anticipate this to continue through the second half of the year going into FY17. However, having won the Framework contracts under AMP6 there is an ongoing delay in the anticipated order entry for RTUs under these Framework contracts and we consequently are taking a prudent view of the division's outlook for the full year.

Alan Stubbs, Chief Executive Officer of Servelec commented;

"I am disappointed to have to report the difficult trading conditions that have impacted our outlook for FY16. We don't believe that this reflects upon the quality or scale of the opportunities across our target end markets. However, some end markets are currently challenging and timing of order entry has become a short term issue. As such the management has adjusted our outlook and have taken swift and prudent action to reallocate the resources of the Group and reduce costs.

The Board remains confident in the success of the business, and the shareholder value this will generate."

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 Notes to Editors:

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

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

- Servelec Health & 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.