Sepura plc · We are Sepura Welcome Sepura is a global leader in the design, development and supply...

Sepura plcAnnual Report & Accounts 2016

Tomorrow’s communication today

We are Sepura

Welcome

Sepura is a global leader in the design, development and supply of digital radio solutions, complementary accessories, support tools and devices.

On the coverSepura’s solutions deliver robust and reliable communications 24/7 in over 100 countries. We help our customers overcome the operational challenges that they face every day as they keep the public safe and secure.

Sepura plc Annual Report & Accounts 2016

Read more about our products on pages 12 to 13

Read more about how the industry is changing on pages 10 to 11

Read more about how we run our business on pages 8 to 9

Welcome

Strategic Report

Governance

Group Financial Statements

Company Financial Statements

Strategic ReportWelcome 01Where we do business 02What we’ve been up to 04Chairman’s Statement 06How do we run our business? 08How is the industry changing? 10What sets us apart? 12How are we performing? 14Operational Review 16Financial Review 20What challenges do we face? 23Corporate Social Responsibility 26

Governance Corporate Governance Report › Our Board and Senior Management 30 › Introduction from our Chairman 32

Report of the Audit Committee 36Directors’ Remuneration Report › Annual Statement 38 › Remuneration Policy Report 40 › Annual Report on Remuneration 45

Directors’ Report 52

Group Financial StatementsIndependent Auditors’ Report to the Members of Sepura Plc 56Consolidated Income Statement 64Consolidated Statement of Comprehensive Income 65Consolidated Statement of Changes in Equity 65Consolidated Balance Sheet 66Consolidated Statement of Cash Flows 67Notes to the Group Financial Statements 68

Company Financial StatementsIndependent Auditors’ Report to the Members of Sepura plc 103Company Balance Sheet 105Company Statement of Changes in Equity 106Notes to the Parent Company Financial Statements 107

Shareholder Information 114Contact Details and Advisers 115Financial Calendar 2016/17 116

“Sepura’s 2016 Annual Report sets out the strategy of the Group, including the markets in which the Group operates, and how the Group addresses those markets through product innovation and customer service.

It also presents the Group’s results for the year, explaining progress towards our long-term goals and setting out the challenges for the year ahead. I hope that you find it informative, and I look forward to reporting further progress in 2017.”Russell KingChairman

Our purpose

To help our customers overcome their operational challenges.

Our plan

To design, develop and supply the best possible solutions and products to both win new customers and then efficiently service their operational needs.

Our ambition

To build on our success as a world leading supplier of TETRA solutions, by expanding into more markets.

01Sepura plc Annual Report & Accounts 2016

Where we do business

A global critical communications solutions providerSepura is a global leader in the design, development and supply of digital radio solutions, complementary accessories, support tools and devices. Our compelling solutions bring together radio infrastructure, terminals and data applications to help our customers overcome the operational challenges they face every day.

Group structureOperating globally, and with a combined turnover of €190 million, the Group has a product portfolio with the unique ability to offer TETRA, DMR, P25 and LTE system solutions.

Teltronic’s network infrastructure delivers scaleable and seamless communications, covering a single-site campus right through to national networks. It is the market-leading TETRA brand in Latin America, and is a global leader in TETRA solutions for the Transportation sector.

Year acquired: FY16

PowerTrunk is the leading TETRA brand in North America, one of the fasting growing markets for TETRA. PowerTrunk and Sepura have won 13 out of the first 16 TETRA contracts awarded in North America since TETRA was licensed in 2012.

Year acquired: FY16

Portalify offers enhanced productivity tools that drive improved performance across customers’ communications networks. Portalify’s applications include remote database queries, rapid image distribution and GPS location services.

Year acquired: FY14

UsersOver 1.6 million devices in use across the globe.

Investment25 countries investing over €1 million in our solutions in FY16.

>1.6m 25

Strategic Report

02 Sepura plc Annual Report & Accounts 2016

Designing solutions Our deep expertise and experience enables us to combine terminals, systems and applications into solutions that address the operational challenges facing our customers.

Systems

DevicesWe provide a comprehensive portfolio of hand-held and vehicle radios that address the operational requirements of the most demanding users and environments.

Our network infrastructure delivers scaleable and seamless communications, covering a single-site campus right through to national networks.

Read more about our products on pages 12 to 13

Segments Description Revenue

Our international reach

Northern Europe › 68,000 radios for German

public safety

› Market leader in Germany, TETRA's largest market

› Eastern European order for > 5,000 ATEX radios

SEMEA › 63,000 radios to Saudi Arabia

› Multiple Teltronic network deployments across the Middle East

› First significant Portalify contract, in Sub-Saharan Africa

Latin America › Multiple Teltronic network

deployments across Brazil

› State-wide network for Sergipe in Brazil

› Further success in Mexico

APAC › Softer demand from Australian

extractive industries

› Teltronic network deployments across SE Asia

› Managed service contract with Singapore oil facility

UK&I › Market-leader in TETRA's

most mature market

› Increasing number of commercial opportunities

North America › 1,000 terminals delivered to Toronto

Transit for deployment on Sepura infrastructure

› Canadian utility contract signed in October 2015

› New York transportation contract awarded in February 2016

Revenue by customer location

34% Northern Europe

32% SEMEA

18% Latin America

7% APAC

6% UK&I

3% North America

€65.0m

€124.7m

Strategic Report

Governance




Strategic Report

Sepura supplies Subsea 7 North Sea Spoolbase

Sepura, in conjunction with 1-2-3 Communication AS, has supplied TETRA terminals to the Subsea 7 North Sea Spoolbase in Vigra, Norway. The complete system comprises TETRA infrastructure, Sepura STP9000 hand-portable radios and a dispatcher solution.

Sepura launch revolutionary picture messaging solution; from control room to the field

Sepura has launched a new feature-enhanced version of its revolutionary IMAGE application, which allows the transfer of pictures from a control room to the mobile devices of field personnel.

Bavarian fire brigades choose Sepura

Two prestigious contracts have been awarded to Sepura's long-standing German partner, Selectric GmbH, for the supply of more than 6,000 TETRA radios to fire brigades in the regions of Straubing and Passau.

August 2015

August 2015 October 2015

Sepura completes the acquisition of Teltronic

Sepura announced the acquisition of Spanish PMR company Teltronic, with its complementary product offering and strong brands in Latin and North America. Further details are set out on vvv in Note 6 to the consolidated financial statements.

May 2015

What we've been up to

Our year in review

During the year we have secured significant projects across the globe.


Strategic Report

Governance



Teltronic provides security-boosting TETRA-LTE solution for Bilbao Metro

The President of the Basque Country, Iñigo Urkullu, has inaugurated the latest phase of Teltronic's security-boosting communications network for Bilbao Metro, deployed in conjunction with ITELAZPI, operators of the Basque Country's regional communications network.

Sepura increases commitment to APAC region

Sepura has enhanced its operations in the Asia-Pacific region by investing in new prestigious offices in both Malaysia and Australia.

Teltronic selected for Qatar’s first tram system

Teltronic, part of the Sepura Group, has been chosen to provide a radio communications solution for Qatar's first tram system, part of the country's ambitious Education City project.

November 2015

“We are delighted that this project has had such a positive start.”

Ricardo Lizundia, TETRA Systems Manager at ITELAZPI

Sepura ships the SC20

First orders of the SC20 series, Sepura’s new flagship hand-portable radios were shipped in February. The SC20 series hand-portable radio is the first product to utilise Sepura's "Next Generation" platform and is resilient, intelligent and durable, providing intuitive operation and outstanding performance.

February 2016

March 2016

October 2015


Strategic Report

Chairman’s Statement

Overview2016 was a year of considerable change and challenge 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 structureOn 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.

On 27 June 2016 the Group announced the Capital Raise 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 has raised 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 were issued through the firm placing and 61,456,061 new ordinary shares were issued through the placing and open offer on the basis of 1 new ordinary share for every 3 existing ordinary shares.

Management actionsIn 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.

At the forefront of digital radio technology

Russell KingChairman

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.


Strategic Report

Governance



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.

OutlookThese actions will result in some revenue being recognised later than previously expected. However, the Group will benefit substantially from the related working capital improvements.

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 €75 million which did not include the two contracts which slipped from FY16. The strong pipeline of opportunities now totals €420 million. 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.

Russell KingChairman29 July 2016

2016 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

2017 Outlook › Capital structure revised to strengthen balance sheet

– Firm Placing, and Placing and Open Offer (the “Capital Raising”) raised gross proceeds of £65 million

– Debt facilities amended in conjunction with the Capital Raising

– No final dividend recommended (interim dividend paid of 0.79 pence 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

Read more about our Key Performance Indicators on pages 14 to 15

1 The calculation of adjusted operating profit and IFRS operating profit are set out in Notes 8 and 15 respectively to the consolidated financial statements.

Unless otherwise stated, all comparative figures exclude the impact of the acquisition of Teltronic SAU that was completed during the period.


Strategic Report

How do we run our business?

A framework for long-term growthOur vision is to establish Sepura as a global leader in the supply of digital communication systems.

Our strategy is designed to deliver sustainable growth, reduced risk and long term financial performance.

Design Outsource

Sell

Maintain

Refresh

Our business model

We continuously enhance our product and service offering to ensure that we have a broad portfolio of market-leading solutions. We have invested over €200 million in research and development, enabling us to secure a competitive advantage by being first supplier in our markets to offer GPS and Gateway and Repeater functionality, together with a wide range of other innovative product features and functions.

We outsource the manufacture of our products to world-class Contract Electronics Manufacturers, who offer a flexible and scaleable supply that meets our customers’ demand profile. We work closely with our supply chain to improve the design of our products, and to reduce costs and lead-times.

We sell direct in the UK, and have exclusive partnerships with a global network of dedicated PMR distributors, each of which is a specialist in their particular geography or market vertical. We work closely with them to target key opportunities, combining their local knowledge and relationships with our product expertise to create a compelling and cost-effective solution for end-users.

In conjunction with our local partners we support our installed base through additional accessories to meet users’ evolving operational needs together with the provision of warranty and repair services as required.

Customers typically replace fleets of devices after 5-7 years, accessing new features and functionality.


Strategic Report

Governance



Our strategic priorities

Developing a broad portfolio of market-leading solutions Innovation drives the digital PMR market as users operate in extremely challenging environments, such as mines and factories, and so require increasingly rugged and robust devices. Products must have an operational life of between five to seven years and withstand shock and dust or water ingress.

Users also require a wide ecosystems of accessories and tools that help them address their evolving operational challenges, and are therefore looking at emerging technologies such as 4G/“LTE” to deliver broadband data as well as traditional voice communications.

› We have invested over €200 million over the last 10 years

in research and development, and the Group currently employs over 300 R&D personnel dedicated to helping our customers succeed.

› Our investment has enabled us to secure a competitive advantage by being the first supplier in our markets with improved products and critical functionality, together with a wide range of other innovative product features and functions.

› For example, during the year the Group launched the SC20, the first product to utilise Sepura’s “Next Generation” platform and incorporate a high speed data bearer, making it the first TETRA hand-portable which can claim to be LTE data ready.

› Our broad portfolio of market-leading products ensures

we can support our customers as their needs evolve during the life of their network.

› We carefully select our local partners, based on their expertise and local knowledge, to ensure that they can provide the highest possible levels of customer service.

› The result is a demonstrable track record of customer retention and the repeat business that flows from establishing Sepura as our customers’ supplier of choice.

› Our broad portfolio of market-leading products that

includes solutions tailored for high-growth markets, such as our Transportation solutions.

› Our long-term relationships with the right partners who help us identify local trends and country-specific requirements that are incorporated into our product development roadmap.

› Our global presence, comprehensive market understanding and thought-leadership ensures we are at the forefront of the PMR analogue to digital migration.

Targeting high growth opportunitiesNot every vertical within the PMR market is growing at the same rate. While public-safety users constitute the largest vertical, many national digital PMR networks are now in place. The current wave of new networks is driven by commercial users, especially in the Transportation vertical and in North America.

We are continually identifying complementary high-growth opportunities within the PMR market which can be addressed by our core competencies and:

› grow our geographical footprint › broaden our product portfolio › enter new market verticals › offer a range of PMR standards.

Building long-term customer relationshipsA typical PMR network will be operational for at least 20 years. In addition to the initial capital purchase of infrastructure, applications and terminals, customers require regular supplies of batteries and other ancillaries which generate strong recurring revenues over the lifetime of the network, or require additional software licences as the number of end users on a network increases.

The challenge Our response


Strategic Report

How is the industry changing?

The PMR market today

The PMR market today is fast paced and challenging, with key trends such as innovation and regulation driving the migration to digital PMR.

Key trendsIdentifying opportunities for growth.

Professional Mobile Radio Digital PMR market growth

Terminal installed base (m)

0

10

20

30

40

50Analogue

Digital

11 1513 1712 1614 18 19

InnovationDigital PMR technologies offer users additional benefits over analogue and alternative technologies including

RegulationsGovernments are mandating an “analogue to digital migration” as they are for other markets such as television and radio, as they need

Commercial driversAnalogue components are becoming obsolete and expensive to maintain, while Digital PMR offers users

› Instantaneous group communication › Enterprise-class accessory ecosystem › Location tracking and automated

database queries

› Increased spectrum efficiency › Interoperability across user groups

and agencies › Enhanced security and functionality

› Low cost of ownership › Rugged and robust products that

operate in the harshest environments › Productivity tools that maximise

return on investment

Professional Mobile Radio (PMR) is the term used to describe the form of two-way radio communications used by many public safety and commercial organisations around the world. As at 31 December 2015 an estimated 44.4 million PMR users were communicating over PMR radio networks, generally through two-way radios that are either carried by individuals or installed in vehicles or control rooms. Organisations that utilise PMR networks generally operate over a wide geographical area with multiple users co-ordinated from a central control room and so require instant communication between individuals or pre-defined user groups.

Estimated PMR users communicating over PMR radio networks as at 31 December 2015.

Estimated total PMR market value by 2017.

44.4m

$16.5bn


Strategic Report

Governance



Our solution

Our response is to offer a broad portfolio of innovative products supported by exceptional customer service.

UKAll 43 police forces in England and Wales

Supplier of over 99% of covert radios in the UK

Exclusive supplier to the Department of Health

GermanyLargest TETRA market with c. 560,000 registered public safety users

97% of the country now covered

68,000 public safety radios delivered in FY16

GlobalIn 2016, international revenues went up by 58% to €178 million

25 countries generated over €1 million of revenue (2015: 21 countries)

Major market leadersWe are the market-leader in over 30 countries.

Addressing a growing market

Sepura devices in use world-wide (m)

0

0.2

0.4

0.6

0.8

1.2

1.4

1.0

1.6

07 1109 1308 12100503 0604 14 15 16

#1 supplier public safety worldwide

#1 supplier all users EMEA

Sepura spun out, focused

on TETRA

Transforming Sepura into a robust and diversified businessCreating a robust and diversified business by responding to our marketplace.

Strengthening our core business › Maintaining terminal product leadership › Delivering operating cashflow

Expanding across the value chain › Launching our ATEX portfolio › Creating solutions including infrastructure › Developing our applications capability

Expanding into adjacent PMR standards › Leveraging Teltronic’s P25 portfolio › Developing a multi-standard capable

platform

Expanding into adjacent market sectors Leveraging ATEX, infrastructure and applications › Expanding into North America

1

2

3

4

Our strategic acquisitions over the past 5 years

3T › May 2012 › Infrastructure capability

Portalify › July 2013 › Software applications

capability

Fylde › May 2014 › Enhances DMR offering

Teltronic › May 2015 › Increases geographical

presence, including PowerTrunk in North America

› Expands product portfolio


Strategic Report

What sets us apart?

Our market leading productsWe help our customers overcome their operational challenges by offering a complete radio solution.

User organisations include: › Public safety › Transportation › Utilities › Government › Military › PAMR › Commercial & industrial › Oil & gas

TETRA

Why invest in digital radio solutions?

Reliable Communications are “mission critical“ and so users prefer their own network rather than relying on a shared or third-party network which may suffer degradation of service if too many users are accessing the network at the same time.

Robust Users operate in extremely challenging environments, such as mines and factories, and so require rugged and robust devices that can withstand shock and dust or water ingress, with an operational life of between five to seven years. Users also typically wear protective clothing and so require devices that can be operated without removing, for example, gloves or helmets.

Secure Private, encrypted networks reduce the risk that third parties eavesdrop on sensitive communications.

Group communications Users need to communicate simultaneously with multiple individuals without the need to dial, or the delay associated with establishing a connection on a commercial mobile cellular system.

Low cost of ownership Without monthly services fees, PMR radios offer a significantly lower total cost of ownership when compared directly to smartphones and other cellular connected devices.

Enhanced worker safety For scenarios where worker safety is critical, the always-on capabilities of PMR radios are invaluable.

Improved battery life and management A major requirement for business-critical communication solutions is a strong all-shift battery.

Better audio quality The level of ambient noise can render many mobile communications devices ineffective. The voice quality on PMR digital radios is enhanced by sophisticated software algorithms and background noise suppression.

Value adding features and functionality PMR radios offer additional integrated features such as GPS, text messaging and location tracking.

Enterprise-class accessory ecosystem Providing a variety of accessories, PMR radios offer a broad accessory portfolio closely aligned with enterprise use cases and target applications.


Strategic Report

Governance



Systems

Terminals

Applications

Productivity applicationsImage MessagingMessageQuery

Command & controlSICS-NET DispatchSICS-NET VisualiseSICS-DTT

Resource managementLocate-ServerLocateRadio Manager 2STProtect

Radio applicationsShort Data ApplicationsVirtual ConsoleWAPStop & Search

Network managementNetwork Management System

SecurityCDTCMCSKMS

Hand-portable radiosSC20 SeriesSTP8X SeriesSTP9000 SeriesSRH Series

Mobile radiosSRG3900HBCHBC2

Covert radiosSRC3300

Fleet managementRadio Manager 2

ModemSRB

AccessoriesSTP AccessoriesSRH3900 AccessoriesSTP8X AccessoriesSRG Accessories

Radio accessSoloFR400

Network coreeXtras FTS100eXtras FTG64 GatewaysCentral RecorderSecurity Management

Command & controlSICS-NET DispatchSICS-NET VisualiseSICS-DTT

Network managementNetwork Management System

Productivity applicationsImage MessagingMessageQuery

DispatchEmergency 112

Resource managementLocate-ServerLocateSTProtect

TErrestrial Trunked RAdio (TETRA) is an open digital trunked mobile radio standard developed to meet the most demanding needs of Professional Mobile Radio (PMR) user organisations.

Specially designed to save our customers time, money and effort, our range of apps streamlines essential processes, helping to keep staff safe and increasing productivity.

TETRA Multi-platform

Our product suite


Strategic Report

Installed base (000’s of radios)

StrategicOur strategic KPIs are leading indicators of future potential.

Our growing installed base of radios in use will generate additional revenues from regular demand for replacement accessories and, ultimately, new radios, together with opportunities to upsell new applications to existing customers.

The decision to focus on geographies and markets where the Group is market leader has narrowed the Group’s addressable market.

OperationalOur operational KPIs are leading and lagging indicators demonstrating operational progress during the year.

Order backlog (€m)

Although revenues from commercial users increased by 40%, they represented 24% of total revenues due to continued strong demand from public safety users.

Our order backlog comprising unfulfilled orders and future contracted revenues, increased to c. €75 million (including New York) as we secured significant infrastructure contracts that will be delivered over several financial years, giving improved visibility for future revenues.

Annual shipments (000’s of radios)

Annual shipments increased by 15%, including 68,000 radios to Germany and 63,000 radios for a new national network in the Middle East.

Commercial vs public safety revenues

How are we performing?

Measured performance

20

0

60

100

40

80

Total addressable market ($m)

14 1515

3,000

500

0

1,500

2,500

1,000

2,000

3,500

12 13 14 15 16

1616

24%

25%

30%

250

217

14

188

16

75.0

15

41.0

14

13.1

16

1,58

5

15

1,34

2

14

1,18

6

13

1,04

8

12

930

11

800

10

677

Other UK Germany

Commercial Public

safety

LTE P25 North America DMR Applications Systems TETRA ATEX Terminals TETRA Terminals

(Excluding ATEX)

2016 was a year of considerable change and challenge. Although the Group’s overall financial performance during the year has not met the Board’s expectations, the Group is well placed to exploit its leading position in a number of fast growing global markets.


Strategic Report

Governance



1 The calculations of adjusted operating margin and adjusted diluted EPS, together with an explanation of why they are relevant measures, are set out in Notes 8 and 15 to the consolidated financial statements respectively

2 Calculated as cash generated from (or used by)operations divided by cash generated from (or used by) operations before movements in working capital

Revenue (€m)

Adjusted diluted EPS (¢)1

Adjusted operating margin1

Dividends per share (p)

Cash conversion (utilisation)2

FinancialOur financial KPIs are lagging indicators showing the financial result of our operational performance.

We delivered a fourth consecutive year of organic double-digit revenue growth, together with incremental revenues from Teltronic.

The reduced operating margin, together with additional interest on extra borrowings, resulted a reduction in adjusted EPS for the year.

Adjusted operating margin was adversely impacted by foreign exchange, high-volume/low-margin contracts and delays to significant contracts that were expected to be delivered in March 2016.

In the light of the Group’s recent financial performance and the recent new equity, the Board has not recommended a final dividend and so the dividend for the year is the same as the interim dividend already paid.

An expansion of working capital due to increased inventory purchased to satisfy delayed contracts, together with slower than expected receipts from customers, meant the group did not generate any operating cash during the year.

14

14 14

14

14

15

15 15

15

15 16

16

16 16

16

189.

77.

2

0.79

6.5%

(112

%)13

1.2

9.7

2.40

11.4

%

88%

116.

68.

4

2.00

10.7

%

101%


Strategic Report

Operational Review

Shaping the future of digital communicationsThe 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.

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 marketThe 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 marketsThe 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.

The Group’s shipments of devices increased by 15% to 250,000 (2015: 217,000).

The estimated total spend by PMR users is expected to reach $16.5 billion by 2017.

+15%

$16.5bn


Strategic Report

Governance



Radios delivered(000's)

0

50

100

150

200

250

14 1615

250

217

188


Strategic Report

“Teltronic has accelerated the delivery of the Group’s strategic objectives, and made a significant contribution to Sepura’s progress.”

Acquisition of TeltronicThe 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 orders 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 €1.5 million originally forecast. Synergies are now expected to contribute €7 million of EBITDA in the current financial year.

Investment in products, premises and peopleThe 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 offer 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.

Operational Review continued

Teltronic contributed €44.7 million to revenues.

Revenues from Latin America increased by 604% to €33.8 million (2015: €4.8 million).

€44.7m

604%


Strategic Report

Governance



Business model reviewAfter 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 – Teltronic 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 DMRIn 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.

Creating a more robust businessThe 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.


Strategic Report

Financial Review

RevenueThe 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.

Gross marginGross margin excluding non-recurring costs for the full year, was 40.5% (2015: 46.2%) while reported gross margin was 37.3% (2015: 46.2%). This reflected 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 costsGross 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 expensesSelling, 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 exchangeThe 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 €15.1 million, €2.7 million higher than that reported, after adjusting for the following items:

› Revenues would have been €1.3 million lower;

› Product costs would have been €3.0 million lower; and

› The Group’s unhedged Sterling operating costs would have been €1.0 million lower.

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.

Building on a strong base

Record revenues of €189.7 million (2015: €131.2 million).

€189.7m14 15 16

189.

7

131.

2

116.

6

Revenue(€m)

“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.”


Strategic Report

Governance



Operating profitThe Group presents adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) and adjusted 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 itemsThe 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 a 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.

TaxationThe 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 and is accounted for as a government grant within operating activities. €3.3 million was receivable under this scheme at the end of the year.

EPSAdjusted 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 financingNet 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 facilities, including a bridging facility being made available prior to the receipt of the proceeds of the Equity Raise.

“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.”

An increase of 30% to €21.8 million (2015: €16.8 million).1 As calculated in Note 8 to the consolidated

financial statements

€21.8m14 15 16

21.8

16.8

16.7

R&D gross expenditure1

(€m)


Strategic Report

Following these amendments to the Group’s banking facilities, 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.

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

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 sheetThe 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 capitalThe 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 129 pence. 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.

Richard SmithChief Financial Officer29 July 2016

Intangible assets increased from €66.6 million to €177.4 million.

€177.4m14 15 16

177.

4

66.6

52.9

Intangible assets(€m)

Capitalised development costs increased from €13.1 million to €16.4 million.

€16.4m14 15 16

16.4

13.1

12.5

Capitalised development costs(€m)

Financial Review continued


Strategic Report

Governance



What challenges do we face?

Clear and focussed strategy

The material strategic and operational risks and uncertainties facing the Group, their potential impact on our future performance, and how we manage them.

No change DownUp

Key to change in risk

Developing a broad portfolio of market-leading solutions

Building long-term customer relationships

Targeting high growth opportunities

Key to strategic link

Risk and impact Management strategy Change Strategic link

Technological changeOur revenue and profitability are affected by the extent to which there is increasing demand for, and development by our competitors of, additional products and product features. For example, the adoption of 4G/“LTE” for the delivery of broad-band data services to consumers has led some Public Safety agencies, including those in the UK, to explore the possibility of creating equivalent data networks, using either planned commercial networks or constructing their own 4G private networks. We make significant investments in new product development, and there can be no guarantee that we will be able to generate sufficient revenue to offset these development costs or to continue to make such investments. There are also associated risks relating to difficulties and delays in the development process of new products, and their acceptance by customers. If our competitors successfully launch new products or features which we are unable to match then we could lose market share with a corresponding impact on our future profitability and financial position.

Product innovationWhile the existing 4G standard does not contain the protocols necessary for voice traffic, or the call prioritisation and similar functions required by Public Safety agencies, we are investing in new product development to position the Group for the likely future deployment of LTE and our recently launched “Next Generation” SC20 products incorporate a high speed data bearer making it the first TETRA hand-portable which can claim to be LTE data ready. This is part of our ongoing programme of identifying customer needs, and potential competitor advances, to ensure that we maintain a portfolio of market leading products. We focus our development efforts on features which meet a market requirement and are likely to generate sufficient revenue to fund their development. We have established internal processes for prioritising and reviewing our development projects.

Reliance on key markets or customersA significant percentage of our revenue in each financial year is currently derived from a small number of end-user organisations, the majority of which are governmental organisations, in several key geographies.

The timing of orders from these customers is influenced by a number of factors, including governmental investment decisions which may be affected by changes in political and economic conditions. This makes accurate predictions of the timing of future revenues more difficult. In the event that there is a delay to either the tendering process or the placing of orders following a successful bid, then revenues may not be generated within the originally forecast timeframe, with a consequential impact on the profitability of the Group in any given period.

Growing our addressable marketThe Group’s focus on diversification will result in a reducing significance of individual contracts or customers relative to the Group’s total operations. Our addressable market has increased following the acquisition of Teltronic and we enter new markets. Furthermore, the increasing role of regular add-on and replacement business also helps to mitigate the impact of significant delays in securing new customers. However, the impact of significant contracts on half and full-year reported revenue remains a risk for the Group.


Strategic Report


Credit riskReliance on key markets or customers may also result in credit risk being concentrated within a small group of customers and default by a material customer could have a material impact on the Group’s results. Following the global expansion of the Group’s activities it now operates in countries and with customers that may give rise to higher credit risk exposure than that to which it has previously been exposed.

Working with the right partnersThe Board has implemented policies that require appropriate credit checks on potential customers and customer orders are checked against pre-set requirements before acceptance. Formal credit control procedures are applied subsequent to invoicing customers, with letters of credit and payments in advance obtained where appropriate. Such rigorous procedures cannot completely mitigate credit risk, and the Group provides against significant overdue accounts where recoverability of the debt is considered sufficiently uncertain. The maximum exposure to credit risk is limited to the carrying value of trade and other receivables.

CompetitionThere is strong competition in the markets in which we operate, particularly in relation to government procurement tendering processes which rely on a combination of technical performance and price. A significant reduction in the prices we achieve for our products could have a material impact on the Group’s margins and profitability.

Investing in product leadershipThe Group’s ability to compete depends on its high-quality product range and its reputation for customer service as well as the ongoing programme of work to reduce product costs. The Board regularly reviews the level of investment in these areas in the light of changes in the competitive landscape, to ensure that the Group can continue to compete effectively.

Managing rapid growthThe rapid growth of our business may place a significant strain on our management, operational and financial resources, and those of our manufacturing and distribution partners. If we are unable to grow our business profitably, as a result of being unable to secure adequate resources or incurring excessive costs in doing so, then this could have a material adverse effect on our financial position.

Investing in operational excellenceThe Board is continually reviewing internal controls and processes, and hiring additional employees in critical areas of the business where necessary. During the year the Group implemented an integrated ERP system which enhances internal controls and delivers operational efficiencies. The Group has two primary sub-contract manufacturers, ensuring continuity of supply and providing flexibility in meeting additional demand for our products.

Managing working capitalA specific consequence of rapid growth could be a need to invest in additional working capital, either through holding extra inventory or offering extended credit terms to customers. If this additional working capital did not convert into cash on a timely basis, the Group might need to secure additional funding to meet its short-term cash requirements.

Securing adequate financingThe Board has undertaken the recent Capital Raise to strengthen the Group’s balance sheet and, in conjunction with the Group’s banking facilities, provide additional working capital for the Group as it continues to grow. The Board has also established regular reviews of the Group’s cash position and forecast cashflows to ensure adequate headroom is in place for the Group’s operational requirements.

What challenges do we face? continued


Strategic Report

Governance




Foreign currencyThe Group has an international customer base and purchases products and services in a range of currencies. The reported revenues, costs, assets and liabilities of the Group are therefore affected by fluctuations in prevailing rates of exchange between these currencies. This affects comparisons of current year results to previous periods, where equivalent underlying transactions are reported at differing rates, and may affect future results if assets and liabilities are subject to revaluation over time.

Effective hedging of exchange rate exposuresThe Company’s presentational and functional currency is the Euro, reflecting the relative contribution of Euro-denominated revenues. The Board has implemented policies that require regular reviews of the Group’s forecast currency requirements, in conjunction with a rolling programme of monthly forward contracts to hedge forecast net cash flows in major currencies. Where these hedges are deemed to be effective any unrealised gains or losses on the hedges are recognised in equity rather than in the consolidated income statement, again reducing possible volatility in reported earnings arising from changes in exchange rates. Furthermore, following the acquisition of Teltronic the Group’s GBP revenues and costs are falling as a proportion of the Group’s overall activities while increasing USD revenues from the growing North American market provide a natural hedge against USD product costs.

Information securityThe Group regards information within the business as a key asset and recognises the risk and impact on the business of breaches to the integrity of information relating to the business.

Effective protection of information security and integrityThe Group has in place systems and processes for the classification and control of access to information within a number of elements of the business. The information security standard ISO27000 is a reference frame for all information security management systems and is the framework against which the Group manages information security.

Supply chain risk and product recallWe are dependent on outsourced electronic manufacturing companies for the manufacture of substantially all of our current products and on a small number of suppliers for key components. Any failure or inability of these companies to supply us could adversely affect our business. Our supply chain is complex, and the use of third-party suppliers and service providers could adversely affect our product quality, delivery schedules or customer satisfaction. Any of these could have an adverse effect on our financial results.

Monitor manufacturing and component supply chainThe Group mitigates supply chain risk by employing a number of supplier monitoring mechanisms and control measures which address business viability, production quality and component obsolescence. Automated and manual product testing is an integral part of all projects and manufacturing. In addition, all third party products undergo conformance testing and compliance checks.

Integration of acquired businessesOur future financial performance will reflect the results of acquired businesses, which will in turn be impacted by our ability to integrate such businesses into our current operations. If we are unable to retain key employees or exploit forecast synergies then we may be unable to deliver the forecast level of revenues, profitability and cash flows which could have an adverse effect on the financial results and position of the Group as a whole.

Protection from vendors, combined with detailed planning and executionPrior to any acquisition the Group undertakes detailed investigation and due diligence in conjunction with external advisors. Appropriate warranties and indemnities are obtained from the vendors against specific financial risks identified. Where appropriate, an element of consideration is deferred and will only be satisfied if the acquired business generates the forecast level of profitability on which the valuation of the business was based. Detailed integration plans are prepared, with specific risks identified and mitigation plans prepared, which set out detailed actions, responsibilities and timetables. We conduct regular reviews with the management of acquired entities to assess performance against these plans and take action accordingly.


Strategic Report

Sepura's community involvement

Sepura is the headline sponsor of the Cambridge United Community Trust, which was established in 2011 with the aim of positively influencing 10,000 children per year through a series of programmes for young offenders, children at risk of exclusion, ethnic minority groups, disability groups, the homeless and people living in areas of deprivation.

Our highly active social committee coordinates company-wide social and sports events and supports and promotes charitable initiatives undertaken by individuals, teams or departments.

This is why the Board, led by the Chief Executive Officer, takes CSR seriously and is committed to advancing our related policies, systems and initiatives across all areas of the business as we continue to grow and mature. These areas primarily include ethical behaviour, concern for employee welfare, health and safety, care for the environment and community involvement.

We make considerable efforts to communicate effectively with all stakeholders who may have an interest in our CSR activities, including our shareholders, customers, suppliers, partners and employees. The Company’s website is one of the main routes for providing information to interested parties and providing us with constructive feedback.

Ethical behaviourIn support of our core values of integrity, excellence, care, teamwork and commitment, Sepura expects that its business around the world is always conducted to high ethical standards of practice and legal principles. To that end, all our employees and business partners are also expected to demonstrate high standards of professionalism and integrity at all times when conducting business on the Company’s behalf. This is indeed how we behave in practice.

A Code of Business Conduct and Ethics (including a whistle-blowing policy) covering the whole of the business and our various stakeholder interests is in place and is regularly reviewed and reiterated to staff and business partners.

Corporate Social Responsibility

Maintaining Long-Term Value

Sepura recognises that a positive approach to Corporate Social Responsibility (“CSR”) can have a positive contribution to its reputation and the ability to create and maintain long-term value for shareholders.


Strategic Report

Governance



Human rightsThe Group respects all human rights and conducts its business in adherence to all relevant government guidelines, and takes all practical steps to ensure that its products are not supplied to organisations that may use them to advance terrorism, internal repression or otherwise abuse human rights.

EmployeesAs a business driven largely by technical development and innovation, our main assets lie in the talents and skills of the people we employ. Consequently, we aim to attract, retain and motivate the highest calibre of employees, both technical and non-technical, by encouraging and rewarding high performance through competitive remuneration and incentive arrangements. Sepura continues to be an “Investor in People” accredited employer.

Acknowledging that an environment that fosters innovation and collaboration is critical to our success, efforts are made to identify and provide further learning, training and development opportunities for our employees. These are structured so as to align our organisational objectives with personal career aspirations. Formal performance reviews, including 360° appraisals, are conducted annually.

Similarly, the importance of two-way communication is recognised, particularly as it relates to the business and its performance. We actively encourage employee involvement through a Staff Council and keep employees regularly informed of the Group’s activities and performance through team briefings, direct access to managers and Directors at all levels and by interim and year-end presentations to all staff.

During the period, and with a view to encouraging share ownership amongst its employees, the Company issued another invitation to employees to join an all-employee ShareSave Scheme in the UK. This Scheme, which is HMRC approved, enables employees to purchase shares in Sepura through regular savings made over a three or five year period but at a discount of up to 20% on the share price as determined at the outset. The Company intends to make an annual invitation under this Scheme and will from time to time consider its extension to other countries in which it has established a major operating presence.

Equality and diversityThe split of staff by gender at the end of the period was as shown to the right. Sepura is committed to providing equality of opportunity to all existing and prospective employees without unlawful or unfair discrimination. In addition, we are supportive of the employment and advancement of disabled persons. The Group gives full and fair consideration to the applications for employment from disabled persons, having regard to their particular aptitudes and abilities. Appropriate arrangements are made for the continued employment and training, career development and promotion of disabled persons employed by the Group.

Health and safetyWe are committed to protecting the health and safety of our employees, and third parties who visit our sites, as well as having a positive influence on our supply chain throughout the world.

We are legally compliant and, where appropriate, work to exceed these requirements to provide safe working environments and a robust programme of occupational health management.

Gender diversity

DirectorsSenior Managers

Other Employees

64

12846 555

Male Female


Strategic Report

Corporate Social Responsibility continued

It continues to be the Company’s policy to offer staff free influenza injections and additional policy and contingency plans are in place in the event of any pandemic virus impacting staff health and business continuity. Notable health and safety risks to the business continue to be fire, electrical faults, soldering, manual handling, work station use, driving and stress. Employee travel to high risk geographies, due to the expanding diversity of the Group’s customer base is an identified risk across the business and as such we ensure employees have access to guidance specific to the region they are travelling in; vaccinations and travel advisories for example. The statutory testing of all equipment and appliances is up to date for all Group offices. H&S induction and necessary training is mandatory for all employees and regular work station risk assessments are carried out together with any remedial action necessary. Occupational workplace and medical examinations are carried out across the Group in line with local legislation.

To support this ethos, we use a Health & Safety Management System (OHSAS18001 Teltronic S.A.U.) which identifies risks. These risks are continuously monitored and reviewed, then eliminated or reduced with control measures which are communicated to all relevant stakeholders.

During the period in the UK there were no accidents reportable under the Reportable Injuries, Diseases and Dangerous Occurrences Regulations 2013; there were 6 non-reportable accidents (2015: 3). In Spain there was 1 accident reportable under the Reportable Injuries, Diseases and Dangerous Occurrences Regulations and 4 non-reportable accidents. Health and Safety Committees meet regularly, with responsibility for controlling, directing and delegating responsibility to line management and functional heads for the practical day-to-day compliance with the Group’s Health and Safety Policy Statements, other operating procedures and relevant legislation. Appropriate training is also coordinated by this Committee, together with an ongoing awareness programme for all employees to help create and maintain a safe and healthy working environment. Health & Safety is included as part of the Group’s internal audit cycle with periodic audits also undertaken by external bodies.

Building 9000 is providing the capacity for Sepura’s further growth over the next 15 years

Building 9000 brings together the Group’s four UK offices into a single location that accommodates:

› R&D facilities

› High quality offices

› State-of-the-art meeting and collaboration spaces - enabled with interactive and remote conferencing technology

All of these facilities will enhance current work processes, allowing the organisation to work faster with increased agility.

56,000Square feet

“Globally, our employee total has more than doubled over the last four years and we are delighted to be moving to a highly cost-effective, tailor-made workspace that reflects our growth and ambition.”

Gordon Watling, Chief Executive Officer


Strategic Report

Governance



Environmental careAs a worldwide company, we understand the importance of our role in minimising the environmental impact of our operations, providing resources to support these principles and associated environmental initiatives.

Our Environmental Management System (ISO14001) enables us to focus on areas where our impact can be positively managed or influenced by us. We set targets, against which we measure and report, driving continuous improvement in resource conservation and the prevention of pollution throughout the life-cycle of our products. Particularly we focus upon:

Conserving resources through better energy efficiency, reduction of travel emissions and recycling:

› Promoting sustainable design principles in the development of new products and packaging;

› Fostering a positive culture amongst our employees, customers and supply chain by the development and communication of clear policies, and the promotion of good practice;

› Minimising our impact on the communities in which we operate through engagement with local organisations and raising employee awareness; and

› Using our Environmental Management Systems to provide a framework for setting, evaluating and reporting environmental performance.

Greenhouse gas emissions Sepura is committed to reporting its total carbon emissions based on the Scope 1 and 2 Greenhouse gas emissions from across the Group. A “financial control” approach has been adopted in conjunction with the “GHG Protocol Corporate Accounting and Reporting Standard (revised edition)” and emission factors from UK Government’s “GHG Conversion Factors for Company Reporting 2015” to determine the Group’s total greenhouse gas emissions, based on detailed metrics from each of the Group’s locations where they are available. Data from several smaller offices, based in serviced premises, has been excluded on the grounds of materiality as the data is not available. Three UK offices were closed between October 2015, and March 2016, and the Teltronic site in Spain is now included in the data for the full financial year 2016.

The total emissions and intensity ratios for the last financial year, together with the prior year that formed the baseline year from which progress will be tracked, are shown above.

Community involvementSepura aims to be a responsible corporate citizen and active employer in the communities in which we operate, particularly at our main operating site in Cambridge. Sepura is the headline sponsor of the Cambridge United Community Trust, which was established in 2011 with the aim of positively influencing 10,000 children per year through a series of programmes for young offenders, children at risk of exclusion, ethnic minority groups, disability groups, the homeless and people living in areas of deprivation.

Gordon WatlingChief Executive Officer29 July 2016

Greenhouse Gas Emissions 2016 2015

Tonnes of Tonnes of CO2 per Tonnes of CO2 per Tonnes of Tonnes €1m of CO2 per Tonnes of €1m of CO2 per of CO2 revenue employee of CO2 revenue employee

Scope 1: Direct emissions 86 0.5 0.1 52 0.4 0.1Scope 2: Indirect emissions 1,280 6.7 1.5 676 5.2 1.7

Total Scope 1 and Scope 2 emissions 1,366 7.2 1.6 728 5.6 1.8


Governance


Our Board and Senior Management

Corporate Governance Report

The Board is responsible for providing leadership for the Group. Its prime objectives include ensuring that the right strategy and controls, together with appropriate financial and human resources, are in place to deliver value to shareholders and other stakeholders.

A Audit Committee

N Nominations Committee

R Remuneration Committee

I Independent Non-Executive Director

Chairman of Committee

Key to Committees

Appointed: Russell King was appointed to the Board in July 2014 and as as Non-Executive Chairman in September 2015.

Experience: Russell is a highly experienced board-level executive with experience across a number of sectors including technology, industrials, chemicals and mining. During his career he has been Chief Strategy Officer of Anglo American plc and spent over 20 years at ICI, working within its fertiliser, petrochemical and paint businesses.

Russell is currently Senior Independent Non-Executive Director and Chairman of the Remuneration Committee of Aggreko plc, Senior Independent Non-Executive Director and Chairman of the Remuneration Committee of Spectris plc, Chairman of Hummingbird Resources plc and Senior Independent Non-Executive Director of Interserve plc. He is also a senior adviser to Heidrick & Struggles.

N I

Appointed: Gordon Watling was appointed to the Board as Chief Executive Officer on 1 October 2008, having served as Chief Operating Officer since joining the Group in November 2006.

Experience: Gordon was previously Global Engineering Director of Honeywell’s Electronic Sensing business from 2003 to 2006 and Operations Director of Invensys Energy Systems from 1998 to 2000, until he became Development Manager at HP/Agilent Technologies in 2000. Prior to that, Gordon had operations, development and manufacturing roles at Schlumberger Industries between 1985 and 1997.


Gordon Watling Chief Executive Officer

Senior Management TeamPaul WatsonChief Operating Officer

Kasper BarfoedSenior Vice President, Sales

Gary AitkenheadVice President, Devices

Juan FerroVice President, Systems

Steve BarberVice President, Strategy

Michelle LamprechtVice President, Marketing

James GriffithsGroup HR Director

Strategic Report

Governance




Appointed: Richard Smith was appointed to the Board in January 2016.

Experience: Richard has held the position of CFO for a number of listed and privately held technology businesses, most recently Imagination Technologies Group plc. Richard is a Fellow of the Institute of Chartered Accountants in England and Wales and holds an MBA from Henley Business School and an MA in Economics from Cambridge University.

Appointed: Sion Kearsey is a founding member of Sepura and joined the Group in 2002.

Experience: Sion was a co-founder of Kelso Place Asset Management LLP and was previously a Managing Director of Goldman Sachs International in its Fixed Income, Currencies and Commodities Division.

Sion is currently Managing Partner of Kelso Place Asset Management LLP, a private equity firm specialising in acquiring controlling interests in UK based companies.

N

Appointed: Nigel Smith joined the Group in July 2013.

Experience: Nigel is a highly experienced executive with deep technology sector expertise. He has previously held positions in HM Treasury as Permanent Secretary, Board Member and Chief Executive of the Office of Government Commerce, and is still actively involved with government as an adviser. His previous experience also includes senior board roles at major industrial and engineering businesses, including Invensys plc, Charter Group plc, TI Group plc and as Chairman of Spikes Cavell.

Nigel is currently a Non-Executive Board Member and Chairman of the Audit Committee of Sellafield Ltd the nuclear decommissioning and reprocessing company and a Non-Executive Director of Obillex Limited, a trade finance business focussed on the UK public sector.

A N R I

Appointed: Gordon Stuart joined the Group in July 2013.

Experience: Following six years at McKinsey & Co, Gordon held senior positions with a number of highly successful UK listed businesses, serving as Group Finance Director of London Bridge Software plc and thereafter Xansa plc. He then became Chief Financial Officer of recruitment process outsourcing firm, Alexander Mann Solutions. He also served as a Non-Executive Director of Intec Telecom Systems PLC.

Gordon is currently Chief Financial Officer of TMF Group, a leading global provider of high value outsourced business services.

A N R I

Richard Smith Chief Financial Officer

Sion Kearsey Non-Executive Director

Nigel Smith Non-Executive Director

Gordon Stuart Non-Executive Director

Governance


Introduction from the Chairman

We believe that solid governance principles for the Group to operate within are the foundations that underpin the creation of value for shareholders on a sustainable long-term basis. My Board colleagues and I are therefore committed to setting the ‘tone from the top’ in terms of instilling high standards of corporate governance and business integrity.

Sound corporate governance is considered by the Board to be at the core of the setting and implementation of the strategy for the Group by way of both informing decisions and monitoring their implementation. The performance of the Group in the past year and the developments in its business over the past months have reinforced this belief.

The Board has established and developed the structure and procedures described in this report for these purposes. These now include more frequent meetings of the Board which take place at a minimum, monthly, and enhanced analysis in financial and operational reporting and forecasting.

Set out in the following pages are:

› A summary of the operation of our Board › A report from our Audit Committee › The Directors’ Remuneration Report › The Directors’ Report

I hope that readers will find them informative.

This Corporate Governance Report also sets out how the Company has applied the main principles of good governance contained in the UK Corporate Governance Code (the “Code”), which can be found on the FRC’s website at www.frc.org.uk, for the period ended 1 April 2016. The Board considers that the Company is fully compliant with the Code with two exceptions. Firstly, the Board does not currently have a nominated Senior Independent Non-Executive Director as required by Code provision A.4.1. The Company is currently in the process of recruiting two new Non-Executive Directors and intends to make an appointment to fill the role of Senior Independent Non-Executive Director in the current financial year. Secondly, due to commercial constraints, the Company did not give 14 working days’ notice of the General Meeting held on the 15 July 2016 in connection with the Capital Raise, as provided by Code provision E.2.4. The Company was however fully compliant with the legal requirements of the Companies Act 2006, having given 14 days’ clear notice of the General Meeting and provided electronic voting for Shareholders.

We look forward to reporting to you on these and other developments in our Annual Report next year.

Russell KingChairman29 July 2016

Later in this report:Page 33

Page 36

Page 38

Page 52

› A summary of the operation of our Board

› A report from our Audit Committee

› The Directors’ Remuneration Report

› The Directors’ Report


Corporate Governance Report continued

As an integral part of Sepura’s participation in an established investment market your Board continues to be mindful of the responsibility for the Company to be managed transparently and in an optimal manner to maximise success in its business.

Strategic Report

Governance




Summary of the operation of our BoardThe Board directs the Company, and provides leadership, support and challenge to the rest of the Group. The Group operates within a framework of appropriate and effective controls that enables risks and uncertainties to be identified, assessed and managed.

The Board:

› sets the Group’s strategic aims; › ensures that the Company has the

necessary financial and human resources in place;

› reviews management performance, now with enhanced analysis in financial and operational reporting and forecasting;

› defines the Group’s values and standards; › ensures that its obligations to shareholders

are understood and met; and › works closely with the operating

management to achieve the Group’s objectives.

All members of the Board take collective responsibility for the Group’s performance.

The Board has six members, all of whom served throughout the financial period, save for Richard Smith who was appointed during the period. Its composition is as follows:

› Russell King, Non-Executive Chairman, who was independent on appointment as such, who chairs the Nominations Committee, and who stepped down from the Audit and Remuneration Committees following his appointment as Chairman in September 2015 in compliance with leading best practice;

› two Executive Directors, Gordon Watling, Chief Executive Officer, and Richard Smith, Chief Financial Officer;

› two Independent Non-Executive Directors, Nigel Smith and Gordon Stuart, both of whom serve on each of the Audit, Nominations and Remuneration Committees; and

› a further Non-Executive Director, Sion Kearsey, who serves on the Nominations Committee.

John Hughes, previously Non-Executive Chairman, and Steve Chamberlain, previously Chief Financial Officer, both served on the Board during the period through to stepping down from the Board on 7 September 2015 and 4 January 2016 respectively.

All Directors are able to, and do, devote sufficient time and attention to their Board duties and responsibilities.

The Board has adopted a formal schedule of matters specifically reserved for its or its Committees’ decision which include:

› the Group’s strategy, which is reviewed with relevant members of the management team when appropriate during the year;

› the business plan and annual operating budget, which are prepared and considered in the context of the outcome of the strategy discussions;

› internal controls and risk management, which are reviewed regularly by the Audit Committee;

› major investments, acquisition opportunities and capital projects, and monitoring their subsequent performance;

› accounting policies, which are reviewed in detail by the Audit Committee;

› dividend policy and payments commented on further in the Directors’ Report on page 52;

› shareholder communications, such as announcements of results, notice of Annual General Meeting (“AGM”) and this Annual Report;

› the Board structure, composition and succession planning, which are handled in more detail by the Nominations Committee;

› Executive remuneration policy and the remuneration of the Chairman, which are handled by the Remuneration Committee; and

› the remuneration of the Non-Executive Directors, in relation to which they do not participate in decisions.

This schedule of matters reserved for the Board’s decision is reviewed annually, and updated as considered appropriate, as it was during the year. In addition, certain matters have been delegated to three principal Committees within clearly defined terms of reference. Their remits, together with the composition of each Committee, are reviewed annually. The current terms of reference for the Audit, Remuneration and Nominations Committees are available on the Company’s website at www.sepura.com/investors. Résumés of the roles of each of these Committees appears later in this Report. Other matters not reserved for the Board’s decision are delegated to management under the leadership of the Chief Executive Officer and Chief Financial Officer.

The Directors have access to the advice and services of the Company Secretary, whose appointment and removal may only be effected by the Board. The Company Secretary, who also acts as Secretary to each Committee, is responsible for information flow to the Board and Committees, facilitating the induction and professional development of the Directors, and advising through the Chairman on compliance with Board procedures and applicable laws and regulations on governance matters.

Board decisions are taken through consensus following thorough debate as appropriate. Though no Director so requested during the period, Directors have the right to request that any concerns they may have are recorded in the appropriate Board or Committee minutes. Minutes are circulated for comment before being formally approved at the next relevant meeting. There is also an agreed procedure by which Directors may take independent professional advice relating to their duties at the Company’s expense, if required. No such advice was taken by any Director during the period.

The Board meets regularly at scheduled meetings. Historically, the Board has met approximately seven times per year. The frequency of these meetings has now been increased so that they are held at least monthly. At these meetings, the Board reviews the development, trading performance and plans of the Group. If and when required, additional meetings are held, usually by telephone conference.

The Board also operates a Contract Bid Committee with a remit to help facilitate the review and determination of contractual bid proposals which exceed pre-determined approval limits delegated to management.

Irrespective of their membership, all Non-Executive Directors may attend Committee meetings and the Executive Directors (and members of management) may attend and present on relevant matters at the invitation of the Committee Chairman.

Governance


Attendance at Board meetingsThe attendance of current Board and Committee members at meetings and calls (including both regular and additional meetings), as compared with the number of meetings held during the period they were a member of the Board or on the relevant Committee, is shown below:

Board balance and independenceThe Board believes that its current structure and membership of the Chairman, two Executive Directors and three Non-Executive Directors is appropriate and represents a good balance of skills and experience necessary to manage the business and the Company in an effective and successful manner. This composition ensures that a proper balance of influence is maintained without one person or separate group having undue powers of decision making. All the Non-Executive Directors bring strong independent judgement to bear on the Board’s deliberations and decision making process. The recruitment of two new Non-Executive Directors, which is currently underway, will further enhance the skills and experience of the board.

As recommended by the Code, the Board has considered the independence of its Non-Executive Directors and determined that two of its three Non-Executive Directors are independent for this purpose. In addition, the Chairman was independent at the time of his appointment to that position. Sion Kearsey is not deemed to be independent under the Code due to his being a significant shareholder. Mr Kearsey is, though, considered fully independent of management and makes a valuable contribution to the Board as a whole in his role as a Non-Executive Director.

The roles of the Chairman and Chief Executive OfficerThe roles of the Chairman and Chief Executive Officer are separated, with a clear division of responsibility at the head of the Company having been established, agreed and set out in writing. This division of responsibilities is reviewed regularly and updated as considered appropriate.

The Chairman is primarily responsible for managing the Board, facilitating the effective contribution of all Directors, for ensuring effective communication with shareholders and that all Board members are aware of the views of major investors.

The Chief Executive Officer, together with the Chief Financial Officer, has been delegated appropriate responsibilities and authorities for the effective leadership of the senior management team in the day-to-day running of the business, for carrying out the agreed strategy and for implementing specific Board decisions relating to the Group’s operations.

During the period the Chairman held both formal and informal discussions with the Non-Executive Directors without the Executive Directors being present.

Board CommitteesAudit Committee: Gordon Stuart, ChairmanThis Committee comprises solely the Company’s two independent Non-Executive Directors and reviews matters in relation to the Company’s financial reporting, internal control and risk management on behalf of the Board. Its membership and activities are commented upon further in its report which commences on page 36.

Nominations Committee: Russell King, ChairmanThe Nominations Committee comprises the Chairman, who was considered independent on appointment, and three other Non-Executive Directors, two of whom are considered independent. It is responsible for evaluating the balance of skills, knowledge and experience of the Directors. It also reviews the composition and structure of the Board and makes recommendations to the Board on retirements and appointments of additional and replacement Directors, including succession planning.

During the year, the Committee recommended to the Board that Russell King be appointed as Chairman of the Company when John Hughes stepped down from this role. Accordingly, no external recruitment agency or external advertising were necessary for this appointment.

1 Denotes Chairman status 2 Russell King stepped down from the Audit and Remuneration

Committees with effect from 7 September 20153 Appointed to the Board on 4 January 20164 Directors do not attend meetings of the Remuneration

Committee when the Committee is deciding matters in relation to such Directors’ remuneration

All Directors on the Board at that time attended the AGM.

John Hughes and Steve Chamberlain attended all Board meetings until they stepped down from the Board in September 2015 and January 2016 respectively.

Where a Director is unable to attend a particular meeting, full documentation for the meeting is issued to them, their views sought in advance and briefings are provided subsequent to the meeting, as appropriate.

Russell King

Gordon Watling

Richard Smith3

Sion Kearsey

Nigel Smith

Gordon Stuart

Board (13 meetings)

Audit Committee (3 meetings)

Remuneration Committee (4 meetings)

Nominations Committee (1 meeting)

Non-committee member invited to attend some or all of a meeting (although not any part of a Remuneration Committee meeting at which their own remuneration was decided)

1 122

1

1

4

Board Audit Remuneration Nomination Key

Corporate Governance Report continued

Strategic Report

Governance




The Nominations Committee selected and recommended the appointment of Richard Smith before he joined the Board. This followed a formal, rigorous and transparent recruitment process, with the assistance of Heidrick & Struggles. This process also included all existing Directors meeting Mr Smith prior to the recommendation for his appointment. Other than in relation to Director recruitment, Heidrick & Struggles has no other connection with the Company. Russell King acts as an advisor to Heidrick & Struggles. The decision to select them and the terms on which they were engaged were approved by the other members of the Nominations Committee excluding Russell King.

The Board recognises the benefits of diversity in its membership as in the Group more generally and has a policy that recruitments to the Board should enhance this. The Directors currently on the Board are from a diverse range of backgrounds and provide a wide range of knowledge, skills and experience enriching Board discussions and informing its decision making. Gender diversity in the Group is commented upon under Corporate Social Responsibility on page 27 and the Board supports this approach as part of its own policy.

Remuneration Committee: Nigel Smith, ChairmanThe Remuneration Committee comprises the two Independent Non-Executive Directors and meets at least three times per year, as it did in the period, and otherwise as necessary. It sets the Company’s remuneration strategy and determines, on behalf of the Board and within its agreed remuneration framework, the individual remuneration package and conditions of employment of each of the Executive Directors and the Chairman.

No Director is involved in deciding his own remuneration whether determined by the Committee, or in the case of other Non-Executive Directors, by the Board.

The Directors’ Remuneration Report on pages 38 to 51 includes a more detailed description of the role and activities of the Remuneration Committee.

Performance reviews and Directors’ developmentDuring the year, an evaluation of the Board’s performance, individual Directors and its Committees, and of the performance of the Chairman, was completed by Glowinkowski International. The process for this involved all Directors completing a detailed bespoke questionnaire containing both narrative and psychometric style questions to assess Board performance. The questionnaire focussed on the following areas:

› Strategy – including its review, development, alignment and implementation;

› Communication – including communication within the Board, Board communication with other stakeholders and conflict management;

› Decision making – including guidance from the Board, the data and analysis underpinning Board approvals and Board access to data, knowledge and skills;

› Governance – including developments in corporate governance and a review of governance structures and standards of performance;

› Performance – including a review of the performance metrics of the business and of the Board’s own performance;

› People – including a review of the overall talent strategy and its alignment with Company strategy as well as with diversity and inclusion objectives; and

› Sustainability – including discussion of key sustainability issues, the importance of integration of sustainability into Company strategy and the management of sustainability issues with stakeholders.

The appraisal outputs were used to highlight strengths and weaknesses and were then discussed by the Board. These discussions indicated a number of areas for improved effectiveness and opportunities to develop processes. The Board has agreed specific actions to address these. These include enhancement of the analysis of financial and operational reporting and forecasting in the Group to ensure these are appropriately monitored on an ongoing basis.

Directors have free access to the Company’s officers, management and advisers and to visit the Company’s operations. Every Director has access to appropriate training, as required, subsequent to appointment and it is the responsibility of the Chairman and the Company Secretary to ensure that the Directors are able to update their skills and are provided with the necessary resources to do so.

Re-election of DirectorsAll Directors are intended to be proposed for reappointment at the Company’s forthcoming 2016 Annual General Meeting. The Board considers that each of the Non-Executive Directors makes a valuable contribution to the Group both at and outside Board meetings. Following the results of the Board evaluation, the Chairman confirms that each of the Non-Executive Directors continues to be effective.

Takeover DirectiveDisclosures relating to the Takeover Directive are included in the Directors’ Report on page 55.

Shareholder relationsThe Board is committed to maintaining good communications with existing and potential shareholders based on the mutual understanding of objectives. A comprehensive investor relations programme underpins this commitment. The Chairman, Chief Executive, Chief Financial Officer and Chairman of the Remuneration Committee have regular dialogue with institutional shareholders in order to develop an understanding of their views which is fed back to, and discussed with, the Board and Remuneration Committee. Presentations are given to analysts and investors covering the annual and interim results.

The results announcements and results presentations, together with all information reported to the market via a regulatory information service, press releases and other shareholder information, are published on the Company’s website at www.sepura.com/investors. Additional Shareholder Information is set out on page 114.

All shareholders are encouraged to attend, and have the opportunity to ask questions at, the Company’s Annual General Meetings and at any other times by contacting the Company. The Chairmen of the Audit, Nominations and Remuneration Committees will be available at the Annual General Meeting to answer questions relating to the responsibilities of those Committees.

The Notice convening the 2016 AGM will be issued to shareholders more than 20 working days in advance of the meeting and separate resolutions will be proposed on each substantially separate matter. The results of the proxy votes on each resolution will be published on the Company’s website after the meeting.

Governance


The Audit Committee comprises two independent Non-Executive Directors, in accordance with the provisions of the Code. The Committee meets at least three times a year, together with representatives of the executive and finance management teams and the external auditors as appropriate. It also meets privately with the external auditors on a regular basis.

The Committee:

› is Chaired by Gordon Stuart who has recent, significant and relevant financial experience from his current Chief Financial Officer role external to the Group as well as his past roles in public and private companies;

› is responsible for recommending the appointment, review and remuneration of the external auditors and has authority to approve their engagement for both audit and permitted non-audit services within an agreed framework;

› assesses the independence, objectivity and effectiveness of the external auditors against specific criteria;

› reviews the external audit process and post-audit findings;

› reviews the annual and half-year financial statements, the Group’s accounting policies and procedures and its financial control environment;

› monitors the Group’s system of internal controls, including financial, operational and compliance risk management;

› reviews updates to the Group’s key policies including, during the period, its anti-bribery and related policies and its whistleblowing arrangements, which now include an externally managed hotline; and

› considers whether in its view the Annual Report taken as a whole provides a fair, balanced and understandable assessment of the Group’s position and prospects, the ultimate judgement on which is decided by the Board.

The Audit Committee has set a policy which is intended to maintain the independence and integrity of the Company’s auditors when acting as auditor of the Group’s accounts. The policy governs the provision of audit and non-audit services provided by the auditor and, in summary, requires significant non-audit services other than other assurance services and routine tax compliance services to be subject to a competitive tendering process. The fees paid to the auditor for audit services, audit related services and other non-audit services are set out in Note 9 to the consolidated financial statements.

The Audit Committee

Report of the Audit Committee

The Committee met three times during the year and addressed the following:

Topic What was considered

Financial reporting The Annual Report, Interim Results and related announcements, together with reports from the external auditor. Further details on specific financial reporting risks identified, and their mitigation, are given below.

Internal controls The effectiveness of the Group’s internal control systems and risk management processes in place during the period, as set out on page 37.

Risk register The Group’s risk register, which forms an integral part of the Group’s risk management process, as set out on page 37.

The external auditor The proposed audit plan of the external auditor, together with the results of their review of the Interim Results, the audit of the Annual Report, their proposed fees and the policies in place to ensure the external auditor’s independence.

Going concern The basis of the statement on Going Concern on page 54.

As part of its consideration of the Annual Report the Committee identified the following significant financial reporting issues:

Significant financial reporting issues for 2016

How the committee addressed these issues

Revenue recognition The Committee assessed the Group’s policy in relation to revenue recognition, together with associated risk management and approval processes.

Overdue accounts receivable The Committee reviewed the methodology used to assess overdue accounts for potential indicators of impairment, together with management’s judgement as to the level of provision required against specific receivables.

Capitalisation of development costs The Committee reviewed the methodology used to determine whether specific projects qualified for capitalisation, and when amortisation should commence, together with the basis for subsequent reviews of capitalised development costs for potential impairment and useful economic lives.

Acquisition accounting The Committee reviewed the methodology used to assess the fair value of the assets and liabilities acquired with Teltronic.

Strategic Report

Governance




The non-audit fees during the period related primarily to work undertaken in connection with the acquisition of Teltronic, together with the associated financing, and the recently completed Capital Raise. The Audit Committee invited other firms to tender for those components of this work which did not need to be undertaken by the Company’s auditor, but determined that the auditors were best placed to provide the relevant resources to deliver the necessary services in the timescales required. In reaching this conclusion the Audit Committee ensured that the Company’s auditor was able to safeguard its independence and objectivity through the use of resources separate from the audit team.

Non-audit services over £5,000 are subject to approval by the Audit Committee.

PricewaterhouseCoopers LLP has served as the Company’s auditor for the last 14 years during the last 9 of which the Company’s Ordinary Shares have been traded on the Official List of the London Stock Exchange. The Company recognises the new requirements for the tendering of audits and undertook an audit tender during the year. PricewaterhouseCoopers LLP was reappointed as the Company’s auditor following an assessment of the audit methodology, experience and resources of the five audit firms invited to tender. The FRC selected Sepura plc’s 2015 audit file for review by their Audit Quality Review (“AQR”) Team. The Committee discussed the findings of the review with PricewaterhouseCoopers LLP, who considered all of the matters raised in the AQR report in the planning and execution of the 2016 audit. The Audit Committee is authorised to engage the services of external advisers, as it deems necessary, at the Company’s expense in order to carry out its functions.

Internal controls and risk management environmentThe Board is ultimately responsible for the operation of an effective system of internal control and risk management appropriate to the business. Of course, any control system can provide only reasonable and not absolute assurance against material misstatement or loss. The Company has complied with the FRC’s Internal Control Guidance for Directors on the Code throughout the period and up to the date on which these financial statements were approved.

Day-to-day operating and financial responsibility rests with senior management and performance is closely monitored through the Operations Management Committee, which meets on a weekly basis.

The following key elements comprise the present internal control environment which has been designed to identify, evaluate and manage, rather than eliminate, the risks faced by the Group in seeking to achieve its business objectives and ensure accurate and timely reporting of financial data for the Company and the Group.

The process is embedded in the Group through various operational and financial control and procedure statements:

› an appropriate organisational structure with clear lines of responsibility;

› a comprehensive annual strategic and business planning process;

› systems of control procedures and delegated authorities which operate within defined guidelines and approval limits for capital and operating expenditure and other key business transactions and decisions;

› a financial control, budgeting and rolling forecast system, which includes regular monitoring, variance analysis, key performance indicator reviews and risk and opportunity assessments at Board level;

› procedures by which Sepura’s consolidated financial statements are prepared, which are monitored and maintained through the use of internal control frameworks addressing key financial reporting risks arising from changes in the business or accounting standards;

› an experienced and commercially focused legal function that supports the Group’s bid and contracts’ management process;

› established policies and procedures setting out expected standards of integrity and ethical standards which reinforce the need for all employees to adhere to all legal and regulatory requirements;

› an experienced and qualified finance function which regularly assesses the possible financial impact of the risks facing the Group; and

› an ongoing risk management programme, including a comprehensive disaster recovery and business interruption plan.

The Audit Committee considers annually whether there is any need for a separate internal audit activity. The committee has agreed that this will be considered further during the current year.

A Risk Committee, comprising the senior management team, meets on a regular basis. The Company has a robust risk management process that follows a sequence of risk identification, assessment of probability and impact, and assigns an owner to manage mitigation activities. A register is kept of all corporate risks and is monitored by the Risk Committee. The Risk Committee, the Audit Committee and the Board together ensure that the risk management process is operating effectively and make enhancements to these where determined to be appropriate.

This approach to risk management helps to facilitate top-down and bottom-up perspectives across key business risks within the organisation. The corporate risk register is presented to, and reviewed by, the Audit Committee regularly.

The internal control process described above has been in place throughout the period and up to the date of approval of this Annual Report.

The Company’s Code of Business Conduct and Ethics, which was reviewed and refreshed during the year, has been re-communicated across the Group, including employees of Teltronic, together with the Whistleblowing Policy which provides a mechanism through which employees can raise public interest issues on a confidential basis. These policies form an integral part of the Company’s internal control policy. All employees received specific training on anti-bribery measures during the year.

Review of effectivenessThe Audit Committee, on behalf of the Board, has reviewed the effectiveness of the internal control systems and risk management processes in place during the period. Following the acquisition of Teltronic the Audit Committee identified a need for additional processes and controls to enhance the Group’s forecasting and cash management processes to ensure that they were appropriate and effective for the enlarged Group. More recently, further enhancements have been agreed to the analysis of reporting and forecasting. These have now been implemented and the Committee is satisfied there are no weaknesses that could be considered significant. This judgement was reached after reviews of reports received from both management and the external auditor.

Gordon StuartChairman of the Audit Committee29 July 2016

Governance


The Remuneration Policy Report, which was approved at the Company’s 2014 AGM on 30 July 2014, has been included for information only given that no changes are proposed. This Annual Statement and the Annual Report on Remuneration will be subject to an advisory vote at the 2016 AGM.

Remuneration policy and reward for FY16The Company performance during FY16 has been disappointing, despite the successful acquisition of Teltronic during the year, and no payment is due under the terms of the FY16 Short-Term Incentive Plan (“STIP”) other than to the CFO. For Richard Smith, given that he commenced with the Group in January 2016 and given the circumstances during the last quarter of the year, targets based on establishing cash/net debt forecasts and a recovery plan were set and met. Further details of the STIP targets are given on page 48.

The FY16 results in respect of adjusted EBITDA also form the basis for one third of the FY14 Long-Term Incentive Plan (“LTIP”) granted in July 2013 and while performance has shown significant improvement over the three year performance measurement period the Group only met the minimum adjusted EBITDA target of €16.5 million and hence vesting for this component will be 10% of the maximum for this part of the award. Gordon Watling is foregoing his entitlement to this. The remaining components of the LTIP are based on absolute share price performance and relative total shareholder returns and as such, there will be no vesting in relation to these in July 2016 when the scheme performance period for these awards ends.

Remuneration for FY17Going forward, internal forecasts indicate a return to growth and a recovery in levels of profitability. However, the Remuneration Committee recognises the impact of recent performance on returns for our shareholders and, as a result, has decided to implement a number of changes to the remuneration arrangements. These are as follows:

› Following the Teltronic acquisition in 2015, Gordon Watling’s salary was increased from £330,000 to £420,000 from July 2015. In light of the fall in the Company’s share price, Gordon Watling has requested that he be paid a reduced salary of £350,000 for the foreseeable future. This reduction would also apply to the calculation of his pension, bonus and LTIP grants and will remain in place until the Committee determines that it would be appropriate to revert to his contractual salary level, which may be done in stages.

› Richard Smith joined in January 2016 as CFO. His salary is being increased by 5% from £300,000 to £315,000 reflecting his excellent performance and to ensure his ongoing retention.

› The maximum STIP potentials for the CEO and CFO are 120% and 100% of salary, respectively, with 50% of any bonus deferred in shares for two years (following the previous increases in the level of deferral from 25%). In 2015/16, Gordon Watling’s STIP was based solely on adjusted operating profit. The STIP for FY17 will be based on adjusted EBITDA and Net Debt, with each accounting for 50% of the total opportunity. These measures are critical KPIs for the business going forward and part of the strategy now being pursued by the Group. The FY17 targets for each measure have been set so that significant bonuses will only be payable for stretch performance compared to market consensus. The EBITDA targets will require very significant growth from the levels achieved in FY16, with over 50% growth required to meet threshold. Each measure will also be subject to a discretionary underpin based on a minimum level of performance against the other measure having been achieved.

Annual Statement

Directors’ Remuneration Report

Our remuneration policy is appropriately aligned with the strategic goals of the Group.

Dear ShareholderThis report, which has been prepared by the Remuneration Committee (the “Committee”) and approved by the Board for the financial year ended 1 April 2016, sets out the remuneration policy for the Directors of the Company. In accordance with the shareholder voting and disclosure requirements published by the Department for Business, Innovation and Skills in June 2013, this report has been divided into three sections:

› This Annual Statement, which demonstrates how performance has linked to reward and summarises the decisions made by the Committee in the year;

› The Remuneration Policy Report, which sets out the Group’s policy on the remuneration of Executive and Non-Executive Directors which, following shareholder approval, became effective from the 2014 AGM; and

› The Annual Report on Remuneration, which discloses details of the Remuneration Committee, how the remuneration policy will operate for the period ending 31 March 2017 (“FY17”) and how the policy was implemented in the period ended 1 April 2016 (“FY16”).

Strategic Report

Governance




› Gordon Watling’s FY17 LTIP award will be reduced from 150% to 100% of salary and Richard Smith will receive a grant of 120% of salary. The decision to make an award at this level to Richard Smith is intended to ensure that he is appropriately incentivised and retained within the business. It also recognises the fact that he joined the Company only very shortly before the issues earlier this year had arisen and that he has played a key role in dealing with these and securing the recent capital raise.

› Historically, LTIP awards have been subject to three equally weighted measures: absolute share price growth, relative total shareholder return vs the FTSE Small Cap and growth in adjusted EBITDA. For the 2016 awards, we intend to simplify our approach and bring it more into line with market practice by reducing the number of measures to two: relative TSR vs the FTSE Small Cap and adjusted EPS. Each target will be measured over a period of three years. These measures are key indicators of value created for shareholders and profitable growth. The Committee was also concerned that the continued use of an absolute share price metric may be inappropriate given the volatility of the current share price, and the difficulty in setting a target that is appropriately stretching and can be linked to management effectiveness: leading either to an undeserved windfall to executives or targets that do not provide an effective incentive.

› The targets for LTIP awards granted in 2016 will be made more demanding by reducing the percentage vesting at threshold from 10% of the total award to 0% and increasing the stretch target for the relative TSR element from the upper quartile to the upper decile. The EPS targets are intended to be challenging in light of current consensus and internal forecasts for the next three years and are summarised in the table above.

› The other elements of the package are in line with the market for a company of Sepura’s size and will remain unchanged.

Shareholder engagementThe Committee continues to take an active interest in shareholder views on our executive remuneration policy and is mindful of the views of shareholders and other stakeholders. This is reflected in our voting result at the 2015 AGM, which was over 92% in favour of the Directors’ Remuneration Report resolution. It is also reflected in the fact that we again consulted with shareholders, representing well in excess of 50% of the Company’s issued share capital, on remuneration arrangements for this year. In conclusion, we intend that implementation of our remuneration policy for FY17 onwards will be appropriately aligned with the strategic goals of the Group in supporting long-term success and delivering sustained shareholder value.

Nigel SmithChairman of the Remuneration Committee29 July 2016

LTIP targets for FY17 Awards Relative TSR vs the

constituents of the FTSE Small Cap (50% of award)

Adjusted EPS in year ending March 2019

(50% of award)

Performance% of element

vesting Performance% of element

vesting

Below threshold Below median –Less than 6.0 cents –

Threshold Median 0% 6.0 cents 0%Maximum Upper decile 100% 7.25 cents 100%

A straight line would apply for payouts between threshold and the maximum performance levels.

Governance


Consequently, the Committee structures executive remuneration in two distinct parts:

(i) fixed remuneration comprising base salary, benefits and pension to recognise day to day responsibilities and support the internal control and risk management elements of the Group strategy; and

(ii) variable performance-related remuneration provided through participation in the annual bonus and long-term incentive plan to provide motivation for achieving the Group’s shorter and longer-term aims.

The Committee aims to ensure that the incentive structure for Executive Directors and senior management does not raise environmental, social or governance risks by inadvertently motivating irresponsible behaviour. More generally, with regard to the overall remuneration structure, the Committee also ensures that the remuneration policy does not encourage inappropriate operational risk-taking and is aligned with the Company’s risk policies and systems. The Group’s remuneration policy is reviewed regularly to ensure that it remains appropriate and recognises any key developments in remuneration practice and corporate governance.

Remuneration scenarios for Executive Directors for FY17The charts below, which have been updated for 2017, show how the composition of the Executive Directors’ remuneration packages varies at three performance levels, namely, at minimum (i.e. fixed pay), target and maximum levels, under the policy set out in the charts below.

The charts below are based on:

› salary levels effective 1 August 2016 › an approximated annual value of benefits

for FY17 › an annualised pension contribution

(as a % of salary) › a 120% of salary maximum annual bonus

for the Chief Executive Officer and 100% of salary maximum annual bonus for the Chief Financial Officer (with target assumed to be 50% of the max)

› a 100% of salary award under the Long Term Incentive Plan for the CEO, and 120% for the CFO (with target assumed to be 50% of the maximum).

› No share price appreciation in respect of the share awards has been assumed in line with the legislation.

Remuneration Policy ReportThis part of the Directors’ Remuneration Report sets out the remuneration policy for the Group which has operated and became formally effective from the Company’s 2014 AGM. No changes are being proposed to this policy framework for FY17 although certain of the disclosures in this section of the report that do not affect the policy itself have been updated to reflect the latest available information.

Policy overviewThe Committee’s policy for the remuneration of the Executive Directors and senior management team members is based on the following three key principles:

1. To provide remuneration in a form and amount that is sufficient to attract, retain and motivate a senior management team of the calibre and experience required to run the Company successfully;

2. To ensure that there is a strong link between reward and corporate and individual performance. To this end, it has been the Committee’s policy to set fixed pay levels broadly around market levels, but to provide the opportunity to earn upper quartile rewards for achieving and exceeding the Group’s business plan through variable performance-linked remuneration; and

3. To provide alignment with shareholders’ interests by ensuring that a significant proportion of the remuneration package is delivered in the form of shares (via the compulsory deferral of a portion of any bonus earned and participation in the Long-Term Incentive Plan) and by encouraging the Executive Directors to build up a meaningful holding of the Company’s shares over time through the operation of a formal shareholding guideline.

Directors’ Remuneration Report continued

MaximumOn-targetMinimumMaximumOn-targetMinimum

Chief Financial OfficerChief Executive Officer

£’000 LTIP award

Bonus

Basic salary, benefitsand pension

0

200

400

600

800

1,000

1,200

100%£386

£771

£348

£694

£1,156

£1,041

100%

23%

27%

50% 50%

23%

27%

30%

36%

33% 33%

30%

36%

Strategic Report

Governance




Summary Director policy tableThe table below summarises the remuneration policy for Directors which, following shareholder approval, became effective from the 2014 AGM:

Purpose and Link to Strategy

Operation Maximum Performance Targets

Salary Reflects the role, responsibilities and experience of the individual.

Provides an appropriate level of basic fixed income avoiding excessive risk arising from over reliance on variable income.

Normally reviewed annually, effective 1 July.

Normally paid in cash on a monthly basis.

Comparisons against companies with similar characteristics and in similar sectors are taken into account.

There is no prescribed maximum or maximum annual base salary increase.

The Committee is guided by the general increase for the broader employee population but may decide to award a lower increase or a higher increase for Executive Directors to recognise, for example, an increase in the scale, scope or responsibility of the role and/or to take account relevant market movements.

N/A

Benefits Provides market consistent benefits.

Supports the individual and their family during periods of ill health or death.

Benefits currently comprised of life assurance and private medical cover.

Other benefits may be provided where appropriate.

N/A N/A

Pension Provides competitive retirement benefits.

Defined contribution and/or cash supplement.

Up to 10% of basic salary p.a. N/A

Bonus Incentivises delivery of Group and personal/strategic annual goals.

Maximum bonus only payable for achieving demanding targets.

Non-pensionable.

Part of the bonus may be payable in deferred shares which normally vest after 2 years, subject to continued employment.

Dividend equivalents may be payable (in cash or shares) on any deferred bonus shares.

Up to 120% of salary p.a. Group profit-related target will apply for the majority (if not all).

Personal and/or strategic targets may be applied for a minority.

One year performance period.

Clawback provisions apply.

Governance


Purpose and Link to Strategy

Operation Maximum Performance Targets

Long-Term Incentive Plan(2), (3)

Aligned to main strategic objectives of delivering long-term value creation.

Encourages co-investment.

Aligns Executive Directors’ interests with those of shareholders.

Retention.

Grant policy normally based on the annual grant of share awards which normally vest subject to continued service and performance targets.

The Committee reviews the quantum of awards annually and monitors the continuing suitability of the performance measures.

150% of salary p.a. maximum limit.

300% of salary exceptional limit for 2014/15, 200% of salary exceptional limit thereafter.

Participants may benefit from the value of dividends paid over the vesting period to the extent that awards vest. This benefit is delivered in the form of cash or additional shares at the time that awards vest.

Performance normally measured over three years although longer performance periods may apply.

Financial measures (e.g. EBITDA) and/or relative share price related targets (e.g. TSR).

No more than 25% may vest at threshold performance increasing to 100% vesting at maximum.

Clawback provisions apply.

All Employee Share Plans

Encourages employee/shareholder alignment and long-term shareholdings in the Company.

Invitations made by the Committee under the Sharesave (or any other all employee share plan introduced in the future).

As per prevailing HMRC limits.

N/A

Share ownership guidelines

Provides alignment of interests between Executive Directors and shareholders.

Executive Directors are required to build (over time) and maintain a shareholding equivalent to at least one year’s base salary.

At least 100% of salary. N/A

Non-Executive Directors

Provides fees reflecting time commitments and responsibilities, in line with those provided by similarly sized companies.

Normally based on a cash fee.

Normally paid on a monthly basis.

Fees are reviewed periodically.

There is no prescribed maximum fee increase.

The Board, excluding Non-Executive Directors, is guided by market rates, time commitments and responsibility levels.

N/A

Notes:(1) The choice of the performance metrics applicable to the annual bonus scheme reflect the Committee’s belief that any incentive compensation should be appropriately challenging and tied to both the delivery

of profit growth and personal and/or strategic objectives. The Remuneration Committee may in its sole discretion at any time make adjustments to the targets for factors not taken into account at the time they were set, such as subsequent acquisitions or other exceptional items.

(2) The performance conditions applicable to the FY17 LTIP were selected by the Remuneration Committee on the basis that they reward the delivery of long-term returns to shareholders and the Group’s financial performance and are consistent with the Company’s objective of delivering superior levels of long-term value to shareholders. Performance conditions in future years may differ from those in FY17 if considered appropriate by the Committee.

(3) The Committee operates the LTIP and its all employee share plan in accordance with the plan rules, the Listing Rules and HMRC legislation and the Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plan.

(4) Consistent with HMRC legislation, the all-employee Sharesave scheme does not have performance conditions.

(5) For the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority is given to the Company to honour any commitments entered into with current or former Directors (such as the payment of the prior year’s annual bonus or the vesting/exercise of share awards granted in the past). Details of any payments to former Directors will be set out in the Annual Report on Remuneration as they arise.


Remuneration Policy Report continued

Strategic Report

Governance




How employees’ pay is taken into accountPay and conditions elsewhere in the Group were considered when finalising the current policy for Executive Directors and continue to be considered in relation to implementation of this policy. In order to do so, the Committee regularly interacts with the CEO and other senior executives.

How the Executive Directors’ remuneration policy relates to the wider GroupThe remuneration policy described above provides an overview of the structure that operates for the most senior executives in the Group. Employees below executive level have a lower proportion of their total remuneration made up of incentive-based remuneration, with remuneration driven by market comparators and the impact of the role of the employee in question. Long-term incentives are reserved for those judged as having the greatest potential to influence the Group’s earnings growth and share price performance.

How shareholders’ views are taken into accountThe Committee continues to take an active interest in shareholder views on our executive remuneration policy and is mindful of the concerns of shareholders and other stakeholders. This is reflected in our voting result at the 2015 AGM, at which over 92% of the votes cast were in favour of the Directors’ Remuneration Report resolution. The Committee consulted with institutional and other substantial investors in the Company representing in excess of 50% of the Company’s share capital on the current policy and proposals for FY17. The policy presented in this report reflects the results of that consultation. To the extent that there are any changes to the remuneration policy or any major changes to the way the policy is implemented, our major shareholders will be consulted where appropriate.

Service contracts

Executive DirectorEffective date of

service agreementNotice period from Company

(from employee)

Gordon Watling 1 October 2008 12 months (2015: 12 months)Richard Smith 4 January 2016 6 months

Service contracts

Non-Executive Director

Effective date of letter of appointment

Commencement of current three

year term

Unexpired term (months) from

1 April 2016

Russell King 30 July 2014 30 July 2014 16Sion Kearsey 01 July 2007 01 July 2013 3Nigel Smith 22 July 2013 22 July 2013 4Gordon Stuart 22 July 2013 22 July 2013 4

Non-Executive Directors’ letters of appointmentEach of the Chairman and Non-Executive Directors has a letter of appointment from the Company (rather than a contract of service) setting out the terms on which the appointment is made. The letter of appointment of the Chairman may be terminated on three months’ notice by the Chairman or six months’ notice by the Company. The letters of appointment of the independent Non-Executive Directors may be terminated by either party on one-months’ notice.

The letter of appointment of the non-independent Non-Executive Director terminates automatically in line with the Company’s articles or on three months’ notice from the Director. The Company may elect to make a payment in lieu of any unexpired portion of notice period for earlier termination. The letters of appointment are available for inspection at the Company’s registered office during normal business hours. Relevant appointment letter and term dates are set out in the table below.

Governance


Approach to recruitment and promotionsThe remuneration package for a new Executive Director would be set in accordance with the terms of the Company’s prevailing approved remuneration policy at the time of appointment and take into account the skills and experience of the individual, the market rate for a candidate of that experience and the importance of securing the relevant individual.

Salary would be provided at such a level as required to attract the most appropriate candidate and may be set initially at a below mid-market level on the basis that it may progress towards the mid-market level once expertise and performance has been proven and sustained.

The annual bonus potential would be limited to 120% of salary and grants under the LTIP would be limited to 150% of salary (300% of salary in exceptional circumstances). In addition, the Committee may offer additional cash and/or share-based elements to replace deferred or incentive pay forfeited by an executive leaving a previous employer. It would seek to ensure, where possible, that these awards would be consistent with awards forfeited in terms of vesting periods, expected value and performance conditions.

For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its original terms.

For external and internal appointments, the Committee may agree that the Company will meet certain relocation and/or incidental expenses as appropriate.

Fee structure and quantum for Non-Executive Director appointments will be based on the prevailing Non-Executive Director fee policy.

Approach to leaversNo Executive Director has the benefit of provisions in his or her service contract for the payment of pre-determined compensation in the event of termination of employment or a change of control. It has been the Committee’s general policy that the service contracts of Executive Directors (none of which are for a fixed term) should provide for termination of employment by giving notice or by making a payment of an amount in lieu of notice (equal to base salary, pension and bonus for any completed year in respect of Gordon Watling’s contract and base salary in respect of Richard Smith’s contract). In determining amounts payable on termination, the Committee also will also consider the Executive Director’s duty to mitigate his loss and amounts may be payable in instalments.

In respect of Gordon Watling, if the Company terminates without cause on or after the end of the third quarter of the financial year, the executive is entitled to a pro-rata proportion of the bonus paid in cash at the normal payment date. In respect of Richard Smith, an annual bonus may be payable with respect to the period of the financial year served although it will be pro-rated for time and normally paid in cash at the normal payment date.

Any share-based entitlements granted to an Executive Director under the Company’s share plans will be determined based on the relevant plan rules. However, in certain prescribed circumstances such as ill-health, injury, disability, retirement, redundancy, sale of employing company or business or other circumstances at the discretion of the Committee, “good leaver” status may be applied. For good leavers:

› Deferred share bonus awards will normally vest at cessation; and

› LTIP awards will normally vest at the date of cessation, subject to the satisfaction of the relevant performance conditions at that time and reduced pro-rata to reflect the proportion of the vesting period actually served. However, other than in the case of death where LTIP awards vest on the date of death subject to performance and time pro-rating, the Remuneration Committee has discretion to determine that awards vest at some other date (e.g. the normal vesting date) and/or disapply time pro-rating.

Outside interests Executive Directors may accept external Non-Executive Director appointments with prior approval of the Board and provided that such appointments do not prejudice their ability to fulfil their executive duties with the Company. Whether an Executive Director is entitled to retain any fees relating to such an appointment will be considered on a case-by-case basis. No Non-Executive Directorships were held by the Executive Directors during the year.


Remuneration Policy Report continued

Strategic Report

Governance




Base salaryThe base salary for each Executive Director is determined by the Remuneration Committee taking into account the role, responsibilities, performance and experience of the individual. When setting base salary levels the Remuneration Committee takes into account the performance of the individual, the Company’s particular circumstances and market data on salary levels for similar positions in comparable companies (although the latter is used with caution given the risk of creating an upwards ratchet in pay levels). The current annual salaries for the Chief Executive Officer and Chief Financial Officer, effective from 1 August of each year, are shown in the table above.

The base salary level for the Chief Executive Officer was reviewed last year and again this year, as detailed and explained in the Annual Statement on page 38 in both cases following consultation with shareholders. Richard Smith joined in January 2016 as CFO. This salary is being increased by 5% from £300,000 to £315,000 reflecting his excellent performance and to ensure his ongoing retention.

Benefits in kind and pensionNon-pension benefits will continue to comprise life assurance and private medical insurance cover. The current range of benefits and their value are considered to be broadly in line with those provided to Executive Directors in other similarly sized listed companies and they will continue to be reviewed and monitored annually.

Executive Directors will continue to be eligible to participate in a defined contribution group personal pension plan into which the Company contributes on behalf of participating individuals. Alternatively, an equivalent salary supplement may be provided. The pension contributions for Gordon Watling and Richard Smith for the coming year are currently anticipated to remain at 10% of salary. None of the Executive Directors has any entitlement to participate in a defined benefits pension scheme.

Annual Report on RemunerationImplementation of the Remuneration Policy for FY17

FY17 FY16 % Change

Gordon Watling Chief Executive Officer £350,000 £420,000 -17Richard Smith Chief Financial Officer £315,000 £300,000 5

Governance


Performance-related annual bonusThe annual bonus plan is designed to drive and reward the short-term operating performance of the Group which should, in turn, lead to the generation of sustained long-term returns to shareholders. Bonuses are not pensionable.

For FY17, the targets for the Executive Directors under the annual bonus will be linked to the Group’s financial performance. Financial performance will be measured by reference to demanding profit targets and net debt targets. The maximum bonus potential for the Executive Directors for FY17 will continue to be 120% of base salary for the Chief Executive Officer and 100% of base salary for the Chief Financial Officer.

To ensure a further alignment of interest between Executive Directors and shareholders, any bonus paid will, at the discretion of the Committee, be settled by a combination of cash (50%) and deferred Sepura plc shares (50%). The deferred shares (together with any dividends received thereon) will normally vest after two years subject to continued employment.

Long-term incentivesThe Sepura Long-Term Incentive Plan continues to be the Group’s primary long-term incentive arrangement. It is envisaged that the FY17 awards granted to Executive Directors will be 100% of salary for the CEO and 120% of salary for the CFO and are intended to be subject to the following performance conditions measured over three years from grant or, in the case of adjusted EPS, three financial years ending 31 March 2019:

(a) One half relative TSR as measured over the 3 years from grant – 0% of this part of an award vests for median TSR increasing pro-rata to 100% of this part of an award vesting for upper decile TSR of the FTSE SmallCap (excluding investment trusts) at grant. No vesting will take place for this part of an award for a TSR below median; and

(b) One half adjusted EPS growth as measured from FY16 to FY19. None of this part of an award vests for an adjusted EPS in the year ending March 2019, of less than 6 cents, increasing pro rata to full vesting for this part of an award for an adjusted EPS of 7.25 cents.

Consideration by the Directors of matters relating to Directors’ remunerationAll decisions with regard to the remuneration of the Executive Directors are taken by the Remuneration Committee. This committee comprises Nigel Smith (Chairman) and Gordon Stuart. The Committee is advised by its own remuneration advisor, New Bridge Street (part of Aon plc), who have the requisite experience, resources and independence to advise the committee. New Bridge Street is a signatory to the Remuneration Consultants’ Group Code of Conduct for UK Remuneration Advisors and has no other relationship with the Company or its Executive Directors.

New Bridge Street’s fees for the year totalled €39,000 (2015: €20,000) for services principally relating to advice on the Company’s share schemes, executive remuneration and the Directors’ Remuneration Report.

Non-Executive Directors

FY17 £’000

FY16 £’000

Chairman 140 145Non-Executive Director fee 40 40Committee Chair fee 5 5


Annual Report on Remuneration continued

Strategic Report

Governance




Tables for Annual Report on RemunerationAudited informationTotal remuneration received by DirectorsThe table below sets out the individual remuneration of the Directors who served during the period ended 1 April 2016, together with equivalent sums received in the prior year.

£’000Salary and

feesTaxable benefits

Annual bonus

Long-term incentives Pension Total

Executive DirectorsGordon Watling2016 398 – – 665 42 1,1052015 323 – 40 833 32 1,228Richard Smith1

2016 75 – 75 – 8 1582015 – – – – – –

Non-Executive DirectorsRussell King2

2016 100 – – – – 1002015 27 – – – – 27Sion Kearsey2016 40 – – – – 402015 40 – – – – 40Gordon Stuart2016 45 – – – – 452015 45 – – – – 45Nigel Smith2016 45 – – – – 452015 45 – – – – 45

Former DirectorsJohn Hughes3

2016 60 – – – – 602015 145 – – – – 145Steve Chamberlain3

2016 143 – – 392 14 5492015 188 – 19 – 19 226

1 Appointed on 4 January 2016

2 Appointed Chairman on 7 September 2015

3 John Hughes and Steve Chamberlain retired on 7 September 2015 and 4 January 2016 respectively

Governance


LTIP performance

The LTIP value for Mr Watling and Mr Chamberlain in respect of FY16 is based on the LTIP award granted in July 2012 which vested during the year under review following the completion of the performance period to which it related as follows:

Year of grant Metric

TargetActual

outturn

VestedNumber of

shares vested

Value (£)1Threshold Stretch

Gordon WatlingFY13 Absolute share price growth 90p 125p > 125p 100% 204,701 318,719FY13 TSR Median

performanceUpper quartile


performance99% 201,999 314,512

FY13 Adjusted EBITDA for the year ended 27 March 2015

€15.3m

€19.4m

€17.0m

10%

20,470

31,872

70% 427,170 665,103

Steve ChamberlainFY13 Absolute share price growth 90p 125p > 125p 100% 120,703 187,935FY13 TSR Median



performance99% 119,110 185,454

FY13 Adjusted EBITDA for the year ended 27 March 2015

€15.3m

€19.4m

€17.0m

10%

12,070

18,793

70% 251,883 392,182

1 The share price on the day of vesting was £1.557

The expected outturns for the LTIP awards granted in July 2013, where the performance period expires shortly after the period under review, are as follows:

Year of grant Metric

TargetExpected

outturnExpected

vestingThreshold Stretch

FY14 Absolute share price growth 123p 161p – 0%FY14 TSR Median


performanceLower quartile

performance0%

FY14 Adjusted EBITDA for the year ended 1 April 2016

€16.5m

€21.4m

€16.5m

10%



Annual bonus for FY16The annual bonuses awarded to Executive Directors in respect of FY16 are set out below:

Total Awarded Award payable

Maximum (% of salary) Actual (% of salary) In cash (% of salary) In shares (% of salary)

Gordon Watling1 120% – – –Richard Smith2 100% 100% 100% –

1 Gordon Watling’s FY16 STIP was payable subject to the achievement of challenging adjusted operating profit targets. Threshold performance at which 17% of the potential would have been paid was for growth of over the prior year of 17% and the maximum would have been paid for growth of 31%.

2 Richard Smith was contracted to join the Company in July 2015 with his start date subject to a notice period determined by his departure from his previous employer. He commenced his employment in January 2016 at the start of the fourth quarter of the Company’s financial year. Due to his commencement when three quarters of the Company’s financial year had already been completed, the Committee determined that it should use its discretion such that his targets under the STIP should relate to the period after he had commenced employment with the Company. The targets set for Mr Smith related to the establishment of phased short- and medium-term cash/net debt forecasts and a detailed recovery plan for the Company. These targets were fully achieved and, in approving his bonus, the Committee noted the importance of achieving these goals to the successful bank financing restructure and, ultimately, the equity fundraising in which his performance was deemed to be excellent. As a consequence, the Committee and Board agreed that payment of a bonus of 100% of salary pro-rated for the period of his employment in FY16 and paid in cash was fully appropriate.

Strategic Report

Governance




Share awards granted in the yearThe following share awards were granted to Directors and former Directors during FY16:

Type of awardBasis of

award granted

Face value of award

(£’000)

Share price used to

determine awards

Number of shares granted

% of face value that would vest

at threshold performance

Vesting determined by

performance over

Gordon Watling LTIP 150% of salary 495 £1.56 316,698 10% 3 yearsDeferred

bonus shares40% of the

annual bonus

27

£1.60

16,816

N/A

2 yearsRichard Smith LTIP 120% of salary 360 £1.83 196,990 10% 3 yearsSteve Chamberlain1 Deferred

bonus shares40% of the

annual bonus

13

£1.60

8,068

N/A

2 years

1 Steve Chamberlain stepped down from the Board on 4 January 2016

The performance targets attached to the FY16 LTIP awards were as follows:

(a) One third absolute share price growth measured over the three years from grant (with testing based on the 90 day average share price prior to grant and the 90 day average ending prior to the third anniversary of grant). 10% of this part of an award vests for an average share price growth of 5% compound p.a. increasing pro-rata to 55% of this part of an award vesting for a share price growth of 10% compound p.a. increasing pro-rata to 100% of this part of an award vesting for a share price of 15% compound p.a. or more. No vesting will take place for this part of an award for a share price growth less than 5% compound p.a.

(b) One third relative TSR as measured over the 3 years from grant – 10% of this part of an award vests for median TSR increasing pro-rata to 100% of this part of an award vesting for upper quartile TSR of the FTSE SmallCap (excluding investment trusts) at grant. No vesting will take place for this part of an award for a TSR below median; and

(c) One third adjusted EBITDA growth as measured from FY15 to FY18. 10% of this part of an award vests for an adjusted EBITDA growth of 10% compound p.a., 25% of this part of an award vests for adjusted EBITDA growth of 15% compound p.a. increasing pro rata to full vesting for this part of an award for an adjusted EBITDA growth of 20% compound p.a.. No vesting will take place for this part of an award for an adjusted EBITDA growth less than 10% compound p.a.

Outstanding LTIP AwardsDetails of outstanding LTIP awards granted to Directors are set out below:

Director Scheme Grant dateExercise

price

No. of shares at

27 March 2015

Granted during

the year

Vested during

the year

Lapsed during

the year

No. of shares at

1 April 2016

End of performance

periodExercise

period

Gordon Watling

FY13 24 July 2012 – 614,103 – (427,170) (186,933) – – –

FY14 10 June 2013 – 383,260 – – (114,978) 268,282 31 July 2016 –FY15 17 June 2014 – 624,782 – – – 624,782 50% 16 June

2017 50% 16 June

2018

–

FY16 13 August 2015 – – 316,698 – – 316,698 12 August 2018 ––

Richard Smith FY16 4 January 2016 – – 196,990 – – 196,990 12 August 2018 –Steve Chamberlain1

FY13

24 July 2012

–

362,109

–

(251,883)

(110,226)

–

–

–

FY14 10 June 2013 – 225,991 – – (67,797) 158,194 31 July 2016 –FY15 17 June 2014 – 188,476 – – (188,476) – 16 June 2017 –

1 Steve Chamberlain stepped down from the Board on 4 January 2016, whereupon the LTIP award granted on 17 June 2014 lapsed

Performance targets are disclosed above or, in respect of earlier awards, in prior Remuneration Reports.

Governance


Directors’ interestsDirectors’ interests in the shares of the Company at the end of the period and the date of this report were as follows:

Director

Beneficially owned at

1 April 2016

Beneficially owned at

the date of this report

Outstanding LTIP awards

Outstanding deferred

share awards

Outstanding share awards

under all employee

share plans

Shareholding as a % of salary

at year end1

Gordon Watling 303,9542 609,2243 1,209,762 103,032 40,382 151%Richard Smith – – 196,990 – – –4

Russell King 20,000 34,286 – – – N/ASion Kearsey 8,000,000 10,433,657 – – – N/AGordon Stuart 16,000 21,333 – – – N/ANigel Smith 21,333 28,444 – – – N/A

1 Based on the share price and base salary levels as at 1 April 2016

2 Included in Mr Watling’s holding are 200,197 shares held by his wife

3 Included in Mr Watling’s holding are 266,929 shares held by this wife

4 Richard Smith joined the Board on 4 January 2016 and will be increasing his shareholding in accordance with the Company’s shareholding criteria

Save as disclosed, none of the Directors nor any person connected with a Director has any interest in the shares or loan capital of the company or any subsidiary understandings.

Performance Graph and CEO RemunerationThe following chart presents the Company’s TSR over the past seven years compared to the FTSE SmallCap index excluding investment trusts.

The CEO’s total remuneration over the same period has been as follows:

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Total remuneration (£’000s) 257 245 320 559 533 1,242 1,105Annual bonus (%) 5% 0% 0% 67% 71% 20% –%LTIP vesting (%) 0% 0% 0% 0% 0% 67% 70%

800

700

600

400

200

500

300

100

31 March 2009 31 March 2010 1 April 2011 30 March 2012 29 March 2013 28 March 2014 27 March 2015 1 April 2016

Sepura FTSE Small Cap



Strategic Report

Governance




Changes in CEO remunerationThe CEO received an increase in salary and benefits as described on page 47 above. This compares to other employees as follows:

% change

Chief Executive Salary1 20%Benefits 31%

Bonus -100%

All employees Salary 2%Benefits 2%

Bonus -100%

1 Based on actual remuneration received for the financial year; salary rises are effective part-way through each financial year. Gordon Watling’s salary has been reduced to £350,000 since year-end

Relative importance of spend on payOverall staff costs increased by 58% during FY16, through a combination of pay reviews, additional headcount through both recruitment and the acquisition of Teltronic, and the impacts of foreign exchange. This increase in overall staff costs can be seen in the context of the change in other relevant metrics as shown below:

FY16 €m

FY15 €m % change

Staff costs 51.8 32.8 58%Revenue 189.7 131.2 63%Gross profit 70.8 60.7 17%R&D expenditures 21.8 16.8 30%Adjusted operating profit 12.4 15.0 -17%Dividends and share repurchases 8.8 9.1 -3%

Shareholder votingShareholders voted overwhelmingly at the 2014 AGM in favour of adopting both the Company’s Remuneration Policy, and at the 2015 AGM in favour of adopting the Annual Statement and Annual Report on Remuneration in respect of the year ended 27 March 2015:

Remuneration Policy

FY15 Annual Statement and Annual Report

on Remuneration

VotesPercentage

of votes VotesPercentage

of votes

Votes cast in favour 110,528,646 99.97% 146,181,563 92.35%Votes cast against 38,299 0.03% 12,111,265 7.65%Total votes cast 110,566,945 100% 158,292,828 100%Votes withheld 2,000 – 57,501 –

Governance


Strategic ReportThe Strategic Report on pages 1 to 29 sets out a fair and balanced review of the Group’s performance during the period and of its position at the period end, including commentary on its likely future development and prospects, while information on principal risks and uncertainties and key performance indicators is given on pages 23 to 25 and pages 14 and 15 respectively. Such information should be read in conjunction with this Report. The Corporate Governance Report and Directors’ Remuneration Report detail the Company’s Governance and Directors’ remuneration arrangements. The Group’s approach to business ethics, employee welfare and practice, health and safety, environmental and community matters is summarised in the Corporate Social Responsibility Statement on pages 26 to 29. All these sections form part of this Directors’ Report into which they are incorporated by reference.

Results and dividendsThe audited financial statements of the Group and of the Company for the period under review are set out on pages 64 to 102 and pages 105 to 113 respectively.

The Board’s chosen dividend policy takes account of the profitability and underlying growth of the Group in addition to capital requirements, cash flows and distributable reserves, while also maintaining an appropriate level of dividend cover.

In view of the recent Capital Raise, 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 2016 financial year. The total dividend will therefore be the interim dividend of 0.79 pence (2015 total dividend: 2.40 pence). 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 the appropriate level of dividend cover.

Research and developmentProduct development and innovation, principally, but not solely, related to TETRA technology and products, remain key strategies for maintaining and improving the Group’s competitive position and therefore they continue to be strong priorities. The key objectives are new product development, improved functionality and extended application, all designed to enhance benefits for the end-user. Expenses incurred are capitalised when it is probable that future economic benefits will be attributable to the asset and that these costs can be measured reliably.

The Group’s commitment to this vital area is highlighted by the €21.8 million of development spend during the period, representing 11% of sales (2015: €16.8 million and 13% of sales). Under IAS 38 “Intangible Assets”, €16.4 million of this period’s spend was capitalised (2015: €13.1 million). The Group will continue to commit a significant amount of resource and expenditure, as appropriate, to research and development.

Financial instrumentsDetails of the Group’s objectives and policies on financial risk management, and of the financial instruments currently in use, can be found in Note 31 to the consolidated financial statements.

Employment of disabled personsThe Group’s policy regarding the hiring, continuing employment and training, career development and promotion of disabled persons is set out in the Corporate Social Responsibility Report on page 27.

Employee consultationDetails of employee consultation are set out in the Corporate Social Responsibility Report on page 27.

Share capitalThe Company has a single class of share which is divided into Ordinary shares of £0.0005 each with all of the Ordinary shares ranking pari passu. On a show of hands at a general meeting, every holder of Ordinary shares present in person or by proxy, and entitled to vote, has one vote, and on a poll every holder of Ordinary shares present in person or by proxy, and entitled to vote, has one vote for every Ordinary share held.

The rights (including full details relating to voting), obligations and any restrictions on transfer relating to the Company’s Ordinary shares, as well as the powers of the Directors, are set out in the Company’s Articles of Association. These can only be amended by special resolution at a general meeting of shareholders. There are no restrictions on the transfer of securities or on voting rights attached to them, except: (i) where the Company has exercised its right to suspend their voting rights or to prohibit their transfer following the omission of their holder, or any person interested in them, to provide the Company with information requested by it in accordance with Part 22 of the Companies Act 2006 (the “Act”); or (ii) where their holder is precluded from exercising voting rights by the FCA’s Listing Rules or the City Code on Takeovers and Mergers.

The Company is not aware of any agreements or control rights between shareholders that may result in restrictions on the transfer of securities or on voting rights. Further information regarding the Company’s share capital is set out in Note 26 to the consolidated financial statements.

Share buy backAt the Annual General Meeting held on 7 September 2015 (“2015 AGM”), shareholders granted the Company limited authority to purchase its own shares, subject to certain specified conditions.

During the year, the Company purchased 2,426,157 shares (representing 1.31% of the called up share capital) into treasury and issued 2,829,774 shares from treasury in satisfaction of the Company’s share option schemes, as detailed in Note 26 to the consolidated financial statements.

Pursuant to resolutions passed at the 2015 AGM, the Company had authority exercisable by the Directors:

(a) to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to a maximum of £30,671;

Directors’ ReportThe Directors have pleasure in presenting their report and the audited financial statements for the period ended 1 April 2016.

Directors’ Report

Strategic Report

Governance




(b) to make market purchases (as defined in section 693 (4) of that Act) of Ordinary shares of £0.0005 each in the capital of the Company. As at the date of this report, there is authority remaining to make such market purchases in relation to 15,976,597 Ordinary shares.

The Company will seek to renew these authorities at the 2016 AGM.

Under the firm placing, placing and open offer announced on 27 June 2016, 185,714,285 shares were issued on 18 July 2016.

Board of DirectorsThe Directors of the Company who served throughout the period and up to the date of signing of this Annual Report (except where noted) were:

Russell KingGordon WatlingRichard Smith (Appointed

4 January 2016)Sion KearseyNigel SmithGordon StuartDr. John Hughes CBE DSc

(Retired on 7 September 2015)

Steve Chamberlain

(Retired on 4 January 2016)

Major shareholders At 28 July 2016 the Company had been notified (or was aware of ) the following material interests of 3% or more in the Ordinary share capital of the Company:

Number of Ordinary shares

% ofvoting rights1

Henderson Global Investors Limited 58,821,114 15.9%Liontrust Asset Management PLC 42,922,124 11.6%Schroders Investment Management Limited 27,497,566 7.43%Jonathan Green 24,058,709 6.50%Michael Sherwood 16,836,599 4.54%Danske Bank A/S 15,327,814 4.14%

1 Total voting rights attaching to the issued share capital of the Company comprising 370,082,470 Ordinary shares each of £0.0005 nominal value, being the 370,898,177 Ordinary shares in issue less 815,707 Ordinary shares currently held in Treasury

2 The interests set out above reflect notifications received following the Capital Raise and consequent increase in share capital completed on 18 July 2016

The names and brief biographical details of the current Directors, and identification of the Board Committees on which they sit, are shown on pages 30 and 31 and details of their beneficial holdings in the shares of the Company are shown on page 50.

Election and re-election of DirectorsThe Company’s Articles of Association contain provisions relating to the appointment and replacement of Directors. They require that all Directors stand for re-election at intervals of not more than three years. The UK Corporate Governance Code recommends all directors are put up for election every year and in accordance with best practice the Company is following this guideline.

The service agreements of the Executive Directors and the letters of appointment of the Non-Executive Directors are available for inspection by shareholders at the Company’s registered office during normal business hours and at the Company’s AGM from 15 minutes before the meeting.

Details of the Directors’ employment agreements and appointment letters, and emoluments and interests in the Ordinary share capital of the Company which derive from their employment are set out in the Directors’ Remuneration Report which commences on page 38.

Save as disclosed in this Annual Report, at no time during the period did any Director hold a material interest, directly or indirectly, in any contract of significance with the Company or any undertaking other than service agreements between Executive Directors and the Company.

Directors’ indemnity arrangementsThe Company has purchased and maintained throughout the period to the date of this Report, and intends to do so going forward, Directors’ and Officers’ liability insurance in respect of itself and its Directors.

Corporate governanceThe Company is committed to high standards of corporate governance. Its application of the principles of good governance in respect of the UK Corporate Governance Code for the period under review is described in the Corporate Governance Report on pages 30 to 35, which forms part of this Directors’ Report.

The Statement of Directors’ Responsibilities in respect of this Annual Report and the financial statements appears on pages 54 and 55.

Political donationsAt the 2015 AGM, shareholders gave authority (covering the period up to the conclusion of the 2016 AGM or 27 September 2016, whichever is earlier) for the Company to make political donations and incur political expenditure up to a maximum aggregate sum of £100,000 as a precautionary measure in light of the wide definitions contained in the Political Parties Elections and Referendums Act 2000. No payments were made during the period or the prior period and it is proposed to maintain the Group’s policy in this area and renew this authority at the forthcoming AGM.

Governance


Greenhouse gas emissionsDisclosures in respect of greenhouse gas emissions are given on page 29.

Employee share incentive plansThe Company has in place for its Executive Directors and employees the Sepura 2008 Long-Term Incentive Plan (“LTIP”) under which awards were granted during the period. Details of this share plan can be found in the Directors’ Remuneration Report commencing on page 38 and Note 27 to the consolidated financial statements.

The Company also has in place a Savings-Related Share Option Scheme (based on HMRC Guidelines) (“Sharesave Scheme”). This incentive plan, which encourages share ownership amongst Sepura employees, was successfully launched in September 2008 and experienced a high level of take-up, and has subsequently been refreshed annually. The Board expects this to continue for the foreseeable future.

The table opposite outlines any impact of a change of control prescribed in the rules of each of the Company’s share incentive plans.

Related party transactionsThere were no related party transactions with Directors, other than their remuneration, during either the current or previous period; and a transaction with a subsidiary of TMF Group, of which Gordon Stuart is a Director, in relation to the incorporation of a Spanish holding company, the fees for which were €6,000.

Going concern After making due enquiry, and having considered the Capital Raise in July 2016 and the Group’s budget for the coming year together with outline projections through to 2018, the Directors are satisfied that, at the time of approving the financial statements, it is appropriate to adopt the going concern basis in preparing the financial statements of both the Group and the Company.

Viability statementIn accordance with provision C.2.2 of the revised UK Corporate Governance Code, the Directors have assessed the longer-term prospects of the Group and confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over a two year period to 31 March 2018. This period is longer than the 12 month period associated with the Going Concern statement above and is based on the detailed assessment undertaken as part of the Group’s recent Capital Raise that covered the same period. In forming their view, the Directors considered the Group’s financial position after the Capital Raise,

the possible impact of the principal risks and uncertainties facing the Group, as summarised on pages 23 to 25, and the impact of a decline in the Group’s revenues and trading performance and adverse movements in exchange rates.

2016 AGMThe Notice of Annual General Meeting of the Company will accompany this Annual Report to shareholders.

Independent auditorsSeparate resolutions to re-appoint PricewaterhouseCoopers LLP as auditors of the Company and to authorise the Directors to determine their remuneration will be proposed at the 2016 AGM. The re-appointment of PricewaterhouseCoopers LLP has been recommended to the Board by its Audit Committee and PricewaterhouseCoopers LLP have indicated their willingness to remain in office.

Disclosure of information to auditorsEach of the Directors of the Company at the time when this Report was approved confirmed that:

› so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and

› he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

This confirmation is given in accordance with section 418(2) of the Act.

Statement of Directors’ ResponsibilitiesThe Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing these financial statements, the Directors are required to:

› select suitable accounting policies and then apply them consistently;

› make judgements and accounting estimates that are reasonable and prudent;

› state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company financial statements respectively; and

› prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

Share incentive plan

Change of control provisions contained

within the share incentive plan rules Effect on vesting

Performance condition

LTIP Yes Acceleration pro rata totime and voting level1

Pro rata testing1

Deferred bonus shares

Yes Normally vest on a change of control

N/A

Sharesave Scheme Yes Acceleration pro rata toaccumulated savings1

N/A

1 At the discretion of the Remuneration Committee

Directors’ Report continued

Directors’ Report continued

Strategic Report

Governance




The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that this Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 30 and 31, confirms that, to the best of their knowledge:

› the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

› the Strategic Report and Governance Review, along with the Directors’ Report, together include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces on pages 23 to 25.

Overseas branchesThe Company conducts some of its overseas operations through branches in Malaysia, Argentina and Dubai.

Takeover Directive disclosuresWhere not provided previously in this Report, the following provides the additional information required for shareholders as a result of the implementation of the Takeover Directive into English law and Section 922 of the Companies Act 2006:

› the Company has not entered into any contractual commitments to its Directors or employees providing for compensation on loss of office or employment (whether through resignation, purported redundancy or otherwise) that would occur because of a takeover bid;

› the Company has entered into various agreements in the ordinary course of business, many with local governments and government organisations around the world. Some of these, either by their nature or value, may represent significant agreements and generally (as with the Company’s standard terms and conditions of business) do provide for a right of termination upon a change in control of the Company. National security and commercial sensitivity prevent disclosure of the details of any individual agreements; and

› save as otherwise disclosed above, there are no other significant agreements to which the Company is a party that take effect, alter or terminate upon a change of control following a takeover bid.

ProspectusOn 27 June 2016 the Company published a prospectus in relation to the proposed firm placing and proposed placing and open offer.

Post balance sheet eventsDetails of important events affecting the Company since 1 April 2016 are disclosed in Note 35 to the financial statements.

On behalf of the Board

Tony Hunter, Company Secretary9000 Cambridge Research ParkBeach DriveWaterbeachCambridgeCB25 9TLRegistered in England No. 0435380129 July 2016



Independent Auditors’ Report to the Members of Sepura plc

Report on the group financial statementsOur opinionIn our opinion, Sepura plc’s group financial statements (the “financial statements”):

› give a true and fair view of the state of the group’s affairs as at 1 April 2016 and of its loss and cash flows for the year then ended;

› have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; and

› have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

What we have auditedThe financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise:

› the Consolidated Balance Sheet as at 1 April 2016;

› the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the year then ended;

› the Consolidated Statement of Cash Flows for the year then ended;

› the Consolidated Statement of Changes in Equity for the year then ended; and

› the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted by the European Union.

Our audit approachOverviewMateriality › Overall group materiality: €1,110,000

which represents 5% of the FY15 profit before tax uplifted by the increased size of the Group based on revenue.

Audit scope › We focussed our work on Sepura plc

(based in the United Kingdom) and the Teltronic SAU group (headquartered in Spain), due to their size.

› The Group companies over which we performed our audit work accounted for over 93% of Group third-party revenues.

Areas of focus › Risk of fraud in revenue recognition. › Recoverability of accounts receivable. › Compliance with debt covenants and

associated going concern assessment. › Acquisition accounting for Teltronic SAU. › Capitalisation of product development

costs. › Valuation of contingent consideration.

The scope of our audit and our areas of focusWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.

Strategic Report

Governance




Area of focus How our audit addressed the area of focus

Revenue recognition(Refer to page 36 (Report of the Audit Committee) and Note 4 (Summary of significant accounting policies)

Historically, Sepura has made a significant amount of sales in the last month of the financial year, including both the sale of hardware and software.

We focussed on this area as, with such a significant amount of sales being generated in the final month of the year, there is a risk that a material misstatement could arise from inappropriate application of cut-off procedures and, as a result, the revenue for the year could be overstated.

The Teltronic SAU group generates the majority of its revenue through long-term contracts to provide systems solutions which generally take a number of months to complete and often straddle the year end. Revenue and cost of sales are recognised on a percentage of completion basis, which is calculated on a costs incurred versus forecast cost basis, as long as the total contract revenue and the costs to complete the contract can be estimated reliably, it is probable that the economic benefits associated with the contract will flow to the Group and that the stage of contract completion can be measured.

It is considered that there is a risk that exclusion of certain costs that are intrinsic to the performance of the contract could result in an acceleration of revenue recognition.

We performed detailed cut-off procedures for March sales, agreeing to supporting invoice and third party despatch documentation. We also checked the Incoterms; sales are typically made on an “Ex-works” basis, which means revenue is recognised when the goods are despatched and ready for delivery or collection by the customer. This was performing by obtaining accounts receivable confirmations with external parties which included a specific representation that the external party had assumed the risks and rewards of ownership as at the year end. No significant issues were identified as a result of our work.

As an additional procedure, we also tested credit notes covering all sales (hardware and software) that were raised during the financial year and also subsequent to the year end (up to the date of signing the financial statements) on a sample basis. No significant issues were identified as a result of our work.

For revenue recognised on long term contracts we tested the calculation of revenue recognised, based on supporting documentation, including timesheet data and contracts as well as assessing the reasonableness of the estimated costs to complete. We also reconciled the amounts outstanding to invoices raised and cash received after the year end. We consider the accounting policy reasonable and revenue recognised on long term contracts to be appropriately calculated.

Recoverability of accounts receivable(Refer to page 36 (Report of the Audit Committee) and Note 4 (Summary of significant accounting policies), Note 5 (Critical accounting judgements and key sources of estimation) and Note 21 (Trade and other receivables)

The Group continues to grow internationally, generating sales of its products and services in both established markets (such as the UK and Germany) and new markets (such as the Middle East and Greece). Following the acquisition of Teltronic SAU, the Group has additional exposure to developing economies such as Brazil. As a result of increased sales in new markets, where receiving payment is an inherently slower process, the Group had a significant number of accounts receivable balances (€9.4 million) that were overdue at the year end. There is therefore a risk that the carrying amount of the accounts receivable was overstated. The Group’s accounting policy is that trade receivables are assessed individually for impairment.

We focussed in particular on the overdue elements relating to the material receivable balances in Brazil together with two specific material receivable balances; one in the Middle East and one in Greece where amounts are overdue and any past payments have been slower than agreed.

We sent specific confirmations on a sample basis to confirm year end balances. We also requested that these customers confirm their acknowledgement of the transfer of risks and rewards of the goods at the invoice date, as appropriate. No significant issues were identified as a result of our work.

For a sample of trade receivables we successfully vouched the cash received post year end to bank records or to shipment documentation if cash had not yet been received.

On all material overdue balances, we obtained sufficient supporting evidence where no provision was made. This evidence was in the form of subsequent payment and / or correspondence obtained to support the recoverability of the balance. We identified three specific overdue balances which required further consideration as detailed below.

The Directors have provided against those debtors in the balance sheet of Teltronic SAU at the date of acquisition where there is uncertainty over the recoverability. In addition the opening accounts receivable balances were discounted to reflect the time value of money based on their expected repayment dates. We consider the level of provisioning and discounting to be appropriate.

The Directors have fully provided against a material receivable from a Middle East customer. We inspected the payment history post-year end against the level of overdue receivable and considered whether the level of provisioning was appropriate. Based on our work, we considered that the provision made against the balance was appropriate.




Recoverability of accounts receivable continued In the prior year, the Directors made a partial provision against a material receivable from Greece. A further provision has been made in the current year as described in Note 21. We confirmed that no cash had been received after the year end in respect of this receivable and consider that the partial provision made appropriately reflects the Group’s exposure.

Capitalisation of product development costs(Refer to page 36 (Report of the Audit Committee) and Note 4 (Summary of significant accounting policies), Note 5 (Critical accounting judgements and key sources of estimation) and Note 17 (Intangible assets)

Sepura spends a significant amount in developing new products and product functionality. As set out in Note 17, during the current period the Group has capitalised €16.4 million of internal development costs within Intangible assets and had a net book value of €48.5 million of capitalised development costs at 1 April 2016.

We focussed on this area due to the amount of the costs capitalised, and the fact that judgement is involved in assessing whether the criteria set out in IAS 38 “Intangible assets” (“IAS 38”) required for capitalisation of such costs have been met, particularly:

› The appropriateness and support for the costs capitalised; › The technical feasibility of the project; and › The likelihood of the project delivering sufficient future

economic benefits.

We had particular regard to the fact that the Group is developing its next generation platform for both terminals and infrastructure. To the extent that these projects have not yet been completed, no amortisation has been charged. We therefore also focussed on whether the carrying value of the capitalised development costs was impaired.

As part of our work we also focussed on the Directors’ judgements regarding whether capitalised costs were of a developmental rather than research nature (which would result in the costs being expensed rather than capitalised); and whether costs, including employment (payroll) costs, were directly attributable to relevant projects.

We obtained a breakdown, by value, of all individual development projects (new products and product functionality) capitalised in the period and reconciled this to the amounts recorded in the general ledger.

Capitalised development costs comprise labour and non-labour costs which were tested as follows:

Non-labour costs were tested on a sample basis to supporting documentation such as invoices, which were inspected to determine whether the cost met the criteria for capitalisation as a development cost under IAS 38.

To determine whether labour costs were correctly capitalised, we identified which cost centres were directly related to capitalised costs and tested a sample of employees to ensure they had been included in the appropriate cost centre. We then reconciled the labour costs for these cost centres to payroll records which had been tested as part of our work on payroll costs. This provided comfort that the total capitalised labour costs associated with development projects had been appropriately capitalised.

We tested projects on a sample basis covering both projects where development costs were being capitalised and those where costs were not being capitalised, to ensure that each project was being appropriately treated under the specific requirements of the relevant accounting standards (IAS 38 “Intangible assets”). We inspected project documentation and held discussions with staff as necessary to confirm the sampled projects were being accounted for appropriately. No exceptions were noted in this testing.

In respect of impairment of capitalised development costs, the Directors’ calculation was based on the future cash flow forecasts utilised within their going concern assessment adjusted to reflect cash flows from the new technology only. The key assumptions related to the level of forecast cash flows and the assumed rate at which the new technology would replace the existing technology. The cash flow forecasts were critically assessed as part of our work in respect of going concern outlined below. We performed sensitivity analysis around these key assumptions to ascertain the extent of change in those assumptions that either individually or collectively would be required for the development costs to be impaired. We determined that there was sufficient headroom in the calculations such that no impairment was required.

Following the Directors’ decision after the year end to withdraw from the DMR market, the Directors considered whether there were any indicators of impairment present at the year end in respect of DMR related development costs, inventories and other intangible assets. Based on the low level of sales in the year, the Directors concluded that there were impairment indicators present at the year end and consequently impaired inventories, development costs and acquired intangible assets which related to DMR by €9.3 million. We consider this treatment to be appropriate and reflects the conditions as at 1 April 2016.

Independent Auditors’ Report to the Members of Sepura plc continued

Strategic Report

Governance





Contingent consideration(Refer to page 36 (Report of the Audit Committee) and Note 4 (Summary of significant accounting policies), Note 5 (Critical accounting judgements and key sources of estimation) and Note 6 (Acquisition of subsidiaries)

In FY2014 and FY2015, the Group announced the acquisitions of Portalify OY and Fylde Micro Limited respectively. Both of these acquisitions included an element of contingent consideration, payable depending on EBITDA and other targets being met over the respective earn-out periods. This contingent consideration is required to be valued at each year end.

There is judgement in determining the fair value of contingent consideration, as this is based on the Directors’ forecasts to determine the level of EBITDA that will be generated and, hence, the amount of the payments that will be made.

On acquisition, the Directors recognised the maximum amount of contingent consideration as a financial liability in accordance with IAS 39, “Financial Instruments: Recognition and Measurement”. However, as described in Note 6, an adjustment was posted by the Directors to reduce the financial liability to its fair value of €3.1 million, reflecting the Directors’ best estimate of the expected outflow based on the performance of the acquired businesses against the earn-out criteria. The release was recognised as a credit of €2.6 million within non-recurring costs (see Note 8 and Note 25 to the consolidated financial statements).

We obtained and evaluated the Director’s assessment. We compared business performance post acquisition with the original expectation and assessed the Directors’ future forecasts. The sensitivity of the Directors’ forecasts is low due to the earn out periods for both acquisitions ending on 30 June 2016, with the majority of the contingent consideration calculation being based on actual results to date. We read correspondence between the company and the selling shareholders around the proposed changes to the arrangements and were satisfied that the accounting appropriately reflected the nature of the arrangements.

Going concern – financial covenants on banking facilities of the GroupThe Directors have concluded that it is appropriate for them to prepare the financial statements using the going concern basis of accounting. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the financial statements were signed.

In May 2015, the Group took out a €50 million term loan and a €70 million revolving cash facility to partially fund the acquisition of Teltronic SAU. A number of factors, outlined in the Chairman’s Statement on pages 6 to 7, led to a higher than expected net debt position of €119.4 million at the year end. The Group entered into discussions with its debt providers prior to the year end and obtained a waiver in respect of a potential breach of year end covenants.

As disclosed in Note 35, on 18 July 2016 after the year end, the Group has completed a capital raising for gross proceeds of £65 million and renegotiated its banking facilities to reduce its leverage and provide sufficient working capital for the Group to continue to grow.

We evaluated the Directors’ conclusion around going concern and critically assessed the Group’s future cash flow forecasts, to assess the likely availability of funds to meet liabilities as they fall due, and its profit forecasts to assess the likelihood of a breach of covenants. We obtained and read the Group’s finance agreements to understand the financial and non-financial covenants contained therein and assess whether they had been considered in the Directors’ forecasts.

We tested the mathematical accuracy of the forecasts and the process by which they were drawn up, and agreed the covenant ratio calculations to the definitions in the finance agreements.

We assessed the sensitivities applied by the Directors to their forecasts to test the level of headroom against covenants and available facilities by considering other sensitivities and discussing the impact of alternative assumptions.

We also assessed the mitigating actions proposed by the Directors should it appear that the Group may breach its covenants.

We compared the relevant disclosures within the financial statements to our testing in this area and found that they appropriately reflected the future plans of the Company and Group and any uncertainties arising.

Finally, we agreed the cash receipts of the post year end capital raising to the bank statement to confirm that the funds from the capital raising had been received by the Group.

Our conclusions in relation to going concern are set out in the Going concern section below.




Acquisition accounting for Teltronic SAU(Refer to page 36 (Report of the Audit Committee) and Note 4 (Summary of significant accounting policies), Note 5 (Critical accounting judgements and key sources of estimation) and Note 6 (Acquisition of subsidiaries)

On 27 May 2015 the Group completed the acquisition of Teltronic SAU for consideration of €127.5 million, as described in Note 6.

IFRS 3 “Business combinations” (“IFRS 3”) requires that all assets and liabilities acquired in the business combination are recorded at fair values on acquisition. Judgment is required in identifying and valuing all the assets and liabilities acquired, in particular intangible assets. Intangible assets totalling €53.3 million were identified relating to customer relationships, order backlog, tradenames and technology. The key judgements were in determining an appropriate methodology to value these assets and appropriate assumptions, including forecast revenue and profit, discount rate, useful economic lives and rates of obsolescence to determine the values.

The acquisition gave rise to a material goodwill balance of €56.4 million which is required to be tested for impairment on an annual basis. This requires the Directors to prepare cash flow forecasts in respect of the Teltronic SAU cash generating unit which involves significant judgment in respect to estimates of future growth and other variables.

We evaluated the process used by the Directors to identify and value the assets and liabilities acquired. We assessed the treatment of the assets and liabilities acquired and the fair value adjustments applied tracing these to supporting information and in the case of the building a third party valuation. The fair value adjustments were considered appropriate.

We considered the Directors’ process for identifying intangible assets acquired, considering the rationale for the acquisition and the nature of Teltronic SAU’s business. Using our valuation specialists, we evaluated the methodology and assumptions used by the Directors in valuing the identified intangible assets. We evaluated the forecasts used and key assumptions made as follows:

› We sensitised the impact of reasonable changes in the forecasts and assumptions used and considered whether these materially impacted on the valuation of the acquired intangible assets

› We considered the royalty rate used by the Directors in valuing the acquired tradenames as being towards the lower end of the rates seen in similar valuations. The rate used was subsequently increased to a higher rate.

We were satisfied that the fair values of the intangible assets were supportable, and that the assumptions used in valuing the intangible assets were within an acceptable range.

We compared the forecast results for Teltronic SAU used within the year end goodwill impairment assessments with the forecasts used for the valuations of the intangible assets at acquisition, to determine whether there had been a significant change in the assumptions in respect of Teltronic SAU’s financial performance which could indicate the need to revise the valuation of the acquired intangible assets. There were no significant differences between the forecasts used at acquisition and those used within the Directors’ year end goodwill impairment model.

For the impairment testing of the goodwill, we used the same forecasts as prepared for the going concern assessment outlined above. Based on the forecasts, we concurred with the Directors’ assessment that there is no goodwill impairment.


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How we tailored the audit scopeWe tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the group, the accounting processes and controls, and the industry in which the group operates.

Prior to the acquisition of Teltronic SAU, the Group was structured as one core operating business focussed on the design, development and supply of secure digital radio products and systems. The core operating business consisted of four reporting units and the Group financial statements were a consolidation of those four reporting units and centralised functions. Following the acquisition of Teltronic SAU, the Group has realigned its reporting structure and reports under two segments being Devices (the former Sepura business, excluding its infrastructure business prior to the acquisition of Teltronic SAU) and Systems (primarily Teltronic SAU and Sepura’s former infrastructure business).

In the prior year we focussed our work on Sepura plc (based in the United Kingdom) and Sepura Systems GmbH (based in Austria) which were subject to an audit of their complete financial information. In the current year, our scoping has changed to reflect the addition of Teltronic SAU and its subsidiaries to the Group. Accordingly we focussed our work on Sepura plc (based in the United Kingdom) and Teltronic SAU (based in Spain), which, in our view, required an audit of their complete financial information due to their size. We also performed specific procedures on certain balances of Sepura Systems GmbH (based in Austria). This, together with additional procedures at Group level, gave us the evidence we needed for our opinion on the Group financial statements as a whole.

The Group companies over which we performed our audit work accounted for over 93% of Group third-party revenues.

MaterialityThe scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall group materiality €1,110,000 (2015: €760,000).

How we determined it 2015 materiality uplifted by the growth of Group revenue (45%).

Rationale for benchmark applied Overall group materiality for 2016 was €1,110,000 which represents 6% of the Group’s loss before tax (2015: €760,000 representing 5% of profit before tax). The acquisition of Teltronic SAU in the year has significantly increased the size of the Group but, combined with other factors as set out in the Strategic Report including the softening of several important markets and slower growth of key revenue streams, has resulted in a loss before tax whose quantum is not considered reflective of the overall size of the Group’s operations.

In establishing our materiality, we applied professional judgment and calculated materiality using the 2015 materiality uplifted by the revenue growth of 45% in the year. This is considered to reflect the overall growth in size of the Group’s operations. We compared our materiality with thresholds based on a range of other metrics (loss before tax, profit before non-recurring items and tax and revenue) and found that it fell within this range.

We agreed with the Audit Committee that we would report misstatements over €55,000 (FY15: €37,500) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.




Other required reportingConsistency of other information Companies Act 2006 opinionIn our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

ISAs (UK & Ireland) reportingUnder ISAs (UK & Ireland) we are required to report to you if, in our opinion:

› information in the Annual Report is:− materially inconsistent with the

information in the audited financial statements; or

− apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course of performing our audit; or

− otherwise misleading.

› the statement given by the directors on page 55, in accordance with provision C.1.1 of the UK Corporate Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the group’s position and performance, business model and strategy is materially inconsistent with our knowledge of the group acquired in the course of performing our audit.

› the section of the Annual Report on page 36, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

We have no exceptions to report.

The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the groupUnder ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:

› the directors’ confirmation on page 37 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity.

› the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.

› the directors’ explanation on page 54 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing material to add or to draw attention to.

Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal risks facing the group and the directors’ statement in relation to the longer-term viability of the group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.

Going concernUnder the Listing Rules we are required to review the directors’ statement, set out on page 54, in relation to going concern. We have nothing to report having performed our review.

Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to.

As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the group has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the group’s ability to continue as a going concern.

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Adequacy of information and explanations receivedUnder the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility.

Directors’ remunerationUnder the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statementUnder the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review.

Responsibilities for the financial statements and the auditOur responsibilities and those of the directorsAs explained more fully in the Statement of Directors’ Responsibilities set out on pages 54 to 55, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involvesAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

› whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed;

› the reasonableness of significant accounting estimates made by the directors; and

› the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Other matterWe have reported separately on the parent company financial statements of Sepura plc for the year ended 1 April 2016 and on the information in the Directors’ Remuneration Report that is described as having been audited.

Matthew Mullins (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Cambridge 29 July 2016



2016 2015

Before non- Non- Before non- Non- recurring recurring recurring recurring items items1 Total items items1 Total Note €’000 €’000 €’000 €’000 €’000 €’000

Revenue 7 189,723 – 189,723 131,160 – 131,160Cost of sales (112,885) (6,051) (118,936) (70,508) – (70,508)

Gross profit 76,838 (6,051) 70,787 60,652 – 60,652Selling, marketing and distribution costs (28,320) (3,083) (31,403) (18,225) (1,770) (19,995)Research and development costs (13,695) (10,520) (24,215) (10,394) – (10,394)Administrative expenses (24,292) (6,716) (31,008) (13,750) 574 (13,176)

Operating profit (loss) 10,531 (26,370) (15,839) 18,283 (1,196) 17,087Financial income 12 948 – 948 55 – 55Financial expense 13 (3,911) (218) (4,129) (484) – (484)

Net financial expense (2,963) (218) (3,181) (429) – (429)

Profit (loss) profit before income tax 9 7,568 (26,588) (19,020) 17,854 (1,196) 16,658Income tax (expense) credit 14 3,518 4,650 8,168 (1,838) 256 (1,582)

Profit (loss) profit for the period attributable to owners of the parent 11,086 (21,938) (10,852) 16,016 (940) 15,076

Earnings (loss) per share (¢) Basic 15 6.3 (12.4) (6.1) 11.6 (0.7) 10.9Diluted 15 6.2 (12.3) (6.1) 11.5 (0.7) 10.8

1 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 in relation to the acquisitions of Portalify OY and Fylde Micro Limited, impairments relating to the DMR business, costs associated with the Equity Raise, and a provision against outstanding receivables due from a customer in Greece. Non-recurring items in the prior period related to the acquisition of Fylde Micro Limited and subsequent restructuring and net movement in contingent consideration, together with initial costs incurred in connection with the acquisition of Teltronic SAU and a provision against outstanding receivables from a customer in Greece. Further information is provided in Note 8.

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Income Statement

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Consolidated Statement of Comprehensive Income

2016 2015 €’000 €’000

(Loss) profit for the period (10,852) 15,076Other comprehensive income (expense): Exchange translation* (533) (164)Cash flow hedges, net of taxation* (3,835) 1,695

Other comprehensive (expense) income (4,368) 1,531

Total comprehensive (expense) income for the period attributable to owners of the parent (15,220) 16,607

* These items may be reclassified to the Income Statement if certain conditions are met

Consolidated Statement of Changes in Equity Share Share Other Retained Total capital premium reserves earnings equity Note €’000 €’000 €’000 €’000 €’000

At 29 March 2014 79 999 (42) 74,359 75,395Profit for the period – – – 15,076 15,076Other comprehensive (expense) income for the period – – (164) 1,695 1,531

Total comprehensive (expense) income – – (164) 16,771 16,607

Transactions with owners Tax on share option schemes 19 – – – 248 248Employee share option schemes: value of employee services 27 – – – 1,262 1,262Equity dividends paid 16 – – – (3,686) (3,686)Treasury shares – purchase of own shares 26 – – – (5,397) (5,397)Treasury shares – issue of shares to settle

employee share options 26 – – – 193 193

Total transactions with owners – – – (7,380) (7,380)

At 27 March 2015 79 999 (206) 83,750 84,622Loss for the period – – – (10,852) (10,852)Other comprehensive (expense) income for the period – – (533) (3,835) (4,368)

Total comprehensive (expense) income – – (533) (14,687) (15,220)

Transactions with owners Tax on share option schemes 19 – – – (696) (696)Employee share option schemes: value of employee services 27 – – – 2,840 2,840Equity dividends paid 16 – – – (6,384) (6,384)Issue of shares, net of expenses 26 31 77,423 – – 77,454Treasury shares – purchase of own shares 26 – – – (5,463) (5,463)Treasury shares – issue of shares to settle

employee share options 26 – – – 703 703

Total transactions with owners 31 77,423 – (9,000) 68,454

At 1 April 2016 110 78,422 (739) 60,063 137,856

Other reserves comprises cumulative exchange translations.




Consolidated Balance SheetOf Sepura Plc, Company number 04353801

1 April 27 March 2016 2015 Note €’000 €’000

Assets Non-current assets Intangible assets 17 177,438 66,552Property, plant and equipment 18 23,316 10,329Deferred tax asset 19 10,913 4,294

Total non-current assets 211,667 81,175

Current assets Inventories 20 26,784 12,133Trade and other receivables 21 88,177 47,632Derivative financial instruments 31 – 2,516Cash and cash equivalents 22 2,254 2,401

Total current assets 117,215 64,682

Total assets 328,882 145,857

Liabilities Current liabilities Borrowings 23 (74,927) (2,983)Derivative financial instruments 31 (2,309) –Trade and other payables 24 (49,249) (45,269)Income tax payable (2,416) (1,195)Provisions 25 (6,492) (2,578)

Total current liabilities (135,393) (52,025)

Non-current liabilities Borrowings 23 (46,759) (546)Trade and other payables 24 (7,509) (3,348)Provisions 25 (1,365) (5,316)

Total non-current liabilities (55,633) (9,210)

Total liabilities (191,026) (61,235)

Net assets 137,856 84,622

Shareholders’ equity Ordinary share capital 26 110 79Share premium 26 78,422 999Other reserves (739) (206)Retained earnings 60,063 83,750

Total equity 137,856 84,622

The financial statements on pages 64 to 102 were approved by the Board and authorised for issue on 29 July 2016 and are signed on its behalf by:

Gordon Watling Richard SmithChief Executive Officer Chief Financial Officer


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Consolidated Statement of Cash Flows

2016 2015 Note €’000 €’000

Cash (used in) generated from operations 28 (13,861) 25,205Income taxes paid (571) (631)

Net cash (used in) generated from operating activities (14,432) 24,574

Cash flow from investing activities Interest received 62 55Purchase of property, plant and equipment (11,480) (4,419)Capitalised development costs (16,367) (13,108)Purchase of subsidiary undertakings, net of cash acquired (121,989) (3,403)Purchase of other intangible assets (508) (834)Proceeds on disposal of property, plant and equipment – 78

Net cash used in investing activities (150,282) (21,631)

Cash flow from financing activities New borrowings 118,472 15,200Repayment of borrowings (15,000) (14,281)Interest paid (3,610) (436)Arrangement fee (1,620) (150)Dividends paid to shareholders (6,384) (3,686)Issue of shares, net of fees of €5,173,000 77,454 –Purchase of own shares for Treasury (5,463) (5,397)Issue of share capital from Treasury 703 193

Net cash used in financing activities 164,552 (8,557)

Net decrease in cash and cash equivalents 29 (162) (5,614)Cash and cash equivalents at the beginning of the period 2,401 8,017Foreign exchange 15 (2)

Cash and cash equivalents at the end of the period 22 2,254 2,401




Notes to the Group Financial StatementsFor the period ended 1 April 2016

1. IncorporationSepura 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. Details of the Company’s subsidiary undertakings are set out in Note 6 to the Company’s financial statements. The Company and its subsidiary undertakings are collectively referred to below as “the Group”.

2. The business of the GroupThe principal activity of the Group is the design, development and distribution of secure digital radio products and systems.

3. Basis of preparationThese consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted 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. The financial statements of the parent company, which have been prepared in accordance with Financial Reporting Standard 101 (“FRS 101”) ‘Reduced Disclosure Framework’, are presented separately following these consolidated financial statements.

The consolidated financial statements have been prepared on a going concern basis and under the historical cost basis, except for certain financial instruments that have been measured at fair value.

The Company has prepared these consolidated financial statements for the 53 week period from 28 March 2015 to 1 April 2016, being the nearest Friday to the end of the period. The comparative period shown is the 52 week period from 29 March 2014 to 27 March 2015.

These consolidated financial statements include the results of all of the Company’s subsidiary undertakings, which are listed in Note 5 to the Company’s financial statements. One of the Company’s subsidiaries, Fylde Micro Limited, has taken advantage of the exemption from an audit for the period ended 1 April 2016 available under s479A of the Companies Act 2006 as the Company has given a statutory guarantee of all of the outstanding liabilities of Fylde Micro Limited as at 1 April 2016.

4. Summary of significant accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

New standards, interpretations and amendments to published standards effective in the financial statementsFor the purposes of the preparation of these consolidated financial statements, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 28 March 2015.

The following new standards and amendments to published standards have been adopted during the current period:

› Annual Improvements to IFRSs 2010 – 2012 cycle › Annual Improvements to IFRSs 2011 – 2013 cycle

None of these have had an impact on the reported results of the Group.

Standards, interpretations and amendments to published standards that are not yet effectiveCertain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 2 April 2016 or later periods, and which the Group has not adopted early:

› IFRS 9 “Financial Instruments” › IFRS 15 “Revenue from Contracts with Customers” › IFRS 16 “Leases” › Amendments to IFRS 10 and IAS 28 on investment entities applying the consolidation exemption › Amendments to IFRS 10 and IAS 28 on the sale or contribution of assets › Amendment to IAS 1 “Presentation of Financial Statements” on the disclosure initiative › Amendments to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” on depreciation and amortisation › Amendments to IAS 27 “Separate Financial Statements” on the equity method › Amendments to IFRS 11 “Joint Arrangements” on acquisition of an interest in a joint operation

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except that IFRS 9 will impact both the measurement and disclosures of financial instruments, IFRS 15 may have an impact on revenue recognition and related disclosures, and IFRS 16 will result in additional leased assets and liabilities being recognised in the balance sheet. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of IFRS 9, IFRS 15 and IFRS 16 until the detailed review currently being performed has been completed.

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4. Summary of significant accounting policies (continued)Basis of consolidationThe Group financial statements incorporate the financial statements of the Company and its subsidiary undertakings. Subsidiary undertakings are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiary undertakings are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiary undertakings have been changed where necessary to ensure consistency with the policies adopted by the Group.

Business combinationsAcquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:

› deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 “Income Taxes” and IAS 19 “Employee Benefits” respectively; and

› assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity is remeasured to its acquisition date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

GoodwillGoodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.



4. Summary of significant accounting policies (continued)Segment reportingAn operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Operating segments are aggregated into reporting segments where they share similar economic characteristics as a result of the nature of the products sold or the services provided, the production processes used to manufacture the products, the type of customer for the products and services and the methods used to distribute the products or provide the services.

RevenueRevenue, which relates to both the shipment of products and supplying solutions as part of long-term contracts, is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

i. Sale of productsRevenue from the sale of products, such as the Group’s terminals, accessories and standard software products, is recognised when the significant risks and rewards of ownership of the products have passed to the buyer and revenue can be reliably measured. Depending on the Incoterms applicable, the Group typically recognises such revenue from the sale of products on despatch, on receipt of products by the customer, or upon formal acknowledgement from the customer that title has passed but they wish the products to be stored at the Group’s premises, in which case revenue is only recognised when the goods are on hand, separately identified and available for collection, usual payment terms apply, and it is probable that delivery will take place.

In a multiple element arrangement some of the elements, either hardware or software, may remain undelivered or incomplete. Revenue may be recognised on the fair value of the elements delivered providing the following conditions are fulfilled:

› The element of the product delivered has value to the customer on a stand-alone basis and is thus a separately identifiable component within the arrangement;

› The fair value can be reliably attributed to the undelivered element (in the event of bundling where undelivered components may not have a separate invoiced sales price the fair value of the revenue deferred is calculated by comparing the underlying product list price of each element of the bundle compared to the overall bundle price); and

› Delivery of the undelivered element is probable and under the control of the Group i.e. the technical risk attached to the delivery of the component is acceptable.

If any of these conditions are not met then all revenue under the arrangement is deferred until either the contract is complete or uncertainty over any of these conditions is removed.

ii. Long-term contractsThe supply of solutions by the Group, such as network infrastructure or command and control software applications, where the implementation takes place over a period of months or years, are accounted for as long-term contracts. Revenue and cost of sales from long-term contracts are recognised on the percentage of completion basis based on costs incurred to date when the outcome of the contract can be estimated reliably. The criteria for this are that total contract revenue and the costs to complete the contract can be estimated reliably, it is probable that the economic benefits associated with the contract will flow to the Group and that the stage of contract completion can be measured. When the Group is not able to meet those conditions, the policy is to recognise revenue equal to costs incurred to date, to the extent that such costs are expected to be recovered. Expected losses are recognised in full at the point at which they are anticipated. If the amount of the revenue recognised exceeds the amounts invoiced to customers, the excess amount is recorded in accrued income within trade and other receivables. If the amounts invoiced exceed the revenue recognised, the excess amount is recorded as deferred revenue.

iii. WarrantiesAs noted above, the Group assesses whether any of its contracts contain elements which operate independently of other contractual elements and which should, therefore, be ‘unbundled’ and accounted for separately. The Group offers as standard to all customers a product warranty package, which is typically for a period of three to five years depending on the product and territory concerned. Generally, product warranty packages which are offered as standard with all products are not separately priced, are offered for periods in line with the Group’s standard terms of supply at the time of sale and are not considered to be an element capable of ‘unbundling’. In such cases, provision is made at the time of sale for the estimated cost of providing the warranty cover based on historical information on the cost and frequency of repairs required to the Group’s products. 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 product warranties. Amounts due from manufacturers under back-to-back warranties are not recognised until the manufacturer has confirmed a reimbursement will be made.

In certain cases “enhanced” warranty packages, of a longer than standard period, are sold to customers as separate products. In such cases the fair value of the revenue associated with the warranty cover is amortised over the underlying period of the warranty cover. The fair value of the revenue is determined by the Directors based on market information, including the sales price when enhanced warranties are sold on a stand-alone basis.

Notes to the Group Financial Statements continuedFor the period ended 1 April 2016

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4. Summary of significant accounting policies (continued)PensionsThe Group provides access to a Stakeholder Pension Scheme, a defined contribution plan into which employees may elect to contribute via salary deduction. The Group makes contributions to the scheme in proportion to the amount contributed by the employees. Costs are recognised in the consolidated income statement in the period to which they relate.

Employee share schemesThe Group issues equity-settled share-based payments to its eligible employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed in the consolidated income statement on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest. The corresponding entry is recorded in retained earnings. Fair value is measured using the trinomial model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Financial incomeFinancial income comprises interest receivable on cash balances and deposits and is recognised using the effective interest rate method.

Financial income also includes the effect of unwinding of discounted trade receivables.

Financial expenseFinancial expense comprises interest payable on credit facilities and is calculated using the effective interest rate method in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”.

Income taxIncome tax on the result for the period comprises current and deferred tax. Income tax is recognised in the consolidated income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, in the countries in which the Group operates, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

DividendsDividends declared on the Company’s equity share capital are recognised as a liability when an irrevocable obligation to pay the dividends is established. In the case of interim dividends this arises when the dividend is paid, while for final dividends this is the date at which the dividends are approved at a shareholders’ general meeting.

Property, plant and equipmentProperty, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items including, where relevant, the cost of subcontractors, direct labour and a proportion of attributable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred.

Depreciation is provided to write off the cost less the estimated residual value of property, plant and equipment. Depreciation for certain manufacturing plant and machinery is calculated by reference to the number of units produced, and for all other assets by equal annual instalments over their estimated useful economic lives as follows:

› Buildings 10 – 33 years › Plant and machinery 3 – 7 years › IT equipment 3 – 5 years

No depreciation is charged on assets in the course of construction as their useful economic life has yet to commence. On completion, the assets are transferred to the appropriate class of property, plant and equipment and depreciation is charged at the above rates.



4. Summary of significant accounting policies (continued)Intangible assetsThe Group undertakes research and development activities with a view to developing new products and product functionality. Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the consolidated income statement when incurred.

Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets only if all of the following conditions have been demonstrated:

› It is technically feasible that the project can be completed and will result in a product that is available for use or sale; › It is intended that the project will be completed and the asset will be used or sold; › The resultant asset can be used or sold; › The resultant asset will generate probable future economic benefits; › There are sufficient technical, financial and other resources to complete the development and use or sell the asset; and › The expenditure attributable to the project can be measured reliably.

Development expenditures that do not meet these criteria are recognised as an expense in the consolidated income statement as they are incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. The expenditure capitalised includes cost of materials, subcontractors, direct labour and a proportion of attributable overheads. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Amortisation is provided to write off the cost of the development expenditure by equal annual instalments over the products’ estimated useful life, which is three years for developed devices and seven years for developed platforms, commencing from the time the asset is available for use. The amortisation of capitalised development expenditure commences when the development phase is complete and the product is available for sale, and is included in research and development costs in the consolidated income statement.

Software and similar licencesExternally purchased software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. The Group also purchases licences to exploit third-party intellectual property rights. Licences are recorded at the historical cost to acquire the licence less accumulated amortisation and impairment losses, and are amortised on a straight-line basis over the life of the licence or, where the licence is indefinite, their estimated useful life which is generally three years. The amortisation of software and similar licences is included in the consolidated income statement within cost of sales or research and development costs as appropriate.

Acquired intangible assetsAt the date of acquisition of a subsidiary, intangible assets that are deemed separable and that arise from contractual or other legal rights are capitalised and included within the net identifiable assets acquired. These intangible assets are initially measured at fair value at the acquisition date (which is regarded as their cost), which reflects market expectations of the probability that the future economic benefits embodied in the asset will flow to the entity, and are amortised on a straight-line basis over their expected useful lives, which range from two to seventeen years. They are subsequently measured at cost less accumulated amortisation and impairment. At each balance sheet date, these assets are assessed for indicators of impairment and, in the event that an asset’s carrying amount is determined to be greater than its recoverable amount, the asset is written down immediately through the consolidated income statement.

Impairment of tangible and intangible assets excluding goodwillThe carrying value of non-current assets is reviewed whenever events or changes in circumstances indicate that the carrying value may not be recoverable to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Intangible assets initially recognised during the current annual period which are not yet available for use are also tested for impairment by reference to the asset’s recoverable amount at the balance sheet date.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of property, plant and equipment and capitalised software and other licences is the greater of their fair value less costs to sell and value in use. The recoverable amount of capitalised development costs is its value in use. In assessing value in use, the estimated future cash flows over the remaining useful economic life of the asset in question are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

InventoriesInventories including work in progress are stated at the lower of cost and net realisable value, being estimated selling price in the ordinary course of business less applicable variable selling costs. Cost is determined on a first in first out basis and includes transport and handling costs. Where necessary, provision is made for obsolete, slow moving and defective inventories.

Cash and cash equivalentsCash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.


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4. Summary of significant accounting policies (continued)LeasesLeases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the consolidated income statement on a straight-line basis over the lease term.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Government grantsGovernment grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets. The benefit of UK research and development is recognised under the UK’s Research and Development Expenditure (“RDEC”) scheme and is of the nature of a government grant. Government grants which relate to research and development expenditure which has been capitalised during a period is netted off against the amount capitalised, and then released over the amortisation period of the related intangible asset.

The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.

ProvisionsProvisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and the amount can be estimated reliably. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Non-recurring itemsItems of income and expense that are considered material, either by their size and/or nature, are classified as exceptional/non-recurring. Such items are shown separately on the face of the consolidated income statement. The categorisation of exceptional items depends on the nature of the items arising.

Financial instrumentsi. Treasury policies and managementThe Group’s treasury policies are designed to ensure that adequate financial resources are available for the development of the Group’s businesses.

ii. Trade receivablesTrade receivables are recognised initially at fair value and subsequently held at amortised cost using the effective interest rate method, less provision for impairment. Trade receivables are assessed individually for impairment and movements in the provision for doubtful debts are recorded in the consolidated income statement.

Where the Group enters in to a factoring agreement the trade receivables are derecognised when the agreement transfers the trade receivables and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred trade receivable, the Group continues to recognise the trade receivable and also recognises a collateralised borrowing for the proceeds received.

iii. Trade payablesTrade payables are recognised initially at fair value and subsequently held at amortised cost using the effective interest rate method. Trade payables are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.



4. Summary of significant accounting policies (continued) Financial instruments (continued) iv. BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

When the Group exchanges with an existing lender one debt instrument into another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability.

v. Derivative financial instrumentsDerivatives are initially recognised at fair value on the date the derivative contract is entered into, and are subsequently remeasured at their fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

(a) hedges of the fair value of recognised assets or liabilities or a firm commitment (“fair value hedges”);

(b) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (“cash flow hedge”); or

(c) hedges of a net investment in a foreign operation (“net investment hedge”).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 31.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within financial income or financial expense. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within financial income or financial expense. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the consolidated income statement as they arise.

Foreign currenciesi. Functional and presentational currencyThe presentational currency of the Group and the Company, and the functional currency of the Company, is the Euro (€). The functional currency of each Group entity is that of the primary economic environment in which it operates.

ii. Transactions and balancesTransactions denominated in foreign currencies have been translated into the functional currency at the actual rates of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies have been retranslated at rates ruling at the balance sheet date. All exchange gains and losses are taken to the consolidated income statement in the period in which they arise.

iii. Group companiesThe results and financial position of the Group’s overseas subsidiary undertakings are translated, where appropriate, into Euros as follows: › Assets and liabilities at each balance sheet date presented are translated at the closing rate at the date of that balance sheet; › Income and expenses are translated at average exchange rates; and › All resulting exchange differences are recognised as a separate component of equity.

5. Critical accounting judgements and key sources of estimation uncertaintyIn the application of the Group’s accounting policies, which are described in note 4, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.


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5. Critical accounting judgements and key sources of estimation uncertainty (continued) Critical judgements in applying the Group’s accounting policiesThe following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in financial statements.

Assessment of fair value of undelivered elements in multiple element arrangementsRevenue is recognised when the significant risks and rewards of ownership of the products or services have passed to the buyer and revenue can be reliably measured. Depending on the Incoterms applicable, there can be judgement regarding the point at which these risks and rewards have been transferred. The Group enters into a number of multiple element arrangements where typically an element of software (which is not fundamental to the effective operation of the product) is delivered after the date of delivery of the initial hardware and software. In such circumstances, where the fair value of the undelivered elements can be estimated by management, revenue equal to this fair value is separately carved out and deferred until such items have been delivered. The remainder of the revenue is recognised on initial delivery. If management’s estimation of the fair value of deferred income were increased by 10% then profit for the period ended 1 April 2016 would be reduced by €0.2 million (2015: reduction of €0.1 million) while net assets would be reduced by €0.9 million (2015: €0.5 million).

Assessing whether development costs meet the criteria for capitalisationThe point at which development costs meet the criteria for capitalisation is critically dependent on management’s judgement of the point at which technical feasibility is demonstrable.

The carrying amount of development costs on projects which are not yet available for sale or use was:

2016 2015 €’000 €’000

Development costs not available for sale or use 10,290 27,169

Key sources of estimation uncertaintyThe key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are discussed below.

Estimating provisions for trade receivablesThe Group has some concentration of credit risk due to the influence of large contracts on its business, albeit these contracts are directly, or indirectly (via the Group’s distribution partners) predominantly with Government agencies both in the UK and internationally. To offset this risk the Group has implemented policies that require appropriate credit checks on potential customers before sales are made. The Group does not hold any security or other collateral in respect of its trade receivables and so was exposed to credit risk in respect of the net trade receivables balance of €51.8 million (2015: €40.5 million) including overdue receivable balances relating to projects in emerging markets. An impairment provision is maintained in respect of amounts owed by specific customers where recoverability of the debt is considered sufficiently uncertain.

Estimating the costs required to complete long-term contractsRevenue recognised under long-term contracts is determined by reference to the stage of completion of the relevant contract. Assessing the stage of completion requires an estimation of the future costs that will be incurred to complete the contract. If management’s assessment of these future costs were amended by 10% then the impact on revenue and gross margin would be €6.5 million (2015: €0.2 million).

Assessing the useful economic lives of capitalised development costsManagement have estimated the useful economic lives of capitalised development costs as three years for developed devices and seven years for developed platforms based on historical knowledge of the life cycle of the Group’s products and technology.

If the estimated useful economic life was reduced by one year, net assets would be reduced by €3.8 million at 1 April 2016 and €1.1 million at 27 March 2015, with a corresponding increase in the Group’s reported profit of €2.8 million and €1.5 million respectively.

Impairment of goodwill, capitalised development costs and acquired intangiblesDetermining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit (“CGU”) to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows of the CGU, and a suitable discount rate, in order to calculate the present value. Similar calculations are required in respect of capitalised development costs and other acquired intangibles. Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Group’s impairment evaluation (see Note 17).

Acquired intangiblesIFRS 3 (revised) “Business Combinations” requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification of other intangible assets at acquisition. The assumptions involved in valuing these intangible assets require the use of estimates and judgements, that may differ from the actual outcome. These estimates and judgements cover future growth rates, expected inflation rates and the discount rate used. Changing the assumptions selected by management could significantly affect the allocation of the purchase price paid between goodwill and other acquired intangibles.



5. Critical accounting judgements and key sources of estimation uncertainty (continued) Contingent considerationContingent 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 revenue and operating profit 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.

Tax estimatesThe calculation of the Group’s total tax charge for the period necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined at the reporting date. To the extent that the final outcome differs from the tax that has been provided, adjustments will be made to income tax and deferred tax provisions. Furthermore, the recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits, based on the latest available profit forecasts, will be available in the future against which the reversal of temporary differences can be deducted.

6. Acquisition of subsidiariesOn 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 book and fair values of the assets and liabilities acquired are as follows:

Fair value Provisional Book value adjustments fair value €’000 €’000 €’000

Intangible assets 7,258 53,268 60,526Property, plant and equipment 4,541 1,562 6,103Non-current financial assets recoverable from vendor 3,055 – 3,055Deferred tax – Assets 5,760 7,345 13,105 – Liability on acquired intangibles – (14,915) (14,915)Inventories 8,288 – 8,288Trade and other receivables 38,669 (6,402) 32,267Income tax receivable 742 (725) 17Cash at bank and in hand 3,690 – 3,690Borrowings (15,786) – (15,786)Derivative financial instruments (614) – (614)Trade and other payables (23,372) 2,459 (20,913)Provisions (4,917) 1,202 (3,715)

Net assets acquired 27,314 43,794 71,108

Goodwill 56,446

Purchase consideration 127,554

Offset of non-current financial assets recoverable from vendor (3,055)Cash at bank and in hand acquired (3,690)

Net cash outflow in relation to Teltronic 120,809

Net cash outflow in relation to prior year acquisitions (see Note 25) 1,180

121,989

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.


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6. Acquisition of subsidiaries (continued)The fair value of the financial assets includes trade and other receivables with a fair value of €32,267,000 and a gross contractual value of €33,627,000. The best estimate at acquisition date of the contractual cash flows not to be collected are €1,360,000.

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.

7. Operating segmentsThe 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.

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).

The reporting to the Board reflects 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 and Systems.

Segment revenues and resultsThe 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 on 27 May 2015 no comparative segmental analysis has been disclosed. As stated above, prior to the acquisition of Teltronic the Group had a single reportable segment and the Group’s management reporting processes were based on reporting by individual legal entities rather than by product or customer type and so no meaningful comparatives are available.

Devices Systems Central Total €’000 €’000 €’000 €’000

Revenue 124,745 64,978 – 189,723Gross profit before non-recurring costs 48,959 36,389 (8,510) 76,838Non-recurring costs (26,370) (26,370)Operating costs (66,307) (66,307)Operating loss (15,839)Net financial expense (3,181)Loss before tax (19,020)

Revenues from major products and servicesThe Group’s revenues from its major products and services were as follows:

2016 2015 €’000 €’000

Sales of products 124,745 131,160Provision of infrastructure solutions and ongoing support services 64,978 –

Consolidated revenue 189,723 131,160



7. Operating segments (continued)Geographical informationThe Group’s revenue from external customers and information about its segment assets (non-current assets excluding financial instruments, deferred tax assets and other financial assets) by geographical location are detailed below:

Revenue Non-current assets

2016 2015 2016 2015 €m €m €m €m

Germany 36.2 39.0 – –Saudi Arabia 29.8 10.6 – –Brazil 27.6 2.1 – – United Kingdom and Ireland 10.4 6.0 63.1 56.3Spain 6.9 3.8 119.8 –Rest of World 78.8 69.7 17.9 20.6

189.7 131.2 200.8 76.9

Information about major customersA significant percentage of the Group’s revenue in each financial period is derived from orders from a small number of end-user organisations. Included in Devices’ revenues are €36.2 million (2015: €39.0 million) from the Group’s largest customer, and €29.8 million (2015: €10.4 million) from the one other Devices’ customer also contributing more than 10% to the Group’s revenues.

8. Adjusted performance measuresThe 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:

2016 2015 €’000 €’000

Operating (loss) profit (15,839) 17,087Depreciation (see Note 18) 3,368 1,801Amortisation (see Note 17) 13,515 8,428

EBITDA 1,044 27,316Non-recurring items 26,370 1,196Provision against receivables in emerging markets 2,354 –Reversal of capitalised development costs (see Note 17) (16,367) (13,108)Reversal of the IFRS 2 share-option charge (see Note 10) 2,840 1,262Reversal of the NI payable on the shares subject to the IFRS 2 share-option charge 296 301

Adjusted EBITDA 16,537 16,967

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 in relation to the acquisitions of Portalify OY and Fylde Micro Limited, impairments relating to the DMR business (€3,817,000 of inventory, €1,520,000 of acquired intangibles and €4,065,000 of capitalised development costs), costs associated with the Firm Placing, Placing and Open Offer, and a provision against outstanding receivables due from a customer in Greece. Non-recurring items in the prior period related to the acquisition of Fylde Micro Limited and subsequent restructuring and net movement in contingent consideration, 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:

2016 2015 €’000 €’000

Acquisition costs relating to Teltronic SAU 6,652 864Acquisition costs relating to Fylde Micro Limited – 532Restructuring costs 11,078 350Costs associated with the Firm Placing, Placing and Open Offer 1,500 –Net movement in contingent consideration (2,627) (2,320)Provision against Greek public safety contract 365 1,770Impairment of DMR balances 9,402 –

26,370 1,196


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8. Adjusted performance measures (continued)The impairment of DMR balances relates to assets which have been impaired to nil as a result of a decline in activity in the DMR business, which is part of the Devices segment, and limited forecast cashflows. Post year end the Directors took the decision to cease future investment in the DMR business.

Adjusted performance measures have been calculated as follows:

For the period ended 1 April 2016 Non- Adjusted Income recurring income Statement items Adjustment(i) Adjustment(ii) Adjustment(iii) Adjustment(iv) Adjustment(v) Adjustment(vi) Adjustment(vii) statement €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000

Revenue 189,723 – – – – – – – – 189,723Cost of sales (118,936) 6,051 – – – – – – – (112,885)

Gross profit 70,787 6,051 – – – – – – – 76,838Selling, marketing and distribution costs (31,403) 3,083 – – – – – 2,354 – (25,966)Research and development costs (24,215) 10,520 (16,367) 8,286 – – – – – (21,776)Administrative (31,008) 6,716 – – 4,437 2,840 296 – – (16,719)

Operating costs (86,626) 20,319 (16,367) 8,286 4,437 2,840 296 2,354 – (64,461)

Operating (loss) profit (15,839) 26,370 (16,367) 8,286 4,437 2,840 296 2,354 – 12,377Operating margin (8.3)% – – – – – – – – 6.5%Financial income 948 – – – – – – – – 948Financial expense (4,129) 218 – – – – – – 301 (3,610)

Net financial expense (3,181) 218 – – – – – – 301 (2,662)

(Loss) profit before (19,020) 26,588 (16,367) 8,286 4,437 2,840 296 2,354 301 9,715Income tax (expense) credit 8,168 (4,650) 3,273 (1,657) (887) (568) (59) (471) (61) 3,088

(Loss) profit for the period attributable to owners of the parent (10,852) 21,938 (13,094) 6,629 3,550 2,272 237 1,883 240 12,803

Adjustment items comprise certain non-operational or non-cash items as follows:(i) Reversal of capitalised development costs (see Note 17) – 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 17) – see above.(iii) Reversal of amortisation of acquired intangibles (see Note 17) – 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 (see Note 10) – 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.



8. Adjusted performance measures (continued)For the period ended 27 March 2015 Non- Adjusted Income recurring income Statement items Adjustment(i) Adjustment(ii) Adjustment(iii) Adjustment(iv) Adjustment(v) Adjustment(vi) Adjustment(vii) statement €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000

Revenue 131,160 – – – – – – – – 131,160Cost of sales (70,508) – – – – – – – – (70,508)

Gross profit 60,652 – – – – – – – – 60,652Selling, marketing and distribution costs (19,995) 1,770 – – – – – – – (18,225)Research and development costs (10,394) – (13,108) 6,747 – – – – – (16,755)Administrative expenses (13,176) (574) – – 1,518 1,262 301 – – (10,669)

Operating costs (43,565) 1,196 (13,108) 6,747 1,518 1,262 301 – – (45,649)

Operating profit (loss) 17,087 1,196 (13,108) 6,747 1,518 1,262 301 – – 15,003Operating margin 13.0% – – – – – – – – 11.4%Financial income 55 – – – – – – – – 55Financial expense (484) – – – – – – – 48 (436)

Net financial expense (429) – – – – – – – 48 (381)

(Loss) profit before 16,658 1,196 (13,108) 6,747 1,518 1,262 301 – 48 14,622Income tax (expense) credit (1,582) (256) 2,753 (1,417) (319) (265) (63) – (10) (1,159)

(Loss) profit for the period attributable to owners of the parent 15,076 940 (10,355) 5,330 1,199 997 238 – 38 13,463

Adjustment items comprise certain non-operational or non-cash items as follows:(i) Reversal of capitalised development costs (see Note 17) – 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 17) – see above.(iii) Reversal of amortisation of acquired intangibles (see Note 17) – 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 (see Note 10) – 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.


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9. (Loss) profit for the period 2016 2015 €’000 €’000

(Loss) profit for the period is stated after charging (crediting): Cost of inventories recognised as an expense (included in cost of sales) 97,752 66,665Depreciation on property, plant and equipment: – Owned assets 3,368 1,801– Amounts included in capitalised development costs (200) (365)Impairment of property, plant and equipment (included in administrative expenses) 139 – Impairment of inventory (included in cost of sales) 6,230 –Impairment of intangible assets (included in research and development costs) 8,010 –Amortisation of intangible assets – Development costs 8,286 6,747– Software and similar licences 792 163– Acquired intangibles 4,437 1,518Research and non-capitalised development costs (excluding amortisation) 5,409 3,647Operating lease rentals: – Land and buildings 2,015 1,499– Plant and machinery 50 19Trade receivables impairment (included in sales, marketing and distribution costs and excluding the non-recurring item described below) (47) (37)Foreign exchange losses 150 1,414Government grants – RDEC (2,234) –

2016 2015 Auditors’ remuneration: €’000 €’000

– Fees payable to the Company’s Auditors for the audit of the Company and consolidated financial statements 225 114– Fees payable to the Company’s Auditors for other services:

– Audit related assurance services (interim review) 41 25– Tax compliance services 59 16– Tax advisory services 13 10– Corporate finance services 1,021 262– All other non-audit services 8 6

1,367 433



10. Employee numbers and costsThe average monthly number of persons employed by the Group (including executive Directors) during the period, analysed by category, was as follows:

2016 2015 Number Number

Research and development 330 205Sales, marketing and distribution 137 95General and administration 86 20Production support 278 69

831 389

The aggregate costs of these employees were as follows:

2016 2015 €’000 €’000

Wages and salaries 40,503 27,214Social security costs 6,781 3,031Other pension costs 1,708 1,322Expense relating to share based payments 2,840 1,262

51,832 32,829

11. Key management compensation and remuneration of DirectorsTotal Directors’ remuneration, excluding gains from the exercise of share options, comprised:

2016 2015

£’000 €’000 £’000 €’000

Directors’ emoluments 906 1,237 872 1,104Company contributions to money purchase pension plans 64 87 51 65

970 1,324 923 1,169

Information on the remuneration of individual Directors is given in those sections of the Directors’ Remuneration Report described as having been audited, and those elements required by the Companies Act 2006 and the Financial Conduct Authority form part of these financial statements. One of the Directors exercised share options during the period giving rise to a taxable gain of £665,000 (2015: £833,000); the total expense in the income statement relating to Directors’ share based payments was €516,000 (2015: €383,000).

The compensation of the Directors and the nine (2015: seven) other “key management personnel” (as defined within IAS 24) was as follows:

2016 2015 €’000 €’000

Salaries and other short-term employee benefits 2,921 2,487Company contributions to money purchase schemes 217 120Termination benefits 194 –Expense relating to share based payments 742 568

4,074 3,175


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12. Financial income 2016 2015 €’000 €’000

Interest receivable and similar income on short-term bank deposits 62 55 Unwind of discounting of trade receivables 886 –

948 55

13. Financial expense 2016 2015 €’000 €’000

Interest payable on borrowings and credit facilities 3,828 436Amortisation of loan arrangement fees 301 48

4,129 484

14. Income tax expense 2016 2015 €’000 €’000

Current tax: Income tax for the period 223 457Deferred tax: Origination and reversal of temporary differences (8,935) 1,125Adjustment in respect of prior periods 1,639 –Impact of change in UK tax rate (1,095) –

Total tax in consolidated income statement (8,168) 1,582

Factors affecting the tax expense for the periodThe 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:

2016 2015 €’000 €’000

Tax reconciliation (Loss) profit before income tax (19,020) 16,658

At standard rate of corporation tax in the UK (3,804) 3,498Effects of: Research and development enhanced expenditure (1,475) (828)Patent box – (447)Expenses not deductible for tax purposes 991 132Employee share options (525) (773)Timing differences (662) –Adjustments in respect of prior periods 1,639 –Overseas tax credits (3,588) –Remeasurement of deferred tax due to change in tax rate (1,095) –Effects of different tax rates of subsidiaries operating in other jurisdictions 305 –Other 46 –

Total tax expense (see above) (8,168) 1,582

Effective tax rate 43% 9%

The Finance Act 2015, which provides for reductions in the main rate of corporation tax from 20% to 19% effective from 1 April 2017 to 31 March 2020 and 18% effective from 1 April 2020, was substantively enacted on 18 November 2015. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date.

A further reduction in the main rate of corporation tax from 19% to 17% from 1 April 2020 was announced in the March 2016 Budget, but has not yet been substantively enacted as at the balance sheet date.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.



15. (Loss) earnings per shareBasic (loss) earnings 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 (loss) earnings per share, the weighted average number of shares is adjusted to allow for the conversion of all dilutive equity instruments.

2016 2015

Before non- Non- Before non- Non- recurring recurring recurring recurring items items Total items items Total

Earnings (loss)attributable to owners of the parent (€’000) 11,086 (21,938) (10,852) 16,016 (940) 15,076

Number of shares Basic weighted average number of shares (‘000) 177,322 177,322 177,322 138,056 138,056 138,056Effect of dilutive securities: Employee incentive plans (‘000) 1,145 – – 1,041 1,041 1,041

Diluted weighted average number of shares (‘000) 178,467 177,322 177,322 139,097 139,097 139,097

Basic EPS (¢) 6.3 (12.4) (6.1) 11.6 (0.7) 10.9

Diluted EPS (¢) 6.2 (12.3) (6.1) 11.5 (0.7) 10.8

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, and provisions against receivables in emerging markets, all net of Corporation Tax at the relevant 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.

2016 2015 €’000 €’000

(Loss) earnings attributable to owners of the parent (Note 8) 12,803 15,076

Adjusted diluted EPS (¢) 7.2 9.7


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16. DividendsNo final dividend in respect of the financial period ended 1 April 2016 is proposed.

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

2016 2015 €’000 €’000

FY16 Interim dividend of 0.79p per Ordinary share 2,071 –FY15 Final dividend of 1.71p per Ordinary share 4,313 –FY15 Interim dividend of 0.69p per Ordinary share – 1,255FY14 Final dividend of 1.41p per Ordinary share – 2,431

6,384 3,686

17. Intangible assets Acquired software, Capitalisation of Software customer development and similar relationships costs licences and brand Goodwill Total €’000 €’000 €’000 €’000 €’000

Cost At 29 March 2014 106,612 5,105 5,499 13,953 131,169Transfer – (504) 504 – –Additions 13,108 834 – – 13,942Acquisitions – – 2,402 5,772 8,174

At 27 March 2015 119,720 5,435 8,405 19,725 153,285Additions 16,367 508 – – 16,875Acquisitions 8,162 2,388 49,976 56,446 116,972Capitalisation of RDEC relating to prior periods1 (2,160) – – – (2,160)Transfer – 724 – – 724

At 1 April 2016 142,089 9,055 58,381 76,171 285,696

Amortisation and impairment At 29 March 2014 72,828 3,412 2,065 – 78,305Charge for the period 6,747 163 1,518 – 8,428Transfer – (88) 88 – –

At 27 March 2015 79,575 3,487 3,671 – 86,733Charge for the period1 8,286 792 4,437 – 13,515Impairment2 5,575 13 2,422 – 8,010Transfer 144 (144) – – –At 1 April 2016 93,580 4,148 10,530 – 108,258

Net book value At 1 April 2016 48,509 4,907 47,851 76,171 177,438

At 27 March 2015 40,145 1,948 4,734 19,725 66,552

At 28 March 2014 33,784 1,693 3,434 13,953 52,864

1 Research and Development Expenditure Credits (“RDEC”) have been recognised for the periods ending 28 March 2014, 27 March 2015 and 1 April 2016. A credit of €2,160,000 is recorded in the current period relating to previous periods, with €1,144,000 of this released in the current period and netted against the amortisation charge.

2 Impairments in the period relate to the write off of intangible assets relating to DMR, comprising acquired intangibles of €1,520,000 and capitalised R&D of €4,065,000. The remaining impairment of €2,673,000 relates to intangible assets acquired with Teltronic which have a fair value, and therefore need to be recognised on acquisition, but which do not have a value to the Group, and therefore were immediately impaired.

The only individually material intangible asset comprises the capitalised development costs for the Next Generation platform, which have a carrying value of €29.1 million at 1 April 2016 and remaining amortisation period of 82 months.



17. Intangible assets (continued)The amortisation charge for each period has been included within the following captions of the consolidated income statement:

2016 2015 €’000 €’000

Cost of sales – –Research and development costs 8,384 6,845Administrative expenses 5,131 1,583

13,515 8,428

GoodwillThe Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill may have been impaired. Goodwill relates to the acquisition during the period of Teltronic SAU, and the acquisitions of Fylde Micro Limited, Portalify OY and 3T Communications AG in prior periods.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (“CGU’s”) or group of units that are expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:

2016 2015 €’000 €’000

Devices 19,725 19,725Systems 56,446 –

76,171 19,725

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are set out below:

Assumption How determined

Revenues Management have used detailed forecasts for the next two years, which is the forecast period for detailed cashflow forecasts. A two year period is considered an appropriate timeframe for the detailed forecasts as management has a good view of future orders and other relevant market dynamics. The detailed forecasts are then extrapolated for periods beyond the forecast period by applying a long term growth rate, as discussed below.Gross margin Gross margin has been calculated based on the specific customer and product mix included in the revenue forecasts.Operating costs Operating costs are based on detailed forecasts reflecting expected future head-count, investment in R&D and routes to market and contracted hedge rates for Sterling-denominated costs.Capital expenditure Forecast capital expenditure is based on specific planned investment together with historical levels of capital expenditure.Discount rate The pre-tax discount rate of 8.3% (2015: 11.0%) applied to the cash flows reflects the weighted average cost of capital of the Group using the industry standard formula.Long term growth rate A long term growth rate of 2% has been used in calculating the value of cashflows beyond the forecast period. The growth rate used is based on the forecast GDP growth rate in the countries in which the Group operates, and other industry specific growth forecasts.

Based on the above, the Directors have concluded that no impairment is required to be recorded, and that no reasonable change in the assumptions would result in an impairment of goodwill.


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18. Property, plant and equipment Land and Assets under Plant and buildings construction machinery IT equipment Total €’000 €’000 €’000 €’000 €’000

Cost At 29 March 2014 – 1,967 14,303 2,647 18,917Foreign exchange – – 63 – 63Transfers – (572) 570 2 –Additions – 1,901 2,043 475 4,419Acquisitions – – 33 – 33Disposals – – – (78) (78)

At 27 March 2015 – 3,296 17,012 3,046 23,354Foreign exchange – – 125 2 127Transfers – (9,971) 9,247 – (724)Additions – 8,330 2,868 282 11,480Acquisitions 3,163 – 2,940 – 6,103Disposals – – (2,054) (50) (2,104)

At 1 April 2016 3,163 1,655 30,138 3,280 38,236

Accumulated depreciation At 29 March 2014 – – 9,161 2,050 11,211Foreign exchange – – 13 – 13Charge for the period – – 1,472 329 1,801

At 27 March 2015 – – 10,646 2,379 13,025Foreign exchange 25 – 163 – 188Charge for the period 51 – 2,984 333 3,368Impairment – – 139 – 139Disposals – – (1,752) (48) (1,800)

At 1 April 2016 76 – 12,180 2,664 14,920

Net book value At 1 April 2016 3,087 1,655 17,958 616 23,316

At 27 March 2015 – 3,296 6,366 667 10,329

At 28 March 2014 – 1,967 5,142 597 7,706

There was no capital expenditure at the end of either period which had been contracted for prior to the end of the period but not provided for in the financial statements.



19. Deferred taxThe Group’s deferred tax assets and (liabilities) totalled €30,788,000 (2015: €13,773,000) and €19,875,000 (2015: €9,479,000) respectively and relate to temporary differences in respect of:

Equity- Capitalised Cash- Acquired settled Other Property, development flow intangible share temporary plant and costs hedges assets Losses options differences equipment Net €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000

At 29 March 2014 (6,757) (85) (770) 9,927 2,277 177 1,300 6,069Acquired – – (480) – – – – (480)Recognised in income (1,272) – 303 (412) 265 (9) – (1,125)Recognised in equity: – Arising on

cash flow hedges – (418) – – – – – (418)– Arising on equity

settled share options – – – – 248 – – 248

At 27 March 2015 (8,029) (503) (947) 9,515 2,790 168 1,300 4,294Acquired – 172 (14,915) 12,933 – – – (1,810)Recognised in income (108) – 2,285 4,136 568 (168) 583 7,296Recognised in equity: – Arising on

cash flow hedges – 734 – – – – – 734– Arising on equity

settled share options – – – – (696) – – (696)Change of rate 403 (20) 1,436 (630) – – (94) 1,095

At 1 April 2016 (7,734) 383 (12,141) 25,954 2,662 – 1,789 10,913

Deferred tax liabilities have been offset against deferred tax assets at 1 April 2016 where there is a legally enforceable right to offset current tax assets and current tax liabilities within the same fiscal jurisdiction.

The Group’s deferred tax assets have been recognised in accordance with IAS 12 as, based on historical performance and future budgets, the Directors believe that it is probable that there will be sufficient taxable profits against which the assets will reverse.

Deferred tax assets and liabilities may be classified as long-term or current as follows:

2016 2015 €’000 €’000

Non-current assets 25,828 11,971Non-current liabilities (18,359) (8,657)

7,469 3,314

Current assets 4,960 1,802Current liabilities (1,516) (822)

3,444 980


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20. Inventories 2016 2015 €’000 €’000

Raw materials 10,146 2,196Work in progress 5,225 2,182Finished goods and goods for resale 11,413 7,755

26,784 12,133

An obsolescence provision is maintained in respect of inventories, the movements on which are set out below:

2016 2015 €’000 €’000

At the beginning of the period 584 906Charged (released) to cost of sales in the consolidated income statement 6,230 (310)Acquired 2,291 –Utilised in period (52) (12)

At the end of the period 9,053 584

The acquired obsolescence provision of €2,291,000 was acquired with Teltronic. The amount charged to the income statement in the period includes €3,817,000 (2015: €nil) relating to the impairment of DMR inventory and €2,234,000 (2015: €nil) relating to the impairment of inventory acquired with Teltronic (see Note 8).

21. Trade and other receivables 2016 2015 €’000 €’000

Trade receivables 57,756 42,581Less: provision for impairment of receivables (5,989) (2,070)

Trade receivables (net) 51,767 40,511Other receivables 6,125 862Restricted cash 3,925 –RDEC receivable 3,375 –Prepayments and accrued income 22,985 6,259

88,177 47,632

Restricted cashThe Company has received €3.9 million of advance payments from a customer that are treated as “restricted cash” in accordance with IAS 7 “Statement of cash flows” as, although the funds are held in a separate account in the Company’s name, they are not available for general use until predetermined periods have elapsed following the delivery of the related goods.

Credit risk in relation to trade receivablesThe Group has some concentration of credit risk due to the influence of large contracts on its business, albeit these contracts are directly, or indirectly (via the Group’s distribution partners) predominantly with Government agencies both in the UK and internationally. To offset this risk the Group has implemented policies that require appropriate credit checks on potential customers before sales are made. Customer orders are checked against pre-set requirements before acceptance and formal credit control procedures are applied subsequent to invoicing the customer. Letters of credit and payments in advance are also obtained from customers as appropriate.

The Group does not hold any security or other collateral in respect of its trade receivables and so was exposed to credit risk in respect of the net trade receivables balance of €51,767,000 (2015: €40,511,000). Management believe that the credit quality of trade receivables which are within the Group’s typical payment terms of between 30 and 90 days is good, with €10,157,000 (2015: €9,438,000) being overdue but not impaired at the period end, of which €1,591,000 was less than 30 days overdue (2015: €1,081,000) and €7,537,000 (2015: €4,542,000) was more than 90 days overdue.

An impairment provision is maintained in respect of amounts owed by specific customers which were more than 120 days overdue and where recoverability of the debt was considered sufficiently uncertain. While the Board will continue to pursue full settlement of the amounts outstanding under a Greek public safety contract, given the current economic situation in Greece, which makes the timing and value of any payments uncertain, the Group provided €1,770,000 in 2015 and €365,000 in 2016, being the total financial exposure. The Group has also provided €2,354,000 in 2016 in relation to receivables from contracts in other emerging markets, being the total financial exposure on these contracts.



21. Trade and other receivables (continued)Credit risk in relation to trade receivables (continued)

The movement in the impairment provision during the period and the prior period is shown below:

2016 2015 €’000 €’000

At the beginning of the period 2,070 1,004(Released) charged to the consolidated income statement (47) (37)Acquired 1,360 –Provision against Greek public safety contract included in non-recurring items 365 1,770Provision against receivables in emerging markets 2,354 –Utilised in period (113) (667)

At the end of the period 5,989 2,070

Foreign exchange risk in relation to trade receivablesThe carrying amounts of the Group’s trade receivables are denominated in the following currencies:

2016 2015 €’000 €’000

Euro 32,212 33,877Sterling 1,892 4,671US dollar 7,607 1,678Brazilian Real 9,691 –Other 365 285

Total 51,767 40,511

The Group’s overall foreign exchange risk is explained in Note 31 “Financial instruments”.

22. Cash and cash equivalentsThe denomination and interest rate risk profile of the Group’s cash and cash equivalents is as follows:

2016 2015

Cash at bank Short-term Cash at bank Short-term and in hand deposits Total and in hand deposits Total €’000 €’000 €’000 €’000 €’000 €’000

Sterling 14 217 231 9 – 9US dollar 23 38 61 723 – 723Euro 1,832 11 1,843 1,235 9 1,244Other currencies 119 – 119 425 – 425

Total 1,988 266 2,254 2,392 9 2,401

The credit risk associated with cash and cash equivalents is mitigated by holding funds with counterparties with high credit ratings assigned by international credit rating agencies. Deposit accounts represent amounts placed on short-term deposit on the money markets through accounts held at AA2 to AA3 rated banks (2015: AA2 to AA3 rated).


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23. Borrowings and facilitiesBorrowings outstanding at the end of the period 2016 2015 €’000 €’000

Bank overdrafts 4,643 –Bank borrowings, all of which are denominated in Euros, are repayable as follows: Within one year 70,284 2,983In the second year 11,392 170In the third to fifth year inclusive 33,315 376In more than five years 2,052 –

121,686 3,529Less: amounts due for settlement within 12 months (shown under current liabilities) (74,927) (2,983)

Amount due for settlement after 12 months 46,759 546

FacilitiesOn 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 comprise €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. Other guarantees are disclosed in Note 32, while changes in the Group’s principal bank facilities since the end of the year are set out in Note 35.

24. Trade and other payables 2016 2015 €’000 €’000

Trade payables 24,358 30,721Other taxation and social security 1,910 1,747Accruals 19,241 9,059Deferred income 3,081 3,573 Payments in advance 659 169

49,249 45,269

Non-current

Deferred income 7,509 3,348

Non-current deferred income relates to non-standard warranty package revenues, which are amortised over the underlying period of the warranty cover, and amounts billed in advance on Systems contracts.

At the end of the period the Group had entered into supply agreements under which the Group has minimum contractual purchase commitments of €11.8 million (2015: €9.6 million) during the three month period subsequent to the period end. Included is a purchase commitment for DMR inventory of €1.2 million which may result in a loss being recorded in a future period given the decision to cease investment in this part of the business.



24. Trade and other payables (continued)Foreign exchange risk in relation to trade payablesThe carrying amounts of the Group’s trade payables are denominated in the following currencies:

2016 2015 €’000 €’000

Euro 13,284 15,241Sterling 3,806 6,058US dollar 4,819 9,316Other currencies 2,449 106

Total 24,358 30,721

The Group’s overall foreign exchange risk is explained in Note 31 “Financial instruments”.

25. Provisions 2016 2015

Warranty Contingent Warranty Contingent provision consideration Other Total provision consideration Other Total €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000

At the beginning of the period 896 6,998 – 7,894 1,227 4,905 – 6,132Arising on acquisition of Teltronic SAU as described in Note 6 2,409 – 1,306 3,715 – – – –Arising on acquisition of Fylde Micro Limited – – – – – 4,413 – 4,413Subsequent increase (release) of part of the contingent consideration – (2,627) – (2,627) – (2,320) – (2,320)Charged to the consolidated income statement 263 – (208) 55 258 – – 258Settled or utilised in period – (1,180) – (1,180) (589) – – (589)

At the end of the period 3,568 3,191 1,098 7,857 896 6,998 – 7,894Less: amounts due for settlement within 12 months (shown under current liabilities) (2,994) (3,191) (307) (6,492) (483) (2,095) – (2,578)

Amount due for settlement after 12 months 574 – 791 1,365 413 4,903 – 5,316

Warranty provisionA 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 considerationContingent 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 revenue and operating profit 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.

OtherOther provisions relate to potential royalties due on products sold in previous periods. The provision will be released as the related sales pass the statute of limitations for a claim, with the full amount released over a period of three years.


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26. Share capitalAuthorised share capital 2016 2015

Number £ €000 Number £ €000

Authorised Ordinary shares of £0.0005 each 400,000,000 200,000 227 400,000,000 200,000 227

Issued share capitalDuring 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:

Share Share capital premium Number £ €000 €000

At 29 March 2014 and 27 March 2015 138,645,431 69,323 79 999Issue of new shares, net of expenses of €5,173,000, as part of the acquisition of Teltronic 46,538,461 23,269 31 77,423

At 1 April 2016 185,183,892 92,592 110 78,422

The Company has one class of ordinary shares which carry no right to fixed income.

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

Aggregate Employee consideration consideration Number €000 €000

At 29 March 2014 503,432 Purchase of Ordinary Shares for Treasury 2,880,867 5,397 –Exercise of options under employee share option schemes (2,164,200) – 193

At 27 March 2015 1,220,099 Purchase of Ordinary Shares for Treasury 2,426,157 5,463 –Exercise of options under employee share option schemes (2,829,774) – 703

At 1 April 2016 816,482

27. Share based paymentsShare options have been granted to Directors and employees under the following equity-settled schemes:

i. Long Term Incentive PlanThe Group launched its Long Term Incentive Plan for senior executives and management in July 2008. Annual awards have been made under the Long Term Incentive Plan which will vest in the event that certain performance targets are met. Further details are set out in the Directors’ Remuneration Report.

ii. Employee SAYE schemesFollowing shareholder approval at the 2008 AGM the Company launched an all-employee SAYE scheme in September 2008. The fourth scheme matured during the period, and a further invitation to employees to join the scheme was issued in August 2015.

iii. Deferred bonus sharesDeferred shares are issued as part of the bonus arrangements for senior management. Further details are set out in the Directors’ Remuneration Report.

The Group recognised an expense of €2,840,000 (2015: €1,262,000) in relation to equity-settled share based payments during the period.



27. Share based payments (continued)Movements in the total number of share options outstanding and their relative weighted average exercise prices are as follows:

2016 2015

Weighted Weighted average average exercise Number exercise Number price in £ of options price in £ of options per share (000s) per share (000s)

At the beginning of the period 0.22 8,846 0.13 9,409Granted 0.37 2,419 0.35 2,622Forfeited and lapsed 0.06 (1,650) 0.03 (1,021)Exercised 0.19 (2,830) 0.07 (2,164)

At the end of the period 0.32 6,785 0.22 8,846

The weighted average share price at the date of exercise of the options exercised during the period was £1.62 (2015: £1.45).

The outstanding options may be analysed as follows:

2016 2015

Weighted Weighted average average exercise Number exercise Number price in £ of options price in £ of options per share (000s) per share (000s)

Vested and exercisable – – 0.43 3Unvested 0.32 6,785 0.22 8,843

6,785 8,846


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27. Share based payments (continued)Share options outstanding at each reporting date have the following expiry date and exercise prices.

2016 2015 Exercise price Number Number Expiry date Scheme in £ per share (000s) (000s)

30 April 2015 2012 SAYE 3 year scheme 0.43 – 323 July 2015 2013 LTIP –1 – 2,7001 March 2016 2011 SAYE 5 year scheme 0.34 – 561 March 2016 2013 SAYE 3 year scheme 0.54 – 81131 July 2016 2013 Deferred shares –1 97 11931 July 2016 2014 LTIP –1 1,707 1,9061 March 2017 2014 SAYE 3 year scheme 0.96 305 35930 April 2017 2012 SAYE 5 year scheme 0.43 14 1416 June 20 17 2015 LTIP –1 1,032 1,44117 July 2017 2015 Deferred shares –1 34 –31 July 2017 2014 Deferred shares –1 69 8328 February 2018 2015 SAYE 3 year scheme 1.19 462 5281 March 2018 2013 SAYE 5 year scheme 0.54 114 12816 June 2018 2015 Additional LTIP –1 312 31213 August 2018 2016 LTIP –1 1,401 –4 January 2019 2016 Additional LTIP –1 197 –10 February 2019 2016 SAYE 3 year scheme 1.29 537 –1 March 2019 2014 SAYE 5 year scheme 0.96 133 13428 February 2020 2015 SAYE 5 year scheme 1.19 227 25210 February 2021 2016 SAYE 5 year scheme 1.29 144 –

6,785 8,846

1 Not applicable for awards under the LTIP scheme or deferred shares forming part of the short-term bonus arrangements for senior management

The weighted average remaining contractual life of the outstanding options was 1 year and 8 months (2015: 1 year and 5 months).

The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the trinomial model. The significant inputs into the model for each grant during the period and the prior period were:

2015 2016 deferred 2016 Additional 2016 2016 bonus LTIP LTIP SAYE SAYE

Date of grant 14 July 2015 13 August 2015 4 January 2016 10 August 2015 10 August 2015Share price at grant date £1.58 £1.60 £1.86 £1.57 £1.57Exercise price – – – £1.29 £1.29Number of employees 5 46 1 20 32Shares under option 33,540 1,501,698 196,990 143,573 543,071Vesting period 24 months 36 months 36 months 60 months 36 monthsExpected volatility (expressed as standard deviation of expected share price returns) 10% 34% 20% 33% 33%Expected option life 24 months 36 months 36 months 63 months 39 monthsRisk free interest rate (based on national Government bonds) 2.5% 2.5% 2.5% 2.5% 2.5%Dividend yield 2.2% 2.2% 2.2% 2.2% 2.2%Fair value per option £1.51 £1.50 £1.74 £0.52 £0.46



27. Share based payments (continued) 2014 2015 deferred Additional 2015 2015 2015 bonus LTIP LTIP SAYE SAYE

Date of grant 18 June 2014 18 June 2014 18 June 2014 1 September 1 September 2014 2014Share price at grant date £1.14 £1.45 £1.45 £1.42 £1.42Exercise price – – – £1.19 £1.19Number of employees 7 1 40 30 108Shares under option 88,933 312,391 1,440,867 252,350 527,228Vesting period 36 months 48 months 36 months 60 months 36 monthsExpected volatility (expressed as standard deviation of expected share price returns) 11% 11% 11% 11% 11%Expected option life 36 months 48 months 36 months 63 months 39 monthsRisk free interest rate (based on national Government bonds) 3.0% 3.0% 3.0% 3.0% 3.0%Dividend yield 2.0% 2.0% 2.0% 2.0% 2.0%Fair value per option £1.14 £1.34 £1.36 £0.55 £0.52

The expected volatility for options granted during the period and prior period was determined by reference to the Company’s share price since Listing in August 2007. Share options are granted under a service condition. Such conditions are not taken into account in the fair value measurement of the services received.

28. Cash generated from operations 2016 2015 €’000 €’000

(Loss) profit before income tax (19,020) 16,658Adjustments for: Depreciation charges 3,368 1,801Amortisation charges 13,515 8,428Impairment charges 8,149 –Loss on disposal of fixed assets 304 –Equity settled share based payment charge 2,840 1,262Financial income (948) (55)Financial expense 4,129 484

Cash generated from operations before movements in working capital 12,337 28,578Increase in inventories (6,363) (1,397)(Increase) in trade and other receivables (4,017) (8,730)(Decrease) increase in trade and other payables (13,246) 9,405Decrease in provisions (2,572) (2,651)

Movements in working capital (26,198) (3,373)

Cash (used in) generated from operations (13,861) 25,205

Cash (utilisation) conversion (112%) 88%

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


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29. Reconciliation of cash flows to movements in net debt 2016 2015 €’000 €’000

Net decrease in cash and cash equivalents (162) (5,614)Net (drawdown) repayment of borrowings (103,472) (919)Arrangement fee 1,620 150

Changes in net debt resulting from cash flows (102,014) (6,383)Amortisation of debt issue costs (301) (48)Write off unamortised arrangement fee on old facility (218) –Borrowings acquired with subsidiary undertaking (15,786) –

Net movements in net debt (118,319) (6,431)Net funds (debt) at the beginning of the period (1,128) 5,305Foreign exchange 15 (2)

Net debt at the end of the period (119,432) (1,128)

Net funds (debt) comprises: Cash and cash equivalents 2,254 2,401Gross borrowings – Amounts due within one year (74,927) (2,983) – Amounts due after one year (46,759) (546)

(119,432) (1,128)

30. Operating lease commitmentsThe future aggregate minimum lease payments under non-cancellable operating leases are as follows:

2016 2015

Plant and Plant and machinery Property Total machinery Property Total €’000 €’000 €’000 €’000 €’000 €’000

No later than one year 558 624 1,182 6 1,093 1,099Later than one year and no later than five years 877 6,652 7,529 – 6,589 6,589More than five years – 13,490 13,490 – 15,428 15,428

1,435 20,766 22,201 6 23,110 23,116

The Group rents its principal premises in Waterbeach under a lease which expires on 30 July 2030. The Group consolidated its four UK operations into this building on 4 January 2016, although the lease was signed before the end of the prior year. The lease is subject to a two year ‘‘rent-free’’ period.



31. Financial instrumentsDerivative financial instruments

2016 2015 €’000 €’000

Derivatives that are designated and effective as hedging instruments carried at fair value – cash flow hedges Foreign exchange derivative financial instruments (through equity) (2,309) 2,516

The above foreign exchange derivative financial instruments, which mature at various dates during the coming year, represent aggregate sales of €33,365,000 and $8,937,000 and purchases of £25,040,000 and €7,569,000 (2015: €34,932,000 and £27,412,000 respectively).

Financial assets and liabilitiesThe Group’s accounting policies for financial instruments have been applied to the items below:

2016 2015

Derivatives Derivatives Loans and used for Loans and used for receivables hedging receivables hedgingAssets as per balance sheet €’000 €’000 €’000 €’000

Trade and other receivables, excluding prepayments 60,464 – 43,443 –Derivative financial instruments – – – 2,516Cash and cash equivalents 2,254 – 2,401 –

62,718 – 45,844 2,516

2016 2015

Liabilities at Liabilities at fair value Derivatives Other fair value Derivatives Other through profit used for financial through profit used for financial and loss hedging liabilities and loss hedging liabilities Liabilities as per balance sheet €’000 €’000 €’000 €’000 €’000 €’000

Borrowings, excluding capitalised arrangement fee – – (123,009) – – (3,529)Derivative financial instruments – (2,309) – – – –Trade and other payables, excluding non–financial instruments – – (46,680) – – (43,522)Contingent consideration (3,191) – – (6,998) – –

(3,191) (2,309) (169,689) (6,998) – (47,051)


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31. Financial instruments (continued)Trade receivablesTrade receivables are recognised initially at fair value, which includes discounting as significant where receipt of payment is not expected for more than one year, and subsequently re-measured at amortised cost using the effective interest rate method, less provision for impairment. The unwind of discounting is recognised in finance income across the period to the receipt of cash. A provision for impairment of trade receivables is established where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, or default or delinquency in payments are considered to be indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognised in the consolidated income statement within administrative expenses. When a trade receivable is irrecoverable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against the trade receivable impairment provision in the consolidated income statement. Details concerning the credit risk associated with trade receivables are set out in Note 21 above.

Derivative financial instruments and hedging activitiesDerivatives are initially recognised at fair value on the date that a derivative contract is entered into and are subsequently re-measured at their fair value. Details concerning derivative financial instruments are set out above.

Cash and cash equivalentsCash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Further details are set out in Note 22 above.

Fair value estimationThe fair value of foreign exchange contracts is determined by comparing contracted forward exchange rates with the prevailing exchange rates at the balance sheet date. As a result they fall into “Level 2” of the fair value hierarchy as defined in Paragraph 27A of IFRS 7 “Financial Instruments: Disclosures”.

The fair value of the contingent consideration is determined by comparing the contractual terms of the consideration to actual and forecast post acquisition results. As a result the contingent consideration falls into “Level 3” of the fair value hierarchy. The movement in the fair value of the contingent consideration is disclosed in Note 25.

The nominal value less impairment provision of trade receivables and payables approximates to their fair value. The book value of all other financial assets and liabilities approximate to fair value.

Financial risk managementThe Group’s operations expose it to financial risks that include the effects of changes in certain currency rates, credit risk and interest rate cash flow and fair value risk. The Group has in place risk management procedures that seek to limit the adverse effects on the financial performance of the Group by monitoring the movements in relevant currency and interest rates and a credit control procedure to minimise the risk of customer debt default.

The Board of Directors sets the policies for liquidity, credit and interest rate cash flow and fair value risk, and these are implemented by the Group’s finance department which has a procedures manual that sets out specific guidelines for managing currency, interest and credit risk. In circumstances where it is appropriate financial instruments are used to manage those risks.

The financial risks to which the Group is exposed changed following the acquisition of Teltronic. The principal changes were an increased exposure to the Brazilian Real, and an increase in interest rate risk as a result of the additional financing facilities taken out to fund the acquisition.

Market risk managementThe Group is not exposed to market risks other than currency and interest rate risks.

Foreign exchange riskCurrency denominated bank accounts are maintained to provide some cover for timing differences, and a currency exchange hedging policy has been agreed by the Board of Directors. The Group primarily invoices its customers in Sterling pounds (GBP), US dollars (US$), Euros (€) and, following the acquisition of Teltronic, Brazilian Real (B$), and the majority of the Group’s suppliers also trade in these currencies. The exposure to other currencies is not material to the Group’s operations.

i. SterlingThe Group has a partial natural hedge as operating expenses are primarily denominated in Sterling and this exposure is partly offset by Sterling receivables from the Group’s UK business. However, there remains a net exposure and the Board has agreed a policy of taking out forward contracts on a rolling twelve month basis to hedge the forecast monthly Sterling operating costs.



31. Financial instruments (continued)Foreign exchange risk (continued) i. Sterling (continued)The Group had the following current assets and liabilities denominated in Sterling:

2016 2015 £’000 £’000

Gross contracted amount of outstanding forward contracts (25,040) (27,413)

Trade receivables denominated in GBP 1,513 3,419

Sundry receivables denominated in GBP 83 68

Cash balances denominated in GBP 185 7

Trade payables denominated in GBP (3,043) (4,435)

Other payables denominated in GBP (8,128) (5,735)

Percentage of net current assets not matched by forward contracts – –

The period-end rate and the average rate for the period were as follows:

2016 2015

Period-end rate €1.25 / £1 €1.37 / £1

Average rate for the period €1.31 / £1 €1.27 / £1

If Sterling had weakened or strengthened by 10% against the Euro then the following additional foreign exchange gains (losses) would have been reported in the consolidated income statement or consolidated statement of comprehensive income:

2016 2015 €’000 €’000

GBP weakens (1,778) (2,583)

GBP strengthens 1,956 2,841

ii. US DollarPurchases and receipts in US dollars are dealt with through the Group’s US dollar current account, with further purchases of currency to meet US dollar denominated liabilities being made as necessary on a spot basis. Any significant US dollar revenues or purchases are hedged on order confirmation.

The Group had the following current assets and liabilities denominated in US dollars:

2016 2015 $’000 $’000

Gross contracted amount of outstanding forward contracts 8,937 –

Trade receivables denominated in US dollars 8,630 1,787

Cash balances denominated in US dollars 69 820

Trade payables denominated in US dollars (5,467) (10,417)

Percentage of net current assets not matched by forward contracts – 100%


2016 2015

Period-end rate $1.13 / €1 $1.07 / €1

Average rate for the period $1.10 / €1 $1.27 / €1

If the US dollar had weakened or strengthened by 10% against the Euro then the following additional foreign exchange gains (losses) would have been reported in the consolidated income statement or consolidated statement of comprehensive income:

2016 2015 €’000 €’000

US dollar weakens 459 (730)

US dollar strengthens (505) 664


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31. Financial instruments (continued) Foreign exchange risk (continued) iii. Brazilian RealPurchases and receipts in Brazilian Real are dealt with through the Group’s Brazilian Real current account, with further purchases of currency to meet Brazilian Real denominated liabilities being made as necessary on a spot basis.

The Group had the following current assets and liabilities denominated in Brazilian Real:

2016 2015 R$’000 R$’000

Gross contracted amount of outstanding forward contracts – –

Trade receivables denominated in Brazilian Real 39,268 –

Cash balances denominated in Brazilian Real 324 –

Trade payables denominated in Brazilian Real (2,043) –

Percentage of net current assets not matched by forward contracts – –


2016 2015

Period-end rate R$4.08 / €1 R$3.48 / €1

Average rate for the period R$3.96 / €1 R$3.11 / €1

If the Brazilian Real had weakened or strengthened by 10% against the Euro then the following additional foreign exchange gains (losses) would have been reported in the consolidated income statement or consolidated statement of comprehensive income:

2016 2015 €’000 €’000

Brazilian Real weakens (843) –

Brazilian Real strengthens 927 –

Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash and short-term deposits and the availability of funding through an adequate amount of committed credit facilities. Accordingly on 1 October 2015 the Group entered in to new bank facilities, as disclosed in Note 23, while changes in the Group’s principal bank facilities since the end of the year are set out in Note 35.

The table below analyses the Group’s financial liabilities, which will be settled on a net basis, into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than Between Between one year 1 & 2 years 2 & 5 years €’000 €’000 €’000

At 1 April 2016 Borrowings 74,927 11,392 35,567Trade and other payables, excluding non–financial instruments 46,675 – –Contingent consideration 3,191 – –

At 27 March 2015 Borrowings 3,068 220 507Trade and other payables, excluding non–financial instruments 43,522 – –Contingent consideration 2,095 4,903 –

Borrowings are Euro-denominated.

Cash flow and fair value interest rate riskThe Group had interest bearing cash deposits of €266,000 (2015: €9,000).

The Group’s outstanding borrowings comprise €10,947,000 (2015: €1,821,000) which bears interest at fixed rates and €106,246,000 (2015: €1,930,000) which bears interest at floating rates as set out in Note 23 above, exposing the Group to cash flow interest rate risk. A change of 1% in interest rates at the balance sheet date, applied to borrowings outstanding at that point in time, would have had a €1,061,000 impact on the Group’s reported results (2015: €20,000).



31. Financial instruments (continued) Off-settingCash balances of €nil (2015: €6,706,000) have been off-set against bank overdrafts where there is a legal right of set-off.

Capital risk managementThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The capital structure of the Group comprises borrowings (as disclosed in Note 23), cash and cash equivalents (as disclosed in Note 22) and the equity attributable to equity holders in the parent company (comprising the issued share capital, share premium, other reserves and retained earnings disclosed in the Consolidated Statement of Changes in Equity). At 1 April 2016 the Group had net assets of €137,856,000 (2015: €84,622,000) which included net debt of €119,432,000 (2015: Net debt of €1,128,000). In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, borrow additional funds or sell assets to reduce debt.

The Group is not subject to externally imposed capital requirements. The Group is subject to certain covenant restrictions under its bank facilities. The Group’s debt providers have waived a potential breach of year end covenants.

32. Contingent liabilitiesThe Group has entered into guarantee and performance bond arrangements with its customers totalling approximately €12.5 million (2015: €2.4 million). The Group is also subject to disputes with suppliers during the ordinary course of business. Provision is made for any amounts that the Directors consider will probably become payable under such arrangements.

33. Ultimate controlling partyThe Directors do not consider that Sepura plc has an ultimate controlling party, as no individual shareholder is able to exercise control over the Company.

34. Related party transactionsBalances and transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The remuneration of the key management personnel of the Group is disclosed in Note 11. There are no other transactions with related parties.

35. Post balance sheet eventOn 27 June 2016 the Company announced a Firm Placing, and Placing and Open Offer (the “Capital Raise”) to raise £65 million (gross). The Capital Raise was approved by shareholders at a General meeting on 15 July 2016 and 185,714,285 Ordinary shares were issued on 18 July 2016.

Prior to the Capital Raise the Company entered into a €21 million bridging facility on 17 June 2016 to provide additional liquidity until the completion of the Capital Raise. This facility has been repaid in full from the proceeds of the Capital Raise.


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Independent Auditors’ Report to the Members of Sepura plc

Report on the parent company financial statementsOur opinionIn our opinion, Sepura plc’s parent company financial statements (the “financial statements”):

› give a true and fair view of the state of the parent company’s affairs as at 1 April 2016 and of its cash flows for the year then ended;

› have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

› have been prepared in accordance with the requirements of the Companies Act 2006.

What we have auditedThe financial statements, included within the Annual Report and Accounts (“Annual Report”), comprise:

› the Company Balance Sheet as at 1 April 2016;

› the Company Statement of Changes in Equity for the year then ended; and

› the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 101 “Reduced Disclosure Framework”.

Other required reportingConsistency of other information Companies Act 2006 opinionIn our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

ISAs (UK & Ireland) reportingUnder International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”) we are required to report to you if, in our opinion, information in the Annual Report is:

› materially inconsistent with the information in the audited financial statements; or

› apparently materially incorrect based on, or materially inconsistent with, our knowledge of the parent company acquired in the course of performing our audit; or

› otherwise misleading.

We have no exceptions to report arising from this responsibility.

Adequacy of information and explanations receivedUnder the Companies Act 2006 we are required to report to you if, in our opinion:

› we have not received all the information and explanations we require for our audit; or

› adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

› the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remunerationDirectors’ remuneration report – Companies Act 2006 opinionIn our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Other Companies Act 2006 reportingUnder the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.



We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Other matterWe have reported separately on the group financial statements of Sepura plc for the year ended 1 April 2016.

Matthew Mullins (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Cambridge 29 July 2016


Responsibilities for the financial statements and the auditOur responsibilities and those of the directorsOur responsibilities and those of the directors

As explained more fully in the Statement of Directors’ Responsibilities set out on pages 54 to 55, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involvesWe conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

› whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed;

› the reasonableness of significant accounting estimates made by the directors; and

› the overall presentation of the financial statements.

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Governance




Company Balance SheetOf Sepura plc, Company number 04353801, year ended 1 April 2016

2016 2015 Note €’000 €’000

Fixed assets Tangible assets 3 16,009 9,143Intangible assets 4 41,772 41,336Investments in subsidiaries 5 142,500 25,013

Total fixed assets 200,281 75,492

Current assets Stock 6 13,397 10,604Debtors 7 59,466 45,532Derivative financial instruments 9 – 2,516Cash at bank and in hand 402 806

Total current assets 73,265 59,458

Current liabilities Creditors: Amounts falling due within one year 11 (105,761) (42,135)Provisions for liabilities (3,866) (2,578)

(109,627) (44,713)

Net current (liabilities) assets (36,362) 14,745

Total assets less current liabilities 163,919 90,237 Creditors: Amounts falling due after more than one year 11 (42,730) (3,348)Provision for liabilities 12 (574) (5,316)

Net assets 120,615 81,573

Capital and reserves Called-up share capital 13 110 79Share premium 13 78,422 999Other reserves (690) (275)Retained earnings 42,773 80,770

Total equity 120,615 81,573

The parent company financial statements on pages 105 to 113 were approved by the Board and authorised for issue on 29 July 2016 and are signed on its behalf by:

Gordon Watling Richard SmithChief Executive Officer Chief Financial Officer




Share Share Other Retained Total capital premium reserves earnings equity €’000 €’000 €’000 €’000 €’000

At 29 March 2014 79 999 (46) 71,943 72,975Profit for the period – – – 14,031 14,031Other comprehensive (expense) income for the period – – (229) 1,695 1,466

Total comprehensive (expense) income – – (229) 15,726 15,497

Transactions with owners Tax on share option schemes – – – 729 729Employee share option schemes: value of employee services – – – 1,262 1,262Equity dividends paid – – – (3,686) (3,686)Treasury shares – purchase of own shares – – – (5,397) (5,397)Treasury shares – issue of shares to settle employee share options – – – 193 193

Total transactions with owners – – – (6,899) (6,899)

At 27 March 2015 79 999 (275) 80,770 81,573Loss for the period – – – (24,765) (24,765)Other comprehensive (expense) income for the period – – (415) (4,232) (4,647)

Total comprehensive (expense) income – – (415) (28,997) (29,412)

Transactions with owners Tax on share option schemes – – – (696) (696)Employee share option schemes: value of employee services – – – 2,840 2,840Equity dividends paid – – – (6,384) (6,384)Issue of shares 31 77,423 – – 77,454Treasury shares – purchase of own shares – – – (5,463) (5,463)Treasury shares – issue of shares to settle employee share options – – – 703 703

Total transactions with owners 31 77,423 – (9,000) 68,454

At 1 April 2016 110 78,422 (690) 42,773 120,615

Company Statement of Changes in EquityOf Sepura Plc, Company number 04353801 year ended 1 April 2016

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Governance




Notes to the Parent Company Financial StatementsFor the period ended 1 April 2016

1. Principal accounting policiesBasis of accountingThe separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the definition of a qualifying entity under Financial Reporting Standard (“FRS”) 100 issued by the Financial Reporting Council. Accordingly, the financial statements have therefore been prepared in accordance with FRS 101 “Reduced Disclosure Framework” as issued by the Financial Reporting Council. A reconciliation of the impact of adopting FRS 101 is included in Note 20.

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payment, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash-flow statement and certain related party transactions.

Where required, equivalent disclosures are given in the consolidated financial statements.

The Company has prepared these financial statements for the period to 1 April 2016, being the nearest Friday to the end of the period.

The financial statements are prepared on a going concern basis and in accordance with the historical cost convention, except for certain financial instruments that have been measured at fair value. The principal accounting policies adopted are the same as those set out in Note 4 to the consolidated financial statements except as noted below. The critical accounting judgements and key sources of estimation uncertainty are the same as those set out in Note 5 to the consolidated financial statements.

Investments in subsidiaries and associates are stated at cost less, where appropriate, provisions for impairment.

Under FRS101 a company which is a member of a group that prepares publicly available consolidated financial statements which give a true and fair view is able to apply certain financial disclosure exemptions. The Company intends to continue to apply these exemptions to the Company’s financial statements for the year ending 31 March 2017. Shareholders wishing to object to the use of these exemptions should contact the Company Secretary at the Company’s registered office.

2. Result for the financial periodAs permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the year. The parent company’s loss after taxation was €24,765,000 (2015: profit of €14,031,000). The audit fee for the Company was €144,000 (2015: €90,000).

The average number of employees of the Company during the period was 324 (2015: 301) and total staff costs, excluding charges for share options, were €26.8 million (2015: €24.5 million). Information on the remuneration of Directors is given in those sections of the Directors’ Remuneration Report described as having been audited and Note 11 to the Company’s consolidated financial statements, and those elements required by the Companies Act 2006 and the Financial Conduct Authority form part of these financial statements.

The auditor’s remuneration for audit and other services is disclosed in Note 9 to the consolidated financial statements.

3. Tangible assets Assets under Plant and IT construction machinery equipment Total €’000 €’000 €’000 €’000

Cost At 27 March 2015 3,296 15,019 2,878 21,193Transfers (9,892) 9,168 – (724)Additions 8,251 1,419 89 9,759Disposals – (1,897) (48) (1,945)

At 1 April 2016 1,655 23,709 2,919 28,283

Accumulated depreciation At 27 March 2015 – 9,798 2,252 12,050Foreign exchange – 13 – 13Charge for the period – 1,582 228 1,810Impairment – 139 – 139Disposals – (1,690) (48) (1,738)

At 1 April 2016 – 9,842 2,432 12,274

Net book value at 1 April 2016 1,655 13,867 487 16,009

Net book value at 27 March 2015 3,296 5,221 626 9,143

There was no capital expenditure at the end of either period which had been contracted for prior to the end of the period but not provided for in the financial statements.



4. Intangible assets

Capitalisation Software and of development similar costs licences Total €’000 €’000 €’000

Cost At 27 March 2015 118,523 5,416 123,939Additions 10,977 356 11,333Capitalisation of RDEC of relating to prior periods (2,160) – (2,160)Transfer – 724 724

At 1 April 2016 127,340 6,496 133,836

Accumulated amortisationAt 27 March 2015 79,116 3,487 82,603Charge for the period 3,476 410 3,886Impairment 5,575 – 5,575

At 1 April 2016 88,167 3,897 92,064

Net book value at 1 April 2016 39,173 2,599 41,772

Net book value at 27 March 2015 39,407 1,929 41,336

The only individually material intangible asset comprises the capitalised development costs for the Next-Generation Platform, which have a carrying value of €29.1 million at 1 April 2016 and remaining amortisation period of 82 months.

The events and circumstances which led to the impairment loss recorded are disclosed in Note 17 of the consolidated financial statements.

The amortisation charge for each period has been included within the following captions of the consolidated income statement:

2016 2015 €’000 €’000

Cost of sales – –Research and development costs 3,574 6,526Administrative expenses 312 65

3,886 6,591

5. Fixed asset investments 2016 2015 €’000 €’000

Shares in Group undertakingsAt the beginning of the period 25,013 18,967Acquisition of Teltronic SAU (see Note 6 to the Company’s consolidated financial statements) 127,553 –Acquisition of Fylde Micro Limited – 6,044Impairment of investments (10,072) –Investment in newly-incorporated subsidiaries 6 2

At the end of the period 142,500 25,013

The impairment charge for the period reflects the impact on the Company’s investment in Fylde Micro Limited following the decision to withdraw from the DMR market, and the net reduction payable in relation to contingent consideration as set out in Note 12 below.

Notes to the Parent Company Financial Statements continuedFor the period ended 1 April 2016

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Governance




5. Fixed asset investments (continued)

The Company owns the entire issued share capital of the following subsidiary undertakings, whose results are included within the consolidated financial statements of Sepura plc for the year ended 1 April 2016:

Proportion of nominal Country of value of shares held PrincipalName of undertaking incorporation Description of shares held by the Company activity

Sepura Systems GmbH Austria 8,400 ordinary shares of €10 each 100% Trading

Fylde Micro Limited England & Wales 1,331 A ordinary shares of £0.1 each 100% Trading

Portalify OY Finland 17,991,795 ordinary shares of €0.01 each 100% Trading

Smashlet OY* Finland 8,000 ordinary shares of €1 each 100% Dormant

Sepura Deutschland GmbH Germany One ordinary share of €250 and one ordinary share of €24,750 100% Sales support

Sepura Seviços de Intermediação e Marketing em Equipamentos de Radio Ltda* Brazil 6,000 ordinary shares of R$1,000 each 100% Sales support

Sepura LLC The State of Delaware, United States of America One ordinary share of $1 100% Sales support

Sepura Mexico, S.A. de C.V. Mexico 50,000 shares of 1 Peso each 100% Sales support

Sepura Overseas Limited England & Wales 100 ordinary shares Holding of £1 each 100% company

Teltronic S.A.U.* Spain 3,285 shares of €75.13 each 100% Trading

Sepura Pty Limited Australia 10 shares of A$1 each 100% Sales support

Sepura Spain Holdings SL Spain 43,551,000 shares of €1 each 100% Holding company

Powertrunk Inc* The State of Delaware, United States of America 1,000 shares of $1 each 100% Trading

Teltronic Andina Ltda* Colombia 725,810 shares of COP 1,000 each 100% Trading

Teltronic Peru* Peru 1,134,000 shares of PEN S/. 1 each 100% Trading

Teltronic Brasil Ltda* Brazil 826,500 shares of R$10 each 100% Trading

Teltronic Redes y Serv., SAU Spain 60,000 shares of €1 100% Dormant

* Held indirectly

The Directors believe that the carrying value of the investments is supported by their underlying net assets.



6. Stock 2016 2015 €’000 €’000

Raw materials 2,903 2,196Work in progress 2,714 2,182Finished goods and goods for resale 7,780 6,226

13,397 10,604

Stock is stated after provision for impairment of €4,856,000 (2015: €584,000). There is no material difference between the balance sheet value of the stock and its replacement value.

7. Trade debtors

2016 2015 €’000 €’000

Amounts falling due within one year: Trade receivables 29,451 36,088Less: provision for impairment of receivables (2,654) (300)

Trade receivables (net) 26,797 35,788Amounts owed by Group undertakings 11,762 686Restricted cash 3,925 –RDEC receivable 3,375 –Other receivables 2,100 2,460Prepayments and accrued income 1,904 1,640Deferred tax asset (Note 8) 9,603 4,958

59,466 45,532

Restricted cashThe Company received €3.9 million of advance payments from a customer that are treated as “restricted cash” in accordance with IAS 7 “Statement of cash flows” as, although the funds are held in a separate amount in the Company’s name, they are not available for general use until predetermined periods have lapsed following the delivering of the related goods.

8. Deferred taxThe Company’s deferred tax assets and (liabilities) totalled €17,251,000 (2015: €13,342,000) and €7,648,000 (2015: €8,384,000) respectively relate to timing differences in respect of:

Capitalised Tangible Equity-settled Other development Cash-flow fixed share temporary costs hedges assets Losses options difference Net €’000 €’000 €’000 €’000 €’000 €’000 €’000

At 27 March 2015 (7,881) (503) 1,300 9,171 2,790 81 4,958Recognised in income (170) – 583 3,934 568 (81) 4,834Recognised in equity – 824 – – (696) – 128Change of rate 403 (20) (94) (606) – – (317)

At 1 April 2016 (7,648) 301 1,789 12,499 2,662 – 9,603

Deferred tax liabilities have been offset against deferred tax assets as there is a legally enforceable right to offset current tax assets and current tax liabilities within the same fiscal jurisdiction. There was no unprovided deferred taxation at the end of either period.

The Company’s deferred tax asset has been recognised as, based on historical performance and future budgets, the Directors believe that it is probable that there will be sufficient taxable profits against which the assets will reverse.

The Finance Act 2015, which provides for reductions in the main rate of corporation tax from 20% to 19% effective from 1 April 2017 to 31 March 2020 and 18% effective from 1 April 2020, was substantively enacted on 18 November 2015. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date.


Strategic Report

Governance




9. Derivative financial instrumentsDerivative financial instruments comprise foreign exchange forward contracts. Further details are given in Note 31 to the Company’s consolidated financial statements.

10. BorrowingsBorrowings outstanding at the end of the period 2016 2015 €’000 €’000

Bank borrowings, all of which are denominated in Euros, are repayable as follows: Within one year 70,454 914In the second year 9,676 –In the third to fifth year inclusive 28,825 –

108,955 914Less: amounts due for settlement within 12 months (shown under current liabilities) (70,454) (914)

Amount due for settlement after 12 months 38,501 –

Further details of the facilities the Company has entered into are given in Note 23 to the Company’s consolidated financial statements.

11. Trade creditors: Amounts falling due within one year 2016 2015 €’000 €’000

Trade payables 17,662 29,346Other taxation and social security 1,855 1,962Accruals and deferred income 13,774 9,709Borrowings (Note 10) 70,454 914Derivative financial instruments 2,016 –Income tax payable – 204

105,761 42,135

Creditors: amounts falling due after one year 2016 2015 €’000 €’000

Borrowings 38,501 –Accurals and deferred income 4,229 3,348

42,730 3,348



12. Provision for liabilities 2016 2015

Warranty Contingent Warranty Contingent provision consideration Total provision consideration Total €’000 €’000 €’000 €’000 €’000 €’000

At the beginning of the period 896 6,998 7,894 1,227 4,905 6,132Arising on acquisition of Fylde Micro Limited as described in Note 6 to the Company’s consolidated financial statements – – – – 4,413 4,413Subsequent release of part of the contingent consideration – (2,627) (2,627) – (2,320) (2,320)Charged to the profit and loss account 353 – 353 258 – 258Settled or utilised in period – (1,180) (1,180) (589) – (589)

At the end of the period 1,249 3,191 4,440 896 6,998 7,894

Less amounts due for settlement within 12 months (675) (3,191) (3,866) (483) (2,095) (2,578)Amounts due for settlement after 12 months 574 – 574 413 4,903 5,316

Warranty provisionThe warranty provision is an estimate of the future costs of rectifying potential defects in products shipped to customers whilst they are under warranty cover. Warranty cover is typically provided over a period of three to five years, depending on the product and territory concerned. The Company 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 considerationContingent 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 revenue and operating profit 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.

13. Share capitalThe movements in share capital, the share premium account and treasury shares are disclosed in Note 26 to the consolidated financial statements.

The dividends paid in the year are disclosed in Note 16 of the consolidated financial statements. The Directors have not recommended the payment of a final dividend for the year.

14. Share based paymentsInformation on share options which have been granted to Directors and employees is given in Note 27 to the consolidated financial statements.

15. Operating lease commitmentsThe future aggregate minimum lease payments under non-cancellable operating leases are as follows:

2016 2015

Plant and Plant and machinery Property Total machinery Property Total €’000 €’000 €’000 €’000 €’000 €’000

No later than one year 427 29 456 6 916 922Later than one year and no later than five years 751 5,551 6,302 – 5,897 5,897More than five years – 13,490 13,490 – 15,428 15,428

1,178 19,070 20,248 6 22,241 22,247


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Governance




16. Contingent liabilitiesThe Company has entered into guarantee and performance bond arrangements with its customers totalling approximately €0.9 million (2015: €1.0 million). The Company is also subject to disputes with suppliers during the ordinary course of business. Provision is made for any amounts that the Directors consider will probably become payable under such arrangements.

Under sections 394A and 479A of the Companies Act 2006, the Company has guaranteed all of the outstanding liabilities of Fylde Micro Limited as at 1 April 2016, which totalled €422,000, until they are satisfied in full. The guarantee is enforceable against the Company by any person to whom any such liability is due.

17. Related party transactionsThe Company has taken advantage of the exemption available to parent companies under FRS 101:8(j) and FRS 101:8(k) not to disclose key management personnel compensation and transactions and balances with wholly owned subsidiary undertakings.

18. Ultimate controlling partyThe Directors do not consider that Sepura plc has an ultimate controlling party, as no individual shareholder is able to exercise control over the Company.

19. Post balance sheet eventOn 27 June 2016 the Company announced a Firm Placing, and Placing and Open Offer (the “Capital Raise”) to raise £65 million (gross). The Capital Raise was approved by shareholders at a General meeting on 15 July 2016 and 185,714,285 Ordinary shares were issued on 18 July 2016.

Prior to the Capital Raise the Company entered into a €21 million bridging facility on 17 June 2016 to provide additional liquidity until the completion of the Capital Raise. This facility has been repaid in full from the proceeds of the Capital Raise.

20. Adoption of FRS 101As disclosed in Note 1 the Company has adopted FRS 101 for the first time. The impact of adopting FRS 101 on the balance sheet at both the date of transition from “old UK GAAP” to FRS 101 (29 March 2014) and 27 March 2015.

FRS 101 Previously Capitalisation Holiday pay Share balance reported of R&D1 accrual2 option3 sheetAt 29 March 2014 €’000 €’000 €’000 €’000 €’000

Total equity 44,927 26,488 (312) 1,872 72,975

Capitalisation of FRS 101 Previously development Holiday pay Share balance reported cost1 accrual2 option3 sheetAt 27 March 2015 €’000 €’000 €’000 €’000 €’000

Total equity 48,114 31,526 (187) 2,120 81,573

1 Under old UK GAAP development costs were not capitalised, whereas FRS 101 requires the capitalisation of development costs where certain conditions are met (see the accounting policy in Note 4 to the Company’s consolidated financial statements). The increase in total equity of €31,526,000 at 27 March 2015 comprises an increase in capitalised development costs of €39,407,000 (29 March 2014: €33,110,000 less the related deferred tax liability of €7,881,000 (29 March 2014: €6,622,000)

2 Recognition of a holiday pay accrual not required under old UK GAAP3 Difference in the recognition of the deferred tax asset under old UK GAAP and FRS 101

Shareholder Information



Share services and informationEquiniti, the Company’s Registrars, provide a range of shareholder information on-line. You can check your holding and find practical help on transferring shares and updating your personal details at www.shareview.co.uk. Equiniti may also be contacted on 0371 384 2030 (calls to this number are charged at 8p per minute plus network extras), or by writing to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. Lines are open 8.30am to 5.30pm, Monday to Friday. Callers from outside the UK should dial +44 (0) 121 415 7047.

Share dealing serviceAn internet and telephone share dealing service is operated by Equiniti, enabling shareholders to buy and sell Sepura plc Ordinary shares on the London Stock Exchange. Shareholders who are interested in using these services should visit www.shareview.co.uk or telephone 0345 603 7037.

ShareGiftShareholders, who hold only a small number of shares, where dealing costs make it uneconomic to sell them, may wish to consider donating them to charity though ShareGift, a registered charity administered by The Orr Mackintosh Foundation. The relevant share transfer form can be obtained from their website www.sharegift.org or by writing to ShareGift, 5 Lower Grosvenor Place, London SW1W 0EJ, or by telephoning +44 (0) 20 7828 1151.


Contact Details and Advisers

Company SecretaryTony Hunter

Registered Office9000 Cambridge Research Park Beach Drive Waterbeach Cambridge CB25 9TL UK Tel: +44 (0) 1223 876000 Fax: +44 (0) 1223 879000 Email: [email protected]

Websitewww.sepura.com

Registered number4353801

RegistrarsEquinitiAspect House Spencer Road Lancing West Sussex BN99 6DA Service helpline: Tel: 0371 384 2030 (UK) +44 (0) 121 415 7047 (Overseas) www.shareview.co.uk

BankersBarclays Bank PLCAshton House 497 Silbury Boulevard Milton Keynes MK9 2LD

HSBC Bank plcHSBC House 1 Bond Court Leeds LS1 2JZ

Santander UK plc2 Triton Square Regents Place London NW1 3AN

Corporate brokersLiberum CapitalRopemaker Place Level 12 25 Ropemaker Street London EC2Y 9LY

Independent AuditorsPricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors Abacus House Castle Park Cambridge CB3 0AN Tel: +44 (0) 1223 460055 www.pwc.co.uk

Legal AdvisorsHogan Lovells International LLPAtlantic House Holborn Viaduct London EC1A 2FG

Eversheds LLPOne Wood Street, London, EC2V 7WS

Financial PR ConsultantsInstinctif Partners65 Gresham Street London EC2V 7NQ



Financial Calendar 2016/17

Annual General Meeting September 2016

FY17 Interim Results AnnouncementProvisional November 2016

FY17 Financial Period End 31 March 2017

FY17 Final Results AnnouncementProvisional June 2017

Sepura plc is a public limited company registered in England No. 04353801 and its Ordinary shares are traded on the Official List of the London Stock Exchange (ticker: SEPU).

Sepura plc is the parent company of the Sepura Group of companies. Unless otherwise stated, the text in this Annual Report does not distinguish between the activities and operations of the parent company and those of its subsidiary undertakings.

This is the Annual Report of Sepura plc for the 12 month period ended 1 April 2016 and complies with UK legislation and regulations. It is also available on the Company’s website at www.sepura.com/investors.

© Sepura 2016. The name ‘Sepura’ and its logo device, and all other brand or product names referred to in this Annual Report, are registered trademarks or trademarks pending registration (in accordance with the relevant national laws worldwide) of the Sepura Group of companies. All rights reserved.

Cautionary statementThe purpose of this Annual Report is to provide information to the members of the Company. The Annual Report contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, future events and circumstances can cause results and developments to differ materially from those anticipated. No undertaking is given to update the forward-looking statements whether as a result of new information, future events or otherwise. Nothing in this Annual Report should be construed as a profit forecast or an invitation to deal in the Ordinary shares of Sepura plc.

Directors’ liability and indemnity arrangementsUnder the Companies Act 2006, a new safe harbour limits the liability of Directors in respect of certain statements in, and omissions from, this Annual Report. Under English law, the Directors would be liable to the Company (but not any third party) if any errors were made as a result of reckless or knowing misstatement or dishonest concealment of a material fact, but they would not otherwise be liable. This Annual Report has been drawn up and presented in accordance with and in reliance upon English law and the liabilities of the Directors shall be limited and restricted accordingly.

Sepura plc Annual Report & Accounts 2016

Sepura plc 9000 Cambridge Research Park Beach Drive Waterbeach Cambridge CB25 9TL UK

www.sepura.com

Tel: +44 (0)1223 876000 Fax: +44 (0)1223 879000

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