Alphameric. Annual Report and Accounts 2005

Transcription

1 Alphameric Annual Report and Accounts 2005

2 Alphameric aims to become the first choice provider of end-to-end systems in the markets in which it operates through the use of leading-edge technologies 3 Chairman's statement 9 Board of Directors 10 Financial review 12 Five year review 13 Directors report 16 Directors remuneration report 22 Corporate governance 26 Statement of Directors responsibilities 27 Report of the independent auditors 29 Consolidated profit and loss account 30 Consolidated balance sheet 31 Consolidated cashflow statement 32 Notes to the financial statements 50 Company balance sheet 51 Notice of the annual general meeting 53 Advisers

3 1 highlights Strong trading throughout the year resulted in an excellent financial performance Revenues increased by 79% to 73.5 million (2004: 41.1 million from continuing operations) Profit before tax and goodwill amortisation, increased by 66% to 9.6 million (2004: 5.8 million before goodwill amortisation and exceptional items, from continuing operations) Earnings per share before the amortisation of goodwill increased by 89% to 7.0p (2004: 3.7p before the amortisation of goodwill and exceptional items) Final dividend of 1.8p per share, making a total dividend for the year of 2.8p per share Special dividend of 2.05p per share The Leisure division increased operating profit by 60% to 6.7 million on revenues up 73% to 52.3 million; current contracts include major roll-out of product to William Hill s ex Stanley Leisure shops, Eastwood bookmakers and continued success with independent bookmakers The Hospitality division increased operating profit by 93% to 2.9 million on revenues up 95% to 21.2 million; new contracts included Laurel Pub Company, Tattershall Castle Group and West Cornwall Pasty Company With the changing European Union legislative environment for betting, the Group is seeing significant market opportunity in the European Community for its retail gaming products. There are also increasing overseas opportunities for Hospitality products The Group continued to invest in new products to generate repetitive, profitable revenues

4 2 chairman s statement

5 3 chairman s statement INTRODUCTION I am pleased to report that the strong trading we reported in our interim statement continued throughout the second half and the Group has delivered an excellent full year financial performance. The year ended 30 November 2005 saw substantial levels of organic growth in both our Hospitality and Leisure divisions. The three acquisitions we undertook in the year are being successfully integrated and are also adding significant value to the business. As a Group we focus on providing comprehensive information technology solutions to two key market segments, Retail Gaming and Hospitality. This year a notable feature of these markets has been fluctuating trading patterns and significant levels of corporate M&A activity. Against this rapidly changing background it is particularly encouraging that our information technology products and services continued to increase their market penetration. I believe this shows that even when a potential customer s focus may be elsewhere, our products find support because they are demonstrably capable of helping them increase revenues and reduce costs. RESULTS For the year ended 30 November 2005 the Group generated total revenues of 73.5 million (including the contribution from our acquisitions) against the comparable 2004 continuing operations revenue of 41.1 million, representing an increase of 79%. Profit before taxation and the amortisation of goodwill was 9.6 million (2004 continuing operations 5.8 million before the amortisation of goodwill and exceptional items), an increase of 65%. Earnings per share for the year before the amortisation of goodwill were 7.0 pence per share against 2004 continuing operations earnings per share before the amortisation of goodwill of 3.7 pence per share an increase of 89%. The Group s balance sheet remains strong with gross cash balances of 8.6 million at 30 November 2005 (2004: 13.0 million), after investing a net 5.5 million in acquisitions. Net assets were 49.6 million (2004: 46.7 million). DIVIDENDS Final Dividend For the year ended 30 November 2005 the Board is proposing a final dividend of 1.80 pence per share, making a total dividend for the year of 2.80 pence. Subject to shareholder approval at the forthcoming Annual General Meeting, the final dividend will be paid on 8 May 2006 to shareholders on the register as at 18 April A key objective for your Board is to maintain a progressive dividend policy for the Group s shareholders. Special Dividend As we have explained previously, the Board was unable to propose a 2004 final dividend due to the lack of sufficient distributable reserves. This position has been resolved following the Capital Reorganisation that took place in May 2005 and the strong profit generated during 2005; as a consequence it is the Board s intention to pay as a special dividend the dividend that would have been proposed as final dividend in 2004 of 2.05 pence per share. This special dividend will be paid on 28 February 2006 to shareholders on the register as at 17 February 2006.

6 4 chairman s statement

7 5 chairman s statement Alphameric TRADING Our Leisure Division, which primarily serves the information technology needs of the retail gaming market, had an excellent year with revenues of 52.3 million (2004: 30.3 million) generating an operating profit (before the amortisation of goodwill) of 6.7 million (2004: 4.2 million). During the year the contract that commenced in 2004 for the provision of electronic point of sales (EPOS) and display solutions to William Hill completed successfully and we are now undertaking the roll-out into the ex- Stanley Leisure bookmaking shops it acquired in Our success with William Hill has led to a strengthening of our position in the market which, together with the release of the latest generation versions of both our EPOS and display solutions, maintains our leading position as a supplier to high street bookmakers. Other notable contract wins included the provision of an estate wide EPOS solution to Eastwood bookmakers, the provision to Ladbrokes of our technology for its integrated media display solution and continued success in the independent bookmaker market segment. ACQUISITION In May 2005 we purchased the entire issued share capital of Optical Mark Systems Limited for a total consideration (including debt assumed) of 1.4 million. We have already integrated the acquired risk management, telephone betting and Internet product solutions into the Leisure Division s product portfolio. BUSINESS DEVELOPMENT Until comparatively recently we have been unable to exploit overseas the leading position we have in the UK retail betting market because of the specialised basis under which UK and Irish licensed betting offices operate. However, the legislative environment is changing in the European Union and we are optimistic that a significant market opportunity to deploy our products and services is opening up for us in the European Community. During the year we continued to invest in enhanced products and services, and this financial year will see us accelerate development expenditure in the confident expectation of growing further repetitive and profitable revenues for our Leisure Division, both in the UK and overseas.

8 6 chairman s statement

9 7 chairman s statement Alphameric TRADING Our Hospitality Division continued its trend of rapid, profitable growth, generating revenues of 21.2 million (2004: 10.9 million) and operating profits (before the amortisation of goodwill) of 2.9 million (2004: 1.5 million). During the year we continued to win orders from industry leading customers including Laurel Pub Company, Tattershall Castle Group and the West Cornwall Pasty Company. Orders taken by this division in the past twenty four months now exceed 40 million. The long term repetitive nature of the Hospitality Division s typical contracts allows us a good degree of visibility of its forward trading patterns, which remain encouraging.

10 8 chairman s statement ACQUISITIONS In December 2004 we acquired the entire issued share capital of Timeweave Holdings Limited for a consideration of 4.1 million. Timeweave specialises in the provision of the Microsoft Navision suite of Enterprise Solutions and its product set is now part of our Caterwide software suite, Caterwide Dimension. In March 2005, we acquired the entire issued share capital of Telectronics Systems Limited for a total consideration of 6.8 million. Telectronics provides EPOS, back office and ancillary services to the hospitality sector. Its products have also been merged within our existing product portfolio. Both of these businesses are being successfully integrated into our Hospitality Division. BUSINESS DEVELOPMENT The business model for our Hospitality Division is to provide, often on long term contracts, a complete web enabled solution that helps organisations both increase their revenues and reduce their costs. The Hospitality Industry continued to see significant M&A activity during the year which has presented us with some excellent opportunities. Our Caterwide product is designed to interface with all of the major legacy solutions that are present in the market, making an excellent platform for businesses that are planning to expand through acquisition. Two such VC owned businesses, Laurel Pub Co. and Tattershall Castle Group, have both chosen Caterwide as their key technology platform. We believe that, following our sales successes and a programme of continued product development, our solutions enjoy an unrivalled level of capability to meet the needs of the UK hospitality market and that we can now pursue opportunities overseas. OUTLOOK The Alphameric Group has entered this new financial year with momentum gained from an excellent 2005 financial performance, a strong balance sheet and class leading products across the Group. We are determined that both Alphameric Leisure and Alphameric Hospitality take full advantage of their present competitive strength. We recognise the need to continue to invest in the development of our products and services and will pursue appropriate earnings enhancing acquisitions. The Leisure Division is tasked with developing new revenue streams from content and collaborative opportunities in the United Kingdom and overseas and to position itself to develop actively other opportunities emerging in the European Community for its products and services. The Hospitality Division will be looking to maintain the momentum of growth it has achieved over the past two years. We will also be examining how its resilient web enabled products and services can be deployed to penetrate markets outside the UK. We remain confident that the Group is well placed to build upon its current successes. Rodney Hornstein Chairman 7 February 2006

11 9 board of directors Rodney Hornstein NON-EXECUTIVE CHAIRMAN AGED 65 Rodney joined Alphameric in 1990 as Chief Executive Officer, moving to the role of Chairman in Previously he held senior sales and management positions with IBM, ICL and GEC and was Chairman and Managing Director of Gestetner International. Rodney also serves as Non-Executive Chairman of three privately held software companies in the financial services, airline reservations and agent technology fields. Dr Michael Chamberlain SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR AGED 57 Michael joined the Board in March He has a Ph.D. in Communications and has acted as a consultant to many of the world's largest telecommunications and media companies. He is currently Chairman of the BMJ (British Medical Journal) Publishing Group and formerly IBM Business Consulting Services Industry Leader for Media and Entertainment EMEA. Former posts include Head of Media Worldwide for management consultancy Arthur D Little (1998 to 2000) and Director of New Media Activities at United News & Media plc. He is Chairman of the Remuneration and Nomination Committees and a member of the Audit Committee. Alan McWalter NON-EXECUTIVE DIRECTOR AGED 52 Alan joined the Board in January He is also Chairman of Constantine Holdings Limited, Chairman of Nationwide Autocentres Ltd, a Non-Executive Director of Cattles plc, Domestic & General Group plc, Haygarth Group Ltd and St. Luke s Holdings Ltd. He was previously Group Marketing Director at Marks and Spencer and with the Kingfisher Group as Marketing Director of Woolworths and Marketing and Business Development Director of Comet. His earlier career was spent at Unilever, Spillers Foods and Thomson Consumer Electronics, where he became Vice President for UK operations. He is Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees. Alan Morcombe GROUP CHIEF EXECUTIVE AGED 53 Alan joined the Group in 1987 and later moved on to British Aerospace Communications before returning in 1994 as Managing Director of the Retail Betting and Finance Division. He was appointed Group Managing Director in 1994 and Group Chief Executive in He is a member of the Nomination Committee. Mike McLaren GROUP FINANCE DIRECTOR AGED 44 Mike joined the Group in 1990 as Group Financial Controller, moved to become a subsidiary Finance Director and was appointed Group Finance Director in Mike has resumed the role of Group Finance Director, having previously held the position for five years prior to becoming Group Managing Director in In addition to taking responsibility for Finance, Mike is also charged with a group wide business development role including driving forward our strategic acquisition programme. Mike is a Chartered Accountant. Martin Randall FINANCE DIRECTOR LEISURE DIVISION AGED 46 Martin was appointed in September 2000, having previously been Group Finance Director of Orbis plc since Before joining Orbis he was Finance Director of The Hartstone Group plc s US operations, returning to the UK to assume the role of Group Treasurer in As a consequence of the rapid growth in revenues and profits particularly in our Leisure Division, Martin has transferred on secondment from the position of Group Finance Director for Alphameric plc to undertake a wider financial and operational role within Alphameric Leisure. Martin is a Chartered Accountant. James Soulsby GROUP COMMERCIAL DIRECTOR AND COMPANY SECRETARY AGED 49 James joined Alphameric in June 2000 as Group Legal Counsel and was appointed to the Board in March Before joining Alphameric he was General Counsel of Hitachi Data Systems Europe for 10 years, responsible for the legal, regulatory and compliance affairs of Hitachi Data Systems in Europe and the Middle East. James is a qualified Solicitor.

12 10 financial review OVERVIEW The Group had an excellent year with both of the operating Divisions exceeding their internal targets and the Group as a whole delivering strong revenue and profit growth. During the year we acquired Timeweave Holdings Limited and Telectronics Systems Limited into our Hospitality Division and Optical Mark Systems Limited into our Leisure Division. Each of these three acquisitions has fitted into the Group well and we are fully integrating them within the existing Group structure in order to maximise the benefits of ownership. Turnover for the Group was 73.5 million, an increase of 79% on 2004 s turnover of 41.1 million from continuing operations. Operating profit before the amortisation of goodwill was 9.57 million (2004: 5.70 million from continuing operations) and Earnings Per Share before the amortisation of goodwill increased to 7.0 pence per share (2004: 3.7 pence per share from continuing operations). Earnings Per Share per FRS 14 were 5.3 pence per share (2004 loss 50.9 pence per share). BALANCE SHEET The Group s balance sheet at 30 November 2005 remained strong with Net Assets of 49.6 million and gross cash balances of 8.6 million (2004: 46.7 million and 13.0 million respectively). Goodwill balances at 30 November 2005 were 30.4 million up from 17.1 million in 2004 primarily as a result of the three acquisitions made during the year. The Group s cash flow for the year from operating activities was 6.9 million representing 73% of operating profit (2004: continuing operations 164%). The differential between operating cash flows and operating profits was due to an increase in working capital investment of 6.0 million (2004: reduction 762k from continuing operations). This increase in working capital relates to the far higher activity levels of the Group in the year with the increase of 79% in turnover against the 2004 continuing operations turnover. DISPOSAL OF THE RETAIL DIVISION AND DEFERRED CONSIDERATION In November 2004 we disposed of our Retail Division under an agreement that included a provision for us to benefit from the future performance of the Division under an earn-out agreement. At 30 November 2005 we have retained within the accounts a debtor of 8 million (2004: 8 million) which is the estimate we made as to the potential amount that may fall due under the earn out. The exact amount that we expect to receive under the earn out is dependent upon Alphameric receiving a detailed return from Torex Plc, the acquirer of the Division, on a trading period that ran until 31 December It is unlikely that the process concerning the agreement of any amounts due will be finalised before the early summer of It is important to note that the amount that we have included within these accounts is our best estimate based upon our understanding of the retail market and the public announcements made by Torex plc concerning the performance of the ex-alphameric Retail operations. There is no certainty that there will be any amount receivable from Torex plc or that the estimate that we have included will prove to be accurate. Your Board is committed to ensuring that the detailed provisions of the contract under which we disposed of our Retail Division will be applied and that any resulting payment due to the Alphameric plc Group will be maximised.

13 11 financial review DIVIDENDS Alphameric plc paid an interim dividend for the 2005 financial year of 1.0 pence per share in August In 2004 Alphameric plc was unable to pay a final dividend due to a lack of distributable reserves following the loss incurred on the disposal of the Retail Division. In May 2005 we obtained Court approval for a capital reconstruction that extinguished this deficit on reserves. As a consequence of the strong trading for the year to 30 November 2005 it is your Board s intention to pay a special dividend of 2.05 pence per share which is the equivalent of the 2004 final dividend that would have been paid had we had sufficient distributable reserves. Your Board is recommending a final dividend for the year to 30 November 2005 of 1.80 pence per share; this brings the total dividends paid and payable that relate to the 2005 financial year to 2.80 pence per share. For 2004 an interim dividend of 0.65 pence per share was paid and this, when added to the special dividend (which is equivalent to the 2004 final dividend) of 2.05 pence per share gives a 2004 equivalent dividend of 2.70 pence per share. ACCOUNTING POLICIES The accounts for the year to 30th November 2005 represent the last accounts for Alphameric plc that will be prepared prior to the adoption of the International Financial Reporting Standards ( IFRS ). The balance sheet at 30 November 2005 will, in due course, be restated under the IFRS accounting rules and be used to provide opening balances. The first financial report that will be produced under the IFRS accounting rules will be the six months to 31 May TAXATION The charge for the year for corporation tax has been reduced to approximately 13% of profits as a result of the release of certain provisions following the confirmation of the tax treatment relating to prior periods. Mike McLaren 7 February 2006

14 12 five year review Year to Year to Year to Year to Year to Nov 2005 Nov 2004 Nov 2003 Nov 2002 Nov 2001 Continuing operations Turnover 73,493 41,143 35,112 28,794 22,384 Operating profit/(loss) before amortisation of goodwill and exceptional administrative expenses 9,570 5,705 3,619 4,958 (520) Exceptional administrative expenses - - (495) - (502) Amortisation of goodwill (2,053) (1,368) (1,308) (180) (178) Operating profit/(loss) 7,517 4,337 1,816 4,778 (1,200) Interest Profit/(loss) before taxation 7,555 4,437 2,102 5,048 (682) Basic earnings per share (p) Earnings per share before amortisation of goodwill and exceptional administrative expenses (p) (0.5) Group Turnover 73,493 69,973 62,897 61,928 56,848 Operating profit before amortisation of goodwill and exceptional administrative expenses 9,570 2,365 4,317 8,761 3,560 Exceptional administrative expenses - (883) (1,409) - (1,490) Amortisation of goodwill (2,053) (5,436) (5,010) (6,545) (4,265) Operating profit/(loss) 7,517 (3,954) (2,102) 2,216 (2,195) Loss on sale of discontinued operations - (55,633) (1,714) - - Interest Profit/(loss) before taxation 7,555 (59,487) (3,530) 2,486 (1,677) Taxation (1,272) - (289) (2,479) (591) Profit/(loss) after tax 6,283 (59,487) (3,819) 7 (2,268) Basic Earnings/(loss) per share (p) 5.3 (50.9) (3.5) 0.0 (2.2) Earnings per share before amortisation of goodwill and exceptional administrative expenses (p) Dividend per share (p) Operating cash inflow before exceptional administrative expenses 6, ,554 11,146 3,132 Operating cashflow 6, ,918 11,146 1,642 balance sheet Tangible fixed assets 9,108 8,265 10,190 7,210 7,383 Goodwill 30,408 17,134 85,072 79,684 78,288 Other net assets less liabilities (excluding cash) 1,471 8,282 2,113 7,200 8,567 Net cash 8,600 13,001 10,109 13,208 14,404 Equity shareholders funds 49,587 46, , , ,642

15 13 Directors Report The Directors present their report and audited financial statements of the Company and the Group for the year ended 30 November PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS The principal activities of the Group are the development, supply and maintenance of specialist software solutions to the bookmaking and hospitality industries. A full business review and review of future developments are included in the Chairman s Statement on pages 3 to 8. The Group made an operating profit before the amortisation of goodwill and exceptional items of 9.6 million (2004: 2.4 million). After the amortisation of goodwill the profit after taxation was 7.6 million (2004: 59.5 million loss after exceptional items). After dividends, this left a retained profit for the year of 434,000 (2004: 60.2 million loss). The Directors believe that the Group will continue to exploit the opportunities within the Leisure and Hospitality markets. ACQUISITIONS Details of the acquisitions made during the year are set out in note 13 to the financial statements and are reported in the Chairman s Statement and the Financial Review. CHANGES IN SHARE CAPITAL Details of changes in the share capital of the company during the year are set out in note 22. DIVIDENDS The Directors propose a final dividend of 1.8p per ordinary share amounting to 2,171,144 (2004: nil). Subject to shareholder approval at the forthcoming Annual General Meeting, the final dividend will be paid on 8 May 2006 to shareholders on the register as at 18 April An interim dividend of 1p per ordinary share at a cost of 1,205,441 was paid during the year (2004: 0.65p per share at a cost of 760,095). As reported in the Chairman s Statement, subject to shareholder approval at the forthcoming Annual General Meeting, a special dividend of 2.05p per ordinary share amounting to 2,472,691 will be paid on 28 February 2006 to shareholders on the register as at 17 February RESEARCH AND DEVELOPMENT The Group continues to undertake research and development projects aimed at the ongoing improvement of its product range. DIRECTORS AND THEIR INTERESTS The current Directors of the Company are listed on page 9 and all served throughout the year. The interests of the Directors and those of their families in the issued share capital of the Company are detailed in the Directors remuneration report on page 19. AUTHORITIES TO ALLOT/PURCHASE SHARES An Ordinary Resolution will be put to shareholders at the Annual General Meeting to renew the Directors authority to allot relevant securities in respect of an aggregate nominal amount of 995,108 representing approximately 33% of the issued ordinary share capital of the Company. A Special Resolution will also be proposed to disapply the statutory pre-emption provisions of section 89 of the Companies Act 1985 in respect of any rights issue and, for cash issues, up to an aggregate nominal amount of 150,774 being approximately 5% of the issued ordinary share capital of the Company. Each of these authorities will expire at the conclusion of the next Annual General Meeting, or 15 months from the date of the passing of the relevant resolution, whichever is the earlier. Your Directors consider it would be beneficial for them to continue to have authority to do so within the terms of the resolution, in order that they remain able to respond flexibly and in the best interests of the Company.

16 14 Directors Report The Directors will also be seeking to renew the Company s authority to purchase its own shares. The current authority to purchase such shares expires at the Annual General Meeting and the Directors propose that it should be renewed in the terms of the resolution in respect of up to 12,061,910 shares (representing 10% of the issued ordinary share capital of the Company) for a further year to expire at the Annual General Meeting to be held in Your Directors consider it would be beneficial for them to continue to have authority to do so within the terms of the resolution, in order that they remain able to respond flexibly and in the best interests of the Company to changes in market conditions. SUBSTANTIAL SHAREHOLDINGS As at 7 February 2006, the Directors have been notified of the following substantial interests in the ordinary share capital of the Company: Number of % of total 2.5p ordinary shares ordinary shares Morley Fund Management 18,673, % GAM London Limited 9,084, % Hermes Pension Management 8,848, % Aberforth Partners 7,000, % Herald Investment Trust plc 5,551, % BT Pension Fund 4,818, % Legal & General Group Plc 4,879, % BGI 4,168, % M&G Investment Management 3,716, % Prudential Assurance 3,700, % CORPORATE SOCIAL RESPONSIBILITY ENVIRONMENTAL POLICY As a leading supplier of innovative technology solutions the Group s operational activities have minimal environmental impact. We believe that our products and services help to automate and enhance our customers business processes. However, the Group recognises that its activities may have an influence on the environment and has adopted the following environmental policy: To meet all existing and new statutory requirements To minimise waste and conserve energy To recycle as much waste produced by the Group as is practicable To ensure minimal environmental impact of operational activities To provide safe, healthy working conditions for staff DISABLED EMPLOYEES Full consideration is given to disabled persons applying for employment where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. In the event that an existing employee becomes disabled, it is the Group s policy, wherever practical, to continue to provide employment under normal terms and conditions and to provide additional training if appropriate.

17 15 Directors Report EMPLOYEE INVOLVEMENT The Group s employment policies have been formed to ensure the Group attracts and retains the required calibre of management and staff by creating an environment which rewards achievement, enthusiasm and team spirit and offers superior opportunities for personal development. Effective communication and consultation is key to this and procedures and policies have been developed to ensure the appropriate level of employee involvement and communication. CHARITABLE AND POLITICAL DONATIONS Charitable donations made during the year totalled 5,450 (2004: 1,280). The donations all went to The Vision Charity. No contributions were made for political purposes. CREDITOR PAYMENT POLICY The Group s and Company s policy concerning the payment of creditors is to pay in accordance with the contractual and other legal obligations as advised to and agreed with the creditors prior to any transactions taking place. The Company s average creditor payment period at 30 November 2005 was 56 days (2004: 58 days). THIRD PARTY INDEMNITY PROVISION The Company has agreed to indemnify its directors against third party claims which may be brought against them and has put in place an officers insurance policy. AUDITORS Grant Thornton UK LLP offer themselves for reappointment as auditors in accordance with section 385 of the Companies Act By Order of the Board J A Soulsby Secretary 7 February 2006

18 16 Directors' Remuneration Report The Remuneration Committee is responsible for developing policy on remuneration for Executive Directors and senior management and for determining specific remuneration packages for each of the Executive Directors. The Committee comprises Dr Michael Chamberlain (Chairman) and Alan McWalter. The Chairman of the Board and Group Chief Executive also attend Remuneration Committee meetings by invitation but are excluded from discussions in relation to their own remuneration. The Remuneration Committee received wholly independent advice on executive compensation and incentives from Halliwell Consulting during the year. No other services were provided to the Company by Halliwell Consulting during the year. The Remuneration Committee is formally constituted with written terms of reference with the full remit of the Committee role described. A copy of the terms of reference is available on request from the Company Secretary. The Remuneration Committee met three times during the year, with each meeting fully attended. The Board has reviewed the Group's compliance with the Combined Code ( the Code ) on remuneration related matters. It is the opinion of the Board that the group complied with all remuneration-related aspects of the Code during the year. REMUNERATION POLICY The Remuneration Committee's policy is designed to attract and retain individuals of the right calibre, to encourage and reward high performance and is to set the main elements of the remuneration package at the following quartiles in comparison to the Company's comparator Group:- Base salary Annual bonus potential Pension Benefits in Kind Share incentives Median Median to upper quartile Market practice Market practice Median It is the opinion of the Remuneration Committee that shareholders interests are best served by focusing a greater proportion of total remuneration on performance related compensation. The balance between fixed and variable performance based pay for each of the Executive Directors for the year ended 30 November 2005 was that 37% of the total potential remuneration would come from fixed compensation (salary, benefits and pension) with the balance of 63% coming from annual bonuses and the face value of the LTIP at grant. COMPARATOR GROUP The Company s comparator group for 2005 for the purposes of benchmarking remuneration and comparative performance currently comprises the following companies drawn from the FTSE All Share Software and Computer Services and Information Technology Hardware Indices. Anite Group Plc Innovation Group Plc Radstone Technology Plc Aveva Group Plc Intec Telecom Systems Plc Retail Decisions Plc Axon Group Plc isoft Group Plc RM Plc Detica Group Plc Macro4 Plc Royalblue Group Plc Dicom Group Plc Marlborough Stirling Plc SDL Plc Eidos Plc Northgate Information Solutions Plc Surfcontrol Plc Filtronic Plc NSB Retail Systems Plc TTP Communications Plc Gresham Computing Plc Plasmon Plc Vega Group Plc Imagination Technologies Group Plc Psion Plc Zetex (Telemetrix) Plc The basis of selection of the comparator group was:- companies in the same market sector as the Company; and companies with comparable turnovers to the Company (with some reference to market capitalisation). Due to corporate activity within the comparator group, Macro 4 Plc, Retail Decisions Plc, SDL Plc and Vega Group replaced London Bridge Software Holdings Plc, Merant Plc, Staffware Plc and Synstar Plc. These companies were selected based on the criteria set out above and the Remuneration Committee do not believe that they will materially affect the nature of the Group as a whole. ELEMENTS OF EXECUTIVE DIRECTORS REMUNERATION Basic Salary The Remuneration Committee reviewed the Executive Directors salaries in January Salary increases of 3% were made for each of the Executive Directors. Annual Performance Related Bonus The maximum bonus potential available for the Executive Directors for 2005 was 100% of salary.

19 17 Directors' Remuneration Report The Company s bonus plan was based on a group EPS target, which in itself was based on the aggregate profit performance of the Group's Divisions. A performance of 96.9% was achieved by exceeding the EPS target and, as such, bonuses equivalent to 96.9% of salary were paid to the Executive Directors. The maximum bonus potential available for the Executive Directors for 2006 is 100% of salary. The targets for the 2006 financial year are based on the same performance measures as that for last year namely earnings per share. Bonus payments are not pensionable. Share Incentives Up until the 2004 AGM the Company made option awards to Executive Directors under the 1999 Senior Executive Share Option Scheme. No further grants of options will be made under the Scheme; Executive Directors are now eligible to participate in the new Long-Term Incentive Plan approved at the 2004 AGM. Alphameric plc Long-Term Incentive Plan (the LTIP ) Executive directors and senior executives are eligible to participate in the LTIP. Under the rules, the maximum annual award that can be made to an individual is 100% of salary. As discussed with shareholders prior to the approval of the LTIP at the 2004 AGM, it is the current intention of the Remuneration Committee to retain this level of award for The overall share incentive policy for Executive Directors will be reviewed fully in respect of awards for Eligible executives are awarded rights to acquire a maximum number of shares at the beginning of a three year period, a proportion of which they will be entitled to acquire at the end of that period depending on the extent to which (if at all) the challenging performance conditions set by the Remuneration Committee at the time the allocation is made are satisfied. The LTIP awards have been granted as nil cost options which are exercisable, subject to the satisfaction of performance conditions, between 3 and 10 years from the date of grant. During the year all the Executive Directors received LTIP awards equivalent to 100% of salary. The performance conditions for this grant of awards are set out in the following table:- TSR Position Against Comparator Group Long-Term Incentive Plan % of Shares Released Below median 0% Median 30%* Upper quartile 100%* *There is straight line vesting between points In addition to the above comparative TSR performance of the Company the EPS growth over the three year holding period must be at least RPI + 3% p.a. before any awards become exercisable. The Remuneration Committee will in any event satisfy itself that the recorded TSR is a genuine reflection of the underlying financial performance of the Company before the release of any share awards under the LTIP in accordance with the ABI guidelines. Comparative TSR was selected as the performance condition for LTIP awards by the Remuneration Committee as it ensures that the executives have outperformed their peers in the comparator group over the measurement period in delivering shareholder value before being entitled to receive any of their awards irrespective of general market conditions. In addition the EPS underpin will ensure that the underlying financial performance of the Company is consistent with the TSR performance over the measurement period. Details of all LTIP awards to Executive Directors are set out on page 20. Existing Grants 1999 Senior Executive Share Option Scheme Options granted under this scheme are exercisable between 3 and 10 years from the date of grant of the option, subject to the satisfaction of the following performance conditions over the three year performance period: average growth in earnings per share must exceed growth in RPI by at least 4% p.a. and for 50% of the shares under option, no additional share price target for 35% of the shares under option, the share price must have increased by 200% from the date of grant for 15% of the shares under option, the share price must have increased by 300% from the date of grant Details of grants to Executive Directors are set out on page 20. No options granted to Executive Directors were exercised or lapsed during the year.

20 18 Directors' Remuneration Report Performance Measurement The Remuneration Committee determines whether the performance conditions for share awards or options are satisfied. Where the performance requirements are based on EPS the Committee will use the principles behind the audited figures disclosed in the Company's financial statements, and may take advice from independent advisors as to whether any adjustments are required to ensure consistency in accordance with the terms of the performance conditions. Where the performance measure is TSR, Halliwell Consulting, the Remuneration Committee's advisors shall calculate the TSR and signoff these figures prior to the release of any award. Performance conditions under the LTIP and Option Schemes are not subject to re-testing. Dilution In accordance with the ABI guidelines the Company can issue a maximum of 10% of its issued share capital in a rolling ten year period to employees under all its share plans. The current operation of the Company s share plans is within ABI limits. Shareholding Requirement As part of the introduction of the Company's new share incentive policy, Executive Directors who have been selected to participate in the LTIP will be required to retain a proportion of the share awards released (or options exercised) each year to build up the shareholding requirement over a 5 year period. The shareholding requirement is 150% of salary for the Group CEO and 100% of salary for the other Executive Directors. Pension The Company pays the equivalent of 10% of the Executive Director's basic salary into a personal pension plan, subject to the Executive contributing 5% of basic salary. Benefits in Kind Benefits in kind comprise a company car (or car allowance), private medical cover, permanent health insurance and deathin-service benefits. OTHER REMUNERATION MATTERS Executive Directors Contracts Each of the Executive Directors of the Company has a 12 month rolling contract, dated 17 February There are no special provisions in the service contracts relating to cessation of employment on change of control, other than, in the event that they leave the Company within 6 months of change of control, either as a result of termination by the Company or at the election of the executives, the executives will be entitled to be paid 12 months salary and benefits in compensation for the 12 months notice period and, in lieu of future bonus which they may have been entitled to during the 12 month notice period, the executives will be entitled to 12 months salary. The policy on termination is that the Company does not make payments beyond its contractual obligations and Executive Directors will be expected to mitigate their loss. In addition, the Remuneration Committee ensures that there have been no unjustified payments for failure. The Alphameric plc Share Incentive Plan ( SIP ) Shareholders approved the SIP at the 2004 AGM. The Board of the Company were keen to give all employees the opportunity to:- invest their salary in Company shares; and build up a shareholding in the Company. The Company is currently offering eligible employees, including Executive Directors and senior executives, the opportunity of purchasing (on a monthly basis) 1,500 of shares a year out of pre-tax salary and providing additional matching shares on a 1 matching share to every 5 purchased ratio. These matching shares will be normally released three years after they have been awarded provided that the associated shares purchased by the employee have been retained and provided the employee is still employed by a Group Company at this time. Details of shares purchased by and awarded to Executive Directors through the SIP are set out on page 21. Non-Executive Directors Policy: Lower Quartile Level Fees The remuneration of the Non-Executive Directors is determined by the Board based upon recommendations from the Chairman and Chief Executive (or, in the case of the Chairman, based on recommendations from the Chairman of the Remuneration Committee following independent advice) and is within the limits set by the Articles of Association. Non-Executive Directors do not participate in any bonus plan or share incentive programme operated by the Company and are not entitled to pension contributions or other benefits provided by the Company.

21 19 Directors' Remuneration Report Details of the terms of appointment of the Non-Executive Directors are set out in the table below:- Name Company Notice Period Contract Date Expiry Date of Contract M R Hornstein 3 months 11 April March 2006 Dr M A Chamberlain 3 months 15 January March 2006 A J McWalter 3 months 1 January January 2009 Under the Company s Articles of Association, one third of the Directors is required to retire each year and in accordance with the Combined Code each Director is required to submit themselves for re-election at least every 3 years. 100% 50% TOTAL SHAREHOLDER RETURN FROM 30 NOVEMBER 2000 Alphameric FTSE All Share Software & Computer Services 0% -50% -100% Nov '00 May '01 Nov '01 May '02 Nov '02 May '03 Nov '03 May '04 Nov '04 May '05 Nov '05 The Remuneration Committee consider the FTSE All Share Software & Computer Services Sector index a relevant index for TSR comparison as the index members represent the broad range of UK quoted computer service companies comparable to the Company s general area of business and business cycle. AUDITED INFORMATION Directors interest in shares The beneficial interests of the Directors and their families in the ordinary shares of the Company, other than in respect of options to acquire ordinary shares (which are detailed on page 20), are as follows: Name 1 Dec Nov Feb 2006 Dr M A Chamberlain 10,000 20,000 20,000 M R Hornstein 284, , ,145 M G McLaren 101, , ,419 A J McWalter A W Morcombe 1,216,936 1,256,936 1,256,936 M K Randall J A Soulsby Directors Remuneration Annual Basic Performance- Total Total Salary Fees Benefits Related Bonus Pension Executive Directors A W Morcombe M G McLaren M K Randall J A Soulsby Non-Executive Directors M R Hornstein Dr M A Chamberlain A J McWalter Total ,559 1,160

22 20 Directors' Remuneration Report DIRECTORS INTERESTS IN THE COMPANY S SHARE PLANS Share Option Schemes Number of Number of Exercise Period Exercise Options at Options at From To Price 1 Dec Nov 2005 pence Executive Directors A W Morcombe 700, ,000 18/02/ /02/ , ,000 21/02/ /02/ , ,862 25/03/ /03/ , ,000 25/03/ /03/ M G McLaren 700, ,000 18/02/ /02/ , ,000 21/02/ /02/ , ,714 25/03/ /03/ , ,500 25/03/ /03/ M K Randall 108, ,374 25/03/ /03/ , ,500 25/03/ /03/ J A Soulsby 125, ,616 25/03/ /03/ , ,000 25/03/ /03/ All of the above options were granted under the 1999 Senior Executive Share Option Scheme. Vesting is subject to increase in EPS exceeding growth in RPI by at least 4% per annum over three consecutive years and additional share price targets as detailed on page 17. LONG-TERM INCENTIVE PLAN Number Number of shares of shares conditionally Value Share conditionally awarded of shares price Exercise Exercise awarded at during conditionally at grant period period 1 Dec 04 the year awarded date From To Executive Directors A W Morcombe 245, , , , M G McLaren 206, , , , M K Randall 152, , , , J A Soulsby 190, , , , Awards under the LTIP will only vest if the Company s comparative TSR performance is equal to or greater than the median level of performance over the 3 year holding period at which point 30% of awards will vest, with full vesting occurring for upper quartile performance (straight line vesting between points). No awards will be capable of release unless EPS growth of 3% p.a. in excess of RPI is achieved over the same period. Share awards have been made in the form of nil cost options.

23 21 Directors' Remuneration Report INLAND REVENUE APPROVED SHARE INCENTIVE PLAN Number of Number of Matching Number of matching partnership shares Dividend partnership shares Dividend shares conditionally shares shares conditionally shares purchased awarded acquired Dates of release purchased at awarded at acquired at during during during of matching/ 1 Dec 04 1 Dec 04 1 Dec 04 the year the year the year dividend shares Executive Directors A W Morcombe , M G McLaren , M K Randall , J A Soulsby , Partnership shares were purchased and matching shares awarded on a monthly basis (the range over the year was between 0.74 and 0.995). The market price of the Company s shares on 30 November 2005 was per share and the high and low share prices during the year were and 0.73 respectively. On behalf of the Board Dr Michael Chamberlain Chairman of the Remuneration Committee 7 February 2006

24 22 Corporate Governance STATEMENT OF APPLICATION OF PRINCIPLES IN THE COMBINED CODE The Board is committed to high standards of Corporate Governance and has sought to comply with both the main and supporting principles of the Combined Code with due regard to the size and needs of the Company and with reference to best practice. As defined in the Combined Code, the Company would be classed as a smaller company as it is outside the FTSE 350. Details of the procedures and practices adopted by the Board are set out below. STATEMENT OF COMPLIANCE The Board considers that the Company complies, and has complied throughout the financial year with the provisions of the Combined Code save for the following exceptions: A.4.1 A majority of members of the Nomination Committee should be independent Non-Executive Directors. The members of the Nomination Committee are the two independent Non-Executive Directors and the Group Chief Executive. For part of the year Rodney Hornstein had been a member but following a review of the membership of the Committee in light of the requirements of the Combined Code and best practice, Rodney Hornstein resigned on the 8 March Dr Michael Chamberlain, the senior independent Director, was appointed chairman of the Committee in succession to Rodney Hornstein. C.3.1 The Board should establish an Audit Committee of (in the case of smaller companies) at least two members, who should all be independent Non-Executive Directors. The current members of the Audit Committee are the two independent Non-Executive Directors. For part of the year Rodney Hornstein had been a member but, following a review of the membership of the committee and in accordance with the Smith Guidance appended to the Combined Code, Rodney Hornstein resigned on the 8 March C.3.1 The board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience. Whilst the Audit Committee does not have a member with a recognised accounting qualification, the Board has reviewed the membership and performance of the Committee and is of the opinion that the experience of the Non- Executive Directors combined with independent external support continues to be appropriate for the Group. The Board will consider the need for a Non-Executive Director with recent and relevant financial experience in future appointments, in the interim the Audit Committee will consider, where appropriate, additional training for members. The external auditors, covering areas such as International Financial Reporting Standards (IFRS), brief committee members on recent developments and relevant standards in the financial reporting environment. A.2.2 A chief executive should not go on to be a chairman of the same company. As noted in the Director s biographies on page 9, Rodney Hornstein was Chief Executive of the Company from 1990 until 1995 when he was appointed Chairman. Whilst the new Combined Code does not generally support the appointment of chairmen who were previously chief executives, the Board considers Rodney s appointment was sufficiently long ago to render any objections under the Code no longer applicable. The Board considers that Rodney s experience and knowledge of the Company and the markets it serves enables him to continue to provide effective leadership on all aspects of the Board s role. THE BOARD The Board currently comprises three Non-Executive and four Executive Directors. Details of the Directors can be found on page 9. The Board considers Dr Michael Chamberlain and Alan McWalter to be independent. Dr Michael Chamberlain is the Senior Independent Director.