TIDMSAG
RNS Number : 8767G
Science Group PLC
24 July 2023
24 July 2023
SCIENCE GROUP PLC
('Science Group', the 'Group' or the 'Company')
INTERIM RESULTS
FOR THE SIX MONTH PERIODED 30 JUNE 2023
Summary
-- Record H1 results despite economic environment
-- Revenue increased by 25% to GBP56.1m (H1 2022: GBP44.8m)
-- Adjusted* operating profit increased by 18% to GBP10.4m (H1 2022: GBP8.8m)
-- Adjusted* basic EPS increase of 14% to 16.6 pence (H1 2022: 14.6 pence)
-- Strong balance sheet with Group cash of GBP29.2m and net
funds of GBP15.7m (H1 2022: GBP38.6m and GBP23.9m) after completion
of TP Group acquisition
-- Integration of TP Group progressing in line with the Board's expectations
Science Group plc
Tel: +44 (0) 1223
Martyn Ratcliffe, Chairman 875 200
Jon Brett, Group Finance Director www.sciencegroup.com
Stifel Nicolaus Europe Limited (Nominated
Adviser and Joint Broker)
Tel: +44 (0) 20 7710
Nick Adams, Alex Price, Richard Short 7600
Liberum Capital Limited (Joint Broker)
Tel: +44 (0) 20 3100
Max Jones, Miquela Bezuidenhoudt 2000
* Alternative performance measures are provided in order to
enhance the shareholders' ability to evaluate and analyse the
underlying financial performance of the Group. Refer to Note 1 for
detail and explanation of the measures used.
Interim Results 2023
Science Group is a science & technology business providing
consultancy and systems to an international client base . The Group
comprises five operating divisions, supported by a strong balance
sheet including significant cash resources and freehold property
assets.
For the six months ended 30 June 2023, Group revenue increased
by 25% to GBP56.1 million (H1 2022: GBP44.8 million). Adjusted
operating profit increased by 18% to GBP10.4 million (H1 2022:
GBP8.8 million) producing an adjusted basic earnings per share
increase of 14% to 16.6 pence (H1 2022: 14.6 pence).
The Group retains a robust balance sheet with Group cash
(excluding client funds) at 30 June 2023 of GBP29.2 million (30
June 2022: GBP38.6 million) and net funds of GBP15.7 million (30
June 2022: GBP23.9 million). During the period ended 30 June 2023,
cash outflow funding the TP Group ('TPG') acquisition was c.GBP17
million and GBP3.3 million was returned to shareholders through
dividends and share buybacks. In addition to the long-term debt of
GBP13.5 million, which expires in September 2026, the Group has a
GBP25 million Revolving Credit Facility which to date has not been
drawn.
Excluding treasury shares, at 30 June 2023, the Company had 45.2
million shares in issue (30 June 2022: 45.5 million) and held 1.0
million shares in treasury (30 June 2022: 0.7 million). Total
voting rights at 30 June 2023 were 45.1 million. During the period,
an aggregate of 0.3 million shares were purchased for treasury at
an average price of 401 pence per share.
Consultancy Services
The Consultancy Services Segment comprises Research &
Development, Regulatory & Compliance and Defence &
Aerospace divisions.
Revenue in the first half of the year increased to GBP42.3
million (H1 2022: GBP29.1 million), producing an adjusted operating
profit of GBP11.5 million (H1 2022: GBP7.0 million). Revenue for
Consultancy Services includes a contribution from Defence &
Aerospace from 26 January 2023, following the completion of the TPG
acquisition.
Research & Development
The R&D Consultancy Division combines leading science and
engineering capabilities with market and commercial expertise, to
provide product development and advisory services to key vertical
sectors. The largest sector continues to be Medical and all sectors
performed broadly in line with the Board's expectations despite the
more challenging economic environment. The Consumer and Food &
Beverage sectors have recently been consolidated reflecting the
similarity in customer profiles and, following the completion of
the TP Group acquisition, the first sales into the Defence sector
have been achieved, confirming the corporate strategy.
For the six months ended 30 June 2023, R&D Consultancy
generated revenue of GBP18.5 million (H1 2022: GBP18.4 million).
Operating margin for the Division increased in the period,
benefitting from the strong US Dollar and the currency hedge (at
$1.20/GBP1) implemented in 2022 which extends to the end of
2023.
Regulatory & Compliance
The Regulatory & Compliance Division includes the European
and North American operations of TSG and Leatherhead Food Research,
providing scientific and regulatory advice to a diverse client
base.
The UK/Europe businesses performed particularly well,
benefitting from significant contract wins in 2022. This was
partially offset by a more challenging environment in North America
as R&D investment in the relevant market sectors reduced from
the Covid peak, compounded by the widely reported bottlenecks in
product approvals at some USA regulatory authorities. With a stable
and strengthening business, the Board has decided that it is now
appropriate to consolidate the Division under a single Managing
Director, a structure that will support greater trans-Atlantic
opportunities whilst providing operational and cost
efficiencies.
In aggregate, for the six months ended 30 June 2023, Regulatory
& Compliance generated revenue of GBP12.1 million (H1 2022:
GBP10.7 million). Operating margin in the Division increased
considerably, particularly within the European business.
Defence & Aerospace
The Defence & Aerospace Division provides programme
management and technical expertise for complex technology-related
programmes.
Since completion of the acquisition of TPG on 26 January 2023,
the Division has been increasingly integrated into Science Group. A
new Managing Director, from within TPG, has been appointed,
supported by a new senior leadership team and significant
improvements in corporate and operational governance have been
introduced. A review of strategy, resourcing model and facilities
is progressing well with underperforming activities being addressed
to provide a stronger platform for the future. In addition, the
anticipated synergies with the Group's Research and Development
Division are already producing results.
For the period from 26 January to 30 June 2023, the Division
contributed revenue of GBP11.7 million (H1 2022: nil). The business
currently operates at a significantly lower profit margin than the
other Consultancy Services Divisions within Science Group. While
this is partly due to defence market characteristics, there are a
number of areas identified to improve performance.
Frontier Smart Technologies ('Frontier')
Frontier is the leading provider of DAB/DAB+ radio
semi-conductors/modules. Consistent with the widely reported,
severe decline in consumer electronics markets, and against a very
strong comparator in the first half of 2022 when market behaviour
was influenced by supply-chain factors, Frontier reported revenue
of GBP5.4 million for the six months ended 30 June 2023 (H1 2022:
GBP15.3 million). This resulted in a small loss in the current
period. As with all consumer electronics businesses in the current
economic climate, Frontier is focused on operational efficiency
and, now under a single Managing Director, is in the process of
consolidating operations into Shenzhen to eliminate the costs of an
office in Hong Kong.
Despite the current challenging conditions across the consumer
electronics sector, Frontier is believed to have maintained its
market share and premium market positioning in its target market.
The business has continued to invest in new products, all costs of
which are expensed with no capitalisation of R&D, such that
Frontier recently launched Magic X, a new cost-optimised module,
and is investing in a new connected audio module to be released in
2024. As a result, the business is well positioned to benefit from
the recovery in consumer electronics which is anticipated to
correlate with the economic cycle.
Critical Maritime Systems & Support ('CMS2')
CMS2 is the rebranded TPG Maritime business which designs,
develops and manufactures submarine atmosphere management systems
for the defence sector. CMS2 became part of Science Group on 26
January 2023 when the TPG acquisition completed. In the period from
26 January to 30 June 2023, CMS2 generated revenues of GBP7.9
million (H1 2022: nil) and a modest adjusted operating profit.
Subsequent to Science Group's 2021 investment in TPG,
significant onerous legacy contracts came to light in the Maritime
subsidiary, placing the viability of the business at serious risk.
A process of resolving those contracts was undertaken during 2022
with all major contracts now substantially renegotiated. As a
result, the Division has a good order book, although the revenue
recognition is less predictable due to the long-term project
characteristics of the systems business.
CMS2 has a long track record and, despite the challenges
previously reported by TPG, remains the leading provider of systems
to its target market. With an increasing defence market interest in
submarine capability and resolution of the onerous contracts,
Science Group is expanding the CMS2 facilities in Portsmouth and,
as set out in the Scheme circular in October 2022, also increasing
investment in both product upgrades and next-generation
systems.
Corporate & Property
On 26 January 2023, the acquisition of TPG completed and from
that date the continuing business results are reported as part of
the Group. Prior to this date, TPG was accounted for as an
associate. Including the share purchases in 2021, the professional
fees incurred and restructuring costs, the aggregate investment in
TPG was approximately GBP30 million, with c. GBP17 million being
incurred in the first half of 2023. Westek, a non-core operation of
TPG, was disposed of in February 2023.
Integration of TPG into Science Group's governance model is well
advanced. In addition, operating business improvements are being
implemented and business strategy reviewed to improve margins and
operational efficiency. TPG central costs have been significantly
reduced, dormant companies are being struck off and consolidation
of facilities is progressing. In addition, a warranty claim related
to the disposal of Sapienza in 2022 was settled removing future
distraction and liability. In parallel the Group is increasing
investment in both TPG Services and CMS2 to position for the
future.
The Group retains two freehold properties, Harston Mill
(Cambridge) and Great Burgh (Epsom). The properties are held at a
book value of GBP20.7 million (H1 2022: GBP20.9 million) although
the last independent valuation (March 2021) valued them in a range
of GBP21 million to GBP35 million. Revenue from Property, excluding
inter-group charges, was GBP0.4 million (H1 2022: GBP0.3
million).
Summary and Outlook
In summary, the first half of 2023 has continued the Group's
track record of resilient performance, delivering record results in
line with the Board's expectations. However the Board does not
underestimate the potential impact of the prolonged uncertainty in
the current economic environment, both UK and international, and is
maintaining its conservative attitude to risk, governance and
financial discipline.
At the same time, economic downturns may present further
acquisition and/or investment opportunities for Science Group. With
a very strong balance sheet, including significant cash resources
and undrawn debt facilities, Science Group is well placed to
explore any such opportunities.
Consolidated Income Statement
For the period ended 30 June 2023
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Note GBP000 GBP000 GBP000
------------------------------------ ------ ------------- ------------ ------------
Revenue 5 56,099 44,783 86,301
Direct operating expenses (32,786) (26,043) (47,947)
Sales and marketing expenses (4,493) (4,684) (9,754)
Administrative expenses (12,269) (7,825) (17,504)
Share of (loss)/profit of equity
accounted investment (163) - 602
Adjusted operating profit 10,420 8,832 17,602
Acquisition integration costs (247) - (1,128)
Amortisation of acquisition related
intangible assets (2,520) (1,851) (3,766)
Share-based payment charge (1,102) (750) (1,612)
Share of (loss)/profit of equity
accounted investment (163) - 602
Operating profit 6,388 6,231 11,698
Finance income 229 175 375
Finance costs (501) (479) (977)
Profit before income tax 6,116 5,927 11,096
Income tax charge (including R&D
tax credit of GBP420,000
(H1 2022: GBP270,000)) 6 (730) (1,283) (541)
------------------------------------ ------ ------------- ------------ ------------
Profit for the period 5,386 4,644 10,555
------------------------------------ ------ ------------- ------------ ------------
Earnings per share
Earnings per share (basic) 7 11.9p 10.2p 23.2p
Earnings per share (diluted) 7 11.5p 9.9p 22.6p
------------------------------------ ------ ------------- ------------ ------------
Consolidated Statement of Comprehensive Income
For the period ended 30 June 2023
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
-------------------------------------------- ------------- ------------ ------------
Profit for the period attributable to:
Equity holders of the parent 5,386 4,644 10,555
------------------------------------------------ ------------- ------------ ------------
Profit for the period 5,386 4,644 10,555
------------------------------------------------ ------------- ------------ ------------
Other comprehensive income items
that may be reclassified to profit or
loss:
Exchange differences on translating foreign
operations (723) 1,927 2,372
Fair value gain on derivative financial
instruments 289 700 1,499
Deferred tax charge on derivative financial
instruments (50) (219) (414)
------------------------------------------------ ------------- ------------ ------------
Other comprehensive (expense)/income
for the period (484) 2,408 3,457
Total comprehensive income for the period
attributable to:
Equity holders of the parent 4,902 7,052 14,012
------------------------------------------------ ------------- ------------ ------------
Total comprehensive income for the period 4,902 7,052 14,012
------------------------------------------------ ------------- ------------ ------------
Consolidated Statement of Changes in Shareholders' Equity
(unaudited)
Group Share Share Treasury Merger Translation Cash Retained Total
capital premium shares reserve reserve flow earnings equity
hedge
GBP000 GBP000 GBP000 GBP000 GBP000 reserve GBP000 GBP000
GBP000
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Balance at 1 January 2022 462 26,834 (1,242) 10,343 (758) 74 30,579 66,292
Purchase of own shares - - (910) - - - - (910)
Issue of shares out of treasury
stock - - 21 - - - (21) -
Dividends paid - - - - - - (2,270) (2,270)
Share-based payment charge - - - - - - 750 750
Deferred tax charge on share-based
payment transactions - - - - - - (360) (360)
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Transactions with owners - - (889) - - - (1,901) (2,790)
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Profit for the period - - - - - - 4,644 4,644
Other comprehensive income
items
that may be reclassed to
profit or loss:
Fair value gain on derivative
financial instruments - - - - - 700 - 700
Exchange differences on translating
foreign operations - - - - 1,927 - - 1,927
Deferred tax charge on derivative
financial instruments - - - - - (219) - (219)
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Total comprehensive income
for the period - - - - 1,927 481 4,644 7,052
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Balance at 30 June 2022 462 26,834 (2,131) 10,343 1,169 555 33,322 70,554
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Group Share Share Treasury Merger Translation Cash Retained Total
capital premium shares reserve reserve flow earnings equity
hedge
GBP000 GBP000 GBP000 GBP000 GBP000 reserve GBP000 GBP000
GBP000
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Balance at 1 July 2022 462 26,834 (2,131) 10,343 1,169 555 33,322 70,554
Purchase of own shares - - (411) - - - - (411)
Issue of shares out of treasury
stock - - 349 - - - (348) 1
Share-based payment charge - - - - - - 862 862
Deferred tax credit on share-based
payment transactions - - - - - - 233 233
Transactions with owners - - (62) - - - 747 685
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Profit for the period - - - - - - 5,911 5,911
Other comprehensive income
items
that may be reclassed to
profit or loss:
Fair value gain on derivative
financial instruments - - - - - 799 - 799
Exchange differences on translating
foreign operations - - - - 445 - - 445
Deferred tax charge on derivative
financial instruments - - - - - (195) - (195)
Total comprehensive income
for the period - - - - 445 604 5,911 6,960
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Balance at 31 December 2022 462 26,834 (2,193) 10,343 1,614 1,159 39,980 78,199
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Group Share Share Treasury Merger Translation Cash Retained Total
capital premium shares reserve reserve flow earnings equity
hedge
GBP000 GBP000 GBP000 GBP000 GBP000 reserve GBP000 GBP000
GBP000
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Balance at 1 January 2023 462 26,834 (2,193) 10,343 1,614 1,159 39,980 78,199
Purchase of own shares - - (1,064) - - - - (1,064)
Issue of shares out of treasury - - - - - - - -
stock
Dividends paid - - - - - - (2,259) (2,259)
Share-based payment charge - - - - - - 1,102 1,102
Deferred tax credit on share-based
payment transactions - - - - - - 237 237
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Transactions with owners - - (1,064) - - - (920) (1,984)
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Profit for the period - - - - - - 5,386 5,386
Other comprehensive income
items
that may be reclassed to
profit for loss:
Fair value gain on derivative
financial instruments - - - - - 289 - 289
Exchange differences on
translating foreign operations - - - - (723) - - (723)
Deferred tax charge on derivative
financial instruments - - - - - (50) - (50)
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Total comprehensive income
for the period - - - - (723) 239 5,386 4,902
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Balance at 30 June 2023 462 26,834 (3,257) 10,343 891 1,398 44,446 81,117
----------------------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Consolidated Balance Sheet
At 30 June 2023
At 30 June At 30 June At 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Note GBP000 GBP000 GBP000
--------------------------------- ------ ------------- ------------ --------------
Assets
Non-current assets
Acquisition related intangible
assets 28,273 12,667 10,815
Goodwill 24,257 14,964 14,975
Property, plant and equipment 25,336 24,414 23,867
Investments - 9,239 10,054
Derivative financial instruments 1,639 1,064 1,417
Deferred tax assets 4,346 1,602 2,176
------------------------------------- ------ ------------- ------------ --------------
83,851 63,950 63,304
------------------------------------ ------ ------------- ------------ --------------
Current assets
Inventories 2,238 2,064 2,477
Trade and other receivables 18,851 11,777 12,992
Current tax assets 1,976 1,781 1,607
Derivative financial instruments 365 - 384
Cash and cash equivalents
- Client funds 8 2,351 2,323 2,867
Cash and cash equivalents
- Group cash 8 29,238 38,621 43,645
------------------------------------- ------ ------------- ------------ --------------
55,019 56,566 63,972
------------------------------------ ------ ------------- ------------ --------------
Total assets 138,870 120,516 127,276
------------------------------------- ------ ------------- ------------ --------------
Liabilities
Current liabilities
Trade and other payables 33,081 29,921 31,546
Current tax liabilities 1,484 664 331
Provisions 9 869 781 849
Borrowings 10 1,200 1,200 1,200
Lease liabilities 11 754 937 720
------------------------------------- ------ ------------- ------------ --------------
37,388 33,503 34,646
------------------------------------ ------ ------------- ------------ --------------
Non-current liabilities
Provisions 9 537 298 248
Borrowings 10 12,348 13,531 12,939
Lease liabilities 11 3,173 1,501 1,162
Deferred tax liabilities 4,307 1,129 82
------------------------------------- ------ ------------- ------------ --------------
20,365 16,459 14,431
------------------------------------ ------ ------------- ------------ --------------
Total liabilities 57,753 49,962 49,077
------------------------------------- ------ ------------- ------------ --------------
Net assets 81,117 70,554 78,199
------------------------------------- ------ ------------- ------------ --------------
Shareholders' equity
Share capital 462 462 462
Share premium 26,834 26,834 26,834
Treasury shares (3,257) (2,131) (2,193)
Merger reserve 10,343 10,343 10,343
Translation reserve 891 1,169 1,614
Cash flow hedge reserve 1,398 555 1,159
Retained earnings 44,446 33,322 39,980
------------------------------------- ------ ------------- ------------ --------------
Total equity 81,117 70,554 78,199
------------------------------------- ------ ------------- ------------ --------------
Consolidated Statement of Cash Flows
For the period ended 30 June 2023
Six months Six months Year
ended
30 June ended ended
2023 30 June 31 December
(Unaudited) 2022 2022
GBP000
(Unaudited) (Audited)
GBP000 GBP000
------------------------------------------------ ------------- ------------ ------------
Profit before income tax 6,116 5,927 11,096
Adjustments for:
Share of profit of equity accounted investment 163 - (602)
Amortisation on acquisition related intangible
assets 2,520 1,851 3,766
Depreciation on property, plant and equipment 318 325 655
Depreciation of right-of-use assets 530 398 827
Reversal of impairment of right-of-use
asset - (197) (215)
Bank charges on derivative financial
instruments 86 74 359
Net interest cost 272 304 602
Share-based payment charge 1,102 750 1,612
Decrease/(increase) in inventories 316 390 (23)
Decrease/(increase) in receivables 2,542 431 (680)
(Decrease)/increase in payables representing
client funds (516) (551) (7)
(Decrease)/increase in payables excluding
balances representing client funds (6,116) 159 1,235
Change in provisions (138) (280) (263)
------------------------------------------------ ------------- ------------ ------------
Cash generated from operations 7,195 9,581 18,362
Interest paid (391) (430) (808)
UK corporation tax received/(paid) 338 (500) (1,017)
Foreign corporation tax paid (137) (784) (1,266)
------------------------------------------------ ------------- ------------ ------------
Cash flows from operating activities 7,005 7,867 15,271
------------------------------------------------ ------------- ------------ ------------
Interest received 166 130 271
Purchase of property, plant and equipment (74) (34) (92)
Purchase of subsidiary undertakings,
net of cash/borrowings acquired (17,839) - (213)
Sale of subsidiary undertaking, net of
cash sold 638 - -
------------------------------------------------ ------------- ------------ ------------
Cash flow used in investing activities (17,109) 96 (34)
------------------------------------------------ ------------- ------------ ------------
Issue of shares out of treasury - - 1
Purchase of own shares (1,064) (910) (1,321)
Dividends paid (2,259) (2,270) (2,270)
Purchase of derivative financial instruments - (308) (531)
Repayment of bank loans (600) (600) (1,200)
Payment of lease liabilities (620) (667) (1,135)
------------------------------------------------ ------------- ------------ ------------
Cash flows used in financing activities (4,543) (4,755) (6,456)
------------------------------------------------ ------------- ------------ ------------
(Decrease)/Increase in cash and cash
equivalents in the period (14,647) 3,208 8,781
Cash and cash equivalents at the beginning
of the period 46,512 37,189 37,189
Exchange (loss)/gain on cash (276) 547 542
------------------------------------------------ ------------- ------------ ------------
Cash and cash equivalents at the end
of the period 31,589 40,944 46,512
------------------------------------------------ ------------- ------------ ------------
Cash and cash equivalents is analysed as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
---------------------------- ------------- ------------ ------------
Cash and cash equivalents -
Client funds 2,351 2,323 2,867
Cash and cash equivalents -
Group cash 29,238 38,621 43,645
---------------------------- ------------- ------------ ------------
31,589 40,944 46,512
---------------------------- ------------- ------------ ------------
Extracts from notes to the financial statements
1. General information
The financial information for the six months ended 30 June 2023
set out in this interim report is unaudited and does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006. The financial information included for the year ended 31
December 2022 has been extracted from the 2022 Financial Statements
of Science Group plc. The Group's statutory financial statements
for the year ended 31 December 2022 have been filed with the
Registrar of Companies. The auditor's report on those financial
statements was unqualified and did not contain a statement under
Section 498(2) or Section 498(3) of the Companies Act 2006.
These unaudited interim results have been approved for issue by
the Board of Directors on 21 July 2023.
The Group and Company financial statements of Science Group plc
for the year ended 31 December 2022 were prepared under the
International Financial Reporting Standards ('IFRS') as adopted by
the UK in conformity with the requirements of the Companies Act
2006 and have been audited by Grant Thornton UK LLP. Copies of the
Financial Statements are available from the Company's registered
office: Harston Mill, Harston, Cambridge, CB22 7GG and can be found
on the Company's website at www.sciencegroup.com .
Science Group plc (the 'Company') and its subsidiaries (together
'Science Group' or 'Group') is a science & technology business
providing consultancy and systems to an international client
base.
The Company is the ultimate parent company in which results of
all the Science Group companies are consolidated.
The Company is incorporated in England and Wales under the
Companies Act 2006 and is listed on the Alternative Investment
Market of the London Stock Exchange (SAG).
Alternative performance measures
The Group uses alternative non-Generally Accepted Accounting
Principles performance measures of 'adjusted operating profit',
'adjusted earnings per share' and 'net funds' which are not defined
within IFRS. These are explained in the 2022 Financial Statements
and the calculations are as follows:
(a) Adjusted operating profit
The calculation of this measure is shown on the Consolidated
Income Statement.
(b) Adjusted earnings per share
The calculation of this measure is disclosed in Note 7.
(c) Net funds
This measure is calculated as follows:
At 30 June At 30 June At 31 December
2023 2022 2022
GBP000 GBP000 GBP000
-------------------------- ---------- ---------- --------------
Cash and cash equivalents
- Group cash 29,238 38,621 43,645
Borrowings (13,548) (14,731) (14,139)
-------------------------- ---------- ---------- --------------
Net funds 15,690 23,890 29,506
-------------------------- ---------- ---------- --------------
2. Accounting policies
The principal accounting policies applied in the preparation of
these interim financial statements are unchanged from those set out
in the financial statements for the year ended 31 December 2022.
These policies have been consistently applied to all the periods
presented.
2.1 Basis of preparation
These interim consolidated financial statements are for the six
months ended 30 June 2023. They have been prepared based on the
measurement and recognition principles of IFRS as adopted by the UK
in conformity with the requirements of the Companies Act 2006 and
effective at the time of preparing these statements. The financial
statements have been prepared on the historical cost basis except
for certain financial instruments and share-based payments which
are measured at fair value.
Going concern
The Directors have considered the current cash balance of
GBP29.2 million (excluding client registration funds) and assessed
forecast future cash flows for the next 12 months. There are no
events or conditions which cast significant doubt on the ability of
the Group to continue as a going concern. In addition to the
existing term loan, in December 2021 the Group agreed a GBP25
million Revolving Credit Facility with its bank, which to date has
not been drawn. The Directors are satisfied that the Group has
adequate cash and financial resources to continue in operational
existence for the foreseeable future, being a period of at least a
year following the release of these unaudited interim results and
therefore continue to adopt the going concern basis of accounting
in preparing the interim financial statements.
3. Financial risk management
3.1 Financial risk factors
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk and fair value interest
risk), credit risk, liquidity risk and cash flow interest rate
risk. The Group's overall financial risk management programme
focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group's financial
performance. Science Group uses derivative financial instruments to
hedge certain risk exposures.
4. Segmental information
The Group's segmental reporting shows the performance of the
operating Segments separately from the value generated by the
Group's freehold property assets and the Corporate costs. The
Consultancy Services Segment consists of three Divisions: (i)
Research & Development, (ii) Regulatory & Compliance, and
(iii) Defence & Aerospace. Financial information is provided to
the Chief Operating Decision Makers in line with this structure:
the three Divisions within the Consultancy Services Segment; the
Products Division (Frontier); the Systems Division (CMS2); the
Freehold Properties and Corporate costs.
The Consultancy Services Divisions are aggregated as one
Consultancy Services Segment because the Divisions and the services
they provide have similar economic characteristics. This
aggregation does not impact the user's ability to understand
performance, prospects for future cash flows or the user's
decisions about the Group as a whole as it is a fair representation
of the performance.
Consultancy Services revenue includes all consultancy fees and
other revenue includes recharged materials and expenses relating
directly to Consultancy Services activities. Products revenue
includes sales of chips and modules which are incorporated into
digital radios. Systems revenue includes the development,
manufacture and support of specialist systems for atmosphere
management, used in UK and International naval defence markets. The
Freehold Properties Segment includes the results for the two
freehold properties owned by the Group. Income is derived from
third party tenants from the Harston Mill site and from Consultancy
Services and Products which have been charged fees at an arm's
length market rental rate for their utilised property space and
associated costs. Corporate costs include PLC/Group costs.
The segmental analysis is reviewed to operating profit. Other
resources are shared across the Group.
Consultancy Services Six months Six months Year
ended
30 June 2023 ended ended
(Unaudited) 30 June 2022 31 December
2022
GBP000 (Unaudited) (Audited)
GBP000 GBP000
----------------------------- -------------- ------------- ------------
Consultancy Services revenue 41,492 27,916 58,242
Other 814 1,224 2,423
----------------------------- -------------- ------------- ------------
Revenue 42,306 29,140 60,665
----------------------------- -------------- ------------- ------------
Adjusted operating profit 11,462 6,977 16,200
----------------------------- -------------- ------------- ------------
Amortisation of acquisition
related intangible assets (1,023) (756) (1,463)
Share-based payment charge (636) (456) (1,249)
----------------------------- -------------- ------------- ------------
Operating profit 9,803 5,765 13,488
----------------------------- -------------- ------------- ------------
Products Six months Six months Year
ended
30 June 2023 ended ended
(Unaudited) 30 June 2022 31 December
2022
GBP000 (Unaudited) (Audited)
GBP000 GBP000
--------------------------------- -------------- ------------- ------------
Products revenue 5,438 15,343 24,979
--------------------------------- -------------- ------------- ------------
Revenue 5,438 15,343 24,979
--------------------------------- -------------- ------------- ------------
Adjusted operating (loss)/profit (550) 3,347 3,869
--------------------------------- -------------- ------------- ------------
Amortisation of acquisition
related intangible assets (1,155) (1,095) (2,303)
Share-based payment charge (191) (202) (265)
--------------------------------- -------------- ------------- ------------
Operating (loss)/profit (1,896) 2,050 1,301
--------------------------------- -------------- ------------- ------------
Systems Six months Six months Year
ended
30 June 2023 ended ended
(Unaudited) 30 June 2022 31 December
2022
GBP000 (Unaudited) (Unaudited)
GBP000 GBP000
---------------------------- -------------- ------------- ------------
Systems revenue 7,933 - -
---------------------------- -------------- ------------- ------------
Revenue 7,933 - -
---------------------------- -------------- ------------- ------------
Adjusted operating profit 810 - -
---------------------------- -------------- ------------- ------------
Amortisation of acquisition
related intangible assets (342) - -
Share-based payment charge (150) - -
---------------------------- -------------- ------------- ------------
Operating profit 318 - -
---------------------------- -------------- ------------- ------------
Freehold Properties Six months Six months Year
ended
30 June 2023 ended ended
(Unaudited) 30 June 2022 31 December
2022
GBP000 (Unaudited) (Audited)
GBP000 GBP000
----------------------------- -------------- ------------- ------------
Intercompany property income 1,818 1,644 3,436
Third party property income 422 300 657
----------------------------- -------------- ------------- ------------
Revenue 2,240 1,944 4,093
----------------------------- -------------- ------------- ------------
Adjusted operating profit 154 10 132
----------------------------- -------------- ------------- ------------
Share-based payment charge (15) (17) (42)
----------------------------- -------------- ------------- ------------
Operating profit/(loss) 139 (7) 90
----------------------------- -------------- ------------- ------------
Corporate Six months Six months Year
ended
30 June 2023 ended ended
(Unaudited) 30 June 2022 31 December
2022
GBP000 (Unaudited) (Audited)
GBP000 GBP000
------------------------------ -------------- ------------- ------------
Adjusted operating loss (1,456) (1,502) (2,599)
------------------------------ -------------- ------------- ------------
Acquisition integration costs (247) - (1,128)
Share-based payment charge (110) (75) (56)
Share of (loss)/profit of
equity accounted investment (163) - 602
------------------------------ -------------- ------------- ------------
Operating loss (1,976) (1,577) (3,181)
------------------------------ -------------- ------------- ------------
Group Six months Six months Year
ended ended ended
30 June 2023 30 June 2022 31 December
2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
---------------------------- --- --- -------------- ------------- ------------
Consultancy Services
revenue 41,492 27,916 58,242
Products revenue 5,438 15,343 24,979
Systems revenue 7,933 - -
Third party property
income 422 300 657
Other 814 1,224 2,423
-------------------------------------- -------------- ------------- ------------
Revenue 56,099 44,783 86,301
-------------------------------------- -------------- ------------- ------------
Adjusted operating
profit 10,420 8,832 17,602
-------------------------------------- -------------- ------------- ------------
Acquisition integration
costs (247) - (1,128)
Amortisation of acquisition
related intangible
assets (2,520) (1,851) (3,766)
Share-based payment
charge (1,102) (750) (1,612)
Share of (loss)/profit
of equity accounted
investment (163) - 602
-------------------------------------- -------------- ------------- ------------
Operating profit 6,388 6,231 11,698
-------------------------------------- -------------- ------------- ------------
Finance charges (net) (272) (304) (602)
-------------------------------------- -------------- ------------- ------------
Profit before income
tax 6,116 5,927 11,096
-------------------------------------- -------------- ------------- ------------
Income tax charge (730) (1,283) (541)
-------------------------------------- -------------- ------------- ------------
Profit for the period 5,386 4,644 10,555
-------------------------------------- -------------- ------------- ------------
Of the total revenue of GBP56.1 million and operating profit of
GBP6.4million, GBP19.7 million and GBP1.2 million respectively is
from acquired business.
In the Freehold Properties Segment, income includes GBP1.8
million (H1 2022: GBP1.6 million) generated from inter-segment
recharges. The corresponding costs are included within the
operating Segments and are eliminated on consolidation.
5. Revenue
In the following tables, revenue is disaggregated by
geographical market and by the currency in which the contract is
denominated.
For the period ended 30 June (Unaudited)
-----------------------------------------------------------------------------------------
Geographical market UK Asia Other Total
North America Europe (excl. UK)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ------------- ----------------- ------- ------- ------- -------
2023 17,158 6,968 23,976 7,478 519 56,099
------------------- ------------- ----------------- ------- ------- ------- -------
2022 16,958 4,457 6,737 16,364 267 44,783
------------------- ------------- ----------------- ------- ------- ------- -------
Currency USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------- ------------- ----------------- ------- ------- ------- -------
2023 19,642 1,733 34,724 56,099
------------------- ------------- ----------------- ------- ------- ------- -------
2022 30,506 1,125 13,152 44,783
------------------- ------------- ----------------- ------- ------- ------- -------
6. Income tax
The income tax charge for the period ended 30 June 2023 is
charged at the effective tax rate calculated for the period using
reasonable estimates and incorporating both current and deferred
taxation:
Six months Six months Year
ended ended ended
30 June 2023 30 June 2022 31 December 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
--------------------------------------------------------- -------------- ------------- -----------------
Profit before tax 6,116 5,927 11,096
Current taxation (1,686) (1,246) (2,666)
Current taxation - adjustment in respect of prior years - (5) 539
Deferred taxation 586 (357) 643
Deferred taxation - adjustment in respect of prior years (50) 55 413
R&D tax credit 420 270 530
--------------------------------------------------------- -------------- ------------- -----------------
Tax charge (730) (1,283) (541)
--------------------------------------------------------- -------------- ------------- -----------------
Effective tax rate 11.9% 21.6% 4.9%
--------------------------------------------------------- -------------- ------------- -----------------
The Group claims Research and Development tax credits under the
Research and Development ('R&D') Expenditure Credit scheme.
7. Earnings per share
The calculation of earnings per share is based on the following
results and number of shares:
Six months Six months Year
ended ended ended
30 June 30 June 2022 31 December
2023 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
----------------------------- ------------- ------------- ------------
Profit for the financial
period 5,386 4,644 10,555
----------------------------- ------------- ------------- ------------
Weighted average number of
shares:
----------------------------- ------------- ------------- ------------
For basic earnings per share 45,346,375 45,608,956 45,525,568
----------------------------- ------------- ------------- ------------
For diluted earnings per
share 46,642,457 46,934,814 46,793,650
----------------------------- ------------- ------------- ------------
Earnings per share: Pence Pence Pence
----------------------------- ------------- ------------- ------------
Basic earnings per share 11.9 10.2 23.2
----------------------------- ------------- ------------- ------------
Diluted earnings per share 11.5 9.9 22.6
----------------------------- ------------- ------------- ------------
The calculation of adjusted earnings per share is as
follows:
Six months Six months Year
ended ended ended
30 June 30 June 2022 31 December
2023 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------------- ------------- ------------- ------------
Adjusted* profit after tax
for the period 7,521 6,652 13,362
------------------------------- ------------- ------------- ------------
Weighted average number of
shares:
------------------------------- ------------- ------------- ------------
For basic earnings per share 45,346,375 45,608,956 45,525,568
------------------------------- ------------- ------------- ------------
For diluted earnings per
share 46,642,457 46,934,814 46,793,650
------------------------------- ------------- ------------- ------------
Adjusted earnings per share: Pence Pence Pence
------------------------------- ------------- ------------- ------------
Basic earnings per share 16.6 14.6 29.4
------------------------------- ------------- ------------- ------------
Diluted earnings per share 16.1 14.2 28.6
------------------------------- ------------- ------------- ------------
*Calculation of adjusted profit after tax:
Six months Six months Year
ended ended ended
30 June 30 June 2022 31 December
2023 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------------- ------------- ------------- ------------
Adjusted operating profit 10,420 8,832 17,602
Finance income 229 175 375
Finance costs (501) (479) (977)
------------------------------- ------------- ------------- ------------
Adjusted profit before tax 10,148 8,528 17,000
Tax charge at the blended
corporation tax rate of 25.9%
(H1 2022: 22.0%) (2,627) (1,876) (3,638)
------------------------------- ------------- ------------- ------------
Adjusted profit after tax 7,521 6,652 13,362
------------------------------- ------------- ------------- ------------
8. Cash and cash equivalents
Six months Six months Year ended
ended ended 31
30 June 30 June December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
-------------------------- ------------- ------------ ----------
Cash and cash equivalents
- Client funds 2,351 2,323 2,867
Cash and cash equivalents
- Group cash 29,238 38,621 43,645
-------------------------- ------------- ------------ ----------
31,589 40,944 46,512
-------------------------- ------------- ------------ ----------
The Group receives cash from clients, primarily in North
America, which are pass-through funds solely for the purpose of
payment of registration fees to regulatory bodies. This cash is
separately identified for reporting purposes and is
unrestricted.
9. Provisions
(Unaudited) Dilapid Restruct-uring Legal Other Total
-ations GBP000
GBP000 GBP000 GBP000 GBP000
-------------------------------------- -------- -------------- ------- ------- -------
At 1 January 2022 770 70 440 - 1,280
Increase in provision 27 - 5 - 32
Utilisation of provision (2) - (146) - (148)
Provision reversed during
the period (164) - - - (164)
Loss on foreign currency fluctuations 56 - 23 - 79
-------------------------------------- -------- -------------- ------- ------- -------
At 30 June 2022 687 70 322 - 1,079
Increase in provision 17 - 185 - 202
Utilisation of provision - - (6) - (6)
Provision reversed during
the period - (30) (149) - (179)
Loss/(gain) on foreign currency
fluctuations 2 - (1) - 1
-------------------------------------- -------- -------------- ------- ------- -------
At 31 December 2022 706 40 351 - 1,097
Assumed in business combination 271 - 135 259 665
Disposal of subsidiary - - - (138) (138)
Increase in provision 55 - 98 - 153
Utilisation of provision (57) (8) (43) - (108)
Provision reversed during
the period - - (149) (34) (183)
Gain on foreign currency fluctuations (71) - (9) - (80)
-------------------------------------- -------- -------------- ------- ------- -------
At 30 June 2023 904 32 383 87 1,406
-------------------------------------- -------- -------------- ------- ------- -------
At 30 June At 30 June At 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------ ------------- ------------ --------------
Current liabilities 869 781 849
Non-current liabilities 537 298 248
------------------------ ------------- ------------ --------------
1,406 1,079 1,097
------------------------ ------------- ------------ --------------
Legal provisions represent the best estimate of the future cost
of responding to US subpoenas relating to litigation and
investigations directed at third parties. The restructuring
provision relates to the costs associated with the closure of some
non-trading Group entities. The other provisions relate to warranty
provisions.
10. Borrowings
At 30 June At 30 June At 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
---------------------------- ------------- ------------ --------------
Current bank borrowings 1,200 1,200 1,200
Non-current bank borrowings 12,348 13,531 12,939
---------------------------- ------------- ------------ --------------
13,548 14,731 14,139
---------------------------- ------------- ------------ --------------
The Group has a 10-year fixed term loan and has interest rate
swaps in place to fix the interest at an effective rate of 3.5%.
The repayment profile of the loan is GBP1.2 million per annum over
the term with the remaining balance repaid on expiry of loan in
2026.
The Group has a Revolving Credit Facility ('RCF') with Lloyds
Bank plc in order to provide additional capital resources to enable
the execution of the Group's acquisition strategy. The RCF is for
up to GBP25 million, with an additional GBP5 million accordion
option, for a term of four years (commenced in December 2021) with
a one-year extension. The RCF is in addition to the Group's
existing term loan.
11. Lease liabilities
At 30 June At 30 June At 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------------ ------------- ------------ --------------
Current lease liabilities 754 937 720
Non-current lease liabilities 3,173 1,501 1,162
------------------------------ ------------- ------------ --------------
3,927 2,438 1,882
------------------------------ ------------- ------------ --------------
Lease liabilities arise on properties leased by the Group. The
leases have remaining periods of between 1 and 10 years from the
balance sheet date.
12. Business Combinations
On 26 January 2023, the Group completed the acquisition of 100%
of the share capital of TPG.
TPG adds significant scale to the Group and provides a strategic
entry into the defence sector.
TPG contributed revenue of GBP19.7 million and operating profit
of GBP1.2 million in the Group consolidated income statement for
the period ended 30 June 2023.
In connection with the acquisition, the provisional fair values
are as follows:
Fair value of consideration transferred GBP000
--------------------------------------------------------------------- --------
Cash 25,392
Fair value remeasurement (to reflect fair value on 13 October 2021) (2,470)
Share of loss in associate investment (622)
--------------------------------------------------------------------- --------
Total 22,300
--------------------------------------------------------------------- --------
Fair value of acquisition GBP000
-------------------------------------- --------
Goodwill 9,598
Intangible assets - technology-based 3,346
Intangible assets - customer related 15,488
Intangible assets - marketing related 1,611
Property, plant and equipment 2,401
Deferred tax assets 2,175
Current assets 13,554
Current liabilities (11,825)
Non-current liabilities (14,048)
-------------------------------------- --------
Fair value of net assets acquired 22,300
-------------------------------------- --------
The goodwill is attributable mainly to the skills and technical
knowledge of TPG's workforce.
Subsequent to the acquisition, the Group sold the entire issued
share capital of Westek Technology Ltd to Roda Computer GmbH in
February 2023 for a cash consideration of GBP0.8 million.
13. Related party transactions
The Group provides support and consultancy services to its
subsidiaries and made loans, all of which are eliminated on
consolidation, and are therefore not disclosed.
On 16 December 2021, the Group made available a standby
revolving credit facility to TPG. The facility, which was
unsecured, included an arrangement fee of 3%, interest rate of 1%
per month on sums drawn and 0.4% per month on undrawn amounts. The
facility was withdrawn when TPG became a subsidiary on 26 January
2023.
14. Critical accounting estimates and judgements
In preparing these interim financial statements, management has
made judgements and estimates that affect the application of
accounting policies and the reported amounts of assets,
liabilities, income and expense. Actual results may differ from
these estimates.
The significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those described in the last annual
financial statements. One additional area for accounting judgement,
following the acquisition of TPG, is in respect of the assessment
of the percentage of completion of long-term contracts. This
requires estimates of labour hours, rates and material costs to
determine forecast costs to complete. This assessment has been
completed on each long-term contract.
15. Subsequent events
There are no post balance sheet events to disclose.
- Ends -
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END
IR FLFIDDEIVFIV
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July 24, 2023 02:00 ET (06:00 GMT)
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