Interim results for 6 months ended 30 June 2022

RNS Number : 5069T
Science Group PLC
25 July 2022
 

 

 


 

25 July 2022

 

SCIENCE GROUP PLC

 

('Science Group', the 'Group' or the 'Company')

 

INTERIM RESULTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2022

 

 

                                   

Summary

 

·     Record H1 results, slightly ahead of the Board's expectations

 

·     Revenue growth of 10% to £44.8m (H1 2021: £40.7m)

 

·     Adjusted* operating profit increased by 22% to £8.8m (H1 2021: £7.3m)

 

·     Adjusted* basic EPS growth of 10% to 14.6 pence (H1 2021: 13.3 pence)

 

·     The Group continues to actively manage its strategic investment in TP Group

 

·     Balance sheet remains very strong with Group cash of £38.6m and net funds of £23.9m (H1 2021: £29.0m and £13.0m)

 

·     On track for another record year in 2022, despite the deteriorating economic outlook, with Science Group benefitting from sector diversification and a strong US Dollar





 

Science Group plc


Martyn Ratcliffe, Chairman

Jon Brett, Group Finance Director

Tel: +44 (0) 1223 875 200

www.sciencegroup.com

 

Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker)


Nick Adams, Alex Price

Tel: +44 (0) 20 7710 7600



Liberum Capital Limited (Joint Broker)


Neil Patel, Cameron Duncan

Tel: +44 (0) 20 3100 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 2022

 

Science Group is an international science, technology and consulting organisation. The Group comprises three operating divisions: R&D Consultancy; Regulatory & Compliance; and Frontier Smart Technologies, together with freehold property assets and a strategic shareholding in TP Group plc.

 

The Group reports record H1 results for the first half of 2022, delivering organic growth in both revenue and adjusted operating profit. For the six months ended 30 June 2022, Group revenue increased by 10% to £44.8 million (H1 2021: £40.7 million), or 7% on a constant currency basis. Adjusted operating profit increased by 22% to £8.8 million (H1 2021: £7.3 million) and adjusted profit before tax was £8.5 million (H1 2021: £6.9 million). Adjusted basic earnings per share increased by 10% to 14.6 pence (H1 2021: 13.3 pence).

 

The Group retains a robust balance sheet with Group cash (excluding client funds) at 30 June 2022 of £38.6 million (30 June 2021: £29.0 million) and net funds of £23.9 million (30 June 2021: £13.0 million). The long term debt of £14.7 million is secured on the Group's freehold properties. In addition to the term loan, in December 2021 the Group agreed a £25 million Revolving Credit Facility with its bank, which to date has not been drawn. 

 

Excluding treasury shares, at 30 June 2022, the Company had 45.5 million shares in issue (30 June 2021: 41.2 million) and held 0.7 million (30 June 2021: 0.8 million) shares in treasury. Total voting rights at 30 June 2022 were 45.4 million. During the period, an aggregate of 0.2 million shares were purchased for treasury at an average price of 407 pence per share.

 

R&D Consultancy Division


The R&D Consultancy Division combines leading science and engineering capabilities with market and commercial expertise. It provides advisory and product development services to key vertical sectors, namely: Medical; Consumer; Food & Beverage; and Industrial.

 

In the first half of 2022, the Medical Sector continued to perform well while the Industrial and Food & Beverage sectors both experienced enhanced growth relative to the same period in the prior half year. As anticipated, the Consumer sector continues to be most affected by the economic uncertainty.

 

Overall, for the six months ended 30 June 2022, the R&D Consultancy Division generated services revenue of £17.2 million (H1 2021: £15.2 million), a growth rate of 13%. Operating margin in the Division continues to be excellent, benefitting from the strong US Dollar.

 

In order to provide greater forward visibility and enable the R&D Consultancy Division to benefit from the currency environment, a currency hedging instrument to cap the rate at US$1.3:£1 has been taken out in relation to the anticipated US Dollar cash flow derived from this Division through to the end of 2023. There is no obligation to sell at this rate and the instrument is designed to protect against a strengthening of Sterling or weakening of the US Dollar.

 

Regulatory & Compliance Division


The Regulatory & Compliance Division includes the European and North American operations of TSG and the Leatherhead Food Research business. The Division provides scientific and regulatory advice to organisations in the Chemicals, Consumer, Food & Beverage and Medical sectors.

 

In the first half of 2022, TSG (Europe) performed well, benefiting from a significant contract win with a major agrochemicals provider early in the year. The TSG (America) performance is broadly consistent with same period in the prior half year while Leatherhead has had a slower start to the year reflecting the economic uncertainty. In aggregate, for the six months ended 30 June 2022, the Regulatory & Compliance Division generated revenue of £10.7 million (H1 2021: £10.5 million).

 

Frontier Smart Technologies Division ('Frontier')


Frontier is the leading provider of DAB/DAB+ radio modules and semiconductors to the consumer electronics market. For the six months ended 30 June 2022, Frontier reported revenue of £15.3 million (H1 2021: £13.6 million) and an adjusted operating profit margin of 22% (H1 2021: 22%). These results include Magic Systech which was acquired in November 2021. 

 

As consumer demand slows in line with the global economic downturn, the supply chain within the semiconductor and components market is anticipated to start to normalise. Similarly freight costs, which became a significant element of unit cost, are returning to prior year levels. The Division is monitoring demand closely, maintaining its strong market share but anticipating the market to adjust to the economic environment.

 

Corporate

The Corporate function is responsible for Group and PLC matters, together with the strategic development of Science Group.  In the period to 30 June 2022, Corporate costs were £1.5 million (H1 2021: £1.4 million), returning to more normal levels after the H2 2021 corporate activity. The Board continues to explore opportunities to increase the scale of the Group but there can be no certainty that any acquisitions will be completed.

 

Science Group is the largest shareholder in TP Group plc ('TPG') owning 28.0% of the issued share capital. It is actively managing its investment, with two seats on the TPG board including Chairman. The Group has not included within its H1 2022 Income Statement a share of TPG's results as it is not considered to be material for this half year period. As announced by TPG, the restructuring of the business is progressing with disposals of non-core business activities. Within the core operations, TPG Services continues to perform satisfactorily but TPG Maritime has been impacted by onerous legacy contracts which have resulted in substantial provisions having had to be taken (including prior year adjustments) and contracts now being renegotiated.

 

As with all companies, Science Group is experiencing the effects of inflation, both in staff costs and materials. To date the costs have been broadly offset by the Group benefitting from the relative strength of the US Dollar relative to Sterling and also through cost increases being passed onto customers. The Board also recognises the pressures on staff in relation to energy and fuel costs, which may or may not be a temporary inflationary factor. In order to assist employees at all levels of the Company, but particularly more junior grades, a temporary payment is being made to employees to assist during this challenging period. The Group is also aware of its position in society, particularly within local communities and has therefore maintained its support through charitable donations to foodbanks serving areas close to the Group's offices.

 

Summary and Outlook

 

In summary, the first half of 2022 has continued the Group's track record of resilient performance, delivering results slightly ahead of the Board's expectations. The Group is experiencing increases in materials, energy and staff costs but has to date managed to offset the effects.

 

The macroeconomic environment is unpredictable with global inflationary pressures and destabilising geo-political events, now combined with an uncertain UK political direction and economic policy. Economic performance in some of the Group's markets is anticipated to deteriorate in the months ahead as consumer spending slows. While the Group is not immune to macroeconomic factors, the revenue streams are well diversified with little reliance on individual customers or sectors and therefore is well positioned with solid foundations. As a result, the Board remains cautiously optimistic for the remainder of the year.

 

The Group also retains a very strong balance sheet, including significant cash resources and undrawn debt facilities. This robust financial strength enables the Group to explore opportunities to increase the scale of Science Group, if appropriate.

 

 

 


Consolidated Income Statement

For the period ended 30 June 2022

 

 

 

 

 

 

 

Note

Six months

ended

30 June

2022

(Unaudited)

£000

Six months

ended

30 June

2021

(Unaudited)

£000

Year

ended

31 December

2021

(Audited)

£000


 

 



Revenue

5

44,783

40,655

81,216

Direct operating expenses

 

(26,043)

(23,555)

(45,858)

Sales and marketing expenses

 

(4,684)

(4,388)

(8,824)

Administrative expenses

 

(7,825)

(6,981)

(13,892)

Share of loss of equity accounted investment

 

-

-

(1,061)

Adjusted operating profit

 

8,832

7,250

16,260

Amortisation of acquisition related intangible assets

 

(1,851)

(1,208)

(2,891)

Share-based payment charge

 

(750)

(311)

(727)

Share of loss of equity accounted investment

 

-

-

(1,061)

 

 

 



Operating profit

 

6,231

5,731

11,581


 

 



Finance income

 

175

-

19

Finance costs

 

(479)

(340)

(673)


 

 



Profit before income tax

 

5,927

5,391

10,927

Income tax charge (including R&D tax credit of £270,000 (H1-21 £124,000))

 

6

 

(1,283)

 

(711)

 

(1,366)

Profit for the period

 

4,644

4,680

9,561



 




 

 




 

 



Earnings per share

 

 



Earnings per share (basic)

7

10.2p

11.4p

22.4p

Earnings per share (diluted)

7

9.9p

11.1p

21.7p

 


Consolidated Statement of Comprehensive Income

For the period ended 30 June 2022

 



Six months

ended

30 June

2022

(Unaudited)

£000

Six months

ended

30 June

2021

(Unaudited)

£000

Year

ended

31 December

2021

(Audited)

£000



 


 

Profit for the period attributable to:


 



Equity holders of the parent


4,644

4,680

9,561    

Profit for the period


4,644

4,680

9,561

 


 



Other comprehensive income items

that may be reclassified to profit or loss:


 



Exchange differences on translating foreign operations


1,927

(186)

  279  

Fair value gain on derivative financial instruments


700

382

763

Deferred tax charge on derivative financial instruments


(219)

(71)

(151)

 

Other comprehensive income items

that will not be reclassed to profit or loss:


 



Changes in the fair value of equity investments through other comprehensive income


 

-

 

-

 

(2,470)



 



Other comprehensive income/(expense) for the period


2,408

125

(1,579)

 


 



Total comprehensive income for the period attributable to:


 



Equity holders of the parent


7,052

4,805

7,982

Total comprehensive income for the period


7,052

4,805

7,982



 





Consolidated Statement of Changes in Shareholders' Equity (unaudited)

 

 

Group

 

 

Share

capital

 

£000

Share

premium

 

£000

Treasury

shares

 

£000

Merger

reserve

 

£000

Translation

reserve

 

£000

Cash flow hedge

reserve

£000

Retained

earnings

 

£000

Total

equity

 

£000

Balance at 1 January 2021

421

9,102

(1,896)

10,343

(1,037)

(538)

24,995

41,390

Purchase of own shares

-

-

(238)

-

-

-

-

(238)

Issue of shares out of treasury stock

-

-

183

-

-

-

(182)

1

Dividends paid

-

-

-

-

-

-

(1,642)

(1,642)

Share-based payment charge

-

-

-

-

-

-

311

311

Deferred tax credit on share-based payment transactions

 

-

 

-

 

-

 

-

 

-

 

-

 

264

 

264

Transactions with owners

-

-

(55)

-

-

-

(1,249)

(1,304)

 








 

Profit for the period

-

-

-

-

-

-

4,680

4,680

 








 

Other comprehensive income items

that may be reclassed to profit or loss:








 

Fair value gain on derivative financial instruments

 

-

 

-

 

-

 

-

 

-

 

382

 

-

 

382

Exchange differences on translating foreign operations

 

-

 

-

 

-

 

-

 

(186)

 

-

 

-

 

(186)

Deferred tax charge on derivative financial instruments

 

-

 

-

 

-

 

-

 

-

 

(71)

 

-

 

(71)

Total comprehensive income for the period

-

-

-

-

(186)

311

4,680

4,805

Balance at 30 June 2021

421

9,102

(1,951)

10,343

(1,223)

(227)

28,426

44,891

 








 

Group

 

 

Share

capital

 

£000

Share

premium

 

£000

Treasury

shares

 

£000

Merger

reserve

 

£000

Translation

reserve

 

£000

Cash flow hedge reserve

£000

Retained

earnings

 

£000

Total

equity

 

£000

Balance at 1 July 2021

421

9,102

(1,951)

10,343

(1,223)

(227)

28,426

44,891

Purchase of own shares

-

-

(324)

-

-

-

-

(324)

Issue of shares out of treasury stock

-

-

1,033

-

-

-

(1,029)

4

Dividends paid

-

-

-

-

-

-

-

-

Share-based payment charge

-

-

-

-

-

-

416

416

Deferred tax credit on share-based payment transactions

 

-

 

-

 

-

 

-

 

-

 

-

 

355

 

355

Share placement

41

17,732

-

-

-

-

-

17,773

Transactions with owners

41

17,732

709

-

-

-

(258)

18,224

 

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

-

 

4,881

 

4,881

 

 

 





 

Other comprehensive income items

that may be reclassed to profit or loss:

 

 


 




 

Fair value gain on derivative financial instruments

 

-

 

-

 

-

 

-

 

-

 

381

 

-

 

381

Exchange differences on translating foreign operations

 

-

 

-

 

-

 

-

 

465

 

-

 

-

 

465

Deferred tax charge on derivative financial instruments

 

-

 

-

 

-

 

-

 

-

 

(80)

 

-

 

(80)

 








 

Other comprehensive income items

that will not be reclassed to profit or loss:








 

Changes in the fair value of equity investments through other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

-

 

(2,470)

 

(2,470)

Total comprehensive income for the period

-

-

-

-

465

301

2,411

3,177

Balance at 31 December 2021

462

26,834

(1,242)

10,343

(758)

74

30,579

66,292

 

 

 

 

 

 

 

 

 




 

Group

 

 

Share

capital

 

£000

Share

premium

 

£000

Treasury

shares

 

£000

Merger

reserve

 

£000

Translation

reserve

 

£000

Cash flow hedge

reserve

£000

Retained

earnings

 

£000

Total

equity

 

£000

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 for 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

 

 


 

Consolidated Balance Sheet

At 30 June 2022

 



 

 

 

Note

At 30 June

2022

(Unaudited)

£000

At 30 June

2021

(Unaudited)

£000

At 31 December

2021

(Audited)

£000

Assets


 

 



Non-current assets


 

 



Acquisition related intangible assets


 

12,667

9,221

13,359

Goodwill


 

14,964

13,604

14,360

Property, plant and equipment


 

24,414

23,542

23,384

Investments


 

9,239

-

9,239

Derivative financial instruments


 

1,064

-

129

Deferred tax assets


 

1,602

711

2,120



 

63,950

47,078

62,591

Current assets


 

 



Inventories


 

2,064

1,214

2,454

Trade and other receivables


 

11,777

10,862

12,208

Current tax assets


 

1,781

2,793

1,493

Cash and cash equivalents - Client funds


8

2,323

2,228

2,874

Cash and cash equivalents - Group cash


8

38,621

28,962

34,315



 

56,566

46,059

53,344



 

 



Total assets


 

120,516

93,137

115,935







Liabilities


 

 



Current liabilities


 

 



Trade and other payables


 

29,921

25,899

30,042

Current tax liabilities


 

664

231

776

Provisions


9

781

877

677

Borrowings


10

1,200

1,200

1,200

Lease liabilities


11

937

1,191

1,153



 

33,503

29,398

33,848

Non-current liabilities


 

 



Provisions


9

298

679

603

Borrowings


10

13,531

14,715

14,123

Lease liabilities


11

1,501

499

400

Derivative financial instruments


 

-

252

-

Deferred tax liabilities


 

1,129

2,703

669



 

16,459

18,848

15,795

Total liabilities


 

49,962

48,246

49,643



 

 



Net assets


 

70,554

44,891

66,292



 

 



Shareholders' equity


 

 



Share capital


 

462

421

462

Share premium


 

26,834

9,102

26,834

Treasury shares


 

(2,131)

(1,951)

(1,242)

Merger reserve


 

10,343

10,343

10,343

Translation reserve


 

1,169

(1,223)

(758)

Cash flow hedge reserve


 

555

(227)

74

Retained earnings


 

33,322

28,426

30,579

Total equity


 

70,554

44,891

66,292

 


 

 



 

 

 

Consolidated Statement of Cash Flows

For the period ended 30 June 2022

 

 

Six months ended

30 June

2022

(Unaudited) £000

Six months

ended

30 June

2021

(Unaudited)

£000

Year

ended

31 December

2021

(Audited)

£000


 



Profit before income tax

5,927

5,391

10,927

Adjustments for:

 



Share of loss of equity accounted investment

-

-

1,061

Amortisation on acquisition related intangible assets

1,851

1,208

2,891

Depreciation on property, plant and equipment

325

364

719

Depreciation of right-of-use assets

398

401

794

Reversal of impairment of right-of-use asset

(197)

-

-

Bank charges on derivative financial instruments

74

-

-

Net interest cost

304

340

654

Share-based payment charge

750

311

727

Decrease/(increase) in inventories

390

49

(1,047)

Decrease/(increase) in receivables

431

(79)

(1,385)

(Decrease)/increase in payables representing client funds

(551)

213

859

Increase/(decrease) in payables excluding balances representing client funds 

159

(670)

2,494

Change in provisions

(280)

228

(76)

Cash generated from operations

9,581

7,756

18,618


 



Interest paid

(430)

(293)

(646)

UK corporation tax paid

(500)

(1,131)

(3,018)

Foreign corporation tax paid

(784)

(540)

(940)

Cash flows from operating activities

7,867

5,792

14,014


 




 



Interest received

130

-

3

Purchase of property, plant and equipment

(34)

(411)

(544)

Purchase of intellectual property

-

-

(4,315)

Purchase of interest in associated company

-

-

(12,770)

Purchase of subsidiary undertakings, net of cash acquired

-

-

(1,455)

Cash flow used in investing activities

96

(411)

(19,081)


 



Issue of shares out of treasury

-

1

5

Share placement

-

-

17,773

Repurchase of own shares

(910)

(238)

(562)

Dividends paid

(2,270)

(1,642)

(1,642)

Purchase of derivative financial instruments

(308)

-

-

Repayment of bank loans

(600)

(600)

(1,200)

Payment of lease liabilities

(667)

(720)

(1,297)

Cash flows used in financing activities

(4,755)

(3,199)

13,077


 



Increase in cash and cash equivalents in the period

3,208

2,182

8,010

Cash and cash equivalents at the beginning of the period

37,189

29,074

29,074

Exchange gain/(loss) on cash

547

(66)

105

Cash and cash equivalents at the end of the period

40,944

31,190

37,189



Cash and cash equivalents is analysed as follows:

 

Six months

ended

30 Jun

2022

(Unaudited)

£000

Six months

ended

30 June

2021

(Unaudited)

£000

Year

ended

31 December

2021

(Audited)

£000

Cash and cash equivalents - Client funds

2,323

2,228

2,874

Cash and cash equivalents - Group cash

38,621

28,962

34,315

 

40,944

31,190

37,189

 

 

 

Extracts from notes to the financial statements

 

1. General information

The financial information for the 6 months ended 30 June 2022 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 2021 has been extracted from the 2021 Financial Statements of Science Group plc. The Group's statutory financial statements for the year ended 31 December 2021 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 22 July 2022.

 

The Group and Company financial statements of Science Group plc for the year ended 31 December 2021 were prepared under the International Financial Reporting Standards ('IFRS') as adopted by the UK in conformity with UK-adopted international accounting standards 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 an international, science-led services and product development organisation with a freehold property asset 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 and is listed on the Alternative Investment Market of the London Stock Exchange (SAG.L).

 

 

Alternative performance measures

The Group uses alternative non-Generally Accepted Accounting Practice performance measures of 'adjusted operating profit', 'adjusted earnings per share' and 'net funds' which are not defined within IFRS. These are explained in the 2021 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

2022

£000

At 30 June

2021

£000

At 31 December 2021

£000

Cash and cash equivalents - Group cash

38,621

28,962

34,315

Borrowings

(14,731)

(15,915)

(15,323)

Net funds

23,890

13,047

18,992

 

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 2021. 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 2022. They have been prepared based on the measurement and recognition principles of IFRS as adopted by the UK in conformity with UK-adopted international accounting standards and IFRIC interpretations issued 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 £38.6 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 £25 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 financing 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 businesses separately from the value generated by the Group's significant freehold property assets and the Corporate costs. The Services Operating Business consists of two divisions, (i) R&D Consultancy, and (ii) Regulatory & Compliance. Financial information is provided to the Chief Operating Decision Makers in line with this structure: the divisions and service lines in the Services Operating Businesses; the Product Operating Business (Frontier); the Freehold Properties and Corporate costs. 

 

The Services Operating divisions (including the service lines) have been aggregated resulting in one Services Operating Business segment because the divisions and the services they provide have similar economic characteristics such as similar long-term average gross margins, trends in sales growth and operating cash flows and are also similar in respect of their nature, delivery and types of customers that the services are provided to. This aggregation does not impact the user's ability to understand the entity's performance, its prospects for future cash flows or the user's decisions about the entity as a whole as it is a fair representation of the performance of each service line.

 

Services Operating Business revenue includes all consultancy fees and other revenue includes recharged materials and expenses relating directly to the Services Operating Business activities. Product Operating Business revenue includes sales of chips and modules which are incorporated into digital radios. 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 the Services and Product Operating Businesses 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.

 


Services Operating Business

 

 

Six months ended

 30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Services revenue

27,916

25,750

52,879

Other

1,224

1,029

2,840

Revenue

29,140

26,779

55,719





Adjusted operating profit

6,977

5,177

14,122





Amortisation of acquisition related intangible assets

(756)

(746)

(1,495)

Share-based payment charge

(456)

(278)

(502)

Operating profit

5,765

4,153

12,125

 

 

 

 

 

 

 

Product Operating Business

 

 

Six months ended

 30 June 2022

 (Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

 ended

31 December 2020

(Audited)

£000

Product revenue

15,343

13,620

24,936

Revenue

24,936





Adjusted operating profit

3,347

2,967

5,156





Amortisation of acquisition related intangible assets

(1,095)

(462)

(1,396)

Share-based payment charge

(202)

(98)

(240)

Operating profit

2,050

2,407

3,520

 

 

 

Freehold Properties

Six months ended

 30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Intercompany property income

1,644

1,522

3,046

Third party property income

300

256

561

Revenue

1,944

1,778

3,607





Adjusted operating profit

10

495

361

Share-based payment charge

(17)

(10)

(27)

Operating (loss)/profit

(7)

485

334

 

 

 

 

 



Corporate

Six months ended

 30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Adjusted operating loss

(1,502)

(1,389)

(3,379)





Share-based payment (charge)/credit

(75)

75

42

Share of loss of equity accounted investment

-

-

(1,061)

Operating loss

(1,577)

(1,314)

(4,398)

 

 

 

Group

 

 

Six months ended

 30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Services revenue

27,916

25,750

52,879

Product revenue

15,343

13,620

24,936

Third party property income

300

256

561

Other

1,224

1,029

2,840

Revenue

44,783

40,655

81,216





Adjusted operating profit

8,832

7,250

16,260





Amortisation of acquisition related intangible assets

(1,851)

(1,208)

(2,891)

Share-based payment charge

(750)

(311)

(727)

Share of loss of equity accounted investment

-

-

(1,061)

Operating profit

6,231

5,731

11,581

Finance charges (net)

(304)

(340)

(654)

Profit before income tax

5,927

5,391

10,927

Income tax charge

(1,283)

(711)

(1,366)

Profit for the period

4,644

4,680

9,561

 

In the Freehold Properties segment, income includes £1.6 million (H1 2021: £1.5 million) generated from inter-segment recharges. The corresponding costs are included within the Operating Business segments and are eliminated on consolidation.

 


5. Revenue

The Group's operations and main revenue streams are those described in the last annual financial statements.

 

Disaggregation of revenue

In the following tables, revenue is disaggregated by geographical market and by the currency in which the contract is denominated for the relevant Operating Business. Property revenue is generated in the UK and denominated in GBP.

 

For the period ended 30 June (Unaudited)

 

Currency

 

USD

£000

EUR

£000

GBP

£000

Other

£000

Total

£000

2022

 

30,506

1,125

13,152

-

44,783

2021


25,209

1,855

13,583

8

40,655








Geographical market

North America

£000

Europe (excl. UK)

£000

UK

 

£000

 

Asia

 

£000

Other

 

£000

Total

 

£000

2022

16,958

4,457

6,737

16,364

267

44,783

2021

13,469

6,344

5,482

15,196

164

40,655

 

 

6. Income tax

The income tax charge for the period ended 30 June 2022 is charged at the effective tax rate calculated for the period using reasonable estimates and incorporating both current and deferred taxation:

 

Six months

ended

30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Profit before tax

5,927

5,391

10,927

Current taxation

(1,246)

(958)

(4,269)

Current taxation - adjustment in respect of prior years

 

(5)

 

(126)

 

(481)

Deferred taxation

(357)

249

2,975

Deferred taxation - adjustment in respect of prior years

 

55

 

-

 

85

R&D tax credit

270

124

324

Tax charge

(1,283)

(711)

(1,366)





Effective tax rate

21.6% 

13.2%

12.5%

 

The Group claims Research and Development tax credits under both the R&D Expenditure Credit scheme and the Small or Medium-sized scheme.

 


7. Earnings per share

The calculation of earnings per share is based on the following results and number of shares:

 

Six months

ended

30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Profit for the financial period

4,644

4,680

9,561

 

Weighted average number of shares:

 



For basic earnings per share

45,608,956

41,217,451

42,660,991

For diluted earnings per share

46,934,814

42,366,174

44,096,093

 

Earnings per share:

 

Pence

 

Pence

 

Pence

Basic earnings per share

10.2

11.4

22.4

Diluted earnings per share

9.9

11.1

21.7

 

The calculation of adjusted earnings per share is as follows:

 

Six months

ended

30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Adjusted* profit after tax for the period

6,652

5,500

12,173

 

Weighted average number of shares:

 



For basic earnings per share

45,608,956

41,217,451

42,660,991

For diluted earnings per share

46,934,814

42,366,174

44,096,093

 

Adjusted earnings per share:

 

Pence

 

Pence

 

Pence

Basic earnings per share

14.6

13.3

28.5

Diluted earnings per share

14.2

13.0

27.6

 

*Calculation of adjusted profit after tax:

 

Six months

ended

30 June 2022

(Unaudited)

£000

Six months

ended

30 June 2021

(Unaudited)

£000

Year

ended

31 December 2021

(Audited)

£000

Adjusted operating profit

8,832

7,250

16,260

Finance income

175

-

19

Finance costs

(479)

(340)

(673)

Adjusted profit before tax

8,528

6,910

15,606

Tax charge at the blended corporation tax rate of 22.0% (H1-21: 20.4%)

 

(1,876)

 

(1,410)

 

(3,433)

Adjusted profit after tax

6,652

5,500

12,173

 

 

8. Cash and cash equivalents

 

Six months

ended

30 June

2022

(Unaudited)

£000

Six months

ended

30 June

2021

(Unaudited)

£000

Year ended

31

December

2021

(Audited)

£000

Cash and cash equivalents - Client funds

2,323

2,228

2,874

Cash and cash equivalents - Group cash

38,621

28,962

34,315

 

40,944

31,190

37,189

 

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 separated in the day-to-day operations of the business, is separately identified for reporting purposes and are unrestricted.

 

9. Provisions

(Unaudited)

Dilapid

-ations

£000

Restruct-uring

£000

Legal

 

£000

Other

 

£000

Total

 

£000

At 1 January 2021

764

80

479

14

1,337

Increase in provision

20

-

240

6

266

Utilisation of provision

(5)

(10)

(23)

-

(38)

Loss on foreign currency  fluctuations

(6)

-

(3)

-

(9)

At 30 June 2021

773

70

693

20

1,556

Increase in provision

69

-

8

-

77

Utilisation of provision

-

-

(7)

-

(7)

Provision reversed during the year

(84)

-

(265)

(20)

(369)

Gain on foreign currency fluctuations

12

-

11

-

23

At 31 December 2021

770

70

440

-

1,280

Increase in provision

27

-

5

-

32

Utilisation of provision

(2)

-

(146)

-

(148)

Provision reversed during the year

(164)

-

-

-

(164)

Gain on foreign currency fluctuations

56

-

23

-

79

At 30 June 2022

687

70

322

-

1,079

 

 

At 30 June

2022

(Unaudited)

£000

At 30 June

2021

(Unaudited)

£000

At 31 December

2021

(Audited)

£000

Current liabilities

781

877

677

Non-current liabilities

298

679

603


1,079

1,556

1,280

 

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 business will seek to recover these costs against the third party but cannot be guaranteed. The restructuring provision relates to the costs associated with the closure of some non-trading Group entities and is anticipated to be utilised during the next 12 months.

 


10. Borrowings

 

At 30 June

2022

(Unaudited)

£000

At 30 June

2021

(Unaudited)

£000

At 31 December

2021

(Audited)

£000

Non-current bank borrowings

13,531

14,715

14,123

Current bank borrowings

1,200

1,200

1,200


14,731

15,915

15,323


 



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 £1.2 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 £25 million, with an additional £5 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

2022

(Unaudited)

£000

At 30 June

2021

(Unaudited)

£000

At 31 December

2021

(Audited)

£000

Non-current lease liabilities

1,501

499

400

Current lease liabilities

937

1,191

1,153


2,438

1,690

1,553

 

Lease liabilities arise on properties leased by the Group. The leases have remaining periods of between 1 and 5 years from the balance sheet date.

 

12. Related party transactions

The Group provides support and consultancy services to its subsidiaries and made loans, all of which eliminate on consolidation, and are therefore not disclosed.

 

In 2022, the Group had an associate investment shareholding in TP Group plc ('TPG'). On 16 December 2021, the Group made available a standby revolving credit facility to TPG. The facility is for up to £5.0 million for the period from the date of signing until 30 September 2023. The facility, which is unsecured, includes 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 utilised for short periods to provide liquidity, however was undrawn at 30 June 2022.

 

13. Subsequent events

There are no post balance sheet events to disclose.

 

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.

 

 

- Ends -

 

 

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