Interim Results

RNS Number : 8619D
Science Group PLC
12 July 2016
 

 

 

 

 

SCIENCE GROUP PLC

 

("Science Group" or the "Group" or the "Company")

 

INTERIM RESULTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2016

 

 

Summary

 

·  

Performance in line with the Board's expectations

·  

Group revenue of £17.7 million (H1-15: £14.1 million)

·  

Adjusted* operating profit of £2.5 million (H1-15: £2.4 million)

·  

Statutory operating profit of £1.4 million (H1-15: £2.0 million), reflecting non-recurring adjustments

·  

Operating cash inflow of £5.3 million (H1-15: £3.3 million) including VAT rebate of £1.5 million relating to the property purchase in 2015

·  

Basic EPS of 2.4 pence (H1-15: 4.0 pence).  Diluted EPS of 2.3 pence (H1-15: 3.6 pence)

·  

Net cash and freehold property assets of £31.3 million (30 June 2015 : £26.7 million) including cash balance of £17.2 million at 30 June 2016 (30 June 2015: £21.5 million)

 

 

 

 

Enquiries:

Science Group plc

 

Martyn Ratcliffe, Chairman

Tel: +44 (0) 1223 875 200

Rebecca Hemsted, Finance Director

www.sciencegroup.com

 

 

Numis Securities Limited

 

Nominated Adviser: Paul Gillam / Simon Willis

Corporate Broking: Michael Burke

Tel: +44 (0) 20 7260 1000

 

 

 

 

Interim Results 2016

 

Science Group is an international group of companies providing science and technology based consultancy, advisory and product development services to a range of industries and markets.  

 

Group Financial Performance

 

The Board has accelerated its reporting timetable for the Group's interim results in light of recent market volatility following the UK EU Referendum.

 

For the six months ended 30 June 2016, the Group generated adjusted operating profit of £2.5 million (H1 2015: £2.4 million) in line with the Board's expectations, on revenue of £17.7 million (H1 2015: £14.1 million). (Throughout this report, adjusted operating profit excludes amortisation and impairment of intangible assets, share based payment charges and other exceptional costs). Approximately 70% (H1 2015: 80%) of the Group's Services revenue is derived from international markets, with approximately 35% denominated in US Dollars (H1 2015: 55%) and 11% in Euros (H1 2015: 7%), primarily reflecting the effect of the 2015 acquisitions.  

 

The Group has seen the benefits from the increased diversification of client end-markets resulting from the acquisition programme. The Oil & Gas market continued to be challenging and the Medical business suffered in the first half of the year from the lack of new projects to replace those completed in 2015, although, as reported at the time of the Annual General Meeting, a number of significant new projects have been won in the Medical sector during the first half of 2016. The Group's other three business areas have performed satisfactorily, with Leatherhead (food & beverage) outperforming the Board's expectations in terms of profit contribution.

 

Profit before tax ('PBT') was £1.1 million (H1 2015: £1.9 million), reflecting the exceptional costs associated with the ongoing integration and relocation of the Leatherhead business; a one off cost of £0.2 million in settlement of vested unapproved share options (see below); and an increase in net interest costs due to a £0.1 million loss (H1 2015: £0.1 million gain) on revaluation of the interest rate swap. Basic earnings per share was 2.4 pence (H1 2015: 4.0 pence), and diluted earnings per share in H1 2016 was 2.3 pence (H1 2015: 3.6 pence).

 

The Group retains a very robust balance sheet with Shareholder Funds at 30 June 2016 of £36.4 million (30 June 2015: £34.6 million), including net cash and freehold property of £31.3 million (30 June 2015: £26.7 million).  Net funds at 30 June 2016 were £9.9 million (30 June 2015: £13.2 million) after net cash outflows of £12.1 million related to the acquisition of Leatherhead and purchase of the freehold property in Epsom, and dividend of £1.6 million. The Board continues to review its banking arrangements and debt facilities.

 

Share Option Plans

 

Science Group plc has several share option plans: Approved Scheme (2008), Unapproved Scheme (2008) and Performance Share Plan (2013). At 31 December 2015, the Company had 3.0 million share options outstanding, of which 1.9 million had vested or are anticipated to vest in 2016. (The terms Approved and Unapproved refer to HMRC categorisation.)

 

Share trading volume in the Company's shares is limited. This means that share option holders cannot readily realise the benefits and that vested share options can potentially act as an overhang in the market. Recognising this situation the Board has undertaken a wide-ranging review of share option programmes and concluded that these plans are not well understood, particularly the issues arising from the lack of liquidity in a closely held small cap company.

 

The Remuneration Committee therefore determined that :

·     The "Unapproved 2008" scheme should be terminated as soon as practicable;

·     Under normal circumstances, future share option grants under all plans will not exceed 1% of Issued Share Capital in any year;

·     Future share option eligibility will be limited to senior grades where equity-based variable remuneration is a key component of the total remuneration package and the implications of share illiquidity are better understood.

 

The Remuneration Committee subsequently made an offer to eligible employees of outstanding vested (or to vest in 2016) grants under the Unapproved Scheme and Performance Share Plan (limited to awards up to 15,000 options), to buy out the share option for approximately the net realisable value. In aggregate, acceptances of the offer accounted for 1.0 million share options at an aggregate cash cost of £0.6 million, payable in August, and a one-off charge of £0.2 million. (No Director had any share options that were eligible.)

 

Following this action, the Company has outstanding share options of 1.8 million, of which 0.8 million have vested or will vest in 2016 and 0.2 million are anticipated to lapse.

 

Summary

 

The Group performance in the first half of 2016 has been in line with the Board's expectations, incorporating positive and negative external factors.  It is beyond doubt that the months ahead will be unpredictable and potentially volatile. However, with a robust balance sheet, including significant cash resources, Science Group is well prepared for this period of uncertainty and the Board will adopt a pragmatic approach to such external influences, adapting the Group's business model accordingly. As always, the Board remains committed to managing the business in a prudent manner for the long term benefit of shareholders, customers and employees. 

 

The Board also recognises that this period of market and economic volatility may create new opportunities to develop the business. The financial strength of Science Group should enable strategic expansion to be considered if appropriate.

 

 

Consolidated Income Statement

For the period ended 30 June 2016

 

 

 

 

 

 

 

Notes

Six months

ended

30 June

2016

(Unaudited)

 

£000

Six months

ended

30 June

2015

(Unaudited)

 

£000

Year

ended

31 December

2015

(Audited)

 

£000

 

 

 

 

 

Revenue

 

17,693

14,096

31,220

Operating expenses

 

(15,182)

(11,667)

(25,896)

 

 

 

 

 

Adjusted operating profit

4

2,511

2,429

5,324

Amortisation and impairment of intangible assets

 

 

(409)

 

(236)

 

(1,660)

Share based payment charge

Other exceptional costs

 

(183)

(555)

(203)

-

(452)

(534)

Operating profit

4

1,364

1,990

2,678

 

Finance income

Finance costs

 

 

2

(233)

 

77

(166)

 

88

(326)

 

 

 

 

 

Profit before income tax

 

1,133

1,901

2,440

Income tax

 

(147)

(393)

368

Profit for the period

4

986

1,508

2,808

 

 

 

 

 

Profit for the period attributable to equity holders of the parent

 

 

986

 

1,508

 

2,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

Earnings per share from continuing operations (basic)

 

5

 

2.4p

 

4.0p

 

7.2p

Earnings per share from continuing operatioins (diluted)

 

5

 

2.3p

 

3.6p

 

6.8p

 

 

 

 

Consolidated Statement of Comprehensive Income

For the period ended 30 June 2016

 

 

 

Six months

ended

30 June

2016

(Unaudited)

 

£000

Six months

ended

30 June

2015

(Unaudited)

 

£000

Year

ended

31 December

2015

(Audited)

 

£000

 

 

 

 

 

Profit for the period

 

986

1,508

2,808

Other comprehensive income

Items that will or may be reclassified to profit or loss:

 

 

 

 

Exchange differences on translating foreign operations

 

-

50

 

41

 

70

Other comprehensive income for the period

 

 

50

 

41

 

70

Total comprehensive income for the period

 

 

1,036

 

1,549

 

2,878

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period attributable to owners of the parent

 

 

1,036

 

1,549

 

2,878

 

Consolidated Statement of Changes in Shareholders' Equity

For the period ended 30 June 2016

 

Group

 

 

Issued

capital

 

 

£000

Share

premium

 

 

£000

Treasury

Stock

 

 

£000

Merger

reserve

 

 

£000

Translation

reserve

 

 

£000

Share based

payment

reserve

 

£000

Retained

earnings

 

 

£000

Total -

Shareholders

funds

 

£000

Balance at 1 January 2015

421

7,806

(4,438)

10,343

238

1,907

17,172

33,449

Purchase of own shares

Acquisition of Oakland Innovation Limited

Issue of shares out of treasury stock

-

 

-

 

-

-

 

424

 

-

(575)

 

940

 

214

-

 

-

 

-

-

 

-

 

-

-

 

-

 

-

-

 

-

 

(39)

(575)

 

1,364

 

175

Dividends paid

-

-

-

-

-

-

(1,527)

(1,527)

Share based payment charge

-

-

-

-

-

203

-

203

Transactions with owners

-

424

579

-

-

203

(1,566)

(360)

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

1,508

1,508

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

-

 

-

 

-

 

-

 

41

 

-

 

-

 

41

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

41

 

-

 

1,508

 

1,549

Balance at 30 June 2015

421

8,230

(3,859)

10,343

279

2,110

17,114

34,638

 

Balance at 1 July 2015

421

8,230

(3,859)

10,343

279

2,110

17,114

34,638

Purchase of own shares

Issue of shares out of treasury stock

-

 

-

-

 

-

-

 

2,644

-

 

-

-

 

-

-

 

-

-

 

(1,361)

-

 

1,283

Share based payment charge

Deferred tax on share-based payment transactions

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

249

 

-

-

 

(268)

249

 

(268)

Transactions with owners

-

-

2,644

-

-

249

(1,629)

1,264

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

1,300

1,300

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

-

 

-

 

-

 

-

 

29

 

-

 

-

 

29

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

29

 

-

 

1,300

 

1,329

Balance at 31 December 2015

 

421

 

8,230

 

(1,215)

 

10,343

 

308

 

2,359

 

16,785

 

37,231

 

Balance at 1 January 2016

421

8,230

(1,215)

10,343

308

2,359

16,785

37,231

Purchase of own shares

Issue of shares out of treasury stock

-

 

-

-

 

-

-

 

109

-

 

-

-

 

-

-

 

-

-

 

(12)

-

 

97

Dividends paid

-

-

-

-

-

-

(1,646)

(1,646)

Equity interest of cancelled share options

 

-

 

-

 

-

 

-

 

-

 

(361)

 

-

 

(361)

Share based payment charge

-

-

-

-

-

183

-

183

Deferred tax on share-based payment transactions

-

-

-

-

-

-

(97)

             (97)

Transactions with owners

-

-

109

-

-

(178)

(1,755)

(1,824)

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

986

986

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

-

 

-

 

-

 

-

 

50

 

-

 

-

 

50

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

50

 

-

 

986

 

1,036

Balance at 30 June 2016

421

8,230

(1,106)

10,343

358

2,181

16,016

36,443

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet

At 30 June 2016

 

 

 

 

At 30 June

2016

(Unaudited)

 

£000

 

At 30 June

2015

(Unaudited)

 

£000

At 31

December

2015

(Audited)

 

£000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Acquisition related intangible assets

 

5,591

4,671

6,000

Goodwill

 

5,073

5,489

5,073

Property, plant and equipment

 

22,646

14,332

22,040

Investments

 

100

100

100

Deferred income tax assets

 

903

1,418

1,324

 

 

34,313

26,010

34,537

Current assets

 

 

 

 

Trade and other receivables

 

5,183

4,243

8,980

Current income tax asset

 

595

-

472

Cash and cash equivalents

 

17,199

21,474

14,516

 

 

22,977

25,717

23,968

 

 

 

 

 

  Total assets

 

57,290

51,727

58,505

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

10,852

6,221

10,689

Current income tax liabilities

 

-

208

-

Borrowings

 

1,000

1,009

1,034

 

 

11,852

7,438

11,723

Non-current liabilities

 

 

 

 

Borrowings

 

6,250

7,278

6,753

Derivative financial liabilities

 

215

141

141

Deferred income tax liabilities

 

2,530

2,232

2,657

 

 

8,995

9,651

9,551

 Total liabilities

 

20,847

17,089

21,274

 

 

 

 

 

  Net assets

 

36,443

34,638

37,231

 

 

 

 

 

Shareholders' equity

 

 

 

 

Share capital

 

421

421

421

Share premium

 

8,230

8,230

        8,230

Treasury stock

 

(1,106)

(3,859)

(1,215)

Merger reserve

 

10,343

10,343

10,343

Translation reserves

 

358

279

308

Share based payment reserve

 

2,181

2,110

2,359

Retained earnings

 

16,016

17,114

16,785

 Total equity

 

36,443

34,638

37,231

 

 

 

Consolidated Statement of Cash Flows

For the period ended 30 June 2016

 

 

Six months

ended

30 June

2016

(Unaudited)

 

£000

Six months

ended

30 June

2015

(Unaudited)

 

£000

Year ended

31

December

2015

(Audited)

 

£000

 

 

 

 

Profit before income tax

1,133

1,901

2,440

Depreciation and amortisation charges

Loss on disposal of property, plant and equipment

Change in fair value on interest rate swap

741

 

-

74

505

 

-

(62)

1,114

 

7

(62)

Share based payment charge

183

203

452

Impairment of goodwill and intangible assets

-

-

1,066

Decrease / (Increase) in receivables

3,797

1,998

(1,412)

(Decrease) / Increase in payables

(596)

(1,207)

1,283

 Cash generated from operations

5,332

3,338

4,888

 

 

 

 

UK corporation tax paid

(12)

-

(9)

Foreign corporation tax (paid) / received

(61)

(1)

2

 Cash flows from operating activities

5,259

3,337

4,881

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

(634)

(111)

(7,857)

Purchase of subsidiary undertaking, net of cash received

Purchase of interest in associated companies

 

-

-

 

(2,963)

(100)

 

(4,588)

(100)

 Cash flow used in investing activities

(634)

(3,174)

(12,545)

 

 

 

 

Issue of shares out of treasury

Repurchase of own shares

97

-

175

(575)

1,458

(575)

Dividends paid

(1,646)

(1,527)

(1,527)

Repayment of bank loans

(500)

(500)

(1,000)

 Cash flows used in financing activities

(2,049)

(2,427)

(1,644)

 

 

 

 

 

 

 

 

Increase / (decrease) in cash and cash equivalents in the period

 

2,576

 

(2,264)

 

(9,308)

Cash and cash equivalents at the beginning of the period

 

14,516

 

23,802

 

23,802

Exchange gains / (losses) on cash

107

(64)

22

Cash and cash equivalents at the end of the period

 

17,199

 

21,474

 

14,516

 

 

 

Extracts from notes to the financial statements

 

1.  General information

 

The financial information for the 6 months ended 30 June 2016 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 has been extracted from the 2015 Financial Statements of Science Group plc.  The Group's statutory financial statements for the year ended 31 December 2015 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 un-audited interim results have been approved for issue by the Board of Directors on 11 July 2016.

 

The group and company financial statements of Science Group plc for the year ended 31 December 2015 were prepared under IFRS (as adopted by the EU) and have been audited by KPMG 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 provides independent advisory and advanced product development services focused on science and technology initiatives through subsidiary companies branded Sagentia, Oakland Innovation, OTM Consulting and Leatherhead Food Research, which collaborate closely with their clients in key vertical markets to deliver clear returns on technology and R&D investments. Science Group's facilities include offices and laboratories located in Harston near Cambridge, Epsom and London in the UK and in the US in Boston, Massachusetts and Houston, Texas.

 

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 has its primary listing on the AIM Market of the London Stock Exchange (SAG).

 

Income statement presentation

To provide a better guide to underlying business performance, adjusted operating profit excludes amortisation and impairment of intangible assets, share based payment charges and other exceptional costs.

 

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 2015.  These policies have been consistently applied to all the periods presented.

 

In the period ended 30 June 2016 there has been a change in accounting estimate for calculating depreciation. Following the purchase of Great Burgh, Epsom in 2015, the Group has reviewed the basis of depreciation for buildings and has concluded that a straight line depreciation method is the most appropriate method. As a result, for the period ended 30 June 2016 depreciation has been calculated using the straight line method. The residual values and economic life of 25 years remain unchanged.

 

2.1  Basis of preparation

 

These interim consolidated financial statements are for the six months ended 30 June 2016. They have been prepared based on the measurement and recognition principles of International Financial Reporting Standards (IFRS) as adopted by the EU and IFRC 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.

 

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, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

 

4.  Segmental information

 

The Group is organised on a worldwide basis into two segments, Core Business and Non-Core Business. 'Core Business' activities include all consultancy fees for services operations, including recharged expenses and product/licence revenue generated directly from these activities. 'Non-Core Business' activities primarily relate to rental income from Harston Mill. The segmental analysis is reviewed to adjusted operating profit.  Other resources are shared across the Group. Other exceptional costs in the year include non-recurring charges related to the integration of the acquisition of Leatherhead in 2015 and a one off cost of £0.2m in settlement of vested, unapproved share options, which are outside the Group's ordinary activities.

 

Period ended 30 June 2016

(Unaudited)

Core

Business

£000

Non-Core

Business

£000

Total

 

£000

Services revenue

16,394

17

16,411

Third party property income

-

539

539

Other

743

-

743

Revenue

17,137

556

17,693

 

 

 

 

Adjusted operating profit

2,464

47

2,511

Amortisation and impairment of intangible assets

 

 

(409)

Share based payments

 

 

(183)

Other exceptional costs

 

 

(555)

Operating profit

 

 

1,364

Finance charges (net)

 

 

(231)

Profit before income tax

 

 

1,133

Income tax

 

 

(147)

Profit for the period

 

 

986

 

Period ended 30 June 2015

(Unaudited)

Core

Business

£000

Non-Core

Business

£000

Total

 

£000

Services revenue

12,850

34

12,884

Third party property income

-

537

537

Other

675

-

675

Revenue

13,525

571

14,096

 

 

 

 

Adjusted operating profit

2,392

37

2,429

Amortisation and impairment of intangible assets

Share based payments

 

 

(236)

(203)

Operating profit

 

 

1,990

Finance charges (net)

 

 

(89)

Profit before income tax

 

 

1,901

Income tax

 

 

(393)

Profit for the period

 

 

1,508

 

Year ended 31 December 2015

(Audited)

Core

Business

£000

Non-Core Business

£000

Total

 

£000

Services revenue

28,691

55

28,746

Third party property income

-

1,073

1,073

Other

1,401

-

1,401

Revenue

30,092

1,128

31,220

 

 

 

 

Adjusted operating profit

5,286

38

5,324

Amortisation and impairment of intangible assets

 

 

(1,660)

Share based payments

 

 

(452)

Other exceptional costs

 

 

(534)

Operating profit

 

 

2,678

Finance charges (net)

 

 

(238)

Profit before income tax

 

 

2,440

Income tax

 

 

368

Profit for the period

 

 

2,808

 

5.  Earnings per share

 

The calculations of earnings per share are based on the following profits and numbers of shares:

 

 

Six months

ended

30 June

2016

(Unaudited)

 

£000

Six months

ended

30 June

2015

(Unaudited)

 

£000

Year ended

31

December

2015

(Audited)

 

£000

 

Profit for the financial period

986

1,508

2,808

 

Weighted average number of shares:

 

Number

 

Number

 

Number

For basic earnings per share

41,128,774

38,000,823

39,228,135

For fully diluted earnings per share

42,043,546

41,908,015

41,139,562

 

Earnings per share:

 

Pence

 

Pence

 

Pence

Basic earnings per share

2.4

4.0

7.2

Fully diluted earnings per share

2.3

3.6

6.8

 

6.  Critical accounting estimates and judgements

 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

The Group makes estimates and assumptions concerning the future.  Because these are estimates the resulting accounting entries will not always reflect the actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

(a) Project accounting

 

The Group undertakes a number of consultancy projects where the final price to complete the project may be uncertain. The state of completeness of each project, and hence, revenue recognised, requires the use of estimates. The value of work done is calculated based on the proportion of time spent on the project or value of stage gates achieved as set out in the project. Management apply their judgement in assessing time required to complete the projects and the ability to recover the full project costs. Where significant uncertainty exists, income is deferred until costs are recovered or the project is completed.

 

(b) Accounting for freehold property at Harston Mill

 

The Group owns and maintains the freehold property at Harston Mill for use in the supply of its Core consultancy services and for administrative purposes.  Whilst there is remaining space on site not required to fulfil these activities, the Group lets out space to third party tenants.  The revenues and costs attributable to this activity are disclosed as 'Other' activities within the business segment disclosures.  Given the property does not form part of the Group's core activities, it is not accounted for as an investment property, the reasons being:

 

(i) The third party leases include the use of common areas and because of this the areas that are leased to third parties could not be sold separately.

 

(ii) The leases normally have notice periods of no more than 6 months giving the Group the flexibility to start using the areas if required i.e. the leased areas are not held for capital appreciation or rental income.

 

- Ends -

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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