Interim Results for six month period ended 30/6/20
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28 July 2020 |
SCIENCE GROUP PLC
('Science Group', the 'Group' or the 'Company')
INTERIM RESULTS
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2020
Summary
· Strong performance, ahead of the Board's expectations, against the background of the Covid-19 pandemic
· Group revenue growth of 56% to £36.9m (H1 2019: £23.6m), including first full half-year from Frontier Smart Technologies and organic services growth of 13%
· Adjusted operating profit increased by 50% to £4.9m (H1 2019: £3.3m)
· Successful post-acquisition restructuring and turnaround of Frontier Smart Technologies
· Group organisation evolving to maximise business synergies and scale operations
· Balance sheet and cash position remain strong providing opportunity for further corporate activity
Enquiries:
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Science Group plc |
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Martyn Ratcliffe, Chairman |
Tel: +44 (0) 1223 875 200 |
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Rebecca Archer, Finance Director |
www.sciencegroup.com |
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Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker) |
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Nick Adams, Alex Price |
Tel: +44 (0) 20 7710 7600 |
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Liberum Capital Limited (Joint Broker) |
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Neil Patel, Cameron Duncan |
Tel: +44 (0) 20 3100 2000 |
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MHP Communications |
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Reg Hoare, James Bavister, Pete Lambie |
Tel: +44 (0) 20 3128 8100 |
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sciencegroup@mhpc.com |
Interim Results 2020
Science Group is an international, science-led services and product development organisation with a significant freehold property asset base. Following the Frontier acquisition in 2019 and an organisation restructuring, the Group now comprises three operating divisions: R&D Consultancy; Regulatory & Compliance; and Frontier Smart Technologies.
The Group achieved record results in H1 2020, whilst also successfully managing the challenges related to the Covid-19 pandemic. For the six months ended 30 June 2020, the Group adjusted operating profit increased by 50% to £4.9 million (H1 2019: £3.3 million) on Group revenue of £36.9 million (H1 2019: £23.6 million). The 56% revenue growth included organic services revenue growth of 13% (excluding materials). Adjusted profit before tax was £4.6 million (H1 2019: £2.9 million) and adjusted basic earnings per share were 8.8 pence (H1 2019: 5.9 pence).
The first half of 2020 has benefitted from the Group's sector diversification and the greater scale resulting from the 2019 acquisition of Frontier, together with some unanticipated cost savings (for example delayed recruitment of new hires and significantly reduced travel) due to the pandemic. Within the services operating divisions, a combination of home-working and office/lab presence enabled the continuation of client projects. The very strong performance during this unprecedented event is a credit to the employees of Science Group.
The Group retains a robust balance sheet with gross cash (excluding client funds) at 30 June 2020 of £22.0 million (30 June 2019: £24.0 million) and net funds of £4.9 million (30 June 2019: £7.2 million). The long term debt is secured on the freehold properties and was increased in the period by an additional £1.5 million at an effective fixed rate of 3.0% as announced on 29 May 2020. Excluding treasury shares, at 30 June 2020, the Company had 41.6 million shares in issue (30 June 2019: 41.1 million) and held 0.4 million (30 June 2019: 0.9 million) of shares in treasury. (Alternative performance measures are provided in order to enhance 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.)
R&D Consultancy
The R&D Consultancy Division reflects the increasing convergence of the Applied Science, Product Development and Advisory business activities. This Division incorporates not only leading science and engineering capabilities but also expertise in key vertical sectors, namely: Medical; Consumer; Food & Beverage; and Industrial. The Medical sector had a particularly strong performance in the first half, including participation in the UK Government's urgent ventilator initiative.
For the six months ended 30 June 2020, the R&D Consultancy business generated services revenue of £15.3 million (H1 2019: £13.6 million). Total revenue of £18.8 million (H1 2019: £14.4 million) includes significant non-services (materials) pass-through revenue in H1 2020 related to the UK Government ventilator project.
Whilst the R&D Consultancy Division performed well in the first half of 2020, the ongoing effects of Covid-19 around the world are resulting in a cautious return of our clients to office/laboratory working environments which may delay the economic recovery in some markets, potentially impacting R&D investment programmes. The Board is carefully monitoring this economic uncertainty but has decided to increase investment in the USA sales organisation to address the reduction in international business travel which may persist for some time.
Regulatory & Compliance
The Regulatory & Compliance Division includes the North American and European operations of TSG, acquired in 2017, and the Leatherhead Food Research business, acquired in 2015. The Group's European regulatory and compliance activities have now been integrated, a natural evolution of the TSG and Leatherhead operations, with the businesses now being managed under a single Managing Director.
For the six months ended 30 June 2020, the Regulatory & Compliance Division generated revenue of £10.0 million (H1 2019: £8.7 million). This organic growth of 15% resulted from a strong performance of the TSG businesses benefitting from the increased demand for products responding to the pandemic. This momentum is anticipated to continue in the second half of the year, particularly in the USA, although the reported growth rate will reduce, reflecting a stronger prior year H2 comparator.
Frontier Smart Technologies ('Frontier')
Following the completion of the acquisition of Frontier in October 2019, a substantial accelerated restructuring programme was successfully executed, including the closure of the Romanian operations, a streamlining of product lines and the restructuring/relocation of the Cambridge and London operations. This intense programme, which produced a substantial reduction in the operating cost base, positioned Frontier to report an adjusted operating profit in the first half of 2020, despite revenue being impacted by the pandemic. For the six months ended 30 June 2020, Frontier reported revenue of £7.5 million (H1 2019: £nil) and an adjusted operating profit margin of 7% (H1 2019: nil), although the underlying adjusted operating profit margin was 9% after adding back the IFRS 3 revaluation of acquired inventory.
Importantly, whilst the market was severely affected as a result of Covid-19 by first the closure of China manufacturing operations and then retail outlets in Europe, Frontier not only reported a respectable profitability but also maintained its market share. As a result, orders for the second half of the year are anticipated to be close to pre-Covid-19 plan levels and it is anticipated that the Frontier business will continue to see the benefits of the turnaround.
Freehold Properties
Science Group owns two freehold properties, Harston Mill near Cambridge and Great Burgh in Epsom. The last independent valuation in March 2018 indicated aggregate values of these properties in the range £22.6 million to £33.9 million. The properties are held on the balance sheet on a cost basis at £21.3 million (30 June 2019: £21.5 million). Great Burgh is owned by a property subsidiary of Science Group plc, which is the preferred structure. For legacy reasons, Harston Mill is currently owned by the trading company, Sagentia Limited, and it is the declared intention to address this anomaly. However, this action if/when effected will result in a tax payment outflow of approximately £2 million and has prudently been deferred following the Covid-19 outbreak.
For the six months ended 30 June 2020, the rental and associated services income derived from the Group's freehold properties was £2.2 million (H1 2019: £1.9 million). Income of £0.6 million (H1 2019: £0.5 million) was generated from third-party tenants and £1.6 million (H1 2019: £1.4 million) from the Group's operating businesses. Adjusted operating profit was £0.8 million (H1 2019: £0.7 million). Intra-group charges are eliminated on Group consolidation but the reported profit for each operating business includes property rental at market rates. (The prior year results of Freehold Properties have been restated, refer to Note 4 for further details).
The Group's debt of £17.1 million at 30 June 2020 (£16.8 million at 30 June 2019) is secured against the freehold property assets and the associated interest charge for the six month period was £0.4 million (H1 2019: £0.4 million). Interest on the debt is reported below operating profit in the consolidated results.
Corporate
The corporate function is responsible for Group and PLC matters, together with the strategic development of Science Group. In the period, Corporate costs were £0.9 million (H1 2019: £0.9 million).
In light of uncertainty about the future course of the pandemic and its economic consequences, the Board, did not recommend the payment of a dividend at the Annual General Meeting. The Board will consider whether or not an interim dividend is appropriate later in the year.
Summary
In summary, the performance of the Group in the first half of 2020 has been ahead of the Board's pre-Covid-19 expectations, despite the operational challenges resulting from the pandemic. The excellent first half provides a solid platform for the rest of the year.
While actively recruiting for key roles to strengthen the Group and to position the organisation in a post-Covid-19 world, the Board recognises the inherent uncertainty and lack of predictability in the months ahead and will therefore remain prudent. However, with a strong balance sheet including significant cash resources, the Board continues to cautiously explore both add-on acquisitions and larger opportunities to increase the scale of the Group.
Consolidated Income Statement
For the period ended 30 June 2020
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Note |
Six months ended 30 June 2020 (Unaudited) £000 |
Six months ended 30 June 2019 (Unaudited) £000 |
Year ended 31 December 2019 (Audited) £000 |
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Revenue |
4 |
36,895 |
23,593 |
57,247 |
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Operating expenses before adjusting items |
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(31,970) |
(20,303) |
(50,543) |
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Adjusted operating profit |
4 |
4,925 |
3,290 |
6,704 |
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Acquisition integration costs |
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(127) |
- |
(3,571) |
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Gain on revaluation of investment net of professional fees |
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- |
648 |
- |
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Loss on remeasurement of equity-accounted investee |
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- |
- |
(491) |
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Amortisation of acquisition related intangible assets |
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(1,259) |
(1,003) |
(2,345) |
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Share based payment charge |
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(691) |
(506) |
(1,167) |
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Gain on settlement of legal claim |
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- |
687 |
687 |
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Operating profit/(loss) |
4 |
2,848 |
3,116 |
(183) |
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Finance income |
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5 |
- |
22 |
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Finance costs |
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(376) |
(358) |
(852) |
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Share of loss of equity-accounted investee, net of tax |
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- |
- |
(592) |
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Profit/(Loss) before income tax |
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2,477 |
2,758 |
(1,605) |
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Income tax charge (including R&D tax credit of £142,000 (H1-19 £216,000)) |
6 |
(465) |
(325) |
(226) |
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Profit for the period |
4 |
2,012 |
2,433 |
(1,831) |
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Earnings per share |
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Earnings per share from continuing operations (basic) |
7 |
4.8p |
6.1p |
(4.5)p |
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Earnings per share from continuing operations (diluted) |
7 |
4.6p |
6.0p |
(4.4)p |
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Adjusted earnings per share from continuing operations (basic) |
7 |
8.8p |
5.9p |
11.6p |
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Adjusted earnings per share from continuing operations (diluted) |
7 |
8.5p |
5.8p |
11.3p |
Consolidated Statement of Comprehensive Income
For the period ended 30 June 2020
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| Six months ended 30 June 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
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Profit/(Loss) for the period attributable to: |
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Equity holders of the parent |
| 2,012 | 2,433 | (1,669) |
Non-controlling interests |
| - | - | (162) |
Profit/(Loss) for the period |
| 2,012 | 2,433 | (1,831) |
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Other comprehensive income Items that will or may be reclassified to profit or loss: |
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Fair value (loss)/gain on interest rate swap |
| (536) | (375) | (408) |
Exchange differences on translating foreign operations |
| 799 | 13 | (939) |
Deferred tax on interest rate swap
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| 101 | 71 | 77 |
Other comprehensive (expense)/income for the period |
| 364 | (291) | (1,270) |
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Total comprehensive income for the period attributable to: |
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Equity holders of the parent |
| 2,376 | 2,142 | (2,939) |
Non-controlling interests |
| - | - | (162) |
Total comprehensive income for the period
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| 2,376 | 2,142 | (3,101) |
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Consolidated Statement of Changes in Shareholders' Equity (unaudited)
For the period ended 30 June 2020
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 - Share- holders' funds £000 | Non- controlling interests
£000 | Total equity
£000 |
Balance at 1 January 2019 | 421 | 8,230 | (2,764) | 10,343 | 260 | 3,475 | 20,993 | 40,958 | - | 40,958 |
Purchase of own shares | - | - | (94) | - | - | - | - | (94) | - | (94) |
Issue of shares out of treasury stock | - | - | 1,423 | - | - | - | 733 | 2,156 | - | 2,156 |
Dividends paid | - | - | - | - | - | - | (1,840) | (1,840) | - | (1,840) |
Share based payment charge | - | - | - | - | - | 506 | - | 506 | - | 506 |
Deferred tax on share based payment transactions | - | - | - | - | - | - | - | - | - | - |
Transactions with owners | - | - | 1,329 | - | - | 506 | (1,107) | 728 | - | 728 |
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Profit for the period | - | - | - | - | - | - | 2,433 | 2,433 | - | 2,433 |
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Other comprehensive income: |
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Fair value (loss) on interest rate swap | - | - | - | - | - | - | (375) | (375) | - | (375) |
Exchange differences on translating foreign operations | - | - | - | - | 13 | - | - | 13 | - | 13 |
Deferred tax on interest rate swap | - | - | - | - | - | - | 71 | 71 | - | 71 |
Total comprehensive income for the period | - | - | - | - | 13 | - | 2,129 | 2,142 | - | 2,142 |
Balance at 30 June 2019 | 421 | 8,230 | (1,435) | 10,343 | 273 | 3,981 | 22,015 | 43,828 | - | 43,828 |
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 - Share- holders' funds £000 | Non- controlling interests
£000 | Total equity
£000 |
Balance at 1 July 2019 | 421 | 8,230 | (1,435) | 10,343 | 273 | 3,981 | 22,015 | 43,828 | - | 43,828 |
Purchase of own shares |
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| (109) |
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| (109) | - | (109) |
Issue of shares out of treasury stock | - | - | 884 | - | - | - | (624) | 260 | - | 260 |
Dividends paid | - | - | - | - | - | - | - | - | - | - |
Share based payment charge | - | - | - | - | - | 661 | - | 661 | - | 661 |
Deferred tax on share based payment transactions | - | - | - | - | - | - | (25) | (25) | - | (25) |
Total contributions and distributions | - | - | 775 | - | - | 661 | (649) | 787 | - | 787 |
Changes in ownership interests |
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Acquisition of subsidiary with NCI | - | - | - | - | - | - | - | - | 2,763 | 2,763 |
Acquisition of NCI without change in control | - | - | - | - | - | - | (3,265) | (3,265) | (2,601) | (5,866) |
Total changes in ownership interests | - | - | - | - | - | - | (3,265) | (3,265) | 162 | (3,103) |
Total transactions with owners | - | - | 775 | - | - | 661 | (3,914) | (2,478) | 162 | (2,316) |
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Loss for the period | - | - | - | - | - | - | (4,102) | (4,102) | (162) | (4,264) |
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Other comprehensive income: |
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Fair value (loss) on interest rate swap | - | - | - | - | - | - | (33) | (33) | - | (33) |
Exchange differences on translating foreign operations | - | - | - | - | (952) | - | - | (952) | - | (962) |
Deferred tax on interest rate swap | - | - | - | - | - | - | 6
| 6 | - | 6 |
Total comprehensive income for the period |
- |
- |
- |
- |
(952) |
- |
(4,129) |
(5,081) |
(162) |
(5,243) |
Balance at 31 December 2019 |
421 |
8,230 |
(660) |
10,343 |
(679) |
4,642 |
13,972 |
36,269 |
- |
36,269 |
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 - Share- holders' funds £000 | Non- controlling interests
£000 | Total equity
£000 |
Balance at 1 January 2020 | 421 | 8,230 | (660) | 10,343 | (679) | 4,642 | 13,972 | 36,269 | - | 36,269 |
Purchase of own shares | - | - | (166) | - | - | - | - | (166) | - | (166) |
Share based payment charge | - | - | - | - | - | 691 | - | 691 | - | 691 |
Deferred tax on share based payment transactions | - | - | - | - | - | - | (63) | (63) | - | (63) |
Transactions with owners | - | - | (166) | - | - | 691 | (63) | 462 | - | 462 |
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Profit for the period |
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| 2,012 | 2,012 | - | 2,012 |
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|
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Other comprehensive income: |
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Fair value (loss) on interest rate swap | - | - | - | - | - | - | (536) | (536) | - | (536) |
Exchange differences on translating foreign operations | - | - | - | - | 799 | - | - | 799 | - | 799 |
Deferred tax on interest rate swap | - | - | - | - | - | - | 101 | 101 | - | 101 |
Total comprehensive income for the period | - | - | - | - | 799 | - | 1,577 | 2,376 | - | 2,376 |
Balance at 30 June 2020 | 421 | 8,230 | (826) | 10,343 | 120 | 5,333 | 15,486 | 39,107 | - | 39,107 |
Consolidated Balance Sheet
At 30 June 2020
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Note |
At 30 June 2020 (Unaudited) £000 |
At 30 June 2019 (Unaudited) £000 | At 31 December 2019 (Audited) £000 |
Assets |
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Non-current assets |
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Acquisition related intangible assets |
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| 12,512 | 6,492 | 13,222 |
Goodwill |
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| 13,998 | 11,239 | 13,808 |
Property, plant and equipment |
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| 24,766 | 25,955 | 25,870 |
Investment |
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| - | 3,741 | - |
Deferred tax assets |
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| 51 | 168 | 47 |
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| 51,327 | 47,595 | 52,947 |
Current assets |
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|
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Inventories |
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| 1,781 | - | 2,060 |
Trade and other receivables |
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| 9,450 | 8,527 | 10,239 |
Current tax asset |
|
| 264 | 20 | 482 |
Cash and cash equivalents - Client funds |
| 8 | 4,121 | 1,430 | 1,517 |
Cash and cash equivalents - Group Cash |
| 8 | 22,001 | 23,979 | 13,912 |
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| 37,617 | 33,956 | 28,210 |
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Total assets |
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| 88,944 | 81,551 | 81,157 |
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|
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Liabilities |
|
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|
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Current liabilities |
|
|
|
|
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Trade and other payables |
|
| 23,862 | 14,601 | 20,581 |
Current tax liabilities |
|
| 577 | 460 | 226 |
Provisions |
| 9 | 669 | 201 | 172 |
Borrowings |
| 10 | 1,200 | 1,200 | 1,200 |
Lease liabilities |
| 11 | 1,423 | 807 | 1,212 |
|
|
| 27,731 | 17,269 | 23,391 |
Non-current liabilities |
|
|
|
|
|
Provisions |
| 9 | 506 | 196 | 480 |
Borrowings |
| 10 | 15,908 | 15,604 | 15,013 |
Lease Liabilities |
| 11 | 1,736 | 1,998 | 2,111 |
Derivative financial liabilities |
|
| 651 | 82 | 115 |
Deferred tax liabilities |
|
| 3,305 | 2,574 | 3,778 |
|
|
| 22,106 | 20,454 | 21,497 |
Total liabilities |
|
| 49,837 | 37,723 | 44,888 |
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|
|
|
|
|
Net assets |
|
| 39,107 | 43,828 | 36,269 |
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
Share capital |
|
| 421 | 421 | 421 |
Share premium |
|
| 8,230 | 8,230 | 8,230 |
Treasury stock |
|
| (826) | (1,435) | (660) |
Merger reserve |
|
| 10,343 | 10,343 | 10,343 |
Translation reserves |
|
| 120 | 273 | (679) |
Share based payment reserve |
|
| 5,333 | 3,981 | 4,642 |
Retained earnings |
|
| 15,486 | 22,015 | 13,972 |
Total equity |
|
| 39,107 | 43,828 | 36,269 |
Consolidated Statement of Cash Flows
For the period ended 30 June 2020
| Six months ended 30 June 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
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|
|
Profit/(Loss) before income tax | 2,477 | 2,758 | (1,605) |
Adjustments for: |
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|
|
Share of loss of equity-accounted investee, net of tax | - | - | 592 |
Loss on remeasurement of equity-accounted investee | - | - | 491 |
Amortisation on acquisition related intangible assets | 1,259 | 1,003 | 2,345 |
Depreciation on property, plant and equipment | 580 | 349 | 776 |
Impairment of right of use asset | 540 | - | 796 |
Depreciation of right of use asset | 548 | 396 | 1,033 |
Net interest cost | 376 | 358 | 830 |
Gain on revaluation of investment | - | (954) | - |
Share based payment charge | 691 | 506 | 1,167 |
Decrease in inventories | 279 | - | 1,863 |
Decrease in receivables | 825 | 1,198 | 3,432 |
Increase/(decrease) in payables representing client funds | 2,604 | (57) | (30) |
Increase/(decrease) in payables excluding balances representing client funds | 366 | (2,887) | (3,846) |
Change in provisions | 510 | (768) | (933) |
Cash generated from operations | 11,055 | 1,902 | 6,911 |
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|
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Loan interest paid | (300) | (303) | (781) |
UK corporation tax paid | (292) | (64) | (554) |
Foreign corporation tax paid | (24) | (92) | (196) |
Cash flows from operating activities | 10,439 | 1,443 | 5,380 |
|
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|
|
|
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|
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Interest received | 5 | - | 22 |
Purchase of property, plant and equipment | (38) | (208) | (555) |
Purchase of investments | - | (2,787) | (4,118) |
Cash flow used in investing activities | (33) | (2,995) | (4,651) |
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|
|
Issue of shares out of treasury | - | 2,156 | 2,416 |
Repurchase of own shares | (166) | (95) | (203) |
Dividends paid | - | (1,840) | (1,840) |
Acquisition of NCI | - | - | (5,869) |
Proceeds from bank loans | 1,500 | 4,750 | 4,750 |
Repayment of bank loans | (600) | (600) | (1,200) |
Repayment of revolving credit facility | - | - | (5,000) |
Payment of lease liabilities | (742) | (390) | (998) |
Cash flows used in financing activities | (8) | 3,981 | (7,944) |
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|
|
|
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|
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Increase/(decrease) in cash and cash equivalents in the period | 10,398 | 2,429 | (7,215) |
Cash and cash equivalents at the beginning of the period | 15,429 | 23,007 | 23,007 |
Exchange gains/(losses) on cash | 295 | (27) | (363) |
Cash and cash equivalents at the end of the period | 26,122 | 25,409 | 15,429 |
Cash and cash equivalents is analysed as follows:
| Six months ended 30 June 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
Cash and cash equivalents - Client funds | 4,121 | 1,430 | 1,517 |
Cash and cash equivalents - Group cash | 22,001 | 23,979 | 13,912 |
| 26,122 | 25,409 | 15,429 |
Extracts from notes to the financial statements
1. General information
The financial information for the 6 months ended 30 June 2020 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 2019 has been extracted from the 2019 Financial Statements of Science Group plc. The Group's statutory financial statements for the year ended 31 December 2019 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 27 July 2020.
The group and company financial statements of Science Group plc for the year ended 31 December 2019 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 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 AIM Market of the London Stock Exchange (SAG).
Alternative performance measures
The Group uses alternative (non-Generally Accepted Accounting Practice ('non-GAAP')) performance measures of 'adjusted operating profit', 'adjusted earnings per share' and 'net funds' which are not defined within the International Financial Reporting Standards ('IFRS'). These are explained in the 2019 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:
In £000 unless otherwise stated | At 30 June 2020 | At 30 June 2019 | At 31 December 2019 |
Cash and cash equivalents - Group cash | 22,001 | 23,979 | 13,912 |
Borrowings | (17,108) | (16,804) | (16,213) |
Net funds | 4,893 | 7,175 | (2,301) |
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 2019. 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 2020. They have been prepared based on the measurement and recognition principles of International Financial Reporting Standards 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.
Going concern - the Directors have considered the current cash balance of £22.0m (excluding client 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. The term loan has no operating covenants while the Group net bank debt is less than £10 million. On the basis of the forecast future cash flows, the Directors do not expect the Group net bank debt to exceed £10 million at any time during the forecast period. 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, 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 structured into 4 reporting Segments: Services Operating Business, Product Operating Business, Freehold Properties and Corporate. The Services Operating Business comprises two operating divisions: R&D Consultancy and Regulatory & Compliance. Frontier Smart Technologies, the third operating division, is the Product Operating Business. The performance of the Operating Businesses are shown separately from the value generated by the Group's significant freehold property assets and the Corporate costs to provide greater transparency and facilitate shareholder analysis of the component parts of the Group.
Financial information is provided to the chief operating decision makers ('CODMs') in line with this structure. The divisions of R&D Consultancy and Regulatory & Compliance have been aggregated resulting in one Services Operating Business segment because the divisions 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 division.
In the Services Operating Business Segment, services revenue includes all consultancy fees and other revenue includes recharged materials, expenses and licence revenue generated directly from 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 equivalent to market-based rents 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 2020
(Unaudited) £000 | Six months ended 30 June 2019 Restated (Unaudited) £000 | Year ended 31 December 2019
(Audited) £000 |
Services revenue | 25,268 | 22,302 | 46,885 |
Other | 3,506 | 785 | 1,825 |
Revenue | 28,774 | 23,087 | 48,710 |
|
|
|
|
Adjusted operating profit | 4,520 | 3,485 | 8,221 |
|
|
|
|
Amortisation of acquisition related intangible assets | (757) | (1,003) | (2,006) |
Share based payment charge | (569) | (453) | (1,008) |
Gain on settlement of legal claim | - | 687 | 687 |
Operating profit | 3,194 | 2,716 | 5,894 |
|
|
|
|
Product Operating Business
| Six months ended 30 June 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
Product revenue | 7,541 | - | 7,540 |
Revenue | 7,541 | - | 7,540 |
|
|
|
|
Adjusted operating profit/(loss) | 495 | - | (1,283) |
|
|
|
|
Acquisition and integration costs | (127) | - | (3,571) |
Loss on remeasurement of equity-accounted investee | - | - | (491) |
Amortisation of acquisition related intangible assets | (502) | - | (339) |
Share based payment charge | (77) | - | (12) |
Operating loss | (211) | - | (5,696) |
Freehold Properties | Six months ended 30 June 2020
(Unaudited) £000 | Six months ended 30 June 2019 Restated (Unaudited) £000 | Year ended 31 December 2019
(Audited) £000 |
Inter-company property income | 1,573 | 1,436 | 2,874 |
Third party property income | 580 | 506 | 997 |
Revenue | 2,153 | 1,942 | 3,871 |
|
|
|
|
Adjusted operating profit | 794 | 732 | 1,503 |
Share based payment charge | (7) | (8) | (14) |
Operating profit | 787 | 724 | 1,489 |
Corporate | Six months ended 30 June 2020
(Unaudited) £000 | Six months ended 30 June 2019 Restated (Unaudited) £000 | Year ended 31 December 2019
(Audited) £000 |
Adjusted operating loss | (884) | (927) | (1,737) |
|
|
|
|
Gain on revaluation of investment net of professional fees |
- |
648 |
- |
Share based payment charge | (38) | (45) | (133) |
Operating loss | (922) | (324) | (1,870) |
Group
| Six months ended 30 June 2020 Total (Unaudited) £000 | Six months ended 30 June 2020 Organic (Unaudited) £000 | Six months ended 30 June 2020 Acquired (Unaudited) £000 | Six months ended 30 June 2019 Total (Unaudited) £000 | Year ended 31 December 2019 Total (Audited) £000 |
Services revenue | 25,268 | 25,268 | - | 22,302 | 46,885 |
Product revenue | 7,541 | - | 7,541 | - | 7,540 |
Third party property income | 580 | 580 | - | 506 | 997 |
Other | 3,506 | 3,506 | - | 785 | 1,825 |
Revenue | 36,895 | 29,354 | 7,541 | 23,593 | 57,247 |
|
|
|
|
|
|
Adjusted operating profit | 4,925 | 4,430 | 495 | 3,290 | 6,704 |
|
|
|
|
|
|
Acquisition and integration costs | (127) | - | (127) | - | (3,571) |
Gain on revaluation of investment net of professional fees | - | - | - | 648 | - |
Loss on remeasurement of equity-accounted investee | - | - | - | - | (491) |
Amortisation of acquisition related intangible assets | (1,259) | (757) | (502) | (1,003) | (2,345) |
Share based payment charge | (691) | (614) | (77) | (506) | (1,167) |
Gain on settlement of legal claim | - | - | - | 687 | 687 |
Operating profit/(loss) | 2,848 | 3,059 | (211) | 3,116 | (183) |
Finance charges (net) | (371) | (371) | - | (358) | (830) |
Share of loss of equity-accounted investment, net of tax | - | - | - | - | (592) |
Profit/(loss) before income tax | 2,477 | 2,688 | (211) | 2,758 | (1,605) |
Income tax (charge)/credit | (465) | (560) | 95 | (325) | (226) |
Profit/(loss) for the period | 2,012 | 2,128 | (116) | 2,433 | (1,831) |
In the Freehold Properties segment, income includes £1.6 million (H1 2019: £1.4 million) generated from inter-segment recharges. The corresponding cost is included within the Operating Business segments and is eliminated on consolidation.
Restatement of segmental reporting comparatives
Results for H1 2019 have been restated. This follows a review subsequent to H1 2019 on the methodology and calculation of the charge of property costs to the Operating Business segments. There is no change to revenue or operating profit at the consolidated level.
5. Revenue
The Group's operations and main revenue streams are those described in the last annual financial statements. The Group's revenue is derived from contracts with customers.
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical market and by the currency in which the contract is denominated for the Operating Business. Property revenue is generated in the UK and denominated in GBP.
For the 6 months ended 30 June (Unaudited)
| ||||||
Currency |
| USD £000 | EUR £000 | GBP £000 | Other £000 | Total £000 |
2020 |
| 17,316 | 1,669 | 17,844 | 66 | 36,895 |
2019 |
| 8,677 | 1,821 | 13,016 | 79 | 23,593 |
|
|
|
|
|
|
|
Geographical market | North America £000 | Europe (excl UK) £000 | UK £000 |
Asia £000 | Other £000 | Total £000 |
2020 | 11,215 | 6,752 | 10,475 | 8,188 | 265 | 36,895 |
2019 | 9,943 | 6,473 | 6,224 | 219 | 734 | 23,593 |
6. Income tax
The income tax charge for the period ended 30 June 2020 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 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
Profit/(Loss) before tax | 2,477 | 2,758 | (1,605) |
Current taxation | (1,114) | (596) | (1,280) |
Current taxation - adjustment in respect of prior years | - | (84) | 311 |
Deferred taxation | 507 | 139 | 579 |
Deferred taxation - adjustment in respect of prior years | - | - | (242) |
R&D tax credit | 142 | 216 | 406 |
Tax charge | (465) | (325) | (226) |
|
|
|
|
Effective tax rate | 18.8% | 11.8% | 14.1% |
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 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
Profit/(loss) for the financial period | 2,012 | 2,433 | (1,831) |
Weighted average number of shares: |
|
|
|
For basic earnings per share | 41,681,034 | 40,206,807 | 40,767,070 |
For fully diluted earnings per share | 43,314,594 | 40,835,968 | 42,024,977 |
Earnings per share: |
Pence |
Pence |
Pence |
Basic earnings per share | 4.8 | 6.1 | (4.5) |
Fully diluted earnings per share | 4.6 | 6.0 | (4.4) |
The calculation of adjusted earnings per share is as follows:
| Six months ended 30 June 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
Adjusted* profit after tax for the period | 3,671 | 2,363 | 4,735 |
Weighted average number of shares: |
|
|
|
For basic earnings per share | 41,681,034 | 40,206,807 | 40,767,070 |
For fully diluted earnings per share | 43,314,594 | 40,835,968 | 42,024,977 |
Adjusted earnings per share: |
Pence |
Pence |
Pence |
Basic earnings per share | 8.8 | 5.9 | 11.6 |
Fully diluted earnings per share | 8.5 | 5.8 | 11.3 |
*Calculation of adjusted profit after tax:
| Six months ended 30 June 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
Adjusted operating profit | 4,925 | 3,290 | 6,704 |
Finance income | 5 | - | 22 |
Finance costs | (376) | (358) | (852) |
Adjusted profit before tax | 4,554 | 2,932 | 5,874 |
Tax charge at approx blended average tax rate of 19.4% (H1-19: 19.4%) | (883) | (569) | (1,139) |
Adjusted profit after tax | 3,671 | 2,363 | 4,735 |
8. Cash and cash equivalents
| Six months ended 30 June 2020 (Unaudited) £000 | Six months ended 30 June 2019 (Unaudited) £000 | Year ended 31 December 2019 (Audited) £000 |
Cash and cash equivalents - Client funds | 4,121 | 1,430 | 1,517 |
Cash and cash equivalents - Group cash | 22,001 | 23,979 | 13,912 |
| 26,122 | 25,409 | 15,429 |
The Group receives cash from clients for the purpose of payment of registration fees to regulatory bodies and other project pass through costs. Client funds are separated in the day to day operations of the business, are separately identified for reporting purposes and are unrestricted.
9. Provisions
(Unaudited) | Onerous lease £000 | Dilapid- ations £000 | Restruct-uring £000 | Legal
£000 | Total
£000 |
At 1 January 2019 | 225 | 262 | 142 | 705 | 1,334 |
Increase in provision | - | 13 | - | - | 13 |
Utilisation of provision | (126) | - | (20) | (5) | (151) |
Release of provision | (94) | - | - | (687) | (781) |
Loss/(Gain) on foreign currency fluctuations | (5) | 1 | (1) | (13) | (18) |
At 30 June 2019 | - | 276 | 121 | - | 397 |
Assumed on business combination | - | 300 | - | - | 300 |
Increase in provision | - | 18 | - | - | 18 |
Utilisation of provision | - |
| (31) | - | (31) |
Loss/(Gain) on foreign currency fluctuations | - | (32) |
| - | (32) |
At 31 December 2019 | - | 562 | 90 | - | 652 |
Increase in provision | - | 13 | - | 562 | 575 |
Utilisation of provision | - | (26) | - | (59) | (85) |
Release of provision | - | - | - | - |
|
Loss/(Gain) on foreign currency fluctuations | - | 31 | - | 2 | 33 |
At 30 June 2020 | - | 580 | 90 | 505 | 1,175 |
| At 30 June 2020 (Unaudited) £000 | At 30 June 2019 (Unaudited) £000 | At 31 December 2019 (Audited) £000 |
Current liabilities | 669 | 201 | 172 |
Non-current liabilities | 506 | 196 | 480 |
| 1,175 | 397 | 652 |
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 the Central/Eastern Europe offices.
10. Borrowings
| At 30 June 2020 (Unaudited) £000 | At 30 June 2019 (Unaudited) £000 | At 31 December 2019 (Audited) £000 |
Non-current bank borrowings | 15,908 | 15,604 | 15,013 |
Current bank borrowings | 1,200 | 1,200 | 1,200 |
| 17,108 | 16,804 | 16,213 |
|
|
|
|
The Group has increased the 10-year fixed term loan by £1.5 million on otherwise similar terms.
An additional interest rate swap has been taken to fix the interest rate of the incremental debt at an effective rate of 3.0%. The rates fixed via similar swap instruments of 3.5% for the original loan in 2016, and 4.0% for the first extension of the loan in 2019, remain in place. Consequently, the resulting effective interest rate for the term loan is 3.5%.
11. Lease liabilities
| At 30 June 2020 (Unaudited) £000 | At 30 June 2019 (Unaudited) £000 | At 31 December 2019 (Audited) £000 |
Non-current lease liabilities | 1,736 | 1,998 | 2,111 |
Current lease liabilities | 1,423 | 807 | 1,212 |
| 3,159 | 2,805 | 3,323 |
Lease liabilities arise on leased properties held by the Group. The leases have remaining periods of between 1 and 4 years from the balance sheet date.
12.Subsequent events
There have been no subsequent events to report.
13. 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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