TIDMSAG
RNS Number : 5949T
Science Group PLC
21 March 2023
21 March 2023
SCIENCE GROUP PLC
AUDITED RESULTS
FOR THE YEARED 31 DECEMBER 2022
Science Group plc (the 'Company') together with its subsidiaries
('Science Group' or the 'Group') reports its audited results for
the year ended 31 December 2022.
Summary
Science Group reports another resilient performance, ahead of
the Board's expectations, despite the deterioration in the global
economy. The acquisition of TP Group plc ("TPG"), completed in
January 2023, significantly increases the scale of Science Group
and provides a strategic entry into the defence sector. The Group's
robust balance sheet, including substantial cash resources,
provides both a solid foundation for the existing operations and
the potential to pursue further growth opportunities should they
arise.
-- Group revenue increased to GBP86.3 million (2021: GBP81.2 million)
-- Adjusted* operating profit increased to GBP17.6 million (2021: GBP16.3 million)
-- Adjusted* basic earnings per share increased to 29.4 pence (2021: 28.5 pence)
-- Dividend maintained at 5.0p (2021: 5.0p)
-- Year-end cash of GBP43.6 million and net funds of GBP29.5
million (2021: GBP34.3 million and GBP19.0 million, respectively)
with undrawn credit facility of GBP25.0 million
-- Acquisition of TP Group plc completed post year-end, funded
from organic operating cash flow
Science Group plc
Martyn Ratcliffe, Executive Chair Tel: +44 (0) 1223 875 200
Jon Brett, Finance Director www.sciencegroup.com
Stifel Nicolaus Europe Limited (Nominated Adviser
and Joint Broker)
Tel: +44 (0) 20 7710 7600
Nick Adams, Alex Price, Richard Short
Liberum Capital Limited (Joint Broker)
Kate Bannatyne, Max Jones 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.
Statement of Executive Chair
Science Group is an international science, engineering and
technology ('SET') business. The Group provides SET services to the
medical, defence, industrial, and consumer sectors, supplemented by
a products division where the Group holds leading market positions
in related technology sectors. The Group also has significant
freehold property assets which host the business operations.
In 2022, Science Group again demonstrated its resilience and
delivered another solid performance, despite the deterioration in
the global economy. While all businesses performed creditably,
those servicing the consumer sector were most impacted by the
economic slowdown. The acquisition of TP Group plc ("TPG"),
completed in January 2023 and funded through Science Group's
organic operating cash flow, significantly increases the scale of
the Group and provides a strategic entry into the defence
sector.
Financial Summary
For the year ended 31 December 2022, Science Group reported
revenue of GBP86.3 million (2021: GBP81.2 million). Group adjusted
operating profit was GBP17.6 million (2021: GBP16.3 million).
Adjusted basic earnings per share was 29.4 pence (2021: 28.5
pence).
Amortisation of acquisition related intangibles, acquisition
advisor fees and integration costs, together with the share-based
payment charge totalled GBP6.5 million (2021: GBP3.6 million) and
the Group's share of the estimated profit in TPG was GBP0.6 million
(2021: GBP1.1 million loss). As a result, the Group reported
operating profit of GBP11.7 million for the year (2021: GBP11.6
million) and, after net finance costs of GBP0.6 million (2021:
GBP0.7 million), profit before tax of GBP11.1 million (2021:
GBP10.9 million), with basic earnings per share of 23.2 pence
(2021: 22.4 pence).
The past year saw substantial volatility in Sterling exchange
rates, particularly during the period of UK political instability
in the late summer. With a significant proportion of income
generated in US Dollars, the Group benefitted from such dynamics
offsetting the significant increase in energy prices and other cost
inflation.
Science Group continues to deliver strong cash conversion and
retains a robust balance sheet. At 31 December 2022, Group cash was
GBP43.6 million (2021: GBP34.3 million) and net funds were GBP29.5
million (2021: GBP19.0 million). The Group's term loan, which
expires in 2026, was GBP14.2 million (2021: GBP15.4 million). In
addition to the term loan, in December 2021, a GBP25 million
Revolving Credit Facility ("RCF") was arranged. As a result, the
Group has significant existing cash resources and available
facilities to continue its strategy, such that at 28 February 2023,
following the completion of the TPG acquisition, Group cash was
GBP33.4 million and net funds were GBP19.3 million and the RCF
remained undrawn.
R&D Consultancy
The R&D Consultancy business provides science-led advisory
and product/technology development services. The division combines
science and engineering capabilities with expertise in key vertical
sectors, namely: Medical; Consumer; Food & Beverage; and
Industrial, Chemicals & Energy ('ICE').
For the year ended 31 December 2022, the R&D Consultancy
division generated revenue of GBP38.7 million (2021: GBP34.3
million). A significant proportion of revenue in the R&D
Consultancy business is invoiced in US dollars but the cost base is
predominantly in Sterling. As a result, the business benefitted
from the favourable US Dollar:Sterling rate during 2022. In view of
the currency volatility, a hedging instrument to cap the rate at
US$1.20:GBP1 for $1.25 million per month was taken out to the end
of 2023. There is no obligation to sell at this rate and the
instrument is designed to protect against the strengthening of
Sterling or weakening of the US Dollar.
Regulatory & Compliance
The Regulatory & Compliance business provides scientific and
regulatory advice together with registration and compliance
services for the Chemicals, Consumer, Food & Beverage and
Medical sectors. The division comprises the European and North
American operations of TSG Consulting, together with Leatherhead
Food Research.
For the year ended 31 December 2022, the Regulatory &
Compliance division generated revenue of GBP22.0 million (2021:
GBP21.4 million). Of this revenue around 27% is of a recurring
nature, primarily within the Food & Beverage sector and the
North American registration renewals activities. While the North
American business had a tough comparator, having benefitted from
increased regulatory applications being sought during the pandemic,
the European business made progress, signing strategic contracts
with global agri-chemicals businesses, providing an improved
platform for the year ahead.
Frontier Smart Technologies
Frontier Smart Technologies ('Frontier') is the market leader in
DAB/DAB+/SmartRadio and connected audio technology chips and
modules.
The Frontier business reported revenue of GBP25.0 million (2021:
GBP24.9 million) and an adjusted operating profit margin of 15%
(2021: 21%). The business started the year supply-constrained,
however, as the global economic environment deteriorated, demand
for consumer electronics reduced significantly in the second half
of the year. Independent market data showed a decline of 16% in Q3
2022, directly impacting the Frontier business. In view of the
current economic environment, it is not anticipated that demand for
consumer electronics will recover until H2 2023.
Freehold Properties
Science Group owns two freehold properties, Harston Mill near
Cambridge and Great Burgh in Epsom, which host the Group's
operations. The last independent valuation in March 2021 indicated
an aggregate value of these properties in the range of GBP21.0
million to GBP35.0 million. The properties are held on the balance
sheet on a cost basis at GBP20.8 million (2021: GBP21.0
million).
The Group charges market rents to the operating businesses and
lets out part of the Harston site to third parties. For the year
ended 31 December 2022, the rental and associated services income
derived from this activity was GBP4.1 million (2021: GBP3.6
million), of which GBP0.7 million (2021: GBP0.6 million) was
generated from third party tenants. Intra-group rental charges are
eliminated on Group consolidation.
Acquisition of TP Group plc
Science Group acquired a strategic shareholding in TPG in 2021,
resulting in the appointment of two directors onto the TPG Board,
as Executive Chairman and Chair of Audit Committee. Following the
renegotiation of onerous contracts (which came to light after the
strategic investment was made) and the disposal of non-core
operations, Science Group completed the acquisition of TPG on 26
January 2023. The acquisition was effected by a court-approved
Scheme of Arrangement. Including the share purchases in 2021, the
professional fees incurred and restructuring costs, the aggregate
investment in TPG is approximately GBP30 million. In 2022, TPG was
accounted for as an associate and the Group results include GBP0.6
million being the estimated share of TPG profit related to the
Science Group shareholding during the year.
TPG is a UK-based Defence and Aerospace business comprising TPG
Se r vices (including Osprey), which is a s pecialist consultancy
providing technical expertise, and TPG Maritime, which is in the
process of being rebranded, and is a leading provider of
atmosphere- management systems for submarines . The non-core
businesses of Sapienza and Northstar were disposed of in the course
of 2022 and the disposal of Westek was completed in February 2023.
As a result of the TPG acquisition, approximately 290 employees
joined Science Group.
Corporate
The corporate function is responsible for the strategic
development of Science Group. Corporate costs were GBP3.2 million
(2021: GBP4.4 million). This includes the TPG acquisition-related
costs (legal and advisory) but is offset by the share of the TPG
profit resulting from its being accounted for as an associate,
which is reported as corporate in segmental reporting.
During the year, the Company repurchased 323,453 shares at a
total cost of GBP1.3 million, equivalent to an average price of 408
pence per share (2021: GBP0.6 million). At 31 December 2022, shares
in issue (excluding treasury shares held of 0.7 million) were 45.4
million (2021: 45.7 million excluding treasury shares held of 0.5
million). The Board is recommending maintaining the dividend at 5.0
pence per share (2021: 5.0 pence per share). Subject to shareholder
approval at the Annual General Meeting ('AGM'), the dividend will
be payable on 16 June 2023 to shareholders on the register at the
close of business on 19 May 2023.
Summary and Outlook
In summary, Science Group has reported another solid performance
in 2022. This resilience has been achieved against the backdrop of
geopolitical instability, substantial energy (and other) cost
increases and an economic downturn. Whilst inflationary pressures
appear to be easing, the economic environment remains
unpredictable, compounded by the recent instability in the banking
sector undermining market confidence in a near-term recovery. Such
a climate inevitably produces uncertainty. The Board anticipates
this fragile environment to continue through the first half of 2023
and is therefore cautious in its outlook and prudent in its
decision-making.
The acquisition of TPG, funded through Science Group's organic
operating cash flow, adds significant scale to the Group and
provides a strategic entry into the defence sector, a market
anticipated to be less affected by short-term economic volatility.
The integration of TPG is proceeding rapidly, benefitting from the
period of active management of the strategic investment prior to
the acquisition.
The Group's strong balance sheet, with significant cash
resources, unused debt facilities and freehold property assets,
provides a robust foundation for the enlarged Group while also
enabling the Board to pursue further corporate opportunities should
they arise.
Martyn Ratcliffe
Executive Chair
Finance Director's Report
Overview of Results
In the year ended 31 December 2022, the Group generated revenue
of GBP86.3 million (2021: GBP81.2 million). Revenue from the
services operating businesses, that is revenue derived from
consultancy services and materials recharged on these projects,
increased to GBP60.7 million (2021: GBP55.7 million) while product
revenue generated by Frontier was GBP25.0 million (2021: GBP24.9
million). Revenue generated by freehold properties, comprising
property and associated services income derived from space let to
third parties in the Harston Mill facility, was GBP0.7 million
(2021: GBP0.6 million).
Adjusted operating profit for the Group increased to GBP17.6
million (2021: GBP16.3 million). The Group's statutory operating
profit of GBP11.7 million (2021: GBP11.6 million) includes the
amortisation of acquisition related intangible assets (GBP3.8
million), share-based payment charges (GBP1.6 million), a share of
the estimated profit of associate investment, TP Group plc, of
GBP0.6 million, and associated acquisition costs of TP Group plc of
GBP1.1 million. The statutory profit before tax was GBP11.1 million
(2021: GBP10.9 million). After net finance costs of GBP0.6 million
(2021: GBP0.7 million) and a tax charge of GBP0.5 million (2021:
GBP1.4 million), statutory profit after tax was GBP10.6 million
(2021: GBP9.6 million). Statutory basic earnings per share ('EPS')
was 23.2 pence (2021: 22.4 pence).
Adjusted operating profit is an alternative profit measure that
is calculated as operating profit excluding acquisition integration
costs, amortisation of acquisition related intangible assets,
share-based payment charges, and other specified items that meet
the criteria to be adjusted. Refer to the notes to the financial
statements for further information on this and other alternative
performance measures.
TP Group plc
The Group made further on-market purchases of shares in TP Group
plc ('TPG') during 2022, increasing its holding from 28.0% to 29.2%
at 31 December 2021. Throughout 2022, the Group accounted for its
shareholding in TPG as an associate under the equity accounting
method. On 31 October 2022, the Group made an offer to acquire the
remainder of TPG shares at a price of 2.25 pence per share, to be
effected through a court-approved Scheme of Arrangement. This
acquisition completed subsequent to the year end, on 26 January
2023, at which point TPG became a wholly owned subsidiary of the
Group.
TPG has not released its results for the period ended 31
December 2022. A share of associate profit after tax of GBP0.6
million has been included within the Science Group Income
Statement, which is an estimate based on expected final TPG
financial statements for the year ended 31 December 2022,
proportionate to the Group's associate shareholding.
In December 2021, the Group made available a standby revolving
credit facility to TPG. The facility is for a maximum of GBP5.0
million for the period from the date of signing until 30 September
2023. The facility, which incurs an interest rate of 1% per month
on sums drawn or 0.4% per month on undrawn amounts, was used for
short periods in 2022 to provide liquidity to TPG however was
undrawn at 31 December 2022.
Foreign Exchange
A considerable proportion of the Group's revenue is denominated
in currencies other than Sterling. Changes in exchange rates can
have a significant influence on the Group's financial performance.
In 2022, GBP54.7 million of the Group's operating business revenue
was denominated in US Dollars (2021: GBP50.2 million), including
all of Frontier's revenue. In addition, GBP2.7 million of the Group
operating business revenue was denominated in Euros (2021: GBP3.1
million). The average exchange rates during 2022 were US$1.24/GBP1
and EUR1.18/GBP1 (2021: US$1.37/GBP1 and EUR1.16/GBP1).
During 2022, in order to provide greater forward visibility
around foreign exchange, the Group acquired a currency exchange
instrument to cap the US Dollar:Sterling rate in relation to the
R&D Consultancy division through to the end of 2023. Initially
the US Dollar:Sterling cap was set at $1.30/GBP1, but in October
2023 the Group took advantage of the low exchange rates to improve
the cap to $1.20/GBP1. The instrument, which applies to US$1.25
million per month, still enables the business to benefit from lower
exchange rates, should such rates apply.
Taxation
The tax charge for the year was GBP0.5 million (2021: GBP1.4
million). The underlying tax charge on the profits generated by the
operating businesses has been partially offset through brought
forward Frontier losses and a Research and Development tax credit
of GBP0.5 million (2021: GBP0.3 million). Science Group recognises
R&D tax credits within tax reporting, not as a credit against
operating costs.
At 31 December 2022, Science Group had GBP26.7 million (2021:
GBP27.8 million) of tax losses of which GBP17.1 million (2021:
GBP17.6 million) related to trading losses in Frontier. Of the
Frontier losses, GBP8.7 million (2021: GBP10.0 million) is
recognised as a deferred tax asset which is anticipated to be used
to offset future taxable profits. The balance of GBP8.4 million
(2021: GBP7.6 million) has not been recognised as a deferred tax
asset due to the uncertainty in the timing or feasibility of
utilisation of these losses. Aside from Frontier, the Group has
other tax losses of GBP9.6 million (2021: GBP10.2 million)
unrecognised as a deferred tax asset due to the low probability
that these losses will be utilised.
Financing and Cash
Cash flow from operating activities (excluding Client
Registration Funds) was GBP15.3 million (2021: GBP13.2 million). As
there was minimal movement on the Client Registration Funds in the
year, reported cash from operating activities in accordance with
IFRS was also GBP15.3 million (2021: GBP14.0 million). The
alternative performance measure, by excluding Client Registration
Funds, reflects the Group's available cash position and cash
flow.
The Group repatriates cash from overseas accounts on at least a
weekly basis and policy is to spread Group cash held across UK Tier
1 banks.
The Group's term loan with Lloyds Bank plc, secured on the
Group's freehold properties, is a 10-year fixed term loan expiring
in 2026. Phased interest rate swaps hedge the loan resulting in a
fixed effective interest rate of 3.5%, comprising a margin over the
Sterling Overnight Index Average ('SONIA'), the cost of the loan
arrangement fee and the cost of the swap instruments. The Group has
adopted hedge accounting for the interest rate swaps related to the
bank loan under IFRS 9 Financial Instruments, and the gain on
change in fair value of the interest rate swaps was GBP1,287,000
(2021: gain of GBP763,000) which was recognised in Other
Comprehensive Income.
In December 2021, in addition to the term loan, the Group signed
a revolving credit facility ('RCF') with Lloyds Bank plc in order
to provide additional capital resources to enable the execution of
the Group's acquisition strategy. The RCF is for up to GBP25.0
million, with an additional GBP5.0 million accordion option, for a
term of four years with a possible one year extension. The margin
on drawn sums is 3.3% per annum over SONIA and is 1.1% per annum on
undrawn amounts. Drawn amounts are secured on the Group's assets by
debentures. At 31 December 2022, the RCF remained undrawn.
The RCF has two financial covenants with which the Group needs
to comply if the facility is drawn: (i) the Group's net leverage,
as defined as the net debt divided by the rolling 12 month EBITDA,
should not exceed 2.5; and (ii) the Group's interest cover, as
defined as the rolling 12 month EBITDA divided by the rolling
interest payments on all borrowings, should not be less than 4.0.
Reporting is on a 6 monthly basis unless the net leverage exceeds
2, in which case reporting moves to quarterly until net leverage
returns to below 2 again. For the term of the RCF, the previous
covenants for the term loan are superseded by the covenants of the
RCF and will not apply.
The Group cash balance (excluding Client Registration Funds) at
31 December 2022 was GBP43.6 million (2021: GBP34.3 million) and
net funds were GBP29.5 million (2021: GBP19.0 million). Client
Registration Funds of GBP2.9 million (2021: GBP2.9 million) were
held at the year end. Working capital management during the year
continued to be a focus with debtor days of 43 days at 31 December
2022 (2021: 31 days). A higher level of inventory was held at the
year end to mitigate uncertainty in forward supply, resulting in
inventory days increasing to 197 days at 31 December 2022 (2021: 76
days).
Share Capital
At 31 December 2022, the Company had 45,436,823 ordinary shares
in issue (2021: 45,720,276) and the Company held an additional
749,051 shares in treasury (2021: 465,598). Of the ordinary shares
in issue, 34,800 shares (2021: 104,400) are held by the Frontier
Employee Benefit Trust. The total number of voting rights in the
Company at 31 December 2022 was 45,402,023 (2021: 45,615,876). In
this report, all references to measures relative to the number of
shares in issue exclude shares held in treasury unless explicitly
stated to the contrary.
Jon Brett
Finance Director
Consolidated Income Statement
For the year ended 31 December 2022
Note 2022 2021
GBP000 GBP000
------------------------------------------------------ ---- -------- ---------
Revenue 2 86,301 81,216
Direct operating expenses (47,947) (45,858)
Sales and marketing expenses (9,754) (8,824)
Administrative expenses (17,504) (13,892)
Share of profit/(loss) of equity accounted investment 602 (1,061)
Adjusted operating profit 2 17,602 16,260
Acquisition integration costs (1,128) -
Amortisation of acquisition related intangible assets 7 (3,766) (2,891)
Share-based payment charge (1,612) (727)
Share of profit/(loss) of equity accounted investment 602 (1,061)
Operating profit 11,698 11,581
Finance income 375 19
Finance costs (977) (673)
Profit before tax 11,096 10,927
Tax charge (net of R&D tax credit of GBP530,000
(2021: GBP324,000)) 3 (541) (1,366)
====================================================== ==== ======== =========
Profit for the year 10,555 9,561
====================================================== ==== ======== =========
Earnings per share
Earnings per share (basic) 5 23.2p 22.4p
Earnings per share (diluted) 5 22.6p 21.7p
====================================================== ==== ======== =========
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
GBP000 GBP000
----------------------------------------------------------------------------------- ------- --------
Profit for the year attributable to:
Equity holders of the parent 10,555 9,561
Profit for the year 10,555 9,561
------------------------------------------------------------------------------------ ------- --------
Other comprehensive income items
that will or may be reclassified to profit or loss:
Exchange differences on translating foreign operations 2,372 279
Fair value gain on financial instruments 1,499 763
Deferred tax charge on financial instruments (414) (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 year 3,457 ( 1,579)
------------------------------------------------------------------------------------ ------- --------
Total comprehensive income for the period attributable to:
Equity holders of the parent 14,012 7,982
Total comprehensive income for the year 14,012 7,982
------------------------------------------------------------------------------------ ------- --------
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2022
Share Share Treasury Merger Translation Cashflow Retained Total
capital premium shares reserve reserve hedge earnings equity
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ---------- -------- -------- -------- ----------- -------- --------- --------
Balance at 1
January 2021 421 9,102 (1,896) 10,343 (1,037) (538) 24,995 41,390
Contributions and
distributions:
Purchase of own
shares - - (562) - - - - (562)
Issue of shares
out of treasury - - 1,216 - - - (1,211) 5
Dividends paid
(Note 6) - - - - - - (1,642) (1,642)
Share-based payment
charge - - - - - - 727 727
Deferred tax
credit on share-based
payment transactions - - - - - - 619 619
Share placement 41 17,732 - - - - - 17,773
------------------------- ---------- -------- -------- -------- ----------- -------- --------- --------
Transactions
with owners 41 17,732 654 - - - (1,507) 16,920
------------------------- ---------- -------- -------- -------- ----------- -------- --------- --------
Profit for the
year - - - - - - 9,561 9,561
Other comprehensive income
items
that will or maybe reclassed
to profit or loss:
Fair value gain
on financial instruments - - - - - 763 - 763
Exchange differences
on translating
foreign operations - - - - 279 - - 279
Deferred tax charge
on financial instruments - - - - - (151) - (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) (2,470)
Total comprehensive
income for the
year - - - - 279 612 7,091 7,982
----------------------------- ------ -------- -------- -------- ----------- -------- --------- --------
Balance at 31
December 2021 462 26,834 (1,242) 10,343 (758) 74 30,579 66,292
----------------------------- ------ -------- -------- -------- ----------- -------- --------- --------
Share Share Treasury Merger Translation Cashflow Retained Total
capital premium shares reserve reserve hedge earnings equity
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ---------------- -------- -------- -------- ----------- -------- --------- --------
Balance at 1
January 2022 462 26,834 (1,242) 10,343 (758) 74 30,579 66,292
Contributions and
distributions:
Purchase of own
shares - - (1,321) - - - - (1,321)
Issue of shares
out of treasury - - 370 - - - (369) 1
Dividends paid
(Note 6) - - - - - - (2,270) (2,270)
Share-based payment
charge - - - - - - 1,612 1,612
Deferred tax
charge on share-based
payment transactions - - - - - - (127) (127)
Transactions
with owners - - (951) - - - (1,154) (2,105)
----------------------- ---------------- -------- -------- -------- ----------- -------- --------- --------
Profit for the
year - - - - - - 10,555 10,555
Other comprehensive income
items
that will or maybe reclassed
to profit or loss:
Fair value gain
on financial
instruments - - - - - 1,499 - 1,499
Exchange differences
on translating
foreign operations - - - - 2,372 - - 2,372
Deferred tax
charge on financial
instruments - - - - - (414) - (414)
Total comprehensive
income for the
year - - - - 2,372 1,085 10,555 14,012
---------------------------- ----------- -------- -------- -------- ----------- -------- --------- --------
Balance at 31
December 2022 462 26,834 (2,193) 10,343 1,614 1,159 39,980 78,199
---------------------------- ----------- -------- -------- -------- ----------- -------- --------- --------
Consolidated Balance Sheet
At 31 December 2022
Note 2022 2021
GBP000 GBP000
=================================== ============= =========== ==========
Assets
Non-current assets
Acquisition related intangible
assets 7 10,815 13,359
Goodwill 7 14,975 14,360
Property, plant and equipment 23,867 23,384
Investments 10,054 9,239
Derivative financial instruments 1,417 129
Deferred tax assets 4 2,176 2,120
=================================== ============= =========== ==========
63,304 62,591
----------------------------------- ------------- ----------- ----------
Current assets
Inventories 8 2,477 2,454
Trade and other receivables 9 12,992 12,208
Current tax assets 1,607 1,493
Derivative financial instruments 384 -
Cash and cash equivalents
- Client registration funds 10 2,867 2,874
Cash and cash equivalents
- Group cash 10 43,645 34,315
=================================== ============= =========== ==========
63,972 53,344
=================================== ============= =========== ==========
Total assets 127,276 115,935
----------------------------------- ------------- ----------- ----------
Liabilities
Current liabilities
Trade and other payables 11 31,546 30,042
Current tax liabilities 331 776
Provisions 12 849 677
Borrowings 14 1,200 1,200
Lease liabilities 720 1,153
----------------------------------- ------------- ----------- ----------
34,646 33,848
----------------------------------- ------------- ----------- ----------
Non-current liabilities
Provisions 12 248 603
Borrowings 14 12,939 14,123
Lease liabilities 1,162 400
Deferred tax liabilities 4 82 669
========================= ======================= =========== ==========
14,431 15,795
========================= ======================= =========== ==========
Total liabilities 49,077 49,643
========================= ======================= =========== ==========
Net assets 78,199 66,292
========================= ======================= =========== ==========
Shareholders' equity
Share capital 13 462 462
Share premium 26,834 26,834
Treasury shares (2,193) (1,242)
Merger reserve 10,343 10,343
Translation reserve 1,614 (758)
Cash flow hedge reserve 1,159 74
Retained earnings 39,980 30,579
========================= ======================= =========== ==========
Total equity 78,199 66,292
========================= ======================= =========== ==========
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Note 2022 2021
GBP000 GBP000
---------------------------------------------- ----- -------- ---------
Profit before income tax 11,096 10,927
Adjustments for:
Share of (profit)/loss of equity
accounted investment (602) 1,061
Amortisation of acquisition related
intangible assets 3,766 2,891
Depreciation of property, plant and
equipment 655 719
Reversal of impairment of right-of-use (215) -
assets
Depreciation of right-of-use assets 827 794
Bank charges on derivative financial 359 -
instruments
Net interest cost 602 654
Share-based payment charge 1,612 727
Increase in inventories (23) (1,047)
Increase in receivables (680) (1,385)
(Decrease)/Increase in payables representing
client registration funds (7) 859
Increase in payables excluding balances
representing client registration
funds 1,235 2,494
Decrease in provisions (263) (76)
---------------------------------------------- ----- -------- ---------
Cash generated from operations 18,362 18,618
---------------------------------------------- ----- -------- ---------
Interest paid (808) (646)
UK corporation tax paid (1,017) (3,018)
Foreign corporation tax paid (1,266) (940)
---------------------------------------------- ----- -------- ---------
Cash flows from operating activities 15,271 14,014
---------------------------------------------- ----- -------- ---------
Interest received 271 3
Purchase of property, plant and equipment (92) (544)
Purchase of intellectual property - (4,315)
Purchase of interest in associated
company (213) (12,770)
Purchase of subsidiary undertakings,
net of cash acquired - (1,455)
---------------------------------------------- ----- -------- ---------
Cash flows used in investing activities (34) (19,081)
---------------------------------------------- ----- -------- ---------
Issue of shares out of treasury 1 5
Share placement - 17,773
Repurchase of own shares (1,321) (562)
Dividends paid (2,270) (1,642)
Purchase of derivative financial (531) -
instruments
Repayment of term loan 14 (1,200) (1,200)
Payment of lease liabilities (1,135) (1,297)
---------------------------------------------- ----- -------- ---------
Cash flows from financing activities (6,456) 13,077
---------------------------------------------- ----- -------- ---------
Increase in cash and cash equivalents
in the year 8,781 8,010
Cash and cash equivalents at the
beginning of the year 37,189 29,074
Exchange gain on cash 542 105
---------------------------------------------- ----- -------- ---------
Cash and cash equivalents at the
end of the year 10 46,512 37,189
---------------------------------------------- ----- -------- ---------
Cash and cash equivalents are analysed as follows:
Note 2022 2021
GBP000 GBP000
------------------------------------ ----- -------- --------
Cash and cash equivalents - Client
registration funds 10 2,867 2,874
Cash and cash equivalents - Group
cash 10 43,645 34,315
------------------------------------ ----- -------- --------
46,512 37,189
------------------------------------ ----- -------- --------
Extracts from notes to the financial statements
1. General Information
Science Group plc (the 'Company') together with its subsidiaries
('Science Group' or the 'Group') is an international science,
engineering and technology ('SET') business, supported by a strong
balance sheet.
The Group and Company Financial Statements of Science Group plc
were prepared under the International Financial Reporting Standards
('IFRS') as adopted by the UK in conformity with the requirements
of the Companies Act 2006 and have been audited by Grant Thornton
UK LLP. Accounts are available from the Company's registered
office; Harston Mill, Harston, Cambridge, CB22 7GG.
The Company is incorporated and domiciled in England and Wales
under the Companies Act 2006 and has its primary listing on the
Alternative Investment Market of the London Stock Exchange (SAG.L).
The value of Science Group plc shares, as quoted on the London
Stock Exchange on 31 December 2022, was 395.0 pence per share (31
December 2021: 455.0 pence per share).
Alternative performance measures
The Group uses alternative non-Generally Accepted Accounting
Principles performance measures of 'adjusted operating profit',
'adjusted earnings per share' and 'net funds' which are not defined
within IFRS. These are explained as follows:
(a) Adjusted Operating Profit
The Group calculates this measure by adjusting to exclude
certain items from operating profit namely: amortisation of
acquisition related intangible assets, acquisition integration
costs, share-based payment charges and other specified items that
meet the criteria to be adjusted.
The criteria for the adjusted items in the calculation of
adjusted operating profit is operating income or expenses that are
material and either arise from an irregular and significant event
or the income/cost is recognised in a pattern that is unrelated to
the resulting operational performance. Materiality is defined as an
amount which, to a user, would influence the decision making.
Acquisition integration costs include all costs incurred directly
related to the restructuring, relocation and integration of
acquired businesses. Adjustments for share-based payment charges
occur because: once the cost has been calculated, the Directors
cannot influence the share-based payment charge incurred in
subsequent years; it is understood that many investors/analysts
exclude the cost from their valuation analysis of the business; and
the value of the share option to the employee differs considerably
in value and timing from the actual cash cost to the Group.
The calculation of this measure is shown on the Consolidated
Income Statement.
(b) Adjusted Earnings Per Share
The Group calculates this measure by dividing adjusted profit
after tax by the weighted average number of shares in issue and the
calculation of this measure is disclosed in Note 5. The tax rate
applied to calculate the tax charge in this measure is the tax at
the blended corporation tax rate across the various jurisdictions
rate for the year which is 21.4% (2021: 22.0%) which results in a
comparable tax charge year on year.
(c) Net Funds
The Group calculates this measure as the net of cash and cash
equivalents - Group cash and Borrowings. Client registration funds
are excluded from this calculation because these monies are for the
purpose of payment of registration fees to regulatory bodies. This
cash is separately identified for reporting purposes and is
unrestricted. This measure is calculated as follows:
Note 2022 2021
GBP000 GBP000
================================== ==== ======== ========
Cash and cash equivalents - Group
cash 10 43,645 34,315
Borrowings 14 (14,139) (15,323)
================================== ==== ======== ========
Net funds 29,506 18,992
================================== ==== ======== ========
Alternative performance measures
The Directors believe that disclosing these alternative
performance measures enhances shareholders' ability to evaluate and
analyse the underlying financial performance of the Group.
Specifically, the adjusted operating profit measure is used
internally in order to assess the underlying operational
performance of the Group, aid financial, operational and commercial
decisions and in determining employee compensation. The adjusted
EPS measure allows the shareholder to understand the underlying
value generated by the Group on a per share basis. Net funds
represent the Group's cash available for day-to-day operations and
investments. As such, the Board considers these measures to enhance
shareholders' understanding of the Group results and should be
considered alongside the IFRS measures.
Going concern
The Directors have considered the current cash balance of
GBP43.6 million (excluding client registration funds) and assessed
forecast future cash flows for the next 18 months. There are no
events or conditions which cast significant doubt on the ability of
the Group to continue as a going concern. In support, as explained
in the Statement of Executive Chair, the Group revenue and
operating profit grew year on year and cash generated from
operations was GBP18.4 million during the year ended 31 December
2022. The Group ended the year with net funds of GBP29.5 million,
and with the undrawn Revolving Credit Facility ('RCF') of GBP25.0
million. 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 approval of the accounts and therefore continue to
adopt the going concern basis of accounting in preparing the annual
Financial Statements.
2. Segment 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 ('CODMs') 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
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 2022 2021
GBP000 GBP000
------------------------------------------------------ -------- =======
Services revenue 58,242 52,879
Other 2,423 2,840
------------------------------------------------------ -------- -------
Revenue 60,665 55,719
------------------------------------------------------ -------- =======
Adjusted operating profit 16,200 14,122
Amortisation of acquisition related intangible assets (1,463) (1,495)
Share-based payment charge (1,249) (502)
Operating profit 13,488 12,125
------------------------------------------------------ -------- -------
Product Operating Business 2022 2021
GBP000 GBP000
------------------------------------------------------ -------- -------
Product revenue 24,979 24,936
------------------------------------------------------ -------- -------
Revenue 24,979 24,936
------------------------------------------------------ -------- -------
Adjusted operating profit 3,869 5,156
Amortisation of acquisition related intangible assets (2,303) (1,396)
Share-based payment charge (265) (240)
------------------------------------------------------ -------- -------
Operating profit 1,301 3,520
------------------------------------------------------ -------- -------
Freehold Properties 2022 2021
GBP000 GBP000
------------------------------ ------- -------
Inter-company property income 3,436 3,046
Third party property income 657 561
------------------------------ ------- =======
Revenue 4,093 3,607
------------------------------ ------- =======
Adjusted operating profit 132 361
Share-based payment charge (42) (27)
------------------------------ ------- -------
Operating profit 90 334
------------------------------ ------- -------
Corporate 2022 2021
GBP000 GBP000
------------------------------------------------------ ------- =======
Adjusted operating loss (2,599) (3,379)
Acquisition integration costs (1,128) -
Share-based payment (charge)/credit (56) 42
Share of profit/(loss) of equity accounted investment 602 (1,061)
------------------------------------------------------ ------- -------
Operating loss (3,181) (4,398)
------------------------------------------------------ ------- -------
Group 2022 2021
GBP000 GBP000
------------------------------------------------------ -------- -------
Services revenue 58,242 52,879
Product revenue 24,979 24,936
Third party property income 657 561
Other 2,423 2,840
------------------------------------------------------ -------- -------
Revenue 86,301 81,216
------------------------------------------------------ -------- -------
Adjusted operating profit 17,602 16,260
Acquisition integration costs (1,128) -
Amortisation of acquisition related intangible assets (3,766) (2,891)
Share-based payment charge (1,612) (727)
Share of profit/(loss) of equity accounted investment 602 (1,061)
------------------------------------------------------ --------
Operating profit 11,698 11,581
Net finance costs (602) (654)
------------------------------------------------------ --------
Profit before income tax 11,096 10,927
Income tax charge (541) (1,366)
------------------------------------------------------ -------- -------
Profit for the period 10,555 9,561
------------------------------------------------------ -------- -------
Geographical and currency revenue analysis
Primary geographic markets 2022 2021
GBP000 GBP000
---------------------------- -------- --------
United Kingdom 13,240 11,883
Other European Countries 10,621 12,228
North America 35,878 29,065
Asia 26,047 27,680
Other 515 360
---------------------------- -------- --------
86,301 81,216
============================ ======== ========
Currency 2022 2021
GBP000 GBP000
========== ======= =======
US Dollar 54,663 50,153
Euro 2,669 3,070
Sterling 28,969 27,985
Other - 8
========== ======= =======
86,301 81,216
---------- ------- -------
3. Income Tax
The tax charge comprises:
Year ended 31 December Note 2022 2021
GBP000 GBP000
========================================= ==== ======= =======
Current taxation (2,666) (4,269)
Current taxation - adjustment in respect
of prior years 539 (481)
Deferred taxation 4 643 2,975
Deferred taxation - adjustment in
respect of prior years 413 85
R&D tax credit 530 324
========================================= ==== ======= =======
(541) (1,366)
----------------------------------------- ---- ------- -------
The adjustments in prior years are due to estimation differences
related to the tax charge.
The corporation tax on Science Group's profit before tax differs
from the theoretical amount that would arise using the blended
corporation tax rate across the various jurisdictions applicable to
profits of the consolidated companies of 21.4% (2021: 22.0%) as
follows:
2022 2021
GBP000 GBP000
================================================ ========= =========
Profit before tax 11,096 10,927
================================================ ========= =========
Tax calculated at domestic tax rates applicable
to profits in the respective countries (2,374) (2,401)
Expenses not deductible for tax purposes (389) (543)
Adjustment in respect of prior years - current
tax 539 (481)
Adjustment in respect of prior years - deferred
tax 413 85
Movement in deferred tax due to change in
tax rate (35) (313)
Share scheme movements 281 44
Losses used in year 569 1,033
(Derecognition)/recognition of tax losses
as deferred tax asset (190) 1,119
Share of profit/(loss) of equity accounted
investment 115 (233)
R&D tax credit 530 324
================================================ ========= =========
Tax charge (541) (1,366)
------------------------------------------------ --------- ---------
The Group claims Research and Development tax credits under both
the R&D expenditure credit scheme and the Small or Medium-sized
Scheme. In the current year, the Group recognised a tax credit of
GBP0.5 million (2021: GBP0.3 million). The Group performed a
reasonable estimate of all amounts involved to determine the
R&D tax credits to be recognised in the period to which it
relates.
4. Deferred Tax
The movement in deferred tax assets and liabilities during the
year by each type of temporary difference is as follows:
Accelerated Tax losses Share- Acquisition Other temporary Total
capital based payment related differences
allowances intangible
GBP000 GBP000 assets GBP000
GBP000 GBP000 GBP000
========================= =========== ========== ============== =========== =============== =======
At 1 January 2021 (1,767) 1,001 775 (2,118) 293 (1,816)
Credited/(charged)
to the Income Statement 1,721 1,119 (5) 174 (34) 2,975
Deferred tax relating
to acquisitions - - - (246) - (246)
Credited to the
Income Statement
(adjustment in respect
of prior year) - - - - 85 85
Credited/(charged)
to Equity - - 619 - (151) 468
Effect of movements
in exchange rates - - - (15) - (15)
========================= =========== ========== ============== =========== =============== =======
At 31 December 2021 (46) 2,120 1,389 (2,205) 193 1,451
------------------------- ----------- ---------- -------------- ----------- --------------- -------
(Charged)/credited
to the Income Statement (131) (190) 506 588 (130) 643
Credited to the
income statement
(adjustment in respect
of prior year) 129 - - - 284 413
Charged to Equity - - (127) - (414) (541)
Effect of movements
in exchange rates 76 246 - (194) - 128
========================= =========== ========== ============== =========== =============== =======
At 31 December
2022 28 2,176 1,768 (1,811) (67) 2,094
------------------------- ----------- ---------- -------------- ----------- --------------- -------
2022 2021
GBP000 GBP000
------------------------- ------- -------
Deferred tax assets 2,176 2,120
Deferred tax liabilities (82) (669)
Net deferred tax assets 2,094 1,451
--------------------------- ------- -------
At 31 December 2022, Science Group had GBP26.7 million (2021:
GBP27.8 million) of tax losses of which GBP17.1 million (2021:
GBP17.6 million) related to trading losses in Frontier. Of the
Frontier losses, GBP8.7 million (2021: GBP10.0 million) is
recognised as a deferred tax asset which is anticipated to be used
to offset future taxable profits. The balance of GBP8.4 million
(2021: GBP7.6 million) has not been recognised as a deferred tax
asset due to the uncertainty in the timing of utilisation of these
losses. Aside from Frontier, the Group has other tax losses of
GBP9.6 million (2021: GBP10.2 million) unrecognised as a deferred
tax asset due to the low probability that these losses will be
utilised.
Factors affecting future tax charges
From 1 April 2023 the UK corporation tax will increase from 19%
to 25%. Deferred tax assets and liabilities were calculated at the
substantively enacted corporation tax rates in the respective
jurisdictions, taking into account the impact of any known future
changes.
5. Earnings Per Share
The calculation of earnings per share is based on the following
result and weighted average number of shares:
2022 2021
----------------------------- ------------------------ ------------------ -------------------------
Profit Weighted Pence Profit Weighted Pence
after tax average per share after average per share
number tax number
GBP000 of shares of shares
GBP000
============================= ========== ============ ========== ======= ============ ==========
Basic earnings per ordinary
share 10,555 45,525,568 23.2 9,561 42,660,991 22.4
Effect of dilutive potential
ordinary shares: share
options - 1,268,082 (0.6) - 1,435,102 (0.7)
============================= ========== ============ ========== ======= ============ ==========
Diluted earnings per
ordinary share 10,555 46,793,650 22.6 9,561 44,096,093 21.7
----------------------------- ---------- ------------ ---------- ------- ------------ ----------
Only the share options granted are dilutive.
The calculation of adjusted earnings per share is as
follows:
2022 2021
----------------------------- ------------------------- -------- --------- ---------- ----------
Adjusted* Weighted Pence Adjusted* Weighted Pence
profit average per share profit average per share
after number after number
tax of shares tax of shares
GBP000 GBP000
============================= ========= ========== ============ ========= ========== ==========
Adjusted basic earnings
per ordinary share 13,362 45,525,568 29.4 12,173 42,660,991 28.5
Effect of dilutive potential
ordinary shares: share
options - 1,268,082 (0.8) - 1,435,102 (0.9)
============================= ========= ========== ============ ========= ========== ==========
Adjusted diluted earnings
per ordinary share 13,362 46,793,650 28.6 12,173 44,096,093 27.6
----------------------------- --------- ---------- ------------ --------- ---------- ----------
* Calculation of adjusted profit after tax:
2022 2021
GBP000 GBP000
=============================================== ======= =======
Adjusted operating profit 17,602 16,260
Finance income 375 19
Finance costs (977) (673)
=============================================== ======= =======
Adjusted profit before tax 17,000 15,606
Tax charge at the blended corporation tax rate
across the various jurisdictions 21.4% (2021:
22.0%) (3,638) (3,433)
=============================================== ======= =======
Adjusted profit after tax 13,362 12,173
----------------------------------------------- ------- -------
The tax charge is calculated using the blended corporation tax
rate across the various jurisdictions in which the Group companies
are incorporated.
6. Dividends
The final dividend for 2021 of GBP2.3 million was paid in June
2022 (2021: GBP1.6 million paid in June 2021).
The Board has proposed a final dividend for 2022 of 5.0 pence
per share (2021: 5.0 pence per share). The dividend is subject to
approval by shareholders at the next Annual General Meeting and the
expected cost of GBP2.3 million has not been included as a
liability as at 31 December 2022.
7. Intangible Assets
Technology Customer Goodwill Total
relationships
GBP000 GBP000 GBP000 GBP000
=============================== =========== =============== ======== =======
Cost
At 31 January 2021 6,792 13,647 15,882 36,321
Acquisitions through business
combination 1,031 238 664 1,933
Additions 4,315 - - 4,315
Effect of movement in exchange
rates 168 30 39 237
=============================== =========== =============== ======== =======
At 31 December 2021 12,306 13,915 16,585 42,806
Effect of movement in exchange
rates 1,350 428 615 2,393
------------------------------- ----------- --------------- -------- -------
At 31 December 2022 13,656 14,343 17,200 45,199
------------------------------- ----------- --------------- -------- -------
Accumulated amortisation
At 1 January 2021 1,132 8,786 - 9,918
Amortisation charged in year 1,305 1,586 - 2,891
Effect of movement in exchange
rates 27 19 - 46
=============================== =========== =============== ======== =======
At 31 December 2021 2,464 10,391 - 12,855
Amortisation charged in year 2,172 1,594 - 3,766
Effect of movement in exchange
rates 335 221 - 556
------------------------------- ----------- --------------- -------- -------
At 31 December 2022 4,971 12,206 - 17,177
------------------------------- ----------- --------------- -------- -------
Accumulated impairment
At 1 January, 31 December 2021
and 31 December 2022 - 7 2,225 2,232
------------------------------- ----------- --------------- -------- -------
Carrying amount
At 31 December 2021 9,842 3,517 14,360 27,719
=============================== ----------- --------------- -------- -------
At 31 December 2022 8,685 2,130 14,975 25,790
------------------------------- ----------- --------------- -------- -------
Goodwill and acquisition related intangible assets recognised
arose from acquisitions during 2013, 2015, 2017, 2019 and 2021. The
discount rates used for goodwill impairment reviews and the
carrying amount of goodwill is allocated as follows:
2022 2021
---------------------------- -------------------- --------------------
Pre-tax Pre-tax
discount GBP000 discount GBP000
rate rate
============================ ========= ========= ========= =========
R&D Consultancy 16.8% 3,383 14.2% 3,383
Leatherhead Research 16.9% 650 14.1% 650
TSG - America 15.2% 2,874 16.4% 2,570
TSG - Europe 16.6% 4,546 15.8% 4,546
Frontier Smart Technologies
Group 17.5% 3,522 14.1% 3,211
14,975 14,360
---------------------------- --------- --------- --------- ---------
Impairment review of goodwill
The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be
impaired. The recoverable amounts of the Cash Generating Units
('CGUs') are determined from value in use. The key assumptions for
the value in use calculations are those regarding the discount
rates and growth rates of revenue and costs.
The Group prepares the cash flow forecasts derived from the most
recent annual financial plan approved by the Board and extrapolates
cash flows for the following four years based on forecast rates of
growth or decline in revenue by the CGU.
The Group monitors its post-tax weighted average cost of capital
and those of its competitors using market data. In considering the
discount rates applying to CGUs, the Directors have considered the
relative sizes, risks and the inter-dependencies of its CGUs. The
impairment reviews use a discount rate adjusted for pre-tax cash
flows and are included in the table above.
8. Inventories
2022 2021
GBP000 GBP000
================= ======= =======
Raw materials 263 304
Work in progress 485 793
Finished goods 1,729 1,357
=================== ======= =======
2,477 2,454
----------------- ------- -------
9. Trade and Other Receivables
2022 2021
GBP000 GBP000
================================= ======= =======
Current assets:
Trade receivables 9,983 9,406
Provision for impairment (207) (75)
================================= ======= =======
Trade receivables - net 9,776 9,331
Amounts recoverable on contracts 1,152 1,202
Other receivables 90 103
VAT 215 96
Prepayments 1,759 1,476
================================= ======= =======
12,992 12,208
--------------------------------- ------- -------
All amounts disclosed above, except for prepayments, are
receivable within 90 days.
10. Cash and Cash Equivalents
2022 2021
GBP000 GBP000
============================= =========================== ==========
Cash and cash equivalents
- Group cash 43,645 34,315
Cash and cash equivalents - Client
registration funds 2,867 2,874
===================================== =================== ==========
46,512 37,189
----------------------------- --------------------------- ----------
The Group receives cash from clients, primarily in North
America, for the purpose of payment of registration fees to
regulatory bodies. This cash is separately identified for reporting
purposes and is unrestricted.
In connection with the Scheme of Arrangement, as referenced in
Note 15, GBP12.6 million of Group cash was held in escrow at 31
December 2022 (2021: GBPnil).
11. Trade and Other Payables
2022 2021
GBP000 GBP000
========================== ======= =======
Current liabilities:
Contract liabilities 19,679 17,061
Trade payables 1,689 2,591
Other taxation and social
security 1,460 1,346
VAT 250 224
Accruals 8,468 8,820
============================ ======= =======
31,546 30,042
-------------------------- ------- -------
12. Provisions
Dilapidations Restructuring Legal Other Total
GBP000 GBP000 GBP000 GBP000 GBP000
==================================== =============== ============= ======= ======== =======
At 1 January 2021 764 80 479 14 1,337
Provisions made during the year 89 - 248 6 343
Provisions used during the year (5) (10) (30) - (45)
Provisions reversed during the year (84) - (265) (20) (369)
Effect of movements in exchange rates 6 - 8 - 14
At 1 January 2022 770 70 440 - 1,280
Provisions made during the year 44 - 190 - 234
Provisions used during the year (2) - (152) - (154)
Provisions reversed during the year (164) (30) (149) - (343)
Effect of movements in exchange rates 58 - 22 - 80
----------------------------------------- ---------- ------------- ------- -------- -------
At 31 December 2022 706 40 351 - 1,097
------------------------------------ --------------- ------------- ------- -------- -------
Current liabilities 458 40 351 - 849
Non-current liabilities 248 - - - 248
------------------------------------ --------------- ------------- ------- -------- -------
At 31 December 2021 770 70 440 - 1,280
------------------------------------ --------------- ------------- ------- -------- -------
Current liabilities 167 70 440 - 677
Non-current liabilities 603 - - - 603
------------------------------------ --------------- ------------- ------- -------- -------
Dilapidation provisions have been recognised at the present
value of the expected obligation. These discounts will unwind to
their undiscounted value over the remaining lives of the leases via
a finance charge within the income statement.
The average remaining life of the leases as at 31 December 2022
is 1.4 years (2021: 2 years).
The restructuring provision relates to the costs associated with
the closure of some non-trading Group entities.
Legal provisions reflect the best estimate of the future cost of
responding to US subpoenas relating to litigation and
investigations directed at third parties.
The other provision related to warranty provisions made in
respect of certain product sales.
13 . Called-up Share Capital
2022 2021
GBP000 GBP000
=================================== ============= ==========
Allotted, called-up and fully paid
Ordinary shares of GBP0.01 each 462 462
----------------------------------- ------------- ----------
Number Number
=================================== ============= ==========
Allotted, called-up and fully paid
Ordinary shares of GBP0.01 each 46,185,874 46,185,874
----------------------------------- ------------- ----------
The allotted, called-up and fully paid share capital of the
Company as at 31 December 2022 was 46,185,874 shares (2021:
46,185,874) and the total number of ordinary shares in issue
(excluding treasury shares) was 45,436,823 (2021: 45,720,276). Of
the ordinary shares in issue, 34,800 shares (2021: 104,400) are
held by the Frontier Smart Technologies Employee Benefit Trust. The
total number of voting rights in the Company is 45,402,023 (2021:
45,615,876).
14. Borrowings
2022 2021
GBP000 GBP000
---------------------------- ------- -------
Current bank borrowings 1,200 1,200
Non-current bank borrowings 12,939 14,123
---------------------------- ------- -------
Total borrowings 14,139 15,323
---------------------------- ------- -------
2022 2021
GBP000 GBP000
------------------------------------- ------- -------
Opening balance 15,323 16,507
Repayments in the year (1,200) (1,200)
Amortisation of loan arrangement fee 16 16
Total borrowings 14,139 15,323
------------------------------------- ------- -------
During the year ended 31 December 2016, the Group entered into a
10-year fixed term loan of GBP15 million which is secured on the
freehold properties of the Group and on which interest is payable
based on SONIA plus 2.6% margin. During the year ended 31 December
2019, the Group increased this existing loan by GBP4.8 million to
GBP17.5 million on similar terms. The repayment profile of the loan
is GBP1.2 million per annum over the term with the remaining
balance repaid on expiry of the loan in 2026. Costs directly
associated with entering into the loan (including the loan
increase), have been offset against the balance outstanding and are
being amortised over the period of the loan.
During the year ended 31 December 2020, the Group drew a further
GBP1.5 million of loan funds from the GBP17.5 million existing loan
agreement. This was on similar terms and with no change to the loan
repayment profile (i.e. the quarterly repayments remained the same
and the loan balance remains payable on 30 September 2026). Costs
directly associated with entering into the additional loan, have
been offset against the balance outstanding and are being amortised
over the period of the loan.
At 31 December 2022, the amount outstanding on the term loan was
GBP14.2 million (2021: GBP15.4 million).
The reconciliation of bank loans interest expense is shown
below.
2022 2021
GBP000 GBP000
------------------------------------- ------- -------
Interest expense 533 580
Interest paid (517) (564)
Amortisation of loan arrangement fee (16) (16)
------------------------------------- ------- -------
Interest accrual at the year end - -
------------------------------------- ------- -------
In December 2021 Science Group plc signed a Revolving Credit
Facility ('RCF') with Lloyds Bank plc in order to provide
additional capital resources to enable the execution of the Group's
acquisition strategy. The RCF is for up to GBP25.0 million, with an
additional GBP5.0 million accordion option, for a term of four
years with a one-year extension. The margin on drawn sums is 3.3%
per annum over the Sterling Overnight Index Average ('SONIA') and
is 1.1% per annum on undrawn amounts. Drawn amounts are secured on
the Group's assets by debentures. The RCF is in addition to the
Group's existing term loan.
The RCF has two financial covenants with which the Group needs
to comply if the facility is drawn: (i) the Group's net leverage,
as defined as the net debt divided by the rolling 12 month EBITDA,
should not exceed 2.5; and (ii) the Group's interest cover, as
defined as the rolling 12 month EBITDA divided by the rolling
interest payments on all borrowings, should not be less than 4.0.
Reporting is on a 6 monthly basis unless the net leverage exceeds
2.0, in which case reporting moves to quarterly until net leverage
returns to below 2.0 again. For the term of the RCF, the previous
covenants for the term loan are superseded by the covenants of the
RCF and will not apply.
The reconciliation of RCF interest expense is shown below.
2022 2021
GBP000 GBP000
------------------------------------ ------- -------
Interest expense 349 -
Interest paid (268) -
Amortisation of RCF arrangement fee (81) -
------------------------------------ ------- -------
Interest accrual at the year end - -
------------------------------------ ------- -------
In accordance with an agreed repayment schedule with the bank,
bank borrowings are repayable to Lloyds Bank plc as follows:
2022 2021
GBP000 GBP000
====================== ======= =======
Within one year 1,200 1,200
Between 1 and 2 years 1,200 1,200
Between 2 and 5 years 11,800 3,600
Over 5 years - 9,400
====================== ======= =======
14,200 15,400
---------------------- ------- -------
In order to address interest rate risk, the Group entered into
phased interest rate swaps in order to fully hedge the loan
resulting in a 10-year fixed effective interest rate of 3.5%. The
interest rates on the swaps range from 0.4% to 1.3% which when
combined with the margin on the loan economically fix the finance
cost at 3.5%.
The notional amount on the interest rate swaps reduces in line
with the repayment of the term loan, so an effective hedge remains
throughout the term of the loan. There are 4 active swaps in place
at 31 December 2022, totalling GBP14.2 million. Of this total,
GBP2.8 million will mature in September 2025 and the remaining
balance of GBP11.4 million will mature in September 2026. The fair
value of the swaps at 31 December 2022 was an asset of GBP1,417,000
(2021: GBP129,000).
15. Post balance sheet events
Since the year end the Group has completed the acquisition of TP
Group plc, which adds significant scale to the Group and provides a
strategic entry into the defence sector. The acquisition of TP
Group plc commenced with an initial holding of 10.2% on 9 August
2021. The Group increased its shareholding with further share
acquisitions across 2021 and 2022. In October 2022, the Group made
an offer to acquire the remaining shares in TP Group plc through a
court-approved Scheme of Arrangement. This became effective on 26
January 2023. Including the payment in January 2023 and excluding
advisory fees, the total cost of acquiring shares in TP Group plc
was GBP25.4 million.
The acquisition was progressive and occurred over 18 months and
judgement has been exercised in order to determine the following
key dates:
(i) the date at which TP Group plc became an associate of the
Group. This was determined by reference to the ability to exercise
significant influence over TP Group plc; and
(ii) the date at which the Group obtained control over TP Group
plc. This was determined by reference to the holding of voting
shares exceeding 50%.
The fair value of the assets and liabilities in relation to this
acquisition have not been presented as the work is ongoing to
perform the valuations, in particular:
(i) the factors that make up goodwill to be recognised;
(ii) the fair value of the equity interest immediately before
the acquisition date and any gain or loss recognised as a result of
remeasuring to fair value the equity interest held before the
acquisition; and
(iii) the fair values of the assets acquired and the liabilities
assumed.
16. Statement by the Directors
Whilst the information included in this preliminary announcement
has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
('IFRSs') as adopted by the UK in conformity with the requirements
of the Companies Act 2006, this announcement does not itself
contain sufficient information to comply with IFRSs. The accounting
policies adopted in this preliminary announcement are consistent
with the Annual Report for the year ended 31 December 2022.
The financial information set out above, which was approved by
the Board on 20 March 2023, is derived from the full Group accounts
for the year ended 31 December 2022 and does not constitute the
statutory accounts within the meaning of section 434 of the
Companies Act 2006. The Group accounts on which the auditors have
given an unqualified report, which does not contain a statement
under section 498(2) or (3) of the Companies Act 2006 in respect of
the accounts for 2022, will be delivered to the Registrar of
Companies in due course.
The Board of Science Group approved the release of this
preliminary announcement on 20 March 2023.
The Annual Report for the year ended 31 December 2022 will be
posted to shareholders in due course and will be delivered to the
Registrar of Companies following the Annual General Meeting of the
Company. The report will also be available on the investor
relations page of the Group's website. Further copies will be
available on request and free of charge from the Company
Secretary.
- Ends -
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March 21, 2023 03:00 ET (07:00 GMT)
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