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RNS Number : 5466O
Science Group PLC
11 October 2021
11 October 2021
Science Group plc
Trading and Business Update
Following the business update on 6 September 2021, Science Group
has continued to perform well. Despite component supply
constraints, FX headwinds relative to prior year and increasing
inflationary cost pressures, the Board anticipates further upside
in the Group's 2021 profitability forecasts. This third upgrade
during the current year reflects the strength of the Group, the
success of the Frontier acquisition and the balance of financial
discipline with investment for the future. It should also be noted
that the advisor costs associated with the recent corporate
activity have been expensed as incurred and are therefore absorbed
within this profit upgrade.
Following the successful Placing in September, and after the
strategic investment in TP Group plc, at 30 September 2021 Science
Group had gross cash of GBP34.7 million and net funds of GBP19.1
million. Furthermore, the Board is currently discussing a potential
new revolving credit facility of up to GBP25 million with the
Group's bank, incremental to the existing fixed term loan which
runs to 2026.
The Board continues to explore opportunities to deploy its
capital, in conjunction with the Group's management resources, to
enhance value to Science Group shareholders. These include both
add-on acquisitions to accelerate the growth of the Group's
existing operations and larger opportunities which would increase
the scale of the Group.
Services Operations
The Group's services divisions have continued to perform well.
The R&D Consultancy division continues to benefit from the
global investment in the Medical sector but other industry sectors
are now seeing increased activity in line with the economic
recovery and Advisory services are experiencing the traditional
increased activity as the year end approaches reflecting a
progressive return to normality. The reorganisation of the division
last year (integrating Advisory and Product Development services)
has been well received by key clients and this has generated new
service offerings. However, advanced-level technical and scientific
resources remain in strong demand and recruitment is a
priority.
The Regulatory & Compliance businesses are continuing to
make steady progress, benefitting from recent investments, although
TSG America has seen the anticipated slowing after the intensity of
approval submissions related to the pandemic. The new IT finance
system implemented in the TSG European business in 2020 has now
also been successfully deployed into the Leatherhead Food Research
business and a similar TSG America installation is progressing
satisfactorily. When completed, all three operations in this
division will be on the same core system. In parallel, the new
rules-engine system designed to support the growth in the North
American State registration renewals business has also now gone
live and should assist in the intensive year end processing
period.
Frontier Smart Technologies ("Frontier")
The Frontier acquisition in 2019 has been very successful,
delivering substantial value to Science Group shareholders whilst
enabling the Frontier business to realise its potential. Although
demand continues to exceed supply, the global component shortages
have been well managed by the Frontier team, despite lead times
progressively extending, with some components now requiring orders
for delivery into 2023. This is a tangible example of how Frontier
has significantly benefitted from the acquisition and refinancing
by Science Group, enabling a substantial improvement in supplier
relationships which have been essential in maintaining component
supplies during this challenging period. All cost increases have
been passed on through the distribution channel.
Following the post-acquisition turnaround and integration, the
Frontier strategy review initiated early in 2021 concluded that the
business has a positive future, building on Frontier's market
leading position in its defined markets and exploring new areas to
enhance growth. These investments are now being made, with all
costs being expensed. In addition, Frontier is in negotiations
regarding an add-on acquisition to support its future strategy and,
although there can be no certainty that the acquisition will
complete, this potential investment reinforces the benefits that
Frontier has gained as a division of Science Group.
Strategic Investment in TP Group plc ("TP Group")
Science Group initiated its investment in TP Group in August
2021 and now owns approximately 27% of the issued voting share
capital, making Science Group the largest shareholder in TP Group.
The total investment to date is approx. GBP12.5 million and the
average cost per share is approx. 5.9 pence. Science Group
recognises that additional capital investment may be required to
ensure that TP Group has a solid financial foundation. The Science
Group Board also anticipates that the market value of the
shareholding will be impacted by the lack of liquidity resulting
from the Group's stake, but considers the TP Group shareholding to
be a long-term, strategic investment for Science Group.
Prior to, and during, the building of its stake, Science Group
made a number of approaches to TP Group to try to discuss potential
corporate collaboration models, including both a strategic
investment and a possible offer for the company (at a significant
premium) subject to satisfactory due diligence and other
conditions. All these initiatives were rejected by TP Group without
discussion or engagement and the possible Science Group offer was
withdrawn on 3 September. Science Group therefore requisitioned a
general meeting of TP Group shareholders which was held on 1
October 2021. As a result, two TP Group directors resigned and the
appointments of two Science Group director nominees were approved
by TP Group shareholders.
The onboarding process for the new directors is now underway and
it is hoped that this will be completed shortly. It is anticipated
that the future strategy of TP Group will be reviewed by the new
Board once the Science Group director appointments are completed.
Science Group believes that the strategic investment in TP Group
offers an attractive opportunity for both organisations given the
considerable similarities between the business operations but
minimal overlap in client operating markets. Opportunities for
collaboration and cooperation to benefit both organisations should
be actively explored.
T he Science Group representation on the TP Group Board should
also improve financial management, increase focus on capital
allocation and ensure greater alignment between stakeholders. The
Science Group appointed directors will work with the TP Group
management teams to ensure that the company has adequate capital
resources and that such capital is invested in those business areas
that can realise ambitious growth opportunities for TP Group and
its employees, which in turn should ultimately produce an
attractive return for shareholders in both TP Group and Science
Group.
Summary
Science Group's resilient operating performance has delivered a
third upgrade to the Board's profitability expectations for the
current financial year. This outstanding performance is due to the
commitment and endeavours of the management and staff throughout
the Group's operating businesses. These dedicated teams share in
the Science Group success and can anticipate another year of
excellent profit share and bonus awards.
In parallel, the Science Group strategy of enhancing the organic
development of the Group's businesses through acquisitions and
strategic investments continues to make progress. The Group's
strategy will further benefit from the successful Placing in
September, which expanded the institutional shareholder base, and
the potential increase in credit facilities.
In summary, the Board anticipates that Science Group will close
out 2021 as another outstanding year and is now starting to plan
for 2022 and beyond.
End
Science Group plc
Tel: +44 (0) 1223 875
Martyn Ratcliffe, Chairman 200
Stifel Nicolaus Europe Limited (Nominated
Adviser and Joint Broker)
Tel: +44 (0) 20 7710
Nick Adams, Alex Price 7600
Liberum Capital Limited (Joint Broker)
Tel: +44 (0) 20 3100
Neil Patel, Cameron Duncan 2000
Note: This announcement contains inside information which is
disclosed in accordance with the Market Abuse Regulation (No
596/2014). The person responsible for this announcement is Martyn
Ratcliffe, Chairman .
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END
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