TIDMSAG
RNS Number : 5017V
Science Group PLC
24 July 2018
24 July 2018
SCIENCE GROUP PLC
("Science Group" or the "Group" or the "Company")
INTERIM RESULTS
FOR THE SIX MONTH PERIODED 30 JUNE 2018
Summary
H1-18m H1-17m
------------------------------------------- -------- --------
Group revenue GBP25.1m GBP18.0m
-------- --------
Adjusted operating profit * GBP3.7m GBP3.2m
-------- --------
Statutory operating profit GBP2.7m GBP2.5m
-------- --------
Statutory profit before tax GBP2.5m GBP2.3m
-------- --------
Adjusted basic earnings per share * 7.0p 6.1p
-------- --------
Statutory basic earnings per share 6.0p 5.1p
-------- --------
Net funds * GBP5.1m GBP12.1m
-------- --------
Net-funds-plus-freehold-property-per-share
* 66.8p 86.2p
-------- --------
Enquiries:
Science Group plc
Martyn Ratcliffe, Chairman Tel: +44 (0) 1223 875
200
Rebecca Archer, Finance Director www.sciencegroup.com
Panmure Gordon (UK) Limited
Dominic Morley / Alina Vaskina (Corporate Tel: +44 (0) 20 7886
Finance) 2500
Erik Anderson (Corporate Broking)
* 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.
Note: This announcement contains inside information which is
disclosed in accordance with the Market Abuse Regulations.
Interim Results 2018
Science Group plc (the 'Company') together with its subsidiaries
('Science Group' or the 'Group') is an international consultancy
providing applied science, product development, technology advisory
and regulatory services to a client base in medical, commercial and
food & beverage markets.
The first half of 2018 has seen continued solid financial
performance and good progress on the integration of Technology
Sciences Group ('TSG'), acquired in September 2017. Benefitting
from the acquisition, the Group reports record revenues, converting
into strong adjusted operating profit growth and an adjusted
earnings per share increase of 15%. The balance sheet of the Group
remains very strong with significant cash resources and freehold
property assets.
Group Financial Performance
For the six months ended 30 June 2018, the Group generated
adjusted operating profit of GBP3.7 million (H1 2017: GBP3.2
million) in line with the Board's expectations, on revenue of
GBP25.1 million (H1 2017: GBP18.0 million). Adjusted earnings per
share increased to 7.0 pence (H1 2017: 6.1 pence).
Profit before tax was GBP2.5 million (H1 2017: GBP2.3 million).
Profit after tax of GBP2.4 million (H1 2017: GBP2.0 million)
includes a corporation tax charge of GBP0.1 million (H1 2017:
GBP0.3 million) which benefitted from a tax credit of GBP0.2m
relating to share options exercised in the period. Basic earnings
per share was 6.0 pence (H1 2017: 5.1 pence) and diluted earnings
per share in H1 2018 was 5.8 pence (H1 2017: 5.0 pence). At 30 June
2018, the Company had 40.0 million shares in issue (excluding
treasury shares) compared to 39.4 million at 30 June 2017.
Approximately 85% (H1 2017: 80%) of the Group's Core Business
revenue is derived from international markets, with 32% being
denominated in US Dollars (H1 2017: 32%) and 26% in Euros (H1 2017:
9%). The remaining international clients, primarily in Europe, are
invoiced in Sterling. The average US Dollar exchange rate in the
period was 1.38 (H1 2017: 1.26 and H2 2017: 1.32) and the average
Euro exchange rate in the period was 1.14 (H1 2017: 1.17 and H2
2017: 1.12). As a result, the net effect of currency movements
during the period on Core Business revenue and adjusted operating
profit, relative to the prior year on a like for like basis, was a
negative GBP0.3 million.
The Group retains a robust balance sheet with Gross Cash at 30
June 2018 of GBP18.5 million (30 June 2017: GBP26.3 million) and
Net Funds of GBP5.1 million (30 June 2017: GBP12.1 million). In
aggregate, Net Funds plus Freehold Property total GBP26.7 million
(30 June 2017: GBP33.9 million) equivalent to 66.8 pence per share
(30 June 2017: 86.2 pence per share), based on the balance sheet
(cost-based) value of the freehold property, which is at the bottom
end of the range of independent market valuations (as at March
2018).
Business Sector Review
The Applied Science and Product Development activities,
accounting for 48% of Core Business revenue, reported growth on
both a year-on-year and sequential period basis. The Medical sector
delivered a strong performance in the period while the Commercial
sector declined compared to the prior year, due to completion of
some larger projects, sustaining revenue in line with the second
half of 2017.
Following the acquisition of TSG, the Group's Regulatory
Services now account for 37% of Core Business revenue. Taking into
account the acquisition integration impact, both TSG America and
TSG Europe delivered performance in line with expectations, while
the Leatherhead Food & Beverage Regulatory Services continued
to make good progress.
The Technology Advisory Services, accounting for 14% of Core
Business revenue, reported a flat performance. The sector structure
within Technology Advisory increasingly aligns with other parts of
the Group. Similar to the Applied Science and Product Development
business models, the Advisory model mitigates volatility within any
vertical market through a talented, scalable team of international
scientific consultants who can operate across a diversity of
industries.
Strategic and Corporate Developments
Following the TSG acquisition, the initial priority was to
improve the financial and business processes in TSG America. This
programme has also included a market segmentation initiative to
improve profitability and reduce credit risk within the North
American business. Good progress has been made during the first
half of 2018.
In parallel, standardised policies and processes were also
introduced into TSG Europe. However, during the first half of 2018,
and coinciding with the appointment of a Head of the TSG European
business, it became apparent that the strategy needed to be
reviewed to focus on the larger European geographies which offer
greater potential. As a result, in June, a new subsidiary in France
was launched and a team recruited to service this strategic market
where TSG had previously had minimal presence. In contrast, it
became apparent that the small operations across Central/Eastern
Europe, with an average of 2 consultants in each country, were
absorbing a disproportionate amount of management and support
resource relative to their profit contribution and future market
potential. As a result, it was decided to close these sub-scale
subsidiaries/branches and to appoint associate organisations, as
deployed in other territories, to support multi-national clients in
a more efficient business model.
With regard to the wider Science Group, where each business unit
provides science-based services into client market sectors, the
operating brands align with either a service (e.g. Sagentia with
product development) or a market (e.g. Leatherhead Food Research
with the food & beverage industry). Over time, the boundaries
of these business units are increasingly blurred which enables the
wider marketing of the Group's breadth of services to our clients.
To that end, the Group adopts a flexible resource model with
alignment of incentive programmes to encourage collaboration and
mobility between businesses. This approach also enables investment
in areas of higher potential. During the first half of 2018, this
evolutionary process continued, particularly within the Food &
Beverage market and the Group organisation will continue to evolve
along this path over the next 6-12 months.
The Board is also exploring the merits of separating the Harston
Mill building from the Sagentia operations. This is a legacy
structure which was tax efficient but now limits the benefits that
could be derived from the Group's freehold asset base and the
separation of trading and property activities. However, any change
in the ownership of Harston Mill, even within the Group, would
result in a tax cash outflow in the range of GBP1.8 million to
GBP2.1 million. The Group already carries a liability of GBP1.7
million on the balance sheet and it may be feasible to offset a
proportion of the tax impact over a period of time through use of
tax losses in the company previously used for the Group's legacy
investments.
Summary
In summary, the Group financial performance in the first half of
2018 has been in line with the Board's expectations. The Group's
balance sheet remains very strong including significant cash
resources. The long term debt is secured against the Group's
freehold property.
The integration of TSG is progressing satisfactorily, with
improvements in financial controls and operating processes already
translating into improved profitability. The strategy evolution of
the North American business has been based around market
segmentation while the European strategy developments have
refocused the business on the major European markets whilst
maintaining the wide geographical coverage to service TSG
clients.
The Group strategy is continually evolving which is essential in
a leading science & technology business. The combination of
outstanding science, engineering, regulatory and advisory
resources, providing leading edge technology services into vertical
market sectors led by managers with deep industry knowledge and
experience, provides a differentiated business model. Combining
that outstanding capability with disciplined financial and
commercial management, is the enabler for delivering shareholder
value.
Consolidated Income Statement
For the period ended 30 June 2018
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
Notes GBP000 GBP000 GBP000
------------ ------------- ------------
Revenue 4 25,135 18,020 40,823
Operating expenses before
adjusting items (21,427) (14,783) (33,917)
Adjusted operating profit 4 3,708 3,237 6,906
------------ ------------- ------------
Amortisation and impairment
of intangible assets (1,003) (557) (1,410)
Acquisition integration costs (282) - (812)
Release of contingent consideration 8 519 - -
Share based payment charge (232) (132) (312)
Operating profit 4 2,710 2,548 4,372
Finance income 1 - 3
Finance costs (221) (245) (496)
Profit before income tax 2,490 2,303 3,879
Income tax charge (including
R&D tax credit of GBP154,000
(H1-17 GBP155,000)) 6 (116) (306) (861)
------------ ------------- ------------
Profit for the period 4 2,374 1,997 3,018
------------ ------------- ------------
Profit for the period attributable
to equity holders of the
parent 2,374 1,997 3,018
Earnings per share
Earnings per share from continuing
operations (basic) 7 6.0p 5.1p 7.7p
Earnings per share from continuing
operations (diluted) 7 5.8p 5.0p 7.5p
Adjusted earnings per share
from continuing operations
(basic) 7 7.0p 6.1p 12.8p
Adjusted earnings per share
from continuing operations
(diluted) 7 6.8p 6.0p 12.5p
------------ ------------- ------------
Consolidated Statement of Comprehensive Income
For the period ended 30 June 2018
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------ ------------ ------------
Profit for the period 2,374 1,997 3,018
Other comprehensive income
Items that will or may be reclassified
to profit or loss:
Fair value gain on interest
rate swap, net of tax 132 70 30
Exchange differences on translating
foreign operations (30) 3 (28)
Deferred tax on interest rate
swap (25) - (5)
Deferred tax on interest rate
swap - prior period adjustment - - (38)
Other comprehensive(expense)/
income for the period 77 73 (41)
------------ ------------ ------------
Total comprehensive income
for the period 2,451 2,070 2,977
------------ ------------ ------------
Total comprehensive income
for the period attributable
to owners of the parent 2,451 2,070 2,977
------------ ------------ ------------
Consolidated Statement of Changes in Shareholders' Equity
For the period ended 30 June 2018
Group Issued Share Treasury Merger Translation Share based Retained Total
capital premium Stock reserve reserve payment earnings -
reserve Shareholders
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 funds
GBP000
---------------------- -------- -------- -------- -------- ----------- ----------- ---------
Balance at 1 January
2017 421 8,230 (3,608) 10,343 338 2,351 17,928 36,003
Issue of shares
out of treasury
stock - - 34 - - - (20) 14
Dividends - - - - - - (1,653) (1,653)
Share based payment
charge - - - - - 132 - 132
Deferred tax on
share based payment
transactions - - - - - - 145 145
---------------------- -------- -------- -------- -------- ----------- ----------- --------- -------------
Transactions with
owners - - 34 - - 132 (1,528) (1,362)
---------------------- -------- -------- -------- -------- ----------- ----------- ---------
Profit for the
period - - - - - - 1,997 1,997
Other comprehensive
income:
Fair value gain
on interest rate
swap - - - - - - 70 70
Exchange differences
on translating
foreign operations - - - - 3 - - 3
-------- -------- -------- -------- ----------- ----------- --------- -------------
Total comprehensive
income for the
period - - - - 3 - 2,067 2,070
---------------------- -------- -------- -------- -------- ----------- ----------- --------- -------------
Balance at 30 June
2017 421 8,230 (3,574) 10,343 341 2,483 18,467 36,711
---------------------- -------- -------- -------- -------- ----------- ----------- ---------
Balance at 1 July
2017 421 8,230 (3,574) 10,343 341 2,483 18,467 36,711
Purchase of own - - - - - - - -
shares
Issue of shares
out of treasury
stock - - 5 - - - (4) 1
Share based payment
charge - - - - - 180 - 180
Deferred tax on
share based payment
transactions - - - - - - (60) (60)
------------------------ --- ----- ------- ------ ---- ----- ------ ------
Transactions with
owners - - 5 - - 180 (64) 121
------------------------ --- ----- ------- ------ ---- ----- ------
Profit for the
period - - - - - - 1,021 1,021
Other comprehensive
income:
Fair value gain
on interest rate
swap - - - - - - (40) (40)
Exchange differences
on translating
foreign operations - - - - (31) - - (31)
Deferred tax on
interest rate swap - - - - - - (43) (43)
Total comprehensive
income for the
period - - - - (31) - 938 907
------------------------ --- ----- ------- ------ ---- ----- ------
Balance at 31 December
2017 421 8,230 (3,569) 10,343 310 2,663 19,341 37,739
------------------------ --- ----- ------- ------ ---- ----- ------
Balance at 1 January
2018 421 8,230 (3,569) 10,343 310 2,663 19,341 37,739
Purchase of own
shares - - (180) - - - - (180)
Issue of shares
out of treasury
stock - - 954 - - - (840) 114
Dividends paid - - - - - - (1,760) (1,760)
Share based payment
charge - - - - - 232 - 232
Deferred tax on
share based payment
transactions - - - - - - (112) (112)
---------------------- --- ----- ------- ------ ---- ----- ------- -------
Transactions with
owners - - 774 - - 232 (2,712) (1,706)
---------------------- --- ----- ------- ------ ---- ----- -------
Profit for the
period - - - - - - 2,374 2,374
Other comprehensive
income:
Fair value gain
on interest rate
swap - - - - - - 132 132
Exchange differences
on translating
foreign operations - - - - (30) - - (30)
Deferred tax on
interest rate swap - - - - - - (25) (25)
---------------------- --- ----- ------- ------ ---- ----- ------- -------
Total comprehensive
income for the
period - - - - (30) - 2,481 2,451
---------------------- --- ----- ------- ------ ---- ----- ------- -------
Balance at 30 June
2018 421 8,230 (2,795) 10,343 280 2,895 19,110 38,484
---------------------- --- ----- ------- ------ ---- ----- -------
Consolidated Balance Sheet
At 30 June 2018
At 31
At 30 June At 30 June December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
(Restated)
------------- ------------- -----------
Assets
Non-current assets
Acquisition related intangible
assets 8,496 4,626 9,499
Goodwill 11,535 4,033 11,535
Property, plant and equipment 23,438 23,556 23,787
Investments 50 50 50
Derivative financial assets 359 267 227
Deferred tax assets 160 333 104
44,038 32,865 45,202
------------- ------------- -----------
Current assets
Trade and other receivables 8,912 5,716 9,381
Current tax asset 20 21 -
Cash and cash equivalents -
Client registration funds 1,241 - 887
Cash and cash equivalents -
Group Cash 18,522 26,284 19,893
------------- ------------- -----------
28,695 32,021 30,161
------------- ------------- -----------
Total assets 72,733 64,886 75,363
------------- ------------- -----------
Liabilities
Current liabilities
Trade and other payables 15,798 11,859 18,208
Current tax liabilities 521 - 554
Provisions 1,136 - 825
Borrowings 1,250 1,000 1,250
------------- ------------- -----------
18,705 12,859 20,837
------------- ------------- -----------
Non-current liabilities
Provisions 339 - 466
Borrowings 12,182 13,169 12,676
Contingent consideration - - 519
Deferred tax liabilities 3,023 2,147 3,126
------------- ------------- -----------
15,544 15,316 16,787
------------- ------------- -----------
Total liabilities 34,249 28,175 37,624
------------- ------------- -----------
Net assets 38,484 36,711 37,739
------------- ------------- -----------
Shareholders' equity
Share capital 421 421 421
Share premium 8,230 8,230 8,230
Treasury stock (2,795) (3,574) (3,569)
Merger reserve 10,343 10,343 10,343
Translation reserves 280 341 310
Share based payment reserve 2,895 2,483 2,663
Retained earnings 19,110 18,467 19,341
------------- ------------- -----------
Total equity 38,484 36,711 37,739
------------- ------------- -----------
Restatement: It was identified that at 31 Dec 2017, a balance of
GBP1.2m was incorrectly disclosed gross within Amounts recoverable
on contracts and Payments received on account (disclosed within
Trade and other receivables and Trade and other payables
respectively) whereas there was a right of offset and hence should
have been disclosed on a net basis. An adjustment as at 31 Dec 2017
has been recognised to reduce both these balances by GBP1.2m. This
adjustment has not affected net assets.
Consolidated Statement of Cash Flows
For the period ended 30 June 2018
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017 (Audited)
(Unaudited) (Unaudited) GBP000
GBP000 GBP000
------------ ------------- ------------
Operating profit 2,710 2,548 4,372
Adjustments for:
Amortisation on acquisition related
intangible assets 1,003 557 1,410
Depreciation on property, plant
and equipment 396 358 728
Release of contingent consideration (519) - -
Movement in provisions 334 - -
Settlement of onerous lease provision (150) - -
Share based payment charge 232 132 312
Decrease in receivables 225 2,508 1,406
Increase in payables representing
client registration funds 354 - 887
Decrease in payables excluding
balances representing client
registration funds (2,526) (3,329) (469)
------------ ------------- ------------
Cash generated from operations 2,059 2,774 8,646
Finance costs (221) (245) (386)
UK corporation tax (paid) / received (466) 41 (91)
Foreign corporation tax received - - 19
------------ ------------- ------------
Cash flows from operating activities 1,372 2,570 8,188
------------ ------------- ------------
Interest received 1 - 3
Purchase of property, plant and
equipment (43) (121) (471)
Purchase of subsidiary undertakings,
net of cash received - - (10,435)
Cash flow used in investing
activities (42) (121) (10,903)
Issue of shares out of treasury 114 14 15
Repurchase of own shares (180) - -
Dividends paid (1,760) (1,653) (1,653)
Repayment of bank loans (500) (500) (750)
Cash flows used in financing
activities (2,326) (2,139) (2,388)
------------ ------------- ------------
Increase in cash and cash equivalents
in the period (996) 310 (5,103)
Cash and cash equivalents at
the beginning of the period 20,780 25,996 25,996
Exchange (losses) / gains on
cash (21) (22) (113)
Cash and cash equivalents at
the end of the period 19,763 26,284 20,780
------------ ------------- ------------
Cash and cash equivalents is analysed as follows:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2017
2018 2017 (Audited)
(Unaudited) (Unaudited) GBP000
GBP000 GBP000
----------------------------------- ------------ ------------ ------------
Cash and cash equivalents - Client
registration funds 1,241 - 887
Cash and cash equivalents - Group
cash 18,522 26,284 19,893
----------------------------------- ------------ ------------ ------------
19,763 26,284 20,780
----------------------------------- ------------ ------------ ------------
Extracts from notes to the financial statements
1. General information
The financial information for the 6 months ended 30 June 2018
set out in this interim report is unaudited and does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006. The financial information included has been extracted from
the 2017 Financial Statements of Science Group plc. The Group's
statutory financial statements for the year ended 31 December 2017
have been filed with the Registrar of Companies. The auditor's
report on those financial statements was unqualified and did not
contain a statement under Section 498(2) or Section 498(3) of the
Companies Act 2006.
These un-audited interim results have been approved for issue by
the Board of Directors on 23 July 2018.
The group and company financial statements of Science Group plc
for the year ended 31 December 2017 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 consultancy
providing applied science, product development, technology advisory
and regulatory services to a client base in medical, food &
beverage and commercial markets.
The Company is the ultimate parent company in which results of
all the Science Group companies are consolidated.
The Company is incorporated in England and Wales and has its
primary listing on the AIM Market of the London Stock Exchange
(SAG).
Alternative performance measures
The Group uses alternative (non-Generally Accepted Accounting
Practice ('non-GAAP')) performance measures of 'adjusted operating
profit', 'adjusted earnings per share', 'net funds' and
'net-funds-plus-freehold-property-per-share in issue' which are not
defined within the International Financial Reporting Standards
('IFRS'). These are explained in the 2017 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 GBP000 unless otherwise At 31 December
stated At 30 June At 30 June 2017
2018 2017
--------------------------- ------------ ------------ --------------
Cash and cash equivalents
- Group cash 18,522 26,284 19,893
Borrowings (13,432) (14,169) (13,926)
--------------------------- ------------ ------------ --------------
Net funds 5,090 12,115 5,967
--------------------------- ------------ ------------ --------------
(d) Net-funds-plus-freehold-property-per-share in issue
The Group calculates this measure as follows:
In GBP000 unless otherwise At 31 December
stated At 30 June At 30 June 2017
2018 2017
------------------------------------------- ------------ ------------ --------------
Net funds 5,090 12,115 5,967
Freehold land and buildings 21,639 21,799 21,719
------------------------------------------- ------------ ------------ --------------
Net funds plus freehold property 26,729 33,914 27,686
Number of shares in issue
(excluding treasury shares)
('000 shares) 40,015 39,363 39,367
------------------------------------------- ------------ ------------ --------------
Net-funds-plus-freehold-property-per-share
in issue (pence) 66.8 86.2 70.3
------------------------------------------- ------------ ------------ --------------
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 2017
except as described below in Note 2.2. These policies have been
consistently applied to all the periods presented except where
detailed below.
2.1 Basis of preparation
These interim consolidated financial statements are for the six
months ended 30 June 2018. 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.
2.2 Changes in accounting policies
This is the first set of the Group's financial statements where
IFRS 15 and IFRS 9 have been applied. The Group has adopted IFRS 15
Revenue from Contracts with Customers and IFRS 9 Financial
Instruments from 1 January 2018. A number of other new standards
are effective from 1 January 2018 but they do not have a material
effect on the Group's financial statements.
Impact on transition
The effect of initially applying these two standards with
regards to recognition and measurement is an immaterial impact on
the results of the Group and hence no restatement has been made.
The basis of this conclusion for each of the accounting standard
changes is as follows:
IFRS 15 Revenue from Contracts with Customers
The key principle that was considered on transition of this
accounting standard was whether revenue is recognised at a point in
time or over a period of time as the services are performed. It was
concluded that revenue is recognised under IFRS 15 as the time is
worked at the fee rate specified within the contract; the majority
of projects are performed on a time and materials basis under which
i) all work performed is fully transferable to the client at any
point during the project and ii) the Company has the right to
receive payment for its services performed up to any given point in
time.
IFRS 9 Financial Instruments
At the reporting date, the only complex financial instruments
that the Group holds are interest rate swaps for which hedge
accounting applies. There is no effect on these financial
instruments on the transition to the new accounting standard with
it continuing to be measured at Fair Value Through Comprehensive
Income and hence no restatement is required.
The application of the IFRS 9 'expected credit loss' model does
not have a material impact on the level of impairment of
receivables.
The updated accounting policies have been provided below and the
disclosures have been provided in line with the requirements of
IFRS 15 Revenue from Contracts with Customers and IAS 34 Interim
Financial Reporting.
The group has applied IFRS 15 and IFRS 9 from 1 January 2018 and
has elected to not restate comparative information. The Group has
adopted the cumulative effect method at the point of initial
application of these standards (i.e. 1 January 2018) and there is
no material impact on brought forward retained earnings. As a
result, the comparative information provided continues to be
accounted for in accordance with the group's previous accounting
policy as disclosed in the financial statements for the year ended
31 December 2017.
The accounting policies that reflect the new accounting
standards for IFRS 15 and IFRS 9 are effective from 1 January 2018
and are as follows:
Revenue recognition
The Core Business segment provides consultancy services to
clients across the medical, commercial and food & beverage
markets. Revenue from providing services is recognised in the
accounting period in which the services are rendered. The majority
of projects are priced on a time and materials basis and the
revenue for these projects is recognised based on the actual labour
hours spent at the contractual fee rates.
For the few fixed-price project contracts, revenue is recognised
based on the proportion of deliverables provided to the client with
an adjustment if the project is forecast to overrun.
Subscription income for membership services provided over an
annual contractual period is recognised in the income statement on
a straight-line basis over the period of the contract.
The Non-Core Business segment includes all revenue generated
from a property owned by the Group and this is recognised in the
related period on a straight-line basis over the lease term. All
lease contractual notice periods are shorter than 12 months.
Revenue is measured and recognised using the contractual fee
rates of the project. Estimates of revenues or extent of progress
toward completion are revised if circumstances change. Any
resulting increases or decreases in estimated revenues are
reflected in profit or loss in the period in which the
circumstances that give rise to the revision become known by
management.
In the case of both time and material and fixed-price contracts,
the customer pays for the value of services provided based on an
invoicing and payment schedule. If the services rendered by the
Group at the reporting date exceed the payments received to date, a
contract asset is recognised (within trade receivables if the sales
invoice has been raised or amounts recoverable on contracts if the
services rendered have not been invoiced). If the payments exceed
the services rendered, a contract liability is recognised.
In the majority of cases, customers are invoiced on a monthly
basis however this varies when appropriate to take into account
credit limits, payment terms and operational efficiencies.
Consideration is payable when invoiced based on contractual payment
terms.
Financial instruments
(a) Classification
From 1 January 2018, the Group classifies its financial assets
in the following measurement categories:
(i) those to be measured subsequently at fair value (either
through other comprehensive income, or through profit or loss),
and
(ii) those to be measured at amortised cost.
The classification depends on the Group's business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses will either
be recorded in profit or loss or other comprehensive income. For
investments in debt instruments, this will depend on the business
model in which the investment is held. For investments in equity
instruments that are not held for trading, this will depend on
whether the group has made an irrevocable election at the time of
initial recognition to account for the equity investment at fair
value through other comprehensive income.
(b) Measurement
At initial recognition, the group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or
loss are expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the
group's business model for managing the asset and the cash flow
characteristics of the asset. There are three measurement
categories into which the group classifies its debt
instruments:
(i) Amortised cost: Assets that are held for collection of
contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost.
A gain or loss on a debt investment that is subsequently measured
at amortised cost and is not part of a hedging relationship is
recognised in profit or loss when the asset is derecognised or
impaired.
(ii) Fair value through other comprehensive income (FVOCI):
Assets that are held for collection of contractual cash flows and
for selling the financial assets, where the assets' cash flows
represent solely payments of principal and interest, are measured
at FVOCI. Movements in the carrying amount are taken through OCI,
except for the recognition of impairment gains or losses and
interest revenue which are recognised in profit or loss. When the
financial asset is derecognised, the cumulative gain or loss
previously recognised in OCI is reclassified from equity to profit
or loss and recognised in other gains/(losses). Interest income
from these financial assets is included in finance income using the
effective interest rate method.
(iii) Fair value through profit or loss: Assets that do not meet
the criteria for amortised cost or FVOCI are measured at fair value
through profit or loss. A gain or loss on a debt investment that is
subsequently measured at fair value through profit or loss and is
not part of a hedging relationship is recognised in profit or loss
and presented net in the statement of profit or loss within other
gains/(losses) in the period in which it arises.
Equity instruments
The group subsequently measures all equity investments at fair
value. Where the group's management has elected to present fair
value gains and losses on equity investments in other comprehensive
income, there is no subsequent reclassification of fair value gains
and losses to profit or loss following the derecognition of the
investment. Dividends from such investments continue to be
recognised in profit or loss as other income when the group's right
to receive payments is established.
Changes in the fair value of financial assets at fair value
through profit or loss are recognised in other gain/(losses) in the
statement of profit or loss as applicable. Impairment losses (and
reversal of impairment losses) on equity investments measured at
FVOCI are not reported separately from other changes in fair
value
(c) Impairment
The group assesses on a forward looking basis the expected
credit losses associated with its debt instruments carried at
amortised cost and FVOCI. The impairment methodology applied
depends on whether there has been a significant increase in credit
risk. For trade receivables, the group applies the simplified
approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the
receivables.
2.3 Standards issued not yet effective
The Group has the following update to information provided in
the last annual financial statements about the standards issued but
not yet effective that may have a significant impact on the Group's
consolidated financial statements.
IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17
Leases, and the standard is effective for annual periods beginning
on or after 1 January 2019.
IFRS 16 introduces a single, on-balance sheet lease accounting
model for lessees. A lessee recognises a right-of-use asset
representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments.
The Group has completed an initial assessment of the potential
impact on its consolidated financial statements but has not yet
completed its detailed assessment. The actual impact of applying
IFRS 16 will depend on future economic conditions, including the
composition of the Group's lease portfolio at that date, the
Group's latest assessment of whether it will exercise any lease
renewal options and the extent to which the Group chooses to use
practical expedients and recognition exemptions.
Thus far, the most significant impact identified is that the
Group will recognise new assets and liabilities for its operating
leases of offices spaces. As at 30 June 2018, only some of the
Group's property leases meet the criteria to be accounted for under
IFRS 16 due to the contractual terms and materiality of the
tenancies. For these leases, the Group's future minimum lease
payments under non-cancellable operating leases amounted to GBP2.8
million on an undiscounted basis.
In addition, the nature of expenses related to those leases will
now change because IFRS 16 replaces the straight-line operating
lease expense with a depreciation charge for right-of-use assets
and interest expense on lease liabilities.
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
Science Group is organised on a worldwide basis into two
segments, Core Business and Non-Core Business. 'Core Business'
services revenue includes all consultancy fees for services
operations. 'Core Business' other revenue includes recharged
materials and expenses and product/licence revenue generated
directly from all 'Core Business' activities. 'Non-Core Business'
activities include rental income from Harston Mill and income from
the provision of external IT services. The segmental analysis is
reviewed to operating profit. Other resources are shared across the
Group.
Period ended 30 June 2018 Core Non-Core
(Unaudited) Business Business Total
GBP000 GBP000 GBP000
--------- --------- -------
Services revenue 23,918 2 23,920
Third party property income - 515 515
Other 700 - 700
Revenue 24,618 517 25,135
--------- --------- -------
Adjusted operating profit 3,643 65 3,708
--------- --------- -------
Amortisation and impairment of intangible
assets (1,003) - (1,003)
Release of contingent consideration 519 - 519
Acquisition and integration costs (282) - (282)
Share based payment charge (232) - (232)
Operating profit 2,645 65 2,710
--------- --------- -------
Finance charges (net) (220)
--------- --------- -------
Profit before income tax 2,490
--------- --------- -------
Income tax charge (116)
--------- --------- -------
Profit for the period 2,374
--------- --------- -------
Period ended 30 June 2017 Core Non-Core
(Unaudited) Business Business Total
GBP000 GBP000 GBP000
--------- --------- -------
Services revenue 16,801 18 16,819
Third party property income - 544 544
Other 657 - 657
Revenue 17,458 562 18,020
--------- --------- -------
Adjusted operating profit 3,132 105 3,237
--------- --------- -------
Amortisation and impairment of intangible
assets (557) - (557)
Share based payment charge (132) - (132)
Operating profit 2,443 105 2,548
--------- --------- -------
Finance charges (net) (245)
--------- --------- -------
Profit before income tax 2,303
--------- --------- -------
Income tax charge (306)
--------- --------- -------
Profit for the period 1,997
--------- --------- -------
Year ended 31 December 2017 Core
(Audited) Non-Core
Business Business Total
GBP000 GBP000 GBP000
--------- --------- -------
Services revenue 38,365 39 38,404
Third party property income - 1,080 1,080
Other 1,339 - 1,339
Revenue 39,704 1,119 40,823
--------- --------- -------
Adjusted operating profit 6,709 197 6,906
--------- --------- -------
Amortisation and impairment of intangible
assets (1,410) - (1,410)
Acquisition integration costs
Acquisition integration costs (812) - (812)
Share based payment charge (312) - (312)
Operating profit 4,175 197 4,372
--------- --------- -------
Finance charges (net) (493)
--------- --------- -------
Profit before income tax 3,879
--------- --------- -------
Income tax charge (861)
--------- --------- -------
Profit for the period 3,018
--------- --------- -------
5. Revenue
The Group's operations and main revenue streams are those
described in the last annual financial statements and Note 4. 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.
The table includes Core Business Revenue; all Non-Core Business
Revenue is generated in the UK and denominated in GBP.
For the 6 months ended
June
(Unaudited)
USD EUR GBP Other Total
Currency GBP000 GBP000 GBP000 GBP000 GBP000
------------- ------- ------- ------- -------
2018 7,888 6,405 10,295 30 24,618
2017 5,559 1,625 10,274 - 17,458
Europe
(excl
North America UK) UK Other Total
Geographical market GBP000 GBP000 GBP000 GBP000 GBP000
------------- ------- ------- ------- -------
2018 8,989 10,462 3,671 1,496 24,618
2017 7,316 6,033 3,511 598 17,458
------------- ------- ------- ------- -------
6. Income tax
The income tax charge for the period ended 30 June 2018 is
charged at the effective tax rate calculated for the period using
reasonable estimates and incorporating both current and deferred
taxation:
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------- ------------- ------------
Profit before tax 2,490 2,303 3,879
------------- ------------- ------------
Current taxation (590) (630) (1,281)
Current taxation - adjustment
in respect of prior years 24 - (34)
Deferred taxation 296 169 196
Deferred taxation - adjustment
in respect of prior years - - (50)
R&D tax credit 154 155 308
------------- ------------- ------------
Tax charge (116) (306) (861)
------------- ------------- ------------
Effective tax rate 4.7% 13.3% 22.2%
------------- ------------- ------------
The Group claims Research and Development tax credits under both
the R&D Expenditure Credit scheme and the Small or Medium-sized
scheme. The R&D tax credit of GBP154,000 (H1 2017: GBP155,000)
was recognised on an accruals basis for the period to which the
R&D tax credit relates and based on a reasonable estimate of
the amounts involved.
7. Earnings per share
The calculation of earnings per share is based on the following
results and number of shares:
Six months Six months Year ended
ended ended 31 December
2017
30 June 2018 30 June 2017 (Audited)
(Unaudited) (Unaudited) GBP000
GBP000 GBP000
------------- ------------- ------------
Profit for the financial
period 2,374 1,997 3,018
------------- ------------- ------------
Weighted average number of Number
shares:
For basic earnings per share 39,750,141 39,344,121 39,316,141
For fully diluted earnings
per share 40,793,940 40,327,332 40,273,725
------------- ------------- ------------
Earnings per share: Pence Pence Pence
Basic earnings per share 6.0 5.1 7.7
Fully diluted earnings per
share 5.8 5.0 7.5
------------- ------------- ------------
The calculation of adjusted earnings per share is as
follows:
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------- ------------- ------------
Adjusted* profit after tax
for the period 2,790 2,415 5,032
------------- ------------- ------------
Weighted average number of Number Number Number
shares:
For basic earnings per share 39,750,141 39,344,121 39,316,141
For fully diluted earnings
per share 40,793,940 40,327,332 40,273,725
------------- ------------- ------------
Adjusted earnings per share: Pence Pence Pence
Basic earnings per share 7.0 6.1 12.8
Fully diluted earnings per
share 6.8 6.0 12.5
------------- ------------- ------------
*Calculation of adjusted profit after tax:
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
----------------------------- ------------- ------------- ------------
Adjusted operating profit 3,708 3,237 6,906
Finance income 1 - 3
Finance costs (221) (245) (496)
----------------------------- ------------- ------------- ------------
Adjusted profit before tax 3,488 2,992 6,413
Tax charge at approx blended
average tax rate of 20.0%
(H1-17: 19.3%) (698) (577) (1,381)
----------------------------- ------------- ------------- ------------
Adjusted profit after tax 2,790 2,415 5,032
----------------------------- ------------- ------------- ------------
8. Contingent consideration
A contingent consideration of GBP0.5 million was recognised on
acquisition of TSG in September 2017. During the 6 months ended 30
June 2018, the certain agreed conditions on the vendor ceased to be
met and the contingent consideration was no longer payable. The
contingent consideration was released to the Consolidated Income
Statement during the period and is separately disclosed as an
adjusting item.
9. Provisions
Onerous Dilapid- Restruct-uring Other Total
lease ations GBP000 GBP000 GBP000
GBP000 GBP000
-------------------------------- ------- -------- -------------- ------- -------
At 1 January 2017 and - - - - -
1 July 2017
Provisions held by acquired
companies at date of
acquisition 495 183 - 615 1,293
Increase in provision - 16 - - 16
Gain on foreign currency
fluctuations - - - (18) (18)
-------------------------------- ------- -------- -------------- ------- -------
At 31 December 2017 495 199 - 597 1,291
Increase in provision - 157 199 379 735
Utilisation of provision (150) - - - (150)
Release of provision
not required due to settlement
of contract (95) (34) - (281) (410)
Loss/(Gain) on foreign
currency fluctuations 6 (3) - 6 9
-------------------------------- ------- -------- -------------- ------- -------
At 30 June 2018 256 319 199 701 1,475
-------------------------------- ------- -------- -------------- ------- -------
At 30 June At 30 June At 31 December
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------ ------------ ------------ --------------
Current liabilities 1,136 - 825
Non-current liabilities 339 - 466
------------------------ ------------ ------------ --------------
1,475 - 1,291
------------------------ ------------ ------------ --------------
The restructuring provision relates to the costs associated with
the closure of the Central/Eastern Europe offices and is
anticipated to be utilised during the next two years.
Other provisions represents the best estimate of the future
economic outflow of settling potential litigation claims and
associated costs such as legal fees. In all cases, the claims are
being investigated by our lawyers and are being robustly contested
as to both liability and quantum. These claims are expected to be
resolved within one year of the reporting date and are therefore
shown within current liabilities however, it is possible that these
claims may take longer to resolve. The claim may be settled at
amounts higher or lower than that provided depending on the outcome
of commercial or legal arguments.
The provision recognised at the date of acquisition of TSG has
been re-measured based on new information obtained about facts and
circumstances subsequent to the acquisition date that existed as of
the acquisition date. The provision made is management's best
estimate of the Group's liability based on past experience,
commercial judgement and legal advice. The re-measurement has not
resulted in a material change to the total provision and hence
there has been no restatement of the acquisition accounting however
a reallocation of goodwill has been performed with the goodwill
allocated to TSG Europe increasing by GBP210,000 and the goodwill
allocated to TSG America decreasing by the same amount. This
reallocation is the provision change net of deferred tax.
10. Share based remuneration schemes
During the 6 months ended 30 June 2018, 733,000 share options
were exercised by employees. 1,750,000 share options were issued
and 160,000 share options lapsed resulting in 2,734,000 (2017:
1,877,000) unexercised share options at the period end. Of these,
54,000 (2017: 793,000) have vested. At 30 June 2018, unexercised
options granted to subscribe for ordinary shares of the company are
as follows:
Option exercise Number of shares under
period option
=========== ================== =============================================== =========== ========= ======== ========
From To Approved Unapproved Performance Enhanced Exercise Fair Life Volatility
share plan Executive Price Value (years)
Incentive (pence) of
Date Addendum options
of grant (pence)
=========== ====== ========== ================ =========== ================ =========== ========= ======== ======== ===========
Nov
Nov 2012 2015 Nov 2022 20,058 4,942 - - 86.0 18.6 10 40%
Sep
Sep 2013 2016 Sep 2023 - - 6,666 - 1.0 80.8 10 25%
Sep
Sep 2014 2017 Sep 2024 - - 8,333 - 1.0 74.8 10 18%
Apr
Apr 2015 2018 Apr 2025 - - 14,000 - 1.0 86.7 10 16%
Sep
Sep 2015 2018 Sep 2025 - - 270,000 - 1.0 77.0 10 16%
Aug
Aug 2016 2019 Aug 2026 - - 290,000 - 1.0 96.5 10 21%
Sep
Sep 2016 2019 Sep 2026 - - 100,000 - 1.0 81.6 10 22%
Sep
Sep 2017 2020 Sep 2027 - - 270,000 - 1.0 207.1 10 24%
May
May 2018 2021 May 2028 - - 450,000 - 1.0 224.4 10 25%
May
May 2018 2023 May 2028 - - - 1,200,000 1.0 121.0 10 25%
Jun
Jun 2018 2021 Jun 2028 - - 100,000 - 1.0 218.4 10 25%
30-Jun-18 20,058 4,942 1,508,999 1,200,000
=============================== ================ =========== ================ =========== ========= ======== ======== ===========
During the 6 months ended 30 June 2018, share options were
issued under both the Performance Share Plan ('PSP') and the
Enhanced Executive Incentive scheme ('EEI') which is an addendum to
the PSP.
The fair values of the options granted under the PSP in 2018
were determined using the Binomial Option Pricing model that takes
into account factors specific to the share incentive plan including
performance conditions. In May and June 2018, 550,000 share options
were granted with conditions of the company achieving earnings per
share targets with a vesting period of 3 years. These performance
conditions which are market conditions have been incorporated into
the measurement by means of actuarial modelling.
The fair values of the options granted under the EEI in 2018
were determined using the Monte Carlo Option Valuation model that
takes into account factors specific to the share incentive plan. In
May 2018, 1.2 million share options were granted under the EEI with
a condition of achieving share price hurdles with a vesting period
of 5 years. These performance conditions which are market
conditions have been incorporated into the measurement by means of
actuarial modelling.
11. 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. No new significant judgements and key sources
of estimation uncertainty were required in the application of IFRS
15 and IFRS 9.
- Ends -
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKNDBABKDAOB
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