TIDMSAG
RNS Number : 8114R
Science Group PLC
05 March 2019
5 March 2019
SCIENCE GROUP PLC
AUDITED RESULTS
FOR THE YEARED 31 DECEMBER 2018
Science Group plc (the 'Company') together with its subsidiaries
('Science Group' or the 'Group') reports its audited results for
the year ended 31 December 2018.
Summary
2018 2017
------------------------------------------- ----------- -----------
Group revenue GBP48.7m GBP40.8m
----------- -----------
Adjusted operating profit * GBP7.7m GBP6.9m
----------- -----------
Statutory profit before tax GBP4.9m GBP3.9m
----------- -----------
Adjusted basic earnings per share * 14.7p 12.8p
----------- -----------
Statutory basic earnings per share 10.7p 7.7p
----------- -----------
Net funds * GBP8.8m GBP6.0m
----------- -----------
Net-funds-plus-freehold-property-per-share
at year end * 75.9p 70.3p
----------- -----------
Proposed / actual dividend per share 4.6p 4.4p
----------- -----------
Science Group plc
Martyn Ratcliffe, Chairman Tel: +44 (0) 1223 875
200
www.sciencegroup.com
Panmure Gordon
Nominated Adviser: Dominic Morley, Alina Tel: +44 (0) 20 7886
Vaskina 2500
Corporate Broking: Erik Anderson
* 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.
Chairman's Statement
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, food &
beverage and commercial markets.
In 2018, Science Group again delivered strong operating margins,
balancing the inherent volatility associated with a project-based
consultancy through the broader service portfolio established via
the acquisitions. In addition, the Group maintains a robust balance
sheet with cash resources and long-term, low cost debt supported by
significant freehold property assets, providing both resilience to
economic volatility and opportunity for investment when
appropriate.
Financial Overview
For the year ended 31 December 2018, Group revenue increased by
19% to GBP48.7 million (2017: GBP40.8 million) assisted by the full
year contribution from the TSG acquisition in September 2017. Core
Business services revenue was GBP46.5 million (2017: GBP38.4
million). North America continues to be a major market for the
Group accounting for 40% of Core Business revenue in 2018 (2017:
43%) and Europe (excluding the UK) accounted for 38% (2017: 36%).
In 2018, the Group revenue would have been GBP0.2 million higher on
a constant currency basis relative to the prior year.
Adjusted operating profit for the year ended 31 December 2018
was GBP7.7 million (2017: GBP6.9 million) including a negative
foreign exchange effect of GBP0.1 million and reflecting the
anticipated lower margin contribution from TSG during the
integration. Statutory profit before tax was GBP4.9 million (2017:
GBP3.9 million) resulting in basic earnings per share ('EPS') of
10.7 pence (2017: 7.7 pence). An alternative performance measure of
adjusted basic EPS which applies consistent tax rates was 14.7
pence (2017: 12.8 pence). (Adjusted operating profit and other
Alternative Performance Measures used in this report are defined in
the Financial Report and within the notes to the financial
statements.)
The Group's cash balance at 31 December 2018 was GBP21.5 million
(2017: GBP19.9 million) with net funds of GBP8.8 million (2017:
GBP6.0 million) including bank debt of GBP12.75 million (2017:
GBP14.0 million). (These figures exclude cash held separately on
behalf of clients to pay regulatory registration fees.) The Group's
bank debt is tied to interest rate swaps to produce a net fixed
rate (effectively 3.5%) to 2026 and is secured on the Group's
freehold property assets. Since the year end, the bank debt has
been increased by an additional GBP4.75 million at an effective
fixed rate of 4.0% on otherwise similar terms.
The Board is proposing to increase the dividend to 4.6 pence per
share (2017: 4.4 pence), at a total cost of GBP1.8 million (2017:
GBP1.8 million). Subject to shareholder approval at the Annual
General Meeting ('AGM'), the dividend will be payable on 17 May
2019 to shareholders on the register at the close of business on 26
April 2019.
Business Overview
The strategy and structure of the Group's services operations
are based around a range of science-based Service Offerings being
provided into Market Sectors where the Group has industry
expertise.
There are four primary Service Offerings: Applied Science;
Product Development; Technology Advisory; and Regulatory Services.
The Group's service delivery teams are formed of highly qualified
specialists from the sciences and technical disciplines including
mathematicians, physicists, chemists, microbiologists,
toxicologists, food scientists etc, working alongside electronic,
mechanical and software engineers, and regulatory experts. The
Group's UK freehold properties provide excellent R&D facilities
with extensive laboratories designed for each scientific and/or
engineering discipline. Science Group's reputation is built around
solving diverse, complex problems and providing sophisticated
advisory and regulatory services, derived from science or
technology, by bringing together combinations of specialists from
across the Group.
These services are marketed into vertical sectors: Medical, Food
& Beverage and Commercial (comprising Consumer, Industrial,
Chemical and Energy sub-sectors). The vast majority of the work
undertaken by Science Group is related to the future product or
market developments of our clients and is therefore confidential.
While the client profile will vary significantly between the
different vertical market sectors, in aggregate the Group has a
diverse client base of over 1,500 organisations. In 2018, the
Group's largest customer accounted for approximately 7% of Group
Core Business revenue.
In the Medical sector, the Group's clients are primarily global
medical product manufacturers within diagnostics, surgical,
pharmaceutical and bio-technology sub-sectors, but the business
also partners with well-funded start-up organisations wishing to
bring innovative technologies to market. This sector tends to have
significant client concentration due to the size of programmes
undertaken, which have included projects to develop next generation
therapies, technologies and systems in areas such as cancer
therapy, diagnostics systems, advanced surgical instruments,
digital health applications and software. All product development
work, which is the largest component in the Medical sector, is
undertaken to exacting medical regulatory standards.
Key projects in 2018 included working with a leading
international medical technology company to develop its next
generation advanced radiotherapy system for cancer treatment and,
for a broad-based healthcare provider, the Group helped develop a
new diagnostics platform enabling high volume, low-cost diagnostic
methods using specialist biochemistry and materials science skills.
The Group also undertook an advisory project to identify
applications and market opportunities for a potentially disruptive
imaging technology which required soliciting insight into clinical
workflows, analysing healthcare economics and road-mapping the
potential technology roll-out.
In the Food & Beverage sector, the Group's clients include
many of the world's leading manufacturers, retailers and service
companies in this market. Providing services across all axes of the
business (applied science, advisory, product development and
regulatory services), the Group addresses client challenges such as
the science of food reformulation for nutritional benefits or food
safety; developing novel beverage dispensing systems; and the
regulatory and consumer insight aspects of geographic expansion or
market entry. To support clients in this important market, Science
Group, provides one of the world's most international
subscription-based services for regulatory and other advice in the
sector.
Examples of work over the past year have included supporting a
leading beverage company in its globalisation strategy by mapping
the regulatory landscape in its major geographic markets. In the
"fast food" market, the Group helped a major food service brand
redevelop and reposition one of its core products through
undertaking scientifically robust consumer insight analysis.
Working with a leading food manufacturer, the Group also helped
determine the impact of food processing on the nutritional profile
of its products.
In the Commercial sector, the Group works across all the service
axes with a diverse client base including consumer products'
organisations, leading energy companies and the world's pre-eminent
chemical organisations. Examples of development projects in the
past year include developing a home-use, spa-like beauty device
delivering personalised skincare and, for a leading agritech
company, the Group helped develop an intelligent
precision-dispensing system that aims to reduce the environmental
impact of chemical use in farming. The Group's regulatory teams
provide Human and Environmental Health services for the chemicals
market including pesticide/bio-pesticide, biocide,
industrial/specialty chemical sectors with clients predominantly in
the US and Europe. In the US, the Registration and Renewals
programme renewed more than 20,000 state registrations for clients
in the pesticides, fertilizers and animal feed markets.
Corporate Strategic Review
During the latter part of the year, a review of the Group's
corporate strategy and structure was undertaken. The conclusion,
which was reported on 24 January 2019, reaffirmed the strong
platform that the Group has established and the potential for the
future. In addition, a number of tangible actions were
identified:
-- It was recommended that the Harston Mill property be
transferred from the Sagentia operating company to a separate
company unrelated to operating activities. If completed, this will
incur a tax cash outflow of approximately GBP2 million, a
proportion of which is anticipated to be recoverable in future
years by utilising tax losses carried forward. Subsequent analysis
indicates that this tax charge may reduce by around GBP0.2 million
if the transfer is deferred for a year due to the reduction in
corporation tax and, while still investigating, the Board will
consider the relative merits before implementation.
-- Future reporting will separate the operating business from
the property companies, with Group/PLC costs being disclosed
separately. This will provide greater transparency to shareholders
of the value of the components of the Group.
-- The Group's long-term bank debt, secured on the properties,
provides an attractive capital structure to pursue the Group's
strategy. Following completion of the strategic review, the bank
debt has now been increased by a further GBP4.75 million, as
reported on 20 February 2019.
-- The Board will consider a much wider scope for acquisitions
which may or may not have synergies with the existing business
activities.
The structured framework of a formal review enabled the Board to
consider the appropriate capital sources and allocation, together
with the structure of the Group, in order that the resources, both
capital and management, can be best deployed to deliver returns to
shareholders and facilitate the Group's strategy. The actions
resulting from the strategic review are ongoing.
Board Composition
Following on from the strategic review, in order to deliver
value to shareholders, there is a requirement for management to
both drive the corporate strategy and to execute on the operational
delivery. While these roles need to be closely coordinated, the
demands are different. Since 2010, I have been the Executive
Chairman of the Group and this remains unchanged. During that time,
the Group has grown substantially and it is now appropriate to
appoint a Board Director with responsibility for the current
business operations, particularly given that the strategic review
opened up a wider remit for the Group's corporate development.
The Board is therefore pleased to announce that Mr Dan Edwards
is to be appointed to the Board of Science Group plc after the
Annual General Meeting this year. Mr Edwards has an Engineering
degree from the University of Cambridge and an MBA from Harvard
Business School. Having joined the company in 2004, Mr Edwards has
been Group Managing Director for the past 3 years and the elevation
to the Group Board is recognition of the development of his
role.
The Board will thereafter include an Executive Chairman, who is
also the Company's largest shareholder, with overall responsibility
for the Group but particularly focusing on the corporate and
strategic development; the Group Managing Director will take
increasing responsibility for the operating performance of the
businesses, supported by an Operating Management Team; and the
Group Finance Director.
Corporate governance is ensured by the Board's two independent
non-executive directors, who will both be standing for re-election
at this year's Annual General Meeting. In the case of Mr David
Courtley, he has now served nine years as a director and the Board
has requested that he serve for one more year before retiring.
During the coming year, a new non-executive director will be
appointed to enable a smooth transition.
Summary and Outlook
The financial performance of the Group in 2018 was in line with
the Board's expectations and the integration of TSG, acquired in
September 2017, made good progress. The Group retains a very strong
balance sheet, including substantial freehold property assets which
enable the Group to include long-term debt, on attractive terms, in
its capital structure. This combination provides the foundation for
the year ahead and a reassuring financial stability in an
unpredictable world.
The current year has started satisfactorily across most business
areas, although the USA regulatory operations were significantly
impacted by the protracted Government shutdown in January. In the
current environment, characterised by the ongoing Brexit
negotiations but also reflecting wider political and economic
uncertainty, the Board remains cautious. From an operational
perspective, Brexit offers both risks and opportunities for the
Group with considerable variability between the effect on the
Group's service offerings and market sectors. One potentially
volatile factor derived from the current political environment,
which affects all international trading organisations, is the
exchange rate of foreign currencies relative to Sterling. The US
Dollar and, to a lesser extent, the Euro conversion rates are
particularly relevant to Science Group and may experience
significant movements. The Board will monitor and evolve the
Group's business activities to maximise opportunities and mitigate
risks.
The Group's strong financial base provides a platform for
organic investment and acquisitions associated with the current
operating businesses. Following the strategic review, the Board's
remit has also been widened to explore the potential opportunity to
deploy capital and management resources into new areas that the
Board considers may deliver returns to shareholders. There can
never be any certainty that such investments will be completed and
the Board will maintain its prudent and cautious approach,
particularly in the current environment.
Martyn Ratcliffe
Chairman
Financial Report
In the year ended 31 December 2018, the Group generated revenue
of GBP48.7 million (2017: GBP40.8 million). Revenue from Core
Business activities, that is revenue derived from delivering
projects and consultancy services and materials recharged on these
projects, increased to GBP47.6 million (2017: GBP39.7 million) due
to the inclusion of the full year results of TSG, acquired in
September 2017. Non-Core revenue, comprising property and
associated services income derived from space let in the Harston
Mill facility, was GBP1.1 million (2017: GBP1.1 million).
Adjusted operating profit increased to GBP7.7 million (2017:
GBP6.9 million), an adjusted operating profit margin of 15.9%
(2017: 16.9%). For the businesses within the Group excluding TSG,
the adjusted operating profit margin has increased year on year.
The margin within the TSG business improved in 2018, although TSG
operated at a lower margin compared to the remainder of the Group
and this results in the lower consolidated adjusted operating
profit margin. (Adjusted operating profit is an alternative profit
measure that is calculated as operating profit excluding impairment
of goodwill and investments, amortisation of acquisition related
intangible assets, acquisition integration costs, 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).
Statutory operating profit of GBP5.3 million (2017: GBP4.4
million) included one-off costs related to the TSG acquisition of
GBP0.1 million (2017: GBP0.8 million) and the release of contingent
consideration of GBP0.5m (2017: GBP nil). Statutory profit before
tax was GBP4.9 million (2017: GBP3.9 million) and statutory profit
after tax was GBP4.3 million (2017: GBP3.0 million).
A significant proportion of the Group's revenue is denominated
in US Dollars and Euros and changes in exchange rates can have a
significant influence on the Group's financial performance. In
2018, GBP16.6 million of the Group Core Business revenue was
denominated in US Dollars (2017: GBP14.0 million) and GBP5.7
million of the Group Core Business revenue was denominated in Euros
(2017: GBP4.1 million). The exchange rates during the year resulted
in a negative revenue impact of GBP0.2m and negative operating
profit impact of GBP0.1m, when compared to the rates in effect
during 2017. The Group continues to monitor the volatility of
exchange rates and to date has decided not to utilise foreign
exchange hedging instruments.
The tax charge in the Consolidated Income Statement of GBP0.6
million (2017: GBP0.9 million) results in an effective tax rate of
11.9% (2017: 22.2%). The low effective tax rate is due to GBP0.2
million adjustment in respect of prior years and GBP0.4 million
arising from R&D tax credits. An additional tax cost of GBP0.1
million has been recognised in relation to the Tax Cuts and Jobs
Act in the US (2017: GBP0.1 million).
At 31 December 2018, Science Group had GBP10.8 million (2017:
GBP11.4 million) of tax losses carried forward of which GBP0.4
million (2017: GBP0.6 million) relate to trading losses which are
anticipated to be used to offset future trading profits. The
remaining tax losses of GBP10.4 million (2017: GBP10.8 million)
have not been recognised as a deferred tax asset due to the low
probability that these losses will be able to be utilised in
operating activities. However, the possible transfer of the Harston
Mill property out of Sagentia Limited and into Sagentia Technology
Advisory Limited may enable more of these historic tax losses to be
utilised and this will remain under review in 2019.
Statutory basic earnings per share ('EPS') was 10.7 pence (2017:
7.7 pence). In order to provide a measure that demonstrates the
underlying value generated by the Group at a per share level, an
adjusted earnings per share measure is also presented. Adjusted
basic earnings per share, which excludes adjusting items and
includes a corporation tax charge on adjusted profit before tax at
the Group's blended corporation tax rate, increased to 14.7 pence
(2017: 12.8 pence).
Cash generated from operations excluding Client Registration
Funds ('CRF') was GBP6.8 million (2017: GBP7.8 million). Reported
cash generated from operations in accordance with IFRS was GBP7.4
million (2017: GBP8.6 million). The difference in these two metrics
relates to the fact that TSG, particularly in the USA, processes
regulatory registration payments on behalf of clients. The
alternative performance measures, adjusting for CRF, more
accurately reflect the Group's cash position and cash flow.
The Group's term loan with Lloyds Bank plc ('Lloyds') was
renewed in 2016 as a 10 year fixed term loan of GBP15 million,
secured on the Group's freehold properties. Phased interest rate
swaps hedge the loan resulting in a 10-year fixed effective
interest rate of 3.5%, comprising a margin over 3 month LIBOR, the
cost of the loan arrangement fee and the cost of the swap
instruments. The term loan has no operating covenants as long as
the Group net bank debt is less than GBP10 million. If this
threshold is crossed, two conditions apply: a financial covenant,
measured half-yearly on a 12 month rolling basis, such that annual
EBITDA must exceed 1.25 times annual debt servicing (capital and
interest); and a security covenant whereby the loan to value
('LTV') ratio of the securitised properties must remain below 75%.
If either of these conditions are breached, a remedy period of 6
months is provided, during which time the EBITDA or LTV condition
can be remedied or the net bank debt can be reduced to less than
GBP10 million. The Group has adopted hedge accounting for the
interest rate swap related to the bank loan under IFRS 9, Financial
Instruments, and the gain on change in fair value of the interest
rate swaps was GBP66,000 (2017: GBP30,000) which was recognised
directly within equity. Subsequent to the year end, the Board
increased the loan with Lloyds to GBP17.5 million on similar terms
along with a further interest rate swap, which effectively fixed
the interest rate for the increment at 4.0%.
The Group has maintained its strong balance sheet with
shareholders' funds at 31 December 2018 of GBP41.0 million
equivalent to 102.3 pence per share in issue (2017: shareholders'
funds of GBP37.7 million, equivalent to 95.9 pence per share in
issue). This includes the Group's freehold properties in Harston,
near Cambridge and in Epsom, Surrey, held on the balance sheet at
an aggregate value of GBP21.6 million (2017: GBP21.7 million). The
Board undertook formal independent property valuations in March
2018 and the balance sheet (cost-based) value of the freehold
property is at the bottom end of the range of the independent
market valuation obtained. (The aggregate "Vacant Possession"
valuation was estimated at GBP22.6 million and, based on market
rents and property yields at that time, the aggregate sale &
leaseback valuation was estimated at GBP33.9 million.)
The Group cash position (excluding CRF) at 31 December 2018 was
GBP21.5 million (2017: GBP19.9 million) and net funds were GBP8.8
million (2017: GBP6.0 million). CRF of GBP1.5 million (2017: GBP0.9
million) were held at the year end. Working capital management
during the year continued to be a focus with debtor days of 37 days
at 31 December 2018 (2017: 45 days) while combined debtor and WIP
days reduced to negative 9 days (2017: negative 4 days). (WIP is
defined as the net of accrued income and payments received on
account). Net-funds-plus-freehold-property-per-share, an
alternative performance measure (refer to the notes to the
financial statements for the calculation), was 75.9 pence per share
(2017: 70.3 pence per share) based on the balance sheet value of
the properties.
At 31 December 2018, the Company had 40,040,227 ordinary shares
in issue (2017: 39,367,128) and held an additional 2,021,808 shares
in treasury (2017: 2,694,907). All references in this report to
measures relative to the number of shares in issue exclude shares
held in treasury unless explicitly stated to the contrary.
Consolidated Income Statement
For the year ended 31 December 2018
2018 2017
GBP000 GBP000
Revenue 48,670 40,823
Operating expenses before adjusting
items (40,939) (33,917)
------------------------------------------------ -------- --------
Adjusted operating profit 7,731 6,906
Amortisation of intangible assets (2,004) (1,410)
Impairment of other investments (50) -
Acquisition integration costs (76) (812)
Release of contingent consideration 519 -
Share based payment charge (812) (312)
Operating profit 5,308 4,372
Finance income 10 3
Finance costs (451) (496)
------------------------------------------------ -------- --------
Profit before income tax 4,867 3,879
Income tax charge (including R&D tax
credit of GBP432,000 (2017: GBP308,000)) (580) (861)
------------------------------------------------ -------- --------
Profit for the year 4,287 3,018
------------------------------------------------ -------- --------
Profit for the year attributable to
equity holders of the parent 4,287 3,018
------------------------------------------------ -------- --------
Earnings per share
Earnings per share from continuing
operations (basic) 10.7p 7.7p
Earnings per share from continuing
operations (diluted) 10.5p 7.5p
Adjusted earnings per share from continuing
operations (basic) 14.7p 12.8p
Adjusted earnings per share from continuing
operations (diluted) 14.4p 12.5p
------------------------------------------------ -------- --------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
GBP000 GBP000
Profit for the year 4,287 3,018
Other comprehensive income
Items that will or may be reclassified to profit
or loss:
Exchange differences on translating foreign operations (50) (28)
Fair value gain on interest rate swap 66 30
Deferred tax on interest rate swap (13) (43)
Other comprehensive income/(expense) for the
year 3 (41)
------------------------------------------------------- ------- -------
Total comprehensive income for the year 4,290 2,977
------------------------------------------------------- ------- -------
Total comprehensive income for the year attributable
to owners of the parent 4,290 2,977
------------------------------------------------------- ------- -------
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2018
Group Issued Share Treasury Merger Translation Share Retained Total -
capital premium stock reserve reserve based earnings Shareholders
payment funds
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- -------- -------- -------- -------- ----------- -------- --------- -------------
Balance at 1 January
2017 421 8,230 (3,608) 10,343 338 2,351 17,928 36,003
---------------------------- -------- -------- -------- -------- ----------- -------- --------- -------------
Purchase of own shares - - - - - - - -
Issue of shares out
of treasury stock - - 39 - - - (24) 15
Dividends paid - - - - - - (1,653) (1,653)
Share based payment
charge - - - - - 312 - 312
Deferred tax on share
based payment transactions - - - - - - 85 85
Transactions with
owners - - 39 - - 312 (1,592) (1,241)
---------------------------- -------- -------- -------- -------- ----------- -------- --------- -------------
Profit for the year - - - - - - 3,018 3,018
Other comprehensive
income:
Fair value gain on
interest rate swap - - - - - - 30 30
Exchange differences
on translating foreign
operations - - - - (28) - - (28)
Deferred tax on interest
rate swap including
prior period adjustment - - - - - - (43) (43)
Total comprehensive
income for the year - - - - (28) - 3,005 2,977
---------------------------- -------- -------- -------- -------- ----------- -------- --------- -------------
Balance at 31 December
2017 421 8,230 (3,569) 10,343 310310 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 - - (190) - - - - (190)
Issue of shares out
of treasury stock - - 995 - - - (880) 115
Dividends paid - - - - - - (1,760) (1,760)
Share based payment
charge - - - - - 812 - 812
Deferred tax on share
based payment transactions - - - - - - (48) (48)
Transactions with
owners - - 805 - - 812 (2,688) (1,071)
---------------------------- -------- -------- -------- -------- ----------- -------- --------- -------------
Profit for the year - - - - - - 4,287 4,287
Other comprehensive
income:
Fair value gain on
interest rate swap - - - - - - 66 66
Exchange differences
on translating foreign
operations - - - - (50) - - (50)
Deferred tax on interest
rate swap - - - - - - (13) (13)
Total comprehensive
income for the year - - - - (50) - 4,340 4,290
---------------------------- -------- -------- -------- -------- ----------- -------- --------- -------------
Balance at 31 December
2018 421 8,230 (2,764) 10,343 260260 3,475 20,993 40,958
---------------------------- -------- -------- -------- -------- ----------- -------- --------- -------------
Consolidated Balance Sheet
At 31 December 2018
Group
2018 2017
GBP000 GBP000
(Restated)
Assets
Non-current assets
Acquisition related intangible
assets 7,495 9,499
Goodwill 11,239 11,239
Property, plant and equipment 23,353 23,787
Investments - 50
Derivative financial assets 293 227
Deferred tax assets 16 104
42,396 44,906
--------------------------------------- -------- -----------
Current assets
Trade and other receivables 9,717 9,381
Current tax asset 245 -
Cash and cash equivalents - Client
registration funds 1,487 887
Cash and cash equivalents - Group
cash 21,520 19,893
---------------------------------------- -------- -----------
32,969 30,161
Total assets 75,365 75,067
---------------------------------------- -------- -----------
Liabilities
Current liabilities
Trade and other payables 17,376 18,208
Current tax liabilities 374 554
Provisions 1,038 825
Borrowings 1,000 1,250
---------------------------------------- -------- -----------
19,788 20,837
--------------------------------------- -------- -----------
Non-current liabilities
Provisions 296 466
Borrowings 11,689 12,676
Contingent consideration - 519
Deferred tax liabilities 2,634 2,830
---------------------------------------- -------- -----------
14,619 16,491
--------------------------------------- -------- -----------
Total liabilities 34,407 37,328
---------------------------------------- -------- -----------
Net assets 40,958 37,739
---------------------------------------- -------- -----------
Shareholders' equity
Share capital 421 421
Share premium 8,230 8,230
Treasury stock (2,764) (3,569)
Merger reserve 10,343 10,343
Translation reserve 260 310
Share based payment reserve 3,475 2,663
Retained earnings 20,993 19,341
---------------------------------------- -------- -----------
Total equity 40,958 37,739
---------------------------------------- -------- -----------
Refer to note 13 for an explanation of the restatement of the
Consolidated Balance Sheet at 31 December 2017
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
Group
------------------------------------------- -----------------
2018 2017
GBP000 GBP000
------------------------------------------- ------- --------
Profit before income tax 4,867 3,879
-------------------------------------------- ------- --------
Adjustments for:
Amortisation on acquisition related
intangible assets 2,004 1,410
Depreciation on property, plant
and equipment 760 728
Net interest cost 441 493
Release of contingent consideration (519) -
Share based payment charge 812 312
Impairment of cost of investment 50 -
Release of provision (503) -
Increase in provision 760 -
Decrease in receivables (354) 1,406
Increase in payables representing
client registration funds 600 887
(Decrease) in payables excluding
balances representing client registration
funds (1,535) (469)
-------------------------------------------- ------- --------
Cash generated from operations 7,383 8,646
-------------------------------------------- ------- --------
Finance costs (555) (386)
UK corporation tax paid (1,025) (91)
Foreign corporation tax (paid)/received (159) 19
-------------------------------------------- ------- --------
Cash flows from operating activities 5,644 8,188
-------------------------------------------- ------- --------
Interest received 10 3
Purchase of property, plant and
equipment (444) (471)
Purchase of subsidiary undertakings,
net of cash received - (10,435)
Cash flows (used in)/generated
by investing activities (434) (10,903)
Issue of shares out of treasury 115 15
Repurchase of own shares (190) -
Dividends paid (1,760) (1,653)
Repayment of bank loans (1,250) (750)
Cash flows (used in)/generated
by financing activities (3,085) (2,388)
-------------------------------------------- ------- --------
Increase/(decrease) in cash and
cash equivalents in the year 2,125 (5,103)
Cash and cash equivalents at the
beginning of the year 20,780 25,996
Exchange gains/(loss) on cash 102 (113)
-------------------------------------------- ------- --------
Cash and cash equivalents at the
end of the year 23,007 20,780
-------------------------------------------- ------- --------
Cash and cash equivalents is analysed as follows:
Group
------------------------------------------------ --- ----------------
2018 2017
GBP000 GBP000
------------------------------------------------ ------- -------
Cash and cash equivalents - Client registration
funds 1,487 887
Cash and cash equivalents - Group cash 21,520 19,893
----------------------------------------------------- ------- -------
23,007 20,780
--------------------------------------------------- ------- -------
Extracts from notes to the financial statements
1. General information
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 the results of all Science Group companies are
consolidated.
The Group and Company accounts of Science Group plc were
prepared under IFRS as adopted by the European Union, and have been
audited by KPMG 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 AIM
Market of the London Stock Exchange (SAG.L). The value of Science
Group plc shares, as quoted on the London Stock Exchange at 31
December 2018, was 210.0 pence per share (31 December 2017: 205.5
pence).
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 as follows:
(a) Adjusted operating profit
The Group calculates this measure by making adjustments to
exclude certain items from operating profit namely: impairment of
goodwill and investments, 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
occurs 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 ('EPS')
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 19.4% (2017: 21.5%) which results in a
comparable tax charge year on year.
1. General Information (continued)
Alternative performance measures (continued)
(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 pass
through funds held on behalf of the client solely for the purpose
of payment of registration fees to regulatory bodies and for which
no revenue is recognised. This cash is not available for use in day
to day operations. This measure is calculated as follows:
Group
----------------------------- ----------------------------
2018 2017
GBP000 GBP000
---------------------------- --- ------------- ------------
Cash and cash equivalents -
Group cash 21,520 19,893
Borrowings (12,689) (13,926)
---------------------------------- ------------- ------------
Net funds 8,831 5,967
---------------------------------- ------------- ------------
(d) Net-funds-plus-freehold-property-per-share in issue
The Group calculates this measure by dividing the sum of: net
funds plus freehold land and buildings by the number of shares in
issue at the balance sheet date. This is calculated as follows:
Group
---------------------------------------------- ------------------- ------
In GBP000 unless otherwise stated 2018 2017
---------------------------------------------- ------------------- ------
Net funds 8,831 5,967
Freehold land and buildings 21,552 21,719
---------------------------------------------- ------------------- ------
Net funds plus freehold property 30,383 27,686
Number of shares in issue (excluding treasury
shares) ('000 shares) 40,040 39,367
Net-funds-plus-freehold-property-per-share
in issue (pence) 75.9 70.3
---------------------------------------------- ------------------- ------
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
represents the Group's cash available for day to day operations and
investments. The measure of
net-funds-plus-freehold-property-per-share in issue is intended to
assist shareholders in understanding the component of the market
value of the shares that is attributable to these assets held by
the Group. As such, the Board considers these measures enhance
shareholders' understanding of the Group results and should be
considered alongside the IFRS measures.
2. Segment 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.
2. Segment information (continued)
Year ended 31 December 2018 Core Business Non-Core Total
GBP000 Business
GBP000 GBP000
------------------------------------ ----------------------- --------- -------
Services revenue 46,504 15 46,519
Third party property income - 1,046 1,046
Other 1,105 - 1,105
Revenue 47,609 1,061 48,670
----------------------- --------- -------
Adjusted operating profit 7,587 144 7,731
-------------------------------------- ----------------------- --------- -------
Amortisation and impairment of
intangible assets (2,004) - (2,004)
Impairment of other investments (50) - (50)
Acquisition integration costs (76) - (76)
Release of contingent consideration 519 - 519
Share based payment charge (812) - (812)
Operating profit 5,164 144 5,308
-------------------------------------- ----------------------- --------- -------
Finance charges (net) (441)
-------------------------------------- ----------------------- --------- -------
Profit before income tax 4,867
-------------------------------------- ----------------------- --------- -------
Income tax charge (580)
-------------------------------------- ----------------------- --------- -------
Profit for the year 4,287
-------------------------------------- ----------------------- --------- -------
Year ended 31 December 2017 Core Business Non-Core Total
GBP000 Business
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 (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 year 3,018
--------------------------------- ----------------------- --------- -------
Geographical segments
Revenue and non-current assets (excluding deferred tax assets)
by geographical area are as follows:
2018 2017
------------------------- -------- ----------- ---------------------
Non-current
assets
Revenue Revenue GBP000
Non-current
assets
GBP000 GBP000 GBP000 (Restated)
------------------------- -------- ----------- -------- -----------
United Kingdom 8,948 42,262 7,673 44,752
Other European countries 18,197 33 14,382 21
North America 19,080 85 17,105 29
Other 2,445 - 1,663 -
------------------------- -------- ----------- -------- -----------
Total 48,670 42,380 40,823 44,802
------------------------- -------- ----------- -------- -----------
For the purpose of the analysis of revenue, geographical markets
are defined as the country or area in which the client is based.
Non-current assets are allocated based on their physical
location.
2. Segment information (continued)
During 2018, no single customer accounted for more than 10% of
the Group's revenue in the Core Business Segment (2017: GBP4.1
million equivalent to 10% of the Group's revenue depended on a
single European customer in the Core Business Segment). Operating
profit for the Core Business Segment included a depreciation charge
of GBP0.7 million (2017: GBP0.7 million) and the Non-Core Business
Segment included a depreciation charge of GBP27,000 (2017:
GBP32,000). Capital expenditure attributable to the Core Business
Segment is GBP0.3 million (2017: GBP0.6 million). Capital
expenditure attributable to the Non-Core Business Segment is GBPnil
(2017: GBPnil).
3. Income tax
The tax charge comprises:
Year ended 31 December 2018 2017
GBP000 GBP000
------------------------------------------ ------- -------
Current taxation (1,377) (1,281)
Current taxation - adjustment in respect
of prior years (including GBP106,000
2017 R&D tax credit) 196 (34)
Deferred taxation 218 196
Deferred taxation - adjustment in respect
of prior years (49) (50)
R&D tax credit 432 308
(580) (861)
------------------------------------------ ------- -------
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 19.4% (2017: 21.5%) as
follows:
2017 2016
GBP000 GBP000
-------------------------------------------------
Profit before tax 4,867 3,879
-------------------------------------------------- ------- -------
Tax calculated at domestic tax rates applicable
to profits/(losses) in the respective countries (946) (836)
Expenses not deductible for tax purposes (179) (45)
Adjustment in respect of prior years - current
tax 196 (34)
Adjustment in respect of prior years - deferred
tax (49) (50)
Movement in deferred tax due to change in
tax rate (239) -
Share scheme movements 293 8
Current year losses for which no deferred
tax asset was recognised (73) (126)
Mandatory earnings and profits one-time tax (78) (120)
Prior year losses used in the current year
which were not previously recognised 63 34
R&D tax credit 432 308
Tax charge (580) (861)
-------------------------------------------------- ------- -------
In 2017, the United States Federal Government released the Tax
Cuts and Jobs Act. The impact of this bill resulted in the
recognition of a corporation tax liability of GBP120,000 as at 31
December 2017 based on the estimated undistributed profits of all
foreign subsidiaries of Technology Sciences Group Inc. During the
current financial year, the final liability in respect of these
earnings and profits one-time tax was calculated and an additional
charge of GBP78,000 was recognised in the current year.
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
GBP0.4 million (2017: GBP0.3m). 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.
The final R&D tax credit for the year ended 31 December 2017
was calculated to be GBP414,000 and the difference of GBP106,000
was recognised in the current year ended 31 December 2018 and
disclosed above within 'current taxation - adjustment in respect of
prior years'.
4. Deferred tax
The movement in deferred tax assets and liabilities during the
year by each type of temporary difference is as follows:
Acquisition
related
intangible
assets
Accelerated GBP000 Other
capital temporary
allowances differences
GBP000 Tax losses Share based GBP000
payment
GBP000 GBP000 (Restated) Total
GBP000
(Restated
-------------------------- ------------ ----------- ------------ ----------- ------------- -----------
At 1 January
2017 (1,784) 287 295 (936) 10 (2,128)
Charged to the
income statement 50 (183) 97 243 (11) 196
Deferred taxation
relating to acquisitions
(restated) - - - (1,308) 522 (786)
Charged to the
income statement
(prior year adjustment) - - - - (50) (50)
Charged to equity - - 85 - (43) 42
At 31 December
2017 (1,734) 104 477 (2,001) 428 (2,726)
Charged to the
income statement (138) (39) (28) 456 (33) 218
Charge to the
income statement
(prior year adjustment) - (49) - - - (49)
Charged to equity - - (48) - (13) (61)
At 31 December
2018 (1,872) 16 401 (1,545) 382 (2,618)
-------------------------- ------------ ----------- ------------ ----------- ------------- -----------
2018 2017
GBP000 GBP000
--------------------------- ------- -------
Deferred tax assets 16 104
Deferred tax liabilities (2,634) (2,830)
Net deferred tax liability (2,618) (2,726)
----------------------------- ------- -------
Deferred tax relating to acquisitions in 2017 has been restated
by GBP296,000 due to a correction to the deferred tax recognised on
the acquisition balance sheet of TSG Americas.
Deferred tax assets are recognised for tax loss carry-forwards
to the extent that the realisation of the related tax benefit
through the future taxable profits is probable. Deferred tax
liabilities are recognised against accelerated capital allowances.
The Group has available tax losses of approximately GBP10.8 million
(2017: GBP11.4 million) and of these losses, GBP10.4 million are
not recognised as a deferred tax asset and they do not expire.
Factors affecting future tax charges
A reduction in the UK corporation tax rate from 20% to 19%
(effective from 1 April 2017) and to 18% (effective 1 April 2020)
were substantively enacted on 26 October 2015, and an additional
reduction to 17% (effective 1 April 2020) was substantively enacted
on 6 September 2016. This will reduce the company's future current
tax charge accordingly. The US federal rate had a reduction from
35% to 21%, effective from 1 January 2018. Deferred tax assets
(liabilities) were calculated at the substantively enacted
corporation tax rates in the respective jurisdictions.
5. Earnings per share
The calculation of earnings per share is based on the following
result and weighted average number of shares:
2018 2017
----------------------- ---------------------------------- ----------------------------------
Weighted Weighted
Profit average Pence Profit average
after number per share after number Pence
tax of shares tax of shares per share
GBP000 GBP000
----------------------- -------- ----------- ----------- -------- ----------- -----------
Basic earnings per
ordinary share 4,287 39,889,693 10.7 3,018 39,316,141 7.7
Effect of dilutive
potential ordinary
shares: share options - 1,021,609 (0.2) - 957,584 (0.2)
----------------------- -------- ----------- ----------- -------- ----------- -----------
Diluted earnings per
ordinary share 4,287 40,911,302 10.5 3,018 40,273,725 7.5
----------------------- -------- ----------- ----------- -------- ----------- -----------
Only the share options granted are dilutive.
The calculation of adjusted earnings per share is as
follows:
2018 2017
----------------------- ------------------------------------- -------------------------------------
Adjusted* Weighted Adjusted* Weighted
profit average Pence profit average
after number per share after number Pence
tax of shares tax of shares per share
GBP000 GBP000
----------------------- ----------- ----------- ----------- ----------- ----------- -----------
Basic earnings per
ordinary share 5,876 39,889,693 14.7 5,032 39,316,141 12.8
Effect of dilutive
potential ordinary
shares: share options - 1,021,609 (0.3) - 957,584 (0.3)
----------------------- ----------- ----------- ----------- ----------- ----------- -----------
Diluted earnings per
ordinary share 5,876 40,911,302 14.4 5,032 40,273,725 12.5
----------------------- ----------- ----------- ----------- ----------- ----------- -----------
*Calculation of adjusted profit after tax:
2018 2017
GBP000 GBP000
----------------------------------------------- ------- -------
Adjusted operating profit 7,731 6,906
Finance income 10 3
Finance costs (451) (496)
------------------------------------------------- ------- -------
Adjusted profit before tax 7,290 6,413
Tax charge at the blended corporation tax rate
across the various jurisdictions 19.4% (2017:
21.5%) (1,414) (1,381)
Adjusted profit after tax 5,876 5,032
------------------------------------------------- ------- -------
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 proposed final dividend for 2017 of 4.4 pence per share was
approved by Shareholders and the Board on 22 May 2018. An amount of
GBP1.76 million was recognised as a distribution to equity holders
in the year ended 31 December 2018.
The Board has proposed a final dividend for 2018 of 4.6 pence
per share. The dividend is subject to approval by shareholders at
the Annual General Meeting and the expected cost of GBP1.84 million
has not been included as a liability as at 31 December 2018.
7. Intangible Assets
Customer
contracts
and relationships
GBP000
Goodwill Total
GBP000 GBP000
(Restated) (Restated)
------------------------------------------- ------------------------ ------------ ------------
Cost
At 1 January 2017 6,894 6,258 13,152
Acquisitions through business combinations 5,726 7,206 12,932
At 31 December 2017 12,620 13,464 26,084
------------------------------------------- ------------------------ ------------ ------------
Accumulated amortisation
At 1 January 2017 (1,704) - (1,704)
Amortisation charged in year (1,410) - (1,410)
At 31 December 2017 (3,114) - (3,114)
Amortisation charged in year (2,004) - (2,004)
At 31 December 2018 (5,118) - (5,118)
------------------------------------------- ------------------------ ------------ ------------
Accumulated impairment
At 1 January 2017 (7) (2,225) (2,232)
Impairment losses for the year - - -
------------------------------------------- ------------------------ ------------ ------------
At 31 December 2017 and 31 December
2018 (7) (2,225) (2,232)
Carrying amount
At 31 December 2017 9,499 11,239 20,738
------------------------------------------- ------------------------ ------------ ------------
At 31 December 2018 7,495 11,239 18,734
------------------------------------------- ------------------------ ------------ ------------
Goodwill and acquisition related intangible assets recognised
arose from acquisitions during 2013, 2015 and 2017. The discount
rates used for goodwill impairment reviews and the carrying amount
of goodwill is allocated as follows:
2018 2017
GBP000
Pre-tax discount Pre-tax discount
rate GBP000 rate (Restated)
--------------------- ---------------- ------ ---------------- ------------
Advisory 11.2% 3,383 11.2% 3,383
Leatherhead Research 11.2% 650 11.2% 650
TSG - Americas 11.0% 2,660 11.0% 2,870
TSG - Europe 11.0% 4,546 11.0% 4,336
--------------------- ---------------- ------ ---------------- ------------
11,239 11,239
--------------------- ---------------- ------ ---------------- ------------
In the year ended 31 December 2018 a reallocation of goodwill
has been performed with the goodwill allocated to TSG Europe
increasing by GBP210,000 and the goodwill to TSG America decreasing
by the same amount as a result of re-measuring the provision
recognised at the date of acquisition of TSG.
It was identified that the net assets acquired in the
acquisition of Technology Sciences Group, during 2017, were
understated due to an overstatement of the deferred tax liability
relating to TSG Americas. An adjustment as at 31 December 2017 has
been recognised to reduce goodwill and reduce deferred tax
liability by GBP296,000. This adjustment has not affected Group net
assets or profit or loss. The adjustment did not have any effect on
the parent company's accounts.
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 CGUs are determined from
value in use. The key assumptions for the value in use calculations
are those regarding the discount rates, growth rates and operating
profit margins.
The Group prepares the cash flow forecasts derived from the most
recent financial plan approved by the Board and extrapolates cash
flows for the following three years based on forecast rates of
growth or decline in revenue by the CGU. The operating profit
margin for the CGU that is incorporated in the cash flow forecasts
is derived from the most recent financial plan approved by the
Board.
7. Intangible Assets (continued)
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. Trade and other receivables
2018 2017
GBP000 GBP000
(Restated)
--------------------------------- -------- -----------
Current assets:
Trade receivables 7,980 7,953
Provision for impairment (144) (362)
--------------------------------- -------- -----------
Trade receivables - net 7,836 7,591
Amounts recoverable on contracts 1,017 861
Other receivables 11 7
VAT 6 33
Prepayments 847 889
--------------------------------- -------- -----------
9,717 9,381
--------------------------------- -------- -----------
9. Cash and cash equivalents
2018 2017
GBP000 GBP000
---------------------------------- ------- -------
Short term bank deposits - Group
cash 37 37
Cash at bank and in hand - Group
cash 21,483 19,856
------------------------------------ ------- -------
Cash and cash equivalents -
Group cash 21,520 19,893
Cash at bank and in hand - Client
registration funds 1,487 887
23,007 20,780
---------------------------------- ------- -------
The Group receives cash from clients which are pass through
funds solely for the purpose of payment of registration fees to
regulatory bodies. This cash is separated in the day to day
operations of the business, is separately identified for reporting
purposes and is unrestricted.
10. Trade and other payables
2018 2017
GBP000 GBP000
(Restated)
----------------------------- --- --- --- ------- -----------
Current liabilities
Payments received on account 10,752 10,006
Trade payables 1,110 1,518
Other taxation and social
security 786 825
VAT 392 -
Accruals 4,336 5,859
-------------------------------------------- ------- -----------
17,376 18,208
----------------------------------------- ------- -----------
11. Provisions
Onerous
lease Dilapidations Restructuring Legal Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------- ------------- ------------- ------- -------
At 1 January 2017 - - - -
Provisions held by acquired
companies at date of acquisition 495 183 615 1,293
Increase in provision - 16 - 16
Gain on foreign exchange
fluctuations - - (18) (18)
---------------------------------- ------- ------------- ------------- ------- -------
At 31 December 2017 495 199 - 597 1,291
---------------------------------- ------- ------------- ------------- ------- -------
Increase in provision - 170 199 391 760
---------------------------------- ------- ------------- ------------- ------- -------
Utilisation of provision (190) - (57) - (247)
---------------------------------- ------- ------------- ------------- ------- -------
Release of provision (95) (108) - (300) (503)
---------------------------------- ------- ------------- ------------- ------- -------
Loss/(gain) on foreign exchange
fluctuations 15 1 - 17 33
---------------------------------- ------- ------------- ------------- ------- -------
At 31 December 2018 225 262 142 705 1,334
---------------------------------- ------- ------------- ------------- ------- -------
2018 2017
GBP000 GBP000
------------------------ ------- -------
Current liabilities 1,038 825
Non-current liabilities 296 466
--------------------------- ------- -------
1,334 1,291
------------------------ ------- -------
Provisions for onerous leases and dilapidation provisions have
been recognised at the present value of the expected obligation;
the balances are undiscounted as discounting is considered to be
immaterial.
The average remaining life of the leases at 31 December 2018 is
1.0 year (2017: 2.0 years).
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.
Legal provisions represent 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 the Group's lawyers and are being robustly
contested as to both liability and quantum. These claims are
expected to be resolved within one year 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 made is
management's best estimate of the Group's liability based on past
experience, commercial judgement and legal advice.
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 GBP210,000.
12. Contingent consideration
A contingent consideration of GBP0.5 million was recognised on
acquisition of TSG in September 2017. During the year ended 31
December 2018, 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.
13. Restatement
It was identified that at 31 December 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 December 2017 has
been recognised to reduce both these balances by GBP1.2m. This
adjustment has not affected Group net assets or profit or loss. The
adjustment did not have effect on the parent company's
accounts.
14. Called-up share capital
2018 2017
GBP000 GBP000
------------------------------ ---------- ----------
Allotted, called-up and fully
paid
Ordinary shares of GBP0.01
each 421 421
-------------------------------- ---------- ----------
Number Number
------------------------------ ---------- ----------
Allotted, called-up and fully
paid
Ordinary shares of GBP0.01
each 42,062,035 42,062,035
-------------------------------- ---------- ----------
The allotted, called-up and fully paid share capital of the
Company as at 31 December 2018 was 42,062,035 shares (2017:
42,062,035) and the total number of ordinary shares in issue
(excluding treasury shares) was 40,040,227 (2017: 39,367,128). A
reconciliation of treasury shares held by the Company is as
follows:
Reconciliation of treasury shares 2018 2017
Number Number
---------------------------------- --------- ---------
At beginning of year 2,694,907 2,733,241
Purchase of own shares 89,800 -
Settlement of share options (762,899) (38,334)
At end of year 2,021,808 2,694,907
------------------------------------ --------- ---------
It is the intention of the Company to hold the treasury shares
for the purpose of settling employee share schemes and for settling
liquidated sums of cash consideration in any future business
acquisitions, and in limited circumstances to satisfy shareholder
demand which market liquidity is unable to meet. No dividend or
other distribution may be made to the Company in respect of the
treasury shares.
The total charge relating to employee share based payment plans,
all of which related to equity-settled share based payment
transactions, was as follows:
2018 2017
GBP000 GBP000
----------------------------------- ------- -------
Equity settled share based payment
charge 812 312
------------------------------------- ------- -------
14. Borrowings
2018 2017
GBP000 GBP000
----------------- ------- -------
Non-current
Bank borrowings 11,689 12,676
11,689 12,676
Current
Bank borrowings 1,000 1,250
1,000 1,250
Total borrowings 12,689 13,926
-------------------- ------- -------
2018 2017
GBP000 GBP000
-------------------------------------------- ------- -------
Opening balance (non-current portion) 12,676 13,664
Opening balance (current portion) 1,250 1,000
Opening balance 13,926 14,664
Repayments in year (1,250) (750)
Amortisation of arrangement fee in the year 13 12
Total borrowings 12,689 13,926
-------------------------------------------- ------- -------
During the year ended 31 December 2016, the Group entered into a
new 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 LIBOR plus 2.6% margin. The repayment profile of
the loan is GBP1 million per annum over the term with the remaining
GBP5 million repaid on expiry of the loan in 2026. Costs directly
associated with entering into the loan of GBP90,000 were incurred,
have been offset against the balance outstanding and are being
amortised over the period of the loan.
The new term loan has no operating covenants while the Group net
bank debt is less than GBP10 million. If this threshold is crossed,
two conditions apply: a financial covenant, measured half-yearly on
a 12 month rolling basis, such that annual EBITDA must exceed 1.25
times annual debt servicing (capital and interest); and a security
covenant whereby the loan to value ('LTV') ratio of the securitised
properties must remain below 75%. If either of these conditions is
breached, a remedy period of 6 months is provided, during which
time the EBITDA or LTV condition can be remedied or the net bank
debt can be reduced to less than GBP10 million.
In accordance with an agreed repayment schedule with the bank,
bank borrowings are repayable to Lloyds as follows:
2018 2017
GBP000 GBP000
---------------------- ------- -------
Within one year 1,000 1,250
Between 1 and 2 years 1,000 1,000
Between 2 and 5 years 3,000 3,000
Over 5 years 7,750 8,750
12,750 14,000
---------------------- ------- -------
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
Group has adopted hedge accounting for the interest rate swap under
IFRS 9, Financial Instruments, and the gain on change in fair value
of the interest rate swaps entered into in 2018 of GBP66,000 (2017:
GBP30,000) was recognised directly within equity.
The fair value of the swap at 31 December 2018 was an asset of
GBP293,000 (2017: GBP227,000).
15. Post balance sheet events
The Group has increased the 10 year fixed term loan from
GBP12.75m to GBP17.5m on otherwise similar terms. The interest cost
on the additional GBP4.75m has been fixed by entering into an
interest rate swap at an effective interest rate of 4.0% comprising
a margin over 3 month LIBOR, the cost of the additional loan
arrangement fee and the cost of the swap instrument.
There are no other post balance sheet events to disclose.
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 European Union and as issued by the
International Accounting Standards Board, 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
2018.
The financial information set out above, which was approved by
the Board on 4 March 2019, is derived from the full Group accounts
for the year ended 31 December 2018 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 2018, will be delivered to the Registrar of
Companies in due course.
The Board of Science Group approved the release of this
preliminary announcement on 5 March 2019.
The Annual Report for the year ended 31 December 2018 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 -
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
FR LFFEIVSISIIA
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