REG - Science Group PLC - Audited results for year ended 31 December 2023
21/03/2024 07:00
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RNS Number : 6886H Science Group PLC 21 March 2024
21 March 2024
SCIENCE GROUP PLC
AUDITED RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2023
Science Group plc (the 'Company') together with its subsidiaries ('Science
Group' or the 'Group') reports its audited results for the year ended 31
December 2023.
· Group revenue increased to £113.3 million (2022: £86.3 million),
including contribution from TP Group acquired in January 2023
· Adjusted* operating profit increased to £20.5 million (2022:
£17.6 million)
· Adjusted* basic earnings per share increased to 33.3 pence (2022:
29.4 pence)
· Dividend proposed to increase by 60% to 8.0 pence (2022: 5.0
pence), reflecting the significant increase in scale of the Group in recent
years
· Share buy-back of £3.9 million in 2023 at an average price of 403
pence (2022: £1.3 million at average 408 pence). Programme anticipated to
continue in 2024
· Year-end cash of £30.9 million with net funds of £18.0 million
(2022: £43.6 million and £29.5 million, respectively) after completion of
the TP Group acquisition and share buy-back. Additional undrawn credit
facility of £25.0 million
Science Group plc
Martyn Ratcliffe, Executive Chair Tel: +44 (0) 1223 875 200
Jon Brett, Finance Director www.sciencegroup.com (http://www.sciencegroup.com)
Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker)
Nick Adams, Fred Walsh, Richard Short Tel: +44 (0) 20 7710 7600
Liberum Capital Limited (Joint Broker)
Max Jones, Miquela Bezuidenhoudt Tel: +44 (0) 20 3100 2000
* Alternative performance measures are provided in order to reflect the
underlying financial performance of the Group. Refer to Note 1 for detail and
explanation of the measures used.
Statement of Executive Chair
Science Group plc is an international science & technology consultancy and
systems organisation. The Group's operating businesses are supported by a
scalable corporate and shared services infrastructure and underpinned by a
robust balance sheet including significant cash resources and freehold
property assets.
Since 2010, the Group has established a strong operating track record,
enhanced by a successful M&A strategy, delivering consistent performance
through economic volatility, the pandemic and geo-political instability. In
2023, Science Group again demonstrated the effectiveness of its operating
model in a challenging macro-environment and, whilst not immune to market
dynamics, the Group has reported record underlying operating results.
Financial Summary
For the year ended 31 December 2023, Science Group reported revenue of £113.3
million (2022: £86.3 million). Adjusted operating profit increased to £20.5
million (2022: £17.6 million) and adjusted basic earnings per share increased
to 33.3 pence (2022: 29.4 pence). Consistent with the Board's emphasis on cash
flow, the Group does not capitalise R&D costs although certain
investments, of between £1.0 million and £1.5 million, could have been
considered appropriate for capitalisation.
Adjusting items, which are primarily non-cash, are detailed in the Finance
Director's report and include one-off items related to the TP Group ('TPG')
acquisition (completed in January 2023). Accordingly, the Group's reported
statutory operating profit was £8.1 million for the year (2022: £11.7
million) and profit before tax was £7.6 million (2022: £11.1 million). The
Group also incurred a higher tax charge, impacting statutory post-tax profit
and basic earnings per share.
Science Group retains an asset-rich balance sheet, including significant cash
resources and freehold property. Despite completing the Group's largest
acquisition in January 2023 (cash outflow in the year of approximately £13.9
million) and a substantial share buy-back programme (cash outflow of £3.9
million), at 31 December 2023 Group cash was £30.9 million (2022: £43.6
million) and net funds were £18.0 million (2022: £29.5 million). The Group's
term loan, which expires in 2026, was £13.0 million (2022: £14.1 million) in
addition to which the Group has an undrawn £25 million Revolving Credit
Facility ('RCF') which has been extended to December 2026.
Consultancy Services
The nucleus of Science Group is an international science and technology
consultancy, providing technical/scientific advisory, product development and
regulatory services to the Industrial, Defence & Aerospace, Medical and
Consumer (including Food & Beverage) sectors. The deep technical and
scientific expertise combined with specialist industry knowledge defines the
strategy of Science Group's Consultancy operations.
The Consultancy Division comprises distinct practices, characterised by
capability, geography or industry sector. Whilst operating autonomously, these
practices have tangible synergies and collaboration is actively developed,
supported by common incentive programmes, to realise the benefits of scale.
For example, a substantial proportion of projects in 2023 addressed
sustainability objectives of Science Group clients achieved through
multi-disciplinary teams.
The completion of the acquisition of TPG in January 2023 expanded the Group's
addressable market with the addition of Defence and Aerospace focused
consultancy services ('TPGS'), while also opening up new opportunities for the
Group's existing capabilities. Like most market sectors, Defence and Aerospace
has high barriers to entry, requiring an understanding of the market
characteristics, processes and dynamics.
For the year ended 31 December 2023, the Consultancy Services operations
generated revenue of £81.3 million (2022: £60.7 million), including eleven
months of TPGS producing an adjusted operating profit increase to £20.4
million (2022: £16.2 million). The established operations within the Division
deliver consistently high margins, reflecting the market positioning of
Science Group and an efficient operating model, but the margin overall in 2023
reduced due to the currently lower profitability of TPGS.
While the TPGS integration increased the proportion of Consultancy revenue
derived from the UK, the Consultancy Division remains internationally
diversified with around 30% of revenues invoiced in US dollars in addition to
other currencies. Given the proportion of revenue invoiced in US dollars,
against a primarily Sterling cost base, the Board initiated a currency hedging
option for a proportion of the Consultancy cash flows in 2023 and a similar
instrument has been adopted for 2024.
Systems Businesses
The Group has two systems businesses, both of which have leading positions in
their niche markets. These 'satellites' operate independently but are
supported by the Group's corporate and shared services infrastructure and have
access to the Consultancy Division's science, technology and engineering
expertise providing R&D breadth and depth far beyond what would typically
be available to operations of their scale. In aggregate, for the year ended 31
December 2023, the Systems businesses reported revenue of £31.2 million
(2022: £25.0 million) and an adjusted operating profit of £2.2 million
(2022: £3.9 million).
Submarine Atmosphere Management Systems (CMS2) was part of TP Group and
required considerable attention following Science Group's initial investment
in 2021. This focus has continued after the acquisition was completed in 2023,
including strengthening management, improving operational/commercial
process/governance and R&D support. While servicing an international
client base, the systems are of a highly bespoke nature and the business
remains dependent on the UK defence market. For the eleven months ended 31
December 2023, CMS2 reported revenue of £21.3 million (2022: £nil) of which
added-value and services contribute around 60%. The adjusted operating margin
in 2023 was higher than anticipated, benefitting from some one-off effects.
Audio Chips and Modules (Frontier) is the global market leader in
DAB/DAB+/Smart Radio chips and modules and is developing new-technology
connected audio products. In line with the broader consumer electronics
market, the economic downturn, compounded by overstocking in the distribution
channel related to the post-Covid supply chain imbalances, impacted the
Frontier business in 2023. As a result, revenue reduced to £10.0 million
(2022: £25.0 million) with a small operating loss, although this included
significant investment in new product development, all of which was expensed
in the year with no capitalisation of R&D. Despite the challenging market
conditions, Frontier is believed to have retained its substantial market share
and premium positioning and the Board anticipates the business will see a
recovery in 2024, benefitting from wider market/economic dynamics and the
operational cost reduction actions undertaken during the past year.
Corporate
The corporate function is responsible for the strategic development and
governance of Science Group. The underlying costs of the corporate function
were static at £2.6 million (2022: £2.6 million). Total corporate costs
additionally include one-off items associated with acquisitions and therefore
are reported as £8.1 million (2022: £3.2 million). These primarily non-cash
adjusting items are detailed in the Finance Director's report.
During the year, the Company repurchased 961,385 shares at a total cost of
£3.9 million (2022: £1.3 million), equivalent to an average price of 403
pence per share. At 31 December 2023, shares in issue (excluding treasury
shares held of 0.7 million) were 45.5 million (2022: 45.4 million excluding
treasury shares held of 0.7 million). The Board anticipates continuing the
buy-back programme in 2024, as appropriate.
Reflecting the significant increase in the scale of Science Group in recent
years, together with the track record of performance, the Board is
recommending increasing the dividend by 60% to 8.0 pence per share (2022: 5.0
pence per share). Subject to shareholder approval at the Annual General
Meeting ('AGM'), the dividend will be payable on 19 July 2024 to shareholders
on the register at the close of business on 21 June 2024.
Science Group owns two freehold properties, Harston Mill, near Cambridge, and
Great Burgh, near Epsom, the primary function of which is to host the Group's
operating businesses. The Group charges market rents to the operating
businesses and lets out part of the Harston Mill site to third parties. For
the year ended 31 December 2023, the rental and associated services income
derived from this activity was £4.2 million (2022: £4.1 million), of which
around 20% is generated from third party tenants. Intra-group rental charges
are eliminated on Group consolidation. The last independent valuation of the
freehold properties (December 2023) indicated an aggregate value in the range
of £16.9 million to £31.6 million, although for consistency the properties
are held on the balance sheet on a cost basis of £20.6 million (2022: £20.8
million).
Environmental Reporting
In 2023 the Group undertook Streamlined Energy and Carbon Reporting (SECR) for
the first time and is reporting Scope 1, 2 and mandatory Scope 3 emissions
from its UK operations. The Group is also disclosing climate-related risk in
line with the Task Force on Climate-Related Financial Disclosures (TCFD)
framework. For the latter initiative, the Group worked with a specialist
third-party consultancy, and concluded that the Group's exposure to
climate-related risk is low.
Summary and Outlook
In summary, Science Group has delivered another solid performance in 2023.
This resilience has been achieved against the backdrop of significant
geopolitical and economic instability which the Board anticipates will persist
through the first half of 2024.
The acquisition of TP Group materially increased the scale and expanded the
addressable market of Science Group. The contribution made by the TP Group
businesses in 2023 indicates that the acquisition remains on trajectory to
meet the Group's acquisition objectives.
For over a decade, Science Group has demonstrated a consistent operating track
record, enhanced by a successful M&A programme, delivering a substantial
return for shareholders. While the Group has the ambition and capability to
accelerate the strategy, the relative valuation of the company against both UK
and international comparators may prove a material constraint. The Board will
therefore consider all options to address this disparity and deliver value to
shareholders.
Martyn Ratcliffe
Executive Chair
Finance Director's Report
Overview of Results
In the year ended 31 December 2023, the Group generated revenue of £113.3
million (2022: £86.3 million). Revenue from the Consultancy Services
Segment, that is revenue derived from consultancy services and materials
recharged on projects, increased to £81.3 million (2022: £60.7 million)
while Systems revenue generated by the CMS2 Business was £21.3 million (2022:
£nil) and Systems revenue generated by the Frontier Business was £10.0
million (2022: £25.0 million). Revenue generated by freehold properties,
comprising property and associated services income derived from space let to
third parties in the Harston Mill facility, was £0.8 million (2022: £0.7
million).
Adjusted operating profit for the Group increased to £20.5 million (2022:
£17.6 million). There were one-off adjusting items related to the TP Group
plc ('TPG') acquisition, which completed on 26 January 2023, totalling £5.5
million (2022: £0.5 million). The majority of these were non-cash and
included items such as: share of loss for the period held as an associate;
remeasurement of share valuation at point of acquisition (in accordance with
IFRS 3 Business Combinations); professional fees; and
integration/restructuring. In addition, and driven by the acquisition of TPG,
amortisation of acquisition-related intangible assets increased to £4.9
million (2022: £3.8 million). Share-based payment charges for the year
totalled £2.0 million (2022: £1.6 million), which resulted in statutory
profit before tax of £7.6 million (2022: £11.1 million). After net finance
costs of £0.5 million (2022: £0.6 million) and a tax charge of £2.1 million
(2022: £0.5 million), statutory profit after tax was £5.5 million (2022:
£10.6 million). Statutory basic earnings per share was 12.1 pence (2022: 23.2
pence per share).
Adjusted operating profit is an alternative profit measure that is calculated
as operating profit excluding acquisition integration costs, amortisation of
acquisition related intangible assets, share based payment charges, and other
specified items that meet the criteria to be adjusted. Refer to the notes to
the financial statements for further information on this and other alternative
performance measures.
TP Group plc ('TPG')
Prior to 2023, through on-market purchases of shares, the Group had acquired
an associate shareholding in TPG. A full acquisition was completed through a
court-approved Scheme of Arrangement on 26 January 2023, at which point TPG
became a 100% subsidiary of the Group.
As well as providing an entry into the defence sector, the acquisition of TPG
has significantly increased the scale of Science Group. In 2023, the TPG
trading entities contributed £44.9 million towards Group revenue.
Foreign Exchange
The acquisition of TPG, where revenue is denominated in Sterling, has reduced
the Group's overall exposure to foreign exchange, however, there remains a
reasonable proportion of the Group's revenue denominated in currencies other
than Sterling. In 2023, £34.6 million of the Group's operating business
revenue was denominated in US Dollars (2022: £54.7 million), including all of
Frontier's revenue. In addition, £3.9 million of the Group operating business
revenue was denominated in Euros (2022: £2.7 million). The average exchange
rates during 2023 were 1.24 for US Dollars and 1.15 for Euros (2022: 1.24 and
1.18 respectively).
In 2022, to provide greater forward visibility around foreign exchange, the
Group acquired a currency exchange instrument to cap the Sterling:US Dollar
rate in relation to certain consultancy cash flows through to the end of 2023.
The instrument applied to $1.25 million per month at an exchange rate of
$1.20/£1, whilst still allowing the business to benefit from lower spot
exchange rates if available. A similar no obligation cap has been put in place
through 2024 for $1.0 million per month at an exchange rate of $1.25/£1.
Taxation
The tax charge for the year was £2.1 million (2022: £0.5 million). The
increase is partly explained by tax at a higher rate, with the UK corporation
tax rate increasing from 19% to 25% in April 2023. However, as a
comparative, the 2022 tax charge was exceptionally low due to deferred tax and
some over accrual in 2021.
At 31 December 2023, Science Group had £29.3 million (2022: £26.7 million)
of tax losses, the largest components of which related to Frontier (£19.2
million (2022: £17.1 million)) and TPG (£5.9 million (2022: £nil)). £9.1
million (2022: £8.7 million) of the Frontier losses, and £5.4 million (2022:
£nil) of the TPG losses are recognised as deferred tax assets which are
anticipated to be used to offset future taxable profits. The balances of
£10.1 million (2022: £8.4 million) of the Frontier losses and £0.5 million
(2022: £nil) of the TPG losses have not been recognised as deferred tax
assets due to the uncertainty in the timing of utilisation of these losses.
Aside from these amounts, the Group has other tax losses of £4.2 million
(2022: £9.6 million) unrecognised as a deferred tax asset due to the low
probability that these losses will be utilised.
Financing and Cash
Cash flow from operating activities (excluding Client Registration Funds) was
£8.9 million (2022: £15.3 million). Reported cash from operating activities
in accordance with IFRS was £7.9 million (2022: £15.3 million). The
difference in these two metrics relates to the fact that one of the Group's
businesses, TSG, processes regulatory registration payments on behalf of
clients. The alternative performance measure, by excluding Client Registration
Funds, reflects the Group's available cash position and cash flow.
The Group's term loan with Lloyds Bank plc, secured on the Group's freehold
properties, is a 10-year fixed term loan expiring in 2026. Phased interest
rate swaps hedge the loan resulting in a fixed effective interest rate of
3.5%, comprising: a margin over the Sterling Overnight Index Average
('SONIA'); the cost of the loan arrangement fee; and, the cost of the swap
instruments. The Group has adopted hedge accounting for the interest rate
swaps related to the bank loan under IFRS 9, Financial Instruments, and the
change in fair value of the interest rate swaps was recognised in Other
Comprehensive Income (2023: a loss of £0.5 million, 2022: a gain of £1.3
million).
In December 2021, in addition to the term loan, the Group signed a £25.0
million revolving credit facility ('RCF') with Lloyds Bank plc in order to
provide additional capital resources to enable the execution of the Group's
acquisition strategy. The RCF is for up to £25.0 million, with an additional
£5.0 million accordion option. The agreement was initially for a 4-year term
with an optional 1-year extension which was activated in December 2023, so the
term now runs to December 2026. The margin on drawn sums is 3.3% over SONIA
and is 1.1% per annum on undrawn amounts. Drawn amounts are secured on the
Group's assets by debentures. At 31 December 2023, the RCF remained undrawn.
The RCF has two financial covenants with which the Group needs to comply if
the facility is drawn: (i) the Group's net leverage, as defined as the net
debt divided by the rolling 12 month EBITDA, should not exceed 2.5; and (ii)
the Group's interest cover, as defined as the rolling 12 month EBITDA divided
by the rolling interest payments on all borrowings, should not be less than
4.0. Reporting is on a 6 monthly basis unless the net leverage exceeds 2, in
which case reporting moves to quarterly until net leverage returns to below 2
again. For the term of the RCF, the previous covenants for the term loan are
superseded by the covenants of the RCF and will not apply.
The Group cash balance (excluding Client Registration Funds) at 31 December
2023 was £30.9 million (2022: £43.6 million) and net funds were £18.0
million (2022: £29.5 million). Client Registration Funds of £1.9 million
(2022: £2.9 million) were held at the year end. Working capital was partly
impacted by the TPG acquisition, together with some one-off project
prepayments received at the end of 2022, which have since normalised. Working
capital management during the year continued to be a focus with debtor days of
40 days at 31 December 2023 (2022: 43 days) and inventory days of 121 days
(2022: 197 days).
Share Capital
At 31 December 2023, the Company had 45,458,972 ordinary shares in issue
(2022: 45,436,823) and the Company held an additional 726,902 shares in
treasury (2022: 749,051). Of the ordinary shares in issue, no shares are held
by the Frontier Employee Benefit Trust (2022: 34,800). The voting rights in
the Company at 31 December 2023 are 45,458,972 (2022: 45,402,023). In this
report, all references to measures relative to the number of shares in issue
exclude shares held in treasury unless explicitly stated to the contrary.
Jon Brett
Finance Director
Consolidated Income Statement
For the year ended 31 December 2023
Note 2023 2022
£000 £000
Revenue 2 113,341 86,301
Direct operating expenses (67,090) (47,947)
Sales and marketing expenses (9,206) (9,754)
Administrative expenses (28,731) (17,504)
Share of (loss)/profit of equity accounted investment (169) 602
Adjusted operating profit 2 20,535 17,602
Acquisition integration costs (518) (1,128)
Amortisation of acquisition related intangible assets 7 (4,944) (3,766)
Loss on remeasurement of equity-accounted investment (4,762) -
Share-based payment charge (1,997) (1,612)
Share of (loss)/profit of equity-accounted investment (169) 602
Operating profit 8,145 11,698
Finance income 679 375
Finance costs (1,205) (977)
Profit before tax 7,619 11,096
Tax charge (net of R&D tax credit of £517,000
(2022: £530,000))
3 (2,095) (541)
Profit for the year 5,524 10,555
Earnings per share
Earnings per share (basic) 5 12.1p 23.2p
Earnings per share (diluted) 5 12.0p 22.6p
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
2023 2022
£000
£000
Profit for the year attributable to:
Equity holders of the parent 5,524 10,555
Profit for the year 5,524 10,555
Other comprehensive income items
that will or may be reclassified to profit or loss:
Exchange differences on translating foreign operations (848) 2,372
Fair value (loss)/gain on financial instruments (441) 1,499
Deferred tax credit/(charge) on financial instruments 147 (414)
Other comprehensive (expense)/income for the year (1,142) 3,457
Total comprehensive income for the period attributable to:
Equity holders of the parent 4,382 14,012
Total comprehensive income for the year 4,382 14,012
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2023
Share capital Share premium Treasury shares Merger reserve Translation reserve Cashflow hedge reserve Retained earnings Total equity
£000 £000 £000 £000 £000
£000 £000 £000
Balance at 1 January 2022 462 26,834 (1,242) 10,343 (758) 74 30,579 66,292
Contributions and distributions:
Purchase of own shares - - (1,321) - - - - (1,321)
Issue of shares out of treasury - - 370 - - - (369) 1
Dividends paid (Note 6) - - - - - - (2,270) (2,270)
Share-based payment charge - - - - - - 1,612 1,612
Deferred tax charge on share-based payment transactions - - - - - - (127) (127)
Transactions with owners - - (951) - - - (1,154) (2,105)
Profit for the year - - - - - - 10,555 10,555
Other comprehensive income items that
will or maybe reclassed to profit or loss:
Fair value gain on financial instruments - - - - - 1,499 - 1,499
Exchange differences on translating foreign operations - - - - 2,372 - - 2,372
Deferred tax charge on financial instruments - - - - - (414) - (414)
Total comprehensive income for the year - - - - 2,372 1,085 10,555 14,012
Balance at 31 December 2022 462 26,834 (2,193) 10,343 1,614 1,159 39,980 78,199
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2023
Share capital Share premium Treasury shares Merger reserve Translation reserve Cashflow hedge reserve Retained earnings Total equity
£000 £000 £000 £000 £000
£000 £000 £000
Balance at 1 January 2023 462 26,834 (2,193) 10,343 1,614 1,159 39,980 78,199
Contributions and distributions:
Purchase of own shares - - (3,875) - - - - (3,875)
Issue of shares out of treasury - - 3,138 - - - (3,128) 10
Dividends paid (Note 6) - - - - - - (2,259) (2,259)
Share-based payment charge - - - - - - 1,997 1,997
Deferred tax charge on share-based payment transactions - - - - - - (467) (467)
Transactions with owners - - (737) - - - (3,857) (4,594)
Profit for the year - - - - - - 5,524 5,524
Other comprehensive income items that
will or maybe reclassed to profit or loss:
Fair value loss on financial instruments - - - - - (441) - (441)
Exchange differences on translating foreign operations - - - - (848) - - (848)
Deferred tax charge on financial instruments - - - - - 147 - 147
Total comprehensive income for the year - - - - (848) (294) 5,524 4,382
Balance at 31 December 2023 462 26,834 (2,930) 10,343 766 865 41,647 77,987
Consolidated Balance Sheet
At 31 December 2023
Note 2023 2022
£000 £000
Assets
Non-current assets
Acquisition related intangible assets 7 25,845 10,815
Goodwill 7 18,878 14,975
Property, plant and equipment 25,477 23,867
Investments - 10,054
Derivative financial instruments 886 1,417
Deferred tax assets 4 2,071 2,176
73,157 63,304
Current assets
Inventories 8 1,332 2,477
Trade and other receivables 9 23,315 12,992
Current tax assets 1,516 1,607
Derivative financial instruments 301 384
Cash and cash equivalents - Group cash 10 30,949 43,645
Cash and cash equivalents - Client registration funds 10 1,881 2,867
59,294 63,972
Total assets 132,451 127,276
Liabilities
Current liabilities
Trade and other payables 11 32,041 31,546
Current tax liabilities 379 331
Provisions 12 1,481 849
Borrowings 14 1,200 1,200
Lease liabilities 626 720
35,727 34,646
Non-current liabilities
Provisions 12 889 248
Borrowings 14 11,756 12,939
Lease liabilities 3,319 1,162
Deferred tax liabilities 4 2,773 82
18,737 14,431
Total liabilities 54,464 49,077
Net assets 77,987 78,199
Shareholders' equity
Share capital 13 462 462
Share premium 26,834 26,834
Treasury shares (2,930) (2,193)
Merger reserve 10,343 10,343
Translation reserve 766 1,614
Cash flow hedge reserve 865 1,159
Retained earnings 41,647 39,980
Total equity 77,987 78,199
Consolidated Statement of Cash Flows
For the year ended 31 December 2023
Note 2023 2022
£000 £000
Profit before income tax 7,619 11,096
Adjustments for:
Share of loss/(profit) of equity accounted investment 169 (602)
Loss on remeasurement of equity-accounted investee 4,762 -
Amortisation of acquisition related intangible assets 7 4,944 3,766
Depreciation of property, plant and equipment 694 655
Reversal of impairment of right-of-use assets - (215)
Depreciation of right-of-use assets 1,053 827
Bank charges on derivative financial instruments 422 359
Net interest cost 526 602
Share-based payment charge 1,997 1,612
Decrease/(increase) in inventories 1,222 (23)
(Increase)/decrease in receivables (2,019) (680)
Decrease in payables representing client registration funds (986) (7)
(Decrease)/increase in payables excluding balances representing client (10,760) 1,235
registration funds*
Increase/(decrease) in provisions 662 (263)
Cash generated from operations 10,305 18,362
Interest paid (1,106) (808)
UK corporation tax paid (962) (1,017)
Foreign corporation tax paid (325) (1,266)
Cash flows from operating activities 7,912 15,271
Interest received 583 271
Purchase of property, plant and equipment (80) (92)
Purchase of interest in associated company - (213)
Purchase of subsidiary undertakings, net of cash and borrowing acquired (13,923) -
15
Sale of subsidiary, net of cash sold 638 -
Cash flows used in investing activities (12,782) (34)
Issue of shares out of treasury 10 1
Repurchase of own shares (3,875) (1,321)
Dividends paid (2,259) (2,270)
Purchase of derivative financial instruments (250) (531)
Repayment of term loan 14 (1,200) (1,200)
Payment of lease liabilities (912) (1,135)
Cash flows from financing activities (8,486) (6,456)
(Decrease)/increase in cash and cash equivalents in the year (13,356) 8,781
Cash and cash equivalents at the beginning of the year 46,512 37,189
Exchange (loss)/gain on cash (326) 542
Cash and cash equivalents at the end of the year 10 32,830 46,512
*Includes transaction costs associated with the acquisition of TP Group plc.
Cash and cash equivalents are analysed as follows:
Note 2023 2022
£000
£000
Cash and cash equivalents - Group cash 10 30,949 43,645
Cash and cash equivalents - Client registration funds 10 1,881 2,867
32,830 46,512
Extracts from notes to the financial statements
1. General Information
Science Group plc (the 'Company') together with its subsidiaries ('Science
Group' or the 'Group') is an international science & technology
consultancy and systems organisation, supported by a strong balance sheet.
The Group and Company Financial Statements of Science Group plc were prepared
under the International Financial Reporting Standards ('IFRS') as adopted by
the UK in conformity with the requirements of the Companies Act 2006 and have
been audited by Grant Thornton UK LLP. Accounts are available from the
Company's registered office; Harston Mill, Harston, Cambridge, CB22 7GG.
The Company is incorporated and domiciled in England and Wales under the
Companies Act 2006 and has its primary listing on the Alternative Investment
Market of the London Stock Exchange (SAG.L). The value of Science Group plc
shares, as quoted on the London Stock Exchange on 31 December 2023, was 392.0
pence per share (31 December 2022: 395.0 pence per share).
Alternative performance measures
The Group uses alternative non-Generally Accepted Accounting Principles
performance measures of 'adjusted operating profit', 'adjusted earnings per
share' and 'net funds' which are not defined within IFRS. These are explained
as follows:
(a) Adjusted Operating Profit
The Group calculates this measure by adjusting to exclude certain items from
operating profit namely: amortisation of acquisition related intangible
assets, acquisition integration costs, share-based payment charges and other
specified items that meet the criteria to be adjusted.
The criteria for the adjusted items in the calculation of adjusted operating
profit is operating income or expenses that are material and either arise from
an irregular and significant event or the income/cost is recognised in a
pattern that is unrelated to the resulting operational performance.
Materiality is defined as an amount which, to a user, would influence the
decision making. Acquisition integration costs include all costs incurred
directly related to the restructuring, relocation and integration of acquired
businesses. Adjustments for share-based payment charges occur because: once
the cost has been calculated, the Directors cannot influence the share-based
payment charge incurred in subsequent years; it is understood that many
investors/analysts exclude the cost from their valuation analysis of the
business; and the value of the share option to the employee differs
considerably in value and timing from the actual cash cost to the Group.
The calculation of this measure is shown on the Consolidated Income Statement.
(b) Adjusted Earnings Per Share
The Group calculates this measure by dividing adjusted profit after tax by the
weighted average number of shares in issue and the calculation of this measure
is disclosed in Note 5. The tax rate applied to calculate the tax charge in
this measure is the tax at the blended corporation tax rate across the various
jurisdictions for the year which is 24.1% (2022: 21.4%) which results in a
comparable tax charge year on year.
(c) Net Funds
The Group calculates this measure as the net of cash and cash equivalents -
Group cash and Borrowings. Client registration funds are excluded from this
calculation because these monies are for the purpose of payment of
registration fees to regulatory bodies. This cash is separately identified
for reporting purposes and is unrestricted. This measure is calculated as
follows:
Note 2023 2022
£000 £000
Cash and cash equivalents - Group cash 10 30,949 43,645
Borrowings 14 (12,956) (14,139)
Net funds 17,993 29,506
Alternative performance measures
The Directors believe that disclosing these alternative performance measures
enhances shareholders' ability to evaluate and analyse the underlying
financial performance of the Group. Specifically, the adjusted operating
profit measure is used internally in order to assess the underlying
operational performance of the Group, aid financial, operational and
commercial decisions and in determining employee compensation. The adjusted
EPS measure allows the shareholder to understand the underlying value
generated by the Group on a per share basis. Net funds represent the Group's
cash available for day-to-day operations and investments. As such, the Board
considers these measures to enhance shareholders' understanding of the Group
results and should be considered alongside the IFRS measures.
Going concern
The Directors have undertaken a comprehensive going concern review. In
adopting the going concern basis for preparing these Consolidated Financial
Statements, the Directors have undertaken a review of the Group's cash flows
forecasts and available liquidity, along with consideration of the principal
risks and uncertainties over an 18-month period to September 2025. Recognising
the challenges of reliably estimating and forecasting the impact of external
factors on the Group, the Directors have considered two forecasts in the
assessment of going concern, along with a likelihood assessment of these
forecasts being:
· Base case, which reflects the Directors' current expectations of
future trading; and
· Severe but plausible downside forecast which envisages a 'stress'
or 'downside' situation.
After reviewing the current liquidity position and the cash flow forecasts
modelled under both the base case and stressed downside, the Directors
consider that the Group has sufficient liquidity to continue in operational
existence for a period of at least 18 months form the date of this report and
are satisfied that it is appropriate to adopt the going concern basis of
accounting in preparing the Consolidated Financial Statements.
In reaching these conclusions the Directors noted that the Group had a cash
balance at 31 December 2023 of £30.9 million (excluding client registration
funds but including short- term investments) and net funds of £18.0 million,
together with the undrawn Revolving Credit Facility ('RCF') of £25.0 million.
2. Segment Information
The Group's segmental reporting shows the performance of the operating
businesses separately from the value generated by the Group's significant
freehold property assets and the Corporate costs. The Consultancy Services
Segment consists of three Practices: (i) Research & Development, (ii)
Regulatory & Compliance and (iii) Defence & Aerospace. Financial
information is provided to the Chief Operating Decision Makers ('CODMs') in
line with this structure: the Consultancy Services Segment; the two Systems
Businesses (Submarine Atmosphere Management and Audio Chips and Modules); the
Freehold Properties and Corporate costs.
The Consultancy Services Practices are aggregated into one Consultancy
Services Segment because the Practices and the services they provide have
similar economic characteristics. This aggregation does not impact the user's
ability to understand the entity's performance, its prospects for future cash
flows or the user's decisions about the entity as a whole as it is a fair
representation of the performance of each service line.
Consultancy Services revenue includes all consultancy fees and other revenue
includes recharged materials and expenses relating directly to Consultancy
Services activities. Systems - Submarine Atmosphere Management revenue
includes the development, manufacture and support of specialist systems for
submarine atmosphere management, used in UK and International naval defence
markets. Systems - Audio Chips and Modules revenue includes sales of chips and
modules which are incorporated into digital radios. The Freehold Properties
Segment includes the results for the two freehold properties owned by the
Group. Income is derived from third party tenants from the Harston Mill site
and from internal businesses which have been charged fees at an arm's length
market rental rate for their utilised property space and associated costs.
Corporate costs include PLC/Group costs.
The segmental analysis is reviewed to operating profit. Other resources are
shared across the Group.
Consultancy Services 2023 2022
£000 £000
Services revenue 79,729 58,242
Other 1,553 2,423
Revenue 81,282 60,665
Adjusted operating profit 20,355 16,200
Amortisation of acquisition related intangible assets (1,918) (1,463)
Share-based payment charge (1,557) (1,249)
Operating profit 16,880 13,488
Systems - Submarine Atmosphere Management 2023 2022
£000 £000
Systems revenue - Submarine Atmosphere Management 21,265 -
Revenue 21,265 -
Adjusted operating profit 3,619 -
Amortisation of acquisition related intangible assets (752) -
Share-based payment charge (77) -
Operating profit 2,790 -
Systems - Audio Chips and Modules 2023 2022
£000 £000
Systems revenue - Audio Chips and Modules 9,975 24,979
Revenue 9,975 24,979
Adjusted operating (loss)/profit (1,427) 3,869
Amortisation of acquisition related intangible assets (2,274) (2,303)
Share-based payment charge (229) (265)
Operating (loss)/profit (3,930) 1,301
Freehold Properties 2023 2022
£000 £000
Inter-company property income 3,398 3,436
Third party property income 819 657
Revenue 4,217 4,093
Adjusted operating profit 597 132
Share-based payment charge (44) (42)
Operating profit 553 90
Corporate 2023 2022
£000 £000
Adjusted operating loss (2,609) (2,599)
Acquisition integration costs (518) (1,128)
Loss on remeasurement of equity-accounted investment (4,762) -
Share-based payment charge (90) (56)
Share of (loss)/profit of equity accounted investment (169) 602
Operating loss (8,148) (3,181)
Group 2023 2022
£000 £000
Consultancy Services revenue 79,729 58,242
Systems revenue - Submarine Atmosphere Management 21,265 -
Systems revenue - Audio Chips and Modules 9,975 24,979
Third party property income 819 657
Other 1,553 2,423
Revenue 113,341 86,301
Adjusted operating profit 20,535 17,602
Acquisition integration costs (518) (1,128)
Amortisation of acquisition related intangible assets (4,944) (3,766)
Loss on remeasurement of equity-accounted investment (4,762) -
Share-based payment charge (1,997) (1,612)
Share of (loss)/profit of equity accounted investment (169) 602
Operating profit 8,145 11,698
Net finance costs (526) (602)
Profit before income tax 7,619 11,096
Income tax charge (2,095) (541)
Profit for the period 5,524 10,555
Geographical and currency revenue analysis
Primary geographic markets 2023 2022
£000 £000
United Kingdom 52,522 13,240
Other European Countries 14,202 10,621
North America 29,056 35,878
Asia 16,641 26,047
Other 920 515
113,341 86,301
Currency 2023 2022
£000 £000
US Dollar 34,642 54,663
Euro 3,876 2,669
Sterling 74,823 28,969
113,341 86,301
3. Income Tax
The tax charge comprises:
Year ended 31 December Note 2023 2022
£000
£000
Current taxation (3,056) (2,666)
Current taxation - adjustment in respect of prior years 84 539
Deferred taxation 4 317 643
Deferred taxation - adjustment in respect of prior years 43 413
R&D tax credit 517 530
(2,095) (541)
The adjustments in prior years are due to estimation differences related to
the tax charge.
The corporation tax on Science Group's profit before tax differs from the
theoretical amount that would arise using the blended corporation tax rate
across the various jurisdictions applicable to profits/(losses) of the
consolidated companies of 24.1% (2022: 21.4%) as follows:
2023 2022
£000
£000
Profit before tax 7,619 11,096
Tax calculated at domestic tax rates applicable to profits/(losses) in the (1,836)
respective countries
(2,374)
Expenses not deductible for tax purposes (1,589) (389)
Adjustment in respect of prior years - current tax 84 539
Adjustment in respect of prior years - deferred tax 43 413
Movement in deferred tax due to change in tax rate - (35)
Share scheme movements 554 281
Utilisation of losses previously not recognized 241 569
Tax losses not recognized (71) (190)
Share of (loss)/profit of equity accounted investment (38) 115
R&D tax credit 517 530
Tax charge (2,095) (541)
The Group claims Research and Development tax credits under the R&D
expenditure credit scheme. In the current year, the Group recognised a tax
credit of £0.5 million (2022: £0.5 million). The Group performed a
reasonable estimate of all amounts involved to determine the R&D tax
credits to be recognised in the period to which it relates.
4. Deferred Tax
The movement in deferred tax assets and liabilities during the year by each
type of temporary difference is as follows:
Accelerated capital allowances Tax losses Share-based payment Acquisition related intangible assets Other temporary differences Total
£000 £000 £000 £000 £000 £000
At 1 January 2022 (46) 2,120 1,389 (2,205) 193 1,451
(Charged)/credited to the Income Statement (131) (190) 506 588 (130) 643
Credited to the Income Statement (adjustment in respect of prior year) 129 - - - 284 413
Charged to Equity - - (127) - (414) (541)
Effect of movements in exchange rates 76 246 - (194) - 128
At 31 December 2022 28 2,176 1,768 (1,811) (67) 2,094
Credited/(charged) to the Income Statement 47 (678) 66 985 (103) 317
Deferred taxation relating to acquisitions 4 2,259 - (5,108) 63 (2,782)
(Charged)/credited to the income statement (adjustment in respect of prior (8) - (51) - 102 43
year)
(Charged)/credited to Equity - - (486) - 147 (339)
Effect of movements in exchange rates (5) (115) - 85 - (35)
At 31 December 2023 66 3,642 1,297 (5,849) 142 (702)
2023 2022
£000 £000
Deferred tax assets 2,071 2,176
Deferred tax liabilities (2,773) (82)
Net deferred tax (liabilities)/assets (702) 2,094
At 31 December 2023, Science Group had £29.3 million (2022: £26.7 million)
of tax losses, the largest components of which related to Frontier (£19.2
million (2022: £17.1 million)) and TP Group (£5.9 million (2022: £nil)).
£9.1 million (2022: £8.7 million) of the Frontier losses, and £5.4 million
(2022: £nil) of the TP Group losses are recognised as deferred tax assets
which are anticipated to be used to offset future taxable profits. The
balances of £10.1 million (2022: £8.4 million) of the Frontier losses and
£0.5 million (2022: £nil) of the TP Group losses have not been recognised as
deferred tax assets due to the uncertainty in the timing of utilisation of
these losses. Aside from these amounts, the Group has other tax losses of
£4.2 million (2022: £9.6 million) unrecognised as a deferred tax asset due
to the low probability that these losses will be utilised.
5. Earnings Per Share
The calculation of earnings per share is based on the following result and
weighted average number of shares:
2023 2022
Profit after tax Weighted average number of shares Pence per share Profit after tax Weighted average number of shares Pence per share
£000 £000
Basic earnings per ordinary share 5,524 45,553,584 12.1 10,555 45,525,568 23.2
Effect of dilutive potential ordinary shares: share options - 638,394 (0.1) - 1,268,082 (0.6)
Diluted earnings per ordinary share 5,524 46,191,978 12.0 10,555 46,793,650 22.6
Only the share options granted are dilutive.
The calculation of adjusted earnings per share is as follows:
2023 2022
Adjusted* profit after tax Weighted average number of shares Pence per share Adjusted* profit after tax Weighted average number of shares Pence per share
£000 £000
Adjusted basic earnings per ordinary share 15,187 45,553,584 33.3 13,362 45,525,568 29.4
Effect of dilutive potential ordinary shares: share options - 638,394 (0.4) - 1,268,082 (0.8)
Adjusted diluted earnings per ordinary share 15,187 46,191,978 32.9 13,362 46,793,650 28.6
*Calculation of adjusted profit after tax:
2023 2022
£000 £000
Adjusted operating profit 20,535 17,602
Finance income 679 375
Finance costs (1,205) (977)
Adjusted profit before tax 20,009 17,000
Tax charge at the blended corporation tax rate across the various (4,822) (3,638)
jurisdictions 24.1% (2022: 21.4%)
Adjusted profit after tax 15,187 13,362
The tax charge is calculated using the blended corporation tax rate across the
various jurisdictions in which the Group companies are incorporated.
6. Dividends
The final dividend for 2022 of £2.3 million was paid in June 2023 (2022:
£2.3 million paid for 2021 in June 2022).
The Board has proposed a final dividend for 2023 of 8.0 pence per share (2022:
5.0 pence per share). The dividend is subject to approval by shareholders at
the next Annual General Meeting and the expected cost of £3.6 million has not
been included as a liability as at 31 December 2023.
7. Intangible Assets
Technical know-how and intellectual property rights Customer relationships Goodwill Total
£000
£000 £000
£000
Cost
At 1 January 2022 12,306 13,915 16,585 42,806
Effect of movement in exchange rates 1,350 428 615 2,393
At 31 December 2022 13,656 14,343 17,200 45,199
Acquisitions through business combination 3,346 17,084 4,222 24,652
Effect of movement in exchange rates (679) (211) (319) (1,209)
At 31 December 2023 16,323 31,216 21,103 68,642
Accumulated amortisation
At 1 January 2022 2,464 10,391 - 12,855
Amortisation charged in year 2,172 1,594 - 3,766
Effect of movement in exchange rates 335 221 - 556
At 31 December 2022 4,971 12,206 - 17,177
Amortisation charged in year 2,349 2,595 - 4,944
Effect of movement in exchange rates (296) (138) - (434)
At 31 December 2023 7,024 14,663 - 21,687
Accumulated impairment
At 1 January, 31 December 2022 and 31 December 2023 - 7 2,225 2,232
Carrying amount
At 31 December 2022 8,685 2,130 14,975 25,790
At 31 December 2023 9,299 16,546 18,878 44,723
Goodwill and acquisition related intangible assets recognised arose from
acquisitions during 2013, 2015, 2017, 2019, 2021 and 2023. The discount rates
used for goodwill impairment reviews and the carrying amount of goodwill is
allocated as follows:
2023 2022
Pre-tax discount rate Pre-tax £000
£000 discount rate
R&D Consultancy 17.8% 3,383 16.8% 3,383
Leatherhead Research 18.1% 650 16.9% 650
TSG Americas 17.5% 2,732 15.2% 2,874
TSG Europe 17.9% 4,546 16.6% 4,546
Frontier Smart Technologies Group 20.2% 3,345 17.5% 3,522
CMS2 16.1% 1,576 - -
TPG Services 17.8% 2,646 - -
18,878 14,975
Impairment review of goodwill
The Group tests goodwill annually for impairment or more frequently if there
are indications that goodwill might be impaired. The recoverable amounts of
the Cash Generating Units ('CGUs') are determined from value in use. (CGUs are
a description of a cash-generating unit (such as a whether it is a product
line, a business operation or a reportable segment as defined in IFRS8)). The
key assumptions for the value in use calculations are those regarding the
discount rates and growth or decline rates of revenue.
The Group prepares the cash flow forecasts derived from the most recent annual
financial plan approved by the Board and extrapolates cash flows for the
following four years based on forecast rates of growth or decline in revenue
by the CGU. Beyond 5 years, cash flows were extrapolated using a terminal
growth rate of 2.5% based on historic average inflation rates.
The Group monitors its post-tax weighted average cost of capital and those of
its competitors using market data. In considering the discount rates applying
to CGUs, the Directors have considered the relative sizes, risks and the
inter-dependencies of its CGUs. The impairment reviews use a discount rate
adjusted for pre-tax cash flows and are included in the table above.
8. Inventories
2023 2022
£000 £000
Raw materials 174 263
Work in progress 743 485
Finished goods 415 1,729
1,332 2,477
9. Trade and Other Receivables
2023 2022
£000 £000
Current assets:
Trade receivables 13,899 9,983
Provision for impairment (100) (207)
Trade receivables - net 13,799 9,776
Amounts recoverable on contracts 6,708 1,152
Other receivables 161 90
Other taxation and social security 768 -
VAT 222 215
Prepayments 1,657 1,759
23,315 12,992
All amounts disclosed above, except for prepayments, are receivable within 90
days.
10. Cash and Cash Equivalents
2023 2022
£000 £000
Cash and cash equivalents - Group cash 30,949 43,645
Cash and cash equivalents - Client registration funds 1,881 2,867
32,830 46,512
The Group receives cash from clients, primarily in North America, for the
purpose of payment of registration fees to regulatory bodies. This cash is
separately identified for reporting purposes and is unrestricted.
A balance of £10.0 million (2022: £nil) was held in two fixed term deposit
accounts of £5.0 million each, with maturity dates of 31 January 2024 and 15
March 2024.
11. Trade and Other Payables
2023 2022
£000 £000
Current liabilities:
Contract liabilities 17,550 19,679
Trade payables 4,106 1,689
Other taxation and social security 1,730 1,460
VAT 998 250
Accruals 7,657 8,468
32,041 31,546
12. Provisions
Group Dilapidations Restructuring Legal Other Total
£000
£000 £000 £000 £000
At 1 January 2022 770 70 440 - 1,280
Provisions made during the year 44 - 190 - 234
Provisions used during the year (2) - (152) - (154)
Provisions reversed during the year (164) (30) (149) - (343)
Effect of movement in exchange rates 58 - 22 - 80
At 1 January 2023 706 40 351 - 1,097
Assumed in business combination 271 - 135 393 799
Disposed - - - (138) (138)
Provisions made during the year 84 - 454 768 1,306
Provisions used during the year (129) (8) (71) - (208)
Provisions reversed during the year (83) - (289) (34) (406)
Effect of movement in exchange rates (70) - (10) - (80)
At 31 December 2023 779 32 570 989 2,370
Current liabilities 387 32 570 492 1,481
Non-current liabilities 392 - - 497 889
At 31 December 2022 706 40 351 - 1,097
Current liabilities 458 40 351 - 849
Non-current liabilities 248 - - - 248
Dilapidation provisions have been recognised at the present value of the
expected obligation. These discounts will unwind to their undiscounted value
over the remaining lives of the leases via a finance charge within the income
statement.
The average remaining life of the leases as at 31 December 2023 is 2.7 years
(2022: 1.4 years).
The restructuring provision relates to the costs associated with the closure
of some non-trading Group entities.
Legal provisions reflect the best estimate of the future cost of responding to
potential legal claims.
The other provision category relates to provisions made in respect of product
and service deliveries that include warranty provisions. It also includes a
provision for the employer's NIC liability on share options that have vested
(or on the proportion that have vested). As the employee is contractually
responsible for the employer's NIC on any share options exercised and is
required to remit this sum to the Company prior to the share options being
exercised, a corresponding asset is recognised in current assets.
13. Called-up Share Capital
2023 2022
£000 £000
Allotted, called-up and fully paid
Ordinary shares of £0.01 each 462 462
Number Number
Allotted, called-up and fully paid
Ordinary shares of £0.01 each 46,185,874 46,185,874
The allotted, called-up and fully paid share capital of the Company as at 31
December 2023 was 46,185,874 shares (2022: 46,185,874) and the total number of
ordinary shares in issue (excluding treasury shares) was 45,458,972 (2022:
45,436,823). Of the ordinary shares in issue, no shares (2022: 34,800) were
held by the Frontier Smart Technologies Employee Benefit Trust. The total
number of voting rights in the Company is 45,458,972 (2022: 45,402,023).
14. Borrowings
2023 2022
£000 £000
Current bank borrowings 1,200 1,200
Non-current bank borrowings 11,756 12,939
Total borrowings 12,956
14,139
2023 2022
£000 £000
Opening balance 14,139 15,323
Repayments in the year (1,200) (1,200)
Amortisation of loan arrangement fee 17 16
Total borrowings 12,956 14,139
During the year ended 31 December 2016, the Group entered into a 10-year fixed
term loan of £15.0 million which is secured on the freehold properties of the
Group and on which interest is payable based on SONIA plus 2.6% margin.
During the year ended 31 December 2019, the Group increased this existing
loan by £4.8 million to £17.5 million on similar terms. The repayment
profile of the loan is £1.2 million per annum over the term with the
remaining balance repaid on expiry of the loan in 2026. Costs directly
associated with entering into the loan (including the loan increase), have
been offset against the balance outstanding and are being amortised over the
period of the loan.
During the year ended 31 December 2020, the Group drew a further £1.5 million
of loan funds from the £17.5 million existing loan agreement. This was on
similar terms and with no change to the loan repayment profile (i.e. the
quarterly repayments remained the same and the loan balance remains payable on
30 September 2026). Costs directly associated with entering into the
additional loan have been offset against the balance outstanding and are being
amortised over the period of the loan.
The reconciliation of bank loans interest expense is shown below.
2023 2022
£000 £000
Interest expense 499 533
Interest paid (482) (517)
Amortisation of loan arrangement fee (17) (16)
Interest accrual at the year end - -
In December 2021 Science Group plc signed a Revolving Credit Facility ('RCF')
with Lloyds Bank plc in order to provide additional capital resources to
enable the execution of the Group's acquisition strategy. The RCF is for up to
£25.0 million, with an additional £5.0 million accordion option. The
original agreement was for a term of four years, however an option to extend
the term by an additional year was taken by the Group in December 2023
(meaning the term end date is now December 2026). The margin on drawn sums is
3.3% over the Sterling Overnight Index Average ('SONIA') and is 1.1% per annum
on undrawn amounts. Drawn amounts are secured on the Group's assets by
debentures. The RCF is in addition to the Group's existing term loan.
The RCF has two financial covenants with which the Group needs to comply if
the facility is drawn: (i) the Group's net leverage, as defined as the net
debt divided by the rolling 12 month EBITDA, should not exceed 2.5; and (ii)
the Group's interest cover, as defined as the rolling 12 month EBITDA divided
by the rolling interest payments on all borrowings, should not be less than
4.0. Reporting is on a 6 monthly basis unless the net leverage exceeds 2, in
which case reporting moves to quarterly until net leverage returns to below 2
again. For the term of the RCF, the previous covenants for the term loan are
superseded by the covenants of the RCF and will not apply.
The reconciliation of RCF interest expense is shown below.
2023 2022
£000 £000
Interest expense 349 349
Interest paid (268) (268)
Amortisation of RCF arrangement fee (81) (81)
Interest accrual at the year end - -
In accordance with an agreed repayment schedule with the bank, bank borrowings
are repayable to Lloyds Bank plc as follows:
2023 2022
£000
£000
Within one year 1,200 1,200
Between 1 and 2 years 1,200 1,200
Between 2 and 5 years 10,600 11,800
13,000 14,200
In order to address interest rate risk, the Group entered into phased interest
rate swaps in order to fully hedge the loan resulting in a 10-year fixed
effective interest rate of 3.5%. The interest rates on the swaps range from
0.4% to 1.3% which when combined with the margin on the loan economically fix
the finance cost at 3.5%. The notional amount on the interest rate swaps
reduces in line with the repayment of the term loan, so an effective hedge
remains throughout the term of the loan. There are 4 active swaps in place at
31 December 2023, totalling £13.0 million. Of this total, £1.8 million will
mature in September 2025 and the remaining balance of £11.2 million will
mature in September 2026. The fair value of the swap at 31 December 2023 was
an asset of £0.9 million (2022: asset of £1.4 million).
15. Business combinations
On 26 January 2023, the Group completed the acquisition of 100% of the share
capital of TP Group plc, which adds significant scale to the Group and
provides a strategic entry into the defence sector.
The acquisition of TP Group plc was an acquisition which commenced with an
initial holding of 10.2% on 9 August 2021. The Group increased its
shareholding with further share acquisitions across 2021 and 2022. In
October 2022, the Group made an offer to acquire the remaining shares in TP
Group plc through a court-approved Scheme of Arrangement. This became
effective on 26 January 2023, at which point TP Group plc became a fully owned
subsidiary undertaking of Science Group Plc.
The assets and liabilities acquired were as follows:
Book Value Fair Value Adjustment Fair Value
£000
£000 £000
Assets
Non-current assets
Intangible assets 6,247 14,183 20,430
Goodwill 4,240 (4,240) -
Property, plant & equipment 2,292 304 2,596
Deferred tax assets 2,469 - 2,469
Non-current assets classified as held for sale 2,113 - 2,113
17,361 10,247 27,608
Current assets
Inventories 77 - 77
Trade and other receivables 8,386 - 8,386
Current tax assets 759 - 759
Cash and cash equivalents 4,284 - 4,284
13,506 - 13,506
Liabilities
Current liabilities
Trade and other payables 12,412 - 12,412
Borrowings 5,960 - 5,960
Lease liabilities 354 - 354
18,726 - 18,726
Non-current liabilities
Provisions 661 - 661
Lease liabilities 2,395 (333) 2,062
Non-current liabilities classified as held for sale 1,325 - 1,325
Deferred tax liabilities 956 4,074 5,030
5,337 3,741 9,078
Net assets acquired 6,804 6,506 13,310
Goodwill (Note 7) 4,222
Fair value of cost of investment 17,532
£17.5 million consists of £12.4 million consideration paid in 2023 and £5.1
million fair value of the investment at the point TP Group plc became a
subsidiary.
Consideration paid 2023 2022
£000
£000
Purchase interest in subsidiary/associate 12,409 213
Debt acquired 5,960 -
Cash acquired (4,446) -
13,923 213
Non-current assets and liabilities classified as held for sale relate to the
sale of the entire issued share capital of Westek Technology Ltd to Roda
Computer GmbH on 29 January 2023 for a net cash consideration of £0.6
million.
On 26 January 2023, the day of the acquisition, the Group repaid the
outstanding TP Group plc Revolving Credit Facility with HSBC (£6.0 million).
TP Group plc contributed £44.9 million revenue and approximately £6.2
million to the Group's profit before tax for the period between the date of
acquisition and the balance sheet date, not including £1.9 million of
acquired intangible asset amortisation expense. If the acquisition of TP
Group plc had been completed on the first day of the financial year, the
additional impact on group revenue for the period would have been £2.6
million and the additional impact on group profit would have been a reduction
of £0.9 million.
The goodwill of £4.2 million is attributable mainly to the skills and
technical knowledge of TP Group's workforce. A third-party expert performed
a detailed review of the acquired intangible assets. The customer contracts
and relationships intangible asset was valued using a multi-period excess
earnings methodology. Technology and marketing intangible assets were valued
using a royalty savings methodology. The deferred tax liability, in respect of
the acquired intangible assets, has been calculated by using the current
statutory tax rate of 25.0%.
16. Post balance sheet events
There are no post balance sheet events to disclose.
17. Statement by the Directors
Whilst the information included in this preliminary announcement has been
prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards ('IFRSs') as adopted by the UK in
conformity with the requirements of the Companies Act 2006, this announcement
does not itself contain sufficient information to comply with IFRSs. The
accounting policies adopted in this preliminary announcement are consistent
with the Annual Report for the year ended 31 December 2023.
The financial information set out above, which was approved by the Board on 20
March 2024, is derived from the full Group accounts for the year ended 31
December 2023 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 2023, will be delivered to the Registrar of Companies in due
course.
The Board of Science Group approved the release of this preliminary
announcement on 20 March 2024.
The Annual Report for the year ended 31 December 2023 will be posted to
shareholders in due course and will be delivered to the Registrar of Companies
following the Annual General Meeting of the Company. The report will also be
available on the investor relations page of the Group's website. Further
copies will be available on request and free of charge from the Company
Secretary.
- Ends -
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