REG - Science Group PLC - Interim Results

ScienceAnnouncement

26/07/2021 07:05

RNS Number : 3553G
  
Science Group PLC
  
26 July 2021
  
 

 
 
 




 


 
26 July 2021




 
SCIENCE GROUP PLC
 
('Science Group', the 'Group' or the 'Company')
 
INTERIM RESULTS
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2021
 
 
                                    
Summary
 
·      Record H1 results, ahead of the Board's upgraded expectations 
 
·      Group revenue growth of 10% to £40.7m (H1 2020: £36.9m) and 16% on constant currency basis
 
·      Adjusted* operating profit increased by 47% to £7.25m (H1 2020: £4.9m)
 
·      Adjusted* basic EPS growth of 51% to 13.3 pence (2020: 8.8 pence) and increase of 125% compared to H1 2019
 
·      Review of future strategy for Frontier Smart Technologies completed, including margin enhancing royalty buyout 
 
·      Balance sheet remains strong with gross cash of £29.0m and net funds of £13.0m (2020: £22.0m and £4.9m) providing opportunity for further corporate activity


 
 
Enquiries:




Science Group plc


Tel: +44 (0) 1223 875 200




Martyn Ratcliffe, Chairman


www.sciencegroup.com 




 


 




Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker)


 




Nick Adams, Alex Price


Tel: +44 (0) 20 7710 7600




 


 




Liberum Capital Limited (Joint Broker)


 




Neil Patel, Cameron Duncan


Tel: +44 (0) 20 3100 2000




 
* Alternative performance measures are provided in order to enhance the shareholders' ability to evaluate and analyse the underlying financial performance of the Group. Refer to Note 1 for detail and explanation of the measures used.
 
 
Interim Results 2021
 
Science Group is an international, science-led services and product development organisation comprising three operating divisions: R&D Consultancy; Regulatory & Compliance; and Frontier Smart Technologies. The Group has a very strong balance sheet with significant cash resources and freehold property assets.
 
The Group achieved record results in H1 2021 delivering strong organic growth and a substantial increase in profitability, despite significant currency exchange headwinds. For the six months ended 30 June 2021, Group revenue was £40.7 million (H1 2020: £36.9 million), an organic growth rate of 10%, equivalent to 16% on a constant currency basis. The Group's adjusted operating profit increased by 47% to £7.25 million (H1 2020: £4.9 million) and by approx. 120% relative to the same period two years ago (H1 2019: £3.3 million).  Adjusted profit before tax was £6.9 million (H1 2020: £4.6 million).
 
Due to the Group's strong cash generation, self-funding of acquisitions and share buy-back programme, this strong performance has been achieved without shareholder dilution. As a result, adjusted basic earnings per share increased by 51% to 13.3 pence (H1 2020: 8.8 pence) and 125% over the past two years (H1 2019: 5.9 pence). 
 
The Group retains a robust balance sheet with gross cash (excluding client funds) at 30 June 2021 of £29.0 million (30 June 2020: £22.0 million) and net funds of £13.0 million (30 June 2020: £4.9 million). The long term debt of £15.9 million is secured on the freehold properties. Excluding treasury shares, at 30 June 2021, the Company had 41.2 million shares in issue (30 June 2020:  41.6 million and 30 June 2019: 41.1 million) and held 0.8 million (30 June 2020: 0.4 million) shares in treasury. Total voting rights at 30 June 2021 were 41.1 million. 
 
R&D Consultancy 
The R&D Consultancy Division was established through the integration of the Group's Advisory, Applied Science and Product Development business activities. This Division combines leading science and engineering capabilities with expertise in key vertical sectors, namely: Medical; Consumer; Food & Beverage; and Industrial, Chemical & Energy. In the first half of 2021, the Medical Sector continued to be particularly strong, with the other sectors, which were more affected by the pandemic, reflecting their respective market sector environments. Most sectors are now seeing the initial signs of global economic recovery.
 
For the six months ended 30 June 2021, the R&D Consultancy Division generated services revenue of £15.2 million (H1 2020: £15.2 million). This is a good performance against a challenging comparator since the first half of 2020 included the one-off UK ventilator initiative. Furthermore, since 50% of the division revenue is invoiced in US Dollars and 7% in Euro in the first half of 2021, this performance has been achieved despite the material currency exchange headwinds and growth in services revenue would have been 4% on a constant currency basis.
 
For the period ended 30 June 2021, the Group's Services businesses (R&D Consultancy and Regulatory & Compliance) reported an aggregate adjusted operating profit margin of 19% (H1 2020: 16%).
 
Regulatory & Compliance
The Regulatory & Compliance Division includes the North American and European operations of TSG, acquired in 2017, and the Leatherhead Food Research business, acquired in 2015. The Division reported continued progress in the first half of 2021, including the launch of a new US capability in medical device regulatory advice, further strengthening the synergies with the R&D Consultancy Division.
 
For the six months ended 30 June 2021, the Regulatory & Compliance Division generated revenue of £10.5 million (H1 2020: £10.0 million), of which around 23% is of a recurring nature. This organic growth, equivalent to approx. 8% on a constant currency basis, was broadly consistent between the North American and European operations. As noted above, the Group's Services businesses (R&D Consultancy and Regulatory & Compliance) reported an aggregate adjusted operating profit margin of 19% (H1 2020: 16%).
 
Frontier Smart Technologies ('Frontier')
For the six months ended 30 June 2021, Frontier reported revenue of £13.6 million (H1 2020: £7.5 million) and an adjusted operating profit margin of 22% (H1 2020: 7%). This exceptionally strong performance reflects the momentum from the second half of 2020, but also a weaker comparator in the first half of 2020 due to the post-acquisition integration and the initial impact of the Covid pandemic. The most significant challenge in the current year continues to be the availability of materials associated with the global semiconductor supply constraints.
 
On 11 January 2021, having successfully completed the turnaround phase, the Board initiated a review of the strategy for the Frontier business. An update was provided on 19 May informing shareholders that the Board had concluded that the review had identified a number of opportunities to further enhance and develop the business and that Frontier was to be retained within the Group. 
 
As part of the review, an agreement was reached with Imagination Technologies Limited ("Imagination") to buy out future royalties associated with the use of the Imagination licensed technology by Frontier and Group entities in consumer electronics (including DAB radio broadcast) for the sum of $6.0 million. For the year ended 31 December 2020, Frontier paid royalties of $1.0 million to Imagination in relation to licensing the technology. This agreement is effective 1 July 2021 and is anticipated to enhance the Frontier profit contribution in the second half of the year.
 
One of the growth opportunities identified in the strategy review was developing the SmartRadio market, an integrated product category that combines DAB, FM and Internet radio. In progressing this opportunity, the Board is exploring both internal developments and potential acquisition opportunities. 
 
In summary, the Board considers the Frontier acquisition to have been very successful and anticipate a rapid payback of the cost of acquisition, including transaction and restructuring costs. The strategy review has set out the future direction for this very profitable business.
 
Freehold Properties
Science Group owns two freehold properties, Harston Mill near Cambridge and Great Burgh in Epsom. The Group's triennial freehold property valuations were undertaken in March 2021. Despite the timing in the midst of the Covid pandemic, there were only minor changes to the valuations with a range between £23 million and £35 million, the latter being a sale & leaseback model. The properties are held on the balance sheet on a cost basis at £21.1 million (30 June 2020: £21.3 million). 
 
For the six months ended 30 June 2021, the rental and associated services income of £0.3 million (H1 2020: £0.6 million) was generated from third-party tenants and £1.5 million (H1 2020: £1.6 million) from the Group's operating businesses. Intra-group charges are eliminated on Group consolidation but this approach ensures that the reported profit for each operating business includes property rental at market rates. 
 
The Group's debt of £15.9 million at 30 June 2021 (£17.1 million at 30 June 2020) is primarily secured against the freehold property assets and the associated interest charge for the six month period was £0.3 million (H1 2020: £0.4 million). Interest on the debt is reported below operating profit in the consolidated results. There are no operating covenants on the debt provided that net bank debt does not exceed £10 million.
 
The deferred transfer of the Harston Mill property from Sagentia Limited to Quadro Harston Limited, formerly Sagentia Technology Advisory Limited, is now well advanced and is awaiting final bank approval before being completed. Resolving this legacy issue provides a more appropriate and flexible corporate structure and better aligns with the debt model related to the freehold properties. A tax cash outflow of £2.0 million is anticipated in 2021. 
 
 Corporate 
The corporate function is responsible for Group and PLC matters, together with the strategic development of Science Group.  In the period to 30 June 2021, Corporate costs were £1.4 million (H1 2020: £0.9 million) due to one-off items.
 
The Board continues to explore opportunities to increase the scale of the Group. In recent months, such opportunities have included add-on acquisitions into each of the operating divisions and larger acquisitions which would extend the Group's capabilities. There can be no certainty that any acquisitions will be completed.
 
Summary
 
In summary, the performance of Science Group in the first half of 2021 has been well ahead of the Board's expectations, with all divisions performing well. The excellent first half provides a solid platform for the rest of the year. 
 
Frontier is now an integral part of Science Group. Despite the pandemic, the post-acquisition turnaround was very successful and the Board anticipates a rapid payback of the cost of acquisition. The strategy review identified a number of opportunities to further enhance the profitability of this business and areas for future investment.
 
The effectiveness of the Group's acquisition strategy and its disciplined operating model, funded by strong cash generation, is clearly demonstrated by the substantial increase in adjusted operating profit and earnings per share over the past decade. This is particularly apparent in the past two years as a result of the larger acquisition in 2019. With a strong balance sheet including significant cash resources, the Board continues to explore both add-on acquisitions and larger opportunities to increase the scale of the Group.
 
 
Consolidated Income Statement
For the period ended 30 June 2021
 




 


 
 
 
 
 
Note


Six months
ended
30 June
2021
(Unaudited)
£000


Six months
ended
30 June
2020
(Unaudited)
£000


Year 
ended
31 December
2020
(Audited)
£000




 


 


 


 


 




Revenue


4


40,655


36,895


73,663




Direct operating expenses


 


(23,555)


(22,945)


(43,861)




Sales and marketing expenditure


 


(4,388)


(4,108)


(8,112)




Administrative expenses


 


(6,981)


(6,994)


(14,561)




 


 


 


 


 




Adjusted operating profit


 


7,250


4,925


10,885




Acquisition integration costs


 


-


(127)


(10)




Amortisation of acquisition related intangible assets


 


(1,208)


(1,259)


(2,507)




Share based payment charge


 


(311)


(691)


(1,239)




 


 


 


 


 




Operating profit


 


5,731


2,848


7,129




 


 


 


 


 




Finance income


 


-


5


9




Finance costs


 


(340)


(376)


(746)




 


 


 


 


 




Profit before income tax


 


5,391


2,477


6,392




Income tax (charge)/credit (including R&D tax credit of £124,000 (H1-20 £142,000))


6


(711)


(465)


647




Profit for the period


4


4,680


2,012


7,039




 


 


 


 


 




 


 


 


 


 




 


 


 


 


 




Earnings per share


 


 


 


 




Earnings per share from continuing operations (basic)


7


11.4p


4.8p


16.9p




Earnings per share from continuing operations (diluted)


7


11.1p


4.6p


16.7p




 


 


 


 


 




Adjusted earnings per share from continuing operations (basic)


7


13.3p


8.8p


19.4p




Adjusted earnings per share from continuing operations (diluted)


7


13.0p


8.5p


19.1p




 
 
Consolidated Statement of Comprehensive Income
For the period ended 30 June 2021
 




 


 


Six months
ended
30 June
2021
(Unaudited)
£000


Six months
ended
30 June
2020
(Unaudited)
£000


Year
ended
31 December
2020
(Audited)
£000




 


 


 


 


 




Profit for the period attributable to:


 


 


 


 




Equity holders of the parent


 


4,680


2,012


7,039     




Profit for the period


 


4,680


2,012


7,039




 


 


 


 


 




Other comprehensive income
Items that will or may be reclassified to profit or loss:


 


 


 


 




Exchange differences on translating foreign operations


 


(186)


799


  (358)   




Fair value gain/(loss) on interest rate swap


 


382


(536)


(519)




Deferred tax on interest rate swap 
 


 


(71)


101


96




Other comprehensive income/(expense) for the period


 


125


364


(781)




 


 


 


 


 




Total comprehensive income for the period attributable to:


 


 


 


 




Equity holders of the parent


 


4,805


2,376


6,258




Total comprehensive income for the period
 


 


4,805


2,376


6,258




 


 


 


 


 




 
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
For the period ended 30 June 2021
 




Group
 
 


Issued
capital
 
 
£000


Share
premium
 
 
£000


Treasury
Stock
 
 
£000


Merger
reserve
 
 
£000


Translation
reserve
 
 
£000


Cash flow hedge reserve
 
£000


Retained
earnings
 
 
£000


Total -
Share-
holders'
funds
£000


Total
equity
 
 
£000


 




Balance at 1 January 2020


421


9,102


(660)


10,343


(679)


-


17,742


36,269


36,269


 




Purchase of own shares


-


-


(166)


-


-


-


-


(166)


(166)


 




Share based payment charge


-


-


-


-


-


-


691


691


691


 




Deferred tax on share based payment transactions


-


-


-


-


-


-


(63)


(63)


(63)


 




Transactions with owners


-


-


(166)


-


-


-


628


462


462


 




 


 


 


 


 


 


 


 


 


 


 




Profit for the period


-


-


-


-


-


-


2,012


2,012


2,012


 




 


 


 


 


 


 


 


 


 


 


 




Other comprehensive income:


 


 


 


 


 


 


 


 


 


 




Transfer of cash flow hedge reserve from retained earnings


-


-


-


-


-


(115)


115


-


-


 




Fair value (loss) on interest rate swap


-


-


-


-


-


(536)


-


(536)


(536)


 




Exchange differences on translating foreign operations


-


-


-


-


799


-


-


799


799


 




Deferred tax on interest rate swap


-


-


-


-


-


101


-


101


101


 




Total comprehensive income for the period


-


-


-


-


799


(550)


2,127


2,376


2,376


 




Balance at 30 June 2020


421


9,102


(826)


10,343


120


(550)


20,497


39,107


39,107


 




 
 
 
 




Group
 
 


Issued
capital
 
 
£000


Share
premium
 
 
£000


Treasury
Stock
 
 
£000


Merger
reserve
 
 
£000


Translation
reserve
 
 
£000


Cash flow hedge reserve
 
£000


Retained
earnings
 
 
£000


Total -
Share-
holders'
funds
£000


Total
equity
 
 
£000




Balance at 1 July 2020


421


9,102


(826)


10,343


120


(550)


20,497


39,107


39,107




Purchase of own shares


 


 


(1,506)


 


 


 


 


(1,506)


(1,506)




Issue of shares out of treasury stock


-


-


436


-


-


-


(429)


7


7




Dividends paid


-


-


-


-


-


-


(830)


(830)


(830)




Share based payment charge


-


-


-


-


-


-


548


548


548




Deferred tax on share based payment transactions


-


-


-


-


-


-


182


182


182




Total contributions and distributions


-


-


(1,070)


-


-


-


(529)


(1,599)


(1,599)




 
Profit for the period


 
-


 
-


 
-


 
-


 
-


 
-


 
5,027


 
5,027


 
5,027




 


 


 


 


 


 


 


 


 


 




Other comprehensive income:


 


 


 


 


 


 


 


 


 




Fair value gain on interest rate swap


-


-


-


-


-


17


-


17


17




Exchange differences on translating foreign operations


-


-


-


-


(1,157)


-


-


(1,157)


(1,157)




Deferred tax on interest rate swap


-


-


-


-


-


(5)


-
 


(5)


(5)




Total comprehensive income for the period


 
-


 
-


 
-


 
-


 
(1,157)


 
12


 
5,027


 
3,882


 
3,882




Balance at 31 December 2020


 
421


 
9,102


 
(1,896)


 
10,343


 
(1,037)


 
(538)


 
24,995


 
41,390


 
41,390




 
 
 




Group
 
 


Issued
capital
 
 
£000


Share
premium
 
 
£000


Treasury
Stock
 
 
£000


Merger
reserve
 
 
£000


Translation
reserve
 
 
£000


Cashflow hedge
reserve
£000


Retained
earnings
 
 
£000


Total -
Share-
holders'
funds
£000


Total
equity
 
 
£000




Balance at 1 January 2021


421


9,102


(1,896)


10,343


(1,037)


(538)


24,995


41,390


41,390




Purchase of own shares


-


-


(238)


-


-


-


-


(238)


(238)




Issue of shares out of treasury stock


-


-


183


-


-


-


(182)


1


1




Dividends paid


-


-


-


-


-


-


(1,642)


(1,642)


(1,642)




Share based payment charge


-


-


-


-


-


-


311


311


311




Deferred tax on share based payment transactions


-


-


-


-


-


-


264


264


264




Transactions with owners


-


-


(55)


-


-


-


(1,249)


(1,304)


(1,304)




 


 


 


 


 


 


 


 


 


 




Profit for the period


-


-


-


-


-


-


4,680


4,680


4,680




 


 


 


 


 


 


 


 


 


 




Other comprehensive income:


 


 


 


 


 


 


 


 


 




Fair value gain on interest rate swap


-


-


-


-


-


382


-


382


382




Exchange differences on translating foreign operations


-


-


-


-


(186)


-


-


(186)


(186)




Deferred tax on interest rate swap


-


-


-


-


-


(71)


-


(71)


(71)




Total comprehensive income for the period


-


-


-


-


(186)


311


4,680


4,805


4,805




Balance at 30 June 2021


421


9,102


(1,951)


10,343


(1,223)


(227)


28,426


44,891


44,891




 
 
 
 
 
Consolidated Balance Sheet
At 30 June 2021
 




 


 


 
 
 
Note


 
At 30 June
2021
(Unaudited)
£000


 
At 30 June
2020
(Unaudited)
£000


At 31
December
2020
(Audited)
£000




Assets


 


 


 


 


 




Non-current assets


 


 


 


 


 




Acquisition related intangible assets


 


 


9,221


12,512


10,514




Goodwill


 


 


13,604


13,998


13,657




Property, plant and equipment


 


 


23,542


24,766


23,809




Deferred tax assets


 


 


711


51


1,322




 


 


 


47,078


51,327


49,302




Current assets


 


 


 


 


 




Inventories


 


 


1,214


1,781


1,263




Trade and other receivables


 


 


10,862


9,450


10,784




Current tax asset


 


 


2,793


264


1,627




Cash and cash equivalents - Client funds


 


8


2,228


4,121


2,015




Cash and cash equivalents - Group cash


 


8


28,962


22,001


27,059




 


 


 


46,059


37,617


42,748




 


 


 


 


 


 




  Total assets


 


 


93,137


88,944


92,050




 


 


 


 


 


 




Liabilities


 


 


 


 


 




Current liabilities


 


 


 


 


 




Trade and other payables


 


 


25,899


23,862


26,365




Current tax liabilities 


 


 


231


577


394




Provisions


 


9


877


669


678




Borrowings


 


10


1,200


1,200


1,200




Lease liabilities


 


11


1,191


1,423


1,247




 


 


 


29,398


27,731


29,884




Non-current liabilities


 


 


 


 


 




Provisions


 


9


679


506


659




Borrowings


 


10


14,715


15,908


15,307




Lease liabilities


 


11


499


1,736


1,038




Derivative financial liabilities


 


 


252


651


634




Deferred tax liabilities


 


 


2,703


3,305


3,138




 


 


 


18,848


22,106


20,776




 Total liabilities


 


 


48,246


49,837


50,660




 


 


 


 


 


 




  Net assets


 


 


44,891


39,107


41,390




 


 


 


 


 


 




Shareholders' equity


 


 


 


 


 




Share capital


 


 


421


421


421




Share premium


 


 


9,102


9,102


9,102




Treasury stock


 


 


(1,951)


(826)


(1,896)




Merger reserve


 


 


10,343


10,343


10,343




Translation reserve


 


 


(1,223)


120


(1,037)




Cash flow hedge reserve


 


 


(227)


(550)


(538)




Retained earnings


 


 


28,426


20,497


24,995




 Total equity


 


 


44,891


39,107


41,390




 
 
 
 
 
Consolidated Statement of Cash Flows
For the period ended 30 June 2021




 


Six months ended 
30 June 
2021
(Unaudited) £000


Six months
ended
30 June
2020
(Unaudited)
£000


Year 
ended
31 December
2020
(Audited)
£000




 


 


 


 




Profit before income tax


5,391


2,477


6,392




Adjustments for:


 


 


 




Amortisation on acquisition related intangible assets


1,208


1,259


2,507




Depreciation on property, plant and equipment


364


580


904




Impairment of right of use assets


-


540


513




Depreciation of right of use assets


401


548


1,067




Loss on disposal of property, plant and equipment


-


-


7




Net interest cost


340


376


737




Share based payment charge


311


691


1,239




Decrease in inventories


49


279


394




(Increase)/decrease in receivables


(79)


825


(546)




Increase in payables representing client funds 


213


2,604


498




(Decrease)/increase in payables excluding balances representing client funds 


(670)


366


5,976




Change in provisions


228


510


735




 Cash generated from operations


7,756


11,055


20,423




 


 


 


 




Loan interest paid


(293)


(300)


(753)




UK corporation tax paid 


(1,131)


(292)


(1,799)




Foreign corporation tax paid


(540)


(24)


(184)




 Cash flows from operating activities


5,792


10,439


17,687




 


 


 


 




 


 


 


 




Interest received


-


5


9




Purchase of property, plant and equipment


(411)


(38)


(143)




 Cash flow used in investing activities


(411)


(33)


(134)




 


 


 


 




Issue of shares out of treasury


1


-


7




Repurchase of own shares


(238)


(166)


(1,672)




Dividends paid


(1,642)


-


(830)




Proceeds from bank loans


-


1,500


1,500




Repayment of bank loans


(600)


(600)


(1,200)




Payment of lease liabilities


(720)


(742)


(1,339)




 Cash flows used in financing activities


(3,199)


(8)


(3,534)




 


 


 


 




 


 


 


 




Increase in cash and cash equivalents in the period


2,182


10,398


14,019




Cash and cash equivalents at the beginning of the period


29,074


15,429


15,429




Exchange (loss)/gain on cash


(66)


295


(374)




Cash and cash equivalents at the end of the period


31,190


26,122


29,074




 
 
Cash and cash equivalents is analysed as follows:




 


Six months
ended
30 Jun
2021
(Unaudited)
£000


Six months
ended
30 June
2020
(Unaudited)
£000


Year ended
31 
December
2020
(Audited)
£000




Cash and cash equivalents - Client funds 


2,228


4,121


2,015




Cash and cash equivalents - Group cash 


28,962


22,001


27,059




 


31,190


26,122


29,074




 
 
 
Extracts from notes to the financial statements
 
1.  General information
The financial information for the 6 months ended 30 June 2021 set out in this interim report is unaudited and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The financial information included for the year ended 31 December 2020 has been extracted from the 2020 Financial Statements of Science Group plc.  The Group's statutory financial statements for the year ended 31 December 2020 have been filed with the Registrar of Companies.  The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.
 
These unaudited interim results have been approved for issue by the Board of Directors on 23 July 2021.
 
The Group and Company financial statements of Science Group plc for the year ended 31 December 2020 were prepared under IFRS (as adopted by the EU) and have been audited by Grant Thornton UK LLP. Copies of the Financial Statements are available from the Company's registered office: Harston Mill, Harston, Cambridge, CB22 7GG and can be found on the Company's website at www.sciencegroup.com.
 
Science Group plc (the 'Company') and its subsidiaries (together 'Science Group' or 'Group') is an international, science-led services and product development organisation with a freehold property asset base.
 
The Company is the ultimate parent company in which results of all the Science Group companies are consolidated.
 
The Company is incorporated in England and Wales and is listed on the AIM Market of the London Stock Exchange (SAG).
 
 
Alternative performance measures
The Group uses alternative (non-Generally Accepted Accounting Practice ('non-GAAP')) performance measures of 'adjusted operating profit', 'adjusted earnings per share' and 'net funds' which are not defined within the International Financial Reporting Standards ('IFRS'). These are explained in the 2020 Financial Statements and the calculations are as follows:
 
(a) Adjusted operating profit
The calculation of this measure is shown on the Consolidated Income Statement. 
 
(b) Adjusted earnings per share
The calculation of this measure is disclosed in Note 7. 
 
(c) Net funds
This measure is calculated as follows: 




In £000 unless otherwise stated 


At 30 June 2021


At 30 June 2020


At 31 December 2020




Cash and cash equivalents - Group cash


28,962


22,001


27,059




Borrowings


(15,915)


(17,108)


(16,507)




Net funds


13,047


4,893


10,552




 
2. Accounting policies
The principal accounting policies applied in the preparation of these interim financial statements are unchanged from those set out in the financial statements for the year ended 31 December 2020. These policies have been consistently applied to all the periods presented. 
 
2.1 Basis of preparation
These interim consolidated financial statements are for the six months ended 30 June 2021. They have been prepared based on the measurement and recognition principles of International Financial Reporting Standards as adopted by the EU and IFRIC interpretations issued and effective at the time of preparing these statements.
 
The financial statements have been prepared on the historical cost basis except for certain financial instruments and share based payments which are measured at fair value. 
 
Going concern - the Directors have considered the current cash balance of £29.0m (excluding client funds) and assessed forecast future cash flows for the next 12 months. There are no events or conditions which cast significant doubt on the ability of the Group to continue as a going concern. The term loan has no operating covenants while the Group net bank debt is less than £10 million.  On the basis of the forecast future cash flows, the Directors do not expect the Group net bank debt to exceed £10 million at any time during the forecast period. The Directors are satisfied that the Group has adequate cash and financing resources to continue in operational existence for the foreseeable future, being a period of at least a year following the release of these unaudited interim results and therefore continue to adopt the going concern basis of accounting in preparing the interim financial statements.
 
3.  Financial risk management
3.1 Financial risk factors 
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.
 
4.  Segmental information
The Group is structured into 4 reporting Segments: Services Operating Business, Product Operating Business, Freehold Properties and Corporate. The Services Operating Business comprises two operating divisions: R&D Consultancy and Regulatory & Compliance. Frontier Smart Technologies, the third operating division, is the Product Operating Business. The performance of the Operating Businesses are shown separately from the value generated by the Group's significant freehold property assets and the Corporate costs to provide greater transparency and facilitate shareholder analysis of the component parts of the Group.
 
Financial information is provided to the chief operating decision makers ('CODMs') in line with this structure. The divisions of R&D Consultancy and Regulatory & Compliance have been aggregated resulting in one Services Operating Business segment because the divisions have similar economic characteristics such as similar long-term average gross margins, trends in sales growth and operating cash flows and are also similar in respect of their nature, delivery and types of customers that the services are provided to. This aggregation does not impact the user's ability to understand the entity's performance, its prospects for future cash flows or the user's decisions about the entity as a whole as it is a fair representation of the performance of each division.
 
In the Services Operating Business Segment, services revenue includes all consultancy fees and other revenue includes recharged materials, expenses and licence revenue generated directly from the Services Operating Business activities. Product Operating Business revenue includes sales of chips and modules which are incorporated into digital radios. The Freehold Properties segment includes the results for the two freehold properties owned by the Group. Income is derived from third party tenants from the Harston Mill site and from the Services and Product Operating Businesses which have been charged equivalent to market-based rents for their utilised property space and associated costs. Corporate costs include PLC/Group costs.
 
The segmental analysis is reviewed to operating profit. Other resources are shared across the Group.
 
 
 




Services Operating Business
 
 


Six months ended
 30 June 2021
(Unaudited) 
£000


Six months ended 
30 June 2020
(Unaudited)
£000


Year ended
31 December 2020
(Audited) 
£000




Services revenue


25,750


25,268


48,198




Other


1,029


3,506


4,077




Revenue


26,779


28,774


52,275




 


 


 


 




Adjusted operating profit


5,177


4,520


9,068




 


 


 


 




Amortisation of acquisition related intangible assets


(746)


(757)


(1,513)




Share based payment charge


(278)


(569)


(946)




Operating profit


4,153


3,194


6,609




 


 


 


 




 
 




Product Operating Business
 
 


Six months ended
 30 June 2021
 (Unaudited) 
£000


Six months ended 
30 June 2020 
(Unaudited)
£000


Year ended
31 December 2020
(Audited) 
£000




Product revenue


13,620


7,541


20,540




Revenue


13,620


7,541


20,540




 


 


 


 




Adjusted operating profit


2,967


495


3,245




 


 


 


 




Acquisition and integration costs


-


(127)


(10)




Amortisation of acquisition related intangible assets


(462)


(502)


(994)




Share based payment charge


(98)


(77)


(185)




Operating profit/(loss)


2,407


(211)


2,056




 
  




Freehold Properties


Six months ended
 30 June 2021
(Unaudited) 
£000


Six months ended 
30 June 2020
(Unaudited)
£000


Year ended
31 December 2020
(Audited) 
£000




Inter-company property income


1,522


1,573


3,189




Third party property income


256


580


848




Revenue


1,778


2,153


4,037




 


 


 


 




Adjusted operating profit


495


794


954




Share based payment charge


(10)


(7)


(21)




Operating profit


485


787


933




 
 
 




Corporate


Six months ended
 30 June 2021
(Unaudited) 
£000


Six months ended 
30 June 2020
(Unaudited)
£000


Year ended
31 December 2020 
(Audited) 
£000




Adjusted operating loss


(1,389)


(884)


(2,382)




 


 


 


 




Share based payment credit/(charge)


75


(38)


(87)




Operating loss


(1,314)


(922)


(2,469)




 
 




Group
 
 


Six months ended
 30 June 2021
Total (Unaudited) 
£000


Six months ended 
30 June 
2020
   Total (Unaudited)
£000


 
 
Year 
ended
31 December 2020
 Total (Audited) £000




Services revenue


25,750


25,268


48,198




Product revenue


13,620


7,541


20,540




Third party property income


256


580


848




Other


1,029


3,506


4,077




Revenue


40,655


36,895


73,663




 


 


 


 




Adjusted operating profit


7,250


4,925


10,885




 


 


 


 




Acquisition and integration costs


-


(127)


(10)




Amortisation of acquisition related intangible assets


(1,208)


(1,259)


(2,507)




Share based payment charge


(311)


(691)


(1,239)




Operating profit


5,731


2,848


7,129




Finance charges (net)


(340)


(371)


(737)




Profit before income tax


5,391


2,477


6,392




Income tax (charge)/credit


(711)


(465)


647




Profit for the period 


4,680


2,012


7,039




 
In the Freehold Properties segment, income includes £1.5 million (H1 2020: £1.6 million) generated from inter-segment recharges. The corresponding cost is included within the Operating Business segments and is eliminated on consolidation.
 
  
5.  Revenue
The Group's operations and main revenue streams are those described in the last annual financial statements. The Group's revenue is derived from contracts with customers. 
 
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical market and by the currency in which the contract is denominated for the Operating Business. Property revenue is generated in the UK and denominated in GBP. 
 




For the 6 months ended 30 June (Unaudited)
 




Currency 


 


USD
£000


EUR
£000


GBP
£000


Other
£000


Total
£000




2021


 


25,209


1,855


13,583


8


40,655




2020


 


17,316


1,669


17,844


66


36,895




 


 


 


 


 


 


 




Geographical market


North America
£000


Europe (excl UK)
£000


UK
£000


 
Asia
£000


Other
£000


Total
£000




2021


13,469


6,344


5,482


15,196


164


40,655




2020


11,215


6,752


10,475


8,188


265


36,895




 
 
6. Income tax
The income tax charge for the period ended 30 June 2021 is charged at the effective tax rate calculated for the period using reasonable estimates and incorporating both current and deferred taxation:




 


Six months
ended
30 June 2021
(Unaudited)
£000


Six months
ended
30 June 2020
(Unaudited)
£000


Year ended
31 December
2020
(Audited)
£000




Profit before tax


5,391


2,477


6,392




Current taxation


(958)


(1,114)


(1,492)




Current taxation - adjustment in respect of prior years


(126)


-


240




Deferred taxation


249


507


1,806




Deferred taxation - adjustment in respect of prior years


-


-


(155)




R&D tax credit


124


142


248




Tax (charge)/credit


(711)


(465)


647




 


 


 


 




Effective tax rate


13.2%


18.8%


(10.1%)




 
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 year ended 31 December 2020, the tax credit arose primarily due to the recognition of tax losses within Frontier as a deferred tax asset.
 
 
 
7.  Earnings per share
The calculation of earnings per share is based on the following results and number of shares:




 


Six months
ended
30 June 2021
(Unaudited)
£000


Six months
ended
30 June 2020
(Unaudited)
£000


Year ended
31 December 2020
(Audited)
£000




Profit for the financial period


4,680


2,012


7,039




 
Weighted average number of shares:


 


 


 




For basic earnings per share


41,217,451


41,681,034


41,631,118




For fully diluted earnings per share


42,366,174


43,314,594


42,229,766




 
Earnings per share:


 
Pence


 
Pence


 
Pence




Basic earnings per share


11.4


4.8


16.9




Fully diluted earnings per share


11.1


4.6


16.7




 
The calculation of adjusted earnings per share is as follows:




 


Six months
ended
30 June 2021
(Unaudited)
£000


Six months
ended
30 June 2020
(Unaudited)
£000


Year ended
31 December
2020
(Audited)
£000




Adjusted* profit after tax for the period


5,500


3,671


8,078




 
Weighted average number of shares:


 


 


 




For basic earnings per share


41,217,451


41,681,034


41,631,118




For fully diluted earnings per share


42,366,174


43,314,594


42,229,766




 
Adjusted earnings per share:


 
Pence


 
Pence


 
Pence




Basic earnings per share


13.3


8.8


19.4




Fully diluted earnings per share


13.0


8.5


19.1




 
*Calculation of adjusted profit after tax:




 


Six months
ended
30 June 2021
(Unaudited)
£000


Six months
ended
30 June 2020
(Unaudited)
£000


Year ended
31 December
2020
(Audited)
£000




Adjusted operating profit 


7,250


4,925


10,885




Finance income


-


5


9




Finance costs


(340)


(376)


(746)




Adjusted profit before tax


6,910


4,554


10,148




Tax charge at approx. blended average tax rate of 20.4% (H1-20: 19.4%)


 
(1,410)


 
(883)


 
(2,070)




Adjusted profit after tax


5,500


3,671


8,078




  
 
8. Cash and cash equivalents




 


Six months
ended
30 June
2021
(Unaudited)
£000


Six months
ended
30 June
2020
(Unaudited)
£000


Year ended
31
December
2020
(Audited)
£000




Cash and cash equivalents - Client funds 


2,228


4,121


2,015




Cash and cash equivalents - Group cash 


28,962


22,001


27,059




 


31,190


26,122


29,074




 
The Group receives cash from clients for the purpose of payment of registration fees to regulatory bodies and other project pass through costs.  Client funds are separated in the day to day operations of the business, are separately identified for reporting purposes and are unrestricted.
 
9.  Provisions 




(Unaudited)


Dilapid
-ations
£000


Restruct-uring
£000


Legal
 
£000


Other
 
£000


Total
 
£000




At 1 January 2020


562


90


-


-


652




Increase in provision


13


-


562


-


575




Utilisation of provision


(26)


-


(59)


-


(85)




Loss on foreign currency  fluctuations


31


-


2


-


33




At 30 June 2020


580


90


505


-


1,175




Increase in provision


264


-


97


14


375




Utilisation of provision


-


(10)


(90)


-


(100)




Provision reversed during the year


(36)


-


-


-


(36)




Gain on foreign currency fluctuations


(44)


-


(33)


-


(77)




At 31 December 2020


764


80


479


14


1,337




Increase in provision


20


-


240


6


266




Utilisation of provision


(5)


(10)


(23)


-


(38)




Gain on foreign currency fluctuations


(6)


-


(3)


-


(9)




At 30 June 2021


773


70


693


20


1,556




 




 


At 30 June
2021
(Unaudited)
£000


At 30 June
2020
(Unaudited)
£000


At 31 December
2020
(Audited)
£000




Current liabilities


877


669


678




Non-current liabilities 


679


506


659




 


1,556


1,175


1,337




 
Legal provisions represent the best estimate of the future cost of responding to US subpoenas relating to litigation and investigations directed at third parties. The business will seek to recover these costs against the third party but cannot be guaranteed. The restructuring provision relates to the costs associated with the closure of some non-trading Group entities and is anticipated to be utilised during the next 12 months. 
 
 
10. Borrowings




 


At 30 June
2021
(Unaudited)
£000


At 30 June
2020
(Unaudited)
£000


At 31 December
2020
(Audited)
£000




Non-current bank borrowings


14,715


15,908


15,307




Current bank borrowings


1,200


1,200


1,200




 


15,915


17,108


16,507




 


 


 


 




The Group has a 10-year fixed term loan and has interest rate swaps in place to fix the interest at an effective rate of 3.5%.  The repayment profile of the loan is £1.2 million per annum over the term with the remaining balance repaid on expiry of loan in 2026.
 
11. Lease liabilities




 


At 30 June
2021
(Unaudited)
£000


At 30 June
2020
(Unaudited)
£000


At 31 December
2020
(Audited)
£000




Non-current lease liabilities


499


1,736


1,038




Current lease liabilities


1,191


1,423


1,247




 


1,690


3,159


2,285




 
Lease liabilities arise on leased properties held by the Group. The leases have remaining periods of between 1 and 4 years from the balance sheet date. 
 
12. Subsequent events
On 15 July 2021, an agreement was reached with Imagination Technologies Limited, effective 1 July 2021, to settle all future royalties associated with the use of the licensed technology in the consumer electronics market (including DAB radio broadcast) for a single payment of $6.0 million (£4.3 million). 
 
13. Critical accounting estimates and judgements
In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. 
 
The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements. 
 
 
- Ends -
 

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