REG - Science Group PLC - Audited Results for year ended 31 December 2021
16/03/2022 07:00
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RNS Number : 8836E Science Group PLC 16 March 2022
16 March 2022
SCIENCE GROUP PLC
AUDITED RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Science Group plc (the 'Company') together with its subsidiaries ('Science
Group' or the 'Group') reports its audited results for the year ended 31
December 2021.
Summary
Science Group reports another record performance delivering substantial profit
growth. The Group's strong balance sheet, significant cash resources and
undrawn new debt facility provide both a solid foundation for the existing
operations and the potential to pursue further corporate development
opportunities. As a result, Science Group is well positioned for the year
ahead.
· Financial Highlights
o Record revenue and adjusted operating profit, ahead of upgraded
expectations
o Group revenue growth of 10% to £81.2 million (2020: £73.7 million)
o Adjusted* operating profit increased by 49% to £16.3 million (2020:
£10.9 million)
o Adjusted* basic earnings per share increased by 47% to 28.5p (2020: 19.4p)
o Recommended dividend increase of 25% to 5.0p per share (2020: 4.0p per
share)
· Investments & Acquisitions
o Strategic investment, including two director appointees, in TP Group plc,
a supplier of products and services into the defence sector
o Investment in Frontier comprising royalty buy-out and add-on acquisition
· Balance Sheet
o Cash of £34.3 million and net funds of £19.0 million
o Successful equity fund raising in September 2021 of £17.8 million net
o New undrawn revolving credit facility of £25 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, 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.
Statement of Executive Chair
Science Group is an international science, technology and consulting
organisation. The Group comprises three divisions: R&D Consultancy;
Regulatory & Compliance; and Frontier Smart Technologies ('Frontier'),
together with significant freehold property assets and a strategic
shareholding in TP Group plc.
Notwithstanding the global pandemic and supply chain constraints, Science
Group has delivered another record performance with growth reported in all
three divisions and a substantial increase in Group profitability. As a
result, Science Group has continued its track record of delivering value to
shareholders whilst investing in the long-term sustainability of the business
and sharing the rewards of success with the Group's employees. This successful
execution of both corporate and operating strategies provides an excellent
platform for the future of Science Group.
Financial Summary
For the year ended 31 December 2021, Science Group reported revenue of £81.2
million (2020: £73.7 million). This growth, combined with benefits derived
from the greater scale of the Group, converted into an adjusted operating
profit increase of 49% to £16.3 million (2020: £10.9 million). Adjusted
operating profit has more than doubled over the past 2 years. Adjusted basic
earnings per share increased by 47% to 28.5 pence (2020: 19.4 pence),
reflecting the Board's focus on translating its strategy into shareholder
value.
Amortisation of acquisition related intangibles and the share based payment
charge totalled £3.6 million (2020: £3.7 million) and the Group's share of
the estimated loss in TP Group was £1.1 million (2020: not applicable). As a
result, the Group reported an operating profit of £11.6 million for the year
(2020: £7.1 million) and profit before tax of £10.9 million (2020: £6.4
million). Basic earnings per share was 22.4 pence (2020: 16.9 pence).
Science Group continues to benefit from good cash conversion and a strong
balance sheet. At 31 December 2021, Group cash was £34.3 million (2020:
£27.1 million) and net funds were £19.0 million (2020: £10.6 million). The
Group's term loan, which expires in 2026, was £15.4 million (2020: £16.6
million). In addition to the term loan, in December 2021 the Group also agreed
a new £25 million Revolving Credit Facility with its bank, which to date has
not been drawn. As a result, the Group has significant existing cash resources
and available facilities to continue its strategy.
R&D Consultancy
The R&D Consultancy division, operating under a unified brand, provides
science-led advisory and product/technology development services. The division
combines science and engineering capabilities with expertise in key vertical
sectors, namely: Medical; Consumer; Food & Beverage; and Industrial,
Chemicals & Energy.
For the year ended 31 December 2021, the R&D Consultancy division
generated revenue of £34.3 million (2020: £32.2 million). The Medical sector
continued to perform well in 2021, reporting organic growth against a strong
prior year comparator. The other sectors had a slower start to the year but
saw some recovery in the second half as the effects of the pandemic eased.
The unification of the division under the single brand Sagentia Innovation has
enabled these businesses to offer an integrated set of services to clients.
This has presented cross-selling opportunities to the division and also
attracted clients who recognise the value of the extended service offering,
combining strategic advisory services, leading edge scientific consulting and
product/technology development for physical & digital solutions.
Regulatory & Compliance
The Regulatory & Compliance division provides scientific and regulatory
advice together with registration and compliance services for the Chemicals
and Food & Beverage sectors, both of which operate internationally in
regulated markets. The division comprises the North American and European
operations of TSG, acquired in 2017, together with Leatherhead Food Research,
acquired in 2015. The scale of each of the three business areas is broadly
similar.
For the year ended 31 December 2021, the Regulatory & Compliance division
generated revenue of £21.4 million (2020: £20.1 million). Of this revenue
around 25% is of a recurring nature, primarily within the Food & Beverage
sector and the USA registration renewals activities.
The division made good progress in its strategic development during 2021 as
the increased scale and reputation is now attracting larger opportunities.
To support this growth, the division invested in a new finance system which
is now live across all three business areas, replacing three different legacy
systems with a common platform. The TSG America state regulatory business also
successfully launched a new rules-based system to improve the efficiency of
the registration renewals operations.
Frontier Smart Technologies
Frontier Smart Technologies ('Frontier') is the market leader in
DAB/DAB+/SmartRadio technology chips and modules. Formerly an AIM-listed,
Cayman-domiciled company, Frontier was acquired by Science Group in 2019.
Following the successful turnaround and integration during 2020, in January
2021 the Board initiated a review of the future strategy for Frontier. This
wide-ranging review confirmed the strategic leadership position of Frontier
and identified a number of opportunities to enhance and develop the business.
Consequently, effective 1 July 2021, an agreement was reached to buy out
future royalties associated with the use of licensed technology for the sum of
$6.0 million (£4.3 million). (For the year ended 31 December 2020, Frontier
paid royalties of $1.0 million in relation to licensing this technology.)
In progressing the post-review Frontier strategy, the Group also completed the
acquisition of Magic Systech Inc ('Magic'), for $4.0 million (£3.0 million).
Magic is a Taiwan-based company which specialises in internet radio technology
and the acquisition enhances the Frontier proposition including a lower
production cost architecture. Magic is now being integrated into Frontier.
The Frontier division had a strong year in 2021 reporting 21% growth in
revenue to £24.9 million (2020: £20.5 million) and an adjusted operating
profit margin of 21% (2020: 16%), producing a 59% increase in adjusted
operating profit. This success was achieved despite the global semiconductor
and other supply chain constraints.
Freehold Properties
Science Group owns two freehold properties, Harston Mill near Cambridge and
Great Burgh in Epsom. The last independent valuation in March 2021 indicated
an aggregate value of these properties in the range £21.0 million to £35.0
million. The properties are held on the balance sheet on a cost basis at
£21.0 million (2020: £21.2 million).
Great Burgh is owned by a property subsidiary of Science Group plc and it has
been the Board's declared intent to adopt the same approach for the Harston
Mill property, which for historic reasons was held within the operating
subsidiary. In 2021, this legacy was addressed resulting in a tax payment
outflow of approximately £1.8 million.
For the year ended 31 December 2021, the rental and associated services income
derived from the Group's freehold properties was £3.6 million (2020: £4.0
million), of which £0.6 million (2020: £0.8 million) was generated from
third-party tenants. Intra-group charges are eliminated on Group
consolidation but the reported segmental profit of the operating divisions
includes property rental at market rates.
Corporate
The corporate function is responsible for the strategic development of Science
Group. Corporate costs increased in the period to £4.4 million (2020: £2.5
million), reflecting the significant activity in the year and the Group's
share in the estimated loss of TP Group ('TPG') which is reported as a
corporate cost in segmental reporting.
In addition to the Frontier royalty buy-out and acquisition of Magic, in
August the Group made a strategic investment in TPG through a stake-building
exercise. TPG is a provider of consulting services and engineering products
to the defence and aerospace sectors where Science Group has little presence.
Science Group tried to engage with TPG but all approaches were rejected,
including a possible offer for TPG which was withdrawn on 3 September 2021.
At 31 December 2021, Science Group was the largest shareholder in TPG owning
28.0% at a total cost of £12.8 million.
The Group is actively managing the TPG investment and in October 2021 secured
2 seats on the TPG Board including, from 1 November 2021, the role of
Executive Chair. The TPG strategy was redefined to focus on core UK-based
operations and this strategy is now being executed by the TPG Board. To
address cash flow volatility, and potential going concern risks (as reported
by TPG in its 2020 Annual Report), in December 2021 Science Group extended a
standby credit facility of up to £5.0 million to TPG. For accounting
purposes, TPG was held as a financial investment until 13 October 2021 and was
equity accounted thereafter.
For the first time since 2010, to continue its strategic development, Science
Group undertook an equity fundraising. Net proceeds of £17.8 million were
raised through the successful placing of new Ordinary Shares with existing and
new institutional investors.
With the continued success and growth of the Group, the Board is recommending
increasing the dividend by 25% to 5.0 pence per share (2020: 4.0 pence per
share). Subject to shareholder approval at the Annual General Meeting ('AGM'),
the dividend will be payable on 17 June 2022 to shareholders on the register
at the close of business on 20 May 2022.
During the year, the Company repurchased 149,000 shares at a total cost of
£0.6 million at an average price of £3.79 pence per share (2020: 715,000
shares at a cost of £1.7 million). At 31 December 2021, shares in issue
(excluding treasury shares held of 0.5 million) were 45.7 million (2020: 41.2
million excluding treasury shares held of 0.8 million).
Environmental, Social & Governance
The Group takes its responsibilities to the environment and to the community
seriously. In 2021 the Group commenced assessment of Greenhouse Gas ('GHG')
emissions across its businesses with a view to planning for NetZero.
Electricity in the Group's major sites is already derived from renewable
sources, as far as practicable, and electric vehicle charging points have been
installed at the Group's freehold properties. Waste management remains a major
focus with policies to ensure reduction, reuse, and recycling as
appropriate.
In parallel with its own actions, Science Group is actively engaged in working
with clients on sustainability programmes. Furthermore, in 2021, the Group
launched a CTO (Chief Technology Officer) Forum to bring together senior
R&D executives from leading international corporates engaged on creating
actionable strategies for NetZero. The initiative draws on the combination of
science, advisory and regulatory expertise within Science Group to provide a
differentiated insight into the environmental and sustainability challenges of
global organisations.
Science Group has a diverse employee base, representing over 30 nationalities,
and actively promotes the values of diversity and inclusion. Employee
development and training, at all levels, is very important, and the Group is
especially mindful of the development of more junior employees during enforced
remote working as a result of the pandemic. The Group is also aware of its
position in society particularly the impact of the pandemic upon local
communities and has therefore increased its charitable donations in the last
two years, supporting charities (primarily foodbanks) close to the Group's
offices around the world.
The Board of Science Group is well balanced between executive and independent
non-executive directors ('NED') ensuring objectivity in decision-making. The
Group is led by the Executive Chair, who also remains the Group's largest
shareholder, driving the corporate strategy, with a Group Managing Director
who runs day to day operations. The Board believes in strong, independent NEDs
and, as part of succession planning, takes into consideration Board diversity.
Both the Remuneration and Audit committees are composed of 100% independent
directors. The Group's formal and effective governance model is reinforced by
an open, transparent culture with NEDs having unconstrained access to any and
all employees throughout the Group.
Covid-19, Inflation and Geopolitical Factors
The Group has adapted to operating under the constraints resulting from the
Covid-19 pandemic. The primary focus has been to protect employees and to
promote their physical and mental wellbeing. Operationally, there has been a
mix of home, office and lab-based working, adhering to Government policy in
each country, whilst successfully delivering products and services for
clients.
The Frontier division also suffered from supply-chain issues associated with
the global semiconductor and other component shortages but managed the
situation well, benefitting from good relations with suppliers and the Group's
strong financial position. While the recent Covid restrictions in Shenzhen and
Hong Kong may have a short-term impact on product shipments and 2022 is likely
to continue to be constrained by component supply, the Board anticipates that
the Frontier team will again be able to manage through the operational
challenges and maintain its market leading position.
The Science Group Board monitors economic and other external factors. The
potential inflationary pressures on employment costs were recognised early and
where possible client contracts have been amended to facilitate fee rate
increases within the Services divisions as appropriate. Similarly, the product
supply-side inflation has been mitigated by passing cost increases onto the
distribution channel. The recent geopolitical instability could further impact
the global economic environment with the near-term effects anticipated to be:
· An increase in inflationary pressures, particularly energy costs
which even prior to recent events were projected to more than double in 2022
compared with 2021.
· A slowing of European investment and economic growth, which at
the present time the Board considers will have only a limited impact on the
Group.
· Strengthening of the US Dollar, which has a net positive effect
on Science Group due to the proportion of revenue generated in US Dollars with
a primary cost base in Sterling.
At the present time, the Board considers that in aggregate the net effect of
the above on Science Group operations is broadly neutral, with the benefits of
the strong US Dollar offsetting the other external factors.
Summary and Outlook
In summary, Science Group has reported another year of excellent results with
all three divisions performing well, leading to the Board upgrading Group
profit forecasts several times. The outstanding performance over the past two
years, during a global pandemic, is due to the commitment and dedication of
the Group's operating managers and employees.
Recent years have also seen an acceleration in the corporate development of
Science Group, most recently evidenced by the strategic investment in TP Group
plc. Although there can be no certainty that any transactions will satisfy the
Board's evaluation criteria and diligence process, the Group's significant
cash resources further enhanced by the new credit facility, enable the Board
to explore both add-on acquisitions and larger opportunities to increase the
scale of Science Group.
While inflation, geopolitical instability and potential further disruption
from the pandemic are being closely monitored, Science Group's strategy and
operational execution have demonstrated resilience. The Group's strong balance
sheet provides both a solid foundation for the existing operations and the
potential to pursue growth opportunities should they arise. As a result,
Science Group is well positioned for the year ahead.
Martyn Ratcliffe
Executive Chair
Finance Director's Report
Overview of Results
In the year ended 31 December 2021, the Group generated revenue of £81.2
million (2020: £73.7 million). Revenue from the services operating
businesses, that is revenue derived from consultancy services and materials
recharged on these projects, increased to £55.7 million (2020: £52.3
million) while product revenue generated by Frontier increased to £24.9
million (2020: £20.5 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 £0.6 million (2020: £0.8
million).
Adjusted operating profit for the Group increased to £16.3 million (2020:
£10.9 million). The Group's statutory operating profit of £11.6 million
(2020: £7.1 million) includes the amortisation of acquisition related
intangible assets (£2.9 million), share based payment charges (£0.7 million)
and a share of the estimated loss of associate investment, TP Group plc, of
£1.1 million. The statutory profit before tax was £10.9 million (2020: £6.4
million) and statutory profit after tax was £9.6 million (2020: £7.0
million). Statutory basic earnings per share ('EPS') was 22.4 pence (2020:
16.9 pence per share).
Adjusted operating profit is an alternative profit measure that is calculated
as operating profit excluding amortisation of acquisition related intangible
assets, acquisition integration costs, share based payment charges and other
specified items that meet the criteria to be adjusted. Refer to the notes to
the financial statements for further information on this and other alternative
performance measures.
TP Group plc
The Group commenced on-market purchases of shares in TP Group plc ('TPG'), in
August 2021, increasing its holding to 28.0% at 31 December 2021.
Prior to 13 October 2021, the Group accounted for the TPG shareholding as a
financial investment, recognised at fair value on the balance sheet. On 13
October 2021, when two Science Group plc Directors were appointed to the Board
of TPG, the Group started to account for its holding in TPG as an associate
under the equity accounting method.
TPG has not released its results for the period ended 31 December 2021. A loss
after tax of £1.1 million has been included within the Science Group Income
Statement, which is an estimate based on TPG reported information and public
statements, proportionate to the Group's 28% shareholding and the duration for
which TPG was accounted as an associate.
In December 2021, the Group made available a standby revolving credit facility
to TPG. The facility is for a maximum of £5.0 million for the period from
the date of signing until 30 September 2023. The facility, which incurs an
interest rate of 1% per month on sums drawn or 0.4% per month on undrawn
amounts, remained undrawn at 31 December 2021.
Foreign Exchange
A considerable proportion of the Group's revenue is denominated in currencies
other than Sterling. Changes in exchange rates can have a significant
influence on the Group's financial performance. In 2021, £50.2 million of the
Group's operating business revenue was denominated in US Dollars (2020: £41.8
million), including all of Frontier's revenue. In addition, £3.1 million of
the Group operating business revenue was denominated in Euros (2020: £3.6
million). The average exchange rate during 2021 was 1.37 for US Dollars and
1.16 for Euros (2020: 1.29 and 1.13 respectively). To date, the Group has
opted not to utilise foreign exchange hedging instruments but keeps this under
review.
Taxation
The tax charge for the year was £1.4 million (2020: tax credit of £0.6
million). The underlying tax charge on the profits generated by the operating
businesses has been partially offset through brought forward Frontier losses
and a Research and Development tax credit of £0.3 million (2020: £0.2
million). Science Group recognises R&D tax credits within tax reporting,
not as a credit against operating costs.
As planned, the Harston Mill property was transferred within the Group from
trading company, Sagentia Limited, to Quadro Harston Limited. This resulted
in a tax payment outflow in 2021 of £1.8 million. There was a matching
deferred tax liability release, leaving the transaction tax neutral in the
Income Statement.
At 31 December 2021, Science Group had £27.8 million (2020: £31.7 million)
of tax losses of which £17.6 million (2020: £21.4 million) related to
trading losses in Frontier. Of the Frontier losses, £10.0 million (2020:
£5.3 million) is recognised as a deferred tax asset which is anticipated to
be used to offset future taxable profits. The balance of £7.6 million
(2020: £16.1 million) has not been recognised as a deferred tax asset due to
the uncertainty in the timing or feasibility of utilisation of these losses.
Aside from Frontier, the Group has other tax losses of £10.2 million (2020:
£10.3 million) unrecognised as a deferred tax asset due to the low
probability that these losses will be able to be utilised.
Financing and Cash
Cash flow from operating activities (excluding Client Registration Funds) was
£13.2 million (2020: £17.2 million). Reported cash from operating activities
in accordance with IFRS was £14.0 million (2020: £17.7 million). The
difference in these two metrics relates to the fact that TSG, particularly in
the USA, processes regulatory registration payments on behalf of clients. The
alternative performance measure, adjusting for Client Registration Funds, more
accurately reflect the Group's 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 3 month London Interbank Offered Rate ('LIBOR')
(https://www.investopedia.com/terms/l/libor.asp) , the cost of the loan
arrangement fee and the cost of the swap instruments. The Group has adopted
hedge accounting for the interest rate swap related to the bank loan under
IFRS 9, Financial Instruments, and the gain on change in fair value of the
interest rate swaps was £763,000 (2020: loss of £519,000) which was
recognised in Other Comprehensive Income.
With LIBOR ceasing to be used as an interest rate benchmark at the end of
2021, the Group transitioned the term loan and the respective swap instruments
to use the Sterling Overnight Index Average ('SONIA') as an appropriate
alternative. The transition was agreed during the year and will be effective
from March 2022. The hedged position on the loan remains and there is no
change to the effective fixed interest rate of 3.5%.
In December 2021, in addition to the term loan, the Group signed a new £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, for a term of four years with a one
year extension. 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 2021, 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
2021 was £34.3 million (2020: £27.1 million) and net funds were £19.0
million (2020: net funds of £10.6 million). Client Registration Funds of
£2.9 million (2020: £2.0 million) were held at the year end. Working capital
management during the year continued to be a focus with debtor days of 31 days
at 31 December 2021 (2020: 31 days). A higher level of inventory was held at
the year end to mitigate uncertainty in forward supply, resulting in inventory
days increasing to 76 days at 31 December 2021 (2020: 43 days).
Share Capital
At 31 December 2021, the Company had 45,720,276 ordinary shares in issue
(2020: 41,238,392) and the Company held an additional 465,598 shares in
treasury (2020: 823,643). The increase in shares in issue is primarily related
to a 10% share placement (4,123,839 shares) completed in September 2021. Of
the ordinary shares in issue, 104,400 (2020: 104,400) shares are held by the
Frontier Employee Benefit Trust. The voting rights in the Company at 31
December 2021 are 45,615,876 (2020: 41,133,992). 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 2021
Note 2021 2020
£000
£000
Revenue 2 81,216 73,663
Direct operating expenses (45,858) (43,861)
Sales and marketing expenses (8,824) (8,112)
Administrative expenses (13,892) (14,561)
Share of loss of equity accounted investment (1,061) -
Adjusted operating profit 2 16,260 10,885
Acquisition integration costs - (10)
Amortisation of acquisition related intangible assets 7 (2,891) (2,507)
Share based payment charge (727) (1,239)
Share of loss of equity accounted investment (1,061) -
Operating profit 11,581 7,129
Finance income 19 9
Finance costs (673) (746)
Profit before tax 10,927 6,392
Tax (charge)/credit (including R&D tax credit of £324,000 (2020: 3 (1,366) 647
£248,000))
Profit for the year 9,561 7,039
Earnings per share
Earnings per share (basic) 5 22.4p 16.9p
Earnings per share (diluted) 5 21.7p 16.7p
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
£000
£000
Profit for the year attributable to:
Equity holders of the parent 9,561 7,039
Profit for the year 9,561 7,039
Other comprehensive income
Items that will or may be reclassified to profit or loss:
Exchange differences on translating foreign operations 279 (358)
Fair value gain/(loss) on interest rate swap 763 (519)
Deferred tax (charge)/credit on interest rate swap (151) 96
Other comprehensive income
Items that will not be reclassed to profit or loss
Changes in the fair value of equity investments through other comprehensive (2,470) -
income
Other comprehensive expense for the year (1,579) (781)
Total comprehensive income for the period attributable to:
Equity holders of the parent 7,982 6,258
Total comprehensive income for the year 7,982 6,258
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2021
Issued 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 2020 421 9,102 (660) 10,343 (679) - 17,742 36,269
Contributions and distributions:
Purchase of own shares - - (1,672) - - - - (1,672)
Issue of shares out of treasury - - 436 - - - (429) 7
Dividends paid - - - - - - (830) (830)
Share based payment charge - - - - - - 1,239 1,239
Deferred tax credit on share based payment transactions - - - - - - 119 119
Transactions with owners - - (1,236) - - - 99 (1,137)
Profit for the year - - - - - - 7,039 7,039
Other comprehensive income:
Transfer of cash flow hedge reserve from retained earnings - - - - - (115) 115 -
Fair value loss on interest rate swap - - - - - (519) - (519)
Exchange differences on translating foreign operations - - - - (358) - - (358)
Deferred tax credit on interest rate swap - - - - - 96 - 96
Total comprehensive income for the year - - - - (358) (538) 7,154 6,258
Balance at 31 December 2020 421 9,102 (1,896) 10,343 (1,037) (538) 24,995 41,390
Issued capital Share premium Treasury Stock Merger reserve Translation reserve Cashflow hedge reserve Retained earnings Total equity
£000 £000 £000 £000 £000
£000 £000 £000
Balance at 1 January 2021 421 9,102 (1,896) 10,343 (1,037) (538) 24,995 41,390
Contributions and distributions:
Purchase of own shares - - (562) - - - - (562)
Issue of shares out of treasury stock - - 1,216 - - - (1,211) 5
Dividends paid - - - - - - (1,642) (1,642)
Share based payment charge - - - - - - 727 727
Deferred tax credit on share based payment transactions - - - - - - 619 619
Share placement 41 17,732 - - - - - 17,773
Transactions with owners 41 17,732 654 - - - (1,507) 16,920
Profit for the year - - - - - - 9,561 9,561
Other comprehensive income:
Fair value gain on interest rate swap - - - - - 763 - 763
Exchange differences on translating foreign operations - - - - 279 - - 279
Deferred tax charge on interest rate swap - - - - - (151) - (151)
Other comprehensive income items that will not be reclassed to profit or loss:
Changes in the fair value of equity investments through other comprehensive - - - - - - (2,470) (2,470)
income
Total comprehensive income for the period - - - - 279 612 7,091 7,982
Balance at 31 December 2021 462 26,834 (1,242) 10,343 (758) 74 30,579 66,292
Consolidated Balance Sheet
At 31 December 2021
Note 2021 2020
£000 £000
Assets
Non-current assets
Acquisition related intangible assets 7 13,359 10,514
Goodwill 7 14,360 13,657
Property, plant and equipment 23,384 23,809
Investments 9,239 -
Derivative financial instruments 129 -
Deferred tax assets 4 2,120 1,322
62,591 49,302
Current assets
Inventories 8 2,454 1,263
Trade and other receivables 9 12,208 10,784
Current tax assets 1,493 1,627
Cash and cash equivalents - Client registration funds 10 2,874 2,015
Cash and cash equivalents - Group cash 10 34,315 27,059
53,344 42,748
Total assets 115,935 92,050
Liabilities
Current liabilities
Trade and other payables 11 30,042 26,365
Current tax liabilities 776 394
Provisions 12 677 678
Borrowings 14 1,200 1,200
Lease liabilities 1,153 1,247
33,848 29,884
Non-current liabilities
Provisions 12 603 659
Borrowings 14 14,123 15,307
Lease liabilities 400 1,038
Derivative financial instruments - 634
Deferred tax liabilities 4 669 3,138
15,795 20,776
Total liabilities 49,643 50,660
Net assets 66,292 41,390
Shareholders' equity
Share capital 13 462 421
Share premium 26,834 9,102
Treasury shares (1,242) (1,896)
Merger reserve 10,343 10,343
Translation reserve (758) (1,037)
Cash flow hedge reserve 74 (538)
Retained earnings 30,579 24,995
Total equity 66,292 41,390
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
Note 2021 2020
£000
£000
Profit before income tax 10,927 6,392
Adjustments for:
Share of loss of equity accounted investment 1,061 -
Amortisation of acquisition related intangible assets 2,891 2,507
Depreciation of property, plant and equipment 719 904
Impairment of right of use assets - 513
Depreciation of right of use assets 794 1,067
Loss on disposal of property, plant and equipment - 7
Net interest cost 654 737
Share based payment charge 727 1,239
(Increase)/decrease in inventories (1,047) 394
Increase in receivables (1,385) (546)
Increase in payables representing client registration funds 859 498
Increase in payables excluding balances representing client registration funds 2,494 5,976
Changes in provisions (76) 735
Cash generated from operations 18,618 20,423
Interest paid (646) (753)
UK corporation tax paid (3,018) (1,799)
Foreign corporation tax paid (940) (184)
Cash flows from operating activities 14,014 17,687
Interest received 3 9
Purchase of property, plant and equipment (544) (143)
Purchase of intellectual property (4,315) -
Purchase of interest in associated company (12,770) -
Purchase of subsidiary undertakings, net of cash acquired (1,455) -
Cash flows used in investing activities (19,081) (134)
Issue of shares out of treasury 5 7
Share placement 17,773 -
Repurchase of own shares (562) (1,672)
Dividends paid (1,642) (830)
Proceeds of bank loan received 14 - 1,500
Repayment of term loan 14 (1,200) (1,200)
Payment of lease liabilities (1,296) (1,339)
Cash flows from financing activities 13,078 (3,534)
Increase in cash and cash equivalents in the year 8,011 14,019
Cash and cash equivalents at the beginning of the year 29,074 15,429
Exchange gain/(loss) on cash 104 (374)
Cash and cash equivalents at the end of the year 10 37,189 29,074
Cash and cash equivalents are analysed as follows:
Note 2021 2020
£000
£000
Cash and cash equivalents - Client registration funds 10 2,874 2,015
Cash and cash equivalents - Group cash 10 34,315 27,059
37,189 29,074
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 and consulting
organisation, supported by a strong balance sheet.
The Group and Company Financial Statements of Science Group plc were prepared
under 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 AIM 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 2021, was 455.0 pence per share (31
December 2020: 280.0 pence per share).
Alternative performance measures
The Group uses alternative non-Generally Accepted Accounting Practice
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 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 rate for the year which is 22.0% (2020: 20.4%) 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 pass through funds held on behalf of the
client solely for the purpose of payment of registration fees to regulatory
bodies and for which no revenue is recognised. This cash is not available
for use in day-to-day operations. This measure is calculated as follows:
Note 2021 2020
£000 £000
Cash and cash equivalents - Group cash 10 34,315 27,059
Borrowings 14 (15,323) (16,507)
Net funds 18,992 10,552
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 considered the current cash balance of £34.3 million
(excluding client registration 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. In support, as explained in the Statement of Executive Chair, the
Group revenue and operating profit grew year on year and cash generated from
operations was £18.6 million during the year ended 31 December 2021. The
Group ended the year with net funds of £19.0 million and with the new and
undrawn Revolving Credit Facility ('RCF') of £25.0 million. 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 approval of the accounts and therefore
continue to adopt the going concern basis of accounting in preparing the
annual Financial Statements.
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 Services Operating
Business consists of two divisions, (i) R&D Consultancy, and (ii)
Regulatory & Compliance. Financial information is provided to the Chief
Operating Decision Makers ('CODMs') in line with this structure: the divisions
in the Services Operating Businesses; the Product Operating Business
(Frontier); the Freehold Properties and Corporate costs.
The Services Operating divisions have been aggregated resulting in one
Services Operating Business segment because the divisions and the services
they provide 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 service line.
Services Operating Business revenue includes all consultancy fees and other
revenue includes recharged materials and expenses relating directly to 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 fees 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 2021 2020
Total Total
£000 £000
Services revenue 52,879 48,198
Other 2,840 4,077
Revenue 55,719 52,275
Adjusted operating profit 14,122 9,068
Amortisation of acquisition related intangible assets (1,495) (1,513)
Share based payment charge (502) (946)
Operating profit 12,125 6,609
Product Operating Business 2021 2020
£000 £000
Product revenue 24,936 20,540
Revenue 24,936 20,540
Adjusted operating profit 5,156 3,245
Acquisition integration costs - (10)
Amortisation of acquisition related intangible assets (1,396) (994)
Share based payment charge (240) (185)
Operating profit 3,520 2,056
Freehold Properties 2021 2020
£000 £000
Inter-company property income 3,046 3,189
Third party property income 561 848
Revenue 3,607 4,037
Adjusted operating profit 361 954
Share based payment charge (27) (21)
Operating profit 334 933
Corporate 2021 2020
£000 £000
Adjusted operating loss (3,379) (2,382)
Share based payment credit/(charge) 42 (87)
Share of loss of equity accounted investment (1,061) -
Operating loss (4,398) (2,469)
Group 2021 2020
Total Total
£000 £000
Services revenue 52,879 48,198
Product revenue 24,936 20,540
Third party property income 561 848
Other 2,840 4,077
Revenue 81,216 73,663
Adjusted operating profit 16,260 10,885
Acquisition integration costs - (10)
Amortisation of acquisition related intangible assets (2,891) (2,507)
Share based payment charge (727) (1,239)
Share of loss of equity accounted investment (1,061) -
Operating profit 11,581 7,129
Net finance costs (654) (737)
Profit before income tax 10,927 6,392
Income tax (charge)/credit (1,366) 647
Profit for the period 9,561 7,039
Geographical and currency revenue analysis
Primary geographic markets 2021 2020
£000 £000
United Kingdom 11,883 14,843
Other European Countries 12,228 12,743
North America 29,065 24,003
Asia 27,680 21,553
Other 360 521
81,216 73,663
Currency 2021 2020
£000 £000
US Dollar 50,153 41,787
Euro 3,070 3,569
Sterling 27,985 28,274
Other 8 33
81,216 73,663
3. Income Tax
The tax (charge)/credit comprises:
Year ended 31 December Note 2021 2020
£000
£000
Current taxation (4,269) (1,492)
Current taxation - adjustment in respect of prior years (481) 240
Deferred taxation 4 2,975 1,806
Deferred taxation - adjustment in respect of prior years 85 (155)
R&D tax credit 324 248
(1,366) 647
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 of the consolidated
companies of 22.0% (2020: 20.4%) as follows:
2021 2020
£000
£000
Profit before tax 10,927 6,392
Tax calculated at domestic tax rates applicable to profits/(losses) in the (2,401) (1,306)
respective countries
Expenses not deductible for tax purposes (543) (193)
Adjustment in respect of prior years - current tax (481) 240
Adjustment in respect of prior years - deferred tax 85 (155)
Movement in deferred tax due to change in tax rate (313) -
Share scheme movements 44 72
Losses used in year 1,033 740
Recognition of tax losses as deferred tax asset 1,119 1,001
Share of loss of equity accounted investment (233) -
R&D tax credit 324 248
Tax (charge)/credit (1,366) 647
The Group claims Research and Development tax credits under both the R&D
expenditure credit scheme and the Small or Medium-sized Scheme. In the current
year, the Group recognised a tax credit of £0.3 million (2020: £0.2
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 Acquisition related intangible assets Other temporary differences Total
£000 £000 based payment £000 £000 £000
£000
At 1 January 2020 (1,893) 47 506 (2,453) 62 (3,731)
Charged to the income statement 125 954 184 442 101 1,806
Charged to the income statement (adjustment in respect of prior year) 1 - (34) (155) 33 (155)
Charged to Equity - - 119 - 96 215
Effect of movements in exchange rates - - - 48 1 49
At 31 December 2020 (1,767) 1,001 775 (2,118) 293 (1,816)
Charged to the income statement 1,721 1,119 (5) 174 (34) 2,975
Deferred tax relating to acquisitions - - - (246) - (246)
Charge to the income statement (adjustment in respect of prior year) - - - - 85 85
Charged to Equity - - 619 - (151) 468
Effect of movements in exchange rates - - - (15) - (15)
At 31 December 2021 (46) 2,120 1,389 (2,205) 193 1,451
2021 2020
£000 £000
Deferred tax assets 2,120 1,322
Deferred tax liabilities (669) (3,138)
Net deferred tax assets / (liabilities) 1,451 (1,816)
At 31 December 2021, Science Group had £27.8 million (2020: £31.7 million)
of tax losses of which £17.6 million (2020: £21.4 million) related to
trading losses in Frontier. Of the Frontier losses, £10.0 million (2020:
£5.3 million) is recognised as a deferred tax asset which is anticipated to
be used to offset future taxable profits. The balance of £7.6 million
(2020: £16.1 million) has not been recognised as a deferred tax asset due to
the uncertainty in the timing of utilisation of these losses. Aside from
Frontier, the Group has other tax losses of £10.2 million (2020: £10.3
million) unrecognised as a deferred tax asset due to the low probability that
these losses will be able to be utilised.
Factors affecting future tax charges
From 1 April 2023 the UK corporation tax will increase from 19% to 25%.
Deferred tax assets/(liabilities) were calculated at the substantively enacted
corporation tax rates in the respective jurisdictions, taking into account the
impact of any known future changes.
5. Earnings Per Share
The calculation of earnings per share is based on the following result and
weighted average number of shares:
2021 2020
Profit after tax Weighted average number of shares Pence per share Profit after tax Weighted average number of shares Pence
£000 £000 per share
Basic earnings per ordinary share 9,561 42,660,991 22.4 7,039 41,631,118 16.9
Effect of dilutive potential ordinary shares: share options - 1,435,102 (0.7) - 598,648 (0.2)
Diluted earnings per ordinary share 9,561 44,096,093 21.7 7,039 42,229,766 16.7
Only the share options granted are dilutive.
The calculation of adjusted earnings per share is as follows:
2021 2020
Adjusted* profit after tax Weighted average number of shares Pence Adjusted* profit after tax Weighted average number of shares Pence
£000 per share £000 per share
Adjusted basic earnings per ordinary share 12,173 42,660,991 28.5 8,078 41,631,118 19.4
Effect of dilutive potential ordinary shares: share options - 1,435,102 (0.9) - 598,648 (0.3)
Adjusted diluted earnings per ordinary share 12,173 44,096,093 27.6 8,078 42,229,766 19.1
*Calculation of adjusted profit after tax:
2021 2020
£000 £000
Adjusted operating profit 16,260 10,885
Finance income 19 9
Finance costs (673) (746)
Adjusted profit before tax 15,606 10,148
Tax charge at the blended corporation tax rate across the various (3,433) (2,070)
jurisdictions 22.0% (2020: 20.4%)
Adjusted profit after tax 12,173 8,078
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 2020 of £1.6 million was paid in June 2021.
The Board has proposed a final dividend for 2021 of 5.0 pence per share (2020:
4.0 pence per share). The dividend is subject to approval by shareholders at
the next Annual General Meeting and the expected cost of £2.3 million has not
been included as a liability as at 31 December 2021.
7. Intangible Assets
Technology Customer relationships Goodwill Total
£000 £000 £000
£000
Cost
At 1 January 2020 6,995 13,667 16,033 36,695
Effect of movement in exchange rates (203) (20) (151) (374)
At 31 December 2020 6,792 13,647 15,882 36,321
Acquisitions through business combination (Note 16) 1,031 238 664 1,933
Additions 4,315 - - 4,315
Effect of movement in exchange rates 168 30 39 237
At 31 December 2021 12,306 13,915 16,585 42,806
Accumulated amortisation
At 1 January 2020 292 7,141 - 7,433
Amortisation charged in year 901 1,606 - 2,507
Effect of movement in exchange rates (61) 39 - (22)
At 31 December 2020 1,132 8,786 - 9,918
Amortisation charged in year 1,305 1,586 - 2,891
Effect of movement in exchange rates 27 19 - 46
At 31 December 2021 2,464 10,391 - 12,855
Accumulated impairment
At 1 January, 31 December 2020 and 31 December 2021 7 2,225 2,232
-
Carrying amount
At 31 December 2020 5,660 4,854 13,657 24,171
At 31 December 2021 9,842 3,517 14,360 27,719
On 15 July 2021 the Group paid $6 million (£4.3 million) to acquire a licence
to use technology developed by Imagination Technologies Limited.
On 24 November 2021 the Group acquired Magic Systech Inc ('Magic'), a
Taiwan-based company which specialises in Internet Radio technology (Note 16).
Goodwill and acquisition related intangible assets recognised arose from
acquisitions during 2013, 2015, 2017, 2019 and 2021. The discount rates used
for goodwill impairment reviews and the carrying amount of goodwill is
allocated as follows:
2021 2020
Pre-tax Pre-tax £000
discount rate £000 discount rate
R&D Consultancy 11.9% 3,383 10.1% 3,383
Leatherhead Research 11.9% 650 10.1% 650
TSG - America 11.9% 2,570 10.1% 2,546
TSG - Europe 11.9% 4,546 10.1% 4,546
Frontier Smart Technologies Group 14.1% 2,556 12.2% 2,532
Magic Systech Inc 14.1% 655 - -
14,360 13,657
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. The key
assumptions for the value in use calculations are those regarding the discount
rates and growth rates of revenue and costs.
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 three years based on forecast rates of growth or decline in revenue
by the CGU. The revenue and costs for the CGU that is incorporated in the cash
flow forecasts is derived from the most recent financial plan approved by the
Board.
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
2021 2020
£000 £000
Raw materials 304 397
Work in progress 793 380
Finished goods 1,357 486
2,454 1,263
9. Trade and Other Receivables
2021 2020
£000 £000
Current assets:
Trade receivables 9,406 8,186
Provision for impairment (75) (102)
Trade receivables - net 9,331 8,084
Amounts recoverable on contracts 1,202 1,037
Other receivables 103 128
VAT 96 36
Prepayments 1,476 1,499
12,208 10,784
All amounts disclosed above, except for prepayments, are receivable within 90
days.
10. Cash and Cash Equivalents
2021 2020
£000 £000
Short term bank deposits - Group cash - 37
Cash at bank and in hand - Group cash 34,315 27,022
Cash and cash equivalents - Group cash 34,315 27,059
Cash and cash equivalents - Client registration funds 2,874 2,015
37,189 29,074
The Group receives cash from clients, primarily in North America, which are
pass-through funds solely for the purpose of payment of registration fees to
regulatory bodies. This cash is separated in the day-to-day operations of the
business, is separately identified for reporting purposes and is unrestricted.
11. Trade and Other Payables
2021 2020
£000 £000
Current liabilities
Contract liabilities 17,061 13,829
Trade payables 2,591 2,728
Other taxation and social security 1,346 1,210
VAT 224 151
Accruals 8,820 8,447
30,042 26,365
12. Provisions
Dilapidations Restructuring Legal Other Total
£000
£000 £000 £000 £000
At 1 January 2020 562 90 - - 652
Provisions made during the year 277 - 659 14 950
Provisions used during the year (26) (10) (149) - (185)
Provisions reversed during the year (36) - - - (36)
Gain on foreign exchange fluctuations (13) - (31) - (44)
At 31 December 2020 764 80 479 14 1,337
Provisions made during the year 89 - 248 6 343
Provisions used during the year (5) (10) (30) - (45)
Provisions reversed during the year (84) - (265) (20) (369)
Gain on foreign exchange fluctuations 6 - 8 - 14
At 31 December 2021 770 70 440 - 1,280
Current liabilities 167 70 440 - 677
Non-current liabilities 603 - - - 603
At 31 December 2020 764 80 479 14 1,337
Current liabilities 119 80 479 - 678
Non-current liabilities 645 - - 14 659
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 at 31 December 2021 is 2 years (2020:
2 years).
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 18 months.
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 other provision related to warranty provisions made in respect of certain
product sales.
13. Called-up Share Capital
2021 2020
£000 £000
Allotted, called-up and fully paid
Ordinary shares of £0.01 each 462 421
Number Number
Allotted, called-up and fully paid
Ordinary shares of £0.01 each 46,185,874 42,062,035
The allotted, called-up and fully paid share capital of the Company as at 31
December 2021 was 46,185,874 shares (2020: 42,062,035) and the total number of
ordinary shares in issue (excluding treasury shares) was 45,720,276 (2020:
41,238,392). The increase in shares in issue is primarily related to a 10%
share placement completed in September 2021. Of the ordinary shares in
issue, 104,400 (2020: 104,400) shares are held by the Frontier Smart
Technologies Employee Benefit Trust ('EBT') and hence the voting rights in the
Company are 45,615,876.
14. Borrowings
2021 2020
£000 £000
Non-current bank borrowings 14,123 15,307
Current bank borrowings 1,200 1,200
15,323 16,507
2021 2020
£000 £000
Opening balance 16,507 16,213
Additional borrowings - 1,500
Repayments in the year - term loan (1,200) (1,200)
Arrangement fee associated with new borrowing - (13)
Over accrual adjustment - (8)
Amortisation of loan arrangement fee 16 15
Total borrowings 15,323 16,507
During the year ended 31 December 2016, the Group entered into a 10-year fixed
term loan of £15 million which is secured on the freehold properties of the
Group and on which interest is payable based on LIBOR 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 of £13,000 were incurred, have been offset against the
balance outstanding and are being amortised over the period of the loan.
At 31 December 2021, the amount outstanding on the term loan was £15.4
million (2020: £16.6 million).
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, for a
term of four years with a one-year extension. 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.
2021 2020
£000 £000
Interest expense 580 601
Interest paid (564) (586)
Amortisation of loan arrangement fee (16) (15)
Accruals at the year end - -
In accordance with an agreed repayment schedule with the bank, bank borrowings
are repayable to Lloyds Bank plc as follows:
2021 2020
£000
£000
Within one year 1,200 1,200
Between 1 and 2 years 1,200 1,200
Between 2 and 5 years 3,600 3,600
Over 5 years 9,400 10,600
15,400 16,600
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 cost on the additional
£4.8 million and the additional £1.5 million were fixed by entering into
interest rate swaps at effective interest rates of 4.0% and 3.0% respectively.
The combined effective interest rate on the loan is 3.5%.
The Group has adopted hedge accounting for the interest rate swaps under IFRS
9, Financial Instruments, and the gain on change in fair value of the interest
rate swaps of £763,000 (2020: loss of £519,000) was recognised in Other
Comprehensive Income.
The fair value of the swap at 31 December 2021 was an asset of £129,000
(2020: liability of £634,000).
15. Acquisition of a Subsidiary
In progressing the Frontier strategy, the Group completed the acquisition of
Magic Systech Inc ('Magic'), a Taiwan-based company which specialises in
Internet Radio technology. For the year ended 31 December 2021, unaudited
results for Magic reported revenue of £1.5 million and a profit before tax of
£0.3 million. Magic will be integrated into Frontier. Consideration for
the acquisition was £3.0 million, paid in cash, although at completion Magic
held cash of £1.5 million, giving a net valuation of £1.5 million for the
business. The acquisition of Magic completed on 24 November 2021.
The Income Statement of Magic that was consolidated into the Group is shown
below:
Income statement for the period from 24 November 2021 to 31 December 2021
£000
Revenue 161
Operating expenses before adjusting items (157)
Adjusted operating profit 4
Finance income 2
Profit before income tax 6
The following table summarises the recognised amounts of assets acquired and
liabilities assumed at the date of acquisition (24 November 2021):
Fair Value
£000
Acquisition related intangible assets 1,269
Inventories 144
Trade and other receivables 49
Cash and cash equivalents 1,546
Deferred tax liability (249)
Trade and other payables (422)
Net assets acquired 2,337
Goodwill 664
Total consideration in respect of acquisition 3,001
Cash acquired (1,546)
Total consideration in respect of acquisition (net of cash acquired) 1,455
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets
acquired were as follows:
Assets acquired Valuation technique
Intangible Assets Technology-based and customer-related intangible assets have been valued using
the replacement cost method and excess earnings method respectively.
The goodwill is attributable mainly to the skills and technical knowledge of
Magic's workforce.
The consideration in respect of acquisition has been reported in the
Consolidated Statement of Cash Flows under investing activities.
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 and
as issued by the International Accounting Standards Board, this announcement
does not itself contain sufficient information to comply with IFRSs. The
accounting policies adopted in this preliminary announcement are consistent
with the Annual Report for the year ended 31 December 2021.
The financial information set out above, which was approved by the Board on 15
March 2022, is derived from the full Group accounts for the year ended 31
December 2021 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 2021, will be delivered to the Registrar of Companies in due
course.
The Board of Science Group approved the release of this preliminary
announcement on 15 March 2022.
The Annual Report for the year ended 31 December 2021 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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