21 March 2024
SCIENCE GROUP
PLC
AUDITED
RESULTS
FOR THE YEAR ENDED 31
DECEMBER 2023
Science Group plc (the 'Company')
together with its subsidiaries ('Science Group' or the 'Group')
reports its audited results for the year ended 31 December
2023.
·
Group revenue increased to £113.3 million (2022:
£86.3 million), including contribution from TP Group acquired in
January 2023
·
Adjusted* operating profit increased to £20.5
million (2022: £17.6 million)
·
Adjusted* basic earnings per share increased to
33.3 pence (2022: 29.4 pence)
·
Dividend proposed to increase by 60% to 8.0 pence
(2022: 5.0 pence), reflecting the significant increase in scale of
the Group in recent years
·
Share buy-back of £3.9 million in 2023 at an
average price of 403 pence (2022: £1.3 million at average 408
pence). Programme anticipated to continue in 2024
·
Year-end cash of £30.9 million with net funds of
£18.0 million (2022: £43.6 million and £29.5 million, respectively)
after completion of the TP Group acquisition and share buy-back.
Additional undrawn credit facility of £25.0 million
Science Group
plc
|
|
Martyn
Ratcliffe, Executive Chair
Jon
Brett, Finance Director
|
Tel: +44
(0) 1223 875 200
www.sciencegroup.com
|
Stifel Nicolaus Europe
Limited (Nominated Adviser and Joint Broker)
|
|
Nick
Adams, Fred Walsh, Richard Short
|
Tel: +44
(0) 20 7710 7600
|
|
Liberum Capital Limited
(Joint Broker)
|
|
Max
Jones, Miquela Bezuidenhoudt
|
Tel: +44
(0) 20 3100 2000
|
|
| |
* Alternative performance measures
are provided in order to reflect the underlying financial
performance of the Group. Refer to Note 1 for detail and
explanation of the measures used.
Statement of Executive Chair
Science Group plc is an
international science & technology consultancy and systems
organisation. The Group's operating businesses are supported by a
scalable corporate and shared services infrastructure and
underpinned by a robust balance sheet including significant cash
resources and freehold property assets.
Since 2010, the Group has
established a strong operating track record, enhanced by a
successful M&A strategy, delivering consistent performance
through economic volatility, the pandemic and geo-political
instability. In 2023, Science Group again demonstrated the
effectiveness of its operating model in a challenging
macro-environment and, whilst not immune to market dynamics, the Group has reported
record underlying operating results.
Financial Summary
For the year ended 31 December
2023, Science Group reported revenue of £113.3 million (2022: £86.3
million). Adjusted operating profit increased to £20.5 million
(2022: £17.6 million) and adjusted basic earnings per share
increased to 33.3 pence (2022: 29.4 pence). Consistent with the
Board's emphasis on cash flow, the Group does not capitalise
R&D costs although certain investments, of between £1.0 million
and £1.5 million, could have been considered appropriate for
capitalisation.
Adjusting items, which are
primarily non-cash, are detailed in the Finance Director's report
and include one-off items related to the TP Group ('TPG')
acquisition (completed in January 2023). Accordingly, the Group's
reported statutory operating profit was £8.1 million for the year
(2022: £11.7 million) and profit before tax was £7.6 million (2022:
£11.1 million). The Group also incurred a higher tax charge,
impacting statutory post-tax profit and basic earnings per
share.
Science Group retains an
asset-rich balance sheet, including significant cash resources and
freehold property. Despite completing the Group's largest
acquisition in January 2023 (cash outflow in the year of
approximately £13.9 million) and a substantial share buy-back
programme (cash outflow of £3.9 million), at 31 December 2023 Group
cash was £30.9 million (2022: £43.6 million) and net funds were
£18.0 million (2022: £29.5 million). The Group's term loan, which
expires in 2026, was £13.0 million (2022: £14.1 million) in
addition to which the Group has an undrawn £25 million Revolving
Credit Facility ('RCF') which has been extended to December
2026.
Consultancy Services
The nucleus of Science Group is an
international science and technology consultancy, providing
technical/scientific advisory, product development and regulatory
services to the Industrial, Defence & Aerospace, Medical and
Consumer (including Food & Beverage) sectors. The deep
technical and scientific expertise combined with specialist
industry knowledge defines the strategy of Science Group's
Consultancy operations.
The Consultancy Division comprises
distinct practices, characterised by capability, geography or
industry sector. Whilst operating autonomously, these practices
have tangible synergies and collaboration is actively developed,
supported by common incentive programmes, to realise the benefits
of scale. For example, a substantial proportion of projects in 2023
addressed sustainability objectives of Science Group clients
achieved through multi-disciplinary teams.
The completion of the acquisition
of TPG in January 2023 expanded the Group's addressable market with
the addition of Defence and Aerospace focused consultancy services
('TPGS'), while also opening up new opportunities for the Group's
existing capabilities. Like most market sectors, Defence and
Aerospace has high barriers to entry, requiring an understanding of
the market characteristics, processes and dynamics.
For the year ended 31 December
2023, the Consultancy Services operations generated revenue of
£81.3 million (2022: £60.7 million), including eleven months of
TPGS producing an adjusted operating profit increase to £20.4
million (2022: £16.2 million). The established operations within
the Division deliver consistently high margins, reflecting the
market positioning of Science Group and an efficient operating
model, but the margin overall in 2023 reduced due to the currently
lower profitability of TPGS.
While the TPGS integration
increased the proportion of Consultancy revenue derived from the
UK, the Consultancy Division remains internationally diversified
with around 30% of revenues invoiced in US dollars in addition to
other currencies. Given the proportion of revenue invoiced in
US dollars, against a primarily Sterling cost base, the Board
initiated a currency hedging option for a proportion of the
Consultancy cash flows in 2023 and a similar instrument has been
adopted for 2024.
Systems Businesses
The Group has two systems
businesses, both of which have leading positions in their niche
markets. These 'satellites' operate independently but are supported
by the Group's corporate and shared services infrastructure and
have access to the Consultancy Division's science, technology and
engineering expertise providing R&D breadth and depth far
beyond what would typically be available to operations of their
scale. In aggregate, for the year ended 31 December 2023, the
Systems businesses reported revenue of £31.2 million (2022: £25.0
million) and an adjusted operating profit of £2.2 million (2022:
£3.9 million).
Submarine Atmosphere Management
Systems (CMS2) was part of TP Group and
required considerable attention following Science Group's initial
investment in 2021. This focus has continued after the acquisition
was completed in 2023, including strengthening management,
improving operational/commercial process/governance and R&D
support. While servicing an international client base, the systems
are of a highly bespoke nature and the business remains dependent
on the UK defence market. For the eleven months ended 31 December
2023, CMS2 reported revenue of £21.3 million (2022: £nil) of which
added-value and services contribute around 60%. The adjusted
operating margin in 2023 was higher than anticipated, benefitting
from some one-off effects.
Audio Chips and Modules
(Frontier) is the global market leader in
DAB/DAB+/Smart Radio chips and modules and is developing
new-technology connected audio products. In line with the broader
consumer electronics market, the economic downturn, compounded by
overstocking in the distribution channel related to the post-Covid
supply chain imbalances, impacted the Frontier business in 2023. As
a result, revenue reduced to £10.0 million (2022: £25.0 million)
with a small operating loss, although this included significant
investment in new product development, all of which was expensed in
the year with no capitalisation of R&D. Despite the challenging
market conditions, Frontier is believed to have retained its
substantial market share and premium positioning and the Board
anticipates the business will see a recovery in 2024, benefitting
from wider market/economic dynamics and the operational cost
reduction actions undertaken during the past year.
Corporate
The corporate function is
responsible for the strategic development and governance of Science
Group. The underlying costs of the corporate function were static
at £2.6 million (2022: £2.6 million). Total corporate costs
additionally include one-off items associated with acquisitions and
therefore are reported as £8.1 million (2022: £3.2 million). These
primarily non-cash adjusting items are detailed in the Finance
Director's report.
During the year, the Company
repurchased 961,385 shares at a total cost
of £3.9 million (2022: £1.3 million), equivalent to an average
price of 403 pence per share. At 31 December 2023, shares in issue
(excluding treasury shares held of 0.7 million) were 45.5 million
(2022: 45.4 million excluding treasury shares held of 0.7 million).
The Board anticipates continuing the buy-back programme in 2024, as
appropriate.
Reflecting the significant
increase in the scale of Science Group in recent years, together
with the track record of performance, the Board is recommending
increasing the dividend by 60% to 8.0 pence per share (2022: 5.0
pence per share). Subject to shareholder approval at the
Annual General Meeting ('AGM'), the dividend will be payable on 19
July 2024 to shareholders on the register at the close of business
on 21 June 2024.
Science Group owns two freehold
properties, Harston Mill, near Cambridge, and Great Burgh, near
Epsom, the primary function of which is to host the Group's
operating businesses. The Group charges market rents to the
operating businesses and lets out part of the Harston Mill site to
third parties. For the year ended 31 December 2023, the rental and
associated services income derived from this activity was £4.2
million (2022: £4.1 million), of which around 20% is generated from
third party tenants. Intra-group rental charges are
eliminated on Group consolidation. The
last independent valuation of the freehold properties (December
2023) indicated an aggregate value in the range of £16.9 million to
£31.6 million, although for consistency the properties are held on
the balance sheet on a cost basis of £20.6 million (2022: £20.8
million).
Environmental Reporting
In 2023 the Group undertook
Streamlined Energy and Carbon Reporting (SECR) for the first time
and is reporting Scope 1, 2 and mandatory Scope 3 emissions from
its UK operations. The Group is also disclosing climate-related
risk in line with the Task Force on
Climate-Related Financial Disclosures (TCFD) framework. For the
latter initiative, the Group worked with a specialist third-party
consultancy, and concluded that the Group's exposure to
climate-related risk is low.
Summary and Outlook
In summary, Science Group has
delivered another solid performance in 2023. This resilience has
been achieved against the backdrop of significant geopolitical and
economic instability which the Board anticipates will persist
through the first half of 2024.
The acquisition of TP Group
materially increased the scale and expanded the addressable market
of Science Group. The contribution made by the TP Group
businesses in 2023 indicates that the acquisition remains on
trajectory to meet the Group's acquisition objectives.
For over a decade, Science Group
has demonstrated a consistent operating track record, enhanced by a
successful M&A programme, delivering a substantial return for
shareholders. While the Group has the ambition and capability to
accelerate the strategy, the relative valuation of the company
against both UK and international comparators may prove a material
constraint. The Board will therefore consider all options to
address this disparity and deliver value to
shareholders.
Martyn Ratcliffe
Executive Chair
Finance Director's Report
Overview of Results
In the year ended 31 December
2023, the Group generated revenue of £113.3 million (2022: £86.3
million). Revenue from the Consultancy Services Segment, that
is revenue derived from consultancy services and materials
recharged on projects, increased to £81.3 million (2022: £60.7
million) while Systems revenue generated by the CMS2 Business was
£21.3 million (2022: £nil) and Systems revenue generated by the
Frontier Business was £10.0 million (2022: £25.0 million). Revenue
generated by freehold properties, comprising property and
associated services income derived from space let to third parties
in the Harston Mill facility, was £0.8 million (2022: £0.7
million).
Adjusted operating profit for the
Group increased to £20.5 million (2022: £17.6 million). There were
one-off adjusting items related to the TP Group plc ('TPG')
acquisition, which completed on 26 January 2023, totalling £5.5
million (2022: £0.5 million). The majority of these were non-cash
and included items such as: share of loss for the period held as an
associate; remeasurement of share valuation at point of acquisition
(in accordance with IFRS 3 Business Combinations); professional
fees; and integration/restructuring. In addition, and driven by the
acquisition of TPG, amortisation of acquisition-related intangible
assets increased to £4.9 million (2022: £3.8 million). Share-based
payment charges for the year totalled £2.0 million (2022: £1.6
million), which resulted in statutory profit before tax of £7.6
million (2022: £11.1 million). After net finance costs of £0.5
million (2022: £0.6 million) and a tax charge of £2.1 million
(2022: £0.5 million), statutory profit after tax was £5.5 million
(2022: £10.6 million). Statutory basic earnings per share was 12.1
pence (2022: 23.2 pence per share).
Adjusted operating profit is an
alternative profit measure that is calculated as operating profit
excluding acquisition integration costs, amortisation of
acquisition related intangible assets, share based payment charges,
and other specified items that meet the criteria to be adjusted.
Refer to the notes to the financial statements for further
information on this and other alternative performance
measures.
TP Group plc ('TPG')
Prior to 2023, through on-market
purchases of shares, the Group had acquired an associate
shareholding in TPG. A full acquisition was completed through a
court-approved Scheme of Arrangement on 26 January 2023, at which
point TPG became a 100% subsidiary of the Group.
As well as providing an entry into
the defence sector, the acquisition of TPG has significantly
increased the scale of Science Group. In 2023, the TPG trading
entities contributed £44.9 million towards Group
revenue.
Foreign Exchange
The acquisition of TPG, where
revenue is denominated in Sterling, has reduced the Group's overall
exposure to foreign exchange, however, there remains a reasonable
proportion of the Group's revenue denominated in currencies other
than Sterling. In 2023, £34.6 million of the Group's operating
business revenue was denominated in US Dollars (2022: £54.7
million), including all of Frontier's revenue. In addition, £3.9
million of the Group operating business revenue was denominated in
Euros (2022: £2.7 million). The average exchange rates during 2023
were 1.24 for US Dollars and 1.15 for Euros (2022: 1.24 and 1.18
respectively).
In 2022, to provide greater
forward visibility around foreign exchange, the Group acquired a
currency exchange instrument to cap the Sterling:US Dollar rate in
relation to certain consultancy cash flows through to the end of
2023. The instrument applied to $1.25 million per month at an
exchange rate of $1.20/£1, whilst still allowing the business to
benefit from lower spot exchange rates if available. A similar no
obligation cap has been put in place through 2024 for $1.0 million
per month at an exchange rate of $1.25/£1.
Taxation
The tax charge for the year was
£2.1 million (2022: £0.5 million). The increase is partly explained
by tax at a higher rate, with the UK corporation tax rate
increasing from 19% to 25% in April 2023. However, as a
comparative, the 2022 tax charge was exceptionally low due to
deferred tax and some over accrual in 2021.
At 31 December 2023, Science Group
had £29.3 million (2022: £26.7 million) of tax losses, the largest
components of which related to Frontier (£19.2 million (2022: £17.1
million)) and TPG (£5.9 million (2022: £nil)). £9.1 million (2022:
£8.7 million) of the Frontier losses, and £5.4 million (2022: £nil)
of the TPG losses are recognised as deferred tax assets which are
anticipated to be used to offset future taxable profits. The
balances of £10.1 million (2022: £8.4 million) of the Frontier
losses and £0.5 million (2022: £nil) of the TPG losses have not
been recognised as deferred tax assets due to the uncertainty in
the timing of utilisation of these losses. Aside from these
amounts, the Group has other tax losses of £4.2 million (2022: £9.6
million) unrecognised as a deferred tax asset due to the low
probability that these losses will be utilised.
Financing and Cash
Cash flow from operating
activities (excluding Client Registration Funds) was £8.9 million
(2022: £15.3 million). Reported cash from operating activities in
accordance with IFRS was £7.9 million (2022: £15.3 million). The
difference in these two metrics relates to the fact that one of the
Group's businesses, TSG, processes regulatory registration payments
on behalf of clients. The alternative performance measure, by
excluding Client Registration Funds, reflects the Group's available
cash position and cash flow.
The Group's term loan with Lloyds
Bank plc, secured on the Group's freehold properties, is a 10-year
fixed term loan expiring in 2026. Phased interest rate swaps hedge
the loan resulting in a fixed effective interest rate of 3.5%,
comprising: a margin over the Sterling Overnight Index Average
('SONIA'); the cost of the loan arrangement fee; and, the cost of
the swap instruments. The Group has adopted hedge accounting for
the interest rate swaps related to the bank loan under IFRS 9,
Financial Instruments, and the change in fair value of the interest
rate swaps was recognised in Other Comprehensive Income (2023: a
loss of £0.5 million, 2022: a gain of £1.3 million).
In December 2021, in addition to
the term loan, the Group signed a £25.0 million revolving credit
facility ('RCF') with Lloyds Bank plc in order to provide
additional capital resources to enable the execution of the Group's
acquisition strategy. The RCF is for up to £25.0 million, with an
additional £5.0 million accordion option. The agreement was
initially for a 4-year term with an optional 1-year extension which
was activated in December 2023, so the term now runs to December
2026. The margin on drawn sums is 3.3% over SONIA and is 1.1% per
annum on undrawn amounts. Drawn amounts are secured on the Group's
assets by debentures. At 31 December 2023, the RCF remained
undrawn.
The RCF has two financial
covenants with which the Group needs to comply if the facility is
drawn: (i) the Group's net leverage, as defined as the net debt
divided by the rolling 12 month EBITDA, should not exceed 2.5; and
(ii) the Group's interest cover, as defined as the rolling 12 month
EBITDA divided by the rolling interest payments on all borrowings,
should not be less than 4.0. Reporting is on a 6 monthly
basis unless the net leverage exceeds 2, in which case reporting
moves to quarterly until net leverage returns to below 2 again. For
the term of the RCF, the previous covenants for the term loan are
superseded by the covenants of the RCF and will not
apply.
The Group cash balance (excluding
Client Registration Funds) at 31 December 2023 was £30.9 million
(2022: £43.6 million) and net funds were £18.0 million (2022: £29.5
million). Client Registration Funds of £1.9 million (2022: £2.9
million) were held at the year end. Working capital was partly
impacted by the TPG acquisition, together with some one-off project
prepayments received at the end of 2022, which have since
normalised. Working capital management during the year continued to
be a focus with debtor days of 40 days at 31 December 2023 (2022:
43 days) and inventory days of 121 days (2022: 197
days).
Share Capital
At 31 December 2023, the Company
had 45,458,972 ordinary shares in issue (2022: 45,436,823) and the
Company held an additional 726,902 shares in treasury (2022:
749,051). Of the ordinary shares in issue, no shares are held by
the Frontier Employee Benefit Trust (2022: 34,800). The voting
rights in the Company at 31 December 2023 are 45,458,972 (2022:
45,402,023). In this report, all references to measures relative to
the number of shares in issue exclude shares held in treasury
unless explicitly stated to the contrary.
Jon Brett
Finance Director
Consolidated Income
Statement
For the year ended 31 December
2023
|
Note
|
2023
£000
|
2022
£000
|
Revenue
|
2
|
113,341
|
86,301
|
Direct
operating expenses
|
|
(67,090)
|
(47,947)
|
Sales and
marketing expenses
|
|
(9,206)
|
(9,754)
|
Administrative expenses
|
|
(28,731)
|
(17,504)
|
Share of
(loss)/profit of equity accounted investment
|
|
(169)
|
602
|
|
|
|
|
Adjusted operating
profit
|
2
|
20,535
|
17,602
|
Acquisition integration costs
|
|
(518)
|
(1,128)
|
Amortisation of acquisition related intangible
assets
|
7
|
(4,944)
|
(3,766)
|
Loss on
remeasurement of equity-accounted investment
|
|
(4,762)
|
-
|
Share-based payment charge
|
|
(1,997)
|
(1,612)
|
Share of
(loss)/profit of equity-accounted investment
|
|
(169)
|
602
|
Operating
profit
|
|
8,145
|
11,698
|
Finance
income
|
|
679
|
375
|
Finance
costs
|
|
(1,205)
|
(977)
|
Profit before
tax
|
|
7,619
|
11,096
|
Tax
charge (net of R&D tax credit of £517,000
(2022: £530,000))
|
3
|
(2,095)
|
(541)
|
Profit for the
year
|
|
5,524
|
10,555
|
Earnings per
share
|
|
|
|
Earnings
per share (basic)
|
5
|
12.1p
|
23.2p
|
Earnings
per share (diluted)
|
5
|
12.0p
|
22.6p
|
Consolidated Statement of
Comprehensive Income
For the year ended 31 December
2023
|
|
2023
£000
|
2022
£000
|
Profit for the year attributable
to:
|
|
|
|
Equity holders of the
parent
|
|
5,524
|
10,555
|
Profit for the year
|
|
5,524
|
10,555
|
Other comprehensive income
items
that will or may be reclassified to
profit or loss:
|
|
|
|
Exchange differences on translating
foreign operations
|
|
(848)
|
2,372
|
Fair value (loss)/gain on financial
instruments
|
|
(441)
|
1,499
|
Deferred tax credit/(charge) on
financial instruments
|
|
147
|
(414)
|
Other comprehensive
(expense)/income for the year
|
|
(1,142)
|
3,457
|
Total comprehensive income for the period attributable
to:
|
|
|
|
Equity holders of the
parent
|
|
4,382
|
14,012
|
Total comprehensive income for the
year
|
|
4,382
|
14,012
|
Consolidated Statement of
Changes in Shareholders' Equity
For the year ended 31 December
2023
|
Share capital
£000
|
Share premium
£000
|
Treasury shares
£000
|
Merger reserve
£000
|
Translation reserve
£000
|
Cashflow hedge reserve
£000
|
Retained earnings
£000
|
Total equity
£000
|
Balance at 1 January
2022
|
462
|
26,834
|
(1,242)
|
10,343
|
(758)
|
74
|
30,579
|
66,292
|
Contributions and distributions:
|
|
|
|
|
|
|
Purchase of own shares
|
-
|
-
|
(1,321)
|
-
|
-
|
-
|
-
|
(1,321)
|
Issue of shares out of
treasury
|
-
|
-
|
370
|
-
|
-
|
-
|
(369)
|
1
|
Dividends paid (Note 6)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,270)
|
(2,270)
|
Share-based payment
charge
|
-
|
-
|
-
|
-
|
-
|
-
|
1,612
|
1,612
|
Deferred tax charge on share-based
payment transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
(127)
|
(127)
|
Transactions with owners
|
-
|
-
|
(951)
|
-
|
-
|
-
|
(1,154)
|
(2,105)
|
Profit for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
10,555
|
10,555
|
Other comprehensive income items
that
will or maybe reclassed to profit or
loss:
|
|
|
|
|
|
|
Fair value gain on financial
instruments
|
-
|
-
|
-
|
-
|
-
|
1,499
|
-
|
1,499
|
Exchange differences on translating
foreign operations
|
-
|
-
|
-
|
-
|
2,372
|
-
|
-
|
2,372
|
Deferred tax charge on financial
instruments
|
-
|
-
|
-
|
-
|
-
|
(414)
|
-
|
(414)
|
Total comprehensive income for the year
|
-
|
-
|
-
|
-
|
2,372
|
1,085
|
10,555
|
14,012
|
Balance at 31 December 2022
|
462
|
26,834
|
(2,193)
|
10,343
|
1,614
|
1,159
|
39,980
|
78,199
|
Consolidated Statement of Changes
in Shareholders' Equity
For the year ended 31 December
2023
|
Share capital
£000
|
Share premium
£000
|
Treasury shares
£000
|
Merger reserve
£000
|
Translation reserve
£000
|
Cashflow hedge reserve
£000
|
Retained earnings
£000
|
Total equity
£000
|
Balance at 1 January
2023
|
462
|
26,834
|
(2,193)
|
10,343
|
1,614
|
1,159
|
39,980
|
78,199
|
Contributions and distributions:
|
|
|
|
|
|
|
Purchase of own shares
|
-
|
-
|
(3,875)
|
-
|
-
|
-
|
-
|
(3,875)
|
Issue of shares out of
treasury
|
-
|
-
|
3,138
|
-
|
-
|
-
|
(3,128)
|
10
|
Dividends paid (Note 6)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,259)
|
(2,259)
|
Share-based payment
charge
|
-
|
-
|
-
|
-
|
-
|
-
|
1,997
|
1,997
|
Deferred tax charge on share-based
payment transactions
|
-
|
-
|
-
|
-
|
-
|
-
|
(467)
|
(467)
|
Transactions with owners
|
-
|
-
|
(737)
|
-
|
-
|
-
|
(3,857)
|
(4,594)
|
Profit for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
5,524
|
5,524
|
Other comprehensive income items
that
will or
maybe reclassed to profit or loss:
|
|
|
|
|
|
|
Fair value loss on financial
instruments
|
-
|
-
|
-
|
-
|
-
|
(441)
|
-
|
(441)
|
Exchange differences on translating
foreign operations
|
-
|
-
|
-
|
-
|
(848)
|
-
|
-
|
(848)
|
Deferred tax charge on financial
instruments
|
-
|
-
|
-
|
-
|
-
|
147
|
-
|
147
|
Total comprehensive income for the year
|
-
|
-
|
-
|
-
|
(848)
|
(294)
|
5,524
|
4,382
|
Balance at 31 December 2023
|
462
|
26,834
|
(2,930)
|
10,343
|
766
|
865
|
41,647
|
77,987
|
|
|
|
|
|
|
|
|
| |
Consolidated Balance
Sheet
At 31 December 2023
|
Note
|
2023
£000
|
2022
£000
|
Assets
|
|
|
|
Non-current assets
|
|
|
|
Acquisition related intangible
assets
|
7
|
25,845
|
10,815
|
Goodwill
|
7
|
18,878
|
14,975
|
Property, plant and
equipment
|
|
25,477
|
23,867
|
Investments
|
|
-
|
10,054
|
Derivative financial
instruments
|
|
886
|
1,417
|
Deferred tax assets
|
4
|
2,071
|
2,176
|
|
|
73,157
|
63,304
|
Current assets
|
|
|
|
Inventories
|
8
|
1,332
|
2,477
|
Trade and other
receivables
|
9
|
23,315
|
12,992
|
Current tax assets
|
|
1,516
|
1,607
|
Derivative financial
instruments
|
|
301
|
384
|
Cash and cash equivalents - Group
cash
|
10
|
30,949
|
43,645
|
Cash and cash equivalents - Client
registration funds
|
10
|
1,881
|
2,867
|
|
|
59,294
|
63,972
|
Total assets
|
|
132,451
|
127,276
|
Liabilities
|
|
|
|
Current liabilities
|
|
|
|
Trade and other payables
|
11
|
32,041
|
31,546
|
Current tax liabilities
|
|
379
|
331
|
Provisions
|
12
|
1,481
|
849
|
Borrowings
|
14
|
1,200
|
1,200
|
Lease liabilities
|
|
626
|
720
|
|
|
35,727
|
34,646
|
Non-current liabilities
|
|
|
|
Provisions
|
12
|
889
|
248
|
Borrowings
|
14
|
11,756
|
12,939
|
Lease liabilities
|
|
3,319
|
1,162
|
Deferred tax liabilities
|
4
|
2,773
|
82
|
|
|
18,737
|
14,431
|
Total liabilities
|
|
54,464
|
49,077
|
Net assets
|
|
77,987
|
78,199
|
Shareholders' equity
|
|
|
|
Share capital
|
13
|
462
|
462
|
Share premium
|
|
26,834
|
26,834
|
Treasury shares
|
|
(2,930)
|
(2,193)
|
Merger reserve
|
|
10,343
|
10,343
|
Translation reserve
|
|
766
|
1,614
|
Cash flow hedge reserve
|
|
865
|
1,159
|
Retained earnings
|
|
41,647
|
39,980
|
Total equity
|
|
77,987
|
78,199
|
|
|
|
| |
Consolidated Statement of Cash
Flows
For the year ended 31 December
2023
|
Note
|
2023
£000
|
2022
£000
|
Profit before income
tax
|
|
7,619
|
11,096
|
Adjustments for:
|
|
|
|
Share of loss/(profit) of equity
accounted investment
|
|
169
|
(602)
|
Loss on remeasurement of
equity-accounted investee
|
|
4,762
|
-
|
Amortisation of acquisition
related intangible assets
|
7
|
4,944
|
3,766
|
Depreciation of property, plant
and equipment
|
|
694
|
655
|
Reversal of impairment of
right-of-use assets
|
|
-
|
(215)
|
Depreciation of right-of-use
assets
|
|
1,053
|
827
|
Bank charges on derivative
financial instruments
|
|
422
|
359
|
Net interest cost
|
|
526
|
602
|
Share-based payment
charge
|
|
1,997
|
1,612
|
Decrease/(increase) in
inventories
|
|
1,222
|
(23)
|
(Increase)/decrease in
receivables
|
|
(2,019)
|
(680)
|
Decrease in payables representing
client registration funds
|
|
(986)
|
(7)
|
(Decrease)/increase in payables
excluding balances representing client registration
funds*
|
|
(10,760)
|
1,235
|
Increase/(decrease) in
provisions
|
|
662
|
(263)
|
Cash generated from
operations
|
|
10,305
|
18,362
|
Interest paid
|
|
(1,106)
|
(808)
|
UK corporation tax paid
|
|
(962)
|
(1,017)
|
Foreign corporation tax
paid
|
|
(325)
|
(1,266)
|
Cash flows from operating
activities
|
|
7,912
|
15,271
|
Interest received
|
|
583
|
271
|
Purchase of property, plant and
equipment
|
|
(80)
|
(92)
|
Purchase of interest in associated
company
|
|
-
|
(213)
|
Purchase of subsidiary
undertakings, net of cash and borrowing acquired
|
15
|
(13,923)
|
-
|
Sale of subsidiary, net of cash
sold
|
|
638
|
-
|
Cash flows used in investing
activities
|
|
(12,782)
|
(34)
|
Issue of shares out of
treasury
|
|
10
|
1
|
Repurchase of own
shares
|
|
(3,875)
|
(1,321)
|
Dividends paid
|
|
(2,259)
|
(2,270)
|
Purchase of derivative financial
instruments
|
|
(250)
|
(531)
|
Repayment of term loan
|
14
|
(1,200)
|
(1,200)
|
Payment of lease
liabilities
|
|
(912)
|
(1,135)
|
Cash flows from financing
activities
|
|
(8,486)
|
(6,456)
|
(Decrease)/increase in cash and
cash equivalents in the year
|
|
(13,356)
|
8,781
|
Cash and cash equivalents at the
beginning of the year
|
|
46,512
|
37,189
|
Exchange (loss)/gain on
cash
|
|
(326)
|
542
|
Cash and cash equivalents at the
end of the year
|
10
|
32,830
|
46,512
|
*Includes
transaction costs associated with the acquisition of TP Group
plc.
Cash and cash equivalents are
analysed as follows:
|
Note
|
2023
£000
|
2022
£000
|
Cash and cash equivalents - Group
cash
|
10
|
30,949
|
43,645
|
Cash and cash equivalents - Client
registration funds
|
10
|
1,881
|
2,867
|
|
|
32,830
|
46,512
|
Extracts from notes to the financial
statements
1.
General Information
Science Group plc (the 'Company')
together with its subsidiaries ('Science Group' or the 'Group') is
an international science & technology consultancy and systems
organisation, supported by a strong balance sheet.
The Group and Company Financial
Statements of Science Group plc were prepared under the
International Financial Reporting Standards ('IFRS') as adopted by
the UK in conformity with the requirements of the Companies Act
2006 and have been audited by Grant Thornton UK LLP. Accounts
are available from the Company's registered office; Harston Mill,
Harston, Cambridge, CB22 7GG.
The Company is incorporated and
domiciled in England and Wales under the Companies Act 2006 and has
its primary listing on the Alternative Investment Market of the
London Stock Exchange (SAG.L). The value of Science Group plc
shares, as quoted on the London Stock Exchange on 31 December 2023,
was 392.0 pence per share (31 December 2022: 395.0 pence per
share).
Alternative performance measures
The Group uses alternative
non-Generally Accepted Accounting Principles performance measures
of 'adjusted operating profit', 'adjusted earnings per share' and
'net funds' which are not defined within IFRS. These are explained
as follows:
(a) Adjusted Operating Profit
The Group calculates this measure
by adjusting to exclude certain items from operating profit namely:
amortisation of acquisition related intangible assets, acquisition
integration costs, share-based payment charges and other specified
items that meet the criteria to be adjusted.
The criteria for the adjusted
items in the calculation of adjusted operating profit is operating
income or expenses that are material and either arise from an
irregular and significant event or the income/cost is recognised in
a pattern that is unrelated to the resulting operational
performance. Materiality is defined as an amount which, to a
user, would influence the decision making. Acquisition
integration costs include all costs incurred directly related to
the restructuring, relocation and integration of acquired
businesses. Adjustments for share-based payment charges occur
because: once the cost has been calculated, the Directors cannot
influence the share-based payment charge incurred in subsequent
years; it is understood that many investors/analysts exclude the
cost from their valuation analysis of the business; and the value
of the share option to the employee differs considerably in value
and timing from the actual cash cost to the Group.
The calculation of this measure is
shown on the Consolidated Income Statement.
(b) Adjusted Earnings Per Share
The Group calculates this measure
by dividing adjusted profit after tax by the weighted average
number of shares in issue and the calculation of this measure is
disclosed in Note 5. The tax rate applied to calculate the
tax charge in this measure is the tax at the blended corporation
tax rate across the various jurisdictions for the year which is
24.1% (2022: 21.4%) which results in a comparable tax charge year
on year.
(c) Net Funds
The Group calculates this measure
as the net of cash and cash equivalents - Group cash and
Borrowings. Client registration funds are excluded from this
calculation because these monies are for the purpose of payment of
registration fees to regulatory bodies. This cash is
separately identified for reporting purposes and is unrestricted.
This measure is calculated as follows:
|
Note
|
2023
£000
|
2022
£000
|
Cash and cash equivalents - Group
cash
|
10
|
30,949
|
43,645
|
Borrowings
|
14
|
(12,956)
|
(14,139)
|
Net funds
|
|
17,993
|
29,506
|
Alternative performance measures
The Directors believe that
disclosing these alternative performance measures enhances
shareholders' ability to evaluate and analyse the underlying
financial performance of the Group. Specifically, the
adjusted operating profit measure is used internally in order to
assess the underlying operational performance of the Group, aid
financial, operational and commercial decisions and in determining
employee compensation. The adjusted EPS measure allows the
shareholder to understand the underlying value generated by the
Group on a per share basis. Net funds represent the Group's
cash available for day-to-day operations and investments. As
such, the Board considers these measures to enhance shareholders'
understanding of the Group results and should be considered
alongside the IFRS measures.
Going concern
The Directors have undertaken a
comprehensive going concern review. In adopting the going concern
basis for preparing these Consolidated Financial Statements, the
Directors have undertaken a review of the Group's cash flows
forecasts and available liquidity, along with consideration of the
principal risks and uncertainties over an 18-month period to
September 2025. Recognising the challenges of reliably estimating
and forecasting the impact of external factors on the Group, the
Directors have considered two forecasts in the assessment of going
concern, along with a likelihood assessment of these forecasts
being:
·
Base case, which reflects the Directors' current expectations
of future trading; and
·
Severe but plausible downside forecast which envisages a
'stress' or 'downside' situation.
After reviewing the current
liquidity position and the cash flow forecasts modelled under both
the base case and stressed downside, the Directors consider that
the Group has sufficient liquidity to continue in operational
existence for a period of at least 18 months form the date of this
report and are satisfied that it is appropriate to adopt the going
concern basis of accounting in preparing the Consolidated Financial
Statements.
In reaching these conclusions the
Directors noted that the Group had a cash balance at 31 December
2023 of £30.9 million (excluding client registration funds but
including short- term investments) and net funds of £18.0 million,
together with the undrawn Revolving Credit Facility ('RCF') of
£25.0 million.
2. Segment Information
The Group's segmental reporting
shows the performance of the operating businesses separately from
the value generated by the Group's significant freehold property
assets and the Corporate costs. The Consultancy Services Segment
consists of three Practices: (i) Research & Development, (ii)
Regulatory & Compliance and (iii) Defence & Aerospace.
Financial information is provided to the Chief Operating Decision
Makers ('CODMs') in line with this structure: the Consultancy
Services Segment; the two Systems Businesses (Submarine Atmosphere
Management and Audio Chips and Modules); the Freehold Properties
and Corporate costs.
The Consultancy Services Practices
are aggregated into one Consultancy Services Segment because the
Practices and the services they provide have similar economic
characteristics. This aggregation does not impact the user's
ability to understand the entity's performance, its prospects for
future cash flows or the user's decisions about the entity as a
whole as it is a fair representation of the performance of each
service line.
Consultancy Services revenue
includes all consultancy fees and other revenue includes recharged
materials and expenses relating directly to Consultancy Services
activities. Systems - Submarine Atmosphere Management revenue
includes the development, manufacture and support of specialist
systems for submarine atmosphere management, used in UK and
International naval defence markets. Systems - Audio Chips and
Modules revenue includes sales of chips and modules which are
incorporated into digital radios. The Freehold Properties Segment
includes the results for the two freehold properties owned by the
Group. Income is derived from third party tenants from the Harston
Mill site and from internal businesses which have been charged fees
at an arm's length market rental rate for their utilised property
space and associated costs. Corporate costs include PLC/Group
costs.
The segmental analysis is reviewed
to operating profit. Other resources are shared across the
Group.
Consultancy
Services
|
2023
£000
|
2022
£000
|
Services
revenue
|
79,729
|
58,242
|
Other
|
1,553
|
2,423
|
Revenue
|
81,282
|
60,665
|
Adjusted operating
profit
|
20,355
|
16,200
|
Amortisation of acquisition related intangible
assets
|
(1,918)
|
(1,463)
|
Share-based payment charge
|
(1,557)
|
(1,249)
|
Operating
profit
|
16,880
|
13,488
|
Systems - Submarine
Atmosphere Management
|
2023
£000
|
2022
£000
|
Systems
revenue - Submarine Atmosphere Management
|
21,265
|
-
|
Revenue
|
21,265
|
-
|
Adjusted operating profit
|
3,619
|
-
|
Amortisation of acquisition related
intangible assets
|
(752)
|
-
|
Share-based payment
charge
|
(77)
|
-
|
Operating profit
|
2,790
|
-
|
Systems - Audio Chips and
Modules
|
2023
£000
|
2022
£000
|
Systems revenue - Audio Chips and
Modules
|
9,975
|
24,979
|
Revenue
|
9,975
|
24,979
|
Adjusted operating (loss)/profit
|
(1,427)
|
3,869
|
Amortisation of acquisition related
intangible assets
|
(2,274)
|
(2,303)
|
Share-based payment
charge
|
(229)
|
(265)
|
Operating (loss)/profit
|
(3,930)
|
1,301
|
Freehold
Properties
|
2023
£000
|
2022
£000
|
Inter-company property
income
|
3,398
|
3,436
|
Third party property
income
|
819
|
657
|
Revenue
|
4,217
|
4,093
|
Adjusted operating profit
|
597
|
132
|
Share-based payment
charge
|
(44)
|
(42)
|
Operating profit
|
553
|
90
|
Corporate
|
2023
£000
|
2022
£000
|
Adjusted operating loss
|
(2,609)
|
(2,599)
|
Acquisition integration
costs
|
(518)
|
(1,128)
|
Loss on remeasurement of
equity-accounted investment
|
(4,762)
|
-
|
Share-based payment
charge
|
(90)
|
(56)
|
Share of (loss)/profit of equity
accounted investment
|
(169)
|
602
|
Operating loss
|
(8,148)
|
(3,181)
|
Group
|
2023
£000
|
2022
£000
|
Consultancy Services
revenue
|
79,729
|
58,242
|
Systems revenue - Submarine
Atmosphere Management
|
21,265
|
-
|
Systems revenue - Audio Chips and
Modules
|
9,975
|
24,979
|
Third party property
income
|
819
|
657
|
Other
|
1,553
|
2,423
|
Revenue
|
113,341
|
86,301
|
Adjusted operating profit
|
20,535
|
17,602
|
Acquisition integration
costs
|
(518)
|
(1,128)
|
Amortisation of acquisition related
intangible assets
|
(4,944)
|
(3,766)
|
Loss on remeasurement of
equity-accounted investment
|
(4,762)
|
-
|
Share-based payment
charge
|
(1,997)
|
(1,612)
|
Share of (loss)/profit of equity
accounted investment
|
(169)
|
602
|
Operating profit
|
8,145
|
11,698
|
Net finance costs
|
(526)
|
(602)
|
Profit before income tax
|
7,619
|
11,096
|
Income tax charge
|
(2,095)
|
(541)
|
Profit for the period
|
5,524
|
10,555
|
Geographical and currency revenue analysis
Primary geographic
markets
|
2023
£000
|
2022
£000
|
United Kingdom
|
52,522
|
13,240
|
Other European Countries
|
14,202
|
10,621
|
North America
|
29,056
|
35,878
|
Asia
|
16,641
|
26,047
|
Other
|
920
|
515
|
|
113,341
|
86,301
|
|
|
| |
Currency
|
2023
£000
|
2022
£000
|
US Dollar
|
34,642
|
54,663
|
Euro
|
3,876
|
2,669
|
Sterling
|
74,823
|
28,969
|
|
113,341
|
86,301
|
3. Income Tax
The tax charge
comprises:
Year
ended 31 December
|
Note
|
2023
£000
|
2022
£000
|
Current taxation
|
|
(3,056)
|
(2,666)
|
Current taxation - adjustment in
respect of prior years
|
|
84
|
539
|
Deferred taxation
|
4
|
317
|
643
|
Deferred taxation - adjustment in
respect of prior years
|
|
43
|
413
|
R&D tax credit
|
|
517
|
530
|
|
|
(2,095)
|
(541)
|
The adjustments in prior years are
due to estimation differences related to the tax charge.
The corporation tax on Science
Group's profit before tax differs from the theoretical amount that
would arise using the blended corporation tax rate across the
various jurisdictions applicable to profits/(losses) of the
consolidated companies of 24.1% (2022: 21.4%) as
follows:
|
2023
£000
|
2022
£000
|
Profit before tax
|
7,619
|
11,096
|
Tax calculated at domestic tax
rates applicable to profits/(losses) in the respective
countries
|
(1,836)
|
(2,374)
|
Expenses not deductible for tax
purposes
|
(1,589)
|
(389)
|
Adjustment in respect of prior
years - current tax
|
84
|
539
|
Adjustment in respect of prior
years - deferred tax
|
43
|
413
|
Movement in deferred tax due to
change in tax rate
|
-
|
(35)
|
Share scheme movements
|
554
|
281
|
Utilisation of losses previously
not recognized
|
241
|
569
|
Tax losses not
recognized
|
(71)
|
(190)
|
Share of (loss)/profit of equity
accounted investment
|
(38)
|
115
|
R&D tax credit
|
517
|
530
|
Tax charge
|
(2,095)
|
(541)
|
The Group claims Research and
Development tax credits under the R&D expenditure credit
scheme. In the current year, the Group recognised a tax credit of
£0.5 million (2022: £0.5 million). The Group performed a reasonable
estimate of all amounts involved to determine the R&D tax
credits to be recognised in the period to which it
relates.
4.
Deferred Tax
The movement in deferred tax
assets and liabilities during the year by each type of temporary
difference is as follows:
|
Accelerated capital
allowances
£000
|
Tax losses
£000
|
Share-based payment
£000
|
Acquisition related intangible
assets
£000
|
Other temporary
differences
£000
|
Total
£000
|
At 1 January 2022
|
(46)
|
2,120
|
1,389
|
(2,205)
|
193
|
1,451
|
(Charged)/credited to the Income
Statement
|
(131)
|
(190)
|
506
|
588
|
(130)
|
643
|
Credited to the Income Statement
(adjustment in respect of prior year)
|
129
|
-
|
-
|
-
|
284
|
413
|
Charged to Equity
|
-
|
-
|
(127)
|
-
|
(414)
|
(541)
|
Effect of movements in exchange
rates
|
76
|
246
|
-
|
(194)
|
-
|
128
|
At 31 December 2022
|
28
|
2,176
|
1,768
|
(1,811)
|
(67)
|
2,094
|
Credited/(charged) to the Income
Statement
|
47
|
(678)
|
66
|
985
|
(103)
|
317
|
Deferred taxation relating to
acquisitions
|
4
|
2,259
|
-
|
(5,108)
|
63
|
(2,782)
|
(Charged)/credited to the income
statement (adjustment in respect of prior year)
|
(8)
|
-
|
(51)
|
-
|
102
|
43
|
(Charged)/credited to
Equity
|
-
|
-
|
(486)
|
-
|
147
|
(339)
|
Effect of movements in exchange
rates
|
(5)
|
(115)
|
-
|
85
|
-
|
(35)
|
At
31 December 2023
|
66
|
3,642
|
1,297
|
(5,849)
|
142
|
(702)
|
|
|
|
|
|
|
| |
|
2023
£000
|
2022
£000
|
|
Deferred tax assets
|
2,071
|
2,176
|
|
Deferred tax liabilities
|
(2,773)
|
(82)
|
Net deferred tax
(liabilities)/assets
|
(702)
|
2,094
|
|
|
|
|
| |
At 31 December 2023, Science Group
had £29.3 million (2022: £26.7 million) of tax losses, the largest
components of which related to Frontier (£19.2 million (2022: £17.1
million)) and TP Group (£5.9 million (2022: £nil)). £9.1 million
(2022: £8.7 million) of the Frontier losses, and £5.4 million
(2022: £nil) of the TP Group losses are recognised as deferred tax
assets which are anticipated to be used to offset future taxable
profits. The balances of £10.1 million (2022: £8.4 million) of the
Frontier losses and £0.5 million (2022: £nil) of the TP Group
losses have not been recognised as deferred tax assets due to the
uncertainty in the timing of utilisation of these losses.
Aside from these amounts, the Group has other tax losses of
£4.2 million (2022: £9.6 million) unrecognised as a deferred tax
asset due to the low probability that these losses will be
utilised.
5.
Earnings Per Share
The calculation of earnings per
share is based on the following result and weighted average number
of shares:
|
2023
|
|
2022
|
|
Profit after tax
£000
|
Weighted average number of
shares
|
Pence per share
|
Profit after tax
£000
|
Weighted average number of
shares
|
Pence per share
|
Basic earnings per ordinary
share
|
5,524
|
45,553,584
|
12.1
|
10,555
|
45,525,568
|
23.2
|
Effect of dilutive potential
ordinary shares: share options
|
-
|
638,394
|
(0.1)
|
-
|
1,268,082
|
(0.6)
|
Diluted earnings per ordinary
share
|
5,524
|
46,191,978
|
12.0
|
10,555
|
46,793,650
|
22.6
|
Only the share options granted are
dilutive.
The calculation of adjusted earnings
per share is as follows:
|
2023
|
|
|
2022
|
|
|
Adjusted* profit after
tax
£000
|
Weighted average number of
shares
|
Pence per share
|
Adjusted* profit after
tax
£000
|
Weighted average number of
shares
|
Pence per share
|
Adjusted basic earnings per
ordinary share
|
15,187
|
45,553,584
|
33.3
|
13,362
|
45,525,568
|
29.4
|
Effect of dilutive potential
ordinary shares: share options
|
-
|
638,394
|
(0.4)
|
-
|
1,268,082
|
(0.8)
|
Adjusted diluted earnings per
ordinary share
|
15,187
|
46,191,978
|
32.9
|
13,362
|
46,793,650
|
28.6
|
|
|
|
|
|
|
|
|
|
| |
*Calculation of adjusted profit
after tax:
|
2023
£000
|
2022
£000
|
Adjusted operating
profit
|
20,535
|
17,602
|
Finance income
|
679
|
375
|
Finance costs
|
(1,205)
|
(977)
|
Adjusted profit before
tax
|
20,009
|
17,000
|
Tax charge at the blended
corporation tax rate across the various jurisdictions 24.1% (2022:
21.4%)
|
(4,822)
|
(3,638)
|
Adjusted profit after
tax
|
15,187
|
13,362
|
The tax charge is calculated using
the blended corporation tax rate across the various jurisdictions
in which the Group companies are incorporated.
6.
Dividends
The final dividend for 2022 of £2.3
million was paid in June 2023 (2022: £2.3 million paid for 2021 in
June 2022).
The Board has proposed a final
dividend for 2023 of 8.0 pence per share (2022: 5.0 pence per
share). The dividend is subject to approval by shareholders at the
next Annual General Meeting and the expected cost of £3.6 million
has not been included as a liability as at 31 December
2023.
7.
Intangible Assets
|
Technical know-how and intellectual
property rights
£000
|
Customer
relationships
£000
|
Goodwill
£000
|
Total
£000
|
Cost
|
|
|
|
|
At 1 January 2022
|
12,306
|
13,915
|
16,585
|
42,806
|
Effect of movement in exchange
rates
|
1,350
|
428
|
615
|
2,393
|
At 31 December 2022
|
13,656
|
14,343
|
17,200
|
45,199
|
Acquisitions through business
combination
|
3,346
|
17,084
|
4,222
|
24,652
|
Effect of movement in exchange
rates
|
(679)
|
(211)
|
(319)
|
(1,209)
|
At 31 December 2023
|
16,323
|
31,216
|
21,103
|
68,642
|
|
|
|
|
|
Accumulated amortisation
|
|
|
|
|
At 1 January 2022
|
2,464
|
10,391
|
-
|
12,855
|
Amortisation charged in
year
|
2,172
|
1,594
|
-
|
3,766
|
Effect of movement in exchange
rates
|
335
|
221
|
-
|
556
|
At 31 December 2022
|
4,971
|
12,206
|
-
|
17,177
|
Amortisation charged in
year
|
2,349
|
2,595
|
-
|
4,944
|
Effect of movement in exchange
rates
|
(296)
|
(138)
|
-
|
(434)
|
At 31 December 2023
|
7,024
|
14,663
|
-
|
21,687
|
|
|
|
|
|
Accumulated impairment
|
|
|
|
|
At 1 January, 31 December 2022 and
31 December 2023
|
-
|
7
|
2,225
|
2,232
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
At 31 December 2022
|
8,685
|
2,130
|
14,975
|
25,790
|
At 31 December 2023
|
9,299
|
16,546
|
18,878
|
44,723
|
|
|
|
|
| |
Goodwill and acquisition related
intangible assets recognised arose from acquisitions during 2013,
2015, 2017, 2019, 2021 and 2023. The discount rates used for
goodwill impairment reviews and the carrying amount of goodwill is
allocated as follows:
|
2023
|
2022
|
|
Pre-tax discount rate
|
£000
|
Pre-tax
discount rate
|
£000
|
R&D Consultancy
|
17.8%
|
3,383
|
16.8%
|
3,383
|
Leatherhead Research
|
18.1%
|
650
|
16.9%
|
650
|
TSG Americas
|
17.5%
|
2,732
|
15.2%
|
2,874
|
TSG Europe
|
17.9%
|
4,546
|
16.6%
|
4,546
|
Frontier Smart Technologies
Group
|
20.2%
|
3,345
|
17.5%
|
3,522
|
CMS2
|
16.1%
|
1,576
|
-
|
-
|
TPG Services
|
17.8%
|
2,646
|
-
|
-
|
|
|
18,878
|
|
14,975
|
Impairment review of goodwill
The Group tests goodwill annually
for impairment or more frequently if there are indications that
goodwill might be impaired. The recoverable amounts of the Cash
Generating Units ('CGUs') are determined from value in use. (CGUs
are a description of a cash-generating unit (such as a whether it
is a product line, a business operation or a reportable segment as
defined in IFRS8)). The key assumptions for the value in use
calculations are those regarding the discount rates and growth or
decline rates of revenue.
The Group prepares the cash flow
forecasts derived from the most recent annual financial plan
approved by the Board and extrapolates cash flows for the following
four years based on forecast rates of growth or decline in revenue
by the CGU. Beyond 5 years, cash flows were extrapolated
using a terminal growth rate of 2.5% based on historic average
inflation rates.
The Group monitors its post-tax
weighted average cost of capital and those of its competitors using
market data. In considering the discount rates applying to CGUs,
the Directors have considered the relative sizes, risks and the
inter-dependencies of its CGUs. The impairment reviews use a
discount rate adjusted for pre-tax cash flows and are included in
the table above.
8.
Inventories
|
|
|
2023
£000
|
2022
£000
|
Raw materials
|
|
|
174
|
263
|
Work in progress
|
|
|
743
|
485
|
Finished goods
|
|
|
415
|
1,729
|
|
|
|
1,332
|
2,477
|
9.
Trade and Other Receivables
|
2023
£000
|
2022
£000
|
Current assets:
|
|
|
Trade receivables
|
13,899
|
9,983
|
Provision for impairment
|
(100)
|
(207)
|
Trade receivables - net
|
13,799
|
9,776
|
Amounts recoverable on
contracts
|
6,708
|
1,152
|
Other receivables
|
161
|
90
|
Other taxation and social
security
|
768
|
-
|
VAT
|
222
|
215
|
Prepayments
|
1,657
|
1,759
|
|
23,315
|
12,992
|
All amounts disclosed above,
except for prepayments, are receivable within 90 days.
10.
Cash and Cash Equivalents
|
2023
£000
|
2022
£000
|
Cash and cash equivalents - Group
cash
|
30,949
|
43,645
|
Cash and cash equivalents - Client
registration funds
|
1,881
|
2,867
|
|
32,830
|
46,512
|
|
|
| |
The Group receives cash from
clients, primarily in North America, for the purpose of payment of
registration fees to regulatory bodies. This cash is separately
identified for reporting purposes and is unrestricted.
A balance of £10.0 million (2022:
£nil) was held in two fixed term deposit accounts of £5.0 million
each, with maturity dates of 31 January 2024 and 15 March
2024.
11.
Trade and Other Payables
|
|
|
2023
£000
|
2022
£000
|
Current liabilities:
|
|
|
|
|
Contract liabilities
|
|
|
17,550
|
19,679
|
Trade payables
|
|
|
4,106
|
1,689
|
Other taxation and social
security
|
|
|
1,730
|
1,460
|
VAT
|
|
|
998
|
250
|
Accruals
|
|
|
7,657
|
8,468
|
|
|
|
32,041
|
31,546
|
12.
Provisions
Group
|
Dilapidations
£000
|
Restructuring
£000
|
Legal
£000
|
Other
£000
|
Total
£000
|
At 1 January 2022
|
770
|
70
|
440
|
-
|
1,280
|
Provisions made during the
year
|
44
|
-
|
190
|
-
|
234
|
Provisions used during the
year
|
(2)
|
-
|
(152)
|
-
|
(154)
|
Provisions reversed during the
year
|
(164)
|
(30)
|
(149)
|
-
|
(343)
|
Effect of movement in exchange
rates
|
58
|
-
|
22
|
-
|
80
|
At 1 January 2023
|
706
|
40
|
351
|
-
|
1,097
|
Assumed in business
combination
|
271
|
-
|
135
|
393
|
799
|
Disposed
|
-
|
-
|
-
|
(138)
|
(138)
|
Provisions made during the
year
|
84
|
-
|
454
|
768
|
1,306
|
Provisions used during the
year
|
(129)
|
(8)
|
(71)
|
-
|
(208)
|
Provisions reversed during the
year
|
(83)
|
-
|
(289)
|
(34)
|
(406)
|
Effect of movement in exchange
rates
|
(70)
|
-
|
(10)
|
-
|
(80)
|
At 31 December 2023
|
779
|
32
|
570
|
989
|
2,370
|
Current liabilities
|
387
|
32
|
570
|
492
|
1,481
|
Non-current liabilities
|
392
|
-
|
-
|
497
|
889
|
|
|
|
|
|
|
At 31 December 2022
|
706
|
40
|
351
|
-
|
1,097
|
Current liabilities
|
458
|
40
|
351
|
-
|
849
|
Non-current liabilities
|
248
|
-
|
-
|
-
|
248
|
Dilapidation provisions have been
recognised at the present value of the expected obligation. These
discounts will unwind to their undiscounted value over the
remaining lives of the leases via a finance charge within the
income statement.
The average remaining life of the
leases as at 31 December 2023 is 2.7 years (2022: 1.4
years).
The restructuring provision relates
to the costs associated with the closure of some non-trading Group
entities.
Legal provisions reflect the best
estimate of the future cost of responding to potential legal
claims.
The other provision category
relates to provisions made in respect of product and service
deliveries that include warranty provisions. It also includes a
provision for the employer's NIC liability on share options that
have vested (or on the proportion that have vested). As the
employee is contractually responsible for the employer's NIC on any
share options exercised and is required to remit this sum to the
Company prior to the share options being exercised, a corresponding
asset is recognised in current assets.
13. Called-up Share Capital
|
2023
£000
|
2022
£000
|
Allotted, called-up and fully
paid
|
|
|
Ordinary shares of £0.01
each
|
462
|
462
|
|
Number
|
Number
|
Allotted, called-up and fully
paid
|
|
|
Ordinary shares of £0.01
each
|
46,185,874
|
46,185,874
|
The allotted, called-up and fully
paid share capital of the Company as at 31 December 2023 was
46,185,874 shares (2022: 46,185,874) and the total number of
ordinary shares in issue (excluding treasury shares) was 45,458,972
(2022: 45,436,823). Of the ordinary shares in issue, no
shares (2022: 34,800) were held by the Frontier Smart Technologies
Employee Benefit Trust. The total number of voting rights in the
Company is 45,458,972 (2022: 45,402,023).
14.
Borrowings
|
2023
£000
|
2022
£000
|
Current bank borrowings
|
1,200
|
1,200
|
Non-current bank
borrowings
|
11,756
|
12,939
|
Total borrowings
|
12,956
|
14,139
|
|
2023
£000
|
2022
£000
|
Opening
balance
|
14,139
|
15,323
|
Repayments in the year
|
(1,200)
|
(1,200)
|
Amortisation of loan arrangement fee
|
17
|
16
|
Total
borrowings
|
12,956
|
14,139
|
During the year ended 31 December
2016, the Group entered into a 10-year fixed term loan of £15.0
million which is secured on the freehold properties of the Group
and on which interest is payable based on SONIA plus 2.6% margin.
During the year ended 31 December 2019, the Group increased
this existing loan by £4.8 million to £17.5 million on similar
terms. The repayment profile of the loan is £1.2 million per annum
over the term with the remaining balance repaid on expiry of the
loan in 2026. Costs directly associated with entering into the loan
(including the loan increase), have been offset against the balance
outstanding and are being amortised over the period of the
loan.
During the year ended 31 December
2020, the Group drew a further £1.5 million of loan funds from the
£17.5 million existing loan agreement. This was on similar
terms and with no change to the loan repayment profile (i.e. the
quarterly repayments remained the same and the loan balance remains
payable on 30 September 2026). Costs directly associated with
entering into the additional loan have been offset against the
balance outstanding and are being amortised over the period of the
loan.
The reconciliation of bank loans
interest expense is shown below.
|
2023
£000
|
2022
£000
|
Interest
expense
|
499
|
533
|
Interest
paid
|
(482)
|
(517)
|
Amortisation of loan arrangement fee
|
(17)
|
(16)
|
Interest
accrual at the year end
|
-
|
-
|
In December 2021 Science Group plc
signed a Revolving Credit Facility ('RCF') with Lloyds Bank plc in
order to provide additional capital resources to enable the
execution of the Group's acquisition strategy. The RCF is for up to
£25.0 million, with an additional £5.0 million accordion option.
The original agreement was for a term of four years, however
an option to extend the term by an additional year was taken by the
Group in December 2023 (meaning the term end date is now December
2026). The margin on drawn sums is 3.3% over the Sterling Overnight
Index Average ('SONIA') and is 1.1% per annum on undrawn amounts.
Drawn amounts are secured on the Group's assets by debentures. The
RCF is in addition to the Group's existing term loan.
The RCF has two financial covenants
with which the Group needs to comply if the facility is drawn: (i)
the Group's net leverage, as defined as the net debt divided by the
rolling 12 month EBITDA, should not exceed 2.5; and (ii) the
Group's interest cover, as defined as the rolling 12 month EBITDA
divided by the rolling interest payments on all borrowings, should
not be less than 4.0. Reporting is on a 6 monthly basis
unless the net leverage exceeds 2, in which case reporting moves to
quarterly until net leverage returns to below 2 again. For
the term of the RCF, the previous covenants for the term loan are
superseded by the covenants of the RCF and will not
apply.
The reconciliation of RCF interest
expense is shown below.
|
2023
£000
|
2022
£000
|
Interest
expense
|
349
|
349
|
Interest
paid
|
(268)
|
(268)
|
Amortisation of RCF arrangement fee
|
(81)
|
(81)
|
Interest
accrual at the year end
|
-
|
-
|
In accordance with an agreed
repayment schedule with the bank, bank borrowings are repayable to
Lloyds Bank plc as follows:
|
2023
£000
|
2022
£000
|
Within one year
|
1,200
|
1,200
|
Between 1 and 2 years
|
1,200
|
1,200
|
Between 2 and 5 years
|
10,600
|
11,800
|
|
13,000
|
14,200
|
In order to address interest rate
risk, the Group entered into phased interest rate swaps in order to
fully hedge the loan resulting in a 10-year fixed effective
interest rate of 3.5%. The interest rates on the swaps range from
0.4% to 1.3% which when combined with the margin on the loan
economically fix the finance cost at 3.5%. The notional amount on
the interest rate swaps reduces in line with the repayment of the
term loan, so an effective hedge remains throughout the term of the
loan. There are 4 active swaps in place at 31 December 2023,
totalling £13.0 million. Of this total, £1.8 million will mature in
September 2025 and the remaining balance of £11.2 million will
mature in September 2026. The fair value of the swap at 31 December
2023 was an asset of £0.9 million (2022: asset of £1.4
million).
15. Business combinations
On 26 January 2023, the Group
completed the acquisition of 100% of the share capital of TP Group
plc, which adds significant scale to the Group and provides a
strategic entry into the defence sector.
The acquisition of TP Group plc
was an acquisition which commenced with an initial holding of 10.2%
on 9 August 2021. The Group increased its shareholding with further
share acquisitions across 2021 and 2022. In October 2022, the
Group made an offer to acquire the remaining shares in TP Group plc
through a court-approved Scheme of Arrangement. This became
effective on 26 January 2023, at which point TP Group plc became a
fully owned subsidiary undertaking of Science Group
Plc.
The assets and liabilities
acquired were as follows:
|
Book Value
£000
|
Fair Value
Adjustment
£000
|
Fair Value
£000
|
|
Assets
|
|
|
|
|
Non-current assets
|
|
|
|
|
Intangible assets
|
6,247
|
14,183
|
20,430
|
|
Goodwill
|
4,240
|
(4,240)
|
-
|
|
Property, plant &
equipment
|
2,292
|
304
|
2,596
|
|
Deferred tax assets
|
2,469
|
-
|
2,469
|
|
Non-current assets classified as
held for sale
|
2,113
|
-
|
2,113
|
|
|
17,361
|
10,247
|
27,608
|
|
Current assets
|
|
|
|
|
Inventories
|
77
|
-
|
77
|
|
Trade and other
receivables
|
8,386
|
-
|
8,386
|
|
Current tax assets
|
759
|
-
|
759
|
|
Cash and cash
equivalents
|
4,284
|
-
|
4,284
|
|
|
13,506
|
-
|
13,506
|
|
Liabilities
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade and other
payables
|
12,412
|
-
|
12,412
|
|
Borrowings
|
5,960
|
-
|
5,960
|
|
Lease liabilities
|
354
|
-
|
354
|
|
|
18,726
|
-
|
18,726
|
|
Non-current liabilities
|
|
|
|
|
Provisions
|
661
|
-
|
661
|
|
Lease liabilities
|
2,395
|
(333)
|
2,062
|
|
Non-current liabilities classified
as held for sale
|
1,325
|
-
|
1,325
|
|
Deferred tax
liabilities
|
956
|
4,074
|
5,030
|
|
|
5,337
|
3,741
|
9,078
|
|
Net assets acquired
|
6,804
|
6,506
|
13,310
|
|
Goodwill (Note 7)
|
|
|
4,222
|
|
Fair value of cost of investment
|
|
|
17,532
|
|
£17.5 million consists of £12.4
million consideration paid in 2023 and £5.1 million fair value of
the investment at the point TP Group plc became a
subsidiary.
|
|
Consideration
paid
|
2023
£000
|
2022
£000
|
Purchase interest in
subsidiary/associate
|
12,409
|
213
|
Debt acquired
|
5,960
|
-
|
Cash acquired
|
(4,446)
|
-
|
|
13,923
|
213
|
|
|
|
|
|
| |
Non-current assets and liabilities
classified as held for sale relate to the sale of the entire issued
share capital of Westek Technology Ltd to Roda Computer GmbH on 29
January 2023 for a net cash consideration of £0.6
million.
On 26 January 2023, the day of the
acquisition, the Group repaid the outstanding TP Group plc
Revolving Credit Facility with HSBC (£6.0 million).
TP Group plc contributed £44.9
million revenue and approximately £6.2 million to the Group's
profit before tax for the period between the date of acquisition
and the balance sheet date, not including £1.9 million of acquired
intangible asset amortisation expense. If the acquisition of
TP Group plc had been completed on the first day of the financial
year, the additional impact on group revenue for the period would
have been £2.6 million and the additional impact on group profit
would have been a reduction of £0.9 million.
The goodwill of £4.2 million is
attributable mainly to the skills and technical knowledge of TP
Group's workforce. A third-party expert performed a detailed
review of the acquired intangible assets. The customer contracts
and relationships intangible asset was valued using a multi-period
excess earnings methodology. Technology and marketing
intangible assets were valued using a royalty savings methodology.
The deferred tax liability, in respect of the acquired intangible
assets, has been calculated by using the current statutory tax rate
of 25.0%.
16. Post balance sheet
events
There are
no post balance sheet events to disclose.
17.
Statement by the Directors
Whilst the information included in
this preliminary announcement has been prepared in accordance with
the recognition and measurement criteria of International Financial
Reporting Standards ('IFRSs') as adopted by the UK in conformity
with the requirements of the Companies Act 2006, this announcement
does not itself contain sufficient information to comply with
IFRSs. The accounting policies adopted in this preliminary
announcement are consistent with the Annual Report for the year
ended 31 December 2023.
The financial information set out
above, which was approved by the Board on 20 March 2024, is derived
from the full Group accounts for the year ended 31 December 2023
and does not constitute the statutory accounts within the meaning
of section 434 of the Companies Act 2006. The Group accounts
on which the auditors have given an unqualified report, which does
not contain a statement under section 498(2) or (3) of the
Companies Act 2006 in respect of the accounts for 2023, will be
delivered to the Registrar of Companies in due course.
The Board of Science Group
approved the release of this preliminary announcement on 20 March
2024.
The Annual Report for the year
ended 31 December 2023 will be posted to shareholders in due course
and will be delivered to the Registrar of Companies following the
Annual General Meeting of the Company. The report will also
be available on the investor relations page of the Group's website.
Further copies will be available on request and free of charge from
the Company Secretary.
- Ends -