03 March, 2016

Science Group plc (‘Science Group’ or the ‘Group’ or the ‘Company’), formerly Sagentia Group plc, reports its audited results for the year ended 31 December 2015.

Operational highlights

  • Satisfactory operating performance
  • Significant strategic development of the Group
  • Acquisition of Oakland Innovation in February 2015
  • Acquisition of the business and assets of Leatherhead Research in September 2015
  • Acquisition of Epsom freehold property to create second major UK office/laboratory site

Financial summary

  • Group revenue of £31.2 million (2014: £28.3 million)
  • Adjusted* operating profit of £5.3 million (2014: £5.4 million)
  • Statutory operating profit of £2.7 million (2014: £4.7 million) after exceptional costs* of £2.6 million (2014: £0.7 million)
  • Operating cash inflow of £4.9 million (2014 : £4.9 million)
  • Basic EPS of 7.2 pence (2014 : 8.9 pence) due to net tax credit in the year
  • Proposed dividend of 4.0 pence per share (2014: 4.0 pence)


Science Group plc

Martyn Ratcliffe, Chairman

Rebecca Hemsted, Finance Director

Tel: +44 (0) 1223 875200


Numis Securities

Nominated Adviser: Oliver Cardigan / Simon Willis

Corporate Broking: Michael Burke

Tel: +44 (0) 207 260 1000


* Throughout this statement, adjusted operating profit and margin excludes amortisation and impairment of intangible assets, share based payment charges and other exceptional costs.


Chairman’s Statement

Science Group plc and its subsidiaries report a satisfactory operating performance for the year ended 31 December 2015, a year of significant strategic change for the Group. Overall the Group maintained strong operating margins despite external market and economic factors, acquisition integration and the inherent volatility associated with a project-based consultancy. The Group maintains a robust balance sheet with significant cash resources and freehold property assets.

Science Group plc provides outsourced science and technology based consultancy, advisory and product development services to a wide range of industries/markets. The majority of the Group’s revenues are derived from projects operated on behalf of clients on a time and materials basis, although some smaller projects are undertaken on a fixed price model. The Group’s operations are based at its freehold property (approx. 100,000 sq ft) in Harston, near Cambridge, and, progressively from Q1 2016, in the recently acquired freehold property located near Epsom, Surrey (approx. 50,000 sq ft). The Group also has leasehold offices in London, Boston and Houston. With 78% of revenue derived from overseas markets but over 90% of the Group’s 350 employees based in the Group’s UK office/laboratory facilities, Science Group plc is a significant exporter of leading British science & technology services.

Business Summary

For the year ended 31 December 2015, Group revenue was £31.2 million (2014: £28.3 million) of which Core Business Services revenue was £28.7 million (2014: £25.7 million). Adjusted operating profit for the year ended 31 December 2015 was £5.3 million (2014: £5.4 million) and operating cash inflow was £4.9 million (2014: £4.9 million), reflecting the underlying performance of the Group including the broadly offsetting loss from the Leatherhead business and profit contribution from the Oakland business, both acquired in 2015.

Adjusted operating profit and margin are defined in the Finance Director’s Report, along with a detailed explanation of the underlying financial performance and explanation of the non-operating, exceptional and tax adjustments. Exceptional costs in the year include non-recurring charges of £0.5 million related to the integration of the acquisitions made in 2015 and, as previously reported, further costs will be incurred in 2016. The Board has also reviewed the goodwill associated with the OTM Consulting acquisition, particularly in light of the dramatic reduction in the oil price over the past two years, and has impaired the goodwill carrying value by £1.1 million, a non-cash charge. As a result, statutory operating profit was £2.7 million (2014: £4.7 million). However, despite the non-recurring and exceptional charges, due to a net tax credit position benefitting from prior years’ R&D tax credits, earnings per share was 7.2 pence (2014: 8.9 pence).

Cash balance at 31 December 2015 was £14.5 million (2014: £23.8 million) with net funds of £6.7 million (2014: £15.0 million) including bank debt of £7.8 million (2014: £8.8 million). The reduction in
net funds resulted from cash outflows of £4.6 million associated with acquisitions; £9.0 million for the freehold property near Epsom, including £1.5 million VAT which has been reimbursed in 2016; and share buy backs of £0.6 million. Following the purchase of the property near Epsom, the Group has significant freehold property assets which have a combined balance sheet carrying value of £20.9 million (2014: £13.6 million).

Strategic Developments and Corporate Matters

On 1 July 2015, Sagentia Group plc was renamed Science Group plc. The product and technology development business continues to use the Sagentia brand.

On 18 February 2015, Science Group plc acquired Oakland Innovation Limited (‘Oakland’) for a consideration of £5.0 million. Oakland is a Cambridge-based R&D consultancy specialising in technology innovation and market intelligence for the global consumer, healthcare and food & beverage markets. The Oakland business has been successfully relocated to the Group’s facility in Harston and synergies with the Group’s other businesses are becoming increasingly apparent. In the period following acquisition, Oakland contributed £3.1 million in revenue and £0.4 million in profit, reflecting the effect of the initial business disruption associated with acquisition integration, followed by a strong end to the year.

On 16 September 2015, a subsidiary of Science Group plc acquired the business and assets of Leatherhead Food International Limited via a ‘pre-pack’ administration for a consideration of £1.6 million. The business was subsequently renamed Leatherhead Research Limited (‘Leatherhead’). In the period following acquisition, Leatherhead contributed £2.1 million in revenue and an operating loss of £0.4 million, together with non-recurring costs of £0.5 million. The restructuring and realignment of the Leatherhead business operations is progressing as the Board anticipated. However, the potential synergies of the Leatherhead operations with Oakland and Sagentia have become increasingly apparent and the Group’s existing offerings to the food & beverage market have been significantly enhanced by this acquisition.
On 12 November 2015, a subsidiary of Science Group plc acquired Great Burgh, a freehold property near Epsom, Surrey for £7.6 million (including fixtures and fittings and associated acquisition costs). This property will provide a second major office and laboratory facility for the Group and the Leatherhead and OTM businesses are being relocated to Great Burgh. The first fifty employees have already transferred to the facility and the refit programme is on track to complete the transition by mid-summer, subject to receiving consent for the pending planning application.

Reflecting the different channels to market, and the synergistic opportunities arising from the acquisitions, the Sagentia business structure has also evolved and will now comprise Sagentia-Medical and Sagentia-Commercial. At the same time, the North American sales organisation has been consolidated to ensure the integrated offerings from across the Group can be effectively marketed into this key geography that accounted for 57% of Group revenue in 2015 (2014: 61%).

The Board is proposing to maintain the dividend at 4.0 pence per share (2014: 4.0 pence), at a total cost of £1.6 million (2014: £1.5 million) based on the number of shares in issue at 29 February 2016. Subject to shareholder approval at the Annual General Meeting (‘AGM’), the dividend will be payable on 10 June 2016 to shareholders on the register at the close of business on 20 May 2016. As in previous years, the Board will also seek approval from shareholders at the AGM for authority to acquire up to 10% of the issued share capital of the Company so that, if deemed appropriate and in the best interests of shareholders, the Company may continue to make share purchases in the coming year. Due to the shareholding of the Chairman (32.7% at 29 February 2016), this authority will, as in previous years, be conditional on the passing of a general authority Panel Waiver by shareholders and on Takeover Panel approval of a waiver of Rule 9 of the UK Code on Takeovers and Mergers.


In summary, the financial performance for the year was satisfactory with continued strong adjusted operating margins and operating cash flow. Operationally, some market sectors (e.g. Oil & Gas) were more challenging than the prior year and others were stronger. This typifies the anticipated profile of a multi-sector, project-based consultancy with inherent volatility and limited forward visibility. Diversification of industry revenue sources increases the resilience of the Group and this has been a key component of the acquisition strategy.

Strategically, 2015 saw a significant expansion and evolution of the Science Group. The integration of Oakland is now complete and the integration of Leatherhead is progressing well. These acquisitions, combined with the existing Sagentia activities, have created a unique offering for the Group in the food & beverage market. While 2016 will be constrained by the Leatherhead business relocation, the long term potential of this market positioning should be attractive.

The Board has a medium term investment horizon and will continue to explore both organic and acquisitive investment opportunities to further strengthen the Group. In this endeavour, and also recognising the significant freehold property asset base of the Group, the Board continues to evaluate the most appropriate source(s) of capital to fund further acquisitions whilst minimising dilution to existing shareholders.

Martyn Ratcliffe



Finance Director’s Report

In the year ended 31 December 2015, the Group generated revenue of £31.2 million (2014: £28.3 million) which included £5.2m generated by the acquisitions in 2015 of Oakland and Leatherhead. The Group continues to have a high proportion (78%) of its Services revenue derived from international markets (2014: 78%), particularly North America which accounted for 57% (2014: 61%).

Adjusted operating profit of £5.3 million (2014: £5.4 million) and adjusted operating profit margin of 17.1% (2014: 19.1%) included an adjusted operating loss from Leatherhead of £0.4 million. Statutory operating profit of £2.7 million (2014: £4.7 million) included exceptional charges relating to the integration of Leatherhead of £0.5 million and an impairment of goodwill attributable to OTM Consulting of £1.1 million.
Statutory profit before tax was £2.4 million (2014: £4.2 million) and statutory profit after tax was £2.8 million (2014: £3.4 million), which benefited from the recognition of deferred tax associated with trading tax losses as well as the recognition of an R&D tax claim credit relating to the prior years of £0.8 million. In line with the decrease of statutory profit after tax, statutory basic earnings per share (‘EPS’) decreased to 7.2 pence (2014: 8.9 pence). (Adjusted operating profit and margin excludes amortisation and impairment of intangible assets, share based payment charges and other exceptional costs).

The Group reports its results under two business segments. The ‘Core Business’ represents all revenues derived from delivering projects and consultancy services and expenses recharged on these projects, together with revenues from product sales and licence income. The ‘Non-Core’ segment now comprises solely property and associated services income derived from space let in the Harston Mill facility.

Revenue from Core Business activities increased to £30.1 million (2014: £27.2 million) due to the acquisitions of Oakland and Leatherhead which contributed revenue of £3.1 million and £2.1 million respectively subsequent to the dates of acquisition. This increase was offset by reported declines in revenues, primarily due in the challenging market conditions within the Oil and Gas sector and also within the Medical sector due to the completion of some large projects. Revenue from Core Business operations includes materials used in projects recharged to customers of £1.4 million (2014: £1.4 million). Other ‘Non-Core’ revenue was £1.1 million (2014: £1.2 million).

A significant proportion of the Group’s revenue is denominated in US Dollars and Euros and changes in exchange rates can have a significant influence on the financial performance. In 2015, £14.2 million of the Group revenue was denominated in US Dollars (2014: £14.1 million) and £2.1 million of the Group revenue was denominated in Euros (2014: £1.1 million) and the exchange rates during the year resulted in a revenue and operating profit benefit in the year, compared to 2014, of £0.8 million and £0.7 million respectively. The Group continues to monitor the volatility of the exchange rate and to date has decided not to utilise foreign exchange hedging instruments.

At 31 December 2015, Science Group had £17.0 million (2014: £17.6 million) of tax losses carried forward of which £6.6 million (2014: £9.3 million) relate to trading losses which are anticipated to be used to offset future trading profits. During the year, previously recognised trading tax losses of £3.8 million were utilised, tax losses generated by Leatherhead of £1.0 million were recognised as a deferred tax asset and tax losses generated by the exercise of 3.1 million share options were recognised and utilised. These adjustments resulted in a tax credit in the Consolidated Income Statement of £0.4 million. The remaining tax losses of £10.4 million (2014: £8.3 million) have not been recognised as a deferred tax asset due to the uncertainty of utilisation of these losses. The increase in losses of £2.1 million was associated with the exercise of 3.1 million share options where the tax losses have been unable to be fully utilised.

The tax credit in the Consolidated Income Statement also included a one off benefit for the Research and Development tax claim for the 2013 and 2014 financial years which reduced the corporation tax charge by £0.8m. As a result of these various effects, the effective tax rate in the year ended 31 December 2015 was substantially below the nominal corporation tax rate. The Board anticipates that, in view of the trading tax losses carried forward, if the Group’s profit profile remains similar to 2015, the Group’s cash outflow related to tax will continue to be modest for the next one to two financial years after which the tax cash flow will increase.

The accounting treatment of the various tax effects explained above, combined with the exceptional costs recognised in the current year, have in aggregate resulted in basic EPS being reported at 7.2 pence (2014: 8.9 pence). Due to the complexity arising from these multiple adjustments, an adjusted EPS measure has not been presented.

In 2013, the Group entered into a £10.0 million term loan with Lloyds Bank plc (‘Lloyds’) which is secured on the freehold property at Harston and, subject to maintaining cash balances in excess of £2.0 million, the loan is not subject to operating covenants. The facility has a term of five years with £5.0 million amortising and the remaining £5.0 million repayable at the term date of September 2018. The Group also entered into a five year interest rate swap, the effect of which is to fix the interest rate on the loan at approximately 3.9%. The Group has not adopted hedge accounting for the interest rate swap under IAS 39, Financial Instruments, and the change in fair value of the interest rate swap of £62,000 was recognised as a gain in the Consolidated Income Statement in the year ended 31 December 2015 (2014: loss of £203,000).

The Group has a strong balance sheet with shareholders’ funds at 31 December 2015 of £37.2 million (2014: shareholders’ funds of £33.4 million). This includes the Group’s freehold properties in Harston, near Cambridge and the freehold property acquired near Epsom, Surrey, held on the balance sheet at an aggregate value of £20.9 million (2014: £13.6 million).

The gross cash position at 31 December 2015 was £14.5 million (2014: £23.8 million) and net funds were £6.7 million (2014: £15.0 million). The acquisition of the two businesses and the freehold property near Epsom during the year resulted in a cash outflow of £13.6 million, including VAT of £1.5 million on the property which has been reimbursed in February 2016. Cash flows relating to the restructuring and integration costs were primarily transferred into 2016 and resulted in net cash generated from operating activities of £4.9 million (2014: £5.0 million) and the net cash outflow related to the dividend, share buyback programme and share option exercises was £0.6 million (2014: £2.1 million). Working capital management remains robust with debtor days of 47 days (2014: 50 days) and combined debtor and WIP days of 7 (2014: 12).

Rebecca Hemsted

Finance Director


Science Group (SAG) Audited results for year ended 31 December 2015 RNS



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