02 March, 2017

Science Group plc (the ‘Company’) together with its subsidiaries (‘Science Group’ or the ‘Group’), reports its audited results for the year ended 31 December 2016.

Group revenue£36.9m£31.2m
Adjusted operating profit *£6.2m£5.3m
Statutory profit before tax£3.0m£2.4m
Adjusted basic earnings per share **11.4p10.3p
Statutory earnings per share6.8p7.2p
Net funds£11.3m£6.7m
Net-funds-plus-freehold-property-per-share at year end84.5p67.3p
Proposed / actual dividend per share4.2p4.0p


For further information:


Science Group plc

Martyn Ratcliffe, Chairman

Rebecca Hemsted, Finance Director

Tel: +44 (0) 1223 875 200


Numis Securities Limited

Nominated Adviser: Simon Willis / Paul Gillam

Tel: +44 (0) 20 7260 1000

Corporate Broking: Michael Burke


* Throughout this statement, adjusted operating profit is calculated as operating profit excluding impairment of goodwill and investments, amortisation of acquisition related intangible assets, acquisition integration costs, share based payment charges and other specified items.

** Throughout this statement, adjusted earnings per share is calculated 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. Adjusted profit after tax excludes adjusting items and includes a tax charge at the substantively enacted UK Corporation Tax Rate.


Chairman’s Statement

Science Group plc (the ‘Company’) together with its subsidiaries (‘Science Group’ or the ‘Group’) reports a further year of resilient operating performance for the year ended 31 December 2016, a period of successful consolidation of the 2015 acquisitions. Overall the Group maintained strong operating margins despite external market and economic factors, acquisition integration, business relocation 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.

Financial Summary

For the year ended 31 December 2016, Group revenue was £36.9 million (2015: £31.2 million) of which Core Business Services revenue was £34.2 million (2015: £28.7 million). Adjusted operating profit for the year ended 31 December 2016 was £6.2 million (2015: £5.3 million). Cash generated from operations was an exceptionally strong £11.6 million (2015: £5.2 million). While the Group financial performance benefitted from movements in foreign exchange rates, primarily in the second half of the year, the Board took the opportunity to invest some of this benefit to strengthen the Group for the future. (Adjusted operating profit and other Alternative Performance Measures used in this report are defined in the Finance Director’s Report.)

The increase in statutory profit before tax to £3.0 million (2015: £2.4 million) was offset by an increase in the corporation tax charge to £0.2 million (2015: tax credit of £0.4 million) resulting in basic earnings per share (‘EPS’) of 6.8 pence (2015: 7.2 pence). It should be noted that the Group actually received a net cash inflow related to Corporation Tax due to historic losses carried forward and R&D tax credits. This difference between the calculated tax charge and actual cash inflow is expected to be repeated in the 2017 financial year following which a modest tax cash outflow is anticipated to commence. An alternative performance measure of adjusted basic EPS (defined in the Finance Director’s Report) which applies consistent tax rates has increased by 11% to 11.4 pence (2015: 10.3 pence).

Cash balance at 31 December 2016 was £26.0 million (2015: £14.5 million) with net funds of £11.3 million (2015: £6.7 million) including bank debt of £14.7 million (2015: £7.8 million). The Group has significant freehold property assets which have a combined balance sheet carrying value of £21.9 million (2015: £20.9 million), providing not only excellent facilities for the Group’s offices and laboratories, but also an asset base for securitisation of attractive long term debt which creates a cost-effective operating model. Net-funds-plus-freehold-property-per-share in issue increased by over 25% to 84.5 pence per share (2015: 67.3 pence per share), representing an exceptionally strong asset base for a scientific consultancy organisation.

Business Overview

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 properties in Harston, near Cambridge (approx. 100,000 sq ft gross area) and Epsom, Surrey (approx. 50,000 sq ft gross area). The Group also has leasehold offices in London, Boston, Houston and San Francisco.

The Group’s multi-sector exposure contributes to the resilience of its trading performance. The Medical sector, primarily derived from the original Sagentia business, had a challenging first half of the year but delivered a strong sales recovery in the second half of 2016. In fact, this reinvigorated sector entered the new year with the strongest order book for many years. In contrast, the Commercial sector of the Sagentia business delivered a strong performance throughout 2016 although some major projects were successfully completed during the second half. As a result, in aggregate, the Sagentia business has started 2017 broadly in line with 2016. As anticipated, the oil and gas market for both OTM Consulting advisory work and Sagentia product development proved challenging throughout the year.

The two 2015 acquisitions were both integrated successfully during 2016, with Oakland Innovation delivering a strong performance benefitting from its entrepreneurial approach within the umbrella infrastructure of the Group. Demand for high quality, technically robust, forward-looking analyses within global science/technology markets continued to be strong. Meanwhile, despite the disruption of the business relocation, Leatherhead Research exceeded the Board’s expectations providing a significant profit contribution, before one-off costs, although the second half of the year was affected by post-referendum uncertainty and volatility within the UK retail sector. As the integration of Oakland Innovation and Leatherhead Research progressed, the synergistic opportunities from these acquisitions became more tangible. These synergies are progressively being realised by the marketing of horizontal technical capabilities into vertical market sectors where the Group has highly relevant industry expertise.

North America continues to be a major market for the Group accounting for 44% of Group Core Business revenue in 2016 (2015: 57%) while Europe (excluding the UK) accounted for 27% of Group Core Business revenue (2015: 18%). With Sterling remaining low, particularly relative to the US Dollar over the past decade, the Board has increased investment into the US market and has announced the opening of a new office in California, alongside the Group’s existing US offices in Boston and Houston. These US offices are increasingly being staffed by experienced Science Group managers and provide a stronger platform for the Group’s offerings into this key market.

Corporate Matters

The Group's freehold properties provide a more cost-effective and more flexible business operating model compared to a fully repairing leasehold, particularly for a business requiring scientific
laboratory facilities. With significant freehold property assets and the current low interest rates, the Board determined that a potential increase in both the amount and term of the Group's debt could benefit long term planning and corporate strategy implementation, particularly if this could be achieved without a material increase in the Group's financing risk profile. As a result, a new 10 year fixed term loan of £15 million was agreed during the year at a fixed effective rate of 3.5% throughout the 10 year term and, subject to certain conditions, no operating performance covenants. This financing model provides a fixed, low cost of capital to support the Group’s medium term strategy.

During the year, the equity buy back programme was continued, purchasing a total of 2,115,000 shares at a total cost of £2.8 million and an average purchase price of 130p. As a result, at 31 December 2016, the Company had 39,328,794 ordinary shares in issue and held an additional 2,733,241 shares in treasury (2015: 41,060,006 with an additional 1,002,029 shares held in treasury). In addition, during the year the Remuneration Committee of the Board reviewed the Group share option programmes and implemented a significant rationalisation, reducing the number of share options granted at 31 December 2016 to 1.7 million (2015: 3.0 million) for a cash outlay of £0.6 million. In aggregate, the shares in issue (excluding treasury shares) and the outstanding share options were reduced by approximately 7% during the year.

Following the completion of the acquisition integration and the long term capital model, combined with another solid year of operating performance and excellent cash flow, the Board is proposing to increase the dividend by 5% to 4.2 pence per share (2015: 4.0 pence), at a total cost of £1.7 million (2015: £1.6 million) based on the number of shares in issue at 28 February 2017. Subject to shareholder approval at the Annual General Meeting (‘AGM’), the dividend will be payable on 9 June 2017 to shareholders on the register at the close of business on 19 May 2017. 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 (34.1% at 28 February 2017), 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 very satisfactory with continued strong adjusted operating margins and operating cash flow, enhanced by the devaluation of Sterling. Operationally, some market sectors were more challenging than the prior year and others were stronger, typical of the profile of a multi-sector, project-based consultancy Group. Diversification of market/industry sector revenue sources increases the resilience of the Group and this continues to be a key component of the Group’s strategy.

The Board adopts a non-political position with regard to geopolitical events and considers its role to be to respond to such developments not to comment on or critique the relative merits. Following the UK referendum (now referred to as “Brexit”) and the pending notification of Article 50, together with the political uncertainty (and potential ramifications) related to the forthcoming elections in the Netherlands, France and Germany during 2017, the Board remains cautious regarding the economic environment in Europe, whilst noting that 2016 saw a significant growth in the Group’s revenue from the region. At the same time, reflecting the Group’s historic contribution from North America, the weakness of Sterling relative to the US Dollar, and the potential economic stimuli implied by some of the anticipated policies of the new Washington Administration, the Board has responded rapidly in accelerating investment in the USA as demonstrated by the transfer of experienced senior managers to the geography and the decision to open a new operation in San Francisco.

Overall, Science Group plc continues to evolve with a capital structure and strong asset base reflecting the Board’s medium term investment horizon and enabling the continued evaluation of both organic and acquisitive investment opportunities.

Martyn Ratcliffe




Finance Director’s Report

In the year ended 31 December 2016, the Group generated revenue of £36.9 million (2015: £31.2 million). Revenue from Core Business activities, that is revenue derived from delivering projects and consultancy services and materials recharged on these projects, increased to £35.8 million (2015: £30.1 million) due to the full year increment from the 2015 acquisitions. This increase was offset by declines in revenues in 2016 primarily within the Oil and Gas sector and also within the Medical sector. Non-Core revenue, comprising property and associated services income derived from space let in the Harston Mill facility, was £1.1 million (2015: £1.1 million).

Adjusted operating profit increased to £6.2 million (2015: £5.3 million) benefitting from the favourable foreign exchange environment. Adjusted operating profit margin remained strong at 16.8% (2015: 17.1%). (Adjusted operating profit is an alternative profit measure that is calculated as operating profit excluding impairment of goodwill and investments, 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 Note 1 for further information on this and other alternative performance measures).

Statutory operating profit of £3.4 million (2015: £2.7 million) included an impairment of goodwill attributable to OTM Consulting of £1.0 million (2015: £1.1 million) reflecting the challenging oil and gas market sector, and Leatherhead acquisition integration costs of £0.3 million (2015: £0.5 million). Statutory profit before tax was £3.0 million (2015: £2.4 million) and statutory profit after tax was £2.7 million (2015: £2.8 million), with the increase in statutory profit before tax offsetting the increase in corporation tax charge. Reflecting the full year weighting of share options exercised during 2015, statutory basic earnings per share (‘EPS’) was 6.8 pence (2015: 7.2 pence).

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 2016, £12.4 million of the Group Core Business revenue was denominated in US Dollars (2015: £15.6 million) and £3.9 million of the Group Core Business revenue was denominated in Euros (2015: £2.4 million). The exchange rates during the year resulted in a revenue and operating profit benefit, when compared to the rates in effect during 2015, of £1.7 million and £1.5 million respectively. The Board determined to use some of this benefit to accelerate some strategic investment programmes. 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 2016, Science Group had £11.8 million (2015: £17.0 million) of tax losses carried forward of which £1.4 million (2015: £6.6 million) relate to trading losses which are anticipated to be used to offset future trading profits. Previously recognised trading tax losses of £4.4 million (2015: £3.8 million) were utilised in the current year and a prior period adjustment was recognised due to the actual losses utilised in 2015 being £0.8 million higher than estimated. The remaining tax losses of £10.4 million (2015: £10.4 million) have not been recognised as a deferred tax asset due to the low probability that these losses will be able to be utilised.

The tax charge in the Consolidated Income Statement includes a benefit for the Research and Development tax claim for the 2015 and 2016 financial years which reduced the corporation tax charge by £0.7 million (2015: £0.8 million relating to the 2013 and 2014 financial years). In future years, the R&D tax credit will be recognised in the year to which it relates and will therefore typically only represent a single year. The R&D tax credit and the deferred tax adjustments resulted in a tax charge in the Consolidated Income Statement of £0.2 million (2015: credit of £0.4 million).

The Board anticipates that, in view of the trading tax losses carried forward and the R&D tax credits, if the Group’s profit profile remains similar to 2016, the Group will receive a net cash inflow for the next financial year after which a tax cash outflow is anticipated to commence. However, the effective tax rate is anticipated to remain below the nominal UK corporation tax rate due to the benefit of R&D tax credits.

The accounting treatment of the various tax effects explained above coupled with the full year weighting of share options exercised in 2015 have in aggregate resulted in basic earnings per share being reported at 6.8 pence (2015: 7.2 pence). In order to provide a measure that demonstrates the underlying value generated by the Group at a per share level, an adjusted earnings per share measure has been presented. Adjusted basic earnings per share, which excludes adjusting items and includes a corporation tax charge on adjusted profit before tax at the substantively enacted UK Corporation Tax Rate, increased by 11% to 11.4 pence (10.3 pence) in line with the increase in adjusted operating profit.

The Group’s term loan with Lloyds Bank plc (‘Lloyds’) was due to expire in 2018. During the year, a new 10 year fixed term loan of £15 million was successfully negotiated, secured on the freehold properties at Harston and Epsom. Phased interest rate swaps hedge the loan resulting in a 10-year fixed effective interest rate of 3.5%, comprising a margin over 3 month LIBOR and the cost of the swap instruments to fix the interest rate over the 10 year period. (For comparison, the effective interest rate on the previous 5-year term loan, which was scheduled to expire in 2018, was approximately 3.9%. This loan has been repaid). The repayment profile of the loan is £1 million per annum over the term with the remaining £5 million repayable on expiry of the loan in 2026. One-off costs of £0.3 million were incurred arising from cancellation of the prior loan and associated swap, together with arrangement and legal fees associated with the new loan. The new term loan has no operating covenants as long as the Group net bank debt is less than £10 million. If this threshold is crossed, two conditions apply: a financial covenant, measured half-yearly on a 12 month rolling basis, such that annual EBITDA must exceed 1.25 times annual debt servicing (capital and interest); and a security covenant whereby the loan to value (‘LTV’) ratio of the securitised properties must remain below 75%. If either of these conditions are breached, a remedy period of 6 months is
provided, during which time the EBITDA or LTV condition can be remedied or the net bank debt can be reduced to less than £10 million.

The Group has adopted hedge accounting for the interest rate swap under IAS 39, Financial Instruments, and the gain on change in fair value of the interest rate swaps, net of tax, entered into in 2016 of £0.2 million (2015: £nil) was recognised directly within equity. The settlement of the previous interest rate swap with the release of the previously recognised liability has resulted in a net loss of £75,000 in the Consolidated Income Statement in the year ended 31 December 2016 (2015: gain of £62,000).

The Group has maintained its strong balance sheet with shareholders’ funds at 31 December 2016 of £36.0 million equivalent to 91.5 pence per share in issue (2015: shareholders’ funds of £37.2 million, equivalent to 90.8 pence per share in issue), reflecting the share buy-back, dividends, goodwill impairment and amortisation of acquisition related intangible assets. This includes the Group’s freehold properties in Harston, near Cambridge and in Epsom, Surrey, held on the balance sheet at an aggregate value of £21.9 million (2015: £20.9 million).

The gross cash position at 31 December 2016 was £26.0 million (2015: £14.5 million) and net funds were £11.3 million (2015: £6.7 million). The refinancing resulted in an increase in gross cash of £7.8 million with cash generated from operations of £11.6 million (2015: £5.2 million) including a VAT rebate of £1.5 million relating to the property purchase in 2015 and a beneficial working capital movement from project cash flow timing. Working capital management during the year continued to be a focus with debtor days of 42 days at 31 December 2016 (2015: 47 days).

The Group invested £2.4 million (2015: £7.9 million) in property, plant and equipment which was primarily relating to the development of the property in Epsom, Surrey and the net cash outflow related to the dividend, share buyback programme and share option exercises (including rationalisation programme) was £4.7 million (2015: £0.6 million). Net-funds-plus-freehold-property-per-share in issue, an alternative performance measure (which is calculated by dividing cash and cash equivalents less borrowings plus freehold land and buildings by the number of shares in issue at the balance sheet date) has increased by 26% to 84.5 pence per share (2015: 67.3 pence per share) reflecting the cash generated from operations and the effect of the share buyback programme.

Rebecca Hemsted

Finance Director

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