28 February, 2018

Science Group plc (the ‘Company’) together with its subsidiaries (‘Science Group’ or the ‘Group’) reports its audited results for the year ended 31 December 2017.


Group revenue£40.8m£36.9m
Adjusted operating profit*£6.9m£6.2m
Statutory profit before tax£3.9m£3.0m
Adjusted basic earnings per share*12.8p11.4p
Statutory basic earnings per share7.7p6.8p
Net funds *£6.0m£11.3m
Net-funds-plus-freehold-property-per-share at year end*70.3p84.5p
Proposed / actual dividend per share4.4p4.2p


Science Group plc

Martyn Ratcliffe, Chairman

Rebecca Archer (née Hemsted), Finance Director

Tel: +44 (0) 1223 875 200


Numis Securities Limited

Nominated Adviser: Paul Gillam / Simon Willis

Corporate Broking: Michael Burke

Tel: +44 (0) 20 7260 1000


* Alternative performance measures are provided in order to enhance the shareholders’ ability to evaluate and analyse the underlying financial performance of the Group. Refer to Note 1 for detail and explanation of the measures used.

Note: This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulations.


Chairman's Statement

Science Group plc (the ‘Company’) together with its subsidiaries (‘Science Group’ or the ‘Group’) is an international consultancy providing applied science, product development, technology advisory and regulatory services to a client base in medical, food & beverage and commercial markets. Through organic investment and acquisitions, funded primarily from operating cash flow, the Group continues to develop an integrated offering of science-based services.

In 2017, Science Group again delivered strong operating margins, balancing the inherent volatility associated with a project-based consultancy through the broader service portfolio established via the acquisitions. In addition, the Group maintains a robust balance sheet with cash resources and long-term, low cost debt supported by significant freehold property assets, providing both resilience to economic volatility and opportunity for investment when appropriate.

Financial Summary

For the year ended 31 December 2017, Group revenue, including four months’ contribution from the September acquisition, was £40.8 million (2016: £36.9 million) of which Core Business services revenue was £38.4 million (2016: £34.2 million). North America continues to be a major market for the Group accounting for 43% of Core Business revenue in 2017 (2016: 44%) and Europe (excluding the UK) accounted for 36% (2016: 27%). In 2017, the Group revenue benefitted by £0.7 million relative to foreign exchange rates during the prior year.

Adjusted operating profit for the year ended 31 December 2017 was £6.9 million (2016: £6.2 million). While the Group profit benefitted by approx. £0.6 million due to changes in foreign exchange rates relative to 2016, the Board took the opportunity to invest a proportion of this benefit in the organic development and infrastructure of the business. Statutory profit before tax was £3.9 million (2016: £3.0 million) resulting in basic earnings per share (‘EPS’) of 7.7 pence (2016: 6.8 pence). An alternative performance measure of adjusted basic EPS which applies consistent tax rates was 12.8 pence (2016: 11.4 pence). (Adjusted operating profit and other Alternative Performance Measures used in this report are defined in the Finance Director’s Report and within the notes to the financial statements.)

Following the significant acquisition in September 2017 of Technology Sciences Group (‘TSG’), with the cash consideration of £13.2 million (net cash outflow of £10.4 million) being funded from existing cash resources, the Group’s cash balance at 31 December 2017 was £19.9 million (2016: £26.0 million) with net funds of £6.0 million (2016: £11.3 million) including bank debt of £13.9 million (2016: £14.7 million). (These figures exclude cash held separately on behalf of clients to pay regulatory registration fees.) The Group’s bank debt is tied to interest rate swaps to produce a net fixed rate (effectively 3.5%) to 2026 and is secured on the Group’s freehold property assets which have a combined balance sheet carrying value of £21.7 million (2016: £21.9 million).

The Board is proposing to increase the dividend by 5% to 4.4 pence per share (2016: 4.2 pence), at a total cost of £1.7 million (2016: £1.7 million). Subject to shareholder approval at the Annual General Meeting (‘AGM’), the dividend will be payable on 11 May 2018 to shareholders on the register at the close of business on 20 April 2018. 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 make share purchases in the coming year. Due to the shareholding of the Chairman (34.1% at 26 February 2018), this authority will, as in previous years, be conditional on Takeover Panel approval of a waiver of Rule 9 of the UK Code on Takeovers and Mergers and on the passing of a general authority Panel waiver by shareholders.

Business Overview

The strategy and structure of the Group is evolving around three main axes of Service Offering, Market Sector and Geography. Science Group has four primary Service Offerings: Applied Science; Product Development; Technology Advisory; and Regulatory Services. Organic growth opportunities arise from marketing these services into Vertical Market Sectors (Medical, Food & Beverage and Commercial) and Geographies (North America, Continental Europe, UK and Rest of World).

During the past year, the Board has been increasing the integration of the Group’s service offerings to maximise the synergies and scale benefits from the acquisition strategy. The science teams in the Sagentia and Leatherhead businesses have now been integrated into a single Applied Science function and all the Group’s Technology Advisory businesses, including OTM, have been merged into a single organisation structured into vertical market sectors which align with other parts of the Group. More recently, potential synergies between the European arm of TSG and the Leatherhead Regulatory team are being evaluated, in order to realise the benefits from the scale and international coverage of these resource teams.

In the year to 31 December 2017, the Product Development services, branded Sagentia, delivered a very strong performance in the Medical sector. This momentum has continued into the start of 2018 and reflects the success of the investments made over the past two years. However, the performance in the Commercial sector was disappointing, resulting in a review of this market strategy and the appointment through internal promotion of a new Managing Director to lead the business.

Leatherhead Food Research (‘Leatherhead’) has now become the Group’s primary Food & Beverage market brand across all geographies. As reported at the Interim Results and as expected, revenue from the original Leatherhead activities declined relative to prior year due to the business transition. While this reduction has been slightly greater than originally anticipated in some areas, the market-leading Regulatory Services has performed well; the benefits of the integration and repositioning of the Group’s Applied Science offering are starting to be realised; and the marketing of Advisory services through the Leatherhead channel is gaining momentum.

The integration of TSG, acquired in September, made good progress due to an intensive programme. In the North American operations, essential improvements in processes and operating/financial controls were implemented and the IT systems, along with employee payroll and benefits, were successfully separated from the vendor by year end in line with the integration plan. In Europe, the cost base has been realigned ahead of the REACH registration deadline in May 2018 and a restructuring of the organisation has been undertaken to establish a more integrated European operational model to realise the benefits from the Group’s scale and international presence. While acquisition integration is inevitably disruptive in the short-term, the Board remains confident about the potential of TSG both in terms of the markets TSG serves and also the incremental added-value to the Group’s wider client base. Revenue from TSG in the period from acquisition to 31 December was £4.9 million and acquisition integration costs were £0.8 million in line with the Board’s expectations. As announced at the time of the acquisition, the consideration for TSG includes a contingent deferred component of £0.5 million payable in December 2019, explained further in the notes to the financial statements.

The TSG acquisition significantly expanded the Group’s geographical footprint, particularly in the strategically important North American market which is now serviced by offices in 4 US states and around 50 employees. Most Science Group businesses have a high dependence on the USA and continue to invest in developing this market. As a result, the Board has now appointed a President of Science Group North America, to strengthen the leadership and coordination of the Group’s businesses. The Group’s footprint in Europe was also significantly expanded by TSG and the organisation is evolving to adopt a more integrated operating model. A new Managing Director is being appointed and a new senior role of European Regulatory Operations Director has been created and filled through internal promotion, in order to drive the European regulatory strategy.

As the Group enters 2018, the momentum from 2017 has continued and most business areas are actively recruiting. However there are two particular risk factors that the Board are monitoring. Firstly, the strengthening of Sterling, particularly against the US Dollar, means that if foreign exchange rates remain at the current levels, the Group would probably report a comparative negative effect on Group revenue and profit in the current year relative to 2017. The second factor is wage inflation which is noticeably increasing. This inflation is particularly, but not exclusively, apparent in scientific and technical areas. As a result, the Board is taking appropriate actions to mitigate this effect in terms of productivity, process efficiency, fee rates and margin leakage. In summary, having recognised the changes in these external factors during the latter part of 2017, the Board has been pro-active in addressing these risks and will continue to monitor.

Share Option Plan and Long Term Incentive Programme

Over the past eight years, Science Group plc has been transformed from a small, loss-making Cambridge consultancy into a very profitable international Group with approx. 400 employees and offices in the UK (4 locations), USA (4 States), Germany, Spain, Slovenia, Slovakia and Poland along with presence in Canada, France and Ireland. The Group’s science-based services strategy targets vertical market sectors with a flexible structure and collaborative culture to maximise resource utilisation and operational efficiency.

As a result of the successful execution of the strategy, Science Group has

  • Increased revenue (on a run rate basis) by approx. 150%;
  • Turned a loss-making business into a profitable Group with adjusted operating margins in excess of 15%;
  • Increased NAV per share by approx. 70%; and
  • Increased the share price by over 700%.

With the exception of an equity fund-raising in 2010 to stabilise the original Sagentia business, and minor share issues related to the partial consideration/retention of founder managers of acquired companies, this success has been primarily funded from operating cash flow. Due to the share buy-back programmes, the number of shares in issue (excluding treasury shares) at 31 December 2017 is in fact approx. 5% less than that at the end of 2010.

The Group strategy requires the organisation to be stable, with key management and staff focused on the delivery of the strategy and associated operating plans. Development and retention of ambitious, intelligent, committed managers is essential and provides the primary source of talent to lead the Group’s businesses and for succession planning. Similarly, as a consultancy, the employees of Science Group are the primary operational asset and comprise an outstanding team of international, highly qualified scientists, engineers, consultants and regulatory experts. These skills are in high demand. While remuneration structures currently include profit share, management bonus and share option schemes, the executive and senior business, technical and operational management are regularly targeted by other organisations.

The Board has therefore reflected on how to retain, incentivise and reward the long term contribution of senior management and key staff of the Group. Following a review of possible schemes, the Board has concluded that the simplest and most appropriate model can be derived from amendments to the existing Performance Share Plan (‘PSP’). This process has also resulted in a review of some other aspects of the PSP and the following proposals regarding the PSP will therefore be recommended to shareholders at the Annual General Meeting. In summary:

1.  As set out at the time of the acquisition of TSG, the Board will seek approval for the exceptional grant of up to 400,000 PSP options related to the acquisition to be incremental to the Plan Limit defined in the 2013 Performance Share Plan.

2. With the expansion of the Group, whilst actually decreasing the number of shares in issue, the current annual limit on grants under the PSP of 1% of issued share capital (‘ISC’) may not be sufficient to provide an adequate incentive/retention tool for the enlarged employee base. The Board will therefore propose to increase this limit to the lesser of 1.5% of ISC or 600,000 options.

3. At present, the PSP Scheme Rules provide for a 3 month exercise period after termination of employment. It is proposed that all future grants would expire at termination of employment, removing this grace period except in the exceptional circumstance when the employee has been unable to exercise the share options between resignation and termination due to the company being in a close period throughout that time. In such circumstances, the Remuneration Committee would have discretion but not obligation to defer the lapse date of the options for up to 1 month following the end of the relevant close period but such extension not exceeding 3 months from the employee termination date.

4. An Addendum to the PSP is to be proposed to better align the PSP scheme for USA employees and avoid a potential unintended personal tax liability for the individual prior to exercise of the option. (‘USA Addendum’)

5. An Addendum to introduce a Long Term Enhanced Executive Incentive (‘EEI Addendum’) to enable the Remuneration Committee to grant more substantial share options, every 3 years, to a small number of key senior managers at Executive Team, Managing Director, or equivalent technical/operating level, but excluding any employee holding 1.5% or more of ISC in shares or share options. These individual awards of between 50,000 and 250,000 options would vest after 5 years with performance targets based on share price appreciation. For the proposed 2018 EEI grant, 50% or 100% of the award would vest based on achieving share price targets of £3.30 or £4.40 respectively, with pro-rata vesting between these two figures. The maximum aggregate award amount at a single grant issue under the EEI Addendum would be 1.2 million options. It is proposed that each future grant under the EEI Addendum will also require specific shareholder approval. 

Employee diversity

In 2017, the Science Group employee base continued to evolve and the majority of employees in the Group are now women, including around 40% of senior grades. In any organisation, this would be noteworthy, but in a science-based consultancy this is more significant, although there are differences in the gender profiles between business areas. For comparison, in 2010 it is estimated that women accounted for approx. 10% of the employee base and a lower proportion of senior managers. In addition, during the same period, the ethnic and cultural diversity of Science Group has been transformed into a multi-national organisation supporting our clients in over 30 languages.

There is no evidence to correlate this change in employee profile with the financial success of the Group during the period. But there has been a definite change in the culture of the Group through this transformation, as employee policies and practices have been progressively realigned to reflect the diversity of the organisation. Science Group is today a more dynamic and culturally rich environment where progress is based on merit, contribution and achievement, regardless of background, and that provides a foundation for the future benefit of all stakeholders in the Company.


In aggregate, the financial performance of the Group in 2017 was in line with the Board’s expectations, balancing investment in the future with continued strong operating margins and cash flow. The Group’s strategy of broadening the market and service offerings through acquisition has produced a differentiated, but increasingly integrated, science-based services offering with an enhanced resilience to individual market volatilities.

At the same time, the Board recognise a number of external factors which create a changing dynamic in the market environment. However, by recognising these effects early and taking appropriate action to mitigate the impact, the Board remains confident on the future prospects of the Group.

Finally, it should be noted that the acquisition of TSG, like prior acquisitions, was funded from the Group’s existing cash resources. Even after this significant capital deployment, Science Group plc retains a strong capital structure along with a freehold property asset base which enables access to fixed rate, long term, low cost debt. This foundation enables the Group to continue to evaluate both organic and acquisitive investment opportunities.


Martyn Ratcliffe



Finance Director's Report

In the year ended 31 December 2017, the Group generated revenue of £40.8 million (2016: £36.9 million). Revenue from Core Business activities, that is revenue derived from delivering projects and consultancy services and materials recharged on these projects, increased to £39.7 million (2016: £35.8 million). TSG contributed £4.9 million revenue for the 4 month period ended 31 December 2017. Non-Core revenue, comprising property and associated services income derived from space let in the Harston Mill facility, was £1.1 million (2016: £1.1 million).

Adjusted operating profit increased to £6.9 million (2016: £6.2 million), benefitting from a favourable foreign exchange environment and adjusted operating profit margin remained strong at 16.9% (2016: 16.8%). The Board are anticipating the foreign exchange environment to be less favourable in 2018 and, if the current (February 2018) exchange rates are sustained, the effect would most likely be an adverse variance relative to 2017. (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 £4.4 million (2016: £3.4 million) included one-off costs related to the TSG acquisition of £0.8 million (2016: £0.3 million related to the 2015 acquisitions). Statutory profit before tax was £3.9 million (2016: £3.0 million) and statutory profit after tax was £3.0 million (2016: £2.7 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 Group’s financial performance. In 2017, £14.0 million of the Group Core Business revenue was denominated in US Dollars (2016: £12.4 million) and £4.1 million of the Group Core Business revenue was denominated in Euros (2016: £3.9 million). The exchange rates during the year resulted in a revenue and operating profit benefit, when compared to the rates in effect during 2016, of £0.7 million and £0.6 million respectively. The Board determined to use some of this benefit to accelerate some 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.

The tax charge in the Consolidated Income Statement of £0.9 million (2016: £0.2 million) results in an effective tax rate of 22.2% (2016: 7.4%). The various significant adjustments affecting the prior years’ tax charges have largely ceased with the historic tax losses being fully utilised where possible and the Research and Development tax claim in 2017 of £0.3 million being recognised in the year to which it relates (2016 included an R&D credit of £0.7 million relating to the 2015 and 2016 financial years). While the Group effective tax rate was anticipated to be below the UK nominal corporation tax rate due to the benefit of R&D tax credits, in 2017, a one-off tax cost of £120,000 has been recognised in relation to the Tax Cuts and Jobs Act in the US due to the European arm of TSG being partially owned by the TSG US company.

At 31 December 2017, Science Group had £11.4 million (2016: £11.8 million) of tax losses carried forward of which £0.6 million (2016: £1.4 million) relate to trading losses which are anticipated to be used to offset future trading profits. The remaining tax losses of £10.8 million (2016: £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.

Statutory basic earnings per share (‘EPS’) was 7.7 pence (2016: 6.8 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 Group’s blended corporation tax rate, increased to 12.8 pence (2016: 11.4 pence).

Cash generated from operations excluding Client Registration Funds (‘CRF’) was £7.8 million (2016: £11.6 million). Reported cash generated from operations in accordance with IFRS was £8.6 million (2016: £11.6 million). The difference in these two metrics relates to the fact that TSG, particularly in the USA, processes regulatory registration payments on behalf of clients. These CRF monies are, as far as is practicable, now held separately from the Group cash balances. The alternative performance measures, adjusting for CRF, more accurately reflect the Group’s cash position and cash flow.

The Group’s term loan with Lloyds Bank plc (‘Lloyds’) was renewed in 2016 as a 10 year fixed term loan of £15 million, 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. 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. The 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 related to the bank loan under IAS 39, Financial Instruments, and the gain on change in fair value of the interest rate swaps was £30,000 (2016: £0.2 million) which was recognised directly within equity.

The Group has maintained its strong balance sheet with shareholders’ funds at 31 December 2017 of £37.7 million equivalent to 95.9 pence per share in issue (2016: shareholders’ funds of £36.0 million, equivalent to 91.5 pence per share in issue). 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 £21.7 million (2016: £21.9 million). The Board considers it appropriate to undertake formal property valuations at least every 5 years and will therefore be initiating this process in 2018 for both properties to align the valuation schedules.

The Group cash position (excluding CRF) at 31 December 2017 was £19.9 million (2016: £26.0 million) and net funds were £6.0 million (2016: £11.3 million). CRF of £0.9 million (2016: £nil) were held at the year end. Working capital management during the year continued to be a focus with debtor days of 45 days at 31 December 2017 (2016: 42 days) while combined debtor and WIP days reduced to negative 4 days (2016: negative 13 days) following the inclusion of TSG. (WIP is defined as the net of accrued income and payments received on account).

Net-funds-plus-freehold-property-per-share in issue, an alternative performance measure (refer to the notes to the financial statements for the calculation) was 70.3 pence per share (2016: 84.5 pence per share) reflecting the cash deployed in the acquisition of TSG in September 2017.

At 31 December 2017, the Company had 39,367,128 ordinary shares in issue (2016: 39,328,794) and held an additional 2,694,907 shares in treasury (2016: 2,733,241).

In summary, Science Group has again delivered a performance in line with the Board’s expectations, with strong profitability and excellent cash flow. This value-enhancing model has enabled the Group to expand through acquisition without, to date, requiring equity capital fund raising, whilst establishing and maintaining a very robust balance sheet.


Rebecca Archer

Finance Director

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