INTERIM RESULTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2022

Summary

• Record H1 results, slightly ahead of the Board’s expectations
• Revenue growth of 10% to £44.8m (H1 2021: £40.7m)
• Adjusted* operating profit increased by 22% to £8.8m (H1 2021: £7.3m)
• Adjusted* basic EPS growth of 10% to 14.6 pence (H1 2021: 13.3 pence)
• The Group continues to actively manage its strategic investment in TP Group
• Balance sheet remains very strong with Group cash of £38.6m and net funds of £23.9m (H1 2021: £29.0m and £13.0m)
• On track for another record year in 2022, despite the deteriorating economic outlook, with Science Group benefitting from sector diversification and a strong US Dollar

* 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.

Interim Results 2022

Science Group is an international science, technology and consulting organisation. The Group comprises three operating divisions: R&D Consultancy; Regulatory & Compliance; and Frontier Smart Technologies, together with freehold property assets and a strategic shareholding in TP Group plc.

The Group reports record H1 results for the first half of 2022, delivering organic growth in both revenue and adjusted operating profit. For the six months ended 30 June 2022, Group revenue increased by 10% to £44.8 million (H1 2021: £40.7 million), or 7% on a constant currency basis. Adjusted operating profit increased by 22% to £8.8 million (H1 2021: £7.3 million) and adjusted profit before tax was £8.5 million (H1 2021: £6.9 million). Adjusted basic earnings per share increased by 10% to 14.6 pence (H1 2021: 13.3 pence).

The Group retains a robust balance sheet with Group cash (excluding client funds) at 30 June 2022 of £38.6 million (30 June 2021: £29.0 million) and net funds of £23.9 million (30 June 2021: £13.0 million). The long term debt of £14.7 million is secured on the Group’s freehold properties. In addition to the term loan, in December 2021 the Group agreed a £25 million Revolving Credit Facility with its bank, which to date has not been drawn. 

Excluding treasury shares, at 30 June 2022, the Company had 45.5 million shares in issue (30 June 2021: 41.2 million) and held 0.7 million (30 June 2021: 0.8 million) shares in treasury. Total voting rights at 30 June 2022 were 45.4 million. During the period, an aggregate of 0.2 million shares were purchased for treasury at an average price of 407 pence per share.

R&D Consultancy Division

The R&D Consultancy Division combines leading science and engineering capabilities with market and commercial expertise. It provides advisory and product development services to key vertical sectors, namely: Medical; Consumer; Food & Beverage; and Industrial.

In the first half of 2022, the Medical Sector continued to perform well while the Industrial and Food & Beverage sectors both experienced enhanced growth relative to the same period in the prior half year. As anticipated, the Consumer sector continues to be most affected by the economic uncertainty.

Overall, for the six months ended 30 June 2022, the R&D Consultancy Division generated services revenue of £17.2 million (H1 2021: £15.2 million), a growth rate of 13%. Operating margin in the Division continues to be excellent, benefitting from the strong US Dollar.

In order to provide greater forward visibility and enable the R&D Consultancy Division to benefit from the currency environment, a currency hedging instrument to cap the rate at US$1.3:£1 has been taken out in relation to the anticipated US Dollar cash flow derived from this Division through to the end of 2023. There is no obligation to sell at this rate and the instrument is designed to protect against a strengthening of Sterling or weakening of the US Dollar.

Regulatory & Compliance Division

The Regulatory & Compliance Division includes the European and North American operations of TSG and the Leatherhead Food Research business. The Division provides scientific and regulatory advice to organisations in the Chemicals, Consumer, Food & Beverage and Medical sectors.

In the first half of 2022, TSG (Europe) performed well, benefiting from a significant contract win with a major agrochemicals provider early in the year. The TSG (America) performance is broadly consistent with same period in the prior half year while Leatherhead has had a slower start to the year reflecting the economic uncertainty. In aggregate, for the six months ended 30 June 2022, the Regulatory & Compliance Division generated revenue of £10.7 million (H1 2021: £10.5 million).

Frontier Smart Technologies Division (‘Frontier’)

Frontier is the leading provider of DAB/DAB+ radio modules and semiconductors to the consumer electronics market. For the six months ended 30 June 2022, Frontier reported revenue of £15.3 million (H1 2021: £13.6 million) and an adjusted operating profit margin of 22% (H1 2021: 22%). These results include Magic Systech which was acquired in November 2021.

As consumer demand slows in line with the global economic downturn, the supply chain within the semiconductor and components market is anticipated to start to normalise. Similarly freight costs, which became a significant element of unit cost, are returning to prior year levels. The Division is monitoring demand closely, maintaining its strong market share but anticipating the market to adjust to the economic environment.

Corporate

The Corporate function is responsible for Group and PLC matters, together with the strategic development of Science Group.  In the period to 30 June 2022, Corporate costs were £1.5 million (H1 2021: £1.4 million), returning to more normal levels after the H2 2021 corporate activity. The Board continues to explore opportunities to increase the scale of the Group but there can be no certainty that any acquisitions will be completed.

Science Group is the largest shareholder in TP Group plc (‘TPG’) owning 28.0% of the issued share capital. It is actively managing its investment, with two seats on the TPG board including Chairman. The Group has not included within its H1 2022 Income Statement a share of TPG’s results as it is not considered to be material for this half year period. As announced by TPG, the restructuring of the business is progressing with disposals of non-core business activities. Within the core operations, TPG Services continues to perform satisfactorily but TPG Maritime has been impacted by onerous legacy contracts which have resulted in substantial provisions having had to be taken (including prior year adjustments) and contracts now being renegotiated.

As with all companies, Science Group is experiencing the effects of inflation, both in staff costs and materials. To date the costs have been broadly offset by the Group benefitting from the relative strength of the US Dollar relative to Sterling and also through cost increases being passed onto customers. The Board also recognises the pressures on staff in relation to energy and fuel costs, which may or may not be a temporary inflationary factor. In order to assist employees at all levels of the Company, but particularly more junior grades, a temporary payment is being made to employees to assist during this challenging period. The Group is also aware of its position in society, particularly within local communities and has therefore maintained its support through charitable donations to foodbanks serving areas close to the Group's offices.

Summary and Outlook

In summary, the first half of 2022 has continued the Group’s track record of resilient performance, delivering results slightly ahead of the Board’s expectations. The Group is experiencing increases in materials, energy and staff costs but has to date managed to offset the effects.

The macroeconomic environment is unpredictable with global inflationary pressures and destabilising geo-political events, now combined with an uncertain UK political direction and economic policy. Economic performance in some of the Group’s markets is anticipated to deteriorate in the months ahead as consumer spending slows. While the Group is not immune to macroeconomic factors, the revenue streams are well diversified with little reliance on individual customers or sectors and therefore is well positioned with solid foundations. As a result, the Board remains cautiously optimistic for the remainder of the year.

The Group also retains a very strong balance sheet, including significant cash resources and undrawn debt facilities. This robust financial strength enables the Group to explore opportunities to increase the scale of Science Group, if appropriate.