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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Exova Grp | LSE:EXO | London | Ordinary Share | GB00BKY7HG11 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 238.50 | 239.00 | 239.75 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMEXO
RNS Number : 2992Q
Exova Group PLC
29 August 2014
2014 HALF YEAR RESULTS ANNOUNCEMENT
29 AUGUST 2014
Exova Group plc ("Exova"), a leading international provider of technically demanding testing and advisory services announces its half year results for the period ended 30 June 2014.
In April 2014 Exova's shares were admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange. As expected, the net primary proceeds of the IPO were applied to reduce debt, with the remaining debt refinanced through a new term loan, resulting in a significantly reduced Group interest charge going forward.
Highlights
-- Underlying organic revenue(1) growth at constant currency of 3.4%, organic revenue growth at constant currency -0.4%
Hot Features
Premium
-- Total revenue growth on a constant currency basis of 4.4%
-- Recovery in Rest of World region
-- Margin improvement of 0.2% before additional listed company costs
-- Two bolt-on acquisitions completed in the half year and one in July
Adjusted results(2) 2014 2013 Reported Organic growth Underlying
GBPm GBPm growth at constant organic growth
currency at constant
currency
---------------------------- ------ ------ --------- --------------- ----------------
Revenue 134.7 138.4 (2.7%) (0.4%) 3.4%
---------------------------- ------ ------ --------- --------------- ----------------
EBITA 21.1 21.8 (3.2%)
---------------------------- ------ ------ ---------
EBITA margin 15.7% 15.8%
---------------------------- ------ ------
Pro-forma diluted earnings
per share(3) 5.4p
---------------------------- ------
Statutory results(4) 2014 2013 Reported
GBPm GBPm growth
---------------------------- -------- --------- ---------
Operating profit 2.1 15.5 (86.5%)
---------------------------- -------- --------- ---------
Loss before tax (38.1) (10.3)
---------------------------- -------- ---------
Diluted earnings per share (38.2p) (269.9p)
---------------------------- -------- ---------
Notes:
1) Underlying organic revenue is organic revenue adjusted for certain non-recurring items associated with a US transportation client within the Product cluster and for the discontinuation of certain food advisory services in the Health Sciences cluster in Europe.
2) Adjusted results are stated before restructuring costs, acquisition and integration costs, IPO related costs, impairment of assets, management fee to private equity investor, interest, taxation and amortisation of intangibles.
3) Pro-forma diluted adjusted earnings per share has been calculated as if the post IPO capital and debt structure had been in place throughout the period.
4) Reflect pre-IPO funding structure and IPO transaction costs.
Ian El-Mokadem, Chief Executive Officer, commented:
"The Group has made satisfactory progress in the first six months of 2014. We have seen good performance in the Europe and Rest of World regions, however we have faced some headwinds in Aerospace and Americas Transportation. Our investments in the provision of more technically demanding services are delivering good growth and our distinctive 'Exova Model' is enabling us to continue to make operational improvements."
"The medium term outlook for the business remains positive and we continue to see opportunities to expand the global reach of our business through new acquisitions and outsourcing agreements."
Contacts
For further information please contact:
Ian Middleton, Powerscourt Group
Tel. Direct +44 (0)20 7549 0998 / +44 (0)7885 508 527
exova@powerscourt-group.com
Ian Power, Investor Relations, Exova Group plc
Telephone: +44 (0) 131 476 7612
Analyst & Investor call
There will be a call for analysts today at 9.00am GMT. A copy of the presentation is available on the website.
Corporate website: www.exova.com
IMS
Exova will issue its interim management statement on 19 November 2014.
Exova
Exova is one of the world's largest dedicated testing groups, trusted by organisations to test and advise on the safety, quality and performance of their products and operations. Headquartered in Edinburgh, UK, Exova operates 118 permanent facilities in 23 countries and employs around 3,800 people throughout Europe, the Americas, the Middle East and Asia/Asia Pacific.
Exova's capabilities help to extend asset life, bring predictability to applications, and shorten the time to market for customers' products, processes and materials. With over 90 years' experience, Exova specialises in testing across a number of key sectors from food and pharmaceuticals to aerospace, transportation, oil and gas, fire, engineering and construction.
HALF YEAR REPORT 2014
BUSINESS REVIEW
The principal activities of the Group are specialist testing and advisory services and the key markets served are Aerospace, Oil & Gas and Industrials, Product, Health Sciences and Middle East.
Exova operates in the Testing, Inspection and Certification ("TIC") market, but focuses primarily on the Testing sector, with Inspection and Certification activities limited to niche market and geographic areas.
The business comprises 118 permanent facilities in 23 countries and employs around 3,800 people.
In April 2014 Exova's shares were admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange(1) .
Overview of performance
2014 Growth at Organic Underlying
GBPm 2013 reported growth organic
GBPm exchange at constant growth
rates exchange at constant
rates exchange
rates
---------------------------- -------- --------- ---------- ------------- -------------
Revenue 134.7 138.4 (2.7%) (0.4%) 3.4%
Adjusted EBITA(2) 21.1 21.8
Margin 15.7% 15.8%
Net financing costs (40.2) (25.8)
Income tax expense (1.9) (0.2)
Diluted adjusted earnings
per share (21.6p) (145.1p)
Pro-forma diluted adjusted
earnings per share(3) 5.4p
Cash conversion(4) 50.9% 33.7%
Acquisition spend (5.2) -
Notes:
1) In conjunction with the IPO, a reorganisation to consolidate the share capital structure and exchange the loan due to the parent undertaking for shares was undertaken. Further details on this are included in note 15 to the Half Year Report.
2) Adjusted items are stated before restructuring costs, acquisition and integration costs, IPO related costs, impairment of assets, management fee to private equity investor, interest, taxation and amortisation of intangibles.
3) Pro-forma diluted adjusted earnings per share has been calculated as if the post IPO capital and debt structure had been in place throughout the period.
4) The cash conversion ratio is calculated by dividing free cash flow by adjusted EBITDA. Free cash flow is defined as adjusted EBITDA less movement in net working capital (excluding effect of the IPO related cost accrual), less capital expenditure net of disposals.
Revenue
2014 Revenue Growth
GBPm (%)
----------------------------------- ------------- -------
Constant currency
Underlying organic 134.5 3.4%
Underlying adjustments - (3.8%)
----------------------------------- ------------- -------
Organic 134.5 (0.4%)
Acquisitions 6.5 4.8%
----------------------------------- ------------- -------
141.0 4.4%
Currency effect (6.3) (7.1%)
----------------------------------- ------------- -------
Reported 134.7 (2.7%)
----------------------------------- ------------- -------
Group organic revenue growth on a constant currency basis was (0.4%) for the period. Adjusting this for certain non-recurring revenue items associated with a US transportation client within the Product cluster and for the discontinuation of certain food advisory services in the Health Sciences cluster in Europe, underlying organic revenue growth was 3.4%.
Adjusted EBITA
Adjusted EBITA was GBP21.1 million (six months to 30 June 2013: GBP21.8 million) after charging GBP0.4 million of on-going additional costs from 16 April 2014 related to the transition of the Group to listed status. The adjusted EBITA margin improved by 0.2% before these costs.
Financing costs 30 June 30 June
----------------------------------
2014 2013
----------------------------------
GBPm GBPm
---------------------------------- -------- --------
Net cash interest payable
Bank loans and senior loan notes 7.1 9.9
Other loans and charges 0.9 0.6
Make whole on senior loan notes 15.5 -
Interest income on short term
deposits (0.1) (0.1)
---------------------------------- -------- --------
23.4 10.4
---------------------------------- -------- --------
Non cash costs
Loan due to parent undertaking 8.1 13.0
Preference share dividend 1.0 1.6
Write off of historical debt 7.5 -
issue costs
Amortisation of debt issue costs 0.2 0.8
---------------------------------- -------- --------
16.8 15.4
---------------------------------- -------- --------
Total financing costs 40.2 25.8
---------------------------------- -------- --------
On-going financing costs have reduced significantly since the refinancing associated with the IPO. However net cash interest payable in the period to 30 June 2014 was higher due to the make whole cost on redemption of the senior loan notes. There will be no non-cash costs relating to the loan to parent undertaking and preference shares going forward.
EPS
Diluted adjusted earnings per share for the six months ended 30 June 2014 was (21.6p) (six months ended 30 June 2013: (145.1p)).
Pro-forma diluted adjusted earnings per share for the six months ended 30 June 2014 was 5.4p. Pro-forma diluted adjusted earnings per share has been calculated as if the post IPO capital and debt structure had been in place throughout the period
Separately disclosed items
Amortisation of intangible assets
Amortisation in the six months to 30 June 2014 was GBP4.0 million (six months to 30 June 2013: GBP4.5 million). The major element of intangible assets is the value of customer relationships.
Restructuring costs
In the six months to 30 June 2014 there were GBP0.8 million (six months to 30 June 2013: GBP1.4 million) of restructuring costs primarily relating to the reorganisation of the Oil & Gas and Industrials business in Europe.
Acquisition and integration costs
In the six months to 30 June 2014 there were GBP0.7 million (six months to 30 June 2013: GBPnil) of acquisition and integration costs primarily relating to the integration of Defiance Testing and Engineering Services Inc and the purchase and integration of Catalyst Environmental Limited.
IPO related costs
In the six months to 30 June 2014 there were GBP13.3 million (six months to 30 June 2013: GBPnil) of costs relating to the IPO. These costs primarily related to commissions, legal, accounting and other advisor fees including unrecoverable VAT in connection with the IPO.
External net debt (excluding debt issue costs)
30 June 31 December
-------------------
2014 2013
-------------------
GBPm GBPm
------------------- -------- ------------
Net cash (29.5) (32.0)
Senior facilities 168.9 95.7
Senior loan notes - 155.0
Finance leases 0.5 0.6
Other - 0.6
Net debt 139.9 219.9
------------------- -------- ------------
Following the IPO, as expected, the net primary proceeds were applied to reduce debt, with remaining debt financed through a new term loan. As a result, net external debt, excluding debt issue costs of GBP3.1 million (2013: GBP7.5 million), has decreased from GBP219.9 million at 31 December 2013 to GBP139.9 million at 30 June 2014
The external net debt to last twelve months adjusted EBITA ratio was 2.3x at the half year (as at 31 December 2013: 3.6x).
Acquisitions
On 6 January 2014 the Group acquired 100% of the share capital of Catalyst Environmental Limited, a leading provider of UKAS and MCERTS accredited stack emission testing in the UK and Ireland, for an initial cash consideration of GBP5.2 million (GBP4.9 million net of cash acquired) with a further payment of GBP1.3m contingent upon future profitability in the year following acquisition. The business, which has been renamed Exova Catalyst, adds six facilities and 58 colleagues to our existing portfolio and will allow us to develop further the specialist stack testing capabilities which we already provide in Americas and Rest of World.
On 1 May 2014 the Group completed the acquisition of a calibration business in Norway from Raufoss Offshore for a cash consideration of GBP0.3 million. Raufoss Offshore provides calibration services to customers in the oil & gas, defence, transportation and engineering sectors throughout Norway. This acquisition adds 7 colleagues and strengthens Exova's position as the leading provider of measurement technology and calibration services in Scandinavia. As part of the deal, Exova Metech will also continue to provide calibration services to divisions within Raufoss Offshore.
On 21 July 2014 the Group acquired 100% of the share capital of Metallurgical Services Private Ltd of Mumbai, one of India's leading metallurgical testing specialists, for a cash consideration of GBP6.3 million with a further payment of GBP2.8 million contingent upon future profitability in the two years following acquisition. The acquisition, which brings 130 colleagues and a new laboratory to our global network, will extend our geographical reach and support the expansion of our services to customers in emerging Asian markets. The company, which will now be known as Exova Metallurgical Services, was founded in 1964 and since then has developed long term relationships with over 3,500 customers in high growth sectors, including oil & gas, industrials, and infrastructure. Demand for specialist testing in the Indian subcontinent is anticipated to grow as a result of significant industrial and infrastructure investment, expansion of global manufacturing operations and increased regulatory requirements.
Presentation of results
Constant currency growth figures are provided in order to remove the impact of currency translation. We calculate growth at constant rates by translating the current and prior period results at the same exchange rates.
Organic growth at constant currency represents revenue growth at constant currency excluding the growth attributable to acquisitions until the acquisition has been owned for a 12 month period and excluding the revenue attributable to disposals in the year of disposal and the preceding year.
Underlying organic revenue is organic revenue adjusted for certain non-recurring items associated with a US transportation client within the Product cluster and for the discontinuation of certain food advisory services in the Health Sciences cluster in Europe.
Adjusted EBITA is defined as operating profit from continuing operations before restructuring costs, acquisition and integration costs, IPO related costs, management fee to private equity investor, amortisation of intangible assets and impairment of property, plant and equipment.
The Group presents, as separately disclosed items on the face of the consolidated statement of comprehensive income, those items of income and expense which, because of their nature, merit separate presentation to allow users to understand better the elements of financial performance in the period to facilitate a comparison with prior periods and a better assessment of trends in financial performance. Details of the separately disclosed items for the six months ended 30 June 2014 and the comparative prior period are given in note 3 to the Interim Financial Statements.
OPERATING PERFORMANCE
Revenue
2014 Growth at Organic Underlying
Six months ended GBPm 2013 reported growth organic
30 June GBPm exchange at constant growth
rates exchange at constant
rates exchange
rates
-------------------- ------ ------- ---------- ------------- -------------
Europe 71.7 69.1 3.8% 2.1% 3.6%
Americas 46.7 52.4 (10.9%) (6.0%) 1.9%
Rest of World 16.3 16.9 (3.6%) 6.7% 6.7%
-------------------- ------ ------- ---------- ------------- -------------
Total Group 134.7 138.4 (2.7%) (0.4%) 3.4%
-------------------- ------ ------- ---------- ------------- -------------
2014 Growth at Organic Underlying
Six months ended GBPm 2013 reported growth organic
30 June GBPm exchange at constant growth
rates exchange at constant
rates exchange
rates
--------------------------- ------ ------- ---------- ------------- -------------
Aerospace 21.7 23.6 (8.1%) (1.7%) (1.7%)
Oil & Gas and Industrials 39.9 42.3 (5.7%) 1.7% 1.7%
Product 37.3 38.1 (2.1%) (6.8%) 4.6%
Health Sciences 23.8 22.6 5.3% 2.2% 7.0%
Middle East 12.0 11.8 1.7% 9.5% 9.5%
--------------------------- ------ ------- ---------- ------------- -------------
Total Group 134.7 138.4 (2.7%) (0.4%) 3.4%
--------------------------- ------ ------- ---------- ------------- -------------
Adjusted EBITA
Six months ended 30 June 2014 2013
--------------------------
GBPm Margin GBPm Margin
-------------------------- ----- ------- ----- -------
Europe 10.3 14.4% 9.8 14.2%
Americas 9.3 19.9% 11.4 21.8%
Rest of World 1.5 9.2% 0.6 3.6%
-------------------------- ----- ------- ----- -------
Total Group 21.1 15.7% 21.8 15.8%
-------------------------- ----- ------- ----- -------
Regional Performance
Europe
Six months ended 30 June 2014 Growth at Underlying
GBPm 2013 reported organic growth
GBPm exchange at constant
rates exchange rates
-------------------------------- ------ ------- ---------- ----------------
Revenue 71.7 69.1 3.8% 3.6%
Adjusted EBITA before on-going
listed company costs 10.5 9.8 7.1%
Margin 14.6% 14.2% 40bps
-------------------------------- ------ ------- ---------- ----------------
In Europe, the Group saw good growth in the Health Sciences and Product clusters. This was underpinned by some important new contract wins and renewals in Health Sciences and continued good progress in our Fire business. In addition, the recently completed acquisitions and outsourcing agreements in these clusters performed somewhat better than originally expected. The overall reported growth in Health Sciences was slightly adversely impacted by our decision to cease the provision of certain food advisory services in 2013.
The European Oil & Gas and Industrials business continued to see good demand for technically demanding services and the new corrosion laboratory that we opened in Dudley, UK in 2013 is performing extremely strongly. Overall growth in this cluster was partially reduced by some softness in demand for more routine testing. In order to serve our customers better, we are restructuring the way we serve the North Sea Oil & Gas sector by ceasing to provide certain services in Norway and expanding our operation in Aberdeen, UK. To this end, we expect to open a new, larger laboratory in Aberdeen before the end of 2014.
The European Aerospace cluster saw subdued demand in the first half of the year due to certain client specific delays and a slower than expected ramp up in production related testing. Notwithstanding this, we continue to see good demand for specialist testing services and our recently opened laboratory in Toulouse, France is performing well.
The margin improvement of 40 bps before allocation of additional listed company costs was due mainly to the recovery in Health Sciences.
Americas
2014 Growth at Underlying
Six months ended 30 June GBPm 2013 reported organic growth
GBPm exchange at constant
rates exchange rates
-------------------------------- ------ ------- ---------- ----------------
Revenue 46.7 52.4 (10.9%) 1.9%
Adjusted EBITA before on-going
listed company costs 9.5 11.4 (16.7%)
Margin 20.3% 21.8% (150) bps
-------------------------------- ------ ------- ---------- ----------------
In the Americas, we saw very strong growth in most of our Oil & Gas and Industrials labs with demand for technically demanding testing remaining very encouraging. Overall growth in this cluster was however partially offset by some poor weather in early 2014 and lower levels of coring activities in Western Canada than we expected. Overall growth in Health Sciences was also encouraging.
In the Americas Product cluster which serves the Transportation sector, we had unusually high levels of sales with one of our clients in 2013. As expected, this level of activity has not repeated in 2014 resulting in a significant reduction in both sales and margin in this cluster in the first six months of 2014. This will continue to be the case in the second half. We are also seeing a general weakness in demand for certain types of testing for the Transportation sector which adversely affected sales in our existing business and in Defiance, the business we acquired in September 2013. However, we have recently experienced an increase in quote activity in the sector.
As in Europe, we saw subdued demand in the Aerospace cluster due to certain client specific delays and a slower than expected ramp up in production related testing.
Rest of World
2014 Growth at Underlying
Six months ended 30 June GBPm 2013 reported organic growth
GBPm exchange at constant
rates exchange rates
-------------------------------- ------ ------- ---------- ----------------
Revenue 16.3 16.9 (3.6%) 6.7%
Adjusted EBITA before on-going
listed company costs 1.5 0.6 150%
Margin 9.2% 3.6% 560 bps
-------------------------------- ------ ------- ---------- ----------------
In the Rest of the World, good growth in the Middle East cluster was supported by infrastructure investment in Dubai and Qatar and generally favourable conditions in Saudi Arabia in the first six months of 2014.
In the Product cluster growth was also encouraging and we continued to see the benefits of the investments we made in our Fire Testing business in Australia in 2013 as well as good demand for Fire Consulting services across the region.
Overall the new management team in the region is making a positive impact. The region saw a margin improvement of 560 bps as a result of good cost control and the impact of the operational gearing which is inherent in the laboratory based testing model.
Outlook
We expect underlying organic growth for the full year 2014 to be broadly in line with the first half. This reflects recent contract wins and renewals and continued strong demand for technically demanding services across many of our regions and clusters as well as on-going production related delays in Aerospace and lower levels of project activity in Americas Transportation.
The medium term outlook remains strong with Exova well positioned to benefit from the demand for technically demanding services and accelerated growth and extension of business reach through acquisitions and outsourcing.
PRINCIPAL RISKS & UNCERTAINTIES
The 2013 Report & Accounts set out the principal risks and uncertainties faced by the business and details the process in place for managing these risks. The Report and Accounts are available from our website www.exova.com. As set out on pages 15 and 16 of the Annual Report, we believe that the principal risks and uncertainties which could impact the Group are as follows:
-- Health and safety -- Markets -- Client relationships -- Dependence on accreditation -- Litigation -- Competitors -- Human resources -- Reputation -- Environment -- Scottish independence -- Foreign exchange risk -- Liquidity risk -- Credit risk -- Financial irregularities -- Acquisition and integration
In addition, the European Union, the United States and others have recently invoked certain sector-wide export controls and sanctions in relation to Russia and we are assessing the impact of these measures. We do not otherwise consider these risk factors to have changed significantly and the principal risks and uncertainties facing the business for the remainder of the year are consistent with those set out in the 2013 Report & Accounts. There may be additional factors which are not currently known to the Group, or which we currently deem immaterial, which may have an adverse effect on our business.
There have been no significant changes to the risk management process in the current financial year.
Responsibility statement
The Directors confirm that, to the best of their knowledge:
-- The condensed set of financial statements has been prepared in accordance with IAS34 "Interim Financial Reporting";
-- The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and
-- The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).
By order of the Board
Ian El-Mokadem Anne Thorburn Chief Executive Officer Chief Financial Officer
29 August 2014
Cautionary statement
This half year report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The report should not be relied upon by any other party or for any other purpose.
The half year report contains certain forward looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
INDEPENDENT REVIEW REPORT TO EXOVA GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and Notes 1 to 18. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Edinburgh
29 August 2014
The maintenance and integrity of the Exova Group plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial information since it was initially presented on the web site.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2014
Six months to 30 June Six months to 30 June
2014 2013
(unaudited) (unaudited)
------------------------------------- ------------------------------------
Before Separately Total Before Separately Total
separately disclosed separately disclosed
disclosed items disclosed items
items (note items (note
3) 3)
Continuing operations Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------ -------------- ----------- -------- ------------ ----------- ---------
Revenue 2 134.7 - 134.7 138.4 - 138.4
----------------------- ------ -------------- ----------- -------- ------------ ----------- ---------
Operating profit 2 20.9 (18.8) 2.1 21.4 (5.9) 15.5
Finance costs 5 (40.3) - (40.3) (25.9) - (25.9)
Finance income 0.1 - 0.1 0.1 - 0.1
----------------------- ------ -------------- ----------- -------- ------------ ----------- ---------
Loss before taxation (19.3) (18.8) (38.1) (4.4) (5.9) (10.3)
Income tax 6 (3.2) 1.3 (1.9) (1.2) 1.0 (0.2)
----------------------- ------ -------------- ----------- -------- ------------ ----------- ---------
Loss for the period (22.5) (17.5) (40.0) (5.6) (4.9) (10.5)
(Loss)/profit attributable to:
Equity holders of the
parent (22.9) (17.5) (40.4) (5.7) (4.9) (10.6)
Non-controlling interests 0.4 - 0.4 0.1 - 0.1
------------------------------------- -------- ----------- -------- ------------ ----------- ---------
Loss for the period (22.5) (17.5) (40.0) (5.6) (4.9) (10.5)
------------------------------------- -------- ----------- -------- ------------ ----------- ---------
Earnings per share*
------------------------------------------------------------ -------- ------------ ----------- ---------
Basic (38.2p) (269.9p)
------------------------------------------------------------ -------- ------------ ----------- ---------
Diluted (38.2p) (269.9p)
------------------------------------------------------------ -------- ------------ ----------- ---------
* Earnings per share on the adjusted results is disclosed in note 7.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2014
Six months Six months
to 30 June to 30 June
2014 2013
(unaudited) (unaudited)
GBPm GBPm
------------- -------------
Loss for the period (40.0) (10.5)
--------------------------------------------------- ------------- -------------
Other comprehensive income to be reclassified in
profit or loss in subsequent periods
Exchange differences on translation of foreign
operations and related borrowings (3.7) 5.5
Net movement on cash flow hedges - (0.1)
--------------------------------------------------- ------------- -------------
Net other comprehensive income to be reclassified
in profit or loss in subsequent periods (3.7) 5.4
--------------------------------------------------- ------------- -------------
Other comprehensive income for the period (3.7) 5.4
--------------------------------------------------- ------------- -------------
Total comprehensive income for the period (43.7) (5.1)
--------------------------------------------------- ------------- -------------
Comprehensive income for the period attributable
to:
Equity holders of the parent (44.1) (5.2)
Non-controlling interests 0.4 0.1
--------------------------------------------------- ------------- -------------
Total comprehensive income for the period (43.7) (5.1)
--------------------------------------------------- ------------- -------------
CONSOLIDATED BALANCE SHEET
As at 30 June 2014 Notes As at As at As at
30 June 30 June 31 December
2014 2013 2013
(Unaudited) (Unaudited) GBPm
GBPm GBPm
-------------------------------- ------ ------------- ------------- -------------
Assets
Non-current assets
Property, plant and equipment 9 59.9 57.2 61.5
Goodwill 10 324.5 327.8 322.6
Intangible assets 15.7 21.2 18.8
Government grants 8.2 10.7 7.9
Deferred tax asset 7.1 6.7 7.0
-------------------------------- ------ ------------- ------------- -------------
415.4 423.6 417.8
-------------------------------- ------ ------------- ------------- -------------
Current assets
Trade and other receivables 64.1 67.9 60.2
Government grants 1.8 1.8 1.8
Cash and short term deposits 29.5 23.4 32.0
-------------------------------- ------ ------------- ------------- -------------
95.4 93.1 94.0
-------------------------------- ------ ------------- ------------- -------------
Total assets 510.8 516.7 511.8
-------------------------------- ------ ------------- ------------- -------------
Equity
Issued share capital 2.5 4.4 4.4
Share premium 109.5 - -
Merger reserve 324.5 - -
Capital contribution reserve 114.9 114.9 114.9
Foreign currency translation
reserve (0.8) 21.5 2.9
Hedging reserve - (0.1) -
Retained earnings (283.2) (223.5) (244.1)
-------------------------------- ------ ------------- ------------- -------------
Equity attributable to equity
holders of the parent 267.4 (82.8) (121.9)
Non-controlling interests 3.3 3.7 2.9
-------------------------------- ------ ------------- ------------- -------------
Total Equity 270.7 (79.1) (119.0)
-------------------------------- ------ ------------- ------------- -------------
Non-current liabilities
Bank and other borrowings 12 165.8 80.0 93.5
Senior loan notes 12 - 149.1 149.7
Loan due to parent undertaking 12 - 256.2 270.1
Preference shares 12 - 34.2 34.2
Preference share dividend
payable 12 - 7.3 8.9
Finance leases 12 0.3 0.4 0.4
Retirement benefit obligations 1.7 2.5 1.9
Provisions 7.3 6.5 7.6
Deferred tax liability 9.8 10.4 11.0
Other liabilities 4.5 4.9 4.6
-------------------------------- ------ ------------- ------------- -------------
189.4 551.5 581.9
-------------------------------- ------ ------------- ------------- -------------
Current liabilities
Bank and other borrowings 12 - 0.1 0.6
Finance leases 12 0.2 0.2 0.2
Trade and other payables 46.1 40.3 43.4
Current tax liabilities 2.2 0.8 1.7
Provisions 2.2 2.9 3.0
-------------------------------- ------ ------------- ------------- -------------
50.7 44.3 48.9
-------------------------------- ------ ------------- ------------- -------------
Total liabilities 240.1 595.8 630.8
-------------------------------- ------ ------------- ------------- -------------
Total equity and liabilities 510.8 516.7 511.8
-------------------------------- ------ ------------- ------------- -------------
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months
to 30 June to 30
2014
For the six months ended 30 June (unaudited) June 2013
2014
(unaudited)
Notes GBPm GBPm GBPm GBPm
--------------------------------------------- ------ ------- -------- ------- -------
Loss before tax (38.1) (10.3)
Depreciation of property, plant and
equipment 6.0 6.7
Amortisation of intangibles 4.0 4.5
Equity-settled transactions 8 1.0 -
Government grants (0.7) (0.9)
Net financing costs 40.2 25.8
--------------------------------------------- ------ ------- -------- ------- -------
Operating cash flows before movements
in working capital 12.4 25.8
Increase in trade and other receivables
and prepayments (5.6) (12.2)
Decrease in provisions (0.3) -
Increase in trade and other payables 3.8 1.4
--------------------------------------------- ------ ------- -------- ------- -------
Movements in working capital (2.1) (10.8)
--------------------------------------------- ------ ------- -------- ------- -------
Cash generated from operations 10.3 15.0
Interest paid (25.8) (10.6)
Tax paid (2.8) (1.8)
--------------------------------------------- ------ ------- -------- ------- -------
Net cash flows from operating activities (18.3) 2.6
--------------------------------------------- ------ ------- -------- ------- -------
Investing activities
Purchase of property, plant and equipment (5.2) (7.8)
Acquisition of subsidiary undertakings 11 (5.2) -
Purchase of intangible assets - (0.3)
Interest received 0.1 0.1
--------------------------------------------- ------ ------- -------- ------- -------
Net cash used in investing activities (10.3) (8.0)
--------------------------------------------- ------ ------- -------- ------- -------
Net cash flows before financing (28.6) (5.4)
Financing activities
Repayment of bank borrowings (94.2) (1.5)
Bond redemption (155.0) -
Repayment of other borrowings (0.3) -
Repayment of loans to minority shareholders (0.3) -
Payment of finance leases liabilities (0.1) -
New bank borrowings 170.0 -
IPO proceeds 110.0 -
Debt issue costs paid (3.2) -
Dividends paid to non-controlling
interests - (1.0)
--------------------------------------------- ------ ------- -------- ------- -------
Net cash flows used in financing activities 26.9 (2.5)
--------------------------------------------- ------ ------- -------- ------- -------
Net decrease in cash and cash equivalents (1.7) (7.9)
Cash and cash equivalents at beginning
of period 32.0 30.5
Effects of exchange rate changes (0.8) 0.8
--------------------------------------------- ------ ------- -------- ------- -------
Cash and cash equivalents at end of
period 29.5 23.4
--------------------------------------------- ------ ------- -------- ------- -------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2014
Attributable to equity holders of the
parent
Share Share Merger Capital Foreign Hedging Retained Total Non-controlling Total
capital premium reserve contribution currency reserve earnings shareholders' interests equity
reserve translation equity
reserve
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----- -------- -------- -------- ------------- ------------ -------- ---------- -------------- ---------------- --------
At 1 January
2014 4.4 - - 114.9 2.9 - (244.1) (121.9) 2.9 (119.0)
Comprehensive
income for
the period
Loss for the
period - - - - - - (40.4) (40.4) 0.4 (40.0)
Other
comprehensive
income - - - - (3.7) - - (3.7) - (3.7)
---------------- ----- -------- -------- -------- ------------- ------------ -------- ---------- -------------- ---------------- --------
Total
comprehensive
income for
the period - - - - (3.7) - (40.4) (44.1) 0.4 (43.7)
Equity-settled
transactions 8 - - - - - - 1.0 1.0 - 1.0
Capitalisation
of shareholder
loan 15 0.7 - 277.5 - - - - 278.2 - 278.2
Conversion
of preference
share capital 15 34.2 - 9.9 - - - - 44.1 - 44.1
Redemption
of deferred
share capital 15 (37.3) - 37.1 - - - 0.3 0.1 - 0.1
Issue of share
capital 15 0.5 109.5 - - - - - 110.0 - 110.0
Balance at
30 June 2014
(unaudited) 2.5 109.5 324.5 114.9 (0.8) - (283.2) 267.4 3.3 270.7
---------------- ----- -------- -------- -------- ------------- ------------ -------- ---------- -------------- ---------------- --------
For the six months ended 30 June 2013
Attributable to equity holders of the parent
-------------------------------------------------------------------------------------------
Share Share Merger Capital Foreign Hedging Retained Total Non-controlling Total
capital premium reserve contribution currency reserve earnings shareholders' interests equity
reserve translation equity
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- -------- -------- ------------- ------------ -------- --------- -------------- ---------------- -----------
At 1 January
2013 4.4 - - 114.9 16.0 - (212.9) (77.6) 3.6 (74.0)
Comprehensive
income
for the period
Loss for the
period - - - - - - (10.6) (10.6) 0.1 (10.5)
Other
comprehensive
income - - - - 5.5 (0.1) - 5.4 - 5.5
--------------- ---------- -------- -------- ------------- ------------ -------- --------- -------------- ---------------- -----------
Total
comprehensive
income for
the
period - - - - 5.5 (0.1) (10.6) (5.2) 0.1 (5.1)
--------------- ---------- -------- -------- ------------- ------------ -------- --------- -------------- ---------------- -----------
Balance at 30
June
2013
(unaudited) 4.4 - - 114.9 21.5 (0.1) (223.5) (82.8) 3.7 (79.1)
--------------- ---------- -------- -------- ------------- ------------ -------- --------- -------------- ---------------- -----------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
1. BASIS OF PREPARATION AND CHANGES TO THE GROUP'S ACCOUNTING POLICIES
Exova Group plc (formerly known as Exova Group Limited, formerly Exova 2014 Ltd, and hereinafter, "Exova" or the "Company") was incorporated on 21 February 2014 under the UK Companies Act. The Condensed Consolidated Financial Statements of the company as at and for the six months ended 30 June 2014 comprise the company and its subsidiaries (together referred to as the "Group"). These condensed consolidated financial statements have been prepared on the going concern basis as the directors, having considered available relevant information, have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future.
The condensed consolidated financial statements of Exova for the six months ended 30 June 2014 were authorised for issue in accordance with a resolution of the directors on 29 August 2014.
Transaction between Exova Group plc and Exova 2014 Limited (formerly Exova Group Limited)
As part of the Group reorganisation prior to the Initial Public Offering of shares, the Company acquired the entire share capital of Exova 2014 Limited (formerly Exova Group Ltd) on 14 April 2014. As there were no changes to the shareholder group at the time of this transaction and Exova Group plc is not a business as defined under IFRS 3 'Business Combinations', this transaction did not classify as a business combination. The consolidated financial statements of Exova Group plc have therefore been prepared as a continuation of the existing Group using the pooling of interests method. The results for the subsidiaries transferred are included in the income statement from the effective date of acquisition. The net assets incorporated at the date of acquisition reflect the book value of the subsidiaries included in the Exova Group plc financial statements, the highest entity that has common control for which consolidated IFRS financial statements are prepared.
Statement of compliance
The interim condensed consolidated financial statements for the six months ended 30 June 2014 have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed and adopted for use in the European Union and the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority. They do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2013.
The comparative figures for the financial year ended 31 December 2013 are not the Group's statutory accounts for that financial year, but are derived from the 2013 Exova Group Limited audited statutory accounts. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2013, except as described below.
There are no standards or interpretations effective for the first time in the current financial period with a significant impact on the Company's consolidated results or financial position.
Equity-settled transactions
Equity settled share-based incentives are provided to employees under the Group's Long Term Incentive Plan ('LTIP'), the Share Option Plan (SOP) and occasional one-off conditional awards made to senior executives. The LTIP and SOP are discretionary executive share plans.
The fair value of the LTIP and SOP awards at the date of the grant is calculated using appropriate option pricing models and the cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to failure to satisfy service or performance conditions.
2. OPERATING PROFIT
Before Separately Total Before Separately Total
separately disclosed separately disclosed
disclosed items disclosed items
items items
------------ ----------- ------- ------------ ----------- -------
2014 2014 2014 2013 2013 2013
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------ ----------- ------- ------------ ----------- -------
Revenue 134.7 - 134.7 138.4 - 138.4
Cost of sales (86.3) - (86.3) (87.9) - (87.9)
---------------------------- ------------ ----------- ------- ------------ ----------- -------
Gross profit 48.4 - 48.4 50.5 - 50.5
Selling and administrative
expenses (29.0) (18.8) (47.8) (30.7) (5.9) (36.6)
Other income 1.5 - 1.5 1.6 - 1.6
Operating profit 20.9 (18.8) 2.1 21.4 (5.9) 15.5
---------------------------- ------------ ----------- ------- ------------ ----------- -------
3. SEPARATELY DISCLOSED ITEMS
2014 2013
GBPm GBPm
----------------------------------- ------ ------
Amortisation of intangible assets 4.0 4.5
Acquisition and integration costs 0.7 -
Restructuring costs 0.8 1.4
IPO related costs 13.3 -
----------------------------------- ------ ------
18.8 5.9
Income tax (1.3) (1.0)
----------------------------------- ------ ------
17.5 4.9
----------------------------------- ------ ------
Further information is given in the Business Review under separately disclosed items on page 3.
4. SEGMENTAL REPORTING
For management purposes, the Group is organised into three operating divisions: Europe, Americas and Rest of World. These three divisions are organised and managed separately based on the geographies served and each is treated as an operating segment and a reportable segment in accordance with IFRS 8. The operating and reportable segments are determined based on reports reviewed by the Directors which are used to make operational decisions.
Management monitors the operating results of its business units separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on EBITA before restructuring costs, acquisition and integration costs, IPO related costs and the management fee to private equity investor and is measured consistently in the financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.
Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties and inter-segment revenues are eliminated on consolidation.
For the six months Europe Americas Rest Eliminations Unallocated Total
ended 30 June 2014 of World
2014 2014 2014 2014 2014 2014
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------- --------- ---------- ------------- ------------ -------
Operations
Revenue- external
customers 71.7 46.7 16.3 - - 134.7
Revenue- inter business
segments 0.3 0.2 0.6 (1.1) - -
-------------------------- ------- --------- ---------- ------------- ------------ -------
Total segment revenue 72.0 46.9 16.9 (1.1) - 134.7
-------------------------- ------- --------- ---------- ------------- ------------ -------
Adjusted EBITDA 13.6 11.3 2.2 - - 27.1
Depreciation (3.3) (2.0) (0.7) - - (6.0)
Adjusted EBITA 10.3 9.3 1.5 - - 21.1
Management fee to
private equity investor (0.1) (0.1) - - - (0.2)
Amortisation of
intangible assets (2.1) (1.1) (0.8) - - (4.0)
Acquisition and
integration costs (0.4) (0.3) - - (0.7)
Restructuring costs (0.7) (0.1) - - - (0.8)
IPO related costs - - - - (13.3) (13.3)
-------------------------- ------- --------- ---------- ------------- ------------ -------
Segment operating
profit/(loss) 7.0 7.7 0.7 - (13.3) 2.1
Net finance costs - - - - (40.2) (40.2)
-------------------------- ------- --------- ---------- ------------- ------------ -------
Profit/(loss) before
taxation 7.0 7.7 0.7 (53.5) (38.1)
Income tax - - - - (1.9) (1.9)
-------------------------- ------- --------- ---------- ------------- ------------ -------
Profit/(loss) for
the period 7.0 7.7 0.7 - (55.4) (40.0)
-------------------------- ------- --------- ---------- ------------- ------------ -------
For the six months Europe Americas Rest Eliminations Unallocated Total
ended 30 June 2013 of World
2013 2013 2013 2013 2013 2013
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------- --------- ---------- ------------- ------------ -------
Operations 69.1 52.4 16.9 - - 138.4
Revenue- external
customers
Revenue- inter business
segments 0.2 0.4 0.2 (0.8) - -
-------------------------- ------- --------- ---------- ------------- ------------ -------
Total segment revenue 69.3 52.8 17.1 (0.8) - 138.4
-------------------------- ------- --------- ---------- ------------- ------------ -------
Adjusted EBITDA 12.4 14.5 1.6 - - 28.5
Depreciation (2.6) (3.1) (1.0) - - (6.7)
Adjusted EBITA 9.8 11.4 0.6 - - 21.8
Management fee to
private equity investor (0.2) (0.2) - - - (0.4)
Amortisation of
intangible assets (2.2) (1.4) (0.9) - - (4.5)
Acquisition and - - - - - -
integration costs
Restructuring costs (0.9) - (0.5) - - (1.4)
IPO related costs - - - - - -
-------------------------- ------- --------- ---------- ------------- ------------ -------
Segment operating
profit/(loss) 6.5 9.8 (0.8) - - 15.5
Net finance costs - - - - (25.8) (25.8)
-------------------------- ------- --------- ---------- ------------- ------------ -------
Profit/(loss) before
taxation 6.5 9.8 (0.8) - (25.8) (10.3)
Income tax - - - - (0.2) (0.2)
-------------------------- ------- --------- ---------- ------------- ------------ -------
Profit/(loss) for
the period 6.5 9.8 (0.8) - (26.0) (10.5)
-------------------------- ------- --------- ---------- ------------- ------------ -------
5. FINANCE COSTS
Six months Six months
to 30 to 30
June 2014 June
2013
GBPm GBPm
------------------------------------------ ----------- -----------
Finance costs:
Bank loans and senior loan notes 7.1 9.9
Make whole on senior loan notes 15.5 -
Loan due to parent undertaking 8.1 13.0
Other loans and charges 0.9 0.6
Preference share dividend 1.0 1.6
Write off of historical debt issue costs 7.5 -
Amortisation of debt issue costs 0.2 0.8
------------------------------------------ ----------- -----------
Total finance costs 40.3 25.9
------------------------------------------ ----------- -----------
Finance income:
Interest income on short term deposits (0.1) (0.1)
------------------------------------------ ----------- -----------
Total finance income (0.1) (0.1)
------------------------------------------ ----------- -----------
Net finance costs 40.2 25.8
------------------------------------------ ----------- -----------
6. INCOME TAX
The major components of income tax expense in the interim consolidated income statement are:
Six months Six months
to 30 to 30
June 2014 June
2013
GBPm GBPm
------------------------------------------------- ----------- ---------------
Income taxes
Current income tax expense
- -
* UK
* Overseas 3.2 1.1
Prior year adjustment - non UK - (0.1)
Deferred income tax credit - net of originating
and reversing temporary differences (1.3) (0.8)
------------------------------------------------- ----------- ---------------
Total income tax charge 1.9 0.2
------------------------------------------------- ----------- ---------------
There is no tax recorded in other comprehensive income.
The income tax expense is recognised based on management's best estimate of the average annual income tax rates on a region by region basis expected for the full financial year applied to the pre-tax income of the interim period per region.
The Group's consolidated effective tax rate as a function of the loss before tax for the six months ended 30 June 2014 is (5.0%) (six months ended 30 June 2013: (1.0%)).
Differences between the estimated effective rate of (5.0%) and the weighted average notional statutory UK rate of 21.5% include, but are not limited to, the mix of profits, the effect of tax rates in foreign jurisdictions, non-deductible expenses, foreign exchange movements and the effect of unrecognised tax losses.
7. EARNINGS PER SHARE
Six months Six months
to 30 to 30
June June 2013
2014
Based on the profit for the period (GBPm):
---------------------------------------------------- ----------- -----------
Loss attributable to equity holders of the Company (40.4) (10.6)
Separately disclosed items 17.5 4.9
---------------------------------------------------- ----------- -----------
Adjusted earnings after tax (22.9) (5.7)
---------------------------------------------------- ----------- -----------
Number of shares (millions):
Basic weighted average number of ordinary shares 105.9 3.9
Potentially dilutive share awards - -
---------------------------------------------------- ----------- -----------
Diluted weighted average number of shares 105.9 3.9
---------------------------------------------------- ----------- -----------
Basic earnings per share (38.2p) (269.9p)
Share awards - -
---------------------------------------------------- ----------- -----------
Diluted earnings per share (38.2p) (269.9p)
---------------------------------------------------- ----------- -----------
Basic adjusted earnings per share (21.6p) (145.1p)
Share awards - -
---------------------------------------------------- ----------- -----------
Diluted adjusted earnings per share (21.6p) (145.1p)
---------------------------------------------------- ----------- -----------
The dilutive effect of potential ordinary shares through equity settled transactions have been considered as anti-dilutive given they would decrease the loss per share from continuing operations and have therefore been excluded from the calculation of diluted EPS.
8. EQUITY-SETTLED TRANSACTIONS
Long Term Incentive Plan
The company established a long term incentive plan (LTIP) at the time of the IPO. The LTIP is a discretionary executive share plan and the Board may, within certain limits and subject to any applicable performance conditions, grant to eligible employees (i) nil cost options over shares and/or (ii) conditional awards and/or (iii) shares which are subject to restrictions and the risk of forfeiture. LTIP awards may be granted to such eligible employees with a maximum total market value in any financial year of up to 200% of the relevant individual's annual base salary. At the time of the IPO LTIP awards in respect of 1,240,749 shares were made to two executive directors and 17 senior employees of the Group. The performance conditions for awards are based on earnings per share and comparative total shareholder return. Except in certain circumstances, LTIP awards lapse upon the participant ceasing to be an employee of the Group. In addition, an LTIP award comprising a nil cost option was granted to the Chief Financial Officer to recognise her contribution to the business in the lead up to the IPO. The option was granted under a schedule to the LTIP and fell outside the individual limit set above. The option was granted over shares having a total market value (using the IPO price) of GBP820,000. The option was fully vested at grant and immediately available to exercise.
Share Option Plan
The company established a share option plan (SOP) at the time of the IPO. The SOP is a discretionary executive option plan and the Board may, within certain limits, grant to eligible employees awards in the form of options over shares. The Board may grant SOP options with a maximum total market value in any financial year of up to 150% of the relevant individual's annual base salary. A SOP option will normally vest and become exercisable on the third anniversary of the date of grant to the extent that any applicable performance conditions have been satisfied. Except in certain circumstances, SOP awards lapse upon the participant ceasing to be an employee of the Group. At the time of the IPO, grants of SOP awards in respect of 823,055 shares were made to several members of key management with an exercise price of GBP2.20 per share. No performance conditions attach to the awards made at the time of the IPO.
During the six months ended 30 June 2014 the Group recognised an expense of GBP1.2m in respect of the share awards made in 2014 of which GBP1.0m is equity settled (six months ended 30 June 2013: GBPnil).
9. PROPERTY, PLANT AND EQUIPMENT
Acquisitions and disposals
During the six months ended 30 June 2014, the Group capitalised assets with a cost of GBP5.9m including GBP0.6m from business combinations (note 11) (six months to 30 June 2013: GBP8.9m; year ended 31 December 2013: GBP23.3m including GBP4.8m from business combinations).
Assets with a carrying value of GBPnil were disposed of during the six months to 30 June 2014 (six months to 30 June 2013: GBPnil; year ended 31 December 2013: GBPnil).
The negative impact of foreign exchange on the total carrying amount of property, plant and equipment in the six months ended 30 June 2014 was GBP1.5m (six months to 30 June 2013: GBP1.0m positive impact; year ended 31 December 2013: GBP2.0m negative impact).
As at As at As at 31
The net book value of property, plant 30 30 December
and equipment was as follows: June June 2013
2014 2013
Land and buildings 16.4 16.7 17.5
Plant and equipment 43.5 40.5 44.0
----------------------------------------- ------ ------ ----------------
Total property, plant and equipment 59.9 57.2 61.5
----------------------------------------- ------ ------ ----------------
Property, plant and equipment included GBP0.5m (six months to 30 June 2013: GBP0.6m; year ended 31 December 2013: GBP0.6m) of assets held under finance leases.
Capital commitments
As at 30 June 2014 the Group has commitments to purchase plant, property and equipment for GBP2.7m (six months to 30 June 2013: GBP4.5m).
10. GOODWILL
The negative impact of foreign exchange on the total carrying amount of goodwill in the six months ended 30 June 2014 was GBP2.7m (six months to 30 June 2013: GBP6.9m positive impact; year ended 31 December 2013: GBP9.7m negative impact).
Impairment reviews
Goodwill was tested for impairment at 31 December 2013 and will be tested annually thereafter and when circumstances indicate the carrying value may be impaired. The Group's impairment test is performed by comparing the carrying amount of each cash-generating unit ("CGU"), including goodwill, with the recoverable amount. The recoverable amounts are determined from value-in-use calculations. The key assumptions for the value-in-use calculations for the CGUs are those regarding operating margin, discount rates and revenue growth rates. These assumptions were discussed further in the financial statements for the period ended 31 December 2013.
The Group monitors its performance against these key assumptions, amongst other factors, when reviewing for indicators of impairment. At 31 December 2013 there was significant headroom above carrying value for each CGU with the exception of Rest of World. There has been no significant adverse change in the financial performance of the Rest of World region which would indicate a formal impairment review should be carried out at this stage.
11. ACQUISITIONS
As at 30 June 2013 the Group had made no acquisitions.
On 6 January 2014 the Group acquired 100% of the share capital of Catalyst Environmental Limited, a leading provider of UKAS and MCERTS accredited stack emission testing in the UK and Ireland for an initial cash consideration of GBP5.2m (GBP4.9m net of cash acquired) with a further payment of up to GBP1.3m contingent upon future profitability in the year following acquisition. We have assessed the value of contingent consideration payable on the date of acquisition, including a sensitivity analysis which did not indicate a significant change in the fair measurement, and have recognised the full amount in the consolidated statements based on the profitability target being met in full. The business, which has been renamed Exova Catalyst, adds six facilities and 58 colleagues to our existing portfolio and will allow us to develop further the specialist stack testing capabilities which we already provided in Americas and Rest of World.
On 1 May 2014 the Group completed the acquisition of a calibration business in Norway from Raufoss Offshore for a cash consideration of GBP0.3 million. Raufoss Offshore provides calibration services to customers in the oil & gas, defence, transportation and engineering sectors throughout Norway. This acquisition adds 7 colleagues and strengthens Exova's position as the leading provider of measurement technology and calibration services in Scandinavia. As part of the deal, Exova Metech will also continue to provide calibration services to divisions within Raufoss Offshore.
The estimated fair value of the contingent consideration at the date of acquisition is based on an assessment of the probability of possible outcomes discounted to net present value. Subsequent changes to the fair value of the contingent consideration are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs.
The Group revenue and loss for the six months ended 30 June 2014 would have been GBP134.9m and GBP40.0m respectively if the acquisitions were assumed to have been made on 1 January 2014.
The provisional fair values
are set out in the following
table:
Catalyst Raufoss Offshore Total
GBPm GBPm GBPm
------------------------------------- --------- ----------------- ------
Property, plant and equipment 0.5 0.1 0.6
Goodwill 4.3 0.3 4.6
Intangible assets 1.5 - 1.5
Trade and other receivables 0.9 - 0.9
Trade and other payables (0.6) (0.1) (0.7)
Current tax liabilities (0.2) - (0.2)
Other long term provisions (0.2) - (0.2)
------------------------------------- --------- ----------------- ------
Net assets acquired 6.2 0.3 6.5
------------------------------------- --------- ----------------- ------
Cash outflow (net of cash acquired) 4.9 0.3 5.2
Contingent consideration 1.3 - 1.3
------------------------------------- --------- ----------------- ------
Net cash outflow on acquisition 6.2 0.3 6.5
------------------------------------- --------- ----------------- ------
As at 30 June 2014 the initial accounting for acquisitions in 2013 and 2014 is not yet complete and the fair value amount disclosed in the 2013 year end accounts and the table above may be subject to further adjustments following completion of the fair value assessment.
The goodwill of GBP4.6m comprises the fair value of the expected synergies arising from the acquisition and the value of the human capital that does not meet the criteria for recognition as a separable intangible asset.
It is not expected that there will be a significant difference between the trade and other receivables disclosed in the table above and the amounts collected.
12. BANK AND OTHER BORROWINGS
Total 30 Total 30 Total 31
June 2014 June 2013 December
2013
GBPm GBPm GBPm
------------------------------------ ----------- ----------- ----------
Senior bank loans 168.9 80.4 95.7
Senior loan notes - 155.0 155.0
Loans due to minority shareholders - 0.6 0.3
Debt issue costs- senior bank
loans (3.1) (0.9) (2.2)
Debt issue costs- senior loan
notes - (5.9) (5.3)
Finance leases 0.5 0.6 0.6
Other external borrowings - - 0.3
Loan due to parent undertaking - 256.2 270.1
Preference shares - 34.2 34.2
Preference share dividend - 7.3 8.9
------------------------------------ ----------- ----------- ----------
Total 166.3 527.5 557.6
------------------------------------ ----------- ----------- ----------
Less than one year 0.2 0.3 0.8
More than one year 166.1 527.,2 556.8
------------------------------------ ----------- ----------- ----------
Total 166.3 527.5 557.6
------------------------------------ ----------- ----------- ----------
Following the IPO, as expected, the net primary proceeds were applied to reduce debt, with remaining debt refinanced through a new term loan. The loan due to parent undertaking, preference shares and preference share dividend were converted into share capital and share premium during the IPO process.
13. RELATED PARTY TRANSACTIONS
During the period the Company has entered into certain transactions with related parties. Details of these transactions are as follows:
Six months Six months
to 30 to 30
June 2014 June
2013
(a) Income statement GBPm GBPm
----------------------------------------------------- ----------- -------------
Management fee to private equity investor 0.2 0.4
Termination of consultancy agreement fee to private 1.0 -
equity investor
Preference share dividend 1.0 1.6
Finance costs on loan from parent undertaking
(note 6) 8.1 13.0
----------------------------------------------------- ----------- -------------
As at As at
30 June 31 December
2014 2013
(b) Period end balances GBPm GBPm
----------------------------------------------------- ----------- -------------
Termination of consultancy agreement fee to private 1.0 -
equity investor
Loans due to parent undertaking (note 12) - 270.1
Loan due to minority interest (note 12) - 0.3
Preference shares (note 12) - 34.2
Preference shares dividends payable (note 12) - 8.9
(c) Transactions with equity interests of less
than 50%
----------------------------------------------------- ----------- -------------
Loans to minority interests of GBP0.3m were repaid in the six months ended 30 June 2014.
Exova (Qatar) LLC approved a dividend of QAR 6.0m (GBP1.0m) to its equity JV partner in 2012 and paid this in 2013.
14. CONTINGENT LIABILITIES
The Group had provided a total of GBP0.7m in guarantees and performance bonds as at 30 June 2014 (2013: GBP0.7m). The equivalent amount of cash has been deposited to facilitate the issuance of the individual guarantees and is recognised under other receivables.
15. SHARE CAPITAL
Ordinary shares 30 June 30 June
2014 2013
GBPm GBPm
---------------------------------------- -------- --------
Authorised
10,000,000 A ordinary shares of GBP1 - 10.0
10,000,000 B ordinary share of GBP1 - 10.0
250,000,000 ordinary shares of GBP0.01 2.5 -
---------------------------------------- -------- --------
Allotted, issued and fully paid
3,695,311 A ordinary shares of GBP1 - 3.7
232,650 B ordinary shares of GBP1 - 0.2
250,000,000 ordinary shares of GBP0.01 2.5 -
---------------------------------------- -------- --------
At 30 June 2.5 3.9
---------------------------------------- -------- --------
Preferred Ordinary shares 30 June 30 June
2014 2013
GBPm GBPm
----------------------------------- --------- --------
Authorised
5,000,000 ordinary shares of GBP1 - 5.0
Allotted, issued and fully paid
500,000 ordinary shares of GBP1 - 0.5
At 30 June - 0.5
----------------------------------- --------- --------
Deferred Ordinary shares 30 June 30 June
2014 2013
GBPm GBPm
----------------------------------- --------- --------
Authorised
5,000,000 ordinary shares of GBP1 - 5.0
Allotted, issued and fully paid
Nil - -
At 30 June - -
----------------------------------- --------- --------
Transactions in Exova 2014 Limited (formerly Exova Group Ltd):
Exova 2014 Limited reorganised its share capital in advance of the addition of the new Group parent company, Exova Group plc, in preparation of the IPO.
Exova 2014 Limited amended its articles of association to create a new class of GBP0.10 ordinary shares and to amend the rights of the existing deferred shares such that the deferred shares were entitled to a fixed dividend right and a nominal value of GBP0.10 per share.
On 13 April 2014 Exova 2014 Limited made the following share reorganisations:
-- converted and subdivided each A ordinary share and each B ordinary share into one GBP0.10 ordinary share and nine GBP0.10 deferred shares.
-- the parent entity at that time, Exova Group B.V., contributed the outstanding loan and accrued interest due to it from Exova Topco Limited in exchange for new GBP0.10 ordinary shares in Exova 2014 Limited. This increased issued share capital by GBP0.7m and share premium by GBP277.5m.
-- all preference shares, including accrued dividend, held in Exova 2014 Limited were subdivided and redesignated as GBP0.10 ordinary shares and GBP0.10 deferred shares in such a ratio as to give effect to the ratchet mechanism under the company's articles.
-- a proportion of the GBP0.10 ordinary and GBP1.00 preferred ordinary shares were converted into GBP0.10 deferred shares.
-- Exova 2014 Limited bought back all GBP0.10 deferred shares for a total consideration of GBP0.01 and these shares were immediately cancelled.
-- Exova 2014 Limited subdivided all GBP0.10 ordinary shares and GBP1.00 preferred ordinary shares in such a manner as to allow the share for share exchange to take place. At this point Exova 2014 Limited had 197,395,045 ordinary shares and 2,604,955 preferred ordinary shares in issue.
Transactions in Exova Group plc:
On 21 February 2014 the company was incorporated with one ordinary share of GBP1 to the initial shareholder Exova Group B.V.. The company subsequently reorganised its share capital and each one allotted Ordinary share of GBP1 was divided into 100 Ordinary shares of GBP0.01 each.
On 3 April 2014 the company issued 50,000 redeemable preference shares at GBP1 each to Exova Group B.V.. On 13 April 2014 the company redeemed all of the redeemable preference shares from Exova Group B.V. at GBP1 each.
On 15 April 2014 the company issued 197,394,945 GBP0.01 ordinary shares and 2,604,955 GBP0.10 preferred ordinary shares as consideration for the purchase of the entire share capital of Exova 2014 Limited, formerly Exova Group Limited.
On 15 April 2014 the company subsequently reorganised its share capital. Each one preferred ordinary share was subdivided and redesignated as one ordinary share of GBP0.01 each and nine deferred shares of GBP0.01 each.
On 15 April 2014 the company reduced its share capital by purchasing and immediately cancelling all the deferred shares in issue resulting in share capital of GBP2,000,000 and distributable reserves of GBP0.00.
On 16 April 2014 the company issued 50,000,000 ordinary shares of GBP0.01 each for consideration of GBP110 million.
Called up issued and fully paid Ordinary shares of 1 pence each
Number GBPm
Shares in issue following capital reorganisation
above at 15 April 2014 200,000,000 2.0
New shares issued on listing 50,000,000 0.5
-------------------------------------------------- ---------------------- ---------------
At 30 June 2014 250,000,000 2.5
-------------------------------------------------- ---------------------- ---------------
Merger reserve
As a result of the capitalisation of the loan to parent undertaking, the conversion of the preference shares and accrued dividend, and the redemption of deferred share capital noted above, a merger reserve was created as detailed in the Consolidated Statement of Changes in Equity.
16. FINANCIAL INSTRUMENTS
As at 30 June As at 31 December
2014 2013
Fair value Carrying Fair Carrying Fair value
measurement amount value amount
Level GBPm GBPm GBPm GBPm
-------------------------------- ------------- --------- ------- --------- -----------
Amortised costs
Non-derivative financial
assets
Trade receivables 1 (47.1) (47.1) (45.5) (45.5)
Cash and short term deposits 1 (29.5) (29.5) (32.0) (32.0)
Non-derivative financial
liabilities
Trade payables 1 7.0 7.0 8.7 8.7
Senior bank loans 2 165.8 165.8 93.5 93.5
Senior loan notes 2 - - 149.7 160.7
Loan due to parent undertaking 2 - - 270.1 270.1
Preference shares 2 - - 34.2 34.2
Preference shares dividend
payable 2 - - 8.9 8.9
Finance leases 2 0.5 0.5 0.6 0.6
Other short term borrowings 2 - - 0.3 0.3
Loan due to non-controlling
interests 2 - - 0.3 0.3
Contingent consideration 3 1.3 1.3 - -
-------------------------------- ------------- --------- ------- --------- -----------
98.0 98.0 488.8 499.8
-------------------------------- ------------- --------- ------- --------- -----------
As at 31 December 2013 the Group held all financial instruments at level 2 fair value measurement for the purposes of disclosing their fair value, with the exception of trade receivables, cash and trade payables. As at 30 June 2014 there was one level 3 fair value measurement which related to contingent consideration. See note 11 for further information.
Between 31 December 2013 and 30 June 2014 there were no transfers between level 1 and level 2 fair value measurements and no transfers into or out of level 3 fair value measurements.
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The fair value of cash and short-term deposits, trade and other receivables and trade and other payables approximates to their carrying amounts due to the short-term maturities of these instruments. The fair value of borrowings and obligations under finance leases have been estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risks and remaining maturities.
The carrying amount of financial instruments of the Group, i.e. trade receivables and payables that are included in the above table, is a reasonable approximation of fair value. The fair value of the senior loan notes has been calculated on the basis of a quoted price at the yearend in an inactive market. The fair value of all other items has been calculated by discounting the expected future cash flows at prevailing interest rates.
17. POST BALANCE SHEET EVENT
On 21 July 2014 the Group acquired 100% of the share capital of Metallurgical Services Private Ltd of Mumbai, one of India's leading metallurgical testing specialists for a cash consideration of GBP6.3m with a further payment of GBP2.8m contingent upon future profitability in the two years following acquisition. The move, which brings 130 colleagues and a new laboratory to our global network, will extend our geographical reach and support the expansion of our services to customers in emerging Asian markets. The company, which will now be known as Exova Metallurgical Services, was founded in 1964 and since then has developed long term relationships with over 3,500 customers in high growth sectors, including oil & gas, industrials, and infrastructure. Demand for specialist testing in the Indian subcontinent is anticipated to grow as a result of significant industrial and infrastructure investment, expansion of global manufacturing operations and increased regulatory requirements.
No further disclosures have been provided under IFRS 3 in respect of business combinations after the balance sheet date on the basis that the initial accounting is not yet complete.
18. ULTIMATE PARENT
The immediate parent undertaking and controlling party is TABASCO BV (formerly Exova Group BV). Clayton, Dubilier & Rice LLC, the manager of Clayton, Dubilier & Rice Fund VII LP, is considered to be the ultimate controlling party. The parent company of the smallest Group of which the company is a member, and for which Group financial statements are prepared, is Exova Group plc.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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