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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Science Group Plc | LSE:SAG | London | Ordinary Share | GB00B39GTJ17 | 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% | 415.00 | 410.00 | 420.00 | 0.00 | 07:37:52 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Business Consulting Svcs,nec | 98.82M | 10.56M | 0.2322 | 17.87 | 188.65M |
From Apr 2021 to Apr 2024
TIDMSAG
RNS Number : 3553G
Science Group PLC
26 July 2021
Hot Features
Premium
26 July 2021
SCIENCE GROUP PLC
('Science Group', the 'Group' or the 'Company')
INTERIM RESULTS
FOR THE SIX MONTH PERIODED 30 JUNE 2021
Summary
-- Record H1 results, ahead of the Board's upgraded expectations
-- Group revenue growth of 10% to GBP40.7m (H1 2020: GBP36.9m) and 16% on constant currency basis
-- Adjusted* operating profit increased by 47% to GBP7.25m (H1 2020: GBP4.9m)
-- Adjusted* basic EPS growth of 51% to 13.3 pence (2020: 8.8 pence) and increase of 125% compared to H1 2019
-- Review of future strategy for Frontier Smart Technologies completed, including margin enhancing royalty buyout
-- Balance sheet remains strong with gross cash of GBP29.0m and net funds of GBP13.0m (2020: GBP22.0m and GBP4.9m) providing opportunity for further corporate activity
Enquiries:
Tel: +44 (0) 1223
Science Group plc 875 200
Martyn Ratcliffe, Chairman www.sciencegroup.com
Stifel Nicolaus Europe Limited (Nominated
Adviser and Joint Broker)
Tel: +44 (0) 20 7710
Nick Adams, Alex Price 7600
Liberum Capital Limited (Joint Broker)
Tel: +44 (0) 20 3100
Neil Patel, Cameron Duncan 2000
* 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 2021
Science Group is an international, science-led services and product development organisation comprising three operating divisions: R&D Consultancy; Regulatory & Compliance; and Frontier Smart Technologies. The Group has a very strong balance sheet with significant cash resources and freehold property assets.
The Group achieved record results in H1 2021 delivering strong organic growth and a substantial increase in profitability, despite significant currency exchange headwinds. For the six months ended 30 June 2021, Group revenue was GBP40.7 million (H1 2020: GBP36.9 million), an organic growth rate of 10%, equivalent to 16% on a constant currency basis. The Group's adjusted operating profit increased by 47% to GBP7.25 million (H1 2020: GBP4.9 million) and by approx. 120% relative to the same period two years ago (H1 2019: GBP3.3 million). Adjusted profit before tax was GBP6.9 million (H1 2020: GBP4.6 million).
Due to the Group's strong cash generation, self-funding of acquisitions and share buy-back programme, this strong performance has been achieved without shareholder dilution. As a result, adjusted basic earnings per share increased by 51% to 13.3 pence (H1 2020: 8.8 pence) and 125% over the past two years (H1 2019: 5.9 pence).
The Group retains a robust balance sheet with gross cash (excluding client funds) at 30 June 2021 of GBP29.0 million (30 June 2020: GBP22.0 million) and net funds of GBP13.0 million (30 June 2020: GBP4.9 million). The long term debt of GBP15.9 million is secured on the freehold properties. Excluding treasury shares, at 30 June 2021, the Company had 41.2 million shares in issue (30 June 2020: 41.6 million and 30 June 2019: 41.1 million) and held 0.8 million (30 June 2020: 0.4 million) shares in treasury. Total voting rights at 30 June 2021 were 41.1 million.
R&D Consultancy
The R&D Consultancy Division was established through the integration of the Group's Advisory, Applied Science and Product Development business activities. This Division combines leading science and engineering capabilities with expertise in key vertical sectors, namely: Medical; Consumer; Food & Beverage; and Industrial, Chemical & Energy. In the first half of 2021, the Medical Sector continued to be particularly strong, with the other sectors, which were more affected by the pandemic, reflecting their respective market sector environments. Most sectors are now seeing the initial signs of global economic recovery.
For the six months ended 30 June 2021, the R&D Consultancy Division generated services revenue of GBP15.2 million (H1 2020: GBP15.2 million). This is a good performance against a challenging comparator since the first half of 2020 included the one-off UK ventilator initiative. Furthermore, since 50% of the division revenue is invoiced in US Dollars and 7% in Euro in the first half of 2021, this performance has been achieved despite the material currency exchange headwinds and growth in services revenue would have been 4% on a constant currency basis.
For the period ended 30 June 2021, the Group's Services businesses (R&D Consultancy and Regulatory & Compliance) reported an aggregate adjusted operating profit margin of 19% (H1 2020: 16%).
Regulatory & Compliance
The Regulatory & Compliance Division includes the North American and European operations of TSG, acquired in 2017, and the Leatherhead Food Research business, acquired in 2015. The Division reported continued progress in the first half of 2021, including the launch of a new US capability in medical device regulatory advice, further strengthening the synergies with the R&D Consultancy Division.
For the six months ended 30 June 2021, the Regulatory & Compliance Division generated revenue of GBP10.5 million (H1 2020: GBP10.0 million), of which around 23% is of a recurring nature. This organic growth, equivalent to approx. 8% on a constant currency basis, was broadly consistent between the North American and European operations. As noted above, the Group's Services businesses (R&D Consultancy and Regulatory & Compliance) reported an aggregate adjusted operating profit margin of 19% (H1 2020: 16%).
Frontier Smart Technologies ('Frontier')
For the six months ended 30 June 2021, Frontier reported revenue of GBP13.6 million (H1 2020: GBP7.5 million) and an adjusted operating profit margin of 22% (H1 2020: 7%). This exceptionally strong performance reflects the momentum from the second half of 2020, but also a weaker comparator in the first half of 2020 due to the post-acquisition integration and the initial impact of the Covid pandemic. The most significant challenge in the current year continues to be the availability of materials associated with the global semiconductor supply constraints.
On 11 January 2021, having successfully completed the turnaround phase, the Board initiated a review of the strategy for the Frontier business. An update was provided on 19 May informing shareholders that the Board had concluded that the review had identified a number of opportunities to further enhance and develop the business and that Frontier was to be retained within the Group.
As part of the review, an agreement was reached with Imagination Technologies Limited ("Imagination") to buy out future royalties associated with the use of the Imagination licensed technology by Frontier and Group entities in consumer electronics (including DAB radio broadcast) for the sum of $6.0 million. For the year ended 31 December 2020, Frontier paid royalties of $1.0 million to Imagination in relation to licensing the technology. This agreement is effective 1 July 2021 and is anticipated to enhance the Frontier profit contribution in the second half of the year.
One of the growth opportunities identified in the strategy review was developing the SmartRadio market, an integrated product category that combines DAB, FM and Internet radio. In progressing this opportunity, the Board is exploring both internal developments and potential acquisition opportunities.
In summary, the Board considers the Frontier acquisition to have been very successful and anticipate a rapid payback of the cost of acquisition, including transaction and restructuring costs. The strategy review has set out the future direction for this very profitable business.
Freehold Properties
Science Group owns two freehold properties, Harston Mill near Cambridge and Great Burgh in Epsom. The Group's triennial freehold property valuations were undertaken in March 2021. Despite the timing in the midst of the Covid pandemic, there were only minor changes to the valuations with a range between GBP23 million and GBP35 million, the latter being a sale & leaseback model. The properties are held on the balance sheet on a cost basis at GBP21.1 million (30 June 2020: GBP21.3 million).
For the six months ended 30 June 2021, the rental and associated services income of GBP0.3 million (H1 2020: GBP0.6 million) was generated from third-party tenants and GBP1.5 million (H1 2020: GBP1.6 million) from the Group's operating businesses. Intra-group charges are eliminated on Group consolidation but this approach ensures that the reported profit for each operating business includes property rental at market rates.
The Group's debt of GBP15.9 million at 30 June 2021 (GBP17.1 million at 30 June 2020) is primarily secured against the freehold property assets and the associated interest charge for the six month period was GBP0.3 million (H1 2020: GBP0.4 million). Interest on the debt is reported below operating profit in the consolidated results. There are no operating covenants on the debt provided that net bank debt does not exceed GBP10 million.
The deferred transfer of the Harston Mill property from Sagentia Limited to Quadro Harston Limited, formerly Sagentia Technology Advisory Limited, is now well advanced and is awaiting final bank approval before being completed. Resolving this legacy issue provides a more appropriate and flexible corporate structure and better aligns with the debt model related to the freehold properties. A tax cash outflow of GBP2.0 million is anticipated in 2021.
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 2021, Corporate costs were GBP1.4 million (H1 2020: GBP0.9 million) due to one-off items.
The Board continues to explore opportunities to increase the scale of the Group. In recent months, such opportunities have included add-on acquisitions into each of the operating divisions and larger acquisitions which would extend the Group's capabilities. There can be no certainty that any acquisitions will be completed.
Summary
In summary, the performance of Science Group in the first half of 2021 has been well ahead of the Board's expectations, with all divisions performing well. The excellent first half provides a solid platform for the rest of the year.
Frontier is now an integral part of Science Group. Despite the pandemic, the post-acquisition turnaround was very successful and the Board anticipates a rapid payback of the cost of acquisition. The strategy review identified a number of opportunities to further enhance the profitability of this business and areas for future investment.
The effectiveness of the Group's acquisition strategy and its disciplined operating model, funded by strong cash generation, is clearly demonstrated by the substantial increase in adjusted operating profit and earnings per share over the past decade. This is particularly apparent in the past two years as a result of the larger acquisition in 2019. With a strong balance sheet including significant cash resources, the Board continues to explore both add-on acquisitions and larger opportunities to increase the scale of the Group.
Consolidated Income Statement
For the period ended 30 June 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
Note GBP000 GBP000 GBP000
------------ ------------ ------------
Revenue 4 40,655 36,895 73,663
Direct operating expenses (23,555) (22,945) (43,861)
Sales and marketing expenditure (4,388) (4,108) (8,112)
Administrative expenses (6,981) (6,994) (14,561)
Adjusted operating profit 7,250 4,925 10,885
Acquisition integration costs - (127) (10)
Amortisation of acquisition
related intangible assets (1,208) (1,259) (2,507)
Share based payment charge (311) (691) (1,239)
Operating profit 5,731 2,848 7,129
Finance income - 5 9
Finance costs (340) (376) (746)
Profit before income tax 5,391 2,477 6,392
Income tax (charge)/credit
(including R&D tax credit
of GBP124,000 (H1-20 GBP142,000)) 6 (711) (465) 647
------------ ------------ ------------
Profit for the period 4 4,680 2,012 7,039
------------ ------------ ------------
Earnings per share
Earnings per share from continuing
operations (basic) 7 11.4p 4.8p 16.9p
Earnings per share from continuing
operations (diluted) 7 11.1p 4.6p 16.7p
Adjusted earnings per share
from continuing operations
(basic) 7 13.3p 8.8p 19.4p
Adjusted earnings per share
from continuing operations
(diluted) 7 13.0p 8.5p 19.1p
------------ ------------ ------------
Consolidated Statement of Comprehensive Income
For the period ended 30 June 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------ ------------ ------------
Profit for the period attributable
to:
Equity holders of the parent 4,680 2,012 7,039
Profit for the period 4,680 2,012 7,039
------------ ------------ ------------
Other comprehensive income
Items that will or may be reclassified
to profit or loss:
Exchange differences on translating
foreign operations (186) 799 (358)
Fair value gain/(loss) on interest
rate swap 382 (536) (519)
Deferred tax on interest rate
swap (71) 101 96
Other comprehensive income/(expense)
for the period 125 364 (781)
Total comprehensive income for
the period attributable to:
Equity holders of the parent 4,805 2,376 6,258
Total comprehensive income for
the period 4,805 2,376 6,258
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
For the period ended 30 June 2021
Group Issued Share Treasury Merger Translation Cash Retained Total Total
capital premium Stock reserve reserve flow earnings - equity
GBP000 GBP000 GBP000 GBP000 GBP000 hedge GBP000 Share- GBP000
reserve holders'
GBP000 funds
GBP000
Balance at 1 January
2020 421 9,102 (660) 10,343 (679) - 17,742 36,269 36,269
Purchase of own
shares - - (166) - - - - (166) (166)
Share based payment
charge - - - - - - 691 691 691
Deferred tax on
share based payment
transactions - - - - - - (63) (63) (63)
---------------------- -------- -------- -------- -------- ----------- -------- --------- --------- -------
Transactions with
owners - - (166) - - - 628 462 462
---------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Profit for the
period - - - - - - 2,012 2,012 2,012
Other comprehensive
income:
Transfer of cash
flow hedge reserve
from retained
earnings - - - - - (115) 115 - -
Fair value (loss)
on interest rate
swap - - - - - (536) - (536) (536)
Exchange differences
on translating
foreign operations - - - - 799 - - 799 799
Deferred tax on
interest rate
swap - - - - - 101 - 101 101
---------------------- -------- -------- -------- -------- ----------- -------- --------- --------- -------
Total comprehensive
income for the
period - - - - 799 (550) 2,127 2,376 2,376
---------------------- -------- -------- -------- -------- ----------- -------- --------- --------- -------
Balance at 30
June 2020 421 9,102 (826) 10,343 120 (550) 20,497 39,107 39,107
---------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Group Issued Share Treasury Merger Translation Cash flow Retained Total Total
capital premium Stock reserve reserve hedge earnings - equity
GBP000 GBP000 GBP000 GBP000 GBP000 reserve GBP000 Share- GBP000
GBP000 holders'
funds
GBP000
-------
Balance at 1
July 2020 421 9,102 (826) 10,343 120 (550) 20,497 39,107 39,107
Purchase of own
shares (1,506) (1,506) (1,506)
Issue of shares
out of treasury
stock - - 436 - - - (429) 7 7
Dividends paid - - - - - - (830) (830) (830)
Share based payment
charge - - - - - - 548 548 548
Deferred tax
on share based
payment transactions - - - - - - 182 182 182
----------------------- -------- -------- -------- -------- ----------- --------- --------- --------- -------
Total contributions
and distributions - - (1,070) - - - (529) (1,599) (1,599)
----------------------- -------- -------- -------- -------- ----------- --------- --------- --------- -------
Profit for the
period - - - - - - 5,027 5,027 5,027
Other comprehensive
income:
Fair value gain
on interest rate
swap - - - - - 17 - 17 17
Exchange differences
on translating
foreign operations - - - - (1,157) - - (1,157) (1,157)
Deferred tax
on interest rate
swap - - - - - (5) - (5) (5)
----------------------- -------- -------- -------- -------- ----------- --------- --------- --------- -------
Total comprehensive
income for the
period - - - - (1,157) 12 5,027 3,882 3,882
----------------------- -------- -------- -------- -------- ----------- --------- --------- --------- -------
Balance at 31
December 2020 421 9,102 (1,896) 10,343 (1,037) (538) 24,995 41,390 41,390
----------------------- -------- -------- -------- -------- ----------- --------- --------- -------
Group Issued Share Treasury Merger Translation Cashflow Retained Total Total
capital premium Stock reserve reserve hedge earnings - equity
GBP000 GBP000 GBP000 GBP000 GBP000 reserve GBP000 Share- GBP000
GBP000 holders'
funds
GBP000
Balance at 1
January 2021 421 9,102 (1,896) 10,343 (1,037) (538) 24,995 41,390 41,390
Purchase of own
shares - - (238) - - - - (238) (238)
Issue of shares
out of treasury
stock - - 183 - - - (182) 1 1
Dividends paid - - - - - - (1,642) (1,642) (1,642)
Share based payment
charge - - - - - - 311 311 311
Deferred tax
on share based
payment transactions - - - - - - 264 264 264
----------------------- -------- -------- -------- -------- ----------- -------- --------- --------- -------
Transactions
with owners - - (55) - - - (1,249) (1,304) (1,304)
----------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Profit for the
period - - - - - - 4,680 4,680 4,680
Other comprehensive
income:
Fair value gain
on interest rate
swap - - - - - 382 - 382 382
Exchange differences
on translating
foreign operations - - - - (186) - - (186) (186)
Deferred tax
on interest rate
swap - - - - - (71) - (71) (71)
----------------------- -------- -------- -------- -------- ----------- -------- --------- --------- -------
Total comprehensive
income for the
period - - - - (186) 311 4,680 4,805 4,805
----------------------- -------- -------- -------- -------- ----------- -------- --------- --------- -------
Balance at 30
June 2021 421 9,102 (1,951) 10,343 (1,223) (227) 28,426 44,891 44,891
----------------------- -------- -------- -------- -------- ----------- -------- --------- -------
Consolidated Balance Sheet
At 30 June 2021
At 31
At 30 June At 30 June December
2021 2020 2020
Note (Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------- ------------- ----------
Assets
Non-current assets
Acquisition related intangible
assets 9,221 12,512 10,514
Goodwill 13,604 13,998 13,657
Property, plant and equipment 23,542 24,766 23,809
Deferred tax assets 711 51 1,322
47,078 51,327 49,302
------------- ------------- ----------
Current assets
Inventories 1,214 1,781 1,263
Trade and other receivables 10,862 9,450 10,784
Current tax asset 2,793 264 1,627
Cash and cash equivalents -
Client funds 8 2,228 4,121 2,015
Cash and cash equivalents -
Group cash 8 28,962 22,001 27,059
------------- ------------- ----------
46,059 37,617 42,748
------------- ------------- ----------
Total assets 93,137 88,944 92,050
------------- ------------- ----------
Liabilities
Current liabilities
Trade and other payables 25,899 23,862 26,365
Current tax liabilities 231 577 394
Provisions 9 877 669 678
Borrowings 10 1,200 1,200 1,200
Lease liabilities 11 1,191 1,423 1,247
------------- ------------- ----------
29,398 27,731 29,884
------------- ------------- ----------
Non-current liabilities
Provisions 9 679 506 659
Borrowings 10 14,715 15,908 15,307
Lease liabilities 11 499 1,736 1,038
Derivative financial liabilities 252 651 634
Deferred tax liabilities 2,703 3,305 3,138
------------- ------------- ----------
18,848 22,106 20,776
------------- ------------- ----------
Total liabilities 48,246 49,837 50,660
------------- ------------- ----------
Net assets 44,891 39,107 41,390
------------- ------------- ----------
Shareholders' equity
Share capital 421 421 421
Share premium 9,102 9,102 9,102
Treasury stock (1,951) (826) (1,896)
Merger reserve 10,343 10,343 10,343
Translation reserve (1,223) 120 (1,037)
Cash flow hedge reserve (227) (550) (538)
Retained earnings 28,426 20,497 24,995
------------- ------------- ----------
Total equity 44,891 39,107 41,390
------------- ------------- ----------
Consolidated Statement of Cash Flows
For the period ended 30 June 2021
Six months Six months Year
ended
30 June ended ended
2021 30 June 31 December
(Unaudited) 2020 2020
GBP000
(Unaudited) (Audited)
GBP000 GBP000
------------ ------------ ------------
Profit before income tax 5,391 2,477 6,392
Adjustments for:
Amortisation on acquisition related
intangible assets 1,208 1,259 2,507
Depreciation on property, plant
and equipment 364 580 904
Impairment of right of use assets - 540 513
Depreciation of right of use assets 401 548 1,067
Loss on disposal of property, plant
and equipment - - 7
Net interest cost 340 376 737
Share based payment charge 311 691 1,239
Decrease in inventories 49 279 394
(Increase)/decrease in receivables (79) 825 (546)
Increase in payables representing
client funds 213 2,604 498
(Decrease)/increase in payables
excluding balances representing
client funds (670) 366 5,976
Change in provisions 228 510 735
------------ ------------ ------------
Cash generated from operations 7,756 11,055 20,423
Loan interest paid (293) (300) (753)
UK corporation tax paid (1,131) (292) (1,799)
Foreign corporation tax paid (540) (24) (184)
------------ ------------ ------------
Cash flows from operating activities 5,792 10,439 17,687
------------ ------------ ------------
Interest received - 5 9
Purchase of property, plant and
equipment (411) (38) (143)
Cash flow used in investing activities (411) (33) (134)
Issue of shares out of treasury 1 - 7
Repurchase of own shares (238) (166) (1,672)
Dividends paid (1,642) - (830)
Proceeds from bank loans - 1,500 1,500
Repayment of bank loans (600) (600) (1,200)
Payment of lease liabilities (720) (742) (1,339)
Cash flows used in financing activities (3,199) (8) (3,534)
------------ ------------ ------------
Increase in cash and cash equivalents
in the period 2,182 10,398 14,019
Cash and cash equivalents at the
beginning of the period 29,074 15,429 15,429
Exchange (loss)/gain on cash (66) 295 (374)
------------ ------------ ------------
Cash and cash equivalents at the
end of the period 31,190 26,122 29,074
------------ ------------ ------------
Cash and cash equivalents is analysed as follows:
Six months Six months Year ended
ended ended 31
30 Jun 30 June December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ----------
Cash and cash equivalents - Client
funds 2,228 4,121 2,015
Cash and cash equivalents - Group
cash 28,962 22,001 27,059
----------------------------------- ------------ ------------ ----------
31,190 26,122 29,074
----------------------------------- ------------ ------------ ----------
Extracts from notes to the financial statements
1. General information
The financial information for the 6 months ended 30 June 2021 set out in this interim report is unaudited and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information included for the year ended 31 December 2020 has been extracted from the 2020 Financial Statements of Science Group plc. The Group's statutory financial statements for the year ended 31 December 2020 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.
These unaudited interim results have been approved for issue by the Board of Directors on 23 July 2021.
The Group and Company financial statements of Science Group plc for the year ended 31 December 2020 were prepared under IFRS (as adopted by the EU) and have been audited by Grant Thornton UK LLP. Copies of the Financial Statements are available from the Company's registered office: Harston Mill, Harston, Cambridge, CB22 7GG and can be found on the Company's website at www.sciencegroup.com .
Science Group plc (the 'Company') and its subsidiaries (together 'Science Group' or 'Group') is an international, science-led services and product development organisation with a freehold property asset base.
The Company is the ultimate parent company in which results of all the Science Group companies are consolidated.
The Company is incorporated in England and Wales and is listed on the AIM Market of the London Stock Exchange (SAG).
Alternative performance measures
The Group uses alternative (non-Generally Accepted Accounting Practice ('non-GAAP')) performance measures of 'adjusted operating profit', 'adjusted earnings per share' and 'net funds' which are not defined within the International Financial Reporting Standards ('IFRS'). These are explained in the 2020 Financial Statements and the calculations are as follows:
(a) Adjusted operating profit
The calculation of this measure is shown on the Consolidated Income Statement.
(b) Adjusted earnings per share
The calculation of this measure is disclosed in Note 7.
(c) Net funds
This measure is calculated as follows:
In GBP000 unless otherwise At 30 June At 30 June At 31 December stated 2021 2020 2020 --------------------------- ---------- ---------- -------------- Cash and cash equivalents - Group cash 28,962 22,001 27,059 Borrowings (15,915) (17,108) (16,507) --------------------------- ---------- ---------- -------------- Net funds 13,047 4,893 10,552 --------------------------- ---------- ---------- --------------
2. Accounting policies
The principal accounting policies applied in the preparation of these interim financial statements are unchanged from those set out in the financial statements for the year ended 31 December 2020. These policies have been consistently applied to all the periods presented.
2.1 Basis of preparation
These interim consolidated financial statements are for the six months ended 30 June 2021. They have been prepared based on the measurement and recognition principles of International Financial Reporting Standards as adopted by the EU and IFRIC interpretations issued and effective at the time of preparing these statements.
The financial statements have been prepared on the historical cost basis except for certain financial instruments and share based payments which are measured at fair value.
Going concern - the Directors have considered the current cash balance of GBP29.0m (excluding client funds) and assessed forecast future cash flows for the next 12 months. There are no events or conditions which cast significant doubt on the ability of the Group to continue as a going concern. The term loan has no operating covenants while the Group net bank debt is less than GBP10 million. On the basis of the forecast future cash flows, the Directors do not expect the Group net bank debt to exceed GBP10 million at any time during the forecast period. The Directors are satisfied that the Group has adequate cash and financing resources to continue in operational existence for the foreseeable future, being a period of at least a year following the release of these unaudited interim results and therefore continue to adopt the going concern basis of accounting in preparing the interim financial statements.
3. Financial risk management
3.1 Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.
4. Segmental information
The Group is structured into 4 reporting Segments: Services Operating Business, Product Operating Business, Freehold Properties and Corporate. The Services Operating Business comprises two operating divisions: R&D Consultancy and Regulatory & Compliance. Frontier Smart Technologies, the third operating division, is the Product Operating Business. The performance of the Operating Businesses are shown separately from the value generated by the Group's significant freehold property assets and the Corporate costs to provide greater transparency and facilitate shareholder analysis of the component parts of the Group.
Financial information is provided to the chief operating decision makers ('CODMs') in line with this structure. The divisions of R&D Consultancy and Regulatory & Compliance have been aggregated resulting in one Services Operating Business segment because the divisions have similar economic characteristics such as similar long-term average gross margins, trends in sales growth and operating cash flows and are also similar in respect of their nature, delivery and types of customers that the services are provided to. This aggregation does not impact the user's ability to understand the entity's performance, its prospects for future cash flows or the user's decisions about the entity as a whole as it is a fair representation of the performance of each division.
In the Services Operating Business Segment, services revenue includes all consultancy fees and other revenue includes recharged materials, expenses and licence revenue generated directly from the Services Operating Business activities. Product Operating Business revenue includes sales of chips and modules which are incorporated into digital radios. The Freehold Properties segment includes the results for the two freehold properties owned by the Group. Income is derived from third party tenants from the Harston Mill site and from the Services and Product Operating Businesses which have been charged equivalent to market-based rents for their utilised property space and associated costs. Corporate costs include PLC/Group costs.
The segmental analysis is reviewed to operating profit. Other resources are shared across the Group.
Services Operating Business Six months Six months Year ended
ended ended
30 June 2021 30 June 2020 31 December
2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
-------------- ------------- ------------
Services revenue 25,750 25,268 48,198
Other 1,029 3,506 4,077
Revenue 26,779 28,774 52,275
-------------- ------------- ------------
Adjusted operating profit 5,177 4,520 9,068
-------------- ------------- ------------
Amortisation of acquisition
related intangible assets (746) (757) (1,513)
Share based payment charge (278) (569) (946)
Operating profit 4,153 3,194 6,609
-------------- ------------- ------------
Product Operating Business Six months Six months Year ended
ended ended
30 June 2021 30 June 2020 31 December
2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
-------------- ------------- ------------
Product revenue 13,620 7,541 20,540
Revenue 13,620 7,541 20,540
-------------- ------------- ------------
Adjusted operating profit 2,967 495 3,245
-------------- ------------- ------------
Acquisition and integration
costs - (127) (10)
Amortisation of acquisition
related intangible assets (462) (502) (994)
Share based payment charge (98) (77) (185)
Operating profit/(loss) 2,407 (211) 2,056
-------------- ------------- ------------
Freehold Properties Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December
2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
---------------- ---------------- ------------
Inter-company property income 1,522 1,573 3,189
Third party property income 256 580 848
Revenue 1,778 2,153 4,037
---------------- ---------------- ------------
Adjusted operating profit 495 794 954
---------------- ---------------- ------------
Share based payment charge (10) (7) (21)
Operating profit 485 787 933
---------------- ---------------- ------------
Corporate Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December
2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
---------------- ---------------- ------------
Adjusted operating loss (1,389) (884) (2,382)
---------------- ---------------- ------------
Share based payment credit/(charge) 75 (38) (87)
Operating loss (1,314) (922) (2,469)
---------------- ---------------- ------------
Group
Year
Six months ended ended
Six months ended 30 June 31 December
30 June 2021 2020 2020
Total (Unaudited) Total (Unaudited) Total (Audited)
GBP000 GBP000 GBP000
------------------ ------------------ -----------------
Services revenue 25,750 25,268 48,198
Product revenue 13,620 7,541 20,540
Third party property income 256 580 848
Other 1,029 3,506 4,077
Revenue 40,655 36,895 73,663
------------------ ------------------ -----------------
Adjusted operating profit 7,250 4,925 10,885
------------------ ------------------ -----------------
Acquisition and integration
costs - (127) (10)
Amortisation of acquisition
related intangible assets (1,208) (1,259) (2,507)
Share based payment charge (311) (691) (1,239)
Operating profit 5,731 2,848 7,129
------------------ ------------------ -----------------
Finance charges (net) (340) (371) (737)
Profit before income tax 5,391 2,477 6,392
------------------ ------------------ -----------------
Income tax (charge)/credit (711) (465) 647
------------------ ------------------ -----------------
Profit for the period 4,680 2,012 7,039
------------------ ------------------ -----------------
In the Freehold Properties segment, income includes GBP1.5 million (H1 2020: GBP1.6 million) generated from inter-segment recharges. The corresponding cost is included within the Operating Business segments and is eliminated on consolidation.
5. Revenue
The Group's operations and main revenue streams are those described in the last annual financial statements. The Group's revenue is derived from contracts with customers.
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical market and by the currency in which the contract is denominated for the Operating Business. Property revenue is generated in the UK and denominated in GBP.
For the 6 months ended 30 June (Unaudited)
USD EUR GBP Other Total
Currency GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ------- -------- ------- -------
2021 25,209 1,855 13,583 8 40,655
2020 17,316 1,669 17,844 66 36,895
North America Europe (excl UK) UK Asia Other Total
Geographical market GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ---------------- ------- -------- ------- -------
2021 13,469 6,344 5,482 15,196 164 40,655
2020 11,215 6,752 10,475 8,188 265 36,895
6. Income tax
The income tax charge for the period ended 30 June 2021 is charged at the effective tax rate calculated for the period using reasonable estimates and incorporating both current and deferred taxation:
Six months Six months Year ended
ended ended 31 December
30 June 2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------- ------------- ------------
Profit before tax 5,391 2,477 6,392
------------- ------------- ------------
Current taxation (958) (1,114) (1,492)
Current taxation - adjustment in respect of prior years (126) - 240
Deferred taxation 249 507 1,806
Deferred taxation - adjustment in respect of prior years - - (155)
R&D tax credit 124 142 248
------------- ------------- ------------
Tax (charge)/credit (711) (465) 647
------------- ------------- ------------
Effective tax rate 13.2% 18.8% (10.1%)
------------- ------------- ------------
The Group claims Research and Development tax credits under both the R&D Expenditure Credit scheme and the Small or Medium-sized scheme. In the year ended 31 December 2020, the tax credit arose primarily due to the recognition of tax losses within Frontier as a deferred tax asset.
7. Earnings per share
The calculation of earnings per share is based on the following results and number of shares:
Six months Six months Year ended
ended ended 31 December
2020
30 June 2021 30 June 2020 (Audited)
(Unaudited) (Unaudited) GBP000
GBP000 GBP000
------------- ------------- ------------
Profit for the financial
period 4,680 2,012 7,039
------------- ------------- ------------
Weighted average number of
shares:
For basic earnings per share 41,217,451 41,681,034 41,631,118
For fully diluted earnings
per share 42,366,174 43,314,594 42,229,766
------------- ------------- ------------
Earnings per share: Pence Pence Pence
Basic earnings per share 11.4 4.8 16.9
Fully diluted earnings per
share 11.1 4.6 16.7
------------- ------------- ------------
The calculation of adjusted earnings per share is as follows:
Six months Six months Year ended
ended ended 31 December
30 June 2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------- ------------- ------------
Adjusted* profit after tax
for the period 5,500 3,671 8,078
------------- ------------- ------------
Weighted average number of
shares:
For basic earnings per share 41,217,451 41,681,034 41,631,118
For fully diluted earnings
per share 42,366,174 43,314,594 42,229,766
------------- ------------- ------------
Adjusted earnings per share: Pence Pence Pence
Basic earnings per share 13.3 8.8 19.4
Fully diluted earnings per
share 13.0 8.5 19.1
------------- ------------- ------------
*Calculation of adjusted profit after tax:
Six months Six months Year ended
ended ended 31 December
30 June 2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------------ ------------- ------------- ------------
Adjusted operating profit 7,250 4,925 10,885
Finance income - 5 9
Finance costs (340) (376) (746)
------------------------------ ------------- ------------- ------------
Adjusted profit before tax 6,910 4,554 10,148
Tax charge at approx. blended
average tax rate of 20.4%
(H1-20: 19.4%) (1,410) (883) (2,070)
------------------------------ ------------- ------------- ------------
Adjusted profit after tax 5,500 3,671 8,078
------------------------------ ------------- ------------- ------------
8. Cash and cash equivalents
Six months Six months Year ended
ended ended 31
30 June 30 June December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ----------
Cash and cash equivalents - Client
funds 2,228 4,121 2,015
Cash and cash equivalents - Group
cash 28,962 22,001 27,059
----------------------------------- ------------ ------------ ----------
31,190 26,122 29,074
----------------------------------- ------------ ------------ ----------
The Group receives cash from clients for the purpose of payment of registration fees to regulatory bodies and other project pass through costs. Client funds are separated in the day to day operations of the business, are separately identified for reporting purposes and are unrestricted.
9. Provisions
Dilapid Restruct-uring Legal Other Total
-ations GBP000
(Unaudited) GBP000 GBP000 GBP000 GBP000
-------------------------- -------- -------------- ------- ------- -------
At 1 January 2020 562 90 - - 652
Increase in provision 13 - 562 - 575
Utilisation of provision (26) - (59) - (85)
Loss on foreign currency
fluctuations 31 - 2 - 33
-------------------------- -------- -------------- ------- ------- -------
At 30 June 2020 580 90 505 - 1,175
Increase in provision 264 - 97 14 375
Utilisation of provision - (10) (90) - (100)
Provision reversed during
the year (36) - - - (36)
Gain on foreign currency
fluctuations (44) - (33) - (77)
-------------------------- -------- -------------- ------- ------- -------
At 31 December 2020 764 80 479 14 1,337
Increase in provision 20 - 240 6 266
Utilisation of provision (5) (10) (23) - (38)
Gain on foreign currency
fluctuations (6) - (3) - (9)
-------------------------- -------- -------------- ------- ------- -------
At 30 June 2021 773 70 693 20 1,556
-------------------------- -------- -------------- ------- ------- -------
At 30 June At 30 June At 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------ ------------ ------------ --------------
Current liabilities 877 669 678
Non-current liabilities 679 506 659
------------------------ ------------ ------------ --------------
1,556 1,175 1,337
------------------------ ------------ ------------ --------------
Legal provisions represent the best estimate of the future cost of responding to US subpoenas relating to litigation and investigations directed at third parties. The business will seek to recover these costs against the third party but cannot be guaranteed. The restructuring provision relates to the costs associated with the closure of some non-trading Group entities and is anticipated to be utilised during the next 12 months.
10. Borrowings
At 30 June At 30 June At 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
---------------------------- ------------ ------------ --------------
Non-current bank borrowings 14,715 15,908 15,307
Current bank borrowings 1,200 1,200 1,200
---------------------------- ------------ ------------ --------------
15,915 17,108 16,507
---------------------------- ------------ ------------ --------------
The Group has a 10-year fixed term loan and has interest rate swaps in place to fix the interest at an effective rate of 3.5%. The repayment profile of the loan is GBP1.2 million per annum over the term with the remaining balance repaid on expiry of loan in 2026.
11. Lease liabilities
At 30 June At 30 June At 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP000 GBP000 GBP000
------------------------------ ------------ ------------ --------------
Non-current lease liabilities 499 1,736 1,038
Current lease liabilities 1,191 1,423 1,247
------------------------------ ------------ ------------ --------------
1,690 3,159 2,285
------------------------------ ------------ ------------ --------------
Lease liabilities arise on leased properties held by the Group. The leases have remaining periods of between 1 and 4 years from the balance sheet date.
12. Subsequent events
On 15 July 2021, an agreement was reached with Imagination Technologies Limited, effective 1 July 2021, to settle all future royalties associated with the use of the licensed technology in the consumer electronics market (including DAB radio broadcast) for a single payment of $6.0 million (GBP4.3 million).
13. Critical accounting estimates and judgements
In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.
The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements.
- Ends -
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