2018 Preliminary Results - The Science Group€¦ · 8 Corporation Tax Effective corporation tax...
Transcript of 2018 Preliminary Results - The Science Group€¦ · 8 Corporation Tax Effective corporation tax...
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2018 Preliminary Results
Martyn RatcliffeChairman
Dan EdwardsGroup Managing Director
To be read in conjunction with the audited preliminary results
announcement released on 5th March 2019
In addition to IFRS measures, alternative performance measures are used
in this presentation. Refer to the Notes to the financial statements within
the preliminary results announcement for detail and explanation.
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Group revenue of £48.7m (2017: £40.8m)
• Record revenue for the Group, benefitting from TSG acquisition
• 83% of Core Business revenue from international markets (2017: 83%)
• 35% of Core Business revenue invoiced in US Dollars (2017: 35%) and 12% in Euros (2017: 10%)
Adjusted operating profit of £7.7m (2017: £6.9m)
• Adjusted EBITDA of £8.5m (2017: £7.6m)
• FX negative impact of £0.1m
Statutory PBT of £4.9m (2017: £3.9m)
• Release of TSG deferred consideration of £0.5m
• Offset by increase in amortisation on acquisition intangible assets of £0.6m
• Acquisition integration costs of £0.1m (2017: £0.8m)
Adjusted basic EPS increased by 15% to 14.7 pence (2017: 12.8 pence)
• Basic EPS of 10.7 pence (2017: 7.7 pence)
Cash balance of £21.5m (2017: £19.9m) and Net Funds of £8.8m (2017: £6.0m)
• Excludes cash held on behalf of clients for regulatory registration of £1.5m (and Feb loan extension)
Proposed dividend increase to 4.6 pence per share (2017: 4.4 pence per share)
Financial Summary
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Group Revenue Breakdown
0
5
10
15
20
25
30
35
40
45
50
2010 2011 2012 2013 2014 2015 2016 2017 2018
Reve
nu
e (
£m
)
Non Core: Property income
Other core business revenue
Core Business: Services revenue
• 2018 includes full year for TSG (2017 includes only 4 months)
• Group revenue headwind of £0.2m from adverse forex rates compared to 2017
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• 83% (2017: 83%) of Core Business revenue is derived from outside UK
• 35% of Core Business revenue invoiced in USD (2017: 35%) and 12% in EUR (2017: 10%)
• Employee Distribution - UK: 83%; America: 12% and Continental Europe: 5%
Revenue by Currency/Geography
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016 2017 2018
Other
GBP
EUR
USD
Core Business Revenue by Currency Core Business Revenue by Geography
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016 2017 2018
Rest of World
UK
Europe
North America
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1.00
1.10
1.20
1.30
1.40
1.50
1.60
Dec
-16
Jan
-17
Fe
b-1
7
Ma
r-17
Ap
r-17
Ma
y-1
7
Ju
n-1
7
Ju
l-1
7
Au
g-1
7
Se
p-1
7
Oc
t-1
7
No
v-1
7
Dec
-17
Jan
-18
Fe
b-1
8
Ma
r-18
Ap
r-18
Ma
y-1
8
Ju
n-1
8
Ju
l-1
8
Au
g-1
8
Se
p-1
8
Oc
t-1
8
No
v-1
8
Dec
-18
Jan
-19
Fe
b-1
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30 June
2018
• Foreign exchange headwind on Group revenue in 2018 compared to 2017 of £0.2 million
• Average USD rate of 1.38 in H1-18 and 1.30 in H2-18 (H1-17: 1.26 and H2-17: 1.32)
• Average Euro rate of 1.14 in H1-18 and 1.13 in H2-18 (H1-17: 1.17 and H2-17: 1.12)
Currency Exchange RatesE
xc
ha
ng
e r
ate
GBP/USD
GBP/EUR
30 June
2017
31 December
201731 December
2018
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• Adjusted operating profit increased to £7.7m (2017: £6.9m)
• FX negative impact relative to 2017 of £0.1m
• Margin for Group excluding TSG increased from 2017
• Margin of TSG increased but lower than other businesses resulting in aggregate decline
Adjusted Operating Profit
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
0
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2
3
4
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6
7
8
9
2010 2011 2012 2013 2014 2015 2016 2017 2018
Adjustedoperating profit
Adjustedoperating profitmargin
Ad
jus
ted
op
era
tin
g p
rofi
t (£
m)
Ad
jus
ted
op
era
tin
g p
rofi
t m
arg
in (
%)
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Adjusted Earnings per Share
• Adjusted EPS increased by 15% to 14.7p (2017 : 12.8p)
• Issued Share Capital at 31/12/2018 was 4% less than 31/12/2010
• Proposed dividend increase to 4.6p per share (2017 : 4.4p)
-
2p
4p
6p
8p
10p
12p
14p
16p
18p
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2
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2010 2011 2012 2013 2014 2015 2016 2017 2018
Adjustedoperating profit
Adjusted EPS(basic)
Adjusted EPS(diluted)
Ad
jus
ted
EP
S (
pe
nc
e)
Ad
jus
ted
op
era
tin
g p
rofi
t (£
m)
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Corporation Tax
Effective corporation tax rate in 2018 is a tax charge of 11.9% (2017: 22.2%)
Tax charge in P&L of £0.6m in 2018 (2017: £0.9m)
• R&D tax credit of £0.4m relating to 2018
• 2018 tax charge reduced by a tax adjustment of £0.2m relating to 2017, of which R&D adjustments
are £0.1m
• One-off tax cost in US of £78,000 due to Tax Cuts and Jobs Act (2017: £120,000)
Tax cash flow
• Payments on account started as historic Sagentia losses fully utilised; £1.0m tax paid on UK profits
Carried forward tax losses at 31 December 2018 of £10.8m (2017: £11.4m)
• Includes £0.4m of trading tax losses (2017: £0.6m) which should partially reduce tax cash
payments
• Other unrecognised tax losses of £10.4 m (2017: £10.8m). Will only be recognised if probable that
losses can be utilised
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Business Overview
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Commercial
Markets & Services
Medical Food & Beverage
Applied science
Regulatory
Technology advisory
Product development
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Market Sector Revenue Profile
Medical
Commercial
Food &
Beverage
Market Sector Overview
• Medical: Flat revenue as some large projects
successfully completed in H1.
• Commercial: Satisfactory performance across
the Group with recovery in Product
Development during the year.
• Food & Beverage: Strong performance in
Advisory and Regulatory services. Breadth of
services providing differentiator.
Full year 2018
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Services Revenue Profile
Applied Science & Product
Development
Advisory
Regulatory
Other
Services Developments
• Applied Science
• Consolidated Sagentia and Leatherhead
science teams into single function
• Repositioned Food & Beverage science
offerings
• Product Development
• Medical performance impacted by completion
of large projects
• Recovery in Commercial sector
• Advisory
• Consolidated all advisory activities into single
organization
• Strong revenue growth in 2018
• Regulatory
• Integration and restructuring of TSG complete
• Increasing integration of Regulatory services
across Europe
• Food & Beverage regulatory organisation
integrated with TSG Full year 2018
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2018 Case Studies (1)
• Helping develop innovative
diagnostics platform
• Driving higher-volume, lower-
cost diagnostics
• Mapping regulatory
requirements in major markets
• Supporting their globalisation
strategy
Beverage manufacturer Medical diagnostics company
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2018 Case Studies (2)
• Helped develop intelligent
precision-dispensing
• Reducing environment impact
of chemical use in farming
• Helped develop spa-like,
home-use, hand-held skincare
device
• Part of personalisation
strategy
Beauty and personal care client Agri-tech leader
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Strategic Review
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Strategic Review
Harston Mill recommended to be extracted from operating company
• Tax charge and cash outflow of approximately £2m
• Some recovery over 3-4 years by utilising historic investment company tax losses carried forward
Increase bank debt secured on freehold properties
• Low cost capital at relatively low risk due to minimal covenants
• Action completed in February : £4.75m increase
Separate operating business performance from property & corporate
• Increased transparency to assist valuation analysis
Broader range of acquisition/Investment opportunities to be considered
• May or may not have synergies with current business operations
Organisation now evolving to support the strategy
• Appointment of Dan Edwards to PLC Board as Group Managing Director
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Science Group plc
Operating Businesses
Property Companies
Strategic Review - Organisation
• Arms-length leases at market rates between Operating Businesses and Property
companies. Estimated charge is £1.3m to £1.6m
• This charge is broadly offset by the removal of the Corporate costs from the Operating
Businesses
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Appendix
Annual Review of Capital Sources & Allocation
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Capital Sources 2010-2018
• Debt funding in 2010, 2013 and 2016
• Debt secured against Harston and Epsom freehold properties
• Limited operating covenants due to asset security
• 10 year term loan fixed at 3.5% using interest rate swap instruments to 2026
• Term loan increased by £4.75m in February 2019, fixed at 4.0% using interest rate swap
• Strong operating cash flow has been primary capital source
• Extraordinary operating cash flow in 2016 included one-off items
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2010 2011 2012 2013 2014 2015 2016 2017 2018
£ m
illi
on
Debt
Equity - Shares Issued
Equity - Acquisition
Disposal of investments
Operating Cash Flow
“Equity – Shares Issued”
comprises equity fund raising
in 2010 and cash inflows from
share option exercises
thereafter
All balances exclude Client
Registration Funds
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• Major capital deployments related to acquisitions
• Proposed dividend increase by 5%
• Equity buy-backs undertaken when appropriate. None in 2017
Capital Allocation 2010-2018
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2
4
6
8
10
12
14
16
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2010 2011 2012 2013 2014 2015 2016 2017 2018
£ m
illi
on
Dividend
Debt Repayment
Acquisition Consideration
Property, Plant & Equipment
Equity Buy-Back
Dividend is cash outflow timing,
not period for which declared
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• Capital resources deployed for acquisitions (2013, 2015, 2017)
• Strong balance sheet maintained with cash resources for further investment/acquisition
• Debt refinanced in 2016. (Extended in February 2019)
Cash & Debt 2009-2018
-15
-10
-5
0
5
10
15
20
25
30
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
£ m
illi
on
Gross Group Cash
Debt
Net Funds
Group Cash and Net Funds
exclude cash held by TSG in
respect of Client Registration
Funds.
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Net Funds + Freehold Property per Share
• Very strong asset base
• Significant cash resources and freehold property assets
• Property valuations undertaken in 2018
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10
20
30
40
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60
70
80
90
2010 2011 2012 2013 2014 2015 2016 2017 2018
Net funds + freehold propertyper share (basic)
Net funds per share (basic)Pe
nc
e p
er
Sh
are
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• Issued share capital has decreased by approximately 4% since 2010
• Acquisitions and investments funded primarily through operating cash flow
• Share options and acquisition-related equity have been offset by share buy-backs
Equity Share Capital
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40
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mil
lio
n s
ha
res Outstanding Share
Options
Issued Shares (ExclTreasury Shares) atyear end
Shareholdings >3% as reported to
Company as at 1 March 2019
Shares in issue (excluding treasury
shares): 40.0m (2017: 39.4m)
33%
1%
17%11%
5%
3%
6%
23%
Chairman
Other Directors
Canaccord Genuity
Ruffer LLP
Miton
Charles Stanley
Otus
Other
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Head office
Harston Mill
Harston, Cambridge
CB22 7GG
UK
Phone: +44 1223 875200
www.sciencegroup.com
Head office
Harston Mill
Harston, Cambridge
CB22 7GG
UK
Phone: +44 1223 875200
www.sciencegroup.com