Annual Report and
Financial Statements
2015
3
Contents
Strategic Report ............................................................................................................................ 4
• Chairman’s Statement ............................................................................................................ 4
• Finance Director’s Report ...................................................................................................... 6
• Key Performance Indicators .................................................................................................. 8
• Principal Risks and Uncertainties ....................................................................................... 8
• Corporate Responsibility ........................................................................................................ 9
Report of the Directors .............................................................................................................. 11
• Corporate Governance Report ........................................................................................... 14
• Board Committees ................................................................................................................. 15
• Report of the Remuneration Committee ....................................................................... 16
• Report of the Audit Committee ..........................................................................................17
• Report of the Nomination Committee ............................................................................ 18
• Directors’ Responsibilities ................................................................................................... 18
• Approval ...................................................................................................................................... 18
Independent Auditor’s Report ................................................................................................. 19
Financial Statements........................................................................................................20 - 59
• Consolidated Income Statement ...................................................................................... 21
• Consolidated Statement of Comprehensive Income ............................................... 22
• Consolidated Statement of Changes in Shareholders’ Equity ............................. 23
• Company Statement of Changes in Shareholders’ Equity .................................... 24
• Consolidated and Company Balance Sheet ................................................................ 25
• Consolidated and Company Statement of Cash Flows .......................................... 26
• Notes to the Financial Statements .......................................................................... 27 - 59
Annual Report and Financial Statements 2015 5
4
Strategic Report
Chairman’s Statement
Science Group plc and its subsidiaries (‘Science Group’ or the
‘Group’), formerly Sagentia Group plc, report a satisfactory
operating performance for the year ended 31 December 2015,
a year of significant strategic change for the Group. Overall the
Group maintained strong operating margins despite external
market and economic factors, acquisition integration and the
inherent volatility associated with a project-based consultancy.
The Group maintains a robust balance sheet with significant
cash resources and freehold property assets.
Science Group plc provides outsourced science and technology
based consultancy, advisory and product development services
to a wide range of industries/markets. The majority of the
Group’s revenues are derived from projects operated on behalf
of clients on a time and materials basis, although some smaller
projects are undertaken on a fixed price model. The Group’s
operations are based at its freehold property (approx. 100,000
sq ft) in Harston, near Cambridge, and, progressively from Q1
2016, in the recently acquired freehold property located near
Epsom, Surrey (approx. 50,000 sq ft). The Group also has
leasehold offices in London, Boston and Houston. With 78%
of revenue derived from overseas markets but over 90% of
the Group’s 350 employees based in the Group’s UK office/
laboratory facilities, Science Group plc is a significant exporter
of leading British science & technology services.
Business summary
For the year ended 31 December 2015, Group revenue was
£31.2 million (2014: £28.3 million) of which Core Business
Services revenue was £28.7 million (2014: £25.7 million).
Adjusted operating profit for the year ended 31 December 2015
was £5.3 million (2014: £5.4 million) and operating cash inflow
was £4.9 million (2014: £4.9 million), reflecting the underlying
performance of the Group including the broadly offsetting loss
from the Leatherhead business and profit contribution from the
Oakland business, both acquired in 2015.
Adjusted operating profit and margin are defined in the Finance
Director’s Report, along with a detailed explanation of the
underlying financial performance and explanation of the non-
operating, exceptional and tax adjustments. Exceptional costs
in the year include non-recurring charges of £0.5 million related
to the integration of the acquisitions made in 2015 and, as
previously reported, further costs will be incurred in 2016. The
Board has also reviewed the goodwill associated with the OTM
Consulting acquisition, particularly in light of the dramatic
reduction in the oil price over the past two years, and has
impaired the goodwill carrying value by £1.1 million, a non-cash
charge. As a result, statutory operating profit was £2.7 million
(2014: £4.7 million). However, despite the non-recurring and
exceptional charges, due to a net tax credit position benefitting
from prior years’ R&D tax credits, earnings per share was 7.2
pence (2014: 8.9 pence).
Cash balance at 31 December 2015 was £14.5 million (2014:
£23.8 million) with net funds of £6.7 million (2014: £15.0
million) including bank debt of £7.8 million (2014: £8.8 million).
The reduction in net funds resulted from cash outflows of
£4.6 million associated with acquisitions; £9.0 million for the
freehold property near Epsom, including £1.5 million VAT which
has been reimbursed in 2016; and share buy backs of £0.6
million. Following the purchase of the property near Epsom, the
Group has significant freehold property assets which have a
combined balance sheet carrying value of £20.9 million (2014:
£13.6 million).
Strategic developments and corporate matters
On 1 July 2015, Sagentia Group plc was renamed Science
Group plc. The product and technology development business
continues to use the Sagentia brand.
On 18 February 2015, Science Group plc acquired Oakland
Innovation Limited (‘Oakland’) for a consideration of £5.0
million. Oakland is a Cambridge-based R&D consultancy
specialising in technology innovation and market intelligence
for the global consumer, healthcare and food & beverage
markets. Oakland has been successfully relocated to the
Group’s facility in Harston and synergies with the Group’s
other businesses are becoming increasingly apparent. In the
period following acquisition, Oakland contributed £3.1 million
in revenue and £0.4 million in profit, reflecting the effect of
the initial business disruption associated with acquisition
integration, followed by a strong end to the year.
On 16 September 2015, a subsidiary of Science Group plc
acquired the business and assets of Leatherhead Food
International Limited via a ‘pre-pack’ administration for a
consideration of £1.6 million. The business was subsequently
renamed Leatherhead Research Limited (‘Leatherhead’). In
the period following acquisition, Leatherhead contributed
£2.1 million in revenue and an operating loss of £0.4 million,
together with non-recurring costs of £0.5 million. The
restructuring and realignment of the Leatherhead business
operations is progressing as the Board anticipated. However,
the potential synergies of the Leatherhead operations with
Oakland and Sagentia have become increasingly apparent and
the Group’s existing offerings to the food & beverage market
have been significantly enhanced by this acquisition.
On 12 November 2015, a subsidiary of Science Group plc
acquired Great Burgh, a freehold property near Epsom, Surrey
for £7.6 million (including fixtures and fittings and associated
acquisition costs). This property will provide a second major
office and laboratory facility for the Group and the Leatherhead
and OTM businesses are being relocated to Great Burgh. The
first fifty employees have already transferred to the facility
and the refit programme is on track to complete the transition
by mid-summer, subject to receiving consent for the pending
planning application.
Reflecting the different channels to market, and the synergistic
opportunities arising from the acquisitions, the Sagentia
business structure has also evolved and will now comprise
Sagentia-Medical and Sagentia-Commercial. At the same time,
the North American sales organisation has been consolidated
to ensure the integrated offerings from across the Group can
be effectively marketed into this key geography that accounted
for 57% of Group revenue in 2015 (2014: 61%).
Strategic Report continued
The Board is proposing to maintain the dividend at 4.0 pence
per share (2014: 4.0 pence), at a total cost of £1.6 million
(2014: £1.5 million) based on the number of shares in issue
at 29 February 2016. Subject to shareholder approval at the
Annual General Meeting (‘AGM’), the dividend will be payable
on 10 June 2016 to shareholders on the register at the close
of business on 20 May 2016. As in previous years, the Board
will also seek approval from shareholders at the AGM for
authority to acquire up to 10% of the issued share capital of
the Company so that, if deemed appropriate and in the best
interests of shareholders, the Company may continue to make
share purchases in the coming year. Due to the shareholding of
the Chairman (32.7% at 29 February 2016), this authority will,
as in previous years, be conditional on the passing of a general
authority Panel Waiver by shareholders and on Takeover Panel
approval of a waiver of Rule 9 of the UK Code on Takeovers and
Mergers.
Summary
In summary, the financial performance for the year was
satisfactory with continued strong adjusted operating margins
and operating cash flow. Operationally, some market sectors
(e.g. Oil & Gas) were more challenging than the prior year and
others were stronger. This typifies the anticipated profile of a
multi-sector, project-based consultancy with inherent volatility
and limited forward visibility. Diversification of industry revenue
sources increases the resilience of the Group and this has been
a key component of the acquisition strategy.
Strategically, 2015 saw a significant expansion and evolution
of Science Group. The integration of Oakland is now complete
and the integration of Leatherhead is progressing well. These
acquisitions, combined with the existing Sagentia activities,
have created a unique offering for the Group in the food
& beverage market. While 2016 will be constrained by the
Leatherhead business relocation, the long term potential of this
market positioning should be attractive.
The Board has a medium term investment horizon and will
continue to explore both organic and acquisitive investment
opportunities to further strengthen the Group. In this
endeavour, and also recognising the significant freehold
property asset base of the Group, the Board continues to
evaluate the most appropriate source(s) of capital to fund
further acquisitions whilst minimising dilution to existing
shareholders.
Martyn Ratcliffe
Chairman
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015 6
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Strategic Report continued
Strategic Report continued
The gross cash position at 31 December 2015 was £14.5 million
(2014: £23.8 million) and net funds were £6.7 million (2014:
£15.0 million). The acquisition of the two businesses and the
freehold property near Epsom during the year resulted in a
cash outflow of £13.6 million, including VAT of £1.5 million on
the property which has been reimbursed in February 2016.
Cash flows relating to the restructuring and integration costs
were primarily transferred into 2016 and resulted in net cash
generated from operating activities of £4.9 million (2014:
£5.0 million) and the net cash outflow related to the dividend,
share buyback programme and share option exercises was
£0.6 million (2014: £2.1 million). Working capital management
remains robust with debtor days of 47 days (2014: 50 days) and
combined debtor and WIP days of 7 (2014: 12).
Rebecca Hemsted
Finance Director
Finance Director’s Report
In the year ended 31 December 2015, the Group generated
revenue of £31.2 million (2014: £28.3 million) which included
£5.2 million generated by the acquisitions in 2015 of
Oakland and Leatherhead. The Group continues to have a
high proportion (78%) of its Services revenue derived from
international markets (2014: 78%), particularly North America
which accounted for 57% (2014: 61%).
Adjusted operating profit of £5.3 million (2014: £5.4 million)
and adjusted operating profit margin of 17.1% (2014: 19.1%)
included an adjusted operating loss from Leatherhead of £0.4
million. Statutory operating profit of £2.7 million (2014: £4.7
million) included exceptional charges relating to the integration
of Leatherhead of £0.5 million and an impairment of goodwill
attributable to OTM Consulting of £1.1 million.
Statutory profit before tax was £2.4 million (2014: £4.2 million)
and statutory profit after tax was £2.8 million (2014: £3.4
million), which benefitted from the recognition of deferred tax
associated with trading tax losses as well as the recognition
of an R&D tax claim credit relating to the prior years of £0.8
million. In line with the decrease of statutory profit after tax,
statutory basic earnings per share (‘EPS’) decreased to 7.2
pence (2014: 8.9 pence). (Adjusted operating profit and margin
excludes amortisation and impairment of intangible assets,
share based payment charges and other exceptional costs).
The Group reports its results under two business segments.
The ‘Core Business’ segment represents all revenues derived
from delivering projects and consultancy services and expenses
recharged on these projects, together with revenues from
product sales and licence income. The ‘Non-Core’ segment
now comprises solely property and associated services income
derived from space let in the Harston Mill facility.
Revenue from Core Business activities increased to £30.1
million (2014: £27.2 million) due to the acquisitions of Oakland
and Leatherhead which contributed revenue of £3.1 million
and £2.1 million respectively subsequent to the dates of
acquisition. This increase was offset by reported declines in
revenues, primarily due to the challenging market conditions
within the Oil & Gas sector and also within the Medical sector
due to the completion of some large projects. Revenue from
Core Business operations includes materials used in projects
recharged to customers of £1.4 million (2014: £1.4 million).
Other ‘Non-Core’ revenue was £1.1 million (2014: £1.2 million).
A significant proportion of the Group’s revenue is denominated
in US Dollars and Euros and changes in exchange rates can
have a significant influence on the financial performance. In
2015, £14.2 million of the Group revenue was denominated in
US Dollars (2014: £14.1 million) and £2.1 million of the Group
revenue was denominated in Euros (2014: £1.1 million) and
the exchange rates during the year resulted in a revenue and
operating profit benefit in the year, compared to 2014, of £0.8
million and £0.7 million respectively. The Group continues
to monitor the volatility of the exchange rate and to date has
decided not to utilise foreign exchange hedging instruments.
At 31 December 2015, Science Group had £17.0 million (2014:
£17.6 million) of tax losses carried forward of which £6.6
million (2014: £9.3 million) relate to trading losses which are
anticipated to be used to offset future trading profits. During
the year, previously recognised trading tax losses of £3.8
million were utilised, tax losses generated by Leatherhead of
£1.0 million were recognised as a deferred tax asset and tax
losses generated by the exercise of 3.1 million share options
were partially recognised and utilised. These adjustments
resulted in a tax credit in the Consolidated Income Statement
of £0.4 million. The remaining tax losses of £10.4 million
(2014: £8.3 million) have not been recognised as a deferred
tax asset due to the uncertainty of utilisation of these losses.
The increase in losses of £2.1 million was associated with the
exercise of 3.1 million share options where the tax losses have
been unable to be fully utilised.
The tax credit in the Consolidated Income Statement also
included a one off benefit for the Research and Development
tax claim for the 2013 and 2014 financial years which reduced
the corporation tax charge by £0.8 million. As a result of
these various effects, the effective tax rate in the year ended
31 December 2015 was substantially below the nominal
corporation tax rate. The Board anticipates that, in view of the
trading tax losses carried forward, if the Group’s profit profile
remains similar to 2015, the Group’s cash outflow related to
tax will continue to be modest for the next one to two financial
years after which the tax cash flow will increase.
The accounting treatment of the various tax effects explained
above, combined with the exceptional costs recognised in the
current year, have in aggregate resulted in basic EPS being
reported at 7.2 pence (2014: 8.9 pence). Due to the complexity
arising from these multiple adjustments, an adjusted EPS
measure has not been presented.
In 2013, the Group entered into a £10.0 million term loan with
Lloyds Bank plc (‘Lloyds’) which is secured on the freehold
property at Harston and, subject to maintaining cash balances
in excess of £2.0 million, the loan is not subject to operating
covenants. The facility has a term of five years with £5.0 million
amortising and the remaining £5.0 million repayable at the
term date of September 2018. The Group also entered into
a five year interest rate swap, the effect of which is to fix the
interest rate on the loan at approximately 3.9%. The Group has
not adopted hedge accounting for the interest rate swap under
IAS 39, (Financial Instruments), and the change in fair value
of the interest rate swap of £62,000 was recognised as a gain
in the Consolidated Income Statement in the year ended 31
December 2015 (2014: loss of £203,000).
The Group has a strong balance sheet with shareholders’ funds
at 31 December 2015 of £37.2 million (2014: £33.4 million).
This includes the Group’s freehold property in Harston, near
Cambridge and the freehold property acquired near Epsom,
Surrey, held on the balance sheet at an aggregate value of
£20.9 million (2014: £13.6 million).
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015 8
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Strategic Report continued
Strategic Report continued
Key Performance Indicators
The key performance indicators (‘KPIs’) are profit and cash flow.
Profitability of the business, with its relatively fixed cost base,
is managed primarily via the review of revenue with secondary
measures of consultant utilisation and daily fee rates. Working
capital is reviewed via measures of debtor days and combined
‘debtor and WIP’ days. Performance against KPIs is reported in
the Finance Director’s Report.
Principal Risks and Uncertainties
In addition to the financial risks discussed in Note 3 and the
effects on business performance related to changes in currency
exchange rates noted in the Finance Director’s Report, the
Directors consider that the principal risks and uncertainties
facing the Group and a summary of the key measures taken to
mitigate those risks are as follows:
Potential downturn in the market for outsourced services
Science Group is dependent on the global market for
outsourced research, development and technology advisory
services. An economic downturn or instability may cause
customers to delay or cancel product development projects
and/or related services, or to use internal resources to achieve
their business goals.
The Group seeks to mitigate this risk by diversifying exposure
across geographical markets; increasing the number of
market sectors in which the Group operates; diversifying the
type of customers with whom the Group operates (ranging
from well-funded start-up companies to large multi-national
corporates); increasing the range of service offerings that the
Group provides; and marketing activities to inform current and
prospective customers regarding the benefits of outsourced
research and development services and Science Group’s
proven ability to fulfill those objectives.
Dependence on key personnel
Science Group’s business relies on recruiting and retaining
highly qualified technical experts on whom the business
depends to deliver research and development services, often
requiring leading edge science and technology. Failure to
recruit and retain key staff could threaten the business’s ability
to deliver projects to its clients or to win new work.
The Group seeks to mitigate this risk by encouraging staff
retention by offering competitive remuneration packages for
personnel including base salary, annual bonus, pension and
health benefits and share option schemes; offering a diversity
of technically challenging work for a diversity of customers in a
number of market sectors, across a variety of technologies; and
providing career development paths and training support.
Reputational risk
Failure to deliver project deliverables to an agreed budget,
timetable and quality may result in reputational damage to
Science Group that may adversely affect future sales.
The Group seeks to mitigate this risk by having in place
effective Quality Assurance procedures; review meetings being
held with clients on a regular basis; formal questionnaires
being sent to clients at the close of projects to ascertain their
views and to inform improvements and actions that the Group
may take; and various accreditations including ISO 9001 and
ISO 13485.
Economic conditions or other factors affecting the financial
circumstances of customers of the Group
The profitability of the Group could be adversely affected by
the general economic conditions in the United Kingdom, United
States and/or other key markets by virtue of the financial
failure of customers or potential customers of the Group. It may
also involve customers defaulting on the payment of invoices
issued by the Group or delaying payment of invoices which may
have a significant impact on the income and the business of
the Group.
The Group seeks to mitigate this risk by actively managing
customer credit limits and monitoring invoicing and work-in-
progress on a regular basis and, if appropriate, requiring the
payment in advance of all or part of the estimated costs.
Project over-run or failure to meet technical milestones
Projects may over-run and/or may fail to meet technical
milestones because the nature of the work which Science
Group undertakes is technically challenging. Project over-runs
can lead to loss of margin on projects and overall profitability
for the consultancy business. Poor performance may also result
in damage to Science Group’s reputation.
The Group seeks to mitigate this risk by contracting the
majority of projects on a time and materials basis; operating
a formal bid review process; incorporating risk premiums into
agreements if appropriate; conducting regular project reviews
to assess whether the revenue recognised on work in progress
is a fair representation of actual costs incurred and estimated
costs to completion; conducting regular, formal project board
review meetings for large projects; and meetings with clients to
review progress on projects.
Currency exchange rates
A significant proportion of the Group’s revenues are invoiced
in currencies other than Pound Sterling, including but not
limited to the US Dollar and Euro, while the vast majority of the
Group’s cost base is incurred in Pounds Sterling. As a result,
variations in currency exchange rates may have a material
impact on Group revenue and profit performance.
The Group seeks to mitigate this risk by transferring all foreign
currency holdings into Pounds Sterling on a regular basis. The
Group regularly considers the merits of currency hedging but
to date has determined that it would not be appropriate.
In addition to the principal risks and uncertainties above, the
Group faces other risks that include but are not limited to:
• increased competition;
• failure to retain, or loss of, customer contracts;
• failure to attract and retain key technical and
managerial staff;
• customer concentration;
• technology leadership;
• product liability claims or other warranty and indemnity
claims in respect of contractual obligations;
• infringement of third party intellectual property rights;
• failure of licensees to successfully exploit licensed
technology;
• counterparty risk;
• United Kingdom and other taxation;
• risk to property;
• changes in legislation relating to trading.
Corporate Responsibility
Science Group takes its responsibilities as a corporate citizen
seriously in the territories in which the Group operates. The
Board’s primary goal is to create shareholder value but in a
responsible way which serves all stakeholders. Furthermore,
Science Group seeks to continually enhance and extend its
science and technology contribution to society through the
work the Group undertakes with its clients and in areas where
the Group decides to invest and explore directly.
Governance
The Board considers sound governance as a critical component
of Science Group’s success. Science Group has an effective
and engaged Board, with a strong non-executive presence
from diverse backgrounds, and well-functioning governance
committees. Through the Group’s compensation policies
and variable components of employee remuneration, the
Remuneration Committee of the Board seeks to ensure that
Science Group’s values are reinforced in employee behaviour
and that effective risk management is promoted.
More information on our corporate governance can be found on
page 14.
Employees and their development
Science Group is dependent upon the qualities and skills of
its employees and the commitment of its people play a major
role in the Group’s success. The Group invests in training and
developing its staff through internally arranged knowledge
sharing events and through external courses, including
technical, business and managerial training.
Employees’ performance is aligned to the Group’s goals
through an annual performance review process and via Science
Group’s incentive programmes. Science Group provides
employees with information about its activities through regular
briefings and other media. Science Group operates a Group
wide bonus/profit share scheme and share option scheme, at
the discretion of the Remuneration Committee. Executives
and managers in Science Group are invited to participate in
these schemes on the basis of recommendations made by the
Executive Management to the Remuneration Committee.
Diversity and inclusion
Science Group’s employment policies are non-discriminatory
on the grounds of age, gender, nationality, ethnic or racial
origin, non-job-related-disability, sexual orientation or
marital status. Science Group gives due consideration to all
applications and provides training and the opportunity for
career development wherever possible. The Board does not
support discrimination of any form, positive or negative, and all
appointments are based solely on merit.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015
10
11
Strategic Report continued
Report of the Directors
The gender ratio for permanent employees in the Group at the end of the year was as follows:
Plc Board of Directors (incl. Company Secretary)
Corporate Executive Team
Senior management & staff (>£60,000 per annum salary)
Other staff
Total staff
31 December 2015
Female
Male
31 December 2014
Female
Male
No
%
No
%
No
%
No
3
2
54
126
185
60%
67%
84%
45%
52%
2
1
10
156
169
40%
33%
16%
55%
48%
4
2
48
87
141
67%
67%
89%
64%
71%
2
1
6
49
58
%
33%
33%
11%
36%
29%
Notes:
• Staff are only allocated to one category. For example, where an employee is a member of the plc Board, that person is not then
included within the other classifications;
• Subsidiary directors have not been separately identified in the above table.
STEM Bursary Scheme
Science Group has provided opportunities to paid interns
since 2000 with many going on to work for the Group after
graduating. The Science Group STEM Bursary Scheme
was launched in 2013, and offers up to 10 paid bursaries of
£2,500 each to support science and engineering students
during the academic year. Successful applicants are also
given preferential consideration for paid sandwich-year
and/or summer placements with Science Group and future
employment opportunities.
Health and safety
Science Group endeavours to ensure that the working
environment is safe and conducive to healthy, safe and
motivated employees. The Group has a Health and Safety at
Work policy which is reviewed regularly by the Board. The
Board Executive Director, responsible for health and safety
is the Finance Director with day-to-day responsibility being
undertaken by the Company Secretary.
The Group is committed to the health and safety of its
employees, clients, sub-contractors and others who may be
affected by the Group’s work activities. The Group evaluates
the risks to health and safety in the business and manages this
through a Health and Safety Management System.
The Group provides necessary information, instruction, training
and supervision to ensure that employees are able to discharge
their duties effectively. The Health and Safety Management
System used by the Group ensures compliance with applicable
legal and regulatory requirements and internal standards and
seeks, by continuous improvement, to develop health and
safety performance.
Research and development
Science Group provides outsourced research and development
services and therefore has an inherent and continuing
commitment to high levels of research and development,
primarily on behalf of its clients but also on its own behalf.
Environment
Science Group’s policy with regard to the environment is to
ensure that it understands and effectively manages the actual
and potential environmental impact of our activities. The
Directors feel that due to the nature of the Group’s operations,
it does not have a significant impact on the environment.
The Group strives to seek to minimise its carbon impact
and recognises that its activities should be carried out in an
environmentally friendly manner and therefore aims to reduce
waste and, where practicable, re-use and recycle consumables.
The Group’s operations are conducted such that compliance is
maintained with legal requirements relating to the environment
in areas where the Group conducts its business. During the
period covered by this report Science Group has not incurred
any fines or penalties or been investigated for any breach of
environmental regulations.
Approved by the Board of Directors on 2 March 2016 and
signed on its behalf by:
Martyn Ratcliffe
Chairman
Rebecca Hemsted
Finance Director
The Directors present their annual report on the business
of Science Group plc together with Consolidated Financial
Statements and Independent Auditor’s Report for the year
ended 31 December 2015.
Accompanying the Report of the Directors is the Strategic
Report.
Review of the business and its future development
A review of the business and its future development is set
out in the Strategic Report, incorporating the Chairman’s
Statement and Finance Director’s Report.
Cautionary statement
The review of the business and its future development in the
Strategic Report has been prepared solely to provide additional
information to shareholders to assess the Group’s strategies
and the potential for these strategies to succeed. It should
not be relied on by any other party for any other purpose. The
review contains forward looking statements which are made
by the Directors in good faith based on information available
to them up to the time of the approval of these reports and
should be treated with caution due to inherent uncertainties
associated with such statements.
Results and dividends
The results of the Group are set out in detail on page 21.
The Directors propose to pay a dividend of 4.0 pence per share
for the year ended 31 December 2015 (2014: 4.0 pence).
Capital structure
Details of the Company’s issued share capital, together with
details of the movements therein are set out in Note 20 to the
Financial Statements. The Company has one class of ordinary
shares which carry no right to fixed income.
Financial instruments and risk management
Disclosures regarding financial instruments are provided within
the Strategic Report and Note 3 to the Financial Statements.
Directors
The Directors and associated biographies are listed on pages
12 and 13.
David Courtley and Michael Lacey-Solymar will retire by rotation
and offer themselves for re-election at the next Annual General
Meeting. Professor Keith Glover retired on 31 December 2015.
Directors’ interests in shares and contracts
Directors’ interests in the shares of Science Group plc at
31 December 2015 and 31 December 2014, and any changes
subsequent to 31 December 2015, are disclosed in Note
8. None of the Directors had an interest in any contract of
significance to which Science Group was a party during the
financial year.
Annual General Meeting
The Annual General Meeting (‘AGM’) will be held at 9am on
19 May 2016 at the offices of Numis Securities Limited, The
London Stock Exchange Building, 10 Paternoster Square,
London, EC4M 7LT. The notice of the Annual General Meeting
contains the full text of resolutions to be proposed.
Purchase of own shares
At the AGM on 21 May 2015, shareholders approved a
resolution for the Company to buy back up to 20% of its own
shares. This resolution remains valid until the later of the
conclusion of the next Annual General Meeting in 2016 or
30 June 2016. As at the date of this report, the Company had
not used this authority. For further information refer to Note 20.
Employees
The average number of persons, including Directors, employed
by the Group and their remuneration is set out in Note 7 to the
Financial Statements.
Donations
The Company operates a scheme whereby it will, on a
discretionary basis, match charitable donations raised by
employees up to a specified limit. Charitable contributions
made in 2015 were £4,000 (2014: £1,000). No political
donations were made during the period (2014: £Nil).
Post balance sheet events
Post balance sheet events are disclosed in Note 27 to the
Financial Statements.
Auditor
KPMG LLP were appointed as auditor during the year. KPMG
LLP are willing to continue in office and a resolution to
reappoint them will be proposed at the forthcoming Annual
General Meeting.
Substantial shareholdings
As at the date of this report, Science Group had been notified of the following significant interests (greater than 3%) in its ordinary
share capital:
Shareholder
Martyn Ratcliffe
Ruffer LLP
Miton Asset Management
Hargreave Hale
Charles Stanley & Co
Allianz Global Investors Europe
Ordinary shares held
13,412,906
4,511,281
4,400,006
3,775,311
1,564,118
1,500,000
% held
32.7%
11.0%
10.7%
9.2%
3.8%
3.7%
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015
12
13
Report of the Directors continued
Report of the Directors continued
Directors
The Directors of the Company who served during the year were:
Director
Martyn Ratcliffe
Rebecca Hemsted
David Courtley+
Role at
31 December 2015
Date of (re-)
appointment
Chairman
21/05/15
Finance Director
20/05/14
Non-Executive
15/05/13
Michael Lacey-Solymar+
Non-Executive
15/05/13
Keith Glover+
Non-Executive
20/05/14
31 December 2015
Board Committee abbreviations are as follows: A = Audit Committee; R = Remuneration Committee; N = Nomination Committee
+ Independent Director
Retired
Board Committee
N
N
N
N
R
R
R
A
A
A
Directors’ biographies
Below are the biographies of the Directors:
Martyn Ratcliffe – Chairman
Martyn Ratcliffe was appointed Chairman on 15 April 2010
following his investment in Sagentia Group, now Science
Group. He was Chairman of Microgen plc from 1998 to
2016 and Chairman of RM plc from 2011 to 2013. He was
previously Senior Vice President of Dell Computer Corporation,
responsible for EMEA. He has a degree in Physics from the
University of Bath and an MBA from City University, London.
Rebecca Hemsted – Finance Director
Rebecca Hemsted was appointed to the Board on 27 January
2014. Ms Hemsted is a Chartered Accountant and has a degree
in Physics from the University of Oxford. She qualified at
Deloitte where she spent six years including three years in New
Zealand, and joined Science Group from RM plc where she was
Business Finance Partner for the Managed Services Business.
David Courtley* – Senior Independent Director
David Courtley was appointed a Non-Executive Director on 15
April 2010. He is also Chief Executive of Mozaic Services and
Non-Executive Director of Parity plc. He was previously Chief
Executive of Phoenix IT Group plc, Chief Executive of Fujitsu
Services Europe and MD of EDS UK. He has a degree in
Mathematics from Imperial College, London.
Michael Lacey-Solymar* – Non-Executive Director
Michael was appointed a Non-Executive Director on 11 October
2012. Michael has over 25 years corporate finance experience,
having spent 18 years at UBS and seven years at Investec. He is
currently a partner at Opus Corporate Finance LLP and a Non-
Executive Director of DrugDev Inc. He has a degree in Modern
Languages from the University of Oxford.
Sarah Cole – Company Secretary
Sarah Cole joined the Company on 10 January 2011 and was
appointed Company Secretary on 22 March 2013. Ms Cole has
a degree in Jurisprudence from the University of Oxford and
qualified as a Solicitor in 2003.
* Retire by rotation at the next AGM
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015 14
15
Report of the Directors continued
Report of the Directors continued
All Directors have access to the advice and services of the
Company Secretary and other independent professional
advisers as required. Non-Executive Directors have access to
key members of staff and are entitled to attend management
meetings in order to familiarise themselves with all aspects of
Science Group.
It is the responsibility of the Chairman and the Company
Secretary to ensure that Board members receive sufficient and
timely information regarding corporate and business issues to
enable them to discharge their duties.
Relations with shareholders
The Directors seek to build on a mutual understanding of
objectives between Science Group and its major shareholders
by meeting to discuss long term issues and receive feedback,
communicating regularly throughout the year and issuing
trading updates as appropriate. The Board also seeks to
use the Annual General Meeting to communicate with its
shareholders.
Remuneration strategy
Science Group operates in a competitive market. If Science
Group is to compete successfully, it is essential that it attracts,
develops and retains high quality staff. Remuneration policy
has an important part to play in achieving this objective.
Science Group aims to offer its staff a remuneration package
which is both competitive in the relevant employment market
and which reflects individual performance and contribution.
For 2015, the remuneration package comprised salary, pension
contributions, healthcare and life assurance benefits, a
company bonus/profit share scheme and, where appropriate,
share options.
Board Committees
The Board maintains three standing committees, being
the Audit, Remuneration and Nomination Committees. The
minutes of all sub-committees are circulated for review and
consideration by all relevant Directors, supplemented when
appropriate by oral reports from the Committee Chairmen at
Board meetings.
Audit Committee
The Audit Committee is chaired by Michael Lacey-Solymar
and currently comprises Michael Lacey-Solymar and David
Courtley. The Audit Committee met 3 times during 2015 (2014:
2). Further details on the Audit Committee are provided in the
Report of the Audit Committee.
Remuneration Committee
The Remuneration Committee is chaired by David Courtley
and currently comprises David Courtley and Michael Lacey-
Solymar. The Remuneration Committee met 6 times during
2015 (2014: 4). It may take advice from time to time from
external advisers, but did not do so in 2015. Further details on
the Remuneration Committee are provided in the Report of the
Remuneration Committee.
Nomination Committee
The Nomination Committee is chaired by Martyn Ratcliffe and
also currently comprises David Courtley and Michael Lacey-
Solymar. The Nomination Committee met once during 2015
(2014: 1). It may take advice from time to time from external
advisers, but did not do so in 2015. The Committee meets
when necessary. The Committee’s primary function is to make
recommendations to the Board on all new appointments and
re-appointments and also to advise generally on issues relating
to Board composition and balance. The Board seeks input from
all Directors regarding nominations for Board positions. All
Board appointments have to be ratified at a General Meeting of
the Company.
Meetings of the Board and sub-committees during 2015 were as follows:
Number of meetings held in 2015
Martyn Ratcliffe
Rebecca Hemsted
David Courtley
Professor Keith Glover
Michael Lacey-Solymar
* Attendance by invitation
Board
meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
20
20/20
20/20
19/20
19/20
19/20
3
3/3*
3/3*
3/3
3/3
3/3
6
6/6*
5/6*
6/6
6/6
6/6
1
1/1
1/1*
1/1
1/1
1/1
Corporate Governance Report
The Company is registered in England and Wales and listed
on the Alternative Investment Market of the London Stock
Exchange (‘AIM’).
Statement about applying the principles of the Code
Science Group does not comply with the UK Corporate
Governance Code but has reported on the Company’s
Corporate Governance arrangements drawing upon best
practice available, including those aspects of the UK Corporate
Governance Code which the Board considers to be relevant to
the Company.
Board of Directors
Biographical details of the Directors are included on page 13.
At 31 December 2015, the Board comprised an Executive
Chairman, Finance Director and two independent Non-
Executive Directors. All Directors bring a wide range of skills
and international experience to the Board. The Non-Executive
Directors hold meetings without the Chairman and Finance
Director present.
The Chairman is primarily responsible for the working of the
Board of Science Group plc, Group corporate strategy and
the overall business operations. The Chairman is assisted in
the managing of the business on a day-to-day basis by the
Corporate Executive Team including the Finance Director.
High-level strategic decisions are discussed and taken by the
full Board. Investment decisions (above a de minimis level) are
taken by the full Board. Operational decisions are taken by the
Corporate Executive Team and Divisional Managing Directors
within the framework approved in the annual financial plan and
within a framework of Board-approved authorisation levels.
The Board met 20 times during 2015 (2014: 13). The Board
regulations define a framework of high-level authorities that
maps the structure of delegation below Board level, as well as
specifying issues which remain within the Board’s preserve.
The Board typically meets ten times a year to consider a formal
schedule of matters including the operating performance of
the business and to review Science Group’s financial plan and
business model.
Non-Executive Directors are appointed for a three year term
after which their appointment may be extended by mutual
agreement after due consideration by the Nomination
Committee of the Board. In accordance with the Company’s
Articles of Association, the longest serving Director must retire
at each Annual General Meeting and each Director must retire
in any three year period, so that over a three year period all
Directors will have retired from the Board and been subject to
shareholder re-election.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015
16
17
Report of the Directors continued
Report of the Directors continued
Report of the Remuneration Committee
Remuneration Committee
The Remuneration Committee, which is chaired by David
Courtley, currently comprises David Courtley and Michael
Lacey-Solymar.
The Remuneration Committee monitors the remuneration
policies of Science Group to ensure that they are consistent
with Science Group’s business objectives. Its terms of
reference include the recommendation and execution of policy
on Director and executive management remuneration and
for reporting decisions made to the Board. The Committee
both determines the individual remuneration package of the
Chairman and Finance Director and reviews remuneration
levels for all employees of Science Group. In accordance
with the provisions of the UK Corporate Governance Code,
this responsibility includes pension rights and any other
compensation payments including bonus payments and share
option awards.
The Remuneration Committee recognises that incentivisation
of staff is a key issue for Science Group, which depends
on the skill of its people for its success. The Remuneration
Committee seeks to incentivise employees by linking individual
remuneration to individual performance and contribution, and
to Science Group results. During the year the Remuneration
Committee approved grants of share options and confirmed a
profit related bonus scheme for the Company for 2015.
The aim of the Board and the Remuneration Committee is to
maintain a policy that:
• establishes a remuneration structure that will attract, retain
and motivate executives, senior managers and other staff of
appropriate calibre;
• rewards executives and senior managers according to both
individual and Group performance;
• establishes an appropriate balance between fixed
and variable elements of total remuneration, with the
performance-related element forming a potentially
significant proportion of the total remuneration package;
• aligns the interests of executives and senior managers with
those of shareholders through the use of performance-
related rewards and share options in Science Group.
From time to time the Committee may obtain market data and
information as appropriate when making its comparisons and
decisions and is sensitive to the wider perspective, including
pay and employment conditions elsewhere in Science Group,
especially when undertaking salary/remuneration reviews.
The remuneration package comprises the following elements:
• basic salary – normally reviewed annually and set to reflect
market conditions, personal performance and benchmarks in
comparable companies;
• annual performance-related bonus – executives, managers
and employees receive annual bonuses related to company
performance. The Chairman does not participate in the
Group performance-related bonus scheme;
• benefits – benefits include medical insurance, life assurance
and pension contributions. The Chairman does not receive
these benefits;
• share options – share option grants are reviewed regularly.
Full details of each Director’s remuneration package and
their interests in shares and share options can be found in
Note 8 to the Financial Statements. There are no elements of
remuneration, other than basic earnings, which are treated as
being pensionable.
Service contracts
The Chairman and Finance Director have employment
contracts that contain notice periods of six months. Non-
Executive Directors’ service contracts may be terminated
on three months’ notice. There are no additional financial
provisions for termination.
Share option plans
The Company adopted an approved and unapproved Share
Option Scheme in 2008, the terms of which were reviewed
and amended in 2010 and 2013 and adopted by shareholders.
Further in 2013, the Company adopted an unapproved
Performance Share Plan (‘PSP’), the terms of which were
amended in 2014 and adopted by shareholders. Options
granted under the former schemes were issued at market
price whilst options granted under the PSP scheme are issued
at the nominal share price. The Remuneration Committee
approves any options granted thereunder. Directors are entitled
to participate in Science Group’s share option schemes.
Independent Non-Executive Directors do not participate in
Science Group’s share option schemes. It is the policy of
Science Group to grant share options to Executive Directors
and key employees as a means of encouraging ownership and
providing incentives for performance. To date share options
granted to the Chairman have been specifically approved by
shareholders.
The market price of the shares at 31 December 2015 was 138.0
pence (2014: 118.5 pence). The highest and lowest price during
the year was 160.5 pence and 118.5 pence respectively.
Risk identification – management is responsible for the
identification and evaluation of key risks applicable to their
areas of business. These risks are assessed on a continual
basis and may be associated with a variety of internal and
external sources, including infringement of IP, sales channels,
investment risk, staff retention, disruption in information
systems, natural catastrophe and regulatory requirements.
Information systems – Group businesses participate in
periodic operational/strategic reviews and annual plans. The
Board actively monitors performance against plan. Forecasts
and operational results are consolidated and presented to
the Board on a regular basis. Through these mechanisms,
performance is continually monitored, risks identified in a
timely manner, their financial implications assessed, control
procedures re-evaluated and corrective actions agreed and
implemented.
Main control procedures – Science Group has implemented
control procedures designed to ensure complete and accurate
accounting for financial transactions and to limit the exposure
to loss of assets and fraud. Measures taken include segregation
of duties and reviews by management.
Monitoring and corrective action – there are procedures in
place for monitoring the system of internal financial controls.
This process, which operates in accordance with the FRC
Guidance, was maintained throughout the financial year, and
has remained in place up to the date of the approval of these
financial statements. The Board, via the Audit Committee, has
reviewed the systems and processes in place in meetings with
the Finance Director and Science Group’s auditors during 2015.
No internal audit function is operated outside of the systems
and processes in place, as the Board considers that Science
Group is too small for a separate function. The Board considers
the internal control system to be adequate for Science Group.
During the year KPMG LLP were appointed as auditor. They
have provided services in relation to the annual audit of the
Group but have not provided any non-audit services.
Report of the Audit Committee
Audit Committee
The Audit Committee is chaired by Michael Lacey-Solymar
and currently comprises Michael Lacey-Solymar and David
Courtley.
The Audit Committee has written terms of reference and
provides a mechanism through which the Board can maintain
the integrity of the financial statements of Science Group
and any formal announcements relating to Science Group’s
financial performance; to review Science Group’s internal
financial controls and Science Group’s internal control and
risk management systems; and to make recommendations
to the Board in relation to the appointment of the external
auditor, their remuneration both for audit and non-audit
work, the nature, scope and results of the audit and the cost
effectiveness and the independence and objectivity of the
auditors. A recommendation regarding the auditors is put to
shareholders for their approval in general meetings.
Provision is made by the Audit Committee to meet the auditors
at least twice a year.
Internal controls
In applying the principle that the Board should maintain a
sound system of internal control to safeguard shareholders’
investments and Science Group’s assets, the Directors
recognise that they have overall responsibility for ensuring
that Science Group maintains systems to provide them
with reasonable assurance regarding effective and efficient
operations, internal control and compliance with laws and
regulations and for reviewing the effectiveness of that system.
However, there are inherent limitations in any system of control
and accordingly even the most effective system can provide
only reasonable and not absolute assurance against material
mis-statement or loss, and that the system is designed to
manage rather than eliminate the risk of failure to achieve the
business objectives.
Science Group has established procedures necessary to
implement the guidance on internal control issued by the
FRC Guidance on Audit Committees 2014. This includes
identification, categorisation and prioritisation of critical risks
within the business and allocation of responsibility to its
executives and senior managers.
The key features of the internal control system are described
below:
Control environment – Science Group is committed to high
standards of business conduct and seeks to maintain these
standards across all of its operations. There are also policies in
place for the reporting and resolution of suspected fraudulent
activities. Science Group has an appropriate organisational
structure for planning, executing, controlling and monitoring
business operations in order to achieve its objectives.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015 18
19
Report of the Directors continued
Report of the Nomination Committee
The Nomination Committee is chaired by Martyn Ratcliffe and
also currently comprises David Courtley and Michael Lacey-
Solymar.
The Nomination Committee reviews the composition of
the Board and its effectiveness on an annual basis in order
to ensure that the Board comprises the requisite skills and
experience and reviews how the Board works together as a
unit. The Nomination Committee does not believe that it is
appropriate to set any specific targets with regards to diversity,
including gender, although the Committee believes that
the search for Board candidates should be conducted, and
appointments made, on merit, against objective criteria and
with due regard for the benefits of diversity on the Board.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company and
enable them to ensure that its financial statements comply
with the Companies Act 2006. They have general responsibility
for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Directors’ Responsibilities
Approval
The Directors are responsible for preparing the Annual Report,
Strategic Report, the Directors’ Report and the financial
statements in accordance with applicable law and regulations.
The Report of the Directors was approved by the Board on
2 March 2016 and signed on its behalf:
By order of the Board
Sarah Cole
Company Secretary
Harston Mill
Harston
Cambridge
CB22 7GG
Company law requires the Directors to prepare Group and
parent company financial statements for each financial year.
As required by the AIM Rules of the London Stock Exchange
they are required to prepare the Group financial statements in
accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent company financial
statements on the same basis.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and parent
company and of their profit or loss for that period. In preparing
each of the Group and parent company financial statements,
the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent company will continue in business.
Independent Auditor’s Report to the
Members of Science Group plc
We have audited the financial statements of Science Group
plc for the year ended 31st December 2015 set out on pages
21-59. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU and, as
regards the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company and the company’s members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement set out on page 18, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit, and express an opinion on, the financial statements
in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state
of the group’s and of the parent company’s affairs as at 31
December 2015 and of the group’s profit for the year then
ended;
• the group financial statements have been properly prepared
in accordance with IFRSs as adopted by the EU;
• the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU
and as applied in accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion the information given in the Strategic Report
and the Directors’ Report for the financial year for which
the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations we
require for our audit.
Charles le Strange Meakin
(Senior Statutory Auditor)
For and on behalf of KPMG LLP,
Statutory Auditor Chartered Accountants
Botanic House,
100 Hills Road,
Cambridge
2 March 2016
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015
Financial
Statements
and Notes to the
Financial Statements
Consolidated Income Statement
For the year ended 31 December 2015
Revenue
Operating expenses
Adjusted operating profit
Amortisation and impairment of intangible assets
Share based payment charge
Other exceptional costs
Operating profit
Finance income
Finance costs
Profit before income tax
Income tax
Profit for the year
Profit for the year attributable to equity holders of the parent
Earnings per share
Earnings per share from continuing operations (basic)
Earnings per share from continuing operations (diluted)
All amounts relate to continuing operations.
Note
4
5
4
13
7
4
6
6
9
11
11
The accompanying Notes form an integral part of this Consolidated Income Statement.
21
Group
2015
£000
2014
£000
31,220
28,329
(25,896)
(22,926)
5,324
5,403
(1,660)
(452)
(534)
2,678
88
(326)
2,440
368
2,808
(229)
(431)
-
4,743
28
(570)
4,201
(765)
3,436
2,808
3,436
7.2p
6.8p
8.9p
8.1p
Annual Report and Financial Statements 2015
22
Consolidated Statement of
Comprehensive Income
For the year ended 31 December 2015
Profit for the year
Other comprehensive income
Items that will or may be reclassified to profit or loss:
Fair value gain on interest rate swap, net of tax
Exchange differences on translating foreign operations
Other comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year attributable to owners of the parent
2015
£000
2,808
-
70
70
2,878
2,878
2014
£000
3,436
41
43
84
3,520
3,520
Consolidated Statement of Changes in
Shareholders’ Equity
For the year ended 31 December 2015
Group
Group
Issued
capital
Share
premium
Treasury
stock
Merger
reserve
Translation
reserve
Share based
payment
reserve
Retained
earnings
Balance at 1 January 2014
420
7,775
(2,937)
10,343
£000
£000
£000
£000
£000
195
£000
1,476
23
Total
share-
holders’
funds
£000
£000
13,796
31,068
-
-
(138)
(428)
-
465
(1,801)
32
162
(428)
431
465
-
-
-
-
431
-
431
(101)
(1,139)
-
-
-
-
3,436
3,436
41
-
41
43
3,477
3,520
1,907
1,907
17,172
33,449
17,172
33,449
-
-
-
-
452
-
-
-
(575)
1,364
(1,400)
1,458
(1,527)
(1,527)
-
452
(268)
(268)
452
(3,195)
904
-
-
-
2,808
2,808
-
70
2,808
2,878
Purchase of own shares
Issue of shares out of share capital
Issue of shares out of treasury stock
Dividends paid
Share based payment charge
Deferred tax on share based
payment transactions
Transactions with owners
Profit for the year
Other comprehensive income:
Fair value gain on interest rate swap
Exchange differences on translating
foreign operations
Total comprehensive income
for the year
Balance at 31 December 2014
Balance at 1 January 2015
Purchase of own shares
Acquisition of Oakland Innovation
Limited
Issue of shares out of treasury stock
Dividends paid
Share based payment charge
Deferred tax on share based payment
transactions
Transactions with owners
Profit for the year
Other comprehensive income:
Exchange differences on translating
foreign operations
Total comprehensive income for
the year
-
1
-
-
-
-
1
-
-
-
-
-
31
-
-
-
-
(1,801)
-
300
-
-
-
31
(1,501)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
421
421
7,806
(4,438)
10,343
7,806
(4,438)
10,343
-
-
-
-
-
-
-
-
-
-
-
424
(575)
940
- 2,858
-
-
-
-
-
-
424
3,223
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43
43
238
238
-
-
-
-
-
-
-
-
70
70
Balance at 31 December 2015
421
8,230
(1,215)
10,343
308
2,359
16,785
37,231
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015
24
Company Statement of Changes in
Shareholders’ Equity
Company
Issued
capital
Share
premium
Treasury
stock
Merger
reserve
Translation
reserve
Balance at 1 January 2014
420
7,775
(2,937)
10,343
£000
£000
£000
£000
Purchase of own shares
Issue of shares out of share capital
Issue of shares out of treasury stock
Dividends paid
Share based payment charge
Deferred tax on share based
payment transactions
Transactions with owners
Profit and total comprehensive
income for the year
Balance at 31 December 2014
Balance at 1 January 2015
Purchase of own shares
Acquisition of Oakland Innovation
Limited
Issue of shares out of treasury stock
Dividends paid
Share based payment charge
Deferred tax on share based payment
transactions
Transactions with owners
Profit and total comprehensive
income for the year
-
1
-
-
-
-
1
-
421
421
-
-
-
-
-
-
-
-
-
31
-
-
-
-
31
-
(1,801)
-
300
-
-
-
(1,501)
-
-
-
-
-
-
-
-
-
7,806
(4,438)
10,343
-
(575)
424
940
-
-
-
-
2,858
-
-
-
424
3,223
-
-
-
-
-
-
-
-
-
-
Balance at 31 December 2015
421
8,230
(1,215)
10,343
7,806
(4,438)
10,343
-
Share based
payment
reserve
Retained
earnings
£000
£000
Total
share-
holders’
funds
£000
316
15,897
31,814
-
-
-
-
26
-
26
-
-
-
(138)
(428)
-
370
(1,801)
32
162
(428)
26
370
(196)
(1,639)
6,426 6,426
342
342
22,127
36,601
22,127
36,601
-
-
-
-
43
-
43
-
-
-
(575)
1,364
(1,400)
1,458
(1,527)
(1,527)
-
43
(360)
(360)
(3,287)
403
3,100
3,100
385
21,940
40,104
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25
Consolidated and Company Balance Sheet
At 31 December 2015
Company
Group
Note
2015
£000
2014
£000
2015
£000
2014
£000
ASSETS
Non-current assets
Acquisition related intangible assets
Goodwill
Property, plant and equipment
Investments
Deferred income tax assets
Current assets
Trade and other receivables
Current income tax asset
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Non-current liabilities
Borrowings
Derivative financial liabilities
Deferred income tax liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Treasury stock
Merger reserve
Translation reserve
Share based payment reserve
Retained earnings
Total equity
13
13
14
15
10
16
17
18
18
18
19
19
10, 19
20
-
-
-
21,781
23
21,804
16,784
1
1,724
18,509
40,313
209
-
-
209
-
-
-
-
-
-
-
16,818
423
17,241
14,256
-
5,231
19,487
36,728
122
5
-
127
-
-
-
-
209
127
6,000
5,073
22,040
100
1,324
34,537
8,980
472
14,516
23,968
58,505
10,689
-
1,034
11,723
6,753
141
2,657
9,551
21,274
1,867
3,458
14,458
-
1,868
21,651
5,474
-
23,802
29,276
50,927
6,783
22
1,009
7,814
7,778
203
1,683
9,664
17,478
40,104
36,601
37,231
33,449
421
8,230
(1,215)
10,343
-
385
21,940
40,104
421
7,806
(4,438)
10,343
-
342
22,127
36,601
421
8,230
(1,215)
10,343
308
2,359
16,785
37,231
421
7,806
(4,438)
10,343
238
1,907
17,172
33,449
The financial statements were approved by the Board of Directors and signed on its behalf by:
Rebecca Hemsted
Martyn Ratcliffe
On 2 March 2016
Finance Director
Chairman
The accompanying Notes are an integral part of the Consolidated and Company Balance Sheet.
The Company’s registered number is 06536543.
Annual Report and Financial Statements 2015
Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 26
Consolidated and Company Statement
of Cash Flows
Notes to the Financial Statements
27
Company
Group
1 General information
Profit before income tax
Depreciation and amortisation charges
Loss on disposal of property, plant and equipment
Change in fair value on interest rate swap
Share based payment charge
Impairment of goodwill and intangible assets
Impairment of cost of investment
Write-off of fair value of contingent consideration
Increase in receivables
Increase/(decrease) in payables
Cash generated from operations
UK corporation tax paid
Foreign corporation tax received
Note
2015
£000
3,133
-
-
-
43
-
387
-
(2,528)
88
1,123
-
-
2014
£000
6,378
-
-
-
26
-
-
-
(4,317)
(99)
1,988
(3)
-
2015
£000
2,440
1,114
7
(62)
452
1,066
-
-
(1,412)
1,283
4,888
(9)
2
2014
£000
4,201
629
7
203
431
126
-
(81)
(202)
(291)
5,023
(155)
-
Cash flows from operating activities
1,123
1,985
4,881
4,868
Purchase of property, plant and equipment
Purchase of subsidiary undertaking, net of cash received
Purchase of interest in associated companies
Increase in equity investment in subsidiaries
Cash flows used in investing activities
Issue of ordinary share capital
Issue of shares out of treasury
Repurchase of own shares
Dividends paid
Repayment of bank loans
Repayment of other loan
-
(3,636)
-
(350)
(3,986)
-
1,458
(575)
(1,527)
-
-
-
-
-
-
-
32
162
(1,801)
(428)
-
-
(7,857)
(4,588)
(100)
-
(428)
-
-
-
(12,545)
(428)
-
1,458
(575)
(1,527)
(1,000)
-
32
162
(1,801)
(428)
(1,000)
(11)
Cash flows used in financing activities
(644)
(2,035)
(1,644)
(3,046)
(Decrease)/increase in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Exchange gains/(losses) on cash
(3,507)
5,231
-
Cash and cash equivalents at the end of the year
17
1,724
(50)
5,281
-
5,231
(9,308)
23,802
22
1,394
22,428
(20)
14,516
23,802
Science Group plc (the ‘Company’), formerly Sagentia Group
plc, and its subsidiaries (together ‘Science Group’ or ‘Group’) is
an international science and technology consulting group. The
Company is the ultimate parent company in which results of all
Science Group companies are consolidated.
The Group and Company accounts of Science Group plc were
prepared under International Financial Reporting Standards
(IFRS) as adopted by the European Union, and have been
audited by KPMG LLP. Accounts are available from the
Company’s registered office; Harston Mill, Harston, Cambridge,
CB22 7GG.
Science Group provides independent advisory and advanced
product development services focused on science and
technology initiatives through subsidiary companies
branded Sagentia, Oakland Innovation, OTM Consulting and
Leatherhead Food Research, which collaborate closely with
their clients in key vertical markets to deliver clear returns on
technology and R&D investments. Science Group’s facilities
include offices and laboratories located in Harston near
Cambridge, Epsom and London in the UK and in the US in
Boston, Massachusetts and Houston, Texas.
The Company is incorporated and domiciled in England and
Wales under the Companies Act 2006 and has its primary
listing on the AIM Market of the London Stock Exchange
(SAG.L). The value of Science Group plc shares, as quoted on
the London Stock Exchange plc at 31 December 2015, was
138.0 pence per share (2014: 118.5 pence).
These consolidated financial statements have been approved
for issue by the Board of Directors on 2 March 2016.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation
of these consolidated financial statements are set out below.
These policies have been consistently applied to all of the years
presented, unless otherwise stated.
No income statement is presented for the Company as
provided by Section 408 of the Companies Act 2006. The
Company’s profit for the financial period after tax, determined
in accordance with the Act, was £3,100,000 (2014: £6,426,000).
The standards and interpretations in issue but not effective
for accounting periods commencing on 1 January 2015 that
may impact on Science Group going forward are listed below.
Science Group has not adopted these early.
2.1 Basis of preparation
The consolidated financial statements of Science Group have
been prepared under the historical cost convention, as modified
by the revaluation of certain financial instruments at fair value.
The financial statements are in accordance with IFRS as
adopted by the EU.
Of the new standards and interpretations effective for the
year ended 31 December 2015, there was no impact on the
presentation of the financial statements of Science Group
other than in disclosure. The accounting policies have been
applied consistently throughout the Group for the purposes of
preparation of these consolidated financial statements.
Number
Title
Amendments to IFRS
5, 7 and IAS 19 and 34
Annual improvements to IFRS 2012-2014 Cycle
IFRS 9
IFRS 15
IFRS 16
Financial Instruments
Revenue from Contracts with Customers
Leases
Effective
1-Jan-16
1-Jan-18
1-Jan-18
1-Jan-19
With the exception of IFRS 16, all standards and interpretations are not expected to have any significant impact on Science Group’s
financial statements in their periods of initial application. The Directors are preparing their analysis of IFRS 16 and therefore it is
not practicable to provide a reasonable estimate of the effect of this standard until a detailed review has been completed.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 28
29
Notes to the Financial Statements continued
Notes to the Financial Statements continued
2 Summary of significant accounting
policies (continued)
2.1 Basis of preparation (continued)
The preparation of financial statements in conformity with
IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the
process of applying Science Group’s accounting policies. The
areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 26.
The Group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Strategic Report. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities
are also described in the Strategic Report. In addition, Note 3
to the Financial Statements and the Report of the Directors
include the Group’s objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and
its exposure to credit risk and liquidity risk.
The Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence
for the foreseeable future and therefore continue to adopt the
going concern basis of accounting in preparing the annual
financial statements.
2.2 Basis of consolidation
The basis of consolidation is set out below:
Subsidiaries – subsidiaries are entities over which Science
Group has the power to govern the financial and operating
policies accompanying a shareholding of more than one half
of the voting rights. The existence and effect of potential
voting rights that are currently exercisable or convertible are
considered when assessing whether Science Group controls
another entity. Subsidiaries are fully consolidated from the date
on which control is transferred to Science Group. They are
de-consolidated from the date that control ceases.
Intercompany balances and transactions between Group
companies are eliminated on consolidation.
Investment in subsidiaries – in the Company accounts,
investments in subsidiaries are stated at cost less any provision
for impairment where appropriate.
Business combinations – the acquisition of subsidiaries
is accounted for using the acquisition method. The cost
of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given and liabilities
incurred or assumed in exchange for control. The acquired
company’s identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS
3 Business Combinations are recognised at their fair value at
the acquisition date. Acquisition expenses are expensed as
incurred.
Other investments – investments made in entities over which
Science Group is deemed to have no significant influence
are stated at cost less any provision for impairment where
appropriate. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but
is not control or joint control over those policies.
2.3 Segment reporting
Under IFRS 8, the accounting policy for identifying segments is
based on the internal management reporting information that
is regularly reviewed by the chief operating decision makers
(CODMs).
There are two segments identified; Core Business and Non-
Core Business. Core Business activities include all service
revenue, recharged materials and product and licence income
generated directly from these activities. Non-Core activities
include rental income from Harston Mill and associated
services.
2.4 Intangible assets
All intangible assets, except goodwill, are stated at cost less
accumulated amortisation and any accumulated impairment
losses.
Goodwill – goodwill represents the amount by which the fair
value of the cost of a business combination exceeds the fair
value of net assets acquired. Goodwill is not amortised and is
stated at cost less any accumulated impairment losses.
The recoverable amount of goodwill is tested for impairment
annually or when events or changes in circumstance indicate
that it might be impaired. Impairment charges are deducted
from the carrying value and recognised immediately in profit
or loss. For the purpose of impairment testing, goodwill
is allocated to each of the Group’s cash generating units
expected to benefit from the synergies of the combination.
If the recoverable amount of the cash generating unit is less
than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in
the unit. An impairment loss recognised for goodwill is not
reversed in a subsequent period.
Acquisition related intangible assets – net assets acquired
as part of a business combination includes an assessment
of the fair value of separately identifiable acquisition related
intangible assets, in addition to other assets, liabilities and
contingent liabilities purchased. These are amortised over their
useful lives which are individually assessed. The estimated
useful economic life for customer contracts and relationships is
between 7 and 11 years.
2.5 Research and development expenditure
Research and development expenditure is written off as
incurred.
2 Summary of significant accounting
policies (continued)
2.6 Property, plant and equipment
Land and buildings as shown in the Notes to the Financial
Statement comprise offices and laboratories at Harston Mill,
Harston, Cambridge, UK and at Great Burgh, Epsom, UK. Land
and buildings are shown at historical cost less accumulated
depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it
is probable that the future economic benefit associated with
the item will flow to Science Group and the cost of the item
can be measured reliably. All other repairs and maintenance are
charged to the income statement during the financial period in
which they are incurred.
Land is not depreciated. Depreciation on buildings is calculated
using the reducing balance method to calculate their cost less
their residual values over their economic life as follows:
Buildings
25 years
The basis of depreciation for buildings will be reviewed during
2016 prior to commencement of depreciation of Great Burgh.
Depreciation on other assets is calculated using the straight
line method to allocate their cost less their residual values over
their estimated useful lives, as follows:
Furniture and fittings
3-5 years
Equipment
3 years
Acquired computer software licences are included within
Equipment. These are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software.
The asset’s residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date. An asset’s
carrying amount is written down immediately to its recoverable
amount, when an indicator of impairment is identified.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
income statement.
2.7 Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established
when there is objective evidence that Science Group will
not be able to collect all the amounts due according to the
original terms of receivables. The amount of the provision
is the difference between the asset’s carrying amount and
the present value of estimated future cash flows, discounted
at the effective interest rate. The amount of the provision is
recognised in the income statement.
2.8 Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently measured at amortised cost using the
effective interest method.
2.9 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand
and on demand deposits, together with short term, liquid
investments that are readily convertible to a known amount of
cash and that are subject to a minimal risk of changes in value.
2.10 Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated
at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in
the income statement over the period of the borrowings using
the effective interest method.
Borrowings are classified as current liabilities unless Science
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
2.11 Derivative financial instruments
The Group holds derivative financial instruments to hedge its
foreign currency and interest rate risk exposures.
Derivatives are recognised initially at fair value and attributable
transaction costs are recognised in profit or loss as incurred.
Subsequent to initial recognition, derivatives are measured at
fair value, and changes therein are accounted for as described
below. Fair value measurements are classified using a fair value
hierarchy that reflects the significance of the inputs used in
making the measurements.
When a derivative financial instrument is not designated in
a hedge relationship that qualifies for hedge accounting, all
changes in its fair value are recognised immediately in profit or
loss.
2.12 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Where the Company purchases the Company’s equity share
capital into treasury (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of
income taxes) is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled,
reissued or disposed of. Where such shares are subsequently
sold or reissued, any consideration received, net of any
directly attributable incremental transaction costs and the
related income tax effects are included in equity attributable
to the Company’s equity holders. Where such shares are
subsequently cancelled, the movement is recognised directly in
equity with no gain or loss recognised in profit or loss.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 30
31
Notes to the Financial Statements continued
Notes to the Financial Statements continued
2 Summary of significant accounting
policies (continued)
2.13 Revenue recognition
Consulting revenue represents the fair value of the
consideration received or receivable for consulting services
on each client assignment provided during the year based
on the time worked at agreed fee rates, including expenses
and disbursements but excluding value added tax and other
similar sales taxes for both time and materials and fixed price
contracts.
Subscription income is recognised in the income statement on
a straight line basis.
Services revenues excluding subscription revenue is recognised
when the service has been provided.
No revenue is recognised if there are significant uncertainties
regarding recovery of the consideration due or associated
costs. An expected loss on contract is recognised immediately
in the income statement.
Property income from leases over property held is recognised
in the related period on a straight line basis over the lease term.
Investment income is recognised in the income statement in
the period in which it arises.
2.14 Dividend income
Dividend income is recognised when the right to receive
payment is established.
2.15 Foreign currency
(a) Functional and presentation currency
Items included in the financial statements of each of Science
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the
functional currency’). The consolidated financial statements are
presented in Pound Sterling, which is the Company’s functional
and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation
at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the
income statement.
In respect of translation differences on non-monetary items,
items held at cost are translated at the exchange rate at the
date of transaction.
(c) Group companies
The results and financial position of all Science Group
entities (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the
presentation currency are translated into the presentation
currency as follows:
(i) assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
(ii) income and expenses for each income statement are
translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the
transactions);
(iii) all resulting exchange differences are recognised as a
separate component of equity; and
(iv) on disposal of a foreign subsidiary the accumulated
translation differences recognised in equity are reclassified
to profit and loss and recognised as part of the gain or loss
on disposal.
2.16 Employee benefits
(a) Pension obligations
Group companies operate various pension schemes. The
schemes are generally funded through payments to insurance
companies based on a percentage of salary earned, currently
ranging between 5% and 8%. These are defined contribution
plans. A defined contribution plan is a pension plan under
which the Group pays fixed contributions into publicly or
privately administered pension insurance plans. The Group has
no legal or constructive obligations to pay further contributions
if the fund does not hold sufficient assets to pay all employees
the benefits relating to employee service in the current and
prior periods.
The contributions are recognised as an employee benefit
expense when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a
reduction in future payments is available.
Sagentia Inc. provides 401(k) benefits to employees.
Science Group has no further payment obligations once the
contributions have been paid.
(b) Share based compensation
Science Group operates an equity-settled, share based
compensation plan. The fair value of the employee services
received in exchange for the grant of the options is recognised
as an expense. The total amount to be expensed over the
vesting period is determined by reference to the fair value of
the options granted, as calculated by using an appropriate
valuation method. The Black-Scholes model excludes the
impact of any non-market vesting conditions (for example
profitability and sales growth targets). The Monte Carlo
and Binomial Option Pricing models build in any market
performance conditions.
2 Summary of significant accounting
policies (continued)
2.16 Employee benefits (continued)
(b) Share based compensation (continued)
Non-market vesting conditions are included in assumptions
about the number of options that are expected to become
exercisable. At each balance sheet date, the entity revises
its estimates of the number of options that are expected to
become exercisable. It recognises the impact of the revision
of original estimates, if any, in the income statement, and a
corresponding adjustment to equity over the remaining vesting
period.
The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value)
and share premium when the options are exercised.
The share based compensation charge in the Company
accounts is based only on those option holders employed
directly by the Company.
(c) Termination benefits
Termination benefits are payable when employment is
terminated before the normal retirement date, or whenever
an employee accepts voluntary redundancy in exchange for
these benefits. Science Group recognises termination benefits
when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed
formal plan without possibility of withdrawal; or providing
termination benefits as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than 12 months
after balance sheet date are discounted to present value.
(d) Profit-sharing and bonus plans
Science Group recognises a liability and an expense for bonuses
and/or profit-sharing, based on the incentive plans approved
by the Remuneration Committee. Science Group recognises a
provision where contractually obliged or where there is a past
practice that has created a constructive obligation.
(e) Sales commission
Science Group operates a sales commission scheme for
relevant sales staff. A liability and expense is recognised
based on sales made by employees who are eligible for the
scheme, and is calculated using the commission scheme rules.
Sales commission is paid quarterly and is only payable to the
employee when the associated revenue is recognised.
2.17 Deferred income tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the income statement, except
to the extent that it relates to items recognised in other
comprehensive income, or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
Deferred income tax is provided, using the liability method, on
temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, if the deferred income tax arises
from goodwill, the initial recognition of an asset or liability in
a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable
profit nor loss, it is not accounted for. Deferred income tax is
determined using tax rates (and laws) that have been enacted
or substantively enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that
it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences
arising on investments in subsidiaries, except where the timing
of the reversal of the temporary difference is controlled by
Science Group and it is probable that the temporary difference
will not reverse in the foreseeable future.
2.18 Income tax
Income tax is provided at amounts expected to be paid
(or recovered) using the tax rates and laws of the relevant
countries that have been enacted or substantively enacted by
the balance sheet date.
2.19 Leases
In accordance with IAS 17, the economic ownership of a
leased asset is transferred to the lessee if the lessee bears
substantially all the risks and rewards related to the ownership
of the leased asset. The related asset is recognised at the time
of inception of the lease at the fair value of the leased asset
or, if lower, the present value of the minimum lease payments
plus incidental payments, if any, to be borne by the lessee.
A corresponding amount is recognised as a finance leasing
liability. Leases of land and buildings are split into land and
buildings elements according to the relative fair values of the
leasehold interests at the date the asset is initially recognised.
The interest element of leasing payments represents a
constant proportion of the capital balance outstanding and is
charged to the income statement over the period of the lease.
All other leases are treated as operating leases and are charged
on a straight line basis over the lease term, even if payments
are not made on such a basis. Income from property leases is
recognised in the related period on a straight line basis over
the lease term. The majority of property leases are subject to
mutual notice periods of up to 6 months.
2.20 Dividends
Dividends are recognised as a liability in the period in
which the shareholders’ right to receive payment has been
established.
2.21 Exceptional items
Exceptional items are non-recurring costs which are outside
the scope of the Group’s ordinary activities. Such items are
disclosed separately within the income statement.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 32
33
Notes to the Financial Statements continued
Notes to the Financial Statements continued
3 Financial risk management
3 Financial risk management (continued)
3.1 Financial risk factors
Science Group’s activities expose it to a variety of financial risks: market risk (including currency risk and fair value interest risk),
credit risk, liquidity risk and cash flow interest rate risk. Science Group’s overall financial risk management programme focuses on
the unpredictability of financial markets and seeks to minimise potential adverse effects on Science Group’s financial performance.
Science Group uses derivative financial instruments to hedge certain risk exposures.
3.1 Financial risk factors (continued)
(a) Foreign currency sensitivity (continued)
The actual currency rate movement against the US Dollar and Euro at year end compared to the previous year end was -5.6%
(2014: -6.3%) and +5.2% (2014: +6.6%) respectively. Exposures to foreign exchange rates vary during the year depending on the
volume and value of overseas transactions.
(a) Foreign currency sensitivity
Science Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
with respect to the US Dollar and Euro. Foreign exchange risk arises from commercial transactions, recognised assets and liabilities.
To manage the Group’s foreign exchange risk arising from commercial transactions, recognised assets and liabilities, entities in
Science Group may use forward contracts and other instruments. Foreign exchange risk arises when commercial transactions
and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group finance
function is responsible for managing the net position in each foreign currency by using external forward currency contracts. There
were no open forward currency contracts at the year end.
(b) Interest rate sensitivity
Science Group manages its longer term cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest
rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, Science Group raises
long term borrowings at floating rates and swaps them into fixed rates that are lower than those available if Science Group
borrowed at fixed rates directly. Under the interest rate swaps, Science Group agrees with other parties to exchange, at specified
intervals (typically quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference
to the agreed notional principal amounts.
Science Group’s bank borrowings and its interest rate profile are as follows:
Science Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.
Foreign currency denominated financial assets and liabilities, translated into GBP at the closing rate, are as follows:
Group
US$
Euro
Others
Total
Pound Sterling – bank loan
2015
£000
Financial assets
Financial liabilities
Exposure
2014
£000
Financial assets
Financial liabilities
Exposure
3,849
(69)
3,780
1,352
(34)
1,318
-
-
-
5,201
(103)
5,098
US$
Euro
Others
Total
4,270
(40)
4,230
1,067
(98)
969
-
-
-
5,337
(138)
5,199
All foreign currency denominated financial assets and liabilities are classified as current.
The following table illustrates the sensitivity of the net movement on reserves and equity in regards to Science Group’s financial
assets and financial liabilities and the US Dollar/GBP exchange rate and Euro/GBP exchange rate. It assumes a +/- 10.0% change
of the GBP/US Dollar exchange rate for the year ended 31 December 2015 (2014: 10.0%). A +/- 10.0% change is considered for the
GBP/Euro exchange rate (2014: 10.0%).
If the GBP had strengthened against the US Dollar and Euro by 10.0% (2014: 10.0%) respectively then this would have had the
following impact:
2015
£000
Income statement
Equity
2014
£000
Income statement
Equity
US$
Euro
Total
(356)
(356)
(126)
(126)
(482)
(482)
US$
Euro
Total
(392)
(392)
(106)
(106)
(498)
(498)
For a 10.0% weakening of GBP against the relevant currency, there would be a comparable but opposite impact on the income
statement and equity.
The Company held no financial assets or liabilities in foreign currencies at the start or end of the year.
2015
£000
7,750
%
3.89%
2014
£000
8,750
%
3.89%
LIBOR+2.0% LIBOR+2.0%
Weighted average interest rate
Pound Sterling – fixed rate bank loan
Pound Sterling – floating rate bank loan
For benchmark rates of interest, Science Group refers to LIBOR.
The bank loan is secured via a fixed charge over certain assets of Science Group and is repayable as disclosed in Note 21. Terms
and conditions of the interest rate swap are as disclosed in Note 21.
(c) Credit risk analysis
Science Group has policies in place to ensure that sales are made to clients with an appropriate credit history. Derivative
counterparties and cash transactions are limited to high-credit-quality financial institutions although counterparty risk is not
negligible. Science Group has policies that limit the amount of credit exposure to any financial institution.
Science Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date,
as summarised below:
Cash and cash equivalents
Trade and other receivables
Company
Group
2015
£000
1,724
16,706
18,430
2014
£000
5,231
14,044
19,275
2015
£000
14,516
7,298
21,814
2014
£000
23,802
4,946
28,748
Science Group monitors defaults of customers and other counterparties, identified either individually or by group and incorporates
this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers
and other counterparties are obtained and used. Science Group’s policy is to deal only with creditworthy counterparties or to
require settlement in advance, although there can be no certainty that counterparty creditworthiness will be maintained. Cash
balances are held with more than one creditworthy institution.
Management reviews the credit status of the financial institutions with whom it holds its deposits.
Science Group’s management considers that all the above financial assets that are not impaired for each of the reporting dates
under review are of good credit quality, including those that are past due.
None of Science Group’s financial assets are secured by collateral or other credit enhancements.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 34
35
Notes to the Financial Statements continued
Notes to the Financial Statements continued
3 Financial risk management (continued)
3 Financial risk management (continued)
3.1 Financial risk factors (continued)
(d) Liquidity risk analysis
Science Group manages its liquidity needs by monitoring scheduled debt servicing payments for long term financial liabilities
as well as cash-outflows due in day-to-day business. Liquidity needs are monitored on a weekly and monthly basis. Long term
liquidity needs for a quarterly and semi-annual period are reviewed monthly.
Science Group maintains cash to meet its liquidity requirements in interest bearing current accounts.
As at 31 December 2015, Science Group’s financial liabilities have contractual maturities which are summarised below:
2015
Current
Non-current
Bank borrowings
Other borrowings
Interest on bank borrowings
Trade payables
Accruals
Financial instruments
< 6 months
£000
6 to 12 months
£000
1 to 5 years
£000
> 5 years
£000
500
17
144
639
3,159
-
4,459
500
17
135
-
-
-
652
6,750
3
398
-
-
141
7,292
-
-
-
-
-
-
-
This compares to the maturity of Science Group’s financial liabilities in the previous reporting period as follows:
2014
Current
Non-current
Bank borrowings
Other borrowings
Interest on bank borrowings
Trade payables
Accruals
Financial instruments
< 6 months
£000
6 to 12 months
£000
1 to 5 years
£000
> 5 years
£000
500
5
163
484
2,196
-
3,348
500
4
154
-
-
-
658
7,750
28
677
-
-
203
8,658
-
-
-
-
-
-
-
3.1 Financial risk factors (continued)
(e) Summary of financial assets and liabilities by category
The carrying amounts of Science Group’s financial assets and liabilities as recognised at the balance sheet date of the reporting
periods under review may also be categorised as follows:
Loans and receivables:
- Trade receivables
- Other receivables
- Cash and cash equivalents
Financial liabilities at amortised cost:
- Non-current borrowings
- Current borrowings
- Trade payables
- Accruals
Derivatives used for hedging:
- Financial instruments
Company
Group
2015
£000
-
16,706
1,724
18,430
-
-
4
157
161
-
-
2014
£000
-
14,044
5,231
19,275
-
-
37
85
122
-
-
2015
£000
7,071
227
14,516
21,814
6,753
1,034
639
3,159
11,585
141
141
2014
£000
4,202
744
23,802
28,748
7,778
1,009
484
2,196
11,467
203
203
The fair value of Science Group’s financial assets and liabilities is the same as the carrying value.
3.2 Fair value estimation
Financial assets and liabilities measured at fair value in the balance sheet are grouped into three levels based on the significance
used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:
• level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities
• level 2 – inputs other than quoted market prices included within level 1 that are observable for an asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
• level 3 – input for the asset or liability that are not based on observable market data (unobservable inputs)
The level within which the financial asset or liability is determined is based on the lowest level of significant input to the fair value
measurement.
The Group has measured the interest rate swap at fair value, and it has been measured under level 2.
The Group’s finance team performs valuations of financial items for financial reporting purposes in consultation with third
party valuation specialists for complex valuations. The valuation technique used for instruments categorised in levels 2 and 3
is described below:
Interest rate swap: the fair value is estimated by discounting the future contracted cash flows, using readily available market data.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015
36
37
Notes to the Financial Statements continued
Notes to the Financial Statements continued
3 Financial risk management (continued)
4 Segment information
3.3 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the cost of
capital and to provide funds for merger and acquisition activity.
The Group primarily views its capital as being its shareholders’ funds, net funds (being gross cash less borrowings) and the
freehold properties at Harston Mill and Great Burgh.
Science Group is organised on a worldwide basis into two segments, Core Business and Non-Core Business. ‘Core Business’
activities include all consultancy fees for services operations, including recharged expenses and product/licence revenue
generated directly from these activities. ‘Non-Core Business’ activities include rental income from Harston Mill and income
from the provision of external IT services. The segmental analysis is reviewed up to adjusted operating profit. Other resources
are shared across the Group. Other exceptional costs in the year include non-recurring charges related to the integration of the
acquisitions incurred in 2015, which are outside the Group’s ordinary activities.
Year ended 31 December 2015
Core Business
Total shareholders’ funds
Net funds (cash less borrowings)
Freehold property at Harston Mill
Freehold property at Great Burgh
Group
2015
£000
37,231
6,729
13,528
7,366
2014
£000
33,449
15,015
13,590
-
Services revenue
Third party property income
Other
Revenue
Non-Core
Business
£000
55
1,073
-
Total
£000
28,746
1,073
1,401
£000
28,691
-
1,401
30,092
1,128
31,220
Shareholders’ funds
In 2015 Sagentia Limited paid a dividend distribution of £3.5 million (2014: £6.5 million) and OTM Consulting Limited paid a
dividend distribution of £0.4 million (2014: £0.5 million) to Science Group plc.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders or issue new shares. The Board will recommend the payment of a dividend of 4.0 pence per share at the
forthcoming AGM (2014: 4.0 pence). The Board anticipates recommending a single dividend being paid each year.
Net funds
The net funds of the Group have decreased by £8.3 million in 2015 as a result of the purchase of freehold property near Epsom of
£9.0 million, including £1.5 million VAT which will be reimbursed in 2016, the acquisition of Oakland Innovation Limited, of which
£3.6 million net consideration was paid in cash and the acquisition of business and assets of Leatherhead Food International
Limited, of which £1.6 million net consideration was paid in cash. This is offset by effective cash flow management as set out in the
Consolidated Statement of Cash Flows.
Details of the Group’s borrowings are set out in Note 21 which summarises the terms of the loan and interest swap arrangement.
Freehold property
Details of freehold property and related rental income are set out in Note 14.
Adjusted operating profit
Amortisation and impairment of intangible assets
5,286
38
Share based payments
Other exceptional costs
Operating profit
Finance charges (net)
Profit before income tax
Income tax
Profit for the year
Year ended 31 December 2014
Core Business
Services revenue
Third party property income
Other
Revenue
£000
25,672
-
1,480
27,152
Non-Core
Business
£000
128
1,024
25
1,177
Adjusted operating profit
Amortisation and impairment of intangible assets
5,196
207
Share based payments
Other exceptional costs
Operating profit
Finance charges (net)
Profit before income tax
Income tax
Profit for the year
5,324
(1,660)
(452)
(534)
2,678
(238)
2,440
368
2,808
Total
£000
25,800
1,024
1,505
28,329
5,403
(229)
(431)
-
4,743
(542)
4,201
(765)
3,436
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 38
39
Notes to the Financial Statements continued
Notes to the Financial Statements continued
4 Segment information (continued)
6 Finance income and finance costs
Geographical segments
Revenue and non-current assets (excluding deferred tax assets) by geographical area are as follows:
Finance costs include all interest-related income and expenses through profit or loss. The following have been included in the
income statement for the reporting periods presented:
United Kingdom
Other European countries
North America
Other
Total
2015
2014
Revenue
£000
7,616
5,409
17,244
951
31,220
Non-current
assets
£000
33,213
-
-
-
33,213
Revenue
£000
7,153
3,667
16,546
963
28,329
Non-current
assets
£000
19,781
-
2
-
19,783
For the purpose of the analysis of revenue, geographical markets are defined as the country or area in which the client is based.
Non-current assets are allocated based on their physical location.
In 2015 and 2014, there was no single customer that accounted for 10% or more of the Group’s revenues.
Year ended 31 December
Finance income
Bank interest receivable and similar income
Finance costs
Bank borrowings
Change in fair value of interest rate swap
7 Employee benefit expenses
Employment costs are shown below:
Group
Year ended 31 December
Wages and salaries (including bonuses and healthcare costs)
Social security costs
Sales commission
Pension costs
Share based payments
The average monthly number of persons employed (including Executive and Non-Executive Directors and fixed term contractors)
by Science Group was as follows:
Year ended 31 December
Technology consultants
Marketing, support, administration and other technically-qualified staff
Group
2015
2014
202
62
264
167
41
208
5 Operating expenses
Expenses by nature
Year ended 31 December
Employee remuneration and benefit expenses
Operating third party expenses
Occupancy costs
Equipment and consumables
Selling and marketing expenses
Depreciation of property, plant and equipment
Foreign currency losses
Amortisation and impairment of intangible assets
Other
Less expenses below adjusted operating profit
Included above
Research and development *
Operating lease rentals
- Plant and machinery
Auditors’ remuneration
Services to the Company and its subsidiaries:
Fees payable to the Company’s auditors for the audit of the financial statements
Audit of the financial statements of the Company’s subsidiaries pursuant to legislation
Other non-audit fees
Note
7
14
2015
£000
17,699
2,040
2,637
788
1,599
520
(5)
1,660
1,604
28,542
(2,646)
25,896
2014
£000
15,060
2,268
2,078
324
1,756
445
(5)
229
1,431
23,586
(660)
22,926
Group
2015
£000
5,840
2014
£000
6,619
41
10
54
-
40
10
42
37
*R&D costs are represented by staff and material costs incurred in relation to R&D projects
The 2014 auditor’s remuneration for audit services and other non-audit services relate solely to amounts paid to Grant Thornton
UK LLP. The 2015 amounts relate solely to amounts paid to KPMG LLP.
Group
2015
£000
2014
£000
88
28
(388)
62
(326)
(367)
(203)
(570)
Group
2015
£000
14,349
1,881
182
835
452
2014
£000
11,986
1,661
229
753
431
17,699
15,060
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015
40
41
Notes to the Financial Statements continued
Notes to the Financial Statements continued
8 Directors’ remuneration, interests and transactions
Directors’ emoluments and benefits include:
Year ended 31 December 2015
Salary/ fee
Bonus
Name of Director
£000
£000
Pension
contribution
£000
Taxable
benefits
£000
Discretionary
payment
£000
Total
£000
Courtley
Glover
Hemsted
Lacey-Solymar
Ratcliffe
Aggregate emoluments
35
41
118
35
275
504
-
-
31
-
-
31
-
-
8
-
-
8
-
-
1
-
-
1
-
-
-
-
50
50
35
41
158
35
325
594
Year ended 31 December 2014
Salary/fee
Bonus
Name of Director
£000
£000
Pension
contribution
£000
Taxable
benefits
£000
Discretionary
payment
£000
Total
£000
Courtley
Elton
Glover
Hemsted
Lacey-Solymar
Ratcliffe
Aggregate emoluments
34
22
34
105
34
275
504
-
-
-
25
-
-
25
-
1
-
5
-
-
6
-
1
-
1
-
-
2
-
-
-
-
-
-
-
34
24
34
136
34
275
537
Directors’ emoluments and benefits are stated for the Directors of Science Group plc only. In addition to the above, a share based
payment charge of £43,000 was recognised in the income statement relating to share options held by Directors (2014: £26,000).
The amounts shown were recognised as an expense during the year related to the Directors of the Company. Bonuses, pension and
medical benefits are not paid to Non-Executive Directors. The Remuneration Committee awarded Martyn Ratcliffe a discretionary
payment in acknowledgement of the substantial additional time required related to the integration of the acquisitions. Mr Ratcliffe
does not participate in the Group bonus scheme.
Total social security costs related to Directors during the year was £76,000 (2014: £67,000).
The above figures for emoluments do not include any gains made on the exercise of share options received under long term
incentive schemes (2014: Nil). During 2015, Martyn Ratcliffe, Chairman of Science Group, exercised 2,500,000 share options
at a price of 40.0 pence per share resulting in a gain of £2.8 million, although he retained 900,000 shares after payment of tax,
resulting in an incremental personal cash investment of £0.1 million.
Directors’ interests in the shares of Science Group at 31 December 2015 and 31 December 2014, and any changes subsequent to
31 December 2015, are as follows:
9 Income tax
The tax credit/(charge) comprises:
Year ended 31 December
Current taxation
Adjustment to prior year
Deferred taxation (Note 10)
2015
£000
(114)
779
(297)
368
2014
£000
(120)
97
(742)
(765)
The tax on Science Group’s profit before tax differs from the theoretical amount that would arise using the weighted average
statutory tax rate applicable to profits of the consolidated companies as follows:
Profit before tax
Tax calculated at domestic tax rates applicable to profits/(losses) in the respective countries
Expenses not deductible for tax purposes
Adjustment in respect of prior periods
Share scheme deduction
Movement in deferred tax due to change in tax rate
Current year losses for which no deferred tax asset was recognised
R&D taxation credit
Tax credit/(charge)
The weighted average statutory applicable tax rate was 20.3% (2014: 21.5%).
The Group has available tax losses of approximately £17.0 million (2014: £17.6 million).
10 Deferred income tax
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months
Deferred tax assets to be recovered within 12 months
Deferred tax liabilities:
Deferred tax liabilities to be settled after more than 12 months
2015
£000
2,440
(494)
(216)
(9)
605
86
(392)
788
368
2015
£000
392
932
1,324
(521)
(2,136)
(2,657)
2014
£000
4,201
(903)
(160)
97
210
(9)
-
-
(765)
2014
£000
938
930
1,868
(1,683)
-
(1,683)
Science Group plc
Ordinary shares of £0.01
Options
Shares
Deferred tax liabilities to be settled within 12 months
Year ended 31 December
2015
2014
2015
2014
2015
2015
Hemsted
Ratcliffe
Courtley
Average exercise price
(pence)
1.0
-
-
1.0
40.0
-
Number
Number
Total
(1,333)
185
175,000
150,000
-
-
-
-
2,500,000
13,412,906
12,512,906
-
375,000
375,000
175,000
2,650,000
13,787,906
12,887,906
See Note 20 for further details on option plans. Keith Glover retired from being a Director on 31 December 2015.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 42
43
Notes to the Financial Statements continued
Notes to the Financial Statements continued
10 Deferred income tax (continued)
11 Earnings per share
The gross movement on the deferred income tax account is as follows:
The calculation of earnings per share is based on the following result and numbers of shares:
Profit
after tax
£000
2015
Weighted
average
number of
shares
Pence
per share
Profit
after tax
£000
2014
Weighted
average
number of
shares
Pence per
share
2,808 39,228,135
-
1,911,427
7.2
(0.4)
3,436 38,500,084
-
4,029,210
8.9
(0.8)
Basic earnings per ordinary share
Effect of dilutive potential ordinary shares:
Share options
Diluted earnings per ordinary share
2,808
41,139,562
6.8
3,436
42,529,294
8.1
Only the share options granted, as disclosed in Note 20, are dilutive. The number of shares in issue (excluding treasury shares) at
31 December 2015 is 41,060,006 (2014: 37,336,615).
12 Dividends
The proposed final dividend for 2014 of 4.0 pence per share was approved by the Board on 21 May 2015. An amount of £1.5 million
was recognised as a distribution to equity holders in the year ended 31 December 2015.
The Board has proposed a final dividend for 2015 of 4.0 pence per share. The dividend is subject to approval by shareholders at the
Annual General Meeting and the expected cost of £1.6 million has not been included as a liability as at 31 December 2015.
Beginning of the year
Acquisition of subsidiaries in the year
Income statement charge (Note 9)
Movement in equity
End of year
2015
£000
185
(953)
(297)
(268)
(1,333)
2014
£000
462
-
(742)
465
185
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
At 1 January 2014
Charged to the income statement
Charged to equity
At 31 December 2014
Acquisition of subsidiaries in the year
Charged to the income statement
Charged to equity
At 31 December 2015
Deferred tax liability
£000
Deferred tax asset
£000
(2,172)
24
465
(1,683)
(953)
247
(268)
(2,657)
2,634
(766)
-
1,868
-
(544)
-
1,324
Total
£000
462
(742)
465
185
(953)
(297)
(268)
(1,333)
Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit
through the future taxable profits is probable. Deferred tax liabilities are recognised against accelerated capital allowances.
Deferred taxation amounts provided and not provided in the financial statements are as follows:
Group
Provided
Not provided
Deferred taxation is attributable to:
Accelerated capital allowances
Tax losses available
Acquisition related intangible assets
Other temporary differences
Deferred tax (liability)/asset
Tax losses relating to deferred tax asset not recognised
Company
Deferred taxation is attributable to:
Tax losses available
Other temporary differences
Deferred tax (liability)/asset
Tax losses relating to deferred tax asset not recognised
2015
£000
(1,972)
1,324
(1,125)
440
(1,333)
-
2014
£000
(2,007)
1,868
(401)
725
185
-
2015
£000
-
2,083
-
-
2,083
10,414
2014
£000
-
1,723
-
-
1,723
8,262
Provided
Not provided
2015
£000
-
23
23
-
2014
£000
6
417
423
-
2015
£000
436
-
436
2,181
2014
£000
-
-
-
-
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 44
45
Notes to the Financial Statements continued
Notes to the Financial Statements continued
Goodwill
Total
Goodwill and acquisition related intangible assets recognised arose from acquisitions during 2013 and 2015.
13 Intangible assets (continued)
£000
£000
Group
The carrying amount of goodwill is allocated as follows:
13 Intangible assets
Group
Cost
At 1 January 2014
At 31 December 2014
Acquisitions through business combinations
At 31 December 2015
Accumulated amortisation
At 1 January 2014
Amortisation charged in year
At 31 December 2014
Amortisation charged in year
At 31 December 2015
Accumulated impairment
At 1 January 2014
Impairment losses for the year
At 31 December 2014
Impairment losses for the year
At 31 December 2015
Carrying amount
At 31 December 2014
At 31 December 2015
Customer
contracts and
relationships
£000
2,167
2,167
4,727
6,894
(109)
(184)
(293)
(594)
(887)
-
(7)
(7)
-
(7)
1,867
6,000
Reconciliation of amortisation and impairment to the Consolidated Income Statement:
Amortisation of intangible assets
Impairment of goodwill and intangible assets relating to Quadro Design Limited
Write-off of contingent consideration relating to Quadro Design Limited
Impairment of goodwill relating to OTM Consulting
Amortisation and impairment of intangible assets
3,577
3,577
2,681
6,258
-
-
-
-
-
-
(119)
(119)
(1,066)
(1,185)
3,458
5,073
2015
£000
(594)
-
-
(1,066)
(1,660)
5,744
5,744
7,408
13,152
(109)
(184)
(293)
(594)
(887)
-
(126)
(126)
(1,066)
(1,192)
5,325
11,073
2014
£000
(184)
(126)
81
-
(229)
OTM Consulting
Oakland Innovation Limited
Leatherhead Research Limited
2015
£000
2,392
2,031
650
5,073
2014
£000
3,458
-
-
3,458
The annual impairment test on goodwill resulted in an impairment of £1.1 million for goodwill relating to OTM Consulting for the
year ended 31 December 2015. This has resulted from a deterioration in the oil & gas market related to the decline in the oil price
since the company was purchased in 2013, which has led to a reduction in forecast net future cash flows.
Goodwill relating to Quadro Design Limited was fully impaired during 2014.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The
recoverable amounts of the Cash-Generation Unit (CGUs) are determined from value in use. The key assumptions for the value in
use calculations are those regarding the discount rates, growth rates and operating profit margins. The Directors considered the
financial performance of the acquired businesses in the year and have not identified any indicators of impairment.
The Group monitors its post-tax Weighted Average Cost of Capital and those of its competitors using market data. In considering
the discount rates applying to CGUs, the Directors have considered the relative sizes, risks and the inter-dependencies of its
CGUs. The impairment review currently uses a discount rate of 12.1% which is adjusted for pre-tax cash flows.
The Group prepares the cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates
cash flows for the following three years based on forecast rates of growth or decline in revenue by the CGU. The growth rates
used are based on internal forecasts of between a decline of 5.0% and growth rate of 0%. The long term growth rate used in the
terminal value calculation is 2.25%. The operating profit margin for the CGU that is incorporated in the cash flow forecasts is
derived from the most recent financial plan approved by the Board.
Sensitivity analysis
The Group has conducted a sensitivity analysis on the impairment test of the CGU’s carrying value. A decrease in the PBIT margin
by 1 percentage point with all other variables remaining constant would increase the impairment by £270,000. A decrease in the
revenue growth by 1 percentage point in years 1 to 4 with all other variables remaining constant would increase the impairment by
£140,000.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015
46
47
Notes to the Financial Statements continued
Notes to the Financial Statements continued
14 Property, plant and equipment
Group
Cost
At 1 January 2014
Exchange differences on cost
Additions
Disposals
At 1 January 2015
Exchange differences on cost
Additions
Additions through business combinations
Disposals
At 31 December 2015
Accumulated depreciation
At 1 January 2014
Depreciation charge
Exchange differences on depreciation
Disposals
At 1 January 2015
Depreciation charge
Exchange differences on depreciation
Disposals
At 31 December 2015
Carrying amount
At 31 December 2014
At 31 December 2015
Freehold land
and buildings
£000
Furniture
and fittings
£000
Equipment
Total
£000
£000
16,681
-
-
-
16,681
-
7,366
-
-
1,172
-
337
(6)
1,503
-
320
3
(3)
883
3
91
(14)
963
2
171
249
(38)
18,736
3
428
(20)
19,147
2
7,857
252
(41)
24,047
1,823
1,347
27,217
3,024
67
-
-
3,091
62
-
-
3,153
13,590
20,894
632
228
-
(1)
859
262
-
(3)
1,118
644
705
598
150
3
(12)
739
196
2
(31)
906
224
441
4,254
445
3
(13)
4,689
520
2
(34)
5,177
14,458
22,040
14 Property, plant and equipment (continued)
On 12 November 2015, Quadro Design Limited, a 100% subsidiary of Science Group plc, acquired a freehold property near Epsom,
UK for £7.0 million. Directly attributable costs of £0.4 million were incurred and fixtures and fittings of £0.3 million were acquired.
At 31 December 2015 the site was being developed and not in use and as a result no depreciation charge in the year ended 31
December 2015 was recognised. This property will comprise offices, laboratories and a consumer sensory centre and was acquired
solely for the use of Science Group.
The Harston property is held at cost less accumulated depreciation. Included within land and buildings for Science Group is
freehold land to the value of £1,360,000 (2014: £1,360,000) which has not been depreciated. Cumulative interest capitalised up to
31 December 2003 was £340,000. No further interest has been capitalised since. The Harston property was last formally valued
during August 2013 by Savills for Lloyds. Under the assumptions used, including tenant covenant strength and market rents, the
indicative valuation range for the building was between £12.9 million based on occupational tenancies where the head lease is
merged into the freehold interest, and £18.0 million under a sale and leaseback scenario.
The Harston property generated third party rental and services income of £1,073,000 (2014: £1,024,000). Of this income, £619,000
(2014: £549,000) was rental income and £454,000 (2014: £475,000) was services income. Services income includes, but is not
limited to, utilities, cleaning, general maintenance and use of subsidised restaurant facilities.
The total space on the Harston site available for business use is 97,000 sq ft. Of this space, the average total space let to third
parties during 2015 was 31,300 sq ft (2014: 29,500 sq ft). The leases to tenants are typically for a 36 month term and normally
have a termination notice period of 3 to 6 months. An average of 44,200 sq ft (2014: 41,200 sq ft) was used by the Group during
the year for its business activities including office space and laboratory space and 20,000 sq ft are common areas. The remaining
space of 1,500 sq ft (2014: 6,300 sq ft) was vacant during the year.
Given the continuing rental values and occupancy rates the Directors do not believe that the carrying value of the Harston property
of £13,527,000 (2014: £13,590,000) is significantly different to its fair value determined during the year. The interest in Harston
freehold land and buildings has been charged as security to the bank loan (see Note 21).
Science Group plc had no fixed assets at the start or end of the year.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 48
Notes to the Financial Statements continued
Notes to the Financial Statements continued
15 Investments
a) Investments in subsidiaries
Science Group held investments in the following subsidiaries at 31 December 2015.
Subsidiaries of Science Group plc
Consulting operations
Sagentia Limited*
Sagentia Technology Advisory Limited
OTM Consulting Limited*
Quadro Design Limited*
Manage5Nines Limited**
Sagentia Inc.
OTM Consulting Inc.
Oakland Innovation Limited
Leatherhead Research Limited***
Country of
incorporation
Principal activity
Shares held
%
England
Consultancy
England Holding company
England
England
Consultancy
Property
England
IT Consultancy
USA
USA
England
England
Consultancy
Consultancy
Consultancy
Consultancy
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
* Direct subsidiaries of Science Group plc as at 31 December 2015
** Manage5Nines Limited ceased to trade during 2014
*** During 2015, a direct subsidiary of Science Group plc was incorporated and named SGL1 Limited. SGL1 Limited acquired
the business and assets of Leatherhead Food International Limited (‘Leatherhead’) on 16 September 2015 and was renamed
Leatherhead Research Limited following the acquisition of Leatherhead.
All subsidiaries for which accounts are provided have year ends of 31 December.
b) Other investments
On 27 January 2015, the Group acquired 30% of the ordinary share capital of Creactive (ID) Design Limited, a Cambridge-based
industrial design consultancy, for a total cash consideration of £100,000. The Directors do not consider that any of its investments
are associates and to avoid a statement of excessive length, details of investments that are not significant have been omitted.
15 Investments (continued)
c) Company investments
Cost
At 1 January 2014
At 31 December 2014
Acquisitions through business combinations
Recapitalisation of subsidiaries
At 31 December 2015
Impairment
At 1 January 2014
At 31 December 2014
Impairment loss
At 31 December 2015
Carrying amount
At 31 December 2014
At 31 December 2015
An impairment loss of £0.4 million was recognised during the year within operating expenses in the Company Income Statement.
The impairment relates to the OTM Consulting Limited business and has resulted from a deterioration in the oil & gas market
related to the decline in the oil price since the company was purchased in 2013, which has led to a reduction in forecast net future
cash flows.
Refer to Note 13 for further information on the impairment reviews performed and the calculation of the recoverable amounts.
On 22 October 2015, Science Group plc purchased the 100% subsidiary Quadro Design Limited from the 100% direct subsidiary
Sagentia Limited for consideration of £1.
On 22 December 2015, Quadro Design Limited, 100% subsidiary of Science Group plc, issued share capital of £250,000.
On 23 December 2015, Leatherhead Research Limited, 100% subsidiary of Science Group plc, issued share capital of £100,000.
49
Total
£000
16,818
16,818
5,000
350
22,168
-
-
387
387
16,818
21,781
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 50
51
Notes to the Financial Statements continued
Notes to the Financial Statements continued
16 Trade and other receivables
17 Cash and cash equivalents
Current assets
Trade receivables
Provision for impairment
Trade receivables – net
Amounts recoverable on contracts
Other receivables
Amounts owed by Group undertakings
VAT
Prepayments
Company
Group
2015
£000
2014
£000
-
-
-
-
-
-
-
-
-
-
16,706
14,044
36
42
26
186
16,784
14,256
2015
£000
7,187
(116)
7,071
208
19
-
1,129
553
8,980
2014
£000
4,269
(67)
4,202
728
16
-
-
528
5,474
All amounts disclosed above are receivable within 90 days.
All of Science Group’s trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were
considered to be impaired and a provision of £116,000 (2014: £67,000) has been provided at 31 December 2015. In addition, some
of the unimpaired trade receivables are past due as at the reporting date.
Provision brought forward
Debts written off
Provision released
Provision made
Provision carried forward
The age of trade receivables overdue but not impaired is as follows:
Not more than 3 months
More than 3 months but not more than 6 months
All impaired receivables are overdue by more than 60 days.
Group
2015
£000
67
(4)
(63)
116
116
Group
2015
£000
1,984
8
1,992
2014
£000
81
(24)
(30)
40
67
2014
£000
2,767
-
2,767
Short term bank deposits
Cash at bank and in hand
18 Current liabilities
Trade and other payables – current
Payments received on account
Trade payables
Other taxation and social security
VAT
Deferred income
Accruals
Bank borrowings
Other borrowings
Current tax liabilities
19 Other non-current liabilities
Bank borrowings
Other borrowings
Interest rate swap
Deferred income tax liabilities
Company
Group
2015
£000
37
1,687
1,724
2014
£000
4,880
351
5,231
2015
£000
45
14,471
14,516
2014
£000
9,956
13,846
23,802
Company
Group
Note
2015
£000
2014
£000
2015
£000
2014
£000
-
4
48
-
-
157
209
-
-
-
-
37
22
-
-
63
122
-
-
5
5,342
2,845
639
719
-
830
3,159
10,689
1,000
34
-
484
344
69
845
2,196
6,783
1,000
9
22
209
127
11,723
7,814
20
Note
20
20
Group
2015
£000
6,750
3
6,753
141
2,657
9,551
2014
£000
7,750
28
7,778
203
1,683
9,664
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 52
53
Notes to the Financial Statements continued
Notes to the Financial Statements continued
20 Called-up share capital
20 Called-up share capital (continued)
Allotted, called-up and fully paid
Ordinary shares of £0.01 each
Allotted, called-up and fully paid
Ordinary shares of £0.01 each
2015
£000
2014
£000
421
421
Number
Number
42,062,035
42,062,035
The fair values of options granted were determined using a variation of the Binomial Option Pricing model that takes into account
factors specific to the share incentive plans including performance conditions. The performance conditions attached to options
granted in the year are such that 50% of the options vest dependent on the Company achieving earnings per share targets
and 50% are dependent on a total shareholder return performance condition. The performance conditions, which are market
conditions, have been incorporated into the measurement by means of actuarial modelling. For options granted in the year, a risk
free rate of 1.21% to 1.27% has been used and a dividend yield factor of 1%. The share price on the date the options were granted
was 147 pence in April 2015 and 138 pence in September 2015. The other principal assumptions used in the valuation are set out in
the table below. The underlying expected volatility was determined by reference to historical data of the Company’s shares over the
vesting period.
The allotted, called-up and fully paid share capital of the Company as at 31 December 2015 was 42,062,035 shares
(2014: 42,062,035). At the beginning of 2015, 4,725,420 of these shares were held by the Company as treasury shares.
The total charge for the year relating to employee share based payment plans was £452,000 (2014: £431,000), all of which related
to equity-settled share based payment transactions.
During 2015 the Company issued 1,043,333 treasury shares as settlement of a liquidated sum of cash consideration as part of
the purchase of Oakland Innovation Limited satisfied by the sale of treasury shares and 3,085,058 treasury shares transferred
in the settlement of the exercise of share options. The Company also purchased 405,000 of its own shares. As a result, as at 31
December 2015, the total number of ordinary shares in issue (excluding treasury shares) was 41,060,006 (2014: 37,336,615) and
the number of treasury shares held was 1,002,029 (2014: 4,725,420) equivalent to 2.4% of the Company’s issued share capital.
It is the intention of the Company to hold the treasury shares for the purpose of settling employee share schemes and for settling
liquidated sums of cash consideration in any future business acquisitions, and in limited circumstances to satisfy investor demand
which market liquidity is unable to meet. No dividend or other distribution may be made to the Company in respect of the treasury
shares.
During 2015, 2,500,000 treasury shares were issued at a price of 40.0 pence per share in settlement of the exercise of share
options by Martyn Ratcliffe, Chairman of Science Group plc. These share options were specifically approved by independent
shareholders in relation to Mr Ratcliffe’s 2010 investment. Mr Ratcliffe had held these options for over five years and exercised
them in order to provide liquidity in the Company’s shares to satisfy demand from independent institutional shareholders. The
exercise used the cashless exercise mechanism approved by shareholders at the AGM in 2013, with 1,600,000 shares sold in
the market to fund the option price and partially satisfy tax obligations arising from this option exercise. The remaining 900,000
shares have been retained by Mr Ratcliffe. As a result, Mr Ratcliffe’s shareholding as a percentage of the total issued share capital
remains similar to that prior to this option exercise and the net cash effect is that Mr Ratcliffe made a further investment of
approximately £100,000 in the Company. At 31 December 2015, Mr Ratcliffe has no other share options in the Company.
Reconciliation of outstanding options
2015
2014
At beginning of year
Granted during year
Exercised during year
Lapsed during the year
At end of year
Number
Weighted
average exercise
price (pence)
Number
Weighted
average exercise
price (pence)
6,084,000
414,000
(3,085,058)
(409,942)
3,003,000
45.5
1.0
47.3
38.9
38.3
6,207,385
465,000
(368,385)
(220,000)
6,084,000
48.9
1.0
44.2
44.7
45.5
The options outstanding at 31 December 2015 had a weighted average contractual life of 7.4 years (2014: 6.9 years).
Included within the total outstanding options at 31 December 2015 are 1,411,500 options which are exercisable (2014: 3,316,500).
The weighted average exercise price of exercisable options at the end of the year was 38 pence (2014: 47 pence).
Options exercised during the year had a weighted average share price at the date of exercise of 47 pence (2014: 44 pence).
Exercise of an option is subject to continued employment, and normally lapses within three months of leaving employment.
At 31 December 2015, options granted to subscribe for ordinary shares of the Company are as follows:
Option exercise
period
Number of shares under option
Date of
grant
From
(a)
To Approved Unapproved Incentive Performance
Share Plan
Exercise
price
(pence)
Fair value
of options
(pence)
Life
(years)
Volatility
Dec 2007 Dec 2009 Dec 2017
-
73,539
Nov 2008 Nov 2011 Nov 2018
10,000
Jul 2010
Jul 2013
Jul 2020
55,000
-
-
-
-
26,461
Oct 2011
Oct 2014 Oct 2021
102,249
152,751
Nov 2012
Nov 2015 Nov 2022
314,902
676,598
Sep 2013
Sep 2016 Sep 2023
Mar 2014 Mar 2017 Mar 2024
Sep 2014
Sep 2017 Sep 2024
Apr 2015
Apr 2018 Apr 2025
Sep 2015
Sep 2018 Sep 2025
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
797,500
100,000
300,000
49,000
345,000
45.0
17.5
51.0
80.0
86.0
1.0
1.0
1.0
1.0
1.0
28.8
9.9
14.0
32.9
18.6
80.8
85.3
74.8
86.7
77.0
10
10
10
10
10
10
10
10
10
10
58%
42%
35%
65%
40%
25%
21%
18%
16%
16%
482,151
902,888
26,461
1,591,500
(a) Subject to earlier exercise in certain limited circumstances
For all options granted prior to 2013, the exercise price is also the share price at date of grant.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 54
55
Notes to the Financial Statements continued
Notes to the Financial Statements continued
20 Called-up share capital (continued)
21 Borrowings (continued)
At 31 December 2014, options granted to subscribe for ordinary shares of the Company are as follows:
In accordance with an agreed repayment schedule with the bank, bank borrowings are repayable to Lloyds as follows:
Option exercise
period
Number of shares under option
Date of
grant
From
(a)
To Approved Unapproved Incentive Performance
Share Plan
Exercise
price
(pence)
Fair value
of options
(pence)
Life
(years)
Volatility
Dec 2007 Dec 2009 Dec 2017
-
73,539
Nov 2008 Nov 2011 Nov 2018
10,000
-
-
-
Jun 2010
Jun 2013 Jun 2020
-
- 2,500,000
Jul 2010
Jul 2013
Jul 2020
136,500
50,000
26,461
Oct 2011
Oct 2014 Oct 2021
260,374
259,626
Nov 2012 Nov 2015 Nov 2022
484,273
900,727
Sep 2013
Sep 2016 Sep 2023
Oct 2013
Oct 2016 Oct 2023
May 2014 Mar 2017 Mar 2024
Sep 2014
Sep 2017 Sep 2024
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
867,500
50,000
100,000
365,000
891,147
2,666,392 2,526,461
1,382,500
(a) Subject to earlier exercise in certain limited circumstances
45.0
17.5
40.0
51.0
80.0
86.0
1.0
1.0
1.0
1.0
28.8
9.9
8.0
14.0
32.9
18.6
80.8
86.5
85.3
74.8
10
10
10
10
10
10
10
10
10
10
58%
42%
35%
35%
65%
40%
25%
25%
21%
18%
For all options granted prior to 2013, the exercise price is also the share price at date of grant.
21 Borrowings
Group
Non-current
Bank borrowings
Other borrowings
Current
Bank borrowings
Other borrowings
Total borrowings
Note
19
19
18
18
2015
£000
6,750
3
6,753
1,000
34
1,034
7,787
2014
£000
7,750
28
7,778
1,000
9
1,009
8,787
Science Group plc had no bank borrowings at the start or end of the year.
At 31 December 2015, the Group had a five year loan facility of £10.0 million on which interest is payable based on LIBOR plus
2.0% margin. The loan is secured on the Harston freehold property and associated lease structure and, subject to a minimum cash
balance of £2.0 million, it is not subject to covenants related to the operating performance of the Consultancy business.
At 31 December 2015, £7,750,000 (2014: £8,750,000) is outstanding and is repayable by Sagentia Limited to Lloyds.
Within one year
Between 1 and 2 years
Between 2 and 5 years
Company
Group
2015
£000
2014
£000
-
-
-
-
-
-
-
-
2015
£000
1,000
1,000
5,750
7,750
2014
£000
1,000
1,000
6,750
8,750
In order to address interest rate risk the Group has in place an interest rate swap agreement (swap), the effect of which is to fully
hedge the interest payments on the bank facility borrowings. The swap is designated as the variable rate interest payable on the
repayment loan facility of £10.0 million provided by Lloyds. The swap is contracted over the same period of the loan at a fixed rate
of 1.89% pa, effectively fixing the Group’s interest payments on the repayment loan facility at 3.89% pa, plus regulatory costs. The
fair value of the swap at 31 December 2015 was a liability of £141,000 (2014: £203,000).
Other borrowings relate to finance leases of £37,000 (2014: £37,000).
22 Acquisitions
a) Acquisition of Oakland Innovation Limited
On 18 February 2015, the Group acquired 100% of the share capital of Oakland Innovation Limited (‘Oakland’), a consultancy
specialising in technology innovation and market intelligence for the global consumer and healthcare markets. The acquisition is
expected to enable the Group to accelerate its development in this identified growth and investment area.
The consideration of £5.0 million was satisfied as to £3.6 million in cash on completion and as to £1.4 million satisfied by the sale
of Science Group plc’s treasury shares, equivalent to 1,043,333 Science Group shares at the average closing mid-market price
of 130.7 pence on the five dealing days immediately prior to completion. The shares are subject to lock-in periods of between
18 months and three years after the acquisition date. At completion, Oakland held £0.7 million of cash on its balance sheet.
Acquisition expenses of £25,000 were expensed in the period.
Net assets/(liabilities) acquired:
Acquisition related intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liability
Deferred tax liability
Goodwill
Total consideration
Satisfied by:
Cash consideration
Shares in Science Group plc
Net cash outflow arising on acquisition:
Cash consideration
Book value
£000
Fair value
£000
-
32
768
673
(751)
(178)
(7)
537
3,040
32
768
673
(751)
(178)
(615)
2,969
2,031
5,000
3,636
1,364
5,000
2,963
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 56
57
Notes to the Financial Statements continued
Notes to the Financial Statements continued
22 Acquisitions (continued)
22 Acquisitions (continued)
a) Acquisition of Oakland Innovation Limited (continued)
The goodwill arising is attributable to the acquired workforce, anticipated future profit from expansion opportunities and synergies
of the businesses. Fair value adjustments have been recognised for acquisition related intangible assets and related deferred tax.
Acquisition related intangible assets of £3.0 million relate solely to the valuation of customer relationships. Oakland has worked
with a number of blue-chip companies for a number of years. Given the long standing relationships and nature of the customer
base, the intangible asset is being amortised over eight years.
A deferred tax liability of £0.6 million in respect of the acquisition related intangible assets was established on acquisition (refer to
Note 10). None of the goodwill is expected to be deductible for income tax purposes.
Oakland contributed £3.1 million revenue for the period between the date of acquisition and the balance sheet date and £0.3
million to the Group’s profit before tax which includes an allocation of central costs and management recharges of £0.1 million.
If the acquisition of Oakland had been completed on the first day of the financial year, Group revenue would have been £477,000
higher and Group profit attributable to equity holders of the parent would have been £107,000 higher.
b) Acquisition of business and assets of Leatherhead Food International Limited
On 16 September 2015, a subsidiary of Science Group plc acquired the business and assets, excluding the freehold property, of
Leatherhead Food International Limited (‘Leatherhead’), a technical consultancy providing scientific research, regulatory advice,
consumer sensory, testing and other services to the food and beverage industry.
The consideration of £1.6 million was satisfied in cash at completion and the acquisition of Leatherhead was completed cash free
and debt free. Acquisition expenses of £62,000 were expensed in the period.
b) Acquisition of business and assets of Leatherhead Food International Limited (continued)
The goodwill arising is attributable to the acquired workforce, anticipated future profit from expansion opportunities and synergies
of the businesses. Fair value adjustments have been recognised for acquisition related intangible assets and the associated
deferred tax.
Acquisition related intangible assets of £1.7 million relate solely to the valuation of customer relationships. Leatherhead has
worked with a number of well-known companies in the food & beverage industry for a number of years. Given the long standing
relationships and nature of the customer base, the intangible asset is being amortised over seven years.
A deferred tax liability of £0.3 million in respect of the acquisition related intangible assets was established on acquisition (refer to
Note 10). None of the goodwill is expected to be deductible for income tax purposes.
Leatherhead contributed £2.1 million revenue for the period between the date of acquisition and the balance sheet date and a loss
of £1.2 million to the Group’s profit before tax which includes an allocation of central costs and management recharges of £0.3
million and other non-recurring costs of £0.5 million. If the acquisition of business and assets of Leatherhead had been completed
on the first day of the financial year, Group revenue would have been £6.4 million higher and Group profit attributable to equity
holders of the parent would have been £0.5 million lower.
23 Commitments
a) Lease commitments
The minimum annual rentals under non-cancellable operating leases are as follows:
Net assets/(liabilities) acquired:
Acquisition related intangible assets
Property, plant and equipment
Trade and other receivables
Trade and other payables
Current tax liability
Deferred tax liability
Goodwill
Total consideration
Satisfied by:
Cash consideration
Net cash outflow arising on acquisition:
Cash consideration
Book value
£000
Fair value
£000
-
220
1,327
1,687
220
1,327
(1,860)
(1,859)
(62)
-
(375)
(62)
(338)
975
650
1,625
1,625
1,625
1,625
Plant and equipment lease commitments
Operating lease payments:
- Within 1 year
- Between 1 and 5 years
Property lease rentals
Operating lease payments:
- Within 1 year
- Between 1 and 5 years
Group
2015
£000
2014
£000
39
56
95
284
241
525
620
39
84
123
321
599
920
1,043
b) Other financial commitments
At 31 December 2015 the Group and the Company had other financial commitments of £Nil (2014: £Nil).
At 31 December 2015, the Group had a 5 year loan facility of £10.0 million secured on Harston Mill, Harston, near Cambridge, UK,
of which £11.0 million (2014: £10.0 million) had been drawn down and the balance at 31 December 2015 was £7.75 million (2014:
£8.75 million). This facility is repayable in September 2018 as detailed in Note 21. The Company has no loan facility at
31 December 2015 (2014: £Nil).
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015 58
59
Notes to the Financial Statements continued
Notes to the Financial Statements continued
24 Contingent liabilities
At 31 December 2015, there were no contingent liabilities.
25 Related party transactions (continued)
The remuneration of the key management personnel of the Group, recognised in the income statement, is set out below in
aggregate. Key management personnel include all members of the plc Board and the Operating Board of Science Group.
In the prior year, the Group provided a letter of credit issued by its bank on its behalf, in the ordinary course of business. The
Directors were not aware of any circumstances that had given rise to a liability under the letter of credit and considered the
possibility of any arising to be remote and therefore a fair value of £Nil was applied.
25 Related party transactions
The Group provides support and consultancy services to its subsidiaries and made loans, all of which eliminate on consolidation,
and are therefore not disclosed.
The Company held intercompany balances, and charged management fees as follows:
Aggregate remuneration
Year ended 31 December
Short term employee benefits
Pension costs
Share based payment transactions
2015
£000
1,419
51
92
2014
£000
1,360
48
116
1,562
1,524
Company
Sagentia Limited
Sagentia Inc.
OTM Consulting Limited
Quadro Design Limited
Manage5Nines Limited
Sagentia Technology Advisory Limited
Oakland Innovation Limited
Leatherhead Research Limited
2015
Loans
£000
(15,983)
(24)
(430)
-
-
(3)
(54)
(212)
(16,706)
2015
Sale of goods
and services
£000
105
24
30
-
-
-
54
150
363
2014
Loans
£000
(13,481)
(11)
(545)
(2)
(2)
(3)
-
-
2014
Sale of goods
and services
£000
240
11
45
2
2
-
-
-
(14,044)
300
During 2015, 2,500,000 treasury shares were issued at a price of 40.0 pence per share in settlement of the exercise of share
options by Martyn Ratcliffe, Chairman of Science Group. Refer to Note 20 for further information.
During the year, Science Group plc entered into transactions with Creactive (ID) Design Limited (‘Creactive’). The Group acquired
30% of the share capital of Creactive on 27 January 2015. Since 27 January 2015, Creactive has provided consultancy services
to Sagentia Limited (a subsidiary of Science Group plc) and a cost of £111,000 was charged to Sagentia Limited. An accrual of
£12,000 was outstanding at year end. In addition to this, Sagentia Limited entered into a licence agreement with Creactive on 27
January 2015 granting Creactive a licence to occupy office space. During the year ended 31 December 2015, £6,600 was charged
to Creactive in relation to this agreement. A trade receivable of £Nil was outstanding at year end.
During 2015, Science Group plc entered into transactions with Microgen plc. The Chairman of Science Group plc, Martyn Ratcliffe,
was Chairman of, and equity holder, in Microgen plc during the year. An employee of Sagentia Limited (a subsidiary of Science
Group plc) provided administrative services to Microgen plc during the year and a cost of £10,800 (2014: £15,000) was charged to
Microgen plc. A trade receivable of £Nil was outstanding at year end (2014: £Nil).
Science Group plc also entered into a transaction with Clinitech Limited (‘Clinitech’ formerly Clinetik Limited). One of the Directors
of Science Group plc, Michael Lacey-Solymar, is also a Director and shareholder of Clinitech. Sagentia Limited (a subsidiary of
Science Group plc) entered into an agreement with Clinitech on 26 September 2014 to lease office space to Clinitech. During the
year ended 31 December 2015 £5,600 (2014: £1,500) was charged to Clinitech in relation to this agreement. A trade receivable of
£Nil was outstanding at year end (2014: £Nil).
26 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
Science Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Project accounting
Science Group undertakes a number of consultancy projects where the final price to complete the project may be uncertain. The
state of completeness of each project, and hence revenue recognised, requires the use of estimates. The value of work done is
calculated based on proportion of time spent on the project or value of stage gates achieved as set out in the project. Management
apply their judgement in assessing time required to complete the projects and the ability to recover the full project costs. Where
significant uncertainty exists, income is deferred until costs are recovered or the project is completed.
(b) Accounting for freehold property at Harston Mill
Science Group owns and maintains the freehold property at Harston Mill for use in the supply of its Core consultancy services and
for administrative purposes.
Whilst there is remaining space on site not required to fulfil these activities, Science Group lets out space to third party tenants.
The revenues and costs attributable to this activity are disclosed as third party property income activities within the business
segment disclosures. It is not accounted for as an investment property, the reasons being:
(i)
the third party leases include the use of common areas and because of this the areas that are leased to third parties could not
be sold separately;
(ii) the leases normally have notice periods of no more than six months giving Science Group the flexibility to start using the areas
if required, i.e. the leased areas are not held for capital appreciation or a return of investment through rental income.
27 Post balance sheet events
There are no post balance sheet events to disclose.
Annual Report and Financial Statements 2015Annual Report and Financial Statements 2015For the year ended 31 December 2015For the year ended 31 December 2015
Notes
61
Bank
Lloyds Bank plc
Endeavour House
Chivers Way
Histon
Cambridge
CB24 9ZR
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
60
Advisers
Financial advisers and broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Auditors
KPMG LLC
Botanic House
100 Hills Road
Cambridge
CB2 1JZ
Lawyers
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London
EC4R 9HA
Website
www.sciencegroup.com
Registered office
Harston Mill
Harston
Cambridge
CB22 7GG
Company number
06536543
Annual Report and Financial Statements 2015
Annual Report and Financial Statements 2015
62
Notes
Annual Report and Financial Statements 2015
Science Group plc
Harston Mill, Harston, Cambridge, CB22 7GG, UK
T +44 1223 875200
E info@sciencegroup.com
www.sciencegroup.com