Annual Report and
Financial Statements
2016
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
• 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
Advisors .......................................................................................................................................... 61
Annual Report and Financial Statements 2016 4
Strategic Report
Chairman’s Statement
Science Group plc (the ‘Company’) together with its
subsidiaries (‘Science Group’ or the ‘Group’) reports a further
year of resilient operating performance for the year ended
31 December 2016, a period of successful consolidation of
the 2015 acquisitions. Overall the Group maintained strong
operating margins despite external market and economic
factors, acquisition integration, business relocation 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.
Financial Summary
For the year ended 31 December 2016, Group revenue was
£36.9 million (2015: £31.2 million) of which Core Business
Services revenue was £34.2 million (2015: £28.7 million).
Adjusted operating profit for the year ended 31 December 2016
was £6.2 million (2015: £5.3 million). Cash generated from
operations was an exceptionally strong £11.6 million (2015: £5.2
million). While the Group financial performance benefitted from
movements in foreign exchange rates, primarily in the second
half of the year, the Board took the opportunity to invest some
of this benefit to strengthen the Group for the future. (Adjusted
operating profit and other Alternative Performance Measures
used in this report are defined in the Finance Director’s Report.)
The increase in statutory profit before tax to £3.0 million (2015:
£2.4 million) was offset by an increase in the corporation tax
charge to £0.2 million (2015: tax credit of £0.4 million) resulting
in basic earnings per share (‘EPS’) of 6.8 pence (2015: 7.2
pence). It should be noted that the Group actually received a
net cash inflow related to corporation tax due to historic losses
carried forward and R&D tax credits. This difference between
the calculated tax charge and actual cash inflow is expected to
be repeated in the 2017 financial year following which a modest
tax cash outflow is anticipated to commence. An alternative
performance measure of adjusted basic EPS (defined in the
Finance Director’s Report) which applies consistent tax rates
has increased by 11% to 11.4 pence (2015: 10.3 pence).
Cash balance at 31 December 2016 was £26.0 million (2015:
£14.5 million) with net funds of £11.3 million (2015: £6.7 million)
including bank debt of £14.7 million (2015: £7.8 million). The
Group has significant freehold property assets which have
a combined balance sheet carrying value of £21.9 million
(2015: £20.9 million), providing not only excellent facilities for
the Group’s offices and laboratories, but also an asset base
for securitisation of attractive long term debt which creates
a cost-effective operating model. Net-funds-plus-freehold-
property-per-share in issue increased by over 25% to 84.5
pence per share (2015: 67.3 pence per share), representing an
exceptionally strong asset base for a scientific consultancy
organisation.
projects are undertaken on a fixed price model. The Group’s
operations are based at its freehold properties in Harston, near
Cambridge (approx. 100,000 sq ft gross area) and Epsom,
Surrey (approx. 50,000 sq ft gross area). The Group also
has leasehold offices in London, Boston, Houston and San
Francisco.
The Group’s multi-sector exposure contributes to the resilience
of its trading performance. The Medical sector, primarily
derived from the original Sagentia business, had a challenging
first half of the year but delivered a strong sales recovery in the
second half of 2016. In fact, this reinvigorated sector entered
the new year with the strongest order book for many years.
In contrast, the Commercial sector of the Sagentia business
delivered a strong performance throughout 2016 although
some major projects were successfully completed during the
second half. As a result, in aggregate, the Sagentia business
has started 2017 broadly in line with 2016. As anticipated, the
oil and gas market for both OTM Consulting advisory work and
Sagentia product development proved challenging throughout
the year.
The two 2015 acquisitions were both integrated successfully
during 2016, with Oakland Innovation delivering a strong
performance benefitting from its entrepreneurial approach
within the umbrella infrastructure of the Group. Demand for
high quality, technically robust, forward-looking analyses
within global science/technology markets continued to be
strong. Meanwhile, despite the disruption of the business
relocation, Leatherhead Research exceeded the Board’s
expectations providing a significant profit contribution,
before one-off costs, although the second half of the year was
affected by post-referendum uncertainty and volatility within
the UK retail sector. As the integration of Oakland Innovation
and Leatherhead Research progressed, the synergistic
opportunities from these acquisitions became more tangible.
These synergies are progressively being realised by the
marketing of horizontal technical capabilities into vertical
market sectors where the Group has highly relevant industry
expertise.
North America continues to be a major market for the Group
accounting for 44% of Group Core Business revenue in 2016
(2015: 57%) while Europe (excluding the UK) accounted
for 27% of Group Core Business revenue (2015: 18%). With
Sterling remaining low, particularly relative to the US Dollar
over the past decade, the Board has increased investment
into the US market and has announced the opening of a new
office in California, alongside the Group’s existing US offices in
Boston and Houston. These US offices are increasingly being
staffed by experienced Science Group managers and provide a
stronger platform for the Group’s offerings into this key market.
Business Overview
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
Corporate Matters
The Group’s freehold properties provide a more cost-effective
and more flexible business operating model compared to a
fully repairing leasehold, particularly for a business requiring
scientific laboratory facilities. With significant freehold property
assets and the current low interest rates, the Board determined
Annual Report and Financial Statements 2016 5
The Board adopts a non-political position with regard to
geopolitical events and considers its role to be to respond to
such developments not to comment on or critique the relative
merits. Following the UK referendum (now referred to as
“Brexit”) and the pending notification of Article 50, together
with the political uncertainty (and potential ramifications)
related to the forthcoming elections in the Netherlands,
France and Germany during 2017, the Board remains cautious
regarding the economic environment in Europe, whilst noting
that 2016 saw a significant growth in the Group’s revenue
from the region. At the same time, reflecting the Group’s
historic contribution from North America, the weakness of
Sterling relative to the US Dollar, and the potential economic
stimuli implied by some of the anticipated policies of the new
Washington Administration, the Board has responded rapidly
in accelerating investment in the USA as demonstrated by the
transfer of experienced senior managers to the geography and
the decision to open a new operation in San Francisco.
Overall, Science Group plc continues to evolve with a capital
structure and strong asset base reflecting the Board’s medium
term investment horizon and enabling the continued evaluation
of both organic and acquisitive investment opportunities.
Martyn Ratcliffe
Chairman
Strategic Report continued
that a potential increase in both the amount and term of the
Group’s debt could benefit long term planning and corporate
strategy implementation, particularly if this could be achieved
without a material increase in the Group’s financing risk
profile. As a result, a new 10 year fixed term loan of £15 million
was agreed during the year at a fixed effective rate of 3.5%
throughout the 10 year term and, subject to certain conditions,
no operating performance covenants. This financing model
provides a fixed, low cost of capital to support the Group’s
medium term strategy.
During the year, the equity buyback programme was continued,
purchasing a total of 2,115,000 shares at a total cost of £2.8
million and an average purchase price of 130 pence. As a result,
at 31 December 2016, the Company had 39,328,794 ordinary
shares in issue and held an additional 2,733,241 shares in
treasury (2015: 41,060,006 with an additional 1,002,029 shares
held in treasury). In addition, during the year the Remuneration
Committee of the Board reviewed the Group share option
programmes and implemented a significant rationalisation,
reducing the number of share options granted at 31 December
2016 to 1.7 million (2015: 3.0 million) for a cash outlay of £0.6
million. In aggregate, the shares in issue (excluding treasury
shares) and the outstanding share options were reduced by
approximately 7% during the year.
Following the completion of the acquisition integration and
the long term capital model, combined with another solid year
of operating performance and excellent cash flow, the Board
is proposing to increase the dividend by 5% to 4.2 pence per
share (2015: 4.0 pence), at a total cost of £1.7 million (2015:
£1.6 million) based on the number of shares in issue at 28
February 2017. Subject to shareholder approval at the Annual
General Meeting (‘AGM’), the dividend will be payable on 9 June
2017 to shareholders on the register at the close of business
on 19 May 2017. 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 (34.1%
at 28 February 2017), 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
very satisfactory with continued strong adjusted operating
margins and operating cash flow, enhanced by the devaluation
of Sterling. Operationally, some market sectors were more
challenging than the prior year and others were stronger,
typical of the profile of a multi-sector, project-based
consultancy Group. Diversification of market/industry sector
revenue sources increases the resilience of the Group and this
continues to be a key component of the Group’s strategy.
Annual Report and Financial Statements 2016 6
Strategic Report continued
Finance Director’s Report
In the year ended 31 December 2016, the Group generated
revenue of £36.9 million (2015: £31.2 million). Revenue from
Core Business activities, that is revenue derived from delivering
projects and consultancy services and materials recharged on
these projects, increased to £35.8 million (2015: £30.1 million)
due to the full year increment from the 2015 acquisitions. This
increase was offset by declines in revenues in 2016 primarily
within the Oil and Gas sector and also within the Medical
sector. Non-Core revenue, comprising property and associated
services income derived from space let in the Harston Mill
facility, was £1.1 million (2015: £1.1 million).
Adjusted operating profit increased to £6.2 million (2015:
£5.3 million) benefitting from the favourable foreign exchange
environment. Adjusted operating profit margin remained
strong at 16.8% (2015: 17.1%). (Adjusted operating profit is
an alternative profit measure that is calculated as operating
profit excluding impairment of goodwill and investments,
amortisation of acquisition related intangible assets,
acquisition integration costs, share based payment charges
and other specified items that meet the criteria to be adjusted.
Refer to Note 1 for further information on this and other
alternative performance measures).
Statutory operating profit of £3.4 million (2015: £2.7 million)
included an impairment of goodwill attributable to OTM
Consulting of £1.0 million (2015: £1.1 million) reflecting the
challenging oil and gas market sector, and Leatherhead
Research acquisition integration costs of £0.3 million (2015:
£0.5 million). Statutory profit before tax was £3.0 million (2015:
£2.4 million) and statutory profit after tax was £2.7 million
(2015: £2.8 million), with the increase in statutory profit before
tax offsetting the increase in corporation tax charge. Reflecting
the full year weighting of share options exercised during 2015,
statutory basic earnings per share (‘EPS’) was 6.8 pence (2015:
7.2 pence).
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
2016, £12.4 million of the Group Core Business revenue was
denominated in US Dollars (2015: £15.6 million) and £3.9
million of the Group Core Business revenue was denominated
in Euros (2015: £2.4 million). The exchange rates during the
year resulted in a revenue and operating profit benefit, when
compared to the rates in effect during 2015, of £1.7 million
and £1.5 million respectively. The Board determined to use
some of this benefit to accelerate some strategic investment
programmes. 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 2016, Science Group had £11.8 million (2015:
£17.0 million) of tax losses carried forward of which £1.4
million (2015: £6.6 million) relate to trading losses which
are anticipated to be used to offset future trading profits.
Previously recognised trading tax losses of £4.4 million (2015:
£3.8 million) were utilised in the current year and a prior period
adjustment was recognised due to the actual losses utilised in
2015 being £0.8 million higher than estimated. The remaining
tax losses of £10.4 million (2015: £10.4 million) have not been
recognised as a deferred tax asset due to the low probability
that these losses will be able to be utilised.
The tax charge in the Consolidated Income Statement includes
a benefit for the Research and Development tax claim for the
2015 and 2016 financial years which reduced the corporation
tax charge by £0.7 million (2015: £0.8 million relating to the
2013 and 2014 financial years). In future years, the R&D tax
credit will be recognised in the year to which it relates and will
therefore typically only represent a single year. The R&D tax
credit and the deferred tax adjustments resulted in a tax charge
in the Consolidated Income Statement of £0.2 million (2015:
credit of £0.4 million).
The Board anticipates that, in view of the trading tax losses
carried forward and the R&D tax credits, if the Group’s profit
profile remains similar to 2016, the Group will receive a net
cash inflow for the next financial year after which a tax cash
outflow is anticipated to commence. However, the effective tax
rate is anticipated to remain below the nominal UK corporation
tax rate due to the benefit of R&D tax credits.
The accounting treatment of the various tax effects explained
above coupled with the full year weighting of share options
exercised in 2015 have in aggregate resulted in basic earnings
per share being reported at 6.8 pence (2015: 7.2 pence). In
order to provide a measure that demonstrates the underlying
value generated by the Group at a per share level, an adjusted
earnings per share measure has been presented. Adjusted
basic earnings per share, which excludes adjusting items and
includes a corporation tax charge on adjusted profit before
tax at the substantively enacted UK Corporation Tax Rate,
increased by 11% to 11.4 pence (2015: 10.3 pence) in line with
the increase in adjusted operating profit.
The Group’s term loan with Lloyds Bank plc (‘Lloyds’) was
due to expire in 2018. During the year, a new 10 year fixed
term loan of £15 million was successfully negotiated, secured
on the freehold properties at Harston and Epsom. Phased
interest rate swaps hedge the loan resulting in a 10 year fixed
effective interest rate of 3.5%, comprising a margin over 3
month LIBOR and the cost of the swap instruments to fix
the interest rate over the 10 year period. (For comparison, the
effective interest rate on the previous 5 year term loan, which
was scheduled to expire in 2018, was approximately 3.9%.
This loan has been repaid). The repayment profile of the loan
is £1 million per annum over the term with the remaining £5
million repayable on expiry of the loan in 2026. One-off costs
of £0.3 million were incurred arising from cancellation of the
prior loan and associated swap, together with arrangement
and legal fees associated with the new loan. The new term
loan has no operating covenants as long as the Group net bank
debt is less than £10 million. If this threshold is crossed, two
conditions apply: a financial covenant, measured half-yearly on
a 12 month rolling basis, such that annual EBITDA must exceed
Annual Report and Financial Statements 2016 7
Strategic Report continued
1.25 times annual debt servicing (capital and interest); and
a security covenant whereby the loan to value (‘LTV’) ratio of
the securitised properties must remain below 75%. If either of
these conditions are breached, a remedy period of 6 months is
provided, during which time the EBITDA or LTV condition can
be remedied or the net bank debt can be reduced to less than
£10 million.
The Group has adopted hedge accounting for the interest
rate swap under IAS 39, Financial Instruments, and the gain
on change in fair value of the interest rate swaps, net of tax,
entered into in 2016 of £0.2 million (2015: £nil) was recognised
directly within equity. The settlement of the previous interest
rate swap with the release of the previously recognised liability
has resulted in a net loss of £75,000 in the Consolidated
Income Statement in the year ended 31 December 2016 (2015:
gain of £62,000).
The Group has maintained its strong balance sheet with
shareholders’ funds at 31 December 2016 of £36.0 million
equivalent to 91.5 pence per share in issue (2015: shareholders’
funds of £37.2 million, equivalent to 90.8 pence per share
in issue), reflecting the share buyback, dividends, goodwill
impairment and amortisation of acquisition related intangible
assets. This includes the Group’s freehold properties in
Harston, near Cambridge and in Epsom, Surrey, held on the
balance sheet at an aggregate value of £21.9 million (2015:
£20.9 million).
The gross cash position at 31 December 2016 was £26.0
million (2015: £14.5 million) and net funds were £11.3 million
(2015: £6.7 million). The refinancing resulted in an increase in
gross cash of £7.8 million with cash generated from operations
of £11.6 million (2015: £5.2 million) including a VAT rebate of
£1.5 million relating to the property purchase in 2015 and a
beneficial working capital movement from project cash flow
timing. Working capital management during the year continued
to be a focus with debtor days of 42 days at 31 December 2016
(2015: 47 days).
The Group invested £2.4 million (2015: £7.9 million) in property,
plant and equipment which was primarily relating to the
development of the property in Epsom, Surrey and the net cash
outflow related to the dividend, share buyback programme and
share option exercises (including rationalisation programme)
was £4.7 million (2015: £0.6 million). Net-funds-plus-freehold-
property-per-share in issue, an alternative performance
measure (which is calculated by dividing cash and cash
equivalents less borrowings plus freehold land and buildings
by the number of shares in issue at the balance sheet date) has
increased by 26% to 84.5 pence per share (2015: 67.3 pence
per share) reflecting the cash generated from operations and
the effect of the share buyback programme.
Rebecca Hemsted
Finance Director
Annual Report and Financial Statements 2016 8
Strategic Report continued
Key Performance Indicators
The key performance indicators (‘KPIs’) are adjusted operating
profit, operating 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 subject matter 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 through both competitive remuneration packages
and a stimulating work environment. In addition to base salary,
remuneration can include profit share/annual bonus, pension,
health benefits, life assurance and share option schemes.
Efforts are also made to foster a vibrant, dynamic and
supportive environment for employees, which offers a diversity
of technically challenging work for large and small companies
across a range of industries and specialist market, science and
technology areas. The Group also provides 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 held by certain parts of
the Group 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,
Continental Europe, United States and/or other key markets by
virtue of the impact of a deterioration in the economic climate
and/or 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.
Furthermore, following the UK referendum outcome on
membership of the European Union (“Brexit”), combined with
forthcoming elections in major European countries, there is
uncertainty regarding the short, medium and long-term impact
of these changes on markets, financial circumstances of
customers and/or the future trading relationships between the
UK and other countries in Europe.
The Group seeks to mitigate this risk by actively managing
customer relationships, including credit limits where if
appropriate may require the payment in advance of all or part
of the estimated costs which could have an impact on revenue.
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.
Annual Report and Financial Statements 2016 Strategic Report continued
Currency exchange rates
A significant proportion of the Group’s revenues are invoiced in
currencies other than Pounds Sterling, including but not limited
to the US Dollar and Euro, whilst 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 volatility
of currency exchange rates relative to Pounds Sterling has
increased following the Brexit referendum.
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;
• 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.
9
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, training and development
Science Group’s employees are the business’s greatest asset
and the Board and Executive Team are committed to their
career development. The Group makes a focused effort to
offer bespoke training and mentorship to allow each individual
to thrive within their environment and realise their personal
potential. Formal training and career development is offered
to staff of all levels through internal and external programmes
that cover technical, business and managerial advancement
opportunity. Beyond formal training, employees also lead
informal lunchtime sessions on a regular basis to enable
knowledge and skills transfer amongst teams.
Employee performance is aligned to the Group’s objectives
through an annual performance review process and ongoing
project management, line management and mentorship
feedback. Employees are kept up to date with information
about the Group’s activities through regular briefings and
other media. Science Group operates a Group bonus/
profit share schemes to qualifying employees. The Group
also runs share option schemes which are at the discretion
of the Remuneration Committee and in which Executives
and Managers are invited to participate on the basis of
recommendations made by the Executive Team 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, disability, religion or belief, pregnancy and maternity,
sexual orientation or marital or civil partnership 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 2016
10
Strategic Report continued
The gender ratio for the number of persons employed by 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 employees
Total employees
31 December 2016
Female
Male
31 December 2015
Female
Male
No
%
No
%
No
%
No
3
2
56
99
160
60%
67%
84%
43%
53%
2
1
11
129
143
40%
33%
16%
57%
47%
3
2
54
126
185
60%
67%
84%
45%
52%
2
1
10
156
169
%
40%
33%
16%
55%
48%
Notes:
• Employees are only allocated to one category. For example, where an individual 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.
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 1 March 2017 and
signed on its behalf by:
Martyn Ratcliffe
Chairman
Rebecca Hemsted
Finance Director
Annual Report and Financial Statements 2016
11
Report of the Directors
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 2016.
31 December 2016 and 31 December 2015, and any changes
subsequent to 31 December 2016, 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.
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 4.2 pence per share
for the year ended 31 December 2016 (2015: 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.
Rebecca Hemsted will retire by rotation and offer herself for
re-election at the next Annual General Meeting.
Directors’ interests in shares and contracts
Directors’ interests in the shares of Science Group plc at
Annual General Meeting
The Annual General Meeting (‘AGM’) will be held at 9am on
18 May 2017 at Great Burgh, Yew Tree Bottom Road, Epsom,
Surrey, KT18 5XT. The notice of the Annual General Meeting
contains the full text of resolutions to be proposed.
Purchase of own shares
At the AGM on 19 May 2016, shareholders approved a
resolution for the Company to buy back up to 10% (4,117,701)
of its own shares. This resolution remains valid until the
conclusion of the next Annual General Meeting in 2017 or 30
June 2017 if earlier. As at the date of this report, the Company
has bought back 2,115,000 shares pursuant to 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 2016 were £1,000 (2015: £4,000). No political
donations were made during the period (2015: £nil).
Post balance sheet events
Post balance sheet events are disclosed in Note 26 to the
Financial Statements.
Auditor
KPMG LLP were re-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 AGM.
Disclosure of information to auditors
The Directors who held office at the date of approval of this
directors’ report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s
auditor is unaware and each Director has taken all the steps
that they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
Substantial shareholdings
As at 28 February 2017, Science Group had been notified of the following significant interests (greater than 3%) in its ordinary
share capital:
Shareholder
Martyn Ratcliffe
Ruffer LLP
Hargreave Hale
Miton Asset Management
Charles Stanley & Co
Ordinary shares held
13,412,906
6,010,679
5,536,820
1,915,000
1,484,878
% held
34.10%
15.28%
14.08%
4.87%
3.78%
Annual Report and Financial Statements 2016 12
Report of the Directors continued
Directors
The Directors of the Company who served during the year were:
Director
Martyn Ratcliffe
Rebecca Hemsted
David Courtley+
Michael Lacey-Solymar+
Role at
31 December 2016
Date of (re-)
appointment
Board Committee
Chairman
Finance Director
Non-Executive
Non-Executive
21/05/15
20/05/14
19/05/16
19/05/16
N
N
N
R
R
A
A
Board Committee abbreviations are as follows: A = Audit Committee; R = Remuneration Committee; N = Nomination Committee
+ Independent Director
Annual Report and Financial Statements 2016 13
Report of the Directors continued
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.
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 Chairman of Cambridge Medical Technologies
Limited, 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.
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 Statpro Group 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.
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 2016 14
Report of the Directors continued
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 is not required to 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 2016, 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 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 14 times during 2016 (2015: 20). 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.
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 2016, in addition to base salary, benefits have included
pension contributions, healthcare and life assurance benefits,
a company bonus/profit share scheme and, where appropriate,
share options.
Annual Report and Financial Statements 2016 Report of the Directors continued
15
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 2016
(2015: 3). 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 7 times during
2016 (2015: 6). It may take advice from time to time from
external advisers, but did not do so in 2016. 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 currently comprises David Courtley and Michael
Lacey-Solymar. The Nomination Committee met once during
2016 (2015: 1). It may take advice from time to time from
external advisers, but did not do so in 2016. 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 2016 were as follows:
Number of meetings held in 2016
Martyn Ratcliffe
Rebecca Hemsted
David Courtley
Michael Lacey-Solymar
* Attendance by invitation
Board
meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
14
14/14
14/14
14/14
14/14
3
3/3*
3/3*
3/3
3/3
7
7/7*
7/7*
7/7
7/7
1
1/1
1/1*
1/1
1/1
Annual Report and Financial Statements 2016
16
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 senior 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 2016.
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.
Employee remuneration can include 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/profit share – executives,
managers and employees receive annual bonuses/profit
shares 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
and granted on a discretionary basis by the Remuneration
Committee.
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 2016 was 155.1
pence (2015: 138.0 pence). The highest and lowest price during
the year was 163.0 pence and 108.5 pence respectively.
Annual Report and Financial Statements 2016 Report of the Directors continued
17
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 2016.
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 appropriate for Science Group.
During the year KPMG LLP were re-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 2016
18
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
and the financial statements in accordance with applicable law
and regulations.
The Report of the Directors was approved by the Board on
1 March 2017 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.
Annual Report and Financial Statements 2016
Independent Auditor’s Report to the
Members of Science Group plc
19
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 is consistent with
the financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from
reading the Strategic Report and the Directors’ Report:
• we have not identified material misstatements in those
reports; and
• in our opinion, those reports have been prepared in
accordance with the Companies Act 2006.
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
1 March 2017
We have audited the financial statements of Science Group plc
for the year ended 31 December 2016 set out on pages 20 to
60. 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 2016 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.
Annual Report and Financial Statements 2016
Financial
Statements
and Notes to the
Financial Statements
Consolidated Income Statement
For the year ended 31 December 2016
Revenue
Operating expenses before adjusting items
Adjusted operating profit
Amortisation and impairment of intangible assets
Impairment of other investments
Acquisition integration costs
Share based payment charge
Operating profit
Finance income
Finance costs
Profit before income tax
Income tax (charge)/credit (including R&D tax credit of
£675,000 (2015: £788,000))
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)
Adjusted earnings per share from continuing operations (basic)
Adjusted earnings per share from continuing operations (diluted)
All amounts relate to continuing operations.
Note
4
5
4
13
15
7, 20
6
6
9
11
11
11
11
The accompanying Notes form an integral part of this Consolidated Income Statement.
21
Group
2016
£000
2015
£000
36,899
31,220
(30,683)
(25,896)
6,216
5,324
(1,857)
(1,660)
(50)
(317)
(597)
3,395
2
(429)
2,968
(219)
-
(534)
(452)
2,678
88
(326)
2,440
368
2,749
2,808
2,749
2,808
6.8p
6.6p
11.4p
11.1p
7.2p
6.6p
10.3p
9.9p
Annual Report and Financial Statements 2016
22
Consolidated Statement of
Comprehensive Income
For the year ended 31 December 2016
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
Group
2015
£000
2,808
-
70
70
2,878
2,878
2016
£000
2,749
197
30
227
2,976
2,976
Annual Report and Financial Statements 2016
Consolidated Statement of Changes in
Shareholders’ Equity
For the year ended 31 December 2016
Group
Issued
capital
Share
premium
Treasury
stock
Merger
reserve
Translation
reserve
Share based
payment
reserve
Retained
earnings
Balance at 1 January 2015
421
7,806
(4,438)
10,343
£000
£000
£000
£000
£000
238
£000
1,907
23
Total
share-
holders’
funds
£000
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
Balance at 31 December 2015
Balance at 1 January 2016
Purchase of own shares
Issue of shares out of treasury stock
Equity interest of cancelled share
options
Dividends paid
Share based payment charge
(Note 20)
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
-
-
-
-
-
-
-
-
-
-
-
424
-
-
-
-
(575)
940
2,858
-
-
-
424
3,223
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
421
421
8,230
8,230
(1,215)
10,343
(1,215)
10,343
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,757)
364
-
-
-
-
(2,393)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
70
70
308
308
-
-
-
-
-
-
-
-
-
30
30
£000
17,172
33,449
-
-
(575)
1,364
(1,400)
1,458
(1,527)
(1,527)
-
452
(268)
(268)
-
-
-
-
452
-
452
(3,195)
904
-
-
-
2,808
2,808
-
70
2,808
2,878
2,359
2,359
16,785
37,231
16,785
37,231
-
-
-
(2,757)
(83)
281
(361)
-
(361)
-
353
(1,646)
-
(1,646)
353
-
(74)
(74)
(8)
(1,803)
(4,204)
-
-
-
-
2,749
2,749
197
197
-
30
2,946
2,976
Balance at 31 December 2016
421
8,230
(3,608)
10,343
338
2,351
17,928
36,003
Annual Report and Financial Statements 2016 Share based
payment
reserve
Retained
earnings
£000
£000
Total
share-
holders’
funds
£000
342
22,127
36,601
-
-
-
-
43
-
43
-
385
385
-
-
-
-
(575)
1,364
(1,400)
1,458
(1,527)
(1,527)
-
43
(360)
(360)
(3,287)
403
3,100 3,100
21,940
40,104
21,940
40,104
-
(2,757)
(83)
281
(361)
-
(361)
-
43
-
(1,646)
(1,646)
-
11
43
11
(318)
(1,718)
(4,429)
-
1,700
1,700
67
21,922
37,375
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24
Company Statement of Changes in
Shareholders’ Equity
For the year ended 31 December 2016
Company
Issued
capital
Share
premium
Treasury
stock
Merger
reserve
Translation
reserve
421
421
8,230
8,230
(1,215)
10,343
(1,215)
10,343
-
Balance at 1 January 2015
421
7,806
(4,438)
10,343
£000
£000
£000
£000
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
Balance at 31 December 2015
Balance at 1 January 2016
Purchase of own shares
Issue of shares out of treasury stock
Equity interest of cancelled share
options
Dividends paid
Share based payment charge
Deferred tax on share based payment
transactions
Transactions with owners
Profit and total comprehensive
income for the year
-
-
-
-
-
-
-
-
-
424
-
-
-
-
(575)
940
2,858
-
-
-
424
3,223
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,757)
364
-
-
-
-
(2,393)
-
-
-
-
-
-
-
-
-
Balance at 31 December 2016
421
8,230
(3,608)
10,343
Annual Report and Financial Statements 2016
25
Consolidated and Company Balance Sheet
At 31 December 2016
Company
Group
Note
2016
£000
2015
£000
2016
£000
2015
£000
ASSETS
Non-current assets
Acquisition related intangible assets
Goodwill
Property, plant and equipment
Investments
Derivative financial assets
Deferred tax assets
Current assets
Trade and other receivables
Current tax asset
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Non-current liabilities
Borrowings
Derivative financial liabilities
Deferred 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
21
21
19
10, 19
20
-
-
-
-
-
-
19,983
21,781
-
44
-
23
5,183
4,033
23,793
50
197
287
20,027
21,804
33,543
12,178
6
5,377
17,561
37,588
213
-
213
-
-
-
-
16,784
1
1,724
18,509
40,313
209
-
209
-
-
-
-
213
209
8,219
537
25,996
34,752
68,295
15,213
1,000
16,213
13,664
-
2,415
16,079
32,292
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
37,375
40,104
36,003
37,231
421
8,230
(3,608)
10,343
-
67
21,922
37,375
421
8,230
(1,215)
10,343
-
385
21,940
40,104
421
8,230
(3,608)
10,343
338
2,351
17,928
36,003
421
8,230
(1,215)
10,343
308
2,359
16,785
37,231
The financial statements were approved by the Board of Directors and signed on its behalf by:
Rebecca Hemsted
Martyn Ratcliffe
On 1 March 2017
Finance Director
Chairman
The accompanying notes form an integral part of this Consolidated and Company Balance Sheet.
The company’s registered number is 06536543.
Annual Report and Financial Statements 2016
For the year ended 31 December 2016 26
Consolidated and Company Statement
of Cash Flows
Company
Group
Operating profit
Adjustments for:
Depreciation and amortisation charges
Loss on disposal of property, plant and equipment
Share based payment charge
Impairment of goodwill
Impairment of cost of investment
Decrease/(increase) in receivables
Increase in payables
Cash generated from operations
Finance costs
UK corporation tax received/(paid)
Foreign corporation tax (paid)/received
Cash flows from operating activities
Interest received
Purchase of property, plant and equipment
Purchase of subsidiary undertakings, net of cash received
Purchase of interest in investment
Increase in equity investment in subsidiaries
Cash flows used in investing activities
Issue of shares out of treasury
Payment in lieu of cancelled share options
Repurchase of own shares
Dividends paid
Proceeds from bank loans
Repayment of bank loans
Repayment of interest rate swap
Note
2016
£000
1,231
-
-
287
-
1,798
4,579
31
7,926
(2)
-
-
2015
£000
2,406
-
-
43
-
387
(2,528)
88
1,123
-
-
-
7,924
1,123
456
-
-
-
-
456
281
(605)
(2,757)
(1,646)
-
-
-
727
-
(3,636)
-
(350)
(3,986)
1,458
-
(575)
(1,527)
-
-
-
Cash flows generated by/(used in) financing activities
(4,727)
(644)
Increase/(decrease) in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Exchange gains on cash
3,653
1,724
-
Cash and cash equivalents at the end of the year
17
5,377
(3,507)
5,231
-
1,724
2016
£000
3,395
1,562
57
597
1,040
50
675
4,211
11,587
(354)
560
(123)
11,670
2
(2,432)
-
-
-
2015
£000
2,678
1,114
7
452
1,066
-
(1,412)
1,283
5,188
(326)
(9)
2
4,855
26
(7,857)
(4,588)
(100)
-
(2,430)
(12,519)
281
(605)
(2,757)
(1,646)
15,000
1,458
-
(575)
(1,527)
-
(8,000)
(1,000)
(216)
2,057
11,297
14,516
183
25,996
-
(1,644)
(9,308)
23,802
22
14,516
Annual Report and Financial Statements 2016For the year ended 31 December 2016 27
Notes to the Financial Statements
1 General information
Science Group plc (the ‘Company’) and its subsidiaries
(together ‘Science Group’ or ‘Group’) form an international
science and technology consulting group. The Company is the
ultimate parent company in which the results of all Science
Group companies are consolidated.
Science Group provides advisory and product development
services focused on science and technology initiatives. Our
specialist companies, Sagentia, Oakland Innovation, OTM
Consulting and Leatherhead Food Research, collaborate
with their clients in key vertical markets to deliver returns on
technology and R&D investments. Science Group’s facilities
include R&D centres in Cambridge, UK and Epsom, UK as
well as sales and delivery offices in London, UK, Boston,
Massachusetts, Houston, Texas and San Francisco.
The Group and Company accounts of Science Group plc were
prepared under 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.
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 at 31 December 2016, was 155.1
pence per share (31 December 2015: 138.0 pence).
These consolidated financial statements have been approved
for issue by the Board of Directors on 1 March 2017.
Alternative performance measures
The Group uses alternative (non-Generally Accepted
Accounting Practice (‘non-GAAP’)) performance measures of
‘adjusted operating profit’, ‘adjusted earnings per share’ and
‘net-funds-plus-freehold-property-per-share in issue’ which
are not defined within the International Financial Reporting
Standards (‘IFRS’). These are explained as follows:
(a) Adjusted operating profit
The Group calculates this measure by making adjustments to
exclude certain items from operating profit namely: impairment
of goodwill and investments, amortisation of acquisition related
intangible assets, acquisition integration costs, share based
payment charges and other specified items that meet the
criteria to be adjusted.
The criteria for the adjusted items in the calculation of adjusted
operating profit is operating income or expenses that are
material and either arise from an irregular and significant
event or the income/cost is recognised in a pattern that is
unrelated to the resulting operational performance. Acquisition
integration costs include all costs incurred directly related
to the restructuring, relocation and integration of acquired
businesses. Adjustments for share based payment charges
occurs because: once the cost has been calculated, the
Directors cannot influence the share based payment charge
incurred in subsequent years; it is understood that many
market analysts exclude the cost from their valuation analysis
of the business; and the value of the share option to the
employee differs considerably in value and timing from the
actual cash cost to the Group.
The calculation of this measure is shown on the Consolidated
Income Statement.
(b) Adjusted earnings per share (‘EPS’)
The Group calculates this measure by dividing adjusted profit
after tax by the weighted average number of shares in issue
and the calculation of this measure is disclosed in Note 11. The
tax rate applied to calculate the tax charge in this measure
is the substantively enacted corporation tax rate for the year
which is 20% (2015: 20.3%) which results in a comparable tax
charge year on year.
(c) Net-funds-plus-freehold-property-per-share in issue
The Group calculates this measure by dividing the sum of:
cash and cash equivalents plus freehold land and buildings less
borrowings by the number of shares in issue at the balance
sheet date. This is calculated as follows:
In £000 unless otherwise stated
Cash and cash equivalents
Borrowings
Net funds
Freehold land and buildings
Net funds plus freehold property
Number of shares in issue (excluding treasury shares) (‘000 shares)
Net-funds-plus-freehold-property-per-share in issue (pence)
Note
21
14
20
Group
2016
25,996
(14,664)
11,332
21,882
33,214
39,329
84.5
2016
14,516
(7,787)
6,729
20,894
27,623
41,060
67.3
Annual Report and Financial Statements 2016For the year ended 31 December 2016
28
Notes to the Financial Statements continued
1 General information (continued)
Alternative performance measures (continued)
The Directors believe that disclosing these alternative
performance measures enhances shareholders’ ability to
evaluate and analyse the underlying financial performance
of the Group. Specifically, the adjusted operating profit
measure is used internally in order to assess the underlying
operational performance of the Group, aid financial, operational
and commercial decisions and in determining employee
compensation. The adjusted EPS measure allows the
shareholder to understand the underlying value generated by
the Group on a per share basis. The measure of net-funds-
plus-freehold-property-per-share in issue is intended to assist
shareholders in understanding the component of the market
value of the shares that is attributable to these assets held
by the Group. As such, the Board considers these measures
enhance shareholders’ understanding of the Group results and
should be considered alongside the IFRS measures.
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.
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 prepared in accordance with IFRS
as adopted by the EU.
Of the new standards and interpretations effective for the
year ended 31 December 2016, 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.
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 £1,700,000 (2015: £3,100,000).
The standards and interpretations in issue but not effective
for accounting periods commencing on 1 January 2016 that
may impact on Science Group going forward are listed below.
Science Group has not adopted these early.
The group intends to adopt these standards in the first
accounting period after the effective date. With the exception
of IFRS 16, the Directors do not anticipate that the adoption
of the remaining Standards and Interpretations will have a
material effect on the consolidated financial statements in the
period of initial application.
With regard to IFRS 15, which provides for a single principle-
based model to be applied to all sales contracts based on the
transfer of control of goods and services to customers, the
Directors do not anticipate that the application of the standard
will have a material effect on the amounts reported and the
disclosures made in the consolidated financial statements.
The adoption of IFRS 16 will result in the recognition of
assets on the balance sheet which are currently leased under
operating lease. Until the group performs a detailed impact
assessment of this standard, it is not practicable to provide a
reasonable estimate of the financial impact.
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 25.
Standards and Interpretations in issue but not yet effective:
Number
Title
Amendments to IAS 7
Disclosure initiative
Amendments to IAS 12
Recognition of deferred tax assets for unrealised losses
IFRS 15
IFRS 9
Revenue from contracts with customers
Financial instruments
Effective
1-Jan-17
1-Jan-17
1-Jan-18
1-Jan-18
Amendments to IFRS 2
Classification and measurement of share based payment transactions 1-Jan-18
IFRS 16
Leases
1-Jan-19
Annual Report and Financial Statements 2016For the year ended 31 December 2016 Notes to the Financial Statements continued
29
2 Summary of significant accounting
policies (continued)
2.1 Basis of preparation (continued)
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 controlled by Science
Group. The Group controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from
the date on which control commences until the date on which
control ceases.
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 includes 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.
Following identification of indicators of impairment for the
OTM Consulting Cash-Generation Unit (‘CGU’), the useful
economic life of OTM Consulting customer relationships has
been reviewed and reduced to a remaining useful economic life
of 3 years as at 31 December 2016.
2.5 Research and development expenditure
Research and development expenditure is written off as
incurred.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 30
Notes to the Financial Statements continued
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.
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.
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 all other property,
plant and equipment is calculated using the straightline
method to allocate their cost less their residual values over
their estimated useful lives, as follows:
Buildings
25 years
Furniture and fittings
3-5 years
Equipment
3 years
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.
Borrowings are classified as current liabilities unless the 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
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.
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 priced contracts.
Consulting revenue is recognised when the service has been
provided.
Subscription income is recognised in the income statement on
a straight line basis.
Annual Report and Financial Statements 2016For the year ended 31 December 2016
Notes to the Financial Statements continued
31
2 Summary of significant accounting
policies (continued)
2.13 Revenue recognition (continued)
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 straightline basis over the lease term.
Investment income is recognised in the income statement in
the period in which it arises.
2.14 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.
2.15 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. 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.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 32
Notes to the Financial Statements continued
2 Summary of significant accounting
policies (continued)
2.15 Employee benefits (continued)
(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.
2.16 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.
2.17 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.
2.18 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.
2.19 Dividends paid
Dividends are recognised as a liability in the period in which the
shareholders’ right to receive payment has been established.
2.20 Dividend income
Dividend income is recognised when the Company’s right to
receive payment is established.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 33
Notes to the Financial Statements continued
3 Financial risk management
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.
(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 primarily by selling monies held in currency into
GBP on a regular basis. At present, forward exchange contracts are not used.
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:
2016
£000
Financial assets
Financial liabilities
Exposure
2015
£000
Financial assets
Financial liabilities
Exposure
US$
Euro
Others
Total
3,697
(81)
3,616
735
(29)
706
-
-
-
4,432
(110)
4,322
US$
Euro
Others
Total
3,849
(69)
3,780
1,352
(34)
1,318
-
-
-
5,201
(103)
5,098
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 2016 (2015: 10.0%). A +/- 10.0% change is considered for the
GBP/Euro exchange rate (2015: 10.0%).
If the GBP had strengthened against the US Dollar and Euro by 10.0% (2015: 10.0%) respectively then this would have had the
following impact:
2016
£000
Income statement
Equity
2015
£000
Income statement
Equity
US$
Euro
Total
(343)
(343)
(70)
(70)
(413)
(413)
US$
Euro
Total
(356)
(356)
(126)
(126)
(482)
(482)
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.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 34
Notes to the Financial Statements continued
3 Financial risk management (continued)
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 -19.7%
(2015: -5.6%) and -15.9% (2015: +5.2%) respectively. Exposures to foreign exchange rates vary during the year depending on the
volume and value of overseas transactions.
(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:
Group
Pound Sterling – bank loan
Weighted average interest rate
Pound Sterling – fixed rate bank loan
Pound Sterling – floating rate bank loan
2016
£000
14,750
%
3.47%
2015
£000
7,750
%
3.89%
LIBOR+2.6% LIBOR+2.0%
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
2016
£000
5,377
12,061
17,438
2015
£000
1,724
16,706
18,430
2016
£000
25,996
7,570
33,566
2015
£000
14,516
7,298
21,814
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.
An analysis of the age of trade and other receivables that are overdue but not impaired and an analysis of trade and other
receivables that are considered to be imparied are disclosed in Note 16.
None of Science Group’s financial assets are secured by collateral or other credit enhancements.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 35
Notes to the Financial Statements 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 2016, Science Group’s financial liabilities have contractual maturities which are summarised below:
2016
Current
Non-current
< 6 months
£000
6 to 12 months
£000
1 to 5 years
£000
Bank borrowings
Interest on bank borrowings
Trade payables
Accruals
500
252
765
3,661
5,178
500
247
-
-
747
> 5 years
£000
9,750
912
-
-
4,000
1,650
-
-
5,650
10,662
This compares to the maturity of Science Group’s financial liabilities in the previous reporting period as follows:
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
-
-
-
-
-
-
-
Annual Report and Financial Statements 2016For the year ended 31 December 2016 36
Notes to the Financial Statements continued
3 Financial risk management (continued)
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 asset / (liability)
Company
Group
2016
£000
-
12,061
5,377
17,438
-
-
26
86
112
-
-
2015
£000
-
16,706
1,724
18,430
-
-
4
157
161
-
-
2016
£000
7,200
370
25,996
33,566
13,664
1,000
765
3,661
19,090
197
197
2015
£000
7,071
227
14,516
21,814
6,753
1,034
639
3,159
11,585
(141)
(141)
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 2016For the year ended 31 December 2016 37
Notes to the Financial Statements continued
3 Financial risk management (continued)
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.
Total shareholders’ funds
Net funds (cash less borrowings)
Freehold property at Harston Mill
Freehold property at Great Burgh
Group
2016
£000
36,003
11,332
13,374
8,508
2015
£000
37,231
6,729
13,528
7,366
Shareholders’ funds
In 2016 Sagentia Limited paid a dividend distribution of £3.5 million to Science Group plc. In 2015 Sagentia Limited paid a
dividend distribution of £3.5 million and OTM Consulting Limited paid a dividend distribution of £0.4 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 4.2 pence per share at the
forthcoming AGM (2015: 4.0 pence). The Board anticipates recommending a single dividend being paid each year.
Net funds
The net funds of the Group have increased by £4.6 million in 2016 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.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 38
Notes to the Financial Statements continued
4 Segment information
Science Group is organised on a worldwide basis into two segments, Core Business and Non-Core Business. Core Business
services revenue includes all consultancy fees for services operations. Core Business other revenue includes recharged materials
and expenses and product/licence revenue generated directly from all Core Business 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
to operating profit. Other resources are shared across the Group.
Year ended 31 December 2016
Services revenue
Third party property income
Other
Revenue
Adjusted operating profit
Amortisation and impairment of intangible assets
Impairment of other investments
Acquisition integration costs
Share based payment charge
Operating profit
Finance charges (net)
Profit before income tax
Income tax charge
Profit for the year
Year ended 31 December 2015
Services revenue
Third party property income
Other
Revenue
Adjusted operating profit
Amortisation and impairment of intangible assets
Acquisition integration costs
Share based payment charge
Operating profit
Finance charges (net)
Profit before income tax
Income tax credit
Profit for the year
Core
Business
£000
Non-Core
Business
£000
34,228
-
1,556
35,784
6,121
(1,857)
(50)
(317)
(597)
3,300
Core
Business
£000
28,691
-
1,401
30,092
5,286
(1,660)
(534)
(452)
2,640
Total
£000
34,264
1,079
1,556
36,899
6,216
(1,857)
(50)
(317)
(597)
3,395
(427)
2,968
(219)
2,749
Total
£000
28,746
1,073
1,401
36
1,079
-
1,115
95
-
-
-
-
95
Non-Core
Business
£000
55
1,073
-
1,128
31,220
38
-
-
-
38
5,324
(1,660)
(534)
(452)
2,678
(238)
2,440
368
2,808
Annual Report and Financial Statements 2016For the year ended 31 December 2016 39
Notes to the Financial Statements continued
4 Segment information (continued)
Geographical segments
Revenue and non-current assets (excluding deferred tax assets) by geographical area are as follows:
United Kingdom
Other European countries
North America
Other
Total
2016
2015
Revenue
£000
10,324
9,739
15,710
1,126
36,899
Non-current
assets
£000
33,253
-
3
-
33,256
Revenue
£000
7,616
5,409
17,244
951
31,220
Non-current
assets
£000
33,213
-
-
-
33,213
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 2016 and 2015, there was no single customer that accounted for 10% or more of the Group’s revenues.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 40
Notes to the Financial Statements continued
Note
7
14
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
Net loss on disposal of property, plant and equipment
Foreign currency gains
Amortisation and impairment of intangible assets
Impairment of other investments
Other
Less expenses below adjusted operating profit
Included above
Research and development *
Operating lease rentals
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
Fees payable to the Company’s auditor for other non-audit services: Other audit-related advisory services
*R&D costs are represented by staff and material costs incurred in relation to R&D projects.
The auditor’s remuneration relate solely to amounts paid to KPMG LLP.
2015 has been restated to include property operating lease rentals.
Group
2016
£000
20,517
2,317
3,421
1,198
1,613
745
59
(310)
1,857
50
2,037
33,504
(2,821)
30,683
2016
£000
7,431
522
10
49
8
Group
2015
£000
17,699
2,040
2,637
788
1,599
520
-
(5)
1,660
-
1,604
28,542
(2,646)
25,896
2015
£000
5,840
431
10
54
-
Annual Report and Financial Statements 2016For the year ended 31 December 2016 41
Notes to the Financial Statements continued
6 Finance income and finance costs
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:
Year ended 31 December
Finance income
Bank interest receivable and similar income
Change in fair value of interest rate swap
Finance costs
Bank borrowings
Change in fair value of interest rate swap
7 Employee benefit expenses
Employment costs are shown below:
Year ended 31 December
Wages and salaries (including bonuses and healthcare costs)
Social security costs
Sales commission
Pension costs
Share based payments (Note 20)
Group
2016
£000
2015
£000
2
-
2
(354)
(75)
(429)
Group
2016
£000
16,694
2,238
100
888
597
26
62
88
(326)
-
(326)
2015
£000
14,349
1,881
182
835
452
The average monthly number of persons employed (including Executive and Non-Executive Directors and fixed term contractors)
by Science Group was as follows:
20,517
17,699
Year ended 31 December
Technology consultants
Marketing, support, administration and other staff
Group
2016
Number
2015
Number
257
64
321
202
62
264
Annual Report and Financial Statements 2016For the year ended 31 December 2016
42
Notes to the Financial Statements continued
8 Directors’ remuneration, interests and transactions
Directors’ emoluments and benefits include:
Year ended 31 December 2016
Salary/ fee
Bonus
Name of Director
Courtley
Hemsted
Lacey-Solymar
Ratcliffe
Aggregate emoluments
£000
£000
35
135
35
385
590
-
44
-
-
44
Pension
contribution
£000
Taxable
benefits
£000
Discretionary
payment
£000
-
9
-
-
9
-
1
-
-
1
-
-
-
-
-
Year ended 31 December 2015
Salary/fee
Bonus
Name of Director
£000
£000
Pension
contribution
£000
Taxable
benefits
£000
Discretionary
payment
£000
Courtley
Glover
Hemsted
Lacey-Solymar
Ratcliffe
Aggregate emoluments
35
41
118
35
275
504
-
-
31
-
-
31
-
-
8
-
-
8
-
-
1
-
-
1
-
-
-
-
50
50
Total
£000
35
189
35
385
644
Total
£000
35
41
158
35
325
594
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 (2015: £43,000).
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. In the prior year, 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 £83,000 (2015: £76,000).
The above figures for emoluments do not include any gains made on the exercise of share options received under long term
incentive schemes. 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 a
net incremental personal cash investment of £0.1 million.
Directors’ interests in the shares of Science Group at 31 December 2016 and 31 December 2015, and any changes subsequent to
31 December 2016, are as follows:
Science Group plc
Ordinary shares of £0.01
Options
Shares
Year ended 31 December
2016
2015
2016
2015
2016
2015
Hemsted
Ratcliffe
Courtley
Average exercise price
(pence)
1.0
-
-
1.0
-
-
Number
Number
200,000
175,000
-
-
-
-
-
-
13,412,906
13,412,906
375,000
375,000
200,000
175,000
13,787,906
13,787,906
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 2016For the year ended 31 December 2016 Notes to the Financial Statements continued
9 Income tax
The tax (charge)/credit comprises:
Year ended 31 December
Current taxation
Current taxation – adjustment in respect of prior years
Deferred taxation
Deferred taxation – adjustment in respect of prior years
R&D tax credit
Note
10
2016
£000
(131)
(42)
(657)
(64)
675
(219)
43
2015
£000
(114)
(9)
(334)
37
788
368
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 years – current tax
Adjustment in respect of prior years – deferred tax
Movement in deferred tax due to change in tax rate
Share scheme movements
Current year losses for which no deferred tax asset was recognised
Prior year losses used in the current year which were not previously recognised
R&D taxation credit
Tax credit/(charge)
The weighted average statutory applicable tax rate was 20.0% (2015: 20.3%).
2016
£000
2,968
(594)
(457)
(42)
(64)
117
38
-
106
675
(219)
2015
£000
2,440
(494)
(216)
(9)
-
86
605
(392)
-
788
368
The Group claims Research and Development tax credits under both the R&D Expenditure Credit scheme and the Small or
Medium-sized scheme. In previous financial years, the R&D tax credits have been provided for on a cash basis due to uncertainties
with respect to estimating the amounts involved. The R&D tax credit provided in the year ended 31 December 2016 relates to the
claims for the 2015 and 2016 financial years recognised on an accruals basis (2015: 2013 and 2014 financial years recognised on
a cash basis). In future years, the R&D tax credit will be provided for in the year to which the R&D tax credit relates and based
on a reasonable estimate of the amounts involved.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 44
Notes to the Financial Statements continued
10 Deferred tax
The movement in deferred tax assets and liabilities during the year by each type of temporary difference is as follows:
Accelerated
capital
allowances
Tax losses
Share based
payment
£000
(2,007)
-
35
-
(1,972)
188
-
-
(1,784)
£000
1,639
-
(315)
-
1,324
(973)
(64)
-
287
£000
675
-
(10)
(268)
397
(28)
-
(74)
295
Acquisition
related
intangible
assets
£000
Other
temporary
differences
Total
£000
£000
(172)
(953)
-
-
(1,125)
189
-
-
50
-
(7)
-
43
(33)
-
-
185
(953)
(297)
(268)
(1,333)
(657)
(64)
(74)
(936)
10
(2,128)
At 1 January 2015
Acquisition of subsidiaries in the year
Charged to the income statement
Charged to equity
At 31 December 2015
Charged to the income statement
Charged to the income statement (prior
year adjustment)
Charged to equity
At 31 December 2016
Deferred 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. The Group has
available tax losses of approximately £11.8 million (2015: £17.0 million) and these losses do not expire.
Company
At 1 January 2015
Charged to the income statement
Charged to equity
At 31 December 2015
Charged to the income statement
Charged to equity
At 31 December 2016
Tax losses
£000
Share based payment
£000
6
(6)
-
-
-
-
-
417
(360)
(34)
23
10
11
44
Total
£000
423
(366)
(34)
23
10
11
44
The Company has available tax losses of approximately £2.3 million (2015: £2.2 million) and these losses do not expire.
Factors affecting future tax charges
A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013.
Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on
26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This
will reduce the Company’s future current tax charge accordingly. The deferred tax at 31 December 2016 has been calculated based
on these rates.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 45
Notes to the Financial Statements continued
11 Earnings per share
The calculation of earnings per share is based on the following result and number of shares:
Profit
after tax
£000
2016
Weighted
average
number of
shares
Pence
per share
Profit
after tax
£000
2015
Weighted
average
number of
shares
Pence per
share
Basic earnings per ordinary share
2,749 40,542,379
Effect of dilutive potential ordinary shares:
share options
-
1,094,273
6.8
(0.2)
2,808
39,228,135
-
1,911,427
Diluted earnings per ordinary share
2,749 41,636,652
6.6
2,808
41,139,562
7.2
(0.4)
6.8
Only the share options granted, as disclosed in Note 20, are dilutive. The number of shares in issue (excluding treasury shares) at
31 December 2016 is 39,328,794 (2015: 41,060,006).
The calculation of adjusted earnings per share is as follows:
2016
Adjusted*
profit
after tax
£000
Weighted
average
number of
shares
Pence
per share
Adjusted*
profit
after tax
£000
2015
Weighted
average
number of
shares
Pence per
share
Basic earnings per ordinary share
4,631 40,542,379
Effect of dilutive potential ordinary shares:
share options
-
1,094,273
Diluted earnings per ordinary share
4,631 41,636,652
11.4
(0.3)
11.1
4,056
39,228,135
-
1,911,427
4,056
41,139,562
10.3
(0.4)
9.9
*Calculation of adjusted profit after tax:
Group
Adjusted operating profit
Finance income
Finance costs
Adjusted profit before tax
Tax charge at substantively enacted tax rate of 20% (2015: 20.3%)
Adjusted profit after tax
12 Dividends
2016
£000
6,216
2
(429)
5,789
(1,158)
4,631
2015
£000
5,324
88
(326)
5,086
(1,030)
4,056
The proposed final dividend for 2015 of 4.0 pence per share was approved by Shareholders and the Board on 19 May 2016. An
amount of £1.6 million was recognised as a distribution to equity holders in the year ended 31 December 2016.
The Board has proposed a final dividend for 2016 of 4.2 pence per share. The dividend is subject to approval by Shareholders at the
Annual General Meeting and the expected cost of £1.7 million has not been included as a liability as at 31 December 2016.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 46
Notes to the Financial Statements continued
13 Intangible assets
Group
Cost
At 1 January 2015
Acquisitions through business combinations
At 31 December 2015 and at 31 December 2016
Accumulated amortisation
At 1 January 2015
Amortisation charged in year
At 31 December 2015
Amortisation charged in year
At 31 December 2016
Accumulated impairment
At 1 January 2015
Impairment losses for the year
At 31 December 2015
Impairment losses for the year
At 31 December 2016
Carrying amount
At 31 December 2015
At 31 December 2016
Customer
contracts and
relationships
£000
Goodwill
Total
£000
£000
2,167
4,727
6,894
(293)
(594)
(887)
(817)
(1,704)
(7)
-
(7)
-
(7)
3,577
2,681
6,258
-
-
-
-
-
(119)
(1,066)
(1,185)
(1,040)
(2,225)
5,744
7,408
13,152
(293)
(594)
(887)
(817)
(1,704)
(126)
(1,066)
(1,192)
(1,040)
(2,232)
6,000
5,183
5,073
4,033
11,073
9,216
Reconciliation of amortisation and impairment to the Consolidated Income Statement:
Amortisation of intangible assets
Impairment of goodwill relating to OTM
Amortisation and impairment of intangible assets
2016
£000
(817)
(1,040)
(1,857)
2015
£000
(594)
(1,066)
(1,660)
Annual Report and Financial Statements 2016For the year ended 31 December 2016
47
Notes to the Financial Statements continued
13 Intangible assets (continued)
Goodwill and acquisition related intangible assets recognised arose from acquisitions during 2013 and 2015. The discount rates
used for goodwill impairment reviews and the carrying amount of goodwill is allocated as follows:
Group
OTM Consulting
Oakland Innovation
Leatherhead Research
2016
Pre-tax
discount rate
11.2%
11.0%
11.0%
2015
Pre-tax
discount rate
12.1%
12.1%
12.1%
£000
1,352
2,031
650
4,033
£000
2,392
2,031
650
5,073
Impairment review of goodwill
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 Generating Units (‘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 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 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.
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 reviews use a discount rate adjusted for pre-tax cash flows and are included in the table above.
Impairment testing for the OTM Consulting CGU
The annual impairment test on goodwill resulted in an impairment of £1.0 million (2015: £1.1 million) for goodwill relating to OTM
Consulting for the year ended 31 December 2016 which is included within the Core Business segment. This has arisen from
a sustained deterioration in the oil & gas market that has continued longer than previously anticipated resulting in a reduction
in forecast net future cash flows. The recoverable amount of the OTM Consulting CGU was £2.8 million (2015: £4.1 million) and
was measured on the basis of value in use estimated using discounted cash flows.
The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key
assumptions represent management’s assessment of future trends in the oil and gas industry and have been based on historical
data from internal sources.
OTM Consulting CGU
Rate of growth/(decline) in revenue (average of next 4 years)
Rate of increase/(reduction) in operating costs (average of next 4 years)
Terminal value growth rate
2016
10.9%
3.8%
2.25%
2015
(2.5)%
(1.7)%
2.25%
The growth rates used are based on internal forecasts which reflect management’s best estimate of the future forecasts. The
terminal growth rate was determined based on management’s estimate of the long term compound annual EBIT growth rate,
based on market data.
Sensitivity analysis
The Group has conducted a sensitivity analysis on the impairment test of OTM Consulting’s goodwill carrying value. 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 £78,000 (2015: £140,000). An increase in operating costs by 1 percentage point with all other variables remaining constant
would increase the impairment by £268,000 (2015: £233,000). A decrease in the terminal value growth rate by 0.25 percentage
point in years 1 to 4 with all other variables remaining constant would increase the impairment by £71,000 (2015: £65,000).
Annual Report and Financial Statements 2016For the year ended 31 December 2016 48
Notes to the Financial Statements continued
For the year ended 31 December 2016
13 Intangible assets (continued)
Impairment testing for the Oakland Innovation CGU
A review of the forecast future cash flows of Oakland Innovation, based on value in use estimated using discounted cash flows,
indicated there was no impairment.
The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key
assumptions represent management’s assessment of future trends in the consumer industry and have been based on historical
data from internal sources.
Oakland Innovation CGU
Rate of growth in revenue (average of next 4 years)
Rate of increase in operating costs (average of next 4 years)
Terminal value growth rate
2016
6.5%
6.5%
2.25%
2015
5.8%
5.8%
2.25%
The growth rates used are based on internal forecasts which reflect management’s best estimate of the future forecasts. The
terminal growth rate was determined based on management’s estimate of the long term compound annual EBIT growth rate,
based on market data.
A sensitivity analysis using reasonably possible changes in key assumptions has been performed. None of these changes result
in the value of goodwill allocated to Oakland Innovation being in excess of its recoverable amount and therefore no sensitivity
analysis is presented.
Impairment testing for the Leatherhead Research CGU
A review of the forecast future cash flows of Leatherhead Research, based on value in use estimated using discounted cash flows,
indicated there was no impairment. The goodwill attributable to Leatherhead Research is not significant in comparison with the
entity’s total carrying amount of goodwill. A sensitivity analysis was performed and no reasonably possible change in the key
assumptions resulted in the value of goodwill allocated to Leatherhead Research being in excess of its recoverable amount and
therefore no sensitivity analysis is presented.
Annual Report and Financial Statements 2016 Notes to the Financial Statements continued
49
14 Property, plant and equipment
Group
Cost
At 1 January 2015
Exchange differences on cost
Additions
Additions through business combinations
Disposals
At 1 January 2016
Exchange differences on cost
Additions
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Depreciation charge
Exchange differences on depreciation
Disposals
At 1 January 2016
Depreciation charge
Exchange differences on depreciation
Disposals
At 31 December 2016
Carrying amount
At 31 December 2015
At 31 December 2016
Freehold land
and buildings
£000
Furniture
and fittings
£000
Equipment
Total
£000
£000
16,681
-
7,366
-
-
24,047
-
1,216
(67)
25,196
3,091
62
-
-
3,153
169
-
(8)
3,314
20,894
21,882
1,503
-
320
3
(3)
1,823
-
1,036
(169)
2,690
859
262
-
(3)
1,118
309
-
(169)
1,258
705
1,432
963
2
171
249
(38)
1,347
8
303
(457)
1,201
739
196
2
(31)
906
267
8
(459)
722
441
479
19,147
2
7,857
252
(41)
27,217
8
2,555
(693)
29,087
4,689
520
2
(34)
5,177
745
8
(636)
5,294
22,040
23,793
Annual Report and Financial Statements 2016For the year ended 31 December 2016 50
Notes to the Financial Statements continued
14 Property, plant and equipment (continued)
In the prior year, 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. During the year ended 31 December 2016, the property was brought into use from which point depreciation
commenced. This property was acquired solely for the use of Science Group. Included within land and buildings for Science Group
is freehold land to the value of £500,000 (2015: £500,000) which has not been depreciated. This property was last formally valued
at £8.0 million during May 2016 by Vail Williams LLP for Lloyds, subject to the assumption of full vacant possession.
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 (2015: £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 £1,079,000 (2015: £1,073,000). Of this income, £636,000
(2015: £619,000) was rental income and £443,000 (2015: £454,000) 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 2016 was 31,300 sq ft (2015: 31,300 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 (2015: 44,200 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 (2015: 1,500 sq ft) was vacant during the year.
Given the continuing rental values and occupancy rates the Directors do not believe that the combined carrying value of the
Harston and Epsom properties of £21,882,000 (2015: £20,894,000) is significantly different to its fair value.
The interest in both the Harston and Epsom freehold land and buildings have 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 2016For the year ended 31 December 2016 51
Notes to the Financial Statements continued
15 Investments
a) Investments in subsidiaries
Science Group held investments in the following subsidiaries at 31 December 2016.
Subsidiaries of Science Group plc
Registered
office
Country of
incorporation
Principal activity
Shares held
%
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*
(1)
(1)
(1)
(1)
(1)
(2)
(3)
(1)
(1)
England
England
England
England
England
USA
USA
England
England
Consultancy
Holding company
Consultancy
Property
IT Consultancy
Consultancy
Consultancy
Consultancy
Consultancy
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
* Direct subsidiaries of Science Group plc as at 31 December 2016
(1) Harston Mill, Royston Road, Harston, Cambridge, England, CB22 7GG
(2) Beacon Street, Suite 2300, Boston, USA, MA 02108
(3) Greenway Plaza, Suite 1100, Houston, USA, TX 77046
All subsidiaries for which accounts are provided have year ends of 31 December.
b) Other investments
Cost
At 1 January 2015
Acqusition of investment
At 31 December 2015
At 31 December 2016
Impairment
At 1 January 2015 and 1 January 2016
Impairment loss
At 31 December 2016
Carrying amount
At 31 December 2015
At 31 December 2016
100
100
100
100
100
100
100
100
100
Total
£000
-
100
100
100
-
50
50
100
50
At 31st December 2016, a subsidiary of Science Group plc holds 30% of the ordinary share capital of Creactive (ID) Design Limited,
a Cambridge-based industrial design consultancy, at a net book value of £50,000. The annual impairment test on investments
resulted in an impairment of £50,000 being recognised against this investment. The recoverable amount of the investment was
£50,000 (2015: £100,000) and was measured on the basis of value in use estimated using discounted cash flows.
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.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 52
Notes to the Financial Statements continued
15 Investments (continued)
c) Company investments
Cost
At 1 January 2015
Acquisitions through business combinations
Recapitalisation of subsidiaries
At 31 December 2015
At 31 December 2016
Impairment
At 1 January 2015
Impairment loss
At 31 December 2015
Impairment loss
At 31 December 2016
Carrying amount
At 31 December 2015
At 31 December 2016
Total
£000
16,818
5,000
350
22,168
22,168
-
387
387
1,798
2,185
21,781
19,983
An impairment loss of £1.8 million (2015: £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 arisen from a sustained deterioration
in the oil & gas market that has continued longer than previously anticipated resulting in 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.
In the prior year, Science Group plc purchased the 100% subsidiary Quadro Design Limited from the 100% direct subsidiary
Sagentia Limited for consideration of £1. In addition, Quadro Design Limited and Leatherhead Research Limited, 100%
subsidiaries of Science Group plc, issued share capital of £250,000 and £100,000 respectively.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 Notes to the Financial Statements continued
53
16 Trade and other receivables
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
2016
£000
2015
£000
-
-
-
-
-
-
-
-
-
-
12,061
16,706
8
109
36
42
12,178
16,784
2016
£000
7,297
(97)
7,200
356
14
-
-
649
8,219
2015
£000
7,187
(116)
7,071
208
19
-
1,129
553
8,980
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 £97,000 (2015: £116,000) has been provided at 31 December 2016. 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
2016
£000
116
(11)
(41)
33
97
Group
2016
£000
979
-
979
2015
£000
67
(4)
(63)
116
116
2015
£000
1,984
8
1,992
Annual Report and Financial Statements 2016For the year ended 31 December 2016 54
Notes to the Financial Statements continued
17 Cash and cash equivalents
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
Borrowings
19 Non-current liabilities
Borrowings
Interest rate swap
Deferred income tax liabilities
Company
Group
2016
£000
37
5,340
5,377
2015
£000
37
1,687
1,724
2016
£000
37
25,959
25,996
2015
£000
45
14,471
14,516
Company
Group
Note
2016
£000
2015
£000
2016
£000
2015
£000
-
26
101
-
-
86
213
-
213
-
4
48
-
-
157
209
-
209
8,584
5,342
765
941
367
895
3,661
15,213
1,000
16,213
639
719
-
830
3,159
10,689
1,034
11,723
Group
2016
£000
13,664
-
2,415
16,079
2015
£000
6,753
141
2,657
9,551
21
Note
21
Annual Report and Financial Statements 2016For the year ended 31 December 2016
Notes to the Financial Statements continued
55
20 Called-up share capital
Allotted, called-up and fully paid
Ordinary shares of £0.01 each
Allotted, called-up and fully paid
Ordinary shares of £0.01 each
2016
£000
2015
£000
421
421
Number
Number
42,062,035
42,062,035
The allotted, called-up and fully paid share capital of the Company as at 31 December 2016 was 42,062,035 shares (2015:
42,062,035) and the total number of ordinary shares in issue (excluding treasury shares) was 39,328,794 (2015: 41,060,006).
A reconciliation of treasury shares held by the Company is as follows:
Reconciliation of treasury shares
At beginning of year
Purchase of own shares
Settlement of share options
Treasury shares issued 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
Company
2016
Number
1,002,029
2,115,000
(383,788)
-
2015
Number
4,725,420
405,000
(3,085,058)
(1,043,333)
At end of year
2,733,241
1,002,029
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 shareholder
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 2016, the Remuneration Committee made an offer to eligible employees of outstanding vested (or to vest in 2016) grants
under the Unapproved scheme and Performance Share Plan (limited to awards of up to 15,000 options), to buy out the share
option for approximately the net realisable value. In aggregate, acceptances of the offer accounted for 1.0 million share options
at an aggregate cash cost of £0.6 million paid in August 2016, and a one-off charge of £0.2 million, included within share based
payments. No Director had any share options that were eligible.
The total charge relating to employee share based payment plans, all of which related to equity-settled share based payment
transactions, was as follows:
Equity settled share based payment charge
Accelerated charge due to cancelation in year
Group
2016
£000
353
244
597
2015
£000
452
-
452
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.
Annual Report and Financial Statements 2016For the year ended 31 December 2016
56
Notes to the Financial Statements continued
20 Called-up share capital (continued)
Reconciliation of outstanding options
2016
2015
At beginning of year
Granted during the year
Exercised during the year
Cancelled during the year
Lapsed during the year
At end of year
Number
Weighted
average exercise
price (pence)
Number
Weighted
average exercise
price (pence)
3,003,000
485,000
(383,788)
(1,097,313)
(276,666)
1,730,233
38.3
1.2
73.2
64.0
4.1
9.3
6,084,000
414,000
(3,085,058)
-
(409,942)
3,003,000
45.5
1.0
47.3
-
38.9
38.3
The options outstanding at 31 December 2016 had a weighted average contractual life of 8.0 years (2015: 7.4 years).
Included within the total outstanding options at 31 December 2016 are 411,200 options which are exercisable (2015: 1,411,500).
The weighted average exercise price of exercisable options at the end of the year was 9 pence (2015: 38 pence).
Options exercised during the year had a weighted average share price at the date of exercise of 73 pence (2015: 47 pence).
Exercise of an option is subject to continued employment, and normally lapses within three months of leaving employment.
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 0.06% to 0.11% has been used and a dividend yield factor of 2.7% to 2.9%. The share price on the date the options were
granted was 150 pence in August 2016 and 137 pence in September 2016. 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.
At 31 December 2016, 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
Jul 2010
Jul 2013
Jul 2020
42,500
Oct 2011
Oct 2014 Oct 2021
34,062
-
-
Nov 2012
Nov 2015 Nov 2022
51,800
59,536
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
Aug 2016
Aug 2019 Aug 2026
Sep 2016
Sep 2019 Sep 2026
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a) Subject to earlier exercise in certain limited circumstances.
128,362
59,536
-
-
-
-
-
-
-
-
-
-
-
-
-
-
323,335
100,000
285,000
34,000
315,000
385,000
100,000
1,542,335
51.0
80.0
86.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
14.0
32.9
18.6
80.8
85.3
74.8
86.7
77.0
96.5
81.6
10
10
10
10
10
10
10
10
10
10
35%
65%
40%
25%
21%
18%
16%
16%
21%
22%
For all options granted prior to 2013, the exercise price is also the share price at date of grant.
Annual Report and Financial Statements 2016For the year ended 31 December 2016 57
Notes to the Financial Statements continued
20 Called-up share capital (continued)
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
Jun 2010
Jun 2013 Jun 2020
-
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
Oct 2013
Oct 2016 Oct 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
40.0
51.0
80.0
86.0
1.0
1.0
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
86.7
77.0
482,151
902,888
26,461
1,591,500
10
10
10
10
10
10
10
10
10
10
10
10
58%
42%
35%
35%
65%
40%
25%
25%
21%
18%
16%
16%
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.
21 Borrowings
Group
Non-current
Bank borrowings
Other borrowings
Current
Bank borrowings
Other borrowings
Total borrowings
2016
£000
13,664
-
13,664
1,000
-
1,000
14,664
2015
£000
6,750
3
6,753
1,000
34
1,034
7,787
Science Group plc had no bank borrowings at the start or end of the year.
During the year ended 31 December 2016, the Group entered into a new 10 year fixed term loan of £15 million which is secured on
the freehold properties of the Group and on which interest is payable based on LIBOR plus 2.6% margin. The repayment profile
of the loan is £1 million per annum over the term with the remaining £5 million repaid on expiry of the loan in 2026. Costs directly
associated with entering into the loan of £90,000 were incurred, have been offset against the balance outstanding and are being
amortised over the period of the loan.
Annual Report and Financial Statements 2016For the year ended 31 December 2016
58
Notes to the Financial Statements continued
21 Borrowings (continued)
The new term loan has no operating covenants while the Group net bank debt is less than £10 million. If this threshold is crossed,
two conditions apply: a financial covenant, measured half-yearly on a 12 month rolling basis, such that annual EBITDA must
exceed 1.25 times annual debt servicing (capital and interest); and a security covenant whereby the loan to value (’LTV’) ratio of the
securitised properties must remain below 75%. If either of these conditions is breached, a remedy period of 6 months is provided,
during which time the EBITDA or LTV condition can be remedied or the net bank debt can be reduced to less than £10 million.
The balance outstanding on the previous loan was repaid in full.
In accordance with an agreed repayment schedule with the bank, bank borrowings are repayable to Lloyds as follows:
Group
Within one year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
2016
£000
1,000
1,000
3,000
9,750
14,750
2015
£000
1,000
1,000
5,750
-
7,750
In order to address interest rate risk, the Group entered into phased interest rate swaps in order to fully hedge the loan resulting
in a 10 year fixed effective interest rate of 3.5%. The Group has adopted hedge accounting for the interest rate swap under IAS
39, Financial Instruments, and the gain on change in fair value of the interest rate swaps entered into in 2016 of £197,000 (2015:
£nil) was recognised directly within equity. The settlement of the previous interest rate swap with the release of the previously
recognised liability has resulted in a net loss of £75,000 in the Consolidated Income Statement in the year ended 31 December
2016 (2015: gain of £62,000).
The fair value of the swap at 31 December 2016 was an asset of £197,000 (2015: liability of £141,000).
Other borrowings relate to finance leases of £nil (2015: £37,000).
22 Commitments
a) Operating lease commitments
The minimum annual rentals under non-cancellable operating leases are as follows:
Group
Within 1 year
Between 1 and 5 years
2016
£000
315
80
395
2015
£000
323
297
620
Operating lease commitments represent rentals payable by the Group for certain of its property, plant and equipment to the next
lease break clause or to the end of the lease, whichever is sooner.
b) Other financial commitments
At 31 December 2016 the Group and the Company had other financial commitments of £nil (2015: £nil).
23 Contingent liabilities
At 31 December 2016, there were no contingent liabilities (2015: £nil).
Annual Report and Financial Statements 2016For the year ended 31 December 2016
59
Notes to the Financial Statements continued
24 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:
Company
Sagentia Limited
Sagentia Inc.
OTM Consulting Limited
Quadro Design Limited
Manage5Nines Limited
Sagentia Technology Advisory Limited
Oakland Innovation Limited
Leatherhead Research Limited
2016
Loans
£000
(12,061)
-
-
-
-
-
-
-
(12,061)
2016
Sale of goods
and services
£000
130
-
65
-
-
-
65
260
520
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
During the year, the Group entered into transactions with Creactive (ID) Design Limited (‘Creactive’). Creactive has provided
consultancy services to Sagentia Limited (a subsidiary of Science Group plc) and a cost of £70,000 was charged to Sagentia
Limited (2015: £111,000). An accrual of £19,000 was outstanding at year end (2015: £12,000). In addition to this, Sagentia Limited
has provided consultancy services to Creactive and a cost of £2,500 was charged to Creactive (2015: £nil). Also, Creactive has a
licensing agreement in place with Sagentia Limited to occupy office space. During the year ended 31 December 2016, £25,900
was charged to Creactive in relation to this agreement (2015: £6,600). A trade receivable of £nil was outstanding at year end
(2015: £nil).
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 in 2015. 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 was charged to Microgen plc. In 2016,
no transactions were entered into with Microgen plc. In addition, the Chairman of Science Group plc, Martyn Ratcliffe, retired as
Chairman of Microgen plc in March 2016.
Science Group plc also entered into a transaction with Clinitech Limited (‘Clinitech’). One of the Directors of Science Group
plc, Michael Lacey-Solymar, is also a Director of Clinitech and Director and Shareholder of Clinitech’s ultimate parent company.
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 2016, £5,000 (2015: £5,600) was charged to Clinitech in relation to
this agreement. A trade receivable of £nil was outstanding at year end (2015: £nil).
Annual Report and Financial Statements 2016For the year ended 31 December 2016 60
Notes to the Financial Statements continued
For the year ended 31 December 2016
24 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.
Aggregate remuneration
Year ended 31 December
Short term employee benefits
Pension costs
Share based payment transactions
2016
£000
1,496
49
119
2015
£000
1,419
51
92
1,664
1,562
25 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) Critical accouting estimate
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) Significant accounting judgement
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.
26 Post balance sheet events
There are no post balance sheet events to disclose.
Annual Report and Financial Statements 2016
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
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 2016
62
Notes
Annual Report and Financial Statements 2016
Science Group plc
Harston Mill, Harston, Cambridge, CB22 7GG, UK
T +44 1223 875200
E info@sciencegroup.com
www.sciencegroup.com