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ANNUAL REPORT AND
FINANCIAL STATEMENTS
2022
OVERVIEW
2 Highlights
STRATEGIC REPORT
4 Statement of Executive Chair
7
Finance Director’s Report
9 Key Performance Indicators
9
Principal Opportunities and Risks
12 Viability Statement
12 Corporate Responsibility
REPORT OF THE DIRECTORS
16 Report of the Directors
19 Corporate Governance Report
20 Board Committees
21 Report of the Remuneration Committee
23 Report of the Audit Committee
24 Report of the Nomination Committee
25 Directors’ Responsibilities
25 Approval
INDEPENDENT AUDITOR’S REPORT
26
Independent Auditor’s Report
FINANCIAL STATEMENTS
38 Consolidated Income Statement
39
40
42
43
45
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Changes in Shareholders’ Equity
Company Statement of
Changes in Shareholders’ Equity
Consolidated and Company
Balance Sheet
Consolidated and Company
Statement of Cash Flows
47 Notes to the Financial Statements
01
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT OVERVIEW I HIGHLIGHTS
Solid performance providing foundation
for further value creation
Science Group is an international science, engineering and technology
(‘SET’) business. Following its investment in and subsequent
acquisition of TP Group, completed in January 2023, the Group now
comprises five operating divisions. With a consistent track record and
strong balance sheet, the Group has delivered growth and attractive
returns to shareholders for over a decade.
Science Group plc (AIM:SAG): an international science, engineering and technology (‘SET’) business
Services Businesses
Products Businesses
R&D
Consultancy
Regulatory &
Compliance
Defence &
Aerospace
Consultancy
Audio Chips &
Modules
Submarine
Atmosphere
Management
Systems
1986
IPO and listing
on the London
Stock Exchange
2006
New Chairman
invests and
joins the board
2013
Formation of
Scientific
Generics Limited
2001
Name change
to Sagentia
Limited
2010
Acquisition
of OTM
Consulting
2015
02
Annual Report and Financial Statements 2022
FINANCIAL HIGHLIGHTS
Revenue
£86.3m
Adjusted Operating Profit
£17.6m
Adjusted EPS
29.4p
Proposed Dividend
5.0p
Acquisition of
Oakland Innovation
and Leatherhead
Food Research.
Name change to
Science Group plc
2017
Acquisition of
Frontier Smart
Technologies
2021
Management of
investment and
offer made for
TPG. Acquisition
completed in
early 2023
2015
Acquisition of
TSG Consulting
in Europe and
USA
2019
Investment in
TP Group (‘TPG’)
2022
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Annual Report and Financial Statements 2022
03
OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
STRATEGIC REPORT
04
Statement of Executive Chair
Science Group is an international
science, engineering and technology
(‘SET’) business. The Group provides
SET services to the medical, defence,
industrial, and consumer sectors,
supplemented by a products division
where the Group holds leading market
positions in related technology sectors.
The Group also has significant freehold
property assets which host the business
operations.
In 2022, Science Group again
demonstrated its resilience and delivered
another solid performance, despite the
deterioration in the global economy.
While all businesses performed
creditably, those servicing the consumer
sector were most impacted by the
economic slowdown. The acquisition
of TP Group plc (‘TPG’), completed
in January 2023 and funded through
Science Group’s organic operating cash
flow, significantly increases the scale of
the Group and provides a strategic entry
into the defence sector.
Annual Report and Financial Statements 2022 STRATEGIC REPORT
Statement of Executive Chair (continued)
Financial Summary
For the year ended 31 December 2022, Science Group reported
revenue of £86.3 million (2021: £81.2 million). Group adjusted
operating profit was £17.6 million (2021: £16.3 million).
Adjusted basic earnings per share was 29.4 pence
(2021: 28.5 pence).
Amortisation of acquisition related intangibles, acquisition
advisor fees and integration costs, together with the share-
based payment charge totalled £6.5 million (2021: £3.6 million)
and the Group’s share of the estimated profit in TPG was
£0.6 million (2021: £1.1 million loss). As a result, the Group
reported operating profit of £11.7 million for the year (2021:
£11.6 million) and, after net finance costs of £0.6 million
(2021: £0.7 million), profit before tax of £11.1 million (2021:
£10.9 million), with basic earnings per share of 23.2 pence
(2021: 22.4 pence).
The past year saw substantial volatility in Sterling exchange
rates, particularly during the period of UK political instability
in the late summer. With a significant proportion of income
generated in US Dollars, the Group benefitted from such
dynamics offsetting the significant increase in energy prices
and other cost inflation.
Science Group continues to deliver strong cash conversion and
retains a robust balance sheet. At 31 December 2022, Group
cash was £43.6 million (2021: £34.3 million) and net funds
were £29.5 million (2021: £19.0 million). The Group’s term loan,
which expires in 2026, was £14.2 million (2021: £15.4 million).
In addition to the term loan, in December 2021, a £25 million
Revolving Credit Facility (‘RCF’) was arranged. As a result, the
Group has significant existing cash resources and available
facilities to continue its strategy, such that at 28 February
2023, following the completion of the TPG acquisition, Group
cash was £33.4 million and net funds were £19.3 million and
the RCF remained undrawn.
R&D Consultancy
The R&D Consultancy business provides science-led advisory
and product/technology development services. The division
combines science and engineering capabilities with expertise
in key vertical sectors, namely: Medical; Consumer; Food &
Beverage; and Industrial, Chemicals & Energy (‘ICE’).
For the year ended 31 December 2022, the R&D
Consultancy division generated revenue of £38.7 million
(2021: £34.3 million). A significant proportion of revenue in the
R&D Consultancy business is invoiced in US dollars but the
cost base is predominantly in Sterling. As a result, the business
benefitted from the favourable US Dollar:Sterling rate during
2022. In view of the currency volatility, a hedging instrument
to cap the rate at US$1.20:£1 for $1.25 million per month was
taken out to the end of 2023. There is no obligation to sell at
this rate and the instrument is designed to protect against the
strengthening of Sterling or weakening of the US Dollar.
Regulatory & Compliance
The Regulatory & Compliance business provides scientific and
regulatory advice together with registration and compliance
services for the Chemicals, Consumer, Food & Beverage and
Medical sectors. The division comprises the European and
North American operations of TSG Consulting, together with
Leatherhead Food Research.
For the year ended 31 December 2022, the Regulatory &
Compliance division generated revenue of £22.0 million
(2021: £21.4 million). Of this revenue, around 27% is of a
recurring nature, primarily within the Food & Beverage sector
and the North American registration renewals activities.
While the North American business had a tough comparator,
having benefitted from increased regulatory applications being
sought during the pandemic, the European business made
progress, signing strategic contracts with global agri-chemicals
businesses, providing an improved platform for the year ahead.
Frontier Smart Technologies
Frontier Smart Technologies (‘Frontier’) is the market leader
in DAB/DAB+/SmartRadio and connected audio technology
chips and modules.
The Frontier business reported revenue of £25.0 million
(2021: £24.9 million) and an adjusted operating profit margin
of 15% (2021: 21%). The business started the year supply-
constrained, however, as the global economic environment
deteriorated, demand for consumer electronics reduced
significantly in the second half of the year. Independent market
data showed a decline of 16% in Q3 2022, directly impacting
the Frontier business. In view of the current economic
environment, it is not anticipated that demand for consumer
electronics will recover until H2 2023.
Freehold Properties
Science Group owns two freehold properties, Harston Mill
near Cambridge and Great Burgh in Epsom, which host the
Group’s operations. The last independent valuation in March
2021 indicated an aggregate value of these properties in the
range of £21.0 million to £35.0 million. The properties are
held on the balance sheet on a cost basis at £20.8 million
(2021: £21.0 million).
The Group charges market rents to the operating businesses
and lets out part of the Harston site to third parties. For the
year ended 31 December 2022, the rental and associated
services income derived from this activity was £4.1 million
(2021: £3.6 million), of which £0.7 million (2021: £0.6 million)
was generated from third party tenants. Intra-group rental
charges are eliminated on Group consolidation.
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05
Annual Report and Financial Statements 2022
STRATEGIC REPORT
Statement of Executive Chair (continued)
Acquisition of TP Group plc
Science Group acquired a strategic shareholding in TPG
in 2021, resulting in the appointment of two directors onto
the TPG Board, as Executive Chairman and Chair of Audit
Committee. Following the renegotiation of onerous contracts
(which came to light after the strategic investment was
made) and the disposal of non-core operations, Science
Group completed the acquisition of TPG on 26 January 2023.
The acquisition was effected by a court-approved Scheme
of Arrangement. Including the share purchases in 2021,
the professional fees incurred and restructuring costs, the
aggregate investment in TPG is approximately £30 million.
In 2022, TPG was accounted for as an associate and the Group
results include £0.6 million being the estimated share of TPG
profit related to the Science Group shareholding during the
year.
TPG is a UK-based Defence and Aerospace business
comprising TPG Services (including Osprey), which is a
specialist consultancy providing technical expertise, and TPG
Maritime, which is in the process of being rebranded, and
is a leading provider of atmosphere-management systems
for submarines. The non-core businesses of Sapienza and
Northstar were disposed of in the course of 2022 and the
disposal of Westek was completed in February 2023. As a
result of the TPG acquisition, approximately 290 employees
joined Science Group.
Corporate
The corporate function is responsible for the strategic
development of Science Group. Corporate costs were
£3.2 million (2021: £4.4 million). This includes the TPG
acquisition-related costs (legal and advisory) but is offset by
the share of the TPG profit resulting from its being accounted
for as an associate, which is reported as corporate in segmental
reporting.
During the year, the Company repurchased 323,453
shares at a total cost of £1.3 million, equivalent to an
average price of 408 pence per share (2021: £0.6 million).
At 31 December 2022, shares in issue (excluding treasury
shares held of 0.7 million) were 45.4 million (2021: 45.7 million
excluding treasury shares held of 0.5 million). The Board is
recommending maintaining the dividend at 5.0 pence per share
(2021: 5.0 pence per share). Subject to shareholder approval
at the Annual General Meeting (‘AGM’), the dividend will be
payable on 16 June 2023 to shareholders on the register at the
close of business on 19 May 2023.
Summary and Outlook
In summary, Science Group has reported another solid
performance in 2022. This resilience has been achieved
against the backdrop of geopolitical instability, substantial
energy (and other) cost increases and an economic downturn.
Whilst inflationary pressures appear to be easing, the
economic environment remains unpredictable, compounded
by the recent instability in the banking sector undermining
market confidence in a near-term recovery. Such a climate
inevitably produces uncertainty. The Board anticipates this
fragile environment to continue through the first half of 2023
and is therefore cautious in its outlook and prudent in its
decision-making.
The acquisition of TPG, funded through Science Group’s
organic operating cash flow, adds significant scale to the
Group and provides a strategic entry into the defence sector, a
market anticipated to be less affected by short-term economic
volatility. The integration of TPG is proceeding rapidly,
benefitting from the period of active management of the
strategic investment prior to the acquisition.
The Group’s strong balance sheet, with significant cash
resources, unused debt facilities and freehold property assets,
provides a robust foundation for the enlarged Group while also
enabling the Board to pursue further corporate opportunities
should they arise.
Martyn Ratcliffe
Executive Chair
06
Annual Report and Financial Statements 2022 STRATEGIC REPORT
Finance Director’s Report
Overview of Results
In the year ended 31 December 2022, the Group generated
revenue of £86.3 million (2021: £81.2 million). Revenue from
the services operating businesses, that is revenue derived
from consultancy services and materials recharged on these
projects, increased to £60.7 million (2021: £55.7 million) while
product revenue generated by Frontier was £25.0 million
(2021: £24.9 million). Revenue generated by freehold
properties, comprising property and associated services
income derived from space let to third parties in the Harston
Mill facility, was £0.7 million (2021: £0.6 million).
Adjusted operating profit for the Group increased to
£17.6 million (2021: £16.3 million). The Group’s statutory
operating profit of £11.7 million (2021: £11.6 million) includes
the amortisation of acquisition related intangible assets
(£3.8 million), share-based payment charges (£1.6 million),
a share of the estimated profit of associate investment, TP
Group plc, of £0.6 million, and associated acquisition costs
of TP Group plc of £1.1 million. The statutory profit before
tax was £11.1 million (2021: £10.9 million). After net finance
costs of £0.6 million (2021: £0.7 million) and a tax charge of
£0.5 million (2021: £1.4 million), statutory profit after tax was
£10.6 million (2021: £9.6 million). Statutory basic earnings per
share (‘EPS’) was 23.2 pence (2021: 22.4 pence).
Adjusted operating profit is an alternative profit measure that is
calculated as operating profit excluding acquisition integration
costs, amortisation of acquisition related intangible assets,
share-based payment charges, and other specified items
that meet the criteria to be adjusted. Refer to the notes to the
financial statements for further information on this and other
alternative performance measures.
TP Group plc
The Group made further on-market purchases of shares in
TP Group plc (‘TPG’) during 2022, increasing its holding from
28.0% to 29.2% at 31 December 2022. Throughout 2022, the
Group accounted for its shareholding in TPG as an associate
under the equity accounting method. On 31 October 2022, the
Group made an offer to acquire the remainder of TPG shares
at a price of 2.25 pence per share, to be effected through a
court-approved Scheme of Arrangement. This acquisition
completed subsequent to the year end, on 26 January 2023,
at which point TPG became a wholly owned subsidiary of the
Group.
TPG has not released its results for the period ended 31
December 2022. A share of associate profit after tax of
£0.6 million has been included within the Science Group
Income Statement, which is an estimate based on expected
final TPG financial statements for the year ended 31 December
2022, proportionate to the Group’s associate shareholding.
In December 2021, the Group made available a standby
revolving credit facility to TPG. The facility is for a maximum
of £5.0 million for the period from the date of signing until
30 September 2023.
The facility, which incurs an interest rate of 1% per month on
sums drawn or 0.4% per month on undrawn amounts, was
used for short periods in 2022 to provide liquidity to TPG
however was undrawn at 31 December 2022.
Foreign Exchange
A considerable proportion of the Group’s revenue is
denominated in currencies other than Sterling. Changes in
exchange rates can have a significant influence on the Group’s
financial performance. In 2022, £54.7 million of the Group’s
operating business revenue was denominated in US Dollars
(2021: £50.2 million), including all of Frontier’s revenue. In
addition, £2.7 million of the Group operating business revenue
was denominated in Euros (2021: £3.1 million). The average
exchange rates during 2022 were US$1.24/£1 and €1.18/£1
(2021: US$1.37/£1 and €1.16/£1).
During 2022, in order to provide greater forward visibility
around foreign exchange, the Group acquired a currency
exchange instrument to cap the US Dollar:Sterling rate in
relation to the R&D Consultancy division through to the end of
2023. Initially the US Dollar:Sterling cap was set at $1.30/£1,
but in October 2023 the Group took advantage of the low
exchange rates to improve the cap to $1.20/£1. The instrument,
which applies to US$1.25 million per month, still enables the
business to benefit from lower exchange rates, should such
rates apply.
Taxation
The tax charge for the year was £0.5 million (2021: £1.4 million).
The underlying tax charge on the profits generated by the
operating businesses has been partially offset through brought
forward Frontier losses and a Research and Development
tax credit of £0.5 million (2021: £0.3 million). Science Group
recognises R&D tax credits within tax reporting, not as a credit
against operating costs.
At 31 December 2022, Science Group had £26.7 million
(2021: £27.8 million) of tax losses of which £17.1 million
(2021: £17.6 million) related to trading losses in Frontier.
Of the Frontier losses, £8.7 million (2021: £10.0 million) is
recognised as a deferred tax asset which is anticipated to be
used to offset future taxable profits. The balance of £8.4 million
(2021: £7.6 million) has not been recognised as a deferred
tax asset due to the uncertainty in the timing or feasibility
of utilisation of these losses. Aside from Frontier, the Group
has other tax losses of £9.6 million (2021: £10.2 million)
unrecognised as a deferred tax asset due to the low probability
that these losses will be utilised.
Financing and Cash
Cash flow from operating activities (excluding Client
Registration Funds) was £15.3 million (2021: £13.2 million).
As there was minimal movement on the Client Registration
Funds in the year, reported cash from operating
activities in accordance with IFRS was also £15.3 million
(2021: £14.0 million). The alternative performance measure,
by excluding Client Registration Funds, reflects the Group’s
available cash position and cash flow.
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07
Annual Report and Financial Statements 2022
STRATEGIC REPORT
Finance Director’s Report (continued)
Financing and Cash (continued)
The Group repatriates cash from overseas accounts on at least
a weekly basis and policy is to spread Group cash held across
UK Tier 1 banks.
The Group’s term loan with Lloyds Bank plc, secured on
the Group’s freehold properties, is a 10-year fixed term loan
expiring in 2026. Phased interest rate swaps hedge the loan
resulting in a fixed effective interest rate of 3.5%, comprising
a margin over the Sterling Overnight Index Average (‘SONIA’),
the cost of the loan arrangement fee and the cost of the swap
instruments. The Group has adopted hedge accounting for
the interest rate swaps related to the bank loan under IFRS
9 Financial Instruments, and the gain on change in fair value
of the interest rate swaps was £1,287,000 (2021: gain of
£763,000) which was recognised in Other Comprehensive
Income.
In December 2021, in addition to the term loan, the Group
signed a revolving credit facility (‘RCF’) with Lloyds Bank plc
in order to provide additional capital resources to enable the
execution of the Group’s acquisition strategy. The RCF is for
up to £25.0 million, with an additional £5.0 million accordion
option, for a term of four years with a possible one year
extension. The margin on drawn sums is 3.3% per annum over
SONIA and is 1.1% per annum on undrawn amounts. Drawn
amounts are secured on the Group’s assets by debentures.
At 31 December 2022, the RCF remained undrawn.
The RCF has two financial covenants with which the Group
needs to comply if the facility is drawn: (i) the Group’s net
leverage, as defined as the net debt divided by the rolling
12 month EBITDA, should not exceed 2.5; and (ii) the Group’s
interest cover, as defined as the rolling 12 month EBITDA
divided by the rolling interest payments on all borrowings,
should not be less than 4.0. Reporting is on a 6 monthly basis
unless the net leverage exceeds 2, in which case reporting
moves to quarterly until net leverage returns to below 2 again.
For the term of the RCF, the previous covenants for the term
loan are superseded by the covenants of the RCF and will not
apply.
The Group cash balance (excluding Client Registration Funds)
at 31 December 2022 was £43.6 million (2021: £34.3 million)
and net funds were £29.5 million (2021: £19.0 million). Client
Registration Funds of £2.9 million (2021: £2.9 million) were
held at the year end. Working capital management during the
year continued to be a focus with debtor days of 43 days at
31 December 2022 (2021: 31 days). A higher level of inventory
was held at the year end to mitigate uncertainty in forward
supply, resulting in inventory days increasing to 197 days at
31 December 2022 (2021: 76 days).
Share Capital
At 31 December 2022, the Company had 45,436,823 ordinary
shares in issue (2021: 45,720,276) and the Company held an
additional 749,051 shares in treasury (2021: 465,598). Of the
ordinary shares in issue, 34,800 shares (2021: 104,400) are
held by the Frontier Employee Benefit Trust. The total number
of voting rights in the Company at 31 December 2022 was
45,402,023 (2021: 45,615,876). In this report, all references
to measures relative to the number of shares in issue exclude
shares held in treasury unless explicitly stated to the contrary.
Jon Brett
Finance Director
08
Annual Report and Financial Statements 2022 STRATEGIC REPORT
Key Performance Indicators
The key performance indicators (‘KPIs’) are revenue, operating
profit, cash flow and the alternative performance measures as
disclosed in Note 1 in the Notes to the Financial Statements.
Profitability of the business is managed primarily via the review
of revenue and adjusted operating profit. (Secondary measures
of revenue per head, billed hours, daily fee rates, average selling
and cost prices, and units sold are used internally but are not
disclosed due to commercial implications.) Working capital
is reviewed via measures of trade receivables and inventory.
Performance against KPIs is reported in the Finance Director’s
Report.
Principal Opportunities and Risks
The Directors consider that the principal opportunities and
risks facing the Group are as set out below. The Board has
carried out a robust assessment of the emerging and principal
risks, including those that would threaten the sustainability of
its business model, its future performance, solvency or liquidity.
In addition, the Board regularly reviews existing and emerging
risks across the Group on a monthly basis. The Board considers
this monthly period to be appropriate for the business as it
allows the Board to remain informed of developments that may
affect the delivery of its strategy and to identify and implement
any mitigating actions. It also supports the Board’s review and
revision of forecasting, undertaken on at least a quarterly basis,
to minimise the impact of any emerging risks on the Group.
The Board has a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as they
fall due over a monthly period. A summary of the key measures
taken to mitigate the principal risks facing the Company are set
out below.
The Group uses internal and external methods to help identify
emerging business risks. Internally the Divisional Managing
Directors of the operating divisions report weekly to the
Executive Board on business performance and issues, and
provide formal reports to the full Board on a monthly basis. This
ensures that potential emerging risks identified on-the-ground
are escalated to the Board in a timely manner. Externally, the
Group’s professional advisors raise relevant potential issues
from time to time. Identified potential risks are discussed
by the Board and, if necessary, risk mitigation strategies are
considered. It is also common for identified risks to be assigned
to a working party to keep a watching brief and update the
Board as appropriate.
Economic conditions impacting demand for outsourced
services
The R&D Consultancy division of Science Group is dependent
on the global market for outsourced science, technology and
engineering based services. This provides both opportunities
and risks, depending on the performance of and confidence
in the Group’s target geographies and markets. In general, an
economic downturn or instability may cause clients to delay
or cancel projects and/or related services, or to use internal
resources to achieve their business goals.
Conversely, a reduction in internal resources by clients may
result in greater levels of outsourcing for business critical
projects.
The current economic uncertainty and potential for recession in
the Western economies may impact both the total investment
and the investment priorities of the Group’s clients. In
particular R&D investment, especially that which is allocated to
long-term initiatives, may be negatively impacted.
The Group seeks to mitigate these risks and capitalise on these
opportunities 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
undertaking marketing activities to inform current and
prospective clients regarding the benefits of outsourced
research and development services and Science Group’s
proven ability to fulfil those objectives. The acquisition of
TP Group expands this diversity and introduces another sector
to the Group’s portfolio, Defence & Aerospace.
Inflationary pressures
Increasing inflation in the global economy is a risk across the
Group. Increasing costs from suppliers may impact all divisions
and the Group may or may not be able to pass on supply chain
price increases to its customers.
Higher inflation affects the Group’s employees who are
impacted by increases in living costs including fuel, energy and
food costs. Associated wage inflation is also a risk within the
Group with pressure on salaries and remuneration packages
for both specialist skills in technology and science as well
as more generalist skills such as HR, marketing and finance.
Higher employee costs may or may not be able to be passed
onto customers.
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 majority of the
Group’s employee-based costs are incurred in Pounds Sterling.
Materials related to Frontier products are typically priced in
US Dollars and end products are generally sold priced on
US Dollars. As a result, variations in currency exchange rates
may have a material impact, either positive and negative, on
Group revenue and profit performance.
To mitigate this risk, in 2022 the Group procured a currency
exchange instrument to cap the Sterling:US Dollar rate for
the R&D Consultancy division until the end of 2023. This
instrument provides the business with improved visibility and
reduced volatility. In addition the Group seeks to mitigate
foreign currency exposure and volatility by transferring excess
foreign currency holdings into Pounds Sterling on a regular
basis.
09
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT STRATEGIC REPORT
Principal Opportunities and Risks (continued)
Financial circumstances of customers
The profitability of the Group could be adversely affected
by the general economic conditions in the United Kingdom,
Continental Europe, United States, Asia 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.
The Group seeks to mitigate this risk by actively managing
customer relationships including credit limits which,
if appropriate, may require payment in advance; regular reviews
of debtors and overdue payments; and proactive credit control
procedures.
Geopolitical considerations
As the Group is an international business, global political
events have the potential to impact normal business
operations.
The conflict in Ukraine and its impact on energy prices has
resulted in significant operational cost increases for the
Group’s freehold properties and this may continue throughout
2023. The Group seeks to mitigate this by monitoring energy
prices, fixing prices where appropriate and seeking to reduce
energy usage.
The consequence of increased global energy and fuel prices
has been a rapid increase in inflation. This impacts materials
costs, employee remuneration and other costs, which may not
be able to be passed onto customers.
In addition to its engineering base in Harston, UK, the Frontier
division of Science Group is located in Shenzhen (China),
Hong Kong and Taiwan. The Asian offices fulfil sales, product
development and manufacturing of Frontier products. Political
instability in this region may impact the normal business
operations of Frontier.
The Group seeks to mitigate the risk of interruption to
usual business activity by ensuring that product knowledge,
documentation, systems and data are backed up and replicated
in the UK offices on a daily basis. Manufacturing of Frontier
products is outsourced in Shenzhen and could be replicated in
other locations.
Climate related risks and opportunities
Extreme weather events could disrupt global supply chains
which may impact upon the Frontier division which is
dependent upon global shipping for sourcing and distribution.
The Group seeks to mitigate this risk by managing inventory
levels and identifying alternative sources of supply.
The need to address climate-change related challenges and
increase sustainability may provide opportunities for the R&D
Consultancy division as clients explore possible scientific
and technological solutions. In addition, the increased focus
on sustainability in the chemical and other industries may
provide opportunities for the Regulatory & Compliance
division. The Group seeks to capitalise on these opportunities
through its sustainability services practice which spans both
the R&D Consultancy and Regulatory & Compliance divisions,
recognising that sustainability challenges may include both
innovation and regulation considerations.
Reputational risk
Failure to deliver service or product deliverables to agreed
budgets, timetables and/or quality may result in reputational
damage to Science Group that may adversely affect future
sales.
In the Group’s services businesses, this risk is mitigated by
having in place effective Quality Assurance procedures; review
meetings with clients; formal customer feedback procedures;
and various accreditations held by certain parts of the Group
including ISO 9001, ISO 13485 and ISO 27001.
In the Group’s product businesses, this risk is mitigated by
extensive testing prior to release of new products and remedial
action being taken in a timely manner when faults are reported.
The Frontier division relies upon third-party factories to
manufacture its product modules, and upon its customers
to manufacture complete radio receivers on behalf of client
consumer brands. Any deterioration in quality in these
manufacturing facilities might impact the Frontier brand
and its ability to sell product and/or maintain margin.
Frontier seeks to mitigate this risk by maintaining long term
relationships with trusted partner factories; seconding staff
to customer factories to monitor product quality in certain
circumstances; and maintaining relationships with client
consumer brands to obtain product quality feedback.
Dependence on key personnel
Science Group’s business relies on recruiting and retaining
highly qualified technical experts on whom the business
depends to deliver its services and products. Failure to recruit
and retain key staff could threaten the business’ ability to
deliver projects to its clients or to win new work or to maintain
market competitiveness.
The Group’s growth also places greater demands on the
Group’s management and infrastructure, across a wider range
of geographical locations and markets. Failure to recruit and
retain key management and functional staff could increase the
risks associated with operational and financial controls; sales
and marketing; information technology and other functional
support areas.
The Group seeks to mitigate this risk by encouraging staff
retention through both competitive remuneration packages
and a stimulating work environment. The Group’s growth also
provides career opportunities across the Group. In addition
to base salary, remuneration can include profit share/annual
bonus, pension, health benefits, life assurance and share
option schemes. The remuneration components are reviewed
regularly.
10
Annual Report and Financial Statements 2022 STRATEGIC REPORT
Principal Opportunities and Risks (continued)
Dependence on key personnel (continued)
Efforts are made to foster a vibrant, dynamic and supportive
environment for employees, which offers a diversity of
technically challenging work for large and small customers
across a range of industries and specialist market, science &
technology areas. The Group also provides career development
paths and training support.
Technology advances
The on-going development of new and existing technologies
provides opportunities for Science Group to provide
market-leading products and services to its clients. The
Group’s personnel must stay at the forefront of technical
advances and understanding of technical specialisms in order
to exploit these opportunities and sustain the Group’s growth.
The Group seeks to do this by the regular identification and
review by management of new technical areas for investment;
providing a budget for investment by managers in new ideas;
encouraging employees to keep up to date on technological
developments by both formal and informal training and self-
learning in relevant areas of technical expertise; and recruiting
employees with new technical skills where gaps in expertise
are identified. The Group notes the rise of artificial intelligence
(AI) technology which may provide both risks and opportunities
for the Group. AI technologies may have the potential to
negatively impact the provision of the lower-value consultancy
services by delivering such services with a higher degree of
automation. Conversely, there may be opportunities to exploit
AI in the provision of high-value services to clients, in particular
through the R&D Consultancy division’s data science skill
group.
Services projects over-run or fail to meet technical
milestones
Projects may over-run and/or may fail to meet technical
milestones because the nature of the work which the Group’s
services divisions undertake 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.
Market for radio products
The Frontier division of Science Group has a high market share
of the DAB radio market and is therefore subject to market
demand and the competitive environment. These factors are
correspondingly affected by the economic climate, a reduction
in consumer spending and alternative methods of receiving
radio/audio programmes.
Conversely, the switch off of FM services in certain
geographies provides opportunities for increasing DAB sales.
The market for consumer electronics goods is price sensitive.
Frontier’s products are manufactured in China and local
conditions such as import tariff changes may also impact the
cost of radio production and thereby the selling price to the end
consumer, which may affect demand and/or the margins of the
business. The Group seeks to mitigate these risks by actively
monitoring market developments and adjusting material
purchases accordingly. The Group also has employees based
in Shenzhen, Hong Kong and Taiwan to manage relationships
with customers and manufacturing locations.
Supply chain risks
The Frontier division relies on the supply of components for
the manufacture of its products. Macro-economic conditions
in global economies led to a fall in demand in the latter part
of 2022 for certain components and semiconductor materials
with consequent price reductions in some areas. Consequently,
there may be an easing of the manufacturing capacity issues
that occurred during the 2020-2022 period of high demand in
the electronics market. However, high energy costs impacted
the supply chain in 2022 and any easing of these costs during
2023 may not be significantly reflected in component and
materials pricing in 2023. The Group seeks to mitigate this risk
by reducing inventory levels and identifying alternative, cheaper
suppliers of certain key components.
Investment in acquisitions
The Group has grown through the acquisition of companies
with compatible service and technology offerings. The Board
considers further acquisitions to be a core part of the Group’s
strategy and the Group is continually monitoring opportunities
for strategic acquisition opportunities. Acquisitions provide
potential for growth and diversification, whilst increased scale
provides efficiencies of back office and central services across
the Group. Acquisitions can increase the risk profile of the
Group; unknown liabilities may be identified post-acquisition;
the revenue of the acquired business may decline; key staff
may leave; and other unforeseeable problems may arise.
The Group seeks to mitigate such risks by establishing an
integration team at the time of the acquisition who are rapidly
deployed to instil the Group’s financial and operational controls
into the acquired company as fast as practicable. While this
team comprises experienced managers from within the Group,
in every acquisition, unforeseen challenges arise and an
evolving iterative integration process is required.
Furthermore, acquisition diligence and integration deploy
resources that would otherwise be utilised within the existing
Group operations. The Board seeks to mitigate such impacts
by selective deployment of resources and the continued
development of capable managers.
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Principal Opportunities and Risks (continued)
Additional considerations
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 or other professional 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
• risk of adverse valuation of freehold properties
• changes in legislation or regulations relating to trading,
taxation or accounting practice
• increasing propensity to litigation, particularly in the USA
Viability statement
In accordance with the UK Corporate Governance Code July
2018, the Board has determined that a three-year period to
December 2025 constitutes an appropriate period over which
to provide its viability statement. The viability assessment
considers solvency and liquidity over a longer period than the
going concern assessment. Inevitably, the degree of certainty
reduces over this longer period.
The Board prepares annually a detailed financial plan, forecasting
sales and costs at a departmental level and a Group cash
flow covering this period. The plan provides a prudent basis
of assessment whilst enabling the Group to remain agile in
implementing significant opportunities for further growth
when they arise. Performance against the plan is reviewed on
a monthly basis by the Board and forecasts are updated at
least quarterly. The Board has considered sensitivity analyses
reflecting downside scenarios of principal risks (for example, a
downturn in market demand) applied to the Group’s financial
plan and cash flows (extended to 18 months from year end).
The scenarios assume an appropriate management response
to the specific event, but not broader mitigating actions which
could be undertaken, which have been considered separately.
Reverse stress testing has also been performed to assess
the severity of scenario that would have to occur to exceed
headroom. The assessment took account of the Group’s
current funding, forecast requirements and existing committed
borrowing facilities. In conclusion, the financial plan withstood
the stress testing and application of downside scenarios. In
each scenario or combination of sensitivity scenarios applied to
the financial plan, the Group is able to rely on its cash reserves,
reduce capital expenditure and take other cost and/or cash
management measures to mitigate the impacts and still have
residual capacity to absorb further unanticipated events.
12
The financial plan and going concern review formed the basis
of the extended viability assessment. Following this extended
review the Board confirms it has a reasonable expectation that
the Group will be able to continue in operation and meet its
liabilities as they fall due over the next three years.
The Board has also considered the effect of the banking
covenants for this assessment period and noted that there is no
expectation of covenant breach, particularly as the Group ends
the year with net funds of £29.5 million (2021: £19.0 million).
Based on the results of these analyses, the Directors have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
three-year period of their assessment.
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 including the
communities within which the Group operates. 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.
The Board considers sound governance as a critical component
of Science Group’s success and the delivery of its strategy.
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 Science Group’s corporate governance
can be found in the Corporate Governance Report.
Section 172 statement
The Companies (Miscellaneous Reporting) Regulations 2018
require qualifying companies to publish a statement explaining
how the Directors have had regard to the matters set out in
section 172(1)(a) to (f) of the Companies Act 2006 in performing
their duties under section 172.
In accordance with section 172, the Directors confirm that
they have acted in the way that they consider, in good faith,
would be most likely to promote the success of the Company
for the benefit of its shareholders as a whole. The paragraphs
below identify key stakeholders and provide examples of how
the Directors have had regard to the matters set out in section
172(1)(a) to (f) of the Act.
Annual Report and Financial Statements 2022 STRATEGIC REPORT
Corporate Responsibility (continued)
S172(1)(a) - The likely long term consequences of decisions
The Directors regularly consider the long term consequences
of the Board’s decisions and actions. In 2022, examples of this
included:
• the proposed cash acquisition of TP Group plc (‘TPG’) to
be effected by a scheme of arrangement under Part 26 of
the Companies Act 2006. This acquisition completed in
January 2023. The Independent Directors considered there
would be significant potential synergies with TPG and
that a combination would be attractive to the employees
and customers of both organisations. TPG operates
primarily in the Defence and Aerospace sectors which are
complementary to Science Group’s other activities, with
minimal overlap.
• the procurement of a currency exchange instrument to
cap the US Dollar:Sterling rate in relation to the R&D
Consultancy division through to the end of 2023. While
historically the Directors have not considered currency
hedging necessary, in view of the currency volatility during
2022, the Directors considered it appropriate to do so to
provide the business with improved visibility and reduced
volatility.
S172(1)(b) - The interests of the Company’s employees
The interests of the Group’s employees in light, in particular,
of increasing economic uncertainty, have been key to decisions
made by the Directors in relation to certain additional
payments made to staff during 2022. These included:
• a one-off bonus of £500 in January (pro-rated for part time
staff and localised for employees outside of the UK) in
recognition of the challenges that faced employees during
the Covid-19 pandemic.
• monthly fuel and energy contribution of £100 for UK
employees (pro-rated for part time staff) from July to
December as a result of rising fuel and energy costs in the
UK. This was increased to £150 per month (pro-rated for
part time staff) from October to December following further
review.
• a one-off payment of £250 (pro-rated for part time staff) in
November as an enhanced winter bonus in light of increased
living costs and economic uncertainty.
The Directors also have regard to the interests of employees
through the Group’s remuneration strategy; review of employee
performance and associated training and development needs;
provision of private healthcare and access to other wellbeing
platforms; and promotion of an inclusive and diverse culture
within the Group. More information can be found in Report
of the Remuneration Committee, the sections below entitled
Employee training and development and Diversity, equity and
inclusion, and the Statement on engagement with employees.
S172(1)(c) – The need to foster business relationships with
suppliers, customers and others
The Directors have had regard to the need to foster
good relationships with customers through, for example,
the implementation of key account management, the
development and improvement of service offerings, and the
on-going review and strengthening of the Group’s Quality
Assurance procedures.
The Directors take into account the need for good business
relationships with suppliers when reviewing key and critical
supplier lists, inventory purchasing and supplier payment
terms.
S172(1)(d) - The impact of the Company’s operations on the
community and the environment
The Directors are conscious of the importance of investing in
and caring for the physical environments in which the Group
operates and contributing to its local communities. These
factors are key to the Group’s ongoing work to reduce and
manage its use of energy, water and other resources; and,
in line with previous years, to make charitable donations to
health related charities and to food banks local to the Group’s
sites to support local communities facing hardship. For more
information see the section entitled Environmental, Social and
Governance.
S172(1)(e) - The desirability of maintaining a reputation for
high standards of business conduct
The Directors are committed to high standards of business
conduct throughout the Group and take into account the
desirability of maintaining its reputation for the same in their
decision making. To support this aim, in 2022 the Group
reviewed and updated its IT security systems and practices and
introduced a revised Information Security Policy.
S172(1)(f) - The need to act fairly as between shareholders
The Directors are committed to treating all shareholders
equally and, as part of its decision making process, the
Board considers the interests of shareholders as a whole.
All shareholders are provided with equivalent information
through RNS announcements, circulars and the Science Group
website. In particular, the Company issued several trading and
business updates during the year in order to keep shareholders
informed. Shareholders were able to attend the Annual General
Meeting in 2022 and had the opportunity to ask questions of
the Directors.
Employee training and development
Science Group’s employees are the business’ primary asset
and the Board is committed to investing in their career
development and rewarding exceptional performance. The
Group makes a focused effort to offer training and mentorship
to allow ambitious individuals 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,
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Corporate Responsibility (continued)
Employee training and development (continued)
employees also hold 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.
The Group also invests in and rewards its workforce through
the operation of its bonus and profit share schemes for
qualifying employees; and its share option scheme which is
at the discretion of the Remuneration Committee and other
discretionary incentives.
The Board regularly monitors the Group’s culture and practices,
including the review of recruitment, retention and turnover
data, health & safety reports, and reports from senior managers
within the Group.
Diversity, equity and inclusion
Science Group is committed to encouraging diversity, equity
and inclusion among its employees. The 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 on merit.
The Group’s Diversity, Equity & Inclusion committee meets on
a regular basis to implement current diversity initiatives. During
2022 these included: continued monitoring of interview panels
to ensure they include diverse representation; automated
review of job adverts for unconscious gender bias; engagement
with an updated selection of universities to seek broader
demographics for graduate recruitment; and implementation of
a ‘Menopause at work’ initiative, including awareness training
for all line managers and additional support for those impacted.
The Group currently has native speakers of around 25 languages. The gender ratio for the number of persons employed by the
Group at the end of the year are set out in the table below.
Plc Board of Directors & Company
Secretary
Senior management & staff
(>£75,000 per annum salary)
Other employees
Total employees
31 December 2022
31 December 2021
Male
Female
Male
Female
No
%
No
%
No
%
No
%
5
71%
2
29%
5
83%
1
17%
82
163
250
69%
51%
56%
37
154
193
31%
49%
44%
64
158
227
67%
49%
54%
32
162
195
33%
51%
46%
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 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
has a Health and Safety at Work policy which is reviewed and
updated regularly. 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 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.
14
Annual Report and Financial Statements 2022 STRATEGIC REPORT
Corporate Responsibility (continued)
Environmental, social and governance
A review of the Group’s approach to sustainability and societal
impact during the year is set out below.
Environmental – the Group’s operations are conducted in
such a manner 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.
The Directors consider that, due to the nature of the Group’s
operations, it does not have a significant impact on the
environment. However, the Group seeks to minimise its carbon
impact and recognises that its activities should be carried
out in an environmentally friendly manner where practicable.
Within the Group’s offices and facilities, it proactively manages
the use of energy and water and collates its Scope 1 and Scope
2 emissions in the UK. Electric vehicle charging points are
installed at both the Epsom and Harston sites for employees’
usage. The Group undertakes energy audits periodically
(the most recent in 2019) and implements practicable
recommendations. The Group buys energy from renewable
sources as far as is practically and commercially reasonable.
The Group’s environmental impact is under continual review
and the Group considers related initiatives on an ongoing
basis. In 2022 these included: continued reduction of waste
and, where practicable, re-use and recycling of consumables;
continued reduction of usage of energy, water and other
resources; on-going upgrades to LED lighting; introduction of
lighting automation in less used areas such as corridors and
toilets; and reprogramming of certain air conditioning and air
handling systems to increase efficiency and implement timed
shut downs when not required.
The Group’s Services businesses deliver consultancy-based
projects performed by staff in office and laboratory facilities,
and do not use large quantities of raw materials or processes
that impact the environment. A growing number of the
consultancy projects undertaken relate to sustainability
strategies. Across the R&D Consultancy and Regulatory &
Compliance divisions, in 2022 the Group undertook around
80 projects which either wholly related to sustainability or for
which this was a major consideration, and over 200 projects for
which sustainability was one of a number of important factors.
In the Regulatory & Compliance division, it is notable that a
significant driver of regulatory change is to reduce the use
of chemicals (industrial, agricultural and domestic) and to
move to less harmful (to the environment and human health)
alternatives and a large proportion of projects are related to
this evolving demand.
The Group also chairs a high level discussion forum with Chief
Technology Officers from major US and European blue chip
companies. This forum focussed on net zero strategy and
practice in 2021 and on sustainability in 2022.
As was the case in 2021, neither the Group nor the Company
met the criteria for additional Streamlined Energy and Carbon
Reporting (SECR) disclosure requirements in 2022.
Social - The Group made donations to foodbanks and
health-related charities local to its sites to support
communities facing hardship. Where possible these donations
were delivered by employees in each office, fostering local
community links.
The Board has been cognisant of the financial challenges
facing employees as a result of rising fuel and energy prices
and increased economic uncertainty. As a result the Directors
implemented a number of measures to assist employees
including payment of a monthly fuel and energy contribution
from July 2022 to December 2022. For more information see
the Section 172 statement.
Governance - The Board takes issues of governance
seriously and seeks to ensure transparency and streamlined
administration. The Directors bring a broad range of technical,
commercial, business, accounting, audit and corporate finance
expertise. Culturally, the Board demonstrates a high degree of
integrity, fairness and non-discrimination and promotes these
values through the organisation. The appointment of a new
Non-Executive Director during 2022 has brought fresh input to
the Board. For more information see the Corporate Governance
Report.
Approved by the Board of Directors on 20 March 2023 and
signed on its behalf by:
Martyn Ratcliffe
Executive Chair
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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 2022.
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 Statement of
Executive Chair and Financial 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 38.
Subject to shareholder approval at the next Annual General
Meeting, the Directors propose to pay a final dividend of
5.0 pence per share for the year ended 31 December 2022
(2021: 5.0 pence per share).
Capital structure
Details of the Company’s issued share capital, together with
details of the movements therein are set out in Note 22 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 page 18.
Michael Lacey-Solymar was re-appointed as a Director at
the 2022 Annual General Meeting for a tenth year to provide
continuity and stability to the Board. Mr Lacey-Solymar will
retire prior to the next Annual General Meeting.
Susan Clement Davies was appointed to the Board on 18 May
2022, and as such she will offer herself for re-election at the
next Annual General Meeting. Martyn Ratcliffe will retire by
rotation and offer himself 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
31 December 2022 and 31 December 2021, and any changes
subsequent to 31 December 2022, are disclosed in Note
9. None of the Directors had an interest in any contract of
significance to which Science Group was a party during the
financial year.
During 2022, Martyn Ratcliffe and Peter Bertram were
directors of TP Group plc, nominated by Science Group. As at
31 December 2022, the Company owned 29% of TP Group plc
and Science Group plc was a related party of TP Group plc.
TP Group plc became a wholly owned subsidiary of Science
Group plc in January 2023.
Directors’ Indemnities
The Directors have the benefit of an indemnity provision
contained in the Articles. The Directors have also been granted
a qualifying third party indemnity provision which was in force
throughout the financial year and remains in force. In addition,
throughout the year the Company purchased and maintained
Directors’ and Officers’ liability insurance in respect of itself
and for its Directors and Officers.
Annual General Meeting
The next Annual General Meeting (‘AGM’) will be held on
18 May 2023 at 17 Waterloo Place, London, SW1Y 4AR.
The AGM notice contains the full text of resolutions to be
proposed.
Purchase of own shares
At the AGM on 18 May 2022 shareholders approved a
resolution for the Company to buy back up to 10% of its own
shares. This resolution remains valid until the conclusion of
the next Annual General Meeting in 2023 or 30 June 2023 if
earlier. As at the date of this report, the Company has bought
back 113,640 shares pursuant to this authority. Throughout
2022, the Company bought back a total of 323,453 shares
pursuant to both the 2022 AGM authority and the equivalent
authority approved at the 2021 AGM. For further information
refer to Note 22.
16
Annual Report and Financial Statements 2022 REPORT OF THE DIRECTORS
Report of the Directors (continued)
Substantial shareholdings
As at 20 March 2023, Science Group had been notified of the following significant interests (greater than 3%) in its ordinary share
capital:
Shareholder
Martyn Ratcliffe
Ruffer LLP
Canaccord Genuity Group Inc
BGF Investment Management Ltd
Otus Capital Management
Herald Investment Management Ltd
Employees
The average number of persons, including Directors, employed
by the Group and their remuneration is set out in Note 8 to the
Financial Statements.
Statement on engagement with employees
Employees have been provided with information on matters
of concern to them through the Group’s intranet; revised
policies and updates from the human resources team; and
formal and informal meetings and other communications with
line managers and senior managers. Employees have been
consulted on specific issues likely to affect their interests
through individual meetings with the human resources team
and discussion with line managers and senior managers.
The Board recognises the importance of engagement with
employees and considers the current balance of engagement to
be appropriate and reasonable given the size of the Group, and
that suitable practices, policies and procedures (e.g., mentoring
programmes, training and development, whistleblowing
policies, appraisal systems) are in place to enable effective
engagement with employees.
Other examples of employee engagement during 2022 include:
• consultation regarding suggestions for recipient
organisations of the Group’s local charitable donations
during 2022.
• continued encouragement of employees’ involvement in
the Group’s performance through reward payments made
under the Group’s bonus and profit share schemes and other
discretionary incentives and, for more senior grades, the
award of share option grants under the Group’s share option
scheme.
For information on how the Directors have had regard to
employees’ interests, see the Section 172 statement.
Statement on engagement with customers, suppliers and
others
Engagement with customers, suppliers and other stakeholders
in the business is an important factor in ensuring the
successful implementation of the Group’s strategy. For
information on how the Directors have had regard to the need
to foster these business relationships, see the Section 172
statement.
Ordinary shares held
% of voting rights
9,412,080
8,275,599
5,404,530
3,694,197
2,318,530
1,833,674
20.73%
18.23%
11.90%
8.14%
5.11%
4.04%
Disabled persons
The Company gives full and fair consideration to suitable
applications for employment from disabled persons where a
disabled person can adequately fulfil the requirements of the
role. Where an employee of the Company becomes disabled
during the course of their employment the Company would
seek to arrange appropriate further training for the employee,
and make reasonable adjustments to the employee’s working
environment, where it is possible for the employee to continue
fulfilling the requirements of their role. Employees with a
disability are eligible to participate in career development
opportunities across the Company including training and
promotion opportunities.
Donations
On a discretionary basis, the Company operates a scheme
to match charitable donations raised by employees up to a
specified limit. Charitable donations related to this programme
were similar to the prior year. In addition, the Group made
donations to local foodbanks and health-related charities local
to its sites specifically to support local communities facing
hardship.
As a result, total charitable contributions made in 2022 were
approximately £25,000 (2021: £24,000). No political donations
were made during the period (2021: £nil).
Research and development
Science Group provides outsourced science based services and
therefore has an inherent and continuing commitment to high
levels of research and development, primarily on behalf of its
clients but also, when appropriate, on its own behalf.
Post balance sheet events
Post balance sheet events are disclosed in Note 29 to the
Financial Statements.
Auditor
Grant Thornton UK LLP were re-appointed as auditor at the
AGM on 18 May 2022. Grant Thornton UK LLP are willing to
continue in office and a resolution to reappoint them will be
proposed at the forthcoming AGM.
17
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT REPORT OF THE DIRECTORS
Report of the Directors (continued)
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.
Directors
The Directors of the Company who served during the year were:
Role at 31 December 2022 Date of (re-) appointment Date of retirement
Board Committee
Director
Martyn Ratcliffe
Jon Brett
Executive Chair
Finance Director
Daniel Edwards
Group Managing Director
Michael Lacey-Solymar+
Peter Bertram+
Susan Clement Davies+
Non-Executive
Non-Executive
Non-Executive
Board Committee abbreviations are as follows:
A = Audit Committee; R = Remuneration Committee; N = Nomination Committee
+ Independent Director
19/05/2021
18/05/2022
18/05/2022
18/05/2022
19/05/2021
18/05/2022
N
N
N
N
R
R
R
A
A
A
Directors’ Biographies
Below are the biographies of the current Directors:
Martyn Ratcliffe – Executive Chair*
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.
Jon Brett - Finance Director
Jon Brett was appointed to the Board as Acting Finance
Director on 10 August 2021 and confirmed as Finance Director
on 1 March 2022. Mr Brett joined Science Group as Financial
Controller in March 2020 and was previously Group Financial
Controller for Study Group Limited. He trained with Deloitte
LLP and qualified as a Certified Accountant in 2004.
Daniel Edwards – Group Managing Director
Dan Edwards was appointed to the Board on 24 April 2019.
Mr Edwards joined the Company in 2004 and has held
a number of roles within the Group including four years
in the USA before being appointed Managing Director in
2012. He has an Engineering degree from the University of
Cambridge and an MBA from Harvard Business School. He
started his career at Rolls-Royce plc.
Michael Lacey-Solymar – Senior Independent Director
Michael Lacey-Solymar was appointed as a Non-Executive
Director on 11 October 2012. Mr Lacey-Solymar has over
25 years corporate finance experience at UBS and Investec.
He is currently Chairman of Cambridge Medical Technologies
Limited. He has a degree in Modern Languages from the
University of Oxford. After 10 years as a Non-Executive
Director, Mr Lacey-Solymar will be retiring from the Board in
April 2023. The Board express their gratitude and appreciation
for the significant contribution he has made.
Peter Bertram - Independent Director
Peter Bertram was appointed as a Non-executive Director
on 17 June 2020. He was Chairman of Manolete Partners plc
from 2018 until 2021 and he has previously held a variety of
Non-Executive board positions including Low & Bonar plc,
Alphameric plc, Anite plc, Microgen plc, Phoenix IT group plc
and Psion plc, and was CEO of Azlan Group plc. Mr Bertram is
a Chartered Accountant and has a degree in Accounting from
the University of Kent.
Susan Clement Davies – Independent Director*
Susan Clement Davies was appointed a Non-executive
Director on 18 May 2022. Ms Clement Davies has over 25 years
capital markets and investment banking experience, including
10 years at Citigroup/Salomon Smith Barney. She is currently
Non-executive director of Evgen Pharma plc, Exploristics,
MiNA Therapeutics and Scancell Holdings plc. She has an
Economics degree from the University College London and an
MSc in Economics from London School of Economics.
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.
* To stand for re-election at the next AGM
18
Annual Report and Financial Statements 2022 REPORT OF THE DIRECTORS
Corporate Governance Report
The Company is registered in England and Wales and listed
on the Alternative Investment Market of the London Stock
Exchange (‘AIM’).
Adoption of recognised corporate governance code
The Board has adopted the Financial Reporting Council’s
UK Corporate Governance Code July 2018. The Company’s
statement of compliance and associated disclosures are
available on the investor pages of the Company’s website.
Board of Directors
At 31 December 2022, the Board comprised an Executive
Chair (part-time), Group Managing Director, Finance Director,
and three 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 Executive Chair, Group Managing Director and Finance
Director present if appropriate.
The Executive Chair is primarily responsible for the working
of the Board of Science Group plc and the Group corporate
strategy.
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 Executive Board members, Divisional Managing
Directors and other Senior Managers within the framework
approved in the annual financial plan and within a framework
of Board-approved authorisation levels.
The Board met 22 times during 2022 (2021: 35). 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 holds ten regular meetings 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. Other meetings are held on
an ad hoc basis as the need arises with the corporate activities
undertaken in 2022 being the primary reason for the additional
meetings during the year.
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 (from their
last appointment) 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.
While Mr Lacey-Solymar has been a Non-Executive Director
of the Company for more than 9 years throughout 2022, the
Board considers him to remain independent in character and
judgment and that there are no relationships or circumstances
which could, or could be seen to, materially affect or interfere
with the exercise of his independent judgement, knowledge
and experience. Mr Lacey-Solymar receives no remuneration
from the Company other than his director’s fee and has no
material links to the Company other than his position as a
Non-Executive Director. 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 Executive Chair 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 establish and maintain 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 or business 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 2022, in addition to base salary, benefits included pension
contributions, healthcare and life assurance benefits, a Group
bonus/profit share scheme, additional bonus schemes based
on achievement of billed hours targets for certain businesses
within the Group, a commission scheme for sales people and,
where appropriate, share options.
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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.
The Board does not conduct a formal performance evaluation
of the Directors nor do the independent Non-Executive
Directors formally appraise the Executive Chair. The Board
conducts an annual internal evaluation of the Board and its
committees, the results of which are reviewed and discussed
by the Board. Due to the small size of the Board this annual
evaluation, together with regular informal performance
evaluations of directors and the Executive Chair by the Board,
is considered sufficient.
Audit Committee
The Audit Committee is chaired by Peter Bertram and currently
comprises Peter Bertram, Michael Lacey-Solymar and Susan
Clement Davies. The Audit Committee met 6 times during
2022 (2021: 4). It takes advice from the Company’s auditors
and tax advisors. Further details on the Audit Committee are
provided in the Report of the Audit Committee.
Remuneration Committee
The Remuneration Committee is chaired by Michael Lacey-
Solymar and currently comprises Michael Lacey-Solymar, Peter
Bertram and Susan Clement Davies. Ms Clement-Davies will
become the chair of the Committee in 2023. The Remuneration
Committee met 8 times during 2022 (2021: 8). It may take
advice from time to time from external advisers, but did not do
so in 2022. 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 Martyn Ratcliffe, Peter Bertram, Michael
Lacey-Solymar and Susan Clement Davies. The Nomination
Committee met once during 2022 (2021: 2). It may take advice
from time to time from external advisers and during 2022
the Committee appointed an external search firm to seek
candidates for a new Non-Executive Director. The Committee
meets when necessary. Further details on the Nomination
Committee are provided in the Report of the Nomination
Committee.
Meetings of the Board and sub-committees during 2022 were as follows:
Number of meetings held in 2022
Martyn Ratcliffe
Jon Brett
Daniel Edwards
Michael Lacey-Solymar
Peter Bertram
Susan Clement Davies+
* Attendance by invitation
** 1 Meeting of a sub-committee
1 Attended 1 by invitation prior to appointment
2 Attended 1 by invitation prior to appointment
+ Susan Clement Davies was appointed on 18 May 2022
Board
Meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
22**
22**
22**
21**
18
19**
16**1
6
6*
6*
5*
5
6
4
8
8*
8*
7*
8
8
52
1
1
1*
1*
1
1
-
20
Annual Report and Financial Statements 2022
REPORT OF THE DIRECTORS
Report of the Remuneration Committee
Remuneration Committee
The Remuneration Committee is chaired by Michael Lacey-
Solymar and currently comprises Michael Lacey-Solymar, Peter
Bertram and Susan Clement Davies. Ms Clement-Davies will
succeed Mr Lacey-Solymar as chair in 2023.
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
determines the individual remuneration package of the
Executive Chair and Executive Directors, and also reviews
remuneration packages for all senior employees of Science
Group. This responsibility includes pension rights and
any other compensation payments including bonus/profit
share payments and share option awards. The Committee’s
remuneration practices do not include engagement with
employees regarding executive remuneration.
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 Group profit related bonus and profit
share schemes for the Company for 2022. The Remuneration
Committee also approved a number of individual discretionary
bonuses; a one-off bonus of £500 in January in recognition
of the challenges that faced employees during the Covid-19
pandemic; a £100 per month fuel and energy contribution
for UK employees from July to September, rising to £150 per
month from October to December as a result of rising fuel and
energy costs; and a one-off payment of £250 in November as
an enhanced winter bonus in light of increased living costs.
All such payments are pro-rated for part time staff and, where
appropriate, localised for employees outside of the UK.
The aim of the Board and the Remuneration Committee is to
maintain a policy that:
• establishes a remuneration structure that will attract, retain
and motivate executives, senior managers and other staff of
appropriate calibre.
• rewards executives and senior managers according to both
individual and Group performance.
• establishes an appropriate balance between fixed
and variable elements of total remuneration, with the
performance-related element forming a potentially
significant proportion of the total remuneration package.
• aligns the interests of executives and senior managers with
those of shareholders through the use of performance-
related rewards and share options in Science Group.
From time to time the Committee may obtain market data and
information as appropriate when making its comparisons and
decisions and is sensitive to the wider perspective, including
pay and employment conditions elsewhere in Science Group,
especially when undertaking salary/remuneration reviews.
The Company is not required to, and does not, engage with
shareholders regarding its remuneration policy.
The remuneration policies operated as intended during the
year.
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. A limited interim review is normally
undertaken each year reflecting the accelerated progress
that more junior grades may require as they rapidly gain
experience.
• annual Group performance-related bonus/profit share –
executives, managers and eligible employees receive annual
bonuses/profit shares related to company performance. The
bonus scheme includes a claw back mechanism in certain
circumstances. The Executive Chair does not participate
in the Group annual performance-related bonus scheme
but the Remuneration Committee may at its sole discretion
award a bonus if appropriate.
• billed hours bonus – employees in certain businesses within
the Group participate in additional bonus schemes based on
achievement of billed hours targets.
• commission – some employees in sales roles participate
in commission schemes based on revenue received from
relevant sales. These employees are not eligible for the
Group bonus/profit share schemes.
• benefits – benefits include medical insurance, life assurance
and pension contributions. The Executive Chair does not
receive these benefits.
• share options – share option grants are reviewed regularly
and granted on a discretionary basis by the Remuneration
Committee. The Executive Chair has excluded himself from
all such awards since 2010.
Full details of each Director’s remuneration package and
their interests in shares and share options can be found in
Note 9 to the Financial Statements. There are no elements of
remuneration, other than basic earnings, which are treated as
being pensionable.
Share option plans
Historic approved and unapproved Share Option Schemes
were adopted by the Company in 2008, the terms of which
were reviewed and amended in 2010 and 2013 and approved
by shareholders. No options have been granted under these
legacy schemes since 2012. In 2013 the Company adopted its
first unapproved Performance Share Plan (‘PSP’), the terms of
which were amended and approved by shareholders in 2014,
2018 and 2020. Due to the pending expiry of the original PSP,
21
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT REPORT OF THE DIRECTORS
Report of the Rumuneration Committee (continued)
Share option plans (continued)
in 2022, a new PSP was adopted by the Company on broadly
equivalent terms and approved by shareholders. Options
granted under the legacy schemes were issued at market price
whilst options granted under the PSP schemes are issued
at the nominal share price. The Remuneration Committee
approves any options granted.
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. The only
share options granted to the Executive Chair, which occurred
in 2010, were specifically approved by shareholders and he
excludes himself from annual awards.
The Frontier Smart Technologies Employee Benefit Trust
(‘EBT’) holds 34,800 shares in the Company which are
intended to be used to satisfy employee share options issued to
employees of the Frontier business. 69,600 shares were issued
from the EBT during 2022 to satisfy share options exercised by
Frontier employees.
Director contracts and remuneration
The Executive Directors 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.
The Executive Chair and Non-Executive Directors receive a
fixed salary. The Executive Chair does not participate in the
Group bonus scheme but, if appropriate, the Remuneration
Committee may award a discretionary bonus. Remuneration
of the Executive Directors (excluding the Executive Chair)
follows a simple structure of base salary, bonus and long term
incentives using share options, including under the Enhanced
Executive Incentive (‘EEI’) addendum to the PSP plan that was
approved by shareholders at the 2022 AGM. The Executive
Chair is not excluded from the share option plan but has
declined awards of share options since 2010.
The market price of the shares at 31 December 2022 was
395.0 pence (2021: 445.0 pence). The highest and lowest price
during the year was 450.0 pence and 350.0 pence respectively.
22
Annual Report and Financial Statements 2022 REPORT OF THE DIRECTORS
Report of the Audit Committee
Audit Committee
The Audit Committee is chaired by Peter Bertram and currently
comprises Peter Bertram, Michael Lacey-Solymar and Susan
Clement Davies. Other Directors and relevant senior managers
attend by invitation.
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 (including financial reporting policies) and any formal
announcements relating to Science Group’s financial
performance; review Science Group’s internal financial controls
and Science Group’s internal control and risk management
systems; and 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, including at least one meeting without any
Executive Directors present.
Financial reporting and significant financial matters
In carrying out its duties, the Audit Committee is required to
assess whether suitable accounting policies have been adopted
and to challenge the robustness of significant management
judgements reflected in the financial results. This is performed
through discussions at Audit Committee meetings where the
Finance Director explains any changes to accounting policies
and describes any significant management judgements made.
In addition, the Audit Committee reviews the year end report to
the Audit Committee from the external auditors which details
its work performed and findings from the annual audit.
During the year, the Audit Committee considered the following
key financial matters in relation to the Group’s financial
statements and disclosures, with input from the external
auditor:
Going concern - the going concern assertion has a significant
impact on the basis of preparation of the financial statements.
The Committee reviewed the business plan presented by
management for the financial year ending 31 December 2023
and considered the key assumptions made by management.
The Committee challenged management on the assumptions
in the plan and consequently considered them appropriate.
The Committee received the business plan cash flow which
covered the period to the end of June 2024 and considered
the associated assumptions, which were concluded to be
appropriate.
The Finance Director performed a sensitivity analysis to assess
the amount of headroom available in the event of a downside
event occurring. The analysis considered the likelihood of a
scenario where covenants would be breached. The conclusion
was that the Group would continue to have sufficient cash
resources in order to meet its liabilities as they fall due.
Acquisition accounting – all acquisitions are approved by
the Board to ensure the acquisition is in line with the Group
strategy and the potential risks are explained, quantified where
possible and understood.
Carrying value of goodwill and acquisition related intangible
assets – the value of the goodwill and acquisition related
intangible assets is supported by a value in use model prepared
by management. This is based on cash flows extracted
from the Group’s financial plan which has been approved
by the Board. The Finance Director communicated the key
assumptions within the value in use model and the Audit
Committee concurred with management’s conclusion that the
carrying value of these assets was fully supported.
Risk of fraud within revenue recognition - Revenue is the most
material balance in the Consolidated Income Statement and
accordingly, there is a rebuttable presumption that there is a
fraud risk surrounding revenue. There is presumed to be an
incentive to manipulate revenue in a manner that inflates the
group profit, particularly around the year-end period.
Project managers carefully monitor the revenue recognised
against projects and are accountable for the progress of
projects. The Finance Director reviews the revenue recognised
and accrued income balances on a monthly basis and
investigates any unusual amounts recognised against projects.
Collectively these processes would identify any unwarranted
revenue recognised. No instances of fraudulent revenue
recognition have been noted from these monitoring procedures
in the current year. The Audit Committee is satisfied with
management’s response to the risk this incentive represents.
Recoverability of investments in subsidiaries of Science
Group plc – the value of investments in subsidiaries is
supported by a value in use model prepared by management.
This was based on cash flows extracted from the Group’s
financial plan which has been approved by the Board. The
Finance Director communicated the key assumptions within
the value in use model and the Audit Committee concurred
with management’s conclusion that the carrying value of these
assets was fully supported.
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
misstatement or loss. The system is designed to manage
23
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT REPORT OF THE DIRECTORS
Report of the Audit Committee (continued)
Internal controls (continued)
rather than eliminate the risk of failure to achieve the business
objectives.
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.
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.
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, as far as reasonably practicable.
The key features of the internal control system are described
below:
Monitoring and corrective action – There are procedures in
place for monitoring the system of internal financial controls.
Control environment – Science Group is committed to high
standards of business conduct and seeks to maintain these
standards across all of its operations. There is a whistleblowing
policy in place for the reporting and resolution of suspected
fraudulent activities. There is a continual review of payment
processes, authorisation levels for expenditure, and awareness
raising of the risks of fraudulent activities. Science Group has
an appropriate organisational structure for planning, executing,
controlling and monitoring business operations in order to
achieve its objectives.
Risk identification – Corporate and operational managers are
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
operational/strategy reviews and annual plans. The Board
actively monitors performance against plan. Forecasts and
operational results are consolidated and presented to the Board
Report of the Nomination Committee
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
2022. No internal audit function is operated outside of the
systems and processes in place, as the Board considers that
Science Group is currently too small for a separate function,
although this remains under regular review. The Board
considers the internal control system to be appropriate for the
Group.
Auditors
Grant Thornton UK LLP were re-appointed at the AGM on
18 May 2022.
The Audit Committee considers the independence of the
auditors as part of considering their annual re-appointment.
During the year Grant Thornton has provided services in
relation to the annual audit of the Group and also provided tax
compliance services for certain of the UK subsidiaries. Audit
Committee approval was provided for the provision of non-
audit services by Grant Thornton in order to safeguard auditor
independence.
The Nomination Committee is chaired by Martyn Ratcliffe and
currently comprises Martyn Ratcliffe, Michael Lacey-Solymar,
Peter Bertram and Susan Clement Davies.
made, on merit, against objective criteria but with due regard
for the benefits of diversity on the Board.
The Nomination 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 Committee seeks input
from all Directors regarding nominations for Board positions.
All Board appointments have to be ratified at a General
Meeting of the Company.
The Nomination Committee does not believe that it is
appropriate to set any specific targets with regards to diversity,
including gender. The Committee believes that the search for
Board candidates should be conducted, and appointments
As a result of the annual internal evaluation of the Board and
committees undertaken in 2022 (see the section entitled
Board Committees on page 20, the Committee noted that
Michael Lacey-Solymar will be retiring after ten years’ service
to the Company and a new Non-Executive Director would be
required. In light of the current composition of the Board, the
Committee considered that a female Non-Executive Director
would be preferable to broaden the diversity of the Board, and
appointed an external search firm to seek candidates. As a
result, the Committee recommended the appointment of Susan
Clement Davies as a Non-Executive Director.
24
Annual Report and Financial Statements 2022 REPORT OF THE DIRECTORS
Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in
accordance with applicable law and regulations. The Directors
consider that the Annual Report and financial statements, taken
as a whole, are fair, balanced and understandable, and provide
the information necessary for shareholders to assess the
Group’s position, performance, business model and strategy.
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 International Financial Reporting Standards
(IFRSs) as adopted by the UK 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,
relevant and reliable;
• state whether they have been prepared in accordance with
IFRSs as adopted by the UK;
• assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related
to going concern; and
• use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to
cease operations, or have no realistic alternative but to do
so. The directors confirm that they consider it appropriate to
adopt the going concern basis of accounting in preparing the
Annual Report and financial statements.
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 are responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement and 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.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report and a Directors’
Report that complies with that law and those regulations.
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.
Approval
The Report of the Directors was approved by the Board on
20 March 2023 and signed on its behalf:
By order of the Board
Sarah Cole
Company Secretary
Harston Mill
Harston
Cambridge
CB22 7GG
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Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report to the members of Science Group plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Science Group plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2022, which comprise the Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated and Company Statements of Changes in Shareholders’ Equity, the Consolidated and
Company Balance Sheets, the Consolidated and Company Statements of Cash Flows and notes to the financial statements,
including a summary of significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and UK-adopted international accounting standards and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and parent company’s affairs as at 31 December
2022 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international accounting
standards;
• the parent company financial statements have been properly prepared in accordance with UK-adopted international
accounting standards 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial
statements’ section of our report. We are independent of the Group and parent company in accordance with the ethical
requirements that are relevant to our audit of the parent company financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our
report. However, future events or conditions may cause the Group or the parent company to cease to continue as a going concern.
Our evaluation of the directors’ assessment of the Group’s and the parent company’s ability to continue to adopt the going concern
basis of accounting included:
• assessing the accuracy of forecasting by comparing management’s forecast for the current period to current year performance;
• verifying the inputs into management’s forecasts and projections and related sensitivity analysis for the period until 30 June
2024;
• challenging the reasonableness of key assumptions used in preparing the cashflow forecasts and projections;
• completing audit procedures over the balance of cash as at 31 December 2022 and assessing the cash position subsequent to
the year-end; and
• identifying the post balance sheet events in relation to the Group and the parent company and determining if any of these events
have an impact on cashflow forecasts and projections.
In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the Group’s and the parent
company’s business model including effects arising from macro-economic factors such as inflation and energy and fuel costs, we
assessed and challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how
those risks might affect the Group’s and the parent company’s financial resources or ability to continue operations over the going
concern period.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
26
Annual Report and Financial Statements 2022 INDEPENDENT AUDITOR’S REPORT
Conclusions relating to going concern (continued)
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and the parent company’s ability to continue as a going
concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the Group’s and the parent company’s reporting on how they have applied the UK Corporate Governance Code, we
have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether
the directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
Our approach to the audit
Overview of our audit approach
Overall materiality:
Group: £551,000, which represents 5% of the Group’s profit before tax at the fieldwork
stage of the audit.
Parent company: £220,000, which represents 2% of the parent company’s net assets,
restricted to 40% of Group materiality for Group audit purposes.
Materiality
Key audit
matters
Key audit matters were identified as:
Scoping
• Revenue recognition - fixed price contracts and product revenue (new); and
• Investments in associate - control of associate undertaking (new).
Our auditor’s report for the year ended 31 December 2021 included two key audit matters
that have not been reported as key audit matters in our current year’s report. These were
revenue recognition of service revenue and the valuation of newly acquired goodwill.
These have not been included as current year key audit matters as, in respect of revenue
recognition of service revenue, we targeted our audit effort in the current year towards
the risk of fraud arising from fixed price contracts and product revenue, and, in respect of
the valuation of newly acquired goodwill, this has been incorporated within the product
cash generating unit in the current year.
We performed full-scope audits of the financial statements of the parent company
Science Group plc and of the financial information of 5 components using component
materiality, and specified audit procedures on the financial information of 3 components,
to gain sufficient appropriate audit evidence at Group level.
This gives a coverage of 79% of the Group’s total revenue, and 88% of the Group’s profit
before tax.
We performed analytical procedures at Group level or review procedures for all other
13 components of the Group.
The type of work performed on components changed from the prior year. Due to
changes in the Group, we have decreased our scope on 3 components from full scope
audit procedures to analytical procedures. In addition to this, we have reduced our
audit procedures from full scope audit procedures to specified audit procedures on
2 components.
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Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included
those that had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Description
Audit
response
KAM
Disclosures Our results
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
Cash and
cash
equivalents
Valuation of
investment
property
Contract
liabilities
Potential
financial
statement
s
impact
Dividends
Investments in
associates -
control of
associate
undertaking
Revenue
recognition
(time and
materials
contracts)
Management
override of
controls
Revenue
recognition -
fixed price
contracts and
product revenue
Inventories
Derivative
financial
instruments
Share-based
payment
charge
Valuation of
acquired
intangibles
and goodwill
Goodwill and
acquired intangibles
– Combination of
Magic and Frontier
into single CGU
t
Extent of management judgement
E t
t j d
f
t
High
Key audit matter
Significant risk
Other risk
Low
L
Low
28
Annual Report and Financial Statements 2022 INDEPENDENT AUDITOR’S REPORT
Key audit matters (continued)
Key Audit Matter
Revenue recognition - fixed price contracts and product
revenue
We identified revenue recognition as one of the most
significant assessed risks of material misstatement due to
fraud.
Under ISA (UK) 240 ‘The Auditor’s Responsibilities Relating
to Fraud in an Audit of Financial Statements’, there is a
rebuttable presumption that there are risks of fraud in revenue
recognition. We have not rebutted this presumed risk.
The Group’s revenue is material to the financial statements,
we have targeted our significant risk to be specific to the
occurrence and accuracy within two revenue streams. These
are set out below.
Fixed price contract revenue
For fixed price contract revenue, the significant risk is
considered to be specific to the accuracy of consultancy
contracts that are of a fixed price due to the management
judgement that is required to assess the stage or percentage
of completion. This judgement creates the opportunity to
misstate revenue through either fraud, or error.
How our scope addressed the matter - Group
In responding to the key audit matter, we performed the
following audit procedures:
• Updated our understanding and evaluation of the systems
and controls around revenue for each material revenue
stream from inception to completion of selected projects by
performing a walkthrough.
In order to specifically assess each significant risk identified
within this Key Audit Matter we have performed the following
procedures:
Fixed price contract revenue
• Performed an analytical review of revenue recorded during
the period to identify any large or exceptional contracts,
which were then corroborated to source documentation to
ensure they were recorded correctly;
• Reviewed and compared revenue recognition policies
including considering whether revenue recognised is in
accordance with International Financial Reporting Standard
(IFRS) 15 ‘Revenue from Contracts with Customers’;
• For a sample of contracts, recalculated the revenue using
the contract agreement, opening contract asset or contract
liability, and stage of completion based on deliverables sent
to the client. Compared this to the revenue recognised,
investigating any significant variances;
• Corroborated the stage of completion across a sample
of contracts by sending a questionnaire to the project
managers, and adjusting if appropriate; and
• Evaluated the IFRS 15 assessment prepared by
management, in order to determine that the output method
of stage of completion is the most appropriate measure,
and how management weight the stage of completion for
each deliverable.
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Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT
Key audit matters (continued)
Key Audit Matter
How our scope addressed the matter - Group
Product revenue
For product revenue, the significant risk is considered
to be specific to the occurrence of ‘out of cycle’ revenue
transactions as assessed by data analytics.
‘Out of cycle’, or unusual, transactions are those which do not
follow the usual transaction flow between revenue, receivables
and remittance, for example manual postings which could be
used to fraudulently inflate revenue within the financial year.
Relevant disclosures in the Annual Report and Financial
Statements 2022
• Financial statements: Note 2.18, Accounting policy –
revenue recognition; and Note 5, Revenue.
Investments in associates – control of associate
undertaking
We identified control of the associate undertaking as one of
the most significant assessed risk of misstatement due to
fraud.
This was due to the level of management judgement as to
when control over TP Group was obtained, following a formal
offer to acquire 100% of the share capital of the shareholding
of TP Group plc on 31 October 2022.
The acquisition of TP Group plc was completed on 26 January
2023.
We have targeted our significant risk to whether level of
involvement in the investee moved from significant influence
to control within the year ended 31 December 2022 or in the
post balance sheet period.
Relevant disclosures in the Annual Report and Financial
Statements 2022
• Financial statements: Note 2.5, Accounting policy –
Investments; and Note 16(c), Investment in associate.
Product revenue
• Assessed IFRS 15 assessments prepared by management
and ensure that the recognition of a sale made is at the
appropriate point in time, where risk and reward transfer
to the customer. In addition, we reviewed the performance
obligations for SmartRadio chips which include a Cloud
service element to ensure the cost-plus method remained
appropriate.
• Employed data analytics to identify any unusual (or ‘out of
cycle’) entries within revenue. All these entries were traced
to sufficient, appropriate audit evidence, in order to check
that they are valid, not indicative of fraud or error, and in
line with our understanding of the business;
• Traced a sample of revenue transactions from the general
ledger and their invoices, to supporting documentation such
as despatch notes, remittance, or the year end receivables
balance; and
• Selected a sample of sales made within the last and
first week around year end, tracing the sample to their
despatch note and invoice to ensure revenue is captured
appropriately.
Our results
Based on our audit work, we did not identify any material
misstatements of revenue or any instance where revenue
was not recognised in accordance with the stated accounting
policies.
In responding to the key audit matter, we performed the
following audit procedures:
• Obtained and assessed management’s paper on the
identification of significant influence and control at year
end, analysed the aspect of significant influence versus
control under IFRS 10 ‘Consolidated Financial Statements’;
• Critically assessed the position where Science Group plc’s
holding in TP Group plc changes from significant influence
to control, based on Company law and IFRS 10; and
• Inspected management’s proposed disclosures required
under IFRS 3 ‘Business Combinations’ and assessed
whether these are in line with IFRS 3 ‘Business
Combinations’.
Our results
Based on our audit work, we are satisfied that control, as
defined by IFRS 10 ‘Consolidated Financial statements’, was
fulfilled after 31 December 2022, and therefore the investment
in TP Group plc should be recorded as an associate
undertaking for the year ended 31 December 2022.
We did not identify any key audit matters relating to the audit of the financial statements of the parent company.
30
Annual Report and Financial Statements 2022 INDEPENDENT AUDITOR’S REPORT
Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the
auditor’s report.
Materiality was determined as follows:
Materiality measure
Group
Parent company
Materiality for
financial statements
as a whole
We define materiality as the magnitude of misstatement in the financial statements that, individually
or in the aggregate, could reasonably be expected to influence the economic decisions of the users
of these financial statements. We use materiality in determining the nature, timing and extent of our
audit work.
Materiality threshold
£551,000, which is 5% of the Group’s profit
before tax at the fieldwork stage of the audit.
£220,000, which is 2% of the parent company’s
net assets, restricted to 40% of Group materiality
for Group audit purposes.
Significant
judgements made by
auditor in determining
materiality
In determining materiality, we made the following
significant judgement:
In determining materiality, we made the following
significant judgement:
• We selected profit before tax as the most
• We selected net assets as the most
appropriate benchmark because the Group is
a commercially focused organisation and profit
before tax is a key financial measure for the
shareholders, and is a generally accepted audit
benchmark.
• A market-based measurement percentage
of 5% was chosen, which reflected our
knowledge of the business from prior year
audits, and aligns with our firm’s methodology.
Materiality for the current year is lower than
the level that we determined for the year ended
31 December 2021 to reflect the lower profit
before tax during the year.
We calculated materiality as £605,000 at the
planning stage of the audit based on pro-rated
profit before tax. As the profit before tax was
significantly lower at the fieldwork stage than
the pro-rated figures, we chose to re-assess
materiality and adjusted our audit procedures
accordingly. We chose not to revise our
materiality once the final profit before tax was
known.
appropriate benchmark as the parent company
is a non-trading entity, and holds investments
in other Group trading entities.
• We calculated materiality using 2% of the
company’s net assets at the planning stage
of the audit but capped materiality at 40% of
Group materiality, as the materiality based on
net assets was higher than Group performance
materiality.
Materiality for the current year is lower than
the level that we determined for the year ended
31 December 2021 to reflect a reduction in Group
materiality and in the measurement percentage
applied to Group materiality in making the
restriction referred to above.
We calculated materiality at the planning stage
of the audit, capping it for Group audit purposes
at £393,250. This was re-assessed at the
fieldwork stage based on the revision to Group
profit before tax, and we adjusted our audit
procedures accordingly. We chose not to revise
our materiality once the final profit before tax
was known.
We set performance materiality at an amount less than materiality for the financial statements as a
whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality for the financial statements as a whole.
Significant revisions
to the materiality
threshold that were
made as the audit
progressed.
Performance
materiality used to
drive the extent of
our testing
Performance
materiality threshold
£386,000, which is 70% of financial statement
materiality.
£154,000, which is 70% of financial statement
materiality.
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Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT
Our application of materiality (continued)
Materiality measure
Group
Parent company
Significant
judgements made by
auditor in determining
performance
materiality
In determining performance materiality we made
the following significant judgements:
In determining performance materiality we made
the following significant judgements:
• Whether there were any significant
adjustments made to the Group financial
statements in prior years; and
• Whether there were any significant control
deficiencies identified in prior years.
• Whether there were any significant
adjustments made to the parent company
financial statements in prior years; and
• Whether there were any significant control
deficiencies identified in prior years.
After considering the above factors we have used
auditor judgement to set performance materiality
at 70% of materiality, which is the same as in the
prior year.
After considering the above factors we have used
auditor judgement to set performance materiality
at 70% of materiality, which is the same as in the
prior year.
Significant revision(s)
of performance
materiality threshold
that were made as the
audit progressed
We calculated performance materiality at the
planning stage of the audit to be £424,000.
Performance materiality was re-assessed at the
fieldwork stage, based on the revision to financial
statement materiality, and we adjusted our audit
procedures accordingly. No changes were made
to the measurement percentage used as a result
of revised figures.
We calculated performance materiality at the
planning stage of the audit to be £275,000.
Performance materiality was re-assessed at the
fieldwork stage based on the revision to financial
statement materiality, and we adjusted our audit
procedures accordingly. No changes were made
to the measurement percentage used as a result
of revised figures.
Specific materiality
We determine specific materiality for one or more particular classes of transactions, account balances
or disclosures for which misstatements of lesser amounts than materiality for the financial statements
as a whole could reasonably be expected to influence the economic decisions of users taken on the
basis of the financial statements.
Specific materiality
We determined a lower level of specific
materiality for the following areas:
We determined a lower level of specific
materiality for the following areas:
Communication of
misstatements to the
audit committee
Threshold for
communication
• Related party transactions; and
• Directors’ remuneration.
• Related party transactions; and
• Directors’ remuneration.
We determine a threshold for reporting unadjusted differences to the audit committee.
£28,000, and misstatements below that
threshold that, in our view, warrant reporting on
qualitative grounds.
£12,000, and misstatements below that
threshold that, in our view, warrant reporting on
qualitative grounds.
32
Annual Report and Financial Statements 2022 INDEPENDENT AUDITOR’S REPORT
Our application of materiality (continued)
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
Overall materiality – Group
Overall materiality – Parent company
Profit before
tax
£11,096,000
Net assets
£78,097,000
PM
£386,000,
70%
FSM
£551,000,
5 %
PM
£154,000,
70%
FSM
£220,000,
2% (capped
at 40% of
Group
materiality)
TFPUM
£165,000, 30%
TFPUM
£66,000, 30%
FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the Group’s and parent company’s business and in particular
matters related to:
Understanding the Group, its components, and their environments, including Group-wide controls
• We obtained an understanding of the Group and its environment, including Group-wide controls and IT general controls; and
assessed the risks of material misstatement at a Group level;
• All financial reporting is based in the UK. Each division has an accounting function which reports to the divisional management
in addition to the Group finance team; and
• In assessing the risk of material misstatement of the Group financial statements, we considered the transactions undertaken by
each entity and therefore where the focus of our work was required;
Identifying significant components
• Significant components were identified through assessing their relative share of key financial metrics including revenue and
profit before tax. These metrics were used to identify component classified as ‘individually financially significant to the Group’
and an audit of financial information of the component using component materiality (full-scope audit) was performed.
• Other components were selected where we determined there to be a specific risk profile within those components, and were
included in the scope of our Group audit to provide sufficient coverage over the Group’s results. For these components, an audit
of one or more account balances or class of transactions (specific scope procedures) was performed.
• All other components of the Group were selected as ‘neither significant nor material’, and analytical procedures or a review of
financial information performed.
Type of work to be performed on financial information of parent company and other components (including how it addressed the
key audit matters)
• Performance of full scope audits of the financial information on Science Group plc, Sagentia Limited, Leatherhead Research
Limited, Oakland Innovation Limited, Technology Sciences Group Consulting Limited, and Frontier Smart Technologies Limited.
These full scope audits included all of our audit work on the identified key audit matters as described above.
• Specified audit procedures were performed on the financial information of the following components: Quadro Epsom Limited,
Quadro Harston Limited and Technology Sciences Group Inc.;
• Review procedures were performed on TP Group plc using Group materiality;
• Analytical procedures were performed on the financial information of all other components using Group materiality; and
• Testing performed covered 79% of total Group revenue, either through full-scope or specified audit procedures, and 88% of
profit before tax.
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Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT
Performance of our audit
During our audit, all audit procedures over full-scope audits, specified procedures and analytical review, were performed by the
Group engagement team, with the review of financial information being performed by a separate engagement team, and the use of
staff from Grant Thornton International Limited member firms to observe physical stock counts at overseas locations.
Audit approach
No. of components
% coverage revenue
Full-scope audit
Specified audit procedures
Review procedures
Analytical procedures
6
3
1
12
72
7
13
7
% coverage
profit before tax
82
6
1
11
Communication with component auditors
The Group engagement team communicated with all component auditors performing review of financial information throughout
the stages of their work, from planning through fieldwork, and as part of the concluding procedures. The Group engagement team
performed reviews remotely.
Changes in approach from previous period
Due to changes in the Group, we have decreased our audit procedures on OTM Consulting Limited, Technology Sciences Group
Limited and SG Bidco Limited from full scope audit procedures to analytical procedures. In addition to this, we have reduced our
audit procedures from full scope audit procedures to specified audit procedures on both Quadro Harston Limited and Quadro
Epsom Limited.
Other information
The other information comprises the information included in the Annual Report and Financial Statements, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information contained within the Annual
Report and Financial Statements. Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matter on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the
course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
34
Annual Report and Financial Statements 2022 INDEPENDENT AUDITOR’S REPORT
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which 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.
Corporate Governance Statement
ISAs (UK) require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s and the parent company’s voluntary compliance with the provisions of
the UK Corporate Governance Code.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified;
• the Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the
period is appropriate;
• the Directors’ statement on whether they have a reasonable expectation that the Group will be able to continue in operation and
meets its liabilities;
• the Directors’ statement on fair, balanced and understandable;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems; and
• the section describing the work of the audit committee.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. The extent to which our procedures are
capable of detecting irregularities, including fraud, is detailed below:
• We obtained an understanding of the legal and regulatory frameworks applicable to the parent company and the Group and
industry in which they operate. We determined that the following laws and regulations were most significant: UK-adopted
international accounting standards, the Companies Act 2006, the UK Corporate Governance Code 2018 and the relevant
35
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT
Auditor’s responsibilities for the audit of the financial statements (continued)
tax compliance regulations in the jurisdictions in which the Group operates. In addition, we concluded that there are certain
significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the financial
statements, including those laws and regulations relating to employee matters;
• We inquired of management, the finance team, legal counsel and the board of directors about the Group’s and parent company’s
policies and procedures relating to:
• The identification, evaluation and compliance with laws and regulations;
• The detection and response to risks of fraud; and
• The establishment of internal controls to mitigate risks related to fraud or non-compliance with laws and regulations.
• We obtained an understanding of the Group’s policies and procedures implemented to prevent and detect non-compliance with
laws and regulations by inquiry of management, those responsible for legal and compliance procedures including the company
secretary. We corroborated our inquiries through our reading of board meeting minutes;
• We assessed the susceptibility of the parent company’s and Group’s financial statements to material misstatement, including
how fraud might occur. Audit procedures performed by the Group engagement team and component auditors included:
• identifying and assessing the design and implementation of controls management has in place to prevent and detect fraud
and the adequacy of procedures for authorisation of transactions and internal review procedures;
• challenging assumptions and judgements made by management in its significant accounting estimates, including utilisation
of valuation specialists to review management’s impairment calculation; and
• identifying and testing journal entries, in particular large or unusual journals.
• These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or
error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from
error and detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error,
as fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed
non-compliance with laws and regulations is from events and transactions reflected in the financial statements, the less likely
we would become aware of it;
• It is the engagement partner’s assessment that the audit team collectively had the appropriate competence and capabilities to
identify or recognise non-compliance with laws and regulations based on understanding of, and practical experience with audit
engagements of a similar nature and complexity through appropriate training and participation;
• We communicated relevant laws and regulations and potential fraud risks to all engagement team members and remained alert
to any indications of fraud or non-compliance with laws and regulations throughout the audit.
• We communicated to component auditors around the need to identify of any instances of non-compliance, with laws and
regulations that could give rise to a material misstatement of the Group financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
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.
Nicholas Page
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
20 March 2023
36
Annual Report and Financial Statements 2022 Financial
Statements
and Notes to the
Financial Statements
FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2022
Revenue
Direct operating expenses
Sales and marketing expenses
Administrative expenses
Share of profit/(loss) of equity accounted investment
Adjusted operating profit
Acquisition integration costs
Amortisation of acquisition related intangible assets
Share-based payment charge
Share of profit/(loss) of equity accounted investment
Operating profit
Finance income
Finance costs
Profit before tax
Tax charge (net of R&D tax credit of £530,000
(2021: £324,000))
Profit for the year
Earnings per share
Earnings per share (basic)
Earnings per share (diluted)
Note
5
6
16
4
14
8, 22
16
7
7
10
12
12
2022
£000
86,301
(47,947)
(9,754)
(17,504)
602
17,602
(1,128)
(3,766)
(1,612)
602
11,698
375
(977)
11,096
(541)
10,555
23.2p
22.6p
Group
2021
£000
81,216
(45,858)
(8,824)
(13,892)
(1,061)
16,260
–
(2,891)
(727)
(1,061)
11,581
19
(673)
10,927
(1,366)
9,561
22.4p
21.7p
The accompanying Notes on pages 47 to 92 form an integral part of this Consolidated Income Statement.
38
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Profit for the year attributable to:
Equity holders of the parent
Profit for the year
Other comprehensive income items
that will or may be reclassified to profit or loss:
Exchange differences on translating foreign operations
Fair value gain on financial instruments
Deferred tax charge on financial instruments
Other comprehensive income items
that will not be reclassed to profit or loss:
Changes in the fair value of equity investments through other
comprehensive income
Other comprehensive income/(expense) for the year
Total comprehensive income for the period attributable to:
Equity holders of the parent
Total comprehensive income for the year
Note
24
11,24
16
Group
2022
£000
10,555
10,555
2,372
1,499
(414)
–
3,457
14,012
14,012
2021
£000
9,561
9,561
279
763
(151)
(2,470)
(1,579)
7,982
7,982
The accompanying Notes on pages 47 to 92 form an integral part of this Consolidated Statement of Comprehensive Income.
39
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUIT Y
For the year ended 31 December 2022
Group
Share
capital
Share
premium
Treasury
shares
Merger
reserve
Translation
reserve
£000
£000
£000
£000
£000
Cashflow
hedge
reserve
£000
Retained
earnings
Total
equity
£000
£000
Balance at 1 January 2021
421
9,102
(1,896) 10,343
(1,037)
(538) 24,995 41,390
Contributions and distributions:
Purchase of own shares
Issue of shares out of treasury
Dividends paid (Note 13)
Share-based payment charge
(Note 22)
Deferred tax credit on share-based
payment transactions
Share placement
Transactions with owners
Profit for the year
Other comprehensive income items that
will or maybe reclassed to profit or loss:
Fair value gain on financial instruments
(Note 24)
Exchange differences on translating
foreign operations
Deferred tax charge on financial
instruments
Other comprehensive income items that
will not be reclassed to profit or loss:
Changes in the fair value of equity
investments through other comprehensive
income
Total comprehensive income for the year
–
–
–
–
–
41
41
–
–
–
–
–
–
–
–
–
–
–
17,732
17,732
(562)
1,216
–
–
–
–
654
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
279
–
–
–
–
–
–
–
–
763
–
–
(151)
–
(562)
(1,211)
5
(1,642) (1,642)
727
727
619
619
–
17,773
(1,507) 16,920
9,561
9,561
–
–
–
763
279
(151)
–
279
–
(2,470) (2,470)
612
7,091
7,982
Balance at 31 December 2021
462
26,834
(1,242) 10,343
(758)
74
30,579 66,292
40
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUIT Y
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUIT Y
For the year ended 31 December 2022
Group
Share
capital
Share
premium
Treasury
shares
Merger
reserve
Translation
reserve
Balance at 1 January 2022
462
26,834
(1,242) 10,343
£000
£000
£000
£000
£000
(758)
Cashflow
hedge
reserve
£000
Retained
earnings
Total
equity
£000
£000
74
30,579 66,292
Contributions and distributions:
Purchase of own shares
Issue of shares out of treasury
Dividends paid (Note 13)
Share-based payment charge (Note 22)
Deferred tax charge on share-based
payment transactions
Transactions with owners
Profit for the year
Other comprehensive income items that
will or maybe reclassed to profit or loss:
Fair value gain on financial instruments
(Note 24)
Exchange differences on translating
foreign operations
Deferred tax charge on financial
instruments
Total comprehensive income for the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,321)
370
–
–
–
(951)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2022
462
26,834
(2,193) 10,343
–
–
–
–
–
–
–
–
(1,321)
(369)
1
(2,270)
(2,270)
1,612
1,612
(127)
(127)
(1,154)
(2,105)
10,555 10,555
–
–
–
–
–
–
–
–
1,499
2,372
–
–
(414)
–
–
–
1,499
2,372
(414)
2,372
1,614
1,085
10,555
14,012
1,159
39,980 78,199
The accompanying Notes on pages 47 to 92 form an integral part of this Consolidated Statement of Changes in Shareholders’
Equity.
41
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUIT Y
For the year ended 31 December 2022
Company
Share
capital
£000
Share
premium
£000
Treasury
shares
£000
Merger
reserve
£000
Retained
earnings
£000
Total
equity
£000
Balance at 1 January 2021
421
9,102
(1,896)
10,343
40,514
58,484
Contributions and distributions:
Purchase of own shares
Issue of shares out of treasury
Dividends paid (Note 13)
Share-based payment charge (Note 22)
Deferred tax charge on share-based payment
transactions
Share placement
Transactions with owners
Profit for the year
Other comprehensive income items that will not
be reclassed to profit or loss:
Changes in the fair value of equity investments at fair
value through other comprehensive income
Total comprehensive income for the year
Balance at 31 December 2021
Balance at 1 January 2022
Contributions and distributions:
Purchase of own shares
Issue of shares out of treasury
Dividends paid (Note 13)
Share-based payment charge (Note 22)
Transactions with owners
Profit and total comprehensive income for the year
–
–
–
–
–
41
41
–
–
–
462
462
–
–
–
–
–
–
–
–
–
–
–
17,732
17,732
–
–
–
(562)
1,216
–
–
–
–
654
–
–
–
–
–
–
–
–
–
–
–
–
–
26,834
26,834
(1,242)
10,343
(1,242)
10,343
–
–
–
–
–
–
(1,321)
370
–
–
(951)
–
–
–
–
–
–
–
–
(1,211)
(1,642)
727
(18)
–
(2,144)
219
(2,470)
(2,251)
36,119
36,119
(562)
5
(1,642)
727
(18)
17,773
16,283
219
(2,470)
(2,251)
72,516
72,516
–
(1,321)
(369)
1
(2,270)
(2,270)
1,612
1,612
(1,027)
(1,978)
7,559
7,559
78,097
Balance at 31 December 2022
462
26,834
(2,193)
10,343
42,651
The accompanying Notes on pages 47 to 92 form an integral part of this Company Statement of Changes in Shareholders’ Equity.
42
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUIT Y
FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY BALANCE SHEET
As at 31 December 2022
Group
Company
Note
2022
£000
2021
£000
2022
£000
2021
£000
Assets
Non-current assets
Acquisition related intangible assets
Goodwill
Property, plant and equipment
Investments
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Cash and cash equivalents – Client registration funds
Cash and cash equivalents – Group cash
Total assets
Liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Borrowings
Lease liabilities
14
14
15
16
24
11
17
18
24
19
19
20
21
23
25
10,815
14,975
23,867
10,054
1,417
2,176
13,359
14,360
23,384
9,239
129
2,120
–
–
143
–
–
33
66,354
60,224
–
23
–
–
63,304
62,591
66,520
60,257
2,477
12,992
1,607
384
2,867
43,645
63,972
127,276
2,454
12,208
1,493
–
2,874
34,315
53,344
115,935
–
–
2,854
12,452
–
–
–
35,202
38,056
104,576
–
–
–
20,091
32,543
92,800
31,546
30,042
26,332
20,284
331
849
1,200
720
776
677
1,200
1,153
–
–
–
111
–
–
–
–
34,646
33,848
26,443
20,284
43
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY BALANCE SHEET
As at 31 December 2022
Non-current liabilities
Provisions
Borrowings
Lease liabilities
Deferred tax liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Treasury shares
Merger reserve
Translation reserve
Cash flow hedge reserve
Retained earnings
Total equity
Note
21
23
25
11
Group
Company
2022
£000
2021
£000
2022
£000
2021
£000
248
12,939
1,162
82
14,431
49,077
603
14,123
400
669
15,795
49,643
–
–
36
–
36
–
–
–
–
–
26,479
20,284
78,199
66,292
78,097
72,516
22
462
462
462
462
26,834
26,834
26,834
26,834
24
(2,193)
10,343
1,614
1,159
39,980
78,199
(1,242)
10,343
(758)
74
30,579
66,292
(2,193)
10,343
–
–
42,651
78,097
(1,242)
10,343
–
–
36,119
72,516
The Company’s profit for the year was £7,559,000 (2021: £219,000).
The Financial Statements were approved by the Board of Directors and signed on its behalf by:
Martyn Ratcliffe
Executive Chair
Jon Brett
Finance Director
On 20 March 2023
The accompanying Notes on pages 47 to 92 form an integral part of this Consolidated and Company Balance Sheet.
The Company’s registered number is 06536543.
44
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY BALANCE SHEET
FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Profit before income tax
Adjustments for:
Share of (profit)/loss of equity accounted investment
Amortisation of acquisition related intangible assets
Depreciation of property, plant and equipment
Reversal of impairment of right-of-use assets
Depreciation of right-of-use assets
Bank charges on derivative financial instruments
Net interest cost
Share-based payment charge/(credit)
Increase in inventories
(Increase)/decrease in receivables
(Decrease)/increase in payables representing client
registration funds
Increase in payables excluding balances representing
client registration funds
Decrease in provisions
Cash generated from operations
Interest paid
UK corporation tax paid
Foreign corporation tax paid
Cash flows from operating activities
Interest received/(paid)
Purchase of property, plant and equipment
Purchase of intellectual property
Purchase of interest in associated company
Purchase of subsidiary undertakings, net of cash acquired
Cash flows used in investing activities
Group
Company
Note
2022
£000
2021
£000
11,096
10,927
2022
£000
7,542
2021
£000
219
16
14
15
15
15
7
8
15
14
16
(602)
3,766
655
(215)
827
359
602
1,612
(23)
(680)
1,061
2,891
719
–
794
–
654
727
(1,047)
(1,385)
(602)
1,061
–
33
–
114
–
596
–
–
–
65
–
–
–
294
(61)
–
6,150
(1,773)
(7)
859
–
–
1,235
(263)
18,362
(808)
(1,017)
(1,266)
15,271
271
(92)
–
2,494
(76)
18,618
(646)
(3,018)
(940)
14,014
3
(544)
(4,315)
5,147
–
18,980
(210)
–
–
18,770
260
–
–
6,060
–
5,865
–
–
–
5,865
(1)
–
–
(213)
(12,770)
(213)
(12,770)
–
(1,455)
(34)
(19,081)
–
47
–
(12,771)
45
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Group
Company
Issue of shares out of treasury
Share placement
Repurchase of own shares
Dividends paid
Purchase of derivative financial instruments
Repayment of term loan
Payment of lease liabilities
Cash flows from financing activities
Note
13
23
25
Increase in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Exchange gain on cash
Cash and cash equivalents at the end of the year
19
Cash and cash equivalents are analysed as follows:
2022
£000
1
–
(1,321)
(2,270)
(531)
(1,200)
(1,135)
(6,456)
8,781
37,189
542
46,512
2021
£000
5
17,773
2022
£000
1
–
(562)
(1,321)
(1,642)
(2,270)
–
–
(120)
2021
£000
5
17,773
(562)
(1,642)
–
–
–
(3,710)
15,574
15,107
20,091
4
8,668
11,423
–
35,202
20,091
–
(1,200)
(1,297)
13,077
8,010
29,074
105
37,189
Cash and cash equivalents – Client registration funds
Cash and cash equivalents – Group cash
Note
19
19
Group
Company
2022
£000
2,867
43,645
46,512
2021
£000
2,874
34,315
37,189
2022
£000
–
35,202
35,202
2021
£000
–
20,091
20,091
The accompanying Notes on pages 47 to 92 form an integral part of this Consolidated and Company Statement of Cash Flows.
46
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. General information
Science Group plc (the ‘Company’) together with its subsidiaries (‘Science Group’ or the ‘Group’) is an international science,
engineering and technology (‘SET’) business, supported by a strong balance sheet.
The Group and Company Financial Statements of Science Group plc were prepared under the International Financial
Reporting Standards (‘IFRS’) as adopted by the UK in conformity with the requirements of the Companies Act 2006 and
have been audited by Grant Thornton UK 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). The value of Science Group plc shares, as quoted on the
London Stock Exchange on 31 December 2022, was 395.0 pence per share (31 December 2021: 455.0 pence per share).
These Consolidated Financial Statements have been approved for issue by the Board of Directors on 20 March 2023.
Alternative performance measures
The Group uses alternative non-Generally Accepted Accounting Practice performance measures of ‘adjusted operating
profit’, ‘adjusted earnings per share’ and ‘net funds’ which are not defined within IFRS. These are explained as follows:
(a) Adjusted Operating Profit
The Group calculates this measure by adjusting to exclude certain items from operating profit namely: 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. Materiality is defined as an amount which, to a user, would influence the
decision making. Acquisition integration costs include all costs incurred directly related to the restructuring, relocation and
integration of acquired businesses. Adjustments for share-based payment charges occur 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 investors/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
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 12. The tax rate applied to calculate the tax charge in this measure
is the tax at the blended corporation tax rate across the various jurisdictions for the year which is 21.4% (2021: 22.0%) which
results in a comparable tax charge year on year.
(c) Net Funds
The Group calculates this measure as the net of cash and cash equivalents – Group cash and Borrowings. Client registration
funds are excluded from this calculation because these monies are for the purpose of payment of registration fees to
regulatory bodies. This cash is separately identified for reporting purposes and is unrestricted. This measure is calculated as
follows:
Cash and cash equivalents – Group cash
Borrowings
Net funds
Note
19
23
Group
2022
£000
2021
£000
43,645
34,315
(14,139)
(15,323)
29,506
18,992
47
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
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. Net funds represent the Group’s cash available for day-to-day
operations and investments. As such, the Board considers these measures to 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 and Company 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 under IFRS as adopted by the UK in conformity with the requirements of the Companies Act 2006.
Of the new standards and interpretations effective for the year ended 31 December 2022, there was no impact on the
presentation of the financial statements of Science Group.
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 £7,559,000 (2021: £219,000).
Going concern
The Directors have considered the current cash balance of £43.6 million (excluding client registration funds) and assessed
forecast future cash flows for the next 18 months. There are no events or conditions which cast significant doubt on the
ability of the Group to continue as a going concern. In support, as explained in the Statement of Executive Chair, the Group
revenue and operating profit grew year on year and cash generated from operations was £18.4 million during the year ended
31 December 2022. The Group ended the year with net funds of £29.5 million, and with the undrawn Revolving Credit
Facility (‘RCF’) of £25.0 million. The Directors are satisfied that the Group has adequate cash and financing resources
to continue in operational existence for the foreseeable future, being a period of at least a year following the approval of
the accounts and therefore continue to adopt the going concern basis of accounting in preparing the annual Financial
Statements.
2.2 Changes in accounting policies
The accounting pronouncements which have become effective from 1 January 2022 and have therefore been adopted do not
have a significant impact on the Group’s financial results or position.
2.3 Standards, IFRICs and other guidance applicable
Standards and IFRICs newly applicable for companies with 31 December 2022 year ends are set out below, together with
any noted impact on the Group.
Number
IAS 16 (amendments)
IAS 37 (amendments)
IFRS 1, IFRS 9, IFRS 16, IAS 41 (amendments)
IFRS3 (amendments)
Title
Proceeds before Intended Use
Impact in year
No material impact
Onerous contracts – Cost of fulfilling a contract
No material impact
Annual Improvements to IFRS Standards
2018-2020 Cycle
Reference to the Conceptual Framework –
business combinations
No material impact
No material impact
48
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.4 Standards issued but not yet effective
At the date of authorisation of these Consolidated Financial
Statements, several new, but not yet effective, Standards
and amendments to existing Standards, and Interpretations
have been published by the IASB. None of these Standards
nor amendments to existing Standards have been adopted
early by the Group.
Management anticipates that all relevant pronouncements
will be adopted for the first period beginning on or after
the effective date of the pronouncement. New Standards,
amendments and Interpretations not adopted in the current
year have not been disclosed as they are not expected to
have a material impact on the Group’s Financial Statements.
Number
IAS 12 (amendments)
IAS 1 (amendments)
IFRS 16 (amendments)
Title
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
Non-current Liabilities with covenants
Leases on sale and leaseback
Effective
1-Jan-23
1-Jan-24
1-Jan-24
2.5 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.
Interests in equity-accounted investees – Associates are
those entities in which the Group has significant influence,
but not control or joint control, over the financial and
operating policies. Interests in associates are accounted
for using the equity method. They are initially recognised
at cost, which includes transaction costs. Subsequent to
initial recognition, the consolidated financial statements
include the Group’s share of the profit or loss and OCI
of equity accounted investees, until the date on which
significant influence ceases. The carrying value of the
associate investment would not be impaired to the extent it
is exceeded by the share of accumulated losses in associate.
2.6 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’), being the Executive Board.
The CODMs monitor the performance of these operating
segments as well as deciding on the allocation of resources
to them.
The Group results are presented across 3 reporting
segments: Services Operating Business, Product Operating
Business, Freehold Properties. Corporate costs, including
the PLC costs and one-off costs relating to M&A activity, are
not allocated to the segments and are reported separately.
This provides transparency and facilitates shareholder
analysis of the component parts of the Group.
2.7 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.
49
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.7 Intangible assets (continued)
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 acquired intangible
assets, customer contracts and relationships are between
5 and 12 years. The assets are assessed on an annual basis
for impairment and amortised over its remaining economic
useful life.
2.8 Research and development expenditure
Expenditure on research activities is recognised in profit or
loss as incurred.
Development expenditure is capitalised only if the
expenditure can be measured reliably, the product or
process is technically and commercially feasible, future
economic benefits are probable, and the Group intends
to and has sufficient resources to complete development
and to use or sell the asset. Otherwise, it is recognised in
profit or loss as incurred. Subsequent to initial recognition,
development expenditure is measured at cost less
accumulated amortisation and any accumulated impairment
losses.
Any tax credit receivable under the either the R&D
Expenditure Credit scheme or the Small or Medium-sized
scheme is recognised within income tax.
2.9 Property, plant and equipment
Land and buildings as shown in the Notes to the Financial
Statements comprise offices and laboratories at Harston
Mill, Harston, Cambridge, UK and at Great Burgh, Epsom,
UK. Land and buildings are shown at historical cost
less accumulated depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition of
the items.
Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that the future economic benefit
associated with the item will flow to Science Group and the
cost of the item can be measured reliably. All other repairs
and maintenance are charged to the income statement
during the financial period in which they are incurred.
Land is not depreciated. Depreciation on all other property,
plant and equipment is calculated using the straight-line
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.
2.10 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. Cash that is held on behalf of the
client that is solely for the purpose of payment of product
registration fees to regulatory bodies is separately identified.
2.11 Inventories
Inventories are stated at the lower of cost and net realisable
value. Costs includes all cost incurred in bringing each
product to its present location and condition, which
comprises the cost of direct materials and third-party
charges. Net realisable value is the estimated selling price
in the ordinary course of business less any applicable selling
expenses.
2.12 Trade and other receivables
Trade and other receivables are carried at original invoice
amount and are subsequently held at amortised cost
less provision for impairment. The Group makes use of
a simplified approach in accounting for trade and other
receivables as well as contract assets and records the loss
allowance as lifetime expected credit losses. These are the
expected shortfalls in contractual cash flows, considering
the potential for default at any point during the life of
the financial instrument. The Group uses its historical
experience, external indicators and forward-looking
information to calculate the expected credit losses. The
movement in the provision is recognised in the Consolidated
Income Statement.
2.13 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.
2.14 Provisions
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
Dilapidation provisions are recognised when the Group
has an obligation to rectify, repair or reinstate a leased
premises to a certain condition in accordance with the lease
agreement. The provision is measured at the present value
of the estimated cost of rectifying, repairing, or reinstating
the leased premises at a specified future date.
Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and the
risks specific to the liability. The unwinding of the discount
is recognised as a finance cost.
50
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.15 Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption value
is recognised in the income statement over the period of the
borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
2.16 Financial instruments
(a) Classification
The Group classifies its financial assets in the following
measurement categories:
(i)
those to be measured subsequently at fair value (either
through other comprehensive income, or through profit
or loss), and
(ii)
those to be measured at amortised cost.
The classification depends on the Group’s business model
for managing the financial assets and the contractual terms
of the cash flows.
For assets measured at fair value, gains and losses will
either be recorded in profit or loss or other comprehensive
income. For investments in debt instruments, this will
depend on the business model in which the investment is
held. For investments in equity instruments that are not held
for trading, this will depend on whether the group has made
an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other
comprehensive income.
(b) Measurement
At initial recognition, the Group measures a financial asset
at its fair value plus, in the case of a financial asset not at
fair value through profit or loss, transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at fair value
through profit or loss are expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends
on the Group’s business model for managing the asset and
the cash flow characteristics of the asset. There are three
measurement categories into which the Group classifies its
debt instruments:
(i)
Amortised cost: Assets that are held for collection
of contractual cash flows where those cash flows
represent solely payments of principal and interest
are measured at amortised cost. A gain or loss on a
debt investment that is subsequently measured at
amortised cost and is not part of a hedging relationship
is recognised in profit or loss when the asset is
derecognised or impaired.
(ii)
Fair value through other comprehensive income
(‘FVOCI’): Assets that are held for collection of
contractual cash flows and for selling the financial
assets, where the assets’ cash flows represent solely
payments of principal and interest, are measured at
FVOCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment
gains or losses and interest revenue which are
recognised in profit or loss. When the financial asset
is derecognised, the cumulative gain or loss previously
recognised in OCI is reclassified from equity to profit
or loss and recognised in other gains/(losses). Interest
income from these financial assets is included in finance
income using the effective interest rate method.
(iii) Fair value through profit or loss: Assets that do not meet
the criteria for amortised cost or FVOCI are measured
at fair value through profit or loss. A gain or loss on a
debt investment that is subsequently measured at fair
value through profit or loss and is not part of a hedging
relationship is recognised in profit or loss and presented
net in the statement of profit or loss within other gains/
(losses) in the period in which it arises.
Equity instruments
The Group subsequently measures all equity investments
at fair value. Where the Group’s management has elected
to present fair value gains and losses on equity investments
in other comprehensive income, there is no subsequent
reclassification of fair value gains and losses to profit or loss
following the derecognition of the investment.
Changes in the fair value of financial assets at fair value
through profit or loss are recognised in other gain/(losses)
in the Consolidated Income Statement as applicable.
Impairment losses (and reversal of impairment losses) on
equity investments measured at FVOCI are not reported
separately from other changes in fair value.
(c) Impairment
The Group assesses, on a forward-looking basis, the
expected credit losses associated with its debt instruments
carried at amortised cost and FVOCI. The impairment
methodology applied depends on whether there has been
a significant increase in credit risk. For trade receivables,
the Group applies the simplified approach permitted by
IFRS 9, which requires expected lifetime losses to be
recognised from initial recognition of the receivables. The
Group recognises loss allowances for expected credit losses
(‘ECLs’) on financial assets measured at amortised cost,
debt investments measured at FVOCI and contract assets
(as defined in IFRS 15).
The Group measures loss allowances at an amount equal
to lifetime ECL, except for other debt securities and
bank balances for which credit risk (i.e. the risk of default
occurring over the expected life of the financial instrument)
has not increased significantly since initial recognition,
which are measured as 12-month ECL. Loss allowances for
trade receivables and contract assets are always measured
at an amount equal to lifetime ECL.
51
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.16 Financial instruments (continued)
(c) Impairment (continued)
When determining whether the credit risk of a financial
asset has increased significantly since initial recognition
and when estimating ECL, the Group considers reasonable
and supportable information that is relevant and available
without undue cost or effort. This includes both quantitative
and qualitative information and analysis, based on
the Group’s historical experience and informed credit
assessment and including forward-looking information.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses.
Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to
the entity in accordance with the contract and the cash flows
that the Group expects to receive). ECLs are discounted at
the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether
financial assets carried at amortised cost and debt
securities at FVOCI are credit impaired. A financial asset
is ‘credit-impaired’ when one or more events that have a
detrimental impact on the estimated future cash flows of the
financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written
off (either partially or in full) to the extent that there is no
realistic prospect of recovery.
(d) Derivative financial instruments and hedge accounting
Derivative financial instruments are accounted for at fair
value through profit or loss except for derivatives designated
as hedging instruments in cash flow hedge relationships,
which require a specific accounting treatment. To qualify for
hedge accounting, the hedging relationship must meet all of
the following requirements:
• there is an economic relationship between the hedged
item and the hedging instrument
• the effect of credit risk does not dominate the value
changes that result from that economic relationship, and
• the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that
the entity actually hedges and the quantity of the hedging
instrument that the entity actually uses to hedge that
quantity of hedged item.
The Group has entered into currency exchange instruments
which have been designated as hedging instruments in
cash flow hedge relationships. These arrangements have
been entered into to mitigate foreign currency exchange
risk arising from certain highly probable sales transactions
denominated in foreign currency.
In order to address interest rate risk, the Group has entered
into phased interest rate swaps in order to fully hedge
the loan borrowings. The interest rate swaps have been
designated as hedging instruments in cash flow hedge
relationships because the critical terms of the interest rate
swaps entered exactly match the terms of the hedged item.
All derivative financial instruments used for hedge
accounting are recognised initially at fair value and reported
subsequently at fair value in the Consolidated Balance
Sheet.
To the extent that the hedge is effective, changes in the fair
value of derivatives designated as hedging instruments in
cash flow hedges are recognised in other comprehensive
income and included within the cash flow hedge reserve
in equity. Any ineffectiveness in the hedge relationship is
recognised immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or
loss previously recognised in other comprehensive income
is reclassified from equity to profit or loss and presented as
a reclassification adjustment within other comprehensive
income. However, if a non-financial asset or liability is
recognised as a result of the hedged transaction, the gains
and losses previously recognised in other comprehensive
income are included in the initial measurement of the
hedged item.
If a forecast transaction is no longer expected to occur,
any related gain or loss recognised in other comprehensive
income is transferred immediately to profit or loss. If the
hedging relationship ceases to meet the effectiveness
conditions, hedge accounting is discontinued and the related
gain or loss is held in the equity reserve until the forecast
transaction occurs.
2.17 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, including settlement of
employee share incentive obligations, 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. The credit for proceeds received is restricted to the
purchase price of the treasury shares with the difference
between prices paid for treasury shares and proceeds
received taken to share premium. Where such shares are
subsequently cancelled, the movement is recognised directly
in equity with no gain or loss recognised in profit or loss.
52
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.18 Revenue recognition
The Services Operating Business segment provides
consultancy services to clients across the medical, food &
beverage and industrial markets. The Product Operating
Business segment sells chips and modules used in digital
and Smart Radios to factory suppliers of the consumer
electronics market.
To determine whether to recognise revenue, the Group
follows a 5-step process:
1
2
Identifying the contract with a customer
Identifying the performance obligations
3 Determining the transaction price
4
5
Allocating the transaction price to the performance
obligations
Recognising revenue when/as performance
obligation(s) are satisfied.
(a) Services revenue
Revenue from providing services is recognised in the
accounting period in which the services are rendered. The
majority of projects are priced on a time and materials basis
and the revenue for these projects is recognised based on
the actual labour hours spent at the contractual fee rates.
If the customer terminates the contract before completion
for reasons other than the Group’s ability to perform as
promised, the customer is liable to compensate the Group
for performance completed to date.
Performance obligations are linked to the reports supplied
to the client, where work is billed in an agreed fee rate
context, so that clients are able to specifically review work
performed.
For the few fixed-price project contracts, revenue is
recognised based on the proportion of deliverables provided
to the client with an adjustment if the project is forecast to
overrun.
Revenue is measured and recognised using the contractual
fee rates associated with respective deliverables of the
project. Estimates of revenues or extent of progress toward
completion are reviewed regularly and, where necessary,
revised. Any resulting increases or decreases in estimated
revenues are reflected in profit or loss in the period in which
the circumstances that give rise to the revision become
known by management.
In the case of both time and materials and fixed-price
contracts, the customer pays for the value of services
provided based on an invoicing and payment schedule. If
the services rendered by the Group at the reporting date
exceed the payments received to date, a contract asset is
recognised (within trade receivables if the sales invoice
has been raised or amounts recoverable on contracts
if the services rendered have not been invoiced). If the
payments exceed the services rendered, a contract liability is
recognised. In the majority of cases, customers are invoiced
on a monthly basis however this varies when appropriate
to take into account credit limits, payment terms and
operational efficiencies. Consideration is payable when
invoiced based on contractual payment terms.
The Group earns revenue from design services on either a
fixed cost or time and materials basis. These projects tend to
be short term in nature and the revenue is recognised over
time, as the Group delivers services to its customers and at a
point of time when the performance obligation is satisfied by
transferring promised goods to its customers.
The Group receives cash from clients which are pass
through funds solely for the purpose of payment of
registration fees to regulatory bodies and for which no
revenue is recognised.
(b) Subscription income
Subscription income for membership services provided over
an annual contractual period is recognised in the income
statement on a straight-line basis over the period of the
contract.
(c) Product and associated revenue
Revenue is recognised upon the transfer of control of
promised products or services and for the majority of
revenue, transfer of control occurs once the product has
been despatched, as the terms are ex-works. For a few of
the products, ongoing IT infrastructure services are provided
over a period of time in order for the consumer to use the
full functionality of the end product. When such services
have been identified as both capable of being distinct and
separately identifiable from the related tangible product, the
associated revenue allocated to such services is recognized
over time.
Where there are separate performance obligations
in a contract (being the product and the ongoing IT
infrastructure services), it has been determined that directly
observable prices do not exist for these performance
obligations, therefore the transaction price is calculated as
the expected cost plus a margin.
Revenue is recorded net of sales tax and relevant sales
incentives when the performance conditions are met. Sales
incentives are rebates offered to customers and paid based
on total sales made to respective customers each year. The
rebates are estimated on a regular basis by using the most
likely amount method. The rebates will be accrued only to
the extent that it is highly probable that a significant reversal
in the amount of cumulative revenue recognised will not
occur. To the extent unpaid, the rebate liability is presented
under accruals.
The Group recognises contract liabilities for consideration
received in respect of unsatisfied performance obligations
and reports these amounts as trade and other payables in
the Consolidated Balance Sheet. Similarly, if the Group
satisfies a performance obligation before it receives the
consideration, the Group recognises as trade and other
receivables in its Consolidated Balance Sheet.
53
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.19 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 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)
(ii)
assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of that
balance sheet;
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 or loss and recognised as part of
the gain or loss on disposal.
2.20 Employee benefits
(a) Post employment benefit plans
The Group provides post-employment benefits through
various defined contribution plans.
Defined contribution plans
The Group pays fixed contributions into independent entities
in relation to several retirement plans and insurances for
individual employees. The Group has no legal or constructive
obligations to pay contributions in addition to its fixed
contributions, which are recognised as an expense in the
period that related employee services are received.
(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.
(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 at the earlier of when the Group can no longer
withdraw the offer of the termination benefit and when the
Group recognises any related restructuring costs.
(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 liability 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 typically paid quarterly. As the
amortisation period of such costs, if capitalised, would be
less than one year, the Group makes use of the practical
expedient in IFRS 15 and expenses them as incurred.
54
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.21 Taxation
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.
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.
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.
2.22 Leases
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains,
a lease if the contract conveys the right to control the use
of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the
right to control the use of an identified asset, the Group uses
the definition of a lease in IFRS 16.
(a) As a lessee
At commencement or on modification of a contract that
contains a lease component, the Group allocates the
consideration in the contract to each lease component on
the basis of its relative stand-alone prices. However, for the
leases of property the Group has elected not to separate
non-lease components and account for the lease and
non-lease components as a single lease component.
The Group recognises a right-of-use asset and a lease
liability at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located, less any
lease incentives received.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the
end of the lease term, unless the lease transfers ownership
of the underlying asset to the Group by the end of the lease
term or the cost of the right-of-use asset reflects that the
Group will exercise a purchase option. In that case the
right-of-use asset will be depreciated over the useful life
of the underlying asset, which is determined on the same
basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements of
the lease liability.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Group’s
incremental borrowing rate. Generally, the Group uses its
incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by
obtaining interest rates from various external financing
sources and makes certain adjustments to reflect the terms
of the lease and type of the asset leased.
Lease payments included in the measurement of the lease
liability comprise the following:
–
–
–
–
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a
rate, initially measured using the index or rate as at the
commencement date;
amounts expected to be payable under a residual value
guarantee; and
the exercise price under a purchase option that the
Group is reasonably certain to exercise, lease payments
in an optional renewal period if the Group is reasonably
certain to exercise an extension option, and penalties
for early termination of a lease unless the Group is
reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a
change in future lease payments arising from a change in an
index or rate, if there is a change in the Group’s estimate of
the amount expected to be payable under a residual value
guarantee, if the Group changes its assessment of whether
it will exercise a purchase, extension or termination option or
if there is a revised in-substance fixed lease payment.
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Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
2. Summary of significant accounting policies (continued)
2.22 Leases (continued)
(a) As a lessee (continued)
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount
of the right-of-use asset or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced
to zero.
The Group presents right-of-use assets that do not meet
the definition of investment property in ‘property, plant
and equipment’ and associated lease obligations in ‘lease
liabilities’ in the Consolidated Balance Sheet.
When the Group acts as a lessor, it determines at lease
inception whether each lease is a finance lease or an
operating lease.
To classify each lease, the Group makes an overall
assessment of whether the lease transfers substantially
all of the risks and rewards incidental to ownership of
the underlying asset. If this is the case, then the lease is a
finance lease; if not, then it is an operating lease. As part of
this assessment, the Group considers certain indicators such
as whether the lease is for the major part of the economic
life of the asset.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use
assets and lease liabilities for leases of low-value assets
and short-term leases, including IT equipment. The Group
recognises the lease payments associated with these leases
as an expense on a straight-line basis over the lease term.
(b) As a lessor
At inception or on modification of a contract that contains a
lease component, the Group allocates the consideration in
the contract to each lease component on the basis of their
relative standalone prices.
The Group recognises lease payments received under
operating leases as income on a straight-line basis over the
lease term.
2.23 Dividends paid
Dividends are recognised as a liability in the period in
which the shareholders’ right to receive payment has been
established.
2.24 Dividend income
Dividend income is recognised when the Company’s right to
receive payment is established.
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. The Group acquired a currency exchange instrument to cap the
US Dollar/GBP rate in relation to the R&D Consultancy division through to the end of 2023. The instrument is a US Dollar/GBP
cap set at $1.20/£1 which applies to $1.25 million per month (see Note 24). 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.
56
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
3. Financial risk management (continued)
3.1 Financial risk factors (continued)
(a) Foreign currency sensitivity (continued)
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:
2022
Financial assets
Financial liabilities
Exposure
2021
Financial assets
Financial liabilities
Exposure
US Dollar
£000
11,039
(1,985)
9,054
US Dollar
£000
11,886
(3,775)
8,111
Euro
£000
889
(131)
758
Euro
£000
984
(227)
757
Other
£000
264
(525)
(261)
Other
£000
342
(258)
84
Total
£000
12,192
(2,641)
9,551
Total
£000
13,212
(4,260)
8,952
All foreign currency denominated financial assets and liabilities are classified as current.
The following table illustrates the sensitivity of the net movement on Consolidated Income Statement and equity in regard
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 US Dollar/GBP exchange rate as at 31 December 2022 (2021: +/-10.0%). A 10.0%
change is considered for the Euro/GBP exchange rate (2021: +/-10.0%). If the GBP had strengthened against the US Dollar
and Euro by 10.0% (2021: 10.0%) respectively then this would have had the following impact:
2022
Income statement
Equity
2021
Income statement
Equity
US Dollar
£000
(323)
(1,739)
US Dollar
£000
(254)
(1,302)
Euro
£000
(46)
(26)
Euro
£000
(74)
(57)
Other
£000
–
47
Other
£000
–
(56)
Total
£000
(369)
(1,718)
Total
£000
(328)
(1,415)
For a 10.0% weakening of GBP against the relevant currency, there would be a comparable but opposite impact on the
Consolidated Income Statement and equity.
The Company did not hold any material financial assets or liabilities in foreign currencies at the start nor end of the year.
The currency rate movements against the US Dollar and Euro at year end compared to the previous year end were -10.6%
(2021: -0.9%) and -5.2% (2021: 6.5%) respectively. Exposures to foreign exchange rates vary during the year depending on
the volume and value of transactions.
(b) Interest rate risk
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.
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Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
3. Financial risk management (continued)
3.1 Financial risk factors (continued)
(b) Interest rate risk (continued)
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
2022
£000
2021
£000
14,200
15,400
3.5%
3.5%
SONIA+2.6%
LIBOR+2.6%
For benchmark rates of interest, Science Group refers to SONIA. The bank loan is secured via a fixed charge over certain
assets of Science Group and is repayable as disclosed in Note 23. Terms and conditions of the interest rate swaps are as
disclosed in Note 23. The interest rate swaps mature in accordance with the repayment profile of the loan: £2.8 million in
September 2025 and the balance of £11.4 million in September 2026.
(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 – Group cash
Cash and cash equivalents – Client registration funds
Trade and other receivables (excluding VAT and prepayments)
Note
19
19
18
Group
Company
2022
£000
2021
£000
2022
£000
2021
£000
43,645
34,315
35,202
20,091
2,867
11,018
57,530
2,874
10,636
47,825
–
2,055
37,257
–
11,999
32,090
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 trade and other receivables that are considered to be impaired are disclosed in Note 18.
None of Science Group’s financial assets are secured by collateral nor other credit enhancements.
58
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
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 2022, Science Group’s financial liabilities have contractual cashflows and maturities as below:
2022
Group
Bank borrowings
Interest on bank borrowings
Trade payables
Accruals and lease payments
Current
Non-current
< 6
months
£000
6 to 12
months
£000
600
239
1,689
8,921
11,449
600
232
–
328
1,160
1 to 5
years
£000
13,000
1,084
–
1,236
15,320
> 5
years
£000
–
–
–
–
–
Note
23
20
20, 25
This compares to the maturity of Science Group’s financial liabilities in the previous reporting period as follows:
2021
Group
Bank borrowings
Interest on bank borrowings
Trade payables
Accruals and lease payments
Current
Non-current
< 6
months
£000
6 to 12
months
£000
600
259
2,591
9,457
12,907
600
253
–
557
1,410
1 to 5
years
£000
4,800
1,469
–
419
> 5
years
£000
9,400
86
–
–
6,688
9,486
Note
23
20
20, 25
As at 31 December 2022, the Company’s financial liabilities have contractual cashflows and maturities as below:
2022
Company
Trade payables and other payables
Accruals and lease payments
Current
Non-current
< 6
months
£000
24,380
2,028
26,408
6 to 12
months
£000
–
38
38
1 to 5
years
£000
–
36
36
> 5
years
£000
–
–
–
Note
20
20
This compares to the maturity of the Company’s financial liabilities in the previous reporting period as follows:
2021
Company
Trade payables and other payables
Accruals
Current
Non-current
< 6
months
£000
19,147
1,038
20,185
6 to 12
months
£000
1 to 5
years
£000
> 5
years
£000
–
–
–
–
–
–
–
–
–
Note
20
20
59
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
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:
Group
Company
Note
2022
£000
2021
£000
2022
£000
2021
£000
Financial assets:
Trade receivables
Other receivables
Cash and cash equivalents – Client registration funds
Cash and cash equivalents – Group cash
Financial liabilities:
Non-current borrowings
Current borrowings
Trade payables
Other payables
18
18
19
19
23
23
20
20
Accruals and lease payments
20,25
9,776
1,242
2,867
43,645
57,530
12,939
1,200
1,689
–
10,485
26,313
–
–
2,055
11,999
9,331
1,305
2,874
34,315
47,825
14,123
1,200
2,591
–
35,202
37,257
–
–
–
–
24,380
10,433
28,347
2,102
26,482
–
20,091
32,090
–
–
71
19,076
1,038
20,185
Derivatives used for hedging held at fair value:
Financial instrument assets
24
1,417
129
–
–
The fair value of Science Group’s financial assets and liabilities is not materially different from 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 swaps and the currency exchange instruments at fair value under level 2 and this
is in ‘derivative financial instruments’ in the Consolidated Balance Sheet.
The Group’s finance team performs valuations of financial items for financial reporting purposes in consultation with third
party valuation specialists for complex valuations (e.g. acquired assets and liabilities).
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Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
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 Group cash less borrowings) and the
freehold properties at Harston Mill and Great Burgh.
Shareholders’ funds
Net funds
Freehold property at Harston Mill
Freehold property at Great Burgh
Shareholders’ funds
A summary of subsidiary dividends paid to Science Group plc is shown below:
Sagentia Limited
Oakland Innovation Ltd
OTM Consulting Ltd
Leatherhead Research Limited
Frontier Smart Technologies Limited
Technology Sciences Group Consulting Limited
Technology Sciences Group Limited
Technology Sciences Group Inc.
Total dividends paid
Group
2022
£000
78,199
29,506
12,805
8,008
2021
£000
66,292
18,992
12,900
8,091
Note
1
15
15
Company
2022
£000
4,000
1,000
252
500
4,835
1,000
867
2,146
2021
£000
3,500
1,000
–
–
–
–
500
–
14,600
5,000
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 5.0 pence per
share at the forthcoming AGM (2021: 5.0 pence per share). The Board anticipates recommending a single dividend being
paid each year.
Net funds
The net funds of the Group have increased by £10.5 million in 2022 (2021: increased by £8.4 million) as set out in the Net
Funds Movement in Note 1(c).
Details of the Group’s borrowings are set out in Note 23 which summarises the terms of the loan and interest rate swap
arrangement.
Freehold property
Details of freehold property and related rental income are set out in Note 15.
61
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
4. Segment information
The Group’s segmental reporting shows the performance of the operating businesses separately from the value generated by
the Group’s significant freehold property assets and the Corporate costs. The Services Operating Business consists of two
divisions: (i) R&D Consultancy, and (ii) Regulatory & Compliance. Financial information is provided to the Chief Operating
Decision Makers (‘CODMs’) in line with this structure: the divisions and service lines in the Services Operating Businesses;
the Product Operating Business (Frontier); the Freehold Properties and Corporate costs.
The Services Operating divisions (including the service lines) have been aggregated resulting in one Services Operating
Business segment because the divisions and the services they provide have similar economic characteristics such as similar
long-term average gross margins, trends in sales growth and operating cash flows and are also similar in respect of their
nature, delivery and types of customers that the services are provided to. This aggregation does not impact the user’s ability
to understand the entity’s performance, its prospects for future cash flows or the user’s decisions about the entity as a whole
as it is a fair representation of the performance of each service line.
Services Operating Business revenue includes all consultancy fees and other revenue includes recharged materials and
expenses relating directly to the Services Operating Business activities. Product Operating Business revenue includes sales
of chips and modules which are incorporated into digital radios. The Freehold Properties segment includes the results for the
two freehold properties owned by the Group. Income is derived from third party tenants from the Harston Mill site and from
the Services and Product Operating Businesses which have been charged fees equivalent to market-based rents for their
utilised property space and associated costs. Corporate costs include PLC/Group costs.
The segmental analysis is reviewed to operating profit. Other resources are shared across the Group.
Services Operating Business
Services revenue
Other
Revenue
Adjusted operating profit
Amortisation of acquisition related intangible assets
Share-based payment charge
Operating profit
Product Operating Business
Product revenue
Revenue
Adjusted operating profit
Amortisation of acquisition related intangible assets
Share-based payment charge
Operating profit
Freehold Properties
Inter-company property income
Third party property income
Revenue
Adjusted operating profit
Share-based payment charge
Operating profit
62
2022
£000
58,242
2,423
60,665
16,200
(1,463)
(1,249)
13,488
2022
£000
24,979
24,979
3,869
(2,303)
(265)
1,301
2022
£000
3,436
657
4,093
132
(42)
90
2021
£000
52,879
2,840
55,719
14,122
(1,495)
(502)
12,125
2021
£000
24,936
24,936
5,156
(1,396)
(240)
3,520
2021
£000
3,046
561
3,607
361
(27)
334
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
4. Segment information (continued)
Corporate
Adjusted operating loss
Acquisition integration costs
Share-based payment (charge)/credit
Share of profit/(loss) of equity accounted investment
Operating loss
Group
Services revenue
Products revenue
Third party property income
Other
Revenue
Adjusted operating profit
Acquisition integration costs
Amortisation of acquisition related intangible assets
Share-based payment charge
Share of profit/(loss) of equity accounted investment
Operating profit
Net finance costs
Profit before income tax
Income tax charge
Profit for the period
2022
£000
2021
£000
(2,599)
(3,379)
(1,128)
(56)
602
(3,181)
2022
£000
58,242
24,979
657
2,423
86,301
17,602
(1,128)
(3,766)
(1,612)
602
11,698
(602)
11,096
(541)
10,555
–
42
(1,061)
(4,398)
2021
£000
52,879
24,936
561
2,840
81,216
16,260
–
(2,891)
(727)
(1,061)
11,581
(654)
10,927
(1,366)
9,561
In the Freehold Properties segment, income includes £3.4 million (2021: £3.0 million) generated from intra group recharges.
The corresponding costs are included within the Services Operating Business and Product Operating Business segments
and are eliminated on consolidation.
During 2022, no single customer accounted for more than 10% of the Group’s revenue (2021: nil).
Geographical analysis
Non-current assets (excluding derivative financial Instruments and deferred tax assets) by geographical area are as follows:
United Kingdom
Other European Countries
North America
Asia
2022
£000
2021
£000
58,068
60,065
6
1,462
175
59,711
7
2
268
60,342
Non-current assets are allocated based on their physical location.
Operating profit for the Services Operating Business included a depreciation charge of £0.2 million (2021: £0.7 million),
the Product Operating Business included a depreciation charge of £0.1 million (2021: £0.2 million), the Freehold Properties
included a depreciation charge of £0.4 million (2021: £0.4 million) and Corporate included a depreciation charge of
£0.03 million (2021: £0.2 million).
63
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
5. Revenue
5.1 Revenue Streams
The Group’s operations and main revenue streams are those described in Note 4. The Group’s revenue is derived from
contracts with customers.
5.2 Disaggregation of revenue
In the following table, revenue is disaggregated by geographical market and by the currency in which the contract is
denominated. For the purpose of the analysis of revenue, geographical markets are defined as the country or area in which
the client is based.
Primary geographic markets
United Kingdom
Other European Countries
North America
Asia
Other
Currency
US Dollar
Euro
Sterling
Other
2022
£000
13,240
10,621
35,878
26,047
515
86,301
2022
£000
54,663
2,669
28,969
–
2021
£000
11,883
12,228
29,065
27,680
360
81,216
2021
£000
50,153
3,070
27,985
8
86,301
81,216
Included in the United Kingdom and Sterling disclosure above is rental income of £657,000 (2021: £561,000).
Timeframe
Revenue recognised at a point in time
Revenue recognised over a period of time
2022
£000
26,289
60,012
86,301
2021
£000
26,408
54,808
81,216
5.3 Contract balances
The following table provides information about receivables, amount recoverable on contracts and contract liabilities from
contracts with customers.
Receivables that are included in ‘Trade and other receivables’
Amount recoverable on contracts that are included in ‘Trade and other receivables’
Note
18
18
2022
£000
9,776
1,152
2021
£000
9,331
1,202
Contract liabilities which are included in ‘Trade and other payables’
19, 20
(16,812)
(14,187)
The amounts recoverable on contracts primarily relate to the Group’s rights to consideration for work performed but not
billed at the reporting date on Services Operating Business revenue streams. The amounts recoverable on contracts are
transferred to receivables when the rights to receive cash become unconditional, i.e. when the Group has fulfilled all the
performance obligations and an invoice is issued to the customer.
The contract liabilities primarily relate to the advance consideration received from customers (Note 20). The remainder
represents revenue to be recognised over time as the work is performed. The balance of £2,867,000 (2021: £2,874,000)
that relates to pass through fees which represent advance payments for registration fees to be paid to regulatory bodies is
excluded as these balances are not recognised as revenue (Note 19).
64
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
5. Revenue (continued)
5.3 Contract balances (continued)
Significant changes in the amount recoverable on contracts and the contract liabilities balances during the period are as
follows:
Year ended 31 December 2022
Revenue recognised that was included in the contract liability at the beginning of the period
Increase due to invoices raised to clients, excluding amounts recognised as revenue in the period
Transfers from amount recoverable on contracts recognised at the beginning of the period to
receivables
Increases as a result of changes in the measure of progress
Amount
recoverable
on contracts
£000
–
–
Contract
Liabilities
£000
14,187
(16,812)
(1,202)
1,152
–
–
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
6. Operating expenses
Operating profit is stated after charging/(crediting):
Year ended 31 December
Cost of inventories
Share of (profit)/loss of equity accounted investment
Depreciation of property, plant and equipment
Depreciation of right-of-use asset
Foreign currency losses
Amortisation of intangible assets
Research and development*
Note
16
15
15, 25
14
*R&D costs are represented by employee and material costs incurred in relation to R&D projects.
Auditors’ remuneration
Auditors’ remuneration to Grant Thornton UK LLP:
Fees payable to the Company’s auditors for the audit of the financial statements
Fees payable to the Company’s auditors for the audit of the Company’s subsidiaries pursuant to
legislation
Remuneration to Grant Thornton UK LLP for non-audit services:
Accountancy and taxation services for foreign subsidiaries
Compliance and other services for foreign subsidiaries
Audit related assurance services
Tax compliance services
Other taxation advisory services
2022
£000
12,559
(602)
655
827
252
3,766
11,742
2021
£000
13,067
1,061
719
794
92
2,891
10,941
2022
£000
2021
£000
100
245
32
6
34
58
30
70
165
21
–
30
45
28
65
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
7. Finance income and finance costs
Net finance costs include all interest-related income and expenses through profit or loss. The following have been included
in the Consolidated Income Statement for the reporting periods presented:
Year ended 31 December
Finance income
Bank interest receivable and similar income
Amortisation of credit facility arrangement fee
Finance costs
Interest on bank borrowings
Fees on settlement of revolving credit facility
Amortisation of loan arrangement fees
Amortisation of revolving credit facility arrangement fee
Bank interest payables and similar costs
Interest on lease liabilities
Net finance costs
8. Employee benefit expenses
Employment costs are shown below:
Year ended 31 December
Wages and salaries (including bonuses)
Social security costs
Redundancy costs
Pension costs
Share-based payments
Total employee benefit expenses
Group
2022
£000
2021
£000
291
84
375
(517)
(268)
(16)
(81)
(5)
(90)
(977)
(602)
19
–
19
(564)
(8)
(16)
–
–
(85)
(673)
(654)
Note
22
Group
2022
£000
31,568
4,315
18
1,830
37,731
1,612
39,343
2021
£000
29,975
3,902
9
1,563
35,449
727
36,176
Wages and salaries costs (including bonuses) for the Company were £605,000 (2021: £1,258,000), with social security
costs for the year of £86,000 (2021: £176,000) and pension costs of £nil (2021: £13,000). There was a share-based payment
charge for the Company in the year of £nil (2021: a credit of £78,000).
The average monthly number of persons employed (including Executive and Non-Executive Directors and fixed term
contractors) by Science Group was as follows:
Year ended 31 December
Technology consultants
Marketing, support, administration, and other technically qualified staff
Total average number
The average monthly number of persons employed by the Company was 4 (2021: 4).
Group
2022
Number
2021
Number
324
107
431
308
102
410
66
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
9. Directors’ remuneration, interests and transactions
Directors’ emoluments and benefits include:
Year ended 31 December 2022
Salary/
fee
Bonus
Pension
contribution
Discretionary
payment
Compensation
for loss of
office
Name of Director
£000
£000
£000
£000
£000
Ratcliffe
Edwards
Brett
Bertram
Lacey-Solymar
Clement Davies
495
236
147
45
45
25
–
128
43
–
–
–
Aggregate emoluments
993
171
–
16
10
–
–
–
26
–
32
1
–
–
–
33
–
–
–
–
–
–
–
Gain on
share
options
exercised
£000
–
–
–
–
–
–
–
Year ended 31 December 2021
Salary/
fee
Bonus
Pension
contribution
Discretionary
payment
Compensation
for loss of
office
Gain on
share
options
exercised
Total
£000
495
412
201
45
45
25
1,223
Total
Name of Director
£000
£000
£000
Ratcliffe
Edwards
Brett
Bertram
Lacey-Solymar
Archer
Vohra
Aggregate emoluments
385
226
49
45
45
50
112
912
–
269
23
–
–
–
–
292
–
16
3
–
–
4
7
30
£000
225
–
–
20
13
–
–
258
£000
£000
£000
–
–
–
–
–
–
89
89
–
–
–
–
–
–
–
–
610
511
75
65
58
54
208
1,581
Directors’ emoluments and benefits are stated for the Directors of Science Group plc only.
Ms Clement Davies was appointed as Director on 18 May 2022 and her emoluments are included in the table above from
this date.
A share-based payment charge of £315,000 was recognised in the Consolidated Income Statement relating to share options
held by Directors (2021: £133,000).
The amounts shown were recognised as an expense during the year and relate to the Directors of the Company. Bonuses,
pension and medical benefits are not paid to Non-Executive Directors. Mr Ratcliffe does not participate in the Group bonus
scheme or receive pension or medical benefits.
Total social security costs related to Directors during the year were £213,000 (2021: £190,000).
67
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
9. Directors’ remuneration, interests and transactions (continued)
Directors’ interests in the shares of Science Group as at 31 December 2022 and 31 December 2021 are as follows.
Science Group plc
Ordinary shares of £0.01
Ratcliffe
Edwards
Brett
Bertram
Options
Shares
2022
2021
2022
2021
2022
2021
Average exercise
price (pence)
–
1.0
1.0
–
–
1.0
1.0
–
Number
Number
Number
Number
–
–
9,412,080
9,412,080
693,333
685,000
109,000
109,000
105,000
85,000
–
–
–
–
5,000
5,000
798,333
770,000
9,526,080
9,526,080
There have been no changes subsequent to 31 December 2022.
See Note 22 for further details on option plans.
10. Income tax
The tax charge 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
11
2022
£000
2021
£000
(2,666)
(4,269)
539
643
413
530
(481)
2,975
85
324
(541)
(1,366)
The adjustments in prior years are due to estimation differences related to the tax charge.
The corporation tax on Science Group’s profit before tax differs from the theoretical amount that would arise using the
blended corporation tax rate across the various jurisdictions applicable to profits/(losses) of the consolidated companies of
21.4% (2021: 22.0%) 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
Losses used in year
(Derecognition)/recognition of tax losses as deferred tax asset
Share of profit/(loss) of equity accounted investment
R&D tax credit
Tax charge
2022
£000
11,096
(2,374)
(389)
539
413
(35)
281
569
(190)
115
530
2021
£000
10,927
(2,401)
(543)
(481)
85
(313)
44
1,033
1,119
(233)
324
(541)
(1,366)
68
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
10. Income tax (continued)
The Group claims Research and Development tax credits under both the R&D expenditure credit scheme and the Small or
Medium-sized Scheme. In the current year, the Group recognised a tax credit of £0.5 million (2021: £0.3 million). The Group
performed a reasonable estimate of all amounts involved to determine the R&D tax credits to be recognised in the period to
which it relates.
11. Deferred tax
The movement in deferred tax assets and liabilities during the year by each type of temporary difference is as follows:
Tax losses
Accelerated
capital
allowances
Share-
based
payment
£000
(1,767)
£000
1,001
£000
775
1,721
1,119
–
–
–
–
–
–
–
–
(5)
–
–
619
–
Acquisition
related
intangible
assets
£000
(2,118)
174
(246)
–
–
(15)
At 1 January 2021
Credited/(charged) to the Income
Statement
Deferred tax relating to acquisitions
Credited to the Income Statement
(adjustment in respect of prior year)
Credited/(charged) to Equity
Effect of movements in exchange rates
At 31 December 2021
(46)
2,120
1,389
(2,205)
Other
temporary
differences
£000
293
(34)
–
85
(151)
–
193
Total
£000
(1,816)
2,975
(246)
85
468
(15)
1,451
(Charged)/credited to the Income
Statement
Credited to the income statement
(adjustment in respect of prior year)
Charged to Equity
Effect of movements in exchange rates
At 31 December 2022
(131)
(190)
506
588
(130)
643
129
–
76
28
–
–
246
2,176
–
(127)
–
1,768
–
–
(194)
(1,811)
284
(414)
–
413
(541)
128
(67)
2,094
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
Group
2022
£000
2,176
(82)
2,094
2021
£000
2,120
(669)
1,451
At 31 December 2022, Science Group had £26.7 million (2021: £27.8 million) of tax losses of which £17.1 million (2021:
£17.6 million) related to trading losses in Frontier. Of the Frontier losses, £8.7 million (2021: £10.0 million) is recognised
as a deferred tax asset which is anticipated to be used to offset future taxable profits. The balance of £8.4 million (2021:
£7.6 million) has not been recognised as a deferred tax asset due to the uncertainty in the timing of utilisation of these
losses. Aside from Frontier, the Group has other tax losses of £9.6 million (2021: £10.2 million) unrecognised as a deferred
tax asset due to the low probability that these losses will be utilised.
69
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
11. Deferred tax (continued)
Company
At 1 January 2021
Charged to Income Statement
Charged to Equity
At 31 December 2021
Credited to Income Statement
At 31 December 2022
Share-
based
payment
£000
Other
temporary
differences
£000
Total
£000
34
(16)
(18)
–
–
–
–
–
–
–
23
23
34
(16)
(18)
–
23
23
The Company has available tax losses of approximately £2.3 million (2021: £2.3 million) and these losses do not expire.
Factors affecting future tax charges –
From 1 April 2023 the UK corporation tax will increase from 19% to 25%. Deferred tax assets and liabilities were calculated
at the substantively enacted corporation tax rates in the respective jurisdictions, taking into account the impact of any known
future changes.
12. Earnings per share
The calculation of earnings per share is based on the following result and weighted average number of shares:
Profit after
tax
£000
2022
Weighted
average
number of
shares
Pence per
share
Profit after
tax
2021
Weighted
average
number of
Pence per
share
£000
shares
Basic earnings per ordinary share
10,555 45,525,568
23.2
9,561
42,660,991
22.4
Effect of dilutive potential ordinary
shares: share options
–
1,268,082
Diluted earnings per ordinary share
10,555 46,793,650
Only the share options granted, as disclosed in Note 22, are dilutive.
The calculation of adjusted earnings per share is as follows:
(0.6)
22.6
–
1,435,102
9,561
44,096,093
(0.7)
21.7
2022
2021
Adjusted*
profit after
tax
£000
Weighted
average
number of
shares
Pence per
share
Adjusted*
profit after
tax
Weighted
average
number of
£000
shares
Pence per
share
Adjusted basic earnings per ordinary
share
Effect of dilutive potential ordinary
shares: share options
Adjusted diluted earnings per ordinary
share
13,362 45,525,568
29.4
12,173
42,660,991
28.5
–
1,268,082
(0.8)
–
1,435,102
(0.9)
13,362 46,793,650
28.6
12,173
44,096,093
27.6
70
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
12. Earnings per share (continued)
*Calculation of adjusted profit after tax:
Group
Adjusted operating profit
Finance income
Finance costs
Adjusted profit before tax
Tax charge at the blended corporation tax rate across the various jurisdictions 21.4%
(2021: 22.0%)
Adjusted profit after tax
2022
£000
17,602
375
(977)
2021
£000
16,260
19
(673)
17,000
15,606
(3,638)
13,362
(3,433)
12,173
The tax charge is calculated using the blended corporation tax rate across the various jurisdictions in which the Group
companies are incorporated.
13. Dividends
The final dividend for 2021 of £2.3 million was paid in June 2022 (2021: £1.6 million paid for 2020 in June 2021).
The Board has proposed a final dividend for 2022 of 5.0 pence per share (2021: 5.0 pence per share). The dividend is subject
to approval by shareholders at the next Annual General Meeting and the expected cost of £2.3 million has not been included
as a liability as at 31 December 2022.
14. Intangible assets
Group
Cost
At 31 January 2021
Acquisitions through business combination
Additions
Effect of movement in exchange rates
At 31 December 2021
Effect of movement in exchange rates
At 31 December 2022
Accumulated amortisation
At 1 January 2021
Amortisation charged in year
Effect of movement in exchange rates
At 31 December 2021
Amortisation charged in year
Effect of movement in exchange rates
At 31 December 2022
Accumulated impairment
Technology
£000
6,792
1,031
4,315
168
12,306
1,350
13,656
1,132
1,305
27
2,464
2,172
335
4,971
Customer
relationships
£000
Goodwill
Total
£000
£000
13,647
15,882
36,321
238
–
30
13,915
428
14,343
8,786
1,586
19
10,391
1,594
221
12,206
664
–
39
16,585
615
17,200
–
–
–
–
–
–
–
1,933
4,315
237
42,806
2,393
45,199
9,918
2,891
46
12,855
3,766
556
17,177
At 1 January, 31 December 2021 and 31 December 2022
–
7
2,225
2,232
Carrying amount
At 31 December 2021
At 31 December 2022
9,842
8,685
3,517
2,130
14,360
14,975
27,719
25,790
71
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
14. Intangible assets (continued)
Goodwill and acquisition related intangible assets recognised arose from acquisitions during 2013, 2015, 2017, 2019 and
2021. The discount rates used for goodwill impairment reviews and the carrying amount of goodwill is allocated as follows:
Group
2022
2021
R&D Consultancy
Leatherhead Research
TSG – Americas
TSG – Europe
Frontier Smart Technologies Group
Pre-tax
discount rate
16.8%
16.9%
15.2%
16.6%
17.5%
Pre-tax
discount rate
14.2%
14.1%
16.4%
15.8%
14.1%
£000
3,383
650
2,874
4,546
3,522
14,975
£000
3,383
650
2,570
4,546
3,211
14,360
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 and growth or decline rates of revenue
and costs.
The Group prepares the cash flow forecasts derived from the most recent annual financial plan approved by the Board and
extrapolates cash flows for the following four years based on forecast rates of growth or decline in revenue by the CGU.
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 R&D Consultancy CGU
A review of the forecast future cash flows of R&D Consultancy, 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 relevant markets and have been based on
historical data from internal sources.
R&D Consultancy CGU
Rate of growth in revenue (average of next 5 years)
Rate of increase in operating costs (average of next 5 years)
Terminal value growth rate
2022
4.6%
3.3%
2.0%
2021
5.5%
6.8%
2.3%
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 R&D Consultancy being in excess of its recoverable amount and therefore no
sensitivity analysis is presented.
72
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
14. Intangible assets (continued)
Impairment testing for the Leatherhead Research CGU
A review of the forecast future cash flows of Leatherhead Research CGU, 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 relevant markets and have been based on
historical data from internal sources.
Leatherhead Research CGU
Rate of growth in revenue (average of next 5 years)
Rate of increase in operating costs (average of next 5 years)
Terminal value growth rate
2022
2.0%
0.1%
2.0%
2021
1.7%
1.8%
2.0%
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 Leatherhead Research CGU being in excess of its recoverable amount and
therefore no sensitivity analysis is presented.
Impairment testing for the TSG Americas CGU
A review of the forecast future cash flows of TSG Americas, 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 relevant markets and have been based on
historical data from internal sources.
TSG Americas CGU
Rate of growth in revenue (average of next 5 years)
Rate of increase in operating costs (average of next 5 years)
Terminal value growth rate
2022
4.8%
3.2%
2.0%
2021
7.8%
9.2%
2.3%
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 TSG Americas being in excess of its recoverable amount and therefore no
sensitivity analysis is presented.
73
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
14. Intangible assets (continued)
Impairment testing for the TSG Europe CGU
A review of the forecast future cash flows of TSG Europe, 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 relevant markets and have been based on
historical data from internal sources.
TSG Europe CGU
Rate of growth in revenue (average of next 5 years)
Rate of increase in operating costs (average of next 5 years)
Terminal value growth rate
2022
8.6%
5.0%
2.0%
2021
7.3%
5.3%
2.3%
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 TSG Europe being in excess of its recoverable amount and therefore no sensitivity
analysis is presented.
Impairment testing for the Frontier Smart Technologies Group CGU
A review of the forecast future cash flows of Frontier Smart Technologies Group (‘Frontier’), 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 relevant markets and have been based on
historical data from internal sources.
Frontier Smart Technologies Group CGU
Rate of growth in revenue (average of next 5 years)
Rate of (decrease)/increase in operating costs (average of next 5 years)
Terminal value growth rate
2022
0.2%
(0.5%)
2.0%
2021
3.5%
4.9%
2.3%
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 Frontier being in excess of its recoverable amount and therefore no sensitivity
analysis is presented.
During 2022 Magic Systech Inc was fully integrated into the Frontier CGU as all processes, management and reporting of
the businesses are treated as a combined business.
74
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
15. Property, plant and equipment
Group
Cost
At 1 January 2021
Additions
Disposals
Exchange differences on cost
At 1 January 2022
Additions
Disposals
Exchange differences on cost
At 31 December 2022
Accumulated depreciation
At 1 January 2021
Depreciation charge
Disposals
Exchange differences on depreciation
At 1 January 2022
Depreciation charge
Disposals
Exchange differences on depreciation
At 31 December 2022
Carrying amount
At 31 December 2021
At 31 December 2022
Freehold
land and
buildings
£000
25,200
-
–
–
25,200
–
(7)
1
25,194
Right-of-use
Asset
Furniture
and fittings
Equipment
Total
£000
£000
£000
£000
4,224
583
3,751
257
(599)
(1,323)
2,176
287
(64)
1
(7)
2,678
2,400
–
(272)
21
92
(444)
238
35,351
1,127
(1,986)
29
34,521
1,794
(2,879)
539
2,427
2,286
33,975
35
4,243
1,702
(2,156)
279
4,068
4,031
178
–
–
4,209
178
(7)
1
4,381
2,999
794
2,673
291
1,839
250
11,542
1,513
(599)
(1,323)
(64)
(1,986)
60
3,254
827
(2,003)
167
2,245
7
1,648
219
(272)
19
1,614
1
2,026
258
68
11,137
1,482
(442)
(2,724)
26
1,868
213
10,108
20,991
20,813
989
1,823
1,030
813
374
418
23,384
23,867
Freehold land and buildings include two properties in the UK.
The Epsom property is held at cost less accumulated depreciation. Included within land and buildings for the Group
is freehold land to the value of £500,000 (2021: £500,000) which has not been depreciated. 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. This property was last formally valued at £7.8 million during March 2021 by
BNP Paribas Real Estate, subject to the assumption of full vacant possession.
The Harston property is held at cost less accumulated depreciation. Included within land and buildings for the Group is
freehold land to the value of £1,360,000 (2021: £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. The Harston property was last formally
valued during March 2021 by BNP Paribas Real Estate. Under the assumptions used, including tenant covenant strength
and market rents, the indicative valuation range for the building was between £14.0 million based on occupational tenancies
where the head lease is merged into the freehold interest, and £23.7 million under a sale and leaseback scenario.
The Epsom and Harston buildings are depreciated using the straight-line method to allocate their cost less their residual
values over their estimated useful lives of 25 years. The residual values of the properties are based on estimates of the
amounts the Group would receive currently for the properties if they were already of an age and in the condition expected
at the end of their useful lives. The residual values are reviewed annually to ensure that they do not exceed the estimated
market values of the properties.
75
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
15. Property, plant and equipment (continued)
The Harston property generated third party rental and associated income of £657,000 (2021: £561,000). Of this income,
£386,000 (2021: £346,000) was rental income and £271,000 (2021: £215,000) was associated income. Associated income
includes, but is not limited to, utilities, cleaning, and general maintenance.
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 2022 was 18,000 sq. ft. (2021: 15,900 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 48,100 sq. ft. (2021: 50,100 sq. ft.) was used by the
Group during the year for its business activities including office space and laboratory space and 22,800 sq. ft. are common
areas. The remaining space of 8,100 sq. ft. (2021: 10,700 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 £20.8 million (2021: £21.0 million) is significantly different to its fair value.
The term loan with Lloyds Bank plc is secured on the Harston and Epsom properties which have a combined net book value
at 31 December 2022 of £20.8 million (2021: £21.0 million).
Science Group plc, the Company, had fixed assets with a net book value of £143,000 at 31 December 2022 (£33,000 at
31 December 2021).
76
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
16. Investments
(a) Investments in subsidiaries
Science Group plc held investments in the following subsidiaries at 31 December 2022:
Subsidiaries of Science Group plc
Registered
office
Country of
incorporation
Principal
activity
Shares
held
%
Sagentia Limited*
Quadro Harston Limited*
OTM Consulting Ltd*
Quadro Epsom Limited*
Sagentia Inc.
OTM Consulting Inc.
Oakland Innovation Ltd*
Leatherhead Research Limited*
Technology Sciences Group Limited*
Technology Sciences Group Consulting Limited*^
Technology Sciences Group (TSG) Canada Inc.
Technology Sciences Group Iberia SL
TSGE Deutschland GmbH
Technology Sciences Group Inc. *
Technology Science Group France SAS*
SG Bidco Ltd*
Frontier Smart Technologies Limited*+
Frontier Microsystems Ltd*+
Frontier Silicon (HK) Ltd
Magic Systech Inc
(1)
(1)
(1)
(1)
(2)
(3)
(1)
(1)
(1)
(1)
(7)
(5)
(6)
(2)
(4)
(1)
(1)
(1)
(8)
(9)
England
England
England
England
USA
USA
England
England
England
England
Canada
Consultancy
Ordinary
Property
Ordinary
Consultancy
Ordinary
Property
Ordinary
Consultancy
Ordinary
Consultancy
Ordinary
Consultancy
Ordinary
Consultancy
Ordinary
Consultancy
Ordinary
Consultancy
Ordinary
Consultancy
Ordinary
Spain
Consultancy
Ordinary
Germany
Consultancy
Ordinary
USA
France
Consultancy
Ordinary
Consultancy
Ordinary
England Holding Company
Ordinary
England
England
Production
Ordinary
Production
Ordinary
Hong Kong
Production
Ordinary
Taiwan
Production
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
* Direct subsidiaries of Science Group plc as at 31 December 2022.
^ On 31 March 2022, Science Group plc acquired 100% of the share capital in Technology Sciences Group Consulting
Limited from Technology Sciences Group Limited.
+ On 31 March 2022, Science Group plc acquired 100% of the share capital in Frontier Smart Technologies Limited and
100% of the share capital in Frontier Microsystems Ltd from SG Bidco Ltd.
Frontier Microsystems Ltd was dissolved in January 2023, and SG Bidco Ltd was dissolved in March 2023.
An application has been made to strike off Technology Sciences Group Limited.
(1) Harston Mill, Royston Road, Harston, Cambridge, CB22 7GG, England
(2) One Commerce Center – 1201 Orange Street, Suite 600, Wilmington, Delaware, 19899, USA
(3) 815 Brazos Street, Suite 500, Austin, Texas, 78701, USA
(4) 229 rue Saint-Honoré, 75001, Paris, France
(5) Avenida De Galicia, 22-1, Isquierda, Dr Oviedo, 33005, Spain
(6) Im Fliegerhorst 12 38642 Goslar, Germany
(7) 50 O’Connor Street, Suite 300, Ottawa, Ontario, K1P 6L2, Canada
(8) 31/F Tower Two Times Square, 1 Matheson Street, Causeway Bay, Hong Kong, China
(9) (11083) 6F, No.508, Sec.5, Zhongxiao East Road, Xinyi District, Taipei City, Taiwan
77
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
16. Investments (continued)
(b) Investments summary
Cost
At 1 January 2021
Capital contribution to subsidiaries*
Acquisition of financial investment**
Remeasurement of financial investment to reflect fair value on
13 October 2021
Reclassification from financial investment to associate investment
Share of loss in associate investment
At 1 January 2022
Capital contribution to subsidiaries*
Acquisition of associate investment**
Acquisition of shares in subsidiaries***
Share of profit in associate investment
At 31 December 2022
Accumulated impairment
Subsidiary
investments
£000
Financial
investment
£000
Associate
investment
£000
Total
investments
£000
52,364
806
–
–
–
–
53,170
1,612
–
3,703
–
58,485
–
–
12,770
(2,470)
–
–
–
–
(10,300)
10,300
52,364
806
12,770
(2,470)
–
(1,061)
62,409
1,612
213
3,703
602
(1,061)
9,239
–
213
–
602
10,054
68,539
–
2,185
9,239
10,054
60,224
66,354
–
–
–
–
–
–
–
–
–
–
At 1 January 2021, 1 January 2022 and 31 December 2022
2,185
Carrying amount
At 31 December 2021
At 31 December 2022
50,985
56,300
*Capital contributions to subsidiaries are in relation to share-based payment charges for employees of the subsidiaries.
**From August 2021, the Group commenced on-market purchases of shares in TP Group plc, increasing its shareholding
to 27.97% at 31 December 2021. Additional on-market purchases of shares in TP Group plc were made in the year to
31 December 2022, increasing the Group’s shareholding to 29.21%.
***On 31 March 2022, as part of some Group structure rationalisation, Science Group plc acquired 100% of the share capital
in Frontier Smart Technologies Limited and Frontier Microsystems Ltd from SG Bidco Ltd, and also acquired 100% of the
share capital in Technology Sciences Group Consulting Limited from Technology Sciences Group Limited.
78
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
16. Investments (continued)
(c) Associate investment
The Group’s interest in TP Group plc is accounted for using the equity method in the Consolidated Financial Statements.
Summarised financial information for TP Group plc is set out below:
Balance sheet as at 31 December
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Proportion of ownership interests held by the Group
Group’s share in equity*
Income statement for the year ended 31 December
Revenue from continuing operations
Cost of sales
Gross profit from continuing operations
Administrative expenses
Adjusted operating profit/(loss) from continuing operations
Finance costs
Profit/(loss) before tax from continuing operations
Tax credit
Profit/(loss) for the year from continuing operations
Profit/(loss) for the year from discontinued operations (attributable to equity holders of the
Company)
Other comprehensive income items
Total comprehensive income/(expense) for the year
Group’s share of comprehensive income/(expense) for the year
Adjustment to share of loss in respect of prior year
Group’s share of profit/(loss) for the year*
2022
£000
16,762
13,369
2021
£000
24,331
15,392
(12,501)
(23,077)
(10,258)
(11,762)
7,372
29.21%
2,153
4,884
27.97%
1,366
2022
£000
2021
£000
48,666
44,255
(35,016)
(37,350)
13,650
6,905
(12,335)
(14,405)
1,315
(767)
548
928
1,476
988
–
2,464
695
(93)
602
(7,500)
(450)
(7,950)
59
(7,891)
(11,138)
(481)
(19,510)
(1,154)
–
(1,154)
The 2021 comparatives agree to the TP Group plc Annual Report and Financial Statements filed at Companies House on
1 October 2022.
* The 2021 Group’s share in TP Group plc equity and share of loss for the year as reported based upon 2021 unaudited
results were £2,688,000 and £1,061,000 respectively.
79
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
17. Inventories
Raw materials
Work in progress
Finished goods
Group
2022
£000
263
485
1,729
2,477
2021
£000
304
793
1,357
2,454
The costs of inventory included in operating expenses were £12,559,000 (2021: £13,067,000).
The Company held £nil inventories at 31 December 2022 (2021: £nil).
18. 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
Group
Company
2022
£000
9,983
(207)
9,776
1,152
90
–
215
1,759
12,992
2021
£000
9,406
(75)
9,331
1,202
103
–
96
1,476
12,208
2022
£000
2021
£000
–
–
–
–
20
2,035
57
742
–
–
–
–
25
11,974
39
414
2,854
12,452
All amounts disclosed above, except for prepayments, are receivable within 90 days.
The following table provides information about the exposure to credit risk and Expected Credit Losses (‘ECLs’) for trade
receivables and amounts recoverable on contracts.
Group
Current (not past due)
1-30 days past due
31-60 days past due
61-90 days past due
More than 90 days past due
2022
2021
Gross
carrying
amount
£000
Provision
for
impairment
£000
Gross
carrying
amount
£000
Provision
for
impairment
£000
7,243
3,359
265
58
210
11,135
112
9,058
–
8
6
81
207
998
370
164
18
10,608
–
–
–
4
71
75
The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as
these items do not have a significant financing component.
80
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
18. Trade and other receivables (continued)
The ECLs are based on the payment profile for sales over the past 48 months before 31 December 2022 and 31 December
2021 respectively as well as the corresponding historical credit losses during that period. The historical ECLs are adjusted
to reflect current and forwarding looking macroeconomic factors affecting the customer’s ability to settle the amount
outstanding.
Trade receivables are written off (i.e. derecognised) when there is no reasonable expectation of recovery.
In relation to amounts owed by Group Undertakings, based on historical experience and informed credit assessment, the
ECL is not material.
Provision for impairment
Provision brought forward
Provision made
Provision released
Movement due to foreign exchange fluctuations
Provision carried forward
19. Cash and cash equivalents
Cash and cash equivalents – Group cash
Cash and cash equivalents – Client registration funds
Group
2022
£000
75
313
(195)
14
207
2021
£000
102
101
(116)
(12)
75
Group
Company
2022
£000
43,645
2,867
46,512
2021
£000
34,315
2,874
37,189
2022
£000
2021
£000
35,202
20,091
–
–
35,202
20,091
The Group receives cash from clients, primarily in North America, for the purpose of payment of registration fees to
regulatory bodies. This cash is separately identified for reporting purposes and is unrestricted.
In connection with the Scheme of Arrangement as referenced in Note 29, £12.6 million of Group cash was held in escrow at
31 December 2022 (2021: £nil).
20. Trade and other payables
Current liabilities
Contract liabilities
Trade payables
Other taxation and social security
Amounts owed to Group undertakings
VAT
Accruals
Group
Company
2021
£000
2022
£000
2021
£000
17,061
2,591
1,346
–
224
8,820
30,042
–
–
–
–
71
99
24,380
19,076
–
1,952
26,332
–
1,038
20,284
2022
£000
19,679
1,689
1,460
–
250
8,468
31,546
81
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
21. Provisions
Group
At 1 January 2021
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movement in exchange rates
At 1 January 2022
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movement in exchange rates
At 31 December 2022
Current liabilities
Non-current liabilities
At 31 December 2021
Current liabilities
Non-current liabilities
Dilapidations
£000
Restructuring
£000
764
89
(5)
(84)
6
770
44
(2)
(164)
58
706
458
248
770
167
603
80
–
(10)
–
–
70
–
–
(30)
–
40
40
–
70
70
–
Legal
£000
479
248
(30)
(265)
8
440
190
(152)
(149)
22
351
351
–
440
440
–
Other
£000
14
6
–
(20)
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
1,337
343
(45)
(369)
14
1,280
234
(154)
(343)
80
1,097
849
248
1,280
677
603
Dilapidation provisions have been recognised at the present value of the expected obligation. These discounts will unwind to
their undiscounted value over the remaining lives of the leases via a finance charge within the Income Statement.
The average remaining life of the leases as at 31 December 2022 is 1.4 years (2021: 2 years).
The restructuring provision relates to the costs associated with the closure of some non-trading Group entities.
Legal provisions reflect the best estimate of the future cost of responding to US subpoenas relating to litigation and
investigations directed at third parties.
The other provision related to warranty provisions made in respect of certain product sales.
82
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
22. 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
2022
£000
2021
£000
462
462
Number
Number
46,185,874
46,185,874
The allotted, called-up and fully paid share capital of the Company as at 31 December 2022 was 46,185,874 shares (2021:
46,185,874) and the total number of ordinary shares in issue (excluding treasury shares) was 45,436,823 (2021: 45,720,276).
Of the ordinary shares in issue, 34,800 shares (2021: 104,400) are held by the Frontier Smart Technologies Employee
Benefit Trust. The total number of voting rights in the Company was 45,402,023 (2021: 45,615,876).
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
At end of year
Company
2022
Number
2021
Number
465,598
823,643
323,453
148,623
(40,000)
(506,668)
749,051
465,598
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.
The total charge relating to employee share-based payment plans, all of which related to equity-settled share-based
payment transactions, was £1,612,000 (2021: £727,000).
2022
2021
Reconciliation of outstanding options
Number
Weighted
average
exercise price
(pence)
Number
Weighted
average
exercise price
(pence)
At beginning of year
Granted during the year – PSP
Exercised during the year
Lapsed during the year
At end of year
3,301,058
427,000
(109,600)
(253,135)
3,365,323
1.0
1.0
1.0
1.0
1.0
2,854,400
1,505,000
(506,675)
(551,667)
3,301,058
1.0
1.0
1.0
1.0
1.0
During the year ended 31 December 2022, share options were issued under the Performance Share Plan (‘PSP’).
The options outstanding at 31 December 2022 had a weighted average contractual life of 7.8 years (2021: 8.2 years).
Included within the total outstanding options at 31 December 2022 are 368,323 options which are exercisable (2021:
71,658). The weighted average exercise price of exercisable options at the end of the year was 1.0 pence (2021: 1.0 pence).
Options exercised during the year had a weighted average share price at the date of exercise of 393.0 pence (2021: 441.0
pence).
Exercise of an option is subject to continued employment, and normally lapses upon leaving employment.
83
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
22. Called-up share capital (continued)
The fair values of options granted under the PSP in 2022 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 have been incorporated into the measurement by means of actuarial modelling. One vesting
condition attached to options granted in the year is such that 100% of the options vest dependent on the Company achieving
earnings per share targets. For options granted in the year, a risk-free rate of 1.31% and 4.57% and a dividend yield factor of
1.25% and 1.27% has been used for the options issued on 21 March and 27 September 2022 respectively. The share price
on the date the options were granted was 398.0 pence and 393.0 pence on 21 March and 27 September 2022 respectively.
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 2022, options granted to subscribe for ordinary shares of the Company that remain unexercised are as
follows:
Option exercise period Number of shares under option
Date of grant
From
To
Performance
Share Plan
Sep 2017
Sep 2020
Sep 2027
May 2018
May 2021 May 2028
5,000
6,663
Enhanced
Executive
Incentive
Addendum
–
–
May 2018
May 2023 May 2028
–
700,000
Sept 2018
Sep 2021
Sep 2028
Oct 2019
Oct 2022
Oct 2029
Nov 2019
Nov 2022
Nov 2029
Oct 2020
Oct 2023
Oct 2030
Mar 2021
Mar 2024
Mar 2031
Oct 2021
Oct 2024
Oct 2031
46,661
233,330
76,669
425,000
20,000
380,000
–
–
–
–
–
–
Oct 2021
Oct 2026
Oct 2031
–
1,050,000
Mar 2022
Mar 2025
Mar 2032
Sept 2022
Sept 2025
Sept 2032
30,000
392,000
–
–
1,615,323
1,750,000
Exercise
Price
Fair Value
of options
Expected
Life
Volatility
(pence)
(pence)
(years)
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
207.1
224.4
121.0
225.3
177.8
211.7
222.3
284.3
435.8
245.7
382.4
377.6
10
10
10
10
10
10
10
10
10
10
10
10
24%
25%
25%
23%
17%
18%
23%
31%
31%
31%
31%
27%
At 31 December 2021, options granted to subscribe for ordinary shares of the Company that remain unexercised are as
follows:
Option exercise period
Number of shares under option
Date of grant
From
To
Performance
Share Plan
Sep 2017
Sep 2020
Sep 2027
May 2018
May 2021 May 2028
5,000
13,330
Enhanced
Executive
Incentive
Addendum
–
–
May 2018
May 2023 May 2028
–
700,000
Sept 2018
Sep 2021
Sep 2028
Oct 2019
Oct 2022
Oct 2029
Nov 2019
Nov 2022
Nov 2029
Oct 2020
Oct 2023
Oct 2030
Mar 2021
Mar 2024
Mar 2031
Oct 2021
Oct 2024
Oct 2031
53,328
415,000
219,400
440,000
20,000
385,000
–
–
–
–
–
–
Oct 2021
Oct 2026
Oct 2031
–
1,050,000
1,551,058
1,750,000
Exercise
Price
Fair Value
of options
Expected
Life
Volatility
(pence)
(pence)
(years)
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
207.1
224.4
121.0
225.3
177.8
211.7
222.3
284.3
435.8
245.7
10
10
10
10
10
10
10
10
10
10
24%
25%
25%
23%
17%
18%
23%
31%
31%
31%
84
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
23. Borrowings
(a) Term loan
Group
Current bank borrowings
Non-current bank borrowings
Total borrowings
Group
Opening balance
Repayments in the year
Amortisation of loan arrangement fee
Total borrowings
2022
£000
1,200
12,939
14,139
2022
£000
15,323
(1,200)
16
2021
£000
1,200
14,123
15,323
2021
£000
16,507
(1,200)
16
14,139
15,323
Science Group plc, the Company, had no bank borrowings at the start nor end of the year.
During the year ended 31 December 2016, the Group entered into a 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 SONIA plus 2.6% margin. During the
year ended 31 December 2019, the Group increased this existing loan by £4.8 million to £17.5 million on similar terms. The
repayment profile of the loan is £1.2 million per annum over the term with the remaining balance repaid on expiry of the
loan in 2026. Costs directly associated with entering into the loan (including the loan increase), have been offset against the
balance outstanding and are being amortised over the period of the loan.
During the year ended 31 December 2020, the Group drew a further £1.5 million of loan funds from the £17.5 million existing
loan agreement. This was on similar terms and with no change to the loan repayment profile (i.e. the quarterly repayments
remained the same and the loan balance remains payable on 30 September 2026). Costs directly associated with entering
into the additional loan have been offset against the balance outstanding and are being amortised over the period of the
loan.
At 31 December 2022, the amount outstanding on the term loan was £14.2 million.
The reconciliation of bank loans interest expense is shown below.
Group
Interest expense
Interest paid
Amortisation of loan arrangement fee
Interest accrual at the year end
2022
£000
533
(517)
(16)
–
2021
£000
580
(564)
(16)
–
In accordance with an agreed repayment schedule with the bank, bank borrowings are repayable to Lloyds Bank plc as
follows:
Group
Within one year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
2022
£000
1,200
1,200
11,800
–
2021
£000
1,200
1,200
3,600
9,400
14,200
15,400
85
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
23. Borrowings (continued)
(b) Revolving credit facility
In December 2021 Science Group plc signed a Revolving Credit Facility (‘RCF’) with Lloyds Bank plc in order to provide
additional capital resources to enable the execution of the Group’s acquisition strategy. The RCF is for up to £25.0 million,
with an additional £5.0 million accordion option, for a term of four years with a one-year extension. The margin on drawn
sums is 3.3% per annum over the Sterling Overnight Index Average (‘SONIA’) and is 1.1% per annum on undrawn amounts.
Drawn amounts are secured on the Group’s assets by debentures. The RCF is in addition to the Group’s existing term loan.
The RCF has two financial covenants with which the Group needs to comply if the facility is drawn: (i) the Group’s net
leverage, as defined as the net debt divided by the rolling 12 month EBITDA, should not exceed 2.5; and (ii) the Group’s
interest cover, as defined as the rolling 12 month EBITDA divided by the rolling interest payments on all borrowings, should
not be less than 4.0. Reporting is on a 6 monthly basis unless the net leverage exceeds 2.0, in which case reporting moves to
quarterly until net leverage returns to below 2.0 again. For the term of the RCF, the previous covenants for the term loan are
superseded by the covenants of the RCF and will not apply.
The reconciliation of RCF interest expense is shown below.
Group
Interest expense
Interest paid
Amortisation of RCF arrangement fee
Interest accrual at the year end
2022
£000
349
(268)
(81)
–
2021
£000
–
–
–
–
(c) Hedge accounting
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 interest rates on the swaps range from 0.4% to 1.3% which
when combined with the margin on the loan economically fix the finance cost at 3.5%.
The notional amount on the interest rate swaps reduces in line with the repayment of the term loan, so an effective hedge
remains throughout the term of the loan. There are 4 active swaps in place at 31 December 2022, totalling £14.2 million. Of
this total, £2.8 million will mature in September 2025 and the remaining balance of £11.4 million will mature in September
2026.
Hedge effectiveness is determined at inception of the hedge relationship and at every reporting period end through the
assessment of the hedged items and hedging instrument to determine whether there is still an economic relationship
between the two. The critical terms of the interest rate swaps entered into exactly match the terms of the hedged item. As
such the economic relationship and hedge effectiveness are based on the qualitative factors and the use of a hypothetical
derivative where appropriate.
Hedge ineffectiveness may arise where the critical terms of the forecast transaction no longer meet those of the hedging
instrument, however the hedged items and the hedging instrument relationship matches one to one. For example, if the
payment of the loan and the interest are transacted at different times, the hedge will become ineffective however the timing
of the payments are within the control of the Group. All derivative financial instruments used for hedge accounting are
recognised initially at fair value and reported subsequently at fair value in the consolidated statement of financial position.
To the extent the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash
flow hedges are recognised in other comprehensive income and included within the cash flow hedge reserve in equity. Any
ineffectiveness in the hedge relationship is recognised immediately in profit or loss. At the time the hedged item affects
profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or
loss and presented as a reclassification adjustment within other comprehensive income. If a forecast transaction is no longer
expected to occur, any related gain or loss recognised in other comprehensive income is transferred immediately to profit
or loss. If the hedging relationship ceases to meet the effectiveness conditions, hedge accounting is discontinued, and the
related gain or loss is held in the equity reserve until the forecast transaction occurs.
The Group has adopted hedge accounting for the interest rate swaps under IFRS 9 Financial Instruments, and the
gain on change in fair value of the interest rate swaps of £1,287,000 (2021: gain of £763,000) was recognised in other
comprehensive income. The fair value of the swap at 31 December 2022 was an asset of £1,417,000 (2021: £129,000).
86
Annual Report and Financial Statements 2022 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
23. Borrowings (continued)
(c) Hedge accounting (continued)
The effects of the interest rate swaps on the Group’s financial position and performance are as follows:
Interest rate swaps
Carrying amount (non-current assets)
Notional amount as at 31 December
Maturity date
Hedge ratio
Change in the fair of the outstanding hedging instruments since 1 January
Change in the fair of hedged item used to determine hedge effectiveness
Weighted average hedged rate for the year
24. Derivative financial instruments
2022
2021
£1,417,000
£129,000
£14,200,000 £15,400,000
Sept 2026
Sept 2026
1:1
1:1
£1,357,000
£630,000
£1,357,000
£630,000
3.5%
3.5%
The Group’s derivative financial instruments are measured at fair value and are summarised below:
Non-current assets
Interest rate swaps – cash flow hedge
Total non-current derivative financial instruments
Current assets
US Dollar currency exchange instruments – cash flow hedge
Total current derivative financial instruments
The Group’s cashflow hedge reserve relates to the following hedging instruments:
At 1 January 2021
Change in fair value of hedging instrument recognised in other comprehensive
income
Reclassified from other comprehensive income to profit or loss
Net change in fair value of hedging instrument recognised in other comprehensive
income
Deferred tax charge
At 1 January 2022
Change in fair value of hedging instrument recognised in other comprehensive
income
Reclassified from other comprehensive income to profit or loss
Net change in fair value of hedging instrument recognised in other comprehensive
income
Deferred tax charge
At 31 December 2022
Note
23
2022
£000
2021
£000
1,417
1,417
384
384
129
129
–
–
Cash flow hedge reserve
Currency
exchange
instruments
£000
–
–
–
–
–
–
169
43
212
(90)
122
Interest rate
swaps
Total
£000
(538)
£000
(538)
630
133
763
(151)
74
1,357
(70)
1,287
(324)
1,037
630
133
763
(151)
74
1,526
(27)
1,499
(414)
1,159
87
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
24. Derivative financial instruments (continued)
The interest rate swaps are used to mitigate interest rate risk, see Note 23.
The Group uses currency exchange instruments to mitigate foreign exchange rate exposure arising from highly probable
forecast sales in US Dollars.
Hedge effectiveness is determined at inception of the hedge relationship and at every reporting period end through the
assessment of the hedged items and hedging instruments to determine whether there is still an economic relationship
between the two.
The critical terms of the currency exchange instruments exactly match the terms of the hedged item. As such the economic
relationship and hedge effectiveness are based on the qualitative factors and the use of a hypothetical derivative where
appropriate.
Hedge ineffectiveness may arise where the critical terms of the forecast transaction no longer meet those of the hedging
instrument, for example if there was a change in the timing of the forecast sales transactions from what was initially
estimated or if the volume of currency in the hedged item was below expectations leading to over-hedging.
The hedged items and the hedging instrument are denominated in the same currency and as a result the hedging ratio is
always one to one.
All derivative financial instruments used for hedge accounting are recognised initially at fair value and reported subsequently
at fair value in the consolidated statement of financial position.
To the extent the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash
flow hedges are recognised in other comprehensive income and included within the cash flow hedge reserve in equity. Any
ineffectiveness in the hedge relationship is recognised immediately in the income statement.
At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is
reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income.
If a forecast transaction is no longer expected to occur, any related gain or loss recognised in other comprehensive income
is transferred immediately to profit or loss. If the hedging relationship ceases to meet the effectiveness conditions, hedge
accounting is discontinued, and the related gain or loss is held in the equity reserve until the forecast transaction occurs.
The impact of the currency exchange instruments on the Consolidated Balance Sheet as at 31 December 2022 is, as follows:
Date of inception
Carrying amount (current asset)
Amount hedged per month (12 separate instruments, maturing December 2023)
Hedge ratio
Strike price
Change in the fair value of the currency exchange instruments since inception
Change in the fair value of the hedged item used to determine hedge effectiveness
22/09/22
£384,000
$1,250,000
1:1
US$1.2 per £1 Sterling
£169,000
£169,000
88
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
25. Leases
(a) Leases as lessee (IFRS 16)
The Group leases office facilities for periods between 2 and 10 years, based on the non-cancellable period.
At 31 December 2022, the leases had remaining periods of 1 to 5 years.
Right-of-use assets
Information about leases for which the Group is a lessee is presented below.
Group
Balance at 1 January
Additions
Disposals
Depreciation charge for the year
Effect of movements in exchange rates
Balance 31 December
Lease liabilities
Information about leases for which the Group is a lessee is presented below.
Group
Balance at 1 January
Additions
Repayments in year
Lease cancellations
Effect of movements in exchange rates
Balance 31 December
Lease liabilities are payable as follows:
2022
£000
989
1,702
(153)
(827)
112
1,823
2022
£000
1,553
1,691
(1,135)
(369)
142
1,882
31 December 2022
Lease payments
Finance charges
Net present values
Within 1 year
£000
1-2 years
£000
2-3 Years
£000
3-4 Years
£000
4-5 Years
£000
781
(61)
720
413
(38)
375
351
(24)
327
353
(11)
342
119
(1)
118
31 December 2021
Within 1 year
Lease payments
Finance charges
Net present values
£000
1,193
(40)
1,153
1-2 years
£000
2-3 Years
3-4 Years
4-5 Years
£000
£000
£000
382
(20)
362
38
–
38
–
–
–
–
–
–
2021
£000
1,225
583
–
(794)
(25)
989
2021
£000
2,285
583
(1,297)
–
(18)
1,553
Total
£000
2,017
(135)
1,882
Total
£000
1,613
(60)
1,553
(b) Leases as lessor
The Group leases out some of the Harston site to third parties on leases which normally have a termination notice period of
3 to 6 months and typically for a 36-month term.
The leases are classified as operating leases from a lessor perspective because they do not transfer substantially all the risk
and rewards to the ownership of the assets. Note 15 sets out information about the Harston leases.
Refer to Note 15 for rental income recognised by the Group during 2022.
89
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
25. Leases (continued)
(b) Leases as lessor (continued)
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received
after the reporting date.
Operating leases under IFRS 16
Within one year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Total
26. Contingent liabilities
2022
£000
2021
£000
742
608
417
206
97
569
520
365
226
28
2,070
1,708
At 31 December 2022, there were £nil contingent liabilities (2021: £nil).
27. 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.
During 2022, the Group had an associate investment shareholding in TP Group plc (‘TPG’). On 16 December 2021, the
Group made available a standby revolving credit facility to TPG. The facility is for up to £5.0 million for the period from
the date of signing until 30 September 2023. The facility, which is unsecured, includes an arrangement fee of 3%, interest
rate of 1% per month on sums drawn and 0.4% per month on undrawn amounts. The Group received interest income
of £284,000 from TPG in 2022 (2021: nil). The facility was utilised for short periods in 2022 to provide liquidity to TPG,
however was undrawn at 31 December 2022. TPG was also charged £181,000 for services during 2022 (2021: nil).
The Company held intercompany balances, and charged management fees as follows:
Company
SG Bidco Ltd
Frontier Smart Technologies Limited
Oakland Innovations Ltd
Leatherhead Research Limited
Quadro Epsom Limited
OTM Consulting Ltd
Sagentia Limited
Sagentia Inc.
Quadro Harston Limited
Quadro Epsom Limited
Technology Sciences Group Limited
Technology Sciences Group Consulting Limited
Technology Sciences Group Inc.
2022
2021
Loans due
(to)/from
Sale of
goods and
services
Loans due
(to)/from
Sale of
goods and
services
–
1,404
611
–
20
2,035
(316)
–
821
(179)
256
191
1,089
–
7,279
1,404
1,967
1,324
–
11,974
(252)
(19,827)
(1,774)
(10,412)
–
–
–
(124)
(2,650)
(1,463)
(153)
280
–
–
645
165
(172)
(438)
(1,513)
–
(4,791)
(1,498)
–
438
38
341
–
817
–
(1,142)
(192)
3
–
–
558
128
(24,380)
(837)
(19,076)
(645)
90
Annual Report and Financial Statements 2022
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
27. Related party transactions (continued)
Sagentia Limited (a subsidiary of Science Group plc) entered into an agreement with Cambridge Medical Technologies
Limited (‘CMT’) on 26 September 2014 to lease office space to CMT. The lease has subsequently been transferred
to Quadro Harston Limited (a subsidiary of Science Group plc). One of the Directors of Science Group plc, Michael
Lacey-Solymar, is also a Director of CMT and Director and Shareholder of CMT’s ultimate parent company. During the year
ended 31 December 2022, £12,300 (2021: £11,700) was charged to CMT in relation to this agreement.
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 Science Group plc Board and the Operating Board of
Science Group.
Aggregate remuneration
Year ended 31 December
Short-term employee benefits (including social security costs)
Pension costs
Share-based payment transactions
Termination benefits
28. Critical accounting estimates and judgements
2022
£000
1,669
40
445
–
2021
£000
2,035
43
205
89
2,154
2,372
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 accounting estimate
Property residual values
Residual values have been estimated for the Epsom and Harston properties at £6.5 million and £12.0 million respectively
based on estimates of the amounts the Group would receive currently for the properties if they were already of an age and
in the condition expected at the end of their useful lives. The residual values are reviewed annually to ensure that they do not
exceed the estimated market values of the properties. The most recent market valuations of £7.8 million and £16.3 million
for Epsom and Harston respectively provide sufficient headroom over their residual values to hold up to a robust level of
sensitivity stress testing. The market value would need to decline by £1.3 million and £4.3 million for the Epsom and Harston
properties respectively for the residual values to exceed the market values of these properties.
Fair values
The fair values of identifiable assets acquired, and liabilities assumed are determined as part of the purchase price allocation
of the acquisition. The management determine the fair values with the assistance of external independent valuation experts.
Further information about the techniques and assumptions made in measuring fair values is included in Note 3.2.
(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 Business 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.
Further information about the space let out to third party tenants is included in Note 15.
91
Annual Report and Financial Statements 2022OVERVIEWREPORT OF THE DIRECTORSSTRATEGIC REPORTFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
28. Critical accounting estimates and judgements (continued)
(b) Significant accounting judgement (continued)
Recognition of deferred tax assets
The extent to which deferred tax assets are recognised is based on an assessment of the probability that future taxable
income will be available against which deductible temporary differences and tax losses can be utilised.
The Group recognises deferred tax assets in respect of carried forward unused tax losses to the extent that the assets are
deemed recoverable from future taxable profits. The deferred tax asset value is based upon an estimate of the next 2 years of
respective taxable profits (or a longer period where the use of losses is less restrictive), this being the period over which the
Group has reasonable confidence in estimating future taxable profits that meet the evidence requirement for deferred tax
asset recognition purposes.
29. Post balance sheet events
Since the year end the Group has completed the acquisition of TP Group plc, which adds significant scale to the Group and
provides a strategic entry into the defence sector.
The acquisition of TP Group plc commenced with an initial holding of 10.2% on 9 August 2021. The Group increased its
shareholding with further share acquisitions across 2021 and 2022. In October 2022, the Group made an offer to acquire the
remaining shares in TP Group plc through a court-approved Scheme of Arrangement. This became effective on 26 January
2023. Including the payment in January 2023 and excluding advisory fees, the total cost of acquiring shares in TP Group plc
was £25.4 million.
The acquisition was progressive and occurred over 18 months and judgement has been exercised in order to determine the
following key dates:
(i)
the date at which TP Group plc became an associate of the Group. This was determined by reference to the ability to
exercise significant influence over TP Group plc; and
(ii)
the date at which the Group obtained control over TP Group plc. This was determined by reference to the holding of
voting shares exceeding 50%.
The fair value of the assets and liabilities in relation to this acquisition have not been presented as the work is ongoing to
perform the valuations, in particular:
(i)
the factors that make up goodwill to be recognised;
(ii)
the acquisition date fair value of the equity interest immediately before the acquisition date and any gain or loss
recognised as a result of remeasuring to fair value the equity interest held before the acquisition; and
(iii) the fair values of the assets acquired and the liabilities assumed.
92
Annual Report and Financial Statements 2022 NOTES
93
Annual Report and Financial Statements 2022
94
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