INTERIM RESULTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2024

Summary

• Record H1 adjusted* operating profit of £11.0m (H1 2023: £10.4m)
• Adjusted* basic EPS increase to 18.1 pence (H1 2023: 16.6 pence)
• Strong balance sheet with Group cash of £38.8m and net funds of £26.4m (H1 2023: £29.2m and £15.7m respectively), benefitting from good cash conversion
• CMS2 turnaround delivering significant contribution
• Increased 2024 share buyback programme of up to £5.0m

* Alternative performance measures are provided in order to enhance the shareholders’ ability to evaluate and analyse the underlying financial performance of the Group. Refer to Note 1 for detail and explanation of the measures used.

Interim Results 2024

Science Group plc is an international science & technology consultancy and systems organisation, supported by a robust balance sheet including significant cash resources and freehold property assets.

For the six months ended 30 June 2024, Group Adjusted Operating Profit increased to a record first half of £11.0 million (H1 2023: £10.4 million) on revenue of £53.7 million (H1 2023: £56.1 million). Adjusted basic earnings per share increased to 18.1 pence (H1 2023: 16.6 pence) and cash generated from operations in the period was £10.7 million (H1 2023: £7.2 million). (Alternative performance measures provide clarity on the Group’s underlying trading performance. Refer to Note 1 for detail and explanation of the measures used.)

The highlight of the period was the progress made at CMS2 which has been transformed since Science Group first invested in TP Group in mid-2021 and is now reporting growth in revenue and a substantial increase in profitability. With its leading market position and forward visibility in a strategically important sector of the Defence market, CMS2 is developing into a very attractive asset.

The Group retains a robust balance sheet with Group cash (excluding client funds) at 30 June 2024 of £38.8 million (30 June 2023: £29.2 million) and net funds of £26.4 million (30 June 2023: £15.7 million), prior to the recent dividend payment in July. In addition to the Term Debt of £12.4 million, which expires in September 2026, the Group has a £25 million Revolving Credit Facility which remains undrawn.

During the period, 74,473 shares were purchased for treasury at an average price of 413 pence per share. Excluding treasury shares, at 30 June 2024, the Company had 45.7 million shares in issue (30 June 2023: 45.2 million) and held 0.5 million shares in treasury (30 June 2023: 1.0 million). Total voting rights at 30 June 2024 were 45.7 million. With its strong balance sheet, significant cash resources and operating cashflow, the Board has decided to increase the capital allocated to the share buyback programme in 2024, up to £5.0 million.

Consultancy Division

Science Group Consultancy Division is an international science and technology services business providing advisory, product development and regulatory services to the Consumer, Defence & Aerospace, Industrial and Medical sectors. The Consultancy Division strategy is differentiated through deep technical and scientific expertise combined with specialist industry knowledge.

Reflecting a strong prior year comparator and the widely reported slowdown across the consultancy market over the past year, first half revenue was £36.5 million (H1 2023: £42.3 million). However, with its high-end market positioning, the Division’s strong margins have been maintained and Adjusted Operating Profit was £8.8 million in line with the second half of 2023 (H1 2023: £11.5 million; H2 2023: £8.9 million). The Board anticipates that performance in H2 2024 will be broadly in line with the first half of the year.

The Consultancy Division benefits from sector and practice diversity which mitigates short-term market variability. The Medical and Industrial sectors reported a revenue decrease compared to prior year as a result of large projects concluding in 2023. However, while the Industrial sector remains subdued, it is encouraging to see that in H1 2024 the Medical sector delivered sequential growth relative to H2 2023.  The Defence sector was anticipated to decline due to the planned management action to reduce legacy low-margin activities although this was accentuated by a slowdown in discretionary spend in the run-up to the UK election. The Consumer sector was flat on prior year, benefitting from the sustainability agenda particularly in the Food and Beverage sub-sector.

The operating synergies between the sector practices across the Consultancy Division continue to develop and the marketing teams are now being combined into a single function to deliver greater impact, resilience and scale benefits. In parallel, the operational support infrastructure is progressively being integrated through a programme of upgrading IT systems onto a common platform across the Division. Supported by the IT investment, the finance function is also now being consolidated and an integrated transaction processing team is being established.

Systems Businesses

The Group has two Systems businesses, both of which have strong positions in their specialist markets. These businesses operate independently but are supported by the Group’s infrastructure and the Consultancy Division’s science, technology and engineering expertise.

Critical Maritime Systems & Support (‘CMS2’) designs, develops and manufactures submarine atmosphere management systems for the Defence sector, where the business has a leading position outside the USA.  The geo-political events in recent years have reinforced the strategic imperative of submarines requiring extended operational deployments, capability for which CMS2’s complex systems are specifically designed.

Acquired as part of TP Group, the business has benefitted from significant management focus since Science Group first invested in mid-2021. These actions, including exiting non-core activities; renegotiating onerous contracts; installing a new management team; and increasing prices for systems and services, have transformed the business while simultaneously improving quality, security, health & safety and product/supplier assurance systems. In parallel, CMS2 has also been working with Science Group’s Consultancy Division, increasing investment in innovation for the next generation of CMS2 products with 12 patents being filed in 2024 to date.

The results of these endeavours are now coming to fruition. CMS2 revenue increased to £10.9 million for the six months ended 30 June 2024 (5 months, H1 2023: £7.9 million) with a substantial increase in Adjusted Operating Profit to £3.2 million (5 months, H1 2023: £0.8 million). Solid financial and operational foundations are essential for CMS2 customers deploying strategically important systems with a long life-cycle. While the business is characterised by some revenue recognition timing variability, CMS2 has good visibility of potential demand through identified UK and international boat programmes, often where CMS2 is the incumbent supplier.

Consistent with the long life-cycle of deployed systems, CMS2 is also investing in its service and support model and is rolling out a programme of support contracts across the installed client base with the first international client now signed. In parallel, a 2 year extension to provide support to the UK fleet was also recently contracted.

Frontier is a leading supplier of radio and audio semiconductors and modules. In line with the wider consumer electronics sector, the business benefitted during the pandemic and suffered thereafter due to the semiconductor supply chain anomaly and subsequent economic downturn. As inventory levels normalise, the anticipated revenue recovery is now apparent with Frontier reporting revenue of £5.9 million for the six months ended 30 June 2024 (H1 2023: £5.4 million; H2 2023: £4.5 million), translating into operating break even for the period while continuing to expense all R&D investment.

Frontier investment in product development has resulted in the launch of a new connected-audio product, Auria, to open up incremental market opportunities. In its traditional radio market, where the migration to DAB/DAB+ is continuing, Frontier retains market leadership and is believed to be the first manufacturer to design the new German national warning system functionality into its products. In parallel, Frontier’s legacy internet content services are being outsourced to a third-party, consistent with the model used for music streaming services. Upon completion, Frontier UK will be entirely focused on the design, development and supply of semiconductor solutions with the Asian operations providing sales and support. 

Summary and Outlook

The first half of 2024 has continued the Group’s consistent track record, delivering record first half Adjusted Operating Profit, with strong cash conversion, despite ongoing economic and political uncertainty. This solid performance provides a good platform for the remainder of the year.

The operating improvements and financial performance delivered by CMS2 are particularly noteworthy. At the same time, the Consultancy Division has demonstrated resilience in a more unpredictable market environment and the anticipated Frontier recovery is making progress.

With a robust balance sheet, including significant cash resources and undrawn debt facilities, combined with ongoing operating cash generation, Science Group continues to explore corporate opportunities while also increasing the capital allocated to the share buy-back programme.