Source - RNS
RNS Number : 4618I
Exova Group PLC
31 August 2016
 

2016 HALF YEAR RESULTS ANNOUNCEMENT

31 August 2016

 

Exova Group plc ("Exova"), a leading international provider of technically demanding testing and advisory services, announces its results for the period ended 30 June 2016.

 

Strong revenue growth drives solid first half
 

·      Revenue up 9.5% at constant currency; 13.0% at actual rates

1.7% organic1 growth at constant currency2 (8.3% excluding Oil & Gas and Industrials)

7.8% growth from M&A activity

·      Strong performance in Product and Certification, Aerospace, Health Sciences and the Middle East

·      Oil & Gas and Industrials continued to weaken and forward visibility remains poor

·      Sale of Food, Water and Pharmaceuticals business in the UK and Ireland completed

·      Two acquisitions completed, Admaterials in Singapore and Jones Environmental  Forensics in the UK, with encouraging pipeline

·      Interim dividend of 1.05p per share, +5%
 

 

 

 

Adjusted results3

 

 

2016

£m

 

 

2015

£m

 

 

Reported growth

 

Organic growth at constant currency

 

Growth from acquisitions net of disposals at constant currency

Revenue

160.9

142.4

13.0%

1.7%

7.8%

EBITA

23.4

21.4

9.3%

 

 

Profit before taxation

20.1

18.3

9.8%

 

 

EBITA margin

14.6%

15.0%

(40)bps

 

 

Basic earnings per share

5.8p

5.4p

7.4%

 

 

Interim dividend per share

1.05p

1.0p

5%

 

 

 

 

Statutory results

2016

£m

2015

£m

Reported growth

 

Operating profit

18.6

13.1

42%

Profit before taxation

15.3

10.0

53%

Basic earnings per share

4.2p

2.8p

50%

Interim dividend per share

1.05p

1.0p

5%

 

Notes:

1)   Organic revenue growth at constant currency represents revenue growth at constant currency for each year excluding the growth attributable to acquisitions until the acquisition has been owned for a 12 month period and excluding the revenue attributable to disposals in the year of disposal and the preceding year. As such, the revenue associated with our UK & Ireland Food, Water & Pharmaceutical disposal are now reflected within inorganic growth.

2)   Constant currency growth figures are provided in order to remove the impact of currency translation. We calculate growth at constant rates by translating the current and prior period revenue at the same exchange rates.

3)   Adjusted results are operating profit from continuing operations before separately disclosed items, interest and taxation.

 

Ian El-Mokadem, Chief Executive Officer, commented:

 

"This is another satisfactory set of results in line with our expectations, demonstrating clear progress towards our medium term objectives. Overall growth was very strong, driven by acquisitions and broad based organic growth in all areas of the portfolio, with the exception of our Oil & Gas and Industrials cluster, which we now expect to weaken further in the second half.

 

The portfolio has been strengthened by the recent acquisitions and disposal, and with further cost actions taken to mitigate the poor trading conditions in oil & gas, we are on track to achieve market expectations."

 

Portfolio realigned

 

In keeping with our stated objectives to optimize the portfolio to take advantage of structural growth in individual clusters, we acquired Admaterials in Singapore, a specialist in construction materials testing and certification.  Additionally, on 1 July, we acquired Jones Environmental Forensics in the UK, a business which provides testing and technically demanding analysis for contaminated water and soil. Furthermore, on the same day, we also completed the disposal of ten laboratories in the UK and Ireland engaged in Food, Water and Pharmaceutical testing.

 

Following the completion of these transactions we intend to realign our clusters and organisational structure to reflect the shape of the Group more appropriately going forward. Full details of these changes will be announced at our Capital Markets Day scheduled for 21 September.

 

Outlook

 

The Board continues to expect modest organic revenue growth at constant currency in 2016, driven by good overall growth in most clusters, but with a continuing deterioration in oil and gas moderating the rate of growth for the Group as a whole in the second half of the year. Our acquisitions programme should however continue to contribute significantly to overall revenue growth. Given our further cost actions, we also continue to expect Group margins to be broadly in line with market expectations.

As outlined at the start of the year, our medium term revenue expectation remains mid-single digit organic growth and additional continued expansion through acquisitions with gradual margin improvement.

 

Contacts

 

For further information please contact:

 

Peter Ogden, Powerscourt Group

Tel. Direct   +44 (0)20 7549 0997 / +44 (0)7793 858 211

[email protected]

 

Sophie Moate, Powerscourt Group

Tel. Direct   +44 (0)20 7549 0994 / +44 (0)7761 974 589

[email protected]

 

Analyst briefing and conference call

 

There will be an analyst briefing and conference call today at 9.30am GMT, held at Goldman Sachs, 10th Floor, Peterborough Court, 133 Fleet Street, London, EC4A 2BB. If you would like to attend the meeting, please contact Powerscourt Group at the above mentioned e-mail address. A copy of the presentation is available on the website.

 

Corporate website: www.exova.com

 

Exova

 

Exova is one of the world's leading laboratory-based testing groups, trusted by organisations to test and advise on the safety, quality and performance of their products and operations. Headquartered in Edinburgh, UK, Exova operates 138 laboratories and offices in 33 countries and employs more than 4,300 people throughout Europe, the Americas, the Middle East, Asia/Asia Pacific and Africa.

 

Exova's capabilities help to extend asset life, bring predictability to applications, and shorten the time to market for customers' products, processes and materials. With over 90 years' experience, Exova specialises in testing across a number of key sectors from health sciences to aerospace, transportation, oil and gas and construction.

 

HALF YEAR REPORT 2016

 

BUSINESS REVIEW

 

The principal activities of the Group are specialist testing and advisory services and the key markets served are Aerospace; Oil & Gas and Industrials; Product and Certification; Health Sciences and Middle East.

 

Exova operates primarily in the Testing segment of the Testing, Inspection and Certification ("TIC") sector. It has a growing Certification business, as well as providing Inspection services in a number of niche markets and geographies.

 

The business comprises 138 permanent facilities in 33 countries and employs more than 4,300 people.

 

 

Overview of performance

 

 

 

 

2016

£m

 

2015
£m

 

Growth at reported exchange rates

Organic1 growth

 at constant2 exchange rates

 

Revenue

160.9

142.4

13.0%

1.7%

Adjusted EBITA3

23.4

21.4

9.3%

 

EBITA margin

14.6%

15.0%

 

 

 

 

 

 

 

Net finance costs

(3.3)

(3.1)

 

 

Income tax expense

(3.5)

(2.3)

 

 

 

 

 

 

 

Basic earnings per share

4.2p

2.8p

 

 

Basic adjusted earnings per share3

5.8p

5.4p

 

 

 

 

 

 

 

Interim dividend per share

1.05p

1.0p

 

 

Cash conversion4

 

66%

 

67%

 

 

 

Notes:

 

 

 

 

1)     Organic revenue growth at constant currency represents revenue growth at constant currency for each year excluding the growth attributable to acquisitions until the acquisition has been owned for a 12 month period and excluding the revenue attributable to disposals in the year of disposal and the preceding year.  As such, the revenue associated with our UK & Ireland Food, Water & Pharmaceutical disposal are now reflected within inorganic growth.

2)     Constant currency growth figures are provided in order to remove the impact of currency translation. We calculate growth at constant rates by translating the current and prior period revenue at the same exchange rates.

3)     Adjusted items are stated before separately disclosed items, interest and taxation.

4)     The cash conversion ratio is calculated by dividing free cash flow by adjusted EBITDA.  Free cash flow is defined as adjusted EBITDA less movement in net working capital (excluding the effect of the IPO related cost accrual), less capital expenditure net of disposals.

Revenue

 

Six months ended 30 June

2016

£m

 

Growth

 

 

2015 reported

 

Constant currency

 

142.4

 

Organic

2.3

1.7%

Acquisitions

11.8

8.3%

Disposals

(0.5)

(0.5%)

Growth at constant currency

156.0

9.5%

Currency effect

               4.9

3.5%

 

2016 reported

 

160.9

 

13.0%

 

 

Revenue for the six months ended 30 June 2016 was £160.9m which represented organic growth at constant currency of 1.7%.

 

Acquisitions contributed 8.3% of growth, partly offset by the UK&I Food, Water and Pharmaceutical business disposal which resulted in a reduction of 0.5%. The Group reports in sterling which weakened during the course of the year over the currencies in most of the territories in which the Group operates.  This resulted in a positive translational effect of 3.5%.


Adjusted EBITA margin

 

Adjusted EBITA margin decreased by 40bps from 15.0% to 14.6%.  This reflects the continuing challenges in Oil & Gas and Industrials which negatively affected margins plus the carryover impact of growth investments made in 2015.

 

Separately disclosed items

 

30 June

2016

£m

30 June

2015

£m

 

Amortisation of intangible assets

1.8

4.8

Restructuring costs

2.3

1.4

Acquisition and integration costs

 

0.7

 

2.1

 

Total

4.8

8.3

 

Amortisation of intangible assets

 

Amortisation in the six months to 30 June 2016 was £1.8m, a decrease of £3.0m from £4.8m in 2015. This decrease was due to customer relationships acquired from Bodycote now fully amortised partly offset by customer relationship amortisation relating to acquisitions made over the last few years.

 

Restructuring costs

 

We incurred £2.3m of restructuring costs for the six months to 30 June 2016, compared to £1.4m for the same period in 2015. This represents mainly staff redundancy costs relating to rationalisation and restructuring of certain laboratories. It also includes £0.8m for professional fees and staff redundancy costs incurred in relation to the disposal of the Food, Water and Pharmaceutical business in the UK and Ireland.

Restructuring costs in 2015 mainly related to management actions to adapt the business to the changes in the oil & gas market.

 

Acquisition and integration costs

 

Acquisition and integration costs include costs incurred in relation to Admaterials Technologies Private Limited, Jones Environmental Forensics Limited, integration costs for businesses acquired towards the end of 2015 and on-going expenses to support the pipeline.
Contingent consideration in relation to the acquisition of Metallurgical Services Private Limited was reversed in the current year as the target was not met.

 

 

Net finance costs

 

 

30 June

2016

30 June

2015

£m

 

£m

 

Net cash interest payable

 

 

Bank loans

2.7

2.5

Other loans and charges

0.1

0.3

Interest income on short-term deposits

(0.1)

-

 

2.7

2.8

Non-cash costs

 

 

Amortisation of debt issue costs

0.3

0.3

Pension interest

 

0.3

 

-

 

 

0.6

0.3

Net finance costs

3.3

3.1


Net cash interest payable for the period was £2.7m compared to £2.8m for the same period in 2015. The increase in pension interest reflects the retirement benefit obligation assumed with the 2015 BM TRADA Group Limited acquisition.

 

Earnings per share ("EPS")

 

Basic earnings per share for the six months ended 30 June 2016 was 4.2p (2015: 2.8p).

Basic adjusted earnings per share for the six months ended 30 June 2016 was 5.8p (2015: 5.4p). This measure calculates EPS before separately disclosed items.

 

Dividend

The Board is recommending an interim dividend of 1.05p per share (2015: 1.0p per share) to be paid on 9 November 2016 to shareholders on the register at the close of business on 28 October 2016.

Acquisitions

 

On 15 February 2016, the Group acquired 70% of the share capital in Admaterials Technologies Private Limited (Admaterials) for a cash consideration of £5.3m. The consideration to acquire Admaterials includes a put and call option to purchase the remaining shareholding three years after the acquisition based on the same earnings multiple as the original offer. This Singapore based business provides testing in the construction sector, as well as chemical, environmental and mechanical testing and certification services. Founded in 2008, Admaterials is one of the leading construction testing businesses in Singapore, as well as providing chemical, environmental and mechanical testing to a range of customers in the private and government sectors.  The business has annual revenues in the region of £3.5m and a team of more than 70 specialists.

 

On 1 July 2016, the Group acquired 100% of the share capital of Jones Environmental Forensics Limited (Jones) for a cash consideration of £13.9m. A further payment £1.0m was retained and an amount of up to £1.6m is contingent upon future profitability in the year following acquisition. The purchase consideration is subject to further purchase price adjustments. Jones is a North Wales-based independent environmental laboratory business and the UK's market leader in contaminated land analysis and a specialist in environmental forensics, with an excellent reputation for both quality and service. Jones has built a strong reputation as the laboratory of choice for contaminated soil and water analysis, primarily selling its services to leading global environmental consultants, with the ultimate end customers covering a variety of market segments, many in which Exova has an existing presence. The business which has a team of over 150 specialists achieved revenues of around £8m in 2015.

 

Disposal

 

The sale of our Food, Water and Pharmaceutical business in the UK and Ireland to Eurofins Scientific, announced on 19 May 2016, completed on 1 July 2016, for a cash consideration of £17.9m which is net of certain working capital balances retained and liabilities transferred (gross consideration of £20.0m). The consideration is subject to a further selling price adjustment. This sale allows us to dedicate significantly more financial and management resource to growing in sectors where we can build on our market leading positions in technically demanding services such as fire, aerospace, industrials and infrastructure related testing.

 

External net debt (excluding debt issue costs)

 

30 June

2016

£m

 

31 December

2015

£m

 

Term loans

182.3

169.7

Revolving credit facility

12.0

12.0

Finance leases

 

0.4

 

0.4

 

Gross debt

194.7

182.1

Cash and cash equivalents

 

(34.3)

 

(29.1)

 

Net debt

160.4

153.0

 

 

Net debt has increased from £153.0m at 31 December 2015 to £160.4m at 30 June 2016 due to the pound weakening against the currencies the term loans are denominated in.

 

At 30 June 2016, our term loans comprised £182.3m of non-amortising borrowings denominated in sterling, euro, Canadian dollars, US dollars and Swedish krona. The amounts drawn down on the revolving credit facility are denominated in sterling. In addition, a £78.0m revolving credit facility was undrawn at 30 June 2016. There are no repayments scheduled on our term loans until 2019.

 

Based on the definition in the bank covenant, net debt to Adjusted EBITDA ratio is 2.3x (30 June 2015: 2.5x).

 

UK withdrawal from the EU

 

In the 2015 Annual Report and Accounts, we highlighted the potential risks to the Group of the UK withdrawal from the EU. The Group provides testing services to a range of clients across Europe from a broad network of laboratories in both the UK and many countries in Continental Europe.

 

Many of the standards and schemes under which we operate are international or client specific and we anticipate little or no impact in these areas. We will monitor the impact on testing regimes and certification programmes and will engage with the relevant representative bodies and working groups as required.

 

We believe that the UK's withdrawal from the European Union is unlikely to have a material adverse impact on the future growth opportunities of the Group.

 

Presentation of results

 

Constant currency growth figures are provided in order to remove the impact of currency translation. We calculate growth at constant rates by translating the current and prior period revenue at the same exchange rates.

 

Organic growth at constant currency represents revenue growth at constant currency excluding the growth attributable to acquisitions until the acquisition has been owned for a 12 month period and excluding the revenue attributable to disposals in the year of disposal and the preceding year.

 

Adjusted results are stated before separately disclosed items, interest and taxation.

 

The Group presents, as separately disclosed items on the face of the income statement, those items of income and expense which, because of their nature, merit separate presentation to allow users to understand better the elements of financial performance in the period to facilitate a comparison with prior periods and a better assessment of trends in financial performance.

 

Foreign exchange

 

Exchange rates for the most significant currencies used by the Group during the period were:

 

 

 

 

Average rate

30 June 2016

Closing rate

30 June 2016

 

Average rate

30 June 2015

Closing rate

30 June 2015

Euro

 

 

1.293

1.234

1.367

1.407

US dollar

 

 

1.432

1.370

1.527

1.574

Canadian dollar

 

 

1.918

1.782

1.883

1.943

Swedish krona

 

 

12.047

11.661

12.803

12.980

UAE dirham

 

 

5.259

5.034

5.609

5.782

Qatari riyal

 

 

5.229

4.991

5.566

5.736

 

 

OPERATING PERFORMANCE

 

Revenue

 

Six months ended 30 June

 

2016

£m

 

 

2015
£m

 

Growth at reported exchange rates

 

Organic growth

 at constant exchange rates

 

Europe

87.1

 

74.5

16.9%

1.5%

Americas

49.6

 

47.8

3.9%

0.2%

Rest of World

24.2

 

20.1

20.0%

5.8%

Group

160.9

 

142.4

13.0%

1.7%

 

Six months ended 30 June

2016

£m

 

 

2015  £m
 

Growth at reported exchange rates

Organic growth

 at constant exchange rates

Aerospace

25.5

 

23.0

11.0%

4.2%

Oil & Gas and Industrials

32.9

 

36.3

(9.4)%

(16.1)%

Product and Certification

55.9

 

41.3

35.4%

9.6%

Health Sciences

29.4

 

27.9

5.2%

4.2%

Middle East

17.2

 

13.9

24.0%

16.3%

Group

160.9

 

142.4

13.0%

1.7%

 

Adjusted EBITA

 

Six months ended 30 June

2016

£m

Margin

2015

£m

Margin

Europe

12.1

13.9%

10.8

14.5%

Americas

8.2

16.5%

8.5

17.8%

Rest of World

3.1

12.9%

2.1

10.4%

Group

23.4

14.6%

21.4

15.0%

  

Regional Performance

 

Europe
 

 

Six months ended 30 June

 

2016

£m

 

2015

£m

Growth at reported exchange rates

Organic growth at constant exchange rates

Revenue

87.1

74.5

16.9%

1.5%

Adjusted EBITA

12.1

10.8

12.0%

 

Margin

13.9%

 14.5%

(60) bps

 


Europe saw modest organic growth of 1.5%, with strong performances in Aerospace, Product and Certification and Health Sciences helping to absorb the continuing challenges in Oil & Gas and Industrials. We saw good organic growth across the Aerospace sector driven by more focused account management and growth in our Top 20 accounts. In Product and Certification, we delivered strong growth in calibration and continued to experience very strong growth in fire testing and the consulting business, with regulation and standards supporting additional revenue development. In Health Sciences, we completed the sale of our UK and Ireland Food, Water and Pharmaceutical businesses on 1 July. Growth in our environmental business was boosted by a modest performance in stack testing. Our recently announced acquisition of Jones Environmental Forensics Limited, the UK's leading environmental contaminated land laboratory, gives us a national presence and a leading positon in this sector. In Oil & Gas and Industrials, as expected, the continued low oil price significantly reduced project spend and therefore testing volumes.  We have seen some partial offset through industrials volumes for higher end testing.

 

The decline in margin reflects the continuing challenges in Oil & Gas and Industrials, with more intense competition and client cost base reductions putting pressure on prices.  This was partially offset by Aerospace, where consolidation of our European creep and stress rupture testing services drove margin improvement.

 

Americas

 

 

Six months ended 30 June

 

2016

 £m

 

2015

   £m

Growth at reported exchange rates

Organic growth at constant exchange rates

Revenue

49.6

47.8

3.9%

0.2%

Adjusted EBITA

8.2

8.5

(3.5%)

 

Margin

16.5%

17.8%

(130) bps

 


Organic revenues in the Americas were marginally up, driven by strong performances in the Aerospace, Transportation and Health Sciences clusters.  Aerospace delivered solid growth, with investments in CMC fatigue testing and capability to support testing associated with Additive Layer Manufacturing processes. In transportation we delivered very strong growth overall, fuelled by performance at our Troy laboratory; a major structural fatigue testing project; and high test volumes in our engine-testing facility in Toluca, Mexico.  Health Sciences had a strong first half with good growth in all businesses, particularly food. In Oil & Gas and Industrials, we have continued to experience strong headwinds leading to reductions in client volumes and pricing pressures. This is driven by the depressed oil price, together with some slow-down in the steel industry as a result of oversupply through cheaper foreign imports.

The margin decline was driven by ongoing challenges in Western Canada and Houston in the Oil & Gas and Industrials cluster, but we are continuing to take a number of restructuring actions to mitigate the impact.

Rest of World
 

 

Six months ended 30 June

 

2016

  £m

 

2015

£m

Growth at reported exchange rates

Organic growth at constant exchange rates

Revenue

24.2

20.1

20.0%

5.8%

Adjusted EBITA

3.1

2.1

47.6%

 

Margin

12.9%

10.4%

250 bps

 


The Rest of the World delivered strong organic growth of 5.8%. The Middle East cluster saw very strong growth, as a result of ongoing infrastructure investment in rail and road projects in Saudi Arabia and Qatar, together with growth in metallurgy testing. We acquired a civils testing business in Singapore in February of this year and integration is on track with performance in line with expectation. Our fire consulting business has seen a change in mix to more conventionally-sized projects, but the pipeline remains promising. In Australia, fire testing has seen some very positive development, driven by changing building codes and regulation. The Asian Oil & Gas and Industrials business has seen reduced project activity as a result of strong market headwinds.

 

Notwithstanding the challenges in our two Oil & Gas and Industrials laboratories, we have seen strong margin improvement in the region, driven by a mix of good growth coupled with disciplined cost control.

 

Outlook

 

The Board continues to expect modest organic revenue growth at constant currency in 2016, driven by good overall growth in most clusters, but with a continuing deterioration in oil and gas moderating the rate of growth for the Group as a whole in the second half of the year. Our acquisitions programme should however continue to contribute significantly to overall revenue growth. Given our further cost actions, we also continue to expect Group margins to be broadly in line with market expectations.

As outlined at the start of the year, our medium term revenue expectation remains mid-single digit organic growth and additional continued expansion through acquisitions with gradual margin improvement.

 

PRINCIPAL RISKS & UNCERTAINTIES

 

The 2015 Annual Report & Accounts set out the principal risks and uncertainties faced by the business and detail the process in place for managing these risks.  The Report and Accounts are available from our website  www.exova.com . As set out on pages 10 to 12 of the Annual Report, we believe that the principal risks and uncertainties which could impact the Group are as follows:

 

·      Health and safety

·      Reputational damage

·      People

·      Global economic and market conditions

·      UK withdrawal from the EU

·      Business infrastructure

·      IT systems

·      Acquisitions

·      Litigation

·      Business integrity and ethics

·      Financial irregularity

·      Treasury

 

There have been no significant changes to the risk management process in the current financial year. 

 

Responsibility statement

 

The Directors confirm that, to the best of their knowledge:

 

·      The interim condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;

·      The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the period and description of principal risks and uncertainties for the remainder of the financial year); and

·      The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).

 

 

By order of the Board

 

             

 

        

 

Ian El-Mokadem                                           Philip Marshall

Chief Executive Officer                                                     Chief Financial Officer

30 August 2016

Cautionary statement

This half year report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.  The report should not be relied upon by any other party or for any other purpose.

 

The half year report contains certain forward looking statements.  These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

 

INDEPENDENT REVIEW REPORT TO EXOVA GROUP PLC

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the Interim Condensed Consolidated Income Statement, the Interim Condensed Consolidated Statement of Other Comprehensive Income, the Interim Condensed Consolidated Balance Sheet, the Interim Condensed Consolidated Statement of Changes in Equity, the Interim Condensed Consolidated Statement of Cash Flows and Notes 1 to 17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

 

Ernst & Young LLP

Glasgow

30 August 2016

 

The maintenance and integrity of the Exova Group plc web site is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial information since it was initially presented on the web site.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2016

 

 

2016

(unaudited)

 

2015

(unaudited)

 

 

 

Before separately disclosed items

Separately disclosed items

(note 4)

Total

Before separately disclosed items

Separately disclosed items

(note 4)

 

Continuing operations

Notes

£m

£m

£m

£m

£m

£m

Revenue

2

160.9

-

160.9

142.4

-

142.4

Net operating costs

3

(137.5)

(4.8)

(142.3)

(121.0)

(8.3)

(129.3)

Operating profit

 

23.4

(4.8)

18.6

21.4

(8.3)

13.1

Finance costs

5

(3.4)

-

(3.4)

(3.1)

-

(3.1)

Finance income

5

0.1

-

0.1

-

-

-

Profit before taxation

 

20.1

(4.8)

15.3

18.3

(8.3)

10.0

Income tax

6

(4.4)

0.9

(3.5)

(4.2)

1.9

(2.3)

Profit for the period

 

15.7

(3.9)

11.8

14.1

(6.4)

7.7

 

 

 

 

 

Profit attributable to:

 

 

 

 

Equity holders of the Parent

 

 

10.6

 

 

7.1

Non-controlling interests

 

 

1.2

 

 

                0.6

Profit for the period

 

 

11.8

 

 

7.7

 

 

 

 

 

Earnings per share*                    

 

 

 

 

Basic                                                7

4.2p

 

 

2.8p

Diluted                                              7

4.2p

 

 

2.8p

                   

 

* Earnings per share on adjusted results are disclosed in Note 7.

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2016

 

 

 

 

2016 (unaudited)

 

2015 (unaudited)

 

 

£m

 

£m

Profit for the period

 

11.8

 

7.7

 

 

 

 

 

Other comprehensive income to be reclassified in profit or loss in subsequent periods

 

 

 

 

Exchange differences on translation of foreign operations and related borrowings

 

21.5

 

(10.0)

 

 

 

 

 

Other comprehensive income not to be reclassified to profit or loss in subsequent periods

 

 

 

 

Actuarial (loss) / gain on defined benefit plans

15

      (2.9)

 

                0.4

Income tax effect

 

 

0.6

 

 

    (0.1)

 

Other comprehensive income for the period (net of tax)

 

19.2

 

(9.7)

 

 

 

 

 

Total comprehensive income for the period

 

31.0

 

(2.0)

 

 

 

 

 

Total comprehensive income for the period attributable to:

 

 

 

 

Equity holders of the Parent

 

29.4

 

(2.5)

Non-controlling interests

 

1.6

 

0.5

Total comprehensive income for the period

 

31.0

 

(2.0)

           
 

 

INTERIM CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2016

 

 

 

 

 

Notes

 

 

30 June 2016

(unaudited)

£m

 

30 June 2015

(unaudited)

£m

 

31 December 2015

(audited)

£m

 

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Goodwill

9

 

376.5

356.5

355.1

Intangible assets

10

 

18.7

10.4

17.7

Property, plant and equipment

11

 

71.8

63.7

68.7

Government grants

 

 

8.5

7.3

7.1

Deferred tax assets

 

 

9.9

9.2

8.0

Investments in joint ventures

 

 

 

0.2

 

 0.4

 

 0.2

 

 

 

 

485.6

447.5

456.8

Current assets

 

 

 

 

 

Trade and other receivables

 

 

82.1

70.8

74.5

Income tax receivable

 

 

1.2

0.2

0.3

Government grants

 

 

-

1.4

-

Cash and short-term deposits

 

 

34.3

30.4

29.2

Assets classified as held for sale

12

 

12.9

-

-

 

 

 

130.5

 

102.8

 

104.0

 

Total assets

 

 

 

616.1

 

550.3

 

560.8

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Issued share capital

 

 

2.5

2.5

2.5

Share premium

 

 

109.5

109.5

109.5

Merger reserve          

 

 

324.5

324.5

324.5

Capital contribution reserve

 

 

114.9

114.9

114.9

Foreign currency translation reserve

 

 

           15.7

(10.0)

(5.4)

Retained earnings

 

 

 

(259.5)

 

(270.8)

 

(262.9)

 

Equity attributable to equity holders of the Parent

 

 

307.6

270.6

283.1

Non-controlling interests

 

 

 

6.3

 

4.2

 

4.7

 

Total equity

 

 

 

313.9

 

274.8

 

287.8

 

 

Liabilities

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Bank and other borrowings

14

 

180.5

179.3

167.6

Finance leases

14

 

0.3

0.2

0.3

Retirement benefit obligations

15

 

18.7

16.4

15.8

Provisions

 

 

4.9

6.7

6.7

Deferred tax liabilities

 

 

11.6

9.4

10.4

Other liabilities

 

 

 

11.0

 

5.5

 

6.4

 

 

 

 

227.0

 

217.5

 

207.2

 

 

Current liabilities

 

 

 

 

 

Bank and other borrowings

14

 

12.0

-

12.1

Finance leases

14

 

0.1

0.1

0.1

Trade and other payables

 

 

55.2

55.2

50.5

Income tax payable

 

 

3.2

-

-

Provisions

 

 

3.4

2.7

3.1

Liabilities classified as held for sale

 

12

 

 

1.3

 

-

 

-

 

 

 

 

75.2

 

58.0

 

65.8

 

Total liabilities

 

 

 

302.2

 

275.5

 

273.0

 

Total equity and liabilities

 

 

 

616.1

 

550.3

 

560.8

 

 

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2016

 

 

 

 

Attributable to equity holders of the Parent

 

 

 

 

Share capital

Share premium

Merger reserve

Capital contribution reserve

Foreign currency translation reserve

Retained earnings

Total shareholders' equity

Non-controlling interests

Total equity

 

Notes

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

At 1 January 2016

 

2.5

109.5

324.5

114.9

(5.4)

(262.9)

283.1

4.7

287.8

Profit for the period

 

-

-

-

-

-

10.6

10.6

1.2

11.8

Other comprehensive

Income

 

 

-

 

-

 

-

 

-

 

21.1

 

(2.3)

 

18.8

 

0.4

 

19.2

 

Total comprehensive

income for the period

 

-

-

-

-

21.1

8.3

29.4

1.6

31.0

Share-based payments

 

-

-

-

-

-

0.6

  0.6

-

0.6

Dividends

 

8

 

-

 

-

 

-

 

-

 

-

 

(5.5)

 

(5.5)

 

               -

 

(5.5)

 

At 30 June 2016 (unaudited)

 

 

2.5

 

109.5

 

324.5

 

114.9

 

15.7

 

(259.5)

 

307.6

 

6.3

 

313.9

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2015

 

2.5

109.5

324.5

114.9

(0.1)

(273.4)

277.9

3.7

281.6

Profit for the period

 

-

-

-

-

-

7.1

7.1

0.6

7.7

Other comprehensive

income

 

 

-

 

-

 

-

 

-

 

(9.9)

 

0.3

 

(9.6)

 

(0.1)

 

(9.7)

 

Total comprehensive

income for the period

 

-

-

-

-

(9.9)

7.4

(2.5)

0.5

(2.0)

Share-based payments

 

-

-

-

-

-

   0.2

0.2

-

0.2

Dividends

 

8

 

-

 

-

 

-

 

-

 

-

 

(5.0)

 

(5.0)

 

              -

 

(5.0)

 

At 30 June 2015 (unaudited)

 

 

2.5

 

109.5

 

324.5

 

114.9

 

(10.0)

 

(270.8)

 

270.6

 

4.2

 

274.8

 

                       

 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2016

 

 

 

2016
(unaudited)

 

2015
(unaudited)

 

Notes

 

£m

 

£m

 

 

£m

 

£m

 

Profit before taxation

 

 

15.3

 

 

      10.0

Depreciation of property, plant and equipment

 

 

6.9

 

 

6.1

Amortisation of intangible assets

 

 

1.8

 

 

4.8

Impairment loss on property, plant and equipment

 

 

-

 

 

         0.2

Government grants

 

 

(0.4)

 

 

(0.5)

Share-based payments

 

 

0.6

 

 

0.2

Non-cash movement in defined benefit pension obligations

 

 

0.1

 

 

-

Net finance costs

5

 

3.3

 

 

3.1

Operating cash flows before movements in working capital

 

 

27.6

 

 

23.9

 

 

 

 

 

 

 

Increase in trade and other receivables

 

(2.9)

 

 

(1.2)

 

(Decrease)/increase in trade and other payables

 

(0.7)

 

 

          0.2

 

Decrease in provisions and retirement benefit obligations

 

 

(0.7)

 

 

 

        (1.3)

 

 

Movements in working capital

 

 

 

(4.3)

 

 

 

(2.3)

 

 

 

 

 

 

 

 

Cash generated from operations

 

 

23.3

 

 

21.6

 

 

 

 

 

 

 

Interest paid

 

 

(2.8)

 

 

(2.6)

Tax paid

 

 

(1.9)

 

 

(1.9)

Net cash flows from operating activities

 

 

18.6

 

 

17.1

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

(6.7)

 

 

(5.8)

 

Purchase of intangible assets

 

(0.5)

 

 

(1.1)

 

Acquisition of subsidiary undertakings (net of cash acquired)

13

(3.3)

 

 

(17.4)

 

Interest received

 

 

0.1

 

 

 

-

 

 

Net cash flows used in investing activities

 

 

 

(10.4)

 

 

 

(24.3)

 

 

 

 

 

 

 

 

Net cash flows before financing activities

 

 

8.2

 

 

(7.2)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Proceeds from borrowings

 

4.0

 

 

14.0

 

Repayment of bank borrowings

 

(4.0)

 

 

            -

 

Payment of finance lease liabilities

 

(0.1)

 

 

(0.2)

 

Dividends paid to equity holders of the Parent

 

 

(5.5)

 

 

 

(5.0)

 

 

Net cash flows (used in)/from financing activities

 

 

 

 (5.6)

 

 

 

8.8

 

Net increase in cash and cash equivalents

 

 

    2.6

 

 

        1.6

Cash and cash equivalents at 1 January

 

 

  29.1

 

 

29.9

Effects of exchange rate changes

 

 

 

     2.6

 

 

 

(1.1)

 

Cash and cash equivalents at 30 June

 

 

 

34.3

 

 

 

30.4

 

 

 

 

 

 

 

 

Separately disclosed items included in cash flow from operating activities

 

(4.5)

 

 

 

(3.5)

 

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2016

 

1. BASIS OF PREPARATION AND CHANGES TO THE GROUP'S ACCOUNTING POLICIES

 

The interim condensed consolidated financial statements of Exova Group plc and its subsidiaries (together referred to as "the Group") for the six months ended 30 June 2016 were authorised for issue in accordance with a resolution by the Directors on 30 August 2016.

 

These interim condensed consolidated financial statements have been prepared on the going concern basis as the Directors, having considered available relevant information, have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future.

 

The comparative figures for the financial year ended 31 December 2015 do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. Those accounts have been reported on by the auditors and have been delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

Statement of compliance

The interim condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed and adopted for use in the European Union and the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority.  They do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2015.

New standards, interpretations and amendments adopted by the Group

 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2015.

 

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.  There are no standards or interpretations effective for the first time in the current financial period with a significant impact on the Group's consolidated results or financial position.

The European Markets and Securities Authority has issued "Guidelines on Alternative Performance Measures" which are effective from 3 July 2016 and which have been followed in explaining the use of non-GAAP measures in this interim statement.

Non-GAAP Measures

Our reported interim results are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures. We believe this information, along with comparable GAAP measurements, is useful for investors in providing a basis for measuring our operational performance. Below we set out our definitions of non-GAAP measures and provide reconciliations to relevant GAAP measures.

Free cash flow and adjusted EBITDA

Free cash flow is defined as adjusted EBITDA less movement in net working capital (excluding the effect of the IPO related cost accrual), less capital expenditure net of disposals.
Adjusted EBITDA is
operating profit from continuing operations before separately disclosed items, interest, taxation and depreciation.

 

A reconciliation of profit before tax to adjusted EBITDA and free cash flow is presented below:

 

 

30 June

2016

30 June

2015

£m

£m

Profit before tax

15.3

10.0

Finance costs

3.4

3.1

Finance income

(0.1)

-

Restructuring costs

2.3

1.4

Acquisition and integration costs

0.7

2.1

Amortisation of intangibles

 

1.8

 

4.8

 

Adjusted EBITA

23.4

21.4

Depreciation of property plant and equipment

 

6.9

 

6.1

 

Adjusted EBITDA

30.3

27.5

Net capital expenditure1

(7.2)

(6.9)

Movement in working capital

(4.3)

(2.3)

IPO costs paid

 

1.2

 

0.2

 

Free cash flow

20.0

18.5

1. Net capital expenditure comprises purchase of property, plant and equipment and intangible assets less proceeds on disposal of property plant & equipment
and intangible assets.

 

2. SEGMENTAL REPORTING

 

For management purposes, the Group is organised into three operating regions: Europe, Americas and Rest of World. These three regions are organised and managed separately based on the geographies served and each is treated as an operating segment and a reportable segment in accordance with IFRS 8 Operating Segments. The operating and reportable segments were determined based on reports reviewed by the Directors which are used to make operational decisions.

 

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on Adjusted EBITA and is measured consistently in the consolidated financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed centrally and are not allocated to operating segments.

 

Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties and inter-segment revenues are eliminated on consolidation.

 

As the business continues to evolve and consistent with the Group's long-term strategic goals, we intend to realign our organisational structure in line with the key markets we serve.

 

 

Europe

Americas

Rest of World

Eliminations

Unallocated

Total

 

For the six months ended 30 June 2016

 

£m

£m

£m

£m

£m

£m

 

Operations

 

 

 

 

 

 

 

Revenue - external customers

87.1

49.6

24.2

-

-

160.9

 

Revenue - inter-business segments

1.0

0.1

0.1

(1.2)

-

-

 

Total revenue

88.1

49.7

24.3

(1.2)

-

160.9

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

15.4

10.7

4.2

-

-

30.3

 

Depreciation

(3.3)

(2.5)

(1.1)

-

-

(6.9)

 

Adjusted EBITA

12.1

8.2

3.1

-

-

23.4

 

Amortisation of intangible assets

(1.4)

(0.2)

(0.2)

-

-

(1.8)

 

Acquisition and integration costs

(0.7)

(0.3)

0.3

-

-

(0.7)

 

Restructuring costs

(1.3)

(0.9)

(0.1)

-

-

(2.3)

 

Segmental operating profit

8.7

6.8

3.1

-

-

18.6

 

Net finance costs

-

-

-

-

(3.3)

(3.3)

 

Profit / (loss) before tax

8.7

6.8

3.1

-

(3.3)

15.3

 

Income tax

-

-

-

-

(3.5)

(3.5)

 

Profit / (loss) for the period

8.7

6.8

3.1

-

(6.8)

11.8

 

 

 

 

Europe

Americas

Rest of World

Eliminations

Unallocated

Total

 

For the six months ended 30 June 2015

 

£m

£m

£m

£m

£m

£m

 

Operations

 

 

 

 

 

 

 

Revenue - external customers

74.5

47.8

20.1

-

-

142.4

 

Revenue - inter-business segments

0.2

0.7

0.8

(1.7)

-

-

 

Total revenue

74.7

48.5

20.9

(1.7)

-

142.4

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

13.8

10.7

3.0

-

-

27.5

 

Depreciation

(3.0)

(2.2)

(0.9)

-

-

(6.1)

 

Adjusted EBITA

10.8

8.5

2.1

-

-

21.4

 

Amortisation of intangible assets

(2.4)

(1.4)

(1.0)

-

-

(4.8)

 

Acquisition and integration costs

(1.8)

(0.1)

(0.2)

-

-

(2.1)

 

Restructuring costs

(0.8)

(0.6)

           -

-

-

(1.4)

 

Segmental operating profit

5.8

6.4

0.9

-

                    -

13.1

 

Net finance costs

-

-

-

-

(3.1)

(3.1)

 

Profit / (loss) before tax

5.8

6.4

0.9

-

(3.1)

10.0

 

Income tax

-

-

-

-

(2.3)

(2.3)

 

Profit / (loss) for the period

5.8

6.4

0.9

-

(5.4)

(7.7)

 

 

 

                     

 

3. OPERATING COSTS

 

                                                                                                                                                                      Notes

2016

£m

2015

£m

Cost of Sales

103.0

90.2

Selling and administrative expenses

35.9

31.5

Other income

(1.4)

(0.7)

Separately disclosed items                                                                                                                                4

4.8

8.3

 

142.3

 

129.3

 

 

4. SEPARATELY DISCLOSED ITEMS

 

                                      

2016

£m

2015

£m

Amortisation of intangible assets

1.8

4.8

Restructuring costs

2.3

1.4

Acquisition and integration costs

0.7

2.1

                                                                                                                                                                           3

4.8

8.3

Income tax credit

(0.9)

(1.9)

 

3.9

 

6.4

 

Further information is given in the Business Review under separately disclosed items on page 4.

5. NET FINANCE COSTS

 

 

 

2016

2015

 

£m

£m

Finance costs:

 

 

Bank loans

2.7

2.5

Other loans and charges

0.1

0.3

Amortisation of debt issue costs

0.3

0.3

Pension interest

 

0.3

 

-

 

Total finance costs

 

3.4

 

3.1

 

Finance income:

 

 

Interest income on short-term deposits

 

(0.1)

 

-

 

Total finance income

 

(0.1)

 

-

 

Net finance costs

 

           3.3

 

3.1

 

 

6. INCOME TAX
 

The major components of income tax expense in the interim condensed consolidated income statement are:

 

2016

2015

 

£m

Income taxes

 

 

Income tax

 

 

- UK

0.8

0.1

- Overseas

3.2

2.8

 

 

 

Deferred tax credit - net of originating and reversing temporary differences

 

(0.5)

 

(0.6)

 

Total income tax expense

 

3.5

 

2.3

 

A tax credit of £0.6m (2015: charge of £0.1m) is included in other comprehensive income.

 

The income tax expense is recognised based on management's best estimate of the average annual income tax rates on a region by region basis expected for the full financial year applied to the pre-tax income of the interim period per region.

 

The Group's consolidated effective tax rate as a function of the profit before tax for the six months ended 30 June 2016 is 22.9% (six months ended 30 June 2015: 23%). Differences between the estimated effective rate of 22.9% and the weighted average notional statutory UK tax rate of 20.25% include, but are not limited to, the mix of profits, the effect of tax rates in foreign jurisdictions, non-deductible expenses, foreign exchange movements and the effect of unrecognised tax losses.

 

 

7. EARNINGS PER SHARE

 

Based on the profit for the period:

 

 

Notes

 

2016

£m

 

2015

£m

 

 

Profit attributable to equity holders of the Parent

10.6

                 7.1

 

Separately disclosed items

4

3.9

6.4

 

Adjusted earnings after tax

14.5

                13.5

 

 

 

 

 

Number of shares:

 

2016

m

 

2015

m

 

 

Basic weighted average number of ordinary shares

250.4

250.4

 

Potentially dilutive share awards

3.3

-

 

Diluted weighted average number of shares

253.7

250.4

 

 

 

 

 

 

2016

2015

 

 

pence

pence

 

Basic earnings per share

4.2

                  2.8

 

Potentially dilutive share awards

-

-

 

Diluted earnings per share

4.2

                  2.8

 

 

 

 

 

Basic adjusted earnings per share

5.8

                  5.4

 

Potentially dilutive share awards

  (0.1)

-

 

Diluted adjusted earnings per share

5.7

                  5.4

 

 

Basic earnings per share (EPS) amounts are calculated by dividing the profit for the year attributable to the ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year.

 

8. DIVIDENDS

 

Cash dividends to the equity holders of the Parent

 

 

 

2016

£m

 

2015

£m

 

Dividends on ordinary shares declared and paid

 

 

Final dividend for 2015: 2.2p per share (2014: 2.0p per share)

 

5.5

5.0

 

5.5

 

5.0

 

 

Proposed dividends

 

 

 

The Board has approved an interim dividend of 1.05p per share (30 June 2015: 1.0p per share). The dividend will be paid on 9 November 2016 to shareholders on the register at the close of business on 28 October 2016.

 

9. GOODWILL

During the six months, goodwill of £6.1m in relation to current year acquisitions was capitalised and £9.5m was re-allocated to assets classified as held for sale. There was a positive impact of £24.8m of foreign exchange on the total carrying value of goodwill in the six months ended 30 June 2016 (six months ended 30 June 2015: £10.9m negative impact; year ended 31 December 2015: £6.1m negative impact).

 

Impairment reviews

 

Goodwill was tested for impairment at 31 December 2015 and will be tested annually thereafter and when circumstances indicate the carrying value may be impaired.  The Group's impairment test is performed by comparing the carrying amount of each cash-generating unit ("CGU"), including goodwill, with the recoverable amount.

 

The recoverable amounts are determined from value-in-use calculations and the key assumptions used to determine these recoverable amounts were disclosed in the annual consolidated financial statements for the year ended 31 December 2015.

 

The Group monitors its performance against these key assumptions, amongst other factors, when reviewing for indicators of impairment.  At 31 December 2015 there was significant headroom above the carrying value for each CGU with the exception of Rest of World.  As there has been no significant adverse change in the financial performance of the Rest of World region, there is no requirement for a formal review at this stage

 

10. INTANGIBLE ASSETS

During the six months ended 30 June 2016, the Group capitalised software assets with a cost of £0.5m and customer relationship of £1.7m (six months ended 30 June 2015: £1.1m; year ended 31 December 2015: £1.8m for software, £0.2m for patents and £0.7m from trade names, both from business combinations).

 

There was a positive impact of £0.6m of foreign exchange on the total value of intangible assets in the six months ended 30 June 2016 (six months ended 30 June 2015: £0.3m negative impact; year ended 31 December 2015: £0.1m negative impact).

 

11. PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

 

During the six months ended 30 June 2016, the Group capitalised assets with a cost of £7.9m including £1.2m from business combinations (note 13) (six months ended 30 June 2015: £7.5m including £1.7m from business combinations; year ended 31 December 2015: £17.5m including £1.8m from business combinations).

 

No assets were disposed of during the six months ended 30 June 2016 (six months ended 30 June 2015: £nil; year ended 31 December 2015 £0.1m).

During the six months ended 30 June 2016, the Group transferred £2.9m to assets classified as held for sale (six months ended 30 June 2015: £nil; year ended 31 December 2015: £nil).

There was a positive impact of £5.0m of foreign exchange on the total carrying value of property, plant and equipment in the six months ended 30 June 2016 (six months ended 30 June 2015: £2.2m negative impact; year ended 31 December 2015: £6.0m negative impact).

The net book value of property, plant and equipment was as follows:

 

 

30 June

2016

£m

 

30 June

2015

£m

 

31 December

2015

£m

 

Land and buildings

16.8

15.8

16.1

Plant and equipment

 

55.0

 

47.9

 

52.6

 

 

71.8

 

63.7

 

68.7

 

 

Property, plant and equipment include £0.3m (six months ended 30 June 2015: £0.5m; year ended 31 December 2015: £0.4m) of assets held under finance leases.

 

Capital commitments


At 30 June 2016 the Group had commitments to purchase property, plant and equipment for £2.8m (six months ended 30 June 2015: £4.1m; year ended 31 December 2015: £3.4m).

 

12. HELD FOR SALE

The sale of our Food, Water and Pharmaceutical business in the UK and Ireland to Eurofins Scientific, announced on 19 May 2016, completed on 1 July 2016, for a cash consideration of £17.9m which is net of certain working capital balances retained and liabilities transferred (gross consideration of £20.0m). The consideration is subject to a further selling price adjustment. The sale consists of a portfolio of ten well-established, accredited laboratories across the UK and Ireland which provide a wide range of chemistry and microbiological testing services. This sale allows us to dedicate significantly more financial and management resource to growing in sectors where we can build on our market leading positions in technically demanding services such as fire, aerospace, industrials and infrastructure related testing. Accordingly, the related net assets have been classified as held for sale. Their value in the balance sheet is the lower of their carrying amount and fair value less costs to sell. No impairments have been recognised in respect of the sale.

 

                                                                                                                                 Notes

 

30 June

2016

£m

Goodwill                                                                                                                       9                                                                                        

9.5

Property, plant and equipment                                                                                   11

2.9

Trade and other receivables

 

0.5

 

Total assets

 

12.9

 

 

 

Trade and other payables

0.2

Provisions

 

1.1

 

Total liabilities

 

1.3

 

Net assets

 

11.6

 

 

13. BUSINESS COMBINATIONS

Acquisitions in the six months to 30 June 2016

 

On 15 February 2016, the Group acquired 70% of the share capital in Admaterials Technologies Private Limited (Admaterials) with a put and call option to acquire the remaining share capital in  three years' time. This Singapore based business provides testing in the construction sector, as well as chemical, environmental and mechanical testing and certification services. Founded in 2008, Admaterials is one of the leading construction testing businesses in Singapore, as well as providing chemical, environmental and mechanical testing to a range of customers in the private and government sectors.  The business has annual revenues in the region of £3.5m and a team of more than 70 specialists.

The provisional fair values are set out in the following table:

 

 

 

 

 

Notes

 

Admaterials Technologies Private Limited

 

 

 

 

£m

 

Intangible assets

 

 

 

1.7

Property, plant and equipment

 

 

11

1.2

Trade and other receivables

 

 

 

0.8

Cash and cash equivalents

 

 

 

0.4

Trade and other payables

 

 

 

(0.8)

Deferred tax liabilities

 

 

 

 

(0.3)

 

Net assets acquired

 

 

 

3.0

Goodwill

 

 

 

9

 

6.1

 

Total purchase consideration

 

 

 

9.1

Acquired cash and cash equivalents

 

 

 

(0.4)

Deferred consideration

 

 

 

(1.8)

Contingent consideration

 

 

 

 

  (3.8)

 

Net cash outflow on acquisitions

 

 

 

 

3.1

 

 

Purchase consideration:

 

 

 

 

Gross cash consideration paid in the period

 

 

 

3.5

Deferred consideration

 

 

 

1.8

Contingent consideration

 

 

 

 

3.8

 

 

 

 

 

9.1

 

 

 

During the year the following payments were made for acquisitions completed during the current and prior year:

 

 

 

2016

£m

 

Deferred consideration and purchase price adjustment in respect of prior year acquisitions

 

0.2

Net cash outflow on acquisitions made in the current year

 

 

3.1

 

Total net cash outflow for the year

 

 

3.3

 

 

At the period end, the initial accounting for Admaterials is not complete due to the timing of the transaction.  Therefore the fair value amounts disclosed above are provisional and may be subject to further adjustments following the completion of the fair value assessment exercise.

 

No material adjustments have been made in respect of the trade and other receivables acquired.

 

Goodwill

 

The goodwill of £6.1m comprises the fair value of the expected synergies arising from the acquisition and the value of the human capital that does not meet the criteria for recognition as a separable intangible asset.

 

Contribution of acquisitions to revenue and profits

 

From the dates of acquisition the newly acquired subsidiaries contributed £1.7m to revenue and if the acquisitions were assumed to have been made on 1 January 2016, the Group revenue would have been £161.0m.

 

No profit figures are disclosed as this business has now been integrated into the rest of the Group and therefore it would be impracticable to obtain a meaningful profit number.

 

Contingent consideration

 

 

 

 

 

 

 

30 June

2016

30 June 2015

   31 December 2015

 

 

 

£m

£m

     £m

Metallurgical Services Private Limited

 

 

-

2.8

                   0.6

Western Technical Services Limited and Accusense Systems Limited

0.3

-

               0.3

Admaterials Technologies Private Limited

 

 

 

4.2

 

-

 

                     -

 

 

 

 

4.5

 

2.8

 

                   0.9

 

             

 

The consideration to acquire Metallurgical Services Private Limited included contingent consideration based on future targets being met. The contingent consideration's range was between a minimum of £nil and a maximum of £2.8m. In the six months to 30 June 2016 the remaining amount of the contingent consideration was reversed as the target was not met.

 

The consideration to acquire Western Technical Services Limited and Accusense Systems Limited included contingent consideration based on future targets being met. The contingent consideration's range is between a minimum of £nil and a maximum of £0.3m. The contingent consideration becomes payable in May 2017. The fair value of the contingent consideration is the present value of expected future cashflows based on the latest forecasts of future performance.

 

The contingent consideration to acquire Admaterials Technologies Private Limited represents a put and call option to purchase the remaining shareholding three years after the acquisition, based on the same earnings multiple as the original offer. The contingent consideration's range is between a minimum of £nil and a maximum of £8.1m.  The contingent consideration is expected to become payable in 2019. The fair value of the contingent consideration is the present value of expected future cashflows based on the latest forecasts of future performance.

 

Acquisitions in 2015

 

During the period to 30 June 2015, the Group made the following acquisitions in aggregate:

 

 

Notes

Environmental

Evaluation

Limited

BM TRADA Group

Limited

Others

Total

 

 

£m

 

£m

 

£m

 

£m

 

Investments in joint ventures

 

-

0.4

-

0.4

Property, plant and equipment

11

0.3

1.2

0.2

1.7

Deferred tax assets

 

-

2.9

-

2.9

Trade and other receivables

 

0.7

6.0

0.2

6.9

Cash and cash equivalents

 

0.6

3.2

0.2

4.0

Trade and other payables

 

(0.3)

(12.0)

(0.1)

(12.4)

Long term provisions

 

(0.4)

(0.1)

(0.1)

(0.6)

Retirement benefit obligations

 

 

-

 

(14.2)

 

-

 

(14.2)

 

Net assets acquired

 

0.9

(12.6)

0.4

(11.3)

Goodwill

 

9

 

4.4

 

26.3

 

1.1

 

31.8

 

Total purchase price

 

5.3

13.7

1.5

20.5

Acquired cash and cash equivalents

 

(0.6)

(3.2)

(0.2)

(4.0)

Deferred consideration

 

-

-

(0.1)

(0.1)

Contingent consideration

 

 

-

 

(0.5)

 

-

 

(0.5)

 

Net cash outflow on acquisitions in the period

 

 

4.7

 

10.0

 

1.2

 

15.9

 

Purchase consideration:

 

5.3

13.2

1.4

19.9

Deferred consideration

 

-

-

0.1

0.1

Contingent consideration

 

 

-

 

0.5

 

-

 

0.5

 

 

 

5.3

 

13.7

 

1.5

 

20.5

 

 

 

 

 

 

 

 14. BANK AND OTHER BORROWINGS

 

30 June

2016

30 June

 2015

31 December 2015

 

£m

£m

£m

Term loans

182.3

167.7

169.7

Revolving credit facility

12.0

14.0

12.0

Bank overdrafts

-

-

0.1

Debt issue costs - term loans

 

(1.8)

 

(2.4)

 

(2.1)

 

Bank and other borrowings

192.5

179.3

179.7

Finance leases

 

0.4

 

0.3

 

0.4

 

 

192.9

 

179.6

 

180.1

 

 

 

 

 

Less than one year

12.1

0.1

12.2

More than one year

 

180.8

 

179.5

 

167.9

 

 

192.9

 

179.6

 

180.1

 

 

Net debt is arrived at as follows:

 

30 June

2016

30 June

2015

31 December

2015

 

£m

 

£m

 

£m

 

Term loans

182.3

167.7

169.7

Revolving credit facility

12.0

14.0

12.0

Finance leases

 

0.4

 

0.3

 

0.4

 

Gross Debt

194.7

182.0

182.1

Cash and cash equivalents

 

(34.3)

 

(30.4)

 

(29.1)

 

Net Debt

 

160.4

 

151.6

 

153.0

 


Net debt is shown gross of unamortised debt issue costs of £1.8m (30 June 2015: £2.4m; 31 December 2015: £2.1m).

 

15. RETIREMENT BENEFIT OBLIGATIONS
 

The fair value changes in the defined benefit schemes are shown below:

 

30 June

2016

30 June

2015

31 December

2015

 

£m

 

£m

 

£m

 

At beginning of period

15.8

3.1

3.1

Acquisition of UK scheme

-

14.2

14.2

Current service cost

0.1

0.1

0.4

Net interest cost

0.3

0.1

0.4

Actuarial loss/(gain)

2.9

(0.4)

(1.2)

Contributions by the employer

(0.4)

(0.5)

(1.0)

Benefits paid

(0.1)

-

(0.1)

Effect of exchange rate changes on overseas schemes

 

0.1

 

(0.2)

 

-

 

At end of period

 

18.7

 

16.4

 

15.8

 

  

16. RELATED PARTY TRANSACTIONS
 

The group companies have entered into certain transactions with related parties as follows:

 

30 June

2016

30 June

2015

31 December

2015

Balance sheet

 

£m

 

£m

 

£m

 

Termination of consultancy agreement fee payable to private equity transfer

 

-

 

1.0

 

1.0

 

Amounts receivable from joint venture partners

 

-

 

0.3

 

-

 

 

17. POST BALANCE SHEET EVENTS

 

The sale of the UK and Ireland Food, Water and Pharmaceutical business to international life sciences company, Eurofins Scientific, completed 1 July 2016, for a cash consideration of £17.9m, net of certain working capital balances retained and liabilities transferred (gross consideration of £20.0m). The consideration is subject to a further selling price adjustment.

 

The sale consists of a portfolio of ten well-established, accredited laboratories across the UK and Ireland, which provide a wide range of chemistry and microbiological testing services.  This business generated revenues of around £20m in 2015.

 

On 1 July 2016, the Group acquired 100% of the share capital of Jones Environmental Forensics Limited (Jones) for a cash consideration of £13.9m. A further payment £1.0m was retained and an amount of up to £1.6m is contingent upon future profitability of the business in the year following acquisition. The purchase consideration is subject to further purchase price adjustments. Jones is a North Wales-based independent environmental laboratory business and the UK's market leader in contaminated land analysis and a specialist in environmental forensics, with an excellent reputation for both quality and service. Jones has built a strong reputation as the laboratory of choice for contaminated soil and water analysis, primarily selling its services to leading global environmental consultants, with the ultimate end customers covering a variety of market segments, many of which Exova has an existing presence with. The business has a team of over 150 specialists and achieved revenues of around £8m in 2015.

 

No further disclosures have been provided under IFRS 3 in respect of business combinations after the balance sheet date on the basis that the initial accounting is not yet complete.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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