TIDMEXO
RNS Number : 9892X
Exova Group PLC
28 February 2017
2016 FULL YEAR RESULTS ANNOUNCEMENT
28 February 2017
Exova Group plc ("Exova"), a leading international provider of
technically demanding testing and advisory services, announces its
results for the year ended 31 December 2016.
Strong revenue and earnings growth
-- Revenue up 10.8% at actual rates; 2.4% at constant currency
o (0.2)% organic(1) growth at constant currency(2)
o 5.5% organic growth excluding Oil & Gas and
Industrials
o 6.2% from acquisitions, partially offset by (3.6)% from
disposals
-- Strong sector performance in Fire, Building Products &
Certification, Aerospace, Health Sciences and Infrastructure &
Environment
o Oil & Gas and Industrials continued to weaken and forward
visibility remains poor
-- Three acquisitions adding to capability, Admaterials in
Singapore, plus Jones Environmental Forensics and Insight NDT in
the UK
-- Further reshaping of the Group with a move to a divisional
organisational structure, plus two significant non-core business
disposals, UK and Ireland Food, Water and Pharmaceuticals and
Eastern Canada Environmental
-- Proposed final dividend of 2.35p per share (2015: 2.2p),
making a full year dividend of 3.4p per share (2015: 3.2p)
Growth from
Organic growth acquisitions
2016 2015 Reported at constant net of disposals
Adjusted results(3) GBPm GBPm growth currency at constant
currency
Revenue 328.6 296.5 10.8% (0.2)% 2.6%
------- ------- ----------- ----------------- ------------------
EBITA 50.3 46.7 7.7%
------- ------- ----------- ----------------- ------------------
Profit before taxation 43.5 40.4 7.7%
------- ------- ----------- ----------------- ------------------
EBITA margin 15.3% 15.8% (50)bps
------- ------- ----------- ----------------- ------------------
Basic earnings per share 13.1p 12.2p 7.4%
------- ------- ----------- ----------------- ------------------
2016 2015 Reported
Statutory results GBPm GBPm growth
Operating profit 43.5 29.5 47.5%
------ ------ ---------
Profit before taxation 36.6 23.2 57.8%
------ ------ ---------
Basic earnings per share 10.5p 6.8p 54.4%
------ ------ ---------
Total dividend per share 3.4p 3.2p 6.3%
------ ------ ---------
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.
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 stated before separately disclosed items.
Ian El-Mokadem, Chief Executive Officer, commented:
"I am pleased to report another satisfactory set of results in
line with expectations, demonstrating the strength of our
diversified portfolio and our ability to respond to changing market
conditions. Overall growth was strong with broad based organic
growth across the portfolio, with the exception of our Oil &
Gas and Industrials sector.
The portfolio has been strengthened by the recent acquisitions
and disposals, and with extensive cost actions taken to mitigate
the poor trading conditions in oil & gas, we continue to make
good progress towards our medium-term objectives."
Outlook
The Board expects modest organic revenue growth at constant
currency in 2017. This will be driven by Exova's diversified
exposure and good growth in most sectors, moderated by continuing
pressure in oil & gas, and a lower point in the project cycle
of our engines testing business. Organic growth is expected to be
weighted towards the second-half, partly as a result of more
favourable like-for-like comparisons. Our acquisitions programme
should continue to contribute to overall revenue growth. We expect
that recent actions we have taken to reduce cost will offset
general pressure on group margins in the current financial
year.
Our medium-term revenue expectation remains mid-single digit
organic growth, and continued expansion through acquisitions.
Contacts
Peter Ogden / Andy Jones
Powerscourt Group
Tel. Direct +44 (0)20 7549 0997 / +44 (0)7793 858 211
exova@powerscourt-group.com
Analyst briefing and conference call
There will be an analyst briefing and conference call today at
8.30am GMT, held at Goldman Sachs International, River Court, 120
Fleet Street, London, EC4A 2BE. 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 135 laboratories and
offices in 33 countries and employs around 4,200 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 ranging from Aerospace to Fire & Building Products; Oil
& Gas and Industrials; Infrastructure & Environment;
Transportation; and Health Sciences.
This Trading Update release contains forward-looking statements
that involve substantial risks and uncertainties and actual results
and developments may differ materially from those expressed or
implied by these statements by a variety of factors. These
forward-looking statements speak only as at the date of this press
release. In addition, all projections, valuations and statistical
analyses provided in this document may be based on unaudited
pro-forma financial information, subjective assessments and
assumptions. They may use alternative methodologies that produce
different results and should not be relied upon as an accurate
prediction of future performance.
Exova Group plc is registered in England (registration number
08907086). Its legal entity identifier ('LEI') number is
213800BFE317FGSYMZ19.
FULL 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; Fire, Building Products and
Certification; Transportation; Calibration and Infrastructure,
Health and Environment.
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 135 permanent facilities in 33 countries
and employs around 4,200 people.
Overview of performance
2016 2015 Growth at Organic(1)
GBPm GBPm reported growth
exchange at constant(2)
rates exchange rates
-------------------------------- ------ --------- ---------- ----------------
Revenue 328.6 296.5 10.8% (0.2)%
Adjusted EBITA(3) 50.3 46.7 7.7%
EBITA margin 15.3% 15.8%
Operating profit 43.5 29.5
Adjusted net finance costs(3) (6.8) (6.3)
Net finance costs (6.9) (6.3)
Income tax expense (7.9) (4.7)
Basic adjusted earnings per
share(3) 13.1p 12.2p
Basic earnings per share 10.5p 6.8p
Proposed final dividend per
share 2.35p 2.2p
Cash conversion(4) 72% 59%
-------------------------------- ------ --------- ---------- ----------------
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 disposals and the preceding year.
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 prior period revenue at
the same exchange rates.
3) Adjusted items are stated before separately disclosed items.
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
2016 Growth(5)
GBPm
----------------------------- -------- ----------
2015 reported
Constant currency 296.5
Organic (0.5) (0.2)%
Acquisitions 20.7 6.2%
Disposals (12.1) (3.6)%
------------------------------ -------- ----------
Growth at constant currency 8.1 2.4%
Currency effect 24.0 8.4%
------------------------------ -------- ----------
2016 reported 328.6 10.8%
------------------------------ -------- ----------
Notes:
5) Growth percentages are calculated on constant currency revenue
Revenue for the year was GBP328.6m which represented organic
growth at constant currency of (0.2)%.
Acquisitions contributed 6.2% of growth, in part offset by three
disposals which resulted in a reduction of 3.6%. The Group reports
in sterling which weakened during the course of the year over the
currencies in the territories in which the Group operates. This
resulted in a positive translation effect of 8.4%.
Adjusted EBITA margin
Adjusted EBITA margin decreased by 50bps from 15.8% to 15.3%.
This reflects the continuing challenges within the Oil & Gas
and Industrials sector which negatively affected margins,
offsetting the improvements elsewhere, including the positive
contribution from acquisitions and the favourable translation
impact.
Statutory operating profit
Statutory operating profit of GBP43.5m grew 47.5% largely due to
business growth from acquisitions and a gain on disposal of
businesses. The prior year also included a higher amortisation of
intangibles charge, as the Bodycote customer relationships are now
amortised in full.
Separately disclosed items
2016 2015
GBPm GBPm
------------------------------------------------ ------ ------
Gain on disposal of businesses (6.1) -
Amortisation of intangible assets 3.9 8.9
Restructuring costs 5.9 4.9
Impairment of property, plant and equipment 1.5 -
Acquisition and integration costs 1.6 3.4
------------------------------------------------ ------ ------
6.8 17.2
Finance costs - unwind of discount relating to 0.1 -
deferred consideration
Income tax credit (0.4) (3.8)
------------------------------------------------ ------ ------
Separately disclosed items 6.5 13.4
------------------------------------------------ ------ ------
The Group presents, as separately disclosed items on the face of
the group income statement, those material 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 year. The Group believes this presentation
facilitates a comparison with prior periods and a better assessment
of trends in financial performance.
Gain on disposal of businesses
The Group made three business disposals in 2016 with two being
significant, as follows:
The sale of the UK and Ireland Food, Water and Pharmaceuticals
business to international life sciences company, Eurofins
Scientific, completed 1 July 2016, for a cash consideration of
GBP18.0m including a selling price adjustment of GBP0.1m. The cash
consideration was net of certain working capital balances retained
and liabilities transferred (gross consideration GBP20m).The net
gain was GBP5.3m.
The sale of the Environmental East business in Canada, also to
international life sciences company, Eurofins Scientific, completed
on 5 December 2016, for a cash consideration of GBP7.5m, subject to
a further selling price adjustment. The cash consideration was net
of certain working capital balances retained and liabilities
transferred (gross consideration GBP9.1m).The net gain was
GBP0.6m.
The sale of a division of WFR Gent NV completed 24 March 2016
for a cash consideration of GBP0.2m. The net gain was GBP0.2m.
Summarised financial information relating to the sale of the
businesses is shown in the table below:
UK and Ireland WFR Gent
Food, Water Environmental Fire-testing
and Pharmaceuticals East division Total
GBPm GBPm GBPm GBPm
-------------------------------------- --------------------- -------------- -------------- ------
Goodwill 9.5 3.3 - 12.8
Property, plant and equipment 3.1 2.9 - 6.0
Trade and other receivables 0.5 0.5 - 1.0
Cash and cash equivalents - - - -
Trade and other payables (0.1) (0.2) - (0.3)
Provisions (1.1) - - (1.1)
-------------------------------------- --------------------- -------------- -------------- ------
Total carrying amount of net
assets disposed 11.9 6.5 - 18.4
Costs of disposal 0.8 0.4 - 1.2
Gain on disposal of businesses 5.3 0.6 0.2 6.1
Proceeds from disposal of businesses 18.0 7.5 0.2 25.7
-------------------------------------- --------------------- -------------- -------------- ------
Amortisation of intangible assets
Amortisation of intangible assets for 2016 was GBP3.9m, a
decrease of GBP5.0m from GBP8.9m 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
Oil & gas restructure
To mitigate the poor trading conditions in oil & gas, we
have undertaken further cost actions globally to right size the
business. This restructuring programme totalled GBP3.3m and
included onerous lease provisions of GBP1.8m, staff redundancies of
GBP1.2m and other property related costs of GBP0.3m.
Portfolio realignment and organisational restructure
Following the completion of acquisitions earlier in 2016 coupled
with the UK and Ireland Food, Water and Pharmaceuticals disposal,
we realigned our sectors and organisational structure to reflect
the shape of the Group more appropriately going forward. The cost
in relation to this was GBP2.0m and comprised mainly staff
redundancies.
Other
Having undertaken a strategic review of our laboratory footprint
within our Aerospace sector and Products division, we restructured
certain laboratories which resulted in costs of GBP0.6m, largely
relating to staff redundancies.
Impairment of property, plant and equipment
Due to the poor oil & gas trading conditions, we undertook a
review of property, plant and equipment in those laboratories and
recognised an impairment of property, plant and equipment for the
amount of GBP1.5m.
Acquisition and integration costs
Acquisition costs incurred in relation to the purchase of
Admaterials Technologies Private Limited was GBP0.1m, Jones
Environmental Forensics Limited GBP0.3m and Insight NDT Limited
GBP0.2m. Acquisition costs included stamp duty, due diligence fees
including professional advisors fees in relation to tax, legal,
property and insurance advice. Integration costs amounting to
GBP0.5m in total for these businesses include project management,
travel and rebranding costs. Integration costs for businesses
acquired towards the end of 2015 amounted to GBP0.1m and costs in
relation to active and failed projects amount to GBP1.0m.
Contingent consideration of GBP0.6m in relation to the acquisition
of Metallurgical Services Private Limited was reversed in the
current year, as the target was not met.
Income tax credit
Included in the income tax credit, is GBP0.3m (2015: GBP2.0m)
related to the amortisation of the deferred tax liability in
respect of customer relationships. An income tax debit of GBP1.6m
(2015: GBP1.8m) relates to restructuring, amortisation and
integration costs; and an income tax credit of GBP1.5m relates to
the tax charge on the gain on disposal of businesses.
Net finance costs 2016 2015
--------------------------------------------------------
GBPm GBPm
-------------------------------------------------------- ------ -----
Net cash interest payable
Bank loans 5.5 5.0
Other loans and charges 0.1 0.1
Interest income on short-term deposits (0.1) -
-------------------------------------------------------- ------ -----
5.5 5.1
-------------------------------------------------------- ------ -----
Non-cash costs
Amortisation of debt issue costs 0.6 0.7
Pension interest 0.6 0.4
Unwind of discount on leasehold dilapidations 0.1 0.1
Unwind of discount on deferred consideration 0.1 -
1.4 1.2
-------------------------------------------------------- ------ -----
Net finance costs 6.9 6.3
-------------------------------------------------------- ------ -----
Included in separately disclosed items - unwind (0.1) -
of discount on deferred consideration
-------------------------------------------------------- ------ -----
Net finance costs before separately disclosed interest 6.8 6.3
-------------------------------------------------------- ------ -----
Net cash interest payable in the year increased from GBP5.1m to
GBP5.5m. The increase relates to the term loans due to the
weakening of sterling against the currencies that the bank loans
are denominated.
Income tax
2016 2015
-------------------------
GBPm GBPm
------------------------- ----- -----
Current tax charge 6.1 4.7
Deferred tax charge 1.8 -
Total income tax charge 7.9 4.7
------------------------- ----- -----
The total tax charge for corporate income tax and deferred tax
is GBP7.9m (2015: GBP4.7m).
The Group is in a tax paying position in a number of overseas
jurisdictions, in which it operates, with a total overseas income
tax charge of GBP4.9m (2015: GBP4.2m). UK taxable profits were
partially offset by UK losses which resulted in a UK tax charge of
GBP1.2m (2015: GBP0.5).
Earnings per share
Basic earnings per share for the twelve months ended 31 December
2016 was 10.5p (2015: 6.8p).
Basic adjusted earnings per share for the twelve months ended 31
December 2016 was 13.1p (2015: 12.2p). This measure calculates
earnings per share before separately disclosed items.
Dividend
The Board is recommending a final dividend of 2.35p per share
(2015: 2.2p per share). This will absorb an estimated GBP6m of
shareholders' funds. The total dividend for 2016 will therefore be
3.4p per share representing an increase of 6.3% (2015: 3.2p). The
dividend will be paid on 9 June 2017 to shareholders on the
register at the close of business on 26 May 2017.
Acquisitions
During 2016 the Group completed three acquisitions.
On 15 February 2016, the Group acquired 70% of the share capital
in Admaterials Technologies Private Limited (Admaterials) for a
cash consideration of GBP5.4m (GBP4.8m net of cash acquired). 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. The acquisition has been accounted for as though 100% of the
share capital had been acquired, with a liability recognised as
contingent consideration in relation to the put option. The fair
value of the call option is immaterial. Acquisition costs incurred
in the year in respect of Admaterials amounted to GBP0.1m. 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 GBP3.5m 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 purchase
consideration of GBP15.5m (GBP16.1m net of finance lease settled
and cash acquired). This includes deferred consideration of GBP1.0m
and an amount of up to GBP1.6m is contingent upon future
profitability of the business. The purchase consideration is
subject to further purchase price adjustments. Acquisition costs
incurred in the year in respect of Jones amounted to GBP0.3m. 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
has annual revenues of GBP8.0m.
On 2 December 2016, the Group acquired 100% of the share capital
of Insight NDT Limited (Insight), a South Yorkshire-based
non-destructive testing (NDT) and radiographic inspection business
for a purchase consideration of GBP7.6m (GBP7.1m net of cash
acquired). The purchase consideration includes deferred
consideration of GBP0.1m and an amount of up to GBP1.5m is
contingent upon future profitability of the business. Acquisition
costs incurred in the year in respect of Insight amounted to
GBP0.2m. Insight is at the forefront of the NDT market in the UK,
providing it's specialist services to the industrial sector since
1997. Insight's reputation is built on consistently providing high
quality, high capacity and fast turnaround radiographic inspection
services for manufacturers of specialised castings and forgings
within the industrials market, as well as providing testing for the
nuclear, medical, rail and oil & gas sectors. The business has
an experienced team of 20 specialists and achieved revenues of
around GBP2m in 2015.
2016 2015
Cash flow GBPm GBPm
---------------------------------------- ------- -------
Adjusted EBITDA(1) 64.5 59.1
Net capital expenditure(2) (18.2) (17.3)
Movements in working capital(3) 0.2 (7.0)
Free cash flow 46.5 34.8
Cash conversion(4) 72% 59%
Taxes (4.5) (3.7)
Interest (5.5) (5.1)
---------------------------------------- ------- -------
Free cash flow after interest and tax 36.5 26.0
Acquisition of subsidiary undertakings (23.6) (21.8)
Proceeds on disposal of businesses 25.7 -
Dividends paid to shareholders (8.1) (7.5)
Other(5) (12.4) 2.8
---------------------------------------- ------- -------
Net movement in cash 18.1 (0.5)
---------------------------------------- ------- -------
1) Adjusted EBITA is operating profit from continuing operations
before separately disclosed items and depreciation. Refer note 1 on
page 18 for a reconciliation of profit before tax to Adjusted
EBITA, Adjusted EBITDA and free cash flow.
2) Purchase of property, plant and equipment and computer
software, net of disposals.
3) Excludes effect of accrual of IPO related costs.
4) Free cash flow divided by adjusted EBITDA.
5) Comprising restructuring, acquisition and integration
charges, IPO cash costs and financing items
Free cash flow increased by GBP11.7m as a result of increased
EBITDA and improved working capital management. This had a positive
impact on cash conversion at 72% (2015: 59%).
Net capital expenditure includes proceeds on disposals of
GBP0.1m. Gross capital expenditure of GBP18.3m represents 5.6% of
revenue
(2015: 5.9 %).
Net debt (excluding debt issue costs)
2016 2015
GBPm GBPm
--------------------------- ------- -------
Term loans 193.6 169.7
Revolving credit facility 8.0 12.0
Finance leases 0.2 0.4
--------------------------- ------- -------
Gross debt 201.8 182.1
Cash and cash equivalents (52.4) (29.1)
Net debt 149.4 153.0
--------------------------- ------- -------
At 31 December 2016, our term loans comprised GBP193.6m of
non-amortising borrowings denominated in sterling, euro, Canadian
dollars, US dollars and Swedish krona. The increase in the term
loan is due to the weakening of the sterling against the major
currencies that the loans are denominated in. There are no
repayments scheduled on our term loans until 2019.
The amounts drawn down on the revolving credit facility are
denominated in sterling. In addition, a GBP82.0m revolving credit
facility was undrawn at 31 December 2016.
The net debt to Adjusted EBITDA ratio was 2.3x at 31 December
2016 (2015: 2.6x). Based on the definition in the bank covenant,
net debt to Adjusted EBITDA ratio is 2.1x (2015: 2.4x).
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 items are stated before separately disclosed items. The
Group's operations are defined as laboratory based testing,
certification and advisory services. For a user to understand the
Group's operations, we aggregated and disclosed separately those
material items which are not in the ordinary course of laboratory
based testing, certification and advisory services. We define the
Group's profit from these operations as Adjusted EBITA, which is
operating profit from continuing operations before separately
disclosed items, interest, and taxation. We believe Adjusted EBITA
is the most significant indicator of operating performance for the
Group as it measures cost efficiency in relation to overall
activity levels and allows a better understanding of the underlying
or long term profitability of the group. Adjusted EBITDA is
Adjusted EBITA before depreciation.
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.
Free cash flow is used in the calculation of the Group's cash
conversion rate. This provides a measure of the Group's ability to
manage operational cash flow generation which we believe is useful
to users of the financial statements as it represents cash flows
that could be used for repayment of debt or to fund our strategic
initiatives, including acquisitions, if any. 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.
Foreign exchange
Exchange rates for the most significant currencies used by the
Group during the year were:
Average Closing Average Closing
rate rate rate rate
2016 2016 2015 2015
Euro 1.232 1.172 1.378 1.357
US dollar 1.357 1.236 1.532 1.483
Canadian dollar 1.807 1.657 1.957 2.056
Swedish krona 11.641 11.225 12.913 12.446
UAE dirham 4.987 4.538 5.630 5.447
Qatari riyal 4.952 4.500 5.585 5.404
------------------- -------- -------- -------- --------
OPERATING PERFORMANCE
Revenue
2016 Growth at Organic growth
GBPm 2015 reported exchange at constant
GBPm rates exchange rates
------------------------------ ------ --- -------------- ------- ------------------- ----------------
Industries 116.6 115.1 1.4% (7.7)%
Products 117.0 97.1 20.5% 3.5%
Infrastructure, Health and Environment 94.9 84.3 12.6% 9.3%
Group 328.6 296.5 10.8% (0.2)%
------------------------------ ---------- -------------- ------- ------------------- ----------------
Adjusted EBITA
2016 2015 Margin
GBPm Margin GBPm
--------------------- ----------- ------- --------- ------------ ---------
Industries 21.5 18.4% 24.4 21.2%
Products 16.9 14.4% 14.3 14.7%
Infrastructure, Health
and Environment 11.9 12.6% 8.1 9.6%
---------------------------- ------- ------- --------- ------------ ---------
Group 50.3 15.3% 46.7 15.8%
-------------------------------------- ------- --------- ------------ ---------
Divisional Performance
Industries
2016 Growth at
GBPm 2015 reported Organic growth
GBPm exchange at constant
rates exchange
rates
---------------- ------ ------- ---------- -----------------
Revenue 116.6 115.1 1.4% (7.7)%
Adjusted EBITA 21.5 24.4 (11.9)%
Margin 18.4% 21.2% (280)bps
---------------- ------ ------- ---------- -----------------
The Division reported a mixed performance with strong growth in
Aerospace and some encouraging signs in Industrials in the second
half being offset by the continued weakness in the oil & gas
market, leading to an overall contraction in organic revenues.
Aerospace
The Aerospace sector delivered strong organic growth, driven by
high rates of production release testing, as a result of improved
aircraft build rates, notably in the Americas. Testing revenues
associated with research and development were driven primarily by
developments in aircraft engine materials and more latterly by
emergent technologies such as additive layer manufacturing, which
is being increasingly adopted by Aerospace OEMs. Following a flat
2015 our Swedish Aerospace business returned to good organic growth
in 2016, driven by strong demand from the Swedish aerospace and
defence sectors, with a particular focus on NDT services.
We continued to invest in our Aerospace testing facilities
across the world, with new test frames installed in the USA, UK and
Canada, as well as consolidation of our European creep and stress
rupture test capability in Plzen, Czech Republic. Our 2016
investments in fatigue capacity and modern testing technologies
look set to position the sector for continued organic growth in
2017.
Oil & Gas and Industrials
In Europe continued impact of low oil prices led to contraction
and price pressure in the oil & gas testing market. Although
some 2015 projects completed successfully in the first part of the
year, we experienced lower levels of new approved projects from Q2
2016 onwards. As part of the focus on diversification, we
successfully secured a number of contracts with non-oil & gas
customers such as Tata Steel and Sellafield in the UK; and with the
acquisition of Insight NDT Limited we gained greater access to
opportunities in the industrials segment.
As in Europe, the US oil & gas market continued to
experience strong headwinds, resulting in revenue decline versus
2015, as major Gulf of Mexico research and development and capital
projects were delayed and/or cancelled. During the year we took
restructuring actions to mitigate volume and price pressures in
line with the market. The Americas industrials segment had an
encouraging end to the year. Despite some softening in the US
primary and secondary steel markets, we saw improvement in the
second half and overall growth in the segment, helped by a strong
performance in Canada due to demand from the rail and automotive
sectors. In 2017, further sales focus on industrials will help to
reduce our exposure to oil & gas market conditions and allow us
to utilise laboratory capacity and expertise as fully as
possible.
Our Western Canada oil & gas business managed the downturn
by diversifying its client base to include more infrastructure and
agriculture. We continued to benefit from providing excellent
service and using targeted sales campaigns with the final quarter
seeing some possible green shoots of recovery.
We also faced very strong headwinds in our Asia Pacific oil
& gas business, with a significant reduction in subsea project
activity. We have closed our Malaysia oil & gas laboratory and
reduced headcount in Singapore, retaining key capability co-located
with the Admaterials laboratory. Our India facility held up well,
with good organic growth despite a heavy reliance on oil & gas
customers; we successfully extended our range of technically
demanding services and saw good growth from the new corrosion
facility.
Products
2016 Growth at reported
GBPm 2015 exchange rates Organic growth
GBPm at constant
exchange rates
---------------- ------ ------- ------------------- -----------------
Revenue 117.0 97.1 20.5% 3.5%
Adjusted EBITA 16.9 14.3 18.2%
Margin 14.4% 14.7% (30)bps
---------------- ------ ------- ------------------- -----------------
The Products Division showed growth in all sectors apart from
Transportation, with particularly strong performance in Fire,
Building Products and Certification,
Fire, Building Products and Certification
Ongoing European standardisation and the introduction of new
standards in many parts of the world have continued to create a
positive market for fire testing. In Europe we saw continued focus
on the harmonisation of standards in the areas of doors and door
hardware, as well as more general penetration seals and joints. In
Australia we saw the introduction of new standards and guidelines
in the area of façade fire protection and façade testing, which in
turn drove growth in the Exova Warringtonfire businesses.
Overall the market for fire engineering was positive but some
concerns arising from Brexit were apparent. In the Middle East,
projects were not as abundant as in 2015, while North America had a
successful year through the introduction of new tests and renewed
sales effort in fire testing. The sector was further supported by
an increase in inspection and certification services, and also
benefitted from the final integration of BM TRADA into Exova.
Transportation
Our Warren and Troy laboratories both delivered strong
performances, with the former upgrading its approach to interiors
testing and adding several pieces of new equipment to drive
customer growth and deeper relationships. As in 2015, the Troy
laboratory executed some major structures and durability projects
for key clients contributing to good growth throughout 2016.
Nevertheless, in line with expectations, total revenue for
Transportation was slightly behind in 2016, as a result of lower
volumes of engine testing compared with those seen in 2015. There
is a healthy opportunity pipeline for 2017 across both our Troy and
Warren laboratories.
Calibration
The calibration business delivered modest organic growth, with
increases in demand from many large clients partially offset by one
major client deciding to move their operations away from
Scandinavia. Life Sciences and energy clients were a more
significant part of the client mix during 2016, a trend that we
expect to continue in 2017. We increased the scope of calibration
services that we offer and we also initiated the coming together of
our operations in the Czech Republic and Germany to drive operating
efficiencies.
Infrastructure, Health and Environment
2016 Growth at
GBPm 2015 reported Organic growth
GBPm exchange at constant
rates exchange rates
---------------- ------ ------- ---------- -----------------
Revenue 94.9 84.3 12.6% 9.3%
Adjusted EBITA 11.9 8.1 46.9%
Margin 12.6% 9.6% 300bps
---------------- ------ ------- ---------- -----------------
The Infrastructure, Health and Environment Division had a very
strong year, with growth in all three sectors leading to a 9.3%
improvement at constant currency. Revenues were also boosted by two
acquisitions in the Division, each of which gave us strong
positions in new segments.
Infrastructure
Our Middle East business enjoyed strong growth in the year,
overcoming difficult economic conditions due to the fall in energy
prices. Our laboratories in Saudi Arabia, the UAE and Oman improved
their market share delivering impressive year-on-year growth. In
Saudi Arabia, materials and environmental testing were strong, with
services being provided to support further development of the
Kingdom's master gas system. The region also benefited from the
full year impact of the metro projects in Riyadh and Doha, which
offset a slowdown in infrastructure projects in Abu Dhabi.
We were also awarded a sizeable contract with a government
entity in Qatar to provide full production-to-sale QA/QC testing
and inspection services for aggregate materials. The project
required the establishment of three third party-accredited large
site laboratories in two different countries. We expect activity on
this project to be significantly lower in 2017. In February 2016 we
acquired Admaterials Technologies Private Limited, a
multi-disciplinary laboratory based in Singapore, specialising in
infrastructure materials testing and environmental chemistry.
Integration has been completed successfully and the laboratory has
continued to win some excellent projects, growing ahead of
plan.
Health Sciences
Our Americas pharmaceuticals business demonstrated good growth,
driven by complex development projects, increased manufacturing
support and biotherapeutics testing for both Canadian and US
pharmaceuticals and medical device companies. Several long-term
agreements with pharmaceuticals companies helped to ensure a solid
base of continuous testing projects. Investment in IT systems
continues to help us provide an improved customer service
experience. Our food laboratory in Portland, Oregon had a very
strong year with the growth of several key clients in a very
competitive market segment.
Environment
The UK and Ireland environment business experienced very strong
overall growth in 2016. Underpinned by good organic growth in our
market-leading stack emissions business, our asbestos testing and
occupational hygiene businesses, we acquired the UK's leading
contaminated land laboratory, Jones Environmental in July. The
integration of this business and that of the emissions testing
division of REC (acquired at the very end of 2015) were both
completed in line with agreed plans.
Outlook
The Board expects modest organic revenue growth at constant
currency in 2017. This will be driven by Exova's diversified
exposure and good growth in most sectors, moderated by continuing
pressure in oil & gas, and a lower point in the project cycle
of our engines testing business. Organic growth is expected to be
weighted towards the second-half, partly as a result of more
favourable like-for-like comparisons. Our acquisitions programme
should continue to contribute to overall revenue growth. We expect
that recent actions we have taken to reduce cost will offset
general pressure on group margins in the current financial
year.
Our medium-term revenue expectation remains mid-single digit
organic growth, and continued expansion through acquisitions.
GROUP INCOME STATEMENT
For the year ended 31 December 2016
Before Separately Before Separately
separately disclosed separately disclosed
disclosed items disclosed items
items (note 2016 items (note 2015
3) Total 3) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------ ------------ ----------- -------- ------------ ----------- --------
Revenue 2 328.6 - 328.6 296.5 - 296.5
Net operating
costs (278.3) (6.8) (285.1) (249.8) (17.2) (267.0)
---------------------- ------ ------------ ----------- -------- ------------ ----------- --------
Operating profit 50.3 (6.8) 43.5 46.7 (17.2) 29.5
Finance costs 4 (6.9) (0.1) (7.0) (6.3) - (6.3)
Finance income 4 0.1 - 0.1 - - -
---------------------- ------ ------------ ----------- -------- ------------ ----------- --------
Profit before
taxation 43.5 (6.9) 36.6 40.4 (17.2) 23.2
Income tax (8.3) 0.4 (7.9) (8.5) 3.8 (4.7)
---------------------- ------ ------------ ----------- -------- ------------ ----------- --------
Profit for the
year 35.2 (6.5) 28.7 31.9 (13.4) 18.5
Profit attributable to:
Equity holders of
the Parent 26.2 17.1
Non-controlling interests 2.5 1.4
------------------------------ ------------ ----------- -------- ------------ ----------- --------
Profit for the year 28.7 18.5
------------------------------ ------------ ----------- -------- ------------ ----------- --------
Earnings per share *
Basic 5 10.5p 6.8p
Diluted 5 10.3p 6.8p
---------------------- ------ ------------------------- --------- ------------ ----------- --------
* Earnings per share on adjusted results are disclosed in Note
5.
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
2016 2015
GBPm GBPm
------------------------------------------------------ ------ ------
Profit for the year 28.7 18.5
Other comprehensive income to be reclassified
in profit or loss in subsequent periods
Exchange differences on translation of foreign
operations and related borrowings 41.3 (5.2)
Other comprehensive income not to be reclassified
to profit or loss in subsequent periods
Actuarial (loss)/gain on defined benefit plans (4.7) 1.2
Income tax effect 0.8 (0.4)
Impact of rate change on deferred tax (0.2) (0.3)
Other comprehensive income/(loss) for the year
(net of tax) 37.2 (4.7)
------------------------------------------------------- ------ ------
Total comprehensive income for the year 65.9 13.8
------------------------------------------------------- ------ ------
Total comprehensive income for the year attributable
to:
Equity holders of the Parent 61.5 12.3
Non-controlling interests 4.4 1.5
------------------------------------------------------- ------ ------
Total comprehensive income for the year 65.9 13.8
------------------------------------------------------- ------ ------
GROUP BALANCE SHEET
As at 31 December 2016
2016 2015
Notes GBPm (restated note 1)
GBPm
----------------------------------------------------- ------- -------------- --------------------
Assets
Non-current assets
Goodwill 409.8 354.9
Intangible assets 22.0 17.7
Property, plant and equipment 7 79.6 68.7
Government grants 8.2 7.1
Deferred tax assets 9.4 8.0
Investments in joint ventures 0.2 0.2
----------------------------------------------------- ------- -------------- --------------------
529.2 456.6
----------------------------------------------------- ------- -------------- --------------------
Current assets
Trade and other receivables 81.4 74.5
Income tax receivable 2.5 0.3
Cash and short-term deposits 52.4 29.2
----------------------------------------------------- ------- -------------- --------------------
136.3 104.0
----------------------------------------------------- ------- -------------- --------------------
Total assets 665.5 560.6
----------------------------------------------------- ------- -------------- --------------------
Equity
Issued share capital 2.5 2.5
Share premium 109.5 109.5
Merger reserve 324.5 324.5
Capital contribution reserve 114.9 114.9
Foreign currency translation reserve 34.0 (5.4)
Retained earnings (247.3) (262.9)
----------------------------------------------------- ------- -------------- --------------------
Equity attributable to equity holders of the Parent 338.1 283.1
Non-controlling interests 8.7 4.7
----------------------------------------------------- ------- -------------- --------------------
Total equity 346.8 287.8
----------------------------------------------------- ------- -------------- --------------------
Liabilities
Non-current liabilities
Bank and other borrowings 9 192.1 167.6
Finance leases 9 0.1 0.3
Retirement benefit obligations 20.7 15.8
Provisions 7.0 6.7
Deferred tax liabilities 13.9 10.4
Other liabilities 13.8 6.2
----------------------------------------------------- ------- -------------- --------------------
247.6 207.0
----------------------------------------------------- ------- -------------- --------------------
Current liabilities
Bank and other borrowings 9 8.0 12.1
Finance leases 9 0.1 0.1
Trade and other payables 55.6 50.5
Income tax payable 3.8 -
Provisions 3.6 3.1
----------------------------------------------------- ------- -------------- --------------------
71.1 65.8
----------------------------------------------------- ------- -------------- --------------------
Total liabilities 318.7 272.8
----------------------------------------------------- ------- -------------- --------------------
Total equity and liabilities 665.5 560.6
----------------------------------------------------- ------- -------------- --------------------
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
Attributable to equity holders of the Parent
Foreign
Capital currency Total
Share Share Merger contribution translation Retained shareholders' Non-controlling Total
capital premium reserve reserve reserve earnings equity interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------ -------- -------- -------- ------------- ------------ --------- -------------- -------------------- -------
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
year - - - - - 17.1 17.1 1.4 18.5
Other
comprehensive
income - - - - (5.3) 0.5 (4.8) 0.1 (4.7)
--------------- ------ -------- -------- -------- ------------- ------------ --------- -------------- -------------------- -------
Total
comprehensive
income for
the year - - - - (5.3) 17.6 12.3 1.5 13.8
Share-based
payments - - - - - 0.4 0.4 - 0.4
Dividends 6 - - - - - (7.5) (7.5) (0.5) (8.0)
--------------- ------ -------- -------- -------- ------------- ------------ --------- -------------- -------------------- -------
At 31 December
2015 2.5 109.5 324.5 114.9 (5.4) (262.9) 283.1 4.7 287.8
--------------- ------ -------- -------- -------- ------------- ------------ --------- -------------- -------------------- -------
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
year - - - - - 26.2 26.2 2.5 28.7
Other
comprehensive
income - - - - 39.4 (4.1) 35.3 1.9 37.2
--------------- ------ -------- -------- -------- ------------- ------------ --------- -------------- -------------------- -------
Total
comprehensive
income for
the year - - - - 39.4 22.1 61.5 4.4 65.9
Share-based
payments - - - - - 1.4 1.4 - 1.4
Income tax
effect of
share based
payments - - - - - 0.2 0.2 - 0.2
Dividends 6 - - - - - (8.1) (8.1) (0.4) (8.5)
At 31 December
2016 2.5 109.5 324.5 114.9 34.0 (247.3) 338.1 8.7 346.8
--------------- ------ -------- -------- -------- ------------- ------------ --------- -------------- -------------------- -------
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm GBPm GBPm
--------------------------------------------- ------ -------- ----------- ------ ------------
Profit before taxation 36.6 23.2
Depreciation of property, plant and
equipment 14.2 12.4
Amortisation of intangible assets 3.9 8.9
Gain on sale of property, plant and (0.1) -
equipment
Gain on disposal of businesses (6.1) -
Impairment of property plant and equipment 1.5 -
Government grants (0.7) (0.6)
Share-based payments 1.4 0.4
Non-cash movement in defined benefit
pension obligations 0.2 0.5
Net finance costs 4 6.9 6.3
--------------------------------------------- ------ -------- ----------- ------ ------------
Operating cash flows before movements
in working capital 57.8 51.1
Decrease/(increase) in trade and other
receivables 4.3 (3.8)
Decrease in provisions and retirement
benefit obligations (1.0) (1.7)
Decrease in trade and other payables (4.3) (2.0)
--------------------------------------------- ------ -------- ----------- ------ ------------
Movements in working capital (1.0) (7.5)
--------------------------------------------- ------ -------- ----------- ------ ------------
Cash generated from operations 56.8 43.6
Interest paid (5.6) (5.1)
Tax paid (4.5) (3.7)
--------------------------------------------- ------ -------- ----------- ------ ------------
Net cash flows from operating activities 46.7 34.8
--------------------------------------------- ------ -------- ----------- ------ ------------
Investing activities
Purchase of property, plant and equipment (17.4) (15.7)
Purchase of intangible assets (0.9) (1.8)
Acquisition of subsidiary undertakings
(net of cash acquired) 8 (23.6) (21.8)
Proceeds on disposal of businesses 25.7 -
Proceeds from sale of property, plant
and equipment 0.1 0.2
Interest received 0.1 -
--------------------------------------------- ------ -------- ----------- ------ ------------
Net cash flows used in investing activities (16.0) (39.1)
--------------------------------------------- ------ -------- ----------- ------ ------------
Net cash flows before financing activities 30.7 (4.3)
Financing activities
Proceeds from borrowings 9.0 17.0
Repayment of bank borrowings (13.0) (5.0)
Payment of finance lease liabilities (0.1) (0.2)
Dividends paid to shareholders 6 (8.1) (7.5)
Dividends paid to non-controlling interests (0.4) (0.5)
Net cash flows (used in)/from financing
activities (12.6) 3.8
--------------------------------------------- ------ -------- ----------- ------ ------------
Net increase/(decrease) in cash and
cash equivalents 18.1 (0.5)
Cash and cash equivalents at 1 January 29.1 29.9
Effects of exchange rate changes 5.2 (0.3)
--------------------------------------------- ------ -------- ----------- ------ ------------
Cash and cash equivalents at 31 December 52.4 29.1
--------------------------------------------- ------ -------- ----------- ------ ------------
Separately disclosed items included in cash flow
from operating activities (8.5) (8.3)
--------------------------------------------------------------- ----------- ------ ------------
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
1. BASIS OF PREPARATION AND CHANGES TO THE GROUP'S ACCOUNTING POLICIES
The audited results for the year ended 31 December 2016 ("2016") have
been 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.
The financial information set out in the audited results does not constitute
the Group's statutory financial statements for the year ended 31 December
2016 within the meaning of Section 434 of the Companies Act 2006 and
has been extracted from the full financial statements for the year ended
31 December 2016.
Statutory financial statements for the year ended 31 December 2015,
which received an unqualified audit report, have been delivered to the
Registrar of Companies. The reports of the auditors on the financial
statements for the year ended 31 December 2015 and for the year ended
31 December 2016 were unqualified and did not contain a statement under
either Section 498(2) or Section 498(3) of the Companies Act 2006. The
financial statements for the year ended 31 December 2016 will be delivered
to the Registrar of Companies and made available to all shareholders
in due course.
Basis of consolidation
The consolidated financial statements comprise the financial statements
of the Group and its subsidiaries as at 31 December 2016. Control is
achieved when the Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect
those returns through its power over the investee. Specifically, the
Group controls an investee if, and only if, the Group has:
- power over the investee (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee);
- exposure, or rights, to variable returns from its involvement with
the investee; and
- the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result
in control. To support this presumption and when the Group has less
than a majority of the voting or similar rights of an investee, the
Group considers all relevant facts and circumstances in assessing whether
it has power over an investee, including:
- the contractual arrangement with the other vote holders of the investee;
- rights arising from other contractual arrangements; and
- the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts
and circumstances indicate that there are changes to one or more of
the three elements of control. Consolidation of a subsidiary begins
when the Group obtains control over the subsidiary and ceases when the
Group loses control of the subsidiary. Assets, liabilities, income and
expenses of a subsidiary acquired or disposed of during the year are
included in the consolidated financial statements from the date the
Group gains control until the date the Group ceases to control the subsidiary.
Restatement
During the year the provisional fair values attributable to the 2015
acquisitions of Western Technical Services Limited and Accusense Systems
Limited were finalised. In the balance sheet the effect has been to
decrease goodwill by GBP0.2m, reverse the contingent consideration payable
of GBP0.3m and increase deferred consideration payable by GBP0.1m. Note
8 Business Combinations provides further details.
New standards, interpretations and amendments adopted by the
Group
The accounting policies adopted in the preparation of the
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 not yet
effective. There are no standards or interpretations effective for
the first time in the 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 these financial
statements.
Non-GAAP Measures
The financial statements 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 operating performance, the
financial measures used include those which have been derived from
our reported results and cash flows 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 users of the
financial statements 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.
Adjusted EBITA and Adjusted EBITDA
The Group's operations are defined as laboratory based testing,
certification and advisory services. For a user to understand the
Group's operations, we aggregated and disclosed separately those
material items which are not in the ordinary course of laboratory
based testing, certification and advisory services.
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
We define the Group's profit from these operations as Adjusted
EBITA, which is operating profit from continuing operations before
separately disclosed items, interest, and taxation.
We believe Adjusted EBITA is the most significant indicator of
operating performance for the Group as it measures cost efficiency
in relation to overall activity levels and allows a better
understanding of the underlying or long term profitability of the
Group. Adjusted EBITDA is Adjusted EBITA before depreciation.
Free cash flow
Free cash flow is used in the calculation of the Group's cash
conversion rate. This provides a measure of the Group's ability to
manage operational cash flow generation which we believe is useful
to users of the financial statements as it represents cash flows
that could be used for repayment of debt or to fund our strategic
initiatives, including acquisitions, if any.
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.
A reconciliation of profit before tax to Adjusted EBITA,
Adjusted EBITDA and free cash flow is presented below:
2016 2015
GBPm GBPm
---------------------------------------------------------- ------- -------
Profit before tax 36.6 23.2
Finance costs 7.0 6.3
Finance income (0.1) -
Amortisation of intangible assets 3.9 8.9
Restructuring costs 5.9 4.9
Impairment of property, plant and equipment 1.5 -
Acquisition and integration costs 1.6 3.4
Gain on disposal of businesses (6.1) -
---------------------------------------------------------- ------- -------
Adjusted EBITA 50.3 46.7
Depreciation of property plant and equipment 14.2 12.4
------------------------------------------------------------ ------- -------
Adjusted EBITDA 64.5 59.1
Net capital expenditure comprising: (18.2) (17.3)
------- -------
* Purchase of property, plant and equipment (17.4) (15.7)
* Purchase of intangible assets (0.9) (1.8)
* Less: proceeds on disposal of property, plant and
equipment and intangible asset 0.1 0.2
------- -------
Movements in working capital (1.0) (7.5)
IPO costs paid 1.2 0.5
Free cash flow 46.5 34.8
------------------------------------------------------------ ------- -------
2. SEGMENTAL REPORTING
The Group has historically reported operating segments on a regional
basis. Following a refresh of the Group's strategy and while charting
a course for the next stage of the Group's journey, it was recognised
that a global sector-based approach would better facilitate growth
and improve business performance. For this reason, the Group is now
organised into three operating Divisions which are; Industries, Product
and Infrastructure, Health & Environment. These three Divisions are
organised and managed separately based on the sectors they operate
in and each is treated as an operating segment and a reportable segment.
The principle activities in each Division are as follows:
* the Industries Division operates in the development,
qualification, validation and production control
testing undertaken for the Aerospace sector as well
as materials and infrastructure testing undertaken
for the oil & gas industry.
* the Products Division services and calibrates
measurement instruments; provides fire safety testing,
analysis, consultancy, and certification; as well as
structural, systems and component testing for the
transportation market.
* the Infrastructure, Health & Environment Division
provides civil engineering testing, health sciences
and environmental testing; as well as material
analysis and testing for major infrastructure
projects.
The operating and reportable segments were determined based on reports
reviewed and used to make operational decisions, by the Board of Directors.
The Board of Directors are deemed to be the Group's Chief Operating
Decision Maker (CODM).
The Board monitors the operating results of its Divisions separately
for the purpose of making decisions about resource allocation and performance
assessment. Divisional performance is evaluated based on Adjusted EBITA
and is measured consistently in the consolidated financial statements.
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 Divisions are on an arm's length
basis in a manner similar to transactions with third parties and inter-divisional
revenues are eliminated on consolidation.
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
The segment information is prepared in conformity with the accounting
policies of the Group and the accounting standard IFRS 8 Operating
Segments. Segment information from the prior year has been restated
to be consistent with the new operating segments and in order to provide
more meaningful comparison.
Infrastructure,
Health & Eliminations/
Industries Products Environment Unallocated Total
2016 GBPm GBPm GBPm GBPm GBPm
-------------------------- -------------- --------- ---------------- -------------- -------
Revenue - external
customers 116.6 117.0 94.9 - 328.6
Revenue - inter-business
segments 1.4 0.3 0.4 (2.1) -
-------------------------- -------------- --------- ---------------- -------------- -------
Total revenue 118.0 117.3 95.3 (2.1) 328.6
-------------------------- -------------- --------- ---------------- -------------- -------
Adjusted EBITDA 27.9 20.8 15.8 - 64.5
Depreciation (6.4) (3.9) (3.9) - (14.2)
-------------------------- -------------- --------- ---------------- -------------- -------
Adjusted EBITA 21.5 16.9 11.9 - 50.3
Gain on disposal
of businesses - 0.2 5.9 - 6.1
Amortisation of
intangible assets (1.0) (2.0) (0.9) - (3.9)
Restructuring
costs (4.1) (1.0) (0.8) - (5.9)
Impairment of
property, plant
and equipment (1.5) - - - (1.5)
Acquisition and
integration costs (0.1) (0.4) (1.1) - (1.6)
Segmental operating
profit 14.8 13.7 15.0 - 43.5
Net finance costs - - - (6.9) (6.9)
-------------------------- -------------- --------- ---------------- -------------- -------
Profit/(loss)
before tax 14.8 13.7 15.0 (6.9) 36.6
Income tax - - - (7.9) (7.9)
-------------------------- -------------- --------- ---------------- -------------- -------
Profit /(loss)
for the year 14.8 13.7 15.0 (14.8) 28.7
-------------------------- -------------- --------- ---------------- -------------- -------
Infrastructure,
Health & Eliminations/
Industries Products Environment Unallocated Total
2015 GBPm GBPm GBPm GBPm GBPm
-------------------------- ----------- --------- ---------------- -------------- -------
Revenue - external
customers 115.1 97.1 84.3 - 296.5
Revenue - inter-business
segments 1.3 0.2 0.3 (1.8) -
-------------------------- ----------- --------- ---------------- -------------- -------
Total revenue 116.4 97.3 84.6 (1.8) 296.5
-------------------------- ----------- --------- ---------------- -------------- -------
Adjusted EBITDA 30.1 17.9 11.1 - 59.1
Depreciation (5.7) (3.6) (3.0) - (12.4)
-------------------------- ----------- --------- ---------------- -------------- -------
Adjusted EBITA 24.4 14.3 8.1 - 46.7
Amortisation of
intangible assets (3.4) (3.9) (1.6) - (8.9)
Restructuring
costs (2.6) (1.8) (0.5) - (4.9)
Acquisition and
integration costs (0.5) (2.0) (0.9) - (3.4)
Segmental operating
profit 17.9 6.6 5.1 - 29.5
Net finance costs - - - (6.3) (6.3)
-------------------------- ----------- --------- ---------------- -------------- -------
Profit/(loss)
before tax 17.9 6.6 5.1 (6.3) 23.2
Income tax - - - (4.7) (4.7)
-------------------------- ----------- --------- ---------------- -------------- -------
Profit/(loss)
for the year 17.9 6.6 5.1 (11.0) 18.5
-------------------------- ----------- --------- ---------------- -------------- -------
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
3. SEPARATELY DISCLOSED ITEMS
2016 2015
GBPm GBPm
--------------------------------------------------------- ------ ----------------
Gain on disposal of businesses (6.1) -
Amortisation of intangible assets 3.9 8.9
Restructuring costs 5.9 4.9
Impairment of property, plant and equipment 1.5 -
Acquisition and integration costs 1.6 3.4
Separately disclosed items included in operating profit 6.8 17.2
Finance costs - unwinding of the discount relating to 0.1 -
deferred consideration
--------------------------------------------------------- ------ ----------------
Separately disclosed items included in profit before
tax 6.9 17.2
Income tax credit (0.4) (3.8)
Separately disclosed items included in profit for the
year 6.5 13.4
--------------------------------------------------------- ------ ----------------
The Group presents, as separately disclosed items on the face of
the group 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 year to facilitate a comparison with prior years
and a better assessment of trends in financial performance.
A full description of these costs is included in the
announcement on pages 4 and 5.
Included in the income tax credit is GBP0.3m (2015: GBP2.0m)
related to the amortisation of the deferred tax liability in
respect of customer relationships. An income tax debit of GBP1.6m
(2015: GBP1.8m) relates to restructuring, amortisation and
integration costs; and an income tax credit of GBP1.5m relates to
the tax charge on the gain on disposal of businesses.
4. NET FINANCE COSTS
2016 2015
GBPm GBPm
-------------------------------------------------------- ------ -----
Finance costs
Bank loans 5.5 5.0
Other loans and charges 0.3 0.2
Amortisation of debt issue costs 0.6 0.7
Pension interest 0.6 0.4
Total finance costs 7.0 6.3
-------------------------------------------------------- ------ -----
Finance income
Interest income on short-term deposits (0.1) -
-------------------------------------------------------- ------ -----
Total finance income (0.1) -
-------------------------------------------------------- ------ -----
Net finance costs 6.9 6.3
-------------------------------------------------------- ------ -----
Included in separately disclosed items - unwind of the (0.1) -
discount on deferred consideration
-------------------------------------------------------- ------ -----
Net finance costs before separately disclosed items 6.8 6.3
-------------------------------------------------------- ------ -----
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
5. EARNINGS PER SHARE
2016 2015
Based on the profit for the year: Notes GBPm GBPm
------------------------------------------------- -------- ------ ---------------------
Profit attributable to equity holders of the Parent
Company 26.2 17.1
Separately disclosed items 3 6.5 13.4
------------------------------------------------- -------- ------ ---------------------
Adjusted earnings after tax 32.7 30.5
----------------------------------------------------------- ------ ---------------------
2016 2015
Number of shares: m m
Basic weighted average number of ordinary shares 250.4 250.4
Potentially dilutive share awards 2.8 0.3
----------------------------------------------------------- ------ ---------------------
Diluted weighted average number of shares 253.2 250.7
----------------------------------------------------------- ------ ---------------------
2016 2015
pence pence
----------------------------------------------------------- ------ ---------------------
Basic earnings per share 10.5 6.8
Share awards (0.2) -
----------------------------------------------------------- ------ ---------------------
Diluted earnings per share 10.3 6.8
----------------------------------------------------------- ------ ---------------------
Basic adjusted earnings per share 13.1 12.2
Share awards (0.2) -
----------------------------------------------------------- ------ ---------------------
Diluted adjusted earnings per share 12.9 12.2
----------------------------------------------------------- ------ ---------------------
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.
6. DIVIDS 2016 2015
GBPm GBPm
Cash dividends to equity holders of the Parent
------------------------------------------------- -------- ------ ---------------------
Interim paid in respect of 2016: 1.05p per share
(2015: 1.0p per share) 2.6 2.5
Final paid in respect of 2015: 2.2p per share
(2014: 2.0p per share) 5.5 5.0
------------------------------------------------- -------- ------ ---------------------
8.1 7.5
----------------------------------------------------------- ------ ---------------------
Proposed dividends
The Board is recommending a final dividend of 2.35p per share
(2015: 2.2p per share). This will absorb an estimated GBP6m of
shareholders' funds. The total dividend for the year will therefore
be 3.4p per share representing an increase of 6.3% (2015: 3.2p).The
dividend will be paid on 9 June 2017 to shareholders on the
register at the close of business on 26 May 2017.
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
7. PROPERTY, PLANT AND EQUIPMENT
Acquisitions and disposals
During the year ended 31 December 2016, the Group capitalised
assets with a cost of GBP23.3m including GBP5.9m from business
combinations (note 8) (2015: GBP17.5m including GBP1.8m from
business combinations).
Assets with a carrying value of GBP5.9m were disposed of during
the year ended 31 December 2016 (2015: GBP0.1m).
The positive impact of foreign exchange on the total carrying
amount of property, plant and equipment in the year ended 31
December 2016 was GBP9.2m (2015: GBP1.0m negative impact).
The net book value of property, plant and equipment was as
follows:
2016 2015
GBPm GBPm
------------------------------------- ------ ----------------
Land and buildings 17.5 16.1
Plant and equipment 62.1 52.6
------------------------------------- ------ ----------------
Total property, plant and equipment 79.6 68.7
------------------------------------- ------ ----------------
Property, plant and equipment include GBP0.3m (2015: GBP0.4m) of
assets held under finance leases.
Capital commitments
At 31 December 2016 the Group had commitments to purchase
property, plant and equipment for GBP1.4m (2015: GBP3.4m).
8. BUSINESS COMBINATIONS
Acquisitions in 2016
During the year, the Group acquired the companies with fair values
as set out in the following table:
Admaterials Jones Environmental
Technologies Forensics Insight
Private Limited Limited NDT Limited Total
GBPm GBPm GBPm GBPm
---------------------- ----------------- -------------------- ------------- --------
Intangible assets 1.7 4.7 - 6.4
Property, plant and
equipment 1.2 3.5 1.2 5.9
Trade and other
receivables 0.8 2.0 0.5 3.3
Cash and cash
equivalents 0.4 0.7 0.5 1.6
Trade and other
payables (0.8) (0.7) (0.3) (1.8)
Finance lease - (1.3) - (1.3)
Provisions - (0.4) - (0.4)
Income tax payable - - (0.3) (0.3)
Deferred tax
liabilities (0.3) (1.1) - (1.4)
---------------------- ----------------- --------------------
Net assets acquired 3.0 7.4 1.6 12.0
Goodwill 6.2 8.1 6.0 20.3
Total purchase price 9.2 15.5 7.6 32.3
Finance lease settled
on acquisition - 1.3 - 1.3
Acquired cash and
cash
equivalents (0.4) (0.7) (0.5) (1.6)
Deferred
consideration (0.6) (1.0) (0.1) (1.7)
Contingent
consideration (3.8) (1.6) (1.5) (6.9)
---------------------- -------------------- -------------
Net cash outflow on
acquisitions 4.4 13.5 5.5 23.4
Purchase consideration:
Gross cash consideration
paid in the year 4.8 12.9 6.0 23.7
Deferred consideration 0.6 1.0 0.1 1.7
Contingent consideration 3.8 1.6 1.5 6.9
9.2 15.5 7.6 32.3
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
During the year the following payments were made for acquisitions completed
during the current and prior year:
2016 2015
GBPm GBPm
Contingent consideration - 3.5
Deferred consideration 0.1 -
Purchase price adjustment 0.1 0.2
Net cash outflow on acquisitions made in the
prior year 0.2 3.7
Net cash outflow on acquisitions in the current
year 23.4 18.1
Total net cash outflow for the year 23.6 21.8
At year-end the acquisition accounting for acquisitions made between
July and December 2016 is not complete due to the timing of the transactions
and will be finalised during the following financial year. This includes
all acquired assets and liabilities. No allocation has been made in
the determination of the provisional fair values from goodwill to identifiable
intangible assets for Insight NDT Limited. External advisers are assisting
with this allocation and this allocation will be finalised along with
all other fair values in the next financial year.
No material adjustments have been made in respect of the trade and
other receivables acquired.
Goodwill
The goodwill of GBP20.3m comprises the fair value of the expected synergies
arising from the acquisitions 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
GBP9.0m to revenue and, if the acquisitions were assumed to have been
made on 1 January 2016, the Group revenue would have been GBP335.2m.
No profit figures are disclosed as these businesses have now been integrated
into the rest of the Group and therefore it would be impracticable
to obtain a meaningful profit number.
Restatement (note 1)
In the 2015 financial statements, the fair value of the
acquisitions of Western Technical Services Limited and Accusense
Systems Limited were provisional due to the timing of the
transactions. The fair values have now been finalised resulting in
adjustments to the provisional fair values attributed.
The following table summarises the adjustments made to the
provisional values during the year:
Re-assessment
of contingent
Provisional consideration Final fair
fair values (note 1) values
GBPm GBPm GBPm
Intangible assets 0.2 - 0.2
Trade and other receivables 0.3 - 0.3
Cash and cash equivalents 0.3 - 0.3
Trade and other payables (0.2) - (0.2)
Income tax payable (0.2) - (0.2)
Net assets acquired 0.4 - 0.4
Goodwill 1.3 (0.2) 1.1
Total purchase price 1.7 (0.2) 1.5
Acquired cash and cash equivalents (0.3) - (0.3)
Contingent consideration (0.3) 0.3 -
Deferred consideration - (0.1) (0.1)
Net cash outflow on acquisitions 1.1 - 1.1
NOTES TO THE FULL YEAR RESULTS ANNOUNCEMENT
For the year ended 31 December 2016
Acquisitions in 2015
The aggregated fair values arising from the 2015 acquisitions are set
out on the following table:
GBPm
-------------------------------
Investment in joint
ventures 0.2
Intangible assets 10.5
Property, plant and
equipment 1.8
Deferred tax assets 3.0
Trade and other receivables 6.6
Cash and cash equivalents 4.3
Trade and other payables (12.2)
Income tax payable (0.4)
Long term provision (0.1)
Retirement benefit obligation (14.2)
Deferred tax liabilities (2.1)
Net assets acquired (2.6)
Goodwill (restated) 25.4
Total purchase price
(restated) 22.8
Acquired cash and cash
equivalents (4.3)
Purchase price adjustment (0.1)
Deferred consideration (0.3)
---------------------------------- ------
Net cash outflow on
acquisitions 18.1
Purchase price consideration
(restated):
Gross cash consideration
paid in the year 22.4
Purchase price adjustment 0.1
Deferred consideration 0.3
---------------------------------- ------
22.8
9. BANK AND OTHER BORROWINGS
Amounts falling Amounts falling
due in: due in:
less more 2016 less more 2015
than than Total than than Total
one year one one one
year year year
GBPm GBPm GBPm GBPm GBPm GBPm
Term loans - 193.6 193.6 - 169.7 169.7
Revolving credit facility 8.0 - 8.0 12.0 - 12.0
Bank overdrafts - - - 0.1 - 0.1
Debt issue costs - term loans - (1.5) (1.5) - (2.1) (2.1)
Bank and other borrowings 8.0 192.1 200.1 12.1 167.6 179.7
Finance leases 0.1 0.1 0.2 0.1 0.3 0.4
8.1 192.2 200.3 12.2 167.9 180.1
Net debt is arrived at as follows: 2016 2015
GBPm GBPm
Term loans 193.6 169.7
Revolving credit facility 8.0 12.0
Finance leases 0.2 0.4
Gross debt 201.8 182.1
Cash and cash equivalents (52.4) (29.1)
Net debt 149.4 153.0
Net debt is shown gross of unamortised debt issue costs of
GBP1.5m (2015: GBP2.1m).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUAWPUPMGRM
(END) Dow Jones Newswires
February 28, 2017 02:00 ET (07:00 GMT)
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