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)% organic¹ growth at constant currency²

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)

Adjusted results3	2016 £m	2015 £m	Reported growth	Organic growth at constant currency	Growth from acquisitions net of disposals 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%

 

Statutory results	2016 £m	2015 £m	Reported 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 £m	2015 £m	Growth at reported exchange rates		Organic1 growth  at constant2 exchange rates
Revenue	328.6	296.5	10.8%		(0.2)%
Adjusted EBITA3	50.3	46.7	7.7%
EBITA margin	15.3%	15.8%
Operating profit	43.5	29.5
Adjusted net finance costs3	(6.8)	(6.3)
Net finance costs	(6.9)	(6.3)
Income tax expense	(7.9)	(4.7)
Basic adjusted earnings per share3	13.1p	12.2p
Basic earnings per share	10.5p	6.8p
Proposed final dividend per share	2.35p	2.2p
Cash conversion4	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 £m	Growth5
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 £328.6m 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 £43.5m 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 £m		2015 £m
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 deferred consideration	0.1		-
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 £18.0m including a selling price adjustment of £0.1m. The cash consideration was net of certain working capital balances retained and liabilities transferred (gross consideration £20m).The net gain was £5.3m.

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 £7.5m, subject to a further selling price adjustment. The cash consideration was net of certain working capital balances retained and liabilities transferred (gross consideration £9.1m).The net gain was £0.6m.

The sale of a division of WFR Gent NV completed 24 March 2016 for a cash consideration of £0.2m. The net gain was £0.2m.

 

Summarised financial information relating to the sale of the businesses is shown in the table below:

	UK and Ireland Food, Water and Pharmaceuticals £m	Environmental East £m	WFR Gent Fire-testing division £m	Total £m
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 £3.9m, a decrease of £5.0m from £8.9m 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 £3.3m and included onerous lease provisions of £1.8m, staff redundancies of £1.2m and other property related costs of £0.3m.

 

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 £2.0m 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 £0.6m, 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 £1.5m.

Acquisition and integration costs

Acquisition costs incurred in relation to the purchase of Admaterials Technologies Private Limited was £0.1m, Jones Environmental Forensics Limited £0.3m and Insight NDT Limited £0.2m. 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 £0.5m in total for these businesses include project management, travel and rebranding costs. Integration costs for businesses acquired towards the end of 2015 amounted to £0.1m and costs in relation to active and failed projects amount to £1.0m. Contingent consideration of £0.6m 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 £0.3m (2015: £2.0m) related to the amortisation of the deferred tax liability in respect of customer relationships.  An income tax debit of £1.6m (2015: £1.8m) relates to restructuring, amortisation and integration costs; and an income tax credit of £1.5m relates to the tax charge on the gain on disposal of businesses.

 

 

Net finance costs
	2016	2015
	£m	£m
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 of discount on deferred consideration	(0.1)	-
Net finance costs before separately disclosed interest	6.8	6.3

Net cash interest payable in the year increased from £5.1m to £5.5m. 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
	£m	£m
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 £7.9m (2015: £4.7m).

                      

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 £4.9m (2015: £4.2m). UK taxable profits were partially offset by UK losses which resulted in a UK tax charge of £1.2m (2015: £0.5).

 

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 £6m 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 £5.4m (£4.8m 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 £0.1m. 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 £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 purchase consideration of £15.5m (£16.1m net of finance lease settled and cash acquired). This includes deferred consideration of £1.0m and an amount of up to £1.6m 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 £0.3m. 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 £8.0m.

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 £7.6m (£7.1m net of cash acquired). The purchase consideration includes deferred consideration of £0.1m and an amount of up to £1.5m is contingent upon future profitability of the business. Acquisition costs incurred in the year in respect of Insight amounted to £0.2m. 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 £2m in 2015.

Cash flow
	2016	2015
	£m	£m
Adjusted EBITDA1	64.5	59.1
Net capital expenditure2	(18.2)	(17.3)
Movements in working capital3	0.2	(7.0)
Free cash flow	46.5	34.8
Cash conversion4	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)
Other5	(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 £11.7m 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 £0.1m. Gross capital expenditure of £18.3m represents 5.6% of revenue
(2015: 5.9 %).

 

Net debt (excluding debt issue costs)

	2016 £m	2015 £m
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 £193.6m 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 £82.0m 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 rate 2016	Closing rate 2016	Average rate 2015	Closing rate 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 £m		2015 £m	Growth at reported exchange rates	Organic growth  at constant 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 £m	Margin	2015 £m	Margin
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 £m		2015 £m	Growth at reported exchange rates	Organic growth at constant 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 £m		2015 £m	Growth at reported exchange rates	Organic growth  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 £m		2015 £m	Growth at reported exchange rates	Organic growth  at constant 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 disclosed items	Separately disclosed items (note 3)	2016 Total		Before separately disclosed items		Separately disclosed items (note 3)	2015 Total
	Notes		£m	£m	£m		£m		£m	£m
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
		£m		£m
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

 

 

	Notes		2016 £m	2015 (restated note 1) £m
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
		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 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	£m	£m		£m	£m
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 equipment			(0.1)			-
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 £0.2m, reverse the contingent consideration payable of £0.3m and increase deferred consideration payable by £0.1m.  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 £m	2015 £m
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.
	Industries		Products	Infrastructure, Health & Environment	Eliminations/ Unallocated	Total
2016	£m	£m		£m	£m	£m
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

 

	Industries	Products	Infrastructure, Health & Environment	Eliminations/ Unallocated	Total
2015	£m	£m	£m	£m	£m
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 £m	2015 £m
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 deferred consideration	0.1	-
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 £0.3m (2015: £2.0m) related to the amortisation of the deferred tax liability in respect of customer relationships.  An income tax debit of £1.6m (2015: £1.8m) relates to restructuring, amortisation and integration costs; and an income tax credit of £1.5m relates to the tax charge on the gain on disposal of businesses.

 

 

4. NET FINANCE COSTS

	2016	2015
	£m	£m
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 discount on deferred consideration	(0.1)	-
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

Based on the profit for the year:	Notes	2016 £m	2015 £m
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
Number of shares:		2016 m	2015 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. DIVIDENDS Cash dividends to equity holders of the Parent		2016 £m	2015 £m
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 £6m 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 £23.3m including £5.9m from business combinations (note 8) (2015: £17.5m including £1.8m from business combinations).

 

Assets with a carrying value of £5.9m were disposed of during the year ended 31 December 2016 (2015: £0.1m).

The positive impact of foreign exchange on the total carrying amount of property, plant and equipment in the year ended 31 December 2016 was £9.2m (2015: £1.0m negative impact).

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

	2016 £m	2015 £m
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 £0.3m (2015: £0.4m) of assets held under finance leases.

 

Capital commitments
At 31 December 2016 the Group had commitments to purchase property, plant and equipment for £1.4m (2015: £3.4m).

 

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  Technologies  Private Limited Jones Environmental Forensics Limited     Insight NDT Limited Total £m £m £m £m 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 £m 2015 £m 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 £20.3m 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 £9.0m to revenue and, if the acquisitions were assumed to have been made on 1 January 2016, the Group revenue would have been £335.2m.   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:

 

	Provisional fair values	Re-assessment of contingent consideration (note 1)	Final fair  values
	£m	£m	£m
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:
£m 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 due in:			Amounts falling due in:
	less than one year	more than one year	2016 Total	less than one  year	more than one year	2015 Total
	£m	£m	£m	£m	£m	£m
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 £m	2015 £m
Term loans Revolving credit facility Finance leases		193.6 8.0 0.2	169.7 12.0 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 £1.5m (2015: £2.1m).