Science Group lifts margins and EPS as £20 million-plus buyback gathers pace

Science Group's first-half numbers at a glance

Science Group has delivered a resilient first half despite geopolitical uncertainty, disrupted UK defence contracting and weaker business confidence in parts of its consultancy operation.

The headline attraction is margin rather than revenue growth. Adjusted operating profit edged up to £11.5 million even though core revenue declined, lifting the adjusted operating profit margin from 19.7% to 24.3%.

Adjusted operating profit strips out items including acquisition-related amortisation and share-based payment charges. It is the measure management uses to assess underlying trading performance.

Key figure	H1 2026	H1 2025	Change
Core revenue	£46.4 million	£48.7 million	Down 4.7%
Total revenue	£47.2 million	£57.2 million	Down 17.4%
Adjusted operating profit	£11.5 million	£11.3 million	Up 1.6%
Adjusted operating margin	24.3%	19.7%	Up 4.6 percentage points
Adjusted basic EPS	20.4p	19.3p	Up 5.7%
Cash generated from operations	£10.7 million	£21.2 million	Down 49.4%
Net funds	£56.8 million	£70.3 million	Down 19.2%

The sharp fall in total revenue needs some context. Science Group has deliberately reduced low-margin, pass-through defence revenue. This is revenue collected for activities that contribute relatively little profit, so its removal cuts reported sales more heavily than earnings.

That strategy appears to be working from a profitability perspective. Core revenue fell by £2.3 million, but adjusted operating profit still increased by £0.2 million.

Why statutory profit fell so sharply

Reported profit before tax was £8.1 million, compared with £32.2 million in the first half of 2025. That comparison looks alarming at first glance, but the previous period included £24.0 million of net proceeds from the disposal of a corporate investment.

Science Group said profit before tax was consistent with the prior year after normalising for that exceptional gain.

Basic earnings per share consequently fell from 55.3p to 14.3p on a statutory basis. Adjusted basic EPS, which removes the effect of exceptional and non-underlying items, rose from 19.3p to 20.4p.

That adjusted EPS growth reflects both improved profitability and a lower share count following the group's buyback programme.

Services held its margin despite delayed spending

The Sagentia Services division provides product development, regulatory and advisory services. It faced slower client procurement as geopolitical turmoil in the Middle East affected business confidence and raised concerns around energy prices, inflation and interest rates.

Services core revenue declined to £28.2 million from £29.0 million. Adjusted operating profit fell to £7.0 million from £7.9 million, although the margin was maintained at 24.0%, compared with 23.9% previously.

The UK defence market created another obstacle. The delayed UK Defence Investment Plan materially disrupted contracting, just as Sagentia Defence completed its managed withdrawal from lower-margin pass-through work.

There is a potentially encouraging signal for the second half. Following the plan's release in July 2026, Science Group said its defence practice was already seeing an improvement. Management expects this to continue, while most Services sectors are positioned to grow during the second half.

This matters because the Board expects sequential growth, meaning improvement compared with the first half, to be driven principally by Services.

CMS2 delivered an exceptional margin

Critical Maritime Systems & Support, known as CMS2, designs and supports atmosphere management systems for submarines.

Revenue declined to £11.1 million from core revenue of £12.3 million a year earlier. However, adjusted operating profit increased from £3.6 million to £4.3 million, with the margin jumping from 21.9% to 38.3%.

The company described this margin as exceptional and linked it to the timing of certain contracts. Investors should therefore be careful about treating 38.3% as a sustainable run rate. Science Group expects a more normalised CMS2 margin across 2026 as a whole.

That warning does not undermine the strong first-half contribution, but it does suggest some of the group's margin expansion may reverse as the contract mix changes.

Frontier remains steady as component costs rise

Frontier, which supplies radio and audio semiconductors and modules, reported revenue of £6.8 million and adjusted operating profit of £0.9 million.

Higher DRAM memory costs caused a modest decline in unit volumes across the consumer electronics market. Frontier passed those costs through to its distribution channel, while increased selling prices and a shift towards higher-end products largely offset the volume weakness.

The Auria connected-audio product has now appeared in launched branded products and targets a larger market than Frontier's traditional range. However, the announcement did not disclose Auria revenue, customer numbers or forecasts.

All Auria research and development spending continues to be expensed rather than capitalised. This reduces current profit but supports a close relationship between adjusted operating profit and cash generation.

Cash remains substantial after shareholder returns

Cash conversion was 94%, with £10.7 million generated from operations. The prior-year figure of £21.2 million benefited from a working-capital normalisation, making it a demanding comparison.

Group cash stood at £67.9 million at 30 June 2026, with net funds of £56.8 million after borrowings. Science Group also has an undrawn £30.0 million revolving credit facility running to March 2030.

Cash and net funds are lower than a year ago, but this partly reflects deliberate capital returns. Science Group returned £26.3 million to shareholders through buybacks and dividends over the past year and paid £5.1 million of tax relating to the 2025 corporate investment gain.

During H1 2026, the company bought 2.4 million shares for treasury at an average price of 553p, spending £13.5 million. Subject to corporate activity, the Board expects the 2026 buyback allocation to exceed £20.0 million.

Buybacks reduce the number of shares among which earnings are divided, supporting earnings per share if profits are maintained. The company had 40.8 million shares in issue at the period end, down from 44.4 million a year earlier.

Property assets offer another possible source of value

Science Group owns freehold sites at Harston Mill near Cambridge and Great Burgh near Epsom. Their aggregate balance-sheet value is £20.5 million.

The last independent valuation, completed in December 2023, placed their combined value in a range of £16.9 million to £31.6 million. Advisers have now been appointed to assess options that could enhance shareholder value over the longer term.

No transaction, timetable or expected financial benefit has been disclosed, so this remains an area of optionality rather than a confirmed catalyst.

What investors should watch in the second half

The positives are clear: underlying profit and adjusted EPS increased, margins expanded, cash conversion remained strong and the balance sheet retains considerable flexibility. The buyback also provides a direct route for returning surplus capital.

The less comfortable point is that core revenue declined, while Services profit was lower and the outstanding CMS2 margin is not expected to persist at the first-half level. Geopolitical volatility and delays to corporate purchasing decisions remain external risks.

The key test for the remainder of 2026 is whether the expected Services recovery arrives quickly enough to offset normalising CMS2 profitability. Science Group's strong net cash position gives it room to manage that uncertainty while continuing to consider acquisitions, shareholder returns and opportunities involving its property portfolio.