EXO.L Regulatory News (EXO)

2014 HALF YEAR RESULTS ANNOUNCEMENT

29 AUGUST 2014

Exova Group plc ("Exova"), a leading international provider of technically demanding testing and advisory services announces its half year results for the period ended 30 June 2014.

In April 2014 Exova's shares were admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange. As expected, the net primary proceeds of the IPO were applied to reduce debt, with the remaining debt refinanced through a new term loan, resulting in a significantly reduced Group interest charge going forward.

Highlights

· Underlying organic revenue1 growth at constant currency of 3.4%, organic revenue growth at constant currency -0.4%

· Total revenue growth on a constant currency basis of 4.4%

· Recovery in Rest of World region

· Margin improvement of 0.2% before additional listed company costs

· Two bolt-on acquisitions completed in the half year and one in July

Notes:

1) Underlying organic revenue is organic revenue adjusted for certain non-recurring items associated with a US transportation client within the Product cluster and for the discontinuation of certain food advisory services in the Health Sciences cluster in Europe.

2) Adjusted results are stated before restructuring costs, acquisition and integration costs, IPO related costs, impairment of assets, management fee to private equity investor, interest, taxation and amortisation of intangibles.

3) Pro-forma diluted adjusted earnings per share has been calculated as if the post IPO capital and debt structure had been in place throughout the period.

4) Reflect pre-IPO funding structure and IPO transaction costs.

Ian El-Mokadem, Chief Executive Officer, commented:

"The Group has made satisfactory progress in the first six months of 2014. We have seen good performance in the Europe and Rest of World regions, however we have faced some headwinds in Aerospace and Americas Transportation. Our investments in the provision of more technically demanding services are delivering good growth and our distinctive 'Exova Model' is enabling us to continue to make operational improvements."

"The medium term outlook for the business remains positive and we continue to see opportunities to expand the global reach of our business through new acquisitions and outsourcing agreements."

Contacts

For further information please contact:

Ian Middleton, Powerscourt Group

Tel. Direct +44 (0)20 7549 0998 / +44 (0)7885 508 527

exova@powerscourt-group.com

Ian Power, Investor Relations, Exova Group plc

Telephone: +44 (0) 131 476 7612

Analyst & Investor call

There will be a call for analysts today at 9.00am GMT. A copy of the presentation is available on the website.

Corporate website: www.exova.com

IMS

Exova will issue its interim management statement on 19 November 2014.

Exova

Exova is one of the world's largest dedicated 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 118 permanent facilities in 23 countries and employs around 3,800 people throughout Europe, the Americas, the Middle East and Asia/Asia Pacific.

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

HALF YEAR REPORT 2014

BUSINESS REVIEW

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

Exova operates in the Testing, Inspection and Certification ("TIC") market, but focuses primarily on the Testing sector, with Inspection and Certification activities limited to niche market and geographic areas.

The business comprises 118 permanent facilities in 23 countries and employs around 3,800 people.

In April 2014 Exova's shares were admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange1.

Overview of performance

1) In conjunction with the IPO, a reorganisation to consolidate the share capital structure and exchange the loan due to the parent undertaking for shares was undertaken. Further details on this are included in note 15 to the Half Year Report.

2) Adjusted items are stated before restructuring costs, acquisition and integration costs, IPO related costs, impairment of assets, management fee to private equity investor, interest, taxation and amortisation of intangibles.

3) Pro-forma diluted adjusted earnings per share has been calculated as if the post IPO capital and debt structure had been in place throughout the period.

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 effect of the IPO related cost accrual), less capital expenditure net of disposals.

Revenue

Group organic revenue growth on a constant currency basis was (0.4%) for the period. Adjusting this for certain non-recurring revenue items associated with a US transportation client within the Product cluster and for the discontinuation of certain food advisory services in the Health Sciences cluster in Europe, underlying organic revenue growth was 3.4%.

Adjusted EBITA

Adjusted EBITA was £21.1 million (six months to 30 June 2013: £21.8 million) after charging £0.4 million of on-going additional costs from 16 April 2014 related to the transition of the Group to listed status. The adjusted EBITA margin improved by 0.2% before these costs.

On-going financing costs have reduced significantly since the refinancing associated with the IPO. However net cash interest payable in the period to 30 June 2014 was higher due to the make whole cost on redemption of the senior loan notes. There will be no non-cash costs relating to the loan to parent undertaking and preference shares going forward.

EPS

Diluted adjusted earnings per share for the six months ended 30 June 2014 was (21.6p) (six months ended 30 June 2013: (145.1p)).

Pro-forma diluted adjusted earnings per share for the six months ended 30 June 2014 was 5.4p. Pro-forma diluted adjusted earnings per share has been calculated as if the post IPO capital and debt structure had been in place throughout the period

Separately disclosed items

Amortisation of intangible assets

Amortisation in the six months to 30 June 2014 was £4.0 million (six months to 30 June 2013: £4.5 million). The major element of intangible assets is the value of customer relationships.

Restructuring costs

In the six months to 30 June 2014 there were £0.8 million (six months to 30 June 2013: £1.4 million) of restructuring costs primarily relating to the reorganisation of the Oil & Gas and Industrials business in Europe.

Acquisition and integration costs

In the six months to 30 June 2014 there were £0.7 million (six months to 30 June 2013: £nil) of acquisition and integration costs primarily relating to the integration of Defiance Testing and Engineering Services Inc and the purchase and integration of Catalyst Environmental Limited.

IPO related costs

In the six months to 30 June 2014 there were £13.3 million (six months to 30 June 2013: £nil) of costs relating to the IPO. These costs primarily related to commissions, legal, accounting and other advisor fees including unrecoverable VAT in connection with the IPO.

External net debt (excluding debt issue costs)

Following the IPO, as expected, the net primary proceeds were applied to reduce debt, with remaining debt financed through a new term loan. As a result, net external debt, excluding debt issue costs of £3.1 million (2013: £7.5 million), has decreased from £219.9 million at 31 December 2013 to £139.9 million at 30 June 2014

The external net debt to last twelve months adjusted EBITA ratio was 2.3x at the half year (as at 31 December 2013: 3.6x).

Acquisitions

On 6 January 2014 the Group acquired 100% of the share capital of Catalyst Environmental Limited, a leading provider of UKAS and MCERTS accredited stack emission testing in the UK and Ireland, for an initial cash consideration of £5.2 million (£4.9 million net of cash acquired) with a further payment of £1.3m contingent upon future profitability in the year following acquisition. The business, which has been renamed Exova Catalyst, adds six facilities and 58 colleagues to our existing portfolio and will allow us to develop further the specialist stack testing capabilities which we already provide in Americas and Rest of World.

On 1 May 2014 the Group completed the acquisition of a calibration business in Norway from Raufoss Offshore for a cash consideration of £0.3 million. Raufoss Offshore provides calibration services to customers in the oil & gas, defence, transportation and engineering sectors throughout Norway. This acquisition adds 7 colleagues and strengthens Exova´s position as the leading provider of measurement technology and calibration services in Scandinavia. As part of the deal, Exova Metech will also continue to provide calibration services to divisions within Raufoss Offshore.

On 21 July 2014 the Group acquired 100% of the share capital of Metallurgical Services Private Ltd of Mumbai, one of India's leading metallurgical testing specialists, for a cash consideration of £6.3 million with a further payment of £2.8 million contingent upon future profitability in the two years following acquisition. The acquisition, which brings 130 colleagues and a new laboratory to our global network, will extend our geographical reach and support the expansion of our services to customers in emerging Asian markets. The company, which will now be known as Exova Metallurgical Services, was founded in 1964 and since then has developed long term relationships with over 3,500 customers in high growth sectors, including oil & gas, industrials, and infrastructure. Demand for specialist testing in the Indian subcontinent is anticipated to grow as a result of significant industrial and infrastructure investment, expansion of global manufacturing operations and increased regulatory requirements.

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 results 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.

Underlying organic revenue is organic revenue adjusted for certain non-recurring items associated with a US transportation client within the Product cluster and for the discontinuation of certain food advisory services in the Health Sciences cluster in Europe.

Adjusted EBITA is defined as operating profit from continuing operations before restructuring costs, acquisition and integration costs, IPO related costs, management fee to private equity investor, amortisation of intangible assets and impairment of property, plant and equipment.

The Group presents, as separately disclosed items on the face of the consolidated statement of comprehensive income, 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. Details of the separately disclosed items for the six months ended 30 June 2014 and the comparative prior period are given in note 3 to the Interim Financial Statements.

OPERATING PERFORMANCE

Revenue

Adjusted EBITA

Regional Performance

Europe

In Europe, the Group saw good growth in the Health Sciences and Product clusters. This was underpinned by some important new contract wins and renewals in Health Sciences and continued good progress in our Fire business. In addition, the recently completed acquisitions and outsourcing agreements in these clusters performed somewhat better than originally expected. The overall reported growth in Health Sciences was slightly adversely impacted by our decision to cease the provision of certain food advisory services in 2013.

The European Oil & Gas and Industrials business continued to see good demand for technically demanding services and the new corrosion laboratory that we opened in Dudley, UK in 2013 is performing extremely strongly. Overall growth in this cluster was partially reduced by some softness in demand for more routine testing. In order to serve our customers better, we are restructuring the way we serve the North Sea Oil & Gas sector by ceasing to provide certain services in Norway and expanding our operation in Aberdeen, UK. To this end, we expect to open a new, larger laboratory in Aberdeen before the end of 2014.

The European Aerospace cluster saw subdued demand in the first half of the year due to certain client specific delays and a slower than expected ramp up in production related testing. Notwithstanding this, we continue to see good demand for specialist testing services and our recently opened laboratory in Toulouse, France is performing well.

The margin improvement of 40 bps before allocation of additional listed company costs was due mainly to the recovery in Health Sciences.

Americas

In the Americas, we saw very strong growth in most of our Oil & Gas and Industrials labs with demand for technically demanding testing remaining very encouraging. Overall growth in this cluster was however partially offset by some poor weather in early 2014 and lower levels of coring activities in Western Canada than we expected. Overall growth in Health Sciences was also encouraging.  

In the Americas Product cluster which serves the Transportation sector, we had unusually high levels of sales with one of our clients in 2013. As expected, this level of activity has not repeated in 2014 resulting in a significant reduction in both sales and margin in this cluster in the first six months of 2014. This will continue to be the case in the second half. We are also seeing a general weakness in demand for certain types of testing for the Transportation sector which adversely affected sales in our existing business and in Defiance, the business we acquired in September 2013. However, we have recently experienced an increase in quote activity in the sector. 

As in Europe, we saw subdued demand in the Aerospace cluster due to certain client specific delays and a slower than expected ramp up in production related testing.

Rest of World

In the Rest of the World, good growth in the Middle East cluster was supported by infrastructure investment in Dubai and Qatar and generally favourable conditions in Saudi Arabia in the first six months of 2014.

In the Product cluster growth was also encouraging and we continued to see the benefits of the investments we made in our Fire Testing business in Australia in 2013 as well as good demand for Fire Consulting services across the region.

Overall the new management team in the region is making a positive impact. The region saw a margin improvement of 560 bps as a result of good cost control and the impact of the operational gearing which is inherent in the laboratory based testing model. 

Outlook

We expect underlying organic growth for the full year 2014 to be broadly in line with the first half. This reflects recent contract wins and renewals and continued strong demand for technically demanding services across many of our regions and clusters as well as on-going production related delays in Aerospace and lower levels of project activity in Americas Transportation.

The medium term outlook remains strong with Exova well positioned to benefit from the demand for technically demanding services and accelerated growth and extension of business reach through acquisitions and outsourcing.

PRINCIPAL RISKS & UNCERTAINTIES

The 2013 Report & Accounts set out the principal risks and uncertainties faced by the business and details the process in place for managing these risks. The Report and Accounts are available from our website www.exova.com. As set out on pages 15 and 16 of the Annual Report, we believe that the principal risks and uncertainties which could impact the Group are as follows:

· Health and safety

· Markets

· Client relationships

· Dependence on accreditation

· Litigation

· Competitors

· Human resources

· Reputation

· Environment

· Scottish independence

· Foreign exchange risk

· Liquidity risk

· Credit risk

· Financial irregularities

· Acquisition and integration

In addition, the European Union, the United States and others have recently invoked certain sector-wide export controls and sanctions in relation to Russia and we are assessing the impact of these measures. We do not otherwise consider these risk factors to have changed significantly and the principal risks and uncertainties facing the business for the remainder of the year are consistent with those set out in the 2013 Report & Accounts. There may be additional factors which are not currently known to the Group, or which we currently deem immaterial, which may have an adverse effect on our business.

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

Responsibility statement

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

· The condensed set of financial statements has been prepared in accordance with IAS34 "Interim Financial Reporting";

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

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

By order of the Board

Ian El-Mokadem Anne Thorburn

Chief Executive Officer Chief Financial Officer

29 August 2014

Cautionary statement

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

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

INDEPENDENT REVIEW REPORT TO EXOVA GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and Notes 1 to 18. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' Responsibilities

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

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

Our Responsibility

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

Scope of Review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Edinburgh

29 August 2014

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

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

CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2014

* Earnings per share on the adjusted results is disclosed in note 7.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the six months ended 30 June 2014  

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2014

For the six months ended 30 June 2013

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2014

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

Exova Group plc (formerly known as Exova Group Limited, formerly Exova 2014 Ltd, and hereinafter, "Exova" or the "Company") was incorporated on 21 February 2014 under the UK Companies Act. The Condensed Consolidated Financial Statements of the company as at and for the six months ended 30 June 2014 comprise the company and its subsidiaries (together referred to as the "Group"). These condensed consolidated financial statements have been prepared on the going concern basis as the directors, having considered available relevant information, have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future.

The condensed consolidated financial statements of Exova for the six months ended 30 June 2014 were authorised for issue in accordance with a resolution of the directors on 29 August 2014.

Transaction between Exova Group plc and Exova 2014 Limited (formerly Exova Group Limited)

As part of the Group reorganisation prior to the Initial Public Offering of shares, the Company acquired the entire share capital of Exova 2014 Limited (formerly Exova Group Ltd) on 14 April 2014. As there were no changes to the shareholder group at the time of this transaction and Exova Group plc is not a business as defined under IFRS 3 'Business Combinations', this transaction did not classify as a business combination. The consolidated financial statements of Exova Group plc have therefore been prepared as a continuation of the existing Group using the pooling of interests method. The results for the subsidiaries transferred are included in the income statement from the effective date of acquisition. The net assets incorporated at the date of acquisition reflect the book value of the subsidiaries included in the Exova Group plc financial statements, the highest entity that has common control for which consolidated IFRS financial statements are prepared.

Statement of compliance

The interim condensed consolidated financial statements for the six months ended 30 June 2014 have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed and adopted for use in the European Union and the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority. They do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2013.

The comparative figures for the financial year ended 31 December 2013 are not the Group's statutory accounts for that financial year, but are derived from the 2013 Exova Group Limited audited statutory accounts. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

New standards, interpretations and amendments adopted by the Group 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2013, except as described below.

There are no standards or interpretations effective for the first time in the current financial period with a significant impact on the Company's consolidated results or financial position.

Equity-settled transactions 

Equity settled share-based incentives are provided to employees under the Group's Long Term Incentive Plan ('LTIP'), the Share Option Plan (SOP) and occasional one-off conditional awards made to senior executives. The LTIP and SOP are discretionary executive share plans.

The fair value of the LTIP and SOP awards at the date of the grant is calculated using appropriate option pricing models and the cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to failure to satisfy service or performance conditions.

2. OPERATING PROFIT

3. SEPARATELY DISCLOSED ITEMS

Further information is given in the Business Review under separately disclosed items on page 3.

4. SEGMENTAL REPORTING

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

Management monitors the operating results of its business units separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on EBITA before restructuring costs, acquisition and integration costs, IPO related costs and the management fee to private equity investor and is measured consistently in the financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.

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

5. FINANCE COSTS

6. INCOME TAX

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

There is no tax recorded in other comprehensive income.

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

The Group's consolidated effective tax rate as a function of the loss before tax for the six months ended 30 June 2014 is (5.0%) (six months ended 30 June 2013: (1.0%)).

Differences between the estimated effective rate of (5.0%) and the weighted average notional statutory UK rate of 21.5% include, but are not limited to, the mix of profits, the effect of tax rates in foreign jurisdictions, non-deductible expenses, foreign exchange movements and the effect of unrecognised tax losses.  

7. EARNINGS PER SHARE

The dilutive effect of potential ordinary shares through equity settled transactions have been considered as anti-dilutive given they would decrease the loss per share from continuing operations and have therefore been excluded from the calculation of diluted EPS.

8. EQUITY-SETTLED TRANSACTIONS

Long Term Incentive Plan

The company established a long term incentive plan (LTIP) at the time of the IPO. The LTIP is a discretionary executive share plan and the Board may, within certain limits and subject to any applicable performance conditions, grant to eligible employees (i) nil cost options over shares and/or (ii) conditional awards and/or (iii) shares which are subject to restrictions and the risk of forfeiture. LTIP awards may be granted to such eligible employees with a maximum total market value in any financial year of up to 200% of the relevant individual's annual base salary. At the time of the IPO LTIP awards in respect of 1,240,749 shares were made to two executive directors and 17 senior employees of the Group. The performance conditions for awards are based on earnings per share and comparative total shareholder return. Except in certain circumstances, LTIP awards lapse upon the participant ceasing to be an employee of the Group. In addition, an LTIP award comprising a nil cost option was granted to the Chief Financial Officer to recognise her contribution to the business in the lead up to the IPO. The option was granted under a schedule to the LTIP and fell outside the individual limit set above. The option was granted over shares having a total market value (using the IPO price) of £820,000. The option was fully vested at grant and immediately available to exercise.

Share Option Plan

The company established a share option plan (SOP) at the time of the IPO. The SOP is a discretionary executive option plan and the Board may, within certain limits, grant to eligible employees awards in the form of options over shares. The Board may grant SOP options with a maximum total market value in any financial year of up to 150% of the relevant individual's annual base salary. A SOP option will normally vest and become exercisable on the third anniversary of the date of grant to the extent that any applicable performance conditions have been satisfied. Except in certain circumstances, SOP awards lapse upon the participant ceasing to be an employee of the Group. At the time of the IPO, grants of SOP awards in respect of 823,055 shares were made to several members of key management with an exercise price of £2.20 per share. No performance conditions attach to the awards made at the time of the IPO.

During the six months ended 30 June 2014 the Group recognised an expense of £1.2m in respect of the share awards made in 2014 of which £1.0m is equity settled (six months ended 30 June 2013: £nil).  

9. PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the six months ended 30 June 2014, the Group capitalised assets with a cost of £5.9m including £0.6m from business combinations (note 11) (six months to 30 June 2013: £8.9m; year ended 31 December 2013: £23.3m including £4.8m from business combinations).

Assets with a carrying value of £nil were disposed of during the six months to 30 June 2014 (six months to 30 June 2013: £nil; year ended 31 December 2013: £nil).

The negative impact of foreign exchange on the total carrying amount of property, plant and equipment in the six months ended 30 June 2014 was £1.5m (six months to 30 June 2013: £1.0m positive impact; year ended 31 December 2013: £2.0m negative impact).

Property, plant and equipment included £0.5m (six months to 30 June 2013: £0.6m; year ended 31 December 2013: £0.6m) of assets held under finance leases.

Capital commitments

As at 30 June 2014 the Group has commitments to purchase plant, property and equipment for £2.7m (six months to 30 June 2013: £4.5m).

10. GOODWILL

The negative impact of foreign exchange on the total carrying amount of goodwill in the six months ended 30 June 2014 was £2.7m (six months to 30 June 2013: £6.9m positive impact; year ended 31 December 2013: £9.7m negative impact).

Impairment reviews

Goodwill was tested for impairment at 31 December 2013 and will be tested annually thereafter and when circumstances indicate the carrying value may be impaired. The Group's impairment test is performed by comparing the carrying amount of each cash-generating unit ("CGU"), including goodwill, with the recoverable amount. The recoverable amounts are determined from value-in-use calculations. The key assumptions for the value-in-use calculations for the CGUs are those regarding operating margin, discount rates and revenue growth rates. These assumptions were discussed further in the financial statements for the period ended 31 December 2013.

The Group monitors its performance against these key assumptions, amongst other factors, when reviewing for indicators of impairment. At 31 December 2013 there was significant headroom above carrying value for each CGU with the exception of Rest of World. There has been no significant adverse change in the financial performance of the Rest of World region which would indicate a formal impairment review should be carried out at this stage. 

11. ACQUISITIONS

As at 30 June 2013 the Group had made no acquisitions.

On 6 January 2014 the Group acquired 100% of the share capital of Catalyst Environmental Limited, a leading provider of UKAS and MCERTS accredited stack emission testing in the UK and Ireland for an initial cash consideration of £5.2m (£4.9m net of cash acquired) with a further payment of up to £1.3m contingent upon future profitability in the year following acquisition. We have assessed the value of contingent consideration payable on the date of acquisition, including a sensitivity analysis which did not indicate a significant change in the fair measurement, and have recognised the full amount in the consolidated statements based on the profitability target being met in full. The business, which has been renamed Exova Catalyst, adds six facilities and 58 colleagues to our existing portfolio and will allow us to develop further the specialist stack testing capabilities which we already provided in Americas and Rest of World.

On 1 May 2014 the Group completed the acquisition of a calibration business in Norway from Raufoss Offshore for a cash consideration of £0.3 million. Raufoss Offshore provides calibration services to customers in the oil & gas, defence, transportation and engineering sectors throughout Norway. This acquisition adds 7 colleagues and strengthens Exova´s position as the leading provider of measurement technology and calibration services in Scandinavia. As part of the deal, Exova Metech will also continue to provide calibration services to divisions within Raufoss Offshore.

The estimated fair value of the contingent consideration at the date of acquisition is based on an assessment of the probability of possible outcomes discounted to net present value. Subsequent changes to the fair value of the contingent consideration are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs.

The Group revenue and loss for the six months ended 30 June 2014 would have been £134.9m and £40.0m respectively if the acquisitions were assumed to have been made on 1 January 2014.

As at 30 June 2014 the initial accounting for acquisitions in 2013 and 2014 is not yet complete and the fair value amount disclosed in the 2013 year end accounts and the table above may be subject to further adjustments following completion of the fair value assessment.

The goodwill of £4.6m comprises the fair value of the expected synergies arising from the acquisition and the value of the human capital that does not meet the criteria for recognition as a separable intangible asset.

It is not expected that there will be a significant difference between the trade and other receivables disclosed in the table above and the amounts collected.

12. BANK AND OTHER BORROWINGS