Aukett Swanke Group Plc

("Aukett Swanke", the "Company", or, together with its subsidiaries, the "Group")

Interim results

For the six months ended 31 March 2023

Aukett Swanke (AIM: AUK), the group providing Smart Buildings, Architectural and Design Services, is pleased to announce its interim results for the six-month period ended 31 March 2023.

Highlights

-      Revenue from continuing operations increases to £4.56m (2022: £4.53m)

-      Revenue less sub consultant costs increases to £4.40m (2022: £3.38m)

-      United Kingdom increases profit before group costs to £130k (2022: £40k)

-      Continental Europe increases profit before group costs to £257k (2022: £123k)

-      Loss for the period £0.48m, impacted by one-off Torpedo Factory Group ("TFG") acquisition costs

-      Improving markets & strengthening order book

-      Ranked 48^th largest firm by number of UK architects (up from 70^th) in the AJ100

-      Acquisition of TFG just before period end to expand Smart Buildings strategy and broaden asset base and revenue streams

-      Appointment, today, of Freddie Jenner to the board as Chief Operating Officer

Commenting, Chief Executive Nick Clark said, "I am thrilled to have been appointed as Chief Executive, and excited by our mission creating a UK-listed Smart Buildings group. Against a backdrop of improving trading performance, I look forward to reporting on our progress in the coming months."

Contacts

Aukett Swanke Group Plc                                                                                                   +44 (0) 20 7843 3000 

Clive Carver, Chairman                                                                            

Nick Clark, Chief Executive                                                                                            

Strand Hanson Limited, Financial and Nominated Adviser                                         +44 (0) 20 7409 3494

Richard Johnson, James Bellman                                                                              

Zeus Capital Limited, Broker                                                                                             +44 (0) 20 3829 5000

Simon Johnson, Louisa Waddell

Investor/Media                                                                                                                   + 44 (0) 7979 604 687

Chris Steele

An electronic version of the Interim Report will be available on the Group's website (www.aukettswankeplc.com).

Chairman's Statement

Introduction

I am pleased to present the interim results for the six months ended 31 March 2023.

At the end of the reporting period, we acquired Torpedo Factory Group ("TFG"), and welcomed Nick Clark as Chief Executive.  Further below he introduces the TFG businesses and describes in more detail the concept of Smart Buildings, and how this is being incorporated into the Group's strategy.

The evolution of architecture

We acquired TFG in March 2023, principally as a means of embracing the increasing use of technology in the design, construction and management of buildings. We believe we are one of the first in our profession to make such a move and look forward to developing a leading presence in the Smart Buildings space, while continuing to develop our long established architecture businesses.

The TFG acquisition also gave us access to further funding and has allowed us to transition key senior management positions to the next generation, bringing the Board more into line with our staff and clients generally.

Restructuring the architecture business completed

Restructuring work to improve the core profitability of our traditional architecture businesses is now complete. The UAE business has been sold and the international offices, other than those in Germany, have either been closed or are moving onto a licence basis with local management being responsible for profitability.

Our core architecture businesses now comprise our design and executive architecture businesses in the UK and our direct investments in the Berlin and Frankfurt practices.

As set out in greater detail in the report from the Chief Executive, we have experienced growth in each of the core architecture markets necessitating the recruitment of 13 full time equivalent additional architects in our UK operations since the beginning of the financial year, which places the Group 48^th  largest by number of UK employed architects, based on AJ100 compiled by Architects' Journal. This is a rise from 70^th place last year.

Smart Buildings

The Group's approach to Smart Buildings is set out in detail in the accompanying Chief Executive's report.

Board update

During the period under review and subsequently we have welcomed a number of new members to the Board to help deliver the growth we seek in both the traditional architecture and the new Smart Buildings businesses.

Nick Clark - Chief Executive

Nick, who was the founder and Chief Executive of TFG, became Group Chief Executive on completion of the deal in April 2023. At the same time, Robert Fry, who had acted as interim chief executive from December 2022 to April 2023, became Deputy Chairman on a part time basis, with principal responsibility for the Group's international offices and the expansion of the architecture businesses.

Freddie Jenner - Chief Operating Officer

Freddie has today been appointed to the Board as Chief Operating Officer. Freddie was previously Chief Financial Officer at TFG, which he joined in 2007. Further details on his appointment are being separately announced today.

Tandeep Minhas - Non-executive director

Tandeep Minhas, a leading corporate lawyer and head of the London corporate finance department at international lawyers Taylor Wessing LLP, joined the Board as a non-executive director on 24 April 2023.

Further details of your full Board can be found at https://aukettswankeplc.com/people/.

Long term incentives

To attract and retain the team required to deliver success we plan to introduce a new long term incentive package. This will seek to better align the interests of shareholders generally and those individuals on whose efforts the Group's future depends. A further announcement in this regard will be made in due course.

Outlook

With the team in place and the strategy honed we look forward to reporting continued progress in both our existing and acquired businesses.

Clive Carver

Chairman

26 June 2023

Chief Executive's report

Introduction

I am delighted to have been appointed as your new Chief Executive, and excited about the opportunities ahead of us.

Following the acquisition of TFG, our mission is to develop our award-winning architecture businesses and become a leading force in the provision of Smart building systems, which we firmly believe to be a major growth area using technology to enhance the experience of buildings owners and users.

Architects are the trusted advisors who are best placed to convince an inherently conservative property industry that change is not only desirable, but essential. Our Group is therefore well-positioned to exploit the opportunities in this transformative industry.

Architecture

Through architecture, we forge a profound connection between people and their surroundings. It evokes a sense of place and fosters a sense of belonging. It pushes boundaries, challenging us to envision a better future and to explore new possibilities for a more sustainable way of living.

Architecture also brings change with a spirit of optimism and renewal, which is at the heart of what the Group needs to deliver.

Aukett Swanke Limited - UK architecture and interior design

Employed an average 35 full time equivalent ("FTE") technical staff in the 6 month period, with revenue of £1.89 million (£1.81 million, net of sub consultant costs).

Aukett Swanke Limited is the Group's award-winning full design service architecture business, which can trace its roots back over a century, and offers leading design services across a wide range of sectors.

I am pleased to report progress with new contract wins during the period for a major masterplanning project with Network Rail and a residential project for Ardmore at 8 Eaton Lane in London.

Completions in the period include the St. Andrew's House apartments for Anglo American De Beers, and new starts include the refurbishment of The Underwriting Room in the iconic Lloyd's of London building.

Veretec - UK executive architecture

Employed an average 44 FTE technical staff in the 6 month period, with revenue of £2.30 million (£2.28 million, net of sub consultant costs).

Veretec is our executive architecture business, which uses the division's technical and delivery skills to translate the designs of others into high quality buildings.

This business also made strong progress in the period under review completing several projects and winning others requiring a significant increase in staffing.

Following the period end, continued recruitment required to service new and existing contracts increased FTE technical staff to 57 in May 2023.

New projects commenced in the period include the Town Hall and extension of the West King Street Renewal project master planned by Rogers Stirk & Harbour and the Nine Elms School with the IBI Group for Morgan Sindall.

Completions have included the n2Nova commercial office building designed by Patrick Lynch Architects for Landsec and executed by Mace.

German investments

The Group owns a 25% investment in the Berlin practice Aukett + Heese GmbH, employing an average 106 FTE technical staff in the 6 month period, with revenue of £8.62 million (£5.5 million, net of sub consultant costs). The studio offers a full range of architectural design services and holds a leading position in the regional market it serves.

The Group also owns a 50% investment in the Frankfurt practice Aukett + Heese Frankfurt GmbH employing an average 10 FTE technical staff in the 6 month period, with revenue of £0.77 million (£0.46 million, net of sub consultant costs). The studio is renowned for its architecture and interior design expertise in the financial, corporate and high-rise building sectors in the local market.

The revenues of these investments are not consolidated in the Group's revenues as we do not own a majority of either business.

Completions in Berlin included the opening of the Deutsche Bahn restaurant in the Sony Center, renamed the Potsdamer Platz Center, and the commencement ceremony to break ground for the 42,000 sqm Siemensstadt Square project comprising two buildings, one high-rise, and 20,000 sqm of open space with public amenities.

Torpedo Factory Group

As set out in more detail in the financial commentary below, the results from the TFG audio visual businesses are only included in these financial statements for the final 10 trading days in March 2023. However, to give shareholders a better understanding of the what the Group now enlarged by the TFG acquisition offers we include the following information, which is based on a full 6 month period to 31 March 2023.

Meeting Environments

Employed an average 29 FTE staff in the 6 month period, with revenue of £1.93 million.

TFG's Meeting Environments business has been renamed Intelligent Environments to reflect our broader work beyond meeting spaces as we reposition the business as a Master Systems Integrator looking at workplace technologies more broadly.

Stage Technology

Employed an average 23 FTE staff in the 6 month period, with revenue of £1.38 million.

The Stage Technology business has an extensive client base in the UK's leading theatres, universities, and schools in the private and state sectors. The current year is dominated by the delivery of a major project, a landmark new venue in Manchester, which is due to complete by the end of June.

Live Events

Employed an average 10 FTE staff in the 6 month period, with revenue of £0.55 million.

The Live Events business did not form part of the Group's Smart Buildings plans and was sold with effect from 31 March 2023.

Smart Buildings

Why Smart Buildings

Smart Buildings enhance efficiency, sustainability, and occupant experience.

Smart Buildings integrate advanced technologies, data analytics, and automation to create vibrant ecosystems. They optimise energy consumption, streamline operations, and personalise experiences for occupants. By leveraging the Internet of Things (IoT) and artificial intelligence (AI), Smart Buildings offer real-time monitoring, energy savings, improved comfort, proactive maintenance, and cost reduction.

In contrast to a traditional architecture business, which has high fixed costs and where once the project is completed there is no further income, under a Smart Buildings business model, revenues are generated monthly throughout the lifetime of a building. Technology is used to its utmost; rapid growth is achievable without the often time consuming and expensive recruitment of additional staff; and short term fluctuations in economic activity do not dictate customer buying decisions.

Market drivers

Regulation is likely to be a key driver in the growth of Smart Buildings.

For example, since April 2023, almost all commercial buildings in the UK are required to have an Energy Performance Certificate (EPC) rating of E or better. Without such a rating they cannot be rented to tenants. From 2027, this requirement rises to C, and by 2030, a rating of B or better will be needed. Knight Frank recently estimated that 70% of the UK's  commercial building stock fails to comply with EPC B and landlords of such properties will need to invest in upgrading their buildings.

Our Smart Buildings strategy

Our plan is to become a leading provider of Smart Building services. Breaking this down we need to become:

·    Smart Building Systems Designers

·    Smart Building Systems Integrators

·    Smart Building Systems Operators

We intend to grow at pace; only a buy and build strategy can deliver the speed of change that we intend to deliver.

Smart Building Systems Designers

I am pleased to report we have already made our first appointment in this new division and expect to make further progress before the end of the current financial year.

Smart Building Systems Operators & Smart Building Systems Integrators

We are actively considering specific acquisition opportunities in the sector and we look forward to updating shareholders on these and other potential acquisitions in due course.

Group Financial results

Basis of preparation

These interim statements, which cover the six months ended 31 March 2023, are unaudited and include the full six months trading of the Aukett Swanke Group architecture businesses and the final 10 trading days of the period from TFG.

The balance sheet as at 31 March 2023 includes both the Aukett Swanke Group architecture businesses and the TFG businesses.

Overall assessment

While the performance across the architecture businesses as set out below is improving as the result of new contract wins and the restructuring of the Group in previous periods, we are still a long way from the level of profitability required to justify a meaningful Group valuation.

This demonstrates why the previous Aukett Swanke Group board recognised that a new approach is needed.

Revenue

We consider revenue after subconsultant costs to be the most relevant performance indicator in assessing the progress of the Group's architecture businesses.

In the six months under review, revenue after subconsultants costs grew by approximately 30% to approximately £4.40 million, reflecting a general increase in activity.

Operating costs

To be able to service this increased activity and in preparation for work won but yet to start, personnel costs increased by approximately 29% to approximately £3.78 million, with the addition of 13 FTE fee earning technical staff in the UK operations during the 6 month period, and the average FTE technical staff 14 higher than the comparable 6 month period in the period year.

Property related costs increased by 8% to approximately £0.57 million while other operating costs more than doubled to approximately £0.61 million reflecting the greater level of activity.

Included in these costs are approximately £0.56 million group costs, excluding those relating to the TFG acquisition.

Associates and joint ventures

The share of associates included in these interim financial statements grew from approximately £0.07 million to approximately £0.21 million, reflecting their increased profitability.

Trading loss

The additional contribution from associates and joint ventures offset the additional personnel and group costs to leave the trading loss at approximately £0.29m. This is slightly higher than in the corresponding period last year, but also includes £0.09m of one-off costs relating to the settlement of TFG employees company share option costs and the loss on assets disposed of as part of the Live Events disposal.

Acquisition costs

The costs associated with acquiring TFG were approximately £0.26 million and increased the loss before tax to approximately £0.55 million.

Balance sheet

While the trading impact of the TFG acquisition in these interim financial statements was minimal, its impact on the closing balance sheet was more significant.

Plant, property and equipment increased from approximately £0.07 million to approximately £3.22 million, almost all of which related to TFG assets, principally the main operating TFG site, a freehold building valued at £3.02 million.

Similarly, trade and other receivables and stock increased from approximately £2.61 million to approximately £4.84 million, again with most of the increase due to TFG.

Cash at bank at 31 March 2023 was approximately £0.81 million compared to just £0.04m at the end of the corresponding prior period.

Borrowings increased from £0.58 million in the prior period to £3.12 million consolidating the TFG CBILS loan of £1.17 million and £1.45 million mortgage on the freehold property.

TFG trading

Although largely excluded from these interim financial statements, we set out below a brief assessment of TFG's trading in that period.

TFG's revenue for October 2022 to March 2023 was £3.86 million, 9.6% higher than in the corresponding period in 2022. The underlying performance of the TFG businesses was just below breakeven at EBITDA level, due in part to delays in a large project with more of the work on it delivered in the current (April to June) quarter.

Live Events disposal

On 4 April 2023, two weeks after the purchase of TFG, the Group announced the disposal of TFG's Live Events business. It was the part of the business most dramatically damaged by the Government's pandemic restrictions. While it has been recovering well, it was non-core to the Smart Buildings plan, and its need for investment will be better met outside of our Group. It was personally painful to part ways with several colleagues I had worked with for many years, but it is undoubtedly the right way forward for all concerned and I wish them well.

Current Trading & Outlook

Architecture

With a good stock of committed work and a growing team of chargeable staff across both principal business areas, we expect the second half of the year to show an improvement on the first half.

Torpedo Factory Group

Similarly, with strong project delivery, we expect the second half to be better than the first half. The mortgage on TFG's freehold is due to be repaid in February 2024 and we are carefully reviewing our options to refinance this facility.

Smart Buildings

As we are already almost 9 months into the current financial year, it is expected that it will be into the 2023 / 24 financial year before we see material contributions from our Smart Buildings businesses.

Our team

I am hugely appreciative to all our staff who have coped admirably with a period of significant change.

We are committed to shaping a sustainable, exciting, and rewarding future for our clients and our shareholders, and our staff and I look forward to sharing news our progress with you.

Nick Clark

Chief Executive

26 June 2023

Consolidated income statement

For the six months ended 31 March 2023

Consolidated statement of comprehensive income

For the six months ended 31 March 2023