Interim Results

Aukett Swanke Group Plc

Interim Results

For the Six Months ended 31 March 2014

 

 

 

 

Aukett Swanke Group Plc, the international practice of architects and interior design specialists, is pleased to announce its interim results for the six month period ended 31 March 2014.

 

 

Highlights

 

·              Much improved trading performance and outlook, particularly in the UK

 

·              Successful acquisition of Swanke Hayden Connell Europe

 

·              Group revenues rise to £7.58m with pre-tax profit of £750,000

 

·              Revenue from pre-acquisition operations up 58% to £5.39m

 

·              First time revenue contribution for three months from Swanke Hayden Connell of £2.19m

 

·              £749,000 of pre-tax profit from pre-acquisition operations (2013: loss of £79,000)

 

·              UK pre-tax profit £945,000 (2013: £127,000)  

 

·              £82,000 of pre-tax profit from newly acquired Swanke Hayden Connell Turkey operation

 

·              Middle East delivers returns to profit with activity levels picking up

 

·              All three jointly owned Continental Europe operations in profit, producing a total of £176,000 (2013: £134,000)

 

·              Earnings per share of 0.31p (2013: loss of 0.02p)

 

·              Group net funds £1.33m at 31 March 2014 (30 September 2013: £1.08m)

 

·              Interim dividend of 0.1p per share to be paid in July

 

 

Commenting on today's interim results announcement, CEO Nicholas Thompson said;

 

"We are extremely pleased by a very strong performance in the UK coupled with improving performances in Continental Europe and the new Turkish operation, all of which offer good signs of progress from previous turnover levels. The UK will continue to grow in profitability for the foreseeable future and the associated cash generation should provide the group with funding to invest in new opportunities. As a result of this performance we are pleased to confirm the continuation of an interim dividend payment to shareholders."

 

 

Enquiries

 

Aukett Swanke Group Plc - 020 7843 3000

Nicholas Thompson, Chief Executive Officer

Duncan Harper, Group Finance Director

 

FinnCap - 020 7220 0500

Corporate Finance: Julian Blunt/James Thompson

Corporate Broking: Stephen Norcross

 

Hermes Financial PR

Trevor Phillips - 07889 153628

Chris Steele - 07979 604687

Interim statement

 

 

Overview

 

The first half of this year has produced a group profit before tax of £750,000 which is an extremely pleasing outcome when compared with the last year's loss for the same period of £79,000 and the full year's profit of £550,000. The overall result is well above our original expectations and in line with the most recent trading update, and includes a breakeven result from Swanke Hayden Connell for a three month period.

 

The driving force has been the on-going recovery in the UK market which began some eighteen months ago and which we see continuing well into 2015 and beyond.

 

Against this strong UK market other areas have found life more difficult, but we remain committed to our operations in both Russia, and the Middle East where we believe operational readjustments and an improving economic background will bear fruit. Indeed our operation in the Middle East has returned a small profit. Turkey is a strategically placed operation which offers much promise and similarly our jointly owned operations in Germany and Czech Republic are also doing well given local economic circumstances.

 

Operations

 

First half pre-tax profits in the UK rose significantly to £945,000 (2013: £127,000) on revenues of £6.08m. The first half saw some extra costs as the UK reinstated salaries and other benefits across the board and paid a Christmas bonus for the first time in five years. The first half also saw the first integration costs relating to SHC being absorbed which in the main will be self-financing over the next three years, or recovered against second half property savings. Within these figures SHC's UK operations made a loss in the period of £105,000 as a result of a delay in the instruction of a major project, which commenced at the end of the second quarter, and holding excess property space, which has subsequently been sub-let.

 

A clear change in the UK property market could be seen in the first half with the return of the speculative office market development outside of London - a phenomenon that has been absent since 2009. We now have schemes underway in Cambridge (150,000 sq ft), Reading (470,000 sq ft), Oxford (campus 1,000,000 sq ft) and Birmingham (195,000 sq ft) with three other schemes awaiting further instructions: Norwich (140,000 sq ft), Bristol (170,000 sq ft) and Sheffield (70,000 sq ft). That they total over 2m sq ft is news in itself but that some phases are being instructed to construction gives a far more positive view of the economic upturn in our sector and in developer confidence. Our client base behind these projects is at the premium end of the market.

 

Despite this regional upturn, the main stay of the first half's income relates to London centric projects - as earlier instructions than regional UK - they are feeding through to revenues sooner and with values that are a multiple of the new build cost in the regions. Interestingly Veretec, our executive architect business, is seeing its best growth in many years and is the fastest growing part of the London business which reflects the intent of developers to build as the office leasing market and residential accommodation stock build-up gathers momentum and the UK service industry emerges rapidly from the recession.

 

Against this the performance of our pre-acquisition Russian operation was disappointing although largely due to outside factors. First half losses widened to £323,000 (2013: loss of £245,000) which includes a goodwill impairment write down of £125,000. Whilst losses continue, we remain hopeful of a move into profit in this important and large market. The losses were due principally to variability in workload along with project deferrals, delays in decisions and the need to maintain staffing levels at client required levels rather than a lack of actual work opportunities. We are implementing a plan to correct this position by the end of the year which includes the co-location of our pre-acquisition team with that of SHC's Moscow operation. This newly acquired operation made a modest profit in the period of £24,000. It should be noted that the troubles in Ukraine have had no visible impact on enquiries or our day to day activities in Russia.

 

Turkey is a new, wholly-owned operation arising from the acquisition of SHC and has been established for 16 years in Istanbul. Its profit contribution is welcome at £110,000 (before intangible amortisation of £28,000) on revenues of £441,000. This profit was well ahead of original expectations when the SHC acquisition was being negotiated. We see Turkey as strategically important in our network linking Moscow and the Middle East. The office is in the process of completing the forty four storey Palladium tower in the financial district of Istanbul.

 

The Middle East remains under-resourced, mainly due to registration issues as we have moved to Dubai from our existing licenced location of Abu Dhabi. Dubai has the far more active market of the two for our breadth of services. At present we have relied on third parties to manage the registration issue and we are actively looking to resolve this situation. We have a single project at present with Majid Al Futtaim, but there are numerous bids in progress and the small profit of £4,000 (2013: loss of £54,000) is a credible achievement by local management given the high operating cost exposure. Once the licensing issue is resolved we can embark upon an expansion of our resourcing which should then lead to a regular contribution to profit.

 

Continental Europe is the group's second best performer at present with all three of the jointly owned operations in profit. The overall result at £176,000 (2013: £135,000) reflects a slightly lower performance by Berlin (25% owned) but a considerable uplift in Frankfurt (50% owned) and a return to profit in Prague (50% owned) - a pleasing result given the low market activity levels in the Czech Republic.

 

In South America we have embarked upon a process of identifying a collaboration partner in Brazil on the basis of a limited amount of direct investment by the group.

 

Board

 

We have seen a number of new joiners to the board during the period. Andrew Murdoch, David Hughes and Nick Pell all joined as executive directors in December last year, David and Nick as part of the acquisition of SHC. We welcome them all to the board and feel sure that they will add much to the group. Since the period end John Bullough has joined the board in a non-executive capacity and we welcome him similarly.

 

John Vincent retired in March after a long career with the group and Duncan Harper, the Group Finance Director, has announced his decision to resign after six and a half years' service, though he will remain with the group during his notice period to ensure an orderly handover to his successor. The board has begun a process of finding a replacement and further announcements will be made in due course.

 

Prospects

 

Undoubtedly the UK is and will remain the greatest source of the group's future profit, based on the growth in the pipeline of opportunities and improving rate of conversions. The London market has provided much of the pick-up in activity to date, though we expect the regional UK market to begin to contribute meaningfully in the second half and into 2015. Coupled with a full contribution to second half revenues by SHC and with the start of property savings which should more than offset the integration costs of the 2013 transaction, we expect that total UK profits will continue to perform well despite some cost inflation in the second half which will marginally lower returns until volumes lift further.

 

Outside the UK the drive to revive revenue generation in Russia and resolve our Middle East organisational issues should further assist the group to build on current performance.

 

Overall therefore we take an optimistic view of the profit potential of the group for the foreseeable future in our traditional areas of expertise and, as we have said before, we will continue to review and evaluate opportunities to expand the business. 

 

Meanwhile, as our underlying business returns to full strength, the board is also actively considering alternative strategies to both counter the cyclical nature of our revenue streams and find ways to diversify away from our single revenue discipline. This will have the twin-fold benefit of providing greater revenue visibility and broader growth opportunities in order to preserve longer term profitability.

 

In recognition of trading year to date and our much improved outlook we are delighted to be paying an interim dividend of 0.1p per share on Monday 28 July 2014 to shareholders on the register at close of business on Friday 11 July 2014.

 

 

Nicholas Thompson

Chief Executive Officer

29 June 2014

Consolidated income statement

 

For the six months ended 31 March 2014

 

	Note	Unaudited six months  to 31 March 2014 £'000	Unaudited six months  to 31 March 2013 £'000	Audited year to 30 September 2013 £'000
Revenue	2	7,575	3,403	8,406
Sub consultant costs		(1,015)	(580)	(1,290)
Revenue less sub consultant costs		6,560	2,823	7,116
Personnel related costs		(4,270)	(2,064)	(4,751)
Property related costs		(997)	(630)	(1,256)
Other operating expenses		(842)	(455)	(1,027)
Other operating income		132	121	217
Operating profit / (loss)		583	(205)	299
Finance income		-	-	1
Finance costs		(9)	(8)	(14)
Profit / (loss) after finance costs		574	(213)	286
Share of results of associate & joint ventures		176	134	264
Profit / (loss) before tax	2	750	(79)	550
Taxation		(255)	52	(176)
Profit / (loss) for the period attributable to equity holders of the company		495	(27)	374
Earnings / (losses) per share
Basic	3	0.31p	(0.02)p	0.26p
Diluted	3	0.31p	(0.02)p	0.26p

 

 

Consolidated statement of comprehensive income

 

For the six months ended 31 March 2014

 

		Unaudited six months  to 31 March 2014 £'000	Unaudited six months  to 31 March 2013 £'000	Audited year to 30 September 2013 £'000
Profit / (loss) for the period		495	(27)	374
Other comprehensive income:
Currency translation differences		(42)	37	(2)
Currency translation differences recycled on discontinued operation		-	-	1
Other comprehensive income for the period		(42)	37	(1)
Total comprehensive income for the period attributable to equity holders of the company		453	10	373