Interim results

 

Aukett Swanke Group Plc

Interim results

For the six months ended 31 March 2018

 

 

 

 

Aukett Swanke Group Plc, the international practice of architects and interior design specialists and engineers, is pleased to announce its interim results for the six month period ended 31 March 2018.

 

 

Highlights

 

Revenues down 18% at £7.41m (2017: £9.07m)

 

Loss before tax of £1.22m (2017: £358k loss)

 

Cash (net of overdraft) of £317k with net borrowings of £311k; representing 0.6% net gearing

 

UK studio relocating to City offices affording lower ongoing costs and an initial 2 year rent free period

 

Middle East practice invited into international design competitions for Expo 2020 Dubai 

 

 

 

 

Commenting on the interim results, CEO Nicholas Thompson said:

 

Revenues were severely impacted by the continuing stagnation within the UK construction market which currently shows no clear-cut evidence of recovery.  Our overseas operations are beginning to benefit from reorganisation but, overall, as previously highlighted, we expect a Group loss for the full year despite a better second half.

 

 

 

Enquiries

 

Aukett Swanke Group Plc - 020 7843 3000

Nicholas Thompson, Chief Executive Officer

Beverley Wright, Chief Financial Officer

 

finnCap - 020 7220 0500

Corporate Finance: Julian Blunt; Giles Rolls / Corporate Broking:  Alice Lane

 

Investor/Media enquiries

Ben Alexander - 07926 054111

 

 

 

 

 

 

 

Interim statement

 

Overview

 

As previously announced, the results for the six months to 31 March show a further decline in revenues and a loss for the period. Revenues are substantially lower at £7.4m (2017: £9.1m) and the loss before tax is £1.2m (2017: £358k).

 

The greatest fall was in the United Kingdom where reduced activity and delayed starts resulted in revenues falling by 30%. Our United Arab Emirates ("UAE") business saw a slight stalling of its revenue growth with a fall of 12% but we hope to recover this by the year end. The Continental European offices of Russia and Turkey both lifted revenues (by 59% combined) for the first time for some while and reported a profit with the joint ventures and associate contributing a small positive result. Reflecting the general tightening of expenditure the group central costs were reduced by £112k to make a net contribution to the result.

 

Before taking account of the amortising loan advanced to fund the acquisition of Shankland Cox Limited, of £628k, the Group maintained a positive cash position at £317k net of overdrafts. This is considerably lower than the September 2017 year end position of £960k net of overdrafts and was adversely affected by temporarily overdue UK and Middle East debts. Had these balances been received by 31 March 2018, the position at the half year would have been a surplus of net funds.

 

 

United Kingdom

 

As already announced the UK performance has been disappointing with revenues falling to £3.2m (2017: £4.6m) in the first six months. Cost control has continued but at half the rate of the revenue decline resulting in a loss of £879k (2017: £211k). The fixed cost nature of our technical resource requires this structure to be maintained at a certain level in order to service current and potential projects.

 

With an impending lease expiry the London office has taken the opportunity to relocate and rebase its fixed cost at rental levels from five years ago. This coupled with a long rent free period should enable the business to recover some of its cash depletion over the next 24 months. The cost of fitting out the new premises will be spread over five years.

 

The business continues to enjoy a long standing and loyal client base with a history of repeat business and in the past month (May) we have seen a noticeable improvement in enquiry conversions. Whilst this will be too late to reduce the loss in 2018 it will certainly improve the outlook for the next financial year.

 

Projects completed by the UK office in the first half include two buildings in Cambridge and the Aliaia store in New Bond Street for Richemont. We continued on a number of high profile apartments at both One Hyde Park and overseas, in Moscow, as well as receiving instructions in a new market, China, for villas in Beijing.

 

Our executive architect business Veretec had a slow start to the year but in recent months has had instructions confirmed on a number of major construction projects - all in London - which will improve its results.

 

The UK is our oldest market (dating back to the 1950's) and has had to cope with the vagaries of numerous adverse economic conditions over the years. We continue to be totally committed to it as we have a wide ranging and high quality client base that will return to greater development activity as the uncertain political climate improves and normal levels of economic activity return. In the near term, to the end of the financial year, as previously reported, the financial outlook remains negative.

 

 

Middle East - United Arab Emirates

 

Although the UAE reported lower revenues, resulting in a loss, this business has made substantial progress in the first half and has won and commenced delivery of several large projects which position it as an attractive and competitive practice in the region.

 

The overall result is disappointing as the restructuring in late 2017 should have contained any cost exposure going forward. However, an income decline in the first quarter hampered this outcome resulting in a fall in revenue to £3.7m (2017 £4.2m) and a profit during the first half of 2017 of £121k turning into a loss of £380k.

 

Overall the business is being introduced to more exciting schemes which are higher profile and have better income per head financial statistics. We continued to develop our designs for the new retail mall for Lesso in Dubai, have re-designed the Yas Mall hotel for a new operator brand and have been invited to produce competition designs for a Dubai Expo 2020 pavilion.

 

As a result of the recently announced proposed legal change in ownership structures, potentially allowing 100% foreign ownership in the UAE which will be implemented later in the year, we will be considering our own licence and ownership arrangements to see how this change can simplify our business model and reduce our fixed costs.

 

Continental Europe

 

The performances of our businesses in Continental Europe have been mixed in the 6 months to 31 March 2018. The associate in Berlin temporarily reported losses as it corrected its excess staffing on recently completed projects, which was reported at the year end. The Prague joint venture broke even and Frankfurt reported one of its strongest results to date. Both of the wholly owned subsidiaries had improved results compared to the first half loss last year with much reduced losses in Russia and profits in Turkey.

 

Wholly owned operations

Turkey has had a turnaround in fortunes this year with the completion of the Allianz tower fit out in Izmir, a large 18,000 sqm fit out project in Sofia, Bulgaria for VM Ware, a 12,000 sqm fit out for Vakifbank in Istanbul, a restarted master plan concept project for the 210,000 sqm Bio Istanbul site and a new fit out for Credit Suisse in Istanbul.

Russia has continued to operate at a minimal cost level and continues to make a loss - albeit much smaller than last year. Project completions for the period include the 130,000sqm Badaevsky Brewery master plan in Moscow and the Russkiy Island master plan concept for a 120,000 sqm residential complex in Vladivostok. Ongoing projects include the closing stages of the Vernadskogo luxury apartment complex, a new training centre for CROC in Sibur Tobolsk and a master plan for the Skolkovo Gate office development in Moscow for PPF Real Estate.

 

Joint venture and associate operations    

Major project completions include the interior design of the new Google Campus, a housing scheme for Regatta Quartier 13, the final stages of the Gropius Passagen retail centre, the Stone Brewing Centre and the 130 room luxury Fontenay Hotel all by the Berlin office. The Frankfurt office completions include fit outs for Woori Bank and Simmons & Simmons and the Prague office completed the production facility and HQ building for the SAB Miller brewery in Prague along with projects for Dimension Data, Business Lease and Exxon Mobil.

Newly won projects which will contribute from the second half onwards include the 21,000 sqm KuDamm-Karree mixed use project in Berlin, the concept workplace for Deutsche Bahn via MooCon and Living Lyon housing studies for Hochtief in Frankfurt, as well as the Novartis HQ fit out concept and the 2,000 sqm Olympic Gardens fit out for OM Consulting in Prague.

 

Group costs

 

As a result of the decline in trading the executive management has curtailed centrally controlled costs and reduced these by £112k in the first six months.

 

 

Prospects

 

Changes in the political climate and the subsequent timing of their impact on our markets is the key feature to the Group's recovery from the current losses. Whilst the focus on controlling costs will continue, this by itself will not resolve market issues and the Group's performance.

 

A number of initiatives in the UK (relocation to a lower cost base) and in the Middle East (combined operational bidding to maximise revenue income and improve our income per head KPI) are in place and will underpin our ability to minimise costs and maximise local profitability in the future. These actions coupled with very tight cash and treasury management on a Group wide basis enable us to maintain our overall structure. Progress has been slow on the recovery of our older debtors which has historically allowed the Group to operate within its own working capital and avoid further  borrowing.

 

In recent weeks the UK has experienced more conversion of new projects for both the design and the executive delivery elements and the UAE is adapting to the changes in its major project  programmes. Our Continental Europe business is expecting to perform better in the second half. Whilst these signs provide reassurance the Board remains of the view that the financial year 2018 overall will show a loss.

 

 

 

 

Nicholas Thompson

Chief Executive Officer

27 June 2018

 

 

 

 

 

 

Consolidated income statement 

 

For the six months ended 31 March 2018

 

	Note	Unaudited six months  to 31 March 2018 £'000	Unaudited six months  to 31 March 2017 £'000	Audited year to 30 September 2017 £'000
Revenue	3	7,412	9,070	18,395
Sub consultant costs		(729)	(998)	(2,325)
Revenue less sub consultant costs		6,683	8,072	16,070
Personnel related costs		(5,995)	(6,795)	(13,114)
Property related costs		(882)	(1,343)	(2,360)
Other operating expenses		(1,098)	(1,323)	(2,229)
Other operating income	4	83	934	1,089
Operating loss		(1,209)	(455)	(544)
Finance income		-	-	-
Finance costs		(18)	(18)	(34)
Loss after finance costs		(1,227)	(473)	(578)
Share of results of associate and joint ventures		3	115	253
Loss before tax	3	(1,224)	(358)	(325)
Tax credit		134	13	21
Loss profit for the period		(1,090)	(345)	(304)
Loss / profit attributable to:
Owners of Aukett Swanke Group Plc		(1,068)	(342)	(323)
Non-controlling interests		(22)	(3)	19
Loss for the period		(1,090)	(345)	(304)
Earnings per share
Basic	5	(0.65)p	(0.21)p	(0.20)p
Diluted	5	(0.65)p	(0.21)p	(0.20)p

 

Consolidated statement of comprehensive income

 

For the six months ended 31 March 2018

 

		Unaudited six months  to 31 March 2018 £'000	Unaudited six months  to 31 March 2017 £'000	Audited year to 30 September 2017 £'000
Loss for the period		(1,090)	(345)	(304)
Other comprehensive income:
Currency translation differences		(102)	37	(124)
Other comprehensive income for the period		(102)	37	(124)
Total comprehensive loss for the period		(1,192)	(308)	(428)
Total comprehensive loss is attributable to:
Owners of Aukett Swanke Group Plc		(1,163)	(296)	(425)
Non-controlling interests		(29)	(12)	(3)
Total comprehensive loss for the period		(1,192)	(308)	(428)