Annual Financial Report

12.01.17

Aukett Swanke Group Plc

Announcement of final audited results for the year ended 30 September 2016

Aukett Swanke Group Plc (the “Group”), the international group of architects and interior designers, announces its final audited results for the year ended 30 September 2016

Financial Highlights

  • Achieved revenue target of £20.8m (2015: £18.7m)
  • Profit before tax below target at £0.9m (2015: £1.9m)
  • EPS 0.47p (2015: 1.00p) per share
  • Cash maintained at £1.8m (2015: £1.9m) with net funds £0.8m after new acquisition loan
  • Net assets grew to £7.2m (2015: £6.3m)

Operational Highlights

  • Successfully completed the acquisition of a major second business in the Middle East to further diversify revenue streams and increase resource capability
  • A difficult year in the UK as uncertainties around Brexit led to a substantial weakness in the market requiring some downsizing
  • Middle East integration progressing well with our larger operation attracting a higher level of enquiries
  • Continental Europe making good progress, strong performance in Germany and Turkey where we see scope for growth; Russia continues to be very weak
  • Won six Industry Awards in the UK, Russia and Turkey

Commenting on the results CEO Nicholas Thompson said:

We have made considerable progress with our strategic growth plans for the Group by making a further acquisition in the Middle East. 2017 will see a period of consolidation of our recent additions in order to benefit the Group over the longer term.”

 

Enquiries

Aukett Swanke – 020 7843 3000

Nicholas Thompson, Chief Executive Officer

Beverley Wright, Chief Financial Officer

finnCap – 020 7220 0500

Corporate Finance: Julian Blunt / James Thompson

Corporate Broking: Alice Lane

Investor / Media Enquiries

Ben Alexander 07926 054 111

 

Chairman’s statement

Encouragingly this year revenues have continued to climb and now stand at £20.8m (2015: £18.7m) achieving our stated strategy. This improvement reflects new earnings flowing from the recent acquisitions in the Middle East offsetting a slowdown in the United Kingdom and Russian operations. This growth in our revenue has enabled us to enlarge our business footprint.

The year turned out to be more difficult in achieving our profit target. Profit before tax at £0.93m (2015: £1.87m) was the result of a number of matters that are more specifically described below. After tax, our EPS was 0.47p (2015: 1.00p) and our cash funds were equivalent to the prior year at £1.84m (2015: £1.87m).

During the year the Company recorded two dividends totalling 0.18 pence per share. We declared a slightly lower interim dividend at 0.07 pence per share as a reflection of market conditions. Whilst the Group is still confident of its long term position, given the slow down in the UK and the funding requirements in the UAE, as explained on page 3, the Board has resolved to defer the decision regarding a dividend until the AGM which will take place in March 2017.

As always I wish to acknowledge the contribution of the staff in our business as well as my colleagues on the Board who continually respond positively to the challenges and opportunities that our organisation presents. To them, I offer my personal thanks for their individual contributions.

Anthony Simmonds

Chairman

11 January 2017

 

Extracts from strategic and directors’ reports

Overview

Revenues for the year were £20.8m, an increase of 11.2% on the previous year (2015: £18.7m). Revenues less sub consultants also rose to £18.4m (2015: £16.9m), an 8.9% increase.

Profitability has fallen during the year with profit before tax at £0.9m compared to £1.9m in 2015. Whilst lower than the previous year, the result reflects a solid performance after taking account of the challenges which the Group has faced including volatility in the UK market, particularly in the light of Brexit; the geopolitical challenges in Russia; and integration in the Middle East following our second acquisition there in eight months.

The results for the second half show a slightly improved position when compared with the first half. Revenues, including our second acquisition Shankland Cox Limited, improved by 8% whilst profit before tax at £510k was 22% higher compared to £417k at March 2016.

Our tax charge for the year is £106k (2015: £215k), representing an effective tax rate of 11% (2015: 11%). Reflecting this low effective tax rate, our profit after tax at £0.8m gives an EPS of 0.47 pence per share (2015: 1.00 pence per share).

Our total equity is now £7.2m, an increase of £0.9m over the prior year (2015: £6.3m).

Financing

Net funds at year end were £0.8m, comprising cash of £1.8m and the loan taken out in respect of the acquisition of Shankland Cox Limited (“SCL”), which now stands at £1.0m. Excluding any balances and financing costs in respect of SCL our net funds have been maintained at the same level of the previous year (£1.9m). However, given the increased footprint in the Middle East and the need for regulatory and banking collateral, in the short term there is less available free cash than previously.

The loan to acquire Shankland Cox Limited was taken out in February 2016 for the principal sum of USD 1.6m representing AED 6m. It is being repaid in equal quarterly instalments of USD 80k over five years. Other than this loan there were no other borrowings at year end, although the Group has the benefit of a net zero overdraft facility from its bankers Coutts & Co. This facility is used by the Group to hedge foreign exchange exposures.

The Group has a strong focus on cash management and visibility of its liquidity position as well as future flows. The Plc acts as the Group’s central banker, and whilst it may, subject to formal approval, advance short term working capital support, all businesses are required to be cash generative or as a minimum cash neutral.

Strategy

In order to create a more resilient operating trading platform we embarked on an acquisition strategy to strengthen our UK and Middle East operations in 2013. The objective being to mitigate as far as possible reliance on any one geographical market and at the same time to balance the economic and political risks that property development activity faces in cyclical markets. A further beneficial aspect of this strategy has been to spread our currency exposure which has been particularly beneficial in the post Brexit period where our primary currency, the pound Sterling, was heavily devalued.

With this more robust services platform now in place our aim is to reinforce our position in the three regional operations through local investment into our skills and service offer to the extent that each of the local markets allow. The immediate objectives are to provide a high quality design service and, at the same time, create a sustainable business model.

Beyond this we will continue to grow organically or by specific acquisition if deemed appropriate, although our longer term growth strategy will be to focus more on diversifying our services offer to areas with a less transactional revenue profile.

Awards

In addition to financial performance we also measure our success through recognised Design Awards. During the period we won six new awards. In the UK we won two categories in the Office Agents’ Society Awards for the Adelphi Building in the West End and Forbury Place in Reading. In addition Veretec, our executive delivery group, won the AJ ‘Executive Architect of the year’ with two of its building projects being RIBA winners. Further afield our Russian studio won the Best Office Award for Japan Tobacco International and Arcus III was recognised for a second year. Finally, our Turkish studio won ‘Sign of the City Award’ with the Bomonti Modern Palas in Istanbul.

United Kingdom

As we highlighted in the Interim Announcement, the operation was impacted by a general slowdown in construction activity in the first half but more so in the second half as a result of Brexit. Whilst we saw new enquiries in the second half, these did not result in any material increase in short term revenues other than in Veretec. As a result net revenues for the year are 16% down on prior year and 22% in the second half alone, compared to the same period in the prior year.

Profits are down by half as fixed costs and staff reductions do not immediately follow in tandem. The second half profit was similar to the first half. Looking forward the UK is likely to see a further reduction in revenues in the first part of the new year before the position stabilises. Therefore we do not expect any contribution in profit terms from the UK until the second half.

After the year end we reduced our staffing levels consistent with anticipated income but are cognisant that we need to maintain our core skill base which carries with it an excess cost in the short term.

Notable projects during the year included: two office projects in Uxbridge for Goodman, the PSQ HQ in Hemel Hempstead, Project Verde for Tishman Speyer in Victoria, a £104m science building for Imperial College, a new store for Fenwick in Colchester, Phase 2 at Forbury Place for M&G, the Bradfield Centre for Cambridge University, the £20m Biomed Realty building at Granta Park pre let to Heptares and a further phase on the iconic Adelphi building off the Strand. One of our largest projects was in the City with a major new hotel and apartments at Ten Trinity Square opposite the Tower of London for a Chinese developer.

Our specialist group, Veretec, was also very active on a variety of projects in Beak Street, Bishopsgate, Chelsea, Hanover Terrace, a school in Wimbledon and a high quality residential scheme for Sir Robert McAlpine in Lillie Square.

The next year will prove challenging in the first half as we seek to generate revenue from current enquiries rather than from existing projects. Encouragingly since the end of the year the enquiry level has stabilised with 24 new project registrations which compares with 30 for the same period last year.

Middle East

Net earnings in the region more than quadrupled to over £5m following the acquisition of SCL and with a full year’s contribution from John R Harris (acquired in June 2015). Due to planned integration initiatives, intangible amortisation of £112k, release of negative goodwill arising on acquisition totalling £160k and also right sizing of the cost base, we have reported a modest profit before tax for the twelve months to September 2016 of £41k (2015: £47k)

The local companies undertake work for a wide range of clients including: a three year du (telecoms) framework, ADNEC, Etisalat retail stores and data centres, Etihad, a new Mall hotel for ALDAR, a private villa for a Sheikh, Abu Dhabi National Hotels, the new Manar Mall retail shopping centre and Mirdif Community shopping mall, projects for contractors Khansaheb and international consultants WSP, villas on the Palm Jumeirah, the Bvlgari hotel and a residential site in Al Barari. Refurbishment of the Address Dubai Mall hotel for Emaar, the guestrooms of an iconic 5* hotel on the Palm Jumeirah and the 5* Kempinski Mall of the Emirates hotel on the Sheikh Zayed Road for MAF, along with a large number of smaller projects.

We believe that our enhanced scale will provide more opportunities for us to bid on major projects – and this is now being evidenced in new enquiries. As such management attention is now focused on strengthening the succession structure through existing design and delivery skills along with achieving operating efficiencies across the businesses.

Continental Europe

Our reported net earnings, for the wholly owned businesses in this Hub, are under £1m, whilst this sum is £8.4m if 100% of the associate and joint venture revenue is included. This creates an undertaking similar in size to the UK and Middle East.

Continental Europe’s result is a mix of performances across the businesses where the greatest challenge within its portfolio during the year was Russia.

The Russian operation has now been reduced to a minimum operating level and works on a limited number of projects reflecting its current scale. We expect this operation to remain at this level for the foreseeable future and until the local market improves.

The wholly owned Turkish operation returned to profit and eliminated its prior year deficit.

Berlin continues to be significant contributor to the Group’s result. After a slow first half a series of major wins in the second half lifted its performance to prior year levels. The office and its team continue to expand and reached 125 staff by the year end. Projects include site work at Berlin’s new airport, a new facility in Berlin for Stone Brewing of the USA, Phase 2 Gropius Passagen for mfi-Unibail-Rodamco, a 5* hotel, The Fontenay, in Hamburg, an office tower in Frankfurt, a new development in Berlin for Hines, and the Anschutz Mercedes Platz with Hochtief.

Frankfurt has continued to improve its year on year performance with a longer term order book including an office relocation of 3,600 staff for an international insurance company and regular work for Microsoft. Interestingly we have not seen any early evidence of financial services’ relocation to the city in the aftermath of Brexit.

Prague has achieved a small profit this year based on the provision of drawing services to both the London and Berlin offices.

Summary, Group Prospects and Shareholder Value

Whilst we had hoped for a better outcome in 2016, we remain encouraged by the progress that we have made in developing our business model and that this will ultimately generate both the results and cash flow that we have anticipated. Our objective is to provide shareholders with a sustainable business model that can positively respond to business cycles and deliver long term returns in both cash and profits generation and dividend flow.

 

Nicholas Thompson

Chief Executive Officer

Beverley Wright

Chief Financial Officer

11 January 2017

 


Consolidated income statement

For the year ended 30 September 2016

Note

2016

£’000

2015

£’000

Revenue

2

20,841

18,668

Sub consultant costs

(2,431)

(1,782)

Revenue less sub consultant costs

18,410

16,886

Personnel related costs

(13,929)

(11,464)

Property related costs

(2,632)

(2,730)

Other operating expenses

(1,901)

(1,715)

Other operating income

732

626

Operating profit

680

1,603

Finance income

8

3

Finance costs

(28)

(13)

Profit after finance costs

660

1,593

Share of results of associate and joint ventures

267

277

Profit before tax

2

927

1,870

Tax charge

(106)

(215)

Profit from continuing operations

821

1,655

Profit for the year

821

1,655

Profit attributable to:
Owners of Aukett Swanke Group Plc

772

1,653

Non controlling interests

49

2

821

1,655

Basic and diluted earnings per share for profit attributable to the ordinary equity holders of the Company:
From continuing operations

0.47p

1.00p

Total earnings per share

3

0.47p

1.00p


Consolidated statement of comprehensive income

For the year ended 30 September 2016

2016

£’000

2015

£’000

Profit for the year

821

1,655

Other comprehensive income:
Currency translation differences

424

(201)

Other comprehensive income for the year

424

(201)

Total comprehensive income for the year

1,245

1,454

Total comprehensive income for the year is attributable to:
Owners of Aukett Swanke Group Plc

1,158

1,451

Non controlling interests

87

3

1,245

1,454

 

Consolidated statement of financial position

At 30 September 2016

2016

£’000

2015

£’000

Non current assets
Goodwill

2,409

2,283

Other intangible assets

1,056

818

Property, plant and equipment

506

563

Investment in associate

529

254

Investments in joint ventures

181

100

Deferred tax

219

288

Total non current assets

4,900

4,306

Current assets
Trade and other receivables

9,227

6,430

Cash and cash equivalents

1,839

1,873

Total current assets

11,066

8,303

Total assets

15,966

12,609

Current liabilities
Trade and other payables

(6,553)

(5,833)

Current tax

(12)

(117)

Short term borrowings

(247)

Provisions

(90)

Total current liabilities

(6,902)

(5,950)

Non current liabilities
Long term borrowings

(802)

Deferred tax

(100)

(54)

Provisions

(973)

(354)

Total non current liabilities

(1,875)

(408)

Total liabilities

(8,777)

(6,358)

Net assets

7,189

6,251

Capital and reserves
Share capital

1,652

1,652

Merger reserve

1,176

1,176

Foreign currency translation reserve

110

(276)

Retained earnings

2,573

1,801

Other distributable reserve

1,494

1,791

Total equity attributable to

equity holders of the Company

7,005

6,144

Non controlling interests

184

107

Total equity

7,189

6,251


 

Consolidated statement of cash flows

For the year ended 30 September 2016

Note

2016

£’000

2015

£’000

Cash flows from operating activities
Cash generated from operations

4

104

1,443

Interest paid

(29)

(13)

Income taxes paid

(99)

(238)

Net cash (outflow) / inflow from operating activities

(24)

1,192

Cash flows from investing activities
Purchase of property, plant and equipment

(147)

(163)

Sale of property, plant and equipment

4

2

Acquisition of subsidiary, net of cash acquired

(761)

(824)

Interest received

8

3

Dividends received

278

Net cash used in investing activities

(896)

(704)

Net cash (outflow) / inflow before financing activities

(920)

488

Cash flows from financing activities
Proceeds from bank loans

1,123

Repayment of bank loans

(175)

(113)

Dividends paid

(181)

(360)

Net cash inflow / (outflow) from financing activities

767

(473)

Net change in cash, cash equivalents and

bank overdraft

(153)

15

Cash and cash equivalents and bank

overdraft at start of year

1,873

1,891

Currency translation differences

119

(33)

Cash, cash equivalents and bank

overdraft at end of year

1,839

1,873


 

Consolidated statement of changes in equity

For the year ended 30 September 2016

Share capital

£’000

Foreign

currency

translation

reserve

£’000

Retained

earnings

£’000

Other

distributable

reserve

£’000

Merger reserve

£’000

Total

£’000

Non controlling

interests

£’000

Total

Equity

£’000

At 30 September 2014

1,652

(74)

148

2,151

1,176

5,053

5,053

Profit for the year

1,653

1,653

2

1,655

Other comprehensive income

(202)

(202)

1

(201)

Non controlling interest arising on business combination

104

104

Dividends paid

(360)

(360)

(360)

At 30 September 2015

1,652

(276)

1,801

1,791

1,176

6,144

107

6,251

Profit for the year

772

772

49

821

Other comprehensive income

386

386

38

424

Other adjustments

(10)

(10)

Dividends paid

(297)

(297)

(297)

At 30 September 2016

1,652

110

2,573

1,494

1,176

7,005

184

7,189

The other distributable reserve was created in September 2007 during a court and shareholder approved process to reduce the capital of the Company.


Notes to the audited final results

1    Basis of preparation

The financial statements for the Group and parent have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Companies Act 2006 as applicable to companies reporting under IFRSs.

The financial statements have been prepared under the historical cost convention and on a going concern basis.

 

2   Operating segments

The Group comprises a single business segment and three separately reportable geographical segments (Hubs), together with a group costs segment. Geographical segments are based on the location of the operation undertaking each project.

During the period, the Group changed its operating segments as management now considers the business is based on geographic area, rather than by individual country. Accordingly, the Group’s operating segments now consist of the United Kingdom, the Middle East and Continental Europe. Turkey and Russia are no longer reported as separate reporting operating segments, but are included within Continental Europe together with Germany and the Czech Republic. All comparatives have been restated to reflect these changes.

Income statement segment information

Segment revenue

2016

£’000

2015

£’000

United Kingdom 12,142 14,488
Middle East 7,383 2,129
Continental Europe 1,316 2,051
Revenue 20,841 18,668

 

Segment revenue by project site 2016

£’000

2015

£’000

United Kingdom 12,014 14,262
Middle East 7,349 2,311
Continental Europe 1,396 2,085
Rest of the World 82 10
Revenue 20,841 18,668

 

Segment revenue less sub consultant costs

2016

£’000

2015

£’000

United Kingdom 12,080 14,368
Middle East 5,424 1,306
Continental Europe 906 1,212
Revenue less sub consultant costs 18,410 16,886

 

Segment result

2016 Segment result

Before goodwill impairment

£’000

Release of negative goodwill £’000

Goodwill

impairment

£’000

Total

£’000

United Kingdom

1,052

1,052

Middle East

(119)

160

41

Continental Europe

112

(17)

95

Group costs

(261)

(261)

Profit before tax

784

160

(17)

927

 

2015 Segment result

Before goodwill impairment

£’000

Release of negative goodwill £’000

Goodwill

impairment

£’000

Total

£’000

United Kingdom

1,993

1,993

Middle East

47

47

Continental Europe

88

88

Group costs

(258)

(258)

Profit before tax

1,870

1,870

 

 

3   Earnings per share

The calculations of basic and diluted earnings per share are based on the following data:

Earnings 2016

£’000

2015

£’000

Continuing operations 772 1,653
Profit for the year 772 1,653

 

Number of shares 2016

Number

2015

Number

Weighted average of Ordinary Shares in issue 165,213,652 165,213,652
Effect of dilutive options 153,916 305,482
Diluted weighted average of ordinary shares in issue 165,367,568 165,519,134

 

4   Cash generated from operations

Group

2016

£’000

2015

£’000

Profit before tax – continuing operations

927

1,870

Finance income

(8)

(3)

Finance costs

28

14

Share of results of associate and joint ventures

(267)

(277)

Goodwill impairment provision

17

Intangible amortisation

177

80

Depreciation

359

345

Loss/(profit) on disposal of property, plant & equipment

10

(2)

Change in trade and other receivables

628

597

Change in trade and other payables

(1,583)

(1,273)

Change in provisions

16

92

Negative goodwill

(160)

Unrealised foreign exchange differences

(40)

Net cash generated from operations

104

1,443

 

5   Analysis of net funds

Group

2016

£’000

2015

£’000

Cash and cash equivalents

1,839

1,873

Cash and cash equivalents

1,839

1,873

Secured bank loan

(1,049)

Net funds

790

1,873

 

6   Business Combination

On 10 February 2016 the Group acquired 100% of the issued share capital of Shankland Cox Limited (‘SCL’), a company incorporated in England and Wales but operating through 4 branches in the United Arab Emirates.

The total consideration, all to be paid in cash, was structured as follows:

  • AED 4.5m on completion.
  • AED 1.5m upon release of banking guarantees, paid after the acquisition date.
  • Maximum deferred consideration of AED 9.8m dependant on the collection of trade receivables and work in progress from the agreed Balance Sheet within 2 years from the completion date.

The deferred consideration up to a maximum of AED 9.8m had a fair value of AED 5.4m at acquisition. The minimum amount currently payable in respect of this deferred consideration is AED1.3m, representing receivables which have been collected. The maximum amount payable is currently AED 8.7m, which is contingent on the collection of all acquired trade receivables before 10 February 2018.

Of the AED 11.4m fair value of consideration transferred, AED 6.0m cash consideration has been paid and the full deferred consideration remains outstanding at the balance sheet date. At the year end, the fair value of deferred consideration has been estimated to be AED 4.8m.

The acquisition considerably improves our market position and offering in the Middle East.

The table below summarises the consideration paid for SCL, the fair value of assets acquired and liabilities assumed at the acquisition date.

Consideration at 10 February 2016

£’000

Cash

1,126

Fair value of deferred consideration at acquisition

1,015

Total consideration transferred at acquisition

2,141

Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents

365

Property, Plant and Equipment

132

Brand Name

282

Customer relationships

28

Amounts recoverable on contracts

401

Trade and other receivables

2,530

Trade and other payables

(848)

Provision for liabilities

(589)

Total identifiable net assets

2,301

Release of negative goodwill on acquisition

(160)

Total

2,141

Negative goodwill of £160,000 has arisen on acquisition following recognition of the intangible assets noted above. This credit to the income statement compensates for short term costs incurred to restructure the business.

Acquisition costs of £58,000 have been included in other operating charges in the consolidated income statement for the year ended 30 September 2016.

The fair value of trade and other receivables is £2,530,000 and includes trade receivables with a fair value of £2,146,000. The gross contractual amount for trade receivables due is £2,842,000, of which £696,000 is expected to be uncollectable.

The fair values of the acquired identifiable intangibles are based on finalised valuations.

The revenue included in the consolidated income statement since 10 February 2016 contributed by SCL was £2,275,000. The revenue less sub consultant costs contributed over the same period was £2,067,000. The loss before tax, amortisation and gain on bargain purchase during the period since acquisition was £557,000.

Had SCL been consolidated from 1 October 2015, the consolidated income statement would show pro-forma revenue of £22,608,000 and profit before tax of £709,000.

 

7   Status of final audited results

This announcement of final audited results was approved by the Board of Directors on 11 January 2017.

The financial information presented in this announcement has been extracted from the Group’s audited statutory accounts for the year ended 30 September 2016 which will be delivered to the Registrar of Companies following the Company’s Annual General Meeting.

The auditor’s report on these accounts was unqualified, did not include references 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 of the Companies Act 2006.

Statutory accounts for the year ended 30 September 2015 have been delivered to the registrar of companies and the auditors’ report on these accounts was unqualified, did not include references 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 of the Companies Act 2006.

The financial information presented in this announcement of final audited results does not constitute the Group’s statutory accounts for the year ended 30 September 2016.

 

8   Annual General Meeting

Notice of the annual general meeting will follow in due course and no later than 21 days before the meeting is due to be held.

 

9   Annual report and accounts

Copies of the 2016 audited accounts will be available today on the Company’s website ( www.aukettswanke.com) for the purposes of AIM rule 26 and will be posted to shareholders who have elected to receive a printed version in due course.