Final Results

30 January 2013

Announcement of final audited results for the year ended 30 September 2012

Aukett Fitzroy Robinson Group Plc, the international practice of architects and interior design specialists, announces its final audited results for the year ended 30 September 2012.

Highlights

·      Revenue from continuing operations increased by 6% to £9.15m

·      All four geographic operating segments returned to full year profitability

·      Pre-tax profits from continuing operations of £210,000 (2011: loss of £1,205,000)

·      Net cash generated from operations up 76% to £378,000

·      Year end net funds of £326,000

·      Long term pipeline of 42 larger schemes with £71m of potential future revenues

Anthony Simmonds, Chairman of Aukett Fitzroy Robinson commented:

“We are very pleased with this result. It is a tribute to the contribution of all our staff that the group has returned to profitability in such adverse market conditions. We look forward to further progress”

Enquiries

Aukett Fitzroy Robinson – 020 7843 3000

Nicholas Thompson, Chief Executive Officer

Duncan Harper, Group Finance Director

FinnCap – 020 7220 0500

Matt Goode or Rose Herbert – Corporate Finance

Stephen Norcross or Simon Starr – Corporate Broking

Hermes Financial PR

Chris Steele – 07979 604687

Trevor Phillips – 07889 153628

Chairman’s statement

I am pleased to report, in this, my first annual report as non-executive chairman, that the group delivered a positive result for the year ended 30 September 2012, in line with our expectations and notwithstanding a challenging economic climate in the UK and European Union. Revenue grew to £9.15m (2011: £8.62m) and we achieved a pre-tax profit of £210,000 after three years of losses.

This turnaround has come about through the continued focus on design excellence and consistent service delivery to our clients which is evidenced by our design awards, repeat business and constant order book. Management has remained focused on maintaining the necessary skill base to lead the group at project level and thereby ensure that our clients and their projects receive the highest level of consistent and professional service. Our decision to maintain staff levels through these quieter years and our focus on opportunities in London has been rewarded.

There remains a general reluctance of well funded clients in the key UK and Russian markets to continue planning consents into built projects due to economic uncertainty and stagnant values. Our experience mirrors this current market characteristic. However, our forward order book has a more positive outlook, remaining constant at £71m (Interim 2012: £72m) but with 62% (Interim 2012: 41%) of the income weighted towards active projects. This, and prior experience, has in part led the board to concentrate some of its resources into those geographic areas which may produce better opportunities for greater longer term returns such as the Middle East and South America.

Relationships are key to our success and this is where the hard work and dedication of our staff is essential. I would therefore like to take this opportunity of thanking all of our employees and my colleagues on the board for their considerable contributions over the last twelve months. I am confident that this engagement with what we do will continue in the years ahead.

Not withstanding the severe downturn in the construction industry, the board believes that the group is now well placed to achieve improving profitability and as a result, in the medium term, return to the payment of dividends.

Looking to the future, the board, having stabilised the business, will continue its strategy of looking for opportunities to expand and diversify the services of the group and look for continuous improvement in the conversion of its planning consents into built projects so that we can deliver further growth in the year to come.

Anthony Simmonds

Non-Executive Chairman

29 January 2013

Chief Executive Officer’s report

Overview

Our goal to build upon the profitable recovery that we commenced in second half of 2011 has continued with all geographic operating segments reporting a profit at the year end. This has been achieved by focusing on the quality of instructions undertaken and the inherent design value that they exhibit thereby improving our share of the market. At the same time we have focused on keeping cost levels in check and efficiently managing our balance sheet assets to avoid write downs. The combination of these features has been to reverse the loss trend of 2009 to 2011 and provide a platform within the group for future growth.

In architectural terms the year has seen the practice winning numerous awards including the prestigious AJ 100 International Practice of the Year, Sustainability Architect of the Year for Marks & Spencer, and three design awards for 3 St James’ Court in Norwich.

At the end of the financial year we converted our Czech Republic operation into a joint venture structure with local management holding 50% of the continuing operation.  Therefore the comparative figures for 2011 have been re-presented to exclude these results.

Also, in the prior year, our results included an exceptional cost of £835,000 relating to a claim for unpaid fees in connection with a property redevelopment project. A pre-exceptional comparison for 2011 has been highlighted to enable a better direct comparison to be made with the 2012 result.

Summary of results

We reversed last year’s loss and achieved a profit before tax of £210,000 (2011: loss of £1,205,000 and pre-exceptional loss of £370,000). This has given rise to positive earnings per share of 0.08 pence from continuing operations, the first since 2008.

Revenues rose by 6.2% to £9.15m (2011: £8.62m) and revenues net of sub-consultants rose by 13.7% to £6.74m (2011: £5.93m). At the wider group level, the inclusion of revenues from our joint ventures and associates would add a further £6.25m (2011: £4.20m) of revenue should they have been fully consolidated as subsidiaries, increasing the total to £15.40m (2011: £12.82m).

With cost increases limited to 3% over 2011 we achieved an operating profit of £59,000 (2011: Loss of £1,289,000 and pre-exceptional loss of £454,000).

Finance costs were modest at a net £22,000 (2011: £28,000) and our share of associate and joint venture income after tax was robust at £173,000 (2011: £112,000). After accounting for corporation tax of £103,000 (2011: tax credit of £274,000) and the profit on our discontinued operations of £48,000 (2011: loss of £239,000), a total of £155,000 (2011: charge of £1,170,000) has been transferred to reserves.

Cash generation remains one of our stronger performance indicators with net cash generated from operations of £378,000 (2011: £215,000) and net funds rising to £326,000 (2011: £318,000).

Review of operations

The core markets in which we operate are now exhibiting different characteristics as we emerge from the economic turmoil of the past few years. The UK has a two-tier development market with London dominant against sporadic regional activity consequent to the rapid decline in public sector works and reduced availability of development funding on geared projects. UK construction output is in a medium term decline with market evidence suggesting that this will continue until 2015.

Russia has a development freeze in parts of Moscow leading to a more regional development market, notably for the 2014 Winter Olympics in Sochi and the 2018 Football World Cup. In the United Arab Emirates the balance of opportunity has shifted from Abu Dhabi to Dubai, with the remodelling of existing buildings to compete with their modern day counterparts becoming a key market for us.

With each of these changes we have revised our business model to ensure that we are well placed by our architectural and interior design skill, our track record and location to procure part of the available market.

United Kingdom

UK revenues increased slightly to £5.16m (2011: £5.03m) returning a modest pre-tax profit of £38,000 (2011: loss of £1.19m and pre-exceptional loss of £351,000), achieved from more efficient working.

The year saw a number of projects progress through the planning application stage to consent, including 30 Berkeley Square in Mayfair for PRUPIM, three buildings for Imperial College in West London comprising 936,000 sq ft, a new 215,000 sq ft headquarters building in Bristol for Commercial Estates, and 125 Wood Street in the City of London for Orchard Street. A further three projects were submitted for planning: 1 Welbeck Street in Westminster for Scottish Widows; the London Metropole Hilton Hotel for Tonstate and the Fenwick store at Brent Cross all by the year end. Three major schemes completed: 123 Victoria Street in London for Land Securities, the new flagship sustainable store for Marks & Spencer at Cheshire Oaks and the post graduate accommodation for Imperial College in West London.

There are a number of schemes waiting to progress to planning including: a 200,000 sq ft department store in Colchester, a 250,000 sq ft business park in Norwich, and a further 45 hectare mixed-use campus development in Cambridge. Our executive architecture arm, Veretec, increased its pre tender audit work which, for the first time, accounted for over one third of its income, assisting the major UK contractors of Sir Robert McAlpine, Mace, Skanska, Wates, Kier, Osborne, and others.

Russia

Revenue remained unchanged at £3.55m (2011: £3.58m). However pre-tax profits fell to £58,000 (2011: £192,000), principally as a result of higher staffing costs and the final result was well below our expectations.

The Russian operation had a mixed year with only two major schemes, both of which endured variable progress. The drawing programme on our project in Sochi was prolonged due to numerous changes which reduced the anticipated profit on the project in terms of timing, and the other project in Siberia was subject to various temporary suspensions. Both these projects required an elongation of fees and thus a reversal of profit between the first and second halves of the year. We have a number of high profile replacement projects but it appears that funding is becoming more of an obstacle to early instruction. However, the office continues to receive a high volume of enquires across a wide spectrum of project types which reflects a more positive outlook for our services.

Middle East

With only £8,000 revenue in 2011 the bar was set very low. Revenue actually achieved, at £446,000, fully repaid our confidence in maintaining our position in this strategically important market and the operation returned a healthy 10% margin with a pre-tax profit of £44,000 (2011: loss £216,000).

The impact of the Arab Spring can now be seen in the direction and location of projects that arise. This shift has taken us from Abu Dhabi to the more buoyant market of Dubai but now projects are less iconic and require innate architectural building skill to re-model and refurbish the older stock to compete with the buildings of the last boom.

Continental Europe

We have taken a strategic view that Continental Europe will take some considerable time to recover volumes in development terms and during that period fee levels and opportunities will be at the lower end of our business model expectations. Accordingly we decided to transfer a 50% share in our Czech Republic operation to local management. This brings the structure in line with our German operations, both of which are only partly owned.

Berlin has continued to prosper with a full order book in 2012 and well into 2013. With incentivised local management, a post-tax profit share of £185,000 (2011: £73,000) was achieved. Our share of Frankfurt’s post-tax loss for the year was £12,000 (2011: profit of £39,000) due to the reduced number of projects in progress.

The Czech operation eventually recorded a small loss of £8,000 (2011: loss of £24,000) but only at the expense of substantial salary waivers by its staff and by using a minimal cost model to operate.

The Berlin office has an excellent local track record in both hotel and retail shopping architecture whilst Prague and Frankfurt are more focused in interior design and smaller architectural commissions.

People

Staff and their skills are at the very heart of a design based practice. Maintaining these skills, motivating the individuals that have them and retaining these staff in the firm are especially challenging tasks that we face in times of economic difficulty. Whilst exciting projects to work on and good comradeship play their part, mere thanks in a published report will always be insufficient gratitude, and management can but reflect upon the loyalty and dedication that our staff provides to the company and what may be possible with future rewards when circumstances allow.

The board has reduced in number following several retirements over recent years and currently only one member is an architect. The intention of the board is to broaden the skill set and re-balance the architect to non-architect ratio when future appointments are made.

Strategy

Our core strategy is to maintain and improve our three hubs of London, Moscow, and the UAE. These are the areas where we can maximise our skill set, track record and market position. Whilst we do not see any large increases in market activity, we remain confident in our ability to maintain and build up our current position. In this regard we believe that some form of non-organic growth is required to compliment that generated internally. Our short term aim is to lift revenues to over £10m in 2013 and towards £15m by 2014. With this two year target we should be able to start to restore historic profit levels and with it we hope to return to dividend payments.

We shall continue to operate as an international network (we are ranked 91st in the WA100 2013 listings, which places us in the top 20 UK practices by architects employed) but outside our three hubs this will be based more on a joint venture and licensing strategy rather than outright ownership. This format enables us to maintain an international presence with our brand, but not at a cost that is unaffordable in these more austere times.

Order book

Over the past six months the structure of our order book has changed quite radically, and we see this as an encouraging sign of future development activity. Our order book of forty-two projects (Interim 2012: forty-six) comprises future fees of £71.19m (Interim 2012: £72.50m).

During the second half of the year, a total of thirteen projects were either put up for sale, did not progress beyond the stage reached or completed. This is encouraging on a number of fronts. Firstly, projects that were on hold and have been sold, at market clearing values, reflects real development potential with the new owners, and secondly, those that are abandoned or are not viable even at current levels allows development capital to transfer to more viable schemes.

Additionally, of our forty-two projects, those on hold have reduced to ten (Interim 2012:  fifteen), covering fees of £27.11m (2011: £42.20m), and the balance of active projects increased by one to thirty-two, which has seen their future fee value rise to £44.08m (Interim 2012: £30.30m). A step in the right direction.

Outlook

Having returned to profitability and by making the best use of the assets and resources of the group we expect to both maintain and grow our bottom line profitability in 2013.

Nicholas Thompson
Chief Executive Officer
29 January 2013

Consolidated income statement

For the year ended 30 September 2012

Consolidated statement of comprehensive income

For the year ended 30 September 2012

Consolidated statement of financial position

At 30 September 2012