RNS Number:0864Y
Hyder Consulting PLC
11 June 2007
Hyder Consulting PLC (HYC.L)
Results for the year ended 31 March 2007
and Interim Management Statement
Hyder Consulting PLC today announces its preliminary results for the year ended
31 March 2007.
The Hyder Consulting Group is an engineering design, planning, environmental and
management consultancy operating in the UK, Europe, Middle East, and Asia
Pacific regions. We work with and advise national and regional government
agencies and private sector commercial enterprises, undertaking increasingly
sophisticated infrastructure and property projects.
Financial and Operational Highlights
* Revenue up 19% to #203.1m
* Operating profit up 47% to #14.3m
* Adjusted operating profit up 36% to #11.4m
* Adjusted operating margin up to 5.6% from 4.9%
* Profit before tax, after exceptional items, up by 60% to #13.3m
* Strengthened balance sheet with net assets up 226% to #25.9m
* 'International Firm of the Year' in the Consultants of the Year 2007 Awards
* Raised #7.6m by way of a placing to fund the Group's continuing acquisition
programme
* Three acquisitions completed during the year, for a consideration of up to
#9.1m, all performing well. A further #3.3m invested thereafter
#m 2007 2006 Increase
Revenue 203.1 171.3 19%
Operating profit 14.3 9.8 47%
Adjusted operating profit 11.4 8.4 36%
Profit before tax 13.3 8.3 60%
Adjusted profit before tax 10.4 7.0 50%
Earnings per share 32.44p 21.44p 51%
Adjusted earnings per share 27.21p 19.28p 41%
Adjusted results are presented before amortisation of intangible assets arising
from business combinations, Asia Pacific office closure costs, pension scheme
settlements and curtailments, and UK / Europe property costs, as the Directors'
believe that this assists with understanding the underlying performance of the
Group. A reconciliation between statutory and adjusted results is set out in the
Business Review.
Sir Alan Thomas, Chairman of Hyder Consulting PLC commented:
"I am very pleased to report another excellent year with results well ahead of
last year and ahead of market expectations. We grew strongly, the operating
margin increased, and our acquisitions were successfully integrated. We are
confident of another successful year ahead."
Interim Management Statement
Overall trading in the first two months of the new financial year is in line
with the Board's expectations. Trading conditions remain strong in all of our
key markets, unchanged from the year end.
We have won a number of significant new contracts since the year end
including a number of prestigious projects in the Middle East and the Hale
Street Link Alliance contract in Australia.
In April 2007 the acquisition of cost consultancy RPA Quantity Surveyors
Limited was completed in the UK for an initial cash consideration of #2.8m.
A further cash payment of up to #0.5m is payable dependent on future
performance. The integration is progressing well and initial results are
in line with our expectations. Our acquisitions pipeline remains strong with
a number of deals currently under negotiation.
The current trading performance, contract wins and order book give the Board
confidence for the year ahead.
Press contacts:
Hyder Consulting PLC
Tim Wade, Chief Executive Tel: +44 (0)20 7904 9011
Simon Hamilton-Eddy, Financial Director Tel: +44 (0)20 7904 9011
Biddicks
Shane Dolan Tel: +44 (0)20 7448 1000
I am very pleased to report another excellent year with results well ahead of
last year and ahead of market expectations.
Chairman's Statement
Revenues grew by 19% to #203.1m (2006: #171.3m), with net revenue, after
deduction of direct project costs, increasing by 20% to #167.4m (2006: #139.2m).
Operating profit increased by 47% to #14.3m (2006: #9.8m). Profit before tax was
#13.3m (2006: #8.3m) an increase of 60%. Earnings after tax were #11.3m (2006
#7.1m).
Included in these figures was a gain of #5.1m following a pensionable salary
freeze and the transfer of members out of the Acer Group Pension Scheme (AGPS),
partially offset by provisions of #0.8m against properties and restructuring
costs. As a consequence, adjusted operating profit was #11.4m (2006: #8.4m), an
increase of 36%. The tax charge includes an amount of #1.1m in respect of
adjusted items and adjusted EPS was up 41% from 19.28p to 27.21p.
The Directors propose a final dividend of 1.40p per share (2006: 0.90p) making a
full year dividend of 2p per share (2005: 1.25p), an increase of 60%.
Acquisitions
In October we raised #7.6m, net of fees, through a placing which has enabled us
to sustain our acquisition programme. During the year we made three acquisitions
with a maximum potential consideration, including earn-outs, amounting to #9.1m.
These were: in April, environmental consultants Cresswell Associates in the UK;
in June, civil engineers Munnich Projekt in Germany; and in July, landscape
architects ACLA in Hong Kong and China. All have been integrated into the Group
and are performing well, contributing #1.1m to adjusted operating profit. In
April 2007 we completed the acquisition of cost consultancy RPA Quantity
Surveyors Limited (RPA) in the UK for a maximum potential consideration of
#3.3m. We are pursuing further infill acquisitions in our existing territories
and market sectors, and have a pipeline of deals under review and negotiation.
International Spread
Our long established local presence in international markets is a key
differentiator from our competitors. As a Group we are celebrating our 150th
anniversary in 2007 but the year also marks 40 years in the Middle East and Hong
Kong, and 15 years in Germany. In Australia we have just celebrated the 75th
anniversary of the opening of the Sydney Harbour Bridge. Our commitment to these
markets and our long term presence there has earned us an excellent reputation
and equipped us with invaluable local knowledge.
We were very glad to be named 'International Firm of the Year' in the
Consultants of the Year 2007 Awards organised by the Association for
Consultancy and Engineering and New Civil Engineer magazine. This award is
testimony to the scale and quality of our international operations, which we
believe mitigates regional economic risks and enhances the quality of earnings.
Strategy
A central element of the Group's strategy is to improve operating margins by
concentrating on four key areas; continuously improving the quality of service
to key clients; effective staff recruitment, development and retention;
increasing the proportion of higher value advisory work; and through carefully
selected infill acquisitions.
Adjusted operating margins increased from 4.9% in 2006 to 5.6% in 2007. After
accounting for direct project costs, adjusted operating margins based on net
revenue increased from 6.0% in 2006 to 6.8% in 2007, showing further tangible
progress towards our goal of 10%.
Business Review Highlights
Our results in the UK continue to improve with a good mix of public and private
sector clients. In the transportation sector we are working on significant
contracts for the Highways Agency and TfL, as well as for the London
Underground. Work on AMP4 frameworks continues for Thames Water, Welsh Water and
South West Water, and we are well positioned to win further work for the
Olympics in 2012. Our environmental business has grown strongly, and there was a
significant contribution from new acquisition, Cresswell Associates.
The acquisition of Munnich Projekt is a first step in our plan to boost the
scale and coverage of our business in Germany and will give us access to the
important highways sector there.
Our business in the Middle East has grown significantly over recent years and we
now have almost 1,200 staff permanently based there. The markets in which we
operate, notably the UAE, Qatar, Bahrain, Kuwait and Saudi Arabia, all remain
buoyant although we are conscious of the possibilities of overheating in some
areas and are planning accordingly. Our work is primarily in the property sector
and is on a wide range of important and prestigious projects including the
tallest building in the world, Burj Dubai, and the tallest buildings in both Abu
Dhabi and Qatar.
The market in Australia remains strong, particularly for roads and bridges. The
contracts for this type of work have recently changed, such that projects are
now being awarded through formal "Alliance" mechanisms between contractors,
consultants, and clients. These contracts aim to accelerate project execution
and reduce project risks through improved cooperation between the parties.
Though the overall level of fees for consultants is expected to reduce, margins
should improve. After a slow start, which affected the second half, we recently
secured our first such contracts, the West Gate Freeway Alliance in Melbourne
and the Hale Street Link Alliance in Queensland, which will provide a useful
flow of work during the coming year.
In Hong Kong the acquisition of ACLA has performed well and has enhanced our
offering in China. It has been an important step in attaining critical mass in
the region and has increased the proportion of advisory work there.
People
Despite the fierce competition for qualified consultants our staff numbers are
growing and we currently employ around 4,000 people. We need to recruit, develop
and retain talented people to sustain this growth and are investing heavily in
human resources programmes, notably staff development and succession planning
for each key position. Misti Melville has recently been appointed to the
Executive Board as Human Resources and Communications Director to lead this
important effort.
Board of Directors
Paul Withers joined us as a Non-Executive Director in September 2006, following
which Peter Higgins retired as he had indicated last year. I would again like to
express our warm appreciation for Peter's contribution. In May 2007, Jeffrey
Hume also joined the Board as a Non-Executive Director. Both Paul and Jeffrey
have considerable experience as directors of substantial LSE listed companies
and we are delighted to welcome them both to the Company.
Outlook
Our order book remains strong at #244m (2006: #240m) and all our markets are
buoyant. We have already secured nearly 60% of our target 2007 / 08 revenue
giving us an excellent foundation for the year ahead.
We will continue to pursue our programme of selective infill acquisitions at
realistic multiples which will be earnings enhancing. As the scale of our
business increases we may consider larger acquisitions but only if they meet our
exacting criteria.
In summary, we are very pleased with the progress made during the year; we grew
strongly; the operating margin improved; and our acquisitions were successfully
integrated. We are confident of another successful year ahead.
Finally, I would like to thank our clients for their confidence in Hyder
Consulting and to all members of our staff for their contribution to these
results.
Sir Alan Thomas
Chairman
11 June 2007
Business Review
Hyder Consulting PLC is an engineering design, planning, environmental and
management consultancy operating in the UK, Europe, Middle East, and Asia
Pacific regions. We work with and advise national and regional government
agencies and private sector commercial enterprises, undertaking increasingly
sophisticated infrastructure and property projects.
The business is managed regionally with relevant key performance indicators
quoted for each of our operating regions below. Our key measure is adjusted
operating profit and margin, and with adjusted operating margin increasing by
14% from 4.9% last year to 5.6% this year, the business has fulfilled its main
strategic objective.
This result has been made possible through our acquisition programme, improved
client service and relationships, by securing more work from clients earlier in
the project cycle, and by carefully prioritising which project opportunities to
pursue.
Once again our geographic spread has served us well, with the Middle East region
trading particularly strongly. Sales in Asia Pacific are growing and the
expansion of our service capabilities means we are in a strengthening position.
We have more than held our own in a very competitive UK market and, at the same
time, have broadened and strengthened our client offering in some key growth
areas. Meanwhile, in Germany, our private sector business has stood up well and
the economic indicators for public sector spending are more favourable than they
have been for some time.
It is this truly international dimension that we believe sets us apart from our
competitors and much of our success is due to the fact that we have been
committed to the markets in which we operate for a long time. As well as
celebrating our 150th anniversary in 2007, we have also reached 40 years in both
the Middle East and Hong Kong, and 15 years in the German market.
UK / Europe
Revenue increased to #109.9m (2006: #93.1m)
Adjusted operating profit up to #8.2m (2006: #6.5m)
Adjusted operating margin up to 7.5% (2006: 7.0%)
Number of employees: 1,739 (2006: 1,536)
The largest growth in our business over the year has been in environmental
services, one of our key strategic areas. Our specialists now account for around
20% of our regional business. The acquisition of Cresswell Associates in April
2006 has made an important and successful contribution.
Environmental input is important in a number of our largest projects within the
region, notably the M25 widening DBFO (Design, Build, Finance, Operate) scheme
and Project Omega, a recently awarded project for design of the upgrade of
wastewater treatment facilities in Northern Ireland. In addition to working
across all of our business sectors, the environmental team is rapidly increasing
its own client base especially in corporate and environmental risk management
activities. This helps to position us for downstream work.
The transportation sector provides the largest share of our work in the UK.
Project wins since the half year include the development and modernisation of
Baker Street Station on the London Underground. A resurgence in proposed road
projects in Ireland culminated in the award of the design and supervision of an
upgrade to a section of the N7 between Dublin and Limerick. Transportation,
economic and business case studies have included a review of options to relieve
rush hour congestion on the Forth Road Bridge in Scotland, including the
viability of a new commuter ferry route.
Within the property sector, we provide a full service, from front-end planning
advice and support to the high quality infrastructure and transport links that
are essential to successful and sustainable development. Major projects for the
Welsh Development Agency in the Cardiff and Swansea areas have helped to
maintain a high workload. One of the goals of our acquisition strategy has been
to increase our client base in the private sector and we are pleased with the
progress made, particularly within the house building market and large-scale
urban developments.
Competition for commercial building projects has been high and price sensitive.
We have built strong relationships with clients, architects and contractors who
appreciate the value we can bring to a project. We have specifically sought to
introduce our international expertise and leading edge skills into the UK
market. A similar strategy for the many opportunities associated with the 2012
London Olympics is proving fruitful.
Within the UK water industry, a large percentage of investment is tied into
multi-year frameworks, with high value services being provided to the water
utilities including Thames Water, South West Water and Welsh Water. For United
Utilities, we have recently secured a three year framework for Type 2 asbestos
surveys on approximately 4,500 assets.
Our specialist water industry skills, in areas such as asset management,
investment planning and privatisation advice, have been in demand
internationally, particularly in the Middle East. Over the year, we have had
teams involved in projects in the United Arab Emirates, Oman and Saudi Arabia.
UK-based staff have also worked on a number of internationally funded projects
in the Caribbean dealing with strategic planning for coastal management and
protection, sustainable tourism and natural disaster relief.
In Germany the acquisition of Munnich Projekt in the first half of the year was
a small step in our plan to grow the business to a significant size and profile.
The German business is retained by a number of large, multi-national industrial
enterprises for which we aim to offer an increasing range of services in coming
years. Elsewhere in mainland Europe, we have maintained a strong presence in the
water and highways sectors, principally in Central and Eastern European
countries such as Romania and Latvia.
Middle East
Revenue increased to #44.6m (2006: #35.4m)
Adjusted operating profit up to #2.9m (2006: #1.8m)
Adjusted operating margin up to 6.5% (2006: 5.1%)
Number of employees: 1,180 (2006: 965)
Employee numbers in the region increased by 22% during the year as we
strengthened our position in our established markets such as the United Arab
Emirates, Qatar and Bahrain. We have also seen an increase in business and
strong prospects from other countries within the region, notably Kuwait, Oman
and Saudi Arabia.
Our multi-discipline participation in many of the region's largest mixed-use
developments such as Burj Dubai, Reem Island in Abu Dhabi, Lusail in Qatar and
Al Areen in Bahrain has positioned us strongly within the property sector. In
the second half of the year, we were awarded an assignment to supervise the 20
million ft2 City of Arabia development in Dubai to follow on from the
infrastructure design. We also received an appointment on the Bay Central (high
rise) development in Dubai. In Qatar, we were appointed to undertake the
engineering design and supervision of the construction of the prestigious Doha
Convention Centre and Tower. This appointment means that we are simultaneously
working on what will be the tallest buildings in Dubai (and the world), Abu
Dhabi and Qatar.
In other areas of land development, notable recent wins include an appointment
as independent technical reviewer for Al Ain Industrial City and the design and
supervision of the primary infrastructure for Bahrain Investment Wharf, a 1.5km2
zone that aims to establish Bahrain as a manufacturing and logistics hub within
the region.
Through the acquisition of ACLA, and our growing environmental and planning
teams in the region, we are increasing our participation in the earlier stages
of projects. In particular we are increasingly able to offer high value advisory
services to trusted regional developers that are investing in mixed use
developments outside the Gulf Region. Recent examples include a landscape
masterplan for Rakeen in Tbilisi, Georgia, and an environmental impact
assessment in Pakistan for Limitless (part of the Dubai World Group).
In the transport sector, road projects dominate but there is a more strategic
approach emerging to deal with issues of traffic congestion that are prevalent
throughout the region. As reported at the half year, we are working closely with
the authorities in Bahrain as project managers on road transportation
improvements, including a major development of North Manama and also reviewing
options for an intelligent transport system (ITS) network throughout Bahrain.
Over the 30 years in which we have worked in Qatar, we have been involved in
every element of the expansion of the wastewater treatment system to cope with
population growth in and around the capital, Doha. The latest development is a
new treatment works to serve the northern expansion of the city that includes
the Lusail development mentioned previously. The growing trend for involving
private capital in the sector has led to advisory projects and opportunities to
work more closely with contractors and process suppliers in a number of
countries. The latest substantial contract involves advising on the letting of
two separate contracts for water network operations and maintenance and
wastewater treatment plant rehabilitation and extensions in Jeddah City, Saudi
Arabia.
Asia Pacific
Revenue increased to #48.6m (2006: #42.8m)
Adjusted operating profit up to #2.9m (2006: #2.4m)
Adjusted operating margin up to 6.0% (2006: 5.6%)
Number of employees: 1,057 (2006: 929)
Our Australian business is benefiting from a strong market and a more distinct
market profile. Early in 2007, we made national and international headlines in
the build up to the 75th anniversary of the opening of the Sydney Harbour Bridge
in relation to the Company's involvement in the design of the landmark
structure.
Our growth in Australia slowed in the second half as a result of missing out on
a number of early Alliance contracts. Alliances we are participating in have
recently secured two such contracts, the West Gate Freeway Alliance consortium
for work to improve the M1 Freeway in Victoria, and the Hale Street Link
Alliance in Queensland. We have also secured new work to undertake patronage
forecasts for the tender of the Australian $4 billion Brisbane Airport Link toll
tunnel in Queensland, and project management of the infrastructure programme
over an initial three year period for Gold Coast City Council.
Investment levels in Queensland, Australia's fastest growing State, are
generally high. We have been commissioned for a number of the new residential
and tourism developments either under construction or in planning, such as
Hideaway @ Currumbin. New South Wales is also providing similar opportunities on
a smaller scale.
The recovery in the East Asia region has been particularly rewarding after a
long and painful downturn that affected all consultants. Our commitment to the
market in both Hong Kong and China has been vindicated by our current
performance, which is most encouraging.
By building relationships with a smaller number of clients, we are seeking to
avoid the still highly competitive nature of many projects within the region.
Notable wins in the second half of the year included a three year term contract
for slope maintenance for the highways authority, a series of 'Best Practice'
environmental projects, and the design of a new landmark bridge structure in
Taiyuan, an important mining city of 3.5 million people to the west of Beijing.
The acquisition of masterplanning and landscape architecture specialist, ACLA,
in the first half of the year is helping to push us into new business areas. For
example, team members are working on landscaping proposals for equestrian events
at the 2008 Beijing Olympics to be held in Hong Kong.
Awards
As a measure of the success we have achieved across the business, we were
delighted to receive the award for 'International Firm of the Year' in the
Consultants of the Year 2007 Awards organised by New Civil Engineer magazine and
the Association for Consultancy and Engineering.
In the UK, we earned a number of prestigious awards in the transport sector. In
particular, the new Paddington Road Bridge in west London, opened in June 2006,
received both the 'Civil Engineering Project of the Year' in the UK National
Rail Awards and the 'Major Civils Project of the Year' in the British
Construction Industry Awards. A team of environmental specialists also received
the top innovation award at the Institution of Civil Engineers West Midlands
Awards for a pioneering sustainable water engineering design for cleaning
trains.
The Middle East's first indoor ski centre, Ski Dubai, for which we were lead
consultant, picked up three major awards - the international categories of the
British Construction Industry and the Quality in Construction Awards and the
Built Projects category of the British International Expertise Awards. The Dubai
office of ACLA, also received the 2006 Dubai Cityscape Conference and Exhibition
Masterplanning Award for Cairo Future City.
ACLA also received the Hong Kong Institute of Landscape Architects' Silver Medal
for a contemporary Chinese art garden at the Fu Hwa Jin Bao Centre in Beijing.
In Australia, we received the Australian Steel Institute annual award for the
best multi-level steel design for Latitude at World Square (now known as the
Ernst & Young Centre) in Sydney.
People and Culture
In recent reports we have described at some length our initiatives for
attracting, retaining and effectively managing our single most important
resource - people.
Programmes such as improving the delivery and assessment of the people
management skills of our senior managers and helping high potential staff
develop their careers with us are now well embedded within the business.
An area we have addressed during the year is how to make Hyder Consulting a
stimulating environment for technical experts. These are key people who don't
necessarily aspire to run offices or large teams but who enhance the Group's
profile and the value we can provide to clients through their technical
reputation within the industry. The formation of Professional Excellence Groups
during the year, linked to technical disciplines, will provide a career path
from graduate to Board level.
We are also developing an ongoing programme of culture change within the
business, concentrating on the client's organisational or business drivers.
Making progress in these areas is very much a team effort. In that respect we
would like to thank all our people for their contribution to these results and,
in particular, to congratulate them on the recognition of the 'International
Firm of the Year' award mentioned in this statement.
Financial Review
The Financial Review covers the actual results for the year ended 31 March 2007
with comparisons to prior year results. The Financial Statements and comparative
information have been prepared in accordance with International Financial
Reporting Standards (IFRS).
Actual Results
Revenue for the year increased by 19% to #203.1m (2006: #171.3m), including
revenue from acquisitions of #6.0m. Organic revenue growth was 15% for the year.
Excluding sub-consultant costs, on which little or no margin is earned, net
revenue increased by 20% to #167.4m (2006: #139.2m).
Operating profit increased by 47% to #14.3m (2006: #9.8m).
In presenting the Group's operating profit below, amortisation of intangible
assets arising on business combinations and certain one off items have been
excluded as the Directors' believe that this assists with understanding the
underlying performance of the Group:
2007 2006
#'000 #'000
--------- ---------
Group operating profit 14,332 9,766
Add back amortisation of intangible assets on business
combinations 1,407 671
Less pension scheme settlements and curtailments (5,095) (2,299)
Add back UK / Europe property costs 547 -
Add back Asia Pacific office closure costs 210 242
--------- ---------
Adjusted operating profit 11,401 8,380
Net finance costs (983) (1,427)
--------- ---------
Adjusted profit before taxation 10,418 6,953
========= =========
A gain of #5.1m has been recognised following the implementation of a
pensionable salary freeze, and members transferring out of the Acer Group
Pension Scheme. Provisions totalling #0.8m have been recognised against UK /
Europe properties and Asia Pacific restructuring costs. The tax charge includes
an amount of #1.5m in respect of these items. The above adjustments have been
reflected in the calculation of adjusted operating profit which increased by 36%
to #11.4m (2006: #8.4m).
Adjusted profit before taxation increased by 50% to #10.4m (2006: #7.0m).
Operating margins are measured for management purposes based on net revenue, as
this measure excludes sub consultants costs on which little or no margin is
earned. Adjusted operating margin for the year increased by 13% to 6.8% (2006:
6.0%) reflecting the success of the Group's strategy to increase operating
margins.
As expected our order book has increased by only a small amount to #244m (2006:
#240m), partly as a result of the effect of our strategic shift towards higher
value advisory contracts which are generally shorter term in nature. Another
factor is that we have actively reduced our framework order book in the low
margin defence sector, and orders in the water sector are normally booked in the
first year of the five year AMP4 capital programme cycle, following which the
order backlog progressively reduces.
Net Finance Costs
The net finance cost of the Group reduced to #1.0m (2006: #1.4m) and is covered
11.6 times by adjusted operating profit (2006: 5.9 times). The Group has
maintained good relationships with its principal bankers, HSBC and Barclays,
over the year and has continued to reduce its debt financing costs as a result.
The net charge relating to notional interest on pension liabilities reduced to
#0.4m (2006: #1.0m).
Taxation
The total tax charge of #2.0m (2006: #1.2m) amounts to 15% of profit before tax.
Excluding the effects of exceptional items the tax rate amounts to 5.7%. We
anticipate the tax charge will increase to a more normalised rate of 20% over
the next three to four years. The current low rate reflects adjustments in
respect of prior periods, Research and Development tax credits in the UK, and
zero tax rates in certain Middle East jurisdictions.
Earnings Per Share
Earnings per share are impacted by the pension settlements and curtailments,
amortisation of intangible assets, and other one off items. Basic earnings per
share have increased to 32.44p (2006: 21.44p). Diluted earnings per share have
increased to 31.59p (2006: 20.97p). The weighted average number of ordinary
shares in issue in the year was 34.4m (2006: 32.3m) the increase reflecting the
effect of the Placing in October 2006, shares issued for acquisitions and share
options exercised. Adjusted basic earnings per share increased by 41% to 27.21p
(2006: 19.28p).
Dividends
A final dividend is proposed for the year to 31 March 2007 of 1.40p per share
(2006: 0.90p) giving a 60% increase for the year to 2.00p (2006: 1.25p). The
full year dividend is covered 13.6 times by adjusted earnings per share (2006:
15.4 times). The dividend will be paid on 3 August 2007 to shareholders on the
register at 6 July 2007.
It is the Board's objective to pursue a progressive dividend growth policy
whilst ensuring appropriate dividend cover, meeting the working capital demands
of the business, and reducing the pension deficit.
Capital Structure
During the year the Company issued 3,191,698 10p ordinary shares, and as at 31
March 2007 had issued 35,847,114 (2006: 32,655,416) fully paid ordinary shares.
As at 31 March 2007 shareholders' equity amounted to #25.7m (2006: #7.6m), cash
balances increased to #18.7m (2006: #13.2m) and debt balances amounted to #10.4m
(2006: 7.0m).
Shareholder Return
Shareholders' equity has increased during the year to #25.7m (2006: #7.6m),
primarily as a result of retained profits for the year and the share placing in
October 2006, equating to a net asset value of 72p per share. The closing share
price on 31 March 2007 was 461.75p per share (2006: 263.5p) representing a
market capitalisation for the Group of #166m (2006: #86m).
Pensions
The Group operate both defined benefit and defined contribution schemes.
Over recent years we have taken a number of steps to address the deficit
existing in the Acer Group Pension Scheme (AGPS) which is closed to new members.
During the current year a pensionable salary freeze of up to five years was
implemented for active members, resulting in a reduction in the deficit as
reported under IAS19 of #4.0m. In addition, an offer was made to active members
to transfer their liabilities out of the scheme, which was enhanced by an
incentive payment from the Group. Response to this offer, combined with the
response to a further offer to deferred members to transfer out of the scheme
has given rise to additional savings against the IAS19 deficit of #2.6m. After
deducting the costs of undertaking these exercises, including payments made
directly to the members by the Group, an exceptional pre-tax profit of #5.1m has
been recognised in the year. In addition, a special contribution of #2m was paid
into the scheme during the year, with a further #2m contribution paid in during
April 2007.
The Board acknowledges that valuations of defined benefit schemes under IAS19
are inherently volatile, and will continue to take action where appropriate to
reduce the deficit. The actuarial assumptions used to calculate the deficit will
be reviewed in detail in advance of the next actuarial valuation in April 2008.
The key assumptions and the sensitivities of the AGPS scheme liabilities to
changes in these assumptions are shown below.
Indicative effect on scheme
Assumption Change in assumption liabilities
------------ --------------- --------------------
Discount rate Increase / decrease by 0.5% Decrease / increase by 10%
Rate of
inflation Increase / decrease by 0.5% Increase / decrease by 7%
Longevity Increase by 1 year Increase by 4%
Over the course of the next 12 months the Group will work with the Scheme
Trustees to set revised mortality assumptions that are specific to the AGPS
scheme. Any increase in the longevity assumptions will produce a resultant
increase of the scheme's liabilities.
Cash Flow
The Group cash balances held at 31 March 2007 increased to #18.7m (2006:
#13.2m), whilst debt levels increased from #7.0m to #10.4m. Net funds amounted
to #8.2m at 31 March 2007 (2006: #6.2m).
Cash generated from operating activities amounted to #4.7m (2006: #10.3m),
reflecting an increase in the level of working capital, although to a lesser
extent than the reported growth in revenue. The balance of trade receivables net
of provisions and amounts recoverable on contracts net of payments on account
increased by 7% (2006: 15%) during the year whilst revenue increased by 19%
(2006: 26%). The average days outstanding have reduced during the year with
receivables days at 31 March 2007 of 83 days (2006: 87 days) and outstandings
from net amounts recoverable on contracts reduced to 10 days (2006: 16 days)
reflecting an increased volume of advanced payments.
Acquisitions
During the financial year we have completed three acquisitions, with a maximum
potential consideration of #9.1m. The acquisitions were funded through #3.8m of
cash and #1.2m of shares issued, with the balance consisting of contingent cash
consideration. In April 2007 we acquired cost consultancy RPA in the UK for
#2.8m in cash, with contingent cash consideration of #0.5m.
As a result of the Group's acquisition programme the charge for amortisation of
intangible assets from business combinations has increased in the year to #1.4m
(2006: #0.7m).
Treasury
The Group has unsecured facilities with HSBC in the UK comprising a revolving
credit facility of #10m which is due to expire in April 2012, and other
facilities totalling #12m. In addition, the Group has a revolving credit
facility in the UK for #5m, expiring in June 2009, and an unsecured loan for #3m
with Barclays, and other working capital facilities through local relationship
banks in the countries that we operate.
Established procedures exist to monitor cash flow, currency and interest rate
risks in accordance with the policy set by the Board.
Approximately half of the Group's revenue is generated in Sterling. The
remaining balance is generated in the Middle East (mainly the UAE), Germany,
Hong Kong and Australia where revenue is normally denominated in the relevant
local currency. The revenue and costs of our overseas operations generally arise
in the same currency and consequently the exposure to exchange differences is
not usually significant and consequently not normally hedged. Where a mis-match
does exist it is priced for in our customer contracts. Most of our overseas
operations maintain local currency overdraft and bonding facilities, which
provide partial mitigation against balance sheet risk. In spite of fluctuations
in exchange rates which occur from time to time, it is not considered necessary
to hedge the net investment in overseas subsidiaries at this time.
Risk Management
The Group faces a number of industry related risks including inter alia those
listed below:
* The potential for contractual disputes with clients and resultant claims
by them,
* The need to win sufficient new work relative to our largely fixed cost
base,
* The dependence on key clients and key markets,
* The integration of acquisitions,
* The effects of foreign exchange movements,
* The integrity and sustainability of our IT network and core business
systems,
* The availability of quality staff resources.
It is the Group's policy to cover its key contractual risks through insurance at
commercially acceptable rates for appropriate limits of indemnity. The major
area of risk covered by insurance relates to Professional Indemnity. We have a
full time Group Risk Manager and continue to enhance our risk management
procedures in order to minimise future claims.
The Directors estimate that as at 31 March 2007 contingent liabilities,
primarily in respect of the insurance excesses relating to potential
professional indemnity claims in excess of amounts provided for in the Financial
Statements, amounted to #8.3m (2006: #8.7m). The Directors do not consider any
provision is necessary in respect of these amounts as they consider the
likelihood of loss to be remote based on legal and other advice received.
Tim Wade Simon Hamilton-Eddy
Chief Executive Financial Director
11 June 2007
Consolidated Income Statement for the year ended 31 March 2007
2007 2006
Note #'000 #'000
--------- ---------
Revenue 1 203,145 171,314
Cost of sales
Direct project costs (35,700) (32,101)
Other operating costs (116,460) (98,863)
--------- ---------
Gross profit 50,985 40,350
--------- ---------
Administration expenses (36,653) (30,584)
--------- ---------
Group operating profit 1 14,332 9,766
--------- ---------
Analysed as:
EBITA (Pre-exceptional items) 12,262 9,333
Amortisation of intangible assets
- Software (861) (953)
- Business combinations (1,407) (671)
Pension scheme settlements and curtailments 5,095 2,299
UK / Europe property costs (547) -
Asia Pacific office closure costs (210) (242)
--------- ---------
Group operating profit 1 14,332 9,766
--------- ---------
Interest payable and similar charges (1,341) (1,701)
Interest receivable 358 274
--------- ---------
Profit before taxation 13,349 8,339
Taxation (2,011) (1,230)
--------- ---------
Profit for the financial year 11,338 7,109
========= =========
Profit attributable to minority interests 192 177
Profit attributable to equity shareholders 11,146 6,932
--------- ---------
Earnings per share (pence)
Basic 2 32.44 21.44
Diluted 2 31.59 20.97
--------- ---------
Equity - Ordinary 10p shares
Dividends (#'000) - paid 511 291
Dividend per share (pence) 1.50 0.90
--------- ---------
Dividends (#'000) - proposed 502 294
Dividend per share (pence) 1.40 0.90
All activities are continuing.
Consolidated Statement of Recognised Income and Expense
2007 2006
#'000 #'000
--------- ---------
Profit for the financial year 11,338 7,109
Exchange adjustments (1,572) 394
Cash flow hedges recognised 69 61
Transfer from minority interest (68) -
Actuarial losses on defined benefit pension schemes (43) (10,040)
Deferred taxation on actuarial losses 34 2,940
--------- ---------
Net expense not recognised in the Income Statement (1,580) (6,645)
--------- ---------
9,758 464
Fair value of swaps - (95)
--------- ---------
Total recognised income for the year 9,758 369
========= =========
Equity shareholders 9,566 287
Minority interests 192 177
--------- ---------
9,758 464
========= =========
Balance Sheet as at 31 March 2007
2007 2006
Note #'000 #'000
--------- ---------
Non-current assets
Intangible assets 18,046 12,332
Property, plant and equipment 9,443 8,364
Deferred taxation assets 12,560 15,171
--------- ---------
40,049 35,867
--------- ---------
Current assets
Trade and other receivables 77,672 67,579
Corporation tax recoverable 336 426
Cash and cash equivalents 18,663 13,166
--------- ---------
96,671 81,171
--------- ---------
Current liabilities
Trade and other payables (55,474) (45,040)
Current taxation liabilities (1,382) (2,801)
Financial liabilities
- Borrowings (3,707) (3,100)
Provisions (2,908) (3,272)
--------- ---------
(63,471) (54,213)
--------- ---------
--------- ---------
Net current assets 33,200 26,958
--------- ---------
Non-current liabilities
Financial liabilities
- Borrowings (6,735) (3,852)
Post employment benefits (35,711) (45,320)
Provisions (530) (1,072)
Deferred taxation liabilities (2,592) (3,009)
Other non-current liabilities (1,747) (1,621)
--------- ---------
(47,315) (54,874)
--------- ---------
Net assets 1 25,934 7,951
========= =========
Shareholders' equity
Called up ordinary share capital 3,585 3,266
Share premium account 21,262 12,515
Retained earnings 2,437 (8,232)
Other reserves (1,592) 72
--------- ---------
Total shareholders' equity 25,692 7,621
Minority interests in equity 242 330
--------- ---------
Total equity 25,934 7,951
========= =========
Consolidated Statement of Cash Flows
2007 2006
Note #'000 #'000
--------- ---------
Cash flows from operating activities
Cash generated from operations 3(a) 7,067 11,032
Interest received 358 274
Interest paid (722) (593)
Taxation paid (1,960) (443)
--------- ---------
Net cash generated from operating activities 4,743 10,270
--------- ---------
Cash flows from investing activities
Acquisition of subsidiaries (net of cash (3,762) (3,984)
acquired)
Proceeds from sale of property, plant and 43 46
equipment
Proceeds from sale of investment - 4
Purchase of minority interests (375) -
Purchase of property, plant and equipment (4,428) (1,548)
-------- ---------
Net cash used in investing activities (8,522) (5,482)
-------- ---------
Cash flows from financing activities
Net proceeds from issue of ordinary share 7,558 45
capital
Finance lease principal payments (1,257) (1,064)
Proceeds from issue of new borrowings 7,937 1,354
Repayment of borrowings (4,131) (1,424)
Dividends paid to shareholders (511) (291)
--------- ---------
Net cash from financing activities 9,596 (1,380)
--------- ---------
Effects of exchange rate fluctuations (320) 199
--------- ---------
Net increase in cash and cash equivalents 5,497 3,607
--------- ---------
Cash and cash equivalents at 1 April 13,166 9,559
--------- ---------
Cash and cash equivalents at 31 March 18,663 13,166
========= =========
Notes to the Financial Statements
1. Segmental analysis by location of operations
Reflecting the Group's management and internal reporting structure, primary
segmental information is presented within the Financial Statements in respect of
geographical segments. The Group manages its business on a global basis with
operations in three main geographical regions, UK and Europe, Asia Pacific and
the Middle East. The UK is the home country of the parent. Inter-segment revenue
relates to contracts priced on an arm's length basis.
The secondary reporting format is by business segment. The Directors consider
that there is only one secondary business segment, being engineering design,
planning, environmental and management consultancy. Therefore, the disclosures
for the secondary segment have already been given in these Financial Statements.
(a) Segment revenue
Inter-segment Total Total
revenue
2007 2007 2007 2006
#'000 #'000 #'000 #'000
-------- -------- -------- --------
UK / Europe
- Continuing operations 106,050 (413) 105,637 93,116
- Acquisitions 4,268 - 4,268 -
Asia Pacific
- Continuing operations 48,920 (2,023) 46,897 42,843
- Acquisitions 1,704 - 1,704 -
Middle East 60,912 (16,273) 44,639 35,355
-------- -------- -------- --------
221,854 (18,709) 203,145 171,314
======== ======== ======== ========
(b) Segment results
Regional operating profit
UK / Europe
- Continuing operations 7,364 6,527
- Acquisitions 860 -
Asia Pacific
- Continuing operations 2,659 2,382
- Acquisitions 258 -
Middle East 2,893 1,817
Corporate overheads (2,633) (2,346)
-------- --------
11,401 8,380
Amortisation of intangible assets arsing on business combinations
UK / Europe
- Continuing operations (385) (196)
- Acquisitions (342) -
Asia Pacific
- Continuing operations (368) (303)
- Acquisitions (202) -
Middle East (110) (172)
Exceptional items
UK Pension scheme curtailments 4,000 -
UK Pension scheme settlements 2,587 3,711
UK Associated pension settlement
costs (1,492) (1,412)
UK / Europe property costs (547) -
Asia Pacific office closure costs (210) (242)
-------- --------
Group operating profit 14,332 9,766
======== ========
The gain on pension curtailments is a result of a pensionable salary freeze of
up to five years for active members of the AGPS being implemented during the
year. The gain on pension settlements reflects further gains in relation to
deferred and active members transferring out of the AGPS during the year.
(c) Segment assets and liabilities
UK / Europe Asia Pacific Middle East Total
#'000 #'000 #'000 #'000
-------- -------- -------- --------
2007
Segment assets 76,937 29,899 29,884 136,720
Segment liabilities (70,346) (16,858) (23,582) (110,786)
-------- -------- -------- --------
6,591 13,041 6,302 25,934
======== ======== ======== ========
2006
Segment assets 67,823 26,939 22,276 117,038
Segment liabilities (76,701) (17,108) (15,278) (109,087)
-------- -------- -------- --------
(8,878) 9,831 6,998 7,951
======== ======== ======== ========
(d) Other information
UK / Europe Asia Pacific Middle East Total
#'000 #'000 #'000 #'000
-------- -------- -------- --------
2007
Capital expenditure 2,154 1,394 968 4,516
Depreciation 1,271 477 278 2,026
Amortisation - Software 610 164 87 861
Amortisation - Business
combinations 727 570 110 1,407
2006
Capital expenditure 1,063 1,987 283 3,333
Depreciation 1,048 431 127 1,606
Amortisation - Software 720 128 105 953
Amortisation - Business
combinations 196 303 172 671
2. Earnings per share
(a) Number of shares
2007 2006
-------- ---------
Earnings per share
Weighted average number of shares in issue 34,355,485 32,338,690
Effect of dilution
Share options 933,110 715,776
-------- ---------
Weighted average shares (diluted) 35,288,595 33,054,466
========= =========
(b) Earnings used in the calculation of earnings per share
2007 2006
#'000 #'000
--------- ---------
Profit attributable to equity shareholders 11,146 6,932
Less pension settlements and curtailment gain and
associated (5,095) (2,299)
costs
Add back Asia Pacific office closure costs 210 242
Add back UK & Europe property costs 547 -
Add back amortisation of intangible assets on business
combinations 1,407 671
Add back tax on adjusted items 1,133 690
--------- ---------
Adjusted earnings 9,348 6,236
========= =========
(c) Earnings per share
2007 2006
Pence Pence
--------- --------
Basic earnings per share 32.44 21.44
Less pension settlements and curtailment gain and
associated costs (14.83) (7.11)
Add back Asia Pacific office closure costs 0.61 0.75
Add back UK & Europe property costs 1.59 -
Add back amortisation of intangible assets on business
combinations 4.10 2.07
Add back tax on adjusted items 3.30 2.13
--------- --------
Adjusted basic earnings per share 27.21 19.28
========= ========
2007 2006
Pence Pence
--------- --------
Diluted earnings per share 31.59 20.97
Less pension settlements and curtailment gain and
associated (14.44) (6.96)
costs
Add back Asia Pacific office closure costs 0.60 0.73
Add back UK & Europe property costs 1.55 -
Add back amortisation of intangible assets on business
combinations 3.99 2.03
Add back tax on adjusted items 3.20 2.09
--------- --------
Adjusted diluted earnings per share 26.49 18.86
========= ========
3. Notes to the Statement of Cash Flows
(a) Cash flows from operating activities
2007 2006
#'000 #'000
-------- --------
Profit for the financial year 11,338 7,109
Adjustments for:
Taxation 2,011 1,230
Depreciation 2,026 1,606
Loss on disposal of property, plant and equipment 16 7
Amortisation of intangible assets - Software 861 953
Amortisation of intangible assets on business combinations 1,407 671
Interest receivable (358) (274)
Interest payable and similar charges 1,341 1,701
Amendments to fair value of consideration 1 (21)
Share option costs 248 114
Impairment of fixed assets 1,131 -
Release of vacant property provision (584) -
Decrease in provisions (422) (360)
Defined benefit pension scheme charges 3,378 1,649
Pension scheme settlements (2,587) (3,711)
Pension scheme curtailments (4,000) -
Changes in working capital (excluding effects of
acquisitions):
Increase in trade and other receivables (9,839) (12,015)
Increase in trade and other payables 7,674 15,037
Contributions to defined benefit schemes (6,575) (2,664)
-------- --------
Cash generated from operations 7,067 11,032
======== ========
(b) Reconciliation of movement in net funds
At 1 April Cash flow Acquisition Non cash Exchange At 31 March
2006 (excluding cash movement movement 2007
and overdrafts)
#'000 #'000 #'000 #'000 #'000 #'000
------- ------- ------- ------- ------- --------
Cash at
bank 13,166 5,817 - - (320) 18,663
------- ------- ------- ------- ------- --------
Debt due
within 1
year (1,955) (173) - (427) 21 (2,534)
Debt due
after
1 year (1,839) (3,633) - 427 30 (5,015)
Finance
leases
due
within 1
year (1,145) 1,257 (7) (1,280) 2 (1,173)
Finance
leases
due after
1 year (2,013) - - 301 (8) (1,720)
------- ------- ------- ------- ------- --------
(6,952) (2,549) (7) (979) 45 (10,442)
------- ------- ------- ------- ------- --------
6,214 3,268 (7) (979) (275) 8,221
======= ======= ======= ======= ======= ========
4. Financial information
The financial information set out in this preliminary announcement has been
prepared on the basis of the principal accounting policies that are available
on our website.
The financial information does not constitute statutory accounts within
the meaning of section 240 of the Companies Act 1985. Statutory accounts for
the year ended 31 March 2007 will be despatched to shareholders during June
2007 for approval at the Annual General Meeting to be held on 26 July 2007.
Non-Statutory information - summary of five year trading results
31 31 31 31 31
March March March March March
2007 2006 2005 2004* 2003*
#'000 #'000 #'000 #'000 #'000
Consolidated
Income Statement
Revenue 203,145 171,314 136,233 122,343 115,207
Operating
profit before
amortisation
and other
adjustments 11,401 8,380 4,714 3,173 1,144
Amortisation
of goodwill
and
intangibles (1,407) (671) 351 980 321
Other
adjustments 4,338 2,057 (318) (1,203) 307
------- ------- ------- ------- -------
Profit before
interest and
taxation 14,332 9,766 4,747 2,950 1,772
Net finance
costs (983) (1,427) (2,154) (729) (288)
------- ------- ------ ------- -------
Profit before
taxation 13,349 8,339 2,593 2,221 1,484
======= ======= ======= ======= =======
Consolidated
Balance Sheet
Goodwill and
other
intangibles 18,046 12,332 6,275 894 (799)
Fixed assets 9,443 8,364 6,830 8,101 9,063
Deferred tax 12,560 15,171 10,730 1,945 2,409
Current assets 96,671 81,171 62,232 54,278 64,739
------ ------- ------- ------- -------
136,720 117,038 86,067 65,218 75,412
Current
financial
liabilities
and trade
payables 63,471) (54,213) (34,005) (31,073) (46,536)
------- ------- ------- ------- -------
Total assets
less current
liabilities 73,249 62,825 52,062 34,145 28,876
Non-current
liabilities
and provisions 47,315) (54,874) (45,249) (18,766) (14,170)
------- ------- ------- ------- -------
Net assets 25,934 7,951 6,813 15,379 14,706
======= ======= ======= ======= =======
Called up
share capital 3,585 3,266 3,233 2,445 9,628
Share premium
account 21,262 12,515 11,701 - 7,694
Retained
earnings 2,437 (8,232) (7,945) 12,773 (3,911)
Other reserves (1,592) 72 (315) 80 97
------- ------- ------- ------- -------
Total
shareholders'
equity 25,692 7,621 6,674 15,298 13,508
Minority
interests in
equity 242 330 139 81 1,198
------- ------- ------- ------- -------
Total equity 25,934 7,951 6,813 15,379 14,706
======= ======= ======= ======= =======
Statistics
Basic earnings
per share p 32.44 21.44 8.14 9.02 3.77
Adjusted basic
earnings per
share p 27.21 19.28 8.01 9.95 1.04
Dividends per
ordinary share p 2.00 1.25 0.75 0.40 -
Adjusted
operating
margin % 5.60 4.89 3.46 2.59 0.99
Average number
of employees Number
Net funds / 3,798 3,203 2,864 2,671 2,558
(debt) #'000 8,221 6,214 4,451 (3,384) (1,367)
* The figures for the years ending 31 March 2003 and 2004 are presented under
UK GAAP.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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