Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
The Demise of Auketts: Updated Half Year Results
• 1.0m Half Year Loss – adding to the already 2.6m from prior years!
• UK 2.5m revenue, with 0.8m loss – two highly paid accountants [CEO & CFO] need to go, sack the board, let the young 40yo architects run the architectural company. It is a 5m pa business at best. Team of 30-40: run by Architects is the solution. Unfortunately, most of the fee income is driven by Veretec, producing low profit, back-end documentation for other architect’s front-end design work. If those Veretec business winners go – UK business is over!
• Middle East 1.3m revenue, with 0.3m loss: Disaster, draining cash – needs to be shutdown, sell it off
• Europe 0.2m dividend – hugely over exaggerated, and costs more in management time to run, sell it off
• 200k cash, but propped up by 1.0m of loans and VAT & Rent not paid
• CBILS 500k loan + Overdraft loan 500k propping them up
• VAT, Rent, CBILS yet to be repaid!
• 9.2m to 4.1m, the business is half what it was in 2016, and shrinking fast
• Current Assets v Total Liabilities = Negative 3.4m
• Old Shareholders just want to sell – but who would want to buy this lot?
• Old CEO just wants to continue to extract an overly inflated annual fee, whilst making poor decisions! Middle East a disaster!
• WFH: who cares!
• ‘Penny Dreadful’
• 1m Half Year Loss
• Half Year Turnover Collapses to 5.3m
• 300k VAT Bill unpaid
• 140k Rent Bill unpaid
• 500k Gov Loan Scheme propping them up
• Cash must be gone
• 2016 18.4m v 2021 10.6m: Massive Decline in Revenue
• Four Year Cumulative Loss 3.6m: Massive Losses
• 2016 18.4m v 2020 11.3m: 40% Decline in Revenue, when AUK promised 100% growth
• Four Year Cumulative Loss 2.6m: Massive Losses
• Total Current Liabilities 4.6m < Total Current Assets 5.1m: Minimum coverage
• Minimal One Month of Cash in Hand: not much to rely upon
• 30% Collapse of Middle East Revenue in the year @ 4.1m: lost a fortune in the desert
• 50% Collapse of Europe Revenue in the year @ 0.2m: is this really worth the hype
• Further decline in UK Revenue @ 6.9m: despite multiple mergers, back to a #100 London small size practice
• 101k/FTE in UK; 50% of main competitors: Key Indicator Poor Result
• 79k/FTE in UK; 40% of main competitors: Key Indicator Very Poor Result
With the three year [2017-2019] losses standing at 2.58m, Aukett is now suggesting more losses in 2020 to add to the previous pile.
'Revenue less sub consultant cost' has dived 34% in recent years.
There is no indication whether revenue has crashed further, but with further losses in 2020, inevitably it most probably has. Revenue has most probably been also propped up by government hand-outs.
The concern that this is all set against leading competitors reporting massive shareholder returns.
With the 2nd UK Lockdown in full swing, no deal Brexit straight ahead, and a collapse in Aukett’s main offshore Middle East sector, things look decidedly bleak once again.
Three weeks worth of ‘net cash’, leaves the company exposed to any further down turn.
Shares at 1p – major institutional investor selling up.
Grim
Why did Aukett S****e CEO Nicholas Thompson take four years to tell the market this!!
‘Incorrect, misleading, inaccurate, unfair, and, in at least one case, knowingly untrue’ rings to mind……fraudulent!
Just released:
“Nicholas Thompson, chief executive officer of the Company, has informed the Company that Thompson & Newman Limited, of which he was director, was dissolved by Members Voluntary Liquidation in November 2016 with a shortfall to creditors of approximately £219,000.”
Fills you with zero confidence in this guy!
High Court Judge said of CEO Thompson in an earlier High Court Case regarding Thompson’s statement, “the details of his statement were incorrect, misleading, inaccurate, unfair, and, in at least one case, knowingly untrue.” Mr Justice Coulson, presiding over the case, said it was Thompson’s “wholly unreliable” testimonial statement that had persuaded him that the misrepresentation was intentional, and therefore fraudulent.
Ouch!
You would not want to be a creditor of Aukett – the CEO has ‘form’.
Major institutional investor ‘Broadwalk Fund’ now selling 5.3m shares – no wonder the price has crashed.
Minimal 2% Profit
New Instructions 'sparse' in UK in H2
Much Lower Level of Income in UAE in H2
".....it is impractical to predict with any certainty how the year will end" CEO
UK $4.09m H1 turnover
“…new instructions with new clients will be sparse for a while and it is that factor that will influence our H2 result”
Middle East $3.14m H1 turnover
“..there is a dearth of new and larger instructions. Given the steep fall in the oil price, little or no tourism and a potential exodus of labour once travel restrictions are lifted, we see this geography taking some time to recover and as such we have re-structured our three operations to assume a much lower level of income in the aftermath of Covid-19.”
A major concern in the comments out of the Middle East....
New Instructions Sparse in the UK....
Almost three-quarters expect profits to fall, as more staff are furloughed
Nearly 10% of practices do not believe they will survive the fallout of the covid-19 pandemic, according to the latest RIBA Future Trends survey.
The May update has revealed that 73% of architects expected profits to fall over the next 12 months and that of those 8% think their practice is unlikely to remain viable.
The findings from this month’s survey also show that current workloads remain at significantly reduced levels – down 33% compared to May 2019.
According to the update 22% of architectural staff have been furloughed – an increase of 8% from April, while 1% have been made redundant and 1% have been released from a ”zero hours”, temporary or fixed-term contract.
It also said that 38% of projects had been put on hold since the start of March and that 23% of projects which remain active are at stages 5 or 6 of the RIBA Plan of Work.
UK Gov’s Coronavirus Job Retention Scheme ("CJRS”) might assist the AUK UK workforce, but will AUK have enough workload to keep rolling when the CJRS ends? Will a massive 50% cull of the UK workforce be required with the added redundancy cost penalty.
The real worry will be in the UAE, where AUK does not have the ability to obtain Government assistance. If revenue fails to be maintained at the 6m level, losses will quickly mount, and cash will need be used to pay out redundancies to reduce the cost base.
Aukett's gamble in the UAE desert looks to be blowing up in their face. Year on year of substantial losses from UAE has drained the corporate piggy bank, and left Aukett UK with a debt and a headache. With oil prices in a complete slump, and no sign of improvement, there will be little free cash circulating in the UAE for major projects. The decision to begin purchasing third rate actors in the UAE has cost AUK dearly, and oddly AUK made that decision when the Brexit Referendum was a reality.
A trading update is overdue from these guys - what's going on?!
Aukett:
“…….we expect to be able to continue to operate within current banking facilities. UK state support schemes are being looked into as a matter of urgency and will be implemented shortly, as required.”
With both UK & the Middle East delivering further losses in 2019 [after an extremely poor $3m loss in 2018], a year living with Covid 19 will be a huge challenge for Aukett.
One can only assume that 2020 revenues in both major centres are falling fast, and cash will be under enormous pressure.
The ‘matter of urgency’ entry by the CEO, seeking government assistance is not surprising, but telling.
The overdraft facility is only 500k, less than 2 weeks supply of cash. That facility is reviewed by the bank in May 2020, only weeks away.
Of significant concern is that Middle East will need to replace the 1m of fee earning work from the large shed project earnt from one client in 2019, and maintain the 6.0m revenue stream to support the cash requirement. Failure to do that will present an immediate risk to cash flow.
UK will need to maintain the 7.4m revenue to support the cash requirement, whilst dealing with an increase cash requirement of the end of the rent-free period on their London HQ, along with repayments on the bank loans of 260k.
If these two main revenue streams falter in 2020, then cash will be under immediate pressure.
Other Loans might need to be sort, but with year on year losses over the past two years, it would be a brave bank that lends Aukett more, particularly when Net Assets are entirely propped up by Non Current Assets.
With 75% of the cost base being staff salaries or directors fees, it will require an immediate 'cull' of both, to enable Aukett to get through.
In the past Aukett CEO has shown a reluctance to act, as 2018 showed, raking up a $3m loss.
In 2019 they failed to cut their cloth to get below the revenue line.
If they do not take quicker and more direct action to reduce their cost base in 2020, things will look bleak, very quickly.
As Coronavirus takes hold, it will be concerning to see if Aukett can make it through this event.
Aukett's should release a statement on the current position.
As Aukett approach the half year, there would be a significant drop in revenue due to projects being stopped, and likely projects in Q2 put on hold, and little or no new instructions on new projects in Q2.
Aukett's secured revenue for Q3 & Q4 might be imploding. Any additional new work in Q3 & Q4 must now be in great doubt.
Even prior to this event, Aukett had 3 weeks available cash flow, with the main centres all struggling to break even.
Aukett would need to cease all salary costs, and defer all other costs in order to survive, however they will have no cash to restart the business once this is all over.
At best, a third party might buy the company at a substantial discount, to complete whatever workload remains.
The worry is that Clients might simply walk: and any new owner would end up with nothing.
Is this the end?
Coronavirus Impacts on Small Businesses
Catastrophic suggests NYTimes
Businesses with little profit margin [or in case of Aukett: 3m losses in recent years], and low net cash, will struggle to maintain earnings to pay the bills.
Aukett's main UK & UAE GDP will inevitably fall.
Aukett might well struggle to provide sick pay at the same time they are encountering slow business because of widespread illness or sentiment collapse. The ability to bill clients might simply collapse?
Coupled with these issues the two major Aukett markets are faced with UK Brexit FTA uncertainties, and now an oil price collapse in the UAE market.
2p might seem a great sell price in the months ahead?!
"Results have been great!"........ Really!!
Turnover still down 25% from 2016 [15.5m v 20.8m]. Competitors revenue growing from 2016 levels, not down 25%!
<2% profit.....All three hubs in profit, so all three hubs must be just scrapping their heads above zero profit. Competitors are churning out 20-25% profits!
<3 weeks cash flow flow, still living hand to mouth. Competitors funding huge shareholder rewards from abundant cash.
Brexit FTA still massive uncertainty
UAE is still a major concern, with a 3rd rate group of players trying to replace fee income, and dealing with clients who love not to pay.
UK is still on tender hooks, and far from economically stable
Europe growth rates very poor.
hey V,
Acquisition Challenges
Some significant head wins for any potential suitor to face:
Aukett UK are now out of Top 100 Architectural Fee Winners in UK. A terrible slump in performance, delivering multi-year losses
Veretec, delivering low value, back-end services face a very contrained UK market as their client base is in recession. Brexit/Low Growth/Confidence ongoing issues
Aukett Middle East is a newly formed entity, assembled from 3rd rate actors, in a very competitive market, requiring high rise and signature architectural skills that Aukett Middle East do not possess. The world is decarbonising away from the Persian Gulf. Huge unresolved political instability. Dubai faces a massive oversupply of building stock. Clients constantly being bad debtors, and late payers. Only one missile away from disaster. Replacement of the very large project will now be the issue for this base: can they win more work?
The main fee earners are not the ‘old boy’ shareholders try to cash out. What incentive would there be for the main fee earners to stay. Revenue might simply walk out the door.
Considering the three main market areas there is limited overall market growth potential, with poor fee winning in the UK, restrained and low value work for UK Contractors, and a low skilled workforce in the UAE that will struggle to compete.
IFRS 9 & 15 issues have wiped out prior year positions, so I would not count on the outcome, as this management team have grossly overstated the position previously.
Net funds at 800k, gives Aukett a 2 to 3 week working cash cushion. It is still a hand to mouth existence. Improvement - yes, but let's see if they can maintain net cash to year end.
".......the Group will achieve a profit for the full year to 30 September 2019, subject to there being no material impact for IFRS 9 and 15."
9 & 15? .....There still seems some uncertainty of revenue and cash flows arising from a contract with a customer? Previous years dramas in UAE hopefully are not once again in the air?
About time Aukett cleared out of these non-performing markets in Russia! Hopefully others will follow.
Aukett did not pay 400k in rent this year on their London HQ, so the uplift in cash reflects the rent free to an extent.
Brexit, UK Elections, Transition uncertainties still dog confidence.
UK Construction PMI figures in recessionary mode once again this month.
3.2m losses over the previous few years, anything but another loss.
hey V,
UAE
The concern is that on the Lesso project, Aukett produced a very low ball resourced based fee bid for the cheapo Chinese, and won the 570k sq ft retail mall [big shed] project simply on a very 'low ball' fee, at a time when Aukett were desperate for work in UAE. That is the whispers!
Aukett have lost millions in the UAE in recent years, so I would not take it for granted that there will be any profit from this project. If they have under resourced the project, then there maybe bigger problems ahead.
How Aukett will replace this fee workload in the UAE is the real issue, considering the world is decarbonising, and the Gulf is fraught with issues. Most of the UAE projects look for 'signature' architects, or architects with 'tower' experience. Aukett do not have that skill.
UK
The major concern is AUK’s low revenue ‘front-end’ architectural commissions positioning AUK outside the Top 100 UK architects.
AUK’s UK architectural business winners have failed badly, and have racked up losses in the millions.
Competitors have been delivering 25% profit levels, whilst Aukett rack up losses. They are propped up by AUK’s Versetec carrying out ‘back end services’ for Contractors - it is 'low value' work.
With Contractors workload in a free fall [Brexit Woes & Recessionary fears], it makes for troubling times.
Aukett's guidance on 'losses' has been woeful. You will recall that prior to the 2.5m loss, they gave no prior indication that the loss would be as high as it was. The announcement 'spooked' the market, shares dived <1p.
I am not sure why any new owner would buy Aukett, when there are 100 other better performing architects in London to buy? Revenue would not be certain as the business winners could easily walk, as they are not the Amin shareholder sellers.
Aukett have little net cash, and 'current assets v liabilities' is negative. They are currently sitting on a cumulative 3.2m loss over the prior years.
'Fire Sale' perhaps if the cash dries up?
Aukett gave some guidance this time last year, so we might know soon.
RIBA head of economic research and analysis Adrian Malleson said: “Many have drawn attention to issues attributed to Brexit. These include a falling pound causing increasing costs, lowered margins and fee income and projects failing to move beyond feasibility studies.”
Practices in London remain the most pessimistic @ -8
Another London based practice posting great results – this time Heatherwick Studio.
As year end approaches in the next fortnight, will Aukett post yet another loss to add to the 3.2m of previous years losses?
Heatherwick Studio
Turnover 26.5m
Profit 5.1m @ 20%
KPI: 127k/staff
Foster & Partners
Turnover: 258m
Profit: 21.5m @ 8%
KPI: 196k/staff
Highest Paid: 2.5m
TP Bennett
Turnover: 32m
Profit: 8.4m @ 26%
This is what a well run architectural practice looks like….
Foster & Partners Results
Turnover: 258m
Profit: 21.5m
1317 Staff
KPI: 196k/staff
Highest Paid Architectural Director: 2.5m
Asia 71m
Middle East 54m
Europe 24m
UK 21m
Earlier Results from TP Bennett …..
Turnover: 32m
Profit 8.4m
I dread what Aukett’s end of year will be.