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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.

RIBA Future Trends: August 2019

"Commentary from practices paints a concerning picture - the looming Brexit deadline continues to cause uncertainty," commented Adrian Malleson, RIBA Head of Economic Research and Analysis today.

"This month, practices have described the architectural market as both quiet and challenging. Commissions are coming in less frequently, projects are being put on hold, practices are much less confident about the number of permanent staff and there are deep feelings of apprehension and unease about the possibility of a no-deal Brexit."

London remain the most downbeat, returning a figure of -15 from -8.

As year end approaches for Aukett, prospects for the London HQ look even more bleak.

Aukett’s UK front-end architectural design work has already been decimated to 1.5m, placing them well outside the Top 100 UK practices.

Current Assets less Liabilities turned negative earlier in 2019.

Cash now becomes the major issue, as only 200k remained back in March 2019. Any further slide in cash will put Aukett on life support.

Confidence among British construction firms plummeted to a seven-year low in July and output fell for the third consecutive month, adding to evidence of an economy in slow gear.

The latest snapshot measure of activity in the sector, based on a survey and known as the Purchasing Managers’ Index (PMI), came in at 45.3 – substantially below the 50 level that indicates no change from the previous month.

That is the second-lowest level since April 2009, when the economy was still in the midst of a recession triggered by the financial crisis. The worst reading since then was in June, an only slightly lower 43.1.

“July data revealed declines in house building, commercial work and civil engineering, with all three areas suffering to some degree from domestic political uncertainty and delayed decision-making,” said Tim Moore at IHS Markit, which compiles the survey.

In the nearer term, the outlook was also bleak as the number of new orders fell sharply, with firms blaming mainly a sluggish economy and political uncertainty.

RIBA Future Trends Survey: June 2019 just released.

London Future Workload Trend is significantly down, collapsing 6 points to -8.

Negative balance in all sectors: commercial, housing, public and community.

Commercial, the mainstay for Aukett, has dropped 15% in 2 years.

Extremely poor outlook for Aukett UK revenue streams, with UK Construction figures last month collapsing as well, suggesting that executive fee workload would also be under pressure.

Fee levels will be under even more pressure. Even if workload is secured, it may have little profit potential.

Aukett S****e competitor TP Bennett announce results

TP Bennett
31.9m Revenue
8.4m Profit @ 26%
Net Assets: Massive!

Aukett S****e
14.3m Revenue
2.5m LOSS
Net Assets: Zip!

How bad is Aukett S****e going!!

TP Bennett warns of ‘more challenging’ conditions in current financial year

More Downward Pressure on UK Architectural Services

Aukett's main UK revenue source - 'back-end' architectural services offered from Main Contractors - appears to be under even more threat.

"Worries about the political and economic outlook plunged the UK construction sector into its steepest decline in June since the recession that followed the financial crisis.

The IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) tumbled to 43.1 from 48.6 in May, widely undershooting economists’ forecasts. The latest measure of output is the worst since April 2009 and far below the 50 level that indicates no change from the previous month.

Survey respondents attributed the contraction mainly to risk aversion among clients as they struggle to predict the outcome of Brexit and the future direction of the economy.

Incoming new work fell at the fastest pace in a decade, pointing to little chance of recovery in the sector anytime soon. "

Another first half loss, brings the fifth consecutive half year loss, to a massive cumulative loss of 3236k.

Net Cash has been decimated from 2500k to 200k in but a few years.

Current Assets has crashed from 11.7m to 5.7m

Current Assets less Liabilities has crashed from a positive 5.4m to a negative 0.33m now. [6.48-6.81]

Half Year Results has shown a rapid UK decline of revenue from 7.5m in 2015, to 3.73m. Revenue is propped up by Aukett completing the ‘low value’ back-end services for other architects ‘high value’ design services @ 2.2m. Aukett’s UK front-end architectural design work has been decimated @ 1.5m.

Half Year Results has shown a rapid UAE decline of revenue from 4.2m in 2017, to now 3.5m. Another 438k loss!

In the UK, GDP is flat lining, Clients remain cautious, fees are under pressure, and projects are being put on hold or delayed due to the uncertainty of Brexit. Attracting and maintaining the best Eurozone architectural staff is under considerable threat.

The UAE has a triple threat of rising Iran/USA Tensions, Global GDP decline, and Decline of UAE Oil Demand that peaked in 2013. USA has halved their Persian Gulf oil purchases in 5 years, and it is obvious that the world is implementing the Paris Agreement: fossil fuel divestment is fully underway. UAE’s economy is still fossil fuel dependant, and it would appear that Aukett is 20-40 years too late in arriving to the UAE.

EU’s GDP in flat lining, and Brexit will not help.

Russia’s GDP is suffering from ongoing USA sanctions, and lack of opportunities. Turkey is in recession with sizeable 3.0% & 2.6% contractions in the two previous quarters, with political uncertainty, threat of USA sanctions, and lack of opportunities. Revenue halved to 234k!

The demand for architectural services looks bleak in all locations.

RIBA Future Trends
May 2019, released today

Commentary from [architectural] practices this month continues to stress the difficulties caused by the Brexit impasse.
Clients remain cautious, fees are under pressure, and projects are being put on hold or delayed.
The complexity of the picture suggests an architectural market that is unsure of future workloads.
Many practices face significant downward pressure.
Uncertainty is a common theme.
As before, it is only once we have clarity on Brexit that we will have clarity on the future architectural market.

Another very tough year for Rogers Stirk Harbour + Partners (RSHP), and a very troubled outlook for Aukett’s main UK market, for staff recruitment and retention, and declining revenue.

RSHP state: “We continue to be worried about how Brexit will affect not only our own recruitment and retention of the best architectural talent from across the eurozone but how it will affect the wider UK architecture industry. Our current projections indicate the forecast turnover could further decline in the current year as we see a constriction in the UK market with a greater percentage of turnover coming from outside the UK.”

UK RIBA Future Trends heading south, confirming RSHP’s comments. May'19 figures expected this week.

GDP outlook across all Aukett’s market sectors looking under extreme pressure, from a very unstable 1.8% in UK & UAE, to 0.7% in Germany, 0.5% in Russia, and a woeful -2.6% in Turkey.

Aukett’s Half Year Interim Results expected by month end.

If RSHP is a bell-weather, and RIBA Survey giving a negative lead, I would not be surprised for a possible decline in revenue, further losses, and net cash just above zero for the Half Year and Full Year. Expecting further delays in instructions, deferred projects, and possibly further bad debts out of UAE.

Of particular concern is the absence of new UK planning approvals being posted in the Company's 'News' in 2019. The pipeline of new UK approvals looks very thin, and historic approvals may never proceed.

The UK Rent Free Period of 400k pa might make the result look more promising than it actually is, but that will only hide a poor UK outcome in the years ahead, as an additional 400k will need to be extracted from the till and the bottom line in the years ahead.

“UK construction sector shrinks as Brexit uncertainty spreads

The Markit/CIPS UK Construction Purchasing Managers’ Index recorded a reading of 48.6 for May, contracting sharply.

Commercial building was the weakest area of construction activity for the month, and many firms reported clients had opted to hold back on major spending decisions in response to Brexit uncertainty and concerns about the economic outlook.”