ARL.L Regulatory News (ARL)

11 Apr 2007 07:01

SMC Group Plc11 April 2007 SMC GROUP PLC ("SMC", "the Company" or "the Group") Preliminary Results for the Year ended 31st December 2006 SMC Group, the leading group of architects and designers, announces preliminaryresults for the year ended 31 December 2006. Highlights: • Turnover increased by 131% to £31.3m (2005: £13.5m) • Gross Profit increased by 96% to £14.6m (2005: £7.4m) • Profit before tax (PBT) & Amortisation £2.7m (2005: £2.8m) • EBITDA increased by 20% to £4.1m (2005: £3.4m) • Adjusted basic earnings per share 5.3p (2005: 7.2p) • Proposed total dividend for year maintained at 1p per share (2005: 1p). Interim dividend of 0.35p paid. Final dividend of 0.65p proposed for approval by shareholders at AGM on 14th June 2007 for payment on 20th July 2007 to shareholders on the record as at 29th June 2007 • Clients increased from c.250 to in excess of 800 • Contract wins during 2006 exceeded £4.85bn construction value representing c.£68m in new stage fees • Completed 9 strategic acquisitions in 2006 - Covell Matthews Architects - Ian Penrose Architects - Alsop Architects - Charter Architects - Hickton Madeley Architects - Jenkins & Marr Architects - Parr Architects - Davis Duncan Architects - Hugh Martin Architects • Number of employees increased from c.175 to c.655 • Number of offices in UK increased from 9 to 29 • Added 4 overseas offices; Beijing, Shanghai, Singapore & Toronto Commenting on the results, Sir Rodney Walker, Executive Chairman of SMC said, "Although we are reporting figures that are less than original marketexpectations for 2006 I believe the business is more soundly based for 2007, andbeyond, which should enable it to meet its targets going forward. I am pleasedto report that at the end of the first quarter of 2007 SMC already has circa 65%of its revenues secured against market expectations for turnover in 2007." - ends - For further information please contact: SMC Group Plc Tel: +44 (0)20 7495 5335Sir Rodney Walker/Robert Boardman Numis Securities Tel: +44 (0)20 7776 1500Emma Tod/James Serjeant Bell Pottinger Corporate & Financial Tel: +44 (0)20 7861 3232David Rydell/Chris Hamilton Chairman's Statement Overview I became Executive Chairman of the SMC Group Plc on the 9th of February 2007shortly after we announced to the market on 24th of January 2007 that SMC'sprofits for 2006 would fall short of market expectations. Since then I haveworked closely with the management team to further review the business andsignificant overhead reductions and systems improvements have been identified.This review is ongoing but I can report that it has to date identifiedannualised overhead and operational savings of around £1.4m of whichapproximately £0.7m should impact the second half of 2007. The Board remainsfocused on achieving further savings in due course. As a result of the review wehave ceased certain activities and projects where contracts were not expected toproduce satisfactory returns. Although the reported profit before tax and amortisation of £2.7m for 2006represents a significant reduction from original market expectations, I believethe business is now more soundly based for 2007 and beyond which should enableit to meet its targets. I am pleased to report that at the end of the firstquarter of 2007 SMC already has c.65% of revenues secured against marketexpectations for turnover in 2007. In addition to the work carried out as part of this ongoing review certainactions have already been implemented to create more efficient and robustinternal systems, including changes to finance functions where procedures andreporting structures have been enhanced to cope with what by any standards hasbeen a year of exceedingly rapid growth. The business has established a strong trading position with the Groupcapitalising on a series of synergies between operating companies, and over thecourse of the year has emerged as a true 'national player'. The signing of afive-year framework agreement in February 2007 with the construction giant,Laing O'Rourke to share in their c£45m annual spend on architecture fees furthervalidates our strategy of attaining a national presence by allowing thedevelopment of relationships of this nature. At the year end the Group's net debt position stood at £14.9m including financeleases. Deferred consideration payments of £2.2m have been made since the yearend. The Group remains comfortably within its total debt facilities of £19.6mand is confident of continuing support from its finance providers. In the light of the changes being implemented in accordance with the businessreview referred to above I have confidence that the Group is now in a goodposition to achieve future targets and consolidate its reputation as one of theleading companies in the architecture market. Review of 2006 In December 2005 the Group announced the formation of a specialist Educationdivision specifically designed to service the Building Schools for the Future(BSF) programme to which the government has committed to spend c.£60bn over 10 -15 years by upgrading secondary schools throughout England. During 2006 we havebeen involved in assisting teams bidding for substantial BSF programmes incities such as Birmingham, Leeds and London (Islington). We are one of thedesign teams contributing to the Leicester schools, where Miller Constructionsecured the bid, and a number of further opportunities presented themselveswhich will develop over years to come. The process of forming specialist divisions further developed during 2006 withthe announcement of SMC Sport & Leisure in July, this time following theacquisition of Charter Architects, a company with a long sports heritage andwhich, subsequent to acquisition, has secured the full design work for one ofthe 2012 London Olympic training pools to be built in advance of the Games aswell as feasibility studies on a variety of other projects. Placing emphasis on Group wide collaborative activities, bringing together thefull range of skills available throughout the Group, was something I encouragedwhen I first joined as Chairman in November 2004 and I therefore find itparticularly gratifying that so many examples have developed throughout theGroup over this period. All operating businesses have continued to report wins of substantial contracts,whether individually or jointly, with many contracts at higher levels ofconstruction value than individual operating businesses were able to secureprior to joining the Group. The Group continued to pursue its acquisitive strategy in 2006, seeking bothearnings enhancing opportunities and geographical reach, including Ian PenroseArchitects (Exeter and Plymouth), Covell Matthews Architects (Cambridge) andCharter Consultant Architects (London, Bournemouth, Ipswich and Bedford). InSeptember, four companies based in Scotland were acquired on the same day;Jenkins & Marr, Parr Architects, Hugh Martin Architects and Davis DuncanArchitects (with offices collectively in Edinburgh, Glasgow, Dundee, Aberdeen,Dingwall, Newcastle and Birmingham). At the same time, the business acquiredMidlands based Hickton Madeley Architects (Telford and Birmingham). 2006 also saw the Group realise one of its most important long-term aims ofattracting into the fold an architecture business with an establishedinternational reputation for high-end creative design. In March we were invitedto acquire the RIBA Stirling Prize winning business led by Professor Will AlsopRA OBE, with offices in London, Toronto, Singapore, Shanghai and Beijing. Thismove demonstrated our passion for quality and creativity in architecture anddesign as well as our commitment to profitable business. I am proud to report that the Group continues to be recognised for itsachievements in the quality of architecture and the sustainability of theprojects we design, having won awards from organisations such as the RIBA, theBritish Council for Offices and the international property conference, MIPIM,amongst many others. Outlook The overall market and trading outlook is healthy and the Board is confident inachieving its own targets for 2007. We remain determined to build on the Group'sachievements to date by re-establishing confidence in the Group's ability togrow shareholder value. Sir Rodney WalkerChairmanSMC Group Plc10th April 2007 Statement from the Board including Trading Update and Review of Acquisitions Sir Rodney Walker became Executive Chairman on 9th February 2007 after we hadannounced to the market on 24th January 2007 that SMC's profits for 2006 wouldfall short of market expectations. Since then the Board has continued to workclosely with Sir Rodney and other members of the senior management team tofurther review the business and identify significant overhead reductions. In the last quarter of 2006 we commissioned a report by Ernst & Young to satisfyourselves, and our finance providers, that the aspect of our strategy for whichwe were seeking additional funding, namely acquisition, continued to be theright way to grow the business. The Board also wanted to see that strong organicgrowth was clearly visible within the business. The report concluded that theSMC business model was robust and that the strategy as set out should bepursued. However, the report questioned the validity of certain work in progressassessments across a selection of projects, primarily those being carried out bythe more long term SMC Group members. Work In Progress review As a result of a review by the finance team and our advisors we have ceasedcertain activities and adjusted our view of the revenue profile of certainprojects. The adjustments to amounts recoverable essentially fall into two maincategories; The first area of adjustment, which led to the original announcement on 24thJanuary, was a reassessment of some of the estimates of the progress andprofitability of some projects by operating company management. In recognisingrevenues, judgement is required as to the perceived state of completion and thecosts to complete the projects. The Board now believes that some operatingcompanies had taken a more optimistic view than was justified. The second area of adjustment, which has evolved a more detailed review ofunderlying contracts as part of a very thorough audit process is therecoverability of amounts due. Recoverability has also been reviewed in thelight of the cessation of certain activities, the closure of elements ofbusiness units within the Group and headcount reduction since the year end. The Board believes that these actions ensure that the Group will henceforthemploy a consistent and conservative approach with strict financial systemsmaintaining a close control on working capital. Internal Controls Robert Boardman, Finance Director, supported by newly promoted Caroline Godfreyand their team have implemented reporting and control measures which have helpedidentify some of the areas of concern outlined above and given the Boardincreased confidence going forward. These measures which are in place across theGroup include, inter alia: • A standard central WIP review procedure and method of calculation • A standard group reporting format and timetable • A detailed and consistent budgeting process • Key performance indicators monitoring WIP, debtor days, profitability, efficiency • Weekly cash flow targets for all business units • Consistent credit control and invoicing procedures • Standardisation of HR and recruitment procedures • Central monitoring and control of Professional Indemnity Insurance policy • Central monitoring of chargeability of staff and profitability of projects The Group's control environment has evolved quickly to ensure that it can meetthe needs of a rapidly expanding business and the central finance team has beenaugmented. The Board is committed to improving further our systems and controlsin order to manage the business and financial risk exposures effectively. Collaborative working and Contract wins: Most of those companies which joined the SMC Group during 2006 have alreadyexperienced the benefits of working collaboratively with one or more sistercompanies either through access to greater combined resource, additionalcomplementary skills, geographical reach and financial stability, or acombination of some or all of these, as the overall SMC strategy was originallydesigned to achieve. Group companies continue to report consistently high numbers of new enquiriesand contract wins. At quarterly intervals during 2006 SMC made announcements ofcontract wins with construction values totaling, on a full year basis, £4.85bn.These represent £68m in new stage fees, to be earned over the next few years(£2.23bn and £29.5m representing revenues secured through acquisition). Sincethe last announcement in November 2006, the business has secured a further£0.8bn of construction value representing c.£18.5m of stage fees, all of whichderives from existing businesses. Some contract wins were secured by individual companies, others as a result ofcollaboration through specially designed 'divisions' such as SMC Educationannounced in December 2005 to target the Building Schools for the Future (BSF)programme, the government's commitment to spending £60bn upgrading secondaryschools, in England only, over 10-15 years. The Group has been successful inattracting commitments from a number of consortia at different stages of biddingprocesses in various cities, with SMC Corstorphine & Wright recently selected tothe winning team for Leicester schools. Government projects represent SMC's fastest growing market sector, embracingsecondary schools, universities, colleges, academies, schools programmes inScotland, custodial projects, civic buildings such as the new City of BirminghamLibrary, Olympic related and local authority sport facilities. The Board strivesto maintain 'a balanced approach to growth.' However the government sector,which presently represents 14% of SMC turnover, is likely to be the sector thatwill see the most growth through 2007 and immediately beyond. After the acquisition of SMC Charter with specific skills in swimming pooldesign and having secured one of the 2012 London Olympic training pools, SMCannounced the formation of a division dedicated to leisure pursuits, SMC Sport &Leisure. This brings together the various teams within the Group which areworking on everything from the redevelopment of horse racing facilities, cricketgrounds, swimming pools, hotels and other aspects of hospitality markets. In February 2007, after a series of meetings during 2006 the Group signed aframework agreement with the construction giant, Laing O'Rourke through theirwell respected Building Constructive Relationships programme to share in their£45m annual spend on architecture fees. This agreement is potentially somethingfrom which the whole Group can benefit, with rates agreed for work across the UKwith several Group companies participating in the moulding of the agreement tobe truly of mutual benefit. As with government sector projects referred toabove, SMC's geographic reach throughout the UK has been a major factor incementing this relationship. Review of Acquisitions Through the course of 2006 SMC completed nine acquisitions in the pursuit of thestrategy for consolidation within the fragmented architecture marketplace. Theseacquisitions were selected for varying reasons within the Board's statedcriteria including; to enhance the range of market sector experience, expandgeographical reach and to add to the creative and technical reputation of thebusiness. During the year SMC increased client numbers from c.250 to over 800and staff numbers from c.175 to c.655 (excluding contract staff). In all casesthe acquisitions have made a significant contribution to the growth of theoverall SMC business, through their own efforts and, increasingly, throughcollaboration with sister companies. SMC Penrose Architects and SMC Covell Matthews Architects: On the 3rd of February the Board announced the acquisition of two businesses.Ian Penrose Architects Limited is based in Exeter and Plymouth and worksprimarily in the South West of England as far north and east as the SouthMidlands and Southampton. SMC Penrose clients include the University of Exeter,Mercedes-Benz, Devon County Council and the Rok Group, representing a wide rangeof sector experience. Covell Matthews Cambridge Architects Limited is based in Cambridge and worksprimarily across the East of England including East Anglia, the East Midlandsand the Home Counties for clients such as; Wrenbridge, Capital & Counties, AMEC,Anglian Water Group, University of Cambridge and Kings College School. SMC Alsop: In March the Board was offered the opportunity to acquire the business andassets of Alsop, the RIBA Stirling Prize winning and internationally respectedarchitecture and design company headed by Will Alsop. The acquisition combinedSMC's focused approach to project delivery with Alsop's reputation for creativeflair. SMC Alsop provides SMC with enhanced status, design input and recruitmentpotential. With offices in London, Toronto, Beijing, Shanghai and Singapore,Alsop obviously adds significantly to SMC's international reach. Since acquisition, SMC Alsop has completed a number of high profile buildings inCentral London, including the RIBA Award winning Institute of Cell & MolecularScience, Queen Mary, University of London in Whitechapel, and Palestra, a28,000m2 (300,000 sq. ft.) office development in Southwark, let to the LondonDevelopment Agency and Transport for London and which is bringing new standardsof accommodation into this area of London. SMC Charter Architects: In May SMC acquired Charter Consultant Architects, an architecture and designcompany with over 100 staff throughout offices in London, Bedford, Bournemouthand Ipswich and working across England but with a focus upon the South and SouthEast. SMC Charter has a significant amount of its work (c25%) that relates toprimarily residential, training facilities and food service aspects ofGovernment related portfolios and has a further 25% in sport and leisureprojects including swimming pools. Almost immediately after the acquisition weannounced that they had secured one of the first 2012 London Olympic trainingpools, to be constructed in Ilford. Clients include: BT, Gillette, TrinityCollege Cambridge, MoD, Norwich City Council, University of Essex, University ofLuton, Interserve, AMEC and Redbridge Borough Council. SMC Scotland: In September the Board announced SMC's entry into the Scottish market throughthe acquisition of four architectural businesses and establishing SMC as thelargest group of architects in Scotland with 227 employees and 81 architects. Inparallel we announced the formation of SMC Scotland to give these companies theopportunity to come together as often as they deemed necessary in order tocompete for the larger scale projects in Scotland and, as a result they now findthemselves competing 'collaboratively' against organisations with which they hadnot been given the opportunity to compete in the past. The Scottish companies are: SMC Parr Architects - based in Edinburgh, Glasgow, Dundee, Newcastle andBirmingham and established for 50 years, with clients including BAA, BirminghamInternational Airport, City of Edinburgh Council, Hochtief Developments, PacificQuay Developments, Borders College and the University of Abertay in Dundee. SMCParr has experience across a wide variety of sectors including offices,residential, leisure, education and industrial, providing masterplanning,architecture and interior design. Parr has a long track record in transportationprojects, primarily airports and is one of a limited number on the BAAframework, something that was particularly attractive to the Group astransportation is one of our chosen sectors and presently the one with thelowest percentage of our overall workload, a great opportunity for growth fromthe present 3% of overall SMC fee income. SMC Jenkins & Marr - based in Aberdeen, Edinburgh and Glasgow and establishedsince 1879 and now specialising in architecture, town planning, space planningand project management. The business also includes a facilities management teamadvising on PFI/PPP procurement which we have subsequently separated out to formSMC Facilities Management. As Architects and Town Planners, SMC Jenkins & Marris working on residential, retail, offices, industrial, education and leisureprojects with clients including BP, Sainsbury's, Teesland, Clydesdale Bank, LandSecurities, Aberdeen City Council, Clydebank College and Allied Distilleries.Virtually from the date of acquisition, their specialist Town Planning team hasbeen assisting Leeds based SMC Gower Architects with the Wm MorrisonsSupermarkets expansion programme in Scotland where the Town Planning regulationshave elements that are considerably different to those experienced in England.The same team is also assisting other Group companies with town planning issueswhere a specialist skill is required. SMC Davis Duncan - based in Glasgow, Dingwall (nr. Inverness) and London, itservices the residential, offices, retail, industrial, commercial, healthcareand ecclesiastical sectors with clients including Next, Bank of Scotland, CanonUK, Kenmore Developments, Burrell Universities of Glasgow, Edinburgh andCaledonian and the NHS. SMC Hugh Martin Architects - based in Edinburgh established in 1969 with townplanning and interior design skills servicing the retail, residential, officeand leisure sectors. Clients include Guardian Properties, Knightsbridge Ltd,Gleneagles Hotel, Capital Shopping Centres and Marks & Spencer, Premier PropertyGroup and Frogmore Developments. SMC Hickton Madeley At the same time, the Group also acquired Hickton Madeley, a Midlands basedarchitecture, interior and graphic design business established in 1936 withexperience across a wide range of sectors including offices, leisure,industrial, retail, and healthcare and in the Public sector, including a 5-yearextendable term contract with Birmingham City Council. The company also designsprison projects, a sector not served by any of the existing SMC Group companies.SMC Hickton Madeley clients include The Prison Service, Birmingham City Council,Aston University, DSS Estates, English Partnerships, Norwest Holst, St. ModwenProperties, and Wellington District & Cottage Hospital. In December the Group held its first annual conference attended by principals ofthe Group companies and colleagues selected from all levels of staff. The eventserved to confirm the commitment throughout the Group to collaborative workingand continuing to strive for excellence and quality in all aspects of ourcontribution to the built environment. Amongst many other things, we agreed toimplement bursary schemes in colleges aimed at attracting the next generation oftalented young people to augment the highly creative and experienced skills thatalready exist throughout our Group. Everyone looked to the future withconfidence. Thank you Finally, the Board would like to express its appreciation for all the hard workand dedication shown by our colleagues in the process of growing the SMCbusiness and helping to realise our shared long term aims to meet ourexpectations and those of our shareholders. The BoardSMC Group Plc10th April 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2006 Continuing Acquisitions Total Total Operations 2006 2006 2006 2005 (restated) Notes £'000 £'000 £'000 £'000 TURNOVERGroup and share of joint venture 14,155 17,123 31,278 13,510Less: share of joint venture turnover (403) - (403) (414) -------------------------------------------Group Turnover 13,752 17,123 30,875 13,096 Cost of sales (7,520) (8,765) (16,285) (5,664) --------------------------------------------GROSS PROFIT 6,232 8,358 14,590 7,432 Administrative expenses (4,817) (5,634) (10,451) (3,995) Depreciation (268) (152) (420) (166)Goodwill amortisation (453) (630) (1,083) (222) ------------------------------------------Group Operating Profit 694 1,942 2,636 3,049 Share of operating profit of joint venture 95 24 ------------------------------------------ TOTAL OPERATING PROFIT 2,731 3,073 ------------------------------------------ Interest receivable 40 28Interest payable (1,200) (555) ------------------------------------------PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 1,571 2,546 Taxation 2 (995) (1,005) ------------------------------------------- PROFIT ON ORDINARY ACTIVITIES AFTERTAXATION 576 1,541 ------------------------------------------- Basic earnings per share (in pence) 3 1.44 5.30 Diluted earnings per share (in pence) 3 1.33 5.19 The Directors will propose a dividend of 0.65p per ordinary share to the annualgeneral meeting based on the financial statements for the year ended 31 December2006. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 31 December 2006 2006 2005 (restated) £'000 £'000 Profit for the financial year 576 1,541Prior year adjustment (as explained in note 1) (322) ---------------------Total gains and losses recognised since last annual report 254 --------------------- BALANCE SHEETAs at 31 December 2006 2006 2005 (restated) Notes £'000 £'000 FIXED ASSETSIntangible assets 35,031 9,551Tangible assets 3,385 618Investment in joint venture:Share of gross assets 221 378Share of gross liabilities (88) (335) ------------------------TOTAL FIXED ASSETS 38,549 10,212 CURRENT ASSETSDebtors: amount falling due within one year 5 26,992 10,508Cash at bank and in hand 1,276 1 ------------------------ 28,268 10,509CREDITORS: amounts falling duewithin one year 6 (32,015) (5,814) ------------------------ NET CURRENT (LIABILITIES)/ASSETS (3,747) 4,695 ------------------------ 34,802 14,907 TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: amounts falling due after more than one year (1,676) (2,812)PROVISIONS FOR LIABILITIES AND CHARGES (9,946) (5,082) -----------------------NET ASSETS 23,180 7,013 ----------------------- CAPITAL AND RESERVESCalled up share capital 7 230 173Share premium account 13,157 4,060Merger reserve 7,368 743Shares held by SIP Trust (150) (150)Share option reserve 408 202Profit and loss account 2,167 1,985 -----------------------EQUITY SHAREHOLDERS' FUNDS 8 23,180 7,013 ----------------------- CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2006 Notes 2006 2005 £'000 £'000 Net cash flow from operating activities 9a (349) (141)Returns on investments and servicing of 9b (888) (356)financeTaxation (1,013) (209)Capital expenditure and financial investment 9b (1,551) (107)Acquisitions 9b (13,092) (2,659)Equity dividends paid (394) - -------------------------CASH OUTFLOW BEFORE FINANCING (17,287) (3,472) Financing 9b 13,657 3,804 -------------------------(DECREASE)/INCREASE IN CASH IN THE YEAR (3,630) 332 ------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT INNET DEBT (Decrease)/Increase in cash in the year 9c (3,630) 332Cash inflow from change in debt (6,167) (247) -------------------------Change in net debt resulting from cash flows (9,797) 85Debt acquired with subsidiaries (181) -New finance leases (167) (116) --------------------------Movement in net debt in the year (10,145) (31)OPENING NET DEBT AT 1 JANUARY 2006 (4,730) (4,699) --------------------------CLOSING NET DEBT AT 31 DECEMBER 2006 9c (14,875) (4,730) -------------------------- 1. BASIS OF PREPARATION The above financial information does not constitute statutory accounts withinthe meaning of Section 240 of the Companies Act 1985. The financial informationrelating to the year ended 31 December 2006 has been extracted from the annualaccounts in respect of which the auditors have not yet signed their auditreport. The audited statutory accounts for the year ended 31 December 2006 willbe filed with the Registrar of Companies following the Annual General Meeting. The financial information relating to the year ended 31 December 2005 has beenextracted from the audited statutory accounts for that year which have beenfiled with the Registrar of Companies and received an unqualified audit reportwhich did not contain a statement under section 237 (2) or (3) of the CompaniesAct 1985. The accounting policies adopted for the preparation of the 2006 annual accountsare consistent with those used in the previous year. The group has adopted Financial Reporting Standard 20 "Share-based payment" (FRS20) and Financial Reporting Standard 25 "Financial Instruments: Disclosure andPresentation" (FRS 25) and has discounted deferred contingent cash considerationin accordance with Financial Reporting Standard 7 "Fair values in acquisitionaccounting" (FRS 7) for the preparation of this financial information. Thecomparative figures have been restated where applicable. In accordance with FRS 20, the fair value of equity-settled share-based paymentsto employees is determined at the date of grant and is expensed on astraight-line basis over the vesting period based on the directors' estimate ofshares or options that are likely to vest. This has resulted in a charge in theprofit and loss account of £206,265 (2005: £201,710). There is no impact on netassets. In accordance with FRS 25, deferred contingent share consideration in respect ofacquisitions has been restated from shares to be issued to provisions forliabilities and charges. This has had no impact on the profit and loss account,but has reduced net assets by £5,250,000 (2005: £1,900,000). In accordance with FRS 7, deferred contingent cash consideration in respect ofacquisitions has been discounted and recorded in the accounts at its presentvalue. A notional interest amount is charged to the profit and loss accountover the period until the deferred consideration falls due for payment. Thishas resulted in a charge in the profit and loss account of £250,600 (2005:£120,580) and has reduced net assets by £1,196,240 (2005: £120,580). 2. TAXATION The effective rate of tax before amortisation of goodwill, share option charge(FRS 20) and notional interest (FRS 25) is 32% (2005: 32.5%). 3. EARNINGS PER SHARE The calculations of earnings per share are based on the following profits andnumbers of shares. 2006 2005 (restated) £'000 £'000 Profit for the financial year before goodwillamortisation, share option charge and notionalinterest on deferred consideration 2,116 2,086- Goodwill amortisation 1,083 222- Share option charge 206 202- Notional interest on deferred consideration 251 121 ----------------------Profit for the financial year 576 1,541 ---------------------- 2006 2005Weighted average number of shares '000 '000 For basic earnings per share 39,940 29,086Dilutive effect of share options 3,405 591 -----------------------For diluted earnings per share 43,345 29,677 ----------------------- Earnings per share 2006 2005 (restated) Basic 1.44p 5.30pDiluted 1.33p 5.19p Adjusted basic before goodwill amortisation , share option charge and notional interest ondeferred consideration 5.30p 7.17pAdjusted diluted before goodwill amortisation , share option charge and notional interest ondeferred consideration 4.88p 7.02p ---------------------- 4. DIVIDENDS A final dividend for the year ended 31 December 2005 of 1p per share was paid inJuly 2006, totalling £393,523. An interim dividend for the year ended 31December 2006 of 0.35p per share was paid in January 2007 totalling £161,234. A final dividend for the year ended 31 December 2006 of 0.65p per share isproposed for approval at the annual general meeting. 5. DEBTORS 2006 2005 £'000 £'000Due within one year:Trade debtors 13,545 3,253Amount owed by joint venture - 10Amounts recoverable on contracts 12,028 6,802Other debtors 340 95Prepayments and accrued income 1,055 324 --------------------- 26,968 10,484Due after more than one year:Other debtors 24 24 --------------------- 26,992 10,508 --------------------- 6. CREDITORS: amounts falling due within one year 2006 2005 (restated) £'000 £'000 Bank loans and overdrafts 14,335 1,862Loan notes 2,558 -Deferred consideration 2,988 -Payments received on account 1,957 108Trade creditors 2,621 622Corporation tax 1,550 1,226Social security and other taxes 3,794 1,032Accruals and deferred income 1,758 215Other creditors 182 692Obligations under hire purchase and finance leases 272 57 --------------------- 32,015 5,814 --------------------- Bank loan and overdrafts As part of its refinancing in February 2007 the Group acknowledged a technicalbreach of bank covenants existing at the year end and therefore all bank loansand overdrafts from the Bank of Scotland are shown as due within one year. Aspart of the refinancing the covenant breach has been waived and therefore£7,037,407 of the amount outstanding is now due after one year. The bank loan and overdrafts are secured by a fixed and floating charge over theGroup's assets and by a composite guarantee by each group company. 7. SHARE CAPITAL 2006 2005 £'000 £'000Authorised:75,000,000 ordinary shares of 0.5p each 375 375 Allotted, issued & fully paid:46,066,878 (2005: 34,558,372) ordinary shares of 0.5p each 230 173 ----------------- Share issues During the year, the Company issued 0.5p ordinary shares as set out below. Date of Number of Price Total proceedsissue shares per share £'000 03/02/2006 Acquisition of Covell Matthews Cambridge Architects Limited 386,204 109.3p 42203/02/2006 Acquisition Ian Penrose Architects Limited 452,849 109.3p 49521/02/2006 Share placing for cash consideration 1,707,400 101.0p 1,72423/03/2006 Acquisition of business and assets of Alsop Design Limited 624,277 144.2p 90004/05/2006 Stage payment re deferred consideration for acquisition of DTR: UK 283,215 171.7p 48630/05/2006 Acquisition of The Charter Partnership Limited 1,340,026 132.8p 1,78018/07/2006 Stage payment re deferred consideration for acquisition of DTR: UK 205,895 131.2p 27022/09/2006 Acquisition of The Davis Duncan Partnership Limited 471,175 143.5p 67622/09/2006 Acquisition of the business and assets of The Jenkins & Marr Partnership 516,660 143.3p 74022/09/2006 Acquisition of Jenkins & Marr Facilities Management Limited 143,470 143.3p 20622/09/2006 Acquisition of The Hugh Martin Partnership Limited 427,336 143.3p 613 22/09/2006 Acquisition of Hickton Madeley Architects Limited 337,738 143.3p 48422/09/2006 Acquisition of Parr Architects Limited, Parr Project Management Limited and The Parr Partnership Limited 520,832 144.0p 75012/10/2006 Share placing for cash consideration 3,800,000 160.0p 6,08019/10/2006 Stage payment re deferred consideration for acquisition of DTR: UK 291,435 160.3p 467 ----------------------------------- 11,508,512 16,093 ----------------------------------- The total proceeds from the shares issued in the year can be analysed asfollows. 2006 2005 £'000 £'000Nominal value of shares issued 57 62Premium on shares issued for cash consideration 7,776 4,686Premium on shares issued on acquisition of 1,635 -unincorporated businessesPremium on shares issued on acquisitions of 5,405 743subsidiariesPremium on shares issued for deferred consideration 1,220 - --------------------- 16,093 5,491 --------------------- 8. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS 2006 2005 £'000 £'000 Opening equity shareholders' funds (as previously stated) 9,033 963Prior year adjustment (note 1) (2,020) - ---------------Opening equity shareholders' funds (as restated) 7,013 963Shares issued for cash consideration (net of costs) 9,127 3,557Shares issued in connection with acquisitions 6,652 750Share option charge 206 202Profit for the financial year 576 1,541Dividends paid in year (394) - ---------------Closing equity shareholders' funds 23,180 7,013 --------------- 9. CASH FLOWS 2006 2005 (restated) £'000 £'000 a - Reconciliation of operating profit to net cash flow fromoperating activities: Operating profit 2,636 3,049Share option charge 206 202Amortisation of goodwill 1,083 222Depreciation of fixed assets 420 166Loss/(profit) on disposal of fixed assets 21 (8)Increase in debtors (6,085) (2,950)Increase /(decrease) in creditors 1,370 (822) -------------------Net cash flow from operating activities (349) (141) ------------------- 2006 2005 £'000 £'000b - Analysis of cash flows for headings netted in the cashflow Returns on investments and servicing of finance Interest received 40 25Interest paid (907) (374)Interest element of finance lease rental payments (21) (7) -----------------Net cash outflow from returns on investments and servicing of finance (888) (356) ----------------- Capital expenditure and financial investment Purchase of tangible fixed assets (1,921) (138)Sale of tangible fixed assets 370 31 ------------------Net cash outflow from capital expenditure and financial investment (1,551) (107) ------------------ AcquisitionsConsideration paid on acquisitions (13,441) (2,092)Deferred consideration paid on prior year acquisitions (486) (25)Bank overdraft acquired with subsidiaries (342) (574)Cash acquired with subsidiaries 1,177 32 -------------------Net cash outflow from acquisitions (13,092) (2,659) ------------------- Financing Issue of shares (net of expenses) 7,489 3,557Increase in bank loans 6,269 1,137Redemption of loan notes - (790)Capital element of finance lease rental payments (101) (100) -------------------Net cash inflow from financing 13,657 3,804 ------------------- At Other non At 31 1 January cash December 2006 Cash flow changes 2006 £'000 £'000 £'000 £'000c - Analysis of net debt Cash in hand, at bank 1 1,274 - 1,275Bank overdraft (1,562) (4,904) - (6,466) -------------------------------------------------- (1,561) (3,630) - (5,191) -------------------------------------------------- Debt due within 1 year (300) (7,568) - (7,868)Debt due after 1 year (2,650) 1,300 - (1,350)Finance leases (219) 101 (348) (466) -------------------------------------------------- (3,169) (6,167) (348) (9,684) --------------------------------------------------Total (4,730) (9,797) (348) (14,875) -------------------------------------------------- 10. Summarised Table of Acquisitions The Group made nine acquisitions during the year and the summarised table offair values are set out below. Net assets acquired Fair value £'000 Tangible fixed assets 1,489Debtors 10,399Cash at bank and in hand 835Other creditors (6,692)Provisions for liabilities and charges (71) ---------- 5,960Goodwill 27,557 ---------- 33,517 ----------Satisfied by: Initial cash consideration 12,056Loan notes issued 2,288Shares issued on acquisition 7,066Costs of acquisition 1,385Deferred contingent cash consideration 6,180Deferred contingent share consideration 4,542 --------- 33,517 --------- 11. Deferred contingent consideration The directors' estimate of the fair value of the deferred contingentconsideration due in respect of acquisitions is set out in the table below. Deferred contingent Deferred contingent cash consideration share consideration 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Acquisitions in year:Covell Matthews 968 - 336 -Penrose Architects 621 - 316 -Alsop - - - -Charter 1,108 - 1,248 -Jenkins & Marr 997 - 1,145 -Hugh Martin 261 - 300 -Parr 1,356 - 518 -Davis Duncan 320 - 375 -Hickton Madeley 800 - 304 - -------------------------------------------- 6,431 - 4,542 -Acquisitions in prior years:SMC DTR:UK Limited 415 1,900 708 1,900SMC Corstorphine & Wright Kenzie LovellLimited 747 1,250 - - -------------------------------------------- 1,162 3,150 708 1,900 --------------------------------------------Total deferred consideration 7,593 3,150 5,250 1,900 -------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange