ARL.L Regulatory News (ARL)

2 Apr 2009 08:04



2 April 2009

Archial Group Plc

Preliminary Results for the year ended 31 December 2008 - unaudited

Archial Group Plc ("Archial" or the "Group") (ARL.L), the architects and design business, announces its unaudited Preliminary Results for the year ended 31 December 2008.

Financial Highlights:

Turnover stable at £42.5m (2007: £44.2m)

EBITDA (pre exceptional costs) increased by 25% to £6.5 m (2007: £5.2m) 

EBITDA (pre exceptional costs) margin substantially increased to 15.3% from 11.7%

Positive PBT (pre exceptional costs) of £2.7m (2007: £0.3m)

Positive PBT of £1.5m (2007: loss of £5.2m)

Basic earnings per share 0.70p (2007: loss per share of 8.66p)

Net indebtedness reduced by £5.7m to £14.3m, substantially reducing the financial leverage from 3.9 to 2.2 times EBITDA (pre exceptional costs)

Banking facilities renewed with improved terms following the reduction of debt via the open offer (January 2008)

Operational Highlights:

Restructuring complete - clarity of Group structure, common systems, shared skills and resources

£4.7m of annualised cost reduction delivered since January 2008

Group re-branded to Archial Group Plc 

Deliberate diversification of forward order book to give improved defensive characteristics: 

40% UK public sector

40% UK private sector

20% international

Excellent order book visibility at January 2009 - 71% of pipeline in place for the full year (January 2008: 70%), increased to 80% at March 2009.

Chris Littlemore appointed as Chief Executive in June 2008, Sir Rodney Walker resumed position of non-executive Chairman

John Taylor appointed as Chief Financial Officer, to take up position with effect from 1st June 2009

International offices opened in Kuala Lumpur and Abu Dhabi

Chris Littlemore, CEO of Archial Group Plc said:

"We have transformed the fortunes of the business in the last 12 months substantially increasing EBITDA by 25%, achieving a positive PBT, delivering significant cost savings and revenue diversification against the backdrop of difficult market conditions in the second half of the year. 

Over the last year, the business has been restructured and we have installed harmonised systems and processes across the Group to help us focus on design excellence, outstanding service and lasting value for our clients. We have removed considerable cost and risk from the business allowing our architects to concentrate on high quality architectural design and service to our client base. 

Financial performance in these difficult markets has been solid and we are focused on gaining market share with the streamlined structure of the Group. The current economic climate is clearly challenging however we have strong future instruction and visibility as well as opportunities to create further efficiencies. We believe that Archial is now robustly positioned for weathering the current economic cycle and emerging strongly. 

2008 was a year of progress and change and I would like to take this opportunity to thank all of my colleagues throughout the business for their continued support and hard work."

For further information:

Notes to editors:

In 2008, the architectural business, The Archial Group, was created from the SMC Group following a process of restructuring and rebranding. 

Now one of the UK's largest architectural practices, The Archial Group has established a strong track record of delivering intelligent architectural solutions in public, private and international arenas. It delivers a broad portfolio of sectors across these regions including; commercial, corporate, education, health, leisure, nuclear, residential, retail and transport projects.

The Archial Group prides itself on five key values which form the philosophy of its service to clients and which forms a balanced strategy for every project. These are:- creative integrity, economic performance, environmental responsibility, social contribution and personal experience.

The Archial Group operates from 26 locations in three core businesses forming the key architectural business units; Archial Architects in the UK, Alsop Architects (founded by RIBA Stirling Prize winner Will Alsop) operating globally and Sparch in Asia. The Group is delivering projects throughout the UK, Asia, India, the Middle East, Europe and the North Americas.

  CHAIRMAN'S STATEMENT

Sir Rodney Walker

Introduction

We are pleased with the overall performance of the Group in the current macro economic environment. We have achieved a great deal over the last year, reducing risk from the business, strengthening its foundations, as well as turning the loss made in 2007 into a profit.

Restructuring

During the period we have completed a substantial refinancing, restructuring and re-branding programme which has allowed us to make significant progress in rationalisation and harmonisation of the business. There are still several opportunities to create further efficiencies in our operation over the next twelve to eighteen months. Following the achievements to date we are now well established as one of the leading UK and international architects businesses with a prime market position.

The restructuring has given rise to a more efficient, diverse and resilient business with 14% of 2008 sales achieved from our international markets (2007: 7 %). 

The Board is pleased with the working capital procedures and controls it has installed including a centralised credit control function and uniform financial software across the group.

The Group's balance sheet and net debt position were enhanced by the raising of £13.1m (after expenses) via the open offer in January 2008 and the simultaneous reduction of deferred consideration liabilities by £2.5m. Net debt at the year end was £14.3m, with the net debt to EBITDA ratio moving from 3.9 to 2.2 times. We remain comfortably within our interest cover and other financial covenants. We have maintained a good and supportive relationship with our lending bank throughout the period.

Directorate Changes

We were delighted to formally appoint Chris Littlemore as Chief Executive at the AGM in June 2008. At the same time I stepped down from my executive role, resuming the role of non-executive Chairman. I would like to thank Chris for all his hard work and achievements to date. 

The board is also delighted to announce the appointment of John Taylor as Chief Financial Officer. John joins the Board of Archial having previous held the role of CFO of Maxima Holdings Plc, prior to which he was executive director of finance at the support services business of Alfred McAlpine Plc. He will be taking up his position with the group at the beginning of June 2009. The information that the Group is required to disclose under schedule 2(g) of the AIM rules for companies in relation to the appointment of John Taylor as a director of Archial is set out in the announcement.

Robert Boardman, Corporate Development Director and acting Finance Director, will be leaving the Group with effect from 29 April 2009, to take up a senior finance position within a large professional services firm. The Board would like to thank Robert for his service to the Group. Interim support will be provided by accountancy firm Baker Tilly.

The Board also announces the departure of Bob Tyrrell as a Non Executive Director also with effect from 31 March 2009. Bob has served the Group since November 2005 and the Board would like to thank Bob for his efforts and contribution to the business during this period and wishes him well in the future.

Dividend

The Directors will not be recommending payment of a dividend for the year ended 31st December 2008 and the Board will continue to review the dividend policy against trading conditions.

Outlook

As at 25th March 2009 our forward order book stood at 80% of the full year projection (January 2008: 71%), with 20% of the 2009 order book from international projects (2008: 13%), 40% from the UK public sector projects (2008: 31%) and 40% from the UK private sector market (2008: 56%).

Despite this resilience, market conditions remain challenging. We are however well prepared for the current economic environment. We are conscious that no business is immune from macro economic conditions and the Board continually reviews counterparty risks. We have removed significant costs from the business and we continue to monitor our cost base closely.

We expect to see any impact of Government fiscal loosening earlier than most sectors given our role and position in the construction supply chain. Whilst we form part of the wider construction sector, our revenue is not totally governed by the level of construction spend. Activities such as front end design, feasibility schemes and masterplanning continue to contribute to our revenue which is also enhanced by investors and clients with long term views, seeking to create value through our engagement. Consequently, we have seen our income stream remain steady despite the significant difficulties faced in some areas of the construction sector. Our level of operational gearing in the business, combined with our initiatives to increase market share, mean we expect to take advantage of our position and be at the forefront of the turnaround in the economic cycle as soon as it occurs.

Sir Rodney Walker

Non-executive Chairman

CHIEF EXECUTIVE'S REVIEW

Chris Littlemore

Introduction

2008 was a landmark year for the Group.

We have transformed the fortunes of the business in the last 12 months substantially increasing pre exceptional EBITDA by 25%, achieving a positive PBT, delivering £4.7m in annualised cost savings since January 2008 and creating revenue diversification against the back drop of difficult market conditions in the second half of the year. 

I am pleased to be reporting these results to shareholders following my first year as Chief Executive Officer of the Group. Since January 2008 we have made significant progress reducing risk, diversifying revenue streams and harmonising operations within the business. With a solid core business based on a new simple structure and clear brand definition we have improved our position in the industry and enhanced our ability to further increase our market share. This is especially pleasing whilst we have been, operating in a challenging market environment.

Archial is the one of the largest architecture groups in the UK, with an exciting fast growing international revenue stream. Our strategy has been to diversify our revenue sources and as a result, we now have a good balance between public and private clients in the UK as well as numerous international clients in different geographies. In the UK, our clients span many sectors including education, health, custodial and other publicly funded sports and leisure sources. Internationally, our business has expanded rapidly. We have major transportation projects in Toronto, a new office in Kuala Lumpur and another in the UAE where have received instruction and commenced operations.

Restructuring, Integration and Re-branding

The corporate restructuring and overall harmonisation of the business has been implemented ahead of plan with the core UK operating businesses integrated into one company segmented across three regions: South, North & Midlands and Scotland. The Stirling Prize winning international brand of Alsop has been maintained as a separate business unit within the Group and our operations in Asia have come together under a new brand - 'Sparch'. All of the staff across the UK are now on harmonised contracts. At the same time, we have enhanced and standardised our internal management systems and we have rolled out a new accounting system to coincide with this. We have installed a common approach to commissioning new work and have established an internal set of guidelines with regards to client and project risk weighting. We have also recognised efficiency gains as the new structure allows us to work more efficiently with increased capacity and a lower cost base. We have rationalised the reporting structures within the business, removing cost whilst retaining accountability. By centralising functions such as IT, HR, Marketing and Credit Control we have improved delivery and eliminated duplication of effort and cost.

We have started to benefit from the cost savings that have been put in place. We recognised £1.1m of annualised cost savings from January 2008 and a further £1.8m in Q4 2008. We have implemented additional measures in Q1 2009 to save a further £1.8m annualised of salary costs, giving total annualised cost savings since January 2008 of £4.7m.

The Group has been re-branded to Archial Group Plc creating a common culture and approach across the business. 

Our service to our clients focuses on five key values which form the philosophy of the architectural delivery that we provide. These are: 

creative integrity, 

economic performance, 

environmental responsibility, 

social contribution,

personal experience. 

We call the synthesis of these values: 'intelligent architecture'

In addition to our core architecture business we offer three specialist supporting disciplines through our subsidiary Archial Services Ltd (formerly known as SMC Facilities Management Limited) being:-

Archial Planning (Town Planning Consultancy)

Archial Sustainable Futures (Specialist Environmental Design Consultancy)

Archial Facilities Management (FM Consultancy)

By gaining business in their own right and cross selling throughout the Group, these fledgling businesses will offer a wider range of architecturally related specialist expertise, enhancing our delivery and income stream. We plan to build on these areas through 2009 and beyond.

The Group's legal structure is now much clearer and more understandable from a client perspective and a number of offices have been rationalised. There is more work planned in these areas over the next twelve to eighteen months. We are currently represented in eighteen locations in the UK and where we have multiple offices in these locations we are rationalising property costs as leases allow. We have split out our Asian activities from the Alsop brand and these now operate under the name of Sparch which has five offices in each of Beijing, Shanghai, Singapore, Kuala Lumpur and Abu Dhabi and numerous projects across Asia. Whilst there is more work to be done, I am very pleased with the progress that has been achieved to date and look forward to updating you on further recognised benefits later in 2009. 

Business Review - UK 

For the year to 31 December 2008, the UK operations contributed £38.0m turnover and £5.8m profit to the Group and the order book is looking strong and stable. The Asian business produced £4.5m turnover and £2.2m PBT. The headline performance of each of the three new regional divisions of the core UK business, the Alsop brand and Sparch is set out below:-

Scotland

The new Scottish division, has offices in Glasgow, Edinburgh, Aberdeen, Dundee and Inverness and is headed by divisional Chairman Bob Hall. Turnover in the division was £14.1m, (2007: £15.7m) and PBT was £3.3m, (2007: £4.3m).

Significant project wins in 2008 included: 

Framework and delivery of Inverclyde Schools - four new school buildings

Framework and delivery of NHS Scotland hospital projects with Laing O'Rourke

Four Scottish education college projects

Two corporate HQ buildings for oil and gas industry - Aberdeen

Nuclear industry commissions on multiple sites within UK

South 

Significant project wins in 2008 included: 

Plymouth Life Centre - A new swimming and diving centre forming part of the nationwide training facilities of the 2012 Olympics

New headquarters office for Fred Olsen Cruise Lines - Ipswich

MOD projects - Falkland Islands

Six new education projects

113 residential units in Cambridge for Almeren Plc

Office Units - Cambridgeshire for Wrenbridge Ltd

North & Midlands

Significant project wins in the division included: 

Multiple Morrisons Supermarket Projects throughout including town centre revitalisations in UK

Three Logistics Park Developments in Eastern Europe in excess of 1m sqm space 

Refurbishment of 80,000 sqft in Rail House for BRBR, Manchester

25,000sqm new retail and refurbishment of existing retail centre in Leicestershire for two National Pension Funds

Alsop 

The Alsop division, which operates both in UK and internationally, is run from our office in Battersea and is headed by director Duncan Macaulay. Turnover in the division was £2.9m, (2007: £3.2m) and PBT was £0.2m, (2007: £0.2m).

Significant project wins in the division included:

£400m Masterplan for Millwall FC to include 3000 homes and 300,000 sqm mixed use space 

Headingly Carnegie Stadium for Yorkshire Cricket Club and Leeds Metropolitan University

Toronto - Two Underground Stations and surrounding masterplanning forming part of the 8.5km Spadina line extension.

Dubai Ferry Terminals -Concept Design Proposals for developer Sama Dubai and The Dubai Port Authority

Masterplanning for UAE Clients in The Emirates and Doha

Sparch

Sparch comprises our offices in Shanghai, Beijing, Singapore, Kuala Lumpur and Abu Dhabi, and is headed by managing directors, Stephen Pimbley and Paul Merry. Turnover in the division was £4.5m, (2007: £2.9m) and PBT was £2.2m, (2007: £0.9m).

Significant project wins in the division included: 

Vision City - 90,000 sqm mixed use and retail development - Kuala Lumpur Malaysia for Capitaland

Ningbo A1 Housing - 225,000 sqm mixed use, retail, leisure and entertainment space for Trade Investment & Development Co Ltd

Ningbo Capital Plaza - 150,000 sqm mixed use and retail project considered to be the catalyst development to the new downtown Jianbei District. 

Arzanah - 880 Units in Five Towers, Phase 1 of the new Zayed Sport City Residential Development for Capitaland- Abu Dhabi

Zhaibei Plot 313 - 70,000 sqm of commercial offices, retail and the new Ascott Hotel.

Outlook

While the current economic climate is clearly challenging, we have strong forward order book visibility. Through our restructuring programme we were able to reduce our cost base at an early stage in the market downturn. We are pleased with our move to balance and diversify the business across the private sector, the public sector and internationally. We believe that these decisions will help to protect our business through the economic cycle.

Our focus for 2008 was the stabilisation of the business with attention to cash generation and debt repayment and this strategy has been successful. Our restructuring process has lead to significant cost reduction across the Group and we will continue to monitor the cost base going forward. 

We are seeing that the achievements of 2008 and the execution of our strategy has made our business more robust. The first few months of 2009 have progressed well and we believe that Archial is well positioned for weathering the current economic cycle and emerging strongly at the forefront of a recovery. 

People

2008 was a year of progress and change and I would like to take this opportunity to thank all of my colleagues throughout the business for their continued support and hard work. 

Chris Littlemore

Chief Executive

Archial Group Plc

GROUP INCOME STATEMENT

For the year ended 31 December 2008

The Directors will not propose a dividend to the annual general meeting based on the financial statements for the year ended 31 December 2008. 

*Earnings before interest, tax, depreciation and amortisation.

Archial Group Plc

CONSOLIDATED BALANCE SHEET

As at 31 December 2008

___________________________________________________________________

Archial Group Plc

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2008

  Archial Group Plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2008

(in £'000)

1. GOING CONCERN

The Group's business activities, performance, outlook and future development are set out in the Chairman's statement and CEO's review. The Group's financial position is set out in the financial statements including details of its financial risks and instruments used to mitigate these risks, including liquidity and credit risk. 

The Group reduced its level of net indebtedness during 2008 by 29% from £20.0m to £14.3m and has provision in its forecasts to meet future loan and deferred consideration payments as they fall due. The Group currently has adequate financial facilities available as well as long term contracts with various customers and suppliers across different sectors and geographies. As a consequence the directors believe the Group is well placed to manage its business and financial risks successfully despite the uncertain economic climate. 

After due enquiry, including scenario testing of the Group's financial forecasts including tests of compliance with banking covenants, and receiving written confirmation from our main bankers that our working capital facilities will remain in place beyond renewal in 10th August 2009 , the directors have a reasonable expectation that the Group has adequate resources to continue in business for the foreseeable future and consequently continues to adopt the going concern basis in preparing the annual report and accounts.

2. EXCEPTIONAL COSTS

Aborted transaction costs relate to professional fees incurred in connection with potential transactions that did not proceed.

3. EARNINGS PER SHARE

Basic EPS amounts are calculated by dividing profit for the year attributable to ordinary equity shareholders of the parent company by the weighted average number of shares outstanding during the year.

The calculation of the basic and diluted earnings per share is based on the following data:

On 18th January 2008 the Company completed a fundraising of £15.1 million, before expenses by way of an open offer of up to 188,377,187 New Ordinary Shares at a price of 8.0 pence per New Ordinary Share.

4. TRADE AND OTHER RECEIVABLES

At 31 December 2008, £12,664,000 (2007: £14,392,000) of trade receivables were denominated in Sterling and £1,796,000 (2007: £1,536,000) were denominated in other foreign currencies. Debtors of £106,000 (2007: £nil) are secured against property.

Trade receivables are non-interest bearing and are generally on 30-90 days' terms and are shown net of a provision for impairment. Movements in the provision for impairment of receivables were as follows:

As at 31 December, the analysis of trade receivables that were past due but not impaired is as follows:

The Group continually assesses the recoverability of trade receivables and the level of provisioning required. Trade receivables outstanding for more than 120 days are subject to additional review and recovery procedures.

5. INTEREST BEARING LOANS AND BORROWINGS

Bank loans at 31 December 2008 comprised:

The Singer & Friedlander loan is an interest only loan used to fund two properties. The capital element will be repaid on sale of the two properties. The secured asset is disclosed as a financial asset in note 18.

All bank overdrafts and loans are denominated in sterling. The directors estimate that the fair value of the Group's borrowings is equivalent to their carrying value.

The Bank of Scotland borrowings are secured over the assets of the Group companies.

6. PROVISIONS

The fall in deferred cash consideration this year represents the settlement of amounts paid to vendors for previous acquisitions.

The deferred contingent cash consideration provision of £425,000 represents managements' best estimate of the future liability which could arise in January 2010.

Additional deferred cash consideration becomes payable to the vendors of some previous acquisitions should the average share price of Archial Group plc rise above 9.6 pence for the three months ended 31 December 2009. This would be payable on 31 January 2010. The maximum possible liability is £2.3m.

7. CASH FLOWS

The Group has a working capital facility of £3.0m which is reviewed annually on 10th August. The bank have indicated that they intend to renew the facility.

8. POST BALANCE SHEET EVENTS

On 31 December 2008, SMC Group plc restructured the trading business of eleven of its trading subsidiaries which resulted in the transfer of their net assets into a brand new group operating company called Archial Architects Limited. This company continued with the business of the eleven companies from 1 January 2009 and the original companies became dormant on that date. The following companies also changed their names in January 2009:

Previous Name New Name

SMC Parr Architects Limited Parr Architects Limited

SMC Jenkins and Marr Limited Jenkins and Marr Limited

SMC Hugh Martin Architects Limited  Hugh Martin Architects Limited

SMC Davis Duncan Architects Limited Davis Duncan Architects Limited

SMC Gower Architects Limited Gower Architects Limited

SMC DTR:UK Limited DTR (2009) Limited

SMC Hickton Madeley Limited Hickton Madeley Architects Limited

SMC Charter Architects Limited Charter Architects Limited

SMC Covell Matthews Architects Limited Covell Matthews Limited

SMC Penrose Architects Limited Penrose Architects Limited

SMC Corstorphine & Wright Kenzie Lovell Limited Corstorphine & Wright Kenzie Lovell Limited

On 5 January 2009, SMC Group Plc changed its name to Archial Group plc.

9. PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2008 or 2007 within the meaning of section 240 of the Companies Act 1985. Statutory accounts for 31 December 2007 have been delivered to the Registrar of Companies.  The auditors have yet to report on the statutory accounts for the year ended 31st December 2008. Accordingly the financial information in this preliminary announcement is unaudited. The audit report on the statutory accounts for the year ended 31st December 2007 was unqualified and did not contain statements under the Companies Act 1985, section 237 (2) and (3).

APPENDIX 1

The Company is required to disclose under the AIM Rules for Companies the following information in relation to the appointment of John James Taylor (age 48) as a director of the Company.

Other than as disclosed above, there is no further information in connection with the appointment of Mr Taylor to the Board of Archial Group Plc which is required to be disclosed in accordance with Rule 17 and Schedule 2(g) of the AIM Rules for Companies.