Aukett Swanke Regulatory News (AUK)

Aukett Swanke Group Plc

Interim results

For the six months ended 31 March 2018

Aukett Swanke Group Plc, the international practice of architects and interior design specialists and engineers, is pleased to announce its interim results for the six month period ended 31 March 2018.

Highlights

Revenues down 18% at £7.41m (2017: £9.07m)

Loss before tax of £1.22m (2017: £358k loss)

Cash (net of overdraft) of £317k with net borrowings of £311k; representing 0.6% net gearing

UK studio relocating to City offices affording lower ongoing costs and an initial 2 year rent free period

Middle East practice invited into international design competitions for Expo 2020 Dubai

Commenting on the interim results, CEO Nicholas Thompson said:

Revenues were severely impacted by the continuing stagnation within the UK construction market which currently shows no clear-cut evidence of recovery. Our overseas operations are beginning to benefit from reorganisation but, overall, as previously highlighted, we expect a Group loss for the full year despite a better second half.

Enquiries

Aukett Swanke Group Plc - 020 7843 3000

Nicholas Thompson, Chief Executive Officer

Beverley Wright, Chief Financial Officer

finnCap - 020 7220 0500

Corporate Finance: Julian Blunt; Giles Rolls / Corporate Broking: Alice Lane

Investor/Media enquiries

Ben Alexander - 07926 054111

Interim statement

Overview

As previously announced, the results for the six months to 31 March show a further decline in revenues and a loss for the period. Revenues are substantially lower at £7.4m (2017: £9.1m) and the loss before tax is £1.2m (2017: £358k).

The greatest fall was in the United Kingdom where reduced activity and delayed starts resulted in revenues falling by 30%. Our United Arab Emirates ("UAE") business saw a slight stalling of its revenue growth with a fall of 12% but we hope to recover this by the year end. The Continental European offices of Russia and Turkey both lifted revenues (by 59% combined) for the first time for some while and reported a profit with the joint ventures and associate contributing a small positive result. Reflecting the general tightening of expenditure the group central costs were reduced by £112k to make a net contribution to the result.

Before taking account of the amortising loan advanced to fund the acquisition of Shankland Cox Limited, of £628k, the Group maintained a positive cash position at £317k net of overdrafts. This is considerably lower than the September 2017 year end position of £960k net of overdrafts and was adversely affected by temporarily overdue UK and Middle East debts. Had these balances been received by 31 March 2018, the position at the half year would have been a surplus of net funds.

United Kingdom

As already announced the UK performance has been disappointing with revenues falling to £3.2m (2017: £4.6m) in the first six months. Cost control has continued but at half the rate of the revenue decline resulting in a loss of £879k (2017: £211k). The fixed cost nature of our technical resource requires this structure to be maintained at a certain level in order to service current and potential projects.

With an impending lease expiry the London office has taken the opportunity to relocate and rebase its fixed cost at rental levels from five years ago. This coupled with a long rent free period should enable the business to recover some of its cash depletion over the next 24 months. The cost of fitting out the new premises will be spread over five years.

The business continues to enjoy a long standing and loyal client base with a history of repeat business and in the past month (May) we have seen a noticeable improvement in enquiry conversions. Whilst this will be too late to reduce the loss in 2018 it will certainly improve the outlook for the next financial year.

Projects completed by the UK office in the first half include two buildings in Cambridge and the Aliaia store in New Bond Street for Richemont. We continued on a number of high profile apartments at both One Hyde Park and overseas, in Moscow, as well as receiving instructions in a new market, China, for villas in Beijing.

Our executive architect business Veretec had a slow start to the year but in recent months has had instructions confirmed on a number of major construction projects - all in London - which will improve its results.

The UK is our oldest market (dating back to the 1950's) and has had to cope with the vagaries of numerous adverse economic conditions over the years. We continue to be totally committed to it as we have a wide ranging and high quality client base that will return to greater development activity as the uncertain political climate improves and normal levels of economic activity return. In the near term, to the end of the financial year, as previously reported, the financial outlook remains negative.

Middle East - United Arab Emirates

Although the UAE reported lower revenues, resulting in a loss, this business has made substantial progress in the first half and has won and commenced delivery of several large projects which position it as an attractive and competitive practice in the region.

The overall result is disappointing as the restructuring in late 2017 should have contained any cost exposure going forward. However, an income decline in the first quarter hampered this outcome resulting in a fall in revenue to £3.7m (2017 £4.2m) and a profit during the first half of 2017 of £121k turning into a loss of £380k.

Overall the business is being introduced to more exciting schemes which are higher profile and have better income per head financial statistics. We continued to develop our designs for the new retail mall for Lesso in Dubai, have re-designed the Yas Mall hotel for a new operator brand and have been invited to produce competition designs for a Dubai Expo 2020 pavilion.

As a result of the recently announced proposed legal change in ownership structures, potentially allowing 100% foreign ownership in the UAE which will be implemented later in the year, we will be considering our own licence and ownership arrangements to see how this change can simplify our business model and reduce our fixed costs.

Continental Europe

The performances of our businesses in Continental Europe have been mixed in the 6 months to 31 March 2018. The associate in Berlin temporarily reported losses as it corrected its excess staffing on recently completed projects, which was reported at the year end. The Prague joint venture broke even and Frankfurt reported one of its strongest results to date. Both of the wholly owned subsidiaries had improved results compared to the first half loss last year with much reduced losses in Russia and profits in Turkey.

Wholly owned operations

Turkey has had a turnaround in fortunes this year with the completion of the Allianz tower fit out in Izmir, a large 18,000 sqm fit out project in Sofia, Bulgaria for VM Ware, a 12,000 sqm fit out for Vakifbank in Istanbul, a restarted master plan concept project for the 210,000 sqm Bio Istanbul site and a new fit out for Credit Suisse in Istanbul.

Russia has continued to operate at a minimal cost level and continues to make a loss - albeit much smaller than last year. Project completions for the period include the 130,000sqm Badaevsky Brewery master plan in Moscow and the Russkiy Island master plan concept for a 120,000 sqm residential complex in Vladivostok. Ongoing projects include the closing stages of the Vernadskogo luxury apartment complex, a new training centre for CROC in Sibur Tobolsk and a master plan for the Skolkovo Gate office development in Moscow for PPF Real Estate.

Joint venture and associate operations

Major project completions include the interior design of the new Google Campus, a housing scheme for Regatta Quartier 13, the final stages of the Gropius Passagen retail centre, the Stone Brewing Centre and the 130 room luxury Fontenay Hotel all by the Berlin office. The Frankfurt office completions include fit outs for Woori Bank and Simmons & Simmons and the Prague office completed the production facility and HQ building for the SAB Miller brewery in Prague along with projects for Dimension Data, Business Lease and Exxon Mobil.

Newly won projects which will contribute from the second half onwards include the 21,000 sqm KuDamm-Karree mixed use project in Berlin, the concept workplace for Deutsche Bahn via MooCon and Living Lyon housing studies for Hochtief in Frankfurt, as well as the Novartis HQ fit out concept and the 2,000 sqm Olympic Gardens fit out for OM Consulting in Prague.

Group costs

As a result of the decline in trading the executive management has curtailed centrally controlled costs and reduced these by £112k in the first six months.

Prospects

Changes in the political climate and the subsequent timing of their impact on our markets is the key feature to the Group's recovery from the current losses. Whilst the focus on controlling costs will continue, this by itself will not resolve market issues and the Group's performance.

A number of initiatives in the UK (relocation to a lower cost base) and in the Middle East (combined operational bidding to maximise revenue income and improve our income per head KPI) are in place and will underpin our ability to minimise costs and maximise local profitability in the future. These actions coupled with very tight cash and treasury management on a Group wide basis enable us to maintain our overall structure. Progress has been slow on the recovery of our older debtors which has historically allowed the Group to operate within its own working capital and avoid further borrowing.

In recent weeks the UK has experienced more conversion of new projects for both the design and the executive delivery elements and the UAE is adapting to the changes in its major project programmes. Our Continental Europe business is expecting to perform better in the second half. Whilst these signs provide reassurance the Board remains of the view that the financial year 2018 overall will show a loss.

Nicholas Thompson

Chief Executive Officer

27 June 2018

Consolidated income statement 

For the six months ended 31 March 2018

Consolidated statement of comprehensive income

For the six months ended 31 March 2018

Consolidated statement of financial position

At 31 March 2018

Consolidated statement of cash flows

For the six months ended 31 March 2018

Consolidated statement of changes in equity

For the six months ended 31 March 2018

For the six months ended 31 March 2017

For the year ended 30 September 2017

Notes to the interim report

1 Basis of preparation

The financial information presented in this interim report has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ('IFRS') as adopted by the EU that are expected to be applicable to the financial statements for the year ending 30 September 2018 and on the basis of the accounting policies expected to be used in those financial statements.

2 New accounting standards not yet applied

IFRS 15 Revenues from contracts with customers

IFRS 15 is the new revenue standard which replaces existing standards and guidance including IAS 18 Revenue and IAS 11 Construction Contracts. IFRS 15 sets out the requirements for recognising revenue and costs from contracts with customers and will significantly increase disclosure requirements.

The Group will apply IFRS 15 for its accounting period beginning on 1 October 2018. There will be no impact on cash flows with collection remaining in line with contractual terms.

The Group will apply the new standard using the cumulative transition method, with the cumulative effect of applying the standard recorded as an adjustment to retained earnings on the date of initial application, being the 1 October 2018. Our decision to adopt this method rather than retrospectively restate prior periods depends on a number of factors including time, cost and available resources compared to the benefits to the users of the financial statements.

The Group's approach to the assessment of the impact and implementation of IFRS 15 is ongoing, but based on our initial assessment of current projects we expect that there will not be a material impact on the Group's revenue, operating expenses or statement of financial position upon transition to IFRS 15.

It is not yet possible to quantify the impact of transition to IFRS 15 as this is dependent on the incomplete contracts at 1 October 2018. The Group anticipates providing an estimate of the effect of transition in the financial statements for the year ended 30 September 2018. 

3 Operating segments

The Group comprises a single business segment and three separately reportable geographical segments (together with a Group costs segment). Geographical segments are based on the location of the operation undertaking each project. Turkey and Russia are included within Continental Europe together with Germany and the Czech Republic.

4 Other operating income

The gain of £572,000 recognised in the year to 30 September 2017 relates to an amicable settlement on deferred consideration with the vendor of Shankland Cox Limited in respect of contract losses which were not known at the date of acquisition. This item is non-recurring in nature.

The reduction in property rental income from £212,000 in the six months to March 2017 to £11,000 in the six months to March 2018 is due to the rationalisation of the Group's UK property requirement resulting in lower property related costs as well as a reduction in property sublet rental income.

5 Earnings per share

The calculations of basic and diluted earnings per share are based on the following data:

6 Reconciliation of profit before tax to net cash from operations

7 Analysis of net funds

8 Status of interim report

The interim report covers the six months ended 31 March 2018 and was approved by the Board of Directors on 27 June 2018. The interim report is unaudited.

The interim condensed set of consolidated financial statements in the interim report are not statutory accounts as defined by Section 434 of the Companies Act 2006.

Comparative figures for the year ended 30 September 2017 have been extracted from the statutory accounts of the group for that period.

The statutory accounts for the year ended 30 September 2017 have been reported on by the Group's auditors and delivered to the Registrar of Companies. The audit report thereon was unqualified, did not include references to matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain a statement under Section 498 of the Companies Act 2006.

9 Further information

Copies of the interim report will be dispatched by post to holders of 100,000 or more shares in due course. An electronic version will be available on the Group's website (www.aukettswanke.com).