WYG Regulatory News (WYG)

11 June 2019

WYG plc

("WYG" or "Company")

Unaudited Preliminary Results

WYG plc, the international professional services business, announces its unaudited preliminary results for the year ended 31 March 2019, highlights of which are as follows:

Financial overview:

· Revenue* up 1.7% at £157.0m (2018: £154.4m); H2 revenue of £81.7m (H1: £75.3m)

· Statutory operating loss of £3.8m (2018: £4.8m); loss before tax £4.6m (2018: £5.3m)

· Adjusted operating profit** £1.8m (2018: £3.5m)

· Adjusted profit before tax** £1.0 (2018: £2.9m)

· Adjusted diluted earnings per share** 0.8p (2018: 4.4p)

· Loss per share 6.7p (2018: 6.9p)

· Net debt as at 31 March 2019 £9.3m (30 September 2018: £13.2m, 31 March 2018: £6.3m)

· Order book up 0.2% to £166.7m as at 31 March 2019 (31 March 2018: £166.4m)

* Including revenue from Joint Ventures

** Adjusted operating profit and adjusted profit before tax are, respectively, statutory operating profit and statutory profit before tax after adding back separately disclosed items as disclosed in Note 3

Acquisition overview:

· Recommended cash offer by Tetra Tech UK Holdings, a wholly owned subsidiary of Tetra Tech, Inc., to acquire WYG for 55p per share announced on 20 May 2019. This represents a 244% premium to the closing price of 16p per WYG share on the day prior to the announcement

Operational overview:

· Consultancy Services revenue was slightly down 1.2% at £117.9m (2018: £119.3m), reflecting difficult final quarter in the UK

· International Development revenues increased to £39.1m (2018: £35.1m) as large projects mobilise

· Actions being taken to improve profitability and efficiency across the business include:

o a range of self-help measures targeted to generate annual overhead savings in excess of £6.0m in aggregate through selective headcount reduction, delayering of management and consolidation of offices

o Efficiency review underway, for implementation progressively in FY 19/20 and beyond

· No final dividend payment recommended due to ongoing focus on reducing debt

Current Trading & Outlook:

· Consultancy Services business stable in most areas and starting to deliver improved results

· International Development opportunities continue with substantial new project wins in Western Balkans and Turkey more than offsetting expiry of IPF 3 and IPF 4 programmes

· At £166.7m, the order book provides a sound basis for current year trading

Douglas McCormick, Chief Executive Officer of WYG plc, commented:

"Although this has been another challenging year for WYG, we have taken decisive steps to implement our strategy of delivering a simpler, more robust platform and driving efficiencies which are beginning to take effect. We have won or renewed our place on many key frameworks and secured a number of major new projects which will underpin a significant proportion of our projected earnings for FY20 in both our primary business streams.

"On 20 May 2019, it was announced that the Board had reached agreement on the terms of a recommended cash offer by Tetra Tech to acquire the Company at 55p per share, representing a premium of approximately 244% to the closing share price on 17 May. Becoming part of Tetra Tech enables benefits of scale and access to expertise across highly complementary geographies and client relationships, and brings operational infrastructure and financial strength to support WYG's long term growth ambitions.

"Going forward, whether we become part of the Tetra Tech Group, providing the benefits of scale and access to expertise across highly complementary geographies and client relationships, or with a strengthened balance sheet through the implementation of a fundraising and our recovery plan, we believe WYG is well placed for a return to profitability and positive cash flows."

Contacts:

Chairman's statement 

Platform for Growth

On 20 May 2019, the boards of Tetra Tech, Inc., Tetra Tech UK Holdings Limited (Tetra Tech) and WYG announced they had reached agreement on the terms of a recommended cash offer (Offer) pursuant to which Tetra Tech would acquire the entire issued and to be issued share capital of WYG (Acquisition).

The combination of WYG and the Tetra Tech group will bring each other a number of benefits, which will position the combined group to further drive growth and value:

· The combination will represent a premier international consulting, engineering, and programme management firm, able to deliver an enhanced value proposition for clients through differentiated and innovative solutions. WYG will help to diversify the combined group's operations, further enhancing portfolio quality and stability.

· The combined group will have attractive positions in targeted high growth areas. WYG enhances Tetra Tech's leading positions in water, environmental, sustainable infrastructure and international development.

· WYG's complementary geographic presence will allow for the combined group to have greater scale globally. In particular, WYG provides a platform for the combined group in the UK and Europe, from which together it can accelerate investment in future growth.

Proposed Terms

Under the terms of the Acquisition, WYG Shareholders will receive 55 pence in cash for each share held. The Acquisition values the entire issued and to be issued ordinary share capital of WYG at approximately £43.4 million and represents a premium of approximately 244 per cent. to the Closing Price of 16 pence per WYG Share on 17 May 2019 (being the last business day prior to the announcement of the Offer); 237 per cent. to the Volume Weighted Average Price per WYG Share during the one month period ended on 19 May 2019 (being the last business day prior to the Announcement Date); 258 per cent. to the Volume Weighted Average Price per WYG Share during the three-month period ended on 19 May 2019; and 150 per cent. to the Volume Weighted Average price per WYG Share during the six-month period ended on 19 May 2019.

The WYG Directors, who have been so advised by N+1 Singer on the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the WYG Directors, N+1 Singer has taken into account the commercial assessments of the WYG Directors.

Next Steps

Shareholder approval is required for the Offer, which, if approved, will be effected by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (Scheme). Shareholders will have the opportunity to attend and vote at required shareholders meetings which will be held on 27 June 2019 to approve the Scheme. The relevant documents and voting forms were sent to shareholders on 3 June 2019. The WYG Directors unanimously recommend that shareholders vote in favour of the Scheme and the associated resolutions to be proposed at the shareholders' meetings. If the Scheme is approved by shareholders and the Court, the Scheme is expected to become effective on 9 July 2019. In the event that the Scheme is not approved, the Directors will seek to implement the recovery plan described in more detail below, together with a secondary equity raising to strengthen WYG's balance sheet.

Strategy

Regardless of the proposed Acquisition, our strategy continues to be to develop a simpler, more robust platform and drive efficiencies to enable a return to sustainable and profitable growth.

Last year, having recognised that our operating margins were low and that operating cash generation had been weak over a sustained period, the Board implemented plans to reduce operating costs substantially and tackle specific areas of underperformance. Following the announcement on 13 February 2019 that operating profit for the year ending 31 March 2019 was likely to be materially below the market expectations at that time and that we expected to breach our net debt to EBITDA and interest cover covenant tests, it was clear there was an even more urgent need to accelerate WYG's plans to restore shareholder value and the Board instigated a more radical recovery plan.

The first element of the recovery plan was to implement a range of self-help measures targeted to generate annual overhead savings in excess of £6.0m in aggregate through selective headcount reduction, delayering of management and consolidation of offices. This has now largely been achieved. The other elements included the potential divestment of smaller non-core business units; and a strategic review of the WYG Group's core operations, including a reassessment of WYG's business priorities.

The other key element of the recovery plan was to be the execution of a material secondary equity raise to strengthen WYG's balance sheet thereby creating the necessary financial flexibility to allow the Directors to implement the recovery plan from a position of relative financial and negotiating strength. This process, which was supported by key shareholders, was close to being launched when discussions initially commenced with Tetra Tech. The process has been paused but if for any reason the Acquisition does not complete, the Board would seek to restart it immediately.

Bank facility

On 13 February 2019, the Company announced a trading update stating, among other things, that due to a challenging trading environment in the final quarter of the financial year, the Board expected the Company would not meet either of the net debt to EBITDA or interest cover covenant tests within its bank facility agreements on 31 March 2019. We opened discussions with the bank to secure a waiver of the relevant covenant tests and on 18 March 2019 we announced that the bank had confirmed its agreement to waive the 31 March 2019 covenant tests. New covenant tests were subsequently agreed in principle although they would be dependent on the secondary equity raising outlined above.

Dividend

In December 2018, an interim dividend for the six months ended 30 September 2018 of 0.6p was declared for payment in April 2019. However, in the light of the 13 February 2019 trading update, it was announced on 18 March 2019 that the Board had decided not to pay the interim dividend, nor will the Board be recommending the payment of a final dividend for the year ended 31 March 2019. Accordingly, the overall dividend for the year was £nil.

Board changes

On 25 September 2018, David Jeffcoat retired from the Board. On the same day, Neil Masom became chair of the Audit & Risk Committee and Marcia Marini became chair of the Remuneration Committee. On 25 February 2019, Iain Clarkson resigned as Chief Financial Officer.

Colleagues

Finally, we do not underestimate the personal and professional challenges associated with a sustained period of difficult trading conditions and operational restructuring and I would like to thank the Board and all our employees for their continuing commitment and hard work.

Jeremy Beeton

Chairman

11 June 2019

Chief Executive's Review

Summary

This has been a challenging year for WYG, culminating in the requirement to revise market expectations in February and seek a waiver of the covenant tests in our banking facility agreement. While revenues have held up well in most areas and we have recently won a number of substantial new projects in our International Development business, our Consultancy Services business in the UK has been impacted by cautious business sentiment and political uncertainty. As a result, we did not see the marked increase in UK activity that has been typical of the final quarter of our financial year in the past. The combination of traditionally lower margins in the International Development business and the impact of the deferral of activity on certain projects leading to overcapacity in our Consultancy Services business meant that profitability for the year as a whole was approximately half of what we had originally expected.

Over the past six months we have been implementing a number of actions to improve profitability and reduce our net debt position in line with our stated strategy of developing a simpler, more robust platform and driving efficiencies with a view to returning to growth in the medium term.

In March 2019, we undertook a further close review of productivity, property, IT and support services which resulted in some further targeted headcount reductions to achieve savings of c. £6.0m, the benefit of which will come through in the current year. We continue to make progress in all of these areas.

The announcement shortly after the year end of a recommended cash offer by Tetra Tech to acquire WYG presents an entirely different future roadmap for the Company, its clients and our employees. Tetra Tech is a global leader in the engineering and consulting sector with a market capitalisation of $4.0 billion and has both the financial strength to support investment in people and systems to deliver WYG's long term growth ambitions, as well as the operating footprint and technical expertise to open up new market opportunities for the business. I believe that becoming part of Tetra Tech will enable us to leverage the benefits of scale and access to expertise across highly complementary geographies and client relationships, and will bring operational infrastructure and financial strength to support WYG's long term growth ambitions.

Results

Including our share of Joint Venture revenues, revenue for the full year increased by 1.7% to £157.0m (2018: £154.4m). Revenue in the second half was £81.7m (H1 2019: £75.3m). A slight reduction in Consultancy Services revenue from £62.3m to £60.1m in the second half, largely the result of weaker than expected performance across our UK businesses, was offset by the 11.5% increase in revenue in the International Development business to £39.1m.

Adjusted1 operating profit was £1.8m (2018: £3.5m). This reduction was caused by the cost of maintaining increased capacity in certain parts of the business in anticipation of work that did not materialize and the continuing impact of the departure of staff from certain parts of the business leading to lower efficiency. Adjusted profit before tax was £1.0m (2018: £2.9m) and the statutory loss before tax was £4.6m (2018: £5.3m).

The Group closed the year with net debt of £9.3m (30 September 2018: £13.2m; 31 March 2018: £6.3m). This was better than previously forecast and reflects strong cash collections throughout the Group.

As at 31 March 2019, the Group's order book was level at £166.7m (31 March 2018: £166.4m) This pipeline of work, a substantial proportion of which is to be undertaken in the first half of FY2020, gives a sound basis for current year trading.

1 See Note 3.

Strategy

Within a trading update statement released on 13 February 2019, the Board announced that it anticipated a second half operating profit performance below that achieved in the first half, implying an operating profit for the year as a whole materially below previous market expectations.

The trading update statement further commented on WYG's operating performance and financial position as follows:

"We are now seeing a steady improvement in the conversion of our International Development business's pipeline into profitable work, with revenues anticipated to be slightly ahead of previous expectations. However, the business's margins remain lower than those of our mainly UK focussed Consultancy Services business as we continue to incur high bidding costs ahead of building revenues. In Turkey and Africa, we have a good order book of new work to be delivered in the next 12 months and our wider pipeline of future prospects continues to build healthily.

However, our UK markets are now being impacted by the current cautious business sentiment and political uncertainty, meaning that Consultancy Services is seeing some delays in investment decisions regarding new work as well as the deferral of activity on certain existing projects, across both the public and private sectors. As a result, we think it necessary to take a more cautious view as to the likely outturn for our UK business for the year such that we no longer expect to see the marked increase in our UK activity that has been typical of the final quarter of our financial year in the past.

 As a result, we expect that we will not meet either of the net debt to EBITDA or interest cover covenants within our facility agreements for 31 March 2019 and we have opened discussions with our lending bank with a view to securing a deferral or waiver of the relevant covenant tests. We already have a number of clearly defined actions underway in order to materially reduce our net debt position. Subject to the timing of some larger trading receipts within our International Development business, we expect year end net debt to be in line with previous market expectations at around £10.0m."

This statement followed previous announcements by WYG whereby it announced reduced expectations of operating performance on three separate occasions due to a combination of factors affecting both its Consultancy Services and International Development businesses.

The Board recognised that WYG 's operating margins were low and that operating cash generation had been weak over a sustained period and as a result implemented plans to reduce operating costs substantially and tackle specific areas of underperformance. However, against the background described above and notwithstanding the subsequent announcement on 18 March 2019 that WYG's lending bank had agreed to a waiver of the 31 March 2019 covenant tests under WYG's facility agreements, the Board identified an urgent need to accelerate WYG's plans to restore shareholder value as an independent entity quoted on AIM. The Board's recovery plan envisaged reconfiguring WYG as a more tightly focused consulting business with normalised operating margins and a de-risked balance sheet. The core elements of the plan were as follows:

· a range of self-help measures targeted to generate annual overhead savings in excess of £6.0m in aggregate through selective headcount reduction, delayering of management and consolidation of offices;

· the potential divestment of smaller non-core business units; and

· a strategic review of WYG's core operations, including a reassessment of WYG's business priorities.

The Board's vision was that, following full implementation of the plan to restore shareholder value, the repositioned WYG Group would be capable of generating operating margins consistent with historical sector averages from a lower revenue base, which would represent a sound platform from which first to restore and thereafter to build shareholder value.

The Board believes that it would have likely taken up to 18 months for the full benefits of the plan to be reflected within WYG's operating results, that full implementation of the self-help measures identified above would carry a significant up-front cash cost and that it would likely be several months before a sustained and meaningful reduction in WYG's monthly operating costs was delivered.

The Board believes that both the costs of implementation of the recovery plan and the current and expected level of WYG's indebtedness were too high in the context of the current uncertain trading environment. Accordingly, a key element of the plan was to be the execution of a material secondary equity raising to strengthen WYG's balance sheet, thereby creating the necessary financial flexibility to allow the directors to implement the recovery plan from a position of relative financial and negotiating strength. This process was close to being launched when discussions initially commenced with Tetra Tech.

In considering whether to recommend the Acquisition, the Board weighed WYG's future prospects as an independent entity against the certainty of the immediate cash return under the Acquisition, and have taken into account, amongst other things, the following factors:

· WYG's relative lack of scale and therefore vulnerability to further near term trading softness within a macro investment environment with significant uncertainties, particularly generated by Brexit, and no clear evidence of an imminent return to a more normal pattern of trading activity;

· the dilutive impact of a material secondary equity raising, most likely at a discount to the current share price, on future equity returns;

· the execution risk attaching to implementation of the directors' value recovery plan, recognising the anticipated timescale of up to 18 months for full implementation of the plan; and

· the significant opportunities for WYG in the mid and longer term through the prospect of inward investment by the UK government in infrastructure and housing as well as external investment by the UK government through international development and investment.

The Board's assessment is that the Acquisition terms fairly reflect WYG's current market position and its future prospects, taking into account the factors outlined above. Accordingly, the Board decided that WYG's Shareholders should have the opportunity to realise their investment in WYG on the terms proposed by Tetra Tech.

People

With competition for talented employees particularly intense in our sector we recognise that it is important to provide an environment in which people can thrive. Unfortunately, given the financial backdrop to the year we have had to exercise restraint over salary increases and delay certain other planned investments. However, we expect that with the improvements we have made in efficiency and an anticipated return to improved levels of profitability we will be able to revisit these decisions in the coming 12 months.

As a Board, we recognise that our people are our most important asset: it is their enthusiasm, ability and commitment that drive and deliver our performance. We sincerely appreciate the personal and professional commitment they've shown throughout the year.

Current trading and outlook

WYG's current trading position is broadly in line with the trading update of 13 February 2019. However, our net debt balance at the financial year end was almost £1.0m better than the £10.0 million anticipated at the time of the trading update statement and since then net debt has continued to track ahead of internal forecasts. Trading to date in line with management's expectations and the impact of the cost reduction measures and restructuring described above is beginning to have a positive impact.

There remains plenty that we can do to build on this platform and develop our business as the UK government continues to invest in infrastructure, housing and the defence estate, the prime drivers of our UK business. The UK's ring-fenced overseas development budget and the commitment of international financial institutions to socio-economic and technical development in other countries present significant new opportunities.

Finally, if approved by shareholders, the Acquisition by Tetra Tech, will bring substantial opportunities not only diversifying our operations, creating attractive positions in targeted high growth areas and the complementary geographic presence but also bringing investment, innovation and opportunity which will benefit both our clients and our employees and other stakeholders.

Operational review

Operationally, the Group was structured and reported throughout the financial year in line with our organisational structure:

· Consultancy Services - which included all our UK activities and those parts of our international business which operated in similar technical services fields and comparable markets, primarily Poland. 96% of revenues relate to the UK

· International Development

Consultancy Services (75.1% of Group Revenue)

WYG's Consultancy Services business generated revenues of £117.9m (2018: £119.3m) with an operating profit before separately disclosed items and central overheads of £4.4m (2018: £5.4m).

WYG Consultancy Services provides expertise in a broad range of services across the full lifecycle of projects in property, assets and infrastructure, which makes us well positioned to take advantage of growing opportunities in our markets. During FY2019 the business operated as five units: Infrastructure & Built Environment, Programme & Project Management (P3M), Surveying & Asset Management, Environmental, and Planning & Transport with a strong senior team in place to build upon our expertise in each of these areas.

Immediately following the year end, as part of our plans to achieve cost savings and drive increased efficiency, we restructured Consultancy Services so that since 1 April 2019 it has operated in three divisions: Planning & Advisory Services, Asset & Project Management and Infrastructure & Built Environment.

In Infrastructure & Built Environment, our architectural, engineering and design teams continue to see good opportunities across all our sectors notably defence, nuclear and highways. We have continued the development of efficiencies in the digital environment by focussing on working directly with the tier one supply chain. For example, our use of Civils 3D on our single living accommodation project saw us link the model directly to the earthmoving equipment achieving a cut and fill balance whilst remodelling over 430,000m3 material. We have delivered flagship projects such as the award-winning Birmingham Conservatoire, Hi G pilot training facility and continued phased development of Fletton Quays. Our Highways team has been successful in securing a position on the Midlands and South West Highways England framework which has a strong opportunity pipeline for the next four years. Our success in securing both the Multi-Disciplinary Lot 1 on the Crown Commercial Services framework and the Homes England Framework provides opportunities for our highways, civil, structural, M&E and architecture teams. In Rail, we have won a number of new projects through our First Group framework, as well as feasibility studies for several major new projects in Poland. In Nuclear, we continue to support James Fisher Nuclear Ltd (JFN) in its four year contract with Magnox to undertake decommissioning activities on the Steam Generating Heavy Water Reactor (SGHWR) at the Winfrith Site, Dorset. This is the biggest single decommissioning contract outside of Sellafield for WYG and positions us well for emerging opportunities in nuclear decommissioning across the UK.

The P3M Business delivered a range of Programme, Project and Cost Management services in the Social and Economic Infrastructure, Commercial and Residential Development and Security, Justice and Defence sectors.

Its international portfolio of work continues to grow supporting HMG interests through our Principal Support Provider Overseas contract. This includes a garrison development for the British Army in Kenya and training facilities in Belize. We are supporting hurricane disaster recovery programmes for the FCO replacing Education, Healthcare and Transport Infrastructure for the Government of Anguilla. We have also won another portfolio of projects with the FCO Embassy programme in locations such as; Ottawa, Lagos, Tehran and Maputo.

In the UK, we retained our place on the Homes England framework, and we are working with the residential development and regeneration specialist, Sigma Capital Group, on housing programmes across the North West, Midlands and South East of England. We are also supporting a range of residential developers such as Bovis, Crest Nicholson, Taylor Wimpey, Grainger and Persimmon Homes with value engineering Project and Cost Management advice.

With significant revenue vested with the MoD we delivered a range of high profile projects under the Lossiemouth Development Programme, for US Visiting Forces, the Army Basing Programme, Defence Estates Optimisation, Submarine Programme and other high security projects. We also continue to diversify our Defence client base with appointments for QinetiQ, BAE and an infrastructure support programme to the Multinational Force and Observers in the Sinai Peninsula, Egypt. Our strong reputation with HMG customers led to appointments for new clients' estate programmes with HMRC, Police Constabularies, Nuclear Decommissioning Authority and security upgrades to the Parliamentary Estate.

During the year we were a Gold Award Winner for our Armed Forces Covenant and MoD Employer Recognition Scheme. We also achieved accreditation to the collaborative working standard ISO 44001 for our enterprise with DIO on the Salisbury Plain Training Area - Service Family Accommodation programme. We are the first Principal Support Provider to achieve this status with DIO.

Our Surveying & Asset Management business continues to develop efficiencies through digitising some of its core service offering, generating efficiencies and competitive advantage in our service delivery. In this business we work throughout the asset cycle, combining our services to provide our clients with compliance, assurance, data collection and best practice asset management consultancy through a diverse range of services. Whilst a significant proportion of our work is within the UK, the team also operates on several of our clients' global asset portfolios. Most services flow through repeat work on longstanding framework relationships with FCO Services, Ministry of Justice, DIO, Sellafield Ltd, Network Rail, Royal Mail Group, Surrey County Council and many other local authorities. Significant new commissions secured this year include projects with Crossrail, HMRC and Homes England.

Our Environment business has made progress diversifying its service offering and we have seen a steady growth of expert witness appointments for planning and public inquiries. In this regard we recently supported Uttlesford District Council in their approval of the extension of Stansted Airport. More widely, the majority of our revenues come from residential and mixed-use development, land quality and regeneration, infrastructure and increasingly extractive industries, including through key frameworks with National Grid, Homes England and DIO.

We have more than 265 staff across our Planning, Transport & Design Business and as such, are the UK's third largest planning consultancy. The UK Government's continuing focus on residential construction means that this is the main part of our work, albeit our portfolio is still diverse and wide ranging across all private and public sectors. 

Residential markets continue to be the mainstay of our work as UK policy seeks to meet public demand for new and improved housing on both greenfield and brownfield sites. We have been successful in growing our Public Sector and Third Sector opportunities through national and regional frameworks which also draw together the wider capabilities from WYG within strongly co-ordinated and customer focussed project teams. Internationally we continue to provide Intelligent Transport Systems advice in Kenya and have expanded this to support partner organisations delivering transport commissions in Ethiopia and Uganda.

Both our Planning and Transport Planning businesses have had a challenging year, not only due to economic conditions but also recruiting campaigns by competitors which targeted our highly qualified and experienced staff.

International Development (IDB) (24.9% of Group Revenue)

WYG's International Development business generated revenue of £39.1m (2018: £35.1m) with an operating profit before separately disclosed items and central overheads of £1.1m (2018: £2.0m).

We generate our revenue from socio-economic, technical and infrastructure programmes, organised on a sectoral basis. The main sectors were:

· Public Financial Management (PFM) & Governance

· Monitoring, Evaluation & Learning (MEL)

· Human Resources and Social Development

· Climate Change & Adaption

· Infrastructure & Advisory Services

Our focus over 2018/9 was on ensuring the sustainability of the business. To deliver this we conducted a restructuring of the International Development business whilst maintaining operational standards and securing three significant new programmes through targeted business development.

The result is a business with reduced overheads and a stronger project pipeline which is now positioned for operating profit growth.

As part of our plans to mitigate any potential adverse effects from Brexit and ensure that our capability in European markets is protected, we operationalised our new legal entity in the Netherlands, WYG International B.V. The business's senior leadership is now based in the Netherlands and the B.V. entity has begun to win and contract new business for EU-based clients.

Over the course of 2018/19 we were very active in securing new business, including three significant contract awards from European clients and contracted through WYG International B.V.

· Economic Resilience Initiative - Infrastructure Technical Assistance (ERI-ITA): WYG is the Consortium Lead for this €23m four-year contract with the European Investment Bank (EIB) to implement a flagship multi-region programme of infrastructure Technical Assistance (TA) to thirteen countries across the Maghreb, Mashrek, and Western Balkans regions. This is a significant win for WYG, consolidating our position in the Western Balkans, and allowing expansion of our services into new markets in the Maghreb and Mashrek, as we interface with communities of public and private stakeholders across both regions. The initial €23m contract is subject to a 100% extension up to €46m, contingent on satisfactory performance and demand for complementary and/or additional services.

· Western Balkan Infrastructure Framework Infrastructure Projects Facility (WBIF IPF) 8: WYG is part of a consortium that secured the eighth phase of the WBIF-IPF, a €23m four-year contract with the EIB on behalf of the Western Balkans Investment Framework (WBIF) and financed from the General Budget of the European Union under the instrument for Pre-Accession Assistance (IPA) II.

Having either led or co-delivered IPFs 1, 2, 3, 4, and 5, this reaffirmation of EIB's confidence in our ability to deliver infrastructure TA through the eighth phase of WBIF IPF reflects our achievements in phases 1-5 in which €13.8bn of infrastructure investments were supported by our TA.

· In addition to these projects, WYG expanded its Public Financial Management (PFM) offering to a new geography, securing a two-year €2.3m EU-funded contract to provide Technical Assistance to the Government of Antigua and Barbuda (GoAB). We will support a programme of PFM and Revenue Reform which will serve a critical role as part of GoAB's commitment to place public finances on a sustainable footing and establish a basis for economic growth.

These new wins more than offset the impact of the expiry of the IPF 3 and IPF 4 programmes in June and December 2018 respectively.

In Turkey, having borne the costs of an intense period of bidding activity on top of reduced levels of fee-earning work for much of the period we finally started to see a return on our efforts with a series of significant (ie fee value greater than €1m) project wins coming through starting in December 2018. To date these total over €10m of new work.

We believe that the International Development business is well positioned to deliver growth in the year ahead despite a challenging and uncertain marketplace. This growth will be driven by the impact of cost savings already made, revenue streams from our new programme wins and through-put from a strong business development pipeline.

We will also continue to focus on diversifying our client base with a concentration on the DfID and other HMG markets as well as maintaining our traditionally strong relationships with EuropeAid, the European Investment Bank, and the World Bank.

While we note that DfID procurement in particular has been adversely affected by the impact of Brexit preparations in Whitehall, we are confident that despite the likelihood of continued disruption and delays, the reforms made in the last year place us on a robust footing to deliver our projected financial targets.

Financial Review

Including our share of Joint Venture revenues, revenue for the full year increased by 1.7% to £157.0m (2018: £154.4m). Revenue in the second half was £81.7m (H1 2019: £75.3m). A slight reduction in Consultancy Services revenue from £62.3m to £60.1m in the second half, largely the result of weaker than expected performance across our UK businesses, was offset by the 11.5% increase in revenue in the International Development business to £39.1m.

On a statutory basis, the Group made a loss before tax of £4.6m (2018: £5.3m) on pre-Joint-Venture revenues of £157.0m (2018: £154.4m).

Adjusted1 operating profit was £1.8m (2018: £3.5m) representing a reduction in adjusted operating margin to 1.1% (2018: 2.3%). This was caused by the cost of maintaining increased capacity in certain parts of the business in anticipation of work that did not materialize, the continuing impact of the departure of certain staff from our Planning and Transport Planning businesses leading to lower efficiency. Adjusted profit before tax was £1.0m (2018: £2.9m) reflecting the lower level of operating profit and higher interest charges.

Separately disclosed costs for the year (including share-based payments and amortisation of acquired intangible assets) were £5.6m (2018: £8.3m). This included: costs incurred for the restructuring plan of £4.0m, share option costs of £0.4m, the amortisation of acquired intangible assets of £0.5m and other charges of £0.7m.

Fully diluted earnings per share adjusted to exclude separately disclosed items were 0.8p (2018: 4.4p). On a statutory basis, the loss per share was 6.7p (2018: 6.9p).

The primary component of finance costs is the charges relating to our bond and banking facilities. Finance costs increased to £0.8m (2018: £0.6m) reflecting the increased use of our facility with HSBC and the utilisation of advance payment bonds to mobilise large programmes of international development work.

The Group still has significant losses brought forward in the UK meaning that it will pay a reduced rate of UK tax for the foreseeable future. The Corporation Tax charge for the year was £0.3m (2018: credit of £0.3m) We also generate profit in many of our overseas activities, upon which we pay local corporation tax.

Profit after tax benefitted by £1.15m from recognition of R&D expenditure credits.

The Group closed the year with net debt of £9.3m (30 September 2018: £13.2m; 31 March 2018: £6.3m). Our cash outlays have included the planned application of £1.2m towards legacy issues (including ongoing commitments on unoccupied offices), acquisition costs of £0.2m, dividend payments of £1.3m and c. £2.0m cash costs of restructuring within the Group.

Cash generation and the effective management of working capital are fundamental to the business and cash conversion is a key performance target for the senior management team. Our working capital KPI, on an 'after payments received on account' basis, improved to 63 days (2018: 74 days) against our KPI target of 76 days.

As at 31 March 2019, the Group's order book was level at £166.7m (31 March 2018: £166.4m). This pipeline of work, a substantial proportion of which is to be undertaken in the first half of FY20, gives a sound basis for current year expectations.

1 See Note 3.

People

As at 31 March 2019, we employed 1,580 employees (2018: 1,641).

Going concern (See also Note 2 to the Unaudited Preliminary Results)

The Directors have prepared cashflow forecasts for a period of 21 months from the date of this preliminary announcement which show that the Group will have sufficient funds to continue and therefore that the going concern basis of preparation is appropriate. However, a key assumption within these forecasts is the completion of the Acquisition by, and the availability of funding from, Tetra Tech.

The Directors are confident that the Acquisition will be completed, however, should it fail to be approved by Shareholders at the Court Meeting or not proceed for any other reason the Company would be obliged to implement a recovery plan, of which the key elements would be:

· the potential divestment of smaller non-core business units;

· a strategic review of the WYG Group's core operations, including a reassessment of WYG's business priorities

· a material secondary equity raising to strengthen the WYG Group's balance sheet, thereby creating the necessary financial flexibility to allow the directors to implement the recovery plan from a position of relative financial and negotiating strength. This process was close to being launched when discussions initially commenced with Tetra Tech; and

· the agreement of revised covenants with the Company's lenders.

These material uncertainties, being the successful achievement of the Acquisition or if the Acquisition is not completed then successful completion of the recovery plan, may cast doubt on the Group's ability to continue as a going concern and, therefore that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Nevertheless, after making enquiries, including enquiries with shareholders, and considering the material uncertainties described above, the Directors have concluded that the going concern basis is appropriate. If adoption of the going concern basis was inappropriate, adjustments, which it is not practicable to quantify, would be required, including those to write down the assets to their recoverable value and to provide for any further liabilities that may arise. 

Other Risks and uncertainties

In addition to the risks described under Going Concern above, as an organisation that contracts directly with the EU, we remain mindful of the challenges presented by Brexit and the ongoing uncertainty surrounding its eventual implementation.

In December 2017, we took steps to mitigate the risk of Brexit by creating a new intermediate holding and management company in the Netherlands to ensure we remain eligible under the relevant EU regulations to bid for, secure and deliver work funded from the EU Budget or EU Development Funds. This company now has a local presence and management and has continued to win work with major international finance institutions and our other clients at levels consistent with historic bid-win rates.

In addition, there are other geo-political uncertainties that could affect WYG's performance and, as we have seen in each of the preceding three years, programme deferrals on existing contracts and delays in the confirmation of new contracts present an ongoing risk to WYG's expectations of its performance.

Conclusion

Although this has been another challenging year for WYG, we have taken decisive steps to implement our strategy of delivering a simpler, more robust platform and driving efficiencies which are beginning to take effect. We have won, or renewed our place, on many key frameworks and secured a number of major new projects which will underpin a significant proportion of our projected earnings for FY20 in both our primary business streams.

Going forward, whether we become part of the Tetra Tech Group, providing the benefits of scale and access to expertise across highly complementary geographies and client relationships, or with a strengthened balance sheet through the implementation of a fundraising and our recovery plan, we believe WYG is well placed for a return to growth.

Douglas McCormick

Chief Executive Officer

11 June 2019

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2019

Operating loss for the year includes net costs of £5.6m (2018: £8.3m) that are separately disclosed in Note 3.

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2019

\* These items might be reclassified subsequently to the income statement.

UNAUDITED BALANCE SHEET

As at 31 March 2019

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 March 2019

UNAUDITED CASH FLOW STATEMENTS

For the year ended 31 March 2019

NOTES TO THE UNAUDITED PRELIMINARY RESULTS

1. GENERAL INFORMATION

WYG plc is incorporated and domiciled in England. The address of its registered office is Arndale Court, Otley Road, Headingley, Leeds, LS6 2UJ. The company's shares are traded on AIM, a market operated by the London Stock Exchange plc.

The principal activity of the Group during the period ended 31 March 2019 was that of programme, project management and technical consultancy. The Group's revenue derives from activities in the UK and the Group's International division.

2. BASIS OF PREPARATION

These Preliminary Results have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS") and the IFRS Interpretation Committee (IFRIC) interpretations as endorsed by the European Union and therefore is not in full compliance with IFRS. The financial information set out in these Preliminary Results does not constitute the Company's statutory accounts for the year ended 31 March 2019 or the year ended 31 March 2018 within the meaning of the Companies Act 2006. These preliminary results have been prepared in accordance with the accounting policies set out in the Annual Report and Financial Statements of WYG plc for the year ended 31 March 2018 (except as noted below) which will be consistent with those in the Annual Report and Financial Statements of WYG plc for the year ended 31 March 2019 when finalised.

Group statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies, and those for the year ended 31 March 2019 will be delivered following the Company's Annual General Meeting. The audit of the 2019 statutory accounts is not yet complete. Deloitte LLP have reported on the 2018 accounts. Their report was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006.

Accounting standards and policies

The Group has applied the following revised standards from 1 April 2018:

IFRS 9 Financial instruments.IFRS 9 Financial instruments has been adopted. There was no quantitative impact on the Group upon adoption.

IFRS15 - Revenue from contracts with customers. 

IFRS 15 Revenue from contracts with customers has been adopted. No material changes were identified in the way that revenue on contracts with customers was recognised. Historically, certain pre-contract costs on bids in relation to international projects were capitalised once it was probable that the contract was secured. These costs were then amortised over the life of the contract. At 31 March 2018 this amount totalled £0.8m. IFRS15 allows for the capitalisation of these costs only if they are incremental and are expected to be recovered. The costs previously capitalised do not meet these requirements and hence an adjustment has been made to derecognise these assets from the balance sheet.

IFRS15 has been adopted through the 'modified retrospective adoption' approach and as such a cumulative catch up adjustment of £0.8m has been booked to equity at 1 April 2018 without altering comparatives.

Except for the above, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2018, as described in those annual financial statements.

Going concern

The Preliminary results have been prepared on the going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future.

On 20 May 2019 the boards of Tetra Tech UK Holdings Limited ("Tetra Tech") and WYG plc announced that they had reached agreement on the terms of a recommended all cash offer to be made by Tetra Tech (a wholly-owned subsidiary of Tetra Tech, Inc.) for the entire issued and to be issued ordinary share capital of WYG plc ("Acquisition").

2. BASIS OF PREPARATION CONTINUED

The Acquisition is currently expected to become Effective in July 2019, subject to the satisfaction of certain conditions and further terms set out in Appendix I of the Recommended Cash Offer from Tetra Tech.

It is intended that the Acquisition be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (or, if Tetra Tech so elects and with the consent of the Takeover Panel, a Takeover Offer). The purpose of the Scheme is to provide for Tetra Tech to become the owner of the entire issued and to be issued ordinary share capital of WYG. The Scheme will require, among other things, the approval of Scheme Shareholders and the sanction of the Court. In order to become effective, the Scheme must be approved by a majority in number of the WYG Shareholders voting at the Court Meeting, either in person or by proxy, representing at least 75 per cent. in value of the Scheme Shares voted.

The Directors have prepared cashflow forecasts for a period of 21 months from the date of this preliminary announcement which show that the Group will have sufficient funds to continue and therefore that the going concern basis of preparation is appropriate. However, a key assumption within these forecasts is the completion of the Acquisition and the availability of financial funding from Tetra Tech.

The Directors are confident that the Acquisition will be completed, however, should it fail to be approved by Shareholders at the Court Meeting or not proceed for any other reason the Company would be obliged to implement a recovery plan, of which the key elements would be:

· the potential divestment of smaller non-core business units;

· a strategic review of the WYG Group's core operations, including a reassessment of WYG's business priorities

· a material secondary equity raising to strengthen the WYG Group's balance sheet, thereby creating the necessary financial flexibility to allow the directors to implement the recovery plan from a position of relative financial and negotiating strength. This process was close to being launched when discussions initially commenced with Tetra Tech; and

· the agreement of revised covenants with the Company's lenders.

These material uncertainties, being the successful achievement of the Acquisition or if the Acquisition is not completed then successful completion of the recovery plan, may cast doubt on the entity's ability to continue as a going concern and, therefore that it may be unable to realize its assets and discharge its liabilities in the normal course of business.

Nevertheless, after making enquiries, including enquiries with shareholders, and considering the material uncertainties described above, the directors have concluded that the going concern basis is appropriate. If adoption of the going concern basis was inappropriate, adjustments, which it is not practicable to quantify, would be required, including those to write down the assets to their recoverable value and to provide for any further liabilities that may arise.

3. DETAILED CONSOLIDATED INCOME STATEMENT

Details of separately disclosed items

The Group has incurred a number of material items in the year, whose significance is sufficient to warrant separate disclosure. The key elements included within separately disclosed items are:

· Annual (charge)/credit in relation to share option costs

· Annual charge for the amortisation of acquired intangibles

· Impairment of acquired intangibles in the prior year related to the closure of North Associates

· Items included in other charges in the year are costs incurred for the restructuring (£4.0m), closure costs of North Associates (£0.2m), tax impact of the JV (£0.2m) and regulatory and legal fees (£0.3m)

· The other charges in the prior year relate to legacy claims relating to non-continuing businesses (£2.5m), closure costs of North Associates (£0.8m), bank refinancing fees (£0.2m) and costs incurred for the strategic growth plan net of credits in relation to deferred acquisition balances (£1.5m).

The Directors believe that the operating profit before separately disclosed items gives a better view of underlying trading for the Group and enables the user of the accounts to more accurately understand the Group's performance. Although the share option costs and amortisation of intangible assets are charges which occur annually, the Directors excluded those charges from operating profit before separately disclosed items because their value is significant and they are not related to the underlying performance of the business. The other charges in the year are expected to be one off in nature. Consequently, the Directors believe it is appropriate to exclude them from operating profit before separately disclosed items.

4. SEGMENTAL INFORMATION

Business segments

IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker. The Group's chief operating decision maker is deemed to be the executive management team comprising the Chief Executive Officer and the Chief Financial Officer. Its primary responsibility is to manage the Group's day to day operations and analyse trading performance.

The business is organised to focus on the strengths of our consultancy services and international development business. The Group's segments are detailed below and are those segments reported in the Group's management accounts used by the executive management team as the primary means for analysing trading performance. The Executive management team assesses profit performance using operating profit measured on a basis consistent with the disclosure in the Group accounts.

The Group's operations are now managed and reported by key technical segments as follows:

· Consultancy Services (includes UK and CEE; 96% of revenues relate to the UK)

· International Development

The segment results for the year ended 31 March 2019 are as follows:

4. SEGMENTAL INFORMATION CONTINUED

5. (LOSS)/EARNINGS PER SHARE

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

The adjusted earnings per share is calculated after excluding separately disclosed items. In the opinion of the Directors, this more accurately reflects the underlying performance of the Group.

The number of shares used for the calculation of diluted adjusted earnings per share has been increased by 1,069,264 (2018: 1,049,173) to reflect the impact of dilutive share options.

Share options that could potentially dilute basic earnings per share in the future were not included in the calculation of diluted earnings per share because they are anti-dilutive.

6. DIVIDENDS

The interim dividend of 0.6p per share for the period ended 31 March 2018 was paid in April 2018. The final dividend of 1.2p per share for the year ended 31 March 2018 (2017: 1.2p per share) was paid in September 2018. On 18 March 2019 the directors announced the cancellation of the interim dividend which was approved on 4 December 2018 (2018: 0.6p). The amount recognised during the year was £872,000 (2018: £1,285,000). The Directors have not proposed a final dividend for the year ended 31 March 2019.

7. CASH GENERATED FROM OPERATIONS

8. ANALYSIS OF CHANGES IN NET DEBT

Restricted cash relates to restricted access accounts in WYG International BV. Other non-cash movements represent currency exchange differences.

9. POST BALANCE SHEET EVENT

On 20 May 2019 the boards of Tetra Tech UK Holdings Limited ("Tetra Tech") and WYG plc announced that they had reached agreement on the terms of a recommended all cash offer to be made by Tetra Tech (a wholly-owned subsidiary of Tetra Tech, Inc.) for the entire issued and to be issued ordinary share capital of WYG plc.

ENDS