13th Nov 2014 14:37
LONDON (Alliance News) - WS Atkins PLC Thursday posted a big drop in first-half pretax profit on a fall in revenue as the group was hit by the strength of sterling, though it maintained its outlook for the full year.
The FTSE 250-listed design, engineering and project management consultancy said pretax profit in the six months to September 30 was GBP39 million, down 29% against the GBP54.8 million posted a year earlier. Revenue fell 9.2% to GBP831.4 million from GBP915.4 million last year.
Atkins said the fall in revenue was driven by the sale of its UK highways services business, which contributed GBP73.7 million the year before, and by a GBP33.6 million hit from the strength of sterling.
Despite the profit and revenue fall, Atkins said its performance in the first half was good and reiterated its guidance for the full year. The company also hiked its interim dividend by 4.8% to 11 pence per share from 10.5 pence for the first half of 2013.
The UK and Europe business proved mixed, with revenue from continuing businesses falling 5% as its aerospace arm was hit by a downturn in market conditions and its Scandinavian and Portuguese units also hit a weaker trading environment. The profitability of the regional operation was also knocked back by a number of outstanding contract variation negotiations in its UK rail business.
UK revenue fell 18.4% to GBP398.5 million, from GBP488.4 million a year earlier, while its European revenue was down to GBP29.8 million from GBP37 million last year, a 19.5% fall.
In North America, the company saw its margins improve following a reorganisation of the business into five units, but revenue still fell 17% to GBP170.5 million from GBP205.4 million the year before.
But the group reported a couple of revenue bright spots in its Middle East and Asia Pacific units, with Middle East revenue increasing to GBP96 million from GBP82.6 million, up 16.2%, and Asia Pacific revenue up to GBP53.4 million from GBP49.2 million, a 8.5% rise, though its overall performance and outlook in the latter looks cautious.
In the Middle East, Atkins said it has benefited from a focus on major projects and programmes in rail, infrastructure and property in the UAE, Qatar and Saudi Arabia.
In Asia Pacific, despite the revenue rise, the company did note its operating margin fell in the first half to 6.6% from 6.9%, hit by a push to diversify its operations in the region and a slowdown in mainland China. The group did warn that though it does not expect any short-term impact from the pro-democracy protests in Hong Kong, it could be impacted by a hiatus in government contracts moving into the new financial year.
The group's energy business posted a 2.5% decline in revenue to GBP81.3 million from GBP83.4 million, due to sterling strength and a higher level of pass through costs. But margins in the unit improved on lower costs.
Uwe Krueger, chief executive, said the company's first half results were "good", despite the impact of the strength of sterling on its reported results. The Middle East and Energy arms of the company performed well, and he noted its underlying operating margin rose to 6.4%, up 90 basis points year-on-year.
The company said it has entered the second half with a robust order book, meaning it has reiterated its guidance for the year.
Liberum maintained its estimates for the company, adding it considers its estimates to be conservative given the strong first half and the easing of sterling's impact.
Liberum says Atkins' underlying pretax profit was ahead of its estimates, with earnings per share also coming in ahead. The group's dividend was slightly lower than Liberum's estimate of 11.2 pence, however.
The broker says any material easing in sterling's strength against the dollar could help Atkins and says that should the US dollar-sterling rate remain flat, the company will take a GBP1.0 million to GBP1.5 million hit, which is included in guidance.
Liberum says that if its estimates are proved right and organic growth reappears for Atkins after five years, the share price should anticipate this.
Atkins shares were down 0.4% to 1,354 pence on Thursday.
By Sam Unsted; [email protected]; @SamUAtAlliance
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