Correction - Interim Results

2 December 2014

Sweett Group plc

("Sweett Group" or the "Group")

Correction - Interim results for the six months ended 30 September 2014

The second paragraph of note 13 "Contingent liabilities" in Sweett Group plc's Interim Results announcement released at 7.46am on 2 December 2014 was incorrect and has been removed. The correction is included in the full text of the announcement below.

Sweett Group plc

("Sweett Group" or the "Group")

Interim results for the six months ended 30 September 2014

Sweett Group plc (AIM CSG.L), the international construction and property consultancy, announces its unaudited interim results for the six months ended 30 September 2014.

Financial highlights

^ Net debt has been reclassified to exclude amounts held in bank accounts in the name of Group companies, but held for the benefit of clients from cash and cash equivalents.

* Beforeamortisation of acquired intangibles of £0.2m (H1 2014: £0.2m and FY 2014: £0.5m), Performance Share Plan (PSP) chargesof £nil (H1 2014: £nil and FY 2014: £0.6m) and exceptional administrative expenses of £0.8m (H1 2014: £0.5m and FY 2014: £1.5m).

Core trading profit excludes the profit on investment activities of £nil (H1 2014: £1.2m and FY 2014: £1.2m) and the profit arising on the change in fair value of the derivative financial instrument of £nil (H1 2014: £1.0m and FY 2014: £1.0m).

Adjusted operating profit and profit before tax include the profit on investment activities. 

Adjusted profit before tax also includes the profit arising on the change in fair value of the derivative financial instrument.

**Lockup is measured as the aggregate days' activity represented by debtors and work in progress.

Operational highlights

· John Dodds appointed interim Executive Chairman - operational review conducted

· Group's order book currently stands at £111m (November 2013: £101m), being driven by the improvement in Europe over the last 12 months

· Continued recovery of traditional UK market

· Diversification into new sectors across the Group, in particular in infrastructure

· Increased turnover from global corporate clients

· The SFO investigation into the Wall Street Journal allegations is on-going. The independent investigation commissioned by the Board is nearing completion

John Dodds, Chairman, said:

"As we announced on 6 November 2014, trading in the first half of the financial year has reflected good progress in our UK market which accounts for over half of the Group's turnover and mixed trading in our overseas businesses. In addition, a business operations review has taken place following my appointment as Chairman and a strategic review is due to commence shortly. Regardless of the outcome of the strategic review, the focus for the Group going forward will be on profitability, cash generation and margins."

Enquiries

HALF YEAR MANAGEMENT REPORT

Review of Operations

Financial Overview

In the six months ended 30 September 2014, on an underlying basis, revenue and adjusted profit were both broadly flat compared to the same period last year. Reported revenue fell by 4.3% in the first half of the year and adjusted profit was down by £2.1m compared to the corresponding period last year. Both these movements were affected by one off gains in H1 2014, being the financial close of Leeds Social Housing (revenue of £1.7m and profit of £1.1m) and the profit on the change in fair value of a derivative financial instrument (£1.0m). On a regional basis, there was significant variation with underlying performance in Europe improving, APAC down in revenue terms, but in line with profit in the same period last year and MEAI where revenues decreased by 25% compared to H1 2014 and reported a loss of £0.7m in the period.

Net debt was £10.1m at 30 September 2014 and this compares with a reclassified £8.1m at 31 March 2014 and £9.4m at the equivalent date last year. The reason for the reclassification of net debt is that we have reclassified funds held on behalf of clients and no longer report these funds within cash and cash equivalents.

The Group's order book currently stands at £111m (November 2013: £101m). The table below demonstrates the significant improvement that has been made across our European business:-

Note: Order book figures above exclude non-contracted work under framework appointments.

Strategy

Over the past seven years, the Group's strategy has been focused on organic and acquisitive growth to form a global network. The future strategy for Sweett Group is under review but currently the focus is on profitability, cash and working capital discipline and margins, whilst leveraging our excellent people and brand. By way of example, for the first time, the Group is now setting cash based targets at project level. The global network remains important in the context of meeting the demands of the Group's global corporate clients, but not at the expense of the above priorities. An area of improvement going forward will be the management of overseas risk. A full update on the Group's strategy will be provided at the time of the full year results.

Europe

In the six months ended 30 September 2014, revenue from Europe, which comprises our operations in the UK, Ireland and Spain, was £24.5m (H1 2014: £24.6m), accounting for 58% of the Group total. Segment profit before exceptional administrative expenses and amortisation of acquired intangibles was £2.8m (H1 2014: £3.4m). However, as referred to above, H1 2014 included the revenue and profit from the Leeds Social Housing financial close amounting to £1.7m and £1.1m respectively, therefore on a comparable basis Europe showed revenue growth of 7%. The order book currently stands at £52m.

We have a diverse and strong business in the UK, operating from multiple offices in multiple sectors, a far cry from the shape of the business a decade ago. The recovery in the UK market has continued during the first half with strong growth being seen across a number of sectors with significant appointments for Jaguar Land Rover, the BBC and schemes at both Manchester and Liverpool universities. In addition we have secured a series of infrastructure appointments with HS2 and Battersea Power Station. Encouragingly, the UK regions are performing strongly with the Scottish region having numerous successes with Hub North Scotland. The North of England and Midlands regions are also showing good growth.

The strongest performing sectors in the UK include infrastructure, retail and education. We have expanded further into the infrastructure sector, which involves working in the roads, rail and water industries, growing our market share, through our appointments on the TfL, Network Rail and United Utilities frameworks. Retail remains an attractive sector with solid growth from the increasing focus on retail mixed-use, retail parks and retailers following successes with Hammerson, Westfield and Selfridges. There has been considerable activity in the education sector working for a number of schools and universities. Healthcare remains a large sector for Sweett Group and our relationships with the NHS Trusts remain strong. Our services are increasingly being required in the office sector, driven by amongst other things, forthcoming requirements to achieve minimum standards for Energy Performance Certificates in new builds and multiple refurbishments.

The business in Spain is performing strongly with work being carried out for Primark, Hilton and Starwood Capital in mainland Europe. We continue to make headway in Ireland as the economy shows encouraging signs of recovery.

Middle East, Africa and India

In the six months ended 30 September 2014, revenue was £4.2m (H1 2014: £5.5m), accounting for 10% of the Group total. Segment loss before exceptional administrative expenses and amortisation of acquired intangibles was £0.7m (H1 2014: profit of £0.2m) and the order book is £8m.

Sweett Group is optimising the size of its business in the Middle East, a market which continues to be challenging for the Group. We remain committed to the strategy of reducing and restricting our exposure to the region to 10% of Group turnover. We are focusing our operational capability within the UAE, while still being able to support clients who wish us to deliver in other Gulf Cooperation Council (GCC) countries. We look to contract for our work within the UAE and manage the work centrally. This improves the quality of our work and contributes to the overall de-risking that we continue to seek.

In following this strategy we continue to build our business with high quality clients and have been successful in doing so with developers such as Emaar, Meeras, Nakheel and Mubadala; with business such as Etihad Airways, Jumeirah Group and Al Futtaim Group, together with our continued strong relationship with Dubai Airport Authority for whom we are starting to work on the new airport at Jebel Ali. The UAE is picking up momentum which will provide us with the opportunity to grow this core of high quality work.

Asia Pacific

In the six months ended 30 September 2014, revenue from Asia Pacific was £13.8m (H1 2014: £14.3m), accounting for 32% of the Group total. Revenue in China and Hong Kong totalled £9.8m in the period under review. Segment profit before exceptional administrative expenses and amortisation of acquired intangibles was £0.6m (H1 2014: £0.7m) and the order book is £51m.

In APAC, the Group has seen a mixed performance in the first half with continued growth in China overshadowed by weaker performances in Hong Kong and Australia. The Board continues to monitor closely the Australian business where, without a significant improvement in trading over the second half of the year, it is likely that an impairment will have to be made in the Group's results for the year ending 31 March 2015 against the carrying value of approximately £3.0 million of goodwill.

The APAC business continues to grow its portfolio of infrastructure, hospitality, commercial, health care and hi-tech work, with these sectors taking up the slack in Asian locations where a continued slowdown in mass-market residential work has otherwise dampened growth. In particular, the first half saw key hospitality sector appointments for Marina Bay Sands in Singapore, LeMeridien Hotels in China, and two new casino/hotel complexes in Macau. Commercial appointments in the period have included work in Shanghai for Alibaba, and for Hang Lung on the iconic Shanghai Plaza 66 building, while, elsewhere in China, office and commercial appointments were secured from Ping An Insurance, China Resources, Sino Land and Ascendas. We anticipate continued steady growth in China across all sectors except residential, and an increased volume of Chinese outward investment business where our established China network and global coverage positions us well to provide an added value service.

North America

The JV partnership in the US remains solid and we continue to make progress with a number of cross referrals happening from both sides of the JV. It is now profitable and has low working capital requirements.

Results

Excluding the revenue from the Leeds Social Housing financial close in the corresponding period last year, revenue was down by only 0.5% in the first half of the year compared with the prior year at £42.5m (H1 2014:£42.7m). On a reported basis, Group revenue for the period decreased by 4.3% to £42.5m (H1 2014: £44.4m).

Adjusted profit before tax fell to £1.4m (H1 2014: £3.5m), however on a core trading basis, (i.e. excluding both the profit on the financial close of the Leeds Social Housing project and the profit on the change in fair value of the derivative financial instrument), the profit of £1.4m was at the same level as the corresponding period last year. Pre-tax profit was £0.3m (H1 2014: £2.8m) after exceptional administrative expenses, amortisation of acquired intangibles and net finance income / costs.

Adjusted earnings per share were 1.1p (H1 2014: 4.0p) and adjusted diluted earnings per share were 1.1p (H1 2014: 3.9p). Basic earnings per share and diluted earnings per share were 0.2p (H1 2014: 3.4p).

In presenting the Group's adjusted profit below, amortisation of acquired intangible assets, performance share plan (PSP) costs and exceptional administrative expenses have been excluded so as to assist understanding of the underlying performance of the Group as well as removing both the change in fair value of the derivative and the net fee income from the financial close of Leeds Social Housing, to arrive at a core trading figure:

Exceptional administrative expenses of £0.8m (H1 2014: £0.5m and FY 2014: £1.5m) comprised £0.7m of investigation costs relating to the allegations made in the Wall Street Journal in 2013 and £0.1m of restructuring costs.

Finance income for H1 2014 and FY 2014 includes £1.0m resulting from the unwinding of the derivative financial instrument.

Exchange rate movements in the Group's major trading currencies had a minimal impact on both revenue and results.

Consolidated Statement of Cash Flows

Net debt at the end of the period was £10.1m compared with a reclassified £8.1m at 31 March 2014 and £9.4m at 30 September 2013. Key drivers to the increasing debt level within the period include the continued growth in China, the exceptional administrative costs and the decrease in payables.

Dividend

As part of the continued focus on reducing the Group's net debt, the Board have decided not to declare an interim dividend (2014 H1: 0.5 pence per share), and the final dividend will be reviewed at the time of the full year results.

Risk and compliance

As announced on 6 November 2014, the independent investigation commissioned by the Board into the allegations made in the Wall Street Journal in 2013 is nearing completion. That independent investigation is separate from the investigation launched by the SFO on 14 July 2014, which is continuing. A considerable amount of time and resource have gone into both the investigation and improving the Group's risk and compliance procedures, with a particular focus on managing overseas risk. During the period we appointed a new Group Risk and Compliance Director.

People

John Dodds joined the Board in July 2014 and was appointed as non-executive Chairman at the AGM in August, replacing Mike Henderson who retired. At the same time, Alan Lovell, who also joined the Board in July 2014, became Senior Independent Director and replaced Nicholas Woollacott who also retired. In early October, Dean Webster, Chief Executive Officer, retired and the Nominations Committee is undergoing a process to appoint a new Chief Executive Officer. In the interim, John Dodds has assumed the role of Executive Chairman.

Outlook

The recovery in the UK market has continued with the fundamental drivers of that market strengthening. The UK business has had a good first half and the outlook for that business remains positive. The market in China continues to grow quickly and we will be managing the growth in our business in order to improve its cash performance. The Australian business is under-performing in a market which is static. In the Middle East, trading remains challenging and we will continue to limit our exposure to that business. We are committed to building on the positive momentum in the UK, using our excellent staff to take advantage of a number of opportunities available, whilst focusing on profitability, cash generation and margins.

Forward-looking statements

Certain statements in this announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risk and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Sweett Group plc

Consolidated Income Statement (unaudited)

for the six months ended 30 September 2014

Sweett Group plc

Consolidated Statement of Comprehensive Income (unaudited)

for the six months ended 30 September 2014

Sweett Group plc

Consolidated balance sheet (unaudited)

^ Cash and cash equivalents have been reclassified to exclude amounts held in bank accounts in the name of Group companies, but held for the benefit of clients - note 7(b).

Sweett Group plc

Consolidated Statement of Changes in Equity (unaudited)

Sweett Group plc

Consolidated Statement of Changes in Equity (unaudited)

Sweett Group plc

Consolidated Statement of Cash Flows (unaudited)

Sweett Group plc

Notes to the Financial Information

1. Basis of preparation

General information

Sweett Group plc (the "Company") is a company incorporated and domiciled in the United Kingdom. The address of the registered office is 60 Gray's Inn Road, London, WC1X 8AQ. The principal activities of the Group include the provision of construction cost consultancy, project management and other specialised consultancy services, including building surveying.

This financial information is presented in pounds sterling, the currency of the primary economic environment in which the Group operates. The Group comprises the Company and entities controlled by the Company (its subsidiaries).

Basis of preparation

The condensed consolidated financial information presented is for the six month periods to 30 September 2014 and 2013 and the full year to 31 March 2014.

The most recent statutory accounts of the Group, prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, are for the year ended 31 March 2014, which have been delivered to the Registrar of Companies. The audit opinion on the statutory accounts for the year ended 31 March 2014 was unqualified and unmodified.

This condensed interim consolidated financial information has been prepared in accordance with the requirements of the AIM Rules and in accordance with IFRSs as adopted by the European Union and is presented on a basis consistent with the accounting policies adopted in the consolidated financial information of Sweett Group plc for the year ended 31 March 2013. It does not constitute accounts as defined by section 434 of the Companies Act 2006. This condensed interim consolidated financial information has not been reviewed or audited by the Group's auditors.

Estimates and judgements

The preparation of accounts in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience and various other assumptions that management and directors believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources.

Areas comprising critical judgements that may significantly affect the Group's earnings and financial position are revenue recognition, valuation of intangibles including goodwill, restructuring activities, provisions for bad debts, provisions for pensions, income taxes, and share-based payments.

After making enquiries, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim results and financial statements.

Accounting policies

The accounting policies and methods of calculation adopted are consistent with those of the annual financial statements for the year ended 31 March 2014, as described in those annual financial statements. The Annual Report and Accounts for the year ended 31 March 2014 contain details of new standards, amendments and interpretations which have been adopted, none of which have had a significant effect on the reported results or financial position of the Group for the six months ended 30 September 2014.

Sweett Group plc

Notes to the Financial Information (continued)

2. Segmental analysis

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as being the Board.

The Board considers Sweett Group's business and internal reporting by geography, being Europe, the Middle East, Africa & India and Asia Pacific. The Investments business, which was previously reported as a separate segment is dealt with as part of Europe and comparatives have been adjusted, since its future size does not warrant separate identification. All three categories generate revenues from the provision of quantity surveying, project management and specialist services / management consultancy and the Europe business generated profits on the disposal of its PPP/PFI financial assets available for sale.

The Board assesses performance based on a measure of earnings before interest and tax (EBIT). This measurement is net of intra-group trading balances and this basis excludes the effects of corporate and central costs. Interest income and expenditure are not included in the result for each operating segment that is reviewed by the Board.

Sweett Group plc

Notes to the Financial Information (continued)

2. Segmental analysis (continued)

* Unallocated corporate costs comprise Directors' remuneration, advertising, public relations, corporate financing costs, legal and professional fees and exceptional administrative expenses incurred by Sweett Group plc. They include £0.8m (H1 2014: £0.3m and 2014 FY: £0.8m) of exceptional administrative expenses and £nil (H1 2014: £nil and FY 2014: £0.6m) Performance Share Plan charges.

** Exceptional administrative expenses for the 6 months to 30 September 2014 comprise £0.1m of restructuring costs and £0.7m of investigation costs relating to allegations in the Wall Street Journal and for the 6 months to 30 September 2013 comprise £0.2m of restructuring costs, £0.2m of investigation costs relating to allegations in the Wall Street Journal and £0.1m of interest on acquisition liabilities. Exceptional administrative expenses for the year to 31 March 2014 comprise restructuring costs of £1.0m, costs relating to allegations in the Wall Street Journal of £0.5m and interest on vendor liabilities of £0.1m.

^ Asia Pacific segmental assets and liabilities have been reclassified to exclude amounts held in bank accounts in the name of Group companies, but held for the benefit of clients - note 7(b).

Sweett Group plc

Notes to the Financial Information (continued)

2. Segmental analysis (continued)

Sweett Group plc

Notes to the Financial Information (continued)

2. Segmental analysis (continued)

The assets of the segments include intangible assets, property, plant and equipment, assets from finance leases, financial assets, trade receivables and other receivables, deferred tax assets and cash and cash equivalents. The liabilities comprise trade and other payables, current tax liabilities, financial liabilities, deferred tax liabilities, provisions and retirement benefit obligations.

Sales between segments are transacted at arm's-length. External revenue reported to the Board is measured in a manner consistent with that in the income statement.

3. Income taxes

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. This is expected to be 39% for the full year on continuing operations (31 March 2014: 33%) representing the reduced proportion of the Group's profits expected to be earned in lower tax jurisdictions. A higher rate of tax attaches to the first half of the year due to a higher proportion of losses incurred in lower tax jurisdictions.

4. Dividends

As part of the continued focus on reducing the Group's net debt, the Board have decided not to declare an interim dividend (2014: 0.5p) and the final dividend will be reviewed at the time of the full year results. The final dividend of 0.8p per share in respect of the year ended 31 March 2014 was paid on 12 September 2014. This amounted to £549,448. The final dividend of 0.7p per share in respect of the year ended 31 March 2013 amounting to £473,858 was paid during September 2013.

5. Earnings per share

Sweett Group plc

Notes to the Financial Information (continued)

6. Cash flow from operations

7. Reconciliation of net cash flow to movement in net debt and cash and cash equivalents