26th Jun 2007 07:02
Atkins (WS) PLC26 June 2007 Tuesday 26 June 2007 for Immediate Release Results for the year ended 31 March 2007 Professional services group WS Atkins plc (Atkins) today announced preliminaryunaudited results for the year ended 31 March 2007. RESULTS SUMMARY 2007 2006Revenue (Group and share of Joint Ventures) £1,639.9m £1,411.0mRevenue £1,263.6m £1,052.5mOperating profit1 £76.6m £62.9mOperating margin1 6.1% 6.0%Exceptional items before taxation £(121.3)m -Normalised profit before taxation2 £81.7m £68.4m(Loss)/profit before taxation £(39.6)m £74.8mNormalised diluted EPS3 61.5p 50.1pDiluted (loss)/earnings per share (56.8)p 55.9pDividend relating to the year 20.0p 16.0pCash flow from operating activities £106.1m £111.7mNet funds £199.1m £176.6mYear end headcount (including agency staff) 16,824 14,907 SUMMARY • Good results from underlying businesses with revenue growth of 20% and operating profit1 up 22%. • Significant revenue growth in Design and Engineering Solutions (18%), Highways and Transportation (16%), Rail (35%), and Middle East and China (61%). • Headcount (including agency staff) increased by over 1,900 during the year to more than 16,800. • Strong work in hand representing 58% of budgeted revenue for 2007/08 (2006: 62%). • Results adversely impacted by an exceptional loss of £121.3m (£120.1m after tax) on the Metronet Enterprise4, including an impairment write-down to reduce the carrying value of the Group's investment in the Metronet PPP companies to £nil, and provisions for supply chain losses. • Metronet announced its intention to invite the Arbiter to conduct an Extraordinary Review on Metronet BCV in July and Metronet SSL (later in the year). Ongoing negotiations with Metronet banks are required to ensure adequate funding until conclusion of Extraordinary Review. • Continuing strong cash flow from operating activities of £106.1m (2006: £111.7m) with closing net funds of £199.1m (2006: £176.6m). • Disposal of LSH to its management team for £46.5m (together with earn-out potential for a further £10m) announced today. • The Board is recommending a final dividend of 14.0p, making the total dividend for the year 20.0p (2006: 16.0p), an increase of 25%. Notes: 1. Operating profit/margin before exceptional items. 2. Normalised profit before taxation is defined as profit before taxation and exceptional items and any profits or losses from disposals. This is considered to be a more representative measure of underlying trading. 3. Normalised diluted EPS is defined as diluted EPS before exceptional items and any profits or losses from disposals. 4. The Metronet Enterprise comprises the Group's interest in the Metronet and Trans4m Joint Ventures and the related Atkins supply chain. Tuesday 26 June 2007 for Immediate Release "The Group performed well last year, with revenue up 20% and normalised profitbefore taxation up by 19%. This result was driven by substantial growth in theMiddle East; good performance from our Design and Engineering Solutions andHighways and Transportation segments; and the recovery in the workload from ourRail segment. The Group's results, however, were adversely impacted by an exceptional loss of£121.3m (£120.1m after tax) in relation to the Metronet Enterprise. This lossincludes an impairment write-down which reduces the carrying value of theGroup's investment in Metronet to £nil. On 21 June 2007, Metronet announced its intention to invite the Arbiter toconduct an Extraordinary Review on Metronet BCV in July and for Metronet SSLlater in the year. Negotiations are ongoing with Metronet's banks to ensure thatit has adequate funding until the completion of the Extraordinary Review. Atkins is committed to working with Metronet, its banks and other stakeholdersto ensure that it can continue through to the outcome of the ExtraordinaryReview. We start the new year in a very good position with work in hand representing 58%of our budgeted revenue (2006: 62%). The demand for our services in our keymarkets is strong and we are confident that the Group will continue to achievefurther progress in the year ahead." Ed Wallis Keith ClarkeChairman Chief Executive Enquiries AtkinsKeith Clarke, Chief Executive + 44 (0) 1372 726140Robert MacLeod, Group Finance Director + 44 (0) 1372 726140 BrunswickNick Claydon, Jonathan Rhodes +44 (0) 20 7404 5959 Notes to editors 1. Atkins Atkins (www.atkinsglobal.com) plans, designs and enables the delivery of complexcapital programmes for clients in the public and private sectors across theglobe. Atkins is the largest multi-disciplinary consultancy in Europe; thelargest engineering consultancy in the UK; and the world's fourth largest designfirm (sources: New Civil Engineer Consultants File, 2006). 2. Attachments Attached to this press release are the Overview of the year, Operating review,the unaudited consolidated income statement, consolidated statement ofrecognised income and expense, consolidated balance sheet, consolidated cashflow statement and notes to the preliminary unaudited financial information forthe year. 3. Analyst Presentation A presentation for analysts will be held today at JP Morgan Cazenove, 20Moorgate, London EC2R 6DA at 8.30am hours. The presentation will also beavailable live via conference call. Dial-in details are available from Brunswickon +44 (0)20 7396 3577. A webcast of the presentation will be available via theCompany's website from mid-afternoon www.atkinsglobal.com 4. Cautionary Statement This press release has only been prepared for the shareholders of the Company,as a whole, and its sole purpose and use is to assist shareholders to exercisetheir governance rights. In particular, this press release has not been auditedor otherwise independently verified. The Company and its directors and employeesare not responsible for any other purpose or use or to any other person inrelation to this press release. This press release contains indications of likely future developments and otherforward looking statements that are subject to risk factors associated with,among other things, the economic and business circumstances occurring from timeto time in the countries, sectors and business segments in which the Groupoperates. These and other factors could adversely affect the Group's results,strategy and prospects. Forward looking statements involve risks, uncertaintiesand assumptions. They relate to events and/or depend on circumstances in thefuture which could cause actual results and outcomes to differ. No obligation isassumed to update any forward looking statements, whether as a result of newinformation, future events or otherwise. OVERVIEW OF THE YEAR Results The Group performed well last year, with revenue up 20% and normalised profitbefore taxation up by 19%. This result was driven by substantial growth in theMiddle East; good performance from our Design and Engineering Solutions, andHighways and Transportation segments; and the recovery in the workload from ourRail segment. The Group's results, however, were adversely impacted by an exceptional loss of£121.3m (£120.1m after tax) in relation to the Metronet Enterprise. This lossreduces the carrying value of the Group's investment in Metronet to nil. On 21 June 2007, Metronet announced its intention to invite the Arbiter toconduct an Extraordinary Review on Metronet BCV in July and for Metronet SSLlater in the year. Negotiations with Metronet's banks to ensure that it hasadequate funding until the completion of the Extraordinary Review are ongoing.Atkins is committed to working with Metronet, its banks and other stakeholdersto ensure that it can continue through to the successful outcome of theExtraordinary Review. Outlook We start the new year in a very good position with work in hand representing 58%of our budgeted revenue (2006: 62%). The demand for our services in our keymarkets is strong and we are confident that the Group will continue to achievefurther progress in the year ahead. Dividend The Board is recommending a final dividend of 14.0p, making the total dividendfor the year 20.0p (2006: 16.0p), an increase of 25%. If approved, the dividendwill be paid on 28 September 2007 to ordinary shareholders on the register on 17August 2007. OPERATING REVIEW Design and Engineering Solutions ------------------------ -------- -------- --------Key Performance indicators 2007 2006 % change In yearFinancial metricsRevenue £339.2m £286.3m +18%Operating profit1 £28.1m £23.4m +20%Operating margin1 8.3% 8.2% +0.1% ptsWork in hand 42% 44% -2% ptsPeopleHeadcount at 31 March2 4,721 4,026 +17%Average headcount2 4,306 3,679 +17%------------------------ -------- -------- -------- 1. Before exceptional items. 2. Headcount is shown on a full time equivalent basis, including agency staff. Performance in 2007 Design and Engineering Solutions had a good year with growth in revenue of£52.9m (18%) and an increase in operating profit of £4.7m (20%). Our coremarkets remain strong and the focus on strengthening relationships with keyclients has enabled us to increase operating margins. We have successfully added695 staff during the year; 70% of this growth was organic, with the remainingstaff joining the Group as a result of the two acquisitions made in the year. During the year our nuclear business grew strongly and we now have over 440staff working in this market, up from 320 last year. We provide a range ofengineering services in the design of new facilities and infrastructure,extending the operational life of existing nuclear facilities and indecommissioning. Our clients include AWE where we continue to grow our designhouse services under a three year contract to 2008, and British Energy with whomwe have been working under a three year contract to 2008. This year we have alsoset up a 'Nuclear Training Academy' supported by the University of Surrey,focused on training suitably qualified engineers to satisfy the industryrequirements for working in the nuclear sector. Forty staff have graduated fromthe academy to date. Our aerospace business performed well this year with significant growth fromAirbus where we are supporting three of their major aircraft developmentprogrammes. We provide independent structural stress analysis and certificationon the A380 wings, design and analysis services for the wings of the militaryA400M and we are incorporating the use of composite materials in the design ofthe developmental A350 extra wide body aircraft. Our architecture and design business in the UK works on significant public andprivate sector projects in the UK as well as non-UK locations: examples includethe design of a new 400 unit residential tower in Swansea; the Regatta Jakarta,a major new design project in Indonesia; and concept proposals for a mixed-usedevelopment in central Islamabad, which will boast Pakistan's tallest building. The Ministry of Defence (MoD) continues to change the way that it procures largecapital projects by using independent systems houses such as Atkins to managetheir capital programmes. Our success on the Future Rapid Effect System (FRES)programme has continued and will provide further work for our defence business.The acquisition of Advantage in March 2007 brought through-life capabilitymanagement expertise to the Group, complementing our existing skills in defencesystems engineering and enabling increased access to the defence market. Our oil and gas business has seen significant growth to more than 260 staff; anincrease of more than 100 compared with last year. The integration of both MSLand Boreas, which were acquired in March 2006 and December 2006 respectively,has gone well and contributed to a 60% growth in revenue. These acquisitionsbrought complementary safety and reliability skills to the Group that help ourclients extend the life of oil and gas fields by managing the integrity of theirinfrastructure. Our work for UK water companies continues to grow significantly. During theyear, our contract with United Utilities grew substantially, working with themin integrated work streams covering design and commissioning work as part oftheir five year investment programme. We were also the only consultancy to beappointed to each one of the six four-year framework contracts awarded byScottish Water and have won outsourcing contracts issued under Southern Water'sfive year master framework agreement. Revenue from environment and planning services accounted for nearly 20% of thesegment's revenue this year. Our involvement in the London Olympic Parkregeneration project continues to grow and complements our wider regenerationactivities in the Thames Gateway. We are assisting with the creation ofsustainable communities of mixed-use developments within the region, which facesthe challenge of accommodating population growth without building on the greenbelt or other open spaces. Outlook The outlook for Design and Engineering Solutions is positive with good mediumterm prospects in each of our targeted sectors. We have secured 42% of ourbudgeted revenue for 2007/08, slightly down from 44% last year. Prospects forthe year ahead are good and our diverse range of complementary technical skillsthat are applied in several markets enables us to be confident in the future. We are increasingly hiring front-office engineering professionals in our officesin Bangalore (India) and Sharjah (UAE) to service our clients. The number ofpeople working in Bangalore and Sharjah for Design and Engineering Solutions isnow over 200 and we expect this to increase significantly next year and beyond. Highways and Transportation----------------------- --------- -------- --------Key performance indicators 2007 2006 % change in yearFinancial metricsRevenue £250.5m £215.4m +16%Operating profit £13.2m £11.0m +20%Operating margin 5.3% 5.1% +0.2% ptsShare of post-tax JV profits £0.6m £0.7m -£0.1mWork in hand 77% 75% +2% ptsPeopleHeadcount at 31 March1 3,095 2,891 +7%Average headcount1 3,067 2,834 +8%----------------------- --------- -------- -------- 1. Headcount is shown on a full time equivalent basis, including agency staff. Performance in 2007 Our Highways and Transportation segment had a good year with growth in all partsof the business, despite a slow start. Operating profit increased by £2.2m (20%)as margins grew to 5.3% (2006: 5.1%) due to the strong demand for our highermargin design activities. The business continues to offer a broad range ofservices in highways management, transport planning and design. Over 90% ofrevenue comes from public sector clients, both central government and agencies. The highway services business, which represents around 65% of this segment, isengaged in operating, maintaining and improving highways and motorways on behalfof the Highways Agency and local authorities. This year's results included thefirst year of our five year Gloucestershire County Council contact, whichcommenced in April 2006, and the first seven months of our up to ten-year £250mintegrated contract to provide transport consultancy and highways managementservices for Cambridgeshire County Council. We were granted a seven monthextension to our Northamptonshire contract to March 2008. Whilst capital funding remains relatively strong there is continuing downwardpressure on revenue budgets for local authorities. This is leading to longerterm, more complex service contracts where quality and certainty of serviceoutcome are as important as price. Our technical expertise in these areas was animportant factor that helped secure our Gloucestershire and Cambridgeshirecontract awards. Our transport design business, which delivers all aspects of design of highwayinfrastructure and transport technology, performed well. The results in the yearbenefited from the Hackney M11 Link Road and Transport Direct Portal projectstogether with Dubai Metro where a substantial and technically complexcontribution was made to the design of the viaducts by our UK teams. Delivery ofthis project required the input of over 50 staff in Highways and Transportationand represents an excellent example of collaborative working across segments andgeographical regions. During the year we were awarded a new contract by the Highways Agency to providedesign and maintenance management services for the Highways Agency technologysystems in the northwest of England in partnership with Telent. This £30mfive-year contract commenced in December 2006. We were granted a two-yearextension on a similar contract in the West Midlands. Our transport planning business performed well with improved margins. Ahighlight of the year was the completion of a research and evaluation study forthe Department for Transport on the Local Transport Plan that considers optionsfor future local transport planning policy beyond 2011. There were alsosignificant new contract awards from the Department for Transport, East Londonand Greenwich Council, Slough Borough Council and Transport for London. Safety is a vitally important operational aspect of our Highways andTransportation segment. We have improved our investigations into root causes ofincidents and accidents and have commenced a regime of audits that focus onbehaviours and attitudes towards safety. For the second year running we haveachieved a gold award from the Royal Society for the Prevention of Accidents(RoSPA) for our safety management systems. Outlook The outlook for the Highways and Transportation segment remains strong with goodmedium term prospects from local authorities and the Highways Agency. Our orderbook increased to 77% of work for 2007/08 (2006: 75%) as full year revenue fromCambridgeshire County Council more than compensated for the loss of the HighwaysAgency Area 10 contract that concludes in the second half of 2007/08. During the next twelve months we will be working on a number of important bidsand rebids including for Northamptonshire County Council and several HighwaysAgency contracts. There are good opportunities to increase the volume of high-level advisory workwe undertake, especially in the South-East of England through the period leadingup to the London Olympics in 2012. We will also continue to be active in thearea of advanced driver information and traffic control systems, which has shownstrong growth over the past five years. Rail------------------------ -------- -------- --------Key performance indicators 2007 2006 % change in yearFinancial metricsRevenue £237.4m £176.5m +35%Operating profit1 £4.4m £2.6m +69%Operating margin1 1.9% 1.5% +0.4% ptsWork in hand 66% 75% -9% ptsPeopleHeadcount at 31 March2 1,974 2,004 -1%Average headcount2 1,956 1,886 +4%------------------------ -------- -------- -------- 1. Before exceptional items. 2. Headcount is shown on a full time equivalent basis, including agency staff. Performance in 2007 Revenue increased in the Rail segment by £60.9m (35%) although performance inthe segment was mixed. While we continued to see the benefit of the recovery ofthe UK rail market, the impact has yet to be fully reflected in increasedoperating profit. Our results were also affected by a loss of approximately £3massociated with cost over-runs on two EU-funded rail study projects for thePolish Rail Authority, which are now largely resolved. Operating margins alsocontinued to be adversely impacted by our work on the Metronet supply chain. A substantial share of our revenue is derived from re-signalling contracts whichincreased significantly to approximately £100m. We have successfully completedthe first phase of the major re-signalling contract at Basingstoke, which is duefor final completion in September 2008, and the other major re-signallingproject at Port Talbot, is substantially complete. We were also selected, on anegotiated basis, to design, commission and test the signalling for the Rugby/Nuneaton section of the West Coast Mainline upgrade. This contract will providesignificant revenue over the next two years. During the year we won a contract to provide design and technical consultancyfor the Glasgow Airport Rail Link project, for the new railway line running fromGlasgow Central Station to the international airport. Work was also secured onthree out of the five Network Rail regional three-year framework contracts forswitch and crossing renewals, an increase from the two previously held. Wecommenced the design of the track layout for the South African Gautrain railproject covering 80km of new track from the international airport toJohannesburg. The demand from the UK rail industry for innovative solutions to meet the needfor a capacity enhanced, reliable, open all hours railway is growing, and we arewell placed with over 1,800 rail specialists with a broad range of capability toprovide such solutions. Outlook The outlook for our Rail segment is good. Our work in hand at 66% compares to75% last year. However, if our work for Metronet is excluded, underlying work inhand is 65% compared to 56% last year. Passenger demand forecasts predict significant growth in UK rail usage over thecoming ten years and in anticipation of this Network Rail has planned asubstantial programme of renewals and enhancements. Increased regionalisation ofrail spending to Scotland, Wales, Transport for London and through other localpassenger transport executives will also provide significant opportunities andwe are well placed to benefit. Middle East and China---------------------- ---------- -------- --------Key performance indicators 2007 2006 % change in yearFinancial metricsRevenue £108.2m £67.1m +61%Operating profit £7.2m £3.0m +140%Operating margin 6.7% 4.5% +2.2% ptsWork in hand 64% 78% -14% ptsPeopleHeadcount at 31 March1 2,602 1,708 +52%Average headcount1 2,253 1,548 +46%---------------------- ---------- -------- -------- 1. Headcount is shown on a full time equivalent basis, including agency staff. Performance in 2007 The Middle East and China segment had another year of significant growth andimproving performance. This growth has been driven by the continuing strongdemand in the Middle East region, which now accounts for approximately threequarters of the segment's revenues. The Dubai Metro contract along with othermajor commissions contributed to the 61% increase in revenue in year to £108.2m.Whilst the China business is profitable, the majority of the segment's profit isderived from the Middle East. During the year our range of services in theMiddle East continued to expand and now includes rail engineering, masterplanning and urban building design. We also provide project management servicesin the Middle East under the Faithful+Gould brand. The Middle East business now employs over 1,700 people, an increase of 70% inthe year. The increasing demand for high quality residential, leisure,healthcare and education developments mirrors the maturing local economies. Ourstrong reputation for delivery helped us achieve continued growth. During the year we secured the civil design services contract for the Red Lineof the Dubai Metro light rail scheme. This complex multi-disciplinary projectrequired the mobilisation of up to 400 staff across the Group, and within threemonths of our appointment by the Japan Turkey Metro Joint Venture, we deliveredthe necessary designs to enable the client to commence construction. Asubstantial proportion of our design work on the Red Line is now complete and weare also now engaged on the design of a second line, the Green Line. Togetherthese two contracts require the design of 70kms of railway line and viaducts and44 stations. Involvement in sustainable building design research partnerships with CardiffUniversity and the British University in Dubai has enabled the Group to movecloser to clients design solutions based on the very latest research linked tosustainability. We continued to make progress in China and our business delivered a smalloperating profit, reflecting our investment for the future positioning in thismarket. We continue to be highly selective as the trading conditions become moreopen. We won a design competition for a major new high-density residentialcommunity in one of China's developing cities and we have won a number ofprojects for the concept design of airport terminals. Outlook The outlook for this segment remains very good, especially in the Middle East.Our work in hand at year end was 64% (2006:78%) but increased in absolute termsreflecting increased revenue expectations for the year ahead. Prospects in the Middle East are encouraging and numerous clients are activelyseeking and creating development opportunities in response to demand for urbanplanning and infrastructure design. Capital investment in China continues to accelerate, driven strongly by theurbanisation process that has so far affected one-third of the population. Themarket offers great potential and our approach is to concentrate oninfrastructure projects in China's secondary and tertiary cities, which arelikely to attract increasing investment. Management and Project Services----------------------- ---------- -------- --------Key performance indicators 2007 2006 % change in yearFinancial metricsRevenue £193.6m £171.9m +13%Operating profit1 £12.8m £13.9m -8%Operating margin1 6.6% 8.1% -1.5% ptsWork in hand 42% 39% +3% ptsPeopleHeadcount at 31 March2 2,260 2,146 +5%Average headcount2 2,203 2,049 +8%----------------------- ---------- -------- -------- 1. Before exceptional items. 2. Headcount are shown on a full time equivalent basis including agency staff. Performance in 2007 The performance of the Management and Project Services segment this year wasdisappointing. The Faithful+Gould business, which represents approximately 70%of the segment, had a good year but the Management Consultants businessperformed behind our expectations. Operating profit and operating margin wereprimarily impacted by the re-organisation of the Management Consultants businessand the integration costs associated with the acquisition of Mantix in June2006. Faithful+Gould, which provides project management and cost consultancy across abroad range of markets, maintained its strong performance overall. Approximatelytwo-thirds of its work is in the private sector and includes work in the UKbanking sector for clients such as Royal Bank of Scotland and HBOS. Performancein the US continues to improve and there are significant opportunities in thismarket. The commercial sector is strong and capital spending by the oil majorscontinues, where we have won contracts with BP and ExxonMobil. The re-organisation of our Management Consultants business and the integrationof Mantix affected our results. Mantix employs 60 staff in project and programmemanagement and is a major provider of management consultancy services to UKcentral government. The skills acquired from Mantix broadened our capacity toassist clients' manage their major investments in technology and businesschange. Our revenue from supporting the Government Communications Headquarters(GCHQ) facility grew during the year as we commenced work on a new five-yearframework contract to deliver project and programme management support services. Outlook Work in hand for the whole segment at 31 March 2007 represented 42% of budgetedrevenue for 2007/08, compared to 39% last year. The outlook for Faithful+Gould is good with a strong UK market and furthergrowth in the US business anticipated. Whilst demand for our management consultancy services is likely to increase dueto UK Government's drive for organisational change and continuing private sectorrequirements, we are experiencing an increasingly competitive marketplace. Asset Management----------------------- --------- -------- ---------Key performance indicators 2007 2006 % change In yearFinancial metricsRevenue £50.5m £61.5m -18%Operating profit £1.6m £4.0m -60%Operating margin 3.2% 6.5% -3.3% ptsShare of post-tax JV profits £0.1m - +£0.1mWork in hand 99% 96% +3% ptsPeopleHeadcount at 31 March1 680 730 -7%Average headcount1 669 877 -24%----------------------- --------- -------- --------- 1. Headcount are shown on a full time equivalent basis including agency staff. Performance in 2007 The results of this segment were broadly in line with our expectations as lastyear's results included a non-recurring benefit of approximately £2m arisingfrom temporary extensions to certain MoD contracts. During the year we continued to work with private sector clients such asBarclays Bank, with whom we have extended our relationship for a further threeyears. Our results also included the benefit of last year's wins with theMetropolitan Police and HBOS. Our activity with the MoD is now procured via the Defence Housing Prime Contractin which we have a 25% interest through the Modern Housing Solutions jointventure. Our work on Colchester Garrison continues to meet expectations althoughour historical hospital and schools contracts, where contracting risk was taken,remain challenging. Outlook Our asset management business remains a small part of the Group. Work in hand at31 March 2007 represented 99% of budgeted revenue for 2007/08, compared with 96%last year. Equity Investments The Equity Investments segment comprises Lambert Smith Hampton (LSH) and theGroup's interest in PPP/PFI Joint Ventures, principally Metronet. ---------------------- ---------- --------- ----------Key performance indicators 2007 2006 % change in yearFinancial metricsRevenue £84.2m £73.8m +14%Operating profit £9.3m £5.0m +86%Operating margin 11.0% 6.8% +4.2% ptsShare of post-tax JV (loss)/profits (£46.1m) £8.1m -£54.2mImpairment of investment in Metronet JV (£70.0m) - -£70.0mPeopleHeadcount at 31 March1 956 887 +8%Average headcount1 947 880 +8%---------------------- ---------- --------- ---------- 1. Headcount is shown on a full time equivalent basis including agency staff. Lambert Smith Hampton Performance in 2007 LSH, which operated independently under its own brand, had an exceptionallystrong year with operating profit of £7.3m (2006: £3.6m). The results for theyear benefited from some significant revenues arising from transactionscompleted in the year. Two small acquisitions: Poolman Harlow (Swansea) in April2006 and Young & Butt (Fareham/Southampton) in November 2006 were completed. The market for commercial property investment remained strong in the year,although rising UK interest rates and the increasing commercial prices arereducing yields on investment properties. During the year LSH was re-appointed to the BBC and both Hertfordshire and EssexCounty Councils to provide professional estate services for their propertyportfolio on contract periods from three years to six years. Nearly 60% of LSH's revenue is generated from consultancy services, reflectingin part the growing level of outsourced work now being performed for UK nationaland public sector clients. Metronet Enterprise The results of the Metronet Enterprise included within the Group's profit beforetax for the year are as follows: -------------------- ------- -------- ------- ----- 2007 2006 Before Exceptional Exceptional items items Total £m £m £m £m Metronet - (91.3) (91.3) 7.5 Cost of letters of credit (1.3) - (1.3) (2.0) ------- -------- ------- ----- (1.3) (91.3) (92.6) 5.5Supply chain:Trans4m (1.0) (26.0) (27.0) (1.0) Business segments 1.7 (4.0) (2.3) (2.7) ------- -------- ------- -----Metronet Enterprise (0.6) (121.3) (121.9) 1.8-------------------- ------- -------- ------- ----- Metronet During the year Metronet's operating performance was mixed and while someprogress was made on its capital programme, the stations and certain otherprogrammes remain behind schedule. The Metronet PPP contracts contain provision for an Extraordinary Review toprotect Metronet against significant additional costs or revenue shortfallsarising between the periodic reviews that occur every seven and a half years.Any such additional costs or revenue shortfalls qualify for reimbursement byLondon Underground provided that they have been incurred in an "Economic andEfficient" manner, although Metronet is required to bear the first £50m in eachInfraco. As previously stated, the costs of Metronet's capital programme aresubstantially higher than anticipated and as a result on 21 June 2007 Metronetgave notice to London Underground of its intention to invite the Arbiter toconduct an Extraordinary Review for Metronet BCV in July and for Metronet SSLlater in the year. The review process is likely to take at least six to ninemonths to conduct and it is too early to assess its outcome. The Arbiter reported in November 2006 that Metronet was not wholly "Economic andEfficient" in the first three years of operation, from April 2003 untilMarch 2006, although he also noted that Metronet was making improvements to itsoperations. There is therefore a risk that some of the additional costs inexcess of the first £50m per Infraco will be borne by Metronet. As a result of the additional cost being incurred, Metronet accelerated thepayment of committed equity contributions from its shareholders. Atkins injecteda total of £18.0m in the year, bringing our total cash investment in Metronet to£50.7m at 31 March 2007. The Group's remaining equity commitment of £19.3m hasalso been accelerated. As at today's date £15.6m of this commitment has beencontributed, with the remainder likely to be contributed in the first half ofthe current year, taking our total investment to £70m. Metronet is currently unable to access its lending facilities. Metronet, itsbanks and shareholders are in discussion about how to ensure that Metronet isable to continue until the completion of the Extraordinary Review. Metronet'sfinancial structure demands that a resolution of this issue is achieved if it isto continue to be able to deliver its PPP programmes. Given the current uncertainties associated with Metronet's funding position andthe outcome of the Extraordinary Review process, the results for the Group forthe year include an exceptional loss of £91.3m (after JV tax). This reflects thetotal equity investment of £70m plus the reversal of £21.3m of profit recognisedin earlier years. This exceptional loss has no cash impact but reduces thecarrying value of the Group's investment in Metronet to £nil. Trans4m Trans4m is primarily responsible for the delivery of improvements to stations.The stations programme remains behind plan and the costs have risensignificantly. Trans4m has recently started awarding station contracts tooutside contractors rather than using companies within its tied supply chain. Inthe short term, this increases capacity and also provides an external benchmarkagainst which it may more easily assess whether the delivery of the stationimprovements has been carried out in an "Economic and Efficient" manner. Tofurther address the stations programme, Metronet and its shareholders haverecently reached agreement on heads of terms for the future early termination ofTrans4m's contract. This agreement is subject to approval from Metronet's banks. The cost of delivering stations is significantly higher than originallyanticipated and Trans4m bears a contractual share of the overrun together withpenalties for late delivery of stations into service. Although Trans4m'sliabilities for the cost overruns are capped, the Group's results include a lossfor the year of £1.0m and an exceptional loss from Trans4m of £26.0m to takeaccount of the expected outturn for Trans4m's remaining contract. The cash impact of this is expected to be around £30m, the majority of whichwill be paid by Atkins to Trans4m during the financial year ended 31 March 2008. Atkins' supply chain The work that Atkins carries out for Trans4m is primarily related to stationsdesign. Given the changes to Trans4m's supply chain noted above, some of thework that Atkins was originally in line to undertake may now be carried out byother companies. As a result an exceptional loss of £4.0m is included in theresults for the year to take account of expected future losses. Our supply chain performance is expected to result in a cash outflow of around£35m during the year ending 31 March 2008, primarily in settlement of previouslyaccounted for liabilities. Outlook In the short term, the outlook for Metronet is dependent upon reaching agreementwith its banks upon its future funding. Atkins is committed to working withMetronet, its banks and all its other stakeholders to enable Metronet to reach asuccessful conclusion to the Extraordinary Review process. Net finance income Finance income for the year was £2.0m higher than the prior year at £9.9m andfinance cost £4.5m lower at £6.7m, resulting in net income of £3.2m (2006: netfinance cost £3.3m). The increase in finance income is largely a consequence of the Group's improvingcash position. The reduction in finance cost in the year was principally due toa decrease of £4.3m in the net finance cost on retirement benefit liabilities. Taxation The Group's income tax expense for the year reduced by £0.2m to £17.7m. The Group's effective income tax rate after adjusting for the impact ofexceptional items reduced to 22.6% (2006: 29.6%). This reduction comes fromHMRC's agreement of our claim for three years' research and development taxcredits (£4.1m) and the increasing proportion of profits from lower tax regimes,principally the Middle East. We anticipate an annual continuing benefit from research and development taxcredits, and the increase in profits earned by operations in countries with taxrates lower than the UK will continue to have a favourable impact on oureffective tax rate. Earnings per share (EPS) Normalised basic EPS before exceptional items was 62.2p (2006: 51.1p), reducingto a loss per share of 56.8p after exceptional items. Normalised diluted EPSbefore exceptional items, which is considered to be a more representativemeasure of underlying trading was 61.5p (2006: 50.1p), an increase of 23%.Further details are given in note 8 to this preliminary unaudited financialinformation. Pensions Funding The latest actuarial valuation of the defined benefit Atkins Pension Plan (the"Plan") was carried out as at 1 April 2004 and indicated that the Plan had anactuarial deficit of £69m. A funding programme was agreed with the Trustees atthat time but since then, recognising the likely increase in the deficit, theGroup has accelerated contributions to the Plan. In the year the Group paid afurther accelerated contribution of £25.0m (2006: £20.0m) to the Plan, makingtotal accelerated contributions over the last three years of £53.6m. As at30 June 2006 our actuaries estimated that the deficit had increased toapproximately £187m despite the accelerated cash contributions, due to changesin discount rates, longevity and other assumptions. Our next actuarialvaluation, as at 1 April 2007, is currently underway and the results areexpected to be available in autumn 2007. The Group is currently in consultation with approximately 1,900 employeesregarding a proposal to close the Plan to future accrual in conjunction withfurther additional cash contributions of £140.0m over the next four years:£50.0m in the next twelve months, followed by £30.0m in each of the subsequentthree years. These proposals do not affect members of the Plan whose benefitsare protected through either a contractual obligation or statutory protection. Charges The Group accounts for pension costs under IAS 19, Employee benefits. The totalcharge to the Income Statement in respect of defined benefit schemes amounted to£24.9m (2006: £24.8m), comprising total service cost of £22.5m (2006: £18.1m)and net finance cost of £2.4m (2006: £6.7m). The charge relating to definedcontribution schemes amounted to £16.0m (2006: £12.3m) and is expected tocontinue to increase as the membership of these schemes grows. IAS 19 valuation and accounting treatment The Group assesses pension scheme funding with reference to actuarial valuationsbut for reporting purposes uses IAS 19. Under IAS 19, the Group recognised apost tax retirement benefit liability of £175m at 31 March 2007 (2006: £210m).The post tax actuarial gain recognised through equity amounted to £21.7m for theyear ended 31 March 2007 (2006: actuarial loss £26.4m). The assumptions used in the IAS 19 valuation are detailed in note 13 to thepreliminary unaudited financial information Buy out basis The deficit on the Atkins Pension Plan measured on a solvency buy out basis isestimated to be £520m, pre-tax. Cash Net funds at 31 March 2007 were £199.1m (2006: £176.6m), which comprised cashbalances and current financial assets of £237.3m (2006: £218.2m) less bank loansand finance lease payables of £38.2m (2006: £41.6m). Cash generated from operations was £106.1m (2006: £111.7m). This increase ispartly driven by a decrease in working capital despite significant revenuegrowth over the same period. Much of the reduction in working capital is drivenby advance cash receipts on large contracts, principally in the Middle East, andtiming differences on our work on the Metronet supply chain. We anticipate anincrease in working capital in the coming year driven by a cash outflow of up to£50.0m in relation to the Metronet supply chain, as discussed in the MetronetEnterprise section above. There was a net tax refund in year of £2.9m (2006 tax paid: £10.9m). Thisfollows our successful claim for research and development tax credits and timingissues associated with Metronet consortium tax relief. As described in the Metronet Enterprise section above, the Group made injectionsamounting to £18.0m into the Metronet PPP companies during the year (2006:£11.2m). The Group is committed to making further loan capital payments to theMetronet PPP companies amounting to £19.3m. Net capital expenditure in the year, including the purchase of computer softwarelicences, amounted to £25.1m (2006: £28.2m). We expect a similar level in theyear ahead. Cash payments relating to acquisitions in the year amounted to £31.5m (2006:£4.9m). Further details are given below: Acquisitions Three acquisitions, adding to the capability and reach of our core business werecompleted during the year. Company acquired Sector Date Total consideration------------------ -------- ------ -------------------Mantix Group Ltd Management Consultants June 2006 £11.2mBoreas Consultants Ltd Oil & Gas December 2006 £3.9m Advantage Business Group Ltd Defence March 2007 £19.5m Lambert Smith Hampton acquired Poolman Harlow Ltd in April 2006 and Young andButt Ltd in November 2006. Events after the balance sheet date On 25 June 2007 contracts were exchanged for the disposal of LSH for anestimated consideration of £46.5m together with earn-out potential for a further£10m depending upon on LSH's performance in the year ending 31 March 2008. Theprofit on disposal is estimated to be approximately £20m assuming that noadditional payments are made by LSH in relation to the performance in the yearending 31 March 2008. Keith Clarke Robert MacLeodChief Executive Group Finance Director 26 June 2007 Consolidated income statement for the year ended 31 March 2007 (unaudited) ------------------------ ------ --------- -------- -------- ------- 2007 Pre- £m Post- 2006 Notes exceptional Exceptional exceptional £m------------------------ ------ --------- -------- -------- ------- (Note 6)------------------------ ------ --------- -------- -------- -------Continuing operationsRevenue (Group andshare of JointVentures) 1,639.9 - 1,639.9 1,411.0------------------------ ------ --------- -------- -------- ------- Revenue 2 1,263.6 - 1,263.6 1,052.5 Cost of sales (782.9) (4.0) (786.9) (637.3)------------------------ ------ --------- -------- -------- ------- Gross profit 480.7 (4.0) 476.7 415.2 Administrativeexpenses (404.1) - (404.1) (352.3)------------------------ ------ --------- -------- -------- -------Operating profit 76.6 (4.0) 72.6 62.9Profit on disposalof Joint Ventures - - - 6.4Impairment ofinvestment in JointVentures - (70.0) (70.0) -Share of post-tax(loss)/profit fromJoint Ventures 3 1.9 (47.3) (45.4) 8.8------------------------ ------ --------- -------- -------- -------(Loss)/profit fromoperations 78.5 (121.3) (42.8) 78.1 Finance income 4 9.9 - 9.9 7.9Finance cost 4 (6.7) - (6.7) (11.2)------------------------ ------ --------- -------- -------- -------Net financeincome/(cost) 4 3.2 - 3.2 (3.3) ------------------------ ------ --------- -------- -------- -------(Loss)/profitbefore taxation 81.7 (121.3) (39.6) 74.8 Income tax expense 5 (18.9) 1.2 (17.7) (17.9)------------------------ ------ --------- -------- -------- -------(Loss)/profit forthe year fromcontinuingoperations 62.8 (120.1) (57.3) 56.9 (Loss)/profit forthe yearattributable toequity shareholders 9 62.8 (120.1) (57.3) 56.9------------------------ ------ --------- -------- -------- ------- Basic earnings pershare - continuingoperations 8 (56.8)p 57.0pDiluted earningsper share -continuingoperations 8 (56.8)p 55.9p Dividendsrecognised in theyear - paid 7 17.5 p 12.5pDividends paid andproposed relatingto the year 7 20.0 p 16.0p------------------------ ------ --------- -------- -------- ------- Consolidated statement of recognised income and expense for the year ended 31March 2007 (unaudited) --------------------------------------------------------------------------------------- Notes 2007 2006 £m £m---------------------------------------------------------------------------------------Actuarial gain/(loss) on retirement benefit liabilities 13 31.3 (37.7)Share of Joint Venture financial derivatives 9 7.5 (0.5)Tax on items charged to equity 5 (8.5) 11.4Net differences on exchange 9 (0.2) 1.5---------------------------------------------------------------------------------------Net income/(expense) recognised directly to equity 30.1 (25.3)(Loss)/profit for the year (57.3) 56.9---------------------------------------------------------------------------------------Total recognised income and expensefor the year attributable to equity shareholders (27.2) 31.6--------------------------------------------------------------------------------------- The notes on pages 15 to 21 form part of the preliminary unaudited financialinformation. Consolidated balance sheet as at 31 March 2007 (unaudited) ----------------------------------------- ------ ------- ------ Notes 2007 2006 £m £m----------------------------------------- ------ ------- ------AssetsNon-current assetsGoodwill 64.8 35.6Other intangible assets 9.4 10.0Property, plant and equipment 46.2 47.2Investments in Joint Ventures (26.0) 46.2Financial assets - 20.1Deferred income tax assets 89.8 103.8Trade and other receivables 0.1 1.5----------------------------------------- ------ ------- ------ 184.3 264.4----------------------------------------- ------ ------- ------ Current assetsInventories 0.4 0.2Trade and other receivables 284.0 272.9Financial assets 49.6 20.7Cash and cash equivalents 187.7 177.4----------------------------------------- ------ ------- ------ 521.7 471.2----------------------------------------- ------ ------- ------ LiabilitiesCurrent liabilitiesBorrowings (3.7) (6.5)Trade and other payables (418.7) (379.5)Current income tax liabilities (28.3) (12.3)Provisions for liabilities and charges (8.7) (2.8)----------------------------------------- ------ ------- ------ (459.4) (401.1)----------------------------------------- ------ ------- ------Net current assets 62.3 70.1----------------------------------------- ------ ------- ------ Non-current liabilitiesBorrowings (34.5) (35.1)Provisions for liabilities and charges (14.3) (11.7)Retirement benefit liabilities 13 (250.1) (299.9)Other non-current liabilities (23.8) (23.9)----------------------------------------- ------ ------- ------ (322.7) (370.6)----------------------------------------- ------ ------- ----------------------------------------------- ------ ------- ------Net liabilities (76.1) (36.1)----------------------------------------- ------ ------- ------ Capital and reservesOrdinary shares 9 0.5 0.5Share premium account 9 62.4 62.4Merger reserve 9 8.9 8.9Retained loss 9 (147.9) (107.9)----------------------------------------- ------ ------- ------Equity shareholders' deficit (76.1) (36.1)----------------------------------------- ------ ------- ------ The notes on pages 15 to 21 form part of the preliminary unaudited financialinformation. Consolidated cash flow statement for the year ended 31 March 2007 (unaudited) -------------------------- ------ ------ ------- ------ Notes 2007 2006 £m £m-------------------------- ------ ------ ------- ------Cash flows from operating activitiesCash generated from operations 10 106.1 111.7Interest received 9.8 7.6Interest paid (2.4) (2.4)Income tax received/(paid) 2.9 (10.9)-------------------------- ------ ------ ------- ------Net cash from operating activities 116.4 106.0-------------------------- ------ ------ ------- ------ Cash flows from investing activitiesDistributions received from Joint Ventures 1.7 3.7Investment in Metronet (18.0) (11.2)Acquisition of subsidiaries - Consideration (31.5) (4.9) - Cash acquired 3.7 (0.2)Purchases of property, plant and equipment (16.7) (20.4)Proceeds from disposal of property, plant and equipment 0.6 0.5Proceeds from disposal of Joint Ventures - 9.2Financial assets (8.8) (9.6)Purchases of intangible assets (9.0) (8.3)-------------------------- ------ ------ ------- ------Net cash used in investing activities (78.0) (41.2)-------------------------- ------ ------ ------- ------Cash flows from financing activitiesRepayment of short-term loans (2.7) -Long-term loans - 12.5Repayment of long-term loans (1.6) (1.1)Finance lease principal payments (4.0) (3.2)Sales of own shares by Employee Benefit Trusts 0.1 1.3Equity dividends paid to shareholders (17.7) (12.4)-------------------------- ------ ------ ------- ------Net cash used in financing activities (25.9) (2.9)-------------------------- ------ ------ ------- ------ Exchange (losses)/gains on cash and bank overdrafts (2.2) 0.9-------------------------- ------ ------ ------- ------Net increase in cash, cash equivalentsand bank overdrafts 10.3 62.8-------------------------- ------ ------ ------- ------ Cash, cash equivalents and bankoverdrafts at beginning of year 177.4 114.6-------------------------- ------ ------ ------- ------Cash, cash equivalents and bankoverdrafts at end of year 11 187.7 177.4-------------------------- ------ ------ ------- ------ The notes on pages 15 to 21 form part of the preliminary unaudited financialinformation. Notes to the preliminary unaudited financial information for the year ended 31March 2007 1. Preparation of preliminary unaudited financial information This preliminary unaudited financial information has been extracted from auditedfinancial statements which have not yet been filed with the Registrar ofCompanies and does not constitute summary financial information or statutoryfinancial information as defined in Section 240 and Section 251 of the CompaniesAct 1985. The preliminary unaudited financial information has been prepared inaccordance with International Financial Reporting Standards as adopted by theEuropean Union (IFRSs), International Financial Reporting InterpretationsCommittee (IFRIC) interpretations, and those parts of the Companies Act 1985applicable to companies reporting under IFRS. 2. Segmental reporting Revenue and results --------------- ------- ------ ------ ------- ------- ------- ------ Share of post-tax profit Inter- from Total Segment Operating Operating Joint2007- Before revenue revenue Revenue profit margin Venturesexceptional items £m £m £m £m % £m--------------- ------- ------ ------ ------- ------- ------- ------Design and EngineeringSolutions 353.8 (14.6) 339.2 28.1 8.3% -Highways and Transportation 265.9 (15.4) 250.5 13.2 5.3% 0.6Rail 262.0 (24.6) 237.4 4.4 1.9% -Middle East and China 117.8 (9.6) 108.2 7.2 6.7% -Management and Project Services 201.9 (8.3) 193.6 12.8 6.6% -Asset Management 53.1 (2.6) 50.5 1.6 3.2% 0.1Equity Investments 84.2 - 84.2 9.3 11.0% 1.2--------------- ------- ------ ------ ------- ------- ------- ------Total continuing segments 1,338.7 (75.1) 1,263.6 76.6 6.1% 1.9--------------- ------- ------ ------ ------- ------- ------- ------ --------------- ------- ------ ------ ------- ------- ------- ------ Impairment Share of of post-tax investments loss in from2007- Operating Joint JointExceptional loss Ventures Venturesitems £m £m £m--------------- ------- ------ ------ ------- ------- ------- ------Design and Engineering Solutions (1.1) - -Rail (2.6) - -Management and Project Services (0.3) - -Equity Investments - (70.0) (47.3)--------------- ------- ------ ------ ------- ------- ------- ------Total continuing segments (4.0) (70.0) (47.3)--------------- ------- ------ ------ ------- ------- ------- ------ --------------- ------- ------ ------ ------- ------- ------- ------ Impairment Share of of post-tax investments profit/ (loss) Inter- in from Total Segment Operating Operating Joint Joint revenue revenue Revenue profit margin Ventures Ventures2007- Total £m £m £m £m % £m £m--------------- ------- ------ ------ ------- ------- ------- ------Design and Engineering Solutions 353.8 (14.6) 339.2 27.0 8.0% - -Highways and Transportation 265.9 (15.4) 250.5 13.2 5.3% - 0.6Rail 262.0 (24.6) 237.4 1.8 0.8% - -Middle East and China 117.8 (9.6) 108.2 7.2 6.7% - -Management and Project Services 201.9 (8.3) 193.6 12.5 6.5% - -Asset Management 53.1 (2.6) 50.5 1.6 3.2% - 0.1Equity Investments 84.2 - 84.2 9.3 11.0% (70.0) (46.1)--------------- ------- ------ ------ ------- ------- ------- ------Total continuing segments 1,338.7 (75.1) 1,263.6 72.6 5.7% (70.0) (45.4)--------------- ------- ------ ------ ------- ------- ------- ------ ---------------------- ------- ------ ------ ------- ------- ------- -------- Share of post-tax profit Inter- from Total segment Operating Operating Joint revenue revenue Revenue profit margin Ventures2006 £m £m £m £m % £m---------------------- ------- ------ ------ ------- ------- ------- --------Design and EngineeringSolutions 303.7 (17.4) 286.3 23.4 8.2% -Highways and Transportation 231.5 (16.1) 215.4 11.0 5.1% 0.7Rail 190.6 (14.1) 176.5 2.6 1.5% -Middle East and China 72.8 (5.7) 67.1 3.0 4.5% -Management and Project Services 179.5 (7.6) 171.9 13.9 8.1% -Asset Management 63.0 (1.5) 61.5 4.0 6.5% -Equity Investments 74.1 (0.3) 73.8 5.0 6.8% 8.1---------------------- ------- ------ ------ ------- ------- ------- --------Total continuing segments 1,115.2 (62.7) 1,052.5 62.9 6.0% 8.8---------------------- ------- ------ ------ ------- ------- ------- -------- 3. Joint Ventures Share of post-tax profit/(losses) from Joint Ventures --------------- ----------- ------- Pre-exceptional Exceptional Metronet Other Total2007 £m £m £m £m------------- --- --- --- ------ ------- ------ ------- ------- ------Revenue 251.6 124.7 - 376.3Operating expenditure (250.7) (124.4) (60.9) (436.0)------------- --- --- --- ------ ------- ------ ------- ------- ------Operating 0.9 0.3 (60.9) (59.7)profit/(loss)Finance cost (19.5) (4.3) - (23.8)Finance income 18.6 5.3 - 23.9------------- --- --- --- ------ ------- ------ ------- ------- ------Profit/(loss) before taxation - 1.3 (60.9) (59.6)Taxation - 0.6 13.6 14.2------------- --- --- --- ------ ------- ------ ------- ------- ------Share of post-taxprofit/(loss) from JointVentures - 1.9 (47.3) (45.4)------------- --- --- --- ------ ------- ------ ------- ------- ------ ---------- --- --- --- -------- ------- ------ ------- -------- ------ Metronet Other Disposed Total2006 £m £m £m £m---------- --- --- --- -------- ------- ------ ------- -------- ------Revenue 246.9 108.9 2.7 358.5Operating expenditure (235.1) (108.5) (1.5) (345.1)-------------- -------- ------- ------ ------- -------- ------Operating profit 11.8 0.4 1.2 13.4Finance cost (19.7) (4.3) (1.2) (25.2)Finance income 18.7 4.6 1.3 24.6---------- --- --- --- -------- ------- ------ ------- -------- ------Profit before taxation 10.8 0.7 1.3 12.8Taxation (3.3) (0.3) (0.4) (4.0)---------- --- --- --- -------- ------- ------ ------- -------- ------Share of post-tax profitfrom Joint Ventures 7.5 0.4 0.9 8.8---------- --- --- --- -------- ------- ------ ------- -------- ------ 4. Net finance (income)/cost --------------- --- --- ---- ------ ------ ------ ------ ------- ------ 2007 2006 £m £m--------------- --- --- ---- ------ ------ ------ ------ ------- ------Interest payable on borrowings 1.1 0.9Hire purchase and financeleases 0.9 0.6Letters of credit charges 1.3 2.0Unwinding of discount 0.5 0.7Net finance cost on retirement benefitliabilities 2.4 6.7Other 0.5 0.3--------------- --- --- ---- ------ ------ ------ ------ ------- ------Finance cost 6.7 11.2Finance income (9.9) (7.9)--------------- --- --- ---- ------ ------ ------ ------ ------- ------Net finance (income)/cost (3.2) 3.3--------------- --- --- ---- ------ ------ ------ ------ ------- ------ 5. Income tax expense a) Analysis of charge in the year -------------------------------- ------ ------ ------ 2007 2006 £m £m-------------------------------- ------ ------ ------Current income tax- Current year 18.5 13.2- Adjustment in respect of prior year (4.5) (0.4)- Deferred income tax 3.7 5.1-------------------------------- ------ ------ ------Income tax on profit per income statement 17.7 17.9Adjust for:- Joint Venture taxation (0.6) 4.0- Income tax on profit on disposal of Joint Ventures - (0.5)- Tax on exceptional operations 1.2 --------------------------------- ------ ------ ------Normalised income tax expense 18.3 21.4-------------------------------- ------ ------ ------ (Loss)/profit before tax per income statement (39.6) 74.8Adjust for:- Joint Venture taxation (0.6) 4.0- Profit on disposal of Joint Ventures - (6.4)- Exceptional items (after Joint Venture tax) 121.3 --------------------------------- ------ ------ ------Normalised profit before taxation 81.1 72.4-------------------------------- ------ ------ ------ Effective income tax rate (44.7)% 23.9% Normalised effective taxation rate 22.6% 29.6%------------------------------------ ------ ------ 5. Income tax expense (continued) b) Income tax on items charged to equity----------------- ------- ------- ------ ------- ------- ------ Retirement Share Retirement Share benefit based 2007 benefit based 2006 liability payments Total liability payments Total £m £m £m £m £m £m----------------- ------- ------- ------ ------- ------- ------At 1 April 18.1 2.2 20.3 6.8 2.1 8.9Deferred income tax (9.6) (0.5) (10.1) 11.3 0.1 11.4Current income tax - 1.6 1.6 - - ------------------ ------- ------- ------ ------- ------- ------At 31 March 8.5 3.3 11.8 18.1 2.2 20.3------------- ------- ------- ------ ------- ------- ------ 6. Exceptional items Metronet Joint Venture During the year Metronet's operating performance was mixed and the stations andcertain other capital programmes remain behind schedule. The costs of theprogramme are substantially higher than anticipated and as a result on21 June 2007 Metronet gave notice to London Underground of its intention toinvite the Arbiter to conduct an Extraordinary Review for Metronet BCV in Julyand for Metronet SSL later in the year. The Arbiter's review will determine theextent to which the additional costs in excess of the first £50m per infracoqualify for reimbursement by London Underground and is likely to take at leastsix to nine months to conduct. There is a risk that some of the additional costswill be borne by Metronet. Metronet is currently unable to access its lending facilities. Metronet, itsbanks and shareholders are in discussion about how to ensure that Metronet isable to continue until the completion of the Extraordinary Review. Metronet'sfinancial structure demands that a resolution of this issue is achieved if it isto continue to be able to deliver its PPP programmes. Given the current uncertainties associated with Metronet's funding position andthe outcome of the Extraordinary Review process, the results for the Group forthe year include an exceptional loss of £91.3m (after JV tax). This exceptionalloss has no cash impact but reduces the carrying value of the Group's investmentin Metronet to £nil. Trans4m Joint Venture Trans4m is primarily responsible for the delivery of improvements to stations,which as indicated above remains behind plan and its costs have risensignificantly. Trans4m has recently started awarding station contracts tooutside contractors rather than using companies within its tied supply chain. Tofurther address the stations programme in the medium term, Metronet and itsshareholders have recently reached agreement on heads of terms for the futureearly termination of Trans4m's contract. This agreement is subject to approvalfrom Metronet's banks. Trans4m bears a contractual share of the cost overrun together with penaltiesfor late delivery of stations into service. Although Trans4m's liabilities forthe cost overruns are capped, the Group's results include an exceptional lossfrom Trans4m of £26.0m (after JV tax) to take account of the expected outturnfor Trans4m's remaining contract. The cash impact of this is expected to be around £30m, the majority of whichwill be paid by Atkins to Trans4m during the financial year ended 31 March 2008. Atkins' supply chain The work that Atkins carries out for Trans4m is primarily related to stationsdesign. Given the changes to Trans4m's supply chain noted above, some of thework that Atkins was originally in line to undertake may now be carried out byother companies. As a result an exceptional loss of £4.0m is included in theresults for the year to take account of expected future losses. Our supply chain performance is expected to result in a cash outflow of around£35m during the year ending 31 March 2008, primarily in settlement of previouslyaccounted for liabilities. 6. Exceptional items (continued) -------------------------------- ------ ------- ------ 2007 2006Operating entities' exceptional items: £m £m-------------------------------- ------ ------- ------Atkins supply chain exceptional loss included in operating profit (4.0) -Tax credit on exceptional loss 1.2 --------------------------------- ------ ------- ------Operating entities' post-tax exceptional loss (2.8) --------------------------------- ------ ------- ------ Joint venture entities' exceptional items:-------------------------------- ------ ------- ------Impairment of investment in Metronet (70.0) -Metronet PPP pre-tax exceptional loss (31.6) -Trans4m Limited pre-tax exceptional loss (29.3) --------------------------------- ------ ------- ------Pre-tax exceptional loss from Joint Venture entities (130.9) -Tax credit on exceptional loss for Joint Venture entities 13.6 --------------------------------- ------ ------- ------Joint Venture entities' post-tax exceptional loss (117.3) --------------------------------- ------ ------- ------ Total post-tax exceptional loss (120.1) --------------------------------- ------ ------- ------ 7. Dividends ---------------------------- ------ ------ ------ ------ 2007 2006 2007 2006 pence pence £m £m---------------------------- ------ ------ ------ ------Final dividend paid for theyear ended 31 March 2006 (2005) 11.5p 8.0p 11.6 7.9Interim dividend paid for theperiod ended 30 Sept 2006 (2005) 6.0p 4.5p 6.1 4.5---------------------------- ------ ------ ------ ------Dividends recognised in the year 17.5p 12.5p 17.7 12.4---------------------------- ------ ------ ------ ------ Interim dividend paid for theperiod ended 30 Sept 2006 (2005) 6.0p 4.5p 6.1 4.5Final dividend proposed forthe year ended 31 March 2007 (2006) 14.0p 11.5p 14.1 11.5---------------------------- ------ ------ ------ ------ Dividends relating to the year 20.0p 16.0p 20.2 16.0---------------------------- ------ ------ ------ ------ The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in this preliminaryunaudited financial information. 8. Earnings per share (EPS) Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares in issue duringthe year excluding shares held by the Employee Benefit Trusts (EBTs) which havenot unconditionally vested in the employees. Diluted earnings per share is the basic earnings per share after allowing forthe dilutive effect of the conversion into ordinary shares of the number ofoptions outstanding during the year. The options relate to the SAYE schemes,Equity Participation Plans and Long-term Incentive Plans. Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below: ------------------------------ ------ ------ 2007 2006 number number ('000) ('000)------------------------------ ------ ------Number of sharesWeighted average number of shares used inbasic EPS (post exceptional) 100,901 99,790Effect of dilutivesecurities- Share options - 2,028------------------------------ ------ ------Weighted average number of shares used indiluted EPS (post exceptional) 100,901 101,818------------------------------ ------ ------ Weighted average number of shares used innormalised EPS (pre exceptional) 100,901 99,790Effect of dilutive securities- Share options 1,204 2,028------------------------------ ------ ------Weighted average number of shares used innormalised EPS (pre exceptional) 102,105 101,818------------------------------ ------ ------ Earnings £m £m(Loss)/profit for the year attributableto equity shareholders (57.3) 56.9Profit on disposal of Joint Ventures (net of taxation) - (5.9)Exceptional items 120.1 ------------------------------- ------ ------Normalised earnings 62.8 51.0------------------------------ ------ ------ ------------------------------ ------ ------ pence penceBasic (loss)/earnings per share (post exceptional) (56.8) 57.0Diluted (loss)/earnings per share (post exceptional) (56.8) 55.9Normalised basic earnings per share (pre exceptional) 62.2 51.1Normalised diluted earnings per share (pre exceptional) 61.5 50.1------------------------------ ------ ------ Normalised diluted EPS (before exceptional items) is considered to be a morerepresentative measure of underlying trading. 9. Statement of changes in equity -------------- ------ ------- ------ ------- --------- Share Share Merger Retained Equity capital premium reserve (loss)/ shareholders £m account £m earnings (deficit)/ £m £m funds £m-------------- ------ ------- ------ ------- ---------Balance at 31 March 2006 0.5 62.4 8.9 (107.9) (36.1) Loss for the year - - - (57.3) (57.3)Dividends - - - (17.7) (17.7)Actuarial gain on retirement benefitliabilities - - - 21.7 21.7Share based movements - - - 5.9 5.9Employee Benefit Trusts - - - 0.1 0.1Share of Joint Venturefinancial derivatives - - - 7.5 7.5Net differences on exchange - - - (0.2) (0.2)-------------- ------ ------- ------ ------- ---------Balance at 31 March 2007 0.5 62.4 8.9 (147.9) (76.1)-------------- ------ ------- ------ ------- --------- The amounts included above are net of tax. 10. Cash generated from operations ------------------------ ------- ------ 2007 2006 £m £m------------------------ ------- ------(Loss)/profit for the year (57.3) 56.9Adjustments for:Income tax 17.7 17.9Finance income (9.9) (7.9)Finance cost 6.7 11.2Impairment of investment in Joint Ventures 70.0 -Share of post-tax (profit)/loss from Joint Ventures 45.4 (8.8)Profit on disposal of Joint Ventures - (6.4)Depreciation charges 20.5 14.7Amortisation charges 11.0 9.6Amortisation of acquisition intangibles 0.6 -Release of deferred income (0.1) (0.8)Share based payment charge 5.1 3.0Result on disposal of property, plant & equipment 0.3 0.7Movement in provisions 8.0 (0.1)Movement in inventories (0.2) -Movement in trade and other receivables (5.1) (2.3)Movement in payables 14.3 42.4Movement in pensions (20.9) (18.4)------------------------ ------- ------Cash generated from continuing operations 106.1 111.7------------------------ ------- ------ 11. Analysis of net funds --------------- ------ ------ ------ ------- ------ At 31 Other At 31 March Cash non-cash Exchange March 2006 Flow changes movement 2007 £m £m £m £m £m--------------- ------ ------ ------ ------- ------Cash and cash equivalents 177.4 12.5 - (2.2) 187.7Financial assets 40.8 8.8 - - 49.6Borrowings due within one year (2.7) 2.7 (0.4) - (0.4)Borrowings due after one year (20.6) 1.6 (5.8) 1.7 (23.1)Finance leases (18.3) 4.0 (0.4) - (14.7)--------------- ------ ------ ------ ------- ------Net funds 176.6 29.6 (6.6) (0.5) 199.1--------------- ------ ------ ------ ------- ------ 12. Events after the balance sheet date On 25 June 2007 contracts were exchanged for the disposal of LSH for anestimated consideration of £46.5m together with earn-out potential for a further£10m depending upon on LSH's performance in the year ending 31 March 2008. Theprofit on disposal is estimated to be approximately £20m assuming that noadditional payments are made by LSH in relation to the performance in the yearending 31 March 2008. 13. Retirement benefit liabilities The Group operates both defined benefit and defined contribution pensionschemes. The two main defined benefit schemes are the Atkins Pension Plan andthe Railways Pension Scheme, both of which are funded final salary schemes. Theassets of both schemes are held in separate trustee administered funds. Otherpension schemes include the Atkins McCarthy Pension Plan in the Republic ofIreland, which is a final salary funded defined benefit scheme, and a range ofdefined contribution schemes or equivalent. The defined benefit sections of all Atkins' pension schemes are closed to newentrants, who are now offered membership of the defined contribution section. The main assumptions used for the IAS 19 valuation of the retirement benefitliabilities for the Atkins Pension Plan and the Railways Pension Scheme arelisted in the table below. ------------------------------ --------- ------- 2007 2006------------------------------ --------- -------Price inflation 3.10% 2.85%Rate of increase of pensions in paymentLimited Price Indexation 3.10% 2.85%Limited Price Indexation to 2.5% 2.50% 2.50%Fixed 5.00% 5.00%Rate of increase in salaries 4.60% 4.35%Rate of increase for deferred pensioners 3.10% 2.85%Discount rate 5.35% 5.00%Expected rate of return on plan assets 6.70% 6.90%Expected rate of social security increases 3.10% 2.85%Longevity at age 65 for current pensionersMen 18.8 years 18.7 yearsWomen 21.8 years 21.7 yearsLongevity at age 65 for future pensioners (current age 45)Men 21.0 years 20.9 yearsWomen 24.0 years 23.9 years------------------------------ --------- ------- The components of the pension cost are as follows: ------------------------------ --------- ------- 2007 2006Cost of sales £m £m------------------------------ --------- -------Current service cost 22.5 18.6Curtailment gain - (0.5)------------------------------ --------- -------Total service cost 22.5 18.1------------------------------ --------- -------Finance (income)/costFinance cost 51.7 42.9Expected return on plan assets (49.3) (36.2)------------------------------ --------- -------Net finance cost 2.4 6.7------------------------------ --------- -------Total charge to income statement fordefined benefit schemes 24.9 24.8Charge for defined contribution schemes 16.0 12.3------------------------------ --------- -------Total charge to income statement 40.9 37.1------------------------------ --------- -------Statement of recognised income and expenseGain on pension scheme assets 3.4 88.4Changes in assumptions 27.9 (126.1)------------------------------ --------- -------Actuarial gain/(loss) 31.3 (37.7)Deferred tax charged to equity (9.6) 11.3------------------------------ --------- -------Actuarial gain/(loss) (net of deferred tax) 21.7 (26.4)------------------------------ --------- ------- The expected return on plan assets is based on market expectation at thebeginning of the year for returns over the entire life of the benefitobligation. ------------------------------ ------- ------ 2007 2006 £m £m------------------------------ ------- ------Defined benefit obligation (1,058.2) (1,021.9)Fair value of plan assets 808.1 722.0------------------------------ ------- ------Retirement benefit liabilities (250.1) (299.9)------------------------------ ------- ------ Movements in the retirement benefit liabilities are as follows: ------------------------------ ------- ------ 2007 2006 £m £m------------------------------ ------- ------At beginning of year (299.9) (274.2)Service cost (22.5) (18.6)Net finance cost (2.4) (6.7)Curtailment gain - 0.5Contributions 43.4 37.1Actuarial gain/(loss) 31.3 (37.7)Difference on exchange - (0.3)------------------------------ ------- ------At end of year (250.1) (299.9)------------------------------ ------- ------ 13. Retirement benefit liabilities (continued) The approximate effect on scheme liabilities from changes in the mainassumptions used to value the liabilities are as follows: --------------- ---------------------- ----------------------- --------------------- Effect on plan liabilities Change in assumption Atkins Pension Plan Railways Pension Scheme--------------- ---------------------- ----------------------- ---------------------Discount rate Increase/decrease 0.5% Decrease/increase 10.0% Decrease/increase 9.0%Rate of inflation Increase/decrease 0.5% Increase/decrease 6.5% Increase/decrease 9.0%Real rate of increase in salaries Increase/decrease 0.5% Increase/decrease 2.0% Increase/decrease 3.0%Longevity Increase by 1 year Increase 4.0% Increase 3.0%--------------- ---------------------- ----------------------- --------------------- 14. Business combinations On 24 April 2006 the Group acquired 100% of the share capital of Poolman HarlowLimited, a UK registered entity for a consideration of £0.6m, consisting of£0.4m cash consideration and £0.2m deferred consideration. On 22 June 2006 the Group acquired 100% of the share capital of Mantix Limited,a UK registered entity for cash consideration of £11.2m. On 8 August 2006 the Group acquired 100% of the share capital of MSL Trinidad, aUS registered entity for a cash consideration of £0.1m. On 30 November 2006 the Group acquired 100% of the share capital of Young & ButtLimited, a UK registered entity for a consideration of £2.4m consisting of £1.6mcash consideration and £0.8 deferred consideration relating to loan notes. On 14 December 2006 the Group acquired 100% of the share capital of BoreasConsultants Limited, a UK registered entity for a consideration of £3.9m,consisting of £2.9m cash consideration and £1.0m deferred consideration relatingto loan notes. On 19 March 2007 the Group acquired 100% of the share capital of the AdvantageBusiness Group, a UK registered group for a consideration of £19.5m, consistingof £15.3m cash consideration and £4.2m deferred consideration relating to loannotes. ---------------------- --------- -------- ------- Total Provisional Total provisional fair value provisional carrying value adjustments fair value £m £m £m---------------------- --------- -------- -------Other intangible assets - 2.0 2.0Other tangible assets 0.5 - 0.5Accounts receivable 11.1 - 11.1Cash balances 3.9 - 3.9Cash overdraft (0.2) - (0.2)Short-term trade and other payables (8.6) - (8.6)Deferred tax liabilities (0.2) - (0.2)Tax liabilities (0.8) - (0.8)---------------------- --------- -------- ------- 5.7 2.0 7.7Goodwill on acquisition 30.0---------------------- --------- -------- -------Consideration 37.7---------------------- --------- -------- ------- Consideration:Cash paid 31.5Deferred consideration 6.2---------------------- --------- -------- ------- 37.7---------------------- --------- -------- ------- Included in the goodwill recognised above are items that cannot be individuallyseparated and reliably measured due to their nature. These include new customersand synergy benefits. The initial accounting for these acquisitions has been determined provisionally.Any adjustments to the accounting required following finalisation of the fairvalues to be assigned to the acquired assets and liabilities will be recordedfrom the acquisition date within twelve months of the acquisition date.Additional goodwill of £0.7m was recognised for MSL Engineering Limited as aresult of finalising the accounting for the business combination acquired on31 March 2006. Included in the Group's results for the year is £0.6m profit before taxation and£0.4m profit after taxation in relation to the acquisitions above. If theacquisitions had been made at the beginning of the year then the Group's resultswould have included £35.6m revenue, £2.3m profit before taxation and £1.6mprofit after taxation in relation to the acquisitions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ATK.L