20th Jul 2006 09:32
Scott Wilson Group plc20 July 2006 For immediate release Thursday 20 July 2006 Scott Wilson Group plc Preliminary unaudited results for the year ended 30 April 2006 "Performance exceeded the Board's expectations at flotation" Scott Wilson Group plc, ("Scott Wilson"), the international consultancy offeringintegrated professional services in the transportation, property, environmentaland natural resources sectors, today issues its maiden preliminary results as alisted company. Financial highlights (unaudited): • Revenues including share of joint ventures rose by 15.0% to £197.8m (2005: £171.9m) • Group revenues increased by 16.2% to £185.9m (2005: £160.0m) • Profit before tax increased to £19.3m (2005: £4.3m) • Underlying* operating profit increased by 34.2% to £10.4m (2005: £7.8m) • Group operating margins rose to 11.5% (2005: 4.6%) including the impact of non-recurring items and restructuring, with underlying* operating margin increasing to 5.6% (2005: 4.8%) • Strong trading cash flow and financial position, principally resulting from float proceeds - year end net cash and cash equivalents of £33.1m, of which £16.6m was injected into the Pension Schemes on 3 May 2006, subsequent to the year end • Dividends as a listed company expected to commence with interim dividend in the current financial year Operating highlights • Successful flotation at 158p on the Official List of the London Stock Exchange in March 2006 • Recent contract wins with London Crossrail, Edinburgh Airport Rail Link and Hellenic Autopistas • Further selective acquisitions completed, building expertise and coverage in target sectors Prospects: • Record order book following significant recent contract wins • Medium term objectives to deliver trend rate of organic turnover growth of at least 10% per annum and operating margins of at least 6% * The Directors believe that the presentation of underlying operating profit,underlying operating margin, underlying cash generated from operations andunderlying earnings per share assist with the understanding of the underlyingresults of the Group. The underlying results are these line items within theGroup results adjusted for the impact of special pension curtailment gains andcash payments in the year, the impact of restructuring costs, costs relating toAdmission and (loss)/profit relating to Basing View Investments Ltd. Areconciliation of these measures to Group operating profit, operating margin,cash flow generated from operations and basic and diluted earnings per share isincluded in note 16 to this preliminary announcement. Geoff French, Chairman of Scott Wilson commented: "The Group is proceeding ahead of its strategic plan. With the order bookstanding at a record level, prospects for growth are excellent. The UK marketfor our services is very strong and international markets also offer significantpotential. "Our flotation has removed many of the historical and financial constraints togrowth. We are now seeking a sustainable acceleration in our historical rate ofgrowth through both organic investment and selective acquisitions. "The Board is confident of its ability to deliver our strategic objectives andenhanced shareholder value." For further information please contact: Scott Wilson Group plc www.scottwilson.comGeoff French, Chairman 01256 310 200Stephen Kimmett, Finance Director Smithfield 020 7360 4900Katie Hunt/Reg Hoare Print resolution images are available for the media to view and download from www.vismedia.co.uk Notes to editors: Scott WilsonScott Wilson is an international consultancy offering integrated professionalservices for civil and structural engineering projects, transportation,environmental studies and institutional development. It was ranked as the ninthlargest UK-owned engineering consultant by fee income for the calendar year 2005in the New Civil Engineer 2006 annual survey. The Group earned approximately 67 per cent of its revenue over the three yearsto 30 April 2006 in the UK and approximately 33 per cent overseas. The Group hasan existing network of international offices controlled through six regionalcentres in Warsaw, Johannesburg, Dubai, Delhi, Bangkok and Shanghai/Hong Kong. Scott Wilson has strong relationships with national governments,non-governmental agencies, multinational companies and supranational fundingbodies. In the financial year ended 30 April 2006, 30 of the Company's clientswere billed over £1 million and the top 50 of the Group's clients accounted foraggregate fees of some £100 million. Important clients and partners include Network Rail, the Highways Agency,Balfour Beatty, Alfred McAlpine, Cross London Rail Links, English Partnerships,Defence Estates, tie (transport initiatives Edinburgh), Southern Water, EnglishPartnerships, Costain, London Underground and the Roads Service NorthernIreland. Notable projects on which Scott Wilson has worked in the last year includeLondon Crossrail, Bangkok Airport, Manchester Airport, Spinnaker Tower, the UKWest Coast Rail Route Modernisation, AsiaWorld Expo, Victoria Station andEdinburgh Tram. CHAIRMAN'S STATEMENT INTRODUCTION I am pleased to report another excellent year for the Group in this, our firstyear as a public company. Our financial results show a continuing significantimprovement in revenue and operating margins. In addition, our order book alsostands at record levels. Our performance for the year as a whole has slightly exceeded the Board'sexpectations detailed at the time of the flotation. STRATEGY The Group has a clear strategic plan, as outlined during our flotation,to deliver increased shareholder value through a combination of organic andacquisitive growth and margin improvement. A detailed rolling five year strategic plan sets out how we intend to achievethe Group's medium term financial objectives of a trend rate of organic turnovergrowth of at least 10% per annum and Group operating margins of at least 6%.These targets will be boosted by complementary bolt on acquisitions which willnot only contribute to growth in revenue but will also enhance earnings, suchacquisitions building on our current strengths. FLOTATION OF THE GROUP In March 2006, the Group completed a successful flotation on the Official Listof the London Stock Exchange at a share price of 158 pence per share, valuingthe Group at £112m. The Group undertook the flotation to remove historical constraints to growth -having been constrained in the past by availability of working capital, bankdebt, the pension deficits and the requirement to buy out shares owned byretiring employees. The Group's flotation removed those constraints and providedadditional working capital thus giving us the opportunity to accelerate ourgrowth rate and improve profitability. RESULTS The results for the year were significantly ahead of the prior year. Revenue,including our share of joint ventures and associated undertakings, increased by15.0% to £197.8m (2005: £171.9m). Group revenues increased from £160.0m to£185.9m, a rise of 16.2%. Group operating profit increased from £7.4m to £21.4m, including the impact of a£13.5m curtailment gain on changes to the defined benefit pension schemes.Before the impact of the curtailment gain, and other non-recurring items andrestructuring costs, underlying* operating profit increased by 34.2% to £10.4m(2005: £7.8m) with underlying* operating margin improving from 4.8% to 5.6% (seenote 16). Basic earnings per share increased to 38.90p (2005: 9.09p), with underlying*earnings per share increasing by 45.9% to 16.06p (2005: 11.01p). Dilutedearnings per share increased from 9.09p to 37.70p with underlying* fully dilutedearnings per share rising 41.4% to 15.57p (2005: 11.01p). There was a net cash inflow from operations of £0.6m (2005: £5.4m) afternon-recurring items and restructuring costs and the special pension payment of£6.1m in the year. Underlying* operating cash flow continued to be strong at111% of underlying* operating profit of £10.4m (2005: 93%) * See note 16 DIVIDEND POLICY The Board has adopted a progressive dividend policy balancing growth inearnings, investment plans, dividend cover and the level of dividends paid bythe Group's peers. As set out in the flotation prospectus, it is not proposed to pay a finaldividend for the year ended 30 April 2006 but, in the absence of unforeseencircumstances, to commence dividend payments with an interim dividend for theyear ending 30 April 2007. A pre-float interim dividend of £667,000 was paid on6 March 2006 (2005: Nil). BOARD OF DIRECTORS The Main Board was established in May 2005 and strengthened in February 2006 bythe addition of two new Non-Executive Directors, Stuart Doughty and JamesNewman. Stuart, a Fellow of the Institution of Civil Engineers and a Chartered Engineer,is hugely experienced in both construction and engineering. Previously he hasbeen Chief Executive of Costain PLC between 2001 and 2005, Chairman of KennedyConstruction, Chief Executive of Hyder Consulting and has held senior positionsat Alfred McAlpine, Tarmac and John Laing. James is a Chartered Accountant and has substantial public company experience.He was Chairman of Waste Recycling Group plc until the Group's sale in 2003.Prior to this, James acted as both Deputy Chief Executive and Finance Directorof Kelda Group plc. He is currently a non-executive director of a number ofpublic companies. EMPLOYEES We now have over 4,000 staff in total, up from 3,598 at 30 April 2005. They arecritical to the Group's reputation, its continuous innovation and to thedelivery of these record results. We believe that the quality of our employees is amongst the Group's keyattributes, reflecting our core values of professionalism, responsiveness,collaboration, diversification and ambition. We were delighted, at the time of the flotation, to give every member of staffoptions over the Group's shares - rewarding them for their past contributions,whilst continuing to incentivise them to deliver strong performance in thefuture. We will continue to focus on the recruitment of new staff and the retention ofour existing staff to ensure that we have the resources necessary to provide ourclients with the high quality service for which Scott Wilson is renowned. ACQUISITIONSDuring the year and following the year end, we continued our policy of makingselective acquisitions to build our expertise and coverage in our targetsectors. In June 2005, we acquired the business and certain assets of RaymondProfessional Group (Europe) enhancing the Group's capability in the worldwidepower market. In December 2005 we purchased Pozhaskie Biuro Projektow Drog I MostowTransprojekt Sp. Z O.O. (TPP) in Poland making us the second largesttransportation consultant in that major East European market. Following the year end, we have acquired: • the minority interest in Scott Wilson Pavement Engineering Ltd in May 2006, a leading UK consultancy in the evaluation of highways, runway pavements and rail track beds • Roscoe Postle Associates Inc. in Canada in June 2006, significantly enhancing our position, client base and geographical coverage in the mining sub-sector of natural resources. Outlook The Group has a clear strategic plan for the period up to 2009 and is currentlyahead of that plan. With the Group's order book standing at a record level, theprospects for growth are excellent. In the UK, the government is continuing to improve the basic infrastructureusing a combination of public and private money, particularly in thetransportation sector and in health and education with over £10bn of funds beingcommitted. Network Rail, one of our key clients, has also recently releasedplans to spend circa £4bn on further improvements to its infrastructure. All ofthis, together with the development of Eastern Europe, the Middle East, Indiaand China, gives me considerable confidence for our future. Our flotation has removed many of the historical and financial constraints togrowth. We are now seeking a sustainable acceleration in our historical rate ofgrowth through both organic investment and selective acquisitions. The Board is confident of its ability to deliver our strategic objectives andenhanced shareholder value. Geoff French Group Chairman20 July 2006 REVIEW OF OPERATIONS United Kingdom and Ireland Performance of the UK businesses for the year was ahead of the Board'sexpectations, both in terms of turnover and operating profit. We remain oncourse to achieve our objective of convergence in operating performance acrossthe UK Divisions as set out in the Prospectus. Overall, our markets were buoyant in all the principal sectors in which weoperate. At the year end, forward contracted income of the UK businesses stoodat record levels representing 8 months of trading. Long term procurementarrangements (including framework contracts) represented in excess of 30% of theorder book measured on a confirmed order basis. Further framework contracts were secured, moving this source of work closer toachieving our long term target of 35% of revenue for the UK businesses. Skillsand resources continue to be successfully cross-sold within the Group. There has been further focus on building the profile and values of the ScottWilson brand amongst customers and stakeholders. An independent survey ofstakeholders has confirmed that our differentiators are the people we employ andour culture of adding value and exceeding expectations. This, combined withrealigned governance and management, will enable us to sustain performance andensure that high levels of repeat business are maintained. Managing risk is also fundamental to our business. This has been furtheraddressed through our strategy of diversifying the business to achieve a goodbalance between the contribution made by market sector, geography and public/private clients. UK Central Division continued to confirm its dominant position in the UK roadsmarket and to increase penetration into its main sectors. The joint venture withAlfred McAlpine established to deliver the Managed Agency Contract for theHighways Agency in Area 7 performed to the Board's expectations with thecontract being extended to 2009. UK South Division delivered significantly improved margin performance, closingthe gap with the other UK divisions, in part assisted by a programme ofrationalisation. Markets remain buoyant in the South East and the Division hasbeen successful in transportation, property and related sectors and isparticularly active in the housing renewal markets. Scotland & Ireland Division opened an office in Northern Ireland to servicesignificant levels of public and private investment in infrastructure in theprovince, particularly in Belfast. The Division also strengthened its presencein the Republic of Ireland, mainly in the roads market. In Scotland strategicmanagement appointments were made as part of increasing diversification into theproperty sector. Railways Division has completed another outstanding year with revenue growthexceeding 33%. The Division continues to excel within its key strength ofdelivering major, complex, multidisciplinary projects on behalf of a range ofclients. During the year the Division has followed a strategy of diversificationaway from its previous reliance on Railtrack/Network Rail and now has a muchwider range of clients including infrastructure owners and operators, trainoperating companies, contractors and local authorities. Network Rail remains anextremely important customer, still representing around 25% of the Division'sforward order book, which currently stands at around £60m, more than a year'sturnover. About 10% of fee income is now being generated outside the UK. Growthto date has been entirely organic and the Division continues to recruit a rangeof senior technical and management specialists to lead its considerable internalexpansion plans. Overall the outlook in the UK markets is encouraging with good levels ofinvestment continuing in our principal sectors. International The International Division went through a year of transition and reorganisationboth in its UK based operation and in a number of its regional businesses, withthe objective of introducing a new and more effective business model. Historically, the majority of the Group's international activity was based onproviding expatriate experts into aid-funded projects. Whilst this is no longera viable business model, it has left a legacy of widespread brand recognition,market penetration, understanding and suitably qualified staff. We plan to capitalise on this position by developing an integrated globalbusiness operating from our six regional centres outside the UK, based in HongKong/Shanghai, Bangkok, Delhi, Dubai, Warsaw and Johannesburg. Key clients include a range of national governments, multinational companiesfocused on property, logistics, power and mining, and major foreign contractors. The challenge for the International Division is to increase operating marginsand the new business model now established is expected to produce a gradualimprovement. Our strategy will include making selective bolt-on acquisitions to strengthenour position in our selected markets and to provide technical staff to resourcethe global business. HUGH BLACKWOOD / RON WALLJOINT CHIEF EXECUTIVES20 JULY 2006 FINANCIAL REVIEW INTRODUCTION This is the Group's first set of results as a listed company and the first yearthat the Group has prepared its financial statements under InternationalFinancial Reporting Standards (IFRS). THE FLOTATION The flotation was undertaken primarily to establish a more appropriate capitalstructure for the next phase of the Group's growth strategy. The Directors alsobelieve that it will raise the profile of the Group within its commercialenvironment, incentivise staff at all levels and provide liquidity for existingshareholders. The restructuring of the Group included the creation of a new holding company,Scott Wilson Group plc. Prior to flotation Scott Wilson Group plc acquired theshares in Scott Wilson Holdings Ltd not held by Basing View Investments Ltd.This has been accounted for as a reverse acquisition. Immediately followingAdmission to the Official List, Scott Wilson Group plc acquired Basing ViewInvestments Ltd. As the shareholders of Basing View Investments Ltd held theirinterests for the benefit of the pre-Admission shareholders of Scott WilsonGroup plc, under the terms of a trust deed, this has been accounted for as partof the reverse acquisition. These financial statements consolidate Basing ViewInvestments Ltd and its subsidiaries for both 2005 and 2006 despite theacquisition taking place on 15 March 2006. The total amount raised at the flotation was £68.0m (gross of expenses).These funds were used as follows: £m--------------------------------------- ------Repayment of bank debt 11.9--------------------------------------- ------Settlement of Pre-Incorporation Liabilities* 12.7--------------------------------------- ------Top-up contribution to the Scott Wilson Pension Schemes 23.4--------------------------------------- ------Cash resources to provide additional working capital financing 14.1--------------------------------------- ------Payment of the flotation expenses 5.9--------------------------------------- ------ *For further details and a description of the Group's pre incorporationliabilities please refer to the Prospectus produced for the purpose of theGroup's admission to the London Stock Exchange on 7 March 2006, available on ourwebsite. FINANCIAL PERFORMANCE Revenue plus our share of joint venture revenue increased by 15.0% to £197.8m(2005: £171.9m). Group revenue increased by 16.2% to £185.9m (2005: £160.0m).Gross profit increased by 14% to £68.0m (2005: £59.6m). Operating profitincreased to £21.4m (2005: £7.4m) with underlying* operating profit increasingby 34.2% to £10.4m (2005: £7.8m). The underlying* operating profit marginincreased to 5.6% (2005: 4.8%). In December 2005 we acquired TPP at a cost of£1.7m which contributed £598,000 to revenue and £43,000 to operating profit. A summary of the financial performance of the Divisions is shown in thefollowing table. The highlights of the year were the continued excellent growthin Railways and the improvement in margins in the UK South, Scotland & Irelandand Railways Divisions. During the year there were exceptional restructuring costs of £0.7m(2005: £1.0m) incurred in refocusing under-performing units in UK South andInternational Divisions. Costs relating to flotation of £1.1m were charged toprofit & loss with a further £4.8m charged against share premium. Net financecosts fell by 32.4% to £2.1m. The latter should continue to improve as asignificant proportion of bank debt has been repaid and the pension deficit hasbeen substantially reduced. There was a curtailment gain on retirement benefitchanges of £13.5m (2005: nil). Under IFRS, goodwill is no longer amortised but is, however, subject to anannual impairment test. The Directors are satisfied that there has been noimpairment to the carrying value of goodwill during the financial year. Divisional Performances UK UK Scotland & Railways International Total Central South Ireland £m £m £m £m £m £m 2006Group 41.4 46.5 13.3 35.2 49.5 185.9revenueUnderlying*operating 3.8 2.1 1.1 2.8 0.6 10.4ProfitUnderlying*margin 9.3% 4.4% 8.1% 8.0% 1.1% 5.6% 2005Group 36.1 42.6 11.3 26.3 43.7 160.0revenueUnderlying*operating 3.7 1.5 0.6 1.3 0.7 7.8profitUnderlying*margin 10.2% 3.6% 5.3% 4.9% 1.5% 4.8% SHARE OPTIONS Prior to flotation, the Group granted 3,725,000 options under an All EmployeeShare Option Scheme and 900,000 under an Executive Share Option Scheme. Postflotation, 1,625,000 options were granted under an SAYE Share Option Scheme. CASH FLOW There was a net cash inflow from operations of £0.6m (2005: £5.4m) fromoperations after non-recurring items, restructuring costs and special pensionpayment of £6.1m. Underlying* operating cash inflow continued to be strong at£9.1m, which equates to an underlying* cash conversion ratio (underlying*operating cash from operations as a percentage of underlying* operating profit)of 111% (2005: 93%). Capital expenditure in the year totalled £7.9m including£3.3m for the purchase of purpose built premises in Nottingham to replaceexisting offices in Nottingham and Derby. A reconciliation of underlying* cashgenerated from operations to Group cash generated from operations is shown innote 16. At the year end the Group had net cash and cash equivalents of £33.1m (2005: £(4.2m)), of which £16.6m was paid into the Pension Schemes on 3 May. In January2006 the Group's bank overdrafts and loans were refinanced by The Royal Bank ofScotland which made available to the Group a composite £35m facility. TAXATION The tax charge in the year amounted to £6.3m (2005: £1.9m). This represents aneffective tax charge on profit before tax of 32.8% (2005: 44.4%). This is higherthan the UK statutory rate of 30%. The most significant factor affecting therate is the effect of non-deductible expenses. Tax paid in the year increased to£2.5m (2005: £2.0m). However, this should significantly reduce as a result ofthe special pension payments. PENSIONS The Group took several actions during the year to reduce the current and futurefinancial deficit in the two main Schemes. This included breaking the salarylink within the Scott Wilson Pension Scheme and limiting pensionable payincreases for the Railways Pension Scheme. The gross deficit at April 2006 was£33.6m (2005: £49.4m). This improvement is despite using the latest 'shortcohort' mortality assumptions to reflect longer life expectancy which increasedthe deficit by £6.3m. The further injection made on 3 May 2006 reduced the gross deficit to £17m(based on the 30 April 2006 reported deficit) which is £6.6m lower thanestimated at flotation. In addition contributions to the pension scheme havebeen agreed with the trustees at the current level until the later of the nexttriennial valuation or 36 months after Admission. EARNINGS PER SHARE Basic and fully diluted earnings per share were 38.90p and 37.70p respectively.Underlying* fully diluted earnings per share, excluding the non-recurring items,were 15.57p (2005: 11.01p). As the calculation excludes the shares held byBasing View Investments Ltd throughout the period as a consequence of thereverse acquisition it is higher than would be anticipated in a normal year. DIVIDENDS The Group paid an interim dividend of 2.5 pence per share at a total cost of£667,000 on 6 March 2006, prior to flotation (2005: Nil). As set out in theprospectus the Board is not recommending the payment of a final dividend for theyear ended 30 April 2006 but expects to commence declaration of dividends as aquoted company with an interim dividend for the year ending 30 April 2007. POST BALANCE SHEET EVENTS With effect from 1 May 2006, the Group acquired the 30% minority shareholding inScott Wilson Pavement Engineering Ltd for a cash consideration of £630,000. On 3 May 2006, the Group made contributions totalling £16,610,000 to the ScottWilson Pension Scheme and to the Scott Wilson Shared Cost section of theRailways Pension Scheme. On 1 June 2006 the Group acquired the entire share capital of Roscoe PostleAssociates Inc., a Toronto-based mining consultancy business, for a totalpotential consideration of C$5.0m (£2.4m). OUTLOOK The continued improvement in our financial performance reflects the actions thathave been taken to focus the Group. These include targeting the convergence ofoperating margins particularly through improved margins in the UK South andInternational Divisions. Measures have also been taken by the Board to ensurehigh levels of commercial competence exist across the Group, that best practicecontinues to be shared and that appropriate business metrics including keyperformance indicators are applied at Divisional level. Cash management and control of working capital are central to our financialstrategy. Furthermore, the Group's financial position has been significantlystrengthened following the flotation. We intend to continue with nicheacquisitions that improve our skills or widen our geographic base, the majorityof which will be funded from cash flow and from the new banking facilities putin place in January this year. *See note 16 STEPHEN KIMMETTFINANCE DIRECTOR20 JULY 2006 FULL TABLES AND NOTES TO FOLLOW This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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