Final Results

22nd Jun 2006 07:02

Atkins (WS) PLC22 June 2006 Thursday 22 June 2006 for Immediate Release Results for the year ended 31 March 2006 Professional services group WS Atkins plc (Atkins) today announced preliminaryunaudited results for the year ended 31 March 2006. RESULTS SUMMARY 2006 2005Total revenue £1,411.0m £1,157.3mRevenue excluding Joint Ventures £1,052.5m £955.0mOperating profit1 £62.9m £50.2mOperating margin1 6.0% 5.3%Normalised profit before taxation2 £72.4m £62.2mProfit before taxation £74.8m £53.0mNormalised fully diluted EPS2 50.1p 42.5pFully diluted EPS 55.9p 38.7pDividend 16.0p 12.0pCash flow from operating activities £111.7m £88.1mNet funds £176.6m £121.7mHeadcount (including agency staff) 14,907 13,892 HIGHLIGHTS • Good results at the top end of expectations, with revenue growth of 10% and operating profit1 up 25%. • Operating margin1 increased from 5.3% to 6.0%. • Significant revenue growth in Design and Engineering Solutions (17%), Middle East and China (53%) and Management and Project Services (13%). • Headcount (including agency staff) increased by over 1,000 during the year to approximately 15,000. • The Rail business started to recover in the second half of the year, as predicted. • Profits from the Group's activities relating to the Metronet Enterprise3 decreased from £11.9m4 to £4.6m. • Strong order book, with work in hand representing 62% of budgeted revenue for 2006/07 (2005: 57%). • Improved cash flow from operating activities of £111.7m (2005: £88.1m), in spite of accelerated deficit funding payments to the pension scheme of £20.0m (2005: £8.6m). • Net funds increased from £121.7m to £176.6m. • The Board is recommending a final dividend of 11.5p, making the total dividend for the year 16.0p (2005: 12.0p), an increase of 33%. Notes: 1. The operating profit and operating margin for 2005 are stated excluding a charge for goodwill impairment in that year amounting to £7.2m. 2. Normalised profit before taxation is defined as profit before taxation excluding JV taxation and any profits or losses from disposals. Normalised fully diluted EPS is defined as fully diluted EPS before any profits or losses from disposals. These are considered to be more representative measures of underlying trading. Comparative figures for the year ended 31 March 2005 exclude a goodwill impairment charge of £7.2m in that year. 3. The Metronet Enterprise comprises the Group's interest in the Metronet and Trans4m Joint Ventures and the related Atkins supply chain. 4. The prior year figure for profit from the Metronet Enterprise excludes the pro forma adjustments in relation to IFRIC D12-D14. Thursday 22 June 2006 for Immediate Release "The Group made good progress last year and produced significantly increasedprofits. Revenue grew by 10%, operating margins increased to 6.0% and headcountgrew by over 1,000. In particular, the Design and Engineering Solutions andManagement and Project Services segments grew substantially and our business inthe Middle East has gone from strength to strength. During the year we madesubstantial investment in initiatives targeted to improve the development andretention of our staff and this is starting to yield benefits. The MetronetEnterprise, however, continues to present challenges and this has impacted theGroup's overall profitability. "The outlook for the Group remains positive and demand for our services isstrong in all our markets. At the end of the year, work in hand was 62% of ourbudgeted revenue for 2006/07, compared to 57% last year. We are confident thatthe continued focus on people and our core skills will enable the Group toachieve further profitable growth". Ed Wallis Keith ClarkeChairman Chief Executive Enquiries AtkinsKeith Clarke, Chief Executive + 44 (0) 1372 726140Robert MacLeod, Group Finance Director + 44 (0) 1372 726140BrunswickMike Smith, 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; Swedish Federation ofConsultant Engineers & Architects, 2005; Engineering News Record, 2005). 2. Attachments Attached to this press release are the Overview of the year, Operating review,Financial review, the unaudited consolidated income statement, consolidatedstatement of recognised income and expense, consolidated balance sheet,consolidated cash flow statement and notes to the unaudited preliminaryfinancial information for the year. 3. Analyst Presentation A presentation for analysts will be held today at The City Presentation Centre,4 Chiswell Street, Finsbury Square, London EC1Y 4UP at 9.00am. A webcast of thepresentation will subsequently be available via the Company's website,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 made good progress last year and produced significantly increasedprofits. Revenue grew by 10%, operating margins increased to 6.0% and headcountgrew by over 1,000. In particular, the Design and Engineering Solutions andManagement and Project Services segments grew substantially and our business inthe Middle East has gone from strength to strength. During the year we madesubstantial investment in initiatives targeted to improve the development andretention of our staff and this is starting to yield benefits. The MetronetEnterprise, however, continues to present challenges and this has impacted theGroup's overall profitability. Outlook The outlook for the Group remains positive and demand for our services is strongin all our markets. At the end of the year, work in hand was 62% of our budgetedrevenue for 2006/07, compared to 57% last year. We are confident that thecontinued focus on people and our core skills will enable the Group to achievefurther profitable growth. Dividend The Board is recommending a final dividend of 11.5p, making the total dividendfor the year 16.0p (2005: 12.0p), an increase of 33%. This reflects ourcontinuing confidence in the prospects of the Group and represents a progressiontowards our stated policy of paying a dividend that is approximately 2.5 timescovered by cash-backed normalised earnings per share. If approved, the dividendwill be paid on 29 September 2006 to ordinary shareholders on the register on 25August 2006. OPERATING REVIEW Design and Engineering Solutions Activities and key performance indicators Design and Engineering Solutions delivers high value engineering and innovativedesign to a wide range of clients in the public, regulated and private sectors.Overall Atkins has the largest market share in the engineering and designconsultancy market, being placed at or near the top of the 2006 New CivilEngineer Consultants File rankings in all our main areas of business. Key Performance indicators 2006 2005 % change In yearFinancial metricsRevenue £286.3m £244.4m +17%Operating profit £23.4m £21.0m +11%Operating margin 8.2% 8.6% -0.4% ptsWork in hand 44% 43% +1% ptsPeopleStaff at 31 March 3,639 3,339 +9%Total headcount (inc. agency staff) at 31 4,026 3,568 +13%March -------- -------- -------------------------------- Highlights in 2006 • A strong year with substantial growth. • Revenue increased by £41.9m (17%) with operating margins in excess of 8%. Growth has been driven by our continued focus on design and technical excellence, which has led to strong demand for our services in key target markets. Market conditions have been generally favourable and the slight reduction in margins was caused by the impact of Metronet supply chain activities. Staff recruitment has been an important focus over the last year and headcount numbers increased by over 450. • Our Water and Environment division finished the year strongly with the AMP4 capital programme generating an increasing flow of work, notably for Southern Water, United Utilities and Thames Water. Our four-year framework contract for the Environment Agency is also providing a large workload. The geotechnical and tunnelling division has recently commenced work on the Gautrain Rapid Rail Link, a major infrastructure project in South Africa which is scheduled for completion prior to the 2010 football World Cup. • The Nuclear and Power division has continued to make progress, following the award of substantial long-term contracts for AWE and the Carbon Trust, while the first year of our contract with British Energy has also boosted growth. We have recently been awarded a significant contract, working alongside British Nuclear Group, to provide technical services for the cooling ponds decommissioning project at Trawsfynydd. • Our Aerospace and Defence division continues to flourish, our strong relationships with Airbus and the MoD providing increasing visibility of forward workload. Work on the Future Rapid Effect System (FRES) project for the MoD is progressing well. FRES is the largest land systems programme ever undertaken in the UK and will develop a new generation of medium-weight armoured vehicles for the British Army. Our role involves technical assessment to enable the MoD to select contractors. Our stress engineering project for the Airbus A380 is well advanced and has been important in raising our profile in the aerospace sector. • Demand for our integrity management services in the Oil and Gas sector is strong. Platform life extensions are lucrative to producers at present and there is a great deal of demand for smart engineering solutions that can support additional years of production and underpin safe operations. Our capability in this area has been strengthened by the recent acquisition of MSL Engineering Limited, which provides additional expertise in offshore engineering and contracts in the North Sea and the Gulf of Mexico. • Our Design division has seen continued growth with satisfactory margins, despite the impact of Metronet supply chain activities. Successful completion of the latest design phase of the Colchester Garrison project was a key feature of the year, work being completed to schedule. The education sector has generated a solid flow of work, particularly through the Building Schools for the Future programme and our appointment as technical advisor to Partnership for Schools. We also provide programme management services for the government's flagship City Academy scheme. The most significant contract win in the year was our selection by the Olympic Delivery Authority as one of its Tier 1 consultants for the design of the London Olympic Park and the associated infrastructure. This represents a major multi-disciplinary opportunity for the Group. We have also recently been appointed by Essex County Council to provide property services across the county for five years, an endorsement of our capabilities in the local authority property services market. The division has undertaken a wide range of innovative projects, including design and architectural services for lengthening Royal Caribbean's liner, Enchantment of the Seas. We have recently been awarded a design commission for an even larger liner, the 225,000 ton Genesis, set to be the world's largest passenger ship. Outlook • The outlook for Design and Engineering Solutions remains good and the short supply of high quality engineering skills means there is scope for further margin growth. Demand is strong in all our divisions and at 31 March 2006 we had secured 44% of our budgeted revenue for 2006/07. This is very satisfactory given that most of the segment's workload relates to medium rather than long-term projects. Further growth is dependent on sufficient staff recruitment and this remains a key focus for management. We aim to supplement increasing staff numbers in the UK with accelerated recruitment into our Bangalore design office. • Prospects in the longer term are considered positive in the UK defence, nuclear, healthcare and education markets. In the defence sector our FRES systems house role leaves us well placed to win further work and we are currently reviewing market opportunities in the light of the recent White Paper on Defence Industrial Strategy. The nuclear sector presents excellent opportunities over the next few years in relation to the management of licensed sites. Healthcare and education remain major government priorities. Growth areas overseas include mass transit, where there are opportunities to provide design services alongside rail engineering. Highways and Transportation Activities and key performance indicators Atkins is the UK's largest provider of highways and transportation consultancyand related services (New Civil Engineer Consultants File, 2006). Our principalservices are transport planning, design of new roads and road improvements,development of intelligent transport systems, management of road maintenance andintegrated road network management. Our client base is largely in the publicsector, notably local authorities, the Highways Agency (HA), the Department forTransport (DfT) and other government bodies. The New Civil Engineer ConsultantsFile (2006) indicates that our share of the UK market is approximately 15%. Key performance indicators 2006 2005 % change in yearFinancial metricsRevenue £215.4m £206.8m +4%Operating profit £11.0m £9.4m +17%Operating margin 5.1% 4.5% +0.6% ptsWork in hand 75% 74% +1% ptsPeopleStaff at 31 March 2,734 2,641 +4%Total headcount (inc. agency staff) at 31 March 2,891 2,780 +4%------------------------ -------- -------- -------- Highlights in 2006 • A year of continued growth with significantly improved margins. • Operating profit increased by £1.6m to £11.0m (17%) with operating margins up from 4.5% to 5.1%. All areas of the business grew, the improved margin being mainly due to increased volumes and returns from our Transport Solutions division, which has performed particularly strongly. • The Transport Solutions division delivers design services for highway infrastructure and transport technology. Performance in 2006 was driven by strong demand for intelligent transport systems and design services for local authorities. During the year we secured our place on several important frameworks for the HA and won a number of term commissions for local authorities, notably Birmingham City Council, and an extension to our key traffic management role with Essex County Council. Our lead role on the HA Regional Control Centre (RCC) technical framework has been important and we have designed five of the HA's seven RCCs. The implementation of the RCCs has enabled the smooth transfer of responsibility for motorway and trunk road management from the police to the HA. Contract wins overseas included our appointment as independent engineer for the A1 motorway DBFO project in Poland, representing the Polish Motorways Agency and lending banks. • Our Transport Planning division provides a range of services, including strategic advice, traffic engineering, demand forecasting and access planning. The division has continued to grow, driven by a good workload from our framework contracts with the HA and the National Assembly for Wales, along with commissions from other national and local transport authorities. The provision of high level strategic advice has been an increasingly important area of our business, key clients including the DfT, the Commission for Integrated Transport and regional development agencies. PPP/ PFI advisory work has also grown and we have recently been appointed as lender's traffic and technical advisor on a number of European projects. • The Highway Services division undertakes road maintenance term contracts on behalf of the HA and local authorities. The division had a successful year and we secured extensions to three HA contracts. Our integrated services contracts have continued to generate a good flow of work, particularly through our award-winning highways partnerships with Northamptonshire and Somerset County Councils. In December 2005 we were appointed by Gloucestershire County Council under a five year contract to provide integrated highway management and design services to the county. The contract is extendable to ten years and has an annual value of around £30m, representing a major win for the business. In April 2006 Cambridgeshire County Council named us as preferred bidder for its integrated highways services contract. The contract will combine our existing professional services work with design and network management services and will generate annual revenue of approximately £25m over ten years. Outlook • Prospects for the Highways and Transportation segment are good. Following the award of our contract with Gloucestershire County Council, visibility of forward workload has slightly improved compared to last year, with work in hand at 31 March 2006 representing 75% of budgeted revenue for 2006/07. Many good work opportunities are presently available with a number of key bids currently outstanding. • The longer term outlook remains positive, with the UK government's stated commitment to improving highway infrastructure being supported by current spending plans. The segment retains potential for margin growth derived from a shift in the mix of work towards higher value planning and design services. The Transport Innovation Fund (TIF) will be one of the key growth drivers, with funding available from 2008 and increasing to some £2.5 billion per annum by 2014. We are already supporting a number of transport authorities with their TIF bids. Rail Activities and key performance indicators Atkins is the largest rail consultancy operating in the UK. We provide servicescovering a wide range of engineering disciplines, including signalling, civils,electrification and specialist services in strategic planning, safety, systemsintegration and asset management. Atkins currently has approximately 20% of therail consultancy market in the UK, our market share being significantly greaterthan that of our nearest competitor (New Civil Engineer Consultants File, 2006).We also operate in Scandinavia. Key performance indicators 2006 2005 % change in yearFinancial metricsRevenue £176.5m £187.6m -6%Operating profit £2.6m £8.9m -71%Operating margin 1.5% 4.7% -3.2% ptsWork in hand 75% 66% +9% ptsPeopleStaff at 31 March 1,757 1,735 +1%Total headcount (inc. agency staff) at 31 2,004 1,906 +5%March -------- -------- -------------------------------- Highlights in 2006 • The results of our Rail segment were significantly impacted by the performance of the Metronet supply chain. The rest of the Rail business is, as predicted last year, now in the process of recovery. • During the year we won contracts for two major signalling schemes on behalf of Network Rail. The projects are located in Basingstoke and Port Talbot and work commenced on both during the year. The Basingstoke project involves the design, installation and commissioning of a new control centre and 185 new signals covering 60 miles of line. The contract will generate revenue of some £65m over three years. The Port Talbot contract has a value of approximately £20m and is the largest re-signalling scheme to be undertaken in Wales in the last 30 years. These contracts have provided a solid workload and maintained good utilisation of staff resources. • Last year a considerable amount of resource was directed towards Metronet's stations delivery programme and this is set to continue. Although the Atkins supply chain has delivered a significant contribution to the project, the overall capital programme continues to lag behind expectations. These delays have triggered certain cost and delay provisions that are primarily reported within the Rail segment's results. Further details are given in the Metronet section below. Outlook • Prospects for the Rail business are generally improved compared to the position a year ago. Work in hand at 31 March 2006 includes 75% of budgeted revenue for 2006/07, compared to 66% last year, the increase being mainly due to the Basingstoke and Port Talbot contracts. Additionally, Network Rail is due to award a number of significant projects in 2006/07. • Recovery of the stations delivery programme for the Metronet project is a key priority. The project remains complex and challenging and we continue to commit significant resources to enable a satisfactory outcome for the client. It is probable that Metronet supply chain activities will continue to impact adversely the Rail segment's operating profits in the short-term. • The medium-term outlook for our Rail business remains positive and the forward spending plans of Network Rail and others indicate that investment in our target markets is set to grow substantially over the next three years. In order to meet the increasing demand for scarce rail engineering skills, we will continue to invest resources in our design office in Sharjah, where headcount of Rail staff has already grown to 130. Middle East and China Activities and key performance indicators Our Middle East business provides design and engineering services for buildings,transportation and other infrastructure through our seven offices in the Gulfand India. In China we provide planning, urban design, architectural andengineering services to the mainland market and Hong Kong. Key performance indicators 2006 2005 % change in yearFinancial metricsRevenue £67.1m £44.0m +53%Operating profit £3.0m £2.1m +43%Operating margin 4.5% 4.8% -0.3% ptsWork in hand 78% 52% +26% ptsPeopleStaff at 31 March 1,482 1,106 +34%Total headcount (inc. agency staff) at 31 1,708 1,347 +27%March -------- -------- -------------------------------- Highlights in 2006 • The business generated significant growth and revenue increased by 53%. Operating margins in the Middle East were good, while in China results were broadly break-even as we continued our investment to grow a sustainable, long-term business. • We have generated profitable growth in the Middle East, where headcount is now approaching 1,000. The high degree of liquidity in the regional economy continues to boost demand, with a particular focus on investment in long-term infrastructure. In China we have invested in additional staff and have expanded our office network on the mainland. • In the Middle East we have a particularly strong brand in building design, as typified by the Bahrain World Trade Centre, which is currently nearing completion. The building comprises two sail-shaped towers which taper to a height of 240m and support three 29m wind turbines. The turbines will generate a proportion of the towers' electricity consumption, making the building a model of innovative and sustainable design, as well as a landmark structure. • Hotel design and project management is a major source of work in the Gulf states, due to the region's burgeoning tourist industry. Project wins in the year include design of the Palm Resort Hotel in Dubai, construction supervision for the Burj Dubai Lake Hotel and design of the Four Seasons Hotel in Bahrain. We have also won design commissions for a number of residential complexes and school campuses in Dubai, Abu Dhabi and Qatar. • The Middle East's transportation sector is increasingly a growth area and we have many promising projects and enquiry developments in the road and rail sectors. • In China we have continued to re-invest profits from projects in new staff and offices on the mainland, where we now operate from seven locations. We won a good volume of work last year, including the design of a new landmark tower in Tianjing, four airport masterplan commissions and a tourism project for Hainan Island. Commissions in Hong Kong have included tunnel and wind power projects for China Light and Power and rail safety engineering projects for MTRC and KCRC. Outlook • Prospects for the Middle East and China business segment are very good with 78% of budgeted revenue for 2006/07 secured at 31 March 2006, compared to 52% a year ago. • In the Middle East our strong brand leaves us well placed to benefit from the continuing construction boom, while opportunities in other areas are also emerging. The transport sector offers great potential, especially given the need to provide improved infrastructure to relieve growing traffic levels in major cities. Our strategy in the region remains focused on larger, medium and long-term contracts that provide a means of sustained growth. • Capital investment in China continues to accelerate, driven strongly by the urbanisation process that has so far affected only one-third of the population. The market offers great potential and our approach is to concentrate on infrastructure projects in specific areas and to pursue opportunities in China's secondary and tertiary cities, which are likely to attract increasing investment. Management and Project Services Activities and key performance indicators The Management and Project Services segment provides management and ITconsultancy and programme, project and cost management services. Atkins is oneof the largest project managers and cost consultants worldwide (BuildingMagazine) and one of the largest 20 management consultants operating in the UK(Management Consultancies Association). Key performance indicators 2006 2005 % change in yearFinancial metricsRevenue £171.9m £152.2m +13%Operating profit* £13.9m £9.2m +51%Operating margin* 8.1% 6.0% +2.1% ptsWork in hand 39% 50% -11% ptsPeopleStaff at 31 March 2,062 1,957 +5%Total headcount (inc. agency staff) at 31 March 2,146 2,044 +5%------------------------ -------- -------- -------- * Excluding a goodwill impairment charge of £7.2m in 2005. Highlights in 2006 • A good year with substantially improved margins. • Revenue grew by £19.7m (13%) and margins increased by 2.1% points to 8.1%*, with growth across the segment's range of services. • The Management Consultants division performed well last year, generating significant revenue growth while maintaining good margins. Growth has been driven by increased demand for our programme and project management services, along with a number of significant contract wins. The largest of these was the award of the Programme and Project Support Office contract for the Government Communications Headquarters (GCHQ). The contract is for five years, extendable to seven, and confirms the success of our long-term relationship with this important organisation. • We were awarded a major commission for Shell to provide programme management services for their capital investment programme covering retail outlets in nine European countries. New framework contracts and extensions have generated a substantial workload, notably from IBM, BAA and the Learning and Skills Council. Demand for IT consultancy has been strong and we are working with the Department for Education and Skills on the Information Sharing Index which will support government's work in co-ordinating children's services. • Our Faithful+Gould project management and cost consultancy division had an excellent year with significant revenue growth at much improved margins. Margin growth has been driven largely by selective bidding and improved utilisation of staff. • Revenues derived from the public sector have continued to grow, particularly in education, through the Building Schools for the Future initiative, and in health from strategic consultancy for Welsh Health Estates and Primary Care Trusts. Provision of strategic cost and project management services to the PPP/PFI sector has been another growth area. • In the transportation sector we have provided consultancy services relating to the new West London Tram scheme, while regeneration projects have included work relating to the re-development of the Longbridge plant for St Modwen. We have maintained a strong presence in the banking sector, including project and cost consultancy work for Royal Bank of Scotland. Commissions from the regulated sector have also increased and we have been appointed by the Environment Agency under a five year cost management framework contract. We have continued to support major projects undertaken by the Group, particularly in the Middle East. • Performance of our US operation has improved significantly and the business grew strongly in the second half of the year. Growth in the industrial sector has been particularly encouraging and we have won major commissions for BP, Intel and Amgen. We have also won substantial contracts in the leisure and airport sectors, including a five year commercial management contract for the re-development of the John Wayne International airport in California. Outlook • Work in hand at 31 March 2006 included 39% of budgeted revenue for 2006/ 07, compared to 50% last year. This fall is largely explained by the timing of award of work under certain long-term contracts and is not a concern. • The management consultancy market appears set for a period of further growth and we are well positioned to benefit from this trend. In the public sector the drive for organisational change and efficiencies is continuing, an area where we have niche skills and experience. Private sector demand is also strong and we are increasingly targeting certain growth sectors, including heavy industry. • The acquisition of Mantix Group Limited on 21 June 2006 has enhanced the capabilities of our Management Consultants division, especially in the area of programme management. In the coming year the business will be integrated into our existing operations. • Prospects for our Faithful+Gould division remain positive, with strong demand and an expanding UK client base. New opportunities for 2006/07 include re-development projects for main line railway stations, consultancy on the proposed expansion of a number of regional airports and a range of health and education projects. In the US client representative work in the transport, manufacturing and property sectors offers good opportunities. Asset Management Activities and key performance indicators Asset Management provides independent property asset management services. Thebusiness focuses on providing top quality facilities management services to theMoD and selected private sector clients. Atkins is well positioned in the marketas the largest independent management company for clients seeking property assetmanagement solutions. Key performance indicators 2006 2005 % change In yearFinancial metricsRevenue £61.5m £58.6m +5%Operating profit £4.0m £(4.7)m n/aOperating margin 6.5% (8.0)% +14.5% ptsWork in hand 96% 53% +43% ptsPeopleStaff at 31 March 628 890 -29%Total headcount (inc. agency staff) at 31 March 730 892 -18%------------------------ -------- -------- --------- Highlights in 2006 • A much better result with some significant contract wins. • Financial performance recovered markedly during the year, though the large swing in operating results is partly due to the onerous contract provisions of £3.9m made last year. Temporary extensions to certain MoD contracts also contributed a non-recurring benefit. • We won two major five-year managing agent contracts during the year, for the Metropolitan Police Service and HBOS. These successes have been driven by our investment in improved IT systems and skills. The contracts supplement our existing client base of large organisations. • During the year we were awarded interim extensions to our local MoD Defence Estates contracts. These contracts have now concluded and the associated staff have transferred under TUPE, with a consequent reduction in headcount. Our Defence Housing Prime contract has successfully mobilised and will provide work over seven years, while the Colchester Garrison PFI project is performing as planned. We will be undertaking the work on the Defence Housing Prime contract within a Joint Venture and its results will therefore be excluded from the segment's operating profit. • The performance of our managing contractor operations has stabilised over the last year. Outlook • Our managing agent contract wins mean that 96% of budgeted revenue for 2006/07 was secured at 31 March 2006. This also demonstrates the market's demand for our integrated estates, FM and project management services. In particular, the public sector, financial services, retail and leisure sectors offer further opportunities. Equity Investments Activities and key performance indicators The Equity Investments segment principally comprises Lambert Smith Hampton (LSH)and the Group's interest in PPP/PFI Joint Ventures, including Metronet. Key performance indicators 2006 2005 % change in yearFinancial metricsRevenue £73.8m £61.4m +20%Operating profit £5.0m £4.3m +16%Operating margin 6.8% 7.0% -0.2% ptsPeopleStaff at 31 March 887 874 +1%Total headcount (inc. agency staff) at 31 887 874 +1%March -------- -------- -------------------------------- Lambert Smith Hampton Activities LSH operates independently under its own brand and provides a broad range ofcommercial property consultancy and transactional services through its extensiveoffice network in the UK and Ireland. LSH is ranked by the Estates Gazette asthe UK's Most Active Agent and as the top national agent in the office agencyand industrial agency sectors. Highlights in 2006 • A good year with significant growth. • Revenue grew strongly, operating margins being maintained at a similar level despite non-recurring costs relating to the relocation of our London operations to a single office. Market conditions have been favourable and good results have been achieved across the business. • The Investment division performed particularly strongly, with £2.2 billion of investment transactions concluded in the period. This included the purchase for £145m of 52 properties let to Booker Cash and Carry and the acquisition for £290m of the Alpha Portfolio of 35 properties, both on behalf of the Scarborough Group. • The Industrial Agency division transacted nearly 20m sq ft of space in the year, including acting for Tesco in two of the largest distribution market transactions as well as the largest letting within the M25 in the year. • Demand remains good for our consultancy services, including new estates management contracts for AXA UK and Northamptonshire County Council and a strategic property review for Buckinghamshire County Council. Outlook • The general outlook for property markets is positive. The investment market is strong, while occupier demand is also expected to increase, led by the office sector. Although the retail sector is vulnerable to consumer spending levels, related demand for warehousing space remains good, particularly large distribution centres. • LSH's approach is to target growth in our range of services and national network. Our increasing strength in consultancy services will be an important factor in generating long-term growth. Metronet In June 2005, Metronet's management team was changed and Keith Clarke wasappointed as Non-Executive Chairman of Metronet on behalf of all of theshareholders, to enable a smooth transition and to improve the performance ofboth the Board and management. In addition to strengthening Metronet andTrans4m's senior management team, the Trans4m management team has beenintegrated into Metronet to address the initial weaknesses of the supply chain.Atkins continues to support the Metronet management team in their effortsthrough the secondment of a number of our own senior staff to the project.Atkins currently has over 600 people committed to this project. The operational performance of the lines for which Metronet is responsibleremains inconsistent and behind Metronet's original expectations, but it isimproving. In terms of the capital programme, improvements to trains and track are nowbeing delivered. However, the stations renewal programme remains challenging.Only 13 stations had been completed by 31 March 2006, compared to the 36contracted. This is being addressed and measures have been put in place torecover the programme by 2008. Atkins' role in the project primarily relates to the design of renewal andrefurbishment of station infrastructure and civil asset design, inspection andassessment. So far we are approximately half way through our stations designprogramme. There have been issues with obtaining final design approvals whichhave impacted the overall delivery of the station improvements. The civilsprogramme is progressing to plan. The table below summarises the Group's financial results relating to its entireinvolvement in the Metronet project. This comprises the Group's share of theresults of the Metronet and Trans4m Joint Ventures plus the operating result ofthe Atkins supply chain and is collectively referred to as the 'MetronetEnterprise'. Income statement component IFRS Pro forma UK GAAP IFRS Note 2006 2005 2005 £m £m £m Metronet PPP - share of profit before tax Share of JV result 10.8 13.1 10.0Cost of letters of credit Finance cost (2.0) (2.6) (2.6) 8.8 10.5 7.4 Supply chain: Trans4m - share of profit before tax Share of JV result (1.5) 2.0 2.0Business segments Operating profit (2.7) 2.5 2.5Metronet Enterprise 4.6 15.0 11.9 Note: As permitted by IFRS 1, First-time adoption of IFRS, the Group has electedto adopt IAS 32, Financial instruments: disclosure and presentation and IAS 39,Financial instruments: recognition and measurement, prospectively from 1 April2005. The pro forma figures provided here show comparatives had the Groupadopted IAS 32, IAS 39 and the IFRIC draft interpretations regarding PPP/PFIconcessions for the year ended 31 March 2005. These results show that the inconsistent operational performance, penalties andcost overruns associated with the delays to the capital programme, principallythe modernisation of stations, have affected the Group's return from theMetronet project at all levels. The working of the PPP contract acts as aneffective incentive to improve performance. The new Trans4m management team has re-evaluated the programmes and resourcesneeded to deliver the contracted station improvements. This review has led toadditional provisions and, due to the pain/gain share mechanism throughout thetied supply chain, to an adverse impact on Atkins' results throughout theMetronet Enterprise. Outlook The recovery of the efficiency of the capital programme and the improvement ofthe operational performance of the Underground remain crucial to the eventualsuccess and realisation of value from the project. Whilst some progress has beenmade over the last year, it will take time to evidence any significant recovery.It is essential for Metronet and its supply chain to improve their delivery toensure that the Group's returns from Metronet are not to be further impacted atall levels, including the final value of the investment. Atkins' involvement in the turnaround of the Metronet Enterprise remainscritical and we are committed to ensuring its success. FINANCIAL REVIEW International Financial Reporting Standards (IFRS) The financial statements for the year ended 31 March 2006 are the Group's firstprepared in accordance with IFRS. Note 15 to the unaudited preliminary financialinformation includes reconciliations from UK Generally Accepted AccountingPrinciples (UK GAAP) to IFRS. Conversion to IFRS is an accounting change which has no impact on the Group'sfinancial performance, risk profile or ability to generate cash. Revenue Total revenue for the year ended 31 March 2006 was £1,411.0m (2005: £1,157.3m).Excluding our interests in Joint Ventures, revenue amounted to £1,052.5m (2005:£955.0m), an increase of 10%. Revenue growth has primarily been driven bygreater staff numbers, with total headcount (including agency staff) increasingby 7% over the year. The majority of revenue growth was derived from higher margin activities, inline with the objectives we stated last year. We will continue to pursue growthopportunities only where satisfactory margins are achievable. Operating profit Operating profit for the year was £62.9m, an increase of £12.7m (25%) excludingthe goodwill impairment charge of £7.2m in 2005. On a similar basis, operatingmargins rose from 5.3% to 6.0%. Excluding Metronet supply chain activities, most of our businesses havegenerated growth in underlying operating margins and have further scope formargin improvement. Joint Ventures The Group's share of pre-tax profits from Joint Ventures, excluding disposals,was £11.5m (2005: £14.8m). The Group's most significant Joint Venture isMetronet, which is discussed in the Operating review above. After tax, profitsfrom Joint Ventures, excluding disposals, amounted to £7.9m (2005: £9.9m). In November 2005 the Group disposed of its 25% interest in South ManchesterHealthcare (Holdings) Limited for a cash consideration of £7.8m, resulting in aprofit on disposal of £5.7m. In December 2005 the Group disposed of its 42.5%interest in NewSchools (Penweddig) Holdings Limited for a cash consideration of£1.4m, resulting in a profit on disposal of £0.7m. These disposals were in linewith the Group's policy of recycling capital invested in mature PFI investmentsat the appropriate time. Net finance cost Net finance cost reduced by £0.6m to £3.3m. The cost of Metronet Standby Lettersof Credit reduced by £0.6m following equity payments to the Joint Venture, whilethe finance cost on retirement benefit liabilities increased by £1.3m. Financeincome increased by £1.1m due the Group's improving cash position and shouldcontinue to rise next year. Taxation The Group's effective tax rate for the year ended 31 March 2006 was 23.9% (2005:26.6%). The effective tax rate on normalised profit was 29.6% (2005: 31.4% -adjusted to exclude goodwill impairment of £7.2m in that year). The normalisedeffective rate has reduced due to a greater contribution from our overseasoperations in lower tax regimes. The tax charge on disposal of Joint Ventureswas £0.5m (2005: £0.3m). Earnings per share (EPS) Basic EPS was 57.0p (2005: 39.3p). Normalised fully diluted EPS was 50.1p (2005:42.5p - adjusted to exclude goodwill impairment of £7.2m in that year), anincrease of 18%. Normalised EPS is considered to be a more representativemeasure of underlying trading. Further details are given in note 8 to theunaudited preliminary financial information. Cash flow Net funds increased by £54.9m to £176.6m. Net cash inflow from operatingactivities was £111.7m (2005: £88.1m). A summary reconciliation betweenoperating profit and operating cash flow is shown below. 2006 2005 £m £m Operating profit 62.9 43.0Depreciation and amortisation 24.3 27.8Impairment of goodwill - 7.2Decrease in working capital 40.1 12.3Decrease in pension balances (18.4) (5.9)Other items 2.8 3.7Cash generated from operations 111.7 88.1 Strong operating cash flow was driven by a further working capital reduction of£40.1m in the year. This included the benefit of advance payments from severalof our large clients. Last year the Group made additional cash contributions tothe principal defined benefit pension scheme of £20.0m (2005: £8.6m). The Groupanticipates making accelerated contributions on a continuing basis. Furtherdetails are given below. Tax paid in the year was £10.9m (2005: £18.3m), the reduction being due to thecurrent tax benefit of the higher level of pension contributions noted above.The Group made scheduled equity and loan injections amounting to £11.2m into theMetronet PPP companies during the year (2005: £11.1m). The Group is committed tomaking loan capital payments to the Metronet PPP companies amounting to £37.3mover the next three years. Cash payments relating to acquisitions in the year,principally MSL, amounted to £4.9m. Further details are given below. Net capitalexpenditure in the year, including the purchase of computer software licences,amounted to £28.2m (2005: £17.9m), the majority of the increase relating to ITinfrastructure. The level of capital expenditure is likely to increaseapproximately in line with growth in staff numbers over the next few years. Thecash position benefited from the sale of the Joint Venture investments describedabove. The Group is well placed to maintain robust cash flows and generate sufficientfunds to enable the anticipated rate of growth. Pensions Funding The latest actuarial valuation of the Atkins Pension Plan was carried out as at1 April 2004 and indicated that the scheme had an actuarial deficit of £69m. Thenext actuarial valuation of the Atkins Pension Plan will take place as at 1April 2007 and it is likely that the actuarial liability will increase due tochanges in longevity and other assumptions. In 2004 the Group reached agreement with its employees and the trustees of thescheme regarding the funding of the actuarial deficit so that it should beeliminated over a 15-year period. In order to reduce the deficit more rapidly,the Group announced in 2005 that it intended to accelerate the payment of itscontributions. Accelerated contributions amounting to £8.6m were made in theyear ended 31 March 2005. During the year ended 31 March 2006 the Groupincreased the level of these additional contributions, making acceleratedcontributions of £20.0m. The Group is focused on substantially reducing the pension scheme deficit andanticipates making accelerated deficit funding contributions of at least afurther £20.0m in the year ending 31 March 2007. Charges The Group accounts for pension costs under IAS 19, Employee Benefits. Thedefined benefit total service cost for the year was £18.1m (2005: £19.8m), thereduction reflecting the increase in employee contributions and the reducingmembership of the scheme. The net finance cost for the year was £6.7m (2005:£5.4m). The charge relating to defined contribution schemes amounted to £9.0m(2005: £10.1m). The overall charge for pensions for the year ending 31 March 2007 will bebroadly as last year. However, due to the lower discount rate of 5.0% at 31March 2006 (31 March 2005: 5.4%), the current service cost will be higher, witha corresponding reduction in the interest charge. 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 a post-tax retirement benefit liability of£210.0m at 31 March 2006(2005: £191.9m). The Group has adopted early the proposed amendment to IAS 19and has recognised through equity a post-tax actuarial loss of £26.4m for theyear ended 31 March 2006 (2005: £15.9m). The increased actuarial loss isprincipally due to changes in the valuation assumptions relating to thelongevity of scheme members. The assumptions used in the IAS 19 valuation are detailed in note 13 to theunaudited preliminary financial information. The sensitivities regarding the keyassumptions relating to the Atkins Pension Plan are shown below. Assumption Change in Indicative effect on the scheme's assumption liabilities Discount rate Increase/decrease Decrease/increase by 10.0% by 0.5%Rate of inflation Increase/decrease Increase/decrease by 6.5% by 0.5%Real rate of increase in Increase/decrease Increase/decrease by 2.0%salaries by 0.5%Longevity Increase by 1 year Increase by 4.0% Acquisitions On 31 March 2006 the Group acquired 100% of the share capital of MSL EngineeringLimited and MSL Services Corp, for a combined consideration of £5.8m, of which£4.6m was paid in cash with the remainder deferred. During the year the Groupalso acquired 100% of the share capital of NovaPlan Holding AB for £0.3m incash. Further details of these transactions are given in note 14 to theunaudited preliminary financial information. Events after the balance sheet date On 21 June 2006 the Group acquired 100% of the share capital of Mantix GroupLimited, a specialist programme management consultancy, for a net cashconsideration of £8.8m. Keith Clarke Robert MacLeodChief Executive Group Finance Director 22 June 2006 Consolidated income statement for the year ended 31 March 2006 (unaudited) ------------------------------------------------------------------------------------- Notes 2006 2005 £m £m-------------------------------------------------------------------------------------Continuing operationsRevenue (Group and share of Joint Ventures) 1,411.0 1,157.3------------------------------------------------------------------------------------- Revenue 2 1,052.5 955.0 Cost of sales (637.3) (579.3)------------------------------------------------------------------------------------- Gross profit 415.2 375.7 Administrative expenses (352.3) (332.7) -------------------------------------------------------------------------------------Operating profit 62.9 43.0Profit on disposal of Joint Ventures 4 6.4 3.7Share of post-tax profit from Joint Ventures 3 8.8 10.2-------------------------------------------------------------------------------------Profit from operations 78.1 56.9 Finance income 5 7.9 6.8Finance cost 5 (11.2) (10.7)-------------------------------------------------------------------------------------Net finance cost 5 (3.3) (3.9) -------------------------------------------------------------------------------------Profit before taxation 74.8 53.0 Taxation 6 (17.9) (14.1)-------------------------------------------------------------------------------------Profit for the year from continuing operations 56.9 38.9 -------------------------------------------------------------------------------------Profit for the year attributable to equity shareholders 9 56.9 38.9 ------------------------------------------------------------------------------------- Basic earnings per share - continuing operations 8 57.0p 39.3pFully diluted earnings per share - continuing operations 8 55.9p 38.7p Dividends recognised in the year - paid 7 12.5p 11.0pDividends paid and proposed relating to the year 7 16.0p 12.0p------------------------------------------------------------------------------------- Consolidated statement of recognised income and expense for the year ended 31March 2006 (unaudited) --------------------------------------------------------------------------------- 2006 2005 Notes £m £m---------------------------------------------------------------------------------Actuarial loss on retirement benefit liabilities 13 (37.7) (22.7) Share of Joint Venture financial derivatives 9 (0.5) - Tax on items charged to equity 6 11.3 6.8Net differences on exchange 9 1.5 (0.2)--------------------------------------------------------------------------------- (25.4) (16.1)Profit for the year 56.9 38.9---------------------------------------------------------------------------------Total recognised income and expense for the year attributable to equity shareholders 31.5 22.8 --------------------------------------------------------------------------------- Restatement for the effects of adoptingIAS 32 and IAS 39 including Joint Ventures 15 (6.2) --------------------------------------------------------------------------------- The notes on pages 17 to 25 form part of the unaudited preliminary financialinformation. Consolidated balance sheet as at 31 March 2006 (unaudited) ----------------------------------------------------------------------------------- Notes 2006 2005 £m £m-----------------------------------------------------------------------------------AssetsNon-current assetsGoodwill 35.6 29.3Other intangible assets 10.0 10.8Property, plant and equipment 47.2 34.2Investments in Joint Ventures 46.2 41.6Financial assets 20.1 20.1Deferred tax assets 103.8 97.5Trade and other receivables 1.5 2.7----------------------------------------------------------------------------------- 264.4 236.2----------------------------------------------------------------------------------- Current assetsInventories 0.2 0.2Trade and other receivables 272.9 266.7Financial assets 20.7 11.1Cash and cash equivalents 177.4 114.6----------------------------------------------------------------------------------- 471.2 392.6----------------------------------------------------------------------------------- LiabilitiesCurrent liabilitiesBorrowings (6.5) (2.6)Trade and other payables (379.5) (332.7)Current tax liabilities (12.3) (10.8)Provisions for liabilities and charges (2.8) (2.8) ----------------------------------------------------------------------------------- (401.1) (348.9)-----------------------------------------------------------------------------------Net current assets 70.1 43.7----------------------------------------------------------------------------------- Non-current liabilitiesBorrowings (35.1) (21.5)Provisions for liabilities and charges (11.7) (11.1) Retirement benefit liabilities 13 (299.9) (274.2)Other non-current liabilities (23.9) (26.5)----------------------------------------------------------------------------------- (370.6) (333.3)----------------------------------------------------------------------------------------------------------------------------------------------------------------------Net liabilities (36.1) (53.4)----------------------------------------------------------------------------------- Capital and reservesOrdinary shares 9 0.5 0.5Share premium account 9 62.4 62.4Merger reserve 9 8.9 8.9Retained loss 9 (107.9) (125.2)-----------------------------------------------------------------------------------Equity shareholders' deficit (36.1) (53.4)----------------------------------------------------------------------------------- The notes on pages 17 to 25 form part of the unaudited preliminary financialinformation. Consolidated cash flow statement for the year ended 31 March 2006 (unaudited) ---------------------------------------------------------------------------------- Notes 2006 2005 £m £m----------------------------------------------------------------------------------Cash flows from operatingactivitiesCash generated from operations 10 111.7 88.1Interest received 7.6 7.0Interest paid (2.4) (2.4)Tax paid (10.9) (18.3)----------------------------------------------------------------------------------Net cash from operating activities 106.0 74.4---------------------------------------------------------------------------------- Cash flows from investing activitiesDividends received from Joint Ventures 3.7 3.6Investment in Metronet (11.2) (11.1)Acquisition of subsidiaries - Consideration (4.9) - - Cash acquired (0.2) -Purchases of property, plant and equipment (20.4) (14.5)Proceeds from disposal of property, plant and equipment 0.5 2.1Proceeds from disposal of Joint Ventures 9.2 5.6Financial assets (9.6) (1.1)Purchases of intangible assets (8.3) (5.5) ----------------------------------------------------------------------------------Net cash used in investing activities (41.2) (20.9)---------------------------------------------------------------------------------- Cash flows from financing activitiesProceeds from issue of ordinary shares - 0.1Redemption of loan stock - (0.7)Long-term loans 12.5 2.6Repayment of long-term loans (1.1) (15.2)Finance lease principal payments (3.2) (2.9)Sales of own shares by Employee Benefit Trusts 1.3 1.2Equity dividends paid to shareholders (12.4) (10.7) ----------------------------------------------------------------------------------Net cash used in financing activities (2.9) (25.6)--------------------------------------------------------------------------------------------------------------------------------------------------------------------Effects of exchange rate changes 0.9 0.5--------------------------------------------------------------------------------------------------------------------------------------------------------------------Net increase in cash and cash equivalents 62.8 28.4 ---------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 114.6 86.2 ----------------------------------------------------------------------------------Cash and cash equivalents at end of year 11 177.4 114.6---------------------------------------------------------------------------------- The notes on pages 17 to 25 form part of the unaudited preliminary financialinformation. Notes to the unaudited preliminary financial information for the year ended 31March 2006 1. Preparation of unaudited preliminary financial information This unaudited preliminary financial information has been extracted from auditedaccounts which have not yet been filed with the Registrar of Companies and doesnot constitute summary financial information or statutory financial informationas defined in Section 240 and Section 251 of the Companies Act 1985. Theunaudited preliminary financial information has been prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union(IFRS), International Financial Reporting Interpretations Committee (IFRIC)interpretations, and those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. As permitted by IFRS 1, First time adoption of IFRS, the Group has elected toadopt IAS 32, Financial instruments: Disclosure and presentation, IAS 39,Financial Instruments: Recognition and measurement, and the IFRIC draftinterpretations in respect of PPP/PFI concessions, prospectively from 1 April2005. Hence the comparative figures have not been restated. The impact of adoption of IAS 32, IAS 39, and the IFRIC draft interpretations inrespect of PPP/PFI concessions on the Group's results had they been implementedin the comparative year is set out in note 15. 2. Segmental reporting Revenue and results ------------------------------------------------------------------------------------------- 2006 Total Inter- Revenue Operating Operating Share of revenue Segment £m profit margin post-tax £m revenue £m % profit £m from Joint Ventures £m-------------------------------------------------------------------------------------------Design and Engineering Solutions 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------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- 2005 Total Inter- Revenue Operating Operating Share of revenue Segment £m profit margin post-tax £m revenue £m % profit £m from Joint Ventures £m-------------------------------------------------------------------------------------------Design and Engineering Solutions 261.8 (17.4) 244.4 21.0 8.6% 0.1Highways and Transportation 220.6 (13.8) 206.8 9.4 4.5% 0.5Rail 206.7 (19.1) 187.6 8.9 4.7% -Middle East and China 44.0 - 44.0 2.1 4.8% -Management and Project Services 156.8 (4.6) 152.2 9.2 6.0% 0.4Asset Management 59.5 (0.9) 58.6 (4.7) (8.0)% -Equity Investments 61.4 - 61.4 4.3 7.0% 9.2-------------------------------------------------------------------------------------------Total before impairment ofgoodwill 1,010.8 (55.8) 955.0 50.2 5.3% 10.2Impairment of goodwill -Management andProject Services - - - (7.2) n/a --------------------------------------------------------------------------------------------Total continuing segments 1,010.8 (55.8) 955.0 43.0 4.5% 10.2------------------------------------------------------------------------------------------- 3. Joint Ventures Share of post-tax profit from Joint Ventures -------------------------------------------------------------------------------- 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 13.4 Finance 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 profit from Joint Ventures 7.5 0.4 0.9 8.8-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Metronet Other Disposed Total2005 £m £m £m £m--------------------------------------------------------------------------------Revenue 135.5 62.0 4.8 202.3Operating expenditure (118.1) (56.7) (4.3) (179.1)--------------------------------------------------------------------------------Operating profit 17.4 5.3 0.5 23.2Finance cost (15.0) (3.6) (2.6) (21.2)Finance income 7.6 3.1 3.2 13.9--------------------------------------------------------------------------------Profit before taxation 10.0 4.8 1.1 15.9Taxation (3.4) (1.5) (0.8) (5.7)--------------------------------------------------------------------------------Share of post-tax profit fromJoint Ventures 6.6 3.3 0.3 10.2-------------------------------------------------------------------------------- 2005 disposed includes the comparative results of current year disposals. 4. Profit on disposal of Joint Ventures In line with the Group's stated strategy to recycle cash invested in PFI projectcompanies at the appropriate time, the Group disposed of its 25% stake in SouthManchester Healthcare (Holdings) Limited and its 42.5% stake in NewSchools(Penweddig) Holdings Limited during the year. The disposal of South Manchester Healthcare (Holdings) Limited was completed on23 November 2005 for a consideration of £7.8m resulting in a profit of £5.7m inthe year to 31 March 2006. Atkins' contract for the maintenance and upkeep ofthe Wythenshawe Hospital NHS Trust estate will remain in place. The Group'sshare of post-tax profit from Joint Ventures up to the date of disposal inrelation to South Manchester Healthcare (Holdings) Limited was £0.3m (2005:£0.2m). The disposal of NewSchools (Penweddig) Holdings Limited was completed on 22December 2005 for a consideration of £1.4m resulting in a profit of £0.7m in theyear to 31 March 2006. The Group's share of post-tax profit from Joint Venturesup to the date of disposal in relation to New Schools (Penweddig) HoldingsLimited £0.6m (2005: £nil). The Joint Ventures disposed were all attributed to the Equity Investments segment. ------------------------------------------------------------------------------- South Manchester NewSchools Healthcare (Penweddig) (Holdings) Holdings 2006 Limited Limited Total £m £m £m-------------------------------------------------------------------------------Net assets 3.6 0.9 4.5Deferred income released (1.5) (0.2) (1.7)Profit on disposal 5.7 0.7 6.4-------------------------------------------------------------------------------Disposal proceeds - cash 7.8 1.4 9.2------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Mercia Healthcare (Holdings 2005 Ltd) Total £m £m-------------------------------------------------------------------------------Net assets 2.8 2.8Deferred income released (0.9) (0.9)Profit on disposal 3.7 3.7-------------------------------------------------------------------------------Disposal proceeds - cash 5.6 5.6------------------------------------------------------------------------------- Taxation on profit on disposal of Joint Ventures was £0.5m (2005: £0.3m). 5. Net Finance cost -------------------------------------------------------------------------------- 2006 2005 £m £m--------------------------------------------------------------------------------Interest payable on borrowings 0.9 0.6Hire purchase and finance leases 0.6 0.6Letters of credit charges 2.0 2.6Unwinding of discount 0.7 0.5Net finance cost on retirement benefit liabilities 6.7 5.4Other 0.3 1.0--------------------------------------------------------------------------------Finance cost 11.2 10.7Finance income (7.9) (6.8)--------------------------------------------------------------------------------Net finance cost 3.3 3.9-------------------------------------------------------------------------------- 6. Taxation a) Analysis of charge in the year ----------------------------------------------------------------------------------------------- 2006 2005 £m £m-----------------------------------------------------------------------------------------------Current tax- Current year 13.2 17.1- Adjustment in respect of prior year (0.4) (1.2)Deferred tax 5.1 (1.8)-----------------------------------------------------------------------------------------------Tax on profit on ordinary activities per income statement 17.9 14.1Adjust for:- Joint Venture taxation charge 4.0 5.7- Tax on profit on disposal of Joint Ventures (0.5) (0.3)-----------------------------------------------------------------------------------------------Normalised taxation charge 21.4 19.5----------------------------------------------------------------------------------------------- Profit before taxation per income statement 74.8 53.0Adjust for:- Joint Venture taxation charge 4.0 5.7- Profit on disposal of Joint Ventures (6.4) (3.7)- Impairment of goodwill - 7.2-----------------------------------------------------------------------------------------------Normalised profit before taxation (adjusted forimpairment of goodwill in 2005) 72.4 62.2----------------------------------------------------------------------------------------------- Effective taxation rate 23.9% 26.6% Normalised effective taxation rate (adjustedfor impairment of goodwill in 2005) 29.6% 31.4%----------------------------------------------------------------------------------------------- b) Taxation credit on items charged to equity ----------------------------------------------------------------------------------------------- Retirement Share Retirement Share benefit based 2006 benefit based 2005 liability payments Total liability payments Total £m £m £m £m £m £m-----------------------------------------------------------------------------------------------At 1 April 6.8 2.1 8.9 - 2.0 2.0Credited to equity during the year 11.3 0.1 11.4 6.8 0.1 6.9-----------------------------------------------------------------------------------------------At 31 March 18.1 2.2 20.3 6.8 2.1 8.9----------------------------------------------------------------------------------------------- 7. Dividends ----------------------------------------------------------------------------------- 2006 2005 2006 2005 pence pence £m £m-----------------------------------------------------------------------------------Final dividend paid for the year ended 31 March 8.0p 7.0p 7.9 6.8Interim dividend paid for the period ended 30 September 4.5p 4.0p 4.5 3.9-----------------------------------------------------------------------------------Dividends recognised in the year 12.5p 11.0p 12.4 10.7----------------------------------------------------------------------------------- Interim dividend paid for the period ended 30 September 4.5p 4.0p 4.5 3.9Final dividend proposed for the year ended 31 March 11.5p 8.0p 11.5 7.9-----------------------------------------------------------------------------------Dividends relating to the year 16.0p 12.0p 16.0 11.8----------------------------------------------------------------------------------- The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in this unauditedpreliminary 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. Fully diluted earnings per share is the basic earnings per share after allowingfor the 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: ------------------------------------------------------------------------------------- 2006 2005 number number ('000) ('000)-------------------------------------------------------------------------------------Number of sharesWeighted average number of shares used in basic EPS 99,790 99,064Effect of dilutive securities- share options 2,028 1,486-------------------------------------------------------------------------------------Weighted average number of shares used infully diluted EPS 101,818 100,550------------------------------------------------------------------------------------- £m £mEarnings 56.9 38.9 Impairment of goodwill - 7.2Post-tax profit on disposal of Joint Ventures (5.9) (3.4)-----------------------------------------------------------------------------------Normalised earnings (adjusted forimpairment of goodwill in 2005) 51.0 42.7----------------------------------------------------------------------------------- pence penceBasic earnings per share 57.0p 39.3pFully diluted earnings per share 55.9p 38.7p Normalised basic earnings per share(adjusted for impairment of goodwill in 2005) 51.1p 43.1pNormalised fully diluted earnings pershare (adjusted for impairment ofgoodwill in 2005) 50.1p 42.5p----------------------------------------------------------------------------------- Normalised EPS is considered to be a more representative measure of underlyingtrading. 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 2005 0.5 62.4 8.9 (125.2) (53.4) Adoption of IAS 39 and IFRIC D12 to D14 - - - (6.2) (6.2)-----------------------------------------------------------------------------------Balance at 1 April 2005 restated 0.5 62.4 8.9 (131.4) (59.6)Profit for the year - - - 56.9 56.9Dividends - - - (12.4) (12.4)Actuarial loss on retirementbenefit liabilities - - - (26.4) (26.4)Share based movements - - - 1.2 1.2Employee Benefit Trus - - - 3.2 3.2Share of Joint Venturefinancial derivatives - - - (0.5) (0.5)Net differences on exchange - - - 1.5 1.5-----------------------------------------------------------------------------------Balance at 31 March 2006 0.5 62.4 8.9 (107.9) (36.1)----------------------------------------------------------------------------------- The amounts included above are net of tax. 10. Cash generated from operations --------------------------------------------------------------------------------- 2006 2005 £m £m---------------------------------------------------------------------------------Profit for the year 56.9 38.9Adjustments for:Taxation 17.9 14.1Finance income (7.9) (6.8)Finance cost 11.2 10.7Share of post-tax profit from Joint Ventures (8.8) (10.2)Profit on disposal of Joint Ventures (6.4) (3.7)Depreciation charges 14.7 19.1Amortisation charges 9.6 8.7Release of deferred income (0.8) (0.8)Impairment of goodwill - 7.2Share options charge 3.0 2.2Result on disposal of property, plant & equipment 0.7 (0.4)Movement in provisions (0.1) 2.8Movement in inventories - 0.3Movement in trade and other receivables (2.3) (15.8)Movement in payables 42.4 27.8Movement in pensions (18.4) (5.9)Exchange rate effect on current assets - (0.1)---------------------------------------------------------------------------------Cash generated from continuing operations 111.7 88.1--------------------------------------------------------------------------------- 11. Analysis of net funds ------------------------------------------------------------------------------- At 31 Other At 31 March Cash non-cash Exchange March 2005 Flow changes movement 2006 £m £m £m £m £m-------------------------------------------------------------------------------Cash and cash equivalents 114.6 61.9 - 0.9 177.4Financial assets 31.2 9.6 - - 40.8Debt due within one year - - (2.5) (0.2) (2.7)Debt due after one year (10.5) (11.4) 2.5 (1.2) (20.6)Finance leases (13.6) 3.2 (7.9) - (18.3)-------------------------------------------------------------------------------Net funds 121.7 63.3 (7.9) (0.5) 176.6------------------------------------------------------------------------------- 12. Events after the balance sheet date On 21 June 2006 the Group acquired 100% of the share capital of Mantix GroupLimited, a specialist programme management consultancy, for a net cashconsideration of £8.8m. 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 section of the Atkins Pension Plan is closed to newentrants, who are now offered membership of the defined contribution section. The Group has adopted early the Amendment to IAS 19, Employee Benefits -Actuarial Gains and Losses, in all years presented. 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. 13. Retirement benefit liabilities (continued) 2006 2005------------------------------------------------------------------------------------Price inflation 2.85% 2.80%Rate of increase of pensions in paymentLimited Price Indexation 2.85% 2.80%Limited Price Indexation to 2.5% 2.50% n/aFixed 5.00% 5.00%Rate of increase in salaries 4.35% 4.30%Rate of increase for deferred pensioners 2.85% 2.80%Discount rate 5.00% 5.40%Expected rate of return on plan assets 6.90% 6.70%Expected rate of social security increases 2.85% 2.80%Longevity at age 65 for current pensionersMen 18.7 years 18.2 yearsWomen 21.7 years 21.2 yearsLongevity at age 65 for future pensioners (current age 45)Men 20.9 years 19.0 yearsWomen 23.9 years 21.9 years------------------------------------------------------------------------------------ The components of the pension cost are as follows: -------------------------------------------------------------------------------- 2006 2005 £m £m--------------------------------------------------------------------------------Cost of salesCurrent service cost 18.6 19.8Curtailment gain (0.5) ---------------------------------------------------------------------------------Total service cost 18.1 19.8--------------------------------------------------------------------------------Finance (income)/costFinance cost 42.9 37.8Expected return on plan assets (36.2) (32.4)--------------------------------------------------------------------------------Net finance cost 6.7 5.4--------------------------------------------------------------------------------Total charge to income statement fordefined benefit schemes 24.8 25.2Charge for defined contribution schemes 9.0 10.1--------------------------------------------------------------------------------Total charge to income statement 33.8 35.3--------------------------------------------------------------------------------Statement of recognised income and expenseGain on pension scheme assets 88.4 16.1Changes in assumptions (126.1) (38.8)--------------------------------------------------------------------------------Actuarial loss (37.7) (22.7)Deferred tax charged to equity 11.3 6.8--------------------------------------------------------------------------------Actuarial loss (net of deferred tax) (26.4) (15.9)-------------------------------------------------------------------------------- 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. ------------------------------------------------------------------------------------ 2006 2005 £m £m------------------------------------------------------------------------------------Defined benefit obligation (1,021.9) (843.9)Fair value of plan assets 722.0 569.7------------------------------------------------------------------------------------Retirement benefit liabilities (299.9) (274.2)------------------------------------------------------------------------------------ Movements in the retirement benefit liabilities are as follows: ------------------------------------------------------------------------------------ 2006 2005 £m £m------------------------------------------------------------------------------------At beginning of year (274.2) (252.7)Service cost (18.6) (19.8)Net finance cost (6.7) (5.4)Curtailment gain 0.5 -Contributions 37.1 26.2Actuarial loss (37.7) (22.7)Foreign exchange (0.3) 0.2------------------------------------------------------------------------------------At end of year (299.9) (274.2)------------------------------------------------------------------------------------ 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 Atkins Railways Pension assumption Pension Plan Scheme-------------------------------------------------------------------------------------Discount rate Increase/decrease Decrease/increase Decrease/increase 9.0% 0.5% 10.0%Rate of Increase/decrease Increase/decrease Increase/decrease 9.0%inflation 0.5% 6.5%Real rate of Increase/decrease Increase/decrease Increase/decrease 3.0%increase in 0.5% 2.0%salariesLongevity Increase by 1 year Increase 4.0% Increase 3.0%------------------------------------------------------------------------------------- 14. Business combinations On 31 March 2006 the Group acquired 100% of the share capital of MSL EngineeringLimited, a UK registered entity, and 100% of MSL Services Corp, a US registeredentity, for consideration of £5.8m, consisting of £4.6m cash consideration and£1.2m deferred consideration. On 31 December 2005 the Group acquired 100% of the share capital of NovaPlanHolding AB and its subsidiary NovaPlan AB, both registered in Sweden, forconsideration of £0.3m in cash. ---------------------------------------------------------------------------------------- Total Fair value Total fair Carrying adjustments value value £m £m £m----------------------------------------------------------------------------------------Other intangible assets - 0.5 0.5Accounts receivable 2.0 - 2.0Cash overdraft (0.2) - (0.2)Short-term trade and other payables (1.4) - (1.4)Tax liabilities (0.4) - (0.4)---------------------------------------------------------------------------------------- - 0.5 0.5Goodwill on acquisition 5.6----------------------------------------------------------------------------------------Consideration 6.1---------------------------------------------------------------------------------------- Consideration:Cash paid 4.9Deferred consideration 1.2---------------------------------------------------------------------------------------- 6.1---------------------------------------------------------------------------------------- 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 the acquisition of MSL Engineering Limited and MSLServices Corp has been determined provisionally. Any adjustments to theaccounting required following finalisation of the fair values to be assigned tothe acquired assets and liabilities will be recorded from the acquisition datewithin twelve months of the acquisition date. 15. Reconciliation of net assets and profit under UK GAAP to IFRS The Group reported under UK GAAP in its previously published financialinformation for the year ended 31 March 2005. As required by IFRS 1, First-timeadoption of IFRS, the analysis below shows a reconciliation of equity and profitas reported under UK GAAP as at 31 March 2005 to the revised equity and profitunder IFRS and a reconciliation of equity under UK GAAP to IFRS as at thetransition date of 1 April 2004. As permitted by IFRS 1, the Group has elected to adopt IAS 32, Financialinstruments: Disclosure and presentation, IAS 39, Financial Instruments:Recognition and measurement, and the draft interpretations in respect of PPP/PFIconcessions, prospectively from 1 April 2005. Hence, the comparative figureshave not been restated. The impact of adoption of IAS 32, IAS 39, and the IFRIC draft interpretations inrespect of PPP/PFI concessions on the Group's profit after tax and net assets ifthey had been implemented in the years shown have been included in the tablebelow as pro forma adjustments. -------------------------------------------------------------------------------Reconciliation of profit Notes 2005 £m-------------------------------------------------------------------------------Profit on ordinary activities after taxation under UK GAAP 38.6Effect of transition to IFRS:Lease incentives a (0.9)Retirement benefit liabilities b (5.2)Intangible assets c 1.6Share based payments d 0.6Goodwill e 4.2-------------------------------------------------------------------------------Profit for the year attributable to equityshareholders under IFRS 38.9------------------------------------------------------------------------------- Pro forma adjustments:IAS 32, IAS 39 and IFRIC D12 to D14 g 2.0-------------------------------------------------------------------------------Pro forma profit for the year attributableto equity shareholders under IFRS 40.9------------------------------------------------------------------------------- 15. Reconciliation of net assets and profit under UK GAAP to IFRS (continued) ---------------------------------------------------------------------------------- As at As at 31 March 1 April 2005 2004Reconciliation of equity Notes £m £m----------------------------------------------------------------------------------Total equity presented under UK GAAP 118.2 88.7Effect of transition to IFRS:Lease incentives a (3.8) (2.9)Retirement benefit liabilities b (181.0) (159.9)Intangible assets c (4.6) (6.2)Share based payments d 5.7 4.7Goodwill e 4.2 -Dividends f 7.9 6.8----------------------------------------------------------------------------------Total equity presented under IFRS (53.4) (68.8)---------------------------------------------------------------------------------- Pro forma adjustments:IAS 32, IAS 39 and IFRIC D12 to D14 g (6.2) (1.8)----------------------------------------------------------------------------------Pro forma total equity presented under IFRS (59.6) (70.6)---------------------------------------------------------------------------------- Notes a. Lease incentives Under UK GAAP, lease incentives were amortised over the period from inception ofthe lease until the first rent review. Under IAS 17, Leases, lease incentivesare amortised over the whole lease term. As a result net assets as at 31 March2005 decreased by £3.8m (1 April 2004: £2.9m) and profit before tax decreasedfor the year ended31 March 2005 by £1.3m. b. Retirement benefit liabilities Under UK GAAP the Group accounted for retirement benefit liabilities under SSAP24, Accounting for pension costs. The cost of providing defined benefit pensionswas charged against operating profit. Under IAS 19, Employee benefits, the costof providing pension benefits and the retirement benefit obligation aredetermined annually by independent actuaries. The interest arising on theprojected obligations and the returns on the schemes' assets is recognised infinance income/cost. Actuarial gains and losses are recognised in the statementof recognised income and expense in the year in which they occur. As a result,net assets decreased by £181.0m as at31 March 2005 (1 April 2004: £159.9m) and profit before tax decreased by £7.4mfor the year ended31 March 2005. c. Intangible assets Under UK GAAP, the software for the Group's corporate information systems wastreated as part of the associated hardware as a tangible fixed asset. Under IAS38, Intangible assets, software is treated as an intangible asset unless it isan integral part of the related hardware. Hence the remaining value of theGroup's corporate information systems was re-classified as an intangible asseton transition to IFRS. On transition, the Group's corporate information systemswere written down by £8.9m, reducing the annual amortisation charge by £2.3m dueto differing treatment of internally generated development costs under IFRS. Inaddition, other software licences previously classified as prepayments withinaccounts receivable will now also be classified as intangible assets. As aresult the profit before tax for the year ended 31 March 2005 increased by £2.3mand net assets reduced by £4.6m as at 31 March 2005(1 April 2004: £6.2m). d. Share based payments Under UK GAAP, the cost recognised in respect of share options was based on theshare price of the underlying shares at the date of grant. The cost was spreadover the vesting period for all schemes except the Deferred Bonus Plan (DBP)which was charged in full in the year the performance was measured. Under IFRS2, Share-based payments, the cost, which is based on the fair value of theoptions, is spread over the vesting and performance period for all schemesgranted after 7 November 2002. As a result the profit before tax for the yearended31 March 2005 increased by £0.8m and the net assets increased by £5.7m (1 April2004: £4.7m) to reflect the release of the accumulated accrual in respect of theDBP scheme. e. Goodwill Under UK GAAP goodwill was amortised on a straight-line basis over its estimateduseful economic life. UnderIFRS 3, Business combinations, goodwill is no longer amortised but is carried atcost and subject to annual impairment review as at 31 March. The Group has elected to apply the exemption available under IFRS 1 not to applyIFRS 3 retrospectively to business combinations prior to 1 April 2004. The result of these changes is to increase Group profit before tax by £4.2m.This represents the write back of the £5.9m of goodwill amortisation for theyear ended 31 March 2005 of which £1.7m related to Hanscomb and £4.2m related toother acquisitions. Under IFRS, Hanscomb goodwill is written down by £7.2m tobring the carrying value at the end of the year into line with the UK GAAPcarrying value at the end of the year. Under UK GAAP, the charge consisted of£5.5m exceptional impairment charge for the year ended 31 March 2005 and £1.7mannual amortisation charge (included in the £5.9m above). The Group's net assetsincreased by £4.2m as at 31 March 2005(1 April 2004: £nil). 15. Reconciliation of net assets and profit under UK GAAP to IFRS (continued) f. Dividends Under UK GAAP, proposed dividends were accrued in the accounting period to whichthey related. UnderIAS 10, Events after the balance sheet date, dividends are recognised in theaccounting period in which they are approved. Under UK GAAP, a liability of £7.9m (1 April 2004 : £6.8m) was included in theresults for the year ended31 March 2005 in respect of the final dividend for the Group and the Company.This dividend had not been declared by the shareholders at 31 March 2005 and asa result the liability has been reversed under IFRS. g. IAS 32, IAS 39 and IFRIC D12 to D14 Under UK GAAP, the Group treated PPP/PFI assets as tangible fixed assets. UnderIFRS and the draft interpretations issued by IFRIC, D12 to D14, on accountingfor service concessions, the assets of the Group's PPP/PFI concessions will betreated as financial assets from 1 April 2005. This information is provided by RNS The company news service from the London Stock Exchange

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