Interim Results

Styles&Wood Group PLC

Interim Results for the Six Month Period Ended 30th June 2017

Styles & Wood Group plc, the integrated property services and project delivery specialist, announces its interim results for the six months ended 30th June 2017.

Financial Results

Notes:

1 Excludes non-recurring items, amortisation of customer-related intangibles and notional interest on preference shares.

2 Cash balances, less short-term facilities.

3 Net debt represents cash and cash equivalents, less outstanding preference shares, loan notes and finance leases.

4 Order Book includes executed, secured and anticipated workload for the full year.

Corporate Activity Highlights:

Acquisition of The GDM Group Limited ("GDM"): The acquisition of GDM, completed in January 2017, considerably enhances the Group's skills and capabilities in mechanical, electrical and environmental consultancy services.

New Banking Facilities: In February, the Group entered into new banking facilities with Santander UK plc, comprising a £5.0m Revolving Credit Facility.

Post-period end

Investment in Joint Venture: On 27th July 2017, Spatial Initiative Limited, a new 50:50 joint venture between Styles & Wood Limited and Extraspace Solutions (UK) Limited, was incorporated. The joint venture will offer specialist services, including modular build and refurbishment to the education market.

 Operational Highlights:

Aviva Properties: The successful completion of the 150,000 square feet refurbishment of Westminster House in central Manchester sees the second major project delivered for Aviva, following on from Irongate in London, which was handed over at the turn of the year.

India Buildings: Appointment for the pre-contract and early works phases for this major 250,000 square feet refurbishment project, to provide the new HMRC Regional Office Hub in Liverpool, ideally positions the Group for other opportunities within this major government office initiative.

New Framework Appointments: The Group has had significant success in framework conversions during 2017, including:

§ Manchester Airports Group: secured framework positions on a number of lots for projects and maintenance works for Manchester and Stansted Airports;

§ BUPA Care Home Re-Fresh Programme: first allocation of projects under a framework arrangement to re-fresh the entire care home estate; and

§ Wolseley: Estate Transformation Programme: fully integrated solution provided for this customer, including systems support, programme services, design and project development and delivery.

Post Period End

§ Barclays Office Rationalisation Programme: selected as one of three national service providers to support the remodelling of the Bank's UK Office Estate; and

§ Government Hubs Fit-Out Programme: one of nine strategic partners appointed to support the delivery of a major programme, designed to reshape the Government's Office Estate through the creation of 18 to 22 strategic office hubs across the UK.

Tony Lenehan, CEO of Styles&Wood Group plc, said:

'The Group has again delivered a strong performance in the first half of the year, following on from that reported for 2016. Revenue, EBITDA and profit before tax all show good growth. The Group is driving strong organic growth, reflected in the improved order book and new framework appointments. It is particularly pleasing to see healthy contributions from both recent acquisitions, Keysource and GDM, which have additionally realised early synergies and are also progressing well from an integration perspective.

The current order book position and trading forecasts remain in line with management expectations for the full year.'

Enquiries:

Chief Executive Officer's Statement

Group Results

Group revenue for the six months ending 30th June 2017 increased by 18.0% to £55.53m (H1 2016: £47.06m), assisted by contributions from the acquisition of Keysource and GDM. Underlying EBITDA1 increased by 29.9% to £1.91m (H1 2016: £1.47m). Underlying finance costs were similar to 2016 at £0.24m (H1 2016: £0.23m) as the cash generated over the past twelve months has been invested in software product development and on the acquisitions of GDM and Keysource.

The Group recorded an underlying profit before tax of £1.13m (H1 2016: £0.50m) which, after charging amortisation of customer intangibles of £0.16m (H1 2016: £nil), professional fees on acquisitions of £0.02m (H1 2016: £nil) and notional interest on preference shares of £0.08m (H1 2016: £0.09m), results in a profit before tax of £0.87m (H1 2016: £0.41m), an increase of 112.2%.

Cash flow in period, as determined by work mix and H1:H2 weighting, followed the conventional characteristic of an operational cash outflow in the first half of the year of £1.75m (H1 2016 £0.56m). The Group experienced an outflow on investing activities of £2.69m (H1 2016: £0.91m), with the acquisition of subsidiaries for £3.36m (H1 2016: £nil) partially offset by the cash acquired of £0.63m (H1 2016: £nil). The first six months saw the first substantial return of cash, £0.53m (H1 outflow of £0.15m), to the Group from the joint venture in Dubai as commercial settlement was reached on a major project.

Cash and cash equivalents at 30th June 2017 stood at £0.98m (H1 2016: £3.70m). In February 2017, the Group entered into a £5.0m Revolving Credit Facility with Santander, which is available until August 2019.

Overview and Strategy Update

The Group's selective approach to new business opportunities and an associated conversion ratio, which continues to perform at better than one in three, has established a basis for more predictable income streams. Adding building services consultancy and facilities management expertise (in particular in relation to business critical environments, through the acquisition of GDM and Keysource) has considerably strengthened the relevance of our customer service offering.

Our skills sets are now relevant in new sectors and subsets. In particular, we have been able to transfer learning and best practice from the private sector owner-occupier market to the public sector. The securing of strategic delivery partner status on the Government Hubs Fit-Out Framework clearly underscores this point. We have also seen the successes we have had in delivering complex clinical facilities for NHS Trusts lead to the development of serial relationships with private sector healthcare operators, HCA and BUPA. Similarly, expertise honed in grocery retail has enabled new relationships to be established with specialist end-users who operate critical facilities, such as Manchester Airports Group.

The Group's purpose, the creation of sustainable places for people, is focussed and differentiated through technologies-led solutions. Collaborative supply chain arrangements underpin our projects and programmes offer and, as we expand our business interests through strategic alliances and joint ventures, we will continue to actively investigate further acquisition opportunities.

Corporate Activity:

Acquisition of GDM: The acquisition of GDM, completed in early 2017, considerably enhances the Group's skills and capabilities in mechanical, electrical and environmental consultancy services. GDM was acquired for an initial consideration of £4.0m, satisfied in cash and shares, with further potential deferred and contingent cash consideration, up to £3.1m, linked to performance and commercial objectives over the next three years. These specialist capabilities, now integrated within the expanding Group, are increasingly relevant in a market with high dependency on building services technologies.

New Banking Facilities: In February, the Group entered into new banking facilities with Santander UK plc. The arrangement comprises a £5.0m Revolving Credit Facility to be used for working capital purposes, to support the growth of the Group following the acquisitions of Keysource in September 2016 and GDM in January 2017. The facility can also be utilised to support further acquisitions and is committed for a period of two and a half years.

Post-Period End

Investment in Joint Venture: On 27th July 2017, Spatial Initiative Limited, a new 50:50 joint venture between Styles&Wood Limited and Extraspace Solutions (UK) Limited, was incorporated. The joint venture is formed primarily to serve customers within the education sector, combining the skills of each partner to provide an expert capability to address under capacity in the schools' subset for fit-out, refurbishment and modular build solutions. The venture has secured a position on Batch B of the Education and Skills Funding Agency (ESFA) Priority School Building Programme, with an initial allocation of four primary schools to be delivered by the end of 2018.

Segmental Performance:

§ Professional Services: Revenue within the period of £30.2m (H1 2016: £19.0m) shows an increase of 58.9% relative to prior year. Operational performance remains strong, with Professional Services delivering a margin of 15.1% (H1 2016: 12.6%). Both Portfolio Services and Programme Management and Implementation experienced a growth in revenue in the first half of 2017. GDM revenues are included in the current year figures for Portfolio Services.

- Portfolio Services: New Governance, Risk and Compliance systems product launched in collaboration with Nationwide Building Society. Investment made in new enterprise platform for both internal and external customer deployment. Design and Programme Services Business Unit capabilities enhanced, and broader service line established.

- Programme Management and Implementation: Two to five year framework arrangements in place with four leading banking and financial institutions. Broad-based service line offer with multiple internal customer arrangements. Diversification into public sector office, healthcare, transport hub and industrial areas.

§ Contracting Services: Revenue at £18.6m (H1 2015: £27.5m) fell by 32.3% whilst profitability decreased by 58.4% to £0.7m (H1 2016: £1.7m). The lower revenue in H1 is primarily due to timing issues regarding two major projects' scope, prior to commencing on-site and delays in planning. The deferred start dates will give rise to a significant weighting of contracting revenue in the second half of the year.

- Project Development and Delivery: Serial and repeat customer relationships characterising business interest. Multiple projects in hotel conversion subset and major project success with India Buildings in Liverpool. Continuation of ATM projects' delivery for RBS.

§ Facilities Services: Revenue at £6.7m (H1 2016: £0.5m) with the increase primarily due to the acquisition of Keysource in September 2016, whilst profitability increased to £1.4m (H1 2016: loss of £0.1m). Further growth in this sector is expected in the second half of the year from the continued full-year impact of the Keysource acquisition, along with other life cycle services work due to start in H2.

- Critical Facilities: Consultancy-led solution incorporating projects and operations capabilities. Prioritised focus on blue light, universities and major corporates. Revenue includes the provision of services to The Mayor's Office for Policing And Crime ("MOPAC") data centre management and operations flagship contract.

- Life Cycle Services: Planned and reactive maintenance and small works programmes for banks and corporates. In July 2017, the Group was appointed to the Manchester Airports Group framework.

Market Review

§ Banking and Finance: With a growing emphasis on technology-led customer-centric services, there remains a requirement for investment in remaining branches, despite a reduction in the overall number. Branch reduction provides short-term opportunities linked to exit works, whilst the development of flagship branches, along with investment in branch technology and in-branch service offerings, provide further opportunities. Post-Brexit, the UK remains an attractive market with foreign banks opening new offices in the UK. Consolidation of office space, and a focus on regional office space outside of London, is also driving capital investment.

§ Commercial: An ongoing shortage of affordable, high specification office space is projected to drive demand in the short to medium-term for quality refurbishment and fit-out. Creative spaces are a focus for landlords in driving rental yields and end-users to attract talent. Major government office decentralisation programme and creation of super-hubs driving medium to long-term demand in Government and Public Sector office market.

§ Retail and Leisure: Leisure is a growing market, particularly the hotel segment, with high growth noted in both the budget and 4-star hotels sectors, with an increase in refurbishment activity. Post-Brexit exchange rates have driven increased UK tourism and 'staycations', reflected by occupancy rates increases across the UK. Technological change, multi-channel operations and a prerequisite for optimising format performance, are a defining focus for the large grocery multiples. Programmes to capture innovation and store interventions, with minimal customer impact, are being planned to better leverage existing assets and drive efficiency.

§ Education: Higher Education driving continued growth in the education sector. The application of formula capital funding for the UK's universities, aligned with a goal to provide a world-leading Higher Education system, establishes a sustainable basis for providing a high quality real estate infrastructure, with a focus on the upgrade of existing facilities, in favour of new-build projects. Schools' framework, launched by the Education Funding Agency with a view to creating more school places, deliver 500 new schools and refurbish or rebuild over 500 schools. Total Government investment in the schools estate of £23 billion to 2021 announced.

§ Healthcare: Health and social care devolution will create a demand for a more strategic approach to asset management for the corresponding estates rationalisation programme. Private healthcare provision is growing with continued investment in facility upgrades. Increased appetite for luxury care homes is driving demand for capital investment in estates within the private segment of this market.

§ Transport Hubs: Airports: Favourable post-Brexit exchange rates have led to increased international visitors to the UK, with a number of key UK airports running at, or close to, capacity. A focus on utilising space more efficiently to combat this is driving upgrade programmes, along with the announcement of significant capital spend at major hubs, such as Heathrow.

§ Critical Facilities: The importance of the data centre continues to be seen as mission critical. An ability to provide consultancy-led expert advice, supported by projects' capability and informed operational support, positions the business advantageously to address the continuing challenges within this space.

Outlook

Both recent acquisitions, Keysource and GDM, have performed well in the year to date, and significantly enhanced the Group's customer service offering and earnings potential. Further opportunities have been identified for growth and synergy realisation across the wider group in the current year and beyond.

The year-on-year order book position has strengthened within the core Styles & Wood business, in addition to the impact of the acquisitions. This current order book position and trading forecasts remain in line with management expectations for the full year, with new framework appointments and major project wins providing further growth into 2018.

Tony Lenehan Chief Executive Officer

Responsibility Statement

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS34, as adopted by the European Union, and that the interim management report contained herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last Annual Report.

The Directors of Styles & Wood Group plc are listed in the Annual Report for the year ended 31st December 2016.

By order of the Board

Tony Lenehan Philip Lanigan

28 September 2017 28 September 2017

Chief Executive Officer Chief Finance Officer

There is no difference between the profit/(loss) for the period and the total comprehensive income for the period. Accordingly, no separate statement of comprehensive income has been presented.

Underlying results are shown before charging amortisation on customer-related intangibles, non-recurring expenses (note 7) and accounting for notional interest on preference shares (note 14).

The notes that follow are an integral part of the condensed Interim Financial Statements.

The notes that follow are an integral part of the condensed Interim Financial Statements.

The notes that follow are an integral part of the condensed Interim Financial Statements.

Notes to the interim financial information

1. General information

Styles & Wood Group plc ("the Company") is a public limited company, incorporated and domiciled in the United Kingdom and listed on the AIM market of the London Stock Exchange. Styles & Wood Group plc and its subsidiaries (together "the Group") provide property services to banking, retail, leisure, commercial and public organisations within the UK. The Group has a joint venture in Dubai providing property services to the local market. The address of Styles & Wood Group plc's Registered Office is Cavendish House, Cross Street, Sale, Cheshire. M33 7BU.

This condensed consolidated financial information was approved for issue on 28th September 2017.

This condensed consolidated interim financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The interim results to 30th June 2017 and comparative results to 30th June 2016 are neither audited nor reviewed by the auditors. The financial information for the full preceding year is based on the statutory accounts for the year ended 31st December 2016 which were approved by the Board of Directors on 26th April 2016 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph nor any statement under section 498 of the Companies Act 2006.

2. Basis of preparation

This condensed consolidated interim financial information for the six months ended 30th June 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (formerly the Financial Services Authority) and with IAS34 "Interim financial reporting" as adopted by the European Union. The condensed interim results should be read in conjunction with the Annual Report and Financial Statements for the year ended 31st December 2016, which are available from the Group's website www.stylesandwood-group.co.uk.

Going concern basis

The Group meets its day-to-day working capital requirements through its bank facilities. The Group's current forecasts and projections, which take account of reasonably possible changes in trading conditions, show that the Group should be able to operate within the level of its current facilities, details of which can be found in note 12. Therefore, the Group continues to adopt the going concern basis in preparing the consolidated interim financial information.

3. Accounting policies

The accounting policies, methods of computation and presentation followed are consistent with those applied in the Annual Report and Financial Statements which are prepared in accordance with IFRS as adopted by the European Union, except as described below:

· Taxes on income in the interim periods are accrued using the tax rate that would be applicable to total expected annual earnings.

There are no new IFRSs or IFRICs that are effective for the first time for this interim period that would be expected to have a material impact on the Group.

4. Estimates

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated Financial Statements for the year ended 31st December 2016.

5. Principal Risks

The Group's operations and financial instruments expose it to a variety of financial and other risks. This interim financial information does not contain all risk management information and should be read in conjunction with the Annual Report and Financial Statements.

There have been no changes in the risk management policies or risks since the Annual Report for the year ended 31st December 2016 was published.

6. Revenue and profit from business segments

All revenues arise from external customers for the provision of property-related services in the UK. Operating segments are reported in a manner consistent with the internal reporting to the Board of Directors (the chief operating decision maker), which is used to assess performance and make strategic decisions.

Segmental reporting disclosures have been amended in line with the Group's new management reporting. Comparative disclosures for the six months ending 30th June 2016 have been restated accordingly in the tables below.

Unallocated segment result reflects expenses relating to the overall Group, rather than a particular segment, and includes people costs, professional fees and share option expenses. Transactions between segments are eliminated on consolidation.

7. Non-recurring items and preference share accounting

The Group's results include the following items:

(a) In 2016, restructuring costs relate to costs associated with the restructure and integration of Keysource Limited following its acquisition.

(b) Professional fees incurred on the acquisition of Keysource Limited and The GDM Group Limited. The acquisitions of Keysource Limited and The GDM Group created £1,050,000 and £1,022,000 respectively of share premium in the Group, against which fees incurred on the transactions of £75,000 and £38,000 respectively have been allocated and offset.

(c) This relates to the amortisation charge on the customer-related intangibles recognised in the Group on acquisition of Keysource Limited and The GDM Group.

8. Finance costs

9. Taxation

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate for the full financial year. The estimated average effective annual tax rate used for the year to 31st December 2017 is 22.7% (the estimated average effective annual tax rate for the six months ended 30th June 2016 was 22.1%).

10. Earnings per share

The Company has in issue 4,356,780 convertible preference shares which are convertible into 464,723 ordinary shares. These shares are not currently dilutive.

On 19th June 2015, the Group issued 364,600 nil cost warrants for a consideration of £182,300 and a five year warrant over 740,000 new ordinary shares exercisable at a price of 75p per share. These warrants were redeemed on 20th September 2016, resulting in the issuance of 1,104,600 ordinary shares. The warrants were dilutive up to the point of redemption, which has been accounted for in the diluted earnings per share calculations.

The Hurdle Shares, and options awarded under the Performance Share Plan, are dilutive. The impact of the dilution of earnings per share has been calculated, based on average share price in 2016 from the date of award.

11. Dividend

The Board does not consider it appropriate to pay an interim dividend on ordinary shares (2016: nil). A dividend on the preference shares accrues at a rate of 3%. The charge for the six months ended 30 June 2017 was £65,000 (six months ended 30th June 2016: £76,000, year ended 31st December 2016: £151,000).

12. Cash and cash equivalents

The Group's current banking facility comprises a £5.0m working capital facility which was entered into in February 2017. This facility is available until 31st July 2019. As at 30th June 2017, the net balance of the banking facility was a drawdown of £1,305,000, after off-setting positive cash balances held with the same bank, where legal off-set is permitted. This balance is presented within current financial liabilities on the face of the balance sheet.

Issue costs in respect of the facilities have been prepaid and are being amortised over the life of the facility.

13. Other financial assets: Cash collateral

At 30th June 2016, the Group had deposited cash of £590,000 (30th June 2016 £1,049,000, 31st December 2016 £590,000) as collateral for the issue of performance bonds. The cash was held by the surety, providing the bonds and deposited in a client account with the surety's bank.

14. Financial liabilities

The loan notes comprise three individual loans (30th June 2016: one, 31st December 2016: one). The £2,000,000 loan is repayable on 31st December 2018 and carries interest of 10%, with interest payments made on an annual basis.

As part of the acquisition of GDM, a further £675,000 of loan notes were issued, which are repayable in January 2018 and carry interest of 2.75%.

A further loan of £180,000 is held by GDM Partnership Building Services Consultants Limited ("GDM Partnership") which is interest-free and repayable in semi-annual instalments of £30,000.

The 4,356,780 convertible, redeemable preference shares are held by Business Growth Fund and Lombard Odier Asset Management (Europe) Limited. The conversion rights allow the holder to convert the 4,356,780 preference shares into 464,723 ordinary shares at a price of £9.375 per share, in tranches from 31st December 2017 to 31st December 2019. The shares carry a cash coupon of 3% and, unless converted by the holder, are redeemable in tranches from 31st December 2016 as follows:

Due to the conversion rights attached to the preference shares, International Accounting Standards require them to be accounted for by separating the liability and equity components based on their respective fair value on issue. Subsequent to issue, the liability component is measured at amortised cost and a notional interest charge, which is greater than the cash coupon payable on the shares, is made to the income statement. The difference between the imputed notional interest charge and the actual cash coupon is then credited to the profit and loss reserve, reducing the equity component.

A cash coupon of £65,000 is payable in respect of the six months ended 30th June 2017 (six months ended 30th June 2016: £76,000, year ended 31st December 2016: £151,000) has been charged within underlying profit. Notional interest of £82,000 has been credited back to reserves (six months ended 30th June 2016: £92,000, year ended 31st December 2016: £187,000).

15 Non-current liabilities

The above provisions are related to property occupied by the Group.

The Group's financial instruments comprise cash, obligations under hire purchase agreements, loan notes, preference shares and various items, such as receivables and payables, which arise from its operations. All financial instruments in 2017 and 2016 were denominated in Sterling. There is no material foreign exchange risk in respect of these instruments.

The carrying amounts of all of the Group's financial instruments are measured at amortised cost in the Financial Statements. IFRS 13 (amended) 'Financial Instruments: Disclosures' requires disclosure of financial instruments measured at fair value, grouped into Levels 1 to 3 below, based on the degree to which fair value is observable:

- Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities;

- Level 2 fair value measurements are those derived from inputs, other than quoted prices included within Level 1 above, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

All of the Group's derivative financial instruments, as described in the note above, were classified as Level 2 in the current and prior year. There were no transfers between levels in either the current or prior year.

Future commitments under hire purchase agreements are as follows:

16. Hurdle Shares

On 26th January 2016, the Company issued 10,000 £2.50 Hurdle Shares to six senior managers. The Hurdle Shares are "employee shareholder" shares, and have extremely limited transferability. The Hurdle Shares have conversion rights into Ordinary Shares dependent on the share price on 31st December 2018 and certain other defined events. These are set out in the Articles of Association.

17. Notes to the cash flow statement

18. Contingencies

The Group takes out performance bonds in the ordinary course of business. The aggregate amount of such bonds outstanding at 30th June 2017 was £3,058,000 (30th June 2016: £3,055,000, 31st December 2016: £2,957,000). The aggregate amount of bonds outstanding at 30th June 2017 on projects where practical completion has been achieved was £1,772,000 (30th June 2015: £866,000, 31st December 2016: £432,000).

It is not anticipated that any material liabilities will arise from the contingencies. The Group has no capital commitments.

19. Related party transactions

The Executive and Non-Executive Directors are considered to be the key management personnel of the Group. Their aggregate remuneration for the period was as follows:

In the six months ended 30th June 2017, the company paid fees of £17,500 (six months ended 30th June 2016: £17,500, year ended 31st December 2016: £35,000) to the Business Growth Fund and accrued interest payable of £50,000 (six months ended 30th June 2016: £50,000, year ended 31st December 2016: £100,000) on loan notes issued to the Business Growth Fund.

The following transactions have taken place between the Group and entities over which Paul Bell, who has a 25% shareholding in the Group, and is therefore considered to be a related party. All transactions were undertaken in the ordinary course of business.

20. Joint ventures

The Group has a 49% investment in Dutco Styles & Wood LLC, a company registered in Dubai. The investment is held by Styles & Wood Limited and the terms of the joint venture agreement entitle Styles & Wood Limited to jointly control the entity and to a 50% share of the profits of the joint venture.