29th Nov 2005 07:02
Atkins (WS) PLC29 November 2005 Interim results for the six months ended 30 September 2005 Professional services group WS Atkins plc (Atkins) today announced preliminary unaudited results for the six months ended 30 September 2005. FINANCIAL SUMMARY Six months to Six months to Six months to 30 September 2005 30 September 2004 30 September 2004 Pro forma(1) Turnover excluding Joint Ventures £516.1m £463.4m £463.4m Operating profit £25.9m £23.5m £23.5m Operating margin(2) 5.0% 5.1% 5.1% Profit before tax £28.2m £26.0m £25.4m Profit before tax (before JV taxation) £30.2m £28.7m £28.0m Dividend per share proposed for period 4.5p 4.0p 4.0p Fully diluted earnings per share 21.0p 19.7p 19.1p Cash generated from operations £29.3m £26.6m £26.6m Net funds £106.9m £71.3m £71.3m Notes: (1) As permitted by IFRS 1, First time adoption of IFRS, the Group has elected to adopt IAS 32, Financial instruments: disclosure and presentation and IAS 39, Financial instruments: recognition and measurement, prospectively from 1 April 2005. The pro forma figures provided here show comparatives had the Group adopted IAS 39 and the IFRIC draft interpretations regarding PFI/PPP concessions for the six months ended 30 September 2004. (2) 5.3% before PFI/PPP bid costs (2004: 5.1%). HIGHLIGHTS • Turnover up by 11%. • Operating profit up by 10%. • Operating margins increased in all core areas except Rail, with an overall margin of 5.0% (2004: 5.1%). • Substantial turnover growth in Design and Engineering Solutions (17%), Highways and Transportation (16%), Middle East and China (41%) and Management and Project Services (17%). • Robust order book, with work in hand representing 87% of forecast turnover for the current year (2004: 83%). • Good cash flow after payments to the pension scheme of £7.2m (2004: £1.8m) to fund the actuarial deficit. An additional lump sum payment of £10.0m was made to the pension scheme in October 2005. • Strong focus on Metronet's capital programme. • Interim dividend up 12.5% to 4.5p per share. Commenting on the results, Keith Clarke, Chief Executive of Atkins, said: "The results were ahead of our expectations, with most of our core businessesgrowing strongly in response to public sector demand. Prospects for our businessremain good and we are confident that the Group will continue to growprofitably." Enquiries Atkins Keith Clarke, Chief Executive + 44 (0) 1372 726140 Robert MacLeod, Group Finance Director + 44 (0) 1372 726140 Brunswick Mike Smith, Deborah Fairbrass +44 (0) 20 7404 5959 Notes to Editors 1. Atkins Atkins (www.atkinsglobal.com) plans, designs and enables the delivery of complexinfrastructure and buildings for clients in the public and private sectorsacross the world. Atkins is the largest multi-disciplinary consultancy inEurope; the largest engineering consultancy in the UK; and the fourth largestdesign firm in the world (sources: New Civil Engineer Consultants File, 2005;Swedish Federation of Consultant Engineers & Architects, 2005; Engineering NewsRecord, 2005). 2. Attachments Attached to this press release are the Overview of the period, Half year review,the unaudited consolidated income statement, consolidated balance sheet,consolidated cash flow statement and notes to the financial information for theperiod. 3. Analyst Presentation A presentation for analysts will be held today at The Lincoln Centre, 18Lincoln's Inn Fields, WC2A 3ED, at 9.30am. A webcast of the presentation willsubsequently be available via the Company's website, www.atkinsglobal.com. OVERVIEW The results presented here are the Group's first under International FinancialReporting Standards (IFRS). Although the application of IFRS has had relativelylittle net impact on reported profits, the effect on the Group's balance sheetis significant. The transition to IAS 19, Employment Benefits, resulted in areduction of equity of £172.5m at 31 March 2005. The Group's underlyingoperating performance remains unaffected. Results Overall, the results for the period of the Group's wholly owned operations wereahead of our expectations. Turnover increased by 11% compared to the six monthsended 30 September 2004 with most of our core businesses growing strongly inresponse to public sector demand. The Group's results are reported on a newsegmental basis that better reflects the operating structure of the business.Importantly, the new segments are sub-divisions of the former ones, enablingdirect comparability of results. Design and Engineering Solutions and Highwaysand Transportation in particular continue to perform well, while marginsimproved significantly in other areas, notably Management and Project Services.The principal exception was the Rail segment where, as predicted, performancewas impacted by difficult short term market conditions. We have maintainedcapacity in our Rail business to take advantage of the market upturn that is nowshowing the first signs of emerging. Overall, operating profit increased by justover 10%. Operating cash flow for the period was £29.3m (2004: £26.6m). This is after thepayment of £7.2m to fund the actuarial deficit of the Group's main definedbenefit pension scheme. A further lump sum contribution of £10.0m was paid intothe pension scheme in October 2005, bringing total projected deficit funding tothe pension scheme for the full year to £24.3m. During the last six months Metronet's new management team has focused onimplementing the organisational changes necessary to advance the recovery of thecapital programme. The Group's results for the period were impacted by continueddelays in the recovery of the capital programme, inconsistent operationalperformance and restructuring costs. Outlook Prospects for our business remain good and we are confident that the Group willcontinue to grow profitably. Demand for our services is strong with 87% offorecast full year turnover already secured (2004: 83%). Activity in the Railsector is still below the medium term trend level but is expected to improvenext year. All our main business activities retain significant potential forlonger term growth. The recovery of the capital programme and the improvement of the day to dayoperational performance of the Underground remain crucial to the eventualsuccess and realisation of value from the project. Metronet's new managementteam is carrying out a detailed review of the complex and challenging capitalprogramme. Whilst progress has been made over the last six months, it will takesome time to evidence any significant recovery. As previously stated, theseissues must be satisfactorily addressed if the Group's returns from Metronet arenot to be impacted at all levels, including the final value of the investment. Board of Directors On 6 October 2005 James Morley was appointed Senior Independent Director. On thesame date Sir Peter Williams joined the Remuneration Committee, becoming itsChairman, and Christopher Kemball joined the Audit Committee. Struan Robertson retired as a Director of the Company on 7 September 2005. Dividend An interim dividend of 4.5p per share will be paid on 27 January 2006 to allshareholders on the register on 23 December 2005 (2004 interim dividend: 4.0pper share). This represents an increase of 12.5%, reflecting the Board'sconfidence in the Group's prospects. HALF YEAR REVIEW Strategy The Group plans to publish an expanded Operating and Financial Review within the2006 Annual Report, in accordance with Reporting Standard 1, Operating andFinancial Review, containing a more detailed analysis of the Group's strategy. Our business Atkins is the largest multi-disciplinary consultancy in Europe, in business toprovide the highest quality advice and support to clients in planning, designingand enabling their capital programmes to achieve greater predictability,efficiency and quality. Our market The consultancy market is characterised by a number of large firms that providethe majority of the engineering and related services to the public and privatesectors, both in the UK and overseas, together with a significant number ofsmaller players. The top 20 consultancies account for around three quarters ofthe market. Atkins occupies the top position in ten of the 19 market segments identified bythe New Civil Engineer, with strong placings in the other areas. The UK publicsector and regulated industries currently form a significant part of the Group'sclient base. Our strategy The Group's strategic focus remains on the generation of sustainable, profitablegrowth in our core areas of business. We will achieve our business expansion by continuing to do what we do best inthe markets we know well, especially the UK: • Organic growth will be the main driver, although acquisitions will be pursued where they add niche skills and appropriate resources. We aim to become the provider of choice for our clients in our core market segments. Our markets in the UK remain the principal focus, but we aim to expand internationally where this can be done on a sustainable basis. • We will develop and exploit the identity of the Group. This is more than increasing the visibility, awareness and perception of our brand, as it encompasses who we are and how we do it, focusing on what we provide and its value. • We will also pursue excellence in all aspects of our business. This means enhancing efficiency by improving our product or reducing costs or both. We will invest in our resources and products to maintain competitive advantage. We will promote the development of new technology to enhance our service offering and efficient internal processes and procedures, exploiting appropriate barriers to entry. Our staff We continue to devote significant resources to recruit and retain the beststaff. Where there are areas of skill shortage in the UK we will use expertisefrom our international operations to support the UK business. Trends Our principal markets are robust. The complexity of projects is increasing. Theability to address such projects is a significant barrier to entry. Value formoney on capital programmes is here to stay. Atkins is well placed to capitaliseon all of these factors. For the Group, the UK is likely to remain dominant, although there is a skillconstraint. We expect further growth in the Middle East, where headcount,including agency staff, has now grown to more than 1,000. China presents asignificant challenge but also a significant opportunity. KEY PERFORMANCE INDICATORS The Group's Key Performance Indicators (KPIs) for the period are shown below, along with comparatives. Six months to Six months to 30 September 2005 30 September 2004 Financial metrics Turnover (continuing, excluding Joint Ventures) £516.1m £463.4m Operating profit £25.9m £23.5m Operating margin* 5.0% 5.1% Operating cash flow £29.3m £26.6m Work in hand** 87% 83% People Staff at 30 September 13,380 13,148 Total headcount (including agency staff) at 30 September 15,377 14,876 Staff turnover (previous 12 months) 14.2% 14.4% *5.3% before PFI/PPP bid costs (2004: 5.1%). ** Work in hand is the value of work carried out in the period plus contracted and committed work for the remainder of the year, expressed as a percentage of full year forecast turnover. Overall Group's KPIs demonstrate a positive trend. Turnover increased by 11%compared to the six months ended 30 September 2004, driven by strong growth inthe Design and Engineering Solutions and Highways and Transportation segments.The overall operating margin before PFI/PPP bid costs rose slightly from 5.1% to5.3%. All core segments, other than Rail, produced increased margins compared tothe six months ended 30 September 2004. As predicted, Rail's operating marginfell due to the temporary market slowdown and the effects of delays to theMetronet capital programme. Operating cash flow remains strong. Our order bookis robust, with 87% of forecast full year turnover already secured, animprovement on the position at the same stage last year. Headcount has increased by 1.8% in the last 12 months while total staff numbers(including agency staff) have increased by 3.4%. Staff turnover has reducedslightly to 14.2%. We are committed to attaining our medium term target of12.5%. SEGMENTAL ANALYSIS Design and Engineering Solutions Six months to Six months to 30 September 2005 30 September 2004 Turnover £137.5m £117.2m Operating profit £10.9m £8.1m Operating margin 7.9% 6.9% Work in hand 81% 73% Staff at 30 September 3,505 3,378 Total headcount (including agency staff) at 30 September 4,146 3,892 Design and Engineering Solutions performed well in the first half of the yearand has continued to grow profitably. Operating profit for the period increasedby £2.8m (35%) on turnover growth of 17%. Increasing demand for our services anda focused approach has enabled us to continue improving margins. Work in hand isgood with 81% of forecast full year turnover secured (2004: 73%). Staff numbers(including agency staff) have risen significantly and at 30 September 2005 were7% higher than 12 months previously. Growth has been driven by work delivered on major projects won last year, alongwith some significant contract wins in the first half of this year. Our designbusiness has performed well, particularly in the education sector, with asignificant volume of work being generated by the government's Building Schoolsfor the Future initiative. High profile projects include our design of the re-development of the headquarters of the Department for Environment, Food andRural Affairs (Defra). The project has recently been completed and incorporateda range of environmentally sustainable design methods. There has also been agood flow of work from the private sector. Current projects include the designof the Bay Pointe development in Cardiff, a major residential complex. In Nuclear and Power, successes include our appointment as Design House for AWEin respect of a major infrastructure programme spanning several years. Work forthe Carbon Trust has also continued to grow and we have recently been re-appointed under a three year contract to provide consultancy services relatingto energy abatement and climate change. Our Aerospace and Defence businesscontinues to develop, particularly in our role as a strategic supplier toAirbus. We now have a team working on the latest aircraft project, the A350, inaddition to our work on the development of the A380. During the period weachieved AS9100 accreditation, the quality system for the aerospace industry.The Future Rapid Effect System (FRES) project for the MoD has generated asubstantial amount of work and is progressing to plan. The Water and Environment division has started the year well, benefiting fromthe commencement of the AMP4 programme, following the award of contracts lastyear. We have also been appointed as Framework Partner by the Environment Agencyfor a new four year National Engineering & Environmental Consultancy Agreement.This framework contract will support the delivery of a range of capitalprojects, including flood defence, waterways and water resources. Outlook The outlook for the Design and Engineering Solutions segment is positive,especially in the light of continuing high levels of public sector investment.Substantial growth is expected in a number of markets. Local EducationPartnerships present significant opportunities for our design operations, whichshould also benefit from increasing public sector expenditure on healthinfrastructure. The 2012 London Olympics offer great potential across numerousdisciplines, including engineering, landscape, urban design and planning. Thereare also significant opportunities in the nuclear and defence sectors. Highways and Transportation Six months to Six months to 30 September 2005 30 September 2004 Turnover £111.7m £96.5m Operating profit £6.0m £3.9m Operating margin 5.4% 4.0% Work in hand 87% 93% Staff at 30 September 2,730 2,666 Total headcount (including agency staff) at 30 September 3,092 2,938 During the first half of the year the Highways and Transportation businessperformed strongly, with operating profit increasing by 54% on turnover growthof 16%. Work in hand remains good with 87% of forecast full year turnoversecured (2004: 93%). The Highway Services business, which provides regionally-based services to the Highways Agency (HA) performed soundly in the period. Wesecured one year extensions to our Managing Agent (MA) area contracts coveringEast Anglia and the North-West and a three year extension as MA contractor forthe Midlands. While our MA contract for the South West concluded in June 2005,with a consequential effect on work in hand, we have maintained a strongregional presence and continue to provide intelligent transport systems supportto the HA. Our road design and transport planning services remain in demand andthese areas performed well in the first half of the year. Contract wins include our appointment under nine work categories of Transportfor London's (TfL) engineering and project management framework. We alsorecently secured a one year extension to our SA2000 contract with Essex CountyCouncil, a joint venture with Siemens for the design and installation of trafficcontrol systems county-wide. During the period we commenced a seven yearconsultancy partnership with Birmingham City Council which has furtherstrengthened our presence in the Midlands. Innovative use of technology is anincreasingly important aspect of our services, particularly relating to thedesign and implementation of control centres. During the first half of the yearwe delivered new traffic control centres in the north-west region and Somerset.Our new control centre in Worcester provides 24 hour logistical support to theHA's winter road gritting programme and co-ordination of the 'Amberwatch'missing child scheme. Our work has continued to attract awards, including thehighways Street Design Award for the Vauxhall Cross Transport Interchange. Outlook Government expenditure on transport continues to grow in the UK, with additionalfunding being provided from various sources, including the Transport InnovationFund, which will add £10 billion to the government's transport spending over thenext ten years. Our position as the largest consultant in the sector means weare well positioned to win long term, integrated services contracts. We haverecently been selected by Gloucestershire County Council as preferred bidder forthe provision of highways and transportation services across the county. Thecontract combines design and operational activities and is likely to generateturnover of approximately £30m per annum for up to ten years. Rail Six months to Six months to 30 September 2005 30 September 2004 Turnover £87.8m £97.8m Operating profit £1.1m £6.9m Operating margin 1.3% 7.1% Work in hand 98% 90% Staff at 30 September 1,624 1,740 Total headcount (including agency staff) at 30 September 1,972 2,055 The first half of the year saw the beginning of a market recovery, with workloadimproved from the second half of 2004/5 but still significantly lower thancapacity. Profitability suffered due to the reduced volume of work, the impactof the delays to the Metronet capital programme and the costs of maintainingstaff capacity during the temporary market downturn. Despite difficult marketconditions some significant contracts were secured in the period, including twomajor re-signalling schemes for Network Rail (NWR) - Port Talbot andBasingstoke. These projects provide a solid core of work from which we should beable to improve productivity and margins in the remainder of the year. Already98% of forecast turnover for the year has been secured. Outlook Prospects for the UK remain positive in the medium term. The forward expenditureplans of NWR indicate a healthy ongoing level of infrastructure investment. Therecent interim determination by the Office of Rail Regulation gave NWR anadditional £179m to invest in signalling infrastructure, bringing totalsignalling investment to £1.7 billion in the period to 2009. However, the marketis unlikely to recover in earnest until the first half of 2006/07. In themeantime, bidding activity is high and current opportunities include the EastLondon Line and Crossrail. We are increasingly targeting work from additionalsources, such as TfL, the Scottish Executive, and a number of city fundedtransport initiatives. Our capability leaves us well placed to benefit from theimproving market. Middle East and China Six months to Six months to 30 September 2005 30 September 2004 Turnover £30.5m £21.6m Operating profit £1.5m £0.8m Operating margin 4.9% 3.7% Work in hand 96% 88% Staff at 30 September 1,406 1,141 Total headcount (including agency staff) at 30 September 1,666 1,427 The Middle East and China segment has continued to flourish, with turnovergrowth of 41% in the six months to 30 September 2005 at significantly improvingmargins. The Group now employs over 1,000 staff in the Middle East, up fromunder 600 just 18 months ago. The buoyancy of the market, driven by higher oilprices, combined with the strength of Atkins' brand in the region, resulted insome significant project wins during the period. In Dubai these include TiffanyTowers, a prestigious office development in the Jumeirah Lakes area, and theTaleem Flagship School, which will serve as a hub for a series of satelliteschools. Recent wins in Bahrain include design and supervision work for theBusiness Bay development and infrastructure design for the new DohaInternational Airport. In China our emphasis is increasingly shifting to areas other than Hong Kong. Wenow have offices in six other locations, with over 350 staff. Generation of newwork has been good, underpinned by major urban development and planningprojects. These include masterplans for the Shunyi, Yizhuang and Tongzhan newtowns. New architectural commissions include five hotel developments in additionto residential and commercial projects nationwide. We have also won a number ofairport design projects, an important growth sector. In Shanghai we have beenappointed to complete the landscape design of the Pudong North Bund area, alandmark new parkland on the banks of the Huangpu River. Outlook The outlook for the remainder of the year is good and secured work representssome 96% of full year forecast turnover. Prospects are encouraging in bothmarkets. In the Middle East, high levels of infrastructure investment look setto continue, regardless of future oil prices, and our market reputation andmulti-disciplinary capability should allow us to grow further. In China,economic growth remains strong and is most rapid in the secondary cities whereour business is developing a network of offices. China has more than 160 citieswith a population in excess one million and these secondary cities offer greatpotential opportunities. In Hong Kong, trading conditions are improving, withthe economy now growing steadily and this is expected to benefit the flow ofwork. Our investment in China seeks to lay the foundations for a substantial andprofitable business. Management and Project Services Six months to Six months to 30 September 2005 30 September 2004 Turnover £83.5m £71.2m Operating profit £6.1m £2.9m Operating margin 7.3% 4.1% Work in hand 82% 74% Staff at 30 September 1,952 1,917 Total headcount (including agency staff) at 30 September 2,064 2,012 The performance of Management and Project Services has been strong in the firsthalf of the year. Turnover grew by 17% while margins improved significantly,largely due to improved utilisation of staff and other efficiencies. Workloadfor the remainder of the year is healthy with 82% of forecast revenue alreadysecured. The Management Consultants division has continued to grow, winning alarge volume of work and increasing staff numbers by circa 7% in the period.Contract wins in the first half of the year included a project to providetechnical advisory services for the construction of a new airport in St. Helenaand a three year framework contract for the Learning and Skills Council. Growthremains focused on the public sector, with opportunities arising out ofgovernment initiatives following the Lyons Inquiry and Gershon EfficiencyReview. The project and cost consultancy division, Faithful & Gould, has started theyear well with good growth at higher margins. We have capitalised onopportunities in a number of areas, including the government's Building Schoolsfor the Future initiative. We have continued to generate business in the railand banking sectors by working alongside other parts of the Group to providemulti-disciplinary services to our clients. The performance of the US businesshas improved and a number of significant commissions were won in the period. Outlook Prospects for the Management and Project Services segment remain positive. TheUK public sector consultancy market continues to grow in response toGovernment's drive to improve the delivery of capital investment plans. Thereare also attractive management consultancy opportunities overseas and in theprivate sector. The outlook for Faithful and Gould remains favourable in the UKand much improved in the US, with significant opportunities available in themanufacturing, oil and leisure sectors. Prospects in the UK private sector aregood, particularly in banking and leisure. Asset Management Six months to Six months to 30 September 2005 30 September 2004 Turnover £30.9m £29.6m Operating profit/ (loss) £0.2m £(0.5)m Operating margin 0.6% (1.7)% Work in hand 83% 92% Staff at 30 September 812 984 Total headcount (including agency staff) at 30 September 982 1,155 The performance of our Asset Management business showed some improvement duringthe first half of the year, breaking even after the losses made during 2004/05.Work in hand for the remainder of the year is fair with 83% of forecast turnoveralready secured. The defence side of the business has performed satisfactorily. Certain of ourexisting MoD contracts have been extended and additional work commissioned inadvance of the introduction of the MoD's new Prime Contracts. However, theforthcoming expiry of the current contracts has impacted on work in hand. OurColchester Garrison Joint Venture is progressing well. Our appointment as a Tier1 provider to Barclays to deliver an integrated project, facilities and estatesmanagement service demonstrates both the demand in the market and our ability tosecure broader based contracts. Outlook The Asset Management business is not a part of the Group's growth strategy but has potential as a profitable niche business. Equity Investments Six months to Six months to 30 September 2005 30 September 2004 Turnover £34.2m £29.5m Operating profit £1.3m £1.5m Operating margin 3.8% 5.1% Staff at 30 September 875 881 Total headcount (including agency staff) at 30 September 875 882 The results of the Equity Investments segment largely relate to Lambert SmithHampton (LSH), the Group's commercial property business, which performedsatisfactorily in the first half of the year. The fall in operating margin forthe half year relates to non-recurring costs associated with the relocation ofcertain offices. The investment division concluded a number of significanttransactions, including the sale of the Euston estate by the Scarborough Group.LSH also acted for Tesco in relation to two major distribution propertytransactions. There were some significant successes in consultancy services,including the award of an outsourced property services contract forNorthamptonshire County Council and instructions for nationwide rating advice onbehalf of Reg Vardy and Inchcape. Outlook The outlook for property markets is generally positive for the current year.Demand for investment property remains strong, though this is likely to ease inresponse to reduced returns. Market conditions in the office sector areimproving as demand strengthens and availability levels fall. The levelling ofconsumer spending may impact on the retail sector, although distributionwarehousing is currently proving a growth area. LSH is well placed to benefitfrom these trends, providing a full range of commercial property advice acrossits nationwide network. Metronet During the last six months Metronet's new management team has focused onimplementing the organisational changes necessary to advance the recovery of theinitial 71/2 year capital programme within the 30 year concession. These changesinclude the integration of the supply chain management team into Metronet and areduction in headcount. As part of this reorganisation, Atkins has continued tosupport the Metronet management team and has seconded a number of senior staffinto the project. Considerable improvements have been made over the last sixmonths in terms of process and productivity. It will, however, take asignificant time for this to effect full recovery of the capital programme. The Group's results from Metronet for the six months to 30 September 2005 wereimpacted by delays to the capital programme, by inconsistent operationalperformance and restructuring costs. The performance of the capital programmehas also affected the results of our supply chain. Outlook The recovery of the capital programme and the improvement of the day to dayoperational performance of the Underground remain crucial to the eventualsuccess and realisation of value from the project. Metronet's new managementteam is carrying out a detailed review of the complex and challenging capitalprogramme. Whilst progress has been made over the last six months, it will takesome time to evidence any significant recovery. As previously stated, theseissues must be satisfactorily addressed if the Group's returns from Metronet arenot to be impacted at all levels, including the final value of the investment. Income statement The results for the six months to 30 September 2005 are summarised below. Six months to Six months to Six months to 30 September 30 September 30 September 2005 2004 2004 Pro forma £m £m £m Group Profit before tax 24.0 20.7 20.7 Joint Venture Profit before tax 6.2 8.0 7.3 ---------- ------------- ------------ Profit before tax (before JV tax) 30.2 28.7 28.0 Joint Venture tax (2.0) (2.7) (2.6) ---------- ------------- ------------ Profit before tax 28.2 26.0 25.4 Taxation (7.0) (6.2) (6.2) ---------- ------------- ------------ Profit for the period 21.2 19.8 19.2 ========== ============= ============ PFI/PPP bid costs PFI/PPP bid costs during the six months ended 30 September 2005 amounted to£1.2m (2004: £0.1m). The costs mainly related to bidding activity on theBirmingham Highways PFI and the Royal School of Military Engineering (RSME)project, where the Group is preferred bidder. Bid costs on the RSME project willcontinue to be expensed until the Group is virtually certain that it will reachfinancial close. Taxation The Group's underlying tax rate for the period (including the tax on the Group'sjoint ventures) was 29.8% compared to 31.4% for the six months ended 30September 2004 (31.0% on a pro forma basis) and 31.8% (excluding the effect ofthe goodwill impairment) for the year ended 31 March 2005. The reduction in theGroup's underlying tax rate is mainly due to the benefit of tax credits inrespect of research and development expenditure. Pensions Funding In 2004 the Group reached agreement with its employees and the trustees of thepension scheme regarding the funding of the actuarial deficit. That agreementrequired the Group to pay £4.3m per annum into the scheme as deficit funding. Inorder to reduce the actuarial deficit more rapidly, the Group last yearannounced that it intended to accelerate the payment of its contributions.Accelerated contributions will amount to £20.0m for the year ending 31 March2006 (2005: £8.6m). Some £7.2m was paid into the scheme in the six months to 30September 2005. The total projected deficit funding for the year ending 31 March2006 is £24.3m. IAS 19 The application of IFRS has had a significant impact on accounting for theGroup's defined benefit pension schemes. Under IAS 19, Employee Benefits, theGroup recognised a post tax retirement benefit liability of £195.0m at 30September 2005 (2004: £182.3m). The Group has adopted early the proposedamendment to IAS 19 and has recognised through equity a post tax actuarial lossof £12.5m for the six months ended 30 September 2005 (2004: £11.0m). The key assumptions used in the IAS 19 valuation are detailed in note 11 to theinterim financial statements. The sensitivities regarding these assumptions areshown below. Assumption Change in assumption Indicative effect on the scheme's liabilities Discount rate Increase/decrease by 0.5% Decrease/increase by 10% Rate of inflation Increase/decrease by 0.5% Increase/decrease by 6.5% Real rate of increase in salaries Increase/decrease by 0.5% Increase/decrease by 2% Longevity Increase by 1 year Increase by 4% Events after the balance sheet date In line with the Group's stated strategy to recycle cash invested in PFI projectcompanies at the appropriate time, the Group has disposed of its 25% stake inSouth Manchester Healthcare (Holdings) Limited. The disposal was completed on 23November 2005 for a consideration of £7.8m and will result in a profit of £5.7mwithin the full year results to 31 March 2006. Ed Wallis Keith Clarke Chairman Chief Executive 29 November 2005 Consolidated income statement for the six months ended 30 September 2005 (unaudited) Six months to Six months to Twelve months to 30 Sept 30 Sept 31 March 2005 2004 2005 Notes £m £m £m ------------------------------------------------------ ----- ------------- ------------- ---------------- Revenue (Group and share of Joint Ventures) 676.7 544.2 1,157.3 Less: Share of revenue from Joint Ventures 3 (160.6) (80.8) (202.3) ------------------------------------------------------ ----- ------------- ------------- ---------------- Revenue 2 516.1 463.4 955.0 Cost of sales (321.2) (279.7) (579.3) ------------------------------------------------------ ----- ------------- ------------- ---------------- Gross profit 194.9 183.7 375.7 Administrative expenses (169.0) (160.2) (332.7) ------------------------------------------------------ ----- ------------- ------------- ---------------- Operating profit 2 25.9 23.5 43.0 Share of post-tax profits from Joint Ventures 3 4.2 4.7 10.2 ------------------------------------------------------ ----- ------------- ------------- ---------------- Profit from operations 30.1 28.2 53.2 Finance income 4.0 2.5 6.8 Finance cost (5.9) (5.3) (10.7) ------------------------------------------------------ ----- ------------- ------------- ---------------- Net finance cost 4 (1.9) (2.8) (3.9) ====================================================== ===== ============= ============= ================ Profit before taxation 28.2 25.4 49.3 Taxation 5 (7.0) (6.2) (14.1) ------------------------------------------------------ ----- ------------- ------------- ---------------- Profit for the period from continuing operations 21.2 19.2 35.2 Profit for the period from discontinued operations - - 3.7 ------------------------------------------------------ ----- ------------- ------------- ---------------- Profit for the period attributable to equity shareholders 21.2 19.2 38.9 ====================================================== ===== ============= ============= ================ Basic earnings per share - continuing operations 21.3p 19.4p 35.5p - discontinued operations - - 3.7p ------------------------------------------------------ ----- ------------- ------------- ---------------- 6 21.3p 19.4p 39.2p ------------------------------------------------------ ----- ------------- ------------- ---------------- Fully diluted earnings per share - continuing operations 21.0p 19.1p 35.0p - discontinued operations - - 3.7p ------------------------------------------------------ ----- ------------- ------------- ---------------- 6 21.0p 19.1p 38.7p ------------------------------------------------------ ----- ------------- ------------- ---------------- Dividends recognised in the period - paid 7 8.0p 7.0p 11.0p Dividends proposed for the period - proposed 7 4.5p 4.0p 8.0p ====================================================== ===== ============= ============= ================ The notes on pages 15 to 22 form part of the interim financial information. Consolidated balance sheet as at 30 September 2005 (unaudited) 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £m £m £m ------------------------------------------------------ ----- ------------- ------------- ---------------- Assets Non-current assets Goodwill 29.7 36.8 29.3 Intangible assets 11.5 13.4 10.8 Property, plant and equipment 35.4 32.3 34.2 Investments in Joint Ventures 35.8 33.9 41.6 Investments 20.1 20.1 20.1 Deferred tax assets 98.9 91.2 93.7 Trade and other receivables 2.0 2.7 2.7 ------------------------------------------------------ ----- ------------- ------------- ---------------- 233.4 230.4 232.4 ------------------------------------------------------ ----- ------------- ------------- ---------------- Current assets Inventories 0.3 0.4 0.2 Trade and other receivables 230.1 198.8 266.7 Assets held for sale 10 2.0 - - Investments 93.8 19.6 77.5 Cash and cash equivalents 9 51.2 83.9 48.2 ------------------------------------------------------ ----- ------------- ------------- ---------------- 377.4 302.7 392.6 ------------------------------------------------------ ----- ------------- ------------- ---------------- Liabilities Current liabilities Borrowings (2.7) (1.9) (2.6) Trade and other payables (291.2) (246.3) (332.7) Current tax liabilities (14.7) (9.7) (10.8) Provisions (2.6) (2.3) (2.8) ------------------------------------------------------ ----- ------------- ------------- ---------------- (311.2) (260.2) (348.9) ------------------------------------------------------ ----- ------------- ------------- ---------------- Net current assets 66.2 42.5 43.7 ------------------------------------------------------ ----- ------------- ------------- ---------------- Non-current liabilities Borrowings (35.2) (33.2) (21.5) Provisions (12.1) (8.9) (11.1) Retirement benefit liabilities 11 (278.9) (260.4) (261.9) Other non-current liabilities (24.7) (28.6) (26.5) ------------------------------------------------------ ----- ------------- ------------- ---------------- (350.9) (331.1) (321.0) ------------------------------------------------------ ----- ------------- ------------- ---------------- ------------------------------------------------------ ----- ------------- ------------- ---------------- Net liabilities (51.3) (58.2) (44.9) ====================================================== ===== ============= ============= ================ Capital and reserves Ordinary shares 0.5 0.5 0.5 Share premium account 62.4 62.3 62.4 Capital redemption reserve 0.2 0.2 0.2 Merger reserve 8.7 8.7 8.7 Retained loss (123.1) (129.9) (116.7) ------------------------------------------------------ ----- ------------- ------------- ---------------- Equity shareholders' deficit (51.3) (58.2) (44.9) ====================================================== ===== ============= ============= ================ The notes on pages 15 to 22 form part of the interim financial information. Consolidated statement of recognised income and expense for the six months ended30 September 2005 (unaudited) Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £m £m £m ------------------------------------------------------ ----- ------------- ------------- ---------------- Profit for the period 21.2 19.2 38.9 Actuarial loss on retirement benefit liabilities 11 (12.5) (11.0) (15.2) Share of Joint Venture financial derivatives (3.4) - - Differences on exchange 0.3 0.6 (0.2) ------------------------------------------------------ ----- ------------- ------------- ---------------- Total recognised income for the period attributable to equity shareholders 5.6 8.8 23.5 ====================================================== ===== ============= ============= ================ The amounts above are shown net of tax. Consolidated statement of changes in equity for the six months ended30 September 2005 (unaudited) Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £m £m £m ------------------------------------------------------ ----- ------------- ------------- ---------------- Opening equity shareholders' deficit (44.9) (62.8) (62.8) Adoption of IAS 39 and IFRIC D12 to D14 1 (6.2) - - ------------------------------------------------------ ----- ------------- ------------- ---------------- Opening equity shareholders' deficit restated (51.1) (62.8) (62.8) Profit for the period 21.2 19.2 38.9 Dividends 7 (7.9) (6.9) (10.8) Actuarial loss on retirement benefit liabilities 11 (12.5) (11.0) (15.2) Employee Benefit Trusts 2.1 2.7 5.1 Share of Joint Venture financial derivatives (3.4) - - Differences on exchange 0.3 0.6 (0.2) Issue of shares - - 0.1 ------------------------------------------------------ ----- ------------- ------------- ---------------- Closing equity shareholders' deficit (51.3) (58.2) (44.9) ====================================================== ===== ============= ============= ================ The amounts above are shown net of tax. The notes on pages 15 to 22 form part of the interim financial information. Consolidated cash flow statement for the six months ended 30 September 2005 (unaudited) Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £m £m £m ------------------------------------------------------ ----- ------------- ------------- ---------------- Cash flows from operating activities Cash generated from operations 8 29.3 26.6 88.1 Interest received 3.7 2.7 7.0 Interest paid (1.3) (0.9) (2.4) Tax paid (2.5) (9.8) (18.3) ------------------------------------------------------ ----- ------------- ------------- ---------------- Net cash from operating activities 29.2 18.6 74.4 ------------------------------------------------------ ----- ------------- ------------- ---------------- Cash flows from investing activities Dividends received from Joint Ventures 2.6 1.8 3.6 Investment in Metronet (5.6) (5.6) (11.1) Purchases of fixed assets (6.0) (1.6) (14.5) Proceeds from disposal of tangible fixed assets 0.3 0.5 2.1 Proceeds from disposal of fixed asset investments - 0.1 5.6 Current asset investments (16.2) (9.7) (67.5) Purchases of intangible assets (4.3) (3.7) (5.5) ------------------------------------------------------ ----- ------------- ------------- ---------------- Net cash used in investing activities (29.2) (18.2) (87.3) ------------------------------------------------------ ----- ------------- ------------- ---------------- Cash flows from financing activities Proceeds from issue of ordinary shares - - 0.1 Redemption of loan stock - (0.1) (0.7) Long-term loans 11.7 (2.0) (12.6) Finance lease principal payments (1.2) (1.2) (2.9) Sales of own shares by Employee Benefit Trusts 0.1 0.1 1.2 Equity dividends paid to shareholders (7.8) - (10.7) ------------------------------------------------------ ----- ------------- ------------- ---------------- Net cash generated from/(used in) financing activities 2.8 (3.2) (25.6) ------------------------------------------------------ ----- ------------- ------------- ---------------- Effects of exchange rate changes 0.2 0.5 0.5 ------------------------------------------------------ ----- ------------- ------------- ---------------- Net increase/(decrease) in cash and cash equivalents 3.0 (2.3) (38.0) ------------------------------------------------------ ----- ------------- ------------- ---------------- Cash and cash equivalents at beginning of period 48.2 86.2 86.2 ------------------------------------------------------ ----- ------------- ------------- ---------------- Cash and cash equivalents at end of period 9 51.2 83.9 48.2 ------------------------------------------------------ ----- ------------- ------------- ---------------- The notes on pages 15 to 22 form part of the interim financial information. Notes to the financial statements for the period ended 30 September 2005 (unaudited) 1. Basis of preparation This interim financial information, which is abridged, is for the six months to30 September 2005. All periods presented are unaudited. The informationcontained in these statements in relation to the year ended 31 March 2005 doesnot constitute statutory accounts as defined in section 240 of the Companies Act1985. A copy of the audited and unqualified statutory accounts for that year,which were prepared under UK Generally Accepted Accounting Principles (GAAP),has been delivered to the Registrar of Companies. The interim financialinformation, including all comparatives, has been prepared under InternationalFinancial Reporting Standards (IFRS). These statements are covered by IFRS 1,First-time adoption of International Financial Reporting Standards, as they formpart of the period included in the Group's first IFRS financial statements forthe year ending 31 March 2006. The same accounting policies have been applied as published by the Group in itsnews release on 21 July 2005 which is available on the Group's website athttp://www.atkinsglobal.com. The standards currently in issue and adopted by theEU, together with interpretations issued by IFRIC, are subject to ongoing reviewand possible amendment or further interpretive guidance and are therefore stillsubject to change. The accounting policies have been consistently applied to allperiods presented except in relation to IAS 39 and IFRIC D12 to D14, aspermitted by IFRS 1. The impact of the adoption of IAS 39 and an indication ofthe impact of the proposed treatment under IFRIC D12 to D14 for the comparativeperiods has been included in note 12 of the interim financial information. The income statement for the six months to 30 September 2004 includesreclassification of £19.7m from cost of sales to administrative expenses. Thesegmental analysis for the six months to 30 September 2004 contains certainreclassifications to ensure comparability with the segmental analyses for theyear ended 31 March 2005 and the six months to 30 September 2005. 2. Segmental reporting - business segments Six months to 30 Sept 2005 Total Inter-segment Operating Operating Joint revenue revenue Revenue profit margin Ventures £m £m £m £m % £m -------------------------------- --------- ------------- -------- --------- ---------- --------- Design and Engineering Solutions 145.0 (7.5) 137.5 10.9 7.9 % (0.1) Highways and Transportation 119.4 (7.7) 111.7 6.0 5.4 % 0.6 Rail 94.5 (6.7) 87.8 1.1 1.3 % - Middle East and China 30.6 (0.1) 30.5 1.5 4.9 % - Management and Project Services 87.2 (3.7) 83.5 6.1 7.3 % - Asset Management 31.4 (0.5) 30.9 0.2 0.6 % - Equity Investments 34.3 (0.1) 34.2 1.3 3.8 % 3.7 -------------------------------- --------- ------------- -------- --------- ---------- --------- Total before bid costs 542.4 (26.3) 516.1 27.1 5.3 % 4.2 PFI/PPP bid costs - - - (1.2) n/a - -------------------------------- --------- ------------- -------- --------- ---------- --------- Total continuing segments 542.4 (26.3) 516.1 25.9 5.0 % 4.2 -------------------------------- --------- ------------- -------- --------- ---------- --------- Discontinued segments - - - - - - -------------------------------- --------- ------------- -------- --------- ---------- --------- Total for Group 542.4 (26.3) 516.1 25.9 5.0 % 4.2 ================================ ========= ============= ======== ========= ========== ========= Six months to 30 Sept 2004 Total Inter-segment Operating Operating Joint revenue revenue Revenue Profit margin Ventures £m £m £m £m % £m -------------------------------- --------- ------------- -------- --------- ---------- --------- Design and Engineering Solutions 126.2 (9.0) 117.2 8.1 6.9 % - Highways and Transportation 103.5 (7.0) 96.5 3.9 4.0 % 0.3 Rail 106.5 (8.7) 97.8 6.9 7.1 % - Middle East and China 21.6 - 21.6 0.8 3.7 % - Management and Project Services 73.4 (2.2) 71.2 2.9 4.1 % 0.3 Asset Management 30.3 (0.7) 29.6 (0.5) (1.7)% - Equity Investments 29.5 - 29.5 1.5 5.1 % 4.1 -------------------------------- --------- ------------- -------- --------- ---------- --------- Total before bid costs 491.0 (27.6) 463.4 23.6 5.1 % 4.7 PFI/PPP bid costs - - - (0.1) n/a - -------------------------------- --------- ------------- -------- --------- ---------- --------- Total continuing segments 491.0 (27.6) 463.4 23.5 5.1 % 4.7 -------------------------------- --------- ------------- -------- --------- ---------- --------- Discontinued segments - - - - - - -------------------------------- --------- ------------- -------- --------- ---------- --------- Total for Group 491.0 (27.6) 463.4 23.5 5.1 % 4.7 ================================ ========= ============= ======== ========= ========== ========= Twelve months to 31 Total Inter-segment Operating Operating Joint March 2005 revenue revenue Revenue profit margin Ventures £m £m £m £m % £m -------------------------------- --------- ------------- -------- --------- ---------- --------- Design and Engineering Solutions 261.8 (17.4) 244.4 21.0 8.6 % 0.1 Highways and Transportation 220.6 (13.8) 206.8 9.6 4.6 % 0.5 Rail 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 2.3 1.5 % 0.4 Asset Management 59.5 (0.9) 58.6 (4.7) (8.0)% - Equity Investments 61.4 - 61.4 4.3 7.0 % 9.1 -------------------------------- --------- ------------- -------- --------- ---------- --------- Total before bid costs 1,010.8 (55.8) 955.0 43.5 4.6 % 10.1 PFI/PPP bid costs - - - (0.5) n/a - -------------------------------- --------- ------------- -------- --------- ---------- --------- Total continuing segments 1,010.8 (55.8) 955.0 43.0 4.5 % 10.1 -------------------------------- --------- ------------- -------- --------- ---------- --------- Discontinued segments - - - - - 0.1 -------------------------------- --------- ------------- -------- --------- ---------- --------- Total for Group 1,010.8 (55.8) 955.0 43.0 4.5 % 10.2 ================================ ========= ============= ======== ========= ========== ========= 3. Joint Ventures Share of post-tax profits from Joint Ventures Six months to 30 Sept 2005 Other Total Metronet continuing continuing Discontinued Total £m £m £m £m £m ----------------------------------------------- -------- ---------- ---------- ------------ -------- Revenue 109.8 48.8 158.6 2.0 160.6 Operating expenditure (105.7) (46.6) (152.3) (1.8) (154.1) ----------------------------------------------- -------- ---------- ---------- ------------ -------- Operating profit 4.1 2.2 6.3 0.2 6.5 Finance cost (7.7) (2.3) (10.0) (0.8) (10.8) Finance income 7.1 2.4 9.5 1.0 10.5 ----------------------------------------------- -------- ---------- ---------- ------------ -------- Profit before taxation 3.5 2.3 5.8 0.4 6.2 Taxation (1.2) (0.6) (1.8) (0.2) (2.0) ----------------------------------------------- -------- ---------- ---------- ------------ -------- Share of Joint Venture profit after taxation 2.3 1.7 4.0 0.2 4.2 =============================================== ======== ========== ========== ============ ======== Six months to 30 Sept 2004 Other Total Metronet continuing continuing Discontinued Total £m £m £m £m £m ----------------------------------------------- -------- ---------- ---------- ------------ -------- Revenue 52.2 25.1 77.3 3.5 80.8 Operating expenditure (43.5) (23.0) (66.5) (2.4) (68.9) ----------------------------------------------- -------- ---------- ---------- ------------ -------- Operating profit 8.7 2.1 10.8 1.1 11.9 Finance cost (6.9) (2.2) (9.1) (1.5) (10.6) Finance income 3.6 1.6 5.2 0.8 6.0 ----------------------------------------------- -------- ---------- ---------- ------------ -------- Profit before taxation 5.4 1.5 6.9 0.4 7.3 Taxation (2.1) (0.3) (2.4) (0.2) (2.6) ----------------------------------------------- -------- ---------- ---------- ------------ -------- Share of Joint Venture profit after taxation 3.3 1.2 4.5 0.2 4.7 =============================================== ======== ========== ========== ============ ======== Twelve months to 31 March 2005 Other Total Metronet continuing continuing Discontinued Total £m £m £m £m £m ----------------------------------------------- -------- ---------- ---------- ------------ -------- Revenue 135.5 62.0 197.5 4.8 202.3 Operating expenditure (118.1) (56.7) (174.8) (4.3) (179.1) ----------------------------------------------- -------- ---------- ---------- ------------ -------- Operating profit 17.4 5.3 22.7 0.5 23.2 Finance cost (15.0) (3.6) (18.6) (2.6) (21.2) Finance income 7.6 3.1 10.7 3.2 13.9 ----------------------------------------------- -------- ---------- ---------- ------------ -------- Profit before taxation 10.0 4.8 14.8 1.1 15.9 Taxation (3.4) (1.5) (4.9) (0.8) (5.7) ----------------------------------------------- -------- ---------- ---------- ------------ -------- Share of Joint Venture profit after taxation 6.6 3.3 9.9 0.3 10.2 =============================================== ======== ========== ========== ============ ======== 4. Net finance cost Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m ---------------------------------------------------- ------------- ------------- --------------- Interest payable on borrowings 0.6 0.4 1.2 Letters of credit charges 1.0 1.7 2.6 Net finance cost on retirement benefit liabilities 3.5 2.7 5.4 Other 0.8 0.5 1.5 ---------------------------------------------------- ------------- ------------- --------------- Finance cost 5.9 5.3 10.7 Finance income (4.0) (2.5) (6.8) ---------------------------------------------------- ------------- ------------- --------------- Net finance cost 1.9 2.8 3.9 ==================================================== ============= ============= =============== 5. Taxation a) Analysis of charge in the period Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m ---------------------------------------------------- ------------- ------------- --------------- Taxation charge per income statement 7.0 6.2 14.1 Add: - Joint Venture taxation charge 2.0 2.6 5.7 ---------------------------------------------------- ------------- ------------- --------------- Underlying taxation charge 9.0 8.8 19.8 ---------------------------------------------------- ------------- ------------- --------------- Profit per income statement 28.2 25.4 49.3 Add: - Joint Venture taxation charge 2.0 2.6 5.7 - Impairment of goodwill - - 7.2 ---------------------------------------------------- ------------- ------------- --------------- Profit before taxation adjusted for Joint Venture taxation and impairment of goodwill 30.2 28.0 62.2 ---------------------------------------------------- ------------- ------------- --------------- Effective taxation rate 29.8% 31.4% 31.8% ==================================================== ============= ============= =============== 5. Taxation (continued) b) Taxation credit on items charged to equity Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m ---------------------------------------------------- ------------- ------------- --------------- Actuarial loss on retirement benefit liabilities 5.3 4.5 6.4 Employee Benefit Trusts 0.5 0.2 0.1 ==================================================== ============= ============= =============== 6. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares in issue duringthe period, excluding shares held by the Employee Benefit Trusts (EBTs) whichhave not 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 period. 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: Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 Number ('000) Number ('000) Number ('000) --------------------------------------------------------- ------------- ------------- ---------------- Number of shares Weighted average number of shares used in basic EPS 99,448 98,999 99,064 Effect of dilutive securities - Share options 1,299 1,411 1,486 --------------------------------------------------------- ------------- ------------- ---------------- Weighted average number of shares used in fully diluted EPS 100,747 100,410 100,550 --------------------------------------------------------- ------------- ------------- ---------------- £m £m £m Earnings - continuing operations 21.2 19.2 35.2 - discontinued operations - - 3.7 --------------------------------------------------------- ------------- ------------- ---------------- 21.2 19.2 38.9 --------------------------------------------------------- ------------- ------------- ---------------- pence pence pence Basic earnings per share - continuing operations 21.3p 19.4p 35.5p - discontinued operations - - 3.7p --------------------------------------------------------- ------------- ------------- ---------------- 21.3p 19.4p 39.2p --------------------------------------------------------- ------------- ------------- ---------------- Fully diluted earnings per share - continuing operations 21.0p 19.1p 35.0p - discontinued operations - - 3.7p --------------------------------------------------------- ------------- ------------- ---------------- 21.0p 19.1p 38.7p --------------------------------------------------------- ------------- ------------- ---------------- 7. Dividends Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m --------------------------------------- ------------- ------------- ---------------- Dividends - recognised in the period 7.9 6.9 10.8 - proposed for the period 4.5 3.9 7.9 --------------------------------------- ------------- ------------- ---------------- pence pence pence Dividend per share - recognised in the period 8.0p 7.0p 11.0p - proposed for the period 4.5p 4.0p 8.0p ======================================= ============= ============= ================ 8. Cash generated from operations Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m ---------------------------------------------- ------------- ------------- ---------------- Continuing operations Profit for the period 21.2 19.2 35.2 Adjustments for: Taxation 7.0 6.2 13.8 Finance income (4.0) (2.5) (6.8) Finance cost 5.9 5.3 10.7 Share of post-tax profits from Joint Ventures (4.2) (4.7) (10.2) Depreciation charges 6.8 8.2 19.1 Amortisation charges 3.6 4.0 8.7 Release of deferred income (0.4) (0.4) (0.8) Impairment of goodwill - - 7.2 Share options charge 1.5 1.3 1.6 Profit on disposal of tangible fixed assets - (0.4) (0.4) Movement in provisions 0.5 0.4 2.8 Movement in working capital (8.6) (12.0) 2.9 ---------------------------------------------- ------------- ------------- ---------------- 29.3 24.6 83.8 Amounts due to sub-contractors - 2.0 4.0 ---------------------------------------------- ------------- ------------- ---------------- Cash generated from continuing operations 29.3 26.6 87.8 ---------------------------------------------- ------------- ------------- ---------------- Discontinued operations Profit for the period - - 3.7 Taxation - - 0.3 Investments in Joint Ventures - - (0.9) Movement in working capital - - (2.8) ---------------------------------------------- ------------- ------------- ---------------- Cash generated from discontinued operations - - 0.3 ---------------------------------------------- ------------- ------------- ---------------- Cash generated from operations 29.3 26.6 88.1 ============================================== ============= ============= ================ 9. Analysis of net funds Other At Cash non-cash Exchange At At 31 March 2005 flow changes movement 30 Sept 2005 30 Sept 2004 £m £m £m £m £m £m --------------------------------- ------------- -------- --------- -------- ------------ ------------ Cash at bank and in hand 27.8 2.9 0.2 30.9 66.7 Investments 97.6 16.2 0.1 - 113.9 39.7 Debt due within one year - - - - - (0.6) Debt due after one year (10.5) (11.7) - (1.1) (23.3) (21.2) Finance leases (13.6) 1.2 (2.2) - (14.6) (13.3) --------------------------------- ------------- -------- --------- -------- ------------ ------------ Net funds 101.3 8.6 (2.1) (0.9) 106.9 71.3 Cash held on behalf of 16.0 - - - 16.0 14.0 sub-contractors EBT - cash 4.4 (0.1) - - 4.3 3.2 --------------------------------- ------------- -------- --------- -------- ------------ ------------ 121.7 8.5 (2.1) (0.9) 127.2 88.5 ================================= ============= ======== ========= ======== ============ ============ Cash as shown on the balance sheet and cash flow: Cash at bank and in hand 27.8 2.9 - 0.2 30.9 66.7 Cash held on behalf of 16.0 - - - 16.0 14.0 sub-contractors Employee Benefit Trusts 4.4 (0.1) - - 4.3 3.2 --------------------------------- ------------- -------- --------- -------- ------------ ------------ Cash and cash equivalents 48.2 2.8 - 0.2 51.2 83.9 ================================= ============= ======== ========= ======== ============ ============ 10. Events after the balance sheet date In line with the Group's stated strategy to recycle cash invested in PFI projectcompanies at the appropriate time, the Group has disposed of its 25% stake inSouth Manchester Healthcare (Holdings) Limited. The disposal was completed on 23November 2005 for a consideration of £7.8m and will result in a profit of £5.7mwithin the full year results to 31 March 2006. The carrying value of theinvestment at the period end has been reclassified under Assets held for salewithin the consolidated balance sheet. 11. Pension schemes 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. Other pension schemes include the Atkins McCarthyPension Scheme in the Republic of Ireland (closed to new entrants) and a rangeof defined 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 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. 30 Sept 2005 30 Sept 2004 31 March 2005 ------------------------------------------ ------------- ------------- ------------- Price inflation 2.75% 2.75% 2.80% Rate of increase of pensions in payment - Fixed 5.00% 5.00% 5.00% - Limited Price Indexation 2.75% 2.75% 2.80% Real rate of increase in salaries 1.50% 1.50% 1.50% Rate of increase for deferred pensioners 2.75% 2.75% 2.80% Discount rate 5.00% 5.50% 5.40% Longevity at age 65 for current pensioners - Men 18.2 years 18.2 years 18.2 years - Women 21.2 years 21.2 years 21.2 years Longevity at age 65 for future pensioners - Men 19.0 years 19.0 years 19.0 years - Women 21.9 years 21.9 years 21.9 years =========================================== ============= ============= ============= The components of the IAS 19 pension cost are as follows: Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m --------------------------------------------- ------------- ------------- ---------------- Operating profit Service cost 9.0 10.0 19.8 --------------------------------------------- ------------- ------------- ---------------- Finance cost/(income) Finance cost 21.5 18.9 37.8 Expected return on plan assets (18.0) (16.2) (32.4) --------------------------------------------- ------------- ------------- ---------------- Net finance cost 3.5 2.7 5.4 --------------------------------------------- ------------- ------------- ---------------- Total charge to income statement 12.5 12.7 25.2 --------------------------------------------- ------------- ------------- ---------------- Statement of recognised income and expense Gain/(loss) on pension scheme assets 43.4 (6.3) 12.8 Gain/(loss) on pension scheme liabilities 8.0 (10.2) (12.3) Changes in assumptions (66.2) - (22.6) --------------------------------------------- ------------- ------------- ---------------- (14.8) (16.5) (22.1) Members' share of actuarial (gain)/loss (3.0) 1.0 0.5 --------------------------------------------- ------------- ------------- ---------------- Actuarial loss (17.8) (15.5) (21.6) Deferred taxation credit to equity 5.3 4.5 6.4 --------------------------------------------- ------------- ------------- ---------------- Actuarial loss (net of deferred tax) (12.5) (11.0) (15.2) ============================================= ============= ============= ================ Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m --------------------------------------------- ------------- ------------- ---------------- Defined benefit obligation (928.7) (788.1) (840.5) Fair value of plan assets 640.0 515.2 566.3 --------------------------------------------- ------------- ------------- ---------------- (288.7) (272.9) (274.2) Members' share of deficit 9.8 12.5 12.3 --------------------------------------------- ------------- ------------- ---------------- Retirement benefit liabilities (278.9) (260.4) (261.9) ============================================= ============= ============= ================ Movements in the retirement benefit liabilities are as follows: Six months to Six months to Twelve months to 30 Sept 2005 30 Sept 2004 31 March 2005 £m £m £m --------------------------------------------- ------------- ------------- ---------------- At beginning of period (261.9) (240.9) (240.9) Service cost (9.0) (10.0) (19.8) Net finance cost (3.5) (2.7) (5.4) Contributions 13.3 8.7 25.8 Actuarial loss (17.8) (15.5) (21.6) --------------------------------------------- ------------- ------------- ---------------- At end of period (278.9) (260.4) (261.9) ============================================= ============= ============= ================ 11. Pension schemes (continued) Under the Atkins Pension Plan there was a retirement benefit liability beforetax of £263.8m as at 30 September 2005 (30 September 2004: £241.3m; 31 March2005: £243.1m) which represented £184.2m after deferred tax (30 September 2004:£168.9m; 31 March 2005: £170.2m). Under the Railways Pension Scheme there was a retirement benefit liabilitybefore tax of £14.7m as at 30 September 2005 (30 September 2004: £18.7m; 31March 2005: £18.5m) which represented £10.4m after deferred tax (30 September2004: £13.0m; 31 March 2005: £12.9m). The Group has adopted early the proposed amendment to IAS 19, Employee Benefits,on the assumption it will be endorsed by the European Union by the reportingdate for the year ending 31 March 2006, and has recognised all actuarial gainsand losses directly through equity. Actuarial losses reported within thestatement of recognised income and expense are £17.8m for the six months ended30 September 2005 (6 months to 30 September 2004: £15.5m; 12 months to 31 March2005: £21.6m) before tax and £12.5m net of deferred tax (6 months to 30September 2004: £11.0m; 12 months to 31 March 2005: £15.2m). 12. Reconciliation of profit and equity under UK GAAP to IFRS The Group reported under UK GAAP in its previously published financialstatements for the year ended 31 March 2005. As required by IFRS 1, First timeadoption of IFRS, the analysis below shows a reconciliation of profit and equityas reported under UK GAAP as at 31 March 2005 and 30 September 2004 to therevised profit and equity under IFRS as reported in this interim financialinformation. In addition, a reconciliation of equity under UK GAAP to IFRS as atthe transition date of 1 April 2004 is shown. Further information can be foundon the Group's website at http://www.atkinsglobal.com. As permitted by IFRS 1, First time adoption of IFRS, the Group has elected toadopt IAS 32, Financial instruments: Disclosure and presentation, and IAS 39,Financial Instruments: Recognition and measurement, prospectively from 1 April2005. Hence the comparative figures have not been restated. The draft interpretations issued by IFRIC, D12 to D14, on accounting for serviceconcessions were not applicable to the periods ended 31 March 2005 or 30September 2004 and hence the comparative figures have not been restated. The impact of adoption of IAS 39, Financial Instruments: Recognition andmeasurement, and the IFRIC draft interpretations D12 to D14 on the Group'sprofit after tax and net assets if they had been implemented in the periodsshown have been included in the table below as pro forma adjustments. Six months to Twelve months to 30 Sept 2004 31 March 2005 Reconciliation of profit Notes £m £m ------------------------------------------------------------- ------ ------------- ---------------- Profit on ordinary activities after taxation under UK 17.0 38.6 GAAP Effect of transition to IFRS: -Lease incentives a (0.6) (0.9) -Retirement benefit liabilities b (2.5) (5.2) -Intangible assets c 0.8 1.6 -Share based payments d 0.7 0.6 -Goodwill e 3.8 4.2 ------------------------------------------------------------- ------ ------------- ---------------- Profit for the period attributable to equity 19.2 38.9 shareholders under IFRS ============================================================= ====== ============= ================ Pro forma adjustments: -IAS 39 and IFRIC D12 to D14 g 0.6 2.0 ------------------------------------------------------------- ------ ------------- ---------------- Pro forma profit for the period attributable to 19.8 40.9 equity shareholders under IFRS ============================================================= ====== ============= ================ As at As at As at 1 April 2004 30 Sept 2004 31 March 2005 Reconciliation of equity Notes £m £m £m ------------------------------------ ------ ------------ ------------ ------------- Total equity presented under UK GAAP 88.7 103.6 118.2 Effect of transition to IFRS: -Lease incentives a (2.9) (3.5) (3.8) -Retirement benefit liabilities b (152.2) (165.7) (172.5) -Intangible assets c (6.2) (5.4) (4.6) -Share based payments d 4.7 5.1 5.7 -Goodwill e - 3.8 4.2 -Dividends f 6.9 3.9 7.9 ------------------------------------ ------ ------------ ------------ ------------- Total equity presented under IFRS (61.0) (58.2) (44.9) ==================================== ====== ============ ============ ============= Pro forma adjustments: -IAS 39 and IFRIC D12 to D14 g (1.8) (6.9) (6.2) ------------------------------------ ------ ------------ ------------ ------------- Pro forma total equity presented under IFRS (62.8) (65.1) (51.1) ==================================== ====== ============ ============ ============= 12. Reconciliation of profit and equity under UK GAAP to IFRS (continued) Notes 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 (30 September 2004: £3.5m; 1 April 2004: £2.9m) andprofit before tax decreased for the year ended 31 March 2005 by £1.3m (6 monthsto 30 September 2004: £0.9m). 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 innet finance income/cost. Actuarial gains and losses are recognised in thestatement of recognised income and expense in the period in which they occur. Asa result, net assets were decreased by £172.5m as at 31 March 2005 (30 September2004: £165.7m; 1 April 2004: £152.2m) and profit before tax was decreased by£7.4m for the year ended 31 March 2005 (6 months to 30 September 2004: £3.6m). Intangible assets Under UK GAAP, the software relating to the Group's corporate informationsystems was treated as part of the associated hardware as a tangible fixedasset. Under IAS 38, Intangible assets, software is treated as an intangibleasset unless it is an integral part of the related hardware. Hence the remainingvalue of the Group's corporate information systems was re-classified as anintangible asset on transition to IFRS. On transition, the Group's corporateinformation systems were written down by £8.9m, reducing the annual amortisationcharge by £2.3m, due to the differing treatment of internally generateddevelopment costs under IFRS. In addition, other software licences previouslyclassified as prepayments within debtors have been re-classified as intangibleassets. As a result the profit before tax for the year ended 31 March 2005increased by £2.3m (6 months to 30 September 2004: £1.1m) and net assets reducedby £4.6m as at 31 March 2005 (30 September 2004: £5.4m; 1 April 2004: £6.2m),being the £8.9m write down of the corporate information systems, reducedamortisation of £2.3m (30 September 2004: £1.1m) and the associated deferred taxasset of £2.0m (30 September 2004: £2.4m; 1 April 2004: £2.7m). 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 yearended 31 March 2005 increased by £0.8m (6 months to 30 September 2004: £1.0m)and net assets increased by £5.7m (30 September 2004: £5.1m; 1 April 2004:£4.7m) to reflect the release of the accumulated accrual in respect of the DBPscheme. Goodwill Under UK GAAP, goodwill was amortised on a straight-line basis over itsestimated useful economic life. Under IFRS 3, Business combinations, goodwill isno longer amortised but is carried at cost and subject to annual impairmentreview 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 profit after tax by £4.2m (6 monthsto 30 September 2004: £3.8m). This represents the write back of the £5.9m ofgoodwill amortisation for the year ended 31 March 2005 (6 months to 30 September2004: £3.8m) of which £1.7m related to Hanscomb and £4.2m related to otheracquisitions. Under IFRS, Hanscomb goodwill is written down by £7.2m to bringthe carrying value at the end of the year into line with the UK GAAP carryingvalue at the end of the year. Under UK GAAP, the charge consisted of £5.5mexceptional impairment charge for the year ended 31 March 2005 (6 months to 30September 2004: £nil) and £1.7m annual amortisation charge (included in the£5.9m above). The Group's net assets were increased by £4.2m as at 31 March 2005(30 September 2004: £3.8m; 1 April 2004: £nil). Dividends Under UK GAAP, proposed dividends were accrued in the accounting period to whichthey related. Under IAS 10, Events after the balance sheet date, dividends arerecognised in the accounting period in which they are approved. Under UK GAAP, a liability of £7.9m was included in the results for the yearended 31 March 2005 in respect of the final dividend. This dividend had not beenapproved by the shareholders at 31 March 2005 and as a result the liability hasbeen reversed under IFRS. 12. Reconciliation of net assets and profit under UK GAAP to IFRS (continued) Notes (continued) IAS 39 and IFRIC D12 to D14 Under UK GAAP, the Group treated PFI/PPP 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 PFI/PPP concessions will betreated as financial assets from 1 April 2005. Under UK GAAP, forward contracts used to hedge foreign currency investments wererevalued to year end rates and the exchange differences were taken to reserves.Gains and losses on financial instruments used to hedge foreign currencytransactions were recognised on maturity of the underlying transaction in theprofit and loss account or as adjustments to the carrying amounts in the balancesheet. Gains or losses on financial instruments terminated because theunderlying exposure ceased to exist were taken immediately to the profit andloss account. Under IAS 39, derivatives are initially measured at fair value onthe date a contract is entered into and subsequently measured at fair value ateach balance sheet date. Where a derivative is a designated hedging instrumentand is assessed as being effective in accordance with IAS 39, the gain or losson re-measurement is recognised in equity. In all other cases the gain or lossis taken to the income statement. The pro forma effect on the Group's results for the year ended 31 March 2005would have been to increase profit after tax from Joint Ventures by £2.0m (6months to 30 September 2004: £0.6m) and reduce net assets by £6.2m as at 31March 2005 (30 September 2004: £6.9m; 1 April 2004: £1.8m). Reconciliation of cash flows The restatement of the results to IFRS has no impact on the Group's cashgeneration. The only significant impact of IFRS on the cash flow statement isthe reclassification of movements in software prepayments from movements inworking capital to movements in intangible assets. Movements in the softwareprepayments are split into amortisation of intangibles, which is included incash generated from operations and additions to intangible assets, which isincluded outside of cash generated from operations. The remaining differences inrelation to the cash flow statement are presentational. 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