Interim Results

Styles&Wood Group PLC

Interim Results for the Six Month Period Ended 30 June 2015

Styles & Wood Group plc, the integrated property services and project delivery specialist, announces its interim results for the six months ended 30 June 2015.

Financial Results

Notes:

1. Excludes non-recurring items and notional interest on preference shares.

2. Cash and cash equivalents less bank debt.

3. Cash and cash equivalents less bank debt, Convertible Preference shares and Loan Notes.

Corporate Highlights

§ Successful refinancing completed strengthening the Group's balance sheet and providing a more appropriate capital structure.

§ Introduction of two new blue chip institutional investors as major shareholders.

§ Appointment to the Board of Matt Widdall as Non-Executive Director.

Operational Highlights

§ Portfolio Services: New Business Systems' commissions negotiated for major national food retailer and major European construction contractor.

§ Programmes: Appointment as Programme and Delivery Manager for ATM/Rebrand national roll out significantly extended for a blue chip high street banking client.

§ Frameworks: In excess of 350 projects completed integral to our strategic framework arrangements. This compares with c.300 projects for 2014 in total.

§ Projects: 5MW solar farm successfully completed for Greater Manchester Waste Disposal Authority.

§ Commercial Office Market: Over 250,000 square feet of office space under refurbishment for legal and insurance services clients.

§ Higher Education: Lancaster University Library remodelling scheme underway and enabling works contract commenced for Leeds University Library reconfiguration.

§ Leisure: New contracts secured for high profile restaurant fit outs in the Lowry Centre, Manchester and the Burj Al Arab Hotel in Dubai.

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

"The successful completion of a major refinancing in June 2015 substantially strengthened the Group's balance sheet at the period end. The resultant lower net debt will better enable Styles&Wood to continue to pursue its growth agenda. In conjunction with the refinancing, the Group has achieved interim results that are a significant improvement over prior year in terms of revenue, profit and cash. This performance is a strong endorsement of the success of the Group's diversification strategy and selective approach to new opportunities.

We remain confident that the sectors and segments in which we operate are continuing to provide accessible and sustainable sources of new business opportunities. The associated demand for integrated property support services is increasing. This trend complements our strategy to provide a differentiated offer which combines expert systems and design with a core programme and projects delivery capability.

The Group now has the right structure and focus in place to capitalise on the improving levels of confidence in our core markets. Our order book continues to strengthen through the second half of the year, with a full year forecast around 20% ahead of prior year in line with management expectations."

Enquiries:

Chief Executive Officer's Statement

Group Results

Group revenue for the six months ending 30 June 2015 increased by 37% to £46.2m (H1 2014: £33.6m). The recovery of revenues in the second half of 2014 continued into 2015, with H1 2015 revenue being the highest first six months sales for over five years. Our expanded offering of services to our framework customers has helped increase revenue from Professional Services to £35.1m (H1 2014: £22.4m).

The improved revenue combined with continued focus on operational performance has enabled the Group to improve gross margin to 8.4% (H1 2014: 8.2%). The Group has invested in resource to support the increased diversification and activity levels, and will continue to maintain focus on its overhead spend.

Finance costs were £0.12m lower than in 2014, as the cash coupon payable on the Preference Shares reduced to £0.09m (H1 2014: £0.21m) following the redemption of £2.0m and conversion of a further £5.2m Convertible Preference Shares.

The Group recorded an underlying profit before tax of £0.2m (H1 2014: £0.5m loss) which after non-recurring costs of £0.3m (H1: £0.3m) and notional interest on Convertible Preference Shares of £0.4m (H1 2014: £0.4m) results in a loss before tax of £0.5m (H1 2014: £1.2m).

The increased activity levels in the first half of 2015 helped the Group to reverse the previous seasonal cash outflows experienced in the last few years. The Group generated £0.7m (H1 2014 used £5.8m) of cash from operations in the business. At 30 June the Group had cash of £1.4m, (H1 2014 overdraft of £3.5m).

Refinancing of Convertible Preference Shares

On 19 June 2015, the Company refinanced the outstanding Convertible Preference Shares held by SIG 1 Holdings (a subsidiary of RBS). The refinancing included the acquisition by Henderson Volantis and the Business Growth Fund Plc (the "Investors") of the £13.0 million of outstanding Convertible Preference Shares in issue for £5.8 million. As a part of the refinancing, £2.0 million of the outstanding Convertible Preference Shares were redeemed and a further £5.2 million converted into 554,666 new Ordinary Shares. This substantially reduced the balance of Convertible Preference Shares outstanding to £5.8 million.

In addition, the Company issued a £2.0 million 10% Loan Note repayable December 2018 and 740,000 warrants to the Investors, with an exercise price of £0.75 per Ordinary Share and the Investors purchased 364,600 nil cost warrants for £182,300 (representing £0.50 per Ordinary Share).

The effect of the above, together with improved cash generation, has enabled the Group to reduce its overall Net Debt (Outstanding Convertible Preference Shares plus Loan Note less cash, excluding any cash collateral deposits) to £6.4m (30 June 2014: £17.5m, 31 December 2014: £11.8m).

Overview

There is an increasing level of demand in the interior refurbishment and fit out market due to continued restraint in new build development activity. Growth of 4-5% is forecast over the next 3-4 years in these markets1 and in both the UK regions and the Capital, demand for quality space is increasing2. In particular, banking, higher education, commercial office and retail sectors are increasingly characterised by demand for improvement to the existing built environment. We now have a series of successful reference projects and programmes for blue chip customers and are able to demonstrate an increasing relevance for our integrated support service solutions.

1 Interior Refurbishment and Fit Out Market Report UK 2014-18 AMA Research May 2014

2 Deloitte UK Property Handbook - quarterly reviews 2015

Segmental Performance: Professional Services

Revenue within the period increased by £12.7m to £35.1m (H1 2014: £22.4m). This position has been reinforced by the successful development of our integrated programme management and delivery model for a comprehensive ATM/Rebrand national roll out for a major high street bank. We have combined our Building Intelligence, Programme Management and Design offers to provide a differentiated, scalable offer for new customers. Currently, we have four discrete strategic contractual arrangements for multiple service line provision, with one to three year periods of exclusivity, with key clients.

Segmental Performance: Contracting Services

The conversion rate for new project wins through competitive tender has been maintained around 1 in 4 by both number and value. Notwithstanding this, there has been a selective focus on the conversion of higher value projects during H1 which has both loaded project workload to the second half and also created a stronger carry through position to 2016. Revenue within the period for Contracting Services, including renewable technologies, was broadly flat at £11.1m (H1 2014: £11.2m). Our project for the refurbishment of the Royal Northern College of Music was successfully completed at the turn of the year and the Lancaster University Library Project is now on target for completion in line with the new academic year.

Market Review

UK major grocery retailers have undergone a significant change in property strategy with a move from new space acquisition to improvement and enhancement of existing formats and layouts. Significant new opportunity is anticipated in this retail segment over the next two to four years. Additionally, niche value based grocery retailers and fashion distributors are expanding national coverage through additional physical outlets, complementary to multi channel format offers.

The higher education market is increasing its focus on the end user experience and competing for customers. As a consequence, investment in estates to optimise the students' on campus experience fast becoming the norm. The remodelling and refurbishment of existing property assets is a funded, strategic component of the estates strategies for most UK Universities.

Complementary drivers including a shortage of new office space, a lack of fitness for purpose in existing premises, changes in working practice and a more responsible approach to environmental sustainability, continue to support growth in commercial office refurbishment. This demand is further accentuated by a high concentration of lease transactions. This is expected to drive opportunity in this segment over the next five years.

Banking and financial services for the principal UK based institutions are undergoing a transformation driven by the influence of new technologies, a prioritised concentration of effort on retail banking and rationalisation of interests in investment banking. This creates a need, which in most cases is counter cyclical between banks, for estate upgrade and modernisation. The associated demand for work is now underpinned, typically, by three to five year capital investment plans.

Board change

Matt Widdall, a representative of the Business Growth Fund, was appointed as a non-executive director to the Board during June 2015. BGF and Henderson Volantis, integral to the refinance transaction, have each secured a 13.6% equity interest in Styles&Wood Group.

Outlook

The previously anticipated recovery of property refurbishment and fit out services to 2008 levels by 2017 remains a realistic target. Increased volumes of accessible opportunity in our selected sectors and segments reinforce this direction of travel. Our integrated delivery solution, reflecting expert systems capabilities, provides a clear point of difference in securing new sustainable business interest to support the Group's growth agenda.

Our current weighted sightline at week 33 of £150m is 20% ahead of prior year on a consistent basis. This includes, at the end of H1, £66m of unexecuted order book value for 2015 which compares with £60m for the comparable period in 2014. The current carry through order book for 2016, also at week 33, is in excess of 10% higher than that reported at the same time last year for 2015.

Profitability for the year is expected to be in line with market expectations.

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 31 December 2014. Matthew Widdall was appointed a director on 29 June 2015.

By order of the Board

There is no difference between the (loss)/profit 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 non-recurring expenses (note 7) and accounting for notional interest on preference shares (note 15).

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.

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 Alternative Investment Market ("AIM") 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 Aspect House, Manchester Road, Altrincham, Cheshire, WA14 5PG.

This condensed consolidated financial information was approved for issue on 24 September 2015.

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 30 June 2015 and comparative results to 30 June 2014 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 31 December 2014, which were approved by the Board of Directors on 19 June 2015 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 30 June 2015 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 31 December 2014 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 this 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 31 December 2014.

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 31 December 2014 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.

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) Restructuring costs relate to an exercise to restructure the management and within the Group's trading subsidiary.

(b) Transfer to listing from Premium market to Alternative Investment Market ("AIM").

(c) Corporate finance fees are for work on transactions in 2014.

(d) Tax on non-recurring items reflects the non-deductibility of the notional preference share interest (note 15).

8. Finance costs and income

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 31 December 2015 is 22.1% (the estimated average effective annual tax rate for the six months ended 30 June 2014 was 25.9%).

10. (Loss)/earnings per share

On 19th June 2015, 309,100 Ordinary Shares of 1p each were issued. In addition, £5.2m preference shares were converted into 554,666 Ordinary Shares of 1p each. These transactions have been taken into account in calculating the weighted average number of shares in issue for the period ended 30 June 2015.

The Company has in issue 5,800,000 convertible preference shares which are convertible into 618,667 ordinary shares. These shares are not currently dilutive.

On 19th June 2015, the Company issued 740,000 warrants with an exercise price of £0.75 and 364,600 nil cost for a consideration of £182,300. The warrants and the outstanding share options in issue within the Group are considered to be dilutive, and the impact on earnings per share is show above.

11. Dividend

The Board does not consider it appropriate to pay an interim dividend on ordinary shares (2014: nil). A dividend on the preference shares accrued from 1 September 2012 at a rate of 3%. The charge for the six months ended 30 June 2015 was £87,000 (six months ended 30 June 2014 £220,000, year ended 31 December 2014; £427,000).

12. Financial liabilities: bank borrowings

The Group's current banking facility comprises a £3.0m multi-option loan facility, including a revolving credit, overdraft and guarantee facility. This facility will be available until 30 June 2016 and will reduce to £2.75m at 30 September 2015.

At 30 June 2015, the facility was not drawn down (30 June 2014 overdraft of £3,472,000 and £321,000 utilised to provide performance bonds, (31 December 2013: £1,500,000 and no performance bonds).

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

13. Net (debt)/cash

Net (debt)/cash excludes preference share capital of £4.7m (30 June 2014: £10.8m, 31 December 2014 £10.0m) included within liabilities due to the nature of the conversion rights attached to those shares.

14. Other financial assets: Cash collateral

At 30 June 2015 the Group had deposited cash of £519,000 (30 June 2014 £Nil, 31 December 2014 £Nil) 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.

15. Preference share capital

The 5,800,000 convertible, redeemable preference shares are held by British Growth Fund plc and Henderson Global Investors. The conversion rights allow the holder to convert the 5,800,000 preference shares into 618,666 ordinary shares at a price of £9.375 per share, in tranches from 31 December 2014 to 31 December 2019. The shares carry a cash coupon of 3% from 1 September 2012 and, unless converted by the holder, are redeemable in increasing tranches from 31 December 2014 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 £87,000 is payable in respect of the six months ended 30 June 2015 (six months ended 30 June 2014: £210,000, year ended 31 December 2014: £427,000) has been charged within underlying profit. Notional interest of £387,000 has been credited back to reserves (six months ended 30 June 2014: £402,000, year ended 31 December 2014: £828,000).

16. Notes to the cash flow statement

17. Contingencies

The Group takes out performance bonds in the ordinary course of business. The aggregate amount of such bonds outstanding at 30 June 2015 was £865,000 (30 June 2014: £321,000, 31 December 2014: £36,000). The aggregate amount of bonds outstanding at 30 June 2015 on projects where practical completion has been achieved was £nil (30 June 2014: £241,000, 31 December 2014: £nil).

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

18. 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 30 June 2015 the Group paid fees of £32,500 to Rickitt Mitchell & Partners Limited, in respect of Paul Mitchell's services as a non-executive director (six months ended 30 June 2014: £17,500, year ended 31 December 2014: £50,000).

The following transactions have taken place between the Group and entities over which Paul Bell, who has a 31% shareholding in the Company and who is a director of the Group's trading subsidiary Styles & Wood Limited, has significant influence and are therefore considered to be related parties. All transactions were undertaken in the ordinary course of business.

19. 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 Ltd to jointly control the entity and to a 50% share of the profits of the joint venture.