Interim Results

10th Sep 2008 08:38



10th September 2008

SMC Group Plc

Interim Results for the six months ended 30 June 2008

SMC Group Plc (SMC.L), the architects and design businesses announces its Interim Results for the six months ended 30 June 2008.

Highlights:

Turnover increased by 4.3% to £22.0m (H1 2007: £21.1m)

Continued international growth - non UK business now accounts for 13% of fee income, up c200% on H1 2007 with substantial growth and expansion of operations in Asia and in the Middle East

EBITDA increased by 183% to £3.4m (H1 2007: £1.2m*) 

Last Twelve Months (LTM) to 30 June 2008 EBITDA of £7.4m* (up 43% compared to FY07 £5.2m*, up 126% compared to H1 07 £1.2m*) 

Strong results achieved across Group - profitability improving across all divisions

H1 2008 profit before tax of £1.6m vs H1 2007 loss before tax of £4.9m 

Basic earnings per share 0.5p (2007: loss per share of 9.2p)

Basic adjusted earnings per share 1.0p (2007: 0.5p) 

Net debt reduced by £3.6m since December 2007 to £16.7m, substantially reducing the financial leverage from 3.77x to 2.25x LTM EBITDA 

Banking facilities renewed with improved terms following the reduction of debt via open offer

Deferred consideration renegotiated and paid resulting in related liability reduced from £11.7m (December 2007) to a maximum of £2.3m dependent on Group share price performance

Defensive characteristics of general business improved - public (defence and education) sector (35%) and international work (13%) now accounts for 48% of forward order book

Record order book visibility - 90% + of pipeline confirmed for the full year and 45%+ for 2009

Chris Littlemore appointed as Chief Executive, Sir Rodney Walker resumed position of non-executive Chairman

Clear regional operational structure, improved management and financial control in place

*EBITDA stated pre exceptional items

 

Sir Rodney Walker, non-executive Chairman said:

"We are delighted to have achieved strong progress in the first half of the year following the significant changes implemented during this period and as a result of the review of the business we undertook last year.

"We have a high visibility of revenue, with a record order book in place, a diverse client-base, sector and geographical spread and are confident in the platform we have for growth. We have opened new offices in our Asian business and expect to achieve further benefits of integration through cross selling and cost reduction. We remain excited about the future and the prospects for the full year."

For further information:

SMC Group Plc Tel: +44 (0)20 7580 0400

Chris Littlemore/Rob Boardman

Numis Securities Limited Tel: +44 (0)20 7260 1000

Stuart Skinner/Brent Nabbs (Nominated Adviser)

/James Serjeant (Corporate Broking)

Financial Dynamics Tel: +44 (0)20 7831 3113

Jonathon Brill/Billy Clegg/Caroline Stewart

  Chairman's Statement

Sir Rodney Walker

We are pleased to have achieved a solid performance in the first six months of the year, following the significant efforts made last year to re-structure the business model. SMC is now a stable, well managed, profitable business positioned for continued growth.

In the first six months of this year, we have achieved year on year turnover growth of 4% and an increase in EBITDA of 183%* mainly via cost savings, but also due to improved performance across the business. The Group's balance sheet and net debt position have been enhanced by the raising of £13.1m via the open offer in January and the simultaneous reduction of deferred consideration liabilities by £2.5m.

We are pleased that we have grown our revenue from an increasingly diverse client base. We are satisfied with the balance on our order book between private and public sector clients, and although we have not seen the impact of a downturn as yet, we believe that our approach towards growing our client base will ensure the Group's business model is defensive.

Our international division continues to be an exciting area of growth for the business, particularly the Far East. International clients represented 11% of sales in the first half compared to just 2.5% in same period of 2007. In August we opened offices in Malaysia and we will establish a presence in the UAE in September.

 

We have managed to extract further integration costs of the business as a result of streamlining the business model. We are on track to achieve at least a further £1.0m of savings to be realised over the next two financial years of which approximately one third will impact in this financial year. These were related to the further centralisation of administrative functions, including HR and group purchasing and the regionalisation of the business. Working capital, in particular WIP and debtors remain under close scrutiny and control by the Board and have remained stable since the year end. Excluding the effect of the unwinding of the exceptional charges incurred in 2007 in relation to reorganisation and aborted transactions, the business continues to be operating cash flow positive. In addition to this the appointment of regional directors and financial controllers is ensuring that we have tighter accountability and cost control across the Group.

Following the action we took to take costs out of the business, refinancing the deferred consideration and reducing the levels of debt, we announced that we have agreed new favourable funding arrangements with HBOS. These improved terms include a structured re-payment of term and overdraft facilities over the next five years.

We were delighted to appoint Chris Littlemore as Chief Executive at the AGM in June, following hard work and the progress he delivered for the Group as Managing Director from 1 February. His appointment and the near completion of the re-structuring process means the business is now in a robust shape. I therefore stepped down from my executive role and have resumed the role of non executive Chairman.

*EBITDA pre exceptional items

Outlook

We are pleased with the management and systems we now have in place, and believe that we have solid foundations to achieve further growth.

Following the period end all business divisions continue to show improving levels of profitability.

We have high visibility of revenue with a record order book in place, a diverse client base and geographical spread and are confident in the platform we have for growth. As well as expanding rapidly in Asia, we should benefit from further benefits of integration through cross selling and cost reduction. Although we are aware of the challenging financial climate, we remain excited about the future and the prospects for the full year. 

Finally I would like to take this opportunity to thank all of our colleagues for their continued support and their help in achieving these results.

Sir Rodney Walker

Non-executive Chairman

10th September 2008

  Chief Executive's Review

Chris Littlemore

I am delighted to be reporting these results as Chief Executive. Following the re-structuring of the Group its focus on one united goal, these results demonstrate that the business in its current form has a solid platform for growth.

Financial Performance for the 6 months ended 30th June

Operational Performance

SMC Group is the second largest architecture group in the UK, with an exciting fast growth international division. Our strategy has been to focus on diversifying revenue streams. We now have a good balance between public and private clients as well as different international clients across sectors including education, health and other publicly funded sports and leisure sources. Our international business has also expanded rapidly and we opened a new office in Kuala Lumpur and will commence operations in the UAE shortly. These developments help underpin the defensive qualities of the business.

The restructured business has led to improved cross-fertilisation of revenues. An example is a joint team working on a major project in the South West of England where leisure expertise from another part of the country has been combined with our local presence to win a major commission. We believe that organic growth from such cross-fertilisation will continue to be achieved in the second half of the year.

We are increasingly operating as one business in respect of mainstream core UK architectural services. This has assisted both the acquisition and delivery of work and we believe that this will be further enhanced by the forthcoming planned rebranding process.

Key contract wins for the Group in the first half include:

Having harmonised our employment terms and conditions for all staff we continue to recruit to maintain and enhance the quality of our staff in the UK in a market where qualified personnel are more readily available than 12 months ago.

Outlook

Our restructuring of the Group has enabled us to create a whole that is greater than the sum of its parts. Post period end, we are pleased to report that all divisions of the Group are showing increasing levels of profitability. We will continue ensure the Group maintains the defensive benefits of a diverse revenue stream, whilst positioning it for growth. At the same time we seek to leverage off the scale and depth of our enterprise.

Specifically in the second half of the year we will continue to focus our strategy on:

- Organic expansion through cross selling

- Leverage market position by exploiting scale/critical mass

- Targeting of large, stable projects with public or secured funding

- Further international growth

- Providing high quality service to clients

- Continue to extract integration benefits and cost savings

Despite the current economic climate we have 90% revenue visibility for the remainder of 2008 and 45% for 2009. With the prospect of a rebranding and further reorganisation benefits to be completed I believe the Group is in position to continue to grow its profitability and market share.

 

Chris Littlemore

Chief Executive

10th September 2008 

INDEPENDENT REVIEW REPORT TO SMC GROUP PLC 

Introduction 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes 1 to 7. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Accounting Standards Board Statement "Half-Yearly Financial Reports".

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the Accounting Standards Board Statement "Half-Yearly Financial Reports". 

Our Responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 6 months ended 30 June 2008 is not prepared, in all material respects, in accordance with the Accounting Standards Board Statement "Half-Yearly Financial Reports". 

Ernst & Young LLPLondon

10 September 2008

  

Consolidated income statement
For the six months ended 30 June 2008
					Unaudited	Unaudited	Audited
					Total 6 months ended 30 June 2008	Total 6 months ended 30 June 2007	Total Year ended 31 Dec 2007
	Notes				£'000	£'000	£'000
CONTINUING OPERATIONS
REVENUE					22,008	21,106	44,169
Cost of sales					(11,364)	(10,488)	(23,063)
GROSS PROFIT					10,644	10,618	21,106
Administrative expenses					(7,236)	(13,064)	(21,424)
EBITDA*					3,408	(2,446)	(318)
Depreciation					(359)	(360)	(817)
Amortisation of intangible assets					(927)	(919)	(1,837)
Total operating expenses					(8,522)	(14,343)	(24,078)
Share of results of joint venture - post tax					-	-	(30)
OPERATING PROFIT / (LOSS)					2,122	(3,725)	(3,002)
Finance revenue					68	120	372
Finance costs					(621)	(1,281)	(2,556)
PROFIT / (LOSS) BEFORE TAXATION					1,569	(4,886)	(5,186)
Taxation		4			(376)	613	1,026
PROFIT / (LOSS) FOR THE PERIOD					1,193	(4,273)	(4,160)
EARNINGS / (LOSS) PER SHARE (IN PENCE)
Basic		5			0.54	(9.19)	(8.66)
Diluted		5			0.54	(9.19)	(8.66)

*Earnings before interest, depreciation and amortisation.

Consolidated balance sheet

As at 30 June 2008

		Unaudited	Unaudited	Audited
		30 June 2008	30 June 2007	31 Dec 2007
		£'000	£'000	£'000
NON-CURRENT ASSETS
Goodwill		20,979	23,673	20,967
Other intangible assets		15,006	16,844	15,925
Property, plant and equipment		2,085	1,910	1,836
Interests in joint venture		35	133	35
Other financial assets		1,672	1,560	1,606
TOTAL NON-CURRENT ASSETS		39,777	44,120	40,370
CURRENT ASSETS
Trade and other receivables		26,104	23,118	24,393
Cash and short term deposits		-	598	244
TOTAL CURRENT ASSETS		26,104	23,716	24,637
TOTAL ASSETS		65,881	67,836	65,007
CURRENT LIABILITIES
Trade and other payables		9,611	10,412	11,695
Current tax liabilities		404	1,068	967
Interest bearing loans and borrowings		2,756	18,450	5,763
Contingent consideration		75	2,271	6,956
TOTAL CURRENT LIABILITIES		12,846	32,201	25,381
NET CURRENT ASSETS / (LIABILITIES)		13,258	(8,485)	(744)
NON-CURRENT LIABILITIES
Trade and other payables		9	66	125
Interest bearing loans and borrowings		13,913	1,476	14,529
Contingent consideration		445	9,385	425
Deferred tax liabilities		4,167	4,808	4,396
TOTAL NON-CURRENT LIABILITIES		18,534	15,735	19,475
TOTAL LIABILITIES		31,380	47,936	44,856
NET ASSETS		34,501	19,900	20,151

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Share capital		1,190	244	248
Share premium		25,819	13,627	13,634
Merger reserve		8,106	7,855	8,106
Treasury shares		(158)	(158)	(158)
Retained earnings		(456)	(1,668)	(1,679)
TOTAL EQUITY		34,501	19,900	20,151

Consolidated statement of changes in equity
For the six months ended 30 June 2008
		Unaudited	Unaudited	Audited
		6 months ended 30 June 2008	6 months ended 30 June 2007	Year ended 31 Dec 2007
	Notes	£'000	£'000	£'000
Profit / (Loss)for the period		1,193	(4,273)	(4,160)
Total recognised income and expense for the period		1,193	(4,273)	(4,160)
Shares issued in the period		15,070	583	116
Share issue costs		(1,943)	-	-
Purchase of own shares		-	-	(8)
Arising on deferred consideration for prior year acquisitions		-	-	738
Share-based payment		30	125	-
Dividends		-	(161)	(161)
Net change in equity in the period		14,350	(3,726)	(3,475)
Opening equity		20,151	23,626	23,626
Closing equity		34,501	19,900	20,151

  

Consolidated cash flow statement
For the six months ended 30 June 2008
		Unaudited	Unaudited	Audited
		6 months ended 30 June 2008	6 months ended 30 June 2007	Year ended 31 Dec 2007
	Notes	£'000	£'000	£'000
Operating activities
Cash (absorbed by) / generated from operations	7a	(672)	1,385	2,681
Tax paid		(1,167)	(328)	(428)
Net cash flow from operating activities		(1,839)	1,057	2,253
Investing activities
Interest received		68	120	372
Purchases of property, plant and equipment		(609)	(360)	(742)
Acquisition of subsidiaries	7b	(6,881)	(3,631)	(2,415)
Net cash flow used in investing activities		(7,422)	(3,871)	(2,785)
Financing activities
Interest paid		(621)	(831)	(2,056)
Dividends paid to equity holders of the parent		-	(161)	(161)
New bank loans		-	3,000	7,936
Repayment of bank loans		(469)	(862)	(804)
Proceeds from issue of new shares		13,127	92	89
Redemption of loan notes		(119)	-	(2,323)
Repayment of capital element finance lease obligations		(107)	(126)	(179)
Net cash flow from financing activities		11,811	1,112	2,502
Increase / (decrease) in cash and cash equivalents		2,550	(1,702)	1,970
Cash and cash equivalents at beginning of the period		(3,221)	(5,191)	(5,191)
Cash and cash equivalents at end of the period	7c	(671)	(6,893)	(3,221)

Notes to the financial information
For the six months ended 30 June 2008
1		Basis of preparation
		The financial information contained in this interim report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2007 (prepared in accordance with International Financial Reporting Standards) were prepared and filed with the Registrar of Companies and received an unqualified audit report and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The Board of Directors regularly monitors the ability of the Group to meet its liabilities as they fall due for the foreseeable future against the facilities and funding options open to it. The Board of Directors adopts the going concern basis of preparation of the financial statements if in its assessment it has a reasonable expectation that the Group has adequate resources to continue for the foreseeable future. The financial statements have been prepared on the basis of going concern.
2		Adoption of IFRS
		These interim financial statements for the six months ended 30 June 2008 have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued and effective or issued and early adopted as at the time of preparing these statements that management expect to apply in its 2008 financial statements. The IFRS standards and IFRIC interpretations that will be applicable at 31 December 2008, including those that will be an optional basis, are not known with certainty at the time of preparing these interim financial statements. SMC has adopted all IFRS with the exception of IAS 34 "Interim Financial Reporting" which is not mandatory for SMC at this time. The interim financial statements have been prepared on the historical cost basis and are in accordance with the Group's accounting policies as set out in the annual report and accounts for the year ended 31 December 2007.
3		Exceptional costs
		Exceptional costs are the costs associated with making additional provisions against debtors and amounts recoverable on contracts where there has been a reassessment of the recoverability of balances relating to prior years based on further evidence becoming available in the period. Exceptional costs also include the costs of rationalising the Group's activities, in particular the costs associated with the termination of employment and closure of various premises.
4		Taxation
		Taxation for the six months to 30 June 2008 is based on the effective rate of taxation which is estimated to apply for the year ending 31 December 2008. Taxation for the year ended 31 December 2007 is based on the actual rate of taxation which applied for the year ended 31 December 2007. Taxation for the six months to 30 June 2007 was based on the effective rate of taxation which was estimated to apply for the year ended 31 December 2007.

5	Earnings per share
				Unaudited	Unaudited	Audited
				6 months ended 30 June 2008	6 months ended 30 June 2007	Year ended 31 Dec 2007
	Weighted average number of shares ('000)
	For basic earnings per share			220,354	46,517	48,011
	Dilutive effect of share options			147	1,313	532
	For diluted earnings per share			220,501	47,830	48,543
	Profits for basic and diluted earnings per share (£'000)
	Profit /(Loss)for the period			1,193	(4,273)	(4,160)
	Add back:-
	- Exceptional costs			-	3,614	5,475
	- Amortisation of intangible assets			927	919	1,837
	- Share-based payment			30	125	210
	- Interest on contingent consideration			20	450	500
	- Tax impact of above adjustments			-	(613)	(1,030)
	Adjusted profit for the period			2,170	222	2,832
	Earnings /(Loss) per share (pence per share)
	Basic			0.54	(9.19)	(8.66)
	Diluted			0.54	(9.19)	(8.66)
	Adjusted earnings per share (pence per share)
	Basic			0.98	0.48	5.90
	Diluted			0.98	0.46	5.64
	Adjusted earnings per share has been presented in order to allow earnings per share to reflect the earnings more directly related to the trading of the Group in each period.
6	Dividend
	There have been no dividend payments in the current financial year (an interim dividend of 0.35p per share was paid in January 2007 for the year ended 31 December 2007).

  

7	Notes to the cash flow statement
					Unaudited	Unaudited	Audited
					6 months ended 30 June 2008	6 months ended 30 June 2007	Year ended 31 Dec 2007
					£'000	£'000	£'000
a	Cash generated from/(absorbed by) operations
	Profit / (Loss) before tax				1,569	(4,886)	(5,086)
	Finance revenue				(68)	(120)	(372)
	Finance costs				621	1,281	2,056
	Share-based payment				30	125	210
	Share of results of joint venture - post tax				-	-	97
	Depreciation of property, plant and equipment				359	360	817
	Loss on disposal of property, plant and equipment				-	-	-
	Amortisation of intangible assets				927	919	1,837
	(Increase) / decrease in trade and other receivables				(1,711)	3,551	2,277
	(Decrease) / increase in trade and other payables				(2,399)	155	845
	Cash generated from/(absorbed by) operations				(672)	1,385	2,681
b	Acquisition of subsidiaries
	Consideration paid on acquisitions				-	-	(37)
	Consideration paid on prior period acquisitions				(6,881)	(3,631)	(2,378)
	Net cash outflow for acquisitions				(6,881)	(3,631)	(2,415)
c	Analysis of cash and cash equivalents
	Cash and cash equivalents per balance sheet				-	598	244
	Bank overdrafts				(671)	(7,491)	(3,465)
	Cash and cash equivalents per cash flow statement				(671)	(6,893)	(3,221)

ENDIR GUUGWBUPRUMU

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