3rd Apr 2008 07:01
SMC Group Plc03 April 2008 3 April 2008 SMC Group Plc Preliminary Results For the year ended 31 December 2007 SMC Group Plc (SMC.L), the architects and design business, announces itsPreliminary Results for the year ended 31 December 2007. Highlights • Turnover increased by 42% to £44.2m (2006: £31.2m) • EBITDA* increased by 16% to £5.2m(2006: £4.5m) • H2 EBITDA* increased by 333% to £4.0m (H1 £1.2m ) • Operating (Loss)/Profit (£3.0m) (2006: £3.1m) • Profit before tax & amortisation* £2.1m (2006: £2.7m) • (Loss)/Profit for the year (£4.2m) (2006: £1.0m) • Basic earnings per share (8.7p) (2006: 2.4p) • Open Offer completed raising £15.1m in January 2008 reducing debt by £13.3m • Deferred Consideration liabilities reduced by £4.9m in the year • New Managing Director Appointed, Senior Management Strengthened • Clear strategy to deliver organic growth and synergies from integration of businesses- business restructured to deliver common goal • Outlook encouraging with a record 70% revenue visibility at the beginning of the financial year *before exceptional items Executive Chairman Sir Rodney Walker said "We are pleased to have successfully resolved the issues we experienced in 2007.We now have a restructured business platform from which we can move forward andgrow profitably. We have a clear strategy of driving organic growth anddelivering profitability from our enviable market position, which, under thestewardship of our new MD Chris Littlemore, will deliver greater efficienciesand enhancement of our architectural output and service delivery to our clients. SMC has had a strong start to the new financial year. In January 2008, thevisibility of confirmed revenue for the year was 70% of our target which ishigher than the comparable figure of 65% at the start of 2007. Indeed, one ofour biggest challenges this year will be to secure and retain the best people. We are confident that through the continued support of our clients and talentedand loyal staff, we can look to the future with optimism as one the largestarchitectural businesses in the UK." For further information please contact: SMC Group Plc Tel: +44 (0)20 7495 5335 Chris Littlemore / Rob Boardman Numis Securities Limited Tel: +44 (0)20 7260 1000 Stuart Skinner / Brent Nabbs / James Serjeant Financial Dynamics T: +44 (0)20 7831 3113 Jonathon Brill / Billy Clegg / Caroline Stewart Chairman's Statement Sir Rodney Walker I am pleased to be able to write this report to you in the context of somepositive results for SMC and at the start of what is an exciting period for thebusiness following the successful resolution of the issues the Group faced inearly 2007. We completed the implementation of an in depth review and restructuring of thebusiness in June and July. We were only able to take the necessary action todeal with the historic revenue recognition issues and loss making business unitsfollowing the departure of the former CEO at the end of May. Our bank HBOSsupported us through the process of restructuring, whilst we examined ourstrategic options. I remain grateful for their support through a year ofchallenge and change. We spent considerable time working with the vendors of businesses acquiredduring the period of rapid growth of the Group in 2006, to reduce, restructureand cap future deferred consideration payments strengthening our balance sheet.I am pleased to report that these tasks have been achieved. This has ensuredthat we can proceed into 2008 and beyond on a sound financial basis. I amgrateful to Ironshield for having the confidence in the business to underwritethe Open Offer, and our advisers and members of our management team,particularly Robert Boardman, for working so hard to deliver a successfulfundraising. We can now move forward on a sound footing with a secure platformfor growth. As a result of the successful refinancing process of late 2007 when we secured£15.1m via the Open Offer, an opportunity to deliver a major change in the ethosof the business now exists. The previous corporate structure of a collection ofindividual businesses working toward their own earn outs, encouraged a somewhatprotectionist attitude amongst some of our business units. We are now able towork together and this approach should allow us to benefit from the crossfertilisation of skills and resources. I am pleased to welcome Chris Littlemore as our new Group Managing Director.Chris is an experienced Architect and was previously MD of our largestacquisition to date. Throughout the difficulties we had to deal with in 2007,Chris impressed me as we worked to resolve many of the issues faced. He showedstrategic vision and a pragmatic ability to deliver bottom line performance. Theboard were unanimous in inviting him to take on this new role. Through theefforts of Chris and a strengthened senior management team including theappointment of three regional chairmen, we will deliver our vision of anintegrated business. We are bringing together the considerable talent of ourstaff and loyal client-base across the country and beyond, to maintain andimprove a position at the forefront of our industry. We have been recorded, by the Architects Journal Top 100 practices in 2007, aslying 2nd in the league of architectural businesses in the UK. This measure isby numbers of registered architects employed within the business. We are aimingto consolidate this position not only by reference to our size and capacity, butalso by reference to our product offering, our service quality and by ourfinancial performance. The vision statement of 'Creative Brilliance with Commercial Reality', putforward by Chris is one that I wholly support. Through his experience, I amconfident that the tensions between the creative and economic disciplines in anarchitectural business can be held in balance to the benefit of clients, staffand shareholders. Having taken on the role of Executive Chairman in February 2007, I instigatedsome measures in terms of cost cutting, staff changes and closure of loss makingentities that have helped provide the positive results we achieved in the secondhalf of last year against the difficulties we faced in early 2007. The changesimplemented, gave rise to a 333% increase in our pre exceptional EBITDAperformance between the first and second halves of the year. With a cohesivestrategy for the further integration and rationalisation of the Group now underway, our target is to deliver even greater efficiencies and enhancement of ourarchitectural output and service delivery to our clients. The geographical and sector spread of our clients and offices gives me theconfidence that the Group can grow organically via our existing business unitsat home and abroad where our overseas offices are enjoying buoyant trading. Intime we will consider appropriate acquisitions again, looking specifically toIndia and further development of SE Asia and parts of Europe as well as the UKwhere we believe opportunities still exist to strengthen the Group bothgeographically and in specific architectural sectors. Any future acquisitionswill however need to be undertaken on a more controlled and inclusive basis thanin our recent history with the aim to integrate any new businesses into thestructure of the Group more rapidly than in the past. The privately funded market place has seen some uncertainty in the last fewmonths and we are mindful of the ongoing macro economic situation. Despite thisclimate, we have robust, committed and sustainable work flow from a wide crosssection of client bodies in the residential, commercial, industrial, retail,leisure and hotel sectors. Overlaid with this, we have seen an increasinglysubstantial amount of publicly funded construction design work projects ineducation, including nurseries, schools, further education colleges,universities and research establishments, government facilities, public leisurebuildings, defence and government office buildings. Outlook One of our biggest challenges remains our ability to attract and retain the bestpeople to allow us to provide further organic growth from our existing bases. InJanuary 2008, the visibility of confirmed revenue for the coming year was 70% ofour target which is higher than the comparable figure of 65% at the start of2007, although we acknowledge some uncertainty in the property sector in thenear to mid term. Through the continued support of our clients and talented andloyal staff, we have together ensured that we can look to the future withcommensurate optimism as one of the largest architectural businesses in the UK. Sir Rodney WalkerChairmanSMC Group Plc2nd April 2008 Managing Director's Report Chris Littlemore Introduction I am excited to have been appointed the Managing Director of SMC Group Plc on1st February 2008 at a point where I believe significant opportunities forincreased growth and profitability are available to the business. I waspreviously Managing Director of SMC Charter Architects, the Group's largestoperating entity. In March 2007 I was invited by the Chairman to join a small review panel ofsenior directors to assess the difficulties faced by the Group. Following thisreview the Board took action implementing our recommendations in full. Once theformer CEO had left in May 2007 changes were made quickly to stabilise thebusiness and improve profitability. Resolution of the Group's debt position, both to the bank and arising throughcontingent deferred considerations due to vendors of acquired businesses,remained key to the long term future of the business. The directors highlightedthis issue in September 2007 in the interim financial statements. Havingexplored various strategic options, the Group's balance sheet was strengthenedby the completion of a fully underwritten open offer of £15.1m. At the same timesuccessful negotiations reduced the Group's liabilities to vendors by some£2.5m. This provided an important base from which to move forward profitably. Thisstability and strengthened financial position has presented us with theopportunity to reshape the Group with a regional structure and an enhancedsenior management team of experienced Architects. The strategy for growth is clear and remains to work towards a greater degree ofcohesion between the operating units of the Group. This cohesion will provide amore unified, consistent and efficient approach to the delivery of our services.There have already been significant savings through the efficiencies instigatedduring the second half of 2007 and I have identified in excess of £0.5m ofoperational savings to be delivered in the medium term in 2008 and in 2009 withno anticipated adverse effect on revenue or service to our clients. The performance of our staff has been consistent and conscientious and the Boardis grateful for their ongoing contribution. It is also right that I shouldexpress on behalf of the Board our collective thanks to the Chairman who led theGroup through the challenges of 2007 to stabilise the Company. I would also liketo thank Ironshield for their confidence in the Group, to our bankers HBOS fortheir continued support and to my colleagues on the Board for their confidencein me and continued hard work and support. Financial Performance EBITDA* for the first half of 2007 was £1.2m from a turnover of £21.1m.Following the changes and management adjustments recorded above, the second halfturnover of £23.1m was 9% ahead of the first half, with EBITDA* significantlyincreased by 333% to £4m. Exceptional costs due to write-offs of Work inProgress, Debtors and Restructuring Charges over the year were £5.5m *before exceptional costs Refinancing The Open Offer in January 2008 allowed SMC to reduce its liabilities by £15.1mafter costs via the £13.3m net proceeds of the fundraising and the £2.5mreduction in contingent consideration liabilities. The Open Offer has allowedSMC's net debt to be reduced to a more appropriate and manageable level. Therefinancing has also allowed SMC to attract better terms from its bankers whichwill reduce finance costs going forward, reducing term debt by £3.0m.Importantly all further deferred consideration is capped and any payments aredependent on future share price improvement - which again means that the vendorsemployed by the Group are incentivised to work together to achieve success. The Open Offer which was underwritten by Ironshield, was also supported by everyone of the directors of SMC Group Plc who purchased shares. Following thetransaction, Ironshield now holds approximately 73% of the issued share capitalof the Group. Ironshield's strategy is to support management in the running ofa profitable business. David Nazar, Managing Director of Ironshield, hasconfirmed whilst there is no intention of intervening in the day-to-day runningof the Group, that following an invitation from the Chairman, a non-executiveDirector from Ironshield will be appointed to the SMC Board in due course. Restructuring The Group has been re-structured in order to deliver a more cohesiverelationship between operating units and management. A new Operational board hasbeen created to oversee the day to day management of the business. This hasalready resulted in greater efficiency, sharing of skills and collaboration.Four new regions have been created: 'Southern England', 'Northern England', 'Scotland' and 'International'. Apart from my own appointment, the seniormanagement team has also been strengthened by the creation of this ExecutiveManagement Board with significant architectural insight and experience: • Sir Rodney Walker remains as Executive Chairman in the short term, and will in due course return to a non-executive role. • Robert Boardman BA (Hons) ACA moves from Finance Director to Corporate Development Director, reflecting the wider role he has played during restructuring and the business in 2007. • Robert Hall BA(Hons) BArch RIBA is appointed to the Executive Management Board of the Group as Scottish Regional Chairman • Philip Lees BA(Hons) DipArch RIBA is appointed to the Executive Management Board of the Group as Northern Regional Chairman • Jonathan Morgan BA(Hons) BArch RIBA is appointed to the Executive Management Board of the Group as Southern Regional Chairman • FD:- The Group is currently in the process of recruiting a Financial Director with relevant industry and city experience to complete the executive management team. Market Position and Opportunity SMC is one of the UK's largest Architects businesses employing more than 600talented people both in the UK and in our offices in South East Asia who arecapable of delivering creative and commercially effective architecturalsolutions to a wide variety of clients. The Group's acquisition programme has produced an architectural Group with: • Scale and geographical diversity across the UK plus offices in South East Asia. • A strengthened pipeline and order book of long-term public sector work, including education, health, civic and leisure buildings, transport and defence. • Wide range of privately funded work across all main development sectors, including commercial, residential, retail, industrial, distribution, mixed use, hotels and leisure, master-planning, health and private education. • A mobility of skill base that facilitates improved delivery to clients. • Exposure to emerging overseas markets in South-East Asia and India. To demonstrate the continuing variety and scale of new instructions recentlyreceived, the following projects are an example of just a few commissions wonsince the start of 2008 which total an estimated £300m construction value with afee in the region of £7.4m: - Defence Projects - Gosport and Plymouth- Hotel and Mixed Use Residential Scheme - Glasgow- Student Housing - Exeter- Major Manufacturing Facility - S Coast- 2 Further Education College Projects- Veterinary Laboratory Hospital- 2 Public Swimming Pools - East Midlands- Airline Training Facility - Sussex- 5 Hotel Projects across UK for International Chain- NHS Board Framework Glasgow - 4 projects- Inverclyde Schools PFI- Central Manchester Urban Regeneration Concept Masterplan- Supermarket - Cheshire We have also won significant awards for our work in 2007 - examples of theseawards are: - MIPIM Future Projects Awards, 'Big Urban Projects' Category: Riverside One (Middlehaven Masterplan), Middlesbrough, UK- Cityscape Architectural Review Awards, (Tourism, Travel & Transport- Built): Clarke Quay, Singapore- RIBA Commercial Building Prize for the London Region: Palestra, London, UK- Dumfries Dental Centre won the NHS Scotland Environment Estates and Facilities Design Award 2007 Our aim is to continue to build on the changes made and to make our business aleading firm of professionals capable of delivering architectural solutions thatadd value for our clients, whatever the brief or issues they encounter. Strategy My priority since becoming Group MD on 1 February 2008, has been to constructand lead a management team, which can deliver creative solutions to our clientsand prioritise quality design and tight financial control/commercial acumenwithin the demands of a major architectural practice. I want to establish a new corporate vision of 'creative brilliance withcommercial reality' supported by a set of values implemented across everybusiness location. The strategy is clear and simple in terms of driving organic growth anddelivering profitability from our enviable market position as well as keeping aneye on possible longer term opportunities to grow more quickly by acquisition. Control Systems and Financial Measurement We have continued the much tighter level of commercial and financial controlincluding: • The introduction of project by project KPI analysis across the Group on common formulae. • The introduction of a new unified accounting system. • The introduction of a new credit control system. • The appointment of Regional Financial Controllers to monitor financial performance with greater visibility to each team of operation. • A rationalisation of staff terms and conditions and incentivisation schemes. • Cross-Group brand management and co-ordination. • The centralisation of HR management. The following KPI's and commentary help to illustrate our progress: KPI'S and commentary 2007 2006 WIP days 55 139WIP controls in place and working to reduce/control revenue recognitionDebtor days 131 158Decreased with improved credit control proceduresStaff costs as % of turnover 56% 54%Increase due to wage pressures in sector - staff numbers decreased from 655 to 621 as31 December 2007Confirmed turnover 70% 65%Record level of secured turnover as at January 2008EBITDA* margin 12% 10%Increased following cost savings and improved turnover following review- H2 07improvement diluted by H1 * EBITDA pre exceptional costs Quality To ensure the delivery of higher quality design product and service, immediatesteps include:- • Regular peer to peer design review processes in each office location. • Rebranding exercise coupled with a vision and a set of core values that permeate throughout the business • Introduction of unified Quality Management Systems across the organisation. • Introduction of Environmental Management Systems across the organisation. • The appointment of a Brand Manager to enhance and monitor our image internally as well as externally. • The implementation of the Investors in People Programme Future Opportunities The Group moved through a difficult phase in 2007 into 2008 refreshed and on afirm financial platform. In the future, we intend to deliver on the followingopportunities: • Exploit the Group's scale/critical mass by successfully completing the restructuring and integration programme. • Develop and expand the strong base of repeat clients and commissions. The Group's order book is excellent and demonstrates our ability to grow organically. • Maintain and develop the robust multiple sectors in which the Group operates to benefit from diversification of earnings and respond to the cyclical nature of certain industries. • Ensure the correct balance between public and privately funded work is maintained. • Develop additional highly technical service skills responding to the green/sustainable design agenda, which has been driving new legislation in much of Europe. • Seek growth opportunities including potential expansion of South-East Asia / India and parts of Europe by taking advantage of expanding economies. Outlook Our pre-committed workflow for 2008 is robust and includes a high level ofpublicly funded work in the education and research sectors, as well as othergovernment construction projects. Our privately funded work in the retail,commercial, residential and industrial sectors provides a balanced revenuestructure. The business has been trading well - as we expected -following the changes madein H1 2007 .This is evident in our H2 2007 profits before exceptional costs andongoing profitability. We believe that further cost savings of at least £0.5m in 2008 are achievableover and above the £2m achieved to date, with a further potential annualisedsaving of £1m for 2009. The longer-term increase in design quality and servicedelivery will assist in revenue enhancement and recruitment opportunities forkey skills. Future prospects for the Group are encouraging. SMC continues to attractsubstantial projects across a wide range of public and privately funded marketsectors. This demonstrates the Group's ability to generate and retainhigh-profile work and deliver it with consistent quality and profitability. As at January 2008 70% of the Group's revenues for 2008 were already confirmed.The quality of SMC's work has been publicly recognised with design awards beingwon by many of the Group's businesses. This reflects well on the ability of theoperating companies to maintain the confidence of their client-base and theircolleagues. Chris LittlemoreManaging Director2nd April 2008 SMC Group PlcCONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 Pre Exceptional Exceptional Costs Costs Total 2007 2007 2007 2006 Notes £000 £000 £000 £000Revenue 44,169 - 44,169 31,205Cost of sales (23,063) - (23,063) (16,285) Gross Profit 21,106 - 21,106 14,920 Administrative expenses -Other (15,949) (5,475) (21,424) (10,461) EBITDA * 1 5,157 (5,475) (318) 4,459 -Depreciation (817) - (817) (420) -Amortisation (1,837) - (1,837) (1,006) Total Operating Expenses (18,603) (5,475) (24,078) (11,887Share of results of joint (30) - (30) 90venture - post tax Operating Profit / (Loss) 2,473 (5,475) (3,002) 3,123 Finance revenues 372 - 372 48Finance costs (2,556) - (2,556) (1,451) Profit / (Loss) before taxation 289 (5,475) (5,186) 1,720 Taxation 1,026 - 1,026 (774) (Loss) / Profit for the year attributable to equity holders of the parent 1,315 (5,475) (4,160) 946 Earnings per share (in pence)Basic 3 (8.66) 2.37Diluted (8.66) 2.26 The Directors will not propose a dividend to the annual general meeting based onthe financial statements for the year ended 31 December 2007. *Earnings before interest, depreciation and amortisation. SMC Group PlcCONSOLIDATED BALANCE SHEETAs at 31 December 2007 2007 2006 Notes £000 £000 Non-Current AssetsGoodwill 20,967 22,563Other intangible assets 15,925 17,762Property, plant and equipment 1,836 1,956Investment in joint venture 35 133Financial assets 1,606 1,429 Total Non-Current Assets 40,370 43,843 Current AssetsTrade and other receivables 4 24,393 26,783Cash and short term deposits 244 1,276 Total Current Assets 24,637 28,059 Total Assets 65,007 71,902 Current LiabilitiesTrade and other payables 11,695 10,309Current tax liabilities 967 1,396Interest bearing loans and borrowings 6 5,763 17,165Provisions 5 6,956 2,991 Total Current Liabilities 25,381 31,861 Net Current Liabilities (744) (3,802) Non-Current Liabilities Trade and other payables 125 132Interest bearing loans and borrowings 6 14,529 1,544Provisions 5 425 9,318Deferred tax liabilities 4,396 5,421 Total Non-Current Liabilities 19,475 16,415 Total Liabilities 44,856 48,276 NET ASSETS 20,151 23,626 Equity Attributable to Shareholders of theParentShare Capital 248 230Share premium 13,634 13,536Merger reserve 8,106 7,368Treasury Shares (158) (150)Retained Earnings (1,679) 2,642 Total Equity 20,151 23,626 The financial statements were approved by the board and authorised for issue on2 April 2008 and signed on its behalf by ROBERT BOARDMAN CHRIS LITTLEMORE SMC Group PlcCONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2007 Notes 2007 2006 £000 £000 Operating ActivitiesCash generated / (absorbed) by operations) 2,681 (349)Tax paid (428) (1,013) Net Cash Flow from Operating Activities 2,253 (1,362) Investing ActivitiesInterest received 372 40Proceeds on disposal of property, plant and equipment - 370Purchases of property, plant and equipment (742) (492)Payments for subsidiaries (2,415) (13,092) Increase in other financial assets - (1,429) Net Cash Flow Used in Investing Activities (2,785) (14,603) Financing ActivitiesInterest paid (2,056) (928)Dividends paid to equity holders of the parent (161) (394)New bank loans 7,936 15,125Repayment of bank loans (804) (8,856)Proceeds from issue of new shares 89 7,489Redemption of loan notes (2,323) -Repayment of capital element of finance lease obligations (179) (101) Net Cash Flow From Financing Activities 2,502 12,335Increase/(Decrease) in Cash and Cash Equivalents 1,970 (3,630) Cash and cash equivalents at beginning of the period (5,191) (1,561) Cash and Cash Equivalents at the End of the Period (3,221) (5,191) 1. EXCEPTIONAL COSTS 2007 £000 Provisions against amounts recoverable on long term contracts 2,510Provisions against trade debtors 1,521Redundancy and reorganisation costs 1,149Aborted transaction costs 295 5,475 There were no exceptional costs in 2006. 2. DIVIDENDS No dividend was declared for the year ended 31 December 2007. In the prior year,an interim dividend of 0.35 pence per share was paid in January 2007 totalling£161,234. No final dividend was paid. 3. EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is based on thefollowing data: 2007 2006 £000 £000 (Loss) / Profit for the year attributable to equity holders of the (4,260) 946parent 2007 2006Number of shares '000 '000 Weighted average number of ordinary shares for the purpose of basic 48,011 39,940earnings per share- Employee share options 532 1,847- Contingent share consideration - - Weighted average number of ordinary shares for the purpose of diluted 48,543 41,787earnings per share On 18th January 2008 the Company completed a fundraising of £15.1 million,before expenses by way of an open offer of up to 188,377,187 New Ordinary Sharesat a price of 8.0 pence per New Ordinary Share. 4. TRADE AND OTHER RECEIVABLES 2007 2006 £000 £000 Trade receivables 15,928 13,470Amounts recoverable on contracts 6,622 11,894Other debtors 261 364Prepayments 1,582 1,055 24,393 26,783 5. PROVISIONS 2007 2006 £000 £000 Contingent cash consideration 7,381 7,595Contingent share consideration - 4,714 7,381 12,309Less: due within one year (6,956) (2,991) 425 9,318 6. FINANCIAL LIABILITIES 2007 2006Current £000 £000 Bank overdrafts 3,465 6,467Bank loans 1,875 7,868Obligations under finance leases 188 272Loan notes 235 2,323Interest rate swap 4 - 5,767 16,930 2007 2006Non current £000 £000 Bank overdrafts - -Bank loans 14,475 1,350Obligations under finance leases 54 194Loan notes - 235Interest rate swap 132 - 14,661 1,779 7. POST BALANCE SHEET EVENTS The following post balance sheet events have occurred since the year end. On 18th January 2008 the Company completed a fundraising of £15.1 million,before expenses by way of an open offer of up to 188,377,187 New Ordinary Sharesat a price of 8.0 pence per New Ordinary Share. The proceeds of the Open Offerof approximately £13.3 million (net of expenses) were used to satisfy thedeferred consideration payments of, in aggregate, approximately £6.2 million in2008 pursuant to variation agreements with vendors. The remainder of theproceeds are being used to repay approximately £3.0 million of the Group's termloan facilities and repay approximately £3.0 million of the Group's workingcapital facility. 8. Publication of non-statutory accounts The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2007 or 2006, but is derivedfrom those accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies and those for 2007 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under section 237(2) or (3) Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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