Embargoed until 7:00am on 20 June 2017

Aukett Swanke Group Plc

Interim results

For the six months ended 31 March 2017

Aukett Swanke Group Plc, the international practice of architects and interior design specialists and engineers, is pleased to announce its interim results for the six month period ended 31 March 2017.

Highlights

Revenues down 9% at £9.1m

Net cash at £1.56m with net funds of £594,000

Loss before tax of £358,000

Commenting on today's interim results announcement, CEO Nicholas Thompson said;

"All Group operations have worked hard to maintain revenues during the period although some markets have continued to weaken, resulting in decreased earnings. This coupled with some specific write downs offset by claim recoveries, has resulted in losses which has hampered the development of our three hub structure. We are, however, pleased to report that we have maintained our liquidity strength."

Enquiries

Aukett Swanke Group Plc - 020 7843 3000

Nicholas Thompson, Chief Executive Officer

Beverley Wright, Chief Financial Officer

finnCap - 020 7220 0500

Corporate Finance: Julian Blunt/ Corporate Broking:  Alice Lane

Investor/Media enquiries

Ben Alexander - 07926 054111

Interim statement

Overview

As previously announced, the results for the six months to 31 March show a decline in revenues and a loss for the period. Revenues are 9% lower at £9.1m (2016: £10.0m) and the loss after tax is £345,000 (2016: profit £466,000) which has been offset by a settlement claim in respect of a recent acquisition in the sum of £572,000.

The United Arab Emirates ("UAE") saw an increase in revenues of 44% but this was offset by the decline in United Kingdom ("UK") revenues of 32%, with our wholly owned Continental Europe offices' revenues continuing to fall. Whilst the results are well below recent performances the Group has continued to reshape the structure of its operations and has expanded its Middle East business, so that, as intended, our operations are now more evenly balanced as we move forward. This balance is a key strategic priority in order to provide the Group with some resilience to the cyclical markets in which we operate.

We are pleased to report that cash has held up well since the year end and stands at £1.56m (30 September 2016: £1.84m). The Group has conserved its cash position during the period to assist in mitigating the impact of the losses; to cover licensing requirements in the UAE and to maintain liquidity strength for the future. Net funds remain positive at £594,000 (30 September 2016: £790,000) and we have continued to reduce our long term debt (drawn down on the acquisition of Shankland Cox Limited ('SCL')), which is denominated in US dollars.

United Kingdom

Revenues at £4.6m (2016: £6.7m) are disappointing and reflect a lack of new market instructions as historic projects came to a conclusion in the period.

During the first six month period and over the remainder of the year we have some 20 major project completions in London and the UK regions. These include: three offices in Cambridge with the Bradfield Centre, Biomed Realty at Granta Park and Radio House; two major refurbishments in the West End - Verde for Tishman Speyer and the Adelphi Building phase 3 on The Strand for Blackstone; and a number of Veretec (our specialist executive delivery operation) projects including a retail store in Durham, head office buildings on Bishopsgate and Liverpool Street, monitoring at Derwent's White Collar Factory at Old Street and a residential scheme at Earls Court. Around half that number of projects will continue onto site into 2018, reflecting the decline in UK construction output statistics, before new instructions begin to contribute.

Given the comparatively high fixed operating costs and the need to retain core staff, cost reductions could not exactly match falls in revenue, although some £1.4m of savings was achieved. The result was a loss of £211,000 (2016: profit £498,000). Cost reduction remains a focus and following the half year the operation has surrendered part of its London leased property portfolio providing a future net cost saving of £230,000 per annum.

With the construction market having previously peaked we do not expect to see higher volumes in the immediate future. However recent enquiries both in London and the UK regions provide some confidence that that the general development market has adapted to a post Brexit future.

Middle East - United Arab Emirates

The UAE market is relatively subdued at present but is expected to grow in 2018 as it adapts to reduced oil prices and a more mature market model. Our current scale of operation remains competitive in this restricted environment and work is still buoyant in sectors where a large proportion of commissions reflect midsized projects in the post contract phase. Our revenues continued to climb following the benefit of a full half year contribution from SCL and now stand at £4.2m (2016: £2.9m) for the six months. However only a small profit of £121,000 (2016: £243,000) was generated.  John R Harris & Partners ('JRHP') performed satisfactorily and contributed to the result as did our original Aukett Fitzroy International ('AFRI') operation.

Following its acquisition SCL had been the subject of a downsizing and restructuring exercise across two of its offices which resulted in additional costs and some additional bad debt provisions. This is an ongoing process which will be concluded principally during the fourth quarter. We then expect growth and anticipate that JRHP will also better its performance in the second half additionally supported in part by project income initially generated by AFRI. With SCL now emerging from post acquisition issues, we will be integrating all 3 businesses under the Aukett Swanke brand in order to gain the full benefit of the enlarged platform that we now have.

Continental Europe

Our business in this geography comprises a mixture of wholly owned subsidiaries, joint ventures and an associate. The geography has endured a wide range of economic and geopolitical conditions ranging from the continued strength of the mature market in Germany, relative stability in Russia to considerable uncertainty in Turkey following the attempted coup, the ongoing State of Emergency and  the recent referendum.

As previously reported the half year result has fallen due to losses in Russia and Turkey along with a lower contribution from Germany.

Wholly owned operations

Russia and Turkey reported losses. Russia has been downsized to a minimal level and Turkey suffered from a reversal of project income following the sale of a site in the pre referendum period. As such revenues fell to £331,000 (2016: £436,000)

Project highlights for the period include:

·      The first phase of our three residential apartment towers totalling 42,000 sqm for Comstrin in Perm, Siberia and the 38,000 sqm luxury Monet apartment tower in Moscow are nearly complete.

·      Our Japan Tobacco International fit out at the Moscow City development won the Best Office Awards for 2016 at both the Office Next and MCFO awards.

·      The Istanbul office completed over 150,000 sqm of space as a part of the Nidakule Atasehir Kuzey and Guney Office Campus development.

·      The Cengiz Konya office headquarters' project also completed during this year together with over 24 floors of accommodation for Allianz in their Allianz Tower in Izmir.

Joint ventures and associates

·      Completed projects include the interior design of the new Microsoft digital workplace offices in Zurich and Geneva, and nearing completion in August 2017 the 130 room luxury Fontenay Hotel in Hamburg.

·      Projects in progress include the 100,000 sqm Mercedes Platz commercial office, retail and leisure centre for Anschutz through Hochtief in Berlin; two interior design projects of 65,000 sqm and 17,000 sqm for a major insurance company on a campus in Cologne and a high rise building in Frankfurt am Main; a further 20,000 sqm laboratory and R&D centre for Agilent Technologies in Waldbronn for Hochtief; and ongoing tenant fit out projects for Blackstone at the Messe Turm in Frankfurt.

·      Our Prague office saw the completion of a significant phase of the production facility and HQ building for the SAB Miller brewery and a 3,000 sqm fit out for Rockwell Automation.

All three of Berlin, Frankfurt and Prague were profitable. Berlin was less so than in 2016 due to a major project not being formally signed by the half year end. Frankfurt has benefitted from a number of larger and continuing instructions from Deutsche Bank and Hochtief. Prague has assisted other offices in the Group to augment its more limited local market opportunities.

Due to a combination of reduced management time and mitigation of economic and / or geopolitical factors which cannot be avoided, a joint venture is our preferred model in Continental Europe. As such we are progressing a strategy of implementing this for the geography as a whole.

Group costs 

These were held during the period at £95,000 (2016: £70,000).

Prospects

With many of our operations in a loss situation we will continue to focus on cost savings in the second half whilst ensuring that we retain the core skills required to deliver our services to clients in order to return the Group to profitability.

Whilst we believe we have reached the bottom of the cycle in the UK, there is no immediate sign of a strong sustainable recovery in this market. We feel more confident about the Brexit impact having been weathered. However, with the recent UK general election result creating a hung parliament it is more likely that this business may now face a longer period of uncertainty than was hitherto expected. The UAE still represents our best opportunity for profitable growth in the second half and we will focus on that. Continental Europe should return a positive result in the second half. Overall we currently foresee a loss situation for the year pending a return to positive results for our Group.

We recognise that our business is sensitive to market changes and that minor setbacks can have a disproportionate impact on performance in the short term. However that is the norm for operations such as ours in cyclical industries.  With that in mind we have pursued our strategy of balancing the Group's businesses economically as well as politically. Evidencing this, our total revenues (including 100% of the joint ventures) which are now predominantly non sterling denominated, demonstrate our platform of three broadly equal sized operations. The balance that this brings is key to our medium term outlook.

Although cash remains strong the Board has decided it will continue to review the decision to recommend a dividend until there is a return to profitability.

Finally, may I add a comment on a post period event that, at the Architect's Journal Annual Awards 2017 held only last week, Aukett Swanke's "Veretec" were again named as 'Executive Architect of the Year'.  The accolade of our peer group is a demonstration of the excellent work and dedication of our staff and underpins our confidence in the future.  It reinforces our commitment to keeping our teams together and maintaining our levels of service.

Nicholas Thompson

Chief Executive Officer

19 June 2017

Consolidated income statement 

For the six months ended 31 March 2017

Consolidated statement of comprehensive income

For the six months ended 31 March 2017