Announcement PDF RNS Number : 4984P Aukett Swanke Group PLC 18 February 2021 Aukett Swanke Group Plc Announcement of final audited results for the year ended 30 September 2020 Announcement of final audited results for the year ended 30 September 2020 Aukett Swanke Group plc ("the Group"), the international group of architects, interior designers and engineers announces its final audited results for the year ended 30 September 2020. Highlights · United Kingdom and Middle East results down but Continental Europe up significantly. · Revenues - surge in coronavirus cases led to sharp decline in revenues in second half (April to September) down 42% (H2 2020: £4.79m, H2 2019: £8.19m) · Profit before tax - focus on costs contained loss before tax to a creditable £46k (2019: profit £292k) · Cash - cash preserved through cost focus above and restructuring of loan payments, with net funds of £837k at 30 September 2020 (2019: £820k) · Structural reorganisation through remote working and reduced number of Middle East licences and offices Nicholas Thompson, CEO said "The past year has confronted us with a succession of constantly changing problems as Governments around the world have moved the goal posts according to fluctuating circumstances, and responses of clients have similarly varied. We have continued our efforts to contain costs whenever and wherever possible whilst maintaining the quality of service our clients expect. The net result is considerably better than one might have expected. The current year started with revenues below our expectations due to further project delays and below average enquiries, accordingly we expect to make a loss in H1. However, increased levels of enquiries and notable project wins since December have improved our order book and the potential for recovery in H2." Enquiries Aukett Swanke Group Plc - 020 7843 3000 · Nicholas Thompson, Chief Executive Officer · Antony Barkwith, Group Finance Director Arden Partners Plc - 020 7614 5900 · Corporate Finance: John Llewellyn-Lloyd / Benjamin Cryer Investor / Media Enquiries - 07979 604687 · Chris Steele 17 February 2021 Extract from the Chairman's Statement This is my second year as Non-Executive Chairman, and there is no escaping the fact that it has been dominated by the worldwide impact of the pandemic that evidently has affected every family, every economy and every business in the world. I would like to express my personal gratitude to all of our management and staff for the considerable efforts that they have made to minimise the impact of this pandemic and to explore more creative and imaginative ways to maintain and, where possible, expand our range of services. As a global business, we are well accustomed to dealing with circumstances that vary from country to country and region to region; governments have reacted to this global crisis very differently, with policies often changing from day to day. Our Directors and staff have worked tirelessly to manage all of these factors and they have swiftly adapted to working remotely without losing their invaluable team spirit. Given these multiple challenges, I am delighted that the outcome this year is genuinely creditable and better than anyone could reasonably have expected: a loss before tax of only £46k (2019: profit £292k). Looking forward to a recovery from this pandemic governments everywhere will be striving to see their economies prosper once again. With our projects continuing and new commissions being added we remain focused on maintaining our quality of service by adapting to changing circumstances and until a more sustained market is evident. I fully expect the Group to continue to build on the progress made in the last financial year as the impact of pandemic starts to recede and that continued improvement to be reflected in the Group's valuation. John Bullough, who has been an active non-executive director for 6 years, has decided to retire from the board at the conclusion of the Annual General Meeting. I would like to take this opportunity to thank John for his many years of hard work and commitment and wise counsel. Therefore, in spite of the current market conditions, I look forward to the remainder of 2021 and beyond with great confidence. Raúl Curiel Chairman 17 February 2021 Extracts from chief executive's statement, strategic and directors' reports Navigating our way through a pandemic is not a common occurrence in the commercial world and so we, like every other business, had to quickly adapt our organisation and services provision to a set of unknown factors with uncertain consequences. It has been no mean feat to stem the potential losses that we faced in the second half and the outcome of a loss just below breakeven at £46k for the year is a quite remarkable result under these circumstances. Both I and my co-Directors are grateful to all those in the Group who have contributed to this outcome. At the interim stage we had achieved a small but important continuation to our profit recovery. This recovery was left very much in doubt as the impact of the COVID-19 worldwide pandemic took hold. We said at that time that COVID-19 created an uncertain future and that we would adapt our operations as best we could. This has largely been achieved through remote working and reduced office occupancy levels where appropriate but, with the increasing number of project delays through specific gateways (planning to technical drawings and onto construction) and the unpredictable nature of localised lockdowns and new regulations, some disruption has, predictably, occurred to the decision-making process required to transition across these gateways. Because of this we were unable to match the full reduction in the revenue loss arising from such delays in the second half with equivalent cost reductions. This final result achieved is even more satisfying given this unprecedented background. Group Performance This year is a tale of two halves. The first half saw a growing revenue line and a return to profitability. This follows on from 2019 where the Group returned a profit in the second half. However, having initially contained the impact of the COVID-19 pandemic in the first half of our year, successive months in H2 2020 saw a steady deterioration in top line revenues with a consequent impact on profit. Revenues for the year as a whole fell by £3.32m (21%) to £12.17m (2019: £15.49m) which was entirely in the second half. Our short-term cost controls and expense avoidance managed to mitigate this to a marginal loss for the year at £46k (2019: profit £292k). The UK operation continued to produce a profit before the allocation of central costs, and the Middle East incurred a small loss, whereas our Continental Europe operations went from strength to strength. Both the UK and Middle East were impacted by delays through decision gateways whereas the Continental European operations did not see such immediate impasses to the progress in their projects. On a brighter note we managed our cash balances well with group wide cash balances at the year-end standing at £992k (2019: £1,145k) After deducting the final balance due on the Group's long term loan, net funds stood at £837k (2019: £820k). This provides us with some comfort in the months ahead given the apparent longevity of the COVID-19 pandemic, at least until the current vaccination programme successfully takes hold. United Kingdom Second half revenues stalled as client gateways became more difficult to cross, resulting in the small increase in revenues seen in H1 being reversed in H2. Revenue ended the year at £7.11m (2019: £7.45m) and loss before tax (including management charges) at £282k (2019: £89k), whilst profit before group management charge fell to a respectable £214k (2019: £451k) given the impact of wider events. Although the pandemic had a negative effect on the transition through project gateways there were many projects where considerable progress was made and we are able to report no cancellations due to COVID-19. Particular project highlights during the year have been: Birmingham City University's STEAMhouse at East Side Locks and our £60m EQ head quarter building in Bristol, both of which are now on site; site progress with the Asticus Building in London's West End; a new office planning application comprising 290,000sqft in Wimbledon for M&G and Bell Hammer, following a competition win earlier in the year; and a number of hybrid scheme rollouts including the formal position of Hybrid Architect at Highams Park in London for 400 residential units and 85,000sqft of industrial space. We have also seen an increase in the number of Life Sciences buildings. STEAMhouse, EQ and Asticus also include our workplace consultancy services. In addition, we won our first overseas hybrid scheme for a major oil and gas company in Moscow's Skolkovo development area. In our specialised delivery group, Veretec, it is pleasing to report that there were no project cancellations. However, there were a number of temporary suspensions, together with construction delays for projects on site to establish new COVID-19 social distancing and hygiene solutions following the lockdown in March 2020. We only saw new onsite instructions starting to come through towards the end of the financial year when the lockdown restrictions were lifted, which will benefit 2021 but, obviously, not the current result. Two larger commissions have been contracted during H1. Key projects around London include Featherstone Building, Old Street; Nova East, Victoria; 1 Museum Street, Holborn; Hawley Wharf, Camden and Carey Street Spitalfields where we were the executive delivery architect, together with ongoing technical design audits. Although we did not experience any major losses in operational efficiency it became clear, after a few months of remote working, that some project team work would benefit from personal contact (such as design reviews and the detailed review of drawings) and as a result the office was re-opened, on a voluntary attendance basis, in July as restrictions were lifted. However, new restrictions have been introduced since the year end that essentially retain the remote working requirement for the time being. United Arab Emirates Whilst the statistics on COVID-19 were less in the UAE than in say, Europe, the restrictions imposed were much harsher. Initially this had a negative effect on the design side of the business with virtually all jobs stalling or being terminated and no news ones being evident in our marketplace. Construction sites remained open but any positive COVID-19 test on site staff resulted in immediate closure and a discontinuous service profile. As a result, revenue fell sharply in H2 to end the year on at £4.82m (2019: £7.52m) a year on year fall of 36%. Whilst management implemented a combination of short-term cost reductions primarily through payroll and permanent operational savings which are further described in the financial review, this effectively eliminated any possibility of a profit, hence a final loss of just £23k (2019: profit £525k) at pre management charge level is a good result. The team in the UAE retain a strong local market position with a number of clients where their services are regularly sought. This has led to the current commissions from T&T (as project manager) Du telecom; Etisalat with their retail and stores and business centres; WSP on a number of detailed design and site based projects; DCT in Al Ain with the historic building stock such as Al Ain Museum and Sheikh Khalifa House. On a more individual project basis we have continued to receive additional instructions on the landmark Atlantis, The Palm hotel refurbishment, the Expo 2020 site and Imkan and Miral in Abu Dhabi, as well as from high net worth individuals in the region. We started to see new enquiries coming through in the latter months of the year, with some larger projects being evident. However, until the vaccine is widely available with more positive sentiment being evident we see the market as generally flat. Continental Europe This hub comprises one wholly owned subsidiary, two joint ventures and an associate plus a former wholly owned subsidiary in Russia operating under a licensee arrangement. Revenue and costs for the partly-owned entities are not included in revenue or costs in the Consolidated Income Statement; in line with the use of the equity method of accounting only the after-tax result is included in Group income statement. The hub has been by far the best performing hub this year with profits of £657k (2019: £495k). The main contributor was again Berlin which seemingly shrugged off the pandemic as did its sister company in Frankfurt. The smaller operations in Istanbul and Prague both had positive years with Prague having its best year for over ten years. Projects this year by the Berlin office included the completion of the Haus an der Dahme apartment building, the design start for the refurbishment of the Bahn Tower at the Sony Centre and the start on site of the Edge East Side tower, set to be the tallest building in Berlin, pre-let to Amazon. In Frankfurt completions include the Sparda Bank façade renovation and fit-outs for Allergan and a leading international technology company, the latter in the iconic Messeturm building. Projects soon to complete include office fit-outs for Commerzbank on their Cielo Campus in collaboration with the Berlin office. Prague project completions include the fit-out of Swarco's offices, the design stages for the WPP Bubenska and Exxon Mobil HQ fit-out projects and the ongoing site stages for the refurbishment of the Trikaya OC Repy shopping centre and DB Schenker Logistics building extension. Turkey had a positive year and the resilience of the corporate sector precipitated new fitout projects for LC Waikiki and Google, and the completion of an architectural refurbishment project for the Turkish Chamber of Commerce TUSIAD Enka in Istanbul. Several follow-on projects to create COVID-19 safe working environments were also completed for Google and Allianz in Istanbul and VM Ware in Bulgaria. Architectural designs were completed for new housing and villa types in Erbil, Iraq, due to start on site in 2021. The Moscow office completed several concept designs for mixed use projects in Moscow, Tumen and the Krasnodar region, and collaborated with the London studio on a significant education centre and a private residence project in the Moscow region. The Moscow operation's first year as a licensee business has made a positive contribution to Group revenues. Group Costs Central expenditure continued to be kept under tight control during the second half and reduced through salary savings, travel avoidance and minimising overhead spending. This was aided by the reversal of a significant accrual that had been provided for a significant one-off event but having been evaluated as at the year end, is no longer considered sufficiently probable to warrant retention in the books. This reduced net Group Costs by 24% or £285k against the prior period spend of £1.18m. Going Concern As noted at the beginning of this statement, COVID-19 has created a level of uncertainty for the future. With project delays and disruption continuing after the year end and into 2021, we expect increased challenges on our working capital position over the next 12 months. We begin each financial year needing to win new work and this next year is no different. We typically bid for a large number of projects and have an enviable and consistent track record of winning more than our fair share. The position is no different in the current financial year except that the impact of COVID-19 makes it more difficult to predict the number of projects sent out to tender and more importantly the timings on the projects we win. To date we have managed this risk by controlling costs and remaining close to our clients. The board has a reasonable expectation that the Group will have adequate resources to operate for the foreseeable future, however we face the usual uncertainties that occur in our market regarding the future levels and timing of work that are made by client decisions which are beyond our control. The going concern statement in the Directors report and corresponding section in note 1 provide a summary of the assessments made by the directors to establish the financial risk to the Group over the next 12 months. Summary and outlook 2020 could have been so much better. We had every expectation of a return to profit from prior year losses, over the full year, but only managed this for the first six months. The loss in the second half is a direct result of COVID-19 issues. The 2020-21 financial year has started with revenues below our expectations due to further project delays through client gateway decisions and below average enquiries, accordingly we expect to make a loss in the first half. However, increased levels of enquiries and notable project wins since December have improved our order book and the potential for recovery in the second half. Strategy We are a professional services group that principally provides architectural design services along with specialisms in master planning, interior design, executive architecture and associated engineering services. Our strategic objective is to provide a range of high-quality design orientated solutions to our clients that allow us to create shareholder value over the longer term and at the same time provides a pleasant and rewarding working environment for our staff. In addition, we undertake to deliver projects throughout the technical drawing stages and, onto site and up to practical completion and handover. Our markets are subject to cyclical and other economic and political influences in the markets in which we operate, which gives rise to peaks and troughs in our financial performance. Management is cognisant that our business model needs to reflect these variable factors in both our decision making and expectation of future performance. The recent pandemic, which affected all our operations, is an event that has required specific responses and creates an uncertain outlook in terms of both continuity of project instructions and new business activity. However, the business and the component parts have been through many sustained crises before and whilst losses have been incurred the business has been able to respond positively by adopting new business models along with re-structuring the operational costs. Business Model We operate through a 'three hub' structure covering: the United Kingdom with our office in London; the Middle East with offices in Abu Dhabi, Al Ain, and Dubai; and Continental Europe with four offices in Berlin, Frankfurt, Istanbul, and Prague; along with a Licensee operation in Moscow. This model has remained unchanged for several years. The presentation of the results of our operations is at local, underlying, trading level and before the allocation of central costs in order to provide a level playing field in terms of comparable performance across the hubs as many only incur a small management charge. The United Kingdom hub comprises three principal service offers: comprehensive architectural design including master planning, interior design and fit-out capability and an executive architectural delivery service operating under the 'Veretec' brand. Our Middle East business in the United Arab Emirates ("UAE") comprises several registered companies which are now marketed under a common brand 'Aukett Swanke'. The service offers within the region include architectural and interior design, post contract delivery services including architect of record and engineering design and site services. Increasingly these separate activities are being combined as a single multidisciplinary service as demanded by this market and we are now better placed to offer such a 'one-stop shop' service. Our Continental European operations provide services offered that are consistent with the other two hubs. Entities within this hub can provide additional drawing services to the larger operations in order to optimise both local and group wide resources. Management of the operations is delegated to locally based Directors who are, in most instances, indigenous to the country with oversight on a regular basis by the Group's executive management. As a Group we now have a total average full time equivalent ("FTE") staff contingent of 291 (2019: 305) throughout our organisation which includes both wholly owned and joint venture operations. We are ranked by professional staff in the 2021 World Architecture 100 at number 54= (2019: 2020 WA100 number 63=). As stated above the pandemic created by COVID-19 has required us to adopt a series of measures to maintain our business envelope which we have achieved through: remote and home working; voluntary attendance in the office; communication through a series of media tools; investing in Office 365, all of which has been achieved in each hub. Nicholas Thompson Chief Executive Officer Antony Barkwith Group Finance Director 17 February 2021 Consolidated income statement For the year ended 30 September 2020 Note Revenue 2 2020 £'000 12,166 Sub consultant costs Revenue less sub consultant costs 2 (830) 11,336 (1,781) 13,711 Personnel related costs Property related costs Other operating expenses Other operating income Operating loss (9,600) (1,295) (1,324) 455 (428) (11,294) (1,542) (1,294) 371 (48) Finance costs Loss after finance costs (112) (540) (42) (90) Gain on disposal of subsidiary Share of results of associate and joint ventures (Loss) / profit before tax 52 442 (46) 382 292 Tax credit 26 40 (20) 332 5 (25) (20) 346 (14) 332 (Loss) / profit for the year (Loss) / profit attributable to: Owners of Aukett Swanke Group Plc Non-controlling interests 2 2019 £'000 15,492 Basic and diluted earnings per share for profit attributable to the ordinary equity holders of the Company: From continuing operations Total profit per share 3 0.00p 0.00p 0.21p 0.21p Consolidated statement of comprehensive income For the year ended 30 September 2020 (Loss) / profit for the year 2020 £'000 (20) 2019 £'000 332 Currency translation differences Other comprehensive (loss)/profit for the year (38) (38) 46 46 Total comprehensive (loss)/profit for the year (58) 378 Total comprehensive (loss)/profit for the year is attributable to: Owners of Aukett Swanke Group Plc Non-controlling interests (33) (25) 392 (14) (58) 378 2020 £'000 2019 £'000 2,392 653 272 2,929 927 317 214 7,704 2,412 762 590 711 277 193 4,945 Consolidated statement of financial position At 30 September 2020 Note Non current assets Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Investment in associate Investments in joint ventures Deferred tax Total non current assets Current assets 6 7 8 Trade and other receivables Contract assets Cash at bank and in hand Total current assets 3,527 628 992 5,147 4,904 663 1,145 6,712 Total assets 12,851 11,657 Current liabilities Trade and other payables Contract liabilities Borrowings Lease liabilities Total current liabilities (3,333) (606) (155) (539) (4,633) (4,528) (836) (331) (5,695) Non current liabilities Borrowings Lease liabilities Deferred tax Provisions Total non current liabilities (2,805) (47) (992) (3,844) (272) (53) (1,123) (1,448) Total liabilities (8,477) (7,143) Net assets 4,374 4,514 1,652 1,176 (16) 41 1,494 4,347 1,652 1,176 22 37 1,494 4,381 27 4,374 133 4,514 Note 2020 £'000 2019 £'000 4 151 (9) 647 (42) Capital and reserves Share capital Merger reserve Foreign currency translation reserve Retained earnings Other distributable reserve Total equity attributable to equity holders of the Company 9 Non-controlling interests Total equity Consolidated statement of cash flows For the year ended 30 September 2020 Cash flows from operating activities Cash generated from operations Interest paid Income taxes received/(paid) Net cash inflow from operating activities 218 360 (1) 604 Cash flows from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Dividends received Net cash (expended on)/received in investing activities (245) 16 211 (18) (90) 2 186 98 Net cash inflow before financing activities 342 702 Cash flows from financing activities Payments of lease liabilities Repayment of bank loans Net cash outflow from financing activities (314) (154) (468) (36) (250) (286) Net change in cash and cash equivalents (126) 416 Cash and cash equivalents at start of year Currency translation differences Cash and cash equivalents at end of year 1,145 (27) 992 710 19 1,145 Cash and cash equivalents are comprised of: Cash at bank and in hand Cash and cash equivalents at end of year 992 992 1,145 1,145 Consolidated statement of changes in equity For the year ended 30 September 2020 Share capital Retained earnings Other distributable reserve Merger reserve Total Noncontrolling interests Total equity £'000 1,652 Foreign currency translation reserve £'000 (24) £'000 (309) £'000 1,494 £'000 1,176 £'000 3,989 £'000 147 £'000 4,136 Profit for the year Other comprehensive income - 46 346 - - - 346 46 (14) - 332 46 Total comprehensive income - 46 346 - - 392 (14) 378 Balance at 30 September 2019 as originally presented 1,652 22 37 1,494 1,176 4,381 133 4,514 Effect of adoption of - - (1) - - (1) - (1) At 30 September 2018 IFRS16 Restated total equity at 1 October 2019 1,652 22 36 1,494 1,176 4,380 133 4,513 Profit/(loss) for the year Acquisition of minority interest Other comprehensive income Total comprehensive income - - 5 - - 5 (25) (20) - - - - - - (81) (81) - (38) - - - (38) - (38) - (38) 5 - - (33) (106) (139) At 30 September 2020 1,652 (16) 41 1,494 1,176 4,347 27 4,374 The other distributable reserve was created in September 2007 during a court and shareholder approved process to reduce the capital of the Company. The merger reserve was created through a business combination in December 2013 representing the issue of 19,594,959 new ordinary shares at a price of 7.00 pence per share. Notes to the audited final results 1 Basis of preparation The financial statements for the Group and parent have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. Going concern The Group currently meets its day to day working capital requirements through its cash balances. It maintains an overdraft facility of £500k for additional financial flexibility and foreign currency hedging purposes. This overdraft facility is renewed annually and was renewed for a further 12 months in November 2020, with a review in May 2021. The processes the directors have undertaken, and the reasons for the conclusions they have reached, regarding the applicability of a going concern basis are explained below. In undertaking their assessment the directors have followed the guidance issued in March 2020 by the Financial Reporting Council, "FRC guidance for companies and auditors during the Covid-19 crisis". Forecasts for the Group have been prepared on a monthly basis which comprise detailed income statements, statements of financial position and cash flow statements for each of the Group's operations, as well as an assessment of covenant tests. As the COVID-19 pandemic developed through 2020 and into 2021 it affected all of the territories in which the Group operates to varying extents and other countries in which the Group has clients and projects. In March 2020 the Group moved to remote working without any significant disruption, ensuring that staff could continue to work efficiently and service active projects. With the economic uncertainty that the pandemic presents, the Groups' operational management took preventative steps including: implementing pay reductions in the UK and UAE operations, and the central administrative operation of varying percentages and durations; furloughing permanent staff; releasing temporary or freelance staff; and encouraging unpaid leave and part time working - all of which provided management with a range of tools that can be implemented at short notice and with immediate effect. The Group has also sought to remove non-essential or deferrable expenditure. Entities deferred operational cash flows where possible to provide short term support to the Groups' working capital and therefore avoid any new external borrowings and limited use of existing facilities. However, those deferrals unwind in 2021, and haven't as yet been replaced with similar assistance. The Groups' principal banker is Coutts & Co with whom the Group has an excellent longterm relationship extending through previous business cycles. Coutts & Co has again renewed the Group's overdraft facility, and we have no reason not to expect that the overdraft facility would not be renewed again in November 2021. Due to the uncertainty in forecasting profits during the COVID-19 pandemic Coutts & Co have agreed to waive the debt servicing covenant for the year ended 30 September 2020 and to remove the debt servicing covenant from the facility agreement for the year ending 30 September 2021 and as such if this covenant is reintroduced in the November 2021 renewal this covenant would next be due for assessment following the year ending 30 September 2022 (assessed on completion of the annual audit, anticipated in January 2023). During the year Coutts & Co supportively agreed to extend the terms of repayment of the outstanding US Dollar loan. This loan was originally scheduled to be cleared in November 2020, but was extended to July 2021. As at 17 February 2021 the balance on this