Announcement PDF RNS Number : 6085I Aukett Swanke Group PLC 28 March 2024 Aukett Swanke Group Plc ("Aukett Swanke", the "Company", or, together with its subsidiaries, the "Group") Final audited results for the year ended 30 September 2023 Notice of Annual General Meeting ("AGM") Aukett Swanke (AIM: AUK), the group providing Smart Buildings, Architectural and Design Services, announces its final audited results for the year ended 30 September 2023 and Notice of AGM. Highlights Period under review · Revenue less sub consultant costs (from continuing operations) up 101% to £14.103m (2022: £7.127m) · Return to a trading profit before tax (from continuing operations), of £28k (2022: loss £72k) · Post tax profit £92k (2022: loss £2.282m) · Earnings per share 0.04p (2022: loss per share 1.38p) · Net assets up 741% to £3.373m (2022: £401k) primarily due to the acquisition of Torpedo Factory Group during the year Strategic · One year into the new twin architecture / smart buildings strategy · New board in place to take the Group forward · Significant increase in employee shareholders · Management and staff committed to greater share ownership through new Share Schemes Architecture · Markets reflect the uncertainty in the UK economy · However, both core UK architecture business performed better than the previous year · Architect capacity increased with targeted recruitment - now 102 UK architects · International architect network restructured to focus on profitable participants · Successful German investments continue to be high yielding Smart buildings · 4 Smart Buildings acquisitions completed in the past 12 months · Group now has extensive Smart Building Consultancy and Master Systems Integration experience and · Developed software products acquired with small but established client bases · Software revenues expected to grow strongly expertise Current Year · Current year expected to repeat last year's pattern of a first half loss and second half profit · Cash at close of business 26 March 2024 £659k plus available overdraft of £250k · Current cash balance includes £275,000 from share subscription announced 21 March 2024, with a further £150,000 anticipated from directors and management following announcement of these results · Cash position continues to be carefully monitored · Proposed sale of surplus freehold property is slower than hoped but expected to eliminate net debt Clive Carver, Chairman, said: "The management team have made a strong start in implementing our twin strategy approach of developing both the core architecture businesses and in building a presence in the Smart Buildings space." Nick Clark, Chief Executive, said: "The board has recognised the need for a new approach. We plan to build on the four completed Smart Buildings acquisitions to take advantage of what we believe is a growing need to automate and integrate the systems of new and existing buildings. This area is not well served presently and we see a sizable market opportunity. Our recent acquisitions give us the expertise to capitalise on that opportunity. Success in this area will significantly extend the period of a building's lifetime during which the Group earns revenues, without the need to continually increase costs as a growing component of the Group's revenue is earned from software licences and associated smart building services." Copies of the 2023 audited accounts and Notice of AGM will be available today on the investor section of the Company's website (www.aukettswankeplc.com) and are being posted to shareholders who have elected to receive a printed version imminently. The AGM will be held at the Company's registered office, 10 Bonhill Street, London EC2A 4PE, on Friday 26 April 2024 at 10:00am. Contacts Aukett Swanke Group Plc +44 (0) 20 7843 3000 Clive Carver, Chairman Nick Clark, Chief Executive Strand Hanson Limited, Financial and Nominated Adviser +44 (0) 20 7409 3494 Richard Johnson, James Bellman Zeus Capital Limited, Broker +44 (0) 20 3829 5000 Simon Johnson, Louisa Waddell Investor/Media + 44 (0) 7979 604 687 Chris Steele About Aukett Swanke Group plc Aukett Swanke Group has a strong foundation in architectural services and is on a transformative journey to become a London-listed provider of Smart Buildings and related services. ASG are uniquely positioned to ensure the technical systems that run modern premises are designed as an integral part of the structure, from the outset. For more information go to https://www.aukettswankeplc.com Chairman's statement Introduction It is now 12 months since we embarked on our strategy to expand both our traditional core architecture businesses and also to become a significant force in the provision of smart building services. In these financial statements we are pleased to set out our progress. Strategy Architecture Aukett Swanke and Veretec are well respected names in their respective architectural design and executive architecture markets. We are looking to grow each of these businesses both organically through the recruitment of additional architects and by the acquisition of existing architecture practices. In particular we are looking to use our status as the UK's only listed architecture group to provide owners of suitable architecture practices with the opportunity to exit. Smart buildings We are also looking to become a leading provider of smart buildings services. Success here would significantly extend the period during which the Group generates income over the life of a building without the upfront investment required in staff and support services that are required in our traditional architecture businesses. In particular we are looking to introduce SaaS revenues from the provision of services delivered by smart systems rather than just billing for staff on an hourly or project rate. In the past 12 months as set out in greater detail in the Chief Executive's report we have completed four smart buildings related acquisitions, the most recent of which, completed in March 2024, adds 13 staff and developed software providing SaaS revenues. We have also joined a consortium led by a university spin-out company alongside industrial partners and a number of UK university research teams, to work on an Innovate UK funded project developing the use of Responsible Artificial Intelligence (AI) in building energy management. One year in and it is clear to us from the reaction from our market that we are on the right track in seeking to expand the use of technology to the delivery of building related services. Corporate actions Over the past two years we have also taken steps to increase the Group's profitability. Long standing investments in overseas offices in the Middle East, Turkey and Prague where we did not have the critical mass to make a difference, have been sold or closed. We have also been able to cease all links with our former Russian activities, which were sold in 2019. Our international investments are now limited to the Berlin and Frankfurt offices which continue to thrive. Board appointments Over the past 12 months we have put in place a board to take the Group forward to its next stage. Management team. Nick Clark, who founded Torpedo Factory Group Limited ("TFG") acquired in March 2023, was appointed Chief Executive in April 2023. Freddie Jenner, who was the Finance Director at TFG, was appointed Group Chief Operating Officer in June 2023. Jason Brameld, Technical Director at TFG, serves as the Group's Chief Technical Officer in a non-board role. Nick, Freddie and Jason join Antony Barkwith, the Group's long standing Group Finance Director, to form the core senior executive team. Non-executive directors In April 2023 Tandeep Minhas was appointed to the board. She is a vastly experienced corporate lawyer, being head of corporate finance at Taylor Wessing. I am also pleased to report that Robert Fry, a noted architect and a long standing executive director who served as Interim CEO until Nick Clark's appointment when he became Deputy Chairman has agreed to become a non-executive director following the completion of the 2024 AGM. Trading As set out more fully in the Chief Executive's report and the Financial Review, the Group, for the year ended 30 September 2023, before exceptional items returned to an overall profit with each of the continuing business units making a contribution to central costs. Stock Market conditions As shareholders will be well aware, for some time now the market in smaller and growth companies has failed to operate at anywhere near the levels seen in previous periods with reduced liquidity generally, evidenced by low company valuations and an absence of new IPOs. While we cannot choose the market conditions in which we seek to grow the Group's value we do recognise that at the current share price meaningful dilution to finance acquisitions would only be justifiable for exceptional opportunities such as the Vanti acquisition completed in March 2024. Groupwide share schemes Shortly after the year end, the Group introduced a number of innovative employee share and option schemes designed to encourage all staff to become shareholders. Interest from staff has been encouraging with approximately 40% now signed up to make regular share purchases. Outlook The accompanying Chief Executive's report and financial review provide details on trading in the period under review and subsequently. While the market for our traditional architecture businesses inevitably mirrors the uncertain UK economy with potential financially related pauses on new developments, our leading brands and the quality of our architecture stands us in good stead for these businesses continuing to make a positive financial contribution to the Group as a whole. The market however for smart buildings services looks more promising as competition is less developed and once a building is up it needs to be managed. We look forward to updating shareholders with our progress in the coming months. Clive Carver Chairman 27 March 2024 Chief Executive's Report Introduction I became Chief Executive in April 2023 and am pleased to present my first annual report, which comes after twelve months of significant change in the scale and nature of the Group's activities, encompassing four acquisitions and two disposals. In the first six months of the period under review the Group's focus was on its core architecture businesses and completing the acquisition of Torpedo Factory Group. In the second six months and subsequently, we have been implementing our new strategy. With the new management team now firmly bedded in and four completed acquisitions we have made an encouraging start. Our plan Architecture In the UK we have two established architecture businesses, Aukett Swanke, a traditional full design business with roots going back to 1906, and Veretec, an executive architecture business working with designers from other firms. These businesses are well established in their chosen markets and our plan is to grow them organically by the recruitment of additional architects, and by acquisition. As the UK's only listed architecture group we have a unique advantage in being able to use our shares to fund the acquisition of successful architecture practices where the traditional exit for owners of selling out to the next generation typically no longer exists. Smart buildings By contrast we are a new entrant in the provision of smart building services, but acquisitions allow us to bring in new technology, proprietary software, relevant case studies and the staff whose expertise delivered those case studies. In this manner we are able to demonstrate our credentials in this new area, using the existing contacts of the architecture businesses to accelerate our progress. Our plan here is to become a leading provider of Smart Building services. Breaking this down we plan to become: · Smart Building Systems Designers · Smart Building Systems Integrators · Smart Building Systems Operators We will do this via a buy and build strategy - but having completed four acquisitions our short term focus will be getting our businesses sharing skills, resources, and technologies. We hope the stock market will reward us for progress in this area, allowing us to consider further acquisitions on better terms for our investors. Commercial rationale for Smart Buildings In contrast to a traditional architecture business, which has high fixed costs and where once the project is completed there is no further income, under a Smart Buildings business model, there is more scope for revenues that contractually recur over the lifetime of a building. Technology is used to its utmost; rapid growth is achievable without the often time consuming and expensive recruitment of additional staff; and short term fluctuations in economic activity do not dictate customer buying decisions. Smart buildings integrate advanced technologies, data analytics, and automation to create vibrant ecosystems. They optimise energy consumption, streamline operations, and personalise experiences for occupants. By leveraging the Internet of Things (IoT) and artificial intelligence (AI), smart buildings offer real-time monitoring, energy savings, improved comfort, proactive maintenance, and cost reduction. The challenge of both the architecture and system integration business models is that revenue is project based. We need to continually sell new products just to stand still and typically need to add more people and more working capital in order to grow. By contrast under a SaaS business model customers sign up for long-term contracts, and typically renew when those contracts expire. Such revenues do however take time to build - because today's order is only recognised as revenue over many years. When a SaaS business makes a new sale, however, the run rate of revenues increases. They have as a result become highly prized and valued by investors. We believe our strong architecture market presence will be a great help in building meaningful SaaS revenues from smart building software. Acquisitions Torpedo Factory Group Limited In March 2023 we acquired Torpedo Factory Group Limited ("TFG") an audio, visual and stage technology systems integrator to organisations in the UK and Europe by way of a share for share exchange, under which the shareholders of TFG were issued 110,142,286 shares then representing 40% of the enlarged Group. The enlarged Group has also issued 8,400,000 options to two TFG staff exercisable at a price of 1p per share to replace TFG options that were cancelled as part of the transaction. I know the TFG business well, having founded it in 1997, and I joined your Group's board on completion of the acquisition. TFG is a technology systems integrator and services business operating in the UK and continental Europe in two principal areas: · Intelligent Environments, which designs, installs and maintains integrated audio-visual systems for corporate and public sector clients, primarily working directly with commercial property occupiers but also with main contractors on construction fit-out projects; · Stage Technology, which creates and maintains technologically powerful systems for a wide range of performance spaces - typically theatres, and drama spaces in education settings. It also included a Live Events business, which was sold to its management, as it was not core to the new strategy. Anders + Kern U.K. Limited In July 2023 we acquired Anders + Kern U.K. Limited ("A+K"), a business that we have known for some time, from SmartSpace Software PLC for a cash consideration of approximately £515,000. A+K distributes smart workplace systems. Its revenues are principally derived from the provision of hardware, software, and installation services for room and desk booking systems, and the provision of Internet of Things ("IoT") sensors to monitor environmental and occupancy data. The data created can be analysed using Artificial Intelligence (AI) to get meaningful actionable insights to improve occupier experience within the built environment. A+K retains its status as a distributor of SpaceConnect, SmartSpace Software's workspace optimisation SaaS product. For the year ended 31 January 2023 SmartSpace reported A+K revenues of £2.09 million and a trading loss before tax of £169,000. During that period it employed an average of 11 people, though by the time of acquisition this had been reduced to 7. ecoDriver Ltd In October 2023 we acquired TR Control Solutions Limited (TRCS), a developer of energy management software and provider of energy efficiency services. On acquisition TRCS changed its name to ecoDriver Ltd ("ecoDriver"). ecoDriver's revenues are derived from the provision of its proprietary energy monitoring software, energy efficiency consultancy services, and the provision of IoT sensors, meters and other hardware to monitor environmental and energy usage data. ecoDriver operates in a high growth business segment, which we believe should grow rapidly as part of the Group, by accessing the Group's wide customer base and contacts, and utilising the Group's operational delivery capabilities. The acquisition gives us scope to develop the use of Artificial Intelligence (AI) in building management by using AI to deliver scalable decision-making around energy usage in the built environment. The consideration was £360,450, comprising the issue to the vendors of 17,800,000 shares at 1.525p per share and £89,000 in cash, half of which was paid on completion with the remaining half due 12 months later. The consideration shares are subject to a 12-month lock-in, followed by an orderly market arrangement for a further 12 months. In the few months since its acquisition ecoDriver has secured in excess of £300,000 of new orders. This is equivalent to approximately 60% of its prior year revenue and confirms our belief in its prospects as part of the wider Group. Vanti On 20 March 2024 we acquired the assets of Vanti, a widely respected smart building consultancy, master systems integrator, and smart building software developer. 13 previous Vanti staff have joined us and their client base has been hugely supportive. Vanti was previously an audio visual systems integrator and their visionary approach saw them make an early transition to the role of Master Systems Integrator ("MSI"). Their experience and their expertise will help accelerate TFG's journey, making the same transition but on a larger scale. The profits from their MSI activities were used to develop two software products. One, Kahu, is a workplace technology platform of the kind A+K distribute. The second, Smart Core, is potentially transformational for our Group. Smart Core is a Building Operating System. This controls a building's systems, and provides for the appropriate sharing of data between landlord, tenants, and users through APIs. Smart Core is in the early stages of development, but has been deployed across several buildings in a number of different countries. It is primarily used as an open source Community Edition, but an Enterprise Edition has been developed and is ready to be marketed. Smart Core can be sold either as a SaaS model, where the customer pays monthly or annually over the long term, or a Capex licence model, where a one-off licence sale is made, with a lower annual maintenance fee to cover support and upgrades. We see attractions in both areas - Capex sales lend themselves well to the existing model of procuring and delivering a new building, where a main contractor manages a sizeable capital outlay, and the building owner wants to keep a competitively low service charge. The SaaS model works well for the retrofit market (where ecoDriver specialises), and where a Building Operating System can more than pay for itself through savings from running the building better, and from improved reporting across an entire portfolio of properties, which may be running a wide variety of Building Management Systems from a number of different legacy providers. Synergies The ecoDriver software provides our architects with a solution to their client's needs. Also of note is that much of TFG Stage Technology's installed client base is in the education sector, a key target for ecoDriver's products. The Vanti acquisition multiplies the number of synergies. ecoDriver can potentially be used to share information with Kahu to provide a richer tenant experience, and Kahu could provide information to ecoDriver to offer insight into required energy usage. Our AI efforts can help Smart Core with its building management. The smart building consultants employed alongside the Vanti acquisition broaden the range of services our architects can provide, while our architects ensure that smart building considerations are higher priority than has been the case hitherto. The trading year in review Basis of inclusion The year to 30 September 2023 includes a full year of trading from our architecture businesses, but only six months from the Torpedo Factory Group businesses, and less than three months from Anders+Kern. In July 2023 we were pleased to note that The Architects' Journal recognised our UK Architecture activities at 48th place in their AJ100 list of UK architects by practice size, up from 70th place in 2022. Aukett Swanke Limited - traditional full service architecture Aukett Swanke worked on a number of notable projects during the year: · Orchard Wharf is a River Thames fed 80,000 square feet logistics building with additional residential and public realm targeting planning submission in April 2024. · SafeStore is an agile new generation 15,000 square feet warehouse just south of London Bridge targeting planning submission in May 2024. · We have created a 18.2 hectare multi-level and multi-use intensification masterplan · As part of the Kings Cross Knowledge Quarter, we have designed a mixed use 230,000 for Network Rail in South London. square feet hybrid scheme of life sciences, light industrial, public realm and with the potential for residential due for planning in 2024. · We are further developing our highly sustainable 100 year chassis design approach for a 1m square feet riverside scheme that can accommodate a vast array of uses with multi century potential. Veretec Limited - executive architecture Veretec, our executive architecture business completed the 15,000 square meter n2 Nova building in Victoria in June 2023 for Landsec, working with Mace and Lynch Architects. Projects in progress include: · Holloway Park, the site of the former women's prison, a residential development for Peabody / London Square with AHMM; and · London Dock for St George / The Berkeley Group with Patel Taylor. Heritage projects under way include: · Grade II listed 84 Moorgate for City of London with Osborne and Ben Adams; · 41 Lothbury for Pembroke RE with Stiff +Trevillion, also Grade II listed; · Greycoat Place in Westminster for Victoria Spaces with SPPAR; and · West King Street Renewal Project (Hammersmith Town Hall) with Ardmore and RSHP Architects. 84 Moorgate, 41 Lothbury and Greycoat Place are all due for completion in H1 2024. German investments Our German investments continued to perform strongly. We own a 25% interest in Aukett + Heese GmbH, a Berlin architecture practice, and have a joint venture in Aukett + Heese Frankfurt GmbH, in which we own 50%. Collectively these assets are valued in our accounts at £1,071,000 at 30 September 2023, reflecting our share of the underlying balance sheets. We received management fees and dividends during the year of £382,000 more than justifying the current accounting carrying value. Torpedo Factory Group - Systems Integration TFG's results are only consolidated from the date of acquisition in March 2023. The Intelligent Environments business, which during the period developed a particular niche in London offices for international law firms, performed strongly from the date of acquisition. The Stage Technology business also performed well from its acquisition, in part as it has a seasonal bias with its best months over the summer when schools and colleges are closed and in part as the result of a £2 million project to deliver the technical infrastructure of a new entertainment venue in Manchester. The TFG businesses also bedded in the new ERP system implemented in the previous year, which is designed to make the business more scalable. Anders + Kern We acquired Anders+Kern two and a half months before the year end, and include its results from that date. The operational highlights included the migration of the A+K business to the Group's ERP systems and reshaping the sales team and product line-up, with the benefits expected to accrue in future periods. Employee Share Schemes Before the TFG acquisition, a majority of the company's shares were held by around two dozen former directors of the Group and its architecture businesses, with almost no ownership by the existing management and staff. Ownership is normal in professional services firms, and while there was an eagerness from management to participate, there was no clear structure for it to happen. Following the year end, we have therefore implemented three routes to increase employee ownership across the Group, as follows: First, in November 2023, we implemented AESOP, a Share Incentive Plan. This is a tax efficient method for all employees to build a base level of ownership from their monthly salary. I am delighted to report that around 40% of the Group's employees have chosen to become shareholders. We now have around 70 current director/employee shareholders, up from 10 a few months ago. Second, we are implementing MSOP, our Management Share Ownership Plan. Under this, the directors of the Group's businesses have been asked to commit to invest sums equivalent to at least 5% of their gross salary in purchasing the Group's shares on the open market. Purchases are expected to be made approximately quarterly. The executive directors on the plc board will invest 8% of their gross salary, and a small number of senior management just below subsidiary director level have been asked to invest 2.5% of their gross salary. The commitment becomes optional once the director in question owns at least 0.5% of the Group's share capital (0.25% for non directors). Participation has been strong, with 32 members of the management team making commitments, out of 34 members who were invited. Third, a Company Share Option Plan allows for the grant of share options in a tax efficient manner. Our intention is that option grants will be made annually, but only to those employees who make the commitment under the MSOP to invest in the business. This will build into a portfolio of options, acting as an employee retention tool, as at any point those granted within the past three years cannot ordinarily be exercised. Collectively I expect these employee share schemes will provide a natural and persistent demand for our shares to the benefit of the staff concerned aligning their interests with those of shareholders. More importantly they are already changing the culture of the Group, as staff become owners. It enables so many people who are key to our future start to build meaningful ownership stakes. I believe they also give us the best employee ownership package in the market, and I am confident we can use this to attract and retain the best talent available. Current Trading & Outlook It is difficult to predict with confidence how the current year will unfold. We have a strong pipeline of projects but more so than in previous years the starting point for these projects, and the dates from which we can charge, are at risk of delay. As was the case in the year under review there is likely to be a loss in the first half of the year with the position improving in the second half. The combination of pressure on cashflow from continuing to pay down the Coronavirus Business Interruption Loan Scheme loans, project delays, and the freehold property mortgage expiring in February 2025 leads the Board to give careful consideration in the assessment of going concern. The material uncertainty, the measures taken by the Board, and other mitigating options which could be taken are discussed at length in the Financial Review, the Directors' Report and note 1. This only serves to underline the need to balance the nature of the Group's revenue streams. Aukett Swanke Ltd designed the world's first Smartscore accredited smart building in 2021, and the recent acquisition of Vanti allows the Group to expand its smart building consultancy work. It is too early in the Group's Smart Buildings operations to speak of the likely outcome for the current year with confidence. However, TFG was already starting to deliver Master Systems Integration activities and the recent Vanti acquisition will accelerate this. Smart buildings will clearly require artificial intelligence to take decisions on how sites should best be run. We announced on 19 February 2024 that we are participating in a consortium between 6 industrial and 3 research university partners to develop AI for energy saving. This project is backed by an Innovate UK grant. Our staff have completed AI courses at Oxford University and we are exploring opportunities to further develop our AI capabilities. While our smart building activities are at an early stage we seem to be on the right track with growth expected across all our smart buildings offerings. Our team December 2023 saw the retirement of Keith Morgan, Veretec chairman, after 39 years with the Group. We are grateful for all he did to help Veretec become one of the best respected and successful firms in its specialist field. In connection with its acquisition by ASG, TFG also lost two longstanding directors - Keith McCullagh, who retired as its non-executive chairman at acquisition, and