CSG.L Regulatory News (CSG)

1st July 2014

Sweett Group plc ("Sweett Group" or "the Group")

Audited final results for the year ended 31 March 2014

Sweett Group plc (AIM: CSG.L), the global provider of professional services for the construction and management of building and infrastructure projects is pleased to announce its audited final results for the year ended 31 March 2014.

Highlights

Revenue up 10.9%

Profit before tax up 59%

Basic earnings per share up 47%

Dividend per share up 30%

Net debt down 11%

Financial highlights

GAAP measures

Non GAAP measures

* Before Performance Share Plan (PSP) charges and associated costs of £0.6m (2013: £nil) and exceptional administrative expenses of £1.5m (2013: £1.5m).

** Before amortisation of acquired intangibles of £0.5m (2013: £0.5m), PSP charges and associated costs of £0.6m (2013: £nil) and exceptional administrative expenses of £1.5m (2013: £1.5m).

*** Lockup is measured as the aggregate days' activity represented by debtors and work in progress - see financial review for further details.

Adjusted operating profit includes the profit on investment activities of £1.2m (2013: £1.4m). Adjusted EBITDA and profit before tax also include the profit arising on the change in fair value of the derivative financial instrument £1.0m (2013: loss of £0.3m).

Operational and outlook highlights

· Order book up £9m at £109m (despite 5% negative impact of sterling appreciation)

· Global platform delivering results - success in cross-selling on a global basis

· Move into UK energy and infrastructure sectors gaining traction (up 145% in last year)

· Powerful recovery in traditional UK market

· Continued investment in staff - now 1,535 (up 10%+). Senior appointments made in all regions. Awarded Investors In People accreditation 

Dean Webster, Chief Executive Officer of Sweett Group said:

"The Group has performed strongly driven by a powerful recovery in the UK market, where we have gained market share. Our order book is at record levels and we are trading well with prospects for turnover and margin improvement being on track. As a provider of independent services with a solid global platform we relish the opportunities ahead of us as we see global economies strengthen."

For further information, please call:

About Sweett Group

Sweett Group is a global provider of professional services for the construction and management of building and infrastructure projects.

We have an integrated network of 58 offices in 18 countries across five continents offering cost consulting and project management. Our services support clients through every stage of the project life cycle based upon our international expertise and local knowledge. Our strength is our people's world-class talent and expertise through which, we have time and again delivered exceptional results. The strategy builds on these key strengths.

A modern, progressive company, Sweett Group sets itself apart through people, culture and aptitude to change. By collaborative practices and innovative thinking - supported at all levels - our clients receive an offering that is constantly evolving and improving in response to project needs.

www.sweettgroup.com

Chairman's Statement

Introduction

It has been a year of great progress for your Company. We have a business with an integrated offering, a global network of 58 offices in 18 countries across five continents and our operating markets have improved. We have gained important market share and the geographic, sectoral and personnel diversity, scale and shape of the business has enabled us to benefit from this improving trend in the form of increased profitability driven mainly by organic growth.

The UK market specifically has improved with the economy now growing at nearly 3% a year, which is encouraging for Sweett Group as our UK business remains our largest and most established entity, accounting for over 50% of Group turnover in the year ended 31 March 2014. I am pleased to report that the UK business is gaining market share as, in particular, our investment in the infrastructure and energy sectors has paid off. In addition, great progress has been made with larger international clients many of which are now using Sweett Group across several regions which is a gratifying trend and which is taking us into new markets.

We are two years into our three year strategic plan which I am pleased to report has been extended by a further year to account for the considerable progress made to date and the improving markets, particularly in our more established geographies, such as the UK. As one of the few remaining players who can offer a truly independent service with global capability, we are in a solid position to benefit from the improvements which we see and we are well placed to build on the strong foundations for the next phase of our growth with a well-established UK and European business and a scale position in APAC, a segment which has almost doubled in size over the last three years and is approaching critical mass. The CEO's review which follows this statement goes into more detail around the Group's strategy to 2016.

Financial performance

Revenue for the year was up 10.9% to £89.4m (2013: £80.6m) and profit before tax was up 59% to £2.8m (2013: £1.8m) after exceptionals, Performance Share Plan (PSP) charges, amortisation of acquired intangibles and net finance costs. Stripping out the one off benefit of £1.0m from the unwinding of the Australian hedge contract, the £1.2m financial close of Leeds Social Housing and the sale of Hub North, underlying profits were £3.2m, up 23% (2013: £2.6m). Whilst operating margins were down slightly year on year at 2.6% (2013:2.9%), basic earnings per share were up 47% to 2.8p (2013: 1.9p).

Net debt at the year-end was further reduced to £6.3m (2013: £7.1m) and well below the peak of £11m in 2012. Much focus has been put on improving our working capital management with priority being placed specifically on our needs in APAC.

The Directors have recommended a final dividend of 0.8p per share (2013: 0.7p) which will make a total dividend of 1.3p for the year, an increase of 30% (2013: 1.0p), illustrating the Board's confidence in the future of the Group.

Wall Street Journal allegations

The Company has made announcements regarding allegations made in the Wall Street Journal in June 2013 of improper business conduct by a former employee of the Group operating in the Middle East. Discussions are ongoing with the Serious Fraud Office (SFO) in the UK and with the Department of Justice (DOJ) in the US. The Group is co-operating with both these organisations and no proceedings have been issued by either of them. The Group has commissioned a further independent investigation into the allegations by Mayer Brown LLP.

In response to the allegations made in the Wall Street Journal, the Company has identified the need to further improve our internal controls and risk procedures, particularly in locations where we have fewer numbers of staff. A separate governance function has been created which will work closely with our Finance function, the Audit Committee and our internal auditors, KPMG. Most importantly, all our clients and staff remain loyal and the underlying business is not affected.

People

In January 2014, we welcomed Patrick Sinclair to the Board as Chief Financial Officer. Patrick has already made a positive contribution to the business. In addition, a number of senior level appointments were made during the year including Philip Watt joining as Company Secretary in September 2013.

We continue to grow our team and evolve employment practices and policies to ensure we are able to attract and retain the best talent and I was delighted that Sweett Group received "Investors in People" accreditation in the UK during the year.

We have an exceptional team of people and our success is due to their professionalism, creativity and commitment. I would like to thank the Sweett Group team in particular for their hard work and commitment.

I would also like to thank my Board and senior colleagues for their help and support during my four years as Chairman. We experienced extreme recessionary conditions in our traditional markets and various setbacks in the first three years but with a clear strategy combined with the professionalism of my executive colleagues around the world we have seen the Group through this difficult period. I therefore leave at the forthcoming AGM with a certain amount of pride of what has been achieved by them. Also leaving with me at the AGM will be Nick Woollacott a Non-Executive Director, who has served on the Board with great distinction for the last seven years and latterly as the Senior Independent Director. Nick has led the Nominations Committee in choosing my successor as Chairman and an announcement on this appointment will be made shortly.

Outlook

The Group is trading well as we continue to gain market share and leverage the benefits of our global network while benefitting from the improving economic environment in some of our key markets. As we move forwards with an order book of £109m, an improving margin trend and a tighter focus on working capital, the Board looks to the future with increased confidence.

Michael Henderson, Chairman

Chief Executive's Review

Business Review

Strategy update

The Group has now successfully delivered on the first two years of its three year strategic plan. Given the success we have achieved, the Board has evolved and extended the Group's strategy in anticipation of continued changes in our market environment.

We have an integrated network of 58 offices in 18 countries across five continents offering cost consulting and project management. Our service supports clients through every stage of the project life cycle based upon our international expertise and local knowledge. Our strength is our people's world-class talent and expertise through which, we have time and again delivered exceptional results. The strategy builds on these key strengths.

We have built a global delivery platform having maintained an integrated business with a common culture of client service. The strategy to build the global platform was launched against a background of weak home markets in the UK, with limited resources to stretch across a wide geography. The Group undertook to focus on debt reduction and operating margin improvement, together with the re-allocation of capital towards our fast growth operations by disposing of our PPP investments. Since this strategy was first outlined, we have sold out of six PPP investments, releasing in excess of £7m of capital which has been invested in growing market share in the UK, growth in APAC, (which has virtually doubled in size in the last three years), and in reducing debt which is down from a peak of £11m in 2012.

In many areas we have achieved outstanding success and in extending our strategic plan, we have reviewed every aspect of the business and the markets in which we operate.

One such opportunity is the recovery in our home UK markets. Last year I reported that we wanted to "Increase our market share in our traditional sectors whilst expanding further into the energy and infrastructure markets". Our strategy appears to have been well timed. Not only have we increased our market share in these new areas, but we have also experienced a general market recovery in areas where our business has always been traditionally strong. Both margins and profitability are up year on year. Further scope exists to increase both of these as we are still some way off the peak.

The theme of the strategy going forward are to leverage the global platform we have created, encouraging cross selling into new geographies with our larger clients. We will be placing more emphasis and capital investment into the UK business to continue to grow margins and our market share. We plan to improve risk management in the Middle East and focus on a few core markets, whilst limiting the Middle East to 10% of the Group's total turnover, and improving margins. In India, we have a strategy for managed growth. Having established a sizeable business in APAC, the ongoing focus will be to grow from that base by using regionally-generated cash flows. Managing working capital in APAC and across the business will remain a strategic priority. The table below outlines some of the specifics of the strategic evolution:

Market Overview

Europe

Coming off the back of a long and deep recession, the UK construction industry is now growing and activity levels have significantly improved. We believe this growth is sustainable as output is currently still 14% below peak in 2007. Construction forecasts, both in terms of volumes and pricing are being revised upwards as the UK economy grows. Whilst there continues to be a marked difference geographically, there is now evidence to support a recovery in many regional cities outside London and the South East. Industry forecasts, when measured against a 2012 base, are predicting output growth of circa 6% pa in each of 2015, 2016 and 2017 and cost consultancy and project management services come at the front end of the cycle. The strongest areas are likely to be private commercial and industrial, private housing and infrastructure, all sectors where we have expertise. The legacy of the recession for our industry is the lack of human resource capacity available to meet rising demand, whilst this will create a challenge for us to attract and retain the best people, it will provide an opportunity for us to improve margins. It is interesting to note that we are now seeing a trend beginning to emerge, particularly in the UK market, where clients are placing increasing emphasis on choosing firms which have the right people and right experience, as opposed to just on price.

Middle East, Africa and India

Middle East: The Gulf Cooperation Council (GCC) governments are expected to maintain relatively high levels of spending, underpinning growth in the non-oil sectors of their economies, while continuing to post substantial budget and current account surpluses. This is yielding a healthy economic growth averaging 4.3% and which is most evident in the construction and infrastructure arena, having always been the largest sector in the GCC. With building projects collectively amounting to $62bn awarded and $67bn completed in 2013, both figures are estimated to rise to nearly $75bn and $128bn respectively. This investment, particularly in the areas of housing, education and healthcare, is being driven by substantial population growth. At the same time, private sector real estate is showing signs of a comeback after the Dubai real estate crash in 2009. This improved economic scenario, coupled with a surge in travel, has led to a strong growth in the hospitality sector with hotels witnessing record highs in the revenue per available room. In anticipation of major global events being hosted in the region, an estimated 45,000 additional hotel rooms are required in Qatar and an estimated need for 140,000 - 160,000 new rooms by 2020 to host the World Expo in Dubai.

India: In 2013 the overall GDP growth was less than 5% as against the expected level of about 8 to 9% and there was a slowdown in the construction industry. However with a stable government being formed in May 2014 there is positive market sentiment overall and there are indications of better growth prospects in the construction industry. The projected GDP growth for 2014 is 5.5% and the expectation is that real estate market activity will pick up in the second half of this financial year when the policy reforms such as relaxing Foreign Direct Investment (FDI) norms and the introduction of REITs are implemented. The housing sector which is a significant contributor to overall economic growth is expected to grow by about 15% this year. Other than the housing sector the commercial and retail sectors are also expected to witness reasonable growth in 2014.

Asia Pacific

Development and construction activity in Asia Pacific varied across the geographies serviced by the Group, with activity in China remaining a major influence for the region as a whole.

Prior to 2013, China's construction market, which is the world's largest at US$1.8 trillion and with an 18% global share, grew at over 20% p.a., but slowed considerably during the year as a result of Central Government policies aimed at dampening property prices and a general tightening of credit. Medium to long term industry growth is forecast to sustain at around 7 - 8% per annum, with immediate prospects for the first half of 2014 remaining uncertain as the economy transitions through the changes noted above.

The slowdown in China has, to a lesser extent, affected our regional markets. Hong Kong's private sector workload has eased over the period but public sector and infrastructure work, areas in which the Group is particularly strong, are in a period of high activity. In Singapore, our established sectors of corporate real estate and hospitality have seen a relatively flat year, but were bolstered by the addition of new local and regional work in hi-tech and data centres. Our business in Thailand has been impacted by the recent political problems, particularly with regard to foreign investor sentiment, but long term prospects for growth of the US$33 billion Thai economy remain encouraging at around 5% per annum.

Australia's US$220 billion construction market grew by 10% during the year but is forecast to drop by 4% in 2014 principally as a result of reduced demand for resources. The contraction is partly offset by increased domestic demand particularly in the residential sector. Our established sectors in healthcare, local government and aged care were subdued in 2013, partly due to local and national elections, but are expected to resume normal activity levels. Regional investment in infrastructure and built assets, particularly from China, present opportunities for the Group in the short to medium term, while defence spending, a sector in which we continue to be active, has increased under the recent federal budget.

The region's second largest construction market, at US$742 billion, is in Japan, where the Group is in a joint venture. International interest in our principal sectors of corporate real estate and hospitality has recently increased, partly in anticipation of the forthcoming Olympic Games in 2020. In the medium term we anticipate higher levels of activity for the Group in-country and also with Japanese businesses operating outside Japan.

The Group is examining new regional markets in Vietnam, Indonesia, Malaysia and Myanmar, all of which have construction sectors growing in excess of 4% p.a. and attracting significant international interest. However, in line with our current strategy of organic growth, any investments will be of a limited nature and structured to become quickly financially self-sustaining.

Values and business model

We have a common set of values across the business and are putting in place systems to ensure these values come to life. Group values which are being rolled out in each of our 58 offices are:

Integrity:

We believe in honesty, transparency and fairness and expect the same from those with whom we do business. We deliver on our promises.

Professionalism:

We take pride in our work, striving to surpass the highest standards. We invest in the continual development of our people. Our success is achieved by their inspiration, commitment and dedication.

Collaboration:

We believe in working constructively as a team with our clients, colleagues and industry partners creating a platform for innovation and added value.

Clarity:

We believe in clear communication, providing trusted independent advice whilst maintaining openness throughout our business.

Respect:

We believe in treating the people, communities and environment around us with respect and care.

Success:

Guided by these values, we believe our clients, staff and investors will share in our success.

Our business model is at the heart of everything we do. Our services are aimed at helping to maximise the value of our clients' investment, through the efficient management of time and resources. To achieve this, our approach is always the same - to become a partner with our clients and deliver cost-efficient, timely solutions. Sweett Group is one of the few players in our markets able to deliver an independent service.

Long term relationships - we optimise our clients' investment through a deep understanding of their business, built over many years. This means that we can ensure projects are delivered on time and on budget.

Global knowhow - many of our clients are global - and so is our business. Our network of offices covers the world's main trade and business hubs. Our geographic reach enables us to provide clients with a full range of integrated services, wherever they need them.

Local delivery - we use our global knowhow to deliver local, sustainable solutions. Our geographic presence allows us to recognise local constraints and challenges, gearing our services to each client, bringing in resources from across the Group, as necessary.

More can be learned about our values and business model by visiting our refreshed website at www.sweettgroup.com.

Review of operations

Group financial performance

Revenue for the year was up 10.9% to £89.4m (2013: £80.6m) and profit before tax was up 59% to £2.8m (2013: £1.8m) after exceptionals, PSP charges, amortisation of acquired intangibles and net finance costs. Stripping out the one off benefit of £1.0m from the unwinding of the Australian hedge and the £1.2m profit on the financial close of Leeds Social Housing and Hub North, underlying profits were £3.2m, up 23% (2013: £2.6m). For the first time shareholders will note there is a full year charge of £0.6m for the Performance Share Plan which has been disclosed separately in the consolidated Income Statement. Basic earnings per share were up 47% to 2.8p (2013: 1.9p) and pre-exceptional operating margins at 5.5% were up 2% (2013: 5.3%). This remains considerably below peak operating margins of 9.3% achieved in 2008.

Our current order book stands at a record £109m (2013: £100m), despite a negative foreign exchange impact of 5% over the period. Non GAAP adjusted profit before tax was £5.4m (2013: £3.7m) and adjusted earnings for the year were 5.0p per share (2013: 3.7p).

Net debt at the year-end was further reduced to £6.3m (2013: £7.1m) and well below the peak of £11m in 2012. Much focus has been put on improving our working capital requirements, particularly in APAC. Working capital remains a principal focus for the executive team.

The Directors are recommending a final dividend of 0.8p per share (2013: 0.7p) which will make a total dividend of 1.3p for the year, an increase of 30% (2013: 1.0p), illustrating the Board's confidence in the Group's future prospects.

Europe

Revenue from Europe, which comprises the Group's operations in the UK, Ireland and Continental Europe was up to £49.3m (2013: £42.7m), accounting for 55% of the Group's total revenue. Segment profits pre-exceptional administrative expenses and amortisation were £5.7m (2013: £3.7m). The European business has improved with net operating margins advancing from 7.1% to 10.9%. This remains below peak margins of 11.6% in 2008. The order book stands at £53m (2013: £39m) an increase of some 36% year on year. Clients are now committing to long term spending plans and giving approval to major construction projects rather than the phased commitments of recent years. The order book is reinforced by an extremely robust pipeline of potential projects and Framework income yet to be formally committed.

The business operates across a diversified range of private and public sectors.

Our investment into the Energy and Infrastructure sectors has been rewarded with appointments on the NNB Genco Ltd Nuclear Framework, Network Rail Frameworks for both England & Wales and Scotland, and the Transport for London Framework. Our exposure to the sector increased fivefold in the year as we continue to build market share.

The retail sector, in which the Group is a recognised leader, has seen a further improvement in activity over the period. The Group has secured commissions at the major developments at the Whitgift Centre, Croydon and Brent Cross Shopping Centre, together with other schemes including the Hereford Shopping Centre on behalf of Stanhope. We currently have an involvement in over 40 mixed use retail developments. Our retail portfolio is balanced with a number of projects directly with retailers such as Selfridges working on their flagship stores in Manchester, Birmingham and London, the rollout of Primark stores in Spain, Portugal, France, the UK and most recently supporting them on their push into the USA. Another success is our recent appointment to the John Lewis and Waitrose Consultant panel.

The offices sector, both for developers and corporate end users has seen an upswing in activity, extending from London into most regional cities. Significant clients in this sector include BNP Paribas, Barclays, RBS and the BBC.

In the Hotel and Leisure sector, the Group has been very active via global frameworks with Hilton and Marriott and as client representative for the landmark Shangri-La Hotel in the Shard. The prospects for the leisure sector remain strong with a number of museums, gallery and stadia projects in the pipeline. Significant schemes worked on include the Tate St Ives Gallery Extension and a project for Merlin Entertainment in Istanbul.

The Group maintains a strong market position in the Health, Education and Life Sciences sectors, all areas which have seen continued investment over the last 12 months. New health schemes have included the Royal Hospital Chelsea, University College London, Moorfields Eye Hospital and King's College, London. The Higher Education sector continues to present a large range of opportunities and we are currently working with more than 20 universities with notable schemes at Cambridge, Imperial, Robert Gordon and Manchester universities. As a result of collaboration between private sector companies and research facilities attached to universities, we have seen a range of new commissions including GlaxoSmithKline, Medical Research Centre and Bio Med Business Park.

The Group operates from a wide range of offices throughout the UK, giving us the advantage of local knowledge and delivery capability. This plays a particularly important role when being considered for projects procured under national framework arrangements. Sweett Group has a wide range of experience to draw from providing services on over 200 current public sector frameworks on a national, regional or local basis including the Ministry of Justice, London Construction Programme NHS Shared Business Services and Waste and Resources Action Programme.

The culture of the organisation is based on maximising value for our clients by putting their needs first. Much of this culture is driven by the people we employ and the training we provide. In addition, we continue to innovate our delivery processes which this year has included the development of a Building Information Modelling (BIM) programme and through our participation in the Rapiere embedded Energy Modelling tool, we are developing a valuable measure of the sustainability of entire property portfolios.

Middle East, Africa & India

Revenue from the Middle East and India (MEAI) accounted for 13% of Group revenues at £11.6m (2013: £11.9m). Segment profits pre-exceptional administrative expenses and amortisation were £0.1m (2013 £1.3m) and the order book is £9.2m (2013: £6.0m).

In MEAI, we have seen a pick-up in bidding activity as market conditions continue to improve. This trend is anticipated to be maintained over the medium term. Nevertheless, as part of our risk management and margin improvement strategies, the Middle East operations have been through a year of transition to de-risk the business in the longer term.

We aim to be more selective in the work we undertake. We will concentrate on our levels of service delivery, repeat clients and local market reputation as part of the plan to limit our turnover to no more than 10% of total Group turnover. The focus of attention is on the UAE, and the new office which has recently been opened in Oman. Our position in Qatar is being developed but on a low risk low cost strategy. Profits were impacted by reducing our dependence on very large projects together with certain legacy issues, but these are now close to being worked through and any future effects minimised. Our repeat work with clients such as Dubai Airports, Etihad Airways, Saudi Aramco and Jumeirah continues to grow and we are delighted to be working for major developers such as Mubadala and Emaar.

The Group's performance in India continued to be encouraging with growth in the year faster than anticipated. India now employs over 150 people across the region headquartered in Chennai with regional offices in Bangalore, Mumbai, Delhi and Hyderabad. We have strengthened our position to be a leading provider of QS services with a pan-India presence and have an extremely strong platform to continue to grow long term. Whilst there has been some recent market slowdown, Delhi and Bangalore were the strongest performers particularly in the commercial and IT sectors. Elsewhere, the residential market did experience a short dip, but this is now expected to recover once the new government implements its plans to grow the economy at a faster pace again.

Asia Pacific

Revenue from Asia Pacific accounted for 32.0% of Group revenues at £28.6m (2013: £26.0m). Segment profit before exceptional administrative expenses and amortisation of intangibles were £1.3m (2013: £0.6m) and the order book stands at £47m (2013: £55m) primarily due to a foreign exchange impact of £5m. Of these numbers, the Group's operations in China and Hong Kong contributed approximately £20.8m of revenues and £1.0m of net profit. The segment's operating margin of 4.5% remains satisfactory given the continued levels of investment in new resources dedicated to the region.

During the year, the APAC business reported several significant new commissions including cost management of the £400m Huawei Dongguan R&D Centre in China, around £1,800m of hotel and casino development work in Macau, a series of commissions related to the early stages of the £11,330m major expansion to the airport in Hong Kong, project management of the Helicopter Aircrew Training System for the Department of Defence in Australia, and programming services for the £700m highways link to the HK-Zhuhai-Macau Boundary Crossing in Hong Kong. Looking ahead, we anticipate continued growth for our PM and Programming services in Asia and China, and a sustained level of demand for our cost management work.

After several years of exceptionally high growth, our short to medium term Asia Pacific regional strategy is to restrain further expansion to levels that are financially sustainable, and to upgrade and consolidate our management systems across the region. Over the year we have strengthened our processes for reducing lockup, established a process for cross-border invoicing with our China offices, implemented the Group's ERP system across Australia, South Asia and Hong Kong, with China to follow in mid-2014, enhanced our management team by adding new directors in Project Management, Programming and HR, and centralised the region's IT and marketing support services. The Australian business was restructured during the year and a closer regional integration is in place to address the increasing demand for regionally integrated services.

North America

Our 50 / 50 Joint Venture Company VVA Sweett Inc continues to make headway. We now have five joint venture offices in New York, Boston, New Jersey, Washington DC and Los Angeles. The business is trading profitably and income and margins are growing steadily.

In the US, there is an increased awareness of the value that an independent Quantity Surveyor can add to a project. Clients are now requesting additional services not typically provided in the US where Quantity Surveying is now being recognised.

The construction market in the US is growing again and this is reflected in the increased activity and number of bids VVA & VVA Sweett have made and been awarded during the past year. Of particular note are projects for Condé Nast, Time Inc and Weil Gotshal in New York and Cooley and Viacom in Los Angeles. Following our work for Primark in the UK and continental Europe, we are assisting them with their rollout of their stores within the USA.

There have been a number of cross referrals of Trans-Atlantic projects with two pharmaceutical schemes for Biomed in the United Kingdom and schemes in Los Angeles, London and Tokyo for Jefferies.

Outlook

During the year the Group continued to perform strongly. Whilst it benefitted from one off gains from the unwinding of the Australian hedge contract and the financial close of Leeds Social Housing, the underlying performance was considerably better than the previous year.

Trading in the first few months of the year has been encouraging and this momentum is expected to be maintained as the Group benefits from its wider geographical platform, the diversified nature of our sector coverage and the improving trading conditions in its home markets. Based on an improving order book and pipeline, the prospects for turnover growth and margin improvement remain on track.

I would like to take this opportunity on behalf of the entire Sweett Group team of thanking Mike Henderson and Nick Woollacott, who both leave at the AGM. Mike has been with the Group for the last 16 years both as a Non-Executive Director and more latterly as Chairman. During his four years as Chairman of the Board, his leadership, guidance and support has been exceptional. Nick has been with the Group since our IPO and he has added considerable expertise and wise counsel during his time as Non-Executive Director. We wish them all the best for the future.

Dean Webster, Chief Executive

Forward-looking statements

Certain statements in this audited final results statement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risk and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Financial Review

Trading performance

The Group's financial performance was further improved during the year ended 31 March 2014 in comparison with the previous year in terms of revenue, operating profit, profit before taxation and net debt. It was also marked by the completion of the Hub North disposal, the financial close of the Leeds Social Housing PFI project and the renegotiating of our banking facilities.

Group revenue was £89.4m (2013: £80.6m). Profit before taxation, after the impact of £1.5m of exceptional administrative expenses, £0.6m charge for the performance share plan and £0.5m of amortisation of acquired intangibles as described in Note 5, amounted to £2.8m (2013: £1.8m). This profit includes the income on sale of the Group's interests in the Hub North PFI project and profit generated at financial close of the Leeds Social Housing PFI project. The Group's derivative-based currency cover in respect of Australian dollar exposures was cash settled for £0.4m resulting in a credit of £1.0m to the income statement.

Revenue for the year increased by 10.9% to £89.4m (2013: £80.6m). Net revenue, after deduction of sub-consultant costs, was £77.9m (2013: £72.4m).

Adjusted profit before tax increased by 46% to £5.4m (2013: £3.7m). Pre-tax profit was £2.8m (2013: £1.8m) after exceptional administrative expenses, performance share plan charges and amortisation of acquired intangibles and net finance income.

Adjusted operating profit was £4.9m (2013: £4.3m) and the adjusted operating profit margin was 6.2% (2013: 5.3%). Operating profit amounted to £2.3m (2013: £2.3m) and operating margins were 2.6% (2013: 2.9%).

Adjusted earnings per share were 5.0p (2013: 3.7p). Basic earnings per share were 2.8p (2013: 1.9p) and diluted earnings per share were 2.7p (2013: 1.9p).

Our current order book is approximately £109m, an increase from last year's reporting date of 9% (2013: £100m), despite a negative impact of exchange rates of £5m.

In presenting the Group's adjusted profit below, amortisation of acquired intangible assets, performance share plan costs and exceptional administrative expenses have been excluded so as to assist understanding of the underlying performance of the Group:

Core trading profit, which excludes the change in fair value of the derivative and the profit on investment activities, increased by 24.7% to £3.2m (2013: £2.6m).

The primary segmental analysis in Note 3 details the segmental revenue and result. In aggregate the Group's gross margin increased from 28.8% to 30.7% which is encouraging.

Details of exceptional administrative expenses are provided in Note 5. Exceptional administrative expenses of £1,523,000 (2013: £1,455,000) comprised in the main costs associated with the investigation regarding allegations made in the Wall Street Journal in June 2013 of £490,000, restructuring costs of £978,000 (2013: £812,000)and interest payable to the vendors of Widnell Limited of £55,000 (2013: £356,000).

Sterling appreciated during the year against all the Group's major currencies being the Hong Kong Dollar, Chinese Renminbi, UAE Dirham, Indian Rupee and Australian Dollar. The negative impact of this strengthening was approximately £2.9m on revenue and negligible on operating profit.

Cash performance

Cash generated from operations was £5.7m (2013: £2.2m). This arises largely through profit earned and improvements in working capital management. The Group's work in progress net of fees in advance increased to £7,755,000 (2013: £6,333,000) and gross receivables decreased to £23,039,000 (2013: £24,263,000). Overdue amounts decreased to £7,843,000 (2013: £8,536,000) and there was a slight reduction in the amount of debt impaired to £1,620,000 (2013: £1,722,000). The lockup calculation, which measures the number of days' activity included within work in progress and trade receivables, incorporates an annualisation of revenues based on the last three months' revenues. Lockup days at year-end were 106 days (2013: 103 days). Management of working capital is a key issue as the Group continues to expand, particularly in the Asia Pacific region, and further steps are being taken to improve its management and reduce unnecessary utilisation of the Group's cash resources. Specific action is in hand to release funds held in mainland China.

Key Performance Indicators

A number of metrics are used to monitor financial performance. These include turnover, operating profit, cash collection, pre-exceptional administrative expenses earnings per share and lockup. All of these Key Performance Indicators improved in the last year, with the exception of lockup. The latter continues to be affected by a retention balance of £1.0m (2013: £1.0m) on a project in the Middle East, the un-provisioned element of two trade receivables in Dubai of £0.5m (2013: £0.5m) and by a number of projects in China and Hong Kong which are subject to milestone billing arrangements.

Underlying profit margins

The gross profit margin was 30.7% (2013: 28.8%) on gross revenue and 35.3% (2013: 32.1%) on net revenue and the operating profit margin was 2.6% (2013: 2.9%). The operating profit margin before exceptional administrative expenses, PSP charges and amortisation of acquired intangibles was 5.5% (2013: 5.3%).

Finance income

The Group's net finance income / cost, is disclosed in Note 4. This changed from a net cost of £565,000 in 2013 to a net income of £516,000 in 2014 largely due to the £1.0m credit arising on the termination of AUD11.1m derivative-based currency contract.

Within this total, finance income from available-for-sale financial assets reduced from £132,000 to £34,000 as a result of the continued sale of these income-generating assets and finance cost reduced from £735,000 to £491,000, largely as a result of the prior year charge of £272,000 relating to the Group's AUD11.1m derivative-based currency contract.

Tax

The charge for the year was £932,000 being 33.0% of the profit before taxation (2013: £476,000 being 26.8%). The reasons behind this movement are analysed further in Note 6.

Earnings per share

Basic earnings per share amounted to 2.8p (2013: 1.9p) and fully diluted earnings per share were 2.7p (2013: 1.9p). Tax-adjusted earnings per share prior to exceptional administrative expenses and Performance Share Plan charges were 5.0p (2013: 3.7p).

Balance sheet

The Group ended the year with:

· Net borrowings of £6.3m, compared with £7.1m at 31 March 2013;

· Net assets of £27.4m, compared with £27.9m at 31 March 2013;

· Work in progress (net of fees in advance) of £7.8m compared with £6.3m at 31 March 2013; and

· Trade receivables of £21.5m compared with £22.7m at 31 March 2013.

We continue to invest particularly in IT equipment and software to ensure that, as the business environment becomes more complex and technology evolves, the Group's IT systems and equipment are kept up-to-date and properly serve the business.

Banking facilities

The Group funds its activities through cash generated from operations and supplemented, where necessary and appropriate, with bank borrowings and asset funding.

The Group's principal banker is Bank of Scotland plc, part of the Lloyds Banking Group, which provides Sweett Group with overdraft, term loan and contract guarantee facilities as well as a guarantee facility to secure obligations to third parties.

At 31 March 2014, the amount undrawn under the Group's credit lines was £2.3m (2013: £3.0m). Amounts drawn under the term loan are shown as non-current liabilities to the extent that repayments are due after 31 March 2015. All other liabilities to Bank of Scotland plc and overseas banks are shown as current liabilities. All banking covenants were met during the financial year and at 31 March 2014.

The Bank of Scotland plc facility agreements contain four separate financial covenants being:

· Net worth shall not at any time be less than £25m

· The ratio of EBITDA to Total Interest shall not at any time be less than 4:1

· The ratio of Net Operating Cash flow to Bank Debt Service on each test date shall not be less than 1.1:1

· The ratio of Total Net Debt to EBITDA shall not at any time exceed 2.75:1

During the year facilities were negotiated with HSBC in China and Hong Kong. These comprise an accounts receivables facility in Hong Kong of £1.4m and a loan facility in Hong Kong secured against Renminbi deposits in China of £0.8m.

Going concern

A detailed examination of the Group's cash flow and trading forecasts has been undertaken to enable the Board to conclude that the Group can operate within its banking covenants such that it could be established that the Group should continue to prepare its financial statements on the going concern basis. The Group's bankers have confirmed that, in the normal course of events, the overdraft facility will be replaced on expiry late in the 2014 calendar year.

Material considerations in a forward look at covenant compliance include:

· The assumption that a retention balance of £1m on a Middle East contract will be recovered during the current financial year;

· Working capital

· Profitability

Internal Controls

In the established parts of the Group there are well developed policies and procedures to support a sound internal control environment. These policies continue to be rolled out across the enlarged Group. Further systems enhancements over the next year, based on the completion of the Group roll-out of our Agresso ERP system with only China remaining, will further strengthen internal controls. As a temporary measure, more intense management review processes are in operation until such time as the roll-out is completed.

Treasury

Treasury matters and banking arrangements are overseen by a treasury committee, which is chaired by the Group chairman.

Dividends

An interim dividend for the year to 31 March 2014 of 0.5 pence per share at a cost of £342,000 (2013: 0.3 pence per share at a cost of £203,000) was paid on 17 January 2014 to all shareholders on the register on 20 December 2013. The Directors are recommending a final dividend of 0.8p per share at a cost, assuming no issues of shares in the intervening period, of £549,000 (2013: 0.7 pence at a cost of £474,000) which, if approved by the shareholders at the AGM, will be paid on 12 September 2014 to all shareholders on the register on 15 August 2014. A dividend reinvestment service is available through the Registrar.

Employee Benefit Trust

The Group's Employee Benefit Trust (EBT) is a separately administered discretionary trust in Jersey for the benefit of employees. Shares owned by the EBT are shown as a reduction in capital and reserves as treasury shares. The EBT has not held any of the Company's shares since January 2011 and consideration is being given to winding up the Trust.

Share Incentive Plan

The Share Incentive Plan (SIP), originally launched in February 2001, enables UK resident employees to acquire shares in the Group out of untaxed income and provides a tax-efficient means for employees to own shares. Dividends received by the plan in cash are used to purchase additional shares on behalf of employees. Shares held in the plan which have not been allocated to individual employees are shown as a reduction in capital and reserves as Treasury shares.

Summary

Sweett Group's trading performance has improved during the year under review and having exited the remaining investment businesses and renegotiated our banking facilities, the Group is in a more robust position going into the new financial year.

Patrick Sinclair, Chief Financial Officer

Consolidated Income Statement for the year ended 31 March 2014

Consolidated Statement of Comprehensive Income for the year ended 31 March 2014

Consolidated Balance Sheet as at 31 March 2014

Consolidated statement of changes in equity for the year ended 31 March 2014

Consolidated Statement of Cash Flows for the year ended 31 March 2014

Notes to the Audited Financial Results

1. General information

This preliminary announcement does not constitute the Group's full financial statements for the year ended 31 March 2014. The financial information for the year ended 31 March 2014, set out in this announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and has been extracted from the Annual Report and Financial Statements for the year ended 31 March 2014. Statutory accounts for the year ended 31 March 2013 have been delivered to the Registrar of Companies and those for the year ended 31 March 2014 will be available to shareholders by 5 August 20104 for approval at the Annual General Meeting to be held on 29 August 2014. Those accounts have not yet been delivered to the Registrar. The auditors have reported on these accounts; their report was unqualified.

Sweett Group plc is a public limited company with shares listed on the Alternative Investment Market and is incorporated and domiciled in the United Kingdom under the Companies Act 2006. The address of the registered office is 60 Gray's Inn Road, London, WC1X 8AQ. The Company is the parent company of a group of international companies and the principal activities of the Group include the provision of construction cost consultancy, project management and other specialised consultancy services, including building surveying. These activities are carried out in Europe, Middle East, Africa and India (MEAI) and Asia Pacific, the Group's operating segments.

Basis of preparation

The accounting policies applied by the group were published in the Annual Report and Financial Statements for the year ended 31 March 2013, which is available on the Group's website at www.sweettgroup.com, and they will also be included in the Annual Report and Financial Statements for the year ended 31 March 2014. There have been no significant changes to the Group's accounting policies during the year.

2. Significant accounting policies

The accounting policies adopted for the year ended 31 March 2014 are consistent with the policies included in the annual report and financial statements for the year ended 31 March 2013.

3. Segmental analysis

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as being the Board.

The Board considers Sweett Group's business and internal reporting by geography, being Europe, the Middle East, Africa & India and Asia Pacific. The Investments business, which was previously reported as a separate segment is dealt with as part of Europe and comparatives have been adjusted since its future size does not warrant separate identification. All three categories generate revenues from the provision of quantity surveying, project management and specialist services / management consultancy and the Europe business generated profits on the disposal of its PPP/PFI financial assets available for sale.

The Board assesses performance based on a measure of earnings before interest and tax (EBIT). This measurement is net of intra-group trading balances and this basis excludes the effects of corporate and central costs. Interest income and expenditure are not included in the results for each operating segment that is reviewed by the Board.

* Unallocated corporate costs comprise directors' remuneration, advertising, public relations, corporate financing costs, legal and professional fees and exceptional administrative expenses incurred by Sweett Group plc. They include for the year ended 31 March 2014, £768,000 (2013: £170,000) of exceptional administrative expenses and £609,000 (2013: £nil) performance share plan charges.

The Group is domiciled in the UK. Its revenue from external customers in the UK is £47.4m (2013: £40.7m) and from external customers from other countries is £42.0m (2013: £39.9m).

Capital additions comprise the acquisition of property, plant and equipment and other intangible assets.

The assets of the segments include intangible assets, property, plant and equipment, assets from finance leases, financial assets, trade and other receivables, deferred tax assets and cash and cash equivalents. The liabilities comprise trade and other payables, current tax liabilities, financial liabilities, deferred tax liabilities, provisions and retirement benefit obligations.

The total of non-current assets other than financial instruments and deferred taxation located in the UK is £13.5m (2013: £13.6m) and the total of such non-current assets in other countries is £5.9m (2013: £7.5m).

Sales between segments are transacted at arm's length. External revenue reported to the Board is measured in a manner consistent with that in the income statement.

4. Net finance income / (costs)

The change in fair value of derivative financial instrument relates to a forward foreign exchange contract to hedge advances in Australian dollars to a subsidiary company, the bulk of which were capitalised in September 2011. This was rolled into a replacement instrument on maturity in March 2012 and subsequently in March 2013. In September 2013 the contract was fully exited, resulting in the positive fair value adjustment of £970,000 in finance income above.

Interest expense on unwinding of discount relates to the notional interest on deferred acquisition consideration.

5. Profit before taxation is stated after charging / (crediting):

Exceptional administrative expenses are those that the directors consider are of such unusual size or nature that they are required to be separately disclosed to allow the user of the financial statements to understand the underlying performance of the Group, notwithstanding that such items may be recurring in nature. These are shown on the face of the income statement as exceptional administrative expenses.

Restructuring costs comprise redundancy costs of £0.3m (2013: £0.5m) and other restructuring costs of £0.7m (2013: £0.4m).

Interest on vendor liabilities comprises interest on late-paid sums to the vendors of Widnell Limited, now fully settled.

A requisition for a general meeting of shareholders, eventually held on 9 May 2013, was received in March 2013 and the costs were accordingly expensed in the year to 31 March 2013.

6. Income tax expense

(b) Factors affecting the tax charge for the year:

The tax on the Group's profit before taxation differs from the UK statutory rate as follows:

The weighted average applicable tax rate is 33.0% (2013: 26.8%).

Changes to the UK Corporation tax rates were substantively enacted as part of the Finance Act 2013 on 2 July 2013. These include reductions to the main rate to reduce the rate to 21% from 1 April 2014 and to 20% from 1 April 2015. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.

7. Dividends

The Board has declared a final dividend in respect of the year ended 31 March 2014 of 0.8p per share (2013: 0.7p per share) amounting to 1.3p for the year (2013: 1.0p for the year). These financial statements do not reflect the final dividend for 2014.

8. Earnings per share