CSG.L Regulatory News (CSG)

3 December 2013

Sweett Group plc

("Sweett Group" or the "Group")

Interim results for the six months ended 30 September 2013

Sweett Group plc (AIM CSG.L), the international construction and property consultancy, is pleased to announce its unaudited interim results for the six months ended 30 September 2013.

Headlines

Profit before tax +75%

Basic earnings per share +89%

Dividend +67%

Financial highlights

♦ Before exceptional administrative expenses of £0.5m (2013 H1 £0.3m and 2013 FY £1.5m) and amortisation of acquired intangibles of £0.2m (2013 H1 £0.2m and 2013 FY £0.5m).

Operational highlights

· Diversified order book which stands at £101m, 61% of which represents orders from outside Europe;

· Positive contributions from all businesses;

· Continued diversification of revenue across all regions - Europe 56%, Asia Pacific 32% and MEAI 12%;

· Integrated approach to global clients;

· Significant new commissions in energy and infrastructure sectors;

· Frameworks representing an increasingly significant contribution;

· Increase in staff numbers by 9.5% to just over 1,500 over the last 12 months, reflecting ongoing investment in people to enhance our global footprint;

· Net debt down 25.2% to £7.1m (H1 2013: £9.5m);

· Successful unwinding of Australian dollar derivative contract resulting in £1m gain;

· Global banking facilities re-negotiated.

Chairman Michael Henderson said:

"Efficient execution of our strategy is the theme of Sweett Group's 2013/14 first half results. Our disciplined approach to developing our business has successfully transformed it over time to a thriving quoted company.

"We are achieving considerable success in our plan to diversify into new sectors and are becoming more balanced geographically. Most importantly for our forward development, we are achieving a significant proportion of our new business from well-established customer relationships and preferred supplier status. The resulting increase in revenue visibility and demonstration of the strength and stability of our operations underpin our robust operational and financial performance.

"We have made further progress in creating value for shareholders, delivering financial results with good growth in revenue, profits and earnings per share. Our order book now stands at £101m and in addition we have a strengthening pipeline. While all parts of our business are performing well, the period under review saw notable contract wins in energy and infrastructure in the UK and Hong Kong. We have an excellent hard working and determined team to thank for this.

 "We are maintaining our balance sheet discipline and our net debt position is down 23% compared to this time last year. Our earnings flow has allowed us to invest in the future by strengthening our management and specialist teams as well as expanding our global footprint. I am pleased to say it has also led to the first potential returns for senior executives under the Group's long term incentive plan. 

"The increase in the interim dividend reflects the Board's confidence that our significant capabilities, know-how and expertise place us in a strong position from which to achieve long term growth by delivering on the opportunities we have in the order book and pipeline."

Enquiries

HALF YEAR MANAGEMENT REPORT

Review of Operations

During the period, the Group continued to capitalise on its global platform, diversifying its geographic presence and sector service offering. The Group's international client base continues to grow and a number of successful cross-selling commissions have resulted from our ability to provide clients with a consistent level of service worldwide, delivered by people with local market knowledge and experience.

The Group's management remains focused on continuing to grow the business largely through organic means, taking advantage of the benefits of our global reach, consolidated brand and reputation for providing independent advice. In addition, the cash realised from the disposal of the Group's mature PPP investments will continue to be used to reduce net debt and for reinvestment in strengthening our core business operations.

Notes: Order book figures exclude non-contracted work under framework appointments. Exchange rate movements since May 2013 have reduced the Asia Pacific order book total by £2.4m

Europe

Revenue from Europe, which comprises our operations in the UK, Ireland and Spain, was £24.6m (H1 2013: £19.8m), accounting for 56% of the Group total. Segment profit before exceptional administrative expenses and amortisation of acquired intangibles was £3.4m (H1 2013: £2.5m) and the order book currently stands at £39m. In addition to top line growth, there is evidence of margin improvement as a result of better utilisation rates. Staff numbers have increased by 6% to 464 in the last 12 months.

In Europe we have seen increased activity across all our markets and diversification now gives us critical mass in 14 sectors. Our strategy in targeting growth sectors, such as energy and infrastructure, is proving well judged. Our order book and preferred supplier commissions (frameworks) are at record levels and we are very encouraged by the potential projects in our prospect pipeline. Our established markets, such as retail and commercial have recovered significantly, whilst healthcare and education have maintained their previous momentum. We have secured work on the Hinkley C Nuclear Power Station, the Jaguar Land Rover Global Consultancy Framework and the Whitgift Centre, Croydon redevelopment, all of which present sizable future opportunities.

Following the disposal of the Group's interest in three PFI/PPP projects in the last financial year, the Leeds Social Housing project reached financial close in July 2013 and has made a significant contribution to the core trading result of the period. Our strategic asset disposal programme is now complete with the exception of the hub North project in Scotland, arrangements for which are in hand.

Middle East, Africa and India

In the Middle East, Africa and India, our businesses continue to stabilise. Revenue was £5.5m (H1 2013: £5.6m), accounting for 12% of the Group total. Segment profit before exceptional administrative expenses and amortisation of acquired intangibles was £0.2m (H1 2013: £0.3m) and the order book is £8m.

Our business has been capitalising on Dubai's resurgence as the Middle East business hub and we remain well placed to take advantage of the investment that will result from the Dubai Expo 2020 award. There has been an increasing number of enquiries from other parts of the region, most notably Saudi Arabia and Oman. We continue to seek higher margin revenue across all our sectors.

Our operations in India have continued to grow as a result of our regional expansion and increased focus on the private residential and commercial markets. Top line revenue increased by 29%, although the weakening Rupee offset some of these gains. Staff numbers have increased by 37% to 153 in the last 12 months.

Since becoming fully operational in Sri Lanka we are seeing strong growth, particularly in the hospitality market.

Asia Pacific

Revenue from Asia Pacific was £14.3m (H1 2013: £12.3m), accounting for 32% of the Group total. Revenue in China and Hong Kong totalled £10.2m in the period. Segment profit before exceptional administrative expenses and amortisation of acquired intangibles was £0.7m (H1 2013: £0.6m) and the order book is £54m. In addition to top line growth, there is evidence, as in Europe, of margin improvement as a result of better utilisation rates. Staff numbers have increased by 12% to 768 in the last 12 months.

Business continues at a healthy pace with top line growth of around 12% forecast for the year. We have continued to strengthen our team, reflecting the opportunities available with several key hires across the region, particularly in Australia, Singapore, and Hong Kong. In line with our three-year business plan we have diversified our service offer, adding project management, programming and scheduling. In terms of exposure to new sectors, we have brought in expertise to exploit the growth in the Asian data centre market. Support services have also been enhanced with an expansion of the Marketing and HR teams across the region.

While in the summer months there was a reduction in our activity levels in mainland China, this seems short lived as growth has now returned across our market segments. We are also experiencing new opportunities in the commercial and hi-tech sectors, reflecting the decision to gain exposure outside the residential market.

Our regional coverage has expanded and business registration is nearing completion in Malaysia, where we have three projects in progress. The Thailand office added the quantity surveying practice of Boulter Stewart in the period, significantly improving our delivery capability and network in the country.

The integrated regional approach continues to enhance our global client base. In the period we have engaged with several new global clients, including Morgan Stanley, PacNet, Macquarie, Procter & Gamble and Hitachi.

North America

In the United States our joint venture, VVA Sweett Inc., is responding not only to the rising local demand for independent quantity surveying services, but is also helping the Group cross sell to corporate end user clients outside the US. Slowly but surely, we are building momentum with our joint venture partner, VVA, by opening new offices in Boston, Los Angeles and New Jersey.

Results

Group revenue for the period increased by 17.8% to £44.4m (2013 H1: £37.7m).

Adjusted profit before tax rose to £3.5m (2013 H1: £2.1m). Pre-tax profit was £2.8m (2013 H1: £1.6m) after exceptional administrative expenses, amortisation of acquired intangibles and net finance income / costs.

Adjusted earnings per share were 4.0p (2013 H1: 2.2p) and adjusted diluted earnings per share were 3.9p (2013 H1: 2.2p). Basic earnings per share were 3.4p (2013 H1: 1.8p) and diluted earnings per share were 3.4p (2013 H1: 1.8p).

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

Exceptional administrative expenses of £0.5m (2013 H1: £0.3m and 2013 FY: £1.5m) comprised £0.2m of restructuring costs, £0.2m of investigation costs relating to allegations in the Wall Street Journal and £0.1m of interest on acquisition liabilities. Amortisation of acquired intangibles amounted to £0.2m (2013 H1: £0.2m and 2013 FY: £0.5m).

Finance income includes £1.0m resulting from the unwinding of the Australian dollar derivative contract.

Exchange rate movements in the Group's major trading currencies had a minimal impact on both revenue and results.

Consolidated Statement of Cash Flows

Net debt at the end of the period and at 31 March 2013 was £7.1m compared to £9.5m at the end of September 2012.

The Group's global banking facilities have been re-negotiated subsequent to the period-end. As a consequence, the £5m overdraft facility with Bank of Scotland has been renewed and the expiring £5m revolving credit facility and the balance of the previous term loan have been replaced with a new £7.5m 5 year term loan on a quarterly repayment basis. Further short-term facilities for the Asia Pacific region have been agreed with the Hong Kong & Shanghai Banking Corporation amounting to approximately £3m.

Dividend

The Board has declared an increased interim dividend of 0.5 pence per share (2013 H1: 0.3 pence per share) payable on 17 January 2014 to shareholders on the register at 20 December 2013.

Outlook

Our global platform is now well established and targeting further growth and margin improvement. Exposure to a wider client base in new sectors, combined with a continued recovery in our traditional markets, give us confidence in the outlook for the Group. We will continue to focus on increasing turnover organically through our strong relationships and by cross selling our services. Most importantly, we remain thankful of the dedication and hard work of our staff. We recognise that we need to continue help our staff by adding new resources as we continue to grow and our challenge is to find people who are able to embrace the existing Sweett culture for client service and commitment.

Forward-looking statements

Certain statements in this announcement 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.

Sweett Group plc

Consolidated Income Statement (unaudited)

for the six months ended 30 September 2013

Sweett Group plc

Consolidated Statement of Comprehensive Income (unaudited)

for the six months ended 30 September 2013

Sweett Group plc

Consolidated balance sheet (unaudited)

Sweett Group plc

Consolidated Statement of Changes in Equity (unaudited)

Sweett Group plc

Consolidated Statement of Cash Flows (unaudited)

Sweett Group plc

Notes to the Financial Information

1. Basis of preparation

General information

Sweett Group plc (the "Company") is a company incorporated and domiciled in the United Kingdom. The address of the registered office is 60 Gray's Inn Road, London, WC1X 8AQ. The principal activities of the Group include the provision of construction cost consultancy, project management and other specialised consultancy services, including building surveying.

This financial information is presented in pounds sterling, the currency of the primary economic environment in which the Group operates. The Group comprises the Company and entities controlled by the Company (its subsidiaries).

Basis of preparation

The condensed consolidated financial information presented is for the six month periods to 30 September 2013 and 2012 and the full year to 31 March 2013.

The most recent statutory accounts of the Group, prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, are for the year ended 31 March 2013, which have been delivered to the Registrar of Companies. The audit opinion on the statutory accounts for the year ended 31 March 2013 was unqualified and unmodified.

This condensed interim consolidated financial information has been prepared in accordance with the requirements of the AIM Rules and in accordance with IFRSs as adopted by the European Union and is presented on a basis consistent with the accounting policies adopted in the consolidated financial information of Sweett Group plc for the year ended 31 March 2013. It does not constitute accounts as defined by section 434 of the Companies Act 2006. This condensed interim consolidated financial information has not been reviewed or audited by the Group's auditors.

Estimates and judgements

The preparation of accounts in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience and various other assumptions that management and directors believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources.

Areas comprising critical judgements that may significantly affect the Group's earnings and financial position are revenue recognition, valuation of intangibles including goodwill, restructuring activities, provisions for bad debts, provisions for pensions, income taxes, and share-based payments.

After making enquiries, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim results and financial statements.

Accounting policies

The accounting policies and methods of calculation adopted are consistent with those of the annual financial statements for the year ended 31 March 2013, as described in those annual financial statements. The Annual Report and Accounts for the year ended 31 March 2013 contain details of new standards, amendments and interpretations which have been adopted, none of which have had a significant effect on the reported results or financial position of the Group for the six months ended 30 September 2013.

2. 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, North 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.

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 result for each operating segment that is reviewed by the Board.

2. Segmental analysis (continued)

2. Segmental analysis (continued)

* 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 £0.3m (2013 HY: £nil and 2013 FY £0.2m) of exceptional administrative expenses.

** Exceptional administrative expenses for the 6 months to 30 September 2013 comprise £0.2m of restructuring costs, £0.2m of investigation costs relating to allegations in the Wall Street Journal and £0.1m of interest on acquisition liabilities and restructuring costs of £0.3m for the 6 months to 30 September 2012. Exceptional administrative expenses for the year to 31 March 2013 comprise restructuring costs of £0.8m, costs associated with the general meeting of 9 May 2013 of £0.2m, costs associated with the closure of operations in France of £0.1m and interest on vendor liabilities of £0.4m.

2. Segmental analysis (continued)

The assets of the segments include intangible assets, property, plant and equipment, assets from finance leases, financial assets, trade receivables 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.

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.

3. Income taxes

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. This is expected to be 23% for the full year on continuing operations (30 September 2012: 26%) representing the increased proportion of the Group's profits earned in lower tax jurisdictions. A lower rate of tax attaches to the first half year predominantly since the bulk of the gain on unwinding of the Australian dollar derivative contract is not taxable.

4. Dividends

The Board has declared an interim dividend in respect of the half year of 0.5p per share (2013: 0.3p), which is not reflected in this financial information. The interim dividend is payable on 17 January 2014 to ordinary shareholders on the register at the close of business on 20 December 2013 and will be recorded in the financial statements for the year ending 31 March 2014. The final dividend of 0.7p per share in respect of the year ended 31 March 2013 was paid on 13 September 2013. This amounted to £473,858. The final dividend of 0.3p per share in respect of the year ended 31 March 2012 amounting to £203,072 was paid during October 2012.

5. Earnings per share

6. Cash flow from operations

7. Reconciliation of net cash flow to movement in net debt

8. Goodwill