CSG.L Regulatory News (CSG)

1 December 2010

Cyril Sweett Group plc

("Cyril Sweett" or "the Group")

Interim results for the six months ended 30 September 2010

Cyril Sweett is a leading international construction and property consultancy offering expertise in cost management, project management and a comprehensive range of specialist services such as management consultancy. Cyril Sweett was founded in 1928 and employs over 1,200 people in 44 offices across Europe, the Middle East, North Africa, India, Sri Lanka, Asia Pacific and Australia.

The Group is pleased to announce its unaudited interim results for the six months ended 30 September 2010.

Highlights

·; Revenue £35.0m (2009: £32.7m);

·; Operating profit £1.5m (2009: £1.5m);

·; Profit before tax £1.3m (2009: £1.3m);

·; Basic earnings per share 1.6p (2009: 1.7p);

·; Acquisition of Asia Pacific-focused Widnell Limited in July 2010;

·; Increased international revenues offset reductions in UK and Ireland;

·; Widnell Limited and further PFI/PPP investment increase net debt to £5.0m (2009: £0.4m)

·; Interim dividend of 0.5p per share (2009: 0.8p);

·; Contracted order book stands at £78m (2009: £64m); and

·; 57% of order book from outside UK & Ireland (2009: 33%).

Chief Executive Officer Dean Webster said:

"The Group has had a successful first half to the year. We have moved to a position of strength in our international markets, significantly improving our order book. We have invested substantially in our PFI/PPP portfolio and continue to capture work across 11 different market sectors. Cyril Sweett continues to be strong, competitive and well positioned to take advantage of opportunities as they occur."

Enquiries

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

Review of Operations

The Group has delivered a robust financial performance in the first half of the financial year despite the challenging market backdrop.

Although the UK market remains under pressure, the business is capitalising on its 80 year history of trading in both good and recessive markets. The Group's substantial experience is being successfully exploited in international markets.

We continue to:

·; Consolidate our position in markets where we already lead, including the winning of further framework agreements;

·; Expand in Asia, the Middle East/North Africa and Australasia and to evaluate our North American options;

·; Diversify into sectors that present growth opportunities, including energy and transportation;

·; Develop our service mix and leverage the Group's leading competence in the provision of sustainability advice;

·; Grow our PPP Investment business across a wider sector base; and

·; Drive synergies across the Group by adopting a prudent approach to operational costs, continuing to integrate business systems and driving cross-selling opportunities.

We will deliver against these objectives through organic growth and through carefully selected acquisitions in order to accelerate our advance in new markets or locations.

We are pleased to report further progress on these targets.

In the UK, we continue to strengthen our position in existing markets and move into new growth areas. As a result of the Group's diversification across a range of sectors, we have successfully managed our exposure to public expenditure cuts to date and are encouraged by the Government's future support of new growth sectors, such as energy and transport.

We remain focused on our strategy of expanding the international business through both organic growth and acquisitions. Our strategy of internationalisation targets new fast growing territories, such as China, where we have a strong foothold following the Group's acquisition of Widnell Limited in July 2010. Now rebranded Widnell Sweett, this is the third largest quantity surveying business in the Asia Pacific region. Integration with the Group is progressing well. International business now represents 57% of our order book, up from 33% at the same time last year.

The segmental analysis at note 2 highlights the changes in both the UK and Ireland and International in terms of income and profitability, with the latter moving from loss into profit.

Our order book has increased from £64m to £78m, including £30m in Widnell Sweett, and we have a lowly-geared balance sheet. The Group has secured some important framework agreements which, in keeping with our long term treatment, are not included in the order book. The Group will continue its prudent approach to operational costs in order to protect margins and profitability. Cash collections remain an important area of focus for the Group. 

Our PPP Investment business continues to go from strength to strength and we recently announced the appointment of its consortium, Alba Community Partnerships, as preferred bidder on the hub North Territory project ("hub North") in Scotland.

UK and Ireland operations

Public sector

The first half of the year saw the new Coalition Government in the UK declare an austere approach to public sector spending. The cost base of the business has been actively managed in anticipation of these results. Despite recent announcements as part of the UK Comprehensive Spending Review setting a reduced level of government spend, we anticipate that our markets will return to pre-2008 spending levels.

In the period, the Group has been successful in capturing new wins in the transportation sector, including work for Transport for London, Thales Rail and Farnborough Airport. Developing a greater presence in the transportation sector is consistent with the Group's ambition to further penetrate the UK infrastructure market.

The health sector remains a significant area of expertise for the Group and the sector continues to present opportunities for the business. We continue to win work through a number of routes: traditional framework contracts, Procure 21, P21+ and LIFT, including specific technical advice for major contractors. Typical schemes include North Middlesex Hospital, Nottingham University Hospitals and Alder Hey Children's Hospital, Liverpool.

The Group is well placed to take advantage of opportunities in the social infrastructure sector. In the UK education sector, the Group has diversified away from the Building Schools for the Future ("BSF") programme and into University projects. Despite reductions to the education sector capital budget, it is anticipated that capital spend will return to more traditional levels. The Group is well placed to take advantage of this market.

In the period the Group was selected as a framework consultant for refurbishment work at the Houses of Parliament, testament to the Group's ability to capture work of a refurbishment nature which we see as a strategic priority for government departments under austere conditions.

Private sector

The Group continues to be a market leader in the provision of services to the UK retail sector including prestige schemes such as Land Securities' £350m Trinity Leeds retail project. Also in the retail sector, Tesco remains a key client for the business, where we continue to provide professional services for the Tesco estate.

In the commercial market, the business has benefitted from the banking sector's strategic review of its office portfolio resulting in commissions to improve and / or consolidate the banking estate. The Group is further developing its capability in health and safety and Construction Design and Management services and is attracting more work from clients including those in the banking sector. Banking sector clients include Barclays Capital and UBS. Our experience of the UK banking sector is proving a valuable asset in exploiting commercial opportunities overseas.

In the hotels & leisure sector, the Group is delivering work for Hilton across Europe under a framework agreement, has been appointed to advise on the Hyatt Hotel at Heathrow, and is supporting Merlin Entertainments in its development work at Blackpool Tower.

Investment activity

The Group's Investment business continues to gain increasing exposure with revenues for consultancy activities accounting for 0.9% of Group revenues. We are delighted to be part of the consortium Alba Community Partnerships, which was announced as preferred bidder on hub North in Scotland. The hub initiative is led by the Scottish Futures Trust on behalf of the Scottish Government and reflects a national approach to the delivery of new community infrastructure across Scotland. hub North expects to deliver projects with an estimated value of £435 million over the next 10 years and construction is expected to start on the first projects in 2011. Through the consortium, we will work with 18 public sector organisations, delivering community facilities and services that provide a real benefit to the communities of northern Scotland.

As well as the consulting income stream attaching to this part of our business, there are generally fees arising at financial close, interest receivable on subordinated debt subscriptions, typically with a coupon of 11% to 12% per annum, dividend income from the equity subscription and a potential future uplift in the value of capital deployed. At the balance sheet date, the Group's equity and subordinated debt subscribed totalled £2.3m and had a carrying value of £3.7m. The projects and the Group's equity participation percentage comprise Plymouth LIFT (19%), South Ayrshire Schools (5%), Dumfries & Galloway Schools (15%), Inverclyde Schools (19%) and Express LIFT Cumbria (20%). The subordinated debt requirement on Inverclyde Schools is £1.4m and will be subscribed in the next financial year. The subordinated debt for Express LIFT Cumbria, and for hub North in Scotland, which is scheduled to reach financial close in the next two months, will be subscribed in line with project programmes.

We will continue to develop our Investment business and are working on a pipeline of new projects at the competition stage.

International operations

The first half of the year saw the Group strategically enter the Asian market, most notably China, with the acquisition of Widnell Limited in July 2010 for HK$63.5m (approximately £5.2m). The acquisition in March 2010 of Padgham & Partners Pty Limited also provided the Group with a Quantity Surveying operation in Australia and a five-office presence in India. The Group now benefits from an extended client list, including Taj hotels, The Mingly Corporation and Fortune 500 businesses such as IBM, whilst also benefitting from a deeper pool of project experiences to call upon, such as with the Hong Kong MTR Corporation.

International activity levels

In Australia, we have seen a creditable order book build. The acquisition of Padgham & Partners Pty Limited in March 2010 is proving an excellent addition to the Group's capability and a stronger foundation from which to grow. The Group continues to win work in the health market, including projects at the St George Hospital, Sutherland Hospital and Royal North Shore Hospital in Sydney and the Northern Hospital, Victoria.

In Asia, the Group is now well positioned to take advantage of fast growing markets with a network of 16 offices throughout the continent. The business is winning work in China, India, Singapore and Thailand, servicing some of this demand via its Sri Lankan business unit at world-class competitive levels.

With an expanding international presence come more opportunities for the Group's non-UK clients to invest in UK opportunities, with our assistance. The period has seen the Group work with the Khalifa Bin Zayed Foundation in developing the Oxford Centre for Islamic Studies, a flagship project between Europe and the Middle East regions. In the Middle East and North Africa region, the Group is delivering professional services to the transportation sector in Dubai and Oman, in the hospital sector in Abu Dhabi and Morocco, and is project managing work at Saudi Arabia's tallest tower under construction, the CMA Tower. The business is rapidly developing a world-class capability in the delivery of professional services to the world's tall tower market, including projects in the Middle East, China and Australia.

Results

Revenue for the period was £35.0m (H1 2010: £32.7m). Operating profit was £1.5m (H1 2010: £1.5m) and operating profit margin was 4.2% (H1 2010: 4.5%). Profit before tax was £1.3m (H1 2010: £1.3m) and basic earnings per share were 1.6p (H1 2010: 1.7p). At the period end the Group had net borrowings of £5.0m (H1 2010: £0.4m), the increase being due principally to the acquisition of Widnell Limited and investment in Dumfries & Galloway Schools PPP. The Group has recently negotiated enhanced committed banking facilities, including a line for acquisition finance.

Dividend

The Board has declared an interim dividend of 0.5 pence per share (H1 2010: 0.8 pence per share) payable on 10 January 2011 to shareholders on the register at 10 December 2010. This adjustment is reflective of the Board's wish to invest in the business in the longer-term interests of the shareholders whilst re-balancing the shorter-term dividend return.

Principal risks and uncertainties

The Group operates a structured risk management and internal audit process which seeks to identify, evaluate and prioritise risk, review mitigation activities, and audit compliance with the Group's procedures. The principal risks and uncertainties facing the Group relate to reputation, changes in government policy and spending, retention of key employees, health, safety and the environment, foreign currency, professional negligence, business continuity, closed defined benefit pension scheme and contract pricing. The assessment of these risks and uncertainties has not altered since 31 March 2010 and they are described in more detail in the Annual Report for the year ended 31 March 2010. The impact of more recent risks such as might arise following the UK Government's Comprehensive Spending Review is being assimilated.

Management and staff

The success of the Group is down to its people, who continue to rise to the challenge of the market and make exceptional contributions. The Board wishes to express its deep appreciation of the management and staff for their tremendous work and sustained effort.

In terms of changes to the composition of the Board, Jeffrey Hewitt was appointed as a Non-Executive Director in August 2010. Jeff's background and business expertise will be invaluable as the Group continues to develop its business strategy and grow its brand internationally. It is intended that Jeff will succeed Michael Henderson as chairman of the Audit Committee in January 2011. Furthermore, Michael Henderson was appointed Non-Executive Chairman in September 2010. Mike has been a Non-Executive Director at Cyril Sweett since 1998 and has an in-depth understanding of both the business and its market challenges. In addition, Nick Woollacott, Non-Executive Director since 2007, assumed the role of Senior Independent Director with effect from November 2010.

Outlook

The Group has made a significant entry into Asian markets and has further capitalised on its presence in the Middle East, North Africa, India and Australia. International outlook for the business has never been stronger.

Public sector spend in the UK is forecast to return to pre Global Financial Crisis levels in 2011. We expect greater detail on UK public sector spending plans through the second half of the year. There are early signs that key clients in the commercial sector are promoting a limited but foreseeable development programme. Trading since the end of September continues to be in line with management expectations.

We are a broadly-based business with increasing international presence and a strong team capable of leveraging opportunities wherever they occur.

The financial information contained in this announcement has not been audited. Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward-looking statements.

Cyril Sweett Group plc

Consolidated Income Statement (unaudited)

for the six months ended 30 September 2010

Cyril Sweett Group plc

Consolidated Statement of Comprehensive Income (unaudited)

for the six months ended 30 September 2010

Cyril Sweett Group plc

Consolidated balance sheet (unaudited)

Cyril Sweett Group plc

Consolidated Statement of Changes in Equity (unaudited)

Cyril Sweett Group plc

Consolidated Statement of Changes in Equity (unaudited)

Cyril Sweett Group plc

Consolidated Statement of Cash Flows (unaudited)

Cyril Sweett Group plc

Notes to the Financial Information

1. Basis of preparation

General information

Cyril Sweett Group plc 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 2010 and 2009 and the full year to 31 March 2010.

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 2010 which have been delivered to the Registrar of Companies and on which the auditors gave an unqualified opinion.

This condensed interim consolidated financial information has been prepared in accordance with the requirements of the AIM Rules and in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union and is presented on a basis consistent with the accounting policies adopted in the consolidated financial information of Cyril Sweett Group plc for the year ending on 31 March 2010. 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.

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 reported 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 pensions, income taxes, and share-based payments.

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 2010, as described in those annual financial statements. See the Annual Report and Accounts for the year ended 31 March 2010 for disclosures 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 2010.

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 responsible for allocating resources and assessing performance of the operating segments has been identified as the Board, which implements agreed strategic decisions and runs the day-to-day operations of the Cyril Sweett Group. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on the reports used by the Board. The Board considers Cyril Sweett's business by geography, being UK and Ireland and International. Both categories generate revenues from the provision of quantity surveying, project management and specialist services / management consultancy. 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)

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

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 26% for the full year on continuing operations (30 September 2009 27% and 31 March 2010: 31.5%) representing the increased proportion of the Group's profits earned in lower tax jurisdictions.

4. Dividends

The board has declared an interim dividend in respect of the half year of 0.5p per share (2009: 0.8p), which is not reflected in this financial information. The interim dividend is payable on 10 January 2011 to ordinary shareholders on the register at the close of business on 10 December 2010 and will be recorded in the financial statements for the year ending 31 March 2011. During the period the final dividend of 0.80p per share (2009: 1.50p per share) in respect of the year ended 31 March 2010 was paid. This amounted to £516,268 (2009: £863,735). Dividends in respect of shares held in treasury amounted to £nil (2009 £33,487).

5. Earnings per share

6. Business combinations

On 9 July 2010, the Company announced the acquisition by Cyril Sweett International (Holdings) Limited of the entire share capital of Hong Kong-registered Widnell Limited, the third largest quantity surveying business in the Asia Pacific region, employing nearly 400 people in Hong Kong, mainland China and Macau. The maximum consideration, a mixture of cash and shares, is £5.2m, of which 60% was settled at completion on 9 July with the balance due with regard to post-acquisition performance on the first and second anniversaries of completion. Net tangible assets at completion in excess of the minimum HKD15m (approximately £1.3m) in the contract are scheduled for distribution to the vendors by 1 April 2011. This excess is HKD42m and is included in trade and other payables. The vendors also retain entitlement to 40% of the post-acquisition profits for the current year and 20% for next.

The book value of assets and liabilities acquired amounted to £1.25m. A fair value exercise has not yet been undertaken but will be concluded for incorporation in the accounts for the year to 31 March 2011.

The consideration is to be satisfied as follows:

Elements of the deferred consideration are contingent upon the satisfactory outcome of certain financial performance criteria.

7a. Cash flow from operations

7b. Reconciliation of net cash flow to

movement in net debt

8. Goodwill