Styles & Wood Group Regulatory News (STY)

30 August 2013

STYLES & WOOD GROUP PLC

("Styles&Wood", "S&W" or the "Group")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

Styles & Wood Group plc, the integrated property services and project delivery specialist announces its interim results for the six months ended 30 June 2013.

Financial Results

· Revenue: £40.4m (H1 2012: £40.6m)

· Gross margin: 5.6% (H1 2012: 8.8%)

· Operating loss: £1.1m (H1 2012: Profit of £0.2m)

· Underlying* loss before tax: £1.4m (H1 2012: Profit of £0.1m)

· Loss before tax: £2.0m (H1 2012: Loss of £0.5m)

· Underlying* loss per share: 1.3p (H1 2012: Underlying earnings per share 0.1p)

· Week 32 order book £90.8m (2012:£90.7m)

* Underlying profit excludes non-recurring items and notional interest on preference shares

Operational Highlights

· Banking framework allocation represents approximately 50% of first half revenues with a leading position on customer frameworks.

· Fourfold increase in revenue from the commercial sector with delivery of four major refurbishment projects for commercial landlords.

· First half delivery of refurbishment programmes for Lidl has led to two further awards and a new build store to be delivered in the second half.

· Strategic investment in our renewables business has delivered a position on a framework with Freetricity Plc for the installation of solar panels on private residential dwellings.

· Credentials in banking sector have enabled the Group to secure the only national position on the Post Office Crown Transformation Programme framework for delivery in 2013 and 2014.

· Secured reengagement with Waitrose working on their refresh frameworks for delivery in 2014

Tony Lenehan, CEO commented:

"These results reflect a challenging period for Styles&Wood. The Group has made significant investments as part of its diversification strategy to widen the service offering and enter into new sectors which has impacted on margins and profitability for the first half. However, a return on these investments is now being seen with ongoing improvement in our visibility of future revenue across a number of sectors. Consequently, the Board anticipates an uplift in profitability in the second half of 2013."

Enquiries:

Chief Executive Officer's Review

Overview

The Group has experienced mixed trading conditions across its markets during the first half of 2013. Revenues have increased in the commercial and banking sectors, whilst those retail customers with a good fit for the Styles&Wood service offer have deferred spending plans.

We have made significant investment in new strategic sectors in support of the Group's diversification strategy. This transition, which has required investment in public sector and renewables in particular, will reduce the Group's dependence on its historic sectors. Increased costs for the first half reflect this investment in new initiatives and customer relationships. We have also reconfigured our organisational management structure to provide an improved focus on customer relationships and project performance.

Our current order book for 2013 is in line with prior year and we have improved visibility of our 2014 workload.

Group results

The Group's revenue for the six months ended 30 June 2013 was in line with prior year at £40.4m (2012: £40.6m). Increased revenue in the commercial sector, from banking frameworks and projects enabled the Group to offset a reduction in revenue from retail customers. Gross margin, which has improved in recent years, dropped back to 5.6% in the first half (2012: 8.8%). This margin position reflects the significant investment made in supporting the Group's diversification strategy and widening our service offer. The Board anticipates margin improvement as the return on this investment begins to crystallise in the second half of the year.

Underlying administrative costs were 8.9% lower than prior year following a management restructure in late 2012 and early 2013. The costs of this restructure are disclosed as exceptional items (H1 2013: £0.2m, H1 2012: £nil)). Benefits from this exercise will be realised in the full year outturn.

Net finance costs (excluding notional interest on preference shares) were £0.4m (H1 2012: £0.2m). This is the first reporting period to include an accrual for the cash coupon on preference shares within the underlying performance, the cash coupon of £0.2m (H1 2012: nil) having only become payable from 1 September 2012.

Our joint venture in Dubai made a loss in the first half of 2013, of which our share was £0.2m (H1 2012: profit of £0.03m).

After reflecting the above the Group reported an underlying loss before tax of £1.4m for the six months ended 30 June 2013 (H1 2012: profit of £0.1m).

After charging exceptional costs of £0.2m (H1 2012: £nil) and notional interest on preference shares of £0.4m (H1 2012: £0.6m) the Group made a loss before tax of £2.0m (H1 2012: loss of £0.5m).

Results by segment

The Group continues to pursue a balance of revenue from framework relationships and contracting projects enhanced by a professional services offer.

Revenue from projects was £17.0m (H1 2012: £16.4m), the majority of which came from competitively tendered opportunities within the commercial and public sectors secured in late 2012. The market hardened in early 2013 which impacted tender conversion rates during the first quarter. The hiatus in relation to securing new work had both a negative impact on revenue in the second quarter and on margins as we were unable to recover the costs of bidding for new work. However, recent increases in market activity and a more selective approach to tendering, which has improved our conversion success ratio, have led to a stronger pipeline.

Our first half investment in developing our service offer in the renewable energy arena has secured project workload for the installation of photovoltaic arrays in the last quarter of 2013 and into 2014.

Over 50% of Group revenue continues to come from our framework customers who traditionally weight their expenditure plans to the second half of the year. Margins in frameworks showed resilience due to the long term nature of these relationships and continuity of work and we are pleased to have successfully re-engaged with two major retail customers on a framework basis with work programmed for delivery in the second half and beyond.

Revenues from professional services, comprising both our Design and iSite offers, were in line with prior year at £2.1m (H1 2012: £2.2m). Margins were lower than prior year as we invested in new products and services. Our professional services capability is now fully integrated and enhances our framework and projects businesses.

Sector performance

Banking

Revenues from the banking sector represented approximately half of the Group's total revenue in the six months ended 30 June 2013 (2012: 40%). We continue to have mature strategic relationships with three of the major high street retail banks differentiated by our integrated property support services offer. Allocation continues to be heavily skewed to the second half of the year with increasing visibility of allocation into the first quarter of 2014. We have invested in our infrastructure to support both existing and new customers and we are pleased to report that Styles&Wood has been appointed as one of five contractors, and the only contractor to be appointed nationally, to the Crown Transformation Programme for the Post Office, with refurbishment projects commencing in 2013 and continuing into 2014.

Retail

Retail remains a core sector for the Group notwithstanding the challenges that come from over capacity and uncertainty around customer spending plans. This reduced our revenue from this sector in the first half when compared to prior year, when the Group had a number of projects on site for high end retailers. Our investment in the first half of 2013 has now secured work for the second half and into 2014 with Lidl, where we have been appointed to work on two programmes of modernisation and refurbishment together with a new build project. We have also successfully re-engaged with Waitrose and have secured the next phase of a major store redevelopment for a high end retailer.

Commercial

The commercial sector is a strategic target for the Group and as a result of this focus delivered revenue of £10.3m in the six months ended 30 June 2013, a fourfold increase compared to the prior year. Margin performance in the sector has been consistent with prior year, albeit our investment in the sector means profitability is currently lower than in our more mature sectors. Whilst tender conversions slowed in the first quarter of 2013, impacting the half year results, recent performance has improved with repeat business opportunity being secured through agent and professional team relationships.

Public and community

The first half of 2013 has seen Styles&Wood increase its presence in the public sector with the conversion of further Free School projects, the award of a major refurbishment project for Barnsley College, additional projects for hospital trusts and ongoing work through the Intellectual Property Office. This sector is a market with growth potential for the Group.

Renewables

Revenue from the renewables sector in the first six months of 2013 was £1.4m (H1 2012: £0.4m). Styles&Wood now has the capability to deliver large scale installation programmes on a national basis. Whilst the Group is yet to realise profits from this sector due to the cost of initial investment, it has recently entered into framework agreements which are expected to deliver sustainable profitable workstreams for the next 18 months.

International

Our joint venture in Dubai made a loss in the first half of 2013 of which our share was £0.2m (H1 2012: profit of £0.03m). The joint venture failed to secure significant new work early in 2013 and a new management team is now in place. Whilst current performance is disappointing, the Group's capabilities are well recognised in the UAE market place.

Cash flow

There is a continuing seasonal pattern for our business to absorb cash as investment is made in preparing for work in the second half, particularly in frameworks where the bulk of customer payments are received at the conclusion of projects. In the period the position was further impacted by our investment in new initiatives (H1 2013 cash used in operations: £3.2m, H1 2012: £4.3m).

At 30 June 2013 the Group had net debt of £0.2m (30 June 2012: net cash £3.2m; 31 December 2012: net cash £3.6m).

Banking facilities

The Group's banking facilities comprise a £4.0m multi option facility including overdraft, revolving credit facility and a bond and guarantee facility. At 30 June 2013 £0.2m of the facility had been drawn as an overdraft and £0.8m to provide performance bonds, with the remainder of the facility undrawn.

Taxation

The effective tax rate for the first half of 2013 is 29.6%. The most material factors impacting the effective tax rate when compared to the UK corporation tax rate are the non deductible notional interest and cash coupon on the preference shares.

Dividend

The Board is not declaring an interim dividend on ordinary shares for the period (2012: nil) and will continue to review its dividend policy as the Group's results improve.

Strategy

Styles&Wood continues its strategy to diversify into new sectors to exploit opportunities and to provide resilience against market conditions in any one particular sector. Revenues from the commercial and public sectors now represent approximately 30% of our business which has helped to offset the impact of reductions in the retail sector.

Framework arrangements provide a longer term predictable income stream and stability for the Group and our supply chain. It remains a priority for our business to secure additional framework appointments across a broad range of sectors.

We continue to focus as a priority on health and safety.

Risks

The key risk areas which will impact our ability to drive our strategy successfully and the associated uncertainties remain unchanged from those set out in the business review within the annual report and financial statements for the year ended 31 December 2012. These risks include a further contraction in the overall economy which would impact customer spending plans, particularly in the banking sector. Such a contraction would also increase competitive pressure and impact the stability of our supply chain. Our strategy also relies on our business changing with the market place and we must continue to evolve our service offer and to invest in our people to ensure we are able to align our business with our customers' needs.

Outlook

Market conditions in the first half of 2013 were characterised by intense competition and a reduction in excess of 8% in construction activity compared to the first half of 2012*. The Group's revenues, which by comparison held steady, were supported by our decision to invest in new sectors which will form an important component of our medium term strategy.

 We have however seen some improvement in our market over the last two months. Our current order book position for 2013 delivery is in line with the same point in 2012. Whilst order intake slowed in the first half of the year, recent conversion levels are now consistent with prior year and the volume of opportunities is increasing.

Notwithstanding this encouraging improvement, the Board is understandably cautious as this year's results are particularly weighted to the second half. Whilst we anticipate a strong second half, ahead of the same period last year, it is likely that the profit for the full year may fall short of 2012.

Tony Lenehan

Chief Executive Officer, Styles & Wood Group PLC

* Source: ONS output in the Construction Industry, June and Q2 2013.

Responsibility statement

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS34 as adopted by the European Union and that the interim management report contained herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report

The Directors of Styles & Wood Group plc are listed in the Annual Report for the year ended 31 December 2012. There have been no changes to the Board since 31 December 2012.

By order of the Board

There is no difference between the (loss)/profit for the period and the total comprehensive income for the period. Accordingly no separate statement of comprehensive income has been presented.

Underlying results are shown before charging non-recurring expenses (note 7) and accounting for notional interest on preference shares (note 14).

The notes that follow are an integral part of the condensed interim financial statements.

The notes that follow are an integral part of the condensed interim financial statements.

The notes that follow are an integral part of the condensed interim financial statements.

The notes that follow are an integral part of the condensed interim financial statements.

Notes to the interim financial information

1. General information

Styles & Wood Group plc ("the Company") is a public limited company incorporated and domiciled in the United Kingdom and listed on the London Stock Exchange. Styles & Wood Group plc and its subsidiaries (together "the Group") provide property services to banking, retail, leisure, commercial and public organisations within the UK. The Group has a joint venture in Dubai providing property services to the local market. The address of Styles & Wood Group plc's registered office is Aspect House, Manchester Road, Altrincham, Cheshire, WA14 5PG.

This condensed consolidated financial information was approved for issue on 30 August 2013.

This condensed consolidated interim financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The interim results to 30 June 2013 and comparative results to 30 June 2012 are neither audited nor reviewed by the auditors. The financial information for the full preceding year is based on the statutory accounts for the year ended 31 December 2012 which were approved by the Board of Directors on 25 April 2013 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph nor any statement under section 498 of the Companies Act 2006.

2. Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (formerly the Financial Services Authority) and with IAS34 "Interim financial reporting" as adopted by the European Union. The condensed interim results should be read in conjunction with the annual report and financial statements for the year ended 31 December 2012 which are available from the group's website www.stylesandwood.co.uk.

Going concern basis

The Group meets its day to day working capital requirements through its bank facilities. The group's current forecasts and projections, which take account of reasonably possible changes in trading conditions, show that the Group should be able to operate within the level of its current facilities, details of which can be found in note 12. Therefore the Group continues to adopt the going concern basis in preparing the consolidated interim financial information.

3. Accounting policies

The accounting policies, methods of computation and presentation followed are consistent with those applied in the annual report and financial statements which are prepared in accordance with IFRS as adopted by the European Union, except as described below:

· Taxes on income in the interim periods are accrued using the tax rate that would be applicable to total expected annual earnings.

There are no new IFRSs or IFRICs that are effective for the first time for this interim period that would be expected to have a material impact on this group.

4. Estimates

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial information, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2012.

5. Financial risk management

The Group's operations and financial instruments expose it to a variety of financial risks. This interim financial information does not contain all financial risk management information and should be read in conjunction with the annual report and financial statements.

There have been no changes in the financial risk management policies or risks since the annual report for the year ended 31 December 2012 was published.

6. Revenue and profit from business segments

All revenues arise from external customers for the provision of property related services in the UK. Operating segments are reported in a manner consistent with the internal reporting to the Board of Directors (the chief operating decision maker) which is used to assess performance and make strategic decisions.

Unallocated segment result reflects expenses relating to the overall Group rather than a particular segment and includes people costs, professional fees and share option expenses. Transactions between segments are eliminated on consolidation.

7. Non-recurring items and preference share accounting

The Group's results include the following items:

(a) Restructuring costs relate to an exercise to restructure the management and within the Group's trading subsidiary.

(b) Tax on non-recurring items reflects the non-deductibility of the notional preference share interest (note 14).

8. Finance costs

9. Taxation

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate for the full financial year. The estimated average effective annual tax rate used for the year to 31 December 2013 is 29.6% (the estimated average effective annual tax rate for the six months ended 30 June 2012 was 2.8%).

A deferred tax asset has been recognised in respect of trading losses incurred in the first half of the financial year as management expect that they will be offset against future trading profits.

10. (Loss)/earnings per share

Details of the earnings and the number of shares used in the calculation are set out below:

The Company has in issue 15,000,000 convertible preference shares which are convertible into 16,000,000 ordinary shares. These shares are not currently dilutive. Share options in issue within the Group are not considered to be dilutive.

11. Dividend

The Board does not consider it appropriate to pay an interim dividend on ordinary shares (2012: nil). A dividend on the preference shares accrued from 1 September 2012 at a rate of 3%. The charge for the six months ended 30 June 2013 was £225,000 (six months ended 30 June 2012: nil, year ended 31 December 2012; £150,000).

12. Financial liabilities: bank borrowings

The Group's current banking facility comprises a £4.0m multi-option loan facility, including a revolving credit, overdraft and guarantee facility. This facility will be available until June 2014 and will reduce to £3.75m at 31 December 2013.

At 30 June 2013 £218,000 had been drawn down as an overdraft and £839,000 utilised to provide performance bonds (30 June 2012: £743,000 for performance bonds only, 31 December 2012: £1,857,000 for performance bonds only).

Issue costs in respect of the facilities have been prepaid and are being amortised over the life of the facilities.

13. Net (debt)/cash

Net (debt)/cash excludes preference share capital of £10.8m (30 June 2012: £9.9m, 31 December 2012 £10.4m) included within liabilities due to the nature of the conversion rights attached to those shares.