Sweett Group plc (“Sweett Group” or "the Group") Audited final results for the year ended 31 March 2014

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.

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.

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%).

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.

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).

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  Net borrowings of £6.3m, compared with £7.1m at 31 March 2013;
  
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  Net assets of £27.4m, compared with £27.9m at 31 March 2013;
  
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  Work in progress (net of fees in advance) of £7.8m compared with £6.3m at 31 March 2013; and
  
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  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.

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  Net worth shall not at any time be less than £25m
  
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  The ratio of EBITDA to Total Interest shall not at any time be less than 4:1
  
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  The ratio of Net Operating Cash flow to Bank Debt Service on each test date shall not be less than 1.1:1
  
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  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.

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

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

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.

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.

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.

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.