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.
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
Profit before tax
Basic earnings per share
Dividend per share
Non GAAP measures
Adjusted EBITDA *
Adjusted operating profit **
Adjusted profit before tax **
Adjusted earnings per share
* 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 includes 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)
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."
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 have 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.
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.
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.
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:
Develop a global corporate client base with the ability to deliver locally.
Introduction of account management specialist to continue enhancing our relationship with global corporate organisations.
Offer a consistent quality of service based upon international standards whilst sympathetic to local market conditions.
Having achieved ISO 9001, Investors In People accreditation, Agresso ERP system roll out and Project Management Tool Kit programmes, continue with training and process controls platforms across the Group.
Attract and develop key people in new sectors and new geographies, thereby extending our sector expertise and service coverage.
Sweett people have grown in numbers by 7% pa in the last two years. Continue to attract new people at similar levels, growing with cash flows.
Europe – Increase our market share in our traditional sectors and expand further into the energy and infrastructure markets. Extend our client base across continental Europe.
Further organic growth across our core services with continued expansion into energy and infrastructure markets.
Leverage our strength in private and public sectors, to capitalise on our growing market share and recovery of UK activity.
Play heavily on our position as independent and specialist provider when set against a growing number of multi-disciplinary businesses.
Further invest in efficiency in support costs and service delivery utilisation to outweigh increasing wage inflation, further contributing to the net margin.
Middle East, Africa and India – Capitalise on the economic recovery in the UAE and expand our operations in Saudi Arabia and into Oman and Qatar. Extend our presence in India from four to six regional offices.
Limit Middle East to 10% of Group revenue - continuing to focus on improving the breadth and quality of its client base concentrating main activity in UAE, Oman and Qatar.
Controlled organic growth in India extending our sector coverage and geographic expansion.
Asia Pacific - Leverage our existing range of services across our existing client base whilst extending our geographic coverage and sector expertise. Extend our exposure to new sectors in Australia.
China - controlled expansion of QS offer until lockup reduces, organic growth of PM.
South Asia - Singapore – organic growth of PM in line with market conditions and extension of QS service offer. Continue development of the Thailand operation as opportunities arise
Australia - organic growth and targeting of larger, higher margin, projects.
North America - Develop our relationships with our alliance partners and provide clients with QS expertise on both the east and west coasts.
Continue to develop our joint venture business organically, by concentrating on developing all five offices with the joint PM/QS offer by targeting existing client base and for international cross referral business.
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.