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.
Highlights
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
2014
2013
£89.4m
£80.6m
Operating profit
£2.3m
£2.3m
Profit before tax
£2.8m
£1.8m
£27.4m
£27.9m
£6.3m
£7.1m
Basic earnings per share
2.8p
1.9p
Dividend per share
1.3p
1.0p
2014
2013
Adjusted EBITDA *
£7.1m
£5.2m
Adjusted operating profit **
£4.9m
£4.3m
Adjusted profit before tax **
£5.4m
£3.7m
5.0p
3.7p
106 days
103 days
Revenue
Net assets
Net debt
Non GAAP measures
Adjusted earnings per share
Lockup ***
* 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).
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Operational and outlook highlights
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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)
Powerful recovery in traditional UK market
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."
For further information, please call:
Sweett Group plc
+44 (0)20 7061 9000
Dean Webster, Chief Executive Officer
Patrick Sinclair, Chief Financial Officer
Sophie Hull, Head, Corporate Communications
Westhouse Securities Limited
Tom Griffiths
+44 (0)20 7601 6100
Camarco
Billy Clegg
Georgia Mann
+44 (0)20 3757 4980
About Sweett Group
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 worldclass 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
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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.
Financial performance
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.
People
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.
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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.
Outlook
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
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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 worldclass 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:
Extended plan
Plan to 2015
Integrated global approach
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.
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.
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.
Offer a consistent quality of service based upon
international standards whilst sympathetic to local
market conditions.
Attract and develop key people in new sectors and
new geographies, thereby extending our sector
expertise and service coverage.
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Regional expansion
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.
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.
China - controlled expansion of QS offer until
lockup reduces, organic growth of PM.
Hong Kong - target higher margin, larger QS
projects, organic growth of PM, Dispute Resolution
and Programming services.
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.
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.
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.
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.
North America - Develop our relationships with our
alliance partners and provide clients with QS
expertise on both the east and west coasts.
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.
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Middle East, Africa and India
Middle East: The Gulf Cooperation Council (GCC) governments are expected to maintain relatively high
levels of spending, underpinning growth in the non-oil sectors of their economies, while continuing to
post substantial budget and current account surpluses. This is yielding a healthy economic growth
averaging 4.3% and which is most evident in the construction and infrastructure arena, having always
been the largest sector in the GCC. With building projects collectively amounting to $62bn awarded and
$67bn completed in 2013, both figures are estimated to rise to nearly $75bn and $128bn respectively.
This investment, particularly in the areas of housing, education and healthcare, is being driven by
substantial population growth. At the same time, private sector real estate is showing signs of a
comeback after the Dubai real estate crash in 2009. This improved economic scenario, coupled with a
surge in travel, has led to a strong growth in the hospitality sector with hotels witnessing record highs in
the revenue per available room. In anticipation of major global events being hosted in the region, an
estimated 45,000 additional hotel rooms are required in Qatar and an estimated need for 140,000 –
160,000 new rooms by 2020 to host the World Expo in Dubai.
India: In 2013 the overall GDP growth was less than 5% as against the expected level of about 8 to 9%
and there was a slowdown in the construction industry. However with a stable government being formed
in May 2014 there is positive market sentiment overall and there are indications of better growth
prospects in the construction industry. The projected GDP growth for 2014 is 5.5% and the expectation
is that real estate market activity will pick up in the second half of this financial year when the policy
reforms such as relaxing Foreign Direct Investment (FDI) norms and the introduction of REITs are
implemented. The housing sector which is a significant contributor to overall economic growth is
expected to grow by about 15% this year. Other than the housing sector the commercial and retail
sectors are also expected to witness reasonable growth in 2014.
Asia Pacific
Development and construction activity in Asia Pacific varied across the geographies serviced by the
Group, with activity in China remaining a major influence for the region as a whole.
Prior to 2013, China’s construction market, which is the world’s largest at US$1.8 trillion and with an
18% global share, grew at over 20% p.a., but slowed considerably during the year as a result of Central
Government policies aimed at dampening property prices and a general tightening of credit. Medium to
long term industry growth is forecast to sustain at around 7 - 8% per annum, with immediate prospects
for the first half of 2014 remaining uncertain as the economy transitions through the changes noted
above.
The slowdown in China has, to a lesser extent, affected our regional markets. Hong Kong’s private
sector workload has eased over the period but public sector and infrastructure work, areas in which the
Group is particularly strong, are in a period of high activity. In Singapore, our established sectors of
corporate real estate and hospitality have seen a relatively flat year, but were bolstered by the addition
of new local and regional work in hi-tech and data centres. Our business in Thailand has been impacted
by the recent political problems, particularly with regard to foreign investor sentiment, but long term
prospects for growth of the US$33 billion Thai economy remain encouraging at around 5% per annum.
Australia’s US$220 billion construction market grew by 10% during the year but is forecast to drop by
4% in 2014 principally as a result of reduced demand for resources. The contraction is partly offset by
increased domestic demand particularly in the residential sector. Our established sectors in healthcare,
local government and aged care were subdued in 2013, partly due to local and national elections, but
are expected to resume normal activity levels. Regional investment in infrastructure and built assets,
particularly from China, present opportunities for the Group in the short to medium term, while defense
spending, a sector in which we continue to be active, has increased under the recent federal budget.
The region’s second largest construction market, at US$742 billion, is in Japan, where the Group is in a
joint venture. International interest in our principal sectors of corporate real estate and hospitality has
recently increased, partly in anticipation of the forthcoming Olympic Games in 2020. In the medium
term we anticipate higher levels of activity for the Group in-country and also with Japanese businesses
operating outside Japan.
The Group is examining new regional markets in Vietnam, Indonesia, Malaysia and Myanmar, all of
which have construction sectors growing in excess of 4% p.a. and attracting significant international
interest. However, in line with our current strategy of organic growth, any investments will be of a
limited nature and structured to become quickly financially self-sustaining.
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Values and business model
We have a common set of values across the business and are putting in place systems to ensure these
values come to life. Group values which are being rolled out in each of our 58 offices are:
Integrity:
We believe in honesty, transparency and fairness and expect the same from those with whom we do
business. We deliver on our promises.
Professionalism:
We take pride in our work, striving to surpass the highest standards. We invest in the continual
development of our people. Our success is achieved by their inspiration, commitment and dedication.
Collaboration:
We believe in working constructively as a team with our clients, colleagues and industry partners
creating a platform for innovation and added value.
Clarity:
We believe in clear communication, providing trusted independent advice whilst maintaining openness
throughout our business.
Respect:
We believe in treating the people, communities and environment around us with respect and care.
Success:
Guided by these values, we believe our clients, staff and investors will share in our success.
Our business model is at the heart of everything we do. Our services are aimed at helping to maximise
the value of our clients’ investment, through the efficient management of time and resources. To
achieve this, our approach is always the same – to become a partner with our clients and deliver costefficient, timely solutions. Sweett Group is one of the few players in our markets able to deliver an
independent service.
Long term relationships - we optimise our clients’ investment through a deep understanding of their
business, built over many years. This means that we can ensure projects are delivered on time and on
budget.
Global knowhow – many of our clients are global – and so is our business. Our network of offices covers
the world’s main trade and business hubs. Our geographic reach enables us to provide clients with a
full range of integrated services, wherever they need them.
Local delivery - we use our global knowhow to deliver local, sustainable solutions. Our geographic
presence allows us to recognise local constraints and challenges, gearing our services to each client,
bringing in resources from across the Group, as necessary.
More can be learned about our values and business model by visiting our refreshed website at
www.sweettgroup.com.
Review of operations
Group financial performance
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, 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 and
the £1.2m profit on the financial close of Leeds Social Housing and Hub North, underlying profits were
£3.2m, up 23% (2013: £2.6m). For the first time shareholders will note there is a full year charge of
£0.6m for the Performance Share Plan which has been disclosed separately in the consolidated Income
Statement. Basic earnings per share were up 47% to 2.8p (2013: 1.9p) and pre-exceptional operating
margins at 5.5% were up 2% (2013: 5.3%). This remains considerably below peak operating margins of
9.3% achieved in 2008.
Our current order book stands at a record £109m (2013: £100m), despite a negative foreign exchange
impact of 5% over the period. Non GAAP adjusted profit before tax was £5.4m (2013: £3.7m) and
adjusted earnings for the year were 5.0p per share (2013: 3.7p).
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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 requirements, particularly in APAC.
Working capital remains a principal focus for the executive team.
The Directors are recommending 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
Group’s future prospects.
Europe
Revenue from Europe, which comprises the Group’s operations in the UK, Ireland and Continental
Europe was up to £49.3m (2013: £42.7m), accounting for 55% of the Group’s total revenue. Segment
profits pre-exceptional administrative expenses and amortisation were £5.7m (2013: £3.7m). The
European business has improved with net operating margins advancing from 7.1% to 10.9%. This
remains below peak margins of 11.6% in 2008. The order book stands at £53m (2013: £39m) an
increase of some 36% year on year. Clients are now committing to long term spending plans and giving
approval to major construction projects rather than the phased commitments of recent years. The order
book is reinforced by an extremely robust pipeline of potential projects and Framework income yet to be
formally committed.
The business operates across a diversified range of private and public sectors.
Our investment into the Energy and Infrastructure sectors has been rewarded with appointments on the
NNB Genco Ltd Nuclear Framework, Network Rail Frameworks for both England & Wales and Scotland,
and the Transport for London Framework. Our exposure to the sector increased fivefold in the year as
we continue to build market share.
The retail sector, in which the Group is a recognised leader, has seen a further improvement in activity
over the period. The Group has secured commissions at the major developments at the Whitgift Centre,
Croydon and Brent Cross Shopping Centre, together with other schemes including the Hereford
Shopping Centre on behalf of Stanhope. We currently have an involvement in over 40 mixed use retail
developments. Our retail portfolio is balanced with a number of projects directly with retailers such as
Selfridges working on their flagship stores in Manchester, Birmingham and London, the rollout of
Primark stores in Spain, Portugal, France, the UK and most recently supporting them on their push into
the USA. Another success is our recent appointment to the John Lewis and Waitrose Consultant panel.
The offices sector, both for developers and corporate end users has seen an upswing in activity,
extending from London into most regional cities. Significant clients in this sector include BNP Paribas,
Barclays, RBS and the BBC.
In the Hotel and Leisure sector, the Group has been very active via global frameworks with Hilton and
Marriott and as client representative for the landmark Shangri-La Hotel in the Shard. The prospects for
the leisure sector remain strong with a number of museums, gallery and stadia projects in the pipeline.
Significant schemes worked on include the Tate St Ives Gallery Extension and a project for Merlin
Entertainment in Istanbul.
The Group maintains a strong market position in the Health, Education and Life Sciences sectors, all
areas which have seen continued investment over the last 12 months. New health schemes have
included the Royal Hospital Chelsea, University College London, Moorfields Eye Hospital and King’s
College, London. The Higher Education sector continues to present a large range of opportunities and
we are currently working with more than 20 universities with notable schemes at Cambridge, Imperial,
Robert Gordon and Manchester universities. As a result of collaboration between private sector
companies and research facilities attached to universities, we have seen a range of new commissions
including GlaxoSmithKline, Medical Research Centre and Bio Med Business Park.
The Group operates from a wide range of offices throughout the UK, giving us the advantage of local
knowledge and delivery capability. This plays a particularly important role when being considered for
projects procured under national framework arrangements. Sweett Group has a wide range of
experience to draw from providing services on over 200 current public sector frameworks on a national,
regional or local basis including the Ministry of Justice, London Construction Programme NHS Shared
Business Services and Waste and Resources Action Programme.
The culture of the organisation is based on maximising value for our clients by putting their needs first.
Much of this culture is driven by the people we employ and the training we provide. In addition, we
continue to innovate our delivery processes which this year has included the development of a Building
Information Modelling (BIM) programme and through our participation in the Rapiere embedded Energy
Modelling tool, we are developing a valuable measure of the sustainability of entire property portfolios.
9
Middle East, Africa & India
Revenue from the Middle East and India (MEAI) accounted for 13% of Group revenues at £11.6m
(2013: £11.9m). Segment profits pre-exceptional administrative expenses and amortisation were £0.1m
(2013 £1.3m) and the order book is £9.2m (2013: £6.0m).
In MEAI, we have seen a pick-up in bidding activity as market conditions continue to improve. This trend
is anticipated to be maintained over the medium term. Nevertheless, as part of our risk management
and margin improvement strategies, the Middle East operations have been through a year of transition
to de-risk the business in the longer term.
We aim to be more selective in the work we undertake. We will concentrate on our levels of service
delivery, repeat clients and local market reputation as part of the plan to limit our turnover to no more
than 10% of total Group turnover. The focus of attention is on the UAE, and the new office which has
recently been opened in Oman. Our position in Qatar is being developed but on a low risk low cost
strategy. Profits were impacted by reducing our dependence on very large projects together with certain
legacy issues, but these are now close to being worked through and any future effects minimised. Our
repeat work with clients such as Dubai Airports, Etihad Airways, Saudi Aramco and Jumeirah continues
to grow and we are delighted to be working for major developers such as Mubadala and Emaar.
The Group’s performance in India continued to be encouraging with growth in the year faster than
anticipated. India now employs over 150 people across the region headquartered in Chennai with
regional offices in Bangalore, Mumbai, Delhi and Hyderabad. We have strengthened our position to be a
leading provider of QS services with a pan-India presence and have an extremely strong platform to
continue to grow long term. Whilst there has been some recent market slowdown, Delhi and Bangalore
were the strongest performers particularly in the commercial and IT sectors. Elsewhere, the residential
market did experience a short dip, but this is now expected to recover once the new government
implements its plans to grow the economy at a faster pace again.
Asia Pacific
Revenue from Asia Pacific accounted for 32.0% of Group revenues at £28.6m (2013:
£26.0m). Segment profit before exceptional administrative expenses and amortisation of intangibles
were £1.3m (2013: £0.6m) and the order book stands at £47m (2013: £55m) primarily due to a foreign
exchange impact of £5m. Of these numbers, the Group’s operations in China and Hong Kong
contributed approximately £20.8m of revenues and £1.0m of net profit. The segment’s operating margin
of 4.5% remains satisfactory given the continued levels of investment in new resources dedicated to the
region.
During the year, the APAC business reported several significant new commissions including cost
management of the £400m Huawei Dongguan R&D Centre in China, around £1,800m of hotel and
casino development work in Macau, a series of commissions related to the early stages of the £11,330m
major expansion to the airport in Hong Kong, project management of the Helicopter Aircrew Training
System for the Department of Defence in Australia, and programming services for the £700m highways
link to the HK-Zhuhai-Macau Boundary Crossing in Hong Kong. Looking ahead, we anticipate
continued growth for our PM and Programming services in Asia and China, and a sustained level of
demand for our cost management work.
After several years of exceptionally high growth, our short to medium term Asia Pacific regional strategy
is to restrain further expansion to levels that are financially sustainable, and to upgrade and consolidate
our management systems across the region. Over the year we have strengthened our processes for
reducing lockup, established a process for cross-border invoicing with our China offices, implemented
the Group’s ERP system across Australia, South Asia and Hong Kong, with China to follow in mid-2014,
enhanced our management team by adding new directors in Project Management, Programming and
HR, and centralised the region’s IT and marketing support services. The Australian business was
restructured during the year and a closer regional integration is in place to address the increasing
demand for regionally integrated services.
North America
Our 50 / 50 Joint Venture Company VVA Sweett Inc continues to make headway. We now have five
joint venture offices in New York, Boston, New Jersey, Washington DC and Los Angeles. The business
is trading profitably and income and margins are growing steadily.
In the US, there is an increased awareness of the value that an independent Quantity Surveyor can add
to a project. Clients are now requesting additional services not typically provided in the US where
Quantity Surveying is now being recognised.
10
The construction market in the US is growing again and this is reflected in the increased activity and
number of bids VVA & VVA Sweett have made and been awarded during the past year. Of particular
note are projects for Condé Nast, Time Inc and Weil Gotshal in New York and Cooley and Viacom in
Los Angeles. Following our work for Primark in the UK and continental Europe, we are assisting them
with their rollout of their stores within the USA.
There have been a number of cross referrals of Trans-Atlantic projects with two pharmaceutical
schemes for Biomed in the United Kingdom and schemes in Los Angeles, London and Tokyo for
Jefferies.
Outlook
During the year the Group continued to perform strongly. Whilst it benefitted from one off gains from the
unwinding of the Australian hedge contract and the financial close of Leeds Social Housing, the
underlying performance was considerably better than the previous year.
Trading in the first few months of the year has been encouraging and this momentum is expected to be
maintained as the Group benefits from its wider geographical platform, the diversified nature of our
sector coverage and the improving trading conditions in its home markets. Based on an improving order
book and pipeline, the prospects for turnover growth and margin improvement remain on track.
I would like to take this opportunity on behalf of the entire Sweett Group team of thanking Mike
Henderson and Nick Woollacott, who both leave at the AGM. Mike has been with the Group for the last
16 years both as a Non-Executive Director and more latterly as Chairman. During his four years as
Chairman of the Board, his leadership, guidance and support has been exceptional. Nick has been with
the Group since our IPO and he has added considerable expertise and wise counsel during his time as
Non-Executive Director. We wish them all the best for the future.
Dean Webster, Chief Executive
Forward-looking statements
Certain statements in this audited final results statement 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.
11
Financial review
Trading performance
The Group’s financial performance was further improved during the year ended 31 March 2014 in
comparison with the previous year in terms of revenue, operating profit, profit before taxation and net
debt. It was also marked by the completion of the Hub North disposal, the financial close of the Leeds
Social Housing PFI project and the renegotiating of our banking facilities.
Group revenue was £89.4m (2013: £80.6m). Profit before taxation, after the impact of £1.5m of
exceptional administrative expenses, £0.6m charge for the performance share plan and £0.5m of
amortisation of acquired intangibles as described in Note 5, amounted to £2.8m (2013: £1.8m). This
profit includes the income on sale of the Group’s interests in the Hub North PFI project and profit
generated at financial close of the Leeds Social Housing PFI project. The Group’s derivative-based
currency cover in respect of Australian dollar exposures was cash settled for £0.4m resulting in a credit
of £1.0m to the income statement.
Revenue for the year increased by 10.9% to £89.4m (2013: £80.6m). Net revenue, after deduction of
sub-consultant costs, was £77.9m (2013: £72.4m).
Adjusted profit before tax increased by 46% to £5.4m (2013: £3.7m). Pre-tax profit was £2.8m (2013:
£1.8m) after exceptional administrative expenses, performance share plan charges and amortisation of
acquired intangibles and net finance income.
Adjusted operating profit was £4.9m (2013: £4.3m) and the adjusted operating profit margin was 6.2%
(2013: 5.3%). Operating profit amounted to £2.3m (2013: £2.3m) and operating margins were 2.6%
(2013: 2.9%).
Adjusted earnings per share were 5.0p (2013: 3.7p). Basic earnings per share were 2.8p (2013: 1.9p)
and diluted earnings per share were 2.7p (2013: 1.9p).
Our current order book is approximately £109m, an increase from last year’s reporting date of 9% (2013:
£100m), despite a negative impact of exchange rates of £5m.
In presenting the Group's adjusted profit below, amortisation of acquired intangible assets, performance
share plan costs and exceptional administrative expenses have been excluded so as to assist
understanding of the underlying performance of the Group:
Operating profit
Add back:
Amortisation of acquired intangibles
PSP charges and associated costs
2014
2013
£’000s
£’000s
2,310
2,340
457
480
609
-
Exceptional administrative expenses
1,523
1,455
Adjusted operating profit
4,899
4,275
Finance income
1,007
170
Finance expense
(491)
(735)
Adjusted profit before taxation
5,415
3,710
3,234
2,593
970
(272)
-
1,389
1,211
-
5,415
3,710
Analysed as to:
Core trading
Change in fair value of derivative financial instrument
Profit on investment activities
Net fee income on financial close of Leeds Social Housing and exiting
our position on Hub North (note 9)
12
Core trading profit, which excludes the change in fair value of the derivative and the profit on investment
activities, increased by 24.7% to £3.2m (2013: £2.6m).
The primary segmental analysis in Note 3 details the segmental revenue and result. In aggregate the
Group’s gross margin increased from 28.8% to 30.7% which is encouraging.
Details of exceptional administrative expenses are provided in Note 5. Exceptional administrative
expenses of £1,523,000 (2013: £1,455,000) comprised in the main costs associated with the
investigation regarding allegations made in the Wall Street Journal in June 2013 of £490,000,
restructuring costs of £978,000 (2013: £812,000)and interest payable to the vendors of Widnell Limited
of £55,000 (2013: £356,000).
Sterling appreciated during the year against all the Group’s major currencies being the Hong Kong
Dollar, Chinese Renminbi, UAE Dirham, Indian Rupee and Australian Dollar. The negative impact of this
strengthening was approximately £2.9m on revenue and negligible on operating profit.
Cash performance
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.
Key performance indicators
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 unprovisioned 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.
Underlying profit margins
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%).
Finance income
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.
Earnings per share
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).
13
Balance sheet
The Group ended the year with:
-
Net borrowings of £6.3m, compared with £7.1m at 31 March 2013;
Net assets of £27.4m, compared with £27.9m at 31 March 2013;
Work in progress (net of fees in advance) of £7.8m compared with £6.3m at 31 March 2013;
and
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.
Banking facilities
The Group funds its activities through cash generated from operations and supplemented, where
necessary and appropriate, with bank borrowings and asset funding.
The Group’s principal banker is Bank of Scotland plc, part of the Lloyds Banking Group, which provides
Sweett Group with overdraft, term loan and contract guarantee facilities as well as a guarantee facility to
secure obligations to third parties.
At 31 March 2014, the amount undrawn under the Group’s credit lines was £2.3m (2013: £3.0m).
Amounts drawn under the term loan are shown as non-current liabilities to the extent that repayments
are due after 31 March 2015. All other liabilities to Bank of Scotland plc and overseas banks are shown
as current liabilities. All banking covenants were met during the financial year and at 31 March 2014.
The Bank of Scotland plc facility agreements contain four separate financial covenants being:




Net worth shall not at any time be less than £25m
The ratio of EBITDA to Total Interest shall not at any time be less than 4:1
The ratio of Net Operating Cash flow to Bank Debt Service on each test date shall not be less
than 1.1:1
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.
Going concern
A detailed examination of the Group’s cash flow and trading forecasts has been undertaken to enable
the Board to conclude that the Group can operate within its banking covenants such that it could be
established that the Group should continue to prepare its financial statements on the going concern
basis. The Group’s bankers have confirmed that, in the normal course of events, the overdraft facility will
be replaced on expiry late in the 2014 calendar year.
Material considerations in a forward look at covenant compliance include:

The assumption that a retention balance of £1m on a Middle East contract will be recovered
during the current financial year;

Working capital

Profitability
Internal controls
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
Treasury matters and banking arrangements are overseen by a treasury committee, which is chaired by
the Group chairman.
14
Dividends
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.
Employee benefit trust
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.
Share incentive plan
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.
Summary
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.
Patrick Sinclair, Chief Financial Officer
15
Consolidated income statement for the year ended 31 March 2014
2014
£’000
2013
£’000
89,398
(61,936)
80,636
(57,398)
27,462
23,238
3
-
1,389
5
5
(22,563)
(457)
(609)
(1,523)
(20,352)
(480)
(1,455)
(25,152)
(22,287)
4,899
(457)
(609)
(1,523)
4,275
(480)
(1,455)
2,310
2,340
Note
Revenue
Cost of sales
3
Gross profit
Profit on disposal of available for sale assets
Administrative expenses before the following:
Amortisation of acquired intangibles
Performance Share Plan charges and associated costs
Exceptional administrative expenses
Total administrative expenses
Operating profit before the following:
Amortisation of acquired intangibles
Performance Share Plan charges and associated costs
Exceptional administrative expenses
5
5
Operating profit
Finance income
Finance costs
Net finance income / (costs)
4
4
4
1,007
(491)
516
170
(735)
(565)
Profit before taxation
Income tax expense
Profit for the year attributable to owners of the
parent
5
6
2,826
(932)
1,775
(476)
1,894
1,299
Basic earnings per share (pence)
8
2.8
1.9
Diluted earnings per share (pence)
8
2.7
1.9
16
Consolidated statement of comprehensive income for the year ended 31 March 2014
2014
2013
£’000
£’000
1,894
1,299
839
(1,041)
(271)
153
568
(888)
(2,553)
789
9
-
(2,015)
6
-
484
-
(549)
(2,553)
(1,291)
(1,985)
(2,179)
(91)
(880)
Note
Profit for the year
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial gain / (loss) on pension scheme
Tax on actuarial gain / (loss) on pension scheme
6
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Reversal of valuation gains on disposal of
available for sale financial assets
Reversal of deferred tax on valuation gains on disposal of
available for sale financial assets
Change in fair value of currency hedge derivative financial
instrument
Total other comprehensive expense
Total comprehensive expense attributable
to owners of the parent
17
Consolidated balance sheet as at 31 March 2014
2014
£’000
2013
£’000
15,228
2,502
16,348
2,729
1,618
1,779
87
91
1,355
20,881
87
567
1,616
23,126
34,123
6,568
40,691
61,572
34,654
3,915
38,569
61,695
(7,222)
(8,710)
Derivative financial instrument
Trade and other payables
(17,366)
(1,359)
(16,700)
Current income tax liabilities
Total current liabilities
(1,590)
(26,178)
(1,375)
(28,144)
(5,633)
(107)
(2,301)
(8,041)
(2,265)
(152)
(3,180)
(5,597)
(34,219)
(33,741)
Net assets
27,353
27,954
Equity
Share capital
Share premium account
Treasury shares
Share option reserve
Other reserves
Retained earnings
Total equity attributable to owners of the
parent
6,865
13,833
(17)
647
(1,310)
7,335
6,769
13,658
(10)
640
1,243
5,654
27,353
27,954
Note
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Financial assets available for sale
Loans and other receivables
Deferred income tax asset
Total non-current assets
9
9
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Borrowings
Non-current liabilities
Borrowings
Deferred income tax liability
Retirement benefit obligations
Total non-current liabilities
Total liabilities
18
Consolidated statement of changes in equity for the year ended 31 March 2014
Share
capital
£’000
Share
premium
account
£’000
Treasury
shares
£’000
Share
option
reserves
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
equity
£’000
6,631
13,475
(60)
600
1,985
6,198
28,829
-
-
-
-
-
1,299
1,299
-
-
-
-
789
-
789
-
-
-
-
(2,015)
-
(2,015)
-
-
-
-
-
(1,041)
(1,041)
-
-
-
-
484
153
637
-
-
-
-
-
(549)
(549)
-
-
-
-
(742)
(1,437)
(2,179)
-
-
-
-
(742)
(138)
(880)
-
-
-
-
-
(406)
(406)
- value of services provided
-
-
-
40
-
-
40
- exercise of awards
Net disposal of shares during
the year
New shares issued during
the year
-
-
-
-
-
-
-
-
-
50
-
-
-
50
138
183
-
-
-
-
321
Transactions with owners
138
183
50
40
-
(406)
5
At 31 March 2013
Comprehensive (expense) /
income
6,769
13,658
(10)
640
1,243
5,654
27,954
Profit for the year
Other comprehensive
(expense) / income:
Exchange differences on
translation of foreign
operations
Actuarial gain on pension
scheme
Deferred tax on items taken
directly to equity
Change in fair value of
derivative financial
instrument
Total other comprehensive
expense
Total comprehensive
(expense) / income
-
-
-
-
-
1,894
1,894
-
-
-
-
(2,553)
-
(2,553)
-
-
-
-
-
839
839
-
-
-
-
-
(271)
(271)
-
-
-
-
-
-
-
-
-
-
-
(2,553)
568
(1,985)
-
-
-
-
(2,553)
2,462
(91)
Group
Note
At 1 April 2012
Comprehensive expense
Profit for the year
Other comprehensive
income / (expense):
Exchange differences on
translation of foreign
operations
Reversal of valuation gains
on disposal of available for
sale financial assets
Actuarial loss on pension
scheme
Deferred tax on items taken
directly to equity
Change in fair value of
derivative financial
instrument
9
Total other comprehensive
expense
Total comprehensive
expense
Transactions with owners:
Dividends
Employee share option
scheme
7
6
19
Share
capital
Share
premium
Treasury
shares
Share
option
reserves
Other
reserves
Retained
earnings
Total
equity
£’000
£’000
£’000
£’000
£’000
£’000
£’000
-
-
-
-
-
(816)
(816)
- value of services provided
-
-
-
42
-
-
42
- exercise of awards
Net acquisition of shares
during the year
New shares issued during
the year
-
-
-
(35)
-
35
-
-
-
(7)
-
-
-
(7)
96
175
-
-
-
-
271
Transactions with owners
96
175
(7)
7
-
(781)
(510)
6,865
13,833
(17)
647
(1,310)
7,335
27,353
Group
Note
Transactions with owners:
Dividends
Employee share option
scheme
At 31 March 2014
7
20
Consolidated statement of cash flows for the year ended 31 March 2014
2014
Group
£’000
2013
Group
£’000
5,658
(491)
(237)
2,167
(450)
(765)
4,930
952
52
170
-
2,772
(144)
-
(760)
(277)
302
(467)
(1,526)
(1,013)
(160)
(293)
(1,010)
-
(2,820)
466
(816)
(6,375)
(406)
(1,333)
(7)
(5)
189
-
(390)
-
(7)
50
Proceeds from borrowings
Net cash generated from financing activities
8,083
677
1,750
56
Net increase in cash and cash equivalents
2,787
1,474
417
(1,172)
Exchange gains / (losses) on cash, cash
equivalents and bank overdrafts
(313)
115
Cash, cash equivalents and bank overdrafts at the
end of the year
2,891
417
Note
Cash flows from operating activities
Cash flows from operations
Interest paid
Income taxes paid
10
Net cash generated from operating activities
Cash flows from investing activities
Interest received
Proceeds on disposal of available
for sale financial assets
Payments to acquire goodwill
Purchase of property, plant and equipment
Purchase of intangible assets
Decrease / (Increase) in financial assets
Settlement of deferred consideration
Settlement of vendor liabilities
Net cash generated from / (used in) investing
activities
Cash flows from financing activities
Dividends paid
Repayments of borrowings
7
11
Repayments of obligations under finance leases
Proceeds on issue of Ordinary shares
Cash settlement of derivative financial instrument
(Increase) / decrease in treasury shares
Cash, cash equivalents and bank overdrafts at the
beginning of the year
21
Notes to the audited financial results
1. General information
This preliminary announcement does not constitute the Group's full financial statements for the year ended 31
March 2014. The financial information for the year ended 31 March 2014, set out in this announcement does
not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and has been
extracted from the Annual Report and Financial Statements for the year ended 31 March 2014. Statutory
accounts for the year ended 31 March 2013 have been delivered to the Registrar of Companies and those for
the year ended 31 March 2014 will be available to shareholders by 5 August 20104 for approval at the Annual
General Meeting to be held on 29 August 2014. Those accounts have not yet been delivered to the Registrar.
The auditors have reported on these accounts; their report was unqualified.
Sweett Group plc is a public limited company with shares listed on the Alternative Investment Market and is
incorporated and domiciled in the United Kingdom under the Companies Act 2006. The address of the
registered office is 60 Gray’s Inn Road, London, WC1X 8AQ. The Company is the parent company of a group
of international companies and the principal activities of the Group include the provision of construction cost
consultancy, project management and other specialised consultancy services, including building surveying.
These activities are carried out in Europe, Middle East, Africa and India (MEAI) and Asia Pacific, the Group’s
operating segments.
Basis of preparation
The accounting policies applied by the group were published in the Annual Report and Financial Statements
for the year ended 31 March 2013, which is available on the Group’s website at www.sweettgroup.com, and
they will also be included in the Annual Report and Financial Statements for the year ended 31 March 2014.
There have been no significant changes to the Group’s accounting policies during the year.
2. Significant accounting policies
The accounting policies adopted for the year ended 31 March 2014 are consistent with the policies included
in the annual report and financial statements for the year ended 31 March 2013.
3. 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, 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. All three categories generate revenues from the provision of quantity
surveying, project management and specialist services / management consultancy and the Europe business
generated profits on the disposal of its PPP/PFI financial assets available for sale.
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 results for each operating segment that
is reviewed by the Board.
22
Europe
Middle
East,
Africa and
India
Asia
Pacific
Total
£’000s
£’000s
£’000s
£’000s
49,280
11,763
28,568
89,611
-
(213)
-
(213)
49,280
11,550
28,568
89,398
Segment results before amortisation of acquired
intangibles and exceptional administrative expenses
5,686
115
1,299
7,100
Amortisation of acquired intangibles
Exceptional administrative expenses
(100)
(392)
(33)
(81)
(324)
(282)
(457)
(755)
Segment results after amortisation of acquired
intangibles and exceptional administrative expenses
5,194
1
693
5,888
2014
Gross revenue
Inter-segment revenue
External revenue
Unallocated corporate costs *
(3,578)
Finance income
1,007
Finance expense
(491)
Profit before taxation
2,826
Income tax expense
(932)
Profit for the year
1,894
Europe
Middle
East,
Africa and
India
Asia
Pacific
Total
£’000s
£’000s
£’000s
£’000s
Cost consultancy / quantity surveying
29,333
5,374
24,610
59,317
Project management
10,998
5,930
2,859
19,787
8,949
246
1,099
10,294
49,280
11,550
28,568
89,398
Depreciation of property, plant and equipment
342
88
428
858
Amortisation of computer software
324
22
56
402
Amortisation of acquired intangibles
100
33
324
457
Other profit and loss disclosures
External revenue by service provided
Specialist services / management consultancy
Europe
£’000s
Middle East,
Africa and
India
£’000s
Asia
Pacific
£’000s
Total
£’000s
Segmental assets
27,307
7,065
27,200
61,572
Segmental liabilities
21,895
2,295
10,029
34,219
375
156
506
1,037
Balance sheet disclosures
Capital additions
23
* 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 for the year ended 31 March 2014, £768,000 (2013: £170,000) of exceptional
administrative expenses and £609,000 (2013: £nil) performance share plan charges.
The Group is domiciled in the UK. Its revenue from external customers in the UK is £47.4m (2013: £40.7m)
and from external customers from other countries is £42.0m (2013: £39.9m).
Capital additions comprise the acquisition of property, plant and equipment and other intangible assets.
The assets of the segments include intangible assets, property, plant and equipment, assets from finance
leases, financial assets, trade 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.
The total of non-current assets other than financial instruments and deferred taxation located in the UK is
£13.5m (2013: £13.6m) and the total of such non-current assets in other countries is £5.9m (2013: £7.5m).
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.
Europe
Middle East,
Africa and
India
Asia
Pacific
Total
£’000s
£’000s
£’000s
£’000s
Gross revenue
44,182
12,166
25,987
82,335
Inter-segment revenue
(1,468)
(231)
-
(1,699)
External revenue
42,714
11,935
25,987
80,636
Segment results before exceptional administrative
expenses and amortisation of acquired intangibles
3,720
1,282
1,287
6,289
Amortisation of acquired intangibles
(472)
(456)
(357)
(1,285)
Exceptional administrative expenses
(100)
(33)
(347)
(480
Segment results after amortisation of acquired
intangibles and exceptional administrative expenses
3,148
793
583
4,524
2013
Unallocated corporate costs *
(2,184)
Finance income
170
Finance expense
(735)
Profit before taxation
1,775
Income tax expense
(476)
Profit for the year
1,299
Europe
Middle East,
Africa and
India
Asia
Pacific
Total
£’000s
£’000s
£’000s
£’000s
Cost consultancy / quantity surveying
22,143
8,109
19,411
49,663
Project management
13,903
3,333
5,101
22,337
6,668
493
1,475
8,636
42,714
11,935
25,987
80,636
Other profit and loss disclosures
External revenue by service provided
Specialist services / management consultancy
24
Net profit on investment activities
1,389
-
-
1,389
Depreciation of property, plant and equipment
362
78
359
799
Amortisation of computer software
332
57
38
427
Amortisation of acquired intangibles
100
33
347
480
£’000s
Net profit on investment activities
Gross proceeds on disposal of available for sale
financial assets
5,143
Net costs of disposal
(3,437)
Profit on disposal
1,706
Amortisation of bid costs
(317)
Net profit on investment activities
1,389
Europe
Middle East,
Africa and
India
Asia
Pacific
Total
Balance sheet disclosures
£’000s
£’000s
£’000s
£’000s
Segmental assets
28,358
7,330
26,007
61,695
Segmental liabilities
23,007
1,820
8,914
33,741
370
123
680
1,173
Capital additions
4. Net finance income / (costs)
2014
£’000
2013
£’000
Finance income
Interest receivable on bank deposits
Interest receivable on loan notes
3
8
34
132
Change in fair value of derivative financial instrument
970
-
Dividend income on available for sale financial assets
1,007
30
170
(486)
(440)
-
(13)
-
(272)
(1)
(2)
Finance costs
Interest payable on bank and other borrowings
Interest expense on unwinding of discount
Change in fair value of derivative financial instrument
Finance leases
Other interest payable
Net finance income / (costs)
(4)
(8)
(491)
(735)
516
(565)
The change in fair value of derivative financial instrument relates to a forward foreign exchange contract to
hedge advances in Australian dollars to a subsidiary company, the bulk of which were capitalised in
September 2011. This was rolled into a replacement instrument on maturity in March 2012 and subsequently
in March 2013. In September 2013 the contract was fully exited, resulting in the positive fair value adjustment
of £970,000 in finance income above.
Interest expense on unwinding of discount relates to the notional interest on deferred acquisition
consideration.
25
5. Profit before taxation is stated after charging / (crediting):
2014
£’000
2013
£’000
55,670
51,346
Depreciation of property, plant and equipment
858
799
Amortisation of intangible assets
859
907
Impairment loss recognised on trade receivables
443
443
Operating lease rentals
3,151
3,156
Auditors’ remuneration
254
269
Exchange loss / (gain)
408
(169)
Performance Share Plan charges and associated costs (see below)
609
-
Employee benefit expense (Note 6)
For the first year we are showing a cost associated with the Performance Share plan of £609,000 (2013:
£nil). This represents management’s best estimate of the accrued cost of the three live schemes as at
the balance sheet date.
Exceptional administrative expenses:
2014
£’000
2013
£’000
Restructuring costs
978
929
Interest on vendor liabilities
Costs associated with investigating the Wall Street Journal allegations
55
490
356
-
-
170
1,523
1,455
Costs associated with the general meeting of 9 May 2013
Exceptional administrative expenses are those that the directors consider are of such unusual size or
nature that they are required to be separately disclosed to allow the user of the financial statements to
understand the underlying performance of the Group, notwithstanding that such items may be recurring in
nature. These are shown on the face of the income statement as exceptional administrative expenses.
Restructuring costs comprise redundancy costs of £0.3m (2013: £0.5m) and other restructuring costs of
£0.7m (2013: £0.4m).
Interest on vendor liabilities comprises interest on late-paid sums to the vendors of Widnell Limited, now
fully settled.
A requisition for a general meeting of shareholders, eventually held on 9 May 2013, was received in March
2013 and the costs were accordingly expensed in the year to 31 March 2013.
6. Income tax expense
(a) Analysis of charge in the year
Current tax:
UK corporation tax
Overseas tax
Adjustments in respect of previous years
2014
£’000
2013
£’000
571
626
360
537
(147)
1,050
(296)
601
Deferred taxation:
Origination and reversal of temporary differences – Note 15
(259)
(17)
Adjustments in respect of previous years
141
(108)
Income tax expense - Note 7(b)
932
476
26
(b) Factors affecting the tax charge for the year:
The tax on the Group’s profit before taxation differs from the UK statutory rate as follows:
Profit before taxation
Tax calculated at domestic tax rates applicable to profits in the
respective entities at 23% (2013: 24%)
2014
£’000
2013
£’000
2,826
1,775
650
426
334
18
(349)
232
47
315
(128)
(404)
260
7
932
476
Tax effect of:
Expenses not deductible for tax purposes
Different tax rates on overseas earnings
Prior year adjustments (other than changes in provisions)
Current year charge for deferred tax not recognised
Impact of deferred tax on changes in tax rates
Total taxation – Note 7(a)
The weighted average applicable tax rate is 33.0% (2013: 26.8%).
Changes to the UK Corporation tax rates were substantively enacted as part of the Finance Act 2013 on 2
July 2013. These include reductions to the main rate to reduce the rate to 21% from 1 April 2014 and to
20% from 1 April 2015. Deferred taxes at the balance sheet date have been measured using these
enacted tax rates and reflected in these financial statements.
The income tax credited / (charged) to equity during the year was as
follows:
2014
£’000
2013
£’000
-
484
(271)
153
(271)
637
2014
£’000
2013
£’000
Interim dividend paid of 0.50p per share in respect of the year ended 31
March 2014 (2013: interim dividend paid of 0.30p per share in respect
of the year ended 31 March 2013)
342
203
Final dividend paid of 0.70p per share in respect of the year ended 31
March 2013 (2013: final dividend paid of 0.30p per share in respect of
the year ended 31 March 2012)
474
203
816
406
0.5p
0.8p
0.3p
0.7p
Deferred taxation:
Fair value reserves in equity:
- Available-for-sale financial assets (Note 13)
Tax on actuarial gain / (loss) on retirement benefit scheme
7. Dividends
Dividend per share in respect of the financial year:
Interim dividend per share paid during the year
Final dividend per share declared for the year
The Board has declared a final dividend in respect of the year ended 31 March 2014 of 0.8p per share
(2013: 0.7p per share) amounting to 1.3p for the year (2013: 1.0p for the year). These financial
statements do not reflect the final dividend for 2014.
27
8. Earnings per share
2014
£’000
2013
£’000
Profit for the financial year attributable to owners of the parent
1,894
1,299
Number
Number
67,977,092
67,060,705
2.8
1.9
Number
Number
67,977,092
67,060,705
1,403,215
69,380,307
45,538
67,106,243
2.7
1.9
Weighted average number of shares in issue
Basic earnings per share (pence)
Weighted average number of shares in issue
Adjustment for:
Dilutive effect of share options
Weighted average number of ordinary shares for diluted earnings per share
Diluted earnings per share (pence)
2014
2013
£’000
£’000
Profit for the financial year attributable to
owners of the parent
1,894
1,299
Tax-adjusted exceptional administrative costs and Performance Share Plan
charges
1,502
1,190
3,396
2,489
Number
Number
67,977,092
67,060,705
5.0
3.7
Weighted average number of ordinary shares
Before exceptional administrative expenses and Performance Share Plan
charges (pence)
Basic
Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by the
weighted average number of Ordinary shares in issue during the year excluding Ordinary shares
purchased by the company and held as treasury shares (Note 24). The weighted number of shares
excludes shares held by employee trusts.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. The company’s dilutive potential
ordinary shares are share options. A calculation is performed to determine the number of shares that could
have been acquired at fair value (determined as the average annual market share price of the company’s
shares) based on the monetary value of the subscription rights attached to outstanding share options. The
number of shares calculated as above is compared with the number of shares that would have been
issued assuming the exercise of the share options.
Before exceptional administrative expenses and performance share plan charges
Tax-adjusted earnings per share are calculated before exceptional administrative expenses and
Performance Share Plan charges and after amortisation of acquired intangibles using the weighted
average number of shares.
28
9. Financial assets and loans and other receivables
Group
Available for
sale assets
Loans and
other
receivables
Total
£’000
£’000
£’000
Cost or fair value
At 1 April 2012
2,062
3,329
5,391
Additions
40
497
537
Disposals
-
(3,259)
(3,259)
(2,015)
-
(2,015)
87
567
654
Fair value adjustment
At 31 March 2013
Additions
-
484
484
Disposals
-
(803)
(803)
Reclassified as due within one year
-
(131)
(131)
Exchange differences
-
(26)
(26)
87
91
178
At 31 March 2014
Financial assets available for sale relate to the capital cost of 15% of E4D&G Holdco Limited, a company
incorporated in England and Wales, and 33.3% of the A shares of Express Lift Investments Limited, a
company incorporated in England and Wales. The Group also owns 50% of Sweett Equitix Limited, a
company incorporated in England and Wales, at a cost of £51. The Directors do not believe that the
Group is able to exert significant influence over either Express Lift Investments Limited or Sweett Equitix
Limited.
These companies are special purpose vehicles involved in the construction of health and educational
facilities under PFI/PPP schemes. The balance of risks and rewards derived from the underlying assets
is not borne by the Group, and therefore its interest is accounted for as a financial asset and is classified
as available-for-sale and loans and receivables respectively. The Group has now disposed of its interest
in all these PFI/PPP schemes except for the retained equity interests referred to above, the benefits of
which relate to future potential dividend income. These assets are therefore held at cost and the
Directors believe that this approximates to their fair value.
Previously the Group’s interest in such assets were held at fair value on the basis that once the
construction of the facilities is complete and they are in the operational phase, the fair value could be
measured by computing the forecast project cash flows relevant to the Group’s interest, discounted at
relevant market discount rates, or by reference to an agreed market value.
On 21 January 2014 Sweett Investments Limited transferred its interest in the Scottish hub North
Territory project to a new joint venture company, Sweett Equitix Limited jointly owned by Sweett
Investments Limited and Equitix Hubco 3 Limited. Under the terms of the transfer agreement, Equitix
Hubco 3 Limited will provide substitute financing for the two existing hub North schemes and fund future
schemes to the extent previously underwritten by the Group. The cash amount paid to the Group in
consideration for the transfer was approximately £900,000.
In February 2013 the Group disposed of its investment in 15% of the unsecured loan notes 2039 in the
Dumfries & Galloway PFI project. The transaction was achieved via the sale of Cyril Sweett Investments
Limited, whose only asset at completion was the loan notes. The consideration was £2,250,000 resulting
in a profit of £500,000. The underlying project was Dumfries & Galloway Schools. The Group retains its
interest in 15% of the issued share capital of E4D&G Holdco Limited via its wholly owned subsidiary,
Sweett Investments (D&G) Limited.
In September 2012 Cyril Sweett Investments Limited disposed of its holding of 19% of the issued share
capital and subordinated debt of Lift Investments Limited for £700,000, resulting in a profit of £0.4m. The
underlying project was Plymouth Lift.
In July 2012 Cyril Sweett Investments Limited disposed of its holding of 19% of the issued share capital
and subordinated debt of e4i Holdings Limited for £2,192,860 resulting in a profit of £800,000. The
underlying project was Inverclyde Schools.
Loans and other receivables represent subordinated loan notes together with accrued interest receivable
of £nil (2013: £323,000) and rental deposits repayable after more than one year of £91,000 (2013:
£244,000).
29
10. Cash flows from operations
2014
Group
£’000
2013
Group
£’000
2,826
1,775
(1,007)
491
858
859
236
42
4,305
(170)
735
799
907
(1,389)
57
40
2,754
(Increase) / decrease in receivables
Increase / (decrease) in payables
Payment to fund the defined benefit pension scheme deficit
(678)
2,307
(276)
(4,674)
4,413
(326)
Cash inflow / (outflow) from operations
5,658
2,167
2014
2013
Group
£’000
Group
£’000
2,787
1,474
(8,083)
(1,750)
6,375
1,333
7
5
(313)
115
773
1,177
Net debt at the beginning of the year
(7,060)
(8,237)
Net debt at the end of the year
(6,287)
(7,060)
Profit / (loss) before taxation
Adjustment for:
Finance income
Finance cost
Depreciation of property, plant and equipment
Amortisation of intangible assets
Profit on investment activities
Defined benefit pension scheme costs
Share based payments
Operating cash flows before movements in working capital
11. Reconciliation of movement in net debt
Net increase / (decrease) in cash, cash equivalents and bank
overdraft
New bank loans raised
Repayment of bank loans
Redemption of finance leases
Exchange (losses) / gains on cash, cash equivalents and bank
overdrafts
Change in net debt
30
12. Contingent liabilities
The Group and the Company have contingent liabilities in respect of bonds and guarantees issued to third
parties in the normal course of business. At 31 March 2014 the contingent liability amounted to £0.6m (2013:
£0.5m).
The Company has guaranteed the overdraft facility of Sweett (UK) Limited amounting to £4.9m (2013: £4.9m).
There exists a threatened High Court action by a former employee for breach of contract. The Directors are of
the view that there is little evidence to support the merit of this possible litigation, in respect of which no
provision has therefore been made in these financial statements.
With respect to the investigation into allegations contained in the Wall Street Journal in 2013, as explained in
the Chairman’s Statement, at present, the directors believe that there is not sufficient evidence to form a view
as to the likelihood of any potential fines or other financial consequences. Accordingly no provision has been
included within these financial statements.
13. Post balance sheet events
There have been no significant post balance sheet events.
ENDS
31