RNS Number : 1112D
SMC Group Plc
10 September 2008
10th September 2008
SMC Group Plc
Interim Results for the six months ended 30 June 2008
SMC Group Plc (SMC.L), the architects and design businesses announces its Interim Results for the six months ended 30 June 2008.
Highlights:
* Turnover increased by 4.3% to �22.0m (H1 2007: �21.1m)
* Continued international growth - non UK business now accounts for 13% of fee income, up c200% on H1 2007 with substantial growth
and expansion of operations in Asia and in the Middle East
* EBITDA increased by 183% to �3.4m (H1 2007: �1.2m*)
* Last Twelve Months (LTM) to 30 June 2008 EBITDA of �7.4m* (up 43% compared to FY07 �5.2m*, up 126% compared to H1 07 �1.2m*)
* Strong results achieved across Group - profitability improving across all divisions
* H1 2008 profit before tax of �1.6m vs H1 2007 loss before tax of �4.9m
* Basic earnings per share 0.5p (2007: loss per share of 9.2p)
* Basic adjusted earnings per share 1.0p (2007: 0.5p)
* Net debt reduced by �3.6m since December 2007 to �16.7m, substantially reducing the financial leverage from 3.77x to 2.25x LTM
EBITDA
* Banking facilities renewed with improved terms following the reduction of debt via open offer
* Deferred consideration renegotiated and paid resulting in related liability reduced from �11.7m (December 2007) to a maximum of
�2.3m dependent on Group share price performance
* Defensive characteristics of general business improved - public (defence and education) sector (35%) and international work (13%)
now accounts for 48% of forward order book
* Record order book visibility - 90% + of pipeline confirmed for the full year and 45%+ for 2009
* Chris Littlemore appointed as Chief Executive, Sir Rodney Walker resumed position of non-executive Chairman
* Clear regional operational structure, improved management and financial control in place
*EBITDA stated pre exceptional items
Sir Rodney Walker, non-executive Chairman said:
"We are delighted to have achieved strong progress in the first half of the year following the significant changes implemented during
this period and as a result of the review of the business we undertook last year.
"We have a high visibility of revenue, with a record order book in place, a diverse client-base, sector and geographical spread and are
confident in the platform we have for growth. We have opened new offices in our Asian business and expect to achieve further benefits of
integration through cross selling and cost reduction. We remain excited about the future and the prospects for the full year."
For further information:
SMC Group Plc Tel: +44 (0)20 7580 0400
Chris Littlemore/Rob Boardman
Numis Securities Limited Tel: +44 (0)20 7260 1000
Stuart Skinner/Brent Nabbs (Nominated Adviser)
/James Serjeant (Corporate Broking)
Financial Dynamics Tel: +44 (0)20 7831 3113
Jonathon Brill/Billy Clegg/Caroline Stewart
Chairman's Statement
Sir Rodney Walker
We are pleased to have achieved a solid performance in the first six months of the year, following the significant efforts made last
year to re-structure the business model. SMC is now a stable, well managed, profitable business positioned for continued growth.
In the first six months of this year, we have achieved year on year turnover growth of 4% and an increase in EBITDA of 183%* mainly via
cost savings, but also due to improved performance across the business. The Group's balance sheet and net debt position have been enhanced
by the raising of �13.1m via the open offer in January and the simultaneous reduction of deferred consideration liabilities by �2.5m.
We are pleased that we have grown our revenue from an increasingly diverse client base. We are satisfied with the balance on our order
book between private and public sector clients, and although we have not seen the impact of a downturn as yet, we believe that our approach
towards growing our client base will ensure the Group's business model is defensive.
Our international division continues to be an exciting area of growth for the business, particularly the Far East. International clients
represented 11% of sales in the first half compared to just 2.5% in same period of 2007. In August we opened offices in Malaysia and we will
establish a presence in the UAE in September.
We have managed to extract further integration costs of the business as a result of streamlining the business model. We are on track to
achieve at least a further �1.0m of savings to be realised over the next two financial years of which approximately one third will impact in
this financial year. These were related to the further centralisation of administrative functions, including HR and group purchasing and the
regionalisation of the business. Working capital, in particular WIP and debtors remain under close scrutiny and control by the Board and
have remained stable since the year end. Excluding the effect of the unwinding of the exceptional charges incurred in 2007 in relation to
reorganisation and aborted transactions, the business continues to be operating cash flow positive. In addition to this the appointment of
regional directors and financial controllers is ensuring that we have tighter accountability and cost control across the Group.
Following the action we took to take costs out of the business, refinancing the deferred consideration and reducing the levels of debt,
we announced that we have agreed new favourable funding arrangements with HBOS. These improved terms include a structured re-payment of term
and overdraft facilities over the next five years.
We were delighted to appoint Chris Littlemore as Chief Executive at the AGM in June, following hard work and the progress he delivered
for the Group as Managing Director from 1 February. His appointment and the near completion of the re-structuring process means the business
is now in a robust shape. I therefore stepped down from my executive role and have resumed the role of non executive Chairman.
*EBITDA pre exceptional items
Outlook
We are pleased with the management and systems we now have in place, and believe that we have solid foundations to achieve further
growth.
Following the period end all business divisions continue to show improving levels of profitability.
We have high visibility of revenue with a record order book in place, a diverse client base and geographical spread and are confident in
the platform we have for growth. As well as expanding rapidly in Asia, we should benefit from further benefits of integration through cross
selling and cost reduction. Although we are aware of the challenging financial climate, we remain excited about the future and the prospects
for the full year.
Finally I would like to take this opportunity to thank all of our colleagues for their continued support and their help in achieving
these results.
Sir Rodney Walker
Non-executive Chairman
10th September 2008
Chief Executive's Review
Chris Littlemore
I am delighted to be reporting these results as Chief Executive. Following the re-structuring of the Group its focus on one united goal,
these results demonstrate that the business in its current form has a solid platform for growth.
Financial Performance for the 6 months ended 30th June
* Turnover increased 4% from �21.1m to �22.0m
* EBITDA increased 183% from �1.2m (pre exceptional items) to �3.4m
* PBT turned from loss of �4.9m to profit of �1.6m
* Significant reduction in net debt/liabilities leading to increase in net assets of �14.35m
Operational Performance
SMC Group is the second largest architecture group in the UK, with an exciting fast growth international division. Our strategy has been
to focus on diversifying revenue streams. We now have a good balance between public and private clients as well as different international
clients across sectors including education, health and other publicly funded sports and leisure sources. Our international business has also
expanded rapidly and we opened a new office in Kuala Lumpur and will commence operations in the UAE shortly. These developments help
underpin the defensive qualities of the business.
The restructured business has led to improved cross-fertilisation of revenues. An example is a joint team working on a major project in
the South West of England where leisure expertise from another part of the country has been combined with our local presence to win a major
commission. We believe that organic growth from such cross-fertilisation will continue to be achieved in the second half of the year.
We are increasingly operating as one business in respect of mainstream core UK architectural services. This has assisted both the
acquisition and delivery of work and we believe that this will be further enhanced by the forthcoming planned rebranding process.
Key contract wins for the Group in the first half include:
* Infrastructure projects in Dubai
* Retail & mixed use developments in China, Malaysia, India and Singapore
* Major supermarket projects in UK
* Numerous government buildings in UK
* Eco town masterplan in UK
* Mixed use masterplans in Manchester, Croydon and South London
* Affordable and private residential projects in UK
Having harmonised our employment terms and conditions for all staff we continue to recruit to maintain and enhance the quality of our
staff in the UK in a market where qualified personnel are more readily available than 12 months ago.
Outlook
Our restructuring of the Group has enabled us to create a whole that is greater than the sum of its parts. Post period end, we are
pleased to report that all divisions of the Group are showing increasing levels of profitability. We will continue ensure the Group
maintains the defensive benefits of a diverse revenue stream, whilst positioning it for growth. At the same time we seek to leverage off the
scale and depth of our enterprise.
Specifically in the second half of the year we will continue to focus our strategy on:
- Organic expansion through cross selling
- Leverage market position by exploiting scale/critical mass
- Targeting of large, stable projects with public or secured funding
- Further international growth
- Providing high quality service to clients
- Continue to extract integration benefits and cost savings
Despite the current economic climate we have 90% revenue visibility for the remainder of 2008 and 45% for 2009. With the prospect of a
rebranding and further reorganisation benefits to be completed I believe the Group is in position to continue to grow its profitability and
market share.
Chris Littlemore
Chief Executive
10th September 2008
INDEPENDENT REVIEW REPORT TO SMC GROUP PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six
months ended 30 June 2008 which comprises the consolidated income statement, consolidated balance sheet, consolidated statement of changes
in equity, consolidated cash flow statement and related notes 1 to 7. We have read the other information contained in the half yearly
financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the
conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the Accounting Standards Board Statement "Half-Yearly Financial Reports".
As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the
Accounting Standards Board Statement "Half-Yearly Financial Reports".
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the
half-yearly financial report for the 6 months ended 30 June 2008 is not prepared, in all material respects, in accordance with the
Accounting Standards Board Statement "Half-Yearly Financial Reports".
Ernst & Young LLP
London
10 September 2008
Consolidated income statement
For the six months ended 30 June 2008
Unaudited Unaudited Audited
Total Total Total
6 months ended 30 6 months ended 30 Year
June 2008 June 2007 ended 31 Dec 2007
Notes �'000 �'000 �'000
CONTINUING OPERATIONS
REVENUE 22,008 21,106 44,169
Cost of sales (11,364) (10,488) (23,063)
GROSS PROFIT 10,644 10,618 21,106
Administrative expenses (7,236) (13,064) (21,424)
EBITDA* 3,408 (2,446) (318)
(359) (360) (817)
Depreciation
Amortisation of intangible assets (927) (919) (1,837)
Total operating expenses (8,522) (14,343) (24,078)
Share of results of joint venture - post tax - - (30)
OPERATING PROFIT / (LOSS) 2,122 (3,725) (3,002)
Finance revenue 68 120 372
Finance costs (621) (1,281) (2,556)
PROFIT / (LOSS) BEFORE TAXATION 1,569 (4,886) (5,186)
Taxation 4 (376) 613 1,026
PROFIT / (LOSS) FOR THE PERIOD 1,193 (4,273) (4,160)
EARNINGS / (LOSS) PER SHARE (IN PENCE)
Basic 5 0.54 (9.19) (8.66)
Diluted 5 0.54 (9.19) (8.66)
*Earnings before interest, depreciation and amortisation.
Consolidated balance sheet
As at 30 June 2008
Unaudited Unaudited Audited
30 June 2008 30 June 2007 31 Dec 2007
�'000 �'000 �'000
NON-CURRENT ASSETS
Goodwill 20,979 23,673 20,967
Other intangible assets 15,006 16,844 15,925
Property, plant and equipment 2,085 1,910 1,836
Interests in joint venture 35 133 35
Other financial assets 1,672 1,560 1,606
TOTAL NON-CURRENT ASSETS 39,777 44,120 40,370
CURRENT ASSETS
Trade and other receivables 26,104 23,118 24,393
Cash and short term deposits - 598 244
TOTAL CURRENT ASSETS 26,104 23,716 24,637
TOTAL ASSETS 65,881 67,836 65,007
CURRENT LIABILITIES
Trade and other payables 9,611 10,412 11,695
Current tax liabilities 404 1,068 967
Interest bearing loans and 2,756 18,450 5,763
borrowings
Contingent consideration 75 2,271 6,956
TOTAL CURRENT LIABILITIES 12,846 32,201 25,381
NET CURRENT ASSETS / 13,258 (8,485) (744)
(LIABILITIES)
NON-CURRENT LIABILITIES
Trade and other payables 9 66 125
Interest bearing loans and 13,913 1,476 14,529
borrowings
Contingent consideration 445 9,385 425
Deferred tax liabilities 4,167 4,808 4,396
TOTAL NON-CURRENT LIABILITIES 18,534 15,735 19,475
TOTAL LIABILITIES 31,380 47,936 44,856
NET ASSETS 34,501 19,900 20,151
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Share capital 1,190 244 248
Share premium 25,819 13,627 13,634
Merger reserve 8,106 7,855 8,106
Treasury shares (158) (158) (158)
Retained earnings (456) (1,668) (1,679)
TOTAL EQUITY 34,501 19,900 20,151
Consolidated statement of changes in equity
For the six months ended 30
June 2008
Unaudited Unaudited Audited
6 months ended 30 6 months ended 30 Year
June 2008 June 2007 ended 31 Dec
2007
Notes �'000 �'000 �'000
Profit / (Loss)for the period 1,193 (4,273) (4,160)
Total recognised income and 1,193 (4,273) (4,160)
expense for the period
Shares issued in the period 15,070 583 116
Share issue costs (1,943) - -
Purchase of own shares - - (8)
Arising on deferred - - 738
consideration for prior year
acquisitions
Share-based payment 30 125 -
Dividends - (161) (161)
Net change in equity in the 14,350 (3,726) (3,475)
period
Opening equity 20,151 23,626 23,626
Closing equity 34,501 19,900 20,151
Consolidated cash flow statement
For the six months ended 30
June 2008
Unaudited Unaudited Audited
6 months ended 30 6 months ended 30 Year
June 2008 June 2007 ended 31 Dec
2007
Notes �'000 �'000 �'000
Operating activities
Cash (absorbed by) / generated 7a (672) 1,385 2,681
from operations
Tax paid (1,167) (328) (428)
Net cash flow from operating (1,839) 1,057 2,253
activities
Investing activities
Interest received 68 120 372
Purchases of property, plant (609) (360) (742)
and equipment
Acquisition of subsidiaries 7b (6,881) (3,631) (2,415)
Net cash flow used in (7,422) (3,871) (2,785)
investing activities
Financing activities
Interest paid (621) (831) (2,056)
Dividends paid to equity - (161) (161)
holders of the parent
New bank loans - 3,000 7,936
Repayment of bank loans (469) (862) (804)
Proceeds from issue of new 13,127 92 89
shares
Redemption of loan notes (119) - (2,323)
Repayment of capital element (107) (126) (179)
finance lease obligations
Net cash flow from financing 11,811 1,112 2,502
activities
Increase / (decrease) in cash 2,550 (1,702) 1,970
and cash equivalents
Cash and cash equivalents at (3,221) (5,191) (5,191)
beginning of the period
Cash and cash equivalents at 7c (671) (6,893) (3,221)
end of the period
Notes to the financial information
For the six months ended 30 June
2008
1 Basis of preparation
The financial information contained in this interim report does not constitute statutory accounts within the meaning of
section
240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2007 (prepared in accordance with
International
Financial Reporting Standards) were prepared and filed with the Registrar of Companies and received an unqualified audit
report
and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985.
The Board of Directors regularly monitors the ability of the Group to meet its liabilities as they fall due for the
foreseeable
future against the facilities and funding options open to it. The Board of Directors adopts the going concern basis of
preparation
of the financial statements if in its assessment it has a reasonable expectation that the Group has adequate resources to
continue
for the foreseeable future. The financial statements have been prepared on the basis of going concern.
2 Adoption of IFRS
These interim financial statements for the six months ended 30 June 2008 have been prepared using accounting policies
consistent
with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee
(IFRIC)
interpretations issued and effective or issued and early adopted as at the time of preparing these statements that
management
expect to apply in its 2008 financial
statements.
The IFRS standards and IFRIC interpretations that will be applicable at 31 December 2008, including those that will be an
optional
basis, are not known with certainty at the time of preparing these interim financial statements. SMC has adopted all IFRS
with the
exception of IAS 34 "Interim Financial Reporting" which is not mandatory for SMC at
this time.
The interim financial statements have been prepared on the historical cost basis and are in accordance with the Group's
accounting
policies as set out in the annual report and accounts for the year ended 31
December 2007.
3 Exceptional costs
Exceptional costs are the costs associated with making additional provisions against debtors and amounts recoverable on
contracts
where there has been a reassessment of the recoverability of balances relating to prior years based on further evidence
becoming
available in the
period.
Exceptional costs also include the costs of rationalising the Group's activities, in particular the costs associated
with the
termination of employment and closure of various
premises.
4 Taxation
Taxation for the six months to 30 June 2008 is based on the effective rate of taxation which is estimated to apply for the
year
ending 31 December 2008. Taxation for the year ended 31 December 2007 is based on the actual rate of taxation which applied
for
the year ended 31 December 2007. Taxation for the six months to 30 June 2007 was based on the effective rate of taxation
which was
estimated to apply for the year ended 31 December 2007.
5 Earnings per share
Unaudited Unaudited Audited
6 months ended 30 6 months ended 30 Year
June 2008 June 2007 ended 31 Dec 2007
Weighted average
number of shares
('000)
For basic earnings 220,354 46,517 48,011
per share
Dilutive effect of 147 1,313 532
share options
For diluted earnings 220,501 47,830 48,543
per share
Profits for basic
and diluted earnings
per share (�'000)
Profit /(Loss)for 1,193 (4,273) (4,160)
the period
Add back:-
- Exceptional costs - 3,614 5,475
- Amortisation of 927 919 1,837
intangible assets
- Share-based 30 125 210
payment
- Interest on contingent consideration 20 450 500
- Tax impact of above adjustments - (613) (1,030)
Adjusted profit for 2,170 222 2,832
the period
Earnings /(Loss) per share (pence per
share)
Basic 0.54 (9.19) (8.66)
Diluted 0.54 (9.19) (8.66)
Adjusted earnings per share (pence per
share)
Basic 0.98 0.48 5.90
Diluted 0.98 0.46 5.64
Adjusted earnings per share has been presented in order to allow earnings per share to reflect the earnings more directly related
to the trading of the Group in each period.
Dividend
6
There have been no dividend payments in the current financial year (an interim dividend of 0.35p per share was paid in January
2007 for the year ended 31 December 2007).
7 Notes to the cash flow statement
Unaudited Unaudited Audited
6 months ended 30 6 months ended 30 Year
June 2008 June 2007 ended 31 Dec
2007
�'000 �'000 �'000
a Cash generated from/(absorbed by) operations
Profit / (Loss) before tax 1,569 (4,886) (5,086)
Finance revenue (68) (120) (372)
Finance costs 621 1,281 2,056
Share-based payment 30 125 210
Share of results of joint venture - post tax - - 97
Depreciation of property, plant and equipment 359 360 817
Loss on disposal of property, plant and equipment - - -
Amortisation of intangible assets 927 919 1,837
(Increase) / decrease in trade and other (1,711) 3,551 2,277
receivables
(Decrease) / increase in trade and other payables (2,399) 155 845
Cash generated from/(absorbed by) operations (672) 1,385 2,681
b Acquisition of subsidiaries
Consideration paid - - (37)
on acquisitions
Consideration paid on prior period acquisitions (6,881) (3,631) (2,378)
Net cash outflow for (6,881) (3,631) (2,415)
acquisitions
c Analysis of cash and
cash equivalents
Cash and cash equivalents per balance sheet - 598 244
Bank overdrafts (671) (7,491) (3,465)
Cash and cash equivalents per cash flow statement (671) (6,893) (3,221)
This information is provided by RNS
The company news service from the London Stock Exchange
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