Final Results

Scott Wilson Group plc 20 July 2006 For immediate release Thursday 20 July 2006 SCOTT WILSON GROUP PLC Preliminary unaudited results for the year ended 30 April 2006 FULL TABLES AND NOTES CONSOLIDATED INCOME STATEMENT (unaudited) For the year ended 30 April 2006 Year ended Year 30 April ended 30 April Notes 2006 2006 2005 Before Non- Total Total non-recurring recurring and and restructuring restructuring Â£'000 Â£'000 Â£'000 Â£'000 -------------------------------------------------------------------------------- Continuing operations: Revenue including share of joint venture revenues 197,765 - 197,765 171,945 Less: Share of joint venture revenues (11,841) - (11,841) (11,924) -------------------------------------------------------------------------------- Group revenue 185,924 - 185,924 160,021 Cost of sales (117,964) - (117,964) (100,421) -------- -------- ------- ------- Gross profit 67,960 - 67,960 59,600 Administrative expenses 3 (58,843) 10,977 (47,866) (53,155) Share of result of joint ventures 1,289 - 1,289 979 -------- -------- ------- ------- Operating profit 10,406 10,977 21,383 7,424 Finance income 8 8,283 6,440 Finance costs 9 (10,400) (9,572) ------- ------- Profit before taxation 19,266 4,292 Taxation 10 (6,325) (1,905) ------- ------- Profit for the year 12,941 2,387 ======= ======= Attributable to: Equity holders of the Company 12,527 2,141 Minority interests 414 246 ------- ------- 12,941 2,387 ======= ======= Earnings per share: From continuing operations - basic 11 38.90p 9.09p From continuing operations - diluted 11 37.70p 9.09p There were no discontinued operations in either year. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (unaudited) As at 30 April 2006 Year ended Year ended 30 April 30 April Notes 2006 2005 Â£'000 Â£'000 Currency translation differences (381) 212 Actuarial gains and losses on defined benefit pension schemes 13 (4,376) (3,992) Tax on items recognised directly in equity 1,427 1,134 -------- --------- Expense recognised directly in equity (3,330) (2,646) Profit for the year 12,941 2,387 -------- --------- Total recognised income/(expense) for the year 9,611 (259) -------------------------------------------------------------------------------- Attributable to: Equity holders of the Company 9,110 (486) Minority interests 501 227 -------- --------- 9,611 (259) ======== ========= CONSOLIDATED BALANCE SHEET (unaudited) 30 30 April April 2006 2005 Â£'000 Â£'000 ASSETS Tangible fixed assets 13,847 8,891 Goodwill 6,864 5,839 Other intangible assets 1,333 975 Investments in joint ventures 680 916 Deferred tax assets 11,897 14,943 -------- --------- NON CURRENT ASSETS 34,621 31,564 Trade and other receivables 65,483 50,630 Current tax assets 1,089 244 Cash and cash equivalents 33,067 4,660 -------- --------- CURRENT ASSETS 99,639 55,534 -------- --------- TOTAL ASSETS 134,260 87,098 -------- --------- EQUITY AND LIABILITIES Equity attributable to equity holders of the Company Issued capital 12 86,277 21,950 Other reserves 12 (6,074) (6,212) Retained earnings 12 (28,426) (36,321) -------- --------- 51,777 (20,583) Minority interests 971 519 -------- --------- TOTAL EQUITY 52,748 (20,064) -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET (unaudited) (continued) Borrowings 2,304 13,302 Retirement benefit obligations 33,577 49,377 NON CURRENT LIABILITIES 35,881 62,679 -------- --------- Trade and other payables 40,531 27,800 Current tax liabilities 474 - Borrowings 3,813 16,683 Provisions 813 -------- --------- CURRENT LIABILITIES 45,631 44,483 -------- --------- TOTAL LIABILITIES 81,512, 107,162 TOTAL EQUITY AND LIABILITIES 134,260 87,098 -------- --------- CONSOLIDATED CASH FLOW STATEMENT (unaudited) For the year ended 30 April 2006 Year Year ended ended 30 30 April April Notes 2006 2005 Â£'000 Â£'000 Cash flows from operating activities Cash generated from operations 15 560 5,384 Dividends received from joint ventures 1,575 837 Income tax paid (2,510) (1,973) -------- -------- Net cash flows from operating activities (375) 4,248 ======== ======== Cash flows from investing activities Purchase of tangible fixed assets (6,946) (6,110) Purchase of intangible assets (995) (667) Proceeds from sale of tangible fixed assets 6 906 Acquisition and investment in subsidiaries, net of cash (606) (461) and cash equivalents -------- -------- Net cash flows from investing activities (8,541) (6,332) ======== ======== Cash flows from financing activities Interest received 154 87 Interest and finance charges paid (1,780) (901) Proceeds from issue of ordinary shares, net of issue costs of Â£5.8m (2005: Â£nil) 62,122 517 Purchase of own equity shares by employee share - (214) trust Receipt of new loans and finance lease advances 5,831 4,057 Repayment of loans and finance leases (18,871) (1,775) Dividends paid to equity shareholders (1,334) (678) -------- -------- Net cash flows from financing activities 46,122 1,093 ======== ======== Net increase in cash and cash equivalents 37,206 (991) Cash and cash equivalents at start of year (4,154) (3,163) -------- -------- Foreign Exchange 15 - Cash and cash equivalents at end of year 33,067 (4,154) ======== ======== NOTES TO THE ACCOUNTS 1. Basis of preparation The financial information set out in this preliminary announcement has been prepared on the basis of the principal accounting policies set out in the Prospectus published on 7 March 2006 and available on our website which reflect the changes made following the introduction of International Financial Reporting Standards. Whilst the financial information included in this preliminary announcement has been compiled in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Group expects to publish) full financial statements that comply with IFRS. The audit report on the full financial statements has yet to be signed and therefore the financial information presented is unaudited. The 2005 comparatives have been restated to reflect the adoption of these accounting policies. A full reconciliation from UK GAAP to IFRS, consistent with the requirements of IFRS 1 will be presented in the Group's full financial statements. The financial information set out in this preliminary announcement does not constitute statutory accounts within the meaning of section 140 of the Companies Act 1985. Statutory accounts for the year ended 30 April 2006 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be dispatched to shareholders during August 2006 for approval at the Annual General Meeting to be held on 13 September 2006. This preliminary announcement was approved by the Board of Directors on 19 July 2006. In December 2005 the Company acquired 65.66 per cent of the shares of Scott Wilson Holdings Limited through a four for one share exchange. In preparing the consolidated financial statements, Scott Wilson Holdings Limited has been deemed to be the acquirer and the Company, the legal parent, has been deemed to be the acquiree. Accordingly this transaction has been accounted for as a reverse acquisition under the requirements of IFRS 3 Business Combinations. On the admission of the Company to the Official List of the London Stock Exchange, the Company also acquired Basing View Investments Limited (BVI), which held the remaining 34.34 per cent of shares in Scott Wilson Holdings Limited. As the ultimate holders of the beneficial interest in BVI are the original holders of the 65.66 per cent share in Scott Wilson Holdings Limited obtained by the Company in December 2005, the acquisition of BVI has been treated as part of the same reverse acquisition transaction for the purpose of preparing the consolidated financial statements. Accordingly the financial statements of the Group consolidate the revenues, costs, assets, liabilities and cash flows of both Scott Wilson Holdings Limited and BVI and their subsidiaries throughout both the period for which they are prepared and the comparative period. The principal impact of consolidating the revenues, costs, assets, liabilities and cash flows of BVI was the recognition of losses (pre-finance costs) of Â£780,000 and profits of Â£337,000 in the consolidated income statements for the years ended 30 April 2006 and 2005 respectively. As the BVI group is expected to be dormant from 1 May 2006 onwards, these losses will not recur in future periods and accordingly these losses have been classified within non-recurring items. 2 Segment analysis The Directors consider that the Group operates in a single business segment. For management purposes, the Group reports its performance on a geographic segment basis. UK Central: consultancy services on projects in the Midlands and Northern regions of England and also includes the Group's pavement engineering consultancy business, which operates worldwide. UK South: consultancy services on projects in London and the South of England. Scotland & Ireland: consultancy services on projects in Scotland and Ireland. UK Railways: railway-related consultancy services to infrastructure owners and train operators, principally in the UK. International: consultancy services on projects undertaken outside the UK, throughout the world, including both projects undertaken from the UK and those undertaken by the Group's overseas operations. Core: the Group's head office function, together with revenues, costs, assets and liabilities not allocated to any of the other segments. Segment results for the year ended 30 April 2006: Scotland UK UK & UK Inter- Central South Ireland Railways national Core Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Sales to external customers 38,634 43,810 11,893 42,090 49,497 - 185,924 Sales to other 5,695 5,760 2,147 804 3,159 - 17,565 segments ------ ------- ------- ------- ------- ------- ------- Revenue from all sales 44,329 49,570 14,040 42,894 52,656 - 203,489 Sales on behalf of other (2,945) (3,037) (698) (7,750) (3,135) - (17,565) segments ------ ------- ------- ------- ------- ------- ------- Group 41,384 46,533 13,342 35,144 49,521 - 185,924 revenue ====== ======= ======= ======= ======= ======= ======= Operating profit before non recurring items and restructuring 3,846 2,050 1,112 2,831 567 - 10,406 Restructuring costs - (471) - - (220) - (691) Loss relating to Basing View Investments - - - - - (780) (780) Ltd Gain arising on retirement benefit plan changes - - - - - 13,546 13,546 Costs relating - - - - - (1,098) (1,098) to Admission ------ ------- ------- ------- ------- ------- ------- Operating profit / segment 3,846 1,579 1,112 2,831 347 11,668 21,383 result Finance 8,283 income Finance (10,400) costs ------- Profit before taxation 19,266 Taxation (6,325) ------- Profit for the 12,941 year ======= Share of result of joint ventures of Â£950,000 and Â£339,000 is included in Central and International respectively. Segment results for the year ended 30 April 2005: Scotland UK UK & UK Inter- Central South Ireland Railways national Core Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Sales to external customers 33,778 41,525 10,395 28,997 45,326 - 160,021 Sales to other 4,530 3,936 1,466 1,751 883 - 12,566 segments ------ ------- ------- ------- ------- ------- ------- Revenue from all sales 38,308 45,461 11,861 30,748 46,209 - 172,587 Sales on behalf of other (2,246) (2,870) (525) (4,389) (2,536) - (12,566) segments ------ ------- ------- ------- ------- ------- ------- Group 36,062 42,591 11,336 26,359 43,673 - 160,021 revenue ====== ======= ======= ======= ======= ======= ======= Operating profit before non recurring items and restructuring 3,664 1,523 620 1,299 647 - 7,753 Profit relating to Basing View Investments Ltd - - - - - 337 337 Profit on sale of land & - - - - - 358 358 buildings Restructuring costs - (634) - (184) (129) (77) (1,024) ------ ------- ------- ------- ------- ------- ------- Operating profit / segment 3,664 889 620 1,115 518 618 7,424 result Finance 6,440 income Finance (9,572) costs ------- Profit before taxation 4,292 Taxation (1,905) ------- Profit for the 2,387 year ======= Share of result of joint ventures of Â£787,000 and Â£192,000 is included in Central and International respectively 3. Non- Recurring items and restructuring costs Note 2006 2005 Â£'000 Â£'000 Restructuring costs 4 (691) (1,024) (Loss)/Profit relating to Basing View Investments Ltd 5 (780) 337 Gain arising on retirement benefit plan changes 6 13,546 - Costs relating to Admission 7 (1,098) - Profit on sale of land and buildings - 358 Total 10,977 (329) 4 Restructuring costs In the year ended 30 April 2006, the Group incurred Â£0.7m redundancy costs resulting from restructuring in the UK South (Â£0.5m) and International (Â£0.2m) divisions. In the year ended 30 April 2005, the Group incurred Â£0.9m redundancy costs resulting from restructuring in the UK South (Â£0.6m), UK Railways (Â£0.2m) and International (Â£0.1m) divisions. It additionally incurred Â£0.1m of costs in relation to advice on strategic options available to the Group. 5 (Loss)/Profit relating to Basing View Investments Ltd On 15 March 2006, the Company acquired Basing View Investments Ltd (BVI), which held the 34.34% interest in Scott Wilson Holdings Ltd not then held by the Company and liabilities under various loan and redeemable share instruments. The Company immediately purchased, or funded the settlement of, all those liabilities. As described under "Basis of preparation" in note 1, the Group financial statements of the Group consolidate the revenues, costs, assets, liabilities and cash flows of BVI and its subsidiaries throughout both the period for which they are prepared and the comparative prior period. The loss/ profit relating to BVI substantially reflects exchange movements arising on the translation of dollar denominated liabilities, which have now been settled. 6 Gain arising on retirement benefit plan changes In March 2006, the trustees and substantially all of the members of the Scott Wilson Pension Scheme, a defined benefit retirement benefit plan, agreed, conditional on the Company's admission to the Official List and the payment of a minimum Â£16.0m special cash contribution into the scheme, to break the link from 1 October 2006 between accrued pensionable service up to that date and future salary increases. Additionally, they agreed that from 1 October 2006 active members would either pay increased contributions, accrue pension benefit at a reduced rate or switch into the Group's money purchase scheme. Also in March 2006, the trustees and substantially all of the members of the Scott Wilson Shared Cost Section of the Railways Pension Scheme, a defined benefit retirement benefit plan, agreed, conditional on the Company's admission to the Official List and the payment of a Â£2.0m special cash contribution into the scheme, to break the link from 1 October 2006 between accrued pensionable service up to that date and future salary increases. The impact of these changes is to reduce the overall gross deficit on these schemes by Â£13.5m. 7. Costs relating to Admission During the year ended 30 April 2006, costs of Â£1.1m were incurred in relation to the Admission of the Company to the Official List. Additionally, costs of Â£4.8m were incurred in relation to the issue of additional ordinary shares at the time of Admission, which have been charged against the share premium. 8 Finance income Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Interest income on bank deposits 345 87 Preference shares redemption premium - 20 Expected return on pension plan assets 7,938 6,333 -------- --------- 8,283 6,440 ======== ========= 9 Finance costs Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Interest on bank loans and overdrafts 723 870 Interest on other loans 489 39 Preference shares redemption premium 304 315 Finance lease charges 264 124 Interest on retirement benefit obligations 8,620 8,224 -------- --------- 10,400 9,572 ======== ========= 10 Taxation Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Current tax 1,851 1,844 Deferred tax 4,474 61 -------- --------- 6,325 1,905 ======== ========= 11 Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares held by the Scott Wilson Holdings Ltd employee share ownership trust. Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Profit attributable to equity holders of the Company 12,527 2,141 --------- --------- Weighted average number of ordinary shares in issue (thousands) 32,203 23,551 --------- --------- Basic earnings per share (pence) 38.90p 9.09p ========= ========= Weighted average number of ordinary shares in issue (thousands) 32,203 23,551 Dilutive effect of share options 1,025 - --------- --------- Diluted weighted average number of ordinary shares in issue (thousands) 33,228 23,551 --------- --------- Diluted earnings per share (pence) 37.70p 9.09p ========= ========= In all cases, the weighted average number of shares used in the calculation of earnings per share amounts has been adjusted to reflect the restructuring under which each ordinary share in Scott Wilson Holdings Ltd was exchanged for four ordinary shares in Scott Wilson Group plc. 12 Reconciliation of changes in equity Total Â£'000 At 30 April 2005 (20,583) Changes in equity during 2006 New shares issued net of issue costs 64,327 Profit for the year 12,527 Other movements (4,494) --------- At 30 April 2006 51,777 ========= 13 Retirement benefit obligations There are two funded defined benefit retirement plans in which certain of the Group's employees participate, all of which are now closed to new members: (i) the Scott Wilson Pension Scheme; and (ii) the Scott Wilson Shared Cost Section of the Railways Pension Scheme. The amounts recognised in the balance sheet in relation to these plans are as follows: 30 April 30 April 2006 2005 Â£'000 Â£'000 Total fair value of plan assets 149,979 113,255 Present value of plan liabilities (183,556) (162,632) -------- -------- Net plan obligations (33,577) (49,377) ======== ======== There were no unrecognised actuarial gains or losses or past service costs as at 30 April 2006 (2005: Â£nil). Amounts recognised in the income statement are as follows: Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Current service cost (4,757) (5,329) Interest on retirement benefit obligations (8,620) (8,224) Expected return on plan assets 7,938 6,333 Gain arising on retirement benefit plan changes 13,546 - -------- -------- 8,107 (7,220) ======== ======== Amounts recognised in the statement of recognised income and expense are as follows: Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Actuarial gains relating to plan assets 19,382 4,127 Actuarial losses relating to plan liabilities (23,758) (8,119) -------- -------- (4,376) (3,992) ======== ======== The plan asset mix and the expected returns on the assets are as follows: 30 April 2006 30 April 2005 Expected return Â£'000 Expected return Â£'000 Equities 8.0% 99,436 8.0% 74,729 Property 8.0% 3,641 7.0% 266 Bonds 4.8% 37,867 4.7% 33,490 Cash and other 4.8% 9,035 4.7% 4,770 -------- -------- Total fair value of plan assets 149,979 113,255 ======== ======== The movements in the fair value of plan assets are as follows: Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 At start of the year 113,255 96,431 Expected return 7,938 6,333 Actuarial gains 19,382 4,127 Employer contributions 12,069 6,472 Employee contributions 2,932 3,027 Benefits paid out (2,951) (2,784) Expenses (2,646) (351) -------- -------- At end of the year 149,979 113,255 ======== ======== The principal assumptions underlying the actuarial assessments of the present value of the plan liabilities are: 30 April 30 April 2006 2005 Inflation rate 3.0% 2.8% Future salary increases 4.5% 4.3% Future pension increases 2.9% 2.8% Discount rate 4.9% - 5.15% 5.05% - 5.3% The movements in the present value of the plan liabilities are as follows: Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 At start of the year (162,632) (141,068) Current service cost (4,757) (5,329) Interest cost (8,620) (8,224) Impact of changes in assumptions (23,758) (8,119) Impact of retirement benefit plan changes 13,546 - Employee contributions (2,932) (3,027) Benefits paid out 2,951 2,784 Expenses 2,646 351 -------- -------- At end of the year (183,556) (162,632) ======== ======== The best estimate of contributions due to be paid to the defined benefit plans during the year ending 30 April 2007 is Â£6.2m. Additionally, special contributions of Â£17.3m remain to be paid from the proceeds of shares issued at the time of the Company's admission to the Official List, of which Â£16.6m has been paid in May 2006, with the balance of Â£0.7m to be paid in April or May 2007. 14 Dividends Dividends on ordinary shares totalling Â£667,000 were declared and paid in the year ended 30 April 2005, representing a dividend equivalent to 2.5p per share in relation to the year ended 30 April 2004. A dividend equivalent to 2.5p per ordinary share in relation to the year ended 30 April 2005, totalling Â£667,000, was declared in October 2005 (paid in January 2006) and a dividend of 2.5p per share for the year ending 30 April 2006, totalling Â£667,000, was declared and paid on 6 March 2006. 15 Cash generated from operations Year Year ended ended 30 30 April April 2006 2005 Â£'000 Â£'000 Operating profit 21,383 7,424 Gain arising on retirement benefit plan changes (13,546) - Share of result of joint ventures (1,289) (979) Defined benefit pension plan current service cost 4,757 5,329 Defined benefit pension plan contributions (12,069) (6,472) Depreciation 2,176 1,740 Amortisation 656 451 (Increase)/decrease in receivables and prepayments (14,722) (5,588) Increase/(decrease) in payables and accruals 12,065 3,479 Costs of Admission recognised through the income 1,098 - statement Share expense 51 - -------- -------- Cash generated from operations 560 5,384 ======== ======== 16 Reconciliation of underlying Group results The Directors believe that the presentation of underlying operating profit, underlying operating margin, underlying cash generated from operations, underlying cash conversion margin and underlying earnings per share assist with the understanding of the underlying results of the Group. The underlying results are these line items within the Group results adjusted for the impact of special pension curtailment gains and cash payments in the year, the impact of restructuring costs, costs relating to Admission and (loss)/profit relating to Basing View Investments Ltd. A reconciliation of these measures to Group operating profit, cash flow generated from operations and basic and diluted earnings per share is given below. Underlying Group operating profit Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Group statutory operating profit 21,383 7,424 Restructuring costs 691 1,024 Loss/(profit) relating to Basing View Investments Ltd 780 (337) Gain arising on retirement benefit plan changes (13,546) - Costs relating to Admission 1,098 - Profit on sale of land and buildings - (358) -------- ---------- Underlying operating profit 10,406 7,753 ======== ========== Underlying operating profit margin 5.6% 4.8% Underlying cash generated from operations Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Cash generated from operations (note 15) 560 5,384 Costs of Admission 1,098 - Restructuring costs 691 1,024 Special pension payment 6,090 - Cash movements associated with Basing View Investments Ltd 1,555 - Dividends received from joint ventures 1,575 837 -------- -------- Underlying cash generated from operations 11,569 7,245 ======== ======== Underlying cash conversion ratio 111% 93% Underlying basic and diluted earnings per share Year Year ended ended 30 April 30 April 2006 2005 Â£'000 Â£'000 Profit attributable to equity holders of the Company 12,527 2,141 Restructuring costs 691 1,024 (Loss)/profit relating to Basing View Investments Ltd 780 (337) Gain arising on retirement benefit plan changes (13,546) - Costs relating to Admission 1,098 - Profit on sale of land and buildings - (358) Less tax @ 30% on above related items 3,623 123 -------- -------- Underlying profit attributable to equity holders of the Company 5,173 2,593 -------- -------- Weighted average number of ordinary shares in issue (thousands) 32,203 23,551 -------- -------- Underlying basic earnings per share (pence) 16.06p 11.01p ======== ======== Weighted average number of ordinary shares in issue (thousands) 32,203 23,551 Dilutive effect of share options 1,025 - -------- -------- Diluted weighted average number of ordinary shares in issue (thousands) 33,228 23,551 -------- -------- Underlying diluted earnings per share (pence) 15.57p 11.01p ======== ======== This information is provided by RNS The company news service from the London Stock Exchange

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