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RNS
WYG Plc  -  WYG   

Final Results

Released 07:00 06-Jun-2017

RNS Number : 2078H
WYG Plc
06 June 2017
 

6 June 2017

WYG plc

("WYG" or "Company")

Final Results

WYG plc, the global project management and technical consultancy, announces its audited final results for the year ended 31 March 2017, highlights of which are as follows:

 

Double digit revenue growth with ongoing improvement in profitability

Financial overview:

·           Revenue* up 14% to £151.8m (2016: £133.5m)

Second half revenues up 10% to £78.3m (H2 2016 £70.9m) 

·           Adjusted operating profit** up 22% to £8.8m (2016: £7.2m)

Operating margins improved to 5.8% (2016: 5.4%)

·           Adjusted profit before tax** up 17% to £8.2m (2016: £7.0m)

·           Profit before tax £1.6m (2016: £2.2m)

·           Adjusted diluted earnings per share** up 21% to 11.9p (2016: 9.8p)

·           Earnings per share 3.3p (2016: 4.0p)

·           Proposed final dividend up 20% to 1.2p (2016: 1.0p), giving a total dividend for the year up 20% to 1.8p (2016: 1.5p)

·           Net debt as at 31 March 2017 £2.5m (31 March 2016: net cash £0.2m); significantly improved operating cash inflow before investments

·           Order book stable at £145m as at 31 March 2017 (31 March 2016: £143m - after Polish adjustments):

UK order book up 4% to £82m (2016: £79m) reflecting continuing strength of infrastructure and planning markets

International order book maintained at £63m (2016: £64m (like for like))

·           Order book will be boosted by post year-end wins of c.£50m announced on 2 June 2017

·           Group exposure to defined pension liabilities closed out, with return of £0.5m net of tax surplus to WYG

 

*          Including revenue from Joint Ventures

**        Before separately disclosed items

Operational overview

·           12% increase in UK revenue to £107.6m (2016: £96.3m) reflecting strong performance across almost all services lines, despite project delays in the fourth quarter

·           80% increase in Middle East & North Africa including Turkey (MENA) revenues to £23.8m (2016: £13.2m) as EU funded projects come through strongly

·           15% reduction in revenues in Europe, Africa & Asia (EAA) reflected the results in our Polish operation, partially offset by growth in Africa and Rest of World

·           Continued drive to improve efficiency, enhance resilience and improve agility across the business:

Cost reduction initiatives in our UK business re-invested to enhance delivery without reducing capacity to deliver on our growth opportunities

Restructured Polish operation to focus on technical and socio-economic services, which are now performing in line with expectations; delivering annualised cost savings of £1.0m

Successfully broadened MENA's reach beyond Turkey, including €3.6m National Social Security Fund project in Lebanon

Senior operational management appointed to lead divisions of new organizational structure:

§ Jeanne 'JC' Townend as Head of Consulting Services

§ Jesper Damgaard as Head of International Development

 

Current Trading & Outlook:

·    Trading in the current financial year is in line with the Board's expectations, with good revenue growth coming though in the UK

·      Post period-end framework and project wins include:

Central and Southern regions on UK MoD's revised PSP framework for DIO,

a place on three lots of the delayed Crown Commercial Services' two year £2.9bn consultancy framework

CRIDF 2 (climate adaption project in Southern Africa) worth more than £5m,

which together are expected to deliver £15 million of revenue in each of the next three years

·       Order book for the current financial year, augmented by post period-end awards, gives a strong basis for current year growth expectations

·      The current UK General Election process has temporarily delayed some project awards

·      Appointment of Jeremy Beeton to succeed Mike McTighe as Chairman with effect from AGM

·      Douglas McCormick appointed to succeed Paul Hamer as Chief Executive Officer with effect from 12 June 2017

 

Paul Hamer, Chief Executive Officer of WYG plc, commented:

"WYG has delivered a 14% increase in revenue, a 22% increase in adjusted operating profit and a marked improvement in operating cash generation - although a number of project delays and deferrals in the final quarter meant we did not quite meet the expectations we set ourselves at the beginning of the year.

 

"Despite a temporary curtailment in the process of formalising some contractual commitments as a result of the UK General Election, we have started the current year well having already won a significant contract in Africa and places on two major UK frameworks.  The opportunities we are seeing in our core consultancy services and international development markets, combined with our initiatives to drive efficiency and resilience across the Group, leave us in a strong position from which to deliver good growth in the current year." 

 

Mike McTighe, Chairman, WYG plc, said:

 

"As announced separately today, Douglas McCormick has been appointed as Chief Executive Officer to succeed Paul Hamer who is taking up the post of Chief Executive at Sir Robert McAlpine Limited.  We thank Paul for his fantastic service over the past nine years during which time he has led the Group's return to growth and profitability.  He leaves WYG with a strong new leadership team, improved governance and culture, a robust order book and a healthy pipeline of major projects with long-term structural funds and institutions with which we have strong relationships

 

"We welcome Douglas McCormick whose 30 years' experience in the construction industry, most recently as Chief Executive Officer of Sweett Group plc, provides the Company with strong leadership in the next stage of its development as it makes the most of the wealth of opportunities presented by its chosen markets."

 

This announcement contains inside information for the purposes of

 Article 7 of Regulation (EU) 596/2014.

 

 

Contacts:

 

WYG plc

Paul Hamer, Chief Executive Officer

Iain Clarkson, Chief Financial Officer

 

Tel: 0113 278 7111

MHP Communications

Katie Hunt / Ollie Hoare

 

Tel: 020 3128 8100

N+1 Singer     

Sandy Fraser / Nick Owen / James White

 

Tel: 020 7496 3000

WH Ireland Limited

Tim Feather / Ed Allsopp

 

Tel: 020 7220 1666

           

 

 

Chairman's statement

 

Introduction

WYG has delivered a strong performance overall with a 14% increase in revenue, a 17% increase in adjusted profit before taxation and an improvement in operating cash inflow in the year meeting management's revised expectations at the time of our trading statement on 23 March 2017.

 

This significant growth and improvement in both profitability and cash generation was delivered despite project deferrals and delays in the mobilisation of new awards, leading to a weaker than anticipated profit performance in the fourth quarter, demonstrating the breadth and resilience of the Group.

 

This marks the first year in which WYG has delivered double digit revenue growth since its refinancing in 2011. WYG today is a fundamentally different organisation: it is a growing and resilient business generating quality revenues from its core strengths in front-end consultancy and international development. We have committed funding, talented new operational leadership, and a healthy pipeline of major projects with long-term structural funds and institutions with which we have strong relationships. We expect the organic growth delivered this year to continue and we look forward with confidence to the next chapter in WYG's development.

 

Strategy

Our strategy is to grow by developing and serving the markets for our consultancy and international development expertise through an appropriate blend of organic investment and selective acquisitions, whilst recognising the risks and opportunities presented by a dynamic global market and political environment.

 

We have recently finalised a new strategic growth plan for the Group which aims to consolidate our position as a trusted adviser to our clients whilst ensuring the business has an efficient, agile and resilient structure. We are already underway with a number of initiatives:

·      Improving the Group's agility by putting in a new structure that positions WYG to generate and rapidly respond to the most attractive opportunities presented by our clients' needs as they navigate the current uncertain and dynamic global market and political environment

·      Driving efficiencies by rationalising our office portfolio, harnessing technology to improve the quality of delivery, and reducing costs and headcount in certain areas, whilst retaining capacity to deliver on our growth opportunities

·      Enhancing the resilience of our business by deepening and diversifying client relationships, being focussed and selective in our investments and prudently exiting from lower return activities, such as HR consulting in Poland, whilst also broadening the reach of our MENA business beyond Turkey.

 

A key element of this plan is bringing together those parts of our business, both UK and international, which operate in related technical services fields to create one Consultancy Services business stream, headed up by newly appointed Jeanne 'JC' Townend. JC is an American-born growth and leadership strategy expert who has brought 25 years' international experience managing major consultancies to the new role.

 

By engaging with clients at the onset of a project, often in the earliest stages of feasibility studies, our Consultancy Services business is ideally positioned to advise clients on how to create value from their investments and assets. We are then well placed to advise clients how to protect the value in those assets and to manage risks through the full life-cycle of a project.

The other principal business stream is our International Development business, based around our unique skills and experience of the management and delivery of complex programmes in challenging environments. The International Development business is led by Jesper Damgaard, who was recently appointed and brings over 20 years of international and consulting experience to WYG. Jesper, a Danish national, has worked across Europe, UAE, Middle East and Asia Pacific for his entire professional life, and will make a significant contribution to our emerging commercial strategy and help us to build a more integrated and valuable business.

 

The strategic growth plan harnesses the specialist skills from across our business, bringing the improved focus required to address the major challenges of climate adaptation, energy planning, major infrastructure projects, water management, mass migration and the UK housing shortfall.

Results

Revenue (including our share of Joint Venture revenues) for the full year was up 14% to £151.8m (2016: £133.5m). Revenue in the second half was up 7% to £78.3m compared with the first half of 2017 (£73.5m). The slower growth in the second half reflected the previously reported delays and deferrals that impacted us in the final quarter.

Adjusted operating profit increased by 22% to £8.8m (2016: £7.2m) representing an increased adjusted operating margin of 5.8% (2016: 5.4%). This was constrained by the cost of increasing capacity in the final months in anticipation of work that did not materialise. Adjusted profit before tax was up 17% to £8.2m (2016: £7.0m), reflecting the very strong improvement in profitability year on year. On a statutory basis, the Group made a profit before tax of £1.6m (2016: £2.2m) after £4.0m of costs associated with restructuring the business in line with the strategic growth plan and the closure of certain Polish operations.  Diluted earnings per share adjusted for separately disclosed items were 11.9p (2016: 9.8p). On a statutory basis, earnings per share were 3.3p (2016: 4.0p).

As at 31 March 2017, the Group's order book stood at £145m (31 March 2016: £150m; £143m on a like for like basis). Since the year end, recent project wins totalling c.£50m have been confirmed, significantly boosting the Group's order book meaning that despite the significant increase in turnover last year, we have continued to replenish the order book at a steady rate. As a result, the order book for work to be undertaken in the current year gives a strong basis for current year growth expectations. 

 

The Group closed the year with net debt at 31 March 2017 of £2.5m (31 March 2016: net cash of £0.2m) after payment of £2.3m in deferred consideration for acquisitions. This reflects a significant improvement in operating cash generation with an inflow before legacy costs and restructuring costs, and investments of £5.0m (2016: outflow £0.6m).

 

Bank facility

Our £25m committed multi-currency revolving credit facility with HSBC offers the Group broad flexibility between debt and bonding requirements. It runs until June 2020 and ensures we have the resources with which to fund our planned growth.

  

Dividend

In March 2017, we paid an interim dividend of 0.6p.  Subject to the approval of shareholders at the AGM, a dividend of 1.2p will be paid on 3 October 2017 to ordinary shareholders on the register on 8 September 2017, bringing the overall dividend for the year to 1.8p per ordinary share (2016: 1.5p), representing a 20% increase and reflecting our strong adjusted profit growth and positive outlook.

 

Board changes

We are delighted to announce today the appointment of Douglas McCormick as Chief Executive Officer. His appointment will take effect from 12 June 2017, on which date Paul Hamer will step down from the Board to take up a prestigious new role at Sir Robert McAlpine.

Douglas has over 30 years' experience in the construction industry, and was until recently Chief Executive Officer of Sweett Group plc, managing approximately £90m of revenue and over 1,500 staff across 18 countries. During his 18 months in the role Douglas established a period of improved stability, creating significant value for shareholders. Previously, Douglas was Group Managing Director, Rail, Atkins (UK), managing more than £200m of revenues and over 1,700 staff across the UK, India and China.

Douglas is a Fellow of the Royal Institution of Chartered Surveyors and holds an MSc in Construction Management and a BSc in Quantity Surveying. In addition, he was until recently a Commissioner for the UK Commission for Employment and Skills, and is a non-executive Director of the Institute for Collaborative Working.

 

Paul joined the Group in July 2008 and was appointed Chief Executive Officer in March 2009 to oversee the transformation of WYG. He led the business through two major financial restructurings in 2009/10 and 2011, returning the Group to profitability, and a period of significant growth. Paul has helped to create a client focussed organisation with a new operational structure and strong business leadership team, designed to deliver the five-year growth strategy recently endorsed by the Board.

 

The Board would like to pay tribute to the work that Paul has done at WYG and to thank him for his fantastic service over the past nine years. His leadership has been key to the successful turnaround of the business and its return to growth and profitability; we wish him well in his new role at Sir Robert McAlpine.

 

Also, as announced on 30 January 2017, I am pleased to confirm that Jeremy Beeton, currently the Senior Independent Non-executive Director, will succeed me as Chairman with effect from the conclusion of the next AGM.

 

This change marks the fulfilment of the long-term succession planning process on which we embarked in 2015 in anticipation of the fact that I would shortly be coming to the end of the maximum nine year period during which I could be considered an independent non-executive director.

 

Jeremy joined the board as a non-executive Director in October 2015. He has more than 40 years' international business experience including in government, corporate, project management, construction and facilities management. 

 

The UK's EU Referendum

As an organisation that contracts directly with the EU, we are mindful of the challenges presented by the outcome of the UK's EU Referendum and the ongoing uncertainty surrounding its eventual implementation. To date we have seen no material impact on financial performance from the decision. Our international business model is robust and agile and our UK and international subsidiaries have continued to win work with the major international finance institutions and other clients. In the run-up to the EU Referendum we undertook a review of the potential impact that a vote to leave the EU would have on the business and we have taken steps to ensure that our model remains appropriate and resilient. Nevertheless, we continue to keep the issue under very close scrutiny.

 

Risks and Uncertainties

In addition to Brexit, there are other geo-political uncertainties that could affect WYG's performance and, as we saw this year, programme deferrals on existing contracts and delays in the confirmation of new contracts present an ongoing risk to WYG's expectations of its performance.

 

We regularly review our approach to risk management and we take steps to ensure that we attract, develop and retain the right people with the appropriate skills to identify, collate and manage business risk. We regularly review risks to ensure that emerging risks are captured, appropriate mitigations are in place and that we learn from our experiences around the Group.

 

People

The positive results set out in this report are a testament to the skills and hard work of our employees, including all those new staff who have joined WYG in the past 12 months. On behalf of the Board I would like to thank them all for their dedication and contribution.

 

Current trading and outlook

Trading in the current financial year is in line with the Board's expectations, with good revenue growth coming though in the UK where we have already successfully secured two major new framework contracts with UK government agencies.

 

We continue to believe that our UK business will benefit from the opportunities flowing from our public and private sector clients as a result of ongoing economic growth, a dynamic global and political backdrop and the agility we offer, enabling us to win business from larger competitors.  UK government and infrastructure spending, which are the main drivers of our front-end planning and consultancy business, have remained resilient albeit with the process of formalising some contractual commitments temporarily curtailed by the UK General Election. However, we were encouraged by the proposals contained in the Autumn Statement and the Spring Budget and all the UK's major political parties appear committed to continued increases in the level of infrastructure spending.

 

Internationally, the scale of the opportunity in all our target markets continues to grow. We are well established with market leading local businesses in Poland, Croatia and Turkey, each of which can access the pipeline of opportunities as EU funds continue to be deployed under the current multi-annual financial framework. The outlook for our international development business in Africa and Asia also remains very positive and, after a period of intense bidding activity, we have recently achieved some very significant wins. With further wins expected, we envisage sustained growth across the region.

 

Overall, the opportunities we are seeing in our core consultancy services and international development markets, combined with our initiatives to drive efficiency and resilience across the Group and a good level of order book cover, leave us in a strong position from which to deliver continued growth in the current year. 

 

 

Business performance

 

Introduction

Last year's strong growth in order book has been successfully converted into much improved revenue, especially in the UK and MENA. Our UK business produced double digit growth in revenue for the third year in a row. However, margins slipped chiefly as a result of having geared up to deliver several major programmes of work that were expected to commence in the last four months of the year but were then delayed. Frustratingly, it was our higher margin service lines that saw the greatest incidence of project delays. Although the business acted quickly to reduce costs and overheads, and defer some planned investments in the final quarter, it proved impossible to make up the lost ground by the year end. 

 

In addition to the strong revenue growth in the year, the UK was very successful in generating new orders  which underpin expectations for the current financial year. The quality of, and client satisfaction with our work, has also been recognised with a number of awards and nominations including, for example, National Grid's Most Innovative Property Project.

 

Competition for suitably qualified staff remains intense, so our timely investment to develop a resourcing team to attract skilled employees has been repaid. More than 80% of all new starters are now recruited by our own team, meaning that we pay significantly less in external recruitment fees.

 

WYG operates through four sub-regional businesses in EAA: Central and Eastern Europe (CEE), South East Europe (SEE), Africa, Asia and Rest of World (ARM). In CEE, project delays and weaker performance in the HR Consulting business which offers job search facilities, placement and counselling facilities to the unemployed, has meant we have undertaken further restructuring of the Polish business, discontinuing two lower margin/return lines of business and refocusing on our core strengths of technical and socio-economic services.

 

SEE and ARM performed strongly. Overall, therefore our EAA Region generated an increase in operating profit despite slightly reduced revenues. Major long-term programmes such as the Infrastructure Projects Facility in the Western Balkans are the mainstay of the business and, shortly after the year end, we received confirmation that we had been appointed to a number of large, long-term programmes in Africa. These programmes, which are complemented by our Monitoring & Evaluation and Public Financial Management services (ensuring that international donors get value for money), mean that the medium to long-term outlook for our international development business remains very positive.

 

In MENA, we saw the positive impact of good operational gearing such that an 80% increase in turnover from £13.2m to £23.8m led to an increase of approximately 10 times in operating profit to £3.0m (2016: £0.3m).

 

Just after the year end, we were especially pleased to receive confirmation that we have won a place on the Crown Commercial Services two year £2.9bn consultancy framework under which UK government customers can access project management, design and advisory services to support the delivery of their property and construction projects. The framework is initially for two years though this can be extended in one year increments up to a maximum of four years.  We estimate that the framework could be worth up to £3m per annum over the duration of the framework.

 

We were also pleased to receive confirmation that the Defence Infrastructure Organisation (DIO) has awarded us the contract to be the DIO's preferred Principal Support Provider for new projects in both the Central and Southern regions of the UK. DIO is an arm of the UK Ministry of Defence (MoD) and plays a vital role in supporting our Armed Forces by building, maintaining and servicing the UK's defence infrastructure. DIO is primarily responsible for implementing the estate optimisation plan, the sale of sites associated with that plan and, more broadly, investing in the estate to make it more efficient and better able to support the UK's military capability. Recently DIO decided to move to a Regional Commissioning Model (RCM). The amendment to our existing PSP framework is initially for one year but can be extended in one year increments up to a maximum of three years. We estimate that our expanded Delivery Partner role under the new model could double our existing £12m per annum revenue in each of the next three years.

 

Operational review

Operationally, the Group was structured and reported throughout the financial year on a regional basis with the three regions being:

·      UK

·      Europe (which includes CIS and Western Balkans), Africa & Asia (EAA)

·      MENA (Middle East & North Africa including Turkey).

 

Going forward, we will report in line with our new organisational structure:

·      Consultancy Services - this will include all our UK activities and those parts of our international business which operate in similar technical services fields and comparable markets i.e. Poland and Bulgaria 

·      International Development

 

UK (71% of Group revenue) - strong performance impacted only by Q4 slowdown

 

The UK region generated a 12% increase in revenue to £107.6m (2016: £96.3m). However, operating profit before separately disclosed items at £9.1m was 12% behind the previous year (2016: £10.3m) due mainly to the fact that we had invested to deliver several major programmes of work that were expected to commence in the last four months of the year but were then delayed. We acted quickly to review and reduce costs and overheads, and deferred some further planned investments in the final quarter. Unfortunately, it proved impossible to make up the lost ground by the year end, without detrimentally impacting our ability to resource growth in 2018.

 

The continued underlying growth in our UK region has been achieved with strong organic performances across almost all of our service lines, plus the full year impact of last year's strategic acquisitions. Among other notable framework and project wins:

 

·      We have been appointed to frameworks to provide multi-disciplinary services to Transport for Greater Manchester, Transport for London and a number of other Combined and Local Authorities meaning that we are also well placed to benefit from planned local infrastructure investment. Our reappointment to a four-year framework by National Grid Property extends our relationship with this key client to 25 years.

 

·      In the residential sector, our core Town Planning practice is involved in several Garden Village schemes which we expect to be a key component of future housing provision in the UK and one in which we are ideally positioned to be a prominent adviser. For example, having already worked for Sigma Capital Group on more than 2,000 residential units over the last two years, they have engaged us to deliver a further 1,000 residential units for the Private Rented Sector with sites in the North West, Leeds, Sheffield and Birmingham.

 

·      In the higher education sector, we have delivered projects at universities in Belfast, Birmingham, Edinburgh, Keele, Lancaster, Leicester, Liverpool, Manchester, Surrey and Teesside, including the unique Birmingham Conservatoire. Our design teams also provide multidisciplinary engineering services on highly complex, research and development laboratory projects for both UK government and higher education clients. Notably, we have been appointed as Project Managers and Cost Managers for Ealing, Hammersmith & West London Colleges' Hammersmith and Fulham Gateway Project which is the College's largest and most ambitious project to date.  The £200m redevelopment comprises a new college building, residential development, a new free school and a new higher education facility. 

 

·      We are pleased to have been appointed to support James Fisher Nuclear Ltd in a four-year contract with Magnox to undertake decommissioning activities at the Winfrith Site, Dorset. Whilst at Sellafield, one of the world's most complex nuclear sites we have run the first unmanned aerial vehicle (UAV or Drone) flight within active areas of the site.  The flight and subsequent surveying and engineering analysis of a key asset is estimated to have provided Sellafield Ltd with £100k of savings when compared with traditional methods and we expect this use of technology to be replicated on other strategically important and complex sites. 

 

·      Our Facilities Management team now provide Compliance Consultancy services to Co-op across their entire retail food estate and the client has recently expanded our remit to their funeral care business. We have renewed our long-term framework with the Royal Mail Group to provide asbestos consultancy services and extended this key relationship to include Construction Design and Management and Principal Designer services, and Health & Safety consultancy services.

 

These strengthening relationships and strong indications that the UK Government, regardless of party, is committed to significant new infrastructure spending, increasing the housing stock and upgrading and extending the life of key strategic assets - the core drivers of our business - through the National Infrastructure Plan, give us good reason to be very optimistic about our growth ambitions in the coming years.

 

A resilient economic environment in addition to these clear long-term drivers mean that our clients remain willing to unlock investment because they are more confident of positive outcomes. As a result, our order book has continued to grow, closing the year 3% up at £81.7m (2016: £79.5m) and has been boosted by the post year-end wins referred to above, giving confidence of another year of growth.

 

Europe, Africa & Asia (13% of Group revenue) - good performance; Polish operations de-risked

 

In this region WYG operates through four sub-regional business units - Central and Eastern Europe (CEE), South East Europe (SEE), Africa, Asia and Rest of World (ARM). In the year, the EAA region generated revenue of £20.5m (2016: £23.9m), with an operating profit before separately disclosed items of £1.0m (2016: £0.7m).

 

Once again, our performance in the region was dominated by strong business performance and order book growth in SEE and Africa offset by weakness in CEE. In Poland, our technical services work is almost exclusively with Polish public sector organisations where the public procurement process is considerably more adversarial and frequently litigious than, for example, in the UK. We have also seen revenue in this part of the business decline significantly over the past three years - chiefly as a result of being at the low point of the seven year EU funding cycle. Despite making reductions to the cost base in Poland in each of the preceding two years, it has been necessary to carry out significant further restructuring. Going forward we will focus on strategic work in transport (primarily rail) and environmental projects. Our socio-economic business will be refocussed on regional development projects in employment, education and economic development to take advantage of the change of emphasis towards, and expected increase in, European Social Funds.

 

Following the change of government in Poland in 2016 and the establishment of a new Ministry of Energy there is now significant uncertainty over the future of the Polish nuclear new build project. Our ultimate client, PGE, have terminated their agreement with the original main contractor and our immediate client has reviewed its own involvement in the project. Against this backdrop, and with no clear visibility on future revenues, we have scaled down our core project team until the position becomes clearer.

 

The aggregate financial impact of our restructuring in Poland, including making provisions against specific projects (including the nuclear new build project) is approximately €3.3 million. Going forward, we believe that the restructured business in Poland does have a viable future. It is being managed within our wider Consultancy Services business stream meaning that greater support can be provided not only for technical services but also in terms of central administration and back up.

 

In other parts of EAA, we have had a year of further expansion both in terms of regional footprint and service offering.  Order book has seen significant growth in contracts won and now stands at £46m (2016: £40m), an all-time high for our International Development business. Our Project Preparation Facility capability (WBIF) has expanded as we secured the €13m IPF 5 project - which has been in operation now since June 2016 and is expected to double in value later this year. Going forward we've developed a strategy to push our infrastructure project preparation and ConnecTA offering, which has been so successful in the Western Balkans, into other regions - most notably in MENA and Africa.

 

Our Public Financial Management (PFM) practice has continued to secure significant contract wins in West Africa: the most significant was the second phase of the Public Sector Accountability and Governance Programme in Nigeria with an overall value to WYG of c.£6.5m.  We have also greatly strengthened our capability in East Africa opening a new office in Nairobi following important contract wins and awards in Transport, Training and Governance in Kenya, Tanzania and Somalia. Our state-of-the-art Duty of Care provision puts us in an excellent position to be able to work safely in challenging environments and we will be building on this platform in the next year as new donor facilities move into MENA and Sub Sahara Africa, including the EIB and the EU Emergency Trust Fund.  

 

We have expanded our work with the Foreign and Commonwealth Office (FCO) and Department for International Development (DfID), and are now well placed for the award of high value and complex programmes with these important clients.  Our Monitoring and Evaluation practice has continued to grow, and we are now able to extend into new middle income geographies having traditionally focussed on developing countries in Africa and Asia.  We expect to be able to build on the exciting opportunities in our Climate Change and Adaptation portfolio, where we have recently successfully concluded CRIDF1, a major climate resilience programme working across Southern Africa. In this regard, the recent announcement that we have been awarded a major new contract to deliver the Climate Resilient Infrastructure Facility 2 (CRIDF2) is a very positive start to the current year. CRIDF is a major donor funded programme which has been operating since 2013 to improve the sustainable, equitable use of Southern Africa's transboundary water resources. The facility aims to capitalize the development of projects that increase the ability of communities, policy makers and planners to cope with climate extremes.  By doing so, it aims to contribute to peaceful, climate resilient and sustainable planning and management of Southern Africa's shared waters, and generate current and future benefit for the region's poorest.

 

MENA (16% of Group revenue) - excellent performance; progress diversifying the business

 

In the MENA region, we generated revenue of £23.8m (2016: £13.2m) with an operating profit before separately disclosed items of £3.0m (2016: £0.3m). These excellent results show that after almost two years of delays starting projects funded under the EU's Instrument for Pre-Accession Assistance (IPA) - a component of the Multiannual Financial Framework 2014-2020 (MFF) - these projects are now coming through strongly. They also demonstrate that good operational gearing in this business generates excellent margins when the volume of work increases.

 

WYG MENA generates most of its revenue from socio-economic, technical and engineering programmes, the majority of which are funded under the IPA. With more than 78 permanent staff operating in and from Ankara and around 40 project based staff, as well as a network of around 200 associates working throughout the country and overseas, we continue to focus on our core strengths of socio-economic consultancy, where we are the market leader in Turkey, and technical services.

 

WYG's socio-economic consultancy business works on an immensely diverse range of programmes, ranging from assistance with major government sponsored employment and education initiatives, social inclusion work, blood donor programmes, water education, through to projects to increase business competitiveness and promote ethical awareness. Whilst continuing its strong performance within Turkey, our socio-economic consultancy business has used this experience to offer WYG's services into the Middle East. We were successful in winning a number of projects including a €3.6m project in Lebanon to advise on the reinforcement of the National Social Security Fund.

 

Our technical services business maintains its market leading position in the water and waste water sector where we are delivering five major projects. We have also won our first large-scale project in the transport sector to work on Turkey's National Transport Masterplan. We continue to make good progress diversifying our technical services offering into the 'soft environment' sector (climate change, agri-environment, etc) transport, renewable energy and other sectors, and on reducing our dependence on purely public sector clients.

Following a high level of conversion of our order book to revenues in the reporting year, our orderbook at 31 March 2017 stood at £17.0m (2016: £24.3m) but business development activity remains high and we are seeing good momentum in winning new work. The proportion of our order book to be delivered in the current financial period is around 80% giving us good reason to believe we can maintain our growth in MENA through the current year and beyond.

 

Financial review

Including our share of Joint Venture revenues, revenue  for the full year increased by 14% to £151.8m (2016: £133.5m). Revenue in the second half was up 7% to £78.3m compared with the first half of 2017 (£73.5m). The slower growth in the second half reflected the previously reported delays and deferrals that impacted us in the final quarter.

The proportion of international work has increased for the first time in three years, despite the significant increase in UK revenue. This is primarily the result of the excellent performance in MENA up almost 80% from £13.2m in 2016 to £23.8m as EU programmes financed by the MFF 2014-2020 finally started to mobilise.

 

Adjusted operating profit increased by 22% to £8.8m (2016: £7.2m) and adjusted profit before tax was up 17% to £8.2m (2016: £7.0m), reflecting a very strong improvement in profitability year on year. In the second half of the year we achieved an operating profit before separately disclosed items of £5.9m (2016: £5.0m), more than double the £2.8m achieved in the first half. The improvement in adjusted operating margin to 5.8% (2016: 5.4%) was driven by a combination of better discipline at the project level together with continued improvements in staff utilisation and control of overhead costs and would have been greater had we not been impacted in the UK by the cost of increasing capacity in the final months in anticipation of work that did not start as planned.

On a statutory basis, the Group made a profit before tax of £1.6m (2016: £2.2m) after £4.0m of costs associated with restructuring the business in line with the strategic growth plan and the closure of certain Polish operations.  Diluted earnings per share adjusted to exclude separately disclosed items increased to 11.9p (2016: 9.8p). On a statutory basis, earnings per share were 3.3p (2016: 4.0p).

 

The primary component of finance costs is the charges relating to our bond and banking facilities.  Finance costs were up to £0.6m (2016: £0.2m) as we have increased our use of the HSBC facility and the utilisation of advance payment bonds to mobilise large programmes of international development work.

 

The Group still has significant losses brought forward in the UK meaning that it will pay a reduced rate of UK tax for the foreseeable future. We also generate profit in many of our overseas activities, upon which we pay local corporation tax.

After payment of £2.3m in deferred consideration for acquisitions, the Group closed the year with net debt at 31 March 2017 of £2.5m (31 March 2016: net cash of £0.2m). Demands on cash have included the planned application of £2.7m towards legacy issues (including ongoing commitments on unoccupied offices), dividend payments of £0.7m and £2.1m cash costs of restructuring within the Group.  Despite the measures taken in the UK in the final quarter, we have also been able to maintain a steady level of capital investment in upgrades to our offices and IT over the year as a whole, leaving us well invested for the current year.

We remain focussed on cash generation and the effective management of working capital - evidenced by the fact that cash conversion is a key performance target for the senior management team. Our working capital KPI on an 'after fees in advance' basis, improved to 78 days (2016: 81 days) against our KPI target of 76 days. Operating cash flow before legacy costs and investments at £5.0m (2016: outflow £0.6m) was very significantly improved.

As at 31 March 2017, the Group's order book stood at £145m (2016: £143m like for like after excluding the impact of Polish adjustments), ahead of the like for like figure at the same point last year. It comprised UK orders of £82m (2016: £80m) and international orders of £63m (2016: £64m).

 

Since the year end, recent project wins totalling c.£50m have been confirmed, significantly boosting the Group's order book meaning that, despite the significant increase in turnover last year, we have continued to replenish the order book at a steady rate. As a result, the order book for work to be undertaken in the current year gives a strong basis for current year growth expectations.

 

Conclusion

Overall, the Group delivered a very positive result with 14% growth in revenue, a 22% increase in operating profit and much improved cash generation although we anticipated a slightly stronger profit performance in this final year of our long-term recovery plan. It is difficult to overstate how far we have come since 2011 and we can be proud of what we have achieved.

The business has good fundamentals: under the new operational structure which is aligned to the five-year growth strategy recently endorsed by the Board; strong new business leaders; a good order book and favourable economic indicators for all our core, front-end planning and consultancy services, we are confident of continuing growth.

 

Mike McTighe

Chairman

 

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2017

 

 

 

 

 

 

 

 

 

2017

2016

 

Note

£'000

£'000

Continuing operations

 

 

 

Revenue including share of joint venture revenues

 

151,824

133,482

Less share of joint venture revenues

 

(1,284)

(665)

Revenue

4

150,540

132,817

Operating expenses

 

(148,585)

(130,377)

Share of result of joint ventures

 

198

(17)

Operating profit

3

2,153

2,423

Finance costs

 

(554)

(201)

Profit before tax

 

1,599

2,222

Taxation

 

779

608

Profit for the year

 

2,378

2,830

 

Profit/(loss) attributable to:

Owners of the parent

 

2,378

2,832

Non controlling interests

 

-

(2)

 

 

2,378

2,830

 

 

 

 

Earnings per share

5

 

 

Basic

 

3.3p

4.0p

Diluted

 

3.3p

3.9p

             

 

Operating profit for the year includes net costs of £6.6m (2016: £4.8m) that are separately disclosed in Note 3.

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2017

 

 

 

2017

2016

 

Note

£'000

£'000

Profit for the year

 

2,378

2,830

Other comprehensive income/(expense):

 

 

 

Currency translation difference

 

1,110

(195)

Tax on items taken directly to equity*

 

-

(572)

Impact of defined pension asset ceiling*

 

-

2,060

Remeasurement of net defined pension liability*

 

-

845

Other comprehensive income for the year

 

1,110

2,138

Total comprehensive income for the year

 

3,488

4,968

 

 

 

 

Total comprehensive income/(expense) attributable to:

 

 

 

Owners of the parent

 

3,488

4,970

Non controlling interests

 

-

(2)

 

 

3,488

4,96

 * These items will not be reclassified subsequently to the income statement.

 

 

BALANCE SHEET

As at 31 March 2017

 

 

 

 

 

 

 

2017

2016

 

Note

£'000

£'000

Non-current assets

 

 

 

Goodwill

 

18,193

18,193

Other intangible assets

 

7,325

9,295

Property, plant and equipment

 

3,180

3,181

Investment in joint ventures

 

603

407

Deferred tax assets

 

1,246

1,224

 

 

30,547

32,300

Current assets

 

 

 

Work in progress

 

29,986

30,372

Trade and other receivables

 

30,323

22,842

Retirement benefit asset

 

-

799

Tax recoverable

 

370

207

Cash and bank balances

8

6,518

8,231

 

 

67,197

62,451

Current liabilities

 

 

 

Trade and other payables

 

(49,608)

(46,682)

Current tax liabilities

 

(235)

(931)

Financial liabilities

8

(4,000)

(3,050)

 

 

(53,843)

(50,663)

Net current assets

 

13,354

11,788

Non-current liabilities

 

 

 

Financial liabilities

8

(5,000)

(5,000)

Retirement benefit obligation

 

(2,115)

(2,356)

Deferred tax liabilities

 

(2,035)

(2,511)

Provisions, liabilities and other charges

 

(3,177)

(5,940)

 

 

(12,327)

(15,807)

Net assets

 

31,574

28,281

 

 

 

 

Equity attributable to the owners of the parent

 

 

 

Share capital

 

75

73

Translation reserve

 

1,495

385

Retained earnings

 

30,004

27,791

 

 

31,574

28,249

Non controlling interest

 

-

32

Total equity

 

31,574

28,281

             

 

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 March 2017

 

 

 

 

 

Group

Share capital

£'000

Translation reserve

£'000

Retained earnings

£'000

Total

£'000

Non controlling interest

£'000

 

Total equity

£'000

 

Balance as at 1 April 2015

72

580

21,730

22,382

164

22,546

Profit for the year

-

-

2,832

2,832

(2)

2,830

Other comprehensive (expense)/income:

 

 

 

 

 

 

Currency translation differences

-

(195)

-

(195)

-

(195)

Tax on items taken directly to equity

-

-

(572)

(572)

-

(572)

Impact of defined pension asset ceiling

-

-

2,060

2,060

-

2,060

Remeasurement of net defined benefit pension liability

-

-

845

845

-

845

Other comprehensive (expense)/income for the year

-

(195)

2,333

2,138

-

2,138

Total comprehensive (expense)/income for the year

-

(195)

5,165

4,970

(2)

4,968

Share-based payments charge

-

-

1,587

1,587

-

1,587

Share issue

1

-

-

1

-

1

Dividends

-

-

(821)

(821)

-

(821)

Reduction in minority shareholding

-

-

130

130

(130)

-

Balance at 31 March 2016

73

385

27,791

28,249

32

28,281

 

Group

 

 

 

 

 

 

 

Balance as at 1 April 2016

73

385

27,791

28,249

32

28,281

Profit for the year

-

-

2,378

2,378

-

2,378

Other comprehensive income:

 

 

 

 

 

 

Currency translation differences

-

1,110

-

1,110

-

1,110

Other comprehensive income for the year

-

1,110

-

1,110

-

1,110

Total comprehensive income for the year

-

1,110

2,378

3,488

-

3,488

Share-based payments charge

-

-

906

906

-

906

Share issue

2

-

-

2

-

2

Dividends

-

-

(1,103)

(1,103)

-

(1,103)

Reduction in minority shareholding

-

-

32

32

(32)

-

Balance at 31 March 2017

75

1,495

30,004

31,574

-

31,574

 

 

 

CASH FLOW STATEMENT

For the year ended 31 March 2017

 

 

 

2017

2016

 

Note

£'000

£'000

Operating activities

 

 

 

Cash generated from/(used in) operations

7

3,380

(966)

Interest paid

 

(554)

(180)

Tax paid

 

(944)

(321)

Net cash generated from/(used in) operating activities

 

1,882

(1,467)

 

 

 

 

Investing activities

 

 

 

Purchases of property, plant and equipment

 

(1,654)

(2,092)

Purchases of intangible assets (computer software)

 

(260)

(385)

Purchase of subsidiary undertakings, net of cash acquired

 

(2,276)

(7,875)

Net cash used in investing activities

 

(4,190)

(10,352)

 

 

 

 

Financing activities

 

 

 

Proceeds on issue of shares

 

-

1

Dividends paid to Company shareholders

6

(684)

(821)

Drawdown of loan facility

 

1,000

8,000

Net cash generated from financing activities

 

316

7,180

Net decrease in cash and cash equivalents

 

(1,992)

(4,639)

Cash and cash equivalents at beginning of year

 

8,231

12,324

Effects of foreign exchange rates on cash and cash equivalents

 

279

546

Cash and cash equivalents at end of year

8

6,518

8,231

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1. GENERAL INFORMATION

WYG plc is incorporated and domiciled in England.  The address of its registered office is Arndale Court, Otley Road, Headingley, Leeds, LS6 2UJ.  The company's shares are traded on AIM, a market operated by the London Stock Exchange plc.

The principal activity of the Group during the period ended 31 March 2017 was that of programme, project management and technical consultancy.  The Group's revenue derives from activities in the UK and the Group's International division.

The results for the year ended 31 March 2017 have been extracted from audited accounts which have not yet been delivered to the Registrar of Companies. The Financial Statements set out in this announcement do not constitute statutory accounts for the year ended 31 March 2017 or the year ended 31 March 2016. The financial information for the period ended 31 March 2016 is derived from the statutory accounts for that year. The report of the auditor on the statutory accounts for the year ended 31 March 2017 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

2. BASIS OF PREPARATION

Of the new standards, amendments and interpretations that are in issue and mandatory for the financial year end to 31 March 2017, there is no financial impact on this condensed consolidated financial report.

Items that are material and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are included within separately disclosed items.

The audited accounts for the year ended 31 March 2017, from which these results have been extracted, have been prepared on a going concern basis.

 

3. DETAILED CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

Revenue including share of joint ventures

 

 

Operating profit

 

 

Profit before

 tax

 

£'000

£'000

£'000

Year ended 31 March 2017

 

 

 

Before separately disclosed items

151,824

8,768

8,214

Separately disclosed items

-

(6,615)

(6,615)

Total

151,824

2,153

1,599

Year ended 31 March 2016

 

 

 

Before separately disclosed items

133,482

7,221

7,020

Separately disclosed items

-

(4,798)

(4,798)

Total

133,482

2,423

2,222

                     

 

 

Details of separately disclosed items

 

2017

2016

£'000

£'000

Share option costs

(742)

(1,475)

Amortisation of acquired intangible assets

(1,863)

(1,533)

Other charges

(4,010)

(1,790)

Separately disclosed items

(6,615)

(4,798)

 

 

The Group has incurred a number of material items in the year, whose significance is sufficient to warrant separate disclosure. The key elements included within separately disclosed items are:

· Annual charge in relation to share option costs.

· Annual charge for the amortisation of acquired intangibles.

· Items included in other charges in the year relate to restructuring costs and the release of surplus vacant leasehold provisions, net of credits in relation to deferred acquisition balances. The prior period relates to restructuring costs net of a credit in relation to the legal settlement of the 1986 Pension Scheme and the release of surplus vacant leasehold provisions.

 

The directors believe that the performance measure of operating profit before separately disclosed items gives a better view of underlying trading for the Group and enables the user of the accounts to more accurately understand the Group's performance. Although the share option costs and amortisation of intangible assets are charges which occur annually, the directors excluded those charges from operating profit before separately disclosed items because their value is significant and they are not related to the underlying performance of the business.

The other charges in the year relate to costs incurred for the strategic growth plan and the closure of certain Polish operations. As these charges are expected to be one off in nature, the directors believe it is appropriate to exclude them from operating profit before separately disclosed items. The other charges for the prior period related to the winding up of the WYD Pension Scheme and strategic review costs, net of the credit for the finalisation of the 1986 Pension Scheme legal settlement.        

 

 

4. SEGMENTAL INFORMATION

Business segments

IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker.  The Group's chief operating decision maker is deemed to be the executive management team comprising of the Chief Executive Officer and the Chief Financial Officer.  Its primary responsibility is to manage the Group's day-to-day operations and analyse trading performance.  The Group's segments are detailed below and are those segments reported in the Group's management accounts used by the executive management team as the primary means for analysing trading performance.  The Executive Committee assesses profit performance using operating profit measured on a basis consistent with the disclosure in the Group accounts.

The Group's operations are managed and reported by key market segments:

·     UK;

·     EAA (Europe, Africa and Asia); and

·     MENA (Middle East & North Africa including Turkey, which accounts for 71% of the total MENA revenue).

The segment results for the year ended 31 March 2017 are as follows:

 

 

UK

EAA

MENA

Group

 

2017

2017

2017

2017

 

£'000

£'000

£'000

£'000

Revenue

 

 

 

 

External revenue

107,595

20,469

23,760

151,824

Less share of joint venture revenues

-

(1,284)

-

(1,284)

 

107,595

19,185

23,760

150,540

Operating profit before central overheads and separately disclosed items

9,056

1,020

2,984

13,060

Central overheads

 

 

 

(4,292)

Operating profit before separately disclosed items

 

 

 

8,768

Separately disclosed items (note 3)

 

 

 

(6,615)

Operating profit

 

 

 

2,153

Finance costs

 

 

 

(554)

Profit before tax

 

 

 

1,599

Tax

 

 

 

779

Profit for the year

 

 

 

2,378

Profit attributable to non controlling interests

 

 

 

-

Profit attributable to the owners of the parent

 

 

 

2,378

 

 

 

 

 

 

 

4. SEGMENTAL INFORMATION CONTINUED

 

The segment results for the year ended 31 March 2016 are as follows:

 

 

UK

 

EAA

 

MENA

 

Group

 

 

2016

2016

2016

2016

 

£'000

£'000

£'000

£'000

Revenue

 

 

 

 

External revenue

96,328

23,941

13,213

133,482

Less share of joint venture revenues

-

(665)

-

(665)

 

96,328

23,276

13,213

132,817

Operating  profit before central overheads and separately disclosed items

10,325

671

258

11,254

Central overheads

 

 

 

(4,033)

Operating profit before separately disclosed items

 

 

 

7,221

Separately disclosed items (note 3)

 

 

 

(4,798)

Operating profit

 

 

 

2,423

Finance costs

 

 

 

(201)

Profit before tax

 

 

 

2,222

Tax

 

 

 

608

Profit for the year

 

 

 

2,830

Loss attributable to non controlling interests

 

 

 

(2)

Profit attributable to the owners of the parent

 

 

 

2,832

 

 

5. EARNINGS PER SHARE

 

The calculation of basic and diluted earnings per share is based on the following data:

 

2017

2016

 

£'000

£'000

Earnings for the purposes of basic and diluted earnings per share being profit for the year

2,378

2,832

Adjustment relating to separately disclosed items (see note 3)

6,615

4,798

Tax impact of separately disclosed items

(354)

(599)

Earnings for the purposes of basic and diluted adjusted earnings per share

8,639

7,031

 

 

2017

2016

 

Number

Number

Number of shares

 

 

Weighted average number of shares for basic earnings per share

71,131,521

70,638,773

Effect of dilutive potential ordinary shares:

 

 

Share options

1,560,338

1,317,148

Weighted average number of shares for diluted earnings per share

72,691,859

71,955,921

 

 

 

Earnings per share

 

 

Basic

3.3p

4.0p

Diluted

3.3p

3.9p

 

 

 

Adjusted earnings per share

 

 

Basic

12.1p

10.0p

Diluted

11.9p

9.8p

 

The adjusted earnings per share is calculated after excluding separately disclosed items (see note 3). This more accurately reflects the underlying performance of the Group.

 

 

6. DIVIDENDS

The final dividend of 1.0p per share for the year ended 31 March 2016 (2015: 0.7p per share) was paid in September 2016. The interim dividend of 0.6p per share for the year ended 31 March 2017 (2016: 0.5p) was approved on 1 December 2016 and paid in April 2017 and was accrued in the financial statements at 31 March 2017. The total amount recognised during the year was £1,103,000 (2016: £821,000).

The Directors have proposed a final dividend of 1.2p per share for the year ended 31 March 2017 (2016: 1.0p). This has not yet been approved by shareholders and so is not included as a liability in the financial statements.

 

 

7. CASH GENERATED FROM/(USED IN) OPERATIONS

 

 

 

2017

2016

 

£'000

£'000

Profit from operations

2,153

2,423

Adjustments for:

 

 

Depreciation of property, plant and equipment

1,670

1,362

Amortisation of intangible assets

2,235

1,979

Loss on disposal of property, plant and equipment

4

58

Share options charge

742

1,475

Operating cash flows before movements in working capital

6,804

7,297

Decrease/(increase) in work in progress

1,976

(7,508)

(Increase)/decrease in receivables

(7,030)

365

Increase/(decrease) in payables

1,630

(1,120)

Cash generated from/(used in) operations

3,380

(966)

 

 

 

8. ANALYSIS OF CHANGES IN NET CASH/(DEBT)

 

 

 

At

 

Other

At

 

1 April

Cash

non-cash

31 March

Group

2016

Flows

Items

2017

 

£'000

£'000

£'000

£'000

Cash and cash equivalents

8,231

(1,992)

279

6,518

Bank loans and overdrafts

(8,000)

(1,000)

-

(9,000)

Net cash/(debt)

231

(2,992)

279

(2,482)

Cash in restricted access accounts

(1,070)

(68)

(76)

(1,214)

Unrestricted debt

(839)

(3,060)

203

(3,696)

 

Restricted cash relates to restricted access accounts in WYG International Limited. Other non-cash movements represent currency exchange differences.

 

ENDS


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