WYG Plc Half Yearly Report (2385S)

TIDMWYG

RNS Number : 2385S

WYG Plc

29 November 2012

WYG plc ("WYG" or the "Group")

Half Year Report

A return to operating profit

WYG plc, the global project management and technical consultancy, announces its half year results for the six months to 30 September 2012.

Financial overview:

   --           Revenue of GBP61.8m (H1 2011: GBP68.5m) 
   --           Operating profit* of GBP0.3m (H1 2011: loss of GBP2.5m) 
   --           Adjusted* loss per share of 0.8p (H1 2011: 4.3p loss) 
   --           Unrestricted cash as at 30 September 2012 GBP12.7m (31 March 2012: GBP16.4m) 
   --           Orderbook as at 30 September 2012 GBP124.1m (30 September 2011: GBP144.8m)

*Before separately disclosed items

Key points:

   --           Return to operating profit 
   --           Overall trading performance in line with the Board's expectations 
   --           International sales accounted for 39% of Group revenue (H1 2011: 40%) 
   --           Revenue and orderbook reflect planned reduction in certain markets

-- Progress in reducing legacy costs continues ahead of expectations; closure of loss making business in Republic of Ireland saving EUR5m in future support

   --           Cash position at 30 September 2012 ahead of the Board's expectations

Current Trading & Outlook:

   --           Trading since the half year end in line with expectations

-- Market conditions remain challenging in the UK albeit we see good opportunities in our key sectors of Defence & Justice and Energy & Waste

   --           International opportunities in donor-funded and other markets offer good prospects for international growth

-- Orderbook GBP124.1m of which the UK accounts for GBP54.4m and GBP69.7m is International

Paul Hamer, Chief Executive Officer of WYG, said:

"As we guided earlier in the year, I am delighted to confirm that WYG has made an operating profit in the six month period ended 30 September 2012, marking a very significant milestone in the turnaround of the Group.

"Despite continued challenging conditions in the UK, we have secured good quality new business across our key sectors and we are developing a strong pipeline of international opportunities in both the public and private sectors, underpinning the Group's long term growth prospects.

"Trading in the first half, and since the period end, has been in line with our own expectations and market forecasts for the full year. We look forward to making further progress as we realise the benefits of legacy cost savings and focus on creating higher quality revenues through the delivery of our Global Integrated Strategy."

For further information, please contact:

   WYG plc                                                                       Tel: 0113 278 7111

Paul Hamer, Chief Executive Officer

Sean Cummins, Group Finance Director

   MHP Communications                                                  Tel: 020 3128 8100

John Olsen

Katie Hunt

James White

Vicky Watkins

   Numis Securities Limited                                             Tel: 020 7260 1000

Stuart Skinner (Nominated Adviser)

David Poutney (Corporate Broker)

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that WYG has made an operating profit in the six month period ended 30 September 2012, marking a very significant milestone in the turnaround of the Group. WYG's overall trading performance in the first half of the current financial year has been in line with the Board's expectations - recognising the continuing challenges of doing business in our key markets in the UK and the positive effects of our progress in diversifying into international markets. The strengthening of the Company's balance sheet and our significant net cash balances have benefitted the Group's trading subsidiaries which can now bid with greater confidence of a positive outcome on projects where, until recently, the Group's financial covenant was often a barrier to winning new contracts.

During September, the Group's four trading companies in the Republic of Ireland were placed into liquidation. This business, which was built up through a series of 12 acquisitions between 1999 and 2008, had experienced extremely challenging trading conditions in recent years as a result of the wider economic conditions in Ireland and the severe decline in the Irish construction market. Its trading underperformance was exacerbated by the unsustainable property costs and the legacy of claims mainly associated with the companies prior to acquisition.

The directors of WYG estimate that the future legacy costs, primarily property-related, of supporting the Irish Business would have been at least EUR5 million and intend that these sums will now be redirected towards underpinning the growth initiatives of the wider business.

The Group's subsidiaries in Northern Ireland, which remain part of the Group (having been purchased from the liquidator for a nominal sum), have continued to trade profitably and are unaffected by the property issues that have impacted the business in the Republic of Ireland.

We continue to make very good progress reducing the other legacy costs relating to historical issues arising from the poor professional indemnity insurance history and the sub-optimal property portfolio from which WYG operates in the UK.

Cash management remains a very high priority and the Group's unrestricted cash position at 30 September 2012 at GBP12.7m (31 March 2012: GBP16.4m) was ahead of the Board's expectations.

With a robust financial platform, the benefits of our programme of 'self help' measures starting to flow through and a clearly defined strategy, the Board believes that the Group is now well placed to progress with the shift in focus from internal improvements to creating higher quality revenues through the delivery of our Global Integrated Strategy.

Senior appointments

I am pleased to announce that Glen Thorn, who joined us in March as Managing Director of the Buildings & Infrastructure business, has been appointed to lead the whole of the UK Region. Formerly Executive Director of Halcrow's Transportation Business Group Worldwide, Glen's priority will be to strengthen WYG's offering in our chosen markets and to drive growth. Also joining us, on 1 November as Group HR Director, is Karen Brookes. Karen comes to WYG from the Government Procurement Service and she will be focussing, among other things, on enhancing talent development, recruitment and retention processes throughout the Group working closely with the senior management team to ensure the successful execution of our growth initiatives. With new appointments generally, we have continued to see an improvement in the number and quality of responses we receive for advertised positions.

Strategy

Our Global Integrated Strategy is to focus on:

-- Enhancing our competitive client offering - delivering the best possible service and value to our clients. We continually review our operations so as to maximise our competitive offering to the market. By engaging with clients at an early stage of their projects we are able to deliver added value over the lifetime of the project.

-- Creating growth - directing our resources to attractive market sectors and geographies where we have or can achieve leading positions. The seven core market sectors we serve are: Defence & Justice, Energy & Waste, Environment (including water and waste water), Transport, Mining & Minerals, Urban & Commercial Development, and Social Development & Infrastructure.

-- Delivering global projects though greater internal and external collaboration - ensuring we make best use of our Group-wide resources. This approach is complemented by establishing and developing strategic partnerships and collaborations with third parties.

Results

Gross revenue reduced to GBP61.8m (2011: GBP68.5m). Net revenue attributable to in-house services, after deducting revenue attributable to third parties on which the Group does not make a margin, was GBP54.7 (2011: GBP61.3m).

Revenue in the UK is down to GBP32.0m (2011: GBP35.1m), largely as a result of the declining business in the Republic of Ireland prior to its closure five months into the period, and the restructuring of our Transport business. Excluding these factors, the continuing UK business was pleased to report modest growth. As expected, revenues are flat or slightly down in each of the Group's key overseas markets. However, this has delivered improved margins as we place less reliance on traditional EU donor funded work and direct our efforts to diversifying the overall portfolio of international work towards other donor providers and private sector work. We have also generated improved margins across the Group as a result of the better project and commercial disciplines introduced over the past two years and the reshaping of the Group's asset base.

The Group made an operating profit before separately disclosed items of GBP0.3m (2011: loss of GBP2.5m). On a statutory basis, the Group made a loss before tax of GBP0.7m (2011: profit of GBP40.3m) - the comparable period in the prior year was impacted by the separately disclosed items in that period.

Earnings per share adjusted to exclude separately disclosed items was a loss of 0.8p (2011: loss of 4.3p).

The Group closed the period with net cash at 30 September 2012 of GBP16.0m (31 March 2012: GBP23.1m) and unrestricted cash at GBP12.7m (31 March 2012: GBP16.4m). Net cash used in operations was GBP5.9m (2011: GBP21.6m). The Group continues to develop a culture which stresses the importance of cash generation and the effective management of working capital.

Total Group headcount reduced slightly during the period, mainly as a result of the closure of the business in the Republic of Ireland, closing on 30 September 2012 at 1,282 (31 March 2012: 1,325).

Dividend

As previously reported, the Board intends to invest its cash resources in the future growth opportunities available and does not expect to pay a dividend in the near future.

Outlook

Whilst trading conditions in the UK remain subdued, we are winning work in the Defence & Justice sector where we have a strong historical position, and Energy and Waste, where we have invested in increasing our skills and capacity in specialist areas such as nuclear decommissioning. Internationally, we are making progress in shifting the mix away from donor funded work in Eastern Europe and Turkey with some excellent local, private sector prospects and we are winning some significant projects in the Rest of the World.

The Board believes that the Group is now well placed to progress with the shift in focus from internal improvements to creating higher quality revenues through the delivery of our Global Integrated Strategy.Overall, in the coming years we expect to see the international business continuing to increase as a proportion of the business as a whole and are of the opinion that the prospects over the medium to long term are good.

In the near term, trading in the first half and since the period end has been in line with our own expectations and market forecasts for the full year. We look forward to making further progress as we realisethe benefits of legacy cost savings and focus on creating higher quality revenues through the delivery of our Global Integrated Strategy.

Mike McTighe, Non Executive Chairman

29 November 2012

BUSINESS REVIEW

Operationally, the Group is structured, and reports, on a regional basis with the four regions being:

   1.         UK 
   2.         Eastern Europe (which includes CIS and Western Balkans) 
   3.         MENA (Middle East & North Africa including Turkey) 
   4.         Rest of the World - focussed on the international donor-funded market

UK (60.9% of Group Revenue)

The UK region generated net revenue of GBP32.1m (2011: GBP35.1m) with an operating loss before separately disclosed items of GBP0.7m (2011: loss of GBP3.3m).

Whilst the UK continues to be difficult, our energy market position has strengthened tremendously this year especially in the areas of renewable advice and waste to energy opportunities. One recent success is a major framework to provide strategic maintenance to Sellafield's Decommissioning Directorate covering the complete portfolio of assets for civil, structural, mechanical and electrical systems.

In the Transport sector, design work on the widening of the A453 around Nottingham is at its most intense prior to site works starting in early 2013 but elsewhere the Transport market remains flat, despite recent political support signalling an increase in future activity when funding plans materialise.

The Defence sector remains attractive with more opportunities emerging for the second half of the year. Work in support of the Defence Infrastructure Organisation (DIO) continues on a number of major projects including in Afghanistan where activity is ramping up and we now have a dedicated team of 13 working in and out of Camp Bastion alongside the Royal Engineers as part of the Civilian Engineering Support Team. Education and Health sectors remain strong: we are now heavily occupied providing a wide range of services on the 350 acre Desertcreat Joint Public Services College project in Northern Ireland, whichwill provide an integrated practical training and educational facility serving the joint public services community.

We continue to exploit pockets of very busy activity in the Planning arena, particularly in the residential market. The Retail sector also remains steady but public sector work continues to be constrained by limited client funds.

Among a number of awards in the UK business, our Civil and Structural Engineers in Manchester received the award for the best large project in the North-West from the Lancashire and Cheshire Branch of the Institution of Structural Engineers for their work on Manchester Metropolitan University's new Business School and Student Hub and Neil Smith, Regional Director at WYG, has been awarded the CIBSE Low Carbon Consultant of the Year award for 2012/13.

Eastern Europe (26.1% of Group Revenue)

Our business in Eastern Europe is run through subsidiaries in Poland, Romania, Bulgaria, Croatia and Russia, operating a region-wide network of offices. During this period net revenue of GBP15.1m (2011: GBP18.9m) was achieved, with an operating profit before separately disclosed items of GBP0.5m (2011: GBP0.6m).

Most of our operations in the region continued to be focused on the Social Development & Infrastructure Sector and are involved in high-level work for various national governments and public authorities throughout the Western Balkans as well as in Poland, Bulgaria and Romania. In Poland we maintained our position as a leading national provider of strategic and business advisory services and we are a lead adviser/independent evaluator to the Polish government on publicly financed development programmes.

Through our network of Western Balkan offices we continued to deliverthe EC funded Infrastructure Projects Facility (IPF1 and IPF2), and in July we announced our participation on the third stage of that massive programme, in joint venture with Mott Macdonald and Atkins.

In the CIS we provide consultancy services in the Mining, Metals & Minerals sector (these operations run through a collaborative joint venture), as well as selected engineering and related services including retail development and upgrading of railway stations.

Generally in Eastern Europe, the end of the current seven year international donor funding cycle is starting to make its presence felt. We have anticipated this by seeking to change the mix of work to include more local consultancy-based activity. We have some exciting prospects coming through and are making reasonable progress in rebuilding the orderbook in this region, although the type and volume of projects is less predictable than before. We will be seeking to build on our progress to date as we extend the full WYG service offering more widely throughout the Region, especially in the private sector.

MENA (11.6% of Group Revenue)

The MENA Region (which includes Turkey) contributed revenue of GBP6.7m (2011: GBP6.7m) with an operating profit before separately disclosed items of GBP0.3m (2011: GBP0.2m).

In Turkey, we continue to lead a number of major framework contracts and we have won a number of significant new projects. The IT function has re-branded as WYG IT Solutions and has moved to a free tax zone in the Techno Park, from which it not only provides support to the wider business but also functions as a profit centre in its own right.

We have opened a new office in Istanbul and our first private sector project with Foot Locker started there in September 2012. The team continues to be the country's market leader in the provision of consultancy services on donor-funded projects in the Social Development & Infrastructure sector. We are also seeing increasing demand for our technical services and we are heavily engaged as project managers and design teams in the delivery of two major projects to provide waste water treatment plants in Siverek and Ordu.

During the period we have provided support for the development of regional operations in the Middle East and North Africa from our regional headquarters in Ankara, Turkey. We have established a presence in both Dubai and Doha where we now have collaborative partnerships with local organisations as a result of which we expect to convert a number of opportunities into significant workstreams. Further afield, we have won projects in Pakistan and Nigeria.

The MENA Region remains a high priority for the Group. We have made considerable progress over the past six months in diversifying the range of services we offer by reducing our dependence on donor-funded work and moving into the private and public sectors where we believe there is a strong market for our core services. Our credentials in the region place us well to win further major projects in the Middle East in the coming months and these will provide an excellent platform from which to secure further work. In the meantime, we continue to place a very heavy emphasis on tight cost controls throughout the Region.

Rest of the World (1.4% of Group revenue)

In the Rest of the World - where we are predominantly focused on the donor funded market - we generated revenue of GBP0.8m (2011: GBP0.7m) with an operating profit before separately disclosed items of GBP0.1m (2011: loss of GBP0.1m).

During the past four years, we have significantly increased our portfolio of public financial management (PFM) projects with funding from the Asian Development Bank, the UK's Department for International Development, European Bank for Reconstruction and Development, EU and World Bank.

In the field of Social Development & Infrastructure, we are working in partnership with IPA Economics (UK) and CID Consulting (Egypt) to transform the Egyptian water sector by making utilities more efficient. We are undertaking similar but smaller projects with Safege in Lesotho.

Our strategic aim to diversify our client base in the international donor market was boosted by our inclusion in the Public Sector Governance and PFM frameworks, the PEAKS (Professional Evidence and Applied Knowledge Services) framework and GEFA (Global Evaluation Framework Agreement). We have also secured a number of major contract extensions, notably a two year extension to our work to strengthen trading relations between the European Union and South Africa.

Unaudited consolidated income statement