Cautious optimism as Waterman results exceed expectations

Waterman achieves strong results through overseas expansion, but UK business will not be immune from economic downturn says environmental MD

On yet another tumultuous day for the stock market, shares in the environmental and engineering consultant Waterman managed a 6% fillip yesterday on news of resilient trading, overseas expansion and a record £225 million order book.

In its preliminary results for the year ending 30th June 2008, revenue and pre-tax profit both came in ahead of market expectations. Profit before tax rose by 37% to £7.0 million (2006/07: £5.1 million), while turnover grew 31% to £136.4 million (2006/07: 103.9 million). The group will now pay a full year dividend of 6.3p per share, compared to 5.8p a year ago.

Waterman's international business is the star of the show, reporting 57% turnover growth thanks to strong trading in the Middle East, Russia and China. It has also recently opened an office in Chennai, the first in India. Overseas revenues now account for around a third of total turnover.

Figures for the environmental consultancy division have not yet been finalised and will be released on the publication of the group's annual report later this month. However, managing director of Waterman Environmental Simon Handy confirms that "the profit and turnover results are very much in line with the trend reported for the group...with revenues from outside of the UK growing to constitute 15% of the environmental business - a substantial increase from the 10% contribution last year."

Like other large environmental consultancy firms, expanding internationally is seen as means of cushioning the potential impact from the UK's economic deterioration. The Waterman environmental business has significant exposure to the property and development sector through its focus on contaminated land, environmental assessment and due diligence work.

"Central and Eastern Europe, Dubai and the Arab Emirates have been very strong for the environmental business and group as whole," says Mr Handy. "It has been a perfect time to take advantage of the lively conditions in these regions and put forward teams as the market changes in the UK. Australia also remains strong and has not had the turbulence in the banking sector seen elsewhere which is very reassuring. Going forward, we're planning to expand the international business quite significantly."

Commenting on the domestic market, Mr Handy told Environment Analyst: "We're not immune from what's going on in the UK - and we're not expecting a vast amount of expansion here over the next twelve months. It's true that quite a number of projects have been put on hold due to funding difficulties, with clients becoming more risk averse and wanting to bide their time. But equally a number of clients are taking advantage of the current market conditions. Some of the major developers in the UK have still got access to funds and are actively looking to acquire property and land at a lower price, positioning themselves for the upturn. And these sites will require planning permission."

Mr Handy also believes that the housing shortage, particularly in the south east of England, will re-emerge as a significant driving force, but concedes that "there's still a lot of 'bumps' to get over" during the next year. So it will be more important than ever for Waterman to "align ourselves with the right clients".

Cautious optimism appears to be the order of the day among Waterman's senior management. "Our balance sheet is in good health and gearing across the group is low," said chief executive Nick Taylor. "We are very conscious of the current difficulties in the financial sector, but the group remains committed to maintaining our strong reputation and growth in expanding markets."

• Press release