Half-year results reveal mixed fortunes for consultancy PLCs
5 December 2008
Multidisciplinary engineering consultancy Atkins grew both its turnover and profits by double digits during the first half of the current financial year. Its Middle East and design & engineering solutions businesses - with the latter encompassing energy, water and environmental activities - are cited as major growth drivers for the overall group.
Total revenue was up 12% to £710.8 million, while operating profit grew by 20% to £48.2 million, representing an operating margin of 6.8% (2007: 6.3%). Staff numbers also rose by over 1,000 during the period as planned to more than 18,000. Work in hand was up slightly, with 87% of full year forecast revenue already secured (2007: 85%).
Atkins chief executive Keith Clarke commented: “These are strong results. Whilst we remain attuned to the wider economic situation, the range of our business and its strength in depth gives us continued confidence for the remainder of this year. Looking further ahead, our secure position allows us to continue to invest in carbon critical design…”
In a webcast of the analyst presentation accompanying the results announcement, Mr Clarke confirmed that Atkins is continuing to hire staff, although he said “the throttles are being applied” to recruitment in some areas. “That’s not being blind to the market around us," he added. "We are acutely aware that it’s time to be extremely careful, cautious and to stick to the knitting. But demand for infrastructure remains strong and we are in a good position.”
Atkins’ water and environment division constitutes only a small proportion of the overall business, at around 7% of total turnover. UK environmental staff numbers are reported as remaining stable at 1,300.
Revenue for AEA increased by just one percentage point during the first six months of the financial year over the same period in 2007 to £35.6 million, while adjusted operating profit grew by 5% to £3.9 million. While AEA reports “strong growth” in energy and climate change projects, air and water quality activities and the group’s knowledge transfer practice, it says a “reduction in the scope of major government programmes resulted in a significant reduction in subcontractor through costs on these contracts”. Excluding the effects of these costs, revenue increased by 12% to £31.8 million. The UK government now represents 70% of the group’s business compared to 78% as at September 2007.
AEA has also recently completed a “major investment” in strengthening its marketing and sales, commercial, resourcing and recruitment capabilities, which added £1.1 million to its cost base in the first half of the year. The group says the investment has enabled it to transfer its knowledge of energy and climate change regulation and advice from government to the private sector in advance of the growing pressures on businesses to reduce carbon dioxide emissions because of the national greenhouse gas emission targets in the Climate Change Act 2008.
There was a solid performance in terms of orders growth, which is up by 47% over the period to £34.3 million, with private sector orders up by 139% in line with the group’s strategy to grow the business in this area. According to CEO Andrew McCree, this is “mainly down to the successful launch of Ecopath, a consultancy product designed to help businesses reduce their carbon dioxide emissions”.
Another important development for AEA was the purchase of US-based Project Performance Corporation, which completed in August. “The acquisition of PPC is already starting to deliver results. The recent win of President-elect Obama and his commitment to invest in energy efficiency and climate change, creates a significant opportunity for the group going forward,” said Mr McCree. As well being a gateway to the US market, PPC also brings a data systems capability to the portfolio, enabling AEA to offer its clients integrated strategy, implementation, evaluation and data collection solutions.
AEA now employs over 900 people in the UK, Europe and US, and reports an impressive list of current clients, with ongoing projects for the UN, EU, World Bank and the US and UK governments.
The group remains bullish in its outlook. The financial statement says that “the combination of AEA’s understanding of the complexity of government regulation, the measures necessary to achieve the 80% reduction in emissions [targets for both the EU and US by 2050] and PPC’s ability to design and build bespoke systems for government and the private sector places the group in a strong strategic position.” AEA believes it will remain in a strong position during the economic downturn due to the consequent focus on cost management and need for advice on investment decisions in order to maximise the return in energy and resource efficiency programmes.
AEA’s net debt has increased from £19.4 million at 31 March 2008 to £25.6 million at the end of September.
By the end of September this year, Hyder Consulting’s order book increased by 10% from 31 March 2008 to £346 million, and by 29% from 30 September 2007. Revenue for the multidisciplinary consultancy rose by 39% to £151.6 million, of which 65% was derived from overseas. Adjusted operating profit rose 33% to £8.9 million, giving an operating margin of 7.0% for the business (2007: 7.3%).
Chairman Sir Alan Thomas said the half-year results were in line with expectations. Organic revenue growth of just 3% in the UK and European markets was boosted by two acquisitions in Germany, so that overall sales in the region grew by 16% of to £65.0 million. The German acquisitions of Seib and Voigt are primarily focussed on public sector infrastructure projects.
In the UK, Hyder reports that its resources in the water sector “continue to be well utilised despite the slowdown towards the end of the AMP4 [investment] cycle”. The private sector property market which “has slowed” is said to represent less than 5% of the total group revenue. But in response to the deteriorating market conditions, Hyder has “successfully redeployed resources to Middle East projects where our workload remains strong”. Its UK environmental workforce is approximately 600 strong and accounts for around 38% of Hyder UK’s group staff. A further 900 environmental staff are based outside of the domestic market.
Revenue from Hyder's Middle Eastern business jumped 80% to £43.7 million, with organic growth contributing 53%. The group has also experienced strong double-digit increases in the key financial metrics of its Asia Pacific business, which contributed 28% of the overall group revenue during the first six months of 2008.
Going forward, Hyder believes that its solid order book, geographic reach and balance of public sector and infrastruture projects will mitigate the potential effects of the economic downturn on the group. Approximately 60% of the next twelve months’ targeted revenue has already been secured, it says.