28 June 2024

Aukett Swanke Group Plc

("Aukett Swanke", the "Company", or, together with its subsidiaries, the "Group")

Interim results
For the six months ended 31 March 2024

Aukett Swanke (AIM: AUK), the Architecture and Smart Buildings Group, announces its interim results for the six-month period ended 31 March 2024.

Highlights

·      Revenue from continuing operations increases to £9.45m (2023: £4.56m)

·      Trading loss for the period increases to £0.81m (2023 loss: £0.29m)

·      Property disposal related non-cash provision of £0.59m

·      Post tax loss of £1.32m (2023 post tax loss: £0.48m)

·      Ranked 40^th largest firm by number of UK architects (2023: 48^th) in the AJ100

·      Acquisition of ecoDriver to bring proprietary software and exposure to energy efficiency markets

·      Acquisition of Vanti just before period end expands Smart Buildings strategy and brings further software assets and a well regarded Master Systems Integration brand.

Post period

·      Stronger second half underway

·      First commercial order received for licence of enterprise version of Smart Core, Vanti's building operating system software

·      Annual cost reductions in excess of £1m being implemented

·      Terms agreed for disposal of freehold property to broadly eliminate net debt.

Commenting, Chief Executive Nick Clark said,

"While the first half results are disappointing, reflecting moderately slower trading in all areas, we expect a better performance in the second half, although expect to report a full year loss.

"Steps are underway to remove in excess of £1 million from the annual cost base, with the agreed sale of the freehold building significantly reducing our interest costs from September 2024 following repayment of the associated mortgage.

"Ultimately though, we need to continue our move to a more scalable and more predictable revenue model. I am confident that in time the acquisition of Vanti, which occurred towards the end of the period under review, will come to be seen as a being of particular importance in the creation of long-term value for Shareholders."

Contacts

Aukett Swanke Group Plc                                                                                                                  +44 (0) 20 7843 3000
Clive Carver, Chairman
Nick Clark, Chief Executive
Strand Hanson Limited, Financial and Nominated Adviser                                                         +44 (0) 20 7409 3494 Richard Johnson, James Bellman
Zeus Capital Limited, Broker                                                                                                             +44 (0) 20 3829 5000 Simon Johnson, Louisa Waddell
Investor/Media                                                                                                                                   + 44 (0) 7979 604 687
Chris Steele

An electronic version of the Interim Report will be available shortly on the Group's website (www.aukettswankeplc.com).

Chairman's Statement

Introduction

These interim results demonstrate the need to accelerate the Group's move towards becoming a leading player in the provision of Smart Buildings services, and the pitfalls of the traditional architecture and system integration models with their high fixed costs and unpredictable project-based income streams.

The loss recorded for the six months ended 31 March 2024 is largely the result of delays to the start dates for a number of confirmed architecture projects, the seasonality of the TFG Stage Technology business and the limited contribution in the period under review from the completed Smart Building acquisitions. Each are covered in more detail in the Chief Executive's report.

Business model

The financial impact of the delays to a number of our architecture projects and the reliance on continually replacing completed projects in other parts of the Group demonstrates the need to move away from a high fixed cost business model based with little or no recurring income and towards a model with higher margins and without the need to continually increase our cost base to grow.

We believe the Smart Buildings strategy set out in previous reports is the way forward, combining the strengths of the Group's architecture heritage with moving more to a software based revenue model, generating income over the lifetime of a building as well as during its construction.

That said, it is not all doom and gloom in our more established businesses. Our executive architecture business Veretec has grown sharply in recent months, with turnover and staffing at record levels. At our architectural design business, Aukett Swanke Limited, despite a poor start to the financial year, a significant recent contract win and a reduction of the cost base will help get them back on track. Other of our established businesses are seasonal with the summer months accounting for a large portion of the year's revenue.

Smart Buildings acquisitions

To date we have completed four Smart Buildings acquisitions, TFG, ecoDriver, Anders + Kern and Vanti. It is the last of these, Vanti, which completed in March 2024, that has added the greatest substance to our Smart Buildings capabilities. Although only a few months has passed since its acquisition all the indications are that it should be a major step forward in moving to the business model we need.

Funding

Inevitably, the first half loss has increased the pressure on the Group's funding at a period where we are looking to continue to expand. In that regard we are fortunate to have untapped value in the Group's freehold building. The agreed sale before the financial year end of the freehold building and new debt facilities will assist with the transition to a more predictable and scalable revenue model.

Employee ownership

We are pleased that approximately 40% of the Group's employees have purchased the Company's shares under the recently introduced share schemes.

Outlook

We expect a better second half of the financial year, though it is too early to predict how much of the first half loss will be reversed. The cost reductions being implemented and the recent contract wins give us confidence that the following financial year will be more rewarding on all fronts.

Clive Carver

Non-executive Chairman

27 June 2024

Chief Executive's report

Introduction

While we have made good progress in our ambition to become a leading provider of Smart Buildings services, these are undoubtedly a disappointing set of results. Our established businesses all performed at levels lower than expected. Additionally, while the sale of the freehold building is a positive outcome, it requires a non-cash provision to the Profit & Loss account of £0.59 million against its previous accounting valuation.

Trading

UK Architecture

In our UK Architecture segment in the period under review our two businesses had differing fortunes.

Veretec's growth has been the key driver behind our group's rise to 40^th place in the AJ100 list of the largest architectural practices in the UK. We are confident the Veretec model has an important role to play in the industry and should produce attractive returns over the longer term. ASL is reducing headcount to get its cost base right, and has achieved some key contract wins in the past month or so, which include smart building consultancy work for architecture clients, starting to show the potential of the new model.

While Veretec, our executive architecture business, was a little below budget in the first half, it is now accelerating away with a strong second half performance though is constrained by capacity issues. Aukett Swanke Ltd (ASL) our architecture design led business on the other hand had a poor first half, which has continued to date in the second half-year, seeing some crucial projects delayed or having funding challenges, leading to painful gaps in its income.

European architecture

The Group holds a 25% interest in a leading Berlin architecture practice and a 50% interest in a Frankfurt architecture practice, which are accounted for as associates rather than consolidated as with the Group's other operations and therefore not included in revenue or cost of sales.

The Berlin and Frankfurt practices were weaker in the period under review, with the overall result from our German investments being broadly break even after management charges. Nevertheless, these investments whilst arguably not fully reflected in the financial assessment of the Group, have a long history of delivering value, which we expect to continue for the foreseeable future.

Additionally, we suffered an £83,000 one-off loss disposing of our Turkish business to its local management.

TFG Intelligent Environments - now including Vanti

The Intelligent Environments business which includes commercial AV system integration is rebranding as Vanti to reflect stronger brand presence in master system integration work.

It spent much of the period focused on the acquisition of Vanti, which came in the final month of the first half, adding transaction and integration costs but no immediate revenue. Since the period end however, approximately £2 million of new orders have been secured from the Vanti pipeline for delivery commencing in the final quarter of the current financial year and throughout next year.

TFG Stage Technology

The Stage Technology business (TFGST) is highly seasonal with many of its customers being educational institutions or indoor performance venues where major upgrades typically take place during the summer months when they are less busy.

Although TFGST was significantly loss making in the period under review it has a strong summer ahead and we expect the company will make up the first half loss. Furthermore, it is expecting a positive outcome on some large contracts for next year.

Anders + Kern

Anders + Kern (A+K) reported a significant and unexpected loss in the period under review.

The principal issue was the impact of new ownership at its largest supplier, which opened up other routes to market for them, which impacted a large proportion of A+K's sales. To counter this, we hired a new sales team to broaden the range of products the company sells and thus increasing costs, although the lost revenues were not replaced.

A+K has accordingly now returned to a lower overhead model to eliminate the possibility of future similar losses. In due course it has an important role to play in taking smart buildings technologies to the AV channel which is better placed to deliver them than other building services sectors.

EcoDriver

ecoDriver provides a software platform and related services to identify and eliminate waste energy in non-residential buildings. It has a particular base in hospitals and schools, and primarily targets the retrofit market.

It has yet to realise its potential but is showing encouraging signs of progress, including its acceptance on an Imperial College growth accelerator programme for companies in the climate sector.

Artificial Intelligence

Our Innovate UK-funded Responsible AI collaboration project continues, with Vanti people adding additional value.

Corporate activity

During the period under review, we completed two Smart Buildings acquisitions and one disposal.

On 17 October 2023 we acquired TR Control Solutions Limited (now renamed ecoDriver) for a mix of cash and shares. Deferred consideration of £44,500 is due this coming October.

On 27 December 2023 we disposed of the share capital of our Istanbul-based studio, Aukett Swanke Mimarlik AS, to local management. This was in return for a nominal sum, and a name licence agreement, which ensures we will no longer incur losses from Turkey and will instead receive a modest income stream based on its future revenues, with no associated costs.

On 21 March 2024 we acquired the Vanti assets. We have employed a number of their staff and taken on their central Birmingham premises. Deferred consideration of between £25,000 and £50,000 is payable in the coming months.

Financial review

Revenue

UK architecture

On revenue up 14% this reporting segment made a loss of £39k after management charges, compared to a £140k loss in the same period of the previous year.

Continental architecture

The German investments broadly broke even after management charges, although we suffered a one off charge of £83k in exiting our Turkish investment. This was a fall from profits of £180k in the same period last year. As part of tidying up our European interests, after the period end we received £4k from the sale of our residual 0.6% stake in our former Milan joint venture that was sold in 2004.

TFG / Vanti

TFG was purchased in March 2023 so the prior period only consolidated it for around ten days. This means its revenue of £3.83m in the period under review compares to just £0.21m in the prior period. The segmental loss of £0.91m includes the provision for the loss on the building, seasonal losses in TFG Stage Technology, and costs for the 20 March 2024 acquisition of Vanti and some Vanti staff wages, with no Vanti revenues.

ecoDriver

Revenue of £216k was broadly as expected, with a £62k loss including Group management fees, the hiring of additional staff, and migration of the business to the Group's ERP systems.

Anders+Kern

As noted above revenue of £581k was lower than expected. As with ecoDriver, Group management fees, the hiring of additional staff, and migration of the business to the Group's ERP systems contributed to a loss of £154k.

Costs

Payroll

A high proportion of the Group's costs are payroll costs, which in the period under review increased by 55% compared to the corresponding period.  A major drawback under the established professional services business model is both the need to maintain a high fixed salary cost base to conduct and seek new work but also the inability to pass on the costs of highly qualified but underused staff when project start dates slip with little or no notice.

Other

The costs of maintaining an AIM listing have also significantly increased, in particular our audit costs. We also incurred costs in establishing and operating three employee share schemes. These though have seen significant take up from employees at all levels in the Group, with everyone from our apprentices to senior management who have been here for decades taking meaningful ownership stakes. This has helped drive demand for our shares as investors see that management's confidence in the direction of travel for the Group is shared by the workforce.

Property Disposal

Post-period, on 24 June 2024 we were pleased to announce the planned sale of the Group's freehold property, the former headquarters site for Torpedo Factory Group, with completion expected in September 2024. While the £2.50 million sale price is a discount on the £3.08 million July 2023 valuation at which it is in our books, the sale will repay our £1.38 million mortgage that was due to expire in February 2025, and the balance should broadly eliminate our net debt and significant mortgage interest payments.

Although not due to complete until September 2024, the agreed property sale has triggered the requirement for a £0.59 million provision in these interim statements. The provision is not a cash expense and as noted above the overall cash impact of the building sale is positive.

Funding

During the period the Group retained four debt facilities: the £250,000 Coutts overdraft, the Natwest mortgage on the TFG freehold, and two pandemic-era CBILS-backed loans, one from Coutts and one from Natwest. As noted above the mortgage will be repaid by the sale of the property. The overdraft facility has been renewed to the end of September 2024, beyond the date when the sale completes. The ASG CBILS loan was repaid in accordance with its terms, with the final repayment occurring in May 2024. The TFG CBILS is at a fixed rate of 3.66%pa and continues to be paid down over the period to July 2026.

While bad debts have historically been rare, at times customers can be slow to pay, tying up funds in working capital. Since the period end, in recent weeks, we have been approved for an invoice discounting facility, allowing us, if required, to borrow funds secured against amounts due from customers. This facility offers more flexibility than a conventional loan or overdraft, as it can grow or shrink in line with the scale of the business, and thereby mitigates the challenge of an ever increasing working capital requirement as we grow. The initial maximum net advance under the facility is £540,000.

Going concern

The position with respect to the going concern assessment was set out in the financial statements for the year ended 30 September 2023, which were published on 28 March 2024, and remain valid. In considering the position again for these interim results the board believes that the conditional sale of the Group's freehold property announced on 24 June 2024 together with the additional funding facilities noted above significantly assist in assessing the Group's going concern status. The board has considered projections for a period of at least 12 months from the date of signing these financial statements which indicate that the Group is a going concern. The interim statement has not been audited. 

Outlook

Full year expectations

The second half will be stronger than the first half, but it remains hard to predict, and unlike last year I suspect it may not be strong enough to make up for the first half losses.

Cost base

The board have identified in excess of £1 million of cost reductions to be removed from the Group's UK businesses to improve performance. These changes are largely being actioned in the second half of the current year, in order to ensure acceptable future performance. The savings include Group costs, lower property and finance costs following the sale of the TFG building, and some redundancies in underperforming parts of the business.

Closing remarks

I would like to thank all our staff for their efforts in the period under review. It is particularly frustrating when such efforts do not translate to profit and we look forward to changing that in the future.

I should particularly like to pay tribute to Keith Morgan, who retired as chairman of Veretec in December 2023 after a long career with the Group, starting at Aukett Associates in the 1980s shortly before the Group's IPO.

Additionally, I want to thank the large proportion of our UK workforce who are participating in the share ownership plan, showing their confidence in our new strategy by spending money each month buying our shares. I do believe we have a tremendous opportunity and look forward to delivering better results for us all.

Nick Clark

Chief Executive

27 June 2024

Consolidated income statement

For the six months ended 31 March 2024

Consolidated statement of comprehensive income

For the six months ended 31 March 2024