WS Atkins plc Preliminary results for the year ended 31 March 2016 16 June 2016 1
WS Atkins plc
Preliminary results for the
year ended 31 March 2016
16 June 2016
1
Uwe KruegerChief executive officer
2
Delivering the strategy
Financial highlights
• Revenue up 6.0% to £1.86bn
• Underlying operating profit up 10.5%, 8.0% margin target achieved
• Underlying profit before tax of £139.0m, ahead of market expectations
• Underlying diluted EPS up 10.5%, full year dividend up 8.2%
• Strong balance sheet with net funds of £191.7m at 31 March 2016
Operational highlights
• Significant improvement in UK and Europe performance
• Two recent major transportation project wins in North America underpin workload into the new financial year
• Strong performance in Middle East driven by the Central Planning Office in Qatar and peak delivery on metro projects
• In Asia Pacific we continue to pursue outbound investment opportunities with selected Chinese contractors
• Difficult year for Energy, although good growth in nuclear, power and renewables
• PP&T nuclear acquisition completed in April 2016.
3
Strong performance, 8% margin target achieved and PP&T nuclear acquisition completed
Heath DrewettGroup finance director
4
Financial summary
5
2016 2015
Revenue £1,862m £1,757m 6.0%
Operating profit £143.4m £118.5m 21.0%
Operating margin 7.7% 6.7% 100bp
Underlying operating profit £148.2m £134.1m 10.5%
Underlying operating margin 8.0% 7.6% 40bp
Underlying profit before tax £139.0m £121.9m 14.0%
Underlying diluted EPS 107.3p 97.1p 10.5%
Dividend per share 39.5p 36.5p 8.2%
Work in hand 44% 51%
Average staff numbers 18,416 17,898 2.9%
Closing staff numbers 18,052 18,462 (2.2 )%
Net funds £191.7 m £179.3 m
UK and Europe
• Good growth reflecting the Group’s strong position in a well-funded infrastructure market across
rail, highways, water, education and airports
• Operating performance significantly improved against a prior year impacted by market downturn in
aerospace and rail contract negotiations
• Simplifying the UK organisational structure has supported the year on year margin progress.
Water, ground and environment and design and engineering businesses brought together 1 April
2016
• UK Government infrastructure spend continues to provide an attractive pipeline of opportunities.
6
31 March 2016 31 March 2015
Revenue (£m) 943.6 903.8 4.4%
Operating profit (£m) 73.8 60.7 21.6%
Operating margin 7.8% 6.7% 110bp
Average staff numbers 9,707 9,405 3.2%
Closing staff numbers 9,591 9,642 (0.5 )%
Significantly improved performance
North America
• Our North American business continues to operate in stable infrastructure markets
• Investment in major project bids impacted margin, particularly in the first half
• Two significant wins in the second half: Project NEON (for Nevada Department of
Transportation) and Purple Line (light rail project in Maryland) underpins current year workload
• Revenue and margin progress expected in FY17, though infrastructure spend under the FAST
Act not expected to pick up until post the Presidential election.
7
31 March 2016 31 March 2015
Revenue (£m) 362.6 341.4 6.2%
Operating profit (£m) 20.4 20.0 2.0%
Operating margin 5.6% 5.9% (30 )bp
Average staff numbers 2,754 2,794 (1.4 )%
Closing staff numbers 2,747 2,735 0.4%
Transitional year with two major project wins
Middle East
• Revenue and operating profit growth driven by strong performance on metro projects and the
Central Planning Office project in Doha
• Continued client caution around project commitments, particularly in property and infrastructure
• Rail and infrastructure businesses combined as we focus on key areas for investment and on
driving operational efficiency in more testing markets
• Geographic expansion supported by agreement to acquire Howard Humphreys, a multi disciplinary
consultancy in East Africa with a strong track record in transportation, water and property.
8
31 March 2016 31 March 2015
Revenue (£m) 248.3 216.7 14.6%
Operating profit (£m) 29.5 22.5 31.1%
Operating margin 11.9% 10.4% 150bp
Average staff numbers 2,580 2,421 6.6%
Closing staff numbers 2,459 2,668 (7.8 )%
Metro projects drive strong performance
Asia Pacific
• Performance in the year reflects the slowdown in mainland China and delays in the start of some key opportunities
• Some progress made in SE Asia where we continue to invest for growth
• Continue to pursue outbound investment opportunities with selected Chinese contractors
• Operational efficiency targeted with the combination of our architecture, landscape and urban planning into a property consultancy business
• Immediate outlook remains stable, and the region continues to offer attractive, medium term growth.
9
31 March 2016 31 March 2015
Revenue (£m) 106.1 109.7 (3.3 )%
Operating profit (£m) 8.5 9.8 (13.3 )%
Operating margin 8.0% 8.9% (90 )bp
Average staff numbers 1,448 1,561 (7.2 )%
Closing staff numbers 1,354 1,523 (11.1 )%
Positioning for long term growth
Energy
• Organic revenue growth of 2.3%
• Oil and gas (O&G) markets difficult, particularly in North America where we are more
exposed to capital expenditure budgets
• Middle East O&G market has grown and we are seeking to establish a new joint venture in
the Kingdom of Saudi Arabia
• Good growth in our nuclear, power and renewables businesses
• Regulatory clearance now received for PP&T acquisition which significantly enhances the
scale and capability of our nuclear business.
10
31 March 2016 31 March 2015
Revenue (£m) 201.3 182.0 10.6%
Operating profit (£m) 16.7 20.4 (18.1 )%
Operating margin 8.3% 11.2% (290 )bp
Average staff numbers 1,840 1,633 12.7%
Closing staff numbers 1,806 1,813 (0.4 )%
Resilience from a diversified portfolio
Cashflow
• Working capital outflow reflects a growing business and extended payment profile in the Middle
East, against a strong prior year comparator
• Provisions/other includes share based payment charge
• Closing net funds of £191.7m (March 2015: £179.3m).
11
(£m) 31 March 2016 31 March 2015
Underlying operating profit 148.2 134.1
Depreciation/amortisation 23.8 22.4
Working capital (23.6 ) 11.3
Net capital expenditure (19.8 ) (25.2 )
Provisions/other 9.9 11.5
Underlying operating cash flow 138.5 154.1
Cash conversion 93% 115%
Good control of working capital
Pension
• £216m IAS 19 deficit net of deferred
tax at 31 March 2016 (March 2015:
£238m)
• Good asset performance and discount
rate flat at 3.5%
• Deficit repayment of £32.8m in
2015/16, escalating at 2.5% per
annum
• Triennial valuation as at March 2016.
12
Good asset performance helps reduce deficit
217
263 258
235 238
215 216
Mar 2013* Sep 2013* Mar 2014 Sep 2014 Mar 2015 Sep 2015 Mar 2016
IAS19 deficit net of deferred tax (£m)
* Restated for IAS19 revision
Summary
13
Delivering the strategy
• Strong results, 8% operating margin achieved and a
good cash performance
• PP&T nuclear acquisition now being integrated,
enhancing nuclear capabilities
• Overall, we remain confident for the year ahead
despite continued uncertainty in some of our markets.
Uwe KruegerChief executive officer
14
Strategic progress
15
Financial delivery
• Three pillar strategy is delivering: operational excellence, portfolio
optimisation and sector/regional focus
• Operational excellence focused on margin improvement and cash
generation
• TSR of 132% over five year period.
6.5 6.46.7
7.6
8.0
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
2012 2013 2014 2015 2016
Underlying operating margin (%)
68% 73%
95%
115%
93%
0%
50%
100%
150%
2012 2013 2014 2015 2016
Cash flow conversion* (%)
* Underlying operating cash flow/underlying operating profit 15
16
30.532.0
33.75
36.5
39.5
10.0
20.0
30.0
40.0
2012 2013 2014 2015 2016
Consistent dividend growth
79.082.6
85.7
97.1
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2012 2013 2014 2015 2016
107.3
Underlying diluted EPS growth
pence
pence
Creating shareholder value
8.0% 6.7%
17
Improving the quality of earnings
Operational excellence
• Phase II of streamlined organisational structure in UK
• New operating model in North America – Technical Professional Organisation
• Focus sectors and geographies in Middle East
Portfolio optimisation
• Highways services business in UK
• Peter Brown construction management at risk in North America
• Sub-scale businesses in Poland and Portugal.
Sector focus growth
18
0
50
100
150
200
250
FY12 FY13 FY14 FY15 FY16
11.9% to FY16
Energy
Revenue CAGR
0
5
10
15
20
25
30
35
40
FY12 FY13 FY14 FY15 FY16
10.0% to FY16
Operating profit CAGR
• Focused investment, both organic and inorganic, since 2012
• Significant increase expected in FY17 following PP&T acquisition.
£m £m
Skills and geographies enhanced
19
Howard
Humphreys
Nuclear
Safety
Associates
Confluence
Houston
Offshore
Engineering
PP&T
Terramar
• Significantly strengthened nuclear and programme management capabilities
• SE Asia, Africa and Norway.
Looking forward
20
Our strategy
21
Our strategy is to focus on growth and, selectively,
to increase our geographic footprint and capabilities
through targeted international expansion organically
and by acquisition.
“Our strategy is to focus on
revenue growth and, selectively,
to increase our geographic
footprint and capabilities through
targeted international expansion,
organically and by acquisition.
”
“
Market context and drivers
Strong, long term growth drivers
• Urbanisation in developing markets
• Increasing demand for energy
• Ageing infrastructure in mature markets
• Demographic changes
But continued short term uncertainty
• Depressed oil price impacting demand, liquidity and client confidence
• US Presidential election and EU referendum.
22
Drive for value creation remains
23
Strong market drivers for revenue growth
+Differentiated offering
+Invest to grow
organically and by acquisition
Shareholder value
Strategic actions
24
FOCUS
Advisory at the heart of three focus markets
DIFFERENTIATION
Innovation through clients, collaboration and technology
INVESTMENT
Organic, partnerships and M&A
Ongoing operational excellence remains the embedded foundation.
1
2
3
Focus
25
1Three key markets
Focus
• Unique combination of engineering, infrastructure and technical expertise
with consultancy around strategy, structuring and financing
• New strategic alliances and partnerships with a focus on emerging
markets
• Supports strategic asset management, intelligent mobility and digitisation
of infrastructure
• Explore expansion potential in SE Asia, Africa and North America
• Cross-selling opportunities for the Group.
26
Advisory business – the opportunity1
Potential to grow revenue to £200m over a 4-5 year period with
an initial year one investment of around £2m.
www.atkinsacuity.com
27
Current projects
• Traffic planning commission in Turkey
• Nairobi Light Rail in Kenya
• Enterprise project in Abu Dhabi
• Sustainable energy for all –Eastern and Southern Africa
• Transport National Planning in Malawi.
Advisory – experienced team, new business
Focus
Dominic Harvey
Former managing partner
of Norton Rose Fulbright
Johan HesselsøeFormer McKinsey Principal
Marie Lam-FrendoFormer World Economic Forum
Director
Roddy AdamsFormer KPMG Partner
Michael TraemFormer AT Kearney EMEA CEO and
Arthur D. Little CEO
Cosette CanilaoFormer Philippines PPP
Managing Director
1
Differentiation
• Focus on client proximity and key account management
• Efficient internal collaboration critical on major projects – Global design
centres at heart of achieving this
• External collaboration through partnerships
• Embracing technology to drive operational efficiency and incremental
revenue opportunities.
28
Clients, collaboration and technology2
Image: Aibotix.com
Vitrification Digital surveying Driverless cars - VENTURER
Differentiation
• Focus on client proximity and key account management
• Efficient internal collaboration critical on major projects – Global design
centres at heart of achieving this
• External collaboration through partnerships
• Embracing technology to drive operational efficiency and incremental
revenue opportunities.
29
Clients, collaboration and technology2
DifferentiationTechnology – Intelligent Mobility
To enhance capacity and safety through data exploitation
Our involvement
• VENTURER - Connected and autonomous vehicles using smart
infrastructure (project manager role)
• Flourish – driverless vehicles for the older generation
• Work for Department of Transportation modelling impact of
connected autonomous vehicles
• Dubai
• Colorado Department of Transportation.
Investment
30
Developing a talented, engaged workforce3
• In the UK we are ranked 17th in the Sunday Times 25 Best Big Companies to
Work for 2016, the only engineering and infrastructure company listed
• Diverse Board enhanced by industrial experience of Gretchen Watkins and
financial experience of Catherine Bradley
• Over 400 graduates hired globally in 2015/16
• Engagement with schools and colleges to attract students into science,
technology, engineering and mathematics (STEM)
• Founder member of The 5% Club committing to at least 5% of UK workforce
on formal apprenticeship or graduate schemes (currently at 12.3% in the UK).
Clearly defined priorities
• North America
• SE Asia
• Energy, nuclear in particular
• Technology
• Advisory.
InvestmentEnhancing our geographic footprint and skills
31
3
• We are a cash generative business and will re-invest for both organic and
inorganic growth
• Strict financial discipline: conservative management of the balance sheet
• Bolt-on acquisitions form a key part of our growth strategy.
• Consistent
dividend growth
• Full year dividend
up 8.2% in FY16.
• HOE
• NSA
• Terramar
• PP&T
• Howard
Humphreys
• Employee
development
• Client
engagement
• Technology
• Advisory
Progressive
dividend
policy
Investment
32
Capital allocation
Reinvest
for organic
growth
Acquisitions
in line with
our strategy
3
Summary
• Market-leading international infrastructure, design, engineering and
project management consultancy
• Attractive growth drivers including urbanisation in developing markets,
increasing demand for energy and ageing infrastructure in mature
markets
• Differentiation will support further revenue growth
• Commitment to 8% operating margin remains
• Increasingly diversified portfolio provides resilience and the Group has
delivered consistent financial performance over the cycle
• Strong, well capitalised balance sheet provides resources for future
growth.
33
Appendices
34
Profit bridge
35
106.7
121.9
139.0
131.1
4.4
2.8
6.9
1.5
15.1
2.0
4.7
0.4
6.3
3.23.1
2014/15Reported
Exceptionalitems
Nedtechimpairment
Amortisationof acquiredintangibles
Deferredacquisitionpayments
Net profit ondisposal ofbusinesses
2014/15Underlying
Businessperformance
Other 2015/16Underlying
Exceptionalitems
Amortisationof acquiredintangibles
Deferredacquisitionpayments
Loss ondisposal ofbusiness
2015/16Reported
Working capital movement
36
31 March 2016 31 March 2015 Inc/(Dec)
UK and Europe 62.9 53.7 9.2
North America 80.0 86.3 (6.3)
Middle East 66.4 53.0 13.4
Asia Pacific 8.8 4.2 4.6
Energy 38.8 36.9 1.9
Other (2.0) 4.3 (6.3)
Segmental lock-up
Disclaimer
37
The information in this presentation pack, which does not purport to be comprehensive, has been provided by Atkins and has not been audited or otherwise independently verified. While this information has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by Atkins as to or in relation to the accuracy or completeness of this presentation pack or any other written or oral information made available as part of the presentation and any such liability is expressly disclaimed. Further, whilst Atkins may subsequently update the information made available in this presentation, we expressly disclaim any obligation to do so.
The presentation contains indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. These and other factors could adversely affect the Group’s results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ materially from those currently expected. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this presentation should be construed as a profit forecast.