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Scott Wilson Group plc
Annual Report and Accounts 2009

• CORPORATE STATEMENT
• OUR RESULTS
• OUR BUSINESS
• BUSINESS REVIEW
• BOARD OF DIRECTORS
• GOVERNANCE
• CONSOLIDATED FINANCIAL STATEMENTS
  • INDEPENDENT AUDITORS' REPORT
  • CONSOLIDATED INCOME STATEMENT
  • CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
  • CONSOLIDATED BALANCE SHEET
  • CONSOLIDATED CASH FLOW STATEMENT
  • NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    • Notes 1-4
    • Notes 5-12
    • Notes 13-20
    • Notes 21-25
    • Notes 26-32
    • Notes 33-36
    • Notes 37-41
• COMPANY FINANCIAL STATEMENTS
• FOUR-YEAR SUMMARY
• SHAREHOLDER INFORMATION
• COMPANY INFORMATION AND ADVISERS
• ONLINE CORPORATE RESPONSIBILITY REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5 detailed consolidated income statement

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Continuing operations	Notes	53 weeks ended 3 May 2009					52 weeks ended 27 April 2008
		Adjusted* £’000	Recurring adjustments Note (i) £’000	Other adjustments Note (ii) £’000	Total £’000		Adjusted* £’000	Recurring adjustments Note (i) £’000	Other adjustments Note (ii) £’000	Total restated Note (iii) £’000
Revenue including share of joint venture revenues		360,000	—	—	360,000		324,182	—	—	324,182
Less: share of joint venture revenues		(14,211)	—	—	(14,211)		(15,485)	—	—	(15,485)
Group revenue		345,789	—	—	345,789		308,697	—	—	308,697
Cost of sales		(213,544)	—	(2,725)	(216,269)		(194,653)	(385)	—	(195,038)
Gross profit		132,245	—	(2,725)	129,520		114,044	(385)	—	113,659
Administrative expenses		(114,123)	(3,622)	(4,262)	(122,007)		(93,570)	(3,032)	—	(96,602)
Share of result of joint ventures		4,480	(1,270)	—	3,210		2,116	(578)	—	1,538
Operating profit	9	22,602	(4,892)	(6,987)	10,723		22,590	(3,995)	—	18,595
Finance income	13	14,734	—	—	14,734		14,642	—	—	14,642
Finance costs	14	(15,376)	(675)	—	(16,051)		(13,380)	(109)	—	(13,489)
Profit before taxation		21,960	(5,567)	(6,987)	9,406		23,852	(4,104)	—	19,748
Taxation	15	(6,945)	2,474	2,826	(1,645)		(7,982)	1,636	—	(6,346)
Profit for the period		15,015	(3,093)	(4,161)	7,761		15,870	(2,468)	—	13,402
Attributable to:
Equity holders of the Company		14,947	(3,093)	(4,161)	7,693		15,766	(2,468)	—	13,298
Minority interests		68	—	—	68		104	—	—	104
		15,015	(3,093)	(4,161)	7,761		15,870	(2,468)	—	13,402
Earnings per share:
From continuing operations – basic	16	19.95p	(4.13)p	(5.55)p	10.27p		21.03p	(3.29)p	—	17.74p
From continuing operations – diluted	16	19.76p	(4.09)p	(5.50)p	10.17p		20.26p	(3.17)p	—	17.09p

There were no discontinued operations in either period.

* Before items described in note (i) and note (ii) below:
Note (i): Recurring adjustments ‑ amortisation of business combination intangibles, changes in the fair value of derivative financial instruments, retention              bonuses arising from acquisitions and the Group’s share of taxation in relation to joint ventures, as detailed further in note 6.
Note (ii): Other adjustments – redundancy costs, an exceptional contract loss and prior year research and development tax credits, as detailed further in              note 7.
Note (iii): Restated for the revised presentation of changes in the fair value of exchange rate derivative financial instruments, as detailed further in note              12.

6 recurring adjustments – amortisation of business combination intangibles, changes in    the fair value of derivative financial instruments, retention bonuses arising from    acquisitions and the group's share of taxation in relation to joint ventures

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	53 weeks ended 3 May 2009 £’000	52 weeks ended 27 April 2008 £’000
Amortisation of business combination intangibles	(2,785)	(2,455)
Changes in the fair value of derivative financial instruments	(1,487)	(633)
Retention bonuses arising from acquisitions	(25)	(438)
Group’s share of taxation relating to joint ventures	(1,270)	(578)
	(5,567)	(4,104)
Taxation	2,474	1,636
Total	(3,093)	(2,468)

changes in the fair value of derivative financial instrument

The Group has entered into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange risk, which do not qualify for hedge accounting under IAS 39. When the commercial transaction to which they relate is reflected in the Income Statement, the financial impact of the associated instruments is reflected in the adjusted results. The timing impact of the requirement to mark‑to‑market derivatives relating to future transactions, not yet reflected in the Income Statement, is captioned as ‘Changes in the fair value of derivative financial instruments’ and not reflected in the adjusted results. Amounts relating to the revaluation of exchange rate derivative financial instruments are included in administrative expenses, amounts relating to the revaluation of interest rate derivative financial instruments are included in finance income or costs.

retention bonuses arising from acquisitions

The amounts recorded reflect retention bonuses arising from acquisitions, which management consider an integral cost of making the acquisition.

group’s share of taxation relating to joint ventures

The Group’s share of tax in relation to joint ventures has been included as an adjustment in order to present operating profit before tax (which would have been arrived at under UK GAAP equity accounting), a measure which Scott Wilson management uses for internal performance analysis.

7 other adjustments – redundancy costs, contract loss and prior year research and    development tax credits

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	53 weeks ended 3 May 2009 £’000	52 weeks ended 27 April 2008 £’000
Redundancy costs	(4,262)	—
Contract loss	(2,725)	—
	(6,987)	—
Taxation	2,826	—
Total	(4,161)	—

redundancy costs

Redundancy costs relate to costs incurred as a result of the Group’s restructuring to re‑align its resource requirements to market demand (note 31).

contract loss

Contract loss relates to an exceptional loss incurred on an overseas contract, which has been postponed indefinitely.

taxation

The exceptional taxation credit relates to the redundancy costs and contract loss (£1,956,000) together with the benefit of research and development tax credits relating to prior periods (£870,000). The research and development tax credits reflected here represent the benefit of a retrospective claim covering five financial years. The Group anticipates benefitting from research and development tax credits on an ongoing basis and an additional year’s benefit is reflected in the adjusted tax charge.

8 segment analysis

The Group is an international consultancy offering integrated professional services and the Directors consider that the Group operates in this single business segment. The trading activities and performance of the Group are managed through five geographical divisions, UK Central, UK South, Scotland & Ireland, UK Railways and International.

UK Central:	consultancy services on projects in the Midlands and Northern regions of England and also the Group’s pavement engineering consultancy business, which operates worldwide
UK South:	consultancy services on property and transportation projects principally in London and the South of England
Scotland & Ireland:	consultancy services on projects in Scotland, Northern Ireland, Republic of Ireland and the North East of England
UK Railways:	railway‑related consultancy services to infrastructure owners and train operators, principally in the UK
International:	consultancy services on projects undertaken outside the UK, throughout the world, including both projects undertaken from the UK and those undertaken by the Group’s overseas operations
Core:	revenues, costs, assets and liabilities not allocated to any of the other segments

Segment results for the 53 weeks ended 3 May 2009:

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	UK Central £’000	UK South £’000	Scotland & Ireland £’000	UK Railways £’000	International £’000	Core £’000	Total £’000
Revenue including share of joint ventures	71,787	107,974	35,817	43,936	100,486	—	360,000
Sales to external customers	56,219	97,460	33,272	57,208	101,630	—	345,789
Sales to other segments	10,262	21,211	4,002	525	9,881	—	45,881
Revenue from all sales	66,481	118,671	37,274	57,733	111,511	—	391,670
Sales on behalf of other segments	(5,241)	(10,694)	(1,456)	(13,796)	(14,694)	—	(45,881)
Group revenue	61,240	107,977	35,818	43,937	96,817	—	345,789
Operating profit before items set out below:	9,834	3,997	3,305	1,131	4,335	—	22,602
Redundancy costs	(205)	(2,916)	(146)	(725)	(270)	—	(4,262)
Contract loss	—	—	—	—	(2,725)	—	(2,725)
Amortisation of business combination intangibles	(761)	(739)	(924)	(181)	(180)	—	(2,785)
Changes in fair value of forward foreign exchange contracts	—	(340)	—	—	(472)	—	(812)
Retention bonuses arising from acquisitions	(8)	—	(17)	—	—	—	(25)
Group’s share of taxation relating to joint ventures	(1,112)	—	—	—	(158)	—	(1,270)
Operating profit – segment result	7,748	2	2,218	225	530	—	10,723
Finance income							14,734
Finance costs							(16,051)
Profit before taxation							9,406
Taxation							(1,645)
Profit for the period							7,761

Share of result of joint ventures before taxation of £3,972,000 and £508,000 is included in UK Central and International respectively.

Other segment items included in the Income Statement for the 53 weeks ended 3 May 2009:

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	UK Central £’000	UK South £’000	Scotland & Ireland £’000	UK Railways £’000	International £’000	Core £’000	Total £’000
Depreciation	1,402	1,787	527	634	1,038	—	5,388
Amortisation	1,018	1,221	1,217	556	623	—	4,635

Information regarding segment assets and liabilities at 3 May 2009 and capital expenditure in the 53 weeks then ended:

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	UK Central £’000	UK South £’000	Scotland & Ireland £’000	UK Railways £’000	International £’000	Core £’000	Total £’000
Investment in joint ventures	—	—	—	—	1,328	—	1,328
Other assets	41,985	49,646	38,865	18,616	71,482	926	221,520
Total assets	41,985	49,646	38,865	18,616	72,810	926	222,848
Total liabilities	25,542	22,004	42,042	8,881	35,821	9,731	144,021
Property, plant and equipment additions	1,396	428	2,213	145	1,070	—	5,252
Intangible asset additions	593	697	1,073	4,854	2,503	—	9,720
Total capital expenditure	1,989	1,125	3,286	4,999	3,573	—	14,972

Tangible and intangible asset additions include assets acquired through business combinations in the period.

Segment results for the 52 weeks ended 27 April 2008 (restated):

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	UK Central £’000	UK South £’000	Scotland & Ireland £’000	UK Railways £’000	International £’000	Core £’000	Total £’000
Revenue including share of joint ventures	92,644	85,101	31,549	44,693	70,195	—	324,182
Sales to external customers	73,645	73,958	29,295	61,748	70,051	—	308,697
Sales to other segments	11,691	18,106	3,754	450	8,178	—	42,179
Revenue from all sales	85,336	92,064	33,049	62,198	78,229	—	350,876
Sales on behalf of other segments	(5,240)	(6,963)	(1,500)	(17,505)	(10,971)	—	(42,179)
Group revenue	80,096	85,101	31,549	44,693	67,258	—	308,697
Operating profit before items set out below	7,919	6,273	2,513	2,264	3,621	—	22,590
Amortisation of business combination intangibles	(759)	(717)	(862)	—	(117)	—	(2,455)
Changes in fair value of forward foreign exchange contracts	—	(219)	—	—	(305)	—	(524)
Retention bonuses arising from acquisitions	(221)	(99)	(118)	—	—	—	(438)
Group’s share of taxation relating to joint ventures	(494)	—	—	—	(84)	—	(578)
Operating profit – segment result	6,445	5,238	1,533	2,264	3,115	—	18,595
Finance income							14,642
Finance costs							(13,489)
Profit before taxation							19,748
Taxation							(6,346)
Profit for the period							13,402

The figures above have been restated for the revised presentation of changes in the fair value of exchange rate derivative financial instruments, as detailed further in note 12.

Share of result of joint ventures before taxation of £1,645,000 and £471,000 is included in UK Central and International respectively.

Other segment items included in the Income Statement for the 52 weeks ended 27 April 2008:

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	UK Central £’000	UK South £’000	Scotland & Ireland £’000	UK Railways £’000	International £’000	Core £’000	Total £’000
Depreciation	1,500	1,565	376	436	754	—	4,631
Amortisation	1,249	1,166	971	136	350	—	3,872

Information regarding segment assets and liabilities at 27 April 2008 and capital expenditure in the 52 weeks then ended:

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	UK Central £’000	UK South £’000	Scotland & Ireland £’000	UK Railways £’000	International £’000	Core £’000	Total £’000
Investment in joint ventures	—	—	—	—	1,113	—	1,113
Other assets	54,077	54,807	28,092	14,784	52,678	10,234	214,672
Total assets	54,077	54,807	28,092	14,784	53,791	10,234	215,785
Total liabilities	32,334	39,802	12,642	8,640	23,322	19,896	136,636
Property, plant and equipment additions	2,956	3,185	89	457	1,635	—	8,322
Intangible asset additions	464	1,319	3,128	124	380	—	5,415
Total capital expenditure	3,420	4,504	3,217	581	2,015	—	13,737

Property, plant and equipment and intangible asset additions include the fair value of tangible fixed assets acquired as part of business combinations during the period.

9 operating profit

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	53 weeks ended 3 May 2009 £’000	52 weeks ended 27 April 2008 £’000
Operating profit is stated after charging/(crediting):
Foreign exchange loss/(gain)	1,180	(235)
Operating lease rental income:
land and buildings	(73)	(90)
Operating lease rental expense:
land and buildings	11,663	8,577
other	1,604	1,346
Depreciation:
owned assets	3,921	3,460
assets held on finance leases	1,467	1,171
Amortisation of intangible assets acquired in business combinations	2,784	2,455
Amortisation of other intangible assets	1,850	1,417
Impairment losses recognised on trade receivables	6,812	1,353
Reversal of impairment losses previously recognised on trade receivables	(1,765)	(504)

 

10 employees and employee costs

The average monthly number of persons, including Executive Directors, employed by the Group during the year was:

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	53 weeks ended 3 May 2009 Number	52 weeks ended 27 April 2008 Number
Professional	5,641	4,783
Administrative	860	743
	6,501	5,526

Employee costs during the year were:

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	53 weeks ended 3 May 2009 £’000	52 weeks ended 27 April 2008 £’000
Wages and salaries	169,380	142,198
Social security costs	13,910	11,567
Pension costs – defined benefit schemes	2,946	4,396
Pension costs – defined contribution schemes	4,193	3,023
Expense of equity‑settled share‑based compensation	755	622
Expense of cash‑settled equity‑share-based compensation	(145)	15
	191,039	161,821

At 27 February 2009, the date on which the cash‑settled ‘shadow’ share options vested, the Ordinary Share price was lower than the exercise price, so no amount falls to be paid. The £145,000 credit above represents the reversal of the cumulative charge to the Income Statement in prior periods.

11 auditors' remuneration

The analysis of auditors’ remuneration is as follows:

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	53 weeks ended 3 May 2009 £’000	52 weeks ended 27 April 2008 £’000
Fees payable, inclusive of reimbursed expenses, to the Company’s auditors for the audit of the Company’s annual accounts:
in respect of current year	135	160
adjustment to prior year remuneration	—	27
Fees payable to the Company’s auditors and their associates for the audit of the Company’s subsidiaries pursuant to legislation:
in respect of current year	302	265
adjustment to prior year remuneration	—	48
Total audit fees	437	500
Fees payable, inclusive of reimbursed expenses, to the Company’s auditors and their associates for other services to the Group:
other services pursuant to legislation	10	12
tax services	6	194
other services	22	68
Total non‑audit fees	38	274

12 presentation changes in the fair value of exchange rate derivative financial instruments

In the current period the Group has changed its presentation of the amount relating to changes in the fair value of exchange rate derivative financial instruments so that these are now reflected as administrative expenses rather than as other gains and losses. The charge for the 53 weeks ended 3 May 2009 is £1,695,000. Comparative figures have been restated accordingly, the effect of which is to increase administrative expenses and reduce operating profit by £524,000 in the 52 weeks ended 27 April 2008.