Business review

Overview of the business and performance in the year

We plan, design and enable our clients’ capital programmes.
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Our business
Our core business is helping our clients to plan, design and enable capital programmes that resolve complex challenges in the built and natural environment. We are able to plan all aspects of our clients' projects, conducting feasibility studies and impact analyses covering technical, logistical, legal, environmental and financial considerations. We design systems, infrastructures, processes, buildings and civil structures. We enable our clients' complex programmes by optimising procurement methods and managing supply chains on their behalf to reduce timescales, cost and risk.

Following the acquisition of The PBSJ Corporation (PBSJ) in North America on 1 October 2010, the Group restructured and is now managed through a regional model. This management structure of five business segments reflects how we manage the business via different geographies and markets. Details of activities and results by business segment are shown in the segmental performance section which follows.

Key performance indicators
The Group uses a range of performance measures to monitor and manage the business. Those that are particularly important in monitoring our progress in generating shareholder value are considered key performance indicators (KPIs). Our KPIs measure past performance and also provide information and context to anticipate the events and, in conjunction with our detailed knowledge and experience of the segments in which we operate, allow us to act early and manage the business into the future. Revenue, operating profit and margin, earnings per share (EPS) and operating cash flow indicate the volume of work we have done.

These measure profitability and the efficiency with which we have turned operating profits into cash. Work in hand measures our secured workload as a percentage of the budgeted revenue for the next year. Staff numbers and staff turnover are measures of capacity and show us how effective we have been in recruiting and retaining our key resource. KPIs for 2011 are shown below, along with prior year comparatives.

Review of the year
This has been a transformational year for the Group in which we have continued to deliver strong results. Our underlying operating profit has increased to £118.7m, including £10.3m from the acquisition of PBSJ on 1 October 2010.

Reported operating profit was £107.0m (2010: £113.0m) at a reported margin of 6.8% (2010: 8.1%). The year on year reduction in margin was primarily due to costs associated with our acquisition of PBSJ, with £8.0m relating to acquisition costs and £3.7m of amortisation of intangible assets acquired. Adjusting for the effect of these provides a better view of the Group's underlying performance, showing operating profit of £118.7m (2010: £110.4m) and a margin of 7.6% (2010: 8.0%). We believe that these are good results for the Group as a whole in what are challenging economic times.

Underlying profit before tax improved to £102.7m (2010: £93.9m), having adjusted for the acquisition and amortisation costs mentioned above. Normalised profit before tax, adjusting only for the amortisation of intangible assets of £3.7m, was £94.7m (2010: £96.5m).

Normalised diluted EPS reduced by 2.8p per share to 75.0p (2010: 77.8p), a decrease of 3.6%, reflecting the decrease in normalised profit before taxation.

The Group pension schemes saw a reduction in net liabilities of £102.2m. The fair value of plan assets has increased to £944.3m (2010: £882.7m) and the liabilities reduced to £1,282.1m (2010: £1,322.7m).

Within this financial period, the decision has been taken by the Railway Pension Scheme to switch to the Consumer Price Index (CPI) from the Retail Price Index (RPI) for the purposes of indexing certain of the Railway Pension Scheme liabilities. The effect of the switch has been to reduce the liabilities in our section of the scheme by £27m, included in the net reduction in liabilities above of £102.2m.

Operating cash flow in the year was £68.5m (2010: £126.5m), representing 64% of operating profit. The structure of the Group's cash has altered significantly as a result of acquiring PBSJ, however liquidity remains strong with net funds of £123.3m.

As of 31 March 2011, the Group has secured 55% (2010: 54%) of budgeted revenue for the coming year. The improvement over the previous financial year further demonstrates the effectiveness of our strategy, in what remain a number of difficult markets.

Staff numbers have increased to 17,522 (2010: 15,601) which is substantially due to our acquisition in North America.

Segmental analyses of revenue, operating profit, work in hand and staff numbers follows. Staff turnover is discussed further in the Human Resources Review.

Key performance indicators

Key performance indicators

Notes

1. Revenue excludes the Group's share of revenue from joint ventures.
2. Normalised values exclude amortisation of intangibles of £3.7m recognised on the acquisition of PBSJ.
3. Underlying profit also excludes £8.0m of costs associated with the acquisition of PBSJ in 2011 and 2010 excludes a pension curtailment gain of £2.6m.
4. Normalised diluted EPS is based on normalised profit after tax (less exceptional items and any profit or losses from disposals) and allows for the dilutive effect of share options.
5. Work in hand is the value of contracted and committed work as at 31 March that is scheduled for the following year, expressed as a percentage of budgeted revenue for the year.
6. Staff numbers are shown on a full-time equivalent basis, including agency staff.
7. Staff turnover is the number of voluntary staff resignations in the year, expressed as a percentage of average staff numbers.