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Results

We delivered a strong set of results this year. We have continued to improve our underlying operating margin along with revenue that rose 11.8% to £2.08bn (2016: £1.86bn) up 4.3% on a constant currency basis. Underlying operating profit increased 15.7% to £171.5m (2016: £148.2m), at an improved underlying operating margin of 8.2% (2016: 8.0%).

In October 2016, we were pleased to complete the acquisition of Howard Humphreys, a multidisciplinary consultancy based in Kenya and Tanzania which provides engineering consultancy and project management services in the transportation, water and property markets. The acquisition will provide an important catalyst to develop our presence within East Africa’s rapidly growing infrastructure market.

On 20 April 2017, the boards of directors of SNC-Lavalin and Atkins announced that they had reached agreement on the terms and conditions of a recommended all cash offer for the Company. The board of directors of SNC-Lavalin expects the acquisition to enhance SNC-Lavalin’s global position and addressable market in infrastructure, rail & transit and nuclear, combine two highly complementary businesses and increase both geographic reach and customer diversification globally.

Underlying profit before tax of £164.6m (2016: £139.0m) is arrived at after adjusting for exceptional income totalling £41.7m (2016: exceptional income £4.7m), amortisation of acquired intangible assets of £29.2m (2016: £6.3m), deferred acquisition payments of £3.7m (2016: £3.2m), impairment of goodwill in both our Energy business in North America and our aerospace business in the Netherlands, which total £21.4m (2016: £nil), impairment of acquired intangibles of £4.8m (2016: £nil) and a residual gain of £0.5m on the sale of our Highway Services business in 2013 (2016: £3.1m loss on sale of Portuguese business). Profit is arrived at after reflecting realised and unrealised foreign exchange gains of £9.6m.

Underlying diluted earnings per share rose 15.8% to 124.2p (2016: 107.3p).

Operating cash flow in the year was £100.4m (2016: £116.1m), representing 65.2% (2016: 81.0%) of operating profit on a reported basis. The Group’s balance sheet remains strong with closing net debt of £6.1m (2016: net funds £191.7m). The Group pension schemes have seen the net IAS 19 pension liability reduce to £235.7m (2016: £265.3m).

Closing staff numbers were 18,308 (2016: 18,052). This primarily reflects the acquisition of PP&T and Howard Humphreys, offset in part by reductions in oil and gas, as well as the Middle East, as we focused on improving productivity.

Our UK and Europe business delivered another set of strong results with a 22.5% increase in operating profit to £90.4m (2016: £73.8m). While revenue reduced 3.4% to £911.1m, primarily as a result of a reduction in rail signalling revenue, margin improved to 9.9% (2016: 7.8%), helped by overhead efficiency savings. During the period, as part of our ongoing portfolio optimisation, we were pleased to complete the sale of our minority PFI investment in the M25 motorway to Edge Orbital Holdings 2 Limited, for a cash consideration of £66.3m. This has been adjusted for when arriving at underlying earnings and is not included in the segmental operating profit referred to above.

Our North America business delivered significant growth this year. Revenue rose 32.5% (14.0% on a constant currency basis) due to increased major project volume in our department of transportation and intermodal businesses. Operating profit rose 64.2% (43.6% on a constant currency basis) at a much improved margin of 7.0% (2016: 5.6%). In addition, our technical professional organisation is seeing improved productivity and we have been able to utilise the Group’s global design centre capabilities in India on major projects including Purple Line and project NEON.

Despite the overall challenging market environment in the region, our Middle East and Africa business has traded in line with our expectations. Revenue was down 6.5% at £232.2m at an operating margin of 9.4% (2016: 11.9%). The market liquidity situation continues to put pressure on working capital and debt collection, which remains a key focus across the region. The integration of Howard Humphreys is progressing well and already generating opportunities.

Our Asia Pacific business has traded in line with our expectations this year. Revenue increased 11.4% to £118.2m (2016: £106.1m), a 1.4% reduction on a constant currency basis, at an operating margin of 7.9% (2016: 8.0%). During the year we secured a number of architectural projects including the iconic Cocobay Towers in Danang, Vietnam and we were particularly pleased to be awarded the advance engineering study for a key section of the proposed Cross Island Line in Singapore.

Market conditions for our Energy business improved in the second half, particularly in oil and gas. Nuclear performed well during the year and power and renewables remain in line with our expectations. The challenges in some oil and gas markets reduced in the second half as oil prices stabilised. Revenue and operating profit rose to £327.0m and £30.3m respectively (2016: £201.3m and £16.7m respectively), reflecting the acquisition of PP&T which completed in April 2016 and contributed revenue of £142.8m in the year. Our margin improved to 9.3% (2016: 8.3%). We are making headway into the Chinese renewables market with a recent appointment to design the offshore substation platform for the Binhai South Phase3 offshore windfarm in the Yellow Sea, our first offshore wind project in China.

People

We continue our work to attract more people into pursuing a career in the engineering sector. During the year, we welcomed over 300 new graduates across the Group and accelerated our apprentice programme by recruiting 60 apprentices within our UK business. We are a member of the ‘5% Club’, an industry-led campaign whose member organisations make a public commitment to have at least 5% of their UK workforce on formal graduate and apprenticeship schemes. Our current proportion is 11.9% (2016: 12.3%) of UK headcount.

A more diverse and inclusive workforce is required to address the critical skills shortage in our industry and we are committed to building a more diverse and inclusive organisation globally. A women’s professional network is now well established in all our major office locations and we continue to roll out our flexible working practices across the Group.

Dividend

An interim dividend of 12.5p per share was paid on 6 January 2017 to all shareholders on the register on 25 November 2016.

On 20 April 2017 the boards of directors of Atkins and SNC-Lavalin announced they had reached agreement on the terms and conditions of a recommended all cash offer for the entire issued and to be issued share capital of Atkins by SNC-Lavalin of 2,080 pence in cash per ordinary share of Atkins. The offer price has been agreed on the basis that no final dividend for the financial year ended 31 March 2017 will be paid by Atkins to its shareholders. If Atkins announces, declares, makes or pays any dividend or other distribution prior to the acquisition becoming effective, SNC-Lavalin reserves the right to reduce the offer price by an amount equal to the amount of such dividend or distribution.

Outlook

We are successfully delivering on our three strategic growth priorities. Despite an uncertain macroeconomic environment, our focused strategy and execution has supported total shareholder returns (TSR) of 144% over the five years to 31 March 2017. Our strategy to position the business in end-markets with favourable long-term trends, together with specific growth initiatives such as our Acuity advisory business, our expansion in nuclear engineering and our focus on digital and technology, position us well for future growth.