Pension deficit weighs on WS Atkins

The company, which has offices in Leeds, York and Sheffield employing around 600 staff, said adjusted pre-tax profit fell 3.7 per cent to 96.5m in the year to the end of March as net finance costs jumped five-fold.

The company responded to lower market demand by reducing staff numbers from 17,400 to 15,600, while also redeploying 500 people into different roles.

The restructuring cost the company around 16m but it helped to cut costs and boost operating profit by 9.6 per cent to 113m.

Heath Drewett, group finance director, said: "We've got a pension deficit which drives a finance cost throughout the year ... the increased pension costs have meant normalised profit before taxation is down."

The company also warned that uncertainty over the impact of UK public spending cuts continued after revenue fell 6.7 per cent to 1.39bn.

It said in a statement: "We are prepared for a period of tighter government spending".

The group helps design big building projects such as London's 2012 Olympic site.

Recent contract wins have ranged from a ten-year road maintenance deal with Oxfordshire County Council worth 350m to its appointment as architect engineer in a consortium to build an experimental fusion reactor in the south of France.

One of the company's strongest performing divisions was highways and transportation after operating profits increased 7.5 per cent to 21.4m.

Difficult market conditions for some of its businesses meant profits fell one per cent to 31.3m in the group's design and engineering services arm.

In the Middle East, where Atkins profits fell 19 per cent to 14m, the company said confidence and liquidity was beginning to return to the region with the strongest opportunities relating to public sector infrastructure.

Late last year, work was completed on a new storage building for the British Library in Boston Spa, West Yorkshire. Atkins designed the 26m building, which has storage space for an extra seven million items, which works out at an additional 262km of extra shelf space.

Mr Drewett said: "We've been operating for 18 months now in a tough economic environment in the UK and some overseas markets, we see the outlook for the UK remaining tough and challenging."

Atkins recommended a final dividend of 18.25 pence a share, making the total dividend 27.5 pence, an increase of 5.8 per cent.

In 2008, the group bought South Yorkshire engineering company MG Bennett for 2.5m. Formed in 1984 and based in Rotherham, Bennett specialises in mechanical and structural engineering and has a strong track record of work within the nuclear industry.

What the analysts say

Analysts said the company performed well over the last year but remained cautious about the outlook for the year ahead.

Nick Spoliar, of Altium Securities, said: "The backdrop to the results is increased productivity and mix improvements but also a tough economic environment."

Analysts at KBC Peel Hunt said management at Atkins had "clearly delivered" given the tough environment but that with shares trading close to highs not seen in more than a year, they were cutting their rating to "hold" from "buy".

Brokerage WH Ireland said: "The group has put in a very creditable performance over the last 18 months given the challenging backdrop."

It added: "However, whilst we acknowledge the underlying quality of the business, the likelihood of further volume/pricing pressure remains and we believe the shares are fully valued at present levels."

Panmure Gordon analyst James Cooke said: "Atkins and its consulting peers are still out of favour due to concerns about its Middle East exposure and general UK public sector demand trends.

"Atkins, with its multi-skilled and multi-local offering, retains sound diversified character-istics."