Business review
Overview of the business and
performance in the year
AEA is one of the world’s leading energy and climate
change consultancies. Acknowledged by the United
Nations as a leading authority in emissions, AEA is an
advisor to the UK and other EU governments on energy
policy and security, emissions and carbon reduction. In
the UK, AEA manages one of the Government’s largest
resource management and CO2 reduction programmes
Envirowise, which over its lifetime of operation has
saved approximately 1% of UK CO2 emissions. The
Group’s reputation for technical excellence in the field of
carbon reduction led to the award of AEA as of prime
contractor on the Near Zero Emissions Coal initiative
for coal fired power stations in China. This contract is
a key element in the EU-China Partnership on climate
change.
Business performance
AEA has continued to make good progress during the
year. Turnover grew by 8% (2007: 35%). The reduction
in UK Government spend (orders down 14%) did
impact revenue but this was offset to a large extent by
strong growth in our consultancy private sector sales,
which grew by 24% (2007: 9%). Adjusted operating
profit grew by 28% to £11.0 million (2007: £8.6 million)
and once again the Group delivered a strong cash
performance with closing net debt of £19.4 million
(2007: £21.4 million). Good growth was achieved in the
private sector, the London Development Agency (LDA),
in Scotland and in Wales. AEA ended the year with
secure sales of £50.5 million (2007: £48.5 million).
Strategic progress
The Group has today announced that it has agreed
to acquire 100% of the share capital of Project
Performance Corporation (PPC), a US based
environmental management and information technology
consulting firm. The acquisition is contingent, among
other things, upon shareholder approval and obtaining
clearance from the relevant authorities.
PPC provides AEA with a strong platform from which
to enter the US Federal government market. It also
brings new capabilities in water and environmental
information systems. The company has a good track
record of growth and has won a number of awards in
the Washington area.
AEA’s view of the market
There is increasing evidence that our planet’s climate is
changing. Global concerns about the economic and
environmental impact of climate change are rising and
the UN has begun discussions to put in place a new
inter-governmental agreement, which will replace the
Kyoto Protocol. AEA believes that the United States will
be an active participant and that these discussions are
likely to lead to even tougher targets for reductions in
carbon emissions. This in turn will require the US and EU
to develop new ways of ensuring these targets are met
and where incentives and penalties are to be focused,
in order to achieve the targets at minimal cost to those
economies.
AEA believes that, in order to meet future climate change
budgets, it will be important to encourage emerging
technologies but in the short term the focus of both
government and the private sector will be on incentivising
and achieving behavioural change. AEA is a world leader
in delivering multi-year, multi-million pound environmental
behavioural change programmes. AEA believes that
these large programmes, with AEA’s proven track record
of delivery, are directly transferable into the US and this is
the primary reason why the Company has conditionally
agreed to acquire PPC.
PPC has a number of contract vehicles to enable AEA to
sell its technical services and make behavioural change
programmes available in the US. It has contracts with US
Federal departments like the Environmental Protection
Agency (EPA), Energy, Transport and Defense. PPC has
won a number of awards for excellence.
As governments look to focus on climate change targets
and policies, AEA believes that they will also seek to shift
the burden of cost from government to the private sector. In the EU large new information-gathering programmes,
like the Shared Environment Information System (SEIS),
are being considered. AEA believes that the need for the
public and private sectors to collect and analyse climate
change information is rising. SEIS will enable the EU to
look at what is happening to the climate in Europe and
analyse how effective current policies are. In the private
sector, companies will need to know not only what to
measure, how to collect and how to store information in
order to ensure compliance with regulation, but also how
to ensure that they have a strategy in place that is able to
meet the forward trajectory of regulation at the least cost.
The biggest risk to this market is one of delay in implementing climate change initiatives brought about by economic uncertainty, including as a result of the current global downturn in financial markets. However, governments are continuing to set demanding climate change targets, led by the EU. In the US AEA believes that significant investment in certain States, such as California, means that there is growing evidence of change in the US’s approach to climate change. In China rising expectations from an increasingly wealthy population are leading to increased pressures on government to take action on climate change to prevent damage to the economy. Accordingly, AEA believes that whilst there are risks of delay to implementation of climate change regulation by governments or the private sector, AEA’s market will continue to grow strongly and AEA, because of its technical excellence and global brand with government, is very well placed to take advantage of this.
Vision
AEA’s vision is to be recognised by its customers as the leading climate change and energy consultancy.
Strategy
AEA’s strategy is to take its know-how, specifically large environmental behavioural change programmes and sell them into the US Federal market. In doing so it will seek to leverage the Group’s knowledge of regulation in the EU and US to help private sector businesses minimise the costs and get maximum return for their investment in energy and emissions reductions.
• Organic growth
The primary focus of organic growth is expected to come from the UK private sector, the Regional Development Agencies (RDA’s) and LDA. The Group also sees significant organic growth opportunities in the EU and in China.
• Acquisitive growth
AEA’s acquisition policy is to focus on strategic acquisitions which enable the business to scale and develop its capabilities to access global markets. In addition the business will look for small bolt-on acquisitions that strengthen AEA’s capabilities in existing markets.
A great deal of effort has gone into understanding the US market, potential customers and key competitors. It is clear that there are significant growth opportunities for AEA in the US. The Group’s initial focus is to acquire businesses, such as PPC, that enable it to gain selected management and employees. The operating platform must enable AEA to leverage its UK knowledge base and capability into the US whilst at the same time offer new US skills which can be leveraged back into the EU.
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