TIDMMGNS
RNS Number : 1570I
Morgan Sindall Group PLC
07 August 2019
7 August 2019
MORGAN SINDALL GROUP PLC
('Morgan Sindall' or 'Group')
The Construction & Regeneration Group
RESULTS FOR THE HALF YEAR (HY)ED 30 JUNE 2019
HY 2019 HY 2018 Change
------------ ------------
Revenue GBP1,421m GBP1,423m -
Operating profit - adjusted(1) GBP37.5m GBP31.9m +18%
Profit before tax - adjusted(1) GBP36.3m GBP30.2m +20%
Earnings per share - adjusted(1) 64.2p 55.6p +15%
Period end net cash GBP114m GBP97m +GBP17m
Interim dividend per share 21.0p 19.0p +11%
Operating profit - reported GBP36.7m GBP31.6m +16%
Profit before tax - reported GBP35.5m GBP29.9m +19%
Basic earnings per share - reported 62.9p 55.2p +14%
----------------------------------------- ------------ ------------ ---------
(1) 'Adjusted' is defined as before intangible amortisation (GBP0.8m)
(HY 2018: before intangible amortisation (GBP0.3m))
HY 2019 summary:
-- Strong first half performance reflecting significant
strategic and operational progress made across the Group
o Adjusted profit before tax up 20% to GBP36.3m
-- Continued balance sheet strength
o Average daily net cash of GBP123m; period end net cash of
GBP114m
-- High quality total future workload
o Secured order book up 19% to GBP4.2bn; regeneration &
development pipeline up 6% to GBP3.3bn
-- Interim dividend up 11% to 21p per share
-- Divisional highlights
o Further margin improvement in Construction &
Infrastructure; operating margin up to 2.0% (HY 2018: 1.7%), with
operating profit up 23% to GBP13.9m
o Fit Out performance as expected; operating profit lower at
GBP16.4m (HY 2018: GBP18.8m), but operating margin still strong at
4.0%
o Volume and efficiency gains in Property Services; operating
margin increased to 2.9% (HY 2018: 1.0%) and operating profit of
GBP1.6m (HY 2018: GBP0.5m)
o Operational improvements in Partnership Housing; operating
profit up 39% to GBP6.4m (HY 2018: GBP4.6m)
o Good performance from Urban Regeneration; operating profit up
36% to GBP8.3m
(HY 2018: GBP6.1m) with strong and visible pipeline of
developments
o Successful period for Investments in delivering long-term
strategic partnerships and creating potential streams of future
construction work for the Group
Commenting on today's results, Chief Executive, John Morgan
said:
"We have had a strong first half of the year and these results
underline the significant operational and strategic progress being
made across the Group. Our strong balance sheet including our net
cash position is a significant differentiator for us, allowing us
to make the right long-term decisions for the business, which best
positions us in our markets for continued sustainable growth.
There is much positive momentum across the Group and with our
high quality, growing order book, we are excited by the
opportunities ahead. Following our strong first half performance
and with the current visibility we have of the rest of the year, we
now expect to deliver a result for the full year which is slightly
ahead of our previous expectations."
Enquiries
Morgan Sindall Group Tel: 020 7307 9200
John Morgan
Steve Crummett
Instinctif Partners Tel: 020 7457 2020
Matthew Smallwood
James Gray
Rosie Driscoll
Presentation
-- There will be an analyst and investor presentation at 09.00
at Instinctif Partners, 65 Gresham Street, London EC2V 7NQ. Coffee
and registration will be from 08.30
-- A copy of these results is available at www.morgansindall.com
-- Today's presentation will be available via live webcast from
09.00 at www.morgansindall.com. A recording will also be available
via playback in the afternoon.
Note to Editors
Morgan Sindall Group
Morgan Sindall Group plc is a leading UK Construction &
Regeneration group with annual revenue of GBP3bn, employing around
6,600 people and operating in the public, regulated and private
sectors. It reports through six divisions of Construction &
Infrastructure, Fit Out, Property Services, Partnership Housing,
Urban Regeneration and Investments.
Group Structure
Under the two strategic business activities of Construction and
Regeneration, the Group is organised into six divisions as
follows:
Construction activities comprise the following operations:
-- Construction & Infrastructure: Focused on the highways,
rail, aviation, energy, water and nuclear markets in
Infrastructure; and on the education, healthcare, defence,
commercial, industrial, leisure and retail markets in
Construction
-- Fit Out: Focused on the fit out of office space with
opportunities in commercial, central and local government offices
and further education
-- Property Services: Focused on response and planned
maintenance activities provided to the social housing and the wider
public sector
Regeneration activities comprise the following operations:
-- Partnership Housing: Focused on working in partnerships with
local authorities and housing associations. Activities include
mixed-tenure developments, building and developing homes for open
market sale and for social/affordable rent, 'design & build'
house contracting and planned maintenance & refurbishment
-- Urban Regeneration: Focused on transforming the urban
landscape through partnership working and the development of
multi-phase sites and mixed-use regeneration
In addition, Investments is focused on providing the Group with
both construction and regeneration opportunities through various
long-term strategic partnerships to develop under-utilised public
land across multiple sites and generates development profits from
such partnerships.
Basis of Preparation
In addition to presenting the financial performance of the
business on a statutory basis, adjusted performance measures are
also disclosed. These measures are not an alternative or substitute
to statutory IFRS measures but are seen as more useful in assessing
the performance of the business on a comparable basis and are used
by management to monitor the performance of the Group.
In all cases the term 'adjusted' excludes the impact of
intangible amortisation of GBP0.8m (HY 2018: GBP0.3m).
Group Operating Review
The Group has continued to make significant strategic and
operational progress through the first half of 2019 and this is
reflected in a strong set of results for the period.
Balance sheet strength and cash management have remained the
highest priority. The Group had a substantial average daily net
cash position for the first half, providing significant financial
security for all stakeholders: customers, supply chain partners and
employees.
The discipline of maintaining selectivity with the overall
quality of projects taken on, and the focus on operational delivery
and risk management, was evidenced by the strength of the Group's
results. Although revenue for the period was at a similar level to
the prior year at GBP1,421m (HY 2018: GBP1,423m), the adjusted
operating profit was up 18% to GBP37.5m (HY 2018: GBP31.9m) with an
adjusted operating margin of 2.6%, an increase of 40bps on the
prior year (HY 2018: 2.2%).
The net finance expense was GBP0.5m lower at GBP1.2m (HY 2018:
GBP1.7m) due to most of the Group's non-recourse project financing
having been repaid towards the end of 2018. After deducting
interest, the adjusted profit before tax was GBP36.3m, up 20% (HY
2018: GBP30.2m). The statutory profit before tax was GBP35.5m, an
increase of 19% (HY 2018: GBP29.9m).
The tax charge for the period was GBP7.2m, which equated to an
effective tax rate of 20%, slightly higher than the UK statutory
rate of 19%. The adjusted earnings per share increased by 15%, up
to 64.2p (HY 2018: 55.6p), with the statutory earnings per share of
62.9p up 14% (HY 2018: 55.2p).
Construction & Infrastructure again delivered further margin
improvement, with its operating margin up to 2.0% (HY 2018: 1.7%)
and operating profit up 23% to GBP13.9m. Fit Out performed as
expected against the predicted backdrop of a general tightening in
overall market conditions with profit 13% lower at GBP16.4m,
however its operating margin of 4.0% remained at a healthy level
(HY 2018: 4.4%). Property Services continued with its strategy of
enhanced operational efficiency which resulted in a much-improved
operating margin of 2.9% (HY 2018: 1.0%) and operating profit of
GBP1.6m (HY 2018: GBP0.5m).
Of the Group's regeneration divisions, Partnership Housing
showed early signs of improvement through its focus on operational
delivery, with operating profit up 39% to GBP6.4m and operating
margin up 70 bps to 2.7%. There remains significant potential for
this division. Urban Regeneration had another good performance,
with its operating profit up 36% to GBP8.3m (HY 2018: GBP6.1m) and
a return on capital employed of 19%. Investments made a loss of
GBP0.9m (HY 2018: loss of GBP1.1m) and positive progress was made
with developing its portfolio of property partnerships to provide
construction work for other parts of the Group.
The period was also very successful in developing the total
future workload of the Group, which stood at GBP7.5bn at the period
end. Whilst continuing to focus on maintaining the appropriate risk
balance within its order book, the secured order book increased
significantly to GBP4.2bn, up 19% from the year end position. The
regeneration & development pipeline, which provides longer term
visibility of activity for the regeneration divisions, also grew
and was GBP3.3bn, up 6% from the year end position.
The Group's balance sheet remains strong. Net cash at the period
end was GBP114m (HY 2018: GBP97m). The average daily net cash for
the period was GBP123m (HY 2018: GBP113m). Based upon current
anticipated cash flows and investment plans, it is expected that
the average daily net cash for the full year will be in excess of
GBP90m.
The Group is committed to maintaining an average daily net cash
position for the foreseeable future and this, together with the
Group's committed bank facilities of GBP180m which extend out to
2022, provides substantial ongoing funding headroom and financial
security for the Group.
The interim dividend has been increased by 11% to 21.0p per
share (HY 2018: 19.0p). This reflects the increase in profit in the
period, the strong balance sheet and the Board's confidence in the
future prospects of the Group. The interim dividend per share is
3.1 times covered by adjusted earnings per share in the period.
Outlook
Following the strong first half performance and with the current
visibility there is of the rest of the year, the Group expects to
deliver a result for the full year which is slightly ahead of its
previous expectations.
Business Review
The following Business Review is given on an adjusted basis,
unless otherwise stated.
Headline results by business segment
HY 2019 Revenue Operating Profit/(Loss) Operating Margin
GBPm Change GBPm Change % Change
------ ------- ------------ ------------ ------- ----------
Construction & Infrastructure 679 +3% 13.9 +23% 2.0% +30bps
Fit Out 407 -4% 16.4 -13% 4.0% -40bps
Property Services 55 +12% 1.6 +220% 2.9% +190bps
Partnership Housing 238 +3% 6.4 +39% 2.7% +70bps
Urban Regeneration 44 -29% 8.3 +36% n/a n/a
Investments 2 n/a (0.9) n/a n/a n/a
Central/Eliminations (4) (8.2)
------ ------- ------------ ------------ ------- ----------
Total 1,421 -% 37.5 +18% 2.6% +40bps
------ ------- ------------ ------------ ------- ----------
Order book and regeneration & development pipeline
The Group's secured order book(*) at 30 June 2019 was GBP4,229m,
an increase of 19% from the previous year end. The divisional split
is shown below.
HY 2019 FY 2018 Change
GBPm GBPm
------------------------------- ------- ------- ------
Construction & Infrastructure 2,377 1,922 +24%
Fit Out 464 470 -1%
Property Services 962 723 +33%
Partnership Housing 352 327 +8%
Urban Regeneration 84 119 -29%
Investments 6 6 -
Inter-divisional eliminations (16) -
------------------------------- ------- ------- ------
Group secured order book 4,229 3,567 +19%
------------------------------- ------- ------- ------
(*) "Secured order book" comprises the committed order book and
framework order book. The committed order book represents the
Group's share of future revenue that will be derived from signed
contracts or letters of intent. The framework order book represents
the Group's expected share of revenue from the frameworks on which
the Group has been appointed. This excludes prospects where
confirmation has been received as preferred bidder only, with no
formal contract or letter of intent in place.
The Group's regeneration & development pipeline(**) at 30
June 2019 was GBP3,282m, up 6% on the previous year end.
HY 2019 FY 2018
GBPm GBPm Change
------- -------
Partnership Housing 751 708 +6%
Urban Regeneration 2,112 1,962 +8%
Investments 419 437 -4%
---------------------------------- ------- ------- ------
Group regeneration & development
pipeline 3,282 3,107 +6%
---------------------------------- ------- ------- ------
(**) "Regeneration & development pipeline" represents the
Group's share of the gross development value of secured schemes
including the development value of open market housing schemes.
Construction & Infrastructure
HY 2019 HY 2018 Change
GBPm GBPm
-------------------------------- ------- ------- ------
Revenue 679 662 +3%
Operating profit 13.9 11.3 +23%
Operating margin 2.0% 1.7% +30bps
-------------------------------- ------- ------- ------
The ongoing focus on disciplined contract selectivity and on
operational delivery provided the basis for another improved profit
performance in the period.
Divisional revenue of GBP679m was up 3% on the prior year (HY
2018: GBP662m). Split by activity, Construction (including Design)
accounted for 47% of divisional revenue at GBP317m, which was down
7% compared to the prior year, while Infrastructure (53% of
divisional revenue) increased 13% to GBP362m.
Operating profit increased to GBP13.9m, up 23%, with further
improvement in the operating margin of 30bps, up to 2.0%.
Both activities showed continued margin improvement.
Construction's (including Design) operating margin for the period
was 2.0%, up 30bps from 1.7% in the prior year period. This was
achieved despite the reduction in revenue and demonstrated the
benefit of its continued focus on contract selection, project
delivery and risk management, resulting in operating profit for the
period of GBP6.2m, up 7%.
Infrastructure delivered operating profit of GBP7.7m in the
period, up a strong 40% on the prior year, and good growth in
operating margin of 40bps, up to 2.1% (HY 2018: 1.7%). This
reflected the benefit of both the 13% increase in revenue and the
work mix in the period.
The division had a strong period of winning work, with the
secured order book at the period end up 24% from the year end
position to GBP2,377m. Of this, the Construction order book of
GBP577m was up 32%, as a number of the preferred bidder positions
carried forward into the year were successfully converted into
committed orders. The Infrastructure order book was up 21% to
GBP1,800m.
There has been no compromise on the division's drive for
maintaining the appropriate risk profile in the order book. Within
the total divisional order book, 90% by value has been derived
through negotiated, framework or two-stage bidding procurement
processes.
Construction
In Construction, the focus remains on improving its overall
quality of earnings through contract selectivity and operational
delivery.
In the Education sector, ongoing projects include the delivery
of a new GBP47m Teaching HUB and Sports Building for Liverpool John
Moores University, two GBP18m new build primary schools for North
Lanarkshire Council in Scotland and a new GBP28m art, design and
architecture facility for the University of Huddersfield. In other
sectors, ongoing projects include the GBP35m residential
development for Urban Regeneration (through its joint venture) as
part of the wider New Bailey development in Manchester.
Work won in the period includes a GBP45m hotel and residential
development for Investments' Slough Urban Renewal joint venture, a
GBP30m project to deliver new academic offices for the Royal
College of Physicians at Paddington Place in Liverpool and a GBP53m
leisure centre for the London Borough of Hackney. In the period,
Construction has also been appointed onto all four tendered lots on
the GBP1bn SEWSCAP 3 framework as well as retaining its place on
all three lots of the next generation of the GBP5.25bn Southern
Construction Framework (SCF4). In addition, Construction also won a
place on all three lots of the University of Oxford's GBP1.5bn
Capital Projects Partner Framework.
The current operational performance of Construction and the
quality of its order book provides confidence that further progress
towards its medium-term operating margin target of 2.5% will be
made in the second half of the year and beyond.
Infrastructure
In Infrastructure, the focus remains on the key sectors of
aviation, highways, rail, nuclear, energy and water.
In Aviation, the division continues to operate at Heathrow under
the Q6 framework with works completed in the period including the
Block 21 Outer taxiway as well as work on a number of landside
roads and car parks. Phase 2 of the southern runway has now
commenced.
In Highways, construction works commenced in joint venture on
the M27 and M62 smart motorway schemes which were awarded at the
start of the year. Works also started on the redevelopment of the
Old Street roundabout under the division's framework with Transport
for London.
In Rail, work started on the Barking Riverside extension on
behalf of Transport for London and works to upgrade track and
signals on behalf of Network Rail are progressing at Kings
Cross.
In Nuclear, the division won a place on the Sellafield Programme
and Project Partners (PPP) framework, a 20 year framework which is
expected to generate revenues of cGBP1.6bn over 20 years. Of this,
only GBP371m is included in the period end secured order book which
relates to identified projects.
In Energy, works commenced on a contract awarded by National
Grid, expected to be in excess of GBP80m, as part of their Visual
Impact Provision (VIP). In Water, the division continues its
long-standing relationship with Welsh Water on their alliance as
part of AMP6.
Based upon the current visible workload through its existing
frameworks, it is expected that Infrastructure will continue to
show margin improvement over future periods. As a result, its
medium-term operating margin target has been revised up to 3.0%,
having previously been set at 2.5%.
Fit Out
HY 2019 HY 2018 Change
GBPm GBPm
------------------ ------- ------- ------
Revenue 407 426 -4%
Operating profit 16.4 18.8 -13%
Operating margin 4.0% 4.4% -40bps
------------------ ------- ------- ------
Fit Out has performed as expected. Revenue was 4% lower at
GBP407m, while its operating profit of GBP16.4m was a reduction of
13% on the prior year. This result was against the predicted
backdrop of a general tightening of overall market conditions,
however the operating margin of 4.0% remained strong (HY 2018:
4.4%).
The commercial office market was the largest sector served,
contributing 86% of revenue, the same proportion as in the prior
year (HY 2018: 86%). Higher education accounted for 6% of revenue,
while retail banking, government and local authority work made up
the remainder.
The largest geographical market remained London, accounting for
69% of revenue, a reduction from the prior year (HY 2018: 80%).
Other regions accounted for 31% of revenue. This change in
geographical balance is reflective of the prior year revenue
including a high level of activity on a small number of larger
London projects and is not indicative of any underlying trend.
Split by type of work, 81% related to traditional fit out work
(HY 2018: 87%), while 19% related to 'design and build' (HY 2018:
13%).
The proportion of revenue from the fit out of existing office
space increased to 74% (HY 2018: 55%), compared to revenue
generated from the fit out of new office space, which reduced to
26% (HY 2018: 45%). However, as above, this movement was not
representative of any long-term trend and reflected the prior year
including a small number of larger new office space projects. Of
the fit out of existing office space, 71% related to refurbishment
'in occupation'.
Projects won in the period include the new 120,000 sq ft Virgin
Media Head Office in Green Park, Reading; and the design and fit
out of a new c7,250 sq ft office space and Dementia Connect
facility for the Alzheimer's Society in Edgbaston, Birmingham.
Projects commenced in the period included the c250,000 sq ft fit
out across six floors for Royal Bank of Canada at 100 Bishopsgate,
London.
At the period end, the secured order book stood at GBP464m, a
decrease of 1% from the year end position of GBP470m and a
reduction of 12% from the prior year position (HY 2018:
GBP528m).
Of the secured order book, GBP331m (71%) relates to the second
half of the year. The equivalent amount as at 30 June 2018 which
related to the second half of 2018 was GBP320m and on this basis,
the division has broadly the same level of visibility of second
half volumes as it did at the same time last year. Further, there
has been no significant change in the overall level of tender
opportunities being pursued or anticipated.
Fit Out's target is to deliver annual profit in the range of
GBP30m-GBP35m through the cycle. Looking ahead to the second half,
the general tightening in overall market conditions is expected to
continue, however based on the current order book, the division is
well-placed to deliver a result at the top end of its target profit
range.
Property Services
HY 2019 HY 2018 Change
GBPm GBPm
--------------------- ------- ------- -------
Revenue 55 49 +12%
Operating profit(1) 1.6 0.5 +220%
Operating margin(1) 2.9% 1.0% +190bps
--------------------- ------- ------- -------
Property Services performed well in the period, with revenue up
12% to GBP55m and a significant increase in operating profit, up to
GBP1.6m (HY 2018: GBP0.5m). The operating margin of 2.9% compared
to a margin of 1.0% in the prior year period.
The increase in scope of various existing contracts, together
with new contract wins, drove the revenue growth. Three major new
contract awards were made in January, being an award with the
London Borough of Waltham Forest to provide responsive repairs,
refurbishment of void homes and planned maintenance programmes; a
contract with St Albans City and District Council for repairs, void
refurbishments and planned maintenance works; and property
maintenance for South Essex Homes, Southend-on-Sea Borough
Council's arms-length management organisation. These contracts
successfully mobilised in April and the second half of the year is
therefore expected to reflect higher revenue from these contracts
as volumes normalise.
The operating efficiency of the division continues to improve,
resulting in the increase in operating margin to 2.9% and operating
profit of GBP1.6m. Besides from the impact of the additional
contribution from higher revenue, the efficiency benefit from its
investment in its IT platform for managing repairs and planned
activities, has contributed to the increase in operating margin.
Further margin improvement is expected in the second half of the
year.
At the period end, the secured order book was GBP962m, up 33%
from the previous year end position, reflecting primarily the
addition of the three contracts referred to above.
(1) before intangible amortisation of GBP0.8m (HY 2018:
GBP0.3m)
Partnership Housing
HY 2019 HY 2018 Change
GBPm GBPm
------------------------------- ------- ------- ---------
Revenue 238 231 +3%
Operating profit 6.4 4.6 +39%
Operating margin 2.7% 2.0% +70bps
------------------------------- ------- ------- ---------
Average capital employed(1)
(last 12 months) 136.8 103.5 +GBP33.3m
Capital employed(1) at period
end 155.6 118.2 +GBP37.4m
ROCE(2) (last 12 months) 10%
------------------------------- ------- ------- ---------
Revenue grew by 3% to GBP238m in Partnership Housing and some of
the benefits of the focus on improving operational delivery in the
Contracting side of the business were reflected in an increase in
operating profit, up 39% to GBP6.4m. Although the operating margin
for the period of 2.7% still remains significantly behind a
normalised level of profitability, the increase of 70bps on the
prior year provided evidence of early progress in operational
improvement and a renewed momentum throughout the division. Further
improvement in performance is expected to continue in the second
half of the year and beyond.
Revenue growth was driven by the Mixed-tenure activities, where
revenue was up 22% to GBP106m (45% of divisional revenue).
Contracting revenue (including planned maintenance and
refurbishment) reduced 8% to GBP132m (55% of divisional total).
In Mixed-tenure, 493 units were completed across open market
sales and social housing compared to 357 in the prior year. The
average sales price of GBP214k compared to the prior year average
of GBP244k, reflecting the geographical mix of completions.
Besides from focusing on operational improvement, the division
has been re-setting its approach to winning future work and the
market opportunity remains substantial. At the period end, the
total workload for the division was GBP1.1bn. This comprised of the
mixed-tenure regeneration and development pipeline of GBP751m, up
6%, and the secured order book (including the contracting element
of mixed-tenure) up 8% to GBP352m from the previous year end.
Key project wins in the period include a GBP80m, 335 unit
development at Wymondham in Norfolk which will be developed in
joint venture with Flagship Housing Group and a GBP25m, 150 unit
regeneration scheme at Steelhouse Lane in the West Midlands. In
addition, a development agreement with Norfolk County Council to
build 400 homes has been agreed, with the first development for the
partnership located at Acle.
The capital employed at period end was GBP155.6m, an increase of
GBP49.0m since the year end position (FY 2018: capital employed
GBP106.6m) and an increase of GBP37.4m from the prior year position
(HY 2018: capital employed GBP118.2m). The average capital employed
for the last 12-month period was GBP136.8m resulting in an overall
ROCE(2) of 10%, still well below the medium-term target of a
sustainable return on capital in excess of 20%. Average capital
employed for the full year is expected to be cGBP150m, reflecting
significant investment in ongoing developments in the second half
of the year.
(1) Capital employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
corporation tax, deferred tax, inter-company financing and
overdrafts).
(2) Return On Average Capital Employed = Adjusted operating
profit divided by average capital employed.
Urban Regeneration
HY 2019 HY 2018 Change
GBPm GBPm
------------------------------- ------- ------- ---------
Revenue 44 62 -29%
Operating profit 8.3 6.1 +36%
------------------------------- ------- ------- ---------
Average capital employed(1)
(last 12 months) 105.3 102.1 +GBP3.2m
Capital employed(1) at period
end 97.5 114.0 -GBP16.5m
ROCE(2) (last 12 months) 19%
------------------------------- ------- ------- ---------
Urban Regeneration delivered operating profit of GBP8.3m, up 36%
from the prior year and was the result of the high level of
activity across the division's diverse development portfolio. The
return on average capital employed (ROCE(2) ) was 19%, reflecting
good progress towards its medium-term target of a consistent ROCE
of towards 20%. Although revenue in the period was down to GBP44m,
this is only indicative of the type of development scheme from
which the profits were generated rather than of the level of
underlying activity.
The main contributors to performance were profit from the
pre-let and forward sale of a 360,000 sq. ft. distribution hub at
Logic Leeds to be occupied by an international online retailer; a
hotel land sale in Chester; and the sale of new homes in Brentford,
Tottenham Hale, Brixton and Stockton-on-Tees.
In addition, development management fees were generated from the
Salford Central regeneration scheme, being developed by The English
Cities Fund (a joint venture with Legal & General and Homes
England); Warrington's Time Square development; and the second
phase of the Stockport Exchange development.
Capital employed at the period end was GBP97.5m, which
represented an increase of GBP8.1m from the year end position of
GBP89.4m and a reduction of GBP16.5m over the prior year period
end. Average capital employed for the last 12-month period was
GBP105.3m, with an overall ROCE(2) of 19%. Average capital employed
is expected to be cGBP100m for the full year.
Further progress with the division's sizeable development
portfolio is expected in the second half. The combined regeneration
and development pipeline (GBP2,112m) and committed order book
(GBP84m), together totalling GBP2,196m was up 6% from the year end
position.
(1) Capital employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
corporation tax, deferred tax, inter-company financing and
overdrafts).
(2) Return On Average Capital Employed = (Adjusted operating
profit less interest and fees on non-recourse debt in the last 12
months) divided by (average capital employed). Interest and fees on
non-recourse debt in the last 12 months was GBP1.3m.
Investments
HY 2019 HY 2018 Change
GBPm GBPm
---------------- ------- ------- ------
Operating loss (0.9) (1.1) n/a
---------------- ------- ------- ------
Although Investments made an operating loss of GBP0.9m in the
period, positive progress was made across the division's various
joint ventures and in developing new opportunities for construction
work for other parts of the Group. Based upon current schedules and
plans, it is expected that the division will show a loss for the
full year in the range of GBP2.0m-GBP2.5m.
The major profit contribution in the period was through the
disposal of a number of long-term contracts to provide management
services to projects that were developed by Investments' hub West
Scotland joint venture. Other development profits were generated
from a number of the division's joint venture property
partnerships, including through its local authority joint ventures,
Slough Urban Renewal and The Bournemouth Development Company.
Progress with reaching financial close on a number of schemes in
Morgan Ashley, its extra care joint venture with Ashley House plc,
however, was slower than expected and slipped into the second half
of the year and beyond.
In addition, there has been much positive progress made within
the division's other existing partnerships. Of note, Chalkdene
Developments, Investments' joint venture with Hertfordshire County
Council which was set up in 2018, has secured planning permission
on its first site with work expected to start later in the
year.
During the period, the division was successful in being selected
as Brentwood Borough Council's preferred joint venture partner to
deliver a long-term programme of developments with a potential
contract value of up to GBP1bn, further demonstrating the
division's strategic importance to the Group.
Capital employed(1) at the period end was GBP33.8m (HY 2018:
GBP41.8m), a reduction of GBP3.4m from the year end position (FY
2018: GBP37.2m). Average capital employed for the last 12-month
period was GBP37.8m (HY 2018: GBP36.3m) and it is anticipated that
the average capital employed for the year will be cGBP40m.
The regeneration & development pipeline of GBP419m was 4%
down on the year end position. However, only GBP113m relates to
Hertfordshire, being 50% GDV of the initially identified sites
which meet the strict definition for inclusion in the regeneration
pipeline. Similarly, there is nothing currently included in the
regeneration & development pipeline in relation to
Brentwood.
(1) Capital employed is calculated as total assets (excluding
goodwill, intangibles and cash) less total liabilities (excluding
corporation tax, deferred tax, inter-company financing and
overdrafts).
Other Financial Information
1. Net finance expense. Net finance expense was GBP1.2m, a
GBP0.5m decrease versus HY 2018 due primarily to most of the
Group's non-recourse project financing having been repaid towards
the end of 2018:
HY 2019 HY 2018 Change
GBPm GBPm GBPm
--------------------------------------- ------- ------- ------
Interest payable on project
financing & other debt - (0.9) 0.9
Amortisation of bank fees &
non-utilisation fees (0.8) (1.1) 0.3
Interest expense on lease liabilities (0.8) (0.6) (0.2)
Interest from JVs 0.5 1.0 (0.5)
Other (0.1) (0.1) -
Total net finance expense (1.2) (1.7) 0.5
--------------------------------------- ------- ------- ------
2. Tax. A tax charge of GBP7.2m is shown for the period (HY
2018: GBP5.4m).
HY 2019 HY 2018
GBPm GBPm
----------------------------------------------- --------- -------
Profit before tax 35.5 29.9
Less: share of net profit in joint
ventures where taxed (1) (0.2) (0.3)
Profit before tax excluding joint
ventures 35.3 29.6
Statutory tax rate 19.0% 19.0%
Current tax charge at statutory
rate (6.7) (5.6)
Other adjustments (0.5) 0.2
Tax charge (7.2) (5.4)
----------------------------------------------- --------- -------
(1) Most of the Group's joint ventures are partnerships
where profits are taxed within the Group rather than
the joint venture. Profits already taxed in the joint
venture are eliminated for these purposes
3. Net working capital. 'Net Working Capital' is defined as
'Inventories plus Trade & Other Receivables (including Contract
Assets), less Trade & Other Payables (including Contract
Liabilities)' adjusted as below.
Change
HY 2019 HY 2018 GBPm
GBPm GBPm
------------------------------ ------- -------
Inventories 355.6 316.7 +38.9
Trade & Other Receivables(1) 514.8 487.7 +27.1
Trade & Other Payables(2) (907.5) (885.8) -21.7
Net working capital (37.1) (81.4) +44.3
------------------------------ ------- ------- -------
(1) Adjusted to exclude capitalised arrangement fees of GBP0.8m
(HY 2018: GBP1.1m)
(2) Adjusted to exclude accrued interest payable of GBP0.1m (HY
2018: GBP0.2m)
4. Cash flow. The operating cash flow for the 12 months to 30
June 2019 was an inflow of GBP49.7m and a free cash inflow of
GBP34.4m. For the half year period to 30 June 2019, there was an
operating cash outflow of GBP74.6m.
HY 2019 HY 2018 Last 12
GBPm GBPm months
-------------------------------------- ------- -------- ----------
Operating profit - adjusted 37.5 31.9 91.1
Depreciation 10.2 8.5 20.2
Share option expense 3.2 3.1 6.4
Movement in fair value of shared
equity loans - (0.2) (0.3)
Share of net profit of joint
ventures (2.1) (1.1) (6.2)
Other operating items (1) 4.4 2.6 7.8
Change in working capital (2) (116.6) (94.8) (45.0) (2)
Net capital expenditure (including
repayment of finance leases) (11.6) (8.9) (26.6)
Dividends and interest received
from joint ventures 0.4 1.0 2.3
Operating cash flow (74.6) (57.9) 49.7
Income taxes paid (5.4) (6.6) (12.7)
Net interest paid (non-joint
venture) (1.0) (1.3) (2.6)
Free cash flow (81.0) (65.8) 34.4
-------------------------------------- ------- -------- ----------
(1) 'Other operating items' includes proceeds on the disposal of
service contracts (GBP3.8m), provision movements (GBP2.3m), shared
equity redemptions (GBP2.0m), disposal of investment properties
(GBP0.2m) less profit from other gains and losses (GBP3.8m) and
gain on disposals of property, plant & equipment (GBP0.1m)
(2) The cash flow due to change in working capital for the 12
month period excludes GBP0.7m of non-cash movement relating to the
unwind of discounting on land creditors
5. Net cash. Net cash at period end was GBP113.9m.
GBPm
------
Net cash as at 1 January
2019 207.0
Free cash flow (as above) (81.0)
Dividends (15.3)
Other(1) 3.2
Net cash as at 30 June 2019 113.9
-------------------------------- ------
(1) 'Other' includes net loan repayments from JVs (GBP5.5m),
proceeds from the exercise of share options (GBP1.2m) and proceeds
from the issue of new shares (GBP0.1m) less the purchase of shares
in the Company by the employee benefit trust (GBP3.6m)
6. Capital employed by strategic activity. An analysis of the
capital employed in the Construction activities shows an increase
of GBP61.4m since the prior period, split as follows:
Capital employed(1) in Construction HY 2019 HY 2018 Change
GBPm GBPm GBPm
-------- --------
Construction & Infrastructure (205.1) (235.3) +30.2
Fit Out (23.4) (49.8) +26.4
Property Services 15.9 11.1 +4.8
------------------------------------- -------- -------- -------
(212.6) (274.0) +61.4
------------------------------------- -------- -------- -------
An analysis of capital employed in the Regeneration activities
shows an increase of GBP20.9m since the prior period, split as
follows:
Capital employed(1) in Regeneration HY 2019 HY 2018 Change
GBPm GBPm GBPm
-------- --------
Partnership Housing 155.6 118.2 +37.4
Urban Regeneration 97.5 114.0 -16.5
253.1 232.2 +20.9
-------- --------
(1) Total assets (excluding goodwill, intangibles, inter-company
financing and cash) less total liabilities (excluding corporation
tax, deferred tax, inter-company financing and overdrafts)
In addition, capital employed in Investments was GBP33.8m (HY
2018: GBP41.8m).
7. Dividends. The Board of Directors has proposed an interim
dividend of 21.0p per share (HY 2018: 19.0p), up 11% on the prior
year. This will be paid on 28 October 2019 to shareholders on the
register at 11 October 2019. The ex-dividend date will be 10
October 2019.
8. Principal risks. The Group has a clear and established risk
framework in place for managing its risks. The framework is
designed and operated to identify, control and mitigate any threat
to the Group achieving its goals. The framework and the risks
including details of the mitigations taken to manage them are set
out more fully in the risk review in the Group's 2018 annual report
and have not changed since that time.
9. Brexit. The Board's assessment of any potential impact
arising from Brexit were set out in the full year results
announcement for the year ended 31 December 2018 and there have
been no changes to the Board's assessment since that time.
Cautionary forward-looking statement
These results contain forward-looking statements based on
current expectations and assumptions. Various known and unknown
risks, uncertainties and other factors may cause actual results to
differ from any future results or developments expressed or implied
from the forward-looking statements. Each forward-looking statement
speaks only as of the date of this document. The Group accepts no
obligation to publicly revise or update these forward-looking
statements or adjust them to future events or developments, whether
as a result of new information, future events or otherwise, except
to the extent legally required.
Condensed consolidated income statement
For the six months ended 30 June 2019
Six months Six months
to to Year ended
30 June 2019 30 June 2018 31 Dec 2018
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------------- ----- ------------ ------------ -----------
Revenue 2 1,421.4 1,422.6 2,971.5
Cost of sales (1,267.4) (1,276.4) (2,656.2)
------------------------------------- ----- ------------ ------------ -----------
Gross profit 154.0 146.2 315.3
Administrative expenses (122.4) (115.4) (235.0)
Share of net profit of joint
ventures 2.1 1.1 5.2
Other gains and losses 3.8 - -
------------------------------------- ----- ------------ ------------ -----------
Operating profit before amortisation
of intangible assets 37.5 31.9 85.5
------------------------------------- ----- ------------ ------------ -----------
Amortisation of intangible assets (0.8) (0.3) (1.0)
------------------------------------- ----- ------------ ------------ -----------
Operating profit 36.7 31.6 84.5
Finance income 0.9 1.2 2.0
Finance costs (2.1) (2.9) (5.9)
------------------------------------- ----- ------------ ------------ -----------
Profit before tax 35.5 29.9 80.6
Tax (7.2) (5.4) (13.8)
------------------------------------- ----- ------------ ------------ -----------
Profit for the period 28.3 24.5 66.8
------------------------------------- ----- ------------ ------------ -----------
Attributable to:
Owners of the Company 28.3 24.5 66.8
------------------------------------- ----- ------------ ------------ -----------
Earnings per share
Basic 5 62.9p 55.2p 149.8p
Diluted 5 60.3p 54.1p 142.1p
------------------------------------- ----- ------------ ------------ -----------
There were no discontinued operations in either the current or
comparative periods.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2019
Six months Six months
to to Year ended
30 June 2019 30 June 2018 31 Dec 2018
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------------- ----- ------------ ------------ -----------
Profit for the period 28.3 24.5 66.8
Items that will not be reclassified
subsequently to profit or loss:
Actuarial loss arising on retirement
benefit asset 10 - (2.8) (2.8)
Deferred tax on retirement benefit
asset - 0.5 0.5
------------------------------------- ----- ------------ ------------ -----------
- (2.3) (2.3)
------------------------------------- ----- ------------ ------------ -----------
Items that may be reclassified
subsequently to profit or loss:
Foreign exchange movement on
translation of overseas operation (0.1) 0.1 0.2
Reclassification from cash flow
hedges to the income statement - (0.5) (0.5)
(0.1) (0.4) (0.3)
------------------------------------- ----- ------------ ------------ -----------
Other comprehensive expense (0.1) (2.7) (2.6)
------------------------------------- ----- ------------ ------------ -----------
Total comprehensive income 28.2 21.8 64.2
------------------------------------- ----- ------------ ------------ -----------
Attributable to:
Owners of the Company 28.2 21.8 64.2
------------------------------------- ----- ------------ ------------ -----------
Condensed consolidated balance sheet
At 30 June 2019
30 June 2019 30 June 2018 31 Dec 2018
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------- ----- ------------ ------------ -----------
Assets
Goodwill and other intangible
assets 216.8 215.5 216.4
Property, plant and equipment 71.7 57.3 62.6
Investment property 5.5 5.9 5.7
Investments in joint ventures 78.1 87.5 81.5
Other investments 1.3 1.3 1.3
Shared equity loan receivables 6 11.0 14.7 13.0
Retirement benefit asset 10 - 0.1 -
------------------------------- ----- ------------ ------------ -----------
Non-current assets 384.4 382.3 380.5
------------------------------- ----- ------------ ------------ -----------
Inventories 355.6 316.7 334.2
Contract assets 264.7 236.5 192.0
Trade and other receivables 7 250.9 252.3 233.2
Cash and cash equivalents 8 115.5 139.9 217.2
Current assets 986.7 945.4 976.6
------------------------------- ----- ------------ ------------ -----------
Total assets 1,371.1 1,327.7 1,357.1
------------------------------- ----- ------------ ------------ -----------
Liabilities
Contract liabilities (87.2) (98.0) (98.3)
Trade and other payables 9 (804.8) (777.9) (797.8)
Current tax liabilities (7.4) (7.7) (5.8)
Lease liabilities (11.6) (10.3) (11.2)
Borrowings 8 (1.6) (43.0) (10.2)
Current liabilities (912.6) (936.9) (923.3)
------------------------------- ----- ------------ ------------ -----------
Net current assets 74.1 8.5 53.3
------------------------------- ----- ------------ ------------ -----------
Trade and other payables (15.6) (10.1) (15.6)
Lease liabilities (44.1) (33.9) (35.7)
Deferred tax liabilities (12.2) (11.2) (12.0)
Provisions (26.2) (22.7) (23.9)
------------------------------- ----- ------------ ------------ -----------
Non-current liabilities (98.1) (77.9) (87.2)
------------------------------- ----- ------------ ------------ -----------
Total liabilities (1,010.7) (1,014.8) (1,010.5)
------------------------------- ----- ------------ ------------ -----------
Net assets 360.4 312.9 346.6
------------------------------- ----- ------------ ------------ -----------
Equity
Share capital 2.3 2.3 2.3
Share premium account 38.4 37.5 38.3
Other reserves (0.7) (0.7) (0.6)
Retained earnings 320.4 273.8 306.6
------------------------------- ----- ------------ ------------ -----------
Equity attributable to owners
of the Company 360.4 312.9 346.6
Total equity 360.4 312.9 346.6
------------------------------- ----- ------------ ------------ -----------
Condensed consolidated cash flow statement
For the six months ended 30 June 2019
Six months Six months
to to Year ended
30 June
2019 30 June 2018 31 Dec 2018
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------------------ ----- ----------- ------------ -----------
Operating activities
Operating profit 36.7 31.6 84.5
Adjusted for:
Amortisation of intangible assets 0.8 0.3 1.0
Share of net profit of equity
accounted joint ventures (2.1) (1.1) (5.2)
Depreciation 10.2 8.5 18.5
Share option expense 3.2 3.1 6.3
Other gains and losses (3.8) - -
Gain on disposal of property,
plant and equipment (0.1) (0.2) (0.2)
Revaluation of investment properties - - 0.2
Movement in fair value of shared
equity loan receivables 6 - (0.2) (0.5)
Disposals of investment properties 0.2 - -
Repayment of shared equity loan
receivables 6 2.0 1.1 3.1
Increase in provisions 2.3 1.7 2.9
Operating cash inflow before movements
in working capital 49.4 44.8 110.6
Increase in inventories (21.4) (31.7) (49.2)
Increase in contract assets (72.7) (59.1) (13.8)
Increase in receivables (18.0) (25.6) (7.2)
(Decrease)/increase in contract
liabilities (11.1) 39.7 40.7
Increase/(decrease) in payables 6.6 (18.1) 6.3
------------------------------------------ ----- ----------- ------------ -----------
Movements in working capital (116.6) (94.8) (23.2)
------------------------------------------ ----- ----------- ------------ -----------
Cash (outflow)/inflow from operations (67.2) (50.0) 87.4
------------------------------------------ ----- ----------- ------------ -----------
Income taxes paid (5.4) (6.6) (13.9)
------------------------------------------ ----- ----------- ------------ -----------
Net cash (outflow)/inflow from
operating activities (72.6) (56.6) 73.5
------------------------------------------ ----- ----------- ------------ -----------
Investing activities
Interest received 0.8 1.4 2.1
Dividend from joint ventures - - 1.5
Proceeds on disposal of property,
plant and equipment 0.4 0.3 0.4
Purchases of property, plant and
equipment (3.3) (1.5) (9.2)
Purchases of intangible fixed assets (1.2) - (1.6)
Net repayment/(advance) of loans
to joint ventures 5.5 (11.6) (3.0)
Proceeds on disposal of service
contracts in joint ventures 3.8 - -
Payment for the acquisition of
subsidiaries, joint ventures and
other businesses - (2.0) (2.0)
Payment for other investments - (0.2) (0.2)
Net cash inflow/(outflow) from
investing activities 6.0 (13.6) (12.0)
------------------------------------------ ----- ----------- ------------ -----------
Financing activities
Interest paid (1.4) (1.7) (3.6)
Dividends paid 4 (15.3) (12.9) (21.5)
Repayments of lease liabilities (7.5) (7.7) (13.5)
Proceeds from borrowings 8 - 15.2 0.3
Repayment of borrowings (8.6) - (17.9)
Proceeds on issue of share capital 0.1 3.8 4.6
Payments by the Trust to acquire
shares in the Company (3.6) (9.5) (16.1)
Proceeds on exercise of share options 1.2 1.7 2.2
------------------------------------------ ----- ----------- ------------ -----------
Net cash outflow from financing
activities (35.1) (11.1) (65.5)
------------------------------------------ ----- ----------- ------------ -----------
Net decrease in cash and cash equivalents (101.7) (81.3) (4.0)
Cash and cash equivalents at the
beginning of the period 217.2 221.2 221.2
------------------------------------------ ----- ----------- ------------ -----------
Cash and cash equivalents at the
end of the period 8 115.5 139.9 217.2
------------------------------------------ ----- ----------- ------------ -----------
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2019
Share Share premium Other Retained Total
capital account reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ------------- --------- --------- -------
1 January 2019 2.3 38.3 (0.6) 306.6 346.6
------------------------------- -------- ------------- --------- --------- -------
Total comprehensive income - - (0.1) 28.3 28.2
Share option expense - - - 3.2 3.2
Issue of shares at a premium - 0.1 - - 0.1
Exercise of share options - - - 1.2 1.2
Purchase of shares in
the Company by the Trust - - - (3.6) (3.6)
Dividends paid - - - (15.3) (15.3)
------------------------------- -------- ------------- --------- --------- -------
30 June 2019 (unaudited) 2.3 38.4 (0.7) 320.4 360.4
------------------------------- -------- ------------- --------- --------- -------
Share Share premium Other Retained Total
capital account reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ------------- --------- --------- -------
1 January 2018 2.2 33.8 (0.3) 269.2 304.9
Total comprehensive income - - (0.4) 22.2 21.8
Share option expense - - - 3.1 3.1
Issue of shares at a premium 0.1 3.7 - - 3.8
Exercise of share options - - - 1.7 1.7
Purchase of shares in
the Company by the Trust - - - (9.5) (9.5)
Dividends paid - - - (12.9) (12.9)
------------------------------- -------- ------------- --------- --------- -------
30 June 2018 (unaudited) 2.3 37.5 (0.7) 273.8 312.9
------------------------------- -------- ------------- --------- --------- -------
Share Share premium Other Retained Total
capital account reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ------------- --------- --------- -------
1 January 2018 2.2 33.8 (0.3) 269.2 304.9
Total comprehensive income - - (0.3) 64.5 64.2
Share option expense - - - 6.3 6.3
Tax relating to share
option expense - - - 2.0 2.0
Issue of shares at a premium 0.1 4.5 - - 4.6
Exercise of share options - - - 2.2 2.2
Purchase of shares in
the Company by the Trust - - - (16.1) (16.1)
Dividends paid - - - (21.5) (21.5)
------------------------------- -------- ------------- --------- --------- -------
31 December 2018 (audited) 2.3 38.3 (0.6) 306.6 346.6
------------------------------- -------- ------------- --------- --------- -------
Other reserves
Other reserves include:
-- Capital redemption reserve of GBP0.6m (30 June 2018: GBP0.6m,
31 December 2018: GBP0.6m) which was created on the redemption of
preference shares in 2003.
-- Hedging reserve of (GBP0.8m) (30 June 2018: (GBP0.8m), 31
December 2018: (GBP0.8m)) arising under cash flow hedge accounting.
Movements on the effective portion of hedges are recognised through
the hedging reserve, whilst any ineffectiveness is taken to the
income statement.
-- Translation reserve of (GBP0.5m) (30 June 2018: (GBP0.5m), 31
December 2018: (GBP0.4m)) arising on the translation of overseas
operations into the Group's functional currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc
purchased in the market and held by the Morgan Sindall Employee
Benefit Trust to satisfy options under the Group's share incentive
schemes. The number of shares held by the Trust at 30 June 2019 was
298,932 (30 June 2018: 339,627, 31 December 2018: 770,599) with a
cost of GBP1.5m (30 June 2018: GBP4.7m, 31 December 2018:
GBP7.7m).
Notes to the condensed consolidated financial statements
For the six months ended 30 June 2019
1 Basis of preparation
General information
The financial information for the year ended 31 December 2018
set out in this half year report does not constitute the Company's
statutory accounts as defined by section 434 of the Companies Act
2006. A copy of the statutory accounts for that year was delivered
to the Registrar of Companies. The auditor reported on those
accounts: their report was unqualified, did not draw attention to
any matters by way of emphasis without qualifying their report and
did not contain a statement under s498(2) or (3) of the Companies
Act 2006. This half year report has not been audited or reviewed by
the auditor pursuant to the Auditing Practices Board guidance on
the Review of Interim Financial Information. Figures as at 30 June
2019 and 2018 and for the six months ended 30 June 2019 and 2018
are therefore unaudited.
Basis of preparation
The annual financial statements of Morgan Sindall Group plc are
prepared in accordance with IFRSs as adopted by the European Union.
The condensed consolidated financial statements included in this
half year report were prepared in accordance with IAS 34 'Interim
Financial Reporting'. While the financial information included in
this half year report was prepared in accordance with the
recognition and measurement criteria of International Financial
Reporting Standards ('IFRS'), this half year report does not itself
contain sufficient information to comply with IFRS.
Going concern
As at 30 June 2019, the Group had net cash of GBP113.9m and
total undrawn committed banking facilities of GBP180m which are in
place for greater than one year. The directors have reviewed the
Group's forecasts and projections, and have modelled certain
downside scenarios which show that the Group will have a sufficient
level of headroom within facility limits and covenants for the
foreseeable future. After making enquiries the directors have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the condensed consolidated financial statements.
Tax
A tax charge of GBP7.2m is shown for the six month period (six
months to 30 June 2018: GBP5.4m, year ended 31 December 2018:
GBP13.8m). This tax charge is recognised based upon the best
estimate of the average effective income tax rate on profit before
tax for the full financial year.
Changes in accounting policies
There have been no significant changes to accounting policies,
presentation or methods of preparation since the Group's latest
annual audited financial statements for the year ended 31 December
2018.
Seasonality
The Group's activities are generally not subject to significant
seasonal variation.
2 Revenue
An analysis of the Group's revenue which depicts the nature,
timing and uncertainty of the different revenue streams is as
follows:
Six months Six months Year ended
to to
30 June 2019 30 June 2018 31 Dec 2018
GBPm GBPm GBPm
-------------------------------- ------------ ------------ -----------
Construction and design 317.3 342.2 668.5
Infrastructure 362.4 319.6 674.2
-------------------------------- ------------ ------------ -----------
Construction and Infrastructure 679.7 661.8 1,342.7
Traditional fit out 330.5 371.0 714.9
Design and build 76.1 55.4 116.5
-------------------------------- ------------ ------------ -----------
Fit Out 406.6 426.4 831.4
Property Services 54.7 48.9 99.9
Contracting 131.9 144.5 296.6
Mixed tenure 105.6 86.8 222.3
-------------------------------- ------------ ------------ -----------
Partnership Housing 237.5 231.3 518.9
Urban Regeneration 44.2 61.6 185.3
Investments 2.4 3.3 8.8
Eliminations (3.7) (10.7) (15.5)
-------------------------------- ------------ ------------ -----------
Total revenue 1,421.4 1,422.6 2,971.5
-------------------------------- ------------ ------------ -----------
3 Business segments
For management purposes, the Group is organised into six
operating divisions: Construction & Infrastructure, Fit Out,
Property Services, Partnership Housing, Urban Regeneration and
Investments. The divisions' activities are as follows:
-- Construction & Infrastructure: provides infrastructure
services in the highways, rail, aviation, energy, water and nuclear
markets; and construction services in education, healthcare,
defence, commercial, industrial, leisure and retail. BakerHicks
offers a multidisciplinary design and engineering consultancy.
-- Fit Out: Overbury specialises in fit out and refurbishment in
commercial, central and local government offices, further education
and retail banking. Morgan Lovell provides design and build
services for the office sector.
-- Property Services: provides planned asset management and
responsive maintenance to social housing and the wider public
sector.
-- Partnership Housing: works in partnerships with local
authorities and housing associations. Activities include
mixed-tenure developments, building and developing homes for open
market sale and for social/affordable rent, design and build house
contracting and planned maintenance and refurbishment.
-- Urban Regeneration: works with landowners and public sector
partners to transform the urban landscape through the development
of multi-phase sites and mixed-use regeneration, including
residential, commercial, retail and leisure.
-- Investments: works to provide the Group with construction and
regeneration opportunities through various long-term strategic
partnerships to develop under-utilised public land across multiple
sites and generates development profits from such partnerships.
Group Activities represents costs and income arising from
corporate activities which cannot be meaningfully allocated to the
operating segments. These include the costs of the Group Board,
treasury management, corporate tax coordination, Group finance and
internal audit, insurance management, company secretarial services,
information technology services, interest revenue and interest
expense. The divisions are the basis on which the Group reports its
segmental information as presented below:
Six months to
30 June 2019
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Construction
& Fit Property Partnership Urban Group
Infrastructure Out Services Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
External
revenue 677.2 405.4 54.7 237.5 44.2 2.4 - - 1,421.4
Inter-segment
revenue 2.5 1.2 - - - - - (3.7) -
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Total revenue 679.7 406.6 54.7 237.5 44.2 2.4 - (3.7) 1,421.4
Operating
profit/(loss)
before
amortisation
of intangible
assets 13.9 16.4 1.6 6.4 8.3 (0.9) (8.2) - 37.5
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Amortisation
of intangible
assets - - (0.8) - - - - - (0.8)
Operating
profit/(loss) 13.9 16.4 0.8 6.4 8.3 (0.9) (8.2) - 36.7
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Six months to 30
June 2018
------------------------------ ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Construction
& Fit Property Partnership Urban Group
Infrastructure Out Services Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
External
revenue 651.1 426.4 48.9 231.3 61.6 3.3 - - 1,422.6
Inter-segment
revenue 10.7 - - - - - - (10.7) -
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Total revenue 661.8 426.4 48.9 231.3 61.6 3.3 - (10.7) 1,422.6
Operating
profit/(loss)
before
amortisation
of intangible
assets 11.3 18.8 0.5 4.6 6.1 (1.1) (8.3) - 31.9
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Amortisation
of intangible
assets - - (0.3) - - - - - (0.3)
Operating
profit/(loss) 11.3 18.8 0.2 4.6 6.1 (1.1) (8.3) - 31.6
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Year ended 31 December
2018
------------------------------ ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Construction
& Fit Property Partnership Urban Group
Infrastructure Out Services Housing Regeneration Investments Activities Eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
External
revenue 1,329.8 830.0 99.9 517.7 185.3 8.8 - - 2,971.5
Inter-segment
revenue 12.9 1.4 - 1.2 - - - (15.5) -
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Total revenue 1,342.7 831.4 99.9 518.9 185.3 8.8 - (15.5) 2,971.5
Operating
profit/(loss)
before
amortisation
of intangible
assets 27.0 43.8 2.0 12.2 19.6 (2.4) (16.7) - 85.5
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
Amortisation
of intangible
assets - - (1.0) - - - - - (1.0)
Operating
profit/(loss) 27.0 43.8 1.0 12.2 19.6 (2.4) (16.7) - 84.5
-------------- -------------- ----- -------- ----------- ------------ ----------- ---------- ------------ -------
During the period ended 30 June 2019, the period ended 30 June
2018 and the year ended 31 December 2018, inter-segment sales were
charged at prevailing market prices and significantly all of the
Group's operations were carried out in the UK.
4 Dividends
Amounts recognised as distributions to equity
holders in the period:
--------------------------------------------------- ------------ -----------
Six months Six months
to to Year ended
30 June 2019 30 June 2018 31 Dec 2018
GBPm GBPm GBPm
------------------------------------- ------------ ------------ -----------
Final dividend for the year ended 31
December 2018 of 34.0p per share 15.3 - -
Final dividend for the year ended 31
December 2017 of 29.0p per share - 12.9 12.9
Interim dividend for the year ended
31 December 2018 of 19.0p per share - - 8.6
------------------------------------- ------------ ------------ -----------
15.3 12.9 21.5
------------------------------------- ------------ ------------ -----------
The proposed interim dividend of 21.0p per share was approved by
the Board on 7 August 2019 and will be paid on 28 October 2019 to
shareholders on the register on 11 October 2019. The ex-dividend
date is 10 October 2019.
5 Earnings per share
Six months Six months
to to Year ended
30 June 2019 30 June 2018 31 Dec 2018
GBPm GBPm GBPm
----------------------------------- ------------ ------------ -----------
Profit attributable to the owners
of the Company 28.3 24.5 66.8
Adjustments:
Amortisation of intangible
assets net of tax 0.6 0.2 0.9
Adjusted earnings 28.9 24.7 67.7
------------------------------------ ------------ ------------ -----------
Basic weighted average ordinary
shares (m) 45.0 44.4 44.6
Dilutive effect of share options
and conditional shares not vested
(m) 1.9 0.9 2.4
------------------------------------ ------------ ------------ -----------
Diluted weighted average ordinary
shares (m) 46.9 45.3 47.0
------------------------------------ ------------ ------------ -----------
Basic earnings per share 62.9p 55.2p 149.8p
Diluted earnings per share 60.3p 54.1p 142.1p
Adjusted earnings per share 64.2p 55.6p 151.8p
Diluted adjusted earnings per
share 61.6p 54.5p 144.0p
------------------------------------ ------------ ------------ -----------
The average market value of the Company's shares for the purpose
of calculating the dilutive effect of share options and long-term
incentive plan shares was based on quoted market prices for the
period that the options were outstanding. The weighted average
share price for the period was GBP12.31 (30 June 2018: GBP13.37, 31
December 2018: GBP13.20).
A total of 3,305,885 share options that could potentially dilute
earnings per share in the future were excluded from the above
calculations because they were anti-dilutive at 30 June 2019 (30
June 2018: 1,072,901, 31 December 2018: 1,016,473).
6 Shared equity loan receivables
30 June 2019 30 June 2018 31 Dec 2018
GBPm GBPm GBPm
------------------------------------ ------------ ------------ -----------
1 January 13.0 15.6 15.6
Net change in fair value recognised
in the income statement - 0.2 0.5
Repayments by borrowers (2.0) (1.1) (3.1)
------------------------------------- ------------ ------------ -----------
End of period 11.0 14.7 13.0
------------------------------------- ------------ ------------ -----------
Basis of valuation and assumptions made
There is no directly observable fair value for individual loans
arising from the sale of properties under the scheme, and therefore
the Group has developed a model for determining the fair value of
the portfolio of loans based on national property prices, expected
property price increases, expected loan defaults and a discount
factor which reflects the interest rate expected on an instrument
of similar risk and duration in the market. Details of the key
assumptions made in this valuation are as follows:
30 June 2019 30 June 2018 31 Dec 2018
---------------------------------- ------------ ------------ -----------
Assumption
Period over which shared equity
loan receivables are discounted:
First Buy and Home Buy schemes 20 years 20 years 20 years
Other schemes 9 years 9 years 9 years
Nominal discount rate 5.3% 5.3% 5.3%
Weighted average nominal annual
property price increase 2.5% 2.4% 2.5%
Forecast default rate 11.3% 6.8% 7.0%
Number of loans under the shared
equity scheme outstanding at the
period end 338 449 396
----------------------------------- ------------ ------------ -----------
Sensitivity analysis
At 30 June 2019, if the nominal discount rate had been 100bps
higher at 6.3% and all other variables were held constant, the fair
value of the shared equity loan receivables would decrease by
GBP0.1m with a corresponding reduction in both the result for the
period and equity (excluding the effects of tax).
At 30 June 2019, if the period over which the shared equity loan
receivables (excluding those relating to the First Buy and Home Buy
schemes) are discounted had been 10 years and all other variables
were held constant, the fair value of the shared equity loan
receivables would decrease by GBP0.1m with a corresponding
reduction in both the result for the period and equity (excluding
the effects of tax).
7 Trade and other receivables
30 June 2019 30 June 2018 31 Dec 2018
GBPm GBPm GBPm
------------------------------- ------------ ------------ -----------
Trade receivables 220.5 223.9 207.6
Amounts owed by joint ventures 1.5 1.3 3.5
Prepayments 19.0 18.2 12.5
Other receivables 9.9 8.9 9.6
-------------------------------- ------------ ------------ -----------
250.9 252.3 233.2
------------------------------- ------------ ------------ -----------
8 Net cash
30 June 2019 30 June 2018 31 Dec 2018
GBPm GBPm GBPm
------------------------------- ------------ ------------ -----------
Cash and cash equivalents 115.5 139.9 217.2
Non-recourse project financing
due in less than one year - (41.5) (8.6)
Borrowings due in less than
one year (1.6) (1.5) (1.6)
Net cash 113.9 96.9 207.0
-------------------------------- ------------ ------------ -----------
Included within cash and cash equivalents is GBP42.6m which is
the Group's share of cash held within jointly controlled operations
(30 June 2018: GBP39.8m, 31 December 2018: GBP45.0m), including
GBP6.1m held for future payment to designated suppliers (30 June
2018: GBP7.8m, 31 December 2018: GBP10.6m).
9 Trade and other payables
30 June
30 June 2019 2018 31 Dec 2018
GBPm GBPm GBPm
------------------------------- ------------ ------- -----------
Trade payables 210.7 201.9 174.7
Amounts owed to joint ventures 0.4 0.2 0.4
Other tax and social security 15.4 23.5 23.3
Accrued expenses 561.7 531.9 581.7
Deferred income 0.8 2.7 6.8
Other payables 15.8 17.7 10.9
-------------------------------- ------------ ------- -----------
804.8 777.9 797.8
------------------------------- ------------ ------- -----------
10 Retirement benefit asset
The Morgan Sindall Retirement Benefits Plan ('the Retirement
Plan') was established on 31 May 1995 and currently operates on
defined contribution principles for employees of the Group. The
Retirement Plan also includes a defined benefit section comprising
liabilities and transfers of funds representing the accrued benefit
rights of active and deferred members and pensioners of pension
plans of companies which are now part of the Group. These include
salary related benefits for members in respect of benefits accrued
before 31 May 1995 (and benefits transferred in from The Snape
Group Limited Retirement Benefits Scheme accrued up to 1 August
1997). No further defined benefit membership rights can accrue
after those dates. The scheme duration is an indicator of the
weighted-average time until benefit payments are expected to be
made. For the scheme as a whole, the duration is around 15
years.
On 23 May 2018 the Trustees of the Retirement Plan completed a
buy-in transaction with Aviva to insure the benefits of the Defined
Benefit members. The buy-in policy is an asset of the Plan that
provides payments that are an exact match to the pension payments
made to the Defined Benefit members covered by the policy. The
insurance policy was initially recognised as an asset at an amount
equal to its cost. It was then immediately remeasured to its fair
value in accordance with IAS 19, giving rise to an actuarial loss
of GBP2.8m, leaving no accounting surplus/deficit.
11 Contingent liabilities
Group banking facilities and surety bond facilities are
supported by cross guarantees given by the Company and
participating companies in the Group. There are contingent
liabilities in respect of surety bond facilities, guarantees and
claims under contracting and other arrangements, including joint
arrangements and joint ventures entered into in the normal course
of business.
12 Subsequent events
There were no subsequent events that affected the financial
statements of the Group.
The directors confirm that to the best of their knowledge:
-- the unaudited condensed consolidated financial statements,
which have been prepared in accordance with IAS 34 'Interim
Financial Reporting' as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Group as required by DTR 4.2.4R;
-- the half year report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
-- the half year report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein)
By order of the Board
John Morgan Steve Crummett
Chief Executive Finance Director
7 August 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFSRTAIRIIA
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August 07, 2019 02:00 ET (06:00 GMT)
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