Analyst Presentation 2 December 2009
November IMS Reminder Fit Out Revenue likely to reduce by more than a third YOY Market demand fallen by more High level of tendering activity currently Order book consistent with start of year Construction Performing strongly Appointed preferred bidder for Tayside Mental Health PFI (£100m) and Hull BSF project (£200m) Order book down on start of year but will improve with financial close of projects above Infrastructure Services Market reasonably strong Appointed preferred bidder for Central Networks utilities framework (£500m over 10 years) Progressing number of key tunnelling and utilities bids Order book in line with start of year but should improve by year end Affordable Housing Contracting business performing well Improvement in open market housing volume continues Order book down slightly on start of year Urban Regeneration Market subdued Should make small contribution in 2009 Continues to progress its major regeneration schemes 2
November IMS Reminder Spread of activities with market leading positions in all of our chosen sectors providing resilience Increased capability to deliver projects of greater scale and complexity leading to a larger preferred bidder pipeline Current order book £3.4bn (v £3.7bn at start of year) Preferred bidder pipeline £900m: all added 2H09 Responding to challenging conditions: annualised cost savings of £35m since beginning of 2008 Financially strong Cash positive £100m of financing in place to mid 2012 if required Minimal pension deficit On track to meet management’s 2009 expectations 3
Muse – Earnings Before Interest and Tax 35,000 £’000 30,000 25,000 20,000 15,000 10,000 5,000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Return subdued in short term Longer term returns over cycle Average return on capital employed 22% (1997 to 2008) Capital employed currently £70m 4
Morgan Sindall Investments Ernie Battey 5
Morgan Sindall Investments Ernie Battey Richard Dixon Andrew Livingston Nigel Badham Mark Stevens Nick Gyring- Commercial Director Finance Director Bid Director Head of Project Nielsen Finance Business Development Manager Allister Wood Andrew Savege Senior Commercial Senior Development Director Manager 6
Morgan Sindall Investments ‘Enabler of infrastructure and regeneration activity for the Group’ Established in 2000 Core “integrated” offering Project development Long-term investors and developers of primary assets Investment & project finance Public sector client focus Property development Asset & Supply chain management Target areas of activity Enhancing Group capabilities PPP PFI Morgan Ashurst Project Finance Lovell Partnerships Property & Regeneration Morgan Est Fit Out MUSE 7
PPP & PFI Projects Overview ‘Projects with a development value in excess of £600 million’ Core Markets Projects Stage Partner Health & Social Care – Barnsley NHS LIFT – Operational Morgan Ashurst – Camden & Islington NHS LIFT – Operational – Doncaster NHS LIFT – Operational – Solent NHS LIFT – Operational – Bury Tameside & Glossop NHS LIFT – Operational – PMP Portfolio – Operational Emergency Services – Lancashire Fire Stations PFI – Operational Morgan Ashurst – Dorset Emergency Services – In construction Partnership Initiative (DESPI) Education – New North Community School Islington – Operational Morgan Ashurst Leisure – Basildon Sporting Village DBOM – In construction Morgan Ashurst Regeneration – HRA Pathfinder 1 Miles Platting PFI – In construction Lovell Partnerships – Wigan Joint Services Centre PFI – In construction Morgan Ashurst Infrastructure – Newport South Distributor Road PFI – Operational Morgan Est – A92 Dundee to Abroath Road PFI – Operational 8
PPP & PFI Bidding Activity ‘Projects in development with value in excess of £1.3 billion’ Core Markets Projects Stage Value Partner Health & – Tayside Mental Health – 1 of 1 – £95m Morgan Ashurst Social Care – North Tyneside Extra Care PFI – 1 of 3 – £100m – NHS LIFT (Framework) – 1 of 1 – £40m Education – Hull BSF – 1 of 1 – £360m Morgan Ashurst – Blackpool BSF – 1 of 2 – £140m – Portsmouth BSF – 1 of 2 – £180m Regeneration – Wickford Town Centre Project PPP – 1 of 1 – £160m Lovell Partnerships – Bournemouth Town Centre PPP – 1 of 6 – £340m Morgan Ashurst 9
Market Outlook ‘Significant role for Private Finance in Public Sector infrastructure markets’ 2010 2012 2013 2014 2015 2016 2018 2019 2020 2011 2017 VALUE £2bn Forth Road Crossing VALUE £16bn Crossrail VALUE £9bn Olympics VALUE £4bn Defence Estates Upgrade Programme VALUE £55bn Building Schools for the Future VALUE £40bn Nuclear Programme VALUE £19bn Social Housing VALUE £25bn Health 10
PPP & PFI Sector Development ‘Diversified skill base to accommodate Public Sector procurement strategy’ Core Markets Drivers Market Potential Partner Health & Social Care – Express LIFT – £2bn+ Morgan Ashurst – Scottish HUB – Third Party Development (3PD) – Care Homes and Mental Health Emergency Services – Fire & Rescue Services Round 6 – £600m+ Morgan Ashurst – Police PFI Education – Building Schools for the Future – £3bn+ annually Morgan Ashurst (BSF) Regeneration – Affordable Housing PPP/PFI – £3bn+ annually Lovell Partnerships Round 6 (£1.9bn) – Public sector accommodation financed though enabling assets Infrastructure – Roads & Bridges – £1.4bn+ annually Morgan Est – Waste Source: HM Treasury, Partnerships for Schools (PfS), Department for Communities and Local Government, Transport for Scotland, MSIL research 11
Public Private Partnerships Project Profile ‘Annuity Income and Long-term value creation’ Typical PPP Accommodation Project (Assumes 100% investment & 100% construction) 2036 2007 2012 2017 2022 2027 2032 Net investment Value created Cumulative Investment Cashflow Cumulative Construction O'Head & Profit Group Cumulative Cashflow 12
Investment Portfolio ‘Growth Opportunity from £36m today’ £90m £80m £70m £60m £50m £40m £30m £20m £10m £0m 2009 2010 2008 2011 2012 Total value – incl PB Value created Total value – closed only Total Committed Total invested 13
Challenges / Opportunities Change in Government policy endorsement of PFI Potential liquidity constraints in senior debt markets Increasingly onerous bank guarantees, covenants and terms Impact of falling asset values on project affordability Potential reduction in capital expenditure ‘Political change is the key short term uncertainty in the PPP/PFI market’ 14
Potential change of Government policy in 2010 ‘Private finance a key driver of Public Sector Infrastructure investment’ Parliamentary general election by 3 June 2010 Budget deficit £175bn (12.4% of GDP) in 2009 – 2010? Considerable fiscal tightening to balance Public Sector finances Conservative PPP agenda Alternative models for involving the private sector in infrastructure investment ‘New’ PFI model with transparent accounting and ‘real’ risk transfer ‘Localism’ agenda drives devolution of decision making authority Reduced emphasis on role of quangos to deliver community outcomes Reduced public service favoured over increase in tax revenues PFI continues to constitute a small proportion of overall capital expenditure Private finance likely to remain robust in the medium term Flexible property & PPP development skill sets to meet contingencies 15
Funding Public Private Partnerships ‘Established relationships and track-record in the funding community’ Improving availability of debt financing Easing of margins at construction and operational stages Continued financial covenants and guarantees still required Growing risk appetite – albeit club deals still the norm Potential pressures on project affordability remain Limited impact overall on current bidding activity 16
Progress in 2009 ‘Basis for future growth’ Hull BSF – selected as preferred bidder Wickford Town Centre – selected as preferred development partner NHS LIFT – achieved five financial closes Tayside Mental Health PFI – selected preferred bidder Basildon Sporting Village – achieved financial close Wigan Joint Services Centre – achieved financial close Dorset Emergency Services Partnership Initiative – building completion, on time and budget, with a ‘delighted client’ 17
Hull Building Schools for the Future ‘Continued success in education PPP’ 3-way joint venture at equity level Construction services - Morgan Ashurst Development value £360m Long term regeneration programme with potential value of circa £2bn Educational facilities - 17 schools 18
Wickford Town Centre ‘Enhancing Morgan Sindall plc delivery capability’ £165m+ self financing development Housing – Lovell Partnerships opportunity Construction – Morgan Ashurst Phased residential development Infrastructure – Morgan Est Integrated Service Centre Improvements to the public realm 19
Health & Social Care ‘NHS LIFT is one of our core sectors’ Bid through CSPC Construction services - Morgan Ashurst 6 NHS LIFTs and 30 PMPi assets Other health PPP initiatives include: Express LIFT Total development value £168m Scottish Hubs 20
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