Full year results to 31 December 2014 Morgan Sindall Group plc 19 February 2015
Agenda • Introduction John Morgan • 2014 Financial and Operational Review Steve Crummett • Regeneration – Update and Strategy John Morgan • Summary John Morgan 2
Introduction • Overall disappointing result for the Group in 2014 impacted by small number of construction contracts in Construction & Infrastructure • … But strong performances from Fit Out and Urban Regeneration • Quality of the order book improved • Balance sheet remains strong • Good strategic progress made in Regeneration well positioned for continued growth in profits and returns from Regeneration activities investment required in 2015 and 2016 to support current development programmes • Total dividend of 27p per share - level with last year 3
2014 Financial and Operational Review Steve Crummett 4
Summary income statement 1 £m FY 2014 FY 2013 % change Revenue 2,220 2,095 +6% Operating profit 1 28.9 33.6 -14% Operating margin 1 1.3% 1.6% -30bps Profit before tax 1 25.2 31.3 -19% Earnings per share 1 46.7p 60.9p -23% Dividend per share 27.0p 27.0p - 1 Before intangible amortisation (£2.4m) (FY 2013: intangible amortisation £2.7m, exceptional operating items £14.7m and deferred tax credit £2.5m) 5
Segmental analysis 1 £m Revenue Operating Operating Profit 1 Margin 1 FY14 % FY14 % FY14 Construction & Infrastructure 1,172 -5% 3.5 -72% 0.3% -70bps Fit Out 507 +19% 15.0 +38% 3.0% +40bps Affordable Housing 423 +11% 6.0 -30% 1.4% -90bps Urban Regeneration 113 +83% 10.0 +900% 8.9% n/a Investments 25 n/a 0.9 n/a 3.6% n/a Central/Elims (20) (6.5) Total 2,220 +6% 28.9 -14% 1.3% -30bps 1 Before intangible amortisation (£2.4m) (FY 2013: intangible amortisation (£2.7m) and exceptional operating items (£14.7m)) 6
Operating cash flow £m 28.9 (3.7) (6.8) (11.8) (4.2) 2.4 (4.7) (6.7) 0 (4.4) Non-cash Net capex Working Other 3 Net Tax Operating Operating Free cash adjmts 2 & finance Capital interest Profit 1 cash flow flow leases (non JV) 1 Before intangible amortisation (£2.4m) 2 Adjustments include depreciation, share option charge, shared equity valuation movements, elimination of JV profits, investment impairment and net non-cash provision movements 3 ‘Other’ includes JV dividends and interest income, JV gains on disposal, cash provisions utilised, sale of investment properties, shared equity redemptions and additional pension contributions 7
Net cash movements £m • 69.7 (6.7) Average net debt of £9m (11.5) 6.2 (2.0) • Main bank facilities renewed and 55.7 increased during July 2014 £140m ‘club’ facility, expiring in September 2018 additionally retain £30m of facilities maturing in 2016 excludes non-recourse facilities in 0 Urban Regeneration (£17m year end) Opening Free cash Dividends Disposals Other Closing flow of JVs and net cash net cash investmts • Facilities provide the headroom for future investments in Urban Regeneration and Affordable Housing (mixed-tenure) investment increased in Q4 2014 and will increase significantly in 2015 average net debt in 2015 anticipated to be in range c£40-£50m 8
Working capital & capital employed Total Working Capital Fixed Assets & As at 31 December 2014 Capital 1 employed 2 Other £m £m £m Construction & Infrastructure -117 14 -103 Fit Out -43 1 -42 Affordable Housing 57 36 93 Urban Regeneration 43 6 49 Investments 8 12 20 Group/Elims -3 -11 -14 Total -55 58 3 Total Working Movement in Year Inventory Debtors Creditors Capital £m £m £m £m Total 41.2 55.7 -85.1 11.8 • Investment of £41.2m in inventory mainly in Affordable Housing and Urban Regeneration • Over half debtor/creditor movement due to strong Fit Out Q4 excluding this, no material change to trade receivable/payable days 1 Defined as: Inventories plus trade and other receivables, less trade and other payables (excl deferred consideration, accrued interest and capitalised arrangement fees) 2 Defined as: Total assets (excl goodwill, intangible assets and cash) less total liabilities (excl corporation and deferred tax) 9
Construction & Infrastructure £m FY 2014 FY 2013 % Revenue 1,172 1,234 -5% Operating profit 1 3.5 12.7 -72% Margin % 0.3% 1.0% -70bps • Operating margin reduced to 0.3% • Impacted by poor performance in certain of the Construction activities (55% of revenue) small number of projects in London and the South escalation in costs and forecast costs to complete in H2 all due to complete within H1 2015 management changes made to enhance skills and reinforce disciplines in bid selection and procurement • Infrastructure (45% of revenue) performed well, with progress made on key transport frameworks and tunnelling projects • Lower returns and challenges expected to persist through at least H1 2015 as older construction contracts work through to completion 1 Adjusted (FY 2013: before exceptional operating items) 10
Construction & Infrastructure • General market improving through the year. Good level of work now being won at required margins Order book • Order book up 3% to £1,537m £m • Proportion of orders gained through competitive single £1,537m stage procurement vs ‘other procurement types’ more £1,499m favourable 85% only 15% of order book by value is now from 62% competitive single stage procurement compared to 38% last year in London, only 5% of order book (£7m) gained through competitive single stage process Work secured through frameworks, two stage tenders, negotiated and PFI-type 38% work 15% Work secured through competitive fixed price procurement FY 13 FY 14 11
Fit Out £m FY 2014 FY 2013 % Revenue 507 427 +19% Operating profit 1 15.0 10.9 +38% Margin % 3.0% 2.6% +40bps Order book • Strong performance, particularly in H2 £m • £241m Margin growth supported by improved operational delivery focus on customer and supply chain relationships • Commercial office market remains core (74% revenue), as does London (67% of revenue) £142m all markets and regions have shown growth • Order book up 70% to £241m, a record high • Continued growth anticipated through 2015, with primary focus on margin and profit growth through operational delivery FY 13 FY 14 1 Adjusted 12
Affordable Housing £m FY 2014 FY 2013 % Revenue 423 381 +11% Operating profit 1 6.0 8.6 -30% Margin % 1.4% 2.3% -90bps • Activities split into : Regeneration (mixed-tenure) and Construction & Services (contracting, planned maintenance, response maintenance) delivers a full range of housing solutions constructed nearly 2,000 housing units across all its activities • Regeneration mixed-tenure (27% of revenue) 475 open market house completions, down 10% - supply constrained additionally approx 300 units constructed under contract directly to housing association • Construction & Services (73% of revenue) contracting revenue up 51% (c1,150 units), but margins squeezed planned maintenance – steady flow of work as investment made in housing stock 1 Adjusted 13
Affordable Housing – Response Maintenance £m FY 2014 FY 2013 Revenue 61.0 67.5 Operating loss (3.5) (1.2) • Losses through a combination of operational delivery inefficiencies, insufficient volume and ageing business systems • Significant addressable market in response maintenance plus opportunity to widen service offering eg property and other FM services across Group divisions business re-branded as Morgan Sindall Property Services • New management team recruited externally and now in place for 6 months • Investment of c£2m in business systems over 18 months, with initial ‘go live’ due in April • Challenge is winning work at acceptable margins to drive critical mass • Loss £1m-£2m expected in 2015; minimum of break-even by 2016 1 Adjusted 14
Affordable Housing • Construction & Services order book up 16% Order book £m of which 53% is Response Maintenance Construction & Services • Regeneration & development pipeline up 8% to £673m £770m £581m investment in mixed-tenure to increase by c£20m-£25m in 2015, to develop the regeneration pipeline and deliver profits from 2016 onwards • At divisional level, margin and profit growth expected in 2015, but constrained by number of completed units available for sale £355m Response Maintenance FY 13 FY 14 15
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