Half year results to 30 June 2013 Morgan Sindall Group plc - PowerPoint PPT Presentation

Half year results to 30 June 2013 Morgan Sindall Group plc Constructing & Regenerating 5 August 2013

Disclaimer Certain statements included or incorporated by reference in this presentation are forward-looking statements in respect of Morgan Sindall Group plc’s operations, performance, prospects and/or financial condition. These forward-looking statements speak only as at the date of this presentation. These statements concern, or may affect, future matters and include matters that are not facts. Such statements are based on current expectations and beliefs concerning future events and, by their nature, are subject to a number of known and unknown risks and uncertainties that could cause actual events, results or outcomes to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Such statements are also based on numerous assumptions regarding Morgan Sindall Group plc’s present and future strategy and the environment in which it operates, which may not be accurate. You are cautioned not to place undue reliance on these forward-looking statements. The information and opinions expressed in this presentation are subject to change without notice and neither the Company nor any other person assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained within this presentation, regardless of whether those statements are affected as a result of new information, future events or otherwise. 2

HY 2013 - Overview • Revenue up 2% and order book up 1% in difficult market conditions • Margins under pressure in all divisions • Good cash management with average debt levels showing improvement on 2012. Net cash of £40m at period end • Exceptional charge of £13.0m taken as provision against recoverability on a small number of older contracts. No cash outflow  Prudent commercial assessment does not compromise contractual entitlement • Interim dividend of 12p per share, level with last year 3

Financial Review Steve Crummett Finance Director 4

Headline adjusted 1 income statement £m HY 2013 HY 2012 % change Revenue 1,019 1,000 +2% Gross profit 1 82.6 92.7 -11% Gross margin 1 8.1% 9.3% -120bps Operating profit 1 16.2 20.8 -22% 1.6% 2.1% -50bps Operating margin 1 Net Interest (0.8) (0.5) -60% Profit before tax 1 15.4 20.3 -24% +48% Tax 1 (2.1) (4.0) Effective tax rate 14% 20% Profit after tax 1 13.3 16.3 -18% Adjusted earnings per share 1 31.5p 38.4p -18% 5 1 Before intangible amortisation (£1.4m) and exceptional operating items (£13.0m)

Segmental analysis 1 £m Revenue Operating Operating Profit 1 Margin 2 HY13 change HY13 change HY13 change Construction & 593 +2% 6.4 -25% 1.1% -40bps Infrastructure +6% -9% -40bps Fit Out 203 5.0 2.5% -8% -64% -220bps Affordable Housing 185 2.7 1.5% Urban Regeneration +48% -73% -530bps 34 0.4 1.2% - +254% n/a Investments 4 4.6 102% Central - - (2.9) -17% - - Total 1,019 +2% 16.2 -22% 1.6% -50bps 6 1 Before intangible amortisation (£1.4m) and exceptional operating items (£13.0m) 2 Operating margin, before intangible amortisation (£1.4m) and exceptional operating items (£13.0m)

Operating profit 1 – key movements 1.6 (3.3) 2 4.1 1.8 (11.6) 20.8 (0.3) 4.7 16.2 £m 7 1 Before intangible amortisation (£1.4m) and exceptional operating items (£13.0m) 2 Community Solutions Management Services Ltd and Community Solutions Partnership Services Ltd became subsidiaries from 20 July 2012. Excluding the impact of these acquisitions would decrease the reduction in share of JV profits by (£0.2m), increase the gross margin impact by £2.4m and increase the operating cost management by £2.5m

Exceptional operating items • £13.0m provision taken in period, shown as ‘exceptional’ • Relates to small number of older construction contracts • Based upon revised assessment of recoverability reflecting  Commercial assessment of alternative resolutions  Takes into account cost, time and risk of legal remedy • Does not compromise contractual entitlement • No cash outflow as a result • Statutory profit before tax of £1.0m (HY 2012: £18.8m) and basic eps of 5.4p (HY 2012: 35.8p) 8

Cash flow 1.6 • Operating cash flow of 16.2 (3.3) (£19m), a significant (30.9) improvement on prior 0.6 £ m year outflow of (£98m) (19.2) (21.1) 0 (2.2) 1.0 (0.9) (1.0) 9 1 Before intangible amortisation (£1.4m) and exceptional operating items (£13.0m) 2 Excludes exceptional operating items (£13.0m)

Net cash and debt reconciliation 1.6 50.4 (21.1) • Period end net cash £40m. • Average daily net debt of £32m, 39.7 16.8 an improvement on last year from Net cash £m £36m 4.5 (6.4) • Includes disposal of investments  Miles Platting PFI £8.2m (plus £0.2m deferred)  Access for Wigan £6.6m • £125m committed bank facilities  £110m expires in Sept 2015 0  £15m expires in May 2016 Average daily net debt of £32m 10 1 Includes proceeds from disposal of Access for Wigan and Miles Platting, repayment of loans by ISIS of £5.1m, net of additional loans into Hull Esteem £2.3m and HB Community Solutions £0.8m .

Balance Sheet FY HY £m HY 2013 2012 2012 • Reduction in Investments Intangible FA 221.8 223.2 225.1 driven by disposals Tangible FA 19.2 20.1 20.5 Investments (incl JVs) 64.4 73.9 70.8 • Net working capital 2 reduced Shared equity loan to (£28.0m) from (£23.6m) at 19.2 19.2 18.0 receivables HY 2012 Net working capital 2 (28.0) (55.2) (23.6)  Improvement driven by Current and deferred tax 2 (25.1) (24.2) (26.8) reduction in inventories Pension scheme (1.4) (1.5) (1.0)  Receivables/payables broadly level Net cash 39.7 50.4 (12.0) Other 1 (52.5) (56.6) (32.1) Net assets 2 257.3 249.3 238.9 Exceptional operating items (10.0) - - Net assets – reported 247.3 249.3 238.9 11 1 ‘ Other ’ includes provisions and finance lease liabilities 2 Excludes impact of exceptional operating items of £13.0m (£10.0m post tax). Reported working capital is (£41.0m)

Order book 1,000 • Group secured order book of £3,079m, up 1% from FY 2012 • 94% covered for FY 2013 (Construction & 322 Infrastructure fully covered) • Ongoing industry challenge to convert orders and volumes into acceptable returns £m • 322 Risk management of Terms & Conditions 322 critical 500 2015 2018 2020 2013 2014 2016 2017 2019 2021 + Affordable Housing C&I Fit Out Urban Regeneration 12 Note: excludes Regeneration pipeline

Strategic and Operational Review John Morgan Chief Executive 13

Strategic priorities and operational focus • Strategic focus on: • Complex construction and development schemes requiring an integrated ‘Group’ approach • Maximising returns from existing schemes - regeneration developments and construction frameworks • Pooling resources and capabilities from across the Group - leveraging size of Group more effectively • Operational and management focus on: • Cash management • Bid and contract selection • Margin improvement 14

Strategic developments Sellafield Infrastructure Strategic Alliance • Significant JV for C&I in important strategic market – up to £1.1bn to the JV • Mobilisation completed and projects commencing in H2 Woolwich, Royal Borough of Greenwich • £269m mixed-tenure regeneration scheme for Affordable Housing • Transforming three local authority estates into 1,500 homes in partnership with LB Greenwich National Grid – National Operating Centre • JV between Fit Out and C&I • Construction of two storey structure and internal fit out • Demonstrates the Group’s full service offering to key strategic customer 15

Strategic developments Civic and Cultural Quarter, Doncaster • Regeneration of Doncaster town centre led by Urban Regeneration. GDV £110m • Phase 2 to deliver new homes in conjunction with Affordable Housing Leyton Mount, Bournemouth (LABV) • Partnership between Investments and local council built on trusted relationships • LABV provides construction work for C&I over number of phases Sovereign Square, Leeds • Urban Regeneration-led Leeds city centre office development • Pre-let and fully forward funded • Construction by C&I 16

Construction & Infrastructure £m HY 2013 HY 2012 Change % Revenue 593 583 +2% Operating profit 1 6.4 8.5 -25% Margin % 1.1% 1.5% -40bps • Market remains highly competitive • Order book of £1,558m, up 3% from FY 2012 • Construction revenue (56% of division)  Regional variations - London/South East positive, North challenging • Infrastructure revenue (44% of division)  Driven by tunnelling  Sellafield ISA mobilisation 17 1 Adjusted, before intangible amortisation and exceptional operating items

Construction & Infrastructure Revenue by market - HY 2013 • 30% of revenue under framework agreements Other Commercial  Maximise returns from existing 11% 10% frameworks • Professional Services growth Water of 14%, albeit from low base 14% Education • Major market focus: 26%  Transport  Key target growth sectors in Rail, Road, Aviation  Strong presence in Water Transport Electricity 26% Health Energy 8% • Selective bidding to turn 3% 2% order book into profit 18