Half year results to 30 June 2015 Morgan Sindall Group plc 4 August 2015
Agenda • Introduction John Morgan • HY 2015 Financial and Operational Review Steve Crummett • Update - Construction and Fit Out John Morgan • Outlook John Morgan 2
Introduction • HY results show progress being made Within Regeneration Activities Within Construction Activities good performance from Urban Regeneration excellent performance from Fit Out mixed-tenure Affordable Housing and challenges continue in Construction & Investments in line with expectations Infrastructure in London & South East cash investment continues into Regeneration improved performance from response activities maintenance • Interim dividend of 12p per share - level with last year 3
HY 2015 Financial and Operational Review Steve Crummett 4
Summary income statement 1 £m HY 2015 HY 2014 % change Revenue 1,152 998 +15% Operating profit 1 15.5 15.2 +2% Operating margin 1 1.3% 1.5% -20bps Profit before tax 1 13.3 14.2 -6% Earnings per share 1 24.5p 28.6p -14% Interim dividend per share 12.0p 12.0p - 1 Before intangible amortisation of £1.1m and exceptional operating items of £39.4m (HY 2014: intangible amortisation of £1.2m) 5
Divisional performance 1 £m Revenue Operating Operating Profit 1 Margin 1 HY 2015 % HY 2015 % HY 2015 Construction & Infrastructure 623 +10% 0.3 -95% - -100bps Fit Out 299 +53% 10.4 +89% 3.5% +70bps Affordable Housing 202 +5% 3.0 +11% 1.5% +10bps Urban Regeneration 26 -38% 5.0 +43% 19.2% n/a Investments 9 n/a 0.4 n/a 4.4% n/a Central/Elims (7) (3.6) Total 1,152 +15% 15.5 +2% 1.3% -20bps 1 Before intangible amortisation of £1.1m and exceptional operating items of £39.4m (HY 2014: intangible amortisation of £1.2m) 6
Exceptional operating item • Circumstances first announced in May, estimated at the time at approximately £35m • Exceptional charge of £39.4m taken in the period relates to impairment of receivables on two construction contracts both contracts transferred as part of the acquisition from Amec in 2007 both with the MOD as client and based around Faslane Naval Base, West Scotland • Quantum of the charge reflects... ‘in principle’ commercial settlement achieved on one contract revised assessment of recoverability on the other • Charge is non-cash in nature • As a result, HY statutory loss before tax of £27.2m 7
Operating cash flow £m 15.5 (1.4) (4.1) (62.7) (53.3) (56.1) 0 (0.6) (1.5) (1.3) Other 3 Non-cash Net capex Working Net Tax Operating Operating Free cash adjmts 2 & finance Capital interest Profit 1 cash flow flow leases (non JV) 1 Before intangible amortisation of £1.1m and exceptional operating items of £39.4m 2 ‘Non - cash adjustments’ include depreciation, share option charge, shared equity valuation movements, share of JV profits and ne t non-cash provision movements 3 ‘Other’ includes JV dividends and interest income, cash provision movements, shared equity redemptions and additional pension contributions 8
Working capital 1 Total Working Movement in Period Inventory Debtors Creditors Capital £m £m £m £m Total 54.2 14.1 -5.6 62.7 • Excludes the impact of exceptional operating item • Investment of £54.2m in inventory in Regeneration activities of Affordable Housing mixed-tenure and Urban Regeneration • Reflects an overall decrease in debtor days and lower creditor days 1 Defined as: Inventories plus trade and other receivables, less trade and other payables (excl deferred consideration, accrued interest and capitalised arrangement fees). Excludes exceptional operating items (£39.4m) 9
Net cash/debt movements • Average net debt of £35m £m • Continued investment in Regeneration activities in H2 55.7 (56.1) rate of investment faster than previously anticipated as schemes accelerate average net debt for year expected to be in range of £50m- £60m (7.6) (6.6) ongoing bank facilities of £175m 0 (0.6) with main £140m facility expiring in September 2018 Opening Free cash Dividends Other Closing flow net cash net cash 10
Investment in Regeneration across the Group • Expected increase in capital employed across the Regeneration activities As at 30 June (£m) Affordable Total Urban Housing Mixed- Investments Regeneration Regeneration Tenure Total net land & regeneration WIP 224 123 100 1 Unsold completed units (excl JVs) 11 9 2 - Amounts invested in joint ventures 62 5 43 14 Shared equity loans and investment properties 30 30 - - Other working capital -45 -17 -28 - Non-recourse debt -19 - -19 - Deferred consideration -14 - -14 - Total net capital employed in Regeneration 249 150 84 15 As at 31 December 2014 192 123 49 20 11
Construction & Infrastructure £m HY 2015 HY 2014 % Revenue 623 567 +10% Operating profit 1 0.3 5.9 -95% Margin % -% 1.0% -100bps • Impacted by poor performance in London & South East construction activities main problem jobs now completed other older contracts working through to completion; taking longer than previously anticipated and expect some slippage into H2 • Other regions in construction now starting to perform well • Infrastructure (44% of revenue) tracking in line, with progress in Transport, Tunnelling and Utility Services • Order book down 8% reflects increased selectivity, downscaling of activities in London and transition to more 2-stage tenders • Lower returns expected to persist through H2 • Confidence remains that 2016 will see gradual reversion back to normalised margins 1 Before exceptional operating items of £39.4m (HY 2014: before exceptional operating items of nil) 12
Fit Out £m HY 2015 HY 2014 % Revenue 299 195 +53% Operating profit 1 10.4 5.5 +89% Margin % 3.5% 2.8% +70bps • Excellent performance with strong revenue growth of 53% • Margin up to 3.5% focus on operational delivery, customer and supply chain relationships supports the continuing improvement in margin • Growth shown across all regions and sectors commercial office market (82% of revenue) London region (73% of revenue) • Order book stands at a strong £201m down 17% but from a high year end position • Continued growth anticipated through H2, with primary focus on margin and profit growth through operational delivery 1 Adjusted 13
Affordable Housing £m HY 2015 HY 2014 % Revenue 202 193 +5% Operating profit 1 3.0 2.7 +11% Margin % 1.5% 1.4% +10bps • Regeneration mixed-tenure (22% of revenue) as expected, lower open market house completions in period (195 vs 233 in H1 prior year) construction completions to accelerate in Q3, with higher sales in Q4 and into 2016 capital employed of £150m, increase of £27m from year end regeneration and development pipeline of £761m • Construction & Services (78% of revenue) contracting revenue up 35%, but margins still tight and tendering competitive planned maintenance – steady flow of work maintained order book (incl response maintenance) up 9% to £732m 1 Before intangible amortisation of £0.3m (HY 2014: before intangible amortisation of £0.3m) 14
Affordable Housing – Response Maintenance £m HY 2015 HY 2014 Revenue 32 34 Operating loss 1 (0.8) (1.7) • Losses reduced as operational improvements start to show benefit operational efficiency, contract management, overhead management • 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 15
Urban Regeneration £m HY 2015 HY 2014 % Capital employed 1 at period end 83.5 39.0 +114% LTM average capital employed 1 58.3 51.0 +14% Revenue 26 42 -38% Operating profit 2 5.0 3.5 +43% • Strong performance, with increase in profit to £5.0m LTM ROCE 3 of 16% good performance through its JVs in Salford, Canning Town and Brentford • Capital employed at period end of £83.5m (after deducting £18.5m of non-recourse debt) • Regeneration & development pipeline up 1% to £2.2bn • Number of construction completions scheduled for Q4 • Continued investment demonstrates confidence in long term prospects 1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash/overdraft) less total liabilities (excluding corporation tax, deferred tax and inter-company financing). At period end, non-recourse debt was £18.5m (HY 2014: £18.3m) and deferred consideration was £13.8m (HY 2014: £18.0m). LTM non-recourse debt was £18.2m (HY 2014: £10.9m) and LTM deferred consideration was £13.6m (HY 2014: £18.0m). 2 Before intangible amortisation (£0.8m) (2014 HY: before intangible amortisation (£0.9m)) 3 Return on LTM average capital employed = (Adjusted LTM operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed). 16
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