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Morgan Sindall Group PLC   -  MGNS   

Half-year Report

Released 07:00 07-Aug-2019

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) ENDED 30 JUNE 2019

 

 

 

HY 2019

HY 2018

Change

 Revenue

£1,421m

£1,423m

-

 Operating profit - adjusted1

£37.5m

£31.9m

+18%

 Profit before tax - adjusted1

£36.3m

£30.2m

+20%

 Earnings per share - adjusted1

64.2p

55.6p

+15%

 Period end net cash

£114m

£97m

+£17m

 Interim dividend per share

21.0p

19.0p

+11%

 

 

 

 

Operating profit - reported

£36.7m

£31.6m

+16%

Profit before tax - reported

£35.5m

£29.9m

+19%

Basic earnings per share - reported

62.9p

55.2p

+14%

 

'Adjusted' is defined as before intangible amortisation (£0.8m) (HY 2018: before intangible amortisation (£0.3m))

 

HY 2019 summary:

·    Strong first half performance reflecting significant strategic and operational progress made across the Group

Adjusted profit before tax up 20% to £36.3m

·    Continued balance sheet strength

Average daily net cash of £123m; period end net cash of £114m

·    High quality total future workload

Secured order book up 19% to £4.2bn; regeneration & development pipeline up 6% to £3.3bn

·    Interim dividend up 11% to 21p per share

·    Divisional highlights

Further margin improvement in Construction & Infrastructure; operating margin up to 2.0% (HY 2018: 1.7%), with operating profit up 23% to £13.9m

Fit Out performance as expected; operating profit lower at £16.4m (HY 2018: £18.8m), but operating margin still strong at 4.0%

Volume and efficiency gains in Property Services; operating margin increased to 2.9% (HY 2018: 1.0%) and operating profit of £1.6m (HY 2018: £0.5m)

Operational improvements in Partnership Housing; operating profit up 39% to £6.4m (HY 2018: £4.6m)

Good performance from Urban Regeneration; operating profit up 36% to £8.3m

(HY 2018: £6.1m) with strong and visible pipeline of developments

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

John Morgan

Steve Crummett

 

Instinctif Partners

Matthew Smallwood

James Gray

Rosie Driscoll

Tel: 020 7307 9200

 

 

 

Tel: 020 7457 2020

 

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 £3bn, 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 £0.8m (HY 2018: £0.3m). 

 

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 £1,421m (HY 2018: £1,423m), the adjusted operating profit was up 18% to £37.5m (HY 2018: £31.9m) 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 £0.5m lower at £1.2m (HY 2018: £1.7m) 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 £36.3m, up 20% (HY 2018: £30.2m). The statutory profit before tax was £35.5m, an increase of 19% (HY 2018: £29.9m).

 

The tax charge for the period was £7.2m, 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 £13.9m.  Fit Out performed as expected against the predicted backdrop of a general tightening in overall market conditions with profit 13% lower at £16.4m, 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 £1.6m (HY 2018: £0.5m).

 

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 £6.4m 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 £8.3m (HY 2018: £6.1m) and a return on capital employed of 19%. Investments made a loss of £0.9m (HY 2018: loss of £1.1m) 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 £7.5bn 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 £4.2bn, 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 £3.3bn, up 6% from the year end position.

 

The Group's balance sheet remains strong.  Net cash at the period end was £114m (HY 2018: £97m). The average daily net cash for the period was £123m (HY 2018: £113m).  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 £90m.

 

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 £180m 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

 

£m

Change

£m

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 £4,229m, an increase of 19% from the previous year end.  The divisional split is shown below.

 

 

HY 2019

FY 2018

Change

 

£m

£m

 

  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 £3,282m, up 6% on the previous year end.

 

 

 

HY 2019

£m

FY 2018

£m

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

 

£m

£m

 

  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 £679m was up 3% on the prior year (HY 2018: £662m). Split by activity, Construction (including Design) accounted for 47% of divisional revenue at £317m, which was down 7% compared to the prior year, while Infrastructure (53% of divisional revenue) increased 13% to £362m.

 

Operating profit increased to £13.9m, 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 £6.2m, up 7%.

 

Infrastructure delivered operating profit of £7.7m 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 £2,377m. Of this, the Construction order book of £577m 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 £1,800m.

 

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 £47m Teaching HUB and Sports Building for Liverpool John Moores University, two £18m new build primary schools for North Lanarkshire Council in Scotland and a new £28m art, design and architecture facility for the University of Huddersfield. In other sectors, ongoing projects include the £35m 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 £45m hotel and residential development for Investments' Slough Urban Renewal joint venture, a £30m project to deliver new academic offices for the Royal College of Physicians at Paddington Place in Liverpool and a £53m leisure centre for the London Borough of Hackney. In the period, Construction has also been appointed onto all four tendered lots on the £1bn SEWSCAP 3 framework as well as retaining its place on all three lots of the next generation of the £5.25bn Southern Construction Framework (SCF4). In addition, Construction also won a place on all three lots of the University of Oxford's £1.5bn 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 c£1.6bn over 20 years.  Of this, only £371m 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 £80m, 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

 

£m

£m

 

  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 £407m, while its operating profit of £16.4m 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 £464m, a decrease of 1% from the year end position of £470m and a reduction of 12% from the prior year position (HY 2018: £528m).

 

Of the secured order book, £331m (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 £320m 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 £30m-£35m 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

 

£m

£m

 

  Revenue

55

49

+12%

  Operating profit1 

1.6

0.5

+220%

  Operating margin1 

2.9%

1.0%

+190bps

 

Property Services performed well in the period, with revenue up 12% to £55m and a significant increase in operating profit, up to £1.6m (HY 2018: £0.5m).  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 £1.6m.  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 £962m, up 33% from the previous year end position, reflecting primarily the addition of the three contracts referred to above.

   

   before intangible amortisation of £0.8m (HY 2018: £0.3m)

 

 

Partnership Housing

 

 

 

 

 

 

 

 

HY 2019

HY 2018

Change

 

£m

£m

 

  Revenue

238

231

+3%

  Operating profit

6.4

4.6

+39%

  Operating margin

2.7%

2.0%

+70bps

  Average capital employed1 (last 12 months)

136.8

103.5

+£33.3m

  Capital employed1 at period end

155.6

118.2

+£37.4m

  ROCE2 (last 12 months)

10%

 

 

 

Revenue grew by 3% to £238m 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 £6.4m.  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 £106m (45% of divisional revenue). Contracting revenue (including planned maintenance and refurbishment) reduced 8% to £132m (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 £214k compared to the prior year average of £244k, 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 £1.1bn. This comprised of the mixed-tenure regeneration and development pipeline of £751m, up 6%, and the secured order book (including the contracting element of mixed-tenure) up 8% to £352m from the previous year end.

 

Key project wins in the period include a £80m, 335 unit development at Wymondham in Norfolk which will be developed in joint venture with Flagship Housing Group and a £25m, 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 £155.6m, an increase of £49.0m since the year end position (FY 2018: capital employed £106.6m) and an increase of £37.4m from the prior year position (HY 2018: capital employed £118.2m). The average capital employed for the last 12-month period was £136.8m resulting in an overall ROCE2 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 c£150m, 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

 

£m

£m

 

  Revenue

44

62

-29%

  Operating profit

8.3

6.1

+36%

  Average capital employed1(last 12 months)

105.3

102.1

+£3.2m

  Capital employed1 at period end

97.5

114.0

-£16.5m

  ROCE2 (last 12 months)

19%

 

 

 

Urban Regeneration delivered operating profit of £8.3m, 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 (ROCE2) 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 £44m, 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 £97.5m, which represented an increase of £8.1m from the year end position of £89.4m and a reduction of £16.5m over the prior year period end. Average capital employed for the last 12-month period was £105.3m, with an overall ROCE2 of 19%. Average capital employed is expected to be c£100m 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 (£2,112m) and committed order book (£84m), together totalling £2,196m 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 £1.3m.

 

 

Investments

 

 

 

 

 

 

 

 

HY 2019

HY 2018

Change

 

£m

£m

 

  Operating loss

(0.9)

(1.1)

n/a

 

Although Investments made an operating loss of £0.9m 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 £2.0m-£2.5m.

 

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 £1bn, further demonstrating the division's strategic importance to the Group.

 

Capital employed1 at the period end was £33.8m (HY 2018: £41.8m), a reduction of £3.4m from the year end position (FY 2018: £37.2m). Average capital employed for the last 12-month period was £37.8m (HY 2018: £36.3m) and it is anticipated that the average capital employed for the year will be c£40m.

 

The regeneration & development pipeline of £419m was 4% down on the year end position. However, only £113m 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 £1.2m, a £0.5m 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

 

£m

£m

£m

  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 £7.2m is shown for the period (HY 2018: £5.4m).

 

 

HY 2019

HY 2018

 

£m

£m

  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.

 

 

HY 2019

HY 2018

Change

£m

 

 

£m

£m

  Inventories

355.6

316.7

+38.9

  Trade & Other Receivables1

514.8

487.7

+27.1

  Trade & Other Payables2

(907.5)

(885.8)

-21.7

  Net working capital

(37.1)

(81.4)

+44.3

 

1 Adjusted to exclude capitalised arrangement fees of £0.8m (HY 2018: £1.1m)

2 Adjusted to exclude accrued interest payable of £0.1m (HY 2018: £0.2m)

 

 

4. Cash flow.  The operating cash flow for the 12 months to 30 June 2019 was an inflow of £49.7m and a free cash inflow of £34.4m. For the half year period to 30 June 2019, there was an operating cash outflow of £74.6m.   

 

 

HY 2019

HY 2018

Last 12

 

£m

£m

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 (£3.8m), provision movements (£2.3m), shared equity redemptions (£2.0m), disposal of investment properties (£0.2m) less profit from other gains and losses (£3.8m) and gain on disposals of property, plant & equipment (£0.1m)

 

2 The cash flow due to change in working capital for the 12 month period excludes £0.7m of non-cash movement relating to the unwind of discounting on land creditors  

 

 

5. Net cash.  Net cash at period end was £113.9m.

 

 

£m

  Net cash as at 1 January 2019

207.0

       Free cash flow (as above)

(81.0)

       Dividends

(15.3)

       Other1

3.2

  Net cash as at 30 June 2019

 

1 'Other' includes net loan repayments from JVs (£5.5m), proceeds from the exercise of share options (£1.2m) and proceeds from the issue of new shares (£0.1m) less the purchase of shares in the Company by the employee benefit trust (£3.6m)

 

6. Capital employed by strategic activity. An analysis of the capital employed in the Construction activities shows an increase of £61.4m since the prior period, split as follows:

 

Capital employed1 in Construction

HY 2019

£m

HY 2018

£m

Change

£m

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 £20.9m since the prior period, split as follows:

 

Capital employed1 in Regeneration

HY 2019

£m

HY 2018

£m

Change

£m

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 £33.8m (HY 2018: £41.8m).

 

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 to

Six months to

Year ended

 

 

30 June 2019

30 June 2018

31 Dec 2018

 

 

(unaudited)

(unaudited)

(audited)

 

Notes

£m

£m

£m

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 to

Six months to

Year ended

 

 

30 June 2019

30 June 2018

31 Dec 2018

 

 

(unaudited)

(unaudited)

(audited)

 

Notes

£m

£m

£m

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

£m

£m

£m

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 to

Six months to

Year ended

 

 

30 June 2019

30 June 2018

31 Dec 2018

 

 

(unaudited)

(unaudited)

(audited)

 

Notes

£m

£m

£m

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

capital

Share premium account

Other

reserves

Retained

earnings

Total

equity

 

£m

£m

£m

£m

£m

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

capital

Share premium account

Other

reserves

Retained earnings

Total

equity

 

£m

£m

£m

£m

£m

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

capital

Share premium account

Other

reserves

Retained earnings

Total

equity

 

£m

£m

£m

£m

£m

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 £0.6m (30 June 2018: £0.6m, 31 December 2018: £0.6m) which was created on the redemption of preference shares in 2003.

·      Hedging reserve of (£0.8m) (30 June 2018: (£0.8m), 31 December 2018: (£0.8m)) 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 (£0.5m) (30 June 2018: (£0.5m), 31 December 2018: (£0.4m)) 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 £1.5m (30 June 2018: £4.7m, 31 December 2018: £7.7m).

 

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 £113.9m and total undrawn committed banking facilities of £180m 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 £7.2m is shown for the six month period (six months to 30 June 2018: £5.4m, year ended 31 December 2018: £13.8m). 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 to

Six months to

Year ended

 

30 June 2019

30 June 2018

31 Dec 2018

 

£m

£m

£m

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 & Infrastructure

Fit Out

Property Services

Partnership Housing

Urban Regeneration

Investments

Group Activities

Eliminations

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

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 & Infrastructure

Fit Out

Property Services

Partnership Housing

Urban Regeneration

Investments

Group Activities

Eliminations

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

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 & Infrastructure

Fit Out

Property Services

Partnership Housing

Urban Regeneration

Investments

Group Activities

Eliminations

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

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 to

Six months to

Year ended

 

30 June 2019

30 June 2018

31 Dec 2018

 

£m

£m

£m

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 to

Six months to

Year ended

 

 

30 June 2019

30 June 2018

31 Dec 2018

 

 

£m

£m

£m

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 £12.31 (30 June 2018: £13.37, 31 December 2018: £13.20).

 

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

 

 

£m

£m

£m

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 £0.1m 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 £0.1m 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

 

 

£m

£m

£m

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

 

 

£m

£m

£m

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 £42.6m which is the Group's share of cash held within jointly controlled operations (30 June 2018: £39.8m, 31 December 2018: £45.0m), including £6.1m held for future payment to designated suppliers (30 June 2018: £7.8m, 31 December 2018: £10.6m).

 

9 Trade and other payables

 

 

 

30 June 2019

30 June 2018

31 Dec 2018

 

 

£m

£m

£m

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 £2.8m, 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


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Half-year Report - RNS