half year results to 30 june 2013 - morgan sindall group plc · sindall group plc’s present and...

Half year results to 30 June 2013

Morgan Sindall Group plc Constructing & Regenerating

5 August 2013

Disclaimer

2

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.

HY 2013 - Overview

3

• 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

Steve Crummett Finance Director

4

Financial Review

Headline adjusted1 income statement

5

£m HY 2013 HY 2012 % change

Revenue 1,019 1,000 +2%

Gross profit1

Gross margin1

82.6 8.1%

92.7 9.3%

-11% -120bps

Operating profit 1

Operating margin1

16.2 1.6%

20.8 2.1%

-22% -50bps

Net Interest (0.8) (0.5) -60%

Profit before tax 1 15.4 20.3 -24%

Tax1

Effective tax rate

(2.1) 14%

(4.0) 20%

+48%

Profit after tax 1 13.3 16.3 -18%

Adjusted earnings per share 1 31.5p 38.4p -18%

1 Before intangible amortisation (£1.4m) and exceptional operating items (£13.0m)

Segmental analysis1

6

£m Revenue Operating Profit1

Operating Margin2

HY13 change HY13 change HY13 change

Construction & Infrastructure

593 +2% 6.4 -25% 1.1% -40bps

Fit Out 203 +6% 5.0 -9% 2.5% -40bps

Affordable Housing 185 -8% 2.7 -64% 1.5% -220bps

Urban Regeneration 34 +48% 0.4 -73% 1.2% -530bps

Investments 4 - 4.6 +254% 102% n/a

Central - - (2.9) -17% - -

Total 1,019 +2% 16.2 -22% 1.6% -50bps

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)

20.8

4.1 (3.3) 2

(11.6) 1.8

4.7 (0.3) 16.2

1.6

£m

Operating profit1 – key movements

1 Before intangible amortisation (£1.4m) and exceptional operating items (£13.0m) 2Community 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

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Exceptional operating items

8

• £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)

£m

0.6

1.6

Cash flow

16.2 (3.3)

(2.2)

(21.1)

(1.0) (0.9)

(19.2)

(30.9)

1.0

1 Before intangible amortisation (£1.4m) and exceptional operating items (£13.0m) 2 Excludes exceptional operating items (£13.0m)

0

• Operating cash flow of (£19m), a significant improvement on prior year outflow of (£98m)

9

Net cash and debt reconciliation

4.5

1.6

Net

cas

h £

m

50.4 (21.1)

(6.4)

39.7 16.8

Average daily net debt of £32m

0

• Period end net cash £40m.

• Average daily net debt of £32m, an improvement on last year from £36m

• 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

£15m expires in May 2016

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 .

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Balance Sheet

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£m HY 2013 FY

2012 HY

2012

Intangible FA 221.8 223.2 225.1

Tangible FA 19.2 20.1 20.5

Investments (incl JVs) 64.4 73.9 70.8

Shared equity loan receivables

19.2 19.2 18.0

Net working capital 2 (28.0) (55.2) (23.6)

Current and deferred tax 2 (25.1) (24.2) (26.8)

Pension scheme (1.4) (1.5) (1.0)

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

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)

• Reduction in Investments driven by disposals

• Net working capital2 reduced to (£28.0m) from (£23.6m) at HY 2012

Improvement driven by reduction in inventories

Receivables/payables broadly level

Order book

12

• Group secured order book of £3,079m, up 1% from FY 2012

• 94% covered for FY 2013 (Construction &

Infrastructure fully covered)

• Ongoing industry challenge to convert orders and volumes into acceptable returns

• Risk management of Terms & Conditions critical

£m

322

322 322

C&I Fit Out Affordable Housing Urban Regeneration

Note: excludes Regeneration pipeline

500

1,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 +

John Morgan Chief Executive

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Strategic and Operational Review

Strategic priorities and operational focus

14

• 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

Strategic developments

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Woolwich, Royal Borough of Greenwich

Sellafield Infrastructure Strategic Alliance

• £269m mixed-tenure regeneration scheme for Affordable Housing

• Transforming three local authority estates into 1,500 homes in partnership with LB Greenwich

• Significant JV for C&I in important strategic market – up to £1.1bn to the JV

• Mobilisation completed and projects commencing in H2

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

Strategic developments

16

Civic and Cultural Quarter, Doncaster

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

• Regeneration of Doncaster town centre led by Urban Regeneration. GDV £110m

• Phase 2 to deliver new homes in conjunction with Affordable Housing

• Urban Regeneration-led Leeds city centre office development

• Pre-let and fully forward funded • Construction by C&I

Sovereign Square, Leeds


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£m HY 2013 HY 2012 Change %

Revenue 593 583 +2%

Operating profit1 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

1 Adjusted, before intangible amortisation and exceptional operating items


18

Commercial 10%

Education 26%

Electricity 8% Energy

2% Health

3%

Transport 26%

Water 14%

Other 11%

• 30% of revenue under framework agreements

Maximise returns from existing frameworks

• Professional Services growth of 14%, albeit from low base

• Major market focus:

Transport

Key target growth sectors in Rail, Road, Aviation

Strong presence in Water

• Selective bidding to turn order book into profit

Revenue by market - HY 2013

Fit Out

19

• No change in market conditions

Competitive tendering impacting margins

• Order book of £136m, down 20% since year end. Timing, not a trend

• Maintaining strong market position and market share

• Current activity weighting towards refurbishment in occupation

• Strategic focus on higher margin design-led fit out projects

Includes workplace consultancy and international alliances

• Well positioned to benefit from any market upturn


Revenue 203 191 +6%


Margin % 2.5% 2.9% -40bps


Affordable Housing

20

• Difficult period with specific challenges within portfolio of activities

• Order-book2 of £1,294m, down 1% from FY 2012

• Significant strategic business wins

July 2013 of £269m redevelopment programme in Woolwich for Royal Borough of Greenwich

1,500 mixed-tenure homes

Expected to commence May 2014 for a 13 year period

Lymington Fields, Dagenham (£63m). Expected to commence late H2 2013


Revenue 185 202 -8%


Margin % 1.5% 3.7% -220bps

1 Adjusted, before intangible amortisation and exceptional operating items 2 As at 30 June (ie excludes Woolwich)

Affordable Housing

21

Planned Maintenance

34%

New Build Housing

Contracting 24%

Mixed Tenure 24%

Response Maintenance

18%

Revenue by type 1

Planned Maintenance

28%

New Build Housing

Contracting 17%

Mixed Tenure 47%

Response Maintenance

8%

% of gross margin by type 1

1 HY 2013

• Strategic focus on complex regeneration mixed-tenure schemes

Key segment for revenue growth and margin enhancement

House completions up 36% on H1 2012 and ASP of £172k, up 11% on FY 2012 average

• New Build Housing Contracting revenue and margins down. Highly competitive

• Planned Maintenance down due to end of Decent Homes programme

• Response Maintenance requires critical mass. Legacy contracts worked out. Focus on winning profitable new volumes

• Only modest improvement expected in H2 2013

Urban Regeneration

22


Capital employed 64 58 +10%

Revenue 34 23 +48%


• Positive market backdrop of Government focus on residential development and emerging private rental sector investment market

• Increased activity “on-site” driving revenue increase

Visibility of future returns. Projects commence only on viability of schemes through pre-lets, forward funding and improved residential market conditions

Profit reduced due to timing of profit recognition on mix of schemes

• Capital employed of £64m

Well-positioned to secure new regeneration initiatives. Strong track record and market position

Investment in existing schemes will increase over next 18 months. Target 15% ROCE over the cycle


Regeneration development profile

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Remaining 2013 2014 2015 2016 2017 2018GDV £m*

Basingstoke Office and retail 190

Blackpool Sainsbury's/office/leisure 170

Chester CBQ Office 130

Lewisham Gateway Residential 190

Leeds - Sovereign Street Offices - pre-let to KPMG 20

Logic Leeds Distribution 100

Manchester Victoria Office / residential 160

Stockton Residential / office 130

Reading - Chatham Square Residential 40

Stockport Grand Central Car park and offices 140

Swindon Office and residential 290

Other projects (10) Various 160

Joint ventures (3) Various 70

Strategic partnerships Various 220

Preferred bidder Various 300

2,310

*Muse share of GDV for projects carried out in joint venture

Investments

24

£m HY 2013 HY 2012

Invested to date 11.0 24.8

Directors’ portfolio valuation (discount rate 7-9%)

24.0 56.0

Current carrying value 13.1 31.7

• Development pipeline of c£300m

• Slough and Bournemouth LABVs delivering inter-group opportunities

Pipeline of opportunities following similar partnership models

• Recycling capital by successful realisation of interests

Miles Platting PFI (£8.4m, profit £4.4m)

Access for Wigan (£6.6m, profit £1.5m)

• Maximise opportunities for Group from existing frameworks and schemes

HY 2013 Summary and Outlook

25

HY 2013

Strategic focus

Outlook

• Difficult market conditions. Margins impacted by competitive pressures

• Cash improvement and greater cash discipline

• Interim dividend held level with prior year

• Focus on maximising returns from existing frameworks and development schemes

• Opportunities to differentiate – integrated ‘Group’ approach

• No significant improvement in market conditions in H2 2013

• Focus on cash management, bid selection and margin improvement

• Well-positioned for growth when markets turn

Questions

26

Appendices

27

£m

0.6

1.6

Cash flow – HY 2012

20.8 (2.2)

(2.0)

(104.6)

(1.2)

(5.3)

(98.1)

(116.0)

(1.3)

1 Before intangible amortisation and non-underlying items

0

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half year results to 30 june 2013 - morgan sindall group plc · sindall group plc’s present and...

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