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Agenda
- Introduction
John Morgan
- 2014 Financial and Operational Review
Steve Crummett
- Regeneration – Update and Strategy
John Morgan
- Summary
Full year results to 31 December 2014 Morgan Sindall Group plc 19 - - PowerPoint PPT Presentation
Full year results to 31 December 2014 Morgan Sindall Group plc 19 - - PowerPoint PPT Presentation
Full year results to 31 December 2014 Morgan Sindall Group plc 19 February 2015 Agenda Introduction John Morgan 2014 Financial and Operational Review Steve Crummett Regeneration Update and Strategy John Morgan
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Introduction
- Overall disappointing result for the Group in 2014
- impacted by small number of construction contracts in Construction &
Infrastructure
- …But strong performances from Fit Out and Urban Regeneration
- Quality of the order book improved
- Balance sheet remains strong
- Good strategic progress made in Regeneration
- well positioned for continued growth in profits and returns from
Regeneration activities
- investment required in 2015 and 2016 to support current development
programmes
- Total dividend of 27p per share - level with last year
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2014 Financial and Operational Review
Steve Crummett
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Summary income statement1
£m FY 2014 FY 2013 % change Revenue 2,220 2,095 +6% Operating profit1 Operating margin1 28.9 1.3% 33.6 1.6%
- 14%
- 30bps
Profit before tax1 25.2 31.3
- 19%
Earnings per share1 46.7p 60.9p
- 23%
Dividend per share 27.0p 27.0p
- 1 Before intangible amortisation (£2.4m) (FY 2013: intangible amortisation £2.7m, exceptional operating items £14.7m and deferred tax credit £2.5m)
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Segmental analysis1
£m Revenue Operating Profit1 Operating Margin1 FY14 % FY14 % FY14 Construction & Infrastructure 1,172
- 5%
3.5
- 72%
0.3%
- 70bps
Fit Out 507 +19% 15.0 +38% 3.0% +40bps Affordable Housing 423 +11% 6.0
- 30%
1.4%
- 90bps
Urban Regeneration 113 +83% 10.0 +900% 8.9% n/a Investments 25 n/a 0.9 n/a 3.6% n/a Central/Elims (20) (6.5) Total 2,220 +6% 28.9
- 14%
1.3%
- 30bps
1 Before intangible amortisation (£2.4m) (FY 2013: intangible amortisation (£2.7m) and exceptional operating items (£14.7m))
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£m Operating Profit 1
Non-cash adjmts 2 Net capex & finance leases Working Capital Other 3
Operating cash flow
Net interest (non JV) Tax
Free cash flow
Operating cash flow
28.9
(3.7) (6.8) (11.8) (4.2)
2.4
(4.7) (4.4)
(6.7)
1 Before intangible amortisation (£2.4m)
2 Adjustments include depreciation, share option charge, shared equity valuation movements, elimination of JV profits, investment impairment and net non-cash provision movements 3 ‘Other’ includes JV dividends and interest income, JV gains on disposal, cash provisions utilised, sale of investment properties, shared equity redemptions and additional pension contributions
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£m Opening net cash
Free cash flow Dividends Disposals
- f JVs and
investmts Other
Closing net cash
Net cash movements
- Average net debt of £9m
- Main bank facilities renewed and
increased during July 2014
- £140m ‘club’ facility, expiring in
September 2018
- additionally retain £30m of facilities
maturing in 2016
- excludes non-recourse facilities in
Urban Regeneration (£17m year end) 69.7
(6.7) (11.5) 6.2 (2.0)
55.7
- Facilities provide the headroom for future investments in Urban Regeneration and
Affordable Housing (mixed-tenure)
- investment increased in Q4 2014 and will increase significantly in 2015
- average net debt in 2015 anticipated to be in range c£40-£50m
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Working capital & capital employed
1 Defined as: Inventories plus trade and other receivables, less trade and other payables (excl deferred consideration, accrued interest and capitalised arrangement fees) 2 Defined as: Total assets (excl goodwill, intangible assets and cash) less total liabilities (excl corporation and deferred tax)
- Investment of £41.2m in inventory mainly in Affordable Housing and Urban Regeneration
- Over half debtor/creditor movement due to strong Fit Out Q4
- excluding this, no material change to trade receivable/payable days
As at 31 December 2014 Total Working Capital 1 Fixed Assets & Other Capital employed 2 £m £m £m Construction & Infrastructure
- 117
14
- 103
Fit Out
- 43
1
- 42
Affordable Housing 57 36 93 Urban Regeneration 43 6 49 Investments 8 12 20 Group/Elims
- 3
- 11
- 14
Total
- 55
58 3 Movement in Year Inventory Debtors Creditors Total Working Capital £m £m £m £m Total 41.2 55.7
- 85.1
11.8
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Construction & Infrastructure
£m FY 2014 FY 2013 % Revenue 1,172 1,234
- 5%
Operating profit1 3.5 12.7
- 72%
Margin % 0.3% 1.0%
- 70bps
1 Adjusted (FY 2013: before exceptional operating items)
- Operating margin reduced to 0.3%
- Impacted by poor performance in certain of the Construction activities (55% of revenue)
- small number of projects in London and the South
- escalation in costs and forecast costs to complete in H2
- all due to complete within H1 2015
- management changes made to enhance skills and reinforce disciplines in bid
selection and procurement
- Infrastructure (45% of revenue) performed well, with progress made on key transport
frameworks and tunnelling projects
- Lower returns and challenges expected to persist through at least H1 2015 as older
construction contracts work through to completion
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£m
£1,537m £1,499m
FY 13 FY 14
Work secured through competitive fixed price procurement Work secured through frameworks, two stage tenders, negotiated and PFI-type work
85% 62% 38% 15%
Construction & Infrastructure
Order book
- General market improving through the year. Good level
- f work now being won at required margins
- Order book up 3% to £1,537m
- Proportion of orders gained through competitive single
stage procurement vs ‘other procurement types’ more favourable
- only 15% of order book by value is now from
competitive single stage procurement compared to 38% last year
- in London, only 5% of order book (£7m) gained
through competitive single stage process
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Fit Out
£m FY 2014 FY 2013 % Revenue 507 427 +19% Operating profit1 15.0 10.9 +38% Margin % 3.0% 2.6% +40bps
1 Adjusted
- Strong performance, particularly in H2
- Margin growth supported by improved operational delivery
- focus on customer and supply chain relationships
- Commercial office market remains core (74% revenue), as does
London (67% of revenue)
- all markets and regions have shown growth
- Order book up 70% to £241m, a record high
- Continued growth anticipated through 2015, with primary focus on
margin and profit growth through operational delivery
£m £241m £142m FY 13 FY 14
Order book
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Affordable Housing
£m FY 2014 FY 2013 % Revenue 423 381 +11% Operating profit1 6.0 8.6
- 30%
Margin % 1.4% 2.3%
- 90bps
1 Adjusted
- Activities split into : Regeneration (mixed-tenure) and Construction & Services (contracting,
planned maintenance, response maintenance)
- delivers a full range of housing solutions
- constructed nearly 2,000 housing units across all its activities
- Regeneration mixed-tenure (27% of revenue)
- 475 open market house completions, down 10% - supply constrained
- additionally approx 300 units constructed under contract directly to housing association
- Construction & Services (73% of revenue)
- contracting revenue up 51% (c1,150 units), but margins squeezed
- planned maintenance – steady flow of work as investment made in housing stock
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Affordable Housing – Response Maintenance
1 Adjusted
£m FY 2014 FY 2013 Revenue 61.0 67.5 Operating loss (3.5) (1.2)
- Losses through a combination of operational delivery inefficiencies, insufficient volume
and ageing business systems
- Significant addressable market in response maintenance plus opportunity to widen
service offering
- eg property and other FM services across Group divisions
- business re-branded as Morgan Sindall Property Services
- New management team recruited externally and now in place for 6 months
- Investment of c£2m in business systems over 18 months, with initial ‘go live’ due in April
- Challenge is winning work at acceptable margins to drive critical mass
- Loss £1m-£2m expected in 2015; minimum of break-even by 2016
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Affordable Housing
£m
£673m £581m
FY 13 FY 14
Order book Construction & Services
£355m Response Maintenance
- Construction & Services order book up 16%
- of which 53% is Response Maintenance
- Regeneration & development pipeline up 8% to
£770m
- investment in mixed-tenure to increase by
c£20m-£25m in 2015, to develop the regeneration pipeline and deliver profits from 2016 onwards
- At divisional level, margin and profit growth
expected in 2015, but constrained by number of completed units available for sale
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Urban Regeneration
£m FY 2014 FY 2013 % Capital employed1 at year end 49.4 51.4 n/a Average capital employed1 49.9 53.5 n/a Revenue 113 62 +83% Operating profit 10.0 1.0 +900%
- Strong performance, with significant increase in profit, up to £10.0m
- ROCE2 of 17%
- driven by completion of schemes in Stockport, Leeds, Manchester
- good performance through its JVs in Salford, Canning Town and Brentford
- Schemes prioritising residential sales to meet demand
- 347 unit sales compared to 158 last year; over 750 unit sales forecast for 2015
- Regeneration & development pipeline up 13% to £2.2bn
- Capital employed at year end of £49m. After deducting £17m of non-recourse debt
- increase of c£30m-£40m expected over 2015 as schemes develop
1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding corporation tax, deferred tax and inter-company financing). At year end, non-recourse debt was £17m (FY
2013: 8.1m) and deferred consideration was £13.6m (FY 2013: £17.8m). Average non-recourse debt was £16.2m (FY 2013: £3.9m) and average deferred consideration was £15.7m (FY 2013: £18.3m).
2 Return on average capital employed = (Adjusted operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (average capital employed). Interest on non-recourse debt
was £1.2m (FY 2013: £0.2m) and the unwind of discount on deferred consideration was £0.5m (FY 2013: £0.6m).
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Investments
£m FY 2014 FY 2013 % Capital employed1 at year end 20.2 18.7 n/a Average capital employed 17.3 22.7 n/a Operating profit 0.9 6.1
- 85%
- Profit of £0.9m includes £1.9m from sale of investments
- compared to profit of £9.9m last year
- carrying value of remaining ‘PFI-type’ investments is only £3.0m; no more
sales likely in short/medium term
- ther capital employed includes interests in other schemes, LABVs etc
- small operating loss expected in 2015
- Recurring revenue and profit from management service agreements through its
Community Solutions business
- Focus is to maximise construction opportunities for Group from existing
frameworks and new schemes
- preferred bidder for PF2 North West, Priority School Building Programme
1 Capital employed = total assets (excluding goodwill, intangibles, corporation tax credit and cash) less total liabilities.
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Order book and regeneration & development pipeline
£m £2,658m £2,403m
Split by year
FY 13 FY 14 2015 2016 2017 +
58% 20% 22%
- Group committed order book up 11%
to £2.7bn
- £0.6bn from frameworks
£m £3,227m £3,036m
Split by year
FY 13 FY 14 2015 2016 2017 +
7% 11% 82%
- Group regeneration & development
pipeline up 6% to £3.2bn
- 69% relates to Urban
Regeneration, 24% to Affordable Housing, 7% Investments
- longer-term with 82% for 2017
and beyond
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Financial & operational summary
- 2014 was a difficult year for the Group
- impacted by small number of construction contracts in Construction & Infrastructure
- Strong performance from Fit Out
- continued momentum going into 2015, with record order book
- Urban Regeneration result supports the Group’s long-term regeneration strategy
- further investment into Regeneration activities of Affordable Housing and Urban
Regeneration
- Looking ahead to 2015
- tough H1 2015 at least expected in Construction & Infrastructure
- continued positive momentum in Fit Out, Affordable Housing and Urban
Regeneration
- Quality of the order book improved
- Balance sheet remains strong
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Regeneration – update and strategy
John Morgan
Newcastle Quayside
- then and now
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Group strategy
- ‘Stick to our knitting’
- Margin improvement - Construction
- ROCE improvement - Regeneration
- Remain UK-focused
Construction Regeneration
Construction & Infrastructure Fit Out Affordable Housing
Construction & Services
Urban Regeneration Affordable Housing
Mixed-tenure
Investments
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What is regeneration?
“There is a pressing need to make Europe’s cities more competitive, resilient and sustainable and this challenge is at the heart of the urban regeneration process. However, the successful reuse of brownfield land and the reinvention of redundant or forgotten parts of a city, is a highly complex process and requires insight and cooperation from a diverse range of disciplines.” (Urban Land Institute) “A process that reverses physical, economic and social decline in an area where market forces will not do this without government intervention.” (UK Government, 2007)
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But what does regeneration mean to Morgan Sindall Group?
- Secure development agreements
- A number of phases, over a long time frame
- Usually several sources of funds
- Working capital invested phase-by-phase and recycled
- Social aspects of regeneration just as important as physical
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What does regeneration mean to Lovell?
- Mixed-tenure homes
- Houses for sale – new build for public sector; refurbishment of social rented
- Community engagement skills
- Long-term development agreements
- Long-established culture of working in partnership with the public sector
- Joint ventures
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What does regeneration mean to Muse?
- Creation of new sustainable mixed-use communities
- Long time frames
- High level of expertise needed to deliver schemes
- Strategic joint ventures (English Cities fund, ISIS Waterside Regeneration)
- Portfolio of 35 mixed-use projects, over 25m sq ft
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What does regeneration mean to Investments?
- Only work on schemes that involve other Group companies
- Multiple sites or series of products
- HB Villages
- LABVs
- PF2 schools preferred bidder
- Land swaps
- Health
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Why are we doing it?
- Large, growing market
- Long-term income stream
- Fits with the Group’s culture, skill set and track record
- High barriers to entry
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Barriers to entry
- Reputation and track record
- Very long time lines
- Softer non-build elements of regeneration
- Understand and react to the needs of the public sector
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Total investment in regeneration across the Group
£m Total Regeneration
Affordable Housing Mixed- Tenure Urban Regeneration Investments
Current land & regeneration WIP 198 122 75 1 Land creditors
- 21
- 21
Total net land & regeneration WIP 177 101 75 1 Unsold completed units (excl JVs) 5 3 2
- Amounts invested in joint ventures
ISIS Waterside Regeneration 24
- 24
- English Cities Fund
7
- 7
- Compendium
4 4
- LABVs (Bournemouth & Slough)
4
- 4
Other 16
- 8
8
55 4 39 12 Shared equity loans and investment properties 30 30
- Other working capital
- 44
- 15
- 36
7 Non-recourse debt
- 17
- 17
- Deferred consideration
- 14
- 14
- Total net capital employed in Regeneration
192 123 49 20
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Operating profit
Construction Regeneration
Construction & Infrastructure Fit Out Affordable Housing
Construction & Services
Urban Regeneration Affordable Housing
Mixed-tenure
Investments
Operating profit (£m) 3.5 15.0 (4.7) Operating profit (£m) 10.7 10.0 0.9
Total £13.8m Total £21.6m
Central costs
£6.5m Operating profit £28.9m
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Lewisham Gateway
A Muse scheme
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Lewisham Gateway: overview
- 701 private residential units
- 48,700 sq ft ground floor retail
- 17,000 sq ft leisure use
- 220 car parking spaces
- A major new urban park
- New town centre highway network
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Lewisham Gateway: aerial view of the site
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Lewisham Gateway: webcam view on 17 Feb 2015
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Lewisham Gateway: CGI of completed scheme
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Lewisham Gateway: project timeline
2004 Site marketed by public sector 2006 Development Agreement signed with public sector consortium comprising GLA, London Borough of Lewisham, TfL and LBSL; outline planning application submitted 2009 Outline planning permission granted and Compulsory Purchase Order confirmed 2011 Grant funding withdrawn, Development Agreement extended 2012 HCA funding of £19.9m secured 2013 HCA Funding Agreement completed; new bus layover created for £1m HCA funding 2014 Site start achieved in May 2020 Expect to complete
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Lewisham Gateway: returns
- Profit base case of £29.5m
- Full priority return capable of accruing to the scheme is in excess of £42m
- Main profit contributing years are 2016 and 2018-2020
- Phase 1 Equity Internal Rate of Return 24.5% base case that has potential to rise to
approaching 30% on upside scenario
- Feasibility done on £445 per sq ft, selling open market at £530 per sq ft
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Regeneration: future investments and expected returns
- Our share of the regeneration pipeline is £3.2bn
- Expect investment of £50m-£65m in regeneration in 2015
- Further £35m in 2016
- High teens ROCE targeted medium-term
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National Property Company of the Year 2014 Winner: Runners up: British Land The Crown Estate Land Securities Group
“Showing the big boys how it’s done…..dogged and delivery focused.”
Estates Gazette
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Group Summary
John Morgan
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Group summary
- Construction & Infrastructure
- Disappointing results in 2014
- Better quality order book, though need to work through the poorer quality jobs
- Fit Out
- Good progress and strong start to the year
- Affordable Housing
- Investing and building for growth in 2016 onwards
- Urban Regeneration
- Good progress throughout the year; continuing to build out and invest in new
schemes
- Group strategy
- No change; need to make more out of what we have got
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Questions?
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Appendices
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Net finance expense
£m
FY 2014 FY 2013
Net interest charge on debt (1.6) (1.3) Amortisation of fees & non-utilisation fees (1.9) (1.2) Interest from JVs 0.8 1.0 Other (1.0) (0.8) Total (3.7) (2.3)
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Tax
£m
FY 2014 FY 2013
Profit before tax 22.8 13.9 Less: share of net profit of JVs (6.3) (0.9) Profit before tax excluding JVs 16.5 13.0 Statutory tax rate 21.5% 23.25%
Current tax charge at statutory rate
(3.5) (3.0) Tax on JV profits1 (1.1)
- Profit on sale of JVs not subject to tax
0.4 2.3 Exceptional deferred tax credit
- 2.5
Other adjustments (0.6) (0.7)
Tax credit / (charge) (4.8) 1.1
1 Certain of the Group’s joint ventures are partnerships where profits are taxed within the Group rather then the joint venture
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Summary balance sheet
£m
FY 2014 FY 2013
Intangibles 218.1 220.5 PP&E 19.2 18.3 Investments (incl JVs) 64.8 64.4 Shared equity loan receivables 20.4 19.7 Net working capital (55.2) (67.0) Current and deferred tax (21.7) (21.3) Pension scheme 0.8
- Net cash
55.7 69.7 Other 1 (34.2) (47.3) Net assets - reported 267.9 257.0
1 ‘Other’ includes provisions, finance lease liabilities, deferred consideration and assets held for sale
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