Half year results to 30 June 2015 Morgan Sindall Group plc 4 - - PowerPoint PPT Presentation

Half year results to 30 June 2015

Morgan Sindall Group plc

4 August 2015

2

Agenda

• Introduction

John Morgan

• HY 2015 Financial and Operational Review

Steve Crummett

• Update - Construction and Fit Out

John Morgan

• Outlook

John Morgan

3

Introduction

• HY results show progress being made

Within Construction Activities

• excellent performance from Fit Out
• challenges continue in Construction &

Infrastructure in London & South East

• improved performance from response

maintenance

Within Regeneration Activities

• good performance from Urban Regeneration
• mixed-tenure Affordable Housing and

Investments in line with expectations

• cash investment continues into Regeneration

activities

• Interim dividend of 12p per share - level with last year

4

HY 2015 Financial and Operational Review

Steve Crummett

5

Summary income statement1

£m HY 2015 HY 2014 % change Revenue 1,152 998 +15% Operating profit1 Operating margin1 15.5 1.3% 15.2 1.5% +2%

• 20bps

Profit before tax1 13.3 14.2

• 6%

Earnings per share1 24.5p 28.6p

• 14%

Interim dividend per share 12.0p 12.0p

• 1 Before intangible amortisation of £1.1m and exceptional operating items of £39.4m (HY 2014: intangible amortisation of £1.2m)

6

Divisional performance1

£m Revenue Operating Profit1 Operating Margin1 HY 2015 % HY 2015 % HY 2015 Construction & Infrastructure 623 +10% 0.3

• 95%
• 100bps

Fit Out 299 +53% 10.4 +89% 3.5% +70bps Affordable Housing 202 +5% 3.0 +11% 1.5% +10bps Urban Regeneration 26

• 38%

5.0 +43% 19.2% n/a Investments 9 n/a 0.4 n/a 4.4% n/a Central/Elims (7) (3.6) Total 1,152 +15% 15.5 +2% 1.3%

• 20bps

1 Before intangible amortisation of £1.1m and exceptional operating items of £39.4m (HY 2014: intangible amortisation of £1.2m)

7

Exceptional operating item

• Circumstances first announced in May, estimated at the time at approximately £35m
• Exceptional charge of £39.4m taken in the period
• relates to impairment of receivables on two construction contracts
• both contracts transferred as part of the acquisition from Amec in 2007
• both with the MOD as client and based around Faslane Naval Base, West Scotland
• Quantum of the charge reflects...
• ‘in principle’ commercial settlement achieved on one contract
• revised assessment of recoverability on the other
• Charge is non-cash in nature
• As a result, HY statutory loss before tax of £27.2m

8

£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

1 Before intangible amortisation of £1.1m and exceptional operating items of £39.4m 2 ‘Non-cash adjustments’ include depreciation, share option charge, shared equity valuation movements, share of JV profits and net non-cash provision movements 3 ‘Other’ includes JV dividends and interest income, cash provision movements, shared equity redemptions and additional pension contributions

15.5

(1.4) (4.1) (62.7) (0.6)

(53.3)

(1.5) (1.3)

(56.1)

9

Working capital1

1 Defined as: Inventories plus trade and other receivables, less trade and other payables (excl deferred consideration, accrued interest and capitalised arrangement fees). Excludes exceptional operating

items (£39.4m)

• Excludes the impact of exceptional operating item
• Investment of £54.2m in inventory in Regeneration activities of Affordable

Housing mixed-tenure and Urban Regeneration

• Reflects an overall decrease in debtor days and lower creditor days

Movement in Period

Inventory Debtors Creditors Total Working Capital £m £m £m £m Total 54.2 14.1

• 5.6

62.7

10

Net cash/debt movements

£m Opening net cash

Free cash flow Dividends Other

Closing net cash 55.7

(56.1) (6.6) (0.6)

(7.6)

• Average net debt of £35m
• Continued investment in Regeneration

activities in H2

• rate of investment faster than

previously anticipated as schemes accelerate

• average net debt for year

expected to be in range of £50m- £60m

• ongoing bank facilities of £175m

with main £140m facility expiring in September 2018

11

Investment in Regeneration across the Group

• Expected increase in capital employed across the Regeneration activities

As at 30 June (£m) Total Regeneration

Affordable Housing Mixed- Tenure Urban Regeneration Investments

Total net land & regeneration WIP 224 123 100 1 Unsold completed units (excl JVs) 11 9 2

• Amounts invested in joint ventures

62 5 43 14 Shared equity loans and investment properties 30 30

• Other working capital
• 45
• 17
• 28
• Non-recourse debt
• 19
• 19
• Deferred consideration
• 14
• 14
• As at 31 December 2014

192 123 49 20 Total net capital employed in Regeneration 249 150 84 15

12

• Impacted by poor performance in London & South East construction activities
• main problem jobs now completed
• other older contracts working through to completion; taking longer than previously

anticipated and expect some slippage into H2

• Other regions in construction now starting to perform well
• Infrastructure (44% of revenue) tracking in line, with progress in Transport, Tunnelling

and Utility Services

• Order book down 8%
• reflects increased selectivity, downscaling of activities in London and transition to

more 2-stage tenders

• Lower returns expected to persist through H2
• Confidence remains that 2016 will see gradual reversion back to normalised margins

Construction & Infrastructure

£m HY 2015 HY 2014 % Revenue 623 567 +10% Operating profit1 0.3 5.9

• 95%

Margin %

• %

1.0%

• 100bps

1 Before exceptional operating items of £39.4m (HY 2014: before exceptional operating items of nil)

13

Fit Out

£m HY 2015 HY 2014 % Revenue 299 195 +53% Operating profit1 10.4 5.5 +89% Margin % 3.5% 2.8% +70bps

1 Adjusted

• Excellent performance with strong revenue growth of 53%
• Margin up to 3.5%
• focus on operational delivery, customer and supply chain relationships supports the

continuing improvement in margin

• Growth shown across all regions and sectors
• commercial office market (82% of revenue)
• London region (73% of revenue)
• Order book stands at a strong £201m
• down 17% but from a high year end position
• Continued growth anticipated through H2, with primary focus on margin and profit

growth through operational delivery

14

Affordable Housing

£m HY 2015 HY 2014 % Revenue 202 193 +5% Operating profit1 3.0 2.7 +11% Margin % 1.5% 1.4% +10bps

1 Before intangible amortisation of £0.3m (HY 2014: before intangible amortisation of £0.3m)

• Regeneration mixed-tenure (22% of revenue)
• as expected, lower open market house completions in period (195 vs 233 in H1

prior year)

• construction completions to accelerate in Q3, with higher sales in Q4 and into

2016

• capital employed of £150m, increase of £27m from year end
• regeneration and development pipeline of £761m
• Construction & Services (78% of revenue)
• contracting revenue up 35%, but margins still tight and tendering competitive
• planned maintenance – steady flow of work maintained
• order book (incl response maintenance) up 9% to £732m

15

Affordable Housing – Response Maintenance

1 Adjusted

£m HY 2015 HY 2014 Revenue 32 34 Operating loss1 (0.8) (1.7)

• Losses reduced as operational improvements start to show benefit
• operational efficiency, contract management, overhead management
• Challenge is winning work at acceptable margins to drive critical mass
• Loss £1m-£2m expected in 2015; minimum of break-even by 2016

16

Urban Regeneration

£m HY 2015 HY 2014 % Capital employed1 at period end 83.5 39.0 +114% LTM average capital employed1 58.3 51.0 +14% Revenue 26 42

• 38%

Operating profit2 5.0 3.5 +43%

• Strong performance, with increase in profit to £5.0m
• LTM ROCE3 of 16%
• good performance through its JVs in Salford, Canning Town and Brentford
• Capital employed at period end of £83.5m (after deducting £18.5m of non-recourse

debt)

• Regeneration & development pipeline up 1% to £2.2bn
• Number of construction completions scheduled for Q4
• Continued investment demonstrates confidence in long term prospects

1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash/overdraft) less total liabilities (excluding corporation tax, deferred tax and inter-company financing). At period end, non-recourse debt

was £18.5m (HY 2014: £18.3m) and deferred consideration was £13.8m (HY 2014: £18.0m). LTM non-recourse debt was £18.2m (HY 2014: £10.9m) and LTM deferred consideration was £13.6m (HY 2014: £18.0m).

2 Before intangible amortisation (£0.8m) (2014 HY: before intangible amortisation (£0.9m))

3 Return on LTM average capital employed = (Adjusted LTM operating profit less interest on non-recourse debt less unwind of discount on deferred consideration) divided by (LTM average capital employed).

17

Investments

£m HY 2015 HY 2014 % Capital employed1 at period end 15.4 14.8 +4% Average capital employed 19.0 18.9

• Operating profit2

0.4 1.3

• 69%
• Small profit due to achieving completion on schemes in joint ventures and LABVs
• prior year included £1.7m profit on disposal of investment
• FY operating loss of £1m-£2m expected
• due to phasing of schemes and bidding activity to secure work for other

Group companies

• c£150m of construction and regeneration work for rest of Group targeted for

2015

1 Capital employed = total assets (excluding goodwill, intangibles, corporation tax credit and cash) less total liabilities 2 Adjusted

18

Order book and regeneration & development pipeline

• Group committed order book of

£2.6bn

• £0.5bn from frameworks
• reduction due to Construction &

Infrastructure and Fit Out

£m

£2,658m £2,572m

FY 14 HY 15 £m

£3,227m

FY 14 HY 15

£3,209m

Order book Regeneration Pipeline

• Group regeneration & development pipeline

steady at £3.2bn

• 70% relates to Urban Regeneration, 24%

to Affordable Housing, 6% Investments

• longer term with 85% for 2017 and

beyond

Update - Construction and Fit Out

John Morgan

20

Group overview

• Focus today on our Construction and Fit Out businesses
• Fit Out has exceeded expectations and our Construction business is slower to recover

Construction Regeneration

Construction & Infrastructure Fit Out Affordable Housing

Construction & Services

Urban Regeneration Affordable Housing

Mixed-tenure

Investments

• Cash generative
• Measured by margin
• Cash invested
• Measured by ROCE

21

Construction division

22

Overview of performance

• Construction & Infrastructure HY revenue of £623m of which 56% is Construction (£348m,

up 20%) and 44% Infrastructure (£275m, down 1%)

• Infrastructure made a profit of c£4m in HY (margin of c1.5%)
• Construction made a loss of c£4m in HY. Of this, London & South East lost £7m whilst the

rest of Construction made a profit of £3m

• 1% profit margin in Construction (excluding London & South East)

23

London & South East

• London ‘problem’ jobs are now finished; took longer and cost more
• Other lower margin jobs being worked out this year
• Turnover down 7%
• Order book down 22%
• Concentrating on frameworks, works through Investments-related business and Urban

Regeneration

• Costs associated with reducing scale of business which is impacting divisional margin

24

Regional activities

Headquartered in Rugby - central functions East - c£150m annual revenue

• Strong business, well established team
• Exposed to strong Cambridge and regional market
• Education focus
• Good supply chain and contracts

South West - c£90m annual revenue

• Turnover lower than expected
• Bournemouth LABV
• Some successful special works businesses
• Southern Construction Framework

North - c£220m annual revenue

• Ambitious business; growing team
• Education Funding Agency’s Priority School Building Programme
• Largest Construction business unit

25

Regional activities

Scotland - c£130m annual revenue

• Well established, successful team
• Marischal Square in Aberdeen with Urban Regeneration
• Scottish Hub framework with Investments

London and South East - c£100m annual revenue

• Poor project selectivity and performance
• Extensive leadership change
• Successful special works businesses

26

Order book movement year-on-year

2% 8% 33% 7% 51% Investment-related Negotiated Framework Competitive 2-stage Competitive single-stage

Construction 2014 order book by procurement route Construction 2015 order book by procurement route

12% 6% 39% 13% 30%

27

• Reducing the scale of operations in London and the South East
• Focus on improving the quality of the order book
• Scotland – high-quality order book
• North/Midlands/East – all good businesses and will continue to grow
• 2016 – gradual reversion back to more normalised construction margins

Construction – outlook

28

Fit Out division

Overview

• Work purely through consultants
• Market leader
• Short order book
• 90% pure office fit out
• 10% education and retail banking

29

• Design and Build
• Sells direct to end user
• High overheads
• Higher margins
• Longer lead-in times

30

Track record

• Early cycle
• Shows quality of earnings over 20 years
• 2015 expected to show significant upturn

31

Regional activities – Overbury

Overbury CORE team - c£100m annual revenue

• Central London focus on projects up to £5m
• Established, high performing team
• High margin; fast turnover of projects

Overbury MAJOR PROJECTS - c£160m annual revenue

• Central London focus on projects valued between £5m and £100m
• Extensive resource to tackle complex large schemes such as PwC

Embankment Place

• Well positioned to capitalise on large pre-lets starting Q3/Q4 2016
• nwards

Overbury EOS team - c£110m annual revenue

• Focus on frameworks for large corporate office occupiers
• Significant higher education service delivery for UCL, City

University and Kings College London account for one third of revenue

• Retail banking frameworks

32

Regional activities – Overbury

Overbury NORTHERN team - c£45m annual revenue

• Developing Design and Build solution alongside

traditional offering

• Maturing team
• Improving margins

Overbury CENTRAL team - c£35m annual revenue

• Established team offering traditional and Design

and Build services to clients

• Mix of commercial office and higher educational

client base

Overbury SOUTHERN team - c£42m annual revenue

• Established high performing team
• Delivered Sir Ben Ainsley America’s Cup Challenge HQ
• Significant delivery of Southern Construction Framework

33

Regional activities – Morgan Lovell

Morgan Lovell LONDON - c£20m annual revenue

• Design and Build service offering for London only
• Team currently undergoing revamp following senior management

changes

• Workplace Consultancy providing early exposure to potential

clients

• Team underperforming against its competitors providing clear

scope for growth

Morgan Lovell SOUTHERN - c£35m annual revenue

• Design and Build service only
• Established high performing team
• Workplace Consultancy providing early exposure to

potential clients

• Several major framework clients

34

Fit Out – outlook

• Market looks set to grow 4% pa to 2018*
• Expect larger pre-lets to be available from Q3 2016 onwards
• Expect record turnover this year
• Expect further growth in margins to circa 4% for the full year

* (source “INTERIOR REFURBISHMENT AND FIT OUT MARKET REPORT UK 2014-2018 ANALYSIS” published by AMA Research)

35

Summary

John Morgan

36

Outlook

• Strong performance from Fit Out expected to continue in H2
• Urban Regeneration and Affordable Housing to maintain and build off the positive

momentum going into H2

• Construction & Infrastructure
• need to complete older construction contracts in London & South East by end
• f 2015. Will lower overall FY divisional performance
• signs of improvement elsewhere in construction
• Continue to invest in Regeneration and build for growth in 2016 onwards
• Net impact is that Group remains on track to hit 2015 expectations
• Provides continued confidence for 2016 and onwards

37

Questions?

Thank you

38

Appendices

39

Net finance expense

£m

HY 2015 HY 2014

Net interest charge on debt (1.2) (0.7) Amortisation of fees & non-utilisation fees (1.0) (0.6) Interest from JVs 0.4 0.3 Other (0.4)

• Total

(2.2) (1.0)

40

Tax

£m

HY 2015 HY 2014

(Loss)/profit before tax (27.2) 13.0 Less: share of net profit in taxed JVs1 (0.5) (0.5) Less: gain on disposal of JVs

• (1.7)

Profit subject to tax (27.7) 10.8 Statutory tax rate 20.25% 21.5%

Current tax charge at statutory rate

5.6 (2.3) Other adjustments (0.1) 0.5

Tax credit / (charge) 5.5 (1.8)

1 Certain of the Group’s joint ventures are reported net of tax. Other joint ventures are partnerships where profits are taxed within the Group rather then the joint venture

41

Summary balance sheet

£m

HY 2015 HY 2014

Intangibles 217.7 219.3 PP&E 19.8 19.8 Investments (incl JVs) 71.0 57.4 Shared equity loan receivables 20.6 20.1 Net working capital (31.9) (26.0) Current and deferred tax (14.9) (21.3) Pension scheme 1.2 0.3 Net (debt)/cash (7.6) 34.1 Other1 (34.2) (41.2) Net assets - reported 241.7 262.5

1 ‘Other’ includes provisions, finance lease liabilities and deferred consideration