Morgan Sindall Group plc Half Year Results 2010 Page left - - PowerPoint PPT Presentation

Morgan Sindall Group plc Half Year Results 2010

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H1 2010 Overview

 Good performance in challenging market conditions underpinned by broad

spread of activities

 Public sector spending cuts in the Emergency Budget largely as anticipated

but specific details will not be known until CSR in Autumn

 Pick up in commercial activity in London fit out  Strategic developments:

– Construction and infrastructure capabilities merged into single division to deliver a

more integrated service to clients

– Expansion of response maintenance capabilities within Affordable Housing with

acquisition of Powerminster  Continued focus on operational excellence and right-sizing of business with

further £16m of annualised cost savings achieved

 Financial strength of the Group improved through cash generation

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H1 2010 Financial Highlights

 Adjusted profit before tax1 at £23.1m (2009: £23.9m) on revenue of £0.98bn

(2009: £1.14bn)

 Profit before tax at £18.4m (2009: £20.5m)  Adjusted earnings per share 1 of 42.0p (2009: 42.6p)  Interim dividend held at 12.0p (2009: 12.0p)  Net cash at 30 June 2010 of £138m (2009: £89m); £100m undrawn

committed bank facilities in place through to mid-2012

 Average cash for the period to 30 June 2010 of £61m (2009: £21m);

continuing to improve into second half

 Order book at £3.7bn (2009: £3.6bn), increased by £0.5bn since start of year

1 Before amortisation of intangible assets (£2.8m) and non-recurring costs (£1.9m)

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Financial Summary

£m Six months to June 2010 Six months to June 2009 Revenue 982 1,141 Adjusted PBT 23.1 23.9 Non-recurring costs (1.9)

• Amortisation

(2.8) (3.4) Profit before tax 18.4 20.5 Effective tax rate 29% 29% Tax charge (5.3) (5.9) Profit after tax 13.1 14.6 Net assets 209.3 195.8 Adjusted EPS 1 42.0p 42.6p Dividend per share 12.0p 12.0p

1 Before amortisation of intangible assets (6.6p) and non-recurring costs (4.5p)

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Segmental Analysis

£m Six months to June 2010 Six months to June 2009 Revenue Profit Margin Revenue Profit Margin Construction & Infrastructure 612 12.2 2.0% 797 15.0 1.9% Fit Out 179 6.9 3.9% 160 7.4 4.6% Affordable Housing 173 6.9 4.0% 178 7.1 4.0% Urban Regeneration 15 0.8

• 5

(1.1)

• Investments

3 (0.4)

• 1

(2.0)

• TOTAL REVENUE

982 1,141 Group activities (3.7) (2.8) Interest 0.4 0.3 Non-recurring costs (1.9)

• PBTA

21.2 2.1% 23.9 2.1%

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Balance Sheet

£m June 2010 June 2009 YTD Movement Intangibles 203.3 204.4 +2.3 Tangible FA 30.1 30.9

• 1.2

Investments (incl. Joint ventures) 47.7 54.1

• 4.4

Shared equity loan receivables 11.4 4.4 +2.4 Inventories 147.3 166.4 +6.1 Other working capital (339.3) (330.6)

• 23.0

Current and deferred tax (26.3) (19.7)

• 2.8

Pension scheme (3.0) (2.8) +0.2 Cash 138.1 88.7 +20.4 Net assets 209.3 195.8

• 

Over last year open market inventories managed down at Affordable Housing



Continued use of shared equity to drive open market house sales



Current tax creditor at £30.1m (2009: £22.4m); £22.0m relating to provisional FV cost claim



Tight control of working capital maintained



Strong cash balances



Immaterial pension liability

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Cashflow

£m Six months to June 2010 Six months to June 2009 Operating profit 18.0 20.2 Non-cash adjustments 4.9 10.8 Working capital movement 25.2 (53.1) Income tax (3.4) 8.0 Dividends (12.7) (12.7) Interest 0.9 0.7 Payment for acquisitions (7.4) (1.1) Other cashflows (5.1) (4.4) Net cashflow 20.4 (31.6) Cash at beginning of period 117.7 120.3 Cash at end of period 138.1 88.7



Average cash £61m (2009: £21m)



Strong cash generation in the period driven by reduction in working capital



Acquisition of Powerminster (£4.8m) and three JV interests (£2.6m)



Five year operating profit to cash conversation of 118%

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Market Overview

Market sectors 2009 est. £bn Infrastructure 7.8 Private Industrial & Commercial 19.4 Public Non-Residential 13.3 Private Housing 10.7 Public Housing (incl R&M) 11.3 Private Housing R&M 14.0 Public Non-Residential R&M 7.5 Private Non-Residential R&M 13.1 Total Construction Market 97.1

Source: Experian, values at 2005 prices

Construction & Infrastructure Urban Regeneration Fit Out (£2bn potential market) Affordable Housing Investment led opportunities

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Market

Challenging market expected to continue into 2011 and beyond

 Managing ongoing decline in public sector demand, await outcome of

autumn’s Comprehensive Spending Review

 Major project opportunities in infrastructure  Commercial demand recovering in London fit out  Housing market softened in 2Q 2010 and mortgage availability remains tight  New build social housing, refurbishment and response maintenance sectors

holding up reasonably well

 Competitive environment tougher, with clients more price sensitive and

seeking more onerous terms and conditions

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Strategic Developments

Remain focused on maximising potential from our market-leading positions in our chosen sectors

 Acquisition of Powerminster adds to response maintenance and facilities

management expertise

 Construction & Infrastructure combination cements ability to deliver larger,

more complex schemes; deliver integrated service to clients who procure both civil engineering and building work

 Investment led opportunities remain important  JVs for delivery of larger and more complex infrastructure projects

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Operations

Continue to drive efficiencies across the Group

 Overhead savings in first half of 2010 of £16m on top of £38m annualised

savings realised in 2008-09

 Further £5m targeted in second half relating to merger of divisions  Continued careful working capital management leading to improved cash

position

 Further leveraging of scale to achieve supply chain improvements  Perfect Delivery quality programme now implemented in all divisions;

underpins margin performance

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Construction & Infrastructure

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Construction & Infrastructure – Merger

 Client service driven  Greater ability to deliver larger and more complex projects  New brand launched, also giving Group greater profile  Extensive capability; design, construction, tunnelling, infrastructure, utility

services, piling and plant

 5,000 employees across 32 locations  £6m annualised cost savings targeted (£1m realised in first half 2010)  £6m non-recurring cost; £1.7m in first half 2010, £4m in total 2010 and £2m

in 2011

 Expected one-off net cost impact in 2010 of £2.5m

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Construction & Infrastructure – Market & Trading Highlights

 Blended margin improved to 2.0% (2009: 1.9%)  Construction margin further improved to 1.8% (2009: 1.5%)  Infrastructure underlying margin maintained at 2.2% (2009: 2.2%)  Cuts to BSF programme largely as anticipated  Infrastructure impacted by delays to major projects and transition to next regulatory

period in utility services sector

 Converted £900m of preferred bidder opportunities

Revenue Underlying Operating Profit 1 2010 2009 % 2010 2009 % Construction 345 378 6.3 5.7 Infrastructure 267 419 5.9 9.3 Total £612m £797m

• 23%

£12.2m £15.0m

• 19%

1 Before non-recurring costs relating to the merger of £1.7m

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Construction & Infrastructure – Projects

Other key projects: Hull BSF (£200m), Yorkshire Water AMP5 Framework (£60m), Tayside Mental Health (£95m), Lowestoft Sixth Form College (£19m), E.On (£500m over 10 years) Client: Gatwick Airport Limited Project: Increase departures and arrivals capacity Contract value: £45 million Client: Network Rail Infrastructure Project: Replacement of existing roof structure and glazing Contract value: £27 million Location: Paddington Station, London

Artist’s impression

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Construction & Infrastructure – Outlook

 Market continues to be tough; details in CSR report awaited in autumn  Growth opportunities in infrastructure markets  Sector focus on transport, water, energy, pharmachem, health, education,

defence and retail

 Continued focus on operational improvement through Perfect Delivery, cost

control and working capital management

 Order book of £2.1bn (2009: £2.1bn); an increase of 31% since the start of

the year

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Fit Out

Markets: Commercial property Commercial property Retail banking, education and hotels Procurement: Traditional Design & build (‘D&B’) Traditional and D&B

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Fit Out – Market & Trading Highlights

 Increase in market demand from 2009, particularly in London  Greater demand for larger projects  Fit Out net recruiter in first half  Increased demand from financial and professional services; public sector

<10% of revenue

 Market share maintained with focus on profitable work rather than chasing

revenue

 Margin at 3.9% (2009: 4.6%)  Strong performance given the challenging market Revenue Operating Profit 2010 2009 % 2010 2009 % £179m £160m +12% £6.9m £7.4m

• 7%

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Fit Out – Projects

Client: Freshwater Property Management Project: Strip out to shell and core followed by a full Cat A refurbishment Contract value: £2.6 million Location: London Client: Reckitt Benckiser Project: Fit out of ground, first and third floors while the building was occupied Contract value: £1.6 million Location: London Other key projects: EMEA (£2.5m), Marine Accident Investigation Branch (£600k), Talk Talk (£1.7m)

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Fit Out – Outlook

 Revenue for second half of 2010 expected to be greater than first half  Shortage of Grade A space will restrict further growth in 2011  Expect market to remain competitive and price sensitive  Targeting growth in retail banking, education and hotel sectors  Continued focus on cost control, maintaining breadth of sector spread and

expanding regional presence

 Order book strengthened to £213m (2009: £150m), up 25% since start of the

year

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Affordable Housing

 Mixed tenure developments  New build social housing  Affordable open market housing  Social housing refurbishment  Response maintenance  Facilities management

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Affordable Housing – Market & Trading Highlights

 Demand for new build social housing and refurbishment has remained firm  Secured first scheme under HCA Delivery Partner Panel  Extended response maintenance business with acquisition of Powerminster

to form UK-wide business; extends offering into FM including gas servicing and electrical testing

 Sold 168 open market houses (2009: 183) at ASP of £141,000 (2009:

£142,000)

 Operating margin maintained at 4.0% (2009: 4.0%) Revenue Underlying Operating Profit 1 2010 2009 % 2010 2009 % £173m £178m

• 3%

£6.9m £7.1m

• 3%

1 Before non-recurring costs relating to the acquisition of £0.2m

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Affordable Housing – Market Sectors

Refurbishment Response Maintenance Open Market

2008 half year 2009 half year Revenue £176m £178m £173m 2010 half year

New Building Social Housing

82 3 24 64 99 26 53 88 18 70

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Affordable Housing – Projects

Client: City of Bradford Metropolitan District Council Project: 45 houses for social rent Contract value: £5.6 million Location: Bradford Other key projects: Gloucester City Homes (£30m), Port Glasgow, Inverclyde (£22m), Velmore Estate, Hampshire (£21m), Dukinfield, Greater Manchester (£3.6m) Client: Wales & West Housing Association Project: 16 affordable apartments and houses Contract value: £2.3 million Location: St Athan, Vale of Glamorgan, South Wales

Artist’s impression

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Affordable Housing – Outlook

 Expect mixed tenure to regain importance in addressing regeneration

challenges; alternative sources of funding from institutional investors

 Response maintenance, refurbishment and new build social housing

• pportunities remain reasonable

 Appointed to the HCA Delivery Partner Panel  Pursuing next round of social housing PFIs  Early 2010 improvement in open market housing not sustained  Energy efficient retrofit opportunities in medium term  Order book increased slightly to £1.4bn (2009: £1.3bn)

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Urban Regeneration

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Urban Regeneration – Market & Trading Highlights

 Market conditions remain subdued with weak occupier demand  With more planning decisions taken locally, division may benefit from strong

relationships with local authorities

 Acquired partners’ share of joint ventures at Reading, Eurocentral in

Glasgow and Smithfield Market Development, Manchester

 Good progress with residential elements of mixed-use schemes, both

volumes and values

 Continue to renegotiate agreements and progress schemes  Operating profit of £0.8m (2009: loss of £1.1m), on revenue of £15m (2009:

£5m)

Revenue Operating Profit 2010 2009 2010 2009 £15m £5m £0.8m (£1.1m)

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Urban Regeneration – Historic Performance

 Return subdued in short term  Longer-term returns over cycle  Average return on capital employed 20% (1997 to 2009)  Capital employed currently £62m

Operating Profit £m 5 10 15 20 25 30 35 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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Urban Regeneration – Projects

Partners: British Waterways, Muse and Igloo (ISIS Waterside Regeneration) Project: Mixed use development Development value: £60 million Location: Granary Wharf, Leeds Partners: HCA, Muse and L&G (English Cities Fund) Project: Phase I – mix of 250 homes and business space Development value: £200 million Location: Millbay, Plymouth Other key projects: Merchant Gate, Wakefield (£40m), Phase 3 Offices, St Paul’s, Liverpool (£35m), Eurocentral Plot F East, North Lanarkshire (£20m)

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Urban Regeneration – Outlook

 Expect market to slowly improve through 2011 and eventual recovery will be

driven by improvement in tenant and investor demand

 Focus on public sector and grant-funded opportunities  Continue to realise value with asset sales  Well positioned to exploit regeneration opportunities when market recovers

with high quality portfolio in prime locations

 Long-term pipeline strong with £1.4bn (2009: £1.6bn) share of development

schemes

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Investments

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Investments – Strategy & Trading Highlights

 Primary purpose to gain access to higher-margin construction opportunities for the

Group

– Investment-led construction – Target sectors that match our competitive strengths

 Income from an investment portfolio, complementing profits from construction

activities

 Potential longer-term profits from secondary market sales  Directors’ valuation of investment portfolio of £51m (2009: £36m)  Achieved financial close of Hull BSF, Tayside Mental Health PFI and two further

tranches of NHS LIFT schemes £m 2010 2009 Operating cost (0.9) (2.0) Income from JVs 0.5

• Net result

(0.4) (2.0)

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Investments – Overview

Sector Project Capital value £m MS equity/loan stock £m Equity % Health Barnsley LIFT 48 1.0 30% Camden & Islington LIFT 40 0.5 30% Doncaster LIFT 57 1.1 30% Solent LIFT 29 0.4 15% Bury Thameside & Glossop LIFT 36 1.1 30% Plymouth LIFT

• 0.1

9% PMP portfolio 74

• 50%

Emergency Services Dorset Emergency Services Partnership Initiative 67 1.8 34% Lancashire Fire 4 0.1 25% Roads Claymore Roads 68 2.8 50% Newport SDR 69 3.2 50% Community Wigan Life Centre 62 5.0 50% Miles Platting 156 2.8 33% Hull BSF 49 1.5 33% Tayside Mental Health PFI 101 4.6 50% Invested and committed to date 26.0 Directors’ valuation at rates between 7% and 9% 51.3 Blue: under construction

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Investments – Projects

Client: Doncaster Community Solutions Project: Two new primary care centres Construction value: £12.5 million Client: Wigan Council (Access Consortium) Project: Constructing and managing a leisure, health, learning and information complex Development value: £62 million Location: Wigan Other key projects: Hull BSF (£200m), Tayside Mental Health (£95m), Barnsley NHS LIFT Tranche 2 (£13m)

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Investments – Outlook & Prospects

 Preferred bidder

– Bournemouth Regeneration (£300m+)

 Shortlisted

– North Tyneside Homes for the Future

 Other opportunities

– Express LIFT and Hub Scotland in health sector – Next round of social housing PFIs – Other project finance led construction opportunities

 Expect investment led opportunities in medium term due to strain on public

finances

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Order Book Profile

£m 500 1000 1500 2000 2500 2010 2011 2012 2013 2014 2015 2016 2017 2018+ Urban Regeneration Pipeline Affordable Housing Fit Out Construction & Infrastructure

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Summary – Outlook & Prospects

 Continued success of strategy in developing market-leading positions in our

chosen sectors

 Forward order book at £3.7bn (2009: £3.6bn), improved by £0.5bn since

start of year

 Market outlook remains challenging however broad spread of activities

provides resilience

 £5m cost savings from Construction & Infrastructure targeted for second half  Group well placed to capitalise on opportunities presented by the market and

grow market share

 Positive start to the year continues, which underpins our confidence of

meeting our expectations for the full year

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Notes

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Notes

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morgansindall.com

41 Morgan Sindall Group plc, Kent House, 14-17 Market Place, London W1W 8AJ Tel: 020 7307 9200 enquiries@morgansindall.com