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Half year report 2010

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Morgan Sindall Group plcMorgan Sindall Group plc is a leading UK construction and regeneration group operating through four divisions of Construction & Infrastructure, Fit Out, Affordable Housing and Urban Regeneration supported by an Investments unit.

Fit Out

Fit Out operates through threebusinesses. Overbury specialises inoffice refurbishment and fit out,working with clients directly throughtheir professional teams. MorganLovell offers a one-stop servicecovering every aspect of design,project management and fit out.Vivid Interiors undertakes fit out andrefurbishment projects in the retailbanking, hotel and higher educationsectors. It works both directly withclients and through appointedprofessional teams.

Affordable Housing

Lovell develops, constructs andrefurbishes affordable, social andopen market housing. It specialises in schemes in partnership withRegistered Social Landlords and localauthorities, building affordable homesfor sale on the open market as part of mixed tenure regeneration. It alsodelivers refurbishment and responsemaintenance of homes for publicsector residential property owners.

Construction & Infrastructure

The construction and infrastructureactivities have been merged to createa more integrated service to clientswho procure both civil engineeringand building work. This new divisionwill operate as Morgan Sindall. Thedivision now encompasses a fullservice capability from design, throughdelivery of construction and civilengineering projects, to maintenanceof infrastructure assets, workingacross a number of sectors, includingtransport, water, energy, gas,pharmachem, health, education,defence and retail.

Group at a glance

The divisions

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Urban Regeneration

Muse Developments specialises in delivering complex mixed-useschemes, predominantly in town and city centre locations. The divisionworks in partnership with landowners,local authorities and other public and private sector partners to progressdevelopment opportunities andmaximise the contribution to urbanrenewal through ‘mixed-use’ projects,typically including commercial and leisure space, residentialaccommodation and communityfacilities.

Investments

The Investments unit providesproject funding and investmentexpertise for public sector projects.The unit’s primary function is to act as a facilitator for projects thatinvolve another Morgan SindallGroup division as a delivery partner.Investments works in partnershipwith other equity funders andassociated professionals to fund,deliver and operate assets focusing in particular on health, education,affordable housing, emergencyservices, defence and infrastructure.

01Morgan Sindall Group plcHalf year report 2010About Morgan Sindall Group

AboutMorgan Sindall GroupFind out about Morgan Sindall Groupand howwe performed in the first halfof 2010.

Group at a glance 01Financial highlights 02Half year report 04

Condensed consolidatedfinancial statementsCondensed consolidatedincome statement 12Condensed consolidatedstatement of comprehensive income 13Condensed consolidatedstatement of financial position 14Condensed consolidatedstatement of cash flows 15Condensed consolidatedstatement of changes in equity 16Notes to the condensedconsolidated financial statements 19

Responsibility statement 28

8057 Interim 2010_Document 1 12/08/2010 16:10 Page 01

10 0.9809 1.1408 1.24

Revenue £bn

10 23.109 23.908 33.1

Underlying profit before tax,amortisation and non-recurring costs £m

10 18.409 20.508 28.6

Profit before tax £m

02 Morgan Sindall Group plc Half year report 2010About Morgan Sindall Group

£0.98bn

£23.1m

£18.4m

Financial highlights


10 42.009 42.608 60.9

Adjusted basic EPS pence

10 30.909 34.608 50.1

Basic EPS pence

10 12.009 12.008 12.0

Interim dividend pence

03Morgan Sindall Group plc Half year report 2010About Morgan Sindall Group

42.0p

30.9p

12.0p



Our results for the six months to 30 June 2010 showa good performance given the challenging marketconditions. Underlying profit before tax, amortisationof intangible assets and non-recurring costs was£23.1m (2009: £23.9m) on revenue of £0.98bn(2009: £1.14bn). Non-recurring costs of £1.9m have been incurred relating to the merger of theConstruction and Infrastructure Services divisions and the acquisition of Powerminster Gleeson Services (‘Powerminster’). Adjusted earnings per share on the same basis were 42.0p (2009: 42.6p).

Profit before tax for the period (after amortisation of intangible assets and non-recurring costs) was£18.4m (2009: £20.5m). Reflecting our optimismabout the future prospects for the Group and thestrong balance sheet, the Board has declared amaintained interim dividend of 12.0p (2009: 12.0p).

The Group remains financially strong with net cash at 30 June 2010 of £138m (2009: £89m) and with£100m of undrawn banking facilities. Average cashduring the six months to 30 June 2010 was muchimproved at £61m (2009: £21m) with average cashincreasing since the end of the period to £66m at the end of July.

Strategic developmentsOur strategy continues to be the achievement ofleading positions in all our chosen markets throughthe delivery of the highest quality construction service in close collaboration with our clients.

In line with this strategy, and in order to deliver a more integrated service to a number of clients who procure both civil engineering and building work, in April we announced the combination of the Construction and Infrastructure Services divisionsto create a single, enlarged division trading under the Morgan Sindall name. We are already seeing the benefits of this combination with the divisioncurrently bidding and delivering a number ofintegrated construction and infrastructure projects.

In June, the Group’s Affordable Housing divisionextended its response maintenance capability with theacquisition of Powerminster. Powerminster provides a

range of facilities management services that includeboth planned and response maintenance to housingassociations and housing PFI schemes. This acquisitionsignificantly enhances our maintenance capability andcreates a UK-wide business delivering planned andresponse maintenance and estates managementservices under the Lovell brand. The acquisition willleave the division better placed to bid for contractsthat package planned and response maintenancerequirements together.

Securing opportunities in challenging marketsAlthough the construction and regeneration marketsremain challenging, the Construction & Infrastructuredivision has been successful during the first half of the year in securing a good level of new business and reaching financial close on two major constructionprojects, namely the Hull BSF programme and theTayside Mental Health PFI, in conjunction with ourInvestments unit. As expected, the division hasexperienced some softening of demand from publicsector clients as changes to spending commitmentshave begun to take effect.

Fit Out has seen improved market conditions and has benefited from a recovery in demand for largerprojects in London, with the professional and financialservices sectors leading the increase in activity.

In Affordable Housing, demand for new build social housing and refurbishment has remained firm although the private housing market remainsconstrained by the lack of availability of mortgagefinance.

Urban Regeneration has seen a slight pick up in activity albeit tenant and investor demand remains subdued.

Overall, the Group is well positioned to face thechallenges in the markets in which we operate. This position is derived from a number of factors:

The Group has a wide breadth of capabilities and skills and an ability to manage complexconstruction projects

Half year report



Our activities are spread across the constructionand regeneration markets giving us exposure to a large number of market sectors with varyingcycles of activity

We are financially strong, with a significant cashbalance, extensive unused banking facilities, accessto performance bonds and guarantees and arelatively immaterial defined benefit pension deficit

Our pursuit of operational excellence through our Perfect Delivery quality programme is provingto be a key differentiator in terms of the service we provide to our clients

Our order book, which stood at £3.7bn on 30 June2010, gives us good visibility on our future workload

Finally we continue to keep a firm control on our costswithout compromising our operational effectiveness. A further £16m of annualised overhead savings wererealised in the first six months of 2010, of which £1mrelates to the merger of the two divisions. This is inaddition to the £38m of annualised savings realisedsince the start of 2008. A further £5m of annualisedsavings are targeted in the second half of 2010 fromthe merger of two divisions, detailed below.

Divisional performanceThe performance of each of the operating divisionsfor the six months to 30 June 2010 is set out below.Divisional operating profit is profit from operationsbefore the amortisation of intangible assets and non-recurring costs.

Name of project Plymouth MillbayPartners English Cities Fund

(ECf) (including Muse)Location Plymouth

£300m transformation of a derelict 15-acreharbourside area close to Plymouth city centre tocreate an exciting new waterfront community withover 1.6 million sq ft of mixed-use development.Phase one, a mix of 250 homes and business space,is now complete.

BelowMuse Development

Name of project Reckitt BenckiserPartners Reckitt BenckiserLocation Wellcroft House,

Wellcroft Road, Slough

Fit out of office space on the ground, first and thirdfloors of a building which remained in occupationthroughout the 19 week project. Work carried outunder the £1.6m scheme included the creation ofcellular offices and meeting rooms, installation ofhigh specification joinery items and alterations andextensions to existing catering services.

BelowOverbury



Construction & InfrastructureThe newly merged Construction & Infrastructuredivision is reported for the first time on a combinedbasis. It made an underlying operating profit of £12.2m(2009: £15.0m) on revenue of £612m (2009: £797m).This profit is stated before restructuring costs of£1.7m, represents an improved underlying operatingmargin of 2.0% (2009: 1.9%) and reflects continuedoperational improvement. Revenue is lower due to aslight fall in demand for construction services, delaysin the procurement of major infrastructure projectsand the impact of the transition between regulatoryperiods in the utility services sector.

The result for the period includes an operating profit from the division’s construction businesses of£6.3m (2009: £5.7m) on revenue of £345m (2009:£378m), representing an improved operating marginof 1.8% (2009: 1.5%). The operating profit from itsinfrastructure businesses was £5.9m (2009: £9.3m)on revenue of £267m (2009: £419m) representing a maintained operating margin of 2.2% (2009: 2.2%).

The construction and infrastructure activities havebeen merged to create a more integrated service to clients who procure both civil engineering andbuilding work, for example BAA and Network Rail. Thedivision will operate as Morgan Sindall, which will alsogive the Group a stronger identity in the market, withthe senior management of the two merged divisionsbeing integrated into a single team. The total cost ofintegration is expected to be £6.0m of which £4.0mwill be incurred in the current year (£1.7m incurred as at 30 June 2010). It is expected that £6.0m ofannualised overhead savings will be realised (with£1.0m realised to date) with savings of £1.5mbenefiting the current year.

The division now encompasses a full service capability from design, through delivery of complexconstruction and civil engineering projects, tomaintenance of infrastructure assets, working acrossa number of sectors, including transport, water,energy, pharmachem, health, education, defence and retail.

During the first half of the year the division has beensuccessful in converting all of its preferred bidderopportunities (£0.9bn) brought forward at the start of the year. This includes the Hull BSF programme(valued at £200m), the Tayside Mental Hospital PFIscheme (£95m), the Lee Tunnel project for ThamesWater (valued at £209m to the Group), the ten-yearinfrastructure alliance with E.ON Central Networks(£500m) and a framework with Yorkshire Water under AMP5 (£60m). Other notable contract winsinclude, in the education sector, Lowestoft College(£19m), Teesside University Academic Facility (£8m)and student accommodation at the Royal VeterinaryCollege (£16m) and in the defence sector newfacilities for the Kings Troop at Woolwich (£16m).

The outlook for the division remains challenging albeitit currently has a reasonable pipeline of constructionopportunities and a number of large infrastructureprojects including Crossrail and the Second ForthRoad Crossing being tendered. Uncertainty remainsover the precise levels of future public sector demandand we await the outcome of the ComprehensiveSpending Review to gain a clear understanding ofspecific departmental plans for future publicspending. The forward order book at 30 June 2010was £2.1bn (2009: £2.1bn), an increase of £0.5bnsince the start of the year, with broadly the samebalance between the Construction (£0.6bn) andInfrastructure (£1.5bn) elements of the forward order book.

Fit OutFit Out delivered an operating profit of £6.9m (2009: £7.4m) with an operating margin of 3.9%(2009: 4.6%) on increased revenue of £179m (2009: £160m). This is an improved performancecompared with the second six months of last yearand is pleasing given the highly competitive market conditions.

The division’s market leadership in the delivery oflarger projects has led to the increase in revenue, as it has secured a number of significant contracts in the London professional and financial servicessectors. The division’s growing presence in retail



banking was further strengthened with appointmentsto Lloyds Banking Group’s and Royal Bank of Scotland’sframeworks. Conversely, demand for fit out servicesfrom public sector clients is currently at a low ebb,representing less than 10% of the division’s revenuein the first half of the year compared with 20-30%historically. The division continues to prove it is highlyadaptable to the rapidly changing market conditionswith overheads being managed tightly, although with improving levels of activity the division hasrecommenced staff recruitment.

It is expected that revenue for the second half of theyear will exceed that achieved in the first half, albeit themarket remains competitive. The division’s short-termoutlook remains healthy with a reasonable pipeline ofopportunities for the remainder of 2010, although weare cautious about the sustainability of the recoveryand prospects for 2011. The forward order book at 30 June 2010 was £213m (2009: £150m), an increaseof 25% since the start of the year.

Affordable HousingAffordable Housing delivered a similar performance to that in the same period last year with an underlyingoperating profit of £6.9m (2009: £7.1m) on revenueof £173m (2009: £178m). The operating margin was maintained at 4.0% (2009: 4.0%). The divisionincurred £0.2m of one-off costs in the period relating to the transaction costs of the acquisition of Powerminster, which are now expensed followingchanges to accounting standards.

Since the start of the year demand for new buildsocial housing and refurbishment has held upreasonably well. Open market sales continue to beconstrained by the lack of mortgage availability andthe division continues to offer shared equity as aroute to home ownership for first time buyers.

On 30 June 2010 the Group acquired PowerminsterGleeson Services Limited for a total cash considerationof £6.6m. Powerminster currently has net assets of £2.3m including £1.8m of cash. The acquisitionsignificantly enhances the division’s maintenancecapability and creates a UK-wide business delivering

planned and response maintenance and estatesmanagement services. The acquisition leaves it betterplaced to bid for contracts that package planned and response maintenance requirements together.

During the period the division secured contracts in each of its core service areas. In new build socialhousing the division secured a contract to build 189new houses on the Velmore Estate near Eastleigh,Hampshire for First Wessex Housing Group (£21m). It also secured a ‘packaged’ 5-year contract for bothplanned and response maintenance for GloucesterCity Homes (£30m) as well as a Decent Homescontract for Hackney Homes (£16m). In mixed tenure the division has commenced development of the Mildmay scheme in Islington (£36m) delivering31 apartments for affordable rent, 14 apartments for shared ownership and 91 apartments for openmarket sale. Other notable contracts secured includeits first project under the HCA’s Delivery Partner Panelat Longfield Drive, Bradford (£6m) as well as securing£5m of funding under the first phase of the HCA’sKickstart programme over six development schemes.

The division’s order book has increased slightly to £1.4bn (2009: £1.3bn) due to the acquisition of Powerminster. In the short-term, the market for new build social housing, refurbishment andresponse maintenance is expected to remainreasonably robust. In the medium-term we expectGovernment funding for social housing to reducewith some of the gap filled by greater borrowing byRegistered Social Landlords. In addition potentialalternative sources of funding may become availableas private institutions seek ways to invest in thesector. Also, we do not expect any significantimprovement in conditions for open market housingin the short-term but we do expect to see mixedtenure opportunities increase in the medium-term asthe cross subsidy from open market housing providesfunds for social housing provision. In the long-termthe plans to retrofit social housing to achieve a higherenvironmental standard is an exciting opportunity aswell as further expansion of our facilities managementcapability. The division is also pursuing the next waveof social housing PFIs that are expected to beprocured over the next year or so.



Urban RegenerationUrban Regeneration achieved an operating profit in the period of £0.8m (2009: loss of £1.1m) onrevenue of £15m (2009: £5m). The improvedperformance is due to a slight improvement in the levels of activity and stronger sales from thedivision’s residential elements of regenerationschemes.

Though levels of commercial property activity remainlow, the Group’s financial strength means that thedivision is well equipped to capitalise on opportunitieswhen they arise. For example, in the period Musepurchased its partners’ interests in three joint ventures,which will help to underpin performance in themedium-term.

The division also continues to progress its majorregeneration schemes. Construction is expected tocommence shortly on the next phases of schemes at Doncaster and Wakefield. Additionally, planningpermission has been received on the developmentscheme at Blackpool and the English Cities Fund (a Muse joint venture) has received planningpermission for a major regeneration project at Salford.

We expect market conditions to remain subdued for some time albeit tenant and investor interest is expected to improve slowly through 2011. The outlook for the division has remained largelyunchanged over the last six months. The division’sshare of the future development pipeline at 30 June2010 was £1.4bn (2009: £1.6bn), which will mainly be delivered through joint ventures.

InvestmentsThe Investments unit comprises the Group’s projectfinance activities and includes the cost of bidding for investment opportunities as well as the incomegenerated from the management of existinginvestments and returns on equity invested in thoseinvestments. For the six months to 30 June 2010 the unit achieved an operating loss of £0.4m (2009:

loss of £2.0m), representing its net bidding costs, onrevenue of £3m (2009: £3m), which includes its shareof operating profits of equity accounted joint venturesof £0.5m (2009: £nil).

The improvement in performance compared with thesame period last year was primarily due to the unitachieving financial close on Tayside Mental Health PFIand the Hull BSF programme in conjunction with theConstruction & Infrastructure division. In addition theunit has achieved preferred bidder status on the WestSussex Express LIFT scheme and the BournemouthTown Centre regeneration project, and closed thethird tranche of both the Barnsley NHS LIFT and theDoncaster NHS LIFT health schemes.

The directors’ valuation of the unit’s portfolio ofinvestments is £51m (2009: £36m) using discountrates of 7-9%. This increase in value of the portfolio is mainly as a result of schemes achieving financialclose, as referred to above. The valuation is based on discounting expected future cash flows but doesnot include potential refinancing gains or projects at preferred bidder stage or profits made byInvestments from providing services or profit made by other parts of the Group in performingconstruction, maintenance or facilities managementwork. Committed, but not currently invested,subordinated debt is added to this discounted cashflow value to give the directors’ valuation. At 30 June2010 the Group had total equity and committed debtin its investments of £26m (2009: £19m), of which£14m is invested and £12m is committed.

In the short-term, the unit continues to pursue anumber of opportunities, including the next wave of social housing PFIs, Express LIFT schemes inEngland and schemes requiring project finance that can harness an integrated approach with theconstruction capabilities of the Group. We believe the pressure on the public finances will mean thatinvestment-led projects will become increasinglyimportant and yield new opportunities in themedium-term.



Name of project Doncaster NHS LIFT SchemePartners Doncaster Community Solutions Location Doncaster

Morgan Sindall Investments is currently deliveringtwo pioneering primary care centres jointly worth£12.5m in Doncaster through Doncaster CommunitySolutions , a public private partnership betweenCommunity Solutions for Primary Care, NHS Doncaster,Doncaster Metropolitan Council and CommunityHealth Partnerships. Once completed, MorganSindall Investments will have delivered nine healthcentres in the Doncaster area over the past five years.

AboveMorgan Sindall Investments



Financial review Revenue for the six months to 30 June 2010 was£0.98bn (2009: £1.14bn), a fall of 14% on the sameperiod last year. The fall is primarily due to lower levels of activity in Construction & Infrastructure partly offset by an increase in revenue at Fit Out and Urban Regeneration. Underlying operating profitfrom operations prior to the amortisation of intangibleassets and non-recurring costs was £22.7m (2009:£23.6m) reflecting slightly lower levels of profitabilityat Fit Out and Construction & Infrastructure offset byimprovements at Urban Regeneration andInvestments, as well as the benefit of cost savingactions previously implemented.

Net finance income was £0.4m (2009: £0.3m), the effect of higher average cash balances beingtempered by lower interest rates. Profit before tax,amortisation of intangible assets and non-recurringcosts was £23.1m (2009: £23.9m). The income tax expense was £5.3m (2009: £5.9m) reflecting a tax rate of 29.0% (2009: 28.8%). Profit after tax was £13.1m (2009: £14.6m) with an increasedshareholders’ equity of £209m (2009: £196m).

Cash at 30 June 2010 was £138m (2009: £89m). Net cash inflow from operating activities was £44.1m(2009: outflow of £15.2m) reflecting strong operatingcash conversion and improvements in workingcapital. There were net payments of £7.4m (2009:£1.1m) for the acquisition of subsidiaries in the period(see note 5 to the condensed financial statements for further details). The overall net increase in cashduring the period was £20.4m (2009: decrease of£31.6m). Average cash during the six months to 30 June 2010 was much improved at £61m (2009:£21m) with average cash increasing since the end of the period to £66m at the end of July. The higherlevel of average cash reflects the increase in revenueat Fit Out and careful management of housinginventories at Affordable Housing. In addition to itscash resources the Group has £100m of undrawn,committed bank facilities through to mid-2012.

OutlookThe Group’s forward order book currently stands at£3.7bn, an increase of £0.5bn since 31 December2009. We expect that the construction market willremain challenging but the Group’s broad spread of activities will provide some resilience to thechanges in the market. In addition, we will continueour focus on resource levels and ensure that ourbusinesses remain efficient in the current marketenvironment. Nevertheless, the size and length of the Group’s forward order book coupled with ourfinancial strength leaves us well positioned to navigateour way through these challenges, to take advantageof the opportunities presented by the market and to grow profitable market share. The positive start tothe year continues, we expect to achieve the targetswe set ourselves and remain optimistic about thefuture prospects for the Group.

Principal risks and uncertaintiesThe directors consider that the principal risks which may have a material impact on the Group’sperformance in the remaining six months of the year,as explained in more detail in the 2009 annual reportand accounts, continue to be as follows:

Market and economic environment – the marketsectors in which the Group operates are affected to varying degrees by general macroeconomicconditions and changes in Government spendingpriorities. The Group is particularly focused at present on managing the impact of the challengingeconomic conditions, continuing to invest for thelong-term and to be prepared for opportunities as they arise. The Group notes the planned changes in the Emergency Budget and in recentannouncements and awaits the details of theComprehensive Spending Review in the autumn.



Regulatory environment – the Group operates within a constantly challenging regulatoryenvironment governed by legislation and industryspecific regulation. Non-compliance with legislation or regulations can damage the Group’s reputation,market standing and ability to secure new businessand may lead to financial penalties.

Health, safety and environmental risks – the Group’shealth and safety and environmental performanceaffects employees, subcontractors and the public and, in turn, can affect its reputation and commercialperformance.

Developing talent – the ability of the Group to deliverprojects successfully to clients, grow in profitability anddevelop strong, sustained financial performance relieson the quality of its employees. It is critical that talentedindividuals are attracted, developed and retained.

Contractual risks– the Group undertakes severalhundred contracts each year and it is important thatcontractual terms reflect risks arising from the nature and complexity of the works and duration of thecontract.

Acquisitions – the Group regularly identifies andevaluates potential acquisitions and it is importantthat acquisitions deliver the planned benefits.

Counterparty and liquidity risks – the terms on which the Group trades with counterparties affect its liquidity. Without sufficient liquidity, the Group’sability to meet its liabilities as they fall due would be compromised, which could ultimately lead to its failure to continue as a going concern.

Forward looking statementsThis half year report has been prepared solely to assist shareholders in assessing the strategies of the board and in gauging their potential to succeed. It should not be relied on by any other party or forother purposes. Forward looking statements havebeen made by the directors in good faith usinginformation available up until the day that theyapproved this half year report. Forward lookingstatements should be regarded with caution because of the inherent uncertainties in economictrends and business risks.


12 Morgan Sindall Group plc Half year report 2010Condensed consolidated financial statements

for the six months to 30 June 2010 (unaudited)

Unaudited UnauditedSix months to Six months to Year ended30 June 2010 30 June 2009 31 Dec 2009

Notes £m £m £m

Continuing operationsRevenue 1 982.1 1,140.6 2,213.5Cost of sales (877.2) (1,031.5) (1,993.0)

Gross profit 104.9 109.1 220.5

Amortisation of intangible assets 1 (2.8) (3.4) (6.8)Non-recurring costs 1 (1.9) – –Other administrative expenses (82.5) (85.7) (170.1)

Total administrative expenses (87.2) (89.1) (176.9)

Share of net profit of equity accounted joint ventures 1 0.3 0.2 0.1

Profit from operations 1 18.0 20.2 43.7

Finance income 1.3 1.6 3.3Finance costs (0.9) (1.3) (2.3)

Net finance income 1 0.4 0.3 1.0

Profit before income tax expense 1 18.4 20.5 44.7

Income tax expense 2 (5.3) (5.9) (11.8)

Profit for the period 13.1 14.6 32.9

Attributable to:Owners of the Company 13.1 14.6 33.0Non-controlling interests – – (0.1)

13.1 14.6 32.9

Earnings per shareFrom continuing operations Basic 4 30.9p 34.6p 77.9pDiluted 4 30.6p 34.2p 77.1p

There were no discontinued activities in either the current or comparative periods.

Condensed consolidated income statement


13Morgan Sindall Group plc Half year report 2010Condensed consolidated financial statements


£m £m £m

Profit for the period 13.1 14.6 32.9

Other comprehensive (expense)/income:Actuarial losses arising on defined benefit obligation – – (0.6)Movement on cash flow hedges in equity accounted joint ventures (1.5) 0.3 0.6

Other comprehensive (expense)/income for the period, net of income tax (1.5) 0.3 –

Total comprehensive income for the period 11.6 14.9 32.9

Attributable to:Owners of the Company 11.6 14.9 33.0 Non-controlling interests – – (0.1)

11.6 14.9 32.9

for the six months to 30 June 2010 (unaudited)Condensed consolidated statement of comprehensive income




£m £m £m

Non-current assetsGoodwill 188.7 184.4 184.4Other intangible assets 14.6 20.0 16.6Property, plant and equipment 30.1 30.9 31.3Investment property 2.5 – 1.8Investments in equity accounted joint ventures 44.4 54.0 50.2Investments 0.8 0.1 0.1Shared equity loan receivables 11.4 – 9.0Deferred tax assets 3.8 2.7 3.8

296.3 292.1 297.2

Current assetsInventories 147.3 166.4 141.2Amounts due from construction contract customers 223.5 256.8 179.7Trade and other receivables 222.6 201.8 155.1Cash and cash equivalents 138.1 88.7 117.7

731.5 713.7 593.7Total assets 1,027.8 1,005.8 890.9

Current liabilitiesTrade and other payables (670.7) (678.8) (576.3)Amounts due to construction contract customers (89.5) (77.3) (49.0)Current tax liabilities (30.1) (22.4) (27.3)Finance lease liabilities (1.7) (1.8) (1.8)

(792.0) (780.3) (654.4)Net current liabilities (60.5) (66.6) (60.7)

Non-current liabilitiesTrade and other payables – (0.1) (0.1)Finance lease liabilities (6.9) (7.2) (7.1)Retirement benefit obligation (3.0) (2.8) (3.2)Provisions (16.6) (19.6) (16.8)

(26.5) (29.7) (27.2)Total liabilities (818.5) (810.0) (681.6)Net assets 209.3 195.8 209.3

EquityShare capital 2.2 2.2 2.2Share premium account 26.7 26.6 26.7Capital redemption reserve 0.6 0.6 0.6Own shares (5.9) (6.0) (6.0)Hedging reserve (3.2) (2.0) (1.7)Retained earnings 189.0 174.4 187.6

Equity attributable to owners of the Company 209.4 195.8 209.4Non-controlling interests (0.1) – (0.1)

Total equity 209.3 195.8 209.3

Condensed consolidated statement of financial positionat 30 June 2010 (unaudited)



Condensed consolidated statement of cash flows


Note £m £m £m

Net cash inflow/(outflow) from operating activities 6 44.1 (15.2) 25.0

Cash flows from investing activitiesInterest received 1.5 1.8 3.4Dividend from joint ventures 1.4 2.0 2.2Proceeds on disposal of property, plant and equipment 0.9 1.1 1.0Purchases of property, plant and equipment (1.5) (2.4) (7.5)Payments to acquire interests in joint ventures (3.2) (2.5) (4.2)Payments to acquire trade investment (0.7) – –Payments for the acquisition of subsidiaries (7.4) (1.1) (1.1)

Net cash outflow from investing activities (9.0) (1.1) (6.2)

Cash flows from financing activitiesNet payments to acquire own shares – – (0.1)Dividends paid (12.7) (12.7) (17.7)Repayments of obligations under finance leases (2.0) (2.6) (3.7)Proceeds on issue of share capital – – 0.1

Net cash outflow from financing activities (14.7) (15.3) (21.4)Net increase/(decrease) in cash and cash equivalents 20.4 (31.6) (2.6)Cash and cash equivalents at the beginning of the period 117.7 120.3 120.3

Cash and cash equivalents at the end of the periodBank balances and cash 138.1 88.7 117.7

for the six months to 30 June 2010 (unaudited)



Condensed consolidated statement of changes in equityfor the six months to 30 June 2010 (unaudited)

Share Capital Reserve Cash flow Non-Share premium redemption for own hedging Retained controlling Totalcapital account reserve shares held reserve earnings Total interests equity

£m £m £m £m £m £m £m £m £m

Balance at 1 January 2010 2.2 26.7 0.6 (6.0) (1.7) 187.6 209.4 (0.1) 209.3

Total comprehensive income for the period:Net profit – – – – – 13.1 13.1 – 13.1

Other comprehensive income:Movement on cash flow hedges in equity accounted joint ventures – – – – (1.5) – (1.5) – (1.5)

Total comprehensive income for the period, net of income tax – – – – (1.5) 13.1 11.6 – 11.6

Share-based payments – – – – – 1.1 1.1 – 1.1

Exercise of share options – – – 0.1 – (0.1) – – –

Dividends paid:Interim dividend in place ofa final dividend for the year ended 31 December 2009 – – – – – (12.7) (12.7) – (12.7)

Balance at 30 June 2010 2.2 26.7 0.6 (5.9) (3.2) 189.0 209.4 (0.1) 209.3




£m £m £m £m £m £m £m £m £m

Balance at 1 January 2009 2.2 26.6 0.6 (6.4) (2.3) 171.6 192.3 – 192.3

Total comprehensive income for the year:Net profit – – – – – 14.6 14.6 – 14.6

Other comprehensive income:Movement on cash flow hedges in equity accounted joint ventures – – – – 0.3 – 0.3 – 0.3

Total comprehensive income for the year, net of income tax – – – – 0.3 14.6 14.9 – 14.9



Dividends paid:Final dividend for 2008 – – – – – (12.7) (12.7) – (12.7)

Balance at 30 June 2009 2.2 26.6 0.6 (6.0) (2.0) 174.4 195.8 – 195.8




£m £m £m £m £m £m £m £m £m

Balance at 1 January 2009 2.2 26.6 0.6 (6.4) (2.3) 171.6 192.3 – 192.3

Total comprehensive income for the period:Net profit – – – – – 33.0 33.0 (0.1) 32.9

Other comprehensive income:Actuarial losses arising on defined benefit obligation – – – – – (0.6) (0.6) – (0.6)

Movement on cash flow hedges in equity accounted joint ventures – – – – 0.6 – 0.6 – 0.6

Total comprehensive income for the period, net of income tax – – – – 0.6 32.4 33.0 (0.1) 32.9


Issue of shares at a premium – 0.1 – – – – 0.1 – 0.1


Movement on deferred tax asset on share-based payments – – – – – 0.8 0.8 – 0.8

Own shares acquired in the year – – – (0.1) – – (0.1) – (0.1)

Dividends paid:Final dividend for 2008 – – – – – (12.7) (12.7) – (12.7)Interim dividend for 2009 – – – – – (5.0) (5.0) – (5.0)

Balance at 31 December 2009 2.2 26.7 0.6 (6.0) (1.7) 187.6 209.4 (0.1) 209.3

Condensed consolidated statement of changes in equityfor the six months to 30 June 2010 (unaudited)



Basis of preparation and accounting policiesThe information for the year ended 31 December 2009 does not constitute statutory accounts as defined in section434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor’s report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The Group’s activities and the key risks facing its future development, performance and position are set out in the half year report. The directors have reviewed the current and projected position of the Group and have a reasonableexpectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half yearcondensed consolidated financial statements.

The annual financial statements of Morgan Sindall Group plc are prepared in accordance with International FinancialReporting Standards (‘IFRS’) as adopted by the European Union. The condensed consolidated financial statementsincluded in this half year report have been prepared in accordance with International Accounting Standard (‘IAS’) 34 ‘Interim Financial Reporting’, as adopted by the European Union. This half year report has not been audited orreviewed by auditors pursuant to the Auditing Practices Board guidance on ‘Review of Interim Financial Information’.

The same accounting policies, presentation and methods of computation are followed in these condensedconsolidated financial statements as applied in the Group’s latest annual report and accounts for the year ended 31 December 2009, except as described below.

Changes in accounting policyIn the current financial year, the Group has adopted IFRS 3 ‘Business Combinations’ (revised 2008), IAS 27‘Consolidated and Separate Financial Statements’ (revised 2008) and IFRIC 12, ‘Service Concession Arrangements’.

The most significant changes to the Group’s previous accounting policies for business combinations are as follows:

Acquisition related costs which previously would have been included in the cost of a business combination areincluded in administrative expenses as they are incurred

Any pre-existing equity interest in the entity acquired is remeasured to fair value at the acquisition date, with anyresulting gain or loss included in profit or loss

Any changes in the Group’s ownership interest subsequent to the date of obtaining control are recognised directlyin equity, with no adjustment to goodwill, and

Any changes to the cost of an acquisition, including contingent consideration, resulting from events after the dateof the acquisition are recognised in profit or loss.

The adoption of IFRS 3 ‘Business Combinations’ is not considered to have had a material impact in the period.

Notes to the condensed consolidated financial statements(unaudited)




IFRIC 12 addresses the accounting by private sector operators involved in the provision of public sector infrastructureassets and services where the assets are not controlled by the operator, typically under PPP and PFI arrangements.Under IFRIC 12 infrastructure assets are not recognised as property, plant and equipment of the operator butrecognised as a financial asset as the operator has an unconditional right to receive a specified amount of cash orother financial asset over the life of the agreement. As a consequence of this treatment the operator now recognisesinvestment income in respect of the financial asset on an effective interest basis. Additionally, the timing of profitrecognition changes over the lifetime of the contract. Importantly, there is no change in the overall project cash flowsarising, or on the directors’ valuation. IFRIC 12 has been adopted in the period with retrospective effect. The effect ofadoption on comparative amounts was immaterial, and so comparative amounts have not been restated.

Operating segmentsThe Group has merged its Construction and Infrastructure Services segments, which are now reported in the newConstruction & Infrastructure segment. Comparative results for the six months to 30 June 2009 and the year to 31December 2009 have been restated. Revenue is generated from each of the Group’s operating segments as follows:

Construction & Infrastructure: provision of construction and civil engineering services ranging from small works,repairs and maintenance to large-scale complex projects

Fit Out: provision of fit out and refurbishment services in the commercial property, education, retail, banking andhotel sectors

Affordable Housing: development and construction of social and open market affordable housing, and plannedand response maintenance of social housing

Urban Regeneration: development through partnership agreements of large-scale mixed-use urban regenerationprojects with a view to letting and/or sale

Investments: provision of project finance and investment management expertise to the Group’s PPP/PFI activitiesand investment portfolio

Group Activities: represents costs and income arising from corporate activities which cannot be allocated to theoperating segments. These include costs for central activities such as treasury management, corporate taxcoordination, insurance management, pension administration and company secretarial and legal services

SeasonalityThe Group’s Construction & Infrastructure, Fit Out, Affordable Housing, Urban Regeneration and Investment activitiesare generally not subject to significant seasonal variation.



1 Business segments

Information regarding the Group’s operating segments is reported below. Amounts reported for the prior year havebeen restated to conform to the current segmentation.

The following is an analysis of the Group’s revenue and results by reportable segment in the six months ended 30June 2010:

Unaudited for the six months to 30 June 2010

Construction & Affordable Urban GroupInfrastructure Fit Out Housing Regeneration Investments Activities Eliminations Total

£m £m £m £m £m £m £m £m £m

Revenue: external 611.7 179.3 172.6 15.1 3.4 – 982.1 – 982.1

Revenue: inter-segment – 0.3 – – – – 0.3 (0.3) –

Operating profit/(loss) before amortisation and non-recurring costs 12.2 6.9 7.1 0.8 (0.9) (3.7) 22.4 – 22.4

Share of net (loss)/profit of equity accounted joint ventures – – (0.2) – 0.5 – 0.3 – 0.3

Profit/(loss) from operations before amortisation and non-recurring costs 12.2 6.9 6.9 0.8 (0.4) (3.7) 22.7 – 22.7

Amortisation of intangible assets (0.3) – – (2.5) – – (2.8) – (2.8)

Non-recurring costs (1.7) – (0.2) – – – (1.9) – (1.9)

Profit/(loss) from operations 10.2 6.9 6.7 (1.7) (0.4) (3.7) 18.0 – 18.0

Net finance income 0.4 0.4

Profit before income tax expense 18.4 18.4

Inter-segment sales are charged at prevailing market prices.



1 Business segments continued

Unaudited for the six months to 30 June 2009 (restated)


£m £m £m £m £m £m £m £m £m

Revenue: external 797.0 159.6 178.1 5.4 0.5 – 1,140.6 – 1,140.6

Revenue: inter-segment 3.9 – – – – – 3.9 (3.9) –

Operating profit/(loss)before amortisation 15.0 7.4 7.1 (1.3) (2.0) (2.8) 23.4 – 23.4

Share of net profit of equity accounted joint ventures – – – 0.2 – – 0.2 – 0.2

Profit/(loss) from operations before amortisation 15.0 7.4 7.1 (1.1) (2.0) (2.8) 23.6 – 23.6









1 Business segments continued

Year ended 31 December 2009 (restated)


£m £m £m £m £m £m £m £m £m

Revenue: external 1,513.2 291.2 373.8 31.9 3.4 – 2,213.5 – 2,213.5Revenue: inter-segment 13.1 – – – 6.1 – 19.2 (19.2) –

Operating profit/(loss) before amortisation 30.1 13.8 14.9 0.6 (3.0) (6.0) 50.4 – 50.4

Share of net profit of equity accounted joint ventures – – – 0.1 – – 0.1 – 0.1

Profit/(loss) from operations before amortisation 30.1 13.8 14.9 0.7 (3.0) (6.0) 50.5 – 50.5






2 Income tax expense

Income tax for the six month period is charged at 29.0% (2009: 28.8%), being the estimated annual effective tax rateexpected for the full financial year, applied to the profit before income tax expense excluding the share of netprofit/loss of equity accounted joint ventures for the six month period (which are stated net of income tax).



3 Dividends

Amounts recognised as distributions to equity holders in the period:


£m £m £m

Interim dividend in place of a final dividend for the year ended 31 December 2009 of 30.0p (2008: final dividend of 30.0p) per share 12.7 12.7 12.7

Interim dividend for the year ended 31 December 2009 of 12.0p per share – – 5.0

12.7 12.7 17.7

Proposed interim dividend:


£m £m £m

Interim dividend in place of a final dividend for the year ended 31 December 2009 of 30.0p – – 12.7

Interim dividend for the period to 30 June 2010 of 12.0p (2009: 12.0p) per share 5.2 5.2 –

The proposed interim dividend was approved by the Board on 9 August 2010 and has not been included as a liabilityat 30 June 2010.

The interim dividend of 12.0p (2009: 12.0p) per share will be paid on 17 September 2010 to shareholders on theregister at 20 August 2010. The ex-dividend date will be 18 August 2010.

4 Earnings per share

There are no discontinued operations in either the current or comparative periods.

The calculation of the basic and diluted earnings per share is based on the following data:


Earnings £m £m £m

Earnings before taxation 18.4 20.5 44.7Deduct: taxation expense per the income statement (5.3) (5.9) (11.8)Add back: non-controlling interests – – 0.1

Earnings for the purpose of basic and dilutive earnings per share being net profit attributable to equity holders of the parent company 13.1 14.6 33.0

Add back:pre-tax amortisation expense 2.8 3.4 6.8non-recurring costs 1.9 – –

Earnings for the purposes of adjusted basic and dilutive earnings per share being net profit attributable to equity holders of the parent company adjusted for amortisation expense and non-recurring costs 17.8 18.0 39.8




4 Earnings per share continued


Number of shares No. 000’s No. 000’s No. 000’s

Weighted average number of ordinary shares for the purposes of basic earnings per share 42,383 42,236 42,281

Effect of dilutive potential ordinary shares:Share options 43 142 92Conditional shares not vested 382 332 332

Weighted average number of ordinary shares for the purposes of diluted earnings per share 42,808 42,710 42,705


Basic and diluted earnings per share: Basic earnings per share 30.9p 34.6p 77.9pDiluted earnings per share 30.6p 34.2p 77.1p

Basic and diluted earnings per share adjusted for amortisation expenseand non-recurring costs:Basic earnings per share 42.0p 42.6p 93.9pDiluted earnings per share 41.6p 42.1p 93.0p

A total of 3,604,457 share options that could potentially dilute earnings per share in the future were excluded fromthe above calculations because they were anti-dilutive at 30 June 2010 (June 2009: 2,970,893; December 2009:2,820,160).

5 Acquisition of subsidiaries

On 30 June 2010, the Group acquired 100% of the issued ordinary share capital of Powerminster Gleeson ServicesLimited (renamed Lovell Powerminster Limited) for cash consideration of £4.8m (net of £1.8m of cash acquired),which included £0.8m for a non-compete agreement. The transaction has been accounted for using the purchasemethod of accounting. In addition to the non-compete agreement, provisional goodwill of £4.3m has arisen on thetransaction.

In the period, the Group acquired the investments of its partners in three joint ventures for a consideration of £2.6m(net of £1.9m cash acquired). These companies are now wholly owned subsidiaries and are no longer accounted forusing the equity method. No goodwill arose on these transactions.

At 30 June 2010 certain fair value adjustments in relation to these acquisitions are subject to finalisation.



6 Cash flows from operating activities


£m £m £m

Cash flows from operating activitiesProfit from operations for the period 18.0 20.2 43.7Adjusted for:Amortisation of fixed life intangible assets 2.8 3.4 6.8Share of net profit of equity accounted joint ventures (0.3) (0.2) (0.1)Depreciation of property, plant and equipment 4.5 5.0 9.3Expense in respect of share options 1.1 1.3 1.0Defined benefit plan payment (0.3) (0.3) (0.7)Defined benefit plan charge 0.1 0.1 0.3(Gain)/loss on disposal of property, plant and equipment (0.4) 0.2 (0.4)Increase in shared equity loan receivables (2.4) – (9.0)Write downs in work in progress recognised as an expense – – 1.0(Decrease)/increase in provisions (0.2) 1.3 (1.5)

Operating cash flows before movements in working capital 22.9 31.0 50.4

Decrease in inventories 6.3 4.9 29.1(Increase)/decrease in receivables (106.6) (60.0) 62.3Increase/(decrease) in payables 125.5 2.0 (122.7)

Movements in working capital 25.2 (53.1) (31.3)

Cash generated/(utilised) from operations 48.1 (22.1) 19.1

Income taxes (paid)/received (3.4) 8.0 7.7Interest paid (0.6) (1.1) (1.8)

Net cash inflow/(outflow) from operating activities 44.1 (15.2) 25.0

Additions to leased property, plant and equipment during the period amounting to £0.7m (2009: £2.0m) and additions to leasehold property amounting to £nil (2009: £0.2m) were financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

7 Contingent liabilities

Group banking facilities and surety bond facilities are supported by cross guarantees and indemnities given by theCompany and participating companies in the Group. There are contingent liabilities in respect of bonds, guaranteesand claims under contracting and other arrangements, including joint arrangements and joint ventures entered intoin the normal course of business.




8 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated onconsolidation and are not disclosed in this note. Transactions between the Group and its jointly controlled entities aredisclosed below.

Trading transactionsDuring the period, Group companies entered into transactions to provide construction and property developmentservices with related parties, all of which were joint ventures, not members of the Group.

Transactions and amounts owed in the period are as follows:


£m £m £m

Provision of goods and services to related parties 21.5 15.1 31.6Net amounts owed by/(owing to) related parties 1.2 (2.1) 2.3


28 Morgan Sindall Group plc Half year report 2010Responsibility statement

The directors confirm that to the best of their knowledge:

(a) the condensed consolidated financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’;

(b) 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

(c) 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

Chief Executive Finance Director9 August 2010 9 August 2010

Paul Smith David Mulligan

Responsibility statement


Designed and produced by Bostock and Pollitt Limited, London.


Morgan Sindall Group plcKent House 14–17 Market PlaceLondon W1W 8AJ020 7307 9200www.morgansindall.com

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