full year results to 31 december 2013 - morgan …...£m fy 2013 fy 2012 change % revenue 1,234...

Full year results to 31 December 2013

Morgan Sindall Group plc Constructing & Regenerating

18 February 2014

Disclaimer

2

Certain statements included or incorporated by reference in this presentation are forward-looking statements in respect of Morgan Sindall Group plc’s operations, performance, prospects and/or financial condition. These forward-looking statements speak only as at the date of this presentation. These statements concern, or may affect, future matters and include matters that are not facts. Such statements are based on current expectations and beliefs concerning future events and, by their nature, are subject to a number of known and unknown risks and uncertainties that could cause actual events, results or outcomes to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Such statements are also based on numerous assumptions regarding Morgan Sindall Group plc’s present and future strategy and the environment in which it operates, which may not be accurate. You are cautioned not to place undue reliance on these forward-looking statements. The information and opinions expressed in this presentation are subject to change without notice and neither the Company nor any other person assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained within this presentation, regardless of whether those statements are affected as a result of new information, future events or otherwise.

FY 2013 - Overview

3

• Generally tough market conditions throughout the year

Signs of increased activity and market confidence through the second half

Committed order book up 8%. Regeneration & development pipeline up 23%

• Revenue up 2%. Adjusted1 operating profit down 30%

• Margins under pressure, mainly in Construction & Infrastructure and Affordable Housing

• Strong cash management with average debt levels showing improvement on 2012. Net cash of £70m at year end

• Total dividend of 27p per share - level with last year

1 Before intangible amortisation (£2.7m) and exceptional operating items (£14.7m)

Steve Crummett Finance Director

4

Financial Review

Headline adjusted1 income statement

5

£m FY 2013 FY 2012 % change

Revenue 2,095 2,047 +2%

Gross profit1

Gross margin1

171.3 8.2%

186.7 9.1%

-8% -90bps

Operating profit1

Operating margin1

33.6 1.6%

48.1 2.3%

-30% -70bps

Net Interest (2.3) (1.0)

Profit before tax1 31.3 47.1 -34%

Tax

Effective adjusted tax rate

(5.3) 17%

(8.0) 17%

Profit after tax1 26.0 39.1 -34%

Adjusted earnings per share1 60.9p 92.0p -34%

1 Before intangible amortisation (£2.7m), exceptional operating items (£14.7m) and (in the case of earnings per share) deferred tax credit £2.5m (FY 2012: intangible amortisation (£2.9m), exceptional operating items (£10.0m) and deferred tax credit £1.5m)

Segmental analysis1

6

£m Revenue Operating Profit1

Operating Margin

FY13 % change

FY13 % change

FY13 change

Construction & Infrastructure

1,234 +6% 12.7 -36% 1.0% -70bps

Fit Out 427 -2% 10.9 -4% 2.6% Level

Affordable Housing 381 -1% 8.6 -25% 2.3% -70bps

Urban Regeneration 62 - 1.0 -63% 1.6% n/a

Investments 9 +125% 6.1 -18% 68% n/a

Central/Elims (18) - (5.7) -27% - -

Total 2,095 +2% 33.6 -30% 1.6% -70bps

1 Before intangible amortisation (£2.7m) and exceptional operating items (£14.7m) (FY 2012: intangible amortisation (£2.9m) and exceptional operating items (£10.0m))

48.1 1.1 (4.8) (19.8) 4.4

5.2 (0.6) 33.6

1.6

£m

Operating profit1 – key movements

1 Before intangible amortisation (£2.7m) and exceptional operating items (£14.7m) (FY 2012: intangible amortisation (£2.9m) and exceptional operating items (£10.0m))

7

Impact of gross margin down 90 bps to 8.2%, offset in part by effective cost management

Exceptional operating items

8

• £14.7m charge taken in period, shown as ‘exceptional’

Impairment to trade & other receivables

• Relates to four old construction contracts

• Same contracts as identified at half year

Commercial resolution achieved on one in H2

Carrying value reduced to nil on another

• Resulting adjustment of £1.7m to H1 charge of £13.0m

• Remaining two based upon revised assessment of recoverability reflecting

Commercial assessment of alternative resolutions

Expected cost, time and risk of legal remedy

• Does not compromise contractual entitlement

• Statutory profit before tax of £13.9m (FY 2012: £34.2m) and basic eps of 35.4p (FY 2012: 72.5p)

£m

0.6

1.6

Cash flow

33.6 (4.4)

(4.8)

11.9 (1.8) (1.2) 14.9

(8.4)

(1.1)

1 Before intangible amortisation (£2.7m) and exceptional operating items (£14.7m) 2 Excludes exceptional operating items (£14.7m) 3 ‘Other’ includes JV dividends and interest income £1.7m, less other movements including additional pension payments (£0.7m) & release of property dilaps provision (£2.8m)

0

• Positive operating cash flow of £14.9m

• Free cash flow of £11.9m compared to prior year outflow of £53.0m

9

Net cash and debt reconciliation

4.5

1.6

Net

cas

h £

m

50.4

11.9 (11.5)

69.7 23.6

Average daily net debt of £19m

0

• Year end net cash £70m

• Improvement in average daily net debt to £19m

• Dividend covered by free cash flow

• £140m committed bank facilities:

£110m expires in Sept 15

£15m expires in May 16

£15m expires in Sept 16

• Investments in Urban Regen and Affordable Housing (mixed-tenure)

Increase average net debt and interest charge in 2014

1 Includes proceeds from disposals of Access for Wigan £6.6m, Miles Platting PFI £8.2m and Tayside £8.8m 2 Other includes net loans to JVs (£3.6m), ISIS deferred consideration payment (£1.3m) and proceeds from issue of shares £0.2m

10

(4.7)

Balance sheet

11

£m FY 2013 FY 2012

Intangibles 220.5 223.2

PP&E 18.3 20.1

Investments (incl JVs) 64.4 73.9

Shared equity loan receivables 19.7 19.2

Net working capital (67.0) (60.7)

Current and deferred tax (21.3) (24.2)

Pension scheme - (1.5)

Net cash 69.7 50.4

Other 1 (47.3) (51.1)

Net assets 257.0 249.3

1 ‘Other’ includes provisions, finance lease liabilities, deferred consideration and assets held for sale

Key movements: • Reduction in investments driven

by disposals

• Reported net working capital of (£67.0m) reflects £14.7m non-cash exceptional impairment to trade & other receivables

Underlying net working capital

increased by £8.4m to (£52.3m)

Reduction in payables

Order book and regeneration & development pipeline

12

£m

322

322 322


Fit Out

Affordable Housing

Urban Regeneration

500

1,000

2014 2015 2016

£1.3bn

£0.5bn

£0.2bn

£0.4bn for 2017 +

1 Includes the appropriate share of joint venture pipeline

• Committed order book of £2.4bn, up 8% from FY 2012

• £1.3bn covered for 2014

• Regeneration & development pipeline1 of £3.0bn, up 23% from FY 2012

Includes development value of open market housing schemes

Increase driven by new wins in Affordable Housing

50% of pipeline expected to be developed in next five years to 2018

Order Book

John Morgan Chief Executive

13

Strategic and Operational Review

14

Construction Regeneration

Construction

& Infrastructure

Fit Out

Affordable

Housing Construction

Affordable

Housing Mixed-tenure

Urban

Regeneration

Investments

Group strategy

Cons 60%

Strategic focus on:

• Two distinct business activities in ‘Construction’ and ‘Regeneration’

Cash generation from Construction to invest in longer term Regeneration

• Maximising returns from existing schemes - regeneration developments and construction frameworks

• Complex construction and development schemes which require an integrated ‘Group’ approach


15

£m FY 2013 FY 2012 Change %

Revenue 1,234 1,168 +6%

Operating profit1 12.7 19.7 -36%

Margin % 1.0% 1.7% -70bps

1 Adjusted, before intangible amortisation and exceptional operating items

• Market remains competitive, although second half saw increasing overall level of activity

Margin impacted by competitive pressure and cost inflation (in H2)

• Order book of £1.5bn, down 1% from FY 2012

Continued focus on stringent bid selection

• Construction 56% of revenue, Infrastructure 44%

• Strategic market focus

Transport (28% revenue) – strong progress in Road, Rail, Aviation

Education (26% revenue) & Water (14% revenue)

Energy – small but strategic; underpinned by Sellafield ISA


16

Outlook

• Focus on higher returns through strategic alliances, frameworks and inter-Group opportunities

• General increased levels of activity and bidding

Upward pressure on supply chain costs & skills availability

Risk management of contractual terms and conditions remains critical

Heathrow Runway Rehabilitation Project

• Expertise in challenging environments

• £31m contract to repair and replace existing wearing course on southern and northern runways

• Work on southern runway completed in 2013

• Activity on northern runway scheduled for 2014

Fit Out

17

• Market conditions broadly stable through the year

Increasing confidence in Q4

• Price sensitive market, but margins held level with last year at 2.6%

• Order book of £142m, down 16% since 2012

Not representative of high level of current good quality prospects pending awards

• Strongly focused on London (74% of revenue) and Commercial Office sector (88% of revenue)

Other opportunities in higher education and retail banking

Higher margin design-led fit out projects & workplace consultancy


Revenue 427 437 -2%


Margin % 2.6% 2.6% -

1 Adjusted, before intangible amortisation

Fit Out

18

PwC Embankment Place HQ

• Refurbishment of iconic Embankment Place, London

• Carried out over 93 weeks with over 50% of staff still working uninterrupted in building

• Achieved landmark BREEAM1 Outstanding rating

Outlook

• Measured market recovery anticipated in 2014 and beyond

Driven by lease expiries and London commercial activity

• Improving profitable pipeline of opportunities

Well placed to benefit

1 BREEAM = Building Research Establishment Environmental Assessment Method

Affordable Housing

19

• Mixed performances within overall portfolio of activities

• Regeneration activities (28% of revenue)

Comprises mixed-tenure schemes including open market housing developments

Regeneration & development pipeline of £715m, up 102%

Includes key strategic development £269m Woolwich Estates

4,300 open market housing plots

• Construction & Services activities (72% of revenue)

Comprises new build housing contracting and planned and response maintenance

Order book of £581m, up 25%


Revenue 381 386 -1%


Margin % 2.3% 3.0% -70bps


Affordable Housing

20

Planned Maintenance

30%

New Build Housing

Contracting 24%

Regeneration Mixed-Tenure

28%

Response Maintenance

18%

% of revenue

Planned Maintenance

25%

New Build Housing

Contracting 19%

Regeneration Mixed-Tenure

44%

Response Maintenance

12%

Regeneration Activities

• Strategic focus on complex regeneration mixed-tenure schemes. 44% of divisional gross margin

Driven by house completions up 36% on 2012 and ASP of £177k, up 14% on FY 2012 average

Construction & Services

• New Build Housing Contracting

Revenue and margins down; highly competitive

Increase in material & subcontractor costs in H2

• Planned Maintenance

Revenue flat in declining market due to end of Decent Homes programme

• Response Maintenance

Margins squeezed due to lower volumes

Investment in infrastructure and overhead

% of gross margin

Affordable Housing

21

Beacon Barracks, Stafford

• In addition to the year end order book as awarded in January 2014

• New Build Housing Contracting - £51m contract to build 346 new homes for MOD

• Complete by Summer 2015 when troops from 16 Signal Regiment and 1 Armoured Division Signal Regiment will move to Beacon Barracks allowing the closure of Rhine Garrison in Germany

Outlook

• Develop the existing portfolio of higher margin mixed-tenure schemes

Increased investment in working capital (mainly mixed-tenure inventory) in 2014 to deliver profits in 2015 and beyond

• Manage cost inflation pressures – materials & subcontractors

• On-going investment in infrastructure in Response Maintenance

Urban Regeneration

22


Capital employed 76 64 +19%

Revenue 62 62 -


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

• 35 active projects, with increased activity on-site

Profit in year lower due to timing of profit recognition on mix of schemes

Improved visibility of future returns

• Regeneration pipeline level at c£2bn, with order book up 120%

• Capital employed of £76m

• Will increase through 2014, with more sites becoming active

1 Adjusted, before intangible amortisation

Urban Regeneration

23

Basing View, Basingstoke

• Agreement signed with John Lewis Partnership to deliver a 113,000 sq ft combined Waitrose and John Lewis at Home store

• Planning approval now being sought

• Construction programme to commence in spring 2014

Commercial Offices

23%

Retail 14%

Leisure 5%

Residential 42%

Other 16%

Pipeline1 < 1 year

1 Includes the appropriate share of joint venture pipeline

Outlook

• Current pipeline well-spread across all sectors

Residential – 3,600 plot units

• Significantly increased profit expected as schemes mature

Benefit from market improvements in 2014 and beyond

Increased working capital investment as schemes become active

Investments

24

£m FY 2013 FY 2012

Operating profit1 6.1 7.4

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

13.8 32.0

Current carrying value 12.8 18.2

• Maximise construction opportunities for Group from existing frameworks and schemes

Slough and Bournemouth LABVs delivering inter-group opportunities

Pipeline of opportunities following similar partnership models

Experience in public sector healthcare and education sector projects

• Recycling capital through three successful realisation of interests

Profit on disposals in year of £9.9m

Lower profit contribution from disposals going forward


FY 2013 Summary and Outlook

25

FY 2013

Outlook

• Generally difficult market conditions, although some improvement seen in H2

• Margins impacted by competitive pressures

• Positive operating cash generation allowing further investment in assets, skills & resources

• Total dividend held level with prior year

• Focus on maximising returns from existing frameworks and development schemes

• Seek opportunities to differentiate – integrated ‘Group’ approach

• Improving conditions in some markets

• Additional challenge of supply chain inflation

• Order book supports delivery of future growth

Questions

26

Appendices

27

£m

0.6

1.6

Cash flow – FY 2012

48.1 (8.6)

(3.5)

(53.0)

(2.2)

(8.1)

(42.7)

(76.9)

(1.8)

1 Before intangible amortisation and exceptional items 2 ‘Other’ includes JV dividends and interest income of £2.8m, less other movements including additional pension payments of £0.6m

0

28

Urban Regeneration Order book, regeneration pipeline and preferred bidder

29

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

Remaining

GDV £m* 2014 2015 2016 2017 2018 2019

Aberdeen Office 90

Basingstoke Office / retail 190

Blackpool Office / leisure 70

Chester CBQ Office / residential 140

Lewisham Gateway Residential 200

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

Logic Leeds Distribution 100

Manchester Victoria Office / residential 160

Stockton Office / residential 130

Reading - Chatham Square Residential 40

Stockport Grand Central Car park, offices and hotel 140

South Shields Car park, leisure and retail 100

Swindon Office / residential 280

Other Projects (10) Various 130

Joint Ventures (3) Various 70

Strategic Partnerships Various 240

Preferred Bidder Various 340

2,440

full year results to 31 december 2013 - morgan …...£m fy 2013 fy 2012 change % revenue 1,234...

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